02-1015_SAN JUAN BASIN AUTHORITY_Agreement First Amd0
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FIRST AMENDMENT TO
1998 SAN JUAN BASIN DESALTER PROJECT AGREEMENT
This First Amendment to 1998 San Juan Basin Desalter Project Agreement
("Amendment"), dated as of October 15, 2002, is made by the San Juan Basin Authority
("SJBA"), the Municipal Water District of Orange County ("MWDOC") and the Mctropolitan
Water District of Southern California ("Metropolitan"), and agreed to and accepted by the
Capistrano Valley Water District ("CVWD").
Recitals
A. SJBA is a California joint powers agency formed in 1971 for the purpose of managing the
San Juan Groundwater Basin and jointly funding certain water system facilities to make
water resources available to the areas within the San Juan Creek Watershed serviced by the
SJBA.
B. SJBA, MWDOC and Metropolitan entered into the 1998 San Juan Basin Desalter Project
Agreement (the "Project Agreement'), dated as of December 4, 1998, to provide for the
construction and operation of the San Juan Basin Desalter Project (as defined and described
in the Project Agreement) (the "Project').
C. Under the Project Agreement, SJBA is the sole owner of all Project facilities and is solely
responsible for development of the Project.
D. Pursuant to the Lease Agreement to be dated as of [October 15], 2002 (the "Lease
Agreement'), between SJBA and CVWD relating to San Juan Basin Authority Lease
Revenue Bonds (Ground Water Recovery Project) Issue of 2002, CVWD will agree, as
agent for SJBA, to exercise its rights pursuant to the Service Contract (as defined in Recital
E) as may be reasonably necessary to cause the Service Contract Project Improvements (as
defined in the Lease Agreement) to be acquired, constructed, delivered and installed, and
SJBA will have no responsibility with respect to acquisition, construction, delivery and
installation of the Service Contract Project Improvements. The Project is comprised of the
Service Contract Project Improvements.
E. CVWD has entered into the Service Contract for the Design, Construction, Financing and
Operation of the San Juan Basin Desalter Project, dated September 3, 2002 (the "Service
Contract'), between CVWD and ECO Resources, Inc. (the "DBO vendor"). CVWD
negotiated the Service Contract pursuant to a design -build -operate (DBO) competitive
procurement approach for the Project. Because the Project Agreement was prepared under
the assumption that a traditional procurement process was going to be used to develop the
Project, it is important to clarify the language and to provide for implementation of the
Project Agreement under a DBO contract.
F. CVWD will operate the Project as the contracted operator of SJBA during the term of the
Lease Agreement, pursuant to the Project Lease and Implementation Agreement—San Juan
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Basin Desalter Project (the "Implementation Agreement") among SJBA, CVWD, the City
of San Juan Capistrano, Moulton Niguel Water District and Santa Margarita Water District. fD
G. Pursuant to Section 12 of the Project Agreement, neither the Project Agreement nor any
portion thereof may be assigned or transferred to any entity not an original party to the
Project Agreement, nor shall any duties thereunder be delegated, without the express
written consent of all parties to the Project Agreement.
H. Section 9.2 of the Project Agreement permits the amendment thereof at any time by written
mutual agreement of the parties. The parties agree to amend the Project Agreement to
clarify certain provisions as shown below and CVWD consents to such amendments.
I. Capitalized terms used in this Amendment and not otherwise defined shall be as defined in
the Project Agreement.
Agreement
1. By their authorized signatures below, the parties to this Amendment consent and agree that
CVWD may cause acquisition, construction, delivery and installation of the Service
Contract Project Improvements by exercising its rights under the Service Contract, and that
CVWD may operate the Project as contracted operator of SJBA.
2. Under the Service Contract, CVWD has contracted for design, construction and operation
of the Service Contract Project Improvements by the DBO vendor. The parties desire to
amend the Project Agreement to clarify how its terms will work in light of the DBO
approach, and to modify other provisions as set forth below.
3. The Project Agreement is hereby amended as follows:
(a) Recital I of the Project Agreement is hereby amended in full to read as follows:
"Capistrano Valley Water District (CVWD), as an agent of SJBA, has entered
into the Service Contract for the Design, Construction, Financing and Operation
of the San Juan Basin Desalter Project, dated September 3, 2002 (the "Service
Contract"), between CVWD and ECO Resources, Inc. (the "DBO vendor"), to
provide for design, construction, delivery and installation of the Project
Improvements (as defined in the Service Contract)."
(b) Recital J of the Project Agreement is hereby amended in full to read as follows:
"CVWD will operate the Project as SJBA's contracted operator during the term
of this Agreement."
(c) Section 2.2 of the Project Agreement is amended by adding the following sentence at
the end of such section:
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"CVWD shall furnish to Metropolitan evidence of its right to produce, distribute
and sell Allowable Yield produced from the Project."
(d) Section 5.1 of the Project Agreement is amended by inserting the following sentence
after the first sentence of such section:
"Although the arrangement between CVWD and the DBO vendor may call for
the payment of a service fee for each acre-foot of water delivered, the
documentation supporting the Project costs should be presented in a way that
will allow Metropolitan to calculate the Project costs as required by this
Agreement."
(e) Section 7.4 of the Project Agreement is amended by adding the following sentences at
the end of such section:
"With respect to Project costs invoiced by the DBO vendor, Metropolitan shall
have the right to audit the DBO vendor's invoices with respect to the fixed
charges described below under Exhibits B, C and D in order to determine if the
invoice was properly submitted. Metropolitan also shall have the right to audit
the books and records of the DBO vendor and CVWD with respect to any other
costs claimed by CVWD as incurred costs."
(f) Section 9.4 of the Project Agreement is amended by deleting subsection (c) and
inserting the following new subsection (c):
(c) no Allowable Yield is produced within six years following execution of
this Agreement; or"
(g) Exhibit B to the Project Agreement is amended by adding the following at the end of
Exhibit B:
"5. This paragraph 5 is applicable in the event that the Project is designed,
built and financed by the DBO vendor. CVWD will make payments with
respect to capital and financing costs through a fixed lease payment.
The fixed lease payment shall be established through the competitive proposal
process, and will be a function of the bid fixed design/build price, and the bid
interest rate, using a 20 -year amortization schedule. Prior to the start of
Project operations, CVWD will submit information to Metropolitan to
document the competitiveness of the procurement process.
The DBO vendor's fixed design/build price is an incurred cost under
paragraph 1, to the extent that it includes only eligible costs described in
paragraph 1, and does not include any ineligible costs described in paragraph
2. CVWD has provided a copy of the Service Contract to Metropolitan as
verification of the DBO vendor's fixed design/build price. The lease payment
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is based on the DBO vendor's eligible fixed design/ build price. The DBO
vendor's eligible fixed design/build price shall not exceed $25,030,607, except
as permitted in the Service Contract."
The interest rate upon which the lease payment is based is the fixed interest
rate to be used in computing the Annualized Capital Cost under paragraph 3,
not to exceed 5.7 percent.
The invoice submitted by the DBO vendor for the lease payment shall be
subject to audit by Metropolitan in order to determine if the invoice was
properly submitted.
The fixed design/build price does not include all incurred costs under
paragraph 1. Other costs will be incurred costs only if they are eligible under
paragraph 1, and if CVWD certifies that such costs do not represent (i) any
costs with respect to which the fixed lease payment is payable or (ii) any
ineligible costs described in paragraph 2. Any such other costs will be subject
to direct audit by Metropolitan."
(h) Exhibit C to the Project Agreement is amended by (i) adding the following sentence at
the end of paragraph 1(b):
"Notwithstanding the foregoing, in the event the Project is operated and
maintained by the DBO vendor, labor costs will be equal to the fixed labor
component calculated pursuant to paragraph 4 below."
and (ii) adding the following at the end of Exhibit C:
"4. This paragraph 4 is applicable in the event that the Project is operated
and maintained by the DBO vendor. The service fee payable to the DBO
vendor by CV WD under the Service Contract will include a fixed
component, which also shall be established through the competitive proposal
process.
The fixed component will include a fixed labor component and a fixed
operation and maintenance component.
The fixed labor component will be $170,600, subject to annual adjustment
for inflation as provided below in this paragraph 4. The fixed labor
component includes all the required labor for the Project, whether it is
contracted or hired labor. The fixed labor component is an incurred cost.
The fixed operation and maintenance component shall exclude energy costs
and major replacement costs described in Exhibit D, and shall be payable for
and include all other costs of operating, maintaining, repairing, managing
and performing minor replacements (costing less than $100,000 per item, as
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adjusted pursuant to Exhibit D) with respect to the Project. The fixed
operation and maintenance component is an incurred cost, and shall not
exceed $611,400 per year, subject to annual adjustment for inflation as
provided below in this paragraph 4.
In each year beginning July 1, 2003, the fixed labor component and the fixed
operation and maintenance component shall be adjusted upward or downward
for inflation at a rate of 90 percent of the change in the Unadjusted Consumer
Price Index, as reported by the U.S. Department of Labor, Bureau of Labor
Statistics, for All Urban Consumers, for all items in the Los Angeles -
Riverside -Orange County, California area (CPI).
Electrical energy used for Project facilities is a variable cost that will be paid
directly by CVWD and will not be part of the service fee payable to the DBO
vendor. The service fee will also include certain variable or contingent
costs. These may include, but are not limited to, costs resulting from force
majeure and other uncontrollable circumstances, and additional water
treatment costs if the quality of the raw water is outside the assumed
parameters which were the basis of the DBO vendor's competitive proposal
and the Service Contract. A copy of the DBO vendor's proposal showing the
assumed parameters on which its proposal were based has been provided to
Metropolitan. Any such additional costs will be subject to audit and treated
as incurred costs if eligible under paragraph 1. Costs for cleanup of
contamination caused by third parties are not eligible costs.
The Operation and Maintenance Component, as required in this Agreement,
shall not include deposits to any reserve fund for major replacement costs
described in Exhibit D. Such replacements will be considered when they
occur and will be added to the calculation of Project Unit Cost as described
in this Agreement.
The service fee to be paid by CVWD to the DBO vendor shall be
independent of Metropolitan's water rate applicable to this Agreement.
Reconciliation of all of the Project's operation and maintenance costs is
required to determine the Project Unit Cost. When audited, the auditor will
audit CVWD books to determine its costs, and if he considers it necessary
based on the understandings set forth in this letter, he will audit the DBO
vendor's books and records.
Costs actually paid for energy used by the Project under the energy
limitations of paragraph 1 are incurred costs. Energy costs will be reconciled
from the agency or vendor who makes the actual payment to the utility
company. Audit will be based on metering and payment records. Adequate
metering must be provided.
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The operation and maintenance component does not include all incurred costs
under paragraph 1. Other costs of operation and maintenance will be
incurred costs only if they are eligible under paragraph 1, and if CVWD
certifies that such costs do not represent (i) any costs with respect to which
the operation and maintenance component is payable, or (ii) any ineligible
costs described in paragraph 2. Any such other costs will be subject to direct
audit by Metropolitan."
(i) Exhibit D to the Project Agreement is amended by adding the following at the end of
Exhibit D:
"Replacement costs incurred for the Project will be considered in the
calculation of Project Unit Cost pursuant to this Exhibit D when they occur
as described in this Agreement. Records should include life of the replaced
part, purchase cost, salvage value, and financing, if any. Payments to any
reserve fund will not be used in the calculation of the Project Unit Cost."
4. This Amendment shall be effective as of the date on which it is approved and fully executed
by SJBA, MWDOC and Metropolitan and accepted by CVWD, as indicated by the
signatures of their authorized representatives and the dates of such signatures indicated
below, subject to Metropolitan's receipt of fully executed copies of the Lease Agreement
and Implementation Agreement, in form and substance satisfactory to Metropolitan.
5. The Project Agreement is, and shall continue to be, in full force and effect, except as
specifically amended by this Amendment. This Amendment shall not be construed to be a
waiver of any provision of the Project Agreement or a consent to any failure to comply with
the Project Agreement.
6. Except as otherwise expressly provided herein, the Project Agreement is in all respects
ratified and confirmed, and nothing contained in this Amendment shall, or shall be
construed to, modify, invalidate or otherwise affect any provision of the Project Agreement
or any right of the parties arising thereunder.
7. This Amendment may be executed in as many counterparts as may be deemed necessary or
convenient and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original, but all such counterparts shall
constitute but one and the same agreement.
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8. This Amendment shall be governed by and construed in accordance with the laws of the
State of California.
Approved as to form:
Title: /d ✓ C6-�
Date: I�//J��d �-
Approved as to form:
Approved as to form:
0
Title:
AGREED AND ACCEPTED:
Approved as to form:
0
Date: la l9 DY
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San Juan Basin Authority
By:
Title:
Date:
Municipal Water District of Orange County
LN
Title:
Date:
The Metropolitan Water District
of Southern California
Date: 1 b
T
MWD LEGAL Fax:213-217-6950 Oct 30 2002 14:08 P.02
8. This Amendment shall be governed by and construed in accordance with the laws of the
State of California.
Approved as to form;
By:
Date:
Approved as to form:
Title;
Date:
Approved as to form:
By:
Title: AsersInt Ckneral Counsel
Date: October 142002
AGREED AND ACCEPTED:
Approved as to form:
Title:
Date:
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San Juan Basin Authority
Date:
Municipal Water District of Orange County
By:
Date:
The Metropolitan Water District
of Southern California
Title,
Date: October 14. 2002
Capistrano Valley Water District
By:
Title;
Date:
SEN
10-30- 2 ;12:38PM
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MWDOC
46
19494933955;# 8/ 9
8. This Amendment shall be governed by and construed in accordance with the laws of the
State of California.
Approved as to form:
By:
Title:
Approved as to form:
Ry:_
Title:
Approved as to form:
Ay:_
Title:
AGREED AND ACCEPTED:
Approved as to form:
By:
Date:
IFA
San Juan Basin Authority
Title:
Municipal Water District of Orange County
By:
Title: General Manager
Date: 10114102
The Metropolitan Water District
o1'Southem California
Capistrano Valley Water District
By:
SENT BY: 10-30- 2 ;12 38PM MWDOC� 19494933955;# 9/ 9
Oct -14-02 11:D7am FiNrcoRNIU,*AN L SENRENS, LLP 7147558110 • T-466 P.02/02 F-614
8. This Amendment shall be Soveraed by and construed in accordance with the laws of the
State of CaliSxnia.
Approved as to farm;
Date;
Approved as tO form
Approved as to form:
Date:
AGREED AND ACCEPTED:
Appruvcd as to form:
By: _..-...
Date:
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San Juan Basin Authority
Title:—
Date-
Municipal Water District of Orange County
Title:_- —
Date:
The Metropolitan Water District
of Southern California
By:
Title:
Date:
Capistrano Valley Water District
Title:
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PROJECT IMPLEMENTATION AGREEMENT
SAN JUAN BASIN DESALTER PROJECT
THIS AGREEMENT is entered into by the SAN JUAN BASIN AUTHORITY ("SJBA"), a joint
powers authority, and the CITY OF SAN JUAN CAPISTRANO acting as the governing body
for CAPISTRANO VALLEY WATER DISTRICT ("CVWD"), which may sometimes
hereinafter be referred to individually or collectively as "the PARTY" or "the PARTIES".
References hereinafter to CVWD shall for purposes of this Agreement also mean the CITY.
RECITALS
A. On February 5, 1991, SJBA, CVWD, MNWD, SMWD and Trabuco Canyon Water
District entered into the San Juan Basin Projects Agreement ("the 1991 Agreement") for
purposes including the development, conservation and management of imported water
conjunctively with water produced locally. The 1991 Agreement provides, among other
items, that whenever construction of project facilities for an authorized project shall be
funded by a bond issue, each SJBA member shall enter into a Project Lease Agreement,
which shall be substantially in the form attached to the 1991 Agreement.
B. On November 21, 1995, SJBA, CVWD and the City of San Juan Capistrano entered into
an agreement ("the 1995 Agreement") to clarify the agreement between those parties with
respect to the extraction of water from the San Juan Basin for CVWD and the City
relative to SJBA's extraction of water from the Basin for the project specified in that
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C. On October 27, 1998, SJBA, CVWD, MNWD and SMWD (collectively, the
"Participating Members" for reference purposes only to this Recital and Recital "E",
herein) entered into a Memorandum of Understanding ("the 1998 MOU"), which
provides among other items, that prior to commencing construction of the project
specified in the MOU, the Participating Members allocated interest in the specified
project's water rights and water supplies will be established by a project implementation
agreement among the Participating Members and SJBA.
D. The San Juan Basin Desalter Project is proposed for purposes of extracting approximately
5,800 acre-feet of water annually to enable the production of approximately 4,800 acre-
feet of potable water annually, all of which will be delivered to CV WD's potable water
delivery system for use within CVWD's service area allowing CVWD to reduce its
purchase of treated non -interruptible water from Metropolitan Water District of Southern
California ("the Desalter Project").
E. The purpose of this Agreement is to i) comply with Section 7(a) of the 1991 Agreement,
which requires a Project Lease Agreement whenever construction of a project is funded
by a bond issue; ii) to comply with Section 7 of the 1998 MOU, which requires each
Participating Member's allocated interest in the Project's water rights and water supplies
to be established by a project implementation agreement among the Participating
Members and SJBA; and, iii) to address provisions in the 1991 Agreement, 1995
Agreement and the 1998 MOU which are or may be affected by this Agreement.
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NOW THEREFORE, the Parties agree as follows:
AGREEMENT
1. DESALTER PROJECT LEASE AGREEMENT
The Desalter Project Lease Agreement are attached hereto collectively as Exhibit "A",
incorporated by reference herein in substantially the form to be used, and is agreed to satisfy the
requirements of Section 7(a) of the 1991 Agreement.
2. CVW VS ALLOCATED INTEREST IN DESALTER PROJECT
CVWD's and the City's allocated interest in the SJBA's Desalter Project's water rights
and water supplies, which water rights are established by State Water Resources Control Board
Permit No. 2074, shall be in the amount of 5,800 acre-feet per year. A portion of the Desalter
Project water may be delivered from time -to -time to SJBA's other member agencies on terms
mutually agreeable to CVWD, SJBA and SJBA's participating member agencies.
3. GROUNDWATER SHORTFALL
(a) In accordance with Section 7 of the 1998 MOU, in the event the Desalter Project is
operated during periods when the Desalter Project interferes with extractions by CVWD, SJBA
shall not have any obligation to provide CVWD with Make -Up Water since CVWD's allocation
of Desalter Project water exceeds 3,325 acre-feet per year. This Section 3(a) shall operate to
relieve SJBA of its obligations under Sections 4 and 5 of the 1995 Agreement to remedy the
Desalter Project impacts on CVWD, however, SJBA's obligation under Sections 4 and 5 of the
1995 Agreement otherwise remain in full force and effect to the extent provided in Section 7 of
the 1998 MOU.
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(b) The Parties agree to initiate negotiations immediately on diversions of water from
the San Juan Basin in addition to the production of water from the Desalter Project, which may
include one or more expansions of the Desalter Project capacity and/or the construction or use of
groundwater wells not connected to the Desalter Project, subject to a comprehensive agreement
to be entered into between the involved parties addressing, among other items, potential water
quantity and water quality impacts, and consequential mitigation measures as appropriate, on the
Desalter Project and/or CVWD's other groundwater supplies.
4. DECISIONS AND APPROVALS
The Parties agree that, since CVWD is the only SJBA member participating in the
Desalter Project, major decisions and approvals concerning the Desalter Project, as defined by
Project Committee Nos. 4 or 7, including construction, operation, maintenance and repair shall
be made by CVWD in consultation with SJBA. Such decisions and approvals shall not impair the
rights of SJBA in any subsequent expansion of the Desalter Project. Although CVWD will not
necessarily be the sole member of SJBA Project Committee Nos. 4 and 7, SJBA will take no
action that would impair the ability of the Desalter Project to extract up to 5,800 acre-feet per
year or impair the 1998 San Juan Basin Desalter Project Agreement Between the Metropolitan
Water District of Southern California, Municipal Water District of Orange County, and SJBA,
dated December 4, 1998 ("1998 MWD Agreement"). CVWD will be a member of the SJBA
Coordinating Committee established by the 1998 MWD Agreement. The subsidy described in
the 1998 MWD Agreement shall be irrevocably committed to the Desalter Project and SJBA will
not exercise its right to terminate the 1998 MWD Agreement without the prior written consent of
OLTAVAU
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5. OPERATION OF PHASE I PROJECT FACILITIES
(a) CVWD will operate the Desalter Project as the contracted operator of SJBA
during the Lease Tenn described in the Project Lease Agreement and the Operating Lease
Agreement. CVWD's contracted operation of the Desalter Project shall include the right to make
alterations or improvements or attach fixtures or structures to the Desalter Project in consultation
with SJBA if said alterations, improvements, fixtures and structures are necessary or reasonably
beneficial for the use of the Desalter Project and are consistent with sound engineering and
construction practices.
(b) SJBA and CV WD will comply with all conditions of approval and mitigation
measures of the Permit for Diversion and Use of Water No. 21074 issued for the Project by the
State Water Resources Control Board and with the conditions of approval and mitigation
measures approved for the Project by SJBA.
6. MUTUAL INDEMNIFICATION
(a) CVWD shall defend, indemnify, and hold harmless SJBA, SJBA's member
agencies, their respective elected and appointed officials, officers, employees, and agents from
any and all actual or alleged claims, demands, causes of action, liability, loss, damage, or injury,
to property or persons, including wrongful death, whether imposed by a court of law or by
administrative action of any federal, state, or local governmental body or agency arising out of or
incident to the performance of this Agreement and resulting from the negligence or wrongful act
of CV WD's elected and appointed officials, officers, agents, employees or invitees including
without limitation any such claims, disputes, controversies or injury to property or persons
arising from or in connection with the "Service Contract For The Design, Construction,
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Financing And Operation Of The San Juan Basin Desalter Project" between CVWD and Eco
Resources, Inc. This indemnification includes, without limitation, the payment of all penalties,
fines, judgments, awards, decrees, attorneys' fees, and related costs or expenses, and the
reimbursement of SJBA, SJBA's member agencies, their respective elected officials, officers,
employees, and/or agents for all legal expenses and costs incurred by each of them.
(b) SJBA shall defend, indemnity, and hold harmless CVWD, its elected officials,
officers, employees, and agents from any and all actual or alleged claims, demands, causes of
action, liability, loss, damage, or injury, to property or persons, including wrongful death,
whether imposed by a court of law or by administrative action of any federal, state, or local
governmental body or agency, arising out of or incident to the performance of this Agreement
and resulting from the negligence or wrongful act of SJBA, SJBA's member agencies, their
respective elected and appointed officials, officers, agents, employees or invitees. This
indemnification includes, without limitation, the payment of all penalties, fines, judgments,
awards, decrees, attorneys' fees, and related costs or expenses, and the reimbursement of CV WD,
its elected officials, officers, employees, and/or agents for all legal expenses and costs incurred
by each of them.
CATASTROPHIC INTERRUPTION IN USE OF PROJECT FACILITIES
In the event of destruction of or damage to the Desalter Project during the Lease Term by
fire, flood, or earthquake or other casualty or event so that it becomes wholly or partly unusable,
then CVWD, acting in consultation with SJBA, may do either of the following:
(1) Rebuild and repair the Desalter Project using the money collected from
insurance, if any, so that it may be fully restored to use, in which case this Agreement shall
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remain in full force and effect; or
(2) Declare this Agreement terminated and use the money collected from
insurance, if any, against destruction of or damage to the Desalter Project to the extent necessary
to retire any outstanding securities which SJBA may have incurred for the Desalter Project.
