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Agenda Report - September 17, 2003 Public Comment
Continued September I7, 2003 • Ron Bemasconi submitted a letter to Council (filed). He believed it was important that the process for seeking an additional opinion be open, unbiased, and incorporate suggestions from the public. In addition, it should require written disclosures of conflicts of interest or relationships with any of the parties that have a stake in the litigation, as well as their qualifications in environmental law and public finance. He suggested that a steering committee be formed consisting of Mayor Hitchcock, Council Member Hansen, and Judge Baysinger or Seibly to select three or four firms to interview. Candidates should be provided with the following information to review in advance of the interview: ➢ The complaint; ➢ All counterclaims and cross claims; ➢ The 91h Circuit Fireman's Fund decision; ➢ The four financing agreements; ➢ Professional services contract with Envision Law; ➢ The Public Financial Management (PFM) report; ➢ The Cooperative Agreement; ➢ All of Judge Damrell's written decisions; ➢ The July 11, 2003 and September 19, 2003, transcripts of the hearings before Judge Damrell; ➢ The 3`d Amended Scheduling Order; and ➢ All relevant City Council minutes including August 6, 2003, and the transmittal to the City Council from Ron Bernasconi for Citizens for Open, Honest and Effective Government dated August 4, 2003 (filed). Mr. Bernasconi recommended that the additional opinion also give the Council guidance as to the propriety of the conduct of the City Attorney and outside counsel's handling of the case, e.g. not forwarding offers of settlement, notices of hearings, and copies of rulings to the City Council. In addition, the opinion should determine whether the City has recourse for malpractice against outside counsel or others acting as deputy city attorney because they have been given some type of qualified immunity. Referencing Mr. Bernasconi's letter, Mayor Pro Tempore Howard asked how he came to the conclusion "that the Council appears ready to approve the selection of a law firm to provide a second legal opinion." Mr. Bernasconi explained that he drew the conclusion from comments made by Council Members Beckman and Hansen and Mayor Hitchcock during meetings and in newspaper articles. Mayor Pro Tempore Howard expressed concern that information and opinions were being discussed in the newspaper before Council had an opportunity to address them at its regular meetings. She asked Mr. Bernasconi if he had ever stated he would petition for a recall if Council did not consider removing the City Attorney. Mr. Bernasconi replied that Council had adequate grounds for at least a reevaluation of the City Attorney. He expressed his opinion that recalls are generally a waste of taxpayers' money and added that he believed the next election would solve problems in terms of those who have not shown a willingness to keep a critical eye on the City Attorney. In response to Council Member Hansen, City Attorney Hays stated that typically when another legal opinion is sought on an issue it is done at the outset, not long after the process has begun. He recalled that the financing was taken to San Joaquin Superior Court and Judge Cruikshank provided an opinion on its validity, which he believed constituted a second opinion. 5 Continued September 17, 2003 Council Member Hansen noted that it had been stated that the financing would triple what it is now and then triple again in a certain period of time. He asked Mr. Hays if that were true and if there are safeguards for the City to prevent that from happening. Mr. Hays indicated that he would have to review the document before providing an answer. In response to questions posed by Council Member Hansen, Mr. Hays stated that Lehman Brothers can look only to recoveries that are made in the litigation. The financing document clearly states that there are no City revenues at risk. He reported that it took Lehman Brothers nearly two years to arrive at the conclusion that it would be able to finance the program and look only to program receipts for payment and he believed that this constituted a second opinion. Mr. Hays stated that he first met attorney Michael Donovan on July 2, 1996, at a meeting that the City Manager had arranged. Mr. Hays reported that he was hired by the City of Lodi in October 1995. His first record of having any involvement in this case was on January 17, 1996, when he spoke with Mike Brady who was outside counsel for the City dealing with the PCE/TCE contamination issue. Originally the City had two choices: 1) either have a program where it would pay out of its water fund to clean up the contamination, or 2) the current environmental abatement program. When the options were presented to Council, Mr. Donovan provided information about environmental procedures and insurance law, and Mr. Hays spoke about utilizing the nuisance provisions of California law. In reference to settlement offers, Mr. Hays explained that parameters were established and he had received direction that Council did not want to see offers that did not meet those parameters. The offers had to have several components to them, including that it had to be in a dollar amount that represented the particular Potentially Responsible Party's judged level of fault in the matter, and it had to address a recovery of the City's response costs. Mr. Hays could not remember any "solid offers" that met those parameters. The only insurance settlement accomplished was with Wausau Insurance, which dealt with one of the many entities involved at the Holtz Rubber Company site, and the defunct corporation called Rantron. Council Member Hansen clarified that he would like another opinion about the financial agreement and whether or not it was as "iron clad" as it had been presented in terms of protection for the City. In addition, he would like consideration given to the two original strategies considered by Council and a determination made of whether the City is on the right track. Council Member Beckman recommended that a professional opinion be obtained on the financial ramifications of the following scenarios: ➢ What would happen if the City settled the case now; ➢ What would happen if the City were to settle with some of the defendants and not others; ➢ What would happen if the City went all the way and won; and ➢ What would happen if the City went all the way and lost. Council Member Beckman stated that he would like clarification on whether the City has liability, whether it wins or loses the case. Mr. Hays pointed out that no opinion has yet been rendered on those questions, even by the City's current legal staff, to which Council Member Beckman replied that he would like a response from them. Council Member Hansen clarified that he would like the firm that provides the additional opinion to determine whether there were more than two strategies originally available to Council and to evaluate the current strategy in terms of case law and decisions that have been made. 2 Continued September l7, 2003 Mayor Pro Tempore Howard favored having more frequent closed sessions on this topic to allow Council an opportunity to ask these types of questions and receive answers from legal staff. Ms. Howard had found that each time she had an opportunity to receive information and status reports from staff, it broadened her understanding, and made her more confident that the City was headed in the right direction. She cautioned that timing was important at this juncture because the trial is scheduled for December and two items are in the appeal stage at the 9t' Circuit Court. The outcome of the appeals will direct the future of the case, and she preferred that more information be gathered by Council prior to making a decision to pursue another opinion, Mayor Hitchcock expressed concern that the settlement strategy is impacted by the financing agreement, and differing interpretations have been rendered by Mr. Hays and Mr. Donovan about this. In reference to Mr. Hansen's inquiry about the tripling of the financing amount, Ms. Hitchcock explained that it is called the "rule of 72," which means that any debt is going to double every four years if the interest rate is 25%. She was opposed to Ms. Howard's suggestion of waiting for the appeal decisions and pointed out that if the City lost them, it would appeal those decisions, and during this time financing costs would continue to grow. Ms. Hitchcock recalled Mr. Hays saying that the City could get out of the current arrangement at any time; however, she did not believe it was an accurate statement. In reply to Mayor Hitchcock, Mr. Flynn pointed out that there are three appointees who work for the City Council. He is responsible for most of the administrative functions, while Mr. Hays provides Council with legal advice. Most of the direction involved in this case has gone from the City Council to the City Attorney. He recalled that Mr. Donovan came to him with a proposal, which he referred to the City Attorney, and Mr. Hays brought the case to the City Council. Mr. Flynn stated that he made it very clear when the financing issue came up, that in no case, would he agree to it if any City funds were put in jeopardy. He was assured by the attorneys that that was the case, and has an agreement that states that the City is not liable for the costs. Mr. Flynn acknowledged that the City's financial advisor, Alex Burnett, reviewed the financing agreement and provided opinions and cautionary statements, which raised some questions. He commented that once a major investment is made it is very hard to walk away from it and recognize that a mistake was made. In reference to obtaining another opinion, Mr. Flynn stated that if it would reassure the public and Council, he would recommend and support it. Council Member Beckman spoke in opposition to getting an evaluation of the City's current strategy, as the value of it would be questionable. He was, however, in favor of obtaining information on other possibilities and choices that are available. He preferred that the focus be on the financial situation and other options. Mr. Beckman noted that before he could entertain the idea of leaving the current strategy, he needed to know how much it would cost. In response to Council Member Hansen, Mr. Hays drew an analogy to a baseball game and stated that if a person lives and dies by each inning they are not keeping their eye on the end game. He stated that whatever firm is selected to provide another opinion needs to understand the "end game" and advise Council on whether it has an opportunity to be reached. Mr. Hays reported that the financial agreement was looked at as a venture capital transaction because there was no collateral associated with the program other than program receipts. He recalled that in 1999- 2000 the venture capital interest rate was in the 40% to 450/a range. The financing transaction is not a fixed rate; it is London Interbank Offered Rate (LIBOR) plus 5%, which is in the 20% to 30% range. He explained that it was a taxable transaction from the standpoint of the investor. 7 RON & YOLANDA B.ERNASCONI Wednesday, September 17, 2003 Lodi City Council C/O Lodi City Clerk P.O. Bos 3006 Lodi, CA 95241-1910 Honorable Council Members: 11 A01 / I �-Z* Now that the Council appears ready to approve the selection of a law firm to provide a second legal opinion, it is important that the selection process be open, unbiased and incorporate suggestions from the public who ultimately pay the water bills and taxes. Such a process should require written disclosures of conflicts or relationships with any of the parties that have a stake in the litigation as well as their qualifications in environmental law and public finance. To expedite the process and avoid violations of the Broom Act, a Steering Committee could be formed with the two Council members who first acknowledged the need for a second opinion (Hitchcock and Hansen), which would be headed by Judge Baysinger or judge Seibty. A small Steering Committee could more quickly review the required disclosures and resumes and then select three or four of the best candidates to be interviewed by the Steering Committee, The Candidates should be provided a package of material to reviewer advance _of the interviews, which includes: 1. The complaint, 2. All counterclaims and cross claims 3. The Ninth Circuit Fireman's Fund Decision 4. The financing agreements (there are 4 that make up the financing,) 5. The professional services contract with Envision 6. The PFM report and the summary prepared by staff for the Council when the financing was adopted 7. The Cooperative Agreement &. All of Judge Damrell's written decisions 9. The July 11, 2003 and September 19, 2003 transcripts of the hearings before Damrell 10. The 3rd Amended Scheduling Order 11. All relevant City Council minutes, including those from the August 6 censure meeting with a copy of my August 6, 2003 Transmittal to the Council, which i hereby submit to the City Clerk to be part of the record. Then, the Steering Committee could interview and winnow down the candidates to make a recommendation, which would be approved by the entire Council. The second legal opinion should also review the litigation to date and make recommendations on how to proceed forward, g#vig considr,..ration as to hour the Lehman finanj;jM and n=gmen s with Envision MU impact the City finan 1 Since last months attempt to censure the Mayor raised many questions regarding our attorneys' handling of this case, the second opinion should also address the propriety of our Attorneys' failure to provide the Council with a settlement offer, ruling and notice of hearing. Finally, the opinion should consider whether the status of Envision's Attorneys as assistant city attorneys precludes the City from prosecuting malpractice claims against their errors and omissions insurance to recapture the millions in interest expense, which our attorneys told us we could recover. Thank you for your consideration. 5ince7, omw Ron & Yolanda Be oni 3019 Oak Knoll Way Lodi, California 95242 TRAMSMITTAL TO THE LODI CITY COUNCIL Ta LODI CITY COUNCIL FROM: ICON BERNASCONI FOR CITIZENS FOR OPEN, HONEST AND EFFECTIVE GOVERNMENT SUBJECT: CENSURE OF MAYOR I IITCI ICOCK & LODI'S PCE / TCE LITIGATION STRATEGY AND FINANCING DATE: 8/4/2003 Honorable Lodi City Council Members: In an effort to provide sufficient background to enable our newer Council members make a well-informed policy decision relative to the proposed Censure of Mayor Hitchcock and enable the Council to proceed more efficiently and effectively in its litigation to cleanup Lodi's ground water we have compiled and extracted the attached documentation. September 26,1999 (TAB 1) "Lodi Battling Insurers Over Pollution Cleanup" the Sacramento Bee reported, "Lodi is not unlike many other California communities that have had their drinking water threatened by these subterranean plumes of PCE and TCE - "probable" cancer-causing chemicals in the view of public health officials. But no other community has gone as far as Lodi in trying to keep the city, its residents and the local businesses that generated the pollution from having to pay a dime toward the cleanup..." "This city is a very business -friendly town. It will do just about anything it can to accommodate them," said Randall Hays, the city attorney. And that is where high-priced Bay Area attorney Michael C. Donovan comes in. Lodi hired Donovan about three years ago at the top -tier rate of $415 an hour. Since then, the city has invested nearly $8 million in legal and consulting fees. It's all part of a novel strategy crafted largg y by Donovan to go directly after insurance assets of the small businesses on the contaminated properties while leaving the owners financially unscathed. For its money, Lodi has secured one settlement - $1 million from Employers Insurance of Wausau on behalf of a defunct Lodi manufacturer... But the city is not close to turning its first spade of solvent -saturated dirt in the cleanup; it has yet to produce a work plan acceptable to state environmental officials who oversee contaminated sites. Lodi has successfully fought to become the first city in California to take charge of a major environmental restoration project, a job that has been the purview of state or federal environmental regulators. The city negotiated a deal with the state Department of Toxic Substances Control that gave it authority to devise its own strategy for cleanup and enforcement, subject to certain requirements and deadlines. The state also agreed not to go after the city for contamination that could be attributed to leaks in its sewer system. The City Council adopted an unusuaL DQn9yW:grafted[MERLO] giving itself broad authority to compel financial information from insurers and impose criminal sanctions and heavy fines for refusal to comply. City officials up and down California are watching Lodi blaze the trail to see if ies one to follow. Insurance companies so far have managed in court to keep Lodi's enforcement orders and subpoenas at bay. In the case before the federal appellate court, Fireman's Fund Insurance Co. and other insurers argue that the potent portions of the Lodi ordinance are pre-empted by the federal Superf ind law, which establishes liability for environmental cleanups. In the state courts, the 3rd District Court of Appeal recently ruled that Lodi could not assert its legislative powers under the California Constitution to subpoena policy information from insurers - in this case, Connecticut Indemnity Co. - as it would violate companies` privacy rights. Lodi is appealing the case to the state Supreme Court_ The city also is appealing a ruling by a Superior Court judge who not only quashed a similar effort to compel information from USF&G Corp. but o_r gaged the git to pAy the_insumuce holding g gq=wy $50,,000 h2r its legal costs. Donovan has 20 years' experience representing other states in environmental cleanups. But that experience comes at prices seldom seen in accounts receivable at Lodi City Hall. Two years and nine months after hiring Donovan, Lodi's expenditures for legal and technical help have mounted to more than $5.3 million, with another $2.4 million due. Donovan and Hays express no doubt that ibe gily will more than recover all gMnyses incurred. Ths wa tthe layer an designe1 we can't lose," Hays said. Lehman Brothers, a global investment bank, apparently believes the city has a good shot at collecting big money. The company plans to give the city $16 million to extend its legal battle while expecting to recover as much as $20 million, including interest, from judgments or settlements against insurance companies. Donovan's firm would get 20 percent of the insurance money collected on top of the $65,000 it charges monthly for its services. "When you get the backing of Wall Street, you have a case," Mayor Keith Land said. But some wonder whether the only cleaning up in Lodi will be by lawyers and consultants. SkeptiC& include two newcomers to the Lodi GiV Council - Allan Nakanishi no SUTAU Hitchcock, They would like to have seen more money going sooner toward restoring the water supplies or at least containing the spread of the industrial solvents. But thgyskm it's too late to reverse ,the course set by incumbents in IM 19%. "It's yety difficult to stop the UWn ,i:tQm gging forty "Nakanishi said. December 21,1999 (TAB 2) Public Financial Management issues its "final report to outline certain factors that the City of Lodi might want to consider in regard to the Environmental Public Nuisance Abatement Program," which stated, "The City will need to reach its own conclusions in regard to the risks and the appropriateness of the strategy and Program Erom a financial, legaMW pgjc nets dive." Yet, Judge Damrell's June 27, 2003 ruling (TAB 3) was a stinging rebuke of the City's strategy from a policy perspective when it stated at Page 10, remediation because the investment bank does not seek to remediate, instead, it seeks to recover its investment and make an extraordinary profit. To the extent Lehman's financial arrangement with Lodi conflict with the goal of cleaning up environmental contamination, soundup Uc pQh' y comelsagaft t encoutasrin�,sytp-�,.;�t�gements." The PFM Report Page 1 states, "It is our understanding that the City estimates that the proceedings will take approximately four years and will cost approximately $15 million. In order to fund this effort the City is considering a non-recourse loan of approximately $16 million. . ...This loan wiR have a wMMniUUent_&C_of and wW gay interest based on LIBOR phis 240/*." The PFM report on Page 2 states, "The entire strategy is predicated on the City's ability to win its legal proceedings. If the City is unable to prevail in any case, it will not be able to meet its' policy objectives of cleaning up the groundwater and will have introduced a strategy that may be questioned or challenged." According to the PFM Report Page 2-3, Lehman has, "a first lien on Program Receipts... Program Receipts consist of all proceeds and recoveries... regardless of how such recoveries may be characterized, earmarked or allocated in any judgment, award, settlement..." and "... the City's acceptance of non-cash settlements will trigger prepayment of COPs out of the CiWs owM funds with the Accreted Value equivalent to the dollar value of the non-cash settlement." This is inconsistent with the Report's recommendation on Page 3 that, "It is important that any Program Receipts for fees, interest and expenses on the loan are separate and apart from recoveries for environmental remediation. This consideration is important particularly from a policy perspective becausecleaunm1h and the City 3mmm notw otherwisemy situation where ths loan struam somehow inhibitcd lbs fimde that would for such a, mean -up." "This dynamic is further worth noting because under a situation where there was a limited amount of settlement proceeds for some unforeseen reason, the City and the ban holders could potentially have different interests. For example, there could be different incentives to settle si ce_the loan hdna Yvg>Mbe paid fire t in this scenario. Furthermore, the City might be more limited in their ability to settle because a judgment needs to be received that will be sufficient to cover the repayment of the loan as well as the Program" PFM Report Page 6, "In reviewing the results, it is clear that the assumptions in regard to the underlying LIBOR rate can have a material effect on the size of the potential repayment. These results are provided below." "Another material consideration is the assumed term of the financing. The loan_asitj=ption is that sseWunnt or Wigment funds mdU bs received within four xgam... it is &kar that any delay in re___W__ ceivin� for t the loan UwKe." Now Staff and Envision Law are saying it will be another three years (2006) before they can even tell us the extent of the clean-up, At 23% the amount borrowed and compounded interest doubles every three years. PFM Report Page 7, "As the graph illustrates, the repayment requitement can grow as high as $147 million in ten years assuming LIBOR stays at average levels and as high as $188 million if LIBOR performs at its ten year highs... With the potential that the repayment requirement could get very large, it is increasingly important that the City is comfortable (i) that there can be no recourse under any circumstances to the City, (ii) that there is no basis for the lender to challenge the City's compliance with the terms and conditions of the loan and (iii) that there is no circumstance whereby the funds available for clean-up would be limited by the size of the loan" However, the Council never consider the issues contained in the December 21,1999 PFM report because Staff had already secured their approval to proceed more than 45 days earlier on November 3, 1999. November 3, 1999 (TAB 4) City of Lodi City Council Minutes indicate that City Attorney Hays stated on page 6, "What is before the City Council is a recommendation to move forward with financing, which incorporates an elaborate budget developed to provide funding for our legal program as we have developed it..." 140,000,000 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 I ■ Interest Accrued ■Principal Due Page 7 "Council Member Hitchcock expressed her concern with moving forward and asked for clarification regarding the documents provided." "City Attorney Hays reminded Council that certain Watenn and s tegies ydA the documents are con61=0 1 f0f ft succos. of ft VMC" "Council Member Pennino voiced his congm congain n' o enti of docu en d the City's strategies...." Council Member "Nakanishi fully supports this program and would like to see the Council move forward." Mayor Land stated, "at this time we have few options left." Mayor Pro Tempore Mann said, "that while he cannot recite all the details, he relies on the City Manager, City Attorney and the professionals they have consulted regarding this proposal..." And the City Council, on motion of Mann, Land second, adopted Resolution No. 99-180 by the following vote: Ayes: Council Members - Mann, Nakanishi, Pennino and Land (Mayor) Noes. Council Member -Hitchcock By a 4 to I vote the Council approved borrowing $16 million at LIBOR plus 20% plus a $3,250,000 commitment fee, which equals 22 points ($3,250,000{$15,1300,000}. The only thing more overpriced than our attorneys was our financing, which has narrowed our legal options as it consumes the funds that would otherwise be av 61e for clean uti. Its important to note that this was a financing document, which did not provide any legal advice or strategies. Unfortunately, Council member Hitchcock's questions regarding the Lehman Loan were sidestepped by false claims that the "documents are confidential and must remain so for the success of the project..." However, a review of the Ruling attached at ffab 3) Page 7 makes it clear that these documents were not confidential. "The communication between Lehman and Lodi were made in furtherance of their business deal that funds this litigation. A reviM of these communications does, not revealany indicia of legal advice or representation or an attorney-client rellationship." October 17, 2001, City Council Minutes (TAB 5) Page 8-9 indicate that questions about the lawsuit's financing strategy were once again sidestepped by claiming they were confidential. City Attorney Hays' Council Communication entitled Review of PGE/T CE Financing (TAB 6) stated, "The City Council at its regular meeting of November 3, 1999—put into place monies upon which the City could draw to continue activities relative to the City's enforcement activities involving PCE/TCE groundwater and soil contamination within the City of Lodi." City Manager Flynn distributed a document, which was prepared in response to Ms. Hitchcock's request regarding how much money had been paid in interest on the amount of money that had already been drawn down... , In reply to Council Member Hitchcock, Account Manager Ruby Paiste reported that as of August 2001, $5.8 million has been spent out of the $9.2 million drawn. Discussions ensued regarding the practice of drawing large sums of money..., while paying 23% interest on the sum for the period time pending its disbursement" Mayor Nakanishi "Details abet the lidg�t on cannot be dificussed,_as-it could cause h@c= to theme's casae_.,. Council has been provided with information that is favorable. He asked for support toward completing the process ..." April 2, 2003 (TAB 7), the foundation of the City Attorneys' legal strategy begins to erode as the News - Sentinel reported in an article entitle, "Dry cleaner won't be forced to investigate, clean up contamination on its own" "A federal Judge referring to it as "unusually protracted and costly litigation," ruled that a Lodi dry cleaning business will no longer be forced to investigate and clean up groundwater contamination on its own -- a move considered a victory over the city. In his ruling, the Judge cited tk dW of Lodi's" " that the dly is VQI=d respmible for the cQatnntion. The Judge went on to say that the city's strategies have "led to unproductive detours from the ultimate goal of dealing with the city's contaminated groundwater crisis." (TAB 8) That same day the Lodi News reported in an article entitled, Mayor, City Manager to attend heating for pollution case, "Lodi's mw= and the city mer have been asked -- ctu neat grdemd -- to hearm,gJWW&g the city's mgQju& pollutim lawsuit against local businesses. Judge Edward A. Infante called city officials last week and was "rather firm" about his request, City Manager Dixon Flynn said. "When Infante called Mayor Hitchcock, he told her that representatives from the city had not attended past mediation hearings, and attorneys hadn't even attended every time,... Hitchcock said, "As far as I know, he just wants to know that the council is aware of what's going on in mediation. He said a lot of money is being spent and no cleanup is being done, and that concerns him," The news coverage made it apparent that the City Attorney and Councilman Land opposed the Mayor's attendance at mediation hearings from the start, "My question is, will the chief executive officers of the insurance companies be in attendance so they know what's going on?" "This question was echoed by City Attorney Randy Hays, but when he asked Infante about it, the Wdgr. called HW an "obst=tigW " June 26, 2003 (TAB 9) the Record reported in an article entitled, Lodi mayor in councilman's sights "Hitchcock, the leading vote -getter in the 2002 election, said she nkgr q tOM Infante after the., hearingat the Cily Council hadn't been shown_amoosed sett me 1 offer from a dmailo m puwtW owner." "Hays said he didn't ask the council to consider the offer, because it wasn't acceptable based on parameters -- including recovery of legal fees -- the City Council established in 1997, one year before Hitchcock's election." The voters rejected two members of the 1997 Council because they rubberstamped Staff's recommendations while Mayor I litchcock was the leading vote getter in the 2002 election because she is a watchdog not a lapdog. Moreover, the decisions of the 1997 Council do not supersede your authority and a lot has changed since 1997. The City has lost 45 out of 50 rulings and a Federal Judge has ruled that the, (; is VQ1SntiAWs nsib for the contamination and that the city's strategies have "led to unproductive detours from the ultimate goal of dealing with the city's contaminated groundwater crisis." We have spent almost $21 million dollars on an ill-conceived legal strategy. We have borrowed another $5 million from the water fund. We will have to pay Lehman another $2,250,000 upon termination of the financing and out Attorney will get 20% of our recoveries. This means we will have to secure $30 trillion -dollar judgment before we can put the first dollar in the ground to clean up our water. July 2, 2003 (TAB 3) 'This Council met in closed session regarding the City's ground water contamination lawsuit, yet the City Attorney failed to apprise the Council of a recent ruling by Federal Judge Datnrell, which was a stinging rebuke of the City's strategy to finance litigation for profit when it stated on Page 10, "Here, sound pub L,c pow ,,.m winter to Ldm'sdaimofof p d=. The business transaction brtwe Lehman and,I.2di tQ jk ted envtr�ot mul kUotion f2r =fit gg& unci. ie the gffic=t ,and effective remediation because the investment bank does not seek to remediate, instead, it seeks to recover its investment and snake an extraordinary profit To dn extent L&ba=J conflict with the g of cl ronmgmW contamination. soundpublic policy counsels ag st �I1C0»ravinu Stich gianvgments." The Transcripts of Proceedings on July 11, 2003 yielded useful insight into the mindset of Judge Damreli. It's clear that he is supporting the two State agencies (Department of Toxic Substance Control (DTSC) and the State Water Resources Board as they move to settle with litigants for clean-up, leaving the City holding the Lehman bag, which makes it clear why the City's Attorneys and Staff tried to keep the Mayor from attending proceedings. _& U. 2003-1ranscripts of Pre -Trial Proc_eedian aAB 14) Page 10 Judge Damrell: I don't know if the city is going to respond to this, but I want to get my thoughts out on this. This has been a very expensive piece of litigation. I've heard argument of counsel and millions and millions of dollars and it — if there W jWing to be a full rem diction of the site under the lead of the DTSC. then what role — wbv does the city want to_ Mad more mop= to get injunctive relief when the stW has gme ahead and basicay amsumed that role in p1me of ik c*? Page 11 Judge DamrelL Why don't you talk to DTSC about that? It seems 1p U& they have the resg�rr es the o t been i r are doing. That's why they said in their declaration why wouldn't this be an opportunity for the city instead of spending more money, here you have the state doing exactly what should be done, and I don't know what it's going to cost the city, its seems to be less expensive to spend money than the city continuing its enforcement. It strikes m.e as being redundant and Wg* eXpMive and U=cessaa. Page 15-16 Judge Damrell: If it fails to do its job, we'll take that up, but it seems to me that for the city to expend more fund, to file more motions for injunctions and deal with these issues, that may be fine for scholars to djuggs, !big is net going to adyme Jbs clean Mg of lk tjW. That ig a wasic o ea aW a waste the, cjtsd,a wmic of de Defeadaut's.remmes... Page 16 Judge Damrell: Why would you want to take the time of this Court to go though these motions for injunctive relief and seeking declarations for nuisance and — I mean, the state is going forward to clean up the site, isn't that what we are here for? Why, isn't that , remosl in your 9&M? It's going to says *s cjty a lot of Mon ey, save you have a lot of the time, save me a lot of time and save the Defendants time and money..... . Page 4242 Judge Damtell: Counsel, stop and think about this... You are telling me the DTSC RAO just isn't good enough for you and the City of Lodi.,your gx1., , IV sTm9M money, more time_ to seek more relief some type above and_beyoad what the state is aWdu Guild to do. T%Lo , that seems to be -a -waste of time. Mr. Donavan: Your Honor — Judge Damrelk It's not a waste of time if you're Mr. Donavan billing $415 per hour 18 hours per day or over $150,000 per month. Mayor Hitchcock was the only one to question the transaction between Lehman and Lodi to fund environmental litigation for profit. On November 3, 1999 (TAB 4) when the City Council was asked by City Attorney Hays for permission to "move forward with financing, which incorporates an elaborate budget to provide funding or our legal program.. _" "Council Member Hitchcock expressed her concern with moving forward and asked for clarification regarding the documents provided." "City Attorney Hays reminded Council that the she 'es,with the dQmments ,tom confidential and mus remain so fQr the siccess of the project..." "Council Member Pennino voiced hisconcern in retaininn� t confidentialiljr o[ these documents and the Ci s stralgaies, ..." Mayor Land concluded, "at this time we have few options left." As a result the City Council, on motion of Mann_ Land second, approved borrowing $16 million dollars at LIBOR plus 20% by the following vote: Ayes: Council Members - Mann, Nakanishi, Pennino and Land (Mayor) [lf it's true that they support the censure They were wrong then and they are wrong now.] Noes: Council Member - Hitchcock And now even after the Court has ruled that, "The business transaction between Lehman and Lodi to fund environmental litigation for profit could undermine the efficient and effective remediation..." as it rejected attempts to keep the dealings between Lehman and Lodi secret; some still refuse to acknowledge the Mayor's wisdom and would rather scapegoat the Mayor than accept accountability for their roles in this debacle. (aur CityAnma has ,ahistory of kecyi ng Cily Co-unciieln thm—Dark-aAB 111: COUNCIL WAS KEPT IN DARK ABOUT BONDS Published: December 22, 1994 in the Redding Searchlight Newspaper "Top Redding officials knew for five months that insurance was missing on it $38 million turbine power project but withheld the information from the City Council to avoid jeopardizing the venture, according to a report released Wednesday by Interim City Manager Sam McMurry. McMurry said he, City Attorney Randy Hays and former City Massager Robert Christofferson knew in December 1993 that Santa Rosa developer MLP Energy had not acquired performance and payment bonds for the turbine power project on Clear Creek Road. Together with Electric Department Director Sam Lindley, tha ,opted AZ to tell the City Council beCause the „law womd Qbfigatrthem to i"btm the council. iPubfic... Hays' actions that resulted in his forced resignation evidence a serious lack of judgment, which put taxpayers at risk. Again according to the Redding Newspaper: CITY OFFICIAL IN JEOPARDY OF LOSING JOB Published: October 20, 1994 in the Redding Searchlight Newspaper `°The Redding City Council has questioned its attorney's handling of several issues, including a turbine power project and a downtown toxic mess. City officials say problems with both projects could cost Redding more than $2 million. Hays was unavailable for comment Wednesday "Most recently, council members questioned Hays' judgment for approving a contract to buy contaminated land from Southern Pacific Transportation Co. without holding the railroad responsible for the pollution. RABA officials say the unexpected cleanup could cost the city more than $1 million. Hays said last month the city could recover much of the money because it had no way of knowing the extent of the pollution. Earlier this year the council bypassed Hays and hired another attorney to fend off more than $20 million in claims resulting from the city's failure to acquire payment and performance bonds for its $38 million turbine power project on Clear Creek Road. City officials estimate that error could eventually cost the utility up to $1.3 million. Hays said he wasn't responsible for making sure the bonds were in place. In 1990, Hays accepted blame for failing to carry out City Council orders to lock up the purchase of the 3,000 -acre Hunt Ranch. The city planned to use the land to open a firing range, but it was purchased by someone else because Hayes did not open escrow. The city had spent $60,000 for environmental studies on the property." STATE PROBES CITY OVER POWER PLANT Published: August 27, 1994 in Reading Searchlight Newspaper The state's probe could result in fines of up to $15,000 for the project developer and lesser penalties for the city official who approved the contract. The state attorney general's office this week began investigating whether the city of Redding hired a developer knowing,the comFMLY-may not have had a state:regW co nwar's license. Larry Brandon, a supervisor with the licensing board. "Y ctor gc contracts to build S30 million 1pwer,piants." LICENSING SNAFU MAY LIMIT SUIT ON PROJECT Published June 04, 1994 in Redding Searchlight Newspaper "Failing to check the credentials of a developer may have undermined the city of Redding's ability to enforce a $38 million contract for a power turbine project, a state licensing official said Friday. Tom Reetnts, a deputy with the Contractors' State Licensing Board office, said Santa Rosa developer MLP Energy failed to obtain a state contractor's license before starting work in 1992 on the Clear Creek Road project. As a result, -3:b& cily mmuld have ag, lcgai standingin ceii they drddcd sue." "They've got themselves in a bad spot and now the city has to decide how they are going to get out of it." Compounding these problems, city officials reported in April that MI.P had failed to acquire performance and payment bonds -insurance policies used to prevent a work stoppage and pay any claims from a contractor." Ih e"twtters I fte�'i _a_Q I Subfi;nbe to the Print edition I Traffic I WelMe I Wirpl s Dei v r LVe- Search Archives or I Site Search 4 Nerr 1 Gptn I Enbertainmea t I Lifestyle I Travel I Women I Classifieds I Homes I Cars 1Jobs I yel w Panes C4 gogh : / Bee Search Sections: • Search Bee Archive - Movie Listingg - IV Listings To" the first at" tc word w now i anwrl Powered by: accessdee -- !i: LODI BATTLING INSURERS OVER POLLUTION CLEANUP September 26, 1999 Section: MAIN NEWS Page: Al By Chris Bowman Bee Staff Writer LODI--Since the 1940s, Lodi's underground water supply has been threatened by dry cleaning fluids and other industrial solvents that have trickled down from neighborhood businesses. The contamination, affecting 600 acres in Lodi, has knocked out four public wells since its discovery 10 years ago. Though there is no immediate health danger, the pollution continues to spread into aquifers, the sole source of drinking water for this city of 58,000. Lodi is not unlike many other California communities that have had their drinkina water threatened by these subterranean olumes 2f 2crchloroethylene PCE and trichloroeth ten " view of public health officials. But no other community has g residents anc tthe IocaTGusines .pay a dime toward the cleanu least 20 years. "This city is a very business-fri accomm as far as Lodi in the to keep the city, its And that is where high-priced Bay Area attorney Mi es in. Lodi hired Donovan about three years ago at the top -tier rate of $415 inn hour. Since then, the city has invested nearly 18 million in legal and consulting fees. It's all part of a novel strategy crafted largely by Donovan to go directly after _. 1I3suraElce assets of the small busil3e=s on the contaminated properties while leaving the owners financially unscathed. The Bee's Archive Sign Up for NewsUbrary Account Customer Service NewsLibrary serves, maintain and supplies customer servicf for The Bee's fee-based archi Please direct billing and accot information inquiries to NewsUbrary. E-mail NewsUbrary Customer �rvice Search 1 i15 Copyright information, Death Notices Obituaries (News) Funergl.Notices The city -has_ identified more than 40 businasses_�!:__ranainy from dry cleaners to _ auto-5Va1r s arages and print shops_ - as parties "potentially_ responsible" for the pollution. - against this Vall ey town. B fundin the city's legal battle hoping it will ca Lure a big chunk of the Insu money_ dirt in the cleanu • it has Yet to produce a work plan acceptable to state environmental officials who oversee contaminated sites. "It has developed neither a solution to its contslimination problem nor reliablX estimated the g2st of doing so." the Am rican 111sural3ce Association said last June In urging the 9th U.S. Circuit Court of Appeals to quash Lodi's enforcement orders against its member companies. "Instead it has devoted Its ava a e cleanup costs." Lodi has successfully fought to become the first ci in California to take charge of a r and deadlines. The state also agreed not to go after the city for contamination that could be attributed to leaks in Its sewer system. an unusual, Donovan -crafted law alvinq itself broad sanctions and heamy fines for refusal to comply. City officials up and down California are watching Lodi blaze the trail to see if it's one to follow. "If he (Donovan) is able to do it, and make It so the city comes clean without any loss In funds, that will be great," said Michael Brady, a Sacramento attorney who represents the city of Davis in its underground contamination cleanup. Named MERLO - Municipal Environmental Response and Liability Ordinance - the Lodi ordinance enacted in 1997 packs more punch than the dry red wine merlot whose grapes are grown in the region. "The city's powers are virtually unlimited and authorize Lodi to pursue Insurers directly, even though such direct actions against Insurers are Inconsistent with federal and state law," said Laura Kersey, an attorney with the Insurance association. Insurance companies so far have managed in court to keep Lodi's enforcem nt or ers and subpoenas at bay. In the c e before the federal 41212r.HaIg court, Fireman's Ful3d Insurance Co, and other insurers argue that the potent portions of the Lodi ordinance are nre- In the State courts could not assert it Co. - as It would violate companies' privacy rights. Lodi is appealing the case to the state Supreme Court. The cO also is a2peallnQ a rulingr Cojjrt judge who not only quashed a similar effort to compel Information from USF&G Corp. but Despite the legal complications, Donovan said he has identified "probably more than $500 million" in insurance assets potentially available for the cleanup. His San Mateo firm, Envision Law Group on Fashion Island Boulevard, specializes in "insurance archaeology" - uncovering layers of policy coverages and sorting out those that could be tapped for damages. Donovan has 20 years' experience representing other states In environmental comes at prices seldom seen 1 G4Gl VgNIG Cil L.VU1 L14r ilpll. The city paid $768 for one attorney's three nights` stay at the three -star Dinah's Garden Hotel in Palo Alto. It paid $3,931 to send Hays, the city attorney, and Donovan to meet in New York City last June with a prospective financial backer for the city's legal battles. That was air fare only. Donovan and company regularly fly between the Bay Area and Lodi with fares ranging from $300 to $700 per round trip. after hirinq Donovan. Lodi's expenditures for mounted to more than $5.3 mill minion cue. Donovan and Hays express no doubt that the city will more than recover all expenses incurred. It s dust a matter of time, they say, before the Insurance companies stop flexing their muscles and start coming to the settlement table. Insurance companies generally are required by state laws to defend policyholders, at least in cases where they have been sued, which Lodi has yet to do. And under a recent change In state law, Insurers must Include the costs of investigating contaminated sites as part of the duty to defend. In the case of Lodi's groundwater pollution, such an investigation Is expected to run in the tens of millions of dollars. Insurers looking at such high numbers outside their policy llmlts are Inclined to settle. "The way the laws are desi ned, we can't lose," Hays said. Lehman Brothers, aglobal investment bank, apparently believes the city,, has a -good shot at collecting bjkq mqngy. The company olans to �give-- its lQgal battle while expecting to recover as much as 20 million includin interest from companies. Donnvan's firm would gat?n �ep�the j�r�nra mnnPv collected. on top of the $65,000 it charges monthly for its services. "When you get the backing of Wall Street you have a case,' Ma or Kelth Land said. "Look out, Insurance companies, you'd better line up." But some wonder whether the only cleaning up in Lodi will be by lawyers and consultants. Skeptics include two newcomers to the Lodi City Council - Alan Nakanishi an —ex%Awnc9n,AW Susan R10cock. a schp@ aftinlglVtor. They wouldift to - have seen more money goingsooner toward restoring he water supplies or at le st ntainin the -spread of the bglieve it's too late to reverse the course set by incumbents in late 1996._ "It's very difficult to stop the train from going forward," Nakanishi said. Most Lodi residents seem unaware of the exorbitant battle, said Nakanishi, who was elected to the City Council last fall. "It is the most important issue going on in Lodi, and most people don't know what is happening," Nakanishi said. "No one has even written to me about this." All content O The Sacramento Bee and may not be republished without permission. Send comments or questions to NewsLibra y ,i ICA�:� Contact U3JFeedback l Privacy Policy I Termer of Use New I Sports I Business I P i.._ io tia I QVtnion i Entertainment ["fi es Ilg I Tri I Wome—n Cars I Ciassifieds I Homes I jobs I Yellow Pages Help I Newsletters i Site Map I Subscrib to the_PrintjEdition I Traffic 1 Weather i Wirers Deiiyery About Us I Advertise in The.Bee I Advertise Online i Contact Circulation Customer Service I Events C Sacramento Bee Web sites ] acbe .com 1 SacTf ket.com I Sacra men o com Copyright © The Sacramento Bee / ver. 4 Jun^O"D OR-.36as From -S MMEJISCMEIR HATH ROSENTHAL T-053 P-02/13 F-133 PFM - PubUc P=cisl M.arugcment ifl0 I+K±11:711'{L ACr.T7R December 21, 1999 Mr. It Dixon Flynn CirY Mir Ciry of Lodi 221 west Pine Suee[ Lodi, CA 952+41 Fax: (209) 333-6807 Ikar Mr_ Flynn: - 2a �;m�.S W&!H YW;%L uc3'L WC to Dt1FJj=— C—e=Mtacwrs VM 1 4f Oat (die "Cirn 9!jt! T&& W'CowidW in Rgad to the FQ41iTtaRil} ntd Public riuisa We tsoammca PMPM (ft 7MVMm*). as you -know, nota w cannot -- anti V c no[y v r�i tUs a?= it:se ded io = opiiw on As legal merits or vRaiidity of any proposed program program or suu or as w %lu likelih „ of sucems. ibe purpose of this memo is solely to iden"y some coadda2dans and tsndedyb* assu mpdmf dw the Qty can use in kriging tottssi�a a dcterJuizfarioa as to the progoxtd finatscia; ProPam-hese.causid.ons are nog intended W be all-egclusim an&VOW ° c ' ftwzft�: ; or, -cbmqpr, k 'l hn muco should not be cnastrued as any type of PFM eadorsemem as. to Ebe mr of rbc financitig sttam y or the Ptograai '. �apgropaiat css of tiu strategl► and P .� VL lite City is cu rmnriy exploring options to fLmd a sizable drat -tip of *e gtoundw=r. J hese options include the possibility of legal aim= against Lha contaminators. 3tcsa legal procredw." would allow the airy to puma &M -party iusu ance ootzpanies who have provided ire against such everts. _ W==e&tftL..Pm geJllemm ftstub hr >Itar .Am;�rm k is a" - tlm *& City fisc proceeding ws31 take �elY font yew and will cost aooroximatriv S}5 nd}lipft- to provide funds for this efft-[, the Cry is as a K } EXH18ty Eck I a aft -recourse loan of s-nTScO03576 Jan -9540 09:345 Frm-SO ENSCHEIN MATH itlk EKML T-059 P-03113 F-133 DOCMk= 21. 1999 ....�� Page 2 b = i nmt - p� ilfr wbIL S I' mon due uc . and- t� wieder due- at rhe media of the fmandzi& The rcmahakx will also be reduced by any irt[crest tYtat is paid oa the loam balat>cc. rare- on Me J= wW be-adjusw&q=zmjy =&eompomded mmsaUyL Thio pnatas. cleat ia3 : b��datac9 :c jars bm tha a�t+cd:.� ,- d to the balance of the loan tmdl year -ea Atte insixi rrnttn lamm.sI raiz payable under the loan would be -°30%. While many factors clearly ovexiap, ,wwbdWw du t,d=e:-we em ain_.kgal, fina ink ataf edit CoMSbkzMkW deet ebe d"rry should examim to matte A it tzx.r: as Wilk Wesirt_ and pot udd risks of dte suvgy_ Tba purpose of this report is ro provide a fr =work for the city m review these ctxtsiderarioas. These hcum no based of of our review or the proposed legal documents dated Octobar 26, 1999, including the Executive Su=rnaxy Aad Ocwber 25; 1999, and the proposal and tam street fhan Lchu= Brothers dated July 29. IM PFM has rror um&xmken to make as independew voerificat€aa or to assume mponst'hiiiry for rhe accuracy. - - - _ cnsriplct velirdity - or fdnse= of cher infarnHui n- and approacb is tU aforetnericioned docum=ms. and taalbes no reP - Mtauon in regard to any chavrs that =ay or may nor have occurred since the dares of the respenttivc drafts. JL thtdedying Legs Arguram — The most imPx= rousWeration is rhn strategy is the RM!hE!MC'S am M'WiMW kw -man in, DOHcV qOWAIQWd,"- rMUcn= Thr- uandcrlying legal arguamw also eneads to. the valid q, of the pm terW=-. Thiss==-based-on rsadstioaal CemMc:ues of Part]cipaxion (cOP) f ming. Tact 4,6:nal- Cor king is widrsp mad and is a tore non method of fnatreiAg in the Stare. although we am unaware of any CUP ftaancing secured solely by legal 9mceeding tccoverables. Flow of Funds and Security — Ar 099 legal consideration is the flow of funds and clic scctucity smut m of the proposed loan- h is our M&nmading that the to= wilt be non-teamm to zbe City. This measle that the keno will only be secured by ponenual seUaerncnt yaymeatS ( Program Rcc iptsP) and no assets or revenues of the Cky will be &recdy or indirettljr pledrd m the benefit of the loan holders. - :;$�... Dedw ta@S aft sgowaL Ptomm. M69btr - 6F nox, reernOMOMWL__ r9warIse SCtttCUMI Or 09OW AWft=At O! Pt Setdemm*j — Awdw-consida-axion is de form of any settlement, including any requirements or re sWedons Haat govern the pownLW usa of. proccgds. The avatlabillry of funds for the B-DTSCO03577 Jan454D 09-37= Frm-5Dlg1E IN RATH PDSEHi L T-051 P -M/13 F-133 aA,. 0A.- MS-S L•DWARFerZ1. 1999 i Pap 3 } envirQumeu[ai remediation cannot be effected by the loan. The mpaymcur of the Joao MUSE be an additional cost to be recovered from the insurance companies. 'I m- structure also limits thou arrow of non-cash seukments without at c=cgxmdhg roducam in the ouLuanding COPS. m,; tk ddar _ � While we are not arwau of the likelihood of such a type of sertleracar, clic City world warn to be comfortable chat this require=nt is no way Limits the Ciry from any ssrategy it woWd otbarwise ptusue. A r rhar attty Piuf from itxovcTicS This first in this scenario, have different it3tcresrs. av ril� needs to be received tbar vvbe- to J cnvtz.m��oi .rna am 35- WIN re W-FHWM Unwind - The ability to unwind rite a-ansacdon is governed in part by the pmvisious is =gad to cessaricm Intmm on the loan accrues for 36 month, from rhe dare' of such mon. The CAPS also have a nominal final matotity as of 7inuary 1.2M The Cay will wool[ to understand- at what point the COPS or the Cuy's obligation to pros ed witb lidpdm disappear if no Sezdameat or judg=ment is • achieved. This l ea dw, loatr..and the lndcmnlfication - and even includes an aciaro+ Wgwent by dw City tkar the reew- m y ofP=ogram Receipts is '1:atxrq n and speculative." h is alto wmTh nodhe that dit Arron ia3 KUWS "Any proceeds getWd from any and all insurance or Self-insurance program In wbieh rhe City has participatcd or will participate:' Financial -Cm -SIMM Casts ='rhe agmment specifarally Passes cerWn costs w she City. These include.the Trusser, she Placement Agent Fee and the cost of any proceeding necessary to am= the validity of she COPS_ In the case of the placement fee. Lehman is not obligated to purchase any of the COPS, but the City is obligated to pay I ms's tees froth COP proceeds. Moreover, the City is limited B-DTSCO03578 Jai -05-09 01:31n Fror-SONNMCiEIN MAA ROSEK 1L PFM T-059 P-05/13 F-133 t�ooMan;gGt 21, 1999 Pap in its ability to seek damages should an invertor fail to purchase the CON. Tfus limitation is equal to 1046 of rbe auft zed bra unissued COPS_ Interest Rate - One consWeradon with rhe proposed boas is the inmrest rape_ The rape for 3 mnnzh LIBOR as of December 2l. 1999 was 6.17%. When added m the assumed loan spread of 20%, chis results in an in clatter inttm+st rite of 26.17%. In evalu deg chis ree, then are several fictors that the City ml&r consider. Sirlm —100"S dam OPM We arc unaware of any trannedort tbst is mW"Eke rbe one do Ciry is comm=plafte k is li *1y dist: tic potpow of the fir slog will regnrte a rarebit borsawaag_ its I F.ately._l96 cn . taagga s vacstld.bc tom. Only last the -r-W of Lid Brad seemed ss it -i#ttier�r i ptivai�e; son rofit imnaeo s xssociatioa w conw=don with the ptxmbase of some land. 'flus u naav& was fddnlly taxable aid resoled is s -RAM. hoema roti: far bonds martuing in 2M. Mwever. this transaction also e8tiied bond incm== fpm A � C4W ACCeSS (ACAJ6 whWh has til A raft , and unfixed a super -sinker'" approach wbereby bonds are Idly to be paid vff*or to maturity. As wwher,point of. eompadszL we evahmed the ricrac interest rape Hca of certain secar iza 'on transactions- Under a sccnddzazkm. a mtuicipal ct&7 wovdd "sell" its :i& to rc=vc fffi= pis»Passr'tiilitias•Wim•: t`=-s".s...5 susmmlpt�. apL mm0 recemiy.. the _ 2ndWpatad.res e,.u3,be recebied undest)taT Agmmmmt. i]ne way m review da 5aaacxng proposal is to Mink of the sr Ztw as a srcu*Wad= of PraSam Receipm rjo, 7 Chjxq=i*.so1d bo=lz An wem mm=d sub* by the pWiec" wbacca revenues. These bcsds: hacL&,fnd- , of 20 - fi r 4,�t* 6A44Wk is impomm to note tha this deal is again sot a fair congnrisen be== the bonds were tax-exempt sad utilized a unjq= su a ur - Mam ides for dm= boars were rated AAL to AA3(AA- to A. it is also worth noting that =zzoerrsal back will often charge issues a taxable I interest rue based on uwceirnbu sed draws from a letter of credit. Istt . of credit ane used on terrain vwiabk rate municipal pmgr=m if amt issuer � m -peg► pdacipat of or irm mst on any bonds scattod by a ktrer of credit, the commercial bank.will pay off tine principal and into= cc behalf of 1bG isv= and thea be& to charge dLe issuer a "bank rape." it r 'm•ti � .- ' .pwaftmom from LIBOR ph s 2M% to LM The diffixulty is using any or all of trues* ••y*sac:oas as a polar of compadwa is the bury have faxiamcntally different risk profilm la%vswm will eharp an interr.St rate based cxn dwir pezzppon of the likelilmod of being =paid coubined with the dnm*ame for repaya=3L The ttmre tesmkted or less secret tic mpayaaw source, the pion Un inteten race. In the cane of rhe COPS, there is a very uncertain trpayrta w some- The reedit of the afaRvarnutriored cases is hat B-DTSCO03579 Ja4HR COMM Free-SQt�lle �Tl{ iCGSSM i-BStt P.etltl Fi93 p 21.1999 lis ---O comparable_ Given the unceminty of the repayment sou=r,. it is unlikely [bat a COP rLuanring secured solely by Program Receipts would receive bond iasuraacc, a letter of credit from a higuy rated commercial .bank or cven pessUy. an investment grade rating. Thio likeiiltood has nothing to do with tits potential success of the approach and instead, only relents 10 the limited nature of the pledge of repsyrnetit" Notwithstanding the limited natuir of Elie t'epayAV-M sources or the taxable namm of the borrowing, we still have n(E beca alalc w idcutifya, computable loan. . ak•e ca�irat trsaa � � Soairie]� st�xisne. r�uea.aart.ia�trst rate in CXC=.o 20% .tior.be mmusnAk..—, p. rest art `vdlim exczmof . bort to be _Cwz- ..b==L sue rea.vastplee - - - - - - - - -S=n&- &e-iW=S't -rat& is. VASid) a- The AMW has- gaily-asm=ad-an in,mt-me- of 25%in- - evaluamg rbc_ loan proposal, b%K It is imponazz to nOM that the km is bated oft of 3 moorii LIBOR This ja=estnt raWill abaageery Mier and and It voulid be hisser doting JIM term of the fu=sing- While historical rases are not necessarily an indication of fumm rates, we - have re%iewed the pan petforttsa ace of 3 month LIBOR. bdm-- � i� illustfatin g rbc ands--imAis index over the last ten years_ r^ WDTSCO03580 .- •r _ '+jam •�.: ,v' � �. � �+� � _ Y'=M�+�M! •• • "--_ . i 'Lill � i i y i , . a air • • _ � sus � ._� _ ur. a tdA pow ser iq 111.1 Jul I 111 WDTSCO03580 Jin -9"l 09:32a* Froe-5(3A9E1 MIN NAM RO MTNAL T -DES PAT/13 F153 g 2[.1999 Page b We have also cmued a model d%at wi71 allow dic City to test the impact of diffemE interest rate assumpdans. These sensitivity analyses. include-. (i) s sceaaxia-whcrc LIBOR renins Corn9Ein9 at 6.17%. (i) -a scenario where LIBOR is asp=ed to be at the average raft of 3 taanth LIBOR over the last ten )eats, 5,44% and (inn) a scenario where LIBOR is assumed to be at the highest level that the index has been is the last tea yews, S.629i. Each of these smnarios slsa assurtties neat d=%- will be no incremental setleex = psfoc m ibe repayment date- To the exttnr that seale*nent and/.or judgemcur ftnn& ate Hurd to reduce the lean baia =c the repayment requfrrmeut as Of January 1, 2004 would he lower mu=d=s in rczatd m d* underlviata I EMIL��.. ,..r.� m4eati te��,�t. AMOther'Particular of ince= is than current 3 month L03OR is unusually high. due to Y2K concerns. These results art provided below. � SeetfariaRARMMME Date1 Apvetat�g�eLIBOR in/0400-194-01__-- .