HomeMy WebLinkAbout1999-05-24 City Council (7)City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:MAY 24, 1999 CMR:254:99
SUBJECT:APPROVAL OF A RESOLUTION WHICH AUTHORIZES: 1) THE
ISSUANCE AND SALE OF NOT TO EXCEED $20,000,000 PRINCIPAL
AMOUNT OF UTILITY REVENUE AND REFUNDING BONDS, 1999
SERIES A, TO FINANCE WATER QUALITY CONTROL PLANT
INCINERATOR IMPROVEMENTS, AND REFUND AND REFINANCE
THE CITY’S 1990 AND 1992 UTILITY REVENUE BONDS; AND 2)
OFFICIAL ACTIONS RELATED TO THE BOND ISSUANCE
REPORT IN BRIEF
In May 1997, Council approved a Solids Facility Plan to rehabilitate two aging incinerators
at the Regional Water Quality Control Plant (RWQCP) and directed staff to develop a
financing plan for the improvements (CMR:236:97). Returning to Council in March 1998,
staff obtained approval for: financing the incinerator project through the sale of tax-exempt
bonds, having the City of Palo Alto take a lead role in issuing bonds, and incorporating an
addendum in the RWQCP Partner’s Agreement to clarify financial obligations among Partner
agencies (CMR: 165:98).
Subsequently, staff completed the design elements for the rehabilitation project and secured
the required Bay Area Quality Management District (BAAQMD) permit for construction.
Staff received Council’s approval of a construction budget in April 1999 (CMR: 157:99) and
is now ready to implement the financing. Construction is expected to begin in late June or
early July, after an anticipated award of contract in early June.
Council is being asked now to approve bond financing. In addition to requesting bond
financing for RWQCP incinerator improvements, staff is proposing to refund (refinance) the
City’s 1990 and 1992 Utility Revenue Bonds for sewer system and storm drainage
CMR:254:99 Page 1 of 9
improvements, respectively. Given the proposed incinerator project and the current,
favorable interest rate environment, it is optimal to refinance these bonds. Council approval
is now required in order to sell bonds up to an amount not to exceed $20,000,000. The actual
amount will likely be closer to $18.0 to $18.5 million.
CMR:254:99 Page 2 of 9
RECOMMENDATION
Staff recommends that the City Council:
Approve a Resolution Approving, Authorizing, and Directing Execution of
Certain Bond Financing Documents, Approving Official Notice of Sale,
Approving a Preliminary Official Statement, and Authorizing and Directing
Certain Actions with Respect Thereto.
Authorize staffto implement the sale of utility revenue bonds up to an amount
not to exceed $20,000,000 to finance improvements to the Regional Water
Quality Control Plant (RWQCP) incinerators and to refund and refinance the
1990 Utility Revenue Refunding Bonds for sewer system improvements and
1992 Utility Revenue Bonds for storm drainage system improvements.
BACKGROUND
In May 1997, Council approved a Solids Facility Plan to rehabilitate two incinerators at the
RWQCP and directed staff to develop a financial plan for the project (CMR:236:97). Staff
obtained Council approval in March 1998 (CMR: 165:98) to sell utility revenue bonds to fund
the project and for the City of Palo Alto to be the lead agency in issuing the bonds on behalf
of all RWQCP Partners (Mountain View and Los Altos) and sub-Partners (Stanford, Easf
Palo Alto Sanitary District, and Los Altos Hills). An addendum to the Basic Partners
Agreement was implemented to facilitate debt financing and further define each partners’
obligation to pay the City their proportionate share of debt service over the life of the bonds.
Council approved the addendum to the Basic Partner’s Agreement and directed staff to
finalize design, secure the necessary permits, and pursue bond financing.
Staff has completed the final design for the incinerators’ rehabilitation and has secured the
construction permit from BAAQMD. The BAAQMD permit requires that incinerator
improvements be completed by January 11,2001. This tight, two-year time line requires
that construction begin as soon as possible.
Originally targeting June 1999 to initiate construction, Council approved appropriating $6.5
million in capital funding in 1998-99 for incinerator improvements. Funding for design work
in the amount of $.7 million had already been approved by Council in the 1998-99 capital
budget. Staff requested, in the effort to begin construction as soon as possible, that Council
approve a financing package before the sale of bonds (CMR: 157:99).
DISCUSSION
Staff is requesting Council’s authorization to sell up to $20,000,000 in bonds. This includes
the incinerator improvements for which staff has kept Council apprised, as well as the
refinancing of two prior bond issuances: the 1990 Series A Utility Revenue Refunding
Bonds for sewer system improvements and the 1992 Series A Utility Revenue Bonds for
CMR:254:99 Page 3 of 9
storm drainage improvements. As staffbegan to study the feasibility of financing incinerator
improvements, it requested that the City’s Financial Advisor (FA), Stone & Youngberg,
analyze and determine potential benefits from refinancing each of the City’s three
outstanding utility bond issues. These include the 1990 Utility Revenue Refunding Bonds
(for improvements to the sewer system), and the 1992 and 1995 Utility Revenue Bonds (for
storm drainage improvements). Given the current low interest rate environment and the
effort to bond finance solid waste improvements, it was fiscally prudent and efficient to
explore the City’s refinancing options.
Wastewater Solids Disposal Project for Incinerator Improvements
As Council has been informed, a significant need exists to rehabilitate the two incinerators
at the RWQCP. These incinerators have reached the end of their useful life and have
required considerable maintenance. All of the necessary steps to begin implementation of
the improvements have been completed or are underway. Staff will request that Council
award a construction contract on June 7. To fmance the incinerator improvements, Council
approval is now required to use bond proceeds of approximately $7,200,000.
1990 Series A Utility. Revenue Refunding Bonds (Sewer System Improvements)
It also is being recommended that the 1990 Utility bonds (due to mature in the year 2006)
be refunded and that the term be extended to 2024. Based on current interest rates, the City
could realize an estimated net present value savings of $158,000 by refinancing these bonds.
Another benefit of refinancing is to "smooth out" charges to ratepayers that would otherwise.
be hit with a significant increase in rates from the new wastewater debt issuance. By
extending the term of these bonds and reducing the annual debt service for the 1990 debt,
ratepayers (both Palo Altans and Partner city ratepayers) will experience a smaller rate
increase than they would have without refinancing the 1990 debt. Staff from RWQCP
Partners and participating jurisdictions have concurred with the recommendation to refinance
the 1990 Utility bonds based upon rate considerations. The principal amount of the 1990
Bonds to be refunded is $5,400,000.
1992 Series A Utility Revenue Bonds (Storm Drainage Improvements)
Analyses by the City’s FA and staff indicated that benefits could be derived by refunding and
restructuring the 1992 Utility Revenue Bonds (due to mature in June 2018). By refinancing
the 1992 Storm Drainage bonds over the next 25 years at current interest rates, it is expected
the City will realize an estimated net present value benefit of $144,000. In addition, annual
debt service payments on these bonds will be reduced, over the next nineteen years, by
approximately $125,000 per year. This reduction results from extending debt repayment
over a longer period of time, and by folding in higher principal payments in the last payment
years. Because 1995 Storm Drainage bonds will have been paid off by then, from a cash
flow perspective, the Storm Drainage Fund will realize level debt service over 25 years,
benefitting ratepayers and bolstering the Fund’s financial health. A reduction in debt service
payments will provide considerable relief to the Storm Drainage Fund, particularly if
CMR:254:99 Page 4 of 9
ratepayers do not approve a rate increase (discussed in
improvements. Annual debt service savings can be used
improvements and to replenish the Rate Stabilization Reserve.
1992 Bonds to be refunded is $4,160,000.
CMR:147:99) for needed
for operational and capital
The principal amount of the
1995 Series A Utility Revenue Bonds (Storm Drain Improvements)
Unlike the recommendations to refmance the 1990 and 1992 Utility Bonds, refinancing the
1995 Bonds is not recommended at this time. Interest rates on these bonds are relatively low,
and the net present value analysis did not result in a savings amount that would justify
refunding these relatively new bonds.
Credit Rating
To maximize the quality of the City’s bond issuance and minimize interest expense, staff has
delivered a rating presentation to Moody’s and Standard and Poor~s in San Francisco on May
7. Staff from Administrative Services, Public Works, and the Utilities Departments
participated in the rating presentations. Information such as the financial condition of the
City’s utilities, the ability of the enterprise funds to repay debt, the experience of
management, and the effects of utility deregulation was presented to the rating agencies. A
high credit rating on the bonds would mean that a bond issue is judged to be safe for ’
investors. It would also translate into a low interest rate on the City’s borrowing. Staff will
relay to Council the results of the rating agencies analysis when it is received.
The most critical factors affecting a credit rating are the guarantees or collateral a borrower
can make to underwriters and bondholders for paying its debt. In past utility bond issuances,
the City has pledged the net revenues of its utility funds (except Refuse) toward paying debt
service. This combination of utility revenues was a critical factor in achieving the highest
credit rating possible (Aa/AA). With the passage of Proposition 218, which restricts the use
of revenues from ratepayers, the ability to use all utility fund revenues as a guarantee is more
limited. The City. is no longer able to pledge, for example, ratepayer revenues from the
Water Fund for debt service on Wastewater Fund capital improvements. Together with the
City’s FA and bond counsel, staff has developed, however, a rate covenant (guarantee) that
still draws upon the combined financial strength of utility fund reserves for a high credit
rating. The attached Indenture of Trust (Section 5.12 and 5.13) outlines the City’s financial
covenants.
The first and foremost guarantee the City is making is that the Sewer and Storm Drainage
systems will generate sufficient charges/revenues, combined with their available Rate
Stabilization Reserves, to pay in each fiscal year: all operating and maintenance costs,
principal and interest on all outstanding bonds, costs associated with the Indenture, and all
other City obligations such as charges, liens, payables, and encumbrances.
CMR:254:99 Page 5 of 9
To further enhance creditworthiness, there is a second assurance or covenant in the attached
Indenture. It requires that, in addition tO having sufficient net revenue from the Sewer and
Storm Drainage systems to pay principal and interest obligations on the City’s bonds, that
specific utility reserves will be maintained ("Available Reserves" in the Indenture are listed
in Attachment C) at a level at least five times the maximum annual debt device on the bonds.
In the event either the Sewer or Storm Drainage systems were unable to meet their debt
service obligations, the City would make available reserves (such as the Electric or Gas Rate
Stabilization Reserves) to meet the debt obligations for a temporary period of time as an
advance.
The combined annual debt service for the incinerator project, and refunding of the 1990 and
1992 bonds is estimated, at current interest rates, at around $1,153,000 million per year
through June 2020. At five times this level, the City would need to maintain $5,765,000 in
its "Available Reserves" according to the Indenture. As shown in Attachment C, the City
had $119,523,000 in "Available Reserves" as of June 30, 1998, approximately one hundred
times debt servi~ce, easily exceeding the five times debt service requirement. While staff
believes that these reserves will not fall below the level required, it is important that Council
be aware of the commitment this provision makes.
Council approval is required to sell up to $20,000,000 in Utility Revenue and Refunding
Bonds through a competitive sale process on June 15, 1999. The City should receive funding
from that sale around June 29. In a competitive sale, the City will be assisted by its financial.
advisor, Stone & Youngberg, in receiving and evaluating bids submitted by underwriters to
purchase the bonds. Underwriters are investment banking finns, and the winning bidder will
resell the bonds to investors, typically institutional investors like mutual funds and high net
worth individuals. The bid with the lowest interest cost will be awarded by the City. With
its excellent financial reputation, the City is expected to sell its bonds at a very competitive
rate.
The proceeds from the issuance will be used to finance the refurbishment of the RWQCP’s
incinerators, to refinance the 1990 and 1992 Utility bonds, pay issuance costs, and either to
purchase a surety bond or establish a debt service reserve fund. In past utility bond
issuances, it has been the City’s preferred practice to purchase surety bonds in lieu of cash-
funded debt service reserve funds. Should the City be unable to buy a surety bond (which
is estimated to cost between $34,000 and $51,000), a debt service reserve must be
established. By requesting a not to exceed amount of $20,000,000 in bonds, staff has
included flexibility to establish a cash-funded debt service reserve, if the surety bond is not
offered or if its costs are determined to be too high.
Documents Submitted for Council Approval
The Council must approve the attached Resolution before the 1999 Utility Revenue and
Refunding Bonds can be sold by a competitive sale on June 15.
CMR:254:99 Page 6 of 9
By approving this resolution, the City Council authorizes various City officials to sign and
execute various documents. The Resolution, also adopts the following documents:
o Preliminary Official Statement, as to form, containing information material to the
offering and sale of bonds.
O An official Notice of Sale to the investment community seeking bids to be received
atthe offices of Stone & Youngberg at 10:00 a.m. on June 15, 1999.
o Notice of Intention to Sell Bonds
RESOURCE IMPACT
No additional budget appropriation is needed. Funds have already been appropriated for
design and construction of incinerator improvements at the RWQCP. Issuance costs for the
FA underwriter, bond counsel, and rating agency fees, etc. will be paid through the sale. A
detailed cost breakdown is shown as Attachment C.
The precise dollar amount of the bonds issued will not be known until competitive bids are
received from bidding underwriting firms on June 15, and will depend on the true interest
rate that the City has to pay for the bonds. The lower the interest rate, the less the total
financing costs annually and over time. Interest rates have been relatively stable recently,
and the City’s FA has estimated the average interest rate that the City will pay in today’s ¯
interest rate environment to be around 5.0 percent. However, the bids will not be received
until about 22 days from the time this report is being written.
The not-to-exceed amount, $20,000,000, is larger than the estimate provided in previous staff
reports. As mentioned, staff and the FA recommend refinancing the existing 1990 and 1992
utility revenue bonds, with outstanding principal balance of $9,560,000, due to the favorable
interest rates now available. Second, staff has estimated additional dollars for a contingency
in the event construction bids exceed original estimates (Council will be awarding a
construction contract on June 7). Third, staff has added dollars in the event the City must
create a debt service reserve fund in lieu of purchasing a surety bond. It is likely that the
principal amount of the bonds will, in fact, be $1.5 to 2.0 million lower. The control over
construction costs will be at the time that Council awards a construction budget on June 7.
The not-to-exceed amount of $20,000,000 merely gives flexibility in case Council approves
a larger construction contract and if the City has to establish a debt reserve fund.
Depending on final interest rates, annual debt payments should average around $895,000 per
year for the Wastewater Treatment Fund (approximately $500,000 for the new debt and
$395,000 for the 1990 debt). Palo Alto’s share of debt service for the incinerator
improvements is approximately 38 percent or $190,000, and the Partners and sub-Partners
will share the remaining 62 percent, or $310,000. Debt service for the refinanced 1992
CMR:254:99 Page 7 of 9
Storm Drainage bonds will equal $,258,000 through the year 2020, approximately $125,000
lower than current debt service on these bonds..
POLICY IMPLICATIONS
Approval of the bond financing is consistent with prior Council policy direction and with the
RWQCP Master Improvement Plan.
TIME LINE
Key dates include:
May 21
June 15
City obtains ratings
Bids from underwriters received. Assuming bids are acceptable, City
accepts the highest price bidder (i.e., the bidder with lowest interest
cost).
June 29
June, 2000
Bonds sale closing
First principal payment due on new bonds
ENVIRONMENTAL REVIEW
On February 23, 1998, Council approved a Negative Declaration (CMR: 141:98) for the
Regional Water Quality Control Plant Incinerator improvement project.
CMR:254:99 Page 8 of 9
ATTACHMENTS
Attachment A Resolution of the Council of the City of Palo Alto Authorizing The
Issuance and Sale of Not to Exceed $20,000,000 Principal Amount of
Utility Revenue and Refunding Bonds, 1999 Series A, Adopting
Official Notice of Sale, Notice of Intention and Official Statement and
Authorizing Official Actions Related Thereto
Exhibit A Preliminary Official Statement, As to Form,
Containing Information Material to the Offering and
Sale of Bonds
Exhibit B Official Notice of Sale
Exhibit C
Exhibit
Notice of Intention to Sell Bonds
Indenture of Trust By and Between the City of Palo
Alto and U.S. Bank Trust National Association as
Trustee
Attachment B Available Reserves
Attachment C Regional Water Quality Control Plant Incinerator Improvements
Financing Costs
PREPARED BY:Joe Saccio, Senior Financial Analyst, Administrative Services
Department
APPROVED BY:
CITY MANAGER APPROVAL:
CAR L YEATS
Di~e, :tor,
Manager
CC:N/A
CMR:254:99 Page 9 of 9
ATTACHMENT A
RESOLUTION NO. ~
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO
AUTHORIZING THE ISSUANCE AND SALE OF NOT TO EXCEED
$20,000,000 PRINCIPAL AMOUNT OF UTILITY REVENUE AND
REFUNDING BONDS, 1999 SERIES A, ADOPTING OFFICIAL NOTICE OF
SALE, NOTICE OF INTENTION AND OFFICIAL STATEMENT AND
AUTHORIZING OFFICIAL ACTIONS RELATED THERETO
The Council of the City of Palo Alto does RESOLVE as follows:
SECTION 1. Authority. The City is a chartered city and municipal corporation
organized and existing under the constitution and laws of the State of California and is duly
empowered as a chartered city to exercise the powers reserved to it under said constitution
with respect to municipal affairs.
SECTION 2. Utility Systems. As an exercise of such powers the City has heretofore
adopted the provisions of Chhpter 12.28 (commencing with Section 12.28.010) of the Palo Alto
Municipal Code (the "Law") which authorize the City, when the public interest and necessity
require, by resolution, to issue its revenue bonds for the purpose of financing or refinancing the
acquisition, construction, extension or improvement of any utility enterprise system or facility of
the City.
SECTION 3. Outstanding Bonds. City has heretofore authorized, issued and sold (i)
$9,650,000 principal amount of its City of Palo Alto Utility Revenue Refunding Bonds 1990
Series A (the "1990 Series A Bonds") pursuant to an Indenture of Trust dated as of August 1,
1990 (the "1990 Indenture"), by and between the City and the Security Pacific National Bank,
as trustee, (ii) $4,750,000 principal amount of its City of Palo Alto Utility Revenue Bonds, 1992
Series A (the "1992 Series A Bonds") pursuant to a First Supplemental Indenture of Trust,
dated as of March 1, 1992, and (iii) $8,640,000 principal amount of its City of Palo Alto Utility
Revenue Bonds, 1995 Series A (the "1995 Series A Bonds"), pursuant to a Second
Supplemental Indenture of Trust, dated as of February 1, 1995.
SECTION 4. Bonds Proposed. The City, after due investigation and deliberation, has
determined that it is in the public interest of the City at this time to authorize the issuance of its
revenue and refunding bonds under the Law for the purpose of (i) refunding the 1990 Series A
Bonds and the 1992 Series A Bonds (toge~er, the "Prior Bonds"); and (i.i) financing certain
~improvements to the Sewer System component of the Enterprise.
SECTION 5. Bond Sale Documents. Jones ’Hall, A Professional Law Corporation,
("Jones Hall") disclosure counsel to the City ("Disclosure Counsel") has prepared and
submitted to the City a preliminary Official Statement relating to the Bonds, a copy of which is
hereto attached and incorporated herein by reference as Exhibit A, for distribution to municipal
bond broker-dealers, banking institutions and to members of the general public who may be
interested in purchasing the Bonds, and Jones Hall, as bond counsel to the City ("Bond
Counsel"), has prepared an official notice of sale of the Bonds (the "Official Notice of Sale") a
copy of which is hereto attached and incorporated herein by reference as Exhibit B, and a notice
of intention to sell the Bonds (the "Nottce of Intention"), a copy of which is hereto attached and
incorporated herein by reference as Exhibit C, for publication as herein provided.
SE_____CTION 6.. Authorization of Sale. Tuesday, June 15, 1999, at the hour of 10:00 a.m.
(Pacific Daylight Time), is hereby fixed as the time, and the office of the Financial Advisor to
the City, Stone & Youngberg LLC, 50 California Street, 35th Floor, San Francisco, California
94111 is hereby fixed as the place at which bids will be received for the purchase of the Bonds
as described in and subject to the terms and conditions of the Official Notice of Sale. The
Director of Administrative Services is hereby authorized to award the sale of the Bonds to the
bidder whose responsible bid for the Bonds results in the lowest true interest cost to the City, to
be determined in accordance with the Official Notice of Sale. The principal amount of the
Bonds shall not exceed $20,000,000, which principal amount may be decreased before the
..giving of notice of the sale of the Bonds as herein provided and the documents referenced in
Section 5 hereof shall be revised accordingly.
SECTION 7__ _ . Notice of Intention; The Director of Administrative Services of the City is
authorized and directed to cause tO be published the Notice of Intention in the form hereto
attached as Exhibit C once in The Bond Buye.r, a financial publication generally circulated
throughout the State of California, such publication to be not later than May 28, 1999.
SECTION 8__ _ . Indenture of Trust. The Bonds shall be issued pursuant to an Indenture of
Trust dated as of June 1, 1999 (the "Indenture"), by and between the City and U.S. Bank Trust
National Association, as trustee (the "Trustee"). The Indenture, in substantially the form on file
with the City Clerk, is hereby approved, and the Mayor, the City Manager and the Director of
Administrative Services (each, an "Authorized Official") is hereby authorized to execute the
Indenture when finalized, following the sale of the Bonds, and the City Clerk is hereby
authorized and directed to attest said Authorized Official’s signature.
SECTION~9. Official Statement. The preliminary Official Statement describing the
Bond in substantially the form heretofore submitted to the Council, is hereby approved, subject
to whatever additions, deletions and corrections may be deemed advisable by the Authorized
Official upon consultation with Disclosure Counsel, Stone & Youngberg LLC (the "Financial
Advisor"), Bond Counsel and the City Attorney. The Authorized Official is hereby separately
authorized and directed, upon consultation with the Financial Advisor, Disclosure Counsel,
Bond Counsel and the City Attorney, to approve such changes to the preliminary Official
Statement as shall be necessary to cause such preliminary Official Statement to be brought into
the form of a final Official Statement, and the Authorized Official is hereby authorized and
directed to execute and deliver copies of the final Official Statement to the purchaser of the
Bonds, at the time of delivery of the Bonds.
The Council hereby approves, and hereby deems nearly final within the meaning of Rule
15c2-12 of the Securities Exchange Act of 1934 (the "Rule"), the preliminary Official Statement.
The Authorized Official is hereby authorized to execute an appropriate certificate stating the
Council’s determination that the preliminary Official Statement has been deemed nearly final
within the meaning of the Rule.
SECTION 10. Distribution of Official Statement and Official Notice of Sale,~ The
Financial Advisor is hereby authorized and directed to cause copies of the preliminary official
Statement to be printed and mailed to prospective bidders for the Bonds, together with copies
of the Official Notice of Sale.
SECTION 11. Preparation of Bonds. The Director of Administrative Services is
directed to cause the Bonds to be prepared in accordance with the provisions of the Indenture
of Trust approved in Section 8 and to cause their execution by the proper officers of the City
and au’thentication by the Trustee and to cause the Bonds to be delivered when so executed and
authenticated to or on behalf of the purchaser or purchasers thereof, upon the receipt of the
purchase price therefor.
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authenticated to or on behalf of the purchaser or purchasers thereof, upon the receipt of the
purchase price therefor.
SECTION 12. Execution of Documents.: The Mayor, Vice Mayor, City Manager, City
Clerk, Director of A~ln~hxistrative Services, Director of Utilities, Director of Public Works, City
Attorney and any and all other officers of the City are each authorized and directed in the
name and on behalf of the City to make any and all certificates, requisitions, agreements,
notices, consents, warrants and other documents (including specifically escrow agreements for
the 1990 Bonds and the 1992 Bonds), which, they or any of them might deem necessary or
appropriate in order to consummate the lawful issuance, sale and delivery of the Bonds to the
original purchaser thereof.
SECTION 13.. Effective Date. This resolution shall be effective upon the date of its
adoption.
SECTION 14. ~ The City Council finds that the action hereby approved does
not constitute a project under the California Environmental Quality Act; however, the Council
approved a negative declaration for the project on February 23, 1998.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:APPROVED:
City Clerk Mayor
APPROVED AS TO FORM:
JONES HALL,
A Professional Law Corpor/ation/ ¯
By:
Bond Counsel
City Manager
Director of Public Works
Director of Administrative Services
Senior Assistant City Attorney
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EXHIBIT A
PRELIMINARY OFFICIAL STATEMENT
26005-51 JH:CKL
PRELIMINARY OFFICIAL STATEMENT DATED MAY 25, 1999
NEW ISSUE: FULL BOOK ENTRY Rating: Moody’s:__
Standard & Poor’s:
In the opinion of Jones Hail, A Professional Law Corporation, San Franeisco, California, Bond Counsel, subject,
however, to certain qual!fications described herein, under existing law, the interest on the Bonds is excluded from gross income
for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum
tax imposed on certain corporation, such interest is taken into account in determining certain income and earnings. In the
further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See "TAX MATTERS" herein.
$17,385,000"
CITY OF PALO ALTO
Utility Revenue and Refunding Bonds
1999 Series A
Dated: June 1; 1999 Due: June 1, as shown below
The City of Palo Alto, a chartered city and municipal corporation (the "City"), is issuing its Utility Revenue
and Refunding Bonds, 1999 Series A (the "1999 Bonds") pursuant to an Indenture of Trust, dated as of June 1, 1999
(the "Indenture"), by and between the City and U.S. Bank Trust National Association, as trustee (the "Trustee"), the
Charter of the City and Chapter 12.28 of the Palo Alto Municipal Code. The Bonds are being issued for the purpose of
(i) financing certain improvements to the wastewater treatment portion (the "Wastewater Treatment System") of the
City’s sanitary sewerage and sewage disposal system (the "Sewer System"), (ii) refunding (A) the City’s Utility
Revenue Refumding Bonds 1990 Series A (the "1990 Bonds") and (B) its Utility Revenue Bonds, 1992 Series A (the
"1992 Bonds"), (iii) establishing a debt service reserve fund for the Bonds and (iv) paying certain costs of issuing the
Bonds.
The 1999 Bonds are special obligations of the City and are secured by amounts held from time to time in the
Debt Service Fund, as described herein, and, subject to certain restrictions set forth in the Indenture, a pledge of and
lien on certain Net Revenues generated by the City’s Sewer System and its storm and surface water system (the
"Storm Drain System"). The City has also agreed to advance moneys from certain rate stabilization reserve funds
identified herein (the "Available Reserves"), if necessary, to pay debt service on the 1999 Bonds. The portion of the
debt service on the 1999 Bonds attributable to financing new improvements to the Sewer System and to refunding the
1990 Bonds (approximately 71%) is payable solely from Net Revenues generated by the Sewer System (and from
moneys advanced from the Available Reserves). The portion of the debt service on the 1999 Bonds attributable to
refunding the 1992 Bonds (approximately 29%) is payable solely from Net Revenues generated by the Storm Water
System (and from moneys advanced from the Available Reserves).
The City’s Utility Revenue Bonds, 1995 Series A (the "1995 Bonds") are currently outstanding in the
principal amount of $7,930,000 (as of June 1, 1999), and are secured by a lien on Net Revenues of the City’s entire
"Enterprise", which consists of the Storm Drain System, the Sewer System, the electric utility (the "Electric System"),
the gas utility (the "Gas System’% and the water system (the "Water System"); the lien of the 1995 Bonds on the Net
Revenues of the Sewer System and the Storm Water System is senior to the lien on such Net Revenues securing the
1999 Bonds. However, unlike the 1999 Bonds, the 1995 Bonds are also payable from Net Revenues of the Water
System, the Gas System and the Electric System. Additional bonds and other indebtedness payable from Net
Revenues of the Sewer System or the Net Revenues of the Storm Drain System may be issued on a parity with the
portion of the 1999 Bonds payable from such Net Revenues (and subordinate to the 1995 Bonds) subject to the
conditions of the Indenture as further described herein.
NEITHER THE GENERAL FUND, THE FULL FAITH AND CREDIT, NOR THE TAXING POWER OF
THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS IS PLEDGED FOR
THE PAYMENT OF THE 1999 BONDS.
The 1999 Bonds will be issued in fully registered form only, and when executed and delivered, will be
registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC").
DTC will act as securities depository of the 1999 Bonds. Beneficial ownership interest in the 1999 Bonds may be
purchased in book-entry form only, in the denomination of $5,000 or any integral multiple thereof. The 1999 Bonds
are issued as fully registered bonds in denomination of $5,000 or any integral multiple thereof. Interest is payable on
¯ Preliminary; subject to change.
December 1, 1999 and each June 1 and December I thereafter. Payments of principal and interest (and premium, if
any) will be paid by the Trustee to DTC for subsequent disbursements to DTC Participants who will remit sud~
payments to ~e beneficial owners of the 1999 Bonds. See "THE BONDS - Book-Entry-Only System."
As described herein, the 1999 Bonds are subject to optional and mandatory redemption prior to maturity. The Official
Notice of Sale, dated May 28, 1999 (the "Official Notice of Sale’), permits bidders to select serial maturities or term bonds with
sinking fund installments at their discretion.
MATURITY SCHEDULE*
Maturity Principa!Interest Price or Maturity Prindpa!Interest
~Amount Rathe Yield ~Amount Rate
Price or
Yield
% Term 1999 Bonds Due June 1, ~
(Plus Accrued Interest)
; Priced to yield
The Bonds will be sold and awarded by competitive bid held on Tuesday, June 15, 1999, as set forth in the
Official Notice of Sale. The 1999 Bonds are offered when, as and if issued, subject to the approval of their legality by
Jones Hall, a Professional Law Corporation, San Francisco, California, Bond Counsel. Jones Hall is also acting as
disclosure counsel to the City. Certain legal matters will be passed upon for the City by the City Attorney. It is
expected that the 1999 Bonds will be available for delivery in New York, New York, on or about June 30,1999.
Dated: June ~ 1999
No dealer, broker, salesperson or other person has been authorized by the City or the
Corporation to give any information or to make any representations with respect to. the
Certificates other than those contained in this Official Statement and, if given or made, such-
other information or representations must not be relied upon as having been authorized by any
of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of
any offer to buy nor shall there be any sale of the Certificates by any person in any jurisdiction
in which it is unlawful for such person to make such an offer, solicitation or sale.
This Official Statement shall not be construed as a contract with the purchasers of the
Certificates. Statements contained in this Official Statement which involve estimates, forecasts
or matters of opinion, whether or not expressly so described herein, are intended solely as such
and are not to be construed as representations of facts.
The information contained in this Official Statement has been furnished by the City and
other sources which are believed to be reliable. Summaries and references to statutes and
documents in this Official Statement do not purport to be comprehensive or definitive and are
qualified in their entireties by reference to each such statute or document. The information and
expressions of opinions herein are subject to change without notice and neither delivery of this
Official Statement nor any sale made hereunder shall, under any circumstances, create any
implication that there h~s been no change in the affairs of the City or any other parties
described herein since the date hereof.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF
THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN
DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AND OTHERS AT
PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE COVER PAGE
HEREOF AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO
TIME BY THE UNDERWRITER.
THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT.
THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
LAWS OF ANY STATE.
The execution and distribution of this Official Statement has been authorized by the
City.
CITY OF PALO ALTO
CITY COUNCIL MEMBERS
Gary Fazzino, Mayor
Lanie Wheeler, Vice Mayor
Sandy Eakins, Council Member
Dena Mossar, Council Member
Victor Ojakian, Council Member
Joseph Huber, Council Member
Liz Kniss, Council Member
Dick Rosenbaum, Council Member
Micki Schneider, Council Member
CITY STAFF
June Fleming, City Manager
Emily Harrison, Assistant City Manager
Carl L. Yeats, Director of Administrative Services
Ariel Pierre Calonne, City Attorney
William Vinson, City Auditor
Donna G. Rogers, City Clerk
Public Works Department
Glenn Roberts, Director of Public Works
William Miks, Manager, Water Quality Control Plant
Joe Teresi, Senior Engineer
Utilities Department
John Ulrich, Director of Utilities
Randy Baldschun, Assistant Director of Utilit~s, Administrative Services
Larry W. Starr, Assistant Director of Utilities, Engineering & Operations
SPECIAL SERVICES
Bond Counsel and Disclosure Counsel
Jones Hall
A Professional Law Corporation
San Francisco, California
Financial Advisor
Stone & Youngberg LLC
San Francisco, California
Trustee
U.S. Bank Trust National Association
San Francisco, California
Verification Agent
Causey Demgen & Moore
Denver, Colorado
LOCATION MAP
TABLE OF CONTENTS
INTRODUCTION .................................................................................................................................1,
CONTINUING DISCLOSURE .............................................................................................................3
THE 1999 BONDS ................................................................................................................................4
General ............................................................................................................................................4
Transfer and Exchange ...................................................................................................................4
1999 Bonds Mutilated, Destroyed, Stolen or Lost .........................................................................5
Optional Redemption .....................................................................................................................5
Term Bonds Sinking Fund Redemption ..........................................................................................5
Purchase of Bonds in Lieu of Redemption .....................................................................................6
Special Mandatory Redemption from Insurance or Condemnation Proceeds ...............................6
Notice of Redemption ..................................................................: ..................................................6
Book-Entry-Only System ................................................................................................................7
FINANCING PLAN ..............................................................................................................................8
General ............................................................................................................................................8
Estimated Sources and Uses of Funds ...........................................................................................8
Refunding Plan ................................................................................................................................8
The 1999 Project .............................................................................................................................9
Annual Debt Service .......................................................................................................................9
SECURITY FOR THE BONDS .............................................................................................................10
Pledge of Net Revenues ...................................................................................................................10
Rate Covenant .................................................................................................................................11
Available Reserves ..........................................................................................................................12
Parity and Subordinate Bonds .......................................................................................................13
Reserve Account ...................................................................................................................~ ..........14
THE CITY ..............................................................................................................................................16
General ............................................................................................................................................16
City Utilities ....................................................................................................................................16
Management Of The Utilities Department .....................................................................................17
Management Of The Public Works Department ...................................................: ..................: .....18
Enterprise Staffing and Technology ................................................................................................18
Enterprise Management Policy .......................................................................................................19
Rates and Billing .............................................................................................................................19
Significant Accounting Policies .......................................................................................[ ...............20
THE SEWER SYSTEM ..........................................................................................................................21
History ............................................................................................................................................21
Facilities ..........................................................................................................................................21
Management Discussion of Operations ..........................................................................................22
Capital Improvement Program Summary .......................................................................................22
Historical/Projected Operations ....................................................................................................23
Rates ...................................................................................... ...........................................................26
Balance Sheet ..................................................................................................................................27
Income Statement ............................................................................................................................29
THE STORM DRAIN SYSTEM ............................................................................................................31
History ............................................................................................................................................31
Capital Improvement Program Summary .......................................................................................31
Management Discussion of Operations ...........................................................................................31
Rates ................................................................................................................................................32
Historical/Projected Operations ....................................................................................................32
Balance Sheet ..................................................................................................................................33
Income Statements ..........................................................................................................................34
AVAILABLE RESERVES .....................................................................................................................35
The City’s Rate Stabilization Reserves For Its Enterprise Funds ...................................................35
Rate Stabilization Reserve for the Water System ...........................................................................36
Rate Stabilization Reserve for the Wastewater Collection and
Wastewater Treatment Systems ..................................................................................................36
Rate Stabilization Reserve for the Refuse System ..........................................................................37
Rate Stabilization Reserve for the Storm Drain System .................................................................37
Rate Stabilization Reserves for the Electric System .......................................................................38
Rate Stabilization Reserves for the Gas System .............................................................................39
Calaveras-Stranded Costs Reserve ................................................................................................40
RISK FACTORS RELATING TO THE BONDS ...................................................................................42
Limited Obligations ........................................................................................................................42
System Expenses ..............................................................................................................................42
Limited Recourse on Default ..........................................................................................................42
Limitations on Remedies .................................................................................................................42
Balance of the Available Reserves ......................° ............................................................................43
Initiatives .........................................................................................................................................43
Bankruptcy ......................................................................................................................................43
Tax Exemption of the 1999 Bonds .................................................................................................44
Additional Obligations ...................................................................................................................44
Seismic Considerations ...................................................................................................................44
Flood Considerations ......................................................................................................................44
Year 2000 Compliance ....................................................................................................................44
Right to Vote on Taxes Initiative ....................................................................................................46
Investment of City Funds ............ ....................................................................................................48
LEGAL MATTERS ...............................................................................................................................49
Approval of Legal Proceedings ......................................................................................................49
Absence of Litigation ......................................................................................................................49
Tax Matters .....................................................................................................................................49
RATINGS ..............................................................................................................................................50
UNDERWRITING .................................................................................................................................50
MISCELLANEOUS ..............................................................................................................................51
APPENDIX A -
APPENDIX B -
APPENDIX C-
APPENDIX D -
APPENDIX E-
APPENDIX F -
Summary of the Principal Legal Documents ..........................................................A-1
General and Economic Information About the City of Palo Alto ...........................B-1
Audited Financial Statements of the City for the Fiscal Year Ended
June 30, 1998 ...........................................................................................................C-1
Proposed Form of Bond Counsel Opinion .............................................................D-1
Form of Continuing Disclosure Certificate ..............................................................E-1
DTC and the Book-Entry Only System ...................................................................F-~I
$17,385,000"
City of Palo Alto
Utility Revenue and Refunding Bonds
1999 Series A
INTRODUCTION
The purpose of this Official Statement, which includes the cover page and appendices
hereto, is to set forth certain information in connection with the sale by the City of Palo Alto
(the "City") of its Utility Revenue and Refunding Bonds, 1999 Series A (the "1999 Bonds").
Certain capitalized terms used in this Official Statement and not otherwise defined have the
meanings set forth herein under "SECURITY FOR THE BONDS -- Definitions" and "APPENDIX
A - Summary of The Principal Legal Documents".
The 1999 Bonds are being issued pursuant to the charter of the City and the provisions
of Chapter 12.28 (commencing with Section 12.28.010), of the Palo Alto Municipal Code,
together with Article 9 (commencing with Section 53550) and Article 11 (commencing with
Section 53580) of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the
State of California (the "State"), all as in effect on the Closing Date (the "Bond Law"), and
pursuant to the terms and conditions of an Indenture of Trust, dated as of June 1, 1999 (the
"Indenture"), by and between the City and U.S. Bank Trust National AsSociation, as trustee
(the "Trustee").
The 1999 Bonds are being issued for the of the following purposes:
(i) financing certain improvements (the "1999 Project") to the City’s wastewater
treatment system (the "Wastewater Treatment System," and together with the City’s
wastewater collection system (the "Wastewater Collection System"), the "Sewer
System"),
(ii) refunding (A) the City’s Utility Revenue Refunding Bonds 1990 Series A (the
"1990 Bonds") and (B) its Utility Revenue Bonds, 1992 Series A (the "1992 Bonds"),
(iii) establishing a debt service reserve fund for the 1999 Bonds and
(iv) paying certain costs of issuing the 1999 Bonds. See "THE FINANCING
PLAN" herein.
All references to and summaries of provisions of the Indenture are qualified in their entirety by
reference to the full Indenture, copies of which are available for inspection at the offices of the
City.
Pledge of Net Revenues. The 1999 Bonds are special obligations of the City and are
secured by amounts held from. time to time in the Debt Service Fund (as defined herein) and,
subject to certain restrictions set forth in the Indenture, a pledge of and lien on certain Net
Revenues (as defined herein) generated by the City’s Sewer System and its storm and surface
water system (the "Storm Drain System"). Collectively, the Storm Drain System and the Sewer
System are sometimes referred to herein as the Systems and each is sometimes referred to herein
as a System.
Preliminary; subject to change.