8. EFFECT OF INCONSISTENT PROVISIONS
This Agreement comprises the entire understanding of the Parties concerning the issues
herein described, and supersedes all previous oral and written agreements, negotiations,
communications, representations and commitments, and the provisions of this Agreement shall
prevail in the event of any inconsistency between this Agreement and the 1971 Agreement, 1991
Agreement and 1998 MOU, however, the provisions of the 1971 Agreement, the 1991
Agreement and the 1998 MOU otherwise remain in full force and effect. To the extent the terms
of this Agreement are inconsistent with the Property Lease, dated as of 1, 2002, (the
"Property Lease"), by and between the City and SJBA, the Lease Agreement, dated as of
1, 2002 (the "Lease Agreement'), between CVWD and SJBA, and the Trust Agreement,
dated as of 2002, (the Trust Agreement") among CVWD, SJBA and BNY Western
Trust Company, the terms of the Property Lease, the Lease Agreement and the Trust Agreement
shall prevail so long as the bonds issued under the Trust Agreement remain outstanding;
provided however, that such Agreements shall not result in the imposition of any financial
liabilities on SJBA, MNWD or SMWD.
9. NOTICES
All notices, demands, requests, consents, or other communications permitted or required
by this Agreement shall be personally delivered, sent by registered or certified mail, postage
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prepaid, return -receipt requested, or by facsimile, addressed to the respective parties as follows:
TO SJBA: San Juan Basin Authority
27500 La Paz Road
Laguna Niguel, California 92677
Attention: General Manager
949-448-4055
FAX: 949-831-5651
TO CVWD: Capistrano Valley Water District
c/o City of San Juan Capistrano
32400 Paseo Adelanto
San Juan Capistrano, California 92675
Attention: Treasurer
949-443-6301
FAX 949-493-1053
10. AUTHORITY
Each of the individuals executing this Agreement verifies that each of them has the
authority to enter into this Agreement, that the necessary resolutions or other consents have been
passed or obtained, and that this Agreement shall be binding on the party for whom each of them
is signing.
11. TIME IS OF THE ESSENCE
Time is of the essence of all provisions of this Agreement where time is a factor.
12. GOVERNING LAW AND VENUE
The interpretation, validity and enforcement of this Agreement shall be governed by and
construed under the laws of the State of California. Venue for any action brought to enforce or
interpret this Agreement shall be brought in the appropriate federal or state court in or nearest to
the South Orange County Judicial District, County of Orange.
13. AMENDMENT
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This Agreement may not be modified orally or in any manner other than by an agreement
in writing signed by the Parties or their respective successors in interest. No right or remedy will
be waived unless the waiver is in writing and signed by the party claimed to have made the
waiver. One waiver will not be interpreted as a continuing waiver.
14. BINDING NATURE OF AGREEMENT
This Agreement shall inure to the benefit of and be binding upon the Parties and their
respective officers, governing bodies, contractors, agents, employees, successors and assigns.
15. BREACH AND CURE
(a) Any Party to this Agreement may declare a breach hereof by serving written
notice describing the nature of the breach to all Parties. The Parry alleged to have breached the
Agreement shall be afforded a reasonable period, not less than thirty (30) days from service of
the notice of breach to take whatever steps are necessary to cure the breach.
(b) All disputes arising out of or in connection with the interpretation or enforcement
of this Agreement shall be submitted to mediation prior to the commencement of court
proceedings at the request of any Party, by a retired judge from the panel of the Judicial
Arbitration and Mediation Services, Inc., ("JAMS") with experience in the area of California
water law. This provision shall be specifically enforceable. If the Parties to the dispute fail to
agree upon a member of the JAMS panel, any Party may apply to the Presiding Judge of the
Orange County Superior Court for appointment of a panel member consistent with provision to
resolve the dispute. Upon completion of the mediation process described herein, any Party may
pursue all remedies otherwise provided them by law, including the remedy of specific
performance.
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(c) In the event any legal action or proceeding is commenced to interpret or enforce
the terms of, or obligations arising out of, this Agreement, or to recover damages for the breach
of this Agreement, the party prevailing in any such action or proceeding shall be entitled to
recover from the non -prevailing party all reasonable attorney fees and expenses incurred by such
prevailing party.
16. COOPERATION
The Parties agree to execute such other and further documents, assignments and
instruments and to take such other actions as are or may become necessary or convenient to carry
out this Agreement. The Parties agree to cooperate and do all acts as may be reasonably required
to implement the Desalter Project including SJBA's financing and CVWD's construction,
operation and maintenance of the Desalter Project. The Parties further agree to expedite issuance
of all governmental permits and approvals necessary for CV WD to perform the acts described
herein throughout the term of this Agreement.
17. SECTION HEADINGS
All section headings are for convenience only and in no way define or limit the scope or
interpretation of this Agreement.
18. INTERPRETATION
Each of the Parties acknowledges that it has reviewed this Agreement and has consulted
legal counsel, and that the normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation of this Agreement
or any amendments hereto.
19. NO THIRD PARTY BENEFICIARIES
2:58 PM 10/14/2002
-10-
0
0
Other than as provided in Section 21 of this Agreement, there are no intended third party
beneficiaries of any right or obligation assumed by the Parties under this Agreement.
20. COMMENCEMENT AND TERMINATION OF AGREEMENT
The term of this Agreement shall commence upon its execution by all Parties and shall
continue until this Agreement is terminated by mutual agreement of the Parties.
21. NOTIFICATION OF AMENDMENT AND TERMINATION OF AGREEMENT
The parties shall provide notice to the Chief Executive Officer of the Metropolitan Water
District of Southern California, 700 North Alameda Street, Los Angeles, CA 90054 - 0153, upon
any amendment or termination of this Agreement. The Metropolitan Water District Of Southern
California is a third party beneficiary solely for the purpose of receiving notice pursuant to this
Section 21.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of
the day and year first written above.
Dated: ) 6/15LD
Dated:
2:58 PM 10/14/2002
SAN JUAN BASIN AUTHORITY,
a Joint Powers Authority
By: (/,
Presiacrit, Bogy of Directors
CAPISTRANO VALLEY WATER DISTRICT
By: I"
Chairperson, BdaA of Directors
-11-
0
0 CVWD 10/15/2002
C1
AGENDA ITEM
TO: Capistrano Valley Water District Board of Directors
FROM: George Scarborough, General Manager
SUBJECT: Consideration of Project Implementation Agreement and Operating Lease
Agreement with San Juan Basin Authority (Phase I of the Ground Water
Recovery Plant)
By Motion, adopt the resolution approving the Project Implementation Agreement and
Operating Lease Agreement with San Juan Basin Authority for the construction and
operation for Phase I of the Ground Water Recovery Plant.
SITUATION:
A. Summary and Recommendation
Phase I of the San Juan Basin Authority (SJBA) Ground Water Recovery Plant
(GWRP) (the "Project") is located in and will provide benefit to the Capistrano Valley
Water District (District). The Project is being implemented conjunction the SJBA,
Municipal Water District of Orange County (MWDOC) and Metropolitan Water District
of Southern California (MWD). The SJBA holds the water rights permit for the area
while MWD is providing a subsidy for the Project through MWDOC to the SJBA.
On September 3, 2002, the Board of Directors of the District approved a Service
Contract with Eco Resources, Inc.(the "Company") to design, build and operate the
Project . As the sole beneficiary of the Project , the costs associated with the
construction and operation of GWRP will be borne by the rate payers of the District.
In order for the District and its rate payers to receive all the benefits of the Project, the
District must assure that the Project be allocated necessary water rights to enable
4,800 acre-feet of production, receive the entire benefit of the MWD subsidy and be
able to operate and take potable water from the Project for as long as the District
deems it feasible.
A Project Implementation Agreement (Agreement) is required under San Juan Basin
Authority 1998 Memorandum of Understanding (1998 MOU) in orderto allocate interest
in the Project water rights to each of the participating members. As the sole
beneficiary of The Project, the proposed Agreement provides for the District and the
City's allocated interest in the Project water rights to be 5,800 acre-feet for the
purposes of extracting 4,800 acre-feet to be delivered to the District. Additionally, the
FOR CITY COUNCIL AGENDA....
Agenda Item -2- October 15, 2002
proposed Agreement irrevocably commits the subsidy described in the 1998 MWD
Agreement to The Project. The proposed Operating Lease Agreement in conjunction
with the Project Lease Agreement provide for the terms under which the District will be
able to operate and take water from the Project for a term of 55 years. During the first
30 years, the District will make lease payments under the Project Lease Agreement to
the SJBA equivalent to the debt service on the Lease Revenue Bonds (Bonds) issued
by the SJBA to finance the construction of the Project . During the last 25 years, the
District will make lease payments under the Operating Lease Agreement of $1 per
year. At the end of the 55 year term, the District will have the ability to renew the
Operating Lease Agreement should it desire to do so.
The Project Lease Agreement is attached as part of Exhibit "A" to the Project
Implementation Agreement and is a standard financing document in conjunction with
the Bonds. Therefore, the Project Lease Agreement is included with the other
financing documents to be considered at this meeting. Staff recommends the Board
of Directors adopt the resolution approving the Project Implementation Agreement and
Operating Lease Agreement.
B. Background
For the past two to three years, District staff has been working toward the
implementation of Phase I of the San Juan Basin Authority Ground Water Recovery
Plant. Prior to beginning that process, the District along with the SJBA, Santa
Margarita Water District (SMWD), Moulton Nigual Water District (MNWD) (collectively
the "Participating Members") entered into the 1998 MOU, which provides among other
items, that prior to commencing construction of the project specified in the MOU, the
Participating Members allocated interest in the specified project's water rights and
water supplies will be established by a project implementation agreement among the
Participating Members and SJBA. As such, the District has prepared the proposed
Project Implementation Agreement for consideration by the District Board of Directors.
Being the only beneficiary of The Project, the proposed agreement is between SJBA
and the District and does not require approval of the other participating members.
The proposed Agreement provides among other items for the requisite allocation of
interest in the water rights and commitment of the MWD subsidy to the Project.
Additionally, through a Project Lease Agreement and an Operating Lease Agreement
(collectively, Exhibit "A" to the Agreement), the Agreement provides for the terms under
which the District will be able to operate and take water from the Project now and in
the future.
Agenda Item -3- October 15, 2002
C. Agreements
Project Implementation Agreement - This agreement has been prepared in order to
meet the requirements of the 1998 MOU among the Participating Members of the
SJBA. The GWRP is a project of the San Juan Basin Authority. The Project lies
within the City of San Juan Capistrano and will benefit the citizens of San Juan
Capistrano and all other rate payers in the District's service area. As the sole
beneficiary of the Project, the rate payers of the District will be asked to bear all the
costs associated with the generation of the product water, however the SJBA will own
and finance the Project.
The most important aspect of the Agreement is the allocation of the Project's water
rights. In order for the Project to be of any value to the District, the District and the City
must be allocated sufficient water rights to produce 4,800 acre-feet of water for the life
of the Project. Section 2 allocates the required 5,800 acre-feet necessary to deliver
4,800 acre-feet of water to the District's potable water delivery system. Section 3
provides for no obligation for SJBA to provide make-up water should the extraction of
ground water for the Project affect the District's ability to extract water from its other
District -owned facilities. Lastly, Section 3 provides for immediate negotiations amongst
the parties on diversions of water from the San Juan Basin in addition to the production
of water from the Project. For example, this negotiation would provide for terms under
which the SJBA or the District could expand the plant or groundwater wells not
associated with the Project.
Section 4 of the Agreement provides for the irrevocable commitment of the MWD
subsidy of $250 per acre-foot of water delivered to the potable water delivery system
pursuant to the 1998 MWD Agreement. This assures that the funds received under the
subsidy will not be allocated to other projects during the term of the MWD Agreement.
Under the remainder of Section 4 and Section 5, the District, as the contract operator
of the SJBA, will make all major decisions and approvals including construction,
operation, maintenance and repair in consultation with the SJBA.
Project Lease Agreement and Operating Lease Agreement - Due to the unique nature
of this project and its interrelation to the Service Contract with ECO Resources, Inc. to
design, build and operate the Project, Exhibit "A" to the Agreement is comprised of a
Project Lease Agreement and an Operating Lease Agreement. Collectively, these
Lease Agreements provide for the District to Lease the Project from the SJBA, operate
and take water from the Project for a term of 55 years.
The Project Lease Agreement is attached as Exhibit A-1 to the Agreement and is
standard project financing lease agreement normally associated with Lease Revenue
Bonds. The Project Lease Agreement provides for the District to make Lease
Payments equivalent to the debt service on the Bonds issued by the SJBA to finance
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Agenda Item -4- October 15, 2002
the project. As with all lease revenue bond financed projects, these lease payments
act as security for the bonds during the term of the Project Lease Agreement. In this
case, the District has the right to operate and take water from the Project for 30 years
and make the appropriate lease payments. A unique aspect of this lease agreement
is that should the Company default under the terms of the Service Contract and the
District ultimately terminates the Service Contract for cause, the Project Lease
Agreement will terminate and the Bonds will be paid by the a combination of the Parent
Guarantor, Southwest Water Company and the Bond insurer. The Project Lease
Agreement included with the other standard financing documents provided for Board
consideration at this meeting under a separate item.
The Operating Lease Agreement is attached as Exhibit A-2 to the Agreement. The
Operating Lease Agreement provides for the District to operate the Project for 55 years
or until October 1, 2057. Although, the Operating Lease Agreement provides for
maintenance and operations of the Project for the entire 55 years, the Project Lease
Agreement governs the maintenance, operations and lease payments, etc, during the
Project Lease Agreement term. At the end of 30 years or upon termination of the
Project Lease Agreement under the terms of the Service Contract, the bonds will have
been paid off, the SJBA will own the Project and the District will continue to operate
and take water from the Project under the Operating Lease Agreement. The terms of
the Operating Lease Agreement are essentially identical to those of the Project Lease
Agreement but for the amount of the lease payments. The District will only pay $1
annually to operate and take water from the Project once the Lease Revenue Bonds
are retired. The Operating Lease Agreement automatically extends to coincide with
term of the Property Lease between the City and the SJBA.
Property Lease Agreement - The Property Lease Agreement between the City and the
SJBA is not part of the Implementation Agreement, however the Project Lease
Agreement and Operating Lease Agreements are connected to the Property Lease
Agreement. Essentially, the Property Lease Agreement provides for the City to lease
the real property to be provided for the plant site, well sites, booster pumping station
site and pipeline sites to the SJBA for purposes of the Project. Without this Property
Lease, the SJBA would not be able to finance the Project and provide for the District
to operate and take water. The Property Lease Agreement is for the maximum term
allowed by law of 55 years. Therefore, the Operating Lease Agreement is also 55
years in length. At the end of 55 years, the Property Lease Agreement will be
extended or renewed by the City, automatically extending the Operating Lease
Agreement and allowing the District to operate and take water from the Project for up
to another 55 years. Should the Property Lease Agreement not be renewed, the SJBA
would own a Plant with no ability to access to operate it and take water. The District
would be able to access the real property but would also have not ability to access the
Project. The Property Lease Agreement is essential to all parties in an effort to keep
0
1]
Agenda Item -5- October 15, 2002
the Project operating now and in the future. The Project Lease Agreement is provided
for consideration by the City Council at this meeting.
COMMISSION/BOARD REVIEW AND RECOMMENDATIONS:
The Water Advisory Commission (WAC) has recommended approval of The Project
subject to the Project Implementation Agreement to provide for the satisfactory access to
water rights, the MWD subsidy and long-term operation of the Project . The proposed
Implementation Agreement provides for those items. The WAC members have received
updates on the status and will receive a formal status update at their next meeting on
October 22, 2002.
FINANCIAL CONSIDERATIONS:
Although MWD has provided a subsidy to assist in offsetting the costs of construction for
the Project, the Project will result in an increase of 14% to 15% in water rates to the
District in order to fully fund the Project. As discussed during the approval of Service
Contract in September 2002, the cost of this project has been weighed against the
alternatives and is more cost effective as well as more effective in meeting the District's
goals of 50% local production and emergency storage. Without the allocation of the water
rights and the ability to operate the plant for many years, the increase in water rates would
not be justified. Upon completion of the first thirty years of the Project, the capital costs
will have been amortized and the cost of water is projected to be much lowerthan imported
water and well as much more reliable.
NOTIFICATION:
San Juan Basin Authority*
Fieldman, Rolapp & Associates*
Stradling, Yocca Carlson & Rauth*
Lehman Brothers*
Southwest Water Company*
ALTERNATE ACTIONS:
Motion, adopt the resolution approving the Project Implementation Agreement and
Operating Lease Agreement with San Juan Basin Authority for the construction and
operation for Phase I of the Ground Water Recovery Plant.
2. Do not approve the resolution
3. Request additional information from staff.
0 41
Agenda Item -6- October 15, 2002
RECOMMENDATION:
By Motion, adopt the resolution approving the Project Implementation Agreement and
Operating Lease Agreement with San Juan Basin Authority for the construction and
operation for Phase I of the Ground Water Recovery Plant.
Respectfully Submitted,
- Resolution
The following attachment is are available for review in the City Clerks office and in the City
Council Office:
Attachment 2 -Project Implementation Agreement, including Project Lease Agreement and
Operating Lease Agreement
• Attachment 1
RESOLUTION NO. CVWD 02-10-15
A RESOLUTION OF THE CAPISTRANO VALLEY WATER
DISTRICT AUTHORIZING AN OPERATING LEASE AND A
PROJECT IMPLEMENTATION AGREEMENT WITH SAN
JUAN BASIN AUTHORITY AND AUTHORIZING THE
EXECUTION THEREOF AUTHORIZING CERTAIN
ACTIONS IN CONNECTION THEREWITH
WHEREAS, the Capistrano Valley Water District (the "Water District') is a county
water district, organized and existing under the laws of the State of California and is a
subsidiary district of the City of San Juan Capistrano (the "City"); and
WHEREAS, the San Juan Basin Authority (the "Authority") and the City have
approved a Property Lease by and between the City and the Authority (the "Property
Lease"), pursuant to which the City will agree to lease the Property (as defined in the
Property Lease) to the Authority; and
WHEREAS, the Authority and the Water District, a member of the Authority, have
approved a Project Lease Agreement by and between the Water District and the
Authority (the " Project Lease Agreement'), pursuant to which the Water District will
agree to lease the Project (as defined in the Project Lease Agreement) from the
Authority and to pay certain Lease Payments (as defined in the Project Lease
Agreement) in connection with the issuance and sale of the Capistrano Valley Water
District, Lease Revenue Bonds (Ground Water Recovery Project), Issue of 2002 (the
"Bonds") by the Authority pursuant to a Trust Agreement by and among BNY Western
Trust Company, as trustee (the "Trustee"), the Water District and the Authority (the
"Trust Agreement'); and
WHEREAS, the proceeds of the Bonds will be used to finance the acquisition
and construction of Phase I of the San Juan Basin Ground Water Recovery Project (the
"Project'); and
WHEREAS, the Authority and the Water District desire to enter into that certain
Agreement for Implementation of the Lease Agreement, by and between the Authority
and the Water District (the 'Implementation Agreement") and that certain Operating
Lease Agreement by and between the Authority and the Water District (the "Operating
Lease") for the purpose of establishing the terms of operation and ownership of the
Project, the forms of which have been presented to the board of directors of the
Authority at a meeting to be held on the same date as the date on which this Resolution
has been adopted; and
WHEREAS, the Water District possesses all legal authority to and desires to
enter into the Implementation Agreement and the Operating Lease;
• •
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors of the
Capistrano Valley Water District does hereby
1. Provide that the foregoing recitals are true, correct, and adopted.
2. Approve the proposed forms of the Implementation and Operating Lease
Agreement presented at this meeting.
3. Authorize and direct the Chairperson of the Water District (the
"Chairperson") and the General Manager of the Water District or his designee (the
"General Manager"), acting together or separately, for and in the name of the Water
District to execute each of the Implementation Agreement and Operating Lease in the
form hereby approved.
4. Authorize and Direct the Chairperson, the General Manager, the
Administrative Services Director and all other members, officers and employees of the
Water District to execute all other documents and take all other actions on behalf of the
Water District that may be necessary or advisable to carry out the transactions
contemplated by the Implementation Agreement and Operating Lease.
5. Provide that this Resolution shall take effect upon adoption.
PASSED, APPROVED and ADOPTED this 151h day of October, 2002.
CAPISTRANO VALLEY WATER DISTRICT
DIANE BATHGATE, CHAIRPERSON
ATTEST:
MARGARET R. MONAHAN, CLERK OF THE BOARD
2
DOCSOC\914105v2\22658.0017
0
RESOLUTION NO. CVWD 02-10-15-01
A RESOLUTION OF THE CAPISTRANO VALLEY WATER DISTRICT
AUTHORIZING AN OPERATING LEASE AND A PROJECT
IMPLEMENTATION AGREEMENT WITH SAN JUAN BASIN AUTHORITY
AND AUTHORIZING THE EXECUTION THEREOF AUTHORIZING
CERTAIN ACTIONS IN CONNECTION THEREWITH
WHEREAS, the Capistrano Valley Water District (the "Water District") is a county
water district, organized and existing under the laws of the State of California and is a
subsidiary district of the City of San Juan Capistrano (the "City"); and
WHEREAS, the San Juan Basin Authority (the "Authority") and the City have
approved a Property Lease by and between the City and the Authority (the "Property
Lease"), pursuant to which the City will agree to lease the Property (as defined in the
Property Lease) to the Authority; and
WHEREAS, the Authority and the Water District, a member of the Authority, have
approved a Project Lease Agreement by and between the Water District and the
Authority (the " Project Lease Agreement'), pursuant to which the Water District will
agree to lease the Project (as defined in the Project Lease Agreement) from the
Authority and to pay certain Lease Payments (as defined in the Project Lease
Agreement) in connection with the issuance and sale of the Capistrano Valley Water
District, Lease Revenue Bonds (Ground Water Recovery Project), Issue of 2002 (the
"Bonds") by the Authority pursuant to a Trust Agreement by and among BNY Western
Trust Company, as trustee (the 'Trustee"), the Water District and the Authority (the
"Trust Agreement'); and
WHEREAS, the proceeds of the Bonds will be used to finance the acquisition
and construction of Phase I of the San Juan Basin Ground Water Recovery Project (the
"Project'); and
WHEREAS, the Authority and the Water District desire to enter into that certain
Agreement for Implementation of the Lease Agreement, by and between the Authority
and the Water District (the "Implementation Agreement") and that certain Operating
Lease Agreement by and between the Authority and the Water District (the "Operating
Lease") for the purpose of establishing the terms of operation and ownership of the
Project, the forms of which have been presented to the board of directors of the
Authority at a meeting to be held on the same date as the date on which this Resolution
has been adopted; and
WHEREAS, the Water District possesses all legal authority to and desires to
enter into the Implementation Agreement and the Operating Lease;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors of the
Capistrano Valley Water District does hereby
Provide that the foregoing recitals are true, correct, and adopted.
2. Approve the proposed forms of the Implementation and Operating Lease
Agreement presented at this meeting.
