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CITY OF SAN BERNARDINO _ REQUEST FOR COUNCIL ACQIW G 1 NA l
Date: October 14,2005
Subject: RESOLUTION SUPPLEMENTING
RESOLUTION NO. 2005-79 PROVIDING FOR
THE ISSUANCE OF PENSION OBLIGATION
BONDS, APPROVING THE FORM OF AND
AUTHORIZING THE EXECUTION AND
DELIVERY OF A TRUST AGREEMENT AND
BOND PURCHASE AGREEMENT, AND
AUTHORIZING OTHER MATTERS RELATING
THERETO
From: Fred Wilson, City Administrator
Dept: City Administrator's Office
MICC Meeting Date: October 17, 2005
Synopsis of Previous Council Action:
February 23, 2005 - Ways and Means Committee forwards the CSCDA Pension Obligation Bond program proposal,
along with Public Financial Management's (PFM) review and the PERS actuarial for consideration by the Mayor and
Council
April 4, 2005 - Mayor and Council adopt a resolution authorizing the issuance of one or more series of Pension
Obligation Bonds, approving the form of and authorizing the execution and delivery of a Trust Agreement, and
authorizing a validation action
June 16,2005 - Mayor and Council approve selection of Lehman Brothers (underwriter), PFM (financial advisor), and
Orrick Harrington Sutcliffe (legal counsel) as the City's financing team for POB's
September 21, 2005 - Ways and Means Committee recommends approval of staffs recommendation to issue
Pension Obligation Bonds to fund 65% of the City's unfunded actuarial accrued liability (UAAL)
Recommended Motion:
Adopt resolution
f;4!L fLU ~[!"-' ( Pi} L5 )
Signature "
Contact person: Frl'!rl \^IiI!':on
Phone:
5122
Supporting data attached: staff report
Ward:
all
FUNDING REQUIREMENTS:
Amount: Cash flow savings of approximately $310,000
annually for the first five (5) years, and repayment of 65% of the
current PERS safety UAAL
Source: (Acct. No.)
(Acct. Description)
Finance:
Council Notes: ~J7' :;{ {){}:!:.--1S.-7
Agenda Item No.
33
/o'/7-OS-
STAFF REPORT
Subiect:
Resolution of the Mayor and Common Council of the City of San Bernardino supplementing
Resolution No. 2005-79 providing for the issuance of Pension Obligation Bonds, approving the
form of and authorizing the execution and delivery of a Trust Agreement and Bond Purchase
Agreement, and authorizing other matters relating thereto.
Background:
On Monday, March 7, 2005, a workshop was held with the Mayor and Council to discuss the
possibility of issuing Pension Obligation Bonds (POB). In summary, the issuance of POB's
allows the City to use a lump sum deposit of the proceeds of the POBs to fund a portion or all of
the City's PERS unfunded actuarial accrued liability (UAAL). This transaction can result in
cash flow savings to the City, but also bears some risk. This issue was discussed in great detail
at the workshop.
The matter was referred to the Ways and Means Committee for further analysis and discussion.
On March 23, the Committee examined various issues, including the potential benefits of issuing
variable rate bonds, and the percentage amount of the City's UAAL that might be funded
through POBs. City Treasurer David Kennedy participated in the discussion. The Committee
recommended that the matter be forwarded to the Mayor and Council for further discussion and
direction at a later date. On April 4, the Mayor and Council approved various documents to
initiate a validation action, which is an important first step in the issuance ofPOB's.
In May, the PFM Group (the City's financial advisor) assisted in the preparation and distribution
of a Request for Proposals seeking underwriting services for a possible POB issuance. Staff
from this office and the Finance Department, as well as City Treasurer David Kennedy and
Councilmember McCammack, all met with Peter Shellenberger of PFM on several occasions to
discuss the proposals and the qualifications of the various firms. Based on their experience and
qualifications, Lehmann Brothers was determined to be the best choice to serve as the
underwriter, contingent upon the satisfactory conclusion of negotiations concerning their fees.
Lehman Brothers (underwriter), PFM (financial advisor), and Orrick Harrington Sutcliffe (legal
counsel) were selected on June 16 by the Mayor and Council to make up the City's financing
team, along with City Treasurer and City staff. The financing team then began to determine
how the bond issuance should be structured to achieve the most long-term savings while
minimizing risk to the City.
The financing team has met in person and via conference call to discuss possible POB
structuring options over the last several months. On September 21,2005, the Ways and Means
Committee met with the financing team and heard a presentation concerning this matter. The
Committee recommended that the Mayor and Council approve the recommendation to issue
Pension Obligation Bonds to fund 65% of the City's UAAL.
The issuance of a POB would meet two objectives. First, a significant majority (65%) of the
City's UAAL in the Safety PERS plan would be paid off. Secondly, cash flow savings would be
generated for the first five (5) years, beginning in FY 2006-07.
Updated Information:
At the September 21 Ways and Means Committee meeting, Lehman Brothers had estimated
annual savings of $700,000 for the first five (5) years upon issuance of the POB, which was
based on their preliminary estimates. However, that estimated cash flow savings has now
declined significantly as long-term interest rates have been rising. Also, subsequent to the Ways
and Means Committee, Lehman has gone into the marketplace to refine its numbers. At this
point, it appears that given current interest rates, cash flow savings will be approximately
$310,000 for the first five (5) years. It is possible that rates may move lower, but that appears
unlikely given inflationary pressures on the economy.
Although cash flow savings are significantly lower than originally anticipated, it is still staff's
recommendation that the Mayor and Council approve the issuance of a POB to fund 65% of the
City's UAAL. If the City takes no action and pays only what is required by PERS, the UAAL
will only continue to grow in the coming years based on PERS' calculation methods.
The attached memo from the City's financial advisor, Peter Shellenberger, summarizes the issues
surrounding the POB in greater detail. The Mayor and Council are encouraged to review this
memo carefully, as it contains important analysis as to how the UAAL will continue to grow if
no further action is taken.
Financial Impact:
If POB's are issued in accordance with the recommendation, this will provide estimated cash
flow savings of $310,000 for five (5) years and result in payoff of a significant portion of the
City's UAAL.
Recommendation:
Adopt resolution
6. Council Minutes.
Approved
MOTION:
That the minutes of the following meetings of the Mayor and
Common Council/Community Development Commission/San
Bernardino City Housing Authority of the City of San Bernardino
be approved as submitted in typewritten form:
July 18, 2005
August 15, 2005
September 6, 2005
(Distributed on 9/26/05)
(Distributed on 9/26/05)
(Distributed on 9/26/05)
7.
Claims and Payroll.
(See Attached)
Approved
MOTION:
That the claims and payroll and the authorization to issue
warrants as listed on the memorandum dated September 19,
2005, from Barbara Pachon, Director of Finance, be approved.
8.
Personnel Actions.
(See Attached)
Approved
MOTION:
That the personnel actions, as submitted by the Chief Examiner,
dated September 27, 2005 in accordance with Civil Service rules
and Personnel policies adopted by the Mayor and Common
Council of the City of San Bernardino, be approved and ratified.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
City Administrator
9. Set a workshop of the Mayor and Common Council for Monday, October 17,
2005 at 5:00 p.m. in the MIC Room, 6th Floor City Hall, to discuss and take
possible action concerning issuance of Pension Obligation Bonds. (See
Attached) (No cost to the City for this action.)
Approved
MOTION: That the Mayor and Common Council set a workshop for
Monday, October 17, 2005, at 5:00 p.m. in the MIC Room, 6th
Floor of City Hall to discuss and take possa..la ~~t;r\n ('()nr.p,rninl!
issuance of Pension Obligation Bonds.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX~
7
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IDI\1)btJ
CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION
From: Fred Wilson, City Administrator
Subject: Set a workshop of the Mayor and Common
Council for Monday, October 17, 2005 at 5:00 p.m.
in the MIC Room, 6th Floor City Hall, to discuss
and take possible action concerning issuance of
Pension Obligation Bonds.
Dept: City Administrator's Office
Date: September 21, 2005
MICC Meeting Date: October 3, 2005
Synopsis of Previous Council Action:
February 23, 2005 - Ways and Means Committee forwards the CSCDA Pension Obligation Bond
program proposal, along with Public Financial Management's (PFM) review and the PERS actuarial for
consideration by the Mayor and Council
April 4, 2005 - Mayor and Council adopt a resolution authorizing the issuance of one or more series of
Pension Obligation Bonds, approving the form of and authorizing the execution and delivery of a Trust
Agreement, and authorizing a validation action
June 16, 2005 - Mayor and Council approve selection of Lehman Brothers (underwriter), PFM (financial
advisor), and Orrick Harrington Sutcliffe (legal counsel) as the City's financing team for POB's
September 21, 2005 - Ways and Means Committee recommends approval of staff's recommendation to
issue Pension Obligation Bonds to fund 65% of the City's unfunded actuarial accrued liability (UAAL)
Recommended Motion:
That the Mayor and Common Council set a workshop for Monday, October 17, 2005, at 5:00 p.m. in the
MIC Room, 6th Floor City Hall, to discuss and take possible act" n co erning issuance of Pension
Obligation Bonds.
Contact person: Frprl Wil<::nn
Phone:
5122
Supporting data attached: staff report
Ward:
all
FUNDING REQUIREMENTS:
Amount:
Source: (Aeet. No.)
(Aeet. Description)
Finance:
Council Notes:
Agenda Item No. 3
lo/~ /()~
STAFF REPORT
Subiect:
Set a workshop of the Mayor and Common Council for Monday, October 17, 2005 at 5 :00
p.m. in the MIC Room, 6th Floor City Hall, to discuss and take possible action concerning
issuance of Pension Obligation Bonds.
Backe:round:
On Monday, March 7, 2005, a workshop was held with the Mayor and Council to discuss the
possibility of issuing Pension Obligation Bonds (POB). In summary, the issuance of POBs
allows the City to use a lump sum deposit of the proceeds of the POBs to fund a portion or all of
the City's PERS unfunded actuarial accrued liability (UAAL). This transaction can result in
cash flow savings to the City, but also bears some risk. This issue was discussed in great detail
at the workshop.
The matter was referred to the Ways and Means Committee for further analysis and discussion.
On March 23, the Committee examined various issues, including the potential benefits of issuing
variable rate bonds, and the percentage amount of the City's UAAL that might be funded
through POBs. City Treasurer David Kennedy participated in the discussion. The Committee
recommended that the matter be forwarded to the Mayor and Council for further discussion and
direction at a later date. On April 4, the Mayor and Council approved various documents to
initiate a validation action, which is an important first step in the issuance ofPOB's.
In May, the PFM Group (the City's financial advisor) assisted in the preparation and distribution
of a Request for Proposals seeking underwriting services for a possible POB issuance. Staff
from this office and the Finance Department, as well as City Treasurer David Kennedy and
Councilmember McCammack, all met with Peter Shellenberger of PFM on several occasions to
discuss the proposals and the qualifications of the various firms. Based on their experience and
qualifications, Lehmann Brothers was determined to be the best choice to serve as the
underwriter, contingent upon the satisfactory conclusion of negotiations concerning their fees.
Lehmann Brothers (underwriter), PFM (financial advisor), and Orrick Harrington Sutcliffe (legal
counsel) were selected on June 16 by the Mayor and Council to make up the City's financing
team, along with City Treasurer and City staff. The financing tearn then began to determine
how the bond issuance should be structured to achieve the most long-term savings while
minimizing risk to the City.
The financing team has met in person and via conference call to discuss possible POB
structuring options over the last several months. The attached memo from the City's financial
advisor, Peter Shellenberger, explains the final two (2) options that were considered by the
financing tearn.
On September 21,2005, the Ways and Means Committee met with the financing tearn and heard
a presentation concerning this matter. The Committee recommended that the Mayor and Council
approve the recommendation to issue Pension Obligation Bonds to fund 65% of the City's
UAAL.
It is recommended that a workshop be held with the Mayor and Council to allow the financing
team to make presentation and answer questions regarding POB issuance prior to any action by
the Mayor and Council. Should the Council chose to do so, the appropriate resolutions can then
be adopted at that workshop to approve the POB issuance. Timing is an issue, because long-term
interest rates have been slowly increasing.
Financial Impact:
None by this action. If POB's are issued in accordance with the recommendation, this will
provide estimated cash flow savings of $700,000 for five (5) years and result in payoff of a
significant portion of the City's UAAL.
Recommendation:
That the Mayor and Common Council set a workshop for Monday, October 17, 2005, at 5:00
p.m. in the MIC Room, 6th Floor City Hall, to discuss and take possible action concerning
issuance of Pension Obligation Bonds.
The PFM Group
September 19, 2005
MEMORANDUM
To: Fred Wilson, City Administrator
City oiS an Bernardino
From: Peter Shellenberger, Senior Managing Consultant
Public rznamia! Management, 1m:
Re: Proposed Pension Obligation Bond Financing Strategy and Recommendation
Over the last several months, Public Financial Management ("PFM") has worked closely with the City of San
Bernardino (the "City") staff and the City's financing team to review the City's unfunded pension liability -
i.e., the Unfunded Actuarial Accrued Liability ("UAAL") - and evaluate funding alternatives using Pension
Obligation Bonds ("POBs"). After reviewing numerous financing options with the financing team, City staff
has narrowed the candidate financing strategies to two, both of which provide budgetary savings to the City
and reduce the UAAL in an economically efficient manner. This memorandum provides an overview of the
City's pension status and current UAAL, describes two potential POB funding scenarios for the City
Council's consideration, and describes the final recommendation identified by City staff and the financing
team.
The City's Pension Status and Current UAAL
The required contributions to CalPERS are actuarially determined based on a set of factors including
projected retirement rates, payroll growth, inflation and the actuarial value of assets held by the pension plan.
The unfunded actuarial accrued liability (the "UAAL") is created when the normal contributions are not
sufficient to cover the projected future pension obligations. It is defined as the present value shortfall
(assuming a discount factor of the actuary's assumed investment yield, now 7.75%) between the future benefit
stream owed to employees (past and present) and the resources expected to be available to pay benefits when
due. A UAAL exists when employer contributions, changing assumptions or investment performance fail to
keep pace with a growing benefit stream. Given the variable nature of investment performance and
occasional changes in actuarial assumptions, the UAAL is a moving target that is defined for the City when
actuarial valuations are performed. Despite its changing nature, the UAAL represents a real liability of the
City. Currently the UAAL for the City's Safety Plan is $77.05 million as of June 30, 2005.
In April 2005, the governing board of CalPERS approved policy changes to the methodology for calculation
of employer contribution rates. These changes, briefly stated are:
(1). Changing the smoothing methodology for market asset value losses/gains from a three year horizon to
a 15-year horizon;
(2). Using a 30-year rolling amortization of previously unamortized gains and losses in annual calculating
employer rates;
(3). Increasing the actuarial value of assets corridor to between 80-120% of actual market value of assets
from a corridor of 90-110%; and
(4). Setting a minimum normal employer contribution rate of the normal cost less a 30-year amortization of
any plan surplus (Elimination of rate holidays).
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City of San Bernardino
PO H Financing Overview & Recommendation
September 19, 2005
Page 2
The policy changes were implemented with the goal of reducing volatility in annual contributions which in
turn increases budgetary stability for CalPERS participants. There is also an overall effect of a reduction in
the annual required contribution towards the UAAL. However, the reduced annual contribution comes at
the expense of reducing the UAAL over time. That is, the minimum payment defined by CalPERS on the
UAAL balance is insufficient to cover the interest coming due on the UAAL and, as such, the UAAL
increases over time. For example, the current 30-year rolling amortization will cause the City's UAAL to
increase from its present amount of $77.05 million to $121 million by FY 2036 under the current set of
actuarial assumptions.
POB Financing Objectives
In general the UAAL can be funded in one of three ways,
(1) A lump sum deposit by the City from currently available resources;
(2) Payment of the UAAL over time based on the actuarially determined amortization; or
(3) A lump sum deposit from the proceeds of POBs. The City would then be responsible for paying debt
service on the bonds.
The first method, a deposit from available funds, assumes both that the City has the means to make a large
one-time payment towards the UAAL and that there is no more efficient use of the City's available funds.
The second method represents the default method or "do-nothing" scenario where the City pays the
actuarially determined minimum payment to CalPERS from available resources. As noted previously, the
minimum payment on the UAAL balance is insufficient to cover the interest coming due on the UAAL and,
as such, the UAAL increases over time. \Xfhile it results in a modest annual payment, contributing the
mmimum payment does not likely represent an effective strategy for the City towards reducing the UAAL
over time. In the case of the third method, the use of POBs can not only reduce the City's UAAL but
potentially create General Fund cash flow savings in comparison to payment of the actuarially determined
amortization. By replacing a liability amortized at the actuarial rate of 7.75% for debt service that would be
amortized at approximately 5.30%, the City can realize significant savings.
The City's POB financing strategy incorporates economic and structural considerations and has been
developed with three primary objectives:
(1) Reduce the City's UAAL at a lower cost of capital than the assumed actuarial rate of7.75%;
(2) Realize annual budgetary savings for the City; and
(3) Maintain flexibility to restructure the UAAL payments in the case of future policy changes implemented
by CaIPERS.
The first objective is achieved due to the current low interest rates in the municipal bond market which allows
the City to effectively amortize their UAAL at an estimated interest rate of 5.30% using POBs, compared to
the actuarial assumed rate of 7.75%. As noted above, the implementation of a 30-year rolling amortization
has the effect of lowering annual payments even as the UAAL balance continues to increase. Due to the
lower annual payments, it is challenging to create significant cash flow savings in comparison to a rolling
amortization in the current market. The second objective has been achieved by structuring debt service on
the POBs to generate significant budgetary savings in the first five years of the analysis, and neutral savings
thereafter.
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City of San Bernardino
POB Financing Overview & Recommendation
September 19, 2005
Page 3
Structural flexibility regarding the UAAL payment -the third objective-was identified as an important
objective by City staff. The issuance of bonds introduces a firm commitment on the part of the City to pay
debt service. Essentially, the City is trading in the "soft" annual payments to CalPERS for "hard" debt
service which must be paid to bond holders on time and in full. Structural flexibility is accomplished by
purchasing a 10-year "call option" on current interest bonds and through the use of a "make-whole" call
provision. This allows the City to refinance and restructure those bonds, as needed, in the future. Structural
flexibility is also obtained by only financing a portion of the UAAL (e.g. 65% of the UAAL) with POBs. This
effectively keeps a portion of the UAAL a "soft" liability as ongoing cash payments to CalPERS.
POB Scenarios and Recommendation
After reviewing numerous potential POB sizings and structures, the City staff and the financing team have
identified two scenarios for consideration by City Council. Both scenarios meet each of the three objectives
identified above. Additionally, both scenarios utilize fixed-rate bonds, as opposed to variable rate bonds,
reflecting an effort to capture the historically low fixed rates currently prevailing in the municipal bond
market and to establish certainty associated with the future POB payments.
The two candidate scenarios identified by City staff and the financing team, along with an overview of results
are listed below.
Scenario 1- Funding 65% of UAAL with non-callable bonds
Scenario 2 - Funding 100% of UAAL with callable bonds
Overview of Results
Scenario Results Scenario 1 Scenario 2
UAAL Financed $ 50,081,000 $ 77,048,000
UAAL Remaining in 2006 26,967,000 0
UAAL Remaining in 2036 42,358,000 0
Financina Obiectives
Cost of Caoital- TIC 5.29% 5.30%
Total Budlretarv Savings 3,570,000 5,326,000
Annual Budgetary Savings:
FY 2007 - 2011 700,000 1,000,000
. 65% of UAAL financed with . 10-year par call
POB . "Make whole" call provision
Structural Flexibility . Make whole call orovision
Scenario-l provides the City with the most flexibility by only funding 65% of the UAAL with POBs.
