TAX REGULATORY AGREEMENT
Among
California Economic Development Financing Authority
First Trust of California, National Association,
as Trustee,
and
Advanced Aerodynamics and Structures, Inc.
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Dated as of August 1, 1997
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Executed as Part of the Proceedings for the
Authorization and Issuance of:
$8,500,000
California Economic Development Financing Authority
Variable Rate Demand
Industrial Development Revenue Bonds, Series 1997
(Advanced Aerodynamics and Structures, Inc. Project)
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TABLE OF CONTENTS
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(This Table of Contents is for convenience of reference only and is not
part of the Tax Regulatory Agreement.)
ARTICLE I
DEFINITIONS
Section 1.1. Definitions.....................................................1
Section 1.2. Reliance on Borrower's Information..............................12
ARTICLE II
CERTAIN REPRESENTATIONS
BY THE BORROWER
Section 2.1. Description of the Project and Description of the Facilities...12
Section 2.2. Capital Expenditures...........................................13
Section 2.3. Prior Issues and $40 Million Limit.............................14
Section 2.4. Federal Tax Return Information.................................14
Section 2.5. Composite Issues...............................................14
Section 2.6. Prohibited Uses................................................15
Section 2.7. No Composite Project...........................................15
Section 2.8. Acquisition of Existing Property...............................15
Section 2.9. Land Acquisition Limit and No Acquisition of Farmland..........16
Section 2.10. Representations by the Borrower for Purposes of IRS Form 8038..16
ARTICLE III
USE OF BOND PROCEEDS
Section 3.1. Anticipated Use of Proceeds.....................................17
Section 3.2. Certification as to Costs of the Project........................18
ARTICLE IV
ARBITRAGE
Section 4.1. Arbitrage Representations and Elections.........................18
Section 4.2. Arbitrage Compliance............................................20
Section 4.3. Calculation of Rebate Amount....................................20
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Section 4.4. Payment to United States........................................23
Section 4.5. Recordkeeping...................................................23
Section 4.6. Rebate Analyst..................................................24
ARTICLE V
COMPLIANCE WITH CODE.............................24
ARTICLE VI
TERM OF TAX REGULATORY AGREEMENT.......................26
ARTICLE VII
AMENDMENTS.................................26
ARTICLE VIII
EVENTS OF DEFAULT, REMEDIES
Section 8.1. Events of Default................................................26
Section 8.2. Remedies for an Event of Default................................26
EXHIBIT A-1-Sources and Uses of Funds......................................A-1-1
EXHIBIT A-2-Property Financed or Refinanced by the Bonds...................A-2-1
EXHIBIT B-1-Form of Dealer Certification of Bona Fide Bid Price of a
Certificate of Deposit..........................B-1-1
EXHIBIT B-2-Form of Dealer Certification for a Certificate of Deposit
for Which No Active Secondary Market Exists.....B-2-1
EXHIBIT B-3-Form of Provider Certification for a Certificate of Deposit....B-3-1
EXHIBIT B-4-Form of Provider Certification For an Investment Contract......B-4-1
EXHIBIT B-5-Form of Borrower's Certification for a
Certificate of Deposit Involving Three Bids.....B-5-1
EXHIBIT B-6-Form of Borrower's Certification for an
Investment Contract Involving Three Bids........B-6-1
EXHIBIT C-Useful Life Calculation............................................C-1
EXHIBIT D-Declaration of Official Intent.....................................D-1
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TAX REGULATORY AGREEMENT
THIS TAX REGULATORY AGREEMENT (this "Tax Regulatory Agreement") is made
and dated as of August 1, 1997, by and among California Economic Development
Financing Authority and its successors or assigns (the "Issuer"), Advanced
Aerodynamics and Structures, Inc., a corporation duly organized and existing
under the laws of the State of California and its successors or assigns (the
"Borrower"), and First Trust of California, National Association, solely in its
capacity as trustee under the Indenture, as defined below (the "Trustee");
W I T N E S S E T H:
WHEREAS, the Issuer has authorized the issuance of $8,500,000 aggregate
principal amount of its Variable Rate Demand Industrial Development Revenue
Bonds, Series 1997 (Advanced Aerodynamics and Structures, Inc. Project) (the
"Bonds"), the proceeds of which are being loaned to the Borrower pursuant to a
Loan Agreement, dated as of August 1, 1997, between the Issuer and the Borrower
(the "Agreement"), to finance the construction and installation of a
manufacturing facility and the acquisition of certain manufacturing equipment,
as more fully set forth in the Agreement (the "Project") and to pay a portion of
the costs of issuance of the Bonds;
WHEREAS, the Borrower will use the Project in the manufacture of wire
bonding tools and accessories or for the manufacture of other tangible personal
property; and
WHEREAS, the Issuer has determined that the issuance, sale and
delivery of the Bonds is needed to finance the Project; and
WHEREAS, this Tax Regulatory Agreement has been entered into by the
Issuer, the Borrower and the Trustee to ensure compliance with the provisions of
the Internal Revenue Code of 1986, as amended, and the Regulations thereunder
(the "Code"); and
WHEREAS, to ensure that interest on the Bonds will be and remain
excludable from gross income under the Code, the restrictions listed in this Tax
Regulatory Agreement must be satisfied.
NOW THEREFORE, the Issuer, the Borrower and the Trustee hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. The following words and phrases shall have
the following meanings. Any capitalized word or term used herein but not defined
herein shall have the same meaning given in the hereinafter defined Indenture.
"Abusive Arbitrage Device" means any action which has the effect of (i)
enabling the Issuer or the Borrower to exploit the difference between taxable
and tax-exempt interest rates to obtain a material financial advantage; and (ii)
overburdening the tax-exempt bond market as defined in ss. 1.148-10 of the
Regulations.
"Accounting Method" means both the overall method used to account for
the Gross Proceeds of the Bonds (e.g., the cash method or a modified accrual
method) and the method used to account for or allocate any particular item
within that overall accounting method (e.g., accounting for Investments,
Expenditures, allocations to and from different sources and particular items of
the foregoing).
"Agreement" means Loan Agreement, dated as of August 1, 1997, between
the Issuer and the Borrower, and any amendments and supplements thereto.
"Average Economic Life" means the average reasonably expected economic
life of the Facilities as defined in ss. 147(b) of the Code.
"Average Maturity" means the average maturity of the Bonds as defined
in ss. 147(b) of the Code.
"Bond Counsel" means a law firm of nationally recognized bond counsel
who is requested to deliver its approving opinion with respect to the issuance
of and the exclusion from federal income taxation of interest on the Bonds.
"Bond Year" means the period commencing August 1 of each calendar year
and terminating on July 31 of the immediately succeeding calendar year during
the term of the Bonds, except that the first Bond Year shall commence on the
Date of Issuance and end on July 31, 1998 (unless a different period is required
by the Regulations or selected by the Borrower pursuant to the Regulations).
"Bond Yield" means the Yield of the Bonds calculated in accordance with
Section 1.148-4 of the Regulations.
"Borrower" means Advanced Aerodynamics and Structures, Inc., a
corporation duly organized and existing under the laws of the State of
California or any entity which is the surviving, resulting or transferee entity
in any merger, consolidation or transfer permitted under the Agreement.
"Capital Expenditure" means any cost of a type that is for the
acquisition, construction, reconstruction or improvement of land or property of
a character subject to the allowance for depreciation. For example, costs
incurred to acquire, construct, reconstruct or improve land, buildings and
equipment generally are Capital Expenditures. Whether an expenditure is a
capital expenditure is determined at the time the expenditure is paid with
respect to the property. Future changes in law do not affect whether an
expenditure is a capital expenditure.
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"Capital Project" means all Capital Expenditures that carry out the
governmental purpose of the Bonds. For example, a Capital Project may include
Capital Expenditures for one or more building improvements or equipment, plus
related capitalized interest paid or accrued prior to the in-service date for
the Capital Project.
"Class of Investments" means one of the following, each of which
represents a different Class of Investments:
(a) Each category of yield restricted Purpose Investment and Program
Investment, as defined in ss. 1.148-1(b), that is subject to a different
definition of materially higher Yield under ss. 1.148-2(d)(2);
(b) Yield restricted Nonpurpose Investments; and
(c) All other Nonpurpose Investments.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Account" means the interest bearing deposit account
established by the Borrower with the Bank pursuant to the Investment Agreement,
dated August 5, 1997, between the Bank and the Borrower to secure the Borrower's
obligations to the Bank under the Reimbursement Agreement.
"Computation Date" means an Installment Computation Date or the Final
Computation Date.
"Computation Date Credit" means on the last day of each Bond Year
during which there are Gross Proceeds subject to the rebate requirement of
Article IV hereof, and on the Final Computation Date, the amount of $1,000.
"Consistently Applied" means applied uniformly within a fiscal period
and between fiscal periods to account for Gross Proceeds of an issue and any
amounts that are in a commingled fund.