3. Authorize and direct the Chairperson of the Water District (the
"Chairperson") and the General Manager of the Water District or his designee (the
"General Manager'), acting together or separately, for and in the name of the Water
District to execute each of the Implementation Agreement and Operating Lease in the
form hereby approved.
4. Authorize and Direct the Chairperson, the General Manager, the
Administrative Services Director and all other members, officers and employees of the
Water District to execute all other documents and take all other actions on behalf of the
Water District that may be necessary or advisable to carry out the transactions
contemplated by the Implementation Agreement and Operating Lease.
5. Provide that this Resolution shall take effect upon adoption
PASSED, APPROVED and ADOPTED this 15th day of October 2002.
ATTEST:
dL a A-
R.
MONAHAN,
CAPISTRANO VALLEY WATER DISTRICT
DIANE BATHGATE, 0HPIRPERSON
STATE OF CALIFORNIA )
COUNTY OF ORANGE ) ss.
CITY OF SAN JUAN CAPISTRANO )
I, MARGARET R. MONAHAN, appointed Clerk of the Board of the Capistrano Valley Water District, do
hereby certify that the foregoing Resolution No. CVWD 02-10-15-01 was duly adopted by the Board of
Directors of the Capistrano Valley Water District at a regular meeting thereof, held the 15th day of
October 2002, by the following vote:
AYES: DIRECTORS: Hart, Campbell, Gelff and Chairman Bathgate
NOES DIRECTORS: Swerdlin
ABSENT: DIRECT RS�%LNone x�
MAR ET R. MONAHAN, Clerk of the Board
10-15-02
C�
RECORDING REQUESTED BY )
AND WHEN RECORDED MAIL TO: )
STRADLING YOCCA CARLSON & RAUTH )
660 Newport Center Drive, Suite 1600 )
Newport Beach, California 92660 )
Attn: Denise E. Hering, Esq. )
DOCSOC\909571 v 10\22658.0017
0
Exhibit A-1
[Space above for recorder.]
This document is recorded for the benefit of the
Capistrano Valley Water District, and the recording is
fee -exempt under Section 6103 of the Government
Code. Term of lease less than 99 years.
PROJECT LEASE AGREEMENT
BETWEEN
CAPISTRANO VALLEY WATER DISTRICT,
As Lessee
AND
SAN JUAN BASIN AUTHORITY,
As Lessor
Dated as of , 2002
RELATING TO
SAN JUAN BASIN AUTHORITY
LEASE REVENUE BONDS
(GROUND WATER RECOVERY PROJECT)
ISSUE OF 2002
0 0
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease Agreement"), dated as of 2002, by
and between the SAN JUAN BASIN AUTHORITY, a joint powers authority duly organized and
existing under the laws of the State of California, as lessor (the "Authority"), and the CAPISTRANO
VALLEY WATER DISTRICT, a county water district duly organized and existing under and by
virtue of the laws of the State of California, as lessee (the "Water District");
WITNESSETH:
WHEREAS, pursuant to the laws of the State of California, the Water District may enter into
leases and agreements relating to real property to be used by the Water District; and
WHEREAS, the Water District has heretofore entered into an Installment Purchase
Agreement dated as of March 1, 2002 by and between the Water District and the San Juan Capistrano
Public Financing Authority (the "Series 2002 Installment Purchase Agreement") in connection with
the execution and delivery of the $8,525,000 aggregate principal amount of Revenue Certificates of
Participation Series 2002 delivered April 3, 2002 (the "Series 2002 Certificates of Participation");
and
WHEREAS, pursuant to the Series 2002 Installment Purchase Agreement, revenues of the
Water System (defined herein) are pledged to pay Installment Payments, as defined therein (the
"Series 2002 Installment Payments") net of operation and maintenance costs (the "COP O&M
Costs"), defined in the Series 2002 Installment Purchase Agreement to include in part "annual costs
not to exceed (a) $2,750,000 for project lease payments, including principal and interest components
for the Phase I San Juan Basin Ground Water Recovery Plant (the "Ground Water Recovery Plant");
plus (b) $1,100,000 for other capital and operations costs of the Ground Water Recovery Plant,
increasing by 85% of CPI annually; plus (c) $1,200,000 for electricity costs of the Ground Water
Recovery Plant, provided that (a), (b) and (c) above may be increased due to currently unforeseeable
cost increases which are out of the control of the Water District and of the owner, operator and
lenders with respect to the Ground Water Recovery Plant"; and
WHEREAS, the parties hereto have determined that the Lease Payments are, and shall be
deemed to be, for all purposes of the Series 2002 Installment Purchase Agreement, the project lease
payments described and included in the COP O&M Costs and constitute Maintenance and Operation
Costs (defined herein) for purposes of this Lease Agreement, and, as such, are payable from
Revenues (as defined herein and in the Series 2002 Installment Purchase Agreement) on a senior lien
basis to the Series 2002 Installment Payments; and
WHEREAS, the City of San Juan Capistrano (the "City") has leased the Property (defined
herein) to the Authority pursuant to that certain Property Lease by and between the Authority and the
City of even date herewith; and
WHEREAS, to finance the Service Contract Project Improvements (defined in the Trust
Agreement), the Authority and the Water District will enter into this Lease Agreement pursuant to
which the Water District will lease the Property from the Authority, together with the Service
DOCSOC\909571 v 10\2265 8.0017
0 0
Contract Project Improvements to be constructed and installed thereon by the Water District and the
Company; and
WHEREAS, the Authority will assign its rights under this Lease Agreement to [TRUSTEE],
as Trustee (the "Trustee") under that certain Trust Agreement among the Trustee, the Water District
and the Authority dated as of the date hereof (the 'Trust Agreement"); and
WHEREAS, the Water District, for the design, construction and operation of the Service
Contract Project Improvements pursuant to the terms thereof, has entered into that certain service
contract with ECO Resources, Inc., a Texas corporation (the "Company"), dated as of
2002 (the "Service Contract"), pursuant to which the Company is obligated to implement the design
and construction of the Service Contract Project Improvements, and to operate the Service Contract
Project Improvements; and
WHEREAS, pursuant to Section 13.2 of the Service Contract, the Water District may
terminate the Service Contract under certain circumstances, in which event this Lease Agreement
shall terminate as provided herein;
NOW, THEREFORE, in consideration of the above premises and of the mutual covenants
hereinafter contained and for other good and valuable consideration, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS AND EXHIBITS
Section l .l. Definitions and Rules of Construction. Unless the context otherwise requires,
the capitalized terms used herein shall, for all purposes of this Lease, have the meanings herein
specified. Unless the context otherwise indicates, words importing the singular number shall include
the plural number and vice versa. The terms "hereby," "hereof," "hereto," "herein," "hereunder" and
any similar terms, as used in this Lease, refer to this Lease as a whole. Capitalized terms not
otherwise defined herein shall have the meaning given to each such term in the Trust Agreement.
"Additional Payments" shall have the meaning ascribed thereto in Section 4.14 hereof.
"Authority" means the San Juan Basin Authority, a joint exercise of powers authority
organized and existing pursuant to Chapter 5, Division 7, Title 1 of the Government Code of the
State.
"Authorized Representative of the Authority" means the Executive Director of the Authority
and any person or persons designated by the Executive Director of the Authority and authorized to
act on behalf of the Authority as certified by a written certificate signed on behalf of the Authority by
the Executive Director of the Authority and containing the specimen signature of each such person.
"Authorized Representative of the City" means the City Manager of the City, the Public
Works Director of the City or any person or persons designated by the City Manager and authorized
to act on behalf of the City by a written certificate signed on behalf of the City by the City Manager
and containing the specimen signature of each such person.
DOCS0090957I v 10122658.0017
"Authorized Representative of the Water District" means the General Manager of the Water
District or any person or persons designated by the General Manager and authorized to act on behalf
of the Water District by a written certificate signed on behalf of the Water District by the General
Manager and containing the specimen signature of each such person.
"Board of Directors" means the Board of Directors of the Water District.
"Bond" or "Bonds" means any of the San Juan Basin Authority Lease Revenue Bonds
(Ground Water Recovery Project), Issue of 2002 issued pursuant to the Trust Agreement.
"Bond Counsel" means a firm of nationally -recognized attorneys experienced in the issuance
of tax-exempt obligations the interest on which is excludable from gross income under Section 103
of the Code.
`Bond Insurer" means [INSURER], a
"City" means the City of San Juan Capistrano, California.
"Closing Date" means the date on which the Bonds are delivered to the initial purchaser
thereof.
"Code" means the Internal Revenue Code of 1986, as amended and the United States
Treasury Regulations proposed or in effect with respect thereto.
"Company" means ECO Resources, Inc., a Texas corporation, and any successor thereto
under the terms of the Service Contract.
"Costs of Issuance" means all expenses and costs of the Authority or the Water District
incident to the performance of its obligations in connection with the authorization, execution, sale
and delivery of the Bonds, including, but not limited to, printing costs, initial Trustee fees and
expenses and fees and expenses of its counsel, fees and expenses of consultants and fees and
expenses of bond counsel to the Authority or the Water District, credit enhancement fees and bond
insurance costs.
"Costs of Issuance Account" means the account by that name established pursuant to
Section 4.1 of the Trust Agreement.
"CPI" means Consumer Price Index, as nuhl'shed by
"Debt Service Payment Account" means the Debt Service Payment Account established in
Section 4.1 of the Trust Agreement.
"Delivery Date" means the date of the initial issuance of the Bonds.
"End of Term" shall have the meaning ascribed thereto in Section 4.2.
"Events of Default" means events of default as set forth in Section 9.1.
3
DOCSOC1909571 v 10122658.0017
0 0
"Fiscal Year" means the twelve month fiscal period of the Water District which commences
on July I in every year and ends on June 30 of the succeeding year.
"GAAP" means generally accepted accounting principles.
"Independent Counsel" means an attorney duly admitted to the practice of law before the
highest court of the state in which such attorney maintains an office and who is not an employee or
officer of the Authority, the Trustee or the Water District.
amended from time to -time.
"Insurance Policy" means the insurance policy issued by the Bond Insurer insuring the
payment when due of the principal of and interest on the Bonds as provided therein.
"Interest Payment Date" means 1 and 1 of each year commencing 1,
2003.
"Joint Exercise of Powers Agreement" means that certain Joint Exercise of Powers
Agreement entered into by and among the Capistrano Beach County Water District, the Santa
Margarita Water District, and Orange County Water District No. 4 dated as of November 22, 1971,
as amended effective September 1, 1987 by Addendum No. 1 to the Joint Exercise of Powers
Agreement and Addendum No. 3 dated as of September 1, 2002.
"Lease" or "Lease Agreement" means this Lease Agreement, between the Water District and
the Authority, as amended and supplemented from time to time in accordance with its terms.
"Lease Payment" means the amount to be paid by the Water District for the lease of the
Project corresponding to the Lease Payment Date set forth in Section 4.4 and Exhibit B of this Lease
Agreement.
"Lease Payment Date" means the 15th day of the month preceding each Interest Payment
Date (or if the 15th day of the month is not a Business Day, on the next succeeding Business Day).
"Lease Revenue Bonds Rate Stabilization Reserve" means the fund by that name established
pursuant to Section 4.16 hereof.
"Maintenance and Operation Costs" means costs spent or incurred for operation and
maintenance of the Water System calculated in accordance with generally accepted accounting
principles, including (among other things) the reasonable expenses of management and repair and
other expenses necessary to maintain and preserve the Water System in good repair and working
order, and also means all costs of water purchased or otherwise acquired for delivery by the Water
System (including the Lease Payments, ^— any Parity Obligations and any interim or renewed
arrangement for water purchase or acquisition); but excluding in all cases depreciation, replacement
and obsolescence charges or reserves therefor and amortization of intangibles or other bookkeeping
entries of a similar nature and any amounts transferred to the Lease Revenue Bonds Rate
Stabilization Reserve.
4
DOC SOC\909571 v 10122658.0017
•
C�
"Maintenance and Operation Cap" means annual costs not to exceed — $2,750,000 for Lease
Payments^—.
"Manager" means the General Manager of the Water District, or any other person designated
by the General Manager to act on behalf of the General Manager.
W67AM 1=1 , ♦ 5 II r,"�
"Net Insurance Proceeds" means any insurance or condemnation proceeds paid with respect
to the Project remaining after payment therefrom of all expenses incurred in the collection thereof.
"Net Revenues" means the amounts of Revenues of the Water System remaining after
payment therefrom of the Maintenance and Operation Costs.
"Operating Lease" means that certain Operating Lease of even date herewith by and between
the Water District and the Authority.
"Parity Obligations" means any obligations secured on a parity with the Bonds which are
incurred in accordance with the provisions of Section 4.11 hereof
"Permitted Encumbrances" means as of any particular time: (1) liens for general ad valorem
taxes and assessments, if any, not then delinquent, or which the Water District may, pursuant to
Section 7.7(c) hereof, permit to remain unpaid; (2) the Trust Agreement as it may be amended from
time to time; (3) this Lease Agreement and the Property Lease as they may be amended from time to
time; (4) any right or claim of any mechanic, laborer, materialman, supplier or vendor filed or
perfected in the manner prescribed by law to the extent permitted under Section 7.8(b) hereof,
(5) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants,
conditions or restrictions which exist of record as of the Closing Date and which the Water District
certifies in writing on the Closing Date will not materially impair the use of the Project;
(6) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants,
conditions or restrictions established following the Closing Date, to which the Authority and the
Water District consent in writing and which the Water District certifies will not materially impair the
use of the Project or real property substituted for the Project, as the case may be; and (7) liens created
in connection with the issuance of Parity Obligations.
"Property" means the real property described from time to time in Exhibit A hereto.
"Property Lease" means the Property Lease between the City, as lessor, and the Authority, as
lessee, as amended and supplemented from time to time in accordance with its terms.
"Purchase Option Price" means the amount to be paid pursuant to this Lease Agreement, as
the same may be amended, less the amount of any funds held by the Trustee which are available for
redemption of the Bonds plus interest on such principal to the redemption date and premium, if any.
"Revenue Fund" means the enterpise fund of the Water District currently identified as the
"Unrestricted Fund" of the Water District, any successor fund or funds, and such other funds as the
Board of Directors shall establish as a part of the Revenue Fund which shall constitute the Revenue
Fund maintained pursuant to this Lease Agreement and the "Revenue Fund" maintained pursuant to
the Series 2002 Installment Purchase Agreement.
DOCS00909571 v 10\22658.0017
"Revenues" means all income, rents, rates, fees, charges and other moneys derived from the
ownership or operation of the Water System, including, without limiting the generality of the
foregoing,
(1) all income, rents, rates, fees, charges, business interruption insurance proceeds or
other moneys derived by the Water District from the sale, furnishing and supplying of the water or
other services, facilities, and commodities sold, furnished or supplied through the facilities of or in
the conduct or operation of the business of the Water System;
(2) the earnings on and income derived from the investment of amounts described in
clause (1) above and from Water District reserves; and
(3) the proceeds derived by the Water District directly or indirectly from the sale, lease
or other disposition of a part of the Water System;
41 navments under Metropolitan Water Agreement:
$ payments under insurance Agreement:
but excluding
(a) customers' deposits or any other deposits or advances subject to refund until
such deposits or advances have become the property of the Water District;
(b) any proceeds of taxes or assessments restricted by law to be used by the
Water District to pay bonds or other obligations heretofore or hereafter issued.
Revenues shall also include all amounts transferred from the Lease Revenue Bonds Rate
Stabilization Reserve to the Revenue Fund during any Fiscal Year in accordance with Section 4.16
hereof.
"S&P" or "Standard & Poor's" means Standard & Poor's Ratings Group, a municipal bond
rating service with offices in New York, New York.
"Series 2002 Certificates of Participation" means the San Juan Capistrano Public Financing
Authority Revenue Certificates of Participation, Series 2002, executed and delivered on April 3,
2002 in the aggregate principal amount of $8,525,000.
"Series 2002 Installment Payments" means the installment payments of interest and principal
scheduled to be paid by the Water District under and pursuant to the Series 2002 Installment
Purchase Agreement, and any amendments thereto.
"Series 2002 Installment Purchase Agreement" means that certain Installment Purchase
Agreement by and between the Water District and the San Juan Capistrano Public Financing
Authority, dated as of March 1, 2002.
"Service Contract" means that certain service contract by and between the Water District and
the Company, for the design, construction and operation of the Project dated as of September
2002.
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"State" means the State of California.
["Surety Bond" means the surety bond issued by Bond Insurer guaranteeing certain payments
into the Debt Service Reserve Fund with respect to the Bonds as provided therein and subject to the
limitation set forth therein. RESERVED]
"Term" means the duration of this Lease Agreement pursuant to the provisions of Section 4.2
hereof.
"Trust Agreement" means the Trust Agreement relating to the San Juan Basin Authority
Lease Revenue Bonds (Ground Water Recovery Project) Issue of 2002, dated as of the date hereof
entered into by and among the Water District, the Authority and the Trustee and any and all
Supplemental Trust Agreements.
"Trustee" means [TRUSTEE] and its successor or successors which may at any time be
substituted in its place pursuant to the provisions of the Trust Agreement.
"Water District" means Capistrano Valley Water District, a county water district duly
organized and existing under and by virtue of the laws of the State, and its successors and assigns,
including any successor by merger to all of its rights and obligations.
"Water System" means the entire water system of the Water District, including, without
limitation, all real property and buildings, and including all improvements, works or facilities
assessed, controlled or operated by the Water District to provide water, as such improvements, works
or facilities now exist, together with all improvements and extensions to said water system later
acquired, constructed or organized.
Section 1.2. Exhibits. The following Exhibits are attached to, and by reference made a
part of, this Lease Agreement:
Exhibit A: Description of the Property.
Exhibit B: Schedule of Lease Payments.
ARTICLE II
REPRESENTATIONS, COVENANTS AND WARRANTIES
Section 2.1. Representations, Covenants and Warranties of the Water District. The Water
District represents, covenants and warrants to the Authority as follows:
(a) Due Organization and Existence. The Water District is a county water district
duly organized and existing under and by virtue of the laws of the State, with the power and authority
to own, lease and acquire real and personal property and equipment and to incur the obligations
hereunder.
(b) Authorization: Enforceabiliri. The laws of the State authorize the Water
District to enter into this Lease Agreement and to enter into the transactions contemplated by and to
carry out its obligations under this Lease Agreement, and the Water District has duly authorized and
DOCSOC V 09571 v 10122658.0017
0 0
executed this Lease Agreement. This Lease Agreement constitutes the legal, valid and binding
obligation of the Water District, enforceable in accordance with its terms, except to the extent limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable
principles affecting the rights of creditors generally.
(c) No Conflicts or Default; No Liens or Encumbrances. Neither the execution
and delivery of this Lease Agreement, nor the fulfillment of or compliance with the terms and
conditions hereof, nor the consummation of the transactions contemplated hereby, conflicts with or
results in a breach of the terns, conditions or provisions of any restriction or any agreement or
instrument to which the Water District is now a party or by which the Water District is bound, or
constitutes a default under any of the foregoing, or results in the creation or imposition of any lien,
charge or encumbrance whatsoever upon any of the property or assets of the Water District or upon
the Project, except for Permitted Encumbrances.
(d) Execution and Delivery. The Water District has duly authorized and
executed this Lease Agreement in accordance with the laws of the State.
(e) No Consent Required. There is no consent, approval, authorization or other
order of, or filing with, or certification by, any regulatory authority having jurisdiction over the
Water District required for the consummation by the Water District of the transactions contemplated
by this Lease Agreement.
(f) No Litigation. There is no action, suit, proceeding, inquiry or investigation,
at law or in equity, before or by any court, governmental agency, public office or body, pending or
threatened against the Water District affecting the existence of the Water District or the titles of its
officers to their respective offices or seeking to prohibit, restrain or enjoin the Water District's
covenants to make Lease Payments or in any way contesting or affecting the validity or
enforceability of this Lease Agreement or contesting the powers of the Water District or its authority
to enter into, adopt or perform its obligations under this Lease Agreement or any amendment or
supplement thereto, wherein an unfavorable decision, ruling or finding would materially adversely
affect the Lease Agreement, or in which a final adverse decision could materially adversely affect the
operations of the Water District.
(g) Indemnification of Authoriri. To the extent permitted by law, the Water
District covenants to defend, indemnify and hold harmless the Authority and its assigns (including
specifically the Trustee), directors and employees (collectively, the "Indemnified Party") against any
and all losses, claims, damages or liabilities, joint or several, including fees and expenses incurred in
connection therewith, to which such Indemnified Party may become subject under any statute or at
law or in equity or otherwise in connection with the transactions contemplated by this Lease
Agreement or the Trust Agreement, and shall reimburse any such Indemnified Party for any legal
expenses reasonably incurred by it in connection with defending any actions, insofar as such losses,
claims, damages, liabilities or actions arise out of the transactions contemplated by this Lease
Agreement, the Trust Agreement or the Property Lease. In particular, without limitation, to the
extent permitted by law, the Water District shall and hereby agrees to indemnify and save the
Indemnified Party harmless from and against all claims, losses and damages, including legal fees and
expenses, to the extent arising out of (i) the use, maintenance, condition or management of, or from
any work or thing done on, the Project by the Water District, (ii) any breach or default on the part of
the Water District in the performance of any of its obligations under this Lease Agreement or the
8
DOL SOC1909571 v 10122658.0017
Trust Agreement, (iii) any act of negligence of the Water District or of any of its agents, contractors,
servants, employees or licensees with respect to the Project, (iv) any act of negligence of any
assignee or sublessee of the Water District with respect to the Project or (v) the acceptance of, and
performance of the duties of the Trustee under the Trust Agreement. No indemnification is made
under this Section or elsewhere in this Lease Agreement for claims, losses or damages, including
legal fees and expenses arising out of the willful misconduct, negligent acts or omissions, or breach
of duty under this Lease Agreement, the Property Lease or the Trust Agreement by the Authority, its
officers, directors, agents, employees, successors or assigns (including specifically the Trustee).
(h) General Tax and Arbitrage Covenant. The Water District hereby covenants
that, notwithstanding any other provision of this Lease Agreement, it shall not take any action, or fail
to take any action, if any such action or failure to take action would adversely affect the exclusion
from gross income of interest with respect to the Bonds under Section 103 of the Internal Revenue
Code of 1986, as amended (the "Code"). The Water District shall not, directly or indirectly, use or
permit the use of proceeds of the Bonds or the Service Contract Project Improvements, or any portion
thereof, by any person other than a governmental unit (as such term is used in Section 141 of the
Code), in such manner or to such extent as would result in the loss of exclusion from gross income
for federal income tax purposes of interest on the Bonds.
The Water District shall not take any action, or fail to take any action, if any such action or
failure to take action would cause the Bonds to be "private activity bonds" within the meaning of
Section 141 of the Code, and in furtherance thereof, shall not make any use of the proceeds of the
Bonds or the Service Contract Project Improvements, or any portion thereof, or any other funds of
the Water District, that would cause the Bonds to be "private activity bonds" within the meaning of
Section 141 of the Code. To that end, so long as any Bonds are outstanding, the Water District, with
respect to such proceeds and the Service Contract Project Improvements and such other funds, will
comply with applicable requirements of the Code and all regulations of the United States Department
of the Treasury issued thereunder and under Section 103 of the Code, to the extent such requirements
are, at the time, applicable and in effect.