-1-
Covenant to Maintain and Advance From Available Reserves. In addition, the City will, if
necessary, advance funds to pay debt service on the Bonds from the following utility rate
stabilization reserve funds which, it has covenanted in the Indenture, to maintain in an
aggregate amount equal to at least five times maximum annual debt service on the 1999 Bonds
and any Parity Bonds (see "SECURITY FOR THE BONDS - Available Reserves"):
(i)
(ii)
(iv)
(v)
(vi)
(viii)
(ix)
(x)
Rate Stabilization Reserve for the City’s water utility (the "Water System"),
Rate Stabilization Reserve for the Wastewater Collection System,
Rate Stabilization Reserve for the Wastewater Treatment System,
Rate Stabilization Reserve for the City’s refuse utility (the "Refuse System"),
Rate Stabilization Reserve for the Storm Drain System,
Distribution Rate Stabilization Reserve for the
System"),
Distribution Rate Stabilization Reserve for
System"),
Supply Rate Stabilization Reserve for the Electric System,
Supply Rate Stabilization Reserve for the Gas System, and
the Electric System’s Calaveras-Stranded Costs Reserve
Reserve").
City’s electric utility (the "Electric
the City’s gas utility (the "Gas
(the "Calaveras
Certain provisions of the California Constitution may require the City to repay any
advance from an Available Reserve that is not directly related to the System which the advance
benefits. For example, if the City requires an advance from the ,Rate Stabilization Reserve for the
Water System to pay the portion of debt service on the 1999 Bonds attributable to the Sewer
System, the City may be required to repay the Water System reserve. See "RISK FACTORS
RELATING TO THE BONDS - Right to Vote on Taxes Initiative."
Limitations. The portion of the debt service on the 1999 Bonds attributable to financing
new improvements to the Sewer System and to refunding the 1990 Bonds (approximately 71%)
is payable solely from Net Revenues generated by the Sewer System and from moneys advanced
from the Available Reserves. The portion of the debt service on the 1999 Bonds attributable to
refunding the 1992 Bonds (approximately 29%) is payable only from Net Revenues generated
by the Storm Drain System and from moneys advanced from the Available Reserves.
Neither the general fund, the full faith and credit, nor the taxing power of the City, the
State of California (the "State") or any other political subdivision thereof is pledged to the
payment of the 1999 Bonds. The 1999 Bonds are not secured by a legal or equitable pledge of
or charge, lien or encumbrance upon any property of the City or any of its income or receipts
except the Net Revenues.
Senior Obligations - the. 1995 Bonds. The City’s Utility Revenue Bonds, 1995 Series A (the
"1995 Bonds") are currently outstanding in the principal amount of $7,930,000 (as of June 1,
1999), and are secured by a lien on Net Revenues of the City’s entire enterprise system (the
"Enterprise"), which consists of the Sewer System, the Storm Drain System, the Gas System, the
Electric System and the Water System; the lien of the 1995 Bonds on the Net Revenues of the
Sewer System and the Storm Drain System is senior to the lien on such Net Revenues securing
the 1999 Bonds. Additional bonds and other indebtedness payable from Net Revenues of the
Storm Drain System and the Sewer System may be issued on a parity with the 1999 Bonds (and
subordinate to the 1995 Bonds) subject to the conditions of the Indenture as further described
herein. See "SECURITY FOR THE BONDS - Parity and Subordinate Bonds" herein
Rate Covenant. The City covenants in the Indenture that it will fix, prescribe, revise and
collect Charges for each of the Sewer System and the Storm Drain System in each Fiscal Year
which are (i) sufficient (along with moneys transferred from the related Rate Stabilization
-2-
Reserve) to pay 100 percent of debt service on all outstanding Bonds ("Bonds" is defined in the
Indenture as the 1999 Bonds and all Parity Bonds) payable from Net Revenues of the Sewer
System or the Storm Drain System, as applicable and (ii) equal, when added to the balance in
the Available Reserves, to 125 percent of principal of and interest payable in that fiscal year on
all outstanding Bonds payable from Net Revenues of the Sewer System or the Storm Drain
System, as applicable. See "SECURITY FOR THE BONDS - Rate Covenant" herein.
Reserve Fund. To further secure the payment of the principal of and interest on the 1999
Bonds, the Indenture establishes the Reserve Account to be held by the Trustee. The Indenture
defines the Reserve Requirement to be equal to the lesser of (i) Maximum Annual Debt Service
on all Bonds then outstanding, (ii) 10 percent of the principal amount of the Bonds or (Hi) 125
percent of Average Annual Debt Service of the Bonds. Under certain circumstances, the Reserve
Account may be replaced In whole or in part by a surety bond or a letter of credit. See
"APPENDIX A - Summary of The Principal Legal Documents" and "SECURITY FOR THE
BONDS - Reserve Account" herein.
CONTINUING DISCLOSURE
The City has covenanted for the benefit of the holders and beneficial owners of the 1999
Bonds to provide certain financial information and operating data relating to the City (the
"Annual Report") by no later than each March 1 following the end of the City’s fiscal year
(which fiscal year currently ends on June 30), commencing with the Annual Report for the 1999-
2000 Fiscal Year, and to provide notices of the occurrence of certain enumerated events, if
material. The City will file, or cause to be filed, the Annual Report with each Nationally
Recognized Municipal Securities Information Repository, and with the appropriate State
information repository, if any, with a copy to the Underwriter. The City will file, or cause to be
filed, the notices of material events with the Municipal Securities Rulemaking Board (and with
the appropriate State information repository, if any), with a copy to the Underwriter. The
specific nature of the information to be contained in the Annual Report or the notices of
material events is set forth below in "APPENDIX E - Form of Continuing Disclosure Certificate."
These covenants have been made in order to assist the Underwriter in complying with S.E.C.
Rule 15c2-12(b)(5). The City has never failed to comply, in all material respects, with an
undertaking pursuant to said Rule.
-3-
THE 1999 BONDS
General
The 1999 Bonds will be dated June 1, 1999 and are to be issued in the aggregate
principal amount, bear interest at the rate per annum and mature on the dates set forth on the
cover page hereof.
The 1999 Bonds are deliverable in fully registered form in the denomination of $5,000
each or any integral multiple thereof, and when issued will be registered in the name of Cede &
Co. as nominee of The Depository Trust Company, New York, New York ("DTC"). Beneficial
owners of the 1999 Bonds will not receive physical certificates representing the 1999 Bonds
purchased, but will receive a credit balance on the books of the nominees of such beneficial
owners. So long as Cede & Co. is the registered holder of the 1999 Bonds, principal of and
premium, if any, and interest evidenced and represented by the 1999 Bonds will be paid the
Trustee directly to DTC, which will in turn remit such principal, premium, if any, and interest to
its participants for subsequent disbursement to the beneficial owners of the 1999 Bonds as
described herein. See "THE BONDS - Book-Entry-Only System." Principal of and premium, if
any, on the 1999 Bonds will be payable at maturity or prepayment upon surrender thereof at
the principal corporate trust office of the Trustee.
Interest on the 1999 Bonds is payable on each Interest Payment Date to the person
whose name appears on the Bond Registration Books as of the Record Date immediately
preceding the applicable Interest Payment Date, such interest.to be paid by check or draft of the
Trustee mailed by first class mail to the Owner or, at the option of any Owner of at least
$1,000,000 aggregate principal amount of the 1999 Bonds with respect to which written
instructions have been filed with the Trustee prior to the Record Date, by wire transfer, at the
address of the owner as it appears on the Bond Registration Books. Principal of and premium
(if any) on any 1999 Bond will be paid upon presentation and surrender thereof at the
corporate trust office of the Trustee in Los Angeles, California. Both the principal of and
interest and premium (if any) on the 1999 Bonds will be payable in lawful money of the United
States of America.
So long as Cede & Co., is the registered holder of the 1999 Bonds, references herein to
the holders or owners or registered holders or owners of the 1999 Bonds shall mean Cede & Co.
and ~shall not mean. the beneficial owners of the 1999 Bonds.
Transfer and Exchange
Any 1999 Bond may, in accordance with its terms, be transferred upon the Bond
Registration Books by the person in whose name it is registered, in person or by his duly
authorized attorney, .upon surrender of such 1999 Bond for cancellation, accompanied by
delivery of a written instrument of transfer in a form approved by the Trustee, duly executed.
Whenever any 1999 Bond shall be so surrendered for transfer, the City shall execute and the
Trustee shall thereupon authenticate and deliver to the transferee a new 1999 Bond or 1999
Bonds of like tenor, maturity and aggregate principal amount. No 1999 Bonds, the notice of
redemption of which has been mailed pursuant to the redemption provisions of the Indenture,
shall be subject to transfer.
1999 Bonds may be exchanged at the Trust Office of the Trustee, for 1999 Bonds of the
same tenor and maturity and of other authorized denominations.
-4-
1999 Bonds Mutilated, Destroyed, Stolen or Lost
If any 1999 Bond shall become mutilated, the City, at the expense of the Owner of said
1999 Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new 1999
Bond of like maturity and principal amount in exchange and substitution for the 1999 Bonds so
mutilated, but only upon surrender to the Trustee of the 1999 Bond so mutilated. Every
mutilated 1999 Bonds so surrendered to the Trustee shall be canceled by it, and delivered to, or
upon the order of, the City. If any 1999 Bond issued shall be lost, destroyed or stolen, evidence
of such loss, destruction or theft may be submitted to the City and the Trustee and, if such
evidence be satisfactory to them, indemnity satisfactory to them shall be given, the City, at the
e.xpense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a
new 1999 Bond of like mat-drity and principal amount in lieu of and in substitution for the 1999
Bond so lost, destroyed or stolen (or if any such 1999 Bond shall have matured or shall have
been called for redemption, instead of issuing a substitute 1999 Bond the Trustee may pay the
same without surrender thereof upon receipt of indemnity satisfactory to the Trustee). The City
may require payment of a reasonable fee for each new 1999 Bond issued and of the .expenses
which may be incurred by the City and the Trustee. Any 1999 Bond issued in lieu of any 1999
Bond alleged to be lost, destroyed or stolen shall constitute an original contractual obligation on
the part of the City whether or not the 1999 Bond alleged to be lost, destroyed or stolen be at
any time enforceable by anyone, and shall be equally and proportionately entitled to the
benefits of the Indenture with all other 1999 Bonds secured by the Indenture.
Optional Redemption
The 1999 Bonds maturing .on or before June 1, 2009, are not subject to optional
redemption prior to maturity. The 1999 Bonds maturing on or after June 1, 2010, are subject to
redemption prior to their respective maturity dates, at the option of the City, as a whole, or in
part in inverse order of maturities and by lot within a maturity, from any source of available
funds, on any interest Payment Date on or after June 1, 2009, at the following Redemption
Prices (expressed as percentages of the principal amount of the 1999 Bonds to be redeemed),
plus accrued interest thereon to the date of redemption:
Redemption Dates Redemption Prices
June 1, 2009 and December 1, 2010
June 1, 2010 and December 1, 2011
June 1, 2011 and thereafter
102%
101%
100%
Term Bonds Sinking Fund Redemption
1999 Bonds maturing on June 1, (the "Term Bonds") are subject to..
mandatory redemption in part from sinking fund payments to be made by the City on June 1,and on each June I thereafter up to and including June 1,, at aredemption price equal to 100% of the principal amount thereof plus accrued interest, if any, to
the redemption date without premium, as follows:
Iune I Principal Amount
-5-
Purchase of Bonds in Lieu of Redemption
In lieu of optional redemption, amounts in the Redemption Account of the Debt Service
Fund may be used for the purchase of Bonds at public or private sale as and when and at such
prices (including brokerage and other charges, but excluding accrued interest, which is payable
from the Debt Service Fund) as the City may determine, but not to exceed the principal amount
of such Bonds plus the redemption premium applicable on the next ensuing optional
redemption date.
Special Mandatory Redemption from Insurance or Condemnation Proceeds
The 1999 Bonds are subject to redemption as a whole on any date, or in part on any
Interest Payment Date in inverse order of maturity and by lot within a maturity, to the extent of
the Net Proceeds of hazard insurance not used to repair or rebuild the Sewer System or the
Storm Drain System or the Net Proceeds of condemnation awards received with respect to the
Enterprise to be used for such purpose, at a Redemption Price equal to the principal amount of
the 1999 Bonds plus interest accrued thereon to the date fixed for redemption, without
premium.
Notice of Redemption
Unless waived by ’any Owner of 1999 Bonds to be redeemed, notice of any redemption
of Bonds shall be given, at the expense of the City, by the Trustee by mailing a copy of a
redemption notice by first class mail at least 30 days and not more than 60 days prior to the
date fixed for redemption to the Owner of the 1999 Bond or 1999 Bonds to be redeemed at the
address shown on the Bond Registration Books; provided, that neither the failure to receive
such notice nor any immaterial defect in any notice will affect the sufficiency of the proceedings
for the redemption of the 1999 Bonds.
All notices of redemption must be dated and state the following:
(i)the redemption date,
(ii)the Redemption Price,
(iii) if fewer than all Outstanding 1999 Bonds are to be redeemed, the
identification (and, in the case of partial redemption, the respective principal amounts)
of the 1999 Bonds to be redeemed,
(iv) that on the redemption date the Redemption Price will become due and
payable with respect to each such 1999 Bond or portion thereof called for redemption,
and that interest with respect thereto shall cease to accrue from and after said date, and
(v) the place or places where such 1999 Bonds are to be surrendered for
payment of the Redemption Price, which places of payment may include the corporate
trust office of the Trustee.
At least forty-five (45) days prior to any redemption date, the City must deposit with
the Trustee an amount of money sufficient to pay the Redemption Price of all the 1999 Bonds or
portions of 1999 Bonds which are to be redeemed on that date.
So long as the 1999 Bonds are held only in the book-entry system of DTC, notice of
redemption will be sent to Cede & Co., as nominee for DTC, and will not be sent to the
beneficial owners of the 1999 Bonds.
-6-
Book-Entry-Only System
While the 1999 Bonds are subject to the book-entry system, the principal, interest and
any redemption premium with respect to a 1999 Bond will be paid by the Trustee to The
Depository Trust Company, New York, New York ("DTC"), which in turn is obligated to remit
such payment to its DTC Participants for subsequent disbursement to Beneficial Owners of the
1999 Bonds, as described in "APPENDIX F-- DTC and the Book-Entry Only System" herein.
-7-
FINANCING PLAN
General
The 1999 Bonds are being issued for the purpose of (i) financing the 1999 Project (see
"The 1999 Project" below) (ii) refunding the 1990 Bonds and the 1992 Bonds (see "The
Refunding Plan" below), (iii) funding the Reserve Account and (iv) paying certain costs of
issuing the 1999 Bonds.
Estimated Sources and Uses of Funds
The following table sets forth the estimated sources and uses of funds for the 1999
Bonds (exclusive of accrued interest):
Sources of Funds:
Principal Amount of 1999 Bonds
Less: Original Issue Discount
Less: Underwriter’s Discount
Total Sources
Uses of Funds:
1999 Project Fund
Escrow Fund
Cost of Issuance Fund (1)
Reserve Account (2)
Total Uses
(1)
(2)
Represents amounts to pay fees of rating agencies, Trustee, bond counsel,
disclosure counsel, financial advisor, printing and other miscellaneous
costs of issuing the 1999 Bonds.
In an amount equal to the Reserve Requirement. See "SECURITY FOR THE BONDS -
Reserve Account" herein.
Refunding Plan
A portion of proceeds of the 1999 Bonds will be used to establish an irrevocable escrow
(the "Escrow Fund") to be held by U.S. Bank Trust National Association (the "Escrow Bank").
Moneys in the Escrow Fund will be invested pursuant to that certain Escrow Deposit and Trust
Agreement, dated as of June 1, 1999 (the "Escrow Agreement"), by and between the City and
the Escrow Bank. Pursuant to the Escrow Agreement, moneys on deposit in the Escrow Fund
will be held as cash or invested solely in non-callable, direct general obligations of the United
States of America (including obligations issued or held in book-entry form on the books of the
Department of Treasury of the United States of America) (the "Escrow Securities"). The cash
and Escrow Securities, and the interest accrued with respect thereto, will be held by the Escrow
Bank on behalf of the City and for the benefit of the owners of the 1990 Bonds and the 1992
Bonds and applied as follows:
(i) 1990 Bonds: To the schedule payment of the principal of and interest on
the 1990 Bonds due on or before June 1, 2000, and the redemption of the remaining 1990
-8-
Bonds in full on June 1, 2000, at a redemption price of 102 percent of the principal
amount to be redeemed.
(ii) 1992 Bonds: To the scheduled payment of the principal of and interest on
the 1992 Bonds due on or before June 1, 2001, and the redemption of the remaining 1992
Bonds in full on June 1, 2001, at a redemption price of 102 percent of the principal
amount to be redeemed.
Causey Demgen & Moore, Denver, Colorado, will provide a verification report with
respect to the sufficiency of the amounts deposited in the Escrow Fund for the prepayment of
the 1990 Bonds and the 1992 Bonds.
Upon the establishment of the Escrow Fund as described above, the lien of the 1990
Bonds and the 1992 Bonds on Net Revenues will cease, terminate and become void, except for
the rights of the owners of the 1990 Bonds and the 1992 Bonds to payments from the Escrow
Fund.
The Escrow Securities and other moneys held by the Escrow Bank are pledged to the payment of
the 1990 Bonds and the 1992 Bonds. Neither the principal of the Escrow Securities deposited with the
Escrow Bank nor the interest thereon will be available for the payment of the 1999 Bonds.
The 1999 Project
A portion of the proceeds of the 1999 Bonds will be used to finance rehabilitation of the
Wastewater Treatment System’s two sludge incinerators, See "THE SEWER SYSTEM -
Facilities" herein.
Annual Debt Service
Set forth below is the annual debt service on the 1999 Bonds based on the interest rates
and maturity schedule set forth on the cover of this Official Statement (assuming no optional
redemption).
Bond Year Ending Bond Year
Iune 1 Principal Interest Total
[to come]
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SECUR1TY FOR THE BONDS
Pledge of Net Revenues
General. The 1999 Bonds are special obligations of the City and, pursuant to the
Indenture, there is pledged for the benefit of the Owners of the 1999 Bonds that portion of
certain Net Revenues which is necessary to pay the principal (and redemption premium, if any)
of and interest on the 1999 Bonds in any Fiscal Year, together with all moneys on deposit in the
Debt Service Fund and the Reserve Account.
"Net Revenues" are defined in the Indenture to mean, with respect to the Sewer System
or the Storm Drain System, for any period of computation, the amount of the Gross Revenues
received from the Sewer System or the Storm Drain System during such period less the amount
of Maintenance and Operation Costs of the Sewer System or the Storm Drain System becoming
payable during such period.
"Gross Revenues" are defined as, for any period of computation, all gross charges
received for, and all other gross income and revenues derived by the City from, the ownership or
operation of the Sewer System and Storm Drain System or otherwise arising from the Sewer
System and the Storm Drain System during such period, including but not limited to (a) all
Charges received by the City for use of the Sewer System and Storm Drain System, (b) all
receipts derived from the investment of funds held by the Director of Administrative Services or
the Trustee under this Indenture, (c) transfers from (but exclusive of any transfers to) any
related stabilization reserve funds, and (d) all moneys received by the City from other public
entities whose inhabitants are served pursuant to contracts with the City.
"Maintenance and Operation Costs" are defined in the Indenture as the reasonable and
necessary costs spent or incurred by the City for maintaining and operating the Sewer System or
the Storm Drain System, calculated in accordance with sound accounting principles.
Maintenance and Operation Costs include the cost of supply of water, gas and electric energy
under contracts or otherwise, the funding of reasonable reserves, and all reasonable and
necessary expenses of management and repair and other expenses to maintain and preserve the
Sewer System or the Storm Drain System in good repair and working order. Maintenance and
Operation Costs further include all reasonable and necessary administrative costs of the City
attributable to the Sewer System or the Storm Drain System and the 1999 Bonds, such as
salaries and wages and the necessary contribution to retirement of employees, overhead,
insurance, taxes (if any), expenses, compensation and indemnification of the Trustee, and fees
of auditors, accountants, attorneys or engineers, and all other reasonable and necessary costs of
the City or charges required to be paid by it to comply with the terms of the 1999 Bonds or of
the Indenture relating to the 1990 Bonds, or the Second Supplement thereto. Maintenance and
Operation Costs do not include depreciation, replacement and obsolescence charges or reserves
therefor and amortization of intangibles or other bookkeeping entries of a similar nature.
"Charges" is defined in the Indenture as fees, tolls, assessments, rates and rentals
prescribed under the Bond Law or any other law of the State by the Council for the water, gas,
or electric energy, or the services and facilities of a particular System furnished by the City.
The general fund of the City is not liable and the credit or taxing power of the City is not
pledged for the payment of the principal or redemption price of and interest on the 1999 Bonds.
The owner of the 1999 Bonds cannot compel the exercise of the taxing power by the City or the
forfeiture of its property. The principal or redemption price of and interest on the 1999 Bonds.
are not a debt of the City, nor a legal or equitable pledge, charge, lien or encttmbrance, upon any
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of its property, or upon any of its income, receipts, or revenues except the specified Net
Revenues.
Limitations. The pledge of Net Revenues are subject to certain limitations. First, the Net
Revenues of each System is only available to pay the debt service on the 1999 Bonds
attributable to that particular System. More specifically:
(i) Sewer System. The portion of the debt service of the 1999 Bonds
attributable to financing new improvements to the Sewer System and to refunding the
1990 Bonds (approximately 71%) is payable solely from Net Revenues generated by the
Sewer System (and from moneys advanced from Available Reserves).
(i0 Storm Drain System. The portion of the debt service of the 1999 Bonds
attributable to refunding the 1992 Bonds (approximately 29%) is payable solely from
Net Revenues generated by the Storm Drain System (and from moneys advanced from
Available Reserves).
Second, the pledge of Net Revenues to the 1999 Bonds constitutes a subordinate pledge
of Net Revenues. More specifically, the 1995 Bonds are secured by a lien on Net Revenues of
the entire Enterprise. Therefore, the lien of the 1995 Bonds on the Net Revenues of the Sewer
System and the Storm Drain System is senior to the lien on such Net Revenues securing the 1999
Bonds. It should be noted, however, that unlike the 1999 Bonds, the 1995 Bonds are also
payable from Net Revenues of the Water System, the Gas System and the Electric System. The
Indenture provides that no additional bonds can be secured by a pledge of Net Revenues of the
Storm Drain System or the Sewer System that is prior to the lien securing the 1999 Bonds.
Flow of Funds. The City covenants and agrees in the Indenture that all Gross Revenues
will be received and held by the City in trust and will be deposited by the City in the Revenue
Fund (which was created in connection with issuance of the 1990 Bonds and now exists in the
City Treasury).
All Gross Revenues will be transferred, disbursed, allocated and applied solely to the
uses and purposes hereinafter in this Article set forth, and shall be accounted for separately
and apart from all other money, funds, accounts or other resources of the City.
Rate Covenant
The City has covenanted in the Indenture to fix, prescribe, revise and collect Charges for
each of the Sewer System. and the Storm Drain System during each Fiscal Year which (together
with other funds transferred from stabilization reserve funds for the Sewer System and the
Storm Drain System, as applicable) and which are lawfully available to the City for payment of
any of the following amounts during such Fiscal Year) are at least sufficient, after making
allowances for contingencies and error in the estimates, to pay the following amounts in the
following order:
(a)all Maintenance and Operation Costs with respect to the Storm Drain System or
the Sewer System, as applicable, estimated by the City to become due and
payable in such Fiscal Year;
(b)the prIncipal of and interest on the OutstandIng Bonds payable from the Net
Revenues of the Sewer System or the Storm Drain System, as applicable,
becoming, due and payable during such Fiscal Year, including the redemption
price of Term Bonds subject to sinking fund redemption during such Fiscal Year;
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(c)all other payments required for compliance with the Indenture and the
instruments pursuant to which any Parity Bonds with respect to the Storm Drain
System or the Sewer System, as applicable (as defined below in "Parity and
Subordinate Bonds") shall have been issued; and
(d)all payments required to meet any other obligations of the City which are
charges, liens, encumbrances upon or payable from the Gross Revenues or the Net
Revenues of the Sewer System or the Storm Drain System, as applicable.
In addition, the City has covenanted in the Indenture to fix, prescribe, revise and collect Charges
for each of the Sewer System and the Storm Drain System during each Fiscal Year which, when
added to an "Allocable Shhre" of the balance then on hand in Available Reserves, are sufficient
to yield Net Revenues of the Sewer System and the Storm Drain System, respectively, are at
least equal to 125 percent of the principal of and interest on the Outstanding Bonds payable
from the Net Revenues of the Sewer System or the Storm Drain System, as applicable, becoming
due and payable during such Fiscal Year, including the redemption price of Term Bonds subject
to sinking fund redemption during such Fiscal Year. "Allocable Share" is defined as the portion
of the debt service on the Bonds (i.e., 1999 Bonds and Parity Bonds) attributable to the Sewer
System or the Storm Drain System, as applicable, in any particular Fiscal Year divided by total
debt service due in the same Fiscal Year.
See "Available Reserves" below for a discussion of limitations on the treatment of
appropriation of funds from or into a System’s related Available Reserve for purposes of
satisfying the rate covenant.
The rate covenant described above does not apply to the Water System, the Gas Systemor the Electric System.
Available Reserv, es
The City has covenanted in the Indenture to "maintain the funds on hand in Available
Reserves in an aggregate amount at least equal to five times Maximum Annual Debt Service.
"Maximum Annual Debt Service" is defined in the Indenture as the maximum annual debt
service on the 1999 Bonds and any Parity Bonds for the current or any Fiscal Year of the City.
In addition, the City has covenanted to advance from Available Reserves, to the Sewer System
or the Storm Drain System, as needed, amounts sufficient to enable the City to pay all
Maintenance and Operation Costs and all Debt Service payable with respect to those Systems,
when and as the ~ame become due and payable. See "AVAILABLE RESERVES" below for
information about the Available Reserves.
Certain provisions of the California Constitution may require the City to repay any
advance from an Available Reserve that is not directly related to the System which the advance
benefits. For example, if the City requires an advance from the Rate Stabilization Reserve for the
Water System to pay the portion of debt service on the 1999 Bonds attributable to the Sewer
System, the City may be required to repay the Water System reserve. See "RISK FACTORS
RELATING TO THE BONDS - Right to Vote on Taxes Initiative."
The Indenture further provides with respect to the treatment of appropriations of funds
from or into a System’s related Available Reserve:
(i) Into the reserve: To the extent that the City appropriates funds into a
System’s related Available Reserve, a deduction shall be made from Gross Revenues of
such System in the Fiscal Year during which said transfer occurred for purposes of
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calculations to be made in connection with the Rate Covenant and the issuance of Parity
Bonds; and
(ii) From the reserve: To the extent that the City appropriates funds from a
System’s related Available Reserve into the Revenue Fund, the City may count the funds
so transferred as Gross Revenues (as a result, however, it may not count the funds as
part of the balance in its Available Reserves) in the Fiscal Year in which said transfer
occurs for purposes of calculations to be made in connection with the Rate Covenant
and the issuance of Parity Bonds.
Parity and Subordinate Bonds
In addition to the 1999 Bonds, the City may issue or incur other loans, advances or
indebtedness payable from Net Revenues to be derived from the Sewer System or the Storm
Drain System to provide financing for such Systems, in a principal amount as shall be
determined by the City.
Parity Bonds. The City may issue or incur any Parity Bonds (defined in the Indenture as
bonds, notes or other obligations (including without limitation long-term contracts, loans, sub-
leases or other legal financing arrangements) of the City payable from and secured by a pledge
of and lien upon any of the Net Revenues of the Sewer System or the Storm Drain System, as
applicable) subject to the following specific conditions precedent, among others:
(a) The City shall be in compliance with all covenants set forth in the Indenture.
(b) The Net Revenues of the System for which such Parity Bonds are being
issued, calculated on sound accounting principles, as shown by the books of the City for
the latest Fiscal Year or any more recent twelve (12) month period selected by the City
ending not more than sixty (60) days prior to the adoption of the resolution, trust
indenture or installment sale agreement pursuant to which the Parity Bonds are issued,
as shown by the books of the City, plus, at the option of the City, any or all of the items
listed in (i), (ii) and (iii) below, shall at least equal 125 percent of Maximum Annual
Debt Service, with Maximum Annual Debt Service calculated on all Bonds to be
Outstanding immediately subsequent to the issuance of such Parity Bonds which have a
lien on Net Reserves of such System. The items any or all of which may be added to
such Net Revenues for the purpose of issuing or incurring Parity Bonds are the following:
(i) An allowance for Nef Revenues from any additions to or
improvements or extensions of the System to be made with the proceeds of such
Parity Bonds, and also for Net Revenues from any such additions, improvements
or extensions which have been made from moneys from any source but in any
case which, during all or any part of such Fiscal Year or such twelve (12) month
period, were not in service, all in an amount equal to ninety percent (90%) of the
estimated additional average annual Net Revenues to be derived from such
additions, improvements and extensions for the first thirty-six (36) month period
in which each addition, improvement or extension is respectively to be in
operation, all as shown in the written report of an Independent Consultant
engaged by the City;
(ii) An allowance for earnings arising from any increase in the Charges
which has become effective prior to the incurring of such additional indebtedness
but which, during all or any part of such Fiscal Year or such twelve (12) month
period, was not in effect, in an amount equal to the amount by Which the Net
Revenues would have been increased if such increase in Charges had been in
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as shown in the written repo~rt of an Independent Consultant engaged by the
City; and
(Hi) Funds then on hand in the Available Reserves.
(c) The resolution, trust indenture or installment sale agreement providing for the
issuance of Parity Bonds must provide that:
(i) The proceeds of the Parity Bonds will be applied to the acquisition,
construction, improvement, financing or refinancing of additional facilities,
improvements or extensions of existing facilities within the System, or otherwise
for facilities, improvements or property which the City determines are of benefit
to the System, or for the purpose of refunding any Bonds in whole or in part,
including all costs (including costs of issuing the Parity Bonds and including
capitalized interest on the Parity Bonds during any period which the City deems
necessary or advisable) relating thereto;
(ii) Interest on the Parity Bonds will be payable on an Interest Payment
Date;
(iii) The principal of the Parity Bonds will be payable on June 1 in any
year in which principal is payable; and
(iv) Money or a Qualified Surety Bond (see "Reserve Account" below)
will be deposited in a reserve account for such Parity Bonds from the proceeds of
the sale of such Parity Bonds or otherwise equal to the Reserve Requirement.
See "Available Reserves" above for a discussion of limitations on the treatment of
appropriation of funds from or into a System’s related Available .Reserve for the purposes of
satisfying the Parity Bonds test.
Subordinate Bonds. The Indenture authorizes the City to issue Bonds secured by Net
Revenues of a System on a basis subordinate to the pledge of Net Revenues to the 1999 Bonds.
Reserve Account
General. The Indenture provides for establishment of a Reserve Account. On the date of
issuance of the 1999 Bonds, the Trustee will deposit an amount equal to the Reserve
Requirement into the Reserve Account.
If at any time there are insufficient amounts in the Debt Service Fund to principal and
redemption price of or interest on the 1999 Bonds, the Trustee will withdraw from the Reserve
Account the amount of the deficiency. Any amounts in the Reserve Account in excess of the
Reserve Requirement (whether derived from interest or gain on investments or otherwise) will,
on June 2 of each year, be paid by the Trustee to the City for deposit in the Revenue Fund.
Qualified Surety Bond. In lieu of funding the Reserve Requirement with cash, the City
may deliver to the Trustee one or more means a surety bond issued by an insurance company
rated in the highest claims paying category by Moody’s and S&P ("Qualified Surety Bonds").
Any Qualified Surety Bond must provide that the Trustee is entitled to draw amounts
thereunder when required to make transfers from the Reserve Account to the Debt Service Fund
in the event of a deficiency in any such account.
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Release of Cash from the Reserve Account. To the extent the Reserve Requirement is
satisfied by delivery of a Qualified Surety Bond, any cash or Authorized Investments on
deposit in the Reserve Account will be paid by the Trustee to the City.
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THE CITY
General
The City is located in northern Santa Clara County, approximately 35 miles south of the
City of San Francisco. The City has a current population of approximately 60,500. It is part of
the San Francisco Bay metropolitan area. Partly due to the presence of Stanford University,
which is adjacent to the City, Palo Alto is considered the birthplace of the high technology
industry that has made Santa Clara County famous worldwide as Silicon Valley. The 630-acre
Stanford Research Park includes the headquarters of such prestigious and innovative high-tech
leaders as Hewlett-Packard, Varian Associates, Watkins-Johnson and Alza. Palo Alto is a
major employment center, including Stanford University, Stanford University Medical Center,
Lockheed Martin Missiles and Space, Palo Alto Medical Center, and Xerox.
The City was incorporated in 1894. Its first Charter was granted by the State of
California in 1909, and Palo Alto continues to operate as a charter city. Municipal operations
are conducted under the Council-Manager form of government. The nine Council Members are
elected at large for four-year, staggered terms. The Mayor and Vice Mayor are elected annually
at the first Council meeting in January. The Mayor presides over all Council meetings. The City
Manager is responsible for the operation of all mtmicipal functions, except the offices of the
City Attorney, City Clerk, and City Auditor. These officials are appointed by, and report
directly to, the City Council.
For general, economic and demographic information regarding the City, see "APPENDIX
B - General and Economic Information About the City of Palo Alto."
City Utilities
The City operates the following utility systems:
(i)
(iii)
(iv)
(v)
(vi)
the Sewer System,
the Electric System,
the Gas System,.
the Storm Drain System,
the Refuse System, and
the Water System.
The City’s Utilities Department is in charge of the operation of the Electric System, the
Gas System, the Water System and the Wastewater Collection System (which comprises a
portion of the Sewer System) and the City’s Public Works Department is in charge of the
operation of the Storm Drain System, the Refuse System and the Wastewater Treatment System
(which comprises the remaining portion of the Sewer System).
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As described more completely above (see "SECURITY FOR THE BONDS"), in addition
to Net Revenues from the Sewer System and the Storm Drain System, the City will, if Net
Revenues are insufficient, ad;cance funds from moneys on deposit from time to time in certain
rate stabilization reserves held by the City (the "Available Reserves"’ to pay debt service on the
Bonds, specifically:
(i)
(2)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
Rate Stabilization Reserve for the Water System,
Rate Stabilization Reserve for the Wastewater Collection System,
Rate Stabilization Reserve for the Wastewater Treatment System,
Rate Stabilization Reserve for the Refuse System,
Rate Stabilization Reserve for the Storm Drain System,
Distribution Rate Stabilization Reserve for the Electric System,
Distribution Rate Stabilization Reserve for the Gas System,
Supply Rate Stabilization Reserve for the Electric System,
Supply Rate Stabilization Reserve for the Gas System, and
the Electric System’s Calaveras-Stranded Costs Reserve (the "Calaveras
Reserve").
The City has covenanted to maintain the aggregate balance of the reserves at an amount .
at least equal to five times maximum annual debt service on the 1999 Bonds and any Parity
Bonds. See "THE AVAILABLE RESERVES" below for a discussion of each of the Available
Reserves and the City’s ctffrent policies with respect to each. See also "RISK FACTORS - Right
to Vote on Taxes Act" with respect to certain provisions of Proposition 218 that may require
the City to replenish certain Available Reserves in the event of an advance from an Available
Reserve for payment of debt service on the Bonds. See "RISK FACTORS - Right to Vote on
Taxes Act" herein.
Management Of The Utilities Department
The Utilities Department is responsible for the operation of four utility systems (the
Electric System, the Gas System, the Water System and the Wastewater Collection System) that
serve the City. The City, through its Utilities Department, services customer accounts for all of
the City’s utilities (including the Storm Drain System, the Refuse System and the Wastewater
Treatment System).Electric System
The Utilities Department is currently staffed by the following individuals, amongothers:
Director of Utilities - On April 1, 1999, the City appointed John Ulrich as Director of
Utilities, effective April 26. Mr. Ulrich began his career with and worked for PG&E in various
capacities for 26 years. As San Francisco Division Manager, Mr. Ulrich led PG&E through the
Loma Prieta earthquake. Mr. Ulrich’s most recent position was National Sales Director for
UTILX Corporation, a Kent, Washington-based company that provides services relating to
underground utilities. Mr. Ulrich earned a Bachelor of Science in Industrial Technology from
California State University, Long Beach.
Assistant Director of Utilities, Administrative Services Randy Baldschun.
Mr. Baldschun has twenty-eight years of utilities experience with the City of Palo Alto. His
responsibilities include the management of a division consisting of customer services, marketing,
long-term financial forecasting and ratemaking, meter reading, and computer services. He
received a B.S. in Business Administration from San Jose State University. Mr. Baldschun was
appointed to this position in 1990.
Assistant Director of Utilities, Engineering & Operations - Larry W. Starr. Mr. Starr has
twenty-eight years of experience in the electric utility industry and is a registered professional
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electrical engineer in the States of Washington and California. He has spent twenty-one years in
public utilities with the last 15 in engineering and operations management. He previously
worked for the City of Palo Alto as the Electric Engineering manager from June 1985 to
September 1990. Mr. Starr was appointed to his present position in July 1994.
Management Of The Public Works Department
The Public Works Department manages the Storm Drain System, the Refuse System and
the 38 million gallon per day (mgd) Regional Water Quality Control Plant (the "RWQCP’) that
serves a 96 square mile area including the cities of Palo Alto, Los Altos, Mountain View, the
Town of Los Altos Hills, Stanford University and the East Palo Alto Sanitary District. The
Cities of Palo Alto, Mountain View and Los Altos are partners (the "Plant Partners") in an
agreement specifying conditions for financing and operating the RWQCP. Los Altos Hills, the
East Palo Alto Sanitary District, and Stanford University (the "Plant Sub-Partners") are
included by separate contracts with Palo Alto which are referred to as sub-partner agreements.
The RWQCP provides advanced secondary and tertiary level of treatment to the influent.
The Public Works Department is currently staffed by the following individuals, among
others:
Director of Public Works - Glenn Roberts. Mr. Roberts has been the Director of Public
Works-since April of 1993. Prior to that time, he was employed in the City of San Jose for
twenty-four years. Mr. Roberts is a registered civil engineer in the State of California and has a
Bachelor’s Degree in civil engineering from the University of Santa Clara and a Master’s Degree
from California State University, San Jose.
Manager, Water Ouality Control Plant - William Miks. Mr. Miks has been the Manager
of the Water Quality Control Plant since January 1989. He has worked for the City in
increasingly responsible positions since 1972. He has a Bachelor’s Degree in engineering from
San Jose State University and a Grade V Waste Water Treatment Plan Operator Certification
issued by the California State Water Resources Control Board.
Senior Engineer - Joe Teresi. Mr. Teresi has managed the City’s Storm Drainage and
Surface Water Utility since September 1990. He has worked for the City’s Public Works
Department in increasingly responsible positions since 1984. Mr. Teresi is a registered
professional engineer in the State of California and has a Bachelor’s Degree in civil engineering
from the Universi.ty of California, Berkeley.
Enterprise Staffing and Technology
The City employs approximately 314.0 full-time equivalent employees to operate its
utilities. All of these employees, excluding those in the management classification, are
represented by Service Employees International Union ("SEIU") in all matters pertaining to
wages, benefits and working conditions. The current two-year agreement, which is in the form of
a memorandum of understanding, with this union expires on April 30, 2001. Management
employees receive substantially the same fringe benefit package as the SEIU .members. The
City’s wage and fringe benefits are generally comparable to those offered by other local public
agencies.
The City covers all of its permanent employees under the Public Employees’ Retirement
System ("PERS"). Pension costs are funded by monthly contributions to PERS by the City. At
June 30, 1996 (the most recent actuarial information available), the total pension benefit
obligation for all City employees was $249,519,000, net assets available for plan benefits were
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$251,033,000 and the City’s net assets available for plan benefits exceeded the total pension
benefit obligation by $1,514,000.
