HomeMy WebLinkAboutAgenda Report - October 6, 2010 J-01AGENDA ITEM I
CITY OF LODI
COUNCIL COMMUNICATION
im
AGENDATITLE: Adopt Resolutions of the City Council and the Lodi Public Financing Authority to
Approve the Issuance of Water Revenue Bonds and Related Documents in an
Amount Not to Exceed $45 Million in Order to Construct the Surface Water
Treatment Facility
MEETING DATE:
PREPARED BY:
October 6,2 010
Interim City Manager
RECOMMENDED ACTION: Adopt Resolutions of the City Council and the Lodi Public Financing
Authority to approve the issuance of water revenue bonds and
related documents in an amount notto exceed $45 million in
order to construct the Surface Water Treatment Facility.
BACKGROUND INFORMATION: The 2010 Water Revenue Bonds are being sold to finance
construction of the Surface Water Treatment Facility. The Treatment
Facility is designed to pump water from the Mokelumne River, treat
and deliver it to the City's existing water distribution system. The Treatment Facility is expected to
provide 8 mgd of firm capacity (10 mgd peak capacity) of treated water that would meet or exceed State
and federal drinking water standards. Major components of the Treatment Facility include a rawwater
pump station and pipeline; operations building; chemical building;treatmentworks (sedimentation basin,
strainers, feed pumps, and membranes); control systems and related facilities and equipment.
Four major buildingswill be constructed to house the treatment plant facilities. These include the
operations building, chemical storage building, raw water pump station, and high service pump station.
The initial plant construction is designed to treat 8 mgd. All facilities are designed to accommodate for a
future expansion of the treatment plant to 20 mgd.
A 3-million-gal Ion storage tank and booster pumping facility will discharge the treated water on demand
into the large diameter transmission mains constructed along with the treatment plant.
The estimatesfor the capital cost of the Treatment Facilitywill be approximately $36.5 million, consisting
of approximately $27.5 million on site acquisition, construction costs, fees and testing costs,
approximately $4.4 million in equipment, $900,000 in engineering costs, and a contingency of
approximately $3.7 million.
SUMMARY OF DOCUMENTS: In order to complete this financing, the City and the Lodi Public Financing
Authority ("PFA) are requiredto approve and execute several key legal documents. The key documents
are summarized below.
APPROVED:
KonraBartlam, Interim City Manager
Resolutions: The Resolutions of the City and the PFA approve the issuance of the proposed bonds,
the execution of the proposed legal documents and the distribution of the Official Statement to investors.
While the documents are in near -to -final form, the Resolutions authorize certain officers of the City and the
PFA to make amendments, as necessary. The Resolutions specify the maximum principal amount for the
bonds, maximum borrowing cost and maximum underwriter's discount.
Official Statement: This document, approved and signed by the City and PFA, most importantly
describes (i) the term of the bonds ("THE SERIES 2010 BONDS"), (ii) the securityfor the bonds
("SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2010 BONDS), (iii) the improvements
being financed with the bonds ("PLAN OF FINANCE and "THE TREATMENT FACILITY"), (iv) the City's
Water System ("THE WATER SYSTEM"), which is the source of repayment for the bonds, (v) potential
risks to prospective investors ("RISK FACTORS"), (vi) tax status of interest on the bonds ("TAX
MATTERS) and (vii) economic and demographic characteristics of the City (Appendix C). The
Preliminary Official Statement (often referred to as the "POS") is distributed by the underwriterto
prospective investors prior to the bond sale so that investors can make informed purchase decisions. It
is the equivalent of a prospectus in the private sector. A Final Official Statement is sent to purchasers
after the terms of the sale are finalized.
The distribution of the POS is subject to federal securities laws, including the Securities Act of
1933 and the Securities Exchange Act of 1934. These laws requirethe POS to include all facts that
would be material to an investor in the bonds. Material information is informationthat there is a
substantial likelihood would have actual significance in the deliberations of the reasonable investorwhen
deciding whether to buy or sell the bonds.
The Securities and Exchange Commission (the "SEC"), the agency with regulatory authority over
the City and the PFAs compliance with the federal securities laws, has issued guidance as to the duties
of the City Council and the PFAs Board of Directors with respect to their approval of the POS. In its
"Report of Investigation in the Matter of County of Orange, California as it Relates to the Conduct of the
Members of the Board of Supervisors" (Release No. 36761 / January 24, 1996) (the "Release"), the SEC
stated that, if a member of the City Council/Board of Directors has knowledge of any facts or
circumstances that an investorwould want to know about priorto investing in the bonds, whether relating
to their repayment, tax-exempt status, undisclosed conflicts of interestwith interested parties, or
otherwise, he or she should endeavor to discoverwhether such facts are adequately disclosed in the
POS. In the Release, the SEC stated that the steps that a member of the City Council/Board of Directors
could take include becoming familiar with the POS and questioning staff and consultants about the
disclosure of such facts.
Continuing Disciosure Certificate: This certificate, attached as as; appendix of the Official
Statement, outlines the updated information related to the security that the City will agree to provide to
the bond markets on an ongoing basis. Disclosure is required annually, and on an exceptional basis for
any major "material" developments.
Bond Purchase Contract: This contract is executed among the City, the PFA and the underwriter
(Stone & Youngberg) on the day of the bond sale. It specifies the actual principal amounts, interest rates
and prices at which the bonds will be sold. Within the contract, the underwriter commits to purchase the
bonds at closing and the PFA commits to sell the bonds at the agreed upon prices and amounts subject
to certain closing conditions. Closing conditions generally relate to the execution and validity of all the
required documents and the absence of material changes in the nature of the security, etc.
Installment Sale Agreement: This is the key legal document between the City and the PFA that
lays out the terms for leveraging the Water System revenues to finance improvements to the Water
System. Pursuant to this agreement, the City agrees to make installment payments to the PFA as the
acquisition price of the financed improvements (the PFA assigns its right to receive these installment
payments to the bond trustee pursuantto the Indenture of Trust described below).
The InstallmentSale Agreement will specify
• the net revenues of the Water System specifically pledged to the installment payments (the
City is not obligated to make the installment payments from any other City funds)
• the uses of the Water System's gross revenues: briefly, gross revenues are first used to pay
operation and maintenance expenses and then to pay the installment payments and any
future debt
• the promise of the City to charge sufficient rates to Water System customers to pay operation
and maintenance expenses, the installment payments and any future debt with a sufficient
coverage cushion (the "rate covenant")
• the terms underwhich additional Water System debt can be issued to finance additional
capital improvements to the Water System.
Indenture of Trust: This is the legal document between the PFA and a corporate bank (as trustee
for the bond owners) that lays out the terms of the bonds. It will specify
• the payment dates and maturities of the bonds
• the pledge of installmentsale revenues to the bonds
• the default and remedy provisions (in the event that something goes wrong)
• redemption and defeasance provisions, in the event that the bonds are pre -paid.
In general, the PFA is a conduit for the installment payments paid by the City to the bond owners.
The PFA has no obligation to pay debt service on the bonds from any source of funds other than
the installment payments made by the City.
Market Conditions: Attached to this communication is an overview of current market conditions for both
the Tax -Exempt Bond Market and Build America Bonds prepared by Stone & Youngberg. For purposes
of presenting the City's proposed financing to the rating agencies, Stone & Youngberg has assumed
current market rates for an "A -rated water credit plus a 25 basis point (0.25 percent) interest rate
cushion. These assumptions produce an estimated borrowing cost of approximately 5.16 percent. The
actual rates will depend upon the rating received on the City's bonds, the market conditions at the time of
pricing and the potential use of bond insurance. The City's managementteam made rating presentations
to Standard & Poor's as well as Moody's on September 20". At the time of packet deadline, the ratings
have not been issued. We will provide the City Council this information via blue sheet updatewhen we
receivethe information.
FISCAL IMPACT: The estimated debt service for this bond issuance is $2.65 million annually.
The water utility has no other debt obligation or anticipated financing.
FUNDING AVAILABLE: The debt service for this project has been anticipated within the water utility
financial plan.
Konradt Bartlam
Interim City Manager
Attachments: Memorandum dated September 22,2010 from Stone& Youngberg
Draft City Council Resolution
Draft Lodi Public Financing Authority Resolution
RESOLUTION NO. 2010-
A RESOLUTION OF THE LODI CITY COUNCIL AUTHORIZING
DOCUMENTS AND OFFICIAL ACTIONS RELATING TO THE
INSTALLMENT SALE FINANCING OF WATER SYSTEM
IMPROVEMENTS AND THE ISSUANCE AND SALE CF WATER
REVENUE BONDS BY THE LODI PUBLIC FINANCING
AUTHORITY
WHEREAS, the City of Lodi (the "City") owns and operates facilities and property
for the supply, treatment and distribution of water within the service area of the City (the
"Water System"); and
WHEREAS, in order to provide funds to finance the acquisition and construction
of additional improvements to the Water System (the "Water Projects"), the Authority
proposes to issue its 2010 Water Revenue Bonds (the "Bonds") under the provisions of
Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of
California, commencing with Section 6584 of said Code (the "Bond Law"); and
WHEREAS, in order to provide revenues which are sufficient to pay debt service
on the Bonds, the Authority proposes to sell the completed Water Projects to the City
under an Installment Sale Agreement for a purchase price to be paid by the City in
semiannual installments during the term of the Bonds; and
WHEREAS, the obligations of the City under the proposed Installment Sale
Agreement will be secured by a pledge of and lien on the net revenues of the Water
System; and
WHEREAS, the City Council wishes at this time to take action approving such
financing transactions and all related documents and actions;
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Lodi as
follows:
Section 1. Approval of Financing Plan; Authorization of Bonds. The City Council
hereby approves the financing plan described in the recitals of this Resolution. To that
end, the City Council hereby approves the issuance of the Bonds by the Authority under
the Bond Law in the aggregate principal amount of not to exceed $45,000,000.
Section 2. Approval of Installment Sale Agreement. The City Council hereby
approves the Installment Sale Agreement between the Authority and the City, under
which the Authority agrees to sell the completed Water Projects to the City for a
purchase price to be paid in semiannual installment payments. As provided in the
Installment Sale Agreement, the installment payments thereunder shall be payable from
and secured by a pledge of and lien on the net revenues of the Water System.
The Installment Sale Agreement is hereby approved in substantially the form on
file with the City Clerk together with any changes therein or additions thereto deemed
advisable by the City Manager or the Deputy City Manager/Internal Services Director
(each, an "Authorized Officer"). An Authorized Officer is hereby authorized and directed
for and in the name and on behalf of the City to execute, and the City Clerk is hereby
authorized and directed to attest, the final form of the Installment Sale Agreement, and
such execution shall be conclusive evidence of the approval of the final form thereof.
Section 3. Sale of Bonds; Approval of Bond Purchase Agreement. The City
Council hereby approves the negotiated sale of the Bonds by the Authority to Stone &
Youngberg LLC (the "Underwriter'). The Bonds shall be sold upon the terms and
conditions set forth in the Bond Purchase Agreement in substantially the form on file with
the City Clerk together with any changes therein or additions thereto deemed advisable
by an Authorized Officer. As provided in the resolution of the Board of Directors of the
Authority authorizing the issuance and sale of the Bonds, the true interest cost of the
Bonds shall not exceed 6.0% and the maximum amount of Underwriter's discount on the
sale of the Bonds shall not exceed 0.85% of the par amount of the Bonds; provided,
however, (i) if an Authorized Officer, after consultation with the City's bond counsel and
financial advisor and the Underwriter, concludes that it will be economically beneficial to
the City for the Authority to issue all or a portion of the Bonds as taxable bonds under the
Build America Bonds program created by the American Recovery and Reinvestment Act
of 2009, then the Bonds (or a portion of the Bonds, in a second series) may be issued as
taxable bonds, and the true interest cost of such taxable bonds shall not exceed 8.5%.
The final form of the Bond Purchase Agreement shall be executed in the name and on
behalf of the City by an Authorized Officer.
Section 4. Official Statement. The City Council hereby approves and deems
nearly final within the meaning of Rule 15c2-12 of the Securities Exchange Act of 1934,
the Preliminary Official Statement describing the Bonds in the form on file with the City
Clerk, together with such modifications thereof as may be approved by an Authorized
Officer. An Authorized Officer is hereby authorized and directed to (a) execute and
deliver to the purchaser of the Bonds a certificate deeming the Preliminary Official
Statement to be nearly final as of its date within the meaning of such Rule, (b) approve
any changes in or additions to cause the Official Statement to be put in final form, and (c)
execute the final Official Statement for and in the name and on behalf of the City. The
City Council hereby authorizes the distribution of the Preliminary Official Statement and
the Final Official Statement by the Underwriter.
Section 5. Official Actions. The Mayor, the City Manager, the Deputy City
Manager/Internal Services Director, the City Clerk, the City Attorney and all other officers
of the City are each authorized and directed in the name and on behalf of the City to
make any and all assignments, certificates, requisitions, agreements, notices, consents,
instruments of conveyance, warrants and other documents, which they or any of them
might deem necessary or appropriate in order to consummate any of the transactions
contemplated by the agreements and documents approved under this Resolution,
including any documentation relating to municipal bond insurance if an Authorized Officer
concludes, after consultation with the City's bond counsel, the City's financial advisor and
the Underwriter, that it would be cost-effective to purchase such insurance. Whenever in
this Resolution any officer of the City is authorized to execute or countersign any
document or take any action, such execution, countersigning or action may be taken on
behalf of such officer by any person designated by such officer to act on his or her behalf
in case such officer is absent or unavailable.
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Section 6. Effective Date. This Resolution shall take effect immediately upon its
passage and adoption.
Dated: October 6, 2010
I hereby certify that Resolution No. 2010- was passed and adopted by the
City Council of the City of Lodi in a regular meeting held October 6, 2010, by the following
vote:
AYES: COUNCIL MEMBERS —
NOES: COUNCIL MEMBERS —
ABSENT: COUNCIL MEMBERS —
ABSTAIN: COUNCIL MEMBERS —
RANDIJOHL
City Clerk
2010-
-3-
RESOLUTION NO. 2010-
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE
LODI PUBLIC FINANCING AUTHORITY AUTHORIZING THE
ISSUANCE AND SALE OF WATER REVENUE BONDS TO
FINANCE THE CONSTRUCTION OF WATER SYSTEM
IMPROVEMENTS, AND APPROVING RELATED DOCUMENTS
AND OFFICIAL ACTIONS
WHEREAS, the City of Lodi (the "City") owns and operates facilities and property
for the supply, treatment and distribution of water within the service area of the City (the
"Water System"); and
WHEREAS, in order to provide funds to finance the construction of additional
improvements to the Water System (the "Water Projects"), the Lodi Public Financing
Authority (the "Authority") proposes to issue its 2010 Water Revenue Bonds (the
"Bonds") under the provisions of Article 4 of Chapter 5, Division 7, Title 1 of the
Government Code of the State of California, commencing with Section 6584 of said Code
(the "Bond Law"); and
WHEREAS, in order to provide revenues which are sufficient to pay debt service
on the Bonds, the Authority proposes to sell the completed Water Projects to the City
under an Installment Sale Agreement, for a purchase price to be paid by the City in
semiannual installments during the term of the Bonds; and
WHEREAS, the Authority proposes to sell the Bonds on a negotiated basis to
Stone & Youngberg LLC, as underwriter (the "Underwriter'); and
WHEREAS, the Board of Directors of the Authority wishes at this time to take
action approving such financing transactions and all related documents and actions;
NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Lodi
Public Financing Authority as follows:
Section 1. Approval of Financing Plan; Authorization of Bonds. The Board of
Directors hereby approves the financing plan described in the recitals of this Resolution.
To that end, the Board of Directors hereby authorizes the issuance of the Bonds under
the Bond Law in the aggregate principal amount of not to exceed $45,000,000.
Section 2. Approval of Related Financing Agreements. The Board of Directors
hereby approves each of the following agreements required to implement the financing
plan to be accomplished by the Bonds, in substantially the respective forms on file with
the Secretary together with any changes therein or additions thereto deemed advisable
by the Executive Director or the Treasurer (each, an "Authorized Officer"), and the
execution thereof by an Authorized Officer shall be conclusive evidence of the approval of
any such changes or additions.
(a) Indenture of Trust between the Authority and The Bank of New York
Mellon Trust Company, N.A., as trustee, prescribing the terms and
conditions upon which the Bonds will be issued.
(b) Installment Sale Agreement between the Authority and the City,
under which the Authority agrees to sell the completed Water
Projects to the City in consideration of semiannual installment
payments.
(c) Bond Purchase Agreement among the Authority, the City and the
Underwriter, under which the Underwriter agrees to purchase the
Bonds from the Authority.
An Authorized Officer is hereby authorized and directed for and in the name and
on behalf of the Authority to execute, and the Secretary is hereby authorized and directed
to attest the final form of each of the foregoing agreements, and such execution shall be
conclusive evidence of the approval of the final form thereof.
Section 3. Sale of Bonds. The Board of Directors hereby approves the
negotiated sale of the Bonds to the Underwriter. The Bonds shall be sold upon the terms
and conditions set forth in the Bond Purchase Agreement which is approved under
Section 2. The Board of Directors hereby delegates to an Authorized Officer the authority
to accept an offer from the Underwriter to purchase the Bonds, provided that the true
interest cost of the Bonds shall not exceed 6.0% and the maximum amount of
Underwriter's discount on the sale of the Bonds shall not exceed 0.85% of the par
amount of the Bonds; provided, however, (i) if an Authorized Officer, after consultation
with the Authority's bond counsel and financial advisor and the Underwriter, concludes
that it will be economically beneficial to the Authority to issue all or a portion of the Bonds
as taxable bonds under the Build America Bonds program created by the American
Recovery and Reinvestment Act of 2009, then the Bonds (or a portion of the Bonds, in a
second series) may be issued as taxable bonds, and the true interest cost of such
taxable bonds shall not exceed 8.5%. The final form of the Bond Purchase Agreement
shall be executed in the name and on behalf of the Authority by an Authorized Officer.
Section 4. Official Statement. The Board of Directors hereby approves and
deems nearly final within the meaning of Rule 15c2-12 of the Securities Exchange Act of
1934, the Preliminary Official Statement describing the Bonds in the form on file with the
Secretary, together with such modifications thereof as may be approved by an
Authorized Officer. An Authorized Officer is hereby authorized and directed to (a)
execute and deliver to the purchaser of the Bonds a certificate deeming the Preliminary
Official Statement to be nearly final as of its date within the meaning of such Rule, (b)
approve any changes in or additions to cause the Official Statement to be put in final
form, and (c) execute the Final Official Statement for and in the name and on behalf of
the Authority. The Board of Directors hereby authorizes the distribution of the Preliminary
Official Statement and the Final Official Statement by the Underwriter.
Section 5. Official Actions. The Chair, the Executive Director, the Treasurer, the
Secretary, the Authority's general counsel and all other officers of the Authority are each
authorized and directed in the name and on behalf of the Authority to make any and all
assignments, certificates, requisitions, agreements, notices, consents, instruments of
-2-
conveyance, warrants and other documents, which they or any of them might deem
necessary or appropriate in order to consummate any of the transactions contemplated
by the agreements and documents approved under this Resolution, including any
documentation relating to municipal bond insurance if an Authorized Officer concludes,
after consultation with the Authority's bond counsel, the Authority's financial advisor and
the Underwriter, that it would be cost-effective to purchase such insurance. Whenever in
this Resolution any officer of the Authority is authorized to execute or countersign any
document or take any action, such execution, countersigning or action may be taken on
behalf of such officer by any person designated by such officer to act on his or her behalf
in the case such officer is absent or unavailable.
Section 6. Effective Date. This Resolution shall take effect immediately upon its
passage and adoption.
Dated: October 6, 2010
I hereby certify that Resolution No. 2010- was passed and adopted by the
Board of Directors of the Lodi Public Financing Authority in a regular meeting held
October 6, 2010, by the following vote:
AYES: BOARD MEMBERS —
NOES: BOARD MEMBERS —
:0_C111a XA:
ABSTAIN: BOARD MEMBERS —
RANDI JOHL
Secretary
2010-
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Jones Hall Draft 9-7-10
CONTINUING DISCLOSURE CERTIFICATE
LODI PUBLIC FINANCING AUTHORITY
2010 WATER REVENUE BONDS
This CONTINUING DISCLOSURE CERTIFICATE (this "Disclosure Certificate") is
executed and delivered by the CITY OF LODI (the `City"), for and on behalf of itself and the Lodi
Public Financing Authority (the "Authority"), in connection with the execution and delivery of the
bonds captioned above (the "Bonds"). The Bonds are being executed and delivered pursuant to
an Indenture of Trust, dated as of October 1, 2010 (the "Indenture"), by and between the
Authority and The Bank of New York Mellon Trust Company, N.A., as trustee.
The City covenants and agrees as follows:
Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being
executed and delivered by the City for the benefit of the holders and beneficial owners of the
Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2 -
12(b)(5).
Section 2. Definitions. In addition to the definitions set forth above and in the Indenture,
which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined
in this Section 2, the following capitalized terms shall have the following meanings:
'Annual Report' means any Annual Report provided by the City pursuant to, and as
described in, Sections 3 and 4 of this Disclosure Certificate.
"Annual Report Date" means the date that is seven months after the end of the City's
fiscal year (currently January 31 based on the City's fiscal year end of June 30).
"Dissemination Agent" means The Bank of New York Mellon Trust Company, N.A., or
any successor Dissemination Agent designated in writing by the City and which has filed with
the City a written acceptance of such designation.
"Listed Events" means any of the events listed in Section 5(a) of this Disclosure
Certificate.
"MSRB" means the Municipal Securities Rulemaking Board, which has been designated
by the Securities and Exchange Commission as the sole repository of disclosure informationfor
purposes of the Rule, or any other repository of disclosure information that may be designated
by the Securities and Exchange Commission as such for purposes of the Rule in the future.
"Official Statement" means the final official statement executed by the City in connection
with the issuance of the Bonds.
"Participating Underwriter" means Stone & Youngberg LLC, the original underwriter of
the Bonds required to comply with the Rule in connection with offering of the Bonds.
"Rule" means Rule 15c2 -12(b)(5) adopted by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as it maybe amended from time to time.
Section 3. Provision of Annual Reports.
(a) The City shall, or shall cause the Dissemination Agent to, not later than the Annual
Report Date, commencing January 31, 2011, with the report for the 2009-10 fiscal year
(provided that the first report for fiscal year 2009-10 may consist of the Official Statement and
the City's audited financial statements for fiscal year 2009-10), provide to the MSRB, in an
electronic format as prescribed by the MSRB, an Annual Report that is consistent with the
requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior
to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent
(if other than the City). If by 15 Business Days prior to the Annual Report Date the
Dissemination Agent (if other than the City) has not received a copy of the Annual Report, the
Dissemination Agent shall contact the City to determine if the City is in compliance with the
previous sentence. 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 4 of this Disclosure Certificate; provided that the audited financial statements of the
City may be submitted separately from the balance of the Annual Report, and later than the
Annual Report Date, if not available by that date. If the City's fiscal year changes, it shall give
notice of such change in the same manner as for a Listed Event under Section 5(c). The City
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 the City hereunder.
(b) If the City does not provide (or cause the Dissemination Agent to provide) an Annual
Report by the Annual Report Date, the City shall provide (or cause the Dissemination Agent to
provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in
substantially the form attached as Exhibit A.
(c) With respect to each Annual Report, the Dissemination Agent shall:
(i) determine each year prior to the Annual Report Date the then -applicable
rules and electronic format prescribed by the MSRB for the filing of annual continuing
disclosure reports; and
(ii) if the Dissemination Agent is other than the City, file a reportwith the City
certifying that the Annual Report has been provided pursuant to this Disclosure
Certificate, and stating the date it was provided.
Section 4. Content of Annual Reports. The City's Annual Report shall contain or
incorporate by reference the following:
(a) The City's 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 City's audited financial
statements are not available by the Annual Report Date, the Annual Report shall contain
unaudited financial statements in a format similar to the financial statements contained in the
final Official Statement, and the audited financial statements shall be filed in the same manner
as the Annual Reportwhen they become available.
E
(b) Unless otherwise provided in the audited financial statements filed on or before the
Annual Report Date, financial information and operating data with respect to the City for the
preceding fiscal year, substantially similar to that provided in the corresponding tables in the
Official Statement:
(i) Principal amount of Bonds outstanding as of the end of such fiscal year
(ii) Balance in the Reserve Account and a statement of the Reserve
Requirement as of the end of such fiscal year.
(iii) Updated information comparable to the information in the chart entitled
"City of Lodi Water System Number of Connections by User Type" as it appears in the
Official Statement relating to the Certificates (the "Official Statement");
(,v Updated information comparable to the information in the chart entitled
"City of Lodi Water System Largest Users by Service Charge Revenues" as it appears in
the Official Statement;
(v) Updated information for such fiscal year comparable to the information in
the table entitled "Selected Rates Effective January 1, 2011," as it appears in the Official
Statement;
(vi) Updated information for such fiscal year and the four previous fiscal years
only comparable to the information in the charts entitled "City of Lodi Water System
Historic Operating Results and Debt Service Coverage," as it appears in the Official
Statement; and
(vii) A description of any additional indebtedness incurred during the prior
fiscal year which is payable from Net Revenues on a parity with the Installment
Payments.
(c) In addition to any of the information expressly required to be provided under this
Disclosure Certificate, the City shall provide such further material 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.
(d) Any or all of the items listed above may be included by specific reference to other
documents, including official statements of debt issues of the City or related public entities,
which are availableto the public on the MSRB's Internetweb site or filed with the Securities and
Exchange Commission. The City shall clearly identify each such other document so included by
reference.
Section 5. Reporting of Significant Events.
(a) The City shall give, or cause to be given, notice of the occurrence of any of the
following events with respect to the Bonds, if material:
(1) Principal and interest payment delinquencies.
(2) Non-payment related defaults.
3
(3) Unscheduled draws on debt service reserves reflecting financial
difficulties.
(4) Unscheduled draws on credit enhancements reflecting financial
difficulties.
(5) Substitution of credit or liquidity providers, or their failure to perform.
(6) Adverse tax opinions or events affecting the tax-exempt status of the
security.
(7) Modifications to rights of security holders.
(8) Contingent or unscheduled bond calls.
(9) Defeasances.
(10) Release, substitution, or sale of property securing repayment of the
securities.
(11) Rating changes.
(b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City
shall as soon as possible determine if such event would be material under applicable Federal
securities law.
(c) If the City determines that knowledge of the occurrence of a Listed Event would be
material under applicable Federal securities law, the City shall, or shall cause the Dissemination
Agent (if not the City) to, promptly file a notice of such occurrence with the MSRB, in an
electronic format as prescribed by the MSRB. Notwithstanding the foregoing, notice of Listed
Events described in subsections (a)(8) and (9) above need not be given under this subsection
any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds
underthe Indenture.
Section 6. Identifying Information for Filings with the MSRB. All documents provided to
the MSRB under the Disclosure Certificate shall be accompanied by identifying information as
prescribed by the MSRB.
Section 7. Termination of Reporting Obligation. The City's obligations under this
Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in
full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City
shall give notice of such termination in the same manner as for a Listed Event under Section
5(c).
Section 8. Dissemination Agent. The City may, from time to time, appoint or engage a
Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate,
and may discharge any Dissemination Agent, with or without appointing a successor
Dissemination Agent. The initial Dissemination Agent shall be the Trustee. Any Dissemination
Agent may resign by providing 30 days' written notice to the City.
2
Section 9. Amendment: Waiver. Notwithstanding any other provision of this Disclosure
Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure
Certificate may be waived, provided that the following conditions are satisfied:
(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may
only be made in connection with a change in circumstances that arises from a change in legal
requirements, change in law, or change in the identity, nature, or status of an obligated person
with respect to the Bonds, or type of business conducted;
(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion
of nationally recognized bond counsel, have complied with the requirements of the Rule at the
time of the primary offering of the Bonds, after taking into account any amendments or
interpretations of the Rule, as well as any change in circumstances; and
(c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in
the manner provided in the Indenture for amendments to the Indenture with the consent of
holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair
the interests of the holders or beneficial owners of the Bonds.
If the annual financial information or operating data to be provided in the Annual Report
is amended pursuant to the provisions hereof, the first Annual Report filed pursuant hereto
containing the amended operating data or financial information shall explain, in narrative form,
the reasons for the amendment and the impact of the change in the type of operating data or
financial information being provided.
If an amendment is made to this Disclosure Certificate modifying the accounting
principles to be followed in preparing financial statements, the Annual Report for the year in
which the change is made shall present a comparison between the financial statements or
information prepared on the basis of the new accounting principles and those prepared on the
basis of the former accounting principles. The comparison shall include a qualitative discussion
of the differences in the accounting principles and the impact of the change in the accounting
principles on the presentation of the financial information, in order to provide information to
investors to enable them to evaluate the ability of the City to meet its obligations. To the extent
reasonably feasible, the comparison shall be quantitative.
A notice of any amendment made pursuant to this Section 9 shall be filed in the same
manner as for a Listed Event under Section 5(c).
Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed
to prevent the City from disseminating any other information, using the means of dissemination
set forth in this Disclosure Certificate or any other means of communication, or including any
other information in any Annual Report or notice of occurrence of a Listed Event, in addition to
that which is required by this Disclosure Certificate. If the City 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 Certificate, the City shall have no obligation
under this Disclosure Certificate to update such information or include it in any future Annual
Report or notice of occurrence of a Listed Event.
Section 11. Default. If the City fails to comply with any provision of this Disclosure
Certificate, the Participating Underwriter or any holder or beneficial owner of the Bonds may
take such actions as may be necessary and appropriate, including seeking mandate or specific
61
performance by court order, to cause the City to comply with its obligations under this
Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event
of Default under the Indenture, and the sole remedy under this Disclosure Certificate in the
event of any failure of the City to comply with this Disclosure Certificate shall be an action to
compel performance.
Section 12. Duties, Immunities and Liabilities of Dissemination Agent. (a) The
Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure
Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers,
directors, employees and agents, harmless against any loss, expense and liabilities which they
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 Dissemination Agent shall have no duty or obligation to review any information
provided to it by the City hereunder, and shall not be deemed to be acting in any fiduciary
capacity for the City, the Bond holders or any other party. The obligations of the City under this
Section shall survive resignation or removal of the Dissemination Agent and payment of the
Bonds.
(b) The Dissemination Agent shall be paid compensation by the City for its services
provided hereunder in accordance with its schedule of fees as amended from time to time, and
shall be reimbursed for all expenses, legal fees and advances made or incurred by the
Dissemination Agent in the performance of its duties hereunder.
Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of
the City, the Dissemination Agent, the Participating Underwriter and the holders and beneficial
owners from time to time of the Bonds, and shall create no rights in any other person or entity.
Section 14. Counterparts. This Disclosure Certificate may be executed in several
counterparts, each of which shall be regarded as an original, and all of which shall constitute
one and the same instrument.
Date: , 2010
AGREED AND ACCEPTED:
THE BANK OF NEW YORK MELLON
TRUST COMPANY, N.A.
as Dissemination Agent
0
Name:
Title:
7
CITY OF LODI
By:
Name:
Title:
EXHIBIT A
NOTICE OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: Lodi Public Financing Authority
Name of Issue: Lodi Public Financing 2010 Water Revenue Bonds
Date of Issuance: October—, 2010
NOTICE IS HEREBY GIVEN that the City has not provided an Annual Report with
respect to the above-named Bonds as required by the Continuing Disclosure Certificate dated
October 2010. The City anticipates that the Annual Report will be filed by
Dated:
8
DISSEMINATION AGENT:
By:
Its:
Stradling Yocca Carlson & Rauth
Draft of September 30,2010
PRELIMINARY OFFICIAL STATEMENT DATED OCTOBER , 2010
NEW ISSUE- FULL BOOK -ENTRY ONLY Ratings:
Moody's: —
S&P:_
(See "Ratings")
In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to certain qualifications
describedherein, under existing law, the intereston the Series 20104 Bonds isexcludedfrom gross incomeforfederal income taxpurposes andsuch interestis
not an item of taxpreferenceforpurposes of thefea'eral alternative minimum tax imposed on individuals and corporations. In the opinion tf Bond Counsel,
under existing law, the intereston the Series 2010B Bonds is not intended to be excluded from gross incomefar federal income = purposes. In the -further
opinion of Bond Counsel, intereston the Series 2010 Bonds is exemptfrom Californiapersonal income taxes. See TAX MATTERS "
LODI PUBLIC FINANCING AUTHORITY
$ , $ •
2010 Water Revenue Bonds, 2010 Water Revenue Bonds, Series B
Series A (Federally Taxable - Build America Bonds —Direct
Payment)
Dated: Date of Delivery Due: June 1, as set forth on the inside front cover
The $ * 2010 Water Revenue Bonds, Series A (the "Series 2010A Bonds") and $ * 2010 Water Revenue Bonds, Series
B (Federally Taxable • Build America Bonds - Direct Payment) (the "Series 2010B Bonds" and, together with the Series 2010A Bonds, the "Series 2010
Bonds") are being issued by the Lodi Public FinancingAuthority (the "Authority") pursuant to an Indenture of Trust, dated as of October 1,20 10, between the
Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee") (the "Indenture"), for the purpose of providing funds to (i) pay
the cost of a new water treatment facility (the "Treatment Facility") to treat water to be provided by the City of Lodi's water system (the "Water System"); (ii)
fund a deposit in the Reserve Account in an amount equal to the Reserve Requirement; and (iii) pay costs of issuance. See "PLAN OF FINANCING" and
"EST9viATED SOURCES AND USES OF BOND PROCEEDS."
The Series 2010 Bonds are special, limited obligationsof the Authority payable solely from Authority Revenues and all amounts (including proceeds of
the sale of the Series 2010 Bonds) held in any fund or account established under the Indenture (subject only to the provisions of the Indenture permitting the
application thereof for the purposes and on the terms and conditions set forth therein). "Authority Revenues" consist primarily of installment payments (the
"2010 Installment Payments") received by the Trustee from the City of Lodi, California (the "City") pursuant to an Installment Sale Agreement, dated as of
October 1,20 10 (the "2010 Installment Sale Agreement"), between the City and the Authority.
The 2010 Installment Sale Agreement is a special obligation of the City, payable solely from the Net Revenues of the Water System. `Wet Revenues"
means, for any period, an amount equal to all of the Gross Revenues received during such period minus the amount required to pay all Operation and
Maintenance Costs becoming payable during such period. "Gross Revenues" generally means all gross charges received for, and all other gross income and
receipts derived by the City from, the ownership and operation of the Water System or otherwise arising from the Water System.
Subject to the terms and condition of the 2010 Installment Sale Agreement, as more fully described herein, the City may enter into additional obligations
payable from Net Revenues on a parity with the 2010 Installment Payments ("Parity Debt"). See "SECURITY AND SOURCES OF PAYMENT FOR THE
SERIES 2010 BONDS - The 2010 Installment Sale Agreement -Additional Parity Debt" herein.
THE SERIES 2010 BONDS ARE NOT A DEBT OF THE CITY, THE COUNTY OF SAN JOAQUIN, THE STATE OF CALIFORNIA, OR
ANY OF ITS POLITICAL SUBDMSIONS, AND NEITHER THE CITY, THE COUNTY, THE STATE, NOR ANY OF ITS POLITICAL
SUBDIVISIONS, IS LIABLE HEREON NOR IN ANY EVENT SHALL THE SERIES 2010 BONDS BE PAYABLE OUT OF ANY FUNDS OR
PROPERTIES OF THE AUTHORITY OTHER THAN THE AUTHORITYREVENUES.
The Series 2010 Bonds are subject to redemption prior to maturity, as more fully described in this Official Statement. See "THE SERIES 2010 BONDS
-Redemption."
The Series 2010B Bonds will be issued as bonds designated as "Build America Bonds" under the provisions of the American Recovery and Reinvestment
Act of 2009 (the "Recovery Act"), the interest on which is not excluded from gross income for purposes of federal income taxation. See "TAX MATTERS."
Interest on the Series 2010 Bonds is payable semiannually on June 1 and December 1 of each year, commencing June 1,2011. The Series 2010 Bonds
are being issued in fully registered form, registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC").
DTC will act as securities depository for the Series 2010 Bonds. Individual purchases will be made in book -entry form only in denominations of $5,000 or any
integral multiple thereof. Purchasers will not receive certificates representing their beneficial ownership interest in the Series 2010 Bonds purchased. See
APPENDIX E— "DTC AND THE BOOK -ENTRY ONLY SYSTEM" hereto.
This cover page contains certain information for general reference only and is not a summary of the issue. Investors must read the entire Official
Statementto obtain information essential to the making of an informed investment decision. See "CERTAIN RISK FACTORS" for a description of certain of
the risks associated with an investment in the Series 2010 Bonds.
The Series 2010 Bonds are offered when, as and if executed and delivered to the Underwriter, subject to the approval of legality by Jones Hall, A
Professional Law Corporation, San Francisco, California, Bond Counsel to the Authority, and certain other conditions. Certain legal matters will be passed
upon for the Underwriter by StradlingYocca Carlson & Rauth, a Professional Corporation, Sacramento, California, and for the City and the Authority by the
City Attorney of the City. It is expected that the Series 2010 Bonds in definitive form will be available for delivery in New York, New York Uzough the DTC
book -entry system on or about October_, 2010.
STONE & YOUNGBERG
Dated: October_, 2010
* Preliminary; subject to change.
DOCSOC/1418056v 16/022245-0221
MATURITY SCHEDULE
$ * Series 2010A Serial Bonds
Maturity Principal Interest
June 1 Amount Rate Meld
$__-_ Yo Series2010A Term Bonds due June 1, 20_ - Yield: _._% - CUSIP
% Series 2010B Term Bonds due June 1, 20_ - Yield: _._% - CUSIP
CUSIP
No. t
* Preliminary; subjectto change.
t Copyright 2010, American Bankers Association. CUSP data herein is provided by Standard and Poor's CUSP
Service Bureau, a division of the McGraw-Hill Companies, Inc. This data is not intended to create a database and does
not serve in any way as a substitute for the CUSP service. CUSIP numbers are provided for reference only. The
Authority, the City and the Underwriter do not assume any responsibility for the accuracy of such numbers.
DOCSOC/1418056v 16/022245-022 I
CITY OF LODI, CALIFORNIA
City Council
Phil Katzakian, Mayor
Susan Hitchcock, Mayor Pro Tempore
Larry D. Hansen, Council Member
JoAnne Mounce, Council Member
Bob Johnson, Council Member
City Officials
Konradt Bartlam, Interim City Manager
Jordan Ayers, Deputy City Manager
Randi Johl, City Clerk
D. Stephen Schwabauer, City Attorney
F. Wally Sandelin, Public Works Director
LODI PUBLIC FINANCING AUTHORITY
Board of Directors
Phil Katzakian
Susan Hitchcock
Larry D. Hansen
Bob Johnson
JoAnne Mounce
SPECIAL SERVICES
Bond Counsel
Jones Hall, A Professional Law Corporation
San Francisco, California
Financial Advisor
Lamont Financial Services Corp.
Los Angeles, California
DOCSOC/1418056v 16/022245-0221
Trustee
The Bank of New York Trust Company, N.A.
San Francisco, California
Rate Consultant
The Reed Group, Inc.
Sacramento, California
Consulting Engineer
HDR, Inc.
Folsom, California
No dealer, broker, salesperson or other person has been authorized by the City, the Authority
or the Underwriter to give any information or to make any representations other than those contained
herein and, if given or made, such other information or representation must not be relied upon. 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 Series 2010 Bonds in any jurisdiction in which it is unlawful to make such
offer, solicitation or sale.
This Official Statement is not to be construed as a contract with the purchasers of the Series
2010 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or
matters of opinion, whether or not expressly so described herein, are intended solely as such and are
not to be construed as representations of fact.
The Underwriter has provided the following sentence for inclusion in this Official Statement:
The Underwriter has reviewed the information in this Official Statement in accordance with, and as a
part of, its responsibilities to investors under the federal securities laws as applied to the facts and
circumstances of this transaction, but the Underwriter does not guarantee the accuracy or
completeness of such information.
The information set forth herein has been furnished by the City and other sources which are
believed to be reliable. The information and expressions of opinion herein are subject to change
without notice and neither the delivery of this Official Statement nor any sale made hereunder shall,
under any circumstances, create any implication that there has been no change in affairs of the City
since the date hereof. This Official Statement, including any supplement or amendment hereto, is
intended to be deposited with one or more repositories.
In connection with this offering, the Underwriter may overallot or effect transactions which
may stabilize or maintain the market price of the Series 2010 Bonds at a level above that which
might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at
any time.
Certain statements included or incorporated by reference in the following information
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. No
assurance is given that actual results will meet the City's forecasts in any way. Although the City
will provide certain information annually as specifically set forth in the Continuing Disclosure
Certificate, the City does not plan to issue any updates or revisions to those forward-looking
statements if or when its expectations, or events, conditions or circumstances on which such
statements are based occur or do not occur.
The Series 2010 Bonds have not been registered under the Securities Act of 1933, as
amended, in reliance upon an exemption from the registration requirements contained in such Act.
DOCSOC/ 1418056v 16/022245-0221
TABLE OF CONTENTS
INTRODUCTION
Page
PURPOSE OF THIS OFFICIAL STATEN INT.............................................................................................................
THE CITY AND THE WATER SYSTEM...................................................................................................................
TIEAUTHORITY.................................................................................................................................................
SECURITYANDSOURCES OF PAYMENT FOR THE SERIES 2010 BONDS.................................................................
ADDITIONALOBLIGATIONS.................................................................................................................................
RATECOVENANT................................................................................................................................................
RESERVEACCOUNT.............................................................................................................................................
CONSULTMENGINEER'S REPORT AND RATE OONSULTANM REPORT.............................................................
CONTINUINGDISCLOSURE...................................................................................................................................
OTHERMATTERS.................................................................................................................................................
PLAN OF FINANCE
ESTIMATED SOURCES AND USES OF BOND PROCEEDS
THE SERIES 2010 BONDS
DESIGNATIONOF TAXABLE SERIES2010B BONDSAS BUII-DAMERICA BONDS
1
2
2
2
3
3
4
4
4
5
REDEMPTION.......................................................................................................................................................
6
NOTICEOF REDEMPTION.....................................................................................................................................
9
T OF SERIES 2010A BONDS TO BE REDEEMED..................................................................................
10
SELECTIGTOF SERIES 2010B BOMN TO BE REDEEMED...................................................................................
10
EFFECTOF REDEMPTION...................................................................................................................................
10
SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2010 BONDS
11
PLEDGEUNDER THE INDENTURE....................................................................................................................... 11
THE 2010 MFALLMENr SALE AGREEMENT..................................................................................................... 12
THE WATER SYSTEM
GENERAL...........................................................................................................................................................
GOVERNANCEANDMANAGEMENT...................................................................................................................
EMPLOYEES.......................................................................................................................................................
RETIREMENTPROGRAMS...................................................................................................................................
INSURANCE........................................................................................................................................................
WATERSYSTEM FACILITIES..............................................................................................................................
SERVICEAREA AND CUSTOMERS......................................................................................................................
RATECONSULTANT'S REPORT..........................................................................................................................
WATERRATFS AND CHARGES...........................................................................................................................
CAPITAL IMPROVEMENTPLAN..........................................................................................................................
ENVIRONMENTALREGULATIONAND COMPLIANCE...........................................................................................
CERTAIN ENVIRONMENTAL CONDITIONS..........................................................................................................
FINANCIALSTATEMENTS. ..................................................................................................................................
HISTORICALAND PROJECTED OPERATINGRESULTS..........................................................................................
THE TREATMENT FACILITY..................................................................................
CONTINUING DISCLOSURE.....................................................................................
THEAUTHORTTY.........................................................................................................
CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS
CALIFORNIA CONSTITUTIONARTICLES XIIIA AND XII1B
DOCSOC/1418056vl6/022245-0221
18
18
18
19
19
20
20
21
22
22
26
27
27
30
30
33
34
35
35
35
CALIFORNIA CONSTITUTION ARTICLES XIIIC AND XIIID................................................................................. 36
FUTUREINITIATIVES......................................................................................................................................... 38
RISKFACTORS....................................................................................................................................................... 38
LIMITEDOBLIGATIONS...................................................................................................................................... 38
RATE COVENANTNOT A GUARANTEE; FAILURE TO MEET PROJECTIONS.......................................................... 38
PARITYOBLIGATIONS....................................................................................................................................... 39
INCREASED OPERATION AND MAINTENANCE COSTS; COSTS RELATING TO TREATMENT PLANT ............_... 39
FACTORSAFFECTING CAPITAL IMPROVEMENT PROGRAM................................................................................ 39
IMPAcTFEEs..................................................................................................................................................... 40
CONSULTINGENGINEER'SREPORT AND RATE CONSULTANT'S REPORT........................................................... 40
REMEDIATIONCOSTS........................................................................................................................................ 40
STATUTORYAND REGULATORY IMPACT........................................................................................................... 41
NATURALCALAMITIES...................................................................................................................................... 41
LIMITEDRECOURSE ON DEFAULT..................................................................................................................... 41
EFFECTOF BANKRUPTCY.................................................................................................................................. 42
LOSSOF TAX EXEMPTION................................................................................................................................. 42
SECONDARYMARKET....................................................................................................................................... 42
TAXMATTERS........................................................................................................................................................ 42
SERIES2010ABONDS....................................................................................................................................... 42
SERIES2010B BONDS........................................................................................................................................ 44
LITIGATION............................................................................................................................................................ 44
APPROVAL OF LEGALITY.................................................................................................................................. 45
RATINGS................................................................................................................................................................... 45
FINANCIALADVISOR........................................................................................................................................... 45
UNDERWRITING.................................................................................................................................................... 45
EXECUTION AND DELIVERY............................................................................................................................. 46
APPENDIXA - CONSULTING ENGINEER'S REPORT ................................................................................ A-1
APPENDIXB - RATE CONSULTANT'SREPORT........................................................................................ B-1
APPENDIXC- THE CITY OF LODI............................................................................................................... C-1
APPENDIXD - AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR
ENDED JUNE 30, 2009........................................................................................................... D-1
APPENDIXE - BOOK -ENTRY ONLY SYSTEM........................................................................................... E-1
APPENDIXF - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS.......................................................... F-1
APPENDIXG - PROPOSED FORM OF CONTINUING DISCLOSURE CERTIFICATE ............................. G-1
APPENDIXH - PROPOSED FORM OF OPINION OF BOND COUNSEL .................................................... H-1
ii
DOCSOC/ 1418056v 16/022245-0221
OFFICIAL STATEMENT
Lodi Public Financing Authority Lodi Public Financing Authority
2010 Water Revenue Bonds, 2010 Water Revenue Bonds, Series B
Series A (Federally Taxable - Build America Bonds —
Direct Payment)
INTRODUCTION
This introduction contains only a brief summary of certain of the terms of the Series 2010
Bonds being offered and a brief description of the Official Statement (which includes the cover page
and Appendices hereto). 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 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. Capitalized terms used in this Official Statement and not defined elsewhere herein have
the meanings given such terms under the Indenture or the 2010 Installment Sale Agreement. See
APPENDIX F — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – Definitions" hereto.
Purpose of this Official Statement
The purpose of this Official Statement is to set forth certain information concerning the
issuance and sale of the Lodi Public Financing Authority's (the "Authority") $ '*2010
Water Revenue Bonds, Series A (the "Series 2010A Bonds") and $ ' 2010 Water
Revenue Bonds, Series B (Federally Taxable - Build America Bonds – Direct Payment) (the "Series
2010B Bonds" and, together with the Series 2010A Bonds, the "Series 2010 Bonds") pursuant to an
Indenture of Trust, dated as of October 1,2010, between the Authority and The Bank of New York
Mellon Trust Company, N.A., as trustee (the "Trustee") (the "Indenture"), for the purpose of
providing funds to (i) pay the cost of a new water treatment facility (the "Treatment Facility") to treat
water to be provided within the service area of the City (the "Water System"); (ii) fund a deposit in
the Reserve Account in an amount equal to the Reserve Requirement; (iii) pay costs of issuance. The
Series 2010 Bonds will be issued in full conformity with the Constitution and the laws of the State of
California (the "State"), including the Marks -Roos Local Bond Pooling Act of 1985, being Article 4
of Chapter 5 of Division 7 of Title 1 of the Government Code of the State (the "Act"). See "THE
TREATMENT FACILITY," "PLAN OF FINANCING" and "SECURITY AND SOURCES OF
PAYMENT FOR THE SERIES 2010 BONDS" herein.
The City and the Water System
The City of Lodi (the "City") is located in the County of San Joaquin between Stockton and
Sacramento, and adjacent to U.S. Highway 99, approximately 90 miles east of San Francisco. The
City owns and operates the Water System, which includes over 237 miles of pipe, 27 groundwater
wells, two storage tanks and various pumping stations and related facilities and equipment. The
" Preliminary; subject to change.
DOCSOC/1418056v 16/022245-0221
service area of the Water System covers approximately 11.5 square miles and serves about 23,000
accounts and a population of approximately 63,000. See "THE WATER SYSTEM — General"
herein.
The Authority
The Authority was created by a Joint Exercise of Powers Agreement between the City and
the Industrial Development Authority of the City of Lodi pursuant to the provisions of the Act. The
Authority was created for the purpose of facilitating the financing of the acquisition and/or
construction of real and personal property in and for the City. See "THE AUTHORITY" herein.
Security and Sources of Payment for the Series 2010 Bonds
The Series 2010 Bonds are special, limited obligations of the Authority payable solely from
Authority Revenues and all amounts (including proceeds of the sale of the Series 2010 Bonds) held
in any fund or account established under this Indenture (subject only to the provisions of the
Indenture permitting the application thereof for the purposes and on the terms and conditions set
forth therein). "Authority Revenues" consist primarily of installment payments (the "2010
Installment Payments") received by the Trustee from the City pursuant to an Installment Sale
Agreement, dated as of October 1, 2010 (the "2010 Installment Sale Agreement") between the City
and the Authority.
The 2010 Installment Sale Agreement is a special obligation of the City, payable solely from
the Net Revenues of the Water System. "Net Revenues" means, for any period, an amount equal to
all of the Gross Revenues received during such period minus the amount required to pay all
Operation and Maintenance Costs becoming payable during such period. "Gross Revenues"
generally means all gross charges received for, and all other gross income and receipts derived by the
City from, the ownership and operation of the Water System or otherwise arising from the Water
System. The Authority is not obligated to pay interest on or principal of or redemption premiums, if
any, on the Series 2010 Bonds except from Authority Revenues.
THE SERIES 2010 BONDS ARE NOT A DEBT OF THE CITY, THE COUNTY OF SAN
JOAQUIN, THE STATE OF CALIFORNIA, OR ANY OF ITS POLITICAL SUBDIVISIONS,
AND NEITHER THE CITY, THE COUNTY, THE STATE, NOR ANY OF ITS POLITICAL
SUBDIVISIONS, IS LIABLE HEREON NOR IN ANY EVENT SHALL THE SERIES 2010
BONDS BE PAYABLE OUT OF ANY FUNDS OR PROPERTIES OF THE AUTHORITY
OTHER THAN THE AUTHORITY REVENUES.
Additional Obligations
Subject to the terms and conditions of the 2010 Installment Sale Agreement, the City may
enter into additional obligations payable from Net Revenues on a parity with the 2010 Installment
Payments ("Parity Debt"), subject to the terms and conditions of the 2010 Installment Sale
Agreement, as more fully described herein. See "SECURITY AND SOURCES OF PAYMENT FOR
THE SERIES 2010 BONDS — The 2010 Installment Sale Agreement — Additional Parity Debt"
herein.
DOCSOC/ 1418056v 16/022245-0221
Rate Covenant
The City covenants in the Installment Purchase Agreement to fix, prescribe, revise and
collect rates, fees and charges for the services and facilities furnished by the Water System during
each Bond Year, which are at least sufficient, after making allowances for contingencies and error in
the estimates, to yield Gross Revenues sufficient to pay the following amounts in the following order
of priority: (i) all Operation and Maintenance Costs estimated by the City to become due and payable
in such Bond Year; (ii) all 2010 Installment Payments and all payments of principal of and interest
on any Parity Debt as they become due and payable during such Bond Year, without preference or
priority, except to the extent any of such payments are payable from bond proceeds or fiom any other
source of legally available funds of the City which have been deposited with the Trustee for such
purpose prior to the commencement of the related Bond Year; (iii) all amounts, if any, required to
restore the balance in the Reserve Account to the full amount of the Reserve Requirement, and to
restore the balance in the reserve account established for any Parity Debt to their required balances;
and (iv) all Additional Payments and other payments required to meet any other obligations of the
City which are charges, liens, encumbrances upon, or which are otherwise payable fiom, the Gross
Revenues or the Net Revenues during such Bond Year.
In addition, the City covenants to prescribe, revise and collect rates, fees and charges for the
services and facilities furnished by the Water System during each Bond Year which are sufficient to
yield both of the following:
(a) Net Revenues equal to at least 125% of the amount described in the preceding clause
(ii) that is due in such Fiscal Year. For purposes of this paragraph, the amount ofNet Revenues for a
Fiscal Year will be computed on the basis that any transfers into the Water System Fund in that
Fiscal Year fiom the Rate Stabilization Fund are included in the calculation of Net Revenues, as
provided in the Installment Sale Agreement, but only to the extent that the moneys transferred fiom
the Rate StabilizationFund would not otherwise constitute Gross Revenues for the Fiscal Year.
(b) Net Revenues equal to at least 100% of the amounts described in the preceding
clauses (ii) and (iii) that are due in such Fiscal Year. For purposes of this paragraph, the amount of
Net Revenues for a Fiscal Year will be computed on the basis that (A) any connection charges
(including the City's impact mitigation fees) deposited into the Water System Fund in that Fiscal
Year shall not be included, (B) any transfers into the Water System Fund in that Fiscal Year fiom the
Rate Stabilization Fund shall not be included in the calculation of Net Revenues, and (C) any
deposits into the Rate Stabilization Fund in that Fiscal Year shall be included in the amount of Net
Revenues, but only to the extent such deposits are made from Gross Revenues received by the City
during that Fiscal Year.
See "SECURITY AND SOURCES OF PAYMENT FOR THE Series 2010 Bonds Rate
Covenant".
Reserve Account
A Reserve Account is established with the Trustee pursuant to the Trust Agreement in an
amount equal to the Reserve Account Requirement. All amounts in the Reserve Account shall be
used and withdrawn by the Trustee solely for the purpose of (i) paying interest on or principal of the
Series 2010 Bonds, when due and payable to the extent that moneys deposited in the Interest Account
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DOCSOC/ 1418056vi6/022245-0221
or Principal Account, respectively, are not sufficient for such purpose, (ii) paying the redemption
price of any Term Bonds in the event that amounts on deposit in the Principal Account are not
sufficient for such purpose, and (iii) paying debt service on any issue of Parity Debt for which a
reserve fund is established as part of a common reserve fund for the Series 2010 Bonds and such
Parity Debt, as provided in the 2010 Installment Sale Agreement.
Consulting Engineer's Report and Rate Consultant's Report
In preparing this Official Statement, the Authority and City have relied, in part, upon studies,
considerations, assumptions and opinions set forth in (i) the report dated October , 2010, furnished
by HDR Inc., Folsom, California, as consulting engineer (the "Consulting Engineer"), a copy of
which is attached hereto as Appendix A (the "Consulting Engineer's Report ") and (ii) the report
dated October _, 2010, furnished by The Reed Group, Inc., Sacramento, California, as rate
consultant (the "Rate Consultant"), a copy of which is attached hereto as Appendix B (the "Rate
Consultant's Report ").
Continuing Disclosure
The City has covenanted for the benefit of the holders and beneficial owners of the Series
2010 Bonds to provide certain financial information and operating data relating to the Water System
by not later than 210 days following the end of the City's Fiscal Year (presently June 30) (the
"Annual Report"), commencingwith the report for Fiscal Year 2009-10, and to provide notices of the
occurrence of certain enumerated events, if material. The Annual Report and notices of material
events will be filed by the City with the Municipal Securities Rulemaking Board through its EMMA
system. The specific nature of the information to be contained in the Annual Report and the notice of
material events is set forth in APPENDIX G — "PROPOSED FORM OF CONTINUING
DISCLOSURE CERTIFICATE" hereto. These covenants have been made in order to assist the
Underwriter in complying with S.E.C. Rule 15c2 -12(b)(5) (the "Rule"). See "CONTINUING
DISCLOSURE" herein. The City has not failed to comply in all material respects in the last five
years with any previous undertakings with regard to said Rule to provide annual reports or notices of
material events.
Other Matters
The summaries of and references to all documents, statutes, reports and other instruments
referred to herein do not purport to be complete, comprehensive or definitive, and each such
summary and reference is qualified in its entirety by reference to each document, statute, report or
instrument. The capitalization of any word not conventionally capitalized, or otherwise defined
herein, indicates that such word is defined in a particular agreement or other document and, as used
herein, has the meaning given it in such agreement or document.
Copies of the 2010 Installment Sale Agreement and the Indenture will be available for
inspection at the offices of the City in Lodi, California, and will be available upon request and
payment of duplication costs from the Trustee.
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DOC SOC/ 1418056v 16/022245-0221
PLAN OF FINANCE
The Series 2010 Bonds are being executed and delivered for the purpose of providing funds
to (i) pay the cost of the Treatment Facility; (ii) fund a deposit in the Reserve Account in an amount
equal to the Reserve Requirement; and (iii) pay costs of issuance. See "THE TREATMENT
FACILITY."
ESTIMATED SOURCES AND USES OF BOND PROCEEDS
The estimated sources and uses of funds for the Series 2010 Bonds are as follows:
Sources: Series 2010 A Bonds
Proceeds of the Series 2010 Bonds $
Original Issue Premium
Total Sources ............................. $
1Tses:
Deposit to Project Fund $
Deposit to Reserve Account
Deposit to Cost of Issuance
Fund')
Total Uses
1
Series 2010 B Bonds
E!
Includes rating agency, legal, financial advisory, printing, trustee fees, Underwriter's discount and other costs of
issuance.
THE SERIES 2010 BONDS
The Series 2010 Bonds shall be dated as of the date of delivery, shall bear interest (computed
on the basis of a 360 -day year consisting of twelve 30 -day months) at the rates per annum (payable
semiannually on June 1 and December 1 in each year, commencing on June 1, 2011) and shall
mature and become payable on June 1 in each of the years in the principal amounts set forth on the
inside front cover page hereof. The Series 2010 Bonds shall be issued as fully registered Series 2010
Bonds in denominations of five thousand dollars ($5,000) or any integral multiple of five thousand
dollars ($5,000) (not exceeding the principal amount of Series 2010 Bonds maturing at any one
time). The Series 2010 Bonds will be issued in book -entry form only and, when delivered, will be
registered in the name of a nominee of The Depository Trust Company, New York, New York
("DTC"), which will act as securities depository for the Series 2010 Bonds. For so long as Cede &
Co., as nominee of DTC, is registered owner of the Series 2010 Bonds, payments of the principal of,
premium, if any, and interest on Series 2010 Bonds will be made directly to DTC. Disbursement of
such payment to the DTC Participants is the responsibility of the DTC Participants and the Indirect
Participants, each such term as hereinafter defined. See APPENDIX E — "BOOK -ENTRY ONLY
SYSTEM" hereto.
Designation of Taxable Series 2010B Bonds as Build America Bonds
The Series 201013 Bonds may be issued as "Build America Bonds" under the provisions of
the Recovery Act. If issued as Build America Bonds, the Authority would expect to receive a cash
subsidy payment from the United States Treasury equal to 35% of the interest payable on the Series
2010B Bonds on or about each Interest Payment Date. The cash payment does not constitute a fill
faith and credit guarantee of the United States, but is required to be paid by the Treasury under the
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D O C S O C/ 1418 05 6 v 16/02224 5 -0221
Recovery Act. Any cash subsidy payments received by the Authority will be transferred to the City
and will constitute "Revenues" pursuant to the 2010 Installment Sale Agreement. The Authority is
obligated to make all payments of principal of and interest on the Series 201 OB Bonds whether or not
it receives any cash subsidy payments pursuant to the Recovery Act.
Redemption
Series 2010A Bonds
OptionalRedemption. The Series 201OA Bonds maturing on or before June 1, 20_, are
not subject to optional redemptionprior to their respective stated maturity dates. The Series A Bonds
maturing on or after June 1, 20i, are subject to redemption in whole, or in part at the Written
Request of the Authority among maturities on such basis as the Authority may designate and by lot
within a maturity, at the option of the Authority, on any date on or after June 1, 20_, from any
available source of funds, at a redemption price equal to 100% of the principal amount of the Bonds
to be redeemed, plus accrued interest to the date of redemption, without premium.
Mandatory 5in1ang Fund Redemption. The Series 201 OA Bonds maturing June 1, 20,
are subject to mandatory redemption in part by lot, at a redemption price equal to 100% of the
principal amount thereof to be redeemed, without premium, in the aggregate respective principal
amounts and on June 1 in the respective years as set forth in the following tables; provided, however,
that if some but not all of the Term Bonds have been optionally redeemed, the total amount of all
future sinking fund payments shall be reduced by the aggregate principal amount of the Series 201 OA
Bonds so redeemed, to be allocated among such sinking fund payments on a pro rata basis in integral
multiples of $5,000 (as set forth in a scheduleprovided by the Authority to the Trustee).
Series 2010A Bonds
Sinking Fund
Redemption Date Principal Amount
June 1 To be Redeemed
Series 2010B Bonds
OptionalRedemption. The Series 2018 Bonds shall be subject to redemption prior to their
respective stated maturity dates, at the option of the City, from any source of available funds, as a
whole or in part (and if in part, in such order of maturity as the Authority shall specify) on any date,
at a redemption price equal to _$ of the principal amount of Series 2010B Bonds called for
redemption, together with accrued interest to the date fixed for redemption.
Extraordinary OptionalRedemption of the 2010 Bonds. The Series 201 OB Bonds shall be
subject to redemption prior to their respective stated maturity dates, at the option of the City upon the
occurrence of a Tax Law Change, from any source of available funds, as a whole or in part (and if in
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DOCSOC/ 1418056v 16/022245-0221
part, in such order of maturity as the Authority shall specify) on any date, at a redemption price equal
to 100% of the principal amount of Series 2010B Bonds called for redemption plus the Make -Whole
Premium, if any, plus accrued interest to the date fixed for redemption.
"Calculation Agent" means a commercial bank or an investment banking institution of
national standing that is a primary dealer of United States government securities designated by the
Authority.
"Comparable Treasury Issue" means the United States Treasury security selected by the
Calculation Agent as having a maturity comparable to the remaining term to maturity of the Series
2010B Bond being redeemed that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term to maturity of the Series 201 B Bond being redeemed.
"Comparable Treasury Price" means, with respect to any date on which a Series 201 B Bond
or portion thereof is being redeemed, either (a) the average of five Reference Treasury Dealer
quotations for the date fixed for redemption, after excluding the highest and lowest such quotations,
and (b) if the Calculation Agent is unable to obtain five such quotations, the average of the
quotations that are obtained. The quotations will be the average, as determined by the Calculation
Agent, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a
percentage of principal amount) quoted in writing to the Calculation Agent, at 5:00 p.m. New York
City time, at least three (3) Business Days but not more than forty-five (45) calendar days preceding
the date fixed for redemption.
"Comparable Treasury Yield" means the yield that represents the weekly average yield to
maturity for the preceding week appearing in the most recently published statistical release
designated "H.15(519) Selected Interest Rates" under the heading "Treasury Constant Maturities," or
any successorpublication selected by the Calculation Agent that is published weekly by the Board of
Governors of the Federal Reserve System and that establishes yields on actively traded United States
Treasury securities adjusted to constant maturity, for the maturity corresponding to the remaining
term to maturity of the Series 2010B Bond being redeemed. The Comparable Treasury Yield will be
determined at least three (3) Business Days but not more than forty-five (45) calendar days preceding
the date fixed for redemption. If the H.15(519) statistical release sets forth a weekly average yield
for United States Treasury securities that have a constant maturity that is the same as the remaining
term to maturity of the Series 2010B Bond being redeemed, then the Comparable Treasury Yield will
be equal to such weekly average yield. In all other cases, the Comparable Treasury Yield will be
calculated by interpolation on a straight-line basis, between the weekly average yields on the United
States Treasury securities that have a constant maturity (i) closest to and greater than the remaining
term to maturity of the Series 2010B Bond being redeemed; and (ii) closest to and less than the
remaining term to maturity of the Series 2010B Bond being redeemed. Any weekly average yields
calculated by interpolation will be rounded to the nearest 1/1 00th of 1%, with any figure of 1/200th
of 1% or above being rounded upward. If, and only if, weekly average yields for United States
Treasury securities for the preceding week are not available in the H.15(519) statistical release or any
successor publication, then the Comparable Treasury Yield will be the rate of interest per annum
equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price (each as defined herein)
as of the date fixed for redemption.
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DOCS OC/ 1418056v 16/022245-0221
"Make -Whole Premium" means, with respect to any Series 201 OB Bond to be redeemed, an
amount calculated by the Calculation Agent equal to the positive difference, if any, between:
(a) The sum of the present values, calculated as of the date fixed for redemption of-
Each
f
Each interest payment that, but for the redemption, would have been payable on the
2013
Series Bond or portion thereof being redeemed on each regularly scheduled Interest Payment
Date occurring after the date fixed for redemption through the maturity date of such Series 201OB
Bond (excluding any accrued interest for the period prior to the date fixed for redemption); provided,
that if the date fixed for redemption is not a regularly scheduled Interest Payment Date with respect
to such Series 2010B Bond, the amount of the next regularly scheduled interest payment will be
reduced by the amount of interest accrued on such Series 2010B Bond to the date fixed for
redemption; plus
(2) The principal amount that, but for such redemption, would have been payable on the
maturity date of the Series 201CB Bond or portion thereof being redeemed; minus
(b) The principal amount of the Series 201CB Bond or portion thereof being redeemed.
The present values of the interest and principal payments referred to in (a) above will be
determined by discounting the amount of each such interest and principal payment Ikom the date that
each such payment would have been payable but for the redemption to the date fixed for redemption
on a semiannual basis (assuming a 360 -day year consisting of twelve (12) 30 -day months) at a
discount rate equal to the Comparable Treasury Yield, plus the Spread.
"Reference Treasury Dealer" means a primary dealer of United States Government securities
appointed by the Authority and reasonably acceptable to the Calculation Agent.
"Spread" means for optional redemptions ^% and for extraordinary optional redemptions
"Subsidy Payments" means payments from the United States Treasury to or upon the order of
the Authority with respect to the Series 2O10B Bonds pursuant to Sections 54AA and 6431 of the
Code in an amount equal to 35% of the interest due thereon on each Interest Payment Date.
"Tax Law Change" means legislation has been enacted by the Congress of the United States
or passed by either House of the Congress, or a decision has been rendered by a court of the United
States, or an order, ruling, regulation (final, temporary or proposed) or official statement has been
made by or on behalf of the Treasury Department of the United States, the Internal Revenue Service
or other governmental agency of appropriate jurisdiction, the effect of which, as reasonably
determined by the Authority, would be to suspend, reduce or terminate the Subsidy Payments or any
similar payments to state or local government issuers generally with respect to obligations of the
general character of the Series 2010B Bonds; provided, that such suspension, reduction or
termination of the Subsidy Payments is not due to a failure by the Authority to comply with the
requirements under the Code to receive such Subsidy Payments.
Mandatory Knlang Fund Redemption. The Series 2OICB Bonds maturing June 1, 20_
are subject to mandatory redemption in part by lot, at a redemption price equal to 100% of the
principal amount thereof to be redeemed, without premium, in the aggregate respective principal
8
DOCS OC/1418056v 16/022245-0221
amounts and on June 1 in the respective years as set forth in the following tables; provided, however,
that if some but not all of the Term Bonds have been optionally redeemed, the total amount of all
future sinking fund payments shall be reduced by the aggregate principal amount of the Series 2010B
Bonds so redeemed, to be allocated among such sinking fund payments on a pro rata basis in integral
multiples of $5,000 (as set forth in a schedule provided by the Authority to the Trustee).
Series 2010B Bonds
Sinking Fund
Redemption Date PrincipalAmount
June 1 To be Redeemed
Notice of Redemption
The Indenture provides that the Trustee shall mail notice of redemption of the Series 2010
Bonds by first class mail, postage prepaid, not less than 30 nor more than 60 days before any
redemption date, to the respective Owners of any Series 2010 Bonds designated for redemption at
their addresses appearing on the Registration Books and to one or more Securities Depositories and
to the Municipal Securities Rulemaking Board. Each notice of redemption shall state the date of the
notice, the redemption date, the place or places of redemption, whether less than all of the Series
2010 Bonds (or all Series 2010 Bonds of a single maturity) are to be redeemed, the CUSIP numbers
and (in the event that not all Series 2010 Bonds within a maturity are called for redemption) Bond
numbers of the Series 2010 Bonds to be redeemed and the maturity or maturities of the Series 2010
Bonds to be redeemed, and in the case of Series 2010 Bonds to be redeemed in part only, the
respective portions of the principal amount thereof to be redeemed. Each such notice shall also state
that on the redemption date there will become due and payable on each of said Series 2010 Bonds the
redemption price thereof, and that from and after such redemption date interest thereon shall cease to
accrue, and shall require that such Series 2010 Bonds be then surrendered. Neither the failure to
receive any notice nor any defect therein shall affect the sufficiency of the proceedings for such
redemption or the cessation of accrual of interest from and after the redemption date. Notice of
redemption of Series 2010 Bonds shall be given by the Trustee, at the expense of the Authority, for
and on behalf of the Authority.
The Authority has the right to rescind any notice of optional redemption of the Series 2010
Bonds by written notice to the Trustee on or prior to the dated fixed for redemption. Any notice of
redemption shall be cancelled and annulled if for any reason funds will not be or are not available on
the date fixed for redemption for the payment in full of the Series 2010 Bonds then called for
redemption, and such cancellation shall not constitute an Event of Default. The Authority and the
Trustee have no liability to the Bond Owners or any other party related to or arising from such
rescission of redemption. The Trustee shall mail notice of such rescission of redemption in the same
manner as the original notice of redemption was sent under this Section.
