22 All obligations of the Authority under this Indenture shall be special obligations of the Authority, payable solely from Rental Payments and the other assets pledged therefor hereunder; provided, however, that all obligations of the Authority under the Bonds shall be special obligations of the Authority, payable solely from Base Rental Payments and the other assets pledged therefor hereunder. Neither the faith and credit nor the taxing power of the Authority, the City or the State of California, or any political subdivision thereof, is pledged to the payment of the Bonds.
Section 5.02 Flow of Funds.
(a) The Trustee shall establish and maintain separate funds designated the “Base Rental Payment Fund,” the “Interest Fund,” the “Principal Fund” and the “Redemption Fund.” If Additional Bonds are issued, the Trustee shall establish subaccounts within each fund for each Series of Additional Bonds.
All Base Rental Payments shall be paid directly by the City to the Trustee, and if received by the Authority at any time shall be transferred by the Authority to the Trustee within one Business Day after the receipt thereof. All Base Rental Payments received by the Trustee shall be deposited by the Trustee in the Base Rental Payment Fund. (b) The Trustee shall transfer the amounts on deposit in the Base Rental Payment Fund, at the times and in the manner hereinafter provided, to the following respective funds in the following order of priority:
(1) Interest Fund. On the Business Day immediately preceding each Interest Payment Date, the Trustee shall transfer from the Base Rental Payment Fund to the Interest Fund the amount, if any, necessary to cause the amount on deposit in the Interest Fund to be equal to the interest due on the Bonds on such Interest Payment Date. Moneys in the Interest Fund shall be used by the Trustee to pay interest due on the Bonds on each Interest Payment Date.
(2) Principal Fund. On the Business Day immediately preceding each May 1, commencing May 1, [2026], the Trustee shall transfer from the Base Rental Payment Fund to the Principal Fund the amount, if any, necessary to cause the amount on deposit in the Principal Fund to be equal to the principal amount of the Bonds due on such May 1 either as a result of the maturity thereof or mandatory sinking fund redemption payments required to be made with respect thereto. Moneys in the Principal Fund shall be used by the Trustee for the purpose of paying the principal of the Bonds when due and payable at their maturity dates or upon earlier mandatory sinking fund redemption.
(3) Redemption Fund. The Trustee shall deposit in the Redemption Fund any amounts required to be deposited therein pursuant to Section 5.03 or Section 5.04 hereof.
Moneys in the Redemption Fund shall be used by the Trustee for the purpose of paying the principal of and interest and premium, if any, on Series 2025 Bonds redeemed pursuant to the provisions of subsections (a) of Section 4.01 hereof and Additional Bonds redeemed pursuant to the corresponding provisions of the Supplemental Indenture pursuant to which such Additional Bonds are issued.
Section 5.03 Application of Net Insurance Proceeds. If the Property or any portion thereof shall be damaged or destroyed, subject to the further requirements of this Section, the City shall, as
23 expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof, unless the City elects not to repair or replace the Property or the affected portion thereof in accordance with the provisions hereof.
The Net Insurance Proceeds (other than Net Insurance Proceeds of rental interruption insurance), including the proceeds of any self-insurance, received on account of any damage or destruction of the Property or a portion thereof shall as soon as possible be deposited with the Trustee and be held by the Trustee in a special account and made available for and, to the extent necessary, shall be applied to the cost of repair or replacement of the Property or the affected portion thereof upon receipt of a Written Request of the City, together with invoices therefor. Pending such application, such proceeds may be invested by the Trustee as directed by the City in Permitted Investments that mature not later than such times moneys are expected to be needed to pay such costs of repair or replacement.
Notwithstanding the foregoing, the City shall, within 60 days of the occurrence of the event of damage or destruction, notify the Trustee in writing as to whether the City intends to replace or repair the Property or the portions of the Property which were damaged or destroyed. If the City does intend to replace or repair the Property or portions thereof, the City shall deposit with the Trustee the full amount of any insurance deductible to be credited to the special account.
In the event of any damage to or destruction of the Property caused by one of the perils covered by the insurance required by Section 6.01(c) of the Lease Agreement which would result in an abatement of rental payments or any portion thereof pursuant to Section 3.06 thereof, then the City shall apply the Net Insurance Proceeds (other than Net Insurance Proceeds of rental interruption insurance), together with other legally available funds that the City elects to contribute, to the repair, reconstruction or replacement of the damaged or destroyed portions of the Property; provided, however, that the City shall not be required to repair or replace any portion of the Property pursuant to this Section 5.03 if such Net Insurance Proceeds, together with any other amounts held under this Indenture and any other legally available funds made available by the City at its election, are sufficient to prepay (i) all of the Outstanding Bonds, or (ii) a portion of the Outstanding Bonds such that the resulting Base Rental Payments under Section 4.01(a) in any Rental Period following such partial prepayment are sufficient to pay in such Rental Period the principal of and interest on all Bonds to remain Outstanding immediately after such partial redemption. If the City is not required to replace or repair the Property, or the affected portion thereof, or to use such amounts to redeem Bonds, in each case as set forth in this Section 5.03, then such proceeds (and rental interruption insurance proceeds not applied pursuant to the next paragraph) shall, if there is first delivered to the Trustee a Written Certificate of the City to the effect that the annual fair rental value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, is at least equal to 100% of the maximum amount of Base Rental Payments becoming due under the Lease Agreement in the then current Rental Period or any subsequent Rental Period and the fair replacement value of the Property after such damage or destruction is at least equal to the principal amount of the Outstanding Bonds, be paid to the City to be used for any lawful purpose.
Proceeds of rental interruption insurance shall be deposited to the Base Rental Payment Fund and applied to the payment of Base Rental Payments to the extent of any abatement thereof pursuant to the Lease Agreement, and otherwise as directed by the City.
The proceeds of any award in eminent domain received in respect to the Property shall be deposited by the Trustee in the Redemption Fund and applied to the redemption of Bonds pursuant to
24 subsection (a) of Section 4.01 hereof and the corresponding provisions of any Supplemental Indenture pursuant to which Additional Bonds are issued.
Section 5.04 Title Insurance. Proceeds of any policy of title insurance received by the Trustee in respect of the Property shall be applied and disbursed by the Trustee as follows:
(a) if the City determines that the title defect giving rise to such proceeds has not substantially interfered with its use and occupancy of the Property and will not result in an abatement of Rental Payments payable by the City under the Lease Agreement, such proceeds shall be remitted to the City and used for any lawful purpose thereof; or (b) if the City determines that the title defect giving rise to such proceeds has substantially interfered with its use and occupancy of the Property and will result in an abatement of Rental Payments payable by the City under the Lease Agreement, then the Trustee shall immediately deposit such proceeds in the Redemption Fund and such proceeds shall be applied to the redemption of Bonds in the manner provided in subsection (a) of Section 4.01 hereof and the corresponding provisions of any Supplemental Indenture pursuant to which Additional Bonds are issued.
Section 5.05 Rebate Fund.
(a) Establishment. The Trustee shall establish a fund for the Bonds designated the “Rebate Fund” when required in accordance herewith. Absent an Opinion of Counsel that the exclusion from gross income for federal income tax purposes of interest on the Series 2025 Bonds will not be adversely affected, the Authority shall cause to be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to this Section and the Tax Certificate. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust for payment to the United States Treasury. All amounts on deposit in the Rebate Fund for the Series 2025 Bonds shall be governed by this Section and the Tax Certificate, unless and to the extent that the Authority delivers to the Trustee an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the Bonds will not be adversely affected if such requirements are not satisfied.
Notwithstanding anything to the contrary contained herein or in the Tax Certificate, the Trustee:
(1) shall be deemed conclusively to have complied with the provisions thereof if it follows all Written Requests of the Authority or Written Requests of the City; (2) shall have no liability or responsibility to enforce compliance by the Authority or the City with the terms of the Tax Certificate and shall not be deemed to have knowledge of the terms thereof; (3) may rely conclusively on the Authority’s or the City’s calculations and determinations and certifications relating to rebate matters; and (4) shall have no responsibility to independently make any calculations or determinations or to review the Authority’s or the City’s calculations or determinations thereunder. (i) Annual Computation. Within 55 days of the end of each fifth Bond Year (as such term is defined in the Tax Certificate), the Authority shall calculate or cause to be calculated the amount of rebatable arbitrage, in accordance with Section 148(f)(2) of the Code and Section 1.148-3 of the Treasury Regulations (taking into account any applicable exceptions with respect to the computation of the rebatable arbitrage, described, if applicable, in the Tax Certificate (e.g., the temporary investments exceptions of Section 148(f)(4)(B) and the construction expenditures exception of Section 148(f)(4)(C) of the Code), and taking into account whether the election pursuant to Section 148(f)(4)(C)(vii) of the Code (the “1½% Penalty”) has been made), for this purpose treating the last day of the applicable Bond Year as a computation date, within the meaning of Section 1.148-1(b) of the Treasury Regulations (the
25 “Rebatable Arbitrage”). The Authority shall obtain expert advice as to the amount of the Rebatable Arbitrage to comply with this Section.
(ii) Annual Transfer. Within 55 days of the end of each fifth Bond Year, upon the Written Request of the Authority or Written Request of the City, an amount shall be deposited to the Rebate Fund by the Trustee from any Rental Payments legally available for such purpose (as specified by the Authority or the City in the aforesaid Written Request), if and to the extent required, so that the balance in the Rebate Fund shall equal the amount of Rebatable Arbitrage so calculated in accordance with clause (i) of this subsection (a). In the event that immediately following the transfer required by the previous sentence, the amount then on deposit to the credit of the Rebate Fund exceeds the amount required to be on deposit therein, upon Written Request of the Authority or Written Request of the City, the Trustee shall withdraw the excess from the Rebate Fund and then credit the excess to the Base Rental Payment Fund.
(iii) Payment to the Treasury. The Trustee shall pay, as directed by Written Request of the Authority, to the United States Treasury, out of amounts in the Rebate Fund:
(A) Not later than 60 days after the end of: (X) the fifth Bond Year; and (Y) each applicable fifth Bond Year thereafter, an amount equal to at least 90% of the Rebatable Arbitrage calculated as of the end of such Bond Year; and (B) Not later than 60 days after the payment of all of the Bonds, an amount equal to 100% of the Rebatable Arbitrage calculated as of the end of such applicable Bond Year, and any income attributable to the Rebatable Arbitrage, computed in accordance with Section 148(f) of the Code and Section 1.148-3 of the Treasury Regulations.
In the event that, prior to the time of any payment required to be made from the Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the Authority shall calculate or cause to be calculated the amount of such deficiency and deposit an amount received from any legally available source equal to such deficiency prior to the time such payment is due. Each payment required to be made pursuant to this subsection (a) shall be made to the Internal Revenue Service Center, Ogden, Utah 84201 on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Form 8038-T (prepared by the Authority), or shall be made in such other manner as provided under the Code. (b) Disposition of Unexpended Funds. Any funds remaining in the Rebate Fund after redemption and payment of the Series 2025 Bonds and the payments described in subsection (a) above being made may be withdrawn by the Authority and utilized in any manner by the Authority. (c) Survival of Defeasance. Notwithstanding anything in this Section to the contrary, the obligation to comply with the requirements of this Section shall survive the defeasance or payment in full of the Series 2025 Bonds.
Section 5.06 Investment of Moneys. Except as otherwise provided herein, all moneys in any of the funds or accounts established pursuant to this Indenture and held by the Trustee shall be invested by the Trustee solely in Permitted Investments, as directed in writing by the Authority. The Trustee may conclusively rely upon the Authority’s written instructions as to both suitability and
26 legality of Permitted Investments. Moneys in all funds and accounts held by the Trustee shall be invested in Permitted Investments maturing not later than the date on which it is estimated that such moneys will be required for the purposes specified in this Indenture. Absent timely written direction from the Authority, the Trustee shall hold any funds held by it uninvested.
Subject to the provisions of Section 5.06 hereof, all interest, profits and other income received from the investment of moneys in any fund or account established pursuant to this Indenture shall be retained in such fund or account.
Permitted Investments acquired as an investment of moneys in any fund established under this Indenture shall be credited to such fund. For the purpose of determining the amount in any fund, all Permitted Investments credited to such fund shall be valued by the Trustee at the fair market value thereof, such valuation to be performed not less frequently than semiannually on or before each May 15 and November 15. In determining fair market value, the Trustee may use and rely conclusively on any generally recognized securities pricing service available to it (including brokers and dealers in securities).
The Trustee may act as principal or agent in the making or disposing of any investment. Upon the Written Request of the Authority, the Trustee shall sell or present for redemption any Permitted Investments so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investments is credited, and the Trustee shall not be liable or responsible for any loss resulting from any investment made or sold pursuant to this Section. The Trustee shall have no liability in respect of losses incurred as a result of the liquidation of any investment prior to its stated maturity or failure of the Authority to provide timely written investment direction. Ratings of permitted investments shall be determined at the time of purchase of such permitted investments and without regard to ratings subcategories. For purposes of investment, the Trustee may commingle moneys in any of the funds and accounts established hereunder.
The Trustee may make any investments hereunder through the bond or investment department or trust investment department of the entity acting as Trustee hereunder, or those of such entity’s parent or any affiliate, and such entity, or its parent or affiliate, as applicable, shall be entitled to its normal, customary and reasonable compensation for such services.
The entity acting as Trustee hereunder, or any of its affiliates, may act as sponsor, advisor or manager in connection with any investments made by the Trustee hereunder and such entity, or its affiliate, as applicable, shall be entitled to its normal, customary and reasonable compensation for such services, including account maintenance fees.
The Authority and the City acknowledge that, to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority and the City the right to receive brokerage confirmations of security transactions as they occur, at no additional cost, the Authority and the City specifically waive receipt of such confirmations to the extent permitted by law.
27 ARTICLE VI
COVENANTS
Section 6.01 Compliance with Agreements. The Trustee will not authenticate or deliver any Bonds in any manner other than in accordance with the provisions hereof, and the Authority and the City will not suffer or permit any default by them to occur hereunder, but will faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms hereof required to be complied with, kept, observed and performed by them.
Section 6.02 Compliance with Ground Lease and Lease Agreement. The Authority and the City will faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms contained in the Ground Lease and the Lease Agreement required to be complied with, kept, observed and performed by them and, together with the Trustee, will enforce the Ground Lease and the Lease Agreement against the other party thereto in accordance with their respective terms.
Section 6.03 Observance of Laws and Regulations. The Authority, the City and the Trustee will faithfully comply with, keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on them by contract, or prescribed by any law of the United States of America or of the State of California, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of each and every franchise, right or privilege now owned or hereafter acquired by them, including their right to exist and carry on their respective businesses, to the end that such franchises, rights and privileges shall be maintained and preserved and shall not become abandoned, forfeited or in any manner impaired.
Section 6.04 Other Liens. The City will keep the Property and all parts thereof free from judgments and materialmen’s and mechanics’ liens and free from all claims, demands, encumbrances and other liens of whatever nature or character, and free from any claim or liability which materially impairs the City in conducting its business or utilizing the Property, and the Trustee at its option (after first giving the City ten days’ written notice to comply therewith and failure of the City to so comply within such ten-day period) may, but is in no event obligated to, defend against any and all actions or proceedings, or may pay or compromise any claim or demand asserted in any such actions or proceedings; provided, however, that, in defending against any such actions or proceedings or in paying or compromising any such claims or demands, the Trustee shall not in any event be deemed to have waived or released the City from liability for or on account of any of its agreements and covenants contained herein, or from its liability hereunder and to perform such agreements and covenants.
So long as any Bonds are Outstanding, none of the Trustee, the Authority or the City shall create or suffer to be created any pledge of or lien the amounts on deposit in any of the funds or accounts created hereunder, other than the pledge and lien hereof.
The Authority, the City and the Trustee shall not encumber the Property other than in accordance with the Ground Lease, the Lease Agreement, the Indenture and the Assignment Agreement.
Section 6.05 Prosecution and Defense of Suits. The City will promptly, upon request of the Trustee (which request the Trustee is not required to make), take such action from time to time as may be necessary or proper to remedy or cure any cloud upon or defect in the title to the Property or
28 any part thereof, whether now existing or hereafter developing, will prosecute all actions, suits or other proceedings as may be appropriate for such purpose and will indemnify and save the Trustee harmless from all cost, damage, expense or loss, including attorneys’ fees and expenses, which it or the Owners may incur by reason of any such cloud, defect, action, suit or other proceeding.
Section 6.06 Accounting Records and Statements. The Trustee will keep proper accounting records in which complete and correct entries shall be made of all transactions relating to the receipt, deposit and disbursement of the Base Rental Payments, and such accounting records shall be available for inspection by the Authority and the City at reasonable hours and under reasonable conditions, including, without limitation, reasonable prior written notice of inspection.
Section 6.07 Recordation and Filing. The City will record, or cause to be recorded, with the appropriate county recorder, the Lease Agreement, the Ground Lease and the Assignment Agreement, or memoranda thereof.
Section 6.08 Tax Covenants. Notwithstanding any other provision of the Indenture, absent an Opinion of Counsel that the exclusion from gross income of the interest on the Series 2025 Bonds will not be adversely affected for federal income tax purposes, the City and the Authority covenant to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income with respect to the Series 2025 Bonds and specifically covenant, without limiting the generality of the foregoing, as follows:
(a) No Arbitrage. The City and the Authority will not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of the Series 2025 Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the Series 2025 Bonds would have caused the Series 2025 Bonds to be “arbitrage bonds” within the meaning of section 148 of the Code. (b) Rebate Requirement. The City and the Authority will take any and all actions necessary to assure compliance with section 148(f) of the Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable to the Series 2025 Bonds.
(c) Private Activity Bond Limitation. The City and the Authority will assure that the proceeds of the Series 2025 Bonds are not so used as to cause the Series 2025 Bonds to satisfy the private business tests of section 141(b) of the Code or the private loan financing test of section 141(c) of the Code.
(d) Federal Guarantee Prohibition. The City and the Authority will not take any action or permit or suffer any action to be taken if the result of such action would be to cause any of the Series 2025 Bonds to be “federally guaranteed” within the meaning of section 149(b) of the Code. (e) Maintenance of Tax-Exemption. The City and the Authority will take all actions necessary to assure the exclusion of interest on the Series 2025 Bonds from the gross income of the Owners of the Series 2025 Bonds to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the Series 2025 Bonds. (f) Record Retention. The City and the Authority will retain its records of all accounting and monitoring they carry out with respect to the Series 2025 Bonds for at least 3 years
29 after the Series 2025 Bonds mature or are redeemed (whichever is earlier); however, if the Series 2025 Bonds are redeemed and refunded, the City and the Authority will retain their records of accounting and monitoring at least 3 years after the earlier of the maturity or redemption of the obligations that refunded the Series 2025 Bonds.
(g) Compliance with Tax Certificate. The City and the Authority will comply with the provisions of the Tax Certificate with respect to the Series 2025 Bonds, which are incorporated herein as if fully set forth herein.
The covenants of this Section 5.07 will survive payment in full or defeasance of the Series 2025 Bonds. This Section and the covenants set forth herein shall not be applicable to, and nothing contained herein shall be deemed to prevent the City and the Authority from causing the Trustee to issue revenue bonds or to execute and deliver contracts payable on a parity with the Series 2025 Bonds, the interest with respect to which has been determined by an Opinion of Counsel to be subject to federal income taxation.
Section 6.09 Continuing Disclosure. The City will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of this Indenture, failure of the City to comply with the Continuing Disclosure Certificate shall not constitute an event of default hereunder; provided, however, that the Trustee may (and, at the written direction of any Participating Underwriter or the holders of at least 25% of the aggregate principal amount of Outstanding Bonds, and upon being indemnified to its reasonable satisfaction therefor, shall) or any holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order.
Section 6.10 Further Assurances. Whenever and so often as requested to do so by the Trustee, the Authority and the City will promptly execute and deliver or cause to be executed and delivered all such other and further assurances, documents or instruments and promptly do or cause to be done all such other and further things as may be necessary or reasonably required in order to further and more fully vest in the Trustee all advantages, benefits, interests, powers, privileges and rights conferred or intended to be conferred upon it hereby or by the Assignment Agreement, the Ground Lease or the Lease Agreement.
ARTICLE VII
DEFAULT AND LIMITATIONS OF LIABILITY
Section 7.01 Action on Default. If an event of default (as described in Article VII of the Lease Agreement) shall happen, then such event of default shall constitute an event of default hereunder. The Trustee, as assignee of the Authority, shall give notice to the City of an event of default under the Lease Agreement. In each and every case during the continuance of an event of default, the Trustee may, upon notice in writing to the City and the Authority, exercise any of the remedies granted to the Authority under the Lease Agreement and, in addition, take whatever action at law or in equity may appear necessary or desirable to enforce its rights as assignee pursuant to the Assignment Agreement or to protect and enforce any of the rights vested in the Trustee or the Owners by this Indenture or by the Bonds, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement or for the enforcement of any other legal or equitable right, including any one or more of the remedies set forth in Section 7.02 hereof.
30 Section 7.02 Other Remedies of the Trustee. Subject to the provisions of Section 7.01 hereof, the Trustee shall have the right:
(a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the Authority or the City or any member, director, officer or employee thereof, and to compel the Authority or the City or any such member, director, officer or employee to perform or carry out its or his or her duties under law and the agreements and covenants required to be performed by it or him or her contained herein;
(b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Trustee; or
(c) by suit in equity upon the happening of any event of default hereunder to require the Authority and the City to account as the trustee of an express trust.
Nothing herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Owner any plan of reorganization, arrangement, adjustment or composition affecting the Bonds or the rights of any Owner thereof, or to authorize the Trustee to vote in respect of the claim of any Owner in any such proceeding without the approval of the Owners so affected.
Section 7.03 Non-Waiver. A waiver of any default or breach of duty or contract by the Trustee shall not affect any subsequent default or breach of duty or contract or impair any rights or remedies on any such subsequent default or breach of duty or contract. No delay or omission by the Trustee to exercise any right or remedy accruing upon any default or breach of duty or contract shall impair any such right or remedy or shall be construed to be a waiver of any such default or breach of duty or contract or an acquiescence therein, and every right or remedy conferred upon the Trustee by law or by this Article may be enforced and exercised from time to time and as often the Trustee shall deem expedient.
If any action, proceeding or suit to enforce any right or to exercise any remedy is abandoned or determined adversely to the Trustee or any Owner, then subject to any adverse determination, the Trustee, such Owner, the Authority and the City shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken.
Section 7.04 Remedies Not Exclusive. Subject to the provisions of Section 7.01 hereof, no remedy herein conferred upon or reserved to the Trustee is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by any law. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.
Section 7.05 No Liability by the Authority to the Owners. Except as expressly provided herein, the Authority shall not have any obligation or liability to the Owners with respect to the payment when due of the Base Rental Payments by the City, or with respect to the performance by the City of the other agreements and covenants required to be performed by it contained in the Lease Agreement or herein, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained herein.
31 Section 7.06 No Liability by the City to the Owners. Except for the payment when due of the Base Rental Payments and the performance of the other agreements and covenants required to be performed by it contained in the Lease Agreement, the Ground Lease or herein, the City shall not have any obligation or liability to the Owners with respect to this Indenture or the preparation, execution, delivery or transfer of the Bonds or the disbursement of the Base Rental Payments by the Trustee to the Owners, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained herein.
Section 7.07 No Liability of the Trustee to the Owners. Except as expressly provided herein, the Trustee shall not have any obligation or liability to the Owners with respect to the payment when due of the Base Rental Payments by the City, or with respect to the performance by the Authority or the City of the other agreements and covenants required to be performed by them contained in the Lease Agreement, the Ground Lease or herein.
Section 7.08 Application of Amounts After Default. All payments received by the Trustee with respect to the rental of the Property after a default by the City pursuant to Article VII of the Lease Agreement (including, without limitation, any proceeds received in connection with the sale, assignment or sublease of the Authority’s right, title and interest in the Ground Lease), and all damages or other payments received by the Trustee for the enforcement of any rights and powers of the Trustee under Article VII of the Lease Agreement, shall be deposited into the Base Rental Payment Fund and as soon as practicable thereafter applied, together with all other funds held hereunder (except funds in the Rebate Fund):
(a) to the payment of all amounts due the Trustee under Article VIII hereof; (b) to the payment of all amounts then due for interest on the Bonds, in respect of which, or for the benefit of which, money has been collected (other than Bonds which have become payable prior to such event of default and money for the payment of which is held by the Trustee), ratably without preference or priority of any kind, according to the amounts of interest on such Bonds due and payable; and
(c) to the payment of all amounts then due for principal of the Bonds, in respect of which, or for the benefit of which, money has been collected (other than Bonds which have become payable prior to such event of default and money for the payment of which is held by the Trustee), ratably without preference or priority of any kind, according to the amounts of principal of such Bonds due and payable.