The Water District shall not, directly or indirectly, use or permit the use of any proceeds of
any Bonds, or of the Service Contract Project Improvements, or other funds of the Water District, or
take or omit to take any action, that would cause the Bonds to be "arbitrage bonds" within the
meaning of Section 148 of the Code. To that end, the Water District shall comply with all
requirements of Section 148 of the Code and all regulations of the United States Department of the
Treasury issued thereunder to the extent such requirements are, at the time, in effect and applicable to
the Bonds.
The Water District shall not make any use of the proceeds of the Bonds or any other funds of
the Water District, or take or omit to take any other action, that would cause the Bonds to be
"federally guaranteed" within the meaning of Section 149(b) of the Code.
Section 2,2. Representations. Covenants and Warranties of the Authority. The Authority
represents, covenants and warrants to the Water District as follows:
(a) Due Organization and Existence: Enforceability. The Authority is a joint
powers authority, duly organized, existing and in good standing under and by virtue of the laws of
the State, has the power to enter into this Lease Agreement, the Property Lease and the Trust
9
DOC SOC\909571 v 10122658.0017
Agreement; is possessed of full power to own and hold real and personal property, and to lease and
sell the same; and has duly authorized the execution and delivery of this Lease Agreement, the
Property Lease and the Trust Agreement. This Lease Agreement, the Property Lease and the Trust
Agreement constitute the legal, valid and binding obligations of the Authority, enforceable in
accordance with their respective terms, except to the extent limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable principles affecting the rights of
creditors generally.
(b) No Encumbrances. The Authority will not pledge the Lease Payments or
Additional Payments or other amounts derived from the Project or from its other rights under this
Lease Agreement or the Property Lease, except for Permitted Encumbrances and except as provided
under the terms of this Lease Agreement.
(c) No Conflicts or Defaults; No Liens or Encumbrances. Neither the execution
and delivery of this Lease Agreement, the Property Lease or the Trust Agreement nor the fulfillment
of or compliance with the terms and conditions hereof or thereof, nor the consummation of the
transactions contemplated hereby or thereby, conflicts with or results in a breach of the terms,
conditions or provisions of the Joint Exercise of Powers Agreement of the Authority or any
restriction or any agreement or instrument to which the Authority is now a party or by which the
Authority is bound, or constitutes a default under any of the foregoing, or results in the creation or
imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of the
Authority or upon the Project, except for Permitted Encumbrances.
(d) No Consent Required. There is no consent, approval, authorization or other
order of, or filing with, or certification by, any regulatory authority having jurisdiction over the
Authority required for the consummation by the Authority of the transactions contemplated by this
Lease Agreement, the Trust Agreement or the Property Lease.
(e) No Litigation. There is no action, suit, proceeding, inquiry or investigation,
at law or in equity, before or by any court, governmental agency, public office or body, pending or
threatened against the Authority affecting the existence of the Authority or the titles of its officers to
their respective offices or seeking to prohibit, restrain or enjoin the Authority's receipt of, or
assignment to the Trustee of, Lease Payments or in any way contesting or affecting the validity or
enforceability of this Lease Agreement, the Trust Agreement or the Property Lease or contesting the
powers of the Authority or its authority to enter into, adopt or perform its obligations under this
Lease Agreement, the Trust Agreement or the Property Lease or any amendment or supplement
thereto, wherein an unfavorable decision, ruling or finding would materially adversely affect the
Lease Agreement, the Trust Agreement or the Property Lease, or in which a final adverse decision
could materially adversely affect the operations of the Authority.
(f) Execution and Delivery. The Authority has duly authorized and executed this
Lease Agreement, the Property Lease and the Trust Agreement in accordance with the Constitution
and laws of the State.
(g) General Tax and Arbitrage Covenant. The Authority covenants that,
notwithstanding any other provision of this Lease Agreement, it will make no use of the proceeds of
the Bonds or of any other amounts or property, regardless of the source, or take any action or refrain
from taking any action that may cause the obligations of the Water District under this Lease
10
DOC SOC\909571 v 10\2265 8.0017
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Agreement to be "arbitrage bonds" subject to federal income taxation by reason of Section 148 of the
Code.
In addition, the Authority covenants that it will not make any use of the proceeds of the
obligations provided herein or in the Trust Agreement or of any other funds of the Water District or
the Authority or take or omit to take any other action that would cause such obligations to be "private
activity bonds" within the meaning of Section 141 of the Code, or "federally guaranteed" within the
meaning of Section 149(b) of the Code. To that end, so long as necessary to maintain the exclusion
from gross income for federal income tax purposes of the interest portion of the Lease Payments, the
Authority will comply with all requirements of such Sections and all regulations of the United States
Department of the Treasury issued thereunder and under Section 103 of the Code, to the extent that
such requirements are, at the time, applicable and in effect.
(h) Maintenance of Corporate Existence. To the extent permitted by law, the
Authority agrees that during the Term it will maintain its existence as a public entity, will not
dissolve or otherwise dispose of all or substantially all of its assets.
ARTICLE III
ACQUISITION AND CONSTRUCTION OF THE
SERVICE CONTRACT PROJECT IMPROVEMENTS
Section 3.1. Deposit of Bond Proceeds. On the Closing Date, the Authority agrees to
deposit to the Project Account of the Project Trust Fund created under the Trust Agreement the
proceeds of the Authority's sale of the Bonds in the amount specified in Section 4.1 of the Trust
Agreement.
Section 3.2. Acquisition and Construction of the Service Contract Project Improvements.
The Water District agrees, as agent for the Authority, to exercise its rights pursuant to the terms of
the Service Contract as may be reasonably necessary to cause the Service Contract Project
Improvements to be acquired, constructed, delivered and installed with the proceeds of Bonds made
available by the Trustee, pursuant to Section 3.1 above, and the Authority shall have no
responsibility with respect thereto.
Section 3.3. Further Assurances and Corrective Instruments. The Authority and the Water
District agree that they will, from time to time, execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, such supplements hereto and such further instruments as may
reasonably be required for correcting any inadequate or incorrect description of the Property hereby
leased or intended so to be or for carrying out the expressed intention of this Lease Agreement.
ARTICLE IV
AGREEMENT OF LEASE; TERM OF
LEASE; LEASE PAYMENTS
Section 4.1. Lease. The Authority hereby leases the Property to the Water District upon
the terms and conditions set forth herein.
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Section 4.2. Term. The Term of this Lease Agreement shall commence on the Closing
Date and shall end on 1, 20 , unless extended pursuant to Section 4.3 hereof (as so extended
the "End of Term"), or unless terminated prior thereto upon the earlier of the following events:
(a) Payment of All Lease Payments. The payment by the Water District of all
Lease Payments required under Section 4.4 hereof and any Additional Payments required under
Section 4.14 hereof; or
(b) PrepgM The optional prepayment of all Lease Payments in accordance
with Section 10.3 hereof and the payment of all Additional Payments due through such prepayment
date; or
(c) ExtraordinM Termination. The exercise by the Water District of its right to
terminate this Lease Agreement upon the occurrence of one or more of the conditions therefor as
described in Section 4.17 hereof.
Section 4.3. Extension of Lease Term. If on 1, 20 the Bonds shall not be fully
paid, then the Term shall be extended until all Bonds shall be fully paid, except that the Term shall in
no event be extended beyond 1, 20_.
Section 4.4. Lease Payments.
(a) Time and Amount. Subject to the provisions of Article X hereof (regarding
prepayment of Lease Payments) and subject to the provisions of Section 4.17 hereof (regarding
termination of this Lease Agreement), the Water District agrees to pay to the Authority, its
successors and assigns, as annual rental for the use and possession of the Project, the Lease Payments
to be due and payable in arrears on the days specified in Exhibit B hereto or if such a day is not a
Business Day then on the next preceding Business Day (each such day a "Lease Payment Date").
(b) Priority Payment. The Water District hereby unconditionally pledges the
Revenues to the payment of the Lease Payments on a senior basis to its pledge of Net Revenues to
the payment of the Series 2002 Installment Payments up to the Maintenance and Operation Cap and ^-
Mgggpditionaft pledges — Net Revenues to the payment of Lease Payments on a parity to its pledge
of Net Revenues to the payment of the Series 2002 Installment Payments. The Water District
covenants to make no changes in the ^— Series 2002 Installment Purchase Agreement or otherwise
that impairs the priority of such pledge and such priority shall survive any partial payment or
defeasance of the 2002 Installment Purchase Agreement or 2002 Certificates of Participation.
(c) Credits. Any amount held in the Debt Service Payment Account on any
Lease Payment Date (other than amounts required for payment of past due principal or interest with
respect to any Bonds that have matured or been called for redemption and have not been presented
for payment or amounts which have been paid with respect to a prior Lease Payment Date but not yet
distributed to Bond Owners) shall be credited toward the Lease Payment then due and payable. No
Lease Payment need be made on any Lease Payment Date if the amounts then held in the Debt
Service Payment Account (other than those amounts excluded under the prior sentence) are at least
equal to the cumulative total of Lease Payments then required to be paid.
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(d) Rate on Overdue Payments. In the event the Water District should fail to
make any Lease Payment required by this Section 4.4, or any portion of any such Lease Payment, the
Lease Payment or portion in default shall continue as an obligation of the Water District until the
amount in default shall have been fully paid, and the Water District agrees to pay the same with
interest thereon, to the extent permitted by law, from the date such amount was originally payable at
the rate equal to the highest stated interest rate on any of the Bonds as stated in the Trust Agreement.
Section 4.5. No Withholding. Notwithstanding any dispute between the Authority and the
Water District, the Water District shall make all Lease Payments when due and shall not withhold
any Lease Payment pending the final resolution of such dispute.
Section 4.6. Obligation Absolute. Except as permitted pursuant to Section 4.17 hereof,
the obligation of the Water District to make the Lease Payments is absolute and unconditional and
until such time as the Lease Payments shall have been paid in full (or provision for the payment
thereof shall have been made pursuant to Article X), the Water District will not discontinue or
suspend any Lease Payments or Additional Payments required to be made by it under this Lease
Agreement when due, whether or not the Water System or any part thereof is operating or operable
or its use is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and
such payments shall not be subject to reduction whether by offset or otherwise and shall not be
conditional upon the performance or nonperformance by any party of any agreement for any cause
whatsoever.
Section 4.7. Budget and Appropriation. The Water District covenants to take such action
as may he necessary to include all Lease Payments and Additional Payments due hereunder in its
proposed annual budget and its final adopted annual budget and to make the necessary appropriations
for any amount of Lease Payments and Additional Payments to be paid therefor.
Section 4.8. Revenue Fund. The Water District agrees to maintain the Revenue Fund held
by the Treasurer of the Water District (the "Treasurer"). All Revenues shall be deposited with the
Treasurer and credited to the Revenue Fund. The Water District shall transfer moneys from the
Revenue Fund to pay Maintenance and Operation Costs, including without limitation the Lease
Payments in accordance with Section 4.4 of this Lease Agreement and lease payments securing
Parity Obligations, if any, in each case subject to the Maintenance and Operation Cap. Any
Revenues in excess of the amounts budgeted, as required, for the payment of the Lease Payments and
Maintenance and Operation Costs shall constitute surplus revenues in the Revenue Fund. After all
covenants contained herein have been duly performed each year, and provided that there are no
amounts then owing to Authority or the Trustee by the Water District, such surplus revenues may be
used for: (1) payment of Series 2002 Installment Payments, (2) extensions and betterments of the
Water System; or (3) any lawful purpose of the Water District.
Section 4.9. Rates and Charges. The Water District shall, to the maximum extent
permitted by law, fix, prescribe and collect rates and charges for water service which will be at least
sufficient to yield during each Fiscal Year Revenues equal to one hundred percent (100%) of
Maintenance and Operation Costs paid in the immediately preceding Fiscal Year, provided that such
costs shall include the Lease Payments payable in such Fiscal Year, plus Additional Payments
payable in such Fiscal Year, plus the amount by which the amount on deposit in the Lease Revenue
Bonds Rate Stabilization Reserve on the last day of the immediately preceding Fiscal Year was less
than twenty-five percent (25%) of Maximum Annual Debt Service as of such day. The Water
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DOC SOC\909571 v 10122658.0017
0
District may make adjustments from time to time in such rates and charges and may make such
classification thereof as it deems necessary, but shall not reduce the rates and charges then in effect
unless the Revenues from such reduced rates and charges will at all times be sufficient to meet the
requirements of this rate covenant.
Section 4.10. No Priority for Additional Obligations. The Water District covenants that no
additional bonds, notes or obligations shall be issued or incurred by the Water District which will
have any priority in payment out of the Revenues over the Lease Payments.
Section 4.11. Limits on Additional Debt. The Water District covenants that, except for
obligations issued to prepay all or a portion of the Lease Payments, it will issue obligations payable
from Revenues on a parity basis with the Lease Payments only if the Water District delivers to the
Trustee prior to the issuance of any Parity Obligations a certificate certifying that all of the following
additional conditions are met:
(a) The Water District is not in default under the terms of this Lease Agreement;
and
(b) the Revenues as shown by the books of the District for the twelve (12)
calendar months ending prior to the incurring of such additional obligations shall have amounted to
at least the sum of (x) one hundred percent (100%) of Maintenance and Operation Costs, including
without limitation Lease Payments, for such twelve (12) calendar month period, plus (y) the amount
by which the amount on deposit on the Lease Revenue Bonds Rate Stabilization Reserve on the date
prior to the first day of such twelve (12) calendar month period was less than twenty-five percent
(25%) of Maximum Annual Debt Service; for purposes of preparing the certificate or certificates
described above, the Water District may rely upon financial statements prepared by the Water
District, which have not been subject to audit by an Independent Certified Public Accountant if
audited financial statements for the Fiscal Year or period are not available;
(c) the estimated Revenues for the twelve (12) calendar months following the
date of incurring such Parity Obligations will be at least equal to one hundred percent (100%) of
Maximum Annual Debt Service on all Maintenance and Operation Costs, including without
limitation Lease Payments projected to be paid in the next succeeding Fiscal Year and payments in
the next succeeding Fiscal Year on Parity Obligations to be outstanding immediately after the
incurring of such Parity Obligations, and the Additional Payments paid in the prior Fiscal Year as of
the date of incurring of such Parity Obligations;
(d) the amount on deposit in the Lease Revenue Bonds Rate Stabilization
Reserve on the date of incurring such Parity Obligations will, after giving effect to additional
deposits in connection therewith, be at least equal to twenty-five percent (25%) of the sum of
(i) Maximum Annual Debt Service, (ii) the maximum annual lease payment for such Parity
Obligations, and (iii) the Additional Payments paid in the prior Fiscal Year as of the date of incurring
of such Parity Obligations; and
(e) the Lease Payments plus lease payments securing all Parity Obligations,
including without limitation the Parity Obligations proposed to be issued, do not in the aggregate
exceed the Maintenance and Operation Cap.
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d
For purposes of the computations to be made as described in (b) above, the determination of
the Revenues:
(i) may take into account any increases in rates and charges which relate
to the Water System and shall take into account any reduction in such rates and charges,
which will be effective prior to or at the time of incurring such proposed additional
obligations;
(ii) may take into account an allowance for any estimated increase in such
Revenues from any revenue producing additions to or improvements or extensions of the
Water System to be made with the proceeds of such additional obligations or with the
proceeds of obligations previously issued, as shown by a certificate of the Water District; and
(iii) for the period contemplated by (c) above, Maintenance and Operation
Costs of the Water System shall be deemed to be the same as for the period for which a
calculation is done pursuant to (b) above, but adjusted, if deemed necessary by the Water
District, for any increased Maintenance and Operation Costs of the Water System which are,
in the judgment of the Water District, essential to maintaining and operating the Water
System.
Nothing herein shall preclude the Water District from issuing obligations which are
subordinate to the payment of the Lease Payments.
In the event the additional indebtedness bears interest at a variable rate, for purposes of the
rate covenant (Section 4.9 above) and determining compliance with the tests for issuance of
additional indebtedness under this Section 4.11, debt service payable on variable rate additional
indebtedness shall be computed assuming such additional indebtedness bears interest at the rate
quoted in The Bond Buyer 25 Revenue Bond Index for the last week of the month preceding the date
when the Water District incurs such additional indebtedness, as published in The Bond Buyer, plus
one-half of one percent (0.50%), or if such index is no longer published, another similar index to be
selected by the Authority, or if the Authority fails to select a replacement index, an interest rate equal
to eighty percent (80%) of the yield for outstanding United States Treasury bonds having a maturity
equivalent to that of the additional indebtedness proposed to be incurred, or if there are no such
Treasury bonds having equivalent maturities, eighty percent (80%) of the lowest prevailing prime
rate of any of the five largest commercial banks in the United States ranked by assets.
Section 4.12. Assignment of Lease Payments. Certain of the Authority's rights under this
Lease Agreement, including the right to receive and enforce payment of the Lease Payments to be
made by the Water District hereunder, have been absolutely assigned by the Authority to the Trustee,
subject to certain exceptions, pursuant to the Trust Agreement, to which assignments the Water
District hereby consents. The Authority hereby directs the Water District, and the Water District
hereby agrees, to pay to the Trustee at the Trustee's corporate trust office, or to the Trustee at such
other place as the Trustee shall direct in writing, all Lease Payments or prepayments thereof payable
by the Water District hereunder. The Authority will not assign or pledge the Lease Payments or
other amounts derived from the Project or from its other rights under this Lease Agreement except as
provided under the terms of this Lease Agreement and the Trust Agreement, or its duties and
obligations except as provided under the Trust Agreement.
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Section 4.13. Use and Possession. The total Lease Payments and Additional Payments due
in any Fiscal Year shall be for the use and possession of the Project for such Fiscal Year. During the
Term of this Lease Agreement, the Water District shall be entitled to the exclusive use of the Project
subject only to the Permitted Encumbrances.
Section 4.14. Additional Payments. In addition to the Lease Payments, the Water District
shall also pay such amounts ("Additional Payments") as shall be required for the payment of all
administrative costs of the Authority relating to the Project, including without limitation all expenses
including usual and ordinary legal fees and expenses, assessments, compensation and
indemnification of the Authority and the Trustee n, any amounts required to be rebated to the federal
government in order to comply with the provisions of Section 148 of the Code, any amounts required
to be paid to the Trustee to replenish the Reserve Account to the Reserve Requirement pursuant to
Section 4.4(f) of the Trust Agreement, fees under any Alternative Reserve Account Security
instruments, taxes of any sort whatsoever payable by the Authority as a result of its lease of the
Project or undertaking of the transactions contemplated herein or in the Trust Agreement, fees of
auditors, accountants, attorneys or engineers, insurance premiums required by Article V hereof, items
required by Section 7.7 hereof and all other necessary administrative costs of the Authority or
charges required to be paid by it in order to comply with the terms of the Bonds or of the Trust
Agreement or to pay or indemnify the Trustee and its officers and directors. All such Additional
Payments to be paid hereunder shall be paid when due directly by the Water District to the respective
parties to whom such Additional Payments are owing.
Section 4.15, Net -Net -Net Lease. This Lease Agreement shall be deemed and construed to
be a "net -net -net lease" and the Water District hereby agrees that the Lease Payments shall be an
absolute net return to the Authority, free and clear of any expenses, charges or set -offs whatsoever,
except as expressly provided herein.
Section 4.16. Lease Revenue Bonds Rate Stabilization Reserve. There is hereby
established a special fund designated as the "Lease Revenue Bonds Rate Stabilization Reserve" to be
held by the Water District which fund the Water District agrees and covenants to hold separate and
apart from other funds so long as any Bonds remain outstanding. The Water District is required
hereby to fund the Lease Revenue Bonds Rate Stabilization Reserve in an amount equal to 25% of
Maximum Annual Debt Service (the "Rate Stabilization Requirement"). Money transferred by the
Water District to the Lease Revenue Bonds Rate Stabilization Reserve in accordance with this
Section 4.16 shall be held in the Lease Revenue Bonds Rate Stabilization Reserve and applied in
accordance with this Lease Agreement. The Water District shall withdraw all or any portion of the
amounts on deposit in the Lease Revenue Bonds Rate Stabilization Reserve and transfer such
amounts to the Revenue Fund for application in accordance with Section 4.8 hereof to the extent
amounts in the Revenue Fund are not sufficient to pay Maintenance and Operation Costs. The Water
District may expend amounts in the Lease Revenue Bonds Rate Stabilization Reserve for any
purpose permitted by law. The Rate Stabilization Requirement is in addition to amounts required to
be maintained in the separate rate stabilization reserve established in connection with the Series 2002
Certificates of Participation and amounts in the Lease Revenue Bonds Rate Stabilization Reserve are
not available to make payments relative to the Series 2002 Certificates of Participation.
Section 4.17. Termination of Lease Agreement Prior to End of Term.
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DOC SOC\909571 v 10\22658.0017
(a) Termination of Lease Agreement for Failure to Achieve Acceptance. The
Water District shall have the right to terminate this Lease in the event the Water District exercises its
right to terminate the Service Contract pursuant to Section 13.2(A) thereof, provided that the Water
District shall have no right to terminate this Lease if and after the Water District exercises any of its
buy-out rights under the Service Contract.
(b) Termination of Lease Agreement Upon an Event of Default by the Company.
The Water District shall have the right to terminate this Lease Agreement in the event the Water
District exercises its right, subject to applicable notice and cure provisions set forth in the Service
Contract, to terminate the Service Contract pursuant to Section 13.2(B) thereof upon the occurrence
of an Event of Default (as defined in the Service Contract) by the Company under the Service
Contract, provided that the Water District shall have no right to terminate this Lease if and after the
Water District exercises any of its buy-out rights under the Service Contract.
(c) Trustee Benefit Rights.
acknowledge the rights of the Trustee as assignee
Agreement and rights of Trustee and Insurer to i
Service Contract.
The Water District and the Authority hereby
of all rights of the Authority pursuant to the Trust
otice and rights to cure under Article XIII of the
(d) Except as provided in (a) and (b), the Water District and Authority
acknowledge the Water District's obligations hereunder are not conditioned or affected by the
Service Contract or the performance by any party of its obligations thereunder, including, without
limitation, termination of the Service Contract pursuant to any provision other than Section 13.2(A)
or (B).
The Water District and the Authority acknowledge the lockout
ARTICLE V
INSURANCE AND CONDEMNATION
Section 5.1. Insurance. The Water District will procure and maintain insurance on the
Project with responsible insurers at reasonable cost in such amount and against such risks (including
damage to or destruction of the Service Contract Project Improvements) as are usually covered in
connection with facilities similar to the Service Contract Project Improvements, but not less than the
lesser of the full replacement cost or the principal amount of Bonds then outstanding, so long as such
insurance is available from reputable insurance companies.
In the event of any damage to or destruction of the Project caused by the perils covered by
such insurance, the Net Insurance Proceeds thereof shall be applied in accordance with Article VI
hereof.
The Water District shall provide adequate reserves to cover the amount of any deductible
provisions of the insurance required to be maintained pursuant to this Section 5.1.
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0 •
Section 5.2. Cooperation. The Authority shall cooperate fully with the Water District at
the expense of the Water District in filing any proof of loss with respect to any insurance policy
maintained pursuant to this Article and in the prosecution or defense of any prospective or pending
condemnation proceeding with respect to the Project or any portion thereof.
ARTICLE VI
DAMAGE, DESTRUCTION AND EMINENT DOMAIN;
USE OF NET PROCEEDS
Section 6.1. Application of Net Insurance Proceeds.