"Costs of Issuance" means all costs incurred in connection with the
issuance of the Bonds, other than fees paid to or on behalf of credit enhancers
as fees for "qualified guarantees" as defined in ss. 1.148-4(f) of the
Regulations or to the Issuer as a portion of its higher Yield permitted on the
Agreement under ss. 1.148-2(d)(2) of the Regulations. Examples of Costs of
Issuance include (but are not limited to):
(a) underwriter's spread (whether realized directly or derived
through purchase of the Bonds at a discount below the price at which a
substantial number of the Bonds are sold to the public) or placement
agent's fee;
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(b) counsel fees (including bond counsel, underwriter's
counsel, placement agent's counsel, issuer's counsel, borrower's
counsel, trustee's counsel, and any other specialized counsel fees
incurred in connection with the issuance of the Bonds);
(c) financial advisor fees incurred in connection with the
issuance of the Bonds;
(d) rating agency fees (except for any such fee that is paid
in connection with or as a part of the fee for credit enhancement of
the Bonds);
(e) trustee fees incurred in connection with the issuance of
the Bonds;
(f) accountant fees incurred in connection with the issuance
of the Bonds;
(g) printing costs (for the Bonds and of the preliminary and
final offering circulars or official statements);
(h) costs incurred in connection with the required public
approval process (e.g., publication costs for public notices generally
and costs of the public hearing); and
(i) Issuer fees to cover administrative costs and expenses
incurred in connection with the issuance of the Bonds.
"Current Outlay of Cash" means an outlay reasonably expected to occur
not later than 5 banking days after the date as of which the allocation of Gross
Proceeds to the Expenditure is made.
"Date of Issuance" means August 5, 1997.
"Discharged" means, with respect to any Bond, the date on which all
amounts due with respect to such Bond are actually and unconditionally due, if
cash is available at the place of payment, and no interest accrues with respect
to such Bond after such date.
"Economic Accrual Method" (also known as the constant interest method
or actuarial method) means the method of computing Yield that is based on the
compounding of interest at the end of each compounding period.
"Exempt Person" means any organization described in Section 501(c)(3)
of the Code or a state or a local governmental unit of a state.
"Expenditure" means a book or record entry which allocates Proceeds of
the Bonds in connection with a Current Outlay of Cash.
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"Facilities" means the Manufacturing Facility financed or refinanced
with the Proceeds of the Bonds and described in Exhibit A-2 hereto.
"Fair Market Value" means the price at which a willing buyer would
purchase an Investment from a willing seller in a bona fide, arm's-length
transaction. Fair Market Value generally is determined on the date on which a
contract to purchase or sell the Nonpurpose Investment becomes binding (i.e.,
the trade date rather than the settlement date). Except as otherwise provided in
this definition, an Investment that is not of a type traded on an established
securities market (within the meaning of ss. 1273 of the Code), is rebuttably
presumed to be acquired or disposed of for a price that is not equal to its Fair
Market Value. The Fair Market Value of a United States Treasury obligation that
is purchased directly from the United States Treasury is its purchase price. The
following guidelines shall apply for purposes of determining the Fair Market
Value of the obligations described below:
(a) Certificates of Deposit. The purchase of certificates of
deposit with fixed interest rates, fixed payment schedules and
substantial penalties for early withdrawal will be deemed to be an
Investment purchased at its Fair Market Value on the purchase date if
the Yield on the certificate of deposit is not less than:
(i) The Yield on reasonably comparable direct
obligations of the United States; and
(ii) The highest Yield that is published or posted by
the provider to be currently available from the provider on
reasonably comparable certificates of deposit offered to the
public.
(b) Guaranteed Investment Contracts. A Guaranteed Investment
Contract is a Nonpurpose Investment that has specifically negotiated
withdrawal or reinvestment provisions and a specifically negotiated
interest rate, and also includes any agreement to supply Investments on
two or more future dates (e,g,, a forward supply contract). The
purchase price of a Guaranteed Investment Contract is treated as its
Fair Market Value on the purchase date if:
(i) The Borrower makes a bona fide solicitation for
a specified Guaranteed Investment Contract and receives at
least three bona fide bids from providers that have no
material financial interest in the issue (e.g., as
underwriters or brokers);
(ii) The Borrower purchases the highest-Yielding
Guaranteed Investment Contract for which a qualifying bid is
made (determined net of broker's fees);
(iii) The Yield on the Guaranteed Investment Contract
(determined net of broker's fees) is not less than the Yield
then available from the provider on
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reasonably comparable Guaranteed Investment Contracts, if any,
offered to other persons from a source of funds other than
gross proceeds of tax-exempt bonds;
(iv) The determination of the terms of the Guaranteed
Investment Contract takes into account as a significant factor
the Borrower's reasonably expected drawdown schedule for the
amounts to be invested, exclusive of amounts deposited in debt
service funds and reasonably required reserve or replacement
funds;
(v) The terms of the Guaranteed Investment Contract,
including collateral security requirements, are reasonable;
and
(vi) The obligor on the Guaranteed Investment
Contract certifies the administrative costs that it is paying
(or expects to pay) to third parties in connection with the
Guaranteed Investment Contract.
"Final Computation Date" means the date the last Bond is Discharged.
"Future Value" means the Value of a Receipt or Payment at the end of
any interval as determined by using the Economic Accrual Method and equals the
Value of that Payment or Receipt when it is paid or received (or treated as paid
or received), plus interest assumed to be earned and compounded over the period
at a rate equal to the Yield on the Bonds, using the same compounding interval
and financial conventions used to compute the Yield on the Bonds.
"Gross Proceeds" means any Proceeds or Replacement Proceeds of the
Bonds.
"Indenture" means, the Indenture of Trust, dated as of August 1, 1997,
between the Issuer and the Trustee, and any amendments and supplements thereto.
"Installment Computation Date" means the last day of the fifth Bond
Year and each succeeding fifth Bond Year as stated in Section 4.1 hereof or the
last day of any Bond Year prior to the fifth Bond Year selected by the Borrower
as stated in Section 4.1 hereof.
"Investment" means any Purpose Investment or Nonpurpose Investment,
including any other tax-exempt bond.
"Investment Instructions" means the letter of instructions set forth as
an exhibit to the No Arbitrage Certificate of the Issuer dated the date of the
initial delivery of the Bonds.
"Investment Proceeds" means any amounts actually or constructively
received from investing Proceeds of the Bonds.
"Investment-Type Property" means any property, other than property
described in ss. 148(b)(2)(A), (B), (C) or (E) of the Code that is held
principally as a passive vehicle for the
6
production of income. Except as otherwise provided, a prepayment for property or
services is Investment-Type Property if a principal purpose for prepaying is to
receive an Investment return from the time the prepayment is made until the time
payment otherwise would be made. A prepayment is not Investment-Type Property
if--
(a) The prepayment is made for a substantial business purpose
other than Investment return and the issuer has no commercially
reasonable alternative to the prepayment, or
(b) Prepayments on substantially the same terms are made by a
substantial percentage of persons who are similarly situated to the
issuer but who are not beneficiaries of tax-exempt financing.
"Issue Price" means, except as otherwise provided, issue price as
defined in ss.ss. 1273 and 1274 of the Code. Generally, the Issue Price of bonds
that are publicly offered is the first price at which a substantial amount of
the bonds is sold to the public. Ten percent is a substantial amount. The public
does not include bond houses, brokers or similar persons or organizations acting
in the capacity of underwriters or wholesalers. The Issue Price does not change
if part of the issue is later sold at a different price. The Issue Price of
bonds that are not substantially identical is determined separately. The Issue
Price of bonds for which a bona fide public offering is made is determined as of
the sale date based upon reasonable expectations regarding the initial public
offering price. If a bond is issued for property, the applicable Federal
tax-exempt rate is used in lieu of the Federal rate in determining the Issue
Price under ss. 1274 of the Code. The issue price of bonds may not exceed their
Fair Market Value as of the sale date.
With respect to the Bonds, the Issue Price is $8,500,000.
"Manufacturing Facility" means a Capital Project that is used in the
manufacturing or production of tangible personal property (including the
processing resulting in a change in the condition of such property) including
facilities that are directly related and ancillary to a Manufacturing Facility
if such directly related and ancillary facilities are located on the same site
as the Manufacturing Facility and not more than 25 percent of the proceeds of an
issue that finances the Manufacturing Facility are used to provide such directly
related and ancillary facilities.
"Net Sale Proceeds" means Sale Proceeds, less the portion of those Sale
Proceeds invested in a reasonably required reserve or replacement fund under ss.
148(d) of the Code and as part of a minor portion under ss. 148(e) of the Code.