9
DOCSOC/1418056v 16/022245-0221
Selection of Series 2010A Bonds To Be Redeemed
Whenever provision is made in this Indenture for the redemption of less than all of the Bonds
of a single maturity, the Trustee shall select the Bonds of that maturity to be redeemed by lot in any
manner which the Trustee in its sole discretion deems appropriate. For purposes of such selection,
the Trustee shall treat each Bond as consisting of separate $5,000 portions and each such portion
shall be subject to redemption as if such portion were a separate Bond.
Selection of Series 2010B Bonds To Be Redeemed
If the Series 2010B Bonds are registered in book -entry only form and so long as DTC or a
successor securities depository is the sole registered owner of the Series 2010B Bonds, if less than all
of the Series 2010B Bonds of a maturity are called for prior redemption, the particular Series 2010B
Bonds or portions thereof to be redeemed shall be selected by the Trustee on a "Pro Rata Pass -
Through Distribution of Principal" basis in accordance with DTC procedures, provided that, so long
as the Series 2010B Bonds are held in book -entry form, the selection for redemption of such Series
2010B Bonds shall be made by the Trustee in accordance with the operational arrangements of DTC
then in effect that currently provide for adjustment of the principal by a factor provided by the
Trustee pursuant to DTC operational arrangements. If the Trustee does not provide the necessary
information and identify the redemption as on a Pro Rata Pass -Through Distribution of Principal
basis, the Series 2010B Bonds shall be selected for redemption by lot by the Trustee in accordance
with DTC procedures. Redemption allocations made by DTC, the DTC Participants or such other
intermediaries that may exist between the Authority and the Beneficial Owners are to be made on a
"Pro Rata Pass -Through Distribution of Principal" basis as described above. If the DTC operational
arrangements do not allow for the redemption of the Series 2010B Bonds on a Pro Rata Pass -
Through Distribution of Principal basis as described above, then the Series 2010B Bonds shall be
selected for redemption by lot by the Trustee in accordance with DTC procedures.
If the Series 2010B Bonds are not registered in book -entry only form, any redemption of less
than all of a maturity of the Series 2010B Bonds shall be effected by the Trustee among owners on a
pro -rata basis subject to minimum Authorized Denominations. The particular Series 201 B Bonds to
be redeemed shall be determined by the Trustee, using such method as it shall deem fair and
appropriate.
Effect of Redemption
Notice of redemption having been duly given in accordance with the Indenture, and moneys
for payment of the redemption price of, together with interest accrued to the date fixed for
redemption on, including any applicable premium, the Series 2010 Bonds (or portions thereof) so
called for redemption being held by the Trustee, on the redemption date designated in such notice,
the Bonds (or portions thereof) so called for redemption shall become due and payable, interest on
the Bonds so called for redemption shall cease to accrue, said Series 2010 Bonds (or portions thereof)
shall cease to be entitled to any benefit or security -under the Indenture, and the Owners of said Bonds
shall have no rights in respect thereof except to receive payment of the redemption price thereof.
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DOCSOC/ 1418056v 16/022245.0221
SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2010 BONDS
Pledge Under the Indenture
Subject only to the provisions of the Indenture permitting the application thereof for the
purposes and on the terms and conditions set forth therein, all of the Authority Revenues and all
amounts (including proceeds of the sale of the Series 2010 Bonds) held in any fund or account
established under the Indenture are pledged to secure the payment of the principal of and interest and
premium (if any) on the Series 2010 Bonds in accordance with their terms and the provisions of the
Indenture. "Authority Revenues" means: (a) all of the 2010 Installment Payments, and (b) all
interest, profits or other income derived from the investment of amounts in any fund or account
established under the Indenture.
As and to the extent set forth in the Indenture, all of the Revenues are exclusively and
irrevocably pledged in accordance with the terms of the Indenture to the payment of the principal of
and interest and premium (if any) on the Series 2010 Bonds.
Pursuant to the Indenture, the Authority irrevocably transfers, assigns and sets over to the
Trustee, without recourse to the Authority, all of its rights in the 2010 Installment Sale Agreement
(excepting only certain reserved rights), including but not limited to all of the Authority's rights to
receive and collect all of the 2010 Installment Payments. The Trustee is entitled to collect and
receive all of the 2010 Installment Payments, and any Installment Payments collected or received by
the Authority shall be deemed to be held, and to have been collected or received, by the Authority as
the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee.
THE SERIES 2010 BONDS ARE NOT A DEBT OF THE CITY, THE COUNTY OF SAN
JOAQUIN, THE STATE OF CALIFORNIA, OR ANY OF ITS POLITICAL SUBDIVISIONS,
AND NEITHER THE CITY, THE COUNTY, THE STATE, NOR ANY OF ITS POLITICAL
SUBDIVISIONS, IS LIABLE HEREON NOR IN ANY EVENT SHALL THE SERIES 2010
BONDS BE PAYABLE OUT OF ANY FUNDS OR PROPERTIES OF THE AUTHORITY
OTHER THAN THE AUTHORITY REVENUES.
ReserveAccount. A Reserve Account to be held by the Trustee, is established pursuant to
the Indenture. Within the Reserve Account a Series A Subaccount and a Series B Subaccount are
established.
All amounts in the Reserve Account shall be used and withdrawn by the Trustee solely for
the purpose of (i) paying interest on or principal of the Series 2010 Bonds, when due and payable to
the extent that moneys deposited in the Interest Account or Principal Account, respectively, are not
sufficient for such purpose, (ii) paying the redemption price of any Term Bonds to be redeemed in
the event that amounts on deposit in the Principal Account are not sufficient for such purpose, and
(iii) paying debt service on any issue of Parity Debt for which a reserve fund is established as part of
a common reserve fund for the Series 2010 Bonds and such Parity Debt.
The Reserve Account shall be deemed to be held for the equal and proportionate benefit of
the Owners of the Bonds and the owners of all outstanding Parity Debt (excluding Parity Debt for
which no reserve fund is established as provided in the 2010 Installment Sale Agreement).
11
DOCSOC/ 1418056v 16/022245-0221
Pursuant to the Indenture, the Authority has the right at any time to release funds fiom the
Reserve Account, in whole or in part, by tendering to the Trustee: (a) a Qualified Reserve Account
Credit Instrument; and (b) an opinion of Bond Counsel stating that such release will not, of itself,
cause interest on the Series A Bonds to become includable in gross income for purposes of federal
income taxation. Upon the expiration of any Qualified Reserve Account Credit Instrument, the
Authority shall be obligated either (a) to replace such Qualified Reserve Account Credit Instrument
with a new Qualified Reserve Account Credit Instrument, or (b) to deposit or cause to be deposited
with the Trustee an amount of funds equal to the Reserve Requirement.
Any amounts on deposit in the Reserve Account at any time in excess of the Reserve
Requirement shall be transferred to the Bond Fund. Surplus amounts transferred fiom the Series A
Subaccount shall be used to pay debt service on the Series A Bonds and surplus amounts transferred
fiom the Series B Subaccount shall be used to pay debt service on the Series B Bonds.
"Qualified Reserve Account Credit Instrument" means an irrevocable standby or direct -pay
letter of credit or surety bond issued by a commercial bank or insurance company and deposited with
the Trustee which meets the requirements of the Indenture including the requirement that the long-
term credit rating of such bank or insurance company is AA or better from S&P.
The 2010 Installment Sale Agreement
2010 Installment Payments The City has agreed in the 2010 Installment Sale Agreement to
make the 2010 Installment Payments, solely fiom Net Revenues as described below. The obligations
of the City to pay the 2010 Installment Payments from the Net Revenues and to perform and observe
the other agreements contained herein are absolute and unconditional and are not subject to any
defense or any right of set-off, counterclaim or recoupment arising out of any breach by the
Authority or the Trustee of any obligation to the City or otherwise with respect to the Water System,
whether hereunder or otherwise, or out of indebtedness or liability at any time owing to the City by
the Authority or the Trustee.
The obligation of the City to pay the 2010 Installment Payments is limited to the Net
Revenues. "Net Revenues" means, for any period, an amount equal to all of the Gross Revenues
received during such period minus the amount required to pay all Operation and Maintenance Costs
becoming payable during such period.
"Gross Revenues" means all gross charges received for, and all other gross income and
receipts derived by the City from, the ownership and operation of the Water System or otherwise
arising from the Water System, including but not limited to connection charges (including the City's
impact mitigation fees) to the extent permitted by law, investment earnings thereon and the
Refundable Credits; but excluding (a) the proceeds of any ad valorem property taxes levied for the
purpose of paying general obligation bonds of the City relating to the Water System and (b) the
proceeds of any special assessments or special taxes levied upon real property within any
improvement district served by the City levied for the purpose of paying special assessment bonds or
special tax obligations of the City relating to the Water System.
"Operation and Maintenance Costs" means the reasonable and necessary costs and expenses
paid by the City for maintaining and operating the Water System, including but not limited to (a)
costs of acquisition of water to be supplied by the Water System, (b) costs of electricity and other
12
DOCSOC/ 1418056v 16/022245-0221
forms of energy supplied to the Water System, (c) the reasonable expenses of management and repair
and other costs and expenses necessary to maintain and preserve the Water System in good repair
and working order, and (d) the reasonable administrative costs of the City attributable to the
operation and maintenance of the Water System; but in all cases excluding (i) debt service payable
on obligations incurred by the City with respect to the Water System, including but not limited to the
2010 Installment Payments and any Parity Debt, (ii) depreciation, replacement and obsolescence
charges or reserves therefor, and (iii) amortization of intangibles or other bookkeeping entries of a
similar nature.
Pledge of Net Revenues, Pursuant to the 2010 Installment Sale Agreement, the City
establishes a pledge of, lien on and security interest in all of the Net Revenues and all moneys on
deposit in any of the funds and accounts established and held by the Trustee under the Indenture to
secure the 2010 Installment Payments and any Parity Debt. Payment of the 2010 Installment
Payments and the principal of and interest on any Parity Debt will be made without preference or
priority among the 2010 Installment Payments and such Parity Debt. If the amount of Net Revenues
on deposit in the Water System Fund is any time insufficient to enable the City to pay when due the
2010 Installment Payments and the principal of and interest on any Parity Debt, such payments will
be made on a pro rata basis.
Application of Gross Revenues In order to carry out and effectuate the pledge and lien
contained herein, the City agrees and covenants that all Gross Revenues, including, without
limitation, Refundable Credits, shall be received by the City in trust hereunder and shall be deposited
when and as received in a special fund designated as the "Water System Fund", which fund the City
agrees and covenants to maintain and to hold separate and apart from other funds so long as any
Installment Payments remain unpaid. To the extent the City has an existing fund or existing funds
which satisfy the foregoing requirements, then such shall be deemed to be the "Water System Fund"
and the City shall not be required to create a new fund. The City may maintain separate funds or
accounts within the Water System Fund. Moneys in the Water System Fund shall be used and
applied by the City as provided in this Agreement and any Parity Debt Documents.
Amounts on deposit in the Water System Fund will be applied by the City to pay when due
the following amounts in the following order of priority:
(i) all Operation and Maintenance Costs;
(ii) the 2010 Installment Payments and all payments of principal of and interest on any
Parity Debt;
(iii) to the Trustee the amount of any deficiency in the Reserve Account established for
the Series 2010 Bonds and in any reserve account established for Parity Debt, the
notice of which deficiency has been given to the City in accordance with the
Indenture and in accordance with the applicable provisions of the related Parity Debt
Documents;
(iv) any other payments required to comply with the provisions of the 2010 Installment
Sale Agreement and any Parity Debt Documents; and
(v) the payment of any subordinate obligations or any unsecured obligations, (a) the
acquisition and construction of improvements to the Water System, (b) the
13
DOCSOC/1418056v 16/022245-0221
prepayment of any other obligations of the City relating to the Water System, or (c)
any other lawful purposes of the City.
Rate Stabilization Fund The City has the right at any time to establish a fund to be held by
it and administered in accordance with the 2010 Installment Sale Agreement, for the purpose of
stabilizing the rates and charges imposed by the City with respect to the Water System. From time to
time the City may deposit amounts in the Rate Stabilization Fund, fiom any source of legally
available funds, including but not limited to Net Revenues which are released from the pledge and
lien which secures the 2010 Installment Payments and any Parity Debt, as the City may determine.
The Rate Stabilization Fund shall be accounted for as a separate fund, although amounts credited to it
may be commingled with other funds of the City.
The City may, but is not be required to, withdraw amounts on deposit in the Rate
Stabilization Fund and deposit such amounts in the Water System Fund in any Fiscal Year for the
purpose of paying the 2010 Installment Payments or the principal of and interest on any Parity Debt
coming due and payable in such Fiscal Year. Amounts so transferred fiom the Rate Stabilization
Fund to the Water System Fund in any Fiscal Year constitute Gross Revenues for that Fiscal Year
(except as otherwise provided in the 2010 Installment Sale Agreement), and will be applied for the
purposes of the Water System Fund. Amounts on deposit in the Rate Stabilization Fund are not
pledged to and do not otherwise secure the 2010 Installment Payments or any Parity Debt. All
interest or other earnings on deposits in the Rate Stabilization Fund will be retained therein or, at the
option of the City, be applied for any other lawful purposes. The City has the right at any time to
withdraw any or all amounts on deposit in the Rate Stabilization Fund and apply such amounts for
any other lawful purposes of the City.
Rate Covenant; Collection ofRates and Charges.
(a) Covenant Regarding Gross Revenues. The City shall fix, prescribe, revise and collect
rates, fees and charges for the services and facilities furnished by the Water System during each
Fiscal Year, which are at least sufficient, after making allowances for contingencies and error in the
estimates, to yield Gross Revenues sufficient to pay the following amounts in the following order of
priority:
(i) All Operation and Maintenance Costs estimated by the City to become due and
payable in such Fiscal Year;
(ii) All Installment Payments and all payments of principal of and interest on any Parity
Debt as they become due and payable during such Fiscal Year, without preference or priority, except
to the extent any of such payments are payable from bond proceeds or from any other source of
legally available funds of the City which have been deposited with the Trustee for such purpose prior
to the commencement of the related Fiscal Year;
(iii) All amounts, if any, required to restore the balance in the Reserve Account to the full
amount of the Reserve Requirement, and to restore the balance in the reserve account established for
any Parity Debt to their required balances; and
14
DOCSOC/ 1418056x16/022245-0221
(iv) All Additional Payments and other payments required to meet any other obligations
of the City which are charges, liens, encumbrances upon, or which are otherwise payable from, the
Gross Revenues or the Net Revenues during such Fiscal Year.
(p) Covenant Regarding Net Revenues. In addition, the City shall fix, prescribe, revise
and collect rates, fees and charges for the services and facilities furnished by the Water System
during each Fiscal Year which are sufficient to yield both of the following:
(i) Net Revenues equal to at least 125% of the amount described in the preceding clause
(ii) that is due in such Fiscal Year. For purposes of this paragraph (b)(i), the amount of Net Revenues
for a Fiscal Year will be computed on the basis that (A) any transfers into the Water System Fund in
that Fiscal Year fiom the Rate Stabilization Fund are included in the calculation of Net Revenues, as
provided in Section 4.6, and (B) any deposits into the Rate Stabilization Fund in that Fiscal Year are
deducted from the amount of Net Revenues, but only to the extent such deposits are made fiom
Gross Revenues received by the City during that Fiscal Year.
(ii) Net Revenues equal to at least 100% of the amounts described in the preceding
clauses (ii) and (iii) that are due in such Fiscal Year. For purposes of this paragraph (b)(ii), the
amount of Net Revenues for a Fiscal Year will be computed on the basis that (A) any connection
charges (including the City's impact mitigation fees) deposited into the Water System Fund in that
Fiscal Year shall not be included, (B) any transfers into the Water System Fund in that Fiscal Year
from the Rate Stabilization Fund shall not be included in the calculation of Net Revenues, and (C)
any deposits into the Rate Stabilization Fund in that Fiscal Year shall be included in the amount of
Net Revenues, but only to the extent such deposits are made fiom Gross Revenues received by the
City during that Fiscal Year.
For purposes of compliance with the covenants described above, the amount of any
Refundable Credits that the City expects to receive in a Fiscal Year shall be excluded fiom the
amount of Gross Revenues for such Fiscal Year, but shall be included as a credit against the
applicable amount of Installment Payments or debt service on Parity Debt coming due in such Fiscal
Year.
"Refundable Credits" means the amounts (if any) which are payable to the City in connection
with the issuance of "Build America Bonds by the federal government under Section 6431 of the Tax
Code, which the issuer of such Build America Bonds elects to receive under Section 54AA(g)(1) of
the Tax Code.
2010 Installment Payments Schedule and Debt Service Schedule. The 2010 Installment
Sale Agreement requires semi-annualpayments of principal and interest to the Trustee, as assignee of
the Authority, commencing June 1, 2011. Pursuant to the Indenture and the 2010 Installment Sale
Agreement, the 2010 Installment Payments will be deposited in the Bond Fund and applied in
accordance with the provisions of the Indenture. Debt service with respect to the Series 2010 Bonds
is set forth below:
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DOCSOC/ 1418056v 16/022245-0221
DEBT SERVICE SCHEDULE
Series 2010A Bonds Series 2010B Bonds
Bond Year
Ending June 1 Princi al Interest Principal Interest
2011
2012
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
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DOCSOC/1418056v 16/022245-0221
Additional Parity Debt. Except for obligations incurred to prepay or discharge the 2010
Installment Payments or any Parity Debt, the City may not issue or incur any Parity Debt during the
Term hereof unless the conditions set forth in the 2010 Installment Sale Agreement are satisfied,
including the following:
(a) No Event of Default has occurred and is continuing (unless the Event of Default will
be cured as a result of the issuance of the Parity Debt).
(b) The Net Revenues, calculated in accordance with sound accounting principles, as
shown by the books of the City for the most recent completed Fiscal Year for which audited financial
statements are available, or for any more recent consecutive 12-monthperiod selected by the City at
its option, in either case verified by a certificate or opinion of an Independent Accountant or Fiscal
Consultant, plus the Additional Revenues, at least equal 125% of the amount of Maximum Annual
Debt Service with respect to the 2010 Installment Payments and all Parity Debt then outstanding
(including the Parity Debt then proposed to be issued). For purposes of this paragraph, the amount of
any Refundable Credits that the City expects to receive in a Fiscal Year shall be excluded from the
amount of Gross Revenues for such Fiscal Year, but shall be included as a credit against the
applicable amount of Installment Payments and principal of and interest on any Parity Debt coming
due in such Fiscal Year. For purposes of this paragraph, the amount of Net Revenues for a Fiscal
Year will be computed on the basis that any transfers into the Water System Fund in that Fiscal Year
from the Rate Stabilization Fund are included in the calculation of Net Revenues, as provided in the
Installment Sale Agreement (but only to the extent that the moneys transferred from the Rate
Stabilization Fund would not otherwise constitute Gross Revenues for the applicable Fiscal Year).
lc Except as provided below, upon the issuance of such Parity Debt a reserve fund shall
be estab ished for such Parity Debt. The reserve fund which is established for an issue of Parity Debt
shall be required to be maintained in an amount which, together with the aggregate amount required
to be on deposit in all of the reserve funds established for the Bonds and other outstanding Parity
Debt, is at least equal to Maximum Annual Debt Service on the 2010 Installment Payments and all
outstanding Parity Debt, taken as a whole (other than Parity Debt for which no reserve fund is
established as described below). Notwithstanding the foregoing, the amount which is required to be
maintained in any reserve fund which is established for Parity Debt shall not exceed the maximum
amount then permitted to be funded from the proceeds of tax-exempt obligations under the Tax
Code. The Reserve Account and all other reserve funds which are funded from the proceeds of
Parity Debt shall constitute a single reserve for the equal and proportionate benefit of the Bonds and
all outstanding Parity Debt (other than Parity Debt for which no reserve fund established as required
below), without preference or priority. Any such reserve fund may be maintained in the form of a
letter of credit or surety bond.
In the event the City issues Parity Debt the purchaser of which does not require the
establishment of a reserve fund, such Parity Debt may be issued without a reserve find. However, in
that event, such Parity Debt is not entitled to the security of amounts held in the reserve fund which
is established for the Bonds or for any other issue of Parity Debt, and such Parity Debt will be
disregarded in determining the amount required to be maintained in any other reserve fund
established for outstanding Parity Debt.
Outstanding Obligations Other than the Series 2010 Bonds, there is no Parity Debt
Outstanding.
Execution ofSubordinate Obligations. Nothing in the 2010 Installment Sale Agreement
limits or affects the ability of the City to issue or incur obligations which are either unsecured or
17
DOCSOC/ 1418056v 16/022245-0221
which are secured by an interest in the Net Revenues which is junior and subordinate to the pledge of
and lien upon the Net Revenues established under the 2010 Installment Sale Agreement.
THE WATER SYSTEM
General
The City of Lodi is located in the County of San Joaquin (the "County") between Stockton
and Sacramento, and adjacent to U.S. Highway 99, approximately 90 miles east of San Francisco.
The City was incorporated as a General Law City on December 6, 1906.
The City operates under a City Council -Manager form of government and provides the
following services: public safety (police, fire and graffiti abatement), public utilities services
(electric, water and sewer), transportation services (streets, flood control and transit), leisure, cultural
and social services (parks and recreation, library, and community center), and general government
services (management, human resources administration, financial administration, building
maintenance and equipment maintenance).
As of January 1, 2010, the City had an estimated population of 63,000 within an area of
approximately 13.9 square miles.
See "APPENDIX C — THE CITY OF LODI". Since 1910, the City has been providing
portable water to the community.
Governance and Management
The City is governed by a five -member City Council comprised of members elected at large.
Each council member is elected for four years with staggered terms.
The current City Council members and the expiration dates of their terms are set forth below.
Council Member
Phil Katzakian
Susan Hitchcock
Larry D. Hansen
Bob Johnson
Joanne Mounce
Mae
Mayor
Mayor Pro Tempore
Council Member
Council Member
Council Member
Expiration of Term
December 8, 2010
December 8,2010
December 8, 2010
December 5,2012
December 5, 2012
Konradt Bartlam, Interim City Manager, was appointed Interim City Manager by the City
Council in April 2010. Mr. Bartlam is also the City's Community Development Director, a position
he was first appointed to in 1996 and again in 2008 after a three-year stint in private practice. Before
coming to Lodi, Mr. Bartlam held management positions in several California communities,
beginning his career in 1981. Mr. Bartlam earned his Bachelor's degree in Urban and Regional
Planning from California State Polytechnic University, Pomona.
Jordan Ayers, Deputy City Manager/Internal Services Director was appointed to the position
in December 2008. Mr. Ayers manages the City's budget and finance divisions, including those of
the Water System, along with the Human Resources division, Information Technology division and
Risk Management functions. He came to Lodi with nearly 26 years experience as a senior -level
finance, budgetary and administrative professional with Sacramento County. He earned his
W-1
DOCSOC/1418056v 16/022245-0221
Bachelor's degree in Business Administration with concentrations in Accounting and Management
Information Sciences from California State University, Sacramento.
F. Wally Sandelin, Public Works Director, has overseen the City's wastewater, water,
drainage, street, traffic, and public building infrastructure since his appointment in 2008. Mr.
Sandelin, a registered civil engineer, earned his Bachelor of Science and Master of Science degree
from the University of California, Davis. He has been on the City's Public Works staff since 2000,
beginning as City Engineer.
Employees
As of July 1,2010, the City had 43 full-time equivalent employee positions budgeted for the
Water System and the City's wastewater system. Employees of the Water System and the City's
wastewater system are represented by the American Federation of State, County and Municipal
Employees Maintenance and Operators Bargaining Unit, whose Memorandum of Understanding is
set to expire on December 31,2011. The City has never experienced a labor strike.
Retirement Programs
The Water System is responsible for a portion of the City's personnel costs. Retirement
benefits to City employees, in the form of pension benefits provided through the City's participation
in the California Public Employees Retirement System, are described in Note 10 to the City's audited
financial statements included in Appendix D hereto. Retirement costs associated with City
employees assigned to the Water System are as follows:
TABLE 1
RETIREMENT COSTS PAYABLE FROM
REVENUES OF THE WATER SYSTEM
FISCAL YEAR
AMOUNT
2007-08
$175,800
2008-09
$181,600
2009-10 (est.)
$180,300
2010-11 (est.)
$205,600
Source: City of Lodi
In addition to required contributions for retirement benefits for City employees assigned to
the Water System, the City pays certain post -employment health care and other non -pension
("OPEB") benefits for such employees. The City pays for OPEB costs on a pay-as-you-go basis.
City OPEB related payments for Fiscal Year 2009-09 totaled $589,652. Approximately four percent
of the City employees are assigned to the Water System and it is reasonable to expect that a similar
ratio of costs is attributable to Water System employees. City costs for OPEB for Fiscal Year 2009-
10 are estimated to be $510,000; fiscal Year 2010-11 costs have been estimated to be $577,000.
Staffing levels are expected to remain the same. See APPENDIX D — "AUDITED FINANCIAL
STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30,2009" —Note 11 to
the Basic Financial Statements" for a discussion of the City's OPEB liabilities.
There can be no assurances that retirement costs and OPEB costs payable from revenues of
the Water System will not significantly increase in future fiscal years.
19
DOCSOC/1418056v 16/022245-0221
Insurance
The City's boiler and machinery operations (including those parts of the Water System) are
insured by Hartford Steam Boiler for up to $21,250,000 per occurrence as part of a pooled program
through California Joint Powers Risk Management Agency ("CJPRMA'). The City, including the
Water System, is self-insured for general liability losses for up to $500,000 and has pooled excess
coverage through the CJPRMA for up to $40 million per occurrence. The City is self-insured for
workers' compensation losses for up to $250,000 and has pooled excess coverage through the Local
Agency Workers' Compensation Excess Authority for up to $300,000,000.
Water System Facilities
The Water System consists of 237 miles of water pipes ranging in diameter from two to
fourteen inches, twenty-seven groundwater wells with a total pumping capacity of approximately
37,000 gallons per minute, and two storage tanks, including a 100,000 gallon elevated tank and a one
million gallon ground level tank with booster pumping station.
Distribution System. The distribution system consists of approximately 237 miles of pipe
ranging in size from two inches to fourteen inches and serves an area of 11.5 square miles. The
distribution system currently serves over 23,000 accounts (most of which are residential), 1,400 acres
of commercial/industrial development, and 250 acres of schools. There is a single pressure zone
within the service area. The City acquired the Water System in 1910 when the population of the City
was approximately 2,000. The Water System has slowly expanded to serve the current community of
approximately 63,000 residents. The distribution system age ranges from 100 years to new and little
replacement has occurred over the past 100 years. The City has implemented a program to replace
the oldest and smallest pipes as described below in "Capital Improvement Plan."
Supply. Groundwater currently serves as the sole source of water supply to the City. The
City overlays a portion of the San Joaquin Valley groundwater basin. The basin from which the City
draws the groundwater has not been adjudicated before the State Water Resources Control Board to
limit groundwater draws by users to a sustainable share. Accordingly, in many cases, users are able
to draw more than a sustainable yield, The Department of Water Resources has declared that the
groundwater basin underlying Eastern San Joaquin County is overdrafted and groundwater levels in
the County and the City are generally decreasing. Studies have determined the safe groundwater
yield for the area underlying the City is approximately 15,000 acre feet per year. Annual water
production for the four year period from 2006 through 2009 was approximately 16,305 acre feet,
17,132 acre feet, 17,164 acre feet and 16,052 acre feet per year, respectively.
The current water usage within the City is approximately 15.3 million gallons per day or
17,140 acre feet per year. In 2004 through 2006, the City approved several large annexations that are
expected to increase the water demand, when developed, to 17.7 million gallons per day or 19,780
acre feet per year. The majority of these projects are delayed due to current market conditions.
As a result, there can be no assurances that the amount of groundwater historically utilized by
the City will continue to be available in the future. In order to address this, as described in "THE
TREATMENT FACILITY, "the City purchased surface water rights of approximately 6,000 acre
feet annually, and is constructing the Treatment Facility. Once operational, the Treatment Facility
will result in the addition of 6,000 acre feet annually to the City's supply, resulting in an immediate
reduction in groundwater pumping to slightly over 11,000 acre feet annually. See "THE
TREATMENT FACILITY." Once operations at the Treatment Plant commence, the City may elect
to abandon certain existing wells and/or delay construction of new wells.
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DOC SOC/ 1418056v 16/022245-0221
The City operates 27 groundwater production wells (with an additional well under
construction). The 27 operating wells that currently provide water to the City have a combined
capacity of approximately 37,000 gallons per minute or 52.9 million gallons per day. The wells
operate automatically on water pressure demand and pump directly into the distribution system. Six
wells are equipped with granular activated carbon for the removal of dibromochloropropane. See ••-
Certain Environmental Conditions" for a discussion of certain environmental issues relating to
groundwater in the City. These six wells represent less than four percent of the City's combined well
capacity.
Storage. The Water System contains two separate storage facilities. A 100,000 gallon
elevated tank located on North Main Street in the City modulates pressures with the distribution
system. A one million gallon storage tank and pressure boosting pump station located east of State
Route 99 on Thurman Street in the City serve peak demands in the City's industrial areas.
Service Area and Customers
The City provides water to substantially all of the population of the City, representing an area
of approximately 11.5 square miles. The City provides water service to a small subdivision outside
the City within the County of San Joaquin which is the customer. There are a total of 21 residential
units served via this agreement with the County of San Joaquin. The table below shows the number
of accounts in the Water System by user type and service charge revenues by class of user.
Residential users represent approximately 94% of all accounts and approximately 81 % of water sales
revenues.
Table 2
City of Lodi
Water System
Number of Accounts and Revenues by User Type
Commercial/Industrial/
Municipal Residential
Year Ending Number of Number of
December 31 Accounts Revenue Accounts Revenue
$1,597,96
2005
1,442
9
21,539
$6,299,367
2006
1,435
1,806,309
21,588
7,668,308
2007
1,445
2,043,731
21,533
8,715,928
2008
1,470
2,184,496
21,449
9,429,594
2009
1,382
2,188,486
21,577
9,600,129
Source: City of Lodi.
The City has experienced an average population growth rate of 1% per year over the past
twenty years, with commensurate increases in the number of customers. However, since 2006, the
number of accounts has declined. In 2011 the City expects that two large "big box" retailers will
open representing a demand of approximately 50 equivalent single family dwelling units (" EDUs").
Little additional growth is anticipated in 2011. In the projected operating results contain ned herein
in Table _ (the "Projected Operating Results"), for Fiscal Years 2010-11 years and beyond, a growth
rate of approximately 50 EDUs per year (or approximately 0.2%) is assumed.
The table below shows the 10 largest users of the Water System based on service charge
revenues for the Fiscal Year 2008-09 (unaudited).
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DOCSOC/1418056v 16/022245-0221
Table 3
City of Lodi
Water System
Largest Users by Service Charge Revenues
Fiscal Year 2009-10
LIS"
Lodi Unified School District
City of Lodi
Pacific Coast Producers
General Mills
Cottage Bakery
Lodi Memorial Hospital
Blue Shield of California
Miller Packing Company
Temple Baptist Church
Caltrans District 10
Subtotal Top Ten Users
Total System
Source: City of Lodi.
Rate Consultant's Report
Yo of Total
Type of Business
Revenue
Revenue
K-12; Adult Education
$228,766
1.94
Government
209,678
1.78
Private Label Fruit Canning
119,109
1.01
Cereals, Bread Mixes, Snack Foods
82,088
0.70
SpecialtyBakery
51,865
0.44
Health Care
36,518
0.31
Health Insurance
19,988
0.17
Hot Dog Producer
15,668
0.13
Church
15,129
0.13
Government
14.449
0.12
793.258
6.73
11,788,615
100.00%
The City retained The Reed Group, Inc. (the "Rate Consultant") in 2008 to assist in
developing financial plans and utility rates for the Water System and the City's wastewater system.
The Rate Consultant has prepared a report dated October _, 2010 titled "Water System Financial
Strategy" attached hereto as Appendix B (the "Rate Consultant's Report") which summarizes the
financial strategy supporting the activities of the Water System. Much of the information concerning
the rates for the Water System, and the Projected Operating Results, have been excerpted from the
Rate Consultant's Report.
The Rate Consultant's Report included as Appendix A to this Official Statement contains
certain assumptions and forecasts. The Rate Consultant's Report should be read in its entirety for a
discussion of historical and forecast results of the Water System and the assumptions and rationale
underlying the forecasts. As noted in the Rate Consultant's Report, any forecast is subject to
uncertainties. There will usually be differences between actual and forecast results because not all
events and circumstances occur as expected, and those differences may be material. If actual results
are less favorable than the results projected or if the assumptions used in preparing such projections
prove to be incorrect, the amount of Net Revenues may be materially less than expected and
consequently, the ability of the City to make timely payment of the 2010 Installment Sale Payments
may be materially adversely affected.
Water Rates and Charges
Subject to the requirements of Propositions 218, the City has the power to establish rates and
charges as needed to operate the Water System. The rates and charges are established by the City
Council and are not subject to review or approval by any other agency. The City has a history of
proactive rate increases to meet the needs of the water enterprises. Adopted rates have recently
included an annual review for inflationary indexing, as well.
22
DOCSOC/ 1418056v 16/022245-0221
Most recently, pursuant to Resolution No.2010-123 adopted on July 21, 2010, the City
Council set usage -based and flat water rates for residential, commercial and industrial customers.
Pursuant to the Resolution, the City Council:
• Changed the date for implementing the annual rate adjustments to January 1 of each of the 5
year maximum time frame allowed by Proposition 218 following January 1, 2011.
• Changed the water rate adjustment index from the Consumer Price Index (CPI) to the
Engineering News Record (ENR)effective January 1, 2012 as this index better reflects the
combined inflationary effects of personnel, materials and energy costs on the total operations
of the Water System.
• Adopted usage -based and flat water rates for residential customers effective January 1, 2011.
Add a 2% inflationary increase to the flat rates, base rates and each tier.
• Changed the multi -family and nonresidential usage -based rate structure for meter sizes 1 inch
and smaller to establishparity with the residential customers.
The Proposition 218 process was followed and notifications were sent to property owners and
utility customers 45 days prior to the public hearing on July 21,2010. At the public hearing the total
number of protests filed with the City Clerk represented less than I% required to sustain the protest.
The rate changes were adopted by the City Council.
Set forth below is a table showing selected rates effective January 1, 2011.
Table 4
City of Lodi
Water System
Selected Rates Effective January 1,2011
Percentlncrease Current"' Jan. 201111'
Flat Rates ($/month) 2%
Single Family Residential Unit ($/month)
2 Bedroom
3 Bedroom
$33.61
$40.28
$34.28
$41.09
Metered WaterRates
Service Charge ($/month)
Single Family Residential (3)
Up to 3/4" Meter
$22.25
$22.70
Multi -Family andNon-Residential (4)
1" Meter
$42.27
$36.85
11/2" Meter
$56.35
$57.50
T' Meter
$70.45
$71.85
Water Usage Rates ($/CCF)
Single Family Residential (3)
Tier 1— 0 to 10 CCF/month
$0.86
$0.88
Tier 2 — 11 to 50 CCF/month
$1.29
$1.32
Tier 3 — Over 50 CCF/month
$1.71
$1.74
Multi -Family andNon-Residential (3)
All Water Usage
$0.789
$0.88
(1) Revised July 1,2008.
(2) Approved by Council on July 21, 2010.
(3) Current residential metered rates are revenue neutral and were approved for comparative billing purposes only; metered
rates will go into effect on January 1,2011 for a portion of the City's customerbase.
23
DOCSOC/1418056v 16/022245-0221
(4) Proposed multi -family and non-residential rates improve equity with single family water rates.
A history of water rate increases since 2002 is presented in the following table.
Table 5
City of Lodi
Water System
History of Monthly Flat Rates and Rate Increases Since 2002
Three -Bedroom Home
Xear
Percentage
Rate
January 2002
25.0%
$15.56
July 2002
25.0%
19.45
May 2004
35.0%
26.26
May 2005
2.2%
26.83
January 2006
13.01/o
30.33
July 2006
13.3%
34.35
July 2007
12.9%
38.79
July 2008
3.8%
40.28
January 2011
2.0%
41.09
The Projected Operating Results assume that water rates will be adjusted for inflation each
January beginning in 2012, by the annual change in the ENR index which has averaged 3.5% over
the past ten years.
Transition to Usage -Based Water Rates for Single Family Customers. As described in the
Rate Consultant's Report, in 2005, the State of California adopted legislation requiring that all new
residential water services installed since 1992 begin receiving metered water bills beginning in 2011.
In Lodi this affects 2,882 residential customers. The same legislation requires that all water utility
customers have meters installed and begin receiving metered water bills no later than 2026. The
Lodi City Council adopted a Water Meter Program policy in 2009 stating that all unmetered
residential customers will receive a water meter and begin receiving metered water bill by 2017.
The City will begin transitioning single family residential customers with water meters from
flat water rates to water -usage based water rates in January 2011. At that time, approximately 3,000
of 16,400 single family customers will be converted to usage -based rates. It is estimated that all
single family residential customers will be transitioned to usage -based water rates by January 2017 as
the installation of water meters continues. Prior to converting any customer to usage -based rates, the
City will provide the customer with actual water usage data and information regarding how the
customer's bills may be affected with the change in billing.
The new usage -based water rate structure for single family customers includes a fixed service
charge based on the size of the water meter, and a three-tier usage rate structure intended to help
encourage water conservation. Initially, approximately 50% of the single family residential usage -
based water rate revenues are anticipated to be generated from fixed service charges are 50% from
usage charges.
The calculation of usage -based single family water rates was developed with water usage
data from approximately 850 metered accounts with usage histories in excess of 12 months. The
City plans to closely monitor actual water usage and water rate revenues as customers begin being
billed on usage -based rates. No assurances can be made, however, that actual water rate revenues
24
DOCSOC/ 1418056v 16/022245-0221
will be as projected. The City Council has the authority to change the water rates and rate structures,
if needed, to ensure revenue adequacy. The City's transition strategy to usage -based billing for
residential customers is similar to other communities within California that are impacted by similar
statutory requirements.
The usage -based rates were calculated to be revenue neutral with existing residential flat
water rates. This calculation assumes that residential water usage would decrease by 10% as a result
conservation activities by customers charged for usage. Because the transition to usage -based billing
will occur over approximately seven years, the potential revenue uncertainty will be limited to a
small percentage of the revenue base. As the City gains experience in monitoring customers' water
usage characteristics under usage -based billing it will be able to refine revenue estimates based on
accumulated knowledge.
The City will also be changing the manner in which single family residential customers will
be billed for wastewater services. Single family residential wastewater rates will be determined
based on each customer's winter water usage (period when irrigation demand is minimal). Usage -
based wastewater rates have not yet been adopted by the City and are not anticipated to be
implemented until January 2012. Usage -based wastewater rates may also have an impact on
customer's water demand.
As described herein in "Historical and Projected Operating Results," the City intends to
charge customers for the cost of the acquisition and installation of the new meters.
Billing and Collection. The City bills monthly for water, wastewater, solid waste and
electricity on the same bill. If a bill is unpaid, the City will terminate electric service to a customer
within 55 days of nonpayment after 48 hours notice. For financial reporting, the City records an
allowance for bad debt equal to 2 percent of receivables over 60 days old. Closed accounts with
outstanding balances are referred to a collection agency on a quarterly basis. The Water System
component of accounts recently referred to collection since October 2007 are:
Fiscal Year
2007/08*
2008/09
2009/10
Amount
$92,673
$125,505
$106,148
% of Sales Charge Revenue
1.1%
1.4%
1.2%
9 Months
Source: City of Lodi
Comparison of Monthly Water and Wastewater Service Charges of Selected Agencies. nom. A
comparison of water and wastewater service charges of selected agencies located in San Joaquin
County for an average three bedroom single-familyhome is set forth below.
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Table 6
Comparison of Monthly Water and Wastewater Service Charges
(as of June 30,2010)
Aeency
City of Galt (Flat Rate per month)
City of Manteca
City of Tracy
City of Lodi (usage based)**
City of Lodi (flat rates)**
City of Stockton
Based on 20 units
"Wastewaterrate based on a 3 bedroom single familyhome
Source: City of Lodi.
Water* Wastewater** XAW
$22.31 $53.24 $75.55
41.70
43.30
85.00
32.60
31.00
63.60
43.75
38.84
82.59
40.28
38.84
79.12
38.05
24.85
62.90
Impact Fees. In addition to collecting service charges, the City also collects water impact
mitigation fees, or "impact fees." Impact fees are one time fees charged to new development for
capacity in the water system. Impact fees for a typical low density single family residence (5
dwelling units per acre) is approximately $1,078.
As a result of the housing slump and general economic conditions, new development in the
City has declined significantly in the last few years. Due to a sharp drop in development activity,
total impact fee revenue was approximately $13,000 in Fiscal Year 2008-09 and less than $2000 in
2009-10.
The City expects that it will increase the per connection impact fee to reflect the cost of the
Treatment Plant, as well as other improvements to the Water System, in 2011. Preliminary estimates
indicate that the new impact fee will be approximately $8,000 per EDU, with annual inflation
indexing thereafter. The Projected Operating Results include estimated impact fees of approximately
$271,000 in Fiscal Year 2010-11 (attributable solely to two large retail operations which the City
expects will pay impact fees) and approximately $410,000 in Fiscal Year 2011-12. Customer growth
is expected to be 0.2% (or approximately 50 new connections) annually.
Actual impact fee revenues will depend on a variety of factors, including the actual increases
in impact fees adopted by the City Council and the actual number of new connections for which
impact fees are paid. The housing slump may continue for a prolonged period, with the result that
there are significantly less new connections in the City than contemplated in the Projected Operating
Results. In addition, there can be no assurances that the City Council will adopt impact fees at the
level assumed in the Projected Operating Results, and that new connections for which impact fees are
paid will occur at the levels assumed in the Projected Operating Results.
Capital Improvement Plan
The capital improvement program for the Water System consists primarily of (i) the
Treatment Facility (with an estimated cost of approximately $36.5 million) and (ii) the water meter
retrofit program (with an estimated cost of approximately $42.5 million). The water meter retrofit
program includes the installation of water meters and includes the replacement of small diameter,
aged, and/or backyard water mains, as required.
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The costs of the Treatment Facility are expected to be funded from the proceeds of the Series
2010 Bonds.
The costs of the meter retrofit program (to be incurred through Fiscal Year 2015-16) are
expected to be funded from (i) charges expected to be imposed on customers for the water meters
(approximately $13 million); (ii) available reserves of approximately $14 million; and (iii) available
revenues of the Water System (approximately $15 million). As described herein in "Historical and
Projected Operating Results," the City has not yet adopted the charges expected to be imposed on
customers for the water meters. There can be no assurances that the City Council will adopt the
charges in the amounts contemplated in the Projected Operating Results.
The Capital Improvement Program also includes additional capital projects, consisting
mainly of pipe replacement, which are also expected to be funded from available revenues of the
Water System.
The City believes that the replacement of old facilities will provide a long term reduction in
utility capital maintenance costs. It also improves the fire protection and pressure conditions in those
areas served by undersized pipes.
As described below, the City also expects to undertake remediation and other activities
relating to certain environmental conditions. The costs of those activities are expected to be paid
from existing settlementproceeds and reserves.
Environmental Regulation and Compliance
The City of Lodi Water System is subject to a variety of federal and state drinking water
regulations established by the United States Environmental Protection Agency ("USEPA") and the
California Department of Public Health (CDPH). Many of the drinking water regulations are
applicable to both the existing groundwater supplies and the proposed surface water supply. Lodi's
Annual Water Quality Report present a summary of water system facilities, supply, operations and
water quality.
CDPH is the primary agency responsible for enforcement of the federal and state drinking
water regulations. CDPH performs field inspections, issues operating permits, reviews plans and
specifications for proposed facilities, enforces compliance with laws and regulations, monitors water
quality reports, and promotes water system security. CDPH also collaborates with other agencies
including USEPA, State Water Resources Control Board, and the San Joaquin County Health
Department.
Certain Environmental Conditions
Following are discussions of certain environmental conditions which currently are, and may
in the future, affect the operations and/or financial condition of the Water System.
PCE/TCE Contamination. As described herein, the City currently relies upon groundwater
for providing potable water to its residents through the City's water enterprise. The City detected the
chemicals tetrachloroethylene ("PCE" or "PERC") and trichloroethylene ("TCE") in the groundwater
in 1989. The contamination was caused by releases into five different contamination plumes over
many decades by businesses in the City. The City filed, and has now fully resolved, a cost recovery
action entitled "The People of the State of California and the City of Lodi v. M&P Investments, et. al
U.S. District Court for the Eastern District of California, Case No. Civs-00-2441 FCD JFM."
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Active remediation is not required in order to protect the City's groundwater supply. First,
the five plumes run along three narrow contours following the flow of groundwater. With minor
exceptions, because the plumes containing the contaminants follow the southerly groundwater flow,
the City believes that 22 of the City's total 27 wells that are east and west of the plumes are not
threatened. The City has numerous wells that pump water from wells outside the plumes' contours.
More importantly, the water supply can be completely protected by either closing the well or
installing wellhead treatment to remove the contaminants at the time the water is ready to be
introduced into the Water System. Active remediation is only required as a result of 1) the various
settlements the City has entered into; and 2) the oversight of the Central Valley Regional Water
Quality Control Board ("Board"). Because the settlements require cleanup to the Board's
satisfaction, the Board is ultimately the only source of authority mandating active remediation.
The two most common treatment methods for PCE and TCE are Ground Water Extraction
and Filtration ("GWETS")and Soil Vapor Extraction and Filtration ("SVE" ). In both cases, wells are
installed to suck water (in the case of GWETS) and air (in the case of SVE) into a carbon filter
system that filters the contaminants out of the water and air. SVE was first installed in the largest
plume in 2004 and has removed approximately 16,000 pounds of PCE. The City is currently
installing a more robust SVE and GWETS system in the central plume designed to remove PCE
which the existing system may have missed. The City believes that the wellhead data for the new
wells suggests that the first SVE system may have already removed the majority of the PCE. Funding
for these cleanup efforts was secured through settlements as well as available Net Revenues of the
Water System.
Although the contamination is a serious issue, the City believes that it can manage its water
supply to avoid adverse consequences to the Water System. The City has numerous wells that pump
water from far outside the areas which are affected. Settlements in the litigation and rate increases,
as discussed below, have provided a steady funding source to manage and treat the threat. In
addition, construction of the Treatment Facility will reduce the City's reliance on groundwater,
increasing the ability of the City to avoid problematic groundwater areas.
The settlement with respect to one of the plumes (the "Busy Bee" plume) fully funded a
contract with a remediation company which is expected to fully remediate the site of the Busy Bee
plume. The City also settled with or dismissed all potentially responsible parties in the remaining
four plumes and settled with its own insurance carriers, raising $35.3 million through the settlements
toward the cleanup cost.
To finance the costs of the litigation, the City and the Lodi Public Improvement Corporation
entered into a financing arrangement with Lehman Brothers Inc. ("Lehman") in June 2000 (the "2000
COPs"). Lehman advanced $15,625,000, which was repayable with interest. In 2004, litigation arose
between Lehman and the City over the City's obligations under the 2000 COPS. The matter settled in
2005 with the City paying Lehman $6 million to fully discharge its obligations under the 2000 COPS.
In addition to the proceeds of litigation settlements, the City Council implemented significant
increases in Water System rates beginning in January of 2006 to provide additional funds to meet the
City's unfunded potential liability. These water rate increases were unsuccessfully challenged by
citizen initiative in November 2006 by a vote of 63.9% to 36.1%. Subsequent to the adoption of
these rate increases, the City Council approved inflationary adjustments in each year from 2006
through 2010.
The City's audited financial statements for the year ended June 30, 2009 state that the City's
remaining pollution remediation obligation was approximately $70 million as of June 30,2009. See
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DOCSOC/1418056v16/022245-0221
See APPENDIX D — "AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL
YEAR ENDED JUNE 30,2009" —Note _ to the Basic Financial Statements" for a discussion of the
City's remediation liabilities. However, that amount was based on estimates of remediation costs
prepared in 20_ in connection with the litigation concerning the environmental conditions. Based
on remediation progress and costs to date, as well as communications with the Board, the City
currently believes that all remaining remediation costs through Fiscal Year 2019-20 can be paid from
remaining settlement proceeds and other restricted funds of the City. (The current amount of such
remaining settlement proceeds and other restricted funds is approximately $18 million.) Therefore,
the Projected Operating Results assume that no additional Net Revenues of the Water System will be
required to pay remediation costs. The following table shows sources and uses of funds relating to
the cleanup activities.
TABLE 7
SOURCES AND USE RELATING TO ENVIRONMENTAL CLEANUP
Item Amount (in millions
Estimated Remaining Cleanup Costs(1) $41.20
Available Funds:
Settlements Proceeds
Rate Revenue
Total Available Funds
$14.64
3.40
$18.04
Unfunded Potential City Exposure to be 23 16
funded from Water Rate Revenue
(1) Includes a $9 million contingency.
As described above, the City believes that remaining settlement proceeds and existing
reserves will be sufficient to pay remediation costs through Fiscal Year 2019-20, and that available
revenues will not be required to pay such costs through such period. However, there can be no
assurances that the actual costs of remediation will not exceed the City's current estimates. See
"RISK FACTORS — Remediation Costs."
DBCP Contamination. The City's groundwater is impacted by remnants of a former
agricultural pesticide known as DBCP (1,2-dibromo-3-chloropropane). DBCP is a listed carcinogen
that can be removed from water through carbon filtration. DBCP was used as a fumigant to treat
infestations in vineyards. As the City has grown, it has annexed former vineyard sites. Although
DBCP can be found in 6 of the 27 wells (representing less than four percent (4%) of the City's
pumping capacity) inside the older portion of the City, it primarily is found in the City's newer
vineyard annexations to the south and west. The City has no connection to or liability for the
contamination except its obligation to purify the water to the extent it chooses to introduce it into its
drinking water supply.
The City settled a lawsuit against the manufacturers of DBCP including Dow, Shell and
Occidental in 1996 that requires the defendants to fund the City's well replacement and treatment
costs through the year 2036. Although the reimbursement terms are complex, the amounts paid to
date by the defendants have significantly exceeded the City's actual costs. The settlement agreement
allows reimbursements to exceed costs because reimbursements are, in most cases, set at ninety
percent (90%) of projected treatment costs and actual treatment costs have been below the settlement
29
DOCSOC/1418056vl6/022245-0221
agreement projections. Staff anticipates that this trend will continue throughout the settlement
agreement's term. Settlement payments exceeded treatment and legal costs by approximately
$130,000 in Fiscal Year 2009-10, approximately $71,000 in 2008-09, and approximately $48,000 in
2007-08. The City does not anticipate that it will need to utilize Net Revenues of the Water System
to fund treatment costs in the future because continued effective resource management are expected
to keep costs below settlement revenues.
As required by state law, the City monitors various contaminant levels including DBCP, at
the wellhead on a regular basis. DBPC is treated in exactly the same manner as PCE and TCE.
Groundwater that tests above the DBCP drinking water standard is pumped through a carbon filter at
the wellhead that removes the DBCP. The City manages the Water System resources, selectively
turning wells on and off to insure that the carbon filters achieve their maximum life. The Treatment
Facility funded through this financing will increase the City's ability to achieve cost savings though
additional resource management.
Financial Statements
The audited General Purpose Financial Statements of the City as of June 30, 2009 are
included in Appendix D to this Official Statement. The 2010 Installment Payments are special
obligations of the City payable solely from the Water System Net Revenues. The General Purpose
Financial Statements have been audited by Macias, Gini & Company LLP, Sacramento, California,
independent accountants (the "Independent Accountants") as stated in their report appearing in
Appendix D.
No review or investigation with respect to subsequent events has been undertaken in
connection with such General Purpose Financial Statements by the Independent Accountants and the
Independent Accountants have not been asked to consent to the City regarding inclusion of the
General Purpose Financial Statements in this Official Statement.
Historical and Projected Operating Results
The following table sets forth historical and projected revenues, expenses and debt service
coverage of the Water System. The historical information is based on the City's audited financial
statements for fiscal years 2004-05 through 2008-09 and unaudited results for fiscal year 2009-10.
The Projected Operating Results were prepared by the City, and are based in part on the Water
System Financial Strategy Report described below. The coverage ratios have been computed in
accordance with the requirements of the Installment Purchase Agreement, including the definitions of
System Net Revenues and Operation and Maintenance Costs (although such requirements and
definitions were not applicable prior to the issuance of the Series 2010 Bonds).
Development of Proiected Operating Results and Debt Service Coverage. The City's
estimated projected operating results for the Water System for the Fiscal Years ending June 30,2011
through 2015 are set forth below, and reflect certain significant assumptions concerning future events
and circumstances. The financial forecast represents the City's estimate of projected financial results
based upon its judgment of the probable occurrence of future events. The assumptions set forth in
part in the footnotes to the chart set forth below are material in the development of the City's
financial projections, and variations in the assumptions may produce substantially different financial
results. Actual operating results achieved during the projection period may vary from those
presented in the forecast and such variations may be material.
In connection with the development of the financial plan for the funding of the Treatment
Plant and the development of the metered rates, the City engaged The Reed Group, Inc (the "Rate
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DOCSOC/ 1418056v16/022245-0221
Consultant"). The Rate Consultant issued a Water System Financial Strategy Summary Report,
dated August 18, 2010 (the "Water System Financial Strategy Report"), which included an analysis
of Water System rates and a variety of assumptions
Major assumptions affecting the Projected Operating Results include the following:
Water Sales Revenue. Estimated future water sales revenue have been estimated based on
consideration of the following factors:
• Recently adopted water rates, as well as assumed annual inflationary adjustments of
3.5% per year beginning January 1,2012 (see "- Water Rates and Charges")
• Planned transition of single family residential customers from flat rate billing to
water usage -based billing (see "- Water Rates and Charges - Transition to Usage -
Based Water Rates for Single Family Customers");
• Increases of 0.2% per year)in the number of customer connections;
• No increase in water demand as a result of economic recovery
Water Impact Mitigation Fees. The current water impact mitigation fee is approximately
$1,078 for a single family residential connection. As described herein in "- Water Rates and
Charges," the Projected Operating Results assume that the water impact fees will be increased to
$8,000 during Fiscal Year 2010-11, and that there will be approximately 50 new connections for
which impact fees are paid annually (representing annual growth of approximately 0.2%).
The Projected Operating Results assume that approximately $271,000 in impact fees will be
received in Fiscal Year 2010-11, which are solely attributable to two large commercial projects
which are anticipated to move forward and pay impact fees.
Meter Retrofit Installation Charges. In order to provide additional funding for the planned
accelerated water meter retrofit program, the City is considering imposing a meter retrofit installation
charge on all customers requiring water meters. Lump sum charges varying between $300 and
$1,200 have been proposed by City staff. Under the proposal, customers would have the option of
paying the charge in a lump sum, or paying in monthly installments, in a charge on the utility bill,
over seven years at an estimated interest rate of 2%. Lump sum payments would be due by July 1,
2011, and monthly charges would be imposed beginning in July 2011 on all customers who require,
and have not yet paid for, meters regardless of installation date. This meter retrofit installation charge
is expected to be considered by the City Council in early 2011. There can be no assurances that the
City Council will adopt the proposal of City staff
The Projected Operating Results reflect both the revenues from the anticipated meter retrofit
installation charges (including estimates of lump sum payments and monthly installment payments),
and the costs of the meter retrofit program. Because a portion of the meter retrofit program entails
replacing existing undersized and/or back yard mains, a portion of the program is also funded
through existing water rate revenues and available reserves. See "Capital ImprovementProgram."
PCE/TCE Monitoring and Remediation Costs. The Projected Operating Results do not reflect
the anticipated capital and operations and maintenance costs associated with monitoring and
remediation of groundwater for PCE/TCE. As of June 30, 2010, the City has about $18 million in
restricted reserves intended for PCE/TCE purposes and these reserves are believed to be sufficient
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DOCSOC/1418056v 16/022245-0221
for program costs through at least 2020. See "- Certain Environmental Conditions." There can be no
assurances that actual costs of remediation will not exceed current reserves therefor.
The following table also sets forth debt service coverage ratios with respect to the Series
2010 Bonds. Such coverage ratios have been computed in accordance with the requirements of the
Installment Purchase Agreement
Table 8
City of Lodi
Water System
Historical and Projected Operating Results and Debt Service Coverage
Fiscal Years 2005-06 through 2014-15
[TO COME]
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THE TREATMENT FACILITY
The following information is excerpted from the Consulting Engineer's Report attached to
this Official Statement as Appendix A. The Consulting Engineer's Report should be read in its
entirety.
The Treatment Facility is designed to pump up to 11.5 million gallons per day (mgd) of water
fiom the Mokelumne River, treat this water and deliver it to the City's existing water distribution
system. The Treatment Facility is expected to provide 8 mgd of firm capacity (10 mgd peak capacity)
of treated water that would meet or exceed state and federal drinking water standards.
Major components of the Treatment Facility include a raw water pump station and pipeline;
operations building; chemical building; treatment works (sedimentation basin, autostrainers, feed
pumps, and membranes); control systems and related facilities and equipment.
The Treatment Facility will treat raw water fiom the Mokelumne River, which the City will
purchase from the Woodbridge Irrigation District ("WID"). The City entered into a contract in 2003
to purchase 6,000 acre feet annually of surface water. The initial contract term is 44 years with City
ability to extend the term for an additional 44 years. The City believes that implementation of the
Treatment Facility will, together with the City's groundwater resources, provide a highly reliable and
flexible conjunctive use water supply for the next 80 years.
Due to the high quality of the Mokelumne River supply, the City's surface water treatment
plant will utilize a microfiltration technology in its treatment process. Microfiltration is a proven
technology that is cost effective, low maintenance, and supports a small footprint facility. The City
acquired the treatment plant site adjacent to the WID point of supply over 50 years ago.
Features of the treatment plant include pretreatment for sediment removal and filter fouling
protection, pumps to push the water through the microfiltration membrane fibers, finished water
conditioning (if required) and chlorination. Ancillary facilities will be used to clean the filters in
place and out of place.
Four major buildings will be constructed to house the treatment plant facilities. These
include the operations building, chemical storage building, raw water pump station, and high service
pump station. The initial plant construction is designed to treat 8 million gallons per day. All
facilities are designed to accommodate for a future expansion of the treatment plant to 20 million
gallons per day.
A three million gallon storage tank and booster pumping facility will discharge the treated
water on demand into the large diameter transmission mains constructed along with the treatment
plant. Existing water wells, of which there are 27, will be modified to include chlorination facilities
as required by applicable regulations.
California Environmental Quality Act review of the Treatment Facility consisted of
preparation of an Initial Study/Mitigated Negative Declaration. The documents were certified by the
City Council following the public hearing held on July 21, 2010.
The City estimates that the total capital cost of the Treatment Facility will be approximately
$36.5 million, consisting of approximately $27.5 million on site acquisition, construction costs, fees
33
DOCSOC/1418056v 16/022245-0221
and testing costs, approximately $4.4 million in equipment, $900,000 in engineering costs, and a
contingency of approximately $3.7 million (or 10%).
The bid process for the Treatment Facility began in May 2010 with the solicitation of pre -
qualification applications fiom general contractors. Ten general contractors met the requirements
and were provided bid documents on August 3, 2010. The City received bids fiom nine firms on
September 16,2010. Bid amount ranged fiom $22.8 million to $29.0 million. The City is evaluating
the bids and expects to award the contract for construction of the treatment plant on October 20,
2010. Construction is anticipatedto begin January 2011 and require 18 — 24 months to complete.
The California Department of Public Health ("CDPH") is a primary agency with
responsibility for enforcement of the federal and state Safe Drinking Water Acts. The CDPH
Drinking Water Program is part of the Division of Drinking Water and Environmental Management,
and the Northern California Field Operations Branch of the Drinking Water Program oversees the
City's water system. The CDPH performs field inspections, issues operating permits, reviews plans
and specifications for proposed facilities, enforces compliance with laws and regulations, monitors
water quality, and promotes water system security. The delivery of treated surface water into the
City water system will require additional water quality monitoring and data reporting and compliance
with additional drinking water regulations. The Treatment Facility has been designed with the intent
of meeting or exceeding existing state and federal drinking water standards, and will provide
treatment for virus, bacteria, and protozoa organisms such as giardia and cryptosporidium. The
Projected Operating Results include estimated costs of compliance with the requirements of CDPH.
The Consulting Engineer's Report also addresses projected operating and maintenance cost
for the Treatment Facility. Operations and maintenance requirements will change over the first
several years as the facility is brought on line and moves through the plant's lifecycle periods
referred to as; commissioning, post commissioning, normalization and optimization. The
commissioningperiod is the initial plant startup and is primarily the responsibility of the contractor.
The post commissioning period is the most labor intensive period as the plant is operated 24 hours
per day, 7 days a week, for approximately 8 months to ensure adequate water quality under varying
conditions. The normalization period of approximately 6 months is focused upon standardizing
operation and maintenance procedures and preparing for unattended operation of the plant. The
Consulting Engineer estimates that 9 additional personnel will be required for the commissioning and
normalization period. The optimization period is the final period and devoted to fine tuning and
optimizing treatment plant performance. The Consulting Engineer anticipates that 4 to 5 personnel
should be able to properly operate and maintain the facility, with support fiom external resources,
once the facility reaches its optimized operation. The City has taken the costs of these personnel into
account in developingthe Projected Operating Results.
CONTINUING DISCLOSURE
The City will covenant pursuant to a Continuing Disclosure Certificate to provide certain
financial information and operating data relating to the City and the Water System by not later than
seven months following the end of the City's Fiscal Year, which Fiscal Year presently ends June 30
(the "Annual Report"), commencing with the Annual Report for fiscal year 2009-10, and to provide
notices of the occurrence of certain enumerated events, if material, under federal securities law.
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DOCSOC/ 1418056v 16/022245-0221
The specific nature of the information to be contained in the Annual Report and the notices of
material events are set forth in "APPENDIX G — PROPOSED FORM OF CONTINUING
DISCLOSURE CERTIFICATE". These covenants have been made to assist the Underwriter in
complyingwith Rule 15c2 12 of the Securities and Exchange Commission (the "Rule").
As of the date hereof, the City has not failed to comply in the last five years in any material
respect with any previous undertakings with regard to the provision of annual reports or material
events notices as required by the Rule.
THE AUTHORITY
The Authority was created in July of 2010 by a joint exercise of powers agreement, which
was entered into between the City and Industrial Development Authority of the City of Lodi ("IDA")
pursuant to the provisions of the Act. Under the Joint Exercise of Powers Agreement, the Authority
is a public entity, separate from the City and the IDA. The debts, liabilities and obligations of the
Authority shall not constitute debts, liabilities or obligations of the City or the IDA. The Authority is
administered by a governing board consisting of the members of the Lodi City Council.
CONSTITUTIONALLIMITATIONS ON TAXES AND APPROPRIATIONS
Following is a description of certain significant limitations on the ability of the city to raise
taxes, and to impose rates, fee and charges, including charges for service provided by the Water
System.
California Constitution Articles XIIIA and XIIIB
Article XIIIA of the California Constitution limits the taxing powers of California public
agencies. Article XIIIA provides that the maximum ad valorem tax on real property cannot exceed
1% of the "full cash value" of the property, and effectively prohibits the levying of any other ad
valorem property tax except for taxes above that level required to pay debt service on voter -approved
general obligation bonds. "Full cash value" is defined as "the County Assessor's valuation of real
property as shown on the 1975-76tax bill under `full cash value' or, thereafter, the appraisal value of
real property when purchased, newly constructed, or a change in ownership has occurred after the
1975 assessment." The "full cash value" is subject to annual adjustment to reflect inflation at a rate
not to exceed 2% or a reduction in the consumer price index or comparable local data, or declining
property value caused by damage, destruction or other factors.
The foregoing limitation does not apply to ad valorem taxes or special assessments to pay the
interest and redemption charges on any indebtedness approved by the voters before July 1, 1978 or
any bonded indebtedness for the acquisition or improvement of real property approved by the voters
as required by law.
Under Article XIIIB of the California Constitution, state and local government entities have
an annual "appropriations limit" which limits their ability to spend certain moneys called
"appropriations subject to limitation," which consist of tax revenues, certain state subventions and
certain other moneys, including user charges to the extent they exceed the costs reasonably borne by
the entity in providing the service for which it is levying the charge. The City is of the opinion that
the water service and user charges imposed by the City do not exceed the costs the City reasonably
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DOC SOC/ 1418056v 16/022245-0221
bears in providing the water service. 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 the consumer price
index, population, and services provided by these entities. Among other provisions of Article XIIIB,
if an entity's revenues in any year exceed the amountpermitted to be spent, the excess would have to
be returned by revising tax rates or fee schedules over the subsequent two years.
California Constitution Articles XIIIC and XUlD
General On November 5, 1996, California voters approved Proposition 218, the so-called
"Right to Vote on Taxes Act." Proposition 218 added Articles XIIIC and XIIID to the State
Constitution, which affect the ability of local governments to levy and collect both existing and
future taxes, assessments, and property -related fees and charges. Proposition 218, which generally
became effective on November 6, 1996, changed, among other things, the procedure for the
imposition of any new or increased property -related "fee" or "charge," which is defined as "any levy
other than an ad valorem tax, a special tax or an assessment, imposed by a [local government] upon a
parcel or upon a person as an incident of property ownership, including user fees or charges for a
property related service" (and referred to in this section as a "property -related fee or charge").
Specifically, under Article XIIID, before a municipality may impose or increase any
property -related fee or charge, the entity must give written notice to the record owner of each parcel
of land affected by that fee or charge. The municipality must then hold a hearing upon the proposed
imposition or increase at least 45 days after the written notice is mailed, and, if a majority of the
property owners of the identified parcels present written protests against the proposal, the
municipality may not impose or increase the property -related fee or charge.
Further, under Article XIIID, revenues derived from a property -related fee or charge may not
exceed the funds required to provide the "property -related service" and the entity may not use such
fee or charge for any purpose other than that for which it imposed the fee or charge. The amount of a
property -related fee or charge may not exceed the proportional cost of the service attributable to the
parcel, and no property -related fee or charge may be imposed for a service unless that service is
actually used by, or is immediately available to, the owner of the property in question.
In addition, Article XIIIC states that "the initiative power shall not be prohibited or otherwise
limited in matters of reducing or repealing any local tax, assessment, fee or charge. The power of
initiative to affect local taxes, assessments, fees and charges shall be applicable to all local
governments and neither the Legislature nor any local government charter shall impose a signature
requirement higher than that applicable to statewide statutory initiatives."
mai If: I : 1; ticn of Pzgx&Um 228. After Proposition 218 was enacted in 1996,
appellate court cases (such as Apartment Association v. City of Los Angeles (2001) 24 Cal. 4th 830)
and an Attorney General opinion initially indicated that fees and charges levied for water and
wastewater services would not be considered property -related fees and charges, and thus not subject
to the requirements of Article XIIID regarding notice, hearing and protests in connection with any
increase in the fees and charges being imposed. However, three recent cases have held that certain
types of water and wastewater charges could be subject to the requirements of Proposition 218 under
certain circumstances.
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In Richmond v. Shasta Community Services District (9 Cal. Rpm. 3rd 121), the California
Supreme Court addressed the applicability of the notice, hearing and protest provisions of Article
XIIID to certain charges related to water service. In Richmond, the Court held that connection
charges are not subject to Proposition 218. The Court also indicated in dictum that a fee for ongoing
water service through an existing connection could, under certain circumstances, constitute a
property -related fee and charge, with the result that a local government imposing such a fee and
charge must comply with the notice, hearing and protest requirements of Article XIIID.
In Howard Jarvis Taxpayers Association v. City of Fresno (March 23, 2005), the California
Court of Appeal, Fifth District, concluded that water, sewer and trash fees are property -related fees
subject to Proposition 218 and a municipality must comply with Article XIIID before imposing or
increasing such fees. The California Supreme Court denied the City of Fresno's petition for review
of the Court of Appeal's decision on June 15,2005.
In July 2006 the California Supreme Court, in Bighorn -Desert View WaterAgency v. Verjil
(5127535, fly 24, 2006), addressed the validity of a local voter initiative measure that would have
(a) reduced a water agency's rates for water consumption (and other water charges), and (b) required
the water agency to obtain voter approval before increasing any existing water rate, fee, or charge, or
imposing any new water rate, fee, or charge. The court adopted the position indicated by its
statement in Richmond that a public water agency's charges for ongoing water delivery are "fees and
charges" within the meaning of Article XIIID, and went on to hold that charges for ongoing water
delivery are also "fees" within the meaning of Article XIIIC's mandate that the initiative power of
the electorate cannot be prohibited or limited in matters of reducing or repealing any local tax,
assessment, fee or charge. Therefore, the court held, Article XIIIC authorizes local voters to adopt
an initiative measure that would reduce or repeal a public agency's water rates and other water
delivery charges. (However, the court ultimately ruled in favor of the water agency and held that the
entire initiative measure was invalid on the grounds that the second part of the initiative measure,
which would have subjected future water rate increases to prior voter approval, was not supported by
Article XIIIC and was therefore invalid.)
The court in Bighorn specifically noted that it was not holding that the initiative power is free
of all limitations; the court stated that it was not determining whether the electorate's initiative power
is subject to the statutory provision requiring that water service charges be set at a level that will pay
for operating expenses, provide for repairs and depreciation of works, provide a reasonable surplus
for improvements, extensions, and enlargements, pay the interest on any bonded debt, and provide a
sinking or other fund for the payment of the principal of such debt as it may become due.
Proposition 218 and the City's Water System Rates. The City followed the procedural
requirements, including the public hearing and majority protest provisions, of Proposition 218 in
connection with its most recent Water System rate increases (which included approval for annual
ENR increases through 2016). See "THE WATER SYSTEM - Water Rates and Charges". The City
believes that its current water charges which are collected to pay the costs of Water System operation
and maintenance and debt service comply in all respects with the requirements of Article XIIID and
the City expects that any future water charges will comply with Article XIIID's procedural and
substantive requirements to the extent applicable thereto.
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ConclusiomIt is not possible to predict how courts will further interpret Article XIIIC and
Article XIIID in future judicial decisions, and what, if any, further implementing legislation will be
enacted.