Enterprise Management Policy
Treated as enterprise funds, the Electric, Gas, Refuse, Water, Sewer and Storm Drain
Systems are financed and operated in a manner comparable to private business enterprises.
The City utilizes a Strategic Planning process in concert with its annual budget to identify and
record progress in meeting benchmark goals and objectives. In addition, business plans are
developed on an annual basis for the Water, Gas, Electric and Wastewater Collection Systems.
For the Gas and Electric Systems, separate business plans, are developed for the supply and
distribution business units.
The City uses the accrual basis of accounting with respect to the enterprise funds.
Revenues are recognized when earned, and expenses are recognized when incurred. Utility
revenues are used to pay operating costs, bond debt service, capital expenditures, and reserve
accumulations. In accordance with City policy, the cost of providing utility services to the
general public continues to be funded predominately through user charges. Policies for cash
reserves and Utilities Transfers to the City’s General Fund (which are permitted from the Water,
Gas and Electric Systems only) are established by the City Council in a manner consistent with
the voter-approved City Charter. Transfers to the General Fund are based on the approved
rate of return for comparable public utilities. Transfer levels from the Water, Gas and Electric
Systems are currently frozen at the 1996-97 levels pending a review of the Utilities Enterprise
Methodology by the City Council in 1999. The City has retained RW Beck to review
appropriate transfer methodologies for municipal utilities, particularly in a deregulated
environment in which it is prudent to balance the priorities of competitive positioning and
financial support for local government. The Wastewater and Storm Drain Systems are operated
to break-even and don’t provide a transfer to General Fund.
The Utilities and Public Works Departments are expected to continue meeting all of their
financial obligations while charging competitive retail rates to their customers. Careful
budgeting and sound financial planning have been and will continue to be important factors in
maintaining competitive rates. The Utilities Department recognizes the importance of
minimizing wholesale commodity costs which is the largest expenditure category. Much time
and effort are spent in dealing with the various commodity suppliers, regulatory agencies and
commissions to help ensure reasonable and economical wholesale commodity costs.
¯ Rates and Billing
The City Council has full discretion to set utility rates for each utility system. The City’s
ratemaking objectives are "to price utilities competitively, consistent with sound financial
planning, while promoting efficient resource utilization and customer satisfaction." To achieve
an appropriate balance between these objectives, the City forecasts all financial obligations and
funding sources over a ten year planning horizon. In this manner, timely rate adjustments for all
utilities are coordinated and alternated to assure adequate funding, minimize consumer
impacts, and to promote rate stability.
In 1993 and 1998, the City Council established new utility rate stabilization reserve
policies and guideline levels. See "AVAILABLE RESERVES" below. On an annual basis,
operating reserves are funded, withdrawn, or unchanged depending on the particular
circumstances of that utility fund. In 1996, the City Council adopted the Calaveras Reserve
Policy, which established a reserve balance to recover potential stranded costs related to
outstanding obligations for the Calaveras Hydroelectric Project. Compared to industry
benchmarks, the City’s utilities have low debt and interest expense. This is due to the City’s
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preference since the 1960’s to finance major capital improvements on a "pay as you go" basis.
This conservative approach to finance additions through rates helps keep rates low, since
interest costs associated with long-term financing are avoided.
The City collects utility charges by means of a single monthly bill to each customer listing
charges for each service provided. In November 1997, the City Counc~ approved a three year
project to implement a new utilities Customer Information System (CIS) utilizing state of the art
technology. The CIS will, in addition to billing utility customers, enable the utilities to offer a
full range of pricing options under deregulation and on-line customer information to staff. Over
the past five years, uncollectible accounts for all utilities have averaged approximately 0.04
percent of the amount billed.
Significant Accounting Policies
The City’s Annual Financial Report is audited by Maze & Associates, Accounting
Corporation, Walnut Creek California, in accordance with generally accepted auditing
standards, and contains opinions that the financial statements present fairly the financial
position of the various funds maintained by Palo Alto. See "APPENDIX C -Audited Financial
Statements of the City for the Fiscal Year Ended June 30, 1998." The reports, include certain
notes to the financial statements which may not be fully described below. Such notes constitute
an integral part of the audited financial statements. Copies of these reports are available on
request from the Administrative Services Department, City of Palo Alto, 250 Hamilton Avenue,
Palo Alto, California 94301. Governmental accounting systems are organized and operated on a
fund basis. A fund is defined as an independent fiscal and accounting entity with a self-
balancing set of accounts recording cash and other financial resources, together with all related
liabilities and residual equities or balances, and changes therein. Funds are segregated for the
purpose of carrying on specific activities or attaining certain objectives in accordance with
special regulations and restrictions.
As indicated above, the various Systems are accounted for as enterprise funds.
Enterprise funds are used to account for operations (i) that are financed and operated in a
manner similar to private business enterprises (where the intent of the governing body is that the
costs (expenses, including depreciation) of providing goods or services to the general public on a
continuing basis be financed or recovered primarily through user charges) or (ii) where the
governing body has decided that periodic determination of revenues earned, expenses incurred
and/or net income is appropriate for capital maintenance, public policy, management control,
accountability or other purposes.
The City has not requested nor did the City obtain permission from Maze & Associates
to include the audited financial statements as an appendix to this Official Statement.
Accordingly, Maze & Associates has not performed any post-audit review of the financial
condition or operations of the City.
-20-
THE SEWER SYSTEM
History
The wastewater collection system became the City’s first utility in 1896 serving a
population of about 3,000. The Sewer System is comprised of the wastewater collection system
(the "Wastewater Collection System"), which is managed by the City’s Utilities Department,
and the wastewater treatment system (the "Wastewater Treatment System"), which is managed
by the City’s Public Works Department. Currently, the Wastewater Collection System serves
over 60,000 residents in Palo Alto within its 25 square mile service area.
Fees and charges for use of the Wastewater Collection and Wastewater Treatment
Systems by City customers are billed directly to those customers and are reflected in the
revenues of the Wastewater Collection System. The Wastewater Collection System, in turn,
pays the Wastewater Treatment System for treatment services related to City customers. Fees
and charges for use of the Wastewater Treatment System are billed to the various Plant
Partners (including the City) and Plant Sub-Partners that use the RWQCP. See "THE CITY -
Management of the Public Works Department" for background information about .the RWQCP,
the Plant Partners and the Plant Sub-Partners.
Facilities
In 1934, a wastewater treatment plant was constructed to provide primary treatment to
all wastewater collected in the City and Stanford University. Improvements in 1948 and 1956
increased treatment capacity, addressed special seasonal waste loads and extended the outfall
into San Francisco Bay proper.
In 1973, construction of the basic secondary treatment facility was completed with
service extended to include wastewater treatment for the Partners and the Sub-Partners. These
facilities were financed by the Partners and the Sub-Partners with the assistance of federal and
state grants.
In 1979, due to federal requirements related to secondary treatment standards,
advanced wastewater treatment facilities were added to the plant. Funding of these facilities
was from federal and state grants and reimbursements from the 1973 treatment facility
construction project. In 1983, a wastewater system sludge dewatering facility was adde:d to the
plant. In 1985, a RWQCP Capacity Expansion program was developed to meet the needs of all
the facility’s partner agencies through 1995. This expansion increased the capacity of the plant
to 38 mgd, and primary/secondary treatment for peak wet weather flows to 80 mgd. Also in
1985, a five-year capital improvement program was begun in the wastewater collection system
dedicated to inflow/infiltration (I/I) source detection and system rehabilitation.
The 1999 Project will rehabilitate two sludge incinerators. The current incinerators are
27 years old, and the useful life of incinerators such as these is 15-25 years. Due to the high
demands placed on the incinerators, they are showing signs of deterioration. After investigating
various options ranging from completely refurbishing the existing incinerators to replacing them
or providing another solids disposal alternative, the Plant Partners decided to rehabilitate the
existing incinerators. The 1999 Project will also increase the capacity of each incinerator to
meet anticipated daily sludge disposal requirements, and as a result, create stand-by capacity
and flexibility.
-21-
Management Discussion of Operations
From Fiscal Year 1993-94 through 1997-98, combined Wastewater Collection and
Treatment sales revenue has averaged $19.4 million per year. This revenue level has been
sufficient to cover operating, capital, and debt service costs and to build adequate reserves.
The balances in the Rate Stabilization Reserves for the Wastewater Collection System and the
Wastewater Treatment System were $7,407,000 and $3,427,000, respectively, at the end of
Fiscal Year 1997-98. In the City’s Proposed 1999-2001 Budget, a Wastewater Collection rate
increase of 8 percent is proposed for 1999-2000 and a rate increase of 13 percent is proposed
for 2000-2001. These rate increases will result in additional revenues to the Wastewater
Collection and Wastewate_r Treatment Systems sufficient to cover all operating, capital and
debt service costs (old and new) and to strengthen reserves.
The RWQCP’s discharge into San Francisco Bay was authorized by a three-year
National Pollution Discharge Elimination System (NPDES) permit which was issued on
December 28, 1988 by the Regional Water Quality Control Board. The permit was amended
May 16, 1990 to include additional pre-treatment and waste minimization requirements. The
permit required several ongoing studies regarding particular components of the plant’s effluent.
All study deadlines were met. The permit was again amended April 17, 1991, setting "interim
concentration limits for toxic pollutants." The extremely low limit of 2.9 ug/1 for copper cannot
be achieved by conventional means; the lead and nickel values are also questionable as to their
achievability. Direction from the Regional Water Quality Control Board is that through source
control and water reclamation projects, toxic pollutant reductions will be required. A new five-
year permit was reissued on July 21, 1993 along with a Cease and Desist Order 93-083. The
permit contains a copper discharge limit of 4.9 ug/1 and a mass discharge of 720 lbs. per year:
The Cease and Desist Order contains an interim copper limit of 17 ug/1 along with compliance.
deadlines for full compliance with the copper mass effluent limit to be achieved by July 21,
1998. The Cease and Desist Order also contains additional program requirements for source
control and adoption of more stringent local limits for industrial discharges.
On June 17, 1998, a new five-year permit was issued with stringent but achievable limits.
The new copper limit is 12 ug/1. The City expects the RWQCP to meet or exceed all provisions
and limits of the new permit.
Capital Improvement Program Summary
Both the Wastewater Collection and Wastewater Treatment Systems have undergone
significant infrastructure improvements. From 1994-1995 through 1998-1999, $19.8 million was
appropriated for Wastewater Collection improvements such as sewer rehabilitation, and $5.6
million for Wastewater Treatment improvements such as equipment replacement. Looking
forward, the 1999-2004 Capital Improvement Program includes $25 million in Wastewater
Collection infrastructure improvements (primarily focusing on rehabilitating sewer lines) and
$8.1 million in Wastewater Treatment capital improvements (primarily to rehabilitate
equipment such as clarifiers, reactors, filters, basins and piping). These planned expenditures
are in addition to the incinerator improvements described in "Facilities" above and will be
funded from ongoing revenues.
-22-
Historical/Projected Operations
The following table reflects a historical and five-year projected record of wastewater treated by
the Wastewater Treatment System. The major fluctuations in the volume of wastewater treated
each year is primarily due to the amount of rain water infiltration during wet or dry years.
Table 1
CITY OF PALO ALTO
WASTEWATER TREATMENT SYSTEM (1)
(for all system partners)
1989-1998 Historical Treatment Volume
Wastewater
Fiscal Treated
Year (MGD)% Change
1989 22.0 -6%
1990 21.7 -1
1991 20.0 -7
1992 21.2 +5
19"93 24,4 +15
1994 22.4 -8
1995 26.0 +16
1996 25.6 -1.5
1997 26,1 +2
1998 28.3 +8
Five Year (1999-2003 Projected Treatment Volume)
1999 26.8 -5%
2000 27.0 +1
2001 27.3 +1
2002 27.6 +1
2003 28.0 +1
(1)Wastewater treated is for the cities of Palo Alto, Los Altos and Mountain View, the
East Palo Alto Sanitary District, Stanford University, and Los Altos Hills. RWQCP
capacity is 38.0 MGD.
Source: City of Palo Alto
-23-
The Plant Partners and the Plant Sub-Partners are responsible for 100
revenues generated by the RWQCP, as follows:
Parmer/Sub-Partner % of Total Revenue
City of Mountain View
City of.Palo Alto
City of Los Altos
East Palo Alto Sanitary District
Stanford University
Town of Los Altos Hills
4O%
37
12
7
4
1
percent of the
Source: City of Palo Alto
The top ten rate payers of the City’s portion of the Wastewater Collection System; as
listed below, represent 18.9% of the City’s portion of total revenues for Fiscal Year 1997-98.
Name
dpiX
Hewlett Packard
Loral
Roche/Syntex
Santa Clara County
Sheraton
Stanford Hospital
VA Hospital
Varian/CPI
Watkins-Johnson
Table 2
CITY OF PALO ALTO
’WASTEWATER COLLECTION SYSTEM
Top 10 Rate Payers (Fiscal Year 1997-98)
(in alphabetical order)
Business
Avionics
Computers and Peripherals
Aerospace
Pharmaceuticals
County Facility
Hotel
Medical Treatment and Instruction
Federal Government
Vacuum Tube Devices and Power Supplies ¯
Semiconductor Equipment and Telecommunications
Source: City of Palo Alto
-24-
The following table reflects the amoufft of wastewater treated by class (for all Partners
and Sub-Partners) and the number of wastewater customers by class (for the City only) for the
fiscal years 1993-94 through 1997-98 as well as projected treatment volume (for all Partners
and Sub-Partners).
Table 3
CITY OF PALO ALTO
WASTEWATER TREATMENT SYSTEM
MGD Treated
Fiscal Year
Wastewater Treated (MGD)
(Bv Parmer/Sub-Partner)
City of Mountain View
City of Palo Alto
City of Los Altos
East Palo Alto Sanitary District
Stanford University
Town of Los Altos Hills
Total
Number of Customers by Class
(Palo Alto Only)
Residential
Commercial
industrial
Municipal and Other
Total Customers
1993-94 1994-95 1995-96
9.0 10.4 10.2
8.0 9.6 9.5
2.7 3.0 3.0
1.6 1.8 1.8
1.0 1.0 1.0
0..__~2 0.~2 0.2
22.5 26.0 25.7
23,335 23,392 23,452
2,094 2,080 2,069
208 210 212
325 326 325
25,962 26,008 26,058
1996-97
10.4
9.6
3.0
1.8
1.00.__2
26.0
23,503
2,049
206
320
26,078
1997-98
11.0
10.7
3.2
2.2
1.1
0.2
28.4
23,525
2,040
207
320
26,092
Fiscal Year
Wastewater Treated (MGD)
(By Partner/Sub-Partner)
City of Mountain View
City of Palo Alto
City of Los Altos "
East Palo Alto Sanitary District’
Stanford University
Town of Los Altos Hills
Total
Number of Customers by Class
(Palo Alto Only)
Residential
Conunercial
industrial
Municipal and Other
Total Customers
Source: City of Palo Alto
Projected
1999-00 2000-01 2001-02 2002-03 2003-04
10.7 10.8 10.9 11.0 11.1
10.0 10.1 10.2 10.3.10.4
3.0 3.0 3.1 3.1 3.2
1.9 1.9 1.9 2.0 2.0
1.0 1.0 1.0 1.0 1.10.2 0.__2 0.~2 0.~2 0._._22
26.8 27.0 27.3 27.6 28.0
23,550 23,575 23,600 23,625 23,650
2,041 2,042 2,043 2,044 2,045
210 211 212 213 214
325 326 327 328 329
26,126 26,154 26,182 26,210 26,238
-25-
Rates
Sewer System rates reflect a flat fee structure. Businesses are billed a flat rate based
upon their water usage, Large businesses are billed based upon their water consumption as well
as the quality of their sewer effluent. Rates are adjusted ~to accommodate changes in revenue
requirements. The cost of treatment is one of the largest revenue requirements reflected in the
City’s rate structure.
Table 4
CITY OF PALO ALTO
SEWER SYSTEM
City’s Current Rate Structure and
Comparison With Surrounding Communities
Monthly Rates Effective July 1,1996
[not to be updated annually]
Palo Alto (1)
Average of
Surrounding
Communities (2)
Residential $13/connection $16
Commercial $2.54/100 CU FT of metered water usage $2/CCF
Large industrial
dischargers in excess of
25,000 gallons per day
$1.37/100 CU FT of metered water usage
plus:
174.00 per 1000 pounds of COD
$ 372.00 per 1000 pounds of SS
$ 2,321.00 per 1000 pounds of NH3$10,955.00 per 1000 pounds of toxics
Not available
(1) Rates effective since July 1, 1996.
(2) Average repres’ehted by the cities of Menlo Park, Redwood City and Mountain View.
Source: City of Palo Alto
-26-
Balance Sheet
The following tables set forth the balance sheets of the Wastewater Collection System
and the Wastewater Treatment System for the last four fiscal years. These numbers are
excerpted from the audited financial statements of the City which were prepared in accordance
with generally accepted accounting principles.
ASSETS
Current Assets:
Cash and Investments
Accounts receivable, net
Interest receivable
Total Current Assets
Noncurrent Assets:
Property, plant and equipment,’net
Total Assets
Table 5
CITY OF PALO ALTO
WASTEWATER COLLECTION SYSTEM
Balance Sheet
Fiscal Years 1994-95 through 1997-98
(in 000’s)
1994-95 1995-96 1996-97 1997-98
$10,374 $12,915 $13,681 15,002
1,297 1,331 1,195 1,196
166 198 200 212
11,837 14,444 15,076 16,410
LIABILITIES
Current Liabilities:
Accounts payable and accrued liabilities
Accrued salaries and benefits
Current portion of revenue bonds, net
Total Current Liabilities
697 $94
18 20
15~6 166
526
28
175
66
31
187
871 280 729 284
Long-term liabilities:
Accrued compensated absences
Accrued self insurance
Revenue bonds, net of unamortized discount
Total Liabilities
FUND EQUITY
Contributed capital
Retained earnings
Total Fund Equity
Total Liabilities and Fund Equity
46 --
108 -
3,208 2,580 1,952
9,030 9,030 9,030 9,030
19 737 24 746 28 404 ~
28,767 33,776 37 434 41,107
Source: City of Palo Alto Audited Financial Statements, 1995-1998.
-27-
Table 6
CITY OF PALO ALTO
WASTEWATER TREATMENT SYSTEM
Balance Sheet
Fiscal Years 1994-95 through 1997-98
(in 000’s)
’ASSETS
Current Assets:
Cash and Investments
Accounts receivable, net
Interest receivable
Total Current Assets
Noncurrent Assets:
Property, plant and equipment, net
Total Assets
1994-95 1995-9__66 1996-97 1997-98
$6,678 $~282 $~254 $8,377
508 459 512 577
107 117 109 118
7,293 7,858 7,875 9,072
28 422 27,653 27 117 26 278
LIABILITIES
Current Liabilities:
Accounts payable and accrued liabilities
Accrued salaries and ’benefits
Current portion of revenue bonds, net
Total Current Liabilities
Long-term liabilities:
Accrued compensated absences
Accrued self insurance
Revenue bonds, net of unamortized discount
Total Liabilities
FUND EQUITY
Contributed capital
Retained earnings
Total Fund Equity
Total Liabilities and Fund Equity
$815 $686 $297 $500
50 53 62 79
339 360 380 408
1,204 1,099 739 987
266 ......
6,300 5,498 4,766 4,615
21,382 21,382 21,382 21,382
Source: City of Palo Alto Audited Financial Statements, 1995-1998.
-28-
Income Statement
The following tables set forth the statements of revenues, expenses and changes in
retained earnings of the Wastewater Collection System and the Wastewater Treatment System
for the four most recent fiscal years. These numbers are excerpted from the audited financial
statements of the City which were prepared in accordance with generally accepted accounting
principles.
Table 7
CITY OF PALO ALTO
WASTEWATER COLLECTION SYSTEM
Statement of Revenues, Expenses and Changes in Retained Earnings
Fiscal Year Ended June 30,1995 - June 30,1998
(in ooo’s)
OPERATING REVENUES:
Sales of Utilities:
Customers $9,271
City departments 152
Service connection charges and miscellaneous 59
Other operating revenues 730
1994-95 1_~95-96 1996-97 1997-98
To tal Opera ting Revenues
OPERATING EXPENSES
Purchase of utilities
Administration and general
Engineering (operating)
Resource management
_Operations and maintenance
Rent
Depreciation and amortization
$9,236 $8,600 $8,655
143 83 109
66 92 54
744 680 667
10,212 10,189 9,455 9,485
3,348 3,625 3,824 4,158
432 278 308 358~
120 75 35 34
897 834 950 996
29 80 80 93
719 736 772 870
Total Operating Expenses 5,545
Opera ting Income 4, 667
NONOPERATING REVENUES (EXPENSES)
Return on investment
Interest (expense)275
Loss on disposal of fixed assets --
Net Nonoperating R~venues (Expenses)275
Income Before Operating Transfers 4, 942
OTHER FINANCING SOURCES (USES)
Operating transfers in --
Operating transfers (out) ~
5,628 5,969 6,509
Net Income
Retained earnings at beginning of year
Residual equity transfer out
Retained earnings at end of year
4,561 3,486 2,976
965
511 662 (137)
510 223 815
5,071 3,709 3,791
4,928 5,009 3,658 3,673
,14,880 19,737 24,746 28,404
$19,737 $24,746 $28,404 $32,077
Source: City of Palo Alto Audited Financial Statements, 1995-1998.
-29-
Table 8
CITY OF PALO ALTO
WASTEWATER TREATMENT SYSTEM
Statement of Revenues, Expenses and Changes in Retained Earnings
Fiscal Year Ended June 30,1995 - June 30,1998
(in ooo’s)
OPERATING REVENUES:
Sales of Utilities:
City departments
Wastewater treatment
Other operating revenues
1994-95 J995-96 1996-97 J997-98
$3,348 $3,625 $3,824 $4,158
5,989 6,341 6,735 6,936
197 104 141 227
Total Operating Revenues
OPERATING EXPENSES
Administration and general
Engineering (operating)
Operations and maintenance
Depreciation and amortization
9,534 10,070 10,700 11,321
709 753 854 962
915 999 1,158 1,401
6,228 6,372 6,997 7,151
Total Operating Expenses
Operating Income
NONOPERATING REVENUES (EXPENSES)
Return on investment
Interest (expense)
Loss on disposal of fixed assets
9,376 9,550 10,579
158 520 121
11,036
Net Nonoperating Revenues (’Expenses)
Income Before Operating Transfers
OTHER FINANCING SOURCES (USES)
Operating transfers in
Operating transfers (out)
Net Income
285
Retained earnings a t beginning of year
Residual equity transfer out
Retained earnings at end of year
.....659
(19)91 125 (298)
(19)78 125 250
139 598 246 535
67 598 213
8,281 8,033 8,631
$8,033 $8,631 $8,844
Source: City of Palo Alto Audited Financial Statements, 1995-1998.
509
8,844
$9,353
-30-
THE STORM DRAIN SYSTEM
History
The City created by Ordinance a Storm and Surface Water Management Enterprise and
Utility on November 6, 1989. On November 27, 1989 the City Council approved a method for
calculating Storm Drain System Fees and established a utility rate schedule for the enterprise to
be effective January 1, 1990. Storm Drain System Fees were collected for the first time with the
City’s February 1990 utility bill.
The purpose of the Storm Drain System is to constructand maintain storm drainage
improvements on a City-wide basis. The City is responsible for all drainage facilities in the
street and the public right of way including curbs and gutters, catch basins, pipelines and pump
stations. These facilities collect storm water runoff and convey it to the Santa Clara Valley
Water District’s system of major channels and creeks within the City.
Following its conclusion that the City’s storm water collection system was incomplete,
undersized and/or in need of repair and replacement, the City decided to levy a monthly Storm
Drain System Fee computed on the basis of the use made of, and the need for, and the service
provided by the storm drainage facilities of the City. Fees for single-family and duplex
residential properties are a fixed amount and are based on the assumption that these types of
property have an average impervious area of 2,500 square feet. Fees for multi-family
residential, commercial, and industrial properties are proportional to the single-family
residential rate, but are based on the actual amount of impervious area on the property.
Revenue from the Storm Drain System Fee for Fiscal Year 1996-97 was $2,063,000 and for
Fiscal Year 1997-98 it was $2,085,000.
Capital Improvement Program Summary
Since 1994-95, $8.9 million has been appropriated for Storm Drainage System
infrastructure improvements. Work was funded primarily from 1995 Bond proceeds. Capital
work completed includes: pump station improvements, storm drain pipeline construction and
repair, erosion control, and curb and gutter replacement. Future capital improvements are
dependent upon, voter approval of a Storm Drain System rate increase which is discussed
below in "Rates".
Management Discussion of Operations
When the Storm Drain System was created in 1989, the City stated that the Storm Drain
System Fee would not be increased for a period of at least three years, pending completion of
the storm drain condition assessment and master plan studies. These studies recommend a
$60 million, 30-year capital improvement program to repair or replace deteriorated portions of
the existing Storm Drain system and to augment the existing system where it does not have
sufficient capacity to serve its drainage area. The City Council has approved a portion of the
recommended improvement program, totaling $9.1 million. A 31 percent increase in the Storm
Drain System Fee was adopted by the City effective July 1, 1994 to support the cost of these
improvements. On May 3, 1999, the City Council approved a 30-year, $48 million storm drain
capital plan, which is dependent upon a rate increase (described below in the section entitled
"Rates").
-31-
Rates
The rates charged for the Storm Drain System are billed to customers as a separate line
item on the common utility bill sent for the fees and charges of all of the utilities of the
Enterprise. The common utility bill has a one-month billing cycle.
The current Storm Drain System Fee per Equivalent Residential Unit (ERU) is $4.25.
The unit basis for rates is as follows:
An ERU is the basic unit for computation of Storm Drain fees for
residential and non-residential customers. All single-family and duplex units
are considered 1 ERU and are considered to have an average impervious area
of 2,500 square feet. All other properties have ERUs computed to the nearest
1/10 ERU using the following formula:
No. of ERU = Impervious Area (Sq. Ft.~
2,500 Sq. Ft.
The City believes a rate increase will be needed in the next year to fund additional
capital improvements. ~The City considers Storm Drain rates to be "property related fees"
under Proposition 218, and, therefore, believes that ratepayers will need to approve any
proposed rate increase. On May 3, 1999, the City Council approved a rate plan that would
increase the ERU from $4.25 per month to $10.00 per month, effective July 1, 2000. The City
expects to ask the ratepayers for approval in Spring 2000. However, the City believes it will be
able to satisfy its Storm Drain System debt service coverage covenant without the proposed
rate increase. See "SECURITY FOR THE BONDS - Rate Covenant" herein.
Historical/Projected Operations
Because the City is virtually built-out, no significant growth in ERUs is projected.
-32-
Balance Sheet
The following information sets forth the balance sheet of the Storm Drain System for the
four most recent fiscal years. These numbers are excerpted from the audited general purpose
financial statements of the City which were prepared in accordance with generally accepted
accounting principles.
Table 9
CITY OF PALO ALTO
STORM DILadN SYSTEM
Condens6d Operating Results and Balance Sheet Information
Fiscal Years Ended June 30,1995 - June 30,1998
(in ooos)
ASSETS
Current Assets:
Cash and investments:
Available for operations
Restricted cash and equivalents
Accounts receivable, net
Interest receivable
Total Current Assets
Noncurrent Assets:
Property, plant and equipment, net
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities:
Acts. payable and accrued liabilities
Accrued salaries and benefits
Current portion of revenue bonds
Total Current Liabilities
Long-term Liabilities:
Accrued compensated absences
Accrued self insurance
Rev. bonds, net of unamortized disc.
Total liabilities
FUND EQUITY
Contributed capital
Retained earnings
Total Fund Equity
Total Liabilities and Fund Equity
1994-95 1995-96 1996-97 1997-98
$1,695 $1,207 $1,273 $ 733
8,541 6,989 4,240 2,755
184 203 192 192
27 19 19 11
10,447 8,418 5,724 3,731
4.852 7.573 ~12 301
4,852 7,573 10,441 12,301
$15.299 $15.991 $16.165 $16.032
$ 83 $381 $308 $235
5 8 9 12
26~0 2 7__~5 28_~5 300
348 664 602 547
12,927 12,274 12,608 12,271
2,372 3,053 3,557 3,761
Source: City of Palo Alto Audited Financial Statements, 1995-98.
-33-
Income Statements
The following information sets forth the statement of revenues, expenses and changes in
retained earnings of the Storm Drain System for the four most recent fiscal years. These
numbers are excerpted from the audited general purpose financial statements of the City which
were prepared in accordance with generally accepted accounting principles.
Table 10
CITY OF PALO ALTO
STORM DRAIN SYSTEM
Statement of Revenues, Expenses and Changes in Retained Earnings
Fiscal Years Ended June 30,1995 - June 30,1998
(in ooo’s)
OPERATING REVENUES
Sales of utilities:
Customers
City departments
Other operating revenues
Total Operating Revenues
OPERATING EXPENSES
Administration and general
Engineering (operating)
Operations andmaintenance
Depreciation and amortization
Total Operating Expenses
Opera Kng Income
NONOPERATING REVENUES (EXPENSES)
Return on investment
Interest (expense)
Net Nonoperating Revenues (Expenses)
Income Before Operating Transfers
OTHER FINANCING SOURCES (USES)
Operating transfers in
Operating transfers out
Net Income
Retained earnings at beginning of year
Residual equity transfer out
Retained earnings at end of year
1994-95 1995=96 1996-97 1997-98
$1,995 $1,981 $1,954
107 109 109
6 5 4
2,108 2,095 2,067
318 337 406
222 259 227
458 489 496
94 9O 16.._~4
1,016 920 774
~~~236~
201 (221)(236)
815 699 538
779 681 504
1,621 2,372 3,053
Source: City of Palo Alto Audited Financial Statements, 1995-1998.
$1,977
108
4
2,089
342
301
761
22~9
456
64r280~
(216)
240
204
3,557
-34-
AVAILABLE RESERVES
Set forth below is information, including historical balances, policies and minimum,
maximum and target guidelines with respect to each of the Available Reserves.
The City’s Rate Stabilization Reserves For Its Enterprise Funds
Based upon a comprehensive review of utility reserves, the City Council adopted a
utility reserve policy in 1993 that defined the role of reserves, established a rate stabilization
reserve for each utility fund, and identified reserve guidelines. Rate stabilization reserves were
created to cover a number of contingencies, including the need to supplement rates to cover
distribution expenses and commodity supply costs.
The 1993 reserve policy declared that reserves should be established to finance
"extraordinary one-time contingencies". The policy further stated that reserves should not be
used to solve long-term financial problems; rather, rates should finance current operating,
capital and financial obligations which are of an ongoing nature. In addition, reserves should
not be funded to cover major catastrophic disasters; the City maintains insurance for that
purpose and othergovemmental resources can be made available in case of disaster. Finally, in
the event current operating costs exceed current revenues, reserves should be used to cover
increased operating costs in the short run, while allowing rates to gradually increase over a
reasonable period to meet such cost levels.
Reserve level guidelines are set to allow reserves to adjust up or down without unduly
falling below the minimum or above the maximum. On occasion, reserves have exceeded the
maximum level for a short time. Reserve levels are then adjusted in subsequent years, usually
through rate changes. The decision to set aside more or less than the target is based upon an
assessment of the uncertainties and financial risk facing the utilities. The City notes that reserve
levels in excess of "maximum" levels are considered to be consistent with its reserve gttidelines.
The City Council is notified in the Midyear Financial Report, as well as in the Fourth
Quarter Financial Report, of any existing or potential issues known at that time w.ith respect to
the reserves. In the absence of direction from the City Council to immediately address
disposition of a reserve surplus, the disposition will be addressed in the following year’s budget
cycle. Disposition may include a rate reduction, customer rebate, application of the surplus in
satisfaction of a financial, obligation or, if justified, maintenance of the reserve in its surplus
position for a specific period of time. The City’s policy is to require City Council action to use
the reserve; as a result, utility management is held accountable for operating efficiently and the
City Council makes the decisions regarding the use of reserves.
Since 1993, deregulation of the electric and gas industries has progressed rapidly. In
1997, the City Council approved several policies related to electric deregulation, including
recovery of stranded costs and providing customer choice of supplier and marketing sales to
customers residing outside the City’s service territory. In 1999, the City took similar action by
approving a Direct Access Plan for the Gas System.
Set forth in the following pages is information with respect to the various Available
Reserves, including target guidelines and historical balances.
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Rate Stabilization Reserve for the Water System
The Water System rate stabilization reserve fund is maintained on the basis of the
following guidelines:
Minimum Guideline Level:15 percent of sales revenue for that year plus
estimated armual net sales revenue decline due to
abnormal weather
Target Level:
Maximum Guideline Level:
midpoint between maximum and minimum levels
twice the minimum level
Sales revenue, policy guidelines and actual levels of the Water System rate stabilization
reserve as of June 30 for fiscal years 1994 through 1998 are set forth below (in thousands of ¯
dollars):
1993-94 1994-95 1995-96 1996-97 1997-98
Sales Revenue $14,569 $11,789 $11,823 $13,280 $11,943
Minimum Level n/a 4,139 4,243 3,569 3,666
Target Level n/a 6,208 6,365 5,354 5,766
Maximum Level n/a 8,277 8,486 7,138 7,865
Actual Level 6,648 6,585 6,838 7,814 7,502
Source: City of Palo Alto.
Rate Stabilization Reserve for the Wastewater Collection and Wastewater Treatment Systems
The rate stabilization reserve funds for the Wastewater Collection System and the
Wastewater Treatment System are maintained on the basis of the following guidelines:
Minimum Guideline Level:15 percent of sales revenue for that year
Target Level:midpoint between maximum and minimum levels
Maximum Guideline Level:twice the minimum level
Sales revenue, policy guidelines and actual levels of the Wastewater Collection rate
stabilization reserve as of June 30 for fiscal years 1994 through 1998 are set forth below (in
thousands of dollars):
1993-94 1994-95 1995-96 1996-97 1997-98
Sales Revenue $9,547 $9,423 $9,379 $8,683 $8,764
Minimum Level n/a 2,754 3,016 2,502 2,565
Target Level n/a 4,131 4,524 3,753 3,809
Maximum Level n/a 5,508 6,031 5,004 5,052
Actual Level 6,425 7,721 8,931 8,454 7,407
Source: City of Palo Alto.
Sales revenue, policy guidelines and actual levels of the Wastewater Treatment rate
stabilization reserve as of June 30 for fiscal years 1994 through 1998 are set forth below (in
thousands of dollars):
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1993-94 1994-95 1995-96 1996-97 1997-98
Sales Revenue $9,337 $9,337 $9,966 $10,559 $11,094
Minimum Level n/a 1,547 1,602 1,602 1,697
Target Level n/a 4,641 2,403 2,403 2,500
Maximum Level n/a 3,094 3,204 3,204 3,393
Actual Level 2,569 2,667 2,803 3,050 3,427
Source: City of Palo Alto.
Rate Stabilization Reserve for the Refuse System.
The rate stabilization reserve fund for the Refuse System is maintained on the basis of
the following guidelines:
Minimum Guideline Level:
Target Level:
Maximum Guideline Level:
10 percent of sales revenue for that year
midpoint between maximum and minimum levels
twice the minimum level
Sales revenue, policy guidelines and actual levels of the refuse system rate stabilization
reserve as of June 30 for fiscal years 1994 through 1998 are set forth below (in thousands of
dollars):
1993-94 1994-95 1995-96 1996-97 1997-98
Sales Revenue $15,605
Minimum Level n/a
Target Level n/a
Maximum Level n/a
Actual Level 3,190
$17,400 $17,040 $18,506 $18,628
1,810 1,810 1,810 2,017
2,715 2,715 2,715 3,030
3,620 3,620 3,620 4,034
3,752 4,483 5,885 5,971
Source: City of Palo Alto.
Rate Stabilization Reserve for the Storm Drain System
Sales revenue, and actual levels of the Storm Drain System rate stabilization reserve as
of June 30 for fiscal years 1994 through 1998 are set forth below (in thousands of dollars). The
City has not established minimum and maximum levels for the Storm Drain reserve. The
variance in levels reflects the issuance of the 1995 Bonds for the Storm Drain System in 1994-95
and the expenditure of 1995 Bond proceeds over time.
1993-94 1994-95 1995-96 1996-97 1997-98
Sales Revenue $1,610 $2,102 $2,090 $2,063 $2,085
Actual Level 63 5,633 2,996 1,219 520
Source: City, of Palo Alto.
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Rate Stabilization Reserves for the Electric System
Beghming in 1993, the Electric System had a single Rate Stabilization Reserve that was
funded from rate revenues. As of June 30 in fiscal years 1993-94 through 1996-97, the Electric
System Rate Stabilization Reserve held the following balances (in thousands of dollars):
1993-94 1994-95 1995-96 1996-97
Balance $23,668 $36,555 $33,138 $24,329
Source: City of Palo Alto Audited Financial Statements.
Following electric deregulation in 1997, the City Council unbundled electric rates into the
four cost components of Distribution, Power Supply, Transition Cost Recovery and Public
Benefits. The unbundling of rate charges addressed, among other things, a need for the Electric
System to account for its distribution business separately from its supply business in a
competitive environment. Because of this need to recover costs and capture revenues for
specific business activities, the rate stabilization reserve for the Electric System was replaced
with separate reserves for distribution services and supply services. The City Council also
established a Public Benefits Reserve in the Electric Fund to reserve revenues collected but
unspent for Public Benefit programs; however, the Public Benefits Reserve is not pledged as an
Available Reserve pursuant to the Indenture.
To determine Electric System rate stabilization reserve guidelines, the City performed an
analysis of the cost contingencies related to distribution services and a separate analysis of the
cost contingencies related to supply services. These cost contingencies included the
identification of planned and unplanned events that occur on a one-time basis, including
funding Budget Amendment Ordinances and end-of-the-year budget variances, funding
increased operating costs for a two-year period to defer a rate increase while providing rate
stability, and price variances for commodity supply. In addition, sales revenue shortfalls
caused by abnormal weather periods were identified.
The City used the sum of the contingencies as a benchmark to establish the approximate
target guideline level to aid in calculating maximum and minimum guideline levels. Finally,
various measures such as percentages of revenue or costs were evaluated to yield the
appropriate target guideline level.
The current target guidelines for the Electric System Supply Rate Stabilization Reserve
are set forth below:
Minimum Guideline Level:30% of supply services sales revenue less stranded
cost revenue
Target Level:
Maximum Guideline Level:
midpoint between maximum and minimum levels
twice the minimum level
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The current target guidelines for the Electric System Distribution Rate Stabilization
Reserve are set forth below:
Minimum Guideline Level:
Target Level:
Maximum Guideline Level:
15% of distribution sales revenue
midpoint between maximum and minimum levels
twice the minimum level
Based on these guidelines, a 1997-98 distribution sales revenue of $23,623,00, 1997-98
supply sales revenue of $27,116,00 and strarided cost revenue of $17,346,00, the Electric
System guideline reserve levels and the actual reserve levels are set forth below (see
"APPENDIX C - Audited Financial Statements of the City for the Fiscal Year Ended June 30,
1998) (in thousands of dollars):
Electric System 1997-98 Sales Minimum Target Maximum 1997-98
Service Revenue Guideline Guideline Guideline Actual Level
Distribution RSR $23,623 $4,060 $6,090 $8,120 $8,120
Supply RSR 27,116 7,280 10,920 14,560 14,560
Source: City of Palo Alto.
