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HomeMy WebLinkAboutItem 10 rtn io NEW ISSUE—BOOK-ENTRY ONLY $107,399,438.50 Santa Ana Financing Authority Police Administration and Holding Facility Lease Revenue Bonds, Series 1994A Current Interest Bonds Dated:March 1, 1994 Due:July 1,As Shown Below AIRS''Dated:Date of Original Delivery Capital Appreciation Bonds Dated:Date of Original Delivery The Bonds are being issued pursuant to an Indenture between the Santa Ana Financing Authority and Meridian Trust Company of California,San Francisco,California,as trustee,and will be secured as described herein.The Bonds are beingissued d to provide funds for the construction and equipping of a police administration and • holding facility,to fund a reserve account and to pay certain costs of issuance.The Current Interest Bonds are being issued as fixed rate bonds.One- half of the principal amount of Bonds maturing on July 1,2014 are being issued as Auction Rate Securities"("ARS""")and one-half of the principal amount of Bonds maturing on July 1, 2014 are being issued as Inverse Rate Securities"" ("IRS""") (collectively the "Auction and Inverse Rate Securities"'" or "AIRS""") as more fully described herein. The Bonds will be issued in book-entry form,initially registered in the name of Cede&Co.,New York,New York,as nominee of The Depository Trust Company,New York,New York.Interest on the Current Interest Bonds will be payable on January 1 and July I of each year,commencing January 1, 1995. Interest on the Capital Appreciation Bonds maturing will be payable on the maturity dates thereof as a portion of the accreted value thereof. Interest on the AIRS will accrue for each Interest Period and will be payable in arrears on each succeeding Interest Payment Date. Purchasers will not receive certificates representing their interest in the Bonds P g .Individual purchases of Current Interest Bonds will be in princi pal rpal amounts of$5,000 or in any integral multiples of $5,000,individual purchases of AIRS will be in denominations of$50,000 or any integral multiple thereof and individual purchases of Capital Appreciation Bonds will be in denominations such that the accreted value of each Capital Appreciation Bond on the maturity thereof will be$5,000 or any integral multiple thereof.Payments of principal and interest of Current Interest Bonds and the AIRS and the accreted value of Capital Appreciation Bonds will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the Bonds. The Bonds are payable from Revenues of the Authority,consisting principally of Base Rental payments by the City of Santa Ana pursuant to a Lease between the City and the Authority.The City will agree in the Lease to make all Base Rental payments provided for therein,to include all such payments in its annual budgets, and to make the necessary annual appropriations for such rental payments, which are calculated to be sufficient to permit the Authority to pay principal of and interest on the Current Interest Bonds and the AIRS and the accreted value of the Capital Appreciation Bonds when due and payable. The obligation of the City to make Base Rental payments is not a debt of the City and is payable only from funds legally available therefor, including amounts on deposit in the general fund of the City. The City's obligation to make Base Rental payments is subject to abatement in the event of damage to, destruction or condemnation of or title defects relating to, the Leased Property described herein. Payments of the principal of and interest on the AIRS and the Current Interest Bonds and the Accreted Value of the Capital Appreciation Bonds when due will be insured by a municipal bond insurance policy to be issued simultaneously with the delivery of the Bonds by: AlERA The Current Interest Bonds are subject to optional,mandatory and extraordinary redemption prior to maturity and the AIRS are subject to mandatory redemption and mandatory tender as more fully described herein.The Capital Appreciation Bonds are not subject to redemption prior to maturity. THE BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM AND SECURED SOLELY BY THE REVENUES PLEDGED THEREFOR IN THE INDENTURE.THE BONDS ARE NOT A DEBT OF THE CITY,THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AUTHORITY) AND NEITHER THE FAITH AND CREDIT OF THE CITY,THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS ARE PLEDGED TO THE PAYMENT OF THE BONDS, AND NEITHER THE CITY, THE STATE NOR ANY OF ITS POLITICAL SUBDIVISIONS IS LIABLE THEREFOR. NEITHER THE BONDS NOR THE OBLIGATION OF THE CITY TO MAKE BASE RENTAL PAYMENTS CONSTITUTES AN INDEBTEDNESS OF THE CITY,THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. In the opinion of Orrick,Herrington&Sutcliffe,Bond Counsel,based on existing laws,regulations,rulings,and court decisions and assuming,among other matters, compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes.In the opinion of Bond Counsel,interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that it is included in adjusted current earnings in calculating corporate alternative minimum taxable income. Bond Counsel express no opinion regarding other federal income tax consequences relating to the accrual or receipt of interest on the Bonds. See "TAX EXEMPTION" herein. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR REFERENCE ONLY,IT IS NOT A SUMMARY OF THE ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. The Bonds are offered when, as and if delivered and received by the Underwriters, subject to the approval as to their legality by Orrick, Herrington & Sutcliffe,Los Angeles, California,Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the Underwriters by their counsel,Brown& Wood,Los Angeles, California,for Meridian Trust Company of California, as Trustee, by its counsel,for the City and the Authority by Edward J. Cooper, Esq., City Attorney, Santa Ana, California and for the Insurer by its counsel. Kelling, Northeross&Nobriga, Oakland, California is serving as Financial Advisor to the Authority in connection with the issuance of the Bonds.It is anticipated that the Bonds, in book-entry form, will be available for delivery through the facilities of The Depository Trust Company in New York, New York on or about March 23, 1994. Smith Barney Shearson Inc. Prudential Securities Incorporated Rauscher Pierce Refsnes Inc. Dated:March 23, 1994 SANTA ANA FINANCING AUTHORITY Daniel H. Young, Chairman Miguel Pulido, Vice Chairman Ted R Moreno, Director Lisa Mills,Director Thomas E. Lutz, Director Patricia A. McGuigan, Director Robert L. Richardson, Director CITY OF SANTA ANA Daniel H. Young, Mayor Miguel Pulido, Mayor Pro-Tem Ted R. Moreno, Council Member Lisa Mills, Council Member Thomas E. Lutz, Council Member Patricia A. McGuigan, Council Member Robert L. Richardson, Council Member CITY OFFICIALS David N. Ream, City Manager Janice C. Guy, Clerk of the Council Edward J. Cooper, City Attorney Debra Kurita, Assistant City Manager Rod Coloma, Executive Director, Finance and Management Services Agency John Reekstin, Administrative Services Manager, Community Development Agency SPECIAL SERVICES Orrick, Herrington& Sutcliffe Los Angeles, California Bond Counsel Kelling, Northcross & Nobriga Oakland, California Financial Advisor Meridian Trust Company of California San Francisco, California Trustee TABLE OF CONTENTS Page INTRODUCTION 1 THE PROJECT AND THE LEASED PROPERTY 2 The Project 2 Status of Environmental Approvals 3 Status of Bids and Estimated Start and Completion Dates 3 The Leased Property 3 THE BONDS 4 Description of the Current Interest Bonds and the Capital Appreciation Bonds 4 Redemption of the Current Interest Bonds 5 Auction and Inverse Rate Securities 7 Exchange of Bonds 13 Book-Entry System 13 Transfer and Payment of Bonds 14 ESTIMATED SOURCES AND USES OF BOND PROCEEDS 14 DEBT SERVICE 15 SECURITY FOR THE BONDS 15 General 15 The Lease 16 Base Rental Abatement 17 17 Insurance 17 Limited Recourse on Default 17 Release of Leased Property 18 Reserve Account 18 Issuance of Additional Bonds 18 BOND INSURANCE 18 General 18 Payment Pursuant to Municipal Bond Insurance Policy 19 MBIA Corporation 19 THE AUTHORITY 20 THE CITY General 20 20 Appointed Positions 21 Demographic Statistics 22 Employment 23 Construction Activity 24 Transportation 24 Utilities 25 Education 25 Community Facilities 26 Recreation 26 CITY FINANCES 26 Annual Reports 26 Certificate of Achievement 27 General Fund Balance Sheet 28 1 OFFICIAL STATEMENT $107,399,438.50 SANTA ANA FINANCING AUTHORITY POLICE ADMINISTRATION AND HOLDING FACILITY LEASE REVENUE BONDS, SERIES 1994A INTRODUCTION The purpose of this Official Statement of the Santa Ana Financing Authority (the "Authority")is to furnish information regarding the issuance and sale of$107,399,438.50 principal amount of Santa Ana Financing Authority Police Administration and Holding Facility hone Revenue Bonds, Series 1994A (the "Bonds") pursuant to the provisions of an Indenture, dated as of March 1, 1994(the "Indenture") between the Authority and Meridian Trust Company of California(the "Trustee"). The Bonds will be issued pursuant to the Marks-Roos Local Bond Pooling Act of 1985 (Article 4, Chapter 5, Division 7, Title 1 of the California Government Code) (the "Bond Law"). The Bonds are being issued to finance the acquisition, construction and equipping of a police administrative and holding facility (the "Project") for the City of Santa Ana (the "City"), to fund a reserve account and to pay certain costs of issuance. See "THE PROJECT AND THE LEASED PROPERTY" herein. The Authority will initially lease 38 parcels of real property owned by the City (the "Leased Property"), including the parcel on which the Project will be constructed (the "Site"), pursuant to a Ground Lease, dated as of March 1, 1994, between the City and the Authority (the "Ground Lease") and will lease-back the Leased Premises to the City pursuant to a Lease, dated as of March 1, 1994, between the Authority and the City (the "Lease"). Pursuant to the Lease, the City has been appointed to act as the agent responsible for the acquisition, construction and installation of the Project. Upon completion of the Project and issuance of a certificate of occupancy with respect thereto, the City expects to release all parcels of real property, other than the Site, from Ground Lease and the Lease. See the caption "SECURITY FOR THE BONDS -- The Lease -- Release of Leased Property". The City is obligated to pay rental payments under the Lease from any legally available moneys, including its general fund. The City will covenant in the Lease that, so long as the City has the use and occupancy of the Leased Property, it will make rental payments ("Base Rental") to the Authority. Pursuant to an Assignment Agreement dated as of March 1, 1994 (the "Assignment Agreement"), the Authority has assigned to the Trustee, among other things, its right to receive Base Rental. The Base Rental is calculated to be an amount sufficient to permit the Authority to pay all debt service on the Bonds when due. The obligation of the City to make Base Rental payments is not a debt of the City and is payable only from funds legally available therefor, including amounts on deposit in the general fund of the City. The obligation of the City to make Base Rental payments may be abated in whole or in part in the event of damage to, condemnation or destruction of, or title defects relating to, the Leased Property. Municipal Bond Investors Assurance Corporation (the "Insurer"), has issued a commitment to issue, simultaneously with the delivery of the Bonds, a municipal bond insurance policy (the "Municipal Bond Insurance Policy") relating to the Bonds, effective as of the date of delivery of the Bonds. By the terms of the Municipal Bond Insurance Policy, the Insurer agrees to pay the principal of and interest evidenced by the Current Interest Bonds and the accreted value of the Capital Appreciation Bonds (all as defined below) which shall become due for payment but shall be unpaid to the extent that the Trustee has not received sufficient funds from the Authority to make such payment. THE BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM AND SECURED SOLELY BY THE REVENUES PLEDGED THEREFOR IN THE INDENTURE. THE BONDS ARE NOT A DEBT OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL 1 proceeds other than the Workers' Compensation Fund. The value of the Site is $3.62 million. The City does not intend to reimburse itself from bond proceeds for the value of the Site. It is estimated that the costs of the Project will be as follows: Construction $87,806,000 Furniture, Fixtures and Equipment 6,100,000 Design and Engineering 4,712,000 Land and other City Contributions 8,520,000 Total $107,138,000 Status of Environmental Approvals The Project has been approved by the City of Santa Ana following a planning review. A mitigated negative declaration (the "MND") was prepared by the City in compliance with the California Environmental QualityAct "CE A" . The MND N was certified bythe( Q ) City Council on July 18, 1991. The time for challenging the MND has passed. Status of Bids and Estimated Start and Completion Dates Construction bids were received by the City on January 27, 1994. The winning bid was awarded at the February 22, 1994 City Council meeting to Perini Building Company, Inc. Construction of the Project is anticipated by the City to begin March, 1994 and is anticipated to be completed in March, 1996. The City currently expects to occupy the Project in March, 1996. The Leased Property The Leased Property includes 38 parcels of land currently owned by the City, including the Site on which the Project will be constructed, as described below. According to an appraisal by Parkcenter Realty Advisors dated January 3, 1994, the Leased Property has an appraised value of$93,983,000, including $3,620,000 as the appraised value of the Site of the Project. The Leased Property will have a fair rental value which is greater than or equal to the Base Rental. The City expects to release all of the Leased Property, other than the Site, from the Lease and Ground Lease upon coinpletion of the Project and the issuance of a certificate of occupancy therefor. See"SECURITY FOR THE BONDS -- The Lease -- Release of Leased Property." 3 Principal of, and redemption premium, if any, on the Current Interest Bonds will be payable at the principal corporate trust office of the Trustee in Los Angeles, California. Principal of and redemption premiums, if any, and interest on the Current Interest Bonds shall be paid in lawful money of the United States of America Capital Appreciation Bonds. The Bonds maturing July 1, 2001 through 2003, inclusive (the "Capital Appreciation Bonds"), will be issued in the initial amount of$1,469,438.50 which at maturity will have an Accreted Value of$2,325,000, will be dated the date of original delivery thereof and will mature, subject to the redemption provisions set forth below, on the dates and in the principal amounts, all as set forth on the cover page hereof. The Capital Appreciation Bonds will be issued in the form of fully registered bonds in denominations of $5,000 accreted value (as defined in the Indenture, the "Accreted Value") at maturity, or any integral multiple there of. No m a p y ents of principal or interest will be made with respect to the Capital Appreciation Bonds prior to the maturity or earlier redemption thereof. Accreted interest with respect to the Capital Appreciation Bonds shall be compounded at the approximate yield to maturity set forth on the cover page, on January 1 and July 1 of each year until payable, from the date of initial execution and delivery, assuming during any such semiannual period that the Accreted Value of such Capital Appreciation Bonds increases in equal daily amounts on the basis of a year of 360 days comprised of twelve 30-day months and will be payable only at maturity or the earlier redemption thereof. A Table of Accreted Values (as of each January 1 and July 1, through July 1, 1999) of the Capital Appreciation Bonds of each maturity per $5,000 Accreted Value at stated maturity is attached hereto as Appendix E. Such table is presented for illustrative purposes only. Any Accreted Value determined by computing interest in accordance with the terms of the Indenture will control over any different value determined by reference to such table. Redemption of the Current Interest Bonds Optional Redemption of Current Interest Bonds The Current Interest Bonds maturing on July 1 in the years 2005 through and including 2009, shall be subject to redemption, at the option of the Authority, on or after July 1, 2004, in whole at any time or in part (by lot within any maturity), on any Interest Payment Date, at the following redemption prices, plus accrued interest to the date fixed for redemption: Redemption Price Redemption Period (percentage of (dates inclusive) principal amount) July 1, 2004 to June 30, 2005 102% July 1, 2005 to June 30, 2006 101 July 1, 2006 and thereafter 100 Mandatory Redemption of Current Interest Bonds From Mandatory Sinking Account Payments The Current Interest Bonds maturing on July 1, 2024 are subject to mandatory redemption prior to their stated maturity in part (by lot) on any July 1 on and after July 1, 2020 in integral multiplies of$5,000 at a redemption price of the principal amount thereof and interest accrued thereon to the date fixed for redemption, without premium, in the amounts and in the years as follows: 5 Failure by the Trustee to give notice pursuant to the Indenture to any one or more of the Information Services or the Securities Depositories, or the insufficiency of any such notice, shall not affect the sufficiency of the proceedings for redemption and shall not result in any liability to the Trustee. Failure by the Trustee to mail notice of redemption pursuant to the Indenture to any one or more of the respective Owners of any Current Interest Bonds designated for redemption will not affect the sufficiency of the proceedings for redemption with respect to the Owners to whom such notice was mailed and shall not result in any liability to the Trustee. MI Current Interest Bonds redeemed pursuant to the provisions of the Indenture shall be cancelled by the Trustee and shall be destroyed and shall not be reissued. Auction and Inverse Rate Securities General The Bonds maturing on July 1, 2014 will be issued as Auction Rate Securities (the "Auction Rate Securities," or "ARS") and Inverse Rate securities ("Inverse "issued Rate Securities" or "IRS"). The ARS will be issued in an aggregate rinci al amount of$10,600,000 and the IRS will be issued in an aggregate rinciP al principalamount of$10,600,000 and will be dated the date of initial delivery, bear interest from their resp ective pective dates and mature on the date or dates set forth on the cover page hereof and will be issued in denominations of $50,000 and integral multiplies thereof. The Inverse Rate Securities and the Auction Rate Securities are collectively referred to as "Auction and Inverse Rate Securities" or "AIRs". The ARS and the IRS will be initially registered in the name of Cede & Co., as nominee of DTC, which is acting as the Securities Depository for the ARS and the IRS. Subject to the provisions described herein under "BOOK-ENTRY FORM ONLY", principal of the ARS and the IRS shall be paid at the principal corporate trust office of the Trustee, or at the duly designated office of any duly appointed alternate or successor paying agent, in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts. Interest on the ARS and the IRS shall be paid by check or draft (or other method as described herein) on each Interest Payment Date (as described herein)drawn upon any such paying agent and mailed to the registered holders as of the Record Date (as described herein) at their addresses as they appear on the registration books maintained by the Trustee as bond registrar. Interest payable on any Interest Payment Date may be paid by wire transfer in immediately available funds to a designated account in any bank in the United States to the registered owner of any ARS and the IRS in the aggregate principal amount of$1 million or more upon written request by such registered holder received by the Trustee prior to the preceding Record Date. All payments of interest on, and of principal upon redemption of, the ARS and the IRS shall be paid through the Securities Depository (as defined herein) in accordance with its normal procedures, which, as of the date of this Official Statement, provide for payment by the Securities Depository to its Participants and members. Payments of the principal or redemption price of and interest on the ARS will be made in immediately,available funds. Payments of the principal or redemption price of and interest on the IRS will be made in clearinghouse funds. Such method of payment may be modified by written agreement among the Trustee, Securities Depository and Auction Agent. Interest Interest Payment. Interest on the ARS and IRS shall accrue for each Interest Period and shall be payable in arrears on each succeeding Interest Payment Date. An "Interest Period" begins on and includes an Interest Payment Date and ends on but excludes the next succeeding Interest Payment Date; however, the first Interest Period commences on the date of original delivery of the AIRS. An "Interest Payment Date" for the AIRS shall mean January 1, 1995, semi-annually thereafter on January 1 and July 1 of each year and at maturity. If any such 7 certificates representing ARS shall equal the Maximum Rate on the Business Day immediately preceding the first day of such succeeding Auction Period; provided, however, if a Payment Default shall have occurred, the Applicable ARS Rate for each Auction Period commencing on or immediately after the occurrence of such Payment Default to and including the Auction Period, if any, during which, or commencing less than two Business Days after, such Payment Default is cured, shall equal the Non-Payment Rate plus the Service Charge Rate, which Service Charge Rate shall continue to be paid to the Auction Agent and the Broker-Dealer notwithstanding the fact that no Auction may be held. Applicable IRS Rate. The rate per annum at which interest is payable on the IRS for each Auction Period is referred to as the "Applicable IRS Rate". Interest on the IRS shall be computed on the basis of the number of days elapsed (based on twelve 30-daymonths) in ayear of 360 days. The y Applicable IRS Rate for each maturity of IRS for each Auction Period shall be equal to the result, taken to one thousandth (.001) of one percent (without rounding), of: (i) two times the Fixed Rate (defined below) for such maturity, minus (ii) the Applicable ARS Rate for such maturity for such Auction Period multiplied by the Applicable Day Count Fraction. For purposes of the Applicable IRS Rate, the Applicable ARS Rate is PPmultiplied bythe Applicable DayCount Fraction PpP PP in order to adjust such rate (which is calculated on the basis of actual days elapsed) to a rate per annum calculated on the basis of twelve 30-day months. "Fixed Rate" shall mean 5.75% per annum. "Applicable Day Count Fraction" shall mean, with respect to any Interest Period or Auction Period, the actual number of days in such period divided by the number of days in such Interest Period or Auction Period, on the basis of twelve 30-day months. No payments of current interest will be payable on the IRS for any Auction Period in the event that the Applicable ARS Rate is 11.171%. Service Charge. On each Interest Payment Date, the Trustee shall calculate the amount of service fees to be paid, on behalf of any Beneficial Owners of Regular ARS and Newly Fixed AIRS, in immediately available funds out of amounts in the Interest Account to the Auction Agent and any Broker-Dealer. The amount of such fees shall equal (i) the Service Charge Rate, multiplied by (ii) (A) in the case of the first Interest Payment Date, the aggregate principal amount of outstanding ARS as of the date of initial delivery thereof or (B) in the case of each Interest Payment Date thereafter, the aggregate principal amount of outstanding Regular ARS and one-half of the aggregate principal amount of outstanding Newly Fixed AIRS, at the close of business on the Record Date immediately preceding such Interest Payment Date, multiplied by (iii) the actual number of days in the applicable Interest Period, divided by (iv)360. See APPENDIX G for a description of the circumstances under which the Auction Agent Fee or the Broker-Dealer Fee may be changed. 