Under the Bighorn case, local voters could adopt an initiative measure that reduces or repeals
the City's rates and charges, although it is not clear whether (and California courts have not decided
whether) any such reduction or repeal by initiative would be enforceable in a situation in which such
rates and charges are pledged to the repayment of bonds or other indebtedness. After the City
Council adopted increased water rates on September 21, 2005 to pay for the cleanup of PCE and
TCE in the City's groundwater (as described herein in "THE WATER SYSTEM — Certain
Environmental Conditions), an initiative was placed on the November 7, 2006 ballot to repeal the
increased rates. The resolution failed, with 63.9% of the voters rejecting the proposed rate reduction
and 36.1 % of voters supporting it.
There can be no assurance that the courts will not further interpret, or the voters will not
amend, Article XIIIC and Article XIIID to limit the ability of local agencies to impose, levy, charge
and collect increased fees and charges for utility service, or to call into question previously adopted
utility rate increases.
Future Initiatives
Articles XIIIA, X11I13, XIIIC and XIIID were adopted as measures that qualified for the
ballot pursuant to California's initiative process. From time to time other initiatives could be
proposed and adopted affecting the City's revenues or ability to increase revenues.
1 .4 1 �3 ►41I:�"Gy
The following factors, along with the other information in this Official Statement, should be
considered by potential investors in evaluating the purchase of the Series 2010 Bonds. However, the
following does not purport to be an exhaustive listing of risks and other considerations which may be
relevant to investing in the Series 2010 Bonds. In addition, the order in which the following
information is presented is not intended to reflect the relative importance of any such risks.
Limited Obligations
The Series 2010 Bonds are payable only fiom Installment Payments received from the City,
and the 2010 Installment Payments are secured by and payable solely fiom System Net Revenues;
the 2010 Installment Payments are not secured by a legal or equitable pledge or charge or lien upon
any property of the City or the Corporation or any of their income or receipts, except the Water
System Net Revenues.
The obligation of the City to make the 2010 Installment Payments does not constitute an
obligation of the City to levy or pledge any form of taxation or for which the City has levied or
pledged any form of taxation.
Rate CovenantNot a Guarantee; Failure to Meet Projections
The ability of the Authority to pay the principal of and interest on the Series 2010 Bonds
depends on the ability of the City to generate Net Revenues in the levels required by the 2010
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DOCSOC/ 1418056v 16/022245-0221
Installment Sale Agreement. Although, as more particularly described herein, the City expects that
sufficient revenues will be generated through the imposition and collection of the service charges,
impact fees and other revenues described herein, there is no assurance that such imposition of service
charges, impact fees and other revenues will result in the generation of Net Revenues in the amounts
required by the 2010 Installment Sale Agreement. As a result, the Rate Covenant set forth in the
2010 Installment Sale Agreement does not constitute a guarantee that sufficient Net Revenues will be
available to make debt service payments on the Series 2010 Bonds.
In addition, the financial forecasts contained herein are based on a number of assumptions.
Changes in circumstances could have a material adverse impact on the ability of the City to pay the
2010 Installment Payments.
Parity Obligations
The City is permitted under the Installment Purchase Agreement, subject to satisfaction of
certain conditions, to incur additional Parity Debt. In the event System Net Revenues were
insufficient to pay all of the City's obligations with respect to the Parity Debt, when due, the City
would be obligated to make payments on the Parity Debt and 2010 Installment Payments on a pro
rata basis.
Increased Operation and Maintenance Costs; Costs Relating to Treatment Plant
There can be no assurance that the Operation and Maintenance Costs of the City with respect
to the Water System will be consistent with the levels contemplated in this Official Statement. As
described herein, the City and Consulting Engineer have prepared estimates of the costs of operating
and maintaining the Treatment Facility once it is constructed. However, there can be no assurances
that the actual costs of operating and maintaining the Treatment Facility will not exceed such
estimates. In addition, changes in technology, unforeseen litigation, costs related to environmental
matters (see "THE WATER SYSTEM — Certain Environmental Conditions"), increases in the cost of
operation or other expenses could require increases in rates or charges in order to comply with the
City's rate covenant, and could increase the possibility of nonpayment of the 2010 Installment
Payments. See "THE WATER SYSTEM'.
Factors Affecting Capital Improvement Program
As described herein, the City is undertaking a significant capital improvement program with
respect to the Water System, including the construction of the Treatment Facility. The City has
entered into and will enter into agreements for the construction of such capital improvements. See
"THE TREATMENT FACILITY." The City anticipates that such contracts will be subject to
adjustment for a variety of circumstances, including higher than anticipated costs of labor and
materials or subcontractor bids, changes in scope, unforeseen site conditions and force majuere
events. The estimated costs of, and the projected schedule for, the capital improvement program are
subject to a number of uncertainties. The ability of the City to complete the capital improvement
program may be adversely affected by various factors including: (1) estimating errors, (2) design and
engineering errors, (3) changes to the scope of the projects, including changes to federal security
regulations, (4) delays in contract awards, (5) material and/or labor shortages, (6) unforeseen site
conditions, (7) adverse weather conditions and other force majuere events, (8) contractor defaults, (9)
labor disputes, (10) unanticipated levels of inflation and (11) environmental issues. No assurance
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DOCSOC/ 1418056v 16/022245-0221
can be made that the existing projects in the capital improvement program, including the Treatment
Facility, will not cost more than the current budget for these projects. There can be no assurances
that significant increases in costs over the amounts projected by the City will not materially adversely
affect the financial condition or operations of the Water System.
Impact Fees
The Projected Operating Results assume the receipt of impact fees in amounts significantly
higher than the amounts received by the City in the last several fiscal years. Actual impact fee
revenues will depend on a variety of factors, including the actual increases in impact fees adopted by
the City Council and the actual number of new connections for which impact fees are paid. There
can be no assurances that the City Council will adopt impact fees at the level assumed in the
Projected Operating Results, and that new connections for which impact fees are paid will occur at
the levels assumed in the Projected Operating Results.
Consulting Engineer's Report and Rate Consultant's Report
The Consulting Engineer's Report included as Appendix A to this Official Statement and the
Rate Consultant's Report contained as Appendix B to this Official Statement (together, the
"Reports") contain certain assumptions and forecasts. The Reports should be read in their entirety
for a discussion of the assumptions and rationale underlying the forecasts, projections, conclusions
and opinions contained therein. The forecasts, projections, conclusions and opinions contained
therein are subject to uncertainties. There will usually be differences between actual and forecast
results because not all events and circumstances occur as expected, and those differences may be
material.
Accordingly, the projections contained in the Reports are not necessarily indicative of future
performance, and neither the Consulting Engineer, the Rate Consultant nor the City assume any
responsibility for any failure to meet such projections. In addition, certain assumptions with respect
to future business and financing decisions of the City are subject to change. No representation is
made or intended, nor should any representation be inferred, with respect to the likely existence of
any particular future set of facts or circumstances, and prospective purchasers of the Series 2010
Bonds are cautioned not to place undue reliance upon the Reports or upon any forecasts, projections,
conclusions and opinions contained in the Reports. If actual results are less favorable than the results
projected or if the assumptions used in preparing such projections prove to be incorrect, the amount
of Net Revenues may be materially less than expected and consequently, the ability of the City to
make timely payment of the 2010 Installment Sale Payments may be materially adversely affected.
Neither the City's independent auditors, nor any other independent accountants have
compiled, examined or performed any procedures with respect to the information in the Reports,
including Net Revenues forecast, nor have they expressed any opinion or any form of assurance on
such information or its achievability, and assume no responsibility for, and disclaim any association
with, the Reports.
Remediation Costs
As described herein in "THE WATER SYSTEM - Certain Environmental Conditions,"
pursuant to various litigation settlements and agreements with the Board, the City is required to
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DOC SOC/ 1418056v 16/022245-0221
undertake remediation activities with respect to environmental contamination of groundwater in the
City. The City believes that remaining settlement proceeds and existing reserves will be sufficient to
pay remediation costs through Fiscal Year 2019-20, and that available revenues will not be required
to pay such costs through such period. However, there can be no assurances that the actual costs of
remediation will not significantly exceed the City's current estimates. If actual costs of remediation
exceed the City's estimates, such circumstances could materially adversely affect the financial
condition of the Water System.
Statutory and Regulatory Impact
Laws and regulations governing treatment and distribution of water are enacted and
promulgated by government agencies on the federal, state and local levels. Compliance with these
laws and regulations may be extremely costly, and, as more stringent standards are developed to
protect the environment, these costs will likely increase.
In addition, as described herein, the City is currently undertaking remediation activities to
address certain environmental conditions affecting the Water System. Although the City believes
that existing funds available for such remediation will be sufficient to pay the cost of such
remediation, there can be no assurances that the cost of remediation will not exceed the City's
projections.
The City could be subject to claims if it were to violate regulations with respect to its
facilities and services. Such claims would be payable from assets of the Water System, the City or
from other legally available sources. See "THE WATER SYSTEM — Environmental Compliance"
herein.
Although the City has covenanted in the 2010 Installment Sale Agreement to establish and
collect services charges and other fees at specified levels, no assurance can be given that the cost of
compliance with such laws and regulations will not materially adversely affect the ability of the City
to generate Net Revenues in the amounts required by the 2010 Installment Sale Agreement and to
pay the 2010 Installment Sale Payments.
Natural Calamities
From time to time, the service area of the Water System is subject to natural calamities,
including earthquake and flood. A seismic event or a flood could cause property damage, which
could adversely impact the availability of Net Revenues, whether as the result of reduced Revenues
or increased Operation and Maintenance Costs, or both.
Limited Recourse on Default
Failure by the City to make the 2010 Installment Payments, when due, constitutes an event of
default under the Installment Purchase Agreement and the Corporation is permitted to pursue
remedies at law or in equity to enforce the City's obligation to make the 2010 Installment Payments.
Although the Corporation has the right to accelerate the total unpaid principal component of the 2010
Installment Payments, there is no assurance that the City will have sufficient System Net Revenues to
pay the principal component of the 2010 Installment Payments upon acceleration. See also
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"CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS — California
Constitution Articles XIIIC and XIIID" above.
Effect of Bankruptcy
In addition to the limitations on remedies contained in the Installment Purchase Agreement
and the Trust Agreement, the rights and remedies provided in the Installment Purchase Agreement
and the Trust Agreement may be limited by and are subject to provisions of federal bankruptcy laws,
as now or hereafter enacted, and to other laws or equitable principles that may affect creditors' rights.
In the event of the bankruptcy of the City, the obligations of the City under the Installment Purchase
Agreement maybe set aside.
Loss of Tax Exemption
The City has covenanted in the Installment Purchase Agreement that it will not take any
action, or fail to take any action, if any such action or failure to take action would adversely affect the
exclusion from gross income of interest evidenced by the Series 2010 A Bonds under Section 103 of
the Internal Revenue Code of 1986. In the event the City fails to comply with the foregoing tax
covenant, interest evidenced by the Series 2010 A Bonds may be includable in the gross income of
the Owners thereof for federal tax purposes. See "TAX MATTERS".
Secondary Market
There can be no guarantee that there will be a secondary market for the Series 2010 Bonds or,
if a secondary market exists, that any Series 2010 Bonds can be sold for any particular price. Prices
of bond issues for which a market is being made will depend upon then -prevailing circumstances.
Such prices could be substantially different from the original purchase price. No assurance can be
given that the market price for the Series 2010 Bonds will not be affected by the introduction or
enactment of any future legislation (including without limitation amendments to the Internal Revenue
Code), or changes in interpretation of the Internal Revenue Code, or any, action of the Internal
Revenue Service, including but not limited to the publication of proposed or final regulations, the
issuance of rulings, the selection of the Series 2010 Bonds for audit examination, or the course or
result of any Internal Revenue Service audit or examination of the Series 2010 Bonds or obligations
that present similar tax issues as the Series 2010 Bonds.
TAX MATTERS
Series 201 OA Bonds
In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California,
Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest
on the Series 2010A Bonds is excluded from gross income for federal income tax purposes and such
interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed
on individuals and corporations.
The opinions set forth in the preceding paragraph are subject to the condition that the
Authority and the City comply with all requirements of the Internal Revenue Code of 1986, as
amended (the "Tax Code") that must be satisfied subsequent to the issuance of the Series 2010A
Bonds in order that such interest be, or continue to be, excluded from gross income for federal
42
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income tax purposes. The Authority and the City have covenanted to comply with each such
requirement. Failure to comply with certain of such requirements may cause the inclusion of such
interest in gross income for federal income tax purposes to be retroactive to the date of issuance of
the Series 20 IM Bonds.
If the initial offering price to the public (excluding bond houses and brokers) at which a
Series 2010A Bond is sold is less than the amount payable at maturity thereof, then such difference
constitutes "original issue discount" for purposes of federal income taxes and State of California
personal income taxes. De minimis original issue discount and original issue premium is
disregarded. If the initial offering price to the public (excluding bond houses and brokers) at which a
Series 2010A Bond is sold is greater than the amount payable at maturity thereof, then such
difference constitutes "original issue premium" for purposes of federal income taxes and State of
Califomiapersonal income taxes.
Under the Tax Code, original issue discount is treated as interest excluded from federal gross
income and exempt from State of California personal income taxes to the extent properly allocable to
each owner thereof subject to the limitations described in the first paragraph of this section. The
original issue discount accrues over the term to maturity of the Series 2010A Bond on the basis of a
constant interest rate compounded on each interest or principal payment date (with straight-line
interpolations between compounding dates). The amount of original issue discount accruing during
each period is added to the adjusted basis of such Series 2010A Bonds to determine taxable gain
upon disposition (including sale, redemption, or payment on maturity) of such Series 2010A Bond.
The Tax Code contains certain provisions relating to the accrual of original issue discount in the case
of purchasers of the Series 2010A Bonds who purchase the Series 2010A Bonds after the initial
offering of a substantial amount of such maturity. Owners of such Series 2010A Bonds should
consult their own tax advisors with respect to the tax consequences of ownership of Series 2010A
Bonds with original issue discount, including the treatment of purchasers who do not purchase in the
original offering, the allowance of a deduction for any loss on a sale or other disposition, and the
treatment of accrued original issue discount on such Series 2010A Bonds under federal individual
and corporate alternative minimum taxes.
Under the Tax Code, original issue premium is amortized on an annual basis over the term of
the Series 2010A Bond (said term being the shorter of the Series 2010A Bond's maturity date or its
call date). The amount of original issue premium amortized each year reduces the adjusted basis of
the owner of the Series 2010A Bond for purposes of determining taxable gain or loss upon
disposition. The amount of original issue premium on a Series 2010A Bond is amortized each year
over the term to maturity of the Series 2010A Bond on the basis of a constant interest rate
compounded on each interest or principal payment date (with straight-line interpolations between
compounding dates). Amortized Series 2010A Bond premium is not deductible for federal income
tax purposes. Owners of premium Series 2010A Bonds, including purchasers who do not purchase in
the original offering, should consult their own tax advisors with respect to State of California
personal income tax and federal income tax consequences of owning such Series 2010A Bonds.
In the further opinion of Bond Counsel, interest on the Series 2010A Bonds is exempt from
California personal income taxes.
Owners of the Series 201 M Bonds should also be aware that the ownership or disposition of,
or the accrual or receipt of interest on, the Series 2010A Bonds may have federal or state tax
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consequences other than as described above. Bond Counsel expresses no opinion regarding any
federal or state tax consequences arising with respect to the Series 2010A Bonds other than as
expressly described above.
The form of the opinion of Bond Counsel relating to the Series 201 OA Bonds is attached as
Appendix H
Series 2010B Bonds
In the opinion of Bond Counsel, subject, however to the qualifications set forth below, under
existing law, the Series 201 OB Bonds constitute "Qualified Bonds" within the meaning of Section
54AA(g)(2) of the Tax Code and are eligible for the Refundable Credit payable by the federal
government under Section 6431 of the Tax Code. The opinions set forth in the preceding sentence
are subject to the condition that the Authority and the City comply with all requirements of the Tax
Code that must be satisfied subsequent to the issuance of the Series 201 OB Bonds in order for the
Series 201 OB Bonds to be treated as Qualified Bonds and continue to be eligible for the Refundable
Credit. The Authority and the City have covenanted to comply with each such requirement. Failure
to comply with certain of such requirements may result in a delay or forfeiture of all or a portion of
the Refundable Credit and may cause the Series 201OB Bonds to cease to be treated as Qualified
Bonds either prospectively from the date of determination of a failure to comply with the
requirements or retroactively to the date of issuance of the Series 201 OB Bonds.
Bond Counsel expresses no opinion regarding the procedures regarding, and availability of
funds with respect to, the payment of the Refundable Credit by the federal government, nor does
Bond Counsel express any opinion regarding other federal tax consequences arising with respect to
the Series 2010B Bonds.
Interest on the Series 201 OB Bonds is not intended to be excluded from gross income for
federal income tax purposes, and the holders of the Series 201 OB Bonds will not be entitled to any
tax credits as a result of their ownership of such Series 201 OB Bonds.
In the opinion of Bond Counsel, interest on the Series 201 OB Bonds is exempt from
Californiapersonal income taxes.
Circular 230 Disclaimer. To ensure compliance with requirements imposed by the IRS,
Bond Counsel informs owners of the Series 201 OB Bonds that any U.S. federal tax advice contained
in this Official Statement (including any attachments) (a) was not intended or written to be used and
cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the
taxpayer and (b) was written to support the promotion or marketing of the Series 2010B Bonds.
Each taxpayer should seek advice based on that taxpayer's particular circumstances from an
independent tax advisor.
The form of the opinion of Bond Counsel relating to the Series 201 OB Bonds is attached as
Appendix H.
LITIGATION
No Litigation Relating to Series 2010 Bond& To the knowledge of the City, there is no
controversy or litigation of any nature now pending or threatened restraining or enjoining the
44
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execution and delivery of the Series 2010 Bonds, the Trust Agreement, the Installment Purchase
Agreement or in any way contesting or affecting the validity of the Series 2010 Bonds or any
proceedings of the City or the Authority taken with respect to the execution and delivery thereof.
APPROVAL OF LEGALITY
The execution and delivery of the Series 2010 Bonds is subject to the approval of legality by
Jones Hall, A Professional Law Corporation, San Francisco, California, Special Counsel to the City.
Special Counsel undertakes no responsibility for the accuracy, completeness or fairness of this
Official Statement. Certain legal matters will be passed upon for the Underwriter by Stradling Yocca
Carlson & Rauth, a Professional Corporation and for the City and the Corporation by the City
Attorney of the City.
Payment of the fees and expenses of Special Counsel and Underwriter's Counsel is
contingentupon execution and delivery of the Series 2010 Bonds.
RATINGS
The Series 2010 Bonds have been assigned ratings of "_" and "_," respectively, by
Moody's and S&P. Certain information was supplied by the City to such rating agencies to be
considered in evaluating the Series 2010 Bonds. The ratings reflect only the views of the rating
agencies and any explanation of the significance of such ratings may be obtained only from such
rating agencies as follows: Moody's Investors Service, 7 World Trade Center, 250 Greenwich Street,
New York, New York 10007 and Standard & Poor's Ratings Group, 55 Water Street, New York,
New York 10041. There is no assurance that the ratings will remain in effect for any given period of
time or that they will not be revised downward or withdrawn entirely by such rating agencies, or any
of them, if, in their respective judgment, circumstances so warrant. Any downward revision or
withdrawal of any rating may have an adverse effect on the market price of the Series 2010 Bonds.
FINANCIAL ADVISOR
Lamont Financial Services Corp. (the "Financial Advisor") has assisted the City with various
matters relating to the planning, structuring and delivery of the Series 2010 Bonds. The Financial
Advisor is a financial advisory firm and is not engaged in the business of underwriting or distributing
municipal securities or other public securities. The Financial Advisor assumes no responsibility for
the accuracy, completeness or fairness of this Official Statement. The Financial Advisor will receive
compensation from the City contingent upon the sale and delivery of the Series 2010 Bonds.
UNDERWRITING
The Underwriter has agreed, subject to certain conditions, to purchase the Series 2010 Bonds
at a price of $ , representing the aggregate principal amount of the Series 2010 Bonds
plus $ net original issue premium and less $ Underwriter's discount.
The Purchase Contract for the Series 2010 Bonds provides that the Underwriter will purchase
all the Series 2010 Bonds, if any are purchased. The Series 2010 Bonds may be offered and sold by
the Underwriter to certain dealers and others at prices lower than the public offering price stated on
the inside cover page of this Official Statement, and such public offering price may be changed, from
time to time, by the Underwriter.
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EXECUTION AND DELIVERY
The execution and delivery of this Official Statement has been duly authorized by the City.
46
DOCSOC/1418056v 16/022245-0221
CITY OF LODI, CALIFORNIA
City Manager
APPENDIX A
CONSULTING ENGINEER'S REPORT
DOCSOC/ 1418056v 16/022245-0221
CITY OF LODI
LIMITED ENGINEER'S FEASIBILITY REPORT
LIMITED ENGINEER'S FEASIBILITY REPORT:
CITY OF LODI'S WATER SYSTEM AND PLANNED
SURFACE WATER TREATMENT FACILITIES
2010 Water Revenue Bonds
PURPOSE AND SCOPE OF THE ENGINEER'S REPORT
This limited engineer's feasibility report has been prepared by HDR Engineering, Inc. (HDR) at
the request of the City of Lodi (City). It summarizes the findings and results of HDRs review
and engineering analyses with respect to the City's plans to construct a Surface Water
Treatment Facility (SWTF or the Project), and independently assess the engineering of the
Project.
This report has been prepared to provide information in connection with the issuance by the City
of approximately $46.6 million of its 2010 Water Revenue Bonds (the Bonds). These Bonds are
being issued to provide funds to design and construct the Project, including previously incurred
costs and land purchase, fund a deposit to the Bond Reserve Fund, and pay costs of issuance
of the Bonds.
The subjects addressed in this report include:
• The Proposed Project
• Regulatory Requirements
• The Engineer's Opinion
• Principal Assumptions and Considerations
The following sections summarize our review of these topics. HDRs review does not address,
and provides no opinion on the City Water Utility's existing water system, water sources,
projected financial operating results, or its historical, ongoing, or future groundwater
contamination issues.
30 September 2010 - 1 - HDR Engineering, Inc.
CITY OF LODI
SECTION 1— THE PROPOSED PROJECT
PROJECT PURPOSE
LIMITED ENGINEER'S FEASIBILITY REPORT
The City has historically used groundwater to meet its water needs. In 2003, the City entered
into an agreement with the Woodbridge Irrigation District (WID) to purchase 6,000 acre-feet per
year of the District's pre -1914 Mokelumne River water entitlements. This agreement and
purchase are intended to diversify the City's water supply and, in the long-term, reduce its
dependence on the local groundwater aquifer.
The proposed project is a surface water treatment facility (SWTF) and ancillary facilities, which
are intended to provide the City with a long-term, secure and reliable surface water supply to
meet current and future potable water needs while reducing dependence on groundwater.
The SWTF is designed to pump up to 11.5 million gallons per day (mgd) of water from the
Mokelumne River, treat this water and deliver it to the City's existing water distribution system.
The untreated surface water is first passed through a sedimentation basin and autostrainers to
remove larger materials. The principal treatment process is a system of membranes that
remove finer particles and provide a positive barrierto water -borne bacteria and organisms such
as Giardia and Cryptosporidium. This process provides eight mgd of firm capacity (10 mgd peak
capacity) of treated water that would meet or exceed state and federal drinking water standards.
PROJECT LOCATIONAND GENERAL LAYOUT
The City owns a parcel of 12.75 acres between the Union Pacific Railroad (UPRR) spur line and
Lodi Lake near the intersection of Turner Road and Lower Sacramento Road. As shown in
Figure 1-1, the SWTF would be constructed on approximately four and a half acres of this
parcel at the south end of the property adjacent to the UPRR spur line.
A new entrance road will be located at the north leg of the intersection of Turner Road and
North Mills Avenue and will provide entrance to the SWTF. This road would also provide access
to future park uses for the area between the SWTF and Lodi Lake in the future.
30 September 2010 - 2 - HDR Engineering, Inc.
CITY OF LODI
LIMITED ENGINEER'S FEASIBILITY REPORT
FIGURE 1-1- PROPOSED PROJECT LOCATION
iZ
ONE comp NY1maxy Solwiew-
30 September 2010 - 3 - HDR Engineering, Inc.
CITY OF LODI LIMITED ENGINEER'S FEASIBILITY REPORT
MAJOR COMPONENTS OF SWTF PROJECT
The major components of the SWTF, which are shown in Figure 1-2, include the following:
■ Raw Water Pump Station (RWPS) and Pipeline
■ Operations Building
■ Chemical Building
■ Treatment Works (sedimentation basin, autostrainers, feed pumps, and membranes)
■ Filtration Waste Tank and Plate Settler
■ High Service Pump Station
■ Finished Water Storage Tank
■ Supervisory Control And Data Acquisition (SCADA) System
■ Soda Ash Silo
■ Finished Water Transmission Main
■ Stormwater and Sewer Systems
During the preliminaryfeasibility analyses and design activities, HDR evaluated various aspects
of the Project, including geotechnical investigations, the location of project components, impacts
of blending treated surface water and groundwater, and the layout of the SWTF site. No fatal
flaws were uncovered and the results of the feasibility analysis have been reflected in the
subsequent project design.
The sections below provide an overview of the major SWTF components, followed by an
overview of the project implementation and costs.
30 September 2010 -4- HDR Engineering, Inc.
CITY OF LODI
LIMITED ENGINEER'S FEASIBILITY REPORT
FIGURE 1-2- GENERAL LAYOUT OF PROPOSED SURFACE WATER TREATMENT FACILITY
hv,]Z
ONE comp ylmaxy Sslosim-
30 September 2010 -5- HDR Engineering, Inc.
CITY OF LODI LIMITED ENGINEER'S FEASIBILITY REPORT
RAW WATER PUMP STATION (R IMPS) AND PIPELINE
The RWPS would occupy approximately 0.2 acres, deliver 2.Oto 11.5 mgd of untreatedwater to
the SWTF, and be expandable to 23 mgd'. The initial phase is expected to be in operation in
less than three years. The layout of the RWPS is provided in Figure 1-3.
FIGURE 1-3- PROPOSED RAW WATER PUMP STATION LAYOUT
IFM
ONE COUPAWIN wy Se/wtfew•
The RWPS building would include a ventilated pump room and an electrical room designed
around vertical turbine pumps. Climate control would be provided for the electrical room to keep
the electrical equipment and controls within their operable temperature range.
For durability and security, the building would be constructed using concrete masonry. It would
also include acoustical barrier panels on the pump room walls and use acoustical louvers to
attenuate the noise generated by the motors.
Since the RWPS will be located outside the area served by Lodi Electric, electrical service from
Pacific Gas and Electric (PG&E) would be used.
The finished floor elevation of the building would be 45.5 feet above mean sea level,
approximately six inches above finished grade, and one foot above the 1 00 -year flood plain. To
1 The footprintwill not change when the RWPS is expanded.
30 September 2010 -6- HDR Engineering, Inc.
CITY OF LODI LIMITED ENGINEER'S FEASIBILITY REPORT
protect the RWPS from vandalism or other threats to the City water supply, security measures
would include:
• Secure locks and intrusion alarms on the doors
• Lighting on all sides of the building
• Video cameras to record and store up to 24 -hours of data, located outside the building
• Fencing with access from Carolina Street.
Decorative fencing, similar to the existing fish screen fencing, would be provided for the area
facing Lower Sacramento Road and Carolina Street. A sidewalk, curb, and gutter would be
constructed along the Carolina Street frontage of the RWPS.
OPERATIONS BUILDING
The Operations Building would house administrative offices, the operations and control room,
the laboratory, locker rooms, membrane filtration equipment, membrane cleaning equipment,
and associated electrical gear. Sanitary service would be routed under the railroad tracks to the
existing sewer main in N. Mills Avenue and connected to an existing manhole.
Electrical service would be provided by Lodi Electric. The service requirements would be 4,000
ampere, 480/277 volt, three-phase, four -wire electrical service, which would be sufficient to
handlethe additional loads installed in the future for 20-mgd service.
A small standby generator to operate critical systems (computers, lights HVAC system, etc.)
during power outages would be located near the treated water storage tank. A larger,
expandable standby diesel engine generator is planned for the future to provide electrical power
to the SWTF in case of a power outage. The future backup power system would operate the
membrane equipment; chemical feed system; high service pumps; facility lighting; heating,
ventilation, and air-conditioning (HVAC) equipment, and supervisory control and data acquisition
(SCADA) equipment during power outages.
The room housing the filtration equipment would have ample exterior access for equipment
maintenance. Roll -up doors would be constructed to allow installation and removal of large
pieces of equipment, such as the membranes and pumps. Overhead doors would be placed in
other areas, such as the chemical, mechanical and electrical rooms, to accommodate
equipment access.
CHEMICAL BUILDING
The Chemical Building would include the following rooms and equipment:
• membrane feed pump and autostrainers;
• electrical room;
• mechanical room
• polymer room,
• corrosion inhibitorroom,
• coagulant room,
• sodium hypochlorite generator and feed room;
30 September 2010 - 7 - HDR Engineering, Inc.
CITY OF LODI LIMITED ENGINEER'S FEASIBILITY REPORT
• aluminum chlorohydrate storage and feed room;
• workshop
There is space on site to expand the chemical building to include future rooms as needed for
mechanical dewatering, ultraviolet (U1) light disinfection, powdered activated carbon, or
fluoride. Sanitary service for the Chemical Building would also be routed under the railroad
tracks to the existing sewer main in N. Mills Avenue.
TREATMENT WORKS
The SWTF membrane treatment components would include the sedimentation basin,
autostrainers, membrane feed pumps, membranes, and ancillary support systems such as
Clean -In- Place (CIP) system and compressed air systems.
SEDIMENTATION BASIN — A sedimentation basin, located along the northwestern property line,
would protectthe membranesfrom fine sand particlesthat could passthrough the autostrainers.
The basin would allow sufficient contact time for coagulation and settling of fine sand. The basin
would be approximately 113 feet long by 35 feet wide and would handle 12 mgd at a water
depth of 16feet.
The basin would be split into three parts: inlet channel, sedimentation basin, and effluent
chamber. After being injected with a pre -oxidant and coagulant, the raw water would enter a
two -foot -wide inlet channel that would span the width of the basin. The inlet channel would be
used to minimize turbulence and promote even flow distribution across the sedimentation basin.
A sludge collectorwould be installed on the basin floor to collect and discharge settled particles
directly to the sewer or to the backwashwaste tank, which could reclaim the water by thickening
the solids. The final section of the basin would include an eight -foot wide -effluent chamber that
would supply the membranefeed pumps. In the future, the sedimentation basin could be divided
into a flocculation basin followed by inclined settling plates, if more aggressive pretreatment is
required. Space would be reserved for a second basin upon future expansion.
AUTOSTRAINERs — Autostrainers would remove any pine needles, leaves, or other items in the
raw water influent that pass through the fish screens and sedimentation basin, as well as any
small particle down to 400 microns. Any particles of significant size could damage the
membranes and decrease their treatment efficiency. Two strainers would be installed to meet
the initial treatment capacity and would be equipped with an automatic cleaning system that
operates without the unit being taken out of service.
MEMBRANE FEED PUMPS — Raw water from the sedimentation basin would feed the centrifugal
membrane feed pumps housed in the Chemical Building. During the initial phase, three 200 -hp
pumps would be installed (two duty; one standby), each having a capacity of 4,164 gpm (6 mgd)
to provide a firm capacity of 12 mgd. Additional capacity would be provided as required in the
future by adding a fourth pump (three duty; one standby) and replacing the 200 -hp pumps with
larger pumps, each with a capacity of 5,552 gpm.
The pumps would be designed to provide sufficient pressure through the autostrainers,
membranes, and all piping and valves to the treated water storage tank. The associated suction,
30 September 2010 - 8 - HDR Engineering, Inc.
CITY OF LODI LIMITED ENGINEER'S FEASIBILITY REPORT
discharge isolation, and check valves would be sized for the final phase conditions to make
future pump installation more cost effective.
MEMBRANES — After passing through the sedimentation basin and the autostrainers, the
membranes become the primary filtration component in the production of treated water and
provide a positive barrier to bacteria and organisms such as Giardia and Cryptosporidium. The
treated water would meet or exceed state and federal drinking water standards.
The membrane system would have five equally sized trains (2 mgd each) for an initial firm
capacity of 8 mgd, with one train out -of -service. The membrane system would be expandable
to 20 mgd with the addition of more trains. All trains could be operated concurrently to provide
additional capacity.
HIGH SERVICE PUMP STATION
The high service pump station would be housed in a concrete -block building that would also
have an electrical room containing the main switch gear for the SWTF. The initial phase of the
high service pump station would have a firm capacity of 10 mgd, expandable to 25 mgd. The
future pump station capacity would be greater than the SWTF's 20 mgd capacity to account for
peak periods when demand exceeds treatment capacity. The initial phase would have three
200 -hp pumps (two duty; one standby); the final phase would replace these with four larger
pumps (three duty; one standby)
FILTRATION WASTE TANKA ND PLATE SETTLER
The water used to clean and backwash the membranes would be stored in a 50,000 gallon steel
tank that would be 24 -feet in diameter and 17 -feet in height. The backwash water would be
pumped from the tank to a plate settler to remove solids. The clarified water would be
reclaimed back to the sedimentation basin for treatment while the settled solids would be
dischargedto the sewer.
FINISHED WATER STORAGE TANK
The three -million gallon storage tank would be a 130 -foot -diameter, partially buried (to minimize
its visual impact), pre -stressed concrete tank that would store treated water at the SWTF priorto
pumping into the City's water distribution system. The tank would be 35 feet in total height, with
25 to 28 feet above grade and seven to 10 feet below grade. It would have three to four feet of
free board and provide chlorine contact time to inactivate disease -causing organisms. The inlet,
discharge, and overflow pipes would enter and exit through the tank floor.
SUPERVISORY CONTROLAND DATAACQUISITION (SCADA) SYSTEM
The SWTF SCADA system would operate the RWPS, storage facilities, and groundwater wells,
and would be a fully functional network node monitored remotely from the City's central SCADA
location at the City's Municipal Service Center. The SCADA system would provide control and
automatic operation of the water treatment processes as well as electronic storage of plant
operating and regulatory compliance data.
SODA ASH SILO
30 September 2010 -9- HDR Engineering, Inc.
CITY OF LODI LIMITED ENGINEERS FEASIBILITY REPORT
The soda ash feed system would be contained within a standard 12 -foot diameter steel silo,
located where the treated water pipeline enters the concrete storage tank. The top portion of the
silo is the soda ash storage tank, beneath which is housed the mixing and feed system. The
silo will have a height of approximately 26 feet and would hold approximately 30 days storage of
soda ash, which would be approximately 35 to 40 tons at build -out. The system would include a
dust collectorto prevent soda ash dust from leaving the silo, and would be painted a neutral (tan
or gray) color to match the other structures on the site.
STORMWATER SYSTEM
Stormwater collection at the SWTF would comply with the City's Stormwater Management
Program. Bordered areas in and around the plant would be filled with gravel as a structural best
management practice (BMP). The borders would be excavated approximately six inches and
backfilled with gravel material or decorative rock. The gravel would serve to reduce stormwater
pollution and ongoing costs for vegetative landscape maintenance. Stormwaterwould percolate
through the gravel into the ground. Periodically, when large volumes Cf stormwater are
collected, the gravel would serve to filter the runoff prior to it entering the catch basins. Borders
around the perimeter of the SWTF site would have trees to help screen the SWTF from the
park. The storm drain system would connect to the existing stormwater pump station near the
SWTF entrance.
TREATED WATER TRANSMISSION MAIN
The City's existing distribution system is connected by pipelines predominantly 6-, 8-, and 10 -
inches in diameter, with none greater than 14 -inches. As a result, the City's distribution system
does not have sufficient capacity to transmit large flows. Therefore, the treated water main will
have four connections to 8 -inch diameter and larger pipelines in the distribution system. The
four connection points for the SWTF would be on North Mills Avenue at Turner Road, Yosemite
Drive, Lockeford Street, and Elm Street.
The treated water main would be a 3,200 linear -foot, 36 -inch diameter transmission pipeline,
exiting along the south side of the SWTF parallel to the railroad tracks, and would follow the
access road to the intersection of Turner Road and North Mills Avenue. At that point, it would
tunnel underthe railroad tracks and continue south along North Mills Avenue to Elm Street. The
entire surface of North Mills Avenue will be repaved and corners will be improved with ADA
compliant ramps. To provide future service to developments west of Lower Sacramento Road,
the water transmission main would need to be extended another 2,400 feet to the south along
West Lodi Avenue and continue west past Lower Sacramento Road.
OPERATIONSAND MAINTENANCE COST ESTIMATES
The estimated annual operating costs for the surface water treatment facility, including labor,
materials and other operations and maintenance costs, are $1.7 million in the first year and $1.4
million in subsequent years, as summarized in Table 1-1. These estimates are discussed in
more detail below.
30 September 2010 _10- HDR Engineering, Inc.
CITY OF LODI LIMITED ENGINEER'S FEASIBILITY REPORT
TABLE 1-1
SUMMARY OF ESTIMATED ANNUAL O&M COSTS
O&M cost I Post -Commissioning I Optimized Operations I
There are two periods for which O&M costs were estimated:
• Post -Commissioning Period — This is the first year of operations, or the "shakedown"
period, during which the plant will be required to maintain a qualified water treatment
plant operator on-site 24 hours per day. SCADA controls, monitoring, and alarming are
re -tested under all operating events, instrument calibrations are verified, and treatment
performance is monitored, evaluated, and documented to ensure all systems function as
designed to meet treatment objectives.
• Optimized Period —This occurs after the post -commissioning period when the fine tuning
and optimizing of the treatment plant performance have occurred and the plant has
achieved more typical, long-term operating costs.
LABOR COSTS
The labor costs shown below are only for the Project and therefore exclude any costs
associated with the City's existing water system. During the period of March 1 through October
15, SWTF production is assumed to be 24 hours per day, seven days per week in order to
utilize as much of the surface water allocation as possible. From October 16 through the end of
February, the surface water allocation is limited to 1,000 ac -ft.
Labor costs also reflect periods when the plant is shutdown for scheduled maintenance events
during normal production periods (six hours maximum), and the four -to -six weeks every year
after October 15 when WID performs canal maintenance; SWTF equipment maintenance
requiring longer shutdown periods are planned to be performed during this time.
In evaluating typical job activities and labor costs, HDR has reviewed experiences at similar
facilities. An estimated nine new personnel will be needed during the post commissioning
period, assuming that a certified operator will be on-site 24 hours per day until the facility is
ready to shift to unattended operations. Once operations are optimized, staffing requirements
are expected to decrease to approximately five personnel. The estimated total annual labor
costs for post commissioning and optimized periods are $1.16 million and $850,000,
respectively, as summarized in Table 1-2.2
2 The post -commissioning estimate is the higher of a range of estimates, with the lower estimate
about 80/oless. Labor estimates for both post -commissioning and optimized operations periods may
vary once actual operations are stabilized and refined, and could be less than estimated.
30 September 2010 -11 - F DREngineering Inc.
Non -Labor Operating and Maintenance Costs
$545,513
$545,513
Labor Costs
$1,158,560
$845,520
Total Estimated Annual O&M Cost
$1,704,073
$1,391,033
There are two periods for which O&M costs were estimated:
• Post -Commissioning Period — This is the first year of operations, or the "shakedown"
period, during which the plant will be required to maintain a qualified water treatment
plant operator on-site 24 hours per day. SCADA controls, monitoring, and alarming are
re -tested under all operating events, instrument calibrations are verified, and treatment
performance is monitored, evaluated, and documented to ensure all systems function as
designed to meet treatment objectives.
• Optimized Period —This occurs after the post -commissioning period when the fine tuning
and optimizing of the treatment plant performance have occurred and the plant has
achieved more typical, long-term operating costs.
LABOR COSTS
The labor costs shown below are only for the Project and therefore exclude any costs
associated with the City's existing water system. During the period of March 1 through October
15, SWTF production is assumed to be 24 hours per day, seven days per week in order to
utilize as much of the surface water allocation as possible. From October 16 through the end of
February, the surface water allocation is limited to 1,000 ac -ft.
Labor costs also reflect periods when the plant is shutdown for scheduled maintenance events
during normal production periods (six hours maximum), and the four -to -six weeks every year
after October 15 when WID performs canal maintenance; SWTF equipment maintenance
requiring longer shutdown periods are planned to be performed during this time.
In evaluating typical job activities and labor costs, HDR has reviewed experiences at similar
facilities. An estimated nine new personnel will be needed during the post commissioning
period, assuming that a certified operator will be on-site 24 hours per day until the facility is
ready to shift to unattended operations. Once operations are optimized, staffing requirements
are expected to decrease to approximately five personnel. The estimated total annual labor
costs for post commissioning and optimized periods are $1.16 million and $850,000,
respectively, as summarized in Table 1-2.2
2 The post -commissioning estimate is the higher of a range of estimates, with the lower estimate
about 80/oless. Labor estimates for both post -commissioning and optimized operations periods may
vary once actual operations are stabilized and refined, and could be less than estimated.
30 September 2010 -11 - F DREngineering Inc.
CITY OF LODI
LIMITED ENGINEER'S FEASIBILITY REPORT
TABLE 1-2
POST COMMISSIONING AND OPTIMIZED PERIOD LABOR COSTS
Position Classification
Labor Hours
(hrs/week)
Labor Rate
($/hr)a
Labor Costs
($/yr)
Post-CommissioningBaseline
WWTP -Chief Plant Operator
40
$86.00
$178,880
(Chief Operator)
Environmental Compliance
40
$75.00
$156,000
Inspector(Operator/Lab)
Gr. III WWTPO (Swing Shift Lead)
40
$60.00
$124,800
Gr. III WWTPO (Midnight Shift Lead)
40
$60.00
$124,800
Gr. II WWTPO (Operator 1)
40
$55.00
$114,400
Gr. I WWTPO (Operator 2)
40
$55.00
$114,400
Electrician (I nst./Controls)
40
$81.00
$168,480
Plant& Equipment Mechanic
20
$64.00
$66,560
MaintenanceWorker
40
$53.00
$110,240
Total — Post Commissioning
340
$1,158,560
Optimized Operations
WWTP — Chief Plant Operator
40
$86.00
$178,880
(Chief Operator)
Environmental Compliance
40
$75.00
$156,000
Inspector(Operator/Lab)
Gr. II WWTPO (Operator 1)
40
$60.00
$124,800
Gr. IWWTPO (Operator 2)
40
$60.00
$124,800
Electrician (I nst./Controls)
40
$81.00
$84,240
Plant& Equipment Mechanic
20
$64.00
$66,560
MaintenanceWorker
40
$53.00
$110,240
Total - Optimized Operations
240
$845,520
a. Obtained directlyfrom the City. Rate represents raw rate plus 50% for benefits and overhead cost.!
30 September 2010 -12- HDR Engineering, Inc.
CITY OF LODI
NON -LABOR OPERATINGAND MAINTENANCE COSTS
LIMITED ENGINEER'S FEASIBILITY REPORT
Based on experience at similar facilities and current materials costs, a summary of annual non -
labor O&M costs is shown in Table 1-3. These costs are the same for both the post -
commissioning and optimized periods. These costs would be expected to change in proportion
to changes in chemical and materials costs, which HDR cannot project at this time.
TABLE 1-3
POST COMMISSIONING AND OPTIMIZED PERIOD O&M COSTS
Item
Annual Quantity
Unit Cost
Annual Cost
Chlorine for Wells, Ibs
34,000
$1.25
$42,500
On-site Generated Chlorine
1
$40,000
$40,000
Caustic, Ib
4,650
$0.25
$1,163
CitricAcid, Ib
29,000
$0.60
$17,400
Sodium Bisulfite, lbs
15,812
$1.20
$18,974
Soda Ash, lbs
292,234
$0.27
$78,903
Alum, lbs
23,000
$0.17 j
$3,910
Raw Water Pumping
176,096
$0.11
$19,371
Membrane Pumping
431,435
$0.11
$47,458
Membrane EFM/C I P/Com pressor
472,000
$0.11
$51,920
High Service Pumping
978,310
$0.11
$107,614
Materials
1
$65,000
$65,000
Solids Disposal to Sewer
1
$51,300
$51,300
Estimated Annual Non-LaborO&M Costs
$545,513
PROJECT IMPLEMENTATION
Construction of the Project is expected to take approximately 18 to 24 months and would utilize
a portion of the 12.75 acre site for construction staging. The major construction phases would
be:
• Clearing and Grubbing
• Intersection Improvements
• Excavation and Site work
Structural Facilities
■ Electrical, Process Mechanical, and Instrumentation
• Paving and Striping
Architectural, Landscaping, and Security
Startup and Testing
30 September 2010 -13- HDR Engineering, Inc.
CITY OF LODI LIMITED ENGINEER'S FEASIBILITY REPORT
The primary construction material for structures stored on site would include concrete and
concrete block; steel and ductile iron would be used for major process piping; and the chemical
storage tanks would use an HDPE material.
PROJECTCOST
As described below, the total costs of the project, including construction costs, previously
incurred costs, and land costs, is approximately $42.5 million.
PREVIOUSLY INCURRED COSTS —Since entering into the WID Water Purchase Agreement in
2003, the City has expended approximately $3.9 million in the form of studies, design of the
surface water treatment plant facilities, and staff costs. A partial listing of these expenditures is
provided in Table 1-4.
TABLE 1-4
PREVIOUSLY INCURRED COSTS
Description
Cost Incurred
Laboratory Testing
$33,800
Conceptual Design and Feasibility Review
$377,000
Preliminary Design and Environmental Review
$858,000
Final Design, Plans and Specifications
$1,737,000
Design Review (Ecologic)
$50,000
Financial Planning and Legal $107,000
City Staff $110,000
Raw Water Intake Pipe Construction $572,000
Miscellaneous $25,000
Total $3,869,800
LAND PURCHASE COST — As previously shown in Figure 1-1, the surface water treatment
facilities will utilize 4.5 of the 12.75 acres located west of Lodi Lake. Based on a recent
comparable land appraisal3, City staff estimates the value of the four and a half -acre Project site
to be approximately $287,500 per acre, or a total of $1,290,000. The remaining 8.25 acres will
be used for the access road, pedestrian trail, an earthen berm, and a future group picnic area.
CONSTRUCTION COSTS —As shown in Table 1-5, the estimated remaining project cost is $37.4
million, which includes construction, construction administration, inspection and testing services
for the various elements of the project. This estimate is based upon a 90% complete set of
plans and specifications. Including previously incurred costs and land costs, the total cost is
$42.5 million. However, construction bids are expected to be submitted during September 2010.
Therefore, bid costs will be known prior to the Bonds being issued.
3 City staff considered the recent appraisal prepared for the Tienda Drive Affordable Housing project to be an
appropriate comparable appraisal.
30 September 2010 -14- HDR Engineering, Inc.
CITY OF LODI LIMITED ENGINEER'S FEASIBILITY REPORT
TABLE 1-5
ESTIMATED CONSTRUCTION COSTS
Description
Estimated Cost
Project Costs
General Requirements
$3,311,000
Onsite Construction
$29,571,000
Construction Services
$1,973,000
Contingency (5%)
$1,417,000
Escalationto Midpoint of Construction (4%) $1,133,000
Subtotal $37,410,000
Previously Incurred Costs $3,869,800
Land Costs $1,290,000
Total $42,569,800
SECTION 2 — REGULATORY REQUIREMENTS
CURRENT REGULATORY REQUIREMENTS
The City's existing water system currently meets safe water drinking standards, although to
ensure water quality standards are met, chlorination equipment has been added to all wells
(except the three plannedfor de -commissioning), and six of the 27 wells have added granular
activated carbon (GAC) treatment for the removal of DBCP.
To ensure that the City is meeting the necessary regulatory requirements, the City has assigned
to and/or contracted for necessary environmental assessment and permitting services. HDR has
provided facility and design services, and the City will use construction management services to
ensure the facilities are constructed in compliance with design and regulatory requirements.
The surface water treatment facilities (the Project) have been designed with the intent of
meeting or exceeding existing state and federal drinking water standards, and will provide
treatment for virus, bacteria, and protozoa organisms such as Giardia and Cryptosporidium.
Table 2-1 lists the various federal, state, local, and other permits/approvals that would be
required for construction and operation of the proposed surface water treatment plant facilities.
30 September 2010 - 1 5 - HDR Engineering, Inc.
CITY OF LODI LIMITED ENGINEER'S FEASIBILITY REPORT
TABLE 2-1
REGULATORY REQUIREMENTS AN D PERMITS FOR SWTF FACILITIES
Agency Type of Approval Project Component
State Agencies
Central Valley RegionalWater
National Pollutant Discharge Elimination
SWTF, RWPS, and raw and treated
Quality Control Board
System (NPDES) Construction Storm
water pipelines
Water Permita
General Order for Dewatering and Other
SWTF, RWPS, and raw and treated
Low Threat Discharge to Surface Waters
water pipelines
Permita
NPDES Industrial Storm Water Permit
SWTF
California Public Utilities
Authorization to Alter Highway -Rail
Treated water pipelines
Commission
Crossing Pursuant to General Order 88-B
California Departmentof Public
Domestic Water Supply Permit
SWTF
Health
Amendmentb
Local/Other Aaencies
San Joaquin Valley Air Pollution
I Authority to Constructa
SWTF, RWPS, and raw and treated
Control District
water pipelines
Permitto Operates
RWPS and SWTF
San Joaquin County
SiteApproval Permit
RWPSd
Union Pacific Railroad
Crossing and/or Encroachment Permit
Treatedwater, sewer, naturalgas
pipelines and electrical service
San Joaquin Council of
San Joaquin County Multi -Species
SWTF, RWPS, and raw and treated
Governments
Conservation& Open Space Plan
water pipelines
Incidental Take Measuresb
City of Lodi
Storm Water ManagementPlanb
SWTF, RWPS, and raw and treated
water pipelines
BuildingPermitb
SWTF, RWPS, and raw and treated
water pipelines
Site Plan and Architectural Reviewb
SWTF, RWPS, and raw and treated
water pipelines
POTENTIAL REGULATORY CHANGES
No significant regulatory changes are anticipated over the next several years. Over the longer
term, possible new regulations could include new maximum contaminant levels for currently
unregulated chemicals such as MTBE. There are currently no known . new contaminants of
concern that would affect the Utility.
30 September 2010 -16- HDR Engineering, Inc.
CITY OF LODI LIMITED ENGINEER'S FEASIBILITY REPORT
The City is conducting water quality testing in accordance with the EPA regulations to assess
the possible presence of water -borne bacteria and organisms in the water supply, such as
cryptosporidium. The proposed treatment system is consistent with and suitable for previous
and expected future test results. However, if higher than expected levels occur in the future, a
UV disinfection system would need to be added. Space has been provided on the SWTF site for
this system in the unlikely event it is needed.
SECTION 3 —THE ENGINEER'S OPINION
OVERVIEW
Based on the previous sections in this report, HDR has developed opinions related to the City's
planned surface water treatment facilities. These are presented below. These opinions rely on
the data, information and documents provided by others, as discussed in Section 4 "Principal
Assumptions and Considerations".
HDR has not reviewed, and provides no opinion related to the City's existing water utility, water
sources, projected financial operating results, or its historical, ongoing, or future groundwater
contamination issues.
ENGINEER'S OPINION
The following opinions are organized by topic and generally follow the order of the previous
sections in this report.
PROPOSED CAPITAL PROJECT: ARE CONSTRUCTION COST ESTIMATESAND THEBIDDING PROCESS
REASONABLE, ARE TECHNOLOGIESPROVEN; IS THECITY ABLE TO MANAGE THIS PROCESS; AND IS THE
CITY LIKELY TO MEET THE CONSTRUCTION SCHEDULE?
■ The remaining cost of the Project, estimated at $37.4 million, includes construction,
construction administration, and inspection and testing services, and is reasonable based on
a/the 90 -percent complete set of plans and specifications.
■ Togetherwith previously incurred costs of approximately $3.9 million and land costs
estimated at $1.3 million, a total Project cost of approximately $42.6 million is reasonable
based on the current construction climate and design standards.
■ During the preliminaryfeasibility analyses and design activities, HDR evaluated the general
feasibility of the Project, including geotechnical, engineering, and operational aspects, and
the impacts of blending treated surface water and groundwater; HDR found no fatal flaws
and concluded that the Project is feasible as currently designed.
■ The Project relies on well -proven technologies and standards which are accepted by the
water treatment engineering community. The City's planned construction methods have
30 September 2010 -17- HDR Engineering, Inc.
CITY OF LODI LIMITED ENGINEERS FEASIBILITY REPORT
been previously tested on similar water treatment facilities and do not include any abnormal
associated risks.
The Project's keytreatment membrane technology, a Pall Microza microfiltration pressure
membrane system, has already been used in at least 10 other municipal surface water
treatment facilities in California. The Project design concepts are sound and the facilities can
reasonably be expected to perform as designed.
The City has adequately planned its bidding and selection process, and HDR is of the
opinion that the City will be able to successfully manage the construction and complete the
Project within 24 months from the time the bids are awarded and a notice -to -proceed is
provided.
REGULATORY REQUIREMENTS: DOES THESYSTEM COMPLY WITH CURRENT REQUIREMENTS, WHAT
ARE THERISKS OF FUTURE REQUIREMENTS?
The City's existing water system currently meets safe water drinking standards. However, to
ensure water quality standards are met, chlorination equipment has been added to all wells
(except the three planned for de -commissioning), and six wells have added granular
activated carbon (GAC) treatment for the removal of DBCP.
The City has appropriately assigned to and/or contracted for necessary environmental
assessment and permitting services, facilities and design services, and construction
management services with competent and appropriate skills and experience in their
respective areas of responsibility.
The surface water treatment facilities (the Project) have been adequately designed to meet
or exceed existing state and federal drinking water standards, and to provide treatment for
virus, bacteria, and protozoa organisms such as Giardia and Cryptosporidium.
SECTION 4 — PRINCIPAL ASSUMPTIONS AND CONSIDERATIONS
KEY SOURCES OF DATA
HDR has prepared this limited review of the City's Water Utility based on several key sources of
data:
■ The City staff s "White Paper," prepared for the City Council, which provides an overview
and summary of relevant data, project history, and issues related to the new surface water
treatment facilities.
■ Previous HDR design studies, preliminary design documents, and 90 -percent complete
plans and specifications.
Other information and data provided by the City's Water Utility, finance team and technical
consultants, including:
30 September 2010 -18- HDR Engineering, Inc.
CITY OF LODI
- Water quality information
- Regulatory compliance information
PRINCIPAL ASSUMPTIONS AND CONSIDERATIONS
LIMITED ENGINEER'S FEASIBILITY REPORT
In preparing this report and the opinions that follow, HDR has relied on a number of principal
assumptions and considerations with regard to conditions that may occur in the future. This
information and the assumptions, including the key sources of data listed above, were provided
by sources we believe to be reliable.
While we believe HDR's use of such information and assumptions is reasonable for the purpose
of this report, some assumptions will invariably not materialize as stated herein and may vary
significantly due to unanticipated events and circumstances. Therefore, the actual results can
be expected to vary from those projected to the extent that actual future conditions differ from
those assumed by us or provided to us by others.
The principal considerations and assumptions made by and/or provided to HDR by others
include the following:
■ The City's current plans to construct the Project facilities have been appropriately and
legally approved by the Lodi City Council.
■ The City's current projections for future water demand are accurate for the purposes of
planning the surface water treatment facilities (Project).
■ The City's agreements with Woodbridge Irrigation District are valid and will be executed and
fulfilled as described by City staff.
■ The City has adequately evaluated and prepared water rate analyses and will successfully
adopt and implement rates that are sufficient to fund the Project, including repayment of the
Bonds.
■ The City will not incur additional future groundwater contamination costs beyond those
outlined in the City's White Paper.
■ The City has prevailed in its lawsuits, and will prevail regarding liabilities for the cleanup of
groundwater contamination.
■ The 2010 Water System Revenue Bonds will be issued at reasonable interest rates and
terms, consistent with those estimated by Stone & Youngberg and Lamont Financial
Services, Corp., who are advisors to the City.
■ The City will hire competent construction managementto oversee the construction of the
Project facilities.
30 September 2010 -19- HDR Engineering, Inc.
APPENDIX B
RATE CONSULTANT'S REPORT
DOCSOC/ 1418056v 16/022245-0221
CITY OF LODI
Water System Financial Strategy
Summay Report
September 30,2010
CITY OF LODI
SECTION I. SUMMARY
WATER SYSTEM FINANCIAL STRATEGY
1 able of Content:
1
Introduction.................................................................................................................................. 1
Summay cf Ten -Year Financial Plan Analysis.......................................................................... 1
Strategyfar Water Rates and Charges......................................................................................... 4
SECTION II. WATER SYSTEM FINANCIAL PLAN
6
Fund Structure and Cash Flows.................................................................................................. 6
FinancialPlan Assumptions........................................................................................................ 8
WaterRateRevenue Estimates.................................................................................................... 9
Financial Plan Findings and Conclusions................................................................................. 10
SECTION III: WATER RATES AND CHARGES
13
CurrentWater Rates.................................................................................................................. 23
RecentlyApproved New WaterRates........................................................................................ 13
Transition to Usage -Based WaterRatesfor Single Family Customers ..................................... IS
Meter Retrofit Installation Charges........................................................................................... 16
Waterlmpact Mitigation Fees.................................................................................................... 16
APPENDIX A: WATER FINANCIAL PLAN DETAILS
THE REED GROUP. INC.
18
CITY OF LODI WATER SYSTEM FINANCIAL STRATEGY
SECTION I. SUMMARY
INTRODUCTION
The City cf Lodi retained The Reed Group, Inc. in 2008 to assist in developing financial
plans and utility rates for the City's water and wastewater utilities. Extensive analyses
have been performed over the past two years to help guide the City in dealing with a
variety cf water and wastewater rate and financial issues. The purpose cf this report is to
summarize the financial strategy supporting the activities of the City's water utility. It has
been prepared in conjunction with the City's efforts to secure financing for its new surface
water treatment plant (WTP).
This report describes the following issues concerning the City's water utility and
related financial needs:
❖ Development of and underlying assumptions in a multi-year financial plan
❖ Current and estimated future operating and maintenance costs, including debt
service obligations, of the water system
❖ Planned water system capital improvements, which predominately include a water
meter retrofit program and construction cf the new WTP
❖ Estimated annual water system revenue requirements
❖ Summary of anticipated costs and funding related to PCE/TCE monitoring and
remediation efforts
❖ Statutory obligations for installing water meters on all unmetered water service
connections by 2025
❖ Recent action by the City Council to adopt new water rates and rate structures
❖ New usage -based water rates for metered single family residential customers
❖ Planned strategy for transitioning flat rate customers to water usage -based rates,
including underlying assumptions cf timing, impact on water demand, and
potential revenue volatility risk
❖ Planned strategy to fund the water meter retrofit program through water meter
installation charges to be imposed on property owners receiving water meters
under the retrofit program
❖ Planned strategy for adopting a new water impact mitigation fee to reflect costs
associated with the new WTP, as well as capacity in the existing water system.
SUMMARY OF TEN-YEAR FINANCIAL PLAN ANALYSIS
Development of the financial strategy for the City's water system involved
development cf a ten-year financial planning model. The financial plan is a cash flow
model reflecting current and estimated future revenues, operating and maintenance
expenses, debt service obligations, capital improvement plans, and financial reserves. The
plan is based on the City's fund and account structure and has been used nearly
THE REED GROUP, INC. PAGE 1
CITY OF LODI WATER SYSTEM FINANCIAL STRATEGY
continuously over the past two years to evaluate financial issues, revenue needs, and the
potential impacts cf various potential funding strategies and decisions. Information
contained in the model is based on data and information provided by the City and
includes estimates of future costs and revenues based on assumptions for growth, interest
and inflation rates, and future actions cf the City. While the analyses are based on
assumptions that have been reviewed with the City and are believed to be reasonable at
the present time, no assurances can be made as to the accuracy of the future estimates.
As a cash flow model, the financial planning model differs from the City's
Comprehensive Annual Financial Report (CAFR), which includes audited financial
statements. The model covers a planning period through FY 19-20 and is predominately
used to evaluate cash flow needs and the consequences cf future plans and assumptions.
The financial needs cf the water utility can be viewed by considering three major areas
of cost, including:
❖ Ongoing operating and maintenance costs associated with operating the water system
and continuously delivering water to the City's customers. In addition to inflationary
cost increases, water system operating costs will increase at the start cf operation cf the
new WTP. Current budgeted operating and maintenance costs are about $5.8 million
annually, and are estimated to increase to about $9.2 million by FY 19-20.
❖ Implementation of the water meter retrofit program, as required by California statute,
to install water meters on all unmetered water service connections. The future capital
cost of this program is estimated to be about $43.3 million through FY 15-16 (in inflated
future dollars). A significant portion cf the cost of this program involves the
replacement cf small diameter, aged, and backyard water mains.
❖ Construction cf a new WTP at an estimated cost cf about $36.5 million (escalated to
mid -point of construction). The WTP will be financed through the issuance cf about
$39.535 million in Water Revenue Bonds before the end cf 20101. Annual debt service
on the tax-exempt bonds has been estimated at about $2.65 million.
The water system is also bearing costs associated with the monitoring and remediation
cf groundwater contamination from PCE/TCE. However, the City has in excess CC $18
million in reserves, principally from legal settlements, that is available to cover related
costs through FY 19-20. Based on estimates developed by the City, the existing $18 million
in restricted reserves may be sufficient to cover anticipated costs beyond FY 19-20. While
PCE/TCE costs and settlement monies have been considered in developing the financial
strategy for the water utility, they are not included in the exhibits presented in this report.
To meet current and future financial obligations the City plans to utilize the following
resources:
❖ About $14 million in available water utility reserves at the beginning of FY 10-11.
I Assumes use of Tax -Exempt Bonds. Estimates provided by Stone & Youngberg, LLC as of September 21,
2010 using current interest rates, plus 25 basis points.
THE REED GROUP, INC. PAGE 2
CITY OF LODI
WATER SYSTEM FINANCIAL STRATEGY
❖ A current (FY 09-10) annual water rate revenue base of about $11.7 million. In
addition, the City Council, in July 2010, approved a 2 percent water rate increase
effective in January 2011 as well as authorized annual inflationary adjustments to water
rates beginning in January 2012 (re -approval in inflationary indexing cf water rates is
required every five years). With annual inflation -indexed rate adjustments cf 3.5
percent the annual water rate revenue could grow to about $16.3 million by FY 19-20
(other assumptions, described later in this report, are also reflected in this estimate).
ee Implementation of a water meter installation charge for property owners receiving a
water meter as a result of the water meter retrofit program. Under the proposal to be
considered by the City Council in early 2011, one-time charges ranging from $300 to
$1,200 would be imposed on single family property owners. Under the proposal,
property owners would have the option to pay the water meter installation charge in
one lump sum or through monthly installments over a 7 -year period at the Local
Agency Investment Fund (LAIF) rate plus 1 percent (currently 1.5 percent) with the
charge appearing on the utility bi112). These charges are estimated to generate a total of
about $12.4 million through FY 17-18. The cost cf the water meter retrofit program not
covered by the water meter installation charges can be covered with existing available
reserves and a portion of annual water rate revenues.
Update to the City's water impact mitigation fee to reflect the cost cf the new WTP, as
well as the cost of capacity in the existing water distribution system. Preliminary
estimates indicate that the fee may increase to about $8,000 for a single family
connection. Proposed new water impact mitigation fees are expected to be brought to
the City Council for consideration in late 2011, when the City plans to update all
impact fees. While new development activity is very low at present, a growth rate cf 1
percent annually (about 250 connections) could generate about $2 million annually
with the preliminary fee amount. Assumptions used in the analyses presented herein
conservatively estimate total water impact mitigation fee revenue over the next 10
years to total about $4.3 million3.
Anticipated revenues from the sources described above are estimated to be sufficient to
meet the expected financial obligations of the water utility through FY 19-20, and may also
enable the City to prepay a significant portion of debt associated with WTP financing.
Prepayment cf debt may be allowed ten years after issuance.
Because of the cash requirements cf the water meter installation program, cash balance
will be at minimal levels in FY 14-15 and FY 15-16. While the water utility fund balance
decreases to below the desired minimum target operating reserve in this period, it
rebounds quickly upon completion of the metering program. Financial plan assumptions
are reasonably conservative. However, should the utility approach unacceptable cash
levels the City has the ability to (l)extend the duration of the meter installation program,
2 If renters receive the utility bill, the water meter installation charge would be billed separately directly to
the property owner.
3 Assumptions include 50 new connections per year (about 0.2 percent annual growth) and inflationary
increases in the amount of the water impact mitigation fee.
THE REED GROUP, INC. PAGE 3
CITY OF LODI WATER SYSTEM FINANCIAL STRATEGY
(2) adjust water rates to maintain desired reserves, and (3) temporarily access PCE/TCE
cash reserves as a backstop to low general cash reserves within the water utility. Details Cf
the financial planning model are presented later in this report.
STRATEGY FOR WATER RATES AND CHARGES
The City's strategy for implementing water rates and charges sufficient to meet the
financial needs of the water utility are summarized below.
Implementing Usage -Based Water Rates
Beyond meeting the financial needs cf the water utility through the system cf water
rates and charges described above, the City's financial strategy also includes
implementation of usage -based water rates for single family customers as they convert
from flat (unmetered) water rates. In July 2010, the City Council approved new usage -
based water rates to be implemented in January 2011. Approximately 3,000 single family
customers will be converted to these rates at that time. Then, each year during the meter
retrofit program, additional customers will be converted to the usage -based water rates.
Prior to being converted to usage -based billing, the City plans to provide each
customer with a multi -month history cf actual water usage, as well as comparison bill
information showing how water bills under the usage -based billing compare with flat rate
billing. Typical customers will see higher water bills during peak summer months and
lower bills during winter months when water usage tends to be lower. Many customers
will experience lower overall costs for water service under usage -based water rates.
The development of usage -based water rates for single family customers reflects the
assumption that customers will reduce water usage by 10 percent as a result of metering
and billing based on water usage. The actual change in water demand resulting from
water meters and usage -based billing may be more or less than this assumption. The City
plans to carefully monitor water usage patterns throughout the meter retrofit program.
Because only a percentage of residential customers will be converted to usage -based billing
in any single year, the potential revenue uncertainty is limited. This transition period also
occurs during a period when the water utility has significant financial reserves, which
could buffer the impact of any unanticipated revenue shortfalls, should they occur.
Meter Retrofit Installation Charges
In 2004, the State Legislature passed and the Governor signed into law Assembly Bill
2572 requiring metering of all water services by January 1, 2025. The Lodi City Council
voted to accelerate compliance with State Law in May 2007 to promote water conservation
and provide more equitable billing based on actual usage than the current flat rate water
billing system.
To equitably share in the cost of the water meter retrofit program and to meet the
funding requirements of an accelerated program, the City has determined that property
owners receiving a retrofit meter should pay for the estimated cost of their installation. To
simplify the program installation charges ranging from $300 to $1,200 have been proposed.
The water meter retrofit program also includes the replacement of small diameter,
aged, and/or backyard water mains, as required. This portion of the program is to be
THE REED GROUP, INC. PAGE 4
CITY OF LODI WATER SYSTEM FINANCIAL STRATEGY
funded through existing available financial reserves, as well as current water rate revenue.
Approximately one-third of the program cost is to be funded through the water meter
installation charges and about two-thirds through these other sources.
F the City Council does not adopt the proposed water meter installation charges, or
adopts charges in some other form, it could impact the timing and duration of the water
meter retrofit program, but would not directly impact the City's ability to meet other
financial obligations, including the obligation to repay long-term debt.
Water Impact Mitigation Fees
Once the City has entered into a contract for the construction of the new WTP (and
therefore has a firm estimate for the cost cf the project) the water impact mitigation fee will
be updated. The water impact mitigation fee is the one-time fee charged to new
development for capacity in the water system. At present, the fee reflects the estimated
cost of distribution system capacity. However the updated fee will also reflect the cost of
treatment capacity. Preliminary estimates indicate that the updated fee may be on the
order of $8,000 for a standard connection (3/4" meter) to the water system. It is
anticipated that a majority of fee revenue will be used to help meet debt service
obligations, although the City is not dependent on fee revenue to meet these obligations.
THE REED GROUP, INC. PAGE 5
CITY OF LODI WATER SYSTEM FINANCIAL STRATEGY
SECTION II, WATER SYSTEM FINANCIAL PLAN
This section of the report describes the financial plan for the City's water utility. The
ten-year financial plan is used to determine annual water rate revenue requirements, and
to develop the strategy for meeting current and future financial obligations. The annual
rate revenue requirement is the amount of revenue needed from water rates to cover
estimated operating, maintenance, debt service, and capital program costs with
consideration of other revenues and financial reserves.
101"0117- M3L�f.�
The financial plan is an annual cash flow model. As a cash flow model, it differs from
standard accounting income statements, and balance sheets. The financial plan models
sources and uses of funds into, out of, and between the various funds and reserves of the
water utility.
The financial plan model is based on the fund, reserve, and account structure currently
used by the City. Exhibit II -1 is a schematic diagram of the funds/ reserves and major cash
flows associated with the financial plan model. While financial plan analyses included
consideration for anticipated costs related to PCE/TCE monitoring and remediation, the
funds designated to track these costs have been excluded from the analyses presented in
this report.
An understanding of the fund/reserve structure is helpful in understanding the
financial plan worksheets, presented at the end of this report, which model annual cash
flows through the water utility from one year to the next. The fund/ reserve structure is
comprised of
Operating Fund - The Operating Fund is the primary fund within the water
utility. Most of the water system's revenues, including water rate revenues,
flow into the Operating Fund and all operating and maintenance costs,
including debt service payments, are paid out of this fund. Funds are also
transferred from the Operating Fund to the Water Capital Outlay Fund to help
pay for capital projects intended to rehabilitate and upgrade facilities.
o OperatingReserve - The City currently does not have a formal policy goal
to maintain Operating Reserves within the Operating Fund. For
planning purposes an Operating Reserve equal to 25 percent of annual
operating and maintenance costs, excluding debt service, is used as a
target minimum balance. The purpose of the Operating Reserve is to
provide working capital and funds for unplanned operating and
maintenance expenditures. The financial plan analyses estimate the
balance in the Operating Fund to exceed the Operating Reserve target in
most years through the planning period.