Budgetary savings under scenario-l total $3.57 million over the first five years of the funding analysis, or
$700,000 annually from FY 2007 through 2011. (It should be noted that the City has already paid, in full,
their FY 2006 CalPERS payment and, as such, the analysis begins with the FY 2007 payment.) While
structural flexibility is preserved by funding only 65% of the UAAL, the remaining portion of the UAAL
increases from $26.9 million in 2006 to $42.4 million in 2036, accruing interest at 7.75%, based upon the
CalPERS 30-year rolling amortization methodology. However, it should be noted that the City could elect to
make larger annual cash contributions to reduce the UAAL or, alternatively, CalPERS could change their rate
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City of San Bernardino
PO H Financing Overview & Recommendation
September 19, 2005
Page 4
setting methodology which would increase the City's minimum payment in the future and similarly reduce the
UAAL over time.
Scenario-2 provides the City with the greatest budgetary savings, totaling $5.3 million over the fIrst fIve years
of the funding analysis, or approximately $1 million annually from FY 2007 through 2011. However, there is
less structural flexibility under Scenario-2 as 100% of the UAAL is funded with POBs. There is room for
structural flexibility under Scneario-2 by purchasing a lO-year call option and attaching a "make-whole" call
provision to the bonds. The POB structure includes both current interest bonds (CIBS) and capital
appreciation bonds (CABs). Only CIBs are eligible to be called and restructured. As a lO-year par call is
costly to purchase for taxable bonds, only $6.9 million in CIBs have been structured with a lO-year par call.
This amount of CIBs, structured with a 10-year par call, has been targeted so as not to materially exceed
expected savings in the fIrst fIve years of the analysis. That said, additional CIBs could be structured with a
lO-year par call, although the impact on annual savings would have to be closely monitored so as not to
exceed the City's expected savings. Additionally, $52 million in CIBs have been structured with a "make-
whole" call provision that does not generate savings at the time of refInancing, but does allow the City to
restructure for payment structure purposes, if need be.
Based upon the City's objectives conveyed by staff during the review of numerous POB fInancing structures,
Scenario-l was identifIed as the recommended fInancing structure for the City to implement to fund its
UAAL. Scenario-l enables the City to signifIcantly reduce its VAAL by 65% today and provides maximum
flexibility to address future UAAL funding needs as they arise and as CalPERS policy changes. Scenario-l
results in an estimated borrowing cost of 5.29% to the City and generates total savings of $3.57 million, or
$700,000 annually from FY 2007 through 2011. It should be noted that these annual savings targets are
estimates and are subject to change based on interest rate movements in the municipal bond market. As
such, it is further recommended that City Council set a "minimum savings" thresh-hold (e.g. $700,000
annually for the fIrst fIve years) and permit the City Administrator to instruct the fInancing team to sell the
proposed POBs only at such time when market rates support the minimum savings thresh-hold.
It is important to note that the savings analyses for POBs represent estimated savings benchmarked against a
full set of assumptions made by CaIPERS, including VAAL amortization methodology, investment earnings,
etc. As the actuarial assumptions change, so too will the actual savings results. That said, it is worth noting
that the current VAAL amortization methodology used by CalPERS -i.e. the 30-year rolling amortization-
represents a minimum payment that is insuffIcient to pay interest on the UAAL balance. As such, it is
unlikely that the minimum payment would decrease. Consequently, actual savings stemming from CalPERS
amortization changes in the future would not likely lead to decreased savings when compared to the POB
payments described in this memorandum.
Next Steps
Interest rates in the municipal bond market continue to be near historic lows and the fInancing team is
prepared to move quickly to execute a transaction on behalf of the City, upon City Council approval. The
next steps include fInalizing the legal documents, presenting them for City Council approval and pricing the
bonds.
The method of sale recommended for the City to pursue is a private placement of the City's bonds, versus a
public offering. A public offering involves rating agency requirements, the solicitation and purchase of bond
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City of San Bernardino
POB Financing Overview & Rccommcmlation
September 19, 2005
Page 5
insurance and the preparation of an official statement. These activities involve significant staff time and
increased cost of issuance. Alternatively, the City may elect to privately place these bonds with Lehman
Brothers soliciting bids from their investor base, or directly purchasing bonds from the City. It is PFM's
responsibility, under a private placement, to monitor market conditions and establish objective criteria, prior
to the sale of the bonds, to ensure that the bonds have been competitively placed and have received a fair
market interest rate. A private placement is a cost-effective and streamlined way for the City to sell their
POBs, should it decide to execute the transaction. Furthermore, as a streamlined process, a private
placement is an effective method to mitigate interest rate risk and manage the rate volatility present in today's
market.
The proposed next steps are listed below.
Proposed Financing Schedule
Date
Activi
A rove Plan of Finance for POBs
Ci Council a roves Final Documents
Price Bonds
Pre Closin
Closin
Se tember 21
October 17
October 18
October 25
October 26
We hope the City finds this analysis, prepared with the collaborative effort of the City staff and the financing
team, helpful and informative. If you have any additional questions or comments on the proposed
information herein, please do not hesitate to call Peter Shellenberger at (415) 982-5544.
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The PFM Group
October 13, 2005
MEMORANDUM
To: Fred Wilson, City Administrator
City of San Bernardino
From: Peter Shellenberger, Senior Managing Consultant
Public Finamial Management, Inc.
Re: Proposed Pension Obligation Bond Financing Strategy and Recommendation
Over the last several months, Public Financial Management ("PFM") has worked closely with the City of San
Bernardino (the "City") staff and the City's financing team to review the City's unfunded pension liability -
i.e., the Unfunded Actuarial Accrued Liability ("UAAL") - and evaluate funding alternatives using Pension
Obligation Bonds ("POBs"). After reviewing numerous financing options with the financing team, City staff
narrowed the candidate financing strategies to two, both of which provide budgetary savings to the City and
reduce the UAAL in an economically efficient manner. The differentiating factor between the two strategies
relates to the size of the proposed POB transaction: Scenario-1 reduced the UAAL by 65% and Scenario-2
reduced the UAAL by 100%. These two financing strategies were presented to the Ways and Means
Committee on September 21, 2005 and the Committee subsequently approved Scenario-1 (the
"Recommended Strategy") as the recommended strategy to present to the City Council for consideration.
Scenario-1 effectively reduces the UAAL, provides budgetary savings and provides optimal payment
flexibility to CalPERS in the case of future CalPERS policy changes.
This memorandum provides an overview of the City's pension status and current UAAL and describes the
final recommendation identified by City staff and the financing team and approved by the Ways and Means
Committee.
The City's Pension Status and Current UAAL
The required contributions to CalPERS are actuarially determined based on a set of factors including
projected retirement rates, payroll growth, inflation and the actuarial value of assets held by the pension plan.
The unfunded actuarial accrued liability (the "UAAL") is created when the normal contributions are not
sufficient to cover the projected future pension obligations. It is defined as the present value shortfall
(assummg a discount factor of the actuary's assumed investment yield, now 7.75%) between the future benefit
stream owed to employees (past and present) and the resources expected to be available to pay benefits when
due. A UAAL exists when employer contributions, changing assumptions or investment performance fail to
keep pace with a growing benefit stream. Given the variable nature of investment performance and
occasional changes in actuarial assumptions, the UAAL is a moving target that is defined for the City when
actuarial valuations are performed. Despite its changing nature, the UAAL represents a real liability of the
City. Currently the UAAL for the City's Safety Plan is $77.05 million as of June 30, 2005.
In April 2005, the governing board of CalPERS approved policy changes to the methodology for calculation
of employer contribution rates. These changes, briefly stated are:
(1). Changing the smoothing methodology for market asset value losses/gains from a three year horizon to
a 15-year horizon;
NOj 33
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City of San Bernardino
PO H Financing Overview & Recommendation
October 13, 2005
Page 2
(2). Using a 30-year rolling amortization of previously unamortized gains and losses in annual calculating
employer rates;
(3). Increasing the actuarial value of assets corridor to between 80-120% of actual market value of assets
from a corridor of 90-110%; and
(4). Setting a minimum normal employer contribution rate of the normal cost less a 30-year amortization of
any plan surplus (Elimination of rate holidays).
The policy changes were implemented with the goal of reducing volatility in annual contributions which in
turn increases budgetary stability for CalPERS participants. There is also an overall effect of a reduction in
the annual required contribution towards the UAAL. However, the reduced annual contribution comes at
the expense of reducing the UAAL over time. That is, the minimum payment defined by CalPERS on the
UAAL balance is insufficient to cover the interest coming due on the UAAL and, as such, the UAAL
increases over time. For example, the current 30-year rolling amortization will cause the City's UAAL to
increase from its present amount of $77.05 million to $121 million by FY 2036 under the current set of
actuarial assumptions.
POB Financing Objectives
In general the UAAL can be funded in one of three ways,
(1) A lump sum deposit by the City from currently available resources;
(2) Payment of the UAAL over time based on the actuarially determined amortization; or
(3) A lump sum deposit from the proceeds of POBs. The City would then be responsible for paying debt
service on the bonds.
The first method, a deposit from available funds, assumes both that the City has the means to make a large
one-time payment towards the UAAL and that there is no more efficient use of the City's available funds.
The second method represents the default method or "do-nothing" scenario where the City pays the
actuarially determined minimum payment to CalPERS from available resources. As noted previously, the
minimum payment on the UAAL balance is insufficient to cover the interest coming due on the UAAL and,
as such, the UAAL increases over time. \V'hile it results in a modest annual payment, contributing the
minimum payment does not likely represent an effective strategy for the City towards reducing the UAAL
over time. In the case of the third method, the use of POBs can not only reduce the City's UAAL but
potentially create General Fund cash flow savings in comparison to payment of the actuarially determined
amortization. By replacing a liability amortized at the actuarial rate of 7.75% for debt service that would be
amortized at approximately 5.53%, the City can realize significant savings.
The City's POB financing strategy incorporates economic and structural considerations and has been
developed with three primary objectives:
(1) Reduce the City's UAAL at a lower cost of capital than the assumed actuarial rate of 7.75%;
(2) Realize annual budgetary savings for the City; and
(3) Maintain flexibility to restructure the UAAL payments in the case of future policy changes implemented
by CaIPERS.
The first objective is achieved due to the current low interest rates in the municipal bond market which allows
the City to effectively amortize their UAAL at an estimated interest rate of 5.53% using POBs, compared to
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City of San Bernardino
POB Financing Overview & Recommendation
October 13,2005
Page 3
the actuarial assumed rate of 7.75%. As noted above, the implementation of a 30-year rolling amortization
has the effect of lowering annual payments even as the UAAL balance continues to increase. Due to the
lower annual payments, it is challenging to create significant cashflow savings in comparison to a rolling
amortization in the current market. The second objective has been achieved by structuring debt service on
the POBs to generate significant budgetary savings in the first five years of the analysis, and neutral savings
thereafter.
Structural flexibility regarding the UAAL payment -the third objective-was identified as an important
objective by City staff. The issuance of bonds introduces a firm commitment on the part of the City to pay
debt service. Essentially, the City is trading in the "soft" annual payments to CalPERS for "hard" debt
service which must be paid to bond holders on time and in full. Structural flexibility is accomplished by
purchasing a 10-year "call option" on current interest bonds and through the use of a "make-whole" call
provision. This allows the City to refinance and restructure those bonds, as needed, in the future. Structural
flexibility is also obtained by only financing a portion of the UAAL (e.g. 65% of the UAAL) with POBs. This
effectively keeps a portion of the UAAL a "soft" liability as ongoing cash payments to CaIPERS.
POB Scenarios and Recommendation
After reviewing numerous potential POB sizings and structures, the City staff and the financing team, with
direction and approval from the Ways and Means Committee, have identified one recommended scenario
(the "Recommended Strategy") for consideration by City Council. This Recommended Strategy meets each
of the three objectives identified above. Additionally, the Recommended Strategy utilizes fixed-rate bonds, as
opposed to variable rate bonds, reflecting an effort to capture low fixed rates currently prevailing in the
municipal bond market and to establish certainty associated with the future POB payments.
The Recommended Strategy identified by City staff and the financing team, along with an overview of results
is listed below.
Recommended Strategy - Funding 65% of UAAL with non-callable bonds
Overview of Results
Summarv Results Recommended Strateov
UAAL Financed $ 50,081,000
UAAL Remaining in 2006 26,967,000
UAAL Remaining in 2036 42,358,000
Financinp' Obiectives
Cost of Capital- TIC 5.53%
Total Budgetary Savings 1,600,000
Annual Budgetary Savings:
FY 2007 - 2011 310,000
. 65% of UAAL financed with
POB
Structural Flexibility . Make whole call provision
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=PFM
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City of San Bernardino
POR I '>inancing OVl'fview & Recommendation
October 13, 2005
Page 4
The Recommended Strategy provides the City with significant flexibility by only funding 65% of the UAAL
with POBs. This allows the City to address future UAAL funding needs as they arise and as CalPERS policy
changes. Budgetary savings total $1.55 million over the first five years of the funding analysis, or $310,000
annually from FY 2007 through 2011. (It should be noted that the City has already paid, in full, their FY
2006 CalPERS payment and, as such, the analysis begins with the FY 2007 payment.) While structural
flexibility is preserved by funding only 65% of the UAAL, the remaining portion of the UAAL increases from
$26.9 million in 2006 to $42.4 million in 2036, accruing interest at 7.75%, based upon the CalPERS 30-year
rolling amortization methodology. However, it should be noted that the City could elect to make larger
annual cash contributions to reduce the UAAL or, alternatively, CalPERS could change their rate setting
methodology which would increase the City's minimum payment in the future and similarly reduce the UAAL
over time.
It is important to note that these annual savings numbers are estimates and are subject to change based on
interest rate movements in the municipal bond market. Furthermore, the savings analyses for POBs
represent estimated savings benchmarked against a full set of assumptions made by CaIPERS, including
UAAL amortization methodology, investment earnings, etc. As the actuarial assumptions change, so too will
the actual savings results. That said, it is worth noting that the current UAAL amortization methodology
used by CalPERS -i.e. the 30-year rolling amortization-represents a minimum payment that is insufficient to
pay interest on the UAAL balance. As such, it is unlikely that the minimum payment would decrease.
Consequently, actual savings stemming from CalPERS amortization changes in the future would not likely
lead to decreased savings when compared to the POB payments described in this memorandum.
Next Steps
Interest rates in the municipal bond market continue to be relatively low, in an historical context, but have
been increasing over the last four weeks due, in part, to inflationary impacts. The financing team is prepared
to move quickly to execute a transaction on behalf of the City, upon City Council approval. The next steps
include City Council approval of the legal documents and authorization to execute the sale of the bonds.
The method of sale recommended for the City to pursue is a private placement of the City's bonds, versus a
public offering. A public offering involves rating agency requirements, the solicitation and purchase of bond
insurance and the preparation of an official statement. These activities involve significant staff time and
increased cost of issuance. Alternatively, the City may elect to privately place these bonds with Lehman
Brothers soliciting bids from their investor base, or directly purchasing bonds from the City. It is PFM's
responsibility, under a private placement, to monitor market conditions and establish objective criteria, prior
to the sale of the bonds, to ensure that the bonds have been competitively placed and have received a fair
market interest rate. A private placement is a cost-effective and streamlined way for the City to sell their
POBs, should it decide to execute the transaction. Furthermore, as a streamlined process, a private
placement is an effective method to mitigate interest rate risk and manage the rate volatility present in today's
market.
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=PFM
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City of San Bernardino
PC)H j<'inancing ()vcfvicw & Recommendation
October 13, 2005
Page 5
The proposed next steps are Listed below.
Proposed Financing Schedule
Date
Se tember 21
October 17
October 18
October 25
October 26
We hope the City finds this analysis, prepared with the collaborative effort of the City staff and the financing
team, helpful and informative. If you have any additional questions or comments on the proposed
information herein, please do not hesitate to call Peter Shellenberger at (415) 982-5544.
ROBERT J. LARKINS
MANAGING DIRECTOR
LEHMAN BROTHERS
LEHMAN BROTHERS INC.
555 CALIFORNIA STREET
SAN FRANCISCO, CA 94104
TEL4152745J55 FAX4152745J80
rlarkins@lehman.com
~--
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Peter Shellenberger
Senior Mclnagmg Consultant
shellenbergerp Cei' pfm.com
The PFM Group
Public Financial Management
50 California Street
SUite 2300
San Francisco. CA 94111
415982-5544
415982-4513 fax
www_pfm,com
o
ORRICK
ELIZABETH 1. J. YEE
VICE PRfSlDENT
LEHMAN BROTHERS
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RESOLUTION NO.<<::: <<::>> fF?> Y
RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN
BERNARDINO SUPPLEMENTING RESOLUTION NO. 2005-79 PROVIDING FOR
THE ISSUANCE OF PENSION OBLIGATION BONDS, APPROVING THE FORM OF
AND AUTHORIZING THE EXECUTION AND DELIVERY OF A TRUST
AGREEMENT AND BOND PURCHASE AGREEMENT, AND AUTHORIZING
OTHER MA TTERS RELATING THERETO
WHEREAS, the Common Council (the "Common Council") of the City of San
Bernardino (the "City") adopted a retirement plan pursuant to the Public Employees'
Retirement Law, commencing with Section 20000 of the Government Code of the State of
California, as amended (the "Retirement Law"); and
WHEREAS, the Retirement Law obligates the City to (I) make annual
contributions to the California Public Employees' Retirement System (the "System"), to fund
pension benefits for its employees, (2) amortize the unfunded accrued actuarial liability with
respect to such pension benefits, and (3) appropriate funds for the purposes described in (I) and
(2); and
WHEREAS, the obligation of the City to pay its unfunded accrued actuarial
liability to the System ( the "Pension Obligation") is evidenced by a contract between the City
and the System, dated March I, 1945, as heretofore and hereafter amended from time to time
(collectively, the "PERS Contract"); and
WHEREAS, under and pursuant to Resolution No. 2005-79 (the "POB
Resolution") adopted by the Mayor and Common Council of the City on April 4, 2005, the City
authorized the issuance of bonds (the "Pension Obligation Bonds") in an aggregate principal
amount not to exceed the Pension Obligation, plus an additional amount to pay costs of
issuance of the Pension Obligation Bonds, for the purpose of refunding the PERS Contract and
thereby providing funds to the System in payment of al! or part of the Pension Obligation; and
WHEREAS, the Mayor and Common Council of the City have determined to
supplement the Resolution as provided herein; and
WHEREAS, there is on file with the Common Council the proposed form of
Trust Agreement (the "Trust Agreement") between the City and Wells Fargo Bank, National
Association as trustee (the "Trustee"), relating to the Pension Obligation Bonds, including the
forms of bonds attached thereto as an exhibit: and
WHEREAS, there is on file with the Common Council the proposed form of
Bond Purchase Agreement for the Pension Obligation Bonds (the "Purchase Agreement")
between the City and Lehman Brothers Inc. as Purchaser (the "Purchaser").
