Loading...
Item R1 BOARD OF COUNTY COMMISSIONERS AGENDA ITEM SUMMARY Meeting Date: August 15, 2001 Division: County Attorney Sulk Item: Yes 0 No 0 AGENDA ITEM WORDING: Request for IDA Chairman to execute waiver for Warren Bloom (partner in Nabors & Giblin) to serve as temporary successor trustee to Sun Trust Banks for the Key West Brewery IDA Bonds. ITEM BACKGROUND: Any potential conflict of interest is remote and Mr. Bloom further agrees to resign as trustee upon request of the IDA/SOCC. PREVIOUS RELEVANT BOCC ACTION: CONTRACT I AGREEMENT CHANGES: STAFF RECOMMENDATIONS: Approval. TOTAL COST: COST TO COUNTY: BUDGETED: Yes 0 No 0 APPROVED BY: County Attorney _ OMB/Purchasing 0 Risk Management 0 DIVISION DIRECTORAPPROVA~~ ES T. ENDRIC DOCUMENTATION: Included 0 To Follow 0 Not Required 0 J --'R j Monroe County Industrial Development Authority RRH Capital Management, Inc. July 17,2001 Page Three Agreed and Accepted by: "AUTHORITY" Monroe County Industrial Development Authority By: Name: Title: Acknowledged by: "TRUSTEE" SunTrust Bank By: Name: Title: "BONDHOLDERS'REPRESENTATIVE" RRH Capital Management, Inc. By: Name: Title: G:\15521108\conflictwaiver. wpd NABORS, GIBLIN & NICKERSON, P.A. ATTORNEYS AT LAW CNL CENTER, SUITE 510 450 SOUTH ORANGE AVENUE ORLANDO. FLORIDA 32801 BRIAN P. ARMSTRONG LYNNE F. BACHRACH SARAH M. BLEAKLEY WARREN S. BLOOM HARRY F. CHILES MAUREEN McCARTHY DAUGHTON VIRGINIA SAUNDERS DELEGAL HEATHER J. ENCINOSA L. THOMAS GIBLIN ERIK P. KIMBALL AMY E. LOWEN CHARLES R. MAXWELL" STEVEN E. MILLER MARK T. MUSTIAN ROBERT L. NABORS GEORGE H. NICKERSON. JR. CRYSTALYN ROSENE CAREY GREGORY T. STEWART JOHN R. STOKES CHRISTOPHER M. TRABER WILLIAM D. TYLER MICHAEL L. WATKINS JEAN E. WILSON TELEPHONE (407) 426-7595 TELECOPY (407) 426-B022 SUITE 200 1500 MAHAN DRIVE TALLAHASSEE, FLORIDA 32308 (850) 224-4070 TELECOPY (850) 224.4073 THE POINTE. SUITE 1080 2502 ROCKY POINT DRIVE TAMPA. FLORIDA 33607 (813) 281-2222 TELECOPY (813) 2111-0129 WAIVER LETTER WILLIAM J. ROBERTS OF COUNSEL July 17,2001 Monroe County Industrial Development Authority 5100 College Road Public Service Building, Wing II Key West, Florida 33040 Attention: Secretary RRH Capital Management, Inc. 10 Rockefeller Plaza, Suite 1012 New York, New York 10020 Attention: President Re: Monroe County Industrial Development Authority Industrial Development Revenue Bonds, Series 1999A and Series 1999B (collectively, the "Bonds") Ladies and Gentlemen: The above-captioned Bonds were issued pursuant to that certain Indenture of Trust (as amended, the "Indenture"), dated as of March 1, 1999, between the Monroe County Industrial Development Authority (the "Authority") and SunTrust Bank, Central Florida, National Association, as succeeded by merger by SunTrust Bank (the "Trustee"). Capitalized terms not otherwise defined in this letter (this "Waiver Letter") shall have the meanings assigned to them in the Indenture. As you are aware, Events of Default exist under the Indenture and the Borrower has filed for a voluntary petition under Chapter 11 of 11 U.S.c. Section 101 et seq. in the United States Bankruptcy Court for the Southern District of Florida. As you are also aware, the Trustee has tendered its resignation as Trustee on July 10,2001 pursuant to Section 1106 of the Indenture and that such resignation shall not be effective until a Successor Trustee or Temporary Trustee is appointed in accordance with the terms of the Indenture. Monroe County Industrial Development Authority RRH Capital Management, Inc. July 17, 2001 Page Three The Trustee has expressed a desire to retain the law firm of Nabors, Giblin & Nickerson, P.A. (f1NGNfI) to act as its counsel in administering this default until such time as the Trustee is replaced. You are aware that NGN acted as Bond Counsel for the Authority in connection with the initial issuance of the Bonds. While we are unaware of any actual or implied conflict of interest in having NGN represent the Trustee in this matter until such time as it is replaced, in an abundance of caution and in accordance with the rules that govern the conduct of attorneys, we would ask each of you to consent to NGN's representation of the Trustee in this matter. In the event that either the Borrowers' Representative or the Authority (or the Trustee) believes that any actual or implied conflict of interest exists for NGN during its representation of the Trustee, such party shall notify the Trustee and NGN in writing and NGN shall immediately resign from its representation of the Trustee in this matter. Notwithstanding the foregoing, NGN shall retain its representation of the Authority as its Bond Counsel and shall, if so requested by the Authority, perform requested legal services for the Authority whether related to the Bonds or otherwise. If you find the foregoing acceptable, please execute this letter in the spaces provided therefor. WSB/kmw NABORS, GIBLIN & NICKERSON, P.A. ATTORNEYS AT LAW THE POINTE. SUITE 1060 2502 ROCKY POINT DRIVE TAMPA, FLORIDA 33607 SUITE 200 TELEPHONE (813) 281-2222 TELECOPY (813) 281-0129 CNL CENTER. SUITE 510 450 SOUTH ORANGE AVENUE ORLANDO. FLORIDA 32S01 1500 MAHAN DRIVE TALLAHASSEE. FLORIDA 3230S (850) 224-4070 TELECOPY IS501 224-4073 (4 RECt\WOI4071426-S 22 July 26, 200 I JUL 2 7 2001 VIA FEDERAL EXPRESS COUNTY ADMINISTRATOR Mr. James L. Roberts County Administrator 5100 College Road Public Service Building, Wing II Key West, Florida 33040 Re: Monroe County Industrial Development Authority Industrial Development Revenue Bonds (Key West Brewery Inc., Project) Dear Jim: With respect to the above-referenced matter, enclosed is a Waiver Letter that requires the .signature ofthe Chairman of the IDA. As we have discussed, the present trustee for the Bonds, SunTrust Bank, has tendered its resignation. They have asked my partner, Warren Bloom, to represent them until a successor trustee is appointed. Although we do not believe there is any conflict of interest in our firm representing Sun Trust Bank after acting as Bond Counsel for the original issuance of the Bonds, we feel it would be in everyone's best interest to fully disclose this arrangement and seek the approval of all of the relevant parties. As I mentioned to you, I discussed this issue with Rob Wolfe who did not feel there was any problem with this representation. At your request I put in a call to Jim Hendrick but to date we have not spoken. If everyone is comfortable with this issue, please have the Chairman ofthe IDA (I believe Commissioner McCoy was appointed) sign the Waiver Letter Mr. James L. Roberts July 26, 2001 Page 2 on the third page and return it to me at your earliest convenience. We will provide you with a copy once we have obtained the signatures of the other parties. Please give me a call if you have any questions or concerns. Sincerely, . ~ :)(; !