Section 7.09 Trustee May Enforce Claims Without Possession of Bonds. All rights of action and claims under this Indenture or the Bonds may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Owners in respect of which such judgment has been recovered.
Section 7.10 Limitation on Suits. No Owner of any Bond shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or Trustee, or for any other remedy hereunder, unless (a) such Owner shall have previously given written notice to the Trustee of a continuing event of default, (b) the Owners of not less than
32 25% of the aggregate principal amount of Bonds then Outstanding shall have made written request to the Trustee to institute proceedings in respect of such event of default in its own name as Trustee hereunder, (c) such Owner or Owners shall have afforded to the Trustee indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity shall have failed to institute any such proceedings, and (e) no direction inconsistent with such written request shall have been given to the Trustee during such 60 day period by the Owners of a majority of the aggregate principal amount of Bonds then Outstanding; it being understood and intended that no one or more Owners shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Owner, or to obtain or seek to obtain priority or preference over any other Owner or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Owners.
ARTICLE VIII
THE TRUSTEE
Section 8.01 Employment of the Trustee. The Authority hereby appoints and employs the Trustee to receive, deposit and disburse the Base Rental Payments, to authenticate, deliver and transfer the Bonds and to perform the other functions contained herein, all in the manner provided herein and subject to the conditions and terms hereof. By executing and delivering this Indenture, the Trustee accepts the appointment and employment hereinabove referred to and accepts the rights and obligations of the Trustee provided herein, subject to the conditions and terms hereof. Other than when an event of default has occurred and is continuing, the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee. In case an event of default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. The Trustee hereby covenants and agrees that it will not encumber the Property other than in accordance with this Indenture or the Assignment Agreement.
Section 8.02 Duties, Removal and Resignation of the Trustee. The Authority shall remove the Trustee initially a party hereto and any successor thereto if at any time (a) requested to do so by an instrument or concurrent instruments in writing signed by the Owners of a majority of the aggregate principal amount of Bonds at the time Outstanding (or their attorneys duly authorized in writing), or (b) the Trustee shall cease to be eligible in accordance with the following sentence, and shall appoint a successor Trustee. The Trustee and any successor Trustee shall be: (i) a national banking association in good standing authorized to exercise trust powers or having the powers of a trust company and duly authorized to exercise trust powers within the State having a combined capital and surplus of at least $250,000,000, and subject to supervision or examination by federal or state authority, or (ii) a state-chartered commercial bank that is a member of the Federal Reserve System having at least $1,000,000,000 of assets. No removal, resignation or termination of the Trustee shall take effect until a successor, meeting the requirements above, shall be qualified and appointed. If such entity publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of this Section the combined capital and surplus of such entity shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.
33 The Authority shall provide 30 days written notice to the Trustee of the removal of the Trustee and the removal of the Trustee by the Authority shall be subject to such party not being in default under the transaction documents.
The Trustee may at any time resign by giving written notice of such resignation to the Authority and the City and by giving notice, by first class mail, postage prepaid, of such resignation to the Owners at their addresses appearing on the Registration Books. Upon receiving such notice of resignation, the Authority shall promptly appoint a successor Trustee by an instrument in writing; provided, however, that in the event the Authority does not appoint a successor Trustee within 30 days following receipt of such notice of resignation, the resigning Trustee may, at the expense of the Authority, petition the appropriate court having jurisdiction to appoint a successor Trustee. Any resignation or removal of a Trustee and appointment of a successor Trustee shall become effective only upon acceptance of appointment by the successor Trustee.
Any corporation, association or agency into which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party, provided that such entity meets the combined capital and surplus requirements of this Section, ipso facto, shall be and become successor trustee under this Indenture and vested with all the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding.
Section 8.03 Compensation of the Trustee. The City shall from time to time, subject to any written agreement then in effect with the Trustee, pay the Trustee reasonable compensation for all its services rendered hereunder and reimburse the Trustee for all its reasonable advances and expenditures (which shall not include “overhead expenses” except as such expenses are included as a component of the Trustee’s stated annual fees) hereunder, including but not limited to advances to and reasonable fees and reasonable expenses of accountants, agents, appraisers, consultants or other experts, and counsel not directly employed by the Trustee but an attorney or firm of attorneys retained by the Trustee, employed by it in the exercise and performance of its rights and obligations hereunder.
The Trustee may take whatever legal actions are lawfully available to it directly against the Authority or the City.
The City shall, to the extent permitted by law, indemnify and save the Trustee harmless against any loss, damage, liabilities, costs, claims or expenses, including those of its attorneys, which it may incur in the exercise and performance of its powers and duties hereunder, under the Lease Agreement, or in connection with any document or transaction contemplated hereunder or thereunder, including the enforcement of any remedies and the defense of any suit, and which are not due to its negligence or its willful misconduct as finally adjudicated by a court of competent jurisdiction. The duty of the City to indemnify the Trustee shall survive the termination and discharge of this Indenture and the earlier removal or resignation of the Trustee.
If the Trustee renders any service hereunder not provided for in this Indenture or related financing documents, or the Trustee is made a party to or intervenes in any litigation pertaining to this Indenture or related financing documents or institutes interpleader proceedings relative hereto, the Trustee shall be compensated reasonably by the Authority for such extraordinary services and
34 reimbursed for any and all claims, liabilities, losses, damages, fines, penalties, and expenses, including out-of-pocket and incidental expenses and legal fees and expenses occasioned thereby.
No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers hereunder. The Trustee may refuse to perform any duty or exercise any right or power which would require it to expend its own funds or risk any liability if it shall reasonably believe that repayment of such funds or adequate indemnity against such risk is not reasonably assured to it.
Upon an Event of Default, and only upon an Event of Default, the Trustee shall have a first lien with right of payment prior to payment on account of principal of and premium, if any, and interest on any Bond, upon the trust estate for the foregoing fees, charges and expenses incurred by it. When the Trustee incurs expenses or renders services after the occurrence of an Event of Default, such expenses and the compensation for such services are intended to constitute expenses of administration under any federal or state bankruptcy, insolvency, arrangement, moratorium, reorganization or other debtor relief law.
Section 8.04 Protection of the Trustee. The Trustee shall be protected and shall incur no liability in acting or proceeding in good faith upon any affidavit, bond, certificate, consent, notice, request, requisition, resolution, statement, telegram, voucher, waiver or other paper or document which it shall in good faith believe to be genuine and to have been adopted, executed or delivered by the proper party or pursuant to any of the provisions hereof, and the Trustee shall be under no duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument, but may accept and rely upon the same as conclusive evidence of the truth and accuracy of such statements. The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Owners of the Bonds pursuant to this Indenture, unless such Owners shall have offered to the Trustee security or indemnity, reasonably satisfactory to the Trustee, against the reasonable costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. The Trustee may consult with counsel, who may be counsel to the Authority or the City, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect to any action taken or suffered by it hereunder in good faith in accordance therewith.
The Trustee shall not be responsible for the sufficiency of the Bonds or the Lease Agreement, or of the assignment made to it by the Assignment Agreement, or for statements made in any preliminary or final official statement or any other disclosure material prepared or distributed relating to the Bonds, or of the title to the Property. The Trustee shall have no responsibility for compliance with any state or federal securities laws in connection with the Bonds.
Whenever in the administration of its rights and obligations hereunder the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Written Certificate of the City or a Written Certificate of the Authority, and such certificate shall be full warrant to the Trustee for any action taken or suffered under the provisions hereof upon the faith thereof, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it deems reasonable.
35 The Trustee may buy, sell, own, hold and deal in any of the Bonds and may join in any action which any Owner may be entitled to take with like effect as if the Trustee were not a party hereto. The Trustee, either as principal or agent, may also engage in or be interested in any financial or other transaction with the Authority or the City, and may act as agent, depository or trustee for any committee or body of Owners or of owners of obligations of the Authority or the City as freely as if it were not the Trustee hereunder.
The Trustee may, to the extent reasonably necessary, execute any of the trusts or powers hereof and perform any rights and obligations required of it hereunder either directly or by or through agents, attorneys, custodians, nominees or receivers appointed with due care, and shall be entitled to advice of counsel concerning all matters of trust and its rights and obligations hereunder, and the Trustee shall not be answerable for the negligence or misconduct of any such agent, attorney, custodian, nominee or receiver selected by it with reasonable care. The Trustee shall not be liable for any error of judgment made by it in good faith unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts.
The Trustee shall not be answerable for the exercise of any trusts or powers hereunder or for anything whatsoever in connection with the funds established hereunder, except only for its own willful misconduct, negligence or breach of an obligation hereunder.
The Trustee shall not be deemed to have knowledge of an event of default unless it has actual knowledge thereof.
The Trustee may, on behalf of the Owners, intervene in any judicial proceeding to which the Authority or the City is a party and which, in the opinion of the Trustee and its counsel, affects the Bonds or the security therefor, and shall do so if requested in writing by the Owners of at least 5% of the aggregate principal amount of Bonds then Outstanding, provided the Trustee shall have no duty to take such action unless it has been indemnified to its reasonable satisfaction against all risk or liability arising from such action.
The Trustee’s rights to immunities and protection from liability hereunder and its rights to payment of its fees and expenses shall survive its resignation or removal and final payment or defeasance of the Bonds.
All indemnifications and releases from liability granted herein to the Trustee shall extend to the directors, officers, employees and agents of the Trustee.
The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty, and the Trustee shall not be answerable for other than its negligence or willful default. The Trustee shall have no responsibility or liability with respect to any information, statements or recitals in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of these Bonds. The Trustee shall not be accountable for the use or application by the Borrower of any of the Bonds or the proceeds thereof or for the use or application of any money paid over by the Trustee in accordance with the provisions of this Indenture or for the use and application of money received by any paying agent.
In no event shall the Trustee be responsible or liable for special, indirect, consequential, punitive or incidental loss or damage of any kind whatsoever (including, but not limited to, loss of
36 profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.
In no event shall the Trustee be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, pandemics, epidemics, recognized public emergencies, quarantine restrictions, nuclear or natural catastrophes or acts of God, interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services, and hacking, cyber-attacks, or other use or infiltration of the Trustee’s technological infrastructure exceeding authorized access; it being understood that the Trustee shall use reasonable efforts that are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.
The Trustee shall have the right to accept and act upon instructions, including funds transfer instructions (“Instructions”) given pursuant to this Indenture and related financing documents and delivered using Electronic Means; provided, however, that the Authority or the City, as applicable, shall provide to the Trustee an incumbency certificate listing officers with the authority to provide such Instructions (“Authorized Officers”) and containing specimen signatures of such Authorized Officers, which incumbency certificate shall be amended by the Authority or the City, as applicable, whenever a person is to be added or deleted from the listing. If the Authority or the City, as applicable, elects to give the Trustee Instructions using Electronic Means and the Trustee in its discretion elects to act upon such Instructions, the Trustee’s understanding of such Instructions shall be deemed controlling. The Authority and the City understand and agree that the Trustee cannot determine the identity of the actual sender of such Instructions and that the Trustee shall conclusively presume that directions that purport to have been sent by an Authorized Officer listed on the incumbency certificate provided to the Trustee have been sent by such Authorized Officer. The Authority and the City shall be responsible for ensuring that only Authorized Officers transmit such Instructions to the Trustee and that the Authority, the City and all Authorized Officers are solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and/or authentication keys upon receipt by the Authority and/or the City, as applicable. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such Instructions notwithstanding such directions conflict or are inconsistent with a subsequent written instruction. The Authority and the City agree: (i) to assume all risks arising out of the use of Electronic Means to submit Instructions to the Trustee, including, without limitation, the risk of the Trustee acting on unauthorized Instructions, and the risk of interception and misuse by third parties; (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting Instructions to the Trustee and that there may be more secure methods of transmitting Instructions than the method(s) selected by the Authority and/or the City, as applicable; (iii) that the security procedures (if any) to be followed in connection with its transmission of Instructions provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances; and (iv) to notify the Trustee immediately upon learning of any compromise or unauthorized use of the security procedures.
In acting or omitting to act pursuant to the Lease Agreement or Ground Lease, the Trustee shall be entitled to all of the rights, immunities and indemnities accorded to it under this Indenture and the Lease Agreement, including, but not limited to, this Article VIII.
37 ARTICLE IX
MODIFICATION OR AMENDMENTS
Section 9.01 Modifications and Amendments Permitted.
(a) This Indenture and the rights and obligations of the Authority, the City, the Owners of the Bonds and the Trustee may be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority, the City and the Trustee may enter into with the prior written consent of the Owners of a majority in aggregate principal amount of all Bonds then Outstanding, which shall have been filed with the Trustee. No such modification or amendment shall (i) extend the fixed maturity of any Bonds, or reduce the amount of principal thereof or the rate of interest thereon, or extend the time of payment, without the consent of the Owner of each Bond so affected, or (ii) reduce the aforesaid percentage of Bonds the consent of the Owners of which is required to effect any such modification or amendment, or (iii) permit the creation of any lien on the Base Rental Payments and other assets pledged under this Indenture prior to or on a parity with the lien created by this Indenture or deprive the Owners of the Bonds of the lien created by this Indenture on such Base Rental Payments and other assets (except as expressly provided in this Indenture), without the consent of Owners of all of the Bonds then Outstanding. It shall not be necessary for the consent of the Bond Owners to approve the particular form of any Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof. (b) This Indenture and the rights and obligations of the Authority, the City, the Trustee and the Owners of the Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority, the City and the Trustee may enter into without the consent of any Bond Owners for any one or more of the following purposes:
(1) to add to the covenants and agreements of the Authority or the City in this Indenture contained other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the Authority or the City; (2) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in this Indenture;
(3) to provide for the issuance of one or more Series of Additional Bonds, and to provide the terms and conditions under which such Series of Additional Bonds may be issued, subject to and in accordance with the provisions of Sections 3.06 and 3.07 hereof; (4) to modify, amend or supplement this Indenture in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute; (5) to modify, amend or supplement this Indenture in such manner as to cause interest on the Bonds to be excludable from gross income for purposes of federal income taxation by the United States of America; and
38 (6) in any other respect whatsoever as the Authority and the City may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Bond Owners hereunder. (c) Promptly after the execution by the Authority, the City and the Trustee of any Supplemental Indenture, the Trustee shall mail a notice (the form of which shall be furnished to the Trustee by the Authority), by first class mail postage prepaid, setting forth in general terms the substance of such Supplemental Indenture, to the Owners of the Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture. (d) No Supplemental Indenture shall modify any of the rights or obligations of the Trustee without the Trustee’s prior written consent.
The Authority or the City shall send copies of any Supplemental Indenture to any rating agency which maintains a rating with respect any Series of Bonds.
Section 9.02 Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to this Article, this Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the Authority, the City, the Trustee and all Owners of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes.
In executing, or accepting the additional trusts created by any supplemental indenture permitted by this Article or the modification thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an opinion of counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture and complies with the terms hereof.
Section 9.03 Endorsement of Bonds; Preparation of New Bonds. Bonds delivered after the execution of any Supplemental Indenture pursuant to this Article may, and if the Authority so determines shall, bear a notation by endorsement or otherwise in form approved by the Authority and the Trustee as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand of the Owner of any Bonds Outstanding at the time of such execution and presentation of their Bonds for the purpose at the Office of the Trustee a suitable notation shall be made on such Bonds. If the Supplemental Indenture shall so provide, new Bonds so modified as to conform, in the opinion of the Authority and the Trustee, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the Authority and authenticated by the Trustee, and upon demand of the Owners of any Bonds then Outstanding shall be exchanged at the Office of the Trustee, without cost to any Bond Owner, for Bonds then Outstanding, upon surrender for cancellation of such Bonds, in equal aggregate principal amount of the same interest rate and maturity.
Section 9.04 Amendment of Particular Bonds. The provisions of this Article shall not prevent any Bond Owner from accepting any amendment as to the particular Bonds held by such Owner.
39 ARTICLE X
DEFEASANCE
Section 10.01 Discharge of Indenture. If the Authority shall pay or cause to be paid or there shall otherwise be paid to the Owners of all Outstanding Bonds the principal thereof and the interest and premium, if any, thereon at the times and in the manner stipulated herein and therein, then the Owners of such Bonds shall cease to be entitled to the pledge of the Base Rental Payments and the other assets as provided herein, and all agreements, covenants and other obligations of the Authority and the City to the Owners of such Bonds hereunder shall thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Trustee shall execute and deliver to the Authority and the City 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 City all money or securities held by it pursuant hereto which are not required for the payment of the principal of and interest and premium, if any, on such Bonds.
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 and the City shall have kept, performed and observed all of the covenants and promises in such Bonds and in this Indenture required or contemplated to be kept, performed and observed by them on or prior to that time, then this 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 this Indenture and such lien and all covenants, agreements and other obligations of the Authority and the City hereunder shall cease, terminate become void and be completely discharged as to such Bonds.
Notwithstanding the satisfaction and discharge of this Indenture or the discharge of this Indenture in respect of any Bonds, those provisions of this Indenture relating to the maturity of the Bonds, interest payments and dates thereof, exchange and transfer of Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, non-presentment of Bonds, and the duties of the Trustee in connection with all of the foregoing, shall 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 and interest and premium, if any, 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 this Indenture or the discharge of this Indenture in respect of any Bonds, those provisions of this Indenture relating to the compensation and indemnity of the Trustee shall remain in effect and shall be binding upon the Trustee, the City and the Authority.
Section 10.02 Bonds Deemed To Have Been Paid. If moneys shall have been set aside and held by the Trustee (or an escrow agent or other fiduciary) for the payment or redemption of any Bonds and the interest thereon at the maturity or redemption date thereof, such Bonds shall be deemed to have been paid within the meaning and with the effect provided in Section 10.01 hereof. Any Outstanding Bonds shall, prior to the maturity date or redemption date thereof, be deemed to have been paid within the meaning of and with the effect expressed in Section 10.01 hereof if (a) 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 of Section 4.02 hereof, notice of redemption of such Bonds on said redemption date, said notice to be given in accordance with Section 4.02 hereof, (b) there shall have been deposited with the Trustee (or an escrow agent or other fiduciary) either (i) money in an amount which shall be sufficient, or
40 (ii) Federal Securities that are not subject to redemption other than at the option of the holder thereof, the interest on and principal of which when paid will provide money which, together with the money, if any deposited or on deposit with the Trustee at the same time, shall, as verified by an independent certified public accountant, be sufficient to pay when due the interest to become due on such Bonds on and prior to the maturity date or redemption date thereof, as the case may be, and the principal of and premium, if any, on such Bonds, and (c) in the event such Bonds are not by their terms subject to redemption within the next succeeding 60 days, the Authority shall have given the Trustee in form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the owners of such Bonds that the deposit required by clause (b) above has been made with the Trustee (or an escrow agent or other fiduciary) and that such Bonds, are deemed to have been paid in accordance with this Section and stating the maturity date or redemption date upon which money is to be available for the payment of the principal of and premium, if any, on such Bonds.
Section 10.03 Payment of Bonds After Discharge of Indenture. Notwithstanding any provisions of this Indenture, to the extent permitted by law, any moneys held by the Trustee in trust for the payment of the principal of, or premium or interest on, any Bonds and remaining unclaimed for two years after the date of deposit of such moneys, shall be repaid to the Authority (without liability for interest) free from the trusts created by this Indenture, and all liability of the Trustee with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the Authority as aforesaid, the Trustee may (at the cost of the Authority) first mail, by first class mail postage prepaid, to the Owners of Bonds which have not yet been paid, at the respective addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the Authority of the moneys held for the payment thereof. Any money held by the Trustee pursuant to this paragraph shall be held uninvested and without any liability for interest.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Benefits of Indenture Limited to Parties. Nothing contained herein, expressed or implied, is intended to give to any person other than the Authority, the City, the Trustee and the Owners any claim, remedy or right under or pursuant hereto, and any agreement, condition, covenant or term required herein to be observed or performed by or on behalf of the Authority or the City shall be for the sole and exclusive benefit of the Trustee and the Owners.
Section 11.02 Successor Deemed Included in all References to Predecessor. Whenever the Authority, the City or the Trustee, or any officer thereof, is named or referred to herein, such reference shall be deemed to include the successor to the powers, duties and functions that are presently vested in the Authority, the City or the Trustee, or such officer, and all agreements, conditions, covenants and terms required hereby to be observed or performed by or on behalf of the Authority, the City or the Trustee, or any officer thereof, shall bind and inure to the benefit of the respective successors thereof whether so expressed or not.
Section 11.03 Execution of Documents by Owners. Any declaration, request or other instrument which is permitted or required herein to be executed by Owners may be in one or more instruments of similar tenor and may be executed by Owners in person or by their attorneys appointed in writing. The fact and date of the execution by any Owner or his attorney of any declaration, request or other instrument or of any writing appointing such attorney may be proved by the certificate of any
41 notary public or other officer authorized to take acknowledgments of deeds to be recorded in the state or territory in which he purports to act that the person signing such declaration, request or other instrument or writing acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer, or by such other proof as the Trustee may accept which it may deem sufficient.
The ownership of any Bonds and the amount, payment date, number and date of owning the same may be proved by the Registration Books.
Any declaration, request or other instrument in writing of the Owner of any Bond shall bind all future Owners of such Bond with respect to anything done or suffered to be done by the Authority, the City or the Trustee in good faith and in accordance therewith.
Section 11.04 Waiver of Personal Liability. Notwithstanding anything contained herein to the contrary, no member, officer or employee of the Authority or the City shall be individually or personally liable for the payment of any moneys, including without limitation, the principal of or interest on the Bonds, but nothing contained herein shall relieve any member, officer or employee of the City or the Authority from the performance of any official duty provided by any applicable provisions of law, by the Lease Agreement or hereby.
Section 11.05 Destruction of Bonds. Whenever in this Indenture provision is made for the cancellation by the Trustee and the delivery to the Authority of any Bonds, the Trustee may, in lieu of such cancellation and delivery, destroy such Bonds.
Section 11.06 Funds and Accounts. Any fund or account required to be established and maintained herein by the Trustee may be established and maintained in the accounting records of the Trustee either as an account or a fund, and may, for the purposes of such accounting records, any audits thereof and any reports or statements with respect thereto, be treated either as an account or a fund, but all such records with respect to all such funds and accounts shall at an times be maintained in accordance with sound accounting practice and with due regard for the protection of the security of the Bonds and the rights of the Owners.
The Trustee may commingle any of the moneys held by it hereunder for investment purposes only; provided, however, that the Trustee shall account separately for the moneys in each fund or account established pursuant to this Indenture. The Trustee may establish such funds and accounts as it deems necessary or appropriate to perform its obligations hereunder.
Section 11.07 Article and Section Headings Gender and References. The singular form of any word used herein, including the terms defined in Section 1.01 hereof, shall include the plural, and vice versa, unless the context otherwise requires. The use herein of a pronoun of any gender shall include correlative words of the other genders. The headings or titles of the several Articles and Sections hereof and the table of contents appended hereto shall be solely for convenience of reference and shall not affect the meaning, construction or effect hereof. All references herein to “Articles,” “Sections,” subsections or clauses are to the corresponding Articles, Sections, subsections or clauses hereof, and the words “hereby,” “herein,” “hereof,” “hereto,” “herewith,” “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section, subsection or clause thereof.
42 Section 11.08 Partial Invalidity. If any one or more of the agreements, conditions, covenants or terms required herein to be observed or performed by or on the part of the Authority, the City or the Trustee shall be contrary to law, then such agreement or agreements, such condition or conditions, such covenant or covenants or such term or terms shall be null and void to the extent contrary to law and shall be deemed separable from the remaining agreements, conditions, covenants and terms hereof and shall in no way affect the validity hereof or of the Bonds, and the Owners shall retain all the benefit, protection and security afforded to them under any applicable provisions of law.
The Authority, the City and the Trustee hereby declare that they would have executed this Indenture, and each and every Article, Section, paragraph, subsection, sentence, clause and phrase hereof and would have authorized the execution and delivery of the Bonds pursuant hereto irrespective of the fact that any one or more Articles, Sections, paragraphs, subsections, sentences, clauses or phrases hereof or the application thereof to any person or circumstance may be held to be unconstitutional, unenforceable or invalid.
Section 11.09 Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under this Indenture, Bonds which are actually known by the Trustee to be owned or held by or for the account of the Authority or the City, or by any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination; except that, in determining whether the Trustee shall be protected in relying upon any such demand, request, direction, consent or waiver of an Owner, only Bonds which the Trustee actually knows to be owned or held by or for the account of the Authority or the City, or by any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City, shall be disregarded unless all Bonds are so owned or held, in which case such Bonds shall be considered Outstanding for the purpose of such determination. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Trustee the pledgee’s right to vote such Bonds and that the pledgee is not a Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request of the Trustee, the Authority and the City shall specify in a Written Certificate of the City and Authority those Bonds disqualified pursuant to this Section and the Trustee may conclusively rely on such Certificate.