------.__.---__._---_ ` ._-. .. - - _.4Yii�L •. r�OA - - -- ^-� r� �yys ..., - - - '"- - iVf+1v.s77v66 .i.7i7i�OV e Maximum LIBOR K M7 -f& 52.377,759 Ter=n Vic cmuot opine on the Iffie�■' ood of a ,qraadt�d. uwes _the growth of Me requued rrpaymmt for the same tbx w sct nos if the tram is ext I B-DTSC803581 +�1i060� Zve Zezz a n.maw. . rar -MAM u sem I B-DTSC803581 Jan-CHO 80:38aa �� MP,FM From-5WUva HATH Rt}SEIirM T-038 r.o Mamvr December 21.1999 Pap P.09/13 F-133 Ilu dgm - Aootlter material consideration is tLt: assumed budget for the kgal proceedings_ Cuurndy,. tine budget provides $15 stDIkw for colt a= the next foal yrats..(esclgcrmZ the. Placatuaat gee}: "T Waty needslo.laa t%tS-bidje= is s deet and -&at the= are no corttingeney fun& Accessary for uafrY men dicumsmmoes T'bis budget will also need to br ltsolctd at is tiye cotsrert � tibG tituireg of � a�o�nts. Givru the sire Afany.patami�' f4`�acaciai liability for the in5crance companhm in regard to the City or even other jurisdictions, we wcn dd assume that the insurance companies would devote their NII r=T=csao did dck cases_ d amiag, of any sealemcats or )qty s t i z etas° =me of the defense: and rhes -d am3a- =iybrjppede&ardrAgged rst r`w msc tic resolve wd resources ef,tbc City_ Creat __9W Market Perceptions - another tbatjb-t Ory might wish to cond&r is the poe=tial that tbere be some agave —d= pezvcpdo s in mgud to the City. $ is impor= w nota tbar zbe- loan will be in the for;n of CDPs and wM be issued by a nowly famed non-profit eotparaftn, the Ltui't Finartdng Cotpm-adon_ _ As you know, the premise of a Bulled === or conduit ftwdog is that the issuer, such as a city or cxinty. does = pledge astir credit; instead, the issuer simply Pledges a specifm sum of payments ohm Iona awd xr source or entity. 'This fm=cW structure is nor unnstral and is ohm used with lease financing where a building authority acts -as a condair for a city or coumy. '!U pal'q Wue that is raiW is what marat or P�gawiotj would the. Eit}t:. ft d to !� poccediaw Some communidcs. particularly thosr that issue ftequendy, may %d obHpmd to make pay=nts from a Policy perspn=va. -Ibm arc examples where issuers repay loans, twu whhom being legally rcgLdmd, m ens= titer the name of dic city remains fry of any negative media coverage. Regardless of the mature of thr City's limited legal obligation is s non-rrcouac or conduit frna =W& it may also be argued %w the uuaardinary nature of ;be financing may tafsc some WDTSCO03582 J42-05-00 00:31M From-50Nh EUMIN RATH ROSOM T-959 F.03/13 k 33 •*+o+s�cs PFM 3I, 1999 Paga B questions in the investor cotmmunicy. Csrtaia -invutom may assodam the City's name on future bond issues with the City's willfixpess to emu ima this %pe of transaction, potentially causing m= limited suatinet access er higher ittrct*st rages than otherwise would have o=urmd on futm issues. Under a siwation wing insufficient senkmmcat funds aur~ derived and the City deers not to repay Ebb loan balattac, investors MAY also view the CiVs 'willingness to pay its' debts in a negative light. in each case, the credit and marketability of other issues could theoretically be cffcctsd. However, this potemial risk is diff = -k k too weigh if the transaction is muttered as oudirtcd in tie term shem drove should be no legal liability mad no credit or muket implications for the City. The legal and disclosm dom mem for tine SaaDdng sbouid clearly stmt ba rhe Guys easy obligation towards *c rcpaym= of the COPS is tate appticatkm of rite Money$ it aerxives f mm the settlement andlor judgement and in no way is the City obHSmd m aakc pwym== of ptimdW and its cx= with any other available fiords. Atm way T4 prancer zbe Chy is to onsum -nhm-mlyy -Imle sophMmLted- invenamIRKcham rhe COPS. -If the Unaderirs-SwxS-m scrcvr gs die ultimate investor. tine City ;Fright worn to nrqu= an investment lema ham the investor. This letter world be rcgt*ed as a eandidw to purchaskS the COPS and would be lana the iavesusr to etre City. The investor would be nju r d m sante that, they understood the txatrmmoa, tlx: risks and the seenriry sttucnuc.. � The proposed pian of finADm appears to offer •the CkY an exC*IIe nt opportunity to hind she Program As c=cmty outlined. the suama Umitt the financial Ih bft of thm Cky from a< Iegal perspective and provides the ocrmuy funds to pursue the mon. 1 . "... Vic: a' of any direr[ comparable zmnsacdon; and. if the Cly_ believes the rhe lender shmsm be compensated as a return on egWry, then: homw mr ft-,Nlw ,nth Islam Varimalmiryff Thmiasn rues. The snamW is sirpsedioted ars a. series offs- to be SR*.ar : it could ad�c �a Tf the City can het the legal asst! fi�al coni*= outlined trera4 we believe: that rile tuzzagy is wortb putsuieg further. Prior to paceedia& we w=W mcommcmd tbat rite Cky receive appropriate gaidaace fmm qualified wunsel on rive follawing. s - deer. thc.tCi W s f x&Pcing ,%uvctume is.lrbral%t valid. and asulsn : ulnar the City's eaaa is..so sncs+md; - dkwdwC s"liu4ecauad timofiam.is.rrasmabkq . - rhos the luau will be secured nutty by Program Receipts• B-DTSCO03583 Jin-15-fl0 x:58 From -"MOW NOR RGSEWM T-051 P. 10/11 F-133 LO&aMmuem D=M-Ivcr 2t, 1999 9 bar ffiff Ion wm in no way 39" as an impt6mm W'- dwfkvaw� of ftft Ulm s dm wUb-tba- juvibow=mt cbm-V or su It is .1so poss,_W " the City waW want num nm as w ft s=Aity of the loan tmm ft mve=. Vola would l? a lessor from the invem chat clearly outlines the iawswes undarnwding of the s=udcy and limited uVuM Of MY mmedes- FluDy and as we mendowd above, we %M'Um a law ram and .do not intend to opine ca the legal traits of the ca= or dr- dmiai" Of my jud,,tmm CW sgulenwm Tbc purpose of this MMO is tO help the City review the mu=A pmposaL The M=D is intended for U&WmadOtwl PMPOscs OnlY and is'nut '— nor is it inmaded — w repm=t MY cndoneumm of zbe stras Worapproach. do m bots to call me a& (4 t5} 992-55". EW41-4-3youhave any questions. pkasc —AtAl-ways sb=rcly. B-DTSCO03584 R." 6wI TRANSAMON DALANCB AND REQUIREWPA MENTS cmy orLA Loan Isom Lehman Ilsoilmi AarNr Li11011 BepSnnirlpol �Nlrtly i .Fl.gsrlr�d o QUOIN LIBOR bolal Par 01x411 Totnl OUIII V OU011911r ACCmW C mound9d IrlailaW1a1 Endap Cwmurli� Prymsrsl 011[11x'2000 0.0900% 0"041076 0.000071, ; 2230,000 7,750"00 29501000 2,264,000 e 0450i/2W0 2,260,000 6,1496% 20.0000% 25,4435% 143,119 143.158 , I 1.500.7140 3,750,000 3,160,000 4,500,000 % 07"117000 3,760,000 bA495% ?0.0000'x4 26.149176 239.63? 301,061 1."04,0,00 6,260,000 5,250.000 5,000.0710 1010N20D0 5,750,000 Okft 1, 10,00005 25.4436% 3330.045 716,69" 1' 1,500,000 5,760,000 8,750,000 7.5[10,000 BII0117G01 0.7110540 6,443511 0(L1730046 36,442611, 474,$59 1,144,935 1,14.065 1,12!:,000 9,014,056 7,071,000 9,000.000 04014[001 04019im 5.4436% 20"000!1 25,44X% '57P745 1,715,709 1112600 10,144,953 !1,0"0,000 10,1x5,000 0751111001 10,144,1ibs 54435% J6Ag007F. ' 05.4 M , ' 546.007• pAMpla ' 1,1211,000 It 366.066 10,I26,000 11,aa4,vlfl 191011 I i1.250,965 5 44311% 20BOM ' ffi,11.U%, • . 715,897: 310001677 1112$,000 12,394,956 • 11.260,054 13.105,877 0iNi11002 12.994, 5 bA43b% 20.000071 25,44%% 7891477 3,1159,304 7,704,349 7511,7140 WHOM [1!,000,000 171,119 0410112002 16,71OAM 6.4496% 40,0000% 26.4435'11 1,00!«,125 4,876,730 760,540 19,619,304 12,754,000 td,BT",� 0710119002 16,119,901 6.413316 20400011 2b.4470% 1,057.133 6,9]6,993 F 760,000 17,959,304mc .500,000 19,1"5,1811 10181111000 17,360,904 6rM35% ?0,000071 26,4435% 1,t04,539 7,040,702 760,600 15,[19,704 14,160,000 20;540.708 � otA112003 18.11903011 5A436% 2454009:[ 25.4436% 1,162,6411 9,193,241 4X3,944 376.000 22,611,246 14,525180 22,443,245 � D4,10MW 12,111" bM33% 20090% 25A435% 1,4111A40 9,544,608 979.000 27,1113.148 16,000,000 24;101,6u a7101l2009 WA,>ZA8' LA435% g= '�,i my%, . 107im •111111,141 376.000 '' 23;554,1"9 16,976,000 20,110,991 1""1172000 !!3,5111241 5,4436% 710 0000'31. ;'• ' �5 9, ,1,4M146 12,619,127 ' MAN 23JI43248 16,760,D00 27,904,127 owlx'2004 23,947.44" 5,4435% 20321000% 26A4116'b 1,$90,000 14.141.1117 6119,45,079 29.102.117 15,760,1100 29,M.12T F 040MM% 20.19".111 5,44367x, 20.00547E 4J5A43t616 b6A435% 1,901,400 ' 15,043,117[7 29.807.127 lb.7b%OGD 311701.!27 0"11113544. tP.M,127 5,4431% 20.0900% 1,9011400 17.944.927 ? 29,0x2,127 16,750.000 13,194.947 TOOL@ 02 !9,8,127 L.449b% "'b.4435'% 20,0000% 26+4486% 1,901,400 i9,146.327 , 20"92,127 18,75000 36„691577 01)00005 90,M.127 -n0000% 1L443571 1,001,100 . 21,70,777 7,"06:800 31,497,727 1111,7503000 31,497,707 04"111006 27.4717,777 6,4436% 20.0000!1 36.4496% 91316,158. . 24,102,910 371497777 i161501004 39AGPR 910 011911=003 37',1197,727 6„4496% ZOL000 W 26,44M ,2"1%113 90,614M 37A97,727 16,760.000 420111,093 10d91R00b 37.497;77 5A4M 20.000070' 16MU% , 1.546,183 28,9030178 37./97,727 15,760,000 44.463.476 01x012008 3.7,497,794 bAM% 2WM% 3[".49M 2,296,1111 31.111,462 115140,732 47.038.+{58 16.760.W0 47,078.4511 04JOINM 47XBAW 6:44US 20400076 75.4435% 2,992,057 34,760,115 i 47,000 60 16,760A00 60,030.bt8 071314081 47.934455 5A436% 2DACW% MUM 9,991,067 37,27?,673 47,038,438 15,760,000 6.1.027,673 IPMIF 01 /17.0301469 64436% 20AM% DAM% x,1181,067 40.181,930 47,030,459 15,760,000 MAM Alak 01x011x007 47.0911969 6,44:4596 10"000% !6"436% 1,154[.067 43,1!50,507 1[,996,716 5910711.81.7 16,750,000 b9,Qu 041012907 59"051117 bA485% 50.0000% 716;449"11 0,763,941 47,010,618 69,096,057 15.7601900 52,700,020 0710138007 69.000,977 5.4M% 20,W00% 29,4436% 0.733.341 60,783.30" 59A06,11'T iis,760A00 95,613.9149 100112007 •411.009,097 6A49511 70374100% 26,4435% 3,753.341 , 64.6,1I4710 , 59.001{,097 16,760"00 70,250,710 0150111008 b9,d0B,897 5.443671 29:11000711 26.4436% 3,759,841 55,27111661 11.110,304 74,020,051 16,7"0,000 74970,061 041010=1 14009101,0.'11 5.4436% ROM= 26435% 4,709,322 62,971973 741070,051 16.750,000 79,728,373 0710112006 74,010.0,61 5.443b% 20.000076 96.4436% 4,706.322 57.699.006 i 74,0;0.051 15,760,000 97,435,605 N .10J9IP91108 14.9303741 b 4431!14 119.0000!11 25,443b'A 4, OW2 77,391"17 ; 74.020.031 15,75000 85,145,027 m 0410112009 74AMPI 6.4435% iWM% !6.47671 4.700,32t T7,103430 is. !M, 821663.730 16,760,000 99,867.330 0 041OW409 051911, 11 &.4435% 70AMW 25A435% 6.999,214 83,009.125 � 192,86:1,339 15,760,000 99.ras,s29 07A)MM09 92.8531%15 6.4436% 1040050% 11,44121% 8.901.284 15,116,107 97,873.3341 15,750.000 104.895,907 IMIA004 92.523,330 5.143616 203100071 26.4436% 6,906,754 04,622,101 9x.853.339 16,760,000 1 tQ,6T2.1 t11 , "� 01/0131010 92.lbx= 8.44 111 201A090% 7[6AM% 6,906,204 100,728,476 23,525,135 116,4751475 15,15000 1181476,173 04501x[0070 114478,475 6.4476'56 10,0000% NAM% 7,400.060 108.137.625 1 115,1170.476 16,760,000 173.007,62E - 071012010 118,#70,476 6,4435% 20.054076 21.443176 7140BAN 116,540.676 ; 118,470,476 15,760,000 137,096,836 W IO10IIt010 i11147i1g5 64436!6 12540071 26.449676 7.40060 1251,965,926 ; 115,4781475 16,750,000 106,70b.G25 0110i20Ii '114,47i^ 5.4436% 20,000071 . 26.4435% 7,401.050 130,754,678 11,638,100 145, 174,078 16,750,000 t 40,1 14.076 x,11111 - [30,361,6x2 13q�J64,675 16,750,000 W 0000 e.p4HAVo1 Oumlorty I vafMI LMOR InNissl TRANSAC ON BALANCE AND REQUIRED pAYMBNTS City of Lodi, Lan from Lehman T1ou4rf i Cwrsnr L1DOA N17 1/6) R�qulwd n P1V$ CNN 101414?w60dy OW1160Y Aaaiwd Oonw9und.d ImemeN+l Eadlnp cwnulmovs Psyfmonl fo ,... �.�„1 .�1�.r. ►.... .r v ,1.111.1.17181. nwwnr, WROKOvi _il`fMu ufnNmfn ow" ` DltwdOM►► �Nna 92.5791193 41110112004 22.4 :tai 0180099E 0180091E 090061E 618411112 MA70,465 2.250A00 2.960,000 , 2,250.000 2,960.000 04l91A1o09 04m1r10D0 RAW" 6.1700% 2D.0000% 91,170074 147.206 147,20a WOOD 1,760,000 3,750.05 416001000 07.9@01186 0710114000 3. WADO 6.1700% 20.OD00% 261700% . 245,343 3W,649 IANX1 � 6.260,000 5,260,000 6,OOD,D04 11.17007E IMIM9DO 5.266,040 6.1100% 204000% 26.1704% 313,41{1 738,090 1,500,000 6,7,54000 6.7601800 7,500,00D ROAM 01181!001 9,760,000. 6.7700% 20.00007E Za170011 441,611 1.177,041 1,17;7.840 1,1?6,000 0,062,846 7,676,000 9,000,090 951709% 0418 AMI 9X,N9 6.110n 11018069% , 186,)700%,, 692,299 1+762,917 1,1261090 10,177,546 0,000,000 10,1?8,000 9,028,130 0'5111001 10,177,616 1.110471 20A409'1E ; . �6,17007E, • 515,172 2,176,761 j mm" ii/301/W4 10,123.®00. 1%9436.710 130,961,747 '101814001 11.906.146 6.170071 II0A009%' - i6.I100'E, 739.15 0,176,314 7, WOOD 12,427,648 11,260,000 13,3001284 32.11001920 411811,9602 14.427A41 6.170076 20ADW% 29,17001E a13A76 3,0x9,342 7,810;x5 7bOj1D0 15.488,342 I3,040,o00 M 16A38,34 04101h1002 16,968/7!9 6.1700% 201800016 861100% 1.045U37 6,014,370 750,040 16,7311,344 12.7641840 1718344 071811009 11P31,347 8,1700% 20.0000% 26,17007E 1,005,106 6.129,465 760,000 17,486,342 13,600,000 16,x79,465 101DI1M9 17,486,54? 11.17007E 20.m% 26,1700% 1,144,174 7.219,669 760,040 18,238,342 14,950,000 20,773,659 011i11AM 1601341 8.1700% 40,0000% 20.1700% 1,111,243 11468,003. 4,8,660 376,004 23,091,1102 14182!%000 24,716,901 104/01/1001 231841,902 8,170% 310,00009E 26,17UM 1.510,787 WAN ; 3751000 23,46x,1 R IbAW.000 21.608.01 07/4101001 23A x,404 6,1700711 MOOM 11,17409E 1,634,222 11013,011 i 37060 9.7,641,002 16,376.440 254MA41 I419IOW ?91817,902 6.17001E 20,00007E 710.170071 1,669,866 13,072.107 37600 24.416402 16.76%OW WOW OIIDtAZ00) 94211.101 6.1704'J1 20OMM 26.17002. 11194,310 14,657157 6,14,165 30,407,267 16,730.000 30,4971267 oilOiJx004 301407'A57 4.17047E 20.01109% 40.17410% 1.968.924 16.648.651 30,407.067 15,760poo 32,310,661 0714 MO 30, 11957 4.17007E 1!0.0000% )16,1709% 1,960.994 76A70,D46 30,407.967 16.76044gO 34,346446 MOWN" 30.407,067 6.17001E •20AD001f. 16.47104, 1069494 M4961131 I 3MO7.241 16.1641104 34,376.4}4 "Obm84d 30/407/067 11170016 200080% 2m7001E 11901.944 99,614AU 7,157,876 39.364.573 16.750.000 -8x,31641433 O4NIf1006 3L7 NJM . 61700% 24.0810% 2170011 %810,019 � 21,124,862 34,844,573 181790,040 40,074,812 0719111006 39.31,07 6.1700'% 311189901E ><UMM 2.610014' 17,944,671 ; 30,301.63.7 IS 4,400 43;,741,471 10l101m08 uxkm 6,1700% 11018608% :6,170414 ' 'MIMI& M1144AN i '3D,3B4,d� 15.180,000 45,994;810 01M1filOQB • 31JUAD 8.170091 14.4ow1E 151704% 2,614x019 91.664,009 -10,044,078 46,45.909 16,7760000 44.404,904, 04MIANS 4114HM 9.1700% 20.4000% 26.1790% 3,106.121 75,611.106 4E�ID4,ip9 15.760,000 51.571,8D0 all011t001 41.01,000 6.17697E 00.0000% 26,17807E 31169,1141 3B,966A01 ` 46,{01,406 15.7G0,000 b4738,491 10V91it001 - 9.1700% mpac011 26,176x% 3,158./01 42,161.682 48.101,009 16,77101x90 57.95,6 01185!7001 ' 46,45.909 4.1700% =0.0040!6 26.1702111 3,!66.00) 46,x24.473 ' 19,wx4 611877.473 15.760,000 61,078.45 0001AM 41.471,473 !1.1700% 10.0004X1 46.17110% 5.995.006 41019.130 61,072,473 16,760000 65.061!,139 07191181007 411872,473 4.17007E 20A M% 2LI120 9,417.1',060 66.31?,606 I 67,0721473 76 50,090 69,00$,845 10181/2001 61.071,473 '4.1700% Z0.84M . 146.IMW x,995,640 6719 79.471 61.0772,473 10,714000 73,089fi1 DI1OVM 9104473 6.1700% 1100009% 78.17091E :MAN 61^167 16,90x,864 77,056,137 16,760,000 77,056,137 041 u*m 77106007 6170D% 20,60001E 10,17001E 1,04i.7M2 63,349,410 i 77.0113,17'1 16,760,000 02.016A89 Z 0710111008 77,56,131 4.17007E IOAW% ?1,1704% 5.041,332 11,111,601 1 77,065.127 15,70,090 07,137,001 1DJ0112008 77.066,187 6,17007E 70.o=% 2.0.1700% 51041,332 70,4n,133 i 77.069,137 1b.760,000 92.5791193 oWtrA49 22.4 :tai 6.17069E 20=5% MUM 618411112 MA70,465 90.1,65,326 91,424,445 16,760,000 97.220,405 � 04l91A1o09 07*9?p, O 16,170016 20mu .10/IM%6,; 0,644 67.531,113 i 97,2x01166 16.760,000 103,661,118 N 07Tot�lf99 07.9@01186 8.17001E 4918090% ' 10.170011' ' - 8.90D,9d0 94,101.701 W.420.465 Ib,7bO01D 109,441,761 w i0f01110111 97,8701866 11.17007E 140000%' 86.170 1E . .0.35,11 100,662,409 .. 17x30.4%1 16760,5100 116,SO7,ig9 O11DIMID 97Al0,463 6,17001E ROAM 88.1700% 6,!60,640 106,913,00 25.42,692 12210631857 16,760,000 122,0031457' � 011ON201O 122,6600017 6.17007E 10AO00% 951709% 84095.290 114A31,26i 12203,057 15,750,000 130,$68,207 0770111010 111,00sw 61700'11 10189007E !61719% 9,028,130 127,963,617 199,6931867 18,750,000 178,713.617 I1114114010 In~? 61790% IIO.00009E 36.170011 8,006,124 130,961,747 ! 127,903,857 15,750,040 149.731,747 0110112011 MAd9.067 d.170D'1► 80180001E 20.1700% 1XV34 139,011077 32.11001920 164.763,877 16.76x.000 184,7x3.977 low 130,013,977 1Xh 13,0'77 15 76um la"5-93 01;49m Frm-SMS iN RATH AMINAL i-058 P.13/13 Hu o UM-4wo o Tw��3cLAr.n :';'c on pp i n:Ydwa O'w w R �ro-eO�ra—r►-pp17r-p sn^�m�Oh�y M h d RY-C7 !S n !1 47 T T �4 p Yi O m A .�- ~ a a d r �•: � • cm 55�� rg�g y� r 5� $ Q 5� g g Q r� p g 5� 5� 8CIL"g$ Ht 2, ri4 i5�S�S 2375���5ZS�S�f��gaS $ �jE d p !i op yp�d�op dfd�!p400d pp pp ---din--------b p.--r-b b - ^.d------ SSpGO � � C� PNlr� r wm$ b�O�OA�AAA4^p Qlti��rb AO �O �m�N �` OpSp ��Oyy Lpp of r sr•-_•-^��RO�dO O�mq��e�t���+[+[���ppKh��m pn a o 4 Q.-i�i ��h mTr ftb�pn e'=@�mp f3Q4w.0 an `-+•� ••hNh drn!]171IT+4trA `QQ �O p Q�p pm pr�rF"''R� q C 3 at cd —__ iw"'���.�i�,p�o 11k �sct n a r •°w'n��odd4����0^ qr►o ++w«-eimhti�y .2 • _ NO,Nar {4 L7 L'7Tf T W Y�m Q �►i'r p ap �..p�� ��� .pn 8 �•!_ � N¢ w� A A�� o A G g O� O T! T 7 r r. q ot it-'= r q .. ••�• ,-�,=kaNrti01`h.�l';ei rr+�•�ammasmm�eotCid .r+wO at 'C at A it. 9 A w � X g RIB amm�mdi�m �ddidiimd 4" Comd.oran�i i�i[�eaaa�olVAINcoa's OLD. ft IV a 994 ft9atiNe�feth�hw�Naq QlpQ — •a 4 R 4 O I'A'4C1111110" $�Rg apR 7t it '�at1*1!1 m-1, N NMH [�{h Ndldhhhh NA{WF[11""R" offla llNo 1 at vt at at at at at o�ommm 6+amm_mq � �ei�irm �dho osmoId 14ds44 Id 4d -d d ����!gOF ! -F � g "t^T .nM in ML �A A� w 6 p m4 A l►�n+�A �wA ����� Tp� CI qPJ l7 !'T�fwO4 �� P���� mplm rr fill r r HHH1 111111 Ili MIUS gg PCs —0 Q.•ooe�o3+'S.-oov•-o0Hoolifff" .•a3$-o�S$'ua 60�--e B-D7-SC003587 1 2 3 4 5 V 7 10 11 12 13 14 is 16 17 10 '141 20i 21 22 23 24 25 26 27 28 FILED JUN 2 7 2003 L TM UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA CZTY OF LODI, NO. CIV. 5-00--2443 K -D JFM Plaintiff, V. iD M 6 F INVESTMENTS, Defendants. This matter is befafe the court on the recyucdt for reconsidwLatioA by nosh -party zahman BrotheM Inc. {"Lehman') under Federal quie of civil Pracedure 12' and Eastern District Local Rule 12-303(0). LehmatL challengea the May 131 2003 ordcx of the Macget.rate Judge ro"ir4Ag Leiunan to produce yertain allegedly priviLagad documents pursuant to A motion tP compcl filed by def ndant Guild Cleaners, Inc. ("Gtzildll) . For the reasons discussed balow, the Magistratc judge's ordax of iiay 13, VIII further .rpferanceas to 'Rule" are to the Federal Rules of Civil Frocedura. I—ik.—U_s; 1.nr—rn: +*+w++r 4 i, 14 1 2003 Ss P',rPTRMED and Lehmanr s request is DENIED.' 2 BACKWUX)ND 3 in late March 2003, defendant Guild Served o subp*ena isuUa3d 4 oUt of LhV. Soutssern Distriot, of New York on Lehman seeking 5 documents pertaining to plaintiff City of Lodi's !" todl-) scho ae 6 for financing enwiror►mental pxosecutions of contaminatad arcaa 1 within the City. (A= Ex, B. to Derl. of Michella C. Huns: ("Hunt 9 r0_c1.") in Supp. of Mot. to Stay at 4.) While Leknati produced 3 approximately 4,630 pages of documents in response to the 10 suk-) enx, it withheld cettain categorise of documents claiming 11 tbcy are pyntected by the attorney-client joint interest tie privilege. (Lahman's Raq. for Recons. at 3.) 13 Guild moved to compel the doc=ents Uefore Magistrato J')dge 14 Maul 'r on May 1, 2003- Lehman opposed -,ho motion and submitted 15 the diaputod doc=ents for jii cLmera inspection. 4n May 13, 16 21303, Magistrate .judge Moulds granted Gulld' s motion ¢nd orderad 11 Leh,,-"ri to produce its docN;zaants by May 20, 2003, 19 On May 19, 2003, Lehman tiled an ex parte application to 19 stay the t4agistrate Fudge's c rder. Ry minute order dated t4ay 20, 20 2003, the court grarited Lehuwn'n es parts applia9tion and stayed 21 tha belay 13, 2043 order pending resolution of this zegoest for 22 recons{ deration.' 23 I�! 25 n Becauat: oral argument will not be Of material. 26 asaistancA, the court orders this mattar submitted on the L-riefo. 27 &De E.D. Cal. Local R. 7B -230(h). 3 Lehman's present request for reconsideration was filed 28 conc+irrent.ly with the ex parts applai.oati.on.. 2 7-10- .F;f_; p -N4; 1 2 3 4 5 6 8 9 10 11 12 13 14 15 15 19 20j 21 22 23 ?4 25 26 27 25 +++>+++ d SATO Pursuant to Mule 72 (a) 4 anal Eastern District Local Rule '12- 303(f), a Magistrate .Judge's order regarding non-diopositiv-- p&utrxal motions shall be upheld unless "clearly erroneous or contrary tv law." Ved. R. Civ. P. 72(a); E.D. cam.. Local R. 72- 303 if?: joA 28 U. S.C. 5 636 (b) (1) (A) ("A jl:dge oL the Court may .reconsioer any piatzial matter . . . whare it has been showa that the magistrate judge's order as clearly exronsous or contrary to law.'). Thus, the co,irr reviews LehmAn's present reque6c for reconsideration pursuant _ to R+ -,le 72(a) and Loc4l Rule 72-303 (c)s applyinu rhe standard of local Rule 72-303(f). 11J ' Federal. Rule of Civil Procedure 72(a) providaks in relevant part: wtthln 10 dayrp otter being carved wit4 a copy of khO ma istrata judge's vrC(ar, a }warty may serve aAd fila ob'r3ations to the order, a- party may not thereafter as as error a da.fect in the raw istrate j'udge's order to which objection was not t, Maly made. The district judge to wholu the case is assigned shad consider suds oDaotlons and shall irndxfy or set aside any portion of the magistrate j o ?a' a order found to ice clearly erroneous or contrary to law. Fed, R. Civ_ P. )2(A). S gastcxn District Local Mule 12-363(c) provides R party we:sking rononsideration of the Magistrate Judae's rl;ling shall file aa original and une copy with the Clerk and serve on the Kagistrate nudge end on all partial a writ -ten requoP:: for reconai.deration by a Buda, such request shall spc,ci fically dcsignata the rut ng, or art thereof, objected to and the basis for that objection. Thia request shall be captioned "Request for Reconsideration by the District court or Magistrate Judge's Ruling." B.D. Cal. Local R. 72-303(c). K7 (order, Filed May 33, 2003 at 6 1--2.3 7 d@s L e L� sf o 'P �+�ea:UJ.L .;tO-TO. °1 .ett4rn 8 q rivno'g#d roinm unicatian between the Cityy ve- .lodl ;,and:. its: 9 4;qtW-sal, .the :co;ur:t finds that thero has ..men-,a the. 10 privilege.` (Td. at 2.) Consistent wtj, th.e finding that- Lahman 11 did nuL share an attornoy-client relationship with Envision, the 12 Magistrate Judge concluded, "the joint interest doctrine .is 13 inapplicable, given the relationship be'twean the CiLy of Lodi and 14 1LehmanBro-heib, Inc."' ((Z.4-) 3ased cn these findings, the 15 Mkgist=ate Judge granted Guild's notion and ordered the 16 pzadcction of Lehtran's withhold documents. (1g, at 20 17 E.ehma^. now cha.o.+rages Oia clay 3, 2003 order on two grounds- 16 Fust;, Lehman arguon the Magistrate Jiudge erroneously Concluaied 19 the documents were relevant to Pl�asa 1 liability issues. 20 (Lehman.',- Rcq, for Recons. at 3.) SeCoRd, Lehman Gvntonds tha . 21 Magistrate ,judge fail od to properly apply the attorney-client 22 joint interest pxiv.`Uzge. (J,d, j The couxt, addresses each 23 argument belcw. 24 A- Ralerance 25 Under Rule 26(b)(1), parties may obtain discovery regarding 26 any matter, not privileged, that is relevant to the cleLlm.. F--d. 27 R. Civ- P. 26(b)(1). 'fie be relevant, evidanae must hsve a 28 tendency to crake the existence of any fact of Consequence more or 4 1 2 3 d 5 7 0 9 10 11 12 13 14 15 16 11 1$' 19, 20 21 22 23 24 25 26 27 29 lees pEubabls than without the evidence. Sad. R. 9Vi.d. 401. Lerman argues the Magi6trata Judge erroneously concluded Guild's subpoena sought documents w1thin the scope of disoOVOXY permitted in Phabtg 1. Lohman challenges the Hagistrate fudge' ss findinq by attacking Guild's argument- supporting ral.evance. (behrr's Req_ far Recons. at Z.) +�4s..,•:,�t_.�i ou �.td' ` position 'that the`r �lavanoc, *r. tM dbt;u>� UM— tk;�]C�I't. *1; wh",hor nodi propexiy maintained, inspected, arid- repaired. its vAarijcpal and. wafter sower system,.. fes! Lehman then aaeerts that this theory Of relevance Caile because thsa fs.nAncing Program betweer. Lq&-hmQ l and Lodi "could Qnly be expended on certain limited program costs, such as enforcemtnt activities, not on sewer maintenance." ice,. at 8_1 Both the Ninth Cirvuit in Y-ir ARM.:Fuad *nd this courthdva l previously noted the relevanca and impact that Lodi's 4nfaxcearsrit strategy has played In this case- &: F; ' s City of 1.adi, 302 F. 3U 940, 953 (.9th Cir_ 2002) ; 1Mem. and Order, filed Mar. 31, 2003, at %-10,) outsst of thio litigotion the contral, issue has been iden.titying and prapatly allocating respon3ibility for the CiLy's groundwater contamination- T.odi.' s series of transactiona with Lohman to "finance a portion of the costa of its envir'onmentatl abatement pxogram"° for the City's grouAdvater contaminatlUu would sewn similarly ralevaut. Bac:auc® Lebinan apparently has a contiagatt financial intrarest in Lodi's recov%ry in thio litigation, any non -privileged documents in Lehman's possession .related to the 1 6 tehman'.q, Req. for Reaona. at 7-) 14 r-1 C-",1; 1 :=. SPM; U . 7-- 14 I sel:!,as of Lreinzati;:ticAa b*I-.ween Lehman and Lodi are rol;kvant and 2 discoverable. Fed, R, Evid. 401. 3 C. Fri-Vilage 4 "The party assertitig emz evidentiary privilege has the burden, 5 to demonstrate that tris privilege applies to the infozmatioA in 6 question-" =it%LbtAtes, 940 F.2d 1424, 1426 49th 7 Cir. 1988). To support its claim of pxivLlega, tahman has a jpcovi<Acd this court with the subjeot documents for in 2&M -r -A 9 inspection. H hat"t net: isjUb it- Pri-V A�It: 101 -a to d: 10 uR41er 94* 45(d) (21 that provides "a daeoxiptton of th* illativej of 11 the douumontu, oommunicatinns, or things not produced that is 12 &ufficient to enable the demanding party to contest the claim. - 13 Fedt A. Civ. P. 45(d) (2). in itis moving papers Lahmd4-z provIdes 14 only a bvlaf summary of the fotxxtoen categories of documents that 15 it hAn withhold, but dues not distinoui5h its legal arguments as 16 applied to the various categories of docuraenta. Consequently, V Lishman's b-i;rdqn of demonstrating that the ptivilega applies can 10 only be daterr-nined by an analysis of the withhold documents 19 viewed 1—n tat teh-nan r6li,64 Jpon.a derivative claim of G. SqdAA*6 20 the 4ttorney-cliant privilege, the preaeAt detc=inatian turns un 21 the nature of tho relati.einship betwomn Lehman and Lodi. 22 Lehmn contends that 4t has withheld discovery of certain 23 docMents because they "constitute or reflect conmunIcatiorio with 24 the City or its attorneys to the undArlyinq Atiqatkcno and that 25 the "joint interest" privilage (also called the joint defense or 26 2 com6n intarest privilege) attaches to its communications 27 "because Lehman and Lodi have substantially Sirtilar interests in 201 tha 11tigation at Issue," (Lahmanla Req, for Recons. at 9, 11.) 7-1Q-=3; :.56PM; 14 1 2 3 4 5 6 7 8 9 18 19. 2© 21' 22 23 24 23 26 V z$ aucauao Lohman's clAirt of common interest, priv#.loge presupposes the existence of an underlying attorney-client pxivilege, the court first examines the nature of the comraunieatlons "d relationship Letween Lohman and Lodi, AW Tnre ,GZaad amXy Subtrost�� , 902 F.2d 244, 249 (4th Cir. 1990) . 1. The Leh*an-Lodi Connniostions and ReLationsbip Lehma.n's communlcatiocx with Lodi io Comprised Cenexally of corrospendmnce that ptovldes updstes on the status of this litigation, a=waries and charts of the amounts spent on litigation, s�d proposed timeli.nay. The 400UXents were p.repetred by either (13 rapxesAntati)rna at Lehman, (2) in-house counsaal and outside counsel, for Lehman, or (3) counsel for Lodi. The recipionts of the oo=unications generail'y included both Lohman representatives and outaidp counsel for 1"An.' Thu _. � 11�. � swim i4L$$il L @%'i$1�13� 871,; .i 'lAi �..11� ��.�� fnrt+vPrant:& of thAir lsus1n,--ss deal that. funds this litlaat.lon. A doco not revpA t anv ind pol.ationship. Indeed, the only relationship between Lehman air►d Lodi io baxkd upon an 8=,S -length bu%jinesa transacti.atn of funding in rctUrn for profit. This relatlonablp is not privLleged and _h,,�_o eu bject documents, 4f ralevant, are discoverable. Avsuming Lohman and Lodi each generated thalz own internal documenta that would ba pzntacted by the attorney-client pxivilege, yds . pr viloged naturae. at. such. doc=ents was waived ' In one instance, thui.s is o latter generated by the city attorney for Lodi acrd sent to california pepaxt.aent of Toxic 9ubstnnrog that was copied to Lebman. I Z 2 3 4 5 6 7 a 5 10 11 12 13 I9 it 16�17 ?8 1.9 20 21 22 23 24 25 2 CS 27 28 sr ..dsxelosurR to one anothor beCWASer I[t]he voluntary dtlive--Y of a privileged communicatiop by a holder of the privilege. to awwone not a party to the privilege watvas the privileges_" Clacig y- LonAnagigo-Caunty, 770 F.2d 1421, 1433 (9th Cir. 1995). Further, as discussed below, the common intereat privilege dote not apply because it "sloes not ereatsa an independent privilege, but depends upon a< proper snowing cf the ether elements of the attorney --client privilege." , 191. T.R.D. 433, 437-438 (E,D. Pa. 2000). Thus, Lehman fails to demonstrate that it shares an attornay-client reslatLonehi.p with Ledi ter. as dleaugoad belowo that any cognizable privilege attaches to the i subject CG=Unica'tiOnis. i 2 . Como= Interest PrivLloge The Cron intare.st.privilsoe operates as an exoepti.oft ;,o Urie general rule that the attorney -Client privilege its waived -upon di3eloeure of privileged info=ation with a third party. T rte Grand ?pry_ SgbQQ*rens, 902 ��z, l:Sl E.R.D. at t,37- 36, . e F.2d at 249. To ostabligh the camon interest privilege, "the party asserting tha privilege must show that t1) tho conounications were trade in Lhe wvurac of a jni nt defense effort, (2) the fitatementa were.dasigned to !urther the joint defense affott, and (3) the privilege has not been waivea." pjLL a" Bt.At_eA sax U1. ur, qhs v_.gf;Varai. gory., 167 r-P.D. 69D, 686 (s.a. CA1. 1996) . Lehman noes not atteitpt to prove the required elements fot the common interest privilege. Irtstead, Lehman relies upon liew Baiac Ih,c�_, :15 r.R.ia, 308 (ta,D. Cad,_ 1981) and In„. �_,l'Lnr��,�ga _& �akty Trus , 212 B,R. $49 6 7-10-,- 3 F30PPA; 10: 14 1 2 3 4 5 6 9 10 11 12 13 14 15 lb IV Z$ 19 20 �? I 22 231 241 25. 2.6 27 28 �Aankr_ C.D. Lal. 1997) is claiming t:aa common inter©st pr'ivilegc . s. 1ILA- AWARb Lohman Contends HaW ett-Parei requires application of the common interest privilege in this came because Lodi, like Bausch LfliUb, had a "duty to disclos© all i.ntortration about pokential litigation LQ Leh=rx in order to give Lehman the tools to decide whether to invest in the litigation." (Lehman's Rett. for Recons. at 9.) The court disagrees. In. �:-Pac_ka�r�i, Sauach & La.,70 had a leg4l ditty to an opinion ] et•.t Br which analyzed the i'hrant of Litigntion to GEC in the midst of a potential bssinsss deal. &Wjqtt-PagkgXd 115 F.R.D. at 306. Significnntlyp the disclosure dealt spocifically with the very auaat that r -RC sought to purohaae. Y_, in contrast, while ?,odi, may have a conrract:jal duty to report to Lohman after their agreement was consummated, such reports aro wholly di.s5imflaz to the maLur:ial dionloauroa .that were required of gammal. and Lomb. This radical difference undermines Lehman's reliance onI3ewl, gt't-�-XAj,-.kard. Unlike 9gwl.etL-_ i ZPot-ween cka" and contr:a;,ry.to Lehman's cont-enti.on, the coinmunicatiar.a Letumn and Lodi were not "tools to decide whethar to ,.nvest in the litigation"" because the communications all invoive matters occurring after Lohman invested its the l.xti;xtlon- Row1g=t-?aakad simply does not support Lahman's claim of common interest privi.3.4a.{fie. Lehiflapl s posititn is further distinguished from HqA t — by the distinct policy consideratioss5 urdexlying =hat (Lehtnan Req. -for Rocons , st 9.) 9 7-1C)—=3; c56PM; +++++++ # 11/ 14 I decision which are inapplicable to the present case. in 2 pa , the court was peraaaded to uphold the attorney-client 3 pri,vilage because it hoped to encourage the negotiated sales at 4 busintsses ttleei invo;va saaats protected by intallect-ual property 3 law. l: 7 i,�? n� �.:..1, ��:�und, *4,im.enCal. 11t.a 1i.on •ar. .r.pf'iti or3til.d. ++►. ti fir_ient aid offdctive.ameditha 9 ire Au, pat: b"k,- glans not seek to reraedi.ate, insrei it seeks. to. jai re=ver its investment and. make .ars sx�raard%n�►ry. pofir. Tea the an'a financial .arfanga ent with Lodi: could con,fli.cu 12 �gj k a qpa .,. of craning : up anvironmanta,l coritami.na,t cn, sound' 13 pulicy counsel& against. ancouraging such. arrang:%menta_ 14 b. In r O ZY UMA& 15 Lehnf an also relies upon in r1k to 16 claim the common interest privilege applies. la �sx_x orti btu 17 ru , the bankruptcy court applied the con -non interest 18 csri.vileue to [prevent the di.sclosute of a telephone aorlveraation. 19 Thw. bankruptcy ocu.rt found the common intefest privilege 20 applicable because of the shared legal duty "to maximi7n the 27.. debtors eatate" between a debtor in possQasion and the committee 22 vi: creditors- .?_Xci�gage �_�e�.L�Y_ "��, 212 H.R. at 653. 23 In this case, Lehman and Lodi have no shared duty that, is 24 analogoub to the bankruptcy context discussed in Ine 25 Bealty_ Txlli+t.e Dr-~er then the distinct obligations created by 26 27 25 9 Lehman also aa4logizez its position with Lodi to "information exchanged between defense couctsei and defendant's (continued_) 10 T •d 1 their cencracuudl ral4tioTiehip. Lehman and Lodi sha.:a no comwn 2 legal, duty with ote another- Accor(Ungly, -to NO-LtQA2A--& 3 p±AJtX does not, support application of the common interest 4 privilege. 5 3. of t A Ccmmcm 10terest Vxivil*%W tv this Case 6 Au disausnPd above, neithar�ee�iat� �ls�d riot In—re r M�,Realtr$ suppoxt Lehman's claim of privilege- j- rivilege- l:ohman's only remaining basis for aaaerting a common interest is 9 that both panties posaPAS a major financial incentive in 1D prevailing in the lawsuit and seek to recover money." (LahMan.'a 11 Reg. for Recons. at 9.) Such lrncentZves do not support Lahman,6 12 claim of commars interest privilege baoause the commons interest 13 must be "identical, nog similar, and be .regal, not solely 1.4 cosrrmeresal." Katz, 191 F,R.O. at 437 (emphasis addel) (quat,itig w 16 'ntrL of the`U�v_y_of.Cd �,, 101 F. 3d 13.96, 1390 (Fed. Cir. 1995)) -4im EVni.oCorp.o ., 619 F- 17 Supp, 1036, 1047 (i3. Del. 1985) , D xe MJJJJken, rnc_, 397 F. Supp. 1145, 1272 (D.S.C. 1974). Because 19 sole inA crest in this litigation is pr013.t, such an 20 interest carnet form the basis for the common interest privilege. 21 22 9t ... continued) 23 insurer . " (Lohman' s Req. for Recons. at 11.) Lehman' s analogy ie unpQrsueeive, The origin of an insurer's role in litigation 24 arises from a duty to detand tLu ixtisurad that 5_x+ i. aced by Ittw. here, Lehman is an investment bank wkth no legal duty to 2 nrtiuipate or defend Lodi in this litigation. rLixthar, an 26 s n< ? #r a its oontractua,,L ._right to araet tha course of 1 an b a.l C�f..ltssizrsd In cantrasC: Lehman "does , egy." ( at 2.) n - �� 'lrs l�t;� awn st-rat� . 21 Accordingly, Lehman' s arta ogy to insurance contoxt does not 28 support application of the common interest privilege. 11 7-7C-03: r:56 �rrt; ;a 3 gAt?, 191 F,R.0. at 437. Accordingly, tho Magistrate Judgo's 2 Orden of May 13, 2003 is not clearly axroncous rix cont.sary to 3 law . 4 cox=siom A For the reasons set iort.h above, the Court makes the 6 following oi�dears: 7 1. rhe stay ixstpoaed by the court's May 20, 2003 minute order stay is REMOVED; a: 2. The May IS., 2003 order of ,Mogistvahr, Judge Moulds regarding nonparty LehWan is AFFIRMED, includiAq th% cSucumente in "item 14" Submitted by Lehman for in 10 Gamma review; ii 3. Lehman' s request for recerza.ide ration is DENIED. �2 IT IS 30 ORDERED. 13 14 DATED: .. Lune 27, 2003 FRANK C. if;1MithJ4, Jr. 15 UNITED STATES DISTRICT JUDGE 16 17 is 19 2d �1 22 23 24 25 26 27 2& 12 luduum A Maya City of Lodi Attwncy's Office 221 West rine Swoet L od4 CA 952411 209-333-6701 fu 20-MH Leri 0 Gurloo Law Offiow OtLadrl F Ouako 455 Caitol NWI sl ite 210 5acramMuo, CA 95814 916.442-66150 AM"fiAg45 'i'y T. Scott NWAG& C. Hunt Way Audda RSawn & Wood LLP 555 Califomia $t Sart jlrmd", CA 94104 415-77.2-1200 fa 415-397-4621 MlmbeA C U011 wRM ECMSLW L.eW Crroup 1717 Moui t Diablo Boulevard Suite 100 IAdVetto, CA 44549 925-962.6YOO 0 Stepttex Mcyer, 31 khael rM Its Uaw my Brand Seymour and Rohwer 555 Capitol Mal[ TarAh Mour Sacramento, CA 95814-46815 916.441-0131 LODI CITY COUNCIL REGULAR CITY COUNCIL MEETING CARWGIIE FOIA 305 yi1F,8T PIS STREET III , NOVE1110ft 31"1 7:00 P.M. Present: Council Members — Hitchcock, Mann, Nakanishi, Pennino and Land (Mayor) Absent Council Members — None Also Present City Manager Flynn, Deputy City Manager Keeler, Public Works Director Prima, Community Development Director BaAlam, Finance Director McAthie, Electric Utility Director Vallow, Human Resources Director Nadoch, City Attorney Hays and Deputy City Clerk Taylor 2. INVOCATION The invocation was given by Pastor Bruce Logue, Ham Lane Church of Christ, 3_ PLEDGE OF ALLEGIANCE The Pledge of Allegiance was led by Perry Wilcox representing Troop 474 of dne Girt Scouts Terra del Oro Council. a) Mayor Land and Community Improvernent Manager Wood presented the November Community Improvement Award to Antonio Murguia, property owner of Camiceria California Deli, located at 620 South Central Avenue, Lodi. b) Laura Heinitz, member of the Lodi Arts Commission, updat d the City Council on the many accomplishments and activities of the Commission. Mrs. Heinitr invited the public to get involved in specialty arts classes, ballroom dancing, or one of many upcoming performances in the theater. Those interested were encouraged to contact the Square at 333.8782 for tickets and information. C) Captain Adams with the Lodi Police Department introduced Audrey Lake of the Dayton - Hudson Corporation who informed the Council about its 'Partnership Appreciation Awards' program. Detectives Reba Ridino and Roger Butterfield were both recognized for their partnership with Target and Mervyn's Loss Prevention personnel in investigating crimes that effect its industry. Further, Ms. Lake presented Captain Adams and Captain Mauch with a check for $1,050 to help in the purchase of specialized equipment to assist in the fight against these types of crimes. d) Ken Nieland made a presentation to the City Council regarding the upcoming Sandhill Crane Festival. November 5-7, 1999 marks the Festivars third year, and those attending will experience time addition of an art exhthition, a kick-off reception and an increased amount of exhibitors, educational materials. and information. Also shared was the tact that one individual crane, tagged and recorded as returning to Lodi annually for several years, has been given the name "Lodi'. Coad x&W N0VeMb r 311999 5. CONSENT CALENDAR In accordance with report and recommendation of the City Manager, Council, on motion of Council Member Nakanishi, Hitctrcock second, unanimously approved the following items hereinafter set forth except time otherwise noted: a) Claims were moved in the amount of $3,579,953.25. b) The rrdnutes of October 19, 1999 (Special Meeting) and October 20, 1999 (Regular Meeting) were approved as written. C) Adopted Resolution No. 99-166 awarding the bid for the purchase of ten portable radios and six mobile radios for the Polios Partners Program to the low bidder, Lagorio Communications, of Manteca, In the amount of $10,759.45. d) Adopted Resolution Ho. 99-167 awarding the bid for the purchase of iilteen wood utility poles to the low bidder, North Pacific Lumber, of Portland, Oregon, in the amount of $6,028.61_ (Due to a confild of interest, Council Member Pennino abstained from disetrsslon and voting in this matter.) e) Adopted Resolution No. 99-168 awarding the bid for the purchase of 15,000 feet of #750 600-votk XHHW atunwwrn condixAm to the low bidder. Graybar Ekx*lc, of Sacramento, in the amount of $20,180.01. (Due to a conflict of Interest, Council Msn*er Pennino abstained from dhnusslon and voting in this matter.) f) Adopted Resolution No. 99-169 authoring the purchase of a Gown Machine Model 414RS Sidewalk Sweeper for the Street Division of the Public Works Department from Western Traction Comparry, of Union City, in the anxmt of $27,799.50. g) Adopted Resdutkm No. 99-170 awarding the contract for Parks and Recreation Deparrtmerd Restroom AcombIlity Retrofit, 125 North Stoc idon Street, to AdvanWee Construction, of Stockton, in the amount of $38,401 and appropriated funds in accordance with staffs recommendation. h) Accepted the improvements under the "Lodi Lake Parts Storage Building, 1101 West Turner Road' conned and directed the City Engineer to Tile a Notice of Completion with Me County Recorder's office. i) Adopted Resolution No. 99-171 authorizing the City Manager to submit an application for State grant funds for park improvements at Lodi Lake Beach. j) Adopted Resolution No. 99-172 authorising tt18 City Manager to sul)fillt fiscal year 2000101 Environmental Enhancement and Mitigation (EEM) Program grant applications for the following landscaping projects: (Due to a conflict of interrest!, Council Member Pennino abatelined from discussion and voting in this matter.) • Kettleman Lane Median Landscaping ($105,000) (from Hutchins Street to Ham Lane) The median is tieing constructed as part of the Kettleman Lane (Highway 12) and Crescent Avenue Traffic 5igneYMedlen Prosect • Hutchins Street Median Landscaping ($135,0013) (from Harney to Kettieman Lane) This gateway to Lodi is beautifully landscaped for a short stretch of median. The Public Warks Department seeks to extend the landscaping to Kettleman Lane. 2 COaAWpedNevawsber3,19" Lower Sacramento Road Median Landscaping ($250,000) (from Tumor Road to Harney Lane). Although the original estimated cost is $620,000 for landscaping, the EEMP's maximum award is $250,000. k) Adopted Resolution No. 99-173 approving a Public Benefits Program grant in the amount of $91,135.00 for the Light Emitting Oiodes (LED) TraftSc Safety Signal Conversion; authorized the City Manager to execute an agreement with Energy Masters International, Inc. to implement the project; and approIxiated funds in accordance with staff recommendation. (Due to a conflict of Interest. Council Member Pennino abstained from discussion and voting in this matter.) 1) Adopted Resolution No. 99-174 approving the Lodi Residential Air Duct Testing & Attic insulation Rebate, a demand-side management component of the City of Lodi Public Benefits Program, for a total of $175,000. (Due to a conflict of Interest, Council Member Pennlno abstained from discussion and voting in this matter.) rn) Adopted Resolution No. 99-175 approving a Public Benefrts Program graM in the amount of $7,215 for Nationwide Wre $ Brush Manufacturing, Inc. as part of its energy conservation eflart. (Due to a conflict of interest, Council Member Pennino abstained from discussion and voting in this matter.) n) Adopted Resolution No. 99-175 appWing a Public Benefits Program grant, not to exceed $5,000, to the Salvation Army of Lodi for a low-income household demographics: study. (Due to a conflict of Interest, Coumil Mon"r Pennino abstained from discussion and voting in this mauler.) o) Agenda item *E-15 entitled, 'Transfer of funds to the Northern California Power Agency (NCPA) Geo0mTral Bond Escrow Accourf was removed from the Consent Calendar and discussed and acted upon following approval of the Consent Calendar. P) Adopted Resolution No. 99-176 approving the transfer of control of cable television franchise from MediaOne Group, Inc. to AT&T Corp. (Dire to a confillct of Intoresi, Council Member titan abstained from discussion and voting in Alis matter.) 6. ACTIOWON IM� REM� ITSUS 1/ ED FROM THE CONSEW CALENDAR a) Agenda item #E-15 entitled, "Transfer of funds to the Northam Ca6fomis Power Agency (NCPA) Geothermal Bond Escrow Account. Electric Utility Director Vallow reported that the Northern Cardomia Power Agency (NCPA) and its members conduded a myon project debt restructurrig this year which resulted in significant reduciions of yearly debt service payments. Subsequently, NCPA has continued to pursue additional opportunities to enhance mernbeW competitive positions. Recently, NCPA and its Financial Advisor developed a financial instrument designed to result in a net savings to NCPA Geothermal Project participants. This instrument would establish a Geothermal Bond Escrow Account for a portion of outstanding Geothermal Project debt drawing a higher rate of return than the Local Area Investment Fund 6.35% on October 20, 1999. The total additional return for the City of Lodi would be approximately $222K over the period January 1, 2000 through July 1, 2014. Subsequently, and in accordance with the NCPA Geothermal Project Third Phase Agreement and NCPA Commission rukm establishment of the Geothermal Bond Escrow Account was approved at the October 28, 1999 NCPA Commission Meeting. 3 Cox#Aued 1N#mn1her 41999 The City of Lodi's escrow account funding share is $2,300,000 based upon Geothermal Project share and anticipated interest rate. Due to the amount required, Fiscal Year 1999-2000 Operating Revenues wig not be adequate to accommodate the requirement. Therefore, it was recommended that source of funds be as follows: $1,000,000 from City of Lodi — NCPA General Operating Reserve and $1,300,000 from the Electric Utility Rate Stabilization Reserve 182. The above actions are compatible with the Electric Utility D WIment's Competition Transition Plan. Following discussion, the City Council, on motion of Nakanishi. Hitchcock second, adopted Resolution No. 98-177 approving the transfer of funds to the NCPA Geoftmnal Bond E-,crm Account in an amount not to exceed $2,300,000. (Due to a conflict of Interest Council Member Pennino abstained from discusslon and voting in this matter.) a) Notice thereof having been published according to law, an affidavit of which publication is on file in the office of the City Cleric, Mayor Land called for the Public Hearing to Consider unmet transit needs. Public Works Director Prima reporwd that a prior public hearing was held on Thursday, October 21, 1999, at 2:00 p.m. at the Hutchins Street Square Senior Center. No unmet transit needs for the City of Lodi were identified at the public hearing. These public hearings are an annual requirement of the Tranapartation Development Act regulations. The regulations require the San Joaquin Council of Governments ($JCOG) to determine if there are any unmet transit needs that are reasonable to meet. Because of the recent transit service irnprovements, we do not expect SJCOG to find any unmet transit needs in Lodi. [�01-u , •, -a ice_ J. W. Baiter, 1825 S. Church Street, Lodi, commented that the Dial -a -Ride buses are busy every day, the service is bad, the wal ft tirne is unreasonable, and even with a reservation to a destination, calling for a ride home becomes a demand response call which is terribly frustrating. Further, he stated it appears some buses are carrying only one passenger, and he believes Dlat- klle was and should remain a service tailored to seniors and the disabled. Mr. Baker did comment that the drivers are great, but management of the program appears to be messed up_ Transportation Manager Tobar convnenled that FTA requires a reservations program, and that these customers will have priority over demand response tails. The number of customers utilizing the program, established in 1997, has increased greatly in recent months, and the majority of these customers are students and adults needing transportation to and from school and work. Prior to 1997, the entire system operated on demand response. Those currently participating in the reservation program enpy the reliability and convenience of door to door service and the cost - Council Member Perrino expressed concern that ft purpose in creating the Dial -a -Ride program was to provide transportation services to our senior citizens and the disabled, and noted he was not aware that the program was no longer focused on those needs. Following discussion, Council concurred with Mr. Penninds recommendation that the Dial -A -Ride program be reviewed and brought back to Council for discussion at a future meeting. 4 Caadnued Nownibrr 3, 1999 ACTION: No Councl action was required regarding this matter. e. COMMUNLQ ONS (CITY CLERM a) On recommendation of the City's Risk Manager and/or the City's contract administrator, Insurance Consulting Associates, Inc. (ICA), the City Council, on motion of Council Member Pennino, Land second, unanimousty rejected the following Claim: Steve Escarsega, date of loss 9/19M b) Deputy City Clerk Taylor read the following ARC Licenses: 1. Wine & Roses Country Inn, 2505 West Turner Road, Lodi, On -Sale General, Person to Person Transfer 2, Centro Mart, Lakewood Apple Marketplace, 1320 West Lockeford Street Lodi, Off -Sale Beer and Wine, Premise to Premise Transfer C) The City Council, on motion of Pennino, Hitchcock second, unanimously directed the City Clerk to post for the following expiring terms on various boards and commissions: Lao& Trella Arieda Term to expire December 31, 1999 Terri Whitmire Term to expire December 31, 1999 .lack Flod Term to expire December 31, 1999 9. Rg U,L,A&QUgNQAR a) Agenda item *-1-1 entitled, "Salary range adjustments for General Services positions" - Human Resources Analyst I! Evans informed the City Council that during contract negotiations with the General Services bargaining unit, it was agreed that a salary survey would be conducted for six classifications within the unit: Customer Services Supervisor, Parks Project Coordinator, Purchasing Assistant, Sr. Storekeeper/Buyer, Supervising Administrative Clerk, and Support Services Supervisor. After completion of this survey, City staff met with the General Services unit representative to meet and confer over the srnpad of these changes on these six dass0oations. As a result of these discussions, and the recommendations of the salary consultant, It is our recommendation /hat the following changes be made to the City's compensation plan effective duly 1, 1999: Parks Project Coordinator 12p A geR g SWC Stop E $3,220.97 $3,382.01 $3,551.15 $3,728.71 $3,915.10 This new range represents a 15.9% Increase over the old rhe. COx dMWd NoWJxber 3, 1999 Purchasing Aaslatant S A Stec B $2,044.77 $2,147.00 $2,254.36 $2,367.08 $2,486.43 This new range represents a 7.6% increase over the old range. Support Services Supervisor JL4 $2,404.60 $2,524.83 $2,651.08 $2,783.63 $2,922.81 This new range represents an 11.3% decrease from the ofd range. Customer Services Supervisor Sr. Storekeeper/Buyer Supervising Administrative Clerk No change is recommended No change is rec:om umded No change is recommended The impact of ttic:se changes would be an Wx ease in lite salary ranges for Parks Project Coord'mator and Purchasing Assistant, and a decrease in the range for Support Services Supervisor. The effect of these changes on the employees occupying these positions would be a 5% increase for the Parks Project Coordinator and Purchasing Assistant, and a freezing, or "Y rating', of the salary for Support Services Supervisor. Following discusslon, the City Council, on motion of Pennino, Hitchcock second, unanimously adopted Resolution No. W179 approving the implementation of salary range adjustments for Parks Project Coordinator, Purchasing Assistant and Support Services Supervisor. bj Agenda item #H-2 entitled, `Authorize execution of appropriate documents establishing financing program for Environmental Remediation Program relative to groundwater contarnination'. City Attorney Hays reminded the City Council that about two and one4wif years ago, the City entered into an agreement with the California Department of Toxic Substances Control, which placed the City in the position of lead agency relative to cleaning up the PCE/CCE groundwater contamination in the City. The decision to become the lead agency was undertaken by the City Council after evaluating attemadves and their affect on the community generally. The Council at that time rejected a program that would have resulted in very significant water rate ntcxeases for all water rate payers in the community. Instead, the City began funding the environmental remediation activities from reserves in the water fund. The achvifies to date have principally been of a tagat nature and have resulted in the City expending significant dollars. T.W. exoonng.. ty.of ir*Kra ing a * 1 tt .; tft ttw- City ► t . o pursue in ori to -a push .the necessary .rieanup program. The City Manager directed that if a program could be developed which did not put at risk funds other than those to be recovered through our environmental remediation activities, then it was a program tie would be willing to support as well. as we have developed !t, as wen as our technical namedtatwn program, with the revenue stream being only those dollars that are recovered under our environmental remediation program. i ia waft alo fw with1ker-Envishm1aw'Group aWeernent so that payrnents. under Haat`_ prvswft5t'tl and the financing. No other City revenues are pledged under this program to repay the holderwof Certificates of Participation other than program recoveries. Cl Continued November 3.199P White the financing concept is unique, the actual financing transaction is virtually identical to the Certificate of Participation transaction which the City recently undertook involving the City's electrical system. The eflibct.of Coumil'sL.appmW of. the finking is to pmvildg dollars to proceed with our environmental enforcement and remediabon activities relove to the PCEMGE: coni urination once the financing is comp le4ely in pkace. At that point in time the City will cease to be spending moneys from the water fund. Count l will note' that the transaction has moved tip from $15.75 n*= to $16 t ftwv. This increase reflects the time that has elapsed since we first began this process along with increased costs incurred by Lehman Brothers in developing. the legal structure of the transaction. Those costs, as the others, are covered by the transaction now that it has increased to $16 million. Alex Burnett, Financial Advisor with PFM, prodded a brief presentation regarding the proposed documents, and reflected on the four twain factors involved in going forward with this program. the flow of funds and security structure; limitations on non-cash settlements associated with the ban, costs associated with the program, which are clearly outlined and certain fees that are limited but no contingent; unwinding provisions governed in the documents. ns with movirfa forward, and asked.for requesting that Mr. Burnett pro e a e proposed program documents. Cft-. was in his verbal presentation to Council this evening. do�curnents ntl;the and" 'tie has read > the in*w kation provided and feewthb OMgram wff be suc� in the City's financial rec ove y efforts. Further, Mr. Pennino requested that the City Manager review and approve as documents and invoices generated during the life of the program. Counch Member Nakanishi stated that when he ran for the City Council Member position, he was aware of the MERLQ topic and was sure if elected, this might be the most important item he would be asked to support or reject .,.Mr, ML. Aft-tupp . M and wcwlci like to we the City Council move forward` s t the City Council and stall have wonted an ttmk MERLO project for a.; yeas 'etthfa •titer:: hdnte s Je Since insurance companies will not disclose the existence of policies whIM wouxl help to pay for the contamination cleanup, this program is necessary in helping the city moue forward. reminded Council " tNss 'item ..hn been'" ems„ the provided with this proposal, has done his homework, and will do his best to make a decision best for those who have placed him in this position of trust. The City has done due diligence for as long as needed. Ifs time to make a decision and rnove forward now - 7 Co+ daueid Noramber 3,1999 Following diiscusaion, the City Council, qn: motign, of Momice, am , edop6ft Prime,( No., 99-181 enWK OA Resolution Of The City Council Of The City Of Lodi fk"ng To Variable Rate Certificates Of Participation (Environmental Abatement Program), Approving The Fomes Of And Authorizing The Execution And Delivery Of A Program Receipts Sale And Repurchase Agreement, A Trust Agreement, A Certificate Purchase Contract, A Placement Agent Agreement And A Professional Services Agreement, And Authorizing Certain Other Related Actions In Connection Therewith' by the following vote: Ayrem: GMXW UW*8M -lam, WMftM. Pexr MO-an#AmW (MWo4:. Woes: ttoi* 11106ri - Absent Council Members - None Abstain. Council Members - None 10. RECESS Mayor Land called for a ten-minute recess, and the City Council rneWng reconvened at approximately 9:25 p.m. 11. REGULAR CALENDAR (continued) a) Agenda item *H-3 entitled, "Ordinance establishing Chapter 2.34, Administrative Procedures, of the Lodi Muniapal Code'. City Attomey Hays reported that in January of 1999, the Califomia Court of Appeals, 41 District, Division Il decided the case of Haas v. County of San Bernardino. In February of that same year, the Court ordered the Opinion to be published thereby establishing a case with precedential value. The subject matter of the Haas case was entered around how the County of San Bemardkm selected its hearing officers to handle adminisitrative hearings. Council will remember that when the administrative matter which was undertaken against M&P Investments and David Mustin, you heard counsel for David Mustin make an argument based upon the Haas case that our administrative procedure was flawed. Out of an abundance of caution, we have undertaken to develop a comprehensive Administrative Procedures Chapter for the Lodi Municipal Code. This Chapter is developed in part to answer the Haas decision and to put us in a position should that decision remain in place to be able to absolutely argue against any claim that the selection of hearing officers in our adrninisrative matters is not in compliance with State or Federal due process requirements. In closing, it should be noted that the Haas case has moved up the judicial ladder and will be considered by the Califomia Supreme Court The expected outcome at this time is that the Catiliornia Supreme Court will return to the rather IoN-standing law in the State of California that it is necessary in order to challenge a hearing officer for the challenging party to demonstrate an actual bias in order to have a hearing officer removed. Following discussion, the Ck Council, ars motion of Margin, Pennirw second, unank+nously introduced Ordinance No. 1663 entitled, 'An Ordinance Of The City Council Of The City Of Lodi Amending Title 2 — Administratlort And Personnel Of The Lodi Municipal Code By Adding Chapter 2.34, Relating To Administrative Procedures. 