/v1~ Steven E. Miller SEM/bas NORTH KEY LARGO UTILITY CORP. APPLICATION FOR ISSUANCE OF INDUSTRIAL DEVELOPMENT REVENUE BONDS August 8, 2001 ROSE, SUNDSTROM & BENTLEY, LLP 2548 Blairstone Pines Drive Tallahassee, Florida 32301 (850) 877-6555 NORTH KEY LARGO UTILITY CORP. APPLICATION FOR INDUSTRIAL DEVELOPMENT REVENUE BOND NORTH KEY LARGO UTILITY CORP., 31 Ocean Reef Drive, Key Largo, Florida, 33037 ("Applicant"), files this Application and respectfully requests that Monroe County issue its Industrial Development Revenue Bonds (North Key Largo Utility Corp. Project), Series 2001, in an amount not to exceed $7,900,000 ("Bonds") for the purpose of financing the acquisition and improvement of a reverse osmosis irrigation water supply, treatment, transmission, and distribution system serving North Key Largo, Monroe County, Florida. Potable water is currently provided to residents of North Key Largo by the Florida Keys Aqueduct Authority ("FK.AA"). Replacing a portion of the potable water demand with irrigation quality water will lower overall water costs to customers and preserve the potable water resource in the Keys. 1. EXECUTIVE SUMMARY Issuer: Monroe County, Florida (Industrial Development Authority) Obligor: North Key Largo Utility Corp. Issue Size: $ 7,900,000 Interest Rate: To be determined Maturitv: November 1,2031 Method of Sale: Private Placement Denomination: Minimum $100,000 Placement Agent: To be determined Bond Counsel: Nabors, Giblin and Nickerson, P.A. Proiect: The Project consists of: (i) acquisition of two reverse osmosis water supply, treatment and transmission systems owned by the Ocean Reef Club and Card Sound Golf Course located on North Key Largo ("Systems"); (ii) construction of additional water supply capacity, upgrade ofthe membrane treatment system, and construction of a distribution system to serve commercial and residential customers; and, (iii) payment for qualifying costs of issuance ("Project"). Legal Eligibilitv: The Project qualifies as an exempt facility bond under Section 142 of the Internal Revenue Code which includes facilities for the furnishing of water to the public, which can include irrigation as well as potable water. The Project also qualifies under the State Industrial Development Revenue Financing Act. Security: (i) first mortgage on all existing real estate, buildings and personal property of the Applicant, (ii) security pledge and assignment of revenue, (iii) pledge and assignment of all money and securities in Trustee accounts, and (iv) "rate covenant" to maintain rates at a level sufficient to repay the Bonds. 2. PROJECT PURPOSE The FKAA is the potable water service provider on North Key Largo and throughout the Keys. Fresh water is at a premium in the Keys. The poor quality of the source water, and long distances for delivery provide for some of the highest costs in the state of Florida. Currently, potable water customers pay approximately $6.00 per thousand gallons of water provided by the FKAA. The FKAA is permitted a maximum daily withdrawal of 19.2 million gallons by the South Florida Water Management District. In each of the last two years, FKAA has exceeded its maximum withdrawal limits. The Authority recently applied for permission to add two new wells which would provide approximately 5 million gallons per day of additional raw water. This request was denied by the Water Management District based on concern as to the impact of further water withdrawals on the Biscayne Aquifer. Measures which encourage conservation or reduce reliance on the FKAA potable water sources would be a benefit to the environment, the water resource, and water customers. Irrigation represents a substantial part of water consumption, particularly for residential customers. By constructing and extending the irrigation distribution system throughout the North Key Largo area, the customers will be able to secure a lower cost water source for irrigation purposes. This in turn will free up potable water resources for use elsewhere in the Keys The Project is consistent with the goals of various agencies, including the South Florida Water Management District, to conserve and protect water resources in the Keys. 3. COMPANY BACKGROUND The Applicant is a Florida, not-for-profit corporation established on August 1, 1994. The Applicant is a member-owned, cooperative organized under Section 501 (c)(12) of the Internal Revenue Code which provides and exemption from payment offederal income taxes. The Company is in the business of providing wastewater collection, treatment and disposal services to its customers who are the members of the Corporation, and currently operates a 550,000 gallons per day (" gpd") central wastewater system on North Key Largo. A copy of the Articles ofIncorporation is attached as Exhibit "A" to this Application. Each Utility customer, as a member of the Applicant, is entitled to vote on matters affecting the System, and to participate in the election of Directors. Service is provided to members in a nondiscriminatory manner. The Applicant is in the process of modifying its Articles ofIncorporation and By-laws to address the provision of irrigation water service to its members and to provide for membership status to its irrigation customers. As a not-for-profit corporation, association, or cooperative providing service solely to members who own or control it, the Company is exempt from PSC jurisdiction pursuant to Section 367.022(7), Florida Statutes. The Applicant is administered by a nine-member Board of Directors elected by the customers or members of the Applicant. The Officers of the not-for-profit Corporation are as follows: Officer Alan Goldstein David Ritz Bill Stephenson Susie Ptomey Suzy Anderson Office Chairman President Vice-President Secretary Treasurer 2 In 1993, Paul Winklejohn was hired as the System's Utility Director, and is responsible for the day-to- day management of the Applicant. The Applicant also employs Mark MaIka as its Operations Manager and Chief Operator. Mr. MaIka has over 25 years in the water and wastewater business, holding DEP certifications as a class "C" wastewater system operator and a class "A" water system operator. The Operations Manager is responsible for the day-to-day operation and maintenance of all systems. In 2000 Bill Stephenson, P .E. was hired to develop the engineering/operations. Mr. Stephenson brings over 20 years experience from the City of Cocoa Water and Wastewater Utility Department. Utility performance will be enhanced through acquisition and expansion of a irrigation water system. A larger, more efficient system increases gross revenues, creates jobs both inside and outside the Applicant, lowers costs, and spreads risk over a larger customer base. Tax-exempt financing typically reduces the interest rate to a level below the prime interest rate, which is seldom available except to a Bank's largest corporate clients. As interest expense is a major factor in determining rates paid by utility customers, the reduction in the cost of capital obtained through tax-exempt financing will flow through to the benefit of the customers. The irrigation system will further provide a disposal method for reuse quality wastewater effluent as the Company's wastewater plant is required to meet State mandated Advanced Wastewater Treatment requirements. 