(a) Deposit in Insurance and Condemnation Account. Pursuant to Section 5.3
hereof, the Trustee shall deposit the Net Insurance Proceeds of any insurance required by Section 5.1
hereof in the Insurance and Condemnation Account established under the Trust Agreement promptly
upon receipt thereof. The Water District and/or the Authority shall transfer to the Trustee any other
Net Insurance Proceeds received by the Water District and/or Authority in the event of any taking by
eminent domain or condemnation with respect to the Project, for deposit in the Insurance and
Condemnation Account.
(b) Disbursement for Replacement or Repair of the Project. Upon receipt of the
certification described in paragraph (i) below and the requisition described in paragraph (ii) below,
the parties hereto agree that the Trustee shall disburse moneys in the Insurance and Condemnation
Account to the person, firm or corporation named in the requisition as provided in Section 5.3 hereof.
(i) Certification. The Authorized Representative of the Water District
must provide to the Authority and the Trustee a certificate stating that the Net Insurance
Proceeds available for such purpose, together with other funds, if any, supplied by the Water
District for such purpose in its sole and absolute discretion, are sufficient to restore the
Project to a value greater than or equal to the value thereof prior to the insured event and
at the consequences of any damages or taking or repair of the Pro*ect is not a basis
(i1) Requisition. An Authorized Representative of the Water District
must state with respect to each payment to be made (1) the requisition number, (2) the name
and address of the person, firm or corporation to whom payment is due, (3) the amount to be
paid and (4) that each obligation mentioned therein has been properly incurred, is a proper
charge against the Insurance and Condemnation Account, has not been the basis of any
previous withdrawal therefrom, and specifying in reasonable detail the nature of the
obligation.
Any balance of the Net Insurance Proceeds remaining after such replacement or repair has
been completed as evidenced by a certificate of the Water District shall be disbursed as provided in
subsection (c) below.
In the event and to the extent the requirements of subsections (b)(i) and (b)(ii) above are
satisfied, the Water District shall begin such reconstruction, repair or replacement promptly after
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DOCS00909571 v 10\22658.0017
such damage or destruction shall occur, and shall continue and properly complete such
reconstruction, repair or replacement as expeditiously as possible, and shall pay out of such Net
Insurance Proceeds all costs and expenses in connection with such reconstruction, repair or
replacement so that the same shall be completed and the Project shall be free and clear of all claims
and liens except as provided in Section 7.8.
(c) Disbursement for Pre payment. If the Authorized Representative of the Water
District notifies the Trustee in writing of the Water District's determination that the certification
provided in Section 6.1(b)(i) hereof cannot be made or replacement or repair of any portion of the
Project is not economically feasible or in the best interest of the Water District, Net Insurance
Proceeds will be applied to the prepayment of Lease Payments, provided that if available Net
Insurance Proceeds exceed the amount necessary to prepay enough Lease Payments and anv other
amounts due or to become due under the Leage Agreement or the Trust Agreement such that
the value of the remaining portion of the Project is equal to or greater than the value of such portion
of the Project prior to the insured event, excess proceeds shall be available to be expended by the
Water District for any lawful purpose.
Section 6.2. Eminent Domain Proceeds. If all or any part of the Service Contract Project
Improvements shall he taken by eminent domain proceedings, the Net Insurance Proceeds thereof
shall be applied by the Water District in part to the prepayment of Lease Payments as provided in
Article IV and in part to such other fund or account as may be appropriate and used for the retirement
of Bonds.
ARTICLE VII
COVENANTS WITH RESPECT TO THE PROJECT
Section 7.1. Use of the Project. The Water District represents and warrants that it has an
immediate need for all of the Project, which need is not expected to be temporary or to diminish in
the foreseeable future.
Section 7.2. Leasehold Interest in the Project.
(a) Authority Holds Leasehold Interest During Term. During the Term, the
Authority shall hold a leasehold interest in the Project pursuant to the Property Lease. The Authority
shall take any and all actions reasonably required, including but not limited to executing and filing
any and all documents, reasonably required to maintain and evidence the Authority's leasehold
interest in the Project at all times during the Term.
(b) Leasehold Interest Transferred to Authority at End of Term. Upon the
expiration of the Term as provided in Section 4.2 hereof, the Water District's leasebold interest in the
Project pursuant to this Lease shall terminate, provided that, concurrent with such termination, the
leasehold interest of the Water District pursuant to the terms of the Operating Lease shall become
effective without the necessity of any additional document of transfer.
Section 7.3. Option to Prepay Lease Pavments. The Water District may exercise an option
to prepay all or a portion of the Lease Payments in accordance with Article X hereof and, by
prepaying Lease Payments in the amounts necessary to cause the termination of the Tenn as provided
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DOC 300909571 v 10\22658.0017
in Section 4.2(b) hereof (the "Purchase Option Price"), terminate the Authority's leasehold interest in
the Property under the Property Lease.
Section 7.4. Quiet Enj_ovment. Subject only to Permitted Encumbrances, during the Term
the Authority shall provide the Water District with quiet use and enjoyment of the Project, and the
Water District shall during such Term peaceably and quietly have and hold and enjoy the Project,
without suit, trouble or hindrance from the Authority, or any person or entity claiming under or
through the Authority except as expressly set forth in this Lease Agreement. The Authority will, at
the request of the Water District, join in any legal action in which the Water District asserts its right
to such possession and enjoyment to the extent the Authority may lawfully do so. Notwithstanding
the foregoing, the Authority shall have the right of access to the Project as provided in Section 7.6
hereof.
Section 7.5. Installation of Water District's Personal Property. The Water District may at
any time and from time to time, in its sole discretion and at its own expense, install or permit to be
installed items of equipment or other personal property in or upon any portion of the Project. All
such items shall remain the sole personal property of the Water District, regardless of the manner in
which the same may be affixed to such portion of the Project, in which neither the Authority nor the
Trustee shall have any interest, and may be modified or removed by the Water District at any time;
provided that the Water District shall repair and restore any and all damage to such portion of the
Project resulting from the installation, modification or removal of any such items of equipment.
Nothing in this Lease Agreement shall prevent the Water District from purchasing items to be
installed pursuant to this Section, provided that no lien or security interest attaching to such items
shall attach to any part of the Project.
Section 7.6. Access to the Project. The Water District agrees that the Authority and the
Authority's successors or assigns shall have (1)the right at all reasonable times to enter upon the
Project or any portion thereof to examine and inspect the Project, and (2) such rights of access to the
Project as may be reasonably necessary to cause the proper maintenance of the Project in the event of
failure by the Water District to perform its obligations hereunder.
Section 7.7. Maintenance, Utilities, Taxes and Assessments.
(a) Maintenance; Repair and Replacement. Throughout the Term of this Lease
Agreement, as part of the consideration for the rental of the Project, all repair and maintenance of the
Project shall be the responsibility of the Water District, and the Water District shall pay for or
otherwise arrange for the payment of the cost of the repair and replacement of the Project resulting
from ordinary wear and tear or want of care on the part of the Water District or any sublessee thereof.
The Water District shall provide or cause to be provided all security service, custodial service,
power, gas, telephone, light, heating and water, and all other public utility services for the Project. In
exchange for the Lease Payments herein provided, the Authority agrees to provide only the Project.
(b) Tax and Assessments, Utility Charges. The Water District shall also pay or
cause to be paid all taxes and assessments, including but not limited to utility charges of any type or
nature charged to the Authority or the Water District or levied, assessed or charged against any
portion of the Project (excluding the Property, with respect to which the City shall pay or cause to be
paid such amounts) or the respective interests or estates therein; provided that with respect to special
assessments or other governmental charges that may lawfully be paid in installments over a period of
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years, the Water District shall be obligated to pay only such installments as are required to he paid
during the Term of this Lease Agreement as and when the same become due.
(c) Contests. The Water District may, at its expense and in its name, in good
faith contest any such taxes, assessments, utility and other charges and, in the event of any such
contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the
period of such contest and any appeal therefrom; provided that prior to such nonpayment it shall
furnish the Authority and the Trustee with the opinion of an Independent Counsel to the effect that,
by nonpayment of any such items, the interest of the Authority in such portion of the Project will not
be materially endangered and that the Project will not be subject to loss or forfeiture. Otherwise, the
Water District shall promptly pay such taxes, assessments or charges or make provisions for the
payment thereof in form satisfactory to the Authority. The Authority will cooperate fully in such
contest, upon the request and at the expense of the Water District.
Section 7.8. Modification of the Project.
(a) Additions, Modifications and Improvements. Subject only to applicable
restrictions and conditions of the Service Contract, the Water District shall, at its own expense, have
the right to make additions, modifications or improvements to any portion of the Project if such
additions, modifications or improvements are necessary or beneficial for the use of such portion of
the Project. Such additions, modifications and improvements shall not in any way damage any
portion of the Project or cause them to be used for purposes other than those authorized under the
provisions of state and federal law or in any way which would impair the exclusion from gross
income for federal income tax purposes of the interest portion of the Lease Payments; and the
Project, upon completion of any additions, modifications and improvements made pursuant to this
Section, shall be of a value which is not less than the value of the Project immediately prior to the
making of such additions, modifications or improvements.
(b) No Liens. Except for Permitted Encumbrances, the Water District will not
permit any mechanic's or other lien to be established or remain against the Project for labor or
materials furnished in connection with any additions, modifications or improvements made by the
Water District pursuant to this Section; provided that if any such lien is established and the Water
District shall first notify or cause to be notified the Authority of the Water District's intention to do
so, the Water District may in good faith contest any lien filed or established against the Project, and
in such event may permit the items so contested to remain undischarged and unsatisfied during the
period of such contest and any appeal therefrom and shall provide the Authority with full security
against any loss or forfeiture which might arise from the nonpayment of any such lien, in form
satisfactory to the Trustee of the Authority. The Authority will cooperate fully in any such contest,
upon the request and at the expense of the Water District.
Section 7.9. Liens. Except as permitted by this Lease Agreement (including without
limitation Section 7.8, Section 8.1 or Section 8.2 hereof), the Water District shall not, directly or
indirectly, create, incur, assume or suffer to exist any mortgage, pledge, Gens, charges, encumbrances
or claims, as applicable, on or with respect to the Project, other than Permitted Encumbrances and
other than the respective rights of the Authority and the Water District as herein provided. Except as
expressly provided in this Article, the Water District shall promptly, at its own expense, take such
action as may be necessary to duly discharge or remove any such mortgage, pledge, lien, charge,
encumbrance or claim, for which it is responsible, if the same shall arise at any time; provided that
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1700 SOC V 09571 v 10122658.0017
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the Water District may contest such lien or claim if it desires to do so, so long as such contest will
not materially, adversely affect the rights of the Water District to the Project or the payment of Lease
Payments hereunder. The Water District shall reimburse the Authority for any expense incurred by it
in order to discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim.
Section 7.10. Authority's Disclaimer of Warranties. THE AUTHORITY OR TRUSTEE
MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO
THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE OR FITNESS FOR THE USE CONTEMPLATED BY THE WATER
DISTRICT OF THE PROJECT OR PORTION THEREOF. In no event shall the Authority or
Trustee be liable for incidental, indirect, special or consequential damages, in connection with or
arising out of this Lease Agreement, the Property Lease, or the Trust Agreement for the existence,
furnishing, functioning or Water District's use and possession of the Project.
Section 7.11. Water District's Richt to Enforce Warranties of Manufacturers. Vendors or
Contractors. The Authority hereby irrevocably appoints the Water District its agent and attorney-in-
fact during the Term, so long as the Water District shall not be in default hereunder, to assert from
time to time whatever claims and rights, including without limitation, warranty claims, claims for
indemnification and claims for breach of any representations, with respect to the Project or the
improvements to the Project which the Authority may have against any manufacturer, vendor or
contractor, or any agents thereof. The Water District's sole remedy for the breach of any such
warranty, indemnification or representation shall be against the manufacturer, vendor or contractor
with respect thereto, and not against the Authority, nor shall such matter have any effect whatsoever
on the rights and obligations of the Authority with respect to this Lease Agreement, including the
right to receive full and timely Lease Payments and to cause the Water District to make all other
payments due hereunder. The Water District shall be entitled to retain any and all amounts recovered
as a result of the assertion of any such claims and rights. The Authority shall, upon the Water
District's request and at the Water District's expense, do all things and take all such actions as the
Water District may request in connection with the assertion of any such claims and rights.
The Water District expressly acknowledges that neither the Authority nor the Trustee makes,
or has made, any representation or warranty whatsoever as to the existence or availability of such
warranties of the manufacturer, vendor or contractor with respect to any of the improvements on the
Project.
Section 7.12. Reconstruction; Application of Net Insurance Proceeds. If any useful portion
of the Service Contract Project Improvements shall be destroyed or is damaged by fire or other
casualty, or title to, or the temporary use of, such portion shall be taken under the exercise of the
power of eminent domain, the Water District shall, as expeditiously as possible, continuously and
diligently prosecute or cause to be prosecuted the repair, reconstruction, restoration or replacement
thereof, unless it is determined under the provisions of Section 6.1(c) hereof that such repair,
reconstruction, restoration or replacement is not to be undertaken.
Section 7.13. Against Encumbrances. The Water District will not make any pledge of or
place any lien on the Net Revenues except as provided herein. The Water District may expend at any
time, or from time to time, general fund revenues or may issue evidences of indebtedness or incur
other obligations for any lawful purpose which are payable from and secured by a pledge of and lien
on general fund revenues.
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Section 7.14. Against Sale or Other Disposition of Project. The Water District will not
enter into any agreement or lease which impairs the operation of the Project or any part thereof
necessary to secure adequate water services for the community. Any real or personal property which
has become nonoperative or which is not needed for the efficient and proper operation of the
improvements on the Project, or any material or equipment which has become worn out, may be sold
if such sale will not impair the ability of the Water District to pay Lease Payments and if the
proceeds of such sale are deposited in the Lease Payment Fund.
Section 7.15. Payment of Claims. The Water District will pay and discharge any and all
lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Net
Revenues or the funds or accounts created hereunder or on any funds in the hands of the Water
District pledged to pay the Bonds prior or superior to the lien of the Trust Agreement or which might
impair the security of the Bonds. Notwithstanding the foregoing, the Water District may pledge,
encumber or otherwise secure its obligations with the Net Revenues; provided, that in all instances
any such pledge, lien or security is wholly subordinate and junior to the obligations of the Water
District contained in the Trust Agreement.
Section 7.16. Compliance with Lease. The Water District will neither take nor omit to take
any action under any contract if the effect of such act or failure to act would in any manner impair or
adversely affect the ability of the Water District to pay Lease Payments; and the Water District will
comply with, keep, observe and perform all agreements, conditions, covenants and terms, express or
implied, required to be performed by it contained in all other contracts affecting or involving the
Project, to the extent that the Water District is a party thereto.
Section 7.17. Compliance with Governmental Regulations. The Water District will duly
observe and comply with all valid regulations and requirements of any governmental authority
relative to the operation of the improvements on the Project, or any part thereof, but the Water
District shall not be required to comply with any regulations or requirements so long as the validity
or application thereof shall be contested in good faith.
ARTICLE VIII
ASSIGNMENT, SUBLEASING AND AMENDMENT
Section 8.1. Assignment by the Authority. Except as provided herein and in the Trust
Agreement, the Authority will not assign this Lease Agreement, or any right, title or interest of the
Authority in and to this Lease Agreement, to any other person, firm or corporation so as to impair or
violate the representations, covenants and warranties contained in Section 2.2 hereof.
Section 8.2. Assignment and Subleasing by the Water District.
(a) Assignment. This Lease Agreement may not be assigned by the Water
District unless the Water District receives (i) prior written consent of the Bond Insurer, which
consent shall not be unreasonably withheld, and (ii) an opinion of Bond Counsel, stating that such
assignment does not adversely affect the exclusion from gross income for federal income tax
purposes or from State of California personal income taxes of the interest portion of Lease Payments.
In the event that this Lease Agreement is assigned by the Water District, the obligation to make
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Lease Payments and perform the other covenants of the Water District hereunder shall remain the
obligation of the Water District.
(b) Sublease. The Water District may sublease any portion of the Project, with
the prior written consent of the Authority and Bond Insurer, which consent shall not be unreasonably
withheld, subject to all of the following conditions:
(i) This Lease Agreement and the obligation of the Water District to
make Lease Payments and perform the other covenants of the Water District hereunder shall
remain obligations of the Water District;
(ii) The Water District shall, within 30 days after the delivery thereof,
furnish or cause to be furnished to the Authority and the Trustee a true and complete copy of
such sublease;
(iii) No sublease by the Water District shall cause the Project to be used
for a purpose other than a governmental or proprietary function authorized under the
provisions of the laws of the State; and
(iv) No sublease shall cause the interest portion of Lease Payments, or any
of them to become subject to federal income taxes or State of California personal income
taxes.
Section 8.3. Amendments and Modifications. This Lease Agreement may be amended or
any of its terms modified, with the written consent of the Authority and the Trustee.
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
Section 9.1. Events of Default Defined. The following shall be `Events of Default" under
this Lease Agreement and the terms "Events of Default" and "default" mean, whenever they are used
in this Lease Agreement, any one or more of the following events:
(a) Payment Default. Failure by the Water District to pay any Lease Payment or
Additional Payment required to be paid hereunder on the date such payment is due hereunder.
(b) Covenant Default. Failure by the Water District to observe and perform any
warranty, covenant, condition or agreement on its part to be observed or performed herein or
otherwise with respect hereto or in the Property Lease, other than as referred to in clause (a) of this
Section, for a period of 30 days after written notice specifying such failure and requesting that it be
remedied has been given to the Water District by the Authority; provided, however, if the failure
stated in the notice cannot be corrected within the applicable period, then no Event of Default shall
have occurred so long as corrective action is instituted by the Water District within the applicable
period and diligently pursued until the default is corrected.
(c) Bankruptcy or Insolvency. The filing by the Water District of a case in
bankruptcy, or the subjection of any right or interest of the Water District under this Lease
Agreement to any execution, garnishment or attachment, or adjudication of the Water District as a
24
DOCSOC\90957I v 10\2265 8.0017
bankrupt, or assignment by the Water District for the benefit of creditors, or the entry by the Water
District into an agreement of composition with creditors, or the approval by a court of competent
jurisdiction of a petition applicable to the Water District in any proceedings instituted under the
provisions of the federal bankruptcy code, as amended, or under any similar act which may hereafter
be enacted.
Section 9.2. Remedies on Default. Whenever any Event of Default referred to in
Section 9.1 hereof shall have happened and be continuing, it shall be lawful for the Authority to
exercise any and all remedies available pursuant to law or granted pursuant to this Lease Agreement,
and, in each and every such case during the continuance of an Event of Default, the Authority may,
with the consent of the Bond Insurer, and by notice in writing to the Water District and shall, at the
direction of the Bond Insurer, declare the entire principal amount of the unpaid Lease Payments and
the accrued interest thereon to be due and payable immediately, and upon any such declaration the
same shall become immediately due and payable, anything contained herein to the contrary
notwithstanding. This section, however, is subject to the condition that if at any time after the entire
principal amount of the unpaid Lease Payments and the accrued interest thereon 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 Water District shall deposit with the Authority a sum sufficient to
pay the unpaid principal amount of the Lease Payments due prior to such declaration and the accrued
interest thereon, with interest on such overdue installments, at the rate or rates applicable to the
remaining unpaid principal balance of the Lease Payments, and the reasonable expenses of the
Authority, and any and all other defaults known to the Authority (other than in the payment of the
entire principal amount of the unpaid Lease Payments and the accrued interest thereon due and
payable solely by reason of such declaration) shall have been made good or cured to the satisfaction
of the Authority or provision deemed by the Authority to be adequate shall have been made therefor,
then and in every such case the Authority, by written notice to the Water District may rescind and
annul such declaration and its consequences; but 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.
Anything in this Lease Agreement to the contrary notwithstanding, upon the occurrence and
continuance of an Event of Default as defined herein, so long as the Bond Insurer is not in default
under the Bond Insurance Policy, the Bond Insurer shall be entitled to control and direct the
enforcement of all rights and remedies granted to the Authority or the Trustee under this Lease
Agreement, including, without limitation: (i) the right to accelerate the portion of each Lease
Payment designated as and representing the principal of the Bonds as described in this Lease
Agreement and (ii) the right to annul any declaration of acceleration, and the Bond Insurer shall also
be entitled to approve all waivers of Events of Default.
Notwithstanding anything to the contrary contained in this Lease Agreement, none of the
Authority, the Trustee, the Bond Insurer, or the Bondholders shall have the right hereunder to re-
enter or re -let the Project under any circumstances.
Section 9.3. Application of Funds Upon Acceleration. Upon the date of the declaration of
acceleration as provided in Section 9.2, all Revenues thereafter received by the Water District shall
be applied in the following order --
Fast, to the payment, without preference or priority, and in the event of any insufficiency of
such Revenues ratably without any discrimination or preference, of the fees, costs and expenses of
25
DOCSOC\909571 v10\22658.0017
0 0
the Authority and Trustee, if any, in carrying out the provisions of this article, including reasonable
compensation to their respective accountants and counsel and any other fees, costs and expenses of
the Trustee then owing for Trustee's services hereunder or under the Trust Agreement, including the
reasonable fees and expenses of its counsel and accountants; and
Second, to the payment of the Maintenance and Operation Costs including without limitation
the entire principal amount of the unpaid Lease Payments and lease payments securing Parity
Obligations, if any, and the accrued interest thereon, with interest on the overdue installments at the
rate or rates of interest applicable to the Lease Payments and such lease payments securing Parity
Obligations if paid in accordance with their respective terms, provided that, to the extent ^— Lease
Payments and lease payments securing Parity Obligations exceed in any year the Maintenance and
Operation Cap due to acceleratinu, Revenues shall be applied to pay Lease Payments and lease
payments securing Parity Obligations on a parity basis with Series 2002 Installment Payments.
Section 9.4. Other Remedies of the Authority. The Authority shall have the right
(a) by mandamus or other action or proceeding or suit at law or in equity to
enforce its rights against the Water District or any director, officer or employee thereof, and to
compel the Water District or any such director, officer or employee to perform and carry out its or his
duties under the agreements and covenants required to be performed by it or him contained herein;
(b) by suit in equity to enjoin any acts or things which are unlawful or violate the
rights of the Authority; or
(c) by suit in equity upon the happening of an Event of Default to require the
Water District and its directors, officers and employees to account as the trustee of an express trust.
Notwithstanding anything contained herein, the Authority shall have no security interest in or
mortgage on the Project, the Water System or other assets of the Water District and no default
hereunder shall result in the loss of the Project, the Water System, or other assets of the Water
District.
Section 9.5. No Remedy Exclusive. Subject to the express limitation on remedies
described in the last paragraph of Section 9.4 above, no remedy conferred herein upon or reserved to
the Authority is intended to be exclusive and every such remedy shall be cumulative and shall be in
addition to every other remedy given under this Lease Agreement or now or hereafter existing at law
or in equity. No delay or omission to exercise any right or power accruing upon any default shall
impair any such right or power or shall be construed to be a waiver thereof, but any such right and
power may be exercised from time to time and as often as may be deemed expedient. In order to
entitle the Authority to exercise any remedy reserved to it in this Article it shall not be necessary to
give any notice, other than such notice as may be required in this Article or by law.