8 Coxa bmw NoVeRiber 3,19" b) Agenda item #H-4 entitled, "Ordinance repealing and reenacting Chapter 8.24, Comprehensive Environmental Response and Liabti'ity, of the Lodi Municipal Code`. City Attorney Hays presented the following report. In August of 1897, the City adopted Ordinance No. 1650, which established Chapter 8.24 of the Lodi Municipal Code. This Chapter, known as the Comprehensive Environmental Response and Liability Ordinance (MERLO), is part of the City's environm iwital program relative to the PCEiTCE contamination of the groundwater within the City of Lodi. We have faced and repulsed several challenges to that Ordinance by insurance companies who provide coverage to potentraily responsible parties who we have been focusing on relative to our enforcement activities. Through that process we have developed an understanding of revisions to the Ordinance, which can be undertaken to make the Ordinance even more effective that it already is. Additionally, we have adjusted the Ordinance to recognize the potential for instituting a financing program, which can be utilized to fund remediation activities by the City. Placing this unproved MERLO in the City Code will assist us further in the City's remediation activities. Following additional discussion, the City Council, on motion of Pannino, Mann second, unanimously introduced Ordinance No. 1684 entitled, 'An Ordinance Of The City Council Of The City Of Lodi Repealing And Reenacting Nadi Munficlpal Coda Tittle 8, Health And Safety, Chapter 8.24 Relating To Comprehensive Municipal Environmental Response And Liability 12. N OF THE LODI FIN8NCING COLtPOWTION Mayor Land adjourned the City Council meeting at approximately 9:25 p.m. to a meeting of the Lodi Financing Corporation. Deputy City Cierk Taylor called the meeting of the Lodi Financing Corporation to order, and City Attorney Hays provided the following report. The reason for the establishment of the Lodi Finance Corporation is really quite simple. In order to perform a financing transaction as is proposed, the transaction has to be bilateral, which simply mans it takes two parties to enter into the transaction that would result in the issuance of Certificates of Participation as proposed under the anion taken by the C74 Council. The Lodi Financing Corporation represents that second party. The Lodi Financing Corporation was created in order to have that second party. It also is created in order to m mike very dear that the transaction is between parties who are solely involved in the environmental abatement program with a revenue stream being dedicated to that program consisting of recoveries from that particular program. This makes it very dear that no other City revenues are invohred. City Attorney Hays indicated that the City Cleric calls the meeting to order since the Corporation is basically meeting for the first time and undertakes its m tiai organizational activities prior to conducting any business. The Council was provided with various documents which Indicate the existence of the Corporation and the initial designation of Directors as undertaken by the incorporator. Those documents consisting of the Certificate designating the Directors of the Corporation and the Articles of Incorporation were presented to the Council for information only. The first action item on the agenda is the election of officers, which will be conducted by the Deputy City Clerk. it was staffs recommendation that Council follow the pattern that the City has established relative to this type of corporation and elect the Mayor and the Mayor pro Tempore as the President and Vice-president of the Corporation. The Treasurer and Secretary were recommended to be the Finance Director and the City Clerk respectively. 9 Cona"ed Nopanrber 3, 1999 Once the officers of the Corporation are elected, the remainder of the meeting will be conducted by the President of the Corporation. Item No. D on the agenda is the adoption of the Bylaws of the Corporation and designation of the annual meeting as it is contained in the Bylaws. The Council was provided a copy of the Bylaws of the Lodi Financing Corporation as well as a copy of the Bylaws of the Lodi Public Improvement Corporation. The Lodi Public improvement Corporation was the entity that the City parbwed with in completing the recent financing transaction involving the City's Electric Utility. The purpose for presenting both is to point out that the Waws for both Corporations are very nearly identical. Item No. E on the agenda is another housekeeping chore to be undertaken by the Board, it is simply the adoption of Resolution No. LFC-3 that appoints the position of City Attorney as Counsel to the Corporation. This particular appointment is consistent with how the City has handled its other Corporation. Item No. F on the agenda is a request to take minute action. What is being asked of the Board here is simply to authorize staff to make the necessary filings to deal with the tax exempt status of the Corporation and to request a refund of fees that were initieliy paid at the time of inoorporation. Again this is merely a housekeeping measure and action by the Board would allow staff to undertake the appropriate actions. Item No. G. is the action item which results in the approvals given by the City Council to become effective. By adopting the documents that are presented to the Board, the transaction becomes the bilateral transaction that we have spoken of and can then be fully implemented. Following discussion, the following action was taken: On motion of Director Pennino, Mann second, the Directors unanimously adopted Resolution No. LFC-1 entitled, `A Resolution Electing Officers Of The Lodi Financing Corporation'; • On motion of Director Nakanishi, Land second, the Directors unanimously adopted Resolution No. LFC-2 entitled, "A Resolution Adopting Bylaws And Designating Time And Place Of Annual Meeting Of The Lodi Financing Corporation"; • On motion of Director Pennino, Mann second, the Directors unanimously adopted Resolution No. LFC-3 entitled, "A Resolution Appointing Counsel For The Lodi Financing Corporation"; and • On motion of Director Nakenishi, Pennino second, the Directors unanimously adopted Resolution No. LFC 4 entitled, "A Resolution Of The Board Of Directors Of The Lodi Financing Corporation Relaft To Variable Rate CerfiftWes Of Participation (Environmental Abatement Program), Approving The Forms Of And Authorizing The Exeartian And Delivery Of A Program Receipts Sale And Repurchase Agreement, A Trust Agreement, A CertltiCate Purchase Contract And A Placement Agent Agreement And Authorizing Certain Other RdWW Actiorls And Certain Other Documents In ConnecOon Therewith". There being no further business to come before the Corporation, President Land adjourned the meeting of the Lodi Financing Corporation at approximately 9.35 p_m.and reconvened the meeting of the City Council. to Cored Nomwber 3,1999 13. OR-DINANCF S a) Ordinance No. 1681 entitled, "An Ordinance Of The Lodi City Council Amending The Official District Map Of The City Of Lodi And Thereby Prezoning The Parcels located At 15567 Lower Sacramento Road (APN #027-050-05) To PD, Planned Development No. 34" having been introduced at a regular meeting of the Lodi City Council held October 20, 1999 was brought up for passage on nation of Council Member Pennino, Land second. SeowW reading of the ordinance was omitted atter reading by title, and the ordinance was then adopted and ordered to print by the following vote: Ayes: Council Members - Hitcfxock, Mann, Nakbnishi, Pennino and Land (Mayor) Noes: Council Members -- None Absent Council Members - None b) Ordinance No. 1682 entitled, "An Ordirnance Of The Lodi City Co xx* AnwMing The Official District Map Of The City Of Lodi And Thereby Prezonirg The Parcels Located At 5215 And 5333 East Kettleman Lane (APN #049-070.25 And 049-070-24) To U -H, Unclassified Holding Districr having been introduced at a regular meeting of the Lodi City Council held October 20, 1999 was brought up for passage on motion of Council Member Land, Nakanishi second_ Second reading of the ordinance was omitted atter reading by title, and the ordinance was their adopted and ordered to print by the following vote: Ayes: Council Members - Hitchcock, Mann, Nakanishi, Pennino and Land (Mayor) Noes: Council Members - None Absent Council Members - None 14. COMMENTS BY THE PUBLIC ON NON-AGENi)A ITEMS a) Robert Johnson, 1311 Midvale Road, Lodi, expressed his disappointment in this evening's actions and discussion regarding the ground contamination. Knowing it was a difficult decision, the public hearing regarding the finance package was one of the fastest he had seen, and the staff reports and questions raised by Council can generate comments and questions from the public. He further noted that Council Member Hitchcock raised several interesting questions and expressed concern that drafts and final reports were not received by all Council and that no documents were apparently made available to the public for review. City Attorney Hays advised Mr. Johnson that the public documents would be provided to him if he so desired, and that he would be glad to go over any questions or concerns he might have. 15. COMAS gNTSPY CITY COUNOL MEMBERS ON N0N AGENDA ITEMS a) Mayor band expressed his sincere gratitude to the four members of the Lodi Fire Department who went into the foothlNs recently to assist fellow firefighters in putting out the wildfires in that area. They certainly represented this community well, and should be commended for their service above and beyond. Further, Mayor Land shared with those present a letter received from the second grade class at St. Anne's School thanking the City and the Year 2000 Steering Committee for their gift of activity books for the entire class. b) City Manager Flynn wished Assistant to the City Manager Cynthia Haynes a happy birthday, which she celebrates on Friday, November e. 1t Coxd=ed JVbwwber 3, 1999 16. CLOSED SES§ION Mayor Land adjourned the City Council meeting to a Closed Session to discuss the following matter's: a) Conference with labor negotiator, Human Resources Director Joanne Narloch, regarding Lodi Police Dispatchers' Association (LPDA) punt to Government Cafe §54957.6 b) Conference with labor negotiator, City Manager Dixon Flynn, regarding Mid -Management employees pursuant to Govemment Code §54957.6 17. RETURN TO OPEN SEolo / DISCLOSURE t?F ACTION The City Council meeting reconvened at approximately 11:48 p.m., at which time Mayor Land reported that no final action was taken regarding the dosed session items. 18. AD O RNMENT There being no further business to come before the City Council, the meeting was adjourned at approximately 11:50 p.m_ ATTEST: Jacqueline L. Taylor Deputy City Cleric 12 C-1 C-2 C-3 C-4 A. B. C. [-NJ LODI CITY COUNCIL REGULAR CRY COUNCIL MEETING CARNEGIE FORUM, 306 WEST PINE STREET WEDNESDAY, OCTOSER 17, 2001 The City Council Closed Session meeting of October 17, 2001 was called to order by Mayor Nakanishl at 8:17 p.m. Present: Council Members — Hk*cook (arrived at &:20 p.m.), Howard, Land, Pennino and Mayor Nakanishl Absent: Council Members — None Also Present: City Manager Flynn, City Attorney Hays, and City Clerk Blackston a) Negotiate modifications) to land lease/ieases for White S"h Water Pollution Control Facility Property; negotiating parties are Bechthold-ICirschenman Farms; Govemment Code "58.8 AMNN TO CLOSED SESSION At 6:17 p.m., Mayor Nakanishl adjoumed the meeting to a Closed Session to des the above matter. 13UUEU TO QPEN SESSION / DISLOSURE OF ACTION At 7:00 p.m., Mayor Nakanishi reconvened the City Council meeting, and City Attorney Hays disclosed that there was n0 reportable action taken with regard to item C -2(a). CALL IQ ORDER t BQLL CALL The Regular City Council meeting of October 17, 2001 was called to order by Mayor Nakanishi at 7:00 p.m. Present: Council Members — Hitchcock, Howard, Land, Pennino and Mayor Nakanishi Absent. Council Members — None Also Present: City Manager Flynn, City Attorney Hays, and City Clerk Blackston INY_4Q&T-ION The invocation was givers by Pastor Steve Jarret, New Hope Community Church. PLEDGE OF Au a EGIAN[:a= The Pledge of Allegiance was led by Mayor Nakanishl. D-1 Awards — None D-2 (a) Mayor Nakanishi presented a proclamation to Doris McCaughna, volunteer with the Women's Center, proclaiming the month of October 2001 as "Domestic Vktence Awareness Month" in the City of Lodi. Ms. McCaughna reported that the Lodi Women's Center has been operating in the Lodi community for over ten years, providing assistance to women, children, and families in crisis. Programs Include counseling for victims of domestic violence and sexual assw*, legal advocacy, assMance with temporary restraining orders, ongoing support groups for victims of domestic violence, referrals for job preparation, housing, food. and clothing. In addition, they otter VINE (Violence Is Not Excusable) House. a safe shelter for domestic violence victims and their children. On behalf of the Women's Center, Ms. McCaughna thanked Judge Baysinger and Judge Warner for their ability to leave a lasting impression on domestic violence offenders, their compassion for victims, and their tenacity for justice Caul Orrober 17, 2001 in these cases. She also thanked Chief Adams and the Lodi Pok* Department for their Continuing efforts In the fight against domestic violence. Ms. McCaughna reported that Lois Borchardt, a founding member of the Women's Center, died in August. She was referred to as "Mother Theresa" by staff and was the organizing force that kept the volunteers working as a successful team. Ms. Borchardt was named 2001 Woman of the Year by Senator Machado for her work in the community. 0-3 (a) Sweta Patel, member of the Greater Lodi Area Youth Commission, acknowledged the Teen of the Month, Sarah Hoff from Lodi High School. Ms. Hoff Introduced her parents, Dr. Jim and Mary Hoff. In accordance with the report and recommendation of the City Manager, Council, on motion of Council Member Land, Pennino second, unanimously approved the following items hereinafter set forth except those ollfwwwfte nol3ed: E-1 Ciakns were approved In the amount of $8,500,363.29. E-2 The minutes of August 29, 2001 (Special Town Hal Meeting), September 19, 2001 (Special Meeting), and October 2, 2001 (Shirtsleeve Session) were approved as written. E-3 "Receive PCEITCE Report of Expenditures in the amount of $506,196.00" was rwnoved hove the Consent Calorrdar and discussed and acll+d upon under the Regulw Callander. E-4 Adopted Resolution No. 2001-237 approving the Annual Investment Policy and Internal Control Guidelines. E-5 Approved the spoAcations for ten 55 -foot Class 1, twenty 45 -foot Class 3, and ten 35 - foot Crass 3 wood utility poles and authorized advertisement for bids. E-6 Approved the specifications for twenty lve past -top (globe) luminaires and authorized advertisement for bids. E-7 Adopted Resolution No. 2001-238 awarding the contract for White Slough Water Pollution Control facility Chlorine Residual Analyzer Replacements to Borges & Mahoney Company, of Vallejo, in the amount of $15,700; and appropriated $20,000 for the project. E-8 "Adopt resolution rejecting lowest bid for Armory Park Bleacher Improvements, 333 N. Washington Street, and award bid to next lowest responsible bidder, Benton Fence and Drilling, of Galt ($83,570.00)' was pulled from the agwWa pursuant to stallf's request E-9 "Contract Change Orders for Elm $treet Improvements, Church Street to Sacramento Street; and appropriate additional funds" was nmoved from the Consent Calender and discussed and awed upon under the buten Cal•nd w E-10 Took f#>e fofk>wkip actions with repand to the Areata Plane devekpmant: • Approved the final map for Arcadia Place, Tract No. 3147, and directed the City Manager and City Clerk to execute the improvement agreement and map on behalf of the City, and • Appropriated funds for applicable fee credits. E-11 Took the following actions with regard to the Tienda Place, Unit No. 1. development: • Approved the final map for Tienda Place, Tract No. 3141, and directed the City Manager and City Clerk to execute the Improvement agreement and reap on behalf of the City; Authorized the City Marker to execute an addendum to the Improvement agreement, without further Council action, for reimbursement for excess wkfth street pavement Improvements in Kettteman Lane; and • Appropriated funds for applicable fee credits. 2 Candmm d Odaber 17, 2801 E-12 Directed the City Manager and City Clerk to execute the improvement agreement for Centtayl Meadows One, Unit No. 2, Tract No. 2786, Master Storm Drainage Facilities, on behalf of the City and appropriated funds for the reimbursement. E-13 Adopted Resolution No. 2001-239 approving the application to apply for grant funds from the Roberti-ZBerg-Harris Urian Open Space and Recreation Program under the Safe Nelghbodx*d Parks, Clean Water, Clean Air, and Coastal Protection Bond Act of 2000 for improvements to Lodi take Park central (southwest) area and authorized the City Manager to sign the local match certificate form and waiver request form. E-14 Adopted Resolution No. 2001-240 authorizing the City Manager to provide funding in the amount of $50,000 to fund the Public Benefits Program Grant — Vineyard Shopping Center Demand-side Management Project. E-15 Adopted Resokrtion No. 2001-241 authorizing the City Manager to provide funding In the amount of $15,909.60 to fund the Public Benefits Program Grant — Wine Country Plaza Demand-side Management Project. F. SENT$ BY IM PUBLIC ON NON-AGEyQA aITEMS • Georgianna Reichelt, President of the Land Utilization Alliance, stated that those she represents have grave concerns about L.odre PAdeveknprnent Plan. She stated that she was surprised at Mayor Pro Tempore PemkWs reaction to her comments at the last Council meeting, considering his involvement with the Council of Governments, which Is supportive of regional government. She stated that when regional tax dollars are spent, anyone in the region has a right to address it, including Mentece. She expressed concern that the City did not spend funds on Improving the water and sewer pipes on the east side, which allowed for the area to be considered blighted and placed in the Redevelopment Area. Ms. Reichelt stated that she has checked with other cities and found that they put their water and sewer funds In an enterprise account governed by GASB. Cities cannot charge in excess of what it costs to deliver the services and maintenance, otherwise A falls under Proposition 218. Ms. Reichelt suggested that the City review where it is spending its enterprise funds, as it was her understanding that some of the water funds have been going toward Police, Fire, and other services that have no correlation with water or sewer. She reported that the City of Modesto was successfully sued by `Howard Jarvis and Paul Gann' and the Modesto Taxpayers Association over this issue. Council Member Land confirmed that Loch has Enterprise Funds for water, wastewater, and electric. There is an ln4ieu transfer fee that goes into the fund He asked the City Attorney for verification that the transfer of funds from the Enterprise Fund to the General Fund is lawful. City Attorney Hays replied In the affirmative and stated that there has never been a lawsuit to We that hes suco9l91t114y cl Wk nged IN In -lieu t1 uWer. Ms. Reichelt stated that she would obtain and provide a copy of the lawsuit to Council at the next meeting. Mr. Hays indicated that Ms. Reichelt may be speaking about a Superior Court case, In which the decision would not set a precedence necessitating cities to react. Mayor Nakanishi asked Mr. Hays to provide Council with an executive summary on the issue. G. PUBLIC HEARINGS G-1 Notice thereof having been published according to law, an affidavit of which publication Is on file in the office of the City Clerk, Mayor Nakanishi called for the continued Public Hearing to consider updating Development Impact Fees for waterwastes ater collection, storm drainage, streets, police, fire, parks and recreation, and general City facilities, and amending Tide 15, Chapter 15.64 of the Loci Municipal Code. 3 Coaly W Urtaber 17, 2001 Mayor Pro Tempore Pennino reminded staff that this Item was continued for the purpose of amending the documents to Include a section on Public Art. Public Works Director Prima read Section 11, Public Art Program, which was attached to the staff report for this item (filed). Council Member Land noted that he was not present at the last Council meeting, however, he had revlewed the tape and agreed with Councirs decision to add the Public Art element Into the Development Impact l=ee update report. Htfift 02OD2d J2 the BUM None. Council Member land made a motion, Pennino second, to: • Adopt Resolution No. 2x01-242 entitled, •A Resolution Of The Lodi City Ccuncp Amending Dwookpment Impact Mitigation Fees For All Developments Within The City Of Lodr; and • introduce Ordinance No. 1106 enfltled, "An Ordinance Of The City Council Of The City Of Lodi Amending Title 15 -- Buildings And Construction, Chapter 15.64 — Developrnent Impact Mitigation Fees By Repealing And Reenacting Section 15.6 4.040 —'Payment Of Fees And Section 15,84.054 —'Adoption Of Study, Capital Improvement Program And f=ees' To The Lodi Municipal Code Relating To Development impact Fees." OISCslWK& Discussion ensued regarding the appropriateness of adding language in the resolution to reflect the addition of the Pubtic Art Program. Council expressed concurrence to add the languaIle- TION —AMENDED• Counod Member Land amended his motion, Pennino second, to further include under Item 1 4n Resolution No. 2001-242 the addition of Section 11, Public Art Program. DISCUMOiN: Council Member Howard reported that she previously voted against allocation of funds from the Development Impact Fees for the Public Art Program. She confirmed that her position has not charged; however, she would vie in favor of the ovemil DeVeloQrrlent Impact Fee update as she Is in agreement with all other elements of the recommendation, and also due to the extensive study and Investigation by staff and interested parties that went into the matter. She encouraged stuff and Council to continue to look at how the Public Art Program Is impacting the community and ensure that it has a positive effect on funds. Y M: The above motion carried by a unanimous vote. 4 CandAnO i Ok+A2kr ,T7, 2401 H. OOMMUNIGATQNS H-1 Claims filed against the City of Lodi — None H-2 Reports: Boards/CornmisskxWTask ForcealCommittees —None H-3 Appointments — None H-4 Miscellaneous a) Received the cumulative Monthly Protocol Account Summary through September 30, 2001. t. REGULAR CALENDAR (NO"T"E: Items under the Regular CAlendar were heard and discussed out of order.) City Manager Flynn recommended that Item 1-1 be mowed to the end of the Regular Calendar. 1-2 "Authorize the City Manager to execute a contract with ACRT, Inc. for the Urban Forest Management Plan and software; and appropriate funds for the contract" Public Works Director Prima reported that under the proposed Urban Forest Management Plan, ACRT, Inc.. which has Its west coast office in Lodi, would evaluate City trees, measure their size. log an assessment of their health and safety issues, and locate them on the City mapping system so that staff would have the ability to access the data and review the maintenance history of the trees. Benefits of this Plan include allowing maintenance staff to do piarhning for budgetary purposes and tracking tree maintenance and history_ The street tree portion of the program will cost $44,000 and the park tree portion will cost $10,000. These amounts include software. training, and contingencies for additional trees, as the exact number is unknown at this time. Council Merrier Land recalled that this matter was listed on the Consent Calendar of a previous Council agenda. He appreciated that 4 was removed and brought back for a full presentation to Council at a Shirtsiseve Session. He expressed full agreement for incitxiing park trees In the Pian and asked that when the inventoryis complete, a presentation be given to Council at a Shirtsleeve Session on the benefits of the Urban Forest Management Plan and software. Council Member Laud made a motion, Hitchcock sewn$ to authorize the City Manager to execute a contract with ACRT, Inc. for the Urban Forest Management Plan and software; appropriate the neoessary funds for the contract; and further direct staff to include park trues in the inventory and management plan DISCUSSION: Council Member Huck hoped that the next time Council revisits this issue it would Include a Heritage tree ordinance to protect the area's mature oaks. VOTE: The above motion carried by a unanimous vote. 1-3 "Reaffirm $40,000 appropriation for the Alt Veterans' Plaza Project* City Manager Flynn summarized past Council actions related to funding the Ali Veterans' Plaza Project. The Council originally appropriated $25,000 for design work. In response to a subsequent request, an additional $15,000 was appropriated for design work, bringing the total to $40,000. The committee Wer reported to Council that the Coat of the project would be $450,000. The committee working on the project are Comprised mainly of laypersons unfamiliar with standard business practices of the City. As a result, there has been confusion on the part of the committee members about what was actually 5 Oder 17, 2001 appropriated for the project. They believe a total of $490,000 was appropriated by Council for the Ali Veterans' Plaza Project. It Is staffs recommendation that the Council reaffirm $490.000 for the project, which has been set aside for this purpose. Cynthia Haynes, Assistant to the City Manager and President of the Lodi Area Veterans' Plaza Foundation, provided an update on the project. Construction of the All Veterans' Plena has begun and completion is anticipated by February 2042_ The Foundation's fund development plan accomplishments include: • Fundraising broowre; • Corporate sponsorship packet that has been mailed to more than 100 corporations across the nation; • Web site; • Plaza boo; • Billboard storage; • Speakers bureau; and • Information booth for participation in community events. Ms. Haynes reported that the Foundation is currently working with a local developer and two tical banking Wolf llons to build a house with oommunity labor. All of the proceeds from the sale of the house would go toward the Veterans' Pima. To date the Foundation has raised more than $25,000 in cash and $30,000 in in-kind contributions. The Foundation's goal is to make payments back to the City on a biannual basis, beginning December 2001. Ms. Haynes introduced Pastor Steve Jarret, the Foundation Treasurer. Council Member Hitchcock asked Mr. Flynn what amount he believed the Foundation expected to pay back the City, to which he repied $490,000. Council Member Howard inquired whether the City 'currently' put aside $490,000, or "originW put it aside. Mr. Flynn replied that when the Council approved the original design work, $25,000 was appropriated and charged to the project. When the Council amended that to add $15,000, that was also appropriated and added to the project. When the Council agreed that the project could go forward for $450,000, that amount was appropriated and placed in the project account. The account is now funded to $490,000. Addressing Pastor Janet, Council Member Land panted out that the City Manager believed the Foundation's repayment would be $490,000; however, based on a letter from Pastor Janet d is the Foundation's belief that the $40.000 for design work was a cantrioution from the City and the ban amount was $450,000. Pastor Jarret reminded Council that the individuals tasked with working on this project are veterans who do not have the expertise of City staff. He wAewsd past Council action related to funding the Veterans' Pkza and stated that $40,000 was for the design only, while the project amount was $450,000. The Foundation has agreed to pay back the $450,000 project cost, In response to Council Member Land, Mr. Flynn confirmed that the $44,000 for the design work was spent out of fast years budget, and $450,000 has been Included in the Capital Account portion of the 2001-2003 budget. Council Member Land spoke in favor of designating the $40,000 as a City contribution for the design work, and specifying $450.000 as a loan to the AEI Veterans' Plaza and Foundation, which would generate funds for repayment. 6 CON&L,ed Odober 17, 3001 Council Member land made a motion, Nakanishi second, to reaffirm that the $40,000 appropriation was a contribution from the qty for the design of the AN Veterans' Plaza project, and the $450,000 project cost appropriation was a loan to be repaid by the An Military Veteran's Plaza Foundation. . Q Council Member HNchoock recalled the Council initially, approved $25,000 as a City contribution, but all subsequent amour, inciu ft to $15,000, were considered to be a loan. In response to Mayor Pro Tempore Pennino, Finance Director McAthie confirmed the funding for the project is In the Capital budget. She added that it was also documented in the goals, and stated that the $450,000 was in the prior year. Mayor Pro Tempore Pennino clearly recalled that the project was not to exceed $450,000. The budget breakdown lnaluded design and all levels of the project for a total of $450,000. He clsAfied that he would not be voting agalrwi the veterans, but rather, he would be voting on the principle of the budget. Mayor Nakanishi expressed strong support for designating the $40,000 as a contribution from the City, particularly at this time of difficulty in the country. The money should be dedicated to all veterans, pnmwd and future. VOTE: The above motion carried by the following vote: Ayes: Council Members — Huck, !rand and Mayor Nakanishi Noes: Council Members — Howard and Pennino Absent Council Members — None E-9 "CConbact Change Orders for Elm Street Improvements, Church Street to Sacramento Street; and appropriate addKional funds' Public Worker Director Prima explained that due to staffs haste in completing the Elm Street project, a large error was made in the cast estlmate. In addition to Elm Street, the project included replacement of curb, gutter, sidewalk, paving, and tree wells along Church Street from sough of Elm Street, north up to the alley. The alley was rebuRt between Church and School Streets. Replacement of the sewer fine was done from Church Street to Sacramento Sbraet. Water limes and storm drains were replaced on Elm Street, as well as the concrete, surface work, decorative lighting, and trees. It was anticipated to have the theater project developer use Its contractor to do the bulk of the street work; however, the City was to furnish a significant amount of equipment including street furniture, street lights. some of the signal poles, controller, and trees, as well as to conduct soils testing and do signage work. The materials and services totaled nearly $301,000. This amount was not included In the original appropriation that staff requested in Manch. The contract amount that was signed with the developers to do the installation and reconstruction work was slightly over $1.1 million. Only $1.2 million was appropriated for the project. The project was estimated by the developer leased only on concept plans, as the actual pians and specifications were developed as the project moved forward. Change Orders for work done by the developers contractor have amounted to $200,000. This equals approximately 17% of the original contract amount. Suit is confident that they have received a competitive price for the work. Mayor Pro Ternpore Pennino noted that $493,000 was appropriated in the Capital budget, and inquired as to what projects will not be accomplished, or be delayed, due to this error. Mr. Prima replied that all projects will be accomplished and did not anticipate delays as a result of this Issue. He stated that $100,000 in gas tax would be applied toward this project• which after being subtracted from the requested $285,000, results in only a $185,000 difference. In addition, staff anticipates it significant: amount of Uxft by working Wth the Council of Gme nwft and the Sbft Transportation Impra"nent Program WIP). Coahinwed October 17, 2901 Council Member Hkduxock commented that such an error has not happened during the three years she has served on the Council, implying that It Is pardonable, and stated that she would have voted in favor of the project even if the initial cost had been what is indicated today. Council Member land stated that when this project was originally brought before Council he felt that it should have gone through the standard bid process, and believed if it had been done this situation would not have occurred. He expressed disappointrnertt that Council was not Informed earlier about the Change Orders, and asked for an explanation of the anticipated $40,000 In Change Orders that are yet to come. Senior Civ Engineer Charlie Swirnley explained that some Change Order requests were received atter the staff report was completed for this item. They are related to surface Improvements, such as streetlight footings. City Manager Flynn noted that Mr. Prima has done an outstanding job for the Cloy and tw excellent staff, several of which are new and are learning to deal with different contractors and Muse. He reminded Council that they had expressed the need for expediency on this project and several others. in reply to Council Member Howard, Mr. Prima again stated that he did not believe that any other projects would be stopped or delayed due to this issue, Council Member Hitchcock. and Mayor Pro Tempore Pennino oomplimented Public Woks staff for their excellent work and specifically for the outstanding results on Elm Street. The City Council, on motion of Council Member Hitcixock, Land second, unanimously received for Information Contract Change Orders 1 through 9, and authorized appropriation of $493,000.00 additional Capital funds to cover the remaining, anticipated oonstruotion coats assoofated with the Elm Street Improvements, Church Street to Sacramento Street, project. 1-1 `Review of PCE![ CE Financing" Chy Aftomey!IW read the staff ENW he submNg for is ' filed). In response to questions by Eileen St. Yves relative to PCElTCE related expenditures, the following information was reported. City Mang Flynn stated that proceeds from the Certificate of Participation were $5.281 million, and the water fund contributed $6.3 million. Referencing documents under item E-3, Mr. Flynn summarized the expenditures made from July through August 2001. He confirmed that a $1 million Judgement has been received by the City$. Finance Director McAlhie reported that the $1 million judgement was applied toward the original water fund expendidure. Ms. St. Yves reported that the San Joaquin County Rental Property Association sued the City of Stockton for $13.5 milllon and they paid only $274.404 in legal fees. She asked whether taxpayer money goes into the water fund. She stated that local businesses are paying legal fees to defend themselves against the City, and inquired why the City Is suing them to rectify something that they had nothing to do with In the first piece. Mr. Hays named that the questioning is beyond the scope of the matter described under this agenda item. Ms. St Yves asked what the City is hoping to get in return for its expenditures. that he a fun recovery for the dollars spent as well as the cost of cleanup in the comma S Conlinred adober 17, 2001 Council Member Hitchcock asked if two have been recent draws from Lehman Brothers. City Manager Fyne distributed a handwritten document to Council (filed). Ms. MaAthis explained that the document distributed by Mr. Flynn was prepared in response to Ms. Hitchcock's request regarding how much money would have to be paid in interest on the amount of money that has already been drawn down. Ms. McAthie stated it would be the London Interbank Offered Rate (LIBOR) plus 2090_ The LIBOR rate fluctuates; however, the cap is 30%. By calculating each quarter at the 30% maximum amount, the Interest owed on the $92 million that has been drawn down amounts to $2.2 million. In reply to Council Member Hitchcock tin of August, $5.8 trillion has been smut out of the $9.2 muton. while Davina 23% Interest on the Mayor Pro Tempore Pennino encouraged the City Manager to play a more active role in leveraging funds, and cautiously suggested the possdbiRty of using the Cltys reserves. He noted, however, that the Ckys General Fund reserve is now $23 million, the lowest it has been in many years. Addressing the public, Mayor Nak�,ishi noted chat the PCEJT'CE issue began in 1997. Details about the litigation cannot be discussed, as it could cause harm to the City's case Council Member Howard disclosed that she met with the owner of Guild Cleaners and his attorney Stephen Meyer this afternoon, and followed all Brown Act laws while doing so. Council Member Hitchcock also disclosed that she met with Mr. Aiquist and Mr. Meyer. She commented that other individuate have expressed concerns to hes similar to what Ms. St. Yves addressed today. She asked whether more money wilt need to be borrowed. Mr. Hay reported that the borrowing cap was $16 miNion. The amount that was available for the City to use in its enforcement activity was $15 million. He projected that it would not be necessary to borrow beyond that. In response to questions by Council Member Hitchcock related to the loan agreement, Mr. Hays reported that if no money were available to move forward, the loan agreement simply remains inacdve. The City would not be under obligation to repay it or move forward. He stated that the agreement is at its end when the final draw is made. Mr. Hays believed that as long as the City had money available from the agreement, it would be obligated to continue to proceed until the money was exhausted. Once the money was exhausted, the City would be under no more obligation to move forward, and it would not force the payment of the loan to come due. The lender has first call on any recoveries. Mr. Hays read paragraph four, entitled Permitted Deductions, from page 11 of the Program Receipts Sale and Repurchase Agreement (filed). He stated that this relates to the negotiated amount that goes toward the water fund. The payments then go into the program receipts account, which is transferred to the trustee. Mr. Hays replied in the affirmative to Ms. Hitchcock's inquiry regarding whether it would pay the borrowed amount plus Interest, and the City would then be able to get whatever Is in addition to that for cleanup. MQIIQW T. No Council action was required in this matter. 9 condxrM odober 17,2W1 Mayor Nakanishi announced that a Town Hall meeting on the subject of water issues is scheduled far neon week. Public Works Director Prima reviewed the names of the guest speakers. Council Member Hfth ock thanked the Council and staff for their willingness to tering forward the P'CEITCE financing (saw. She asked that the Couned twelve (via the Consent Calendar) a quarterly report from the Finance Department summarizing the state Including what Is owed and what the accrued interest ]s. Council Member Land explained that he was unable to attend the last Council meeting, as he was out of town at a business meeting for Farmers and Merchants Bank and the California Bankers Association. At this meeting nine presentations were given regarding community development programs and services. These presentations included: 1) Lodi House, 2) the RENEW project, of which 13 pied of property on the east side have been identified to rehabilitate or build new homes for affordable housing, and 3) a grant program for first time home buyers. Council Member Land also commented on the following issues: 1. He thanked the Com for participating last Sunday at the Lod] House fundraiser. 2. Recognized the City Clerk for staffing the City Council booth at the Celebration on Central Evert. 3. Announced that Hutchins Street Square is hosting a Halloween haunted house on October 31. 4. He attended the NCPA conference, at which updates were given regarding power market issues. They also warned of kibbyist efforts to take away local control. 5. He plans to attend the League of California Clues Mayor and Council Members institute being held January 9 to 11 and encouraged all other Council Members to attend as well. Council Member Howard pointed out that Council failed to vote on Item E-3. E-3 "Receive PCF.JTCE Report of Expenditures In the amount of $506,198.00" The City CounrA, on motion of Council Member Hhchcook, Pennino second, unanimously received the PCFITCE PAport of Expenditures in the amount of $506,196.00 from July through August 2001. City Manager Flynn announced that Roger Houston, Chief Building Inspector, will be retiring on November 29. Mayor Pro Tempore Pennino noted that information Systems Manager Stare Helmle wil4 be leaving employment with the City, and he asked City Manager Flynn to prepare a letter on behalf of the Council thanking him for his hard work and dedication. 10 Con&UW t7rfOW 17, 2001 M. ADJOURNMENT There being no further business to came before the City Council, the meeting was adjourned at 8:55 P.M. ATTEST: Susan J. Blackston City Clerk 11 CITY OF LQDI COUNCIL GQ1VI�[T1YICATIQN AGENDA TITLE: Review of PCEITCE Financing MEETING DATE: October 17, 2001 PREPARED BY: Randall A. Heys, City Attorney RECOMMENDATION: That the City Council discuss as they deem appropriate. BACKGROUND: 7mr7m. =17=7_71 The �trran{,s..acttiionpIs r{{ea�sonobly simple in ;its construction. Basically, ft% City its pied as a@revenue stream 14l pay ! f..1W,�::, ,;:.:fok-ft:-, n.A '.I;,.:Ikii": z' Y::::.i .�.•.. responsible parties for the groundwater and sgli,contm..wa< stn the Ck. to return, forthat pledge of revenues, Leif an Brows has, agreed: to make=aveilabie''-to:the City -funding: to proud ++pith those. enfidr'cement activities. The cap on that funding is $18. million dollars. Sh - the revenue stream is contingent upon successful enforcement activities, which is not as secure a revenue stream as rates charged for utility usage, the interest rate is greater than normally seen in a municipal -bon -owing. The base rate was tied to a money rate index known as -the London Interbank Offered -Rate (LIBOR). The Wall Street Journal reported on Monday, October 8, 2001 that the LIBOR 3 -month rate was 2.44°/x. The borrowing rate for this borrowing is the LIBOR 3 -month rate plus 201%. Included with this memo are the basic documents of the transaction that resulted in the borrowing, as well as minutes of the meeting indicating the discussion surrounding the actions taken by the Council and the Lodi Financing Corporation. FUNDING: NIA Respectfully submitted, Ran all A. Hays, CWA1tqAey APPRoviED: H. on Flynn » City Manager Program Receipts Sale and Repurchase Agreement EXECUTION COPY PROGRAM RECEIPTS SALE AND REPURCHASE AGREEMENT Dated as of June 1, 2000 Between the THE CITY OF LODI, As Seller and Repurchaser, and LODI FINANCING CORPORATION, as Purchaser TABLE OF CONTENTS faze ARTICLE I DEFINITIONS SectionI.I. Definitions............................................................................................................... 3 ARTICLE II CONTENT OF CERTIFICATES AND OPINIONS Section 2.1. Content of Statements and Opinions....................................................1......11.1...... 15 Section 2.2. Reasonable Basis for Statements and Opinions ..................... 15 ............................... ARTICLE III REPRESENTATIONS AND WARRANTIES Section 3.1. Representations and Warranties of the City.......................................................... 16 ARTICLE IV CONVEYANCE OF PROGRAM RECEIPTS Section 4.1. Sale and Repurchase of Program Receipts ......................... ... 17 ............................... Section 4.2. Sale Effected Without Further Action.................................................................. 18 Section 4.3. Protective Filings.................................................................................................. 18 ARTICLE V TERM OF THE AGREEMENT Section5.1. Term...................................................................................................................... 18 ARTICLE VI COVENANTS AND SECURITY PROVISIONS REGARDING PROGRAM RECEIPTS Section 6.1. Pledge of Program Receipts................................................................ ...19 SFLISI/1073224/ i Rage Section6.2. No Liens ...........................................................................................................19 Section6.3. Notice of Liens.. .................................................................................................... 19 Section 6.4. Collection and Remittance of Program Receipts .................................................. 19 Section 6.5. Subordination of Claims under Retainer and Fee Agreement .............................. 20 Section6.6. Settlements..... ... ..................... ........................... .......... ...................................... 21 Section6.7. Payments............................................................................................................... 22 Section 6.8. Obligations of the City Unconditional.................................................................. 24 Section 6.9. Payment of the Deferred Commitment Fee .......................................................... 25 Section 6.10. Taxes, Other Governmental Charges...................................................................25 Section 6.11. Application of Moneys in the Program Account .................................................. 25 Section 6.12. Program Budget; Reallocation of Certain Amounts......... .................................... 26 Section 6.13. Delivery of Reports and Records......................................................................... 26 Section 6.14. Annual Certification and Audit...... ........ ....... ................... __ ........... ............ ...... 27 Section 6.15. Diligent Pursuit of Program Receipts; Engagement of Outside, Counsel ............. 27 Section 6.16. Single Purpose Corporation.,... ............................................................................. 27 Section 6.17. Cooperation With Removal or Replacement of Trustee ....................................... 27 Section 6.18. No Impairment of Certificate Holders' Rights ...................................................... 27 ARTICLE VII ASSIGNMENT OF AGREEMENT TO TRUSTEE Section 7.1. Assignment by City and Corporation................................................................... 27 ARTICLE VIII NON -LIABILITY OF CORPORATION; INDEMNIFICATION Section 8.]_ Non -Liability of Corporation................................................................................28 Section 8.2. Indemnification..................................................................................................... 28 ARTICLE IX EVENTS OF DEFAULT AND REMEDIES Section 9. L Events of Default.................................................................................................. 30 Section 9.2. Remedies on Default............................................................................................. 31 Section 9.3. Remedies Not Exclusive; No Waiver of Rights . ................................................ - 31 Section 9.4. Expenses on Default..... . ........................................... I ............. ....... ...' ................. . 31 Section 9.5. Notice of Default.................................................................................................. 32 Section 9.6. Survival of Obligations...................................................................................... 32 SFLI81/10732241 1u Page ARTICLE X MISCELLANEOUS Section10.1. Notices.................................................................................................................32 Section10.2. Governing Law.................................................................................................... 33 Section 10.3_ Binding Effect....................................................................................................... 33 Section 10.4. Severability of Invalid Provisions......................................................................... 33 Section 10.5. Article and Section Headings and References...................................................... 33 Section 10.6. Agreement Represents Complete Agreement; Amendments ............................... 34 Section 10.7. Trustee Third Party Beneficiary ............................................................................ 34 Section 10.8. Waiver of Personal Liability................................................................................. 34 Section 10.9. Execution of Counterparts.................................................................................... 34 EXHIBITA Program Budget.................................................................................................. A-1 EXHIBIT B Form of Issuance Request ................. ............... B-1 EXHIBIT C Form of Remittance Report................................................................................ C -I EXHIBIT D Form of Reallocation Notice and Request Regarding Amounts in Program Account............................................................................................................... D-1 EXHIBIT E Ongoing Obligation Payment Limit Increase Approval For n ............................E -i EXHIBIT F Form of Termination Notice ....................... <........................................................ F-1 SFUBV1473220 ui PROGRAM RECEIPTS SALE AND REPURCHASE AGREEMENT THIS PROGRAM RECEIPTS SALE AND REPURCHASE AGREEMENT, dated as of June 1, 2000 (the "Agreement"), is hereby entered into by and between the CITY OF LODI, a municipal corporation organized and existing under the laws of the State of California, as seller and assignor (the "City") and the LODI FINANCING CORPORATION, a nonprofit corporation organized and existing under the laws of the State of California, as purchaser and assignee (the "Corporation"); WITNESSETH: WHEREAS, there exists in the City a significant water contamination problem threatening the City's water supply and the health and safety of the City's inhabitants; WHEREAS, in May 1997, the City executed a Comprehensive Joint Cooperative Agreement (Including Related Delegation and Settlement Agreements) with the California Environmental Protection Agency, Department of Toxic Substances Control ("DTSC") Relating to the Investigation and Abatement of the Hazardous Substance Contamination In and Affecting the City (the "Cooperative Agreement"); WHEREAS, under the Cooperative Agreement, the City is committed to act as lead agency in initiating and prosecuting environmental enforcement actions (the "Program") to compel responsible parties to investigate and clean up all actual or potential dangers to public health and the environment arising from or related to hazardous substance contamination of portions of the City's groundwater and soil located within an area of approximately 600 acres and encompassing the City's central business area (the "Lodi Area of Contamination"), as described in the Cooperative Agreement; WHEREAS, the Cooperative Agreement fully resolved the City's liability, if any, for contamination arising, in whole or in part, from the design, construction, operation or maintenance of the City's sewer systems; WHEREAS, it is in the public interest and welfare of the City's inhabitants that the City find a means of financing the costs of the Program in order to fulfill the City's obligations under the Cooperative Agreement, and to enforce laws and ordinances which compel responsible parties to assume the cost and responsibility for the necessary remediation work to clean up the City's water supply and preserve and enhance the City's water system; WHEREAS, the costs of environmental litigation under the Program may be significant; WHEREAS, the City has determined that the most feasible means of financing Program costs is through the implementation of a certificate of participation financing, which financing will facilitate the effective and expeditious abatement of an existing or threatened Environmental Nuisance (as defined in the City's Comprehensive Municipal Environmental Response and Liability Ordinance, described below) within or affecting the City; WHEREAS, pursuant to Sections 37350 and 7158 of the California Government Code, Section 17 of the California Code of Civil Procedure, and Sections 953 and 954 of the California SF1.181/1073224/ Civil Code, the City may sell all or a portion of its right to receive recoveries arising from the Program; WHEREAS, pursuant to Sections 37350 and 7158 of the California Government Code, Section 17 of the California Code of Civil Procedure, and Sections 953 and 954 of the California Civil Code, the City may purchase all or a portion of its right to receive recoveries arising from the Program; WHEREAS, to implement this certificate of participation financing, the City proposes to irrevocably sell and convey to the Corporation its right to receive Program Receipts (as defined herein), and simultaneously therewith the Corporation desires to resell and reconvey such Program Receipts back to the City in consideration of receipt of the Repurchase Payments (as defined herein), all pursuant to this Agreement; WHEREAS, the Corporation and U.S. Bank Trust rational Association, as trustee (the "Trustee"), will enter into a Trust Agreement, dated as of the date hereof (the "Trost Agreement"), pursuant to which (i) the Corporation will assign and pledge to the Trustee its interests in and to the Repurchase Payments and (ii) the Trustee will agree to execute and deliver, from time to time, a principal amount not to exceed $16,000,000 of certificates of participation (the "Certificates"); WHEREAS, each Certificate will evidence an undivided, proportionate interest in Repurchase Payments, consisting of a principal component and an interest component, to be made by the City, as provided herein and in the Trust Agreement; WHEREAS, the purchase price to be paid by the Corporation for each portion of Program Receipts purchased from the City pursuant to this Agreement will be payable solely from proceeds from the sale of the Certificates; WHEREAS, the City's obligation to make Repurchase Payments (and certain other payments under this Agreement) will be a special obligation of the City payable solely from Program Receipts; WHEREAS, the City adopted its Comprehensive Municipal Environmental Response and Liability Ordinance, Ordinance No. 1684, on November 17, 1999, effective December 17, 1999 (the "Ordinance") pursuant to which the City, among other things, has created in favor of Certificate Holders a first lien on the Program Receipts, and the City acknowledges that such first lien is superior to all other uses of Program Receipts, except with regard to certain Permitted Deductions as provided herein; WHEREAS, the Program Receipts may be pledged to and deposited in the Municipal Fund (as defined herein) created under the Ordinance as proceeds of the City's environmental abatement program; WHEREAS, being payable solely from Program Receipts, the receipt by Certificate Holders of any amounts hereunder and under the Trust Agreement is unpredictable and uncertain, and accordingly there is significant risk inherent in purchasing and holding the Certificates; SPLEBIl10732.241 2 WHEREAS, in view of the risks and uncertainties associated with the Certificates, the City acknowledges that the interest cost of the Certificates is significantly higher than in traditional municipal finance transactions; WHEREAS, pursuant to Section 5900, et seq. of the California Government Code, the City, through the Corporation, is authorized to issue Certificates the interest component of which is subject to federal income taxation, and the City has determined that the interest component of the Repurchase Payments made hereunder and represented by the Certificates will be subject to federal income taxation; WHEREAS, pursuant to Section 5906 of the California Government Code, the Certificates and the purchasers thereof will be exempt from the usury provisions of Section 1 of Article XV of the California Constitution; WHEREAS, the City and the Corporation propose to execute and deliver a Certificate Purchase Contract (the "Certificate Purchase Contract") with Lehman Brothers Inc. (the "Original Purchaser"), pursuant to which the Original Purchaser agrees to purchase, from time to time, the Certificates in an amount up to an aggregate principal amount not to exceed S 16,000,000; WHEREAS, Lehman Brothers Inc. has acted as Placement Agent for the Certificates; WHEREAS, the DTSC has provided in writing that the financing described in this Sale and Repurchase Agreement, the Trust Agreement and the Certificate Purchase Contract and evidenced by the execution and delivery of the Certificates does not violate the Cooperative Agreement; WHEREAS, the City and the Corporation have determined that all acts and proceedings required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Agreement and the consummation of the transactions authorized hereby do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the City and the Corporation are now duly authorized and empowered to execute and enter into this Agreement and to consummate such transactions for the purpose, in the manner and upon the terms herein provided; NOW, THEREFORE, for and in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto hereby formally covenant, agree and bind themselves as follows: ARTICLE I Section I. I. Definitions. Unless the context otherwise requires, the terms defined in this Section shall, for all purposes of this Agreement, the Trust Agreement and of any agreement supplemental hereto and of any statement, opinion or other document herein mentioned, have the SFLIHI/1073224/ 3 meanings herein specified, to be equally applicable to both the singular and plural forms of any of the terms herein defined. Words of any gender shall be deemed and construed to include all genders. Accreted Value "Accreted Value" means Outstanding Principal and all unpaid Compounded interest thereon, calculated in accordance with Section 2.04 of the Trust Agreement. Additional PaMen "Additional Payments" means all amounts payable by the City as Additional Payments pursuant to Section 6.7(b) hereof. Agreement or Sale and Repurchase Agreement "Agreement" or "Sale and Repurchase Agreement" means this Program Receipts Sale and Repurchase Agreement, dated as of June 1, 2000, between the City and the Corporation, as originally executed and as it may from time to time be supplemented, modified, or amended in accordance with the terms hereof or of the Trust Agreement. Authorized Reyresentative "Authorized Representative" means, (1) with respect to the Corporation, the President of the Corporation or the Secretary of the Corporation or any other person designated as an Authorized Representative of the Corporation by a Statement of the Corporation signed by said President and filed with the Trustee, and (2) with respect to the City, the Mayor, the City Manager, or the City Attorney of the City or any other person designated as an Authorized Representative of the City by a Statement of the City signed by said Mayor, said City Manager, or said City Attorney and filed with the Trustee. Budgeted Program Cots "Budgeted Program Costs" means those fees, expenses, and costs as allocated and described in the Program Budget as shown in Exhibit A to this Agreement. Business_ Dav "Business Day" means a day of the year on which banks located in the city where the Corporate Trust Office is located are not required or authorized to be closed. Calculation d Vgdficatioa Agent "Calculation and Verification Agent" means a financial institution, investment banking firm or accounting firm with a national reputation and capable of performing the functions assigned to the Calculation and Verification Agent herein and in the Trust Agreement, as selected or consented to by the Original Purchaser, together with such other Certificate Holders as are necessary to constitute, in the aggregate, at least 51% of outstanding Accreted Value. SFL181110732241 4 Certificate Holder or Holds "Certificate Holder" or "Holder," whenever used herein with respect to a registered Certificate, means the Person in whose name such Certificate is registered. Certificate Purchase Cot c "Certificate Purchase Contract" means that certain Certificate Purchase Contract, dated as of June 28, 2400, between the Original Purchaser, the City and the Corporation regarding the purchase of the Certificates by the Original Purchaser. Certiigates "Certificates" means the certificates of participation evidencing the undivided, proportionate interests of the Holders thereof in Program Receipts to be sold and Repurchase Payments to be made by the City pursuant to this Agreement. "City" means the City of Lodi, a municipal corporation organized and existing under the laws of the State of California. Qosin¢ Dge "Closing Date" means June 29, 2000. Commitment Period "Commitment Period" means the period beginning on the date of the Certificate Purchase Contract and ending on the Commitment Period Ending Date or the earlier occurrence of a Commitment Termination Event. Commitment Period EndbgjDate "Commitment Period Ending Date" means that date which is four years after the Closing Date. i:gmirmeni i erminatron gam "Commitment Termination Event" means the occurrence, prior to the Commitment Period Ending Date, of (a) the City's delivery of a Termination Notice to the Trustee and the Original Purchaser, stating that it will make no further Issuance Requests; (b) the reduction of the Purchase Commitment to zero as described in the Certificate Purchase Contract; (c) the Original Purchaser's decision to terminate the Purchase Commitment in the event the City substitutes its Outside Counsel or modifies the terms of engagement of its Outside Counsel in a manner which, in the sole determination of the Original Purchaser, results in a materially prejudicial change; or (d) in the sole discretion of the Original Purchaser, an uncured Event of Default hereunder or under the Trust Agreement, or a violation by the City or the Corporation of any covenant, srminwmv S representation or warranty made herein or in the Certificate Purchase Contract or in the Trust Agreement, including but not limited to the occurrence of any of the proceedings or actions described in Section 9.1(e) hereof relating to bankruptcy or insolvency of the City or the Corporation or other actions described therein. Qgmagundtd IIIterest "Compounded Interest" means all unpaid and accrued interest with respect to the Certificates which has been added to Accreted Value. On the day before the first Business Day of each January, all Current Interest will become Compounded Interest and will be added to Accreted Value in accordance with Section 2.04 of the Trust Agreement. o ativ e "Cooperative Agreement" means the Comprehensive Joint Cooperative Agreement, executed in May 1997, between DTSC and the City regarding the investigation of and remediation of contamination in the Lodi Area of Contamination. �;s�oration "Corporation" means the Lodi Financing Corporation, a California nonprofit corporation. W#71 #".47t7iMVr17T11nM "Corporate Trust Office" or "corporate trust office" means the corporate trust office of the Trustee in San Francisco, California, provided that, with regard to execution, delivery, transfer, exchange, registration, surrender and payment of Certificates, "Corporate Trust Office" means the corporate trust office of U.S. Bank Trust National Association in St. Paul, Minnesota, or such other or additional offices as may be designated by the Trustee. COV=d Subiect "Covered Subject" means a single potentially responsible party or tortfeasor that is or may be liable for the abatement of envirownental conditions within the Lodi Area of Contamination as a result of that party's ownership or operation, for a certain period of time, of a facility or that party's contribution to the environmental conditions requiring abatement. Current Interest "Current Interest" means all unpaid interest with respect to the Certificates which has accrued but has not yet been compounded in accordance with Section 2.04 of the Trust Agreement. Defenrod Commitment Fee "Deferred Commitment Fee" means $2.25 million, or such lesser amount as may be payable by the City to the Original Purchaser from time to time in accordance with the terms of the Certificate Purchase Contract and the Trust Agreemetrt. SF[.