9 Because the interest rate with respect to the IRS will be determined by subtracting the Applicable ARS Rate from a fixed amount, the interest rate with respect to the IRS will decrease as the Applicable ARS Rate increases, and increase as the Applicable ARS Rate decreases. In addition, no payments of interest will be payable on the IRS for any Auction Period in the event that the Applicable ARS Rate is 11.171% per annum. An increase in the amount of ARS which are not Fixed could result in a higher Applicable ARS Rate and, therefore, a lower interest rate with respect to the IRS. Under certain circumstances discussed above under "Auction and Inverse Rate Securities --Interest -- Applicable ARS Rate", the ARS could bear interest at the Maximum Rate or the Non-Payment Rate. In any such case, the interest rate with respect to the IRS could be significantly reduced, or be reduced to zero. The Applicable IRS Rate may also be decreased in the event the Auction Agent Fee or Broker-Dealer Fee is increased because such fees are components of the Service Charge Rate and of the Applicable ARS Rate which is subtracted from twice the Fixed Rate to determine the Applicable IRS Rate. In order to combine IRS and ARS to create Newly Fixed AIRS bearing interest at the Fixed Rate, a Beneficial Owner of IRS or ARS must also have purchased a like principal amount of ARS or IRS, as the case may be. See "APPENDIX G -- FIXING AND SEPARATING AIRS". There is no obligation to provide ARS to a Beneficial Owner of IRS who desires to combine such IRS with ARS nor to provide IRS to a Beneficial Owner of ARS who desires to combine ARS with IRS. A Beneficial Owner of the IRS may be able to acquire ARS that are not Fixed by bidding in an Auction held on the Business Day preceding the next Interest Payment Date, provided that the Existing Holders of such ARS do not submit Hold Orders covering all such ARS in the Auction. In such event, no ARS would be available for purchase at any rate bid by such Beneficial Owner of IRS in that Auction. See "APPENDIX G -- DESCRIPTION OF AUCTION". A Beneficial Owner of IRS may, however, at any time, cause a mandatory tender of ARS for purposes of Fixing IRS with ARS to the extent it cannot acquire ARS in an Auction. See "APPENDIX G -- FIXING AND SEPARATING AIRS". A Beneficial Owner of ARS might be able to purchase IRS in the secondary market; however, an active secondary market may or may not develop for such IRS. No assurance can be given that an active secondary market will exist for the IRS or, outside Auctions, for the ARS. Smith Barney Shearson Inc., as a Broker-Dealer, retains the right to make a secondary market in the ARS, although it has no obligation to do so. A Beneficial Owner of ARS and IRS may cause an equal principal amount of each to be Fixed at any time other than during a Closed Period. However, the resulting Newly Fixed AIRS will remain Newly Fixed AIRS until the next Interest Payment Date and the Beneficial Owner thereof will continue to be liable for the Service Charge for all Auction Periods, or portions thereof, until the next succeeding Interest Payment Date. Notwithstanding the foregoing, Newly Fixed AIRS will not be subject to an Auction. A Beneficial Owner of Newly Fixed AIRS or Regular Fixed AIRS may cause such bonds to be Separated into Regular ARS and Regular IRS only on an Interest Payment Date. Existing Beneficial Owners of ARS may be required to tender ARS to a Beneficial Owner of IRS before the completion of an Interest Period in the event such owner of IRS exercises its rights to require such a tender. See "APPENDIX G -- FIXING AND SEPARATING AIRS". Redemption of AIRS The AIRS may not be called for redemption except as provided herein. Notwithstanding any other provision in the Indenture: (i)no ARS shall be redeemed or delivered to the Trustee for cancellation on any 11 determined. The Trustee shall give the Securities Depository and the Auction Agent at least two Business Days' notice of the record date selected by it for the purpose of a redemption (each a "Redemption Record Date") and obtain from the Securities Depository a position listing showing at the close of business as of such Redemption Record Date the aggregate principal amounts of Regular ARS, Regular IRS, Regular Fixed AIRS and Newly Fixed AIRS, respectively. On the basis of such position listing, the Trustee shall calculate the Fixed Percentage as of the Redemption Record Date and determine therefrom the principal amounts to be redeemed and Redemption Prices (plus accrued and unpaid interest thereon to the Redemption Date) of: Regular ARS, Regular IRS, Regular Fixed AIRS and Newly Fixed AIRS, respectively. "Fixed Percentage", as of any Redemption Record Date, shall mean the percentage obtained by dividing the aggregate principal amount of outstanding ARS and IRS which are Fixed on such Redemption Record Date by the aggregate principal amount of outstanding ARS and IRS on such Redemption Record Date. If the ownership of the ARS and the IRS is no longer maintained in book-entry form by the Securities Depository, the ARS and IRS to be redeemed will be selected in accordance with the Indenture by the Trustee by lot; provided, however that the principal amount of the portion of any ARS or IRS to be redeemed shall be in an Authorized Denomination. Exchange of Bonds Bonds may be exchanged at the Corporate Trust Office of the Trustee for a like aggregate principal amount of fully registered Bonds of the same series and maturity of other Authorized Denominations. The Trustee will require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange as a condition precedent to the exercise of such privilege. The Trustee shall not be required to register the transfer of the exchange of any Bond (i) during any period commencing the day five (5) Business Days before the date on which Bonds are to be selected for redemption and ending on such date of selection, or (ii) which has been selected for redemption in whole or in part. Book-Entry System General The Bonds will be executed and delivered in the form of one global bond for each maturity, registered in the name of Cede & Co. and will be deposited with The Depository Trust Company ("DTC"). The Authority cannot and does not give any assurances that DTC Participants or others will distribute payments with respect to the Bonds received by DTC or its nominee as the registered owner, or any redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or that DTC will serve and act in the manner described in this Official Statement. See Appendix D hereto for additional information concerning DTC. The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository)provided that discontinuation of the book-entry system of transfers with respect to the AIRS may not be made without the consent of the Auction Agent and the Market Agent. In that event, Bonds will be printed and delivered and will be governed by the provisions of the Indenture with respect to payment of principal and interest and rights of exchange and transfer. With respect to the Inverse Rate Securities, the interest rate on the Inverse Rate Securities may be reduced. See "Auction and Inverse Rate Securities -- Special Investment Considerations for AIRS." THE TRUSTEE, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT 13 DEBT SERVICE The Lease requires City to make Base Rental payments on January 1 and July 1 of each year, beginning on January 1, 1995, and continuing until the end of the term of the Lease. Each Base Rental payment shall be payable by wire transfer on the last Business Day immediately preceding its due date. The interest components of the Base Rental payable by the City under the Lease shall be paid by the City as, and shall constitute interest paid on the principal components of the Base Rental payable by the City under the Lease. Base Rental payments have been calculated to be at least sufficient to meet debt service on the Bonds due on each Interest • Payment Date. The following is a schedule of debt service on the Bonds for each year until maturity: Period Ending Total Accreted July 1 Principal Value Interest Total 1995 $ -0- $ -0- $8,429,209 $8,429,209 1996 -0- -0- 6,377,778 6,377,778 1997 -0- -0- 6,377,778 6,377,778 1998 -0- -0- 6,377,778 6,377,778 1999 -0- -0- 6,377,778 6,377,778 2000 -0- -0- 6,377,778 6,377,778 2001 -0- 270,000 6,377,778 6,647,778 2002 -0- 770,000 6,377,778 7,147,778 2003 -0- 1,285,000 6,377,778 7,662,778 2004 1,820,000 -0- 6,377,778 8,197,778 2005 2,465,000 -0- 6,282,228 8,747,228 2006 3,075,000 -0- 6,151,583 9,226,583 2007 3,240,000 -0- 5,985,533 9,225,533 2008 3,420,000 -0- 5,807,333 9,227,333 2009 3,610,000 -0- 5,615,813 9,225,813 2010 3,800,000 -0- 5,412,750 9,212,750 2011 4,000,000 -0- 5,194,250 9,194,250 2012 4,200,000 -0- 4,964,250 9,164,250 2013 4,500,000 -0- 4,722,750 9,222,750 2014 4,700,000 -0- 4,464,000 9,164,000 2015 5,030,000 -0- 4,193,750 9,223,750 2016 5,345,000 -0- 3,879,375 9,224,375 2017 5,680,000 -0- 3,545,313 9,225,313 2018 6,035,000 -0- 3,190,313 9,225,313 2019 6,410,000 -0- 2,813,125 9,223,125 2020 6,815,000 -0- 2,412,500 9,227,500 2021 7,240,000 -0- 1,986,563 9,226,563 • 2022 7,690,000 -0- 1,534,063 9,224,063 2023 8,170,000 -0- 1,053,438 9,223,438 2024 8,685,000 -0- 542,813 9,227,813 15 including use and occupancy insurance with respect to certain insured risks, in an amount equal to twenty-four (24) months of Base Rental (but such risks may not include lost use and occupancy resulting from an earthquake). See the caption "SECURITY FOR THE BONDS -- The Lease -- Insurance" and APPENDIX A under the caption "DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS -- SUMMARY OF CERTAIN PROVISIONS OF THE LEASE -- Insurance". Abatement • Except to the extent of amounts legally available to the City for payments under the Lease and except as otherwise specifically provided in the Lease with respect to use and occupancy insurance proceeds and amounts on deposit in the Revenue Fund, during any period in which, by reason of material damage, destruction, title defect or condemnation there is substantial interference with the use and possession by the City of any portion of the Leased Property, rental payments due under the Lease will be abated proportionately by an amount such that the portion of Base Rental remaining unabated represents the fair rental value of the remaining portion of the Leased Property, as calculated by the City and set forth in writing to the Authority and the Trustee. Any abatement of rental payments pursuant to the Lease will not be considered an event of default as defined in the Lease. The City waives the benefits of Civil Code Sections 1932(1), 1932(2) and 1932(4) and any and all other rights to terminate the Lease by virtue of any such interference and the Lease shall continue in full force and effect. Such abatement will continue for the period commencing with the date of such damage, destruction, title defect or condemnation and ending with the substantial completion of the work of repair or replacement of the portions of the Leased Property so damaged, destroyed, defective or condemned. Insurance The City has covenanted under the Lease to procure or cause to be procured a variety of insurance policies against loss or damage to the Leased Property, including casualty insurance against loss or damage caused by fire, lightning or earthquake and certain other casualties, public entity liability insurance, title insurance and worker's compensation insurance. In addition, the City has covenanted to provide use and occupancy insurance against total or partial loss of the Leased Property as a result of hazards covered by the casualty insurance described above in an amount sufficient to pay the total Base Rental payable by the City attributable to the Leased Property for a period of at least twenty-four (24) months. The Lease permits the City to decline to insure for earthquake damage under certain circumstances. Upon issuance of the Bonds, the City will provide earthquake insurance on the Leased Property if available from reputable insurers at commercially reasonable rates. Subject to certain conditions, the City may self-insure against any of the risks required to be insured against in the Lease except rental interruption and earthquake insurance and title insurance. See APPENDIX A under the caption "DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS -- SUMMARY OF CERTAIN PROVISIONS OF THE LEASE - Insurance" for a complete summary of the insurance requirements of the Lease. If the City self-insures against loss or damage, there is no assurance that sufficient moneys will be available to rebuild the Leased Property in the event of loss or damage. If sufficient moneys are available to rebuild the Leased Property, there is no legal assurance that such moneys can be applied to rebuild the Leased Property under current California law. Limited Recourse on Default The enforcement of any remedies provided in the Lease or the Ground Lease could prove both expensive and time consuming. Although the Lease provides that if the City defaults the Trustee may reenter the leased property and relet it, portions of the Leased Property may not be easily recoverable, and even if recovered, could be of little value to others because of the Leased Property's specialized nature. Additionally, the Trustee may have limited ability to relet the leased property to provide a source of rental payments sufficient to pay the principal and interest on the Bonds consistent with the preservation of the exclusion of the interest on the Bonds from gross income for federal income tax purposes. Alternatively, if the City defaults on its 17 BOND INSURANCE General The information contained under the caption "BOND INSURANCE" has been furnished by the Insurer for use in this Official Statement. Reference is made to Appendix F for a specimen of the Policy. No representation is made by the Authority as to the accuracy or completeness of this information, or the absence of any material adverse changes subsequent to the date hereof, and the Authority assumes no responsibility therefor. Payment Pursuant to Municipal Bond Insurance Policy The Insurer's policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the Authority to the Trustee or its successor of an amount equal to (i) the principal of(either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on the Current Interest Bonds and AIRS and the Accreted Value of the Capital Appreciation Bonds as such payments shall become due but shall not be so paid, (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the Insurer's Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner of the Bonds pursuant to a fmal judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law (a "Preference"). The Insurer's Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bond. The Insurer's Policy does not, under any circumstance, insure against loss relating to optional or mandatory redemptions (other than mandatory sinking fund redemptions) or any Preference relating thereto. The Insurer's Policy also does not insure against nonpayment of principal of or interest on the Current Interest Bonds and AIRS or the Accreted Value of the Capital Appreciation Bonds resulting from the insolvency,negligence or any other act or omission of the Trustee or any other paying agent for the Bond. Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Trustee or any Owner of a Bond the payment of an insured amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with State Street Bank and Trust Company, N.A., in New York, New York, or its successor, sufficient for the payment of any such insured amounts which are then due. Upon presentment and surrender of such Bond or presentment of such other proof of ownership of such Bond, together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the Bond as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Bond in any legal proceeding related to payment of insured amounts on the Bond, such instruments being in a form satisfactory to State Street Bank and Trust Company, N.A., State Street Bank and Trust Company, N.A. shall disburse to such owners or the Trustee payment of the insured amounts due on such Bond less any amount held by the Trustee for the payment of such insured amounts and legally available therefor. MBIA Corporation The Insurer is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company, MBIA Inc. is not obligated to pay the debts of or claims against the Insurer. The Insurer is a limited liability corporation rather than a several liability association. The Insurer is domiciled in the state of New 19 operate buildings, works or improvements; to acquire, hold or dispose of property within the City; and to incur debts, liabilities or obligations. THE CITY General The City of Santa Ana, county seat of Orange County and one of the oldest communities in Southern California, is located 33 miles southeast of Los Angeles, 20 miles east of the Port of Los Angeles and Long Beach, ten miles inland from the Pacific Ocean and 90 miles north of San Diego. The City encompasses an area of approximately 27 square miles and lies on generally level land at an elevation approximately 135 feet above sea level. The City was established by William H. Spurgeon in 1869. The City was incorporated on June 1, 1886 and reorganized under a City Charter in 1888. In 1952 the voters approved a charter which established a council-manager form of government. The charter was modified by an election in 1986 to provide for the mayor to be elected by the voters for a two year term. A 1988 redistricting resulted in a six-member City Council which is elected at large for four year terms. The City provides traditional city services including fire protection (254 employees..with ten stations) and police protection (406 police officers and seven stations). The City has approximately 1,600 classified employees and 13 exempt employees. The City provides water service through the municipal water department which has over 43,000 accounts. There are three libraries and 38 parks. Public education is provide primarily by the Santa Ma Unified School District which serves over 47,000 students. The City has served as the county seat since the formation of Orange County in 1889. Numerous government offices have taken advantage of the City's central location and position as county seat. City, county, state and federal offices are conveniently located in the multi-government Civic Center in the heart of the City. A strong industrial base undergirds the local economy. Santa Ma has a relatively mild climate induced by the mixing of cool breezes from the ocean and drier winds from the desert over the coastal plain. The mean July temperature is 72 degrees and the mean January reading is 53 degrees. Appointed Positions The City Manager is appointed by the City Council to enforce City laws, to direct the daily operations of the City government, to prepare and observe the City budget and to implement the policies and programs initiated by the City Council. City Manager--David N. Ream. Mr. Ream has served as City Manager since July 1986 prior to which be served the City as Deputy City Manager, Director of Community Development and as Budget Officer. He has also worked for the cities of Inglewood and Long Beach. He has served on the Executive Committee of the League of California Cities, City Managers Department and as Chairman of its Committee on the Advancement of Women and Minorities in Local Government. He has an undergraduate degree from Arizona State University and a Master's Degree in Business Administration from California State University, Long Beach. • Mr. Ream has participated in special programs at Harvard University for senior state and local government executives. The City Manager appoints the following personnel with responsibility for fiscal matters: Assistant City Manager -- Debra Kurita. Ms. Kurita has served as Assistant City Manager since December 1989 prior to which she served as Administrative Assistant and Administrative Services Manager for 21 Employment The following table shows a list of major employers in the City. MAJOR EMPLOYERS IN THE CITY OF SANTA ANA Firm Description 1.000 or more employees Baxter Healthcare Corporation Medical Hospital City of Santa Ana Government County of Orange Government ITT Electromechanical Components Electronics Rancho Santiago College Education Services The Register Newspaper Santa Ma Unified School District Public School System U.S. Federal Government Government Western Medical Center Hospital 501 - 1,000 employees Bagel Place Incorporated Food Source BFM Aerospace Industrial Controls Cal Trans Government Cherry Textron Fastener Manufacturer Express Manufacturing Electronic Components Farmers Insurance Insurance Provider Goodwill Industries Social Services Ingram Micro Incorporated Electronics ISS International Service Janitorial McDonnell Douglas Electric Systems Co. Computers Novadyne Computer Systems Social Service Nordstrom Department Store Santa Ma Hospital Medical Center Medical Services SPS Technology Aerospace Fasteners Tokos Medical Corp. Special Hospital Weyerhaeuser Company Ornate Nursery Xerox Corporation Corporate Offices Source: Economic Development Division of Community Development Agency, City of Santa Ana • 23 There is easy access to the San Diego Freeway (1-405)which is approximately one mile from the southern border. Air transportation is readily available from nearby John Wayne Airport, two miles south of the City. Utilities Southern California Edison provides electrical service within the City, Southern California Gas Company provides natural gas with the City and COMCAST Cable Company provides cable television service within the City. The City operates a water system within the City relying on a combination of local groundwater and water imported from Northern California and the Colorado River and purchased from the Metropolitan Water District of Southern California. The Orange County Sanitation Districts are responsible for sewer service within the City. Education Santa Ana is served by various school districts. Approximately 75 percent of the City is in the Santa Ana Unified School District and approximately 25 percent is within the Garden Grove Unified School District. Portions of the City are also located in the Orange Unified School District, Tustin Elementary and Tustin High School Districts. There are 26 public elementary schools, 7 intermediate and junior high schools, 4 high schools and 3 special schools for the handicapped and 1 continuation high school. Enrollment in the Santa Ana Unified School District for the ten year period ending in 1993 is presented below: CITY OF SANTA ANA PUBLIC SCHOOLS ENROLLMENT GRADES K-12 Number Year Enrolled 1984 34,193 1985 35,265 1986 36,314 1987 37,246 1988 38,197 1989 40,029 1990 42,260 1991 45,964 1992 47,700 1993 48,406 Source: Santa Ana Unified School District Rancho Santiago Community College, Santa Ma Campus, established in the City in 1915, offers two-year academic programs leading to the Associate of Arts degree and a variety of technical training programs. Enrollment is approximately 21,800, including over 4,900 full-time students and 16,900 part-time, which includes 16,900 continuing education students. Also located in Santa Ma is California Coast University which offers a variety of undergraduate and graduate degree programs. The University of California at Irvine was opened in 1965 on a 1,510 acre campus a short distance south of the City offering Bachelors, Masters, and Doctoral/Medical degree programs. 25 The General Purpose Financial Statements (Combined Statements - Overview) of the City for the fiscal year ended June 30, 1993 (the "Audited Financial Statement"), have been examined by Deloitte&Touche, Santa Ana, California, independent certified public accountants, whose report thereon appears in Appendix B. The auditor's letter concludes that the audited financial statements present fairly, in all material respects, the financial position of the City and the results of its operations and cash flows of its proprietary fund types for the year then ended, in conformity with generally accepted accounting principles. A complete copy of the Comprehensive Annual Financial Report of the City for the year ended June 30, 1993, which includes the Audited Financial Statements as well as certain other supplemental and statistical information, is available upon written request from the City, Department of Finance and Management Services, 20 Civic Center Plaza, Santa Ana, California, 92702 Attention: Executive Director. Certificate of Achievement The Government Finance Officer's Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its comprehensive annual financial report for the fiscal year ended June 30, 1993. This is the seventeenth consecutive year that the City has received this recognition. In order to be awarded a Certificate of Achievement, a governmental unit must publish an easily readable and efficiently organized comprehensive annual financial report with contents conforming to program standards. Such reports must satisfy both generally accepted accounting principles and applicable legal requirements. 27 Revenues, Expenses and Changes in Fund Balances The following table shows the City's general fund revenues, expenses and changes in fund balance for the Fiscal Years ending June 30, 1991 through 1993. CITY OF SANTA ANA GENERAL FUND COMPARATIVE STATEMENTS OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE FOR THE FISCAL YEARS ENDED JUNE 30,1993, 1992 AND 1991 1993 1992 1991 Revenues: Taxes $75,547,804 $ 73,826,617 $ 67,799,340 License and permits 1,995,338 1,911,262 2,123,776 Intergovernmental 11,312,149 11,335,444 11,061,240 Charges for services 6,826,477 5,647,221 4,907,490 Fines and forfeits 1,951,036 2,199,547 2,886,501 Use of money&property 3,201,653 3,436,419 3,282,621 Miscellaneous 7,621,877 4,868,215 8.682.722 Total revenues $108,456,334 ;103,224.725 $100,743,690 Expenditures: Current: General Government $ 3,818,854 $ 3,617,850 $ 4,110,295 Human Resources 1,486,559 1,494,529 1,413,972 Finance and Management Services 3,754,701 3,789,506 3,412,763 Museum 1,398,202 1,349,393 1,270,751 Library 3,834,518 4,191,223 3,609,900 Recreation&Community Services 9,672,682 9,226,418 6,815,623 Fire Department 25,666,937 24,611,174 23,156,891 Police Department 58,471,397 51,993,281 45,228,515 Planning& Building 9,622,188 9,478,650 8,630,508 Public Works 9,664,101 10,995,787 10.458.640 Total current expenditures. $127.,390,139 1120,747,811 ;108 107,858 Capital outlay 9,478,043 2,036,450 4,366,283 Debt Service: Principal retirement $ 1,363,307 $ 1,008,482 $ 932,788 Interest and fiscal charges 194,137 238,759 266,052 Total expenditures $138,425,626 $124,031,502 $113,672,981 Deficiency of revenues over expenditures (29,969,292) (20.806,777) (12,929,291) Other financing sources(uses): Capital lease arrangement $ 2,836,210 $ 147,015 $ 480,644 Operating transfers in 16,913,664 20,867,246 25,655,819 Operating transfers out (10.670,941) (6,955,890) (13,189,578) Total other financing sources(uses) $ 9,078,933 $ 14,058.371 $ 12,946,885 Excess of revenues and other sources over(under)expenditures and other uses $(20,890,359) $ (6,748,406) $ 17,594 22 519 005 20,924,140 Fund balance-beginning20,886,142 Equity transfer in 7.400.000 8,343,271 20,404 Fund balance- ending $ 9,028,646 $22.519,005 $20,924,14Q 29 CITY OF SANTA ANA 1994 GENERAL FUND BUDGET SCHEDULE OF REVENUES AND EXPENDITURES (NON-GAAP BASIS)FOR THE FISCAL YEAR ENDED JUNE 30, 1994 The following table does not include discretionary capital expenditures (i.e., the City's Capital Improvement Plan) for the years shown. 