BE IT RESOLVED BY THE MAYOR AND COMMON COUNCIL OF
THE CITY OF SAN BERNARDINO AS FOLLOWS:
DOCSSF1839435.6
No. 33
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RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN
BERNARDINO SUPPLEMENTING RESOLUTION NO. 2005-79 PROVIDING FOR
THE ISSUANCE OF PENSION OBLIGATION BONDS, APPROVING THE FORM OF
AND AUTHORIZING THE EXECUTION AND DELIVERY OF A TRUST
AGREEMENT AND BOND PURCHASE AGREEMENT, AND AUTHORIZING
OTHER MA TTERS RELATING THERETO
Section 1. The proposed form of Trust Agreement, between the City and the
Trustee, on file with the City Clerk, is hereby approved. The Mayor, the City Administrator.
the City Treasurer and the City Clerk (the "Authorized Representatives") are each hereby
authorized and directed, severally, or any such officer's designee, for and on behalf of the City,
to execute and deliver the Trust Agreement, substantially in the form on file with the City
Clerk, with such changes therein, deletions therefrom and additions thereto as such Authorized
Representative shall approve, such approval to be conclusively evidenced by the execution and
delivery of the Trust Agreement.
Section 2. The proposed form of Purchase Agreement, between the City and the
Purchaser. on file with the City Clerk, is hereby approved. The City Treasurer is hereby
authorized and directed, for and on behalf of the City, to execute and deliver the Purchase
Agreement, substantially in the form on file with the City Clerk, with such changes therein,
deletions therefrom and additions thereto as such officer shall approve, such approval to be
conclusively evidenced by the execution and delivery of the Purchase Agreement; provided,
that the Purchaser's discount shall not exceed $125,000 and the interest rates on the Pension
Obligation Bonds and the maturity dates thereof shall be limited as specified in the POB
Resolution.
Section 3. Except as otherwise herein specifically supplemented, all terms and
provisions of the POB Resolution shall remain in full force and effect, and all authorizations,
provisions and terms of the POB Resolution shall apply to this resolution with the same effect
as if set forth herein. The officers and agents of the City are, and each of them hereby is,
authorized and directed to do any and all things and to execute and deliver any and all
documents which they or any of them deem necessary or advisable in order to consummate the
transactions contemplated by this resolution, the Trust Agreement, the Purchase Agreement and
the Pension Obligation Bonds and otherwise to carry out, give effect to and comply with the
terms and intent of this resolution, including but not limited to investment agreements, forward
purchase agreements and a letter of representations and other agreements with The Depository
Trust Company, and all such actions heretofore taken by such officers are hereby ratified,
confirmed and approved.
Section 4. This resolution shall take effect from and after its date of adoption.
DOCSSFl839435.6
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RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN
BERNARDINO SUPPLEMENTING RESOLUTION NO. 2005-79 PROVIDING FOR
THE ISSUANCE OF PENSION OBLIGATION BONDS, APPROVING THE FORM OF
AND AUTHORIZING THE EXECUTION AND DELIVERY OF A TRUST
AGREEMENT AND BOND PURCHASE AGREEMENT, AND AUTHORIZING
OTHER MATTERS RELATING THERETO
I HEREBY CERTIFY that the foregoing resolution was duly adopted by the
Mayor and Common Council of the City of San Bernardino at a meeting
thereof, held on the 17th day of October, 2005, by the following vote, to wit:
8 Council Members
AYES
NAYS
ABSTAIN
ABSENT
ESTRADA
LONGVILLE
MCGINNIS
DERRY
KELLEY
JOHNSON
MCCAMMACK
City Clerk
The foregoing resolution is hereby approved this _ day of October, 2005.
JUDITH VALLES, Mayor
City of San Bernardino
Approved as to form
and legal content:
JAMES F. PENMAN
City Attorney
!
By: .. l-yz}v...,
/1
( ;
"
'_.l.....~~. ......._.__ __'__
DOCSSF1839435.6
$
CITY OF SAN BERNARDINO, CALIFORNIA
TAXABLE PENSION OBLIGA nON BONDS, 2005 SERIES A
BOND PURCHASE AGREEMENT
,2005
City of San Bernardino
300 North D Street
San Bernardino, California 92418
Ladies and Gentlemen:
Lehman Brothers Inc. (the "Purchaser ") offers to enter into this Bond Purchase Agreement (the
"Purchase Agreement"') with the City of San Bernardino (the "City"), which, upon acceptance by the
City will be binding upon the City and the Purchaser. This offer is made subject to acceptance of this
Purchase Agreement by the City on or before II :59 p.m., California time, on the date hereof, and, if not
so accepted, will be subject to withdrawal by the Purchaser upon written notice delivered to the City at
any time prior to such acceptance.
Capitalized terms used in this Purchase Agreement and not otherwise defined herein shall have
the meanings given to such terms as set forth in the Trust Agreement, dated as of October 1,2005 (the
"Trust Agreement ") between the City and Wells Fargo Bank, National Association, as trustee (the
"Trustee "').
Section 1. Purchase and Sale. Upon the terms and conditions and upon the basis of the
representations set forth in this Purchase Agreement, the Purchaser agrees to purchase from the City, as
principal and not as agent, and the City agrees to sell and deliver to the Purchaser, as principal and not as
agent, all (but not less than all) of the $ aggregate principal amount of the City of San
Bernardino Taxable Pension Obligation Bonds, 2005 Series A, comprised of$ principal amount of
2005 Series A-I Standard Bonds (the "2005 Series A-I Bonds"), and $ principal amount of2005
Series A-2 Capital Appreciation Bonds (the "2005 Series A-2 Bonds" and together with the 2005 Series
A-I Bonds, the "Bonds ").
(a) The 2005 Series A-I Bonds shall be dated their date of delivery, shall mature or be
subject to mandatory sinking fund redemption on October I in the years, and bear interest at the rates per
annum and have the yields as set forth in Schedule I attached hereto.
05039\pc-7
DRAFT #6
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...
(b) The 2005 Series A-2 Bonds shall be dated their date of delivery, accrete in value on
October I in the years, and have the yields to maturity as set forth in Schedule I attached hereto.
The purchase price for the Bonds shall be $
Bonds, less a discount in the amount of $
which is the principal amount of the
Section 2. The Bonds. The Bonds are being issued pursuant to Articles 10 and II (commencing
with section 53570) of Chapter 3 of Part I of Division 2 of Title 5 of the California Government Code
(the "Act ") and the Trust Agreement.
Pursuant to a contract dated March I, 1945, as previously amended and as may be further
amended from time to time (the "PERS Contract") between the City and California Public Employee's
Retirement System ("PERS") established under Sections 20000 et seq. of the Government Code of the
State of California (the "Retirement Law"), the City is obligated to make payments to PERS arising as a
result of retirement benefits accruing to its members of PERS. The statutory obligation of the City
includes, among others, the requirement to amortize the unfunded accrued actuarial liability (the
"UAAL ") with respect to such retirement benefits. The Bonds are absolute and unconditional obligations
imposed upon the City by law and enforceable against the City pursuant to the Retirement Law and are
not limited as to payment to any special source offunds of the City.
The proceeds of the Bonds will be used to: (i) refund all or a portion of the City's obligation to
PERS as evidenced by the PERS Contract, and (ii) pay certain costs associated with the issuance and
delivery of the Bonds.
Section 3. Representations. Warranties and Al!reements of the Purchaser.
(a) The Purchaser qualifies as a "qualified institutional buyer" (as defined in Rule 144A as
promulgated by the Securities and Exchange Commission under the Securities Act of 1933) and is
purchasing the Bonds for its own account;
(b) The Purchaser has sufficient knowledge and experience in financial and business matters,
including purchase and ownership of municipal obligations of a nature similar to the Bonds to be able to
evaluate the risks and merits of the investment represented by the purchase of the Bonds;
(c) The Purchaser acknowledges that the Bonds bear restrictions as to transfer or exchange,
as set forth in the Trust Agreement and that no offering document, prospectus or official statement has
been prepared by or on behalf of the City in connection with the sale of the Bonds;
(d) As a sophisticated investor, the Purchaser has made his own credit inquiry and analysis
with respect to the City and the Bonds and has made an independent credit decision based upon such
inquiry and analysis. The City has furnished to the Purchaser all the information which the Purchaser, as
a reasonable investor, has requested of the City as a result of the Purchaser having attached significance
thereto in making its investment decision with respect to the Bonds, and the Purchaser has had the
opportunity to ask questions of and receive answers from knowledgeable City officials and other
individuals concerning the City and the Bonds. The Purchaser represents that it has received all
information it considers material to making its investment decisions with respect to the Bonds and has
made such decisions upon its own credit inquiry and analyses. The Purchaser is able and willing to bear
the economic risk of the purchase and ownership of the Bonds;
05039\pc-7
DRAFT #6
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(e) The Purchaser understands that the Bonds have not been registered with any federal or
state securities agency or commission;
(f) The Purchaser agrees that any subsequent sales of the Bonds shall only be made to other
"qualified institutional buyers" in Authorized Denominations (as defined in the Trust Agreement);
(g) The Purchaser represents that its purchase of the Bonds and its subsequent sale, if any,
are exempt from SEC Rule l5c2-12; and
(h) The Purchaser acknowledges and agrees that the City has not offered and has no
obligation or responsibility to provide any disclosure or other information relating to the Bonds or the
City after issuance of the Bonds, whether in connection with any sale of the Bonds by the Purchaser or
otherwise.
Section 4. Representations. Warranties and Aereements of the City. The City represents and
warrants to the Purchaser that:
(a) The City has taken official action by Resolution No. 2005-79 and Resolution
No. 2005-_ (collectively, the "Resolutions") each adopted or approved by a majority of the members of
Common Council of the City (the "Common Council") meetings duly called, noticed and conducted, at
which quorums were present and acting throughout, on April 4, 2005 and October _,2005, respectively,
all actions necessary to be taken by it for the authorization and issuance of the Bonds, and the execution,
delivery and due performance of the Trust Agreement and this Purchase Agreement and the taking of any
and all actions as may be required on the part of the City to carry out, give effect to and consummate the
transactions contemplated hereby has been taken, and neither of the Resolutions have been modified or
amended and each is in full force and effect:
(b) The City is a political subdivision of the State of California (the "State"), organized,
existing and exercising governmental functions under its charter and the Constitution and the laws of the
State and has all necessary power and authority to adopt the Resolutions, to issue the Bonds and to enter
into and perform its duties under the Trust Agreement and, when executed and delivered by the respective
parties thereto, the Trust Agreement will constitute a legal, valid and binding obligation of the City
enforceable in accordance with its terms;
(c) This Purchase Agreement and the PERS Contract constitute, and upon their issuance and
delivery, the Bonds and the Trust Agreement will constitute, legal, valid and binding obligations of the
City enforceable in accordance with their terms, except as enforceability may be limited by bankruptcy,
insolvency, moratorium or creditors' rights generally, to the application of equitable principles if
equitable remedies are sought, and to the limitations on remedies for cities in the State; and the execution
and delivery of the Trust Agreement, the Bonds and this Purchase Agreement, and compliance with the
provisions of each thereof will not conflict with or constitute a breach of or a default under any applicable
law or administrative regulation of the State or the United States, or any applicable judgment, decree,
agreement or other instrument to which the City is a party or is otherwise subject;
(d) To the best knowledge of the City as of the date hereof, there is no action, suit,
proceeding or investigation before or by any court, public board or body pending or threatened, wherein
an unfavorable decision, ruling or finding would: (i) affect the creation, organization, existence or powers
of the City, or the titles of its members or officers, (ii) enjoin or restrain the issuance, sale and delivery of
the Bonds, (iii) in any way question or affect any of the rights, powers, duties or obligations of the City
with respect to the monies to pay the principal of, premium, if any, or interest on the Bonds, (iv) in any
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way question or affect any authority for the issuance of the Bonds, or the validity or enforceability of the
PERS Contract, the Bonds, the Trust Agreement or this Purchase Agreement, or (v) in any way question
or affect this Purchase Agreement, the Trust Agreement or the transactions contemplated by this Purchase
Agreement, or any other agreement or instrument to which the City is a party relating to the issuance of
the Bonds;
(e) Any certificate signed by any official of the City and delivered to the Purchaser pursuant
to this Purchase Agreement or any document contemplated hereby shall be deemed a representation and
warranty by the City to the Purchaser as to the statements made therein and that such officer shall have
been duly authorized to execute the same;
(f) The City shall apply the net proceeds of the Bonds to refund a portion of the PERS
Contract and otherwise in accordance with the Trust Agreement;
(g) The City is not in default, and at no time has defaulted in any material respect, on any
bond, note or other obligation for borrowed money or any agreement under which any such obligation is
or was outstanding; and
(h) Except as disclosed in writing to the Purchaser, there has not been any materially adverse
change in the financial condition of the City nor has there been any additional borrowing by the City since
June 30, 2004, and there has been no occurrence, circumstance or combination thereof which is
reasonably expected to result in any such materially adverse change, The financial statements of and other
financial information regarding the City delivered to the Purchaser fairly present the financial position
and results of the operations of the City as of the dates and for the periods therein set forth, and such
financial statements have been prepared in accordance with the generally accepted accounting principles
consistently applied.
(i) The default judgment dated July 11, 2005 entered in favor of the City in connection with
City of San Bernardino v. All Persons Interested, etc. was duly entered, the appeal period has run without
any appeal having been filed, and the default judgment is in full force and effect.
Section 5. The Closinl!:. At 8:00 A.M., California time, on ,2005 (the "Closing
Date "), or on such earlier or later date as may be agreed upon by the Purchaser and the City, the City will
deliver or cause to be delivered to the Purchaser through the facilities of The Depository Trust Company,
New York, New York ("DTC ") by initial deposit with the Trustee (in care of DTC) through DTC's
F.A.S.T. procedures, the Bonds in definitive form, duly executed, together with the other documents
hereinafter mentioned, and, subject to the terms and conditions of this Purchase Agreement, the Purchaser
will accept delivery of the Bonds through DTC and the other documents at the offices of Orrick,
Herrington & Sutcliffe LLP in [San Francisco], California or such other place as shall have been mutually
agreed upon by the Purchaser and the City, and pay the purchase price of the Bonds as set forth in
Section 1 of this Purchase Agreement by wire transfer in immediately available funds to the order of the
Trustee (or by such other form of payment in immediately available funds as shall have been mutually
agreed upon by the City and the Purchaser). The Bonds in definitive form shall be evidenced by
typewritten, lithographed or word processed Bonds in authorized denominations.
The Bonds shall be issued in fully registered form and shall be prepared and delivered as one
Bond for each maturity registered in the name of Cede & Co., as nominee of DTC. It is anticipated that
CUSIP and ISIN identification numbers will be inserted on the Bonds, but neither the failure to provide
such numbers nor any error with respect thereto shall constitute a cause for failure or refusal by the
Purchaser to accept delivery of the Bonds in accordance with the terms of this Purchase Agreement.
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Section 6. Termination bv Purchaser. The Purchaser shall have the right to terminate its
obligations under this Purchase Agreement to purchase, to accept delivery of and to pay for the Bonds by
notifying the City of its election to do so if, after the execution hereof and prior to Closing Date:
(I) legislation (including any amendments thereto), resolution, rule or regulation (including any
amendments thereto) shall be introduced in, considered by or be enacted by any governmental body,
department or political subdivision of the State, or a decision by any court of competent jurisdiction
within the State shall be rendered which, in the reasonable opinion of the Purchaser would make it
impracticable or inadvisable to proceed with the offer, sale or delivery of the Bonds; (2) the outbreak or
declaration of war, institution of a police action, engagement in military hostilities by the United States,
or any escalation of any existing conflict or hostilities in which the United States is involved, or the
occurrences of any other national emergency or calamity or crisis or any change in financial markets
resulting from the foregoing, which, in the reasonable opinion of the Purchaser would make it
impracticable or inadvisable to proceed with the offer, sale or delivery of the Bonds; (3) the declaration of
a general banking moratorium by federal, New York or California authorities, or the general suspension
or material limitation of trading on the New York Stock Exchange, the Nasdaq National Market, in any
over-the-counter market or any national securities exchange which materially adversely affects the market
price of the Bonds; (4) the imposition by the New York Stock Exchange or other national securities
exchange, or any governmental authority, of any material restrictions not now in force with respect to the
Bonds or obligations of the general character of the Bonds or securities generally, or the material increase
of any such restrictions now in force, including those relating to the extension of credit by, or the change
to the net capital requirements of, the Purchaser which, in the reasonable opinion of the Purchaser would
make it impracticable or inadvisable to proceed with the offer, sale or delivery of the Bonds; (5)
legislation enacted (or resolution passed) by or introduced or pending legislation amended in the Congress
or recommended for passage by the President of the United States, or an order, decree or injunction issued
by any court of competent jurisdiction, or an order, ruling, regulation (final, temporary or proposed)
issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental
agency having jurisdiction of the subject malter, to the effect that securities of the general character of the
Bonds, or the Bonds, including any or all underlying arrangements, are not exempt from registration
under the Securities Act of 1933, as amended, or that the Trust Agreement is not exempt from
qualification under the Trust Indenture Act of 1939, as amended, or that the execution, offering or sale of
obligations of the general character of the Bonds. including any or all underlying arrangements, otherwise
is or would be in violation of the federal securities laws as amended and then in effect; (6) action is taken
by or on behalf of the State or the State Franchise Tax Board, with the purpose or effect, directly or
indirectly, of imposing State personal income taxation upon such interest as would be received by the
Owners of the Bonds; (7) any event occurring, or information becoming known which, in the reasonable
judgment of the Purchaser, makes untrue in any material respect any statements made by the City to the
Purchaser, or has the effect that any statements made by the City to the Purchaser contains any untrue
statement of a material fact or omits to state a material fact to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they were made, not
misleading; (8) a material disruption in securities settlement, payment or clearance services in the United
States shall have occurred and be continuing; or (9) the purchase of and payment for the Bonds by the
Purchaser on the terms and conditions herein provided shall be prohibited by any applicable law,
governmental authority, board, agency or commission.