[81l107322i1 Defewd Commitmeet_Ecp RM= A%count "Deferred Commitment Fee Reserve Account" means the account by that name under the Revenue Fund established by Section 5.43 of the Trust Agreement. Deliv a Date "Delivery Date," when used with respect to a particular Series of Certificates, means the date of delivery of such Series of Certificates to the Original Purchaser (as defined below) thereof. The Delivery Date for the first Series of Certificates shall be the Closing Date. The Delivery Date for each subsequent Series of Certificates shall be the first Business Day of any January, April, July, or October on or before the Commitment Period Ending Date as specified by the City in the applicable Issuance Request. nistributign, DA "Distribution Date" means the first Business Day following each Repurchase Payment Date on which it is reasonably practicable for the Trustee to send payments of Accreted Value and Current Interest to Certificate Holders. DISC "DTSC" means the California Environmental Protection Agency, Department of Toxic Substances Control, which entered into the Cooperative Agreement with the City. pTSC Sgttlm-qnt Pavmoms "DTSC Settlement Payments" means those amounts used to reimburse the City for settlement payments it has previously made to DTSC for certain previously incurred response costs pursuant to Section 4.a of the Cooperative Agreement. EEv1 of Default "Event of Default" means any of the events specified in Section 9.1 hereof. Final Pg== Date "Final Payment Date" means, with respect to all Certificates, January 1, 2029. Indmendcrlt Accountant "Independent Accountant" means a certified public accountant or firm of certified public accountants specializing in providing financial statements and audits for business and governmental entities and who has acted as such an accountant in California for at least three years. SFUB1110732241 7 Ind_emndent Conssu_lt "Independent Consultant " means a reputable specialist or firm of specialists, including but not limited to an environmental consultant or an insurance consultant, qualified to evaluate a particular aspect of the Program. Interest Period "Interest Period" means the 3 -month period beginning on each Rate Adjustment Date to but excluding the next Rate Adjustment Date; provided that the first Interest Period shall be from and including the Closing Date to but excluding the next Rate Adjustment Date. Investoren# secutities "Investment Securities" means investments in a money market fund rated "AAAW or "AAAM-G" or better by S&P or a money market fund collateralized by direct obligations of (including obligations issued or held in book entry form on the books o) the Department of the Treasury of the United States of America. Such money market funds may include funds for which the Trustee, its affiliates or subsidiaries provide investment advisory or other management services. The Trustee shall be entitled to rely upon any written investment direction from the City or the Corporation as a certification that such investment constitutes an Investment Security. ImangeR u t "Issuance Request" means a written Request and Certificate of the City, in substantially the form set forth in Exhibit B hereto, for the Trustee to execute and deliver a Series of Certificates in accordance with the provisions of Section 2.01 of the Trust Agreement. Lc al Dii shutsernents "Legal Disbursements" means those amounts invoiced by Outside Counsel for out-of- pocket direct expenses at the actual cost charged by the provider of such materials or services, including postage, copying, overnight delivery services, messengers, long-distance telephone, expert witness fees and costs, and reasonable and customary travel expenses. a�, Ee-ea "Legal Fees" means those amounts invoiced by Outside Counsel for professional legal services rendered on an hourly basis, in accordance with the Retainer and Fee Agreement in connection with the Program, and as further limited and described under Exhibit A hereto. AOR anti 3 -trioti„ LIME Rate "LIBOR" means, as of the second London banking day immediately preceding the beginning of an Interest Period (the "LIBOR Determination Date"), the rate for deposits in United States dollars for a period equal to the relevant Interest Period which appears on Telerate Page 3750 as of 11:00 am. , London time, on such date. If such rate does not appear on Telerate page 3754, the rate for that LIBOR Determination Date will be determined by the Calculation SFU811107322,V and Verification Agent on the basis of the rates at which deposits in United States dollars are offered by the Reference Banks at approximately 11.00 a.m., London time, on that day to prime banks in the London interbank market for a period equal to the relevant Interest Period. For purposes of this definition, "Telerate Page 3750" means the display page currently so designated on the Dow Jones Market Service or any successor service (or such other page as may replace that page on that service or any successor service for the purpose of displaying comparable rates or prices), and "Reference Banks" means four major banks in the London interbank market selected by the Calculation and Verification Agent. "3 -month LIBOR Rate" means the LIBOR Rate in effect for the 3 -month period beginning on each Rate Adjustment Date. Lien "Lien" means a security interest, lien, charge, pledge or encumbrance of any kind. Lodi Area of Contamina "Lodi Area of Contamination" means an area of approximately 600 acres encompassing the Citys central business area, which is the area described in the Cooperative Agreement as the area of the City located within the county of San Joaquin, California bordered approximately by the Mokelumne River to the north, Beckman Road to the east, Harney Lane to the south, and Mills Avenue to the west and the surrounding commercial and residential area from which hazardous substances have been, or are threatened to be, released or where hazardous substances have or may come to be located. Municipalp Fund "Municipal Fund" means the Lodi Area of Contamination Environmental Nuisance Abatement Fund, which is a restricted account within the Comprehensive Municipal Environmental Response Fund created under the Ordinance, or a successor or alternate fund created for substantially the same or similar purposes. Such Municipal Fund will contain two separate accounts, the Program Account and the Recovery Account, monies in which will be segregated, held and invested separately from other assets of the City. "Moody's" means Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns. Nkiice of &&&Qotio "Notice of Reallocation" means the City's written notice to the Trustee, in the form of Exhibit D hereto, with regard to reallocation among items and categories in the Program Budget. sriastnm W 9 "Ongoing Obligations" when used in connection with the Program Budget, refers to a category of funds to be expended by the City for obligations arising out of, and limited to, DTSC Settlement Payments, computer document management, technical activities, project management activities, and Legal Disbursements (but not including any Legal Fees) as further described in Exhibit A hereto. "Opinion of Counsel" means a written opinion of counsel (who may be counsel for the City) selected by the City. If and to the extent required by the provisions of Sections 2.1 and 2.2 of this Agreement and Section 1.03 of the Trust Agreement, each Opinion of Counsel shall include the statements provided for in Sections 2.1 and 2.2 of this Agreement and Section 1.03 of the Trust. Agreement. Optional Payment D„ gte "Optional Payment Date" means each date of transfer of funds, other than Program Receipts, by the City to the Trustee for deposit into the Revenue Fund in accordance with Section 6.7(a)(v) hereof. "Ordinance" means Ordinance No. 1684, adopted November 17, 1999 and effective December 17, 1999, repealing and reenacting the City's Comprehensive Municipal Environmental Response and Liability Ordinance, Chapter 8.24 (Health and Sanitation) of Title 8 (Health and Safety) of the Lodi Municipal Code, as it may be amended from time to time in accordance with Section 6.18 hereof. Ori gipal!urchaser "Original Purchaser" means Lehman Brothers Inc. and its successors and assigns. Outside Counsel "Outside Counsel" means Envision Law Oroup LLP, Lafayette, California, which has been selected by the City to represent the City for all matters relating to the Program, in accordance with the Retainer and Fee Agreement. Outstandinrt "Outstanding," when used as of any particular time with reference to Certificates, (subject to the provisions of Section 11.09 of the Trust Agreement) means all Certificates theretofore, or thereupon being, executed and delivered by the Trustee under the Trust Agreement except (1) Certificates theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Certificates with respect to which all liability shall have been discharged in accordance with Section 10.01 of the Trust Agreement, including Certificates (or portions of SFU91/10732241 10 Certificates) referred to in Section 11.10 of the Trust Agreement; and (3) Certificates for the transfer or exchange of or in lieu of or in substitution for which other Certificates shall have been executed and delivered by the Trustee pursuant to the Trust Agreement. Outggnding Ccrfificate—Dblinfions "Outstanding Certificate Obligations" means, as of any date, the sum of the Accreted Value and Current Interest components of the Certificates. is di "Outstanding Principal" means the sum of principal amounts of all Series of Certificates issued, less any amounts representing the principal component of such Certificates which have been repaid to Certificate Holders. permitted Deduction "Permitted Deductions" are amounts which the City may deduct from Program Receipts, up to 25% o€'Program Receipts collected at any time, as described in Section 6.4 hereof, prior to remittance of such Program Receipts to the Trustee and includes (a) fust, certain payments to DTSC for oversight costs pursuant to Section 4.b of the Cooperative Agreement and amounts to create a reserve balance for such payments in an amount up to $300,000 and (b) second, reimbursement to the City, up to $2,000,000 in the aggregate over the term of this Agreement, for expenditures that were incurred by the City in connection with the Program in an amount up to $1,400,000 prior to November 3, 1999 and in an amount up to an additional $1,000,000 for expenditures incurred by the City on or after November 3, 1999. Pers "Person" means an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. Placement AgMt "Placement Agent" means Lehman Brothers Inc. and its successors and assigns. 14 • ' It P TY -1 "Placement Fee" means the amount of $1,000,000 payable to the Placement Agent on the Closing Date. Pro "Program" means the City's environmental abatement program for the Lodi Area of Contamination, including all Abatement Actions (as defined in the Ordinance,) undertaken in connection therewith, which include but are not limited to study, investigation, abatement, removal, remediation or response to an Environmental Nuisance (as defined in the Ordinance) or SFUBI/10732241 ll threat of Environmental Nuisance, monitoring and assessment or evaluation of an Environmental Nuisance, prevention or mitigation of an Environmental Nuisance and enforcement activity in response to an Environmental Nuisance, including litigation and other actions against potentially responsible parties, their indemnitors or insurers, and shall also include all activities related thereto, whether or not expressly described in the Ordinance, including litigation and other actions against potential tortfeasors, their indemnitors or insurers. Program Account "Program Account" means the account by that name established under the. Municipal Fund. 12747713= "Program Budget" means the authorized disbursements of the City from the Program Account, as described in Exhibit A hereto. Plyg 1 ReceibtS "Program Receipts" means all amounts, proceeds and recoveries from, or in contemplation of, or in connection with, the potential liability of responsible parties or potentially responsible parties, their insurers or indemnitors, or of tortfeasors or potential tortfeasors, their insurers or indemnitors, received by the City for by any other Person on its behalf) on or after July 30, 1999, or received by the City's Outside Counsel after the Closing Date, in connection with the Program, whether in cash or non-cash form and regardless of how such amounts, proceeds, or recoveries may be characterized, labeled or allocated in any judgment, award, settlement or other agreement or payment, including but not limited to all amounts, proceeds or recoveries characterized or labeled as legal fees or disbursements or as tort claim recoveries, proceeds or settlements. Purchase Commitment "Purchase Commitment" means the total sum of up to $16,000,000 for the purchase of various series of Certificates by the Original Purchaser or by any successor, or lesser amount as provided herein or in the Certificate Purchase Contract. Quarterly Budget Reporting Form "Quarterly Budget Reporting Form" means that report, a form of which appears in Appendix A hereto, which the City is required to submit to the Calculation and Verification Agent within 20 Business Days after the beginning of each calendar quarter (except the first quarter) to reconcile the prior quarter's expenditures with the Program Budget and to demonstrate the City's compliance with the Program Budget for the prior quarter, Rate Adiustment Date "Rate Adjustment Date" means the first Business Day of each January, April, July and October. SFUB111473224/ 12 Record Date "Record Date" means, with respect to any Distribution Date, the Business Day immediately preceding such Distribution Date. Recoyg�r,.y Account "Recovery Account" means the account by that name established under the Municipal Fund. Remittance R -q= "Remittance Report" means the City's written report to the Trustee, in the form of Exhibit C hereto, required to be delivered as provided under Section 6A(b) of this Agreement. Repurchase Payment Date "Repurchase Payment Date" means 1) each date of transfer of Program Receipts by the City to the Trustee (net of Permitted Deductions) for deposit into the Revenue Fund in accordance with Section 6.4 hereof and 2) the Final Payment Date. Rin hase Payments "Repurchase Payments" means all amounts payable by the City as Repurchase Payments pursuant to Section 6.7(a) hereof. Repurchase Mcee "Repurchase Price" means the sum of (i) the principal amount of all Certificates, together with all interest (whether Current Interest or Compounded Interest) on the Certif cater, (ii) the amount required to pay or fund the Deferred Commitment Fee, and (iii) all Additional Payments required to be made by the City pursuant to Section 6.7(b) hereof Retai= and Fr&Ag=cnl "Retainer and Fee Agreement" means the Professional Services Agreemcnt and Scopc of Services Statement, dated December 1, 1999, between Outside Counsel and the City, in which the teras of Outside Counsel's engagement in connection with the Program are set forth. eve "Revenue Fund" means the fund by that name established under the Trust Agreement, Section 5.02. sm "S&P" means Standard & Poor's, a division of The McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the state of New York, its successors and assigns. SFLIB I/IQ732241 13 Seri "Series" means each series of the Certificates executed and delivered pursuant to the Trust Agreement, as often as on a quarterly basis until the Commitment Period Ending Date. ate "State" means the State of California. tatement. Request. Reouisition. or Order "Statement," "Request," "Requisition," and "Order" of the City, the Corporation, the Trustee or the Calculation and Verification Agent mean, respectively, a written statement, request, requisition, certificate, or order signed in the name of the City, the Corporation the Trustee or the Calculation and Verification Agent by an Authorized Representative of the City, the Corporation, the Trustee or the Calculation and Verification Agent, respectively. 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. If and to the extent required by Article lI of this Agreement, each such instrument shall include the statements provided for in Article 11 of this Agreement. SSMpplemental Agreement "Supplemental Agreement" means any agreement hereafter duly authorized and entered into between the Corporation and the City supplementing, modifying, or amending this Agreement; but only if and to the extent that such Supplemental Agreement is specifically authorized hereunder. SuRplemental Trust Agreement "Supplemental Trust Agreement" means any trust agreement hereafter duly authorized and entered into between the Corporation and the Trustee supplementing, modifying, or amending the Trust Agreement; but only if and to the extent that such Supplemental Trust Agreement is specifically authorized under the Trust Agreement. Imination Notice "Termination Notice" means that written notice from the City to the Trustee and the Original Purchaser, a form of which is attached hereto as Exhibit F, as provided under the Certificate Purchase Contract and the Trust Agreement, that the City has permanently and irrevocably discontinued making Issuance Requests, Irst Agrcement "Trust Agreement" means that certain trust agreement, dated as of ,lune 1, 2000, between the Corporation and the Trustee, as originally executed and as it may from time to time be supplemented, modified, or amended in accordance with the terms thereof SFUBIIIW322V 14 lul St "Trustee" means U.S. Bank Trust National Association, a national banking association organized and existing under the laws of the United States of America, or its successor, as Trustee hereunder as provided in Section 8,01 of the Trust Agreement. Variable R to "Variable Rate" means the variable interest rate evidenced by the Certificates and determined from time to time in accordance with Section 2.04 of the Trust Agreement. ARTICLE u CONTENT OF CERTIFICATES AND OPINIONS Section 21. Cont .t of Statements and Opinions. Every statement or opinion provided for in this Agreement with respect to compliance with any provision hereof shall include (1) a statement that the individual making or giving such statement or opinion has read such provision and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinion is based; (3) a statement that, in the opinion of such individual, he has made or caused to be made such examination or investigation as is necessary to enable him to express an informed opinion with respect to the subject matter referred to in the instrument to which his signature is affixed; and (4) a statement as to whether, in the opinion of such individual, such provision has been complied with. Section 2.2. Reasonable Basis_for Sta .nts and Vi s. Any such statement or opinion made or given by an officer of the City may be based, insofar as it relates to legal, accounting, or environmental matters, upon a statement or opinion of or representation by counsel, an Independent Accountant or an Independent Consultant selected by the City, unless such officer knows, or in the exercise of reasonable care should have known, that the statement, opinion or representation regarding the matters upon which such statement or opinion may be based, as aforesaid, is erroneous. Any such statement or opinion made or given by such counsel, Independent Accountant or Independent Consultant may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the City) upon a statement or opinion of or representation by an officer of the City, unless such counsel, Independent Accountant or Independent Consultant knows, or in the exercise of reasonable careshould have known, that the certificate or opinion or representation regarding the matters upon which such indiv'idual's statement or opinion or representation may be based, as aforesaid, is erroneous. The same officer of the City, or the same counsel, Independent Accountant or Independent Consultant, as the case may be, need not certify to all of the matters required to be certified under any provision of this Agreement, but different officers, counsel, Independent Accountants or Independent Consultants may certify to different matters, respectively. SM81110732241 15 ARTICLE III REPRESENTATIONS AND WARRANTIES Section 3.1. Rg=senlationk and Warranties of the City. The City makes the following representations and wan -antics to the Corporation as of the date of the execution of this Agreement and as of the Closing Date (such representations and warranties to remain operative and in full force and effect regardless of delivery of the Certificates or any investigations by or on behalf of the Corporation or the results thereof): (a) The City is a municipal corporation, duly organized and existing under the laws of the State, has full legal right, power and authority to enter into this Agreement and to carry out and consummate all transactions contemplated by this Agreement. (b) This Agreement has been duly authorized, executed, and delivered by the City and constitutes the legal, valid and binding agreement of the City, enforceable against the City in accordance with its terms; except as enforcement may be limited by bankruptcy, insolvency, or other laws affecting the enforcement of creditors' rights generally and by the application of such equitable principles as the court having jurisdiction may impose, regardless of whether such enforceability is considered in a proceeding in equity or at law. (c) The execution and delivery of this Agreement, the consummation of the transactions herein contemplated, and the fglfillment of or compliance with the terms and conditions hereof, 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 indenture, mortgage, deed of trust, agreement, Iease, contract, the Cooperative Agreement, 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, to the knowledge of the City, after reasonable inquiry and investigation, any applicable law or administrative rule or regulation, the Ordinance or any other applicable ordinance, or any applicable court or administrative decree or order, 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 might have consequences that would materially and adversely affect the consummation of the transactions contemplated by this Agreement. The first lien on and pledge of Program Receipts under this Agreement and the Trust Agreement, as permitted by the Ordinance, are valid and enforceable and are prior to any other lien or claim on Program Receipts, and all other provisions of the Ordinance, insofar as they affect the rights of the Original Purchaser and the Certificate Folders and the transactions herein contemplated, are valid and enforceable. (d) No consent or approval of any trustee or holder of any indebtedness 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, the consummation of any transaction herein sFLW rnor3zW 16 contemplated, or the fulfillment of or compliance with the terms and conditions hereof except as have been obtained or made and as are in full force and effect. (e) 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 inquiry and 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, could have a material adverse effbct upon the consummation of the transactions contemplated by or the fulfillment of or compliance with the terms and conditions of or the validity of this Agreement, and the City is not in material default (and no event has occurred and is continuing which, with the giving of notice or the passage of time or both, could constitute a material 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 and adversely affect the consummation of the transactions contemplated by this Agreement. (f) No representation made, nor any information, exhibit or report furnished to, the Corporation by the City in connection with the negotiation of this Agreement or the Trust Agreement contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. There is no fact that the City has not disclosed to the Corporation or the Trustee in writing that materially and adversely affects or in the future may (so far as the City can now reasonably foresee) materially and adversely affect the ability of the City to perform its obligations under this Agreement or any documents or transactions contemplated hereby. (g) The Program Receipts are free and clear of all Liens and encumbrances, other than Permitted Deductions and may be deposited in the Municipal Fund created under the Ordinance as proceeds of the City's environmental abatement program. ARTICLE IV CONVEYANCE OF PROGRAM RECEIPTS Section 4.1. Sale and BgRurchase Qf Prog= RCggjpjj. Effective on the Closing Date, (a) the City does hereby and irrevocably sell and convey to the Corporation, without recourse, all Program Receipts in consideration of the receipt from the Corporation of the proceeds of the Certificates executed and delivered on the Closing Date and on each subsequent Delivery Date and the Corporation's agreement hereunder to deliver the same, and (b) the Corporation hereby resells and reconveys to the City all Program Receipts in consideration of the City`s agreement hereunder to make payment of the Repurchase Price. The delivery of the proceeds of the Certificates (less, in the case of the initial Series of Certificates, an amount equal to the Placement Fee) by the Corporation shall constitute full consideration for the sale of the Program Receipts by the City, sr7.Mv10732241 17 The parties acknowledge that the City constitutes both the seller of Program Receipts and the purchaser of Program Receipts under this Agreement. The obligation of the City to sell Program Receipts to the Corporation and the obligation of the City to repurchase Program Receipts from the Corporation represent, and in all respects of any nature whatsoever shall always represent, be interpreted as, and constitute separate and distinct obligations. Under no circumstances whatsoever shall a merger of the roles or obligations of the City as seller of Program Receipts and as purchaser of Program Receipts under this Agreement occur or be deemed to occur. Section 4.2. Sale Effected Without Further Actiga. The City and the Corporation agree that, effective on the Closing Date, the Corporation will acquire, upon delivery of the proceeds of the initial Series of Certificates executed and delivered on the Closing Date, a perfected ownership interest in the Program Receipts, and simultaneously therewith the City will reacquire such ownership interest, subject,. however, to the lien and pledge on the Program Receipts created pursuant to this Agreement and the Trust Agreement, and that no further action will be required by either party hereto (other than the transfer of the proceeds of the Certificates) to effect the absolute sale and conveyance of the Program Receipts to the Corporation and the resale and reconveyance of the Program Receipts to the City. Section 4.3. Protective Filing. The City shall take all necessary actions to execute and deliver, or cause to be executed and delivered, to the Corporation and the Trustee all such other and further instruments, documents, and assurances, including the filing of any financing statements under the Uniform Commercial Code as of each Delivery Date and as of each date of settlement or other receipt of Program Receipts, as may be necessary or reasonably required by the Corporation in order to perfect and protect the Corporation's or the Trustee's security interest in the Program Receipts created pursuant to this Agreement and the Trust Agreement. Upon such execution and delivery, the City shall deliver, or cause to be delivered, a copy of all such instruments and documents to the Original Purchaser. ARTICLE V TERM OF THE AGREEMENT Section 5.1. J=. This Agreement shall commence on the Closing Date, and shall terminate upon the payment or discharge by the Corporation of all Certificates in accordance with Article X of the Trust Agreement and the payment in full of the Deferred Commitment Fee and any other amounts authorized or required to be paid by the City hereunder or under the Certificate Purchase Contract and, if full payment of such amounts is made or provided for prior to the Commitment Period Ending Date, the delivery by the City to the Trustee of a Termination Notice pursuant to the Certificate Purchase Contract. sFUDI/10732W 18 ARTICLE VI COVENANTS AND SECURITY PROVISIONS REGARDING PROGRAM RECEIPTS Section 6. 1. Pledee of Pro„ua_rn Receipts. In order to secure its obligation to make payment in full of the Repurchase Price of all Program Receipts, the City hereby grants, pledges and assigns to the Corporation a first, prior and perfected security interest in all Program Receipts received by the City (or any other Person on its behalf) or received by the City's Outside Counsel, subject only to the right of the City to make Permitted Deductions from such Program Receipts. Accordingly;,the ,City shall not be entitled to retain any Program Receipts, other than Permitted Deductions, until the Repurchase- Price for all Program Receipts has been Section 6.2. No Lieu. Except for the conveyances hereunder or any Lien for the benefit of the Corporation, the City will not sell, pledge, assign or transfer, or grant, create, ar incur any Lien on, any of the Program Receipts, or any interest therein, and the City shall defend the right, title and interest of the Corporation and the Trustee in, to and under the Program Receipts against all claims of third parties claiming through or under the City. Section 6.3. Notice of Liens. The City will notify the Corporation and the Trustee promptly after becoming aware of any Lien on any of the Program Receipts, other than the conveyances hereunder. In the event any Lien attaches to or is filed against the Program Receipts, the City, at its own expense, shall cause each such Lien to be fully discharged and released. Section 6.4. Collection and RguittanF& gf Rrog= R e' (a) The City will deposit all Program Receipts upon receipt thereof in the Recovery Account and, within two Business Days after receipt thereof, will transfer such Program Receipts, net of Permitted Deductions, to the Trustee for deposit into the Revenue Fund held by the Trustee under Section 5.02 of the Trust Agreement. In no event will the City be obligated to transfer Program Receipts to the Trustee in excess of amounts necessary to pay the Outstanding Certificate Obligations, deposits to the Deferred Commitment Fee Reserve Account, and any other payments due hereunder. The City hereby covenants that it will maintain the Recovery Account as a separate account under the Municipal Fund and that amounts in the Recovery Account will be segregated, held and invested separately from other assets of the City. (b) The City shall accompany each remittance of Program Receipts to the Trustee with a Remittance Report in the form of Exhibit C hereto, detailing the source(s) of the total Program Receipts received, the date the Program Receipts were received, their total amount, and the City's calculation of any Permitted Deductions and deposits to the Deferred Commitment Fee Reserve Account Simultaneously with the City's delivery of each Remittance Report to the Trustee, the City shall deliver a copy of the Remittance Report to the Calculation and Verification Agent. In accordance with such Remittance Report, the City shall direct the Trustee to return to the City any amounts which the sFUBI/107=41 19 Calculation and Verification Agent determines to be in excess of the amounts required to be transferred to the Trustee under Section 6.4(a) above. (c) The City covenants, represents and agrees that it will use its best efforts to give the Trustee and the Calculation and Verification Agent, as soon as practicable, notice of the date that any recoveries, payments settlements or judgments are anticipated to be received in the Recovery Account, together with the approximate amount of any such receipts. The City agrees that the duty to deposit Program Receipts into the Recovery Account and to transfer Program Receipts to the Trustee is a ministerial obligation that can be enforced against the City in a suit by mandamus. (d) The City agrees that the amount of Program Receipts transferred to the Trustee hereunder shall include the amount necessary, as calculated by the Calculation and Verification Agent, to fund the Deferred Commitment Fee Reserve Account created under Section 5.03 of the Trust Agreement, which; amount shall be the then outstanding balance of the Deferred Commitment Fee as calculated in accordance with Section 3 of the Certificate Purchase Contract. (e) Notwithstanding the foregoing, if, on or before the Commitment Period Ending Date, there are no Certificates Outstanding, the Deferred Commitment Fee Reserve Account is fully funded, and no Commitment Termination Event has occurred, then the City may retain all Program Receipts and, subject to payment of Permitted Deductions, may deposit such Program Receipts into the Program Account. All amounts so retained pursuant to this subsection (e), will reduce, dollar for dollar, the amount of any Purchase Commitment under the Certificate Purchase Contract, unless the Original Purchaser (which may withhold its approval in its sole discretion) agrees that no reduction of the Purchase Commitment will occur. Program Receipts deposited to the Program Account in accordance with this subsection (e) may then be used to pay (1) Budgeted Program Costs and (2) the remainder, if any, of Permitted Deductions. When there are no Certificates outstanding, and � all other obligations under this Agreement have been fully satisfied and the Purchase Commitment has been terminated, all of the foregoing limitations will be of no further force and effect. Section 6.5. ubordinati of laims under Retainer and Fee A The City covenants, represents and warrants that it has entered into the Retainer anis Fee Agreement with Outside Counsel whereby Outside Counsel agrees that any claims it might have against the Program Receipts and any other amounts payable in connection with the Program are fully subordinate to any and all claims of the Original Purchaser and any other Certificate Holders, including the right of the Original Purchaser to receive the Deferred Commitment Fee. The City hereby assigns all rights under any subordination agreement -with Outside Counsel to the Original Purchaser and any other Certificate Holders, as well as, to the extent permitted by law, the City's rights to any claims which the City could raise against such counsel as a result of any error or omission in connection with services rendered by such counsel to the City. If the City substitutes its Outside Counsel or modifies the terms of engagement of its Outside Counsel, it shall promptly notify the Original Purchaser and, if such substitution or modification, in the sole determination of the Original Purchaser, results in a materially prejudicial change, the Original Purchaser may terminate the Purchase Commitment. The City covenants that all fees and 20 disbursements incurred by Outside Counsel and any other law firms that have provided services to the City in connection with the Program prior to the date hereof have either been paid in full or are subordinated in accordance with this Section 6.5. Section 6.6. Settletrtetts. (a) The City may, in its sole discretion, accept cash or non-cash settlements of legal actions under the Program, including but not limited to administrative orders and proceedings and judicial proceedings, in accordance with Subparagraphs (i) and (ii) below when a defendant, potentially responsible party, potential tortfeasor, indemnitor or insurer wishes to settle, make payment or otherwise resolve its liabilities in connection with the Program. (i) If the City accepts a non-cash settlement when any Certificates are Outstanding, the City will deposit into the Recovery Account; as Program Receipts, from any available funds of the City, an amount sufficient to pay Certificates with an Accreted Value equivalent to the dollar value of the non-cash settlement, as determined and certified to by an Independent Consultant; and (ii) If there is any remaining dollar value after the payment under subparagraph (i) above (i.e., the dollar value of the non-cash settlement is greater than the Accreted Value of the Outstanding Certificates) or if there are no Outstanding Certificates, the City's acceptance of a non-cash settlement will reduce the Purchase Commitment by the remaining dollar value of the non-cash settlement, as determined by an Independent Consultant.. (b) Provisions (i) and (ii) of paragraph (a) above do not apply with respect to a maximum of two Covered Subjects for which the City accepts non-cash settlements that resolve or release the defendants' or potentially responsible parties' or potential tortfeasors' insurers' duty to defend, if: (i) Policy or coverage limits are not reduced, eroded, or otherwise affected by the settlement; and (ii) With respect to each defendant, potentially responsible party or potential tortfeasor, there remains at least one "highly rated insurer," with a duty to defend, with which the City has not settled such duty to defend on a non-cash basis. A "highly rated insurer" means an insurer with a claims paying ability rating of A3 or greater by Moody's or A- or greater by S&P at the date of the settlement in question. (c) The Trustee may waive in writing provisions (i) and (ii) under paragraph (a) above in advance of a settlement upon the written direction of the Original Purchaser, together with such other Certificate Holders as are necessary to constitute, in the aggregate, at least 51% of the Outstanding Accreted Value. The Original Purchaser and Certificate Holders shall be reasonable in considering a request for such a waiver. SFM1/10732W 21 (d) Prior to the finalization of any settlement under this Section 6.6, the City will provide detailed reports to the Trustee, the Original Purchaser and all Certificate Holders regarding all cash and non-cash settlements, including information sufficient to demonstrate that the requirements of this Section 6.6 have been met and including information requested by the Independent Consultant in order to establish the dollar value of the settlement. Section 6.7. Payments. (a) R_gpurchase PaMents. The Accreted Value component and the Current Interest component of Repurchase Payments made hereunder shall be assigned to the Trustee and shall constitute the source of payment with respect to the Certificates issued under the Trust Agreement. For each Series of Certificates issued as of any Delivery Date pursuant to the Trust Agreement, the City shall make Repurchase Payments at the time and in the amounts set forth below. (i) Mandatory Paytt of Renurc ase Payments. The Accreted Value and Current Interest components of the Repurchase Payment with respect to any Series of Certificates will be due and payable on each Repurchase Payment Date, in an amount which totals the amount of Program Receipts transferred to the Revenue Fund (rounded to the nearest $1,000 denomination), to be applied as provided in Section 6.7(a)(vi) below. (ii) Calculation and Accnial,of Currente�t. The Current Interest component of the Repurchase Payment for each Interest .Period or portion thereof preceding a Repurchase Payment Date shall equal the sum of interest accruing at the Variable Rate in effect during each such Interest Period on the outstanding Accreted Value of such Series of Certificate on each day during such Interest Period, as provided in Section 2.04 of the Trust Agreement. In no event shall the Variable Rate exceed 30 percent per annum. The sum of all unpaid Current Interest for all Interest Periods or portions thereof during any calendar year shall be added to Accreted Value of the Certificates as of the day before the first Business Day of each January, after which date such Accreted Value will bear interest at the Variable Rate. (iii) Cessation of Interest Accrual. If as a result of one or more final judgments of a court, including courts of appeal and the California and United States supreme courts, the City concludes and informs the Original Purchaser and the Trustee in writing that it will no longer engage in activities in pursuit of Program Receipts, then the Original Purchaser will enter into a written agreement (the "Cessation Agreement") thereby causing interest to cease to accrue on the Certificates thirty-six months after the date of such Cessation Agreement. The Cessation Agreement shall be null and void if the City for any reason continues to engage in activities in pursuit of Program Receipts subsequent to the date of the Cessation Agreement. sFLIDIII0732241 22 (iv) re —Um of RMUMban &MMU As provided in Article VI hereof, the City and the Corporation agree that all Repurchase Payments required to be made hereunder shall be paid by the City exclusively from Program Receipts, shall be secured by a first and prior lien on all Program Receipts, and shall be used to pay Outstanding Certificate Obligations. (v) Optional paymot Frorp Q her Funds. In addition to its obligation to pay Repurchase Payments from Program Receipts as provided herein, the City shall have the option, at any time and from time to time, to make Repurchase Payments from any other legally available funds. To exercise such option, the City shall transfer such other funds to the Trustee, as assignee of the Corporation, and provide the Trustee with an Order of the City directing that such funds be applied to the payment of Outstanding Certificate Obligations in accordance with Section 4.42 of the Trust Agreement. Amounts transferred to the Trustee pursuant to this Section shall be deposited in the Revenue Fund and will be credited against the Outstanding, Certificate Obligations in accordance with Section 6.4 hereof. (vi) ApRlio Uin of Paymenis. All Program Receipts deposited into the Revenue Fund shall be applied: &9, to the costs of indemnification of the Placement Agent, the Calculation and Verification Agent, the Original Purchaser and Certificate Holders under Section 8.2 hereof; second• to the Current Interest component of the Repurchase Payments due hereunder;Mid. to the Compounded Interest portion of the Accreted Value component of the Repurchase Payments due hereunder; fourth, to the Outstanding Principal portion of the Accreted Value component of the Repurchase Payments due hereunder; rift , to fully fund the Deferred Commitment Fee Reserve Account; and gi:xA to pay any portion of the Deferred Commitment Fee, if and when due, to the Original Purchaser. Any Repurchase Payment not paid when due shall bear interest from the date such payment is first due at the Variable Rate, as adjusted from time to time and as compounded in accordance with the terms hereof and of the Trust Agreement. Any interest paid on the Certificates (either Current Interest or Compounded Interest) will reduce the Deferred Commitment Fee, and the required balance in the Deferred Commitment Fee Reserve Account, dollar for dollar. (b) Addifignal Poments. The City will pay, within 10 Business Days after receipt of an invoice therefor, (i) all taxes and assessments of any type or character charged to the Corporation or the Trustee as a result of the sale or repurchase of Program Receipts or in any way arising due to the transactions contemplated hereby, (ii) all costs and expenses incurred by the Corporation, the Trustee and the Calculation and Verification Agent in connection with the execution, performance or enforcement of this Agreement and of the Trust Agreement, including but not limited to payment of all fees, costs and expenses and all administrative costs of the Corporation, the Trustee and the Calculation and Verification Agent in connection with the execution and delivery of each Series of Certificates and collection and distribution of the Program Receipts, together with all salaries and wages of employees, all expenses, compensation and indemnification of the Trustee payable by the Corporation under the Trust Agreement, SFUBIA0732241 23 fees of auditors, accountants, attorneys or taxes and all other necessary administrative costs of the Corporation or charges required to be paid by it in order to maintain its existence or to comply with the terms of the Certificates or the Trust Agreement, (iii) all costs of indemnification of the Corporation and the Trustee under Section 8.2 hereof (iv) the Deferred Commitment Fee (including required deposits to the Deferred Commitment Fee Reserve Account) and (v) all costs of indemnification of the Placement Agent, the Calculation and Verification Agent, the Original Purchaser and Certificate Holders under Section 8.2 hereof. The City reserves the right to audit billings for such Additional Payments although exercise of such right shall in no way affect the duty of the City to make full and timely payment for all such Additional Payments. The City will make payments described in the preceding paragraph (except for payments under clauses (iv) or (v) above) from any lawfully available moneys of the City. The City will make payments described in clause (iv) solely from Program Receipts. The City will make payments described in clause (v) from Program Receipts and any proceeds of insurance or self-insurance programs in which the City has participated or will participate. Section 6.8. Obligations of the City Uncond-itional. Except as otherwise provided herein, the obligation of the City to make payments hereunder and to perform and observe other agreements on its pari contained herein is absolute and unconditional, and shall not be abated, rebated, setoff, reduced, abrogated, terminated, waived, diminished, postponed, or otherwise modified in any manner or to any extent whatsoever while any Certificates remain Outstanding or any other payments required hereunder remain unpaid, regardless of any acts or circumstances that may constitute failure of consideration, commercial frustration of purpose, any change in the laws of the United States of America or of the State or any political subdivision thereof or in the rules or regulations of any governmental authority, or any failure of the Corporation to perform and observe any agreement, whether express or implied, or any duty, liability, or obligation arising out of or connected with this Agreement or the Trust Agreement. The City shall pay over and transfer all Program Receipts and all other payments required hereunder, regardless of any rights of set-off, recoupment, abatement, or counterclaim that the City might otherwise have against the Corporation or any other party or parties. Notwithstanding the above, the obligations of the City to pay Repurchase Payments, the Deferred Commitment Fee and the indemnity obligations to the Special Indemnified Parties described in Section 8.2 hereof are special obligations of the City payable solely from the Program Receipts (or insurance proceeds or self-insurance as described in Section 6.7(b) above) as provided herein and in the Trust Agreement. Neither the genual fund nor any enterprise fund of the City is liable (except to the extent that Program Receipts are credited thereto), and neither the credit nor the taxing power of the City is pledged for the payment of the Repurchase Payments or the Deferred Commitment Fee. To the extent that the City is unsuccessful in recovering sufficient amounts to make the Repurchase Payments required to be made hereunder (representing the Accreted Value and Current Interest components of the Certificates) from Program Receipts designated as Abatement Action Costs (as defined in the Ordinance) or "clean up costs" from responsible patties or tortfeasors, Certificate holders will be entitled to be paid from any Program Receipts, notwithstanding the manner in which such receipts are labeled or described in any judgment, settlement agreement or insurance payment. sa.iae1107Mu 24 Section 6.9. bment of The . If on any date all Certificates have been paid or discharged in accordance with the Trust Agreement and, if such date is prior to the Commitment Period Ending Date, either (i) the maximum aggregate principal amount of Certificates, subject to certain reductions as permitted by the Certificate Purchase Contract and the Trust Agreement, has been issued and delivered under the Trust Agreement, or (ii) any other Commitment Termination Event has occurred, then the City shall direct the Trustee to apply all amounts in the Deferred Commitment Fee Reserve Account and all other Program Receipts to the payment of the Deferred Commitment Fee, as provided under Sections 5.03 and 5.04 of the Trust Agreement. Section 6.10. Taxes. Other. Goyerrur Otal Charges. The City covenants, warrants and agrees that the Program Receipts will be exempt from all taxes of any kind, and if the Program Receipts are subject to taxation in any form, the City will pay, as the same become due and in accordance with Section 63(b), all taxes and governmental charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Program. Section 6.11. Application yfNonsys in the PEgg= AMunt. The City will deposit all proceeds of the Certificates, upon receipt, into the Program Account and will invest all such amounts, until they are applied to the payment of Budgeted Program Costs, in Investment Securities which mature by the date they are expected to be used. The City hereby covenants that it will maintain the Program Account as a separate account under the Municipal Fund and that amounts in the Program Account will be segregated, held and invested separately from other assets of the City. The City will apply moneys in the Program Account for the sole purpose of paying Budgeted Program Costs in accordance with the Program Budget, attached hereto as Exhibit A, and will comply with all expenditure limitations by category (Legal Fees and Ongoing Obligations) and applicable sub -categories (Legal Fees by tier and Ongoing Obligations consisting of DISC Settlement Payments, computer document management, technical activities, project management and Legal Disbursements), except as such limitations are modified pursuant to Section 6.12 below. Within 20 Business Days after the end of each calendar quarter during the Commitment Period, or thereafter while any Certificates are Outstanding and the Deferred Commitment Fee has not been paid in full, the City shall prepare and transmit to the Calculation and Verification Agent a Quarterly Budget Reporting Form, in the form attached to Exhibit A, and will submit an amended Quarterly Budget Reporting Form to the Calculation and Verification Agent when invoices for services rendered during a quarter are received or paid after the filing of the Quarterly Budget Reporting Form for that quarter. The Calculation and Verification Agent, as directed in the Quarterly Budget Reporting Form, shall verify the City's calculations, shall determine whether the application of amounts in the Program Account is in compliance with the Program Budget, and shall promptly transmit a report describing the result of its review to the City, the Original Purchaser, other Certificate Holders and the Trustee. Upon receipt of notice that the City's calculations were erroneous or that any disbursements were not in compliance with the Program Budget, the City shall, as applicable, promptly correct its calculations and take all necessary actions to comply with the Program Budget. The City shall promptly transmit to the Calculation and Verification Agent an amended Quarterly Budget Reporting form showing all recalculations and any actions taken to comply with the Program Budget, and the Calculation and Verification Agent shall follow the procedures described above 25 with respect to the initial submission of the applicable Quarterly Budget Form. The Trustee shall receive copies of all Quarterly Budget Reporting Forms, amendments thereto and reports issued thereunder and shall transmit copies to the Original Purchaser and Certificate Holders but shall have no duty to review such reports filed with it hereunder and shall not be responsible for the application of or allocation of amounts in the Program Account. Section 6.12. Prograrn EuAgef; Reallocation of Certain_ Amounts. The City may reallocate funds in the Program Account subject to the guidelines and limitations provided in the Program Budget, attached hereto as Exhibit A. In the event that the City elects to reallocate amounts deposited into the Program Account from Ongoing Obligations to Legal Fees or from Legal Fees to Ongoing Obligations, then the City, prior to such reallocation and expenditure, will file a Reallocation Notice Regarding Amounts in Program Account with the Trustee in the form of Exhibit D hereto and will certify that such reallocation is consistent with the provisions of this Section and the Program Budget. Within 5 Business Days after the receipt thereof; the Trustee shall transmit a copy of any Reallocation Notice to the Original Purchaser, other Certificate Holders, and the Calculation and Verification Agent. Any request for an increase to the Ongoing Obligation Payment Limits set forth in Exhibit A hereto must be delivered by the City to the Trustee in the form of the Ongoing Obligation Payment Limit Increase Approval Form, attached hereto as Exhibit E, for transmittal to the Original Purchaser and Certificate Holders within 5 Business Days after the Trustee's receipt thereof and must be approved by the Original Purchaser and Certificate Holders within 5 Business Days after the Original Purchaser's and Certified Holders' receipt thereof. if such approval is not received by the Trustee within 5 Business Days, the request shall be deemed denied. In accordance with the Ongoing Obligation Payment Limit increase Approval Foran, the Trustee shall send a report of the Original Purchaser's and other Certificate Holders' response to the City, the Calculation and Verification Agent, and the Original Purchaser and other Certificate Holders. The Trustee shall deliver to the Original Purchaser, the Certificate Holders, the City and the Calculation and Verification Agent, as the case may be, but shall have no duty to review, such notices, reports, requests or certifications filed with it under this Section 6.12 and shall not be responsible for the application or allocation of amounts in the Program Account. Section 6.13. ivejy o o s and R rd . The City agrees to deliver, or to cause to be delivered, reports to the Trustee, to the Calculation and Verification Agent, to the Corporation and to the Original Purchaser and any other Certificate Holder on a quarterly basis, or more often as reasonably requested, regarding the application of amounts in the Program Account, including statements of Legal Fees, classified by individual attorney, task performed and time devoted to task, and a detailed report of Ongoing Obligations, including Legal Disbursements, subject to the assertion of any privilege or protection of any nature, including but not limited to the attorney- client privilege and the attorney work -product protection, available to the City or its attorneys. Subject to the assertion of any such privilege or protection, the City will allow the Trustee (who will have no duty to review or inspect such records and documents), the Calculation and Verification Agent, the Original Purchaser, any Certificate Holder and any auditor on behalf of the Corporation, access to all records and documents detailing receipt of amounts into the Program Account and disbursements from the Program Account. Reports and records required by this Section 6.13 will include the information required by Sections 6.4(b), 6.6(d), 6.11 and 6.12 hereof. SFUBI/107322N 26 Section 6.14. Annual Certification and Audit. As soon as practicable but in no event later than April 30 of each year, the City shall file with the Trustee and the Calculation and Verification Agent a written statement of an Independent Accountant and a certificate from an Authorized Representative of the City, having reviewed the City's records and the provisions of this Agreement, including but not limited to Section 6.13 and Exhibit A, Exhibit D, and Exhibit E hereof, stating that nothing has come to the attention of such Independent Accountant or Authorized Representative that would lead such Independent Accountant or Authorized Representative to believe that (i) amounts in the Program Account have been applied in violation of this Agreement, such as moneys being expended for Legal Fees and Ongoing Obligations in violation of the Program Budget, moneys being reallocated in a manner violating the Program Budget, or any budget cap or limitation being exceeded, (ii) the receipt and remittance of Program Receipts or the calculation, retention and payment of Permitted Deductions are in violation of the terms of this Agreement or the Program Budget, or (iii) any settlement entered or proposed to be entered is not in accordance with the terms of Section 6.6 hereof, or (iv) any other Event of Default hereunder shall have occurred and be continuing. Section 6.15.