4. PROJECT DESCRIPTION A. System Acquisition Bond proceeds will be used to acquire the reverse osmosis irrigation systems currently owned by the Ocean Reef Club and Card Sound Golf Course and used to irrigate the three golf courses owned and operated by these two organizations. The Ocean Reef Club currently operates an irrigation system for its golf courses which includes: three wells; a 3-train, parallel, reverse osmosis treatment system in which each train can treat up to 425,000 gallons per day; a 2,000,000 gallon line storage pond; water transmission and golf course distribution systems; and, two disposal wells for reject water. The Card Sound Golf Club irrigates a single golf course with the following facilities: a single production well; a reverse osmosis treatment system with 390,000 gallon per day capacity; and, two high service pumps and transmission and distribution system. These treatment facilities are co-located adjacent to the Company's wastewater treatment plant site and both systems are supplied with emergency power from the Company's auxiliary generator. Both systems are currently managed by the Company, and consolidation into the Company ownership will streamline utility operations in the service area. The preliminary cost estimate to acquire these two systems is $ 1,000.000. The Company has determined that it can acquire the existing reverse osmosis water treatment facilities, upgrade these facilities and construct a distribution system to extend irrigation service throughout the North Key Largo area and fund this Project through industrial development revenue bonds. The financial feasibility analysis further provides that rates for irrigation water can be set at levels which are substantially below those rates paid for potable water service to FKAA and still provide sufficient revenues to pay debt 3 service on the bonds and pay all operating expenses and general administrative costs in operating the utility irrigation system. Commercial customers may be provided with a discounted rate based on the lower cost in providing bulk service to such customers and/or as a credit against purchase price for assets sold to the Company as a part of the irrigation system acquisition. B. System Upgrades and Plant Expansion Long-term water supply planning for the North Key Largo region requires reliance on alternative water sources. Alternative water sources are those other than potable water supplied by FK.AA. The Company has a plan to upgrade the reverse osmosis water treatment and transmission and distribution system to provide irrigation water to properties on North Key Largo. In some cases, over 50% of a customer's water usage is for irrigation and non-potable purposes. This is particularly true in residential areas. The Company intends to upgrade its fiscal planning, construct an extensive distribution system, in some cases using old potable water lines previously used by FK.AA, in order to provide irrigation water service to residential and commercial customers. The Company has developed a two-phase Capital Improvement Program to construct improvements to the irrigation system following acquisition. The principal components of the program and the associated costs are set forth below: Phase I Facilities and Estimated Costs New well and associated electrical and piping to the plant $730,000 One ASR wells with electrical, controls and piping 500,000 Membrane cleaning system 75,000 Engineering and contingency (25%) 268,750 Distribution system improvements (w/engr. & cntgcy.) 2.000.000 Total Phase I Costs $ 3,573,750 Phase IT Facilities and Estimated Costs Pump station, one RO train and building for irrigation supply. $700,000 Conversion of WWTP to irrigation discharge 400,000 Covered storage tank and abandon the pond 600,000 Additional ASR well 500,000 Additional distribution improvements 250,000 Engineering, contingency and permitting (25%) Total Phase II Costs 612.500 $3,062,500 Total Project Cost $6,636,250 4 Other than the existing plant site acquired with the System, no additional property acquisitions are necessary for the Project. Plant construction will take place within the existing site. Any necessary main extensions will utilize dedicated rights-of-way or existing utility easements. C. Reserve Funds and Costs of Issuance Subject to final structuring of the issue, the balance of the proceeds are expected to be used to fund costs of issuance including Bond Counsel fees, placement agent fees, accounting and legal fees, and miscellaneous project expenses estimated at 2.0% of bond proceeds or $170,000. The Company expects to secure a surety bond letter of credit, or other instrument in lieu of cash funding a debt service reserve fund. 5. PROPOSED BOND ISSUE STRUCTURE A. Preliminary "Term Sheet" The following Term Sheet outlines preliminary terms and conditions the Applicant and its consultants anticipate in marketing this issue: Issuer: Monroe County, Florida (Industrial Development Authority) Obligor: North Key Largo Utility Corp. Issue Size: $ 7,900,000 Dated: November 1, 2001 Maturitv: November 1,2031 Interest Rate: To be determined Form of Bonds: Fully Registered Denomination: Minimum $100,000. Placement Agent: To be detennined Bond Counsel: Nabors, Giblin & Nickerson, P.A. Use of Proceeds: The Project consists of: (i) acquisition of two reverse osmosis water supply, treatment and transmission systems owned by the Ocean Reef Club and Card Sound Golf Course located on North Key Largo ("Systems"); (ii) construction of additional water supply capacity, upgrade of the membrane system, and construction of a distribution system to serve commercial and residential customers; and, (iii) payment for qualifYing costs of issuance. Sinking Fund and Interest Pavment Schedule: Sinking fund payments will be structured to yield level debt service during the term of the Bonds. The Bonds will be fixed rate current interest paying terms bonds. Interest payments will be made semi-annually on November 1 and April 1 based on a 360-day year onO-day months. Tax Exemption: Interest on the Bonds will be excluded from gross income for federal tax purposes and from Florida personal income taxes. Interest on the Bonds will be an item of tax preference for purposes of the Federal alternative minimum tax imposed on individuals. Allocation: The Applicant will close the issue as soon as allocation is obtained from the Florida Division of Bonds Finance. It is anticipated that the Company will spend money to continue engineering design and begin Project construction which expenditures will be reimbursed from Bond proceeds. 5 Security: Sources of security for the Bonds may include: (i) a first mortgage on all real estate, buildings and personal property of the Applicant (including the proposed capital improvements), (ii) a security pledge and assignment of rights to accounts receivable and all contracts relating to Applicant revenue, (iii) a pledge and assignment to the trustee of the Issuer's and Applicant's rights to all money and securities in all trustee accounts, excluding the rebate refund, and (iv) a negative pledge against additional liens on the mortgaged project as appropriate. Debt Service Reserve Fund: If necessary, a Debt Service Reserve Fund will be funded at closing in an amount equal to the lesser of (i) 10% of the par amount of the Bonds, or (ii) the maximum annual debt service due on the Bonds. The Company expects to secure a surety bond letter of credit, or other instrument in lieu of cash funding a debt service reserve fund. Capitalized Interest: Not expected to be necessary as existing revenues are sufficient to handle projected debt service requirements during, as well as following, construction. Costs ofIssuance: Payment of Project costs including legal and accounting fees, Bond counsel fees, placement agent fees and other qualifying costs will be paid from proceeds up to the 2% limit thereon. Mandatory and Optional Redemption: To be determined. Additional Debt: Additional long-term indebtedness is expected to be authorized on a parity basis, provided reasonable tests of debt service coverage are met. Short-term indebtedness secured by accounts receivable and purchase money financing may also be incurred. Financial Reporting Covenants: The Applicant will covenant to furnish: (i) quarterly financial statements within 45 days ofthe end of each quarter, (ii) annual financial statements within 120 days of the end of each fiscal year and (iii) such additional information as the bondholders may reasonably request. Miscellaneous: No guarantees or credit enhancement are