1994 Budget Revenues: Taxes $ 79,674,545 License and Permits 2,450,285 Intergovernmental 13,923,675 Charges for services 9,869,910 Fines and forfeits 3,456,870 Use of money and property 3,623,330 Miscellaneous 4,698,280 Total revenues $1.17,696,895 Expenditures: General government: City Council $ 661,553 Clerk of the Council 509,700 City Attorney 1,464,868 City Manager 568,117 Non-departmental 867,420 Total general government $ 4,071,658 Human Resources 1,368,420 Finance and Management Services 3,970,222 Museum 1,442,350 Library 4,574,974 Recreation& Community Services 9,317,311 Fire Department 26,563,954 Police Department 58,242,885 Planning&Building 10,655,742 Public Works 9,706,707 Community Development Total operating expenditures $129,914,223 Deficiency of revenues over operating expenditures $(12.217 328) Other financing source(uses): Operating transfers in (Recurring) From Special Gas Tax $ 3,550,415 From Redevelopment Agency 3,327,470 Others: From Retirement System -0- From Workers' Compensation Fund -0- From Revenue Sharing -0- From Sanitation and Refuse Funds 843,595 From Various Internal Service Funds 71,855 Total transfers in $ 7,793,335 Operating transfers out: To Redevelopment Agency $ (503,985) To Centennial Park (266,055) To Regional Transportation Center (99,975) To UPARR Grant Program Total transfers out $ (870,015) Total other financing sources $ 6,923,320 Deficiency of revenues and other sources over operating expenditures and other financing uses - $ (5,294,008) Other Expenditures: Capital Outlay $ 13,469,101 Deficiency of revenues and other financing sources over total expenditures and other financing uses $(18,763,109) Fund Balance-beginning 18,763,109 Equity transfer in Fund Balance-ending $ -0- 31 Outstanding General Fund Obligations The City currently has outstanding General Fund obligations as follows: Name Principal Amount Maturity Date Certificates of Participation, (Parking Facilities Refunding Project), Series 1993A $16,625,000 June 1, 2016 Certificates of Participations, (Commercial Facilities Refunding Project), Series 1993B 1,945,000 June 1, 2008 Certificates of Participation, (Mass Commuting Facilities Refunding Project), Series 1993C 5,005,000 June 1, 2008 Other Capitalized Leases 2.800.267 Total $26,375,267 The City's maximum annual rental obligation relating to the certificate of participation obligations is $2,886,309 in 1994. The City has entered into a loan agreement with the Redevelopment Agency pursuant to which the Redevelopment Agency is obligated to make payments to the City sufficient to make all payments with respect to the Certificates of Participation(Parking Facilities Refunding Project), Series 1993A. Current Redevelopment Agency practice is to make all payments with respect to the other Certificate of Participation issues described above directly to the Trustees on behalf of the City. There can be no assurance, however, that the Redevelopment Agency can or will continue to make such payments in the future. The City currently has outstanding a variety of other long-term obligations but which are not payable from the general fund. For information regarding these other long-term obligations of the City see the notes to the City Audited Financial Statements set forth in Appendix B. Insurance and Risk Management Property Risks. The City is one of 17 cities that formed the Public Entity Property Insurance Program (PEPIP) in May, 1993. PEPIP is a joint-purchase arrangement whose members currently number 63, and whose collective insurable values exceed $4.5 billion. The renewal date is May 15 of each year. The program has a $250,000,000 per occurrence shared-loss limit except for earthquake and flood coverage of$50,000,000, which applies to the City only. The coverage is "All Risk" and includes earthquake and flood. The deductibles are $10,000 except 5% of the location value for earthquake with a $100,000 minimum, $500,000 for flood and $25,000 for vehicles, except $50,000 for fire trucks. The coverage is replacement cost with no co-insurance. Rents coverage is provided on an "Actual Loss Sustained" basis. Library inventory has a separate value formula. Currently, RLI Insurance Company and Lexington Insurance Company provide the first layer of $5,000,000 coverage. The second ($5,000,000,000)is insured by Industrial Indemnity Company and Royal Indemnity Company. The third layer ($15,000,000) is insured by six insurance companies. The fourth layer ($25,000,000) is insured by eleven insurance companies. The fifth layer ($50,000,000)is insured by Industrial Indemnity Company and does not include earthquake or flood. The sixth layer ($100,000,000) is insured by three insurance companies and does not include earthquake or flood. The seventh layer ($50,000,000) is insured by Travelers Insurance Companies.. The City has a Boiler& Machinery Policy with a $10,000,000 33 Property Tax Collections and Assessed Valuations The table below sets forth property tax levies and collections within the City for the fiscal years ended June 30, 1984 through 1993. PROPERTY TAX LEVIES AND COLLECTIONS FISCAL YEARS ENDING JUNE 30, 1984 THROUGH 1993 Ratio Percentage Delinquent Total Fiscal Tax Current Collected Tax Total Collection Year Levied Collections Currently Collection Collection"' To Levy 1984 $12,363,644 $11,753,178 95.1% $464,598 $12,217,776 98.8% 1985 13,197,581 12,709,215 96.3 558,169 13,267,384 100.5 1986 14,399,736 13,817,709 96.0 345,391 14,163,100 98.4 1987 15,957,490 15,101,451 94.6 450,551 15,552,002 97.5 1988 16,887,343 16,411,151 97.2 741,785 17,152,936 101.6 1989 18,563,060 17,521,630 94.4 916,506 18,438,136 99.3 1990 20,341,732 19,012,022 93.4 725,869 19,737,891 97.3 1991 21,649,324 19,819,687 91.5 782,162 20,601,849 95.2 1992 22,144,193 21,092,648 95.2 807,428 21,900,076 98.9 1993 22,909,717 21,067,597 90.9 976,850 22,044,447 95.8 (1) Excludes Business Inventories and Homeowner's Exemptions, and Redevelopment Tax Increment. The County of Orange has recently elected to participate in a program known as the "Teeter Plan" under which the City and certain other local agencies will receive 100% of the City's share of the County 1% property tax levy, regardless of the countywide delinquency rate. See "The City -- 1993 Budget Results and City Management Discussion of 1994 Budget" for a discussion of the impact of this County action on the City. 35 Property Tax Rates -- Overlapping Governments The table below sets forth A SELECTED property tax rate in the City for all governmental agencies overlapping the City. The City had 117 tax code areas during the year ended June 30, 1993. The tax rates in these areas varied from 1.00168% to L02789% of assessed valuation. Tax Rate Area 11-003, which is presented in the table, is the largest representing about 25% of the total assessed valuation. PROPERTY TAX RATES CITY OF SANTA ANA - ALL OVERLAPPING GOVERNMENT FISCAL YEARS ENDING NNE 30, 1984 THROUGH 1993 (CODE AREA 11-03) Metropolitan County Fiscal Water Orange Sanitation& School Year District County Water District Services °therm Total 1984 $.0237 $1.00 $.00201 $.03397 $.00249 $1.06217 1985 .0156 1.00 .00198 .03106 .00209 1.05073 1986 .0164 1.00 .00154 .03109 .00193 1.05096 1987 .0148 1.00 .00199 .02322 .00169 1.04170 1988 .0112 1.00 .00138 .01754 .00139 1.03151 1989 .0110 1.00 .00121 .01342 .00133 1.02695 1990 .0121 1.00 .00024 .01505 .00110 1.02849 1991 .0097 1.00 -- .01163 .00098 1.02231 1992 .0089 1.00 -- .00809 .00086 1.01785 1993 .0089 1.00 -- .01695 .00087 1.02672 County Includes County Improvement Bonds & Orange Co ty Flood Control District Bonds. Taxes on the secured rolls are payable in two installments on November 1 and March 1 of each fiscal year and become delinquent on December 10 and April 10, respectively. Taxes on unsecured property are assessed and payable on March 1 and become delinquent the following August 31 in the next fiscal year. The penalty for delinquent payment is 10% of the property tax due plus 11/2% interest per month until paid. All property taxes are collected by the County of Orange Tax Collector and are apportioned to participating agencies in accordance with a prearranged schedule of apportionment dates and amounts either as a percentage of the levy or in amounts actually collected. Interest is paid on undistributed taxes in subsequent apportionments. The Tax Collector charges the agencies 1/4 of 1 percent of the amounts collected for his services. 1. 37 Several court decisions have held parts of Proposition 62 (a statute) to be in conflict with the State Constitution, substantially undermining its effectiveness. The City cannot predict what the effect of a similar constitutional amendment would be on the fiscal flexibility of the City. Article XIIIB of the California Constitution The State and most entities of local government are subject to an annual "appropriations limit" imposed by Article XIIIB of the State Constitution(the "Gann Limit"). Article XIIIB prohibits an entity of government from spending "appropriations subject to limitation" in excess of the appropriations limit imposed. Article XIIIB, originally adopted in 1979, was modified substantially by Propositions 98 and 111 in 1988 and 1990, respectively. "Appropriations subject to limitation" are authorizations to spend "proceeds of taxes," which consist of tax revenues, State subventions and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed "the cost reasonably borne by such entity in providing the regulation, product or service," but "proceeds of taxes" excludes tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on appropriations of funds which are not "proceeds of taxes," such as reasonable user charges or fees, and certain other non-tax funds. Not included in the Article XIIIB limit for the City are appropriations for the debt service costs of bonds existing or authorized by January 1, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of courts or the federal government and appropriations for qualified capital outlay projects. The appropriations limit may also be exceeded in cases of emergency. However, unless the emergency arises from civil disturbance or natural disaster declared by the Governor of the State, and the expenditure is approved by two-thirds of the appropriate legislative body, the appropriations limit for the entity for the Debt three years must be reduced by the amount of the excess. The appropriations limit for the City in each year is based on the limit for the prior year, adjusted annually for changes in the cost of living and changes in population, and adjusted, where applicable, for transfer of financial responsibility of providing services to or from another unit of government. The change in the cost of living is, at the option of the City, either(1) the percentage change in State per capita personal income, or (2) the percentage change in the local assessment roll on nonresidential property. Either test is likely to be greater than the change in the cost of living index, which was used prior to Proposition I11. For the City, change in population is to be measured either within the jurisdiction of the City or the County as a whole. As amended by Proposition 111, the appropriations limit is tested over consecutive two-year periods. Any excess of the aggregate "proceeds of taxes" received by the City over such two-year period above the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years. Section 4 of Article XIIIB provides that the appropriations limit imposed on any entity of government may be changed by the electors of such entity, provided that the duration of any such change shall not exceed four years from the most recent vote of the electors. As originally enacted in 1979, the appropriations limit for the City was based on 1978-79 fiscal year authorizations to expend proceeds of taxes and was adjusted annually to reflect changes in cost of living and population(using different definitions, which were modified by Proposition 111). Starting in the 1990-91 fiscal year, the City's appropriations limit was recalculated by taking the actual 1986-87 limit, and applying the annual adjustments as if Proposition 111 had been in effect. 39 RATING Standard & Poor's Ratings Group ("S&P") has assigned the Bonds a rating of "AAA", and Moody's Investors Service, Inc. ("Moody's")has assigned the Bonds the rating of "Aaa", with the understanding that, upon delivery of the Bonds, the Municipal Bond Insurance Policy will be issued by the Insurer. Such ratings reflect only the views of S&P and Moody's, and does not constitute a recommendation to buy, sell or hold the Bonds. Explanation of the significance of the rating may be obtained from the S&P and Moody's. A rating is subject to revision or withdrawal at any time by the particular rating agency, and there is no assurance that a rating will continue for any period of time or that it will be revised or withdrawn. Any revision or withdrawal of either or both of the ratings could have an adverse effect on the market price of the Bonds. LITIGATION There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, pending or, to the knowledge of the Authority, threatened against the Authority or the City affecting the existence thereof or the titles of its members or officers to their respective offices or seeking to restrain or to enjoin the sale of the Bonds, the application of the proceeds thereof in accordance with the Indenture, or in any way contesting or affecting the validity or enforceability of the Joint Powers Agreement, the Bonds, the Indenture, the Ground Lease, the Lease, the Assignment Agreement or any action of the Authority or the City contemplated by any of said documents, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the Authority or the City or their authority with respect to the Joint Powers Agreement, the Bonds, the Indenture, the Ground Lease, the Lease, the Assignment Agreement or any action of the Authority or the City contemplated by any of said documents, nor to the knowledge of the Authority, is there any basis therefor. Although the City is subject to occasional lawsuits in the ordinary conduct of its affairs, in the opinion of the City, there are no claims or actions threatened or pending which, if determined adversely against the City, either individually or in the aggregate, would have a material adverse effect on the financial condition of the City or on the ability of the City to make Base Rental payments under the Lease. UNDERWRITING The underwriters set forth on the cover page hereof(the "Underwriters") have jointly and severally agreed, subject to certain conditions set forth in the Purchase Contract, dated March 8, 1994 (the "Purchase Contract"), to purchase all of the Bonds for an aggregate purchase price of$110,279,880.64(constituting the aggregate principal amount of the Bonds less underwriters' discount of$777,459.01 plus premium of $3,657,901.15)plus the interest on the Current Interest Bonds accrued from March 1, 1994 to the delivery date thereof. The initial public offering prices stated on the inside cover of this Official Statement may be changed from time to time by the Underwriters. The Underwriters may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts), dealer banks, banks acting as agents and others at prices lower than said public offering prices. 41 APPENDIX A DEFINITIONS AND SUMMARY OF PRINCIPAL I.FOAL DOCUMENTS APPENDIX A DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS The following is a summary of certain provisions of the Assignment Agreement, the Indenture and the Lease which are not described elsewhere in the Official Statement. These summaries do not purport to be comprehensive and reference should be made to the Assignment Agreement, the Indenture and the Lease for a full and complete statement of its provisions. All capitalized terms not defined in the Official Statement have the meanings set forth in the Lease or the Indenture. DEFINITIONS Unless the context otherwise requires, the terms defined under this caption will, for all purposes of the Official Statement, have the meanings herein specified. "Accreted Value" means, with respect to any Capital Appreciation Bond, an amount equal to the principal amount of such Bond, plus interest accrued thereon from its dated date compounded on each January 1 and July 1, commencing January 1, 1995 (through and including the maturity date of such Bond)at the "original issue yield" for such Bond; provided, that the Accreted Value on any date other than January 1 and July 1 shall be calculated by straight line interpolation of the Accreted Values as of the immediately preceding and succeeding January 1 and July 1. The term "original issue yield" means, with respect to any particular Bond, the yield to maturity of such Bond from the initial date of delivery thereof calculated on the basis of semiannual compounding on each January 1 and July 1. "Additional Bonds" means all lease revenue bonds of the Authority authorized by and at any time Outstanding pursuant to the Indenture and executed, issued and delivered in accordance with the Indenture. "Annual Debt Service" means, for any Authority Fiscal Year or Bond Year, the sum of(1) the interest payable on all Outstanding Bonds in such Authority Fiscal Year or Bond Year, assuming that all Outstanding Serial Bonds are retired as scheduled and that all Outstanding Term Bonds are redeemed or paid from sinking fund payments as scheduled (except to the extent that such interest is to be paid from the proceeds of the sale of any Bonds), (2) the principal amount of all Outstanding Serial Bonds maturing by their terms in such Authority Fiscal Year or Bond Year, and (3) the principal amount or Accreted Value of all Outstanding Serial Bonds required to be redeemed or paid in such Authority Fiscal Year or Bond Year (together with the redemption premiums, if any, thereon). "Assignment Agreement" means the Assignment Agreement, dated as of March 1, 1994, between the Authority and the Trustee, as originally executed and as it may from time to time be amended or supplemented. "Authority" means Santa Ana Financing Authority, a joint powers authority duly created and lawfully existing under the Constitution and laws of the State. "Authority Fiscal Year" means the fiscal year of the Authority which, as of the date hereof, is the period from July 1 to and including the following June 30. "Authorized Denominations" means, with respect to Current Interest Bonds, $5,000 and any integral multiple of$5,000 and, with respect to Capital Appreciation Bonds, $5,000 maturity amount, being denominations of initial principal amount, (as set forth in the Indenture for 1994 Bonds) for Capital Appreciation Bonds of the corresponding maturity, or any integral multiple thereof. "Average Annual Debt Service" means the average Annual Debt Service over all Bond Years. A-1 "Dated Date" means March 1, 1994 with respect to 1994 Bonds which are Current Interest Bonds and the date of initial issuance and delivery thereof with respect to 1994 Bonds which are Capital Appreciation Bonds. "Event of Default" shall have the meaning given to such term under the caption "Events of Default". "Federal Securities" means any direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. "Financial Newspaper" means The Wall Street Journal or The Bond Buyer or, if neither is then in print, any other newspaper or journal printed in the English language publishing financial news and selected by the Trustee, whose decision shall be fmal and conclusive. "Indenture" means the Indenture, dated as of March 1, 1994, between the Authority and the Trustee, as originally executed and as it may from time to time be amended or supplemented by all Supplemental Indentures executed pursuant to the provisions thereof. "Information Services" means Financial Information, Inc.'s "Daily Called Bond Service," 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 17302, Attention: Editor; Kenny Infonnation Services' "Called Bond Service," 55 Broad Street, 28th Floor, New York, New York 10004; Moody's Investors Service's "Municipal and Government," 99 Church Street, 8th Floor, New York, New York 10007, Attention: Municipal News Reports; and Standard and Poor's Corporation's "Called Bond Record," 25 Broadway, 3rd Floor, New York, New York 10004; or, in accordance with then current guidelines of the Securities and Exchange Commission, to such other addresses and/or such other services providing information with respect to called bonds, or to such services as the Authority may designate in a Certificate of the Authority delivered to the Trustee. "Interest Payment Date" means each January 1 and July 1, commencing January 1, 1995. "Investment Agreement" means an investment agreement or guaranteed investment contract by and between the Trustee and a national or state chartered bank or savings and loan institution(including the Trustee) or other financial institution the long-term debt obligations of which are rated at the time of execution thereof "AA" or higher by Standard &Poor's Corporation and "Aa" or higher by Moody's Investors Service. Each Investment Agreement shall provide, among other matters, that the Trustee may immediately withdraw all funds or other collateral that are the subject thereof upon any downgrading of such ratings and that such agreement shall have been reviewed prior to the execution thereof by Standard & Poor's Corporation and Moody's Investors Service. Any such Investment Agreement must be approved in writing by the Bond Insurer. "Lease" means the Lease, dated as of March 1, 1994, entered into between the Authority, as lessor, and the City, as lessee, as originally executed and as it may from time to time be amended or supplemented pursuant to the provisions thereof and of the Indenture. "Maximum Annual Debt Service" means, as of the date of calculation, the greatest total Annual Debt Service payable in any Bond Year during the period commencing with the then current Bond Year and terminating with the last Bond Year in which the Bonds are Outstanding. "Net Proceeds" means any insurance proceeds or condemnation award paid with respect to the Leased Property remaining after payment therefrom of all expenses incurred in the collection thereof. "Opinion of Counsel" means a written opinion of counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the City or the Authority. A-3 (d) money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of "AAAm", or "AAAm-G", or "AAm"; (e) certificates of deposit secured at all times by the following collateral: senior debt obligations (consolidated debt obligations)of the Federal Home Loan Bank System and/or participation certificates (mortgage-backed securities) or senior debt obligations of the Federal Home Loan Mortgage Corporation. Certificates of deposit must have a one year or less maturity. Such certificates of deposit must be issued by commercial banks (including the Trustee),savings and loan associations or mutual savings banks) whose short term obligations are rated A-1+ or better by S&P. The collateral must be held by a third party and the Owners must have a perfected first security interest in the collateral; (f) certificates of deposit, savings account, deposit accounts or money market deposits (including those of the Trustee) which are fully insured by the Federal Deposit Insurance Corporation including BIF and SAIF; (g) commercial paper rated, at the time of purchase, "Prime-1" by Moody's and "A-1" or better by S&P; (h) bonds or notes issued by any state or municipality which are rated by Moody's or S&P in one of the two highest long-term rating categories assigned by such agencies; (i) federal funds or bankers acceptances with a maximum term of one year of any bank with an unsecured, uninsured and unguaranteed obligation rating of"Prime-1" or "A-3" or better by Moody's and "A+" or "A" or better by S&P; (j) repurchase agreements which provide for the transfer of securities from a dealer bank or securities firm(seller/borrower) to the Trustee and the transfer of cash from the Trustee to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the Trustee in exchange for the securities at a specified date, which satisfy the following criteria; (i) repurchase agreements must be between the Trustee and (A) a primary dealer on the Federal Reserve reporting dealer list which falls under the jurisdiction of the Securities Investors Protection Corporation and which are rated "A" or better by Moody's and S&P, or (B) a bank rated "A" or better by Moody's and S&P; (ii) the written repurchase agreement contract must include the following: (A) securities acceptable for transfer, which may be direct U.S. government obligations, or federal agency obligations backed by the full faith and credit of the U.S. government; (B) the term of the repurchase agreement may be up to 30 days; (C) the securities must be delivered to the Authority, Trustee (if Trustee is not supplying the securities) or third party acting as agent for the Trustee (if the Trustee is supplying the securities) before/simultaneous with payment (perfection by possession of certificated securities); (D) the Trustee must have a perfected first priority security interest in the collateral; (E) the collateral must be free and clear of third-party liens and, in the case of a broker which falls under the jurisdiction of the Securities Investors Protection Corporation, are not subject to a repurchase agreement or a reverse repurchase agreement; (F) failure to maintain the requisite collateral percentage, after a two day restoration period, will require the Trustee to liquidate the collateral; (G) the securities must be valued no less frequently than once every two weeks,marked-to-market at current market price plus accrued interest and the value of collateral must be equal to 104% of the amount of cash transferred by the Trustee to the dealer bank or securities firm under the repurchase agreement plus accrued interest (unless the securities used as collateral are obligations of the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, in which case the collateral must be equal to 105% of the amount of cash A-5 SUMMARY OF CERTAIN PROVISIONS OF THE ASSIGNMENT AGREEMENT The Assignment Agreement is entered into between the Authority and the Trustee, and in it the Authority assigns and transfers to the Trustee, for the benefit of the Owners, certain of its rights under the Lease, including its right to receive Base Rental payments under the Lease, its right to receive proceeds of condemnation of, and insurance on, the Leased Property, and its right to enforce payment of Base Rental payments when due and to otherwise protect its interests and enforce its rights under the Lease in the event of a default by the City. The Trustee accepts such assignments for the purpose of securing such payments and rights to the Owners subject to the provisions of the Indenture. SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE Allocation of Revenues The Authority has assigned all of its interest in the payments (including, without limitation, Base Rental payments) under the Lease to the Trustee. Pursuant to the Indenture, the Trustee has established within the Revenue Fund an Interest Account, a Principal Account, a Reserve Account and a Redemption Account. The Trustee will deposit all Revenues in the Revenue Fund and will allocate all Revenues in the Revenue Fund as follows: (a) Interest Account. On or before each Interest Payment Date, the Trustee shall set aside from the Revenue Fund and deposit in the Interest Account that amount of money which, together with any money contained in the Interest Account, is equal to the aggregate amount of interest becoming due and payable on all Outstanding Bonds on such Interest Payment Date, No deposit need be made in the Interest Account if the amount contained in the Interest Account is at least equal to the aggregate amount of interest becoming due and payable on all Outstanding Bonds on such interest payment date. All money in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it shall become due and payable(including accrued interest on any Bonds purchased or redeemed prior to maturity). (b) Principal Account. On or before July 1 of each year, beginning on July 1, 2001, the Trustee shall set aside from the Revenue Fund and deposit in the Principal Account an amount of money equal to the aggregate principal amount or Accredited Value of all Outstanding Serial Bonds maturing on such July 1 plus the aggregate amount or Accredited Value of all sinking fund payments required to be made with respect to the Term Bonds on such July 1. No deposit need be made in the Principal Account if the amount contained therein is at least equal to the aggregate amount of the principal or Accreted Value of all Outstanding Serial Bonds maturing by their terms on such July 1 plus the aggregate principal amount or Accreted Value of all sinking fund payments required to be made on such July 1 for all Outstanding Term Bonds. The Trustee shall establish and maintain within the Principal Account a separate sinking account for Term Bonds (the "Sinking Account"). On each mandatory sinking account payment date established for such Sinking Account, the Trustee shall apply the mandatory sinking account payment required on that date to the redemption (or payment at maturity, as the case may be) of Term Bonds upon the notice and in the manner provided herein; provided that,at any time prior to giving such notice of such redemption, the Trustee, upon Written Request of the Authority, may apply moneys in such Sinking Account to the purchase of Term Bonds with respect to which such moneys were deposited in the Sinking Account at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account)as shall be determined by the Authority, except that the purchase price(excluding accrued interest) shall not exceed the redemption price that would be payable for such Bonds upon redemption by application of such mandatory sinking account payment. If, during the twelve-month period A-7 Notwithstanding anything herein to the contrary, amounts, if any, remaining in the Capitalized Interest Account on the date the Trustee receives a Certificate of Completion shall be transferred first to the Reserve Account to the extent necessary to make the amount on deposit therein equal to the Reserve Requirement and thereafter any excess shall be transferred to the Revenue Fund. Following the transfer of all amounts remaining in the Capitalized Interest Account, the Trustee shall close such account. (f) Any delinquent Base Rental payments and any proceeds of rental interruption insurance with respect to the Leased Property shall be applied first to the Interest Account for the immediate payment of interest payments past due and then to the Principal Account for immediate payment of principal payments past due according to the tenor of any Bond, and then to the Reserve Account to the extent necessary to make the amount on deposit therein equal to the Reserve Requirement. Any remaining money representing delinquent Base Rental payment and any proceeds of rental interruption insurance shall be deposited in the Revenue Fund to be applied in the manner provided therein. Acquisition Fund The moneys in the Acquisition Fund shall be disbursed from time to time to pay Acquisition Costs and, to the extent described below, to pay Costs of Issuance. The Trustee shall disburse moneys in the Acquisition Fund from time to time upon receipt by the Trustee of a Written Request of the Authority, containing the information required by the Indenture. If at any time there are insufficient moneys in the Costs of Issuance Fund to disburse moneys in accordance with a Written Request of the Authority, the Trustee shall disburse from the Acquisition Fund such additional amounts as are necessary to comply with such Written Request. The Trustee shall hold the moneys in the Acquisition Fund and disburse such moneys therefrom in accordance with the Indenture. If at any time there are insufficient moneys in the Acquisition Fund to pay all