Section 11.10 Money Held for Particular Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular Bonds (or portions of Bonds in the case of Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners of the Bonds entitled thereto, subject, however, to the provisions of Section 10.03 hereof but without any liability for interest thereon.
Section 11.11 Payment on Non-Business Days. In the event any payment is required to be made hereunder on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day with the same effect as if made on such non-Business Day.
Section 11.12 California Law. This Indenture shall be construed and governed in accordance with the laws of the State of California.
43 Section 11.13 Notices. All written notices to be given hereunder shall be given by mail to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely:
If to the City: City of Watsonville
250 Main Street
Watsonville, California 95076
Attention: Tamara Vides, City Manager
If to the Authority: Watsonville Public Finance Authority c/o City of Watsonville
250 Main Street
Watsonville, California 95076
Attention: Tamara Vides, Executive Director
If to the Trustee: U.S. Bank Trust Company, National Association [_________]
Attention: [_________]
Ref: [_________]
Each such notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication hereunder shall be deemed delivered to the party to whom it is addressed (a) if personally served or delivered, upon delivery, (b) if given by electronic communication, upon the sender’s receipt of an appropriate answer back or other written acknowledgment, (c) if given by registered or certified mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours after such notice is deposited with the United States mail, (d) if given by overnight courier, with courier charges prepaid, 24 hours after delivery to said overnight courier, or (e) if given by any other means, upon delivery at the address specified in this Section.
Section 11.14 Notice to Rating Agencies. The Trustee shall provide S&P, if the Bonds are then rated by S&P, and Moody’s, if the Bonds are then rated by Moody’s, with prompt notice of any substitution or release of property pursuant to Section 10.03 of the Lease Agreement.
Section 11.15 Execution in Counterparts. This Indenture may be executed in several counterparts, each of which shall be deemed an original, and all of which shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, the Authority and the City have caused this Indenture to be signed in their respective names by their representative thereunto duly authorized, and the Trustee, in token of its acceptance of the trusts created hereunder, has caused this Indenture to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written.
WATSONVILLE PUBLIC FINANCE
AUTHORITY
By:
TAMARA VIDES
EXECUTIVE DIRECTOR
ATTEST:
By:
IRWIN I. ORTIZ
SECRETARY OF THE BOARD
CITY OF WATSONVILLE
By:
TAMARA VIDES
CITY MANAGER
ATTEST:
By:
IRWIN I. ORTIZ
CITY CLERK
APPROVED AS TO FORM:
City Attorney
[SIGNATURES CONTINUED ON NEXT PAGE.]
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[SIGNATURE PAGE CONTINUED.]
U.S. BANK TRUST COMPANY, NATIONAL
ASSOCIATION, as Trustee
By:
Authorized Officer
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EXHIBIT A
FORM OF SERIES 2025 BOND
No. ____ $___________
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO THE TRUSTEE FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY BOND ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE
OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
WATSONVILLE PUBLIC FINANCE AUTHORITY
LEASE REVENUE BOND,
SERIES 2025
INTEREST RATE MATURITY DATE DATED DATE CUSIP
______% May 1, 20__ June [___], 2025
REGISTERED OWNER: CEDE & CO.
PRINCIPAL AMOUNT: _________________________ THOUSAND DOLLARS The Watsonville Public Finance Authority (the “Authority”), for value received, hereby promises to pay, solely from the Base Rental Payments (as hereinafter defined) or amounts in certain funds and accounts held under the Indenture (as hereinafter defined), to the Registered Owner identified above or registered assigns (the “Registered Owner”); on the Maturity Date identified above or on any earlier redemption date, the Principal Amount identified above in lawful money of the United States of America; and to pay interest thereon at the Interest Rate identified above in like lawful money from the date hereof payable semiannually on May 1 and November 1 in each year, commencing November 1, 2025 (the “Interest Payment Dates”), until payment of such Principal Amount in full.
This Bond shall bear interest from the Interest Payment Date next preceding the date of authentication of this Bond (unless this Bond is authenticated on or before an Interest Payment Date and after the close of business on the fifteenth calendar day of the month next preceding such Interest Payment Date, whether or not such day is a Business Day, in which event it shall bear interest from such Interest Payment Date, or unless this Bond is authenticated on or prior to October 15, 2025, in which event it shall bear interest from the Dated Date identified above; provided, however, that if, at the time of authentication of this Bond, interest is in default on this Bond, interest on this Bond shall be payable from the date to which interest hereon has been paid in full, payable on each Interest Payment Date).
The Principal Amount hereof is payable upon surrender hereof upon maturity or earlier redemption at the Office of the Trustee (as hereinafter defined). Interest hereon is payable by wire or check of U.S.
Bank Trust Company, National Association, as Trustee (the “Trustee”), mailed by first class mail, postage prepaid, on each Interest Payment Date to the Registered Owner hereof at the address of the
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Registered Owner shown on the Registration Books at the close of business on the fifteenth calendar day of the month next preceding such Interest Payment Date. “Office of the Trustee” means the principal corporate trust office of the Trustee in San Francisco, California, or such other office as may be specified to the Authority and the City of Watsonville (the “City”) by the Trustee in writing, except that with respect to presentation of Bonds for payment or for registration of transfer and exchange such term shall mean the office or the agency of the Trustee at which, at any particular time, its corporate trust agency shall be conducted as specified to the Authority and the City by the Trustee in writing.
This Bond is one of a series of a duly authorized issue of bonds issued for the purpose of financing the Project (as defined in the Indenture), and is one of the series of bonds designated “Watsonville Public Finance Authority Lease Revenue Bonds, Series 2025” (the “Series 2025 Bonds”) in the aggregate principal amount of $[PAR]. The Series 2025 Bonds are issued pursuant to the Indenture, dated as of June 1, 2025 (the “Indenture”), by and among the Authority, the City and the Trustee, and this reference incorporates the Indenture herein, and by acceptance hereof the owner of this Bond assents to said terms and conditions. Pursuant to and as more particularly provided in the Indenture, additional bonds (“Additional Bonds”), may be issued by the Authority secured by a lien on a parity with the lien on Base Rental Payments and amounts in certain funds and accounts held under the Indenture securing the Series 2025 Bonds. The Series 2025 Bonds and any Additional Bonds are collectively referred to as the “Bonds.” The Indenture is entered into, and this Bond is issued under, the Marks-Roos Local Bond Pooling Act of 1985 (the “Act”) and the laws of the State of California.
Pursuant to the Indenture, the principal of and interest on the Bonds are payable solely from certain base rental payments (the “Base Rental Payments”) under and pursuant to that certain Lease Agreement, dated as of June 1, 2025 (the “Lease Agreement”), by and between the City, as lessee, and the Authority, as lessor, all of which rights to receive such Base Rental Payments have been assigned without recourse by the Authority to the Trustee. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, all of the Base Rental Payments and any other amounts (including proceeds of the sale of the Bonds) held in the Base Rental Payment Fund, the Interest Fund, the Principal Fund and the Redemption Fund established under the Indenture are pledged to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of the Indenture and the Act.
Said pledge constitutes a first lien on such assets.
The Series 2025 Bonds are authorized to be issued in the form of fully registered bonds without coupons in denominations of $5,000 or any integral multiple thereof (“Authorized Denominations”).
The Series 2025 Bonds shall be subject to extraordinary redemption, in whole or in part, on any date, in Authorized Denominations, from and to the extent of any Net Insurance Proceeds received with respect to all or a portion of the Property, deposited by the Trustee in the Redemption Fund pursuant to the Indenture, at a Redemption Price equal to the principal amount of the Series 2025 Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium.
The Series 2025 Bonds are not subject to optional redemption prior to maturity. [The Series 2025 Bonds maturing on May 1, 20__ are subject to mandatory sinking fund redemption in part (by lot) on each May 1 on and after May 1, 20__, in integral multiples of $5,000 at a Redemption Price of the principal amount thereof plus accrued interest to the date fixed for redemption, without premium, in accordance with the following schedule:
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Sinking Fund Redemption Date
(May 1)
Principal Amount
To Be Redeemed
In the event of a partial redemption pursuant to the Indenture, the City shall provide the Trustee with a revised mandatory sinking fund schedule giving effect to the redemption so completed.] The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Series 2025 Bonds designated for redemption at their respective addresses appearing on the Registration Books, to the Securities Depositories and to one or more Information Services, at least 20 but not more than 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, the Series 2025 Bond numbers and the maturity or maturities (except in the event of redemption of all of the Series 2025 Bonds of such maturity or maturities in whole) of the Series 2025 Bonds to be redeemed, and shall require that such Series 2025 Bonds be then surrendered at the Office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Series 2025 Bonds will not accrue from and after the date fixed for redemption. Such notice may state that such redemption is conditioned upon sufficient funds being on deposit on the redemption date to redeem the Series 2025 Bonds so called for redemption. Such notice of redemption may also state that no representation is made as to the accuracy or correctness of the CUSIP numbers printed therein or on the Series 2025 Bonds. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the validity of the proceedings for the redemption of the Series 2025 Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption.
Subject to the limitations and upon payment of the charges, if any, provided in the Indenture, fully registered Series 2025 Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount and maturity of fully registered Series 2025 Bonds of other authorized denominations.
This Bond is transferable by the Registered Owner hereof, in person or by his duly authorized attorney, but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture, and upon surrender and cancellation of this Bond. Upon such transfer a new fully registered Series 2025 Bond or Series 2025 Bonds, in Authorized Denominations, for the same aggregate principal amount will be issued to the transferee in exchange herefor. The Authority, the City and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the Authority, the City and the Trustee shall not be affected by any notice to the contrary.
The Indenture and the rights and obligations of the Authority, the City, the owners of the Bonds and the Trustee may be modified or amended from time to time and at any time in the manner, to the extent, and upon the terms provided in the Indenture; provided that no such modification or amendment shall (a) extend the fixed maturity of any Bonds, or reduce the principal thereof or the rate of interest thereon, or extend the time of payment, without the consent of the owner of each Bond so affected, or, (b) reduce the percentage of Bonds the consent of the owners of which is required to effect any such amendment or modification, or (c) permit the creation of any lien on the Base Rental Payments and
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other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture or deprive the owners of the Bonds of the lien created by the Indenture on such the Base Rental Payments and such other assets (except as expressly provided in the Indenture), without the consent of the owners of all Bonds then outstanding.
The Indenture contains provisions permitting the Authority to make provision for the payment of interest on, and the principal and premium, if any, of any of the Bond so that such Bonds shall no longer be deemed to be outstanding under the terms of the Indenture.
All obligations of the Authority under the Indenture and under the Bonds shall be special obligations of the Authority, payable solely from Base Rental Payments and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City or the State of California, or any political subdivision thereof, is pledged to the payment of the Bonds.
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IN WITNESS WHEREOF, the Authority has caused this Bond to be signed in its name and on its behalf by the facsimile signatures of its Executive Director and Secretary, all as of the Dated Date identified above.
WATSONVILLE PUBLIC FINANCE AUTHORITY
By:
TAMARA VIDES
EXECUTIVE DIRECTOR
Attest:
IRWIN I. ORTIZ
SECRETARY OF THE BOARD
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[FORM OF TRUSTEE’S CERTIFICATE OF AUTHENTICATION]
This is one of the Series 2025 Bonds described in the within-mentioned Indenture and registered on the Registration Books.
Date: __________________, 2025 U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee
By:
Authorized Signatory
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[FORM OF ASSIGNMENT]
For value, received the undersigned hereby sells, assigns and transfers unto ____________________________________________ whose address and social security or other tax identifying number is ______________________, the within-mentioned Bond and hereby irrevocably constitute(s) and appoint(s) ____________________________________ attorney, to transfer the same on the registration books of the Trustee with full power of substitution in the premises.
Dated: ____________________
Signature Guaranteed:
Note: Signature(s) must be guaranteed by an eligible
guarantor in a Recognized Signature Guaranty
Medallion Program.
Note: The signature(s) on this Assignment must
correspond with the name(s) as written on the face of
the within pond in every particular without alteration or enlargement or any change whatsoever.
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4865-0168-5958v12/202040-0002
EXHIBIT B
FORM OF PROJECT FUND REQUISITION
REQUISITION NO. _____ FOR
DISBURSEMENT FROM THE PROJECT FUND
The undersigned hereby states and certifies:
(i) that he/she is the duly appointed, qualified and acting ___________________ of the City of Watsonville, a charter city and municipal corporation duly organized and existing under and by virtue of the Constitution and laws of the State of California (the “City”), and as such, is familiar with the facts herein certified and is authorized to certify the same; (ii) that, pursuant to Section 3.05 of the Indenture, dated as of June 1, 2025 (the “Indenture”), by and among the Watsonville Public Finance Authority (the “Authority”), the City and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), related to the Authority’s Lease Revenue Bonds, Series 2025, the undersigned hereby requests the Trustee to disburse this date the following amounts from the Project Fund established under the Indenture, to the payees designated on the attached Exhibit A;
(iii) that each obligation mentioned herein has been incurred by the City and is a proper charge against the Project Fund; and
(iv) that there has not been filed with or served upon the City notice of any lien, right to lien or attachment upon, or claim affecting the right to receive payment of, any of the moneys payable to any of the payees named on the attached Exhibit A that has not been released or will not be released simultaneously with the payment of such obligation, other than materialmen’s or mechanics’ liens accruing by mere operation of law.
All capitalized terms used herein and not defined herein shall have the meanings ascribed thereto in the Indenture.
Dated: ________________, 20__ CITY OF WATSONVILLE
By:
Its:
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4865-0168-5958v12/202040-0002
EXHIBIT A
PROJECT FUND DISBURSEMENTS
Item
Number Payee Name and Address
Purpose of
Obligation Amount
Agenda Version
RECORDING REQUESTED BY:
City of Watsonville
AND WHEN RECORDED RETURN TO:
Anzel Galvan LLP
595 Pacific Avenue, 4th Floor
San Francisco, California 94133
Attention: Juan M. Galvan
[Space above for Recorder’s use.]
THIS TRANSACTION IS EXEMPT FROM CALIFORNIA DOCUMENTARY TRANSFER TAX PURSUANT TO SECTION 11921 OF THE CALIFORNIA REVENUE AND TAXATION CODE. THIS DOCUMENT IS EXEMPT FROM RECORDING FEES PURSUANT TO SECTION 27383 OF THE CALIFORNIA GOVERNMENT CODE. THE ASSIGNOR IS A GOVERNMENTAL AGENCY.
ASSIGNMENT AGREEMENT
by and between
WATSONVILLE PUBLIC FINANCE AUTHORITY
and
U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION,
as Trustee
Dated as of June 1, 2025
Relating to
$[PAR]
WATSONVILLE PUBLIC FINANCE AUTHORITY
LEASE REVENUE BONDS, SERIES 2025
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT (this “Assignment Agreement”), executed and entered into as of June 1, 2025, is by and between the WATSONVILLE PUBLIC FINANCE AUTHORITY, a joint exercise of powers entity organized and existing under and by virtue of the laws of the State of California (the “Authority”), and U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States, as Trustee (the “Trustee”).
WITNESSETH:
WHEREAS, the City of Watsonville (the “City”) and the Authority desire to finance all or a portion of the design, acquisition, construction and/or installation of certain capital improvement projects in the City, including improvements to Ramsay Park and the Watsonville Civic Plaza (collectively, the “Project”);
WHEREAS, the City and the Authority have determined that it would be in the best interests of the City and residents of the City to authorize the preparation, sale and delivery of the “Watsonville Public Finance Authority Lease Revenue Bonds, Series 2025” (the “Series 2025 Bonds”) for the purpose of financing the Project;
WHEREAS, to facilitate the issuance of the Series 2025 Bonds, the City will lease certain real property described in Exhibit A attached hereto and the improvements located thereon (the “Property”) to the Authority pursuant to a Ground Lease, dated as of the date hereof and recorded concurrently herewith (the “Ground Lease”), and the City will sublease the Property back from the Authority pursuant to a Lease Agreement, dated as of the date hereof, a memorandum of which will be recorded concurrently herewith (the “Lease Agreement”); WHEREAS, under the Lease Agreement, the City is obligated to make Base Rental Payments (as defined in the Lease Agreement) to the Authority; WHEREAS, the Authority desires to assign without recourse certain of its rights in the Ground Lease and the Lease Agreement, including its right to receive the Base Rental Payments, to the Trustee for the benefit of the owners of the Series 2025 Bonds to be issued pursuant to the Indenture, dated as of the date hereof (the “Indenture”), by and among the Authority, the City and the Trustee;
WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Assignment Agreement do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Assignment Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual agreements and covenants contained herein and for other valuable consideration, the parties hereto do hereby agree as follows:
Section 1. Assignment. The Authority, for good and valuable consideration, the receipt of which is hereby acknowledged, does hereby sell, assign and transfer to the Trustee, irrevocably and
2 absolutely, without recourse, for the benefit of the owners of the Series 2025 Bonds, all of its right, title and interest in and to the Ground Lease and the Lease Agreement including, without limitation, its right to receive the Base Rental Payments to be paid by the City under and pursuant to the Lease Agreement; provided, however, that the Authority shall retain its obligations under the Lease Agreement and Ground Lease, the rights to indemnification, to give approvals and consents under the Lease Agreement and the Ground Lease (including any rights therein to approve any sale, assignment, sublease, or termination) and to payment or reimbursement of its reasonable costs and expenses under the Lease Agreement.
Section 2. Acceptance. The Trustee hereby accepts the foregoing assignment, subject to the terms and provisions of the Indenture, and all such Base Rental Payments shall be applied and the rights so assigned shall be exercised by the Trustee as provided in the Lease Agreement and the Indenture.
Section 3. Conditions. This Assignment Agreement shall impose no obligations upon the Trustee beyond those expressly provided in the Indenture.
Section 4. Further Assurances. The Authority shall make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Assignment Agreement, and for the better assuring and confirming to the Trustee, for the benefit of the owners of the Series 2025 Bonds, the rights intended to be conveyed pursuant hereto.
Section 5. Governing Law. THIS ASSIGNMENT AGREEMENT SHALL BE
GOVERNED EXCLUSIVELY BY THE PROVISIONS HEREOF AND BY THE LAWS OF THE STATE OF CALIFORNIA AS THE SAME FROM TIME TO TIME EXIST.
Section 6. Execution. This Assignment Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all together shall constitute but one and the same Assignment Agreement.
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IN WITNESS WHEREOF, the Authority and the Trustee have caused this Assignment Agreement to be executed by their respective officers thereunto duly authorized, all as of the day and year first above-written.
WATSONVILLE PUBLIC FINANCE AUTHORITY
By:
TAMARA VIDES
EXCUTIVE DIRECTOR
ATTEST:
IRWIN I. ORTIZ
SECRETARY OF THE BOARD
APPROVED AS TO FORM:
Counsel
[SIGNATURES CONTINUED ON NEXT PAGE.]
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[SIGNATURE PAGE CONTINUED.]
U.S. BANK TRUST COMPANY, NATIONAL
ASSOCIATION, as Trustee
By:
[NAME]
AUTHORIZED REPRESENTATIVE
A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.
STATE OF CALIFORNIA )
) ss.
COUNTY OF SANTA CRUZ )
On ___________________ before me, ____________________________________, Notary Public, personally appeared _____________________________________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal
SIGNATURE OF NOTARY PUBLIC
A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.
STATE OF CALIFORNIA )
) ss.
COUNTY OF CRUZ )
On ___________________ before me, ____________________________________, Notary Public, personally appeared _____________________________________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal
SIGNATURE OF NOTARY PUBLIC
2 A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.
STATE OF CALIFORNIA )
) ss.
COUNTY OF CRUZ )
On ___________________ before me, ____________________________________, Notary Public, personally appeared _____________________________________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal
SIGNATURE OF NOTARY PUBLIC
3 A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.
STATE OF CALIFORNIA )
) ss.
COUNTY OF CRUZ )
On ___________________ before me, ____________________________________, Notary Public, personally appeared _____________________________________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal
SIGNATURE OF NOTARY PUBLIC
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EXHIBIT A
LEGAL DESCRIPTION OF THE PROPERTY
1 $___________
WATSONVILLE PUBLIC FINANCE AUTHORITY
LEASE REVENUE BONDS, SERIES 2025
BOND PURCHASE AGREEMENT
________, 2025
Watsonville Public Finance Authority
250 Main St.
Watsonville, CA 95076
City of Watsonville
250 Main St.
Watsonville, CA 95076
Ladies and Gentlemen:
The undersigned Samuel A. Ramirez & Co., Inc. (the “Underwriter”), acting not as a fiduciary or agent for you, but on behalf of itself, offers to enter into this Bond Purchase Agreement (which, together with Exhibit A, is referred to as this “Purchase Agreement”) with the Watsonville Public Finance Authority (the “Authority”) and the City of Watsonville (the “City”), which, upon the acceptance by the Authority and the City, will be binding upon the parties hereto. By execution of this Purchase Agreement, the Authority, the City and the Underwriter acknowledge the terms hereof and recognize that they will be bound by certain of the provisions hereof, and to the extent binding thereupon, acknowledge and agree to such terms. This offer is made subject to acceptance by the Authority and by the City by the execution of this Purchase Agreement and delivery of the same to the Underwriter prior to 11:59 P.M., Pacific time, on the date hereof, and, if not so accepted, will be subject to withdrawal by the Underwriter upon notice delivered to the Authority and the City at any time prior to the acceptance hereof by the Authority and the City. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Indenture (defined herein).
The City and Authority acknowledge and agree that: (i) the purchase and sale of the Bonds (defined herein), pursuant to this Purchase Agreement is an arm’s-length commercial transaction between the City and the Authority, on one hand, and the Underwriter, on the other; (ii) in connection therewith and with the discussions, undertakings and procedures leading up to the consummation of such transaction, the Underwriter is and has been acting solely as principal and is not acting as a Municipal Advisor (as defined in Section 15B of the Securities Exchange Act of 1934, as amended); (iii) the Underwriter has not assumed an advisory or fiduciary responsibility in favor of the City or the Authority with respect to the offering contemplated hereby or the discussions, undertakings and procedures leading thereto (irrespective of whether the Underwriter has provided other services or is currently providing other services to the City or the Authority on other matters); (iv) the Underwriter has financial and other interests that differ from those of the City and the Authority; and (v) the City and the Authority have consulted their own legal, financial and other advisors to the extent they have deemed appropriate.
2 Section 1. Purchase and Sale. Upon the terms and conditions and upon the basis of the representations, warranties and agreements herein set forth, the Underwriter hereby agrees to purchase from the Authority, and the Authority hereby agrees to issue, sell and deliver to the Underwriter all (but not less than all) of the Watsonville Public Finance Authority Lease Revenue Bonds, Series 2025 (the “Bonds”). The Bonds will be dated as of their date of delivery. Interest on the Bonds shall be payable semiannually in each year on May 1 and November 1, commencing November 1, 2025 (each an “Interest Payment Date”), and will bear interest at the rates and on the dates as set forth in Exhibit A attached hereto.
The purchase price for the Bonds shall be $______ (which represents the principal amount of the Bonds, plus a net original issue premium in the amount of $______, less an Underwriter’s discount of $______) (the “Purchase Price”).
The Underwriter agrees to make a bona fide public offering of the Bonds at the initial offering yields set forth in the Official Statement (defined herein); however, the Underwriter reserves the right to make concessions to dealers and to change such initial offering yields as the Underwriter shall deem necessary in connection with the marketing of the Bonds. The Underwriter agrees that, in connection with the public offering and initial delivery of the Bonds to the purchasers thereof from the Underwriter, the Underwriter will deliver or cause to be delivered to each purchaser a copy of the final Official Statement prepared in connection with the Bonds, for the time period required under Rule 15c2-12 promulgated under the Securities Exchange Act of 1934, as amended (“Rule 15c2- 12”). Terms defined in the Official Statement are used herein as so defined.
Section 2. The Bonds. The Bonds shall be secured by revenues consisting primarily of base rental payments (the “Base Rental Payments”) to be paid by the City pursuant to the Lease Agreement, dated as of June 1, 2025 (the Lease Agreement”), by and between the Authority and the City. The Authority’s right to receive the Base Rental Payments due under the Lease Agreement and to exercise remedies upon default under such Lease Agreement shall be assigned to U.S. Bank Trust Company, National Association, as trustee (the “Trustee”) for the benefit of the owners of the Bonds pursuant to an Assignment Agreement, dated as of June 1, 2025 (the “Assignment Agreement”), by and between the Authority and the Trustee. The Bonds shall be as described in and secured under and pursuant to an Indenture, dated as of June 1, 2025 (the “Indenture”), by and among the Authority, the City, and the Trustee. The Bonds will be subject to redemption as set forth in the Indenture and Official Statement herein described.
The Bonds are being issued to provide funds to: (i) finance a portion of the costs of the design, acquisition, construction and installation of certain public capital improvements to be located at [_____________], and related infrastructure improvements; and (ii) pay the costs incurred in connection with the issuance of the Bonds.