anticipated at this time. This matter will be determined through negotiation with the Bond purchasers, and the County will be promptly advised of any such requirements. The proposed method of sale of the Bonds is through a private placement to sophisticated investors. B. Schedule of Uses of Funds The following is a Preliminary Schedule of Uses of Funds for the Project: System Acquisition Cost System Improvement Costs Bond Issuance Cost (2%) Miscellaneous $ 1,000,000 6,636,250 170,000 93,750 Total $7,900,000 All identified Project components are either depreciable assets which may be capitalized under generally accepted accounting principles, or costs of issuance, and therefore qualify as a proper expenditure of bond funds. Funds needed in addition to Bond proceeds will be paid by the Applicant from cash on hand.. C. Method of Bond Placement At this time it is anticipated that the Bonds will be privately placed with sophisticated investors who 6 are also customers of the Utility System. In lieu of an investment grade rating, the Bonds will be sold in denominations of not less than $100,000 (and integral amounts thereafter) to sophisticated investors (whether members or nonmembers), who will be required to attest to that fact by execution of a "big boy" letter prior to purchasing the Bonds. Due to the unusual circumstance of selling the Bonds to its members, the Applicant has not selected a placement agent at this time. To the extent one is necessary, the placement agent will independently analyze the sources and uses of Bond funds, debt service calculations, revenue and expense projections, and will draft an Official Statement, Blue Sky Memoranda and other offering materials, and structure an issue which will be both acceptable to the marketplace and to the County as Issuer. 6. mSTORICAL AND PROJECTED FINANCIAL INFORMATION On March 9, 1995 the Monroe County Industrial Development Authority issued its $3,400,000 Industrial Development Revenue Bonds (North Key Largo Utility Corp. Project) (the "Series 1995 Bonds"). The Series 1995 Bonds were issued by the County on behalf ofthe Company for the acquisition of the 450,000 gpd central wastewater collection, transmission, treatment and disposal system owned by Ocean Reef Club, Inc. and construction of a 300,000 gpd additional plant capacity to replace existing facilities and accommodate future growth in the utility service area. Using tax-exempt financing sponsored by the County allowed the Company to achieve the lowest capital cost for the Project, with cost savings enjoyed by all customers of the Utility. In this manner, the County provided a substantial benefit to the citizens and utility customers in the North Key Largo area. The Series 1995 Bonds were sold through a private placement of the bonds with utility customers. It is anticipated that the Series 2001 Bonds will be marketed in a similar fashion. This method of bond sale lowers the overall cost of issuance by eliminating the fees associated with an underwriting of bonds and resale in the retail market. Under federal tax laws, the bonds will be made available in increments of not less than $100,000 each and sold only to accredited investors who qualify for such purchases. The sale of the Series 1995 Bonds, and the successful financing which resulted, demonstrates the ability of the Utility to complete sophisticated transactions such as the issuance of the Series 2001 Bonds. Attached hereto as Exhibit "B" is the Company's Audited Financial Statements for the years 1998, 1999, and 2000. A Financial Feasibility Report is being prepared for the Company by the utility consulting firm of Hartman & Associates, Inc., Orlando, Florida. The report will project Company performance as a result of new investment made possible by the Bonds. Based on adjustments to historical financial statements, the report will demonstrate that revenue generated by service to irrigation customers will be sufficient to pay operating expenses and debt service (including coverage requirements) on the Bonds. 7. PUBLIC PURPOSE AND APPLICANT'S PERFORMANCE Environmental and Public Benefits The Monroe County Comprehensive Plan sets goals, objectives, and policies to guide anticipated growth, based upon a study of County needs and resources. A priority for capital investment is wastewater facilities reuse of wastewater effluent and the provision of sewage collection and treatment services in environmentally sensitive areas. The County, as well as, North Key Largo Utility Corp. provides such services, and the Bonds will allow it to continue and extend these services. The irrigation system will conserve potable water resources and allow for reuse of wastewater effluent. 7 Water and wastewater utility projects are capable of producing tangible economic benefits in the form of new employment, the preservation of existing employment, and new capital investment in Monroe County. A number of jobs in the areas of construction, engineering, and operation of the utility system will become available as a direct result of a major utility project. Increased construction activity in turn causes a ripple effect which increases employment opportunities in related support services. The County significantly reduces Applicant's cost of capital through issuance of the Bonds. Repayment of the Bonds through monthly rates demonstrates the feasibility of the proj ect. The customers receiving the benefit pay for such service, rather than relying on the limited resources of government programs funded by tax dollars. 8. MISCELLANEOUS The Applicant represents that the Project qualifies for financing through the use of industrial development revenue bonds as a "proj ect" as defined in section 159.27 Florida Statutes because it constitutes a water facility as defined in therein. The applicant acknowledges and agrees that the bonds shall not constitute a debt, liability or obligation of the County and the interest thereon will be payable solely from the pledged revenues derived from operation of the utility system. Neither the faith and credit nor the taxing power of Monroe County is pledged to the payment of principal or interest on the bonds. The bonds will never constitute a debt or indebtedness of the County nor will they constitute or give rise to a charge against the general credit of Monroe County. The Applicant has incurred legal, accounting and engineering costs on tasks such as plant expansion design, financial projections, and document drafting, which costs are properly capitalized as a part of this transaction. The Applicant is permitted to recover such costs from bond proceeds provided they are incurred after the date of Inducement, or official action by the County giving preliminary approval to the issue (Treasury Regulations Section 1.150-2). Applicant requests that the County promptly make a finding of a public purpose and pass an Inducement Resolution to allow maximum reimbursement of Project related expenditures from Bond proceeds as provided by law. The Applicant is also concerned with its ability to obtain bond volume allocation from the State of Florida Division of Bond Finance from the 200 I State Pool. As of July 1, the State Pool had been fully allocated to projects around the State. The Applicant requests that the County hold a public ("TEFRA") hearing as soon as possible to hear public comment on the issue and satisfy the requirements of Section 147(f) of the Internal Revenue Code. This TEFRA Hearing is a prerequisite to filing a Request For Allocation with . the Florida Division of Bond Finance. Prompt filing of this Request will allow the Applicant to obtain the best priority now available for any allocation which may be returned to the State from other projects which do not close in 2001. The name, address and contact persons for the Applicant are: North Key Largo Utility Corp. 31 Ocean Reef Drive, Suite 301-A Key Largo, Florida 33037 Paul B. Winkeljohn, Utility Director Telephone: (305) 367-3067 Fax: (305) 367-4246 Rose, Sundstrom & Bentley 2548 Blairstone Pines Drive Tallahassee, Florida 32301 Attention: John R. Jenkins, Esquire Telephone: (850) 877-6555 Fax: (850) 656-4029 8 WHEREFORE, North Key Largo Utility Corp. respectfully_!1tll!ests the County approve the issuance of Industrial Development Revenue Bonds for the Project, this ~'a'ay of August, 2001, by: ROSE, SUNDSTROM & BENTLEY, LLP Attorneys for Applicant ~~fJfij2 .