Rate Stabilization Reserves for the Gas System
In 1998, the City Council separated its single rate stabilization reserve for the
Gas System into two separate reserves for the same deregulation-related reasons just as it had
done previously with the Electrical System. Prior to that time, the City’s single rate stabilization
reserve for the Gas System had the following balance (in thousands of dollars) as of June 30 of
fiscal years 1993-94 through 1996-97:
1993-94 1994-95 1995-96 1996-97
Balance $7,639 $11,623 $13,791 $13,015
Source: City of Palo Alto Audited Financial Statements.
The target guidelines for the Gas System’s Rate Stabilization Reserves were established
in the same manner as the Electric System’s. The current target guidelines for both the Supply
Rate and the Distribution Rate Reserves are set forth below:
Minimum Guideline Level:20% of sales revenue in the current year
Target Level:
Maximum Guideline Level:
midpoint between maximum and minimum levels
twice the minimum level
Based on these guidelines, the Gas System guideline and actual reserve levels are set
forth below (see "APPENDIX C - Audited Financial Statements of the City for the Fiscal Year
Ended June 30, 1998) (in thousands of dollars):
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Gas System 1997-98 Sales Minimum Target Maximum 1997-98ServiceRevenueGuidelineGuidelineGuidelineActual Level
Distribution RSR $8,221 $1,656 $2,484 $3,312 $7,889Supply RSR 8,903 1,745 2,617 3,490 8,554
Source: City of Palo Alto.
Calaveras-Stranded Costs Reserve
The Calaveras Reserve was created to pay for debt service related to the Calaveras
Hydroelectric Project, whi_ch is hydroelectric project that provides the City with power; the
-Calaveras Project is owned by the Northern California Power Agency (the "NCPA’), a joint
exercise of powers agency of which the City is a member. The City established the Calaveras
Reserve in order to meet the financial impact of "stranded costs". "Stranded costs" are the
difference between the expected market rate of power in the future and the costs to the utility of
delivering that power. Under deregulation, to the extent that the costs to deliver power are
higher than market, those costs will be stranded, i.e., the market will not allow the utility to
recover those costs. Stranded costs are generally equated with long term debt service on capital
investments.
The City’s adopted Calaveras Reserve policy requires an annual review of the stranded
cost issue and an update of the underlying assumptions to calculate stranded costs. The policy
currently has a target balance of $93 million to be reached by December 31, 2001 and includes
the following features:
1. The stranded cost estimate is based on a low market price scenario (a
change from a medium market price scenario explains the increase in the target from
$31.6 million to $93 million). The lower the market-price assumption, the higher the
estimate of stranded costs because stranded costs represent the difference between the
Calaveras Project’s actual fixed costs (debt service) and the estimated market price for
the Project’s power output.
2. Potential stranded costs of approximately $16.4 million related to the
City’s California Oregon Transmission Project are included in the calculation.
3. The December 31, 2001 deadline reflects the timetable established by AB
1890, by w~ch the California electric industry was deregulated.
4. The Calaveras Reserve will be built up through retention of power cost
and operating budget savings in combination with system average single-digit rate
increase(s).
5. Since July 1, 1997, all customers have been billed a non-bypassable
Transition Cost Recovery Charge ("TCRC’), which the City currently expects to
eliminate in July, 1999. The TCRC provides additional funding of the Calaveras Reserve
for recovery of potential stranded costs. This is consistent with the terms’of AB 1890,
and is similar to actions being taken by the investor owned utilities in preparation for
full deregulation.
The approximate balance of the Calaveras Reserve for the last five fiscal years (in
thousands of dollars) is set forth below:
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1993-94 1994-95 1995-96 1996-97 1997-98
Balance $18,694 $14,827 $23,827 $41,680 $55,583
Source: City of Palo Alto Audited Financial Statements.
In June 1999, the City Council will consider a proposal which would reduce the
Calaveras Reserve target from $93 million to $65 million. The reduced target reflects an
updated stranded cost analysis which takes into account a recent refinancing of the Calaveras
Hydroelectric Project by the NCPA. The proposal also includes a recommendation to remove
the TCRC from customer bills because the $65 million target can be reached by December 31,
2001 without the TCRC. If approved by the City Council, elimination of the TCRC would result
in an approximately 15 percent system-wide rate decrease effective July 1, 1999.
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RISK FACTORS RELATING TO THE BONDS
Payment of principal of and interest on the 1999 Bonds depends primarily upon the
revenues derived from operation of the Sewer System and the Storm Drain System and, if
necessary, from moneys on deposit in the Available Reserves. Some of the events which could
affect the revenues received by the Sewer System and/or the Storm Drain System, as well as
issues that could affect the availability of moneys in the Available Reserves, are set forth below.
The following discussion of risks is not meant to be an exhaustive list of the risks associated
with the purchase of the 1999 Bonds and the order in which the risks are discussed does not
necessarily reflect the relative importance of the various risks.
Limited Obligations
The 1999 Bonds are limited obligations of the City and are not secured by a legal or
equitable pledge or charge or lien upon any property of the City or any of its income or receipts,
except the Net Revenues. The obligation of the City to pay debt service on the 1999 Bonds from
Net Revenues does not constitute an obligation of the City to levy or pledge any form of
taxation or for which the City has levied or pledged any form of taxation.
The City is obligated under the Indenture to make debt service payments solely from
Net Revenues or from moneys on deposit in-the Available Reserves. There is no assurance that
the City can succeed in operating the Systems such that the Net Revenues in the future will be
sufficient for that purpose. See also "Balance of the Available Reserves" and "Right to Vote on
Taxes Act" below.
System Expenses
There can be no assurance that the City’s expenses for the Systems will be consistent
with the descriptions in this Official Statement. Changes in technology, changes in quality
standards, loss of large customers, increased or decreased development, increases in the cost of
operation and/or other expenses could require increases in rates or charges in order to comply
with the City’s rate covenant in the Indenture.
Limited Recourse on Default
Failure by the City to pay debt service on the 1999 Bonds constitutes an event of default
under the Indentu~r~ e and the Trustee is permitted to pursue remedies at law or in equity to
enforce the City’s obligation to make such payments. Although the Trustee has the right to
accelerate the total unpaid principal amount of the debt service on the 1999 Bonds, there is no
assurance that the City would have sufficient funds to pay the accelerated amounts. See also
"Proposition 218" herein.
Limitations on Remedies
The ability of the City to comply with its covenants under the Indenture and to generate
Net Revenues sufficient to pay principal of and interest with respect to the 1999 Bonds may be
adversely affected by actions and events outside of the control of the City and may be
adversely affected by actions taken (or not taken) by voters, property owners, taxpayers or
persons obligated to pay assessments, fees and charges. See "Proposition 218" below.
Furthermore, the remedies available to the owners of the 1999 Bonds upon the occurrence of an
event of default under the Indenture are in many respects dependent upon judicial actions
which are often subject to discretion and delay and could prove both expensive and time
consuming to obtain.
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In addition to the limitations on remedies contained in the Indenture, the rights and
obligations under the Indenture may be subject to bankruptcy, insolvency, reorganization,
arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting
creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion
in appropriate cases and to limitations on legal remedies against cities in the State of California.
The opinion to be delivered by Bond Counsel concurrently with the issuance of the 1999 Bonds
will be subject to such limitations and the various other legal opinions to be delivered
concurrently with the issuance of the 1999 Bonds will be similarly qualified. See "APPENDIX D
- Proposed Form of Bond Counsel Opinion." In the event the City fails to comply with its
covenants the Indenture or fails to pay principal of and interest due on the 1999 Bonds, there
can be no assurance of the availability of remedies adequate to protect the interest of the
holders of the 1999 Bonds~
Balance of the Available Reserves
Although the City has covenanted to maintain the Available Reserves at an aggregate
balance equal to five times Maximum Annual Debt Service, each Available Reserve is primarily
intended as a rate stabilization reserve for the applicable City utility system. As a result,
extraordinary circumstances may arise that would cause the City to diminish Available
Reserves below "minimum" guideline levels and/or, in the aggregate, below five times Maximum
Annual Debt Service. Although the City has covenanted in the Indenture to replenish the
Available Reserves to required levels, it will do so only from rates and charges paid by the
customers of the various utility systems, which may adversely affect the City’s ability to
replenish the Available Reserves in a timely fashion.
In addition, certain provisions of the California Constitution may require the City to
repay any advance from an Available Reserve that is not directly related to the System which
the advance benefits. See "RISK FACTORS RELATING TO THE BONDS - Right to Vote on
Taxes Initiative."
Initiatives
In recent years several initiative measures have been proposed or adopted which affect
the ability of local governments to increase taxes and rates. There is no assurance that the
electorate or the State legislature will not at some future time approve additional limitations
which could affect the ability of the City to implement rate increases which could reduce Net
Revenues and adversely affect the security for the 1999 Bonds. See "Proposition 218" below.
Bankruptcy
The rights and remedies provided in the Indenture may be limited by and are subject to
the provisions of federal bankruptcy laws, to other laws or equitable principles that may affect
the enforcement of creditors’ rights, to the exercise of judicial discretion in appropriate cases
and to limitations on legal remedies against public agencies in the State of California. The
various opinions of counsel to be delivered with respect to the 1999 Bonds and the Indenture,
including the opinion of Bond Counsel, will be similarly qualified. If the City were to file a
petition under Chapter 9 of the Bankruptcy Code, the Owners of the 1999 Bonds and the City
could be prohibited from taking any steps to enforce their rights under the Indenture.
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Tax Exemption of the 1999 Bonds
The City has cox)enanted in the Indenture that it will take all actions necessary to assure
the exclusion of interest with respect to the 1999 Bonds from the gross income of the Owners of
the 1999 Bonds to the same extent as such interest is permitted to be excluded from gross
income under the Internal Revenue Code of 1986. If the City fails to comply with the foregoing
tax covenant, the interest component of the Installment Payments evidenced by the 1999 Bonds
may be includable in the gross income of the Owners thereof for federal tax purposes. See "TAX
MATTERS" herein.
Additional Obligations
The Indenture permits the issuance of Bonds secured by Net Revenues on a parity basis
and/or a subordinate basis to the 1999 Bonds. Such additional Bonds would increase debt
service payable from Net Revenues and could adversely affect debt service coverage with
respect to the 1999 Bonds. In such event, however, the Rate Covenant described herein will
remain in effect. See "SECURITY FOR THE BONDS - Rate Covenant" herein.
Seismic Considerations
The City, like much of California, is subject to seismic activity that could result in
interference with operation of the Systems. There are several major active fault zones
transecting Santa Clara County that could cause "strong ground motion" at the site of the
various facilities constituting the Systems during their useful life. Those major fault zones, listed
in order of proximity to the City, are the San Andreas, Hayward, Calaveras and San Gregorio
faults. If there were to be an occurrence of severe seismic activity in the area of the City, there
could be an interruption in the service provided by the Systems resulting in a temporary
reduction in the amount of Net Revenues available to pay the principal of and interest on the
1999 Bonds when due.
Flood Considerations
Operation of the Systems as projected, particularly the Sewer System and the Storm
Drain System, is reliant upon certain factors, one of which is weather and possible flooding. On
February 2-3, 1998, a major storm hit the City, resulting in unprecedented flooding. The City
incurred $2 million in flood-related expenses, including emergency response, repair of damaged
public property and recovery assistance to residents. The severity of the storm prompted a
Presidential Declaration of Emergency for the City and other Bay Area cities. In late-February
1998, the City filed a claim with the State Office of Emergency Operations and the Federal
Emergency Management Agency (FEMA) to seek reimbursement for the damages sustained.
Through May 11, 1999, the City has received cash reimbursement from FEMA of $1,145,580. tn
addition, FEMA has committed to reimburse the City an additional $226,573, resulting in a
total reimbursement for storm damage of $1,372,153. The City .does not expect any additional
reimbursement from FEMA because the listed payments will cover all of the damage suffered by
the City.
The City can provide no assurance that a storm of similar magnitude will not cause
damage to or interfere with operation of the Systems.
Year 2000 Complianc, e
A "Year 2000" problem arises because most computer systems an~t programs were
designed to handle only a two-digit year, not a four digit year. When the Year 2000 begins,
these computers may interpret "00" as the year 1900 (e.g., 1998 is seen as "98") and may either
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stop processing date-related computations or process them incorrectly. If this Year 2000
problem is not timely remedied, problems could arise in the le~’y and collection of taxes and the
calculation of interest and principal payments on the 1999 Bonds. T6 prevent this, public
entities and banking organizations need to examine their computers and programs, fix the
problem, test their systems and test interactions with other systems. The Securities and
Exchange Commission ("SEC") has introduced proposed temporary regulations for non-bank
related paying agents and broker dealers to submit reports to the SEC regarding their attempts
to solve the Year 2000 problem.
City. Since 1996, the City has been addressing the potential problems that face all users
of computer systems regarding the Year 2000. The City currently plans to complete Year 2000
compliance efforts by September 1999.
More specifically, the City has undertaken a detailed review Of each
organization/department to consider what remote processing may occur that has not yet been
certified. A consultant will review the departmental applications and computer processors that
exist within each organization to identify areas that need to be reviewed or certified. This study
will provide the necessary assessment and remediation to allow the City to continue,
uninterrupted, the services and support expected by its residents and customers.
In addition, the Cit.y is developing a list of its suppliers, contractors, and third party
resources that supply goods and services to the City to ensure that these organizations are
compliant. These organizations will be required to provide notification of the status of their
Year 2000 compliance.
The internal portion of the project is in various phases of completion based upon the
specific component. The components consist of the computer hardware, computer operating
systems, operating tools, database management systems~ applications systems, applications
and tools used on personal computers, and microprocessors and their associated processing
and internal configurations.
The status of various components is as follows:
New computing environments are in place for the control and distribution of electric,
gas, water, and wastewater. The hardware and software for these functions have
been documented to be Year 2000 compliant. These applications also have manual
overrides that can be utilized in the event of any failures.
The Regional Water Quality Control Plant has in place the required hardware and
software to be compliant.
The primary Financial, payroll, and Human Resource applications have been
certified by the vendor, as being Year 2000 compliant.
The City has tested the interface with its bank and compliance has been addressed.
The Utilities Customer Information System is being re-deployed and the vendor of
this software has assured .compliance for the Year 2000 and beyond.
Hardware and operating s)~stem environments have been upgraded to be compliant.
Hewlett-Packard has developed test scripts to run on both the HP9000 and HP3000
computers. Personal computers manufactured after 1996 have been certified as being
Year 2000 compliant. All of the City’s personal computers are in this category.
On this basis, the City does not anticipate that Year 2000 issues will interfere with the
operation of the various Systems or the payment of debt service on the Bonds.
The Trustee. The Trustee has undertaken an effort to evaluate its computer programs in
order to avoid computer problems on and after January 1, 2000. No assurance can be given as
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to whether the Trustee will be successful in its efforts to address Year 2000 problems. The
Trustee has advised the City that certain information regarding such efforts toward compliance
with the Year 2000 matter is contained in filings by U.S. Bancorp (the corporate parent of the
Trustee) with the Securities and Exchange Commission, the Year 2000-related provisions of
which are incorporated herein by this reference. Further information about U.S. Bancorp is
available on the Internet at http://www.usbank.com.
DTC. DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates, induding dates
before, on, and after January 1, 2000, may encounter "Year 2000 problems." DTC has informed
its Participants and other members of the ~financial community (the "Industry") that it has
developed and is implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and income payments) to securityholders, book-
entry deliveries, and settlement of trades within DTC ("DTC Services"), continue to function
appropriately. This program includes a technical assessment and a remediation plan, each of
which is complete. Additionally, DTC’s plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC’s ability to perforro, its services properly is also dependent upon other
parties, including but not limited to, issuers and their agents, as well as third party vendors
from whom DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provisign of services, including telecommunication and electrical utility
service providers, among others. DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors ~from whom DTC acquires services to: (i) impress upon
them the importance of such services being Year 2000 compliant and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, DTC is in the process of developing such contingency plans as it deems appropriate.
Failure to solve the Year 2000 problem could cause the City, the Trustee and/or DTC to
experience problems that may affect the timely payment of debt service on the 1999 Bonds.
Right to Vote on Taxes Initiative
General. On November 5, 1996, the voters of the State approved Proposition 218, the so-
called "Right to Vote on Taxes Act." Proposition 218 adds Articles XIIIC and XIIID to the State
Constitution, which affect the ability of local governments to levy and collect both existing and
future taxes, ass.essments, fees and charges. Proposition 218, which became effective on
November 6, 1996 (although application of some of its provisions was deferred until July 1,
1997) changes, among other things, the procedure for the imposition of new or increased fees or
charges.
Article XIII C. Article XIII C requires that all new local taxes be submitted to the
electorate for approval before such taxes become effective. General taxes, imposed for general
governmental purposes of the City, require a majority vote, and special taxes, imposed for
specific purposes, require a two-thirds vote. Under Proposition 218, the City can only continue
to collect taxes that were imposed after January 1, 1995 if they were approved by the voters by
November 6, 1998.
Article XIII D. Under Article XIIID, revenues derived from a "fee" or "charge" (definefl
as "any levy other than an ad valorem tax, a special tax or an assessment, imposed by a [local
government] upon a parcel or upon a person merely as an incident of property ownership,
including user fees or charges for a property related service") may not exceed the funds required
to provide the "property-related service" and may not be used for any purpose other than that
for which the fee or charge was imposed. Further, (i) the amount of a "fee" or "charge" may not
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exceed the proportional cost of the service attributable to the parcel, (ii) no "fee" or "charge"
may be imposed for a service unless that service is actually used by, or is immediately available
to, the owner of the property in question and (iii) no "fee" or "charge" may be imposed for
general governmental services where the service is "available to the public at large in
substantially the same manner as it is to the property ow.ners." All new and existing property-
related fees and charges must conform to specific requirements and prohibitions set forth in the
Article. Further, before any property-related fee or charge may be imposed or increased, written
notice must be given to the record owner of each parcel of land affected by such fee or charge.
The City must then hold a hearing upon the proposed imposition or increase, and if written
protests against the proposal are presented by a majority of the owners of the identified
parcels, the City may not impose or increase the fee or charge. Moreover, except for fees or
.b3~rges for sewer, water and refuse collection services (or fees for electrical and gas service,
which are exempt from Proposition 218), no property-related fee or charge may be imposed or
increased without majority approval by the property owners subject to the fee or charge or, at
the option of the local agency, two-thirds approval by those residing in the affected area and
voting at the election.
Applicability to the Sewer System. The City has concluded that Proposition 218 does not
apply to its existing structure of Sewer System service charges because the service charges are
not imposed upon a parcel of land or charged merely as an "incident of ownership", but
instead are a commodity-based charge imposed on the user based upon the user’s consumption
of a measurable commodity. Moreover, the service charges are sized to recover the City’s
reasonable or actual costs in providing service. Accordingly, the City is not required to follow
the procedures described in the previous paragraph when increasing its Sewer rates. Although
the California Attorney General has similarly concluded that a water rate based upon the level
of consumption is not governed by Proposition 218 (see 97 Cal. Op. Atty. Gen. No. 302 (July
14, 1997)), it should be noted that no court has addressed the issue and the principal drafters
of Proposition 218 have publicly challenged the conclusion of the Attorney General.
Applicability to the Storm Drain System. The City considers Storm Drain rates to be
"property related fees" under Proposition 218 and, as a result, any future increases will need to
be approved by ratepayers or voters, as described in the second preceding paragraph. See
"THE STORM DRAIN SYSTEM - Rates" herein with respect to the City’s current plans to
increase Storm Drain rates in Fiscal Year 1999-00.
Relevance to Available Reserves. Because Proposition 218 declares that revenuesderived
from a "fee" or "charge" may not exceed the funds required to provide the "property-related
service" and may not be used for any purpose other than that for which the fee or charge was
imposed, the City may be required to repay any advance from an Available Reserve that is not
directly related to the System which the advance benefits. For example, if the City requires an
advance from the Rate Stabilization Reserve for the Water System to pay the portion of debt
service on the 1999 Bonds attributable to the Sewer System, the City may be required to repay
the Water System reserve. Proposition 218 expressly does not apply to revenues of the Electric
System or the Gas System and, therefore, does not apply to their Available Reserves.
Repeal or Reduction of Existing Rates. Under Article XIIIC, Section 3, the initiative power is
expressly extended to matters of local taxes, assessments, fees and charges. This means that
the voters of the City could, by future initiative, repeal or reduce existing local taxes,
assessments, fees and charges. This power is arguably limited in the case of levies directly
pledged to bonded indebtedness, such as the Net Revenues of the Sewer System and the Storm
Drain System securing the 1999 Bonds.
Legislation adopted by the State Legislature in 1997 provides that Article XIIIC shall not
be construed to mean that any owner or beneficial owner of a municipal security assumes the
-47-
risk of, or consents to, any initiative measure which would constitute an impairment of
contractual rights under the Contracts Clause of the United States Constitution. However, there
can be no assurance that the voters of the City will not, in the future, approve an initiative
which attempts to reduce wastewater rates or curtail their increase.
Taxes. In addition, Proposition 218 requires that all new local taxes be submitted to the
electorate before they become effective. Taxes for general governmental purposes of the City
require a majority vote and taxes for specific purposes require a two-thirds vote. New local
taxes for general governmental purposes may only be submitted to the electorate of the City at
general elections in which members of the City Council are elected, which currently occurs every
two years. The voter approval requirements reduce the Council flexibility to deal with fiscal
problems by raising revenue and no assurance can be given that the City will be able to raise
taxes in the future to meet increased expenditure requirements.
Conclusion. The City is unable to predict how Article XIIIC and Article XIIID will be
interpreted by the courts and what, if any, implementing legislation will be enacted. Bond
Counsel has advised that there can be no assurance that Article XIIIC and Article XIIID will not
limit the ability of the City to impose, levy, charge and collect fees and charges sufficient to
enable the City to comply with its covenants Under the Indenture or that the ability of the City
to generate Net Revenues sufficient to pay principal of and interest on the 1999 Bonds will not
be adversely affected. Fu~her, in such event, there can be no assurance of the availability of
remedies to protect fully the interests of the holders of the Bonds.
Investment of City Funds
Gross Revenues collected by the City will be held and invested by the City in accordance
with- the provisions of the Indenture. Otherwise, however, moneys held by the City, including
Enterprise moneys, will be invested in accordance with the City’s adopted investment policies.
For more information about the City’s investment policy as well as information about recent
investment performance of the City’s pooled investment funds, see "APPENDIX B - General
and Economic Information About the City of Palo Alto."
-48-
LEGAL MATTERS
Approval of Legal Proceedings
The legality of the sale, execution and delivery of the 1999 Bonds is subject to the
approval of Jones Hall, A Professional Law Corporation, San Francisco, California, acting as
Bond Counsel. A proposed form of such legal opinion is attached hereto as Appendix D. Jones
Hall is also acting as disclosure counsel to the City.
Payment of the fees and expenses of Jones Hail is contingent upon issuance of the Bonds.
Absence of Litigation
At the time of delivery of and payment for the 1999 Bonds, the City will certify that
there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any
court, regulatory agency, public board or body, pending or, to the knowledge of the City,
threatened against the City affecting the existence of the City or the titles of its officers to their
respective offices or seeking to restrain or to enjoin the sale or delivery of the 1999 Bonds, the
application of the proceeds thereof in accordance with the Indenture, or the collection or
application of any Net Revenues provided for the payment of the 1999 Bonds, or in any way
contesting or affecting the validity or enforceability of the 1999 Bonds, the Indenture, any action
of the City contemplated by any of the said documents, or the collection or application of any
revenues provided for the payment of the 1999 Bonds, or in any way contesting the
completeness or accuracy of this Official Statement or any amendment or supplement thereto,
or contesting the powers of the City or its authority with respect to the 1999 Bonds or any
action of the City contemplated by any of said documents, nor to the knowledge of the City, is
there any basis therefor.
Tax Matters
In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California,
Bond Counsel, subject, however to the qualifications set forth below, under existing law, the
interest on the 1999 Bonds is excluded from gross income for federal income tax purposes and
such interest is not an item of tax preference for purposes of the federal alternative minimum
tax imposed on individuals and corporations, provided, however, that, for the purpose of
computing the alternative minimum tax imposed on corporations (as defined for federal income
tax purposes), such interest is taken into account in determining certain income and earnings.
The opinions set forth in the preceding paragraph are subject to the condition that the
City comply with all requirements of the Internal Revenue Code of 1986 (the "Code") that must
be satisfied subsequent to the issuance of the 1999 Bonds in order that such interest be, or
continue to be, excluded from gross income for federal income tax purposes. The City has
covenanted to comply with each such requirement. Failure to comply with certain of such
requirements may cause the inclusion of such interest in gross income for federal income tax
purposes to be retroactive to the date of issuance of the 1999 Bonds.
In the further opinion of Bond Counsel, interest on the 1999 Bonds is exempt from
California personal income taxes.
Bond Counsel is of the opinion that, under the Code, the difference between the
principal amount of certain of the 1999 Bonds and the initial offering price of such 1999 Bonds
to the public (excluding bond houses and brokers) at which prices substantial amount of such
1999 Bonds were sold represents interest which is excluded from gross income for federal
income tax purposes; provided, however, that for the purpose of computing the alternative
-49-
minimum tax imposed on corporations (as defined for federal income tax purposes), such
interest is taken into account in determining certain income and earnings. Such interest accrues
on an actuarial basis (that is, on a constant interest rate basis over the term of the such 1999
Bonds) and a taxpayer’s adjusted basis for purposes of determining gain or loss on disposition
will be increased by the amount of such accrued interest. The opinion set forth in the first
sentence of this paragraph is subject to the condition that the City comply with all requirements
of the Code that must be satisfied subsequent to the delivery of the 1999 Bonds in order that
such interest be, or continue to be, excluded from gross income for federal income tax purposes.
The City has covenanted to comply with each such requirement.
Owners of the 1999 Bonds should also be aware that the ownership or disposition of, or
.the accrual or receipt of interest on, the 1999 Bonds may have federal or state tax consequences
other than as described above. Bond Counsel expresses no opinion regarding any federal or
state tax consequences arising with respect to the 1999 Bonds other than as expressly described
above.
RATINGS
Moody’s Investors Service, Inc. ("Moody’s") and Standard & Poor’s, A Division of the
McGraw-Hill Companies ("Standard & Poor’s") have assigned their ratings of .... and
"__" respectively, to the Bonds. Such ratings reflect only the views of such organizations and
an explanation of the significance of such ratings may be obtained from Moody’s and Standard
& Poor’s. There is no assurance that such ratings will continue for any given period of time or
that such ratings will not be revised downward or withdrawn entirely by such organizations, if
in their judgment circumstances so warrant. Any such downward revision or withdrawal of-
such ratings may have an adverse effect on the market price of the Bonds.
UNDERWRITING
The 1999 Bonds will be sold pursuant to competitive sale as set forth in the Official
Notice of Sale dated May 28, 1999 (the "Official Notice of Sale"). Bids will be received by a
representative of the City on Tuesday, June 15, 1999 at the office of Stone & Youngberg LLC,
financial advisor to the City. The 1999 Bonds will be awarded to the highest responsible
bidder. As described in greater detail in the Official Notice of Sale, the highest responsible
bidder will be the bidder submitting the best price for the Bonds; the best price will result in the
lowest effective interest rate or true interest cost.
Further information about the Bonds will be furnished upon request to the financial
advisor of the City: Stone & Youngberg LLC, 50 California Street, 35th Floor, San Francisco, CA
94111, telephone: 415-981-1314; Attn.: Mr. Ed Schilling.
-50-
MISCELLANEOUS
Insofar as any statements made in this Official Statement involve matters of opinion or
of estimates, whether or not expressly stated, they are set forth as such and not as
representations of fact. No representation is made that any of the statements will be realized.
Neither this Official Statement nor any statement which may have been made verbally or in
writing is to be construed as a contract with the owners of the 1999 Bonds.
During the initial offering period for the Bonds, copies of the Indenture may be obtained,
upon written request, from the City. After issuance of the 1999 Bonds, copies of such
documents may be obtained from the Trustee.
The execution and delivery of this Official Statement have been duly authorized by the
City Council of the City.
CITY OF PALO ALTO
By:
Director of Administrative Services
APPENDIX A
SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS
A-!
APPENDIX B
GENERAL AND ECONOMIC INFORMATION ABOUT THE CITY OF PALO ALTO
The following information relating to the City of Palo Alto (the "City"), Santa Clara
County (the "County"), California is supplied solely for purposes of information.
The City is located in northern Santa Clara County, approximately 35 miles south of the
City of San Francisco. Palo Alto was named by an early Spanish exploration party for the tall,
twin trunked redwood tree they camped beneath in 1769. The City has a current population of
-approximately 60,500. It is part of the San Francisco Bay metropolitan area. Partly due to the
presence of Stanford University, which is adjacent to the City, Palo Alto is considered the
birthplace of the high technology industry that has made the County famous worldwide as
Silicon Valley. The 630-acre Stanford Research Park includes the headquarters of such
prestigious and innovative high-tech leaders as Hewlett-Packard, Varian Associates, Watkins-
Johnson and Alza. Palo Alto is a major employment center, including Stanford University,
Stanford University Medical Center, Lockheed Martin Missiles and Space, Palo Alto Medical
Center, and Xerox.
The City lies within a Mediterranean type climate zone. Temperatures are mild, and
precipitation is concentrated in the winter months.
Municipal Government
The City of Palo Alto was incorporated in 1894. Its first Charter was granted by the
State of California in 1909, and Palo Alto continues to operate as a charter city. Chartered
cities may establish their own laws and regulations as long as they do not conflict with those of
the State. Municipal operations are conducted under the Council-Manager form of government.
The nine Council Members are elected at large for four-year, staggered terms. The Mayor and
Vice Mayor are elected annually at the first Council meeting in January. The Mayor presides
over all Council meetings. The City Manager is responsible for the operation of all municipal
functions, except the offices of the City Attorney, City Clerk, and City Auditor. These officials
are appointed by, and report directly to, the City Council.
The City provides a full range of municipal services and maintains municipal electric,
water, gas, wastewater collection, wastewater treatment, storm drainage, and refuse utilities for
the benefit of City residents and businesses. The City’s parks, recreation and cultural facilities
are numerous, and include over 36 parks totaling more than 4,000 acres, a golf course, four
community centers, a Cultural Center, a Community Theater, a Children’s Theater, and a Junior
Museum. The City offers a wide array of social, recreational and cultural events, including
human services for seniors and youth, subsidized child care, classes, concerts, exhibits, team
sports and special events. The City and the Palo Alto Unified School District have an
agreement to jointly fund the costs of maintaining and rehabilitating school athletic fields,
recognizing the significant recreational use of these facilities by the community. In addition, the
City offers a high level of library and public safety services. Palo Alto has six libraries and
seven fire stations providing services throughout the community.
Population
Population figures for the City, the County and the State for the last five years are
shown in the following table.
B-1
CITY OF PALO ALTO
Population Estimates
Calendar Years 1994 through 1998
Calendar City of County
Year Palo Alto Santa Clara
State of
California
1994 57,278 1,540,974
1995 57,586 1,551,739
1996 58,800 1,588,282
1997 59,900 1,609,037
1998 60,492 1,689,908
31,661,000
31,910,000
32,223,000-
32,609,000
33,252,100
Source: State Department of Finance estimates (as of January 1)
Employment and Industry
The City attracts and retains entrepreneurs and skilled professional workers as the
result of a number of factors, including the local economy’s diversity of research and
development firms specializing in electronics, software, Internet, financial and professional
services; the City’s proximity to Stanford University and the synergies between the University
and the City’s research park; the high percentage of the population with advanced college
degrees; and various "quality of life" factors, including the City’s public school system. The
following table shows employment statistics for the County for the past four calendar years
through March of 1999.
METROPOLITAN STATISTICAL AREA (SAN CLARA COUNTY)
Civilian Labor Force, Employment and Unemployment
(Annual Averages)
Civilian Labor Force{2~
Employment
Unemployment
Unemployment Rate
Wage and Salary. Employment
Total All Indus.tries ~3)
Agriculture
Nonagricultural Industries
Mining
Construction
Manufacturing
Transportation, Public Utilities
Wholesale Trade
Retail Trade
Finance, Insurance, Real Estate
Services
Government
1995 1996 1997 1998 1999(1)
867,000 895,000 93~400 962,700 968,800
824,200 862,800 909,100 931,700 936,200
42,800 32,200 28,300 31,000 32,600
4.9%3.6%3.0%3.2%3.4%
885,000
5,100
879,900
100
32700
245900
25400
52400
122200
30000
283900
87400
931,700 962,100 962,400
5,100 4,800 4,000
926,600 957,400 958,400
100 100 100
37,300 41,500 42,400
258,200 264,300 255,000
27,200 28,700 29,100
56,000 56,400 55,600
126,700 128,800 127,500
30,600 32,100 32,400
301,800 316,900 324,600
88,500 88,600 91,700
836,400
4,500
831,900
100
28.700
231.200
24.000
48.700
117.400
28.700’
265.300
87.800
(1)Preliminary figures as of March 1999.
(2)Labor force data is by place of residence; includes self-employed individuals, unpaid family workers,
household domestic workers, and workers on strike
(3)Industry employment is by place of work; excludes self-employed individuals, unpaid family workers,
household domestic workers, and workers on strike
Source: State of California Employment Development Department
B-2
The ten largest employers in the City as of July 1998 are shown in the following table.
The number of employees ranged from approximately 5,000 to approximately 750.
CITY OF PALO ALTO
LARGEST EMPLOYERS
Employer Employees
Stanford University
Hewlett Packard
Space Systems/Loral
Varian Associates
Foothill College
Alza Corporation
Roche Bioscience
E1 Camino Hospital
Palo Alto Medical Foundation
Palo Alto Unified School District
5,000
5,000
3,000-5000
1,500-2,000
1,000-1500
1,500+
1,000-1,500
1,500+
1,500+
750-1,000
Products/Service
Education
Electronics
Research & Development
Electronics
Education
Pharmaceutical Manufacture
Pharmaceutical Manufacturer
Healthcare
Healthcare
Education
Source: City of Palo Alto Chamber of Commerce.
Personal Income
"Effective Buying Income" is defined as personal income less personal tax and nontax
payments, a number often referred to as "disposable" or "after-tax" income. Personal income
is the aggregate of wages and salaries, other labor-related income (such as employer
contributions to private pension funds), proprietor’s income, rental income (which includes
imputed rental income of owner-occupants of non-farm dwellings), dividends paid by
corporations, interest Income from all sources, and transfer payments (such as pensions and
welfare assistance). Deducted from this total are personal taxes (federal, state and local),
nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance.
According to U.S. government definitions, the resultant figure is commonly known as
"disposable personal income."
Due to changes implemented in 1996 in the method of calculating Effective Buying
Income, prior years are not directly comparable with statistics for 1996. The following table
summarizes the total effective buying income for the City, the County of Santa Clara, the State
and the United States for the period 1994 through 1998.
B-3
EFFECTIVE BUYING INCOME
Calendar Years 1994 through 1998
Year
1994
Total Effective
Area ~Income
Median Household
Effective Buying Income
City of Palo Alto $1,806,372 $60,447
Santa Clara County 32,148,518 52,488
California5 28,958,284 39,330
United States 4,169,724,052 35,056
1995 City of Palo Alto $1,878,804 $62,968
Santa Clara County 33,688,736 54,778
California 552,074,838 40,969
United States 4,436,178,724 37,070
1996 (1)City of Palo Alto $1,725,347 $55,311
Santa Clara County 30,823,435 49,298
California 477,640,503 34,533
¯ United States 3,964,285,118 32,238
City of Palo Alto $1,836,496 $58,356
Santa Clara County 32,896,954 52,025
California 492,516,991 35,216
United States 4,161,512,384 33,482
1998 City of Palo Alto $ 2,037,829 $62,082
Santa Clara County 36,500,763 54,407
California 524,439,600 36,483
United States 4,399,998,410 34,618
(1) Not comparable with prior years. Effective Buying Income is now based on money income (which does not take
into account sale ofproperty, taxes and social security paid, receip~ of food stamps, etc.) versus personal income.Source: Sales and Marketing Management, The Survey of Buying ~ower, Demographics USA.
Building Activity
The table below shows the quantity and valuation of building permits issued in the City
during the past five fiscal years. The value of permits in fiscal year 1996-97 increased 48% from
fiscal year 1992-93.
CITY OF PALO ALTO
Construction Activity
For Fiscal Years 1992-93 through 1996-97
(Valuations in Thousands)
Fiscal
Year
Industrial
No. of
Permits Valuation
Commercial/Office Residential
No. of No, of
Permits Valuation Permits Valuation
All Others
No. of
Permits Valuation
1992-93 7 $2,244
1993-94 23 2,509
1994-95 20 2,169
1995-96 10 1,256
1996-97 2 41
388 $68,923 1,079 $33,065
377 61,492 1,081 37,284
364 42,302 1,032 35,563
400 71,015 1,194 58,262
375 94,444 1,095 57,617
65 $2,5O6
96 3,823
72 7,055
89 11,052
106 5,874
Source: City of Palo Alto
B-5
Taxable Transactions
The following table shows taxable transactions in the City by type of business during
calendar years 1994 through the first quarter of 1998. During the first quarter of 1998, total
taxable transactions in the City were $378,172,000, or 3.5% greater than total taxable
transactions of $365,231,000 that occurred in the City during the first quarter of 1997.
CITY OF PALO ALTO
Taxable Transactions by Type of Business
For Calendar Years 1992 through 1996
(amounts in thousands)
Type of Business 1994 1995 1996 1997 1998ol
Retail Stores:
Apparel Stores $ 98,207
General Merchandise 210,765
Drug Stores 11,367
Food Stores 26,567
Packaged Liquor Stores 3,440
Eating/Drinking Places 134,479
Home fum. & appliances 36,335
Bldg. matrl. & farm implmt.7,873
Auto dealers, auto supplies 94,113
Service Stations 27,358
Other retail stores 163,009
Retail Stores Total .813,513
88,777 $ 97,248 $ 102,679 $ 20,774
228,730 245,357 298~92 57,334
10,728 11A04 (2)(2)
27,079 29~56 31,787.7,783
3,711 3,573 (2)~)
150,765 165,172 177,829 47,041
40~22 42,726 49,849 14,197
12,020 15,777 16,711 3,763
128,775 157,101 195,969 54,781
27,920 32,265 32,411 7,186
178,285 186,041 210,214 43,382
897,212 986,020 1,116,041 256,241
All Other Outlets 481,802 557,095 542,483 547,013 121,931
TOTAL ALL OUTLETS $1,295,315 $1A54,307 $1,528,503 $1,663,054 $ 378,172
(1) First Quarter of 1998.
(2) Drug stores have been merged with general merchandise stores and packaged liquor stores have been merg~cl with
other retail stores.
Source: California State Board of Equalization.
B-6
Investment of City Funds
As a chartered city, the City operates its pooled idle cash investments under the
prudent investor rule and in conformance with State law. The City’s Director of Administrative
Services, as treasurer, is charged with the responsibility of safeguarding the City’s assets,
receiving all payments due the City and investing all pooled idle cash. The investment function
is under the supervision of the Manager, Investments, Debt and Projects, who is accountable to
the Assistant Director of Administrative Services. The duties of Manager, Investments, Debt
and Projects includes managing the City’s portfolio of treasury investments, remaining
accountable for the City’s treasury balance, developing and monitoring the City’s cash flow
model and developing long-term revenue and financing strategies and forecasts. In all
circumstances, approval from the Director of Administrative Services is required before selling
securities from the City’s portfolio or before placing an investment with greater than fiv.e years’
term.
The Administrative Services Department submits a quarterly report to the City Council
which includes a detailed list of all securities, investments and moneys held by the City, a
report on compliance withthe City’s Investment Policy, and an assessment of the City’s ability
to meet its expenditure requirements for the next six months.