Section 3. Public Offering. The Underwriter agrees to make an initial public offering of all the Bonds at the public offering prices (or yields) set forth on Exhibit A attached hereto and incorporated herein by reference. Subsequent to the initial public offering, the Underwriter reserves the right to change the public offering prices (or yields) as it deems necessary in connection with the marketing of the Bonds, provided that the Underwriter shall not change the interest rates set forth on Exhibit A attached hereto. The Bonds may be offered and sold to certain dealers at prices lower than such initial public offering prices.
3 Section 4. Establishment of Issue Price of the Bonds. (a) The Underwriter agrees to assist the Authority in establishing the issue price of the Bonds and shall execute and deliver to the Authority at Closing an “issue price” or similar certificate, together with the supporting pricing wires or equivalent communications, substantially in the form attached hereto as Exhibit B, with such modifications as may be appropriate or necessary, in the reasonable judgment of the Underwriter, the Authority and Bond Counsel, to accurately reflect, as applicable, the sales price or prices or the initial offering price or prices to the public of the Bonds. (b) Except as otherwise set forth in Exhibit B, the Authority will treat the first price at which 10% of each maturity of the Bonds (the “10% test”) is sold to the public as the issue price of that maturity. At or promptly after the execution of this Purchase Agreement, the Underwriter shall report to the Authority the price or prices at which it has sold to the public each maturity of Bonds.
If at that time the 10% test has not been satisfied as to any maturity of the Bonds, the Underwriter agrees to promptly report to the Authority the prices at which it sells the unsold Bonds of that maturity to the public. That reporting obligation shall continue, whether or not the Closing Date has occurred, until either (i) the Underwriter has sold all Bonds of that maturity or (ii) the 10% test has been satisfied as to the Bonds of that maturity, provided that, the Underwriter’s reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the Authority or Bond Counsel. For purposes of this Section, if Bonds mature on the same date but have different interest rates, each separate CUSIP number within that maturity will be treated as a separate maturity of the Bonds.
(c) The Underwriter confirms that it has offered the Bonds to the public on or before the date of this Purchase Agreement at the offering price or prices (the “initial offering price”), or at the corresponding yield or yields, set forth in Exhibit A, except as otherwise set forth therein. Exhibit A also sets forth, as of the date of this Purchase Agreement, the maturities, if any, of the Bonds for which the 10% test has not been satisfied and for which the Authority and the Underwriter agree that the restrictions set forth in the next sentence shall apply, which will allow the Authority to treat the initial offering price to the public of each such maturity as of the sale date as the issue price of that maturity (the “hold-the-offering-price rule”).
So long as the hold-the-offering-price rule remains applicable to any maturity of the Bonds, the Underwriter will neither offer nor sell unsold Bonds of that maturity to any person at a price that is higher than the initial offering price to the public during the period starting on the sale date and ending on the earlier of the following: (i) the close of the 5th business day after the sale date; or (ii) the date on which the Underwriter has sold at least 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public.
The Underwriter will advise the Authority promptly after the close of the 5th business day after the sale date whether it has sold 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public.
4 (d) The Underwriter confirms that:
(i) any selling group agreement and any third-party distribution agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each dealer who is a member of the selling group and each broker-dealer that is a party to such third-party distribution agreement, as applicable:
(A)(i) to report the prices at which it sells to the public the unsold Bonds of each maturity allocated to it, whether or not the Closing Date has occurred, until either all Bonds of that maturity allocated to it have been sold or it is notified by the Underwriter that the 10% test has been satisfied as to the Bonds of that maturity, provided that, the reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the Underwriter, and (ii) to comply with the hold-the-offering-price rule, if applicable, if and for so long as directed by the Underwriter,
(B) to promptly notify the Underwriter of any sales of Bonds that, to its knowledge, are made to a purchaser who is a related party to an underwriter participating in the initial sale of the Bonds to the public (each such term being used as defined below), and
(C) to acknowledge that, unless otherwise advised by the dealer or brokerdealer, the Underwriter shall assume that each order submitted by the dealer or broker-dealer is a sale to the public.
(ii) any selling group agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each dealer that is a party to a third-party distribution agreement to be employed in connection with the initial sale of the Bonds to the public to require each broker-dealer that is a party to such third-party distribution agreement to (A) report the prices at which it sells to the public the unsold Bonds of each maturity allocated to it, whether or not the Closing Date has occurred, until either all Bonds of that maturity allocated to it have been sold or it is notified by the Underwriter or the dealer that the 10% test has been satisfied as to the Bonds of that maturity, provided that, the reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the Underwriter or the dealer, and (B) comply with the hold-the-offering-price rule, if applicable, if and for so long as directed by the Underwriter or the dealer and as set forth in the related pricing wires. (e) The Authority acknowledges that, in making the representations set forth in this section, the Underwriter will rely on (i) in the event a selling group has been created in connection with the initial sale of the Bonds to the public, the agreement of each dealer who is a member of the selling group to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering-price rule, if applicable to the Bonds, as set forth in a selling group agreement and the related pricing wires, and (ii) in the event that a third-party distribution agreement was employed in connection with the initial sale of the Bonds to the public, the agreement of each broker-dealer that is a party to such agreement to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering-price rule, if applicable to the Bonds, as set forth in the third-party distribution agreement and the related pricing wires. The Authority further
5 acknowledges that the Underwriter shall not be liable for the failure of any dealer who is a member of a selling group, or of any broker-dealer that is a party to a third-party distribution agreement, to comply with its corresponding agreement to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offeringprice rule, if applicable to the Bonds. (f) The Underwriter acknowledges that sales of any Bonds to any person that is a related party to an underwriter participating in the initial sale of the Bonds to the public (each such term being used as defined below) shall not constitute sales to the public for purposes of this section.
Further, for purposes of this section:
(i) “public” means any person other than an underwriter or a related party, (ii) “underwriter” means (A) any person that agrees pursuant to a written contract with the Authority (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the public and (B) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (A) to participate in the initial sale of the Bonds to the public (including a member of a selling group or a party to a third-party distribution agreement participating in the initial sale of the Bonds to the public),
(iii) a purchaser of any of the Bonds is a “related party” to an underwriter if the underwriter and the purchaser are subject, directly or indirectly, to (A) more than 50% common ownership of the voting power or the total value of their stock, if both entities are corporations (including direct ownership by one corporation of another), (B) more than 50% common ownership of their capital interests or profits interests, if both entities are partnerships (including direct ownership by one partnership of another), or (C) more than 50% common ownership of the value of the outstanding stock of the corporation or the capital interests or profit interests of the partnership, as applicable, if one entity is a corporation and the other entity is a partnership (including direct ownership of the applicable stock or interests by one entity of the other), and
(iv) “sale date” means the date of execution of this Purchase Agreement by all parties.
Section 5. The Official Statement. By their acceptance of this Purchase Agreement, the Authority and the City ratify, confirm and approve of the use and distribution by the Underwriter prior to the date hereof of the Preliminary Official Statement relating to the Bonds, dated ______, 2025 (including the cover page, all appendices and all information incorporated therein and any supplements or amendments thereto and as disseminated in its printed physical form or in electronic form in all respects materially consistent with such physical form, the “Preliminary Official Statement”) that authorized officers of the City deemed “final” as of its date, for purposes of Rule 15c2-12 except for certain omissions permitted to be omitted therefrom by Rule 15c2-12. The Authority and the City hereby agree to deliver or cause to be delivered to the Underwriter, within seven (7) business days of the date hereof, copies of the final official statement, dated the date hereof, relating to the Bonds (including all information previously permitted to have been omitted by Rule 15c2-12, the cover page, all appendices, all information incorporated therein and any amendments or supplements as have been approved by the Authority, the City and the Underwriter (the “Official Statement”)) in such quantity as the Underwriter shall reasonably request to comply
6 with Securities and Exchange Commission Rule 15c2-12(b)(4) and the rules of the Municipal Securities Rulemaking Board (the “MSRB”).
The Underwriter hereby agrees that it will not request that payment be made by any purchaser of the Bonds prior to delivery by the Underwriter to the purchaser of a copy of the Official Statement. The Underwriter agrees to (i) provide the Authority and the City with final pricing information on the Bonds on a timely basis and (ii) promptly file a copy of the final Official Statement, including any supplements prepared by the Authority or the City with the MSRB on its Electronic Municipal Markets Access (“EMMA”) system at http://emma.msrb.org. The Authority and the City hereby approve of the use and distribution by the Underwriter of the final Official Statement in connection with the offer and sale of the Bonds. The Authority and the City will cooperate with the Underwriter in the filing by the Underwriter of the Official Statement with EMMA.
Section 6. Closing. At 8:00 a.m., California time, on [Closing Date], or at such other time or date as the Authority, the City and the Underwriter agree upon, the Authority shall deliver or cause to be delivered to the Trustee, and the Trustee shall deliver or cause to be delivered through the facilities of The Depository Trust Company, New York, New York (“DTC”), the Bonds in definitive form, duly executed and authenticated. Concurrently with the delivery of the Bonds, the Authority and the City shall deliver the documents hereinafter mentioned at the offices of Anzel Galvan LLP, San Francisco, California or another place to be mutually agreed upon by the Authority, the City and the Underwriter. The Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in Section 1 hereof by wire transfer in immediately available funds. This payment for and delivery of the Bonds, together with the delivery of the aforementioned documents referenced herein, is called the “Closing.”
The Bonds shall be registered in the name of Cede & Co., as nominee of DTC in denominations of five thousand dollars ($5,000) or any integral multiple thereof, and shall be made available to the Underwriter at least one (1) business day before the Closing for purposes of inspection and packaging. The Authority and the City acknowledge that the services of DTC will be used initially by the Underwriter to permit the issuance of the Bonds in book-entry form, and agree to cooperate fully with the Underwriter in employing such services.
Section 7. Representations, Warranties and Covenants of the Authority. The Authority represents, warrants and covenants to the Underwriter and the City that:
(a) The Authority is and will be at the date of Closing a joint exercise of powers authority organized and existing under the laws of the State of California, including Section 6500 et seq. of the California Government Code (the “JPA Act”) with all necessary power and authority to enter into and perform its duties under the Ground Lease, dated as of June 1, 2025 (the “Ground Lease”), by and between the City and the Authority, the Lease Agreement, the Indenture, the Assignment Agreement and this Purchase Agreement. The Ground Lease, Lease Agreement, Indenture, Assignment Agreement and this Purchase Agreement are collectively referred to herein as the “Authority Documents”.
(b) The Authority has complied with all filing requirements of the JPA Act. (c) By official action of the Authority prior to or concurrently with the acceptance hereof, the Authority has duly approved the distribution of the Preliminary Official Statement and the distribution of the Official Statement (including in electronic form), and has duly
7 authorized and approved the execution and delivery of, and the performance by the Authority of the obligations on its part contained, in the Authority Documents. When executed and delivered, each Authority Document will constitute the legal, valid and binding obligation of the Authority enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or affecting creditors’ rights generally.
(d) Prior to the date hereof, the Authority has provided to the Underwriter for its review the Preliminary Official Statement that an authorized officer of the Authority has deemed final for purposes of Rule 15c2-12, has approved the distribution of the Preliminary Official Statement and the Official Statement and has duly authorized the execution and delivery of the Official Statement (including in electronic form). The Preliminary Official Statement, at the date thereof, did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein (other than the information relating to DTC and its bookentry system, as to which no view is expressed), in light of the circumstances under which they were made, not misleading. At the date hereof and on the Closing, the final Official Statement did not and will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein (other than the information relating to DTC and its book-entry system, as to which no view is expressed), in light of the circumstances under which they were made, not misleading.
(e) To the knowledge of the undersigned officer of the Authority, the execution and delivery by the Authority of the Authority Documents and the approval and execution by the Authority of the Official Statement and compliance with the provisions on the Authority’s part contained in the Authority Documents, will not conflict with or constitute a breach of or default under any law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Authority is a party or is otherwise subject to, which conflict, breach or default has or may have a material adverse effect on the ability of the Authority to carry out its obligations under the Authority Documents, nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any material lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the properties or assets of the Authority under the terms of any such law, administrative regulation, judgment, decree, loan agreement, indenture, trust agreement, bond, note, resolution, agreement or other instrument, except as provided by the Authority Documents.
(f) The Authority will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement. The Authority will advise the Underwriter promptly of the institution of any proceedings known to it by any governmental agency prohibiting or otherwise affecting the use of the Official Statement in connection with the offering, sale or distribution of the Bonds.
(g) To the knowledge of the undersigned officer of the Authority, the Authority is not in breach of or default under any applicable law or administrative regulation of the State of California or the United States or any applicable judgment or decree or any loan agreement, indenture, trust agreement, bond, note, resolution, agreement or other instrument to which the Authority is a party or is otherwise subject, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument, in each case which breach or default has or may have a material adverse effect on the ability of the Authority to perform its obligations under the Authority Documents.
8 (h) As of the time of acceptance hereof and as of the date of Closing, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, is pending or, to the knowledge of the officers of the Authority, threatened (i) in any way questioning the corporate existence of the Authority or the titles of the officers of the Authority to their respective offices, (ii) affecting, contesting or seeking to prohibit, restrain or enjoin the execution or delivery of any of the Bonds, or in any way contesting or affecting the validity of the Bonds or the Authority Documents or the consummation of the transactions contemplated thereby, or contesting the exclusion of the interest on the Bonds from gross income for federal income tax purposes or contesting the powers of the Authority to enter into the Authority Documents or (iii) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and there is no basis for any action, suit, proceeding, inquiry or investigation of the nature described in clause (i) through (iii) of this sentence.
(i) Any certificate signed by any officer of the Authority authorized to execute such certificate in connection with the issuance, sale and delivery of the Bonds and delivered to the Underwriter shall be deemed a representation and warranty of the Authority to the Underwriter and the City as to the statements made therein but not of the person signing such certificate.
Section 8. Representations, Warranties and Covenants of the City. The City represents, warrants and covenants to the Underwriter and the Authority that:
(a) The City is and will be at the date of Closing a charter city and municipal corporation duly organized and existing pursuant to and under the Constitution and laws of the State of California and has all necessary power and authority to enter into and perform its duties under the Continuing Disclosure Certificate relating to the Bonds (the “Continuing Disclosure Certificate”), the Indenture, the Ground Lease, the Lease Agreement and this Purchase Agreement (together, the “City Documents” and, together with the Authority Documents, the “Legal Documents”) and has by official action duly authorized and approved the execution and delivery of, and the performance by the City of the obligations on its part contained in the City Documents for the purpose of refinancing the Prior Certificates.
(b) By official action of the City prior to or concurrently with the acceptance hereof, the City has duly approved the distribution of the Preliminary Official Statement and the distribution of the Official Statement (including in electronic form), and has duly authorized and approved the execution and delivery of, and the performance by the City of the obligations on its part contained, in the City Documents. When executed and delivered, each City Document will constitute the legally valid and binding obligation of the City enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or affecting creditors’ rights generally. (c) The Preliminary Official Statement heretofore delivered to the Underwriter is hereby deemed final by the City as of its date and as of the date hereof, except for the omission of such information as is permitted to be omitted in accordance with paragraph (b)(i) of Rule 15c2-12.
The Preliminary Official Statement, at the date thereof, did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein (other than the information relating to DTC and its book-entry system, as to which no view is expressed), in the
9 light of the circumstances under which they were made, not misleading. At the date hereof and on the Closing, the final Official Statement did not and will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein (other than the information relating to DTC and its book-entry system, as to which no view is expressed), in the light of the circumstances under which they were made, not misleading. (d) To the knowledge of the undersigned officer of the City, the execution and delivery by the City of the City Documents and the approval by the City of the Official Statement and compliance with the provisions on the City’s part contained in the City Documents, will not conflict with or constitute a breach of or default under any law, administrative regulation, judgment, decree, loan agreement, indenture, trust agreement, bond, note, resolution, agreement or other instrument to which the City is a party or is otherwise subject to, which conflict, breach or default has or may have a material adverse effect on the ability of the City to carry out its obligations under the City Documents, nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any material lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the properties or assets of the City under the terms of any such law, administrative regulation, judgment, decree, loan agreement, indenture, trust agreement, bond, note, resolution, agreement or other instrument, except as provided by the City Documents. (e) The City will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement. The City will advise the Underwriter promptly of the institution of any proceedings known to it by any governmental Authority prohibiting or otherwise affecting the use of the Official Statement in connection with the offering, sale or distribution of the Bonds. (f) To the knowledge of the undersigned officer of the City, after reasonable inquiry, the City is not in breach of or default under any applicable law or administrative regulation of the State of California or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the City is a party or is otherwise subject, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument, in each case which breach or default has or may have a material adverse effect on the ability of the City to perform its obligations under the City Documents. (g) The financial statements relating to the receipts, expenditures and cash balances of the City as of June 30, 2024 as set forth in the Official Statement fairly represent the revenues, expenditures and fund balances of the General Fund. Except as disclosed in the Preliminary Official Statement, the Official Statement or otherwise disclosed in writing to the Underwriter, there has not been any materially adverse change in the financial condition of the General Fund or in its operations since June 30, 2024 and, except as disclosed in the Preliminary Official Statement, the Official Statement or otherwise disclosed in writing to the Underwriter, there has been no occurrence, circumstance or combination thereof which is reasonably expected to result in any such materially adverse change.
(h) As of the time of acceptance hereof and as of the date of Closing, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, is pending or, to the knowledge of the officers of the City, threatened (i) in any way questioning the corporate existence of the City or the titles of the officers of the City to their respective offices; (ii) affecting, contesting or seeking to prohibit, restrain or enjoin the execution or delivery of any of the Bonds, or in any way contesting or affecting the validity of the Bonds or the City Documents or the consummation of the transactions contemplated thereby, or
10 contesting the exclusion of the interest on the Bonds from gross income for federal income tax purposes or contesting the power of the City to enter into the City Documents; (iii) which may result in any material adverse change to the financial condition of the City or to its ability to pay the Base Rental Payments when due; or (iv) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and there is no basis for any action, suit, proceeding, inquiry or investigation of the nature described in clause (i) through (iv) of this sentence.
(i) To the extent required by law, the City will undertake, pursuant to the Continuing Disclosure Certificate, to provide annual reports and notices of certain events. A description of this undertaking is set forth as an appendix to the Preliminary Official Statement and will also be set forth in an appendix to the final Official Statement. Except as otherwise disclosed in the Preliminary Official Statement and the Official Statement, the City has never failed to comply in all material respects with any previous undertakings with regard to Rule 15c2-12 to provide annual reports or notices of enumerated events with respect to the last five years. (j) Any certificate signed by any officer of the City authorized to execute such certificate in connection with the issuance, sale and delivery of the Bonds and delivered to the Underwriter shall be deemed a representation and warranty of the City to the Underwriter and the Authority as to the statements made therein but not of the person signing such certificate. (k) As of the date hereof, the City does not have any material obligations secured by payments from the General Fund of the City, except as disclosed in the Preliminary Official Statement and the Official Statement.
Section 9. Conditions to the Obligations of the Underwriter. The Underwriter has entered into this Purchase Agreement in reliance upon the representations and warranties of the Authority and the City contained herein. The obligations of the Underwriter to accept delivery of and pay for the Bonds on the date of the Closing shall be subject, at the option of the Underwriter, to the accuracy in all material respects of the statements of the officers and other officials of the Authority and of the City, as well as authorized representatives of Bond Counsel, the Trustee, Disclosure Counsel and the municipal advisor made in any Bonds or other documents furnished pursuant to the provisions hereof; to the performance by the Authority and the City of their obligations to be performed hereunder at or prior to the date of the Closing; and to the following additional conditions:
(a) The representations, warranties and covenants of the City and the Authority contained herein shall be true, complete and correct at the date hereof and at the time of the Closing, as if made on the date of the Closing;
(b) At the time of Closing, the Legal Documents shall be in full force and effect as valid and binding agreements between or among the various parties thereto, and the Legal Documents and the Official Statement shall not have been amended, modified or supplemented except as may have been agreed to in writing by the Underwriter, and all such reasonable actions as, in the opinion of Bond Counsel, shall reasonably deem necessary in connection with the transactions contemplated hereby;
11 (c) At the time of the Closing, no default shall have occurred or be existing under the Authority Documents, the City Documents, or any other agreement or document pursuant to which any of the City’s financial obligations were executed and delivered, and the City shall not be in default in the payment of principal or interest with respect to any of its financial obligations, which default would adversely impact the ability of the City to make the Base Rental Payments; (d) In recognition of the desire of the Authority, the City and the Underwriter to effect a successful public offering of the Bonds, and in view of the potential adverse impact of any of the following events on such a public offering, this Purchase Agreement shall be subject to termination in the absolute discretion of the Underwriter by notification, in writing, to the Authority and the City prior to delivery of and payment for the Bonds, if at any time prior to such time, regardless of whether any of the following statements of fact were in existence or known of on the date of this Purchase Agreement:
(i) any event shall occur which makes untrue any statement or results in an omission to state a material fact necessary to make the statements in the Official Statement, in the light of the circumstances under which they were made, not misleading, which event, in the reasonable opinion of the Underwriter would materially or adversely affect the ability of the Underwriter to market the Bonds; (ii) the marketability of the Bonds or the market price thereof, in the opinion of the Underwriter, has been materially adversely affected by an amendment to the Constitution of the United States or by any legislation in or by the Congress of the United States or by the State of California, or the amendment of legislation pending as of the date of this Purchase Agreement in the Congress of the United States, or the recommendation to Congress or endorsement for passage (by press release, other form of notice or otherwise) of legislation by the President of the United States, the Treasury Department of the United States, the Internal Revenue Service or the Chairman or ranking minority member of the Committee on Finance of the United States Senate or the Committee on Ways and Means of the United States House of Representatives, or the proposal for consideration of legislation by either such Committee or by any member thereof, or the presentment of legislation for consideration as an option by either such Committee, or by the staff of the Joint Committee on Taxation of the Congress of the United States, or the favorable reporting for passage of legislation to either House of the Congress of the United States by a Committee of such House to which such legislation has been referred for consideration, or any decision of any federal or state court or any ruling or regulation (final, temporary or proposed) or official statement on behalf of the United States Treasury Department, the Internal Revenue Service or other federal or State authority affecting the federal or State tax status of the Authority or the City, or the interest on or with respect to bonds or notes (including the Bonds); (iii) any proceeding shall be pending or threatened by the Securities and Exchange Commission against the Authority or the City;
(iv) any legislation, ordinance, rule or regulation shall be introduced in, or be enacted by any governmental body, department or agency of the State of California, or a decision by any court of competent jurisdiction within the State of
12 California shall be rendered which materially adversely affects the market price of the Bonds;
(v) an order, decree or injunction issued by any court of competent jurisdiction, or order, ruling, regulation (final, temporary or proposed), official statement or other form of notice or communication issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that: (i) obligations of the general character of the Bonds, or the Bonds, including any or all underlying arrangements, are not exempt from registration under the Securities Act of 1933, as amended, or that the Indenture is not exempt from qualification under the Trust Indenture Act of 1939, as amended; or (ii) the issuance, offering or sale of obligations of the general character of the Bonds, or the issuance, offering or sale of the Bonds, including any or all underlying obligations, as contemplated hereby or by the Official Statement, is or would be in violation of the federal securities laws as amended and then in effect; (vi) a decision by a court of the United States shall be rendered, or a stop order, release, regulation or no-action letter by or on behalf of the SEC or any other governmental agency having jurisdiction of the subject matter shall have been issued or made, to the effect that the issuance, offering or sale of the Bonds, including the underlying obligations as contemplated by this Bond Purchase Agreement or by the Official Statement, or any document relating to the issuance, offering or sale of the Bonds, is or would be in violation of any provision of the federal securities laws at the Closing Date, including the Securities Act, the Exchange Act and the Trust Indenture Act;
(vii) legislation shall be enacted by the Congress of the United States, or a decision by a court of the United States shall be rendered, to the effect that obligations of the general character of the Bonds, or the Bonds are not exempt from registration under or other requirements of the Securities Act of 1933, as amended and as then in effect, or the Securities Exchange Act of 1934, as amended and as then in effect, or that the Indenture is not exempt from qualification under or other requirements of the Trust Indenture Act of 1939, as amended and as then in effect; (viii) additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any domestic governmental authority or by any domestic national securities exchange, which are material to the marketability of the Bonds;
(ix) there shall have occurred (1) an outbreak or escalation of hostilities or the declaration by the United States of a national emergency or war or (2) any other calamity or crisis in the financial markets of the United States or elsewhere or the escalation of such calamity or crisis;
(x) a general suspension of trading on the New York Stock Exchange or other major exchange shall be in force, or minimum or maximum prices for trading shall have been fixed and be in force, or maximum ranges for prices for securities shall have been required and be in force on any such exchange, whether by virtue of
13 determination by that exchange or by order of the SEC or any other governmental authority having jurisdiction;
(xi) the New York Stock Exchange or other national securities exchange, or any governmental or regulatory authority, shall impose, as to the Bonds or obligations of the general character of the Bonds, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by, or the charge to the net capital requirements of the Underwriter; (xii) any rating of the Bonds or the rating of any obligations of the City secured by the City’s general fund shall have been downgraded, suspended or withdrawn by a national rating service, which, in the reasonable opinion of the Underwriter, materially adversely affects the market price of the Bonds; (xiii) a general banking moratorium shall have been established by federal or State authorities;
(xiv) a material disruption in securities settlement, payment or clearance services affecting the Bonds shall have occurred; or
(xv) the commencement of any action, suit or proceeding described in Section 7(h) or Section 8(h).