"Nonpurpose Investment" means any security, obligation, annuity
contract or Investment type property as defined in ss. 148(b) of the Code,
including "specified private activity bonds" as defined in ss. 57(a)(5)(c) of
the Code, but excluding all other obligations the interest on which is
excludable from federal gross income. The term "Nonpurpose Investment" does not
include the Borrower's obligations to make payments to the Issuer pursuant to
the provisions of the Agreement.
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"Payments" means, for purposes of computing the Rebate Amount, (a)
amounts actually or constructively paid to acquire a Nonpurpose Investment (or
treated as paid to a commingled fund); (b) for a Nonpurpose Investment that is
allocated to an issue on a date after it is actually acquired (e.g., an
Investment that becomes allocable to Transferred Proceeds or to Replacement
Proceeds) or that becomes subject to the rebate requirement of the Code on a
date after it is actually acquired (e.g., an Investment allocated to a
reasonably required reserve or replacement fund for a construction issue at the
end of the two-year spending period), the Value of that Investment on that date;
(c) for a Nonpurpose Investment that was allocated to an issue at the end of the
preceding computation period, the Value of that Investment at the beginning of
the computation period; (d) on the last day of each Bond Year during which there
are amounts allocated to Gross Proceeds of an issue that are subject to the
rebate requirement of the Code, and on the final maturity date, a Computation
Date Credit; and (e) Yield Reduction Payments on Nonpurpose Investments made
pursuant to ss. 1.148-5(c) of the Regulations. For purposes of computing the
Yield on an Investment (including the Value of the Investment), Payment means
amounts to be actually or constructively paid to acquire the Investment;
provided, however, that payments made by a conduit borrower, such as the
Borrower, are not treated as paid until the conduit borrower ceases to receive
the benefit of earnings on those amounts. Payments on Investments, including
Guaranteed Investment Contracts, are adjusted for Qualified Administrative Costs
of acquiring a Nonpurpose Investment.
"Pre-Issuance Accrued Interest" means amounts representing interest
that accrued on an obligation for a period not greater than one year before the
Date of Issuance but only if those amounts are paid within one year after the
Date of Issuance.
"Principal User" means a person who is a principal owner, principal
lessee, a principal output purchaser or "other" principal user and any Related
Person to a Principal User. A principal owner is a person who at any time holds
more than a 10 percent ownership interest (by value) in a facility or, if no
person holds more than a 10 percent ownership interest, then the person (or
persons in the case of multiple equal owners) who holds the largest ownership
interest in the facility. A person is treated as holding an ownership interest
if such person is an owner for federal income tax purposes generally. A
principal lessee is a person who at any time leases more than 10 percent of the
facility (disregarding portions used by the lessee under a short-term lease).
The portion of a facility leased to a lessee is generally determined by
reference to its fair rental value. A short-term lease is one which has a term
of one year or less, taking into account all options to renew and reasonably
anticipated renewals. A principal output purchaser is any person who purchases
output of a facility, unless the total output purchased by such person during
each one-year period beginning with the date such facility is placed in service
is 10 percent or less of such facility's output during each such period. An
"other" principal user is a person who enjoys a use of a facility (other than a
short-term use) in a degree comparable to the enjoyment of a principal owner or
a principal lessee, taking into account all the relevant facts and
circumstances, such as the person's participation in control over use of such
facility or its remote or proximate geographic location.
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"Prior Issues" means any issue of tax-exempt obligations (whether or
not the issuer of each issue is the same) to which Section 103(b)(6) of the 1954
Code or Section 144(a) of the Code applies.
"Proceeds" means any Sale Proceeds, Investment Proceeds and Transferred
Proceeds of an issue. Proceeds do not include, however, amounts actually or
constructively received with respect to a Purpose Investment that are properly
allocable to the immaterially higher Yield under ss. 1.148-2(d) of the
Regulations or section 143(g) of the Code or to Qualified Administrative Costs
recoverable under ss. 1.148-5(e) of the Regulations.
"Project" has the meaning given to such term in the preambles hereto.
"Project Fund" means the Project Fund established pursuant to the
Indenture.
"Purchase Fund" means the Purchase Fund established pursuant to the
Indenture.
"Purpose Investment" means an Investment that is acquired to carry out
the governmental
purpose of an issue. The Agreement constitutes a Purpose Investment.
"Qualified Administrative Costs" means reasonable, direct
administrative costs, other than carrying costs, such as separately stated
brokerage or selling commissions, but not legal and accounting fees,
recordkeeping, custody and similar costs. General overhead costs and similar
indirect costs of the issuer such as employee salaries and office expenses and
costs associated with computing the Rebate Amount are not Qualified
Administrative Costs. In general, administrative costs are not reasonable unless
they are comparable to administrative costs that would be charged for the same
Investment or a reasonably comparable Investment if acquired with a source of
funds other than Gross Proceeds of tax-exempt bonds.
"Qualified Hedging Transaction" means a contract which meets the
requirements of ss. 1.148-4(h)(2) of the Regulations.
"Rebate Amount" means the excess of the Future Value of all Receipts on
Nonpurpose Investments over the Future Value of all the Payments on Nonpurpose
Investments. Future Value is computed as of the Computation Date. Rebate Amount
additionally includes any penalties and interest on underpayments reduced for
recoveries of overpayments.
"Rebate Analyst" shall mean the entity chosen by the Borrower and the
Issuer in accordance with Section 4.6 hereof to determine the amount of required
deposits to the Rebate Fund, if any.
"Rebate Fund" means the Rebate Fund established pursuant to the
Indenture.
"Receipts" means, for purposes of computing the Rebate Amount, (a)
amounts actually or constructively received from a Nonpurpose Investment
(including amounts treated as received
9
from a commingled fund), such as earnings and return of principal; (b) for a
Nonpurpose Investment that ceases to be allocated to an issue before its
disposition or redemption date (e.g., an Investment that becomes allocable to
Transferred Proceeds of another issue or that ceases to be allocable to the
issue pursuant to the universal cap under ss. 1.148-6 of the Regulations) or
that ceases to be subject to the rebate requirement of the Code on a date
earlier than its disposition or redemption date (e.g., an Investment allocated
to a fund initially subject to the rebate requirement of the Code but that
subsequently qualifies as a bona fide debt service fund), the Value of that
Nonpurpose Investment on that date; and (c) for a Nonpurpose Investment that is
held at the end of a computation period, the Value of that Investment at the end
of that period. For purposes of computing Yield on an Investment, Receipts means
amounts to be actually or constructively received from the Investment, such as
earnings and return of principal (including the Value of an Investment).
Receipts on Investments, including Guaranteed Investment Contracts, are adjusted
(reduced) for Qualified Administrative Costs.
"Recomputation Event" means a transfer, waiver, modification or similar
transaction of any right that is part of the terms of the Bonds or a Qualified
Hedging Transaction is entered into, or terminated, in connection with the
Bonds.
"Regulation" or "Regulations" means the temporary, proposed or final
Income Tax Regulations promulgated by the Department of the Treasury and
applicable to the Bonds, including ss.ss. 1.148-0 through 1.148-11, ss. 1.149
and ss.ss. 1.150-1 and 1.150-2 as issued by the Internal Revenue Service on June
18, 1993 for bonds issued after July 1, 1993, including any amendments made
thereto.
"Related Person" means any person if (i) the relationship to such
person would result in a disallowance of loss under Sections 267 or 707(b) of
the Code or (ii) such person is a member of the same controlled group of
corporations (as defined in Section 1563(a) of the Code, except that "more than
50 percent" shall be substituted for "at least 80 percent" each place it appears
therein).
"Replacement Proceeds" means amounts which have a sufficiently direct
nexus to the Bonds or to the governmental purpose of the Bonds to conclude that
the amounts would have been used for that governmental purpose if the Proceeds
of the Bonds were not used or to be used for that governmental purpose, as more
fully defined in ss. 1.148-1(c) of the Regulations.
"Revenue Fund" means the Revenue Fund established pursuant to the
Indenture.
"Sale Proceeds" means any amounts actually or constructively received
from the sale of the Bonds, including amounts used to pay underwriters' discount
or compensation or placement agent's fee and accrued interest other than
Pre-Issuance Accrued Interest.
"SLGS" means United States Treasury Certificates of Indebtedness, Notes
and Bonds-State and Local Government Series.
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"Tax Regulatory Agreement" means this Tax Regulatory Agreement.
"Test-Period Beneficiary" means any person who is an owner or a
Principal User of facilities financed by an issue or issues of tax-exempt
obligations issued under the 1954 Code or the Code during the three-year period
beginning on the later of the date such facilities were placed in service or the
date of issuance for such issue or issues of tax-exempt obligations. For
purposes of determining whether a person is a Test-Period Beneficiary, all
persons who are Related Persons shall be treated as one person.