The City’s Investment Policy requires review by the City Council annually, as part of the
budget process. The policy’s objective is to maintain the level of investment of all idle funds as
close to 100% as possible and to insure that sufficient funds are always available to meet
current expenditures, while investing in instruments that provide safety, liquidity and yield.
The City’s investment policy and State statutes authorize the City to invest in the
following:
Securities of the U.S. Government or its agencies, which includes callable and
multi-step-up securities, provided that (i) the potential call dates are known at
the time of purchase, (ii) the interest rates at which they "step-up" are known at
the time of purchase, and (iii) the entire face value of the security is redeemed at
the call date;
Certificates of deposit (ortime deposits); -.
Banker’s acceptance notes;
Shorf-term commercial paper (maturing in 180 or fewer days);
Local Agency Investment Fund;
Short-term repurchase agreements;
City of Palo Alto bonds;
Money market deposit accounts; and
Mutual funds which are limited essentially to the above investments (and further
defined in the City’s Investment Policy).
State statutes require that all deposits be insured or collateralized. Depositories holding
public funds on deposit are required to maintain collateral in the form of a pool of government
securities with a market value of at least 10 percent in excess of the City’s deposit or 50% in
excess of the deposit as collateral in mortgage pools.
Recent events in Orange County and San Diego County prompted several changes in the
California Government Code regarding the investment of public funds, primarily focusing on
improving accountability and safety. The City’s Investment Policy for the 1997-98 fiscal year
which was adopted by the City Council on May 1, 1997, incorporated changes to reflect
B-7
compliance with the newly enacted State legislation. The Investment Policy was most recently
amended, reviewed and approved by the City Council on June 22, 1998.
According to the City Treasurer’s Quarterly Report for the third quarter of fiscal year
1998-99, the City has invested funds with a market value totaling approximately $277.7
million. As of March 31, 1999, 84.3% of the portfolio consisted of Federal agency notes and
U.S. Treasury securities. The average maturity of the portfolio was 1.5 years (excluding cash on
hand). As of March 31, 1999, the market value of the City’s investment portfolio ($277.7
million) was 100.7% of the investment portfolio’s book value ($275.7 million).
The following table summarizes certain information relating to the City’s investment
portfolio as of March 31, 1999:
CITY OF PALO ALTO
Investment Portfolio Summary
As of March 31, 1999
(in thousands of dollars)
Type of Investment Book Value Market Value
State of California Local Agency Investment
Fund (LAIF)
Fidelity Investments - U.S. Treasury
Mutual Fund
Cash on Hand
U.S. Treasuries
Federal Government Agencies:
Maturities of less than 1 year
Maturities of 1-3 years
Maturities of 3-5 years
Mortgage Backed Securities
$ 30,000
13,085
2,153
9,005
48,705
145,231
27,257
259
$ 30,000
13,085
2,153
9,045
48,984
146,159
27,972
270
Total $ 275,695 $ 277,668
(1) Market Value as of March 31, 1999.
Source: City of Palo Alto
B-8
APPENDIX C
AUDITED FINANCIAL STATEMENTS OF THE CITY
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
C-1
APPENDIX D
PROPOSED FORM OF BOND COUNSEL OPINION
D-1
APPENDIX E
FORM OF CONTINUING DISCLOSURE CERTIHCATE
E-1
APPENDIX F
DTC AND THE BOOK-ENTRY ONLY SYSTEM
The following description of the procedures and record-keeping with respect to beneficial
ownership interests in the 1999 Bonds, payment of principal, interest and other payments with respect
to the 1999 Bonds to Participants or Beneficial Owners, confirmation and transfer of beneficial
ownership interests in such Bonds and other related transactions by and between DTC, the Participants
and the Bene, ficial Owners is based on information provided by DTC. Accordingly, the City takes no
responsibility for the accuracy thereof.
DTC will act as securities depository for the 1999 Bonds. The 1999 Bonds will be issued
as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee).
One fully-registered Bonds will be issued for each maturity of the 1999 Bonds, each in the initial
aggregate principal amount of such maturity, and will be deposited with DTC.
¯ DTC is a limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A
of the Securities Exchange Act of 1934. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among Participants of
securities transactions, such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants’ accounts, thereby eliminating the need for
physical movement of securities certificates. "Direct Participants" include securities brokers
and dealers, banks, trust companies, clearing companies, and certain other organizations. DTC
is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The Rules applicable to DTC
and its Participants are on .file with the Securities and Exchange Commission.
Purchases of Bonds under the DTC system must be made by or through Direct
Participants, which will receive credit for the 1999 Bonds on DTC’s records. The ownership
interest of each Beneficial Owner is in turn to be recorded on the Direct and indirect
Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their
purchase, but Beneficial Owners are expected to receive written confirmations providing details
of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect
Participant through which the Beneficial Owner entered into the transaction. Transfers of
ownership interest in the 1999 Bonds are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in Bonds, except in the event that use of the
book-entry system for the 1999 Bonds is discontinued.
To facilitate subsequent transfers, all Bonds deposited by Participants with DTC are
registered in the name of DTC’s partnership nominee, Cede & Co. The deposit of Bonds with
DTC and the~ registration in the name of Cede & Co. effect no change in beneficial ownership.
DTC has no knowledge of the actual Beneficial Owners of the 1999 Bonds; DTC’s records
reflect only the identity of the Direct Participants to whose accounts such Bonds are credited,
which may or may not be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other 4ommunications by DTC to Direct Participants, by
Direct Participants to Indirect Participants, and by Direct Participants and Indirect
F-1
Participants to Beneficial Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. If less than all of the 1999 Bonds within a
maturity are being prepaid, DTC’s practice is to determine by lot the amount of the interest of
each Direct Participant in such maturity to be prepaid.
Neither DTC nor Cede & Co. will consent or ;cote with respect to Bonds. Under its usual
procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date.
The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct
Participants to whose accounts the 1999 Bonds are credited on the record date (identified in a
-~sting attached to the Omnibus Proxy).
Principal and interest payments with respect to the 1999 Bonds will be made to DTC.
DTC’s practice is to credit Direct Participants’ accounts on the payment date in accordance
with their respective holdings shown on DTC’s records unless DTC has reason to believe that it
will not receive payment on a payment date. Payments by Participants to Beneficial Owners
will be governed by standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, the Trustee or the City, subject to any
statutory or regulatory requirements as may be in effect from time to time. Payment of principal
and interest to DTC is the responsibility of the City or the Trustee, disbursement of such
payments to Direct Participants will be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
The City and the Trustee cannot and do not give any assurances that DTC will
distribute to Participants, or that Participants or others will distribute payments of principal or
interest with respect to the 1999 Bonds paid to DTC or its nominee as the registered Owner, or
any redemption or other notices, to the Beneficial Owners, or that they will do so on a timely
basis or will serve and act in the manner described in this Official Statement. The City and the
Trustee are not responsible or liable for the failure of DTC or any Participants to make any
payment or give any notice to a Beneficial Owner with respect to the 1999 Bonds or any error or
delay relating thereto.
Discontinuance ofDTC S~rvice. In the event that (a) DTC determines not to continue to act
as securities depository for the 1999 Bonds, or (b) the City determines to remove DTC from its
functions as a depository, DTC’s role as securities depository for the 1999 Bonds and use of
the book-entry system will be discontinued. If the City fails to select a qualified securities
depository to replace DTC, the City will cause the Trustee to execute and deliver new Bonds in
fully registered form in such denominations numbered in the manner determined by the Trustee
and registered in the names of such persons as are requested by the Beneficial Owners thereof.
Upon such registration, such persons in whose names the 1999 Bonds are registered will become
the registered Owners of the 1999 Bonds for all purposes.
Transfer and Exchange of Bonds. The following provisions regarding the exchange and
transfer of the 1999 Bonds apply only during any period in which the 1999 Bonds are not
subject to DTC’s book-entry system. While the 1999 Bonds are subject to DTC’s book-entry
system, their exchange and transfer will be effected through DTC and the Participa~nts and will
be subject to the procedures, rules and requirements established by DTC.
The registration of any Certificate may, in accordance with its terms, be transferred
upon the Registration Books by the person in whose name it is registered, in person or by his
duly authorized attorney, upon surrender of such Certificate for cancellation at the Corporate
Trust Office of the Trustee in San Francisco, California, accompanied by delivery of a written
instrument of transfer in a form approved by the Trustee, duly executed. Whenever any Bond
or Bonds shall be surrendered for registration of transfer, the Trustee shall execute, authenticate
and deliver a new Bond or Bonds of the same maturity and aggregate principal amount, in any
authorized denominations.
Bonds may be exchanged at the Corporate Trust Office of the Trustee, for a like
aggregate principal amount of Bonds of other authorized denominations of the same maturity.
The City shall pay any costs of the Trustee incurred in connection with such exchange, except
that the Trustee may require the payment by the Certificate Owner requesting such exchange of
any tax or other governmental charge required to be paid with respect to such exchange.
F-3
EXt-IIBIT B
OFFICIAL NOTICE OF SALE
NOT TO EXCEED
$20,000,000
CITY OF PALO ALTO
(SANTA CLARA COUNTY, CALIFORNIA)
UTILITY REVENUE AND REFUNDING BONDS.
1999 SERIES A
NOTICE IS HEREBY GIVEN that sealed proposals will be received by the City of Palo
Alto (the "City") at the offices of Stone & Youngberg, 50 California Street, 35th Floor, San
Francisco, California 94111, on
TUESDAY, JUNE 15, 1999
and (without further advertising and so long as a proposal has not theretofore been
accepted by the City on Tuesday, June 22, 1999), at the hour of 10:00 a.m. (Pacific Daylight
Time) for the purchase of not-to-exceed $20,000,000 principal amount of the captioned utility
revenue and refunding bonds of the City (the "Bonds"), more particularly described below.
Bidders should refer to the preliminary Official Statement for definitions of terms and credit
:information regarding the Bonds.
TERMS OF THE BONDS
ISSUE. The Bonds will .be in the principal amount of not-to-exceed $20,000,000
designated "City of Palo Alto Utility Revenue and Refunding Bonds, 1999 Series A," consisting
of fully-registered bonds, without coupons, executed and delivered in book-entry only form and
registered in the name of Cede & Co., as nominee for The Depository Trust Company ("DTC"),
in the denomination of five thousand ($5,000) each or any integral multiple thereof; provided
that no Bond will have principal becoming payable on more than one payment date.
-1-
DATE, MATURITIES AND AMOUNTS. The Bonds will be dated June 1, 1999, with
interest from this date at the rate or rates fixed upon the sale thereof and will mature serially or
be paid as Mandatory Sinking Fund Installments on June 1 in each year as set forth in the
following table:
Maturity Date Principal
/|une 1}Amount
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Notification of changes in maturity amounts prior to the sale of the Bonds will be
communicated via Bloomberg Financial Markets or Thomson Municipal Service.
ADJUSTMENT OF PRINCIPAL AMOUNTS. The total principal amount of the Bonds
and the principal amounts payable on the Maturity Dates herein specified reflect estimates of
the City and the Financial Advisor with respect to the successful bid. After selecting such bid,
the total principal amount and the principal amounts payable on each Maturity Date are
subject to adjustment by the City in increments of $5,000 to reflect actual interest rates and any
premium or discount in the successful bid to create a more level debt service on the Bonds;
provided that such adjustment will not change the total principal amount by more.than $200,000
and will not increase or decrease principal on any Maturity Date, or any Mandatory Sinking
Fund Installment, by more than 10% from the amounts shown in the tables herein. The
successful bidder will be notified of any such adjustment within 3 hours of bid opening and
may not withdraw its bid because of any adjustment made within the foregoing limits.
-2-
PRIOR REDEMPTION.
(a) Optional Redemption. The Bonds maturing on or before June 1, 2009 are not subject
to optional redemption prior to maturity. The Bonds maturing on or after June 1, 2010 are
subject to redemption prior to their respective maturity dates, at the option of the City, as a
whole on any date, or in part in inverse order of maturities and by lot within a maturity on any
Interest Payment Date on or after June 1, 2009, from any source of available funds, at the
following respective Redemption Prices (expressed as percentages of the principal amount of
the Bonds to be redeemed), plus accrued interest thereon to the date of redemption:
Redemption Periods
June 1, 2009 through May 31, 2010
June 1, 2010 through May 31, 2011 ’
June 1, 2011 and thereafter
Redemption Prices
102%
101%
100%
(b) Special Mandatory Redemption From Insurance or Condemnation Proceeds. The
Bonds are also subject to redemption as a whole or in part on any date prior to maturity, in
inverse order of maturity and by lot within a maturity, to the extent of the Net Proceeds of
hazard insurance not used to repair or rebuild the Enterprise or the Net Proceeds of
condemnation awards received with respect to the Enterprise to be used for such purpose, at a
Redemption Price equal to the principal amount of the Bonds plus interest accrued thereon to
the date fixed for redemption, without premium.
(c) Mandatory Sinking Fund Redemption. The Bonds which mature in the years which
are checked in the Bid Form as being Term Bonds are also subject to mandatory redemption in
part by lot, on June I in each of the years checked under the heading "Term Bonds" in the Bid
Form, from Mandatory Sinking Fund Installments, at a Redemption Price equal to the principal
amount thereof to be redeemed, without premium, in the aggregate respective principal amounts
and in the respective yearg as set forth in the Bid Form (as adjusted according to the provisions
of "ADJUSTMENT OF PRINCIPAL AMOUNTS" above); provided, that the bid for Term
Bonds may not be less than ninety-eight percent (98%) of the par amount thereof.
PAYMENT. Interest on the Bonds is payable semiannually on each June 1 and
December 1 (each, and "Interest Payment Date" or "Payment Date"), commencing December 1,
1999. So long as Cede & Co. is the registered holder of the Bonds, principal of and premium, if
any, and interest evidenced and represented by the Bonds will be paid U.S. Bank Trust
National Association, San Francisco, California, as Trustee (the "Trustee"), at its principal
corporate trust office directly to DTC, which will in turn remit such principal, premium, if any,
and interest to its participants for subsequent disbursement to the beneficial owners of the
Bonds.
PURPOSE OF ISSUE. The Bonds are to be issued by the Council of the City in the name
and on behalf of the City and are authorized pursuant to the charter of the City and the
provisions of Chapter 12.28 (commencing with Section 12.28.010), of the Palo Alto Municipal
Code, for the purpose of refunding two prior utility revenue bonds of the City, and financing
capital improvements to and expansion of the sewer system component of the City’s utility
Enterprise.
SECURITY. The city has ~ansferred, placed a charge upon, assigned and set over to
the Trustee, for the benefit of the Owners, the Net Revenues of the Sewer and Storm Water
System of the City, as more particularly provided for in the Indenture, which is necessary to
pay the principal or redemption price of and interest on the Bonds in any Fiscal Year, together
with all moneys on deposit in the Debt Service Fund, and such portion of the Net Revenues has
been irrevocably pledged to the punctual payment of the principal or redemption price of and
-3-
interest on the Bonds. Such Net Revenues cannot be used for any other purpose while any of
the Bonds remain Outstanding, except that out of Net Revenues there may be apportioned and
paid such sums for such purposes, as are expressly permitted by the Indenture. Said pledge
constitutes a first, direct and exclusive charge and lien on such Net Revenues for the payment of
the principa! or redemption price of and interest on the Bonds and any bonds issued on a
parity therewith, all in accordance with the terms thereof.
In addition, the City has covenanted to maintain the funds on hand in Available
Reserves in an aggregate amount at least equal to five (5.0) times Maximum Annual Debt
Service. "Available Reserves" means funds held in the City’s:
(i)
(ii)
(iii)
.(iv)
(v)
(vi)(vii)
(viii)
(ix)
(x)
Rate Stabilization Reserve for the Water System,
Rate Stabilization Reserve for the Wastewater Collection System,
Rate Stabilization Reserve for the Wastewater Treatment System,
Rate Stabilization Reserve for the Refuse System,
Rate Stabilization Reserve for the Storm Drain System,
Distribution Rate Stabilization Reserve for the Electric System,
Distribution Rate Stabilization Reserve for the Gas System,
Supply Rate Stabilization Reserve for the Electric System,
Supply Rate Stabilization Reserve for the Gas System, and
the Electric System’s Calaveras-Stranded Costs Reserve.
The City has also covenanted to transfer from Available Reserves, to any System of the
Enterprise (as defined in the Indenture), as needed, amounts sufficient to enable the City to pay
all Maintenance and Operation Costs and all Debt Service (as those terms are defined in the
Indenture), when and as the same become due and payable.
The Net Revenues constitute a trust fund for the security and payment of the principal
or redemption price of and interest on the Bonds. The general fund of the City is not liable and
the credit or taxing power of the City is not pledged for the payment of the principal or
redemption price of and interest on the Bonds. The Owner of the Bonds cannot compel the
exercise of the taxing power by the City or the forfeiture of its property. The principal or
redemption price of and interest on the Bonds are not a debt of the City, nor a legal or equitable
pledge, charge, hen or encumbrance, upon any of its property, or upon any of its income,
receipts, or revenues except the Net Revenues of the Sewer System and Storm Water System.
NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY OF
PALO ALTO, THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION
THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS., THE BONDSARE NOT
GENERAL OBLIGATIONS OF THE CITY, BUT ARE LIMITED OBLIGATIONSPAYABLE
SOLELY FROM CERTAIN FUNDS HELD PURSUANT TO THE INDENTURE.NEITHER
THE CITY OF PALO ALTO NOR THE STATE OF CALIFORNIA SHALL BE OBLIGATED
TO PAY THE PRINCIPAL OF THE BONDS, OR THE INTEREST THEREON AND NEITHER
THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY OF PALO ALTO, THE
STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS .THEREOF IS
PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR THE INTEREST ON THE
BONDS.
TAX-EXEMPT STATUS. In the opinion of Jones Hall, A Professional Law Corporation,
San Francisco, California, Bond Cotmsel, subject, however to certain qualifications, under
existing law, the interest on the Bonds is excluded from gross income for federal income tax
purposes and is not an item of tax preference for purposes of the federal alternative minimum
tax imposed on individuals and corporations, although for the purp.ose of computing the
alternative minimum tax imposed on certain corporations, such interest is taken into account in
-4-
determining certain income and earnings. In the further opinion of Bond Counsel, such interest
is exempt from California personal income taxes.
In the event that, prior to the delivery of the Bonds (a) the interest on other obligations
of the same type and character shall be declared to be subject to taxation (either at the time of
such declaration or at any future date) under any federal income tax laws, either by the terms of
such laws or by ruling of a federal income tax authority or official which is followed by the
Internal Revenue Service, or by decision of any federal court, or (b) any federal income tax law
is enacted which will have a substantial adverse effect upon the owners of the Bonds as such,
the successful bidder may~ at its option, prior to the tender of the Bonds, be relieved of its
obligation to purchase the Bonds, and in such case the deposit accompanying its bid will be
returned.
LEGAL OPINION. The legal opinion of Jones Hall, A Professional Law Corporation,
San Francisco, California, Bond Counsel, approving the validity of the Bonds and regarding
"TAX-EXEMPT STATUS" above will be furnished to the successful bidder without cost.
MUNICIPAL BOND INSURANCE. The City has applied for a commitment for a
policy of municipal bond debt service insurance on the Bonds and at least 24 hours prior to the
time for receipt for bids will advise on the Munifacts News Service whether such commitment
has been obtained and from whom it has been obtained. If it has been obtained, any bidder
may elect to purchase such insurance for all or part of the Bonds; provided that the cost of such
insurance will be paid by such bidder and the insurance premium will be treated as a discount
in determining the best price for the Bonds (subject to a 2% limit on underwriting discount) as
described in "BASIS FOR AWARD" herein. The City will accept bids which are based upon the
issuance of a municipal bond insurance policy but only by the entity described in the Munifacfs
News Service as set forth above. However, bids shall not be conditioned upon the issuance of
any such policy. The City makes no representation as to whether the Bonds will qualify for
municipal bond insurance. Payment of any insurance premium and satisfaction of any
conditions upon the issuance of a municipal bond insurance policy shall be the sole
responsibility of the bidder. In particular, the City will not amend nor supplement the Indenture
in any way nor will it agree in advance of the sale of the" Bonds to enter into any additional
agreements with respect to the provision of any such policy.
FAILURE OF THE MUNICIPAL BOND DEBT SERVICE INSURANCE PROVIDER TO
ISSUE ITS POLICY SHALL NOT CONSTITUTE CAUSE FOR A FAILURE OR REFUSAL BY
THE SUCCESSFUL BIDDER TO ACCEPT DELIVERY OR PAY THE PURCHASE PRICE BID
FOR THE BONDS. The successful bidder must provide the City with the municipal bond
insurance commitment, including the amount of the policy premium, as w.ell as inforr~, ation, wi.th
respect to the municipal bond insurance policy and the insurance provider for the inclusion m
the final Official Statement within two (2) business days following the award of the bid by the
City. The City will require a certificate from the insurance provider on or prior to the date of
delivery of the Bonds relating to any information relating to such insurance provider included in
the final Official Statement, together with an opinion of counsel to the insurance provider
regarding the enforceability of the municipal bond insurance policy in form reasonably
satisfactory to the City.
-5-
TERMS OF SALE
FORM OF BID; MAXIMUM DISCOUNT. Bids must be for all of the Bonds, and must
be for not less than ninety-eight percent (98%) of the par value thereof plus accrued interest.
Each bid, together with the bidder’s certified or cashier’s check, must be enclosed in the sealed
envelope addressed to "City of Palo Alto" at the address mentioned above no later than 10:00
a.m. on said date of sale, and endorsed "Proposal for City of Palo Alto Utility Revenue and
Refunding Bonds, 1999 Series A." Each bid must be in accordance with the terms and
conditions set forth herein, and must be submitted on, or in substantial accordance with, the
Official Bid Form attached hereto.
NUMBER OF BIDS. Each bidder may submit only one bid.
INTEREST RATE. The maximum interest rate bid may not exceed twelve percent (12%)
per annum, payable semi-annually on each June I and December 1, commencing December 1,
1999 (each, an "Interest Payment Date"). Bidders must specify the rate of interest which the
Bonds bid upon shall bear, provided that: (i) each bid must be on the Official Bid Form; (ii)
each bid must state in a multiple of one-eighth (1/8) or one-twentieth (1/20) of one percent
(1%) of the rate or rates of interest per annum which the Bonds of the several maturities are to
bear and a zero rate of interest cannot be specified; (iii) only one interest rate may be stated for
Bonds of the same maturity; (iv) each Bond bid upon shall bear interest from its date to its
stated maturity at the interest rate specified in the bid; (v) the interest rate for Bonds of any
maturity must be equal to or lower than the interest rate on Bonds of the next succeeding
maturity; and (vi) the spread between the lowest and the highest interest rate shall not exceed
three percent (3%).
ESTIMATES OF INTEREST COSTS. Bidders are requested (but not required) to supply
an estimate of the true interest cost (TIC) on the basis of their respective bids (determined in
accordance with the paragraph "BASIS OF AWARD" below), which estimation shall be
considered as informative only and not binding on either the bidder or the City.
BASIS OF AWARD. Bids must be for the purchase of all of the Bonds. The Bonds will
be awarded to the highest responsible bidder therefor, considering the interest rate or rates
specified and the premium or discount offered, if any. If any bidder elects to purchase.a policy
of municipal bond debt service insurance on the Bonds (as described in "MUNICIPAL BOND
INSURANCE" herein), the cost of such insurance will be treated as a discount (subject to the
2% limit) in determining the best price for the Bonds and will be borne by the bidder and
disclosed to the City. The highest responsible bidder will be the bidder submitting the best price
for the Bonds, which best price will result in the lowest effective interest rate or true interest
cost.
The lowest effective interest rate will be computed in accordance with the true interest
co~t computed by doubling the semiannual interest rate (compounded semiannually) necessary
to discount debt service payments from their respective payment dates to the expected closing
date of the Bonds and to the price bid (including any premium or discount) and accrued interest
from the dated date of the Bonds to Jttne 29, 1999, the anticipated date of delivery of the
Bonds.
For purposes of calculating the true interest cost, the principal amount of the Bonds
designated as mandatory sinking fund installments as part of the Term Bonds will be treate~l as
a serial maturity in each year. In the event two or more bids offer the same lowest true interest
cost, the City reserves the right to exercise its own discretion and judgment in making the
award.
-6-
The successful bidder must pay accrued interest, if any, computed on a 360-day year
(30-day month) basis, from the date of the Bonds to the date of delivery. Changes made in the
total principal amount or amortization schedule will not affect the determination of the winning
bidder or give the winning bidder any right to reject the Bonds. No bid for less than ninety-
eight percent (98%) of the par value of the Bonds and accrued interest (which interest shall be
computed on a basis of a 360-day year compc~sed of twelve 30-day months) will be
entertained.
BID DEPOSIT: A good faith deposit ("Deposit") in the form of a certified or cashier’s
check or a financial surety bond (a "Financial Surety Bond") in the amount of $25,000.00,
payable to the order the "City of Palo Alto, is required for each bid to be considered. If a check
is used, it must accompany e~ch bid. If a Financial Surety Bond is used, it must be from an
insurance company licensed to issue such a bond in the State of California, and such bond must
be submitted to the City or the City’s financial advisor prior to the opening of the bids. The
Financial Surety Bond must identify each bidder whose Deposit is guaranteed by such Financial
Surety Bond.
If the Bonds are awarded to a bidder utilizing a Financial Surety Bond, then that
purchaser ("Purchaser") is required to submit its Deposit to the City in the form of a cashier’s
check (or wire transfer such amount as instructed by the City) not later than 3:30 p.m. Pacific
Standard Time, on the next business day following the award. If such Deposit is not received
by that time, the Financial Surety Bond may be drawn by the City to satisfy the Deposit
requirement. In the ev.ent the Purchaser fails to honor its accepted bid, the Deposit will be
retained by the City.
If the Bonds are awarded to a bidder utilizing a certified or cashier’s check, the check
accompanying any accepted proposal will be held by the City following the award to the
successful bidder. If, after the award of the Bonds the successful bidder fails to complete its
purchase on the terms stated in its proposal, the check will be cashed by the City and the
proceeds thereof will be retained by the City as liquidated damages.
If the successful bidder completes its purchase of the Bonds on the terms stated in its
proposal, its Deposit will be applied to the purchase of the Bonds on the date of delivery of the
Bonds. The check accompanying each unaccepted proposal will be returned by the City by
personal delivery or by mail promptly after the date of sale to the address specified by the
bidder in the Official Bid Form. No interest will be paid upon the deposit made by any bidder.
RIGHT OF RETECTION. The Council reserves the right, in its discretion, to reject any
and all bids and to waive any irregularity or informality in any bid.
RIGHT OF CANCELLATION OF SALE BY CITY. The City reserves the right, in its sole
discretion, at any time to cancel the public sale of the Bonds. In such event, the City shall cause
notice of cancellation of this invitation for bids and the public sale of the Bonds to be
communicated through Munifacts News Service as promptly as practicable. However, no
failure to publish such notice or any defect or omission therein shall affect the cancellation of
the public sale of the Bonds.
PROMPT AWARD. The Council will take action awarding the Bonds or rejecting all
bids not later than thirteen (13) hours after the expiration of the time herein prescribed for the
receipt of proposals unless such time of award is waived by the successful bidder.
DELIVERY AND PAYMENT. The Bonds will be delivered to DTC in New York, New
York for deposit on or about June 29, 1999. The successful bidder will pay the Trustee for the
-7-
Bonds on the date of delivery in Federal Reserve Bank funds or equivalent immediately
available funds to the City. Payment on the delivery date will be made in an amount equal to
the price bid for the Bonds plus accrued interest, if any, less the amount of the good faith
deposit as described in the paragraph captioned "BID DEPOSIT."
RIGHT OF CANCELLATION: The successful bidder shall have the fight, at its option,
to cancel its purchase of the Bonds if the City shall fail to cause the execution and delivery of
the Bonds and tender the same for delivery within sixty (60) days from the date of sale thereof,
and in such event, the successful bidder shall be entitled to the return of the deposit
accompanying its bid.
CERTIFICATION OF REOFFERING PRICE. Simultaneously with or before delivery of
the Bonds, the successful bidder will furnish to the District a written statement in form and
substance acceptable to Bond Counsel (a) stating the initial reoffering prices on each maturity of
the Bonds, (b) certifying that a bona fide offering of the Bonds has been made to the public
(excluding bond houses, brokers and other intermediaries), (c) stating the prices at which at
least ten percent (10%) of each maturity of the Bonds were sold to the public (excluding bond
houses, brokers and other intermediaries), and (d) stating the price at which each Bond was
sold, or will be sold, to institutional or other investors with concessions or at a discount from
the prices at which Bonds were, or will be, sold to. the general public. Such written statement
will state that it is made on the best knowledge, information and belief of the successful bidder
after appropriate investigation.
CALIFORNIA DEBT ADVISORY COMMISSION. The City has duly notified the
California Debt Advisory Commission of the proposed sale of the Bonds. Payment of all fees
to the California Debt Advisory Commission in connection with the execution, sale and delivery
of the Bonds shall be the sole responsibility of the successful bidder, and not of the City.
NO LITIGATION. There is no litigation pending concerning the validity of the Bonds,
the existence of the City or the entitlement of the officers thereof to their respective offices, and
the successful bidder will be furnished a no-litigation certificate certifying to the foregoing as of
and at the time of delivery of the Bonds.
CUSIP NUMBERS. It is anticipated that CUSIP numbers will be printed on the Bonds,
but neither the failure to print such numbers on any Bonds nor any error with respect thereto
shall constitute cause for a failure or refusal by the purchaser thereof to accept delivery of and,
pay for the Bonds in accordance with the terms hereof. All expenses in relation to the printing
of CUSIP numbers on the Bond shall be paid for by the City; provided, however, that the
CUSIP Service Bureau charge for the assignment of said numbers shall be the responsibility of
and shall be paid for by the purchaser.
OFFICIAL STATEMENT. A copy of the preliminary Official Statement and the Official
NotiCe of Sale will be furnished upon request to the financial advisor of the City, Stone &
Yottngberg, 50 California Street, Suite 3500, San Francisco, CA 94111, telephone (415) 981-
1314. Such preliminary Official Statement is in a form "deemed final" by the City for purposes
of SEC Rule 15c2-12 (b)(1) but is subject to revision, amendment and completion. The City will
provide the successful bidder up to 200 printed copies of the final Official Statement without
charge, with any additional copies to be furnished at the expense of the successful bidder.
DISCLOSURE CERTIFICATE. The City will deliver to the purchaser of the Bonds a
certificate of an official of the City, dated the date of Bond delivery, stating that as of the date
thereof, to the best of the knowledge and belief of said official, the Official Statement does not
contain an untrue statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances under which they
-8-
were made, not misleading, and further certifying that the signatory knows of no material
adverse change in the condition of the City which would make it unreasonable for the purchaser
of the Bonds to rely upon the Official Statement in connection with the resale of the Bonds.
INFORMATION AVAILABLE: Requests for information concerning the City should be
addressed to:
FINANCIAL ADVISOR:
Stone & Youngberg
50 California Street,
35th Floor
San Francisco, CA 94111
Attn: Ed Schilling or
Sohail Bengali
(415) 981-1314
City of Palo Alto
City Hall
250 Hamilton Avenue
Palo Alto, CA 94301
Attn: Carl Yeats,
Director of Administrative Services
(650) 329-2450
GIVEN pursuant to resolution of the Council of the City of Palo Alto adopted May 24,
1999.~
Dated: May 28, 1999
By /s/
City Clerk
-9-
OFFICIAL BID FORM
PROPOSAL FOR. THE PURCHASE OF
NOT TO EXCEED
$20,000,000
CITY OF PALO ALTO
(SANTA CLARA COUNTY, CALIFORNIA)
UTILITY REVENUE AND REFUNDING BONDS
1999 SERIES A
City of Palo Alto
c/o Stone & Youngberg
50 California Street, 35th Floor
San Francisco, CA 94111
FAX: 415/445-2395
415/397-9592
415/445-2346
415/445-2317
Name of Firm Submitting Bid:
Ladies and Gentlemen:
We offer to purchase the $20,000,000 City of Palo Alto Utility Revenue and Refunding Bonds,
1999 Series A in the principal amounts*, in such denominations, dated June 1, 1999, maturing on June 1
in the years and bearing interest as follows:
Matu~ty
Date
(Iune 1}
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Term
Principal Bond Interest
Amount (**)Rate
Matu~ty
Date
flune 1)
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Principal
Amount
Term
Bond Interest
(**)Rate
and to pay therefor the principal amount thereof, plus a premium of $ (or minus a discount
of $. ), plus interest accrued on such Bonds from June 1, 1999, to the date of delivery thereof,
which is estimated to be June 29, 1999.
This proposal is made subject to all the terms and conditions of the Official Notice of Sale of such
Bonds dated May 28, 1999, all of which terms and conditions are made a part hereof as fully as though
set forth in full in this proposal.
*Subject to adjustment as set forth in the Official Notice of Sale.
**A check in this column indicates the particular maturity is to be treated as part of a Term Bond.
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This proposal is subject to acceptance, in whole or in part, within thirteen (13) hours after the
expiration of the time for the receipt of proposals, as specified in said .Official Notice of Sale; we agree
that it may not be withdrawn prior to the expiration of said time.
There is enclosed herewith a [__] certified or cashier’s check or [__] surety bond for $25,000.00
payable to the order of the City of Palo Alto.
We have [__] have not [_] verified the qualified bond debt service insurance
with Bloomberg Financial Markets or Thomson Municipal Service..
We will [_] will not [_] obtain insurance.
If so, we will obtain insurance for Bonds maturing in
Out computation made as provided in the Official Notice of Sale, but not constituting any part of
the foregoing, of the true interest cost to the City for the Bonds is ~__%, assuming delivery of the
Bonds on June 29, 1999.
If we are the successful bidder, we will (1) within one hour after being notified of the award of
the Bonds, advise the City of the initial public offering prices of the Bonds and, (2) prior to delivery of
the Bonds furnish a certificate, acceptable to Bond Counsel, as to the "issue price" of the Bonds within the
meaning of Section 1273 of the Internal Revenue Code of 1986, as amended.
If this is the purchasing bid, we hereby request that ~ printed copies of the Official Statement
pertaining to the Bonds be furnished to us in accordance with the terms of said Official Notice of Sale.
We represent that we have full and complete authority to submit this bid on behalf of our
bidding syndicate and that the undersigned will serve as the lead ma.nager for the group if the Bonds
are awarded pursuant to this bid.
Following is a list of the members of our account on whose behalf this bid is made.
Respectfully submitted,
Name of Firm:
By
Address:
Date of Submission:
If this is not the purchasing bid, the good faith deposit check should be returned to (name,
address and telephone number):
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EXHIBIT C
NOTICE OF INTENTION TO SELL BONDS
Not to Exceed
$20,000,000
CITY OF PALO ALTO
(SANTA CLARA COUNTY, CALIFORNIA)
UTILITY REVENUE AND REFUNDING BONDS
1999 SERIES A
NOTICE IS HEREBY GIVEN, pursuant to California Government Code Section 53692,
that the City of. Palo Alto intends to sell, at public sale, not to exceed $20,000,000 Utility
Revenue and Refunding Bonds, 1999 Series A. Bids will be received on
Tuesday, June 15, 1999
and (without further advertising and so long as a proposal has not theretofore been
accepted by the City of Palo Alto on Tuesday, June 22, 1999), at 10:00 a.m. (Pacific Daylight
Time) at the office of the financial advisor to the City, Stone & Youngberg LLC, 50 California
Street, 35th Floor, San Francisco, California 94111, and the sale will be awarded by the Director
of Administrative Services of the City of Palo Alto within thirteen (13) hours after the
expiration of time prescribed for the receipt of bids. The official notice of sale and official
statement pertaining to the Bonds may be obtained from Stone & Youngberg, telephone (415)
981-1314.
Dated: May 28, 1999
By
City Clerk
City of Palo Alto
Exhibit C
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26005-49 03105/99
04/16/99
04/30/99
05/11/99
05118/99
INDENTURE OF TRUST
by and between the
CITY OF PALO ALTO
and
U.S. BANK TRUST NATIONAL ASSOCIATION
as Trustee
Dated as of June 1,1999
Relating to
City of Palo Alto
$
Utility Revenue and Refunding Bonds
1999 Series A
TABLE OF CONTENTS
SECTION 1.01.
SECTION 1.02.
SECTION 1.03.
SECTION 1.04.
SECTION 2.01.
SECTION 2.02.
SECTION 2.03.
SECTION 2.04.
SECTION 2.05.
SECTION 2.06.
SECTION 2.07.
SECTION 2.08.
SECTION 2.09.
SECTION 3.01.
SECTION 3.02.
SECTION 3.03.
SECTION 3.04.
SECTION 3.05.
SECTION 3.06.
SECTION 3.07,
SECTION 3.08.
SECTION 4.01.
SECTION 4.02.
SECTION 4.03.
SECTION 4.04.
SECTION 4.05.
SECTION 4.06.
SECTION 4.07.
SECTION 4.08.
SECTION 4.09.
SECTION 5.01.
SECTION 5.02.
SECTION 5.03.
SECTION 5.04.
SECTION 5.05.
SECTION 5.06.
SECTION 5.07.
SECTION 5.08.
ARTICLE I
DEFINITIONS; ALU~ORIZATION AND PURPOSE OF BONDS;
EQUAL SECURITY
Definitions ..........................................................................................................3
Rules of Construction .........................................................................................10
Authorization and Purpose of Series A Bonds .....................................................10
Equal Security ...................................................................................................11
ARTICLE II
ISSUANCE OF SERIES A BONDS
Terms of Series A Bonds ..........................................................................: .........12
Redemption of Series A Bonds ...........................................................................12
Form of Series A Bonds ......................................................................................15
Execution of Series A Bonds ...............................................................................15
Transfer of Series A Bonds .................................................................................15
Exchange of Series A Bonds ...............................................................................16
Temporary Bonds ..............................................................................................16
Bond Registration Books ....................................................................................16
Bonds Mutilated, Lost, Destroyed or Stolen .........................................................16
ARTICLE HI
ISSUE OF SERIES A BONDS; PARITY BONDS
Issuance of Series A Bonds .....................................: ...........................................17
Application of Proceeds of Sale of Series A Bonds ................................................17
Reserve Account ................................................................................................17
1999 Project Fund ..............................................................................................17
Cost of Issuance Fund ........................................................................................18
Issuance of Parity Bonds .....................................................................................18
No Additional Prior Lien Bonds .........................................................................20
Validity of Bonds ......................~. ........................................................................20
ARTICLE IV
PLEDGE OF NET REVENUES; FUNDS AND ACCOUNTS
Pledge of Pledged Net Revenues, Revenue Fund ...............................................21
Receipt and Deposit of Revenues .......................................................................21
Establishment of Funds and Accounts and Allocation of Revenues Thereto ..........21
Application of Debt Service Fund .......................................................................22
Application of Reserve Account ..........................................................................23
Application of Redemption Account ...................................................................23
Surplus .............................................................................................................23
Investments .......................................................................................................23
Valuation; Investmen~ ......................................................................................24
ARTICLE V
COVENANTS OF THE CITY; SPECIAL TAX COVENANTS
Punctual Payment; Compliance With Documents ................................................25
Against Encumbrances ......................................................................................25
Discharge of Claims ...........................................................................................25
Acquisition, Construction or Financing of any Project and Improvements to the
Enterprise ..........................................................................................................25
Maintenance and Operation of Enterprise in Efficient and Economical Manner .....25
Against Sale, Eminent Domain ..........................................................................25
Insurance ..........................................................................................................26
Records and Accounts ...................’ .....................................................................27
-i-
SECTION 5.09.
SECTION 5.10.
SECTION 5.11.