(e) At or prior to the Closing, the Underwriter shall receive the following documents, in each case to the reasonable satisfaction in form and substance of the Underwriter:
(i) all resolutions relating to the Bonds adopted by the Authority and certified by an authorized official of the Authority authorizing the issuance of the Bonds, the Authority Documents and the Official Statement; (ii) all resolutions relating to the Bonds adopted by the City and certified by an authorized official of the City authorizing the execution and delivery of the City Documents and the issuance of the Bonds and the Official Statement; (iii) the Legal Documents duly executed and delivered by the respective parties thereto, with only such amendments, modifications or supplements as may have been agreed to in writing by the Underwriter;
(iv) the approving opinion of Bond Counsel, dated the date of Closing and addressed to the Authority and the City, in substantially the form attached as Appendix D to the Official Statement, and a reliance letter thereon addressed to the Underwriter;
(v) a supplemental opinion of Bond Counsel dated the date of Closing and addressed to the Underwriter, in substantially the form attached hereto as Exhibit C;
(vi) the Official Statement, executed on behalf of the Authority and the City;
14 (vii) evidence that the rating on the Bonds is as described in the Official Statement;
(viii) a certificate, dated the date of Closing, signed by a duly authorized officer of the Authority satisfactory in form and substance to the Underwriter to the effect that: (A) the representations, warranties and covenants of the Authority contained in this Purchase Agreement are true and correct in all material respects on and as of the date of Closing with the same effect as if made on the date of the Closing by the Authority, and the Authority has complied with all of the terms and conditions of this Purchase Agreement required to be complied with by the Authority at or prior to the date of Closing; (B) to such officer’s knowledge, no event affecting the Authority has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is to be used or which is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (C) the information and statements contained in the Official Statement (other than information relating to DTC and its book-entry system) did not as of its date and do not as of the Closing contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect; and (D) to its knowledge, the Authority is not in breach of or default under any applicable law or administrative regulation of the State of California or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Authority is a party or is otherwise subject, which would have a material adverse impact on the Authority’s ability to perform its obligations under the Authority Documents, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument; (ix) a certificate, dated the date of Closing, signed by a duly authorized officer of the City satisfactory in form and substance to the Underwriter to the effect that: (A) the representations, warranties and covenants of the City contained in this Purchase Agreement are true and correct in all material respects on and as of the date of Closing with the same effect as if made on the date of the Closing by the City, and the City has complied with all of the terms and conditions of the Purchase Agreement required to be complied with by the City at or prior to the date of Closing; (B) to such officer’s knowledge, no event affecting the City has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is to be used or which is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (C) the information and statements contained in the Official Statement (other than information relating to DTC and its book-entry system) did not as of its date and do not as of the Closing contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect; (D) to its knowledge after reasonable investigation, the City is not in breach of or default under any applicable law or administrative regulation of the State of California or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement (including but not limited to
15 the Lease Agreement) or other instrument to which the City is a party or is otherwise subject, which would have a material adverse impact on the City’s ability to perform its obligations under the City Documents, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument; and (E) no further consent is required for inclusion of its audited financial statements in the Official Statement;
(x) an opinion dated the date of Closing and addressed to the Underwriter, the Trustee and Bond Counsel, of the City Attorney of the City, as counsel to the Authority, to the effect that:
(A) the Authority is a joint exercise of powers authority organized and existing under the laws of the State of California; (B) the resolution of the Authority approving and authorizing the execution and delivery of the Authority Documents, the Bonds and the Official Statement and other actions of the Authority was duly adopted at a meeting of the governing body of the Authority which was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout, and the resolution is now in full force and effect and has not been amended or superseded in any way; (C) to the knowledge of such counsel there is no action, suit, proceeding, inquiry or investigation at law or in equity before or by any court or public body pending with respect to which the Authority has been served or, to such counsel’s knowledge, threatened against or affecting the Authority, except as may be disclosed in the Official Statement, which would materially adversely impact the Authority’s ability to complete the transactions contemplated by the Authority Documents, the Official Statement or any other document or certificate related to such transactions, restrain or enjoin the collection of Base Rental Payments with respect to the Lease Agreement, or in any way contesting or affecting the validity of the Bonds, the Official Statement, the Authority Documents or the transactions described in and contemplated thereby wherein an unfavorable decision, ruling or finding would materially adversely affect the validity and enforceability of the Bonds or the Authority Documents or in which a final adverse decision could materially adversely affect the operations of the Authority;
(D) the Authority Documents have been duly authorized, executed and delivered by the Authority, and (assuming due execution and delivery by parties other than the Authority) are valid, legal and binding agreements of the Authority enforceable in accordance with their terms, except that the rights and obligations under the Authority Documents are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, to the exercise of
16 judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State;
(E) the execution and delivery of the Authority Documents and the issuance of the Bonds and compliance with the provisions thereof, do not and will not in any material respect conflict with or constitute on the part of the Authority a breach of or default under any agreement or other instrument to which the Authority is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the Authority is subject, which breach or default has or may have a material adverse effect on the ability of the Authority to perform its obligations under the Authority Documents;
(F) no authorization, approval, consent, or other order of the State of California or any other governmental body within the State of California is required for the valid authorization, execution and delivery of the Authority Documents or the Official Statement by the Authority or the consummation by the Authority of the transactions on its part contemplated therein, except such as have been obtained and except such as may be required under state securities or blue sky laws in connection with the purchase and distribution of the Bonds by the Underwriter; and
(G) based on the information made available to such counsel in its role as counsel to the Authority, and without having undertaken to determine independently or assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Official Statement under the caption entitled “THE AUTHORITY,” nothing has come to its attention which would lead it to believe that the statements contained in the abovereferenced caption as of the date of the Official Statement and as of the date of Closing contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;
(xi) an opinion dated the date of Closing and addressed to the Underwriter, the Trustee and the Bond Counsel, of the City Attorney, to the effect that:
(A) the City is duly organized and validly existing as a charter city and municipal corporation under the Constitution and laws of the State of California;
(B) the resolution of the City approving and authorizing the execution and delivery of the City Documents and approving and authorizing the issuance of the Bonds and the delivery of the Official Statement and other actions of the City was duly adopted at a meeting of the governing body of the City which was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout,
17 and the resolution is now in full force and effect and has not been amended or superseded in any way;
(C) there is no action, suit, proceeding, inquiry or investigation at law or in equity before or by any court or public body pending with respect to which the City has been served or, to such counsel’s knowledge, threatened against or affecting the City, except as may be disclosed in the Official Statement, which would materially adversely impact the City’s ability to complete the transactions contemplated by the City Documents, the Official Statement or any other document or certificate related to such transactions, restrain or enjoin the collection of Base Rental Payments with respect to the Lease Agreement, or in any way contesting or affecting the validity of the Bonds, the Official Statement or the City Documents;
(D) the execution and delivery of the City Documents and compliance with the provisions thereof, do not and will not in any material respect conflict with or constitute on the part of the City a breach of or default under any agreement or other instrument to which the City is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the City is subject, which breach or default has or may have a material adverse effect on the ability of the City to perform its obligations under the City Documents;
(E) the City Documents have been duly authorized, executed and delivered by the City, and (assuming due execution and delivery by parties other than the City) are valid, legal and binding agreements of the City enforceable in accordance with their terms, except that the rights and obligations under the City Documents are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State; and
(F) no authorization, approval, consent, or other order of the State of California or any other governmental body within the State of California is required for the valid authorization, execution and delivery of the City Documents, except such as have been obtained and except such as may be required under state securities or blue sky laws in connection with the purchase and distribution of the Bonds by the Underwriter. (xii) a letter of Anzel Galvan LLP, Disclosure Counsel to the Authority and the City dated the date of Closing and addressed to the Underwriter, in substantially the form attached hereto as Exhibit D;
18 (xiii) an opinion of counsel to the Trustee, addressed to the Underwriter and the Authority, dated the date of the Closing, to the effect that:
(A) the Trustee is a national banking association duly organized and validly existing under the laws of the United States, having full corporate power to undertake the trust created under the Indenture; (B) the Indenture and the Assignment Agreement (together, the “Trustee Documents”) have each been duly authorized, executed and delivered by the Trustee and, assuming due authorization, execution and delivery by the other parties thereto, the Trustee Documents constitute the valid, legal and binding obligations of the Trustee enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors’ rights generally and by the application of equitable principles, if equitable remedies are sought;
(C) the Trustee has duly authenticated the Bonds upon the order of Authority;
(D) the Trustee’s actions in executing and delivering the Trustee Documents are in full compliance with, and do not conflict with any applicable law or governmental regulation and, to the best of such counsel’s knowledge, after reasonable inquiry with respect thereto, do not conflict with or violate any contract to which the Trustee is a party or any administrative or judicial decision by which the Trustee is bound; and
(E) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the banking or trust powers of the Trustee that has not been obtained is or will be required for the execution and delivery of the Bonds or the consummation by the Trustee of its obligations under the Trustee Documents; (xiv) a certificate, dated the date of Closing, signed by a duly authorized officer of the Trustee satisfactory in form and substance to the Underwriter, to the effect that:
(A) the Trustee is duly organized and existing as a national banking association under the laws of the United States of America, having the full corporate power and authority to enter into and perform its duties under the Trustee Documents;
(B) the Trustee is duly authorized to enter into the Trustee Documents and has duly executed and delivered the Trustee Documents, and assuming due authorization and execution by the other parties thereto, the Trustee Documents are legal, valid and binding upon the Trustee and enforceable against such party in accordance with its terms;
19 (C) the Trustee has duly authenticated the Bonds under the Indenture and delivered the Bonds to or upon the order of the Underwriter; and
(D) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the banking or trust powers of the Trustee that has not been obtained is required for the execution and delivery of the Bonds or the consummation by the Trustee of its obligations under the Trustee Documents;
(xv) the preliminary and final Statement of Sale required to be delivered to the California Debt and Investment Advisory Commission pursuant to Section 53583 of the California Government Code and Section 8855(g) of the Government Code; (xvi) a copy of the executed Blanket Issuer Letter of Representations by and between the City or the Authority and DTC relating to the book-entry system; (xvii) the tax certificate executed by the Authority and the City relating to the Bonds in form and substance to the reasonable satisfaction of Bond Counsel and the Underwriter;
(xviii) a title policy with respect to the Property in form and substance acceptable to Bond Counsel, the Underwriter and Underwriter’s Counsel; (xix) evidence of insurance in compliance with the requirements of the Lease Agreement in form and substance acceptable to the Underwriter; (xx) an opinion of Kutak Rock LLP (“Underwriter’s Counsel”) in form and substance acceptable to the Underwriter;
(xxi) a certificate, dated the date of the Preliminary Official Statement, of the City, as required under Rule 15c2-12;
(xxii) a certificate, dated the date of the Preliminary Official Statement, of the Authority, as required under Rule 15c2-12; and
(xxiii) such additional legal opinions, Bonds, proceedings, instruments or other documents as the Underwriter or Underwriter’s Counsel may reasonably request.
Section 10. Changes in Official Statement. Within 90 days after the Closing or within 25 days following the “end of the underwriting period” (as defined in Rule 15c2-12), whichever occurs first, if any event shall occur as a result of which it is necessary, in the reasonable opinion of the Underwriter, to amend or supplement the Official Statement in order to make the Official Statement not misleading in any material respect in the light of the circumstances existing at the time it is delivered to a purchaser, the Authority will forthwith prepare and furnish to the Underwriter an amendment or supplement that will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to purchaser, not misleading. The City and the Authority shall cooperate with
20 the Underwriter in the filing by the Underwriter of such amendment or supplement to the Official Statement with the EMMA. The Underwriter acknowledges that the “end of the underwriting period” will be the date of Closing unless the Underwriter otherwise notifies the City in writing that it still owns some or all of the Bonds.
Section 11. Expenses. Whether or not the transactions contemplated by this Purchase Agreement are consummated, the Underwriter shall be under no obligation to pay, and the Authority shall pay only from the proceeds of the Bonds, but only as the Authority and such other party providing such services may agree, all expenses and costs of the Authority and the City incident to the performance of their obligations in connection with the authorization, issuance, sale and delivery of the Bonds to the Underwriter, including, without limitation, printing costs, rating agency fees and charges, initial fees of the Trustee, including fees and disbursements of its counsel, if any, fees and disbursements of Bond Counsel, Disclosure Counsel, the municipal advisor and other professional advisors employed by the Authority or the City, title insurance and costs of preparation, printing, signing, transportation, delivery and safekeeping of the Bonds. The Underwriter shall pay all out-ofpocket expenses of the Underwriter, including, without limitation, the fees and expenses of its counsel, advertising expenses, the California Debt and Investment Advisory Commission fee, CUSIP Services Bureau charges, regulatory fees imposed on new securities issuers and any and all other expenses incurred by the Underwriter in connection with the public offering and distribution of the Bonds.
Section 12. Notices. Any notice or other communication to be given to the Underwriter under this Purchase Agreement may be given by delivering the same in writing to Samuel A.
Ramirez & Co., Inc., 12130 Millennium Drive, Suite 300, Los Angeles, California 90094; Attention:
Public Finance. Any notice or other communication to be given to the Authority or the City pursuant to this Purchase Agreement may be given by delivering the same in writing to such entity, at the addresses set forth on the cover page hereof.
Section 13. Parties in Interest. This Purchase Agreement is made solely for the benefit of the Authority, the City and the Underwriter (including the successors or assigns thereof) and no other person shall acquire or have any right hereunder or by virtue hereof. All representations, warranties and agreements of the Authority and the City in this Purchase Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriter and shall survive the delivery of and payment for the Bonds.
Section 14. Counterparts. This Purchase Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.
21 Section 15. Governing Law. This Purchase Agreement shall be governed by and construed in accordance with the laws of the State of California.
SAMUEL A. RAMIREZ & CO., INC.
By:
Managing Director
The foregoing is hereby agreed to and accepted as of the date first above written:
WATSONVILLE PUBLIC FINANCE AUTHORITY
By:
Authorized Officer
Time of Execution: _____________ p.m. California time
Accepted:
CITY OF WATSONVILLE
By:
Authorized Officer
Time of Execution: _____________ p.m. California time
A-1
EXHIBIT A
MATURITY SCHEDULE
$________
WATSONVILLE PUBLIC FINANCE AUTHORITY
LEASE REVENUE BONDS, SERIES 2025
Maturity
(May 1)
Principal
Amount
Interest
Rate Yield Price
10% Test
Satisfied*
10% Test
Not
Satisfied
Subject to
Hold-TheOfferingPrice Rule
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
20__(T)
20__(T)
(T) Term Bond.
(C) Priced to optional call at [par] on May 1, 20__. * At the time of execution of this Purchase Agreement and assuming orders are confirmed by the close of the business day immediately following the date of this Purchase Agreement.
B-1
EXHIBIT B
FORM OF ISSUE PRICE CERTIFICATE
$_______
WATSONVILLE PUBLIC FINANCE AUTHORITY
LEASE REVENUE BONDS, SERIES 2025
The undersigned, Samuel A. Ramirez & Co., Inc. (“Ramirez”), hereby certifies as set forth below with respect to the sale and issuance of the above-captioned obligations (the “Bonds”).
1. Sale of the General Rule Maturities. As of the date of this certificate, for each Maturity of the General Rule Maturities, the first price at which at least 10% of such Maturity was sold to the Public is the respective price listed in Schedule A.
2. Initial Offering Price of the Hold-the-Offering-Price Maturities. (a) Ramirez offered the Hold-the-Offering-Price Maturities to the Public for purchase at the respective initial offering prices listed in Schedule A (the “Initial Offering Prices”) on or before the Sale Date. A copy of the pricing wire or equivalent communication for the Bonds is attached to this certificate as Schedule B.
(b) As set forth in the Bond Purchase Agreement, dated [BPA Date], by and among Ramirez, the Issuer and the City of Watsonville, Ramirez has agreed in writing that, (i) for each Maturity of the Hold-the-Offering-Price Maturities, it would neither offer nor sell any of the Bonds of such Maturity to any person at a price that is higher than the Initial Offering Price for such Maturity during the Holding Period for such Maturity (the “hold-the-offering-price rule”), and (ii) any selling group agreement shall contain the agreement of each dealer who is a member of the selling group, and any retail distribution agreement shall contain the agreement of each broker-dealer who is a party to the retail distribution agreement, to comply with the hold-the-offering-price rule.
Pursuant to such agreement, no Underwriter (as defined below) has offered or sold any Maturity of the Hold-the-Offering-Price Maturities at a price that is higher than the respective Initial Offering Price for that Maturity of the Bonds during the Holding Period.
3. Defined Terms.
(a) Issuer means the Watsonville Public Finance Authority. (b) General Rule Maturities means those Maturities of the Bonds listed in Schedule A hereto as the “General Rule Maturities.”
(c) Hold-the-Offering-Price Maturities means those Maturities of the Bonds listed in Schedule A hereto as the “Hold-the-Offering-Price Maturities.” (d) Holding Period means, with respect to a Hold-the-Offering-Price Maturity, the period starting on the Sale Date and ending on the earlier of (i) the close of the fifth business day after the Sale Date, or (ii) the date on which Ramirez has sold at least 10% of such Hold-the-Offering-Price Maturity to the Public at prices that are no higher than the Initial Offering Price for such Hold-theOffering-Price Maturity.
B-2
(e) Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate maturities.
(f) Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than an Underwriter or a related party to an Underwriter.
The term “related party” for purposes of this certificate generally means any two or more persons who have greater than 50 percent common ownership, directly or indirectly. (g) Sale Date means the first day on which there is a binding contract in writing for the sale of a Maturity of the Bonds. The Sale Date of the Bonds is [BPA Date]. (h) Underwriter means (i) any person that agrees pursuant to a written contract with the Issuer (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the Public, and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Bonds to the Public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the Public).
The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents the interpretation by Ramirez of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The undersigned understands that the foregoing information will be relied upon by the Issuer with respect to certain of the representations set forth in the attached Tax Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Bond Counsel, in connection with rendering its opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer from time to time relating to the Bonds.
Except as expressly set forth above, the certifications set forth herein may not be relied upon or used by any third party or for any other purpose.
Dated: [Closing Date] SAMUEL A. RAMIREZ & CO., INC., as underwriter By:
Authorized Signatory
B-3
SCHEDULE A
SALE PRICES OF THE GENERAL RULE MATURITIES AND INITIAL OFFERING
PRICES OF THE HOLD-THE-OFFERING-PRICE MATURITIES
[TO BE ATTACHED]
B-4
SCHEDULE B
PRICING WIRE OR EQUIVALENT COMMUNICATION
C-1
EXHIBIT C
FORM OF SUPPLEMENTAL OPINION OF BOND COUNSEL
On the Closing Date, Bond Counsel expects to deliver a supplemental opinion in substantially the following form:
[TO COME FROM BOND COUNSEL]
D-1
EXHIBIT D
FORM OF DISCLOSURE COUNSEL LETTER
On the Closing Date, Disclosure Counsel expects to deliver a negative assurance letter in substantially the following form:
[TO COME FROM DISCLOSURE COUNSEL]
PRELIMINARY OFFICIAL STATEMENT DATED ___________, 2025
This Preliminary Official Statement and the information contained herein are subject to completion or amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.
NEW ISSUE—BOOK-ENTRY ONLY RATING:
S&P: “____”
(See “RATING” herein)
In the opinion of Anzel Galvan LLP, San Francisco, California, Bond Counsel, under existing law and subject to certain qualifications described herein, the interest on the Series 2025 Bonds is excludable from gross income for federal income tax purposes.
In addition, interest on the Series 2025 Bonds is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals; however, interest on the Series 2025 Bonds may affect the federal alternative minimum tax applicable to certain corporations. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See “TAX MATTERS.”
$[Par Amount]*
WATSONVILLE PUBLIC FINANCE AUTHORITY
LEASE REVENUE BONDS, SERIES 2025
Dated: Date of Delivery Due: May 1, as shown on inside cover The Watsonville Public Finance Authority Lease Revenue Bonds, Series 2025 (the “Series 2025 Bonds”) are payable from base rental payments (the “Base Rental Payments”) to be made by the City of Watsonville (the “City”) for the right to use certain real property (the “Property”) pursuant to a Lease Agreement, dated as of June 1, 2025 (the “Lease Agreement”), by and between the City, as lessee, and the Watsonville Public Finance Authority (the “Authority”), as lessor. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2025 BONDS.”
The Series 2025 Bonds are being issued to provide funds to (i) finance a portion of the costs of the design, acquisition, construction and installation of certain public capital improvements to the City’s Ramsay Park and City Plaza, and related infrastructure improvements; and (ii) pay the costs incurred in connection with the issuance of the Series 2025 Bonds. See “THE PROJECT.” The City has covenanted under the Lease Agreement to make all Base Rental Payments provided for therein, to include all such payments as a separate line item in its annual budgets, and to make all the necessary annual appropriations for such Base Rental Payments. The City’s obligation to make Base Rental Payments is subject to abatement during any period in which, by reason of material damage to, or destruction or condemnation of, the Property, or any defects in title to the Property, there is substantial interference with the City’s right to use and occupy any portion of the Property. See “RISK FACTORS—Abatements.” The Series 2025 Bonds are being issued in fully registered book-entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). Interest on the Series 2025 Bonds is payable semiannually on May 1 and November 1 of each year, commencing November 1, 2025. Purchasers will not receive certificates representing their interest in the Series 2025 Bonds. Individual purchases will be in principal amounts of $5,000 or integral multiples thereof. Principal of and interest and premium, if any, on the Series 2025 Bonds will be paid by U.S. Bank Trust Company, National Association, as trustee (the “Trustee”) to DTC for subsequent disbursement to DTC Participants who are obligated to remit such payments to the Beneficial Owners of the Series 2025 Bonds. See “THE SERIES 2025 BONDS—Book-Entry Only System” herein.
The Series 2025 Bonds will be issued pursuant to an Indenture, dated as of June 1, 2025 (the “Indenture”) by and among the City, the Authority and the Trustee. The Series 2025 Bonds and any additional bonds issued pursuant to the Indenture (“Additional Bonds”) are collectively referred to as the “Bonds.”
The Series 2025 Bonds are subject to extraordinary and mandatory sinking fund redemption prior to maturity. See “THE SERIES 2025 BONDS—Redemption.” The Series 2025 are not subject to optional redemption.
The Series 2025 Bonds are special obligations of the Authority, payable solely from Base Rental Payments and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City or the State of California, or any political subdivision thereof, is pledged to the payment of the Series 2025 Bonds.
The obligation of the City to make the Base Rental Payments does not constitute a debt of the City or the State of California or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State of California is obligated to levy or pledge any form of taxation or for which the City or the State of California has levied or pledged any form of taxation. The Authority has no power to tax.
THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION.
The Series 2025 Bonds will be offered when, as and if issued and received by the Underwriter, subject to the approval as to their validity by Anzel Galvan LLP, San Francisco, California, Bond Counsel. Anzel Galvan LLP, San Francisco, California, is also acting as Disclosure Counsel to the City and the Authority. Certain legal matters will be passed upon for the City and the Authority by the City Attorney of the City of Watsonville, and for the Underwriter by Kutak Rock LLP, Irvine, California. It is anticipated that the Series 2025 Bonds in definitive form will be available for delivery to DTC in New York, New York on or about ______________, 2025. [UW Logo]
Dated: __________________, 2025
* Preliminary; subject to change.
MATURITY SCHEDULE
$_________________________
WATSONVILLE PUBLIC FINANCE AUTHORITY
Lease Revenue Bonds, Series 2025
Base CUSIP†: ________
Maturity Date
(May 1) Principal Amount Interest Rate Yield Price CUSIP† $_____________ ______% Term Bonds due May 1, 20__ Yield: ______% Price: ______ C CUSIP† __ $_____________ ______% Term Bonds due May 1, 20__ Yield: ______% Price: ______ C CUSIP† __ C Priced to optional redemption date of May 1, 20__, at par. † CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by FactSet Research Systems Inc. Copyright© 2025 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only. None of the Underwriter, the Authority or the City, or their agents or counsel, assume responsibility for the accuracy of such numbers.