Section 9.6. Agreement to Pay Attorneys Fees and Expenses. In the event either party to
this Lease Agreement should default under any of the provisions hereof and the nondefaulting party
should commence legal action or arbitration for the collection of moneys or the enforcement of
performance or observance of any obligation or agreement on the part of the defaulting party
contained herein, the defaulting party agrees that it will pay on demand to the nondefaulting party the
26
DOCS00909571 v 10\2265 8.0017
0 0
reasonable attorneys fees, court costs and legal expenses incurred by the nondefaulting party in such
action or arbitration after payment of all fees and expenses of the Trustee.
Section 9.7. No Additional Waiver Implied by One Waiver. In the event any agreement
contained in this Lease Agreement should be breached by either party and thereafter waived by the
other party, such waiver shall be limited to the particular breach so waived and shall not be deemed
to waive any other breach hereunder.
Section 9.8. Trustee to Exercise Rights. Such rights and remedies as are given to the
Authority under this Lease Agreement have been assigned by the Authority to the Trustee, to which
assignment the Water District hereby consents. Such rights and remedies shall be exercised by the
Trustee subject to the terms of the Trust Agreement.
ARTICLE X
PREPAYMENT OF LEASE PAYMENTS
Section 10.1. Security Deposit. Notwithstanding any other provision of this Lease
Agreement, the Water District may, on any date, secure the payment of all unpaid Lease Payments as
set forth in Exhibit B hereto by an irrevocable deposit by it with the Trustee of sufficient moneys and
non -callable Investment Securities, issued by the United States of America and described in clause
(A) of the definition thereof, the principal of and interest on which when due will provide money
sufficient to pay all principal, prepayment premium, if any, and interest of such Lease Payments to
and including their respective Lease Payment Dates or prepayment date or dates as the case may be.
In such event, and provided that the Water District has made arrangements acceptable to the Trustee
to pay any Additional Payments, all obligations of the Water District under this Lease Agreement,
and all security provided by this Lease Agreement for said obligations, shall cease and terminate,
excepting only the obligation of the Water District to make, or cause to be made, Lease Payments
from such deposit. On the date of said deposit the leasehold interest in the Project shall vest in the
Water District automatically and without further action by the Water District or the Authority (except
as provided herein); provided that the leasehold interest with respect to the Project shall be subject to
the subsequent payment of all Lease Payments made from said deposit in full in accordance with the
provisions hereof. Said deposit shall be deemed to be and shall constitute a special fund for the
payment of Lease Payments in accordance with the provisions of this Lease Agreement. The
Authority shall execute and deliver such further instruments and take such further action as may
reasonably be requested by the Water District for carrying out the leasehold interest transfer of the
Project.
Section 10.2. Mandatory Prepayment From Net Insurance Proceeds. The Water District
shall be obligated to prepay the Lease Payments in whole or in part on any date, from and to the
extent of any Net Insurance Proceeds theretofore transferred to the Insurance and Condemnation
Account and not otherwise applied to the Project in accordance with Article VI. The Water District
and the Authority hereby agree that such proceeds shall be credited towards the Water District's
obligations hereunder with respect to the portion of the Project from which such proceeds were
derived (except in the case of such prepayment of the Lease Payments in whole) such that
approximately equal annual Lease Payments wilt prevail with respect to the Project following such
prepayment.
27
DOCS00909571 vt 0\22658.0017
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Section 10.3. Optional Prepayment. Subject to the terns and conditions of this Section, the
Authority hereby grants an option to the Water District to prepay in whole or in part a principal
portion of Lease Payments, in whole or in part in increments of $5,000 on any date on or after
, 20_ hereafter at the following prices expressed as percentages of the
principal portion to be redeemed:
Prepayment Dates
Prepayment Price
15,20 through 14, 20 _%
15, 20 through 14, 20_ _%
15, 20 and thereafter %
The Water District shall execute said option by giving written notice to the Trustee thereof at
least 60 days prior to the date of redemption of Bonds from such prepayment and depositing with
said notice cash in the minimum amount of (1) accrued interest on the principal portion of Lease
Payments to be prepaid to the date of redemption of Bonds with the proceeds of such prepayment,
plus (2) the principal portion of any Lease Payments to be prepaid, plus (3) the applicable
prepayment premium described herein.
Section 10.4. Effect of Prepayment.
(a) In Whole. In the event that the Water District prepays all remaining Lease
Payments pursuant to Section 10.3 or Section 10.2 hereof and has paid all Additional Payments due
hereunder, the Water District's obligations under this Lease Agreement shall thereupon cease and
terminate, including but not limited to the Water District's obligation to continue to pay Lease
Payments hereunder.
(b) In Part. In the event the Water District prepays less than all of the remaining
principal portion of the Lease Payments pursuant to Section 10.2 or 10.3 hereof, the amount of such
prepayment shall be applied to reduce the principal portion of the remaining Lease Payments
corresponding to the resulting prepayment of the principal portion with respect to the Bonds.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Liability of Water District Limited. Except for the pledge of Revenues
pursuant to the terms of this Lease Agreement, neither the faith and credit nor the taxing power of the
Water District is pledged to the payment of Lease Payments hereunder. Nevertheless, the Water
District may, but shall not be required to, advance for any of the purposes hereof any funds of the
Water District which may be made available to it for such purposes.
The obligation of the Water District to make Lease Payments is a special obligation of the
Water District payable solely from the Revenues which are hereby irrevocably pledged, subject to
Section 4.17 hereof.
Section 11.2. Waiver of Personal Liability. No member, officer, agent or employee of the
Water District or the Water District shall be individually or personally liable for the payment of
28
DOCS0090957I v 10\2265 8.0017
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Lease Payments hereunder or be subject to any personal liability or accountability by reason of the
issuance thereof, but nothing herein contained shall relieve any such member, officer, agent or
employee from the performance of any official duty provided by law or by the Trust Agreement.
Section 11.3. Notices. All notices, certificates or other communications hereunder to the
Authority and Water District shall be sufficiently given and shall be deemed to have been received
five (5) business days after deposit in the United States mail in certified form, postage prepaid, to the
Water District or the Authority, as the case may be, at the following addresses:
If to the Water District: Capistrano Valley Water District
c/o City of San Juan Capistrano
32400 Paseo Adelanto
San Juan Capistrano, California 92675
Attention: Treasurer
949-443-6301
Telecopier: 949-493-1053
If to the Authority: San Juan Basin n Au lit
27500 La Paz Road
Laguna Niguel, CA 92677
Aftufim-
Q49-448-4055
Teleeonier: 949-831-5651
If to the Bond Insurer:
Attention:
Telecopier:
All notices, certificates and other communications to the Trustee shall be sufficiently given and shall
be deemed to have been received five (5) days after deposit in the United States mail in registered or
certified form, postage prepaid. Notices to the Trustee may be given initially either telephonically or
by written telecommunication and shall then be confirmed in writing delivered by certified mail,
return receipt requested. The Authority, the Water District and the Trustee, by notice given
hereunder, may designate different addresses to which subsequent notices, certificates or other
communications will be sent.
29
DOCSOC\909571 v 10@265 8.0017
0 0
Section 11.4. Binding Effect. This Lease Agreement shall inure to the benefit of and shall
be binding upon the Authority and the Water District and their respective successors and assigns
(including without limitation the Trustee).
Section 11.5. Severabiliri. In the event any provision of this Lease Agreement shall be
held invalid or unenforceable by a court of competent jurisdiction, such holding shall not invalidate
or render unenforceable any other provision hereof.
Section 11.6. Execution in Counterparts. This Lease Agreement may be executed in any
number of counterparts, each of which shall be an original and all of which shall constitute but one
and the same instrument.
Section 11.7. Applicable Law. This Lease Agreement shall be governed by and construed
in accordance with the laws of the State.
Section 11.8. Captions. The captions or headings in this Lease Agreement are for
convenience only and in no way define, limit or describe the scope or intent of any provisions or
sections of this Lease Agreement.
30
DOCSOC\909571 v1 0\22658.0017
0
0
IN WITNESS WHEREOF, the Authority has caused this Lease Agreement to be executed in
its name by its duly authorized officers, and the Water District has caused this Lease Agreement to
be executed in its name by its duly authorized officers, as of the date fust above written.
SAN JUAN BASIN AUTHORITY, as Lessor
Its: Chairman
ATTEST:
Secretary
CAPISTRANO VALLEY WATER DISTRICT, as
Lessee
By:
Its: General Manager
ATTEST:
Water District Secretary
31
DOCS00909571 v 10\22658.0017
0 0
CERTIFICATE OF ACCEPTANCE
This is to certify that the interest in real property conveyed under the foregoing to the
Capistrano Valley Water District, a body corporate and politic, is hereby accepted by the undersigned
officer or agent on behalf of the Board of Directors of the Capistrano Valley Water District, pursuant
to authority conferred by resolution of said Board of Directors adopted on 2002, and the
grantee consents to recordation thereof by its duly authorized officer.
Dated: 2002 CAPISTRANO VALLEY WATER DISTRICT
By:
Its: General Manager
DOCSOC 909571v10\22658.0017
r1
U
State of California )
ss.
County of Orange )
On , 2002, before me,
(name, title of officer, e.g., "Jane Doe, Notary Public')
personally appeared
(name(s) ofsigner(s))
❑ personally (mown to me, OR,
❑ proved to me on the basis of satisfactory evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capacity/ies, and that by his/her/their signature(s) on the instrument
the person(s), or the entity upon behalf of which person(s) acted, executed the instrument.
Witness my hand and official seal.
(signature of notary)
DOC SOC\909571 v 10\22658.0017
9
State of California )
ss.
County of Orange )
On , 2002, before me,
(name, title of officer, e.g., "Jane Doe, Notary Public')
personally appeared
(name(s) ofsigner(s))
❑ personally known to me, OR,
❑ proved to me on the basis of satisfactory evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capacity/ies, and that by his/her/thew signature(s) on the instrument
the person(s), or the entity upon behalf of which person(s) acted, executed the instrument.
Witness my hand and official seal.
(signature of notary)
DOCSOC\909571 v10\22659.0017
State of California )
ss.
County of Orange )
On 2002, before me,
(name, title of officer, e.g., "Jane Doe, Notary Public')
personally appeared
(name(s) ofsigner(s))
❑ personally known to me, OR,
❑ proved to me on the basis of satisfactory evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capacity/ies, and that by his/her/their signature(s) on the instrument
the person(s), or the entity upon behalf of which person(s) acted, executed the instrument.
Witness my hand and official seal.
(signature of notary)
DOC SOC\909571 v 10122658.0017
0
RECORDING REQUESTED BY )
AND WHEN RECORDED MAIL TO: )
STRADLING YOCCA CARLSON & RAUTH )
660 Newport Center Drive, Suite 1600 )
Newport Beach, California 92660 )
Attn: Denise E. Hering, Esq. )
DOCS00923505v 1 \22027.0004
0
Exhibit A-2
[Space above for recorder.]
This document is recorded for the benefit of the
Capistrano valley Water District, and the recording is
fee -exempt under Section 6103 of the Government
Code. Term of lease less than 99 years.
OPERATING LEASE AGREEMENT
BETWEEN
CAPISTRANO VALLEY WATER DISTRICT,
As Lessee
Fi7
SAN JUAN BASIN AUTHORITY,
As Lessor
Dated as of 2002
RELATING TO
SAN JUAN BASIN AUTHORITY
GROUND WATER RECOVERY PROJECT
0 0
OPERATING LEASE AGREEMENT
THIS OPERATING LEASE AGREEMENT (this "Lease Agreement"), dated as of
, 2002, by and between the SAN JUAN BASIN AUTHORITY, a joint powers authority
duly organized and existing under the laws of the State of California, as lessor (the "Authority"), and
the CAPISTRANO VALLEY WATER DISTRICT, a county water district duly organized and
existing under and by virtue of the laws of the State of California, as lessee (the "Water District");
WITNESSETH:
WHEREAS, pursuant to the laws of the State of California, the Water District may enter into
leases and agreements relating to real property to be used by the Water District; and
WHEREAS, the Water District has heretofore entered into an Installment Purchase
Agreement dated as of March 1, 2002 by and between the Water District and the San Juan Capistrano
Public Financing Authority (the "Series 2002 Installment Purchase Agreement") in connection with
the execution and delivery of the $8,525,000 aggregate principal amount of Revenue Certificates of
Participation Series 2002 delivered April 3, 2002 (the "Series 2002 Certificates of Participation");
and
WHEREAS, pursuant to the Series 2002 Installment Purchase Agreement, revenues of the
Water System (defined herein) are pledged to pay Installment Payments, as defined therein (the
"Series 2002 Installment Payments") net of operation and maintenance costs (the "COP O&M
Costs"), defined in the Series 2002 Installment Purchase Agreement to include in part "annual costs
not to exceed (a) $2,750,000 for project lease payments, including principal and interest components
for the Phase I San Juan Basin Ground Water Recovery Plant (the "Ground Water Recovery Plant");
plus (b) $1,100,000 for other capital and operations costs of the Ground Water Recovery Plant,
increasing by 85% of CPI annually; plus (c) $1,200,000 for electricity costs of the Ground Water
Recovery Plant, provided that (a), (b) and (c) above may be increased due to currently unforeseeable
cost increases which are out of the control of the Water District and of the owner, operator and
lenders with respect to the Ground Water Recovery Plant"; and
WHEREAS, the parties hereto have determined that the Lease Payments are, and shall be
deemed to be, for all purposes of the Series 2002 Installment Purchase Agreement, the project lease
payments described and included in the COP O&M Costs and constitute Maintenance and Operation
Costs (defined herein) for purposes of this Lease Agreement, and, as such, are payable from
Revenues (as defined herein and in the Series 2002 Installment Purchase Agreement) on a senior lien
basis to the Series 2002 Installment Payments; and
WHEREAS, the City of San Juan Capistrano (the "City") has leased the Property (defined
herein) to the Authority pursuant to that certain 55 year Property Lease by and between the Authority
and the City of even date herewith upon which Property the Authority will cause to be constructed
the Project; and
WHEREAS, to finance the Project, the Authority will issue its Lease Revenue Bonds
(Groundwater Recovery Project), Issue of 2002 (the "Bonds"), which Bonds will be secured by the
lease payments to be paid by the Water District pursuant to the Project Lease Agreement to be
Docs00923505vE22027.0004
0 0
entered into by and between the Authority and the Water District (the "Project Lease Agreement');
and
WHEREAS, pursuant to the Project Lease Agreement, the Water District will lease the
Property from the Authority, together with the Project to be constructed and installed thereon by the
Water District and the Company on behalf of the Authority; and
WHEREAS, the Authority will assign its rights under the Project Lease Agreement to BNY
Western Trust Company, as Trustee (the "Trustee") under that certain Trust Agreement among the
Trustee, the Water District and the Authority dated as of the date hereof (the "Trust Agreement");
and
WHEREAS, the Water District, for the design, construction and operation of the Project
pursuant to the terms thereof, has entered into that certain service contract with ECO Resources, Inc.,
a Texas corporation (the "Company"), dated as of , 2002 (the "Service Contract"),
pursuant to which the Company is obligated to implement the design and construction of the Project,
and to operate the Project; and
WHEREAS, pursuant to Section 13.2 of the Service Contract, the Water District may
terminate the Service Contract under certain circumstances, in which event the Project Lease
Agreement shall terminate as provided therein; and
WHEREAS, in the event that the Project Lease Agreement is terminated as provided in
Section 13.2 or is terminated upon the payment or the provision for the payment of all principal and
interest due on the Bonds, the Authority and the Water District desire to provide that the Water
District continue to maintain and operate the Project to the end of the term of the Property Lease as
said term is now designated or as said term may be extended by mutual agreement of the City and the
Authority;
NOW, THEREFORE, in consideration of the above premises and of the mutual covenants
hereinafter contained and for other good and valuable consideration, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS AND EXHIBITS
Section 1.1. Definitions and Rules of Construction. Unless the context otherwise requires,
the capitalized terms used herein shall, for all purposes of this Lease Agreement, have the meanings
herein specified. Unless the context otherwise indicates, words importing the singular number shall
include the plural number and vice versa. The terms "hereby," "hereof," "hereto," "herein,"
"hereunder" and any similar terms, as used in this Lease Agreement, refer to this Lease Agreement as
a whole. Capitalized terms not otherwise defined herein shall have the meaning given to each such
term in the Trust Agreement.
"Additional Payments" shall have the meaning ascribed thereto in Section 3.9 hereof.
DOCS009235050\22027.0004
0 0
"Authority" means the San Juan Basin Authority, a joint exercise of powers authority
organized and existing pursuant to Chapter 5, Division 7, Title 1 of the Government Code of the
State.
"Authorized Representative of the Authority" means the Administrator of the Authority and
any person or persons designated by the Administrator of the Authority and authorized to act on
behalf of the Authority as certified by a written certificate signed on behalf of the Authority by the
Administrator of the Authority and containing the specimen signature of each such person.
"Authorized Representative of the City" means the City Manager of the City, the Finance
Director, the Public Works Director of the City or any person or persons designated by the City
Manager and authorized to act on behalf of the City by a written certificate signed on behalf of the
City by the City Manager and containing the specimen signature of each such person.
"Authorized Representative of the Water District" means the General Manager of the Water
District, the Finance Director or any person or persons designated by the General Manager and
authorized to act on behalf of the Water District by a written certificate signed on behalf of the Water
District by the General Manager and containing the specimen signature of each such person.
"Board of Directors" means the Board of Directors of the Water District.
"Bond" or "Bonds" means any of the San Juan Basin Authority Lease Revenue Bonds
(Ground Water Recovery Project), Issue of 2002 issued pursuant to the Trust Agreement.
"Bond Counsel" means a firm of nationally -recognized attorneys experienced in the issuance
of tax-exempt obligations the interest on which is excludable from gross income under Section 103
of the Code.
"City"means the City of San Juan Capistrano, California.
"Closing Date" means the date on which the Bonds are delivered to the initial purchaser
thereof.
"Code" means the Internal Revenue Code of 1986, as amended and the United States
Treasury Regulations proposed or in effect with respect thereto.
"Company" means ECO Resources, Inc., a Texas corporation, and any successor thereto
under the terms of the Service Contract.
"End of Term" shall have the meaning ascribed thereto in Section 3.2.
"Events of Default" means events of default as set forth in Section 8.1.
"Fiscal Year" means the twelve month fiscal period of the Water District which commences
on July 1 in every year and ends on June 30 of the succeeding year.
"GAAP" means generally accepted accounting principles.
3
DOCSOCW23505v 1\22027.0004
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"Independent Counsel" means an attorney duly admitted to the practice of law before the
highest court of the state in which such attorney maintains an office and who is not an employee or
officer of the Authority or the Water District.
"Joint Exercise of Powers Agreement" means that certain Joint Exercise of Powers
Agreement entered into by and among the Capistrano Beach County Water District, the Santa
Margarita Water District, and Orange County Water District No. 4 dated as of November 22, 1971,
as amended effective September 1, 1987 by Addendum No. 1 to the Joint Exercise of Powers
Agreement and Addendum No. 3 dated as of September 1, 2002.
"Lease" or "Lease Agreement" means this Operating Lease Agreement, between the Water
District and the Authority, as amended and supplemented from time to time in accordance with its
terms.
"Maintenance and Operation Costs" means costs spent or incurred for operation and
maintenance of the Water System, including the Project, calculated in accordance with generally
accepted accounting principles, including (among other things) the reasonable expenses of
management and repair and other expenses necessary to maintain and preserve the Water System in
good repair and working order, and also means all costs of water purchased or otherwise acquired for
delivery by the Water System; but excluding in all cases depreciation, replacement and obsolescence
charges or reserves therefor and amortization of intangibles or other bookkeeping entries of a similar
nature.
"Manager" means the General Manager of the Water District, or any other person designated
by the General Manager to act on behalf of the General Manager.
"Net Insurance Proceeds" means any insurance or condemnation proceeds paid with respect
to the Project remaining after payment therefrom of all expenses incurred in the collection thereof.
"Permitted Encumbrances" means as of any particular time: (1) liens for general ad valorem
taxes and assessments, if any, not then delinquent, or which the Water District may, pursuant to
Section 6.8(c) hereof, permit to remain unpaid; (2) the Property Lease as they may be amended from
time to time; (3) any right or claim of any mechanic, laborer, materiahnan, supplier or vendor filed or
perfected in the manner prescribed by law to the extent permitted under Section 6.7(b) hereof;
(4) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants,
conditions or restrictions which exist of record as of the Closing Date and which the Water District
certifies in writing on the Closing Date will not materially impair the use of the Project; and
(5) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants,
conditions or restrictions established following the Closing Date, to which the Authority and the
Water District consent in writing and which the Water District certifies will not materially impair the
use of the Project or real property substituted for the Project, as the case may be.
"Property" means the real property described from time to time in Exhibit A hereto.
"Property Lease" means the Property Lease between the City, as lessor, and the Authority, as
lessee, as amended and supplemented from time to time in accordance with its terms.
"Project" means the groundwater recovery project described in Exhibit B hereto.
4
DOCS00923505 v 1 \22027.0004
"Project Lease Agreement" means the Lease Agreement dated as of the date hereof by and
between the Authority and the Water District pursuant to which the Authority has leased to the Water
District the Property and the Project.
"Project Lease Payments" means the Lease Payments required to be made under the Project
Lease Agreement.
"Revenue Fund" means the enterprise fund of the Water District currently identified as the
"Unrestricted Fund" of the Water District, any successor fund or funds, and such other funds as the
Board of Directors shall establish as a part of the Revenue Fund which shall constitute the Revenue
Fund maintained pursuant to this Lease Agreement.
"Revenues" means all income, rents, rates, fees, charges and other moneys derived from the
ownership or operation of the Water System, including, without limiting the generality of the
foregoing,
(1) all income, rents, rates, fees, charges, business interruption insurance proceeds or
other moneys derived by the Water District from the sale, furnishing and supplying of the water or
other services, facilities, and commodities sold, furnished or supplied through the facilities of or in
the conduct or operation of the business of the Water System;
(2) the earnings on and income derived from the investment of amounts described in
clause (1) above and from Water District reserves; and
(3) the proceeds derived by the Water District directly or indirectly from the sale, lease
or other disposition of a part of the Water System;
but excluding,
(a) customers' deposits or any other deposits or advances subject to refund until
such deposits or advances have become the property of the Water District;
(b) any proceeds of taxes or assessments restricted by law to be used by the
Water District to pay bonds or other obligations heretofore or hereafter issued.
"Series 2002 Certificates of Participation" means the San Juan Capistrano Public Financing
Authority Revenue Certificates of Participation, Series 2002, executed and delivered on April 3,
2002 in the aggregate principal amount of $8,525,000.
"Series 2002 Installment Payments" means the installment payments of interest and principal
scheduled to be paid by the Water District under and pursuant to the Series 2002 Installment
Purchase Agreement, and any amendments thereto.
"Series 2002 Installment Purchase Agreement" means that certain Installment Purchase
Agreement by and between the Water District and the San Juan Capistrano Public Financing
Authority, dated as of March 1, 2002.
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"Service Contract" means that certain service contract by and between the Water District and
the Company, for the design, construction and operation of the Project dated as of September 3,
2002.
"State" means the State of California.
"Term" means the duration of this Lease Agreement pursuant to the provisions of Section 3.2
hereof.