"Transferred Proceeds" means Proceeds of a refunding issue which become
transferred proceeds of a refunding issue and cease to be Proceeds of a prior
issue when Proceeds of the refunding issue discharge any of the outstanding
principal amount of the prior issue. The amount of Proceeds of the prior issue
that become transferred proceeds of the refunding issue is an amount equal to
the Proceeds of the prior issue on the date of that discharge multiplied by a
fraction:
(a) The numerator of which is the principal amount of the
prior issue discharged with Proceeds of the refunding issue on the date
of that discharge; and
(b) The denominator of which is the total outstanding
principal amount of the prior issue on the date immediately before the
date of that discharge.
"Universal Cap" means the Value of all outstanding Bonds.
"Value" means Value as determined under ss. 1.148-4(e) of the
Regulations for a Bond and Value determined under ss. 1.148-5(d) of the
Regulations for an Investment.
"Yield" means, for purposes of determining the Yield on the Bonds, the
Yield computed under the Economic Accrual Method using consistently applied
compounding intervals of not more than one year. A short first compounding
interval and a short last compounding interval may be used. Yield is expressed
as an annual percentage rate that is calculated to at least four decimal places
(e.g., 5.2525 percent). Other reasonable, standard financial conventions, such
as the 30 days per month/360 days per year convention, may be used in computing
Yield but must be consistently applied. The Yield on an issue that would be a
Purpose Investment (absent ss. 148(b)(3)(A) of the Code) is equal to the Yield
on the conduit financing issue that financed that Purpose Investment. The Yield
on a fixed yield issue is the discount rate that, when used in computing the
present Value as of the issue date of all unconditionally payable payments of
principal, interest and fees for qualified guarantees on the issue and amounts
reasonably expected to be paid as fees for qualified guarantees on the issue,
produces an amount equal to the present Value, using the same discount rate, of
the aggregate issue price of bonds of the issue as of the issue date. In the
case of obligations purchased or sold at a substantial discount or premium, the
Regulations prescribe certain special Yield calculation rules. For purposes of
determining the Yield on an Investment, the Yield computed under the Economic
Accrual Method, using the same compounding interval and financial conventions
used to compute the Yield on the Bonds.
11
The Yield on an Investment allocated to the Bonds is the discount rate
that, when used in computing the present Value as of the date the Investment is
first allocated to the issue of all unconditionally payable receipts from the
Investment, produces an amount equal to the present Value of all unconditionally
payable payments for the Investment. The Yield on an Investment shall not be
adjusted by any hedging transaction entered into in connection with such
Investment unless the Issuer, the Trustee and the Borrower have received an
opinion of Bond Counsel that such an adjustment is permitted by the Regulations.
Yield shall be calculated separately for each Class of Investments.
"Yield Reduction Payment" means a payment to the United States with
respect to an Investment which is treated as a Payment for that Investment that
reduces the Yield on that Investment in accordance with ss. 1.148-5(c) of the
Regulations. Yield Reduction Payments include Rebate Amounts paid to the United
States.
"1954 Code" means the Internal Revenue Code of 1954, as amended, as in
effect on the effective date of the Code.
Section 1.2. Reliance on Borrower's Information. Bond Counsel and the
Issuer shall be permitted to rely upon the contents of any certification,
document or instructions provided pursuant to this Tax Regulatory Agreement and
shall not be responsible or liable in any way for the accuracy of their contents
or the failure of the Borrower to deliver any required information.
ARTICLE II
CERTAIN REPRESENTATIONS
BY THE BORROWER
Section 2.1. Description of the Project and Description of the
Facilities.
The Borrower hereby represents and warrants for the benefit of the
Issuer, the Trustee and the registered owners of the Bonds that:
(a) The description of the Project set forth in the preambles
hereto and the description of the Facilities set forth in Exhibit A-2
hereto are true and accurate.
(b) The Facilities constitute a Manufacturing Facility of
advanced propjet and jet aircraft or facilities directly related and
ancillary to such Manufacturing Facility.
(c) The portion of the Facilities which constitutes office
space serves solely the manufacturing portion of the Facilities, is on
the same site as the manufacturing portion of the Facilities and is
financed with not more than 25 percent of the net Proceeds of the
Bonds.
Section 2.2. Capital Expenditures.
12
The Borrower hereby represents and warrants for the benefit of the
Issuer, the Trustee and the registered owners of the Bonds that:
(a) During the period beginning three years before the Date of
Issuance and ending on the Date of Issuance, the aggregate amount of
Capital Expenditures (including any expenditure that was or could have
been treated as a Capital Expenditure under any rule or election under
the Code) paid or incurred, excluding those to be paid or reimbursed
with Proceeds of the Bonds, with respect to (i) facilities located in
the incorporated municipality (or unincorporated county) in which the
Facilities are located and (ii) the Principal User of which was or is
the Borrower, any other Principal User of the Facilities or any Related
Person thereto, was $6,000.
(b) During the period beginning on the Date of Issuance and
ending on the date three years after the Date of Issuance, the
aggregate amount of Capital Expenditures (including any expenditure
that was or could have been treated as a Capital Expenditure under any
rule or election under the Code) expected to be incurred, excluding
those to be paid or reimbursed with Proceeds of the Bonds, with respect
to (i) facilities located in the incorporated municipality (or
unincorporated county) in which the Facilities are located and (ii) the
Principal User of which was or is the Borrower, any other Principal
User of the Facilities or any Related Person thereto, is anticipated to
be $800,000.
(c) The amount of capitalized interest to be paid on all
financings for the Facilities excluding that paid from Proceeds of the
Bonds is $0. The amount of Capitalized interest to be paid in
connection with the Facilities paid from Proceeds of the Bonds is
$184,000.
(d) The sum of (i) the Capital Expenditures described in
paragraph (a) above plus (ii) the actual Capital Expenditures to be
incurred as described in paragraphs (b) and (c) plus (iii) the
aggregate outstanding amount of all $1 million or $10 million exempt
small issues set forth in Section 2.3(a) below plus (iv) the greater of
the Issue Price or the par amount of the Bonds shall not exceed $10
million.
(e) The information contained in subsections (a), (b), (c) and
(d) above, which has been provided to the Issuer to enable the Issuer
to elect to qualify the Bonds for the $10,000,000 exemption afforded by
Section 144(a)(4) of the Code, is true, accurate and complete. The
Issuer hereby elects to issue the Bonds pursuant to the exemption
afforded by Section 144(a)(4) of the Code.
(f) The Facilities will not be sold, leased or the use
otherwise transferred to a person other than the Borrower, any other
Principal User of the Facilities or any Related Person thereto
identified as of the Date of Issuance during the three-year period
ending three years after the Date of Issuance, unless the Borrower has
received an approving opinion of Bond Counsel to the effect that such
sale, lease or transfer will not adversely affect the tax-exempt status
of the Bonds.
13
Section 2.3. Prior Issues and $40 Million Limit.
The Borrower hereby represents and warrants for the benefit of the
Issuer, the Trustee and the registered owners of the Bonds that:
(a) The aggregate face amount of all Prior Issues outstanding
as of the Date of Issuance, the proceeds of which were or will be used
to any extent with respect to facilities located in the incorporated
municipality (or unincorporated county) in which the Facilities are
located and the Principal Users of such facilities are the Borrower,
any other Principal User of the Facilities or any Related Person
thereto, is $0.
(b) The aggregate face amount of all Prior Issues and all
exempt facility bonds, qualified redevelopment bonds and industrial
development bonds as defined in the 1954 Code or the Code outstanding
as of the Date of Issuance, the proceeds of which were used by or were
allocated to the Borrower, any other Principal User of the Facilities
or any Related Person thereto as a Test-Period Beneficiary is $0.
Section 2.4. Federal Tax Return Information. The Facilities have a SIC
Code Number of 3721. The Borrower files its federal income tax return at the
Internal Revenue Service Center in Fresno, California. The Borrower's federal
employer identification number of the Borrower is 95-4257380.
Section 2.5. Composite Issues.
The Borrower hereby represents and warrants for the benefit of the
Issuer, the Trustee and the registered owners of the Bonds that:
(a) During the period beginning 15 days prior to the sale date
of the Bonds and ending 15 days thereafter none of the Borrower, any
other Principal User of the Facilities or any Related Person thereto
sold, guaranteed, arranged, participated in, assisted with, borrowed
the proceeds of, or leased facilities financed by obligations issued
under Section 103 of the 1954 Code or Section 103 of the Code by any
state or local governmental unit or any constituted authority empowered
to issue obligations by or on behalf of any state or local governmental
unit.
(b) During the period commencing on the Date of Issuance and
ending 15 days thereafter, there will be no obligations sold or issued
under Section 103 of the 1954 Code or the Code that are guaranteed by
the Borrower, any other Principal User of the Facilities or any Related
Person or which are issued with the assistance or participation of, or
by arrangement with, the Borrower, any other Principal User of the
Facilities or any Related Person without the written opinion of Bond
Counsel to the effect that the issuance of such obligations will not
adversely affect their opinion as to the exclusion from gross income
for federal income tax purposes of interest with respect to the Bonds.