Section 7. Conditions to the Oblil!:ations of the Purchaser. The Purchaser hereby enters into
this Purchase Agreement in reliance upon the representations and warranties of the City contained herein
and the representations and warranties to be contained in the documents and instruments to be delivered
on the Closing Date and upon the performance by the City and the Trustee of their respective obligations
both on and as of the date hereof and as of the Closing Date. Accordingly, the obligations of the
Purchaser under this Purchase Agreement to purchase, to accept delivery of and to pay for the Bonds shall
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be subject, at the option of the Purchaser, to the accuracy in all material respects of the representations
and warranties of the City contained herein as of the date hereof and as of the Closing Date, to the
accuracy in all material respects of the statements of the officers and other officials of the City and the
Trustee made in any certificate or document furnished pursuant to the provisions hereof, to the
performance by the City and the Trustee of their respective obligations to be performed hereunder and
under the Trust Agreement at or prior to the Closing Date, and also shall be subject to the following
additional conditions:
(a) On the Closing Date, the Trust Agreement shall have been duly authorized, executed and
delivered by the respective parties thereto, and shall be in full force and effect; and the Resolutions shall
each be in full force and effect;
(b) On the Closing Date, all necessary action of the City relating to the execution and
delivery of the Bonds will have been taken and will be in full force and effect and will not have been
amended, modified or supplemented; and
(c) At or prior to the Closing Date, the Purchaser shall have received the following
documents or copies thereof, in each case satisfactory in form and substance to the Purchaser:
(1) Default Judl!ment. Copies of the default judgment, dated July II, 2005, entered
in favor of the City in connection with City of San Bernardino v. All Persons Interested, etc.,
Case No. SCVSS 125783 filed in the Superior Court of California, County of San Bernardino;
(2) Trust Al!reement and the Resolutions. The Trust Agreement duly executed and
delivered by the respective parties thereto and certified copies of the Resolutions;
(3) Opinion of Bond Counsel. The approving opinion of Bond Counsel dated the
Closing Date, substantially in the form attached hereto as Exhibit A, and a reliance letter with
respect thereto addressed to the Purchaser;
(4) Supplemental Opinion of Bond Counsel. A supplemental opinion of Bond
Counsel, dated the Closing Date and addressed to the Purchaser, to the effect that the Bonds are
not subject to the registration requirements of the Securities Act of 1933, as amended, and the
Trust Agreement is exempt from qualification under the Trust Indenture Act of 1939, as
amended;
(5) Opinion of the City Attornev. An opinion of the City Attorney, dated the Closing
Date and addressed to the City and the Purchaser, in substantially the form of Exhibit 8;
(6) Opinion of Purchaser's Counsel. An opinion of Lofton & Jennings as
Purchaser's Counsel, dated the Closing Date and addressed to the Purchaser, in form and
substance acceptable to the Purchaser;
(7) City Brine-Down Certificate. A certificate of the City dated the Closing Date and
executed by a duly authorized officer of the City to the effect that: (i) the representations and
warranties of the City contained in Section 4 hereof are true and correct in all material respects on
and as of the Closing Date as if made on the Closing Date; (ii) the City has duly authorized by the
Resolutions, the execution and delivery of the Trust Agreement and the Purchase Agreement, and
the taking of any and all such action as may be required on the part of the City to carry out, give
effect to and consummate the transactions contemplated thereby, the Resolutions were adopted at
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6
a meeting of the Common Council duly noticed and at which a quorum was present, and the
Resolutions have not been modified or amended and are in full force and effect; (iii) no consent,
approval, authorization or other action by any governmental or regulatory authority having
jurisdiction over the City that has not been obtained is or will be required for the issuance and
delivery of the Bonds or the consummation by the City of the other transactions contemplated by
the Trust Agreement; (iv) the execution and delivery by the City of the Trust Agreement and the
Purchase Agreement and compliance with the terms thereof, will not contlict with, or result in a
violation or breach of, or constitute a default under, any lease, indenture, bond, note, resolution or
any other agreement or instrument to which the City is a party or by which it is bound, or any law
or any rule, regulation, order or decree of any court or governmental agency or body having
jurisdiction over the City or any of its activities or properties; (v) the City is not in breach of or
default under any applicable law or administrative regulation of the State or the United States or
any applicable judgment or decree or any lease, indenture, bond, note, resolution, agreement or
other instrument to which the City is a party or is otherwise subject which breach or default
would materially adversely affect the ability of the City to perform its obligations under the Trust
Agreement or the PERS Contract, and no event has occurred and is continuing which, with the
passage of time or the giving of notice, or both, would constitute such a default or an event of
default under any such instrument; and (vi) there is no action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court or governmental agency, public board or
body pending or, to the best knowledge of the City, threatened against or affecting the existence
of the City or seeking to prohibit, restrain or enjoin the issuance and delivery of the Bonds or in
any way contesting or affecting the validity or enforceability of the Bonds, the Trust Agreement,
the Purchase Agreement or contesting the powers of the City to enter into, adopt or perform its
obligation under any of the foregoing, wherein an unfavorable decision, ruling or finding would
materially adversely affect the transactions contemplated hereby, or which, in any way, would
materially adversely affect the validity of the Bonds, the Trust Agreement, the Purchase
Agreement or any agreement or instrument to which the City is a party and which is used or
contemplated for use in the consummation of the transactions contemplated hereby;
(8) Opinion of'Counsel to Trustee. The opinion of Counsel to the Trustee, dated the
Closing Date, addressed to the City and the Purchaser, to the effect that: (A) the Trustee has been
duly incorporated as a national banking association under the laws of the United States of
America and is in good standing under the laws of the State, duly qualified to do business and to
exercise trust powers therein, having full power and authority to enter into and to perform its
duties as Trustee under the Trust Agreement, and has full power and authority to execute and
deliver such agreement, and to perform its obligations thereunder; (B) the Trust Agreement has
each been duly executed and delivered by the Trustee, and assuming the authorization, execution
and delivery by the City, such agreement is the legal, valid and binding agreements of the
Trustee, enforceable against the Trustee in such capacity in accordance with its terms except as
such enforcement thereof may be limited by bankruptcy, insolvency, reorganization, receivership,
moratorium, fraudulent conveyance, and other similar laws affecting the rights and remedies of
creditors generally, and by the effect of general principles of equity, including without limitation,
concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability
of specific performance or injunctive relief, whether considered in a proceeding at law or in
equity; (C) the Bonds have been validly authenticated, registered and delivered by the Trustee;
(D) no authorization, approval, consent or other order of the State or any other governmental
authority or agency within the State having jurisdiction over the Trustee, or, to such counsel's
knowledge after reasonable investigation, any other person or corporation, is required for the
valid authorization, execution, delivery and performance by the Trustee of the Trust Agreement;
and (E) the execution and delivery of the Trust Agreement and compliance by the Trustee with
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the provisions of the foregoing under the circumstances contemplated thereby, does not in any
material respect conflict with or constitute on the part of the Trustee a breach or default under any
agreements or other instrument to which the Trustee is a party (and of which such counsel is
aware after reasonable investigation) or by which it is bound (and of which such counsel is aware
after reasonable investigation) or any existing law, regulation, court order or consent decree to
which the Trustee is subject;
(9) Bvlaws of Trustee. Certified copies of excerpts from the bylaws of the Trustee
authorizing the execution and delivery of the Trust Agreement;
(10) Certificate of the Trustee. A certificate of the Trustee, dated the Closing Date,
signed by a duly authorized official, satisfactory in form and substance to the Purchaser, to the
effect that: (A) the Trustee is a national banking association organized and existing under and by
virtue of the laws of the United States, having the full power and being qualified to enter into and
perform its duties under the Trust Agreement; (B) the Trustee is duly authorized to enter into the
Trust Agreement and to authenticate and deliver the Bonds to the Purchaser pursuant to the Trust
Agreement; (C) the Bonds have been duly authenticated and delivered by the Trustee; (D) the
execution and delivery of the Trust Agreement and compliance with the provisions on the part of
the Trustee contained therein, does not conflict with or constitute a breach of or default under any
law, administrative regulation, judgment, decree, loan agreement, indenture, note, resolution,
agreement or other instrument to which the Trustee is a party or is otherwise subject (except that
no representation or warranty is made with respect to any federal or state securities or blue sky
laws or regulations), nor will any such execution, delivery, adoption or compliance result in the
creation or imposition of any lien, charge or other security interest or encumbrance of any nature
whatsoever upon any of the properties or assets held by the Trustee pursuant to the Trust
Agreement under the terms of any such law, administrative regulation, judgment, decree, loan
agreement, indenture, bond, note, resolution, agreement or other instrument, except as provided
by the Trust Agreement; and (E) to the best knowledge of the Trustee, it has not been served with
any action, suit, proceeding, inquiry or investigation in law or in equity, before or by any court,
governmental agency, public board or body, nor is any such action or other proceeding threatened
against the Trustee, affecting the existence of the Trustee, or the titles of its officers to their
respective offices or seeking to prohibit, restrain, or enjoin the execution and delivery of the
Bonds, or in any way contesting or affecting the validity or enforceability of the Trust
Agreement, or contesting the powers of the Trustee or its authority to enter into, adopt or perform
its obligations under any of the foregoing to which it is a party, wherein an unfavorable decision,
ruling or finding would materially adversely affect the validity or enforceability of the Bonds or
the Trust Agreement, or the power and authority of the Trustee to enter into and perform its
respective duties under such agreement and to authenticate and deliver the Bonds to the
Purchaser;
(11) Certificate of Actuarv. A certificate of Bartel Associates (the "Actuary"), the
actuary retained by City dated the Closing Date, that the calculation of the amount of the UAAL
of the City, as represented by the PERS Contract, is true and accurate in all material respects;
(12) Representation Letter of Purchaser. A letter of an authorized officer of the
Purchaser substantially in the form attached as Exhibit C;
(13) California Debt and Investment Advisorv Commission Filings. Evidence of the
preliminary and final filings with the California Debt and Investment Advisory Commission
pursuant to section 8855(k) and 8855(1) of the California Government Code;
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(14) DTC Blanket Letter of Revresentations and Revresentations for 144A and Pro
Rata Reduction of Princival Rider. A copy of the executed Blanket Letter of Representations by
and between the City and The Depository Trust Company, New York, New York, relating to the
book-entry system for the Bonds, together with the Representations for] 44A and the Pro Rata
Reduction of Principal Rider; and
(15) Miscellaneous. Such additional legal opinions, certificates, instruments and
documents as the Purchaser may reasonably request to evidence the truth and accuracy, as of the
date hereof and as of the Closing Date, of the City's representations and warranties contained
herein and the due performance or satisfaction by the City on or prior to the Closing Date of all
agreements then to be performed and all conditions then to be satisfied by the City.
All of the opinions, letters, certificates, instruments and other documents mentioned above or
elsewhere in this Purchase Agreement shall be deemed to be in compliance with the provisions hereof if,
but only if, they are in form and substance satisfactory to the Purchaser. Receipt of, and payment for, the
Bonds shall constitute evidence of the satisfactory nature of such as to the Purchaser. The performance of
any and all obligations of the City hereunder and the performance of any and all conditions contained
herein for the benefit of the Purchaser may be waived by the Purchaser in its sole discretion.
If the City shall be unable to satisfy the conditions to the obligations of the Purchaser to purchase,
accept delivery of and pay for the Bonds contained in this Purchase Agreement, or if the obligations of
the Purchaser to purchase, accept delivery of and pay for the Bonds shall be terminated for any reason
permitted by this Purchase Agreement, this Purchase Agreement shall terminate, and neither the
Purchaser nor the City shall be under further obligation hereunder, and (ii) the respective obligations of
the City and the Purchaser set forth in Section 9 hereof shall continue in full force and effect.
Section 8. Expenses.
(a) The Purchaser shall be under no obligation to pay, and the City shall pay, the following
expenses incident to the performance of the City's obligations hereunder: (i) the fees and disbursements
of Bond Counsel; (ii) the cost of printing and delivering the Bonds; (iii) the fees and disbursements of and
Public Financial Management, Inc., as financial advisor to the City, the Actuary, any accountants or other
advisers, experts or consultants retained by the City; and (iv) any other expenses and costs of the City
incident to the performance of its obligations in connection with the authorization, issuance and sale of
the Bonds, including out-of-pocket expenses and regulatory expenses, and any other expenses agreed to
by the parties.
(b) The Purchaser shall pay all expenses incurred by it in connection with the purchase of the
Bonds including, but not limited to: (i) the fees and disbursements of Purchaser's Counsel; and (ii) all
fees of the California Debt and Investment Advisory Commission, CUSIP and ISIN fees and out-of-
pocket disbursements and expenses incurred by the Purchaser in connection with the purchase of the
Bonds.
Section 9. Notices. Any notice or other communication to be given to the City under this
Purchase Agreement may be given by delivering the same in writing at the City's address set forth above,
and any notice or other communication to be given to the Purchaser under this Purchase Agreement may
be given by delivering the same in writing to the Purchaser, Lehman Brothers Inc., 555 California Street,
41st Floor, San Francisco, California 94]04; Attention: Elizabeth Yee, Vice President.
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Section 10. Parties in Interest; Force and Effect. This Purchase Agreement is made solely for
the benefit of the City and the Purchaser (including their successors and assigns), and no other person
shall acquire or have any right hereunder or by virtue hereof. All of the City's representations, warranties
and agreements contained in this Purchase Agreement shall remain operative and in full force and effect
regardless of: (a) any investigations made by or on behalf of the Purchaser; or (b) delivery of and payment
for the Bonds pursuant to this Purchase Agreement. The agreements contained in this Section 10 and in
Section 8 shall survive any termination of this Purchase Agreement.
Section 11. Unenforceable Provisions. If any provision of this Purchase Agreement shall be
held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular
case in any jurisdiction or jurisdictions, or in all jurisdictions because it conflicts with any provisions of
any constitution, statute, rule of public policy, or any other reason, such circumstances shall not have the
effect of rendering the provision in question invalid, inoperable or unenforceable in any other case or
circumstance, or of rendering any other provision or provisions of this Purchase Agreement invalid,
inoperative or unenforceable to any extent whatsoever.
Section 12. Counterparts. This Purchase Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may
execute this Purchase Agreement by signing any such counterpart.
Section 13. Governinl!: Law; Venue. The validity, interpretation and performance of this
Purchase Agreement shall be governed by the laws of the State. Any and all disputes or legal actions or
proceedings arising out of this Purchase Agreement or any document related hereto shall be filed and
maintained in a court of competent jurisdiction for matters arising in San Bernardino County; provided
that the City may waive the requirement of venue. By execution of and delivery of this Purchase
Agreement, the parties hereto accept and consent to the aforesaid jurisdiction.
Section 14. Headinl!:s. The headings of the sections of this Purchase Agreement are inserted for
convenience only and shall not be deemed to be a part hereof.
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Section 15. Effectiveness. This Purchase Agreement shall become effective upon the execution
of the acceptance hereof by an authorized officer of the City, and shall be valid and enforceable as of the
time of such acceptance.
Very truly yours,
LEHMAN BROTHERS INC.
By:
Robert J. Larkins Managing Director
CITY OF SAN BERNARDINO
By:
Authorized Officer
A pproved as to form
and legal content:
JAMES F. PENMAN
City Attorney
By:
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SCHEDULE I
MA TURITY SCHEDULE
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EXHIBIT A
FORM OF OPINION OF BOND COUNSEL
October , 2005
City of San Bernardino
San Bernardino, California
Re: City of San Bernardino Taxable Pension Obligation Bonds
Ladies and Gentlemen:
We have acted as bond counsel in connection with the issuance by the City of San Bernardino (the
"City") of $ aggregate principal amount of its City of San Bernardino Taxable Pension
Obligation Bonds, 2005 Series A (the "Bonds") pursuant to Articles 10 and II of Chapter 3 of Part I of
Division 2 of Title 5 of the Government Code of the State of California (the "Act") and a Trust
Agreement, dated as of October 1,2005 (the "Trust Agreement"), by and between the City and Wells
Fargo Bank, National Association, as Trustee (the "Trustee"). All capitalized terms not otherwise defined
herein shall have the meanings ascribed thereto in the Trust Agreement.
In such connection, we have reviewed the Trust Agreement, opinions of counsel to the City and the
Trustee, certifications of the City and the Trustee and such other documents, opinions and matters to the
extent we deemed necessary to render the opinions set forth herein.
Certain agreements, requirements and procedures contained or referred to in the Trust Agreement and
other relevant documents may be changed and certain actions (including, without limitation, defeasance
of the Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set
forth in such documents, and no opinion is expressed herein as to any Bond if any such change occurs or
action is taken or omitted upon the advice or approval of any counsel other than ourselves.
The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court
decisions and cover certain matters not directly addressed by such authorities. Such opinions may be
affected by actions taken or omitted or events occurring after the date hereof, and we have not undertaken
to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or
any other matters come to our attention after the date hereof. Our engagement with respect to the Bonds
has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed
the genuineness of all documents and signatures presented to us (whether as originals or as copies) and
the due and legal execution and delivery thereof by, and validity against, any parties other than the City.
We have assumed, without undertaking to verify, the accuracy of the factual matters represented,
warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to
in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and
agreements contained in the Trust Agreement.
In addition, we call attention to the fact that the rights and obligations under the Trust Agreement and the
Bonds and their enforceability may be subject to bankruptcy, insolvency, reorganization, arrangement,
fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights, to the
application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the
limitations on legal remedies against cities in the State of California. We express no opinion with respect
to any indemnification, contribution, penalty, choice oflaw, choice offorum, waiver or severability
05039\pc-7 DRAFT #6
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provisions contained in the foregoing documents. Furthermore, we undertake no responsibility for the
accuracy, completeness or fairness of any disclosure by the City relating to the Bonds and express no
opinion relating thereto.
Based on and subject to the foregoing, and the default judgment rendered on July I 1, 2005, by the
Superior Court of the County of San Bernardino in the action entitled City of San Bernardino v. All
Persons Interested. etc. (Case No. SCYSS 125783), and in reliance thereon, as of the date hereof, we are
of the following opinions:
1. The Bonds constitute valid and binding obligations of the City.
2. The Trust Agreement has been duly executed and delivered by the City and constitutes a valid
and binding obligation of the City.
3. The Bonds do not constitute an obligation for which the City is obligated to levy or pledge any
form of taxation or for which the City has levied or pledged any form of taxation.
4. Interest on the Bonds is not excluded from gross income for federal income taxes purposes under
Section 103 of the Internal Revenue Code of 1986, but is exempt from State of California
personal income taxes. We express no opinion regarding other tax consequences related to the
ownership or disposition of, or the accrual or receipt of interest on, the Bonds.
Faithfully yours,
ORRICK, HERRINGTON & SUTCLIFFE LLP
per
05039\pc.7
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EXHIBIT B
FORM OF OPINION OF CITY ATTORNEY
,2005
City of San Bernardino
San Bernardino, California
Lehman Brothers Inc.
San Francisco, California
Re:
$
City of San Bernardino Taxable Pension Obligation Bonds, Series 2005
Ladies and Gentlemen:
The undersigned is the duly qualified and acting City Attorney of the City of San Bernardino (the
"City"), and in connection with the issuance and delivery by the City of $ aggregate principal
amount of City of San Bernardino Taxable Pension Obligation Bonds, 2005 Series A, comprised of
$ principal amount of2005 Series A-I Standard Bonds (the "2005 Series A-j Bonds"), and
$ principal amount of 2005 Series A-2 Capital Appreciation Bonds (the "2005 Series A-2
Bonds" and together with the 2005 Series A-I Bonds, the "Bonds"). I have examined originals (or copies
certified or otherwise identified to my satisfaction) of such documents, records and other instruments as
deemed necessary or appropriate for the purposes of this opinion, including, without limitation: (i) those
documents relating to the existence, organization and operation of the City; (ii) the default judgment
entered on July II, 2005 by the Superior Court of the State of California for the County of San
Bernardino, to the effect, among other things, that the City has the authority to issue the Bonds as
obligations imposed by law and as obligations exempt from and not subject to the debt limitations set
forth in Article XVI, Section 18 of the California Constitution; (iii) the contract dated March I, 1945, as
previously amended and as may be further amended from time to time (the "PERS Contract") between the
City and the Public Employee' Retirement System ("'PERS"); (iv) Resolution No. 2005-79, adopted by a
majority of the Common Council of the City on April 4, 2005 and Resolution No. 2005-_,adopted by
a majority of the Common Council of the City on October _,2005 (the "Resolutions"); (v) the Trust
Agreement, dated as of October 1,2005 (the "Trust Agreement") between the City and Wells Fargo
Bank, National Association, as trustee (the "Trustee"); and (vi) the Bond Purchase Agreement, dated
, 2005 (the "Purchase Agreement"), by and between the City and Lehman Brothers Inc., as the
purchaser of the Bonds. All capitalized terms used herein and not otherwise defined shall have the
meaning given to such terms as set forth in the Trust Agreement.