`lie rs 't of c'pts: EngaggMent of Outside Counsel. The City hereby covenants that, until all Outstanding Certificates and the Deferred Commitment Fee have been fully paid and the Purchase Commitment has been reduced to zero, it will diligently pursue collection of Program Receipts, will at all times have engaged competent legal counsel with recognized expertise in matters involving environmental litigation, and will not terminate the Cooperative Agreement or cause the Cooperative Agreement to be terminated. Section 6.16. Single Purpose Corporation. The City hereby covenants that it will not use the Corporation for, and the Corporation hereby covenants that it will not participate in, any other financing or other arrangement in addition to the sale and repurchase of Program Receipts and issuance of the Certificates hereunder and under the Trust Agreement. Section 6.17. f; ggpgrgion With Removal 2X Replacement of Trustee. The City hereby covenants that it will cooperate with the Corporation as needed in connection with the removal or replacement of the Trustee in accordance with Section 8.01(d) of the Trust Agreement. Section 6.18.il` o Impairment of Crtificate _Holders' RiShU. The City hereby covenants that it will not repeal the Ordinance or amend any provision of the Ordinance in. a manner which would adversely affect the rights of the Certificate Holders until the Certificates are fully paid and discharged and the Purchase Commitment has terminated. The City will provide reasonable notice to the Original Purchaser, the Certificate Holders and the Trustee in the event the City anticipates any amendment to or repeal of the Ordinance. ARTICLE VII ASSIGNMENT OF AGREEMENT TO TRUSTEE Section 7.1. The parties understand that this Agreement and certain rights of the Corporation hereunder will be assigned to the Trustee pursuant to an assignment provision in the Trust Agreement. The City hereby transfers in trust, srfaeIiimsri.0 27 grants a security interest in and assigns to the Trustee, for the benefit of the Holders from time to time of the Certificates and for the benefit of the Original Purchaser (to the extent of its interest in the Deferred Commitment Fee) all of its right, title, and interest in this Agreement and all of its interest in the Program Receipts, net of Permitted Deductions. The City agrees to execute all documents, including notices of assignment and chattel mortgages or financing statements that may be reasonably requested by the Corporation, the Trustee, the Original Purchaser or any Holder to protect their interests in the Program Receipts during the term hereof, and to provide copies thereof to the Corporation, the Trustee, the Calculation and Verification -Agent, the Original Purchaser, and upon request therefor, to any Certificate Holder so requesting. ARTICLE VIII NON -LIABILITY OF CORPORATION; INDEMNIFICATION Section $.1. Nor„ +-Liability of !Qoorporation. The Corporation shall not be obligated to pay Repurchase Payments or the Deferred Commitment Fee or to make any other payments or advance any moneys or be liable for any other costs or expenses hereunder. Section 8.2. IndemnifcatiQr. (a) C=al In nits. The City shall, to the extent permitted by law, defend, indemnify and hold harmless the Corporation, the Trustee (as the assignee of the Corporation's rights hereunder), the Placement Agent, the Calculation and Verification Agent, the Original Purchaser, each Certificate Holder and their members, directors, officers, employees, and agents from and against any and all losses, claims, damages, liabilities, or expenses of every kind, character, and nature whatsoever (excepting therefrom only such losses, claims, damages, liabilities, or expenses arising from the negligence of the Corporation, with respect to the Corporation, or the Trustee, with respect to the Trustee), including, but not limited to, losses, claims, damages, liabilities, or expenses arising out of, resulting from, or in any way connected with (1) the City's interest in, or use of, the Program Receipts or any portion thereof; (2) the sale of the Certifwates and the carrying out of any of the transactions contemplated by the Certificates, the Certificate Purchase Contract, the Trust Agreement, this Agreement or any related document; (3) the carrying out of the Program; or (4) the acceptance of mid administration by the Trustee of the Trustee's duties under the Trust Agreement. The City shall, to the extent permitted by law and, with respect to the indemnification of the Placement Agent, the Calculation and Verification Agent, the Original Purchaser and each Certificate Holder, (each a "Special Indemnified Party"), to the extent permitted by clause (b) below, pay or reimburse the Corporation, the Trustee, the Special Indemnified Parties and their members, directors, officers, employees and agents for any and all costs, reasonable attorneys fees, liabilities or expenses incurred in connection with investigating, defending against or otherwise in connection with any such losses, claims, damages, liabilities, expenses or actions. Notwithstanding anything to the contrary in this Agreement or the Trust Agreement, the Trustee and the Corporation shall not be entitled to payment, reimbursement or indemnification for actions involving willful misconduct, default or negligence on the part of the Trustee or the Corporation, respectively. SFUBI/107377N 28 (b) Limited Since Indemnity. The obligation of the City to defend, indemnify, and hold harmless the Special Indemnified Parties for any suits or claims arising from the sale of the Certificates or the City's pursuit of the Program (as described in the preceding paragraph), shall be payable solely from (i) Program Receipts, and (ii) any proceeds of insurance or self-insurance programs in which the City has participated or will participate. With regard to item (i), if currently available Program Receipts are insufficient to pay attorney fees and expenses and other litigation related costs at the time they are incurred, the Special indemnified Parties may fund the excess of such fees and expenses, and any future Program Receipts will be used to reimburse the Special Indemnified Parties for such amounts. With regard to item (ii), the City agrees to cooperate fully with the Special Indemnified Parties in submitting and pursuing claims against such City insurers, although the City will have no obligation to maintain any insurance coverage. (c) Spgcial Conditions. The City's indemnity obligation to the Special Indemnified Parties under section (b) above is subject to the following conditions: (1) The City will pay attorneys' fees and costs of a single law firm chosen by the Special Indemnified Parties to collectively represent the Special Indemnified Parties, and such counsel shall, to the extent consistent with the Special Indemnified Parties' interests, cooperate with the City and avoid duplication and wastefulness in the assertion of defenses; (2) The City will pay attorneys' fees and costs of additional law firms to represent an individual Special indemnified Party where (i) the counsel retained under (e)(1) above could not, as a result of applicable law or code of professional responsibility, assert a defense on behalf of such an individual Special Indemnified Party while simultaneously representing the other Special Indemnified Parties for reasons including, but not limited to, a situation in which the use of counsel chosen by the Special Indemnified Parties to represent the Special Indemnified Party or Parties would present such counsel with a conflict of interest, or in which the actual or potential defendants in, or targets of, any such action include the Special Indemnified Party or Parties, and the City and the Special Indemnified Party or Parties shall have reasonably concluded that there may be legal defenses available to it and/or other Special Indemnified Parties that are different from or additional to those available to the City; or (ii) the City otherwise authorizes the Special Indemnified Parties to employ separate counsel at the expense of the City; and (3) The City will not, without the prior written consent of the Special Indemnified Parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in which indemnification or contribution may be sought hereunder (whether or not the Special Indemnified Parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each Special Indemnified Party from all liability arising out of such claim, action, suit or proceeding. SP11BIA073224/ 29 The provisions of this Article VIII shall survive the discharge of the City's obligations hereunder and under the Trust Agreement. ARTICLE IX EVENTS OF DEFAULT AND REMEDIES Section 9.1. Events of rgfapjl. The following events shall be "Events of Default": (a) Failure of the City to remit Program Receipts to the Trustee when required hereunder; (b) Failure by the City to pay or cause to be paid in full any payment required hereunder when due, on a Repurchase Payment Date, on the Final Payment Date, or otherwise pursuant to the terms hereof; provided, however it shall not be a default hereunder if there is a failure to make such payments on a timely basis if such failure is caused solely by the insufficiency of Program Receipts so long as the City is not otherwise in default hereunder and any such payment is required to be made solely from Program Receipts; (c) If any material representation or warranty made by the City herein or in the Certificate Purchase Agreement Contract or made by the City in any other document, instrument, or certificate fumished to the Trustee or the Corporation is Connection with the execution and delivery of any Series of the Certificates shall at any time be shown to have been incorrect in any respect as of the time made; (d) If the City shall fail to observe or perform any covenant, condition, agreement, or provision in this Agreement on its part to be observed or performed, other than as referred to in subsection (a), (b) or (c) of this Section, or shall breach any warranty by the City herein contained, for a period of 30 days after written notice, specifying such failure or breach and requesting that it be remedied, has been given to the City by the Corporation or the Trustee; except that, if such failure or breach can be remedied but not within such thirty (30) day period and if the City has taken all action reasonably possible to remedy such failure or breach within such 30 day period, such failure or breach shall not become an Event of Default for so long as the City shall diligently proceed to remedy the same in accordance with and subject to any directions or limitations of time established by the Trustee; (e) Any proceeding under the United States Bankruptcy Code or any federal or state bankruptcy, insolvency, or similar law or any law providing for the appointment of a receiver, liquidator, trustee or similar official of the City or the Corporation or of all or substantially all of either the City's or the Corporation's assets, is instituted by or with the consent of the City or the Corporation, or is instituted without the City's or the Corporation's consent and is not permanently stayed or dismissed within sixty (60) days, or if the City or the Corporation offers to the City's or the Corporation's creditors to effect a composition or extension of time to pay the City's or the Corporation's debts or asks, sruB in#73uv 30 seeks or prays for a reorganization or to effect a plan of reorganization, or for a readjustment of the City's or the Corporation's debts, or if the City or Corporation shall make a general or any assignment for the benefit of the City's or the Corporation's creditors; (f) Any assertion in any proceedin& forum or action by the. City or on its behalf to the effect that performance of the City's obligations under this Agreement are unlawful or of the City's intention to disavow or repudiate any such obligations; (g) If an Event of Default occurs under the Trust Agreement; or (h) Any repeal or amendment of the Ordinance in violation of Section 6.18 hereof. Section 9.2. Rets -dies an Default. In each and every such case during the continuance of such an Event of Default, the Corporation and the Trustee may, at their option, take whatever action, at law or in equity, as may appear necessary or desirable to collect the Program Receipts and to cause to be paid any other payments then due and thereafter to become due under this Agreement or to enforce the performance and observance of any obligation, covenant, agreement, or provision contained in this Agreement to be observed or performed by the City; it being understood that amounts payable by the City upon an Event of Default caused by the City shall not be limited to Program Receipts. The Original Purchaser may, in its sole discretion and without any liability for liquidated damages, terminate the Purchase Commitment upon the occurrence of an Event of Default. Section 9.3. RgMedies NQJ EXclusiyq:a' No remedy herein conferred upon or reserved to the Corporation or the Trustee is intended to be exclusive of any other available remedy or remedies, but each and every such remedy, to the extent permitted by law, shall be cumulative and shall be in addition to every other remedy . given under this Agreement or now or hereafter existing at law or in equity or otherwise. In order to entitle the Corporation and the Trustee to exercise any remedy, to the extent permitted by law, reserved to it in this Agreement, it shall not be necessary to give any notice, other than such notice as may be herein expressly required. Such rights and remedies a& are given to the Corporation hereunder shall also extend to the Trustee, and the Trustee may exercise any rights and will be charged with the obligations of the Corporation under this Agreement, and the Trustee and the Certificate Holders shall be deemed third party beneficiaries of all covenants and conditions herein contained. No delay in exercising or omitting to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every such right and power may be exercised from time to time and as often as may be deemed expedient. Section 9.4. EnensSg on Default. In the event the City should default under any of the provisions of this Agreement and the Corporation or the Trustee should employ attorneys or incur other expenses of the collection of the payments due hereunder, the City agrees that it will SFUB l/l47322U 31 on demand therefor pay to the Corporation or the Trustee the reasonable fee of such attorneys and such other expenses so incurred by the Corporation or the Trustee. Section 9.5. Notice of Default. The City agrees that as soon as is practicable, and in any event within 10 days after such event, the City will furnish the Trustee and the Corporation notice of any event that is an Event of Default, or that with the giving of notice or the passage of time or both could constitute an Event of Default, that has occurred and is continuing on the date of such notice, which notice shall set forth the nature of such event and the action that the City proposes to take with respect thereto. Upon having actual notice of the existence of an Event of Default, the Trustee shall serve written notice thereof upon the City (unless the City has expressly acknowledged the existence of such Event of Default in a writing delivered by the City to the Trustee or filed by the City in any court). Section 9.6. 5Unjval pf QbljgationA. The City covenants and agrees with the Corporation that, until all obligations hereunder have been met and all obligations have been discharged in accordance with the Trust Agreement, its obligations hereunder shall survive the cancellation and termination of this Agreement, for any cause, and that the City shall continue to make all payments, and perform all other obligations provided for in this Agreement, all at the time or times provided in this Agreement. Notwithstanding the above, the provisions of Section 8.2 hereof shall survive the discharge of the City's obligations under the Trust Agreement. ARTICLE X MISCELLANEOUS Section 10.1. hjQtices. All notices or communications herein required or permitted to be given shalt be in writing mailed or delivered to it as follows: (i) If to the Corporation: (ii) If to the City: Lodi Financing Corporation c/o City of Lodi 221 West Pine Street Lodi, California 95240 Attention: President City of Lodi 221 West Pine Street Lodi, California 95240 Attention: City Attorney SFU81110n2W 32 (iii) If to the Trustee: U.S. Bank Trust National Association One California Street, Suite 2550 San Francisco, California 94111 Attention: Corporate Trust Services Reference: Lodi Financing Corporation (iv) If to the Calculation and Verification Agent: Lehman Brothers Inc. 3 World Financial Center Seventh Floor New York, New York 10285 Attention: James Hraska The Corporation, the City, the Trustee and the Calculation and Verification Agent may, by notice given hereunder, designate any further or different address to which subsequent notices, certificates and other communications shall be sent. Section 10.2. vyernjng Law. This Agreement shall be construed in accordance with and governed by the Constitution and laws of the State of California. Section 10.3. DkdingEfect. This Agreement shall inure to the benefit of and shall be binding upon the Corporation, the City and their respective successors and assigns, including the Original Purchaser and any subsequent Certificate Holders subject, however, to the limitations contained herein. Section 10.4. feverability of Invalid Provi§ions. If any one or more of the provisions contained in this Agreement 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 Agreement and such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. The Corporation and the City each hereby declares that they 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 10.5. Article and Section HeadiD&I and References. The headings or titles of the several articles and sections hereof; and any table of contents appended to copies hereof, shall be solely for convenience of reference and shall not affect the meaning, construction, or effect of this Agreement. All references herein to "Articles," "Sections; and other subsections are to the corresponding articles, sections, or subsections 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 subsection hereof; and words of the masculine gender shall mean and include words of the feminine and neuter genders. SFLt M073224t 33 Section 10.6. A¢reeMent Renresents ,Complete Agreement: AmMdMMV This Agreement represents the entire contract between the parties hereto. This Agreement may not be effectively, amended, changed, modified, altered, or terminated except by the written agreement of the Corporation and the City, given in accordance with the provisions of the Trust Agreement. Section 1.0.7. Trustee Third PartyBeneficiM. The Trustee is hereby designated a third party beneficiary hereunder for the purpose of enforcing any of the rights hereunder assigned to the Trustee. In accordance with Section 9.3 hereof, the Trustee and the Certificate Holders shall be deemed third party beneficiaries of all covenants and conditions contained herein. Section 10.8. Waiver _,c f Ppi-sonal-Liabilit. No governing body member, officer, agent, or employee of the Corporation or of the City shall be individually or personally liable for the payment of Repurchase Payments or any other sum hereunder or be subject to any personal liability or accountability by reason of the execution and delivery of this Agreement; but nothing herein contained shall relieve any such governing body member, officer, agent, or employee from the performance of any official duty provided by law or by this Agreement. Section 10.9. ut' o unt=arts. This Agreement may be executed in any number of counterparts, each of which shall for all purposes be deemed to be an original and all of which shall together constitute but one and the same instrument. SFUDIII0732M 34 IN WITNESS WHEREOF, the City and the Corporation have caused this Agreement to be executed in their respective corporate names, all as of the date first above written. CITY OF LODI ATTEST: lnterim C Clerk t .1 APPROVED AS TO FORM: City Attorney LODI FINANCING CORPORATION By: .7 M Tleasurer ATTEST: t � Acting S ary t � APPROVED AS TO FORM: wr� MY' �. SFU i/1073111133/13330/00M 35 EXHIBIT A PROGRAM DISBURSEMENT BUDGET The Program Disbursement Budget sets out the amount, timing and limitations for amounts to be deposited into the Program Account and consists of. (a) caps on disbursements for (i) professional fees of Outside Counsel ("Legal Fees") and (ii) "Ongoing Obligations," consisting of City reimbursement payments for previously made DTSC settlement payments for certain previously incurred response costs pursuant to Section 4.a of the Cooperative Agreement ("DTSC Settlement Payments"), computer document management, technical activities, project management and amounts invoiced by Outside Counsel for out-of-pocket direct expenses ("Legal Disbursements"), (b) a methodology for paying Legal Fees, (c) a methodology for reallocating budget items to provide flexibility for unforeseen events and (d) a methodology for handling Purchase Commitment reductions. Legal fees, Legal Disbursements, and all other costs incurred in connection with the Program prior to the Closing Date, except up to $610,899 in DTSC Settlement Payments, are not included within this Program Disbursement Budget and shall not be paid from Certificate proceeds, Program Receipts or any other source until no Certificates are outstanding, the Purchase Commitment has ended or has been terminated and all other obligations under the Sale and Repurchase Agreement have been fully satisfied. The City is required to submit the attached Quarterly Budget Reporting Form ("QBRF") to the Calculation and Verification Agent within 20 Business Days after the beginning of each calendar quarter (except the first quarter) to reconcile the prior quarter's expenditures with this Program Disbursement Budget and to demonstrate the City's compliance with this Program Disbursement Budget for the prior quarter. The City must submit an amended QBRF when invoices for services rendered during a quarter are received or paid after the filing of the QBRF for that quarter or when the Calculation and Verification Agent, in accordance with Section 6.11 of the Program Receipts Sale and Repurchase Agreement, dated as of June 1, 2000, (the "Sale and Repurchase Agreement") between the City of Lodi and the Lodi Financing Corporation, determines that the City's calculations were erroneous or that any disbursements were not in compliance with the Program Budget. If there are any ambiguities or discrepancies between the description of the Program Disbursement Budget in this Exhibit A and the QBRF, the latter will govern. All capitalized terms used herein that are not otherwise defined shall have the meanings as set forth in the Sale and Repurchase Agreement. SM13 V 1073M A -I (a) Disbursement Caps Table I: Cumulative Disbursement Cap Beginning of Quarter z 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Cumulative Disbursement Cap 3; 4,500,000 6,000,000 7,125,000 8,250,000 9,375,000 10,500,000 11,250,000 12,000,000 12,750,000 13,500,000 13,875,000 14,250,000 14,625,000 15,000,000 . 4f � & -0-LY-00 The maximum amount that may be transferred to the Program Account within the Municipal Fund from Certificate proceeds in each quarter is (x) the Cumulative Disbursement Cap for that quarter (from Table 1) less (y) all amounts transferred previously. SFLIBI/107 i24u A-2 Table U: Program Budget for Ongoing Obligations Cumulative Beginning of Ongoing Quarter Obligations Cap 1 $922,250 2 1,842,600 3 2,761,100 4 3,679,600 5 4,250,150 6 4,820,700 7 5,384,800 8 5,948,900 9 6,203,000 10 6,457,100 11 6,711,200 12 6,968,350 13 7,096,950 14 7,225,550 15 7,354,150 16 7,482,750 The maximum amount that may be disbursed for Ongoing Obligations at any time is (x) the Cumulative Ongoing Obligations Cap for the quarter (from Table in less (y) all amounts previously disbursed for Ongoing Obligations. However, additional funds may be reallocated from the Program Budget for Legal Fees in a given quarter to pay Ongoing Obligations in accordance with the reallocation provisions of this Exhibit A. sMeinm32zv A-3 Table III: Ongoing Obligations Payment Limits Computer Beginning of DTSC Document Technical Project Legal Quartet' Settlement Management Activities Management Disbursements 1 $ 250,000 $ 310,596 S 386,010 S 52,519 S 124,800 2 500,000 619,899 712,227 163,654 249,600 3 610,899 839,714 1,357,095 224,052 374,400 4 610,899 1,143,710 2,077,371 269,030 499,200 5 610,899 1,361,125 2,388,443 315,858 665,600 6 610,899 1,601,766 2,678,692 360,283 832,000 7 610,899 1,872,326 2,941,761 393,584 998,400 8 610,899 2,181,475 3,151,981 441,145 1,164,800 9 610,899 2,277,991 3,207,516 453,024 1,331,200 10 610,899 2,380,448 3,256,379 465,634 1,497,600 11 610,899 2,487,003 3,300,640 478,748 1,664,000 12 610,899 2,596,134 3,342,615 495,538 1,830,400 13 610,899 2,650,266 3,378,421 507,780 1,895,400 14 610,899 2,709,352 3,411,493 517,802 1,960,400 15 610,899 2,770,851 3,445,220 524,755 2,025,400 16 610,899 2,832,772 3,478,478 531,757 2,090,400 The amount disbursed for Ongoing Obligations may be used to pay for expenses in any of the sub -categories of Ongoing Obligations. However, each sub -category will have a maximum cumulative expenditure cap per quarter (from Table III), and Program monies may not be expended in excess of these sub -category caps unless (a) the City reallocates the difference from the Program Budget for Legal Fees in accordance with the reallocation provisions of this Exhibit A and; (b) the City, prior to exceeding the maximum cap in any quarter, provides written notice to the Trustee and receives approval from the Original Purchaser and the Certificate Holders of the change in the Ongoing Obligation sub -category maximum cumulative expenditure cap, as provided in Exhibit E. The DTSC Settlement Pa a not I& g2Lceeded under any circumstances how SM 1110732W A-4 Table IV: Program Budget for Legal Fees Beginning of Cumulative Legal Quarter Fee Cap 1 $ 577,750 2 1,157,400 3 1,738,900 4 2,320,400 5 2,874,850 6 3,429,300 7 3,990,200 8 4,55I,100 9 5,047,000 10 5,542,900 11 6,038,800 12 6,531,650 13 5,778,050 14 7,024,450 15 7,270,850 16 7,517,250 The maximum amount that may be disbursed at any time to pay Legal Fees is (x) the amount specified in the Program Budget for Legal Fees for that quarter (from Table IV), less (y) all amounts previously disbursed for Legal Fees. However, additional funds may be reallocated from the Program Budget for Ongoing Obligations for a. given quarter to pay Legal Fees in accordance with the reallocation provisions of this Exhibit A. (b) Legal Fee Payment Methodology Legal professional fees billed far services performed during a quarter will be paid subject to a three-tier methodology. As discussed more fully below, payments under Tier I and Tier 2 are made quarterly and are based on a percentage (90°/a and 301/6 respectively) of legal billings in a quarter subject to quarterly caps. Payments under Tier 3 are based on billings which exceed the amounts payable under Tier 1 and Tier 2 and are accumulated quarterly but paid only when and to the extent that excess funds are available. Invoices received after a quarter for services performed during that quarter must be compared to the caps in place for the quarter when services were performed. The Tiers are as follows: TIER 1 Fees billed for services performed in a quarter ("Quarterly Billings") subject to the Tier 1 Billings Cap (from Table V) for the quarter in which the services were performed, will be paid at 90% of the amounts billed. TIER 2 Quarterly Billings in excess of the Tier 1 Billings Cap (from Table V) subject to the Tier 2 Billings Cap (from Table V), for the quarter in which the services were performed will be paid at 30% of the amounts billed in excess of the Tier 1 Billings Cap. SMS11107322r A-5 TIER 3 Certain Quarterly Billings which are not paid will qualify for accumulation under Tier 3. Tier 3 accumulated billings, as described below, will be paid only from either (a) amounts reallocated from Ongoing Obligations in accordance with the reallocation provisions of this Exhibit A, (b) amounts not utilized in the Legal Fee budget for payment of Tier I and Tier 2 billings, or (c) Program Receipts retained by the City as described in Section 6.4(e) of the Sale and Repurchase Agreement. Tier 3 accumulated billings are comprised of the following: (a) Quarterly Billings in excess of the Tier i Billings Cap (from Table V) subject to the Tier 2 Billings Cap (from Table V), for the quarter in which the services were performed which will be paid at 501Y* of the amounts billed in excess of the Tier 1 Billings Cap. (b) Quarterly Billings in excess of the Tier 2 Billings Cap (from Table V) for the quarter in which the services were performed which will be paid at 80% of the amounts billed in excess of the Tier 2 Billings Cap. (c) Quarterly Billings which qualify for payment under Tier 1 or Tier 2 (as described above) but are not paid due to insufficient funds within the Program Account. Table V: Legal Fee Tiers Beginning Tier 1 Billings Tier 2 of Quarter Capt'} Billings Cap (2) 1 $544,444 $836,944 2 544,445 843,278 3 544,444 849,444 4 544,445 849,445 5 516,666 814,833 6 516,667 814,834 7 516,667 836,333 8 516,666 836,333 9 450,000 753,000 10 450,000 753,000 11 450,000 753,000 12 450,000 742,833 13 227,778 365,778 14 227,778 365,778 15 227,778 365,778 16 227,778 365,778 (1) As explained above, up to 90% of this amount taay be paid. (2) As explained abom up to 30% of the dif erettec between the Tier 2 Billings Cap and the Tier I Billings Cap may be paid, and up to an additional WA of that difference may accumulate in Tier 3. SFUD IIID73224/ A-6 (c) Reallocation Between Legal Fees and Ongoing Obligations The City may choose to reallocate up to $1.3 million from Legal Fees to Ongoing Obligations or vice versa in order to exceed the maximum disbursement limits within each of these categories or within the Ongoing Obligations sub -categories. The reallocation can take place during any quarter. The reallocation of funds to the Legal Fee budget can only be used to pay the unpaid portion of Legal Fees accrued under Tier 3. (d) Purchase Commitment Reductions Under certain circumstances discussed in sections 6.4 and 6.5 of the Sale and Repurchase Agreement, the remaining Purchase Commitment of the Original Purchaser can be decreased. In these circumstances, the Disbursement Caps for all future quarters will be reduced by the amount of the Purchase Commitment decrease. SFLB 111073224! A-7 Quarterly Budget Reporting Form Filing Date: , Quarter Number: Quarter Beginning , and Ending, (the "Reporting Period") Definitions: The "Next Period" means the three-month period beginning on the day following the ending date of the Reporting Period. The "Previous Period" means the three-month period (or part thereof in the case of the first period) ending on the day before the beginning date of the Reporting Period. Other capitalized terms used below are defined either by the instructions and formulas to which they refer, or in the Program Receipts Sale and Repurchase Agreement dated as of [Dated Date] between the City of Lodi, as Seller and Repurchaser, and the Lodi Financing Corporation, as Purchaser (the "Sale and Repurchase Agreement"). Lte reggrding Lie a renes : Numbers in parentheses refer to line numbers on this Quarterly Budget Reporting Form, except where numbers are followed by "P." A number followed by "P" refers to the line of the same number on the Quarterly Budget Reporting Form for the Previous Period. (e.g. (17P) refers to Line 17 of the Quarterly Budget Reporting Form for the Previous Period.) Calculation and Verification Agent Tn1truplians Instructions for the Calculation and Verification Agent's use of this Form are specified by the letter code to the right of each line below. The actions corresponding to the letter codes are as follows: L No action on the part of the Calculation and Verification Agent is necessary, City of Lodi is responsible for accuracy of reported numbers. M The Calculation and Verification Agent should check correctness of mathematical calculations. C The Calculation and Verification Agent should check compliance according to italicized instructions. V The Calculation and Verification Agent should refer to appropriate table to check correctness of numbers. If an Ongoing Obligation Payment Limit Increase Approval Form (an "Approval Form") F has been submitted and approved, the Calculation and Verification Agent should conipare each amount given on this form with its respective approved increase on the most recent Approval Form. SFLIB I/1073224M A4 In accordance with Section 6.11 of the Sale and Repurchase Agreement, if this form contains any errors in calculation (Calculation and Verification Agent Instructions K V, and F), the Calculation and Verification Agent must immediately notify the City of any corrections needed. The Calculation and Verification Agent must immediately notify the City, the Original Pwr-baser, other Certificate Holders and the Trustee if the City fails to comply with the Program Budget (Calculation and Verification Agent Instruction Q. Line Instructions A. Reporjtsg Period ExrrendUares (1) Amount of Certificates issued during Reporting Period. (1) _ _ _ L (2) Amount of Certificates issued during Next Period (2) L Lures (3) through (7) and .Line (9) - Record the amounts expended for services performed during the Reporting Period for the following budget categories: (3) DTSC Settlement Payments (3) L (4) Computer Document Management (4) L (5) Technical Activities (5) L (6) Project Management (6) L (7) Legal Disbursements (7) L (8) Total Ongoing Obligations (15) M (16) Legal Disbursements = (7) + (16P) = Sum of Lines (3) through (7) (g) M (9) Legal Fees (9) L (14) Legal Fees expended for services performed before the (1 M Reporting Period (For first quwia, use 4) L (11) Total Legal Fees = (9) + (10) (11) M B. Cumnlxtive Ex=ditu Lines (11) through (16) and Line (18) -- Compute the new Cumulative Expenditures by adding Reporting Period Expenditures to Previous Period's Cumulative Expenditures. For the first quarter, copy the Reporting Period Expenditures from Lines (3) through (9): (12) DTSC Settlement = (3) + (12P) (12) M (13) Computer Document Management = (4) + (13P) (I3) M (14) Technical Activities = (5) + (14P) (14) M (15) Project Management = (6) + (15P) (15) M (16) Legal Disbursements = (7) + (16P) (16) M (17) Total Ongoing Obligations Sum of Lines (12) through (16) (17) M (18) Legal Fees - (1i) + (18P) (1 M SFt.l91/10732241 A-9 Line Instructions C. Purchase Commitment Reductign (19) Program Receipts deposited into the Program Account during the Reporting Period (19) L (20) Record the cash value, as determined by an Independent Consultant, of all non-cash settlements received during the Reporting Period in excess of the limits set forth in §6.6 of the Sale and Repurchase Agreement. (20) L (21) Record the amount of any Certificate payment by the City _ during the Reporting Period as a result of non-cash settlements pursuant to §6.6 (a) (i). (21) L (22) [(19) + (20) — (21)] This is the Purchase Commitment Reduction for the Reporting Period (22) M (23) [(23P) — (1) — (22)] (For the first quarter, use $ 15,000,000 in place of (23P).) 77iis is the Purchase Cominitinent for the Next Period (23) M (24) [(1) + (24P)] (For the first quarter, use 0 in place of (24P).) Total Certificate purchases through Reporting Period (24) M (25) Referring to Table I, copy the Cumulative Disbursement Cap for the Next Period. (25) M (26) [(25) -- (22)—(24)] This is the maximum Certificate issuance amount for the Next Period. Line (2) must be less than or equal to this amount. (26) M, C D. Reallocation from Legal Lftg§ to non Obli ati ns: (27) Referring to Table ll, copy the Cumulative Ongoing Obligations Cap for the Reporting Period. (27) V (28) 1(17) — (27)) If positive, this is the Iola] amount reallocated to Ongoing Obligations_ In accordance with Exhibit A of the Sale and Repurchase Agreement, this amount must be less than or equal to $1,300,000. (28) M, C E. Reallocation from Ongoing Obligatigrgs to LeQat Fees: (29) Referring to Table IV, copy the Cumulative Legal Fee Cap for the Reporting Period. (29) V (30) [(18)—(29)] If posit#ve, this is the total amount reallocated to Legal Fees. In accordance with Exhibit A of the Sale and Repurchase Agreement, this amount must be less than or equal to $1,300,000. (30) M, C sFLtBtn0732241 A-10 Line Instructions F. Oneolut Obllastlon Subcg Lines (31) through (35) — Ongoing Obligation Payrnent Limits — Referring to Table 111, copy the Ongoing Obligation Payment Limits for the following subcategories for the Reporting Period: (31) DTSC Settlement Payment (3 i) V (32) Computer Document Management (32). V (33) Teclffical Activities (33) V (34) Project Management (34) V (35) Legal Disbursements (35) V (36) Sum Lines (3 1) through (35). (36) M Lines (3 7) through (40) — Approved Increases in Subcategory Ongoing Obligation Payment Limits — Record any Ongoing Obligation Payment Limit increases that have been approved in writing by the Original Purchaser and Certificate Holders, and that are in effect as of the end of the Reporting Period: (37) Computer Document Management (37) F (38) Technical Activities (38) F (39) Project Management (39� F (40) Legal Disbursements (40) F Lines (41) through (44) — Revised Ongoing Obligation Payment Limits — Add each Ongoing Obligation Payment Limit increase from Lines (37) through (40) to its respective Ongoing Obligation Payment Limit, recorded in Lines (3 1) through (35): (41) Computer Document Management: [(32) + (37)] (41) M (42) Technical Activities: [(33) + (38)] (42) M (43) Project Management: [(34) + (39)] (43) M (44) Legal Disbursements: [(35) + (40)] (44) M Lines (45) through (49) — Payment in excess of Revised Ongoing Obligation Payment LiuriU. (45) DISC Settlement Payment: Grester of [(1 2) -- (31)j or 0 (45) M (46) Computer Document Marrigement: Greater of [(13) — (41)) or 0 (46) M (47) Technical Activities: Greater of [04) — (42)] or 0 (47) M (48) Project Management: Greaterof [(15) - (43] or 0 (48) M (49) Legal Disbursements: Greater of [(16) - (44)] or 0 (49) M (50) Sum (45) through (49). In accordance with Exhibit A of the Sale and Repurchase Agreement, Line (50) must be zero. (50) M, C SFLI$1t1073224t A-11 Line Instructions G. Legal Tigr Structure (51) Legal Fee Expenditures: (9) (5l) M (52) Amount paid for Legal Fees for services performed before the Reporting Period, for which bills were received after submission of the applicable Quarterly Budget Reporting Form. If this amount is positive, please request the City to submit a revised Quarterly Budget Reporting Form for the period in which these legal services were performed and for all subsequent periods. (52) C (53) [(51) — (52)] (53) M (54) Amount billed for Legal Fees for services performed in the Reporting Period. (54) L Lines (55) and (56) — Referring to Table V, copy the following items for the Reporting Period: (55) Tier l Billings Cap (55) V (56) Tier 2 Billings Cap (56) V (S7) [(56) —(55)] (57) - _ M (58) Lesser of (54) or (55). (58) M (59) 1(58) x 90°x6] 774s is the Tier I expenditure. (59) M (60) Greater of 1(54) — (55)] or 0 (60) M (61) Lesser of (60) or (57) (61) M (62) [(61) x 30%] This is the 7 -ter 2 expenditure. (62) M Fier 3 Accrual: (63) 1(61) x 50%] (63) M (64) Greater of [(54) — (56)] or 0 (64) M (65) [(64) x 80°/6] (65) M (66) [(59) + (62) + (63) + (65) — (53)] This is the change in Tier 3 balance for the Reporting Period. (00),,,.... - M (67) [(67P) + (66)] (For the first quarter, use 0 in place of (67')•) This is the Tier 3 balance. (67) M H. PerMte_d_Deductions DTSC Reserve (68) [(71P)] (For the fust quarter, use 0 in place of (71P).) (68) M (69) Additions to DTSC Reserve during Reporting Period (69) L (70) Payments to DTSC during Reporting Period (70) L SFMI/10732241 A -l2 Line Instructions (71) [(68) + (69) — (70)) DISC Reserve balance at end ofReporting Period By the definition of Permitted Deductions in the Sale and Repurchase Agreement, Line (71) must be less than or equal to $300,000. (71) M, C City Reimbursement (72) [(74P)] (For the first quarter, use 0 in place of (74P).) (72) M (73) Amount paid to City during Reporting Period to reimburse for prior expenditures (73) L (74) [(72) + (73)] By the definition of Pennifted Deductions in the Sale and Repurchase Agreement, Line (74) must be less than or equal to $2, 000, 000. (74) M, C 5FUH1/1073n4l A-13 Quarterly Budget Reporting Form — Table I Cumulative Disbursement Caps SFUS11107MV A-14 Cumulative Disbursement Quarter Cam 1 s 1,500,000 2 3,000,000 3 4,500,000 4 6,000,000 5 7,125,000 6 8,250,000 7 9,375,000 8 10,500,000 9 11,250,000 10 12,000,000 11 12,750,000 12 13,500,000 13 13,875,000 14 14,250,000 15 14,625,000 16 15,000,000 SFUS11107MV A-14 Quarterly Budget Reporting Form -- Table H Cumulative Ongoing Obligations Caps SFUH i1i073U41 A -l5 Cumulative Ongoing Quarter Obligations Cap 1 $ 922,250 2 1,842,600 3 2,761,100 4 3,679,600 5 4,250,150 6 4,820,700 7 5,384,800 8 5,948,900 9 6,203,000 10 6,457,100 11 6,711,200 12 6,968,350 13 7,096,950 14 7,225,550 15 7,354,150 16 7,482,750 SFUH i1i073U41 A -l5 Quarterly Budget Reporting Form - Table M Ongoing Obligation Payment Limits Computer DTSC Document Technical Project Legal Quarter Settlement Management Activities Management Disbursements 1 $250,000 $ 310,596 $ 386,010 $ 52,519 $ 124,800 2 500,000 619,899 712,227 163,654 249,600 3 610,899 839,714 1,357,095 224,052 374,400 4 610,899 1,143,710 2,077,371 269,030 499,200 5 610,899 1,361,125 2,388,443 315,858 665,600 6 610,899 1,601,766 2,678,692 360,283 832,000 7 610,899 1,872,326 2,941,761 393,584 998,400 8 610,899 2,181,475 3,151,981 441,145 1,164,800 9 610,899 2,277,991 3,207,516 453,024 1,331,200 10 610,899 2,380,448 3,256,379 465,634 1,497,600 11 610,899 2,487,003 3,300,640 478,748 1,664,000 12 610,899 2,596,134 3,342,615 495,538 1,830,400 13 610,899 2,650,266 3,378,421 507,780 1,895,400 14 610,899 2,709,352 3,411,493 517,802 1,960,400 15 610,899 2,770,851 3,445,220 524,755 2,025,400 16 610,899 2,832,772 3,478,478 531,757 2,090,400 SPLIBI11073n4i A-16 Quarterly Budget Reporting Form — Table IV Cumulative Legal Fee Caps Cumulative Quarter Legal Fee Cap 1 $ 577,750 2 1,157,400 3 1,738,900 4 2,320,400 5 2,874,850 6 3,429,300 7 3,990,200 8 4,551,100 9 5,047,000 10 5,542,900 11 6,038,800 12 6,531,650 13 6,778,050 14 7,024,450 15 7,270,850 16 7,517,250 SFUR 81073224/ A-17 Quarterly Budget Reporting Form- Table V Legal Fee Tiers SFUBI/1073224/ A-18 Tier l Tier 2 Billings Billings Quarter Cap Cap 1 $544,444 $836,944 2 544,445 843,278 3 544,444 849,444 4 544,445 849,445 5 516,666 814,833 6 516,667 814,834 7 516,667 836,333 8 516,666 836,333 9 450,000 753,000 10 450,000 753,000 11 450,000 753,000 12 450,000 742,833 13 227,778 365,778 14 227,778 365,778 15 227,778 365,778 16 227,778 365,778 SFUBI/1073224/ A-18 LWO-IM-- ]FORM OF ISSUANCE REQUEST] REQUEST AND CERTIFICATE OF THE CITY LODI FINANCING CORPORATION (ENVIRONMENTAL ABATEMENT PROGRAM) VARIABLE RATE CERTIFICATES OF PARTICIPATION To: U.S. Bank Trust National Association Corporate Trust Services One California Street, Suite 2550 San Francisco, CA 94111 Attention: Relationship Specialist The City of Lodi, California (the "City") hereby requests and directs the Trustee; on behalf of the Lodi Financing Corporation (the "Corporation"), to execute and deliver $ of the Corporation's Variable Rate Certificates of Participation ("Certificates") (Environmental Abatement Program), Series to [Purchaser] on [Delivery Date]. We, the City Attorney and Finance Director [City Manager), respectively, of the City, hereby certify as follows: 1. The representations and warranties of the City contained in (a) the Certificate Purchase Contract, dated June 28, 2000 (the "Certificate Purchase Contract"), among the City, the Corporation and Lehman Brothers Inc. with respect to the sale, execution, and delivery of not to exceed $16,000,000 aggregate principal amount of the Certificates and (b) the Program Receipts Sale and Repurchase Agreement, dated as of June 1, 2000 (the "Sale and Repurchase Agreement") between the City and the Corporation are true and correct in all material respects on and as of the date hereof as if made on this date. 2. There is no action, suit, proceeding, inquiry, or investigation, at law or in equity before or by any court, goverranent agency, public board, or body, pending or, to the best of our knowledge, threatened against the City, affecting the existence of the City or the titles of its officers to their respective offices, or affecting or seeking to prohibit, restrain, or enjoin the sale, execution, or delivery of the Certificates or the collection of the Program Receipts (as defined in the Sale and Repurchase Agreement) to be used to pay the principal and interest components of the Certificates, or the pledge of funds and accounts pursuant to the Trust Agreemem (as defined in the Sale and Repurchase Agreement), or contesting the powers of the Trustee thereunder with respect to the execution of the Certificates; nor are we aware of any circumstance not disclosed in writing to the Purchaser prior to the date of this Request and Certificate that would form a basis for any such action, suit, proceeding, inquiry, or investigation, wherein an unfavorable decision, ruling, or finding would materially adversely affect the authorization, execution, SFLIBIl107322AI B -I delivery, or performance by the City of the obligations on its part contained in the Program Documents, as defined in the Certificate Purchase Contract. 3. After investigation and review of the Program Documents, no event of default, nor any event which, after the passage of time or the giving of notice would constitute an event of default under a Program Document has occurred and is continuing. 4. The City has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the date hereof pursuant to the Program Documents, including compliance with the Program Budget and including any reallocation of amounts therein. S. The City represents that it will use the proceeds of this issuance in conformance with the Program Budget set forth in Exhibit A to the Sale and Repurchase Agreement. The principal amount of Certificates to be executed and delivered hereunder does not exceed the Cumulative Disbursement Cap for the calendar quarter immediately following the Delivery Date, as set forth in the Program Budget, less the principal amount of any Certificates previously executed and delivered. 6. Between the date of the Certificate Purchase Contract and the date hereof, the City has not, without the prior written consent of the Original Purchaser, together with such other Certificate Holders as are necessary to constitute, in the aggregate, at least 51% of outstanding Accreted Value, offered or issued any bonds, notes, or other obligations for borrowed money, or incurred any material liabilities, direct or contingent, payable from Program Receipts. 7. All capitalized terms used herein that are not otherwise defined shall have the same meanings as in the Certificate Purchase Contract and the Sale and Repurchase Agreement. 8. The City hereby requests and directs the Trustee, after the Trustee's review of this Request and Certificate, to deliver a copy of this Request and Certificate to the Purchaser under the Certificate Purchase Contract at least 10 Business Days prior to the Delivery Date. [Date] CITY OF LODI By: _ - ---- [Namei [City Attorney] [Name] [City Manager or Fluance Director] SFC. IA073UV B-2 EXHIBIT C [FORM OF REMITTANCE REPORT] NOTICE OF REMITTANCE OF PROGRAM RECEIPTS U.S. Sank Trust National Association Corporate Trust Services One California Street, Suite 2554 San Francisco, CA 94111 Attention: Relationship Specialist Pursuant to Sections 6.4 and 6.11 of the Program Receipts Sale and Repurchase Agreement, dated as of June 1, 2000 (the "Sale and Repurchase Agreement") between the City of Lodi, California (the "City") and the Lodi Financing Corporation (the "Corporation"), the City hereby notifies, certifies and warrants to you, as Trustee, that it has received Program Receipts (in the amounts and from the sources described below) and is remitting such moneys (net of deductions describe below) to you in compliance with said Sections 6.4 and 6.11: Total amount of Program Receipts received: S Date received: ("Receipt Date") Source(s) of Program Receipts (including caption of action and moneys received from insurers or other payors; riders attached as necessary): Caption: Payor: (1) Total amount of Program Receipts received: (2) Amount of Program Receipts available for Permitted Deductions: (1) x 25% (3) DTSC Reserve balance as of Receipt Date: (4) Amount of Program Receipts applied to DTSC Reserve: Lesser of (2) or ($300,000 — (3)] (5) Amount of Program Receiptsavailable for City reimbursement: (2) — (.4) (6) Total City reimbursement as of Receipt Date: StI MU732241 C-1 (1) (2) (3) (4) (5) (6) (7) Amount of Program Receipts applied to City reimbursement: Lesser of (5) or [$2,000,000 - (6)] (7) (8) Total amount of Program Receipts applied to Permitted Deductions: (4) f (7) ($} (9) Amount of Program Receipts remaining after Permitter Deductions: (1) - (8) (9} (10) Deferred Commitment Fee Reserve Account Balance as of the Receipt Date (Obtain from Calculation and Verification Agent) { 14) (11) Amount required to pay Accreted Value and Current Interest on Certificates as of the Receipt Date: ( I l ) (12) Amount required to pay Current Interest and Compounded Interest on Certificates as of the Receipt Date: (12) (13) Payment of Current Interest and Compounded Interest from funds in Deferred Commitment Fee Reserve Account: Lesser of (10) or (11) (13) (14) Amount required to pay Accreted Value and Current Interest after payment from funds in Deferred commitment Fee Reserve Account: (11) - (13) (14) (1 S) Amount of Program Receipts remitted to Trustee from Recovery Account to pay Accreted Value and Current Interest on Certificates: Lesser of (9) or (14) (15) (16) Amount required to fund Deferred Commitment Fee Reserve Account after payment of Current and Compounds Interesti under (15): (16) (17) Amount of Program Receipts remitted to Trustee from Recovery Account to fund Deferred Commitment Fee Reserve Account: Lesser of [(9) - (15)] or (16) (17) (18) Total Amount of Program Receipts remitted to Trustee from Recovery Account: (15) + (17) (1$) - - -- T (19) Amount of Program Receipts permitted to be transferred from the Recovery Account to the Program] Account: M-08) (l9) The undersigned hereby certifies that this remittance is in compliance with Sections 6.4 and 6.11 of the Sale and Repurchase Agreement. The Trustee is hereby directed to return to the undersigned any amounts which the Calculation and Verification Agent determines to be in excess SFLiB111073224J C-2 of the amounts required to be transmitted to the Trustee under Section 6.4(a) of the Sale and Repurchase Agreement. All capitalized terms used herein that are not otherwise defined shall have the same meanings as in the Sale and Repurchase Agreement. CITY OF LODI By: f Namel [Title] cc: Calculation and Verification Agent Original Purchaser sF3 BI/1032W C-3 EXHIBIT D [FORM OF NOTICE OF REALLOCATION] REALLOCATION NOTICE REGARDING AMOUNTS IN PROGRAM ACCOUNT U.S. Hank Trust National Association Corporate Trust Services One California Street, Suite 25$0 San Francisco, CA 94111 Attention: Relationship Specialist Dear Pursuant to Section 6.12 of the Program Receipts Sale and Repurchase Agreement, dated as of June 1, 2000 (the "Sale and Repurchase Agreement") between the City of Lodi, California (the "City") and the Lodi Financing Corporation (the "Corporation"), the City hereby notifies you of the following reallocation of moneys in the Program Account. Reallocation as of Total amount reallocated by budget category (Legal Fees or Ongoing Obligations ) in current quarter: $ reallocated from (budget category) to if moneys reallocated from Ongoing Obligations to Legal Fees, total percentage of accrued billings after closing in comparison to total billings after closing: Accrued billings to date: $ _ Total billings to date: S % If moneys reallocated from Legal Fees to Ongoing Obligations, total percentage of cumulative expenditures in comparison with the Ongoing Obligation Payment Limit for the applicable quarter (from Table III of the Quarterly Budget Reporting Form) for the subcategory to which moneys would be reallocated (i.e., Computer Document Management, Technical Activities, Project Management, or Legal Disbursements): Ongoing obligation category: Subcategory expenditures to date: $ SFUI31/107322V D-1 Ongoing Obligation Payment Limit for subcategory: S A written explanation of the reason for this reallocation is attached to this Reallocation Notice. The undersigned hereby certifies that this notice of reallocation is in conformance with Section 6.11 and Exhibit A (the Program Budget) of the Sale and Repurchase Agreement, and that any moneys so reallocated will be used exclusively for purposes permitted under the Sale and Repurchase Agreement and Program Budget. You are hereby instructed to deliver a copy of this Reallocation Notice to the Original Purchaser, all other Certificate Holders, and the Calculation and Verification Agent within S Business Days after your receipt hereof Capitalized terms used herein not otherwise defined shall have the meaning set forth in the Sale and Repurchase Agreement. CITY OF LODI By: - - (Name] [Title] sFLMI/1073224/ D-2 EXHIBIT E ONGOING OBLIGATION PAYMENT LIMIT INCREASE APPROVAL FORM Filing Date: Limit Increase to Take Effect the Quarter Beginning U.S. Bank Trust National Association Corporate Trust Services One California Street, Suite 2550 San Francisco, CA 94111 Attention: Relationship Specialist Pursuant to Section 6.12 of the Program Receipts Sale and Repurchase Agreement, dated as of June 1, 2000 (the "Sale and Repurchase Agreement") between the City of Lodi, California (the "City") and the Lodi Financing Corporation, the City hereby requests the following increase(s) to the Ongoing Obligation Payment Limits set forth in Exhibit A of the Sale and Repurchase Agreement, and instructs you, as Trustee, to forward a copy of this Ongoing Obligation Payment Limit Increase Approval Form (the "Approval Form") to the Original Purchaser (as defined in the Sale and Repurchase Agreement) and all other Certificate Holders within 5 Business Days after your receipt hereof and to ascertain within 5 Business Days after the receipt of such transmittal whether the Original Purchaser, together with such other Certificate Holders as are necessary to constitute, in the aggregate, at least 51% of outstanding Accreted Value, approves or dcnies this requcst. Upon suvh determination, you are instructed to inform the City, the Calculation and Verification Agent, the Original Purchaser and the other Certificate Holders of the response. Subeat nQuarter Cumulative Maximum for Expected Expenditure Amount Exceeding Maximum Computer Document Management Technical Activities Project Management Legal Disbursements SFUDII1073I24/ E-1 Explanation CITY OF LOUI RE [Name] [Title] TRUSTEE'S REPORT TO THE CITY We have forwarded a copy of the Approval Form to the Original Purchaser and Certificate Holders on , and the Original Purchaser and Certificate Holders have responded to this request as follows: The Original Purchaser, together with such other Certificate Holders as are necessary to constitute, in the aggregate, at least 51% of outstanding Accreted Value, approves the Ongoing Obligation Payment Limit increase(s) requested on the Approval Form. The Original Purchaser, together with such other Certificate Holders as are necessary to constitute, in the aggregate, at least 51% of outstanding Accreted Value, approves the Ongoing Obligation Payment Limit increase(s) requested on the Approval Form, with the following exceptions: The Original Purchaser, together with such other Certificate Holders as are necessary to constitute, in the aggregate, at least 51% of outstanding Accreted Value, does not approve any Ongoing Obligation Payment Limit increase(s) requested on the Approval Form. SFUSI/1073224/ E-2 The Original Purchaser, together with such other Certificate Holders as are necessary to constitute, in the aggregate, at least 51 % of outstanding Accreted Value, has not tcWnded witWn 5 Business Days after receipt of our transmittal of the Apprgv#j From to them and, in accordance with Section 6.11 of the Sale and Repurchase Agreement, are deemed to have denied the requested imrea*s). U.S. BANK TRUST NATIONAL ASSOCIATION [Name] Trustee Date: cc: Calculation and Verification Agent Original Purchaser and other Certificate Holders sF.isu1 o7322a E-3 [FORM OF TERMINATION NOTICE] LODI FINANCING CORPORATION (ENVIRONMENTAL ABATEMENT PROGRAM) VARIABLE RATE CERTIFICATES OF PARTICIPATION U.S. Bank Trust National Association Corporate Tn* Services One California Street, Suite 2550 San Francisco, CA 94111 Attention: Relationship Specialist I. Pursuant to the Certificate Purchase Contract, dated June 28, 2000 (the "Certificate Purchase Contract"), among the City of Lodi, California (the "City"), the Lodi Financing Corporation (the "Corporation") and Lehman Brothers Inc., the City hereby certifies, represents and warrants that it will make no additional Issuance Requests to the Trustee and is hereby irrevocably and permanently discontinuing all Issuance Requests. Last Issuance Request made on: Last Issuance Request amount: Date of Delivery of Certificates under last Issuance Request: 2. The undersigned hereby certifies that this Notice is in compliance with the Certificate Purchase Agreement and the Program Receipts Safe and Repurchase Agreement, dated as of dune 1, 2000, between the City and the Corporation (the "Sale and Repurchase Agreement'). 