Acquisition Costs in full, the amount of such deficiency shall be deposited therein by the City, from and only to the extent it has additional funds legally available to it for such purpose. If, after payment by the Trustee of all Written Requests of the Authority theretofore tendered to the Trustee under the provisions of the Indenture, and delivery to the Trustee of a Certificate of Completion, there shall remain any balance of money in the Acquisition Fund, all money so remaining shall be transferred, first, to the Reserve Account to the extent necessary to make the amount on deposit therein equal to the Reserve Requirement and, second, the remainder to a separate account, which the Trustee shall establish and hold in trust, and which shall be entitled the "Surplus Account." The moneys in the Surplus Account shall be applied (unless some Other application of such moneys would not, in the opinion of Bond Counsel adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds) at the direction of the City, to one of the following purposes: (i)to the redemption of Outstanding Bonds, in which case amounts in the Surplus Account shall be transferred to the Redemption Account, (ii) to the construction of additional public facilities or (iii) to the payment of regularly scheduled principal or Accreted Value of or interest on the Bonds, in which case amounts in the Surplus Account shall be transferred to the Revenue Fund; provided that if alternative (ii) or (iii) is selected by the City, the fair rental value of the Leased Property must at all times be I equal to or greater than Annual Debt Service in each Bond Year. The moneys in the Surplus Account shall be invested at the direction of the Authority at a yield no higher than the yield on the Outstanding Series of Bonds from which such moneys are derived (unless, in the Opinion Counsel, investment at a higher yield would not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds), and all such investment income shall be deposited in the Surplus Account and expended or reinvested as provided above. A-9 (1) The purpose for which such Additional Bonds are to be issued; (2) The authorized principal amount and designation of such Additional Bonds; (3) The dated date and the maturity dates of, and the sinking fund payment dates, if any, for such Additional Bonds; provided that (i) each maturity date shall fall upon July 1, (ii) the final maturity date shall not exceed the remaining useful life of the leased property, (iii) all such Additional Bonds of like maturity shall be identical in all respects, except as to number and denomination and (iv) serial maturities for Serial Bonds or sinking fund payments for Term Bonds, or any combination thereof, shall be established to provide for the retirement of such Additional Bonds on or before their respective maturity dates; (4) The interest payment dates for such Additional Bonds, which shall be Interest Payment Dates; (5) That such Additional Bonds shall be issued only in Authorized Denominations; (6) The redemption premiums, if any, and the redemption terms, if any, for such Additional Bonds; (7) The amount, if any, to be deposited from the proceeds of sale of such Additional Bonds in the Interest Account established pursuant to the Indenture; (8) The amount, if any, to be deposited from the proceeds of sale of such Additional Bonds in the Acquisition Fund established pursuant to the Indenture; (9) The amount to be deposited from the proceeds of sale of such Additional Bonds in the Reserve Account established pursuant to the Indenture, which amount shall be sufficient to cause the amount on deposit in the Reserve Account to equal the Reserve Requirement upon the issuance of such Additional Bonds; (10) The forms of such Additional Bonds; and (11) Such other provisions as are necessary or appropriate and not inconsistent with the Indenture. (c) The Lease shall have been amended so as to increase the Base Rental payable by the City thereunder by an amount at least sufficient to pay the interest on and principal of such Additional Bonds as the same become due. (d) Evidence that the Authority has received the written consent of the Bond Insurer, to any such issuance of Additional Bonds, provided that with respect to Additional Bonds issued for the purpose of(i) completion of the Project, such consent shall not be unreasonably withheld, and (ii) refunding Outstanding Bonds for debt service savings, no consent of the Bond Insurer shall be required. The Indenture does not limit the issuance of any lease revenue bonds of the Authority payable from the Revenues and secured by a pledge of the Revenues if, after the issuance and delivery of such lease revenue bonds, none of the Bonds theretofore issued under the Indenture will be Outstanding. The Authority may, at any time, execute Additional Bonds for issuance under the Indenture and deliver them to Trustee, and thereupon such Additional Bonds shall be authenticated and delivered by the Trustee to the A-11 secure adequate Revenues for the payment of interest on and principal of and redemption premiums, if any, on the Bonds, or which would otherwise impair the rights of Owners with respect to the Revenues or the use of the Leased Property. Any real or personal property constituting part of the Leased Property which has become nonoperative or which is not needed for the efficient and proper use of the Leased Property, or which has become worn out may be sold at not less than the market value thereof if such sale will not reduce the Revenues and if the net proceeds of such sale are treated as Revenues and applied as provided in the Indenture; 4. Not use or permit the use of any proceeds of the Bonds or any funds of the Authority, direct or indirectly, to acquire any securities or obligations, and shall not take any or permit to be taken any other action or actions, which would cause any Bonds to be an "arbitrage bond" within the meaning of Section 149(b) Code or "federally guaranteed" within the meaning of the Code and any such applicable regulations promulgated from time to time thereunder and under Section 103(c) of the Internal Revenue Code of 1954, as amended. The Authority shall observe and not violate the requirements of Section 148 of the Code and any such applicable regulations. The Authority shall comply with all requirements of Section 148 and 149(b)of the Code to the extent applicable to the Bonds; 5. Comply with the provisions and procedures of the Tax Certificate; 6. Not use or permit the use of any proceeds of the Bonds or any funds of the Authority, directly or indirectly, in any manner, and shall not take or omit to take any action, that would cause any of the Bonds to be treated as the obligation not described in Section 103(a) of the Code. 7. Cause the City to, within fifteen (15) days of the receipt of any Net Proceeds, instruct the Trustee, through a Written Request of the City, as to what portion, if any, of such proceeds are to be used to redeem Bonds pursuant to the Indenture; 8. Keep proper books of record and account in which complete and correct entries shall be made of all transactions relating to the receipts, disbursements, allocation and application of the Revenues, and such books shall be available for inspection by the Trustee or the Bond Insurer, at reasonable hours and under reasonable conditions. Not more than four months after the close of each Authority Fiscal Year, the Authority shall furnish or caused to be furnished to the Trustee and the Bond Insurer a complete financial statement covering receipts, disbursements, allocation and application of Revenues for such Fiscal Year, including a profit and loss statement and balance sheet. The Authority shall also keep or cause to be kept such other information as is required under the Tax Certificate; 9. Supply to the Trustee as soon as practicable after the beginning of each City Fiscal Year, but in no event later than December 31 in each City Fiscal Year, a certificate of the City certifying that the City has made adequate provision in its annual budget for such City Fiscal Year for the payment of all rentals due under the Lease in such City Fiscal Year. If the amounts so budgeted are not adequate for the payment of all rentals due under the Lease in such City Fiscal Year, the Authority will take such action as may be necessary and within its power to cause such annual budget to be amended, corrected or augmented so as to include therein the amounts required to be paid by the City in such City Fiscal Year for the payment of all rentals due under the Lease in such City Fiscal Year, and will notify the Trustee of the proceedings then taken or proposed to be taken by the Authority; 10. Maintain and vigorously enforce all of its rights under the Lease and the Ground Lease, and will promptly collect all rents and charges due for use of the Leased Property as the same become due under the Lease, and will promptly and vigorously enforce its rights against any tenant or other person who does not pay such rents or charges as they become due under the Lease, and not do or permit anything to be done, omit or refrain from doing anything where any such act done or A-13 (d) if the Authority shall file a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction shall approve a petition filed with or without the consent of the Authority seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody or control of the Authority or of the whole or any substantial part of its property. Upon the happening and continuance of any Event of Default, the Trustee in its discretion may, and at the written request of the Owners of not less than twenty-five percent (25%) in aggregate principal amount of Bonds Outstanding shall, do the following: (a) by mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of the Owners and require the Authority to enforce all rights of the Owners of Bonds, including the right to require the Authority to receive and collect Revenues and to enforce its rights under the Lease, and to require the Authority to carry out any other covenant or agreement with Owners of Bonds and to perform its duties hereunder; (b) bring suit upon the Bonds; (c) by action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the Owners; and (d) as a matter of right, have a receiver or receivers appointed for the Revenues and the issues, earnings, income, products and profits thereof, pending such proceedings, with such powers as the court making such appointment shall confer. Notwithstanding the above, subject to the limitations and restrictions to the right of the owners in the Indenture, upon the happening and continuance of any Event of Default, the Owners of not less than twenty-five percent (25%) in aggregate principal amount of the Bond Obligation shall have the right, upon providing the Trustee security and indemnity reasonably satisfactory to it against the costs, expenses and liabilities to be incurred therein or thereby, by an instrument in writing executed and delivered to the Trustee, to direct the method and place of conducting all remedial proceedings taken by the Trustee under the Indenture. The Trustee may refuse to follow any such direction that conflicts with law or the Indenture or that the Trustee determines is prejudicial to rights of other Owners or would subject the Trustee to personal liability. Any moneys received by the Trustee pursuant to the Indenture, together with any moneys which upon the occurrence of an Event of Default are held by the Trustee in any of the funds and accounts hereunder (other than the Rebate Fund and other than moneys held for Bonds not presented for payment) shall, after payment of all fees and expenses of the Trustee, and the fees and expenses of its counsel, be applied as follows: First - To the payment of the persons entitled thereto of all installments of interest then due on the Bonds, in the order of the maturity of the installments of such interest and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the persons entitled thereto, without any discrimination or privilege; Second - To the payment of the persons entitled thereto of the unpaid principal of the premium, if any, on any of the Bonds which shall have become due (other than Bonds matured or called for redemption for the payment of which moneys are held pursuant to the provisions of the Indenture), in the order of their due dates and, if the amount available shall not be sufficient to pay in full the principal of and premium, if any, on such Bonds due on any particular date, then to the A-15 (d) to provide for the issuance of Additional Bonds. Notwithstanding any other provision in the Indenture, any provision of the Indenture expressly recognizing or granting rights in or to the Bond Insurer may not be amended in any manner which affects the rights of the Bond Insurer hereunder without the prior written consent of the Bond Insurer. a copy of any amendment of the Indenture which is consented to by the Bond Insurer shall be delivered by the Trustee to Standard & Poor's Ratings Group as soon as practicable after the execution and delivery of such amendment. Discharge of Liability on Bonds If the Authority shall pay or cause to be paid or there shall otherwise be paid to the Owners of all Outstanding Bonds the interest thereon and the principal thereof and the redemption premiums, if any, thereon at the times and in the manner stipulated in the Indenture and in the Bonds, then the Owners of such Bonds shall cease to be entitled to the pledge of the Revenues as provided in the Indenture, and all agreements, covenants and other obligations of the Authority to the Owners of such Bonds thereunder shall thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Trustee shall execute and deliver to the Authority all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the Authority all money or securities held by it pursuant hereto which are not required for the payment of the interest on and principal of and redemption premiums, if any, on such Bonds, or for any remaining fees and expenses of the Trustee. Subject to the provisions of the above paragraph, when any of the Bonds shall have been paid and if, at the time of such payment, the Authority shall have kept, performed and observed all the covenants and promises in such Bonds and in the Indenture required or contemplated to be kept, performed and observed by the Authority or on its part on or prior to that time, then the Indenture shall be considered to have been discharged in respect of such Bonds and such Bonds shall cease to be entitled to the lien of the Indenture and such lien and all covenants, agreements and other obligations of the Authority hereunder shall cease, terminate become void and be completely discharged as to such Bonds. Notwithstanding the satisfaction and discharge of the Indenture or the discharge of the Indenture in respect of any Bonds, those provisions of the Indenture relating to the maturity of the Bonds, interest payments and dates thereof, tender and exchange provisions, exchange and transfer of Bonds,replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, nonpresentment of Bonds, and the duties of the Trustee in connection with all of the foregoing, remain in effect and shall be binding upon the Trustee and the Owners of the Bonds and the Trustee shall continue to be obligated to hold in trust any moneys or investments then held by the Trustee for the payment of the principal of, redemption premium, if any, and interest on the Bonds, to pay to the Owners of Bonds the funds so held by the Trustee as and when such payment becomes due. Notwithstanding the satisfaction and discharge of the Indenture or the discharge of the Indenture in respect of any Bonds, those provisions of the Indenture relating to the compensation of the Trustee shall remain in effect and shall be binding upon the Trustee and the Authority. Any Outstanding Bonds shall prior to the maturity date or redemption date thereof be deemed to have been paid said notice to be given in accordance with the Indenture if(1) in case any of such Bonds are to be redeemed on any date prior to their maturity date, the Authority shall have given to the Trustee in form satisfactory to it irrevocable instructions to mail on a date in accordance with the provisions in the Indenture notice of redemption of such Bonds on said redemption date, said notice to be given in accordance with the • Indenture, (2) there shall have been deposited with the Trustee either (A) money in an amount which shall be sufficient or (B) noncallable Permitted Investments of the type described in clause (a) or clause (b)of the definition of Permitted Investments and which are not subject to redemption prior to maturity except by the holder thereof(including any such Permitted Investments issued or held in book-entry form on the books of the Department of the Treasury of the United States of America) or tax-exempt securities rated AAA or its equivalent by a nationally recognized rating agency, including Standard & Poor's Corporation, Moody's Investors Service if each is then rating the Bonds the interest on and principal of which when paid will provide A-17 The City and the Authority have agreed and determined that the Base Rental payments shown in the Base Rental Payment Schedule set forth in the Lease represent the fair rental value of the Leased Property. In making such determination, consideration was given to the costs of the Leased Property, the fair market value thereof, the other obligations of the parties under the Lease, the uses and purposes which may be served by the Leased Property and the benefits therefrom which will accrue to the City, its residents and the general public. Each installment of Base Rental and Additional Rent payable hereunder shall be paid in lawful money of the United States of America to or upon the order of the Authority at the office of the Trustee. To the extent permitted by law, any such installment of Base Rental or Additional Rental accruing hereunder which shall not be paid when due shall bear interest at the rate of twelve per cent (12%)per annum, or such maximum lesser rate of interest as may be permitted by law. All such delinquent installments of Base Rental and the interest thereon shall be deposited in the Revenue Fund. All such delinquent installments of Additional Rental and interest thereon shall be paid to the order of the Authority. Notwithstanding any dispute between the Authority, or the Trustee and the City, the City shall make all rental payments when due hereunder without deduction or offset of any kind and shall not withhold any rental payments pending the final resolution of such dispute. Additional Rental The City will pay to the Authority as Additional Rental such amounts in each year as are required by the Authority for the payment in full of all costs and expenses incurred by the Authority, and the Trustee in connection with the execution, performance or enforcement of the Lease or any assignment of the Lease, of the Indenture and of the lease of the Leased Property to the City, including but not limited to payment of all fees, costs and expenses and all administrative costs of the Authority and the Trustee in connection with the Leased Property, the Project, the Lease, the Ground Lease, and the Indenture and all taxes, assessments and governmental charges of any nature whatsoever levied or imposed by any governmental authority against the Authority, the Leased Property, the Project, or the rentals and the other payments required to be made by the City. Such Additional Rental shall be billed to the City by the Authority, or the Trustee from time to time, together with a statement certifying that the amount so billed has been paid by the Authority, or the Trustee for one or more of the items above described, or that such amount is then payable by the Authority, or the Trustee for one or more of such items, and all amounts so billed shall be due and payable by the City within thirty (30) days after receipt of each bill therefor by the City. Insurance The City will procure and maintain or cause to be maintained throughout the term of the Lease for the Leased Property insurance against the following risks in the following respective amounts: (1) insurance against loss or damage to the Leased Property or such structure or item of furniture or equipment caused by fire, lightning, or earthquake, with an extended coverage endorsement and vandalism and malicious mischief insurance and sprinkler system leakage insurance and boiler insurance, which such extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance; provided that earthquake coverage shall be required with respect to all City property in the amount of$50,000,000 (subject to the terms set forth in the City's existing policy) or such greater amount or is commercially reasonable and prudent to obtain; subject, however, to the requirement in each instance that such earthquake insurance be available from reputable insurers at commercially reasonable rates. In the event the City is unable to obtain earthquake coverage on any Leased Property which it previously has maintained, the City will promptly so notify all rating agencies then rating the Bonds. The insurance required by the Lease will be in an amount equal to the lesser of (i) the replacement cost (without deduction for depreciation) of improvements located or to be located on the Leased Property, or (ii) the principal amount of the Outstanding Bonds (except that such insurance may be subject to deductible clauses of not to exceed five percent (5%) of the amount of any one loss); A-19 no obligation to) purchase the required policies of insurance and pay the premiums on the same or may make such repairs or replacements as are necessary and provide for payment thereof; and all amounts so advanced therefor by the Authority shall become Additional Rental, which amounts the City agrees to pay within thirty (30) days of a written request therefor, together with interest thereon at the maximum rate allowed by law. The City will deliver or cause to be delivered to the Trustee on the Closing Date a CLTA leasehold owner's policy or policies, or a commitment for such policy or policies, with respect to the Leased Property with liability in the aggregate amount equal to the principal amount of the Bonds. Such policy or policies, when issued, shall name the Trustee as the insured and shall insure the leasehold estate of the City in the Leased Property subject only to such exceptions as do not materially affected the City's right to the use and occupancy of the Leased Property. The City may not self insure for title insurance. Defaults and Remedies The following events are "events of default" under the Lease: (i) The City shall fail to deposit with the Trustee any Base Rental payment required to be so deposited by the close of business on the day such deposit is required under the Lease, provided, that any Base Rental payments abated pursuant to the Lease shall not constitute an event of default; (ii) the City shall fail to pay any item of Additional Rental as and when the same shall become due and payable pursuant to the Lease; or (iii) the City shall breach any other terms, covenants or conditions contained in the Lease, and shall fail to remedy any such breach with all reasonable dispatch within a period of thirty (30) days after written notice thereof from the Authority to the City; provided, however, that if the failure stated in the notice cannot be corrected within such period, then the Authority shall not unreasonably withhold its consent to an extension of such time if corrective action is instituted by the City within such period and is diligently pursued until the default is corrected. In addition to any default resulting from breach by the City of any agreement, condition, covenant or term of the Lease, if(1) the City's interest in the Lease or any part thereof be assigned, sublet or transferred without the written consent of the Authority, either voluntarily or by operation of law; or (2) the City or any assignee shall file any petition or institute any proceedings under any act or acts, state or federal, dealing with or relating to the subject of bankruptcy or insolvency or under any amendment of such act or acts, either as a bankrupt or as an insolvent or as a debtor or in any similar capacity, wherein or whereby the City asks or seeks or prays to be adjudicated a bankrupt, or is to be discharged from any or all of its debts or obligations, or offers to its creditors to effect a composition or extension of time to pay its debts, or asks, seeks or prays for a reorganization or to effect a plan of reorganization or for a readjustment of its debts or for any other similar relief, or if the City shall make a general or any assignment for the benefit of its creditors; or (3) the City shall abandon or vacate the Leased Property or any portion thereof; then in each and every such case the City shall be deemed to be in default under the Lease. Upon the happening of any of the events specified above (in either case an "Event of Default"), then it shall be lawful for the Authority to exercise any and all remedies available or granted to it pursuant to law or under the Lease. Upon the breach of any agreement, condition, covenant or term contained in the Lease required to be observed or performed by the City, the Authority may exercise any and all rights of entry upon or repossession of the Leased Property, and also, at its option, with or without such entry, may terminate the Lease; provided, that no termination shall be effected either by operation of law or acts of the City or Authority except upon express written notice from the Authority to the City terminating the Lease, as provided below. In the event of such default and notwithstanding any entry by the Authority, the Authority may at any time thereafter (with or without notice and demand and without limiting any other rights or remedies the Authority may have): A-21 The City may prepay, from any source of available funds, portions of Base Rental coming due under the Lease in the amounts and at the times permitted to effect the redemption of the 1994 Bonds subject to optional redemption under the Indenture. The City may also prepay Base Rental in order to effect a defeasance of Bonds pursuant to the Indenture. Before making any prepayment pursuant to the Lease, at least forty-five (45) days before the prepayment date the City shall give written notice to the Authority and the Trustee describing such event, specifying the order of principal payment dates and specifying the date on which the prepayment will be made, which date shall be not less than thirty (30) nor more than sixty (60) days from the date such written notice is given to the Authority and the Trustee. Miscellaneous Provisions Maintenance. Throughout the term of the Lease, as part of the consideration for rental of the Leased Property, all improvement, repair and maintenance of the Leased Property will be the responsibility of the City, and the City will pay for or otherwise arrange for the payment of all utility services supplied to the Leased Property, and will pay for or otherwise arrange for payment of the cost of the repair and replacement of the Leased Property resulting from ordinary wear and tear or want of care on the part of the City or any assignee or sublessee thereof. The City agrees that, at all times during the term of the Lease, it will, at its own cost and expense, maintain, preserve and keep the Leased Property and every portion thereof in good repair, working order and condition and that it will from time to time make or cause to be made all necessary and proper repairs, replacements and renewals. The Authority shall have no responsibility in any of these matters or for the making of additions or improvements to the Leased Property. Liens. In the event the City shall at any time during the term of the Lease cause any improvements, including, without limitation, the Project, to the Lease Property to be constructed or materials to be supplied in or upon or attached to the