Based on the foregoing, I am of the opinion that:
I. The City is a charter city and municipal corporation duly organized and existing under
the laws of the State of California, and the City has duly and validly adopted the Resolutions at meetings
of the Common Council of the City which were called and held pursuant to law and with all public notice
required by law and at which a quorums were present and acting throughout and the Resolutions have not
been modified or amended and are each in full force and effect.
05039\pc-7
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2. The City has the full legal right, power and authority to issue, sell and deliver the Bonds,
and to execute, deliver and perform its obligations and duties under the Trust Agreement and the Purchase
Agreement, and the City has complied with the provisions of applicable law in all matters relating to the
transactions contemplated by each of the Trust Agreement and the Purchase Agreement.
3. The Trust Agreement and the Purchase Agreement have each been duly authorized,
executed and delivered by the City, are each in full force and effect and, assuming due authorization,
execution and delivery by the other parties thereto with respect to the Trust Agreement and the Purchase
Agreement, and the adoption of the Resolutions each constitutes legal, valid and binding agreements of
the City enforceable against the City in accordance with its terms, subject to laws relating to bankruptcy,
insolvency or other laws affecting the enforcement of creditors' rights generally and to the application of
equitable principles if equitable remedies are sought.
4. No approval, consent or authorization of any governmental or public agency, authority or
person is required for the adoption of the Resolutions; or the execution and delivery by the City of the
Trust Agreement or the Purchase Agreement or the performance by the City of its respective obligations
thereunder which has not been obtained (provided that no opinion is expressed as to any action required
under state securities or blue sky laws in connection with the purchase or distribution of the Bonds by the
Purchaser).
5. The issuance of the Bonds, the execution and delivery of the Trust Agreement and the
Purchase Agreement by the City, the adoption of the Resolutions, and compliance with the provisions
thereof, will not conflict with or constitute a breach of, or default under, any instrument relating to the
organization, existence or operation of the City, or any commitment, agreement or other instrument to
which the City is a party or by which it or its property is bound or affected, or any ruling, regulation,
ordinance, judgment, order or decree to which the City (or any of its officers or directors in their
respective capacities as such) is subject or any provision of the laws of the State of California relating to
the City and its affairs.
6. To the best of our knowledge, there is no action, suit, proceeding, inquiry or investigation
at law or in equity, or before any court, public board or body pending or threatened in any way affecting
the existence of the City or the titles of its officers to their respective offices, or seeking to restrain or to
enjoin any payments to PERS pursuant to the PERS Contract, in any way contesting or affecting the
validity of the Trust Agreement or the Purchase Agreement, the issuance, sale or delivery of the Bonds or
any of the transactions contemplated thereby, or the validity of the proceedings taken by the City in
connection with the authorization, issuance and sale of the Bonds or the execution or delivery of the Trust
Agreement or the Purchase Agreement, wherein any unfavorable decision, ruling or finding would
adversely affect the transactions contemplated thereby, or which, in any way, would adversely affect the
validity or enforceability of the PERS Contract, the Resolutions, the Bonds, the Trust Agreement or the
Purchase Agreement. or in any material respect affect the ability of the City to perform its obligations
under the Trust Agreement or the Purchase Agreement or any other applicable agreement, or any action
on the part of the City contemplated by any of said documents.
Very truly yours,
JAMES F. PENMAN
City Attorney
By:
Douglas H. Calkins
Senior Assistant City Attorney
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EXHIBIT C
FORM OF REPRESENT A nON LETTER
REPRESENT A nON LETTER
TO:
City of San Bernardino
300 North 0 Street
San Bernardino, California 92418
Wells Fargo Bank, National Association
555 Montgomery Street, loth Floor
San Francisco, California 94111
Re: $ City of San Bernardino, California Taxable Pension Obligation Bonds,
2005 Series A
Ladies and Gentlemen:
The City of San Bernardino, California (the "City") has authorized the issuance and the sale by
the City to Lehman Brothers Inc. (the "Purchaser") of the above-referenced City of San Bernardino,
California Taxable Pension Obligation Bonds, 2005 Series A (the "Bonds"), for the purpose of financing
its pension obligations. The Purchaser has agreed to purchase the Bonds in the principal amount of
$ . In connection with the purchase of the Bonds, the City requires that the Purchaser make
certain representations, warranties and agreements relating to such purchase as to the Purchaser's
willingness to accept the risks of investing in the Bonds, the Purchaser's investigation of such risks and
other matters.
Accordingly, the Purchaser hereby represents, warrants and agrees as follows:
1. Representations and Warranties. In purchasing Bonds, the Purchaser understands that the
City is relying on the following representations:
(a) The Purchaser is a "qualified institutional buyer" (as defined in Rule 144A as
promulgated by the Securities and Exchange Commission under the Securities Act of 1933) and is
purchasing the Bonds for its own account;
(b) The Purchaser has sufficient knowledge and experience in financial and business
matters, including the purchase and ownership of municipal obligations of a nature similar to the Bonds to
be able to evaluate the risks and merits of the investment represented by the purchase of Bonds;
(c) The Purchaser acknowledges that the Bonds bear restrictions as to transfer or
exchange, as in the Trust Agreement dated as of October I, 2005, between the City and Wells Fargo
Bank, National Association, as trustee (the "Trustee") and that no offering document, prospectus or
official statement has been prepared by or on behalf of the City in connection with the sale of the Bonds;
05039\pc.7
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(d) As a sophisticated investor, the Purchaser has made his own credit inquiry and
analysis with respect to the City and the Bonds and has made an independent credit decision based upon
such inquiry and analysis. The City has furnished to the Purchaser all the information which the
Purchaser, as a reasonable investor, has requested of the City as a result of the Purchaser having attached
significance thereto in making its investment decision with respect to the Bonds, and the Purchaser has
had the opportunity to ask questions of and receive answers from knowledgeable City officials and other
individuals concerning the City and the Bonds. The Purchaser represents that it has received all
information it considers material to making its investment decisions with respect to the Bonds and has
made such decisions upon its own credit inquiry and analyses. The Purchaser is able and willing to bear
the economic risk of the purchase and ownership of the Bonds;
(e) The Purchaser understands that the Bonds have not been registered with any
federal or state securities agency or commission;
(f) The Purchaser agrees that any subsequent sale of the Bonds shall only be made to
other "qualified institutional buyers" in Authorized Denominations (as defined in the Trust Agreement);
(g) The Purchaser represents that its purchase of the Bonds and its subsequent sale, if
any, are exempt from SEC Rule 15c2-12; and
(h) The Purchaser acknowledges and agrees that the City has not offered and has no
obligation or responsibility to provide any disclosure or other information relating to the Bonds or the
City after issuance of the Bonds, whether in connection with any sale of the Bonds by the Purchaser or
otherwise.
2. Acknowledgments. In connection with its purchase of Bonds, the Purchaser understands
and acknowledges the following to the City and the Trustee:
(a) The Purchaser has had access to audited financial statements of the City and has
had the opportunity to ask questions and receive answers from knowledgeable City officials and other
individuals concerning the City, the condition of the City's finances and properties, and the Bonds so that,
as a sophisticated investor, the Purchaser has been able to make its decision to purchase Bonds and that
no offering document, prospectus or official statement was prepared by or on behalf of the City in
connection with the sale of the Bonds.
(b) The Purchaser acknowledges that neither Orrick, Herrington & Sutcliffe LLP, the
City's bond counsel, nor the Trustee, has made any representation regarding the quality, creditworthiness
or liquidity of the Bonds.
(c) The Bonds (i) are not being registered under the Securities Act of 1933, as
amended, and are not being registered or otherwise qualified for sale under the "Blue Sky" laws
regulations of any state, (ii) will not be listed on any stock or other securities exchange, (iii) will not carry
a rating from any rating service, (iv) contain substantial restrictions on transferability, and (v) may not be
readily marketable.
Dated:
,2005
LEHMAN BROTHERS INC.,
as Purchaser
By:
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C-2
TRUST AGREEMENT
between the
CITY OF SAN BERNARDINO
and
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Trustee
Dated as of October 1, 2005
City of San Bernardino
Taxable Pension Obligation Bonds
DOCSSF1801656.6
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS; EQUAL SECURITY ............................................................2
SECTION 1.0 1. Definitions...................................................................................... 2
SECTION 1.02. Trust Agreement Constitutes Contract......................................... 16
ARTICLE II ISSUANCE OF 2005 SERIES A BONDS; GENERAL BOND
PROVISIONS ................................................................................................ ] 7
SECTION 2.01. Authorization and Purpose of2005 Series A Bonds ................... ] 7
SECTION 2.02. Terms of the 2005 Series A Bonds; Genera] Bond
Provisions. .......... ..... .................. ... ..... ....... ....... .... ... ....... ... ............ ] 7
SECTION 2.03.
SECTION 2.04.
SECTION 2.05.
SECTION 2.06.
SECTION 2.07.
SECTION 2.08.
SECTION 2.09.
SECTION 2.]0.
SECTION 2.] ].
Redemption of2005 Series A Bonds........................................... 21
Form of Bonds ............................................................................. 23
Execution of Bonds...................................................................... 23
Transfer and Payment of Bonds; Transfer Restrictions ............... 24
Exchange of Bonds ...................................................................... 25
Bond Registration Books .............................................................25
Mutilated, Destroyed, Stolen or Lost Bonds................................ 25
Temporary Bonds.... ..................... ....... ................... ................. ..... 26
Procedure for the Issuance of 2005 Series A Bonds;
App]ication of Bond Proceeds ..................................................... 26
Validity of Bonds .........................................................................27
Special Covenants as to Book-Entry Only System for 2005
Series A Bonds............................................................................. 27
ARTICLE III ISSUANCE OF ADDITIONAL BONDS ..................................................... 29
SECTION 2.]2.
SECTION 2.]3.
SECTION 3.01. Conditions for the Issuance of Additiona] Bonds ........................ 29
SECTION 3.02. Procedure for the Issuance of Additional Bonds ......................... 30
ARTICLE IV FUNDS AND ACCOUNTS .......................................................................... 31
SECTION 4.01. Bond Fund; Deposits to Bond Fund............................................. 3]
SECTION 4.02. Allocation of Moneys in Bond Fund ...........................................31
SECTION 4.03. Deposit and Investments of Money in Accounts and Funds ....... 33
SECTION 4.04. Estab]ishment of Deposit Fund and Transfers Therefrom........... 33
SECTION 4.05. Establishment of Pension Funding Stabilization Fund ................ 34
ARTICLE V COVENANTS OF THE LOCAL AGENCy................................................ 34
DOCSSF1801656.6
-1-
TABLE OF CONTENTS
( continued)
Page
SECTION 5.01. Punctual Payment and Performance ............................................34
SECTION 5.02. Extension of Payment of Bonds................................................... 34
SECTION 5.03. Additional Debt............................................................................ 34
SECTION 5.04. Power to Issue Bonds................................................................... 34
SECTION 5.05. Accounting Records and Reports................................................. 34
SECTION 5.06. Prosecution and Defense of Suits ................................................ 35
SECTION 5.07. Further Assurances....................................................................... 35
SECTION 5.08. Waiver of Laws............................................................................ 35
ARTICLE VI THE TRUSTEE ............................................................................................. 35
SECTION 6.01. The Trustee .................................................................................. 35
SECTION 6.02. Liability of Trustee ...................................................................... 36
SECTION 6.03. Compensation and Indemnification of Trustee............................ 38
ARTICLE VII AMENDMENT OF THE TRUST AGREEMENT ....................................... 39
SECTION 7.01. Amendment of the Trust Agreement ........................................... 39
SECTION 7.02. Disqualified Bonds....................................................................... 40
SECTION 7.03. Endorsement or Replacement of Bonds After Amendment ........ 40
SECTION 7.04. Amendment by Mutual Consent .................................................. 40
SECTION 7.05. Attorney's Opinion Regarding Supplemental Agreements ......... 40
ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES OF HOLDERS....................... 40
SECTION 8.01. Events of Default ......................................................................... 40
SECTION 8.02. Institution of Legal Proceedings by Trustee ................................ 41
SECTION 8.03. Non-Waiver..................................................................................41
SECTION 8.04. Actions by Trustee as Attorney-in-Fact....................................... 42
SECTION 8.05. Remedies Not Exclusive .............................................................. 42
SECTION 8.06. Limitation on Bondholders' Right to Sue.................................... 42
SECTION 8.07. Absolute Obligation of Local Agency......................................... 43
ARTICLE IX DEFEASANCE.............................................................................................. 43
SECTION 9.01. Discharge of Bonds...................................................................... 43
SECTION 9.02. Unclaimed Money........................................................................ 44
ARTICLE X MISCELLANEOUS ......................................................................................44
DOCSSF 180 1656.6
-11-
T ABLE OF CONTENTS
( continued)
Page
Benefits of the Trust Agreement Limited to Parties .................... 44
Successor Is Deemed Included in All References to
Predecessor ............. .... ... ....... ....... .... ... ........ ... ... .... .... .............. .....44
SECTION 10.03. Execution of Documents by Holders ........................................... 44
SECTION 10.04. Waiver of Personal Liability ........................................................45
SECTION 10.05. Acquisition of Bonds by Local Agency....................................... 45
SECTION 10.06. Destruction of Cancelled Bonds .................................................. 45
SECTION 10.07. Content of Certificates ................................................................. 45
SECTION 10.08. Publication for Successive Weeks ............................................... 45
SECTION 10.09. Accounts and Funds; Business Days ...........................................46
SECTION 10.10. Notices .........................................................................................46
SECTION 10.01.
SECTION 10.02.
SECTION 10.11. Article and Section Headings and References ............................. 46
SECTION 10.12. Partial Invalidity...........................................................................46
SECTION 10.13. Execution in Several Counterparts...............................................47
SECTION 10.14. Governing Law ............................................................................47
SECTION 10.15. CUSIP Numbers...........................................................................47
EXHIBIT A [FORM OF STANDARD BOND] ..............................................................A-I
EXHIBIT B [FORM OF CAPITAL APPRECIATION BOND] ..................................... B-1
EXHIBIT C [FORM OF LISTED SECURITY] .............................................................. C-l
EXHIBIT D [FORM OF AUCTION RATE SECURITY] ..............................................D-I
EXHIBIT E [FORM OF INDEX BOND]........................................................................ E-l
EXHIBIT F ACCRETED VALUE TABLE .....................................................................F-I
EXHIBIT G PROVISIONS RELATING TO AUCTION RATE SECURITIES ............G-l
EXHIBIT H FORM OF NOTICE OF PERCENTAGE CHANGE..................................H-l
SCHEDULE I PRICING TERMS .................................................................................. SCH-I
DOCSSF 180 1656.6
-lll-
THIS TRUST AGREEMENT made and entered into as of October 1,2005 (the
"Trust Agreement") by and between WELLS FARGO BANK, NATIONAL ASSOCIATION, a
national banking association duly organized and existing under and by virtue of the laws of the
United States of America, as Trustee (the "Trustee") and the CITY OF SAN BERNARDINO
(the "Local Agency"), a duly organized, validly existing and operating local agency (as defined
in Section 53570 of the California Government Code), under the laws of the State of California.
WIT N E SSE T H:
WHEREAS, the Local Agency is obligated by the Public Employees' Retirement
Law, commencing with Section 20000 of the Government Code of the State of California, as
amended (the "Retirement Law"), to make payments to the California Public Employees'
Retirement System (the "System") relating to pension benefits accruing to the System's
members; and
WHEREAS, the Local Agency has entered into a contract with the System dated
March I, 1945, as heretofore and hereafter amended from time to time (the "PERS Contract"),
evidencing the Local Agency's obligation to pay the Local Agency's unfunded accrued actuarial
liability; and
WHEREAS, the Local Agency is authorized pursuant to Articles I 0 and II
(commencing with Section 53570) of Chapter 3 of Division 2 of Title 5 of the Government Code
of the State of California (the "Act") to issue bonds for the purpose of refunding any evidence of
indebtedness of the Local Agency; and
WHEREAS, for the purpose of refunding the Local Agency's obligations to the
System evidenced by the PERS Contract, the Local Agency has determined to issue its City of
San Bernardino Taxable Pension Obligation Bonds, 2005 Series A-I (Standard Bonds), in the
aggregate principal amount of$ and 2005 Series A-2 (Capital Appreciation Bonds),
in the aggregate principal amount of $ (collectively, the "2005 Series A Bonds" and,
collectively with Additional Bonds, the "Bonds"), all pursuant to and secured by this Trust
Agreement providing for the issuance of Bonds, all in the manner provided herein; and
WHEREAS, in order to provide for the authentication and delivery of the Bonds,
to establish and declare the terms and conditions upon which the Bonds are to be issued and to
secure the payment of the principal thereof and interest thereon, the Local Agency has authorized
the execution and delivery of this Trust Agreement; and
WHEREAS, all acts and proceedings required by law necessary to make the
Bonds, when executed by the Local Agency, authenticated and delivered by the Trustee and duly
issued, the valid, binding and legal obligations of the Local Agency payable in accordance with
their terms, and to constitute this Trust Agreement a valid and binding agreement of the parties
hereto for the uses and purposes herein set forth in accordance with its terms, have been done
and taken, and the execution and delivery of this Trust Agreement have been in all respects duly
authorized;
DOCSSFI80J656.6
NOW, THEREFORE, THIS TRUST AGREEMENT WITNESSETH, that in
order to secure the payment of the principal of, premium, if any, and the interest on all Bonds at
any time issued and outstanding under this Trust Agreement, according to their tenor, and to
secure the performance and observance of all the covenants and conditions therein and herein set
forth, and to declare the terms and conditions upon and subject to which the Bonds are to be
issued and received, and in consideration of the premises and of the mutua] covenants herein
contained and of the purchase and acceptance of the Bonds by the holders thereof, and for other
valuable consideration, the receipt whereof is hereby acknowledged, the Loca] Agency does
hereby covenant and agree with the Trustee, for the benefit of the respective holders from time to
time of the Bonds, as follows:
ARTICLE I
DEFINITIONS; EQUAL SECURITY
SECTION 1.01. Definitions. Unless the context otherwise requires, the terms
defined in this section shall for all purposes hereof and of any Supplemental Trust Agreement
and of any certificate, opinion, request or other document herein or therein mentioned have the
meanings herein specified:
"AA" Financia] Commercia] Paper Rate
The term '" AN Financial Commercial Paper Rate," on any date of determination
for any Auction Rate Period, means:
(i) (A) for any Standard Auction Rate Period of 35 days or any
Special Auction Rate Period offewer than 49 days, the interest equivalent of the 30-day
rate, and (B) for any Special Auction Rate Period of: (1) 49 or more but fewer than 70
days, the interest equivalent of the 60-day rate; (2) 70 or more but fewer than 85 days, the
arithmetic average of the interest equivalent of the 60-day and 90-day rates; (3) 85 or
more but fewer than 99 days, the interest equivalent of the 90-day rate; (4) 99 or more but
fewer than 120 days, the arithmetic average of the interest equivalent of the 90-day and
the l20-day rates; (5) 120 or more but fewer than ]4] days, the interest equivalent of the
] 20-day rate; (6) 141 or more but fewer than 162 days, the arithmetic average of the
interest equivalent of the 120-day and 180-day rates; and (7) 162 or more but fewer than
183 days, the interest equivalent of the 180-day rate, in each case on commercia] paper
placed on behalf of entities whose corporate bonds are rated "Aa" by Moody's or "AN'
by S&P or Fitch, or the equivalent of such rating by Moody's, S&P or Fitch or another
rating agency, as made available on a discount basis or otherwise by the Federal Reserve
Bank of New York for the Business Day immediately preceding such date of
determination; or
(ii) if the Federal Reserve Bank of New York does not make available
any such rate, then the arithmetic average of such rates, as quoted on a discount basis or
otherwise, by the Commercial Paper Dealers to the Auction Agent for the close of
business on the Business Day immediately preceding such date of determination;
DOCSSF 1 :80 1656.6
2
provided. that if any Commercial Paper Dealer does not quote a commercial paper rate required
in order to make the foregoing determinations, the "AA" Financial Commercial Paper Rate shall
be determined on the basis of such quotations as may be furnished by a substitute Commercial
Paper Dealer or Dealers selected by the Local Agency. For the purpose of this definition, the
"interest equivalent" means the equivalent yield of an interest-bearing security on a 360-day
basis or a rate stated on a discount basis (a "discount rate") for commercial paper of a given
number of days maturity shall be equal to the product of (A) 100, times (B) the quotient (rounded
upwards to the next higher one-thousandth (0.001) of 1 % of ((x) the discount rate (expressed in
decimals) divided by (y) the difference between (1) 1.0 and (2) a fraction, the numerator of
which shall be the product of the discount rate (expressed in decimals) times the number of days
in which such commercial paper matures, and the denominator of which shall be 360).