3. All capitalized terms used herein that are not otherwise defined shall have the same meanings as in the Certificate Purchase Contract and the Sale and Repurchase Agreement. 4. The City has delivered a copy of this Termination Notice to the Purchaser under the Certificate Purchase Contract and to the Calculation and Verification Agent. CITY OF LODI [Nome] [Title] cc: Original Purchaser Calculation and Verification Agent SF1.�Bi/lt►i3?,141 F-1 Certificate Purchase Contract Lodi Financing Corporation Not to Exceed V 6,OOb,000 Aggregate Principal Amount of Variable Rate Certificates of Participation (Environmental Abatement Program) CERTIFICATE PURCHASE CONTRACT June 28, 2000 City of Lodi 221 West Pine Street Lodi, California 95240 Lodi Financing Corporation 221 West Pine Street Lodi, California 95240 Ladies and Gentlemen: ExtrCUTION COPY The undersigned (the "Purchaser") offers to enter into this Certificate Purchase Contract (the "Purchase Contract") with the City of Lodi, California (the "City") and the Lodi Financing Corporation (the "Corporation") which, upon the City's and the Corporation's acceptance of this offer, will be binding upon the City and the Corporation and upon the Purchaser. This offer is made subject to the City's and the Corporation's written acccpMnoC hvwf ori or bofore 5:00 P.M., San Francisco time, on the date hereof or such other time as the parties hereto mutually agree upon and, if not so accepted, will be subject to withdrawal by the Purchaser upon written notice (by facsimile or otherwise) delivered to the City and the Corporation at any time prior to the acceptance hereof by the City and the Corpor4ti9p, Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Sale and Repurchase Agreement (hereinafter defined). I. Purchaseannd Sale. Upon the terms and conditions and upon the basis of the representations, warranties, and agreements set forth herein, the Purchaser hereby agrees to purchase, and the City and the Corporation hereby agree to cause the sale, execution, and delivery to the Purchaser of, not to exceed $16,000,000 aggregate principal amount (the "Purchase Commitment") of Variable Rate Certificates of Participation (Environmental Abatement Program) (the "Certificates') evidencing and representing interests of the owners thcWf in the Repurchase Payments to be made by the City under the Program Receipts Sale and Repurchase Agreement, dated as of June 1, 2004 (the "Sale and Repurchase Agreement"), by and between the City and the CQm9ratigp, Under the provisions of the Sale and Repurchase Agreement, the City will irrevocably sell and convey to the Corporation its right to receive amounts, proceeds and recoveries from, or in contemplation of, or in connection with, the potential liability of responsible parties or potentially responsible parties, their insurers or indemnitors, or of tortfeasors or potential tortfeasors, their insurers or indemnitors ("Program Receipts") received by the City in connection with its Environmental Abatement Program (the "Program"), as described in the Sale and Repurchase Agrecment and in the City's Ordinance No. I684 (the "Ordinance"), adopted November 17, 1999 and effective December 17, 1999, repealing and reenacting its Comprehensive Municipal Environmental Response and Viability Ordinanw. Tit],; $, Chapter 8.24 of the Lodi Municipal Codc, and the Corporation will irrevocably resell and reconvey undivided interests in the Program Receipts in consideration of the payment by the City of the Repurchase Payments under the Sale and Repurchase Agreement. The Certificates shall be executed and delivered in Series from time to time pursuant to a Trust Agreement, dated as of June 1, 21000 (the "Trust Agreement"), by and among the Corporation and U.S. Bank National Trust Association, as trustee (the "Trustee'), and shall represent undivided proportionate interests in the Corporation`s right to receive Repurchase Payments under the Sale and Repurchase Agreement. The City's obligation to make Repurchase Payments under the Sale and Repurchase Agreement is a limited obligation of the City, payable solely from Program Receipts. The City has authorized the execution of this Purchase Contract, the Sale and Repurchase Agreement, and a Placement Agent Agreement, dated June 28, 2000 (the "Placement Agent Agreement") between the City and Lehman Brothers Inc., as Placement Agent, as well as related matters, pursuant to the terms of Resolution No. 99-180, adopted by the City Council of the City on November 3, 1999 (the "City Resolution"). The Corporation has authorized the execution of this Purchase Contract, the Sale and Repurchase Agreement, the Trust Agreement and the Placement Agent Agreement, as well as related matters, pursuant to the terms of Resolution, No. LFC-4 adopted by the Board of Directors of the Corporation on November 3, 1999 (the "Corporation Resolution"). The City is committed to act as lead agency in initiating and prosecuting environmental enforcement actions constituting the Program pursuant to a Comprehensive Joint Cooperative Agreement executed in May 1997 (the "Cooperative Agreement") by and between the City and the California Environmental Protection Agency, Department of Toxic Substances Control ("DTSC'j. In connection with its pursuit of the Program, the City has entered into a Professional Services Agreement and Scope' of Services Statement, dated December 1, 1999 (the "Professional Services Agreement") with Envision Law Groin (the "Outside Counsel'). This Purchase Contract, the Sale and Repurchase Agreement, the Trust Agreement, the Placement Agent Agreement and the Professional Services Agreement are collectively referred to herein as the "Legal Documents." The Legal Documents, together with the Cooperative SFLEB1/10736011 2 Agreement, the Ordinance, the City Resolution and the Corporation Resolution, are herein referred to as the "Program Documents." The initial Series of the Certificates shall be executed and delivered on June 29, 2000 in the aggregate principal amount of $2,500,000. Each subsequent Series of the Certificates shall be executed and delivered on the applicable Delivery Date (as defined in the Sale and Repurchase Agreement)' and in the aggregate principal amount specified by the City in an ISsu&ic,e RCque*t (as defined in the Sale and Repurchase Agreement and in substantially the form attached hereto as Exhibit F) submitted by the City in accordance with the terms of the Trust Agreement. The maximum principal amount of Certificates that may be executed and delivered on any Delivery Date is an amount equal to the Cumulative Disbursement Cap for the immediately succeeding calendar quarter (as set forth in Exhibit A to the Sale and Repurchase Agreement), less any principal amount of Certificates previously executed and delivered. The purchase price for each Series of the Certificates shall. be equal to the aggregate principal amount of such Series of the Certificates, and no Series of Certificates will be executed and delivered in an aggregate amount of less than $250,000. No Delivery Date shall occur after the "Commitment Period Ending Date," which shall be four years after the initial Closing Date. If the City has determined to permanently and irrevocably discontinue Issuance Requests, it shall deliver to the Trustee a Termination Notice (as defined in the Sale and Repurchase Agreement and in substantially the form attached hereto as Exhibit E) in accordance with the terms of the Trust Agreement. 2. Purchase !�ammitment and Commitment Period. On the first Business Day of each January, April, July and October, beginning October 2000, and prior to the Commitment Period Ending Date, the Purchaser shall purchase a Series of Certificates in an amount, if any, specified by the Trustee upon acceptance of an Issuance Request received from the City as provided in the Trust Agreement. The Purchase Commitment shall be reduced, dollar for dollar, without further action on the part of the Purchaser, by 1) the principal amount of Certificates executed and delivered under the Trust Agreement and 2) the City's receipt of Program Receipts, whether cash or non-cash, and whether or not there are any Certificates Outstanding at the time, in an amount up to the full amount of the Purchase Commitment, including but not limited to (i) the City's retention of Program Receipts as provided in Section 6.4(e) of the Sale and Repurchase Agreement and (ii) the value of non-cash settlements accepted by the City as provided in Section 6.6(a) of the Sale and Repurchase Agreement. The Purchase Commitment shall terminate on the earlier of the Commitment Period Ending Date or the occurrence of any of the following "Commitment Termination Events:" 1) the City's delivery of a Termination Notice to the Trustee and the Original Purchaser, in substantially the form attached hereto as Exhibit G, stating that it will make no further Issuance Requests, 2) the reduction of the Purchase Commitment to zero by one or more of the events described in the preceding paragraph, 3) the Original Purchasees decision to terminate the Purchase Commitment, in accordance with Section 6.5 of the Sale and Repurchase Agreement, if the City substitutes its Outside Counsel or modifies the terns of engagement of its Outside Counsel in a manner which, in the sole determination of the Original Purchaser, results in a materially prejudicial change; or 4) in the sole discretion of the Original Purchaser, an uncured Event of Default under the Sale and Repurchase Agreement or under the Trust Agreement, or a SF MIA0736V 3 violation by the City or the Cotporation of any covenant, representation or warranty made herein, in the Sale and Repurchase Agreement or in the Trust Agreement, including but not limited to the occurrence of any of the proceedings or actions described in Section 9.1(e) of the Sale and Repurchase Agreement relating to bankruptcy or insolvency of the City or the Corporation or other actions described therein. The City may terminate the Purchase Commitment in whole or in part, at any time, provided that such termination will in no way diminish the City's obligation to pay the Deferred Commitment Fee or the Outstanding Certificate Obligations of all Certificates. 3. Ue_ fie , Commitment Fee. The City shall pay to the Original Purchaser, in consideration for its commitment hereunder to purchase the Certificates from time to time and to assume the substantial risks attendant thereto, a deferred commitment fee equal to $2.25 million (the "Deferred Commitment Fee"). The Deferred Commitment Fee shall be due and payable on the date on which all of the Certificates are paid in full or discharged in accordance with the Trust Agreement, and if such date is prior to the Commitment Period Ending Date, a Commitment Termination Event (as defined in Section 2 above and in the Sale and Repurchase Agreement) has occurred. The Deferred Commitment Fee shall be equal to the difference between $2.25 million and the cumulative portion of Repurchase Payments representing interest (including Compounded Interest and Current Interest) paid with respect to the Certificates on or prior to such date as the Deferred Commitment fee is due; thus the Deferred Commitment Fee will be reduced dollar for dollar for each dollar of interest paid with respect to the Certificates. The Deferred Commitment Fee shall be payable in accordance with Sections 5.4(d) and 5.9 of the Sale and Repurchase Agreement and Sections 5.03 and 5.04 of the Trust Agreement (it being understood and agreed that the Original Purchaser shall be an express third party beneficiary of the Agreements and covenants made by the Corporation under the Trust Agreement), and the sole source of payment of such Deferred Commitment Fee shall be Program Receipts. A Deferred Commitment Fee Reserve Account shall be established and maintained by the Trustee under the Trust Agreement from Program Receipts, in an amount which, after payment of Accreted Value and Current Interest components on all Outstanding Certificates when due, equals the then current Deferred Commitment Fee. The City acknowledges and agrees that the City's obligation to pay the Deferred Commitment Fee shall survive the payment of the Certificates or termination of the Purchase Commitment. The Deferred Commitment Fee shall be payable to the Original Purchaser executing this Purchase Contract irrespective of the fact that the Original Purchaser may have sold or transferred its ownership interest in all or a portion of the Certificates by the time the payment of the Deferred Commitment Fee so made hereunder and wader the Trust Agreement. 4. QgLig . At 8:00 a.m., San Francisco time, on June 29, 2000 (the "Closing Date"), and at 8:0€1 a.m., San Francisco time, on each Delivery Date thereafter with respect to which the City has submitted an Issuance Request, the City, subject to the terms and conditions hereof, will cause the sale and delivery of the applicable Series of the Certificates to the Purchaser, duly executed, together with the other documents hereinafter mentioned, and, subject to the terms and conditions herco& the Purchaser will accept such delivery and pay the purchase price of such Series of the Certificates as set forth in Section i hereof by wire transfer of immediately available funds. Such delivery and payment on the Closing Date is referred to sFUBII]073WV 4 herein as the "Initial Closing," such delivery and payment on each subsequent Delivery Date is referred to herein as a "Subsequent CIosing," and the Initial Closing or any Subsequent Closing is referred to herein as a "Closing." Delivery and payment as aforesaid shall be made at the offices of the City, 221 West Pine Street, Lodi, California, or at such other place as shall have been mutually agreed upon by the City and the Purchaser. 5. The Certificates. The Certificates of each Series. shall be dated the date of delivery thereof, shall have a Final Payment Date of January 1, 2029, and shall evidence and represent an undivided proportional interest in Repurchase Payments payable under the Sale and Repurchase Agreement. The Certificates shall be payable as provided in the Sale and Repurchase Agreement and the Trust Agreement. Current Interest payable with respect to the Certificates shall accrue at the Variable Rate determined from time to time pursuant to the Sale and Repurchase Agreement and the Trust Agreement, but in no event shall the Variable Rate exceed 30% per annum. Accreted Value and Current Interest payable with respect to the Certificates shall be payable as soon as reasonably practicable after Program Receipts are received by the City and transferred to the Trustee for deposit in the Revenue Fund, as described in the Trust Agreement. The sum of all Current Interest accruing during any calendar year shall be added to the Accreted Value of the Certificates as of the day before the first Business Day of each January, after which date such Accreted Value will bear interest at the Variable Rate. 6. ggpMMtotions. W anti d A Each of the City and the Corporation (but only to the extent of its own representations set forth below) hereby and respectively represent, warrant and agree respectively as of the Initial Closing, and by delivery of an Issuance Request and by the Trustee's execution and delivery, on behalf of the Corporation, of the Certificates so requested, will have been deemed to have represented, warranted and agreed respectively as of each Subsequent Closing as follows: (a) The City and the Corporation have full legal right, power and authority to (i) enter into the Legal Documents to which each is a parry, (ii) cause the sale, execution, and delivery of each Series of the Certificates to the Purchaser as provided herein and (iii) carry out and consummate the transactions contemplated by the Program Documents; (b) By all necessary official action of the City and the Corporation, as the case may be, prior to or concurrently with the acceptance hereof, the City and the Corporation have duly authorized and approved the execution and delivery of, and the performance by the City and the Corporation of, the obligations on the part of each contained in, the Legal Documents, and the consummation by them of all other transactions contemplated by the Program Documents; (c) The City and the Corporation, as the case may be, have complied and are in compliance in all material respects with the obligations on their part contained in the Program Documents; (d) Neither the City nor the Corporation is in any material respect in breach of or default under any applicable constitutional provision, law, ordinance or administrative regulation to which it is subject or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement (inchiding the Cooperative srz.rsrr10736M 5 Agreement) or other instrument to which the City or the Corporation is a party or to which the City or the Corporation 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 under any such instrument; and the execution and delivery of the Certificates and the Legal Documents, and compliance with the provisions on the City's part or the Corporation's part, as the case may be, contained therein, will not conflict with or constitute a breach of or a default under any constitutional provision, law, ordinance, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement (including the Cooperative Agreement), or other instrument to which the City or the Corporation, as this case may be, is a party or to which the City or the Corporation, as the case may be, or any of their property or assets 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 property or assets of the City or the Corporation, as the case may be, or under the terms of any such constitutional provision, law, ordinance, administrative regulation or instrument, except as provided in the Sate and Repurchase Agreement, the Trust Agreement or the Ordinance; (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 City or the Corporation, as the case may be, of their respective obligations in connection with the execution and delivery of the Certificates under the Trust Agreement 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 Certificates; 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 or the Corporation of their respective obligations under the Program Documents have been duly obtained; (0 The lien on and pledge of Program Receipts under the Sale and Repurchase Agreement and Trust Agreement, as permitted by the Ordinance, are valid and enforceable and are prior to any other lien or claim on Program Receipts, and all other provisions of the Ordinance, insofar as they affect the rights of the Certificate Holders and the Original Purchaser and the transactions contemplated by the Sale and Repurchase Agreement and the Trust Agreement, are valid and enforceable; (g) Between the date of this Purchase Contract and the date on which no Certificates are outstanding and no additional Series of Certificates may be executed and delivered hereunder and under the Trust Agreement, neither the City nor the Corporation will, without the prior written consent of the Purchaser, offer or issue any bonds, notes, or SFU9I/IW-W2/ 6 other obligations for borrowed money, or incur any material liabilities, direct or contingent, payable from Program Receipts; (h) There is no action, suit, proceeding, inquiry, or investigation, at law or in equity, before or by any court, government agency, public board or body, pending or, to the best knowledge of the City and the Corporation, as the case may be, after reasonable investigation, threatened against the City or the Corporation, as the case may be, or any of their officers in their respective capacities as such, affecting the existence of the City or the Corporation, as the case may be, or the titles of their officers to their respective offices, or affecting or seeking to prohibit, restrain, or enjoin the We, execution, or delivery of the Certificates or the collection of the Program Receipts to be used to pay the Repurchase Payments, or the pledge of and lien on the funds and accounts established pursuant to the Trust Agreement, or contesting or affecting the validity or enforceability of the Certificates or the Program Documents, or contesting the powers of the City or the Corporation, as the case may be, or any authority of either entity for the execution and delivery of the Certificates, or in any way contesting or challenging the consummation of the transactions contemplated hereby, or which might materially adversely affect the ability of the City or the Corporation, as the case may be, to collect Program Receipts; nor is the City or the Corporation, as the case may be, aware of any circumstance not disclosed in writing to the Corporation or the City, as the case may be, and to the Purchaser prior to the date of such representation that would form a basis for any such action, suit, proceeding, inquiry, or investigation, wherein an unfavorable decision, ruling, or finding would materially adversely affect the authorization, execution, delivery, or performance by the City or the Corporation, as the case may be, of the Legal Documents, the performance by the City or the Corporation of their respective obligations under the Program Documents, or the execution by the Trustee of the Certificates; (i) At any time prior to the date on which no Certificates are outstanding and no additional Series of Certificates may be executed and delivered hereunder and under the Trust Agreement, the City and the Corporation, as the case may be, will furnish such information, execute such instruments, and take such other action in cooperation with the Purchaser as the Purchaser may request in order (i) to qualify the Certificates for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions of the United States as the Purchaser may designate, and (ii) to determine the eligibility of the Certificates for investment under the laws of such states and other jurisdictions, and will use its best efforts to continue such qualifications in effect so long as required for the distribution of the Certificates; provided, however, that neither the City nor the Corporation shall be required to qualify to do business or consent to service of process in connection with any such qualification or determination in any jurisdiction; 6) No filing or other action, other than the execution of the Legal Documents, is required to create for the benefit of the Trustee and the Certificate Holders a first and perfected lien on and security interest in the Program Receipts and, upon execution of the Legal Documents, such a first lien shall exist. SFUDIII073WV 7 (k) The City and the Corporation will apply the proceeds from the We of the Certificates solely for the purposes specified in the Sale and Repurchase Agreement and the Trust Agreement. (1) The City and the Corporation are aware that the Original Purchaser hereunder is the Placement Agent, and the City and the Corporation hereby consent and waive any objection thereto. (m) The City and the Corporation will assist the Original Purchaser and the Placement Agent in preparing materials for use in any private placement of the Certificates which the Original Purchaser or the Placement Agent may determine to offer, which assistance shall include but not be limited to the preparation of a private placement memorandum. At the time of any such private placement, the City and the Corporation will represent and warrant that the information provided by each of them, respectively, is true and correct, and the City and the Corporation shall provide the same indemnification and opinions as are provided hereunder and shall be subject to the same obligations, as applicable, as hereunder. The provisions of this Section 6(m) shall survive the termination of this Purchase Contract and discharge of the City's obligations under the Trust Agreement. 7. Jdemnification (a) QMeral Indemnity. The City shall, to the extent permitted by law, defend, indemnify and hold harmless the Corporation, the Trustee (as the assignee of the Corporation's rights under the Sate and Repurchase Agreement), the Placement Agent, the Calculation and Verification Agent, the Original Purchaser, each Certificate Holder and their members, directors, officers, employees, and agents from and against any and all losses, claims, damages, liabilities, or expenses of every kind, character, and nature whatsoever (excepting therefrom only such losses, claims, damages, liabilities, or expenses arising from the negligence of the Corporation, with respect to indemnification of the Corporation, or the Trustee, with respect to indemnification of the Trustee), including, but not limited to, losses, claims, damages, liabilities, or expenses arising out of, resulting from, or in any way connected with (1) the City's interest in, or use of, the Program Receipts or any portion thereof; (2) the sale of the Certificates and the carrying out of any of the transactions contemplated by the Certificates, this Purchase Contract, the Trust Agreement, the Sale anis Repurchase Agreement or any related document; (3) the carrying out of the Program; or (4) the acceptance of and administration by the Trustee of the Trustee's duties under the Trust Agreement. The City shall, to the extent permitted by law and, with respect to the indemnification of the Placement Agent, the Calculation and Verification Agent, the Original Purchaser and each Certificate Holder (each a "Special Indemnified Party"), to the extent permitted by clause (b) below, pay or reimburse the Corporation, the Trustee, the Special Indemnified Parties and their members, directors, officers, employees and agents for any and all casts, reasonable attorneys fees, liabilities or expenses incurred in connection with investigating, defending against or otherwise in connection with any such losses, claims, damages, liabilities, expenses or actions. Notwithstanding anything to the contrary in the Sale and Repurchase Agreement or the Trust Agreement, the Trustee and the Corporation shall not sr BI/1vMM 8 be entitled to payment, reimbursement or indemnification for actions involving willful misconduct, default or negligence on the part of the Trustee or the Corporation, respectively. (b) The obligation of the City to defend, indemnify, and hold harmless the Special Indemnified Parties for any suits or claims arising from the sale of the Certificates or the City's pursuit of the Program (as described in the preceding paragraph), shall be payable solely from (i) Program Receipts, and (ii) any proceeds of insurance or self-insurance programs in which the City has participated or will participate. With regard to item (i), if currently available Program Receipts are insufficient to pay attorney fees and expenses and other litigation related costs at the time they are incurred, the Special Indemnified Parties may fund the excess of such fees and expenses, and any future Program Receipts will be used to reimburse the Special Indemnified Parties for such amounts. With regard to item (ii), the City agrees to cooperate fully with the Special Indemnified Parties in submitting and pursuing claims against such City insurers, although the City will have no obligation to maintain any insurance coverage. (c) Special Conditions. The City's indemnity obligation to the Special Indemnified Parties under section (b) above is subject to the following conditions: (1) The City will pay attorneys' fees and costs of a single law firm chosen by the Special Indemnified Parties to collectively represent the Special Indemnified Parties, and such counsel shall, to the extent consistent with the Special Indemnified Parties' interests, cooperate with the City and avoid duplication and wastefulness in the assertion of defenses; (2) The City will pay attorneys' fees and costs of additional law firms to represent an individual Special Indemnified Party where (i) the counsel retained under (c)(1) above could not, as a result of applicable law or code of professional responsibility, assert a defense on behalf of such an individual Special Indemnified Party while simultaneously representing the other Special Indemnified Parties for reasons including, but not limited to, a situation in which the use of counsel chosen by the Special Indemnified Parties to represent the Special Indemnified Party or Parties would present such counsel with a conflict of interest, or in which the actual or potential defendants in, or targets of, any such action include the Special Indemnified Party or Parties, and the City and the Special Indemnified Party or Parties shall have reasonably concluded that there may be legal defenses available to it and/or other Special Indemnified Parties that are different from or additional to those available to the City, or (ii) the City shall authorize the Special Indemnified Parties to employ separate counsel at the expense of the City; and (3) The City will not, without the prior written consent of the Special Indemnified Parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in which indemnification or contribution may be sought hereunder (whether or not SFUB VI Oi3WV 9 the Special Indemnified Parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each Special Indemnified Party from all liability arising out of such claim, action, suit or proceeding. The provisions of this Section 7 shall survive the termination of this Purchase Contract and the discharge of the City's obligations under the Sale and Repurchase Agreement and the Trust Agreement. 8. Clasina Condilions. The Purchaser has entered into this Purchase Contract in reliance upon the representations and warranties of the City and the Corporation contained herein, upon the representations and warranties to be contained in the documents and instruments to be delivered at each Closing, and upon the performance by the City and the Corporation of their respective obligations hereunder, both as of the date hereof and as of each Delivery Date. Accordingly, the Purchaser's obligations under this Purchase Contract to purchase, to accept delivery of, and to pay for each Series of the Certificates shall be conditioned, at the option of the Purchaser, upon the performance by the City and the Corporation, as the case may be, of their respective obligations to be performed hereunder and under such documents and instruments at or prior to the applicable Closing, and shall also be subject to the following additional conditions: (a) The representations and warranties of the City and the Corporation, as the case may be, contained herein shall be true, complete, and correct on the date hereof and on and as of the applicable Delivery Date, as if made on such Delivery Date, and the statements of the officers and other officials of the City, the Corporation, and the Trustee made in any certificate or other document furnished pursuant to the provisions hereof shall be accurate; (b) At the time of the applicable Closing, the Sale and Repurchase Agreement and the Trust Agreement shall have been duly authorized, executed, and delivered by the respective parties thereto, all in substantially the forms heretofore submitted to the Purchaser, with only such changes as shall have been agreed to in writing by the Purchaser, and shall be in full force and effect; the Cooperative Agreement and the Ordinance shall be in full force and effect and shall not have been invalidated, repealed or amended in any manner that adversely affects the interests of the Purchaser or the Certificate Holders, and there shall be in full force and effect such resolution or resolutions of the City Council of the City and the Board of Directors of the Corporation as, in the opinion of counsel to the Purchaser ("Purchaser's Counsel"), shall be necessary or appropriate in connection with the transactions contemplated hereby; (c) Between the date hereof and the applicable Delivery Date, the marketa- bility of the Certificates shall not have been materially adversely affected, in the judgment of the Purchaser (evidenced by a written notice to the City, the Corporation and the Trustee terminating the obligation of the Purchaser to accept delivery of and make any payment for any additional Series of the Certificates), by reason of any of the following: SFUBI/10736W 10 (1) the declaration of wax or engagement 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; (2) 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; (3) 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 Certificates or obligations of the general character of the Certificates 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 Purchaser; or (4) an order, decree, or injunction of any court of competent jurisdic- tion, 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 Certificates, or the execution, offering, or sale of the Certificates, including any or all underlying obligations, as contemplated hereby, is or would be in violation of the federal securities laws as amended and then in effect or in violation of any other federal or state statutory or case law, regulation, order, ruling, judgment, decree or injunction. (d) With respect to the Initial Closing, the Purchaser shall have received the following documents at or prior to the Closing Date, in each case satisfactory in form and substance to the Purchaser: (1) Copies of the Trust Agreement, the Sale and Repurchase Agreement and the Placement Agent Agreement, each duly executed and delivered by the respective parties thereto; (2) An opinion, dated the Closing Date and addressed to the City, the Purchaser and the Placement Agent, of Counsel to the Corporation, in substantially the form attached hereto as Exhibit A; (3) An opinion, dated the Closing Date and addressed to the Purchaser, the Placement Agent and the Corporation, of the City Attorney of the City, in substantially the forth attached hereto as Exhibit B; (4) An opinion of Purchaser's Counsel, dated the Closing Date and addressed to the Purchaser, addressing such matters as the Purchaser shall determine; SFLIB 1/1073MV i1 (S) A signature and incumbency certificate of the Corporation and a certificate, dated the Closing Date, signed by an authorized officer of the Corpora- tion, in substantially the form attached hereto as Exhibit C; (6) A signature and incumbency certificate of the City and a certifi- cate, dated the Closing Date, signed by an authorized officer of the City, in substantially the form attached hereto as Exlubit D, (7) A certified copy of an extract from the Bylaws of the Trustee authorizing the execution and delivery of the Trust Agreement and the Certificates, together with a certificate to the effect that: (i) the Trustee is a national banking association duly organized and existing under the laws of the United States of America; (ii) the Trustee has full corporate trust powers and authority to serve as Trustee under the Trust Agreement; and (iii) to the best knowledge of the Trustee, the Trustee's action in executing and delivering the Trust Agreement is in full compliance with, and does not conflict with, any applicable law or governmental regulation currently in effect, and does not conflict with or violate any contract to which the Trustee is a party or any administrative or judicial decision by which the Trustee is bound; (8) An opinion of counsel to the Trustee, dated the date of Closing and addressed to the City, the Corporation and the Purchaser, to the effect that: (i) the Trustee has been duly incorporated and is in good standing as a national banking association under the laws of the United States, having full power and authority to enter into and to perform its duties as Trustee under the Trust Agreement; (ii) the Trustee has duly authorized, executed and delivered the Trust Agreement; (iii) assuming due authorization, execution and delivery by the other parties thereto, the Trust Agreement constitutes the legal, valid and binding agreement of the Trustee, enforceable 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; (iv) the Certificates have been duly executed and delivered by the Trustee; srLiev1073so2/ 12 (v) no authorization, approval, consent, or other order of any other governmental authority or agency having jurisdiction over the Trustee is required for the valid authorization, execution, delivery and performance by the Trustee of the Trust Agreement; and (vi) the execution and delivery of the Trust Agreement and compliance by the Trustee with the provisions thereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute on the part of the Trustee a breach or default under any agreement or other instruments to which the Trustee is a part or by which it is bound or any existing law, regulation, court order or consent decree to which the Trustee is subject. (9) A certified copy of the resolution of the Corporation authorizing the execution and delivery of the Legal Documents; (10) A certified copy of the resolution of the City authorizing the execution and delivery of the Legal Documents; (11) A certified copy of the Ordinance; (12) A certified copy of the Cooperative Agreement, together with a letter from DTSC stating that the proposed financing does not violate the Cooperative Agreement; (13) The Professional Services Agreement, including evidence that the City's Outside Counsel has subordinated its right to payment of legal fees and disbursements consistent with the terms of the Sale and Repurchase Agreement; (14) An opinion, dated the Closing Date and addressed to the City, the Corporation and the Purchaser, of the City's Outside Counsel in substantially the form attached hereto as Exhibit E; (15) A certification by the City (a) describing all amounts it has expended in connection with the Program to the date of Closing, describing all outstanding amounts owed to Outside Counsel or other predecessor firm, whether or not on a contingency basis, and certifying that all fees and disbursements incurred by Outside Counsel in connection with the Program prior to the Closing Date have either been paid in full or have been subordinated to the rights of the Purchaser hereunder, (b) stating the outstanding balance in the Municipal Fund, (c) stating the amount of Program Receipts received since July 30, 1999 through the date of Closing and (d) stating the amounts of DTSC Settlement Payments paid through the date of Closing; (16) A certified copy of the Program Budget; (17) A certificate of the Calculation and Verification Agent, stating that it is capable of performing the functions assigned to it under the Sale and SFLIB1/1073602! 13 Repurchase Agreement and the Trust Agreement and stating that it accepts its duties thereunder; and (18) A final and non -appealable court judgment in a validation action commenced under California Code of Civil Procedure Section 860, in form and substance satisfactory to the Purchaser (the "Validation Judgment"; (19) Such additional legal opinions, certificates, proceedings, instruments, and other documents as the Purchaser or Purchaser's Counsel may reasonably request to evidence the truth and accuracy, as of the date hereof and as of the Closing Date, of the City's or Corporation's representations and warranties contained herein and the due performance or satisfaction by the City, the Corporation, and the Trustee on or prior to the Closing Date of all material agreements then to be performed and conditions then to be satisfied by any of them in connection with the transactions contemplated hereby and by the Program Documents. If the City, the Corporation or the Trustee shall be unable to satisfy the conditions set forth in this Purchase Contract to the obligation of the Purchaser to purchase, accept delivery of, and pay for the initial Series of the Certificates, or if the obligation of the Purchaser to purchase, accept delivery of, and pay for the initial Series of Certificates shall be terminated for any reason permitted by this Purchase Contract, then this Purchase Contract and all obligations of the Purchaser hereunder may be terminated by the Purchaser at, or at any time prior to, the Closing Date by written notiee to the Trustee, the Corporation and the City, and neither the Purchaser nor the City shall have any further obligations hereunder. (e) With respect to each Subsequent Closing, which shall occur no more often than quarterly, on the first Business Day of any January, April, July or October, beginning October 2000, on or before the Commitment Period Ending Date, the Purchaser shall have received the following documents at or prior to the applicable Delivery Date, in each case satisfactory in form and substance to the Purchaser: (1) An Issuance Request of the City, as provided in the Trust Agreement, dated the applicable Delivery Date, signed by an authorized officer of the City, and delivered to the Purchaser and the Trustee at least 15 Business Days prior to such Subsequent Closing Date, in substantially the form attached hereto as Exhibit F, requesting the Trustee to execute and deliver and requesting the Purchaser to purchase an amount of Certificates with a minimum principal component of $250,000 and specifying the Delivery Date; (2) Certificates of authorized officers of the City and the Corporation, respectively, dated the applicable Delivery Date, stating that, after investigation and review of the Program Documents, no event of default, nor any event which, after the passage of time or the giving of notice would constitute an event of default under a Program Document, has occurred and is continuing; sFIM111013MV 14 (3) An opinion, dated the Delivery Date and addressed to the Purchaser and the City, of Counsel to the Corporation, in substantially the form attached hereto as Exhibit A; (4) An opinion, dated the Delivery Date and addressed to the Purchaser and the Corporation, of the City Attorney of the City, in substantially the form attached hereto as Exhibit B; (5) An opinion of Purchaser's counsel, dated the Delivery Date and addressed to the Purchaser, addressing such matters as the Purchaser shall determine; (5) An opinion of counsel to the Trustee, dated the Delivery Date and addressed to the City, the Purchaser and the Corporation, to the effect that the Certificates have been duly executed and delivered by the Trustee; (7) An opinion, dated the Delivery Date and addressed to the City, the Corporation and the Purchaser, of the City's Outside Counsel in substantially the form attached hereto as Exhibit E; (8) A certified copy of a revised Program Budget; and (9) Such additional legal opinions, certificates, proceedings, instru- ments, and other documents as the Purchaser or Purchaser's Counsel may reasonably request to evidence the truth and accuracy, as of the date of the applicable Delivery Date, of the City's or Corporation's representations and warranties contained herein and the due performance or satisfaction by the City, the Corporation, and the Trustee on or prior to the applicable Delivery Date of all material agreements then to be performed and conditions then to be satisfied by any of there in connection with the transactions contemplated hereby and by the Program Documents. If the City, the Corporation or the Trustee shall be unable to satisfy the conditions set forth in this Purchase Contract to the obligation of the Purchaser to purchase, accept delivery of, and pay for any subsequent Series of the Certificates, or if the obligation of the Purchaser to purchase, accept delivery of, and pay for any subsequent Series of Certificates shall be terminated for any reason permitted by this Purchase Contract, then this Purchase Contract and all obligations of the Purchaser hereunder may be terminated by the Purchaser at, or at any time prior to, the Delivery Date applicable to such subsequent Series of Certificates by written notice to the Trustee, to the Corporation and to the City, and neither the Purchaser nor the City shall have any further obligations hereunder. (a) So long as the Purchase Commitment is in effect, the City shall inform the Purchaser, in writing, to the extent permitted by law and in a manner that would preserve any applicable privilege, regarding significant events and developments not previously reported to the Purchaser, including but not limited to: (1) the "Core Action" undertaken SFUS1I10736W 15 by the City in pursuit of the Program, other actions in which the City seeks Program Receipts, actions or proceedings challenging or threatening the City's engagement of its Outside Counsel; and all other significant actions or proceedings which involve the Program; (2) actions or proceedings involving the Program Documents or the performance of the City's obligations thereunder, (3) actions or proceedings involving the Ordinance, whether or nat related to the Program; and (4) changes in laws, precedents, case law and other developments in any statute, common law or principle pursuant to which the City seeks Program Receipts. (b) Prior to each Subsequent Closing, or three months after the previous closing, whichever occurs sooner, the City shall provide to the Purchaser a brief written summary of developments in actions and proceedings within the scope of subsection (a) above. Notwithstanding the above, notice of settlements, recoveries, court decisions (whether favorable or adverse), and the filing of substantive motions shall be given within two business days following such event. 10. Ligidated DamaW. In the event that the Purchaser fails (other than for a reason permitted by this Purchase Contract) to accept and pay for any Series of Certificates on the applicable Delivery Date, the amount of ten percent (10%) of the aggregate principal amount of the Certificates authorized to be executed and delivered under the Trust Agreement but which have not yet been issued shall constitute liquidated damages for such failure and for any and all defaults hereunder on the part of the Purchaser, and the Purchaser's payment of such amount to the City shall constitute a full release and discharge of all claims and rights of the City against the Purchaser. 11. Exp r�e�;. (a) The Purchaser shall be under no obligation to pay, and the City shall pay, any expenses incident to the performance of the City's obligations hereunder including, but not limited to: (i) the cost of preparation and printing of each Series of Certificates; (ii) the fees and expenses of counsel to the City and the Corporation; (iii) all legal fees, court costs, and all other expenses in connection with any validation action conducted under California Code of Civil Procedure Sections 860 through 870 with respect to the Certificates or any actions contemplated by the Program Documents; (iv) all fees and expenses of the Trustee and the Calculation and Verification Agent and (v) the fees and disbursements of any engineers, accountants, and other experts, consultants, or advisors retained by the City. (b) The Purchaser shall pay (i) fees, if any, payable to the California Debt and Investment Advisory Commission in connection with the execution and delivery of each Series of Certificates; and (ii) all other expenses incurred by the Purchaser in connection with the sale, execution, and delivery of each Series of Certificates, including the fees and disbursements of Purchaser's Counsel. 12. Niotiees. Any notice or other communication to be given to the City under this Purchase Contract may be given by delivering the same in writing at the City's address set forth above, Attention: City Attorney, and to the Purchaser under this Purchase Contract may given by sFUgvtm3ou 16 delivering the same in writing to Lehman Brothers Inc., 3 World Financial Center, Seventh Floor, New York, New York 14285, Attention: James Hraska. 13. Pasties in Interest. This Purchase Contract is made solely for the benefit of the City, the Corporation, the Purchaser (including the successors or assigns of the Purchaser), and the Placement Agent (with respect to opinions which are to be addressed to the Placement Agent), and no other person shall acquire or have any right hereunder or by virtue hereof. All of the City's and the Corporation's representations, warranties, and agreements contained in this Purchase Contract shall remain operative and in full force and effect regardless of (i) any investigations made by or on behalf of the Purchaser, (ii) delivery of and payment for any Series of Certificates. pursuant to this Purchase Contract; and (iii) any termination of this Purchase Contract. 14.Effejgveness gUd Copgaftig Signatures. This Purchase Contract shall become effective Upon the execution of the acceptance by authorized officers of the City and the Corporation and shall be valid and enforceable at the time of such acceptance. This Purchase Contract may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 15. feadings. The headings of the sections of this Purchase Contract are inserted for convenience only and shall not be deemed to be a part hereof. 16. Severabiof Invalid Provisions. If any one or more of the provisions contained in this Purchase Contract 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 Purchase Contract and such invalidity, illegality, or unenforceability shall not affect any other provision of this Purchase Contract, and this Purchase Contract shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. The City, the Corporation and the Purchaser each hereby declares that they would have entered into this Purchase Contract 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 Purchase Contract may be held illegal, invalid, or unenforceable. sFaa111073M 17 IT Govertling L1tw. This Purchase Contract shall be construed in accordance with the laws of the State of California. Very mdy yours, LEBNLAN BROTHERS INC. in SPUB113073601 M 335~5 is James R Gibbs Managing Director Accepted: CITY OF LODI 31M.: M�s Approved as to Form City Attorney LODI FINANCING CORPORATION By_ e T asurcr Approved as to Form SIUHl/1073600J17/1335WW95 19 EXHIBIT A FORM OF OPINION OF COUNSEL TO THE CORPORATION [Date] Lehman Brothers Inc. 555 California Street, 30th Floor San Francisco, California 94104 City of Lodi 221 West Pine Street Lodi, California 95240 U.S. Bank Trust National Association Corporate Trust Services One California Street, Suite 2250 San Francisco, California 94111 LODI FINANCING CORPORATION (ENVIRONMENTAL ABATEMENT PROGRAM) VARIABLE RATE CERTIFICATES OF PARTICIPATION Ladies and Gentlemen: I have acted as counsel to the Lodi Financing Corporation, a California non-profit public benefit corporation (the "Corporation), in connection with the execution, delivery and sale of $ aggregate principal amount of Lodi Financing Corporation (Environmental Abatement Program) Variable Rate Certificates of Participation, Series _ (the "Certificates") pursuant to the terms of a Certificate Purchase Contract dated as of June 28, 2000 (the "Purchase Contract) among the Corporation, the City of Lodi (the "City") and Lehman Brothers Inc. The Certificates represent undivided proportionate interests in payments made pursuant to a Program Receipts Sale and Repurchase Agreement, dated as of June 1, 2040 (the "Sale and Repurchase Agreement''), between the City and the Corporation and are executed and delivered pursuant to a Trust Agreement, dated as of June 1, 2040 (the "Trust Agreement"), between the Corporation and U.S. Bank Trust National Association, as trustee thereunder (the "Trustee"). Unless otherwise defined herein, the terms defined in the Sale and Repurchase Agreement have the same meanings when used in this opinion. In connection with the foregoing, I have examined originals, or copies certified or other- wise identified to my satisfaction, of such documents, corporate records, and other instruments as I have deemed necessary or appropriate for the purposes of this opinion, including (a) the Purchase Contract, (b) the Sale and Repurchase Agreement, (c) the Placement Agent Agreement, dated as of June 28, 2000, by and among the City, the Corporation and Lehman Brothers Inc., srUarnm36v A-1 (d) the Trust Agreement (collectively, the "Legal Documents"), (e) the Articles of incorporation and Bylaws of the Corporation, and (f) Resolution No. LFC-4 (the "Corporation Resolution'), adopted on November 3, 1999 authorizing the execution and delivery of the Certificates and the Legal Documents. The Legal Documents, together with the Corporation Resolution, City Resolution No. 99-180, adopted on November 3, 1999, City Ordinance No. 1684, adopted November 17, 1999 and effective December 17, 1999, and the Comprehensive Joint Cooperative Agreement, dated as of May 1997, by and between the City and the California Environmental Protection Agency, Department of Toxic Substances Control, are collectively referred to herein as the "Program Documents." Based upon such examination,) am of the opinion that: 1. The Corporation is duly organized and validly existing under the laws of the State of California. 2. The Corporation has full corporate power and authority to execute and deliver the Legal Documents and to carry out and consummate the transactions contemplated by the Program Documents. 3. The Corporation Resolution authorizing the execution and delivery of the Certificates and the execution of the Legal Documents was duly adopted at a meeting of the Board of Directors of the Corporation which was called and held pursuant to law, is in full force and effect and has not been amended, modified or rescinded. 4. The Legal Documents have each been duly authorized and delivered by the Corporation, and each constitutes a legally valid and binding obligation of the Corporation enforceable against the Corporation in accordance with its respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, or other laws or equitable principles relating to or affecting the enforcement of creditors' rights generally and to the application of equitable principles if equitable remedies are sought. 5. No approval, consent, or authorization of any governmental or public agency, authority, or person is required for the execution and delivery by the Corporation of the Legal Documents, or the performance by the Corporation of its obligations under the Program Documents, or the execution and delivery of the Certificates. 6. The execution and delivery of the Legal Documents by the Corporation and compliance with the provisions thereof will not conflict with or constitute a breach of, or default under, any instrument relating to the organization, existence, or operation of the Corporation, any commitment, agreement, or other instrument to which the Corporation is a party or by which it or its property is bound or affected, or any ruling, regulation, ordinance, judgment, order, or decree to which the Corporation (or any of its officers in their respective capacities as such) is subject, or any provision of the laws of the State of California relating to the Corporation and its affairs. 7. There is no action, suit, proceeding, inquiry, or investigation at law or in equity, or before any court, public board, or body, pending or, to the best of my lmowledge, threatened against or affecting the Corporation or any entity affiliated with the Corporation or any of its officers or directors in their respective capacities as such (nor to the nest of my knowledge is sFLMinm3ov A-2 there any basis therefor), which questions the powers of the Corporation referred to in paragraphs 2 and 3 above or in connection with the transactions contemplated by, or the validity of the proceedings taken by the Corporation in connection with the authorization, execution, or delivery of, the Legal Documents; nor am I aware of any circumstance not disclosed in writing to the City and Lehman Brothers Inc. prior to the date of this opinion that would form a basis for any such action, suit, proceeding, inquiry or investigation wherein an unfavorable decision, ruling, or finding would materially adversely affect the transactions contemplated by the Program Documents, or which, in any way, would materially adversely affect the validity or enforceability of the Program Documents or, in any material respect, the ability of the Corporation to perform its obligations under the Program Documents. SFUB VI O7360V Respectfully submitted, A-3 EXHIBIT B FORM OF OPINION OF CITY ATTORNEY [Date] Lehman Brothers Inc. 555 California Street, 30th Floor San Francisco, California 94104 Lodi Financing Corporation 221 West Pine Street Lodi, California 95240 LODI FINANCING CORPORATION (ENVIRONMENTAL ABATEMENT PROGRAM) VARIABLE RATE CERTIFICATES OF PARTICIPATION Ladies and Gentlemen: I have served as counsel to the City of Lodi (the "City") in connection with the execution, delivery and sale of $ aggregate principal amount of Lodi Financing Corporation (Environmental Abatement Program) Variable Rate Certificates of Participation, Series ___. (the "Certificates'l. In connection with the foregoing, I have examined originals, or copies certified or otherwise identified to my satisfaction, of such documents, corporate records; and-,otr, instruments as I have deemed necessary or appropriate for the purposesof this opinion, including (a) the Program Receipts Sale and Repurchase Agreement, dated as of June 1, 2000 (the "Sale and Repurchase Agreement"), by and between the Lodi Financing Corporation (the "Corporation') and the City, (b) the Placement Agent Agreement, dated as of June 28, 2000 by and among the City, the Corporation and Lehman Brothers Inc., (c) the Trust Agreement, dated as of June 1, 2000 (the "frust Agreement"), by and between the Corporation and U.S. Bank Trust National Agsocisdan, as trustee thereunder (the "Trustee"), and (d) the Certificate Purchase Contract, dated as of June 28, 2000 (the "Purchase Contract"), by and among the City, the Corporation and Lehman Brothers Inc. The Sale and Repurchase Agreement, the Placement Agent Agreement, and the Purchase Contract, and the Professional Services Agreement and Scope of Services Statement, dated December 1, 1999, between Envision Law Group and the City are collectively referred to herein as the "City Legal Documents." The City Legal Documents, together with the Comprehensive Joint Cooperative Agreement, dated as of May 1997 (the "Cooperative Agreement'), by and between the City and the California Environmental Protection Agency, Department of Toxic Substance Control, the TnW Agreement, the City's Otditmm-Noy 16 ,.a4opted,Novembber-17, 1999 and effective December 17, 1994 (the "Ordinance's, the City's Resolution No. 99-180, SFLMI/10736074 B-1 adopted on November 3, 1999, and the Corporation's Resolution No. LFC-4, adopted on November 3, 1999, authorizing the execution and delivery of the Certificates and the related documents, are collectively referred to herein as the "Program Documents." Terms used herein that are defined in the Sale and Repurchase Agreement shall have the meanings specified therein. Based upon such examination, X am of the opinion that: 1. The City is a general law city, duly created, organized, and existing under the laws of the State of California and duly qualified to implement and carry out the Program, 2. The City has the authority and right to execute, deliver, and perforin the City Legal Documents and the City has complied with the provisions of applicable law in all matters relating to the transactions contemplated by the Program Documents. 3. The City Resolution authorizing the execution of the Legal Documents was duly adopted at a meeting of the City Council of the City which was called and held pursuant to law, is in full force and effect and has not been amended, modified or rescinded. 4. The Ordinance was duly adopted at a muting of the City Council of the City which was called and held pursuant to law, became effective on December 17, 1999, is in full force and effect and has not been amended, modified or rescinded. 