Leased Property, the City shall pay or cause to be paid when due all sums of money that may become due or purporting to be due for any labor, services, materials, supplies or equipment furnished or alleged to have been furnished to or for the City in, upon, about or relating to the Leased Property and shall keep the Leased Property free of any and all liens (except for Permitted Encumbrances) against the Leased Property or the Authority's interest therein. In the event any such lien attaches to or is filed against the Leased Property or the Authority's interest therein, the City shall cause each such lien to be fully discharged and released at the time the performance of any obligation secured by any such lien matures or becomes due. If any such lien shall be reduced to final judgment and such judgment or any process as may be issued for the enforcement thereof is not promptly stayed, or if so stayed and such stay thereafter expires, the City shall forthwith pay and discharge or cause to be paid and discharged such judgment. The City shall, to the maximum extent permitted by law, indemnify and hold the Authority and the Trustee and their respective directors, officers and employees harmless from, and defend each of them against, any claim, demand, loss, damage, liability or expense (including attorneys' fees) as a result of any such lien or claim of lien against the Leased Property or the Authority's interest therein. Substitution or Removal of Leased Property. The City may amend the Lease to substitute additional • real property and/or improvements (the "Substituted Property") for existing Leased Property, or to remove real property or improvements from the definition of the Leased Property, upon compliance with all of the conditions set forth below. After a Substitution or Removal, the part of the Leased Property for which the substitution or removal has been effected shall be released from the leasehold created by the Lease and all right, title and interest in and to such Leased Property shall vest in the City. In connection with such release of part of the Leased Property, the Authority shall execute such conveyances, deeds, and other documents, and shall take or cause to be taken all actions that are necessary to provide that such released Leased Property constitutes A-23 So long as 95% or more of the proceeds of the 1994 Bonds deposited in the Acquisition Fund have been spent with respect to the Project, upon delivery of a Certificate of Completion and the issuance by the City of a certificate of occupancy with respect to the Project, all real property and improvements, other than Parcel A and the Project, shall be released from the leasehold hereunder and all right, title and interest in and to such Leased Property shall vest in the City. Quiet Enjoyment. The City and the Authority mutually covenant that the City, so long as it observes the agreements, conditions, covenants and terms required to be observed or performed by it contained in the Lease and is not in default under the Lease, will at all times during the term of the Lease peaceably and quietly have, hold and enjoy the Leased Property without suit, trouble or hindrance from the Authority. Assignment by Authority. The City and the Authority understand that certain of the rights of the Authority, as assignee under the Lease, will be assigned to the Trustee pursuant to the Indenture, and accordingly the City agrees to make all payments due under the Lease to the Trustee, notwithstanding any claim, defense, setoff or counterclaim whatsoever (whether arising from a breach hereof or otherwise) that the City may from time to time have against the Authority or the Trustee. The City agrees to execute all documents, including notices of assignment and chattel mortgages or financing statements which may be reasonably requested by the Authority or the Trustee to protect their interests in the Leased Property during the term of the Lease. Assignment by City. The Lease and the interest of the City in the Leased Property may not be assigned or encumbered by the City except as provided in the Lease. Title to Property. During the term of the Lease, the Authority shall have a leasehold interest in the Leased Property, and any and all additions which comprise fixtures, repairs, replacements or modifications thereof, except for those fixtures, repairs, replacements or modifications which are added thereto by the City and which may be removed without damaging the Leased Property. Upon the termination or expiration of the Lease (other than as provided in the Lease), all right, title and interest in and to the Leased Property will vest in the City. Upon any such termination or expiration, the Authority will execute such conveyances, deeds and other documents as may be necessary to effect such vesting of record. Acquisition of Additional Property. The City covenants to use its best efforts to acquire such additional real property as may be necessary as appropriate for the acquisition, instruction and equipping or operation of the Project, and, by executing appropriate amendments, to lease such property to the Authority pursuant to the ground Lease and to sublease such property from the Authority pursuant to the Lease. A-25 APPENDIX B GENERAL PURPOSE FINANCIAL STATEMENTS (COMBINED STATEMENTS -- OVERVIEW) OF THE CITY OF SANTA ANA FOR THE FISCAL YEAR ENDING NNE 30, 1993 B-1 Deloitte & Touche /S Suite 600 Telephone:(714)436-7500 3 Imperial Promenade Facsimile:(714)436.7699 Pt.Box 2511 Santa Ana,California 92707-0511 • INDEPENDENT AUDITORS' REPORT The Honorable Mayor and Members of the City Council of the City of Santa Ana,California: We have audited the accompanying general purpose financial statements of the City of Santa Ana, California as of June 30, 1993 and for the year then ended,listed in the foregoing table of contents. These general purpose financial statements are the responsibility of the management of the City of Santa Ana,California. Our responsibility is to express an opinion on these general purpose financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. An audit includes examining,on a test basis,evidence supporting the amounts and disclosures in the general purpose financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion,such general purpose financial statements present fairly, in all material respects,the financial position of the City of Santa Ana,California at June 30, 1993 and the results of its operations and the cash flows of its proprietary fund types for the year then ended,in conformity with generally accepted accounting principles. Our audit was conducted for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The combining and individual fund and account group financial statements and schedules listed in the foregoing table of contents, which are also the responsibility of the management of the City of Santa Ana,California, are presented for purposes of additional analysis and are not a required part of the general purpose financial statements of the City of Santa Ana,California. Such additional information has been subjected to the auditing procedures applied in our audit of the general purpose financial statements and,in our opinion,is fairly stated in all material respects when considered in relation to the general purpose financial statements taken as a whole. The statistical data listed in the foregoing table of contents is presented for purposes of additional analysis and is not a required part of the general purpose financial statements of the City of Santa Ana,California. Such additional information has not been subjected to the auditing procedures applied in the audit of the general purpose financial statements and,accordingly, we express no opinion on it. zt� - t .' October 29, 1993 DeloitteTouche Tohmatsu International „lir!_co 1 : 9 General Purpose Financial Statements (Combined Statements-Overview) These basic financial statements provide a summary overview of the finondal position of all fund types and account groups and of the operating results of all fund types. They also serve as an introduction to the more detailed statements and schedules that follow.The General Purpose Finondal Statements include: Combined Balance Sheet-All Fund Types and Account Groups; Combined Statement of Revenues, Expenditures and Changes in Fund Balances-All Governmental Fund Types; Combined Statement of Revenues, Expenditures and Changes in Fund Balances-Budget and Actual-General and Special Revenue Funds; Combined Statement of Revenues,Expenses and Changes in Retained Earnings-All Proprietary Funds Types; Combined Statement of Cash Flows-All Proprietary Fund Types;and Notes to the Financial Statements. Fiduciary Totals Proprietary Fund Types Fund Type Account Groups (Memorandum Only) internal Hued Long-7 am Enterprise Service Agency Assets Debt 1993 1992 S 1,820,893 $ 11,315,645 S 13,890,365 $ $ $ 95,376,182 $ 111,551,061 105,000 24,287,348 40,077.232 40.073,296 5,106,253 5,031,105 3,367,269 3,525,176 3.088.489 388,014 15,741.771 15,903,538 4,660,115 171,440 50,653 9,046,971 6,625,921 460,696 5,191,500 363,444 9,763.515 6,068,318 320.488 320,488 3,102.568 4,923,457 586,750 586,750 586,684 152,629 152,629 101,861 1,013,257 993,210 4,884,291 4,992,129 8,939,386 8,752.139 10,879,771 113,633,635 113,633,635 101,069,589 65,576,989 8,194,827 73,771,816 67,458,760 16,488,224 16.488,224 21,367,915 184,392,332 184,392,332 179,452,156 $ 80,770,253 $ 25,717,791 $ 38,979,824 $ 113,633,635 $ 210,881,556 $ 585.843.067 $ 584,435,005 $ 2,625,718 $ 457.977 $ $ $ $ 9,541,655 $ 3,147,141 533,227 21,542,223 5,136,335 27,761,866 28,916,764 899,257 899,257 985,069 170,961 323,870 9,763,515 6,068,318 9,416,274 9,490,708 9,216,794 6,094,426 6,160,856 24,095,745 24,095,745 19,669,376 644,136 677,221 671,600 7,600 7,600 3,657 1,070,000 1,070,000 1,240,000 6,950,000 6,950,000 6,425,000 2,492,927 2,492,927 200,880,556 210,881,556 200,820,071 15,215,265 22,171,161 38,979,824 200,880,556 299,725,475 283,324,646 113,633,635 113.633,635 101,069,589 17,367,626 2,467,699 19,835,325 19,397,589 4,672,046 2535.212 7,2/7,248 15,318,704 43,515,316 (1,456,271) 42,059,045 34,932,525 79,558,501 93,990,706 20,680,310 27,337,680 3,143,528 9,063,566 65,554,988 3,546,630 113.633.635 286,117,592 301,110,359 $ 80,770,253 $ 25,717,791 $ 38,979,824 $ 113.633,635 $ 200,880,556 $ 585.843.067 $ 584,435,005 y, oraibn tar Totals Capital Debt (Memorandum Only) Projects Service 1993 1992 $ . 109,233 $ 28,289,518 $ 103,946,555 $ 100,930,957 1,995,338 1,911,262 3,804,354 46,796,339 40,540,463 115,150 7,158,842 6,093,801 1,951,036 2,199,547 3,342,850 1,385,252 10,279,435 11,278,990 963,141 9,238,500 5,569,302 8,334,728 29,674,770 181,366,045 168,524,322 3,875,767 3,617,850 1,616,880 1,595,466 3,754,701 3,789,506 1,398,202 1,349,393 3,874,468 4,454,510 12,271,741 11,431,057 25,666,937 24,611,174 59,249,345 51,993,281 9,780,214 9,624,163 9,664,101 10,995,787 18,915,304 15,263,175 39,541,914 50,360,527 29,443,440 4,812,359 6,175,666 4,661,264 13,030,109 13,224,246 13,577,498 39,541,914 17,842,468 219,828,099 186,407,564 (31,207,186) 11,832,302 (38,462,054) (17,883,242) 1,894,216 14,980,784 16,875,000 (15,060,692) (15,060,692) (279,739) (521,911) (801,650) (532,701) (532,701) (735,478) 2,651,243 2,651,243 • (4,564,654) (4,564,654) (6,905,128) 2,836,210 147,015 41,000,108 3,194,483 61,401,455 46,564,279 (17,219,464) (18,771,956) (58,751,770) (35,045,764) 23,481,710 (16,711,993) 4,052,441 4,024,924 (7,725,476) (4,879,691) (34,409,613) (13,858,318) 74,134,501 21,367,915 130,391,952 136,754,253 7,400,000 7,496,017 $ 66,409,025 $ 16,488,224 $ 103,382,339 $ 130,391,952 CITY OF SANTA ANA nice at Combined Statement of Revenues, Expenses and Changes in Retained Earnings All Proprietary Fund Types For the fiscal year ended June 30, 1993 (With comparative totals for the fiscal year ended June 30, 1992) Totals (Memorandum Only) Internal Enterprise Service 1993 1992 Operating revenues: Charges for services $ 30,154,744 $ 35,346,365 $ 65,501,109 $ 56,716,813 Miscellaneous 686,801 1,682,506 2,369,307 1,009,642 Total operating revenues 30,841,545 37,028,871 67,870,416 57,726,455 Operating expenses: Cost of goods sold 2,427,264 2,427,264 2,009,707 Personal services - 5,373,850 8,035,134 13,408,984 11,063,247 Contractual services 8,755,377 2,242,165 10,997,542 9,034,355 Materials and supplies - 5,276,680 1,888,936 7,165,616 5,405,765 Other services&charges 8,900,707 1,087,182 9,987,889 7,713,412 Administration 2,367,893 2,367,893 2,284,294 Insurance 9,586,568 9,586,568 8,573,997 Provision for self-insured losses 3,301,229 3,301,229 7,839,499 Depreciation 1,511,723 2,250,179 3,761,902 3,519,736 Total operating expenses - 29,818,337 33,186,550 63,004,887 57,444,012 Operating income 1,023,208 3,842,321 4,865,529 282,443 Nonoperating revenues(expenses): Interest income 542,702 760,280 1,302,982 2,149,475 Interest expense (477,701) (15,376) (493,077) (793,053) Bond discount and bond issue costs (269,636) (269,636) Gain(loss)on disposal of assets (1,012) 95,087 94,075 (22,301) Net nonoperating revenues(expenses) (205,647) 839,991 634,344 1,334,121 Income before operating transfers 817,561. 4,682,312 5,499,873 1,616,564 Operating transfers in 90,000 90,000 Income before extraordinary loss 907,561 4,682,312 5,589,873 1,616,564 , Extraordinary loss on refunding certificates of participation (433,382) (433,382) Net income 474,179 4,682,312 5,156,491 1,616,564 Add depreciation on fixed assets acquired by capital grant that reduces contributed capital - - 828,336 520,203 1,348,539 989,980 Retained earnings-beginning of period 46,974,813 - 3,276,416 50,251,229 55,987,956 Equity transfers out (89,966) (7,400,000) (7,489,966) (8,343,271) Retained earnings-end of period $ 48,187,362 $ 1,078,931 $ 49,266,293 $ 50,251,229 The notes to the financial statements are an integral part of this statement. wanes 1 Page 2 of 2 Reconciliation of operating income to net cash provided by operating activities: Totals Internal (Memorandum Only) Enterprise Service 1993 1992 Operating income $ 1,023,208 $ 3,842,320 $ 4,865,528 $ 282,443 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation expense 1,511,723 2,250,179 3,761,902 3,519,736 Change in assets and liabilities: Decrease(increase)in customer accounts receivable (447,795) 51,920 (395,875) (835,620) Increase in accrued revenues receivable (1,947,862) (1,947,862) (666,685) Increase in due from other funds (1,196) (1,196) Decrease(increase)in inventory of supplies (66) (66) 51,858 Increase in prepaid expenses (50,768) (50,768) (39,274) Increase(decrease)in accounts payable 1,805,081 12,741 1,817,822 (66,261) Increase(decrease)in accrued liabilities 24,328 (1,931,996) (1,907,668) 2,293;205 Increase(decrease)in due to other funds (107,715) (107,715) 107,342 Increase in customer refundable deposits 5,778 5,778 26,413 Net cash provided by operating activities $ 1,973,265 $ 4,066,615 $ 6,039,880 $ 4,673,157 Noncash investing,capital,and financing activities: On May 18, 1992, the Water Enterprise Fund entered into a five-year lease purchase arrangement to finance the construction of the Bristol Reservoir expansion Phase I, in an amount not to exceed $5,962,000 which was placed in escrow by the lender, On April 19, 1993, the Water Enterprise Fund refinanced the original lease purchase to take advantage of lower interest rates in the remaining four years. As of June 30, 1993, releases to the contractor by the escrow agent totaled$3,160,722, which is the amount recognized as lease payable at the close of the fiscal year. In the same period the Water Enterprise Fund has paid $1,057,128 applicable to the principal. In November 1992, the City authorized a five-year lease purchase arrangement for the acquisition of an automated utility billing software in an amount not to exceed $626,118. The Water Enterprise Fund is responsible for 80% of the cost, and its 80% share of the down payment was$111,562. The Building Maintenance Internal Service Fund retired equipment with a book value of$9,732 and related accumulated depreciation of $9,279, resulting in a noncash loss of$454. The notes to the financial statements are an integral pert of this statement. NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 1993 The Notes To The Financial Statements include a summary of significant accounting policies and other notes considered essential to fully disclose and fairly present the transactions and financial position of the City. Note I - Summary of Significant Accounting Policies Note 2 - Stewardship, Compliance and Accountability Note 3 - Detailed Notes on All Funds and Account Groups Note 4 - Segment Information Note 5 - Related Party Transactions Note 6 - Summary Disclosure of Significant Contingencies Note 7 - Significant Effects of Subsequent Events Note 8 - Miscellaneous Notes to the Financial Statements NOTES TO THE FINANCIAL STATEMENTS (Continued) geographic boundaries of the City of Santa Ana. Each of the above related agencies has an independently- elected board of directors, and maintains its own records and accounts. Since these agencies are substantially self-governing and are not financially dependent on the City, financial statements of these agencies are not included within the scope of this financial report. Accounting and Reporting Policies. For reporting purposes, the City has adopted all effective Statements of the Governmental Accounting Standards Board (GASB), one of which established the authoritative status of the pronouncements of its predecessor -the National Council on Governmental Accounting (NCGA) and of the accounting and financial reporting guidance contained in the Industry Audit Guide, Audits of State and Local Governmental Units, issued by the American Institute of Certified Public Accountants. Through widespread acceptance, pronouncements of the GASB, the NCGA, and the Industry Audit Guide have long been acknowledged as the primary authoritative statements of Generally Accepted Accounting Principles (GAAP) applicable to state and local governments. Interagency Current Receivables. Pavables and Long-Term Debt. For reporting purposes, the City considers interagency long-term loans to be operating transfers. Accordingly, "loans receivable" are classified as "transfers out"while "loans payable" are classified as "transfers in". Interest on such loans are recorded only when due. Loan amounts, including interest, are noted in the footnotes to this report. When these loans are repaid, such transactions are also recorded as "transfers out" (typically from the Debt Service Fund) and "transfers in,"and the loan balance is reduced in the footnotes. Interagency current receivables and payables are classified as accounts "due from" and "due to" other funds. (See Note 3B.) Total Columns. Total columns on the combined statements are captioned "Memorandum Only" to indicate that they are presented only to facilitate financial analysis. Data in these columns do not present consolidated financial information. lB. Basis of Presentation - Fund Accounting The accounts of the City of Santa Ana are organized on the basis of funds and account groups each of which is considered a separate accounting entity with a self-balancing set of accounts. The types of funds and account groups used are: Governmental Fund Types General Fund. The General Fund is used to account for all financial resources except those required to be accounted for in another fund. Special Revenue Funds. The Special Revenue Funds are used to account for the proceeds of special revenue sources that are restricted by law or administrative action to expenditures for specific purposes. The General Fund of the Housing Authority is included among these funds. NOTES TO THE FINANCIAL STATEMENTS (Continued) IC. Basis of Accounting Governmental Fund Types are accounted for using the modified accrual basis of accounting. Revenues are recognized when they become measurable and available to finance expenditures of the current period. Accrued revenues include property taxes, sales taxes,utility users tax, and transit occupancy tax received within sixty days after the year end, and earnings on investments. (See Note 3A also.) Grant funds earned but not received are recorded as receivables and revenues, and grant funds received before the revenue recognition criteria have been met are reported as deferred revenues. Expenditures are recorded when the related fund liability is incurred except that unmatured principal and interest on general long-term debt are recorded when due. The accrual basis of accounting is followed for the Proprietary Fund Types. Revenues are recognized when they are earned and expenses are recognized when the liability is incurred. Unbilled water utility, refuse collection, sanitation, and water utility user tax revenues are accrued at year end. Fiduciary Fund Types are accounted for according to the nature of the fund. The City has only Agency Funds which are purely custodial in nature (asset% equal liabilities) and thus do not involve measurement of results of operations. Agency assets and liabilities are accounted for on a modified accrual basis. 1D. Measurement Focus All Governmental Fund Types are accounted for on a spending or"financial flow" measurement focus. This means that(generally) only current assets and current liabilities are included on their balance sheets, with the exception that land inventory held for resale is reported on their balance sheets offset by fund balance reserve accounts. Statements of revenues, expenditures, and changes in fund balances for Governmental Fund Types generally present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. All Proprietary Fund Types are accounted for on a cost of services or "capital maintenance" measurement focus. This means that all assets and liabilities (whether current or non-current) associated with the activity are included on the balance sheets. Their reported fund equity(total net assets)is segregated into contributed capital and retained earnings. Proprietary Fund Types operating statements present increases (revenues)and decreases (expenses) in total net assets. Depreciation of assets attributable to contributions for that purpose is treated as a reduction of contributed capital, rather than a charge against retained earnings, if the fixed assets were acquired from grants, entitlements or shared revenues externally restricted for capital acquisition. lE. General Budget Policies. Encumbrances, and Budeetary Basis of Accounting The City and its component units' fiscal year begins on July 1 of each year and ends the thirtieth day of June the following year. On or before the fifteenth of June of each year, the City Manager submits to the City NOTES TO THE FINANCIAL STATEMENTS (Continued) equity in the investment pool. Investment earnings are prorated to participating funds monthly on an average equity basis. Cash and investments held by the fiscal agent for the City's Deferred Compensation fund are recorded at market value. Investments held in the Treasurer's pool or by other fiscal agents are recorded at cost. Losses are not recorded when market value declines below cost,since declines are considered temporary and the City intends to hold the investments until maturity. Inventories. Inventories of materials and supplies are valued at average cost. Land Held for Resale. Land held for resale is carried at the lower of cost or market. General Fixed Assets. General fixed assets are recorded as expenditures of the various City funds at the time of purchase and are subsequently capitalized in the General Fixed Assets Account Group. Such assets include land, buildings,building improvements, furniture and equipment. The costs of roads, streets and sidewalks, bridges, curbs and gutters, drainage systems, lighting systems and similar assets are not capitalized. No depreciation is provided on general fixed assets. All fixed assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated fixed assets are valued at their estimated fair market value on the date donated. (See Note 3E.) Proprietary Fund Types Fixed Assets. Fixed assets purchased for the Water and Regional Transportation Center Enterprise Funds are capitalized at cost, while contributed assets are recorded at fair market value at time received. Depreciation has been provided on a straight-line basis over the following useful lives: Buildings and Improvements 40-50 years Water Meters 30 years Water Mains and Hydrants 40-75 years Other Equipment 5-15 years The Refuse Collection and Sanitation Enterprise Funds have only a nominal amount of office equipment which is being depreciated on a straight-line basis over 3 to 10 years. Machinery and equipment in the Internal Service Funds are being depreciated over 3 to 20 years on a straight-line basis. (See Note 3F.) Claims and Judgments. When it is probable that a claim liability has been incurred at year end and the amount of the loss can be reasonably estimated, the City records in the Internal Service Funds the estimated loss net of any insurance coverage, under its self-insurance program. (See Note 8D.) The Redevelopment Agency is a defendant in various litigations arising from eminent domain proceedings. An estimated amount of $150,000 has been recorded in the General Long-Term Debt Account Group. In the opinion of Redevelopment Agency management, the ultimate outcome of these litigations will not have a material adverse effect on the financial position of the Redevelopment Agency or of the City. (See Note 3G). Long-Term Irnces. Capitalized leases are recorded as liabilities in the Long-Term Debt Account Group and in the Proprietary Fund Types at the present value of the remaining minimum lease payments. The related fixed assets are recorded in the General Fixed Assets Account Group and in the Proprietary Fund Type. (See Note 3G). For leases accounted for under the operating method (e.g., vehicle lease arrangements), lease charges are expended/expensed as incurred. At June 30, 1993,the City has no non-cancellable operating lease commitments. Compensated Absences. In Governmental Fund Types, compensated absences (unpaid vacation and sick leave) are recorded as expenditures in the year paid, as it is the City's policy to liquidate any unpaid vacation or sick leave at June 30 from future resources rather than currently available expendable resources. NOTES TO THE FINANCIAL STATEMENTS (Continued) 2B. Fund Deficits. At June 30, 1993, the Communications Services, Engineering Services and Self-Insurance Internal Service Funds had retained earnings deficits of$1,429, $106,084 and$8,339,524 respectively. The fund deficit in the Communications Services and Engineering Services Funds will be recovered in the next fiscal year through increased service charges. The fund deficit in the Self-Insurance Fund is primarily attributable to shortfalls in charges made to the City's operating departments. Management implemented a 12.5% increase in charges to the City's operating departments to reduce this shortfall during fiscal year 92-93. Working capital in the Self-Insurance Fund was sufficient to cover 70% of the present value of outstanding losses at June 30, 1993. The City continues to generate sufficient annual revenue in the fund to cover insurance premiums, benefit payments, and paid losses for the given fiscal year. 2C. Budgetary Compliance. All expenditures were within the legally prescribed limits as approved by the City Council. Note 3. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS 3A. Property Tax Calendar. Property taxes are assessed and collected each fiscal year based on the following property tax calendar: Lien date March 1 Levy date March 1 Due Dates November 1 - 1st Installment March 1 -2nd Installment Collection dates December 10 - 1st Installment April 10 - 2nd Installment A State constitutional amendment Proposition 13 (now Article XIIIA to the Constitution) effective July 1, 1978, altered the method of property tax assessment. This amendment essentially reduces the total property tax levy to one percent of full cash value on the 1975-76 assessment, adjusted upward the lesser of the increase in CPI or per capita income indices or two percent compounded for each succeeding year, except that property changing ownership subsequent to July 1, 1978 and improvements are reassessed at the time of the exchange or improvement and adjusted each year thereafter at the appropriate rate. As previously explained in Note 1C, property taxes are reported on a modified accrual basis. Accordingly, they are recognized as levied provided they meet this accrual criteria. Property taxes not meeting the accrual criteria are deferred until received or otherwise meet the criteria. At June 30, 1993, $3,145,893 is included under the caption "Taxes Receivable" of which $892,615 was accrued in revenue and $2,253,278 was deferred. NOTES TO THE FINANCIAL STATEMENTS (Continued) Interfund Transfers are reconciled as follows: Transfers Transfers In Out General Fund $ 16,913,664 $ 10,670,941 Special Revenue Funds 293,200 12,089,409 Capital Project Funds 41,000,108. 17,219,464 Debt Service Funds 3,194,483 18,771,956 Enterprise Funds 90,000 Agency Funds 2,739,685 Total $ 61,491,455 $ 61,491,455 Equity transfers are reconciled as follows: Equity Equity Transfer In Transfer Out General Fund $ 7,400,000 $ Internal Service Fund 7,400,000 Total $ 7,400,000 $ 7,400,000 The equity transfer out from the Water Utility Fund of$89,966 was recorded as Contributed Capital in the Equipment Replacement Fund. 3C. Interagency Long-Term Debt. As explained in Note IA, the long-term debt between the City and its component units has been eliminated in this report. During the year the Redevelopment Agency has repaid $8,778,107 principal and $1,948,857 interest to the City and the City has advanced $19,837,527 to the Redevelopment Agency. Interest at 6.5953 percent totalling $3,745,446 was added to the amount owing for the year. At June 30, 1993, interagency loans (including interest) were as follows: Loans Loans Receivable Payable City of Santa Ana $ 73,967,738 $ Redevelopment Agency: Downtown Project 38,345,920 Intercity Project 19,409,017 North Harbor Project 2,710,206 South Harbor Project 1,345,952 South Main Project 1,032,637 Bristol Corridor 11,124,006 Total $ 73,967,738 $ 73,967,738 The debt of the Redevelopment Agency owing the City has been subordinated to all other Redevelopment Agency long-term debt and is payable principally from tax increment revenues to be generated within the project areas. NOTES TO THE FINANCIAL STATEMENTS (Continued) 3F. Proprietary Funds Fixed Assets. The following is a summary of changes in proprietary funds fixed assets and depreciation for year ended June 30, 1993: Balance Balance July 1, 1992 Additions Deletions June 30, 1993 Enterprise Funds: Land $ 4,785,833 $ Buildings 8,869,896 $ $ 4,785,833 Improvements other than Buildings 7,688,410 8,869,896 2,I77,700 9,866,110 Mains, hydrants, and other equipment 50,248,306 3,991,338 Work in progress (68,520) 4,181,137 11,210,834 8,871,994 (5,898,291) 14,184,537 82,803,279 15,041,032 (5,966,811) 91,877,500 Less accumulated depreciation (24,818,195) (1,511,321) 28,995 Subtotal 57,985,094 13,529,711 (6 ,576,9 (5,937,816) 65 9 ,576,989 Internal Service Funds: Machinery& equipment 18,907,797 1,088,404 Less accumulated depreciation (561,095) 1 ,273, 7 (9,457,090) (2,250,179) 433,832 (1 1,273,437) Subtotal 9,450,707 (1,161,775) (127,263) 8,161,669 Construction in progress 22,959 10,199 33,158 Net Fixed Assets $ 67,458,760 $ 12,378,135 $ (6,065,079) $ 73,771,816 3G. General Lon¢-Term Debt. The following is a summary of changes in general long-term debt for the fiscal year ended June 30, 1993: Balance Balance Instrument July I, 1992 Incurred Repayments June 30, 1993 Tax allocation revenue bonds $ 150,485,000 S $ 1,810,000 S. 148,675,000 Certificates of participation 13,900,000 16,875,000 14,150,000 16,625,000 Special assessment with governmental commitment 1,590,000 260,000 1,800,000 Capitalized lease obligations 2,658,028 2,836,210 2,693,971 2,800,267 Long-term loans 22,013,739 Compensated absences 2,553,680 1 ,846, t2 9,912,304 4,487,848 2,553,680 11,846,472 Various claims payable 261,000 150,000 261,000 150,000 Total General Long-Term Debt $ 200,820,071 $ 24,349,058 $ 24,288,573 $ 200,880,556 NOTES TO THE FINANCIAL STATEMENTS (Continued) Outstanding Balance June 30. 1993 The 1989 Series A Bonds were issued in the amount of$8,985,000 to retire the 1985 Series A Tax Allocation Bonds Santa Ma Inter-City Commuter Station Project. $1,160,000 of the bonds mature serially through September 1, 1999 in annual installments ranging from $95,000 to $170,000; $2,555,000 are term bonds maturing September 1, 2009 in annual installments ranging from$180,000 to$345,000; and $5,270,000 are term bonds maturing on September 1, 2019 in annual installments ranging from$370,000 to $715,000. Bonds maturing on September 1 in the years 2009 and 2019 respectively are subject to mandatory redemption from sinking account payments. Per terms of the bond indenture, $750,130 was held in reserve for debt service. $ 8,785,000 The 1989 Series B Bonds were issued in the amount of$70,000,000 to retire the 1985 Series B Tax Allocation Bonds Redevelopment Project Area. $10,325,000 of the bonds mature serially through September 1, 2000 in annual installments ranging from, $750,1300 to $1,385,000; $18,335,000 are term bonds maturing September 1,2009 in annual installments ranging from$1,490,000 to$2,685,000; $25,670,000 are term bonds maturing September 1, 2016 in annual installments ranging from $2,895,000 to $4,540,000; and$15,670,000 are term bonds maturing September 1,2019 in annual installments ranging from$4,875,000 to$5,580,000. Bonds maturing on September 1 in the years 2009, 2016, 2017 and 2019, respectively are subject to mandatory redemption from sinking account payments. Per terms of the bond indenture, $6,999,507 was held in reserve for debt service. 68,450,000 The 1989 Series C Bonds were issued in the amount of$15,425,000 to retire the 1985 Series C Tax Allocation Bonds South Harbor Redevelopment Project. $1,995,000 of the bonds mature serially through September 1, 2009 in annual installments ranging from$165,000 to $285,000; $4,385,000 are term bonds maturing September 1, 2009 in annual installments ranging from $310,000 to $595,000; $6,685,000 are term bonds maturing September 1, 2017 in annual installments ranging from$640,000 to$1,060,000;and$2,360,000 are term bonds maturing September 1, 2019 in annual installments ranging from $1,140,000 to $1,220,000. Bonds maturing on September 1 in the years 2009,2017 and 2019,respectively are subject to mandatory redemption from sinking account payments. Per terms of the bond indenture, $1,273,962 was held in reserve for debt service. 15,080,000 The 1989 Series D Bonds were issued in the amount of$14,735,000 to retire the 1985 Series D Tax Allocation Bonds South Main Street Redevelopment Project. $1,910,000 of the bonds mature serially through September 1, 1999 in annual installments ranging from$160,000 to $275,000; $10,570,000 are term bonds maturing September 1, 2017 in annual installments ranging from$295,000 to$1,015,000; and$2,255,000 are term bonds maturing September 1, 2019 in annual installments ranging from$1,090,000 to$1,165,000; Bonds maturing on September 1 in the years 2017 and 2019, respectively are subject to mandatory' redemption from sinking account payments. Per terms of the bond indenture, $1,217,019 was held in reserve for debt service. 14,405,000 NOTES TO THE FINANCIAL STATEME NTS (Canhnued( LONG-TERM DEBT DEFEASED The Redevelopment Agency issued Certificates of Participation (Parking Facilities Refunding Project) Series 1993A in the amount of$16.875 million with an average interest rate of 5.26 percent to advance refund the $13,990,000 1986 Certificates of Participation Series A with an average interest rate of 7.71 percent. $15.06 million of the net proceeds was transferred to a Bond Retirement Fund held by the escrow agent under an irrevocable trust agreement. Under the escrow agreement, the 1986 Certificates of Participation Series A are considered defeased and the liability for those Certificates has been removed from the General Long-Term Debt Account Group. The Agency advance refunded the 1986 Certificates to reduce its total debt service payments over the next 24 years by $2.61 million and to obtain an economic gain (difference between the present values of the debt service payments on the old and new debt) of$1.32 million. As of June 30, 1993 defeased 1986 Certificates outstanding totaled $13.90 million. LONG-TERM DEBT DEFEASED IN PRIOR YEARS In prior years, the City has defeased various bond issues of which $108,850,000 are outstanding as of June 30, 1993. The investments in U.S. government securities which are held in various escrow funds are sufficient to fully service the defeased bonds until the bonds are called or mature. For financial reporting purposes, the bonds have been considered defeased and therefore removed as a liability from the City's General Long-Term Debt Account Group. Outstanding Balance June 30. 1993 CAPITALIZED LEASE OBLIGATIONS City Hall. In 1966, the Orange County Civic Center Authority (the "Authority") was created under a Joint Powers Agreement between the City and the County of Orange. In 1970, the Authority issued a total of$5,470,000 in bonds to finance construction of a City Hall. The agreement provides that the City will lease the City Hall for 25 years through 1996 at an annual base rental of$464,300. In addition, the City is required to pay all taxes, assessments and other expenses of the Authority which relate to the City Hall. At the expiration of the lease, title to the City Hall will vest with the City. The bonds totaling $3,410,000 maturing from 1986 through 1995 were subject to call and redemption in 1985 from proceeds of$3,500,000 of 1972 Refunding Revenue Bonds also issued by the Authority. Such bonds were called and redeemed on schedule so that as of June 30, 1985, only the refunding issue totaling $3,500,000 were outstanding. NOTES TO THE FINANCIAL STATEMENTS (Continued) Outstanding Balance June 30. 1993 Kodak Digital Workstations. In December 1989, the City entered into a lease-purchase agreement to acquire two(2)Digital Workstations. The minimum lease payments required during the five-year term of this agreement is$78,526. The lease payments discounted at an estimated interest rate of 11.37.percent provide a present value of $59,680 which approximates the value of the system and is the amount capitalized among the City's General Fixed Assets. The minimum lease payments required under the terms of the lease at June 30, 1993 totaled $26,175. 23,742 Kodak Reliant 2000 Camera. In December 1989, the City entered into a lease-purchase agreement to acquire a Kodak Reliant 2000 Camera. The minimum lease payments required during the five-year term of this agreement is$56,866. The lease payments discounted at an estimated interest rate of 11.37 percent provide a present value of $43,218 which approximates the value of the system and is the amount capitalized among the City's General Fixed Assets. The minimum lease payments required under the terms of the lease at June 30, 1993 totaled $18,955. 17,193 Unisys CP 2000 Processor. In January 1990, the City entered into a lease-purchase agreement to acquire a CP 2000 Processor. The minimum lease payments required during the six-year term of this agreement is $302,316. The lease payments discounted at an estimated interest rate of 6.34 percent provide a present value of $245,102 which approximates the value of the system and is the amount capitalized among the City's General Fixed Assets. The minimum lease payments required under the terms of the lease at June June 30, 1993 totaled $100,772. 91,933 Unisys Disk Storage, Tape Drives and Controller. In December 1990, the City entered into a lease-purchase agreement to acquire an M9710 Disk Storage, ST 3200 Tape Drives and Controller. The minimum lease payments required during the six-year term of this agreement is$131,040. The lease payments discounted at an estimated interest rate of 7.53 percent provide a present value of$112,139 which approximates.the value of the system and is the amount capitalized among the City's General Fixed Assets. The minimum lease payments required under the terms of the lease at June 30, 1993 totaled $65,520. 56,768 Unisys Micro A/Network Control Hardware In December 1990, the City entered into a lease-purchase agreement to acquire Micro A/Network Control Hardware. The minimum lease payments required during the six-year term of this agreement is$238,386. The lease payments discounted at an estimated interest rate of 7.95 percent provide a present value of $198,571 which approximates the value of the system and is the amount capitalized among the City's General Fixed Assets. The minimum lease payments required under the terms of the lease at June 30, 1993 totaled $119,193. 102,479 NOTES TO THE FINANCIAL STATEMENTS (Continued) Outstanding Balance June 30. 1993 CERTIFICATES OF PARTICIPATION Certificates ofparticioation !Parking Facilities Refundin Proiectl. On February Certificates of Participation Series 1993A amounting to $16,875,000 were issued by the Redevelopment Agency to advance refund the 1983 Certificates of Participation Series A. Certificates totaling$5,285,000 mature serially on June 1 beginning 1994 through 2008 in amounts ranging from $150,000 to $695,000 and pay interest at rates varying from 2.5 percent to 5.875 percent. Certificates maturing on or after June I, 2004 are subject to optional redemption at prices ranging from 102 percent to 100 percent of the principal amount. In addition, $11,590,000 of 6-1/2 percent term Certificates are due June 1, 2009 through June 1., 2016 (maturity date), in amounts ranging from $795,000 to $2,360,000. Under terms of the official statement, the City has agreed to lease the facilities from the Redevelopment Agency at specified amounts sufficient in time and amount to pay principal and interest due with respect to the Certificates. The obligation of the City to make lease payments does not constitute an obligation of the City to levy or pledge any form of taxation. Neither the Certificates nor the obligation of the City to make lease payments constitutes indebtedness of the City, the State of California, or any of its political subdivisions or the pledge of the faith and credit of the City. A reserve fiord equal to 125 percent of the average lease payments, as required under terms of the indenture, has been established. At June 30, 1993, $1,695,144 was held in the reserve fund. Payment of principal and interest represented by the Certificates is covered against non-payment, by a municipal bond insurance policy issued by AMBAC Indemnity Corporation. $ 16 625,000 SPECIAL ASSESSMENT DEBT WITH GOVERNMENTAL COMMITMENT anent District 246 Bonds/Third Street Parkin P lily). To finance the construction of a parking structure in downtown Santa Ma, the City, in August 1981, issued improvement bonds in the amount of$3,150,000 under the provisions of the Municipal Improvement Act of 1913 and the Improvement Bond Act of 1915. The bonds bear interest at 10 percent and mature annually on July 2 in amounts ranging from$285,000 in 1993 to $385,000 in 1997. Under the provisions of the Improvement Bond Act of 1915,installments of principal and interest sufficient to meet annual debt service are to be included in the regular County tax bills sent to owners of the property against which there are unpaid assessments. These assessments are paid into a redemption ford held by the City Treasurer and used to pay principal and interest when due. At June.30, 1993, there were delinquent assessments of$117,568 outstanding. They are reported herein under the caption "Taxes receivable" in the Debt Service Fund. There is a mandatory duty on the part of the City to purchase property,upon which installments are delinquent and to pay into the redemption fiord the amount of any future delinquent assessments on the property pending redemption. As required by the bond indenture, 10 percent of the principal outstanding is held in a reserve fund. At June 30, 1993, there was a balance of$315,000.available in that fund. This reserve along with debt service transactions are recorded in the Debt Service Fund. $ 1.330.000 NOTES TO THE FINANCIAL STATEMENTS (Continued) Department of Housing and Urban Development (HUD). To implement these programs, the City and the Housing Authority have entered into agreements with various lending institutions to provide funding for loans at below-market rates of interest. To enable the lender to make the below-market loans, the City deposits funds varying from 20 to 33 percent of participant loans into noninterest bearing reserve accounts with the lender. These reserves along with the property owners' notes and deeds of trust are pledged as a collateral for the loans. Potential losses to the City are limited to the deposits in the reserve account. In addition to loans made available by the lending institutions, the City and the Housing Authority have elected to make other direct deferred payment rehabilitation loans made available from CDBG funds and from funds borrowed from the State Department of Housing and Community Development. Under the program, loans made using CDBG funds accrue interest at rates varying from 0 to 6 percent and are due when the property is sold. Funds borrowed from the state are loaned to participants at an annual rate of 3 percent and become due in five years. The City accounts for these programs in the Housing Rehabilitation Loan Program Agency Fund. The Fund's primary assets consist of the noninterest-bearing deposits pledged as collateral and notes receivable from participants which originated from City and/or State funds. Loans to participants made by the outside lending institutions are not reflected in the financial statements. Self-Funding Residential Rehabilitation Loan Program. During April 1983, the City Council implemented a self- funding residential loan program to replace the aforementioned interest-rate buydown programs implemented through banks and savings and loan associations. The program makes direct loans to qualifying persons for both single-family and multiple units in amounts up to$30,000 at 5 to 8 percent interest amortized over 15 years for single-family units, and up to $30,000 to$40,000 for 1 to 3 multiple units amortized over 10 years. Generally, all loans are due upon sale and are secured by a deed of trust. The program is funded by CDBG and property tax increment revenues in the redevelopment project areas, from which 20 percent of such revenues must be set aside for low and moderate housing related activities per State law. At June 30, 1993, loans totaling $3,643,792 and $11,709,965 were recorded as "notes receivable" in the CDBG and Redevelopment Agency funds, respectively. 3K. Reserves and Designations of Fund Equity. The City has set up "reserves" of fund equity to segregate fund balances which are not appropriated for expenditure in future periods or which are legally set aside for a specific future use. Fund "designations" also may be established to indicate tentative plans for financial resource utilization in a future period. The City's reserves and designations at June 30, 1993 are tabulated below followed by explanations as to the nature and purpose of each reserve and designation. NOTES TO THE FINANCIAL STATEMENTS (Continued) Reserved for Land-Held for Resale. This account sets aside a portion of fund balance representing the carrying value of land which is not available to meet current expenditures. Reserved for Deposits and Other Receivables. This account sets aside a portion of fund balance representing assets under those captions that are not available to meet current expenditures. Designated for Authorized Projects. This account sets aside tentative amounts to be expended in future years on capital projects. Such projects can include those authorized in prior years and projects authorized in subsequent year's budget. Designated for Subsequent Year's Expenditures. This represents the amount of fund balance nececcary to balance the subsequent year's budget. Designated for Contingencies. This amount is set aside for general contingencies. As explained in Note 1E, with the passage of the Gann Spending Limitation Constitutional Amendment, the City Council passed a resolution appropriating all revenues which constitute proceeds of taxes, to the extent that they exceed expenditures thereof, to "Excess Proceeds of Taxes Reserve Fund," such appropriation constitutes appropriation subject to limitation in the fiscal year therein ended. Appropriation of funds from this reserve may be expended in subsequent years in the same manner as any other resources, but such appropriations are not subject to that fiscal year's limitation. At June 30, 1993, appropriation to this fund was zero. 3L. Reconciliation of Budgetary and GAAP"Excess(Deficiency) of Revenues and Other Financing Sources Over Expenditures and Other Uses." The following table reconciles the basis, timing, and entity differences between budgetary basis and generally accepted accounting principles basis reporting for the General Fund and Special Revenue Funds: Special General Fund Revenue Funds Deficiency of revenues and other financing sources over expenditures and other uses - budgetary basis $ ( 34,289,448) $ (1,411,193) Adjustments: Encumbrances 11,358,041 467,487 Increase in accrued expenditures (3,703,791) (681,188) Project-length budgets 2,908,629 710,807 Non-budgeted funds 2.836.210 Deficiency of revenues and other financing sources over expenditures and other uses - (GAAP basis) $ (20,890,359) $ ( 914.087) NOTES TO THE FINANCIAL STATEMENTS (Continued) has a common governing body(or a board over which this body has oversight responsibility)and is operated by City employees, some of whom provide services for(or exert management influence over) more than one of these units. Charges to these units for labor, materials and overhead are made directly at the City's standard rate per formal agreements with the City. Real property transfers are executed at appraised value usually net of cost incurred by the acquiring unit. Projects performed by the City on behalf of the Redevelopment Agency are charged at cost, for which the Redevelopment Agency assumes a long-term obligation to pay from future tax increment revenues. During the year ended June 30, 1993, obligations for project costs totaling $15,548,658 were assumed by the Redevelopment Agency. Note 6. SUMMARY DISCLOSURE OF SIGNIFICANT CONTINGENCES 6A. Commitments and Contingencies. Numerous claims and suits have been filed against the City in the normal course of business. To the extent that information available indicates that it is probable a liability has been incurred as of June 30, 1993 and where the amount of loss could be reasonably estimated, the obligation has been accrued as an expense of the City's self-insurance program (see Note 8D). In connection with the formation of BICEP(Note 8A),bonds payable in the aggregate amount of$15,055,000 were issued by BICEP. The bonds are collateralized by BICEP's right to receive and collect all premium payments and prepayments. Each member city is obligated to pay its portion of premiums as assessed, until the earlier of the termination of the related bond agreement or prepayment of its portion of the bond obligation. The City's prepayment obligation of bond principal at June 30, 1993 is approximately$4,174,233. The following cities are members of BICEP: Huntington Beach, Oxnard, Pomona, San Bernardino and Santa Ana. 6B. Federally Assisted Programs - Compliance Audit. The City participates in a number of federally assisted grant programs, principal of which are Community Development Block Grant, Federal Aid Urban, Section 8 Housing, and Job Training Partnership Act. These programs were subjected to the audit requirements of the Office of Management and Budget Circular A-128 Audits of State and Local Governments ("A-128") which, in addition to the requirement for an organization-wide examination of financial operations, required tests of compliance with major provisions of Federal law and regulations. In addition, grantors or their representatives may, within prescribed time frames, build upon the "A-128" audit. The "A-128" audit revealed a few instances of non-compliance, and it is yet to be determined whether grantors shall wish to conduct further examination. The amount (if any) of expenditures which may be disallowed by granting agencies cannot be determined, but management believes that the disclosures of non-compliance items can be suitably remedied and that amounts disallowed therefore (if any) will be immaterial. Note 7. SIGNIFICANT EFFECTS OF SUBSEQUENT EVENTS The State of California, in adopting its 1993 fiscal year budget act, has made numerous reductions in State payments under various programs to local governments. The City is estimating that revenues to the General Fund,as directed by the State, will be reduced by approximately $1.9 million during the 1993-94 fiscal year. The City will make appropriate modifications to the 1993-94 fiscal year budget to incorporate the revenue reductions and offset them with compensating expenditure reductions, or revenue increases. NOTES TO THE FINANCIAL STATEMENTS (Continued) The Agreement specifies a term of existence of 50 years; however, the Agreement cannot be terminated until all revenue bonds issued and interest thereon have been paid on full or adequately provided for. Upon termination of the Agreement, title to all properties of the Authority shall be conveyed to the State, the County and the City, as applicable. On September 23, 1988, the Big Independent Cities Excess Pool (BICEP) was created under a Joint Powers Agreement between the cities of Huntington Beach, Oxnard, Pomona, San Bernardino and Santa Ana with participating interests of 21.43%, 15.62%, 13.59%, 19.09% and 30.27% respectively. The purpose of this agreement is to jointly develop and fund excess insurance for comprehensive liability, the purchase of reinsurance, and the provision of necessary administrative services. Such administrative services may include, but shall not be limited to,risk management consulting,loss prevention and control,centralized loss reporting, actuarial consulting,claims adjusting and legal defense service. BICEP is governed by a five-member Board of Directors representing each member city, appointed by the member's City Council and serving at the pleasure of such City Council. The City of Santa Ma does not have oversight responsibility over BICEP. Summary unaudited financial information of BICEP for the year ended June 30, 1993, is as follows: City of Total Santa Ma's Description Joint Venture Share Total Assets $ 17,988,490 $ 5,445,116 Total Liabilities 17,988,490 5,445,116 Total Revenues 4,010,361 1,216,936 Total Expenditures 4,010,361 1,213,936 This agreement may be terminated at any time provided that no bonds or other obligations of BICEP are outstanding. Upon termination of this Agreement all assets of BICEP shall (after payment of all unpaid costs, expenses and charges incurred under this Agreement), be distributed among the parties in accordance with the respective contributions of each. 8B. Deferred Compensation Plan. The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all full-time City employees, permits them to defer a portion of their salary until future years. Also, in compliance with Section 3121(6)(7)(F)of the Internal Revenue Code, the City has set-up a deferred compensation plan for all its part-time employees. Each eligible employee shall contribute 3.75% of his earned compensation and the City contributes an equal amount to the plan. Contributions made on behalf of the participant for the taxable year shall not exceed the lesser of$7,500 or 33-1/2% of the participant's compensation for that taxable year. The deferred compensation is not available to employees until termination, retirement, death,or unforeseeable emergency. All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property, or rights are until