Accreted Value
The "Accreted Value" means, with respect to any Capital Appreciation Bond, an
amount equal to the principal amount of such Bond, plus interest accrued thereon from its date
compounded on each Interest Payment Date (through and including the maturity date of such
Bond) at the "original issue yield" for such Bond; provided, that the Accreted Value on any date
other than an Interest Payment Date shall be calculated by straight line interpolation of the
Accreted Values as of the immediately preceding and succeeding Interest Payment Date. The
term "original issue yield" means, with respect to any particular Bond, the yield to maturity of
such Bond from the initial date of delivery thereof calculated on the basis of semiannual
compounding on each Interest Payment Date.
Act
The term "Act" means Articles 10 and II (commencing with Section 53570) of
Chapter 3 of Division 2 of Title 5 of the Government Code of the State of California.
Additional Bonds
The term "Additional Bonds" means all Bonds of the Local Agency authorized by
and at any time Outstanding pursuant hereto and executed, issued and delivered in accordance
with Article III.
Aggregate Principal Amount
The term "Aggregate Principal Amount" means, as of any date of calculation, the
principal amount or Accreted Value of the Bonds referred to.
Auction Rate Securities
The term "Auction Rate Securities" means all Bonds issued in such Mode prior to
their Fixed Rate Conversion Date, if any, in anyone or more Tranches.
DOCSSF I :80 1656.6
3
Authorized Denominations
The term "Authorized Denominations" means (a) as to Bonds issued as Standard
Bonds, $100,000 principal amount or any multiple of $5,000 in excess thereof; (b) as to Bonds
issued as Listed Securities, $25.00 principal amount or any integral multiple thereof; (c) as to
Bonds issued as Auction Rate Securities, $25,000 principal amount or any integral multiple
thereof; (d) as to Capital Appreciation Bonds, $300,000 Maturity Amount or any integral
multiple of$5,000 in excess thereof; (e) as to Bonds issued as Index Bonds, $5,000 principal
amount or any integral multiple thereof; and (f) any other principal amount or integral multiple
thereof as provided in a Supplemental Trust Agreement.
Authorized Representatives
The term "Authorized Representatives" means the Mayor, City Administrator,
Treasurer and City Clerk of the City of San Bernardino.
Beneficial Owner
The term "Beneficial Owner" means, (a) as to Auction Rate Securities, a customer
ofa Broker-Dealer (other than the Local Agency) who is listed on the records of that Broker-
Dealer (or, if applicable, the Auction Agent) as a holder of Auction Rate Securities; and (b) as to
all Bonds that are not issued in the form of Auction Rate Securities, the beneficial owner of each
such Bond, determined under the rules of DTC.
Bond Fund
The term "Bond Fund" means the Bond Fund established in Section 4.01(b) of
this Trust Agreement.
Bonds
The term "Bonds" means the 2005 Series A Bonds and all Additional Bonds.
Business Day
The term "Business Day" means any day other than a Saturday or Sunday or day
upon which the Trustee is authorized by law to remain closed.
Calculation Agent
The term "Calculation Agent" means the Calculation Agent for Index Bonds,
designated in a Supplemental Trust Agreement or in Schedule I hereto, or its successor appointed
by the Local Agency.
Capital Appreciation Bonds
The term "Capital Appreciation Bonds" means Bonds the interest on which is
payable at maturity and compounded on each Interest Payment Date through and including the
DOCSSF 180 1656.6
4
maturity dates thereof as specified in the Accreted Value Table for such Bonds attached hereto as
Exhibit F or in a similar exhibit to a Supplemental Trust Agreement.
Certificate of the Local Agency
The term "Certificate of the Local Agency" means an instrument in writing signed
by anyone of the Authorized Representatives of the Local Agency or such officer's designee, or
by any other officer of the Local Agency duly authorized by the Common Council of the Local
Agency in writing to the Trustee for that purpose. If and to the extent required by the provisions
of Section 10.07, each Certificate of the Local Agency shall include the statements provided for
in Section 10.07.
Closing Date for the 2005 Series A Bonds
The term "Closing Date" means the date on which the 2005 Series A Bonds are
delivered to the Original Purchaser for the 2005 Series A Bonds.
Commercial Paper Dealers
The term "Commercial Paper Dealers" means those entities designated in a
Supplemental Trust Agreement or in Schedule I hereto or in lieu of any thereof, its affiliates or
successors, if such entity is a commercial paper dealer; provided that in the event that any
Commercial Paper Dealer should fail to qualify as a commercial paper dealer, the Local Agency
may appoint another organization to serve as a Commercial Paper Dealer hereunder.
Corporate Trust Office
The term "Corporate Trust Office" means such corporate trust office of the
Trustee as may be designated from time to time by written notice from the Trustee to the Local
Agency, initially being Los Angeles, California. The Trustee may designate in writing to the
Local Agency and the Holder such other office or agency from time to time for purposes of
registration, transfer, exchange, payment or redemption of Bonds.
Costs of Issuance
The term "Costs of Issuance" means all items of expense directly or indirectly
payable by or reimbursable to the Local Agency and related to the Bonds, including, but not
limited to, costs of preparation and reproduction of documents, costs of rating agencies and costs
to provide information required by rating agencies, filing and recording fees, initial fees and
charges of the Trustee, legal fees and charges, fees and disbursements of consultants and
professionals, fees and expenses of the underwriter or placement agent, fees and charges for
preparation, execution and safekeeping of the Bonds, premiums for bond insurance, if any, and
any other cost, charge or fee in connection with the original execution and delivery of the Bonds.
Costs of Issuance Fund
The term "Costs of Issuance Fund" means the Costs of Issuance Fund established
in Section 2.lI(b) of this Trust Agreement.
DOCSSF1:80 1656.6
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Defeasance Securities
The term "Defeasance Securities" means:
(I) Cash (insured at all times by the Federal Deposit Insurance Corporation);
and
(2) Obligations of or obligations guaranteed as to principal and interest by, the
United States or any agency or instrumentality thereof, when such obligations are backed by the
full faith and credit of the United States, including:
. U.S. Treasury obligations
· All direct or fully guaranteed obligations
· Farmers Home Administration
· General Services Administration
· Guaranteed Title XI financing
· Government National Mortgage Association (GNMA)
· State and Local Government Series
Any security used for defeasance must provide for the timely payment of
principal and interest and cannot be callable or prepayable prior to maturity or earlier redemption
of the rated debt (excluding securities that do not have a fixed par value and/or whose terms do
not promise a fixed dollar amount at maturity or call date).
Depository
The term "Depository" means The Depository Trust Company or a successor
appointed by the Local Agency.
Financial Newspaper
The term "Financial Newspaper" means The Wall Street Journal or The Bond
Buyer, or any other newspaper or journal printed in the English language, publishing financial
news and selected by the Trustee, who shall be under no liability by reason of such selection.
Fiscal Year
The term "Fiscal Year" means the twelve-month period terminating on June 30 of
each year, or any other annual accounting period hereafter selected and designated by the Local
Agency as its Fiscal Year in accordance with applicable law.
Fixed Rate
The term "Fixed Rate" means a rate of interest that does not change during a
specific term, without adjustment, resetting or variation due to the effects of marketing,
remarketing or indices.
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Fixed Rate Bonds
The term "Fixed Rate Bonds" means those Bonds which, by their terms, have
been issued in denominations of $1 00,000 principal amount or any integral multiple thereof, bear
interest at regular fixed rates, payable semiannually (except that the first interest period with
respect thereto may be less than six months but not more than twelve months following their
Closing Date), and shall include Standard Bonds and those Bonds issued as Listed Securities.
Holder
The term "Holder" means any person who shall be the registered owner of any
Outstanding Bond.
Independent Certified Public Accountant
The term "Independent Certified Public Accountant" means any certified public
accountant or firm of such accountants duly licensed and entitled to practice and practicing as
such under the laws of the State or a comparable successor, appointed and paid by the Local
Agency, and who, or each of whom --
(1) is in fact independent according to the Statement of Auditing
Standards No.1 and not under the domination of the Local Agency;
(2) does not have a substantial financial interest, direct or indirect, in the
operations of the Local Agency; and
(3) is not connected with the Local Agency as a member, officer or
employee of the Local Agency, but who may be regularly retained to audit the
accounting records of and make reports thereon to the Local Agency.
Index Adiustment Date
The term "Index Adjustment Date" means each Thursday (whether or not such
day is a Business Day), commencing on the Closing Date; however, if the Closing Date is a
Thursday, then the first Index Adjustment Date shall mean the first Thursday following the
Closing Date.
Index Bonds
The term "Index Bonds" means those Bonds which have been issued in
denominations of $5,000 principal amount or integral multiples thereof and bear interest at an
Index Rate.
Index Rate
The term "Index Rate" means the interest rate on Index Bonds established
according to LIB OR, as provided in Section 2.02(e) below.
DOCSSF1801656.6
7
Index Rate Determination Date
The term "Index Rate Determination Date" means the first Business Day of the
applicable Index Rate Period.
Index Rate Period
The term "Index Rate Period" means, with respect to the Index Bonds, each
period commencing on an Index Adjustment Date and ending on the day before the next Index
Adjustment Date.
Interest Account
The term "Interest Account" means the account by that name established in
Section 4.02 of this Trust Agreement.
Interest Accrual Date
The term "Interest Accrual Date" means each date established for the accrual and
compounding of interest on Capital Appreciation Bonds, initially as set forth in Schedule I hereto
and as may be modified as set forth in a Supplemental Trust Agreement.
Interest Payment Date
The term "Interest Payment Date" means each date upon which interest is due on
the Bonds (or, with respect to Capital Appreciation Bonds, compounded), as initially set forth in
Schedule I hereto or as set forth in any Supplemental Trust Agreement.
Interest Rate Period
The term "Interest Rate Period" means any designated period during which a
Series of Bonds are Outstanding in the form of Auction Rate Securities or bear interest at the
Index Rate.
LIBOR
The term "LIBOR" on any date of determination for any Auction Rate Period,
means:
(i) subject to clause (ii) below, (A) for any Standard Auction Rate
Period or any Special Auction Rate period of fewer than 49 days, the offered rate for
deposits in U.S. dollars for a one-month period which appears on Telerate Page 3750 at
approximately 11 :00 a.m., London time, on such date, or if such date is not a London
Business Day, then on the next preceding London Business day (the "calculation date")
and (b) for any Special Auction Rate period of (i) 49 or more but fewer than 70 days,
such rates for deposits in U.S. dollars for a two-month period; (ii) 70 or more but fewer
than 85 days, the arithmetic average of such rates for deposits in U.S. dollars for two-and
three-month periods; (iii) 85 or more but fewer than 120 days, such rate for deposits in
DOCSSF 180 1656.6
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U.S. dollars for a three-month period; (iv) 120 or more but fewer than 148 days, the
arithmetic average of such rates for deposits in U.S. dollars for three-and six-month
periods; (v) 148 or more but fewer than 180 days, such rate for deposits in U.S. dollars
for a six-month period; (vi) 180 or more but fewer than 225 days, the arithmetic average
of such rates for deposits in U.S. dollars for six- and nine-month periods; (vii) 225 or
more but fewer than 290 days, such rate for deposits in U.S. dollars for a nine-month
period; (viii) 290 or more but fewer than 325 days, the arithmetic average of such rates
for deposits in U.S. dollars for nine-month and one-year periods; and (ix) 325 days or
more, such rate for deposits in U.S. dollars for a one-year period; or
(ii) if, on any calculation date, no rate appears on Telerate Page 3750
as specified in clause (i) above, the arithmetic average of the offered quotations offour
major banks in the London interbank market, selected by the Market Agent for deposits
in U.S. dollars for the respective periods specified in clause (i) above to prime banks in
the London interbank market at approximately II :00 a.m., London time, on such
calculation date and in a principal amount of not less than $1,000,000 that is
representative of a single transaction in such market at such time, unless fewer than two
such quotations are provided, in which case, the arithmetic average of the rates quoted at
approximately II :00 a.m., New York time, on the date next preceding such calculation
date by three major banks in the City of New York, selected by the Market Agent, for
loans in U.S. dollars to leading European banks in a principal amount of not less than
$1,000,000 that is representative of a single transaction in such market at such time.
LIBOR Spread
The term "LIBOR Spread" means the percentage of LIB OR established on the
Closing Date for the affected Bonds, as provided in a Supplemental Trust Agreement or in
Schedule I hereto.
Listed Securities
The term "Listed Securities" means those Bonds which, by their terms, bear
interest at regular fixed rates of interest, issued in denominations of $25.00 principal amount and
integral multiples thereof, which are listed on the New York Stock Exchange.
Local Agency
The term "Local Agency" means the City of San Bernardino, California.
London Business Day
The term "London Business Day" means a day that is a Business Day and a day
on which dealings in deposits in U.S. dollars are transacted, or with respect to any future date,
are expected to be transacted, in the London, U.K., interbank market.
DOCSSFl :80 1656.6
9
Maturity Amount
The term "Maturity Amount" means the Accreted Value of any Capital
Appreciation Bond on its maturity date.
Mode
The term "Mode" means the Principal Amount, Authorized Denomination,
interest rate and payment structure, including any methodology for the reset thereof, for any
Series of Bonds. This Trust Agreement authorizes the issuance of Bonds in the following
Modes: Fixed Rate Bonds, Listed Securities, Auction Rate Securities, Capital Appreciation
Bonds, Index Bonds and any other Mode as set forth in a Supplemental Trust Agreement.
Opinion of Counsel
The term "Opinion of Counsel" means a written opinion of counsel of recognized
national standing in the field of law relating to municipal bonds, appointed and paid by the Local
Agency.
Original Purchaser of the 2005 Series A Bonds
The term "Original Purchaser of the 2005 Series A Bonds" means Lehman
Brothers Inc..
Outstanding
The term "Outstanding," when used as of any particular time with reference to
Bonds, means (subject to the provisions of Section 7.02) all Bonds except
(1) Bonds theretofore cancelled by the Trustee or surrendered to the
Trustee for cancellation;
(2) Bonds paid or deemed to have been paid within the meaning of
Section 9.01; and
(3) Bonds in lieu of or in substitution for which other Bonds shall have
been executed, issued and delivered by the Local Agency pursuant hereto.
Permitted Investments
The term "Permitted Investments" means any of the following to the extent
permitted by the laws of the State:
(1) Defeasance Securities;
(2) Obligations of any of the following federal agencies which
obligations represent the full faith and credit of the United States of America, including:
.
Export-Import Bank
DOCSSF 180 1656.6
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· Rural Economic Community Development Administration
· U.S. Maritime Administration
· Small Business Administration
· U.S. Department of Housing & Urban Development (PHA's)
· Federal Housing Administration
· Federal Financing Bank;
(3) Direct obligations of any of the following federal agencies which
obligations are not fully guaranteed by the full faith and credit of the United States of America:
· Senior debt obligations issued by the Federal National Mortgage
Association (FNMA) or the Federal Home Loan Mortgage
Corporation (FHLMC)
· Obligations of the Resolution Funding Corporation (REFCORP)
· Senior debt obligations of the Federal Home Loan Bank System
· Senior debt obligations of other Government Sponsored Agencies;
(4) U.S. dollar denominated deposit accounts, federal funds and
bankers' acceptances with domestic commercial banks (including the Trustee and its affiliates)
which have a rating on their short-term certificates of deposit on the date of purchase of "P-l" by
Moody's Investors Service, Inc. and "A-I" or "A-1+" by Standard & Poor's Ratings Services
and which mature not more than three hundred sixty (360) calendar days after the date of
purchase. (Ratings on holding companies are not considered as the rating of the bank):
(5) Commercial paper which is rated at the time of purchase in the
single highest classification, "P-l" by Moody's Investors Service, Inc. and "A-l +" by Standard
& Poor's Ratings Services and which matures not more than two hundred seventy (270) calendar
days after the date of purchase;
(6) Investments in a money market fund rated "AAAm" or "AAAm-
G" or better by Standard & Poor's Ratings Services, including funds for which the Trustee or its
affiliates provide investment advisory or other management services;
(7) Pre-refunded municipal obligations defined as follows: Any bonds
or other obligations of any state of the United States of America or of any agency,
instrumentality or local governmental unit of any such state which are not callable at the option
of the obligor prior to maturity or as to which irrevocable instructions have been given by the
obligor to call on the date specified in the notice; and
(A) which are rated, based on an irrevocable escrow account or fund (the
"escrow"), in the highest rating category of Moody's Investors Service, Inc. and
Standard & Poor's Ratings Services or any successors thereto; or
DOCSSFI80 1656.6
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(B) which are fully secured as to interest and principal and redemption
premiums, if any, by an escrow consisting only of cash or obligations described in
paragraph (2) of the definition of Defeasance Securities, which escrow may be
applied only to the payment of such interest and principal and redemption
premiums, if any, on such bonds or other obligations on the maturity date or dates
thereof or the specified redemption date or dates pursuant to such irrevocable
instructions, as appropriate, and (ii) which escrow is sufficient, as verified by a
nationally recognized independent certified public accountant, to pay principal of
and interest and redemption premiums, if any, on the bonds or other obligations
described in this paragraph on the maturity date or dates specified in the
irrevocable instructions referred to above, as appropriate;
(8) Municipal obligations rated "AaalAAA" or general obligations of
States with a rating of "A2/A" or higher by both Moody's Investors Service, Inc. and Standard &
Poor's Ratings Services;
(9) Repurchase agreements with any financial institution which is
rated by Moody's Investors Service, Inc. and Standard & Poor's Ratings Services in a rating
category at least equal to "A" (or equivalent), or repurchase agreements fully secured by
collateral security described in clauses (1) or (2) of this definition continuously having a market
value at least equal to the amount so invested so long as such underlying obligations or securities
are in the possession of the Trustee or the Securities Investors Protection Corporation;
(10) Collateralized investment agreements or other collateralized
contractual arrangements with corporations, financial institutions or national associations within
the United States fully secured by collateral security described in clause (1), (2) or (3) of this
definition; or investment agreements or other contractual arrangements with corporations,
financial institutions or national associations within the United States, provided that the senior
long-term debt of such corporations, institutions or associations is rated by Moody's Investors
Services, Inc. and Standard & Poor's Ratings Services in a rating category at least equal to the
higher of "A" (or equivalent);
(11) The Local Agency Investment Fund (as that term is defined in
Section 16429.1 of the Government Code of the State, as such Section may be amended or
recodified from to time); and
(12) Other forms of investments authorized by California Government
Code Section 53601 et. seq. and approved in writing by the Local Agency.