5. The City Legal Documents have been duly authorized, executed, and delivered by the City, are in full force and effect, and, assuming that the other parties thereto have all the requisite power and authority and have taken all the requisite action to execute and deliver the City Legal Documents to which they are a party, constitute the legal, valid, and binding agreements of the City enforceable against it 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 to the application of equitable principles if equitable remedies are sought. 6. No approval, consent, or authorization of any governmental or public agency, authority, or person is require] for the execution and delivery by the City of the City Legal Documents, or the performance by the City of its obligations under the Program Documents, or the execution and delivery of the Certificates. 7. The execution and delivery of the City Legal Documents by the City and compliance with the provisions thereof will not conflict with or constitute a breach of, or default under, any instrument relating to the organization, existence, or operation of the City, any commitment, agreement, or other instrument to which the City is a party or by which it or its property is bound or affected (including, but not limited to, the Cooperative Agreement), or any ruling, regulation, ordinance, judgment, order, or decree to which the City (or any of its officers in their respective capacities as such) is subject, or any provision of the laws of the State of California relating to the City and its affairs. 8. The lien on and the pledge of Program Receipts under the Sale and Repurchase Agreement and Trust Agreement, as permitted by the Ordinance, are valid and enforceable and are prior to any other lien or claim on Program Receipts, and all other provisions of the 5FLIB 1!1073603/ RE Ordinance, insofar as they affect the rights of the Certificate Holders and the Original Purchaser and the transactions contemplated by the Sale and Repurchase Agreement and the Trust Agreement, are valid and enforceable; 9. There is no action, suit, proceeding, inquiry, or investigation at law or in equity, or before any court, public board, or body, pending or, to the best of my knowledge, threatened against or affecting the City or any entity affiliated with the City or any of its officers in their respective capacities as such (nor to the best of my knowledge is there any basis therefor), which questions the powers of the City referred to in paragraphs 2 and 3 above, or which concerns the transactions contemplated by, or the validity of the proceedings taken by, the City in connection with the authorization, execution, or delivery of, the City Legal Documents or, except as described in Appendix A hereto, the validity or enforceability of the Ordinance; nor am I aware of any circumstance not disclosed in writing to the Corporation and Lehman Brothers Inc. prior to the date of this opinion that would form a basis for any such action, shit, proceeding, inquiry or investigation wherein an unfavorable decision, ruling, or finding would materially adversely affect the transactions contemplated by the Program Documents, or which, in any way, would materially adversely affect the validity or enforceability of the Program Documents or, in any material respect, the ability of the City to perform its obligations under the Program Documents. Respectfully submitted, sHvevtm3ay B-3 EXHIBIT C FORM OF CERTIFICATE OF THE CORPORATION LODI FINANCING CORPORATION (ENVIRONMENTAL ABATEMENT PROGRAM) VARIABLE RATE CERTIFICATES OF PARTICIPATION I, the of the Lodi Financing Corporation (the "Corporation"), hereby certify as follows: I. This certificate is provided pursuant to Section 8(d)(5) of that certain Certificate Purchase Contract, dated as of .Tune 28, 2000 (the "Purchase Contract"), by and among the City of Lodi (the "City"), the Corporation and Lehman Brothers Inc. All capitalized terms used herein that are not otherwise defined shall have the same meanings as in such Purchase Contract. 2. The Corporation has full legal right, power, and authority (i) to enter into the Sale and Repurchase Agreement, the Trust Agreement, the Purchase Contract and the Placement Agent Agreement, dated June 28, 2000, by and among the City, the Corporation and Lehman Brothers Inc. (collectively, the "Legal Documents") and (ii) to carry out and consummate the transactions contemplated by the Program Documents. 3. By all necessary corporate action of the Corporation prior to or concurrently herewith, the Corporation has duly authorized and approved the execution and delivery of, and the performance by the Corporation of the obligations on its part contained in, the Legal Documents, and the consummation by it of all other transactions contemplated by the Program Documents. 4. The Corporation has complied with all the agreements and satisfied all of the con- ditions on its part to be performed or satisfied at or prior to the date hereof pursuant to the Legal Documents. 5. The Corporation is not in any material respect in breach of or default under any applicable law or administrative regulation to which it is subject or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement (including, without limitation, the Trust Agreement), or other instrument to which the Corporation is a party or to which the Corporation 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 under any such instrument; and the execution and delivery of the Legal Documents, and compliance with the provisions on the Corporation's part contained therein, will not conflict with or constitute a breach of or a default under any constitutional provision, law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement, or other instrument to which the Corporation is a party or to which the Corporation or any of its property or assets is otherwise subject, nor will S" 1/10736031 C-1 The City of Lodi June 28, 2000 Page 5 (2) The City will pay attorneys' fees and costs of additional law firms to represent an individual Special Indemnified Party where (i) the counsel retained under (c)(1) above could not, as a result of applicable law or code of professional responsibility, assert a defenseon behalf of such an individual Special Indemnified Party while simultaneously representing the other Special Indemnified Parties for reasons including, but not limited to, a situation in which the use of counsel chosen by the Special Indemnified Parties to represent the Special Indemnified Party or Parties would present such counsel with a conflict of interest, or in which the actual or potential defendants in, or targets of any such action include the Special Indemnified Party or Parties, and the City and the Special Indemnified Party or Parties shall have reasonably concluded that there may be legal defenses available to it and/or other Special Indemnified Parties that are different from or additional to those available to the City, or (ii) the City shall authorize the Special Indemnified Parties to employ separate counsel at the expense of the, City; and (3) The City will not, without the prior written consent of the Special Indemnified Parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in which indemnification or contribution may be sought hereunder (whether or not the Special Indemnified Parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each Special Indemnified Party from all liability arising out of such claim, action, suit or proceeding. The provisions of this Section 5 shall survive the termination of this Agreement, the Purchase Contract and the discharge of the City's obligations under the Sale and Repurchase Agreement and the Trust Agreement. 6. Coovmlation with Private P] c�rilerit. The City and the Corporation agree to assist the Investor and Lehman in preparing materials for use in any private placement of the Certificates which the Investor or Lehman may determine to offer, which assistance shall include but not be limited to the preparation of a private placement memorandum. At the time of any such private placement, the City and the Corporation will represent and warrant that the information provided by each of them, respectively, is true and correct, and the City and the Corporation shall provide the same indemnification and opinions as are provided under the Purchase Contract and shall be subject to the same obligations, as applicable, as thereunder. The provisions of this Section 6 shall survive the termination of this Agreement and the discharge of the City's obligations under the Sale and Repurchase Agreement and the Trust Agreement. SIAL!B U1U82247/'9113350=495 The City of Lodi June 28, 2000 Page 6 7. AAgMWent SUWrsedes_Ld-rtter oLJuly 30. 1999. This agreement shall supersede and replace the letter agreement dated July 34, 1999, as amended on November 4, 1999, which upon execution hereof shall be of no further force and effect. 8. Goverming Law. The terms of this agreement will be governed by and construed in accordance with the laws of the State of California 9. Terminatio; S-umyal. This Agreement shall terminate one year from the date of acceptance hereof unless extended by the mutual written consent of the City and Lehman. In addition, this agreement may be terminated any time at the option of Lehman if, in the opinion of Lehman, circumstances exist which adversely affect the marketability of the Certificates. The provisions of Sections 4 and 5 hereof shall survive any termination of this agreement. The City shall be obligated to pay Lehman the Placement Fee described above, from Program Receipts, for any placement of Certificates with parties introduced to the City by Lehman if such placement, either in preliminary or final form, occurs within one year after termination of this Agreement. SFLIB 1/tOB7247/9/133SOM445 The City of Lodi June 28, 2,000 Page 7 Should the City agee with the above terms, Lehman requests that the City execute a copy of this letter and return the same to us at the address indicated below. Sincerely, Lehman Brothers Inc. 555 California Street 30th Floor San Francisco, California 94104 By: d -_qU& =Jjwnes. Gibbs Director SFLI$1 /1082247/9/13350/00495 The City of Lodi June 28, 2000 Page 8 Agreed to this 28th day of June, 2000: CITY OF LODI ATTEST: Interim Cq Cleric APPROVED AS TO FORM: 1 / / 1 LODI FINANCING CORPORATION ATTEST: Acting Settari APPROVED AS TO FORM: r Corporation tol SFUD IJIGM47N/1335OM495 Lodi Newly -Sen i NEWS Wednesday, April 02, 2003 » Order photo Dry cleaner won't be forced to reprints -online investigate, clean up contamination on S�s its own, judge says me including the News -Sentinel, should pay for the cleanup. » News » s_p.m. Update By Layla BDhm/News-Sentinel Staff Writer » Classifieds request by the city and issued a preliminary injunction » Photo ReQrints against Guild Cleaners. That injunction ordered the " Business A fe er I 'ud e has ruled that a Lodi dry cleaning business » Entertainment Mll no Ion er be forced to investigate and clean u » Events Calendar _ groundwater contamination on its own -- a move the » Features _ cleaner's attorneys considered a victory over the city. » Financial » Health » National News In the ruling that was signed Friday and distributed this g 9 Y " obituaries week to attorneys, Judge Frank C. Damrell cited what he Opinion called the city of Lodi's "belated admission" that the city is " 5Spo potentially responsible for the contamination. " Weather smilers That admission came at a February court hearing in » Archives Sacramento, one of many court appearances held since » Real Estate the city sued local businesses in 2000. » subscribe D11111M )RIES Until that hearing, the city had claimed no responsibility in » Churches b Staff Director the contamination argument, instead saying that insurance companies of more than a dozen local businesses, NW including the News -Sentinel, should pay for the cleanup. » FAQ » Online Forms Friday's ruling came three months after Damrell granted a request by the city and issued a preliminary injunction against Guild Cleaners. That injunction ordered the business to investigate the contamination and create a plan to clean it up. Headlines: ODry cleaner won't be forced to Investigate clean contamination on its own, judge sags Proposal for es hop#istrict budget cute Includes cutting 55 teacher positions Ridding Galt buildlna of nwld wiii cost at least $875.000, council_says Ftegional Roundup Acampo man MOadry/ flies W911W Galt delays vote a uirg fiCC $Drtnklers in new homes April showers won'tprevent another dry eV ar. State official says Photos ORldina for e nation But Lodi has since admitted that it might be partially liable, Peltier Road because it owns the sewers that are believed to transport crass, two toxic chemicals known as TCE and PCE. Under law, Damrell ruled, a potentially responsible party cannot seek an injunction against another party, since both might be responsible. Guild attorneys saw the ruling as a victory, and also pointed out Damretl's comments about the city's legal actions. Referring to it as "unusually protracted and costly litigaggri_" DaM t went on to say that the cit 's strategies have "led to unproductive detours from the u ma o oa dealing with the ci 's contaminatedgroundwater crisis." Sulk herbs� 42111wd AM& Attorneys for both Guild and the city agreed that cleanup is the most important thing, but when that will happen is still undetermined. While Guild plans to continue investigating the depth of conthmination in preparation for a September trial, attorneys Lori Gualco and Stephen Meyer pointed out that Lodi will not legally be able to regain attorney fees if it is partially responsible for the contamination. The city has spent approximately $20 million on the contamination case — with more than $14 million coming from a Wall Street firm — an amount that Gualco and Meyer said would be less than the actual cost of cleanup, once interest was figured in. While the cleanup cost has been estimated by some to cost $100 million, some original estimates were much lower. Kennedy/Jenks Consultants, an engineering firm, estimated the cleanup to cost between $20 million and $40 million, said Joseph Salazar, an attorney for insurance company M&P Investments. "Its not a $400 million cleanup. Nobody thinks that," Meyer said. Guild will continue its investigation, Gualoo said, and Salazar sant that initial reports show the contamination is not as bad as some people had once thought. While Guild attorneys declared Damrell's ruling a victory, the city did not see it quite so negatively. "They're a little ahead of the game," City Attorney Randy Hays said. "The question is not whether we're a (potentially responsible party) but whether we're a liable party." The city still maintains that it had nothing to do with the contamination, and Hays said the city will likely appeal Damrell's latest ruling, just as both sides have appealed nearly every ruling since the lawsuit began. Attorneys and clients spent Tuesday in mediation in San Francisco, and while they were ordered by a judge not to discuss the outcome of that session, a trial is still set for September. "I think we all walked away feeling that progress was being made," said Lodi Mayor Susan Hitchcock. Comments about this story? Send mail to the News -Sentinel newsroom. WESCRIJEE TO THE,LODI NE11YS-SENTINEE To subscribe to the Lodi News -Sentinel, fill out our online form or call our Subscriber Services Department at (209) 333-1400. Email this story Print this story ,. Lodi News -Sen it Headlines: MM Wwor. etty managerto attend hearing Wednesday, April 02, 2003 for Qollution BUII[ NEWS se » Order photo Supreme nitrll� Mayor, city manager to attend hearing CQurtdenies prints online for pollution case city's petition on pollution SECTI( 5 lawsuit » home » News By Layla BohmAVews-Sentinel Staff Writer » 5 p.m. Update Lodi's Addington • PhotoClassifiedsReprints » Photo Lodi's ma d the manager hbeenked -- mayor ane c have as nuedrupkft » Business actualf nearl ordered — to attend a mediation hearin celebrate 10th birthday » Entertainment t5UaX regarding the city's ongoing po ubon awsuit against » Events Calendar T^TbUsine§= Regional » Features Roundup » Financial While only attorneys have generally attended such » Health meetings in the past, mediator Judge Edward A. Infante Lodi c. • Nacional News calledcity officials last week and was "rather firm' about manager » Obi uaries Opinion his request, City Manager Dixon Flynn said. suggests dmstiz_bud oet x .. » snorts cuts » Weather When Infante called Mayor Susan Hitchcock, he told her SBtAM that representatives from the city had not attended past aQrfirs 1e sprinklers on » Archives mediation hearings, and attorneys hadn't even attended Gait city » Real Estate gvery time, Hitchcock Said Monday. council Subscribe a nda "As far as I know, he just wants to know that the council is » churches » Staff Directory aware of what's going on in mediation. He said a lot of Local schools awarded science money is being spent and no cleanup is being aone, and that concerns him," Hitchcock said. olymtfiad to medatA » FAQ » Online Forms The cleanup refers to potentially cancer-causing chemicals Tracy Maripg commonly referred to as TCE and PCE. killed ii Iraqi war is San Joaquin In 2000, the city filed a federal lawsuit, claiming that the counts fret businesses, including the News -Sentinel, and their casua 3 insurance companies are responsible for cleaning up 5 groundwater contaminated with potentially cancer-causing Photos chemicals. ORlding for the Numerous court hearings later, federal Judge Frank C. nation Damrell ordered a mediation hearing, and it has been set for today in San Francisco. Peltier Road crate Councilman Keith Land wondered wily the mayor and city manager were asked to attend the mediation, and if that meant officials from other businesses would attend the mediation hearing_ "My question is, 'Will the chief executive officers of the insurance companies be in attendance so eye what's going on?"' Land said. This guestion WA echoed by P & AttoMej RanShf Hays but when he asko Infante_ it on (Monday. the iwW What the mediation will accomplish remains to be seen. City Councilman Larry Hansen, who plans to attend the hearing today, was under the impression that the suit will likely be resolved this year. In that case, today's mediation could lay the groundwork for a settlement As a four-month member of the city council, though, Hansen still has not been formally caught up to speed on the current status of the lawsuit "I really don't know where we (are at) this point," he said, explaining that while he has followed the contamination story, he has not been informed on the city's legal strategies. John Beckman, also a new council member, said he too has not been informed in detail about the lawsuit A closed - session meeting for Hansen and Beckman has been scheduled for April 21, Hays said. Several similar mediation sessions have been held over the past few years, but the case continues to go forward. Various parties have conducted tests, but no dean -up has actually being done while attorneys argue over who is responsible for removing the chemicals. "The key question is, are the insurance Companies liable or not? ... I think the insurance companies are liable, and that's why we should move on with this," Land said. "if they're not liable, lets move forward." Comments about this story? Send mail to the News -Sentinel newsroom SUB QFdOE TO THE LORI N_WS-Pi To subscribe to the Lodi News -Sentinel, fill out our online form or call our subscriber services Department at (208) 333-1400. Email this story Print this story Home I Business I Features I Ngw-s lobituaries 1 Qpinion 15Sportsl 5 P m. U9date I Arehiyes I Cla sIne I itealr state i Subscribe Please e-mail your comments about this Web site to the Webmaster. Local News Lodi Lode National News .O inion p Crime Sto ers Columnists a Obituaries 911 Calls Weather ,Business News Business Mond AP Money Wire Stock Market Business Columnists Business Journal Calendars Technoloav News Sports News -Local.Sports Outdoors Pref Sports SSDorts Calendar Sports Extra Todd Timeout Reviews Youthink ,Today's Calendar r Movies TV Births & Weddings Good_ Taste_ in S.J. Vintage Parentina Announcements r Automotive Em Ip oyment Farm & Ranch Legal Notices Merchandise Mobile Homes x Personals Real Estate_ Recreation_ m Rentals Services t"l?" 4 �,-1 I NEWS I BUSINESS I TECHNOLOGY I SPORTS I LIFESTYLE I CLASSIFIED I STOCKTON CAL I COMMUNITY O Originally Published Thursday, June 26, 2003 Stockton, California Thursday, Jun_ 26, 200. High: 10: Off-, Lodi mayor in councilman'stow:& sih ts 5_ Day Forecast g Land blasts Hitchcock over lawsuit 7 Day News Search By Jeff Hood 'Windshield Murder Case Goes to Jury Lodi Bureau Chief States Stili Deal_ ng__ LODI — City Councilman Keith Land is Budget Woes seeking to censure or boot Susan Ju e Rules for Hitchcock from her position as mayor, Reporters in Murder saying she has operated behind the city Case attorney's back threatening a uW mms c=.- multimillion -dollar pollution lawsuit in Crews Begin Assault on c°""`"'01Mayor, which the city is mired. N -M. Wildfire The move is a departure from December, when Land UMass_President _Chided nominated Hitchcock for the mayor's spot, an attempt to for Mob Brother thaw their frosty relationship. Council members in Lodi are Mpg Miss Out on Free elected, and the mayor is selected by other council Lunch in Summer members, typically on a rotating basis. Sept i I Sus getMa Land said Hitchcock is interfering with the city's 2112 -year- Question witness old federal lawsuit against businesses and property owners the city holds liable for contaminating soil and groundwater Airport Screeners May Get x-RaX_yision in central Lodi. The plumes of PCE and TCE, potentially _- Carcinogenic solvents, threaten to contaminate the city's CpuM Says NY School water supply. 5ystem_Faitina Kids "I nominated her, and I feel responsible for that," Land said, Ctinton Adds to Arte. "and I'll do whatever I can to right a wrong." History Archive Hitchcock talked with a court-appointed federal mediator Obituaries in the News after a May 19 session in Lodi, angering Land, the only other council member to attend. When City Council Wash. Carpenters Strike Over Contract members were unable to decide last week in a closed _- session what their role should be in the mediation talks= Cemeot rrei rtes they voted 3-2 not to participate until they could reach a Grounded Off_ Florida final decision. Nation`s Birth Rate Falls Mike_ Fitzgerald Francis Garland ,R Lori Gilbert Eric Grunder Jeff Hood - Communi Info Government Officials Events Stockton Cal Receive an email with new daily headlines from Recordnet. com News Tracker Member s Subscribe Dining Card Ad Placer Hitchcock, however, said she would continue to attend the sessions despite the vote, because she had been invited by mediator Edward A. Infante, a retired federal magistrate. "If Mayor Hitchcock is going to go about in her own way, why should the other four of us show up?" Land said. "I respect her opinion. It's her conduct that I do not appreciate. She was actually talking to the judge behind the city attorney's back. ::: Advertisement::: "We now have the insurance companies -- their attorneys -- sitting at the table trying to mitigate the issue of contamination. Susan is unfolding, by herself and without council consent, the whole process we've been working on for eight years." Hitchcock. the Council hadn't been shown a a owner. in the 2002 election. said Hitchcock said she wouldn't wait for the City Council's permission to attend the next mediation session, which U.S. District Judge Frank Damrell on Wednesday ordered held Friday despite a request by Lodi to delay it to allow the city's environmental -law specialist, Michael Donovan, to recover from arm surgery. Stephen Meyer, an attorney representing suspected polluter Guild Cleaners, said Hitchcock is the only City Council member trying to understand the litigation, on which Lodi already has spent more than $20 million. "The City Council, rather than criticizing Mayor Hitchcock, should instead be asking some of the same tough questions that she has raised," Meyer said. "The problem the city has created for itself will not go away by sticking your head in the sand." City Attorney Randall A, Hays_declined to say if Hitchcock's actions have hurt the city's legal efforts, but he did say the mayor received a copy of the settlement offer April 21. He said he didn't ask the council to consider the offer, because to Record Low Max Factor Heir Faces Civil Lawsuits ArafatSia rs_Format Cgase-F_ ire Imminent Two U.S. Soldiers Killer tyIm . iq Ambushes _Angry L&prians Blaine U.S. for -Casualties Sir, Denis Thatcher Dies at 88 in London U.S. Sees Urgency for Nuclear Monitorm Indonesians Find Mass Graves in Aceh Ukrainians S_ trip Food Store Shelves EU Ministers Overhaul Farm Subsidies Imqi Froyides Pre -'91 Nuke Progrm_ Items Putin's English Earns Him an 'N Stockton Cal The Meeting Place San Joaquin A+ Valley Home Finder Valleysurf.com Newspaper in Education recovery of legal fees — the City Council established in 1997, one year before Hitchcock's election. "Why would we not want council members going and hearing the information?" Hitchcock said. "Ail this goes back to the judge asking me to attend the sessions because the council is not being presented with information." Councilman John Beckman said he would vote at least to censure Hitchcock if she attends a mediation session against the council's wishes. And if there's a motion to remove her as mayor, he would support that as well, he said. "The ball's in Susan's court," he said. Hays said state law doesn't specifically say a mayor chosen by a vote of a council can be demoted by a vote of the council. But he cited a 1984 opinion by California Attorney General John Van De Kamp that city councils such as Lodi's can remove a mayor at any time by a majority vote. * To reach Lodi Bureau Chief Jeff Hood, phone (209) 367- 7427 or e-mail jhood@recordnetcom Back to Top Subscribe - Subscribe online to have The Record delivered to your door every morning. Vacation hold - tt you are going on vacation, we can stop your newspaper while you are away. VW,.M1=r4%R_1UX_'_PE Last modified: June 26 2003 07:45:20. Copyright 0 2045 The Record, All Rights Reserved. pricary PoHry and Terms of Use. For more Info contact webmasb cordnet.com I 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA ---000--- ) CITY OF LODI, ) Plaintiff, ) V. ) CASE NO. CIV S-00-2441 M&P INVESTMENTS, et al., ) Defendants. ) ) ---000--- REPORTER'S TRANSCRIPT OF PROCEEDINGS Before the Honorable Frank C. Damrell, Jr., Judge thereof ---000--- July 11, 2003 Reported by: ANGELA L. WESTON CSR NO. 11658 CAPITOL REPORTERS (916) 923-5447 • 0 • 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 APPEARANCES DOWNEY BRAND 555 Capitol Mall, loth Floor Sacramento, California 95814 BY: Stephen J. Meyer Jean M. Hobler Mike Thomas (916) 444-1000 STATE OF CALIFORNIA DEPARTMENT OF JUSTICE OFFICE OF THE ATTORNEY GENERAL 300 South Spring Street, Suite 5000 Los Angeles, California 90013 BY: Donald A. Robinson (213) 897-2611 LAW OFFICES OF LORI J. GUALCO 455 Capitol Mall, Suite 210 Sacramento, California 95814 BY: Lori J. Gualco (916) 442-6660 ENVISION LAW GROUP 3717 Mt. Diablo Boulevard, Suite 100 Lafayette, California 94549 BY: Michael C. Donovan (925) 962-6900 ISOLA BOWERS 701 Soitth Ham Lam Second Floor Lodi, California 95241 BY: Aaron L. Bowers (209) 367-7055 CITY OF LODI CITY ATTORNEY 221 West Pine Street Lodi, California 95241 BY: Randall A. Hays (209) 333-6701 CAPITOL REPORTERS (916) 923-5447 11 z • 0 • 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 LAW OFFICES OF LORI T. OKUN 1001 I Street Sacramento, Ca. 95812 BY: Lori T. Okun BINGHAM MCCUTCHEN Three Embarcadero Center San Francisco, California 94111 BY: Thomas S. Hixson (415) 393-2152 MAYALL, HURLEY, KNUTSEN & SMITH 2453 Grand Canal, Boulevard, Second Floor Stockton, California 95207 BY: Joseph A. Salazar (209) 477-8333 BARG, COFFIN, LEWIS & TRAP 1 Market Steuart Tower, Suite 2700 San Francisco, California 94150 BY: Jon Goddard Lycett (415) 228-5400 CAPITOL REPORTERS (916) 923-5447 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SACRAMENTO, CALIFORNIA JULY 11, 2003 ---000--- THE CLERK: Calling Civil Case 00-2441, City of Lodi v. M&P investment, et al. It's on motion for summary judgment and motion for stay and a motion to dismiss, Your Honor. THE COURT: Appearances of counsel, please. MS. GUALCO: Lori Gualco on behalf of Jack Alquist. Alquist. MR. MEYER: Stephen Meyer on behalf of jack MR. ROBINSON: Donald Robinson State of California. MR. BOWERS: Aaron Bowers on behalf of Defendant Oddfellows Hall Association of Lodi, Inc. MR. SALAZAR: Joe Salazar on behalf of M&P Investments and David Mustin. MR. HIXSON: Thomas Hixson, Your Honor for Fireman's Fund Insurance Company. We have been incorporated for purposes of the State, Your Honor. MS. HOBLER: Jean Hobler for the Guild Defendants, Your Honor. MR. THOMAS: Mike Thomas from the Downey Brand Firm, also for the Guild Defendants. nxnTmFli /01 C% O')'1 r,GA A'7 I 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. DONOVAN: Good Morning, Your Honor, Mike Donovan, senior assistant district attorney on behalf of the People of State of California and City of Lodi. With the Court's permission, because of accoutrement, leave to appear without my jacket. MR. HAYS: Randy.Hays, city attorney, City of Lodi, on behalf of the City of Lodi. THE COURT: Good morning, Counsel. MS. GUALCO: Your Honor, we actually have good news for you, we have a stipulation on one of the motions before you. The Guild Cleaners, Inc. motion regarding the RAO issued by the DISC. DTSC and Guild Cleaners, Inc. have reached a stipulation regarding that motion, and with your permission we would like to take that matter first. THE COURT: is this only as to Guild? MS. GUALCO: Only as to Guild Cleaners, Inc., Your Honor. That is the only moving party regarding the RAO. THE COURT: Let's hear the stipulation. MS. GUALCO: And Mr. Robinson is here. What we have decided, Your Honor, is that the --- the RAO issued by the Department of Toxics against Guild Cleaners, Inc. will be stayed for a period of 90 days. And during that 90 days, Guild Cleaners, Inc. has agreed to continue with rn'DTmnT 'DVDnJ;)MV Q tQJ Ai p'> 2—R,dd7 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the work that it has been undertaking in the City of Lodi for the past two years. Guild Cleaners, Inc. would like to have its motion continued on calendar for 90 days to coincide with the termination of that 90 -day agreement regarding the stay, although the parties have agreed that we can revisit this, and if necessary we can continue the stay against Guild Cleaners, Inc. Both sides would be reserving all of their rights regarding both the issuance of the RAO by the Department of Toxics and the issues that Guild has raised in its motion to the Court to stay that order or to have it withdrawn by the Department. Is MR. ROBINSON: This is -- yes. Your Honor, this is a voluntarily stay as to Guild Defendants, not the other parties in the order. THE COURT: All right, that stipulation with respect to that particular Defendant and on those terms it has been recited by Ms. Gualco. I don't know, there is such a. cornucopia of issues and questions, I don't know where to begin here. First on the calendar are the motions for summary judgment, and there are, I think, issues that are raised by those motions that probably would be subsumed under the other issues raised by the stay motions. In particular, the affect of the RAO on this litigation, City's motion to stay litigation, but, ♦*71 T7r M^"r T1'i TIr,%1`i m Tic- / n'1 C% n ^Y'9 - C A A -7 1 Z 3 4 5 6 7 a 9 10 lI 12 13 14 15 16 17 18 19 20 21 22 23 24 25 you know, with respect to the motions for summary judgment, the three that have been filed -- I guess, Mr. Donovan, are you going to be arguing, as wounded as you may appear? MR. DONOVAN: Yes, Your Honor, together with THE COURT: If you wanted to, just in case you are going to argue this motion today, you needn't come forward if you don't feel up to it. We're back to an old saw here on these motions. We have -- I guess you are seeking a declaration -- summary adjudication declared the Defendants named in these motions, they have in fact committed a nuisance, but we are not in violation of California Civil Code, but there is nothing that is going to happen, they are just -- they have -- that is wrong, and that is the declaration.you are looking for. Then we move on from there, depending on what happens in the appellate process; is that what you are saying? MR. DONOVAN: Absolutely, Your Honor. That -- you have a very fair understanding of what the moving parties are -- elements of liabilities alone, Your Honor. THE COURT: Right, right. This brings into question -- where did Mr. Robinson go? MR. ROBINSON: Here, Your Honor. THE COURT: You'll have to come back up here. CAPTTOT. REPORTERS 191.61 923-5447 7 I 2 3 4 5 5 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 You are going to be here a while. The RAO, which the state describes a full remedial action of the site, seems to me to prevent -- if that goes forward against the parties that it is -- that are targeted, what is the affect on this litigation, the first phase at a minimum, and why do I have to go through the gyrations of California nuisance law when the whole purpose here is full remediation of the site and the state has assumed the role of lead agency? That's what appears to me that is what has happened. Am I missing something here? Where is the city in all this? The state has moved ahead and decided they are going to take care of the site. MR. DONOVAN: Is that addressed to the city, Your'Honor? THE COURT: It strikes me -- it appears there is certainly overlap and duplication if we are going to proceed on nuisance law and seeking injunctions when the state administratively has moved forward to conduct a full remedial action of the site itself. MR. ROBINSON: I can address at least one point, Your Honor. In preparing to argue the motion which is being put over by the stipulation I thought about that issue, and it occurs to me that the parties do have competing contribution claims as against each other with respect to their -- nnnTmni DVnnVMV1DC /Olr-1 071-S-,AA7 Q ON 2 3 4 5 6 7 8 9 10 11 Is 12 13 14 15 16 17 is 19 20 21 22 23 24 25 THE COURT: I understand that. MR. ROBINSON: And I assume that would probably still go forward, I believe, in phase I or at least the liability, that underlying the portion, would go forward. THE COURT: I understand apportionment. MR. ROBINSON: The order doesn't impact that particular issue. THE COURT: Right. Let's assume the point is that the city now is proceeding against these same Defendants on nuisance claims to accomplish the same ends; isn't that the case? Am I missing something there? MR. ROBINSON: No, Your Honor. Your Honor, what I was prepared to say, once again in my presentation this morning, if the City was to proceed with its injunction claims at some later time, perhaps during. phase I, and it occurred or it appeared that there was some overlap between what the city was requesting and. what DTSC has ordered in its administrative order, then the Court has the power certainly to reject or modify or somehow impose an order that doesn't overlap or duplicate or it's inconsistent with what DTSC has asked for. I personally don't know what the city might request that goes beyond DTSC's administrative order, but that is certainly within your power to fashion. So there isn't -- flAnTMnT DWTDnDMVDC /Q941 Q11-rAA'7 a 6 ID 9 -1 • THE COURT: I can probably --- I don't know if 2 1 the city is going to 3 my thoughts out on this. This has been a very expensive 4 piece of litigation. I've heard argument of counsel and 5 millions and millions of dollars and it -- if there is 6 going to be a full remediation of the s' 7 lead of the DISC, then what role -- why does the cit 8 want to spend more money to get injunctive relief when 9 the state has gone ahead and basically assumed that role 10 in place of the city? What is it you want to do with 11 your injunctive relief that the state is not going to 12 take care of with its administrative order? I'm not 13 talking about contribution or things of that -- 14 MR. DONOVAN: 2 think that is a good place to 15 begin. First of all, the city does not have any 16 contribution cases and contribution claims before this 17 1 Court in -- is I THE COURT: Yeah. 19 MR. DONOVAN: -- in this matter. There are 20 contribution claims against the state, none by the city. 2.1 Number two, the city continues to operate under the 22 comprehensive cooperative agreement with the state, with 23 DTSC, and cooperated and in fact following the procedural 24 involvement of this case and the fact that we simply were 25 unable to bring ourselves to a position of injunctive rr T TfTmr T ric+nnnmc*nr / n 7 C\ n n i_ G A A Z 1 n .2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 relief given the legal issues. This Court itself invited DTSC, the state, to take a presence in the field. DISC, under the comprehensive cooperative agreement, Your Honor, has always had the lead on the activities at the site. The city had lead agency status with regard to enforcement activities at the site. What -- right now what we have is an administrative order issued by DTSC. It's subsumed some, not all, the relief the city would -- THE COURT: Why don't you talk to DTSC about that? It seems to me they have the resources, the expertise, they are taking the role of -- obviously they are doing what they are doing because the city has not been able to assume its lead agency role sufficient) or adequately, and that's why they are doing what they are doing. That's why they said in their declaration why wouldn't this be an opportunity for the city instead of spending more money, here you have the state doing exactly what should be done, and I don't know what it's going to cost the city, it seems to be less expensive to spend money than the city continuing its enforcement. It strikes me as being redundant and highly expensive and unnecessary. There is some things the state is not going to do. Maybe you should outline that and maybe the state will do it, I don't know what you have in mind. It seems -%7nrmr,r r,tic.nnnM'On�l ln14N 6-]9-r,AA17 11 Ir q 1 2 3 4 5 6 7 8 9 10 11 12 13 1.4 15 16 17 18 19 20 21 22 23 24 25 to me we are getting somewhere with the state taking action in this matter in terms of remediation of the site, not in terms of litigation of the issues. MR. BOWERS: Aaron Bowers on behalf of Oddfellows. As you mentioned, a cornucopia of issues here. We have moved into the issues that are intimately intertwined with Oddfellows' motion to dismiss or stay. As you talked about what could the city seek or request, I just wanted to direct your attention for a moment back to Oddfellows' motion where we are seeking to dismiss or alternately stay only the phase I issues, which are the injunctive relief issues being proved by the city. In that regard, Your Honor, our position is, as you have articulated, there is nothing more the city can do from a non -personalized injunctive relief standpoint than what DISC has done through issues of ISC RAO. THE COURT: I was referring to phase I, by the way. I understand those issues. But the parties that are not encompassed by phase I, here we are with the state having taken the position of assuming what appears to me to be the role that the city was attempting to assert under the cooperative agreement, and. I'll -- I have questions about the cooperative agreement, I just want to talk about what is left of this litigation in phase I, that's what I want to encompass in these CAPITOL REPORTERS (916) 923-5447 12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Motions for summary judgment, I don't know, it strikes me that where is the threatened power for injunctive relief that the state has gone ahead in remediating the site? Where is the threat of harm if the state is taking care of the problem? MR. DONOVAN: It assumes a mountain of information, Your Honor, that the state, A, is taking care of the problem, and, B, the other two orders that have been issued here do not include all the defendants in this case. THE COURT: I understand that. MR. DONOVAN: The city is going to want additional relief even based upon the existing scope of that order. And, finally, You Honor, it's necessary for this Court to recognize this -- the implication of this Court's jurisdiction by the city and, two, by the People of State of California was done in account of the full communication and cooperation THE COURT: We'll get to the cooperation agreement. I have a lot of questions about the coop- -- MR. DONOVAN: Here we are --- my point is only to say, Your Honor, years later here we are with the state having acceded and supported the invocation of the Court's jurisdiction by us and the cooperative agreement CAPITOL REPORTERS (916) 923-5447 0 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 n 21 22 23 24 25 arrangement and their administration assertion of the authority. You say it's going to accomplish clean up, that's a fact yet to be established. We do not know that. B, it's an administrative act, it does not have the compulsive authority and finality of this Court's THE COURT: Slow down. MR. DONOVAN: Finally, Your Honor, it is imperative, Z think, for this Court to recognize that the overall nuisance abatement activities over the site -wide activities of the Plaintiff working in full communication and cooperation with DISC. We have absolutely no desire, as has already been indicated, no desire, to bring to you issues that are already being resolved under a separate process, but there are going to be almost certainly, Your Honor, numerous issues involving the abatement and clean-up activities in this site. There are going to be compliance issues, there are going to be issues with regard to parties that aren't even parties to the DISC order. There are just numerous parties of the -- THE COURT: Let me ask you this: it appears that much of those issues could be part of this, you. know, very tortured litigation involving the parties. Obviously lots of things have happened in this litigation, but here we have a truly innocent party that nr nTm�r r%z r,nnMr-"C- / A l t \ 4M n'] -= A A -7 14 IA 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 k5 says they want to completely remediate the site and the state issues these orders to do so, now maybe it wouldn't be complete, but it would seem to me that I would --- it would be a waste of judicial resources to continue on with -- because you want to vindicate my jurisdiction, which is essentially coming from you, Mr. Donovan. MR. DONOVAN: But vindicating federal jurisdiction, Your Honor THE COURT: We have been vindicating federal jurisdiction for three years and we haven't done much with this site. And it seems to me we stop to take an assessment where are we going with this litigation and where does it stop now in face of state taking this action. it may not be perfect, there may be problems, but I would much rather see the state attem t to do its which I think it has done before on other sites and I don't think this is necessarily that unusual. If it fails to do its job, we'll take that up, but it seems to me that for the city to expend more funds, to file more motions for injunctions and deal with these issues that may be fine for scholars to discuss, but is not going to advance the clean up of the site. That is a waste of my resources and a waste of the city's resources and a waste of the Defendant's resources. Apparently the state is rAPTTOT,RFPORTFRS !9161 923-5447 15 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 2 0 21 22 s 23_ 24 25 lC� going forward with this thing. I don't know whether cost is going to be allocated. Why would the city object to that? MR. DONOVAN: When does the city ever object, Your Honor? THE COURT: Why would you want to take the time of this Court and go through these motions for, you know, injunctive relief and seeking declarations for nuisance and -- I mean the state is going forward to clean up the site, isn't that what we are here for? Why isn't that the foremost in your mind? It's going to save the city a lot of money, save you have a lot of the time save me a lot of time, and save the Defendants time and money. I just -- what I'd like to see is what do we have left in this litigation. That's what we do. Litigation has been resolved considerably in light of this. You say maybe things are not going to be accomplished by the state, that may be true and I'm 'more than willing to hear that rather than proceed with all these motions in this litigation. I think we need to take a pause and take a deep breath and see what is left in this litigation in light of what the state is doing, that would be the most efficient use of your time and my time. MS. GUALCO: May I respond to that particular question? ..� rr mi. s riTTl1T TTTl+ / n n C \ M �� G A A '7 '1 C 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: You may. MS. GUALCO: Your Honor, we have been going forward in the mediation process. As you know you issued the June 25th order ordering all parties, insurers, counsel, et cetera, to participate in mediation. We had the Department of Toxics and the regional board at our last mediation, which occurred approximately one week ago. Unfortunately, Envision did not make an appearance, but Mr. Hays was there, along with the city manager, and we are now in discussions with the Department of Toxics and the regional board. In fact, we have sent them a proposal for a settlement. We don't have agreed-upon terms or negotiations, but we have a structure that we are going to go forward on, and I think this is what you are talking about: can we move forward on the mediation process, get the claims settled without the litigation cost and all the money. THE COURT: I'm always for mediation and settlement, but I'm not trying -- I assume it has some impact on that process, but I would like to know from the parties what is really left of this litigation, first phase at least, and ---- I mean, I know there is the issue of the trial ahead of us and I'll get to the issue of stay in that litigation itself as a result of the interlocutory appeals, but I'm just trying to get my arms tI 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 around the remnants of the phase I in light of what the state has ordered. MS. GUALCO: I think what is left, Your Honor, is the city's 107(b) defenses. The city doesn't have them, they are PRP. We simply move on to the contribution phase of this case, phase III. MR. BOWERS: That flows over. There is still phase I issues left. Namely, there is a hoast of defendants in phase I that are not covered by the ISC RAD. Again, in our papers we are pretty clear to try and point that out. THE COURT: What happens to those defendants then? MR. BOWERS: Those defendants will proceed to phase I trial on the issues scheduled for phase I trial. THE COURT: And the city -- let's -- wait a minute, that's assuming the city is going to be the. prosecute -- plaintiff. I mean, there is a lot of issues still left unresolved in that respect. Let me ask the state. Mr. Robinson, with the numerous other defendants that are out there in this case, obviously you have got targeted in your seven of the defendants, whatever you call them in your RAO, what about other potential responsible parties with that -- the site; how would you deal with that? /1A r% -r ^-r TTT/1T TT. 7'!f� JA7 /_ % n -%^f C A A'7 R n 2 3 4 5 6 7 s 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. ROBINSON: My understanding is we have named the responsible parties as to the central area plume, and there are, I believe, four other areas. The agencies are working with some of those responsible parties, more cooperative basis, and we'll see how that kind of pans out. If necessary, certainly the agencies reserve the right to issue further orders with respect to other -- the other four areas. THE COURT: Is it your understanding that the DTSC is now proceeding -- the phrase I keep referring to, and I assume you are not talking about just in the central area, you are talking about the entire site, you are embarking on an effort of full remediation of the site, the site being the entire plume? MR. ROBINSON: The order only covers the central area. THE COURT: Is the state contemplating dealing MR. ROBINSON: My understanding is the regional board is working on two of those areas with the responsible parties. MR. SALAZAR: Joseph Salazar, Jr., I can jump in on that part. I represent M&P Investment, we're the property owner at the Busy Bee site. We are working without an order with the regional board. We are under 8 • • 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 contract with the regional board to pay oversight costs, I got a bill last night. We are one of the sites moving forward. We have an RIFS. We submitted to the regional board a proposed pilot study for extraction ground water drilling to check lower end of contamination. We are working toward remediation in the short term. We believe we will have a remedy in place by the end of this year, so it need not take litigation to get a site cleaned up, nor does it take an actual order. We are moving forward with the board. If we stumble or falter, certainly the board can come in and issue orders. THE COURT: So there are four other sites that you understand, Mr. Robinson? MR. DONOVAN: And there may be more, Your Honor, MR. ROBINSON: There is four other areas. MR_ DONOVAN: Area -- MR. ROBINSON: Within the larger extent of contamination. My understanding is the regional board state agency is working with -- working on two of those areas and DTSC has reserved the other two. It's THE COURT: Let's assume for the moment -- let me ask you this: Let's assume the trial is held, the city is held to be a responsible party, right? Now, with that interlocutory appeal., maybe I don't know how it nTn-rMnT /n1 G\ O'!'7-C.n R'7 ME 1)n 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 10 24 25 would allow the city to circumvent that finding. Let's assume the city is a responsible party, okay? So it can't then take these actions or seek an injunctive relief, would the state, the board, and the Department of Toxics proceed ahead and -- is that your understanding, they would then take over as a lead agency in remediation of that entire area? MR. ROBINSON: That certainly is my understanding. Were either the regional both or DISC taking the action, they have entered into a memorandum of understanding between them as to which agency leads responsibility for which sites. THE COURT: That is already worked out between the two agencies? MR. ROBINSON: That has been, Your Honor. THE COURT: Mr. Donovan, if we have a trial in this matter and the city is found to be a responsible party, isn't that where we are headed, as Mr. Robinson indicated, the state agency would take charge of the remediation of the site, the lead agency? MR. DONOVAN: That assumes several points, Your Honor, that are now pending, of course, in the interlocutory appeals before the 9th Circuit. The first and foremost is the.city attorney's authority to f+A=MnT VVDnT MV"DC (014:1 G171 -C, A n 7 71 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 represent the People of the State of California and their claims, which are the injunctive claims at this point. Your Honor has since, of course, ruled that the real party in interest on those claims was the city. THE COURT: Let me ask you about that; if the Court held a trial and found the city to be a responsible party,•is it your position then that if the 9th Circuit reversed my ruling that then the People of the State of California would pursue injunctive relief against all responsible parties, including the city, would that be the case you -- MR. DONOVAN: The People of the State THE COURT: Let me finish. The People of the State of California, that entity, they turn around., because the.City of Lodi is a responsible party, would then sue and seek injunctive relief against the City of Lodi; is that what you are saying? MR. DONOVAN: Not at all, Your Honor. THE COURT: Why wouldn't that be the case? MR. DONOVAN: Because the people have chosen '1 W 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 1$ 19 20 21 22 23 40 24 right to assert contribution claims against the city to the extent they choose to do so, assert them and prove them. Your Honor is trying to suggest that now -- that the Court should instruct the prosectorial authority as to which defendants it should choose. THE COURT: 2'm not saying that. I'm saying it seems so disingenuous to say that 731 now the city becomes the People of the State of California. The city is a responsible party, they simply will not be held accountable for their action.' MR. DONOVAN: Of course they will. THE COURT: Because they are also the People.of State of California. The 9th Circuit statute -- MR. DONOVAN: No, Your Honor, that is not correct at all and it has never been the city's position the People of the State of California are the plaintiffs on the injunctive claims. The Defendants have contribution claims against the city. Those contribution claims are against the city. Whether the city is liable or not liable on the contribution claims, Your Honor will determine it is unaffected by the fact the People of the CAPITOL REPORTERS (916) 923-5447 L 23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 1s 19 20 21 22 23 24 25 State of California are the plaintiff in the joint and several injunctive claims against the responsible parties to secure adequate protection of the public health, welfare and environment at this site. THE COURT: In the cooperative agreement does it mention of State of California lead agency or City of Lodi under the cooperative agreement. MR. DONOVAN: Not entirely. THE COURT: Let me finish. I asked Mr_ Robinson is it the people of the State of California lead agency or City of Lodi. MR. ROBINSON: My understanding is the agreement is between the city and DTSC only. THE COURT: If the lead agency is the city, how do you get around that the People of the State of California aren't mentioned in the cooperative agreement? MR. DONOVAN: That is not accurate, Your Honor. THE COURT: Where are they mentioned? cooperative agreement that is the excuse of the enforcement authority by the city specifically mentioned as shall be brought by the city office claims. The city commits itself to investigate or pursue all claims available to the city or claims available to city CAPTTOT, RR.PORTERS (916) 923-5447 04 24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 attorney in his role as prosecutor to prosecute, and that it was recognized in negotiations with DISC those claims included claims available to any city in California. This is not new. THE COURT: We have been down that road.. Your view is that that language really implies that the city -- that the People of State of the California is the lead agency. MR. DONOVAN: The People of State of California are the plaintiff in the injunctive claims on this matter. The cooperative agreement are the City of Lodi and DTSC, it has nothing to do with contracting with People of the State of California. THE COURT: It says the City of Lodi. It's on paragraph 9(a), "The City of Lodi alone shall in coordination, cooperation, and close communication of BPAC, oversee, monitor, review and approve the work undertaken by the potentially responsible parties to assess, ensure compliance with the applicable federal, state and local. law." That seems to be pretty clear. MR. DONOVAN: That is clear under paragraph 9, Your Honor. THE COURT: Look, I'm not -- it does get to the issue against the stay and litigation, and it just struck me if we go ahead with the trial, which I think we are CAPITOL REPORTERS (916) 923-5447 I' A 25 r� 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 going to do, and the Court were to find the city a responsible party, then the 9th Circuit, the Court of Appeals, chooses to research my ruling and says the city. can proceed as the People of the State of California, that is a bizarre situation. Here the city is a responsible party, and yet the city on behalf of the People of State of California can pursue actions against other defendants. MR. DONOVAN: I'll call this Court's attention promptly back to the fact that it is not the city becoming the People of the State of California, it's the city attorney. THE COURT: The city attorney becomes this avenging angel on behalf of the People of the State of California, but I think that is entirely bizarre because the corporate entity of the city is a responsible party. How in the world does that make sense? Does it bother you at all? MR. DONOVAN: Not at all. And I think the fact of the matter you think the fact the People of State of California are plaintiffs in joint and several claim in any way affects claims on behalf of city, it does not. THE COURT: Let me ask the Defendants, does anybody offer any thoughts? MR. BOWERS: Your Honor, the only thing I would rAPTTOT, PRP0PTFRS (916) 923-5.447 Mp 26 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 mention is that your question about this notion of the People of the State of California.asserting these claims and not asserting claims against the city, in the same regard go to the heart of what we discussed two years ago in our motion to disqualify this embodiment, this ethereal procedural fix that is hoisted up there as the People so you can manufacture an innocent plaintiff to pursue subjective claims against a subset and basically shield the city just can't be right if, you pointed out, the interlocutory appeals work out the way you suggested. THE COURT: The question I have, if we go ahead with the trial and the city is found responsible, then that really -- I mean, these are really two separate issues and so why -- is there any reason to stay that action? It has nothing to do with the appeal. It sounds like you pretty well argued the determination of the People of the State of California -- you pretty well argued that the People -- the People of the State of California issue, on appeal it really has nothing to do with the city being found liable. MS. GUALCO: That is correct, Your Honor. THE COURT: So I don't know why you have made the argument, and it strikes me I don't have any -- MR. DONOVAN: Your Honor, I think you're 25 1 absolutely correct, it doesn't have anything to do with CAPITOL REPORTERS (916) 923-5447 27 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 1s 19 20 21 22 23 24 25 THE COURT: Okay. MR. DONOVAN: Whether the people are the Plaintiff in the injunctive claim or the proper party to bring them has nothing to do with contribution liability against the city, nothing. In this too there is a second appeal in front of the Court, and, as you know, that second appeal is the reason because it calls into question what is now presently scheduled to be conducted in this trial is a determination for purposes of determining whether claims can be brought by the city on a joint and several basis. The city, not the people, but the city on a joint and several basis. The Court has determined it needs to resolve by reason of its application of Fireman's Fund. THE COURT: Slow down. MR. DONOVAN: By reason of its application of Fireman's Fund decision, the question of whether the city is or may be a potentially responsible party under CIRCLA. Remembering, of course, there -- Your Honor, there are no CIRCLA claims in this case. Rather than the doctrines articulated in Fireman's Fund the Court used to import that issue in this case to decide whether the city can maintain joint and several liability claims so as we proceed to claims against the city or for that matter or CAPITOL REPORTERS (916) 923-5447 28 I CAPITOL REPORTERS (916) 923-5447 29 1 whether those claims are joint or several, that issue is 2 directly in front of the Court of Appeals right now and I 3 do not believe the Court can proceed forward in trial on 4 those issues. 