---, 9 ( -- . I ~~~~s I~~~~~~~. ~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~ f ~ ~ ttf~-~ fo ' I ~ta -~ ,-",:--<~, tlba I ~ ~ ~ ~~ ~ ~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~'J ~c rJl1IJ ~ ~~. ~ ~ ::.'~'J ~c :;nIJ ~~ ~ ~ ~ ~ ~ ~ ~~ ~~ ~ ~ ~. ~g7~ ~ ~!1nbrn ~.~ortq!1m Ii .;ierrdttrq of Jitde 8 ," -~~~~~~~~~~~~~~ iflrpartmrnt of ~tntp I certify the attached is a true and correct copy of the Articles of Incorporation of r-.JORTH KEY LARGO UTILITY CORP., a corporation organized under the laws of the State of Florida, filed on August 1 , 1994, as shown by the records of this office. The document number of this corporation is P94000056802. ~iben unber mp brmb anb tbt ~reat ~eal of tl)t ~tlltr of jf1oriba, at urallahassfe. tht <!auital, this thr -Seventeenth hap of February, 1995 . . ARTl:CLZ V REGISTERED AGENT The reqi.tered aqent of the corporati::m ahall be John R. Jenkin., who.e otfice shall be located at 2548 Blair.tone Pine. Drive, T.llaha...., Florida 32301. ARTICLE VI PRINCIPAL OFFICE Th. principal oft ice ot the corporation .hall b. locat.d at 31 Oc.an R.ef Driv.,,~.y Largo, Florida ~3037, but the Corporation may maintain offices and transact business in other places within or without of the state ot Florida as may from time to time be d..iqnated by the Board; furthermore, the Board may trom time to time r.locate the principal ottice of the Corporation. ARTICLE VII DIRECTORS 1. 'L'he Board .hall consist of the number ot director. determined in accordance with the Bylaws, but not less than three directors. 2. The directors of the corporation shall be elected at the a:lnual meeting ot the members in the manner determined by the Bylaws. Directors may be removed and vacancies on the Board shall be tilled in the manner provided in the Bylaws. 3. The name. and addresses, of the members of the tirst Board, who shall hold ottice until their successors are elected and have qualitied in accordance herewith, or until removed, are .s lollows: ' H.uul Address Alan Goldstein 31 Ocean Ree! Driv., suite A-301 Key Largo, Florida 33037 31 Ocean R..f Drive, Suite A-301 Key Largo, Florida 33037 . 31 OCflan Reef Drive, suite A-301 r-ey Largo, Florida 33037 31 Ocean Reef Driv., suite A-301 Key Largo, Florida 33037 31 Ocean Reef Drive, suite A-301 Key Largo, Florida 33037 Howard K Howard John J. Hrad TOll David.on Loh McClure 'i:', 8 g [:~r~ [1:1 ~ !~I'l :!l!1 ,11 i iil !llj " H ,[1,,1,'::'111'11',:,. P.1111 'l;!"l ! !!II ":!"I' I "I ' :!:,I " t dId ~: !' "I ~, II~ '!I ; ::ij I i,,'I'Il": II;I!,! ~ itll (! liill,' f illl ~ ~ ~'~ ! h ;il i h~ ) ,I'fl ' W I I'~ ' ,I ,il II' I i'i: ' 'II,' I' !/~ ' .1 ji i!~, 't il: ~,l ~ li'!!'!I,l ; !I 'l! ~ I;_l!~. ~ ~ ! 1;11 ! ;i !i~ ~ : lf~ . II,~ " iFt il ; Iii: I. ~) i i~~'." r: I'" II' ,!' i,i': .1 , ":.1' ; .i:J j :.i I I."" , 1;1; : 1', liI:I' II.l.:1:i..I' "I'" ~ I I ;!;: I. ;"11 '"f:.i. : '/:":" : , .~,:' ;.q/:I ..," j. : '!j~ ' "11"1 II'P' " "_,,WI,' NORTH KEY LARGO UTILITY CORP. AUDITED FINANCIAL STATEMENTS DECEMBER 31,1999 AND 1998 Porter &. Associates, P.A. CERTIFIED PIJRLlC ACCOUNTANTS Porter &. Associates, P.A. 10 Norlheast 18th Street P.O. Box 900089 Homestead, Florida 33090 (305) 245-0440 Fax: (305) 245-0049 CERTIFIED PUBLIC ACCOUNTANTS 507 N, New York Avenue, R# 4 P,O, Box 718 Winter Park, Florida 32790 (407) 628-0479 Fax (407) 628-0471 INDEPENDENT AUDITOR'S REPORT April 10, 2000 To the Board of Directors and Members North Key Largo Utility Corp. Key Largo, Florida We have audited the accompanying balance sheet of North Key Largo Utility Corp. as of December 31, 1999 and 1998, and the related statements of operations and changes in net assets and cash flows for the years ended December 31, 1999 and 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North Key Largo Utility Corp as of December 31, 1999 and 1998 and the results of its operations and its cash flows for the periods then ended in confonnity with generally accepted accounting principles. 4p~ Porter & Associates, P.A. Certified Public Accountants Member American Institute of Certified Public Accountants Florida Institute of Certified Public Accountants Private Companies Practice Section of the AICPA Division for CPA Firms NORTH KEY LARGO UTILITY CORP. BALANCE SHEETS Assets: Utility Plant and Equipment Land Treatment Plant, lines, pumps and equipment Construction in progress (Note 2) Other Equipment and Vehicles December 31. 1999 1998 Less: Accumulated depreciation $ 200,000 $ 200,000 3,433,171 3,185,262 148,385 55.433 53J~~13 3,688,604 3,587,560 448.526 315.337 3.240.078 3.272.223 159,047 25,558 12,255 17,428 15,283 26,972 82,000 82,000 99.953 . 268.585 251.911 Current Assets Cash and cash equivalents Accounts receivable Prepaid insurance Investments (Restricted - Note 3) Investments (Note 3) Other Assets Acquisition costs, net of $65,256 and $50,480 amortization Security deposits 156,365 6.530 162.895 $ 3.671.558 171,141 6,530 177.671 $ _3.701.805 Total Assets Liabilities and Net Assets Net Assets Unrestricted Restricted (Note 3) Current Liabilities Current portion - Industrial Development Revenue Bonds Accounts payable Accrued interest $ 160,077 $ 216,303 82.000 82.00Q 242.077 --298.303 41,000 38,000 76,927 12,422 87 .554 88.080 205.481 138.502 3.224.000 3.265.000 3.224.000 3.265.000 $ 3.671.558 $ 3.701.805 Non-current Liabilities Industrial Development Revenue Bonds, net of current portion Total Liabilities and Net Assets The accompanying notes are an integral part of these financial statements Porter &. Associates, P.A. CERTIFIED PUBLIC ACCOUNT ANTS The accompanying notes are an integral part of these financial statements Porter IS.. Associates, P.A_ CERTIFIED PUBLIC ACCOUNT ANTS NORTH KEY LARGO UTILITY CORP. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 Note 1 - Summary of Significant Accounting Policies Business North Key Largo Utility Corp. (the "Company") was incorporated on August 1, 1994 for the purpose of owning, operating and maintaining a waste water treatment facility for its members, the residents and businesses of Ocean Reef Community, North Key Largo, Florida. The Company commenced operations on March 9, 1995 and supplies waste water treatment service for its members utilizing its 450,000 gallon per day waste water treatment plant. The refurbishment and expansion project was completed in January, 1997 increasing the plants capacity to 550,000 gallons per day. .l.Jse....Qf Estim_Qte.$. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. Method of Accounting The accompanying financial statements are presented on the accrual method of accounting. Under this method, revenue is recognized when waste water services are provided to the members, rather than when payment of these billings is received by the Company, and costs and expenses are recognized when products are received or services rendered, rather than when payment for these goods or services is made by the Company. Porter &.. Associates, P.A. CERTIFIED PUBLIC ACCOUNT ANTS Note 1 - continued Utility. Plant and Equipment Utility, plant and equipment are stated at cost. It is the policy of management to capitalize major betterments and additions while replacements, maintenance and repairs which do not, necessarily, extend the useful lives off the respective assets, are charged to expense currently. Depreciation is computed based on the estimated useful lives of the assets using the straight line method. The estimated useful lives range from five to thirty years. Cash and Cash Equivalents Cash equivalents consist of money market funds in the amount of $160,080 and $19,209 at December 31,1998 and 1998. The Company may from time to time, maintain cash balances in excess of FDIC insured limits. Accounts Receivable Accounts receivable are composed of receivables arising from regular billings to menibers for waste water treatment services and treated water sales for irrigation purposes at established rates. The Company uses the direct write-off method of accounting for losses from uncollectible accounts receivable. Under this method, accounts receivable are written off and such losses charged to expense in the period they are deemed to be uncollectible. In the opinion of management, the nature of the community and members serviced indicate that any such losses would be immaterial and any allowance for doubtful accounts is considered unnecessary. Receivables for unbilled revenues exist, but management does not consider these material and has not included provisions in these financial statements. Income Taxes The Company has been organized as a not-far-profit corporation as described in Section 501 (c)(12) of the Internal Revenue Code. As such, the Company will not be liable for income taxes and, therefore, no liability has been presented in these financial statements. Porter &.. Associates, P.A. CERTIFIED PUBLIC ACCOUNT Ams Note 2 - Construction in Progress The Company started the installation of scrubbers and related equipment in December, 1998. This equipment is for the control of odor and installation was completed in January, 1999. Note 3 - Investments {Restricted) The refurbishment and expansion of the waste water treatment facility was funded by an industrial revenue bond issue (Note 5). Of the total bond issue, $2,050,000 was restricted to payment of costs associated with the bond issue and funding of the refurbishment and expansion project. These funds were placed in a trust account for release as approved requests for the stated purpose were received. At December 31,1999 and 1998, the projects had been completed and all funds had been expended. The Company has restricted $15,000 and $67,000 in 1998 and 1997 (total $82,000) for the reduction of a required letter of credit provided for security on the bond issue. This letter of credit in the amount of $302,480 guarantees approximately one years debt service. These funds were invested as follows: December 31. 1999 1998 Fidelity U.S. Treasury Portfolio Cash $ 82,000 $ 82,000 Total $ 82.000 $ 82.000 The Company has, additionally, invested unrestricted funds in govemment securities. At December 31, 1998, they held a $100,000 U.S. Treasury Note recorded at cost of $99,953 maturing November 1999 with an interest rate of 5.625%. Porter &... Associates, P.A. CERTIFIED PUBLIC ACCOUNT ANTS Note 4 - ACQuisition Costs Acquisition costs consist of closing costs and costs associated with the issuance of Industrial Development Revenue Bonds for the purchase, refurbishment and expansion of the Company's waste water treatment plant. Management has elected to amortize these costs over the 30 year Industrial Development Revenue Bond life. Note 5 - Industrial Develop-ment Revenue Bonds Industrial Development Revenue Bonds (Bonds) with an aggregate value of $3,400,000 were issued by the Monroe County Industrial Development Authority (Issuer), under a Trust Indenture dated March 1, 1995, with First Union National Bank of Florida as Trustee, and the proceeds loaned to North Key Largo Utility Corp. The proceeds were and will be used for (1) the acquisition of an existing 450,000 gallon per day waste water treatment facility owned by Ocean Reef Club, Inc.; (2) the refurbishment and expansion of the existing facilities; (3) interest on the bonds during construction; and (4) costs related to the issuance of the bonds. The bonds bear interest at 8%, payable semiannually on September 1 and March 1. The bonds are callable after March 1, 2005, at a premium per a redemption schedule and mature at par on March 1, 2025. Porter &.. Associates, P.A. CERTIFIED PUBLIC ACCOUNT ANTS Note 5 - continued The bonds are subject to mandatory redemption in part on March 1 st of each year starting March 1, 1996. The following is the debt service schedule for the five year period ending March 1, 2004 and totals thereafter: Year Principal Interest Total Debt Service 2000 2001 2002 2003 2004 Thereafter Total $ 41,000 44,000 48,000 51,000 56,000 3.025.000 $3.265.000 $ 261,200 257,920 254,400 250,560 246,480 3.316.400 $4.586.960 $ 302,200 301,920 302,400 301,560 302,480 6.341.400 $7.851.960 Porter &.. Associates, P.A. CERTIFIED PUBLIC ACCOUNTANTS Porter &. Associates, P.A. CERTIFIED PUBLIC ACCOUNTANTS 10 Northeast 18th Street P.O. Box 900089 Homestead, Florida 33090 (305) 245-0440 Fax: (305) 245-0049 507 hI. New York Avenue, R# 4 P.O. Box 718 Winter Park, Florida 32790 (407) 628-0479 Fax (407) 628-0471 INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION April 10, 2000 To the Board of Directors and Members North Key largo Utility Corp_ Key Largo, Florida Our audits were made for the purpose of forming an opinion on the financial statements taken as a whole, of North Key largo Utility Corporation for the periods ended December 31, 1999 and 1998 which are covered by our independent auditor's report. The Schedules of Plant Operating Costs and Schedules of General and Administrative Expenses on the following pages are presented for purposes of additional analysis and are not a required part of the basic financial statements taken as a whole. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. J--~;7 4, Porter & Associates, P.A. Certified Public Accountants Member American Institute of Certified Public Accountants Florida Institute of Certified Public Accountants Private Companies Practice Section of the A/CPA Division for CPA Firms NORTH KEY LARGO UTILITY CORP. STATEMENT OF CASH FLOWS For the Years Ended December 31. 1999 1998 5,173 ( 13,352) 11,689 ( 15,682) 14,437 64,505 ( 51,254) ( 526) ( 933) 172.580 72.089 Cash Flows From Operating Activities Net income(Loss) Adjustments to reconcile net income to net cash provided: Depreciation Amortization Changes in operating assets and liabilities (Increase) Decrease in: Accounts receivable Prepaid Insurance Other receivables Increase (Decrease) in: Accounts payable Accrued interest , $ ( 56,226) '133,190 14,775 Net Cash Provided by Operating Activities Cash Flows Fro.m Investing Activities Sale of Investments Release of restricted cash and investments 99,953 99.953 Purchase of equipment and facilities, net Construction in progress Funds invested ( 101,044) Net Cash Required by Investing Activities -U01.044) (1.091 ) The accompanying notes are an integral part of these financial statements. $ 3,141 120,957 14,775 ( 37,902) ( 148,385) ( 186.287) -L1.6.6.287) Porter &.. Associates, P.A, CERTIFIED PUBLIC ACCOUNT ANTS NORTH KEY LARGO UTILITY CORP. STATEMENT OF CASH FLOWS For the Years Ended December 31. 