The value of the above investments shall be determined as follows:
(b) For the purpose of determining the amount in any fund, all Permitted
Investments credited to such fund shall be valued at fair market value. The Trustee shall
determine the fair market value based on accepted industry standards and from accepted industry
providers. Accepted industry providers shall include but are not limited to pricing services
provided by Financial Times Interactive Data Corporation, Merrill Lynch, Salomon Smith
Barney, Bear Stearns, or Lehman Brothers;
DOCSSF 180 1656.6
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(c) As to certificates of deposit and bankers' acceptances, the face amount
thereof, plus accrued interest thereon; and
(d) As to any investment not specified above, the value thereof established by
prior agreement among the Local Agency, the Trustee and the 2005 Series A Bond Insurer.
Principal Account
The term "Principal Account" means the account by that name established in
Section 4.02 of this Trust Agreement.
PERS Contract
The term "PERS Contract" means the contract dated March 1, 1945, between the
Local Agency and the System, as heretofore and hereafter amended from time to time.
Principal Amount
The term "Principal Amount" means (a) as to any Fixed Rate Bond, Auction Rate
Security or Index Bond, the principal amount thereof; or (b) as to any Capital Appreciation
Bond, the Maturity Amount thereof.
Principal Payment Date
The term "Principal Payment Date" means a date on which principal is due on the
Bonds as set forth in a Supplemental Trust Agreement or on Schedule I attached hereto.
Qualified Institutional Buyer
The term "Qualified Institutional Buyer" means a "qualified institutional buyer"
as defined in Rule 144A under the Securities Act of 1933, as amended.
Qualified Swap Agreement
The term "Qualified Swap Agreement" or "Swap Agreement" means (i) any
ISDA Master Swap Agreement, by and between the Local Agency and a Qualified Swap
Provider, which includes Schedule A thereto and the applicable Commitment, (a) that is entered
into by the Local Agency with an entity that is a Qualified Swap Provider at the time the
arrangement is entered into; (b) which provides that the Local Agency shall pay to such entity an
amount based on the interest accruing at a Fixed Rate on an amount equal to the principal
amount of Outstanding Bonds covered by such Swap Agreement, if any, and that such entity
shall pay to the Local Agency an amount based on the interest accruing on a principal amount
equal to the then-Outstanding principal amount of the affected Bonds, at a variable rate of
interest computed according to a formula set forth in the Swap Agreement (which need not be
the same formula by which the Auction Rate, if applicable, is calculated) or that one shall pay to
the other any net amount due under such arrangement; and (c) which has been designated in
writing to the Trustee in a Certificate of the Local Agency as a Qualified Swap Agreement with
respect to the affected Bonds.
DOCSSF 180 1656.6
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Qualified Swap Provider
The term "Qualified Swap Provider" means with respect to the counterparty under
any other Swap Agreement meeting the requirements of the definition thereof, a financial
institution approved by the Local Agency, and (A) the long-term, unsecured and unsubordinated
obligations of which are rated at the time of execution of the related Qualified Swap Agreement
at least Al by Moody's or A+ by S&P or (B) the obligations of which under the particular
Qualified Swap Agreement and any Swap Policy related thereto are unconditionally guaranteed
by a bank or non-bank financial institution, the long-term, unsecured and un subordinated
obligations of which are rated at the time of execution of the Qualified Swap Agreement at least
Al by Moody's or A+ by S&P.
Rating Agencies
The term "Rating Agencies" means Moody's Investors Service, Inc. and Standard
& Poor's Corporation, or, in the event that Moody's Investors Service, Inc. or Standard & Poor's
Corporation no longer maintains a rating on the Bonds, any other nationally recognized bond
rating agency then maintaining a rating on the Bonds, but, in each instance, only so long as
Moody's Investors Service, Inc., Standard & Poor's Corporation or other nationally recognized
rating agency then maintains a rating on the Bonds.
Record Date
The term "Record Date" means the date set forth as such in a Supplemental Trust
Agreement or on Schedule I attached hereto.
Refunding Fund
The term "Refunding Fund" means the fund by that name established in
Section 2.11(a) of this Trust Agreement.
Reported Rate
The term "Reported Rate" means the rate that appears on Telerate Page 3750 or a
successor reporter of such rates, selected by the Calculation Agent and acceptable to the Local
Agency.
Retirement Law
The term "Retirement Law" means the Public Employees' Retirement Law,
commencing with Section 20000 of the Government Code of the State of California, as amended.
Serial Bonds
The term "Serial Bonds" means Bonds for which no sinking fund payments are
provided.
Docssr 180 1656.6
14
Series
The term "Series" means all of the Bonds designated as being within a certain
series, regardless of variations in maturity date, interest rate (but within the same Mode),
redemption and other provisions, and any Bonds thereafter issued in transfer or exchange for
such Bonds pursuant to this Trust Agreement.
Standard Bonds
The term "Standard Bonds" means those Fixed Rate Bonds issued in Authorized
Denominations of $1 00,000 and any multiple of $5,000 in excess thereof.
State
The term "State" means the State of California.
Surplus Account
The term "Surplus Account" means the account by that name established in
Section 4.02 of this Trust Agreement.
Supplemental Trust Agreement
The term "Supplemental Trust Agreement" means any trust agreement then in full
force and effect which has been duly executed and delivered by the Local Agency and the
Trustee amendatory hereof or supplemental hereto; but only if and to the extent that such
Supplemental Trust Agreement is specifically authorized hereunder.
Swap Payments
The term "Swap Payments" means any of the periodic payments due from the
Local Agency pursuant to the terms of a Qualified Swap Agreement.
System
The term "System" means the California Public Employees' Retirement System.
Telerate Page 3750
The term 'Telerate Page 3750" means the display designated on page 3750 on
Moneyline Telerate, Inc. (or such other page as may subsequently replace the 3750 page on that
service or such other service as may be nominated by the British Banker's Association for the
purpose of displaying London interbank offered rates for U.S. dollar deposits).
Term Bonds
The term "Term Bonds" means Bonds which are payable on or before their
specified maturity dates from sinking fund payments established for that purpose and calculated
to retire such Bonds on or before their specified maturity dates.
DOCSSF 1:8016566
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Tranche
The term "Tranche" means the designated portion of a Series of Bonds sharing a
particular Mode and other characteristics. Each Tranche of Bonds within a Series of Bonds must
be within the same Mode.
Treasury Note Rate
The term "Treasury Note Rate" means (a) the bond equivalent yield, calculated in
accordance with prevailing industry conventions, of the rate on the most recently auctioned
direct obligation of the United States Government having a remaining maturity closest to the
length of the applicable Auction Rate Period, as quoted in The Wall Street Journal on such date
for the Business Day next preceding such date; or (b) in the event that such rate is not published
in The Wall Street Journal, then the bond equivalent yield, calculated in accordance with
prevailing industry conventions, as calculated by reference to the arithmetic average of the bid
price quotations of the most recently auctioned direct obligation of the United States
Government having a remaining maturity closest to the length of the applicable Auction Rate
Period, based on bid price quotations on such date obtained by the Auction Agent from the U.S.
Government Securities Dealers.
Trust Agreement
The term "Trust Agreement" means this Trust Agreement, dated as of October I,
2005, between the Local Agency and the Trustee, as originally executed and as it may from time
to time be amended or supplemented by all Supplemental Trust Agreements executed pursuant to
the provisions hereof.
Trustee
The term "Trustee" means Wells Fargo Bank, National Association, or any other
association or corporation which may at any time be substituted in its place as provided in
Section 6.01.
Written Request of the Local Agencv
The term "Written Request of the Local Agency" means an instrument in writing
signed by anyone of the Authorized Representatives of the Local Agency or such officer's
designee, or by any other officer of the Local Agency duly authorized by the Common Council
of the Local Agency in writing to the Trustee for that purpose.
2005 Series A Bonds
The term "2005 Series A Bonds" means the Standard Bonds of the Local Agency
of that Series designation authorized by and at any time Outstanding pursuant hereto and
executed, issued and delivered in accordance with Section 2.02(a) hereof.
SECTION 1.02. Trust Agreement Constitutes Contract. In consideration of the
acceptance of the Bonds by the Holders thereof, the Trust Agreement shall be deemed to be and
DOCSSF1801656.6
16
shall constitute a contract among the Local Agency, the Trustee and the Holders from time to
time of all Bonds authorized, executed, issued and delivered hereunder and then Outstanding to
provide for the payment of the interest on and principal of and redemption premiums, if any, on
all Bonds which may from time to time be authorized, executed, issued and delivered hereunder,
subject to the agreements, conditions, covenants and provisions contained herein; and all
agreements and covenants set forth herein to be performed by or on behalf of the Local Agency
shall be for the equal and proportionate benefit, protection and security of all Holders of the
Bonds without distinction, preference or priority as to security or otherwise of any Bonds over
any other Bonds by reason of the number or date thereof or the time of authorization, sale,
execution, issuance or delivery thereof or for any cause whatsoever, except as expressly provided
herein or therein.
ARTICLE II
ISSUANCE OF 2005 SERIES A BONDS; GENERAL BOND PROVISIONS
SECTION 2.01. Authorization and Purpose of2005 Series A Bonds. The Local
Agency has reviewed all proceedings heretofore taken relative to the authorization of the 2005
Series A Bonds and has found, as a result of such review, and hereby finds and determines that
all acts, conditions and things required by law to exist, to have happened and to have been
performed precedent to and in the issuance of the 2005 Series A Bonds do exist, have happened
and have been performed in due time, form and manner as required by law, and that the Local
Agency is now duly authorized, pursuant to each and every requirement of the Act, to issue the
2005 Series A Bonds in the form and manner and for the purpose provided herein and that the
2005 Series A Bonds shall be entitled to the benefit, protection and security of the provisions
hereof.
The obligations of the Local Agency under the Bonds, including the obligation to
make all payments of interest and principal when due, are obligations of the Local Agency
imposed by law and are absolute and unconditional, without any right of set-off or counterclaim.
The Bonds do not constitute an obligation of the Local Agency for which the Local Agency is
obligated to levy or pledge any form of taxation. Neither the Bonds nor the obligation of the
Local Agency to make payments on the Bonds constitute an indebtedness of the Local Agency,
the State of California, or any of its political subdivisions within the meaning of any
constitutional or statutory debt limitation or restriction.
SECTION 2.02. Terms of the 2005 Series A Bonds; General Bond Provisions.
The 2005 Series A Bonds shall be designated "City of San Bernardino Taxable Pension
Obligation Bonds, 2005 Series A" and shall be in the aggregate principal amount of$
consisting of2005 Series A-I (Standard Bonds) in the aggregate principal amount of
$ and 2005 Series A-2 (Capital Appreciation Bonds) in the initial aggregate principal
amount of $
(a) Description of2005 Series A Standard Bonds. The 2005 Series A-I Standard
Bonds shall be dated the date of original delivery, shall be issued only in fully registered form in
denominations of one hundred thousand dollars ($100,000) or any multiple of $5,000 in excess
DOCSSF1801656.6
17
thereof, and shall mature on the dates and in the principal amounts and bear interest at the rates
as set forth in Schedule I hereto.
The 2005 Series A-I Standard Bonds shall bear interest at the rates (based on a
360-day year of twelve 30-day months) set forth in Schedule I hereto, payable on the Interest
Payment Dates for the 2005 Series A- I Standard Bonds. The 2005 Series A-I Standard Bonds
shall bear interest from the Interest Payment Date next preceding the date of authentication
thereof, unless such date of authentication is an Interest Payment Date or during the period from
the sixteenth day of the month preceding an Interest Payment Date to such Interest Payment
Date, in which event they shall bear interest from such Interest Payment Date, or unless such
date of authentication is prior to the first Record Date, in which event they shall bear interest
from their dated date; provided, however, that if at the time of authentication of any 2005
Series A-I Standard Bond interest is then in default on the Outstanding 2005 Series A-I
Standard Bonds, such 2005 Series A- I Standard Bond shall bear interest from the Interest
Payment Date to which interest has previously been paid or made available for payment on the
Outstanding 2005 Series A-I Standard Bonds. Payment of interest on the 2005 Series A-I
Standard Bonds due on or before the maturity or prior redemption thereof shall be made to the
person whose name appears in the 2005 Series A-I Bonds registration books kept by the Trustee
pursuant to Section 2.08 as the registered owner thereof as of the close of business on the Record
Date for an Interest Payment Date, whether or not such day is a Business Day, such interest to be
paid by check mailed on the Interest Payment Date by first-class mail to such registered owner at
the address as it appears in such books; provided that upon the written request of a Holder of
$1,000,000 or more in aggregate principal amount of Bonds received by the Trustee prior to the
applicable Record Date, interest shall be paid by wire transfer in immediately available funds.
Any such written request shall remain in effect until rescinded in writing by the Holder.
The principal of the 2005 Series A-I Standard Bonds shall be payable in lawful
money of the United States of America at the Corporate Trust Office of the Trustee. Payment of
the principal of the 2005 Series A- I Standard Bonds shall be made upon the surrender thereof at
maturity or on redemption prior to maturity at the Corporate Trust Office of the Trustee.
(b) Description of Capital Appreciation Bonds. The 2005 Series A-2 Capital
Appreciation Bonds shall be dated the date of original delivery, shall be issued only in fully
registered form in the denominations of three hundred thousand dollars ($300,000) Accreted
Value at maturity, or any integral multiple of $5,000 in excess thereof, and interest thereon shall
be computed at the rates, as set forth in the Schedule I hereto.
The interest on the Capital Appreciation Bonds shall be compounded (on the basis
of a 360-day year composed of twelve thirty (30)-day months) at the respective rates set forth
above on the Interest Payment Dates for the Capital Appreciation Bonds and shall be payable on
their maturity date or redemption prior thereto as part of the final Accreted Value for a Capital
Appreciation Bond (as set forth in the Accreted Value Table attached to this Trust Agreement).
The Accreted Value for each Capital Appreciation Bond shall be determined by reference to the
Accreted Value Table attached to this Trust Agreement.
(c) Description of Listed Securities. The Local Agency may issue Listed
Securities as Additional Bonds pursuant to the terms and provisions of Article III hereof. The
DOCSSFI80 1656.6
18
Listed Securities shall be dated the date of original delivery, shall be issued only in fully
registered form in denominations of twenty-five dollars ($25.00) or any integral multiple of
twenty-five dollars ($25.00) (not exceeding the principal amount of Bonds maturing at anyone
time), and shall mature on the dates and in the principal amounts and bear interest at the rates as
set forth in the Supplemental Trust Agreement authorizing such Listed Securities.
The Listed Securities shall bear interest at the rates (based on a 360-day year of
twelve 30-day months) set forth in the Supplemental Trust Agreement authorizing such Bonds,
payable on the Interest Payment Dates for the Listed Securities. The Listed Securities shall bear
interest from the Interest Payment Date next preceding the date of authentication thereof, unless
such date of authentication is an Interest Payment Date or during the period from the sixteenth
day of the month preceding an Interest Payment Date to such Interest Payment Date, in which
event they shall bear interest from such Interest Payment Date, or unless such date of
authentication is prior to the first Record Date, in which event they shall bear interest from their
dated date; provided, however, that if at the time of authentication of any Listed Security interest
is then in default on the Outstanding Listed Securities, such Listed Security shall bear interest
from the Interest Payment Date to which interest has previously been paid or made available for
payment on the Outstanding Listed Securities. Payment of interest on the Listed Securities due
on or before the maturity or prior redemption thereof shall be made to the person whose name
appears in the Bonds registration books kept by the Trustee pursuant to Section 2.08 as the
registered owner thereof as of the close of business on the Record Date for an Interest Payment
Date, whether or not such day is a Business Day, such interest to be paid by check mailed on the
Interest Payment Date by first-class mail to such registered owner at the address as it appears in
such books; provided that upon the written request of a Holder of $1 ,000,000 or more in
aggregate principal amount of Bonds received by the Trustee prior to the applicable Record
Date, interest shall be paid by wire transfer in immediately available funds. Any such written
request shall remain in effect until rescinded in writing by the Holder.
The principal of the Listed Securities shall be payable in lawful money of the
United States of America at the Corporate Trust Office of the Trustee. Payment of the principal
of the Listed Securities shall be made upon the surrender thereof at maturity or on redemption
prior to maturity at the Corporate Trust Office of the Trustee.
(d) Description of Auction Rate Securities. The Local Agency may issue Auction
Rate Securities as Additional Bonds pursuant to the terms and provisions of Article III hereof.
The Auction Rate Securities shall be dated the date of original delivery, shall be issued only in
fully registered form in denominations of twenty five thousand dollars ($25,000) or any integral
multiple thereof (not exceeding the principal amount of2005 Series A Bonds maturing at any
one time), and shall mature on the dates and in the principal amounts and bear interest at the
rates as set forth in the Supplemental Trust Agreement authorizing such Auction Rate Securities.
The Auction Rate Securities shall bear interest at the rates, shall be payable on the
dates, and shall be subject to the terms and provisions, as set forth in the Supplemental Trust
Agreement authorizing such Auction Rate Securities.
The principal of the Auction Rate Securities shall be payable in lawful money of
the United States of America at the Corporate Trust Office of the Trustee; provided, however,
DOCSSF 180 1656.6
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that payments of principal of Auction Rate Securities, at maturity or upon earlier redemption,
shall be made by wire transfer of immediately available funds to the Securities Depository so
long as the Auction Rate Securities are in book-entry form, unless such method of payment of
principal shall have been modified by written agreement among the Trustee, the Securities
Depository and the Auction Agent.
(e) Description of Index Bonds. The Local Agency may issue Index Bonds as
Additional Bonds pursuant to the terms and provisions of Article III hereof. The Index Bonds
shall be dated the date of original delivery, shall be issued only in fully registered form in
denominations of five thousand dollars ($5,000) or any integral multiple of five thousand dollars
($5,000) (not exceeding the principal amount of Bonds maturing at anyone time), and shall
mature on the dates and in the principal amounts and bear interest at the rates as set forth in the
Supplemental Trust Agreement authorizing such Bonds.
Unless otherwise set forth in the Supplemental Trust Agreement authorizing such
Bonds, the Index Bonds shall bear interest as follows:
(a) On or immediately prior to the Closing Date, the Purchaser of the Bonds shall
determine and the Local Agency shall approve the LIBOR Spread to apply to Index Bonds
issued hereunder, reflected in the Supplemental Trust Agreement authorizing such Additional
Bonds.
(b) On each Index Rate Determination Date until the end of the applicable Index
Rate Period (each, an "Index Adjustment Date"), the Calculation Agent will (i) calculate the
interest rate for the Index Bonds, based on the LIB OR Spread, and (ii) notify the Trustee of
such interest rate, which shall apply to all Index Bonds until the immediately following Index
Adjustment Date.