THE REED GROUP, INC. PAGE 6
CITY OF LODI WATER SYSTEM FINANCIAL STRATEGY
Exhibit 11-1
City of Lodi -- Water Utility
water syszem runairceserve structures ana uasn riows
Opec:;� Maint:. ,
I caner
Revenues Gen'1..A.A.dmin :.
Interest Earnings
oterest Earnings
Debt Service.':
Interest Earnings
>s'; afeKairi a. v
Notes:
(1) Excludesfunds and cash flows related to PCEITCE monitoring and remediation.
o Available Fund Balance - The balance in the Operating Fund in excess of
the target amount for the Operating Reserves is shown in the financial
plan as Available Fund Balance. After all other obligations are met the
available balance is used to offset rate increases. The available balance
might also be used to prepay long-term debt obligations at some point in
the future when it is permissible to do so.
Water Capital Outlay Fund - The Water Capital Outlay Fund is used to
account for water meter installation charge revenues and transfers from the
Operating Fund for capital project expenditures. Capital projects funded from
this fund are intended to rehabilitate, upgrade, and expand the water system to
meet current and future needs of the water utility. The financial plan model
generally seeks to maintain a positive balance in the Water Capital Outlay Fund
while also covering the costs of planned capital improvement projects.
IMF Water Facilities Fund - The Impact Mitigation Fee Water Facilities Fund is
used to account for water impact mitigation fee revenues and related
expenditures. Water impact mitigation fee revenue can be used for capital
projects that provide capacity in the water system, as well as associated debt
service. It is anticipated that a majority of water impact fee revenues will be
utilized for debt service payments related to financing the new WTP.
THE REED GROUP, INC. PAGE 7
CITY OF LODI
FINANCIAL PLAN ASSUMPTIONS
WATER SYSTEM FINANCIAL STRATEGY
The financial plan model was updated to reflect the FY 10-11 budget and financial
conditions as of the beginning of the fiscal year. The financial plan also reflects the City's
debt service obligations and capital improvement program, as identified by City staff,
during the ten-year planning period.
The process used to develop the financial plan involved estimating future revenues and
expenditures based on growth projections, inflation and interest rates, anticipated capital
improvement needs, and other information. The City does not have formal estimates of
future operating and maintenance costs, and capital improvement needs are defined at a
planning level. The financial plan is based on the best available information and
assumptions are believed to be reasonable; however, no assurance can be provided as to
the accuracy and completeness of the estimates.
Primary assumptions reflected in financial plan analyses include:
• Inflation Rates - The following inflation rates are used for escalating costs to
future years:
o General inflation= 3.0%
o Labor inflation = 3.4%
o Utility inflation= 4.5%
o Construction inflation= 3.5%
Interest Rates - Interest earned on fund/ reserve balances is estimated to be 0.5
percent in FY 10-11 and increasing by 0.5 percent each year until reaching 3.5
percent in FY 16-17. Interest is calculated based on the average of beginning of
year and end of year balances in each fund. Interest accrues to each fund. The
City also pays interest on outstanding long-term debt obligations. The interest
payments on outstanding debt are those contained in existing contracts and
repayment schedules.
Growth Projections - The City of Lodi is currently experiencing very little new
growth and development due to the current economic climate. The financial
plan model presented herein reflects modest growth in the customer base
equivalent to 50 new homes (0.2 percent) per year. This is a conservative
assumption from a financial perspective, and believed reasonable considering
the current economic situation.
Operation and Maintenance Costs - The financial plan model is based on current
operating and maintenance costs as reflected in the FY 10-11 operating budget.
For future years, these costs are assumed to increase based on the inflation
factors listed above. In addition to the inflationary adjustment, the financial
plan reflects engineering estimates of the cost to operate the new water
treatment plant, once it comes on line in FY 12-13.
• Existing Debt Obligations - The City plans to pay off an existing 1991 CSDW loan
on October 1, 2010, prior to issuing new debt for the WTP. The payoff amount
is about $1,433,000. The water utility has no other long-term debt obligations at
this time.
THE REED GROUP, INC. PAGE 8
CITY OF LODI
WATER SYSTEM FINANCIAL STRATEGY
New Debt Obligations- The City was considering plans to issue up to $49 million
in water revenue bonds to financing construction cf the new WTP. The issue
may include tax-exempt bonds or a combination of tax-exempt bonds and
taxable Build America Bonds (BABs). The BABs are eligible to receive a 35
percent interest subsidy from the federal government. For the analyses
presented herein $39.535 million (par) of tax-exempt bonds providing $36.5
million for the water treatment plant construction is assumed. Using current
interest rates plus 25 basis points, principal and interest payments are currently
estimated to be about $2.65 million annually.
• New Water Treatment Plant - A new l OMGD water treatment plant is planned to
begin construction before the end cf 2010 and become operational in FY 12-13.
The estimated cost to construct the WTP, including necessary equipment and
furnishings, is about $36.5 million. This estimate is based on construction bids
and other costs related to the project.
• Pay -As -You -Go Capital Improvement Program - The water utility's capital
improvement plan primarily includes the water meter retrofit program. Other
miscellaneous water system improvements average several hundred thousand
dollars per year during the planning period. The financial plan indicates
capacity to fund a larger capital improvement program once the meter retrofit
program is completed.
• Transfersfrom the Operations Fund to the Capital Outlay Fund - The financial plan
model includes annual transfers from the Water Operations Fund to the Water
Capital Outlay Fund. Transfers are limited by the need to maintain a minimum
balance in the Water Operations Fund equal to at least the target Operating
Reserve. Annual transfers in FY 10-11 are for $3 million and gradually increase
to $5.6 million in FY 14-15 and then are reduced.
PCE/TCE Monitoring and Remediation Costs - The financial plan exhibits
contained herein do not reflect the anticipated capital and O&M costs
associated with monitoring and remediation of groundwater for PCE/TCE. As
of June 30, 2010, the City had about $18 million in restricted reserves intended
for PCE/TCE purposes and these reserves are believed to be sufficient for
program costs through at least 2020.
WATER RATE REVENUE ESTIMATES
The estimates of annual water rate revenues reflected in the financial plan embody a
number cf assumptions regarding multiple factors influencing rate revenue. Future water
rate revenue has been estimated based on consideration of the following factors:
• Recently adopted water rates reflecting a 2 percent increase effective in January
2011, as well as assumed annual inflationary adjustments of 3.5 percent per year
beginning January 1,2012
• Planned transition of single family residential customers from flat rate billing to
water usage -based billing from 2011 through 2017, including estimated reduced
water usage of 10 percent as customers pay for service based on usage, rather
than flat rates
THE REED GROUP, INC. PAGE 9
CITY OF LODI WATER SYSTEM FINANCIAL STRATEGY
• Modest increases (0.20/oper year) in the number of customer connections
• No rebound in water demand as a result of economic recovery.
As the City transitions single family customers to usage -based water rates, rate revenue
will vary with changes in water demands. This issue was considered in the development
of the rate structure for single family customers, and is described in greater detail in the
next section. Because of (1) the gradual transition to usage -based billing, (2) the
availability of financial reserves to serve as a buffer to fluctuating revenues, and (3) the
ability to monitor water usage during the transition period, as well as adjust water rates as
necessary, the water system does not appear to be at undo financial risk due to the water
rate structure.
FINANCIAL PLAN FINDINGS AND CONCLUSIONS
The preceding portion of this section describes the basic framework and assumptions
underlying the financial analyses. Specific findings and conclusions pertaining to the
water utility are presented below, beginning with a description of the current situation.
At present, in FY 10-11, the City's water utility has:
• Cash reserves of about $14 million comprised of the Operating Reserve and
monies intended for the water meter retrofit program.
• Annual operating and maintenance costs of about $5.8 million. In addition, the
City plans to pay off the existing 1991 CSDW loan in FY 10-11 for about $1.4
million.
• Planned capital improvement program costs of about $4.9 million, primarily for
the water meter retrofit program.
• Current year water rate revenues totaling about $11.7 million and additional
water utility revenues of about $2.2 million. This additional amount includes
an estimated $1.5 million in potential lump sum payments from the proposed
water meter installation charges.
In July 2010, the City Council approved a 2.0 percent overall increase in water rates
effective in January 2011. In addition, the Council authorized annual rate adjustments for
inflation (based on changes in the Engineering News Records 20 -Cities Construction Cost
Index). Annual changes in this index have averaged 3.5 percent over the past ten years,
and the financial plan assumes 3.5 percent annual rate adjustments each January beginning
in 2012. In addition to available reserves, these rate adjustments are estimated to provide
sufficient revenue to meet all anticipated financial needs of the water utility throughout the
planning period.
Exhibit 112 provides a summary of the revenues, operating and maintenance expenses,
debt service obligations, and planned capital improvement program expenditures of the
water utility during the planning period through FY 19-20. In general, the City's financial
strategy for the water system includes:
THE REED GROUP, INC. PAGE 10
C
tr
r -
Exhibit 11-2
City of Lodi-- Water Utility
Customer Growth
0.28
0.28
0.28
0.28
0.28
0.28
0.28
0.28
0.28
0.28
Water Rate Increases (1)
2.08
3.58
3.58
3.58
3.58
3.58
3.58
3.58
3.58
3.58
Revenues
Water Sales (2)
11,715,748
11,796,000
12,158,000
12,609,000
13,068,000
13,552,000
14,054,000
14,575,000
15,154,000
15,715,000
16,296,000
Investment Income
103,641
71,950
136,000
175,000
162,000
79,000
14,000
119.000
277,000
425,000
559,000
Water Impact Mitigation Fees (3)
1,669
271,480
414,000
429,000
444,000
459,000
475,000
492,000
509,000
527,000
545,000
Meter Retrofit Installation Charges (4)
1,453,000
1,570,000
1,570,000
1,570,000
1,570,000
1,570,000
1,570,000
1,570,000
Other Revenues (5)
39,565
325,000
348,000
265,000
273,000
281,000
289,000
297,000
305,000
314,000
323,000
Total Revenues
11,860,623
13,917,430
14,626,000
15,048,000
15,517,000
15,941,000
16,402,000
17,053,000
17,815,000
16,981,000
17,723,000
Operating Expenses
Personnel Services (6)
1,325,536
1,403,580
1,452,000
1,488,000
1,539,000
1,592,000
1,645,000
1,702,000
1,760,000
1,820,000
1,883,000
Utilities (7)
733,653
721,150
753,000
787,000
823,000
860,000
898,000
938,000
981,000
1,025,000
1,071,000
Supplies, Mafls., Services &Other (8)
2,550,028
2,600,910
2,680,000
2,680,000
2,761,000
2,843,000
2,929,000
3,016,000
3,106,000
3,200,000
3,297,000
WfP Oper.& Maint.(net increase) (9)
1,822,000
1,538,000
1,590,000
1,644,000
1,700,000
1,758,000
1,818,000
1,880,000
Transfer to General Fund (for COS)
1,060,122
1,060,120
1,060,000
1,060,000
1,060,000
1,060,000
1,060,000
1,060,000
1,060,000
1,060,000
1,060,000
Total Operating Expenses
5,669,339
5,785,760
5,945,000
7,837,000
7,721,000
7,945,000
8,176,000
8,416,000
8,665,000
8,923,000
9,191,000
Net Revenue Available for Debt Service
6,191,284
8,131,670
8,681,000
7,211,000
7,796,000
7,996,000
8,226,000
8,637,000
9,150,000
8,058,000
8,532,000
Debt Service
1991 CSDW Note Payable (10)
Principal
175,450
1,409,301
-
-
-
-
-
-
-
-
-
Interest
52.562
24,094
-
-
-
-
-
-
-
-
-
Est. 2010 WTP Financing(w/BABs) (11)
Principal
695,000
710,000
735,000
760,000
785,000
815,000
850,000
885,000
925,000
Interest
1,305,592
1,958,388
1,942,750
1,919,675
1,895,788
1,871,088
1,837,725
1,803,088
1,766,963
1,729,350
Total
228,012
2,738,987
2,653,388
2,652,750
2,654,675
2,655,788
2,656,088
2,652,725
2,653,088
2,651,963
2,654,350
DS Coverage (w/ IMF)
27.15
2.97
3.27
2.72
2.94
3.01
3.10
3.26
3.45
3.04
3.21
DS Coverage (w/o IMF)
27.15
2.87
3.12
2.56
2.77
2.84
2.92
3.07
3.26
2.84
3.01
DS Coverage(w/o IMFor MRICs)
27.15
2.34
2.52
1.96
2.18
2.25
2.33
2.48
2.67
2.84
3.01
Capital Improvement Program (12)
Meter Retrofit Program
2,932,000
4,073,000
6,694,000
7,662,000
8,947,000
11,039,000
4,846,000
-
Other Water System Improvements
1,083,000
180,000
197,000
210,000
218,000
285,000
479,000
2,786,000
514,000
2,985,000
Water Enterprise Fund It 3)
Beginning Cash Balance
14,093,090
14,329,773
13,483,385
10,182,635
6,166,960
250,172
689,084
6,194,359
9,905,271
14,797,308
Ending Cash Balance
14,093,090
14,329,773
13,483,385
10,182,635
6,166,960
250,172
689,084
6,194,359
9,905,271
14,797,308
17,689,958
Notes:
(1) The City Council approved a 28 rate increase on July 21, 2010 to be implemented January 1, 2011, as well as adjustments for inflation each January beginning in 2012 (see narrative for details).
(2) See narrative for an explanation of the factors affecting estimates offuture water sales revenue.
(3) See narrative for an explanation of estimates of future water impact mitigation fee revenue.
(4) See narrative for an explanation of meter retrofit installation charges and the estimated revenues.
(5) Includes rent, sales of City property, discounts, reimbursements, revenue -other, damage to property, water tap fees, DBCP reimbursements, and operating transfers in.
(6) Personnel costs assumed to generally escalate at 3.48 per year.
(7) Utility costs assumed to generally escalate at 4.58 per year.
(8) Materials, supplies, services, and other costs assumed to generally escalate at 3.08 per year.
(9) Based on information from Water Treatment Facility Staffing Assessment dated August 5, 2010 prepared by HDR.
(10) The 1991 CSDW Note Payable is to be paid off from reserves prior to new debt issuance.
(11) Debt service estimates on the 2010 WfP financing using $39.535 million in tax-exempt bonds provided by Stone & Youngberg, LLC, as of September 21, 2010.
(12) Construction of the new WfP is not reflected here and is assumed to be fully funded from proceeds of the 2010 WTP financing.
(13) Does not include approximately $18 million (as of 6/30/2010) in restricted funds for use in PCE/TCE monitoring and remediation.
r�
CITY OF LODI WATER SYSTEM FINANCIAL STRATEGY
• Use of existing financial reserves to maintain an operating reserve as well as
fund a portion of the water main replacements, which are part of the water
meter retrofit program
• Use of current and approved future water rate revenues to cover all operating
and maintenance expenses, debt service obligations, and a portion cf the water
main replacement, which are part of the water meter retrofit program
• Financing of the construction cf the new WTP with proceeds cf the 2010 water
revenue bond debt issuance
• Funding of retrofit meter installations through imposition of water meter
installation charges to be paid by customers receiving retrofit meters
• Updating water impact mitigation fees to reflect the cost of capacity in the new
WTP, as well as distribution system capacity, with revenues being used to cover
a portion of annual debt service on the WTP financing, as well as improvements
to the water system.
At this time, it appears that future water rate increases could be limited to annual
inflationary adjustments as already approved by the City Council. Fund/reserve balances
are estimated to reach a low point at the end of FY 14-15, and then rebound above the
minimum operating reserve target upon completion cf the water meter retrofit program.
Because the City has total control over the timing and pace of the water meter retrofit
program, phases of the program can be delayed if cash reserves approach an unacceptable
low point. Toward the end of the ten-year planning period the water utility may
accumulate additional reserves, which could be used to prepay a portion cf the debt issued
in 2010 to finance the WTP. Early prepayment may be allowed ten years after debt
issuance.
Exhibits in Appendix A, at the end cf this report, provide additional financial plan
details, including revenues, expenses, cash flows, and balances for each of the primary
water system funds (Funds 180,181, and 182).
THE REED GROUP, INC. PAGE 12
CITY OF LODI WATER SYSTEM FINANCIAL STRATEGY
SECTION 111: WATER RATES AND CHARGES
This section cf the report describes approved and proposed water rates and charges
necessary to meet water system financial obligations through the ten-year financial
planning period. Included is a discussion cf approved usage -based water rates for single
family customers, as well as the planned strategy for converting flat rate customers to
usage -based water rates as water meters are installed. This section also describes plans for
establishing the water meter installation charges (needed to help pay for the accelerated
water meter retrofit program), as well as plans to update the water impact mitigation fee.
CURRENT WATER RATES
The City of Lodi currently has a system cf flat water rates for single family and multi-
family residential customers based on the number of bedrooms in each dwelling. A water
usage -based rate structure exists for non-residential customers, which are predominately
metered. The usage -based structure includes a fixed service charge based on the size of the
water meter and a uniform water rate applied to each unit of water used. These rates were
last revised in January 2008.
California statutes (adopted in 2004 with AB 2572) require the City to begin billing all
metered customers based on usage -based water rates beginning in 2011. Recognizing the
need to inform customers of this change, as well as prepare customers for usage -based
billing, in December 2009 the City Council adopted "advisory" usage -based water rates for
single family customers. The advisory rates include a fixed service charge based on meter
size and a three-tier water rate structure.
Exhibit III -1 summarizes the current water rate schedules, including the advisory rates
used for informational and comparative billing purposes. Exhibit III -1 also shows the water
rates that will be effective January 1,2011, as described below.
RECENTLY APPROVED NEW WATER RATES
On July 21, 2010, the City Council adopted Resolution No. 2010-123 that set usage -
based and flat water rates for residential, commercial, and industrial customers.
Resolution No. 2010-123 did the following:
• Imposed a 2 percent overall increase to existing flat (residential) and usage -
based (non-residential) water rates effective January 1,2011.
• Adopted a three-tier usage -based water rate structure for single family
residential customers to be implemented beginning January 1, 2011 for single
family residential customers with water meters (approximately 3,000 of 16,480
accounts).
THE REED GROUP, INC. PAGE 13
CITY OF LODI
WATER SYSTEM FINANCIAL STRATEGY
Exhibit 111-1
City of Lodi -- Water Utility
current ana
water nates
Current (1
Percent Increase -->
$
Flat Rates ($/month)
33.61
Single Family Residential Unit ($/month)
34.28
1 Bedroom
$
2 Bedroom
$
3 Bedroom
$
4 Bedroom
$
5 Bedroom
$
6 Bedroom
$
7 Bedroom
$
Multi -Family Residential Unit ($/month)
1 Bedroom
$
2 Bedroom
$
3 Bedroom
$
Jan. 2011 (2
2.0%
27.98
$
28.54
33.61
$
34.28
40.28
$
41.09
48.40
$
49.37
58.06
$
59.22
69.67
$
71.06
83.58
$
85.25
24.02 $ 24.50
28.81 $ 29.39
34.57 $ 35.26
Metered Water Rates
Service Charge ($/month)
Single Family Residential (3)
Up to 3/4" Meter
$
22.25
$
22.70
1" Meter
$
36.15
$
36.85
11/2" Meter
$
70.60
$
72.00
2" Meter
$
112.10
$
114.35
Multi -Family and Non -Residential (4)
5/8" Meter
$
25.64
$
22.70
3/4" Meter
$
28.17
$
22.70
1" Meter
$
42.27
$
36.85
11/2" Meter
$
56.35
$
57.50
2" Meter
$
70.45
$
71.85
3" Meter
$
98.63
$
100.60
4" Meter
$
126.80
$
129.35
6" Meter
$
183.16
$
186.80
8" Meter
$
239.48
$
244.30
V' Meter
$
295.83
$
301.75
Water Usage Rates ($/CCF)
Single Family Residential (3)
Tier 1 - 0 to 10 CCF/month
$
0.86
$
0.88
Tier 2 - 11 to 50 CCF/month
$
1.29
$
1.32
Tier 3 - Over 50 CCF/month
$
1.71
$
1.74
Multi -Family and Non -Residential (4)
All Water Usage
$
0.789
$
0.88
Notes:
(1) Revised July 1, 2008.
(2j Approved by Resolution No. 2010-123 on July 21, 2010.
(3) Current revenue neutral rates were approved for comparative billing purposes only.
(4) New multi -family and non-residential rates improve equity with single family water rates.
THE REED GROUP, INC. PAGE 14
CITY OF LODI
WATER SYSTEM FINANCIAL STRATEGY
Approved a water rate adjustment index using the Engineering News Record's 20 -
Cities Construction Cost Index for annual adjustments to water rates each
January 1 beginning in 2012. This action is consistent with a similar action
affecting wastewater rates adopted in 2009. The ENR index better reflects the
combined inflationary effects cf personnel, materials, and energy costs on the
total operations of the water utility.
Changed the multi -family and nonresidential usage -based rate structure for
meter sizes finch and smaller to establish parity with the residential customers.
The Proposition 218 process was followed and notifications were sent to property
owners and utility customers 45 days prior to the public hearing on July 21,20 10. Protests
to the proposed water rates totaled a small fraction cf 1 percent of the customer base and
were insufficient to prevent the City from adopting the water rates.
TRANSITION TO USAGE -BASED WATER RATES FOR SINGLE FAMIIY CUSTOMERS
In compliance with California statutes, the City will begin transitioning single family
residential customers with water meters from flat water rates to usage -based water rates in
January 2011. At that time, approximately 3,000 of 16,840 single family customers will be
converted to usage -based rates. It is estimated that all single family residential customers
will be transitioned to usage -based water rates by January 2017. Prior to converting any
customer to usage -based rates, the City will provide the customer with actual water usage
data and information regarding how the customer's bill may be affected with the change in
billing.
The new usage -based water rate structure for single family customers includes a fixed
service charge based on the size of the water meter, - and a three-tier usage rate structure
intended to help encourage water conservation. Approximately 50 percent of the single
family residential usage -based water rate revenues are anticipated to be generated from
fixed service charges and 50 percent from usage charges.
The calculation of usage -based single family water rates was developed with water
usage data from approximately 850 metered accounts with usage histories in excess of 12
months. The City plans to closely monitor actual water usage and water rate revenues as
customers begin being billed on usage -based rates. No assurances can be made, however,
that actual water rate revenues will be as projected. The City Council has the authority to
change the water rates and rate structures, if needed, to ensure revenue adequacy. The
City's transition strategy to usage -based billing for residential customers is similar to other
communities within California that are impacted by similar statutory requirements.
The usage -based rates were calculated to be revenue neutral with existing residential
flat water rates. This calculation assumes that residential water usage would decrease by
10 percent as a result of the change in billing. Because the transition to usage -based billing
will occur over approximately seven years, the potential revenue uncertainty will be
limited to a small percentage of the revenue base. As the City gains experience in
monitoring customers' water usage characteristics under usage -based billing it will be able
to refine revenue estimates based on accumulated knowledge.
THE REED GROUP, INC. PAGE 15
CITY OF LODI WATER SYSTEM FINANCIAL STRATEGY
The City will also be changing the manner in which single family residential customers
will be billed for wastewater services. Single family residential wastewater rates will be
determined based on each customer's winter water usage (period when irrigation demand
is minimal). Usage -based wastewater rates were adopted by the City Council in July 2010,
but are not anticipated to be implemented until January 2012. Usage -based wastewater
rates may also have an impact on customer's water demand.
Requirements for water conservation rates as specified by the California Urban Water
Conservation Council require water rates to generate at least 70 percent cf revenue from
usage charges, and no more than 30 percent from fixed service charges. However, the City
has four years from the time the meter retrofit program is completed to fully comply with
this requirement. It is anticipated that as the City gains a better understanding cf water
usage characteristics that a gradual transition to meet the 70 percent threshold will begin.
This might occur by implementing rate increases only in the water usage charges and
holding fixed service charges constant over time.
METER RETROFIT INSTALLATION CHARGES
In order to provide additional funding for the planned accelerated water meter retrofit
program, the City is considering imposing a meter retrofit installation charge on all
customers requiring water meters. Lump sum charges varying between $300 and $1,200
have been proposed by City staff. Under the proposal, customers would have the option
of paying the charge in a lump sum, or paying in monthly installments, in a charge on the
utility bill, over seven years at an estimated interest rate Cf 1.5 percent.
The water meter installation charges are expected to be brought to the City Council for
approval in early 2011. Under the proposal, lump sum payments would be due by July 1,
2011, and monthly charges for those not making lump sum payments would be imposed
beginning in July 2011.
The financial plan presented herein reflects both the revenues from the anticipated
water meter installation charges (including estimates of lump sum payments and monthly
installment payments), and the costs of the meter retrofit program. Because a portion cf
the meter retrofit program entails replacing existing undersized, aged, and/or back yard
mains, a portion of the program is also funded through existing water rate revenues and
available reserves.
The City's ability to meet obligations related to the WTP financing is not dependent
upon adoption of the proposed water meter installation charges. If the water meter
installation charges are not adopted (or are adopted in some other form), the impact would
be limited to the timing and duration of the meter installation program.
WATER IMPACT MITIGATION FEES
The current water impact mitigation fees are based on density and parcel size. The fee
for a typical low-density single family residence (5 dwelling units per acre) is about $1,078
for single family residential connection. The City intends to update the water impact
mitigation fee to reflect the cost cf the new water treatment plant, as well as other water
system improvements, once the City has accepted a firm bid for construction cf the
treatment plant. Preliminary estimates indicate that new water impact mitigation fees may
THE REED GROUP, INC. PAGE 16
CITY OF LODI
WATER SYSTEM FINANCIAL STRATEGY
be about $8,000 for a single family residential connection. It is anticipated that the City
Council will adopt new water impact mitigation fees in late 2011, when the City considers
updating a impact fees.
Financial plan analyses assume the equivalent of 50 new single family residential
connections to the water system each year (about 0.2% annual growth). Two large
commercial projects are anticipated to move forward in FY 10-11, and are equivalent to
about 50 single family residences. Most, if not all, water impact mitigation fee revenue is
intended to be directed towards debt service payment on the 2010 water revenue bonds
used to finance the WTP.
THE REED GROUP, INC. PAGE 17
CITY OF LODI
WATER SYSTEM FINANCIAL STRATEGY
APPENDIX A: WATER FINANCIAL PLAN DETAILS
THE REED GROUP, INC. PAGE 18
Exhibit A-1
City of Lodi -- Water Utility
Financial Plan Summary
Overall Water Rate Increases --> 2.08 3.58 3.58 3.58 3.58 3.58 3.58 3.58 3.% 3.58
Jan. 2011 Jan. 2012 Jan. 2013 Jan. 2014 Jan. 2015 Jan. 2016 Jan. 2017 Jan. 2018 Jan. 2019 Jan.2020
Beginning Balance
Revenues
Water Sales
Interest Earnings
Other Revenues
Transfer from Fund 182 for DS
Total Revenues
Expenditures
Transfer Out to Gen'I Fund (COS)
Transfer Out to Wtr Cap Outlay
Transfer Out to PCE-TCE Fund
PersonnelServices
Utilities, Commun., &Transport.
Supplies, Mat'Is., Services & Other
SWTFOper. IN Maint. (net)
Debt Service
1991 CSDW Loan Pavments
Est. Net 2010 Rev. Bond Payments
Total Expenditures
Ending Balance
Operating Reserve (25%)
Available Balance
DS Leverage
2,071,982 3,300,906, 3,911,699 4,360,311 3,014,561 1,972,886 89,098 483,010 2,835,285 3,596,197 4,211,234
8,739,854
11, 796, 000
12 ,158, 000
12, 609, 000
13,068,000
13, 552, 000
14, 054, 000
14, 575, 000
15,154, 000
15, 715, 000
16, 296, 000
25,266
14,540
41,000
55,000
49,000
25,000
8,000
57,000
111,000
134,000
162,OOC
39,565
325,000
348,000
265,000
273,000
281,000
289,000
297,000
305,000
314,000
323,000
215,000
444,000
459,000
475,000
492,000
509,000
527,000
545,000
8,804,685
12,135, 540
12, 547, 000
13,144, 000
13, 834, 000
14,317,000
14, 826, 000
15, 421, 000
16, 079, 000
16, 690, 000
17, 326, 000
1,060,122
1,060,120
1,060,000
1,060,000
1,060,000
1,060,000
1,060,000
1,060,000
1,060,000
1,060,000
1,060,000
2,319,445
3,000,000
3,500,000
4,000,000
4,500,000
5,600,000
3,600,000
2,000,000
4,000,000
4,500,000
4,500,000
1,325,536
1,403,580
1,452,000
1,488,000
1,539,000
1,592,000
1,645,000
1,702,000
1,760,000
1,820,000
1,883,000
733,653
721,150
753,000
787,000
823,000
860,000
898.000
938,000
981,000
1,025,000
1,071,000
2,550,028
2,600,910
2,680,000
2,680,000
2,761,000
2,843,000
2,111MM
3,016,000
3,106,000
3,200,000
3,297,000
1,822,000
1,538,000
1,590,000
1,700,000
1,758,000
1,818,000
1,880,000
228.012
1;433,395
-
1,305,592
2.653.388
2.652.750
2.654.675
2.655.788
2.656.088
2.652.725
2,653,088
2.651.963
2.654.350
8,216,796
11,524,747
12,098,388
14,489,750
14,875,675
16,200,788
14,432,088
13,068,725
15,318,088
16,074,963
16,345,350
1,243,000 2,465,699 2,874,311 1,055,561 42,886 (1,896,902) (1,560,990) 731,285 1,430,197 1,980,234 2,893,884
14.10 2.97 327 2.72 2.94 3.01 3.10 325 3.45 3.04 3.21
N
H
0
'ri
r
0
C)
tr.
tr
tr
Cr
C
c
C
C
ExhibitA-1 -- Continued
City of Lodi -- Water Utility
Financial Plan Summary
Ending Balance
Est. Actual
Budget
FY 11-12
FY 12-13
FY 13-14
FY 14-15
FY 15-16
FY 16-17
FY 17-18
FY 18-19
FY 19-20
Beginning Balance
(442,341)
(495,6063
(474,126)
(65,126)
147,874
150,874
154,874
159,874
165,874
171,874
177,874
Beginning Balance
11,839,529
11,287,790
10,892,200
9,188,200
7,020,200
4,043,200
6,200
46,200
3,193,200
6,137,200
10,408,200
Revenues
1,669
271,480
414,000
429,000
444,000
459,000
475,000
492,000
509,000
527,000
545,000
Operating Transfers I n
2,319,445
3,000,000
3,500,000
4,000,000
4,500,000
5,600,000
3,600,000
2,000,000
4,000,000
4,500,000
4,500,000
Interest Earnings
78,375
57,410
100,000
121,000
110,000
50,000
1,000
56,000
160,000
285,000
391,000
Retrofit Meter Install. Charge
1,453,000
1,570,000
1,570,000
1,570,000
1,570,000
1,570,000
1,570,000
1,570,000
Debt Proceeds
250,000
T%E Revenues
2,397,820
4,510,410
5,170,000
5,691,000
6,180,000
7,220,000
5,171,000
3,626,000
5,730,000
4,785,000
4,891,000
Expenditures
215,000
444,000
459,000
475,000
492,000
509,000
527.000
545,000
Water Meter/Main Install. Project
2,932,000
4,073,000
6,694,000
7,662,000
8,947,000
11,039,000
4,846,000
492,000
509,000
527,000
545,000
Water Taps
(466,000)
75,000
78,000
80,000
83,000
86,000
89,000
92,000
95,000
99,000
102.000
Miscellaneous Water Mains
50,000
52,000
54,000
55,000
57,000
59,000
61,000
64,000
66,000
68,000
Commercial Meter Replacements
10,000
10,000
5,000
6,000
6,000
6,000
6,000
6,000
7,000
7,000
Valve Exercising Program
20,000
21,000
21,000
22,000
23,000
24,000
25,000
25,000
26,000
27,000
UWMP Update
50,000
59,000
Meter Fixed Network
500,000
MSC Paving
75,000
Vehicles/Equipment
53,000
19,000
37,000
44,000
46,000
48,000
49,000
51,000
53,000
55,000
Unspecified Capital Projects
246,000
2,545,000
263,000
2,726,000
Total Expenditures
2,932,000
4,906,000
6,874,000
7,859,000
9,157,000
11,257,000
5,131,000
479,000
2,786,000
514,000
2,985,000
Ending Balance
11,305,000
10,892,200
9,188,200
7,020,200
4,043,200
6,200
46,200
3,193,200
6,137,200
10,408,200
12,314,200
Beginning Balance
(442,341)
(495,6063
(474,126)
(65,126)
147,874
150,874
154,874
159,874
165,874
171,874
177,874
Revenues
Water Impact Mitigation Fees
1,669
271,480
414,000
429,000
444,000
459,000
475,000
492,000
509,000
527,000
545,000
Interest Earnings
(5,000)
(1,000)
3,000
4,000
5,000
6,000
6,000
6,000
6,000
Total Revenues
1,669
271,480
409,000
428,000
447,000
463,000
480,000
498,000
515,000
533,000
551,000
Expenditures
Well #27 - Pump, Motor &Site tmpr.
250,000
MSC Rehab/Expansion
25,000
Transfer to Fund 180 for Debt Service
215,000
444,000
459,000
475,000
492,000
509,000
527.000
545,000
Total Expenditures
25,000
250,000
215,000
444,000
459,000
475,000
492,000
509,000
527,000
545,000
Ending Balance
(466,000)
(474,126)
(65,126)
147,874
150,874
154,874
159,874
165,874
171,874
177,874
183,874
Owed Fund 180 for DS
870,000
2,639,000
4,193,000
5,519,000
6,831,000
8,127,000
9,403,000
10,663,000
11,904,000
13,129,000
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City of Lodi --Water Utility
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Financial Assumptions
General Inflation
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
Labor Inflation
3.4%
3.4%
3.4%
3.4%
3.4%
3.4%
3.4%
3.4%
3.4%
3.4%
Material/Energy Inflation
4.5%
4.5%
4.5%
4.5%
4.596
4.5%
4.596
4.5%
4.596
4.5%
Construction Inflation
3.5%
3.5%
3.-%
3.596
3.596
3.596
3.5%
15%
3.596
3.5%
Interest Earnings
0.5%
10%
1.5%
2.0%
2.5%
3.0%
3.5%
3.5%
3.5%
3.5%
CustomerAccountAssumptions
No. of DUs/Accounts
23,335
23,356
23,406
23,456
23,506
23,556
23,606
23,656
23,706
23,756
23,806
No. of 3/4" Eq. Mtrs.
'421
25,383
25,404
25,454
25,504
25,554
25,604
25,654
25,704
25,754
25,804
25,854
No. of New Connections
50
50
50
50
50
50
50
50
50
50
Customer Growth Rate
0.08%
0.20%
0.20%
0.20%
0.20%
0.20%
0.19%
0.19%
0.19%
0.19%
0.19%
Water Mitigation Impact Fee $
1,078
$ 8,000 $
8,280
$ 8,570 $
8,870
$ 9,180
$ 9,500
$ 9,830
$ 10,170
$ 10,530 $
10,900
2010 Water Revenue Bond Financing Assumptions
ParAmount
$39,535,000
All -In True Interest Cost
5.22%
Term
30 years
Issuance Costs
$ 550,245
Debt Service Reserve
$ 2,656,088
Net Proceeds
$36,500,000
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d
APPENDIX C
CITY OF LODI
The 2010 Bonds are not secured by thefaith and creditor the taxingpower of the City. The
economic and financial data regarding the City of Lodi and the County cf San Joaquin setforth in
this section are includedfor informationpurposes only, to give a more complete description d the
service area of the City'sSystem.
General
The City of Lodi, California ("Lodi" or the "City) was incorporated as a General Law City on
December 6, 1906. The City is located in the San Joaquin Valley between Stockton, 10 miles to the
south, and Sacramento, 35 miles to the north, and adjacentto State Route 99. The city is located on a
main line of the Union Pacific Railroad and is within 5 miles of Interstate 5. The City population is
63,549 (as of Jan. 1, 2010 estimate by the California Department of Finance) and is contained in an
area of approximately 13 square miles. The City has grown steadily since incorporation in 1906 and
in 2006 approved development proposals that will add 3,509 dwelling units in newly annexed areas
to the south and west. No new homes have yet been built in those areas. The City's growth is
provided for in both the General Plan and the City's growth -control ordinance that allows an increase
in population of 2% per year until the growth limits are reached.
The City adopted a new General Plan in 2010, projecting a population of 99,500 in
approximately 2030. The City plans to continue growing in a compact manner, within and
contiguous to the existing boundaries to make the best use of the City's existing infrastructure.
The City provides a wide range of municipal services, including public safety (police, fire
and graffiti abatement), public utilities services (electric, water and sewer), transportation services
(streets, flood control and transit), leisure, cultural and social services (parks and recreation, library,
and community center), community development and general government services (management,
human resources administration, financial administration, building maintenance and equipment
maintenance).
The City has a broad-based economy that, unlike many cities in the San Joaquin Valley, does
not simply depend upon agriculture, one reason the City's unemployment rate generally tracks the
state average and is roughly 2 percent to 4 percent less than San Joaquin County's. The region's
growing reputation for its fine wines has boosted its image as a tourist destination, and the city's
downtown, enhanced by a $25 million public and private investment, is a model for other mid-sized
cities seeking to revitalize their downtowns. As it transitions to an entertainment, white -linen dining
and wine -tasting destination, downtown Lodi serves as a hub for the 75 wineries located within a 10 -
mile radius.
The City has a diversified industrial base, ranging from plastics industries that are industry
leaders in producing pipes for irrigation and drainage, and injection -molded products, to Cottage
Bakery, which sells specialty baked goods and frozen dough to customers nationwide. Still,
agriculture plays a large role in the city's economy. In addition to wines, processed foods, nuts, fruit,
vegetables and milk are major commodities of the Lodi area and supply the materials for local food
processors and packagers. These products support the operations of General Mills and private-label
cannery Pacific Coast Producers, among other companies. A variety of Lodi businesses serve the
surrounding farms and vineyards with irrigation supplies and specialty machinery.
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DOCSOC/ 1418056v 16/022245 -0221
In addition, the City has a wide range of other financially sound businesses. These companies
range in size fiom a few dozen to hundreds of employees and produce a wide variety of services and
products. New retail businesses are planning 2011 openings in the Reynolds Ranch development in
southeast Lodi, including Costco and The Home Depot. The shopping center is adjacent to Blue
Shield of California's claims processing center that opened in late 2008 and houses approximately
900 employees.
Municipal Government
Cly Council. All powers of the City are vested in the City Council which is empowered to
perform all duties of and obligations of the City as imposed by State law. The City has a five -
member City Council composed of members elected at large. Each council member is elected for
four years with staggering terms.
Biographies of the members of the City Council are set forth below:
PHIL KATZAKIAN, MAYOR, was elected to the Lodi City Council in November 2006.
Mr. Katzakian is a real estate agent and former president and co-owner of Lodi Printing, founded in
1924 and owned by the Katzakian family since 1948. Mr. Katzakian attended San Joaquin Delta
College and California State University, Sacramento, before being hired by Lodi Vintners, a Lodi -
area winery. He spent five years with the company, eventually becoming General Manager, before
leaving to open an automotive repair business.
SUSAN HITCHCOCK, MAYOR PRO TEMPORE, was elected to the Lodi City Council in
November 1998 and re-elected in 2002 and 2006. Ms. Hitchcock received a Bachelor of Science in
Business Administration fiom California State University, Sacramento, in 1979 and a teaching
credential in 1991. She also received a Master of Arts in School Administration and an
Administrative Services credential fiom University of the Pacific in 1997. Ms. Hitchcock worked as
a commercial loan officer for eight years. She has been employed by the Lodi Unified School
District since 1991 and is currentlythe Principal of Clairmont Elementary School.
JOANNE MOUNCE, COUNCIL MEMBER, was elected to the Lodi City Council in
November 2004 and re-elected in 2008. Ms. Mounce received an Accounting Certificate fiom South
Lake Tahoe Community College and her Associates Degree with Honors fiom San Joaquin Delta
College. With 26 years of accounting experience, Ms. Mounce currently works with Dougherty
CPAs, Inc., a Stockton certified public accountant firm.
BOB JOHNSON, COUNCIL MEMBER, was elected to the Lodi City Council in November
2004 and re-elected in 2008. Mr. Johnson attained the rank of captain in the United States Marine
Corps and, following his military service, was employed for more than 20 years in the financial
industry in a variety of marketing and management positions in New York, Los Angeles, and San
Francisco. He was a self-employed real estate appraiser before his retirement. Mr. Johnson received
a Bachelor of Arts degree from St. Bonaventure University.
LARRY D. HANSEN, COUNCIL MEMBER, was elected to the Lodi City Council in
November 2002 and re-elected in November 2006. Mr. Hansen is a United States Navy veteran and
obtained his Master of Public Administration degree in 1993 fiom California State University,
Stanislaus. Mr. Hansen had a 30 -year career with the City of Lodi Police Department, serving as
Chief of Police fiom 1993 to 2000.
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DOCSOC/1418056v 16/022245-0221
Investment Portfolio
All funds of the City, including surplus funds of the System, are invested by the City in
accordance with the investment guidelines of the California Government Code (Sections 53601 and
53635) and the City's Investment Policy, which is presented annually to the City Council for
approval.
Investment Policy. Pursuant to the Investment Policy, the City strives to maintain a level of
investment of all idle funds, less required reserves, as near 100% as possible, through daily and
projected cash flow determinations. The City's cash management system is designed to monitor and
forecast expenditures and revenue accurately in order to enable the City to invest funds to the fullest
extent possible.
Idle cash management and investment transactions are the responsibility of the Internal
Services Director/City Treasurer. The Investment Policy, as adopted by the City Council on
November 18, 2009, permits investment in the following: U.S. Treasury obligations (bills, notes and
bonds); U.S. Government Agency securities and instrumentalities; bankers acceptances; certificates
of deposit; negotiable certificates of deposit; commercial paper; California State Local Agency
Investment Fund; passbook deposits; mutual funds; and medium term notes. The Investment Policy
provides that safety is given the highest priority, followed by liquidity and yield. Investments are
selected to achieve a "market average" rate of return, or the annual rate of return on the one-year U.S.
Treasury Bill.
The Investment Policy may be changed at any time at the discretion of the City Council
(subject to the State of California law provisions relating to authorized investments) and as the
California Government Code is amended. There can be no assurance, therefore, that the State of
California law and/or the Investment Policy will not be amended in the future to allow for
investments which are currently not permitted under such State law or the Investment Policy, or that
the obj ectives of the City with respect to investments will not change. All investments, including the
Authorized Investments and those authorized by law from time to time for investments by public
agencies, contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of
return than expected and loss or delayed receipt of principal. The occurrence of these events with
respect to amounts held under the Trust Agreement and the Installment Purchase Agreement, or other
amounts held by the City, could have a material adverse effect on the City's finances.
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DOCSOC/ 1418056v 16/022245-0221
Investment Results as of June 30, 2010. A summary of the City's pooled investment
portfolio as of June 30,2010 is set forth below.
CITY OF LODI
Investment Portfolio Summary
(as of June 30,2010)
Percent
Type of Investment
Amount
of Total
Local Agency Investment Fund (City)
$33,250,511
42.5%
LAIF (Lodi Public Improvement Corporation)
24,064,641
30.7
Certificates of Deposit
500,000
0.6
Passbook/Checking Accounts
20.472.019
262
Total
$78,287,171
100.0%
Source: City of Lodi.
Population
The following chart indicates the growth in the population of the City since 2000.
CITY OF LODI
POPULATION
For Years 2000 through 2010
Year
(as of January 1)
Population
2000
56,512
2001
58,353
2002
59,835
2003
60,951
2004
61,848
2005
62,520
2006
62,828
2007
63,395
2008
63,316
2009
63,164
2010
63,549
Source: State of California, Department of Finance.
Employment in the City was 27,900 in 2002 and 28,100 in 2009, representing a 0.7%
increase over the seven-year period. Over the same time period, the unemployment rate in Lodi
ranged from a low of 5.5% in 2006 to 11.8% in 2009. Statewide unemployment rates ranged from
4.9% in 2006 and 11.4% in 2009.
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DOCSOC/ 1418056v 16/022245-0221
CITY OF LODI, SA N JOAQUIN COUNTY AND CALIFORNIA
2,699
Unemployment rates, annual averages, Calendar Years 2005-2010
1,400
2005 2W6 2002 2008 2009
2010(1)
Lodi 5.9 5.5 6.0 7.8 11.8
12.6
San Joaquin County 7.9 7.4 8.1 10.3 15.4
16.6
California 5.4 4.9 5.3 7.2 11.4
12.4
Source: State of California, Employment Development Department.
(1) Through August 31,2010.
Major Employers
There are several manufacturing plants in the community producing a wide variety of
products: cereals, food mixes, wines, rubber products, foundry items, recreational vehicle
components, electronic substrates, plastic piping and injection molded products. In addition, a
number of small businesses are located within the City. The main businesses in the City, however,
are food processing and plastics.
The largest employers in Lodi as of August 3 0,20 10 are as follows:
CITY OF LODI
LARGEST EMPLOYERS
Employer Business Number of Employees
Lodi Unified School District
Lodi Memorial Hospital
Blue Shield
Cottage Bakery
General Mills
City of Lodi
Pacific Coast Producers
Farmers & Merchants Bank
Wal-Mart
Target
ArmorStruxx
Valley Towing Products
Source: City of Lodi, City Manager's Office.
Education
2,699
Health Care
1,400
Insurance Claims Processing
850
Baked Goods
552
Cereals and Food Mixes
489
Government
405
Fruit Canning
400-1,200
Banking
330
Retail
270
Retail
197
Armor Plate Manufacturing
130
Trailer Hitch Manufacturing
130
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DOCSOC/1418056v 16/022245-0221
Building Permit Activity
The following table shows the value of building permits issued in
the City between 2006 and
2010.
CITY OF LODI
BUILDING PERMIT VALUATION
for Calendar Years 2005 through 2010
Tyne of Permit 2006 200
2405
2009
20101)
Residential:
New Single-Dwelling 20,199,883 4,631,976
1,837,512
734,783
595,647
New Multi-Dwelling 0 1,134,559
0
0
0
Additions/Alterations 4,742,419 2.906.158
1,659,378
2,323,010
1.183.787
Total Residential 24,942,302 8,672,693
3,496,890
3,057,793
1,779,434
Non Residential:
New Commercial 6,174,219 5,508,296
10,267,563
942,077
0
New Industrial 660,000 496,455
0
0
0
Other 4,980,828 1,755,534
1,828,749
1,813,849
1,512,144
Additions/Alterations 8,646,425 2,833,350
9,699,507
1,862,030
1.575.592
Total Non Residential 20.461.472 10.593.635
21,795,819
4.617.956
3,087,736
Total Valuation 45.403.774 19,266,328
25.292.709
574
4 $Q
Source: Constructionttx�� Research Board
Through August 31� , 2010
Taxable Sales
The following table indicates taxable transactions in the City by
type of business during the
fiscal years 2005 through the third quarter of 2009.
CITY OF LODI
TAXABLE TRANSACTIONS BY TYPE OF BUSINESS
for Calendar Years 2005 through 2009
(in Thousands of Dollars)
2005 2006
2007
2008
2009(')
Retail Stores:
Apparel Stores $ 11,470 $ 11,989
$ 12,774
$ 15,341
$ 4,591
General Merchandise 150,767 147,118
144,252
131,757
24,381
Food Stores 59,615 55,507
57,101
51,196
11,345
Eating/Drinking Places 78,756 83,191
84,753
81,370
19,137
Furniture/Appliances 18,457 15,412
13,434
13,683
3,208
Building Materials 92,242 83,070
68,954
55,678
13,509
Auto Dealers/Supplies 203,707 191,920
182,395
135,866
22,607
Service Stations 51,171 60,976
65,697
85,670
21,317
Other Retail Stores 63,874 67,673
58,249
51,722
12,963
Retail Store Totals 730,059 716,856
687,609
622,282
133,057
All other Outlets $159,768 $172.404
167 46
$154.277
$ 31„
Total All Outlets $889,827 $889,260
$855,072
$776,559
$165,023
(1) Through September 30,2009
Source: California State Board of Equalization
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DOCSOC/1418056v 16/022245-0221
Income
Total personal income in San Joaquin County increased by 47.7% between 2000 and 2008. The following
tables summarizepersonal income for San Joaquin County for 2000 through 2008.
PERSONAL INCOME
San Joaquin County
2000-2008
(Dollars in Thousands)
Annual
Percent
Yea
San Joaauin Countv
Change
2000
$14,280,516
9.3%
2001
14,997,883
5.0
2002
15,672,221
4.5
2003
16,587,814
5.8
2004
17,635,474
6.3
2005
18,300,337
3.8
2006
19,475,554
6.4
2007
20,634,651
6.0
2008
21,097,089
2.2
Source: U.S. Department of Commerce, Bureau of Economic Analysis.
The following tables summarizes per capita personal income for San Joaquin County,
California and the United States for 2000-2008.
PER CAPITA PERSONAL INCOME
San Joaquin County, State of California and the United States
2000-2008
Source: U.S. Department of Commerce, Bureau of Economic Analysis
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DOCSOC/1418056v 16/022245-0221
San Joaquin
Vear
Countv
California
United States
2000
$25,143
$33,398
$30,318
2001
25,377
33,890
31,145
2002
25,761
34,045
31,462
2003
26,530
34,977
32,271
2004
27,514
36,904
33,881
2005
27,963
38,767
35,424
2006
29,513
41,567
37,698
2007
31,018
43,402
39,392
2008
31,547
43,852
40,166
Source: U.S. Department of Commerce, Bureau of Economic Analysis
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DOCSOC/1418056v 16/022245-0221
Agriculture
Lodi is a worldwide agricultural shipping center for the San Joaquin Valley. The surrounding
prime agricultural land is the nation's largest producer of premium wine grapes. Lodi businesses
process and ship local produce ranging from grapes to cherries and asparagus.
Community Facilities
The City has a central library, one community center, 26 parks and five specific use facilities,
covering 263 developed acres and 110 undeveloped acres, and 16 playgrounds. Lodi Lake Park is
connected to the Mokelumne River and features boating, fishing, beach swimming, boat rentals,
nature walks, group picnic sites, an RV park and the Discovery Nature Center. Micke Grove Park, a
San Joaquin County park, is located between Lodi and Stockton. The park is home to a Japanese
garden, the San Joaquin Historical Museum, amusement park and rides, picnic areas and a five -acre
zoo featuring mammals, birds, reptiles and invertebrates.
Community recreation programs cover a wide range of interests and activities including
youth and adult sports and special interest classes, youth -at -risk programs, aquatics, special events,
camps/clinics and tournaments.
Lodi Memorial Hospital offers a 270 -bed, nonprofit, independent, acute-care hospital to the
residents of the City and surrounding community. Its mission is to provide quality medical care,
education and support services to the community. Two hospital campuses and six satellite clinics are
used to provide a variety of inpatient, outpatient, urgent, emergency and primary care services. The
hospital recently completed a $200 -million expansion that remodeled rooms and added a 90 -bed
wing.
Housing
The City of Lodi housing market offers a blend of older neighborhoods and newer executive
developments. According to the U.S. Census, 29.4 percent of Lodi owner -occupied homes are held
without a mortgage, compared to 23.4 percent countywide.
CITY OF LODI
Median -Priced Home
(For August of Year)
2003 $274,000
2004 326,000
2005 397,000
2006 480,000
2007 418,000
2008 300,000
2009 180,000
2010 180,000
Source:Coldwell Banker Grupe-TrendGraphix
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DOCSOC/1418056v 16/022245-0221
Education
The Lodi Unified School District provides K-12 and special education programs. The area
also is served by several private and parochial schools. The University of the Pacific, San Joaquin
Delta College, California State University, Stanislaus-Stockton campus, and the University of San
Francisco satellite center are all within a 20 -minute drive of the city. The University of California,
Davis and California State University, Sacramento, and the University of Southern California
satellite center are within an hour's drive of the City. Additionally, San Joaquin Delta College is
developing plans to build a satellite learning center in the city.
Transportation
The City is served by Interstate 5 and State highways 12 and 99 and is located on the main
line of the Union Pacific Railroad. Lodi has Amtrak passenger rail service and local, regional and
national bus service. A deep -water seaport and airport with commercial passenger travel are located
approximately 15 miles south in Stockton.
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DOCSOC/ 1418056v16/022245-0221
Estimated Direct and Overlapping Bonded Debt
The estimated direct and overlapping bonded debt of the City as of September 1, 2010 is set
forth below.
CITY OF LODI
ESTIMATED DIRECT AND OVERLAPPINGBONDED DEBT
as of September 1,2010
CITY OF LODI
2010-11 Assessed Valuation: $4,926,129,727
OVERLAPPING TAX AND ASSESSMENT DEBT:
San Joaquin Community College District
Lodi Unified School District
City of Lodi 1915 Act Bonds
TOTAL, OVERLAPPING TAX AND ASSESSMENT DEBT
DIRECT AND OVERLAPPING GENERAL FUND DEBT:
San Joaquin County Certificates of Participation
Lodi Unified School District Certificatesof Participation
City of Lodi Certificates of Participation
TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT
COMBINED TOTAL DEBT
%Applicable (11
8.664%
37.030
100.
9.703%
37.030
100.
Debt 9/1/10
$12,436,359
37,498,430
320,000
$50,254,789
$18,022,352
18,359,474
22,265.000 (2)
$58,646,826
$108,901,615 (3)
(1) Based on 2009-10 ratios.
(2) Excludes issue to be sold.
(3) Excludes tax and revenue anticipationnotes, enterprise revenue, mortgage revenue and tax allocation bonds and
non -bonded capital lease obligations.
Ratios to Assessed Valuation:
Combined Direct Debt ($22,265,000) 0.45%
Total Overlapping Tax and Assessment Debt ...............1.02%
Combined Total Debt ..................................................... 2.21%
STATE SCHOOLBUILDING AID REPAYABLE AS OF 6/30/10: $0
Assessed Valuation and Tax Collections
Taxes are levied for each Fiscal Year on taxable real and personal property that is situated in
the City as of the preceding March 1. For assessment and collection purposes, property is classified
either as "secured" or "unsecured" and is listed accordingly on separate parts of the assessment roll.
The "secured roll" is that part of the assessment roll containing State -assessed property and real
property having a tax lien that is sufficient, in the opinion of the County Assessor, to secure payment
of the taxes. Other property is assessed on the "unsecured roll."
Property taxes on the secured roll are due as of the March l lien date and become delinquent,
if unpaid, on August 31. A 10%penalty attaches to the delinquent taxes on property of the unsecured
roll, and an additional penalty of 1.5% per month begins to accrue commencing on November 1 of
the Fiscal Year. Collections of delinquent unsecured taxes is the responsibility of the County of San
Joaquin using the several means legally available to it.
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DOCSOC/ 1418056v 16/022245-0221
CITY OF LODI
ASSESSED VALUATIONS
For Fiscal Years 2004 through 2009
(In thousands)
Fiscal
Year
Land
Improvements
Personal
Property
Total
Less
Exemptions
Net Assessed
Value
2003-2004
1,027,462
2,549,860
248,472
3,825,794
212,102
3,613,692
2004-2005
1,107,776
2,739,061
249,812
4,096,649
217,077
3,879,572
2005-2006
1,226,293
2,989,575
258,035
4,473,903
220,590
4,253,313
2006-2007
1,431,203
3,327,453
285,340
5,043,996
229,049
4,814,947
2007-2008
1,537,554
3,503,186
289,770
5,330,510
243,259
5,087,251
2008-2009
1,562,729
3,577,741
281,915
5,422,385
265,154
5,157,231
Source: City of Lodi audited financial statements.
In 1993, the City made an agreement with San Joaquin County to participate in the Teeter
Plan pursuant to provisions of Sections 4701-4717 of the California Revenue and Taxation Code.
The Teeter Plan is an alternative method of apportioning property tax money. Pursuant to those
sections the accounts of all political subdivisions that levy taxes on the County tax rolls are credited
with 100% of their respective tax levies regardless of actually payments and delinquencies. The cities
covered under the plan receive 95% of the property taxes in advance from the County and the 5%
remaining after reconciling the cities' balances at June 30. As part of the agreement, the County
keeps the penalties and interest on the delinquent taxes.
Ten Largest Locally Secured Taxpayers
The following table shows the ten largest locally secured taxpayers of the City for the Fiscal
year ended June 30,2009.
CITY OF LODI
TEN LARGEST LOCALLY SECURED TAXPAYERS
Fiscal Year Ended June 30,2009
Name
1. Lodi Memorial Hospital Assoc.
2. General Mills, Inc.
3. Pacific Coast Producers
4. Calif. Physicians Service Corp. (Blue Shield)
5. Cottage Bakery Inc.
6. Certainteed Corp.
7. Archer Daniels Midland
8. Thule Hitch Systems
9. Dart Container Corp.
10. Lowe's
TOTAL,
Source: San Joaquin County Assessor's Office.
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Assessed Valuation
$168,303,000
$152,676,000
86,146,000
$42,615,000
24,653,000
19,431,000
19,098,000
18,932,000
18,814,000
14,153,000
564.821.000
APPENDIX D
AUDITED FINANCIAL STATEMENTS OF THE CITY
FOR THE FISCAL YEAR ENDED JUNE 30,2009
The Audited Financial Statements contained in this Appendix include information relating to various
funds of the City, in addition to the funds relating to the Water System. Notwithstanding anything to
the contrary contained therein, the obligation of the city with respect to the Series 2010 Bonds is a
limited obligation of the City, payable solely from the sources specified in the Official Statement.
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APPENDIX E
BOOK -ENTRY ONLY SYSTEM
The information in this Appendix concerning The Depository Trust Company ("DTC'), New
York, New York, and DTC's book entry system has been obtained from DTC and the City and the
Underwriter take no responsibilityfor the completeness or accuracy thereof. The City and the
Underwriter cannot and do not give any assurances that DTC, DTC Participants or Indirect
Participants will distribute to the Beneficial Holders (a)payments of interest,principal orpremium,
if any, with respect to the Series 2010 Bonds, (b) certificates representing ownership interest in or
other confirmation or ownership interest in the Series 2010 Bonds, or (c) redemption or other notices
sent to DTC or Cede & Co., its nominee, as the registered owner of the Series 2010 Bonds, or that
they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will
act in the manner described in this Appendix. The current "Rules" applicable to DTC are onfile
with the Securities and Exchange Commission and the current "Procedures "d DTC to befollowed
in dealing with D TC Participan is are onfi le with DTC.
The Depository Trust Company ("DTC"), New York, NY, will act as securities depository
for the Series 2010 Bonds. The Series 2010 Bonds 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 Series 2010 Bond will be
issued for each maturity and series of the Series 2010 Bonds, each in the aggregate principal amount
of such maturity and series, and will be deposited with DTC.
DTC, the world's largest depository, 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 issues of U.S. and non -U.S. equity, corporate and municipal debt issues, and money
market instrument 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. Access to the DTC system is also
available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust
companies, and clearing corporations that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's
highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and
Exchange Commission. More information about DTC can be found at www.dtcc.com and
www.dtc.org.
Purchases of the Series 2010 Bonds under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Series 2010 Bonds on DTC's records. The
ownership interest of each actual purchaser of each Series 2010 Bond ("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
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receive written confirmations providing details of the transaction, as well as periodic statements of
their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered
into the transaction. Transfers of ownership interests in the Series 2010 Bonds are to be
accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership
interests in Series 2010 Bonds, except in the event that use of the book -entry system for the Series
2010 Bonds is discontinued.
To facilitate subsequent transfers, all Series 2010 Bonds deposited by Direct Participants
with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name
as may be requested by an authorized representative of DTC. The deposit of Series 2010 Bonds with
DTC and their registration in the name of Cede & Co. or such other nominee do not effect any
change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series
2010 Bonds ; DTC's records reflect only the identity of the Direct Participants to whose accounts
such Series 2010 Bonds 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 the Series 2010 Bonds may
wish to take certain steps to augment transmission to them of notices of significant events with
respect to the Series 2010 Bonds, such as redemptions, tenders, defaults, and proposed amendments
to the security documents. For example, Beneficial Owners of Series 2010 Bonds may wish to
ascertain that the nominee holding the Series 2010 Bonds 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.
Redemption notices shall be sent to DTC. If less than all of the Series 2010 Bonds within a
maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each
Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with
respect to the Series 2010 Bonds unless authorized by a Direct Participant in accordance with DTC's
Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those
Direct Participants to whose accounts the Series 2010 Bonds are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Principal and interest payments on the Series 2010 Bonds 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 City 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 City, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of redemption proceeds,
distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by
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an authorized representative of DTC) is the responsibility of the City or the Trustee, disbursement of
such payments to Direct Participants will be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with respect to the Series
2010 Bonds at any time by giving reasonable notice to the City or the Trustee. Under such
circumstances, in the event that a successor securities depository is not obtained, Security certificates
are required to be printed and delivered.
The City may decide to discontinue use of the system of book -entry -only transfers through
DTC (or a successor securities depository). In that event, Bond certificates will be printed and
delivered to DTC.
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APPENDIX F
SUMMARY OF PRINCIPAL LEGAL DOCUMENTS
DOCS O C/ 141805 6v 16/022245-022 1
PROPOSED FORM OF CONTINUING DISCLOSURE CERTIFICATE
DOCSOC/1418056v 16/022245-0221
APPENDIXII
PROPOSED FORM OF OPINION OF BOND COUNSEL
DOCSOC/1418056v16/022245-0221
LODI PUBLIC FINANCING AUTHORITY
2010 Water Revenue Bonds, 2010 Water Revenue Bonds, Series B
Series A (Federally Taxable - Build America Bonds —Direct
Payment)
BOND PURCHASE AGREEMENT
October_, 2010
Board of Directors
Lodi Public Financing Authority
Lodi, California
City Council
City of Lodi
Lodi, California
Ladies and Gentlemen:
The undersigned, Stone & Youngberg LLC (the "Underwriter") relating to the Authority's
$ 2010 Water Revenue Bonds, Series A (the "Series 2010A Bonds") and $
2010 Water Revenue Bonds, Series B (Federally Taxable - Build America Bonds — Direct Payment) (the
"Series 2010B Bonds" and, together with the Series 2010A Bonds, the "Series 2010 Bonds"), hereby
offers to enter into this Bond Purchase Agreement (the "Purchase Agreement") with you, the Lodi Public
Financing Authority (the "Authority") and you, the City of Lodi (the "City"), which, upon the Authority's
and the City's acceptance of this offer, will be binding upon the Authority, the City and the Underwriter.
This offer is made subject to acceptance by each of you prior to 11; 59 P.M., California time, on the date
hereof. If this offer is not so accepted, this offer will be subject to withdrawal by the Underwriter upon
notice delivered to you at any time prior to acceptance. Upon acceptance, this Purchase Agreement shall
be in full force and effect in accordance with its terms and shall be binding upon the Authority, the City
and the Underwriters. All capitalized terms used herein not otherwise defined herein shall have the
respective meanings ascribed thereto in the Official Statement and the Indenture (each, as herein defined).
1. Purchase. Sale and Delivery of the Series 2010 Bonds.
(a) Subject to the terms and conditions and in reliance upon the representations,
warranties and agreements set forth herein, the Underwriter hereby agrees to purchase and the
Authority agrees to sell and deliver to the Underwriter all (but not less than all) of the Series 2010
Bonds.
The Series 2010 Bonds shall be issued pursuant to the Marks Roos Local Bond
Pooling Act of 1985, consisting of Article 4, Chapter 5, Division 7, Title 1 of the Government
Code of the State of California (commencing with Section 6584 (the "Act") and an Indenture of
Trust, dated as of October 1, 2010, between the Authority and The Bank of New York Mellon
* Preliminary, subjectto change.
DOCSOC/1436863v3/022245-022I
Trust Company, N.A., as trustee (the "Trustee") (the "Indenture"). The Series 2010 Bonds shall
be dated the Closing Date (as hereinafter defined). The Series 2010 Bonds shall have the
maturities and bear interest at the rates per annum and at the prices and yields shown on Exhibit
A hereto. The Series 2010 Bonds shall be substantially in the form described in, and shall be
issued and secured under, the provisions of the Indenture. The Series 2010 Bonds are special,
limited obligations of the Authority payable solely from Authority Revenues and all amounts
(including proceeds of the sale of the Series 2010 Bonds) held in any fund or account established
under this Indenture (subject only to the provisions of the Indenture permitting the application
thereof for the purposes and on the terms and conditions set forth therein). "Authority Revenues"
consist primarily of installment payments (the "2010 Installment Payments") received by the
Trustee from the City pursuant to an Installment Sale Agreement, dated as of October 1, 2010
(the "2010 Installment Sale Agreement") between the City and the Authority. The Series 2010
Bonds are being issued (i) pay the cost of a new water treatment facility (the "Treatment
Facility") to treat water to be provided within the service area of the City (the "Water System");
(ii) fund a deposit in the Reserve Account in an amount equal to the Reserve Requirement; (iii)
pay costs of issuance.
(c) The aggregate purchase price for the Series 2010 Bonds will be
$ , which is equal to (i) the purchase price of the Series 2010A Bonds of
$ (consisting of the aggregate principal amount of the Series 2010A Bonds
less an Underwriter's discount of $ and less net original issue discount of
$ ) and (ii) the purchase price of the Series 2010B Bonds of $
(consisting of the aggregate principal amount of the Series 2010B Bonds less an Underwriter's
discount of $ ).
(d) At 8:00 o'clock A.M., Californiatime, on September_, 2010, or at such other
time or on such other date as we mutually agree upon (the "Closing Date"), the Authority and the
City will, subject to the terms and conditions hereof, cause to be delivered to the Underwriter, at a
location or locations to be designated by the Underwriter in New York, New York, the Series
2010 Bonds (delivered through the book entry system of The Depository Trust Company), duly
executed, and at the offices of Jones Hall, A Professional Law Corporation, San Francisco,
California, or at such other place as shall have been mutually agreed upon by the Authority and
the Underwriter, the other documents mentioned herein. The Underwriter will accept such
delivery and pay the Purchase Price in immediately available funds (such delivery and payment
being herein referred to as the "Closing") to the order of the Trustee.
(e) The Underwriter agrees to make a bona fide public offering of the Series 2010
Bonds at the initial offering prices set forth in the Official Statement (as hereinafter defined),
which prices may be changed from time to time by the Underwriter after such offering.
The City will undertake, pursuant to a Continuing Disclosure Certificate, dated as
of the ling Date (the "Continuing Disclosure Certificate") to provide certain annual financial
information and notices of the occurrence of certain events, if material. A description of this
undertaking is set forth in the Preliminary Official Statement (as hereinafter defined) and will also
be set forth in the Official Statement. The City has not failed to comply in the last five years in all
material respects with any previous undertakings with regard to Rule 15c2-12 (as defined below)
to provide annual reports or notices of material events.
2. Use and Preparation of Official Statement. The Authority and the City hereby ratify,
confirm and approve of the use and distribution by the Underwriters prior to the date hereof of the
Preliminary Official Statement dated October _, 2010 relating to the Series 2010 Bonds (which,
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DOCSOC/1436863v3/022245-0221
together with all appendices thereto, is referred to herein as the "Preliminary Official Statement"). The
Authority and the City have deemed final the Preliminary Official Statement as of its date for purposes
of Rule 15c2-12 promulgated by the Securities Exchange Act of 1934 ("Rule 15c2-12"), as amended,
except for the omission of such information as is specified in Rule 15c2 -12(b)(1). The Authority and
the City hereby agree to deliver or cause to be delivered to the Underwriter, within seven (7) business
days of the date hereof, conformed copies of the final Official Statement, dated the date hereof
(including all information previously permitted to have been omitted by Rule 15c2-12 and any
amendments or supplements to such Official Statement as have been approved by the Authority, the
City and the Underwriter) (the "Official Statement") in sufficient quantity to enable the Underwriters
to comply with the rules of the Securities and Exchange Commission and the Municipal Securities
Rulemaking Board. The Authority and the City hereby approve of the use and distribution by the
Underwriters of the Official Statement in connection with the offer and sale of the Series 2010 Bonds.
At the time of or prior to the Closing Date, the Underwriter shall file a copy of the Official Statement
with the Municipal Securities Rulemaking Board.