No dealer, broker, salesperson or other person has been authorized by the City or the Authority to give any information or to make any representations in connection with the offer or sale of the Series 2025 Bonds other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the City or the Authority. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Series 2025 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers or Owners of the Series 2025 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact.
The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.
This Official Statement and the information contained herein are subject to completion or amendment without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or the Authority or any other parties described herein since the date hereof. These securities may not be sold nor may an offer to buy be accepted prior to the time the Official Statement is delivered in final form. This Official Statement is being submitted in connection with the sale of the Series 2025 Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the City.
All summaries of documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions.
Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended.
Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “project,” “budget,” “intend” or similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the captions “THE CITY OF WATSONVILLE,” “CITY FINANCIAL INFORMATION” and “RISK FACTORS.”
THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS
DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE CITY DOES
NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. IN EVALUATING SUCH STATEMENTS, POTENTIAL INVESTORS
SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS WHICH COULD CAUSE ACTUAL EVENTS OR
RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.
IN CONNECTION WITH THE OFFERING OF THE SERIES 2025 BONDS, THE UNDERWRITER MAY
OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2025 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE SERIES 2025 BONDS TO CERTAIN DEALERS AND DEALER
BANKS AND BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING
PRICE STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.
THE SERIES 2025 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT AND HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.
The City maintains a website; however, information presented there is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Series 2025 Bonds.
CITY OF WATSONVILLE
SANTA CRUZ COUNTY, CALIFORNIA
WATSONVILLE PUBLIC FINANCE AUTHORITY GOVERNING BOARD AND CITY COUNCIL
OF THE CITY OF WATSONVILLE
Maria Orozco, Chair/Mayor
Kristal Salcido, Vice Chair/Mayor Pro Tempore
Eduardo Montesino, Board Member/Council Member
Vanessa Quiroz-Carter, Board Member/Council Member
Kristal Salcido, Board Member/Council Member
Casey K. Clark, Board Member/Council Member
Jimmy Dutra, Board Member/Council Member
Ari Parker, Board Member/Council Member
_____________
CITY / AUTHORITY OFFICIALS
Tamara Vides, City Manager/Executive Director
Marissa Duran, Administrative Services Director/Treasurer Irwin I. Ortiz, City Clerk/Secretary
Burke, Williams & Sorensen, LLP, City Attorney
_____________
BOND COUNSEL AND DISCLOSURE COUNSEL
Anzel Galvan LLP
San Francisco, California
_____________
MUNICIPAL ADVISOR
Urban Futures, Inc.
Walnut Creek, California
_____________
TRUSTEE
U.S. Bank Trust Company, National Association
San Francisco, California
_____________
TABLE OF CONTENTS
Page
i
INTRODUCTION.......................................................................................................................................................... 1 THE SERIES 2025 BONDS .......................................................................................................................................... 3 General....................................................................................................................................................................... 3 Registration ................................................................................................................................................................ 4 Redemption ................................................................................................................................................................ 4 Book-Entry Only System........................................................................................................................................... 5 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2025 BONDS...................................................... 6 Pledge of Revenues.................................................................................................................................................... 6 Base Rental Payments................................................................................................................................................ 7 Additional Rental Payments....................................................................................................................................... 7 Abatement .................................................................................................................................................................. 8 Substitution or Release of the Property...................................................................................................................... 9 Action on Default....................................................................................................................................................... 9 No Reserve Fund...................................................................................................................................................... 10 Additional Bonds ..................................................................................................................................................... 10 Insurance .................................................................................................................................................................. 10 SOURCES AND USES OF FUNDS ........................................................................................................................... 11 BASE RENTAL PAYMENT SCHEDULE................................................................................................................. 12 THE PROJECT ............................................................................................................................................................ 12 THE PROPERTY......................................................................................................................................................... 12 General..................................................................................................................................................................... 12 The Property............................................................................................................................................................. 13 THE AUTHORITY...................................................................................................................................................... 13 THE CITY OF WATSONVILLE................................................................................................................................ 14 General..................................................................................................................................................................... 14 City Council ............................................................................................................................................................. 14 City Management..................................................................................................................................................... 14 Employee Relations ................................................................................................................................................. 15 Risk Management .................................................................................................................................................... 16 CITY FINANCIAL INFORMATION......................................................................................................................... 17 Accounting and Financial Reporting ....................................................................................................................... 17 Financial Policies..................................................................................................................................................... 17 Budget Procedure, Proposed Budget and Historical Budget Information ............................................................... 19 Comparative Change in Fund Balance of the City General Fund............................................................................ 22 Comparative General Fund Balance Sheets of the City........................................................................................... 24 Tax Revenues by Source.......................................................................................................................................... 26 Sales Taxes............................................................................................................................................................... 26 Property Taxes ......................................................................................................................................................... 30 Utility Users’ Tax..................................................................................................................................................... 33 Other Taxes.............................................................................................................................................................. 33 Transient Occupancy Tax ........................................................................................................................................ 33 Long-Term General Fund Obligations..................................................................................................................... 34 Overlapping Debt Statement.................................................................................................................................... 34 Retirement System................................................................................................................................................... 35 Other Post-Employment Benefits (OPEB) .............................................................................................................. 40 State Budget Information ......................................................................................................................................... 41 Changes in State Budget .......................................................................................................................................... 41 RISK FACTORS.......................................................................................................................................................... 41 General Considerations – Security for the Series 2025 Bonds................................................................................ 41 Abatements............................................................................................................................................................... 42 No Reserve Fund...................................................................................................................................................... 43
ii
Effect of Economy on Revenues.............................................................................................................................. 43 Natural Disasters...................................................................................................................................................... 43 Public Health Emergencies...................................................................................................................................... 45 Hazardous Substances.............................................................................................................................................. 45 Other Financial Matters ........................................................................................................................................... 45 Substitution, Addition and Removal of Property; Additional Bonds ...................................................................... 45 Limited Recourse on Default; No Acceleration of Base Rental .............................................................................. 46 Limitations on Remedies Available; Bankruptcy .................................................................................................... 47 Possible Insufficiency of Insurance Proceeds.......................................................................................................... 48 Loss of Tax Exemption ............................................................................................................................................ 48 Federal Funding Risks ............................................................................................................................................. 48 No Liability of Authority to the Owners.................................................................................................................. 48 Cybersecurity ........................................................................................................................................................... 49 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS..................... 49 Article XIIIA of the State Constitution.................................................................................................................... 49 Legislation Implementing Article XIIIA ................................................................................................................. 49 Article XIIIB of the State Constitution .................................................................................................................... 50 Articles XIIIC and XIIID of the State Constitution................................................................................................. 50 Proposition 62 .......................................................................................................................................................... 51 Proposition 1A ......................................................................................................................................................... 52 Proposition 22 .......................................................................................................................................................... 52 Proposition 26 .......................................................................................................................................................... 53 Possible Future Initiatives........................................................................................................................................ 53 TAX MATTERS.......................................................................................................................................................... 53 General..................................................................................................................................................................... 53 Original Issue Premium and Discount ..................................................................................................................... 54 Post Issuance Matters............................................................................................................................................... 55 Not Bank Qualified .................................................................................................................................................. 55 CERTAIN LEGAL MATTERS................................................................................................................................... 55 ABSENCE OF LITIGATION...................................................................................................................................... 55 UNDERWRITING....................................................................................................................................................... 56 RATINGS..................................................................................................................................................................... 56 MUNICIPAL ADVISOR............................................................................................................................................. 56 CONTINUING DISCLOSURE................................................................................................................................... 56 FINANCIAL STATEMENTS OF THE CITY ............................................................................................................ 57 MISCELLANEOUS..................................................................................................................................................... 57
APPENDIX A ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY OF WATSONVILLE.......................................................................................................................A-1 APPENDIX B SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS .................................................. B-1
APPENDIX C AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE YEAR ENDED JUNE 30, 2024........................................................................................................................... C-1 APPENDIX D PROPOSED FORM OF BOND COUNSEL OPINION ...........................................................D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE.....................................................E-1 APPENDIX F BOOK-ENTRY ONLY SYSTEM ............................................................................................F-1
iii
CITY OF WATSONVILLE
REGIONAL LOCATION MAP
1 OFFICIAL STATEMENT
$[Par Amount]*
WATSONVILLE PUBLIC FINANCE AUTHORITY
LEASE REVENUE BONDS, SERIES 2025
INTRODUCTION
This Official Statement (which includes the cover page and the appendices hereto) (the “Official Statement”) provides certain information concerning the sale and delivery of $_________________________ aggregate principal amount of Watsonville Public Finance Authority Lease Revenue Bonds, Series 2025 (the “Series 2025 Bonds”).
The net proceeds of the sale of the Series 2025 Bonds will be used to (i) finance a portion of the costs of the design, acquisition, construction and installation of certain public capital improvements as part of the City’s Ramsay Park and City Plaza, and related infrastructure improvements (collectively, the “Project”); and (ii) pay the costs incurred in connection with the issuance of the Series 2025 Bonds. See “THE PROJECT” herein for a further description of the Project.
The Series 2025 Bonds are equally and ratably payable from base rental payments (the “Base Rental Payments”) to be made by the City of Watsonville (the “City”) for the right to use certain real property (collectively, the “Property” and described further under the caption “THE PROPERTY”) pursuant to a Lease Agreement, dated as of June 1, 2025 (the “Lease Agreement”), between the City, as lessee, and the Watsonville Public Finance Authority (the “Authority”), as lessor.
The Series 2025 Bonds will be issued pursuant to an Indenture, dated as of June 1, 2025 (the “Indenture”), by and among the Authority, the City and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). Pursuant to the Indenture, the Authority may issue additional bonds (the “Additional Bonds”) payable from the Base Rental Payments on a parity with the Series 2025 Bonds (the Series 2025 Bonds and any such Additional Bonds being collectively referred to as the “Bonds”). See the caption “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2025 BONDS—Additional Bonds.”
Pursuant to a Ground Lease, dated as of June 1, 2025 (the “Ground Lease”), by and between the City and the Authority, the City has leased the Property to the Authority. The Authority has subleased the Property to the City under the Lease Agreement. The Lease Agreement obligates the City to make Base Rental Payments to the Authority.
The Trustee and the Authority have entered into an Assignment Agreement, dated as of June 1, 2025, pursuant to which the Authority has assigned to the Trustee for the benefit of the Bond Owners substantially all of the Authority’s right, title and interest in and to the Ground Lease and the Lease Agreement, including its right to receive the Base Rental Payments due under the Lease Agreement and to enforce any remedies in the event of a default by the City.
The Property leased under the Ground Lease and the Lease Agreement will consist of the Property (as such term is defined under the caption “THE PROPERTY”). The Property generally consists of the City’s Police/Innovation Technology Building, Parks and Community Services Building, Youth Center and City Hall . See the captions “THE PROPERTY” and “THE PROJECT—The Project and the Project Site.” The City also has the right to substitute or release all or a portion of the Property subject to certain conditions precedent.
See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2025 BONDS¾Substitution, Addition and Removal of Property.”
* Preliminary; subject to change.
2 The City will covenant under the Lease Agreement to take such action as may be necessary to include all Rental Payments, which are comprised of Base Rental Payments and Additional Rental Payments (which include taxes and assessments affecting the Property, administrative costs of the Authority relating to the Property, fees and expenses of the Trustee and other amounts payable under the Lease Agreement), due under the Lease Agreement as a separate line item in its annual budgets and to make the necessary annual appropriations therefor, subject to abatement as described herein.
Base Rental Payments are subject to complete or partial abatement in the event and to the extent that there is substantial interference with the City’s right to use and occupy the Property or any portion thereof.
See “RISK FACTORS—Abatements.” Abatement of Base Rental Payments under the Lease Agreement, to the extent that payment is not made from alternative sources as set forth below, would result in all Bond Owners receiving less than the full amount of principal of and interest on the Series 2025 Bonds. To the extent that proceeds of insurance are available or moneys are available in certain funds and accounts pledged as security for the Series 2025 Bonds, Base Rental Payments (or a portion thereof) may be made during periods of abatement.
THE SERIES 2025 BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY, PAYABLE
SOLELY FROM BASE RENTAL PAYMENTS AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE AUTHORITY, THE CITY OR THE STATE OF CALIFORNIA (THE “STATE”), OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE SERIES 2025 BONDS. THE AUTHORITY HAS NO TAXING POWER.
THE OBLIGATION OF THE CITY TO MAKE THE BASE RENTAL PAYMENTS DOES NOT
CONSTITUTE A DEBT OF THE CITY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF
WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR
RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY OR THE
STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION.
The Authority is not funding a debt service reserve fund for the Series 2025 Bonds.
The City has agreed to provide, or cause to be provided, to the Municipal Securities Rulemaking Board for purposes of Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission (“Rule 15c2- 12”) certain annual financial information and operating data and, in a timely manner, notice of certain listed events. These covenants have been made in order to assist the Underwriter in complying with Rule 15c2-12.
See “CONTINUING DISCLOSURE” herein for a description of the Authority’s and the City’s compliance with its prior continuing disclosure undertakings pursuant to Rule 15c2-12 and APPENDIX—E “FORM OF CONTINUING DISCLOSURE CERTIFICATE” for a description of the specific nature of the annual report and notices of listed events and the terms of the disclosure undertaking pursuant to which such reports are to be made.
U.S. Bank Trust Company, National Association, San Francisco, California, will act as Trustee with respect to the Series 2025 Bonds. The Series 2025 Bonds will be issued subject to the approval as to their legality by Anzel Galvan LLP, San Francisco, California, Bond Counsel. Certain legal matters will be passed upon for the City and the Authority by the City Attorney of the City of Watsonville and by Anzel Galvan LLP, San Francisco, California, Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by Kutak Rock LLP, Irvine, California. The City’s financial statements for the fiscal year ended June 30, 2024, included as Appendix C hereto have been audited by Maze & Associates, Pleasant Hill, California (the “Auditor”). See APPENDIX C—“AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2024” herein. The City’s financial statements are public documents and are included within this Official Statement without the prior approval of the Auditor. Accordingly, the Auditor
3 has not performed any post-audit review of the financial condition of the City and also has not performed any procedures relating to this Official Statement.
Certain events could affect the ability of the City to make the Base Rental Payments when due. See “RISK FACTORS” for a discussion of certain factors that should be considered, in addition to other matters set forth herein, in evaluating an investment in the Series 2025 Bonds.
The presentation of information, including tables of receipt of revenues, is intended to show recent historical information and, except for a discussion of the proposed fiscal year 2025-26 budget and estimated fiscal year 2024-25 results, is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as it might be shown by such financial and other information, will necessarily continue or be repeated in the future. See the captions “THE CITY OF WATSONVILLE” and “CITY FINANCIAL INFORMATION” for financial and operating information related to the City.
The summaries or references to the Indenture, the Lease Agreement, the Ground Lease, the Assignment Agreement and other documents, agreements and statutes referred to herein, and the description of the Series 2025 Bonds included in this Official Statement, do not purport to be comprehensive or definitive, and such summaries, references and descriptions are qualified in their entireties by reference to each such document or statute. All capitalized terms used in this Official Statement (unless otherwise defined herein) that are defined in the Indenture or the Lease Agreement have the meanings set forth therein. See APPENDIX B—“SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS.”
THE SERIES 2025 BONDS
General
The Series 2025 Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. The Series 2025 Bonds will be dated as of and bear interest (calculated on the basis of a 360-day year comprised of twelve 30-day months) from the dated date thereof at the rates set forth on the inside cover page hereof. Interest on the Series 2025 Bonds will be paid semiannually on May 1 and November 1 (each, an “Interest Payment Date”) of each year, commencing November 1, 2025.
Interest on the Series 2025 Bonds will be payable from the Interest Payment Date next preceding the date of authentication thereof (a “Record Date”) unless (i) a Series 2025 Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it will bear interest from such Interest Payment Date, (ii) a Series 2025 Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the dated date thereof, or (iii) interest on any Series 2025 Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Interest will be paid in lawful money of the United States on each Interest Payment Date to the Persons in whose names the ownership of the Series 2025 Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest will be paid by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Series 2025 Bond Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date.
The principal and premium, if any, of the Series 2025 Bonds will be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. The Series 2025 Bonds will be subject to redemption as set forth herein.
4 Registration
The Series 2025 Bonds will be issued as fully registered bonds, registered in the name of Cede & Co. as nominee of DTC, and will be available to actual purchasers of the Series 2025 Bonds (the “Beneficial Owners”) in the denominations set forth above, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants (as defined in Appendix F) as described herein.
Beneficial Owners will not be entitled to receive physical delivery of the Series 2025 Bonds. See “THE SERIES 2025 BONDS—Book-Entry Only System.”
Redemption
Extraordinary Redemption from Net Proceeds. The Series 2025 Bonds are subject to redemption, in whole or in part, on any date, in denominations of $5,000 or any integral multiple thereof, from and to the extent of any Net Insurance Proceeds received with respect to all or a portion of the Property, deposited by the Trustee in the Redemption Fund pursuant to the Indenture, at a Redemption Price equal to the principal amount of the Series 2025 Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium.
Optional Redemption of Series 2025 Bonds. The Series 2025 Bonds are not subject to optional redemption prior to maturity.
Mandatory Sinking Fund Redemption. The Series 2025 Bonds with stated maturities on May 1, 20__, are subject to mandatory sinking fund redemption in part (by lot) on each May 1 on and after May 1, 20__, in integral multiples of $5,000 at a Redemption Price equal to the principal amount thereof plus accrued interest to the date fixed for redemption, without premium, in accordance with the following schedule:
Redemption Date
(May 1)
Principal
Amount
*
* Final Maturity.
In the event of a partial optional redemption or extraordinary mandatory redemption of any of the Term Bonds, the City will provide the Trustee with a revised mandatory sinking fund schedule giving effect to the redemption so completed.
Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds, the Trustee shall select the Bonds to be redeemed from all Bonds not previously called for redemption with respect to any redemption of Bonds of a Series, among maturities of Bonds of such Series as directed in a Written Request of the Authority and pro rata among Bonds of the same Series with the same maturity. For purposes of such selection, all Bonds will be deemed to be comprised of separate $5,000 denominations and such separate denominations will be treated as separate Bonds which may be separately redeemed.
Notice of Redemption. So long as the Bonds are held in book-entry form, notices of redemption will be mailed by the Trustee only to DTC and not to any Beneficial Owners. The Authority will provide the Trustee with written notice of redemption pursuant to the Indenture at least thirty (30) days prior to the date set for the redemption of Series 2025 Bonds, or such shorter period as may be consented to by the Trustee, such notice being for the convenience of the Trustee. The Trustee on behalf and at the expense of the Authority will
5 mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, to the Securities Depositories and to one or more Information Services, at least 20 but not more than 60 days prior to the date fixed for redemption. Such notice will state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, the Bond numbers and the maturity or maturities (except in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds to be redeemed, and will require that such Bonds be then surrendered at the principal corporate trust office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, will affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption.
With respect to any notice of optional redemption of the Bonds, such notice may state that such redemption is conditional upon the receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys sufficient to pay the principal of, premium if any, and interest on the Bonds to be redeemed and upon other conditions set forth therein and that, if such money has not been so received or such other conditions have not been satisfied, said notice is of no force and effect and the Trustee is not required to redeem such Bonds. If any condition stated in the redemption notice for an optional redemption have not been satisfied on or prior to the redemption date: (i) the redemption notice will be of no force and effect, (ii) the Authority will not be required to redeem such Bonds, (iii) the redemption will not be made, and (iv) the Trustee will within a reasonable time thereafter give notice to the persons in the manner in which the conditional redemption notice was given that such condition or conditions were not met and that the redemption was canceled.
Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the Authority will execute and the Trustee will authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of the same Series in authorized denominations equal in aggregate principal amount representing the unredeemed portion of the Bonds surrendered.
Effect of Notice of Redemption. Notice having been mailed as aforesaid, and moneys for the Redemption Price, and the interest to the applicable date fixed for redemption, having been set aside in the Redemption Fund, the Bonds will become due and payable on said date, and, upon presentation and surrender thereof at the principal corporate trust office of the Trustee, said Bonds will be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date.
If, on said date fixed for redemption, moneys for the Redemption Price of all the Bonds to be redeemed, together with interest to said date, will be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof has been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds will cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds will be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon. All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions of the Indenture will be canceled upon surrender thereof and destroyed.
Book-Entry Only System
General. DTC will act as securities depository for the Series 2025 Bonds. The Series 2025 Bonds will be issued as fully-registered bonds registered in the name of Cede & Co. (DTC’s partnership nominee).
One fully-registered Series 2025 Bond will be issued for each maturity of the Series 2025 Bonds, each in the initial aggregate principal amount of such maturity, and will be deposited with DTC. See APPENDIX F— “BOOK-ENTRY ONLY SYSTEM.”
Transfer and Exchange of Bonds. The following provisions regarding the exchange and transfer of the Series 2025 Bonds apply only during any period in which the Series 2025 Bonds are not subject to DTC’s
6 book-entry system. While the Series 2025 Bonds are subject to DTC’s book-entry system, their exchange and transfer will be effected through DTC and the Participants and will be subject to the procedures, rules and requirements established by DTC.
Any Bond may, in accordance with its terms, be transferred upon the books required to be kept by the Trustee pursuant to the provisions of the Indenture by the Person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Whenever any Bond or Bonds will be surrendered for transfer, the Authority will execute and the Trustee will authenticate and will deliver a new Bond or Bonds of the same Series in a like aggregate principal amount, in any Authorized Denomination. The Trustee will require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer.
The transferor will also provide or cause to be provided to the Trustee all information necessary to allow the Trustee to comply with any applicable tax reporting obligations, including without limitation any cost basis reporting obligations under Internal Revenue Code Section 6045. The Trustee may rely on the information provided to it and shall have no responsibility to verify or ensure the accuracy of such information.
The Bonds may be exchanged at the principal corporate trust office of the Trustee for a like aggregate principal amount of Bonds of the same Series of other authorized denominations. The Trustee will require the payment by the Bond Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange.
The Trustee is not obligated to make any transfer or exchange of Bonds of a Series during the period established by the Trustee for the selection of Bonds of such Series for redemption, or with respect to any Bonds of such Series selected for redemption.
SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2025 BONDS Pledge of Revenues
The Series 2025 Bonds are equally and ratably payable from and secured by Base Rental Payments and certain amounts on deposit in certain funds and accounts established under the Indenture. Base Rental Payments will be paid by the City from any and all legally available funds. See the captions “THE CITY OF WATSONVILLE,” “CITY FINANCIAL INFORMATION” and “RISK FACTORS” for a description of such available funds and the potential risks associated with the availability of such funds to make Base Rental Payments. The City has covenanted in the Lease Agreement to take such action as may be necessary to include all Base Rental Payments and Additional Rental Payments due under the Lease Agreement as a separate line item in its annual budgets and to make the necessary annual appropriations therefor.
The Authority, pursuant to the Assignment Agreement, will assign to the Trustee for the benefit of the Series 2025 Bond Owners all of the Authority’s right, title and interest in and to the Ground Lease and the Lease Agreement, including, without limitation, its right to receive Base Rental Payments to be paid by the City under and pursuant to the Lease Agreement; provided that, the Authority will retain the rights to indemnification and to payment of reimbursement of its reasonable costs and expenses under the Lease Agreement. The City will pay Base Rental Payments directly to the Trustee, as assignee of the Authority. See “—Base Rental Payments” below. Pursuant to the Indenture, the Authority may issue Additional Bonds payable from the Base Rental Payments on a parity with the Series 2025 Bonds, subject to certain conditions precedent. See the captions “THE PROJECT” and “—Additional Bonds.” Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture, all of the Base Rental Payments and any other amounts (including proceeds of the sale of the Bonds) held in the Base Rental Payment Fund, the Interest Fund, the
7 Principal Fund and the Redemption Fund are pledged by the Authority pursuant to the Indenture to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of the Indenture and the Act. Said pledge constitutes a first lien on such assets.
THE SERIES 2025 BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY, PAYABLE
SOLELY FROM BASE RENTAL PAYMENTS AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE
AUTHORITY, THE CITY OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE SERIES 2025 BONDS. THE AUTHORITY HAS NO TAXING POWER.
Base Rental Payments
Rental Payments (collectively, the Base Rental Payments and the Additional Rental Payments) will be paid by the City to the Authority for and in consideration of the right to use and occupy the Property and in consideration of the continued right to the quiet use and enjoyment thereof during each Rental Period for which such Rental Payments are to be paid. Each Base Rental Payment will be deposited with the Trustee no later than the fifth Business Day preceding each Interest Payment Date (the “Base Rental Deposit Date”) on which such Base Rental Payment is due. All Base Rental Payments will be paid directly by the City to the Trustee, and if received by the Authority at any time will be transferred by the Authority to the Trustee within one Business Day after the receipt thereof. All Base Rental Payments received by the Trustee will be deposited by the Trustee in the Base Rental Payment Fund.