SECTION 5.12.
SECTION 5.13.
SECTION 5.14.
SECTION 5.15.
SECTION 5.16.
SECTION 5.17.
SECTION 5.18.
SECTION 5.19.
SECTION 5.20.
SECTION 5.21.
SECTION 6.01.
SECTION 6.02.
SECTION 6.03.
SECTION 6.04.
SECTION 6.05.
SECTION 6.06.
SECTION 6.07.
SECTION 6.08.
SECTION 6.09.
SECTION 6.10.
SECTION 6.11.
SECTION 6.12.
SECTION 7.01.
SECTION 7.02.
SECTION 7.03.
SECTION 7.04.
SECTION 7.05.
SECTION 8.01.
SECTION 8.02.
SECTION 8.03.
SECTION 8.04.
SECTION 8.05.
SECTION 8.06.
SECTION 8.07.
SECTION 8.08.
SECTION 9.01.
SECTION 9.02.
SECTION 9.03.
SECTION 9.04.
SECTION 9.05.
SECTION 9.06.
SECTION 9.07.
SECTION 9.08.
Protection of Security and Rights of Owners ........................................................27
Against Competitive Facilities ............................................................................27
Payment of Taxes, Etc ........................................................................................27
Rates and Charges .............................................................................................o297
No Priority for Additional Obligations ................................................................
No Arbitrage .....................................................................................................29
Information Report ............................................................................................29
Private Business Use Limitation .........................................................................29
Private Loan Limitation .....................................................................................29
Federal Guarantee Prohibition .........: .................................’ ................................29
Non-application to Taxable Bonds ...............................................:- ......................29
Further Assurances ............................................................................................29
29Continuing Disclosure .......................................................................................
ARTICLE VI
THE TRUSTEE
Appointment of Trustee ........................................................~ ............................30
Acceptance of Trusts ..........................................................................................3~22
Fees, Charges and Expenses of Trustee ...............................................................3
Notice to Bond Owners of Default .......................................................................32
Intervention by Trustee .....................................................................................32
Removal of Trustee ............................................................................................33~
Resignation by Trustee ......................................................................................
¯
Appointment of Successor Trustee ......................................................................33
Merger or Consolidation ....................................................................................33
Concerning any Successor Trustee ......................................................................33
Appointment of Co-Trustee ................................................................................33
Indemnification; Limited Liability of Trustee ......................................................34
ARTICLE VII
MODIFICATION AND AMENDMENT OF THE INDENTURE
Amendment by Consent of Bond Owners ...........................................................35
Amendment Without Consent of Bondholders ....................................................35
Disqualified Bonds ............................................................................................35’
Endorsement or Replacement of Bonds After Amendment ..................................35
Amendment by Mutual Consent ........................................................................36
EVENTS OF DEFAULT AND REMEDIES OF BOND OWNERS
Events of Default and Acceleration of Maturities .................................................37
Application of Funds Upon Acceleration ..............................................~ ..............37
Other Remedies; Rights of Bond Owners ............................................................38
Power of Trustee to Control Proceedings .............................................................38
Appointment of Receivers ..................................................................................39
Non-Waiver ......................................................................................................39
Rights and Remedies of Bond Owners ................................................................39
Termination of Proceedings ................................................................................40
ARTICLE IX
MISCELLANEOUS
Limited Liability of City ....................................................................................41
Benefits of Indenture Limited to Parties ..............................................................41
Discharge of Indenture ............: .........................................................................41
Successor Is Deemed Included in All References to Predecessor ...........................42
Content of Certificates ........................................................................................42
Execution of Documents by Bond Owners ...........................................................42
Waiver of Personal Liability ...............................................................................43
Partial Invalidity ...............................................................................................43
SECTION 9.09.
SECTION 9.10.
SECTION 9.11.
SECTION 9.12.
Destruction of Cancelled Bonds ..........................................................................43
Funds and Accounts ..........................................................................................43
Notices ..............................................................................................................43
Unclaimed Moneys ............................................................................................44
EXHIBIT A: Form of Series A Bond
EXHIBIT B: Debt Service Attributable to Sewer System and Debt Service Attributable to Storm
Water System
INDENTURE OF TRUST
THIS INDENTURE OF TRUST, made and entered into as of June 1, 1999, by and
between the CITY OF PALO ALTO, a chartered city and municipal corporation organized and
existing under the constitution and laws of the State of California (the "City"), and U.S. Bank
Trust National Association, a national banking association organized and existing under the
laws of the United States of America, with a corporate trust office in San Francisco, California,
and being qualified to accept and administer the trusts hereby created (the ’Trustee");
WHEREAS, the City is authorized pursuant to the provisions of Chapter 12.28
(commencing with Section 12.28.010) of the Palo Alto Municipal Code, enacted pursuant to the
charter of the City, to issue its revenue bonds for the purposes of financing improvements to an
enterprise of the City and to refund any bonds issued for such purpose;
WHEREAS, the City has heretofore authorized, issued and sold (i) $9,650,000 principal
amount of its City of Palo Alto Utility Revenue Refunding Bonds 1990 Series A (the "1990
Series A Bonds") pursuant to an Indenture of Trust dated as of August 1, 1990 (the "1990
Indenture"), by and between the City and the Security Pacific National Bank, as trustee, (ii)
$4,750,000 principal amount of its City of Palo Alto Utility Revenue Bonds, 1992 Series A (the
"1992 Series A Bonds") pursuant to a First Supplemental Indenture of Trust, dated as of
March 1, 1992 (the "First Supplemental Indenture"), and (iii) $8,640,000 principal amount of
its City of Palo Alto Utility Revenue Bonds, 1995 Series A (the "1995 Series A Bonds"),
pursuant to a Second Supplemental Indenture of Trust, dated as of February 1, 1995 (the
"Second Supplemental Indenture");
WHEREAS, the City, after due investigation and deliberation, has determined that it is
in the interests of the City at this time to provide for the issuance of its revenue bonds under
this Indenture for the purpose of (i) refunding the 1990 Series A Bonds and the 1992 Series A
Bonds (together, the "Prior Bonds"); and (ii) financing certain improvements to the Sewer
System component of the Enterprise, and to that end the City Council has heretofore adopted
its Resolution No: ___...__, approving and authorizing the issuance of its City of Palo Alto Utility
Revenue and Refunding Bonds, 1999 Series A (the "Series A Bonds") for such purposes;
WHEREAS, in order to provide for the authentication and delivery of the Bonds, to
establish and declare the terms and conditions upon which the Bonds are to be issued and
secured and to secure the payment of the principal thereof and of the interest and premium, if
any, thereon, the Council has authorized the execution and delivery of this Indenture;
WHEREAS, subject to the limitations herein relating to restrictions on the pledge of Net
Revenues contained in Section 4.01(c) hereof, and subject to the prior lien of the 1995 Bonds, all
of the Bonds will be secured by a pledge of the Net Revenues, as defined herein, and certain
other moneys and securities held by the City and the Trustee hereunder; and
WHEREAS, all acts and proceedings ~luired by law necessary to make the Series A
Bonds, when executed by the City, authenticated and delivered by the Trustee and duly issued,
the valid, binding and legal special obligations of the City, and to constitute this Indenture a
valid and binding agreement for the uses and purposes herein set forth, in accordance with its
terms, have been done and taken; and the execution and delivery of this Indenture have been in
all respects duly authorized;
-1-
NOW, THEREFORE, THIS INDENTURE W1TNESSETH, that in order to secure the
payment of the principal of and the interest and premium (if any) on all Bonds at any time
issued and Outstanding under this Indenture, according to their tenor, and to secure the
performance and observance of all the covenants and conditions therein and herein set forth,
and to declare the terms and conditions upon and subject to which the Bonds are to be issued
and received, and in consideration of the premises and of the mutual covenants herein
contained and of the purchase and acceptance of the Bonds by the Owners thereof, and for
other valuable considerations, the receipt whereof is hereby acknowledged, the City does hereby
covenant and agree with the Trustee, for the benefit of the respective Owners from time to time
of the Bonds, as follows:
ARTICLE I
DEFINITIONS; AUTHORIZATION AND PURPOSE OF BONDS;
EQUAL SECURITY
SECTION 1.01. Definitions. Unless the context otherwise requires, the terms defined in
this Section shall for all purposes of this Indenture and of any Parity Bonds Inset and of
the Bonds and of any certificate, opinion, request or other documents herein mentioned have the
meanings herein specified.
"Allocable Shar_ _ _ e" means (i) with respect to the Sewer System, Debt Service Attributable
to Sewer System due in a particular Fiscal Year divided by Debt Service due in the same Fiscal
Year, and (ii) with respect to the Storm Water System, Debt Service Attributable to the Storm
Water System due in a particular Fiscal Year divided by Debt Service due in the same Fiscal
Year.
"Authorized Investments" means any securities (other than those identified in
paragraphs (a) and (d) of Section 53601 of the Government Code of the State) in which the City
may legally invest funds subject to its control, pursuant to Article 1, commencing with Section
53600, of Chapter 4 of Part 1 of Division 2 of Title 5 of the Government Code of the State, as
now or hereafter amended.
"Available Reserves" means funds held in the City’s:
(i)
(iv)
(v)
(vi)(vii)
(vtU)
(ix)
(x)
Rate Stabilization Reserve for the Water System,
Rate Stabilization Reserve for the Wastewater Collection System,
Rate Stabilization Reserve for the Wastewater Treatment System,
Rate Stabilization Reserve for the Refuse System,
Rate Stabilization Reserve for the Storm Drain System,
Distribution Rate Stabilization Reserve for the Electric System,
Distribution Rate Stabilization Reserve for the Gas System,
Supply Rate Stabilization Reserve for the Electric System,
Supply Rate Stabilization Reserve for the Gas System, and
the Electric System’s Calaveras-Stranded Costs Reserve.
The term "Availahl~ Reserves" includes the above numerated funds, even thou .g~.h give~, a
different name by the Ci~-~ouncil of the City, a_s.well a,s .n,ewly c.reat, edv,fUnbe~ O~n~fCe~r~edW~oc~m
create reserves for the Systems listed above, and into wmcn momes na e
the above Funds.
"Average Annual Debt Service" means the total aggregate Debt Service for the entire
period during which the Bonds are Outstanding divided by the number of Fiscal Years or
portions thereof during which the Bonds are Outstanding.
"Bond Counsel" means any attorney at law or firm of attorneys, of nationally recognized
standing in matters pertaining to the federal tax exemp.fi.on of interest on bonds issued by states
and political subdivisions, and duly admitted to pracnce law before the highest court of any
state of the United States of America.
"Bond Law" means the charter of the City and the provisions of Chapter 12.28
(commencing with Section 12.28.010), of the Palo Alto Municipal Code, together with Article 9
(commencing with Section 53550) and Article 11 (commencing with Section 53580) of Chapter 3
of Part 1 of Division 2 of Title 5 of the Government Code of the State, all as in effect on the
Closing Date.
’~Bond Purchase Agreement" means the agreement between the City and the Original
Purchaser whereby the City agrees to sell and the Original Purchaser agrees to buy the Series A
Bonds.
’~Bond Registration Books" means the books maintained by the Trustee pursuant to
Section 2.08 for the registration and transfer of ownership of the Bonds.
"Bonds" means, collectively, the Series A Bonds and any Parity Bonds issued and at any
time Outstanding hereunder and under a Parity Bonds Instrument.
’1~ond Year" means the twelve-month period beginning on the anniversary of the Closing
Date in each year and ending on the day prior to the anniversary date of the Closing Date in the
following year except that (i) the first Bond Year shall begin on the Closing Date, and (ii) the
last Bond Year may end on a redemption date prior to maturity of the Bonds.
"Business Day" means any day other than a Saturday, Sunday or a day on which the
Trustee or the Insurahce Trustee is authorized by law to remain closed.
"Certificate of the City" means a certificate in writing signed by the City Manager,
Director of Administrative Services or Assistant City Manager of the City, or by any other
officer of the City duly authorized by the Council for that purpose.
"Charges" means fees, tolls, assessments, rates and rentals prescribed under the Bond
Law or any other law of the State by the Council for the water, gas, or electric energy, or the
services and facilities of a particular System furnished by the City.
"~" means the City of Palo Alto, a chartered city and municipal corporation
organized and existing under the Constitution and laws of the State, and any successor thereto.
"Closing Date" means the date upon which there is an exchange of the Series A Bonds
for the proceeds representing the purchase of such Series by the Original Purchaser thereof.
"Cost of Issuance Fund" means the Fund by that name established pursuant to Section
3.05.
"Costs of Issuance" means all expenses incurred in connection with the authorization,
issuance, sale and delivery of the Bonds, including but not limited to compensation, fees and
expenses of the City and the Trustee and their respective counsel, compensation to any
financial consultants and underwriters, legal fees and expenses, municipal bond insurance or
surety bond premiums, filing and recording costs, rating agency fees, costs of preparation and
reproduction of documents and costs of printing.
"Council" means the Council of the City or any other legislative body of the City
hereafter provided for pursuant to law.
’~)ebt Service" means, dining any period of computation, the amount obtained for such
period by totaling the following amounts:
(a) The principal amount of all Outstanding Serial Bonds payable by their terms
in such period;
(b) The principal amount of all Outstanding Term Bonds scheduled to be paid
or redeemed by operation of mandatory Sinking Fund Installments in such period; and
(c) The interest which would be due during such period on the aggregate
principal amount of Bonds which would be Outstanding in such period if the Bonds are
paid or redeemed as scheduled.
"Debt Service Attributable to Sewer System" means the portion of Debt Service listed
under said heading on Exhibit B.
’’Debt Service Attributable to Storm Water System" means the portion of Debt Service
listed under said heading on Exhibit B.
’’Debt Service Fund" means the fund by that name established and held by the Trustee
pursuant to Section 4.03.
"Electric System" means the existing electrical system of the City, comprising all
facilities for the transmission and distribution of electric energy.
"Enterprise" means the whole and each and every part of (i) the Electric System, (ii) the
Gas System, (iii) the Water System, (iv) the Sewer System, and (v) the Storm Water System,
including all additions, betterments, extensions and improvements to each such system
respectively, or any part thereof, hereafter acquired or constructed or financed.
"Escrow Bank" means U.S. Bank Trust National Association, acting as Escrow Bank
under the Escrow Deposit and Trust Agreement.
’’Escrow Deposit and Trust Agreement" means the Escrow Deposit and Trust
Agreement, dated as of June 1,1999, between the City and the Escrow Bank.
"Escrow Fund" means the fund of that name established and held by the Escrow Bank
under the Escrow Deposit and Trust Agreement.
’’Event of Default" means any of the events described in Section 8.01.
"Federal Securities" means any of the following which at the time of investment are legal
investments under the laws of the State for the moneys proposed to be invested therein:
(a) direct general obligations of the United States of America (including
obligations issued or held in book entry form on the books of the Department of the
Treasury of the United States of America); and
(b) obligations of any department, agency or instrumentality of the United
States of America the timely payment of principal of and interest on which are
unconditionally and fully guaranteed by the United States of America.
"Financial Newspaper" means The Wall Street Journal, The Bond Buyer or any other
newspaper or journal printed in the English language which publishes financial news and is
circulated in San Francisco, California, and in New York, New York, and selected by the
Trustee, whose decision shall be final and conclusive.
"Fiscal Year" means the period commencing on July 1 of each year and terminating on the
next succeeding June 30.
"Gas System" means the existing gas ~ystem of the City, comprising all facilities for the
production, storage, transmission and distribution of gas for public or private uses.
"Gross Revenues" means, for any period of computation, all gross charges received for,
and all other gross income and revenues derived by the City from, the ownership or operation of
the Sewer System and Storm Water System or otherwise arising from the Sewer System and
Storm Water System during such period, including but not. limited to (a) all Charges received by
the City for use of the Sewer System and Storm Water System, (b) all receipts derived from the
investment of funds held by the Director of Administrative Services or the Trustee under this
Indenture, (c) transfers from (but exclusive of any transfers to) any stabilization reserve funds,
and (d) all moneys received by the City from other public entities whose inhabitants are served
pursuant to contracts with the City.
’Improvement" means any addition, extension, improvement, equipment, machinery or
other facilities to or for any System.
’Indenture" means this Indenture of Trust, .as originally e~ecuted or as it may from time
to time be supplemented, modified or amended by any Parity Bonds Instrument pursuant to the
provisions hereof.
’~ndependent Certified Public Accountant" means any certified public accountant or firm
of such accountants appointed and paid by the City, and who, or each of whom-
(a) is in fact independent and not under domination of the City;
(b) does not have any substantial identity of interest, direct or indirect, with the
City; and
(c) is not and no member of which is connected with the City as an officer or
employee of the City, but who may be regularly retained to make annual or other audits
of the books of or reports to the City.
"Independent Consultant" means any financial or engineering consultant (including
without limitation any Independent Certified Public Accountant) with an established reputation
in the field of municipal finance or firm of such consultants appointed and paid by the City,
and who, or each of whom-
(a) is in fact independent and not under domination of the City;
(b) does not have any substantial identity of interest, direc( or indirect, with the
City; and
(c) is not and no member of which is connected with the City as an officer or
employee of the City, but who may be regularly retained to make annual or other audits
of the books of or reports to the City.
’Information Services" means Financial Information, Inc.’s ’~Daily Called Bond Service",
30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Kenny
Information Services’ "Called Bond Service", 55 Broad Street, 28th Floor, New York, New York
10004; Moody’s Investors Service ’~VIunicipal and Government," 99 Church Street, 8th Floor,
New York, New York 10007, Attention: Municipal News Reports; Standard & Poor’s
Corporation "Called Bond Record," 25 Broadway, 3rd Floor, New York, New York 10004; and,
in accordance with then current guidelines of the Securities and Exchange Commission, such
other addresses and/or such other services providing information with respect to called bonds
as the City may designate in a Request of the City delivered to the Trustee.
’Interest Payment Date" means, with respect to the Series A Bonds, June 1 and
December 1 in each year, beginning December 1, 1999, and with respect to any Parity Bonds,
any date on which interest is due and payable thereon, and continuing so long as any Bonds or
Parity Bonds remain Outstanding.
~mterest Requirement" means, as of any particular date of calculation, the amount equal
to any unpaid interest then due and payable, plus an amount which will on the next succeeding
Interest Payment Date be equal to the interest to become due and payable on the Bonds on such
next succeeding Interest Payment Date.
"Maintenance and Operation Costs" means the reasonable and necessary costs spent or
incurred by the City for maintaining and operating the Sewer System and Storm Water System,
calculated in accordance with sound accounting principles, including the cost of supply of
water, gas and electric energy under contracts or otherwise, the funding of reasonable reserves,
and all reasonable and necessary expenses of management and repair and other expenses to
maintain and preserve the Sewer System and Storm Water System in good repair and working
order, and including all reasonable and necessary administrative costs of the City attributable
to the Sewer System and Storm Water System and the Bonds, such as salaries and wages and
the necessary contribution to retirement of employees, overhead, insurance, taxes (if any),
expenses, compensation and indemnification of the Trustee, and fees of auditors, accountants,
attorneys or engineers, and including all other reasonable and necessary costs of the City or
charges required to be paid by it to comply with the terms of the Bonds or of the 1990
Indenture, the Second Supplement to 1990 Indenture or this Indenture, but excluding
depreciation, replacement and obsolescence charges or reserves therefor and amortization of
intangibles or other bookkeeping entries of a similar nature.
’~Vlaximum Annual Debt Service" means, as of the date of calculation, the maximum
amount of Debt Service for the current or any future Fiscal Year.
"Moody’s" means Moody’s Investors Service, a corporation duly organized and existing
under and by virtue of the laws of the State of Delaware, and its successors or assigns, except
that if such corporation shall be dissolved or liquidated or shall no longer perform the functions
of a securities rating agency, then the term "Moody’s" shall be deemed to refer to any other
nationally recognized securities rating agency selected by the City.
’Wet Proceeds", when used with reference to the Bonds, means the face amount of the
Bonds, plus accrued interest and premium, if a~, y., less original issue discount and less proceeds
deposited in the Reserve Account; ’Wet Proceeds ’, when used with reference to any insurance or
condemnation award or sale of property, means the gross proceeds from the sale of property or
insurance or condemnation award with respect to which that term is used remaining after
payment of all expenses (including attorneys’ fees and any extraordinary expenses of the
Trustee) incurred in the collection of such gross proceeds.
’Wet Revenues" means, with respect to the Sewer System and Storm Water System, for
any period of computation, the amount of the Gross Revenues received from the Sewer System
and Storm Water System during such period, less the amount of Maintenance and Operation
Costs of the Sewer System and Storm Water System becoming payable during such period.
"1990 Indenture" means that Indenture of Trust dated as of August 1, .1990, by and
between the City and the Trustee, as successor to Security Pacific National Bank, as trustee,
under which the City issued the 1990 Series A Bonds.
"1999 Project" means certain extensions and improvements to the City’s Sewer System,
comprised of the rehabilitation of two sludge incinerators.
"1999 Project Fund" means the fund by that name established and held by the Director
of Administrative Services pursuant to Section 3.04 of this Indenture.
"Original Purchaser" means the first purcahaser of any Series of Bonds from the City.
"Outstanding", when used as of any particular time with reference to Bonds, means
(subject to the provisions of Section 7.03) all Bonds theretofore executed, issued and delivered
by the City under this Indenture except -
(a) Bonds theretofore cancelled by the Trustee or surrendered to tlie Trustee for
cancellation;
and
(b) Bonds paid or deemed to have been paid within the meaning of Section 9.03;
(c) Bonds i~ lieu of or in substitution for which other Bonds shall have been
executed, issued and delivered by the City pursuant to this Indenture or any Parity
Bonds Instrument.
"Owner" or "Bond Owner" or ’q3ondowner", when used with respect to any Bond, means
the person in whose name the ownership of such Bond shall be registered on the Bond
Registration Books.
"Parity Bonds" means all bonds, notes or other obligations (including without limitation
long-term contracts, loans, sub-leases or other legal financing arrangements) of the City payable
from and secured by a pledge of and lien upon any of the Net Revenues issued or incurred
pursuant to Section 3.06.
’~Parity Bonds Instrument" means the resolution, trust indenture or installment sale
agreement adopted, entered into or executed and delivered by the City, and under which Parity
Bonds are issued.
"Principal InstalLment" means with respect to any particular Principal Installment Date,
an amount equal to the sum of (i) the aggregate principal amount of Outstanding Serial Bonds
payable on such Principal Installment Date as determined by the applicable Parity Bonds
Instrument(but not including Sinking Fund Installments) and (ii) the aggregate of Sinking Fund
Installments with respect to all Outstanding Term Bonds payable on such Principal Installment
Date as determined by the applicable Parity Bonds Instrument.
’~Principal Installment Date" means the date on which Principal Installments are required
to be made pursuant to Section 2.01.
"Oualified Surety Bond" means a surety bond issued by an insurance company rated in
the highest claims paying category by Moody’s and S&P.
"Rating Agency" means, as of any date, each of the following rating agencies which then
maintains a rating on any of the Bonds: (a) Moody’s and (b) S&P.
"Record Date" means, with respect to the Series A Bonds, the fifteenth (15th) calendar
day of the month immediately preceding an Interest Payment Date or, with respect to any
Parity Bonds, any other date established in the applicable Parity Bonds Instrument.
’~Redemption Account" means the Account by that name established and held by the
Trustee pursuant to Section 4.03.
"Redemption Price" means, with respect to any Bond, the principal amount thereof, plus
the applicable premium, if any, payable upon redemption thereof pursuant to this Indenture
and the Parity Bonds Instrument pursuant to which the same was issued.
"Request of the City" means a request in writing signed by the City Manager, Director of
Administrative Services or Assistant City Manager of the City, or by any other officer of the
City duly authorized by the Council for that purpose.
"Reserve Account" means the Account by that name established and held by the Trustee
pursuant to Section 4.03.
’’Reserve Requirement" means an amount equal to the lesser of: (i) Maximum Annual
Debt Service; (ii) ten percent (10°/o) of the principal amount of the Bonds; or (iii) 125% of
Average Annual Debt Service, as may be set forth in a Parity Bonds Instrument pursuant to
Section 3.06.
’~.-wenue Fund" means the Fund by that name established and held by the Director of
Administrative Services pursuant to the 1990 Indenture and referred to in Section 4.02.
"S&P." means Standard & Poor’s Corporation, a corporation duly organized and existing
under and by virtue of the laws of the State of New York, and its successors or assigns, except
that if such corporation shall be dissolved or liquidated or shall no longer perform the functions
of a securities rating agency, then the term "S&P" shall be deemed to refer to any other
nationally recognized securities rating agency selected by the City.
"Second Supplement to 1990 Indenture" means the Second Supplemental Indentme of
Trust, between the City and the Trustee, as successor to Bank of America National Trust and
Savings Association, dated as of February 1, 1995.
"serial Bonds" means all Bonds other than Term Bonds.
"Se. ries" when used with respect to less than all of the Bonds, means and refers to all of
the BOnds delivered on original issuance in a simultaneous transaction, regardless of variations
in maturity, interest rate or other provisions, and any Bond thereafter delivered in lieu of or
substitution for any of such Bonds pursuant to Sections 2.02(i), 2.05, 2.06, 2.07, 2.09 and 7.04.
"series A Bonds" means the City of Palo Alto Utility Revenue and Refunding Bonds,
1999 Series A, issued and at any time Outstanding hereunder.
"sewer System" means the existing sanitary sewerage and sewage disposal system of
the City, comprising all facilities for the collection, treatment or disposal of sewage and waste.
’Sinking Fund Installment" means, with.respect to any particular date, the amount of
money required by or pursuant to a Parity Bonds Instrument to be paid by the City on such
date toward the retirement of any particular Term Bonds prior to their respective stated
"State" means the State of California.
"Storm Water System" means the existing storm and surface water system of the City,
comprising all facilities for the collection, treatment and disposal of storm and surface water,
and identified as the Storm and Surface Water Management Enterprise and Utility in Ordinance
No. 3910, adopted by the Council on December 21, 1989.
"System" means any of the Electric System, the Gas System, the Sewer System, the Storm
Water System or the Water System.
’"Tax Code" means the Internal Revenue Code of 1986, as amended. Any reference to a
provision of the Tax Code shall include the applicable Tax Regulations with respect to such
provision.
"Tax Regulations" means temporary and permanent regulations promulgated under the
Tax Code.
’"Term Bonds" means, with respect to any Parity Bonds, such Parity Bonds which are
payable prior to their stated maturity by operation of Sinking Fund Installments.
’"Trust Office" means the corporate trust office of the Trustee at One California Street,
Suite 400, San Francisco, California 94111, or such other or additional offices as may be
specified to the City by the Trustee in writing. _
"Trustee" means U.S. Bank Trust National Association, appointed by the City to act as
trustee hereunder pursuant to Section 6.01, and its assigns or any other corporation or
association which may at any time be substituted in its place, as provided in Section 6.01.
"Water System" means the existing water system of the City, comprising all facilities for
the obtaining, conserving, treating, distributing, storing and supplying of water for domestic use,
irrigation, sanitation, industrial use, fire protection, recreation, or any other public or private
uses.
SECTION 1.02. Rules of Construction. All references in this Indenture to "Articles,"
"sections," and other subdivisions are to the corresponding Articles, Sections or subdivisions of
this Indenture; and the words ’herein," ’hereof," ’hereunder," and other words of similar import
refer to this Indenture as a whole and not to any particular Article, Section or subdivision
hereof.
Words of the masculine gender shall be deemed and construed to include correlative
words of the feminine and neuter genders. Unless the context shall otherwise indicate, words
importing the singular number shall include the plural number and vice versa, and words
importing persons shall include corporations and associations, including public bodies, as well
as natural persons.
SECTION 1.03. Authorization and Purpose of Series A Bonds. The City has reviewed
all proceedings heretofore taken relative to the authorization of the Series A Bonds and has
found, as a result of such review, and hereby finds and determines that all things, conditions,
and acts required by law to exist’, happen and/or be performed precedent to and in the
issuance of the Series A Bonds do exist, have happened and have been performed in due time,
form and manner as required by law, and the City is now authorized, as an exercise of the
municipal affairs power of the City as a chartered city under the constitution and laws of the
State and pursuant to the Bond Law and each and every requirement of law, to issue the Series
A Bonds in the manner and form provided in this Indentttre. Accordingly, the City hereby
authorizes the issuance of the Series A Bonds pursuant to the Bond Law and this Indenture for
the purpose of providing funds to refund the Prior Bonds and to pay Costs of Issuance of the
Series A Bonds.
SECTION 1.04. Equal Sectirity. In consideration of the acceptance of the Bonds by the
Owners thereof, this Indenture shall be deemed to be and shall constitute a contract among the
City, the Trustee and the Owners from time to time of the Bonds; and the covenants and
ag-mements herein set forth to be performed on behalf of the City shall be for the equal and
proportionate benefit, security and protection o~ all Owners of the Bonds without preference,
priority or distinction as to security or otherwise of any of the Bonds over any of the others by
reason of the number or date thereof or the time of sale, execution or delivery thereof, or
otherwise for any cause whatsoever, except as expressly provided therein or herein.
-11-
ARTICLE II
ISSUANCE OF SERIES A BONDS
SECTION 2.01. Terms of Series A Bonds, The Series A Bonds authorized to be issued
by the City under and subject to the Bond Law and the terms of this Indenture shall be
designated the "City of Palo Alto Utility Revenue and Refimding Bonds, 1999 Series A", and
shall be issued in the original principal amount of Dollars
($, .).
The Series A Bonds shall be issued in fully registered form without .coupons in
denominations of $5,000 or any integral multiple thereof, so long as no Series A Bond shall have
more than one maturity date. The Series A Bonds shall mature on June 1 in each of the years
and in the amounts, and shall bear interest at the rates, as follows:
Maturity Date Principal Interest Rate
~Amount Per Annum
Interest on the Series A Bonds shah be payable on each Interest Payment Date to the
person whose name appears on the Bond Registration Books as the Owner thereof as of the
Record Date immediately preceding each ~such Interest Payment Date, such interest to be paid
by check or draft of the Trustee mailed by first class mail to the Owner or, at the option of any
Owner of at least $1,000,000 aggregate principal amount of the Bonds with respect to which
written instructions have been filed with the Trustee prior to the Record Date, by wire transfer,
at the address of such Owner as it appears on the Bond Registration Books. Principal of and
premium (if any) on any Series A Bond shall be paid upon presentation and surrender thereof
at the Trust Office of the Trustee in Los Angeles, California. Both the principal of and interest
and premium (if any) on the Series A Bonds shall be payable in lawful money of the United
States of America.
The Series A Bonds shall be dated June 1, 1999 and bear interest based on a 360-day
year comprised of twelve 30-day months from the Interest Payment Date next preceding the
date of authentication thereof, unless said date of authentication is an Interest Payment Date,
in which event such interest is payable from such date of authentication, and unless said date
of authentication is prior to November 15, in which event such interest is payable from June 1,
1999; provided, however, that if, as of the date of authentication of any Series A Bond, interest
thereon is in default, such Series A Bond shall bear interest from the date to which interest has
previously been paid or made available for payment thereon in full.
SECTION 2.02. Redemption of Series A Bonds.
(a) Optional Redemption. The Series A Bonds maturing on or before June 1, ~,
shall not be subject to optional redemption prior to maturity. The Series A Bonds maturing on
or after June 1, ~ shall be subject to redemption prior to their respective m~aturity dates, at
the option of the City, as a whole, or in part in inverse order of maturities and by lot within a
maturity, from any source of available funds, on any Interest Payment Date on or after June 1,
_____, at the following respective Redemption Prices (expressed as percentages of the principal
amount of the Series A Bonds to be redeemed), plus accrued interest thereon to the date of
redemption:
Redemption Dates Redemption Prices
June 1, ~ and December 1, ~
June 1, ~ and December 1, ~
June 1, ~ and thereafter
%
%
%
The City shall be required to give the Trustee written notice of its intention to redeem
Series A Bonds under this subsection (a), ahd shall deposit all amounts required for such
redemption with the Trustee at least forty-five’ (45) days prior to the date fixed for such
redemption.
(b) Special Mandatory Redemption From Insurance or Condemnation Proceeds. The
Series A Bonds shall also be’subject to redemption as a whole _on any date, or in .part .on .any,
Interest Payment Date in inverse order of maturity and by lot within a maturity, to the extent or
the Net Proceeds of hazard insurance not used to repair or rebuild the Sewer System and Storm
Water System or the Net Proceeds of condemnation awards received with respect to the Sewer
System and Storm Water System to be used for such purpose pursuant to Sections 5.04 or 5.05,
at a Redemption Price equal to the principal amount of the Series A Bonds plus interest accrued
thereon to the date fixed for redemption, without premium.
(c) Additional Bonds. Any Parity Bonds issued pursuant to Section 3.06 of this
Indenture may be made subject to redemption prior to maturity, as a whole or in part, at such
time or times, and upon payment of the principal amount thereof and accrued interest thereon
plus such premium or premiums, if any, as may be determined by the City in the applicable
Parity Bonds Instrument.
(d) Notice of Redemption. Unless waived by any Owner of Bonds to be redeemed,
notice of any redemption of Bonds shall be given, at the expense of the City, by the Trustee by
mailing a copy of a redemption notice by first class mail at least 30 days and not more than 60
days .prior to the date fixed for redemption to the Owner of the Bond or Bonds to be redeemed
at the address shown on the Bond Registration Books; provided, that neither the failure to
receive such notice nor any immaterial defect in any notice shall affect the sufficiency of the
proceedings for the redemption of the Bonds.
(e) Contents of Notice. All notices of. redemption shall be dated and shall state:
(i) the redemption date,
(ii) the Redemption Price,
(iii) if fewer than all Outstanding Bonds are to be redeemed, the identification
(and, in the case of partial redemption, the respective principal amounts) of the Bonds
to be redeemed,
(iv) that on the redemption date the Redemption Price will become due and
payable with respect to each such Bond or portion thereof called for redemption, and
that interest with respect thereto shall cease to accrue from and after said date, and
’(v) the place or places where such BOnds are to be surrendered for payment of
the Redemption Price, which places of payment may include the Trust Office of the
Trustee.
(f) Deposit of Money. At least forty-five (45) days prior to any redemption date, the
City shall deposit with the Trustee an-amount of money sufficient to pay the Redemption Price
of all the Bonds or portions of Bonds which are to be redeemed on that date.
(g) Consequences of Noti4e. Notice of redemption having been given as aforesaid, the
Bonds or portions of Bonds so to be redeemed shall, on the redemption date, become due and
payable at the Redemption Price therein specified, and from and after such date (unless the
City shall default in the payment of the Redemption Price) such Bonds or portions of Bonds
shall cease to have interest accrue thereon. Upon surrender of such Bonds for redemption in
accordance with said notice, such Bonds shall be paid by the Trustee at the Redemption Price.
Installments of interest due on or prior to the redemption date shall be payable as herein
provided for payment of interest. Upon surrender for any partial redemption of any Bond,
there shall be prepared for the Owner a new Bond or Bonds of the same maturity in the amount
of the unredeemed principal. All Bonds which have been redeemed shall be cancelled and
destroyed by the Trustee and shall not be redelivered. Neither the failure of any Bond Owner to
receive any notice so mailed nor any defect therein shall affect the sufficiency of the proceedings
for redemption of any Bonds nor the cessation of accrual of interest thereon.
(h) Additional Notice. In addition to the foregoing notice, further notice shall be given
by the Trustee as set out below, but no defect in said further notice nor any failure to give all or
any portion of such further notice shall in any manner defeat the effectiveness of a call for
redemption if notice thereof is given as above prescribed:
(i) Each further notice of redemption given hereunder shall cof~tain the
information required above for an official notice of redemption plus (A) the CUSIP-
numbers of all Bonds being redeemed; (B) the stated interest rate with respect to each
Bond being redeemed; (C) the maturity date of each Bond being redeemed; and (D) any
other descriptive information needed to identify accurately the Bonds being redeemed.
(ii) Each further notice of redemption shall be sent at least 35 days before the
redemption date by registered or certified mail or overnight delivery service to all
registered securities depositories then in the business of holding substantial amounts of
instruments of types comprising the Bonds, and, on the date notice is mailed to Bond
Owners, to one or more Information Services.
(iii) Each such further notice shall be published one time in a Financial
Newspaper, or, if such publication is impractical or unlikely to reach a substantial
number of the Owners of the Bonds, in some other financial newspaper or journal which
regularly carries notices of redemption of other instruments s’~ to the Bonds, such
publication to be made at least 30 days prior to the date fixed for redemption.
(iv) Upon the payment of the Redemption Price of the Bonds being redeemed,
each check or other transfer of funds issued for such purpose shall bear the CUSIP
number identifying, by issue and maturity, the Bonds being redeemed with the proceeds
of such check or other transfer.
(i) Partial Redemption of Bonds. In the event only a portion of any Bond is called for
redemption, then upon surrender of such Bond redeemed in part only, the City shall execute
and the Trustee shall authenticate and deliver to the Owner, at the expense of the City, a new
Bond or Bonds, of the same series and m~turity, of authorized denominations in agg~gate
principal amount equal to the unredeemed portion of the Bond or Bonds.
(j) Manner of Redemption. Whenever any Bonds are to be selected for redemption, the
Trustee shall determine, by lot, the numbers of the Bonds to be redeemed, and shall notify the
City thereof.
(k) Purchase of Bonds in lieu of Redemption. In lieu of redemption of Bonds as
provided in subsection (a) above, amounts in the Redemption Account of the Debt Service Fund
may also be used and withdrawn by the Trustee at any time, upon the Request of the City filed
with the Trustee no later than April 15 in any year, for the purchase of, Bonds at public or
private sale as and when and at such prices (including brokerage anct other charges, but
excluding accrued interest, which is payable from the Debt Service Fund) as the City may in its
discretion determine, but not to exceed the principal amount of such Bonds plus the redemption
premium applicable on the next ensuing optional redemption date. The City shall, at the time
of any such purchase, pay to the Trustee for deposit in the Debt Service Fund the amount of
any deficiency in such Fund which may be caused by such purchase. All Bonds purchased
pursuant to this Section shall be cancelled.
All Bonds redeemed pursuant to this Section and all Bonds purchased by the City
pursuant to this subsection (k) shall be cancelled and destroyed pursuant to Section 9.09.
SECTION 2.03. FOrm of Series A Bonds. The Series A Bonds, the Trustee’s certificate of
authentication, and the assignment to appear thereon, shall be substantially in the respective
forms set forth in Exhibit A attached hereto and by this reference incorporated herein, with
necessary or appropriate variations, omissions and insertions, as permitted or required by this
Indenture.
SECTION 2.04. Execution of Series A Bonds. The Series A Bonds shall be signed in the
name and on behalf of the City with the manual or facsimile signatures of its Mayor and its
Director of Administrative Services and attested by the manual or facsimile signature of its City
Clerk under the seal of the City. Such seal may be in the form of a facsimile of the City’s seal
and shall be imprinted or impressed upon the Series A Bonds. The Series A Bonds shall then be
delivered to the Trustee for authentication by it. In case any officer who shall have signed any
of the Series A Bonds shall cease to be such officer before the Series A Bonds so signed shall
have been authenticated or delivered by the Trustee or issued by the City, such Series A Bonds
may nevertheless be authenticated, delivered and issued and, upon such authentication,
delivery and issuej shall be as binding upon the City as though the individual who signed the
same had continued to be such officer of the City. Also, any Series A Bond may be signed on
behalf of the City by any’individual who on the actual date of the execution of such Series A
Bond shall be the proper officer although on the nominal date of such Series A Bond such
individual shall not have been such officer.
Only such of the Series A Bonds as shall bear thereon a certificate of authentication in
substantially the form set forth in Exhibit A, manually executed by the Trustee, shall be valid or
obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of
the Trustee shall be conclusive evidence that the Series A Bonds so authenticated have been
duly authenticated and delivered hereunder and are entitled to the benefits of this Indenture.