3. Representations. Warranties and Agreements of the Authority. The Authority hereby
represents, warrants and agrees with the Underwriter as follows:
(a The Authority is, and will be on the Closing Date, a joint powers entity of the
State of alifornia organized and operating pursuant to the laws of the State of California with the
full power and authority to issue the Series 2010 Bonds pursuant to the Act, to execute and
deliver the Official Statement and to enter into this Purchase Agreement, the Indenture, and the
Installment Sale Agreement;
(b) By all necessary official action of the Authority prior to or concurrently with the
acceptance hereof, the Authority has duly approved, ratified and confirmed the distribution of the
Preliminary Official Statement and the execution, delivery and distribution of the Official
Statement, and has duly authorized and approved the execution and delivery of, and the
performance by the Authority of the obligations on its part contained in the Indenture, the
Installment Sale Agreement and this Purchase Agreement and the consummation by it of all other
transactions contemplated by the Official Statement, the Indenture, the Installment Sale
Agreement and this Purchase Agreement;
(c The Authority is not in any material respect in breach of or default under any
applicable constitutional provision, law or administrative regulation to which it is subject or any
applicable judgment or decree or any loan agreement, indenture, bond, note, resolution,
agreement or other instrument to which the Authority is a party or to which the Authority or any
of its property or assets is otherwise subject, and no event has occurred and is continuing which
with the passage of time or the giving of notice, or both, would constitute such a default or event
of default in any material respect under any such instrument; and the issuance of the Series 2010
Bonds and the execution and delivery of the Indenture, the Installment Sale Agreement, this
Purchase Agreement and the Official Statement, and compliance with the provisions on the
Authority's part contained herein and therein, will not in any material respect conflict with or
constitute a breach of or default under any law, administrative regulation, judgment, decree, loan
agreement, indenture, bond, note, resolution, agreement or other instrument to which the
Authority is a party or is otherwise subject, nor will any such execution, delivery, adoption or
compliance result in the creation or imposition of any lien, charge or other security interest or
encumbrance of any nature whatsoever upon any of the properties or assets of the Authority
under the terms of any such law, administrative regulation, judgment, decree, loan agreement,
indenture, bond, note, resolution, agreement or other instrument;
3
DOCSOC/1436863v3/022245-0221
(d) To the best knowledge of the Authority after reasonable investigation, there is no
action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court,
governmental agency, public board or body, pending or threatened against the Authority in any
material respect affecting the existence of the Authority or the titles of its officers to their
respective offices or affecting or seeking to prohibit, restrain or enjoin the issuance, sale or
delivery of the Series 2010 Bonds or contesting or affecting, as to the Authority, the validity or
enforceability of the Series 2010 Bonds, the Installment Sale Agreement, the Indenture or this
Purchase Agreement or contesting the powers of the Authority or its authority to enter into, adopt
or perform its obligations under any of the foregoing, or contesting in any way the completeness
or accuracy of the Preliminary Official Statement or the Official Statement, or any amendment or
supplement thereto, wherein an unfavorable decision, ruling or finding would materially
adversely affect the validity or enforceability of the Indenture, the Installment Sale Agreement or
this Purchase Agreement;
(e) All authorizations, approvals, licenses, permits, consents and orders of any
governmental authority, legislative body, board, agency or commission having jurisdiction of the
matter which are required for the due authorization by, or which would constitute a condition
precedent to or the absence of which would materially adversely affect the due performance by,
the Authority of its obligations in connection with the issuance of the Series 2010 Bonds under
the Indenture have been duly obtained, except for such approvals, consents and orders as may be
required under the Blue Sky or securities laws of any state in connection with the offering and
sale of the Series 2010 Bonds; and all authorizations, approvals, licenses, permits, consents and
orders of any governmental authority, board, agency or commission having jurisdiction of the
matter which are required for the due authorization by, or which would constitute a condition
precedent to or the absence of which would materially adversely affect the due performance by,
the Authority of its obligations under the Indenture, the Installment Sale Agreement or this
Purchase Agreement have been duly obtained;
The Authority will furnish such information, execute such instruments and take
such other action in cooperation with the Underwriter as the Underwriter may reasonably request
in order (i) to qualify the Series 2010 Bonds for offer and sale under the Blue Sky or other
securities laws and regulations of such states and other jurisdictions of the United States as the
Underwriter may designate and (ii) to determine the eligibility of the Series 2010 Bonds for
investment under the laws of such states and other jurisdictions, and will use its best efforts to
continue such qualification in effect so long as required for distribution of the Series 2010 Bonds;
provided, that in no event shall the Authority be required to take any action which would subject
it to service of process in anyjurisdiction in which it is not now so subject;
As of the date thereof, the Preliminary Official Statement did not, except as
revised
(g)
)the Official Statement, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements therein relating to
the Authority, in the light of the circumstances under which they were made, not misleading;
(h) As of the date thereof and at all times subsequent thereto to and including the
date which is 25 days following the End of the Underwriting Period (as such term is hereinafter
defined) for the Series 2010 Bonds, the Official Statement did not and will not contain any untrue
statement of a material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, relating to the Authority in the light of the
circumstances under which they were made, not misleading;
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DOC SOC/ 1436863v3/022245-0221
1 If between the date hereof and the date which is 25 days after the End of the
Underwriting Period for the Series 2010 Bonds, an event occurs which might or would cause the
information contained in the Official Statement, as then supplemented or amended, to contain an
untrue statement of a material fact or to omit to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances under which they
were made, not misleading, the Authority will notify the Underwriter, and, if in the opinion of the
Authority, the Underwriter or their counsel, such event requires the preparation and publication of
a supplement or amendment to the Official Statement, the Authority will forthwith prepare and
furnish to the Underwriter (at the expense of the Authority) a reasonable number of copies of an
amendment of or supplement to the Official Statement (in form and substance satisfactory to
counsel for the Underwriter) which will amend or supplement the Official Statement so that it
will not contain an untrue statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under which they were
made, not misleading. For the purposes of this subsection, between the date hereof and the date
which is 25 days after the End of the Underwriting Period for the Series 2010 Bonds, the
Authority will furnish such information with respect to itself as the Underwriter may from time to
time reasonably request;
0) If the information contained in the Official Statement is amended or
supplemented pursuant to paragraph (i) hereof, at the time of each supplement or amendment
thereto and (unless subsequently again supplemented or amended pursuant to such subparagraph)
at all times subsequent thereto up to and including the date which is 25 days after the End of the
Underwriting Period for the Series 2010 Bonds, the portions of the Official Statement so
supplemented or amended (including any financial and statistical data contained therein) will not
contain any untrue statement of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the circumstances under which
they were made, not misleading;
(k) After the Closing up to and including the date which is 25 days after the End of
the Underwriting Period for the Series 2010 Bonds, the Authority will not participate in the
issuance of any amendment of or supplement to the Oficial Statement to which, after being
furnished with a copy, the Underwriter shall reasonably object in writing or which shall be
disapproved by counsel for the Underwriter;
(1) As used herein and for the purposes of the foregoing, the term "End of the
Underwriting Period" for the Series 2010 Bonds shall mean the earlier of (i) the Closing Date
unless the Authority and the City shall have been notified in writing to the contrary by the
Underwriter on or prior to the Closing Date, or (ii) the date on which the End of the Underwriting
Period for the Series 2010 Bonds has occurred under Rule 15c2-12; provided, that the Authority
and the City may treat as the End of the Underwriting Period for the Series 2010 Bonds the date
specified as such in a notice from the Underwriter stating the date which is the End of the
Underwriting Period;
(m) The Authority will apply, or cause the application of, the proceeds of the Series
2010 Bonds in accordance with the Installment Sale Agreement and the Indenture; and
(n)Any certificate signed by any authorized official of the Authority, and delivered
to the Underwriter in connection with the execution and delivery of the Series 2010 Bonds, shall
be deemed a representation and warranty by the Authority to the Underwriter as to the statements
made therein.
5
DOCSOC/ 1436863v3/022245-0221
4. Representations. Warranties and Agreements of the City. The City hereby represents,
warrants and agrees with the Underwriter as follows:
(a) The City is, and will be on the Closing Date, a municipal corporation and general
law city duly organized and existing under the Constitution and laws of the State of California
(the "State") with the full power and authority to execute and deliver the Official Statement and
to enter into this Purchase Agreement, the Continuing Disclosure Certificate and the Installment
Sale Agreement;
(b) By all necessary official action of the City prior to or concurrently with the
acceptance hereof, the City has duly approved, ratified and c o n f i i e d the distribution of the
Preliminary Official Statement and the execution, delivery and distribution of the Official
Statement, and has duly authorized and approved the execution and delivery of, and the
performance by the City of the obligations on its part contained in, the Continuing Disclosure
Certificate, the Installment Sale Agreement and this Purchase Agreement and the consummation
by it of all other transactions contemplated by the Official Statement, the Continuing Disclosure
Certificate, the Installment Sale Agreement and this Purchase Agreement;
(c) The City is not in any material respect in breach of or default under any
applicab e constitutional provision, law or administrative regulation to which it is subject or any
applicable judgment or decree or any loan agreement, indenture, bond, note, resolution,
agreement or other instrument to which the City is a party or to which the City or any of its
property or assets is otherwise subject, and no event has occurred and is continuing which with
the passage of time or the giving of notice, or both, would constitute such a default or event of
default in any material respect under any such instrument; and the execution and delivery of the
Continuing Disclosure Certificate, the Installment Sale Agreement, this Purchase Agreement and
the Official Statement, and compliance with the provisions on the City's part contained herein
and therein, will not in any material respect conflict with or constitute a breach of or default under
any law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note,
resolution, agreement or other instrument to which the City is a party or is otherwise subject, nor
will any such execution, delivery, adoption or compliance result in the creation or imposition of
any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of
the properties or assets of the City under the terms of any such law, administrative regulation,
judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other
instrument;
(d) There is no action, suit, proceeding, inquiry or investigation, at law or in equity,
before or by any court, governmental agency, public board or body, pending or, to the best
knowledge of the City after reasonable investigation, threatened against the City in any material
respect affecting the existence of the City or the titles of its officers to their respective offices or
contesting or affecting, as to the City, the validity or enforceability of the Continuing Disclosure
Certificate, the Installment Sale Agreement or this Purchase Agreement or contesting the powers
of the City or its authority to enter into, adopt or perform its obligations under any of the
foregoing, or contesting in any way the completeness or accuracy of the Preliminary Official
Statement or the Official Statement, or any amendment or supplement thereto, wherein an
unfavorable decision, ruling or finding would materially adversely affect the validity or
enforceability of the Continuing Disclosure Certificate, the Installment Sale Agreement or this
Purchase Agreement;
(e) All authorizations, approvals, licenses, permits, consents and orders of any
governmental authority, legislative body, board, agency or commission having jurisdiction of the
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DOCSOC/ 1436863v3/022245-0221
matter which are required for the due authorization by, or which would constitute a condition
precedent to or the absence of which would materially adversely affect the due performance by
the City of its obligations in connection with the issuance of the Series 2010 Bonds have been
duly obtained, except for such approvals, consents and orders as may be required under the Blue
Sky or securities laws of any state in connection with the offering and sale of the Series 2010
Bonds; and all authorizations, approvals, licenses, permits, consents and orders of any
governmental authority, board, agency or commission having jurisdiction of the matter which are
required for the due authorization by, or which would constitute a condition precedent to or the
absence of which would materially adversely affect the due performance by the City of its
obligations under the Continuing Disclosure Certificate, the Installment Sale Agreement or this
Purchase Agreement have been duly obtained (including to the extent required, any governmental
permits and approvals, including demonstration of compliance with the California Environmental
Quality Act, as amended, Division 13 of the California Public Resources Code ("CEQA"));
(f) The City will furnish such information, execute such instruments and take such
other action in cooperation with the Underwriter as the Underwriter may reasonably request in
order (i) to qualify the Series 2010 Bonds for offer and sale under the Blue Sky or other securities
laws and regulations of such states and otherjurisdictions of the United States as the Underwriter
may designate; and (ii) to determine the eligibility of the Series 2010 Bonds for investment under
the laws of such states and other jurisdictions, and will use its best efforts to continue such
qualification in effect so long as required for distribution of the Series 2010 Bonds; provided, that
in no event shall the City be required to take any action which would subject it to service of
process in anyjurisdiction in which it is not now so subject;
As of the date thereof, the Preliminary Official Statement did not, except as
revised
(g)
)the Official Statement (excluding therefrom information about DTC or the book -entry
only system contained in the Preliminary Official Statement), contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were made, not misleading;
(h) As of the date thereof and at all times subsequent thereto to and including the
date which is 25 days following the End of the Underwriting Period for the Series 2010 Bonds,
the Official Statement (excluding therefrom information about DTC or the book -entry only
system contained in the Official Statement), did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were made, not misleading;
1 If between the date hereof and the date which is 25 days after the End of the
Underwriting Period for the Series 2010 Bonds, an event occurs which might or would cause the
information contained in the Official Statement, as then supplemented or amended, to contain an
untrue statement of a material fact or to omit to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances under which they
were made, not misleading, the City will notify the Underwriter, and, if in the opinion of the City,
the Underwriter or their counsel, such event requires the preparation and publication of a
supplement or amendmentto the Official Statement, the City will forthwith prepare and furnish to
the Underwriter (at the expense of the City) a reasonable number of copies of an amendment of or
supplement to the Official Statement (in form and substance satisfactory to counsel for the
Underwriter) which will amend or supplement the official Statement so that it will not contain an
untrue statement of a material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were made, not misleading.
For the purposes of this subsection, between the date hereof and the date which is 25 days after
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DOCSOC/1436863v3/022245-0221
the End of the Underwriting Period for the Series 2010 Bonds, the City will furnish such
information with respect to itself as the Underwriter may from time to time reasonably request;
0) If the information contained in the Official Statement is amended or
supplemented pursuant to paragraph (i) hereof, at the time of each supplement or amendment
thereto and (unless subsequently again supplemented or amended pursuant to such subparagraph)
at all times subsequent thereto up to and including the date which is 25 days after the End of the
Underwriting Period for the Series 2010 Bonds, the portions of the Official Statement so
supplemented or amended (excluding therefrom information about DTC or the book -entry only
system), will not contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(k) After the Closing up to and including the date which is 25 days after the End of
the Underwriting Period for the Series 2010 Bonds, the City will not participate in the issuance of
any amendment of or supplement to the Official Statement to which, after being furnished with a
copy, the Underwriter shall reasonably object in writing or which shall be disapproved by counsel
for the Underwriter;
(1) The Audited Financial Statements of the City for the Fiscal Year ended June 30,
2009, as contained in Appendix D to the Official Statement, fairly and accurately present the
financial condition of the City as of such date and there has not been, nor does the City anticipate
that there will be, any adverse change of a material nature in the financial position, results of
operations or condition, financial or otherwise, of the City;
(m) Since June 30, 2009, except as referred to in or as contemplated by the Official
Statement, with respect to its Water System, the City has not incurred any financial liabilities,
direct or contingent, or entered into any transactions and there has not been any adverse change in
the condition, financial or physical, of the Water System, in any case that would materially and
adversely affect the ability of the City to meet its obligations under the Installment Sale
Agreement;
(n) Between the date of this Purchase Agreement and the Closing Date, except as
described in the Official Statement, the City will not, without the prior written consent of the
Underwriter, offer or issue any bonds, notes or other obligations for borrowed money, or incur
any material liabilities direct or contingent, payable from Revenues (as defined in the Installment
Sale Agreement), nor does the City reasonably anticipate that there will be any adverse change of
a material nature in the financial position, results of operations or condition, financial or
otherwise, of the City; and
(0) Any certificate signed by any authorized official of the City, and delivered to the
Underwriter in connection with the execution and delivery of the Series 2010 Bonds, shall be
deemed a representation and warranty by the City to the Underwriter as to the statements made
therein.
5. Conditions to the Obligations of the Underwriter. The Underwriter hereby enters into this
Purchase Agreement in reliance upon the representations and warranties of the Authority and the City
contained herein and the representations and warranties to be contained in the documents and
instruments to be delivered at the Closing and upon the performance by the Authority and the City of
their obligations both on and as of the date hereof and as of the Closing Date. Accordingly, the
Underwriter's obligations under this Purchase Agreement to purchase, to accept delivery of and to pay
8
DOCSOC/1436863v3/022245-0221
for the Series 2010 Bonds shall be subject, at the option of the Underwriter, to the accuracy in all
material respects of the representations and warranties of the Authority and the City contained herein
as of the date hereof and as of the Closing Date, to the accuracy in all material respects of the
statements of the officers and other officials of the Authority and the City made in any certificate or
other document furnished pursuant to the provisions hereof, to the performance by the Authority and
the City of their respective obligations to be performed hereunder and under such documents and
instruments at or prior to the Closing Date, and also shall be subject to the following additional
conditions:
(a) The Underwriter shall receive, within seven (7) business days of the date hereof,
copies of the Official Statement (including all information previously permitted to have been
omitted by Rule 15c2-12 and any amendments or supplements as have been approved by the
Underwriter), in such reasonable quantity as the Underwriter shall have requested;
(b) The representations and warranties of the Authority and the City contained herein
shall be true and correct on the date hereof and on the Closing Date, as if made on and at the
Closing;
(c) At the Closing, the Indenture, the Installment Sale Agreement, the Continuing
Disclosure Certificate and this Purchase Agreement shall have been duly authorized, executed
and delivered by the respective parties thereto, and the Official Statement shall have been duly
authorized, executed and delivered by the Authority and the City, all in substantially the forms
heretofore submitted to the Underwriter, with only such changes as shall have been agreed to in
writing by the Underwriter, and shall be in full force and effect; and there shall be in fill force
and effect such resolution or resolutions of the Board of Directors of the Authority and the Board
of Directors of the City as, in the opinion of Jones Hall, A Professional Law Corporation, Bond
Counsel to the Authority ("Bond Counsel"), shall be necessary or appropriate in connection with
the transactions contemplatedhereby;
(d) Between the date hereof and the Closing Date, the market price or marketability,
at the initial offering prices set forth in the Official Statement, of the Series 2010 Bonds shall not
have been materially adversely affected, in the judgment of the Underwriter (evidenced by a
written notice to the Authority and the City terminating the obligation of the Underwriter to
accept delivery of and make any payment for the Series 2010 Bonds), by reason of any of the
following:
I an amendment to the Constitution of the United States or the State of
California shall have been passed or legislation shall have been introduced in or enacted
by the Congress of the United States or the legislature of any state having jurisdiction of
the subject matter or legislation pending in the Congress of the United States shall have
been amended or legislation shall have been recommended to the Congress of the United
States or to any state having jurisdiction of the subject matter or otherwise endorsed for
passage (by press release, other form of notice or otherwise) by the President of the
United States, the Treasury Department of the United States, the Internal Revenue
Service or the Chairman or ranking minority member of the Committee on Finance of the
United States Senate or the Committee on Ways and Means of the United States House of
Underwriters, or legislation shall have been proposed for consideration by either such
Committee by any member thereof or presented as an option for consideration by either
such Committee by the staff of such Committee or by the staff of the Joint Committee on
Taxation of the Congress of the United States, or legislation shall have been favorably
reported for passage to either House of the Congress of the United States by a Committee
9
DOCSOC/1436863v3/022245-0221
of such House to which such legislation has been referred for consideration, or a decision
shall have been rendered by a court of the United States or of the State of California or
the Tax Court of the United States, or a ruling shall have been made or a regulation or
temporary regulation shall have been proposed or made or any other release or
announcement shall have been made by the Treasury Department of the United States,
the Internal Revenue Service or other federal or State of California authority, with respect
to federal or State of California taxation upon revenues or other income of the general
character to be derived by the Authority or upon interest received on obligations of the
general character of the Series 2010 Bonds which, in the reasonable judgment of the
Underwriter, may have the purpose or effect, directly or indirectly, of affecting the tax
status of the Authority, its property or income, its. securities (including the Series 2010
Bonds) or the interest thereon, or any tax exemption granted or authorized by State of
California legislation or, in the reasonable judgment of the Underwriter, materially and
adversely affectingthe market for the Series 2010Bonds or the market price generally of
obligations of the general character of the Series 2010 Bonds;
(2) legislation enacted, introduced in the Congress or recommended for
passage by the President of the United States, or a decision rendered by a court
established under Article III of the Constitution of the United States or by the Tax Court
of the United States, or an order, ruling, regulation (final, temporary or proposed) or
official statement issued or made by or on behalf of the Securities and Exchange
Commission, or any other governmental agency having jurisdiction of the subject matter
shall have been made or issued to the effect that obligations of the general character of
the Series 2010 Bonds, or the Series 2010 Bonds, including any or all underlying
arrangements, are not exempt from registration under the Securities Act of 1933, as
amended, or that the Indenture is not exempt from qualification under the Trust Indenture
Act of 1939, as amended;
(3) the declaration of war or engagement or significant escalation in major
military hostilities by the United States or the occurrence of any other national
emergency or calamity relating to the effective operation of the government of, or the
financial community in, the United States;
(4) the declaration of a general banking moratorium by federal, New York or
California authorities, or the general suspension of trading on any national securities
exchange;
(5) the imposition by the New York Stock Exchange or other national
securities exchange, or any governmental authority, of any material restrictions not now
in force with respect to the Series 2010 Bonds or obligations of the general character of
the Series 2010 Bonds or securities generally, or the material increase of any such
restrictions now in force, including those relating to the extension of credit by, or the
charge to the net capital requirements of, the Underwriter;
(6) an order, decree or injunction of any court of competent jurisdiction, or
order, ruling, regulation or official statement by the Securities and Exchange
Commission, or any other governmental agency having jurisdiction of the subject matter,
issued or made to the effect that the issuance, offering or sale of obligations of the
general character of the Series 2010 Bonds, or the issuance, offering or sale of the Series
2010 Bonds, including any or all underlying obligations, as contemplated hereby or by
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DOCSOC/1436863v3/022245-0221
the Official Statement, is or would be in violation of the federal securities laws as
amended and then in effect;
(7) the withdrawal or downgrading or placement on credit watch with
negative outlook of any rating of the Series 2010 Bonds by a national rating agency; or
(8) any event occurring, or information becoming known which, in the
judgment of the Underwriter, makes untrue in any material respect any statement or
information contained in the Official Statement, or has the effect that the Official
Statement contains any untrue statement of material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(e) At or prior to the Closing Date, the Underwriter shall have received the following
documents, in each case satisfactory in form and substance to the Underwriter:
(1) The Preliminary Official Statement, the Official Statement and each
supplement or amendment, if any, thereto, executed on behalf of the Authority and the
City;
(2) Copies of the Indenture, the Installment Sale Agreement, this Purchase
Agreement and the Continuing Disclosure Certificate, each duly executed and delivered
by the respective parties thereto;
(3) The approving opinion of Bond Counsel, dated the Closing Date and
addressed to the Authority, in substantially the form attached to the Official Statement as
Appendix I thereto, and a letter of such counsel, dated the Closing Date and addressed to
the Underwriter, to the effect that such opinion may be relied upon by the Underwriter to
the same extent as if such opinion were addressed to it;
(4) The supplemental opinion of Bond Counsel, dated the Closing Date and
addressed to the Underwriter, in substantially the form attached hereto as Exhibit B.
(5) The opinion of Bond Counsel, dated the Closing Date and addressed to
the Underwriter, in substantiallythe form attached hereto as Exhibit C;
(6) The opinion of the City Attorney, dated the Closing Date and addressed
to the Underwriter, in substantiallythe form attached hereto as Exhibit D;
(7) The opinion of counsel to the Trustee, dated the Closing Date and
addressed to the Authority, the City and the Underwriter, to the effect that (i) the Trustee
has duly authorized, executed and delivered the Indenture; and (ii) the Indenture
constitutes a legally valid and binding obligation of the Trustee, enforceable against the
Trustee in accordance with its terms, except that the enforceability thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium and other laws in
effect from time to time affecting the rights of creditors generally and except to the extent
that the enforceability thereof may be limited by the application of general principles of
equity;
(8) A certificate or certificates, dated the Closing Date, signed by a duly
authorized official of the Authority satisfactory to the Underwriter, in form and substance
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DOCSOC/ 1436863v3/022245-0221
satisfactory to the Underwriter, to the effect that (i) the representations and warranties of
the Authority contained in this Purchase Agreement are true and correct in all material
respects on and as of the Closing Date with the same effect as if made on the Closing
Date; (ii) there is no action, suit, proceeding, inquiry or investigation pending or to the
best knowledge of such official after reasonable investigation, threatened (a) to restrain or
enjoin the execution, sale or delivery of any of the Series 2010 Bonds, (b) in any way
affecting the validity of the Series 2010 Bonds, this Purchase Agreement, the Indenture,
the Escrow Agreement or the Installment Sale Agreement, or (c) in any way contesting
the existence or powers of the Authority; nor to the best knowledge of such official after
reasonable investigation is there any basis for any such action, suit, proceeding, inquiry
or investigation wherein an unfavorable decision, ruling or finding would make invalid or
materially adversely affect the authorization, execution, delivery or performance by the
Authority of the foregoing and (iii) no event affecting the Authority has occurred since
the date of the Official Statement which either makes untrue or incorrect in any material
respect as of the Closing Date any statement or information contained in the Official
Statement relating to the Authority or is not reflected in the Official Statement but should
be reflected therein in order to make the statements and informationtherein relating to the
Authority not misleading in any material respect;
(g)A certificate or certificates, dated the Closing Date, signed by a duly
authorized official of the City satisfactory to the Underwriter, in form and substance
satisfactory to the Underwriter, to the effect that (i) the representations and warranties of
the City contained in this Purchase Agreement are true and correct in all material respects
on and as of the Closing Date with the same effect as if made on the Closing Date; (ii)
there is no action, suit, proceeding, inquiry or investigation pending or, to the best
knowledge of such official, threatened (a) to restrain or enjoin payments under the
Installment Sale Agreement, (b) in any way contesting or affecting the validity of the
Continuing Disclosure Certificate, this Purchase Agreement or the Installment Sale
Agreement, or (c) in any way contesting the existence or powers of the City; nor to the
best knowledge of such official after reasonable investigation, is there any basis for any
such action, suit, proceeding, inquiry or investigation, wherein an unfavorable decision,
ruling or finding would make invalid or materially adversely affect the authorization,
execution, delivery or performance by the City of the foregoing; (iii) no event has
occurred since the date of the Official Statement (excluding therefrom information about
DTC or the book -entry only system contained in the Official Statement) which either
makes untrue or incorrect in any material respect as of the Closing Date any statement or
information contained in the Official Statement or is not reflected in the Official
Statementbut should be reflected therein in order to make the statements and information
therein not misleading in any material respect; and (iv) since June 30, 2009, except as
referred to in or as contemplated by the Official Statement, with respect to " its Water
System, the City has not incurred any financial liabilities, direct or contingent, or entered
into any transactions and there has not been any adverse change in the condition,
financial or physical, of the Water System, in any case that would materially and
adversely affect the ability of the City to meet its obligations under the Installment Sale
Agreement;
(10) A certificate, dated the Closing Date, signed by a duly authorized official
of the Trustee, satisfactory in form and substance to the Underwriter, to the effect that: (i)
the Trustee is a national banking association organized and existing under and by virtue
of the laws of the United States of America; having the full power and being qualified to
enter into and perform its duties under the Indenture; (ii) the Trustee is duly authorized to
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DOCSOC/ 1436863v3/022245-0221
enter into the Indenture; (iii) the execution and delivery of the Indenture and compliance
with the provisions on the Trustee's part contained therein, will not conflict with or
constitute a breach of or default under any law, administrative regulation, judgment,
decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument
to which the Trustee is a party or is otherwise subject (except that no representation,
warranty or agreement is made with respect to any federal or state securities or Blue Sky
laws or regulations), nor will any such execution, delivery, adoption or compliance result
in the creation or imposition of any lien, charge or other security interest or encumbrance
of any nature whatsoever upon any of the properties or assets held by the Trustee
pursuant to the lien created by the Indenture under the terms of any such law,
administrative regulation, judgment, decree, loan agreement, indenture, bond, note,
resolution, agreement or other instrument, except as provided by the Indenture; (iv) it has
not been served with any action, suit, proceeding, inquiry or investigation, at law or in
equity, before or by any court, governmental agency, public board or body, nor is any
such action, to the best of such official's knowledge after reasonable investigation,
threatened against the Trustee, as such but not in its individual capacity, affecting the
existence of the Trustee, or the titles of its officers to their respective offices, or seeking
to prohibit, restrain or enjoin the collection of the funds to be applied to pay the principal,
premium, if any, and interest with respect to the Series 2010 Bonds, or the pledge thereof,
or in any way contesting or affecting the validity or enforceability of the Indenture, or
contesting the powers of the Trustee or its authority to enter into, adopt or perform its
obligations under any of the foregoing, wherein an unfavorable decision, ruling or finding
would materially adversely affect the validity or enforceability of the Indenture; and (v)
subject to the provisions of the Indenture and applicable law, the Trustee will apply the
proceeds from the Series 2010 Bonds to the purposes specified in the Indenture;
(11) A certified copy of the general resolution of the Trustee authorizing the
execution and delivery of the Indenture;
(12) Certified copies of the resolution of the Authority authorizing the
execution and delivery of the Indenture, the Installment Sale Agreement, this Purchase
Agreement and the Official Statement;
(13) Certified copies of the resolutions of the City authorizing the execution
and delivery of the Installment Sale Agreement, the Continuing Disclosure Certificate,
this Purchase Agreement and the Official Statement;
(14) A Tax Certificate with respect to the Series 2010 Bonds, together with
Form 8038-G, in form satisfactory to Bond Counsel, signed by an appropriate officer of
the City and the Authority;
(15) Evidence that the ratings on the Series 2010 Bonds as set forth in the
Official Statement are in full force and effect as of the Closing Date;
(16) An opinion of Underwriters' Counsel, dated the Closing Date and
addressed to the Underwriter, in form and substance acceptable to the Underwriter;
(17) An executed copy of the Consulting Engineer's Report;
(18 A certificate of the Consulting Engineer, executed by an authorized
signatory of the Consulting Engineer and dated the Closing Date, to the effect that: (i) the
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DOCSOC/1436863v3/022245-0221
Consulting Engineer has been retained by the City to prepare the Consulting Engineer's
Report (the "Report"); (ii) consent is given to the inclusion of the Report dated October,
2010 as an appendix to the Preliminary Official Statement and to the inclusion of the
Report dated October ,, 2010 as an appendix to the Official Statement; (iii) the
Consulting Engineer has expertise in the matters covered by the Report and
acknowledges that the City has relied on such expertise in connection with the offering
and sale of the Series 2010 Bonds; (iv) the conclusions set forth in the Reports are
reasonable as of the respective dates of the Reports and subject to the information,
assumptions, qualifications, and caveats disclosed in the Reports; (v) the Consulting
Engineer is not aware of any plan, event, or circumstance occurring after October
2010 and prior to the date of this letter that would cause it believe that the conclusions set
forth in the Report dated October _, 2010 are no longer reasonable; and (vi) the
Consulting Engineer consents to the inclusion in the Preliminary Official Statement and
the Official Statement of information from the Reports under the captions: "THE
TREATMENT FACILITY" and the Consulting Engineer has reviewed and agreed that
information was accurately excerpted from the Reports;
(19) An executed copy of the Rate Consultant's Report;
(20) A certificate of the Rate Consultant, executed by an authorized signatory
of the Rate Consultant and dated the Closing Date, to the effect that: (i) the Rate
Consultant has been retained by the City to prepare the Rate Consultant's Report (the
"Report"); (ii) consent is given to the inclusion of the Report dated October, 2010 as an
appendix to the Preliminary Official Statement and to the inclusion of the Report dated
October _, 2010 as an appendix to the Official Statement; (iii) the Rate Consultant has
expertise in the matters covered by the Report and acknowledges that the City has relied
on such expertise in connection with the offering and sale of the Series 2010 Bonds; (iv)
the conclusions set forth in the Reports are reasonable as of the respective dates of the
Reports and subject to the information, assumptions, qualifications, and caveats disclosed
in the Reports; (v) the Rate Consultant is not aware of any plan, event, or circumstance
occurring after October_, 2010 and prior to the date of this letter that would cause it
believe that the conclusions set forth in the Report dated October , 2010 are no longer
reasonable; and (vi) the Rate Consultant consents to the inclusion in the Preliminary
Official Statement and the Official Statement of information from the Reports under the
captions: "THE WATER SYSTEM" and the Rate Consultant has reviewed and agreed
that information was accurately excerpted from the Reports;
(21) Such additional legal opinions, certificates, proceedings, instruments,
insurance policies or evidences thereof and other documents as the Underwriter or Bond
Counsel may reasonably request to evidence the truth and accuracy, as of the date hereof
and as of the Closing Date, of the representations of the Authority and the City herein and
of the statements and information contained in the Official Statement, and the due
performance or satisfaction by the Authority and the City at or prior to the Closing of all
agreements then to be performed and all conditions then to be satisfied by the Authority
and the City in connection with the transactions contemplated hereby and by the
Indenture and the Installment Sale Agreement.
If the Authority and the City shall be unable to satisfy the conditions to the Underwriter's
obligations contained in this Purchase Agreement or if the Underwriter's obligations shall be terminated
for any reason permitted herein, all obligations of the Underwriter hereunder may be terminated by the
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DOCSOC/ 1436863v3/022245-0221
Underwriter at, or at any time prior to, the Closing Date by written notice to the Authority and the City
and neither the Underwriter nor the Authority or the City shall have any further obligations hereunder.
6. Expenses. All expenses and costs incident to the authorization, issuance, delivery and
sale of the Series 2010 Bonds to the Underwriter, including the costs of printing of the Series 2010
Bonds, the Preliminary Official Statement and the Official Statement, the cost of duplicating the
Indenture, the Installment Sale Agreement, the Continuing Disclosure Certificate, the fees of
accountants, financial advisors, consultants and rating agencies, the initial fee of the Trustee and its
counsel in connection with the issuance of the Series 2010 Bonds and the fees and expenses of Bond
Counsel, THE Consulting Engineer, and the Rate Consultant shall be paid from the proceeds of the
Series 2010 Bonds. In the event that the Series 2010 Bonds for any reason are not issued, or to the
extent proceeds of the Series 2010 Bonds are insufficient or unavailable therefor, any fees, costs and
expenses owed by the Authority or the City, which otherwise would have been paid from the proceeds
of the Series 2010 Bonds, shall be paid by the Authority or the City. All out of pocket expenses of the
Underwriter, including traveling and other expenses, the California Debt and Investment Advisory
Commission fee and the fees and expenses of Underwriter's Counsel shall be paid by the Underwriter.
7. Notices. Any notice or other communication to be given under this Purchase Agreement
may be given by delivering the same in writing to the respective parties at the following address:
Underwriter: Stone &Youngberg LLC
One Ferry Building
San Francisco, California 94111
Attention: Eileen Gallagher
Authority: Lodi Public Financing Authority
c/o the City of Lodi
221 West Pine Street
Lodi, CA 95241-1910
City: City of Lodi
221 West Pine Street
Lodi, CA 95241-1910
8. Survival of Representations and Warranties. The representations and warranties of the
Authority and the City set forth in or made pursuant to this Purchase Agreement shall not be deemed to
have been discharged, satisfied or otherwise rendered void by reason of the Closing or termination of
this Purchase Agreement and regardless of any investigations or statements as to the results thereof
made by or on behalf of the Underwriters and regardless of delivery of and payment for the Series
2010 Bonds.
9. Effectiveness and Countemart Signatures, This Purchase Agreement shall become
effective and binding upon the respective parties hereto upon the execution of the acceptance hereof by
duly authorized officers of the Authority and the City and shall be valid and enforceable as of the time
of such acceptance. This Purchase Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute but one and the same instrument.
10. Parties in Interest. This Purchase Agreement is made solely for the benefit of the
Authority, the City and the Underwriter (including the successors or assigns of the Underwriter) and no
other person shall acquire or have any right hereunder or by virtue hereof.
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DOCSOC/ 1436863 v3/022245-0221
11. Headings. The headings of the sections of this Purchase Agreement are inserted for
convenience only and shall not be deemed to b e a part hereof.
[REMAINDER OF PAGE INTENTIONALLYLEFT BLANK]
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DOCSOC/1436863v3/022245-0221
12. Governing Law. This Purchase Agreement shall be construed in accordance with the laws
of the State of California.
Very truly yours,
STONE & YOUNGBERG LLC
as Underwriter
Authorized Signatory
ACCEPTED:
LODI PUBLIC FINANCING AUTHORITY
Authorized Officer
CITY OF LODI
0
Authorized Signatory
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DOCSOC/ 1436863 v3/022245-0221
EXHIBIT A
MATURITY SCHEDULE
MATURITY SCHEDULE
' Series 2010A Serial Bonds
Maturity Principal Interest
June 1 Amount Rate Nell
Yo Series 2010A Term Bonds due June 1, 20_ - Yield: _.—%
$ . Yo Series 2010B Term Bonds due June 1, 20_ - Yield: _.—%
Preliminary; subject to change.
A-1
DOCSOC/ 1436863v3/022245-0221
THE SERIES 2010 BONDS REDEMPTION
DOCSOC/ 1436863 v3/022245-0221
A-2
EXHIBIT B
FORM OF SUPPLEMENTAL OPINION OF BOND COUNSEL
City of Lodi
Lodi Public Financing Authority
Lodi, California
Stone & Youngberg LLC
San Francisco, California
SUPPLEMENTAL OPINION. • Lodi Public Financing Authority
$ 2010 Water Revenue Bonds, Series A
$ 2010 Water Revenue Bonds, Series B (Federally
Taxable — Build America Bonds — Direct Payment)
Ladies and Gentlemen:
We have acted as bond counsel to the Lodi Public Financing Authority (the "Issuer") in
connection with the issuance by the Issuer of the above-referencedbonds (the `Bonds"),pursuant to
Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California (the
"Law"),and an Indenture of Trust, dated as of October 1, 2010, between the Issuer and The Bank of
New York Mellon Trust Company, N.A., as trustee (the "Indenture").The Bonds were sold to Stone
& Youngberg LLC, as underwriter (the "Underwriter"), pursuant to a Bond Purchase Agreement,
dated , 20_ (the "Purchase Contract"), among the Underwriter, the City of Lodi (the "City")
and the Issuer. This letter is being delivered in our capacity as bond counsel to the Issuer and not as
counsel to the underwriter addressee.
We have examined the Law and such certified proceedings and other papers as we deem
necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon
representations of the Issuer contained in the Indenture and the certified proceedings and
certifications of public officials and others furnished to us without undertaking to verify the same by
independent investigation.
Based upon the foregoing, we are of the opinion, under existing law, as follows:
1. The Issuer has duly and validly executed the Purchase Contract, and the Purchase
Contract constitutes the legal, valid and binding agreement of the Issuer, subject to bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally,
and by equitable principles, whether considered at law or in equity.
2. The statements contained in the Official Statement on the cover page and under the
captions "INTRODUCTION,""THE SERIES 2010 BONDS (other than information relating to DTC
and its book -entry only system, as to which no opinion need be expressed)," "SECURITY AND
SOURCES OF PAYMENT FOR THE SERIES 2010 BONDS," "TAX MATTERS," and in
Appendices F and H thereto, insofar as such statements expressly summarize certain provisions of
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DOCSOC/ 1436863v3/022245-0221
the Bonds, the Indenture and our final approving opinion relating to the Bonds, are accurate in all
material respects.
3. The Bonds are exempt from registration under the Securities Act of 1933, as
amended, and the Indenture is exempt from qualification under the Trust Indenture Act of 1939, as
amended.
This opinion is rendered solely for your benefit in connection with issuance of the Bonds and may
not be relied upon, used, circulated, quoted or referred to, nor any copies hereof be deliveredto, any
other person without our prior written approval. We disclaim any obligation to supplement this letter
to reflect any facts or circumstances that may hereafter come to our attention or any changes in the
law that may hereafter occur, and our engagement with respect to this matter has terminated as of the
date hereof.
Respectfully submitted,
A Professional Law Corporation
DOCSOC/ 1436863 v3/022245-0221
B-2
OPINION OF AUTHORITY COUNSEL ADDRESSED TO THE UNDERWRITER
[DATE OF DELIVERY]
Stone & Youngberg LLC
as Underwriter
San Francisco, California
LODI PUBLIC FINANCING AUTHORITY
$ • $ ,
2010 Water Revenue Bonds, 2010 Water Revenue Bonds, Series B
Series A (Federally Taxable - Build America Bonds — Direct
Payment)
Dear Ladies and Gentlemen:
I am [ ], counsel to the Lodi Public Financing
Authority (the "Authority") a joint exercise of powers entity organized and existing pursuant to the
provisions of Title 1, Division 7, Chapter 5 of the Government Code of the State of California. This
opinion is rendered in connection with the issuance of $ 2010 Water Revenue Bonds,
Series A (the "Series 2010A Bonds") and $ 2010 Water Revenue Bonds, Series B
(Federally Taxable - Build America Bonds — Direct Payment) (the "Series 2010B Bonds" and,
together with the Series 2010A Bonds, the "Series 2010 Bonds"). The Series 2010 Bonds are being
issued pursuant to an Indenture of Trust, dated as of October 1,20 10, between the Authority and The
Bank ofNew York Mellon Trust Company, N.A., as trustee (the "Trustee") (the "Indenture").
Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in
the Indenture, or, if not defined in the Indenture, in the Purchase Agreement.
In rendering this opinion, I have examined the following documents:
(i) The Indenture;
(ii) The Installment Sale Agreement, dated as of October 1, 2010 (the "Installment Sale
Agreement") between the City and the Authority;
(iii) The Bond Purchase Agreement (the "Purchase Agreement") dated October_, 2010,
by and among Stone & Youngberg LLC, as underwriter of the Series 2010 Bonds, the Authority and
the City; and
(iv) The Official Statement (the "Official Statement") dated October _, 2010, relating to
the Series 2010 Bonds.
In addition, I have examined such other documents and instruments, including certificates of
public officials, and have made such investigations of law and of fact as I have deemed necessary or
appropriate for the purpose of rendering the opinions set forth herein.
* Preliminary; subject to change.
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DOCSOC/1436863v3/022245-0221
Based on the foregoing, I am of the opinion that:
The Authority is a joint exercise of powers entity duly organized under the laws of the State
of California.
Resolution No. (the "Resolution") approving and authorizing the issuance of the
Series 2010 Bonds and the execution and delivery of the Indenture, the Installment Sale Agreement,
the Purchase Agreement and the Official Statement was duly adopted by the Authority at a meeting
of the Governing Board of the Authority held on September _, 2010, which was called and held
pursuant to law and with all public notice required by law and at which a quorum was present and
acting throughout.
There is no action, suit, proceeding, inquiry or investigation at law or in equity, before or by
any court, public board or body pending (with service of process having been accomplished) or, to
my current actual knowledge after reasonable investigation, threatened against or affecting the
Authority in any way contesting or affecting the validity of the Series 2010 Bonds, the Indenture, the
Installment Sale Agreement or the Purchase Agreement or the sources of payment for the Series 2010
Bonds.
The issuance of the Series 2010 Bonds and the execution and delivery of the Indenture, the
Installment Sale Agreement, the Purchase Agreement and the Official Statement by the Authority,
the adoption of the Resolution, and compliance by the Authority with the provisions of the foregoing,
as appropriate, under the circumstances contemplated thereby, does not and will not in any material
respect conflict with or constitute on the part of the Authority a breach or default under any
agreement or other instrument to which the Authority is a parry (and of which I have current actual
knowledge after reasonable investigation) or by which it is bound (and of which I have current actual
knowledge after reasonable investigation) or any existing law, regulation, court order or consent
decree to which the Authority is subject.
The Official Statement and the Series 2010 Bonds have been duly authorized, executed and
delivered by the Authority, and the Indenture, the Installment Sale Agreement and the Purchase
Agreement have been duly authorized, executed and delivered by the Authority and, assuming due
authorization, execution and delivery by the other parties thereto, the Indenture, the Installment Sale
Agreement and the Purchase Agreement constitute legal, valid and binding agreements of the
Authority, enforceable in accordance with their respective terms, subject in each case to laws relating
to bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and
the application of equitable principles; provided, that the enforceability of the foregoing agreements
may be subject or limited by the unenforceability under certain circumstances of provisions imposing
penalties, forfeitures or late payment charges upon delinquency in payment or the occurrence of a
default, and no opinion is expressed as to any indemnificationprovisions contained therein.
DOCSOC/ 1436863v3/022245-0221
c-2
Except as described in the Official Statement, no authorization, approval, consent or other
order of the State of California or any other governmental authority or agency within the State of
California having jurisdiction over the Authority is required for the valid authorization, execution,
delivery and performance by the Authority of the Series 2010 Bonds, the Indenture, the Installment
Sale Agreement, the Official Statement or the Purchase Contact or for the adoption of the Resolution
which has not been obtained; provided, that no opinion is expressed with respect to qualification
under Blue Sky or other state securities laws.
DOCSOC/1436863v3/022245-0221
Sincerely,
c-3
EXHIBIT D
OPINION OF THE CITY ATTORNEY
[DATE OF DELIVERY]
Stone & Youngberg LLC,
as Underwriter
San Francisco, California
LODI PUBLIC FINANCING AUTHORITY
2010 Water Revenue Bonds, 2010 Water Revenue Bonds, Series B
Series A (Federally Taxable - Build America Bonds — Direct
Payment)
Dear Ladies and Gentlemen:
I am City Attorney to the City of Lodi (the "City"), a municipal corporation and general law
city duly organized and existing under the Constitution and laws of the State of California (the
"State"), and this opinion is rendered in connection with the issuance of the Lodi Public Financing
Authority (the "Authority") $ 2010 Water Revenue Bonds, Series A (the "Series
2010A Bonds") and $ 2010 Water Revenue Bonds, Series B (Federally Taxable -
Build America Bonds – Direct Payment) (the "Series 2010B Bonds" and, together with the Series
201 OA Bonds, the "Series 2010 Bonds").
In rendering this opinion, I have examined the following documents: (i) an Installment Sale
Agreement, dated as of October 1, 2010 (the "2010 Installment Sale Agreement") between the City
and the Authority; (ii) the Bond Purchase Agreement (the "Purchase Agreement") dated October_,
2010, by and among Stone & Youngberg LLC, as Underwriter of the Series 2010 Bonds, the
Authority and the City; (iii) the Official Statement (the "Official Statement") dated October 2010,
relating to the Series 2010 Bonds; and (iv) the Continuing Disclosure Certificate (the "Continuing
Disclosure Certificate"), dated as of the date hereof, relating to the Series 2010 Bonds.
In addition, I have examined such other documents and instruments, including certificates of
public officials, and have made such investigations of law and of fact as I have deemed necessary or
appropriate for the purpose of rendering the opinions set forth herein.
Based on the foregoing, I am of the opinion that:
The City is a municipal corporation and general law city duly organized under the laws of the
State of California.
Resolution No. (the "Resolution") approving and authorizing the issuance of the
Series 2010 Bonds and the execution and delivery of the Installment Sale Agreement, the Purchase
Agreement, the Continuing Disclosure Certificate and the Official Statementwas duly adopted by the
City at a meeting of the City Council of the City held on October —, 2010, which was called and
held pursuant to law and with all public notice required by law and at which a quorum was present
and acting throughout.
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DOCSOC/ 1436863v3/022245-0221
There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by
any court, public board or body pending (with service of process having been accomplished) or, to
my current actual knowledge after reasonable investigation, threatened against or affecting the City's
financial condition or operation or in any way contesting or affecting the validity of the Installment
Sale Agreement, the Purchase Agreement or the Continuing Disclosure Certificate or the sources of
payment for the Series 2010 Bonds.
The execution and delivery of the Installment Sale Agreement, the Purchase Agreement, the
Continuing Disclosure Certificate and the Official Statement by the City, the adoption of the
Resolution, and compliance by the City with the provisions of the foregoing, as appropriate, under
the circumstances contemplated thereby, does not and will not in any material respect conflict with or
constitute on the part of the City a breach or default under any agreement or other instrument to
which the City is a party (and of which I have current actual knowledge after reasonable
investigation) or by which it is bound (and of which I have current actual knowledge after reasonable
investigation) or any existing law, regulation, court order or consent decree to which the City is
subject.
The Official Statement has been duly authorized, executed and delivered by the City, and the
Installment Sale Agreement, the Purchase Agreement and the Continuing Disclosure Certificate have
been duly authorized, executed and delivered by the City and, assuming due authorization, execution
and delivery by the other parties thereto, the Installment Sale Agreement, the Purchase Agreement
and the Continuing Disclosure Certificate constitute legal, valid and binding agreements of the City,
enforceable in accordance with their respective terms, subject in each case to laws relating to
bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and the
application of equitable principles; provided, that the enforceability of the foregoing agreements may
be subject or limited by the unenforceability under certain circumstances of provisions imposing
penalties, forfeitures or late payment charges upon delinquency in payment or the occurrence of a
default, and no opinion is expressed as to any indemnificationprovisions contained therein.
Except as described in the Official Statement, no authorization, approval, consent or other
order of the State of California or any other governmental authority or agency within the State of
California having jurisdiction over the City is required for the valid authorization, execution, delivery
and performance by the City of the Installment Sale Agreement, the Official Statement, the Purchase
Agreement or the Continuing Disclosure Certificate or for the adoption of the Resolution which has
not been obtained; provided, that no opinion is expressed with respect to qualification under Blue
Sky or other state securities laws.
Under the laws of the State of California, and subject to the requirements of Proposition 218,
the City has the authority to fix and collect charges for water service and is not presently subject to
the regulatory jurisdiction of any state, regional or local governmental regulatory authority in
connection with fixing and collecting such charges.
The Net Revenues (as defined in the Official Statement) are free and clear of and from any
and all liens and encumbrances other than as set forth in the Official Statement.
DOCSOC/1436863v3/022245-0221
D-2
Sincerely,
City Attorney
LON
DOCSOC/1436863v3/022245-0221
D-3
50863-01
JH:CKL
INSTALLMENT SALE AGREEMENT
Dated as of October 1, 2010
between the
LODI PUBLIC FINANCING AUTHORITY,
as Seller
and the
CITY OF LODI,
as Purchaser
Relatingto
6-18-10
7-28-10
8-12-10
9-7-10
9-19-10
Lodi Public Financing Authority Lodi Public Financing Authority
2010 Water Revenue Bonds, 2010 Water Revenue Bonds, Series B
Series A (Federally Taxable - Build America Bonds -
Direct Payment)
TABLE OF CONTENTS
Page
ARTICLE I
Definitions; Rules of Interpretation
SECTION 1.1.
Definitions..........................................................................................................
2
SECTION1.2.
Interpretation......................................................................................................
5
ARTICLE II
Representations, Covenants and Warranties
SECTION 2.1.
Representations. covenants and Warrantiesof the City ....................................
5
SECTION 2.2,
Representations, Covenants and Warranties of Authority ..................................
7
ARTICLE III
Issuance of Bonds;
Acquisition and Construction of Project
SECTION 3.1.
Issuance of Bonds; Deposit of Proceeds............................................................
8
SECTION 3.2.
Acquisition and Construction of the Project........................................................
8
SECTION 3.3.
Appointment of CifyasAgent .............................................................................
9
SECTION 3.4.
Plans and Specifications....................................................................................
9
SECTION 3.5.
Certificate of Completion....................................................................................
9
ARTICLE IV
Sale of Project
Installment Payments
SECTION4.1.
Term.................................................................................................................
10
SECTION 4.2.
Sale of Project..................................................................................................
10
SECTION4.3.
Title..................................................................................................................
10
SECTION 4.4.
Installment Payments.......................................................................................
10
SECTION 4.5.
Pledge and Application of Net Revenues.........................................................
11
SECTION 4.6.
Establishment of Rate Stabilization Fund .........................................................
12
SECTION 4.7.
Special Obligation of fhe Cify, Obligations Absolute .........................................
13
SECTION 4.8.
Additional Payments.........................................................................................
13
ARTICLE V
Covenants of the City
SECTION 5.1.
Disclaimerof Warranties..................................................................................
14
SECTION 5.2.
Release and Indemnification Covenants..........................................................
14
SECTION 5.3.
Sale or Eminent Domain of Water System .......................................................
15
SECTION5.4.
Insurance.........................................................................................................
15
SECTION 5.5.
Records and Accounts.....................................................................................
15
SECTION 5.6.
Rates and Charges..........................................................................................
16
SECTION 5.7.
Superior and Subordinate Obligations..............................................................
17
SECTION 5.8.
Issuance of Parity Debt....................................................................................
17
SECTION 5.9.
Operation of Water System in Efficient and Economical Manner ......................
18
SECTION 5.10.
Assignment and Amendment Hereof..............................................................
18
SECTION 5.11.
Tax Covenants...............................................................................................
19
SECTION 5.12.
Continuing Disclosure.....................................................................................
21
ARTICLE VI
Events of Default
SECTION 6.1.
Events of Default Defined.................................................................................
21
SECTION 6.2.
Remedies on Default........................................................................................
22
SECTION 6.3.
No Remedy Exclusive......................................................................................
22
SECTION 6.4.
Agreement to PayAttorneys' Fees and Expenses ............................................
23
SECTION 6.5.
No Additional Waiverlmplied by One Waiver ...................................................
23
SECTION 6.6.
Trustee and Bond Owners to Exercise Rights..................................................
23
ARTICLE VII
Prepaymentof Installment Payments
SECTION 7.1.
Security Deposit...............................................................................................
23
SECTION 7.2.
Optional Prepayment........................................................................................
24
SECTION 7.3.
Mandatory Prepayment From Proceeds of Insurance, Sale or
Condemnation..............................................................................................
24
SECTION 7.4.
Credit forAmounts on Deposit.........................................................................
24
ARTICLE VIII
Miscellaneous
SECTION 8.1.
FurtherAssurances..........................................................................................
24
SECTION8.2.
Notice...............................................................................................................
25
SECTION8.3.
Governing Law.................................................................................................
25
SECTION8.4.
Binding Effect...................................................................................................
25
SECTION 8.5.
Severabilityof Invalid Provisions......................................................................
25
SECTION 8.6.
Article and Section Headings and References..................................................
25
SECTION 8.7.
Payment on Non -Business Days......................................................................
26
SECTION 8.8.
Execution of Counterparts................................................................................
26
SECTION 8.9.
Waiver of Personal Liability..............................................................................
26
SECTION 8.10.
Trustee as Third Party Beneficiary .................................................................
26
APPENDIXA Schedule of Installment Payments
INSTALLMENT SALE AGREEMENT
This INSTALLMENT SALE AGREEMENT (this "Agreement"), dated as of October
1, 2010, is between the LODI PUBLIC FINANCING AUTHORITY, a joint exercise of powers
authority duly organized and existing under the laws of the State of California (the
"Authority"), as seller, and the CITY OF LODI, a municipal corporation duly organized and
existing under the laws of the State of California (the `City"), as purchaser.
BACKGROUND:
1. The City owns and operates facilities and property for the supply, treatment
and distribution of water within the service area of the City (the "Water System"), and
the City wishes to raise funds to finance additional improvements to the Water System,
consisting generally of the acquisition and construction of surface water treatment
facilities (the "Project");
2. The Authority has been formed for the purpose of assisting the City in the
financing of public capital improvements, and in order to accomplish the financing plan
described in the previous paragraph, the Authority has proposed to enter into this
Agreement with the City under which the Authority will acquire, construct and improve
the Project and sell the completed Project to the City in consideration of the agreement
by the City to pay the purchase price thereof in semiannual installments.
3. The Authority will raise funds to finance the Project by issuing its Lodi Public
Financing Authority 2010 Water Revenue Bonds, Series A in the aggregate principal
amount of $ (the "Series A Bonds") under an Indenture of Trust
dated as of October 1, 2010 (the "Indenture"), between the Authority and The Bank of
New York Mellon Trust Company, N.A., as trustee (the "Trustee"), which are payable
from revenues consisting primarily of installment payments payable by the City
hereunder.
4. The Authority will raise additional funds to finance the Project by issuing its
Lodi Public Financing Authority 2010 Water Revenue Bonds, Series B (Federally
Taxable - Build America Bonds — Direct Payment) in the aggregate principal amount of
$ (the "Series B Bonds") under the Indenture, which are also
payable from revenues consisting primarily of installment payments payable by the City
hereunder.
5. In order to provide revenues which are sufficient to pay the principal of and
interest on the Series A Bonds and the Series B Bonds (collectively, the "Bonds") when
due, the Authority and the City wish to enter into this Agreement under which the
Authority agrees to sell the Project to the City, in consideration of which the City agrees
to pay the Installment Payments (the "Installment Payments") which are secured by a
pledge of and lien on the net revenues of the Water System.
AGREEMENT:
In consideration of the foregoing and the material covenants hereinafter
contained, the City and the Authority formally agree as follows:
ARTICLE I
DEFINITIONS; RULES OF INTERPRETATION
SECTION 1.1. Definitions. Unless the context clearly otherwise requires or
unless otherwise defined herein, the capitalized terms in this Agreement have the
respective meanings given such terms in this Section 1.1. Capitalized terms used in this
Agreement and not otherwise defined in this Section 1.1 have the respective meanings
given them in Appendix A to the Indenture.
"Additional Payments" means the amounts payable by the City under Section
aJ
"Additional Revenues" means, with respect to the issuance of any Parity Debt,
any or all of the following amounts:
(a) An allowance for Net Revenues from any additions or
improvements to or extensions of the Water System to be financed
from the proceeds of such Parity Debt or from any other source but
in any case which, during all or any part of the most recent
completed Fiscal Year for which audited financial statements are
available or for any other 12 -month period selected by the City
under Section 5.8(b), were not in service, all in an amount equal to
90% of the estimated additional average annual Net Revenues to
be derived from such additions, improvements and extensions for
the first 36 -month period in which each addition, improvement or
extension is to be in operation, all as shown by the certificate or
opinion of a qualified independent engineer or Fiscal Consultant
employed by the City.
(b) An allowance for Net Revenues arising from any increase in the
charges made for service from the Water System which has
become effective prior to the incurring of such Parity Debt but
which, during all or any part of such Fiscal Year or such other 12 -
month period selected by the City under Section 5.8(b), was not in
effect, in an amount equal to the total amount by which the Net
Revenues would have been increased if such increase in charges
had been in effect during the whole of such Fiscal Year or such
other 12 -month period, all as shown by the certificate or opinion of
an Independent Accountant or Fiscal Consultant employed by the
City.
"Continuinn Disclosure Certificate" means the Continuing Disclosure Certificate
which is executed and delivered by the City on the Closing Date.
"Event of Default" means any of the events specified in Section 6.1.
"Fiscal Consultant" means any consultant or firm of such consultants, including
but not limited to a qualified engineer or rate consultant, appointed by the City and who,
or each of whom: (a) is judged by the City to have experience in matters relating to the
-2-
financing of water enterprises; (b) is in fact independent and not under domination of the
City; (c) does not have any substantial interest, direct or indirect, with the City other than
as purchaser of the Bonds or any Parity Debt; and (d) is not connected with the City as
an officer or employee of the City, but who may be regularly retained to make reports to
the City.
"Gross Revenues" means all gross charges received for, and all other gross
income and receipts derived by the City from, the ownership and operation of the Water
System or otherwise arising from the Water System, including but not limited to
connection charges (including the City's impact mitigation fees) to the extent permitted
by law, investment earnings thereon and the Refundable Credits; but excluding (a) the
proceeds of any ad valorem property taxes levied for the purpose of paying general
obligation bonds of the City relating to the Water System and (b) the proceeds of any
special assessments or special taxes levied upon real property within any improvement
district served by the City levied for the purpose of paying special assessment bonds or
special tax obligations of the City relating to the Water System.
"Independent Accountant" means any certified public accountant or firm of
certified public accountants appointed and paid by the Authority or the City, and who, or
each of whom (a) is in fact independent and not under domination of the Authority or the
City; (b) does not have any substantial interest, direct or indirect, in the Authority or the
City; and (c) is not connected with the Authority or the City as an officer or employee of
the Authority or the City but who may be regularly retained to make annual or other
audits of the books of or reports to the Authority or the City.
"Installment Pavment Date" means, with respect to any Interest Payment Date,
the Business Day immediately preceding such Interest Payment Date.
"Installment Pavments" means the payments the City is required to pay pursuant
to Section 4.4(a) as the purchase price of the Project.
"Maximum Annual Debt Service" means, as of the date of any calculation, the
maximum sum obtained for the current or any future Bond Year so long as any of the
Bonds remain Outstanding by totaling the following amounts for such Bond Year:
(a) the aggregate amount of the Installment Payments coming due and
payable in such Bond Year, except to the extent payable from any
security deposit under Section 7.1 of this Installment Sale
Agreement;
(b) the principal amount of the all outstanding Parity Debt, if any,
coming due and payable by their terms in such Bond Year; and
(c) the amount of interest which would be due during such Bond Year
on the aggregate principal amount of all outstanding Parity
Obligations, if any, which would be outstanding in such Bond Year if
such Parity Obligations are retired as scheduled; provided,
however, that with respect to any Parity Debt which bears interest at
a variable rate, such interest shall be calculated at an assumed rate
equal to the average rate of interest per annum for each of the five
previous whole calendar years as shown by the J. J. Kenny Index
(or, in the event and to the extent such index is not maintained for
-3-
all or any portion of such period, any similar index of variable rate
interest for tax-exempt obligations or taxable obligations, as
applicable, as may be selected by the City in its sole discretion).
"Net Revenues" means, for any period, an amount equal to all of the Gross
Revenues received during such period minus the amount required to pay all Operation
and Maintenance Costs becoming payable during such period.
"Operation and Maintenance Costs" means the reasonable and necessary costs
and expenses paid by the City for maintaining and operating the Water System,
including but not limited to (a) costs of acquisition of water to be supplied by the Water
System, (b) costs of electricity and other forms of energy supplied to the Water System,
(c) the reasonable expenses of management and repair and other costs and expenses
necessary to maintain and preserve the Water System in good repair and working order,
and (d) the reasonable administrative costs of the City attributable to the operation and
maintenance of the Water System; but in all cases excluding (i) debt service payable on
obligations incurred by the City with respect to the Water System, including but not
limited to the Installment Payments and any Parity Debt, (ii) depreciation, replacement
and obsolescence charges or reserves therefor, and (iii) amortization of intangibles or
other bookkeeping entries of a similar nature.
"Overdue Rate" means the highest rate of interest on any of the Outstanding
Bonds.
"Parity Debt Documents" means, collectively, the indenture of trust, trust
agreement or other document authorizing the issuance of any Parity Debt or any
securities which evidence Parity Debt.
"Parity Debt' means any bonds, notes, leases, installment sale agreements or
other obligations of the City payable from and secured by a pledge of and lien upon any
of the Net Revenues on a parity with the Installment Payments, entered into or issued
under and in accordance with Section 5.8.
"Project" means the improvements to the Water System financed with the Series
A Bonds and the Series B Bonds, including but not limited to (a) the acquisition and
construction of surface water treatment facilities, including a raw water pump station, a
raw water pipeline, a surface water treatment facility, structural facilities, an operations
building, a chemical building, a high service pump station, a finished water storage tank,
a soda ash silo, and water and sewer pipelines, and (b) other upgrades and
improvements of the Water System.
"Rate Stabilization Fund" means any fund established and held by the City as a
fund for the stabilization of rates and charges imposed by the City with respect to the
Water System, which fund is established, held and maintained in accordance with
Section 4.6.
"Refundable Credits" means the amounts (if any) which are payable to the issuer
of Build America Bonds by the federal government under Section 6431 of the Tax Code,
which the issuer of such Build America Bonds elects to receive under Section
54AA(g)(1) of the Tax Code.
-4-
"Water System" means the entire water treatment, production, storage and
distribution system owned or operated by the City, including but not limited to all
facilities, properties and improvementsat anytime owned or operated by the City for the
collection, treatment and supply of water to residents served thereby, whether within or
without the City, and any necessary lands, rights, entitlements and other property useful
in connection therewith, together with all extensions thereof and improvements thereto
hereafter acquired, constructed or installed by the City.
"Water System Fund" means the fund established and held by the City pursuant
to Section 4.5 of this Agreement.
SECTION 1.2. Interpretation.
(a) Unless the context otherwise indicates, words expressed in the singular
include the plural and vice versa and the use of the neuter, masculine, or feminine
gender is for convenience only and include the neuter, masculine or feminine gender, as
appropriate.
(b) Headings of articles and sections herein and the table of contents hereof
are solely for convenience of reference, do not constitute a part hereof and do not affect
the meaning, construction or effect hereof.
(c) All references herein to "Articles," "Sections" and other subdivisions are to
the corresponding Articles, Sections or subdivisions of this Agreement; the words
"herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular Article, Section or subdivision hereof.
ARTICLE II
REPRESENTATIONS, COVENANTS AND
WARRANTIES
SECTION 2.1. Representations, Covenants and Warranties OF the City. The
City represents, covenants and warrants to the Authority as follows:
(a) Due Organization and Existence. The City is a municipal
corporation duly organized and validly existing under the laws of the
State of California, has full legal right, power and authority under
said laws to enter into this Agreement and to carry out and
consummate all transactions contemplated hereby and thereby, and
by proper action the City Council of the City has duly authorized the
execution and delivery of this Agreement.
(b) Due Execution. The representatives of the City executing this
Agreement are fully authorized to execute the same.
(c) Valid. Binding and Enforceable Obligations. This Agreement has
been duly authorized, executed and delivered by the City and
constitutes the legal, valid and binding agreement of the City
IRI
enforceable against the City in accordance with its terms; except as
the enforceability thereof may be subject to bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting
creditors' rights heretofore or hereafter enacted and except as such
enforceability may be subject to the exercise of judicial discretion in
accordance with principles of equity.
(d) No Conflicts. The execution and delivery of this Agreement, the
consummation of the transactions herein contemplated and the
fulfillment of or compliance with the terms and conditions hereof, do
not and will not conflict with or constitute a violation or breach of or
default (with due notice or the passage of time or both) under any
applicable law or administrative rule or regulation, or any applicable
court or administrative decree or order, or any indenture, mortgage,
deed of trust, lease, contract or other agreement or instrument to
which the City is a party or by which it or its properties are otherwise
subject or bound, or result in the creation or imposition of any
prohibited lien, charge or encumbrance of any nature whatsoever
upon any of the property or assets of the City, which conflict,
violation, breach, default, lien, charge or encumbrance would have
consequences that would materially adversely affect the
consummation of the transactions contemplated by this Agreement
or the financial condition, assets, properties or operations of the
City, including but not limited to the performance of the City's
obligations under this Agreement.
(e) Consents and Approvals. No consent or approval of any trustee or
holder of any indebtedness of the City or of the voters of the City,
and no consent, permission, authorization, order or license of, or
filing or registration with, any governmental authority is necessary in
connection with the execution and delivery of this Agreement, or the
consummation of any transaction herein contemplated, except as
have been obtained or made and as are in full force and effect.
(9 No Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court or federal, state, municipal or
other governmental authority pending or, to the knowledge of the
City after reasonable investigation, threatened against or affecting
the City or the assets, properties or operations of the City which, if
determined adversely to the City or its interests, would have a
material and adverse effect upon the consummation of the
transactions contemplated by or the validity of this Agreement, or
upon the financial condition, assets, properties or operations of the
City, and the City is not in default with respect to any order or
decree of any court or any order, regulation or demand of any
federal, state, municipal or other governmental authority, which
default might have consequences that would materially adversely
affect the consummation of the transactions contemplated by this
Agreement, or the financial conditions, assets, properties or
operations of the City, including but not limited to the payment and
performance of the City's obligations under this Agreement.
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(g) Prior Indebtedness. The City has not issued or incurred any
obligations which are currently outstanding having any priority in
payment out of the Gross Revenues or the Net Revenues over the
payment of the Installment Payments as provided herein.
SECTION 2.2. Representations, Covenants and Warranties of Authority. The
Authority represents, covenants and warrants to the City as follows:
(a) Due Organization and Existence. The Authority is a joint exercise
of powers authority organized and existing under the laws of the
State of California, and has powerto enter into this Agreement and
the Indenture and to perform the duties and obligations imposed on
it hereunder and thereunder. The Board of Directors of the
Authority has duly authorized the execution and delivery of this
Agreement and the Indenture.
(b) Due Execution. The representatives of the Authority executing this
Agreement and the Indenture are fully authorized to execute the
same.
(c) Valid. Binding and Enforceable Obligations. This Agreement and
the Indenture have been duly authorized, executed and delivered by
the Authority and constitute the legal, valid and binding agreements
of the Authority with the Authority, enforceable against the Authority
in accordance with their respective terms; except as the
enforceability thereof may be subject to bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting
creditors' rights heretofore or hereafter enacted and except as such
enforceability may be subject to the exercise of judicial discretion in
accordance with principles of equity.
(d) No Conflicts. The execution and delivery hereof and of the
Indenture, the consummation of the transactions herein and therein
contemplated and the fulfillment of or compliance with the terms
and conditions hereof and thereof, do not and will not conflict with
or constitute a violation or breach of or default (with due notice or
the passage of time or both) under any applicable law or
administrative rule or regulation, or any applicable court or
administrative decree or order, or any indenture, mortgage, deed of
trust, lease, contract or other agreement or instrument to which the
Authority is a party or by which it or its properties are otherwise
subject or bound, or result in the creation or imposition of any
prohibited lien, charge or encumbrance of any nature whatsoever
upon any of the property or assets of the Authority, which conflict,
violation, breach, default, lien, charge or encumbrance would have
consequences that would materially adversely affect the
consummation of the transactions contemplated hereby and by the
Indenture or the financial condition, assets, properties or operations
of the Authority, including but not limited to the performance of the
Authority's obligations underthis Agreement and the Indenture.
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(e) Consents and Approvals. No consent or approval of any trustee or
holder of any indebtedness of the Authority, and no consent,
permission, authorization, order or license of, or filing or registration
with, any governmental authority is necessary in connection with the
execution and delivery hereof or of the indenture, or the
consummation of any transaction herein or therein contemplated,
except as have been obtained or made and as are in full force and
effect.
(f) No Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court or federal, state, municipal or
other governmental authority pending or, to the knowledge of the
Authority after reasonable investigation, threatened against or
affecting the Authority or the assets, properties or operations of the
Authority which, if determined adversely to the Authority or its
interests, would have a material and adverse effect upon the
consummation of the transactions contemplated by or the validity of
this Agreement or the Indenture, or upon the financial condition,
assets, properties or operations of the Authority, and the Authority
is not in default with respect to any order or decree of any court or
any order, regulation or demand of any federal, state, municipal or
other governmental authority, which default might have
consequences that would materially adversely affect the
consummation of the transactions contemplated by this Agreement
or the Indenture or the financial conditions, assets, properties or
operations of the Authority, including but not limited to the
performance of the Authority's obligations hereunder and under the
Indenture.
(g) Build America Bonds. The Authority shall take all actions required
to designate the Series B Bonds as Build America Bonds and to
elect to receive the Refundable Credits under Section 54AA(g)(1) of
the Tax Code.
ARTICLE III
ISSUANCE OF BONDS;
ACQUISITION AND CONSTRUCTION OF
PROJECT
SECTION 3.1. Issuance of Bonds, Deposit of Proceeds. The Authority shall
cause the Bonds to be issued under the Indenture in the aggregate principal amount set
forth in the Indenture. The Trustee shall deposit the proceeds of sale of the Bonds
received by it on the Closing Date in accordance with the Indenture. The City hereby
approves the Indenture, the assignment thereunder to the Trustee of certain rights of
the Authority, and the issuance of the Bonds.
SECTION 3.2. Acquisition and Construction of the Project. The Authority
hereby agrees with due diligence to supervise and provide for, or cause to be
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supervised and provided for, the acquisition, construction and installation of the Project
in accordance with the plans and specifications, purchase orders, construction contracts
and other documents relating thereto and approved by the City under all applicable
requirements of law. All contracts for, and all work relating to, the acquisition,
construction and installation of the Project are subject to all applicable provisions of law
relating to the acquisition and construction of public works by the City. The Authority
expects that the Project will be completed within three years of the Closing Date. The
failure of the Authority to complete the Project by that date does not constitute an Event
of Default or a grounds for termination hereof, nor does any such failure result in the
diminution, abatement or extinguishment of the obligations of the City hereunder to pay
the Installment Payments when due hereunder.