Pursuant to the Indenture, on the Business Day immediately preceding each Interest Payment Date and on the Business Day immediately preceding each Principal Payment Date, the Trustee will transfer amounts in the Base Rental Payment Fund as are necessary to the Interest Fund and the Principal Fund to provide for the payment of the interest on and principal of the Series 2025 Bonds.
Scheduled Base Rental Payments relating to the Series 2025 Bonds are set forth below under the caption “BASE RENTAL PAYMENT SCHEDULE.”
THE OBLIGATION OF THE CITY TO MAKE THE BASE RENTAL PAYMENTS DOES NOT
CONSTITUTE A DEBT OF THE CITY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF
WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR
RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY OR THE
STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION.
Additional Rental Payments
For the right to use and occupy the Property, the Lease Agreement requires the City to pay, as Additional Rental payments thereunder, in addition to the Base Rental Payments, such amounts as shall be required for the payment of the following:
(i) All taxes and assessments of any type or nature charged to the Authority or the City or affecting the Property or the respective interests or estates of the Authority or the City therein. (ii) All reasonable administrative costs of the Authority relating to the Property including, but without limiting the generality of the foregoing, salaries, wages, fees and expenses, compensation and indemnification of the Trustee payable by the Authority under the Indenture, fees of auditors, accountants, attorneys or engineers, and all other necessary and reasonable administrative costs of the Authority or charges required to be paid by it in order to maintain its existence or to comply with the terms of
8 the Indenture or the Lease Agreement or to defend the Authority and its members, officers, agents and employees.
(iii) Insurance premiums for all insurance required pursuant to the Lease Agreement. (iv) Any amounts with respect to the Lease Agreement or the Bonds required to be rebated to the federal government in accordance with section 148(f) of the Internal Revenue Code of 1986. (v) All other payments required to be paid by the City under the provisions of the Lease Agreement or the Indenture.
Amounts constituting Additional Rental Payments payable under the Lease Agreement will be paid by the City directly to the person or persons to whom such amounts are payable. The City will pay all such amounts when due or at such later time as such amounts may be paid without penalty or, in any other case, within 60 days after notice in writing from the Trustee to the City stating the amount of Additional Rental Payments then due and payable and the purpose thereof.
Abatement
Base Rental Payments and Additional Rental Payments are paid by the City in each Rental Period for and in consideration of the right to use and occupy the Property. Except as otherwise specifically provided in the Lease Agreement, during any period in which, by reason of material damage to, or destruction or condemnation of, the Property, or any defect in title to the Property, there is substantial interference with the City’s right to use and occupy any portion of the Property, Rental Payments are subject to abatement proportionately, and the City waives the benefits of Civil Code Sections 1932(1), 1932(2) and 1933(4) and any and all other rights to terminate the Lease Agreement by virtue of any such interference, and the Lease Agreement will continue in full force and effect. The amount of such abatement will be agreed upon by the City and the Authority; provided, however, that the Rental Payments due for any Rental Period may not exceed the annual fair rental value of that portion of the Property available for use and occupancy by the City during such Rental Period. Any such abatement will continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Property, ending with the substantial completion of the work of repair or replacement of the Property, or the portion thereof so damaged or destroyed; and the term of the Lease Agreement will be extended as provided in the Lease Agreement, except that the term will in no event be extended ten years beyond the stated termination date of the Lease Agreement. The Trustee cannot terminate the Lease Agreement in the event of such substantial interference. Abatement of Base Rental Payments and Additional Rental Payments is not an event of default under the Lease Agreement and does not permit the Trustee to take any action or avail itself of any remedy against the City. See APPENDIX B—“SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—THE LEASE AGREEMENT—Rental Payments—Rental Abatement.”
Notwithstanding the foregoing, to the extent that moneys are available for the payment of Rental Payments due under the Lease Agreement in any of the funds and accounts established under the Indenture (including as a result of the availability of insurance proceeds or amounts in certain funds and accounts pledged to the Series 2025 Bonds), such Rental Payments will not be abated as provided above but, rather, will be payable by the City as a special obligation payable solely from said funds and accounts.
The Lease Agreement provides that if the Bonds have not been fully paid or defeased by the final maturity thereof, or if the Rental Payments remain due and payable or have been abated at any time and for any reason, then the term of the Lease Agreement will be extended until the date upon which (i) all Bonds are fully paid or defeased, or (ii) the Indenture is discharged by its terms and all Rental Payments are paid in full, up to an additional ten years beyond the final maturity of the Bonds.
9 Substitution or Release of the Property
General. The Authority and the City may amend the Lease Agreement to substitute alternate real property for any portion of the Property or to release a portion of the Property from the Lease Agreement, upon compliance with all of the conditions set forth in the Lease Agreement and described below. After a substitution or release, the portion of the Property for which the substitution or release has been effected will be released from the leasehold encumbrance of the Lease Agreement.
The Lease Agreement provides that there will be no reduction in or abatement of the Base Rental Payments due from the City thereunder as a result of such substitution or release. Any such substitution or release is subject to the following specific conditions precedent:
(a) the City finds (as set forth in a certificate delivered by the City to the Trustee) that the Property, as constituted after such substitution or release: (i) has an annual fair rental value at least equal to the maximum annual Base Rental Payments payable by the City in any Rental Period, during the remaining term of this Lease Agreement, as determined by the City on the basis of commercially reasonable evidence of the fair rental value of the Property, and (ii) has a useful life in excess of the final maturity of any Outstanding Bonds.
(b) the City obtains or causes to be obtained a CLTA or ALTA title insurance policy or policies with respect to any substituted property in an amount at least equal to the aggregate principal amount of any Outstanding Bonds, of the type and with the endorsements described in the Lease Agreement; (c) the City provides the Trustee with an Opinion of Counsel to the effect that such substitution or release will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income tax purposes;
(d) the City, the Authority and the Trustee execute, and the City causes to be recorded with the Santa Cruz County Clerk-Recorder, any document necessary to reconvey to the City the portion of the Property being released and to include any substituted real property in the description of the Property contained in the Lease Agreement and in the Ground Lease; (e) the City shall have provided notice of such substitution to each rating agency then rating the Bonds;
(f) no event of default has occurred and is continuing under the Lease Agreement; (g) the City gives, or causes to be given, any notice of the occurrence of such substitution required to be given pursuant to the Continuing Disclosure Certificate; (h) the City certifies to the Trustee that the City has a current need for the substituted real property; and
(i) the City certifies to the Trustee that any substitution will not cause the City to violate any of its covenants, representations and warranties made in the Lease Agreement.
See APPENDIX B—“SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—THE LEASE AGREEMENT—No Consequential Damages; Use of Property; Substitution or Release.” Action on Default
Should the City default under the Lease Agreement, the Trustee, as assignee of the Authority under the Lease Agreement, may terminate the Lease Agreement and recover certain damages from the City, or may
10 retain the Lease Agreement and hold the City liable for all Base Rental Payments thereunder on an annual basis, and will have the right to re-enter and re-let the Property. In the event such re-letting occurs, the City would be liable for any resulting deficiency in Base Rental Payments. Base Rental Payments may not be accelerated upon a default under the Lease Agreement. See “RISK FACTORS—Limited Recourse on Default; No Acceleration of Base Rental.”
For purposes of certain actions of Bond Owners under the Indenture and the Lease Agreement, such as certain consents and amendments and the direction of remedies following default, Series 2025 Bond Owners do not act alone and may not control such matters to the extent such matters are not supported by the requisite number of the Owners of all Series 2025 Bonds and Additional Bonds, if any.
For a description of the events of default and permitted remedies of the Trustee (as assignee of the Authority) contained in the Lease Agreement and the Indenture, see APPENDIX B—“SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—THE LEASE AGREEMENT—Defaults and Remedies” and “—THE INDENTURE—Default and Limitations of Liability.”
No Reserve Fund
The Authority has not funded a debt service reserve fund for the Series 2025 Bonds.
Additional Bonds
Pursuant to the Indenture, the Authority may issue Additional Bonds payable from the Base Rental Payments on parity with the Series 2025 Bonds upon satisfaction of certain conditions, including, but not limited to, the following:
(a) The issuance of such Additional Bonds has been authorized under and pursuant to the Indenture and provided for by a Supplemental Indenture; (b) The Authority and the City are in compliance with all agreements, conditions, covenants and terms contained in the Indenture, the Lease Agreement and the Ground Lease required to be observed or performed by each of them;
(c) The Ground Lease has been amended, to the extent necessary, and the Lease Agreement has been amended so as to increase the Base Rental Payments payable by the City thereunder by an aggregate amount equal to the principal of and interest on such Additional Bonds, payable at such times and in such manner as may be necessary to provide for the timely payment of the principal of and interest on such Additional Bonds; provided, however, that no such amendment is permitted to be made such that the sum of Base Rental Payments, including any increase in the Base Rental Payments as a result of such amendment, plus Additional Rental Payments, in any Rental Period is in excess of the annual fair rental value of the Property after taking into account the use of the proceeds of any Additional Bonds issued in connection therewith.
See APPENDIX B—“SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—THE INDENTURE—Issuance of Bonds; Application of Proceeds.”
Insurance
The Lease Agreement requires the City to maintain or cause to be maintained fire, lightning and special extended coverage insurance (which includes coverage for vandalism and malicious mischief, but need not include coverage for earthquake damage) on all improvements constituting any part of the Property in an amount equal to the greater of 100% of the replacement cost of such improvements or 100% of the outstanding
11 principal amount of the Bonds. All insurance required to be maintained pursuant to the Lease Agreement may be subject to a deductible in an amount not to exceed $500,000.
The Lease Agreement requires the City to maintain rental interruption insurance to cover the Authority’s loss, total or partial, of Base Rental Payments resulting from the loss, total or partial, of the use of any part of the Property as a result of any of the hazards covered by the casualty insurance described in the preceding paragraph, in an amount sufficient at all times to pay an amount not less than the product of two times the maximum amount of Base Rental Payments scheduled to be paid during any Rental Period.
The City is also required to maintain or cause to be maintained, throughout the term of the Lease Agreement, a standard commercial general liability insurance policy or policies in protection of the City, the Authority and their respective members, officers, agents and employees, and worker’s compensation insurance as described in APPENDIX B—“SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—THE LEASE AGREEMENT—Insurance.”
The City’s obligation to maintain the insurance described above (including rental interruption insurance) may be satisfied by self-insurance, provided such self-insurance complies with the requirements of the Lease Agreement.
The City is required under the Lease Agreement to provide, at its own expense, one or more CLTA or ALTA title insurance policies for the Property, in the aggregate amount of not less than the initial aggregate principal amount of the Bonds (and the initial aggregate principal amount of Additional Bonds issued after the Closing Date), insuring the fee interest of the City in the Property, the Authority’s leasehold estate in the Property under the Ground Lease, and the City’s subleasehold estate in the Property under the Lease Agreement, subject only to Permitted Encumbrances, and providing that all proceeds thereunder are payable to the Trustee for the benefit of the Owners.
See APPENDIX B—“SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—THE LEASE AGREEMENT—Insurance.”
SOURCES AND USES OF FUNDS
The sources and uses of funds with respect to the Series 2025 Bonds are shown below.
Sources
Principal Amount of Series 2025 Bonds $
Net Original Issue [Premium][Discount]
Total Sources
$
Uses
Project Fund $
Costs of Issuance(1)
Total Uses $
(1) Includes legal, municipal advisory, rating agency, printing fees, underwriter’s discount, and other miscellaneous costs of issuance.
12 BASE RENTAL PAYMENT SCHEDULE
Following is the annual schedule of Base Rental Payments due with respect to the Series 2025 Bonds, assuming no redemption prior to maturity:
Bond Year
(Ending May 1) Principal Interest Total
2026 $ $ $
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
Total $ $ $
THE PROJECT
The Project consists of the design, acquisition, construction and/or installation of certain capital improvements in the City, including completion of the Ramsay Park Renaissance Project and City Plaza Project.
Ramsay Park is the City’s largest park. The Ramsay Park Renaissance Project is anticipated to include upgrades to certain facilities, including a renovation to the Sotomayer soccer field, a redesigned multi-use sports field, an inclusive and sensory playground, small and large dog play areas, and a 3,500-square foot nature center with culturally relevant exhibits and educational programs. Other funding for the Ramsay Park Renaissance Project has included Measure R amounts, State grants, American Rescue Plan Act (ARPA) funds and amounts from the City of Watsonville. The total cost of the project is approximately $33 million.
The City Plaza Project will include updating the gazebo in the center of the park, renovating the historic community fountain, improve landscaping and lighting throughout the park, and adding a permanent stage with seating areas, game tables, group picnic areas, a play station, public art, a circular walkway around the middle of the plaza, a drinking fountain with bottle-filling station, bicycle parking, improved electrical infrastructure to facilitate events and performances, and signage to highlight the historical elements of the park.
THE PROPERTY
General
The Property leased under the Ground Lease and the Lease Agreement will consist of the City’s Police/Innovation Technology Building, Parks and Community Services Building, Youth Center and City Hall.
The City has the right to substitute or release all or a portion of the Property subject to certain conditions precedent.
The Property is utilized exclusively by the City as a hub for its local government, where it houses various departments responsible for managing city finances, planning, police parks and recreation services and various other administrative services.
13 The City and the Authority have agreed and determined that based on the aggregate value of the land and improvements comprising the Property as of the date of delivery of the Series 2025 Bonds, that the annual fair rental value of the Property is not less than the maximum annual Rental Payments due in any year. In making such determination of fair rental value, consideration was given to the uses and purposes that may be served by the Property and the benefits therefrom which will accrue to the City and the general public.
Payments of the Rental Payments for the Property during each Rental Period shall constitute the total rental for said Rental Period.
The City will lease the Property to the Authority pursuant to the Ground Lease. The Authority will then sublease the Property to the City pursuant to the Lease Agreement.
The Property
The Property consists of the properties listed in the following table and described in more detail below.
Facility Location and Use
Approx.
Building
Square
Footage
Approx.
Land
Square
Footage
Estimated
Building
Value
Estimated
Land Value
Police/IT Building(1) 215 Union Street- Police
and Innovate Technology
Services
19,466 33,604 $10,472,360 $1,680,200
Parks and Community
Services Building (2)
231 Union Street –
Parks/Community Services
Administrative Offices
3,809 84,564 $965,823 $2,790,612
Youth Center(3) 30 Maple Avenue –
Entertainment & Recreation
Center
11,178 N/A(5) $3,327,127 N/A(5)
City Hall(4) 250 Main Street –
managing City finances,
planning, public works
32,460 N/A(5) $10,071,084 N/A(5)
Total 66,913 118,168 $24,836,394 $4,470,812
(1) The Police/IT Building is a two-story building that was constructed in 1982. It has a steel frame construction, unreinforced masonry infill walls and a foundation of spread/strip footings. It has not been seismically retrofitted and is located on a soft soil site.
(2) Parks and Community Services Building is a one-story building that was constructed in 1959. It has not been seismically retrofitted and is located on a soft soil site.
(3) The Youth Center is a single-story building that was constructed in 1994. It has an engineered wood frame construction, bearing sheer wall masonry and a slab foundation. It has not been seismically retrofitted and is located on a soft soil site. (4) The City Hall was constructed in 1964 with a bearing sheer wall construction, and on a foundation of spread/strip footings.
It has not been seismically retrofitted and is located on a soft soil site. (5) Included in Parks and Community Services Building land square footage.
Source: The City.
THE AUTHORITY
The Authority was established pursuant to the provisions of Articles 1, 2 and 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the “Act”) and a Joint Exercise of Powers Agreement dated as of October 24, 2017 (as amended, the “JPA Agreement”), between the City and the Industrial Development Authority of the City of Watsonville. The City Council of the City is appointed as the governing board of the Authority, and the Authority is administered by the City’s staff. Under the JPA
14 Agreement and Article 4 of the Act, the Authority is authorized to assist in the financing of public capital improvements.
THE CITY OF WATSONVILLE
General
The City is located approximately six miles inland from the Monterey Bay, ninety-five miles south of the City and County of San Francisco and forty-seven miles southwest of the City of San José. The City encompasses an area of approximately 6.8 square miles within the County of Santa Cruz. The City was incorporated in 1868 and, in 1903, became a chartered city. As of January 1, 2024, the population of the City was estimated to be 51,032. For additional economic and demographic information regarding the City, see APPENDIX A ¾ “ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY OF WATSONVILLE.”
City Council
The City operates under a council-manager form of government. Policymaking and legislative authority are vested in the governing City Council, which consists of seven Council Members, one of whom serves as mayor. The mayor is appointed on sequential basis from each of the numbered City Council districts and serves for a term of one year. The City Council is elected on a non-partisan basis from seven electoral districts. Council members are elected to four-year terms. Elections are staggered with four Council Members elected during one election and three Council Members elected in the following election two years later.
The City Council is responsible, among other things, for passing ordinances, adopting the budget, appointing committees, and hiring the government's City Manager, City Clerk, and Attorney. The City Manager is responsible for carrying out the policies and ordinances of the governing council, for overseeing the day-to-day operations of the government, and for appointing the department heads.
The members of the City Council and the current expiration dates of their respective terms are set forth in the table below.
CITY OF WATSONVILLE
City Council
Name and Office Term Expires
Maria Orozco, Mayor and District 3 December 2026
Kristal Salcido, Mayor Pro Tempore and District 4 December 2026 Eduardo Montesino, District 1 December 2028
Vanessa Quiroz-Carter, District 2 December 2028
Casey K. Clark, District 5 December 2026
Jimmy Dutra, District 6 December 2028
Ari Parker, District 7 December 2026
Source: City of Watsonville.
City Management
Brief biographies of the City Manager and the Administrative Services Director follow below.
Tamara Vides, City Manager. Ms. Vides has worked at the City for nearly 30 years. Prior to her appointment as City Manager in 2024, she served in several roles including Interim City Manager, Assistant
15 City Manager and Deputy City Manager. She holds a Bachelor of Science in Business Administration and a Master of Science in Recreation Management from San José State University. As City Manager for the City, she oversees the City’s departments, managing over 450 employees and a budget exceeding $267 million. Her focus lies in advancing the City Council’s strategic goals, fostering intergovernmental relations, and serving as a liaison to the community.
Ms. Vides’s efforts have earned her numerous accolades, including the prestigious 2024 John H. Nail Award for Assistant City Manager of the Year and the 2023 Workforce Development Achievement Award.
She has been honored with recognition for her contributions to community health, youth development, and human rights, showcasing her unwavering dedication to her community’s well-being.
Marissa Dura, Administrative Services Director. Ms. Duran has nearly three decades of dedicated service to the City. Prior to her appointment as Administrative Services Director in 2023, she served the City as Assistant Finance Director, Sr. Financial Analyst and Accountant II. Ms. Duran has extensive operational and managerial experience in all the functional areas. She has played a key role in shaping the City’s fiscal strategy and long-term planning. Ms. Vides earned a bachelor’s degree in accounting from the California State University at San José.
Throughout her tenure, Ms. Vides has overseen the development and administration of over 25 Government Finance Officers Association (GFOA) award-winning budget documents and Annual Comprehensive Financial Reports (ACFRs). She currently oversees the day-to-day operations of the Finance Department.
Employee Relations
The City had 432.25 authorized positions at the beginning of fiscal year 2024-25. The City’s employees, other than the City Clerk and the City Manager, are represented by the following labor groups. In addition, the City Clerk and City Manager have contracts with the City. In the previous five years, there have not been any work stoppages by City employees.
CITY OF WATSONVILLE
City Employee Labor Groups
Labor Group
Number of
Budgeted
Employees
Contract
Expiration Date(1)
OE3 - Operating Engineers Local Union No. 3 117.75 06/30/2025 POA - Police Officer's Association 56 06/30/2025
SEIU - Service Employees International Union Local 521 41.75 12/31/2025 LiUNA – Mid level Managers 80.75 06/30/2025
Management 58 06/30/2025
Executive 12 06/30/2025
Confidential 11 06/30/2025
Fire Management 4 06/30/2025
Police Management 5 06/30/2025
IAFF Local 1272 - International Association of Firefighters 34 06/30/2025 Public Safety Mid-Management 12 06/30/2025
16 (1) All contracts will continue according to their terms after their respective stated expiration dates until renegotiated.
Source: City of Watsonville.
The City is currently negotiating new contracts with almost all employee units (PSMM, IAFF, POA, LiUNA, OE3 Management, Police Management, Fire Management, Confidential) and the Executive Team with contracts\compensation plans ending on June 30, 2025. The remaining bargaining unit, SEIU has a contract expiring in December 2025. It is budgeted and anticipated that all groups will be provided with salary increases in each of the next three years.
Risk Management
For more information with respect to the insurance requirements under the Lease Agreement, see the caption “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2025 BONDS—Insurance” in this Official Statement.
The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City also provides health insurance coverage to employees. There have been no significant reductions in insurance coverage for any risk of loss in the past fiscal year, and settled claims have not exceeded the commercial coverage in any of the past three fiscal years. The City has established a risk management fund to account for and finance its uninsured risks of loss.
The City’s risk management programs provide coverage for up to a maximum of $150,000 for each Workers' Compensation claim; $500,000 for each General Liability claim. The City purchases commercial insurance for claims in excess of coverage provided by the self-insurance programs. There have been no significant changes in insurance coverage as compared to last fiscal year.
All funds of the City participate in the self-insurance programs. The employee health insurance program is funded by contributions of a flat rate per employee to the self-insurance fund. Other self-insurance programs are funded by budgeted appropriations. Funding is estimated to provide the amount needed to pay prior and then current fiscal year claims and to establish reserves for catastrophic losses.
Liabilities in the self-insurance Internal services fund at June 30, 2024, totaled $4,368,818 as follows:
Health Benefits $104,289; General Liability $1,335,942; and Workers’ Compensation $2,928,587.
The City is a member of the California Intergovernmental Risk Authority (“CIRA”), formerly known as Public Agency Risk Sharing Authority of California. CIRA, a consortium of municipalities, fire districts, and special districts, was established in July 2021 to pool resources, share risks, purchase excess insurance, and share costs for professional risk management and claims administration. CIRA’s Executive Committee consists of Board officers (President, Vice President, Treasurer, and Auditor/Controller) and ten members-atlarge, representing both region and size. Executive Committee members are elected from the Board of Directors and serve staggered, two-year terms.
The City is self-insured for general liability claims up to $500,000 (effective November 11, 1994) for each occurrence. Coverage for individual losses in excess of $500,000, up to $10,000,000, is provided through CIRA. Under this program, members share in losses between the members’ individual self-insured retention and $1,000,000 under a risk sharing pool program; and from $1,000,000 to $40,000,000, coverage is provided by another risk pool, CSAC-EIA.
Estimates for all liabilities have been accrued in the Self-Insurance Internal Service Fund, which included an estimate for incurred but not reported claims. At June 30, 2024, total estimated claims payable for
17 General Liability were $1,335,942. For additional information about the City insurance policies, see Note IV.B to the City’s audited financial statements for fiscal year 2023-24 attached hereto as Appendix C.
CITY FINANCIAL INFORMATION
Accounting and Financial Reporting
The City maintains its accounting records in accordance with Generally Accepted Accounting Principles (“GAAP”) and the standards established by the Governmental Accounting Standards Board (“GASB”). The City Council and City staff review fiscal performance against the budget at the mid-point of each fiscal year. Combined financial statements of the City and its component units are produced following the close of each fiscal year of the City ended June 30.
The City Council employs an independent certified public accountant who examines at least annually the financial statements of the City in accordance with GAAP, including tests of the accounting records and other auditing procedures as such accountant considers necessary. As soon as practicable, after the end of the fiscal year, a final audit and report is submitted by the independent accountant to the City Council. The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate.
Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The budget is adopted in accordance with GAAP. Revenues are recognized on the accrual basis (i.e., when they are earned).
Expenditures are recorded when the related fund liability is incurred. See Note I to the City’s audited financial statements for fiscal year 2023-24 attached hereto as Appendix C for a description of the significant accounting policies of the City. See the caption “— Financial Statements” for a discussion of the City’s audited financial statements for fiscal year 2023-24.
The General Fund is the general operating fund of the City. It is used to account for all financial resources except those that are required to be accounted for in another fund because there are legal restrictions on their use. Information on the remaining governmental funds of the City as of June 30, 2024, is set forth in Appendix C.
Financial Policies
Fund Balance Policy. On February 28, 2018, the City Council adopted a Fund Balance Policy (the “Fund Balance Policy”) to establish a target minimum level of restricted reserves in the General Fund to:
• Demonstrate continued prudent fiscal management and creditworthiness. • Mitigate financial impacts resulting from a natural disaster or other catastrophic events. • Alleviate loss of major revenue sources.
• Respond to challenges of a changing economic environment, including prolonged downturns in the local, state, or national economy.