14
(c) Other than the Borrower, any other Principal User of the
Facilities or any Related Person, no person (or Related Person to such
other person) has (i) guaranteed, arranged, participated in, assisted
with the issuance of, or paid any portion of the Costs of Issuance of
the Bonds or (ii) provided any property or any franchise, trademark or
trade name (within the meaning of Section 1253 of the Code) which is to
be used in connection with the Facilities.
Section 2.6. Prohibited Uses. The Borrower hereby represents and
warrants for the benefit of the Issuer, the Trustee and the registered owners of
the Bonds that no portion of the Proceeds of the Bonds is being used to provide
a facility, a purpose of which is retail food and beverage services, automobile
sales or service, or the provision of recreation or entertainment. No portion of
the proceeds of the Bonds is being used to provide any private or commercial
golf course, country club, health club, massage parlor, tennis club, skating
facility (including roller skating, skateboarding and ice skating), racquet
sports facility (including any handball, squash or racquetball court), hot tub
facility, suntan facility, racetrack, skybox or other luxury box, airplane,
store the principal business of which is the sale of alcoholic beverages for
consumption off premises, or facility used primarily for gambling. No portion of
the Proceeds of the Bonds is being used directly or indirectly to provide
residential real property for single- or multi-family units.
Section 2.7. No Composite Project. The Borrower hereby represents and
warrants for the benefit of the Issuer, the Trustee and the registered owners of
the Bonds that the Facilities are a stand-alone Manufacturing Facility
unconnected to any other facility and do not share any portion of substantial
common facilities with any other building (other than the Facilities), (b) an
enclosed shopping mall or (c) a strip of offices, stores or warehouses.
Section 2.8. Acquisition of Existing Property. The Borrower hereby
represents and warrants for the benefit of the Issuer, the Trustee and the
registered owners of the Bonds that no portion of the Proceeds of the Bonds will
be used to pay the cost of acquisition of real property (other than land or any
interest therein) the first use of which will not be pursuant to the acquisition
with the Proceeds of the Bonds.
Section 2.9. Land Acquisition Limit and No Acquisition of Farmland.
The Borrower hereby represents and warrants for the benefit of the
Issuer, the Trustee and the registered owners of the Bonds that:
(a) The amount of Proceeds of the Bonds expended for land will
not exceed $0, which is not greater than 25 percent of the Proceeds of
the Bonds.
(b) No portion of the Proceeds of the Bonds will be used
directly or indirectly for the acquisition of land or any interest
therein to be used for the purpose of farming.
15
Section 2.10. Representations by the Borrower for Purposes of IRS Form
8038. Section 149(e) of the Code requires as a condition to qualification for
tax-exemption that the Issuer provide to the Secretary of the Treasury certain
information with respect to the Bonds and the application of the proceeds
derived therefrom. The following representations of the Borrower will be relied
upon by the Issuer and Bond Counsel in satisfying this information reporting
requirement. Accordingly, the Borrower hereby represents, covenants and warrants
to the best of their knowledge, for the benefit of the Issuer, Bond Counsel and
the registered owners of the Bonds, the truth and accuracy of (c) through (t)
below:
(a) Issuer's employer identification number.................68-0304653
(b) Number of 8038 reports previously filed by the Issuer this
calendar year....................................................5
(c) Issue price of the Bonds................................$8,500,000
(d) Proceeds used for Accrued Interest............................. $0
(e) Costs of Issuance (including Underwriter's
Discount).................................................$170,000
(f) Reasonably required Reserve Fund Deposits.......................$0
(g) Proceeds used for Credit Enhancement............................$0
(h) Proceeds used to refund prior issue............................ $0
(i) Nonrefunding Proceeds.................................. $8,330,000
(j) Date of final maturity of the Bonds.................August 1, 2027
(k) Interest Rate on the final maturity of
the Bonds..................................................... VR%
(l) Issue price of the final maturity of
the Bonds...............................................$8,500,000
(m) Issue price on the entire issue of the Bonds............$8,500,000
(n) Stated redemption price at maturity of the final maturity of
the Bonds...............................................$8,500,000
(o) Stated redemption price at maturity of the entire issue of
the Bonds...............................................$8,500,000
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(p) Weighted average maturity of the entire issue
of the Bonds......................................... 29.98 years
(q) Yield on the entire issue of the Bonds.........................VR%
(r) Net interest cost for the entire issue of
the Bonds.....................................................VR%
(s) The Standard Industrial Classification Code(s) for the
Facilities is ...............................................3721
(t) Type of Property financed by Nonrefunding Proceeds of the Bonds:
Land..........................................................$0
Buildings.............................................$7,164,000
Equipment with recovery period of more than 5 years...$1,166,000
Equipment with recovery period of 5 years or less.............$0
Other ........................................................$0
Total.............................................$8,330,000
ARTICLE III
USE OF BOND PROCEEDS
Section 3.1. Anticipated Use of Proceeds. The Borrower covenants,
represents and warrants for the benefit of the Issuer, the Trustee and the
registered owners of the Bonds that the Proceeds of the Bonds will be used in
the manner set forth in Exhibit A-2 hereto and that the Proceeds of the Bonds
will be invested in accordance with the Investment Instructions.
Section 3.2. Certification as to Costs of the Project. The Borrower
hereby certifies, with respect to the amounts shown in Exhibit A-1, that such
amounts consist only of costs which are directly related to and necessary for
the financing of the Project.
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ARTICLE IV
ARBITRAGE
Section 4.1. Arbitrage Representations and Elections. In connection
with the issuance of the Bonds, the Borrower hereby represents, certifies and
warrants as follows:
(a) The Borrower has entered into contracts with third parties
for the acquisition, construction and equipping of the Facilities
obligating an expenditure in excess of 5% of the Net Sale Proceeds of
the Bonds and the Borrower will proceed with due diligence in
completing the Facilities and in allocating the Net Sale Proceeds of
the Bonds to such Expenditures.
(b) The Borrower will use a reasonable, Consistently Applied
Accounting Method to account for Gross Proceeds, Investments and
Expenditures for the Bonds. The Borrower shall additionally use a
Consistently Applied Accounting Method for allocating Proceeds of the
Bonds to Expenditures, subject to the Current Outlay of Cash rule.
(c) The Borrower shall not commingle Proceeds of the Bonds
with any other funds.
(d) In connection with the Bonds, there has not been created
or established and the Borrower does not expect that there will be
created or established, any sinking fund, pledged fund or similar fund
(other than as specifically identified in the Indenture), including
without limitation any arrangement under which money, securities or
obligations are pledged directly or indirectly to secure the Bonds or
any contract securing the Bonds or any arrangement providing for
compensating or minimum balances to be maintained by the Borrower with
any owner or credit enhancer of the Bonds, except the Collateral
Account.
(e) The allocation of Net Proceeds of the Bonds to the
reimbursement portion of the costs of the Facilities will be made as of
and completed on the Date of Issuance. The declaration of official
intent required by ss. 1.150-2 of the Regulations with respect to Net
Proceeds of the Bonds used to reimburse the Borrower for certain
Capital Expenditures made in connection with the Facilities is attached
hereto as Exhibit D.
(f) The Borrower reasonably expects that 85% of the Net Sale
Proceeds of the Bonds will be used to complete the Facilities within
three years of the Date of Issuance and not more than 50% of the
Proceeds of the Bonds will be invested in Nonpurpose Investments having
a substantially guaranteed Yield for four years or more. The Borrower
reasonably expects that the Net Sale Proceeds of the Bonds deposited to
the Project Fund will be expended in accordance with the schedule
contained in the No
18
Arbitrage Certificate executed and delivered by the Issuer in
connection with the issuance and delivery of the Bonds.
(g) All funds and accounts established pursuant to the
Indenture will be invested pursuant to the No Arbitrage Certificate
executed by the Issuer on the Date of Issuance and the Investment
Instructions delivered to the Issuer and the Borrower on the Date of
Issuance.
(h) The Borrower will not enter into and will not direct the
Trustee to engage in any Abusive Arbitrage Devises. If the Borrower
directs the Trustee to invest any of the Gross Proceeds in certificates
of deposit or pursuant to an investment contract or a certificate of
deposit, the Borrower will obtain and provide to the Trustee
certifications in the form attached hereto as Exhibit B.
(i) The Borrower hereby makes, and the Issuer hereby accepts,
the following elections and other choices pursuant to the Regulations
with respect to the Bonds:
(i) The Borrower elects the bond year stated in the
definition of the Bond Year.
(ii) The Borrower elects to avail itself of all
unrestricted yield investments granted in the Regulations for
temporary period, reasonably required reserve fund and minor
portion investments.