SECTION 3.3. Appointment of City as Agent. The Authority hereby appoints the
City as its agent to carry out all phases of the acquisition, construction and installation of
the Project under and in accordance with the provisions hereof. The City hereby
accepts such appointment and assumes all rights, liabilities, duties and responsibilities
of the Authority regarding the acquisition, construction and installation of the Project. As
agent of the Authority hereunder, the City shall enter into, administer and enforce all
purchase orders or other contracts relating to the Project. Payment of Project Costs will
be made by the City from amounts held by the Trustee in the Project Funds in
accordance with the provisions of this Agreement and the provisions of the Indenture.
SECTION 3.4. Plans and Specifications. The City has the right to specify the
exact scope, nature and identification of the Project and the respective components
thereof. Before any payment is made for the Project or any component thereof from
amounts on deposit in the Project Funds, the City shall prepare detailed plans and
specifications relating thereto, to the extent applicable. The City may from time to time
amend any such plans and specifications, and thereby change or modify the description
of the Projector any component thereof.
SECTION 3.5. Certificate of Completion. Upon the completion of the Project,
but in any event not later than 30 days following such completion, an Authorized
Representative of the City shall execute and deliver to the Authority and the Trustee a
Written Certificate of the City which (a) states that the construction of the Project has
been substantially completed, (b) identifies the total Project Costs thereof, and (c)
identifies the amounts, if any, to be reserved in the Project Funds for payment of future
Project Costs.
ARTICLE IV
SALE OF PROJECT;
INSTALLMENT PAYMENTS
SECTION 4.1. Term. The Term of this Agreement commences on the Closing
Date, and ends on June 1, , or such later or earlier date on which the Bonds cease
to be Outstanding under and within the meaning of the Indenture.
SECTION 4.2. Sale of Project The Authority hereby sells the Project to the City,
and the City hereby purchases the Project from the Authority, upon the terms and
conditions set forth in this Agreement.
SECTION 4.3. Title. Title to the Project, and each component thereof, will be
deemed conveyed by the Authority to and vested in the City upon the completion of the
acquisition, construction and installation thereof. The Authority and the City will execute,
deliver and cause to be recorded any and all documents reasonably required by the City
to consummate the transfer of title to the Project. As agent of the Authority under
Section 3.3, the City shall acquire title to the Project, and each component thereof,
concurrently with the acquisition and construction of the Project and each component
thereof, without the need to vest title originally in the name of the Authority.
SECTION 4.4. Installment Payments.
(a) Obligation to Pay Installment Payments to Purchase the Proiect. The City
hereby agrees to pay to the Authority, as the purchase price of the Project hereunder,
the aggregate principal amount of $ together with interest
(calculated on the basis of a 360 -day year of twelve 30 -day months) on the unpaid
principal balance thereof, payable in semiannual installment payments in the respective
amounts and on the respective Installment Payment Dates specified in Appendix A.
(b) Payment Provisions. The City shall deposit the Installment Payment coming
due and payable on any Interest Payment Date with the Trustee, as assignee of the
Authority under the Indenture, on the related Installment Payment Date. In determining
the amount required to be deposited with the Trustee on any Installment Payment Date,
all amounts then held by the Trustee in the Bond Fund and the accounts therein (other
than amounts held in the Reserve Account or otherwise required to be deposited in the
Reserve Account to cause the balance therein to the equal the Reserve Requirement),
shall be credited towards the Installment Payment then due. The Installment Payments
are secured by and payable solely from the sources specified in Section 4.5.
(c) Effect of Prepayment. If the City prepays all remaining Installment
Payments in full under Section 7.2 or Section 7.3, the City's obligations under this
Agreement will thereupon cease and terminate, including but not limited to the City's
obligation to pay Installment Payments therefor under this Section 4.4; provided,
however, that the City's obligations to compensate and indemnify the Trustee under
Sections 4.8 and 5.2 will survive such prepayment. If the City prepays the Installment
Payments in part but not in whole under Section 7.2 or Section 7.3, the principal
component of each succeeding Installment Payment will be reduced as provided in such
Sections, and the interest component of each remaining Installment Payment will be
reduced by the aggregate corresponding amount of interest which would otherwise be
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payable with respect to the Bonds thereby redeemed under the applicable provisions of
Section 4.01 of the Indenture.
(d) Rate on Overdue Payments. If the City fails to make any of the payments
required under this Section 4.4 and Section 4.8, the payment in default will continue as
an obligation of the City until fully paid, and the City agrees to pay the same with interest
thereon, from the date of default to the date of payment, at the Overdue Rate.
(e) Assinnment. Certain rights of the Authority, including but not limited to the
right of the Authority to receive payment of the Installment Payments, have been
assigned by the Authority to the Trustee in trust under the Indenture, for the benefit of
the Owners of the Bonds, and the City hereby consents to such assignment. The
Authority hereby directs the City, and the City hereby agrees, to pay to the Trustee at its
Trust Office, all payments payable by the City under this Section 4.4 and all amounts
payable by the City underArticle VII.
SECTION 4.5. Pledge and Application of Net Revenues.
(a) Pledge. The City hereby establishes a pledge of, lien on and security
interest in all of the Net Revenues and all moneys on deposit in any of the funds and
accounts established and held by the Trustee under the Indenture to secure the
Installment Payments and any Parity Debt.
(b) Deposit of Net Revenues Into Water System Fund- Transfers to Make
Payments. In order to carry out and effectuate the pledge and lien contained herein, the
City agrees and covenants that all Gross Revenues, including, without limitation,
Refundable Credits, shall be received by the City in trust hereunder and shall be
deposited when and as received in a special fund designated as the "Water System
Fund", which fund the City agrees and covenants to maintain and to hold separate and
apart from other funds so long as any Installment Payments remain unpaid. To the
extent the City has an existing fund or existing funds which satisfy the foregoing
requirements, then such shall be deemed to be the "Water System Fund" and the City
shall not be required to create a new fund. The City may maintain separate funds or
accounts within the Water System Fund. Moneys in the Water System Fund shall be
used and applied by the City as provided in this Agreement and any Parity Debt
Documents.
Amounts on deposit in the Water System Fund will be applied by the City to pay
when due the following amounts in the following order of priority:
(i) all Operation and Maintenance Costs;
the Installment Payments and all payments of principal of and
interest on any Parity Debt;
(iii) to the Trustee the amount of any deficiency in the Reserve Account
established for the Bonds and in any reserve account established
for Parity Debt, the notice of which deficiency has been sent to the
City in accordance with Section 5.05(d) of the Indenture and in
accordance with the applicable provisions of the related Parity Debt
Documents;
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(iv) any other payments required to comply with the provisions of this
Agreement and any Parity Debt Documents; and
(v) any other purposes authorized under subsection (d) of this Section
4.5.
(c) No Preference or Prioritv. Payment of the Installment Payments and the
principal of and interest on any Parity Debt will be made without preference or priority
among the Installment Payments and such Parity Debt. If the amount of Net Revenues
on deposit in the Water System Fund is at any time insufficientto enable the City to pay
when due the Installment Payments and the principal of and interest on any Parity Debt,
such payments will be made on a pro rata basis.
(d) Other Uses of Net Revenues, Permitted. The City shall manage, conserve
and apply the Net Revenues on deposit in the Water System Fund in such a manner
that all deposits required to be made under the preceding subsection (b) will be made at
the times and in the amounts so required. Subject to the foregoing sentence, so long as
no Event of Default has occurred and is continuing, the City may use and apply moneys
in the Water System Fund for (i) the payment of any subordinate obligations or any
unsecured obligations, (ii) the acquisition and construction of improvements to the
Water System, (iii) the prepayment of any other obligations of the City relating to the
Water System, or (iv) any other lawful purposes of the City.
(e) Budget and Appropriation of Installment Payments. During the Term of this
Agreement, the City shall adopt all necessary budgets and make all necessary
appropriations of the Installment Payments from the Net Revenues. If any Installment
Payment requires the adoption by the City of any supplemental budget or appropriation,
the City shall promptly adopt the same. The covenants on the part of the City contained
in this subsection (e) constitute duties imposed by law and it is the duty of each and
every public official of the City to take such actions and do such things as are required
by law in the performance of the official duty of such officials to enable the City to carry
out and perform the covenants and agreements in this subsection (e).
SECTION 4.6. Establishment of Rate Stabilization Fund. The City has the right
at any time to establish a fund to be held by it and administered in accordance with this
Section 4.6, for the purpose of stabilizing the rates and charges imposed by the City
with respect to the Water System. From time to time the City may deposit amounts in
the Rate Stabilization Fund, from any source of legally available funds, including but not
limited to Net Revenues which are released from the pledge and lien which secures the
Installment Payments and any Parity Debt, as the City may determine. The Rate
Stabilization Fund shall be accounted for as a separate fund, although amounts credited
to it may be commingled with other funds of the City.
The City may, but is not be required to, withdraw amounts on deposit in the Rate
Stabilization Fund and deposit such amounts in the Water System Fund in any Fiscal
Year for the purpose of paying the installment Payments or the principal of and interest
on any Parity Debt coming due and payable in such Fiscal Year. Amounts so
transferred from the Rate Stabilization Fund to the Water System Fund in any Fiscal
Year constitute Gross Revenues for that Fiscal Year (except as otherwise provided
herein), and will be applied for the purposes of the Water System Fund. Amounts on
deposit in the Rate Stabilization Fund are not pledged to and do not otherwise secure
the Installment Payments or any Parity Debt. All interest or other earnings on deposits
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in the Rate Stabilization Fund will be retained therein or, at the option of the City, be
applied for any other lawful purposes. The City has the right at any time to withdraw any
or all amounts on deposit in the Rate Stabilization Fund and apply such amounts for any
other lawful purposes of the City.
SECTION 4.7. Special Obligation cF the City; Obligations Absolute. The City's
obligation to pay the Installment Payments and any other amounts coming due and
payable hereunder is a special obligation of the City limited solely to the Net Revenues.
Under no circumstances is the City required to advance moneys derived from any
source of income other than the Net Revenues and other sources specifically identified
herein for the payment of the Installment Payments and such other amounts. No other
funds or property of the City are liable for the payment of the Installment Payments and
any other amounts coming due and payable hereunder.
The obligations of the City to pay the Installment Payments from the Net
Revenues and to perform and observe the other agreements contained herein are
absolute and unconditional and are not subject to any defense or any right of set-off,
counterclaim or recoupment arising out of any breach by the Authority or the Trustee of
any obligation to the City or otherwise with respect to the Water System, whether
hereunder or otherwise, or out of indebtedness or liability at any time owing to the City
by the Authority or the Trustee. Until all of the Installment Payments, all of the
Additional Payments and all other amounts coming due and payable hereunder are fully
paid or prepaid, the City (a) will not suspend or discontinue payment of any Installment
Payments, Additional Payments or such other amounts, (b) will perform and observe all
other agreements contained in this Agreement, and (c) will not terminate this Agreement
for any cause, including, without limiting the generality of the foregoing, the occurrence
of any acts or circumstances that may constitute failure of consideration, eviction or
constructive eviction, destruction of or damage to the Water System, failure to complete
the acquisition and construction of the Project by the estimated completion date thereof,
sale of the Water System, the taking by eminent domain of title to or temporary use of
any component of the Water System, commercial frustration of purpose, any change in
the tax or law other laws of the United States of America or the State of California or any
political subdivision of either thereof or any failure of the Authority or the Trustee to
perform and observe any agreement, whether express or implied, or any duty, liability or
obligation arising out of or connected with the Indenture or this Agreement.
The foregoing provisions of this Section 4.7 do not release the Authority from the
performance of any of the agreements on its part contained herein or in the Indenture,
and if the Authority fails to perform any such agreements, the City may institute such
action against the Authority as the City deems necessary to compel performance, so
long as such action does not abrogate the obligations of the City contained in the
preceding paragraph. The City may, however, at its cost and expense and in its name
or in the name of the Authority, prosecute or defend any action or proceeding or take
any other action involving third persons which the City deems reasonably necessary in
order to secure or protect the City's rights hereunder, and in such event the Authority
shall cooperate fully with the City and shall take such action necessary to effect the
substitution of the City for the Authority in such action or proceeding if the City may
request.
SECTION 4.8. Additional Payments. In addition to the Installment Payments,
the City shall pay when due the following amounts to the following parties:
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(a) to the Authority, all costs and expenses incurred by the Authority to
comply with the provisions of this Agreement and the Indenture;
and
(b) to the Trustee upon request therefor, all of its costs and expenses
payable as a result of the performance of and compliance with its
duties hereunder or under the Indenture or any related documents;
(c) to the Authority and the Trustee, all amounts required to indemnify
the Authority and the Trustee under Section 5.2 hereof and Section
8.07 of the Indenture;
(d) all costs and expenses of auditors, engineers and accountants for
professional services relating to the Water System or the Bonds;
and
(e) all Excess Investment Earnings payable under Section 5.11(e).
The Additional Payments are payable from, but are not secured by a pledge or
lien upon, the Net Revenues. The rights of the Trustee and the Authority under this
Section 4.8, and the obligations of the City under this Section 4.8, shall survive the
termination of this Agreement.
ARTICLE V
COVENANTS OF THE CITY
SECTION 5.1. Disclaimer of Warranties. The Trustee makes no warranty or
representation, either express or implied, as to the value, design, condition,
merchantability or fitness for any particular purpose or fitness for the use contemplated
by the City of the Project or any component thereof, or any other representation or
warranty with respect to the Project or any component thereof. In no event is the
Authority liable for incidental, indirect, special or consequential damages, in connection
with or arising out of this Agreement or the Indenture for the existence, furnishing,
functioning or use of the Project.
SECTION 5.2. Release and Indemnification Covenants. The City agrees to
indemnify the Authority, the Trustee and their respective officers, agents, successors
and assigns, against all claims, losses and damages, including legal fees and expenses,
arising out of (a) the use, maintenance, condition or management of, or from any work
or thing done on or about the Water System by the City, (b) any breach or default on the
part of the City in the performance of any of its obligations under this Agreement or the
Indenture, (c) any act or omission of the City or of any of its agents, contractors,
servants, employees or licensees with respect to the Water System, and (d) any act or
omission of any lessee of the City with respect to the Water System. No indemnification
is made under this Section 5.2 or elsewhere in this Agreement for willful misconduct or
negligence under this Agreement by the Authority, the Trustee or their respective
officers, agents, employees, successors or assigns. The provisions of this Section 5.2
shall survive the expiration of the Term of this Agreement.
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SECTION 5.3. Sale or Eminent Domain of Wafer System. Except as provided
herein, the City covenants that the Water System will not be encumbered, sold, leased,
pledged, any charge placed thereon, or otherwise disposed of, as a whole or
substantially as a whole if such encumbrance, sale, lease, pledge, charge or other
disposition would materially impair the ability of the City to pay the Installment Payments
or the principal of or interest on any Parity Debt, or would materially adversely affect its
ability to comply with the terms of this Agreement or any Parity Debt Documents. The
City may not enter into any agreement which impairs the operation of the Water System
or any part of it necessary to secure adequate Net Revenues to pay the Installment
Payments or any Parity Debt, or which otherwise would impair the rights of the Bond
Owners or the Trustee with respect to the Net Revenues.
If any substantial part of the Water System is sold or taken in eminent domain
proceedings, the payment therefor shall either (a) be used for the acquisition or
construction of improvements to the Water System, or (b) be applied at the election of
the City to (i) prepay the Installment Payments on the next available prepayment date
under Section 7.3, or (ii) redeem any Parity Debt in accordance with the related Parity
Debt Documents.
SECTION 5.4. Insurance. The City shall at all times maintain with responsible
insurers all such insurance on the Water System as is customarily maintained with
respect to works and properties of like character against accident to, loss of or damage
to the Water System. The City shall apply any amounts collected from insurance
against accident to or destruction of any portion of the Water System, at its option,
either (a) to repair or rebuild such damaged or destroyed portion of the Water System,
or (b) to (i) prepay the Installment Payments on the next available prepayment date
under Section 7.3, or (ii) redeem any Parity Debt in accordance with the related Parity
Debt Documents.
The City shall also maintain, with responsible insurers, worker's compensation
insurance and insurance against public liability and property damage to the extent
reasonably necessary to protect the City, the Authority, the Trustee and the Owners of
the Bonds.
Any policy of insurance required under this Section 5.4 may be maintained as
part of or in conjunction with any other insurance coverage carried by the City, and may
be maintained in whole or in part in the form of self-insurance by the City or in the form
of the participation by the City in a joint powers agency or other program providing
pooled insurance.
SECTION 5.5. Records and Accounts. The City shall keep proper books of
record and accounts of the Water System in which complete and correct entries are
made of all transactions relating to the Water System. Said books shall, upon prior
request, be subject to the reasonable inspection of the Owners of not less than 10% of
the Outstanding Bonds, or their representatives authorized in writing, upon not less than
two Business Days' prior notice to the City.
The City shall cause the books and accounts of the Water System to be audited
annually by an Independent Accountant not more than nine months after the close of
each Fiscal Year, and shall make a copy of such report available for inspection by the
Bond Owners at the office of the City and at the Trust Office of the Trustee. Such report
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may be part of a combined financial audit or report covering all or part of the City's
finances.
SECTION 5.6. Rates and Charges.
(a) Covenant Regarding Gross Revenues. The City shall fix, prescribe, revise
and collect rates, fees and charges for the services and facilities furnished by the Water
System.during each Fiscal Year, which are at least sufficient, after making allowances
for contingencies and error in the estimates, to yield Gross Revenues sufficient to pay
the following amounts in the following order of priority:
(i) All Operation and Maintenance Costs estimated by the City to
become due and payable in such Fiscal Year;
(ii) All Installment Payments and all payments of principal of and
interest on any Parity Debt as they become due and payable during
such Fiscal Year, without preference or priority, except to the extent
any of such payments are payable from bond proceeds or from any
other source of legally available funds of the City which have been
deposited with the Trustee for such purpose prior to the
commencement of the related Fiscal Year;
(iii) All amounts, if any, required to restore the balance in the Reserve
Account to the full amount of the Reserve Requirement, and to
restore the balance in the reserve account established for any
Parity Debt to their required balances; and
(iv) All Additional Payments and other payments required to meet any
other obligations of the City which are charges, liens,
encumbrances upon, or which are otherwise payable from, the
Gross Revenues or the Net Revenues during such Fiscal Year.
(b) Covenant Regarding Net Revenues. In addition, the City shall fix,
prescribe, revise and collect rates, fees and charges for the services and facilities
furnished by the Water System during each Fiscal Year which are sufficient to yield both
of the following:
i Net Revenues equal to at least 125% of the amount described in
the preceding clause (ii) that is due in such Fiscal Year. For purposes of this
paragraph (b)(i), the amount of Net Revenues for a Fiscal Year will be computed
on the basis that any transfers into the Water System Fund in that Fiscal Year
from the Rate Stabilization Fund are included in the calculation of Net Revenues,
as provided in Section 4.6, but only to the extent that the moneys transferred
from the Rate Stabilization Fund would not otherwise constitute Gross Revenues
for the Fiscal Year.
(ii) Net Revenues equal to at least 100% of the amounts described in
the preceding clauses (ii) and (iii) that are due in such Fiscal Year. For purposes
of this paragraph (b)(ii), the amount of Net Revenues for a Fiscal Year will be
computed on the basis that (A) any connection charges (including the City's
impact mitigation fees) deposited into the Water System Fund in that Fiscal Year
shall not be included, (B) any transfers into the Water System Fund in that Fiscal
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Year from the Rate Stabilization Fund shall not be included in the calculation of
Net Revenues, and (C) any deposits into the Rate Stabilization Fund in that
Fiscal Year shall be included in the amount of Net Revenues, but only to the
extent such deposits are made from Gross Revenues received by the City during
that Fiscal Year.
(c) Treatment of Refundable Credits. For purposes of compliance with the
covenants contained in this Section 5.6, the amount of any Refundable Credits that the
City expects to receive in a Fiscal Year shall be excluded from the amount of Gross
Revenues for such Fiscal Year, but shall be included as a credit against the applicable
amount of Installment Payments or debt service on Parity Debt coming due in such
Fiscal Year.
SECTION 5.7. Superiorand Subordinafe Obligations. The City may not issue or
incur any additional bonds or other obligations during the Term of this Agreement having
any priority in payment of principal or interest out of the Gross Revenues or the Net
Revenues over the Installment Payments. Nothing herein limits or affects the ability of
the City to issue or incur (a) Parity Debt under Section 5.8, or (b) obligations which are
either unsecured or which are secured by an interest in the Net Revenues which is
junior and subordinate to the pledge of and lien upon the Net Revenues established
hereunder.
SECTION 5.8. Issuance of Parity Debt. Except for obligations incurred to
prepay or discharge the Installment Payments or any Parity Debt, the City may not issue
or incur any Parity Debt during the Term hereof unless all of the following conditions are
satisfied:
(a) No Event of Default has occurred and is continuing (unless the
Event of Default will be cured as a result of the issuance of the
Parity Debt).
(b) The Net Revenues, calculated in accordance with sound accounting
principles, as shown by the books of the City for the most recent
completed Fiscal Year for which audited financial statements are
available, or for any more recent consecutive 12 -month period
selected by the City at its option, in either case verified by a
certificate or opinion of an Independent Accountant or Fiscal
Consultant, plus the Additional Revenues, at least equal 125% of
the amount of Maximum Annual Debt Service with respect to the
Installment Payments and all Parity Debt then outstanding
(including the Parity Debt then proposed to be issued). For
purposes of this paragraph, the amount of any Refundable Credits
that the City expects to receive in a Fiscal Year shall be excluded
from the amount of Gross Revenues for such Fiscal Year, but shall
be included as a credit against the applicable amount of Installment
Payments and principal of and interest on any Parity Debt coming
due in such Fiscal Year. For purposes of this paragraph, the
amount of Net Revenues for a Fiscal Year will be computed on the
basis that any transfers into the Water System Fund in that Fiscal
Year from the Rate Stabilization Fund are included in the calculation
of Net Revenues, as provided in Section 4.6 (but only to the extent
that the moneys transferred from the Rate Stabilization Fund would
-17-
not otherwise constitute Gross Revenues for the applicable Fiscal
Year).
(c) Except as provided below, upon the issuance of such Parity Debt a
reserve fund shall be established for such Parity Debt. The reserve
fund which is established for an issue of Parity Debt shall be
required to be maintained in an amount which, together with the
aggregate amount required to be on deposit in all of the reserve
funds established for the Bonds and other outstanding Parity Debt,
is at least equal to Maximum Annual Debt Service on the
Installment Payments and all outstanding Parity Debt, taken as a
whole (other than Parity Debt for which no reserve fund is
established as described below). Notwithstanding the foregoing,
the amount which is required to be maintained in any reserve fund
which is established for Parity Debt shall not exceed the maximum
amount then permitted to be funded from the proceeds of tax-
exempt obligations under the Tax Code. The Reserve Account and
all other reserve funds which are funded from the proceeds of Parity
Debt shall constitute a single reserve for the equal and
proportionate benefit of the Bonds and all outstanding Parity Debt
(other than Parity Debt for which no reserve fund established as
required below), without preference or priority. Any such reserve
fund may be maintained in the form of a letter of credit or surety
bond.
In the event the City issues Parity Debt the purchaser of which does
not require the establishment of a reserve fund, such Parity Debt
maybe issued without a reserve fund. However, in that event, such
Parity Debt is not entitled to the security of amounts held in the
reserve fund which is established for the Bonds or for any other
issue of Parity Debt, and such Parity Debt will be disregarded in
determining the amount required to be maintained in any other
reserve fund established for outstanding Parity Debt.
(d) The trustee or fiscal agent for such Parity Debt (except to the extent
required to be a separate entity from the City or the Authority by the
purchaser of such Parity Debt) is the same entity performing the
functions of Trustee underthe Indenture.
(e) The City must deliver to the Trustee a Written Certificate of the City
certifying that the conditions precedent to the issuance of such
Parity Debt set forth in this Section 5.8 have been satisfied.
SECTION 5.9. Operation of Water System in Efficient and Economical Manner.
The City covenants and agrees to operate the Water System in an efficient and
economical manner and to operate, maintain and preserve the Water System in good
repair and working order.
SECTION 5.10. Assignment and Amendment Hereof. The Authority and the
City may at any time amend or modify any of the provisions of this Agreement, but only:
(a) with the prior written consent of the Owners of a majority in aggregate principal
amount of the Outstanding Bonds; or (b) without the consent of the Trustee or any of
5".
the Bond Owners, but only if such amendment or modification is for any one or more of
the following purposes:
(i) to add to the covenants and agreements of the City contained in
this Agreement, other covenants and agreements thereafter to be
observed, or to limit or surrender any rights or power herein
reserved to or conferred upon the City;
to make such provisions for the purpose of curing any ambiguity, or
of curing, correcting or supplementing any defective provision
contained herein, to conform to the original intention of the City and
the Authority;
(iii) to modify, amend or supplement this Agreement in such manner
as to assure that the interest on the Series A Bonds remains
excluded from gross income under the Tax Code;
(iv) to modify, amend or supplement this Agreement in such manner
so as to cause the Series B Bonds to be treated as Build America
Bonds and Qualified Bonds and therefore be eligible for the
Refundable Credits: and
(iv) in any other respect whatsoever as the Authority and the City deem
necessary or desirable, if in the opinion of Bond Counsel such
modifications or amendments do not materially adversely affect the
interests of the Owners of the Bonds.
No such modification or amendment may (a) extend or have the effect of
extending any Installment Payment Date or reducing any Installment Payment or any
premium payable upon the prepayment thereof, without the express consent of the
Owners of the affected Bonds, or (b) modify any of the rights or obligations of the
Trustee without its written assent thereto.
SECTION 5.11. Tax Covenants.
(a) Private Business Use Limitation. The City shall assure that the proceeds of
the Bonds are not used in a manner which would cause the Bonds to satisfy the private
business tests of Section 141(b) of the Tax Code or the private loan financing test of
Section 141(c) of the Tax Code.
(b) Federal Guarantee Prohibition. The City may not take any action or permit
or suffer any action to be taken if the result of the same would be to cause the Bonds to
be "federally guaranteed" within the meaning of Section 149(b) of the Tax Code.
(c) No Arbitrage. The City may not take, or permit or suffer to be taken by the
Trustee or otherwise, any action with respect to the proceeds of the Bonds or of any
other obligations which, if such action had been reasonably expected to have been
taken, or had been deliberately and intentionally taken, on the Closing Date, would have
caused the Bonds to be "arbitrage bonds" within the meaning of Section 148(a) of the
Tax Code.
-19-
(d) Maintenance of Tax Exemption. The City shall take all actions necessary
to assure the exclusion of interest on the Series A Bonds from the gross income of the
Owners of the Bonds to the same extent as such interest is permitted to be excluded
from gross income underthe Tax Code as in effect on the Closing Date.
(e) Rebate of Excess Investment Earnings to United States. The City shall
calculate or cause to be calculated the Excess Investment Earnings in all respects at the
times and in the manner required under the Tax Code. The City shall pay the full
amount of Excess Investment Earnings to the United States of America in such
amounts, at such times and in such manner as may be required under the Tax Code.
Such payments shall be made by the City from any source of legally available funds of
the City, and shall constitute Additional Payments hereunder.
The City shall keep or cause to be kept, and retain or cause to be retained for a
period of six years following the retirement of the Bonds, records of the determinations
made under this subsection (e). In order to provide for the administration of this
subsection (e), the City may provide for the employment of independent attorneys,
accountants and consultants compensated on such reasonable basis as the City may
deem appropriate. The Trustee has no duty or obligation to monitor or enforce
compliance by the City of any of the requirements underthis subsection (e).
(9 Financing Capital Expenditures, No Working Cagital. All amounts in
excess of Available Project Proceeds of the Series B Bonds less Available Project
Proceeds of the Series B Bonds deposited in the Reserve Account will be spent on
capital expenditures with a reasonably expected economic life of one year or more.
Limitation on Issuance Costs. No proceeds of the Series B Bonds and
investment earnings thereon, in an amount in excess of 2% of the proceeds of the sale
of the Series B Bonds, will be used to pay Costs of Issuance of the Series B Bonds. If
the fees of the Original Purchaser of the Series B Bonds are retained as a discount on
the purchase of the Series B Bonds, such retention shall be deemed to be an
expenditure of proceeds of the Series B Bonds for said fees. No proceeds of the Series
B Bonds will be used to pay Costs of Issuance of the Series A Bonds and no proceeds
of the Series A Bonds will be used to pay Costs of Issuance of the Series B Bonds.
(h) Expenditure of Proceeds to Assure Series B Bonds Are Eligible For
Refundable Credits. The Authority shall take all actions necessary to assure that the
proceeds of the Series B Bonds are expended and all federal tax requirements are met
so as to cause the Series B Bonds to be treated as Build America Bonds and Qualified
Bonds and therefore be eligible for the Refundable Credits.
(i Filing of Forms To Receive Refundable Credits. The Authority will, within
the 45 -day period beginning on the date that is 90 days before the next Interest
Payment Date, file Form 8038 -CP or any successor form designated by the federal
government, requesting payment of the Refundable Credits with respect to the next
interest payment on the Series B Bonds. The Authority hereby irrevocably assigns the
Refundable Credits to the City, and the Refundable Credits received by the City
constitute Gross Revenues.
The Authority may enter into an agreement, in customary form, with the Trustee
to act on behalf of the Authority for purposes of timely filing the applicable forms. The
Authority shall direct that payment of the Refundable Credits be made directly by the
-20-
federal government to the City. Any Refundable Credits collected or received by the
Authority or the Trustee shall be deemed to be held, and to have been collected or
received, by the Authority or the Trustee as the agent of the City and shall promptly be
paid by the Authority or the Trustee, as applicable, to the City.
SECTION 5.12. continuing Disclosure The City hereby covenants and agrees
that it will comply with and carry out all of the provisions of the Continuing Disclosure
Certificate. Notwithstanding any other provision of this Agreement, failure of the City to
comply with the Continuing Disclosure Certificate does not constitute an Event of
Default. However, any Participating Underwriter (as that term is defined in the
Continuing Disclosure Certificate) or any holder or beneficial owner of the Bonds may
take such actions as may be necessary and appropriate to compel the City to perform
its obligations under the Continuing Disclosure Certificate, including seeking mandate or
specific performance by court order.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. Events of Default Defined. The following events constitute
Events of Default hereunder:
(a) Failure by the City to pay any Installment Payment when due and
payable hereunder.
(b) Failure by the City to pay any Additional Payment when due and
payable hereunder, and the continuation of such failure for a period
of 30 days.
(c) Failure by the City to observe and perform any covenant, condition
or agreement on its part to be observed or performed, other than as
referred to in the preceding clauses (a) or (b), for a period of 30
days after written notice specifying such failure and requesting that
it be remedied has been given to the City by the Authority or the
Trustee; provided, however, that if the City notifies the Authority and
the Trustee that in its reasonable opinion the failure stated in the
notice can be corrected, but not within such 30 -day period, such
failure will not constitute an event of default hereunder if the City
commences to cure such failure within such 30 day period and
thereafter diligently and in good faith cures the failure in a
reasonable period of time.
(d) The filing by the City of a voluntary petition in bankruptcy, or failure
by the City promptly to lift any execution, garnishment or
attachment, or adjudication of the City as a bankrupt, or assignment
by the City for the benefit of creditors, or the entry by the City into
an agreement of composition with creditors, or the approval by a
court of competent jurisdiction of a petition applicable to the City in
any proceedings instituted under the provisions of the Federal
-21-
Bankruptcy Code, as amended, or under any similar acts which
may hereafter be enacted.
(e) The occurrence of any event of default under and as defined in any
Parity Debt Documents.
SECTION 6.2. Remedies on Default. If an Event of Default occurs and is
continuing, the Trustee as assignee of the Authority has the right, at its option and
without any further demand or notice, to take any one or more of the following actions:
(a) Declare all principal components of the unpaid Installment
Payments, together with accrued interest thereon at the Overdue
Rate from the immediately preceding Interest Payment Date on
which payment was made, to be immediately due and payable,
whereupon the same shall immediately become due and payable.
The Trustee shall rescind and annul such declaration and its
consequences if, before any judgment or decree for the payment of
the moneys due has been obtained or entered, (i) the City deposits
with the Trustee a sum sufficient to pay all principal components of
the Installment Payments coming due prior to such declaration and
all matured interest components (if any) of the Installment
Payments, with interest on such overdue principal and interest
components calculated at the Overdue Rate, and (ii) the City pays
the reasonable expenses of the Trustee (including any fees and
expenses of its attorneys), and (iii) any and all other defaults known
to the Trustee (other than in the payment of the principal and
interest components of the Installment Payments due and payable
solely by reason of such declaration) have been made good. No
such rescission and annulment will extend to or shall affect any
subsequent default, or impair or exhaust any right or power
consequent thereon.
(b) Take whatever action at law or in equity may appear necessary or
desirable to collect the Installment Payments then due or thereafter
to become due during the Term of this Agreement, or enforce
performance and observance of any obligation, agreement or
covenant of the City underthis Agreement.
(c) As a matter of right, in connection with the filing of a suit or other
commencement of judicial proceedings to enforce the rights of the
Trustee and the Bond Owners hereunder, cause the appointment of
a receiver or receivers of the Gross Revenues and other amounts
pledged hereunder, with such powers as the court making such
appointment may confer.
SECTION 6.3. No Remedy Exclusive. No remedy herein conferred upon or
reserved to the Authority is intended to be exclusive. Every such remedy is cumulative
and in addition to every other remedy given under this Agreement or now or hereafter
existing at law or in equity. No delay or omission to exercise any right or power accruing
upon any default impairs any such right or power or operates as a waiver thereof, but
any such right and power may be exercised from time to time and as often as may be
-22-
deemed expedient. In order to entitle the Authority to exercise any remedy reserved to it
in this Article VI, it is not necessary to give any notice, other than such notice as may be
required in this Article VI or by law.
SECTION 6.4. Agreement to fay Afforneys' Fees and Expenses. If either party
to this Agreement defaults under any of the provisions hereof and the nondefaulting
party, the Trustee or the Owner of any Bonds employs attorneys or incurs other
expenses for the collection of moneys or the enforcement or performance or
observance of any obligation or agreement on the part of the defaulting party herein
contained, the defaulting party agrees that it will on demand therefor pay to the
nondefaulting party, the Trustee or such Owner, as the case may be, the reasonable
fees of such attorneys and such other expenses so incurred. The provisions of this
Section 6.4 survive the expiration of the Term of this Agreement.
SECTION 6.5. No Additional Waiverlmplied by One Waiver. If any agreement
contained in this Agreement is breached by either party and thereafter waived by the
other party, such waiver is limited to the particular breach so waived and does not waive
any other breach hereunder.
SECTION 6.6. Trustee and Bond Owners fo Exercise Rights. Such rights and
remedies as are given to the Authority under this Article VI have been assigned by the
Authority to the Trustee under the Indenture, to which assignment the City hereby
consents. Such rights and remedies will be exercised by the Trustee and the Owners of
the Bonds as provided in the Indenture.
ARTICLE VII
PREPAYMENT OF INSTALLMENT PAYMENTS
SECTION 7.1. Security Deposit. Notwithstanding any other provision hereof,
the City may on any date secure the payment of Installment Payments, in whole or in
part, by irrevocably depositing with the Trustee an amount of cash which, together with
other available amounts, is either:
(a) sufficient to pay all such Installment Payments, including the
principal and interest components thereof, when due under Section
4.4(a), or
(b) invested in whole or in part in non -callable Federal Securities in
such amount as will, in the opinion of an Independent Accountant
(which opinion is addressed and delivered to the Trustee), together
with interest to accrue thereon and together with any cash which is
so deposited, be fully sufficient to pay all such Installment
Payments when due under Section 4.4(a) or when due on any
optional prepayment date under Section 7.2, as the City instructs at
the time of said deposit.
If the City makes a security deposit under this Section for the payment of all
remaining Installment Payments, all obligations of the City hereunder, and the pledge of
Net Revenues and all other security provided by this Agreement for said obligations, will
-23-
thereupon cease and terminate, excepting only the obligation of the City to make, or
cause to be made, all Installment Payments from the security deposit. The security
deposit will be deemed to be and will constitute a special fund for the payment of the
Installment Payments in accordance with the provisions hereof.
SECTION 7.2. Optional Prepayment. The City may exercise its option to prepay
the principal components of the Installment Payments in whole or in part on any date on
or after the Installment Payment Date relating to the October 1, Interest Payment
Date. The City may exercise such option by payment of a prepayment price equal to
the sum of (a) the aggregate principal components of the Installment Payments to be
prepaid, (b) the interest component of the Installment Payment required to be paid on or
accrued to such date, and (c) the premium (if any) then required to be paid upon the
corresponding redemption of the Bonds under Section 4.01(a) of the Indenture. The
Trustee shall deposit the prepayment price in the Installment Payment Fund to be
applied to the redemption of Bonds under Section 4.01(a) of the Indenture. If the City
prepays the Installment Payments in part but not in whole, the principal componentswill
be prepaid among such maturities and in such integral multiples of $5,000 as the City
designates in written notice to the Trustee. The City shall give the Trustee written notice
of its intention to exercise its option not less than 60 days in advance of the date of
exercise.
SECTION 7.3. Mandatory Prepayment From Proceeds of Insurance, Sale or
Condemnation. The City shall prepay the Installment Payments on any date, in whole,
or in part among maturities on a pro rata basis in any integral multiple of $5,000, from
and to the extent of any proceeds of insurance, sale or condemnation awards with
respect to the Water System theretofore paid to the Trustee for such purpose under
Sections 5.3 or 5.4. The City and the Authority hereby agree that such proceeds, to the
extent remaining after payment of any delinquent Installment Payments, will be
deposited in the Installment Payment Fund and credited towards the City's obligations
underthis Section 7.3.
SECTION 7.4. Credit for Amounts on Deposit. If the City prepays the
Installment Payments in full under this Article VII, such that the Indenture is discharged
by its terms as a result of the prepayment, and upon payment in full of all Additional
Payments and other amounts then due and payable hereunder, all available amounts
then on deposit in the funds and accounts established under the Indenture will be
credited towards the amounts then required to be so prepaid.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. Further Assurances. The City agrees that it will execute and
deliver any and all such further agreements, instruments, financing statements or other
assurances as may be reasonably necessary or requested by the Authority or the
Trustee to carry out the intention or to facilitate the performance of this Agreement,
including, without limitation, to perfect and continue the security interests herein
intended to be created.
-24-
SECTION 8.2. Notices. Any notice, request, complaint, demand or other
communication under this Agreement must be given by first class mail or personal
delivery to the party entitled thereto at its address set forth below, or by telecopier or
other form of telecommunication, at its number set forth below. Notice is effective either
(a) upon transmission by fax or other form of telecommunication, (b) upon actual receipt
after deposit in the United States of America mail, postage prepaid, or (c) in the case of
personal delivery to any person, upon actual receipt. The Authority, the City or the
Trustee may, by written notice to the other parties, from time to time modify the address
or numberto which communications are to be given hereunder.
If to the City City of Lodi
or the Authority. P.O. Box 3006
Lodi, California 95241-1910
Attention: Deputy City Manager/
Internal Services Director
If to the Trustee: The Bank of New York Trust Company, N.A.
550 Kearny Street, Suite 600
San Francisco, California 94108
Attention: Corporate Trust Department
SECTION 8.3. Governing Law. This Agreement will be construed in accordance
with and governed by the laws of the State of California.
SECTION 8.4. Binding Effect. This Agreement inures to the benefit of and is
binding upon the Authority, the City and their respective successors and assigns,
subject, however, to the limitations contained herein.
SECTION 8.5. Severability of Invalid Provisions. If any one or more of the
provisions contained in this Agreement are for any reason held to be invalid, illegal or
unenforceable in any respect, then such provision or provisions will be deemed
severable from the remaining provisions contained in this Agreement and such invalidity,
illegality or unenforceabilitywill not affect any other provision of this Agreement, and this
Agreement will be construed as if such invalid or illegal or unenforceable provision had
never been contained herein. The Authority and the City each hereby declares that it
would have entered into this Agreement and each and every other Section, paragraph,
sentence, clause or phrase hereof irrespective of the fact that any one or more
Sections, paragraphs, sentences, clauses or phrases of this Agreement may be held
illegal, invalid or unenforceable.
SECTION 8.6. Article and Section Headings and References. The headings or
titles of the several Articles and Sections hereof, and any table of contents appended to
copies hereof, are solely for convenience of reference and do not affect the meaning,
construction or effect of this Agreement. All references herein to "Articles," "Sections"
and other subdivisions are to the corresponding Articles, Sections or subdivisions of this
Agreement; the words "herein," "hereof," "hereby," "hereunder' and other words of
similar import refer to this Agreement as a whole and not to any particular Article,
Section or subdivision hereof; and words of the masculine gender mean and include
words of the feminine and neuter genders.
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SECTION 8.7. Payment on Non -Business Days. Whenever any payment is
required to be made hereunder on a day which is not a Business Day, such payment will
be made on the immediate preceding Business Day.
SECTION 8.8. Execution of Counterparts. This Agreement may be executed in
any number of counterparts, each of which will for all purposes be deemed to be an
original and all of which together constitute but one and the same instrument.
SECTION 8.9. Waiver of Personal Liability. No member of the City Council,
officer, agent or employee of the City has any individual or personal liability for the
payment of Installment Payments or Additional Payments or be subject to any personal
liability or accountability by reason of this Agreement; but nothing herein contained
relieves any such member of the City Council, officer, agent or employee from the
performance of any official duty provided by law or by this Agreement.
SECTION 8.10. Trustee as Third Party Beneficiary. The Trustee is hereby
made a third party beneficiary hereof and is entitled to the benefits of this Agreement
with the same force and effect as if the Trustee were a party hereto.
1K. -a
IN WITNESS WHEREOF, the Authority and the City have caused this
Agreement to be executed in their respective names by their duly authorized officers, all
as of the date first above written.
ATTEST:
ATTEST:
10
Secretary
City Clerk
LODI PUBLIC FINANCINGAUTHORITY,
as Seller
M
Executive Director
CITY OF LODI, as Purchaser
LIM
IPM
City Manager
APPENDIXA
SCHEDULE OF INSTALLMENT PAYMENTS
Installment Principal Interest Total
Payment Date() Component Component Payment
Installment Payment Dates are the Business Day immediately preceding
each Interest Payment Date shown in the table.
B-1
50863-01
JH:CKL
INDENTURE OF TRUST
Dated as of October 1, 2010
between
THE BANK CBE' NEW YORK MELLON TRUST COMPANY, N.A.,
as Trustee
and the
LODI PUBLIC FINANCING AUTHORITY
Authorizing the Issuance of
6-18-10
7-28-10
8-12-10
9-7-10
9-22-10
Lodi Public Financing Authority Lodi Public Financing Authority
2010 Water Revenue Bonds, 2010 Water Revenue Bonds, Series B
Series A (Federally Taxable - Build America Bonds -
Direct Payment)
ARTICLE I:
DEFINITIONS; RULES OF CONSTRUCTION:
SECTION1.01.
Definitions..........................................................................................................
2
SECTION 1.02.
Authorization......................................................................................................
2
SECTION 103.
Interpretation.....................................................................................................
2
ARTICLE II:
The Bonds:
SECTION 2.01.
Authorization of Bonds.......................................................................................
3
SECTION 2.02.
Terms of the Bonds...........................................................................................
3
SECTION 2.03.
Transfer and Exchange of Bonds......................................................................
5
SECTION 2.04.
Book-Entry System............................................................................................
5
SECTION 2.05.
Registration Books............................................................................................
7
SECTION 2.06.
Form and Execution of Bonds............................................................................
7
SECTION 2.07.
Bonds Mutilated, Lost, Destroyed or Stolen.......................................................
8
ARTICLE III:
Issuance of Bonds; Application of Proceeds:
SECTION 3.01.
Issuance of the Bonds.......................................................................................
8
SECTION 3.02.
Application of Proceeds of Sale of Series A Bonds............................................
8
SECTION 3.03.
Application of Proceeds of Sale of Series B Bonds............................................
9
SECTION 3.04.
Establishment and Application of Costs of Issuance Funds ...............................
9
SECTION 3.05.
Project Funds..................................................................................................
10
SECTION 3.06.
Validity of Bonds..............................................................................................
11
ARTICLE IV:
Redemptionof Bonds:
SECTION 4.01.
Terms of Redemption......................................................................................
11
SECTION 4.02.
Selection of Bonds for Redemption.................................................................
15
SECTION 4.03.
Notice of Redemption; Rescission...................................................................
15
SECTION 4.04.
Partial Redemption of Bonds...........................................................................
16
SECTION 4.05.
Effect of Redemption.......................................................................................
16
ARTICLE V:
Authority Revenues; Funds and Accounts; Payment of
Principal and Interest:
SECTION 5.01.
Security for the Bonds; Bond Fund..................................................................
17
SECTION 5.02.
Allocation of Authority Revenues.....................................................................
17
SECTION 5.03.
Application of Interest Account........................................................................
18
SECTION 5.04.
Application of Principal Account.......................................................................
18
SECTION 5.05.
Application of Reserve Account.......................................................................
18
SECTION 5.06.
Application of Redemption Fund......................................................................
19
SECTION5.07.
Investments.....................................................................................................
19
SECTION 5.08.
Valuation and Disposition of Investments........................................................
20
ARTICLE VI:
Covenants of the Authority
SECTION 6.01.
Punctual Payment............................................................................................
22
SECTION 6.02.
Extension of Payment of Bonds.......................................................................
22
SECTION 6.03.
Against Encumbrances....................................................................................
22
SECTION 6.04.
Powerto Issue Bonds and Make Pledge and Assignment ...............................
22
SECTION 6.05.
Accounting Records.........................................................................................
22
SECTION 6.06.
Limitation on Additional Obligations.................................................................
23
SECTION 6.07.
Tax Covenants................................................................................................
23
SECTION 6.08.
Enforcementof Installment Sale Agreement....................................................
24
SECTION 6.09.
Waiver of Laws................................................................................................
24
SECTION 6.10.
FurtherAssurances.........................................................................................
24
SECTION 8.01.
ARTICLE VII:
28
SECTION 8.02.
Events of Default and Remedies:
28
SECTION 7.01.
Events of Default.............................................................................................
24
SECTION 7.02.
Remedies Upon Event of Default.....................................................................
25
SECTION 7.03.
Application of Authority Revenues Other Funds After Default ..........................
25
SECTION 7.04.
Trustee to Represent Bond Owners................................................................
26
SECTION 7.05.
Limitation on Bond Owners' Right to Sue .........................................................
26
SECTION 7.06.
Absolute Obligation of Agency.........................................................................
27
SECTION 7.07.
Termination of Proceedings.............................................................................
27
SECTION 7.08.
Remedies Not Exclusive..................................................................................
27
SECTION 7.09.
No Waiver of Default.......................................................................................
27
SECTION 7.10.
Notice to Bond Owners of Default....................................................................
28
ARTICLE Vlll:
The Trustee:
SECTION 8.01.
Appointment of Trustee...................................................................................
28
SECTION 8.02.
Acceptance of Trusts; Removal and Resignation of Trustee ...........................
28
SECTION 8.03.
Merger or Consolidation..................................................................................
30
SECTION 8.04.
Liability of Trustee...........................................................................................
30
SECTION 8.05.
Right to Rely on Documents............................................................................
33
SECTION 8.06.
Preservation and Inspection of Documents.....................................................
33
SECTION 8.07.
Compensation and Indemnification..................................................................
33
ARTICLE IX:
Modification or Amendment Hereof:
SECTION 9.01.
Amendments Permitted...................................................................................
34
SECTION 9.02.
Effect of Supplemental Indenture....................................................................
35
SECTION 9.03.
Endorsement of Bonds; Preparation of New Bonds .........................................
36
SECTION 9.04.
Amendment of Particular Bonds......................................................................
36
ARTICLE X:
Defeasance:
SECTION 10.01.
Discharge of Indenture..................................................................................
36
SECTION 10.02.
Discharge of Liability on Bonds......................................................................
37
SECTION 10.03.
Deposit of Money or Securities with Trustee ..................................................
37
SECTION 10.04.
Unclaimed Funds...........................................................................................
38
ARTICLE XI:
Miscellaneous:
SECTION 11.01.
Liability of Authority Limited to Authority Revenues .......................................
39
SECTION 11.02.
Limitation of Rights to Parties and Bond Owners ...........................................
39
SECTION 11.03.
Funds and Accounts......................................................................................
39
SECTION 11.04.
Waiver of Notice; Requirement of Mailed Notice ............................................
39
SECTION 11.05.
Destruction of Bonds.....................................................................................
39
SECTION 11.06.
Severability of Invalid Provisions....................................................................
39
SECTION11.07.
Notices..........................................................................................................
40
SECTION 11.08.
Evidence of Rights of Bond Owners..............................................................
40
SECTION 11.09.
Disqualified Bonds.........................................................................................
41
SECTION 11.10.
Money Held for Particular Bonds...................................................................
41
SECTION 11.11.
Waiver of Personal Liability...........................................................................
41
SECTION 11.12.
Successor Is Deemed Included in All References to
Predecessor....................................................................................................
41
SECTION 11.13.
Execution in Several Counterparts.................................................................
41
SECTION 11.14.
Payment on Non -Business Day.....................................................................
42
SECTION11.15. Governing Law..............................................................................................42
APPENDIXA DEFINITIONS
APPENDIX B FORM OF BONDS
INDENTURE OF TRUST
This INDENTURE CF TRUST (this "Indenture"), dated for convenience as of
October 1, 2010, is between the LODI PUBLIC FINANCING AUTHORITY, a joint exercise
of powers authority organized and existing under the laws of the State of California (the
"Authority"), and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a national
banking association organized and existing under the laws of the United States of
America, with a corporate trust office in San Francisco, California, being qualified to
accept and administer the trusts hereby created (the "Trustee").
BACKGROUND:
1. The City of Lodi (the "City") owns and operates facilities and property for the
supply, treatment and distribution of water within the service area of the City (the "Water
System"), and the City wishes to raise funds to finance additional improvements to the
Water System, consisting generally of the acquisition and construction of surface water
treatment facilities (the "Project");
2. The Authority has been formed for the purpose of assisting the City in the
financing of public capital improvements, and in order to accomplish the financing plan
described in the previous paragraph, the Authority and the City have entered into an
Installment Sale Agreement dated as of October 1, 2010 (the "Installment Sale
Agreement"), under which the Authority will acquire, construct and improve the Project
and sell the completed Project to the City in consideration of the agreement by the City
to pay the purchase price thereof in semiannual installment payments.
3. For the purpose of obtaining funds to obtain funds to finance the Project, the
Authority has authorized the issuance of its Lodi Public Financing Authority 2010 Water
Revenue Bonds, Series A in the aggregate principal amount of $ (the
"Series A Bonds") under this Indenture and under the provisions of Article 4 of Chapter
5, Division 7, Title 1 of the Government Code of the State of California, commencing
with Section 6584 of said Code (the "Bond Law").
4. For the purpose of obtaining funds to finance the Project in accordance with
the terms hereof and of the Installment Sale Agreement, the Authority has authorized
the issuance of its Lodi Public Financing Authority 2010 Water Revenue Bonds, Series
B (Federally Taxable - Build America Bonds — Direct Payment) in the aggregate
principal amount of $ (the "Series B Bonds") under this Indenture and
under the provisions of the Bond Law.
5. The obligations of the City under the Installment Sale Agreement are
secured by a pledge of and lien on the net revenues of the Water System.
6. In order to provide for the authentication and delivery of the Bonds, to
establish and declare the terms and conditions upon which the Bonds are to be issued
and to secure the payment of the principal thereof, premium (if any) and interest
thereon, the Authority has authorized the execution and delivery of this Indenture.
7. The Authority has found and determines, and hereby affirms, that all acts
and proceedings required by law necessary to make the Bonds, when executed by the
Authority, authenticated and delivered by the Trustee and duly issued, the valid, binding
and legal special obligations of the Authority, and to constitute this Indenture a valid and
binding agreement for the uses and purposes herein set forth in accordance with its
terms, have been done and taken, and the execution and delivery of this Indenture have
been in all respects duly authorized.
AGREEMENT:
In order to secure the payment of the principal of and the interest and
redemption premium (if any) on all the Outstanding Bonds under this Indenture
according to their tenor, and to secure the performance and observance of all the
covenants and conditions therein and herein set forth, and to declare the terms and
conditions upon and subject to which the Bonds are to be issued and received, and in
consideration of the premises and of the mutual covenants herein contained and of the
purchase and acceptance of the Bonds by the Owners thereof, and for other valuable
considerations, the receipt of which is hereby acknowledged, the Authority and the
Trustee do hereby covenant and agree with one another, for the benefit of the
respective Owners from time to time of the Bonds, as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
SECTION 1.01. Definitions. Unless the context clearly otherwise requires or
unless otherwise defined herein, the capitalized terms defined in Appendix A attached to
this Indenture have the respective meanings specified in that Appendix when used in
this Indenture. Capitalized terms in this Indenture and not otherwise defined in this
Section 1.01 have the respective meanings given them in Section 1.1 of the Installment
Sale Agreement.
SECTION 1.02. Authorization. Each of the parties hereby represents and
warrants that it has full legal authority and is duly empowered to enter into this
Indenture, and has taken all actions necessary to authorize the execution hereof by the
officers and persons signing it.
SECTION 1.03. Interpretation.
(a) Unless the context otherwise indicates, words expressed in the singular
shall include the plural and vice versa and the use of the neuter, masculine, or feminine
gender is for convenience only and shall be deemed to include the neuter, masculine or
feminine gender, as appropriate.
(b) Headings of articles and sections herein and the table of contents hereof
are solely for convenience of reference, do not constitute a part hereof and shall not
affect the meaning, construction or effect hereof.
c All references herein to "Articles," "Sections" and other subdivisions are to
the corresponding Articles, Sections or subdivisions of this Indenture; the words
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"herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or subdivision hereof.
ARTICLE II
THE BONDS
SECTION 2.01. Authorization of Bonds. The Authority has reviewed all
proceedings heretofore taken and has found, as a result of such review, and hereby
finds and determines that all things, conditions and acts required by law to exist, happen
or be performed precedent to and in connection with the issuance of the Bonds do exist,
have happened and have been performed in due time, form and manner as required by
law, and the Authority is now duly empowered, under each and every requirement of
law, to issue the Bonds in the manner and form provided in this Indenture.
The Authority hereby authorizes the issuance of a series of Bonds, designated
the "Lodi Public Financing Authority 2010 Water Revenue Bonds, Series A in the
aggregate principal amount of $ under the Bond Law for the purposes
of providing funds to finance the Project. The Authority hereby authorizes the issuance
of an additional series of Bonds, designated the "Lodi Public Financing Authority 2010
Water Revenue Bonds, Series B (Federally Taxable — Build America Bonds — Direct
Payment)" in the aggregate principal amount of $ underthe Bond Law
for the purposes of providing funds to finance the Project. The Bonds are authorized
and issued under, and are subject to the terms of, this Indenture and the Bond Law.
SECTION 2.02. Termsof the Bonds.
(a) Payment Provisions. The Bonds shall be issued in fully registered form
without coupons in denominations of $5,000 or any integral multiple thereof, so long as
no Bond has more than one maturity date. The Bonds shall mature on June 1 in each of
the years and in the amounts, and bear interest (calculated on the basis of a 360 -day
year of twelve 30 -day months) at the rates, as follows:
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Series A Bonds
Maturity Date Principal Interest
June 1 Amount Sate
Series B Bonds
Maturity Date Principal Interest
June 1 Amount Sate
Interest on the Bonds is payable from the Interest Payment Date next preceding
the date of authentication thereof unless:
(a) a Bond is authenticated on or before an Interest Payment Date and
after the close of business on the preceding Record Date, in which
event it will bear interest from such Interest Payment Date,
(b) a Bond is authenticated on or before the first Record Date, in which
event interest thereon will be payable from the Closing Date, or
(c) interest on any Bond is in default as of the date of authentication
thereof, in which event interest thereon will be payable from the
date to which interest has been paid in full, payable on each Interest
Payment Date.
Interest is payable on each Interest Payment Date to the persons in whose
names the ownership of the Bonds is registered on the Registration Books at the close
of business on the immediately preceding Record Date, except as provided below.
Interest on any Bond which is not punctually paid or duly provided for on any Interest
Payment Date is payable to the person in whose name the ownership of such Bond is
registered on the Registration Books at the close of business on a special record date
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for the payment of such defaulted interest to be fixed by the Trustee, notice of which is
given to such Owner by first-class mail not less than 10 days prior to such special record
date.
The Trustee will pay interest on the Bonds by check of the Trustee mailed by first
class mail, postage prepaid, on each Interest Payment Date to the Owners of the Bonds
at their respective addresses shown on the Registration Books as of the close of
business on the preceding Record Date. At the written request of the Owner of Bonds
in an aggregate principal amount of at least $1,000,000, which written request is on file
with the Trustee as of any Record Date, the Trustee will pay interest on such Bonds on
each succeeding Interest Payment Date by wire transfer in immediately available funds
to such account of a financial institution within the United States of America as specified
in such written request, which written request will remain in effect until rescinded in
writing by the Owner. The Trustee will pay principal of the Bonds in lawful money of the
United States of America by check of the Trustee upon presentation and surrender
thereof at the Office of the Trustee.
SECTION 2.03. Transferand Exchange of Bonds.
(a)) Transfer. Any Bond may, in accordance with its terms, be transferred,
upon the Registration Books, by the person in whose name it is registered, in person or
by a duly authorized attorney of such person, upon surrender of such Bond to the
Trustee at its Office for cancellation, accompanied by delivery of a written instrument of
transfer in a form acceptable to the Trustee, duly executed. The Trustee shall collect
any tax or other governmental charge on the transfer of any Bonds under this Section
2.03. Whenever any Bond or Bonds shall be surrendered for transfer, the Authority
shall execute and the Trustee shall authenticate and deliver to the transferee a new
Bond or Bonds of like series, interest rate, maturity and aggregate principal amount.
The Authority shall pay the cost of printing Bonds and any services rendered or
expenses incurred by the Trustee in connection with any transfer of Bonds.
(b) Exchange. The Bonds may be exchanged at the Office of the Trustee for a
like aggregate principal amount of Bonds of other authorized denominations and of the
same series, interest rate and maturity. The Trustee shall collect any tax or other
governmental charge on the exchange of any Bonds under this subsection (b). The
Authority shall pay the cost of printing Bonds and any services rendered or expenses
incurred by the Trustee in connection with any exchange of Bonds.
(c) Limitations. The Trustee may refuse to transfer or exchange, under the
provisions of this Section 2.03, any Bonds selected by the Trustee for redemption under
Article IV, or any Bonds during the period established by the Trustee for the selection of
Bonds for redemption.
SECTION 2.04. Book -Entry System.
(a) Original Delivery. The Bonds will be initially delivered in the form of a
separate single fully registered bond (which may be typewritten) for each maturity of the
Bonds. Upon initial delivery, the Trustee shall registerthe ownership of each Bond on
the Registration Books in the name of the Nominee. Except as provided in subsection
(c), the ownership of all of the Outstanding Bonds shall be registered in the name of the
Nominee on the Registration Books.
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With respect to Bonds the ownership of which shall be registered in the name of
the Nominee, the Authority and the Trustee has no responsibility or obligation to any
Depository System Participant or to any person on behalf of which the Nominee holds
an interest in the Bonds. Without limiting the generality of the immediately preceding
sentence, the Authority and the Trustee has no responsibility or obligation with respect
to (i) the accuracy of the records of the Depository, the Nominee or any Depository
System Participant with respect to any ownership interest in the Bonds, (ii) the delivery
to any Depository System Participant or any other person, other than a Bond Owner as
shown in the Registration Books, of any notice with respect to the Bonds, including any
notice of redemption, (iii) the selection by the Depository of the beneficial interests in the
Bonds to be redeemed if the Authority elects to redeem the Bonds in part, (iv) the
payment to any Depository System Participant or any other person, other than a Bond
Owner as shown in the Registration Books, of any amount with respect to principal,
premium, if any, or interest on the Bonds or (v) any consent given or other action taken
by the Depository as Owner of the Bonds. The Authority and the Trustee may treat and
consider the person in whose name each Bond is registered as the absolute owner of
such Bond for the purpose of payment of principal of and premium, if any, and interest
on such Bond, for the purpose of giving notices of redemption and other matters with
respect to such Bond, for the purpose of registering transfers of ownership of such
Bond, and for all other purposes whatsoever. The Trustee shall pay the principal of and
the interest and premium, if any, on the Bonds only to the respective Owners or their
respective attorneys duly authorized in writing, and all such payments shall be valid and
effective to fully satisfy and discharge all obligations with respect to payment of principal
of and interest and premium, if any, on the Bonds to the extent of the sum or sums so
paid. No person other than a Bond Owner shall receive a Bond evidencing the
obligation of the Authority to make payments of principal, interest and premium, if any,
under this Indenture. Upon delivery by the Depository to the Authority of written notice
to the effect that the Depository has determined to substitute a new Nominee in its
place, and subject to the provisions herein with respect to Record Dates, such new
nominee shall become the Nominee hereunder for all purposes; and upon receipt of
such a notice the Authority shall promptly deliver a copy of the same to the Trustee.
(b) Representation Letter. In order to qualify the Bonds for the Depository's
book -entry system, the Authority shall execute and deliver to such Depository a letter
representing such matters as shall be necessary to so qualify the Bonds. The execution
and delivery of such letter shall not in any way limit the provisions of subsection (a)
above or in any other way impose upon the Authority or the Trustee any obligation
whatsoever with respect to persons having interests in the Bonds other than the Bond
Owners. Upon the written acceptance by the Trustee, the Trustee shall agree to take all
action reasonably necessary for all representations of the Trustee in such letter with
respect to the Trustee to at all times be complied with. In addition to the execution and
delivery of such letter, the Authority may take any other actions, not inconsistent with
this Indenture, to qualify the Bonds for the Depository's book -entry program.
(c) Transfers Outside Book -Entry System. If either (i) the Depository
determines not to continue to act as Depository for the Bonds, or (ii) the Authority
determines to terminate the Depository as such, then the Authority shall thereupon
discontinue the book -entry system with such Depository. In such event, the Depository
shall cooperate with the Authority and the Trustee in the issuance of replacement Bonds
by providing the Trustee with a list showing the interests of the Depository System
Participants in the Bonds, and by surrendering the Bonds, registered in the name of the
Nominee, to the Trustee on or before the date such replacement Bonds are to be
0
issued. The Depository, by accepting delivery of the Bonds, agrees to be bound by the
provisions of this subsection (c). If, prior to the termination of the Depository acting as
such, the Authority fails to identify another Securities Depository to replace the
Depository, then the Bonds shall no longer be required to be registered in the
Registration Books in the name of the Nominee, but shall be registered in whatever
name or names the Owners transferring or exchanging Bonds shall designate, in
accordance with the provisions hereof.
If the Authority determines that it is in the best interests of the beneficial owners
of the Bonds that they be able to obtain certificated Bonds, the Authority may notify the
Depository System Participants of the availability of such certificated Bonds through the
Depository. In such event, the Trustee will issue, transfer and exchange Bonds as
required by the Depository and others in appropriate amounts; and whenever the
Depository requests, the Trustee and the Authority shall cooperate with the Depository
in taking appropriate action (y) to make available one or more separate certificates
evidencing the Bonds to any Depository System Participant having Bonds credited to its
account with the Depository, or (z) to arrange for another Securities Depository to
maintain custody of a single certificate evidencing such Bonds, all at the Authority's
expense.
(d) Payments to the Nominee. Notwithstanding any other provision of this
Indenture to the contrary, so long as any Bond is registered in the name of the
Nominee, all payments with respect to principal of and interest and premium, if any, on
such Bond and all notices with respect to such Bond shall be made and given,
respectively, as provided in the letter described in subsection (b) of this Section or as
otherwise instructed by the Depository.
SECTION 2.05. Registration Books. The Trustee will keep or cause to be kept,
at the Office of the Trustee, sufficient records for the registration and transfer of
ownership of the Bonds, which shall upon reasonable notice as agreed to by the
Trustee, be open to inspection during regular business hours by the Authority; and,
upon presentation for such purpose, the Trustee shall, under such reasonable
regulations as it may prescribe, register or transfer or cause to be registered or
transferred, on such records, the ownership of the Bonds as hereinbefore provided.
SECTION 2.06. Form and Execution of Bonds. The Bonds, the form of Trustee's
certificate of authentication, and the form of assignment to appear thereon, are set forth
in Appendix B attached hereto and by this reference incorporated herein, with necessary
or appropriate variations, omissions and insertions, as permitted or required by this
Indenture.
The Chair of the Authority shall execute, and the Secretary of the Authority shall
attest each Bond. Either or both of such signatures may be made manually or may be
affixed by facsimile thereof. If any officer whose signature appears on any Bond ceases
to be such officer before the Closing Date, such signature will nevertheless be as
effective as if the officer had remained in office until the Closing Date. Any Bond may
be signed and attested on behalf of the Authority by such persons as at the actual date
of the execution of such Bond are the proper officers of the Authority, duly authorized to
execute debt instruments on behalf of the Authority, although on the date of such Bond
any such person was not an officer of the Authority.
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Only those Bonds bearing a certificate of authentication in the form set forth in
Appendix B, manually executed and dated by the Trustee, are valid or obligatory for any
purpose or entitled to the benefits of this Indenture, and such certificate of the Trustee is
conclusive evidence that such Bonds have been duly authenticated and delivered
hereunder and are entitled to the benefits of this indenture.
SECTION 2.07. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond is
mutilated, the Authority, at the expense of the Owner of such Bond, shall execute, and
the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in
exchange and substitution for the Bond so mutilated, but only upon surrender to the
Trustee of the Bond so mutilated. The Trustee shall cancel every mutilated Bond
surrendered to it and deliver such mutilated Bond to, or upon the order of, the Authority.
If any Bond is lost, destroyed or stolen, evidence of such loss, destruction or theft may
be submitted to the Trustee and, if such evidence is satisfactory and if indemnity
satisfactory to the Trustee is given, the Authority, at the expense of the Owner, shall
execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like
tenor in lieu of and in substitution for the Bond so lost, destroyed or stolen. The Trustee
may require payment of a sum not exceeding the actual cost of preparing each new
Bond issued under this Section and of the expenses which may be incurred by the
Trustee in connection therewith. Any Bond issued underthe provisionsof this Section in
lieu of any Bond alleged to be lost, destroyed or stolen will constitute an original
additional contractual obligation on the part of the Authority whether or not the Bond so
alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall
be equally and proportionately entitled to the benefits of this indenture with all other
Bonds issued underthis indenture.
Notwithstanding any other provision of this Section 2.07, in lieu of delivering a
new Bond for which principal has become due for a Bond which has been mutilated,
lost, destroyed or stolen, the Trustee may make payment of such Bond in accordance
with its terms upon receipt of indemnity satisfactoryto the Trustee.
ARTICLE III
ISSUANCE OF BONDS; APPLICATION OF
PROCEEDS
SECTION 3.01. Issuance of the Bonds. At any time after the execution of this
Indenture, the Authority may execute and the Trustee shall authenticate and, upon the
Written Request of the Authority, deliver the Bonds to the Original Purchaser.
SECTION 3.02. Application of Proceeds of Sale of Series A Bonds. Upon the
receipt of payment for the Series A Bonds on the Closing Date, the Trustee shall apply
the proceeds of sale thereof as follows:
(a) The Trustee will deposit the amount of $ in the
Series A Costs of Issuance Fund.
(b)
The Trustee will deposit the amount of $_
Series A Subaccount of the Reserve Account,
of the Reserve Requirement.
"-I
in the
constituting a portion
(c) The Trustee will deposit the amount of $ 1 , constituting the
remainder of such proceeds, into the Series A Project Fund.
SECTION 3.03. Application of Proceeds of Sale of Series B Bonds. Upon the
receipt of payment for the Series B Bonds on the Closing Date, the Trustee shall apply
the proceeds of sale thereof as follows:
(a) The Trustee will deposit the amount of $ in the
Series B Costs of Issuance Fund.
(b) The Trustee will deposit the amount of $ in the
Series B Subaccount of the Reserve Account, constituting the
remaining portion of the Reserve Requirement.
(c) The Trustee will deposit the amount of $
constituting the remainder of such proceeds, into the Series B
Project Fund.
The Trustee may establish and maintain a temporary account to facilitate and
record such deposits and transfers.
SECTION 3.04. Establishment and Application of Costs of Issuance Funds.
a Series A Costs of Issuance Fund. The Trustee shall establish, maintain
and hold in trust a separate fund designated as the "Series A Costs of Issuance Fund"
into which the Trustee shall deposit a portion of the proceeds of sale of the Series A
Bonds under Section 3.02(a). The Trustee shall disburse amounts in the Series Costs
of Issuance Fund from time to time to pay the Costs of issuance of the Series A Bonds
upon submission of a Written Requisition of the Authority 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 said fund. The Trustee may
conclusively rely on the representations and certifications set forth in such Written
Requisitions and shall be fully protected in relying thereon. All such payments shall be
made by check or wire transfer in accordance with payment instructions contained in the
Written Requisition or in any invoice attached thereto, and the Trustee has no duty or
obligation to authenticate such payment instructions or the authorization thereof. On
February 1, 2011, or upon the earlier Written Request of the Authority, the Trustee shall
transfer all amounts remaining in the Series A Costs of Issuance Fund to the Series A
Project Fund (but only if the Series A Project Fund is then open and, if it is not open, to
the Interest Account), and the Trustee shall thereupon close the Series A Costs of
Issuance Fund.
b Series B Costs of Issuance Fund. The Trustee shall establish, maintain
and hold in trust a separate fund designated as the "Series B Costs of Issuance Fund"
into which the Trustee shall deposit a portion of the proceeds of sale of the Series B
Bonds under Section 3.03(a). The Trustee shall disburse amounts in the Series B Costs
of Issuance Fund from time to time to pay the Costs of Issuance of the Series B Bonds
upon submission of a Written Requisition of the Authority 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 said fund. The Trustee may
conclusively rely on the representations and certifications set forth in such Written
I UO
Requisitions and shall be fully protected in relying thereon. All such payments shall be
made by check or wire transfer in accordance with payment instructions contained in the
Written Requisition or in any invoice attached thereto, and the Trustee has no duty or
obligation to authenticate such payment instructions or the authorization thereof. On
February 1, 2011, or upon the earlier Written Request of the Authority, the Trustee shall
transfer all amounts remaining in the Series B Costs of Issuance Fund to the Series B
Project Fund (but only if the Series B Project Fund is then open and, if it is not open, to
the Interest Account), and the Trustee shall thereupon close the Series B Costs of
Issuance Fund.