paid or made available to the employee or other beneficiary, solely the property and right of the City, without being restricted to the provisions of benefits under the plan, subject only to the claim of the City's general creditors. Participants' NOTES TO THE FINANCIAL STATEMENTS (Continued) determine employer-contributions. The PBO is the portion of the actuarial present value of projected pension benefits (including projected future salary increases) estimated to be payable in the future as a result of employees' service to date. The pension benefit obligation was computed as part of an actuarial valuation performed as of June 30, 1992. Significant assumptions used in the valuation include (1) a rate of return on the investment of present and future assets of 8.75% a year compounded annually, (2)projected salary increases of 4.50% compounded annually attributable to inflation, (3) additional salary increases of 0.75% attributable to across the board salary increases, (4) 1.75% and 2% a year for the miscellaneous and safety categories respectively, attributable to merit raises, and (5) no post retirement benefit increases. The total unfunded pension benefit obligation applicable to the employees was$19,229,680 at June 30, 1992, as follows: Pension benefit obligation: Retirees and beneficiaries currently receiving benefits and terminated employees not yet receiving benefits. $ 113,639,723 Current employees: Accumulated employee contributions including allocated investment earnings 72,475,710 Employer-finance vested 119,796,919 Employer-finance non-vested 4.486.503 Total pension benefit obligation 310,398,855 Net assets available for benefits, at cost (market value: $328,438,829) 291,169.175 Unfunded pension benefit obligation $ _19.229.680 From June 30, 1991, no changes were made on benefit provisions and actuarial assumptions. (D) Actuarially Determined Contribution Requirements and Contribution made: PERS uses the Entry Age Normal Actuarial Cost Method which is a projected benefit cost method. That is,it takes into account those benefits that are expected to be earned in the future as well as those already accrued. According to this method, the normal cost for an employee pension benefit obligation is the level amount which would fund the projected benefit if it were paid annually from date of employment until retirement. PERS uses a modification of Entry Age Cost Method in which the employer's total normal cost is expressed as a level percentage of payroll. PERS also uses the level percentage of payroll method to amortize any unfunded actuarial liabilities. The amortization period of the unfunded actuarial liability ends by June 30, 2000. The significant actuarial assumptions used to compute the actuarially determined contribution requirement are the same as those used to compute the pension benefit obligation, as previously described. NOTES TO THE FINANCIAL STATEMENTS (Continued( 8D. Self-Insurance Program. In July, 1975, the City elected to operate a self-insurance program: (1) for any liability to City employees pursuant to the Workers' Compensation Laws of the State of California, (2) for employee's group dental insurance, and (3)in July, 1976, for liabilities which may arise out of claims filed against the City for damages caused by City employees, equipment, or property. The City has entered into contract with Pacific Coast Administrators who supervise and administer the self-funded dental program and act as representatives of the City. The City's Liability and Workers' Compensation programs are self- administered (staffed by City employees). City claims staff estimate total losses for each claim and determine reserve requirements for the Liability and Workers' Compensation claims programs. This Program was audited in June 1993 by an independent claims auditor. The risks self-insured under these programs are: workers'compensation and employer's liability losses under the state law up to $350,000 each occurrence. From July I, 1986 to October 1, 1988, the City was self- insured for all liability claims. On September 23, 1988, Santa Ana became one of five forming members of the Big Independent Cities Excess Pool(BICEP),a joint powers authority. BICEP's excess liability program began on October 1, 1988. Each BICEP city assumes the first$1 million of each occurrence. The BICEP cities risk share amounts between$1 million and$2 million and from$20 million to$25 million. Reinsurance covers amounts from$2 million to$20 million. Also,under the employee group dental self-funded program, the City pays $1,000 limit per participant. The City also carries paid insurance to cover the claims and pay benefits to employees participating in the "HMO" plans. At June 30, 1993 accrued self-insured liabilities for workers' compensation, general liability and employee health claims were $12,973,524, $7,636,145 and $100,000 respectively. These accruals meet GAAP loss contingency criteria. 8E. Retirement Health Benefits. Article XIV,Section 6,of the Memorandum of Understanding between the City and the Santa Ana Firemen's Benevolent Association (FBA) for the period July 1, 1992 through June 30, 1994 provides that the City shall administer a "flat rate" retiree Health Insurance Premium Reduction Program, available to retirees of the FBA. Employees who are members of the FBA retiring on or after July 1, 1989 are eligible to participate regardless of whether or not they are participating in a City sponsored medical plan on their date of retirement. If the retiree does not elect coverage on their date of retirement they will not be eligible for coverage at any other time in the future. In addition, to be eligible, an employee must have at least ten years of service on the date they retire. This requirement will be waived for any employee retiring due to disability. The City's monthly contribution is based on a flat dollar amount per year of service. Beginning in 1989, the flat dollar levels were$2.20 for single coverage and$5.50 for family coverage. These amounts increase by 5% each year. When the employee dies, the City's contribution ceases regardless of whether or not the dependents are still living. Currently, their are eleven retirees participating in the program. The program is advance funded and the City has made available in the fund beginning October 1, 1990 which was the start of the health insurance benefit year, an amount equal to one percent of the unit's current salary base. Balance available in the fund through June 30, 1993 totalled $314,090. This is reported as part of our Self-Insurance Internal Service Fund. NOTES TO THE FINANCIAL STATEMENTS (Continued) The bank balance by type of credit risk and in total, and the carrying amount of pooled deposits are summarized as followst- I 2 3 Bank Balance Carrying Amount Pooled deposits: Demand deposits $ 1,767,809 $ $ $ 1,767,809 $ (1,705,872) Cash on hand 270,079 Total pooled deposits and cash on hand $ (1,435,793) Pooled Investments/Credit Risk. Statutes authorize the City to invest in obligations of the U.S. Treasury agencies and instrumentalities; commercial paper rated A-1 by Standard and Poor's Corporation or P-I by Moody's Commercial Paper Record; bankers' acceptances; repurchase agreements; negotiable certificates of deposits; medium term corporate notes of the highest quality; the State Treasurer's Pool; and the Orange County Investment Pool. The investments that are presented by specific identifiable investment securities are classified as to credit risk by three categories as follows: Category I: Insured or registered, or securities held by the City or by its agent in the City's name Category 2: Uninsured and unregistered with securities held by the counterparty's trust department or agent in the City's name Category 3: Uninsured and unregistered with securities held by the counterparty, or by its trust department or agent but not in the City's name Credit risk, carrying amount, and market value of pooled deposits and investments are summarized as follows I 2 3 Canyios Amount Market Value Pooled investments: Bankers' Acceptances $ 986,087 $ $ $ 986,087 $ 986,087 Securities of government agencies 11,731,487 10,715,778 22,447,265 22,420,912 U.S. Government Securities 2,003,281 5,463,957 7,467,238 7,907,687 Medium term corporate notes 498,610 498,610 498,610 Commercial paper City of Santa Ma water revenue bonds 48,245 48,245 55,000 Total pooled investments $ 15,267,710 $ 16,179,735 $ 31,447,445 31,868,296 Deferred compensation deposits 24,095,745 24,095,745 Mutual Funds 132,951 132,951 Local Agency Investment Fund 30,000,000 30.000,000 Orange County Investment Pool 56,097,357 56,097,357 Total pooled investments S 141,773,498 $ 142,194,349 APPENDIX C PROPOSED FORM OF OPINION OF BOND COUNSEL [Date of Closing] Santa Ana Financing Authority 20 Civic Center Plaza Santa Ana, California 92710 Santa Ana Financing Authority Police Administration and Holding Facility Lease Revenue Bonds. Series 1994A (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance by the Santa Ana Financing Authority (the "Issuer") of $107,399,438.50 aggregate principal amount of Santa Ana Financing Authority Police Administration and Holding Facility Lease Revenue Bonds,Series 1994A(the "Bonds"), issued pursuant to the provisions of the Marks-Roos Local Bond Pooling Act of 1985 (constituting Article 4 of Division 7 of Tide 1 of the California Government Code) and an Indenture, dated as of March 1, 1994 (the "Indenture"), between the Issuer and Meridian Trust Company of California, as trustee (the "Trustee"). The Bonds are issued for the purpose of enabling the Issuer to finance certain capital improvements. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. In such connection, we have reviewed the Indenture, the Tax Certificate of the Issuer and the City of Santa Ana (the "City") dated the date hereof (the "Tax Certificate"), certifications of the Issuer, the Trustee, the City, and others, opinions of counsel to the Issuer, the City, the Trustee and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. Certain agreements, requirements and procedures contained or referred to in the Indenture, the Tax Certificate and other relevant documents may be changed, and certain actions (including, without limitation,defeasance of the Bonds)may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. No opinion is expressed herein as to any Bond or the interest thereon if any such change occurs or action is taken or omitted to be taken upon the advice or approval of counsel other than ourselves. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted to be taken or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. We have assumed the genuineness of all documents and signatures presented to us. Santa Ana Financing Authority [Date of Closing] Page 6 current earnings when calculating corporate alternative minimum taxable income. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE per APPENDIX D DTC AND BOOK-ENTRY ONLY SYSTEM APPENDIX D DTC AND BOOK-ENTRY ONLY SYSTEM The information in this appendix concerning DTC and DTC's book-entry system has been obtained from DTC, and the Authority, the City and the Trustee take no responsibility for the accuracy thereof. DTC will act as securities depository for the Bonds. The Bonds will be executed and delivered as fully-registered securities registered in the name of Cede& Co. (DTC's partnership nominee). One fully- registered bond will be executed and delivered for each year in which the Bonds mature in denominations equal to the aggregate principal amount of the Bonds maturing in that year, and will be deposited with DTC. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references herein to the owners of the Bonds, shall mean Cede& Co. and shall not mean the actual purchasers of the Bonds (the "Beneficial Owners"). DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC holds securities that its participants ("DTC Participants") deposit with DTC. DTC also facilitates the settlement among DTC Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in DTC Participants' accounts, thereby eliminating the need for physical movement of securities certificates. DTC Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its DTC Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a DTC Direct Participant, either directly or indirectly ("DTC Indirect Participants"). The Rules applicable to DTC and the DTC Participants are on file with the Securities and Exchange Commission. To facilitate subsequent transfers, all Bonds deposited by DTC Participants with DTC are registered in the name of DTC's partnership nominee, Cede& Co. The deposit of Bonds with DTC and their registration in the name of Cede& Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the DTC Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The DTC Participants will remain responsible for keeping account of their holdings on behalf of their customers. Purchases of Bonds under the DTC system must be made by or through DTC Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each Beneficial Owner is in turn to be recorded on the DTC Direct and DTC Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the DTC Direct or DTC Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of DTC Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. Conveyance of notices and other communications by DTC to DTC Direct Participants, by DTC Direct Participants to DTC Indirect Participants and by DTC Direct Participants and DTC Indirect Participants to the Beneficial Owners will be governed by arrangements among them, subject to any statutory and regulatory requirements as may be in effect from time to time. D-1 AFFECT THE VALIDITY OR SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE PREPAYMENT OF THE BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE. D-3 APPENDIX E TABLE OF ACCRETED VALUES E-1 APPENDIX E TABLE OF ACCRETED VALUES MATURING JULY 1, 2001 2002 2003 01/01/95 3,581.40 3,377.41 3,178.85 07/01/95 3,674.52 3,466.91 3,264.68 01/01/96 3,770.06 3,558.79 3,352.82 07/01/96 3,868.08 3,653.10 3,443.35 01/01/97 3,968.65 3,749.91 3,536.32 07/01/97 4,071.83 3,849.28 3,631.81 01/01/98 4,177.70 3,951.29 3,729.87 07/01/98 4,286.33 4,056.00 3,830.57 01/01/99 4,397.77 4,163.48 3,934.00 07/01/99 4,512.11 4,273.81 4,040.22 01/01/2000 4,629.43 4,387.07 4,149.31 07/01/2000 4,749.80 4,503.33 4,261.34 01/01/2001 4,873.29 4,622.67 4,376.40 07/01/2001 5,000.00 4,745.17 4,494.56 01/01/2002 4,870.92 4,615.92 07/01/2002 5,000.00 4,740.55 01/01/2003 4,868.55 07/01/2003 5,000.00 APPENDIX F SPECIMEN FORM OF FINANCIAL GUARANTY INSURANCE POLICY F-1 FINANCIAL GUARANTY INSURANCE POLICY Municipal Bond Investors Assurance Corporation Armonk,New York 10504 Policy No.(NUMBER' Municipal Bond Investors Assurance Corporation(the"Insurers),in consideration of the payment d the penium and subjea to the tans d this policy.hereby tnoorditionally and inewrabt9 guarantees to any owner,as hereinafter defined,tithe following desanted obligations,the full and complete payment required to be made by or on behalf of the issuer to(PAYING AGENT/IRUS1FEj or its successor(the"Paying Agent)elan amount equal to(I)the principal of(either at the sated maturity or by any advancement&maturity pusuant to a mandatory,sinking find payment) and interest on,the Obligations(as that terms defined below)as such payments doll become dire but shall not be so paid(erupt that in the ant& any acceleration d the at date d such primal by reason dnaodatay or optional redenaption or acceleration meeting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking find payment,the payments guaranteed bet*dell be made in arch amounts and at such times as sad)payments dprindpal would have been at had there not beat any such azelentionp, and(u)the reirobnse ment of any such payment which is subsequently red erect flan any own pursuant to a final judgment by a cont&competent jurisdiction that such payment constitutes an avoidable prefrnenoe to srh owner within the meaning&any applicable bankmptcy law. The amounts reared to in clauses n and(u)dthepeoeding sentence dull be reared to herein collectively as the Insured Amounts." ^Obligation C shall mean: (LEGAL NAME OF ISSUE) Upon receipt S telephonic or telegraphic tx roe,such notice anhsequmtly confined in writing by regitaed or certified mail,or con receipt S urinal notice by registered a certified mail,by the henna tom the Paying Agent or any owner San Obligation the payment clan roamed Amount for which is then due,that mdi required mutat has not been made,the Insurer on the due date dada payment or within one business day after teodptofnodcedadn nonpayment,whichever is later,will make a deposit&fronds,in an accowit with State SoulBank and Trust Company,NA, in New York,New Yak,or its successor,ad6dat for the payment S any such Insured Amotmts which ate then due. Upon presentment and anada of such Obligations or preseao mat daudn ova proof of ownership of the Obligations,together with any appropriate roam of assignment$evidence me assignment dine Insured Amounts due on the Obligations as are paid by the Insure;and appropriate instruments to tart the Beecham:a time Inner as agent for skit owners tithe Obligations ht any legal proceeding Sated to payment of bowed Amanita on me Obligations,tat intmunents being in a tam fatisfactay to State Street Bank and Dust Company,NA,State Snot Bank and Trust Company,NA shall disburse to such camas,or the Paying Agent payment of Insured Amours due on such Obligations,lea any amount held by the Paying Agent for the payment dada hand Ann uds and legally available that. This policy does not imwe against loss deny ptepaymat premium which may at any time be payable with Tama to any Obligation. As tan herein,the tam"away"dull mean the regstaed owner of any Obligation as Skated in the boots maintained by the Paying Agent,the Issuer,or any designee tithe Liner for such purpose. The tam owner dull not inch*the Issuer or any party whose agreement with the Issu r constitutes the underlying security for the Obligations. Any savior dpnc ss on the Insurer may be made to the Insneral its offices located at 113 King Sand,Armoric,New Yak 10504 and such service dpec ss shall be valid and binding. This policy is fa any mason. The premium on this policy is not refundable for any reason including the payment prior to maturity S the Obligations. In the c at the Insurer were to become insolvent,any claims arising*Ma a policy&financial grarardy Sot to are excluded from coverage by the California Insurance rance Guaranty Association,established pursuant to Article 14.2(commencing with Section 1063)&aiapter 1 of Pat 2 of Division 1 &the California Insurance Oode. IN Wp1NESS WHEREOF,the Inn has causal this policy to be executed in facsimile on its behalf by its duly authorized dims,this(DAY)day &'(MONTH,YEAR). MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION President Attest: Assistant Seadaay STD-RCA-5 I/1N4 APPENDIX G SUMMARY OF CERTAIN PROVISIONS RELATING TO THE AIRS APPENDIX G SUMMARY OF CERTAIN PROVISIONS RELATING TO THE AIRS The following is a summary of certain provisions of the Indenture (as defined in the Official Statement) and certain provisions relating to the AIRS set forth in the Auction Agent Agreement, the Market Agent Agreement and the Broker-Dealer Agreement. This summary is not intended to be a full statement of the terms of the Indenture and, accordingly, is qualified by reference thereto and is subject to the full text thereof. Capitalized terms not previously defined in this Official Statement or defined in this Appendix G have the meanings set forth in the Indenture. Copies of the Indenture may be obtained from the Trustee. See also "THE BONDS -- Auction and Inverse Rate Securities" in the Official Statement for a description of certain other provisions of the Indenture relating to the AIRS, and "SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE" in Appendix A to this Official Statement for a summary of certain other provisions of the Indenture. The ARS and the IRS are being issued with maturities of July 1, 2014. The Auction, Auction Procedures and the provisions of this Appendix shall apply and be deemed to apply separately to the ARS and the IRS of each maturity and references in this Appendix to or with respect to ARS and IRS shall apply and be deemed to apply to or with respect to the ARS and IRS of each maturity, as the case may be. DEFINITIONS OF CERTAIN TERMS RELATING TO THE AIRS "Applicable ARS Rate" shall mean the rate or rates per annum at which interest accrues on the ARS of each maturity for any Auction Period. "Applicable Day Count Fraction" shall mean, with respect to any Interest Period or Auction Period, as the case may be, the actual number of days in such period divided by the number of days in such Interest Period or Auction Period, as the case may be, on the basis of twelve 30-day months. "Applicable IRS Rate" shall mean the rate or rates per annum at which interest accrues on the IRS of each maturity for any Auction Period. "Auction" shall mean the implementation of the Auction Procedures on an Auction Date. "Auction Agent" shall mean the Initial Auction Agent unless and until a Substitute Auction Agent Agreement becomes effective, after which Auction Agent shall mean the Substitute Auction Agent. "Auction Agent Agreement" shall mean the Initial Auction Agent Agreement unless and until a Substitute Auction Agent Agreement is entered into, after which Auction Agent Agreement shall mean such Substitute Auction Agent Agreement. "Auction Agent Fee" shall mean an amount initially equal to an annualized rate of 0.03 of one percent of the aggregate principal amount of Regular ARS and one-half of the aggregate principal amount of Newly Fixed AIRS at the close of business on the Record Date immediately preceding an Auction Date. G-1 Auction Agent is located are closed or are required to close or a day on which the New York Stock Exchange is closed. "Change of Tax Law" shall mean, with respect to any Beneficial Owner of ARS or IRS, any amendment to, the Code or other statute enacted by the Congress of the United States or any temporary, proposed or final regulation promulgated by the United States Treasury after the closing date, which (i) changes or would change any deduction, credit or other allowance allowable in computing liability for any federal tax with respect to, or (ii) imposes or would impose or reduces or would reduce or increases or would increase any federal tax (including, but not limited to, preference or excise taxes)upon, any interest earned by any holder of bonds the interest on which is excluded from federal gross income under Section 103 of the Code. "Closed Period" shall mean each period (i) commencing at 11:00 a.m., New York City time, on the Business Day immediately preceding any Auction Record Date and ending immediately prior to the opening of business on the Auction Period Accrual Date succeeding such Auction Record Date and(ii) commencing at 11:00 a.m., New York City time, on a Redemption Record Date and ending immediately prior to the opening of business on the related redemption date. "Code" shall mean the Internal Revenue Code of 1986, as from time to time amended. "Existing Holder" shall mean, with respect to any Auction, a person who has executed (and has not withdrawn or terminated) a Purchaser's Letter and who was listed as the Beneficial Owner of ARS (which are not Fixed) in the Existing Holder Registry at the close of business on the Business Day immediately preceding such Auction. "Fixed" shall mean Regular ARS, the beneficial ownership of which has been linked with an equal aggregate principal amount of Regular IRS, and recorded as such as Newly Fixed AIRS or as Regular Fixed AIRS under the Applicable CUSIP Number at the Securities Depository. "Fixed Rate" shall mean 5.750% per annum in the case of the ARS and IRS maturing on July 1, 2014. "Initial Auction Agent" shall mean The Bank of New York, a New York corporation, its successors and assigns. "Initial Auction Agent Agreement" shall mean the Auction Agent Agreement, dated as of March 1, 1994, between the Trustee and the Initial Auction Agent, including any amendment thereof or supplement thereto. "Initial Market Agent" shall mean Smith Barney Shearson Inc., its successors and assigns. "Interest Payment Date" shall mean January 1, 1995, semi-annually thereafter on each January 1 and July 1 and at maturity; provided, however, that if any such day is not a Business Day, interest due on such day shall be paid on the next succeeding Business Day without accrual of any additional interest. "Interest Period" shall mean the period commencing on and including an Interest Payment Date and ending on and excluding the next succeeding Interest Payment Date; provided, however, that the first Interest Period shall commence on the closing date. "Market Agent" shall mean the Initial Market Agent unless and until a Substitute Market Agent Agreement is entered into, after which Market Agent shall mean the Substitute Market Agent. "Market Agent Agreement" shall mean the Market Agent Agreement, dated as of March 1, 1994, between the Trustee and the Initial Market Agent, until and unless a Substitute Market Agent Agreement is G-3 securities depository in connection with the AIRS and which is appointed by the Authority with the consent of the Auction Agent and the Market Agent, which consent shall not be unreasonably withheld. "Securities Exchange Act" shall mean the Securities Exchange act of 1934, as amended. "Separated" shall mean Newly Fixed AIRS or Regular Fixed AIRS, the beneficial ownership of which has been separated into equal aggregate principal amounts of ARS and IRS, and recorded as such as Regular ARS and Regular IRS under the Applicable CUSIP Numbers at the Securities Depository. "Service Charge" shall mean the dollar amount, if any, payable to the Auction Agent and any Broker- Dealer on an Interest Payment Date, as calculated pursuant to "THE BONDS -- Auction and Inverse Securities --Interest -- Service Charge" "State" shall mean the State of California. "Substitute Auction Agent" shall mean the person with whom the Trustee enters into a Substitute Auction Agent Agreement. "Substitute Auction Agent Agreement" shall mean an auction agent agreement containing terms substantially similar to the terms of the Initial Auction Agent Agreement, whereby a person having the qualifications required by the Indenture agrees with the Trustee to perform the duties of the Auction Agent set forth therein. "Substitute Market Agent" shall mean the person with whom the Trustee enters into a Substitute Market Agent Agreement. "Substitute Market Agent Agreement" shall mean a market agent agreement containing terms substantially similar to the terms of the Initial Market Agent Agreement, whereby a person having the qualifications required by the Indenture agrees with the Trustee to perform the duties of the Market Agent set forth therein. FIXING AND SEPARATING AIRS Fixing ARS and IRS A Beneficial Owner of Regular ARS and Regular IRS may cause such ARS and IRS to be combined, or "Fixed", in accordance with the procedure set forth below. When ARS and IRS have been Fixed, they may be traded as a unit, until Separated as described below under "Separating ARS and IRS". ARS and IRS that have been Fixed as described below are referred to as "Newly Fixed AIRS"; on and after the next succeeding Interest Payment Date, such Newly Fixed AIRS shall automatically become "Regular Fixed AIRS". During the Interest Period in which the Newly Fixed AIRS were Fixed, the Service Charge payable with respect to the ARS which were Fixed will continue to accrue for the remainder of such Interest Period. So long as ownership of the ARS and IRS is maintained in book-entry form by the Securities Depository, if, on any Business Day, other than during a Closed Period, the Auction Agent shall receive a Request to Fix from a Broker-Dealer on behalf of a Beneficial Owner in accordance with the Broker-Dealer Agreement, which requests that specified equal principal amounts of Regular ARS and Regular IRS, which