"Trust Agreement" means the Trust Agreement relating to the San Juan Basin Authority
Lease Revenue Bonds (Ground Water Recovery Project) Issue of 2002, dated as of the date hereof
entered into by and among the Water District, the Authority and the Trustee and any and all
Supplemental Trust Agreements.
"Trustee" means BNY Western Trust Company and its successor or successors which may at
any time be substituted in its place pursuant to the provisions of the Trust Agreement.
"Water District" means Capistrano Valley Water District, a county water district duly
organized and existing under and by virtue of the laws of the State, and its successors and assigns,
including any successor by merger to all of its rights and obligations.
"Water System" means the entire water system of the Water District, including, without
limitation, all real property and buildings, and including all improvements, works or facilities
assessed, controlled or operated by the Water District to provide water, as such improvements, works
or facilities now exist, including the Project, together with all improvements and extensions to said
Water System later acquired, constructed or organized.
Section 1.2. Exhibits. The following Exhibits are attached to, and by reference made a
part of, this Lease Agreement:
Exhibit A: Description of the Property.
Exhibit B: Description of the Project.
ARTICLE II
REPRESENTATIONS, COVENANTS AND WARRANTIES
Section 2.1. Representations. Covenants and Warranties of the Water District. The Water
District represents, covenants and warrants to the Authority as follows:
(a) Due Organization and Existence. The Water District is a county water district
duly organized and existing under and by virtue of the laws of the State, with the power and authority
to own, lease and acquire real and personal property and equipment and to incur the obligations
hereunder.
(b) Authorization: Enforceability. The laws of the State authorize the Water
District to enter into this Lease Agreement and to enter into the transactions contemplated by and to
carry out its obligations under this Lease Agreement, and the Water District has duly authorized and
DOCSOC\923 s 0 s v 1\22027.0004
executed this Lease Agreement. This Lease Agreement constitutes the legal, valid and binding
obligation of the Water District, enforceable in accordance with its terms, except to the extent limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable
principles affecting the rights of creditors generally.
(c) No Conflicts or Default: No Liens or Encumbrances. Neither the execution
and delivery of this Lease Agreement, nor the fulfillment of or compliance with the terms and
conditions hereof, nor the consummation of the transactions contemplated hereby, conflicts with or
results in a breach of the terms, conditions or provisions of any restriction or any agreement or
instrument to which the Water District is now a party or by which the Water District is bound, or
constitutes a default under any of the foregoing, or results in the creation or imposition of any lien,
charge or encumbrance whatsoever upon any of the property or assets of the Water District or upon
the Project, except for Permitted Encumbrances.
(d) Execution and Delivery. The Water District has duly authorized and
executed this Lease Agreement in accordance with the laws of the State.
(e) No Consent Required. There is no consent, approval, authorization or other
order of, or filing with, or certification by, any regulatory authority having jurisdiction over the
Water District required for the consummation by the Water District of the transactions contemplated
by this Lease Agreement.
(f) No Litigation. There is no action, suit, proceeding, inquiry or investigation,
at law or in equity, before or by any court, governmental agency, public office or body, pending or
threatened against the Water District affecting the existence of the Water District or the titles of its
officers to their respective offices or seeking to prohibit, restrain or enjoin the Water District's
covenants -to make Lease Payments or in any way contesting or affecting the validity or
enforceability of this Lease Agreement or contesting the powers of the Water District or its authority
to enter into, adopt or perform its obligations under this Lease Agreement or any amendment or
supplement thereto, wherein an unfavorable decision, ruling or finding would materially adversely
affect the Lease Agreement, or in which a final adverse decision could materially adversely affect the
operations of the Water District.
(g) Indemnification of Authority. To the extent permitted by law, the Water
District covenants to defend, indemnify and hold harmless the Authority and its assigns, directors
and employees (collectively, the "Indemnified Party") against any and all losses, claims, damages or
liabilities, joint or several, including fees and expenses incurred in connection therewith, to which
such Indemnified Party may become subject under any statute or at law or in equity or otherwise in
connection with the transactions contemplated by this Lease Agreement, and shall reimburse any
such Indemnified Party for any legal expenses reasonably incurred by it in connection with defending
any actions, insofar as such losses, claims, damages, liabilities or actions arise out of the transactions
contemplated by this Lease Agreement or the Property Lease. In particular, without limitation, to the
extent permitted by law, the Water District shall and hereby agrees to indemnify and save the
Indemnified Party harmless from and against all claims, losses and damages, including legal fees and
expenses, to the extent arising out of (i) the use, maintenance, condition or management of, or from
any work or thing done on, the Project by the Water District, (ii) any breach or default on the part of
the Water District in the performance of any of its obligations under this Lease Agreement, (iii) any
act of negligence of the Water District or of any of its agents, contractors, servants, employees or
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DOCSO471923505v 1122027.0004
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licensees with respect to the Project, or (iv) any act of negligence of any assignee or sublessee of the
Water District with respect to the Project. No indemnification is made under this Section or
elsewhere in this Lease Agreement for claims, losses or damages, including legal fees and expenses
arising out of the willful misconduct, negligent acts or omissions, or breach of duty under this Lease
Agreement or the Property Lease by the Authority, its officers, directors, agents, employees,
successors or assigns.
Section 2.2. Representations. Covenants and Warranties of the Authoriri. The Authority
represents, covenants and warrants to the Water District as follows:
(a) Due Organization and Existence: Enforceabiliri. The Authority is a joint
powers authority, duly organized, existing and in good standing under and by virtue of the laws of
the State, has the power to enter into this Lease Agreement and the Property Lease; is possessed of
full power to own and hold real and personal property, and to lease and sell the same; and has duly
authorized the execution and delivery of this Lease Agreement and the Property Lease. This Lease
Agreement and the Property Lease constitute the legal, valid and binding obligations of the
Authority, enforceable in accordance with their respective terms, except to the extent limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles
affecting the rights of creditors generally.
(b) No Conflicts or Defaults: No Liens or Encumbrances. Neither the execution
and delivery of this Lease Agreement or the Property Lease nor the fulfillment of or compliance with
the terms and conditions hereof or thereof, nor the consummation of the transactions contemplated
hereby or thereby, conflicts with or results in a breach of the terms, conditions or provisions of the
Joint Exercise of Powers Agreement of the Authority or any restriction or any agreement or
instrument to which the Authority is now a party or by which the Authority is bound, or constitutes a
default under any of the foregoing, or results in the creation or imposition of any lien, charge or
encumbrance whatsoever upon any of the property or assets of the Authority or upon the Project,
except for Permitted Encumbrances.
(c) No Consent Required. There is no consent, approval, authorization or other
order of, or filing with, or certification by, any regulatory authority having jurisdiction over the
Authority required for the consummation by the Authority of the transactions contemplated by this
Lease Agreement or the Property Lease.
(d) No Litigation. There is no action, suit, proceeding, inquiry or investigation,
at law or in equity, before or by any court, governmental agency, public office or body, pending or
threatened against the Authority affecting the existence of the Authority or the titles of its officers to
their respective offices or seeking to prohibit, restrain or enjoin the Authority's or in any way
contesting or affecting the validity or enforceability of this Lease Agreement or the Property Lease or
contesting the powers of the Authority or its authority to enter into, adopt or perform its obligations
under this Lease Agreement or the Property Lease or any amendment or supplement thereto, wherein
an unfavorable decision, ruling or finding would materially adversely affect the Lease Agreement or
the Property Lease, or in which a final adverse decision could materially adversely affect the
operations of the Authority.
(e) Execution and Delivery. The Authority has duly authorized and executed this
Lease Agreement and the Property Lease in accordance with the Constitution and laws of the State.
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DOCSOC1923505v 1 \22o2z000a
(f) Maintenance of Corporate Existence. To the extent permitted by law, the
Authority agrees that during the Term it will maintain its existence as a public entity, will not
dissolve or otherwise dispose of all or substantially all of its assets.
ARTICLE III
AGREEMENT OF LEASE; TERM OF LEASE; LEASE PAYMENTS
Section 3.1. Lease. The Authority hereby leases the Property and the Project to the Water
District upon the terms and conditions set forth herein.
Section 3.2. Term. The Term of this Lease Agreement shall commence on the Closing
Date and shall end on 1, 20_, unless extended pursuant to Section 3.3 hereof (as so extended
the "End of Term"), provided, however, the maintenance and operation of the Project by the Water
District is provided in the Project Lease Agreement and the maintenance and operation of the Project
by the Water District under this Lease Agreement shall commence upon the termination, following
extensions of term of the Project Lease Agreement upon the happening of the following events:
(a) Payment of All Lease Payments. The payment by the Water District of all
Project Lease Payments required under Section 3.4 of the Project Lease Agreement and any
Additional Payments required under Section 4.14 of the Project Lease Agreement; or
(b) Prepayment. The optional prepayment of all Project Lease Payments in
accordance with Section 10.3 of the Project Lease Agreement and the payment of all Additional
Payments due through such prepayment date; or
(c) Extraordinary Termination. The exercise by the Water District of its right to
terminate the Project Lease Agreement upon the occurrence of one or more of the conditions therefor
as described in Section 3.11 hereof.
Section 3.3. Extension of Lease Term. If on or prior to 1, 20_ the Property Lease
is extended, then the Term of this Lease Agreement shall be extended until the end of the term of the
Property Lease.
Section 3.4. Lease Payments. Upon the date that the Water District commences
maintenance and operation of the Project under this Lease Agreement, the Water District shall pay to
the Authority $1.00 per annum for the balance or the Term of this Lease Agreement (the "Lease
Payments").
Section 3.5. Budget and Appropriation. The Water District covenants to take such action
as may be necessary to include all Maintenance and Operation Costs and Additional Payments due
hereunder in its proposed annual budget and its fmal adopted annual budget and to make the
necessary appropriations for any amount of Maintenance and Operation Costs and Additional
Payments to be paid therefor.
Section 3.6. Revenue Fund. The Water District agrees to maintain the Revenue Fund held
by the Treasurer of the Water District (the "Treasurer"). All Revenues shall be deposited with the
Treasurer and credited to the Revenue Fund. The Water District shall transfer moneys from the
DOC SOC\923 505v I \22027.0004
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Revenue Fund to pay Maintenance and Operation Costs. Any Revenues in excess of the amounts
budgeted, as required, for the payment of the Maintenance and Operation Costs shall constitute
surplus revenues in the Revenue Fund. After all covenants contained herein have been duly
performed each year, and provided that there are no amounts then owing for the payment of
Maintenance and Operation Costs and Additional Payments, such surplus revenues may be used for:
(1) extensions and betterments of the Water System; or (2) any lawful purpose of the Water District.
Section 3.7. Rates and Charees. The Water District shall, to the maximum extent
permitted by law, fix, prescribe and collect rates and charges for water service which will be at least
sufficient to yield during each Fiscal Year Revenues equal to one hundred percent (100%) of
Maintenance and Operation Costs paid in the immediately preceding Fiscal Year, plus Additional
Payments payable in such Fiscal Year. The Water District may make adjustments from time to time
in such rates and charges and may make such classification thereof as it deems necessary, but shall
not reduce the rates and charges then in effect unless the Revenues from such reduced rates and
charges will at all times be sufficient to meet the requirements of this rate covenant.
Section 3.8. Use and Possession. The total Lease Payments and Additional Payments due
in any Fiscal Year shall be for the use and possession of the Project for such Fiscal Year. During the
Term of this Lease Agreement, the Water District shall be entitled to the exclusive use of the Project
subject only to the Permitted Encumbrances and an agreement that may be entered into by the
Authority or by any of its members and the Water District for the use of the Project by the Authority
or any of its members.
Section 3.9. Additional Payments. In addition to the Lease Payments, the Water District
shall also pay such amounts ("Additional Payments") as shall be required for the payment of all
administrative costs of the Authority relating to the Project, including without limitation all expenses
including usual and ordinary legal fees and expenses, assessments, compensation and
indemnification of the Authority payable by the Water District. All such Additional Payments to be
paid hereunder shall be paid when due directly by the Water District to the Authority to whom such
Additional Payments are owing.
Section 3.10. Net -Net -Net Lease. This Lease Agreement shall be deemed and construed to
be a "net -net -net lease" and the Water District hereby agrees that the Lease Payments shall be an
absolute net return to the Authority, free and clear of any expenses, charges or set -offs whatsoever,
except as expressly provided herein.
Section 3.11. Termination of Lease Agreement Prior to End of Term.
(a) Termination of Lease Agement for Failure to Achieve Acceptance. The
Water District shall have the right to terminate this Lease Agreement in the event the Water District
exercises its right to terminate the Service Contract pursuant to Section 13.2(A) thereof, provided
that the Water District shall have no right to terminate this Lease if and after the Water District
exercises any of its buy-out rights under the Service Contract.
(b) Termination of Lease Agreement Upon an Event of Default by the Company.
The Water District shall have the right to terminate this Lease Agreement in the event the Water
District exercises its right, subject to applicable notice and cure provisions set forth in the Service
Contract, to terminate the Service Contract pursuant to Section 13.2(B) thereof upon the occurrence
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of an Event of Default (as defined in the Service Contract) by the Company under the Service
Contract, provided that the Water District shall have no right to terminate this Lease if and after the
Water District exercises any of its buy-out rights under the Service Contract.
(c) Except as provided in (a) and (b), the Water District and Authority
acknowledge the Water District's obligations hereunder are not conditioned or affected by the
Service Contract or the performance by any party of its obligations thereunder, including, without
limitation, termination of the Service Contract pursuant to any provision other than Section 13.2(A)
or (B).
ARTICLE IV
INSURANCE AND CONDEMNATION
Section 4.1. Insurance. The Water District will procure and maintain insurance on the
Project with responsible insurers at reasonable cost in such amount and against such risks (including
damage to or destruction of the Project) as are usually covered in connection with facilities similar to
the Project, but not less than the lesser of the full replacement cost or the principal amount of the
Project, so long as such insurance is available from reputable insurance companies.
In the event of any damage to or destruction of the Project caused by the perils covered by
such insurance, the Net Insurance Proceeds thereof shall be applied in accordance with Article V
hereof.
The Water District shall provide adequate reserves to cover the amount of any deductible
provisions of the insurance required to be maintained pursuant to this Section 4.1.
Section 4.2. Coo ration. The Authority shall cooperate fully with the Water District at
the expense of the Water District in filing any proof of loss with respect to any insurance policy
maintained pursuant to this Article and in the prosecution or defense of any prospective or pending
condemnation proceeding with respect to the Project or any portion thereof.
Section 4.3. Insurance and Condemnation Account.
(a) Creation of Account. The Water District shall create, hold and administer for
the benefit of the Water District and the Authority a fund to be known as the Insurance and
Condemnation Account.
(b) Application of Net Insurance Proceeds. There shall be paid into the Insurance
and Condemnation Account the Net Insurance Proceeds of insurance maintained pursuant to Section
4.1 hereof and any condemnation awards constituting Net Insurance Proceeds and any additional
amount required to be paid by the Water District pursuant to Section 5.1(c) hereof. In the event that
the Water District elects to restore or replace the Project as provided in Section 5.1(b) hereof, then
such Net Insurance Proceeds shall be disbursed in accordance with requisitions approved by an
Authorized Representative of the Water District. Promptly upon determining that the restoration of
the Project are complete, the Authorized Representative of the Water District shall so notify the
DOCSOC1923505v1 \22027.0004
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of an Event of Default (as defined in the Service Contract) by the Company under the Service
Contract, provided that the Water District shall have no right to terminate this Lease if and after the
Water District exercises any of its buy-out rights under the Service Contract.
(c) Except as provided in (a) and (b), the Water District and Authority
acknowledge the Water District's obligations hereunder are not conditioned or affected by the
Service Contract or the performance by any party of its obligations thereunder, including, without
limitation, termination of the Service Contract pursuant to any provision other than Section 13.2(A)
or (B).
ARTICLE IV
INSURANCE AND CONDEMNATION
Section 4.1. Insurance. The Water District will procure and maintain insurance on the
Project with responsible insurers at reasonable cost in such amount and against such risks (including
damage to or destruction of the Project) as are usually covered in connection with facilities similar to
the Project, but not less than the lesser of the full replacement cost or the principal amount of the
Project, so long as such insurance is available from reputable insurance companies.
In the event of any damage to or destruction of the Project caused by the perils covered by
such insurance, the Net Insurance Proceeds thereof shall be applied in accordance with Article V
hereof.
The Water District shall provide adequate reserves to cover the amount of any deductible
provisions of the insurance required to be maintained pursuant to this Section 4.1.
Section 4.2. Cooperation. The Authority shall cooperate fully with the Water District at
the expense of the Water District in filing any proof of loss with respect to any insurance policy
maintained pursuant to this Article and in the prosecution or defense of any prospective or pending
condemnation proceeding with respect to the Project or any portion thereof.
Section 4.3. Insurance and Condemnation Account.
(a) Creation of Account. The Water District shall create, hold and administer for
the benefit of the Water District and the Authority a fund to be known as the Insurance and
Condemnation Account.
(b) Application of Net Insurance Proceeds. There shall be paid into the Insurance
and Condemnation Account the Net Insurance Proceeds of insurance maintained pursuant to Section
4.1 hereof and any condemnation awards constituting Net Insurance Proceeds and any additional
amount required to be paid by the Water District pursuant to Section 5.1(c) hereof. In the event that
the Water District elects to restore or replace the Project as provided in Section 5.1(b) hereof, then
such Net Insurance Proceeds shall be disbursed in accordance with requisitions approved by an
Authorized Representative of the Water District. Promptly upon determining that the restoration of
the Project are complete, the Authorized Representative of the Water District shall so notify the
DOCSOC\923505v 1 \22027.0004
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replacement so that the same shall be completed and the Project shall be free and clear of all claims
and liens except as provided in Section 6.8.
(c) Disbursement for Prepayment. If the Authorized Representative of the Water
District notifies the Authority in writing of the Water District's determination that the certification
provided in Section 5.1(b)(i) hereof cannot be made or replacement or repair of any portion of the
Project is not economically feasible or in the best interest of the Water District, Net Insurance
Proceeds will be paid to the Authority for deposit to the Credit of Project Committee No. 4 of the
Authority.
Section 5.2. Eminent Domain Proceeds. If all or any part of the Project shall be taken by
eminent domain proceedings, the Net Insurance Proceeds thereof shall be applied by the Water
District to pay to the Authority that portion of the Net Insurance Proceeds attributable to the value of
the Project and pay to the City that portion of the Net Insurance Proceeds attributable to the value of
the Property.
ARTICLE VI
COVENANTS WITH RESPECT TO THE PROJECT
Section 6.1. Use of the Proiect. The Water District represents and warrants that it has an
immediate need for all of the Project, which need is not expected to be temporary or to diminish in
the foreseeable future.
Section 6.2. Leasehold Interest in the Property and Title to the Proiect.
(a) Authority Holds Leasehold Interest During Term. During the Term, the
Authority shall hold a leasehold interest in the Property pursuant to the Property Lease and title to the
Project pursuant to the Project Lease Agreement. The Authority shall take any and all actions
reasonably required, including but not limited to executing and filing any and all documents,
reasonably required to maintain and evidence the Authority's leasehold interest in the Property at all
times during the Term. During the Tenn, the Water District shall hold as leasehold interest in the
Property and in the Project.
(b) Leasehold Interest Transferred to Authority at End of Term. Upon the
expiration of the Term as provided in Section 3.2 hereof, the Water District's leasehold interest in the
Project pursuant to this Lease Agreement shall terminate, and the Authority shall either be entitled to
take over the Project subject to a renewal of the Property Lease or shall be entitled to remove the
Project from the Property.
Section 6.3. Quiet Enjoyment. Subject only to Permitted Encumbrances, during the Term
the Authority shall provide the Water District with quiet use and enjoyment of the Project, and the
Water District shall during such Term peaceably and quietly have and hold and enjoy the Project,
without suit, trouble or hindrance from the Authority, or any person or entity claiming under or
through the Authority except as expressly set forth in this Lease Agreement. The Authority will, at
the request of the Water District, join in any legal action in which the Water District asserts its right
to such possession and enjoyment to the extent the Authority may lawfully do so. Notwithstanding
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DOC SOC\923505v 1 \22027.0004
Authority in writing that the restoration is complete. Any balance of Net Insurance Proceeds
remaining after the final disbursement to restore the Project, or, in the event the Water District elects
not to restore the Project as provided in Section 5.1(c) hereof, all Net Insurance Proceeds, and any
deposit made by the Water District in accordance with Section 5.1(c) hereof shall be paid to the
Authority.
ARTICLE V
DAMAGE, DESTRUCTION AND EMINENT DOMAIN;
USE OF NET PROCEEDS
Section 5.1. Application of Net Insurance Proceeds.
(a) Deposit in Insurance and Condemnation Account. Pursuant to Section 4.1
hereof, the Water District shall deposit the Net Insurance Proceeds of any insurance required by
Section 4.1 hereof in the Insurance and Condemnation Account established under this Lease
Agreement promptly upon receipt thereof.
(b) Disbursement for Replacement or Repair of the Project. Upon receipt of the
certification described in paragraph (i) below and the requisition described in paragraph (ii) below,
the parties hereto agree that the Water District shall disburse moneys in the Insurance and
Condemnation Account to the person, firm or corporation named in the requisition as provided in
Section 4.3 hereof.
(i) Certification. The Authorized Representative of the Water District
must provide to the Authority a certificate stating that the Net Insurance Proceeds available
for such purpose, together with other funds, if any, supplied by the Water District for such
purpose in its sole and absolute discretion, are sufficient to restore the Project to a value
greater than or equal to the value thereof prior to the insured event, and
(ii) Requisition. An Authorized Representative of the Water District
must state with respect to each payment to be made (1) the requisition number, (2) the name
and address of the person, firm or corporation to whom payment is due, (3) the amount to be
paid and (4) that each obligation mentioned therein has been properly incurred, is a proper
charge against the Insurance and Condemnation Account, has not been the basis of any
previous withdrawal therefrom, and specifying in reasonable detail the nature of the
obligation.
Any balance of the Net Insurance Proceeds remaining after such replacement or repair has
been completed as evidenced by a certificate of the Water District shall be disbursed as provided in
subsection (c) below.
In the event and to the extent the requirements of subsections (b)(i) and (b)(ii) above are
satisfied, the Water District shall begin such reconstruction, repair or replacement promptly after
such damage or destruction shall occur, and shall continue and properly complete such
reconstruction, repair or replacement as expeditiously as possible, and shall pay out of such Net
Insurance Proceeds all costs and expenses in connection with such reconstruction, repair or
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the foregoing, the Authority shall have the right of access to the Project as provided in Section 6.5
hereof.
Section 6.4. Installation of Water District's Personal Property. The Water District may at
any time and from time to time, in its sole discretion and at its own expense, install or permit to be
installed items of equipment or other personal property in or upon any portion of the Project. All
such items shall remain the sole personal property of the Water District, regardless of the manner in
which the same may be affixed to such portion of the Project, in which the Authority shall not have
any interest, and may he modified or removed by the Water District at any time; provided that the
Water District shall repair and restore any and all damage to such portion of the Project resulting
from the installation, modification or removal of any such items of equipment. Nothing in this Lease
Agreement shall prevent the Water District from purchasing items to be installed pursuant to this
Section, provided that no lien or security interest attaching to such items shall attach to any part of
the Project.