(iii) So long as the amount on deposit in the
Collateral Account exceeds a reasonably required reserve fund
for the Bonds pursuant to Section 148(d) of the Code, the
Borrower elects to treat the last day of the first Bond Year
(July 31, 1998) as the initial Installment Computation Date
and the Borrower elects to treat the last day of each
subsequent Bond Year as subsequent Installment Computation
Dates. Commencing with the Bond Year following the Bond Year
in which the amount on deposit in the Collateral Account does
not exceed a reasonably required reserve fund for the Bonds
pursuant to Section 148(d) of the Code, the Borrower elects to
treat the last day of the fifth Bond Year as the Installment
Computation Date and the Borrower elects to treat the last day
of each subsequent fifth Bond Year thereafter as subsequent
Installment Computation Dates. The Borrower elects to treat
the last day of the fifth Bond Year as the initial rebate
payment date and the last day of each fifth Bond Year
thereafter as subsequent rebate payment dates. The Borrower
may change or adjust such dates as permitted by the
Regulations.
(iv) With respect to the Universal Cap, the Borrower
as of the Date of Issuance does not expect that the operation
of the Universal Cap will result in a reduction or
reallocation of Gross Proceeds of the Bonds and that the
Borrower (A) does not expect to pledge funds (other than those
described in the Indenture)
19
to the payment of the Bonds; (B) expects to expend Sale
Proceeds of the Bonds within the expected temporary periods;
and (C) does not expect to retire any of the Bonds earlier
than shown in the Yield computations for the Bonds pursuant to
this Article IV.
Section 4.2. Arbitrage Compliance. The Borrower and the Issuer
acknowledge that the continued exclusion of interest on the Bonds from gross
income of the recipients thereof for purposes of federal income taxation
depends, in part, upon compliance with the arbitrage limitations imposed by ss.
148 of the Code, including the rebate requirement described in Section 4.3
below. The Borrower and the Issuer hereby agree and covenant that they shall not
permit at any time or times any of the Proceeds of the Bonds or other funds of
the Borrower to be used, directly or indirectly, to acquire any asset or
obligation, the acquisition of which would cause the Bonds to be "arbitrage
bonds" for purposes of ss. 148 of the Code. The Borrower further agrees and
covenants that it shall, to the extent that any Proceeds of the Bonds are
invested in any Investment which is not Investment Securities, do and perform
all acts and things necessary in order to ensure that the requirements of ss.
148 of the Code and the Regulations are met. To the extent that Proceeds of the
Bonds are invested in any Investment which is not Investment Securities, the
Borrower shall retain, at its own expense, a Rebate Analyst to make such
determinations and calculations as may be necessary in order to ensure that the
Borrower takes the actions described in Sections 4.2 through 4.6 hereof with
respect to the Investment of Gross Proceeds on deposit in the funds and accounts
established under the Indenture. If the Borrower fails to retain such a Rebate
Analyst, the Issuer shall, upon being notified in writing of such failure, at
the Borrower's expense, retain such a Rebate Analyst. The Borrower shall direct
the Trustee to make the required transfers and dispositions described in
Sections 4.2, 4.3 and 4.4 hereof, and the Trustee may rely upon information
provided by the Borrower.
Section 4.3. Calculation of Rebate Amount.
(a)ss. 148(f) of the Code requires the payment to the United
States of the Rebate Amount. Except as provided below, the Revenue
Fund, the Project Fund, the Rebate Fund, the Collateral Account and all
other funds or accounts treated as containing Gross Proceeds, are
subject to this rebate requirement.
(b)In accordance with the requirements set out in the Code and
pursuant to the Indenture, the Issuer has created the Rebate Fund, to
be held by the Trustee, in its capacity as Trustee under the Indenture,
and used as provided in this Section.
(i) On or before 25 days following each Computation
Date, upon the Borrower's written direction, an amount shall
be deposited to the Rebate Fund by the Trustee from source or
sources stated in such direction so that the balance of the
Rebate Fund shall equal the aggregate Rebate Amount as of such
determination date.
20
(ii) Amounts deposited in the Rebate Fund shall be
invested in accordance with the Investment Instructions by the
Trustee at the written direction of the Borrower.
(iii) All money at any time deposited in the Rebate
Fund shall be held by the Trustee, to the extent required by
this Tax Regulatory Agreement and the Indenture, for payment
to the United States of America of the Rebate Amount. All
amounts deposited into or on deposit in the Rebate Fund shall
be governed by this Tax Regulatory Agreement.
(iv) For purposes of crediting amounts to the Rebate
Fund or withdrawing amounts from the Rebate Fund, Nonpurpose
Investments shall be valued in the manner provided in this
Article.
(c) In order to meet the rebate requirement of ss. 148(f) of
the Code, the Borrower agrees and covenants to take, or cause to be
taken by the Trustee or the Rebate Analyst described in Section 4.6
hereof, as appropriate, the following actions:
(i) For each Investment of amounts held with respect
to the Bonds in (A) the Revenue Fund, (B) the Purchase Fund,
(C) the Project Fund and (D) the Rebate Fund, the Trustee
shall record the purchase date of such Investment, its
purchase price, accrued interest due on its purchase date,
its face amount, its coupon rate, its Yield, the frequency of
its interest payment, its disposition price, accrued interest
due on its disposition date and its disposition date. The
Rebate Analyst retained by the Borrower shall determine the
Fair Market Value for such Investments and the Yield thereon
as may be required by the Regulations. The Yield for an
Investment shall be calculated by using the method set forth
in the Regulations.
(ii) For each Computation Date specified in paragraph
(iii) below, the Rebate Analyst shall compute the Yield on
the Bonds as required by the Regulations based on the
definition of issue price contained in Section 148(h) of the
Code and the Regulations. The Bonds are a variable rate issue
and accordingly the yield on the Bonds cannot be determined
at this time. The Yield on the Bonds shall be calculated by
the Rebate Analyst at such time in order to comply with this
Tax Regulatory Agreement and the Regulations based on the
definitions of issue price contained in Section 148(h) of the
Code using payments or prepayments of the principal of,
premium, if any, and interest on the Bonds required by the
Regulations. For purposes of this Tax Regulatory Agreement
the initial offering price to the public (not including bond
houses and brokers, or similar persons or organizations
acting in the capacity of underwriters or wholesalers) at
which a substantial amount of the Bonds were sold is the
Issue Price. Any reasonable amounts paid for credit
enhancement have been and may
21
generally be treated as interest on the Bonds for purposes of
Yield computation to the extent permitted by the Regulations.
(iii) Subject to the special rules set forth in
paragraphs (iv) and (v) below, the Rebate Analyst shall
determine the amount of earnings received on all Nonpurpose
Investments described in paragraph (i) above, for each
Computation Date. In addition, where Nonpurpose Investments
are retained by the Trustee after retirement of the Bonds,
any unrealized gains or losses as of the date of retirement
of the Bonds must be taken into account in calculating the
earnings on such Nonpurpose Investments to the extent
required by the Regulations.
(iv) In determining the Rebate Amount computed
pursuant to this Section, (A) all earnings on any bona fide
debt service fund (including the Revenue Fund and the
Purchase Fund) shall not be taken into account for any Bond
Year during which the gross earnings of such funds total less
than $100,000, (B) the Universal Cap applicable to the Bonds
pursuant to ss. 1.148- 6(b)(2) of the Regulations shall be
taken into account, (C) all of the Borrower's elections and
other choices set forth in Section 4.1 hereof shall be taken
into account and (D) all spending exceptions to rebate met by
the Borrower shall be taken into account.
(v) For each Computation Date specified in paragraph
(iii) above, the Rebate Analyst shall calculate for each
Investment described in paragraphs (i) and (iii) above, an
amount equal to the earnings which would have been received
on such Investment at an interest rate equal to the Yield on
the Bonds as described in paragraph (ii) above. The method of
calculation shall follow that set forth in the Regulations.
(vi) For each Computation Date, the Rebate Analyst
shall determine the amount of earnings received on all
Investments held in the Rebate Fund for the Computation Date.
The method of calculation shall follow that set forth in the
Regulations.
(vii) For each Computation Date, the Rebate Analyst
shall calculate the Rebate Amount, by any appropriate method
to be described in the Code and Regulations applicable or
which becomes applicable to the Bonds. The determination of
the Rebate Amount shall account for the amount (to be rounded
down to the nearest multiple of $100) equal to the sum of all
amounts determined in paragraph (iii), all amounts determined
in paragraphs (v) and (vi), and less any amount which has
previously been paid to the United States pursuant to Section
4.4 below. The Rebate Analyst shall notify the Trustee of the
Rebate Amount.
22
(viii) If the Rebate Amount exceeds the amount on
deposit in the Rebate Fund, the Borrower shall immediately
pay such amount to the Trustee for deposit into the Rebate
Fund.
23
Section 4.4. Payment to United States.