in each case shall have the same maturity date, be Fixed in the account of the Participant of such Beneficial Owner at the Securities Depository designated in such request, then the Auction Agent shall promptly deliver appropriate instructions to the Securities Depository to debit such aggregate principal amount of Regular ARS G-5 Separate referred to above on or prior to 12:00 Noon, New York City time, on any Business Day that is within the seven-thy period immediately prior to a Record Date, then the Auction Agent shall deliver such instructions to the Securities Depository on the next succeeding Business Day. When such ARS and IRS have been Separated and redelivered, the beneficial ownership thereof will be recorded at the Securities Depository under separate CUSIP numbers. See "THE BONDS -- Auction and Inverse Rate Securities -- CUSIP Numbers" in the Official Statement. MANDATORY TENDER OF ARS Any Beneficial Owner of IRS may, at any time and from time to time, notify a Broker-Dealer that such Beneficial Owner intends to submit a Bid for a specified principal amount of ARS (having the same maturity date as such IRS) on the next succeeding Auction Date in order to cause such ARS to be Fixed with all or a portion of such IRS, and that if such Bid is unsuccessful, in whole or in part, such Beneficial Owner requires that ARS (which are not Fixed) in an aggregate principal amount equal to the unsuccessful portion of such Bid be tendered to such Beneficial Owner for purchase on the seventh Business Day prior to the next succeeding Auction Date following the Auction in which such Bid proved unsuccessful (a "Tender Date"). Such ARS shall be tendered for purchase at a price equal to the principal amount thereof, plus accrued but unpaid interest to the Tender Date less an amount equal to the Service Charge, if any, applicable to any such ARS multiplied by a fraction, the numerator of which is the number of days from and including the immediately preceding Interest Payment Date to but not including the Tender Date and the denominator of which is 180 (the "Tender Price"). Any such purchase shall be effected by book entry transfer of such ARS to the account of the Participant of such Beneficial Owner identified in such notice. If any such Bid is unsuccessful, in whole or in part, such Broker-Dealer shall give the Trustee and the Auction Agent written notice stating that a Beneficial Owner of IRS is the Beneficial Owner of a specified principal amount of IRS of a specified maturity and that such Beneficial Owner wishes to purchase an equal principal amount of ARS (having the same maturity date as such IRS) on a specified Tender Date to be Fixed with such IRS. Such notice shall be given to the Trustee and the Auction Agent not later than the Business Day following the Auction in which such Bid proved unsuccessful. The Auction Agent shall, not later than the next Business Day, give a copy of such notice (a "Tender Demand") to the Securities Depository. On the second Business Day following the day of the Securities Depository's receipt of a Tender Demand, the Securities Depository shall select, by lot in such manner as it shall determine from a position listing of the aggregate stated amounts of Regular ARS as of the close of business on the date of such Tender Demand, the Regular ARS to be tendered. Such Regular ARS shall have the same maturity date as the maturity date of the IRS held by the Beneficial Owner relating to the Tender Demand. The Securities Depository shall give the Participant for the Regular ARS so selected and the Auction Agent written notice(a "Tender Notice") thereof. Such Tender Notice shall specify the Tender Date set forth in such Tender Demand, the amount of Regular ARS to be tendered by such Participant on the Tender Date and the Tender Price thereof. Each Tender Notice shall be mailed to such Participant and the Auction Agent by first-class mail, postage prepaid no later than the second Business Day following the Securities Depository's receipt of such Tender Demand. On receipt of the Tender Notice, the Auction Agent may contact such Participant to request such Participant to disclose to the Auction Agent the names of the Beneficial Owners of the Regular ARS so specified in the Tender Notice. The giving of a Tender Notice with respect to Regular ARS shall supersede any Order (as defined in the Auction Agent Agreement) given by the Existing Holder of such ARS with respect to such ARS for the Auction occurring on the Auction Date following the Tender Date specified in the Tender Notice. The ARS specified in a Tender Notice are subject to mandatory tender on the Tender Date specified therein against payment of the Tender Price specified therein. On such Tender Date the Beneficial Owner of IRS who caused the Tender Demand to be submitted shall forward such Tender Price to such Beneficial Owner's Broker-Dealer and such Broker-Dealer shall forward such Tender Price in immediately available funds G-7 ARS maturing on July 1, 2014, over (ii) (x) the Service Charge Rate on such date or (y) if the ownership of the ARS is no longer maintained in book-entry form by the Securities Depository, zero; provided further, however, that in no event shall the Maximum Rate be more than the maximum rate permitted by the laws of the State, as the same may be modified by United States law of general application. "Minimum Rate" shall mean, on any date of determination, the rate per annum equal to 85% (as such percentage may be adjusted as described below under "ADJUSTMENT IN PERCENTAGES USED TO DETERMINE MAXIMUM, MINIMUM AND NON-PAYMENT RATE") of the lesser of: (i) the After-Tax Equivalent Rate on such date and (ii) the Index on such date: provided, in no event shall the Minimum Rate be more than the Maximum Rate. "Non-Payment Rate" shall mean, on any date of determination, the interest rate per annum equal to the lessor of(i) 265% of the Index on such date (as such percentage may be adjusted as described below under "ADJUSTMENT IN PERCENTAGE USED TO DETERMINE MAXIMUM, MINIMUM AND NON- PAYMENT RATES") and (ii) 11.171% per annum in the case of the ARS maturing on July 1, 2014; provided, that if an Auction was held on the Business Day immediately preceding the first day of an Auction Period during which the ARS are to be payable as to interest at the Non-Payment Rate, the Non-Payment Rate determined above shall be reduced by an amount equal to the Service Charge Rate on such date of determination; and provided further, that in no event shall the Non-Payment Rate be more than the maximum rate permitted by State law, as the same may be modified by United States law of general application. "After-Tax Equivalent Rate" shall mean, on any date of determination, the interest rate per annum equal to the product of(i) the "AA" Composite Commercial Paper Rate on such date and (ii) 1.00 minus the Statutory Corporate Tax Rate on such date. "'AA' Composite Commercial Paper Rate" shall mean, as of any date of determination, the interest equivalent of the 30-day rate on commercial paper placed on behalf of the issuers whose corporate bonds are rated "AA" by S&P, or the equivalent of such rating by S&P or another nationally recognized securities rating agency, as such 30-day rate is made available on a discount basis or otherwise by the Federal Reserve Bank of New York for the Business Day immediately preceding such date of determination. If, however, the Federal Reserve Bank of New York does not make available any such rate, then the "AA" Composite Commercial Paper Rate shall be the arithmetic average of the interest equivalent of the 30-day rate on commercial paper placed on behalf of such issuers, as quoted to the Auction Agent on a discount basis or otherwise, by the Commercial Paper Dealers, as of the close of business on the Business Day immediately preceding such date of determination. If any Commercial Paper Dealer does not quote a commercial paper rate required to determine the "AA" Composite Commercial Paper Rate, the "AA" Composite Commercial Paper Rate shall be determined on the basis of the quotation or quotations furnished by the remaining Commercial Paper Dealer or Commercial Paper Dealers. "Statutory Corporate Tax Rate" shall mean, as of any date of determination,the highest tax rate bracket(expressed in decimals) now or hereafter applicable in each taxable year on the taxable income of every corporation as set forth in Section 11 of the Code or any successor section, without regard to any minimum additional tax provision or provisions regarding changes in rates during a taxable year; the Statutory Corporate Tax Rate as of the Closing Date is 35%. "Commercial Paper Dealers" shall mean Smith Barney Shearson Inc., its successors and assigns, and any other commercial paper dealer pursuant to the Indenture. "Applicable Percentage" shall mean, on any date of determination, the percentage determined (as such percentage may be adjusted as described below under "DESCRIPTION OF AUCTION -- Adjustment of Percentages Used in Determining Maximum, Minimum and Non-Payment Rates") based on Moody's or S&P's ratings of ARS in effect at the close of business on the Business Day immediately preceding such date, or, if the G-4 Auction Agent. Such notice shall be effective only if it is accompanied by an opinion of nationally recognized bond counsel to the effect that such adjustment is authorized by the Indenture, is permitted under the Code and will not have an adverse effect on the exclusion of interest on the AIRS from gross income for federal income tax purposes. An adjustment in the respective percentages used to determine the Minimum Rate, the Maximum Rate and the Non-Payment Rate shall take effect on an Auction Date only if: (i) the Trustee and the Auction Agent receive, by 11:00 a.m., New York City time, on the Business Day immediately preceding such Auction Date, a certificate from the Market Agent by telecopy or similar means, in substantially the form required under the Indenture authorizing the adjustment of the percentage used in determining the Minimum Rate, the percentage of the Index used in determining the Non-Payment Rate and the Applicable Percentages used in determining the Maximum Rate which shall be specified in such authorization, and confirming that nationally recognized bond counsel expects to be able to give an opinion on or prior to such Auction Date to the effect that the adjustment in the percentage used in determining the Minimum Rate, the percentage of the Index used in determining the Non-Payment Rate and the Applicable Percentages used in determining the Maximum Rate, is authorized by the Indenture, is permitted under the Code, and will not have an adverse effect on the exclusion of interest on the AIRS from gross income for federal income tax purposes; and (ii) the Trustee and the Auction Agent receive by 9:30 a.m., New York City time, on such Auction Date, and opinion of nationally recognized bond counsel to the effect that the adjustment in the percentage used in determining the Minimum Rate, the percentage of the Index used in determining the Non-Payment Rate and the Applicable Percentages used in determining the Maximum Rate are authorized by the Indenture,are permitted under the Code and will not have an adverse effect on the exclusion of interest on the AIRS from gross income for federal income tax purposes. If any of the conditions referred to in (i) above are not met, the existing percentage used in determining the Minimum Rate, the percentage of the Index used in determining the Non-Payment Rate and the Applicable Percentages used in determining the Maximum Rate shall remain in effect and the rate of interest on ARS for the next succeeding Auction Period shall be determined in accordance with. the Auction Procedures. If any of the conditions referred to in (i) or(ii) above are not met, the existing percentage used in determining the Minimum Rate, the percentage of the Index used in determining the Non-Payment Rate and the Applicable Percentages used in determining the Maximum Rate shall remain in effect and the rate of interest for the next succeeding Auction Period shall equal the sum of the Maximum Rate on the Auction Date and the Service Charge Rate. DESCRIPTION OF AUCTION Auction Participants Existing Holders and Potential Holders Participants in each Auction will include: (i) "Existing Holders",which shall mean any person who is listed as the Beneficial Owner of ARS (which are not Fixed)in the records of the Auction Agent(described below)at the close of business on the Business Day preceding each Auction, and who shall have executed a Purchaser's Letter and(ii) "Potential Holders", which shall mean any person, including any Existing Holder,who shall have executed (and not withdrawn or terminated)a Purchaser's Letter and who may be interested in acquiring ARS(or, in the case of an Existing Holder, an additional principal amount of ARS). Beneficial Owners of ARS which were Fixed at the close of business on the Auction Record Date immediately preceding any Auction Date are not Existing Holders for purposes of the Auction Procedures, whether or not listed as the owner thereof on the records of the Auction Agent, and, with respect to such ARS, may not participate in the Auction held on such Auction Date. Such Fixed ARS will not be included in the aggregate principal amount of ARS held by such Existing Holder for the purposes of the Auction Procedures. G-11 The Auction Agent Agreement provides that the rate at which the Auction Agent Fee accrues will be such that the Auction Agent receives as compensation for all services rendered by it under the Auction Agent Agreement and the Broker-Dealer Agreements an amount comparable to that received by the Auction Agent and other institutions performing similar functions for rendering comparable services to others and which at least reflects the actual costs to the Auction Agent of rendering such services, including the amount of any fees, payable by the Auction Agent to the Market Agent. The Auction Agent and the Trustee agree to negotiate in good faith from time to time to determine the appropriate rate at which the Auction Agent Fee should accrue. If the Auction Agent and the Trustee agree to a change in the rate at which the Auction Agent Fee is to accrue, the Auction Agent is required to give notice thereof to all Beneficial Owners of AIRS within two Business Days of such change. See "SERIES ARS AND SERIES IRS -- Interest-- Service Charge" in the Official Statement for a description of the manner in which the Auction Agent Fee will be paid. Broker-Dealer Existing Holders and Potential Holders may participate in Auctions only by submitting orders (in the manner described below) through a "Broker-Dealer", including Smith Barney Shearson Inc. or any other broker or dealer (each as defined in the Securities Exchange Act of 1934, as amended), commercial bank or other entity permitted by law to perform the functions required of a Broker-Dealer set forth below which (i)is a "Participant" (i.e., a member of, or participant in, the Securities Depository or an affiliate of a Participant, (ii)has been selected by the Authority and(iii)has entered into a Broker-Dealer Agreement with the Auction Agent that remains effective, in which the Broker-Dealer agrees to participate in Auctions as described in the Auction Procedures, as from time to time amended or supplemented. On the Interest Payment Date for each Interest Period in which an Auction was held, each Broker-Dealer will be entitled to receive a Broker-Dealer Fee for all services rendered by it under the Broker-Dealer Agreement with respect to such Auction. ARS will be deemed to have been placed by a Broker-Dealer in an Auction if such ARS were the subject of an Order submitted by such Broker-Dealer that is any of the following: a Submitted Bid of an Existing Holder that resulted in such Existing Holder continuing to hold such ARS as a result of the Auction, a Submitted Bid of a Potential Holder that resulted in such Potential Holder purchasing such ARS as a result of the Auction or a valid Hold Order. In addition,if an Auction is for any reason not held on an Auction Date, ARS will be deemed to have been placed by a Broker-Dealer in such Auction if such ARS were acquired by an Existing Holder through such Broker-Dealer. Each Broker-Dealer will also be entitled to receive a service charge on the initial Interest Payment Date calculated for the initial Interest Period on the aggregate principal amount of the ARS initially sold by such Broker-Dealer or an affiliate thereof as an underwriter in the initial offering of the ARS. The Auction Agent Agreement provides that the rate at which the Broker-Dealer Fee accrues will be the prevailing rate received by broker-dealers for rendering comparable services to others. The Auction Agent has agreed to advise the Trustee, at the Trustee's request, at least annually of its view of the then-current prevailing rate received by broker-dealers for rendering comparable services to others. The Trustee will adjust the rate at which the Broker-Dealer Fee accrues, if necessary, to equal such prevailing rate. If the Trustee determines to change the rate at which the Broker-Dealer Fee accrues, the Auction Agent is required to give notice thereof to the Beneficial Owners of AIRS within two Business Days of such change. See "SERIES ARS AND SERIES IRS -- Interest -- Service Charge" in the Official Statement for a description of the manner in which the Broker-Dealer Fee will be paid. Market Agent The "Market Agent", initially Smith Barney Shearson Inc., is responsible under the terms of a Market Agent Agreement with the Trustee, for determination of the Index and for determination of any changes to be made in the percentages used in determining the Maximum Rate, the Minimum Rate and the Non-Payment Rate. See "ADJUSTMENT IN PERCENTAGES USED TO DETERMINE MAXIMUM,MINIMUM AND NON-PAYMENT RATES". G-13 Subject to the provisions described below under "-- Validity of Orders", a Bid by a Potential Holder shall constitute an irrevocable offer to purchase, in each case for settlement in same day funds on the next Auction Period. Accrual Date therefor at a price equal to 100% of the principal amount thereof: (i) the principal amount of outstanding ARS specified in such Bid if the Auction Rate shall be higher than the rate specified in such Bid or(ii) such principal amount or a lesser principal amount of outstanding ARS as described below in "--Acceptance and Rejection of Orders", if the Auction Rate is equal to the rate specified in such Bid. If any rate specified in any Bid contains more than three figures to the right of the decimal point, the Auction Agent shall round such rate up to the next highest one-thousandth (.001) of one percent. If an Order or Orders covering all outstanding ARS held by any Existing Holder is not submitted to the Auction Agent prior to the Submission Deadline,the Auction Agent shall deem a Hold Order to have been submitted on behalf of such Existing Holder covering the principal amount of outstanding ARS held by such Existing Holder and not subject to an Order submitted to the Auction Agent. Neither the Authority, the Trustee nor the Auction Agent shall be responsible for any failure of a Broker- Dealer to submit an Order to the Auction Agent on behalf of any Existing Holder or Potential Holder, nor shall any such party be responsible for failure by the Securities Depository, to effect any transfer or to provide the Auction Agent with current information regarding registration of transfers. An Existing Holder may submit different types of Orders in an Auction with respect to ARS then held by such Existing Holder. An Existing Holder that offers to purchase additional ARS is, for purposes of such offer, treated as a Potential Holder. For information concerning the priority given to different types of Orders placed by Existing Holders, see "-- Validity of Orders" below. Any Bid specifying a rate higher than the Maximum Rate will (i) be treated as a Sell Order if submitted by an Existing Holder and (ii)not be accepted if submitted by a Potential Holder. Any Bid specifying a rate lower than the Minimum Rate will be treated as a Bid specifying the Minimum Rate. See "--Determination of Sufficient Clearing Bids and Winning Bid Rate" and "--Acceptance and Rejection of Orders" below. Validity of Orders If any Existing Holder submits through a Broker-Dealer to the Auction Agent one or more Orders covering in the aggregate more than the principal amount of outstanding ARS held by such Existing Holder,such Orders shall be considered valid as follows and in the order of priority described below. Hold Orders. All Hold Orders shall be considered, but only up to and including in the aggregate the principal amount of ARS held by such Existing Holder, and if the aggregate principal amount of ARS subject to such Hold Orders exceeds the aggregate principal amount of ARS held by such Existing Holder, the aggregate principal amount of ARS subject to each such Hold Order shall be reduced pro rata so that the aggregate principal amount of ARS subject to such Hold Order equals the aggregate principal amount of outstanding ARS held by such Existing Holder. Bids. Any Bid shall be considered valid up to and including the excess of the principal amount of outstanding ARS held by such Existing Holder over the aggregate principal amount of ARS subject to any Hold Orders referred to above. Subject to the preceding sentence, if more than one Bid with the same rate is submitted on behalf of such Existing Holder and the aggregate principal amount of outstanding ARS subject to such Bids is greater than such excess, such Bids shall be considered valid up to and including the amount of such excess. Subject to the preceding sentences, if more than one Bid with different rates is submitted on behalf of such Existing Holder, such Bids shall be considered valid first in the ascending order of their respective rates until the highest rate is reached at which such excess exists and then at such rate up to and including the amount of such excess. In any event, the aggregate principal amount of outstanding ARS, if any, subject to Bids not valid under the provisions described above shall be treated as the subject of a Bid by a Potential Holder at the rate therein specified. G-15 ARS to be purchased by such Potential Holders described in subparagraph (ii)above, would equal not less than the Available ARS. Notice of Auction Rate Promptly after the Auction Agent has made the determinations described above, the Auction Agent shall advise the Authority and the Trustee of the Maximum Rate and the Minimum Rate and the components thereof on the Auction Date and based on such determinations, the Auction Rate for the next succeeding Interest Period as follows: (a) if Sufficient Clearing Bids exist,that the Auction Rate for the next succeeding Auction Period shall be equal to the Winning Bid Rate so determined; (b) if Sufficient Clearing Bids do not exist(other than because all of the outstanding ARS are subject to Submitted Hold Orders), that the Auction Rate for the next succeeding Auction Period shall be equal to the Maximum Rate; or (c) if all outstanding ARS are subject to Submitted Hold Orders, that the Auction Rate for the next succeeding Auction Period shall be equal to the Minimum Rate. Acceptance and Rejection of Orders Existing Holders shall continue to hold the principal amount of ARS that are subject to Submitted Hold Orders. Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the Auction Agent shall take such other action as set forth below: Sufficient Clearing Bids. If Sufficient Clearing Bids have been made, all Submitted Sell Orders shall be accepted and, subject to the denomination requirements described below, Submitted Bids shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids shall be rejected: (a) Existing Holders'Submitted Bids specifying any rate that is higher than the Winning Bid Rate shall be accepted, thus requiring each such Existing Holder to sell the aggregate principal amount of ARS subject to such Submitted Bids; . (b) Existing Holders' Submitted Bids specifying any rate that is lower than the Winning Bid Rate shall be rejected, thus entitling each such Existing Holder to continue to hold the aggregate principal amount of ARS subject to such Submitted Bids; (c) Potential Holders'Submitted Bids specifying any rate that is lower than the Winning Bid Rate shall be accepted; (d) each Existing Holder's Submitted Bid specifying a rate that is equal to the Winning Bid Rate shall be rejected, thus entitling such Existing Holder to continue to hold the aggregate principal amount of ARS subject to such Submitted Bid, unless the aggregate principal amount of outstanding ARS subject to all such Submitted Bids shall be greater than the principal amount of ARS (the "remaining principal amount") equal to the excess of the Available ARS over the aggregate principal amount of ARS subject to Submitted Bids described in subparagraphs (b) and (c) above, in which event such Submitted Bid of such Existing Holder shall be rejected in part, and such Existing Holder shall be entitled to continue to hold the principal amount of ARS subject to such Submitted Bid, but only in an amount equal to the aggregate principal amount of ARS obtained by multiplying the remaining principal amount by a fraction, the numerator of which shall be the principal amount of outstanding ARS held by such Existing Holder subject to such Submitted Bid and the denominator of which shall be the sum of the principal amount of outstanding ARS subject to such Submitted Bids made by all such Existing Holders that specified a rate equal to the Winning Bid Rate; and G-17 (iii)each Buyer's Broker-Dealer or its Participant shall instruct the Securities Depository to execute the transactions described in (d)(iii) above for such Auction, and the Securities Depository shall execute such transactions. (f)If an Existing Holder selling ARS in an Auction fails to deliver such ARS (by authorized book-entry), a Broker-Dealer may deliver to the Potential Holder on behalf of which it submitted a Bid that was accepted a principal amount of ARS that is less than the principal amount of ARS that otherwise was to be purchased by such Potential Holder. In such event, the principal amount of ARS to be so delivered shall be determined solely by such Broker-Dealer. Delivery of such lesser principal amount of ARS shall constitute good delivery. Notwithstanding the foregoing terms of this paragraph (f), any delivery or nondelivery of ARS which shall represent any departure from the results of an Auction, as determined by the Auction Agent, shall be of no effect unless and until the Auction Agent shall have been notified of such delivery or nondelivery in accordance with the provisions of the Auction Agent Agreement and the Broker-Dealer Agreements. G-21 6. We acknowledge that partial deliveries of Securities purchased in Auction may be made to us and such deliveries shall constitute good delivery as set forth in the Prospectus. 7. This letter is not a commitment by us to purchase any Securities. 8. This letter supersedes any prior-dated version of this purchaser's letter,and supplements any prior or post-dated purchaser's letter specific to particular Securities; any recipient of this letter may rely upon it until such recipient has received a signed writing amending or revoking this letter. 9. The descriptions of the Auction procedures set forth in each applicable Prospectus are incorporated by reference herein and, in case of any conflict between this letter and any such description, such description shall control. 10. Any photocopy or other reproduction of this letter shall be deemed of equal effect as a signed original. 11. Our agent member of the securities depository currently is 12. Our personnel authorized to place orders with broker-dealers for the purposes set forth in the Prospectus in Auctions is/are listed below: Telephone Number 13. Our taxpayer identification number is Appendix G-1-2 • n 400 at ion Ise