SECTION 3.05. Project Funds.
(a) Series A Proiect Fund. There is hereby established a separate fund to be
known as the "Series A Project Fund," which shall be held by the Trustee hereunder and
into which the Trustee shall deposit a portion of the proceeds of sale of the Series A
Bonds under Section 3.02(d). Except as otherwise provided herein, moneys in the
Series A Project Fund will be used solely for the payment of the Project Costs. The
Trustee shall disburse moneys in the Series A Project Fund for the purpose of paying
Project Costs (or to reimburse the City for payment of Project Costs) in accordance with
Written Requisitions in the form of Appendix C filed by the City with the Trustee. Each
such Written Requisition must state, with respect to each payment to be made thereby,
(i) the name and address of the firm or corporation to whom payment is to be made, (ii)
the amount and purpose of the payment and (iii) that each payment constitutes a Project
Cost. Each Written Requisition must be accompanied by an invoice or statement
evidencing each payment to be made thereunder. The Trustee has no responsibility for
payments made in accordance with this Section 3.05. The City shall maintain accurate
records showing all disbursements from the Series Project Fund.
Upon the determination by the City under Section 3.5 of the Installment Sale
Agreement that no further amounts are intended to be requisitioned from the Series A
Project Fund, the City shall provide a Written Certificate to that effect to the Trustee
and, upon receipt of the Written Certificate, the Trustee will thereupon close the Series
A Project Fund and transfer all remaining amounts to the Interest Account to pay
interest on the Series A Bonds. If and to the extent so directed in a Written Certificate,
the Trustee shall apply all or a portion of the amounts so transferred from the Series A
Project Fund to the Interest Account to the prepayment of Installment Payments under
Section 7.2 of the Installment Sale Agreement and the corresponding redemption of the
Series A Bonds under Section 4.01(a).
If an Event of Default occurs prior to the closure of the Series A Project Fund by
the City, the Trustee shall transfer all amounts remaining on deposit in the Series A
Project Fund to the Interest Account, to be credited to the payment of the Installment
Paymentthen in default.
(b) Series B Proiect Fund. There is hereby established a separate fund to be
known as the "Series B Project Fund," which shall be held by the Trustee hereunder and
into which the Trustee shall deposit a portion of the proceeds of sale of the Series B
Bonds under Section 3.03(c). Except as otherwise provided herein, moneys in the
Series B Project Fund will be used solely for the payment of the Project Costs. The
Trustee shall disburse moneys in the Series B Project Fund for the purpose of paying
Project Costs (or to reimburse the City for payment of Project Costs) in accordance with
Written Requisitions in the form of Appendix C filed by the City with the Trustee. Each
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such Written Requisition must state, with respect to each payment to be made thereby,
(i) the name and address of the firm or corporation to whom payment is to be made, (ii)
the amount and purpose of the payment and (iii) that each payment constitutes a Project
Cost. Each Written Requisition must be accompanied by an invoice or statement
evidencing each payment to be made thereunder. The Trustee has no responsibility for
payments made in accordance with this Section 3.05. The City shall maintain accurate
records showing all disbursements from the Series B Project Fund.
Upon the determination by the City under Section 3.5 of the Installment Sale
Agreement that no further amounts are intended to be requisitioned from the Series B
Project Fund, the City shall thereupon close the Series B Project Fund and transfer all
remaining amounts therein to the Trustee for deposit into the Interest Account to pay
interest on the Series B Bonds. If and to the extent so directed in writing by a Written
Certificate, the Trustee shall apply all or a portion of the amounts so transferred from the
Series B Project Fund to the Interest Account to the prepayment of Installment
Payments under Section 7.2 of the Installment Sale Agreement and the corresponding
redemption of the Series B Bonds under Section 4.01(a).
If an Event of Default occurs prior to the closure of the Series B Project Fund by
the City, the Trustee shall transfer all amounts remaining on deposit in the Series B
Project Fund to the Interest Account, to be credited to the payment of the Installment
Payment then in default.
SECTION 3.06. Validity of Bonds. The recital contained in the Bonds that the
same are issued under the Constitution and laws of the State of California shall be
conclusive evidence of their validity and of compliance with the provisions of law in their
issuance.
ARTICLE IV
REDEMPTION OF BONDS
SECTION 4.01. Terms of Redemption.
(a) Optional Redemption — Series A Bonds. The Series A Bonds maturing on
or before June 1, , are not subject to optional redemption prior to their respective
stated maturity dates. The Series A Bonds maturing on or after June 1, , are
subject to redemption in whole, or in part at the Written Request of the Authority among
maturities on such basis as the Authority may designate and by lot within a maturity, at
the option of the Authority, on any date on or after June 1, , from any available
source of funds, at a redemption price equal to 100% cf the principal amount of the
Bonds to be redeemed, plus accrued interest to the date of redemption, without
premium.
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(b) Optional Redemption — Series B Bonds. The Series B Bonds maturing on
or before June 1, , are not subject to optional redemption prior to their respective
stated maturity dates. The Series B Bonds maturing on or after June 1, , are
subject to redemption in whole, or in part at the Written Request of the Authority among
maturities on such basis as the Authority may designate and by lot within a maturity, at
the option of the Authority, on any date on or after June 1, , from any available
source of funds, at a redemption price equal to 100% of the principal amount of the
Bonds to be redeemed, plus accrued interest to the date of redemption, without
premium.
(c) The Authority shall give the Trustee written notice of its intention to redeem
Bonds under this subsection (a), and the manner of selecting such Bonds for
redemption from among the maturities thereof, in sufficient time to enable the Trustee to
give notice of such redemption in accordance with Section 4.03.
(d) Mandatory Sinking Fund Redemption. The Term Bonds are subject to
mandatory redemption in part by lot, at a redemption price equal to 100% of the
principal amount thereof to be redeemed, without premium, in the aggregate respective
principal amounts and on June 1 in the respective years as set forth in the following
tables; provided, however, that if some but not all of the Term Bonds have been
redeemed under subsection (a) of this Section, the total amount of all future sinking fund
payments shall be reduced by the aggregate principal amount Cf the Term Bonds so
redeemed, to be allocated among such sinking fund payments on a pro rata basis in
integral multiples of $5,000 (as set forth in a schedule provided by the Authority to the
Trustee).
Sinking Fund
Redemption Date
June 1
Sinking Fund
Redemption Date
June 1
Series A Bonds
Series B Bonds
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PrincipalAmount
To Be Redeemed
PrincipalAmount
To Be Redeemed
(e) Extraordinary Optional Redemption of the Series B Bonds. The Series B
Bonds are subject to redemption prior to their respective stated maturity dates, at the
option of the Authority upon the occurrence of a Tax Law Change, from any source of
available funds, in whole, or in part at the Written Request of the Authority among
maturities on such basis as the Authority may designate and within a maturity as set
forth below, on any date, at a redemption price equal to 100% of the principal amount of
Series B Bonds called for redemption plus the Make -Whole Premium, if any, plus
accrued interestto the date fixed for redemption. For purposes of this paragraph (e), the
following capitalized terms have the meanings set forth below:
"Calculation AgenF means a commercial bank or an investment banking
institution of national standing designated by the Authority.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Calculation Agent as having a maturity comparable to the remaining
term to maturity of the Series B Bond being redeemed that would be utilized, at the time
of selection and in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term to maturity of the
Series B Bond being redeemed.
"Comparable TreasuryPrice" means, with respect to any date on which a Series
B Bond or portion thereof is being redeemed, either (a) the average of five Reference
Treasury Dealer quotations for the date fixed for redemption, after excluding the highest
and lowest such quotations, and (b) if the Calculation Agent is unable to obtain five such
quotations, the average of the quotations that are obtained. The quotations will be the
average, as determined by the Calculation Agent, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of principal
amount) quoted in writing to the Calculation Agent, at 5:00 p.m. New York City time, at
least three (3) Business Days but not more than forty-five (45) calendar days preceding
the date fixed for redemption.
"Comparable Treasury Yield` means the yield that represents the weekly
average yield to maturity for the preceding week appearing in the most recently
published statistical release designated "H.15(519) Selected Interest Rates" under the
heading "Treasury Constant Maturities," or any successor publication selected by the
Calculation Agent that is published weekly by the Board of Governors of the Federal
Reserve System and that establishes yields on actively traded United States Treasury
securities adjusted to constant maturity, for the maturity corresponding to the remaining
term to maturity of the Series B Bond being redeemed. The Comparable Treasury Yield
will be determined at least three (3) Business Days but not more than forty-five (45)
calendar days preceding the date fixed for redemption. If the H.15(519) statistical
release sets forth a weekly average yield for United States Treasury securities that have
a constant maturity that is the same as the remaining term to maturity of the Series B
Bond being redeemed, then the Comparable Treasury Yield will be equal to such weekly
average yield. In all other cases, the Comparable Treasury Yield will be calculated by
interpolation on a straight-line basis, between the weekly average yields on the United
States Treasury securities that have a constant maturity (i) closest to and greater than
the remaining term to maturity of the Series B Bond being redeemed; and (ii) closest to
and less than the remaining term to maturity of the Series B Bond being redeemed. Any
weekly average yields calculated by interpolation will be rounded to the nearest 1/1 00th
of 1 %, with any figure of 11200th of 1 % or above being rounded upward. if, and only if,
weekly average yields for United States Treasury securities for the preceding week are
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not available in the H.15(519) statistical release or any successor publication, then the
Comparable Treasury Yield will be the rate of interest per annum equal to the
semiannual equivalent yield to maturity of the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury Price (each
as defined herein) as of the date fixed for redemption.
"Make -Whole Premium" means, with respect to any Series B Bond to be
redeemed, an amount calculated by the Calculation Agent equal to the positive
difference, if any, between:
aThe sum of the present values, calculated as of the date fixed for
redemp ion of:
(1) Each interest payment that, but for the redemption, would
have been payable on the Series B Bond or portion thereof being
redeemed on each regularly scheduled Interest Payment Date occurring
after the date fixed for redemption through the maturity date of such
Series B Bond (excluding any accrued interest for the period prior to the
date fixed for redemption); provided, that if the date fixed for redemption
is not a regularly scheduled Interest Payment Date with respect to such
Series B Bond, the amount of the next regularly scheduled interest
payment will be reduced by the amount of interest accrued on such
Series B Bond to the date fixed for redemption; plus
(2) The principal amount that, but for such redemption, would
have been payable on the maturity date of the Series B Bond or portion
thereof being redeemed; minus
The principal amount of the Series B Bond or portion thereof
being redeemed.
The present values of the interest and principal payments referred to in (a)
above will be determined by discounting the amount of each such interest and principal
payment from the date that each such payment would have been payable but for the
redemption to the date fixed for redemption on a semiannual basis (assuming a 360 -day
year consisting of twelve (12) 30 -day months) at a discount rate equal to the
Comparable Treasury Yield, plus the Spread.
"Reference Treasury Dealer" means a primary dealer of United States
Government securities appointed by the Authority and reasonably acceptable to the
Calculation Agent.
"Spread` means % for extraordinary optional redemptions pursuant to this
paragraph (e).
"Subsidy Payments" means the Refundable Credits.
"Tax Law Change" means legislation has been enacted by the Congress of the
United States or passed by either House of the Congress, or a decision has been
rendered by a court of the United States, or an order, ruling, regulation (final, temporary
or proposed) or official statement has been made by or on behalf of the Treasury
Department of the United States, the Internal Revenue Service or other governmental
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agency of appropriatejurisdiction, the effect of which, as reasonably determined by the
Authority, would be to suspend, reduce or terminate the Subsidy Payments or any
similar payments to state or local government issuers generally with respect to
obligations of the general character of the Series B Bonds; provided, that such
suspension, reduction or termination of the Subsidy Payments is not due to a failure by
the Authority to comply with the requirements under the Code to receive such Subsidy
Payments.
SECTION 4.02. Selection of Bonds for Redemption.
(a Series A Bonds. Whenever provision is made in this Indenture for the
redemp in of less than all of the Series A Bonds of a single maturity, the Trustee shall
select the Series A Bonds of that maturity to be redeemed by lot in any manner which
the Trustee in its sole discretion deems appropriate. For purposes of such selection, the
Trustee shall treat each Series A Bond as consisting of separate $5,000 portions and
each such portion shall be subject to redemption as if such portion were a separate
Series A Bond.
(b) Series B Bonds. If the Series B Bonds are registered in book -entry only
form and so long as DTC or a successor securities depository is the sole registered
owner of the Series B Bonds, if less than all of the Series B Bonds of a maturity are
called for prior redemption, the particular Series B Bonds or portions thereof to be
redeemed shall be selected by the Trustee on a "Pro Rata Pass -Through Distribution of
Principal' basis in accordance with DTC procedures, provided that, so long as the
Series B Bonds are held in book -entry form, the selection for redemption of such Series
B Bonds shall be made by the Trustee in accordance with the operational arrangements
of DTC then in effect that currently provide for adjustment of the principal by a factor
provided by the Trustee pursuantto DTC operational arrangements. If the Trustee does
not provide the necessary information and identify the redemption as on a Pro Rata
Pass -Through Distribution of Principal basis, the Series B Bonds shall be selected for
redemption by lot by the Trustee in accordance with DTC procedures. Redemption
allocations made by DTC, the DTC Participants or such other intermediaries that may
exist between the Authority and the Beneficial Owners are to be made on a "Pro Rata
Pass -Through Distribution of Principal' basis as described above. If the DTC
operational arrangements do not allow for the redemption of the Series B Bonds on a
Pro Rata Pass -Through Distribution of Principal basis as described above, then the
Series B Bonds shall be selected for redemption by lot by the Trustee in accordance
with DTC procedures.
If the Series B Bonds are not registered in book -entry only form, any redemption
of less than all of a maturity of the Series B Bonds shall be effected by the Trustee
among owners on a pro rata basis subject to minimum Authorized Denominations. The
particular Series B Bonds to be redeemed shall be determined by the Trustee, using
such method as it shall deem fair and appropriate.
SECTION 4.03. Notice of Redemption; Rescission. The Trustee shall mail notice
of redemption of the Bonds by first class mail, postage prepaid, not less than 30 nor
more than 60 days before any redemption date, to the respective Owners of any Bonds
designated for redemption at their addresses appearing on the Registration Books and
to one or more Securities Depositories and to the Municipal Securities Rulemaking
Board. Each notice of redemption shall state the date of the notice, the redemption
date, the place or places of redemption, whether less than all of the Bonds (or all Bonds
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of a single maturity) are to be redeemed, the CUSIP numbers and (in the event that not
all Bonds within a maturity are called for redemption) Bond numbers of the Bonds to be
redeemed and the maturity or maturities of the Bonds to be redeemed, and in the case
of Bonds to be redeemed in part only, the respective portions of the principal amount
thereof to be redeemed. Each such notice shall also state that on the redemption date
there will become due and payable on each of said Bonds the redemption price thereof,
and that from and after such redemption date interest thereon shall cease to accrue,
and shall require that such Bonds be then surrendered. Neither the failure to receive
any notice nor any defect therein shall affect the sufficiency of the proceedings for such
redemption or the cessation of accrual of interest from and after the redemption date.
Notice of redemption of Bonds shall be given by the Trustee, at the expense of the
Authority, for and on behalf of the Authority.
The Authority has the right to rescind any notice of the redemption of Bonds
under Section 4.01(a) by written notice to the Trustee on or prior to the date fixed for
redemption. Any notice of redemption shall be cancelled and annulled if for any reason
funds will not be or are not available on the date fixed for redemption for the payment in
full of the Bonds then called for redemption, and such cancellation shall not constitute
an Event of Default. The Authority and the Trustee have no liability to the Bond Owners
or any other party related to or arising from such rescission of redemption. The Trustee
shall mail notice of such rescission of redemption in the same manner as the original
notice of redemption was sent underthis Section.
SECTION 4.04. Partial Redemption of Bonds. Upon surrender of any Bonds
redeemed in part only, the Authority shall execute and the Trustee shall authenticate
and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds
of authorized denominations equal in aggregate principal amount to the unredeemed
portion of the Bonds surrendered.
SECTION 4.05. Effect of Redemption. Notice of redemption having been duly
given as aforesaid, and moneys for payment of the redemption price of, together with
interest accrued to the date fixed for redemption on, including any applicable premium,
the Bonds (or portions thereof) so called for redemption being held by the Trustee, on
the redemption date designated in such notice, the Bonds (or portions thereof) so called
for redemption shall become due and payable, interest on the Bonds so called for
redemption shall cease to accrue, said Bonds (or portions thereof) shall cease to be
entitled to any benefit or security under this Indenture, and the Owners of said Bonds
shall have no rights in respect thereof except to receive payment of the redemption price
thereof.
All Bonds redeemed under the provisions of this Article shall be canceled by the
Trustee upon surrender thereof and destroyed in accordance with the retention policy of
the Trustee then in effect.
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ARTICLE V
AUTHORITY REVENUES; FUNDSAND
ACCOUNTS; PAYMENTOF PRINCIPALAND
INTEREST
SECTION 5.01. Security for the Bonds, Bond Fund.
(a) Pledge of Authority Revenues and Other Amounts. Subject only to the
provisions of this Indenture permitting the application thereof for the purposes and on
the terms and conditions set forth herein, all of the Authority Revenues and all amounts
(including proceeds of the sale of the Bonds) held in any fund or account established
under this Indenture are hereby pledged to secure the payment of the principal of and
interest and premium (if any) on the Bonds in accordance with their terms and the
provisions of this Indenture. Said pledge constitutes a lien on and security interest in
the Authority Revenues and such amounts and shall attach, be perfected and be valid
and binding from and after the Closing Date, without the need for any physical delivery
thereof or further act.
(b) Assignment to Trustee. The Authority hereby irrevocably transfers, assigns
and sets over to the Trustee, without recourse to the Authority, all of its rights in the
installment Sale Agreement (excepting only the Authority's rights under Sections 4.8,
5.2 and 6.4 thereof), including but not limited to all of the Authority's rights to receive
and collect all of the Installment Payments. The Trustee is entitled to collect and receive
all of the Installment Payments, and any Installment Payments collected or received by
the Authority shall be deemed to be held, and to have been collected or received, by the
Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the
Trustee. The Trustee is also entitled to and shall, subject to the provisions of Article
VIII, take all steps, actions and proceedings which the Trustee determines to be
reasonably necessary in its judgment to enforce, either jointly with the Authority or
separately, all of the rights of the Authority and all of the obligations of the City under the
Installment Sale Agreement.
(c) Deposit of Authority Revenues in Bond Fund. All Authority Revenues shall
be promptly deposited by the Trustee upon receipt thereof in a special fund designated
as the "Bond Fund" which the Trustee shall establish, maintain and hold in trust; except
that all moneys received by the Trustee and required hereunder or under the Installment
Sale Agreement to be deposited in the Redemption Fund shall be promptly deposited in
such funds. All Authority Revenues deposited with the Trustee shall be held, disbursed,
allocated and applied by the Trustee only as provided in this Indenture. Any surplus
remaining in the Bond Fund, after payment in full of (i) the principal of and interest on
the Bonds or provision therefore under Article X, and (ii) any applicable fees and
expenses to the Trustee, shall be withdrawn by the Trustee and remitted to the City.
SECTION 5.02. Allocation of Authority Revenues. On or before each Interest
Payment Date, the Trustee shall transfer from the Bond Fund and deposit into the
following respective accounts (each of which the Trustee shall establish and maintain
within the Bond Fund), the following amounts in the following order of priority:
(a) Deposit to Interest Account. The Trustee shall deposit in the
Interest Account an amount required to cause the aggregate
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amount on deposit in the InterestAccount to be at least equal to the
amount of interest becoming due and payable on such Interest
Payment Date on all Bonds then Outstanding.
(b) Deposit to Principal Account. The Trustee shall deposit in the
Principal Account an amount required to cause the aggregate
amount on deposit in the Principal Account to equal the principal
amount of the Bonds coming due and payable on such Interest
Payment Date, including the principal amount of Term Bonds which
are subject to mandatory sinking fund redemption on such Interest
Payment Date under Section 4.01(b).
(c) Deposit to Reserve Account. The Trustee shall deposit in the
Reserve Account an amount, if any, required to cause the amount
on deposit in the Reserve Account to be equal to the Reserve
Requirement. In the event the Authority Revenues are insufficientto
fund the required deposit to the Reserve Account in its entirety,
amounts shall be allocated between the Series A Subaccount and
the Series B Subaccount on a pro rata basis.
SECTION 5.03. Interest Account. All amounts in the Interest Account shall be
used and withdrawn by the Trustee solely for the purpose of paying interest on the
Bonds as it comes due and payable (including accrued interest on any Bonds purchased
or redeemed prior to maturity).
SECTION 5.04. Principal Account. All amounts in the Principal Account shall be
used and withdrawn by the Trustee solely to pay the principal amount of the Bonds at
their respective maturity dates, and the principal amount of Term Bonds which are
subject to mandatory sinking fund redemption on such Interest Payment Date under
Section 4.01(b).
SECTION 5.05. Reserve Account. There is hereby established a Reserve
Account to be held by the Trustee, and within the Reserve Account a Series A
Subaccount and a Series B Subaccount.
(a) Transfers to Pav Debt Service on Bonds and Parity Debt. All amounts in
the Reserve Account shall be used and withdrawn by the Trustee solely for the purpose
of (i) paying interest on or principal of the Bonds, when due and payable to the extent
that moneys deposited in the InterestAccount or Principal Account, respectively, are not
sufficient for such purpose, (ii) paying the redemption price of any Term Bonds to be
redeemed under Section 4.01(b) in the event that amounts on deposit in the Principal
Account are not sufficient for such purpose, and (iii) paying debt service on any issue of
Parity Debt for which a reserve fund is established as part of a common reserve fund for
the Bonds and such Parity Debt, as provided in Section 5.8(c) of the Installment Sale
Agreement. On the date on which all Bonds are retired hereunder or provision is made
therefor under Article X, after payment of any amounts then owed to the Trustee, all
moneys then on deposit in the Reserve Account shall be withdrawn by the Trustee and
paid to the City as a refund of overpaid Installment Payments, but only to the extent that
such withdrawal will not cause the amounts held on deposit in the respective reserve
funds established for outstanding Parity Debt to fall below the amount of Maximum
Annual Debt Service on all such issues of outstanding Parity Debt.
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The Reserve Account shall be deemed to be held for the equal and
proportionate benefit of the Owners of the Bonds and the owners of all outstanding
Parity Debt (excluding Parity Debt for which no reserve fund is established as provided
in Section 5.8(c) of the Installment Sale Agreement). The Authority and the Trustee
shall execute and deliver all such amendments to this Indenture as shall be required, in
the opinion of Bond Counsel, to implement such modification of the terms and
provisions upon which the Reserve Account is held and administered hereunder.
(b) Deposit of Qualified Reserve Account Credit Instrument. The Authority has
the right at any time to release funds from the Reserve Account, in whole or in part, by
tendering to the Trustee: (a) a Qualified Reserve Account Credit Instrument; and (b) an
opinion of Bond Counsel stating that such release will not, of itself, cause interest on the
Bonds to become includable in gross income for purposes of federal income taxation.
Upon tender cf such items to the Trustee, the Trustee shall transfer such funds from the
Reserve Account to the Authority or the City, for deposit into a separate account to be
maintained by the Authority or the City, to be expended on capital improvements relating
to the Water System. Upon the expiration of any Qualified Reserve Account Credit
Instrument, the Authority shall be obligated either (a) to replace such Qualified Reserve
Account Credit Instrument with a new Qualified Reserve Account Credit Instrument, or
(b) to deposit or cause to be deposited with the Trustee an amount of funds equal to the
Reserve Requirement, to be derived from amounts transferred to the Trustee by the City
for such purpose under Section 4.5(b)(iii) of the Installment Sale Agreement.
(c AQQIication of Surplus Amounts. Any amounts on deposit in the Reserve
Account at any time in excess of the Reserve Requirement shall be transferred to the
Bond Fund. Surplus amounts transferred from the Series A Subaccount shall be used to
pay debt service on the Series A Bonds and surplus amounts transferred from the
Series B Subaccount shall be used to pay debt service on the Series B Bonds.
(d) Notice of Deficiency. If the Trustee has actual knowledge that the amount
on deposit in the Reserve Account at any time falls below the Reserve Requirement due
to transfers being made to the Interest Account or the Principal Account under this
Section 5.05, the Trustee shall promptly notify the Authority and the City of that fact.
SECTION 5.06. Application of Redemption Fund. Upon the determination by the
Authority to redeem any Bonds under Section 4.01(a), the Trustee shall establish and
maintain the Redemption Fund, into which the Trustee shall deposit a portion of the
Authority Revenues received, in accordance with a Written Request of the Authority,
amounts in which shall be used and withdrawn by the Trustee solely for the purpose of
paying the principal and premium (if any) of the Bonds to be redeemed under Section
4.01(a). At any time prior to the selection of Bonds for redemption, the Trustee may
apply such amounts to the purchase of Bonds at public or private sale, when and at
such prices (including brokerage and other charges, but excluding accrued interest,
which is payable from the Interest Account) as shall be directed under a Written
Request of the Authority, except that the purchase price (exclusive of accrued interest)
may not exceed the redemption price then applicable to the Bonds. The Trustee is
entitled to conclusively rely on any Written Request of the Authority received under this
Section 5.06, and is fully protected in relying thereon.
SECTION 5.07. Investments. Except as otherwise set forth in this Indenture,
moneys in any of the funds or accounts established with the Trustee under this
Indenture shall be invested by the Trustee solely in Permitted Investments. Such
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investments shall be directed by the Authority under a Written Request of the Authority
filed with the Trustee at least two Business Days in advance of the making of such
investments. In the absence of any such directions from the Authority, the Trustee shall
invest any such moneys in Permitted Investments designated in paragraph (c) of the
definition. Permitted Investments purchased as an investment of moneys in any fund
shall be deemed to be part of such fund or account. To the extent Permitted
Investments are registrable, such Permitted Investments must be registered in the name
of the Trustee.
All interest or gain derived from the investment of amounts in any of the funds or
accounts established hereunder shall be retained in such fund or account, provided,
however, that earnings on the investment of the amount in the Reserve Account shall be
retained therein to the extent required to maintain the Reserve Requirement, and any
excess will be transferred as follows: (a) prior to the completion of the Project,
evidenced by the filing of a certificate of the City under Section 3.5 of the Installment
Sale Agreement, such excess in the Series A Reserve Subaccount will be deposited into
the Series A Project Fund and such excess in the Series B Subaccount will be deposited
in the Series B Project Fund, and (b) following the completion of the Project, all of such
excess will be deposited into the Bond Fund as set forth in Section 5.05(c). For
purposes of acquiring any investments hereunder, the Trustee may commingle funds
held by it hereunder. The Trustee or any of its affiliates may act as principal or agent in
the acquisition or disposition of any investment and may impose its customary charges
therefor. The Trustee shall incur no liability for losses arising from any investments
made under this Section 5.07.
The Trustee may make any investments hereunder through its own bond or
investment department or trust investment department, or those of its parent or any
affiliate. The Trustee or any of its affiliates may act as sponsor, advisor or manager in
connection with any investments made by the Trustee 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 it or such affiliate is acting as an agent of the Trustee or for any third person or
is dealing as a principal for its own account.
The Authority acknowledges that to the extent regulations of the Comptroller of
the Currency or other applicable regulatory entity grant the Authority the right to receive
brokerage confirmations of security transactions as they occur, the Authority will not
receive such confirmations to the extent permitted by law. The Trustee will furnish the
Authority a periodic cash transaction statements which include detail for all investment
transactions made by the Trustee hereunder.
SECTION 5.08. Valuation and Disposition of Investments.
(a) Except as otherwise provided in subsection (b) of this Section, the Authority
covenants that all investments of amounts deposited in any fund or account created by
or under this Indenture, or otherwise containing gross proceeds of the Bonds (within the
meaning of Section 148 of the Tax Code) shall be acquired, disposed of and valued at
the Fair Market Value thereof as such term is defined in subsection (d) below. The
Trustee shall have no duty in connection with the determination of Fair Market Value
other than to follow the investment directions of the Authority in any Written Request of
the Authority.
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(b) Investments in funds or accounts (or portions thereof) that are subject to a
yield restriction under applicable provisions of the Tax Code and investments in the
Reserve Account shall be valued at cost thereof, (consisting of present value thereof
within the meaning of Section 148 of the Tax Code); provided that the Authority shall
inform the Trustee which funds (other than the Reserve Account) are subject to a yield
restriction.
(c) Except as provided in the preceding subsection (b), for the purpose of
determining the amount in any fund or account established hereunder, the value of
Permitted Investments credited to such fund shall be valued by the Trustee at least
annually on or before May 15. The Trustee may sell or present for redemption, any
Permitted Investment so purchased by the Trustee whenever it shall be necessary in
order to provide moneys to meet any required payment, transfer, withdrawal or
disbursement from the fund to which such Permitted Investment is credited, and the
Trustee shall not be liable or responsible for any loss resulting from any such Permitted
Investment.
(d) For purposes of this Section 5.09, the term "Fair Market Value" means the
price at which a willing buyer would purchase the investment from a willing seller in a
bona fide, arm's length transaction (determined as of the date the contract to purchase
or sell the investment becomes binding) if the investment is traded on an established
securities market (within the meaning of Section 1273 of the Tax Code) and, otherwise,
the term "Fair Market Value" means the acquisition price in a bona fide arm's length
transaction (as referenced above) if (i) the investment is a certificate of deposit that is
acquired in accordance with applicable regulations under the Tax Code, (ii) the
investment is an agreement with specifically negotiated withdrawal or reinvestment
provisions and a specifically negotiated interest rate (for example, a guaranteed
investment contract, a forward supply contract or other investment agreement) that is
acquired in accordance with applicable regulations under the Tax Code, or (iii) the
investment is a United States Treasury Security -- State and Local Government Series
which is acquired in accordance with applicable regulations of the United States Bureau
of Public Debt.
(e) To the extent of any valuations made by the Trustee hereunder, the Trustee
may utilize and rely upon computerized securities pricing services that may be available
to it, including those available through its regular accounting system.
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ARTICLE VI
COVENANTS OF THE AUTHORITY
SECTION 6.01. Punctual Payment. The Authority shall punctually pay or cause
to be paid the principal of and interest and premium (if any) on all the Bonds in strict
conformity with the terms of the Bonds and of this Indenture, according to the true intent
and meaning thereof, but only out of the Authority Revenues and other amounts
pledged for such payment as provided in this Indenture.
SECTION 6.02. Extension of Payment of Bonds. The Authority shall not directly
or indirectly extend or assent to the extension of the maturity of any of the Bonds or the
time of payment of any claims for interest by the purchase of such Bonds or by any
other arrangement, and in case the maturity of any of the Bonds or the time of payment
of any such claims for interest shall be extended, such Bonds or claims for interest shall
not be entitled, in case of any default hereunder, to the benefits of this Indenture, except
subject to the prior payment in full of the principal of all of the Bonds then Outstanding
and of all claims for interest thereon which have not been so extended. Nothing in this
Section 6.02 limits the right of the Authority to issue Bonds for the purpose of refunding
any Outstanding Bonds, and such issuance does not constitute an extension of maturity
of the Bonds.
SECTION 6.03. Against Encumbrances. The Authority shall not create, or permit
the creation of, any pledge, lien, charge or other encumbrance upon the Authority
Revenues and other assets pledged or assigned under this Indenture while any of the
Bonds are Outstanding, except the pledge and assignment created by this Indenture.
Subject to this limitation, the Authority expressly reserves the right to enter into one or
more other indentures for any of its corporate purposes, and reserves the right to issue
other obligations for such purposes.
SECTION 6.04. Power to Issue Bonds and Make Pledge and Assignment. The
Authority is duly authorized under law to issue the Bonds and to enter into this Indenture
and to pledge and assign the Authority Revenues and other amounts purported to be
pledged and assigned, respectively, under this Indenture in the manner and to the
extent provided in this Indenture. The Bonds and the provisions of this Indenture are
and will be the legal, valid and binding special obligations of the Authority in accordance
with their terms, and the Authority and the Trustee shall at all times, subject to the
provisions of Article VI I I and to the extent permitted by law, defend, preserve and protect
said pledge and assignment of Authority Revenues and other assets and all the rights of
the Bond Owners under this Indenture against all claims and demands of all persons
whomsoever.
SECTION 6.05. Accounting Records. The Trustee shall at all times keep, or
cause to be kept, proper books of record and account, prepared in accordance with
corporate trust industry standards, in which complete and accurate entries shall be
made of all transactions made by it relating to the proceeds of Bonds and all funds and
accounts established under this Indenture. The Trustee shall make such books of
record and account available for inspection by the Authority and the City, during
business hours, upon reasonable notice, and under reasonable circumstances.
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SECTION 6.06. Limitation on Additional Obligations. The Authority covenants
that no additional bonds, notes or other indebtedness shall be issued or incurred which
are payable out of the Authority Revenues.
SECTION 6.07. Tax Covenants.
(a) Private Business Use Limitation. The Authority shall assure that the
proceeds of the Bonds are not used in a mannerwhich would cause the Bonds to satisfy
the private business tests of Section 141(b) of the Tax Code or the private loan
financing test of Section 141(c) of the Tax Code.
(b) Federal Guarantee Prohibition. The Authority shall not take any action or
permit or suffer any action to be taken if the result of the same would be to cause the
Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Tax
Code.
(c No Arbitrage. The Authority shall not take, or permit or suffer to be taken
by the Trustee or otherwise, any action with respect to the proceeds of the Bonds or of
any other obligations which, if such action had been reasonably expected to have been
taken, or had been deliberately and intentionally taken, on the Closing Date, would have
caused the Bonds to be "arbitrage bonds" within the meaning of Section 148(a) of the
Tax Code.
(d) Maintenance of Tax Exemption. The Authority shall take all actions
necessary to assure the exclusion of interest on the Series A Bonds from the gross
income of the Owners of the Series A Bonds to the same extent as such interest is
permitted to be excluded from gross income under the Tax Code as in effect on the
Closing Date.
(e) Rebate of Excess Investment Earnings to United States. The Authority
shall calculate or cause to be calculated all amounts of Excess Investment Earnings
which are required to be rebated to the United States of America under Section 148(f) of
the Tax Code, at the times and in the manner required under the Tax Code. The
Authority shall pay when due an amount equal to Excess Investment Earnings to the
United States of America in such amounts, at such times and in such manner as may be
required under the Tax Code, such payments to be made from any amounts provided by
the City for that purpose under Section 4.8(e) of the Installment Sale Agreement. The
Authority shall keep or cause to be kept, and retain or cause to be retained for a period
of six years following the retirement of the Bonds, records of the determinations made
underthis subsection (e).
(9 Designation of Series B Bonds as Build America Bonds. The Authority
hereby irrevocably elects to apply the provisions of Section 54AA(d) of the Tax Code to
the Series B Bonds and intends that the Series B Bonds be treated as Build America
Bonds. In addition, the Authority hereby irrevocably elects to treat the Series B Bonds
as "Qualified Bonds" within the meaning of Section 54AA(g)(2) of the Tax Code such
that the Series B Bonds will be eligible for direct payment by the federal government of
the Refundable Credits.
(g) Financing Capital Expenditures. No Working Camel. All amounts in excess
of Available Project Proceeds (other than Available Project Proceeds deposited in the
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Reserve Account) will be spent on capital expenditures with a reasonably expected
economic life of one year or more.
(h) Limitation on Issuance Costs. No proceeds of the Series B Bonds and
investment earnings thereon, in an amount in excess of 2% of the proceeds of the sale
of the Series B Bonds, will be used to pay Costs of Issuance of the Series B Bonds. If
the fees of the Original Purchaser of the Series B Bonds are retained as a discount on
the purchase of the Series B Bonds, such retention shall be deemed to be an
expenditure of proceeds of the Series B Bonds for said fees. No proceeds of the Series
B Bonds will be used to pay Costs of Issuance of the Series A Bonds and no proceeds
of the Series A Bonds will be used to pay Costs of Issuance of the Series B Bonds.
(i) Expenditure of Proceeds to Assure Series B Bonds Are Eligible For
Refundable Credits. The Authority shall take all actions necessary to assure that the
proceeds of the Series B Bonds are expended and all federal tax requirements are met
so as to cause the Series B Bonds to be treated as Build America Bonds and Qualified
Bonds and therefore be eligible for the Refundable Credits.
SECTION 6.08. Enforcement of Installment Sale Agreement. The Trustee shall
promptly collect all amounts (to the extent any such amounts are available for collection)
due from the City under the Installment Sale Agreement. Subject to the provisions of
Article VIII, the Trustee shall enforce, and take all steps, actions and proceedings which
the Trustee determines to be reasonably necessary for the enforcement of all of its
rights thereunder as assignee of the Authority and for the enforcement of all of the
obligations of the City under the Installment Sale Agreement.
SECTION 6.09. Waiverof Laws. The Authority shall not at any time insist upon
or plead in any manner whatsoever, or claim or take the benefit or advantage of, any
stay or extension law now or at any time hereafter in force that may affect the covenants
and agreements contained in this Indenture or in the Bonds, and all benefit or
advantage of any such law or laws is hereby expressly waived by the Authority to the
extent permitted by law.
SECTION 6.10. Further Assurances. The Authority will make, execute and
deliver any and all such further indentures, instruments and assurances as may be
reasonably necessary or proper to carry out the intention or to facilitate the performance
of this Indenture and for the better assuring and confirming unto the Owners of the
Bonds of the rights and benefits provided in this Indenture.
ARTICLE VII
EVENTS OF DEFAULT AND
SECTION 7.01. Events of Default. The following events constitute Events of
Default hereunder:
(a) Failure to pay any installment of the principal of any Bonds when
due, whether at maturity as therein expressed, by proceedings for
redemption, by acceleration, or otherwise.
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(b) Failure to pay any installment of interest on the Bonds when due.
(c) Failure by the Authority to observe and perform any of the other
covenants, agreements or conditions on its part contained in this
Indenture or in the Bonds, if such failure has continued for a period
of 30 days after written notice thereof, specifying such failure and
requiring the same to be remedied, has been given to the Authority
by the Trustee; provided, however, if in the reasonable opinion of
the Authority the failure stated in the notice can be corrected, but
not within such 30 -day period, such failure shall not constitute an
Event of Default if the Authority institutes corrective action within
such 30 -day period and thereafter diligently and in good faith cures
the failure in a reasonable period of time.
(d) The commencement by the Authority of a voluntary case under Title
11 of the United States Code or any substitute or successor statute.
(e) The occurrence and continuation of an event of default under and
as defined in the Installment Sale Agreement.
SECTION 7.02. Remedies Upon Event of Default. If any Event of Default
occurs, then, and in each and every such case during the continuance of such Event of
Default, the Trustee may, and at the written direction of the Owners of a majority in
aggregate principal amount of the Bonds at the time Outstanding shall, in each case,
upon receipt of indemnification satisfactory to Trustee against the costs, expenses and
liabilities to be incurred in connection with such action, upon notice in writing to the
Authority, declare the principal of all of the Bonds then Outstanding, and the interest
accrued thereon, to be due and payable immediately, and upon any such declaration the
same shall become and shall be immediately due and payable, anything in this
Indenture or in the Bonds contained to the contrary notwithstanding.
Any such declaration is subject to the condition that if, at any time after such
declaration and before any judgment or decree for the payment of the moneys due shall
have been obtained or entered, the Authority deposits with the Trustee a sum sufficient
to pay all the principal of and installments of interest on the Bonds payment of which is
overdue, with interest on such overdue principal at the rate borne by the respective
Bonds to the extent permitted by law, and the reasonable fees, charges and expenses
(including those of its legal counsel, including the allocated costs of internal attorneys) of
the Trustee, and any and all other Events of Default known to the Trustee (other than in
the payment of principal of and interest on the Bonds due and payable solely by reason
of such declaration) have been made good or cured to the satisfaction of the Trustee or
provision deemed by the Trustee to be adequate has been made therefor, then, and in
every such case, the Owners of a majority in aggregate principal amount of the Bonds
then Outstanding, by written notice to the Authority, the City and the Trustee, may, on
behalf of the Owners of all of the Bonds, rescind and annul such declaration and its
consequences and waive such Event of Default; but no such rescission and annulment
shall extend to or shall affect any subsequent Event of Default, or shall impair or
exhaust any right or power consequent thereon.
SECTION 7.03. Application of Authority Revenues and Other Funds After
Default. If an Event of Default occurs and is continuing, all Authority Revenues and any
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other funds then held or thereafter received by the Trustee under any of the provisions
of this Indenture shall be applied by the Trustee in the following order of priority:
(a) To the payment of reasonable fees, charges and expenses of the
Trustee (including reasonable fees and disbursements of its legal
counsel including outside counsel and the allocated costs of internal
attorneys) incurred in and about the performance of its powers and
duties underthis Indenture;
(b) To the payment of the principal of and interest then due on the
Bonds (upon presentation of the Bonds to be paid, and stamping or
otherwise noting thereon of the payment if only partially paid, or
surrender thereof if fully paid) in accordance with the provisions of
this Indenture, as follows:
First. To the payment to the persons entitled thereto of all
installments of interest then due in the order of the maturity of
such installments, and, if the amount available shall not be
sufficient to pay in full any installment or installments maturing
on the same date, then to the payment thereof ratably,
according to the amounts due thereon, to the persons entitled
thereto, without any discrimination or preference;
Second. To the payment to the persons entitled thereto of the
unpaid principal of any Bonds which shall have become due,
whether at maturity or by acceleration or redemption, with
interest on the overdue principal at the rate borne by the
respective Bonds (to the extent permitted by law), and, if the
amount available shall not be sufficient to pay in full all the
Bonds, together with such interest, then to the payment
thereof ratably, according to the amounts of principal due on
such date to the persons entitled thereto, without any
discrimination or preference; and
SECTION 7.04. Trustee to Represent Bond Owners. The Trustee is hereby
irrevocably appointed (and the successive respective Owners of the Bonds, by taking
and holding the same, shall be conclusively deemed to have so appointed the Trustee)
as trustee and true and lawful attorney-in-fact of the Owners of the Bonds for the
purpose of exercising and prosecuting on their behalf such rights and remedies as may
be available to such Owners under the provisions of the Bonds, this Indenture and
applicable provisions of any law. All rights of action under this Indenture or the Bonds or
otherwise may be prosecuted and enforced by the Trustee without the possession of
any of the Bonds or the production thereof in any proceeding relating thereto, and any
such suit, action or proceeding instituted by the Trustee shall be brought in the name of
the Trustee for the benefit and protection of all the Owners of such Bonds, subject to the
provisions of this Indenture.
SECTION 7.05. Limitation on Bond Owners' Right to Sue. Notwithstanding any
other provision hereof, no Owner of any Bonds has the right to institute any suit, action
or proceeding at law or in equity, for the protection or enforcement of any right or
remedy under this Indenture, the Installment Sale Agreement or any other applicable
law with respect to such Bonds, unless (a) such Owner has given to the Trustee written
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notice of the occurrence of an Event of Default; (b) the Owners of a majority in
aggregate principal amount of the Bonds then Outstanding have requested the Trustee
in writing to exercise the powers hereinbefore granted or to institute such suit, action or
proceeding in its own name; (c) such Owner or Owners have tendered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request; (d) the Trustee has failed to comply with such requestfor
a period of 60 days after such written request has been received by, and said tender of
indemnity has been made to, the Trustee; and (e) no direction inconsistent with such
written request has been given to the Trustee during such 60 -day period by the Owners
of a majority in aggregate principal amount of the Bonds then Outstanding.
Such notification, request, tender of indemnity and refusal or omission are
hereby declared, in every case, to be conditions precedent to the exercise by any Owner
of Bonds of any remedy hereunder or under law; it being understood and intended that
no one or more Owners of Bonds shall have any right in any manner whatever by his or
their action to affect, disturb or prejudice the security of this Indenture or the rights of
any other Owners of Bonds, or to enforce any right under the Bonds, this Indenture, the
Installment Sale Agreement or other applicable law with respect to the Bonds, except in
the manner herein provided, and that all proceedings at law or in equity to enforce any
such right shall be instituted, had and maintained in the manner herein provided and for
the benefit and protection of all Owners of the Outstanding Bonds, subject to the
provisions of this Indenture.
SECTION 7.06. Absolute Obligation of Authority. Nothing in Section 7.06 or in
any other provision of this Indenture or in the Bonds contained affects or impairs the
obligation of the Authority, which is absolute and unconditional, to pay the principal of
and interest and premium (if any) on the Bonds to the respective Owners of the Bonds
at their respective dates of maturity, or upon acceleration or call for redemption, as
herein provided, but only out of the Authority Revenues and other assets herein pledged
therefor, or affect or impair the right of such Owners, which is also absolute and
unconditional, to enforce such payment by virtue of the contract embodied in the Bonds.
SECTION 7.07. Termination of Proceedings. In case any proceedings taken by
the Trustee or by any one or more Bond Owners on account of any Event of Default
have been discontinued or abandoned for any reason or have been determined
adversely to the Trustee or the Bond Owners, then in every such case the Authority, the
Trustee and the Bond Owners, subject to any determination in such proceedings, shall
be restored to their former positions and rights hereunder, severally and respectively,
and all rights, remedies, powers and duties of the Authority, the Trustee and the Bond
Owners shall continue as though no such proceedings had been taken.
SECTION 7.08. Remedies Not Exclusive. No remedy herein conferred upon or
reserved to the Trustee or the Owners of the Bonds is intended to be exclusive of any
other remedy or remedies, and each and every such remedy, to the extent permitted by
law, shall be cumulative and in addition to any other remedy given hereunder or now or
hereafter existing at law or in equity or otherwise.
SECTION 7.09. No Waiver of Default. No delay or omission of the Trustee or
any Owner of the Bonds to exercise any right or power arising upon the occurrence of
any default or Event of Default shall impair any such right or power or shall be construed
to be a waiver of any such default or Event of Default or an acquiescence therein; and
every power and remedy given by this Indenture to the Trustee or to the Owners of the
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Bonds may be exercised from time to time and as often as may be deemed expedient
by the Trustee or the Bond Owners.
SECTION 7.10. Notice to Bond Owners of Default. Immediately upon becoming
aware of the occurrence of an Event of Default, but in no event later than five Business
Days following becoming aware of such occurrence, the Trustee shall promptly give
written notice thereof by first class mail, postage prepaid, to the Owner of each
Outstanding Bond, unless such Event cf Default has been cured before the giving of
such notice; provided, however that except in the case of an Event of Default described
in Sections 7.01(a) or 7.01(b), the Trustee may elect not to give such notice to the Bond
Owners if and so long as the Trustee in good faith determines that it is in the best
interests of the Bond Owners not to give such notice.
ARTICLE VIII
THE TRUSTEE
SECTION 8.01. Appointment of Trustee. The Bank of New York Mellon Trust
Company, N.A. is hereby appointed Trustee by the Authority for the purpose of receiving
all moneys required to be deposited with the Trustee hereunder and to allocate, use and
apply the same as provided in this Indenture. The Authority will maintain a Trustee
which is qualified under the provisions of the foregoing provisions of this Article VIII so
long as any Bonds are Outstanding.
SECTION 8.02. Acceptance of Trusts, Removal and Resignation of Trustee.
The Trustee hereby accepts the express trusts imposed upon it by this Indenture, and
agrees to perform said trusts, but only upon and subject to the following express terms
and conditions:
(a) The Trustee shall, prior to an Event of Default, and after the curing or
waiver of all Events of Default which may have occurred, perform such duties and
only such duties as are expressly and specifically set forth in this Indenture and no
implied duties or covenants shall be read into this Indenture against the Trustee. In
case an Event of Default has occurred (which has not been cured) the Trustee shall
exercise such of the rights and powers vested in it by the Trust Agreement, and use
the same degree of care and skill in their exercise, as a prudent man would exercise
or use underthe circumstances in the conduct of his own affairs.
(b) The Authority may remove the Trustee at any time, unless an Event
of Default has occurred and is then continuing, and shall remove
the Trustee (a) if at any time requested to do so by the Owners of a
majority in aggregate principal amount of the Bonds then
Outstanding (or their attorneys duly authorized in writing) or (b) if at
any time the Trustee ceases to be eligible in accordance with
Section 8.02, or becomes incapable of acting, or is adjudged a
bankrupt or insolvent, or a receiver of the Trustee or its property is
appointed, or any public officer takes control or charge of the
Trustee or of its property or affairs for the purpose of rehabilitation,
M
conservation or liquidation. Any such removal shall be made upon
at least 30 days' prior written notice to the Trustee.
(c) The Trustee may at any time resign by giving written notice of such
resignation to the Authority and the City, and by giving the Bond
Owners notice of such resignation by mail at the addresses shown
on the Registration Books.
(d) Any removal or resignation of the Trustee and appointment of a
successor Trustee shall become effective upon acceptance of
appointment by the successor Trustee. In the event of the removal
or resignation of the Trustee under subsections (b) or (d),
respectively, the Authority shall promptly appoint a successor
Trustee.
If no successor Trustee has been appointed and accepted
appointment within 45 days of giving notice of removal or notice of
resignation as aforesaid, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor
Trustee, and such court may thereupon, after such notice (if any) as
it may deem proper, appoint such successor Trustee. Any
successor Trustee appointed under this Indenture, must signify its
acceptance of such appointment by executing and delivering to the
Authority and to its predecessor Trustee a written acceptance
thereof, and after payment by the Authority of all unpaid fees and
expenses of the predecessor Trustee, 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. At the Written
Request of the Authority or the request of the successor Trustee,
such predecessor Trustee 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. Upon request
of the successor Trustee, the Authority shall execute and deliver
any and all instruments as may be reasonably required for more
fully and certainly vesting in and confirming to such successor
Trustee all such moneys, estates, properties, rights, powers, trusts,
duties and obligations. Upon acceptance of appointment by a
successor Trustee as provided in this subsection, the Authority shall
promptly mail or cause the successor trustee to mail a notice of the
succession of such Trustee to the trusts hereunder to each rating
agency which is then rating the Bonds and to the Bond Owners at
the addresses shown on the Registration Books. If the Authority
fails to mail such notice within 15 days after acceptance of
appointment by the successor Trustee, the successor Trustee shall
cause such notice to be mailed at the expense of the Authority.
(e) Any Trustee appointed under this Indenture shall be a corporation
or association organized and doing business under the laws of any
state or the United States of America or the District of Columbia,
shall be authorized under such laws to exercise corporate trust
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powers, shall have (or, in the case of a corporation or association
that is a member of a bank holding company system, the related
bank holding company has) a combined capital and surplus of at
least $50,000,000, and shall be subject to supervision or
examination by a federal or state agency, so long as any Bonds are
Outstanding. If such corporation or association publishes a report
of condition at least annually under law or to the requirements of
any supervising or examining agency above referred to, then for the
purpose of this subsection (e), the combined capital and surplus of
such corporation or association shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition
so published. If the Trustee at any time ceases to be eligible in
accordance with the provisions of this subsection (e), the Trustee
shall resign immediately in the manner and with the effect specified
in this Section.
(9 Notwithstanding any other provision of this Indenture, the Trustee
may be removed at any time for any breach of the trust set forth
herein.
SECTION 8.03. Merger or Consolidation. Any national banking association,
bank, federal savings association, or trust company into which the Trustee may be
merged or converted or with which it may be consolidated or any national banking
association, bank, federal savings association, or trust company resulting from any
merger, conversion or consolidation to which it shall be a party or any national banking
association, bank, federal savings association, or trust company to which the Trustee
may sell or transfer all or substantially all of its corporate trust business, provided such
national banking association, bank, federal savings association, or trust company shall
be eligible under subsection (e) of Section 8.02 shall be the successor to such Trustee,
without the execution or filing of any paper or any further act, anything herein to the
contrary notwithstanding.
SECTION 8.04. Liability of Trustee.
(a) The recitals of facts herein and in the Bonds contained shall be taken as
statements of the Authority, and the Trustee shall not assume responsibility for the
correctness of the same, or make any representations as to the validity or sufficiency of
this Indenture, the Bonds or the Installment Sale Agreement, nor shall the Trustee incur
any responsibility in respect thereof, other than as expressly stated herein in connection
with the respective duties or obligations of Trustee herein or in the Bonds assigned to or
imposed upon it. The Trustee shall, however, be responsible for its representations
contained in its certificate of authentication on the Bonds. The Trustee shall not be
liable in connection with the performance of its duties hereunder, except for its own
negligence. The Trustee may become the Owner of Bonds with the same rights it would
have if it were not Trustee, and, to the extent permitted by law, may act as depository for
and permit any of its officers or directors to act as a member of, or in any other capacity
with respect to, any committee formed to protect the rights of Bond Owners, whether or
not such committee shall represent the Owners of a majority in principal amount of the
Bonds then Outstanding.
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(b) The Trustee is not liable for any error of judgment made by a responsible
officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent
facts.
(c) The Trustee is not liable with respect to any action taken or omitted to be
taken by it in accordance with the direction of the Owners of a majority in aggregate
principal amount of the Bonds at the time Outstanding relating to the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee under this Indenture or
assigned to it hereunder.
(d) The Trustee is not liable for any action taken by it and believed by it to be
authorized or within the discretion or rights or powers conferred upon it by this
Indenture.
(e) The Trustee shall not be deemed to have knowledge of any Event of Default
hereunder, or any other event which, with the passage of time, the giving of notice, or
both, would constitute an Event of Default hereunder unless and until it shall have actual
knowledge thereof, or a corporate trust officer shall have received written notice thereof
at its Office from the City, the Authority or the Owners of at least 25% in aggregate
principal amount of the Outstanding Bonds. Except as otherwise expressly provided
herein, the Trustee shall not be bound to ascertain or inquire as to the performance or
observance by the Authority or the City of any of the terms, conditions, covenants or
agreements herein, under the Installment Sale Agreement or the Bonds or of any of the
documents executed in connection with the Bonds, or as to the existence of a default or
an Event of Default or an event which would, with the giving of notice, the passage of
time, or both, constitute an Event of Default. The Trustee is not responsible for the
validity, effectiveness or priority of any collateral given to or held by it. Without limiting
the generality of the foregoing, the Trustee shall not be required to ascertain or inquire
as to the performance or observance by the City or the Authority of the terms,
conditions, covenants or agreements set forth in the Installment Sale Agreement, other
than the covenants of the City to make Installment Payments to the Trustee when due
and to file with the Trustee when due, such reports and certifications as the City is
required to file with the Trustee thereunder.
(9 No provision of this Indenture requires the Trustee to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers.
(g) The Trustee may execute any of the trusts or powers hereunder or perform
any duties hereunder either directly or through agents, receivers or attorneys and the
Trustee shall not be responsible for any misconduct or negligence on the part of any
agent, receiver or attorney appointed with due care by it hereunder.
(h) The Trustee has no obligation to exercise any of the rights or powers vested
in it by this Indenture at the request or direction of the Bond Owners under this
Indenture, unless such Owners have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities (including but not limited to fees
and expenses of its attorneys) which might be incurred by it in compliance with such
request or direction. No permissive power, right or remedy conferred upon the Trustee
hereunder shall be construed to impose a duty to exercise such power, right or remedy.
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(i) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording protection to the
Trustee is subject to the provisions of Section 8.02(a), this Section 8.04 and Section
8.05, and shall be applicable to the assignment of any rights to the Trustee hereunder.
(j) The Trustee is not accountable to anyone for the subsequent use or
application of any moneys which are released or withdrawn in accordance with the
provisions hereof.
(k) The Trustee makes no representation or warranty, expressed or implied as
to the title, value, design, compliance with specifications or legal requirements, quality,
durability, operation, condition, merchantability or fitness for any particular purpose for
the use contemplated by the Authority or the City of the Project. In no event shall the
Trustee be liable for incidental, indirect, special or consequential damages in connection
with or arising from the Installment Sale Agreement or this Indenture for the existence,
furnishing or use of the Project.
(1) The Trustee has no responsibility with respect to any information, statement,
or recital in any official statement, offering memorandum or any other disclosure
material prepared or distributed with respect to the Bonds.
(m) The Trustee agrees to accept and act upon instructions or directions
pursuant to this Indenture sent by unsecured e-mail, facsimile transmission or other
similar unsecured electronic methods, provided, however, that, the Trustee shall have
received an incumbency certificate listing persons designated to give such instructions
or directions and containing specimen signatures of such designated persons, which
such incumbency certificate shall be amended and replaced whenever a person is to be
added or deleted from the listing. If the Authority or the City elects to give the Trustee e-
mail or facsimile instructions (or instructions by a similar electronic method) and the
Trustee in its discretion elects to act upon such instructions, the Trustee's understanding
of such instructions shall be deemed controlling. The Trustee shall not be liable for any
losses, costs or expenses arising directly or indirectly from the Trustee's reliance upon
and compliance with such instructions notwithstanding such instructions conflict or are
inconsistent with a subsequent written instruction. The Authority and the City agree to
assume all risks arising out of the use of such electronic methods to submit instructions
and directions to the Trustee, including without limitation the risk of the Trustee acting
on unauthorized instructions, and the risk of interception and misuse by third parties.
n The Trustee shall not be considered in breach of or in default in its
obligations hereunder or progress in respect thereto in the event of enforced delay
("unavoidable delay") in the performance of such obligations due to unforeseeable
causes beyond its control and without its fault or negligence, including, but not limited to,
Acts of God or of the public enemy or terrorists, acts of a government, acts of the other
party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes,
earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or
rationing of labor, equipment, facilities, sources of energy, material or supplies in the
open market, litigation or arbitration involving a party or others relating to zoning or other
governmental action or inaction pertaining to the Project, malicious mischief,
condemnation, and unusually severe weather or delays of suppliers or subcontractors
due to such causes or any similar event and/or occurrences beyond the control of the
Trustee.
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SECTION 8.05. Right to Rely on Documents. The Trustee shall be protected
and shall incur no liability in acting or refraining from acting in reliance upon any notice,
resolution, request, consent, order, certificate, report, opinion, bonds or other paper or
document believed by them to be genuine and to have been signed or presented by the
proper party or parties. The Trustee is under no duty to make any investigation or
inquiry as to any statements contained or matter referred to in any paper or document
but may accept and conclusively rely upon the same as conclusive evidence of the truth
and accuracy of any such statement or matter and shall be fully protected in relying
thereon. The Trustee may consult with counsel, who may be counsel of or to the
Authority, with regard to legal questions, and the opinion of such counsel shall be full
and complete authorization and protection in respect of any action taken or suffered by it
hereunder in good faith and in accordance therewith.
The Trustee may treat the Owners of the Bonds appearing in the Registration
Books as the absolute owners of the Bonds for all purposes and the Trustee shall not be
affected by any notice to the contrary.
Whenever in the administration of the trusts imposed upon it by this Indenture
the Trustee deems 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, Written Request or Written Requisition
of the Authority or the City, and such Written Certificate, Written Request or Written
Requisition shall be full warrant to the Trustee for any action taken or suffered under the
provisions of this Indenture in reliance upon such Written Certificate, Written Request or
Written Requisition, and the Trustee shall be fully protected in relying thereon, but in its
discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may
require such additional evidence as to it may deem reasonable.
SECTION 8.06. Preservation and Inspection of Documents. All documents
received by the Trustee under the provisions of this Indenture shall be retained in its
respective possession and in accordance with its retention policy then in effect and
shall, upon reasonable notice to Trustee, be subject to the inspection of the Authority,
the City and any Bond Owner, and their agents and representatives duly authorized in
writing, during business hours and under reasonable conditions as agreed to by the
Trustee.
SECTION 8.07. Compensation and Indemnification. The Authority shall pay to
the Trustee from time to time, on demand, the compensation for all services rendered
under this Indenture and also all reasonable expenses, advances (including any interest
on advances), charges, legal (including outside counsel and the allocated costs of
internal attorneys) and consulting fees and other disbursements, incurred in and about
the performance of its powers and duties under this Indenture.
The Authority shall indemnify the Trustee, its officers, directors, employees and
agents against any cost, loss, liability or expense whatsoever (including but not limited
to fees and expenses of its attorneys) incurred without negligence or willful misconduct
on its part, arising out of or in connection with the acceptance or administration of this
trust and this Indenture, including costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its powers
hereunder or under the Installment Sale Agreement. As security for the performance of
the obligations of the Authority under this Section 8.07, the Trustee shall have a lien
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prior to the lien of the Bonds upon all property and funds held or collected by the
Trustee as such. The rights of the Trustee and the obligations of the Authority under
this Section 8.07 shall survive the resignation or removal of the Trustee or the discharge
of the Bonds and this Indenture and the Installment Sale Agreement.
ARTICLE IX
MODIFICATIONOR AMENDMENT HEREOF
SECTION 9.01.Amendments Permitted.
(a) Amendments With Owner Consent. This Indenture and the rights and
obligations of the Authority and of the Owners of the Bonds and of the Trustee may be
modified or amended from time to time and at any time by Supplemental Indenture,
which the Authority and the Trustee may enter into when the written consents of the
Owners of a majority in aggregate principal amount of all Bonds then Outstanding are
filed with the Trustee. No such modification or amendment may (i) extend the fixed
maturity of any Bonds, or reduce the amount of principal thereof or extend the time of
payment, or change the method of computing the rate of interest thereon, or extend the
time of payment of interest thereon, without the consent of the Owner of each Bond so
affected, or (ii) reduce the aforesaid percentage of Bonds the consent of the Owners of
which is required to effect any such modification or amendment, or permit the creation
of any lien on the Authority Revenues and other assets pledged under this Indenture
prior to or on a parity with the lien created by this Indenture except as permitted herein,
or deprive the Owners of the Bonds of the lien created by this Indenture on such
Authority Revenues and other assets (except as expressly provided in this Indenture),
without the consent of the Owners of all of the Bonds then Outstanding. It is not
necessary for the consent of the Bond Owners to approve the particular form of any
Supplemental Indenture, but it is sufficient if such consent approves the substance
thereof.
(b) Amendments Without Owner Consent. This Indenture and the rights and
obligations of the Authority, of the Trustee and the Owners of the Bonds may also be
modified or amended from time to time and at any time by a Supplemental Indenture,
which the Authority and the Trustee may enter into without the consent of any Bond
Owners, if the Trustee has been furnished an opinion of counsel that the provisions of
such Supplemental Indenture shall not materially adversely affect the interests of the
Owners of the Bonds, including, without limitation, for any one or more of the following
purposes:
(i) to add to the covenants and agreements of the Authority in this
Indenture contained, other covenants and agreements thereafter to
be observed, to pledge or assign additional security for the Bonds
(or any portion thereof), or to surrender any right or power herein
reserved to or conferred upon the Authority;
(ii) to cure any ambiguity, inconsistency or omission, or to cure or
correct any defective provision, contained in this Indenture, or in
regard to matters or questions arising under this Indenture, as the
Authority deems necessary or desirable, provided that such
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modification or amendment does not materially adversely affect the
interests of the Bond Owners, in the opinion of Bond Counsel filed
with the Trustee;
(iii) to modify, amend or supplement this Indenture in such manner as
to permit the qualification hereof under the Trust Indenture Act of
1939, as amended, or any similar federal statute hereafter in effect,
and to add such other terms, conditions and provisions as may be
permitted by said act or similar federal statute;
(iv) to modify, amend or supplement this Indenture in such manner as
to assure that the interest on the Series A Bonds remains excluded
from gross income under the Tax Code, or that the Series B Bonds
remain Build America Bonds and that the Authority remains entitled
to collect the Refundable Credits under the Tax Code;
(v) to facilitate the delivery of a Qualified Reserve Account Credit
Instrument under Section 5.05(b); or
(vi) to modify the terms and provisions upon which the Reserve Account
is held and administered hereunder, as may be required in the
opinion of Bond Counsel so that the Reserve Account is held for the
equal and proportionate benefit of the Owners of the Bonds and the
owners of all outstanding Parity Debt.
(c) Limitation. The Trustee is not obligated to enter into any Supplemental
Indenture authorized by subsections (a) or (b) of this Section 9.01 which materially
adversely affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
(d) Bond Counsel Opinion Reauirement. Prior to the Trustee entering into any
Supplemental Indenture hereunder, the Authority shall deliver to the Trustee an opinion
of Bond Counsel stating, in substance, that such Supplemental Indenture has been
adopted in compliance with the requirements of this Indenture and that the adoption of
such Supplemental Indenture will not, in and of itself, adversely affect (i) with respect to
the Series A Bonds, the exclusion of interest from gross income for purposes of federal
income taxes and (ii) with respect to the Series B Bonds, the qualification of the Series
B Bonds as Build America Bonds and the entitlement of the Authority to collect the
Refundable Credits.
(e) Notice of Amendments. The Authority shall deliver or cause to be delivered a
draft of any Supplemental Indenture to each rating agency which then maintains a rating
on the Bonds, at least 10 days prior to the effective date of such Supplemental
Indenture underthis Section 9.01.
SECTION 9.02. Effectof supplemental Indenture. Upon the execution of any
Supplemental Indenture under this Article IX, this Indenture shall be deemed to be
modified and amended in accordance therewith, and the respective rights, duties and
obligations under this Indenture of the Authority, the Trustee and all Owners of Bonds
Outstanding shall thereafter be determined, exercised and enforced hereunder subject
in all respects to such modification and amendment, and all the terms and conditions of
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any such Supplemental Indenture shall be deemed to be part of the terms and
conditions of this Indenturefor any and all purposes.
SECTION 9.03. Endorsement of Bonds, Preparation of New Bonds. Bonds
delivered after the execution of any supplemental Indenture under this Article may, and
if the Authority so determines shall, bear a notation by endorsement or otherwise in form
approved by the Authority as to any modification or amendment provided for in such
Supplemental Indenture, and, in that case, upon demand on the Owner of any Bonds
Outstanding at the time of such execution and presentation of his Bonds for the purpose
at the Office of the Trustee or at such additional offices as the Trustee may select and
designate for that purpose, a suitable notation shall be made on such Bonds. If the
Supplemental Indenture shall so provide, new Bonds so modified as to conform, in the
opinion of the Authority, to any modification or amendment contained in such
Supplemental Indenture, shall be prepared and executed by the Authority and
authenticated by the Trustee, and upon demand on the Owners of any Bonds then
Outstanding shall be exchanged at the Office of the Trustee, without cost to any Bond
Owner, for Bonds then Outstanding, upon surrender for cancellation of such Bonds, in
equal aggregate principal amount of the same maturity.
SECTION 9.04. Amendment of Particular Bonds. The provisions of this Article
IX do not prevent any Bond Owner from accepting any amendment as to the particular
Bonds held by such Owner.
ARTICLE X
DEFEASANCE
SECTION 10.01. Discharge of Indenture. Any or all of the Outstanding Bonds
may be paid by the Authority in any of the following ways, provided that the Authority
also pays or causes to be paid any other sums payable hereunder by the Authority:
(a) by paying or causing to be paid the principal of and interest and
premium (if any) on such Bonds, as and when the same become
due and payable;
(b) by depositing with the Trustee, in trust, at or before maturity, money
or securities in the necessary amount (as provided in Section 10.03)
to pay or redeem such Bonds; or
(c) by delivering all of such Bonds to the Trustee for cancellation.
If the Authority also pays or causes to be paid all other sums payable hereunder
by the Authority, then and in that case, at the election of the Authority (evidenced by a
Written Certificate of the Authority, filed with the Trustee, signifying the intention of the
Authority to discharge all such indebtedness and this Indenture), and notwithstanding
that any of such Bonds shall not have been surrendered for payment, this Indenture and
the pledge of Authority Revenues and other assets made under this Indenture with
respect to such Bonds and all covenants, agreements and other obligations of the
Authority under this Indenture with respect to such Bonds shall cease, terminate,
become void and be completely discharged and satisfied, subject to Section 10.02. In
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such event, upon the Written Request of the Authority, the Trustee shall execute and
deliver to the Authority all such instruments as may be necessary or desirable to
evidence such discharge and satisfaction, and the Trustee shall pay over, transfer,
assign or deliver to the Authority all moneys or securities or other property held by it
under this Indenture which are not required for the payment or redemption of any of
such Bonds not theretofore surrendered for such payment or redemption. The Trustee
is entitled to conclusively rely on any such Written Certificate or Written Request and, in
each case, is fully protected in relying thereon.
SECTION 10.02. Discharge of Liability on Bonds. Upon the deposit with the
Trustee, in trust, at or before maturity, of money or securities in the necessary amount
(as provided in Section 10.03) to pay or redeem any Outstanding Bonds (whether upon
or prior to the maturity or the redemption date of such Bonds), provided that, if such
Bonds are to be redeemed prior to maturity, notice of such redemption shall have been
given as provided in Article IV or provision satisfactory to the Trustee shall have been
made for the giving of such notice, then all liability of the Authority in respect of such
Bonds shall cease, terminate and be completely discharged, and the Owners thereof
shall thereafter be entitled only to payment out of such money or securities deposited
with the Trustee as aforesaid for their payment, subject, however, to the provisions of
Section 10.04.
Notwithstanding anything to the contrary in this Article X, in the event of
defeasance of all Outstanding Bonds, such defeasance will not operate to discharge any
of the following:
(a) the obligation of the Trustee to transfer and exchange Bonds
hereunder,
(b) the obligation of the Authority to pay or cause to be paid to the
Owners of such Bonds, from the amounts so deposited with the
Trustee, all sums due thereon, and
(c) the obligations of the Authority to compensate and indemnify the
Trustee under Section 8.07.
The Authority may at any time surrender to the Trustee, for cancellation by
Trustee, any Bonds previously issued and delivered, which the Authority may have
acquired in any manner whatsoever, and such Bonds, upon such surrender and
cancellation, shall be deemed to be paid and retired.