• Moderate unanticipated operating or capital expenditures.
Unrestricted Reserve. Pursuant to the City’s Fund Balance Policy, the City is required to maintain an unrestricted fund balance in the City’s General fund of no less than 20% of General Fund operating expenses (the “Unrestricted Reserve”), which is inclusive of the reserve required under Section 1112 of the City Charter, currently set at $2,450,000 and the Emergency Reserve described below. As of June 30, 2024, the balance in the Unrestricted Reserve was $34,011,463, representing 48% of General Fund budgeted operating expenses for fiscal year 2023-24.
18 Emergency Reserve. Pursuant to the City’s Fund Balance Policy, the City has adopted a goal of committing 10% of General Fund operating expenditures for emergencies and contingencies as part of the Unrestricted Reserve balance (the “Emergency Reserve”). As of June 30, 2024, the balance in the Emergency Reserve was $5,844,487, representing 10% of General Fund budgeted operating expenses for fiscal year 2023-24.
Pursuant to the City’s Fund Balance Policy, the Emergency Reserve may be used in the following circumstances:
• Disasters: An unplanned, major, catastrophic event such as declared emergencies, natural disasters or any other unforeseen event requiring expenditures over 5% of General Fund adopted appropriations in a given fiscal year.
• Revenue Shortfall: If regular General Fund revenues are projected to be will be less than the prior year's, or less than the highest of any of the prior four fiscal years' regular General Fund revenues. • Retirement Cost Increases: In the event that the City’s anticipated payments for employee benefits are expected to be more than 5% greater than the prior year’s payments. • Asset Failure: Should an asset of the City have an unexpected failure requiring emergency repairs of over $100,000 that cannot be paid for out of available operating appropriations.
The City Council must act to appropriate the use of money in the Emergency Reserve except in emergency situations (i.e., when there is an urgent need to use such money in the absence of the City Council’s appropriation thereof), in which case the City Manager may authorize the use of these funds and an appropriations request must be reviewed by the City Council at their next regular meeting.
The use of the Emergency Reserve is restricted to the lower of either 50% of the available reserve in the first year of an emergency or the amount of the triggering event. In the second year of a triggering event, the remaining balance may be used.
At the end of each fiscal year, along with the Annual Comprehensive Financial Report of the City the Administrative Services Director will report on the level of unrestricted fund balance and reserves and will make recommendations for the use of any available funds.
One-Time Reserve Policy. The City has adopted a policy of using one-time revenues to support onetime expenditures.
One-time revenues consist of revenues that by their nature are difficult to predict and cannot be relied upon as regular sources of operating revenue. Examples of one-time revenues include but are not limited to:
• Excess year-end unassigned fund balance resulting from revenues being greater than expenditures during the fiscal year;
• Sale of City-owned assets or property; and
• Litigation settlements.
One-time expenses consist of non-recurring and non-operational expenses, typically related to shortduration activities or one-time projects, which may include, but are not limited to, the following:
• Increasing levels of reserves;
• Paying down debt;
• Paying down unfunded CalPERS liability; and
• Funding capital or other one-time expenditures
Investment Policy. Pursuant to California Government Code Section 53646, the City Treasurer prepares investment policy guidelines that are approved by the City Council annually. The City’s current investment policy was approved on January 25, 2022 (the “Investment Policy”). The Investment Policy applies
19 to the investment of all City funds not required for immediate expenditure, excluding proceeds from certain bond issues that are covered by bond documents. The objectives of the Investment Policy are, in order or priority, safety of principal, liquidity, and yield. All investments are made in accordance with the California Government Code Section 53601 and, in general, the Investment Policy is more restrictive than State law. The City’s Administrative Services Director serves as the City Treasurer.
The Administrative Services Director, in the capacity of City Treasurer, is designated as the Chief Investment Officer of the City and is responsible for investment decisions and activities, under the direction of the City Manager. The Administrative Services Director is required under the Investment Policy develop and maintain written administrative procedures for the operation of the investment program by qualified Finance Department staff, consistent with the Investment Policy.
The Investment Policy establishes an Investment Committee, consisting of the City Manager or their designee, the Director of Finance, Assistant Director of Finance, and investment staff. Members of the Investment Committee serve without compensation and meet as needed. The Investment Committee include in its deliberations such topics as: economic outlook, portfolio diversification, maturity structure, potential risks to the City’s funds, authorized depositories, and selection of banks and primary dealers.
The par value, market value, costs basis, and percent of total investments by market value for each category of the City’s investments, as March 31, 2025, are set forth in the following table:
TABLE 1
CITY OF WATSONVILLE
INVESTMENT PORTFOLIO AS OF MARCH 31, 2025
Investment Type Cost Basis Market Value
Local Agency Investment Fund $22,047,908 $22,066,631
California Asset Management Program 112,486,924 112,486,924 Source: City of Watsonville.
For additional information with respect to the City’s cash and investments, see Note I.D to the audited financial statements for fiscal year 2023-24 attached to the Official Statement as Appendix C.
Budget Procedure, Proposed Budget and Historical Budget Information Budget Procedure. In accordance with the City Charter, the City Council adopts a budget on an annual basis. Each budget is biennial, which begins in the first fiscal year and covers a two-year period beginning on July 1 and running through June 30 for two years. The City’s budget serves as the foundation for the City’s financial planning and control. All departments of the City are required to submit requests for appropriations to the government’s management on or before March 31 of each fiscal year. The Finance Department uses these requests as a starting point for developing a proposed budget. The Finance Department then presents the proposed budget to the City Council for review prior to May 31. The City Council is required to hold public hearings on the proposed budget and to adopt a final budget by no later than June 30, the close of the City’s fiscal year. The appropriated budget is prepared by fund (i.e. General Fund), department (i.e., police), and division (i.e., investigation). Department directors may make transfers of appropriations within a department. Transfers of appropriations between departments, however, require the special approval of the City Manager.
Once the budget is adopted by the City Council, the responsibility of implementing each departmental budget lies with each department head, with ultimate responsibility resting with the City Manager. Department directors are expected to operate their departments within the appropriations established in the budget. Any
20 amendments to an adopted budget that increase expenditures within any fund require the approval of the City Council. The City Manager may transfer appropriations within a fund without increasing total expenditures when appropriate for continued operations except for contingency funds. The Administrative Services Director may transfer appropriations within a division upon request of a department head except in salary and capital accounts. The City Council will reappropriate capital improvement project budgets each year until the project is complete.
Proposed Fiscal Year 2025-26 Budget.
General. [To come.]
Revenues. [To come.]
Expenditures. [To come.]
Comparison of Budget to Actual Performance. Set forth in the table below are the adopted General Fund budgets for fiscal years 2022-23 and 2023-24 (as originally adopted and not reflecting any mid-fiscal year budget adjustments) and the audited General Fund results for the corresponding fiscal years.
21 TABLE 2
CITY OF WATSONVILLE
GENERAL FUND BUDGETS AND RESULTS
FISCAL YEARS 2022-23 AND 2023-24
Adopted
2022-23 Budget
Audited
2022-23 Results
Adopted
2023-24 Budget
Audited
2023-24 Results
REVENUES:
Taxes $34,411,245 $36,408,419 $41,138,2621 $44,616,220
Licenses, permits and fees 2,941,957 2,436,035 2,731,701 3,376,598 Intergovernmental 2,915,633 3,485,959 8,506,329 5,169,535 Charges for services 3,792,770 3,910,505 4,311,708 4,431,903 Fines 647,560 530,360 647,560 455,543
Interest 2,742,507 3,365,394 3,314,505 6,091,126
Miscellaneous 1,144,112 7,732,476 1,651,577 4,825,770
Total Revenues $48,595,784 $57,869,148 $62,301,641 68,966,695 EXPENDITURES:
Current:
General government) 22,510,787 16,430,151 29,372,569 16,180,306 Public safety 29,255,956 29,585,373 31,380,286 31,757,510 Streets 5,578,996 5,395,431 6,827,971 5,568,676
Culture and recreation 6,816,480 6,619,164 6,662,970 6,810,839 Debt service:
Principal -- 194,812 -- 201,136
Interest and fiscal charges -- 4,259 -- 7,060
Total Expenditures $64,162,219 $58,229,190 $74,243,796 $60,525,527 Excess (Deficiency) of Revenues
Over (Under) Expenditures(1) $(15,566,435) $(360,042) $(11,942,155) $8,441,168
OTHER FINANCING SOURCES (USES)
Transfers in $5,871,244 $4,122,071 $4,663,481 $4,092,815 Transfers out (180,956) (364,179) (238,211) (148,479)
Total other sources (uses) $5,690,288 $3,757,892 $4,425,270 $3,944,336 Net Change in Fund Balance $(9,876,147) $3,397,850 $(7,516,885) $12,385,504 Fund Balance-beginning of year $18,228,109 $18,228,109 $21,625,959 $21,625,959 Fund Balance-end of year $8,351,962 $21,625,959 $14,109,074 $34,011,463 (1) The budgeted deficiency of revenues under expenditures for fiscal years 2022-23 and 2023-24 reflects a strategic spend-down of fund balance, primarily to fund capital improvement projects.
Source: City of Watsonville audited financial statements for fiscal years 2022-23 and 2023-24.
22 Comparative Change in Fund Balance of the City General Fund The table below presents the City’s General Fund Statement of Revenues, Expenditures and Change in Fund Balance for fiscal years 2018-19 through 2022-23 (audited) and 2024-25 (estimated).
23 TABLE 3
CITY OF WATSONVILLE GENERAL FUND STATEMENT OF
REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES
Audited
2019-20
Audited
2020-21
Audited
2021-22
Audited
2022-23
Audited
2023-24
Estimated
2024-25(2)
REVENUES:
Taxes(1) $30,265,864 $31,696,950 $34,344,898 $36,408,419 $44,616,220 $44,712,930 Licenses, permits and fees 4,326,047 2,212,590 3,373,571 2,436,035 3,376,598 3,096,381 Intergovernmental(2) 3,696,130 3,162,931 2,472,809 3,485,959 5,169,535 3,452,244 Charges for services 3,518,050 3,353,708 3,500,499 3,910,505 4,431,903 4,261,865 Fines 671,565 462,190 592,760 530,360 455,543 515,653
Interest 2,863,834 2,481,291 2,731,729 3,365,394 6,091,126 4,816,968 Miscellaneous 1,722,526 2,515,265 2,194,199 7,732,476 4,825,770 1,585,302 Total Revenues $47,064,016 $45,884,925 $49,210,465 $57,869,148 $68,966,695 $62,441,343 EXPENDITURES:
Current:
General government(3) $11,115,028 $9,837,863 $13,551,227 $16,430,151 $16,180,306 $19,681,483 Public safety 26,074,152 26,404,851 28,203,017 29,585,373 31,757,510 32,231,269 Streets 4,771,141 5,317,110 5,170,149 5,395,431 5,568,676 4,758,545 Culture and recreation 5,177,931 4,708,097 6,028,429 6,619,164 6,810,839 7,290,504 Debt service:
Principal -- 1,649,451 -- 194,812 201,136 181,292
Interest and fiscal charges -- -- -- 4,259 7,060 9,773
Total Expenditures $47,138,252 $47,917,372 $52,952,822 $58,229,190 $60,525,527 $64,152,866
REVENUES OVER (UNDER)
EXPENDITURES(1) $(74,236) $(2,032,447) $(3,742,357) $(360,042) $8,441,168 $(1,711,523)
OTHER FINANCING SOURCES (USES)
Issuance of debt $144,201 $1,649,451 -- -- --
Transfers in 3,636,287 3,729,635 $3,783,286 $4,122,071 $4,092,815 $4,067,381 Transfers out (381,094) (1,667,803) (83,777) (364,179) (148,479) (135,139) Total other sources (uses) $3,399,394 $3,711,283 $3,699,509 $3,757,892 $3,944,336 $3,932,242 Net Change in Fund Balance(1) $3,325,158 $1,678,836 $(42,848) $3,397,850 $12,385,504 $2,220,719 Fund Balance-beginning of year(1) $13,266,963 $16,592,121 $18,270,957 $18,228,109 $21,625,959 $34,011,463 Fund Balance-end of year(1) $16,592,121 $18,270,957 $18,228,109 $21,625,959 $34,011,463 $36,232,182 (1) Increase in fiscal year 2023-24 over prior fiscal year primarily due to passage of Measure R in November 2022, which became effective on April 1, 2023. See “Sales Taxes – Measure R Sales Taxes.” (2) Estimated based on City’s fiscal year 2024-25 mid-year budget update.
Source: City of Watsonville audited financial statements for fiscal years 2019-20 through 2023-24; City of Watsonville mid-year budget update for estimated fiscal year 2024-25 amounts.
24 Comparative General Fund Balance Sheets of the City
The table below presents the City’s General Fund Balance Sheets for fiscal years 2019-20 through 2023-24 (audited).
25 TABLE 4
CITY OF WATSONVILLE
GENERAL FUND BALANCE SHEETS
FIVE-YEAR COMPARISON
Audited
2019-20
Audited
2020-21
Audited
2021-22
Audited
2022-23
Audited
2023-24
ASSETS:
Cash and investments(1) $19,800,341 $21,481,142 $21,927,988 $23,905,029 $33,481,768 Receivables:
Interest 242,762 92,942 138,619 409,636 481,417
Taxes 3,461,110 3,450,512 3,914,301 4,268,865 6,075,779 Accounts 735,324 1,288,593 2,024,890 1,594,197 1,526,293 Intergovernmental 1,988,724 3,137,504 2,854,378 2,506,116 3,160,583 Due from other funds 654,692 955,413 843,485 462,405 300,619 Advances receivable 101,674 -- -- -- --
Loans receivable 2,292,458 1,815,302 1,423,779 421,302 3,750 Inventories 12,100 18,282 -- -- --
Total Assets(1) $29,289,185 $32,239,690 $33,127,440 $33,567,550 $45,030,209 LIABILITIES:
Accounts payable $1,064,275 $759,039 $1,686,110 $1,418,928 $2,632,984 Accrued personal costs 2,026,060 1,849,930 2,008,985 791,796 860,322 Retentions payable 14,559 87,127 105,311 111,293 57,007 Advances payable 3,978,545 3,191,066 2,368,419 1,253,516 344,747 Unearned revenue -- -- -- -- 1,465,376
Deposits payable 409,520 1,765,600 1,884,460 1,896,620 3,150,091 Total Liabilities $7,492,959 $7,652,762 $8,053,285 $5,472,153 $8,510,527 Deferred Inflows of Resources
Unavailable Revenue $5,204,105 $6,315,971 $6,846,046 $6,469,438 $2,508,219 Total Deferred Inflows of Resources $5,204,105 $6,315,971 $6,846,046 $6,469,438 $2,508,219
FUND BALANCES
Nonspendable $113,774 $18,282 -- -- --
Unassigned(1) 16,478,347 18,252,675 $18,228,109 $21,625,959 $34,011,463 Total Fund Balances $16,592,121 $18,270,957 $18,228,109 $21,625,959 $34,011,463 Total Liabilities, Deferred Inflow of Resources and
Fund Balances $29,289,185 $32,239,690 $33,127,440 $7,309,519 $45,030,209 (1) Increase in fiscal year 2023-24 over prior fiscal year primarily due to passage of Measure R in November 2022, which became effective on April 1, 2023. See “Sales Taxes – Measure R Sales Taxes.” Source: City of Watsonville audited financial statements for fiscal years 2019-20 through 2023-24.
26 Tax Revenues by Source
The City derives its General Fund tax revenues from a variety of sources including ad valorem property taxes, sales and use taxes, franchise taxes, a real property transfer tax and transient occupancy taxes.
The City’s total General Fund tax revenues by source for the five most recent fiscal years are set forth below.
TABLE 5
CITY OF WATSONVILLE
GENERAL FUND TAX REVENUES BY SOURCE
Revenue Source
Audited
2019-20
Audited
2020-21
Audited
2021-22
Audited
2022-23
Audited
2023-24
Estimated
2024-25(1)
% of
Total(2)
Sales and use taxes $10,842,869 $12,817,985 $13,881,873 $15,161,756 $22,003,386(3) $21,554,541(4) 48.2% Property taxes 12,712,164 12,585,391 13,195,357 13,766,834 14,788,668 15,036,948 33.6 Utility users’ taxes 4,264,876 3,996,803 4,144,043 4,358,302 4,675,775 4,769,979 10.7 Other taxes(5) 1,454,062 1,530,145 1,390,070 1,487,003 1,677,784 1,751,462 3.9 Transient occupancy taxes 991,893 766,626 1,611,253(4) 1,536,839 1,412,314 1,600,000 3.6 Totals $30,265,864 $31,696,950 $34,222,596 $36,310,734 $44,557,927 $44,712,930 100.0% (1) Estimated fiscal year 2024-25 figures are based on City’s mid-year budget update for fiscal year 2024-25. (2) Calculated by dividing revenue source for estimated fiscal year 2024-25 amounts divided by total of estimated fiscal year 2024-25 amounts.
(3) Increase in fiscal year 2023-24 over prior fiscal year primarily due to passage of Measure R in November 2022, which became effective on April 1, 2023. See “Sales Taxes – Measure R Sales Taxes.” (4) Decrease from fiscal year 2023-24 due to an extra month being accrued in such fiscal year. (5) “Other taxes” consists of business licenses, franchise fees, cannabis tax and tourist assessment fees.
Source: City of Watsonville.
Sales Taxes
General. As shown in Table 5, sales and use tax revenues represented the largest source of tax revenues for the City’s General Fund in each of fiscal years 2020-21 through 2023-24 and are again estimated to be City’s General Fund’s largest source of tax revenues in fiscal year 2024-25 based on the City’s fiscal year 2024-25 mid-year budget update. A sales and use tax is imposed on retail sales or consumption of personal property in the City. In fiscal year 2024-25, sales and use tax revenues is estimated to total approximately $21.6 million, a decrease of approximately 2.04% compared to sales and use tax revenues of approximately $22.0 million in fiscal year 2023-24.
For fiscal year 2025-26, sales tax revenues are expected at approximately $_______ million based on the proposed fiscal year 2025-26 budget, representing an increase of approximately $_______ million, or ____% from fiscal year 2024-25 estimated results.
The City’s sales tax revenue represents the City’s share of the sales and use tax imposed on taxable transactions occurring within the City’s boundaries. The sales tax is governed by the Bradley-Burns Uniform Local Sales and Use Tax Law, set forth in California Revenue and Taxation Code Section 7200 et seq. The State collects and administers the tax, and makes distributions on taxes collected within the City as follows:
27 TABLE 6
CITY OF WATSONVILLE
SALES TAX RATES
Rate
State 6.00%
City of Watsonville - Measure L(1) 0.25
City of Watsonville - Measures G and Y(2) 0.50
City of Watsonville – Measure R(3) 0.50
Santa Cruz County Regional Transportation Commission - Measure D(4) 0.50 Santa Cruz Metropolitan Transit District(5) 0.50
Santa Cruz County Public Library(6) 0.25
County of Santa Cruz 1.25
Total 9.75%
(1) Effective April 1, 2007; does not sunset. See “– Measure L Sales Taxes” below. (2) Effective October 1, 2014. Extended in March 2020 pursuant to Measure Y; as extended, do not sunset.
See “– Measures G and Y” below.
(3) Effective April 1, 2023; does not sunset. See “– Measure R Sales Taxes” below. (4) Effective April 1, 2017; terminates on March 31, 2047. A portion of Measure D sale and use taxes are allocated to the City for transportation projects that are approved by the Santa Cruz County Regional Transportation Commission. Such tax revenues are not available for General Fund purposes of the City. (5) Effective January 1, 1979; does not sunset.
(6) Effective April 1, 1997; does not sunset.
Source: California Department of Tax and Fee Administration.
As shown in the table above, the local sales tax rate in the City is 9.25%. Of the 9.25% sales tax, the City is allocated 1% under the Bradley-Burns Uniform Local Sales and Use Tax Law, 0.25% under Measure L and 0.50% under Measure G/Y (see “– Measure L Sales Taxes” and “– Measure G/Y Sales Taxes” below). In addition, a portion of Measure D sale and use taxes are allocated to the City for transportation projects that are approved by the Santa Cruz County Regional Transportation Commission. Such tax revenues are not available for General Fund purposes of the City.
The State’s actual administrative costs with respect to the portion of sales taxes allocable to the City are deducted before distribution and are determined on a quarterly basis. Sales tax revenue collected by the State is directly deposited monthly to the City’s General Fund. For a summary of historical taxable transactions in the City, see “– History of Taxable Transactions.” Certain transactions are exempt from the State sales tax, including sales of the following products:
• food products for home consumption;
• prescription medicine;
• newspapers and periodicals;
• edible livestock and their feed;
• seed and fertilizer used in raising food for human consumption; and • gas, electricity and water when delivered to consumers through mains, lines and pipes.
This is not an exhaustive list of exempt transactions. A comprehensive list can be found in the CDTFA’s March 2018 publication entitled “Sales and Use Taxes: Exemptions and Exclusions,” which can be found on the CDTFA’s website at http://www.cdtfa.ca.gov. The reference to this Internet website is shown for reference and convenience only; the information contained within the website may not be current and has not been reviewed by the City and is not incorporated in this Official Statement by reference.
28 In June 2018, the United States Supreme Court published its decision in South Dakota v. Wayfair (the “Wayfair Decision”), in which the Supreme Court held that sales to a customer in a particular state alone are sufficient to create a nexus for purposes of determining whether a seller is required to collect sales taxes of the applicable state. Prior to the Wayfair Decision, courts had interpreted the dormant Commerce Clause of the United States Constitution to require that a company have physical nexus in a state in order for the seller to be liable for the collection of that state’s sales tax. Physical nexus is defined as having either property or payroll in the state, including a resident employee working from home or inventory stored in that state. The State of California has issued guidance in response to the Wayfair Decision. Under such guidance, beginning April 1, 2019, retailers located outside of the State are required to register with the California Department of Tax and Fee Administration (the “CDTFA”), collect the California use tax, and pay the tax to the CDTFA based on the amount of their sales into California, even if they do not have a physical presence in the state. The new collection requirements apply to retailers if during the preceding or current calendar year certain sales thresholds are met. The new collection requirements apply to taxable sales of tangible personal property to California consumers on and after April 1, 2019, and are not retroactive. Additionally, the State’s passage of Assembly Bill 147, signed by the Governor on April 25, 2019, provides the implementation rules for the Wayfair Decision in California. The City is unable to predict the impact that the Wayfair Decision will have on its sales tax revenues.
Sales Tax Collection Procedures. Collection of the sales and use tax is administered by the CDTFA.
This process was formerly administered by the State Board of Equalization. The Taxpayer Transparency and Fairness Act of 2017, which took effect July 1, 2017, restructured the State Board of Equalization and separated its functions among three separate entities: the State Board of Equalization, the CDTFA, and the Office of Tax Appeals. The State Board of Equalization will continue to perform the duties assigned to it by the state Constitution, while all other duties will be transferred to the newly established CDTFA and the Office of Tax Appeals. CDTFA will handle most of the taxes and fees previously collected by the State Board of Equalization, including sales and use tax.
Under the Sales and Use Tax Law, all sales and use taxes collected by the CDTFA under a contract with any city, city and county, or county are required to be transmitted by the CDTFA to such city, city and county, or county periodically as promptly as feasible. These transmittals are required to be made at least twice in each calendar quarter.
Under its procedures, the CDTFA projects receipts of the sales and use tax on a quarterly basis and remits an advance of the receipts of the sales and use tax to the City on a monthly basis. The amount of each monthly advance is based upon the CDTFA’s quarterly projection. During the last month of each quarter, the CDTFA adjusts the amount remitted to reflect the actual receipts of the sales and use tax for the previous quarter.
According to the CDTFA, it distributes quarterly tax revenues to cities, counties, and special districts using the following method. Using the prior year’s quarterly tax allocation as a starting point, the CDTFA first eliminates nonrecurring transactions such as fund transfers, audit payments, and refunds, and then adjusts for growth, to establish the estimated base amount. The CDTFA disburses 90% to each local jurisdiction in three monthly installments (advances) prior to the final computation of the quarter’s actual receipts. Ten percent is withheld as a reserve against unexpected occurrences that can affect tax collections (such as earthquakes, fire, or other natural disaster) or distributions of revenue such as unusually large refunds or negative fund transfers.
The first and second advances each represent 30% of the 90% distribution, while the third advance represents 40%. One advance payment is made each month, and the quarterly reconciliation payment (clean-up) is distributed in conjunction with the first advance for the subsequent quarter. Statements showing total collections, administrative costs, prior advances, and the current advance are provided with each quarterly clean-up payment.
Measure L Sales Taxes. In November 2006, pursuant to Measure L, voters in the City approved the levy of an additional sales and use tax of 0.25% (the “Measure L Sales Tax”). Pursuant to Measure L, the