(a) Not later than sixty (60) days after the last day of each
fifth Bond Year (or such longer period as may be permitted by the
Regulations), the Trustee shall pay to the United States an amount
that, when added to the Future Value as of the most recent Computation
Date of previous rebate payments made for the Bonds, equals at least
ninety percent (90%) of the Rebate Amount required to be on deposit in
the Rebate Fund as of such payment date. No later than sixty (60) days
after the Final Computation Date the Trustee shall pay to the United
States an amount that, when added to the Future Value as of such
Computation Date of previous rebate payments made for the Bonds, equals
at least one hundred percent (100%) of the balance remaining in the
Rebate Fund.
(b) The Trustee shall mail each payment of an installment to
the Internal Revenue Service Center, Philadelphia, Pennsylvania 19255.
Each payment shall be accompanied by Internal Revenue Form 8038-T, and,
if necessary, a statement summarizing the determination of the Rebate
Amount.
(c) If on any Computation Date, the aggregate amount earned on
Nonpurpose Investments in which the Gross Proceeds of the Bonds are
invested is less than the amount that would have been earned if the
obligations had been invested at a rate equal to the Yield on the Bonds
as determined in Section 4.3, such deficit may at the written request
of the Borrower be withdrawn from the Rebate Fund and paid to the
Borrower or as the Borrower shall direct. The Borrower may direct that
any overpayment of rebate may be recovered from any Rebate Amount
previously paid to the United States pursuant to ss. 1.148-3(i) of the
Regulations.
(d) The Borrower shall also pay any penalty or interest on
underpayments of Rebate Amount not paid in a timely manner pursuant to
this Tax Regulatory Agreement, the Code and the Regulations.
Section 4.5. Recordkeeping. In connection with the rebate requirement,
the Borrower and the Trustee shall maintain the following records:
(a) The Borrower and the Trustee shall record all amounts paid
to the United States pursuant to Section 4.4 hereof. The Trustee shall
furnish to the Issuer and the Borrower copies of any materials filed
with the Internal Revenue Service pertaining thereto and shall provide
the Issuer and the Borrower with all records in its possession that the
Issuer, the Borrower or the Rebate Analyst may request relating to the
calculation of any Rebate Amount.
(b) The Borrower and the Trustee shall retain records of the
rebate calculations until six years after the retirement of the last
obligation of the Bonds.
24
Section 4.6. Rebate Analyst.
(a) To the extent required to comply with the provisions of
Section 4.2 hereof, the Borrower shall appoint a Rebate Analyst and any
successor Rebate Analyst for the Bonds reasonably acceptable to the
Issuer, subject to the conditions set forth in this Section. The Rebate
Analyst and each successor Rebate Analyst shall signify its acceptance
of the duties imposed upon it hereunder by a written instrument of
acceptance delivered to the Trustee, the Issuer and the Borrower under
which such Rebate Analyst will agree to discharge its duties pursuant
to this Tax Regulatory Agreement in a manner consistent with prudent
industry practice.
(b) The Rebate Analyst may at any time resign and be
discharged of the duties and obligations created by this Tax Regulatory
Agreement by giving notice to the Trustee, the Issuer and the Borrower.
The Rebate Analyst may be removed at any time by an instrument signed
by the Issuer and the Borrower and filed with the Issuer, the Borrower
and the Trustee. The Borrower and the Issuer shall, upon the
resignation or removal of the Rebate Analyst, appoint a successor
Rebate Analyst.
(c) Each successor Rebate Analyst appointed pursuant to this
Section shall be either a firm of independent accountants or Bond
Counsel or another entity experienced in calculating rebate payments
required by ss. 148(f) of the Code.
(d) In order to provide for the administration of the matters
pertaining to arbitrage rebate calculations set forth herein, and in
the Investment Instructions and No Arbitrage Certificate, the Trustee,
the Borrower and the Issuer may provide for the employment of the
Rebate Analyst on or prior to July 31, 2002. The Trustee and the Issuer
may rely conclusively upon and shall be fully protected from all
liability in relying upon the opinions, calculations, determinations,
directions and advice of the Rebate Analyst. The charges and fees for
such Rebate Analyst shall be paid by the Borrower upon presentation of
an invoice for services rendered in connection therewith.
ARTICLE V
COMPLIANCE WITH CODE
In order to ensure that interest on the Bonds is excludable from the
gross income of the recipients thereof for purposes of federal income taxation,
the Borrower hereby represents and covenants as follows:
(a) The Average Maturity of the Bonds does not exceed 120% of
the Average Economic Life of the Facilities within the meaning of ss.
147(b) of the Code as set forth in Exhibit C hereto.
25
(b) The Bonds are not and shall not become directly or
indirectly "federally guaranteed." Unless otherwise excepted under ss.
149(b) of the Code, the Bonds will be considered "federally guaranteed"
if (i) the payment of principal and interest with respect to the Bonds
is guaranteed (in whole or in part) by the United States (or any agency
or instrumentality thereof), (ii) five (5) percent or more of the
Proceeds of the Bonds is (A) to be used in making loans, the payment of
principal or interest with respect to which are to be guaranteed (in
whole or in part) by the United States (or any agency or
instrumentality thereof) or (B) to be invested (directly or indirectly)
in federally insured deposits or accounts or (iii) the payment of
principal or interest on the Bonds is otherwise indirectly guaranteed
(in whole or in part) by the United States (or any agency or
instrumentality thereof).
(c) The Borrower will provide to the Issuer all information
necessary to enable the Issuer to complete and file Internal Revenue
Forms 8038 and 8038-T pursuant to ss. 149(e) of the Code.
(d) As required by ss. 147(f) of the Code, the Bonds and the
Project were the subject of a public hearing held on June 18, 1997,
which was preceded by reasonable public notice.
(e) The Borrower will comply with, and make all filings
required by, all effective rules, rulings or regulations promulgated by
the Department of the Treasury or IRS with respect to obligations
described in ss.ss. 103 and 144 of the Code, such as the Bonds.
(f) The Borrower agrees to rebate all amounts required to be
rebated to the United States of America pursuant to ss. 148(f) of the
Code. The Borrower agrees to provide any instructions to the Trustee
that are necessary to satisfy the requirements of ss. 148(f) of the
Code. The Borrower will not deposit or instruct the Trustee to deposit
amounts in the Rebate Fund in excess of the amounts reasonably expected
to be needed to make the payments to the United States as required by
ss. 148(f) of the Code.
(g) The Sale Proceeds of the Bonds and any Investment Proceeds
will be expended for the purposes set forth in the Agreement and in the
Indenture and no amount of such Proceeds of the Bonds in excess of 2%
of the Sale Proceeds of the Bonds will be expended to pay the costs of
issuing the Bonds within the meaning of ss. 147(g) of the Code.
(h) The Issuer shall not sell any other tax-exempt obligations
within 15 days of the sale date of the Bonds pursuant to the same plan
of financing with the Bonds and payable from substantially the same
source of funds, determined without regard to qualified guaranties from
unrelated parties and used to pay the Bonds.
(i) The Bonds were approved by the Governor of the State of
California following the public hearings referred to in (d) above.
26
ARTICLE VI
TERM OF TAX REGULATORY AGREEMENT
This Tax Regulatory Agreement shall be effective from the Date of
Issuance through the date that the last Bond is redeemed, paid or deemed paid
pursuant to the terms of the Indenture, except that the requirements of Section
4.5 shall survive until six years after the retirement of the last obligations
of the Bonds.
ARTICLE VII
AMENDMENTS
Notwithstanding any other provision hereof, any provision of this Tax
Regulatory Agreement may be deleted or modified at any time at the option of the
Borrower, with the consent of the Issuer, if the Borrower has provided to the
Trustee and the Issuer an opinion, in form and substance satisfactory to the
Trustee and the Issuer, of Bond Counsel that such deletion or modification will
not adversely affect the exclusion of interest on the Bonds from the gross
income of the recipients thereof for purposes of federal income taxation.
ARTICLE VIII
EVENTS OF DEFAULT, REMEDIES
Section 8.1. Events of Default. The failure of any party to this Tax
Regulatory Agreement to perform any of its required duties under any provision
hereof shall constitute an Event of Default under this Tax Regulatory Agreement
and under the Indenture.
Section 8.2. Remedies for an Event of Default. Upon an occurrence of an
Event of Default under Section 8.1 hereof, the Issuer or the Trustee may in
their discretion, proceed to protect and enforce their rights and the rights of
the registered owners of the Bonds by pursuing any available remedy under the
Indenture or by pursuing any other available remedy, including, but not limited
to, a suit at law or in equity.
27
IN WITNESS WHEREOF, the Issuer, the Borrower and the Trustee have
caused this Tax Regulatory Agreement to be executed in their respective names
and by their proper officers thereunto duly authorized, all as of the day and
year first written above.