SECTION 2.05. Transfer of Series A Bonds. Any Series A Bond may, in accordance
with its terms, be transferred upon the Bond Registration Books by the person in whose name it
is registered, in person or by his duly authorized attorney, upon surrender of such Series A
Bond for cancellation, accompanied by delivery of a written instrument of transfer in a form
approved by the Trustee, duly executed. Whenever any Series A Bond shall be surrendered for
transfer, the City shall execute and the Trustee shall thereupon authenticate and deliver to the
transferee a new Bond or Bonds of like tenor, maturity and aggregate principal amount. No
Series A Bonds the notice of redemption of which has been mailed pursuant to Section 2.02(d)
shall be subject to transfer pursuant to this Section.
SECTION 2.06. Exchange of Series A Bonds. Series A Bonds may be exchanged at the
Trust Office of the Trustee, for Series A Bonds of the same tenor and maturity and of other
authorized denominations. No Series A Bonds the notice of redemption of which has been
mailed pursuant to Section 2.02(d) shall be subject to exchange pursuant to this Section.
SECTION 2.07. Temporary Bonds. The Bonds may be issued initially in temporary
form exchangeable for definitive Bonds when ready for delivery. The temporary Bonds may be
printed, lithographed or typewritten, shall be of such denominations as may be determined by
the City and may contain such reference to any of the provisions of this Indenture as may be
appropriate. Every temporary Bond shall be executed by the City and be registered and
authenticated by the Trustee upon the same conditions and in substantially the same manner as
the definitive Bonds. If the City issues temporary Bonds, it will execute and furnish definitive
Bonds without delay, and thereupon the temporary Bonds may be surrendered, for cancellation,
in exchange therefor at the Trust Office of the Trustee, and the Trustee shall authenticate and
deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive
Bonds of authorized denominations. Until so exchanged, the temporary Bonds shall be entitled
to the same benefits under this Indenture as definitive Bonds authenticated and delivered
hereunder.
SECTION 2.08. Bond Registration Books. The Trustee will keep or cause to be kept at
its Trust Office sufficient Bond Registration Books for the registration and transfer of the
Bonds, which shall at all times during regular business hours be open to inspection by the City;
and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations
as it may prescribe, register or transfer or cause to be registered or transferred, on said books,
Bonds as hereinbefore provided.
SECTION 2.09. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become
mutilated, the City, at the expense of the Owner of said Bond., shall execute, and the Trustee
shall thereupon authenticate and deliver, a new Bond of like maturity and principal amount in
exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of
the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be cancelled
by it and delivered to, or upon the order of, the City. If any Bond issued hereunder shall be
lost, destroyed o.r stolen, evidence of such loss, destruction or theft may be submitted to the
City and the Trustee and, if such evidence be satisfactory to them and indemnity satisfactory to
them shall be given, the City, at the expense of the Bond Owner, shall execute, and the Trustee
shall thereupon authenticate and deliver, a new Bond of like maturity and principal amount in
lieu of and in substitution for the Bond so lost, destroyed or stolen (or if any such Bond shall
have matured or shall have been called for redemption, instead of issuing a substitute Bond the
Trustee may pay the same without surrender thereof upon receipt of indemnity satisfactory to
the Trustee). The City may require payment of a reasonable fee for each new Bond issued under
this Section and of the expenses which may be incurred by the City and_ the Trustee. Any Bond
issued under the provisions of this Section in lieu of any Bond alleged to be lost, destroyed or
stolen shall constitute an original contractual obligation on the part of the City whether or not
the Bond alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall
be equally and proportionately entitled to the benefits of this Indenture with all other Bonds
secured by this Indenture.
ARTICLE ffI
ISSUE OF SERIES A BONDS; PARITY BONDS
SECTION 3.01. Issll~r~ce of Series A Bonds. Upon the execution and delivery of this
Indenture, the City shall execute and dehver Series A Bonds in the aggregate principal amount
of Dollars ($ ) to the Trustee for authentication and
delivery to the Original Purchaser thereof upon the Request of the City.
SECTION 3.02. Application of Proceeds of Sale of Series A Bonds. Upon the receipt of
payment for the Series A Bonds on the Closing Date, the Trustee shall apply the proceeds of
sale thereof as follows:
(a) The Trustee shall deposit in the Debt Service Fund the amount of
;
(b) The Trustee shall transfer to the Escrow Bank, for deposit to the Escrow
Fund, the amount of $ ...... for the purpose of refunding the Prior Bonds; and
and
and
-(c) the Trustee shall deposit in the 1999 Project Fund the amount of $
(d) the Trustee shall deposit in the Reserve Account the amount of $
(e) The Trustee shall deposit in the Cost of Issuance Fund the remainder of such
proceeds.
SECTION 3.03. Reserve Account. On the Closing Date the Trustee shall deposit
$.~ to the Reserve Account. An amount equal to the Reserve Requirement in the form of
either cash, Surety Bond or other Qualified Surety Bond under Section 4.06Co) for the account of
the Reserve Account, shall be maintained in the Reserve Account at all times; any deficiency
therein shall be replenished from available Net Revenues pursuant to Section 4.03(4). The
Reserve Requirement for an issue of Parity Bonds may be increased by any Parity Bonds
Instrument establishing any Parity Bonds pursuant to Section 3.06.
SECTION 3.04. 1999 Project Fund. There is hereby created a separate Fund to be
known as the "City of Palo Alto Utility Revenue and Reflmding Bonds 1999 Project Fund",
herein referred to as the "1999 Project Fund", to be held in trust by the Director of
Administrative Services. The Director of Administrative Services shall disburse moneys in the
1999 Project Fund for the purpose o.f p.a.yin, g ,or ,r~. u~.’.._g ..the, payment of the costs of
acquiring and constructing the 1999 Project, mcmmng t~ut not ttrmtect to all costs incidental to or
connected with such acquisition and construction; in either case upon receipt by the Director of
Administrative Services from time to time of a Request of the City which: (a) identifies the total
amount of such costs to be paid pursuant to such Request, including all items of cost in such
detail as may be available to the City; (b) states with respect to such disbursement (i) the
requisition number, (ii) the amount to be disbursed for payment of such costs, and (iii) that each
item of cost identified therein has been properly incurred, and is a proper charge against the
1999 Project Fund and has not been the basis of any previous disbursement; and (c) is
accompanied by an invoice, if any.
The City may apply any or all of the moneys on deposit in the 1999 Project Fund to the
financing of any alternative project in place of any component of the 1999 Project upon the
-17-
filing with the Director of Administrative Services of a Certificate of the City stating that (i)
such substitution will not have any adverse effect on the security ’for the 1999 Series A Bonds,
and (ii) the alternative project identified will be of benefit to the Sewer System. The Certificate
of the City shall be accompanied by an opinion of bond counsel substantially to the effect that
such substitution will not adversely affect the exclusion of interest On the Bonds from gross
income for federal income tax purposes.
Any amounts remaining in the 1999 Project Fund after the date of completion of the
1999 Project shall, upon the filing with the Director of Administrative Services of a Request of
the City, be transferred by the Director of Administrative Services to the Debt Service Fund to
be applied to the payment of Debt Service Attributable to the Sewer System, as the same
becomes due and payable.
All interest earnings and profits or losses on the investment of amounts in the 1999
Project Fund shall be deposited in or charged to the 1999 Project Fund and applied to the
purposes thereof.
SECTION 3.05. Cost of Issuance Fund. There is hereby created a fund to be known as
the "City of Palo Alto Utility Revenue Refunding Bonds, 1999 Series A Cost of Issuance Fund"
(the "Cost of Issuance Fund"), which the City hereby covenants and agrees to cause to be
maintained and which shall be held in trust by the Trustee. The moneys in the Cost of Issuance
Fund shall be used in the manner provided by law solely for the purpose of the payment of
Costs of Issuance upon receipt by the Trustee of Requests of the City therefor, on or after the
Closing Date. Any funds remaining in the Cost of Issuance Fund on Decemb~er 1, 1999, shall be
transferred by the Trustee to the Debt Service Fund.
SECTION 3.06. Issuance of Parity Bonds. In addition to the Series A Bonds, the City
may, by Parity Bonds Instrument, issue or incur other loans, advances or indebtedness payable
from Net Revenues to be derived from the Sewer System or the Storm Water System, to provide
financing for the Sewer System or the Storm Water System, in such principal amount as shall be
determined by the City. The City may issue or incur any such Parity Bonds subject to the
following specific conditions which are hereby made conditions precedent to the issuance and
delivery of such Parity Bonds:
(a) The City shall be in compliance with all covenants set forth in this Indenture.
(b) The Net Revenues of the System for which such Parity Bonds are being
issued, calculated on sound accounting principles, as shown by the books of the City for
the latest Fiscal Year or any more recent twelve (12) month period selected by the City
ending not more than sixty (60) days prior to the adoption of the Parity Bonds
Instrument pursuant to which such Parity Bonds are issued, as shown by the books of
the City, plus, at the option of the City, any or all of the items hereinafter in this
paragraph designated (i) and (ii), shall at least equal One Hundred percent (100%) of
Maximum Annual Debt Service, with Maximum Annual Debt Service calculated on all
Bonds to be Outstanding immediately subsequent to the issuance of such Parity Bonds
which have a lien on Net Revenues of such System. The items any or all of which may
be added to such Net Revenues for the purpose of issuing or incurring Parity Bonds
hereunder are the following:
(i) An allowance for Net Revenues from any additions to or
improvements or extensions of the System to be made with the proceeds of such
Parity Bonds, and also for Net Revenues from any such additions, improvements
or extensions which have been made from moneys from any source but in any
case which, during all or any part of such Fiscal Year or such twelve (12) month
period, were not in service, all in an amount equal to ninety percent (90%) of the
¯ estimated additional average annual Net Revenues .to be derived from such
additions, improvements and extensions for the first thirty-six (36) month period
in which each addition, improvement or extension is respectively to be in
operation, all as shown in the written report of an Independent Consultant
engaged by the City; and
(ii) An allowance for earnings arising’from any increase in the Charges
which has become effective prior to the incurring of such additional indebtedness
but which, during all or any part of such Fiscal Year or such twelve (12) month
period, was not in effect, in an amount equal to the amount by which the Net
Revenues would have been increased if such increase in Charges had been in
effect during the whole of such Fiscal Year or such twelve (12) month period, all
as shown in the written report of an Independent Consultant engaged by the
City.
(c) The Net Revenues of the System for which such Parity Bonds are being
issued, calculated on sound accounting principles, as shown by the books of. the City for
the latest Fiscal Year or any more recent twelve (12) month period selected by the City
ending not more than sixty (60) days prior to the adoption of the Parity Bonds
Instrument pursuant to which such Parity Bonds are issued_, as shown, by. the. bo~. l~., o.!
the City, plus, at the option of the City, any or all of the items l~ereinafter m trus
paragraph designated (i), (ii) and (iii), shall at least equal One Hundred Twenty-Five
percent (125%) of Maximum Annual Debt Service, with Maximum Annual Debt Service
calculated on all Bonds to be Outstanding immediately subsequent to the issuance of
such Parity Bonds which have a lien on Net Revenues of such System. The items any or
all of which may be added to such Net Revenues for the purpose of issuing or incurring
Parity Bonds hereunder are the following:
(i) An allowance for Net Revenues from any additions to or
improvements or extensions of the System to be made with the proceeds of such
Parity Bonds, and also for Net Revenues from any such additions, improvements
or extensions which have been made from moneys from any source but in any
case which, during all or any part of such Fiscal Year or such twelve (12) month
period, were not in service, all in an amount equal to ninety percent (90%) of the
estimated .additional average annual Net Revenues to be derived from such
additions, improvements and extensions for the first thirty-six (36) month period
in which each addition, improvement or extension is respectively to be in
operation, all as shown in the written report of an Independent Consultant
engaged by the City;
(ii) An allowance for earnings arising from any increase in the Charges
which has become effective prior to the incurring of such additional indebtedness
but which, during all or any part of such Fiscal Year or such twelve (12) month
period, was not in effect, in an amount equal to the amount by which the Net
Revenues would have been increased if such increase in Charges had been in
effect during the whole of such Fiscal Year or such twelve (12) month period, all
as shown in the written report of an Independent Consultant engaged by the
City; and
(iii) Funds then on hand in Available Reserves.
(c) The Parity Bonds Instrument providing for the issuance of such Parity Bonds
under this Section 3.06 shall provide that:
(i) The proceeds of such Parity Bonds shall be applied to. the acquisition,
construction, improvement, financing or refinancing of additional facilities,
improvements or extensions of existing facilities within the System, or otherwise
for facilities, improvements or property .whi..ch the Ci~ de, te .rmin,es ,are of.benefit
to the System, or for the purpose ot retunding any t~onas m wno~e or m part,
including all costs (including costs of issuing such Parity Bonds and including
capitalized interest on such Parity Bonds during any period which the City
deems necessary or advisable) relating thereto;
(ii) Interest on such Parity Bonds shall be payable on an Interest Payment
Date;
(iii) The principal of such Parity Bonds shall be payable on June I in any
year in which principal is payable; and
(iv) Money or a Qualified Surety Bond as authorized by Section 4.06(b))
shall be deposited in a reserve account for such Parity Bonds from the proceeds
of the sale of such Parity Bonds or otherwise equal to the Reserve Requirement.
SECTION 3.07. No Additional Prior Lien Bonds. No additional Bonds shall be issued
pursuant to the 1990 Indenture.
SECTION 3.08. Validity of Bonds. The validity of the authorization and issuance of
the Bonds shall not be affected in any way by any proceedings taken by the City for the
acquisition or construction of the Project, or by any contracts made by the City in connection
therewith, and the recital contained in the Bonds that the same are issued pursuant to the Bond
Law shall be conclusive evidence of their validity and of the regularity of their issuance.
ARTICLE IV
PLEDGE OF NET REVENUES; ~S AND ACCOUNTS
SECTION 4.01. Pledge of Net Revenues, Revenue Fund.
(a) The City hereby transfers, places a charge upon, assigns and sets over to the
Trustee, for the benefit of the Owners, that portion of the Net Revenues which is necessary to
pay the principal or Redemption Price of and interest on the Bonds in any Fiscal Year, together
with aU moneys on deposit in the Debt Service Fund, and such portion of the Net Revenues is
hereby irrevocably pledged to the punctual payment of the principal or Redemption Price of
and interest on the Bonds. The Net Revenues shall not be used for any other purpose while any
of the Bonds remain Outstanding, except that out of Net Revenues there may be apportioned
and paid such sums for such purposes, as are expressly permitted by this Article. Said pledge
shall constitute a first, direct and exclusive charge and lien on the Net Revenues for the payment
of the principal or Redemption Price of and interest on the Bonds in accordance with the terms
thereof, subject only to the lien of the Prior Bonds.
(b) The Net Revenues constitute a trust fund for the security and payment of the
principal or Redemption Price of and interest on the Bonds. The general fund of the City is not
liable and the credit or taxing power of the City is not pledged for the payment of the principal
or Redemption Price of and interest on the Bonds. The Owner of the Bonds shall not compel
the exercise of the taxing power by the City or the forfeiture of its property. The principal or
Redemption Price of and interest on the Bonds are not a debt of the City, nor a legal or
equitable pledge, charge, lien or encumbrance, upon any of its property, or upon any of its
income, receipts, or revenues except the Pledged Net Revenues of the Enterprise.
SECTION 4.02. Receipt and Deposit of Revenues. The City covenants and agrees that
all Gross Revenues, when and as received, will be received and held by the City in trust
hereunder and will be deposited by the City in the Revenue Fund (which has heretofore been
created pursuant to the 1990 Indenture and now exists in the City Treasury) and will be
accounted for through and held.in trust in the Revenue Fund, and the City s, ha, ll o.~y ha,ve,.,such
beneficial right or interest in any of such money as in this Indenture proviaea. ,am such ~ross
Revenues shall be transferred, disbursed, allocated and applied solely to the uses and purposes
hereinafter in this Article set forth, and shall be accounted for separately and apart from all
other money, funds, accounts or other resources of the City.
SECTION 4.03. Establishment of Funds and Accounts and Allocation of Revenues
Thereto. The Debt Service Fund, as a special Fund, and the Redemption Account and the
Reserve Account, as special Accounts therein, are hereby created.
The Debt Service Fund and the Redemption Account and the Reserve Account therein
shall be held and maintained by the Trustee.
All Gross Revenues shall be held in trust by the Director of Administrative Services in
the Revenue Fund and shall be applied, transferred, used and withdrawn only for the purposes
hereinafter authorized in this Article.
(2) Operating Costs. The Director of Administrative Services shall first pay from the
moneys in the Revenue Fund the budgeted Maintenance and Operation Costs as such Costs
become due and payable.
(3) Debt Service Fund~ On or before the second day prior to each Interest Payment
Date, beginning , the Director.of Administrative Services shall transfer from the
Revenue Fund to the Trustee for deposit in the Debt Service Fund (i) an amount equal to the
aggregate amount of interest to become due and pay.able on all Outstanding Bonds on the next
succeeding Interest Payment Date, plus (ii) beginning an amount equal to the
aggregate amount of Principal Installments becoming due and payable on all Outstanding Bonds
on the next succeeding Principal Installment Date. All interest earnings and profits or losses on
the investment of amounts in the Debt Service Fund shall be deposited in or charged to the Debt
Service Fund and applied to the purposes thereof. No transfer and deposit need be made into
the Debt Service Fund if the amount contained therein, taking into account investment earnings
and profits, is at least equal to the Principal Installments or Principal Installments and interest
to become due on the next Interest Payment Date or Principal Installment Date upon all
Outstanding Bonds.
(4) Reserve Account. After making the payments, allocations and transfers provided
for in subsections (2) and (3) above, if the balance in the Reserve Account is less than the
Reserve Requirement, the deficiency shall be restored by transfers from the first moneys which
become available in the Revenue Fund to the Trustee for deposit in the Reserve Account, such
transfers to be made no later than the times provided in Section 4.09(a)..
(5) S~. As l~ng as all of the foregoing payments, allocations and transfers are
made at the times and in the manner set forth above in subsections (2) to (4), inclusive, any
moneys remaining in the Revenue Fund may at any time be treated as surplus and applied as
provided in Section 4.07.
SECTION 4.04. Application of Debt Service Fund.
(a) The Trustee shall withdraw from the Debt Service Fund, prior to each Interest
Payment Date, an amount equal to the Interest Requirement pa_yab!e_ o.n suc~. Interest Payment
Date, and shall cause the same to be applied to the payment of said interest when due and is
hereby authorized to apply the same to the payment of such interest by check or draft (or by
wire transfer, as the case may be), as provided in Section 2.01.
(b) The Trustee shall withdraw from the Debt Service Fund, prior to each Principal
Installment Date, an amount equal to the principal amount of the Outstanding Serial Bonds, if
any, maturing on.said Principal Installment Date and shall cause the same to be applied to the
payment of the principal of said Bonds when due and is hereby authorized to apply the same
to such payment upon presentation and surrender of the Bonds as they become due and
payable, as provided in Section 2.01.
(c) All withdrawals and transfers under the provisions of subsection (a) or subsection
(b) of this Section shall be made not earlier than one (1) day prior to the Interest Payment Date
or Principal Installment Date to which they relate, and the amount so withdrawn or transferred
shall, for the purposes of this Indenture, be deemed to remain in and be part of the appropriate
Account until such Interest Payment Date or Principal Installment Date.
SECTION 4.05. Application of Reserve Account.
(a) In General. If at any time there shall not be sufficient amounts in the Debt Service
Fund to make payment of Principal Installments or Redemption Price of or interest on the
Bonds, the Trustee shall withdraw from the Reserve Account and pay into the app.ropriateFund or Account the amount of the deficiency. Any amounts in the Reserve Account m excess
of the Reserve Requirement.(whether derived from interest or gain on investments or otherwise)
shall, on June 2 of each year, be paid by the Trustee to the Director of Administrative Services
for deposit in the Revenue Fund.
(b) Oualified Surety Bond. In lieu of making the Reserve Requirement in compliance
with Sections 3.02(b) and 3.03(a) or 4.06(b), or in substitution therefor, at any time and from
time to time, the City may deliver to the Trustee one or more Qualified Surety Bonds. Any such
Qualified Surety Bond shall provide that the Trustee is entitled to draw amounts thereunder
when required by the provisions of this Indenture to make transfers from the Reserve Account to
the Debt Service Fund in the event of a deficiency in any such account, provided that, in any
such event, the Trustee shall first apply to any such deficiency the amount of cash (including
cash represented by investments) then on deposit in the Reserve Account.
(c) Cash to the City. To the extent that the Reserve Requirement has been satisfied by
delivery of a Qualified Surety Bond under Section 4.05(b), or any cash or Authorized
Investments on deposit in the Reserve Account shall be paid by the Trustee to the City.
SECTION 4.06. Application of Redemption Account. On or before the date which is at
least forty-five (45) days prior to any Interest Payment Date on which Series A Bonds are
subject to redemption pursuant to Section 2.02(a) or on which any Parity Bonds are subject to .
optional redemption pursuant to the provisions of the Parity Bonds Instrument authorizing such
Parity Bonds, the Director of Administrative Services shall transfer from the Revenue Fund to
the Trustee for deposit in the Redemption Account an amount at least equal to the Redemption
Price (excluding accrued interest, which is payable from the Debt Service Fund) of such Bonds
to be redeemed on such Interest Payment Date. In addition, the Director of Administrative
Services shall transfer to the Trustee for deposit in the Redemption Account all amounts
required to redeem any Series A Bonds which are subject to redemption pursuant to Section
2.02 (b) and any Parity Bonds which are subject to redemption pursuant to any similar
provision of the Parity Bonds Instrument authorizing such Parity Bonds, when and as such
amounts become available. Amounts in the Redemption Account shall be applied by the
Trustee solely forthe purpose of paying the Redemption Price of Series A Bonds to be redeemed
pursuant to Sections 2.02 (a) or (b) and to pay the purchase price in the same manner and
subject to the same limitation as purchasers of Bonds under Section 2.02(k) or the Redemption
Price of any Parity Bonds to be redeemed pursuant to similar provisions of the Parity Bonds
Instrument authorizing such Parity BOnds. If after all of the Bonds have been paid or deemed to
have been paid, there are moneys remaining in the Redemption Account, such moneys shall be
transferred by the Trustee to the Director of Administrative Services for deposit in the Revenue
Fund.
SECTION 4.07. S~. Moneys remaining in the Revenue Fund after making the
payments, allocations and transfers provided for in subsections (2), (3), (4), and (5) of Section
4.03 shall be applied by the Director of Administrative Services as required by the city charter.
SECTION 4.08. Investments. All moneys in the Revenue Fund may be invested by the
City from time to time in any Authorized Investments. All moneys in the Debt Service Fund
and Cost of Issuance Fund shall be invested by the Trustee solely in Authorized Investments, as
directed pursuant to a Request of the City. In the absence of any such Request of the City, the
Trustee may (but shall not be required to) invest any such moneys in money market funds
whose investments are restricted to Federal Securities, selected by the Trustee, which by their
terms mature .prior to the date on which such moneys are required .to be paid out hereunder.
Obligations purchased as an investment of moneys in any Fund or Account shall be deemed to
be part of such Fund or Account, and all interest or gain derived from the investment of
amounts in any of the Funds or Accounts established hereunder shall be deposited in the Fund
or Account from which such investment was made; and shall be accounted for and applied as
provided in Section 4.04(c) (with respect to the Debt Service Fund) and Section 4.05(a) (with
respect to the Reserve Account). For purposes of acquiring any investments hereunder, the
Trustee may commingle funds held by it hereunder with the written approval of the City. The
Trustee may act as principal or agent in the acquisition of any investment. The Trustee shall
incur no liability for lossesarising from any investments made pursuant to this Section.
SECTION 4.09. Valuation; Investments.
(a) Method of Valuation and Frequency. of Valuation. In computing the amount in any
Fund or Account, Authorized Investments shall be valued at the lower of the cost or the market
price, exclusive of accrued interest. With respect to all Funds and Accounts, valuation shall
occur annually, except in the event of a withdrawal from the Reserve Account, whereupon
securities shall be valued immediately after such withdrawal. If amounts on deposit in the
Reserve Account shall, at any time, be less than the Reserve Requirement, such deficiency shall
be made up from the first available moneys received after making the required deposits to the
Debt Service l~und (i) over a period of not more than four (4) months, in four (4) substantially
equal payments, in the event such deficiency results from a decrease in the market value of the
Authorized Investments on deposit in the Reserve Account or (ii) over a period of not more than
twelve (12) months, in twelve (12) substantially equal payments, in the event such deficiency
results from a withdrawal from such Account.
(b) Investment of Amounts Representing Accrued Interest. All amounts representing
accrued interest shall be held by the Trustee in the Debt Service Fund, pledged solely to the
payment of interest on the Bonds and invested only in Federal Securities maturing at such times
and in such amounts as are necessary to match the interest payments to which they are
pledged.
ARTICLE V
COVENANTS OF THE CITY; SPECIAL TAX COVENANTS
SECTION 5.01. Punct~’la] Payment; Compliance With Documents. The City shall
punctually pay or cause to be paid the interest and principal to become due with respect to all
of the Bonds in strict conformity with the terms of the Bonds and of this Indenture, and will
faithfully observe and perform all of the conditions, covenants and requirements of this
Indenture and all Parity Bonds Instruments.
SECTION 5.02. Against Encumbrances. The City will not mortgage or otherwise
encumber, pledge or place any char.ge upon the Enterprise or any part thereof, or upon any of the
Net Revenues, except as provided in the Indenture; provided, however, that nothing in this
Section 5.02 nor elsewhere in this Indenture shall be construed to prevent the City from entering
into long-term contracts to finance supplies of water, gas, or electric energy, payments under
which are accounted for as Maintenance and Operation Costs under the definition thereof in
Section 1.01.
SECTION 5.03. Discharge of Claims. The City covenants that in order to fully preserve
and protect the priority and security of the Bonds the City shall pay from the Net Revenues and
discharge all lawful claims for labor, materials and supplies furnished for or in connection with
the Enterprise which, if unpaid, may become a lien or charge upon the Net Revenues prior or
superior to the lien of the Bonds and impair the security of the Bonds. The City shall also pay
from the Net Revenues all taxes and assessments or other governmental charges lawfully levied
or assessed upon or in respect of the Enterprise or upon any part thereof or upon any of the Net
Revenues therefrom.
SECTION 5.04. Acquisition, Construction or Financing of any Project and Improvements
to the Enterprise. The City will acquire, construct, or finance any Project, as defined in a Parity
Bonds Instrument, and Improvement to the Enterprise to be financed with the proceeds of any
Parity Bonds with all practicable dispatch, and such Project and Improvement will be made in
an expeditions manner and in conformity with laws so as to complete the same as soon as
possible.
SECTION 5.05. Maintenance and Operation of Sewer System and Storm Water System
in Efficient and Economical Manner. The City covenants and agrees to maintain and operate the
Sewer System and Storm Water System in an efficient and economical manner and to operate,
maintain and preserve the Sewer System and Storm Water System in good repair and working
order.
SECTION 5.06. Against Sale, Eminent Domain.
(a) The City will not sell, lease or otherwise dispose of the Sewer System and Storm
Water System or any part thereof essential to the proper operation of the Enterprise or to the
maintenance of the Net Revenues except as herein expressly permitted. The City will not. enter.
into any lease or agreement which impairs the operation of the Enterprise or any part ~ereot
necessary to secure adequate Net Revenues for the payment of the interest on and principal or
Redemption Price, if any, on the Bonds, or which would otherwise impair the rights of the
Holders with respect to the Net Revenues or the operation of the Sewer System and Storm Water
System. Any real or personal property which has become non-operative or which is not needed
for the efficient and proper operation of the Enterprise, or any material or equipment which has
worn out, may be sold at not less than the market value thereof without the consent of the
Holders if such sale will not reduce Net Revenues and if all of the Net Proceeds of such sale are
deposited in the Revenue Fund.
(b) If all or any part of the Sewer System or Storm Water System shall be taken by
eminent domain proceedings, the Net Proceeds realized by the City therefrom shall be
deposited by the City with the Trustee in a special hand in trust and applied by the City to the
cost of acquiring or constructing or financing Improvements to the Sewer System or Storm Water
System if (A) the City first secures and files with the Trustee a Certificate of the City showing
(i) the estimated loss in annual Net Revenues, if any, suffered, or to be suffered, by the City by
reason of such eminent domain proceedings, (ii) a general description of the Improvements to
the’Enterprise then proposed to be acquired or constructed by the City from such Net Proceeds,
and Off) an estimate of the additional Net Revenues to be derived from such Improvements; and
03) the Trustee, on the basis of such Certificate of the City, determines that such additional Net
Revenues will sufficiently offset the loss of Net Revenues, resulting from such eminent domain
proceedings so that the ability of the City to meet its obligations hereunder will not be
substantially impaired, which determination shall be final and conclusive. If the foregoing
conditions are met, the City shall then promptly proceed with the acquisition or construction or
financing of such Improvements substantially in accordance with such Certificate of the City
and payments therefor shall be made by the Trustee from such Net Proceeds and from other
moneys of the City law .ftdly available therefor, and any balance of such Net Proceeds not
required by the City for the purposes aforesaid shall be deposited in the Revenue Fund. If the
foregoing conditions are not met, then such Net Proceeds shall be applied by the Trustee pro
rata to the redemption or purchase of the Bonds of each Series then Outstanding in the
proportion which the principal amount of the Outstanding Bonds of each Series bears to the
aggregate principal amount of all Bonds then Outstanding. If the Trustee is unable to purchase
or redeem Bonds in amounts sufficient to exhaust the available moneys allocable to each such
Series, the remainder of such moneys for each such Series shall be held in trust by the Trustee
and applied to the payment of the Bonds of such Series as the same become due by their terms,
and, pending such application, such remaining moneys may be invested by the Trustee in the
manner provided in Section 4.08 for the investment of moneys in the Reserve Account.
SECTION 5.07. Insurance. The City covenants that it shall at all times maintain such
insurance on the Sewer System or Storm Water System as is customarily maintained with
respect to works and properties of like character against accident to, loss of or damage, to such
works or properties. If any useful part of the Sewer System or Storm Water System shall be
damaged or destroyed, such part shall be restored to use. The. Net Proceeds of insurance
against accident to or destruction of the physical Sewer System or Storm Water System shall be
used for repairing or rebuilding the damaged or destroyed portions of the Sewer System or
Storm Water System, (to the extent that such repair or rebuilding is determined by the City to be
useful or of continuing value to the Sewer System or Storm Water System) and to the extent not
so applied, shall be applied to the redemption of the Outstanding Bonds issued on a pro r.ata
basis, and for such purpose shall be paid into the Redemption Account.
Any such insurance shall be in the form of policies or contracts for insurance with
insurers of good standing and shall be payable to the City, or may be in the’form of self-
insurance by the City. The City shall establish such fund or funds or reserves as are necessary
to provide for its share of any such self-insurance. The City shall file or cause to be filed with
the Trustee, annually within one hundred twenty (120) days after the dose of each Fiscal Year,
a Certificate of the City (a) setting forth a description in reasonable detail of the insurance then
in effect, including any self-insurance fund, maintained pursuant to the requirements of this
Section, (b) staling that the City is then in compliance with the requirements of this Section, and
(b) stating whether during the preceding Fiscal Year any loss has been incurred with respect to
the Enterprise and, if so, the amount of Net Proceeds of insurance, including the Net Proceeds
of any self-insurance fund, covering such loss and specifying the reasonable and necessary costs
of repair, reconstruction or replacement thereof.
SECTION 5.08. Records and Accounts. The City covenants that it shall keep proper
books of record and accounts of the Enterprise, separate from all other records and accounts, in
which complete and correct entries shall be made of all transactions relating to the Sewer
System and Storm Water System. Said books shall, upon reasonable request, be subject to the
inspection of the Owners of not less than ten percent (10%) of the Outstanding Bonds or their
representatives authorized in writing.
The City covenants that it will cause the books and accounts of the Sewer System and
Storm Water System to be audited annually by an Independent Certified Public Accountant and
will make available for inspection by the Bond Owners at the office of the Trustee in San
Francisco, California, upon reasonable request, a copy of the report of such Independent
Certified Public Accountant.
The City covenants that it will cause to be prepared annually, not more than one
hundred eighty (180) days after the dose of each Fiscal Year, as a part of its regular annual
financial report, a summary statement showing the amount of Gross Revenues and the amount
of all other funds collected which are required to be pledged or otherwise made available as
security for payment of principal of and interest on the Bonds, the disbursements from the
Gross Revenues and other funds in reasonable detail, and a general statement of the financial
and physical condition of the Enterprise. The City shall furnish a copy of the statement to the
Trustee, and upon written request, to any Bond Owner.
SECTION 5.09. Protection of Security and Rights of Owners. The City will preserve
and protect the security of the Bonds and the rights of the Owners, and will warrant and
defend their rights against all claims and demands of all persons. From and after the sale and
delivery of any Parity Bonds by the City, such Parity Bonds shall be incontestable by the City.
SECTION 5.10. Against Competitive Facilities. The City will not acquire, construct,
operate or maintain any system or utility within the service area of the City that would be
competitive with the Sewer System and Storm Water System.
SECTION 5.11. Payment of Taxes, Etc. The City will pay and ~ge all taxes,
assessments and other governmental charges which may hereafter be lawfully imposed upon the
Enterprise or any part thereof or upon any Revenues when the same shall become due. The City
will duly observe and conform with all valid requirements of any governmental authority
relative to the Sewer System and Storm Water System or any part thereof, and will comply with
all requirements-with respect to any state or federal grants received to assist in paying for the
costs of the acquisition, construction or financing of any Improvements to the Sewer System and
Storm Water System.
SECTION 5.12. Rates and Charges. (a) The City shall fix, prescribe, revise and collect
Charges for the Sewer System during each Fiscal Year which (together with other funds
transferred from stabili~.ation reserve funds for the Sewer System, and which are lawfully
available to the City for payment of any of the following amounts during such Fiscal Year) are
at least sufficient, after making allowances for contingencies and error in the estimates, to pay
the following amounts in the following order:
(i) all Maintenance and Operation Costs of the Sewer System estimated by the
City to become due and payable in such Fiscal Year;
(ii) the Debt Service attributable to the Sewer System;
(iii) all other payments required for compliance with this Indenture and the
instruments pursuant to which any Parity Bonds relating to the Sewer System shall have
been issued; and
(iv) all payments required to meet any other obligations of the City which are
charges, liens, encttmbrances upon or payable from the Gross Revenues of the Sewer
System or the Net Revenues of the Sewer System.
In addition, the City shall fix, prescribe, revise and collect Charges for the Sewer System
during each Fiscal Year which, when added to an Allocable Share of the balance then on hand in
Available Reserves, are sufficient to yield Net Revenues of the Sewer System at least equal to
one hundred twenty-five percent (125%) of the amounts payable under the preceding clause (b)
in such Fiscal Year for Bonds which have a lien on such Net Revenues.
(b) The City shall fix, prescribe, revise and collect Charges for the Storm Water System
during each Fiscal Year which (together with other funds transferred from stabili~.ation reserve
funds for the Storm Water System, and which are lawfully available to the city for payment of
any of the following amounts during such Fiscal Year) are at least sufficient, after making
allowances for contingencies and error in the estimates, to pay the following amounts in the
following order:
(i) all Maintenance and Operation Costs of the Storm Water System estimated
by the City to become due and payable in such Fiscal Year;
(ii) the Debt Service Attributable to the Storm Water System during such Fiscal
Year;
(iii) all other payments required for compliance with this Indenture and the
instruments pursuant to which any Parity Bonds relating to the Storm Water System
shall have been issued; and
(iv) all paymer~ts required to meet any other obligations of the City which are
charges, liens, encumbrances upon or payable from the Gross Revenues of the Storm
Water System or the Net Revenues of the Storm Water System.
In addition, the City shall fix, prescribe, revise and collect Charges for the Storm Water
System during each Fiscal Year which, when added to an Allocable Share of the balance then on
hand in Available Reserves, are sufficient to yield Net Revenues of the Storm Water System a t
least equal to one hundred twenty-five percent (125%) of the amounts payable under the
preceding clause (ii) in such Fiscal Year for Bonds which have a lien on such Net Revenues.
(c) To the extent that the City appropriates funds into a stabili:,.ation reserve fund for a
System, a deduction shall be made from Gross Revenues of such System in the Fiscal Year
during which said transfer occurred for purposes of calculations to be made under this Section
5.12 and Section 3.06. To the extent that the City appropriates funds from a stabilization
reserve fund for a System into the Revenue Fund, the City may count the funds so transferred as
Gross Revenues in the Fiscal Year in which said transfer occurs, for purposes of this Section
5.12 and Section 3.06.
SECTION 5.13. Maintenance of Available Reserves; Transfers Therefrom. (a) The City
shall maintain the funds on hand in Available Reserves in an aggregate amount at least equal to
five (5.0) times Maximum Annual Debt Service.
(19) The City shall transfer from Available Reserves, to any System, as needed, amounts
sufficient to enable the City to pay all Maintenance and Operation Costs and all Debt Service,
when and as the same become due and payable.
SECTION 5.14. No Priori.ty for Additional Obligations. The City covenants that no
additional bonds or other obligations shall be issued or incurred having any priority in payment
of principal or interest out of the Net Revenues over the Bonds. Nothing in this Indenture shall
prohibit or impair the authority of the City to issue bonds or other obligations secured by a lien
on Gross Revenues or Net Revenues which is subordinate to the lien established hereunder, upon
such terms and in such principal amounts as the City may determine.
SECTION 5.15. No Arbitraae. The City shall not take, nor permit nor suffer to be taken
any action with respect to the prc~ceeds of any of the Bonds which would cause any of the
Bonds to be "arbitrage bonds" within the meaning of the Tax Code.
SECTION 5.16. Information Report. The Director of Administrative Services is hereby
directed to assure the filing of an information report for the Series A Bonds in compliance with
Section 149 (e) of the Tax Code.
SECTION 5.17. P.rivate Business Use Limitation. Not more than ten percent (10%) of
the Net Proceeds of the Series A Bonds shall be used in a manner which would cause the Series
A Bonds to become "private activity bonds" under and within the meaning of Section 141 (a) of
the Tax Code.
SECTION 5.18. Private Loan Limitation. Not more than five percent (5%) of the Net
Proceeds of the Series A Bonds shall be used, directly or indirectly, to make or finance a loan
(other than loans constituting Nonpurpose Obligations or assessments) to persons other than
state or local government units.
SECTION 5.19. Federal Guarantee Prohibition. The City shall not take any action or
permit or suffer any action to be taken if the result of the same would be to cause any of the
Series A Bonds to be "federally guaranteed" within the meaning of section 149(b) of the Tax
Code.
SECTION 5.20. Non-application to Taxable Bonds. None of the provisions of Sections
5.09 to 5.13, inclusive, shall apply to Bonds the interest on which is not subject to exclusion
from gross income under applicable federal income tax laws and regulations.
SECTION 5.21. Further A~surances, The City will adopt, make, execute and deliver
any and all such further resolutions, instruments and assurances as may ..be. reasonably
necessary or proper to carry out the intention or to facilitate the performance of this Indenture,
and for the better assuring and confirming unto the Owners of the Bonds the rights and benefits
provided in this Indenture.
SECTION 5.22. Con’tmuing Disclosure. The City will provide information on the
financial condition of the relevant System to any Bond Owner or_ other, in_ter~, t.ed, per~...n aupo~
request and with payment of the City-prescribed handling costs thereoL ~ucla mtormanon.
be limited to financial statements and staff reports which have previously been distributed to
the City Council. Additionally, the City will file annually withthe Trustee a copy of its audited
financial reports.