5 THE COURT: If I were to find the city 6 responsible party, how would that affect the Court's --- 7 you said -- I mean, according to you some other courts 8 have done this too, but in importing CIRCLA doctrine in a 9 nuisance claim, and you are saying supposing you were 10 found to be responsible, it wouldn't matter any way, you 11 are saying that CIRCLA doctrine can't be applied to your 12 nuisance claims, so why should that prejudice your • 13 nuisance claims? 14 MR. DONOVAN: I didn't understand, I'm sorry. 15 THE COURT: I guess I didn't understand you. 16 MS. GUALCO: Again, Your Honor -- 17 THE COURT: You want to clarify my question? 18 MS. GUALCO: Yeah. 19 THE COURT: Do so. 20 MS. GUALCO: First, I'm going to answer -- 21 THE COURT: You understand my question? 22 MS. GUALCO: I -- 23 THE COURT: If the city is found to be a 24 responsible party, Mr. Donovan said you could, you know, • 25 implicate CIRCLA doctrine in a nuisance claim. CAPITOL REPORTERS (916) 923-5447 29 2 3 4 5 6 7 8 9 10 11 7.2 13 14 15 16 17 18 19 20 21 22 23 24 25 MS. GUALCO: Your Honor, that is completely opposite to what the court decided in Fireman's Fund. THE COURT: I'm not going to reargue -- MS. GUALCO: We don't agree with him.. We believe if the city is to keep under the doctrine that is outlined in Fireman's Fund, the city is precluded from obtaining joint and several relief in any form, including state nuisance law. We also believe that it's not correct what Mr. Donovan has represented, that actually you or the Court did not explicitly -- that you have ruled or did not rule on the fact of whether or not joint and several injunctive relief can be sought against other PRPs. That is not up on appeal right now before the Court, and that is why the trial should go forward_ If we go forward with the trial on the RP status of the city, I think it will actually make determination of this case -- that will allow this case to move forward more smoothly. So we would urge that the Court hold the trial on September 22nd regarding the 107(b) defenses of the city to make a determination as to it's RP status, because we would also argue that the city should have been included in the order issued by DISC against the industrial plume party. THE COURT: Let me let Mr. Donovan respond to what you just said, and maybe I misstated the premise of CAPITOL REPORTERS (916) 923-5447 BIF 1 your argument. I want to make sure I understand. I 2 think I understand. Why don't you just take it one more 3 time. 4 1 MR. DONOVAN: Thank you, Your Honor. I think 5 what was just presented to you, frankly, is doublespeak, 6 Your Honor, and it takes you nowhere but back to where we 7 started. What is at issue now in phase I are injunctive 8 claims by us against them, the Defendants, and claims and 9 alleged injunctive claims by them against us, against the 10 city, that's what is at issue. 11 In getting to this point where you are going to 12 try this matter, Your Honor has ruled that withdrew an 13 injunction issue previously in our favor, a joint and 14 several injunction against the responsible parties, and 15 said we have to decide on Fireman's Fund whether the city 16 did bring joint and several liable injunctive claims in 17 phase I against the responsible parties, and in order to 18 do that, I need to follow the contures of Fireman's fund 19 no matter how you define those contours. 20 Your Honor, your very decision, A, that the 21 Fireman Fund's principle are at all appliable to 22 California public nuisance law are present in this.claim 23 and affect the liability of the city in any way are all 24 now before the 9th Circuit. As a matter of jurisdiction, 25 Your Honor, on that second appeal that you no longer have CAPITOL REPORTERS (916) 923-5447 31 2 3 4 5 6 7 8 9 10 11 12 13 14 15 15 17 18 19 20 21 22 23 24 The point of the matter is no matter how you look at that issue of claim, what kind of liability does CIRCLA liability relate to the liability of the city at all, and if so, how those issues are now in front of the 9th Circuit. And the city brought no joint -- the city brought no joint and several claims, only the people have brought the injunctive claims in this matter. That is a different issue, that is the first appeal. In the second appeal we now face the substantive law question of does CIRCLA liability relate to the application of California public nuisance law at all, and if so, how does it relate and does it affect the liability of the city at all. And those matters, Your Honor, are clearly in front of the 9th Circuit right now. MR. MEYER; Your Honor, the reason why I recall you withdraw the injunction is the city admitted it was.a PRP. The city then, as they have done every time, filed their fifth appeal in this case. The issue -- the issue has to do with propriety of that ruling. The question is what we are going to be doing on September 22nd, which is to whether the city has any 107(b) defenses, is not at all implicated in what is before the 9th Circuit. The 25 1 9th Circuit may, for example, decide -- I suppose the 9th CAPTTOT, REPORTERS (916) 923-5447 W. - 32 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Circuit might decide what the amount it was really RP instead of PRP, but Your Honor is going to be resolving that issue on September 22nd. I think what my co -counsel indicated, this is just fundamental, this case --- sort of the lynch pin of this case is whether the city has 107(b) defenses. If the city has no 107(b) defense, the fact the city has indicated -- if they do not have 107(b) defenses this case fundamentally changes. At that point, this case becomes a contribution action alone, and, Your Honor, I think this case --- I think everybody is getting tired of this case. I think this determination THE COURT: Now, wait a minute, tired of this case. MR. MEYER: This determination is critical. Frankly, what is going on here, Your Honor, the city does not want this determination. They do not want any reference to any factual record developed with regard to 107(b) defenses when this issue is pending before the 9th Circuit. That is what is going on. We need to decide this issue. This is just -- we are just chomping at the bit. We have done an enormous amount of discovery, we have got experts lined up. The 9th Circuit is not going to find, Your Honor, you are interfering with their joursdiction, rAPTTOT. REPORTERS (916) 923-5447 '33 33 • • • 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. DONOVAN: Your Honor. THE COURT: Counsel. MR. DONOVAN: Busy about the business of telling this Court what we want. Now he is busy about the business of telling the city. MR. ROBINSON: I want to correct one thing Mr. Meyers said, he had went too far attributing rationale why the order was issued. We didn't issue the order because we didn't think the city had no 107{b} defenses. That was not taken into consideration whatsoever. We were certainly -- THE COURT: I was assuming that. I would only hear that from your mouth, the words from your lips. I have a question of Mr. Robinson. We would assume when this happens suppose the city is found to be a responsible party, what does that -- you feel that you can proceed against the city? MR. ROBINSON: That's a question I've thought about, but I have no answer to yet and I don't think my clients have decided. The cooperative agreement causes some problems for DTSC to name the city administratively or civily. THE COURT: Let's assume --- MR. ROBINSON: It's not unusual. THE COURT: Whether the city has breached the CAPITOL REPORTERS (916) 923-5447 34 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 cooperative agreement, whether the cooperative agreement becomes annulity, I'm not not saying that happened, I'm just saying a Sat of things happened in the cooperative agreement that haven't come to fruition. Maybe it's not the fault of the city, but nevertheless, the terms of the cooperative agreement clearly have not been met, we can all agree on that. Why that has happened is another issue. But let's assume for the moment that the city simply legally cannot proceed under CIRCLA as a lead agency. The city is not doing so, but let's assume for a moment the city is a responsible party, found to be a responsible party; is it your view that the cooperative agreement precludes the state from pursuing under the covenant not to sue? Is that what you are suggesting? Or if the agreement is breached is the covenant not to sue still enforceable? Do you want me to repeat my question? MR. ROBINSON: I think Y understand -what the Court is asking. Whether the breach of certain provisions of the cooperative agreement would allow or would mandate DISC to sue the city. THE COURT: Or issue an administrative order against the city in the alternative. MR. ROBINSON: Your Honor, there are 25 1 circumstances where the state would choose not to name a CAPITOL REPORTERS (916) 923-5447 35 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 194 responsible party in an order or in a civil complaint, even though the state believes that party has liability. I mean, the whole purpose of joint and several liability, which is given both to the United States and the state, is we don't have to -name the entire universe of parties, we can name a select group of parties, and we make that determination based on all sorts of factors. One factor might be because the relationship we have with the party, but that could affect the relief we might choose to get as against the other parties if we make that type of decision, but there is no mandate that the state sue the city even if it believes the city has some liability. THE COURT: Was it your understanding or maybe was it your client's understanding that the city would take action under federal environmental laws against the Defendants in this case or that they would be -- was there any -- was that not contemplated there was going to be a nuisance action, for example? MR. ROBINSON: I don't recall what the terms of the agreement specified. I don't think it said anything about it being a federal cause of action. THE COURT: It talks of the lead agency, MR. ROBINSON: It talks about lead enforcement CAPTTr)T, REPORTERS (916) 923--5447 11A 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 would be utilized by the city in acting pursuant to that role. MS. GUALCO: Your Honor, I think the regional board attorney wanted to talk. MS. OKUN: Lori Okun for the regional board. I just wanted to point out the regional board is not a party to the cooperative agreement, so the regional board still retains its ability to name the city in administrative order whether the cooperative agreement has been breached. As Mr. Robinson points out, we haven't made any determination who we would name. Obviously in the regional board case we haven't gotten to the point of issuing any orders because the site we are overseeing as the lead agency, it hasn't become necessary. THE COURT: So obviously the cooperative agreement doesn't apply to you. If the city were to be a responsible party, that would be something you would take into account whether you would take action against the city without necessarily committing yourself to do so. Well, look, you know, I -- I would like to have a, you know, where do we go from here kind of response. I know that my inclination, Mr. Donovan, is not to stay the trial. I'm going to issue an order later in the 25 1 week. I will consider -- I'm not going to make the rAPTTnT. PRPMi'T°FR.q f41f,1 Q?'1-9;AA7 37 '47 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 And I guess my question is to counsel as we proceed and with respect to the motion for summary jugment, I'm going to take this under submission, I'm not going to make a decision on those, but if we proceed with the trial, if the RAO continues to be enforced and if the state were to continue to work with other parties, other Defendents in this matter to expand in scope of the entire site, Mr. Donovan indicated there is many many things out there that are not included in this order. I don't know, Mr. Donovan, are you referring -- I misspoke, I guess there are a number of orders issued by the state in order to really encompass what the city has in mind of doing, is that what you are referring to? MR. DONOVAN; Not only a number of orders, Your Honor, but an increase of scope and applicablity in some of the provisions of the orders. THE COURT: If the state assumed that responsibility to increase the scope of its order to encompass the entire problem that we are dealing with, that's what --- I'm interested in knowing where is this litigation, once that takes place, if it does take place, because at this point it's surely taken place at the CAPITOL REPORTERS (916) 923-5447 38 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 1s 19 20 21 22 23 24 25 heart of this first phase. MR. DONOVAN: In the court area, Your Honor. And again, I would like. the Court to note in the papers in front of you you have been told the city cordinated with DISC in the issue of these orders, we don't appear before you opposing them. We have told our cooperative agreement partners given the procedural posture where we are adequate protection of public health and enviornment seems to support the action at this site, but there is a lot of ifs, Your Honor. I ask you to focus in your question to me on the subjectives in your sentence, if, and if, if, if, all of a sudden the plaintiffs do nothing in this litigation. My point is we are working with them very carefully. We have no adversarial or hostile relationship, we are working with them closely to assure the sites get to responded to. There are parts of the site we are addressing that no one else is addressing at the present time. Moreover, there is extended relief we want to work on. We have no desire at all to tie up your time or ours, Your Honor, in handling matters that are being adequately resolved. Because something is included in the administrative order, Your Honor, doesn't mean it's being complied with and the parties are doing it. An administrative order, the ultimate course of sanction CAPITOL REPORTERS (916) 923-5447 39 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 E0 in any capacity rests in this Court. My point, Your Honor, as we look forward we'll look to narrow these issues. Why litigate? Why discuss these matters that are already being taken care of? THE COURT: As an example, suppose there was no stay and the order was in effect and they say, we give - up, you say we are going to give up, we are going to do whatever the state says, are you going to seek less against Guild? MR. DONOVAN: Assuming they would reduce that THE COURT: If there is an order already in effect, the state is dealing with it. MR. DONOVAN: They would have to THE COURT: Let me finish. There is no order of any kind. They are -- they submit to the authority of the DISC and say we are going to do what DISC tells us to do. DTSC says, fine, this is remediating that particular portion of the site. Would the City of Lodi seek injunctive relief against Guild? MR. DONOVAN: My answer to you -- may I ask the Court if by this you mean DISC has issued an administrative order to Guild? THE COURT: Just as they have done. 25 I MR. DONOVAN: And Guild has in writing CAPITOL REPORTERS (9161 923-5447 40 L� 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 41 THE COURT: I don't know what they have done. They are complying with the order. They are complying with the order. Maybe the state requires a written -- I don't know what is involved. DISC does this every day, they issue an RAO and the party complies or doesn't. MR. ROBINSON: Basically determine if the parties are meeting the terms of the order. There are certain deliverables that are required, and as long as the parties are complying, there is no need to proceed further by way of going to court. THE COURT: Why do we need to have an action? I'm just picking out Guild because Ms. Gualco is standing in front of me, I'm not trying to pick out any one defendant. I'm saying if the RAO proceeds as Mr. Robinson says, why would the city want to spend money --- wait -- money to get an injunction against Guild under the circumstances? MR. DONOVAN: I think you assumed the answer, your Honor. The answer is, no, of course we wouldn't, provided it was being performed and they had committed themselves with compliance in that, including everything the State of California wanted, of course we wouldn't. MR. MEYER: Wait a minute. Wait a minute. C_APTTOT. REPORTRRS (916) 923-5447 41 2 3 4 5 6 7 8 9 1p 1Z 12 13 14 15 16 17 18 19 20 21 22 23 24� 25 w THE COURT: No, no, no, you are not even in this ballgame, you are in the sidelines. The state has now issued a RAO, Guild is obeying that RAO, you folks are not even in this lawsuit. You might be if the 9th Circuit rules on my order. They are saying if they are in compliance why would you take up my time and your time and the city's money to fight an injunction and motion for injunction, a motion against Guild that is. My question is as simple as that. MR. DONOVAN: Let me try more directly, Your Honor. If they were providing everything that we the People of the State of California, the City of Lodi -- THE COURT: No, Counsel, you are not answering my question. You are saying -- maybe you are saying --- you are saying that doesn't matter, it's what you want, not what the state wants. MR. DONOVAN: Right, yes, of course. THE COURT: So you are going to have --- Counsel, stop and think about this. I know you -w there may be things you know more about than the DTSC does. You are telling me the DTSC RAO just isn't good enough for you and the City of Lodi, you are going to spend more money, more time to seek more relief of some type above and beyond what the state is asking Guild to do_ Now, CAPITOL REPORTERS (916) 923-5447 42 4-3 1 that seems to me to be a waste of time. 2 MR. DONOVAN: Your Honor --- 3 THE COURT: And a waste of the city's money. 4 MR. DONOVAN: Your Honor's questions took up to 5 three levels of hypothetical, your question to me, and 6 you are shaking your head before I respond. Your Honr, I 7 don't know how to respond to you then. 8 THE COURT: Look, this is simple, RAO raise 9 your hand. Mr. Robinson, Ms. Gualco raise your hand. 10 MR. BOWERS: Your Honor, but they have a stay. 11 THE COURT: I know that. 12 MR. BOWERS: Which applies --- 13 THE COURT: Okay, okay. The point is they are 14 doing their job under the RAO. Why does the city want to 15 come in to get injunctions to force me, that is my 16 question. 17 MR. DONOVAN: Your Honor, if they are doing 18 everything the city really thinks is necessary to 19 adequately protect the public health and the 20 environment -- 21 THE COURT: You are putting in an overlap. You 22 are saying it's not just what the state wants to do for 23 complete remediation of the city, it's what the city 24 wants. 25 MR. DONOVAN: The city is the purveyer of CAPITOL REPORTERS (916) 923-5447 43 1 2 3 4 5 6 7 a 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 public drinking water at the site, and adequate protection of that public drinking water supply -- THE COURT: Why don't you deal with the stay. MR. DONOVAN: Of course -- THE COURT: Just tell the -- why don't you tell the state you want this or this? Why come to me? You say you are friends, the state listens to me. Why don't you just -- please, listen to me. Why don't you go to the state, your friends you are closely aligned with, and say, look, State, I would like you to do this because we think we need this for our drinking water supply, and let them do it? Why come in to see me on a separate action and file a motion for injunctive relief when the state, already your friend, is enforcing its own order? Why don't you work with the state? Why come and see me about it? Do you understand what my question means? Do you understand it? MR. DONOVAN: I do understand, Your Honor. And let me respond again. We have not done that. We are in direct contact with DISC, we were happy and dialoging with DTSC about the scope of the order. You asked me a hypothetical and you say what if they did this, would we ever litigate, and I was saying the only thing the city would litigate for, Your Honor, is anything it didn't get that isn't being done that it think needs to be done. CAPITOL REPORTERS (916) 923-5447 44 • 171 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 And if that exists, and I don't know that it does, Your Honor, if it did, we would bring the claim before you and say this we think this needs to be done to protect the issue, the city. THE COURT:. But absent that, you wouldn't do it? MR. DONOVAN: What? THE COURT: There no need to bring motions or further litigation. MR. DONOVAN: Absolutely not. THE COURT: Where do we find that out, whether the orders are being complied with? MR. DONOVAN: We are actively involved in that process. THE COURT: Then there is no reason then to pursue litigation against those Defendants, it would seem to me at this point. Why pursue litigation? It's really a matter of saying whether these orders are sufficient for the city's purpose. If the parties are complying, it seems that problem is not on the table. MR. DONOVAN: In the very contents of the order itself, and leave Guild out of this because they have just reported a stay with DISC, but in the very order itself the parties were obligated not later than fifteen days after effective day of the order to provide OATMMT. RF.PnRTF'Rfi (91f;) 97.3-5447 45 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 4 notifications and certifications to DISC, this has not been done. They are not in compliance with the order. THE COURT: That is up to DTSC. MR. DONOVAN: You just asked are we actively in dialog -- MR. BOWERS: That is not true, Your Honor. Oddfellows is in full compliance with that order. The one item we haven't undertaken is the site remediation meeting, which was called off by DTSC. MS. GUALCO: That is true. THE COURT: Look it, the whole idea of the RAOs are being enforced, I'm just wondering what I've got left to do in phase I. MR. DONOVAN., Until we look at the very issues, I cannot give you an accurate representation. THE COURT: I appreciate that and I know these are all hypotheticals, I was just trying to develop the notion that if the RAOs are what the city wants, what the state wants, the parties are in compliance, then what do you need me for? MR. DONOVAN: We would move to phase II of the litigation and be delighted to do it. MS. GUALCO: We have to try the 107(b) defenses. THE COURT: We are not there yet. I want to CAPITOL REPORTERS (916) 923-5447 46 f 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 �7 know with respect to the defendants what is really left here in this case that I need to resolve and needs to be decided by me, aside from 107(b) MR. BOWERS: In phase I, Your Honor, there would stili be THE COURT: Other defendants. MR. BOWERS: -- other defendents that would be out there. And, again, just to reiterate on the record, Oddfellows' position in its motion articulated three points, one of them was this mootness doctrine, the other is primary jurisdiction. THE COURT: Right. MR. BOWERS: It's not a situation where the city is asking what they want. The primary jurisdiction doctrin looks to should the Court be -- the city is asking the Court to do that when DISC is standing here, so Oddfellow's motion is very narrow. And as to the subset of claims, we don't think that the trial is necessary. THE COURT: The trial of what? MR. BOWERS: The trial of the city's injunctive relief claims against Oddfellows based on DTSC's issuance on that order. THE COURT: What I really need, it would be helpful to me, Mr. Robbinson, if I knew there was any CAPITOL REPORTERS (916) 923-5447 47 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21. 22 23 24 25 4 plan. You said there was some agreements already in place between the order and DTSC. I know there is other sides involved here, you may not be in a position -- I'm sure you are not today, and maybe the board and DTSC are not in a position to tell me even in the near future what plans they would have, but let's assume for the moment this is where the state is headed, they are going to assume the lead role, a different role than they have in the past, issue RAOs with a view to between the two agencies cleaning the site. If that's going to happen that does impact this Court dramatically, that is my -- no-matter what anyone else has said in this Courtroom, I think it makes a big difference in what I'm going to do. You are the experts, you are the folks that can do this more cost effectively, more efficiently without Court oversight. I'm not suggesting it would be as Mr. Donovan said, maybe it's not being done, I'm not going to lose jurisdiction over the parties, but the State is going to proceed, perhaps, with a plan to remediate the entire site, is that something you can provide me in any way, shape or form in the next 60 days? MR. ROBINSON: I think what I can give you -- I was corrected on one small point, the MOU is only as to the central area plume. As to the other four areas, the agencies have informally divided responsibility so that. rAPTT0T,RFP0RTFRS (915) 923-5447 48 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the regional board has two of those areas, DTSC has the other two. I can certainly give the. Court a report setting forth what that MOU details and how the agencies have divided responsibility and what their intention is. THE COURT: Their intentions are very important. That will have a lot to do with what this Court does in terms of staying much of this case. MR. ROBINSON: And I certainly can't disagree whatever we do impacts your decision, whether and how to issue an injunctive relief, if it's even necessary. THE COURT: I think we all agree on that. MS. GUALCO: Your Honor, could we speak to what we think needs to be tried in the phase I case? THE COURT: I wouldn't want to miss that. MS. GUALCO: Thank you. THE COURT: Clue me in. couple of motions for summary jugment to be heard on July 25th, one of which has to do with the joint cooperative agreement and whether it should be nullified in its entirety because of a lack of due process. That was followed or narrowed to only include the ownership,. operation and maintenance of the sewer system as to the contribution bar that is claimed by the city. I think CAPITOL REPORTERS (916) 923-5447 #9 49 1 2 3 4 5. 6 7 8 9 10 11 12 13 14 15 16 17 is 19 20 21 22 23 24 25 summary jugment. If there is a triable issue of fact, they need to be determined at the phase I trial at this matter because the contribution bar of the city, I think, goes along with their claim that they have 107(b) defenses, which would not preclude them from seeking joint and several relief against the Department in this action. And we also also have a RCRA claim that we have also made a motion for summary judgment on, that is to be heard on July 25th and the same would go for that. THE COURT: One more thing I would mention to Mr. Robinson, this is something to be thinking about, what happens -- I don't want to get into the people versus the city conundrum, but if the city were.a responsible party, what happens then if that was the Court's finding? I'm not suggesting you have an answer for me today, but thinking about it and obviously the city wants --- has something to say about that. I'm not entirely sure what your response is to that, if the city is a responsible party, what does the city do with that status if it's not something that can be shared in equal status with the other responsible parties here. MR. DONOVAN: I think it certainly can. THE COURT: What's the State's response to CAPITOL REPORTERS (916) 923-5447 50 3 2 3 4 5 6 7 8 9 10 11 0 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1571 MR. ROBINSON: I certainly think as to the regional party, which is not a party to the agreement, they certainly retain the authority to bring an administrative or civil action against the city. THE COURT: That may be the action then. MR. ROBINSON: As to DTSC. THE COURT: I understand. With respect to that issue, by the way -- MR. DONOVAN: Your Honor, I beg your pardon, but you asked the question, I would like one chance to respond to it. I think it can help the Court if I can say it correctly. I'm getting frustrated with my own ability to say it correctly. The city's status as a responsible party, if it is or if it isn't, if its liable, not liable, has contribution, doesn't, whatever this Court determines the city's status is as a responsible party it will s are liability on all other responsible parties as appropriate among all responsible parties using all equitable criteria. The only question that differs, Your Honor, is is the city plaintiff on the injunction claims. Our position is, as you know, people are plaintiff on the injunction claims. That ability once put out there joint and several liability on responsibility liability, if it generates contribution liability for the city it's like any other entity, it has CAPITOL REPORTERS (916) 923-5447 51 1 2 3 4 5 6 7 8 9 la 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 �-5A contribution as you deem appropriate. It has liability if you find it liable as any other defendant, and that has never changed, they are unconnected in any way. MR. MEYER: Your Honor, that's just -- that is completely disengenous. As pointed out earlier, if the city -- if they are found to be the people, they are never going to sue the city. The city always makes this point, you can contribution relief while we seek injuctive relieve joint and several, by the way, we have contribution bar, which is one of the things they want to litigate. They didn't want to bar -- they still take the position contribution claims are going to be barred against the city. MR. DONOVAN:- Your Honor, the city does have a contribution bar, whether Your Honor holds it or strikes it down is a matter, you know, has come before you before. We do have one, they don't. The reason they don't have a contribution provision is they haven't settled with the state, the city does. The point is very similar, the validity of that contribution provision or would be determined by the Court and the share of liability in term of that contribution act would be determined by this Court. MR. MEYER: That is why it's disingenuous, they always say we will share liability, but I just heard them r'aPTMnT. PPPORTRRS (9161 923-5447 52 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 ,J�5�3 indicate they are got going.to share liability. THE COURT: I think I have heard enough of that. Look, I'm trying to fashion on order here that makes sense and you understand what the concerns are and that is the effect of the RAO. I'll give you an indication what you think with respect to stay of litigation itself. I do think with respect to the RAO, that stays the hand of several parties in this case and at least I think from the standpoint of judicial economy and resources, whether this expense of the parties are beginning to occur, I think they should take that into account. I think this is an opportunity here to see how this RAO develops. Could I hear from you Mr. Robinson and also both agencies? Were did counsel -- MR. ROBINSON: I think Ms. Okun had to leave. THE COURT: What would be a reasonable time period, because we have a trial date of 22nd of September. We have other motions on the 25th, is there a chance we might get some information back on the scope and nature of the MOU and such by the 25th? Is that possible? MR. ROBINSON: I think the MOU as to the central area plume is already reduced to writing, and that sets forth --- 25 1 THE COURT: The intention is what I'm more CAPITOL REPORTERS (916) 923-5447 53 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 t5q interested in, if we are headed in that direction, and that means a lot, obviously, to the Court. MR. ROBBINSON: I think 60 days is doable. THE COURT: 60 days. MR. ROBINSON: 60. THE COURT: 6, 0? MR. ROBINSON: 6, 0. THE COURT: With that, I don't know where we are going to be on the 25th, but that's obviously of importantance to me. The.motion is on the 25th, don't worry about that 25th of July. What about if the -- I would like to have the parties thoughts, do you know anything further than you have already done with respect to these various motions I've heard today? I've heard two motions, the RAO and stay of litigation, is there anything more you want to add in light of what I have said? Also heard the motion of stay by the Oddfellows. Is that sufficient? MR. BOWERS: Your Honor, I have 60 seconds, I would like to respond to---Oddfellows' motion. THE COURT: You can, you'll have an opportunity. Let me just ask Mr. Donovan something. MR. HIXSON: Fireman's Fund was recounted in this case with the limited purpose of the city motion. In the city's brief the city disclaimed any intent to CAPITOL REPORTERS (916) 923-5447 54 1 stay the Fireman's fund or unguard action, so at this 2 point, it appears that no one is seeking a stay of this 3 case and they ask that they proceed accordingly. 4 MR. DONOVAN: That is correct we do not want a 5 stay of that case, Your Honor. There is two issues I 6 think I need to highlight to this Court in response to 7 Oddfellows' motion, and, Your Honor, I only do it, 8 because I can imagine what the response I'll draw from 9 you by saying this extremely unique posture of this case, 10 but in this context, Your Honor, I say this case is 11 before the Court entirely on supplemental jurisdiction. 12 There is no federal question jurisdiction claims in this 13 case, there are no diverse claims in this case, no 14 federal interest claims in this case. The case is 15 retained in this Court under supplemental jurisdiction, 16 and it's only state law claims pending before this Court. 17 In that unique posture, Your Honor, I cannot imagine 18 anything more, I'm talking about the plaintiff's 19 complaint, the plaintiff's claims against which 20 Oddfellows is moving, Your Honor; that jurisdiction 21 invoked by the Plaintiffs of this Court, is entirely 22 supplemental jurisdiction. Against that Oddfellows has 23 raised, you know, Berford (phonetic.) abstention, and I 24 only have this to say, and I'll be entirely quite, and 25 that is incredibly unfounded. Berford is the one CAPITOL REPORTERS (916) 923-5447 55 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 M abstention doctrine based on prevention of early federal interest into state matters, and in this case there are no more federal interest. I mean, this is not like Berford is designed to tell the federal courts to abstain on applying -- asserting federal interest or federal concerns whatever regulatory of state law. In this case, Your Honor, it is state law applying entirely state law, settled state law, in this case. There are no federal interests. MR. BOWERS: The fact there are no state interest in plaintiffs complaints is all the more compelling reason for this Court to abstain for counsel to indicate that there are no federal interests. Counsel knows full well that every order that comes out of this court has the full force and effect of federal law. Even if Berford doesn't apply in -- under these facts and the Court determines that the doctrine of primary jurisdiction is absolutely on point in a situation we have got a federal court sitting there ultimately being asked by Plaintiffs to second guess what Mr. Robinson and the agencies are going to do. And then the third point of mootness has already been addressed quite extensively here, if this Defendant did everything the Plaintiff's wanted done, there is no need to continue. THE COURT: All right, counsel. Anything nrnrmnt D�Ur1DTL�DC /Q1 �l Q7`7-.�"id.d7 • 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ,,:�`7 further? MR. DONOVAN: No, Your Honor. MS. GUALCO: The only other thing, Your Honor, I was wondering if on July 25th we could have a short status conference regarding the upcoming trial, and just some logistical things like that if we can get those determined. THE COURT: I will incorporate that in my order. I've taken it under submission. I've told you my inclination. I haven't ruled yet. If I rule that the trial is going forward, I will certainly hear from the parties. MR. ROBINSON: I spoke to my co -counsel, I think we can get that statement to you probably 30 days. THE COURT: The sooner the better will be great. If you do that, I want an opportunity for the parties to comment upon it. 30 days, what does that take us to? 30 days outs? THE CLERK: The lith of August. That would be Monday, the 11th of August. THE COURT: And then could the parties offer any comments if they wish, not to exceed 15 pages, ten days thereafter on August 21st. Do that simultaneously. MR. GUALCO. Your Honor. I assume when you are asking Mr. Robinson for statments from agencies, you are rAPTTOT, RPPQRTRPR (9161 923-5447 57 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 referring to both DTSD and the board? MR. ROBINSON: Both agencies. MR. LYCETT: Your Honor, may I address the Court? THE COURT: You may. MR. LYCETT: Jon Lycett, I represent a third party in this matter, Luster -Cal Nameplate Corporation. Since the statements that you are requesting from the state agency will necessarily address their intent with respect to the entire city, I would just request that the third parties be allowed to submit a statement responding to it as well. THE COURT: Why not. Sure, I'd like to hear from everybody. Don't we have a service list? We have liaison counsel. MS. GUALCO: We have liaison counsel. THE COURT: Liaison counsel will take care of it. Anything else? MS. GUALCO: Thank you, Your Honor. MR. DONOVAN: Thank you. (End of requested proceedings.) r•rnrmnr. VPDrWrPR77C it31 F1 C)91-5447 58 0 • 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 REPORTER'S CERTIFICATE ---000--- STATE OF CALIFORNIA } ) ss. COUNTY OF SACRAMENTO ) I, ANGELA L. WESTON, certify that I was the official Reporter, pro tem, and that I reported verbatim in shorthand writing the foregoing proceedings; that I thereafter caused my shorthand writing to be reduced to typewriting, and the pages numbered 1 through 58, inclusive, constitute a complete, true and record of said proceedings: COURT: United States District Court JUDGE: The Honorable Frank C. Damreil, Jr. CAUSE: Lodi vs. M&P investment DATE: Friday, July 11, 2003 IN WITNESS WHEREOF, I have subscribed this certificate at Sacramento, California, on this 31st day of June, 2003. i` �J ANGE L. WESTON CSR NO. 11658 rAPTT[)T, RPPnRTFRS f 97.61 923-5447 59 e -Newspaper: Record Searchlight - Redding.com Search News Archives Monday, July 7, 2003 Click Here for the Weather Page 1 ofA A Home I News I Sports I Outdoors I Currents I DATE I Community IMarketplace Local I Regional/State I NationalMorld I Business I News Update I Education I Science & Technology I Politics I Diversity I Editorial I Police Logs I Secret witness I Obituaries I Columns Site Navigation a Email this story News: Newsarchive Story Print this Story Advertisements s CARS ► CLASSIFIEDS � SAYS COUNCIL WAS KEPT I s JOBS ► MAGAZINES DARK ABOUT BONDS ► PRINT ADS Po. REAL ESTATE By: Dave Howland ► SUBSCRIBE o, YELLOWPAGES HOME 33 NEWS 2 SPORTS 2 OPINION OBITUARIES 2 ARCHIVES OUTDOORS FEATURES — 2 COLUMNISTS I COMMUNITY 4 I SERVICE CENTER • About us • Advertising services • Contact us • Classifieds • Customer service • Forms • Help Page • Horne delivery • News tips • Record Searchlight • Site map Search Published: Pecember 22.1994 in News The report says no city employees will be punished because of the turbine project bond problems but proposes they learn from mistakes. m from the Ci Council to accoOn to a report relea: ager Sam McMkkrry. said he. Citai' Attomev Ran on clear creeK Koaa. and former Director Sam them to inform the council in public - a move that McMu said _would have effdctively halted the project. Archives low Yellowpages Google Web MyReddin email Login Password "It probably would have resulted in the contractor and the subcontractor stopping work and we would have had parts of the turbines in three or four different locations and may have had real difficulty getting the project done," McMurry said Wednesday night. The fact the bonds were miss ing was made public in April when contractor Zum/NEPCO of Redmond, Wash., walked off the job, claiming MLP owed it money. A legal battle ensued between the city, MLP and Zurn/NEPCO, resulting in settlements that could place the project as much as $1.3 million over the city's budget. McMurry's 18 -page report contradicts a statement by htto:Ilarchive.teddin2.comistorv.asp?StorvID= {20924593-C94C-4C$D-85EC-9C6002B02ED 1 I 717/03 e -Newspaper: Record Searchlight - Redding.com Search News Archives Page 2 ofA A Christofferson, who told the Record Searchlight in May that he had learned about the missing bonds "two or three weeks ago." New users sign up! Christofferson, who now runs a consulting firm in Meadow Vista, said Wednesday night that he knew for months the performance bonds were missing but thought the information was not important enough to inform the council. He said his office was handling more pressing issues at the time. "There never was a conscious decision to conceal it from the council," he said. "That would have been quite contrary to our basic posture of keeping the council informed. Rather, it was a matter of trying to work it through so the matter would be solved." McMurry said in his report, addressed to Mayor Bob Anderson and the City Council, that the Electric Department's Resources and Operations divisions were responsible for seeing that MLP acquired the bonds before construction began. "It is apparent that Resources believed the performance bond would be obtained after the project was transferred to the Operations Division, while the latter believed it had been obtained under the earlier phase of the project," McMurry wrote. McMurry added that he has absolved all city employees of wrongdoing. "There may be disappointment in some quarters that 1 have not taken disciplinary action against an employee or employees as a result of the failure in the accountability system involving the performance bond," McMurry wrote. "I have not taken such action because the project is a success by any measure, and I see no justice or equity whatsoever in punishing employees who have served the city honorably and well, and have been integral parts of a project that will save ratepayers tens of millions of dollars." McMurry said he has ordered new procedures to ensure bonds are acquired for all city projects. They require the city derk's officeand Finance Department to double-check paperwork. Anderson said Wednesday the council would discuss MCMurry's report and decide if it wants more information. "I think it's time that we finish it up one way or another, put this behind us and go on with running the city," the mayor said. 01994-2003 RECORD SEARCHLIGHT httn:/larchive.reddim.comistorv.asn?StorvID=120924593-C94C-4C8D-85EC-9C6002B02ED1} 717103 e -Newspaper: Record Searchlight - Redding.com Search News Archives Page 1 of,5j Monday, July 7, 2003 GOBoom.COM t mnqE Mmmur YtAcs Foil Recve'Le6 &xo Man Click Here for the Weather BUY AND SELL AUTO PARTS ONLINE Home I News ' Sports I Outdoors I Currents 1 DATE I Community I Marketplace Local I Regional/State I National/World I ausiness I News Update I Education I Science & Technology I Politics I Diversity I Editorial I Police Logs I Secret witness I obituaries I Columns Site Navigation aEmail this story News: Newsarchive St0 Print this story A Advertisements ► CARS downtown toxic mess. ► CLASSIFIEDS CITY OFFICIAL IN JEOPARDY OF LOSING r► JOBS The Redding City Council is preparing to discipline or dismiss a s MAGAZINES JOB ► PRINT ADS � REAL ESTATE By: Dave Howland I- SUBSCRIBE rebuke or oust, but the move comes amid questions about City ilr YELLOWPAGES Attomey Randy Hays' handling of several issues, including the SERVICE CENTER city's turbine power project and the purchase of contaminated Published; October 20, 1994 in News HOME • Advertising services 3 NEWS The Reddina Citv Council has auestioned its attorney's handlin SPORTS of several issues including a turbine powerproiect and a OPINION downtown toxic mess. OBITUARIES ARCHIVES The Redding City Council is preparing to discipline or dismiss a OUTDOORS top city official and has hired a law firm to help with the task. FEATURES M COLUMNISTS Council members refused Wednesday to name who they plan to rebuke or oust, but the move comes amid questions about City COMMUNITY Attomey Randy Hays' handling of several issues, including the SERVICE CENTER city's turbine power project and the purchase of contaminated • About us land for Redding Area Bus Authority's future downtown station. • Advertising services " Contact Ifs • Classifieds Ci officials sayproblems with both ro'ects could cost Redding • customer service more than 2 million. Hays was unavailable for comment •Forms • Help Page Wednesday. • Home delivery • News tips • Record Searchlight Jobs Councilman David Kehoe confirmed Wednesday the council • Site map could be seeking to discipline or dismiss only two people - the Search city attorney or interim city manager. Archives "It would be a reasonable conclusion that we are looking at Yellowpages those two positions," Kehoe said. Google Web MyRedding email Login Password The council has leveled little criticism at Interim City Manager Sam McMurry, who was temporarily promoted from assistant city manager in May while the council looks for a city manager to replace Bob Christofferson. McMurry said Wednesday he has -no idea" what the council is plotting. "I don't Know and i couldn't speculate on that," he said. Kehoe also confirmed the city hired the Redding law firm of e -Newspaper: Record Searchlight - Redding.com Search News Archives Page 2 ova Bandell and Swanson to advise the council on disciplining or dismissing the official. New users sign upi The council held a closed session before its regular meeting Tuesday to discuss "public employee discipline, dismissal or release" and then voted to hire the firm. McMurry added that he was asked to leave the councirs closed session - a request he said would not be unusual if the council discussed either his or Hays' dismissal. Mayor Bob Anderson said city code allows the council to fire or discipline only the city attorney or city manager. The city manager is ultimately responsible for hiring and firing all other city employees, he said. Another unanswered question Wednesday was how much the city would pay the law firm. Anderson said no contract will be released detailing the purpose of hiring the firm or estimating the total cost to taxpayers. Instead, he said a "letter of engagement" will be made public outlining the firm's hourly fees. Anderson said attorney L. Alan Swanson will handle the case. Neither Swanson nor partner Leonard Bandell returned phone calls Wednesday. A bookkeeper at the firm said she could not release a list of the attorney's hourly fees. Terry Francke, head of the California First Amendment Coalition, said state law requires public agencies to disclose their reasons for hiring a contractor along with the amount of money it plans to pay them. Several past and.present city employees said Wednesday they would not be surprised if the council decided to remove Hays. Hays was a finalist for a city attorney's position in Roseville earlier this year but was rejected in July. RABA officials say the uneN122tad cleanup MW cost the city more than §1 million. Hays said last month the city could recover much of the money because it had no way of knowing the extent of the pollution. prligr this year the council bypassed Hays and hired another attorney IQ fend off more than S20 million in claims rasitlting fmm _ ..ft gb's failure to acquire Rpyl> gQ1 and performance bonds for its $38 million turbine power project on Clear Creek Road. said he wasn't http:/larchive.redding.comistory.asp?StoryID=1B2198EB2.-F1C2-4872-8111-69C65CO2BF9B} 7171[}3 e -Newspaper: Record Searchlight - Redding.com Search News Archives Page 3 oflf sure the bonds were in place. The ci was r escrow. 01994-2003 RECORD SEARCHLIGHT studies on http://archive.redding.comistory.asp?StoryID={B2198EB2-FlC2-4872-8111-69C65CO2BF9B) 7/7/03 e -Newspaper: Record Searchlight - Redding.com Search News Archives Monday, July 7, 2003 Click Here for the Weather Page 1 of./3 Home 1 News I Sports ! Outdoors I Currents I DATE f Community (Marketplace Local I Regional/State I NatlonalMorld I Business I News update I Education I Science & Technology I Politics I Diversity I Editorial I Police Logs I Secret Witness I Obituaries I Columns Site Navigation Jj Email this story News: Newsarchive Story Print this story Advertisements w CARS The cit took MLP off the turbine ower project in June after the Y P P j 0i CLASSIFIEDS STATE PROBES CITY OVER POWER PLANT ► JOBS Redmond, Wash., to build the project. After walking off the job 1► MAGAZINES April 22, Zurn/NEPCO returned to work last week under a new 1. PRINT ADS By: Dave Howland ► REAL ESTATE 1- SUBSCRIBE Published! August 27, 1994 in News YELLOWPAGES office. He said the investigation will focus in part on whether a HOME Thf state's robe...sruVld .result in fines of Up to $15,000 for the NEWS pr6eat developer 6hd lesser penalties for the city official who 7 SPORTS a� rove the contract. OPINION * OBITUARIES - > state attorney enerat's office this week began investi a# ARCHIVES whether the city of Redding hired a developer knowing the —OUTDOORS company may not have had a state -required contractor's liter m FEATURES An assistant attorney general and an investigator with the COLUMNISTS Contractor's State Licensing Board have begun talking to city y COMMUNITY officials and collecting documents about allegations that SERVICE CENTER developer'MI-P-Energy of Santa Rosa began a $38 million About us power project in 1992 without a contractor's license. Advertising services Contact us "For us it's a pretty big deal and it's out of the ordinary," said Classifieds P Y g y, Customer service Larry Brandon, a supervisor with the licensing board. `'YQlj don't • Forms ggg,,many linlicensea Help Page Noma delivery —+i (IittlppWAhjLS-" News tips • Retard Searchlight Jobs • Site map The cit took MLP off the turbine ower project in June after the Y P P j Search developer reportedly stopped paying contractor Zurn/NEPCO of _.-.- - Redmond, Wash., to build the project. After walking off the job Archives April 22, Zurn/NEPCO returned to work last week under a new contract with the city. Yellowpages Brandon said MLP has no contractor's license on file with his Google Web office. He said the investigation will focus in part on whether another contractor loaned MLP its license number before the contract was signed. MyRedding email Redding Mayor Bob Anderson said Friday he welcomed the Login state's investigation and added it might serve as a substitute to Ian internal probe planned by the city. Password "They might just do our job for us," he said. "We want the hl,tp:llarchive.redding.com,/story.asp?StorylD={7207C66D-FFE9-4A66-97E1-334D3CA29979} 7/7/03 e Newspaper: Record Searchlight - Redding.com Search News Archives Page 2 ou(3 answers that they're looking for. We want to know what went wrong and why it went wrong." Now users sign up! The investigation was sparked by a complaint from Steve Johnson, West Coast supervisor for Energy Services Inc. of Farmington, Conn., on June 2. Johnson, whose company lost a bid for the turbine project, alleged Electric Department officials knew that MLP had no contractor's license before they chose the company. A;gdpr-ion said Redding attorney Dugan Barr, hired by the city to handle its dispute with MLP, has disputed earlier assertions from City Attorney Randy Hays that MLP did not need a contractor's license to develop the project. Anderson said he does not know the scope of the state investigation but said Assistant Attorney General Pat Kennedy contacted Barr's office this week to discuss the probe. Brandon said his office will hand over its report to the attorney general's office next week. Officials there will decide whether MLP should face civil fines of up to $15,000 or possibly criminal charges, if found to have worked without a contractor's license. Thp,city could face a lesser civil fine if city officials were aware M,LP had no license before -the contract was signed, Brandon said. He.sindividual responsible for approving the contract - p siWy .a former mayor, an electric department official or the city attorney - would be fined. On Thursday, contractor's license board investigator Kathy Coberly interviewed Electric Department operations Manager Frank Ryan and former Electric Utility Commission member Bruce Swanston, Anderson said. Brandon said the city was "less than cooperative" Thursday when it charged Coberly $75 for a copy of the turbine power project contract - the same it would charge the public at 25 cents per page. Anderson said Assistant City Attorney Doug Calkins instructed Clerk Connie Strohmayer to tell Coberly she could pay for the document or come back with a subpoena to acquire it for free. "It's just an inconvenience when the city is not fully cooperating," Brandon said. "It'll make me make sure we dot all our I's and cross all our T's before we file any reports." Broadon,added4hat vest�gatgrs are checking with the federal Public Utilities Commission io see if MLP had federal authorization that would have freed them from state licensing requirements. http://archive.redding.com/story.asp?StorylD= {7207C66D-FFE9-4A66-97E 1-334D3CA299791 7/7/03 e -Newspaper: Record Searchlight - Redding.com Search News Archives Page 3 of o 41994-2003 RECORD SEARCHLIGHT httpa/archive.redding.comistory.asp?StorylD=(7207C66D-FFE9-4A66-97E1-334D3CA29979) 7/7/03 Thursday, July 10, 2003 Click Here for the Weather Home I News I Sports I Outdoors ` Currents I DATE I Community 1 Marketplace Local I RegionaHState I National/World I Business I News Update I Education I Science & Technology I Politics I Diversity I Editorial I Police Logs I Secret Witness I obituaries I Columns Site Navigation W Email this story News: Newsarchive Sto Print this story ► CARS will try to first complete the work, then find out what went wrong. ► CLASSIFIEDS LICENSING SNAFU MAY LIMIT SUIT ON ► JOBS Failing to check the credentials of a developer may have undermined the ► MAGAZINES PROJECT ► PRINT ADS turbine project, a state licensing official said Friday. ► REAL ESTATE By: Dave Howland s SUBSCRIBE Tom Reemts, a deputy with the Contractors' State Licensing Board office ► YELLOWPAGES in Redding, said Santa Rosa developer MLP Energy failed to obtain a COMMUNITY Published: June 04, 1994 in !Jews M HOME Road project. NEWS As troubles mount for Redding's power turbine project, the City Council SPORTS will try to first complete the work, then find out what went wrong. 3 OPINION 3-3 OBITUARIES Failing to check the credentials of a developer may have undermined the • ARCHIVES city of Redding's ability to enforce a $36 million contract for a power _• OUTDOORS turbine project, a state licensing official said Friday. FEATURES COLUMNISTS Tom Reemts, a deputy with the Contractors' State Licensing Board office _2 in Redding, said Santa Rosa developer MLP Energy failed to obtain a COMMUNITY state contractor's license before starting work in 1992 on the Clear Creek SERVICE CENTER Road project. • About us • Advertising services . Contact us Reemts said the regulatory agency has no proof MLP was qualified to • Classifieds build the project. As a result, MLP and the city likely have lost their right customer service to force each other to adhere to the contract. • Forms • Help Page • Home delivery "The city would have no legal standing in court if they decided to sue," "They've • Reco d Searchlight Jobs he said. got themselves in a bad spot and now the city has to • site map decide how they are going to get out of it." Search But City Attorney Randy Hays disagreed with Reemts' assessment. The Archives city has not lost its ability to ensure the project is completed, Hays said. Yellowpages The turbine generators are supposed to begin providing power by the summer of 1995. Google Web Hays said MLP Energy is not required to have a contractor's license because it delegated construction to Zum/NEPCO of Redmond, Wash., MyReddng email which does have a state contractors license. Login "Just because someone has a contractual relationship with the city Password doesn't mean they need a contractor's license," Hays said. "That's another red herring in this whole thing as far as I'm concerned." New users sign up! The contractors board is investigating a complaint about MLP's lack of a license from Stephen Johnson, an employee of Connecticut contractor Energy Systems Inc., which lost out to MLP in a bid for the turbine project in 1991. Advertisements Reemts said that depending on the outcome of the probe, the state could fine MLP and order it to stop work. Officials from MLP and Zurn/NEPCO have refused to comment on the project Johnson also complained that MLP has never acquired a mandatory city business license - a condition Hays said has no bearing on the contract. Redding Business License Coordinator Viki Twyman asked MLP in a May 31 letter to purchase a $90 permit She said she will send two more letters before referring the problem to the Redding Police Department, which could issue a citation. City officials have been struggling to find a company to complete the turbine project since subcontractor Zum/NEPCO walked off the job April 22, claiming MLP owed it money. MLP has since claimed the city owes it between $16 million and $17 million to complete the project, according to Dugan Barr, a Redding attorney hired by the city to handle the turbine dispute. The city has refused to pay the money and is negotiating with Zum1NEPC0 to return to complete the work Compounding these problems, city officials reported in April that MLP had failed to acquire performance and payment bonds -insurance policies used to prevent a work stoppage and pay any claims from a contractor. In a worst-case scenario, if a contractor sued the city for labor or material costs and won, the city would have to pay out of its awn pocket, Hays said. Redding could be forced to pay no more than the budgeted cost of completing the project - about $6 million, he said. But city officials say they are optimistic that the project will be completed on time and within its budget. Electric Department officials say the turbine project is 95 percent complete, even though the city has paid for only 85 percent of the work, according to Hays. Power Plant Manager Phil Heckenberg said the remaining work Includes installing wiring and placing insulation and aluminum over the turbines to controi air pollution. Mayor Bob Anderson said the City Council will concentrate first on finding someone to complete the project and then investigate what mistakes city staff may have made. City Manager Bob Christofferson will update the council Tuesday on efforts to complete the project. He proposes three options in a staff report. Hiring Zum/NEPCO, seeking an outside contractor to complete the project or using city staff to manage subcontractors. 01994-2003 THE RECORD SEARCHLIGHT