CALIFORNIA ECONOMIC DEVELOPMENT
FINANCING AUTHORITY
By___________________________________________
Chair
Attest:
By_____________________________________
Secretary
ADVANCED AERODYNAMICS AND
STRUCTURES, INC.
By__________________________________________
Authorized Signatory
FIRST TRUST OF CALIFORNIA,
NATIONAL ASSOCIATION, AS TRUSTEE
By__________________________________________
Authorized Officer
EXHIBIT A-1
SOURCES AND USES OF FUNDS
1. Amount received from the sale of the Bonds (exclusive of accrued
interest) is as follows:
Face amount of the Bonds....................................$8,500,000
Less: Underwriters' discount..................................$-0-
Total amount received from the sale of the Bonds............$8,500,000
2. Proceeds of the Bonds totaling $8,330,000, representing 100% of the
Net Sale Proceeds of the Bonds after deduction of the amounts described in 3
below will be deposited to the Project Fund.
3. $170,000 of the Bond proceeds will be deposited in the Costs of
Issuance Fund to pay a portion of the Costs of Issuance of the Bonds.
Estimated Use of Substantially all
of the Proceeds of the
Bonds
(1) Issue price of Bonds........................................$8,500,000
(2) Substantially All Factor.......................................... .95
(3) Total.....................................$8,075,000
=========
(4) Amount paid for qualified Project Costs*
(including interest during construction, if any)........ $8,330,000
Note: All investment earnings, if any, on the Bond proceeds will be
used for qualified Project Costs (including interest during construction, if
any).
*Qualified Project Costs:
Building $7,164,000
Equipment 1,166,000
A-1
EXHIBIT A-2
Property Financed or Refinanced by the Bonds
1. Construction and installation of a manufacturing facility consisting of
approximately 200,000 square feet - $7,164,000.
2. Acquisition and installation of manufacturing equipment - $1,166,000.
Total $8,330,000.
A-2
EXHIBIT B-1
FORM OF DEALER CERTIFICATION OF BONA FIDE
BID PRICE OF A CERTIFICATE OF DEPOSIT
I, [Name], [Position] of [Entity Providing the Certification] (the
"Dealer") HEREBY CERTIFY that the Dealer maintains an active secondary market in
certificates of deposit of a type similar to that [sold/purchased] by the Dealer
on behalf of Advanced Aerodynamics and Structures, Inc., a Delaware corporation
(the "Borrower"), and that the price at which the certificate of deposit was
[sold to/purchased from] the Borrower is the bona fide bid price quoted by the
Dealer in an active secondary market maintained by the Dealer in such
certificates of deposit.
IN WITNESS WHEREOF, I have hereunto set my hand this _____ day of
_______________, 19__.
By_________________________________________
Title:_____________________________________
B-1-1
EXHIBIT B-2
FORM OF DEALER CERTIFICATION FOR A
CERTIFICATE OF DEPOSIT FOR WHICH
NO ACTIVE SECONDARY MARKET EXISTS
I, [Name], [Position], of [Entity Providing Certificate] (the "Dealer")
HEREBY CERTIFY that there is no active secondary market in certificates of
deposit of the type [sold/ purchased] on behalf of Advanced Aerodynamics and
Structures, Inc., a Delaware corporation [to/from] the Dealer (the "Certificate
of Deposit"); that the yield on the Certificate of Deposit is as high or higher
than the yield on comparable obligations traded on an active secondary market,
and as high or higher than the yield available on reasonably comparable direct
obligations offered by the United States Treasury; that the Dealer maintains an
active secondary market in comparable certificates of deposit, and that this
Certification is based on actual trades adjusted to reflect the size and term of
the Certificate of Deposit and the stability and reputation of the person
issuing it.
IN WITNESS WHEREOF, I have hereunto set my hand this _____ day
_________ of 19__.
By__________________________________
Title:______________________________
B-2-1
EXHIBIT B-3
FORM OF PROVIDER CERTIFICATION
FOR A CERTIFICATE OF DEPOSIT
I, [Name], [Position], of [Entity Providing the Certificate of Deposit]
(the "Provider") HEREBY CERTIFY that the yield on the Certificate of Deposit
entered into on [DATE] is not less than the highest yield that the Provider
publishes or posts for comparable certificates of deposit offered to the public
and that the yield on the Certificate of Deposit is not less than the yield
available on reasonably comparable direct obligations offered by the United
States Treasury.
IN WITNESS WHEREOF, I have hereunto set my hand this ____ day of
_________________, 19__.
By_____________________________________
Title:_________________________________
B-3-1
EXHIBIT B-4
FORM OF PROVIDER CERTIFICATION
FOR AN INVESTMENT CONTRACT
I, [Name], [Position], of [Entity Providing Investment Contract] (the
"Provider") HEREBY CERTIFY in connection with the Investment Contract between
[NAME] and the Provider dated as of [DATE] (the "Investment Contract") that the
yield on the Investment Contract is at least equal to the yield offered on
reasonably comparable Investment contracts offered to other persons, if any,
from a source of funds other than gross proceeds of an issue of tax-exempt bonds
and that the amount of administrative costs that are reasonably expected to be
paid by the Provider to third parties in connection with the Investment Contract
is $ . For purposes of this certification, administrative costs include all
brokerage or selling commissions paid by the Provider to third parties in
connection with the Investment Contract, legal or accounting fees, investment
advisory fees, recordkeeping, safekeeping, custody and other similar costs or
expenses.
IN WITNESS WHEREOF, I have hereunto set my hand this _____ day
_____________ of 19__.
By_________________________________________
Title:_____________________________________
B-4-1
EXHIBIT B-5
FORM OF BORROWER'S CERTIFICATION FOR A
CERTIFICATE OF DEPOSIT INVOLVING THREE BIDS
I, [[Name], [Position], of Advanced Aerodynamics and Structures, Inc.,
a Delaware corporation (the "Borrower"), HEREBY CERTIFY in connection with the
certificates of deposit of the type purchased by the Borrower that such purchase
was made pursuant to the Indenture of Trust, dated as of August 1, 1997, between
California Economic Development Financing Authority and the First Trust of
California, National Association after receipt of at least three bids and that
the certificates of deposit were purchased from the highest bidder in an
arm's-length transaction without regard to yield.
IN WITNESS WHEREOF, I have hereunto set my hand this _____ day of
_______________, 19__.
ADVANCED AERODYNAMICS AND
STRUCTURES, INC.
By
Title:
B-5-1
EXHIBIT B-6
FORM OF BORROWER'S CERTIFICATION FOR AN
INVESTMENT CONTRACT INVOLVING THREE BIDS
I, [[Name], [Position], of Advanced Aerodynamics and Structures, Inc.,
a Delaware corporation (the "Borrower"), HEREBY CERTIFY in connection with the
Investment contract between the Borrower and [Entity Providing Investment
Contract] (the "Provider") dated as of
, (the "Investment Contract") that (i) at least three bids on
the Investment Contract were received from persons other than those with a
material financial advantage in the California Economic Development Financing
Authority Variable Rate Demand Industrial Development Revenue Bonds, Series 1997
(Advanced Aerodynamics and Structures, Inc. Project), (ii) the yield on the
Investment Contract purchased is at least equal to the yield offered under the
highest bid received from an uninterested party, (iii) the price of the
Investment Contract takes into account as a significant factor the Borrower's
expected drawdown for the funds to be invested (other than float funds or
reasonably required reserve or replacement funds) and (iv) any collateral
security requirements for the Investment Contract are reasonable.
IN WITNESS WHEREOF, I have hereunto set my hand this _______ day of
_________________, 19__.
ADVANCED AERODYNAMICS AND
STRUCTURES, INC.
By
Title:
B-6-1
EXHIBIT C
Useful Life of the Property Financed or Refinanced by the Bonds
Cost Useful Life*
Land $ 0 x n/a
Building 7,164,000 x 41 $293,724,000
Equipment 1,166,000 x 10 12,826,000
$8,330,000 $306,550,000
less: cost of land 0
$8,330,000
Average life of Project = $306,550,000 / 8,330,000 = 36.80 years.
Useful life of Project for purposes of Section 147 (b) of the Code =
36.80 years x 1.20 = 44.16 years
Average life of Bonds = 29.98 years
The information contained in this schedule, attached as an exhibit
hereto, setting forth the respective cost, economic life, ADR midpoint life, if
any, under Revenue Procedure 87-56, 1987-42 I.R.B. 4, and Revenue Procedure
83-35, 1983-2 C.B. 745, as supplemented and amended from time to time, and
guideline life, if any, under Revenue Procedure 62-21, 1962-2 C.B. 118, as
supplemented and amended from time to time, of each asset of the Facilities
financed with the Proceeds of the Bonds, is true, accurate and complete.
* Includes time from date of issuance until property is placed in service.
C-1
EXHIBIT D
Declaration of Official Intent
[See Attached]
D-1