ARTICLE VI
THE TRUSTEE
SECTION 6.01. Appointment of Trustee. U.S. Bank Trust National Association in San
Francisco, California, a national banking association organized and existing under and by virtue
of the laws of the United States of America, is hereby appointed Trustee by the City for the
purpose of receiving all moneys required to be deposited with the Trustee hereunder and to
allocate, use and apply the same as provided in this Indenture. The City agrees that it will
maintain a Trustee having a corporate trust office in San Francisco, California, with a combined
capital and surplus of at least One Hundred Million Dollars ($100,000,000), and subject to
supervision or examination by federal or State authority, so long as any Bonds are Outstanding.
If such bank or trust company publishes a report of condition at least annually pursuant to law
or to the requirements of any supervising or examining authority above referred to, then for the
purpose of this Section 5.01 the combined capital and surplus of such bank or trust company
shall be deemed to be its combined capital and surplus as set forth in its most recent report of
condition so published.
The Trustee is hereby authorized to pay the Bonds when duly presented for payment at
maturity, or on redemption or purchase prior to maturity., and to cancel all Bonds upon
payment thereof. The Trustee shall keep accurate records of all funds administered by it and of
all Bonds paid and discharged.
SECTION 6.02. Acceptance of Trusts. The Trustee hereby accepts the trusts imposed
upon it by this Indenture, and agrees to perform said trusts, but only upon and subject to the
following express terms and conditions:
(a) The Trustee, prior to the occurrence of an Event of Default and after curing
of all Events of Default which may have occurred, undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture. In case an Event of
Default hereunder has occurred (which has not been cured or waived) the Trustee may
exercise such of the rights and powers vested in it by this Indenture, and shall use the
same degree of care and skill in their exercise, as a prudent and reasonable man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) The Trustee may execute any of the trusts or powers hereof and perform the
duties required of it hereunder by or through attorneys, agents, or receivers but shall be
answerable for the selection of the same in accordance with the standard specified
above, and shall be entitled to advice of counsel concerning all matters of trust’ and its
duty hereunder.
(c) The Trustee shall not be responsible for any recital herein, or in the Bonds, or
for the validity of this Indenture or any of the supplements thereto or instruments of
further assurance, or for the sufficiency of the security for the Bonds issued here~mder or
intended to be secured hereby and the Trustee shall not be bound to ascertain or inquire
as to the observance or performance of any covenants, conditions or agreements on the
part of the City hereunder. The Trustee shall not be responsible or liable for any loss
suffered in connection with any investment of funds made by it in accordance with
Section 4.08.
(d) The Trustee shall not be accountable for the use of any proceeds of sale of
the Bonds delivered hereunder. The Trustee may become the Owner of Bonds secured
hereby with the same rights which it would have ff not the Trustee; may acquire and
dispose of other bonds or evidence of indebtedness of the City with the same rights it
would have if it were not the Trustee; and may act as a depositary for and permit any
of its officers or directors to act as a member of, or in any other capacity with respect to.,
any committee formed to protect the rights of Owners of Bonds, whether or not such
committee shall represent .the Owners of the majority in principal amount of the Bonds
(e) In the absence of bad faith on its part, the Trustee shall be protected in acting
upon any notice, request, consent, certificate, order, affidavit, letter, telegram or other
paper or document believed by it to be genuine and correct and to have been signed or
sent by the proper person or persons. Any action taken or omitted to be taken by the
Trustee in good faith and without negligence pursuant to this .I~d. enture upon ~e ~[.u.est
or authority or consent of any person who at the time of making such request or grvmg
such authority or consent is the Owner of any Bond, shall be conclusive and binding
upon all future Owners of the same Bond and upon Bonds issued in exchange therefor or
in place thereof. The Trustee shall not be bound to recognize any person as an Owner of
any Bond or to take any action at his request unless the ownership of such Bond by such
person shall be reflected on the Bond Registration Books.
(f) As to the existence or non-existence of any fact or as to the s~ficien.CYr~r
validity of any instrument, paper or proceeding, the Trustee shall b.e entifle.d to. ~y,
upon a Certificate of the City as sufficient evidence of the facts thereto contamecl ana
prior ~o the occurrence of an Event of Default hereunder of which the Trustee has been
given notice or is deemed to have notice, as provided in Section 6.02(h) hereof, shall also
be at liberty to accept a similar certificate to the effect that any particular dealing,
transaction or action is necessary or expedient, but may at its discretion secure such
further evidence deemed by it to be necessary or advisable, but shall in no case be bound
to secure the same. The Trustee may accept a Certificate of the City to the effect that an
authorization in the form therein set forth has been adopted by the City, as conclusive
evidence that such authorization has been duly adopted and is in full force and effect.
(g) The permissive right of the Trustee to do things enumerated in this Indenture
shall not be construed as a duty and it shall not be answerable for other than its
negligence or willful default. The immunities and exceptions from liability of the Trustee
shall extend to its officers, directors, employees and agents.
(h) The Trustee shall not be required to take notice or be deemed to have notice
of any Event of Default hereunder except failure by the City to make any of the
payments to the Trustee required to be made by the City pursuant hereto or failure by
the City to file with the Trustee any document required by this Indenture to be so filed
subsequent to the issuance of the Bonds, unless the Trustee shall be specifically notified
in writing of such default by the City or by the Owners of at least twenty-five ..percent
(25%) in aggregate principal amount of the Bonds then Outstanding and all notices or
other instruments required by this Indenture to be delivered to the Trustee must, in order
to be effective, be delivered at the Trust Office of the Trustee, and in the absence of such
notice so delivered the Trustee may conclusively assume there is no Event of Default
hereunder except as aforesaid.
(i) At any and all reasonable times the Trustee, and its duly authorized agents,
attorneys, experts, engineers, accountants and representatives, shall have the right fully
to inspect the Enterprise, including all books, papers and records of the City pertaining
to the Enterprise and the Bonds, and to take such memoranda from and with regard
thereto as may be desired but which is not privileged by statute or by law.
(j) The Trustee shall not be required to give any bond or s.urety in r.espect of the
execution of the said trusts and powers or-otherwise in respect of the premases.
(k) Notwithstanding anything elsewhere in this indenture with respect to the
execution of any Bonds, the withdrawal of any cash, the release of any property, or any
action whatsoever within the purview of this indenture, the Trustee shall have the right,
but shall not be required, to demand any showings, certificates, opinions, appraisals or
other information, or corporate action or evidence thereof, as may be deemed desirable
for the purpose of establishing the right of the City to the execution of any Bonds, the
withdrawal of any cash, or the taking of any other action by the Trustee.
(1) Before taking the action referred to in Section 8.03 the Trustee may require
that a satisfactory indemnity bond be furnished for the reimbursement of all expenses to
which it may be put and to protect it against all liability, except liability which is
adjudicated to have resulted from its negligence or willful default in connection with any
such action.
(m) All moneys received by the Trustee shall, until used or applied or invested
as herein provided, be held in trust for the purposes for which they were received but
need not be segregated from other funds except to the extent required by law. The
Trustee shall not be under any liability for interest on any moneys received hereunder
except such as may be agreed upon.
SECTION 6.03. Fees, Charges and Expenses of Trustee. The Trustee shall be entitled to
payment and reimbursement for reasonable fees for its services rendered hereunder and all
advances, counsel fees (including expenses) and other expenses reasonably and necessarily
made or incurred by the Trustee in connection with such services. Upon the occurrence of an
Event of Default hereunder, but only upon an Event of Default, the Trustee shall have a first
lien with right of payment prior to payment of any Bond upon the amounts held hereunder for
the foregoing fees, charges and expenses incurred by it respectively.
SECTION 6.04. Notice to Bond Owners of Default. If an Event of Default hereunder
occurs with respect to any Bonds, of which the Trustee has been given or is deemed to have
notice, as provided in Section 6.02(h) hereof, then the Trustee shall promptly give written notice
thereof by first-class mail to the Owner of each such Bond, unless such Event of Default shall
have been cured before the giving of such notice; provided, however, that unless such Event of
Default consists of the failure by the City to make any payment when due, the Trustee ma~_. y
elect not to give such notice if and so long .as the Trustee in good faith determines that it is in the
best interests of the Bond Owners not to give such notice.
SECTION 6.05. intervention by Trustee. in any judicial proceeding to which the City is
a party which, in the opinion of the Trustee and its counsel, has a substantial bearing on the
interests of Owners of any of the Bonds, the Trustee may intervene on behalf of such Bond
Owners, and subject to Section 6.02 (1) hereof, shall do so if requested in writing by the Owners
of at least twenty-five percent (25%) in aggregate principal amount of such Bonds then
SECTION 6.06. Removal of T~;ustee. The Owners of a majority in aggregate principal
amount of the Outstanding Bonds may at any time, and the City may so 1.on.g.a.s. no Eve.n.t o,f
Default shall have occurred and then be continuing, may remove the Trustee mataally appomtect,
and any successor thereto, by an instrument or concurrent instruments in writing delivered to
the Trustee, whereupon the city or such Owners, as the case may be, shall appoint a successor
or successors thereto; provided that any such successor shall be a bank or trust company
meeting the requirements set forth in Section 6.01 hereof.
-32-
SECTION 6.07. Resignation by Trustee. The Trustee and any successor Trustee may at
any time resign by giving thirty (30!f days’ written notice by registered or certified mail to the
City. Upon receiving such notice o resignation, the City shall promptly appoint a successor
Trustee. Any resignation or removal of the Trustee and appointment of a successor Trustee
shall become effective upon acceptance of appointment by the successor Trustee. Upon such
acceptance, the City shall cause notice thereof to be given by first class mail to the Bond
Owners at their respective addresses set forth on the Bond Registration Books.
SECTION 6.08. Appointment of Successor Trustee. In the event of the removal or
resignation of the Trustee pursuant to Sections 6.06 or 6.07, respectively, the City shall
promptly appoint a successor Trustee. In the event the City shall for any reason whatsoever
fail to appoint a successor Trustee within forty-five (45) days following the delivery to the
Trustee of the instrument described in Section 6.06 or within forty-five (45) days following the
receipt of notice by the City pursuant to Section 6.07, the Trustee may apply to a court of
competent jurisdiction for the appointment of a successor Trustee meeting the requirements of
Section 6.01 hereof. Any such successor Trustee appointed by such court shall become the
successor Trustee hereunder notwithstanding any action by the City purporting to appoint a
successor Trustee following the expiration of such forty-five-day period.
SECTION 6.09. Merger or Consolidation. Any company into which the Trustee may be
merged or converted or which it may be consolidated or any company resulting from any
merger, conversion or consolidation to which it shall be a party or any company to which the
Trustee may sell or transfer all or substantially all of its corporate trust business, provided that
such company shall be eligible under Section 6.01, shall be the successor to the Trustee and
vested with all of the title to the trust estate and all of the trusts, powers, discretions,
immunities, privileges and all other matters as was its predecessor, without the execution or
filing of any paper or further act, anything herein to the contrary notwithstanding.
SECTION 6.10. Concerning any Successor Trustee. Every successor Trustee appointed
hereunder shall execute, acknowledge and deliver to its predecessor and also to the City an
instrument in writing accepting such appointment hereunder and thereupon such successor,
without any further act, deed or conveyance, shall become fully vested with all the estates,
properties, rights, powers, trusts, duties and obligations of its predecessors; but such
predecessor shall/nevertheless, on the Request of the City, or of its successor, execute and
deliver an instrument transferring to such successor all the estates, properties, rights, powers
and trusts of such predecessor hereunder; and every predecessor Trustee shall deliver all
securities and moneys held by it as the Trustee hereunder to its successor. Should any
instrument in writing from the City be required by any successor Trustee for more fully and
certainly vesting in such successor the estate, rights, powers and duties hereby vested or
intended to be vested in the predecessor, any and all such instruments in writing shall, on
request, be executed, acknowledged and delivered by the City.
SECTION 6.11. Appointment of Co-Trustee. It is the purpose of this Indenture that
there shall be no violation of any law of any jurisdiction (including particularly the law of the
State) denying or restricting the right r)f banking corporations or associations to transact
business as Trustee in such j ~ur~isdiction. It is recognized that in the case of litigation under this
Indenture, and in particular in case of the enforcement of the rights of the Trustee on default, or
in the case the Trustee.deems that by reason of any present or future law of any jurisdiction it
may not exercise any of the powers, rights or remedies herein granted to the Trustee or hold title
to the properties, in trust, as herein granted, or take any other action which may be desirable or
necessary in connection therewith, it may be necessary that the Trustee appoint an additional
individual or institution as a separate or co-trustee. The following provisions of this Section
6.11 are adopted to these ends.
In the event that the Trustee appoints an additional individual or institution as a
separate or co-trustee, each and every remedy, power, right, claim, demand, cause of action,
immunity, estate, rifle, interest and lien expressed or intended by this Indenture to be exercised
by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest
in such separate or co-trustee but only to the extent necessary to enable such separate or co-
trustee to exercise such powers, rights and remedies, and every covenant and obligation
necessary to the exercise thereof by such separate or co-trustee shall run to and be enforceable
by either of them.
Should any instrument in writing from the City be required by the separate trustee or co-
trustee so appointed by the Trustee for more fully and certairdy vestSng in and confirming to it
such properties, rights, powers, trusts, duties and obligations, any and all such instruments in
writing shall, on request, be executed, acknowledged and delivered by the City. In case any
separate trustee or co-trustee, or a successor to either, shall become incapable of acting, resign
or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such
separate trustee or co-trustee, so far as permitted by law, shall vest in and be exercised by the
Trustee until the appointment of a new trustee or successor to such separate trustee or co-
trustee.
SECTION 6.12. Indemnification; l.imited Liability of Trustee. The City shall indemnify
and hold the Trustee harmless from and against all claims, losses, costs, expenses, liabilities
and damages including legal fees and expenses arising from the exercise and performance of its
duties hereunder. Such indemnity shall survive the resignation or removal of the Trustee
hereunder. No provision in this Indenture shall require the Trustee to risk or expend its own
funds or otherwise incur any " .fim, ancial liability hereunder if it shall have reasonable grounds for
believing repayment of such funds or adequate indemnity against such liability or risk is not
assured to it. The Trustee shall not be liable for any action taken or omitted to be taken by it in
accordance with the direction of a majority of the Owners of the principal amount of Bonds
Outstanding relating to the time, method and place of conducting any proceeding or remedy
available to the Trustee under this Indenture.
ARTICLE VII
MODIFICATION AND AMENDMENT OF THE INDENTURE
SECTION 7.01. Amendrneht by Consent of Bond Owners. This Indenture and the rights
and obligations of the City and of the Owners of the Bonds may be modified or amended at
any time by a Parity Bonds Instrument which shall become binding when the written consent of
the Owners of a majority in aggregate principal amount of the Bonds then Outstanding
exclusive of Bonds disqualified as provided in Section 7.03 hereof, are filed with the Trustee.
No such modification or amendment shall (a) extend the maturity of or reduce the interest rate
on any Bond or otherwise alter or impair the obligation of the City to pay the principal, interest
or redemption premiums at the time and place and at the rate and in the currency provided
therein of any Bond without the express written consent of the Owner of such Bond, (b) reduce
the percentage of .Bonds required for the written consent to any such amendment or
modification, or (c) without its written consent thereto, modify any of the rights or obligations
of the Trustee.
SECTION 7.02. Amendment Without Consent of Bondholders. This Indenture and the
rights and obligations of the City and of the Owners of the Bonds may also be modified or
amended at any time by a Parity Bonds Instrument which shall become binding upon execution
and delivery, without consent of any Bond Owners, but only to the extent permitted by law and
only for any one or more of the following purposes-
(a) to add to the covenants and agreements of the City in this Indenture
contained, other covenants and agreements thereafter to be observed, or to limit or
surrender any rights or power herein reserved to or conferred upon the City; or
(b) to make such provisions for the purpose of curing any ambiguity, or of
curing, correcting or supplementing any defective provision contained in this Indenture,
or in any other respect whatsoever as the City may deem necessary or desirable,
provided under any circumstances that such modifications or amendments shall not
adversely affect the interests of the Owners of the Bonds;
(c) to provide for the issuance of any Parity Bonds, and to provide the terms
and conditions under which such Parity Bonds may be issued, including but not limited
to the establishment of special funds and accounts relating to such Parity Bonds and
any other provisions relating solely to such Parity Bonds, subject to and in accordance
with the provisions of Section 3.06; or
(d) to amend any provision hereof relating to the Tax Code, to any extent
whatsoever but only if and to the extent such amendment will not adversely affect ~e
exemption from federal income taxation of interest on any of the BOnds, in the opinion
of Bond Counsel.
SECTION 7.03. Disqualified Bonds. BOnds owned or held by or for the account of the
City (but excluding Bonds held in any employees’ retirement fund) shall not be deemed
Outstanding for the purpose of any consent or other action or any calculation of Outstanding
Bonds in this article provided for, and shall not be entitled to consent to, or take any other
action in this article provided for.
SECTION 7.04. Endorsement or Replacement of Bonds After Amendment. After the
effective date of any action taken as hereinabove provided, the City may determine that the
Bonds shall bear a notation, by endorsement in form approved by the City, as to such action,
and in that case upon demand of the Owner of any Bond Outstanding at such effective date
and presentation of his Bond for that purpose at the Trust Office of the Trustee, a suitable
notation as to such action shall be made on such Bond. If the City shall so determine, new
Bonds so modified as, in the opinion of the City, shall_be necessary t.o conform, to, su._.ch Bond,Owners’ action shall be prepared and executed, and in that case upon c~emanc~ o[ me uwner o~
any Bond Outstanding at such effective date such new Bonds shall be exchanged at the Trust
Office of the Trustee, without cost to each Bond Owner, for Bonds then Outstanding, upon
surrender of such Outstanding Bonds.
SECTION 7.05. Amendment by Mutual Consent. The provisions of this Article VI1 shall
not prevent any Bond Owner from accepting any amendment as to the particular Bond held by
him, provided that due notation thereof is made on such Bond.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES OF BOND OWNERS
SECTION 8.01. Events of Default and Acceleration of Maturities. The following events
shall be EVents of Default hereunder:
(a) Default in the due and punctual payment of the principal of any Bond when
and as the same shall become due and payable, whether at maturity as therein
expressed, by proceedings for redemption, by declaration or otherwise;
(b) Default in the due and punctual payment of any installment of interest on
any Bond when and as such interest installment shall become due and payable;
(c) Default by the City in the observance of any of the covenants, agreements or
conditions on its part in this Indenture or in any Parity Bonds Instrument or in the Bonds
contained, and such default shall have continued for a period of sixty (60) days after
the City shall have been given notice in writing of such default by the Trustee; or
(d) The filing by the City of a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other applicable law of the
United States of America, or if a court of competent jurisdiction shall approve a
petition, filed with or without the consent of the City, seeking reorganization under the
federal bankruptcy laws or any other applicable law of the United States of America, or
if, under the provisions of any other law for the relief or aid of debtors, any court of
competent jurisdiction shall assume custody or control of the City or of the whole or any
substantial part of its property.
Upon the occurrence and during the conKnuance of any Event of Default, the Trustee
may, and upon written notice from the Owners of a majority in aggregate principal amount of
the Bonds at the time Outstanding shall, declare the principal of all of the Bonds then
Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon
any such declaration the same shall become and shall be immediately due and payable,
anything in this Indenture or in the Bonds contained to the contrary notwithstanding. This
provision, however, is subject to the condition that if, at any time after the principal of the
Bonds shall have been so declared due and payable and before any judgment or decree for the
payment of the moneys due shall have been obtained or entered, the City shall deposit with the
Trustee a sum sufficient to pay all of the principal of and interest on the Bonds having come
due prior to such declaration, with interest on such overdue principal and interest calculated a t
the rate of interest per annum then borne by the Outstanding Bonds, and the reasonable fees
and expenses of the Trustee and those of its attorneys, and any and all other defaults known to
the Trustee (other than in the payment of the principal of and interest on the Bonds having
come due and payable solely by reason of such declaration) shall have been made good or cured
to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have
been made therefor, then, and in every such case, the Owners of a majority in a~ate
principal amount of the Bonds at the time Outstanding may, by written notice to the City and
to the Trustee, on behalf of the Owners of all of the Outstanding Bonds, rescind and annul such
declaration and its consequences. However, no such rescission and annulment shall extend to
or shall affect any subsequent default, or shall impair or exhaust any right or power consequent
thereon.
SECTION 8.02. A_A._I2plication of Funds Upon Acceleration. All amounts received by the
Trustee pursuant to any right given or action taken by the Trustee under the provisions of this
Indenture shall be applied by the Trustee in the following order upon presentation of the several
Bonds, and the stamping thereon of the amount of the payment if only partially paid, or upon
the surrender thereof if fully paid -.
First, to the payment of the costs and expenses of the Trustee and of Bond
Owners in declaring such Event of Default, including reasonable compensation to their
agents, attorneys and counsel, and to the pay~. e.n.t of .~.e, co, s,~ .and, e,.xpenses of ",~,e
Trust6e, if any, in carrying out the provisions ot ttUS Article vm, mc~ucung reasonarne
compensation to its agents, attorneys and counsel; and
Second, to the payment of the whole amount then owing and unpaid upon the
Bonds for interest and principal, with interest on such overdue amounts to the extent
permitted by law at the rate of interest then borne by the Outstanding Bonds, and in
case such moneys shall be insufficient to pay in full the whole amount so owing and
unpaid upon the Bonds, then to the payment of such interest, principal and interest on
overdue amounts without preference or priority among such interest, principal and
interest on overdue amounts ratably in proportion to the aggregate of such interest,
principal and interest on overdue amounts.
SECTION 8.03. Other Remedies; Rights of Bond Owners. Upon the occurrence of an
Event of Default, the Trustee may pursue any available remedy, in addition to the remedy
specified in Section 8.01, at law or in equity to enforce the payment of the principal of,
premium, if any, and interest on the Outstanding Bonds, and to enforce any rights of the
Trustee under or with respect to this Indenture.
If an Event of Default shall have occurred and be continuing and if requested so to do by
the Owners of at least twenty-five percent (25%) in aggregate principal amount of Outstanding
Bonds and indemnified as provided in Section 6.02 (1), the Trustee shall be obligated to exercise
such one or more of the rights and powers conferred by this Article VIII, as the Trustee, being
advised by counsel, shall deem most expedient in the interests of the Bond Owners.
No remedy by the terms of this Indenture conferred upon or reserved to the Trustee (or
to the Bond Owners) is intended to be exclusive of any other remedy, but each and every such
remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or
to the Bond Owners hereunder or now or hereafter existing at law or in equity.
No delay or omission to exercise any right or power accruing upon any Event of Default
shall impair any such right or power or shall be construed to be a waiver of any such Event of
Default or acquiescence therein; such right or power may be exercised from time to time as often
as may be deemed expedient.
SECTION 8.04. Power of Trustee to Control Proceedings. In the event that the Trustee,
upon the happening of an Event of Default, shall have taken any action, by judicial proceedings
or otherwise, pursuant to its duties hereunder, whether upon its own discretion or upon the
request of the Owners of a majority in principal amount of the Bonds then Outstanding, it shall
have full power, in the exercise of its discretion for the best interests of the Owners of the
Bonds, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or
other disposal of such action; provided, however, that the Trustee shall not, unless there no
longer continues an Event of Default, discontinue, withdraw, compromise or settle, or otherwise
dispose of any litigation pending at law or in equity, if at the time there has been filed with it a
written request signed by the Owners of a majority in principal amount of the Outstanding
Bonds hereunder opposing such discontinuance, withdrawal, compromise, settlement or other
disposal of such litigation. Any suit, action or proceeding which any Owner of Bonds shall
have the right to bring to enforce any right or remedy hereunder may be brought by the Trustee
for the equal benefit and protection of all Owners of Bonds similarly situated and the Trustee is
hereby appointed (and the successive respective Owners of the Bonds issued hereunder, by
taking and holding the same, shall be conclusively deemed so to have appointed it) the true and
lawful attorney-in-fact of the respective Owners of the Bonds for the purpose of bringing any
such suit, action or proceeding and to do and perform any and all acts and things for and on
behalf of the respective Owners Of the Bonds as a class or classes, as may be necessary or
advisable in the opinion of the Trustee as such attorney-in-fact.
SECTION 8.05. Appointment of Receivers. Upon the occurrence of an Event of Default
hereunder, and upon the filing of a suit or other commencement of judicial proceedings to
enforce the fights of the Trustee and of the Bond Owners under this Indenture, the Trustee shall
be entitled, as a matter of right, to the appointment of a receiver or receivers of the Net
Revenues and other mounts pledged hereunder, pending such proceedings, with such powers
as the court making such appointment shall confer.
SECTION 8.06. Non-Waiver. Nothing in this Article VIII or in any other provision of
this Indenture, or in the Bonds, shall affect or impair the obligation of the City, which is
absolute and unconditional, to pay the interest on and principal of the Bonds to the respective
Owners of the Bonds at the respective dates of maturity, as herein provided, out of the Net
Revenues and other moneys herein pledged for such payment.
A waiver of any default or breach of duty or contract by the Trustee or any.Bond
Owners shall not affect any subsequent default or breach of duty or contract, or impair any
rights or remedies on any such subsequent default or breach. No delay or omission of the
Trustee or any Owner of any of the Bonds 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 power and remedy conferred upon the Trustee or
Bond Owners by the Bond Law or by this Article VIII may be enforced and exercised from ".ti~, e
to time and as often as shall be deemed expedient by the Trustee or the Bond Owners, as me
case may be.
If a suit, action or proceeding to enforce any right or exercise any remedy is abandoned
or determined adversely to the Bond Owners, the City and the Bond Owners shall be restored
to their former positions, rights and remedies as if such suit, action or proceeding had not been
brought or taken.
SECTION 8.07. Rights and Remedies of Bond Owners. No Owner of any .Bond issued
hereunder shall have the right to institute any suit, action or proceeding at law or m eqm.’ty, for
any remedy under or upon this Indenture, unless (a) such Owner shall have previously green to
the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of a majority
aggregate principal amount of all the Bonds then Outstanding shall have made written
~equest upon the Trustee to exercise the powers hereinbefore granted or to.ins~tute such action,
suit or proceeding in its own name; (c) said Owners shall have tenciered to the Trustee
indemnity reasonably acceptable to the Trustee against the costs, expenses and liabilities to be
incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to
comply with such request for a period of sixty (60) days after such written request shall have
been received by, and said tender of indemnity shall have been made to, the Trustee.
Such notification, request, tender of indemnity and refusal or omission are hereby
declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of
any remedy hereunder; it being understood and intended that no one or more Owners of Bonds
shall have any right in any manner whatever by his or their action to enforce any right under this
Indenture, except in the manner herein provided, and that all proceedings at law or in equity to
enforce any provision of this Indenture shall be instituted, had and maintained in the manner
herein provided and for the equal benefit of all Owners of the Outstanding Bonds..
The right of any Owner of any Bond to receive payment of the principal of and interest
and premium (if any) on such Bond as herein provided or to institute suit for the enforcement of
any such payment, shall not be impaired or affected without the written consent of such Owner,
notwithstanding the foregoing provisions of this Section or any other provision of this Indenture.
SECTION 8.08. Termination of Proceeding. In case the Trustee shall have proceeded
to enforce any right under this Indenture by the appointment of a receiver or otherwise, and
such proceedings shall have been discontinued or abandoned for any reason, or shall have been
determined adversely, then and in every such case, the City, the Trustee and the Bond Owners
shall be restored to their former positions and rights hereunder, respectively, with regard to the
property subject to this Indenture, and all rights, remedies and powers of the Trustee shall
continue as if no such proceedings had been taken.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Limited Liability of City. Notwithstanding anything in this Indenture
contained, the City shall not be required to advance any moneys derived from any source of
income other than the Net Revenues for the payment of the principal of or interest on the Bonds,
or any premiums upon the redemption thereof, or for the performance of any covenants herein
contained (except to the extent any such covenants are expressly payable hereunder from the
Gross Revenues). The City may, however, advance funds for any such purpose, provided that
such funds are derived from a source legally available for such purpose and may be used by the
City for such purpose without incurring indebtedness.
SECTION 9.02. Benefits of Indenture Limited to Parties. Nothing in this Indenture,
expressed or implied, is intended to give to any person other than the City, the Trustee and the
Owners of the Bonds, any right, remedy or claim under or by reason of this Indenture. Any
covenants, stipulations, promises or agreements in this Indenture contained by and on behalf of
the City shall be for the sole and exclusive benefit of the Trustee and the Owners of the Bonds.
SECTION 9.03. Discharge of Indenture. If the City shall pay and discharge any or all of
the Outstanding Bonds in any one or more of the following ways:
(a) by well and truly paying or causing to be paid the principal of and interest
and premium (if any) on such Bonds, as and when the same become due and payable;
(b) by depositing with the Trustee, in trust, at or before maturity, money which,
together with the available amounts then on deposit in the funds and accounts
established pursuant to this Indenture, is fully sufficient to pay such Bonds, including all
principal, interest and redemption premiums; or
(c) by depositing with a qualified escrow holder, in trust, Federal Securities in
such amount as the City (verified by an Independent Certified Public Accountant) shall
determine will, together with the interest to accrue thereon and available moneys then on
deposit in the Funds and Accounts established pursuant to this Indenture, be fully
sufficient to pay and discharge the indebtedness on such Bonds (including all principal,
interest and redemption premiums, if any) at or before their respective maturity dates;
and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption
shall have been mailed pursuant to Section 2.02(d) or provision satisfactory to the Trustee shall
have been made for the mailing of such notice, then, at the election of the City, and
notwithstanding that any of such Bonds shall not have been surrendered for payment, the
pledge of the Net Revenues and other funds provided for in this Indenture with respect to such
Bonds, and all other pecuniary obligations of the City mu:ler this Indenture with respect to all
such Bonds, shall cease and terminate, except only the obligation of the City to pay or cause to
be paid to the Owners of such Bonds not so surrendered and paid all sums due thereon from
amounts set aside for such purpose as aforesaid, and all expenses and costs of the Trustee.
Notice of such election shall be flied with the Trustee.
Any funds thereafter held by the Trustee, which are not required for said purposes, shall
be paid over to the City.
Refunding bonds may be issued at any time without regard to whether an Event of
Default exists.
SECTION 9.04. Successor Is Deemed Included in All References to Predecessor.
Whenever in this Indenture or any Parity Bonds Instrument either the City is named or referred
to, such reference shall be deemed to include the successor to the powers, duties and functions,
with respect to the management, administration and control of the affairs of the City, that are
presently vested in the City, and all the covenants, agreements and provisions contained in this
Indenture by or on behalf of the City shall bind and inure to the benefit of its successors whether
so expressed or not.
SECTION 9.05. Content of Certificates. Every certificate with respect to compliance
with a condition or covenant provided for in this Indenture shall include (a) a statement that
the person or persons making or giving such certificate have read such covenant or condition
and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in such
certificate are based; (c) a statement that, in the opinion of the signers, they have made or
caused to be made such examination or investigation as is necessary to enable them to express
an informed opinion as to whether or not such covenant or condition has been complied with;
and (d) a statement as to whether, in the opinion of the signers, such condition ’ or covenant has
been complied with.
Any such certificate made or given by an officer of the City may be based, insofar as it
relates to legal matters, upon a certificate or opinion of or representations by counsel, unless
such officer knows that the certificate or opinion or representations with respect to the matters
upon which his certificate may be based, as aforesaid, are erroneous, or in the exercise of
reasonable care should have known that the same were erroneous. Any such certificate or
opinion or representation made or given by counsel may be based, insofar as it relates to factual
matters, on information with respect to which is in the possession of the City, upon the
certificate or opinion of or representations by an officer or officers of the City, unless such
counsel knows that the certificate or opinion or representations with respect to the matters
upon which his certificate, opinion or representation may be based, as aforesaid, are erroneous,
or in the exercise of reasonable care should have known that the same were erroneous.
SECTION 9.06. Execution of Documents by Bond Owners. Any request, consent or
other instrttment required by this Indenture to he signed and executed by Bond Owners may be
in any number of concurrent writings of substantially s’unilar tenor and may be signed or
executed by such Bond Owners in person or by agent or agents duly appointed in writing.
Proof of the execution of any such request, consent or other instrument or of a writing
appointing any such agent, shall be sufficient for any purpose of this Indenture and shall be
conclusive in favor of the Trustee and of the City if made in the manner provided in this Section
9.06.
The fact and date of the execution by any person of any such request, consent or other
instrument or writing may be proved by the affidavit of a witness of such execution or by the
certificate of any notary public or other officer of any jurisdiction, authorized by the laws
thereof to take acknowledgments of deeds, certifying that the person signing such request,
consent or other instnmu~t or writing acknowledged to him the execution thereof.
The Ownership of Bonds shall be provided by the Bond Registration Books.
Any request, consent or vote of the Owner of any Bond shall bind every future Owner of
the same Bond and the Owner of any Bond issued in exchange therefor or in lieu thereof, in
respect of anything done or suffered to be done by the Trustee or the City in. pursuance of such
request, consent or vote.
In determining whether the Owners of the requisite aggregate principal amount of Bonds
have conctm’ed in any demand, request, direction, consent or waiver under this Indenture,
Bonds which are owned or held by or for the account of the City (but excluding Bonds held in
any employees’ retirement fund) shall be disregarded and deemed not to be Outstanding for the
purpose of any such determination, provided, however, that for the purpose of determining
whether the Trustee shall be protected in relying on any such demand, request, direction,
consent br waiver, only Bonds which the Trustee knows to be so owned or held shall be
disregarded.
In lieu of obtaining any demand, request, direction, consent or waiver in writing, the
Trustee may call and hold a meeting of the Bond Owners upon such notice and in accordance
with such rules and obligations as the Trustee considers fair and reasonable for the purpose of
obtaining any such action.
SECTION 9.07. Waiver of Personal Liability. No officer, agent or employee of the City
shall be individually or personally liable for the payment of the interest on or principal of the
Bonds; but nothing herein contained shall relieve any such officer, agent or employee from the
performance of any official duty provided by law.
SECTION 9.08. Partial Invalidity. If any one or more of the covenants or agreements, or
portions thereof, provided in this Indenture on the part of the City (or of the Trustee) to be
performed should be contrary to law, then such covenant or covenants, such agreement or
agreements, or such portions thereof, shall be null and void and shall be deemed separable from
the remaining covenants and agreements or portions thereof and shall in no way affect the
validity of this Indenture or of the Bonds; but the Bond Owners shall retain all rights and
benefits accorded to them under the Bond Law or any other applicable provisions of law. The
City hereby declares that it would have entered into this Indenture and each and every other
section, paragraph, subdivision~ sentence, clause and phrase hereof and would have authorized
the issuance of the Bonds pursuant hereto irrespective of the fact that any one or more sections,
paragraphs, subdivisions, sentences, clauses or phrases of this Indenture or the application
thereof to any person or circumstance may be held to be unconstitutional, unenforceable or
invalid.
SECTION 9.09. Destruction of Cancelled Bonds. Whenever in this Indenture provision
is made for the surrender to the City of any Bonds which have been paid or cancelled pursuant
to the provisions of this Indenture, the Trustee shall destroy such Bonds and furnish to the City
a certificate of such destruction.
SECTION 9.10. Funds and Accounts. Any Fund or Account required by this Indenture
to be established and maintained by the City or the Trustee may be established and maintained
in the accounting records of the City or the Trustee, as the case may be, either as a Fund or an
Account, and may, for the purpose of such records, any audits thereof and any reports or
statements with respect thereto, be treated either as a Fund or as an Account. All such records
with respect to all such Funds and Accounts held by the City shall at all times be maintained in
accordance with generally accepted accounting principles and all such records with respect to
all such Funds and Accounts held by the Trustee shall be at all times maintained in accordance
with industry practices; in each case with due regard for the protection of the security of the
BOnds and the rights of every Owner thereof.
SECTION 9.11. Notices. Any notice, request, complaint, demand, communication or
other paper shall be sufficiently given and shall be deemed given when delivered or mailed by
registered or certified marl, postage prepaid, or sent by telegram, addressed as follows: if to the
City, to City of Palo Alto, City Hall, 250 Hamilton Avenue, Palo Alto, California 94301,
Attention: Director of Administrative Services; and if to the Trustee, at ,
¯ The City and the Trustee may designate any further or different addresses to
which subsequent notices, certificates or other communications shall be sent.
SECTION 9.12. Unclaimed Moneys. Anything in this Indenture to the contrary
notwithstanding, any moneys held by the Trustee in trust for the payment and discharge of any
of the Bonds which remain unclaimed for two (2) years after the date when such Bonds have
become due and payable, either at their stated maturity dates or by call for earlier redemption,
if such moneys were held by the Trustee at such date, or for two (2) years after the date of
deposit of such moneys if deposited with the Trustee after said date when such Bonds become
due and payable, shall, at the Request of the City, be repaid by the Trustee to the City, as its
absolute property and free from trust, and the Trustee shall thereupon be released and
discharged with respect thereto and the Bond Owners shall look only to the City for the
payment of such Bonds; provided, however, that before being required to make any such
payment to the City, the Trustee shall, at the expense of the City, cause to be mailed to the
Owners of all such Bonds, at their respective addresses appearing on the Bond Registration
Books, a notice that said moneys remain unclaimed and that, after a date named in said notice,
which date shall not be less than thirty (30) days after the date of mailing of such notice, the
balance of such moneys then unclaimed will be returned to the City.
IN WITNESS WHEREOF, the CITY OF PALO ALTO has caused this Indenture to be signed in
its name by its Mayor and its seal to be affixed hereon and attested by its City Clerk,.and U.S. Bank
Trust National Association, in token of its acceptance of the trust created hereunder, has caused, this
Indenture to be signed in its corporate name by its officer ideniified below, all as of the day and year
first above written.
CITY OF PALO ALTO
[S E A L]
Attest:
By
Mayor
City Clerk
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Trustee
By
Authorized Officer
Attachment B
Available Reserves
Utility. Reserve Balance as of
June 30. 1998
Rate Stabilization Reserve (RSR) for the Water System
RSR for theWastewater Collection System
RSR for the Wastewater Treatment System
RSR for the Refuse System
RSR for the Storm Drain System
Distribution RSR for the Electric System
Distribution RSR for the Gas System
Supply RSR for the Electric System
Supply RSR for the Gas System
Calaveras Stranded Costs Reserve for the Electric System
$7,502,000
7,407,000
3,427,000
5,971,000
520,000
8,120,000
7,889,000
14,560,000
8,544,000
55,583,000
Total Reserves $119,523,000
Attachment C
Regional Water Quality Control Plant Incinerator Improvements Financing Costs
(estimated)
Item
Design Costs Budgeted
Dollars
$ 700,OOO.
Construction Costs
Refinancing outstanding
principal on 1990 and 1992
Utility Bonds
Issuance Costs
Debt Service Reserve Fund (or
Purchase of a Surety bond)
Contingency for Increase in
Construction Costs
TOTAL COSTS NOT TO
EXCEED
$6,500,000
$9,560,000
$ 814,000 (estimate)
$1,534,000
(estim~e).
$ 892,000
$20,000,000
Will go to
City of Palo Alto for design
costs
U. S. Bank Trust (trustee)
holds in a trust account bond
proceeds, pending
completion of construction.
Makes progress payments
upon authorization from
City to pay contractors.
U. S. Bank Trust, acting as
Trustee, will pay off
current bond holders
Amount unknown until
bonds sell. Goes to rating
agencies, f’mancial advisor,
bond counsel, underwriters
and bondholders.
To the Trustee for a Debt
Service Reserve Fund Or to
Insurer for a Surety Bond
(estimated cost of surety
bond is $34,000
It is unlikely this level of
contingency funding will be
required.