Section 6.5. Access to the Project. The Water District agrees that the Authority and the
Authority's successors or assigns shall have (1) the right at all reasonable times to enter upon the
Project or any portion thereof to examine and inspect the Project, and (2) such rights of access to the
Project as may be reasonably necessary to cause the proper maintenance of the Project in the event of
failure by the Water District to perform its obligations hereunder.
Section 6.6. Maintenance, Utilities. Taxes and Assessments.
(a) Maintenance; Repair and Replacement. Throughout the Term of this Lease
Agreement, as part of the consideration for the rental of the Project, all repair and maintenance of the
Project shall be the responsibility of the Water District, and the Water District shall pay for or
otherwise arrange for the payment of the cost of the repair and replacement of the Project resulting
from ordinary wear and tear or want of care on the part of the Water District or any sublessee thereof.
The Water District shall provide or cause to be provided all security service, custodial service,
power, gas, telephone, light, heating and water, and all other public utility services for the Project. In
exchange for the Lease Payments herein provided, the Authority agrees to provide only the Project.
(b) Tax and Assessments; Utility Charges. The Water District shall also pay or
cause to be paid all taxes and assessments, including but not limited to utility charges of any type or
nature charged to the Authority or the Water District or levied, assessed or charged against any
portion of the Project (excluding the Property, with respect to which the City shall pay or cause to be
paid such amounts) or the respective interests or estates therein; provided that with respect to special
assessments or other governmental charges that may lawfully be paid in installments over a period of
years, the Water District shall be obligated to pay only such installments as are required to be paid
during the Term of this Lease Agreement as and when the same become due.
(c) Contests. The Water District may, at its expense and in its name, in good
faith contest any such taxes, assessments, utility and other charges and, in the event of any such
contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the
period of such contest and any appeal therefrom; provided that prior to such nonpayment it shall
furnish the Authority with the opinion of an Independent Counsel to the effect that, by nonpayment
of any such items, the interest of the Authority in such portion of the Project will not be materially
endangered and that the Project will not be subject to loss or forfeiture. Otherwise, the Water District
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DOC SOC\923 505v I \22027.0004
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shall promptly pay such taxes, assessments or charges or make provisions for the payment thereof in
form satisfactory to the Authority. The Authority will cooperate fully in such contest, upon the
request and at the expense of the Water District.
Section 6.7. Modification of the Project.
(a) Additions, Modifications and Improvements. The Water District shall, at its
own expense, have the right to make additions, modifications or improvements to any portion of the
Project if such additions, modifications or improvements are necessary or beneficial for the use of
such portion of the Project. Such additions, modifications and improvements shall not in any way
damage any portion of the Project or cause them to be used for purposes other than those authorized
under the provisions of state and federal law or in any way which would impair the exclusion from
gross income for federal income tax purposes of the interest portion of the Lease Payments; and the
Project, upon completion of any additions, modifications and improvements made pursuant to this
Section, shall be of a value which is not less than the value of the Project immediately prior to the
making of such additions, modifications or improvements.
(b) No Liens. Except for Permitted Encumbrances, the Water District will not
permit any mechanic's or other lien to be established or remain against the Project for labor or
materials furnished in connection with any additions, modifications or improvements made by the
Water District pursuant to this Section; provided that if any such lien is established and the Water
District shall first notify or cause to be notified the Authority of the Water District's intention to do
so, the Water District may in good faith contest any lien filed or established against the Project, and
in such event may permit the items so contested to remain undischarged and unsatisfied during the
period of such contest and any appeal therefrom and shall provide the Authority with full security
against any loss or forfeiture which might arise from the nonpayment of any such lien, in form
satisfactory to the Authority. The Authority will cooperate fully in any such contest, upon the
request and at the expense of the Water District.
Section 6.8. Liens. Except as permitted by this Lease Agreement (including without
limitation Section 6.7 and Section 7. 1), the Water District shall not, directly or indirectly, create,
incur, assume or suffer to exist any mortgage, pledge, liens, charges, encumbrances or claims, as
applicable, on or with respect to the Project, other than Permitted Encumbrances and other than the
respective rights of the Authority and the Water District as herein provided. Except as expressly
provided in this Article, the Water District shall promptly, at its own expense, take such action as
may be necessary to duly discharge or remove any such mortgage, pledge, lien, charge, encumbrance
or claim, for which it is responsible, if the same shall arise at any time; provided that the Water
District may contest such lien or claim if it desires to do so, so long as such contest will not
materially, adversely affect the rights of the Water District to the Project or the payment of Lease
Payments hereunder. The Water District shall reimburse the Authority for any expense incurred by it
in order to discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim.
Section 6.9. Authority's Disclaimer of Warranties. THE AUTHORITY MAKES NO
WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE,
DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE OR FITNESS FOR THE USE CONTEMPLATED BY THE WATER DISTRICT OF
THE PROJECT OR PORTION THEREOF. In no event shall the Authority be liable for incidental,
indirect, special or consequential damages, in connection with or arising out of this Lease Agreement
15
DOCSC C\923505v1122027.0004
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or the Property Lease for the existence, furnishing, functioning or Water District's use and
possession of the Project.
Section 6.10. Water District's Right to Enforce Warranties of Manufacturers. Vendors or
Contractors. The Authority hereby irrevocably appoints the Water District its agent and attorney-in-
fact during the Term, so long as the Water District shall not be in default hereunder, to assert from
time to time whatever claims and rights, including without limitation, warranty claims, claims for
indemnification and claims for breach of any representations, with respect to the Project or the
improvements to the Project which the Authority may have against any manufacturer, vendor or
contractor, or any agents thereof The Water District's sole remedy for the breach of any such
warranty, indemnification or representation shall be against the manufacturer, vendor or contractor
with respect thereto, and not against the Authority, nor shall such matter have any effect whatsoever
on the rights and obligations of the Authority with respect to this Lease Agreement, including the
right to receive full and timely Lease Payments and to cause the Water District to make all other
payments due hereunder. The Water District shall be entitled to retain any and all amounts recovered
as a result of the assertion of any such claims and rights. The Authority shall, upon the Water
District's request and at the Water District's expense, do all things and take all such actions as the
Water District may request in connection with the assertion of any such claims and rights.
The Water District expressly acknowledges that the Authority does not make, or has not
made, any representation or warranty whatsoever as to the existence or availability of such warranties
of the manufacturer, vendor or contractor with respect to any of the improvements on the Project.
Section 6.11. Reconstruction, Application of Net Insurance Proceeds. If any useful portion
of the Project shall be destroyed or is damaged by fire or other casualty, or title to, or the temporary
use of, such portion shall be taken under the exercise of the power of eminent domain, the Water
District shall, as expeditiously as possible, continuously and diligently prosecute or cause to be
prosecuted the repair, reconstruction, restoration or replacement thereof, unless it is determined under
the provisions of Section 5.1(c) hereof that such repair, reconstruction, restoration or replacement is
not to be undertaken.
Section 6.12. Against Encumbrances. The Water District may expend at any time, or from
time to time, general fund revenues or may issue evidences of indebtedness or incur other obligations
for any lawful purpose which are payable from and secured by a pledge of and lien on general fund
revenues.
Section 6.13. Against Sale or Other Disposition of Project. The Water District will not
enter into any agreement or lease which impairs the operation of the Project or any part thereof
necessary to secure adequate water services for the community. Any real or personal property which
has become nonoperative or which is not needed for the efficient and proper operation of the
improvements on the Project, or any material or equipment which has become worn out, may be sold
if such sale will not impair the ability of the Water District to pay Lease Payments and if the
proceeds of such sale are deposited in the Lease Payment Fund.
Section 6.14. Payment of Claims. The Water District will pay and discharge any and all
lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Net
Revenues or the funds or accounts created hereunder.
16
DocsoCw23505vlV2022.0004
Section 6.15. Compliance with Lease. The Water District will neither take nor omit to take
any action under any contract if the effect of such act or failure to act would in any manner impair or
adversely affect the ability of the Water District to pay Lease Payments and the Maintenance and
Operations Costs; and the Water District will comply with, keep, observe and perform all
agreements, conditions, covenants and terms, express or implied, required to be performed by it
contained in all other contracts affecting or involving the Project, to the extent that the Water District
is a party thereto.
Section 6.16. Compliance with Governmental Regulations. The Water District will duly
observe and comply with all valid regulations and requirements of any governmental authority
relative to the operation of the improvements on the Project, or any part thereof, but the Water
District shall not be required to comply with any regulations or requirements so long as the validity
or application thereof shall be contested in good faith.
ARTICLE VII
ASSIGNMENT, SUBLEASING AND AMENDMENT
Section 7.1. Assignment and Subleasing by the Water District.
(a) Assignment. This Lease Agreement may not be assigned by the Water
District unless the Water District receives prior written consent of the Authority.
(b) Sublease. The Water District may sublease any portion of the Project, with
the prior written consent of the Authority, which consent shall not be unreasonably withheld, subject
to all of the following conditions:
(i) This Lease Agreement and the obligation of the Water District to
make Lease Payments and perform the other covenants of the Water District hereunder shall
remain obligations of the Water District;
(ii) The Water District shall, within 30 days after the delivery thereof,
furnish or cause to be furnished to the Authority a true and complete copy of such sublease;
and
(iii) No sublease by the Water District shall cause the Project to be used
for a purpose other than a governmental or proprietary function authorized under the
provisions of the laws of the State.
Section 7.2. Amendments and Modifications. This Lease Agreement may be amended or
any of its terms modified, with the written consent of the Authority and the Water District.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
Section 8.1. Events of Default Defined. The following shall be "Events of Default" under
this Lease Agreement and the terms "Events of Default" and "default" mean, whenever they are used
in this Lease Agreement, any one or more of the following events:
17
DOCS00923 505v 1 \22027.0004
0 0
(a) Payment Default. Failure by the Water District to pay any Lease Payment or
Additional Payment required to be paid hereunder on the date such payment is due hereunder.
(b) Covenant Default. Failure by the Water District to observe and perform any
warranty, covenant, condition or agreement on its part to be observed or performed herein or
otherwise with respect hereto or in the Property Lease, other than as referred to in clause (a) of this
Section, for a period of 30 days after written notice specifying such failure and requesting that it be
remedied has been given to the Water District by the Authority; provided, however, if the failure
stated in the notice cannot be corrected within the applicable period, then no Event of Default shall
have occurred so long as corrective action is instituted by the Water District within the applicable
period and diligently pursued until the default is corrected.
(c) Bankruptcy or Insolvency. The filing by the Water District of a case in
bankruptcy, or the subjection of any right or interest of the Water District under this Lease
Agreement to any execution, garnishment or attachment, or adjudication of the Water District as a
bankrupt, or assignment by the Water District for the benefit of creditors, or the entry by the Water
District into an agreement of composition with creditors, or the approval by a court of competent
jurisdiction of a petition applicable to the Water District in any proceedings instituted under the
provisions of the federal bankruptcy code, as amended, or under any similar act which may hereafter
be enacted.
Section 8.2. Remedies on Default. Whenever any Event of Default referred to in
Section 8.1 hereof shall have happened and be continuing, it shall be lawful for the Authority to
exercise any and all remedies available pursuant to law or granted pursuant to this Lease Agreement,
and, in each and every such case during the continuance of an Event of Default, the Authority may,
and by notice in writing to the Water District rescind this Lease Agreement and re-enter or re -let the
Project. The reasonable expenses of the Authority and any and all other defaults known to the
Authority shall have been made good or cured to the satisfaction of the Authority or provision
deemed by the Authority to be adequate shall have been made therefor, then and in every such case
the Authority, by written notice to the Water District may rescind and annul such declaration and its
consequences; but 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 8.3. Other Remedies of the Authority. The Authority shall have the right
(a) by mandamus or other action or proceeding or suit at law or in equity to
enforce its rights against the Water District or any director, officer or employee thereof, and to
compel the Water District or any such director, officer or employee to perform and carry out its or his
duties under the agreements and covenants required to be performed by it or him contained herein;
(b) by suit in equity to enjoin any acts or things which are unlawful or violate the
rights of the Authority; or
(c) by suit in equity upon the happening of an Event of Default to require the
Water District and its directors, officers and employees to account as the trustee of an express trust.
18
DOCSOC\923 S05v l\22027.0004
•
C-]
Notwithstanding anything contained herein, the Authority shall have no security interest in,
the Water System or other assets of the Water District and no default hereunder shall result in the
loss of the Water System, or other assets of the Water District.
Section 8.4. No Remedy Exclusive. Subject to the express limitation on remedies
described in the last paragraph of Section 8.3 above, no remedy conferred herein upon or reserved to
the Authority is intended to be exclusive and every such remedy shall be cumulative and shall be in
addition to every other remedy given under this Lease Agreement or now or hereafter existing at law
or in equity. No delay or omission to exercise any right or power accruing upon any default shall
impair any such right or power or shall be construed to be a waiver thereof, but any such right and
power may be exercised from time to time and as often as may be deemed expedient. In order to
entitle the Authority to exercise any remedy reserved to it in this Article it shall not be necessary to
give any notice, other than such notice as may be required in this Article or by law.
Section 8.5. Agreement to Pay Attorneys Fees and Expenses. In the event either party to
this Lease Agreement should default under any of the provisions hereof and the nondefaulting party
should commence legal action or arbitration for the collection of moneys or the enforcement of
performance or observance of any obligation or agreement on the part of the defaulting party
contained herein, the defaulting party agrees that it will pay on demand to the nondefaulting party the
reasonable attorneys fees, court costs and legal expenses incurred by the nondefaulting party in such
action or arbitration after payment of all fees and expenses of the Trustee.
Section 8.6. No Additional Waiver Implied by One Waiver. In the event any agreement
contained in this Lease Agreement should be breached by either party and thereafter waived by the
other party, such waiver shall be limited to the particular breach so waived and shall not be deemed
to waive any other breach hereunder.
ARTICLE IX
MISCELLANEOUS
Section 9.1. Liability of Water District Limited. Except for the pledge of Revenues
pursuant to the terms of this Lease Agreement, neither the faith and credit nor the taxing power of the
Water District is pledged to the payment of Lease Payments hereunder. Nevertheless, the Water
District may, but shall not be required to, advance for any of the purposes hereof any funds of the
Water District which may be made available to it for such purposes.
The obligation of the Water District to make Lease Payments is a special obligation of the
Water District payable solely from the Revenues which are hereby irrevocably pledged.
Section 9.2. Waiver of Personal Liabiliri. No member, officer, agent or employee of the
Water District or the Water District shall be individually or personally liable for the payment of
Lease Payments hereunder or be subject to any personal liability or accountability by reason of the
issuance thereof; but nothing herein contained shall relieve any such member, officer, agent or
employee from the performance of any official duty provided by law.
Section 9.3. Notices. All notices, certificates or other communications hereunder to the
Authority and Water District shall be sufficiently given and shall be deemed to have been received
19
five (5) business days after deposit in the United States mail in certified form, postage prepaid, to the
Water District or the Authority, as the case may be, at the following addresses:
If to the Water District: Capistrano Valley Water District
c/o City of San Juan Capistrano
32400 Paseo Adelanto
San Juan Capistrano, California 92675
Attention: Treasurer
949-443-6301
Telecopier: 949-493-1053
If to the Authority: San Juan Basin Authority
27500 La Paz Road
Laguna Niguel, California 92677
Attention:
Telecopier: 949-831-5651
The Authority and the Water District, by notice given hereunder, may designate different addresses
to which subsequent notices, certificates or other communications will be sent.
Section 9.4. Binding Effect. This Lease Agreement shall inure to the benefit of and shall
be binding upon the Authority and the Water District and their respective successors and assigns.
Section 9.5. Severability. In the event any provision of this Lease Agreement shall be
held invalid or unenforceable by a court of competent jurisdiction, such holding shall not invalidate
or render unenforceable any other provision hereof
Section 9.6. Execution in Counteroarts. This Lease Agreement may be executed in any
number of counterparts, each of which shall be an original and all of which shall constitute but one
and the same instrument.
Section 9.7. Applicable Law. This Lease Agreement shall be governed by and construed
in accordance with the laws of the State.
Section 9.8. Captions. The captions or headings in this Lease Agreement are for
convenience only and in no way define, limit or describe the scope or intent of any provisions or
sections of this Lease Agreement.
20
DOCSOC\923505v 122027.0004
0
9
IN WITNESS WHEREOF, the Authority has caused this Lease Agreement to be executed in
its name by its duly authorized officers, and the Water District has caused this Lease Agreement to
be executed in its name by its duly authorized officers, as of the date fust above written.
SAN JUAN BASIN AUTHORITY, as Lessor
By:
Its: President
ATTEST:
Secretary
CAPISTRANO VALLEY WATER DISTRICT, as
Lessee
Its: General Manager
ATTEST:
Water District Secretary
21
DOCSOC\923505vIU2027.0004
0
CERTIFICATE OF ACCEPTANCE
This is to certify that the interest in real property conveyed under the foregoing to the
Capistrano Valley Water District, a body corporate and politic, is hereby accepted by the undersigned
officer or agent on behalf of the Board of Directors of the Capistrano Valley Water District, pursuant
to authority conferred by resolution of said Board of Directors adopted on , 2002, and the
grantee consents to recordation thereof by its duly authorized officer.
Dated: 2002 CAPISTRANO VALLEY WATER DISTRICT
By:
Its: General Manager
D0CS0C\923505v1\22027.0004
0
State of California )
ss.
County of Orange )
On _, 2002, before me,
personally appeared
0
(name, title of officer, e.g., "Jane Doe, Notary Public')
(name(s) of signer(s))
❑ personally (mown to me, OR,
❑ proved to me on the basis of satisfactory evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capacity/ies, and that by his/her/their signature(s) on the instrument
the person(s), or the entity upon behalf of which person(s) acted, executed the instrument.
Witness my hand and official seal.
(signature of notary)
DOCSOCl923505v 1122027.0004
0
State of California )
ss.
County of Orange )
On , 2002, before me,
personally appeared
0
(name, title of officer, e.g., "Jane Doe, Notary Public')
(name(s) ofsigner(s))
❑ personally known to me, OR,
❑ proved to me on the basis of satisfactory evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capacity/ies, and that by his/her/their signature(s) on the instrument
the person(s), or the entity upon behalf of which person(s) acted, executed the instrument.
Witness my hand and official seal.
(signature of notary)
DOCSOC\923505v1 \22027.0004
0
EXHIBIT B
SCHEDULE OF LEASE PAYMENTS
Loa Payment Date Principal Payment Interest Payment Total Lease Payment
B-1
DOCS 00909571 v 10122658.0017
32400 PASEO ADELANTO
SAN JUAN CAPISTRANO, CA 92675
(949) 493-1171
(949) 493-1053 (FAX)
tvwtysanjuancapistrano. org
October 16, 2002
MEMBERS OF THE CITY COUNCIL
DIANE U BATHGATE
COLLENE CAMPBELL
JOHN S. GELFF
MATT HART
DAMD M. SWERDUNI
CITY MANAGER
GEORGESCARBOROUGH
NOTIFICATION OF ACTION BY THE
CAPISTRANO VALLEY WATER DISTRICT BOARD OF DIRECTORS
On October 15, 2002 the Capistrano Valley Water District Board of Directors met
regarding: "Consideration of Approvals for Issuance of lease Revenue Bonds by
the San Juan Basin Authority to Finance Phase I of the Ground Water Recovery
Plant." (Item No. C2)
The following action was taken at the meeting: Resolution No. CVWD 02-10-15-02
adopted approving certain documents and authorizing certain acts in connection
with issuance and sale of not to exceed $32,000,000 of lease revenue bonds by
the San Juan Basin Authority to finance Phase 1 of the Ground Water Recovery
Plant.
If you have any questions regarding this action, please contact Cynthia L. Russell,
Administrative Services Director at 443-6301 for more detailed information.
Thank you,
eg MInahan, CMCerkhe Board
Cc: Fieldman Rollapp & Associates*; Stradling, Yocca, Carson & Rauth*; Lehman
Brothers*; San Juan Basin Authority*; Cynthia L. Russell, Administrative Services
Director
A certified copy of Resolution No. CVWD 02-10-15-02 is enclosed for your records.
DRUG USE
13
AB
San Juan Capistrano: Preserving the Past to Enhance the Future
•
32400 PASEO ADELANTO
SAN JUAN CAPISTRANO, CA 92675
(949)493-1171
(949) 493-1053 (FAX)
Ivlvly sanjuancapislrano. org
I
111111111111
nnunlR 1961
1776
MEMBERS OF THE CITY COUNCIL
DIANE L. BATHGATE
COI LENE CAMPBELL
JOHN S. GELFF
MATT HMT
DAVID M. SWERDIJN
CITY MANAGER
GEORGESCARBOROUGH
NOTIFICATION OF MEETING OF POTENTIAL INTEREST
CAPISTRANO VALLEY WATER DISTRICT
The Board of Directors of the Capistrano Valley Water District will meet at 7:00 p.m. on
October 15, 2002, in the City Council Chamber in City Hall, to consider:
"Consideration of Project Implementation Agreement and Operating Lease
Agreement with San Juan Basin Authority (Phase I of the Ground Water Recovery
Plant)" — Item No. C1
If you have specific thoughts or concerns regarding this item, you are encouraged to
participate in this decision making process. You can communicate with the Board of
Directors through correspondence addressed to the Board and/or by attending the
meeting and speaking to the Board during the public meeting.
Correspondence related to this item must be received at City Hall by 5:00 p.m. on
Monday, October 14, 2002 to allow time for the Board to consider its content.
If you would like to speak at the meeting, please complete a blue 'Request to Speak"
form found inside the entrance to the Council Chamber. This form is turned in at the
staff table, just in front of the Council dais. You will be called to speak by the Chairman
when the item is considered.
You have received this notice at the request of the City staff member George
Scarborough, City Manager. You may contact that staff member at (949) 443-6314 with
any questions.
Capistrano Valley Water District agendas are available to you on the City's web site:
www.sanjuancapistrano.org.
Tha ou for ur interest,
ea Mona an,dmlcl�
City Clerk
cc: Fieldman Rollapp & Associates*; Stradling, Yocca, Carson & Rauth*; Lehman
Brothers*; San Juan Basin Authority*; Southwest Water Company*; George
Scarborough, City Manager
* Received staff report
onuo use
Ia
San Juan Capistrano: Preserving the Past to Enhance the Future
City of San Juan Capistrano
Water Services Department
32400 Paseo Adelanto
San Juan Capistrano, CA 92675
(949) 493-1515 Fax (949) 493-1053
Customer Information
Name (First, Last) 7-lopez
Account No. 92099 CustomerNo 16157
Receipt No. 1 60348
Cash Receipt - Water
Date 1 12/9/2008
j Amount Paid 1 $62.23 Amount of Account 1 $62.23 ; Received By: I kb
Balance Due $0.00 f
Payment Details
Cash $62.23 Check No. Please Use Water W isel
Check $0.00 10
....
Credit Card $0.00
Total $62.23
City of San Juan Capistrano
Water Services Department
Customer Information
' Name (First, Last) lopez
Account No 92099 C tomerNo 16157
Cash Receipt - Water
i Receipt No. 60348
Date 12/9/2008
us Received B A kb
Amount Paid $62.23 Amount of Account $62.23 I
i Balance Due $0.00 i
------- ___.---------___-
r
Payment Details '
Cash $62.23 Check No. i
Check $0.00 IV
Credit Card $0.00
Total $62.23