1999 1998 Cash Flows From Financing Activities Restricted Cash and Investments Revenue Bond Repayments ( 15,000) ( 38.000) ( 35.000) ( 38.000) ( 50.000) ( 38.000) ( 50.000) 133,489 (164,198) 25.558 189.756 $ 159.047 $ 25.558 $ 262.720 $ 265.640 Net Cash Required by Financing Activities Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning Cash and Cash Equivalents, Ending Cash Paid During the Period For: Interest The accompanying notes are an integral part of these financial statements. Porter &.. Associates, P.A. CERTIFIED PUBLIC ACCOUNTANTS Chemical testing Chemicals purchased Contract services Insurance Purchased power Sludge removal Repairs and maintenance Depreciation Total Plant Operating Costs NORTH KEY LARGO UTILITY CORP. SCHEDULE I PLANT OPERATING COSTS For the Years Ended December 31. 1999 1998 $ 12,744 39,352 18,987 48,262 80,225 68,805 52,538 126.923 .$.- 447.83~ See Independent Auditor's Report on Additional Information $ 11,608 10,292 16,028 36,305 75,214 43,130 75,375 114.766 $ 382.718 Porter Ii. Associates, P.A. CERTIFIED PUBLIC ACCOUNTANTS NORTH KEY LARGO UTILITY CORP. SCHEDULE II GENERAL AND ADMINISTRATIVE For the Years Ended December 31. 19QL- 1998 Transportation costs $ 919 $ 3,987 Accounting 11 ,165 10,050 Amortization 14,775 14,775 Legal and financial fees 19,765 35,694 Office expenses 2,982 4,591 Taxes and licenses 6,965 8,429 Telephone 2,089 2,047 Miscellaneous 512 1.049 Total General and Administrative $ 59.17~ L.JW,982 See Independent Auditor's Report on Additional Information Porter &. Associates, P.A. CERTIFIED PUBLIC ACCOUNT ANTS NORTH KEY LARGO UTILITY GORP. AUDITED FINANCIAL STATEMENTS DECEMBER 31,2000 AND 1999 Porter &. Associates, P.A. CERTIAED PUBLIC ACCOUNTANTS Porter &... Associates, P.A. CERTIFIED PUBLIC ACCOUNTANTS 10 Northeast 18th Street P.O. Box 900089 Homestead, Florida 33090 (305) 245-0440 Fax: (305) 245-0049 507 N. New York Avenue, R# 4 P.O. Box 718 Winter Park. Florida 32790 (407) 628-0479 Fax (407)628-0471 INDEPENDENT AUDITOR'S REPORT May 11,2001 To the Board of Directors and Members North Key Largo Utility Corp. Key Largo, Florida We have audited the accompanying balance sheet of North Key Largo Utility Corp. as of December 31, 2000 and 1999, and the related statements of operations and changes in net assets and cash flows for the years ended December 31, 2000 and 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North Key Largo Utility Corp as of December 31, 2000 and 1999 and the results of its operations and its cash flows for the periods then ended in conformity with generally accepted accounting principles. . c/-7- J~ t5 ~ 7/t ) Porter & Associates, P.A. Certified Public Accountants Member American Institute of Certified Public Accountants Florida Institute of Certified Public Accountants Private Companies Practice Section of the AICPA Division for CPA Firms NORTH KEY LARGO UTILITY CORP. BALANCE SHEETS December 31, 2000 1999 $ 242,933 $ 160,077 9/.000 82.000 339~933 242.077 44,000 41,000 68,803 76,927 185,981 85.973 87.554 384.757 205 .481 3.180,000 _~.224.00Q ~180.00Q 3.224.000 ~,904.690 i 3.67'1.558 Assets: Utility Plant and Equipment Land Treatment Plant, lines, pumps and equipment Deposits on Equipment Other Equipment and Vehicles $ 200,000 3,447,541 1 ,400 65.360 3,714,301 ( 589.358) 3.124,943 Less: Accumulated depreciation Current Assets Cash and cash equivalents Accounts receivable Prepaid insurance Investments (Restricted - Note 2) 372,949 153,826 7,852 97,000 631.627 Other Assets Acquisition costs, net of $80,031 and $65,256 amortization Security deposits 141,590 6.530 148.120 Total Assets ~04.690 Liabilities and Net Assets Net Assets Unrestricted Restricted (Note 2) Current Liabilities Current portion - Industrial Development Revenue Bonds Accounts payable Deferred revenue (Note 3) Accrued interest Non-current Liabilities Indust.rial Development Revenue Bonds, net of current portion Total Liabilities and Net Assets The accompanying notes are an integral part of these financial statements $ 200,000 3,433,171 55.433 3,688,604 448.526 3.240.078 159,047 12,255 15,283 82.000 268.585 156,365 6.530 162,895 $ 3,671.558. Porter &. Associates, P.A. CERTIFIED PUHLlC ACCOUNT ANTS NORTH KEY LARGO UTILITY CORP. STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS For the Years Ended December 31 . 2000 1999 Revenue Wastewater treatment Utility connection fees Provision for depreciation $ 1,001,715 $ 859,331 33.075 55.867 1.034.790 915.198 155,860 147,241 289,386 320,913 18,615 49,875 45,000 258,466 262,194 55.778 59.172 809.365 853.135 225,425 62,063 140.832 133.190 84.593 ( 71.127) Costs and Expenses Salaries and benefits Plant operating costs, less depreciation Utility connection costs Management fees Interest General and administrative Income Before Provision For Depreciation Operating Income (Loss) Other Income (Expense) Investment income (Restricted - Note 3) Other investment income, net Other income 13,263 13,291 1.610 13.263 14.901 97,856 ( 56,226) 242.077 298.303 $ 339.933 $ 242.077 Net Income (Loss) Net Assets, Beginning of Period Net Assets, End of Period The accompanying notes are an integral part of these financial statements Porter &.. Associates, P.A. CERTIFIED PUBLIC ACCOUNTANTS NORTH KEY LARGO UTILITY CORP. STATEMENT OF CASH FLOWS For the Years Ended December 31 . 2000 1999 Cash Flows From Operating Activities Net income(Loss) Adjustments to reconcile net income to net cash provided: Depreciation Amortization Changes in operating assets and liabilities (Increase) Decrease in: Accounts receivable Prepaid Insurance Other receivables Increase (Decrease) in: Accounts payable Deferred revenue Accrued interest $ 97,856 $( 56,226) 140,832 14,775 133,190 14,775 ( 141,571) 5,173 7,431 11,689 8,124 ) 64,505 185,981 ( 1.581 ) -L- 526) 295.599 172.580 Net Cash Provided by Operating Activities . . Cash Flows From Investing Activities Sale of Investments 99.953 99.953 ( 24,297) ( 1 01 ,044) ( 1 ADO) ( 25.697) -L:.1M.. 044 ) ( 25.697) -L-1Jl91 ) Purchase of equipment and facilities, net Deposits on equipment Net Cash Required by Investing Activities The accompanying notes are an integral part of these financial statements. Porter &. Associates, P.A. CERTIFIED PUBLIC ACCOUNT ANTS NORTH KEY LARGO UTILITY CORP. STATEMENT OF CASH FLOWS For the Years Ended December 31. 2000 1999 The accompanying notes are an integral part of these financial statements. Porter &.. Associates, P.A. CERTIFIED PUBLIC ACCOUNT ANTS NORTH KEY LARGO UTILITY CORP. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 Note 1 - Summary of Significant Accounting Policies Business North Key Largo Utility Corp. (the "Company") was incorporated on August 1, 1994 for the purpose of owning, operating and maintaining a waste water treatment facility for its members, the residents and businesses of Ocean Reef Community, North Key Largo, Florida. The Company commenced operations on March 9, 1995 and supplies waste water treatment service for its members utilizing its 450,000 gallon per day waste water treatment plant. The refurbishment and expansion project was completed in January, 1997 increasing the plants capacity to 550,000 gallons per day. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. Method of Accounting The accompanying financial statements are presented on the accrual method of accounting. Unger this method, revenue is recognized when waste water services are provided to the members, rather than when payment of these billings is received by the Company, and costs and expenses are recognized when products are received or services rendered, rather than when payment for these goods or services is made by the Company. Porter &.. Associates, P.A. CERTIFIED PUBLIC ACCOUNTANTS Note 1 - continued Utility. Plant and Equipment Utility, plant and equipment are stated at cost. It is the policy of management to capitalize major betterments and additions while replacements, maintenance and repairs which do not, necessarily, extend the useful lives off the respective assets, are charged to expense currently. Depreciation is computed based on the estimated useful lives of the assets using the straight line method. The estimated useful lives range from five to thirty years. Cash and Cash Equivalents Cash equivalents consist of money market funds in the amount of $372,722 and $160,080 at December 31,2000 and 1999. The Company may from time to time, maintain cash balances in excess of FDIC insured limits. Accounts Receivable Accounts receivable are composed of receivables arising from regular billings to members for waste water treatment services and treated water sales for irrigation purposes at established rates. The Company uses the direct write-off method of accounting for losses from uncollectible accounts _receivable. Under this method, accounts receivable are written off and such losses charged 10 expense in the period they are deemed to be uncollectible. In the opinion of management, the nature of the community and members serviced indicate that any such losses would be immat~rial and any allowance for doubtful accounts is considered unnecessary. Receivables for unbilled revenues exist, but management does not consider these material and has not included provisions in these financial statements. Income Taxes The Company has been organized as a not-far-profit corporation as described in Section 50" (c)( 12) of the Internal Revenue Code. As such, the Company will not be liable for income taxes and, therefore, no liability has been presented in these financial statements. Porter &.. Associates, P.A. CERTIFIED PUBLIC ACCOUNT ANTS Note 2 - Investments (Restricted) The refurbishment and expansion of the waste water treatment facility was funded by an industrial revenue bond issue (Note 5). Of the total bond issue, $2,050,000 was restricted to payment of costs associated with the bond issue and funding of the refurbishment and expansion project. These funds were placed in a trust account for release as approved requests for the stated purpose were received. At December 31, 2000 and 1999, the projects had been completed and all funds had been expended. The Company has restricted $15,000 and $-0- in 2000 and 1999 (total $97,000 including years prior) for the reduction of a required letter of credit provided for security on the bond issue. This letter of credit in the amount of $302,480 guarantees approximately one years debt service. These funds were invested as follows: Decembe-r 31. 2000 1999 Fidelity U.S. Treasury Portfolio Cash $ 97,000 $ 82,000 Total $ 97.000 $ 82.000 Note 3 - Deferred Revenue The Company billed for the first quarter of 2001 in the year 2000. Deferred Revenue represents the amount collected in 2000 which will be included in revenues for the year 2001. Note 4 - Acquisition Costs Acquisition costs consist of closing costs and costs associated with the issuance of Industrial Development Revenue Bonds for the purchase, refurbishment and expansion of the Company's waste water treatment plant. Management has elected to amortize these costs over the 30 year Industrial Development Revenue Bond life. Note 5 - Industrial Development Revenue Bonds Industrial Development Revenue Bonds (Bonds) with an aggregate value of $3,400,000 were Porter &.. Associates, P.A. CERTIFIED PUBLIC ACCOUNTANTS Note 5 - continued issued by the Monroe County Industrial Development Authority (Issuer), under a Trust Indenture dated March 1, 1995, with First Union National Bank of Florida as Trustee, and the proceeds loaned to North Key Largo Utility Corp. The proceeds were and will be used for (1) the acquisition of an existing 450,000 gallon per day waste water treatment facility owned by Ocean Reef Club, Inc.; (2) the refurbishment and expansion of the existing facilities; (3) interest on the bonds during construction; and (4) costs related to the issuance of the bonds. The bonds bear interest at 8%, payable semiannually on September 1 and March 1. The bonds are callable after March 1, 2005, at a premium per a redemption schedule and mature at par on March 1, 2G25. The bonds are subject to mandatory redemption in part on March 1 st of each year starting March 1, 1996. The following is the debt service schedule for the five year period ending March 1, 2005 and totals thereafter: Total Debt Year Principal Interest Service 2001 44,000 257,920 301,920 2002 48,000 254,400 302,400 2003 "51,000 250,560 30"1 ,560 2004 56,000 246,480 302,4~O 2005 60,000 242,000 302,000 Thereafter 2.965.000 3.074.400 _ 6.039.400 Total $3.224.000 .3i1,325.760 li.549.760 Porter &.. Associates, r~A. CERTIFIED PUBLIC ACCOUNTANTS Porter &... Associates, P.A. CERTIFIED PUBLIC ACCOUNTANTS 10 Northeast 18th Street P.O. Box 900089 Homestead, Florida 33090 (305) 245-0440 Fax: (305) 245-0049 507 N. New York Avenue. R# 4 P.O. Box 718 Winter Park, Florida 32790 (407) 628-0479 Fax (407) 628-0471 INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION May 11, 2001 To the Board of Directors and Members North Key Largo Utility Corp. Key Largo, Florida Our audits were made for the purpose of forming an opinion on the financial statements taken as a whole, of North Key Largo Utility Corporation for the periods ended December 31, 2000 and 1999 which are covered by our independent auditor's report. The Schedules of Plant Operating Costs and Schedules of General and Administrative Expenses on the following pages are presented for purposes of additional analysis and are not a required part of the basic financial statements taken as a whole. Such information has been subjected to the auditing procedures applied in the audit r of the basic financial statements, and in our opinion, is fairly state~ in all material respects in relation to the basic financial statements taken as a whole. ~7-- r~ Porter & Associates, P.A. Certified Public Accountants Member American Institute of Certified Public Accountants Florida Institute of Certified Public Accountants Private Companies Practice Section of the AICPA Division for CPA Firms NORTH KEY LARGO UTILITY CORP. SCHEDULE I PLANT OPERATING COSTS For the Years Ended December 31. 2000 1999 Chemical testing $ 3,273 $ 12,744 Chemicals purchased 40,309 39,352 Contract services 30,916 18,987 Insurance 47,602 48,262 Purchased power 76,944 80,225 Sludge removal 50,966 68,805 Repairs and maintenance 39,376 52,538 Depreciation 134.337 126.923 Total Plant Operating Costs $ 423.723 $ 447.836 See Independent Auditor's Report on Additional Information Porter &... Associates, P.A. CERTIFIED PUBLIC ACCOUNTANTS NORTH KEY LARGO UTILITY CORP. SCHEDULE II GENERAL AND ADMINISTRATIVE For the Years Ended December 31. 2000 1999 Transportation costs $ 1,832 $ 919 Accounting 7,206 11,165 Amortization 14,775 14,775 Legal and financial fees 9,514 19,765 Office expenses 7,965 2,982 Taxes and licenses 6,359 6,965 Telephone 1,991 2,089 Miscellaneous 6.136 512 Total General and Administrative $ 55.778 $ '59.172 i r I I f I 1 I it See Independent Auditor's Report on Additional Information Porter &. Associates, P.A. CERTIFIED PUBLIC ACCOUNT ANTS'