SECTION 10.03. Deposit of Money or Securities with Trustee. Whenever in this
Indenture it is provided or permitted that there be deposited with or held in trust by the
Trustee money or securities in the necessary amount to pay or redeem any Bonds, the
money or securities so to be deposited or held may include money or securities held by
the Trustee in the funds and accounts established underthis Indenture and shall be:
(a) lawful money of the United States of America in an amount equal to
the principal amount of such Bonds and all unpaid interest thereon
to maturity, except that, in the case of Bonds which are to be
redeemed prior to maturity and in respect of which notice of such
redemption shall have been given as provided in Article IV or
provision satisfactory to the Trustee shall have been made for the
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giving of such notice, the amount to be deposited or held shall be
the principal amount of such Bonds, premium, if any, and all unpaid
interest thereon to the redemption date; or
(b) non -callable Federal Securities, the principal of and interest on
which when due will, in the written opinion of an independent
Accountant filed with the City, the Authority and the Trustee, provide
money sufficient to pay the principal of and interest and premium (if
any) on the Bonds to be paid or redeemed, as such principal,
interest and premium become due, provided that in the case of
Bonds which are to be redeemed prior to the maturity thereof,
notice of such redemption shall have been given as provided in
Article IV or provision satisfactory to the Trustee has been made for
the giving of such notice;
provided, in each case, that (i) the Trustee shall have been irrevocably instructed (by the
terms of this Indenture or by Written Request of the Authority) to apply such money to
the payment of such principal, interest and premium (if any) with respect to such Bonds,
and (ii) the Authority shall have delivered to the Trustee an opinion of Bond Counsel to
the effect that such Bonds have been discharged in accordance with this Indenture
(which opinion may rely upon and assume the accuracy of the Independent
Accountant's opinion referred to above). The Trustee shall be entitled to conclusively
rely on such Written Request or opinion and shall be fully protected, in each case, in
relying thereon.
SECTION 10.04. Unclaimed Funds. Notwithstanding any provisions of this
Indenture, any moneys held by the Trustee in trust for the payment of the principal of, or
interest on, any Bonds and remaining unclaimed for two years after the principal of all of
the Bonds has become due and payable (whether at maturity or upon call for
redemption or by acceleration as provided in this Indenture), if such moneys were so
held at such date, or two years after the date of deposit of such moneys if deposited
after said date when all of the Bonds became due and payable, shall be repaid to the
Authority free from the trusts created by this Indenture, and all liability of the Trustee
with respect to such moneys shall thereupon cease; provided, however, that before the
repayment of such moneys to the Authority as aforesaid, the Trustee shall (at the cost of
the Authority) first mail to the Owners of Bonds which have not yet been paid, at the
addresses shown on the Registration Books, a notice, in such form as may be deemed
appropriate by the Trustee with respect to the Bonds so payable and not presented and
with respect to the provisions relating to the repayment to the Authority of the moneys
held for the payment thereof.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Liability of Authority Limited to Authority Revenues .
Notwithstanding anything in this Indenture or in the Bonds contained, the Authority is not
required to advance any moneys derived from any source other than the Authority
Revenues and other assets pledged underthis Indenturefor any of the purposes in this
Indenture mentioned, whether for the payment of the principal of or interest on the
Bonds or for any other purpose of this Indenture. Nevertheless, the Authority may, but
is not required to, advance for any of the purposes hereof any funds of the Authority
which may be made available to it for such purposes.
SECTION 11.02. Limitation cf Rights to Parties and Bond Owners. Nothing in
this Indenture or in the Bonds expressed or implied is intended or shall be construed to
give to any person other than the Authority, the Trustee, the City and the Owners of the
Bonds, any legal or equitable right, remedy or claim under or in respect of this Indenture
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 Authority, the Trustee, the City and the Owners of the Bonds.
SECTION 11.03. Funds and Accounts. Any fund or account required by this
Indenture to be established and maintained by the Trustee may be established and
maintained in the accounting records of the Trustee, either as a fund or an account, and
may, for the purposes of such records, any audits thereof and any reports or statements
with respect thereto, be treated either as a fund or as an account; but all such records
with respect to all such funds and accounts shall at all times be maintained in
accordance with corporate trust industry standards to the extent practicable, and with
due regard for the requirements of Section 6.05 and for the protection of the security of
the Bonds and the rights of every Ownerthereof. The Trustee may establish such funds
and accounts as it deems necessary or appropriate to perform its obligations under this
Indenture.
SECTION 11.04. Waiver of Notice; Requirement of Mailed Notice. Whenever in
this Indenture the giving of notice by mail or otherwise is required, the giving of such
notice may be waived in writing by the person entitled to receive such notice and in any
such case the giving or receipt of such notice shall not be a condition precedent to the
validity of any action taken in reliance upon such waiver. Whenever in this Indenture
any notice is required to be given by mail, such requirement may be satisfied by the
deposit of such notice in the United States mail, postage prepaid, by first class mail.
SECTION 11.05. Destruction of Bonds. Whenever in this Indenture provision is
made for the cancellation by the Trustee, and the delivery to the Authority, of any
Bonds, the Trustee may, in lieu of such cancellation and delivery, destroy such Bonds
as may be allowed by law, and at the written request of the Authority the Trustee shall
deliver a certificate of such destruction to the Authority.
SECTION 11.06. Severability of Invalid Provisions. If any one or more of the
provisions contained in this Indenture or in the Bonds shall for any reason be held to be
invalid, illegal or unenforceable in any respect, then such provision or provisions shall be
deemed severable from the remaining provisions contained in this Indenture and such
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invalidity, illegality or unenforceability shall not affect any other provision of this
Indenture, and this Indenture shall be construed as if such invalid or illegal or
unenforceable provision had never been contained herein. The Authority hereby
declares that it would have entered into this Indenture and each and every other
Section, paragraph, sentence, clause or phrase hereof and authorized the issuance of
the Bonds pursuant thereto irrespective of the fact that any one or more Sections,
paragraphs, sentences, clauses or phrases of this Indenture may be held illegal, invalid
or unenforceable.
SECTION 11.07. Notices. All notices or communications to be given under this
Indenture shall be given by first class mail or personal delivery to the party entitled
thereto at its address set forth below, or at such address as the party may provide to the
other party in writing from time to time. Notice shall be effective either (a) upon
transmission by facsimile transmission or other form of telecommunication, confirmed by
telephone, (b) 48 hours after deposit in the United States mail, postage prepaid, or (c) in
the case of personal delivery to any person, upon actual receipt. The Authority, the City
or the Trustee may, by written notice to the other parties, from time to time modify the
address or numberto which communications are to be given hereunder.
If to the Authority City of Lodi
or the City. P.O. Box 3006
Lodi, California 95241-1910
Attention: Deputy City Manager/
Internal Services Director
Fax: 209-333-6807
If to the Trustee: The Bank of New York Mellon Trust Company,
N.A. 550 Kearny Street, Suite 600
San Francisco, California 94108
Attention: Corporate Trust Department
SECTION 11.08. Evidence of Rights of Bond Owners. Any request, consent or
other instrument required or permitted by this Indenture to be signed and executed by
Bond Owners may be in any number of concurrent instruments of substantially similar
tenor and shall be signed or executed by such Bond Owners in person or by an agent or
agents duly appointed in writing. Proof of the execution of any such request, consent or
other instrument or of a writing appointing any such agent, or of the holding by any
person of Bonds transferable by delivery, shall be sufficient for any purpose of this
Indenture and shall be conclusive in favor of the Trustee and the Authority if made in the
manner provided in this Section 11.08.
The fact and date of the execution by any person of any such request, consent
or other instrument or writing may be proved by the certificate of any notary public or
other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments
of deeds, certifying that the person signing such request, consent or other instrument
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.
The ownership of Bonds shall be proved by the Registration Books.
IN
Any request, consent, or other instrument or writing of the Owner of any Bond
shall bind every future Owner of the same Bond and the Owner of every Bond issued in
exchange therefor or in lieu thereof, in respect of anything done or suffered to be done
by the Trustee or the Authority in accordance therewith or reliance thereon.
SECTION 11.09. Disqualified Bonds. In determining whether the Owners of the
requisite aggregate principal amount of Bonds have concurred in any demand, request,
direction, consent or waiver under this Indenture, Bonds which are known by the Trustee
to be owned or held by or for the account of the Authority or the City, or by any other
obligor on the Bonds, or by any person directly or indirectly controlling or controlled by,
or under direct or indirect common control with, the Authority or the City or any other
obligor on the Bonds, shall be disregarded and deemed not to be Outstanding for the
purpose of any such determination. Bonds so owned which have been pledged in good
faith may be regarded as Outstanding for the purposes of this Section if the pledgee
shall establish to the satisfaction of the Trustee the pledgee's right to vote such Bonds
and that the pledgee is not a person directly or indirectly controlling or controlled by, or
under direct or indirect common control with, the Authority or the City or any other
obligor on the Bonds. In case of a dispute as to such right, the Trustee shall be entitled
to rely upon the advice of counsel in any decision by Trustee and shall be fully protected
in relying thereon.
Upon request, the Authority shall specify to the Trustee those Bonds disqualified
underthis Section 11.09.
SECTION 11.10. Money Held for Particular Bonds. The money held by the
Trustee for the payment of the interest, premium, if any, or principal due on any date
with respect to particular Bonds (or portions of Bonds in the case of Bonds redeemed in
part only) shall, on and after such date and pending such payment, be set aside on its
books and held in trust by it for the Owners of the Bonds entitled thereto, subject,
however, to the provisions of Section 10.04 but without any liabilityfor interest thereon.
SECTION 11.1 1. Waiver of Personal Liability. No member, officer, agent or
employee of the Authority shall be individually or personally liable for the payment of the
principal of or interest or premium (if any) on the Bonds or be subject to any personal
liability or accountability by reason of the issuance thereof; but nothing herein contained
shall relieve any such member, officer, agent or employee from the performance of any
official duty provided by law or by this Indenture.
SECTION 11.12. Successor Is Deemed Included in All References to
Predecessor. Whenever in this Indenture either the Authority, the City or the Trustee is
named or referred to, such reference shall be deemed to include the successors or
assigns thereof, and all the covenants and agreements in this Indenture contained by or
on behalf of the Authority, the City or the Trustee shall bind and inure to the benefit of
the respective successors and assigns thereof whether so expressed or not.
SECTION 11.13. Execution in Several Counterparts. This Indenture may be
executed in any number of counterparts and each of such counterparts shall for all
purposes be deemed to be an original; and all such counterparts, or as many of them as
the Authority and the Trustee shall preserve undestroyed, shall together constitute but
one and the same instrument.
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SECTION 11.14. Payment on Non -Business Day. In the event any payment is
required to be made hereunder on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day and with the same effect as if
made on such preceding non -Business Day.
SECTION 11.15. Governing Law. This Indenture shall be governed by and
construed in accordance with the laws cf the State of California.
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IN WITNESS WHEREOF, the LODI PUBLIC FINANCING AUTHORITY has caused
this Indenture to be signed in its name by its Executive Director and attested to by its
Secretary, and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.THE
BANK OF NEW YORK MELLON TRUST COMPANY, N.A., in token of its acceptance of the
trusts created hereunder, has caused this Indenture to be signed in its corporate name
by its officer thereunto duly authorized, all as of the day and year first above written.
Attest:
Secretary
LODI PUBLIC FINANCING AUTHORITY
M
Executive Director
THE BANK OF NEWYORK MELLON
TRUST COMPANY, N.A.THE BANK OF
NEW YORK MELLON TRUST COMPANY,
N.A., as Trustee
By
Authorized Officer
APPENDIX A
DEFINITIONS
"Authority" means the Lodi Public Financing Authority, a joint exercise of powers
authority duly organized and existing underthe laws of the State of California.
"Authority Revenues" means: (a) all of the Installment Payments, and (b) all
interest, profits or other income derived from the investment of amounts in any fund or
account established under this Indenture.
"Authorized Representative" means: (a) with respect to the Authority, its
Executive Director, Treasurer, Secretary or any other person designated as an
Authorized Representative of the Authority by a Written Certificate of the Authority
signed by its Executive Director, General Counsel or Treasurer and filed with the City
and the Trustee; and (b) with respect to the City, its City Manager, Deputy City
Manager/Internal Services Director, City Attorney or any other person designated as an
Authorized Representative of the City by a Written Certificate of the City signed by its
City Manager or Deputy City Manager/Internal Services Director and filed with the
Authority and the Trustee.
"Available Project Proceeds" means (i) the proceeds from the sale of the Series
B Bonds, (ii) less Costs of Issuance of the Series B Bonds paid from proceeds of the
sale of the Series B Bonds (not exceeding 2% of the proceeds of the sale of the Series
B Bonds), plus (iii) investment earnings on the difference between (i) - (ii).
"Bond Counsel" means (a) Jones Hall, A Professional Law Corporation, or (b)
any other attorney or firm of attorneys appointed by or acceptable to the City or the
Authority of national ly-recog n ized experience in the issuance of obligations the interest
on which is excludable from gross income for federal income tax purposes under the
Tax Code.
"Bond Fund" means the fund by that name established and held by the Trustee
under Section 5.01.
"Bond Law" means the provisions of Article 4 of Chapter 5, Division 7, Title 1 of
the Government Code of the State of California, commencing with Section 6584 of said
Code, as in effect on the Closing Date or as thereafter amended in accordance with its
terms.
"Bond Year" means each twelve-month period extending from June 2 in one
calendar year to June 1 of the succeeding calendar year, both dates inclusive; except
that the first Bond Year commences on the Closing Date and extends to and including
June 1,2011.
"Bonds" means, collectively, the Series A Bonds and the Series B Bonds.
"Business Day" means a day (other than a Saturday or a Sunday) on which
banks are not required or authorized to remain closed in the City in which the Office of
the Trustee is located.
IM
"Closing Date" means , 2010, being the date of delivery of the
Bonds to the Original Purchaser.
"Costs of Issuance" means all items of expense directly or indirectly payable by
or reimbursable to the City or the Authority relating to the authorization, issuance, sale
and delivery of the Bonds, including but not limited to: printing expenses; rating agency
fees; filing and recording fees; initial fees, expenses and charges of the Trustee and its
counsel, including the Trustee's first annual administrative fee; fees, charges and
disbursements of attorneys, financial advisors, accounting firms, consultants and other
professionals; fees and charges for preparation, execution and safekeeping of the
Bonds; and any other cost, charge or fee in connection with the original issuance of the
Bonds.
11Depositow" means (a) initially, DTC, and (b) any other Securities Depositories
acting as Depository under Section 2.04.
"Depository Svstem Participant" means any participant in the Depository's book -
entry system.
"City" means the City of Lodi, a municipal corporation organized and existing
underthe laws of the State of California.
"DTC" means The Depository Trust Company, New York, New York, and its
successors and assigns.
"Event of Default" means any of the events specified in Section 7.01.
"Excess Investment Earnings" means, with respect to the Series A Bonds or the
Series B Bonds, an amount required to be rebated to the United States of America
under Section 148(f) of the Tax Code due to investment of gross proceeds of the Series
A Bonds or the Series B Bonds, as the case may be, at a yield in excess of the yield on
such Bonds.
"Federal Securities" means: (a) any direct general obligations of the United
States of America (including obligations issued or held in book entry form on the books
of the Department of the Treasury of the United States of America), the payment of
principal of and interest on which are unconditionally and fully guaranteed by the United
States of America; and (b) any obligations the principal of and interest on which are
unconditionally guaranteed by the United States of America.
"Fiscal Year' means any twelve-month period extending from July 1 in one
calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any
other twelve-month period selected and designated by the City as its official fiscal year
period.
"Indenture" means this Indenture of Trust, as originally executed or as it may
from time to time be supplemented, modified or amended by any Supplemental
Indenture underthe provisions hereof.
"Interest Account" means the account by that name established and held by the
Trustee in the Bond Fund under Section 5.02.
"Installment Sale Agreement" means the Installment Sale Agreement dated as of
October 1, 2010, between the City and the Authority, together with any duly authorized
and executed amendments thereto.
"Installment Payments" means all payments required to be paid by the City on
any date under Section 4.4 of the Installment Sale Agreement, including any amounts
payable upon delinquent installments and including any prepayment thereof under
Sections 7.2 or 7.3 of the Installment Sale Agreement.
"Interest Pavment Date" means each December 1 and June 1, commencing
June 1, 2011, so long as any Bonds remain unpaid.
"Moody's' means Moody's Investors Service, its successors and assigns.
"Nominee" means (a) initially, Cede & Co. as nominee of DTC, and (b) any other
nominee of the Depository designated under Section 2.04(a).
"Office" means the corporate trust office
California, or such other or additional offices as the
the Corporation from time to time as the corporE
Indenture; except that with respect to presenta
registration of transfer and exchange such term
Trustee at which, at any particular time, its coi
conducted.
of the Trustee in San Francisco,
Trustee may designate in writing to
to trust office for purposes of this
ion of Bonds for payment or for
neans the office or agency of the
poration trust agency business is
"Original Purchaser" means Stone & Youngberg LLC, as original purchaser of
the Bonds at the negotiated sale thereof.
"Outstanding", when used as of any particular time with reference to Bonds,
means all Bonds theretofore, or thereupon being, authenticated and delivered by the
Trustee under this Indenture except: (a) Bonds theretofore canceled by the Trustee or
surrendered to the Trustee for cancellation; (b) Bonds with respect to which all liability of
the Authority shall have been discharged in accordance with Section 10.02, including
Bonds (or portions thereof) described in Section 11.09; and (c) Bonds for the transfer or
exchange of or in lieu of or in substitution for which other Bonds shall have been
authenticated and delivered by the Trustee underthis Indenture.
"Owner", whenever used herein with respect to a Bond, means the person in
whose name the ownership of such Bond is registered on the Registration Books.
"Permitted Investments" means any of the following which at the time of
investment are determined by the Authority to be legal investments under the laws of
the State of California for the moneys proposed to be invested therein (provided that the
Trustee shall be entitled to rely conclusively upon any such determination by the
Authority):
(a) Federal Securities.
(b) Bonds, debentures, notes or other evidence of indebtedness issued
or guaranteed by any federal agencies whose obligations are
backed by the full faith and credit of the United States of America.
A-3
(c) Money market funds registered under the Federal Investment
Company Act of 1940, whose shares are registered under the
Federal Securities Act of 1933, and which are rated in the highest
short-term rating category by S&P (such funds may include funds
for which the Trustee, its affiliates, parent or subsidiaries provide
investment advisory or other management services).
(d) Certificates of deposit (including those of the Trustee, its parent and
its affiliates) secured at all times by collateral described in (a) or (b)
above, which have a maturity not greater than one year from the
date of investment and which are issued by commercial banks,
savings and loan associations or mutual savings banks whose
short-term obligations are rated A or better by S&P, which collateral
must be held by a third party and provided that the Trustee must
have a perfected first security interest in such collateral.
(e) Certificates of deposit, savings accounts, deposit accounts or
money market deposits (including those of the Trustee and its
affiliates) which are fully insured by the Federal Deposit Insurance
Corporation.
(f) Investment agreements with a financial institution the long-term
debt or claims paying ability of which, or in the case of a guaranteed
corporation the long-term debt, or, in the case of a monoline
financial guaranty insurance company, claims paying ability, of the
guarantor or the institution is rated AA or better from S&P, by the
terms of which the Trustee is permitted to withdraw the invested
funds if the rating from S&P falls below AA.
(g) The Local Agency Investment Fund which is administered by the
California Treasurer for the investment of funds belonging to local
agencies within the State of California, provided for investment of
funds held by the Trustee, the Trustee is entitled to make
investments and withdrawals in its own name as Trustee.
"Principal Account" means the account by that name established and held by the
Trustee in the Bond Fund under Section 5.02.
"Project" means the improvementsto the Water System which are acquired and
constructed from amounts held in the Project Fund in accordance with the Installment
Sale Agreement.
"Proiect Costs" means, with respect to the Project, all costs of the acquisition,
construction and installation thereof which are paid from moneys on deposit in the
Project Fund, including but not limited to:
(a) all costs required to be paid to any person under the terms of any
agreement for or relating to the acquisition, construction and
installation of the Project;
(b) obligations incurred for labor and materials in connection with the
acquisition, construction and installation of the Project;
A-4
(c) the cost of performance or other bonds and any and all types of
insurance that may be necessary or appropriate to have in effect in
connection with the acquisition, construction and installation of the
Project;
(d) all costs of engineering and architectural services, including the
actual out-of-pocket costs for test borings, surveys, estimates,
plans and specifications and preliminary investigations therefor,
development fees, sales commissions, and for supervising
construction, as well as for the performance of all other duties
required by or consequent to the proper acquisition, construction
and installation of the Project;
(e) any sums required to reimburse the City for advances made for any
of the above items or for any other costs incurred and for work done
which are properly chargeable to the acquisition, construction and
installation of the Project;
(f) all Costs of Issuance of the
incurred in connection with
installation of the Project; and
Bonds and other financing costs
the acquisition, construction and
(g) the interest components of the Installment Payments allocable to
the Project or any component thereof, which come due during the
period of acquisition, construction and installation of the Project or
such component.
"Qualified Reserve Account Credit Instrument" means an irrevocable standby or
direct -pay letter of credit or surety bond issued by a commercial bank or insurance
company and deposited with the Trustee under Section 5.05(b), provided that all of the
following requirements are met:
(a) the long-term credit rating of such bank or insurance company is AA
or betterfrom S&P;
(b) such letter of credit or surety bond has a term of at least 12 months;
(c) such letter of credit or surety bond has a stated amount at least
equal to the portion of the Reserve Requirement with respect to
which funds are proposed to be released under Section 5.05(b);
and
(d) the Trustee is authorized under the terms of such letter of credit or
surety bond to draw thereunder an amount equal to any deficiencies
which may exist from time to time in the Interest Account or the
Principal Account for the purpose of making payments required
under Section 5.05(a).
"Record Date" means, with respect to any Interest Payment Date, the 15th
calendar day of the month preceding such Interest Payment Date, whether or not such
day is a Business Day.
A-5
"Redemption Fund" means the fund by that name established and held by the
Trustee under Section 5.06.
"Refundable Credits" means the amounts (if any) which are payable to the issuer
of Build America Bonds by the federal government under Section 6431 of the Tax Code,
which the issuer of such Build America Bonds elects to receive under Section
54AA(g)(1) of the Tax Code.
"Registration Books" means the records maintained by the Trustee under
Section 2.05 for the registration and transfer of ownership of the Bonds.
"Reserve Account" means the account by that name established and held by the
Trustee in the Bond Fund established under Section 5.02.
"Reserve Reauirement" means with respect to the Bonds, as of the date of
calculation, an amount equal to the least of (i) maximum annual Installment Payments,
(ii) 125% of average annual Installment Payments or (iii) 10% of the original principal
amount of the Installment Payments.
"Securities Depositories" means DTC; and, in accordance with then current
guidelines of the Securities and Exchange Commission, such other addresses and/or
such other securities depositories as the Authority designates in written notice filed with
the Trustee.
"Series A Bonds" means the $ aggregate principal amount of
Lodi Public Financing Authority 2010 Water Revenue Bonds, Series A authorized by and
at anytime Outstanding underthis Indenture.
"Series A Costs of Issuance Fund" means the fund by that name established and
held by the Trustee under Section 3.04(a).
"Series B Bonds" means the $ aggregate principal amount of
Lodi Public Financing Authority 2010 Water Revenue Bonds, Series B (Federally
Taxable — Build America Bonds — Direct Payment) authorized by and at any time
Outstanding underthis Indenture.
"Series B Costs of Issuance Fund" means the fund by that name established and
held by the Trustee under Section 3.04(b).
"Series A Proiect Fund" means the fund of that name established and held by
the City pursuant to Section 3.05(a).
"Series A Reserve Subaccount" means the subaccount of that name established
and held by the Trustee in the Reserve Account.
"Series B Proiect Fund" means the fund of that name established and held by
the City pursuant to Section 3.05(b).
"Series B Reserve Subaccount" means the subaccount of that name established
and held by the Trustee in the Reserve Account.
►M
"S&P" means Standard & Poor's, a division of the McGraw Hill Companies, of
New York, New York, its successors and assigns.
"Supplemental Indenture" means any indenture hereafter duly authorized and
entered into between the Authority and the Trustee, supplementing, modifying or
amending this Indenture; but only if and to the extent that such Supplemental Indenture
is specifically authorized hereunder.
"Tax Code" means the Internal Revenue Code of 1986 in effect on the Closing
Date or (except as otherwise referenced herein) as it may be amended to apply to
obligations issued on the Closing Date, together with applicable proposed, temporary
and final regulations promulgated, and applicable official public guidance published,
under said Code.
"Tpr" means, when used with respect to the Installment Sale Agreement, the
time during which the Installment Sale Agreement is in effect, as provided in Section 4.2
thereof.
"Term Bonds" means, collectively, (a) the Series A Bonds maturing on June 1,
and (b) the Series B Bonds maturing on June 1,
"Trustee" means The Bank of New York Mellon Trust Company, N.A., a national
banking association organized and existing under the laws of the United States of
America, or its successor or successors, as Trustee hereunder as provided in Article
VIII.
"Written Certificate." "Written Reauesf' and "Written Reauisition" of the Authority
or the City mean, respectively, a written certificate, request or requisition signed in the
name of the Authority or the City by its Authorized Representative. Any such instrument
and supporting opinions or representations, if any, may, but need not, be combined in a
single instrument with any other instrument, opinion or representation, and the two or
more so combined shall be read and construed as a single instrument.
A-7
NO. R -
APPENDIX B
SERIES A BOND FORM
UNITED STATES OF AMERICA
STATE OF CALIFORNIA
LODI PUBLIC FINANCING AUTHORITY
2010 WATER REVENUE BOND,
SERIES A
INTEREST RATE: MATURITY DATE: ORIGINAL ISSUE -0 i T OUSIP:
% June 1, :.:24x0"` ;
.
REGISTERED OWNER: CEDE" G`b,.••..., '
PRINCIPAL AMOUNT; ***
The LORI.... P081 -JI -C" MNA40I14G AUTHORITY, a joint exercise of powers
authority duly orgahi ed " and gxjstiHg under the laws of the State of California (the
"Authority"), far', --value received, hereby promises to pay to the Registered Owner
specified above...or• registered assigns (the "Registered Owner"), on the Maturity Date
specified above (subject to any right of prior redemption hereinafter provided for), the
PrincipalAmount specified above, in lawful money of the United States of America, and
to pay interest thereon in like lawful money from the Interest Payment Date (as
hereinafter defined) next preceding the date of authentication of this Bond unless (i) this
Bond is authenticated on or before an Interest Payment Date and after the close of
business on the 15th day of the month preceding such interest payment date, in which
event it shall bear interest from such Interest Payment Date, or (ii) this Bond is
authenticated on or before May 15, 2011, in which event it shall bear interest from the
Original Issue Date specified above; provided, however, that if at the time of
authentication of this Bond, interest is in default on this Bond, this Bond shall bear
interest from the Interest Payment Date to which interest has previously been paid or
made available for payment on this Bond, at the Interest Rate per annum specified
above, payable semiannually on June 1 and December 1 in each year, commencing
June 1, 2011 (the "Interest Payment Dates"), calculated on the basis of a 360 -day year
composed of twelve 30 -day months.
Principal hereof and premium, if any, upon early redemption hereof are payable
upon presentation and surrender hereof at the corporate trust office of The Bank of New
B-1
York Mellon Trust Company, N.A., as trustee (the "Trustee"), in Los Angeles, California,
or such other place as designated by the Trustee (the "Trust Office"). Interest hereon is
payable by check of the Trustee mailed on the applicable Interest Payment Date to the
Registered Owner hereof at the Registered Owner's address as it appears on the
registration books of the Trustee as of the close of business on the fifteenth day of the
month preceding each Interest Payment Date (a "Record Date"), or, upon written
request filed with the Trustee as of such Record Date by a registered owner of at least
$1,000,000 in aggregate principal amount of Bonds, by wire transfer in immediately
available funds to an account in the United States designated by such registered owner
in such written request.
This Bond is not a debt of the City of Lodi (the "City"), the County of San
Joaquin, the State of California, or any of its political subdivisions, and neither the City,
said County, said State, nor any of its political subdivisions, is liable hereon nor in any
event shall this Bond be payable out of any funds or properties of the Authority other
than the Authority Revenues.
This Bond is one of a duly authorized issue of bonds of the Authority designated
as the "Lodi Public Financing Authority 2010 Water Revenue Bonds, Series A (the
"Series A Bonds"), in an aggregate principal amount of $ , all of like tenor
and date (except for such variation, if any, as may be required to d.esigna#e varying
numbers, maturities, interest rates or redemption provisions) pnd"'all :issued; under the
provisions of Article 4 of Chapter 5 of Division 7 of Title 1,.•Of;'the .Garlf6rni� Glovernment
Code (the `Bond Law"), and under an Indenture Qf 'Criast'daiteda...otgber 1, 2010,
between the Authority and the Trustee (the-. 16denture" ), i nd a esoI tion `bf'the Authority
adopted on , 2010,...author1zin9tH"b isswatj of..°tf e;Series A` oNs and the
Lodi Public Financinq,Awtho by .2.0 FO;`VV ter PeJ.
vW�(1ue 3o ds, Se le B (Federally
Taxable — Build:..America Bored$ — Piroct Payrrtent) iSs. ed 'yt of authority under the
Indenture in t�tie:::::a dreabt6 jprincic al ampuht{ of $ ' (the "Series B
Bonds"). Ref&,6666 ie hereby made(6 the it der t6re (cdo es of which are on file at the
office of the AirthQritr) "and SII: supplerrreit .thereto for a description of the terms on
which the Series A Bonds ani the•�Series•,B Bonds (collectively, the "Bonds") are issued,
the provisionswith regi rd to'the..nature and extent of the security for the Bonds, and the
rights thereunder of tale owners of the Bonds and the rights, duties and immunities of
the Trustee€,and the rights and obligations of the Authority thereunder, to all of the
provisions of which the Registered Owner of this Bond, by acceptance hereof, assents
and agrees.
The Series A Bonds have been issued by the Authority to finance improvements
to the water supply, treatment and distribution system of the City (the "Water System").
The Bonds are special obligations of the Authority which are payable from and secured
by a charge and lien on the Authority Revenues as defined in the Indenture, consisting
principally of installment payments made by the City under an Installment Sale
Agreement dated as of October 1, 2010, between the Authority and the City (the
"Installment Sale Agreement"). As and to the extent set forth in the Indenture, all of the
Authority Revenues are exclusively and irrevocably pledged in accordance with the
terms of the Indenture to the payment of the principal of and interest and premium (if
any) on the Bonds.
The rights and obligations of the Authority and the owners of the Bonds may be
modified or amended at any time in the manner, to the extent and upon the terms
provided in the Indenture, but no such modification or amendment shall extend the fixed
B-2
maturity of any Bonds, or reduce the amount of principal thereof or premium (if any)
thereon, or extend the time of payment, or change the method of computing the rate of
interest thereon, or extend the time of payment of interest thereon, without the consent
of the owner of each Bond so affected.
The Series A Bonds maturing on or before June 1 _ , are not subject to
optional redemption prior to their respective stated maturities. The Series A Bonds
maturing on or after June 1 _ , are subject to redemption at the option of the
Authority as a whole, or in part among maturities on such basis as determined by the
Authority and by lot within a maturity, on any date on or after June 1, , from any
available source of funds, at a redemption price equal to 100% of the principal amount
of the Series A Bonds to be redeemed, together with accrued interest thereon to the
date fixed for redemption, without premium.
The Series A Bonds maturing on June 1, , are subject to mandatory
redemption in part by lot, at a redemption price equal to 100% of the principal amount
thereof to be redeemed, without premium, in the aggregate respective principal amounts
and on June 1 in the respective years as set forth in the following table; provided,
however, that if some but not all of such Series A Bonds have been redeemed under the
redemption provision described in the preceding paragraph, the total amount of all future
sinking fund payments shall be reduced by the aggregate principal amount of the Series
A Bonds so redeemed, to be allocated among such sinking fund payments on a pro rata
basis in integral multiples of $5,000 (as set forth in a schedule provided by the Authority
to the Trustee).
Sinking Fund
Redemption Date Principal Amount
June 1 To Be Redeemed
As provided in the Indenture, notice of redemption will be mailed by the Trustee
by first class mail not less than 30 nor more than 60 days prior to the redemption date to
the respective owners of any Series A Bonds designated for redemption at their
addresses appearing on the registration books of the Trustee, but neither failure to
receive such notice nor any defect in the notice so mailed shall affect the sufficiency of
the proceedings for redemption or the cessation of accrual of interest thereon from and
after the date fixed for redemption. The Authority has the right to rescind any optional
redemption notice as set forth in the Indenture.
If this Bond is called for redemption and payment is duly provided therefor as
specified in the Indenture, interest shall cease to accrue hereon from and after the date
fixed for redemption.
This Bond is transferable by the Registered Owner hereof, in person or by his
attorney duly authorized in writing, at the Trust Office, but only in the manner, subject to
the limitations and upon payment of the charges provided in the Indenture, and upon
surrender and cancellation of this Bond. Upon registration of such transfer, a new
Series A Bond or Bonds, of authorized denomination or denominations, for the same
aggregate principal amount and of the same maturity will be issued to the transferee in
exchange herefor. This Bond may be exchanged at the Trust Office for Series A Bonds
B-3
of the same tenor, aggregate principal amount, interest rate and maturity, of other
authorized denominations.
The Authority and the Trustee may treat the Registered Owner hereof as the
absolute owner hereof for all purposes, and the Authority and the Trustee shall not be
affected by any notice to the contrary.
Unless this Bond is presented by an authorized representative of The Depository
Trust Company to the Authority or the Trustee for registration of transfer, exchange or
payment, and any Bond issued 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
since the registered owner hereof, Cede & Co., has an interest herein.
It is hereby certified by the Authority that all
required to exist, to have happened or to have been
issuance of this Bond do exist, have happened'"or
regular time, form and manner as required by tle' Bei
California and that the amourd...of thx Boh�t, t6' " he
Authority, does not exceed 'any...lirt'it; prfscr.ib.e b
and is not in exces "of the amount of Bonds permittb(
This Bond i:, ,hot er titletl•`ty enyAlen efit under
Nr • r�^s� .zirirat� A�....aulhehtic<
an lysig -ed-- , the`Truste•6'.
of the _thivng%, cdnc�tibns and acts
Derfprrned...precedek� to and in the
nave be"en.,perfprreed in due and
. Levv and th haw's of the State of
%kith all••cytQl Indebi:edness of the
ry. laq 4 of the. Siat6 of California,
foibe is's"'ue4.dndd"r`the Indenture.
:he: Indenture or valid or obligatory
tion hereon endorsed has been
IN'1N.ITN•8'S$ WHEREOF, the Lodi Public Financing Authority has caused this
Bond to be ex6cq'fed in its name and on its behalf with the facsimile signature of its
Chair and'attested to by the facsimile signature of its Secretary, all as of the Original
Issue Date specified above.
Attest:
Secretary
LODI PUBLIC FINANCING AUTHORITY
By:
Chair
Dated:
CERTIFICATE OF AUTHENTICATION
This is one of the Bonds described in the within -mentioned Indenture.
THE BANK OF NEW YORK MELLON
TRUST COMPANY, N.A.The Bank of New
York Mellon Trust Company, N.A., as
Trustee
in
ASSIGNMENT
Authorized Signatory
For value received the undersigned hereby sells, assigns and transfers unto
whose address and social security or other
tax identifying number is the with i n-mention6a Bond and
hereby irrevocably constitute(s) ......ar d"* ': appoint(s)
attornev. fo transfer tfe:: same on the
registration books of the Trustee with full power
Dated:
Signature Guaranteed*°?
Note: Signature gua'antee'shalf"be made by a
guarantor institution par cipatidg in th „SecUflties
TransferAgents M6datlioo'Brotbram or in such other
guarantee prograrnaaceptabb to the Trustee.
�l
T
Note: The signature(s) on this Assignment must
correspond with the name(s) as written on the face of
the within Bond in every particularwithout alteration or
enlargement or any change whatsoever.
NO. R -
SERIES B BOND FORM
UNITED STATES OF AMERICA
STATE OF CALIFORNIA
LODI PUBLIC FINANCING AUTHORITY
2010 WATER REVENUE BOND, SERIES B
(Federally Taxable — Build America Bonds — Direct Payment)
INTEREST RATE: MATURITY DATE: ORIGINAL ISSU•E`•DATE: GUSIP:
% June 1, t7 L,:2010",
REGISTERED OWNER: CEDE•"& Q•O..••..... -1 1
PRINCIPAL AMpUNT *** '
The LODI.....PUBLIC FI:NAkNGING AUTHORITY, a joint exercise of powers
authority duly organized; and pxistir g under the laws of the State of California (the
"Authority"), fqr'• value .received, hereby promises to pay to the Registered Owner
specified above....or registered assigns (the "Registered Owner"), on the Maturity Date
specified above (subject to any right of prior redemption hereinafter provided for), the
Principal Amount specified above, in lawful money of the United States of America, and
to pay interest thereon in like lawful money from the Interest Payment Date (as
hereinafter defined) next preceding the date of authentication of this Bond unless (i) this
Bond is authenticated on or before an Interest Payment Date and after the close of
business on the 15th day of the month preceding such interest payment date, in which
event it shall bear interest from such Interest Payment Date, or (ii) this Bond is
authenticated on or before March 15, 2011, in which event it shall bear interest from the
Original Issue Date specified above; provided, however, that if at the time of
authentication of this Bond, interest is in default on this Bond, this Bond shall bear
interest from the Interest Payment Date to which interest has previously been paid or
made available for payment on this Bond, at the Interest Rate per annum specified
above, payable semiannually on June 1 and December 1 in each year, commencing
June 1, 2011 (the "Interest Payment Dates"), calculated on the basis of a 360 -day year
composed of twelve 30 -day months.
Principal hereof and premium, if any, upon early redemption hereof are payable
upon presentation and surrender hereof at the corporate trust office of The Bank of New
York Mellon Trust Company, N.A., as trustee (the "Trustee"), in Los Angeles, California,
or such other place as designated by the Trustee (the "Trust Office"). Interest hereon is
payable by check of the Trustee mailed on the applicable Interest Payment Date to the
Registered Owner hereof at the Registered Owner's address as it appears on the
registration books of the Trustee as of the close of business on the fifteenth day of the
month preceding each Interest Payment Date (a "Record Date"), or, upon written
request filed with the Trustee as of such Record Date by a registered owner of at least
$1,000,000 in aggregate principal amount of Bonds, by wire transfer in immediately
available funds to an account in the United States designated by such registered owner
in such written request.
This Bond is not a debt of the City of Lodi (the "City"), the County of San
Joaquin, the State of California, or any of its political subdivisions, and neither the City,
said County, said State, nor any of its political subdivisions, is liable hereon nor in any
event shall this Bond be payable out of any funds or properties of the Authority other
than the Authority Revenues.
This Bond is one of a duly authorized issue of bonds of the Authority designated
as the "Lodi Public Financing Authority 2010 Water Revenue Bonds, Series B (Taxable
— Build America Bonds — Direct Payment), in an aggregate principal .amount of
$ (the "Series B Bonds"), all of like tenor and date;.(exc6pt for such
variation, if any, as may be required to designate varying nurrm.bers; rnat6rities, interest
rates or redemption provisions) and all issued under til, p�ovisitir s, of ..Article 4 of
Chapter 5 of Division 7 of Title 1 of the California.-G6vernme4 Code i(the".°Bond Law"),
and under an Indenture of Trust dated as..o :Qctober 1, -.261 q, between tfi'e Authority and
the Trustee (the "Indenture") an.d..a-'-resiilyticjr "of the Auth6rhy adapted oh i,
2010, authorizing the iss.uanci' of...th6 Bonds: and 111e "l b6 Public, F'iriaricirig Authority
2010 Water Reve.nue Bonds, Series A i' sued by the Aiathbrity under fhe Indenture in the
aggregate principal ar c3unt of (tf a Series...A Bonds"). Reference is
hereby made�to'tho' In entu E (copies f whidh dire Qn file 'at the office of the Authority)
and all suppl6ments fheretd far a description, pf-4he" terms on which the Series A Bonds
and the Series,.B Bbr ds.,(boll(:ctive y, 'the.."Bonds") are issued, the provisions with regard
to the nature and: exiet of the...security for the Bonds, and the rights thereunder of the
owners of th .-Bonde End the rights, duties and immunities of the Trustee and the rights
and obligati. ns...:of `the Authority thereunder, to all of the provisions of which the
Registered Owner of this Bond, by acceptance hereof, assents and agrees.
The Series B Bonds have been issued by the Authority to finance improvements
to the water supply, treatment and distribution system of the City (the "Water System").
The Bonds are special obligations of the Authority which are payable from and secured
by a charge and lien on the Authority Revenues as defined in the Indenture, consisting
principally of installment payments made by the City under an Installment Sale
Agreement dated as of October 1, 2010, between the Authority and the City (the
"Installment Sale Agreement. As and to the extent set forth in the Indenture, all of the
Authority Revenues are exclusively and irrevocably pledged in accordance with the
terms of the Indenture to the payment of the principal of and interest and premium (if
any) on the Bonds.
The rights and obligations of the Authority and the owners of the Bonds may be
modified or amended at any time in the manner, to the extent and upon the terms
provided in the Indenture, but no such modification or amendment shall extend the fixed
maturity of any Bonds, or reduce the amount of principal thereof or premium (if any)
thereon, or extend the time of payment, or change the method of computing the rate of
interest thereon, or extend the time of payment of interest thereon, without the consent
of the owner of each Bond so affected.
B-7
The Series B Bonds are subject to redemption at the option of the Authority as a
whole, or in part among maturities on such basis as determined by the Authority and by
lot within a maturity, on any date on or after June 1, , from any available source of
funds, at a redemption price equal to 100% of the principal amount of the Series B
Bonds to be redeemed, together with accrued interest thereon to the date fixed for
redemption, without premium.
The Series B Bonds are subject to mandatory redemption in part by lot, at a
redemption price equal to 100% of the principal amount thereof to be redeemed, without
premium, in the aggregate respective principal amounts and on June 1 in the respective
years as set forth in the following table; provided, however, that if some but not all of the
Series B Bonds have been redeemed under the redemption provision described in the
preceding paragraph, the total amount of all future sinking fund payments shall be
reduced by the aggregate principal amount of the Series B Bonds so redeemed, to be
allocated among such sinking fund payments on a pro rata basis in integral multiples of
$5,000 (as set forth in a schedule provided by the Authority to the Trustee).
Sinking Fund
Redemption Date PrincipalAmount
June 1 To Be Redeemed
As provided in the Indenture, notice of redemption will be mailed by the Trustee
by first class mail not less than 30 nor more than 60 days prior to the redemption date to
the respective owners of any Series B Bonds designated for redemption at their
addresses appearing on the registration books of the Trustee, but neither failure to
receive such notice nor any defect in the notice so mailed shall affect the sufficiency of
the proceedings for redemption or the cessation of accrual of interest thereon from and
after the date fixed for redemption. The Authority has the right to rescind an optional
redemption notice as set forth in the Indenture.
If this Bond is called for redemption and payment is duly provided therefor as
specified in the Indenture, interest shall cease to accrue hereon from and after the date
fixed for redemption.
This Bond is transferable by the Registered Owner hereof, in person or by his
attorney duly authorized in writing, at the Trust Office, but only in the manner, subject to
the limitations and upon payment of the charges provided in the Indenture, and upon
surrender and cancellation of this Bond. Upon registration of such transfer, a new
Series B Bond or Bonds, of authorized denomination or denominations, for the same
aggregate principal amount and of the same maturity will be issued to the transferee in
exchange herefor. This Bond may be exchanged at the Trust Office for Series B Bonds
of the same tenor, aggregate principal amount, interest rate and maturity, of other
authorized denominations.
The Authority and the Trustee may treat the Registered Owner hereof as the
absolute owner hereof for all purposes, and the Authority and the Trustee shall not be
affected by any notice to the contrary.
Unless this Bond is presented by an authorized representative of The Depository
Trust Company to the Authority or the Trustee for registration of transfer, exchange or
payment, and any Bond issued 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
since the registered owner hereof, Cede & Co., has an interest herein.
It is hereby certified by the Authority that all of the thing, co iclitibns and act:
required to exist, to have happened or to have been perforrned..pecede`to and in the
issuance of this Bond do exist, have happened_' ok havo be3en.. perfared in due anc
regular time, form and manner as required by tf E~Bdn Law and the aw of the State o'
California and that the amount of thi :Bohct fogad. ith a14••crthei kndebtedness of the
Authority, does not exraeect any.., imit- pr�sdriped I�r'tt a Ordinance or: apy laws of the
State of California,:- Inis no in excess of the arrtourll & 9pegmilted to be issuec
under the Ind'entur4. "
for any pur
manually sig
Of antler the Indenti. re or valid or obligatory
authentication hereor endorsed has been
IN WITNESS WHEREOF, the Lodi Public Financing Authority has caused thi:
Bond to be executed in its name and on its behalf with the facsimile sianature of itE
Chair and attested to by the facsimile signature of its Secretary, all as of the Original
Issue Date specified above.
Attest:
Secretary
LODI PUBLIC FINANCING AUTHORITY
0
Chair
Dated:
CERTIFICATE OF AUTHENTICATION
This is one of the Bonds described in the within -mentioned Indenture.
THE BANK OF NEW YORK MELLON
TRUST COMPANY, N.A.The Bank of New
York Mellon Trust Company, N.A., as
Trustee
By:
ASSIGNMENT
Authorized Signatory
For value received the undersigned hereby sells, assigns and transfers unto
whose address and social security or other
tax identifying number is the within -mentioned Bond and
hereby irrevocably constitute(s) grid appoint(s)
attornev, fo transfer the`, same on the
registration books of the Trustee with full power
Dated:
Signature Gua
Note: Signature guai
guarantor institution
Transfer Agents M6i
guarantee program
f'.be made by A.
g in th6„Securities
dram or in such other
to the Trustee.
B-10
Note: The signature(s) on this Assignment must
correspondwith the name(s) as written on the face of
the within Bond in every particularwithout alteration or
enlargementor any change whatsoever.
APPENDIX C
FORM OF PROJECT FUND REQUISITION
Lodi Public Financing Authority
2010 Water Revenue Bonds,
Series A
DISBURSEMENT REQUEST NO.:
The Bank of New York Trust Company, N.A.
550 Kearny Street, Suite 600
San Francisco, California 94108
Attention: Corporate Trust Department
Ladies and Gentlemen:
Lodi Public Financing Authority
2010 Water Revenue Bonds, Series B
(Federally Taxable - Build America Bonds –
Direct Payment)
In accordance with Section 3.05(a) of the Indenture of Trust, dated as of October 1,
2010 (the "Indenture"), by and between the Lodi Public Financing Authority and The
Bank of New York Mellon Trust Company, N.A., as trustee, you are hereby authorized
and requested to make immediate disbursement of funds held by you in the following
Project Fund for the payment of Project Costs or the reimbursement of the City of Lodi
for payment of Project Costs:
— Series A Project Fund
® Series B Project Fund
You are hereby requested to pay to the person(s), corporation(s) or other entity(ies)
designated on Schedule A attached hereto as Payee(s), the sum set forth on said
Schedule, in payment of all or a portion of the Project Costs described on said
Schedule, and all such payments shall be made by check or wire transfer in accordance
with payment instructions contained in Schedule A or the invoice submitted in
accordance therewith and the Trustee shall have no duty or obligation to authenticate
such payment instructions or the authorization thereof:
The undersigned hereby certifies that (i) no part of the amount requested herein has
been included in any other request previously filed with you; (ii) the labor, services
and/or materials covered hereby have been performed and the payment requested
C-1
herein is due and payable under a purchase order, contract or other authorization; and
(iii) the amount requested will be applied for a Project Cost.
Dated: , 20—
o-2
CITY OF LODI
Schedule A
Payee Payee
Name* Address
Amount
Reauested
Description of
Project Cost
Payment by
Wire or US Mail
** Invoice or statement is attached.
See attached invoice.
C-1
RESOLUTION NO. 2010-173
A RESOLUTION OF THE LODI CITY COUNCIL AUTHORIZING
DOCUMENTS AND OFFICIAL ACTIONS RELATING TO THE
INSTALLMENT SALE FINANCING OF WATER SYSTEM
IMPROVEMENTS AND THE ISSUANCE AND SALE OF WATER
REVENUE BONDS BY THE LODI PUBLIC FINANCING AUTHORITY
WHEREAS, the City of Lodi (the "City") owns and operates facilities and property
for the supply, treatment, and distribution of water within the service area of the City (the
"Water System"); and
WHEREAS, in order to provide funds to finance the acquisition and construction
of additional improvements to the Water System (the "Water Projects"), the Authority
proposes to issue its 2010 Water Revenue Bonds (the "Bonds") under the provisions of
Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of
California, commencing with Section 6584 of said Code (the "Bond Law"); and
WHEREAS, in order to provide revenues which are sufficient to pay debt service
on the Bonds, the Authority proposes to sell the completed Water Projects to the City
under an Installment Sale Agreement for a purchase price to be paid by the City in
semiannual installments during the term of the Bonds; and
WHEREAS, the obligations of the City under the proposed Installment Sale
Agreement will be secured by a pledge of and lien on the net revenues of the Water
System; and
WHEREAS, the City Council wishes at this time to take action approving such
financing transactions and all related documents and actions.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Lodi
as follows:
Section 1. Approval of Financing Plan; Authorization of Bonds. The City Council
hereby approves the financing plan described in the recitals of this Resolution. To that
end, the City Council hereby approves the issuance of the Bonds by the Authority under
the Bond Law in the aggregate principal amount of not to exceed $45,000,000.
Section 2. Approval of Installment Sale Agreement. The City Council hereby
approves the Installment Sale Agreement between the Authority and the City, under
which the Authority agrees to sell the completed Water Projects to the City for a
purchase price to be paid in semiannual installment payments. As provided in the
Installment Sale Agreement, the installment payments thereunder shall be payable from
and secured by a pledge of and lien on the net revenues of the Water System.
The Installment Sale Agreement is hereby approved in substantially the form on
file with the City Clerk together with any changes therein or additions thereto deemed
advisable by the City Manager or the Deputy City Manager/Internal Services Director
(each, an "Authorized Officer"). An Authorized Officer is hereby authorized and directed
for and in the name and on behalf of the City to execute, and the City Clerk is hereby
authorized and directed to attest, the final form of the Installment Sale Agreement, and
such execution shall be conclusive evidence of the approval of the final form thereof.
Section 3. Sale of Bonds; Approval of Bond Purchase Agreement. The City
Council hereby approves the negotiated sale of the Bonds by the Authority to Stone &
Youngberg LLC (the "Underwriter"). The Bonds shall be sold upon the terms and
conditions set forth in the Bond Purchase Agreement in substantially the form on file
with the City Clerk together with any changes therein or additions thereto deemed
advisable by an Authorized Officer. As provided in the resolution of the Board of
Directors of the Authority authorizing the issuance and sale of the Bonds, the true
interest cost of the Bonds shall not exceed 6.0% and the maximum amount of
Underwriter's discount on the sale of the Bonds shall not exceed 0.85% of the par
amount of the Bonds; provided, however, (i) if an Authorized Officer, after consultation
with the City's bond counsel and financial advisor and the Underwriter, concludes that it
will be economically beneficial to the City for the Authority to issue all or a portion of the
Bonds as taxable bonds under the Build America Bonds program created by the
American Recovery and Reinvestment Act of 2009, then the Bonds (or a portion of the
Bonds, in a second series) may be issued as taxable bonds, and the true interest cost of
such taxable bonds shall not exceed 8.5%. The final form of the Bond Purchase
Agreement shall be executed in the name and on behalf of the City by an Authorized
Officer.
Section 4. Official Statement. The City Council hereby approves and deems
nearly final within the meaning of Rule 15c2-12 of the Securities Exchange Act of 1934,
the Preliminary Official Statement describing the Bonds in the form on file with the City
Clerk, together with such modifications thereof as may be approved by an Authorized
Officer. An Authorized Officer is hereby authorized and directed to (a) execute and
deliver to the purchaser of the Bonds a certificate deeming the Preliminary Official
Statement to be nearly final as of its date within the meaning of such Rule, (b) approve
any changes in or additions to cause the Official Statement to be put in final form, and
(c) execute the final Official Statement for and in the name and on behalf of the City.
The City Council hereby authorizes the distribution of the Preliminary Official Statement
and the Final Official Statement by the Underwriter.
Section 5. Official Actions. The Mayor, the City Manager, the Deputy City
Manager/Internal Services Director, the City Clerk, the City Attorney and all other
officers of the City are each authorized and directed in the name and on behalf of the
City to make any and all assignments, certificates, requisitions, agreements, notices,
consents, instruments of conveyance, warrants and other documents, which they or any
of them might deem necessary or appropriate in order to consummate any of the
transactions contemplated by the agreements and documents approved under this
Resolution, including any documentation relating to municipal bond insurance if an
Authorized Officer concludes, after consultation with the City's bond counsel, the City's
financial advisor and the Underwriter, that it would be cost-effective to purchase such
insurance. Whenever in this Resolution any officer of the City is authorized to execute
or countersign any document or take any action, such execution, countersigning or
action may be taken on behalf of such officer by any person designated by such officer
to act on his or her behalf in case such officer is absent or unavailable.
Section 6. Effective Date. This Resolution shall take effect immediately upon its
passage and adoption.
-2-
Dated: October 6, 2010
I hereby certify that Resolution No. 2010-173 was passed and adopted by the
City Council of the City of Lodi in a regular meeting held October 6, 2010, by the
following vote:
AYES: COUNCIL MEMBERS — Hansen, Johnson, and Mayor Katzakian
NOES: COUNCIL MEMBERS — Hitchcock and Mounce
ABSENT: COUNCIL MEMBERS — None
ABSTAIN: COUNCIL MEMBERS — Non&
RANDIJOHL
City Clerk
2010-173
-3-
RESOLUTION NO. LPFA2010-01
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE LODI
PUBLIC FINANCING AUTHORITY AUTHORIZING THE ISSUANCE
AND SALE OF WATER REVENUE BONDS TO FINANCE THE
CONSTRUCTION OF WATER SYSTEM IMPROVEMENTS, AND
APPROVING RELATED DOCUMENTS AND OFFICIAL ACTIONS
------------------------------------------------------------------
------------------------------------------------------------------
WHEREAS, the City of Lodi (the "City") owns and operates facilities and property
for the supply, treatment, and distribution of water within the service area of the City (the
"Water System"); and
WHEREAS, in order to provide funds to finance the construction of additional
improvements to the Water System (the "Water Projects"), the Lodi Public Financing
Authority (the "Authority") proposes to issue its 2010 Water Revenue Bonds (the
"Bonds") under the provisions of Article 4 of Chapter 5, Division 7, Title 1 of the
Government Code of the State of California, commencing with Section 6584 of said
Code (the "Bond Law"); and
WHEREAS, in order to provide revenues which are sufficient to pay debt service
on the Bonds, the Authority proposes to sell the completed Water Projects to the City
under an Installment Sale Agreement, for a purchase price to be paid by the City in
semiannual installments during the term of the Bonds; and
WHEREAS, the Authority proposes to sell the Bonds on a negotiated basis to
Stone & Youngberg LLC, as underwriter (the "Underwriter"); and
WHEREAS, the Board of Directors of the Authority wishes at this time to take
action approving such financing transactions and all related documents and actions.
NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Lodi
Public Financing Authority as follows:
Section 1. Approval of Financing Plan; Authorization of Bonds. The Board of
Directors hereby approves the financing plan described in the recitals of this Resolution.
To that end, the Board of Directors hereby authorizes the issuance of the Bonds under
the Bond Law in the aggregate principal amount of not to exceed $45,000,000.
Section 2. Approval of Related Financing Agreements. The Board of Directors
hereby approves each of the following agreements required to implement the financing
plan to be accomplished by the Bonds, in substantially the respective forms on file with
the Secretary together with any changes therein or additions thereto deemed advisable
by the Executive Director or the Treasurer (each, an "Authorized Officer"), and the
execution thereof by an Authorized Officer shall be conclusive evidence of the approval
of any such changes or additions.
(a) Indenture of Trust between the Authority and The Bank of New York
Mellon Trust Company, N.A., as trustee, prescribing the terms and
conditions upon which the Bonds will be issued.
(b) Installment Sale Agreement between the Authority and the City,
under which the Authority agrees to sell the completed Water
Projects to the City in consideration of semiannual installment
payments.
(c) Bond Purchase Agreement among the Authority, the City and the
Underwriter, under which the Underwriter agrees to purchase the
Bonds from the Authority.
An Authorized Officer is hereby authorized and directed for and in the name and
on behalf of the Authority to execute, and the Secretary is hereby authorized and
directed to attest the final form of each of the foregoing agreements, and such execution
shall be conclusive evidence of the approval of the final form thereof.
Section 3. Sale of Bonds. The Board of Directors hereby approves the
negotiated sale of the Bonds to the Underwriter. The Bonds shall be sold upon the
terms and conditions set forth in the Bond Purchase Agreement which is approved
under Section 2. The Board of Directors hereby delegates to an Authorized Officer the
authority to accept an offer from the Underwriter to purchase the Bonds, provided that
the true interest cost of the Bonds shall not exceed 6.0% and the maximum amount of
Underwriter's discount on the sale of the Bonds shall not exceed 0.85% of the par
amount of the Bonds; provided, however, (i) if an Authorized Officer, after consultation
with the Authority's bond counsel and financial advisor and the Underwriter, concludes
that it will be economically beneficial to the Authority to issue all or a portion of the
Bonds as taxable bonds under the Build America Bonds program created by the
American Recovery and Reinvestment Act of 2009, then the Bonds (or a portion of the
Bonds, in a second series) may be issued as taxable bonds, and the true interest cost of
such taxable bonds shall not exceed 8.5%. The final form of the Bond Purchase
Agreement shall be executed in the name and on behalf of the Authority by an
Authorized Officer.
Section 4. Official Statement. The Board of Directors hereby approves and
deems nearly final within the meaning of Rule 15c2-12 of the Securities Exchange Act of
1934, the Preliminary Official Statement describing the Bonds in the form on file with the
Secretary, together with such modifications thereof as may be approved by an
Authorized Officer. An Authorized Officer is hereby authorized and directed to (a)
execute and deliver to the purchaser of the Bonds a certificate deeming the Preliminary
Official Statement to be nearly final as of its date within the meaning of such Rule, (b)
approve any changes in or additions to cause the Official Statement to be put in final
form, and (c) execute the Final Official Statement for and in the name and on behalf of
the Authority. The Board of Directors hereby authorizes the distribution of the
Preliminary Official Statement and the Final Official Statement by the Underwriter.
Section 5. Official Actions. The Chair, the Executive Director, the Treasurer, the
Secretary, the Authority's general counsel and all other officers of the Authority are each
authorized and directed in the name and on behalf of the Authority to make any and all
assignments, certificates, requisitions, agreements, notices, consents, instruments of
conveyance, warrants and other documents, which they or any of them might deem
necessary or appropriate in order to consummate any of the transactions contemplated
by the agreements and documents approved under this Resolution, including any
documentation relating to municipal bond insurance if an Authorized Officer concludes,
after consultation with the Authority's bond counsel, the Authority's financial advisor and
-2-
the Underwriter, that it would be cost-effective to purchase such insurance. Whenever
in this Resolution any officer of the Authority is authorized to execute or countersign any
document or take any action, such execution, countersigning or action may be taken on
behalf of such officer by any person designated by such officer to act on his or her
behalf in the case such officer is absent or unavailable.
Section 6. Effective Date. This Resolution shall take effect immediately upon its
passage and adoption.
Dated: October 6, 2010
------------------------------------------------------------------
------------------------------------------------------------------
I hereby certify that Resolution No. LPFA2010-01 was passed and adopted by
the Board of Directors of the Lodi Public Financing Authority in a regular meeting held
October 6, 2010, by the following vote:
AYES: BOARD MEMBERS — Hansen, Johnson, and
Chairperson Katzakian
NOES: BOARD MEMBERS — Hitchcock and Mounce
ABSENT: BOARD MEMBERS — None
ABSTAIN: BOARD MEMBERS — None
RANDIJOHL
Secretary
LPFA2010-01
-3-
OFFICERS
Jeremy White
The Grupe Company
Randy Bling
Florsheim Homes
Ramon Batista
River Islands @ Lathrop
Mahesh Ranchhod
American -USA Homes
Rod Attebery
Neumilier & Beardslee
Bill Bromann
H.D. Arnaiz Corporation
Gina Carruesco
Caresco Homes
Rey Chavez
Kelly -Moore Paint Company
Ryan Gerding
Pulte Homes
Cathy Ghan
Oak Valley Community Bank
Steve Herum
Herum Etahtree Brown
Dudley McGee
Wells Fargo
Terry Miles
Teicheri Construction
David Nelson
A.G. Spanos Companies
Carol Ornelas
Visionaty Horne Builders, Inc.
Denise Tschirky
legacy Homes
Matt Arnaiz
H.D. Arnaiz Corporation
Dennis Bennett
Bennett Development
Bill Filios
AKF Development, LLC
Mike Hakeem
Hakeem, Ellis & Marengo
Jeffrey Kirst
Tokay Development
Wayne LeBaron
LeBaron Ranches
John Looper
Top Gndo Construction
Steve Moore
Westervelt Ecological
Toni Raymus
Raymus Homes, Inc
Tony Souza
Souza Realty &. Development
E�1
BUILDING INDUSTRY ASSOCIATION
OF THE DELTA
315 N. SAN JOAQUIN ST., SUITE 202
STOCRTON,CA 95202
209-235-7831 •209-235-7837 fax
October 6,20 10
Mayor Phil Katzakian
City of Lodi
221 W. Pine St.
Lodi, CA 95240
Mayor Katzakian,
Item J-1 on your agenda for the October 6,2010 Council meeting is the
issuance of bonds for the construction of a Water Treatment Plant. The
issuance of these bonds will require annual payments from the water
utility of roughly $2 million. The availability of funds to make those
annual payments remains unclear.
On several occasions staff has made vague references that new
development will pay for the Water Treatment Plant.
LikewiseBIA. Delta continues to question any assumption of new
development paying for a portion of the Water Treatment Plant. At this
time it is the position of BTA Delta that new development will not pay for
the Water Treatment Plant until such time as a full nexus study has been
completed to determine what, if any, portion of the Water Treatment Plant
is required for development to occur in the City.
Due to the longstanding overdraft conditions occurring in Lodi the City
has accumulated a significant deficit of groundwater which needs to be
replenished. In contrast, with the new "green" design standards required
in all California developmentthe water demands of new development are
much lower than developmentofjust fifteen years ago. When the safe
yield amount of water from increased city limits is added to the reduced
water demand of new development it will be a close call on whether new
development is actually adding to the water supply or not.
We ask that you keep this in mind while discussing the financing of the
Water Treatment Plant.
Sincerely,
John R. Beckman
Chief Executive Officer
Presentation to Lodi City Council
Lodi Public Financing Authority
2010 Water Revenue Bonds
October 6, 2010
STONE &
YOUNGBERG
San Francisco Los Angeles San Diego New York Chicago Phoenix Richmond Annapolis Albany
2010 Water Revenue Bonds
• Proposed financing
— Not -to -exceed $45 million Water Revenue Bonds
— May be issued as tax-exempt bonds, taxable Build America Bonds or a combination
• Purpose
— Fund construction of Water Treatment Plant
— Establish a debt service reserve fund
— Pay costs of issuance
STONE &
YOUNGBERG
1
Security for Water Revenue Bonds
• Net Revenues
— All gross water system revenues less operating and maintenance costs
— Includes Build America Bond federal interest subsidy, if applicable
• Rate Covenant
— City promises to charge sufficient water rates to pay debt service with a coverage
cushion of: (i) 125% coverage from Net Revenues, including any transfers from the
Rate Stabilization Fund, and (ii) 100% coverage from Net Revenues less impact fees
and any transfers from Rate Stabilization Fund
— Rate Stabilization Fund can be used for cash management purposes, to smooth out
impacts on rates
• Debt Service Reserve Requirement
— Sized at the lesser of (i) maximum annual debt service, (ii) 10% of par amount, or (iii)
125% of average annual debt service
STONE &
YOUNGBERG
Ratings and Bond Insurance
• Ratings
— Moody's has provided a rating of "Aa3"
— Standard & Poor's has provided a rating to "A+"
At the same time, S&P also upgraded the Wastewater System credit to "A+" from "A-"
— Both provide a "stable" outlook
• Bond Insurance
— Assured Guaranty provided a bond insurance bid
0.28% times total debt service or approximately $200,000 paid up -front
— Bonds could be sold at "Aa3/AAA" interest rates instead of "Aa3/A+" rates
— Total nominal debt service savings of approximately $272,000
— Economic "net present value" savings of approximately $150,000
STONE &
YOUNGBERG
3
Tax -Exempt or Build America Bonds
• Build America Bonds (BABs)
— Authorized by American Reinvestment and Recovery Act of 2009 (ARRA)
— Finance tax-exempt eligible projects at taxable interest rates with a 35% federal
interest subsidy
— Access investors in larger, more actively -traded taxable bond market
• Considerations
— Economic benefit Build America Bond Issuance Since April 2009
— Administrative effort 14
— IRS compliance 12
O
• 10
Active BAB Issuance
E 8
7
O
— Over 1,700 issues to date >1D6
m
— Over $126 billion in par In 4
Q
m
— 25% of total muni sales 2
0
rn rn 0 0 rn rn rn rn rn 0 0 0 0 0 0 0 0
0 0 0
Q 4 O Z °� °� m Q m
Q to 0 LL g Q
-BABs as a % of Total Muni Issuance
STONE & 4
YOUNGBERG
35%
30%
25% o
C
20%
N
15% m
0
10% 3
CD
5%
0%
Comparative Interest Rates
* Benefit of BABs will vary based on market conditions
— Based on current market, we estimate a mix of tax-exempt and taxable bonds to
optimize lowest borrowing costs
8%
7%
6%
5%
4%
3%
2%
1%
0%
STONE &
YOUNGBERG
Illustrative Current Market Interest Rates
M Ln f� d') — M Ln f- 0) — M In [ O
N N N N N M M M co co
O O O O O O O O O O O O O O O
N N N N N N N N N N N N N N N
5
Municipal Market Conditions
* Strong investor demand
– Inflows into relative safety of bond funds
– Muni fund assets balloon to record highs
– Shift of volume into taxable BAB market
has supported tax-exempt rates
* Active municipal issuance
– Heavy calendar expected in 4t" Quarter
$1.9 billion State of California Department
of Water Resources sale this week
$3-$4 billion expected from several
California transportation agencies, alone
Additional State borrowing expected once
budget is complete
– Rush to use BABs before program
authorization sunsets at year end
Source: Ipreo, Bond Buyer, & Investment Company Institute.
(1) Long-term municipal new issues only.
STONE &
YOUNGBERG
Municipal Mutual Fund Flows
C,
2
� 1
m
0
o -1
LL
-2
LL
$15.8 billion in $85.3 billion in
-3
outflow s inflows
-4
(4Q 2008) (1 Q 2009-
1 Q 2010)
-5
WWWMWMMMMMMM000oo
000000000000
� a) 0 M � M � a) M M -,
� M m cn z� M m cn z� M m cn
16
14
12
c 10
0
00 8
6
4
2
w
C
c�
Bond Buyer 30 -Day Visible Supply'
a) Cl) NN O
N 5
U_ Q ca Q aa)
CO
M�
6 %W
Interest Rates Approach 30 -Year Lows
Tax-exempt revenue bond rates have seldom been lower
Bond Buyer Revenue Bond Index (RBI)'
iM-V
Max = 14.32%
Min = 4.38%
14.0 LA Current = 4.59%
12.0
(%) 10.0
M
4.0
Oct -80 Oct -85
Average = 6.91 %
7.0
6.5
6.0
M 5.5 Average = 5.06%
5.0
4.5
4.0
Oct -05 Oct -06 Oct -07 Oct -08 Oct -09 Oct -10
Oct -90 Oct -95 Oct -00 Oct -05
(1) Source: Bloomberg. Tax -Exempt Bonds Maturing in 30 Years with Average Rating of Al/A+. As of 10/1/2010.
STONE &
YOUNGBERG
10
7
Treasury Market Remains Strong
Rally sparked by economic uncertainty and anticipated quantitative easing
10 -Year UST'
16.0
14.0
Max = 15.84%
Min = 2.08%
12.0 Current = 2.51%
10.0
Average = 6.88%
4.0
6.0
5.0
Average = 3.99%
M4.0
3.0
2.0
Oct -05 Oct -06 Oct -07 Oct -08 Oct -09 Oct -10
2.0 "
Oct -62 Oct -70 Oct -78 Oct -86 Oct -94 Oct -02 Oct -10
(1) Source: Federal Reserve & Bloomberg. As of 10/1/2010.
STONE &
YOUNGBERG
L -*3
Financing Details
• Estimated Borrowing Costs
— Interest rates for 2010 Bonds will be set on day of pricing
— True interest cost estimated at 4.6%
• Preliminary Estimated Sources and Uses
Sources
Par Amount $37,370,000
Original Issue Premium 2,325,946
$39,695,946
Uses
Project Fund
$36,500,000
Debt Service Reserve Fund
2,450,250
Bond Insurance
201,755
Costs of Issuance
543.941
$39,695,946
STONE &
YOUNGBERG
9
Approvals Requested
• Resolutions
— City and Lodi Public Financing Authority each authorize issuance of the Bonds and
approve the legal documents and POS in substantially final form
• Preliminary Official Statement (POS)
— Describes key terms of the bonds, the security, the City and its water enterprise
— Discloses potential risks to prospective investors
— Should be complete and accurate with no material omissions or misstatements
• Other Documents
— Installment Sale Agreement: pledges net water revenues to debt payments and
provides covenant to maintain adequate rates and coverage, describes flow of funds
— Indenture of Trust: lays out legal structure of the bonds, payment dates, etc.
— Continuing Disclosure Certificate: City agrees to provide annual information to market
— Purchase Agreement: contract with Stone & Youngberg to lock in interest rates and
principal amounts on day of pricing, outlines conditions of closing
STONE & 10
YOUNGBERG
Wrap Up and Next Steps
* Questions?
* Schedule of Next Steps
October 6th
October 7th
October 14th or 19th
Week of Oct 25th
STONE &
YOUNGBERG
Council approval
Distribute preliminary official statement (POS)
Bond pricing
Bond closing
11