(c) Promptly upon the calculation of the Index Rate by the Calculation Agent, and
notification thereof to the Trustee, the Trustee will notify the Local Agency of the Index Rate for
the applicable period. The Index Rate calculated by the Calculation Agent, absent manifest
error, shall be binding and conclusive upon the Beneficial Owners, the Owners, the Local
Agency, the Calculation Agent and the Trustee.
(d) If the following circumstances exist on any Index Rate Determination Date,
the Index Rate shall be determined by the following alternative method: (i) In the event that no
Reported Rate appears on Telerate Page 3750 as of approximately 11 :00 a.m., London, U.K.,
time, on an Index Rate Determination Date, the Index Rate for that week shall be based on the
Reported Rate for the preceding week; provided, however, that if no Reported Rate appears in
Telerate Page 3750 for two consecutive weeks, the Index Rate shall be determined by the
Calculation Agent and shall be the minimum percentage of four-week U.S. Treasury Bills that
would have been necessary (as determined in the best business judgment of the Calculation
Agent, based on its examination of taxable municipal obligations comparable to the Index Bonds
known by the Calculation Agent to have been priced or traded under then-prevailing marketing
conditions) to permit the Calculation Agent to sell the Index Bonds on such date and at the time
of such determination at their principal amount (without regard to accrued interest), if the Index
Bonds were being sold on such date.
DOCSSF1801656.6
20
(e) If the appropriate interest rate or LIB OR Spread is not or cannot be
determined for Index Bonds for whatever reason, the method of determining the interest rate for
the Index Bonds shall automatically be established in accordance with paragraph (d) of this
Section, until such time as the LIBOR Spread can again be determined based on the available
published LIBOR.
The principal of the Index Bonds shall be payable in lawful money of the United
States of America at the Corporate Trust Office of the Trustee. Payment of the principal of the
Index Bonds shall be made upon the surrender thereof at maturity or on redemption prior to
maturity at the Corporate Trust Office of the Trustee.
SECTION 2.03. Redemption of2005 Series A Bonds.
(a) Optional Redemption - 2005 Series A-I Bonds. The 2005 Series A-I Bonds
are subject to optional redemption prior to their maturity at the option of the Local Agency, in
whole or in part in increments of at least $1,000,000 Aggregate Principal Amount (and if in part,
pro rata as described below) on any date, at a redemption price equal to the greater of:
(1) 100 percent of the principal amount of the 2005 Series A Bonds to
be redeemed; or
(2) the sum of the present values of the remaining scheduled payments
of principal and interest on the 2005 Series A-I Bonds to be redeemed (exclusive
of interest accrued to the date fixed for redemption) discounted to the date of
redemption on a semiannual basis (assuming a 360-day year consisting of twelve
3D-day months) at the Treasury Rate (defined below) plus 12.5 basis points,
plus in each case, accrued and unpaid interest on the 2005 Series A-I Bonds being redeemed to
the date fixed for redemption.
"Comparable Treasury Issue" means, with respect to any redemption date for a
particular 2005 Series A Bond, the US Treasury security or securities selected by Lehman
Brothers Inc. which has an actual or interpolated maturity comparable to the remaining average
life of the applicable 2005 Series A-I Bond to be redeemed, and that would be utilized in
accordance with customary financial practice in pricing new issues of debt securities of
comparable maturity to the remaining average life of the 2005 Series A-I Bond to be redeemed.
"Comparable Treasury Price" means, with respect to any redemption date for a
particular 2005 Series A-I Bond, (1) the average of the Reference Treasury Dealer Quotations
for such redemption date, after excluding the highest and lowest Reference Treasury Deal
Quotations, or (2) if the Trustee obtains fewer than four such Reference Treasury Dealer
Quotations, the average of all such quotations.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by the Trustee in consultation with the Local Agency.
"Reference Treasury Dealer" means each of the dealers designated in Schedule I
hereto and their respective successors and three other firms, specified by the Local Agency from
DOCSSF 180 1656.6
21
time to time, that are primary U.S. Government securities dealers in the City of New York (each
a "Primary Treasury Dealer"); provided, however, that if any of them ceases to be a Primary
Treasury Dealer, the Local Agency will substitute another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date for a particular 2005 Series A-I Bond, the average, as
determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee
by such Reference Treasury Dealer at 3:30 p.m., New York City time, on the third business date
preceding such redemption date.
"Treasury Rate" means, with respect to any redemption date for a particular 2005
Series A-I Bond, the rate per annum equal to the semiannual equivalent yield to maturity or
interpolated maturity of the Comparable Treasury Issue, assuming that the Comparable Treasury
Issue is purchased on the redemption date for a price equal to the Comparable Treasury Price.
(b) Optional Redemption - 2005 Series A-2 Bonds (Capital Appreciation). The
2005 Series A-2 Bonds are not subject to optional redemption.
(c) Mandatory Sinking Fund Redemption. The 2005 Series A Term Bonds are
subject to mandatory sinking fund redemption on the dates and in the amounts designated in
Schedule I hereto, upon notice hereinafter provided.
(d) Selection of Bonds for Redemption. Redemption payments on the 2005
Series A Bonds, being redeemed in part will be made on a pro rata basis to each holder in whose
name such Bonds are registered at the close of business on the fifteenth day of the calendar
month immediately preceding the redemption date. "Pro rata" means, in connection with any
mandatory sinking fund redemption or any optional redemption in part, with respect to the
allocation of amounts to be redeemed, the application to such amounts of a fraction, the
numerator of which is equal to the amount of the specific maturity of the 2005 Series A Bonds
held by a holder of such Bonds, and the denominator of which is equal to the total amount of
such maturity of 2005 Series A Bonds, then Outstanding.
So long as the Authority is the Holder of all 2005 Series A Bonds, neither the
Local Agency nor the Trustee will have responsibility for prorating partial redemptions.
( e) Notice of Redemption. Notice of redemption of 2005 Series A Bonds shall be
mailed by first-class mail by the Trustee, not less than thirty (30) nor more than sixty (60) days
prior to the redemption date to the respective Holders of the Bonds designated for redemption at
their addresses appearing on the registration books of the Trustee. Each notice of redemption
shall state the date of such notice, the redemption price, if any, (including the name and
appropriate address of the Trustee), the CUSIP and ISIN numbers (if any) of the maturity or
maturities, and, if less than all of any such maturity is to be redeemed, the distinctive certificate
numbers of the 2005 Series A Bonds of such maturity, to be redeemed and, in the case 01'2005
Series A Bonds to be redeemed in part only, the respective portions of the principal amount
thereof to be redeemed. Each such notice shall also state that on said date there will become due
and payable on each of said Bonds the redemption price, if any, thereof and in the case of a 2005
DOCSSF1801656.6
22
Series A Bond to be redeemed in part only, the specified portion of the principal amount thereof
to be redeemed, together with interest accrued thereon to the redemption date, and that from and
after such redemption date interest thereon shall cease to accrue, and shall require that such 2005
Series A Bonds be then surrendered at the address of the Trustee specified in the redemption
notice. Failure to receive such notice or any defect therein shall not invalidate any of the
proceedings taken in connection with such redemption.
In the event of redemption of Bonds (other than sinking fund redemptions), the
Trustee shall mail a notice of redemption upon receipt of a Written Request of the Local Agency
but only after the Local Agency shall file a Certificate of the Local Agency with the Trustee that
on or before the date set for redemption, the Local Agency shall have deposited with or
otherwise made available to the Trustee for deposit in the Principal Account the money required
for payment of the redemption price, including accrued interest, of all Bonds then to be called for
redemption (or the Trustee determines that money will be deposited with or otherwise made
available to it in sufficient time for such purpose), together with the estimated expense of giving
such notice.
If notice of redemption has been duly given as aforesaid and money for the
payment of the redemption price of the Bonds called for redemption is held by the Trustee, then
on the redemption date designated in such notice Bonds so called for redemption shall become
due and payable, and from and after the date so designated interest on such Bonds shall cease to
accrue, and the Holders of such Bonds shall have no rights in respect thereof except to receive
payment of the redemption price thereof.
All Bonds redeemed pursuant to the provisions of this section shall be cancelled
by the Trustee and shall be destroyed with a certificate of destruction furnished to the Local
Agency and shall not be reissued.
SECTION 2.04. Form of Bonds. The Bonds and the authentication endorsement
and assignment to appear thereon shall be substantially in the forms set forth in Exhibit A,
Exhibit B, Exhibit C, Exhibit D and Exhibit E attached hereto and by this reference herein
incorporated and in the forms set forth in a Supplemental Trust Agreement.
SECTION 2.05. Execution of Bonds. The Mayor is hereby authorized and
directed to execute each of the Bonds on behalf of the Local Agency and the City Clerk of the
Local Agency is hereby authorized and directed to countersign each of the Bonds on behalf of
the Local Agency. The signatures of such Mayor and City Clerk may be by printed,
lithographed, engraved or otherwise reproduced by facsimile reproduction. In case any officer
whose signature appears on the Bonds shall cease to be such officer before the delivery of the
Bonds to the purchaser thereof, such signature shall nevertheless be valid and sufficient for all
purposes as ifsuch officer had remained in office until such delivery of the Bonds.
Only those Bonds bearing thereon a certificate of authentication in the form
hereinbefore recited, executed manually and dated by the Trustee, shall be entitled to any benefit,
protection or security hereunder or be valid or obligatory for any purpose, and such certificate of
the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly
DOCSSF1801656.6
23
authorized, executed, issued and delivered hereunder and are entitled to the benefit, protection
and security hereof.
SECTION 2.06. Transfer and Payment of Bonds; Transfer Restrictions.
(a) General. Any Bond may, in accordance with its terms, be transferred in the
books required to be kept pursuant to the provisions of Section 2.08 by the person in whose name
it is registered, in person or by his duly authorized attorney, upon surrender of such Bonds for
cancellation at the Corporate Trustee Office of the Trustee, accompanied by delivery of a duly
executed written instrument of transfer in a form acceptable to the Trustee. Whenever any Bond
or Bonds shall be surrendered for transfer, the Local Agency shall execute and the Trustee shall
authenticate and deliver to the transferee a new Bond or Bonds of the same series and maturity
for a like aggregate principal amount. The cost of printing Bonds and any services rendered or
expenses incurred by the Trustee in connection with any transfer shall be paid by the Local
Agency. The Trustee shall require the payment by the Holder requesting such transfer of any tax
or other governmental charge required to be paid with respect to such transfer as a condition
precedent to the exercise of such privilege.
The Local Agency and the Trustee may deem and treat the registered owner of
any Bond as the absolute owner of such Bond for the purpose of receiving payment thereof and
for all other purposes, whether such Bonds shall be overdue or not, and neither the Local Agency
nor the Trustee shall be affected by any notice or knowledge to the contrary; and payment of the
interest on and principal of and redemption premium, if any, on such Bonds shall be made only
to such registered owner, which payments shall be valid and effectual to satisfy and discharge
liability on such Bonds to the extent of the sum or sums so paid.
The Trustee shall not be required to register the transfer of or exchange any Bond
which has been selected for redemption in whole or in part, from and after the day of mailing of
a notice of redemption of such Bond selected for redemption in whole or in part as provided in
Section 2.03.
(b) Restrictions on Transfer 01'2005 Series A Bonds.
(i) No Holder may, in any transaction or series of transactions,
directly or indirectly (each of the following, a "transfer"), (i) sell, assign or otherwise in any
manner dispose of all or any part of its interest in any 2005 Series A Bond, whether by act, deed,
merger or otherwise or (ii) mortgage, pledge or create a lien or security interest in such beneficial
interest unless such transfer satisfies the conditions set forth in clause (ii) below. A purported
transfer of any interest in any 2005 Series A Bond or any portion thereof which is not made in
accordance with this Section shall not be given effect by or be binding upon the Trustee and any
such purported transfer shall be null and void ab initio and vest in the transferee no rights in any
2005 Series A Bond.
(ii) No transfer of any 2005 Series A Bond or interest therein shall be
made unless (a) such transfer is made to a Qualified Institutional Buyer in accordance with all
applicable securities laws and (b) such transfer is in a minimum denomination of $1 00,000
DOCSSF 180 1656.6
24
aggregate principal amount for 2005 Series A-I Bonds or $300,000 Maturity Value for 2005
Series A-2 Bonds.
(iii) Each 2005 Series A Bond issued hereunder will contain the
following legend:
BY POSSESSION OF THIS BOND, THE HOLDER CERTIFIES THAT IT IS A
QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A(a)(I) UNDER THE
SECURITIES ACT OF 1993, AS AMENDED. THE HOLDER HEREOF, BY THE
ACCEPTANCE OF THIS BOND, ACKNOWLEDGES THAT THIS BOND MAY ONLY BE
REGISTERED IN THE NAME OF, OR TRANSFERRED TO A QUALIFIED
INSTITUTIONAL BUYER IN A MINIMUM DENOMINATION OF [2005 SERIES A BOND:
$1 00,000 AGGREGATE PRINCIPAL AMOUNT] [2005 SERIES A-2 BOND: $300,000
MA TURITY VALUE].
SECTION 2.07. Exchange of Bonds. Bonds may be exchanged at the Corporate
Trust Office of the Trustee for a like aggregate principal amount of Bonds of the same series and
maturity of other authorized denominations. The cost of printing Bonds and any services
rendered or expenses incurred by the Trustee in connection with any exchange shall be paid by
the Local Agency. The Trustee shall require the payment by the Holder requesting such
exchange of any tax or other governmental charge required to be paid with respect to such
exchange as a condition precedent to the exercise of such privilege. The Trustee shall not be
required to exchange any Bond which has been selected for redemption in whole or in part, from
and after the day of mailing of a notice of redemption of such Bond selected for redemption in
whole or in part as provided in Section 2.03.
SECTION 2.08. Bond Registration Books. The Trustee will keep at its
Corporate Trust Office sufficient books for the registration and transfer of the Bonds which shall
during normal business hours be open to inspection by the Local Agency, and upon presentation
for such purpose the Trustee shall, under such reasonable regulations as it may prescribe, register
or transfer the Bonds in such books as hereinabove provided.
SECTION 2.09. Mutilated, Destroyed, Stolen or Lost Bonds. If any Bond shall
become mutilated the Trustee at the expense of the Holder shall thereupon authenticate and
deliver, a new Bond of like tenor and amount in exchange and substitution for the Bond so
mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated
Bond so surrendered to the Trustee shall be cancelled.
If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or
theft may be submitted to the Trustee and, if such evidence be satisfactory to the Trustee and
indemnity satisfactory to the Trustee shall be given, the Trustee, at the expense of the Holder,
shall thereupon authenticate and deliver, a new Bond of like tenor in lieu of and in substitution
for the Bond so lost, destroyed or stolen.
The Trustee may require payment of a reasonable sum for each new Bond issued
under this Section and of the expenses which may be incurred by the Local Agency and the
Trustee in the premises. Any Bond issued under the provisions of this Section in lieu of any
DOCSSF 180 1656.6
25
Bond alleged to be lost, destroyed or stolen shall be equally and proportionately entitled to the
benefits of this Trust Agreement with all other Bonds of the same series secured by this Trust
Agreement. Neither the Local Agency nor the Trustee shall be required to treat both the original
Bond and any replacement Bond as being Outstanding for the purpose of determining the
principal amount of Bonds which may be issued hereunder or for the purpose of determining any
percentage of Bonds Outstanding hereunder, but both the original and replacement Bond shall be
treated as one and the same.
SECTION 2.10. Temporary Bonds. The Bonds issued under this Trust
Agreement may be initially issued in temporary form exchangeable for definitive Bonds when
ready for delivery. The temporary Bonds may be printed, lithographed or typewritten, shall be of
such denominations as may be determined by the Local Agency, shall be in fully registered form
and may contain such reference to any of the provisions of this Trust Agreement as may be
appropriate. Every temporary Bond shall be executed and authenticated as authorized by the
Local Agency, in accordance with the terms of the Act. If the Local Agency issues temporary
Bonds it will execute and furnish definitive Bonds without delay and thereupon the temporary
Bonds may be surrendered, for cancellation, in exchange therefor at the Corporate Trust Office
of the Trustee, and the Trustee shall deliver in exchange for such temporary Bonds an equal
aggregate principal amount of definitive Bonds of authorized denominations. Until so
exchanged, the temporary Bonds shall be entitled to the same benefits under this Trust
Agreement as definitive Bonds delivered hereunder.
SECTION 2.11. Procedure for the Issuance of 2005 Series A Bonds; Application
of Bond Proceeds.
(a) At any time after the sale of the 2005 Series A Bonds in accordance with the
Act, the Local Agency shall execute the 2005 Series A Bonds for issuance hereunder and shall
deliver them to the Trustee, and thereupon the 2005 Series A Bonds shall be authenticated and
delivered by the Trustee to the Original Purchaser of the 2005 Series A Bonds upon the
Certificate of the Local Agency. The proceeds of the purchase of the 2005 Series A Bonds shall
be deposited by the Trustee in the following funds, each of which is hereby established:
(i) shall be deposited in the Costs of Issuance Fund; and (ii) $ shall be
deposited in the Refunding Fund.
(b) On the Closing Date for such Bonds, the Trustee shall promptly transfer all
amounts in the Refunding Fund to the System.
(c) All money in the Costs ofIssuance Fund shall be used and withdrawn by the
Trustee to payor reimburse the Costs ofIssuance of the Bonds upon receipt of a Written Request
of the Local Agency filed with the Trustee, each of which shall be sequentially numbered and
shall state the person to whom payment is to be made, the amount to be paid, the purpose for
which the obligation was incurred and that such payment is a proper charge against said fund.
On the date which is six months following the Closing Date for the Bonds or upon the earlier
Written Request of the Local Agency, any remaining balance in the Costs ofIssuance Fund shall
be transferred to the Interest Account.
DOCSSF 180 1656.6
26
....
(d) Upon receipt of the purchase price of Additional Bonds, if any, the Trustee
shall set aside and deposit the proceeds received from such sale as set forth in the Supplemental
Trust Agreement authorizing such Additional Bonds.
SECTION 2.12. Validity of Bonds. The recital contained in the Bonds that the
same are issued pursuant to the Act and pursuant hereto shall be conclusive evidence of their
validity and of the regularity of their issuance, and all Bonds shall be incontestable from and
after their issuance. The Bonds shall be deemed to be issued, within the meaning hereof,
whenever the definitive Bonds (or any temporary Bonds exchangeable therefor) shall have been
delivered to the purchaser thereof and the proceeds of sale thereof received.
SECTION 2.13. Special Covenants as to Book-Entry Only System for 2005
Series A Bonds.
(a) Except as otherwise provided in subsections (b) and (c) of this Section, all of
the 2005 Series A Bonds initially issued shall be registered in the name of Cede & Co., as
nominee for DTC, or such other nominee as DTC shall request pursuant to the representation
letter executed by the Local Agency and delivered to DTe. Payment of the interest on any 2005
Series A Bond registered in the name of Cede & Co. shall be made on each Interest Payment
Date for such 2005 Series A Bonds to the account, in the manner and at the address indicated in
or pursuant to the representation letters or operating memoranda, as the case may be, executed by
the Local Agency and the Trustee, respectively, and delivered to DTC (the "Representation
Letter").
(b) The 2005 Series A Bonds initially shall be issued in the form of a single
authenticated fully registered bond for each stated maturity of such 2005 Series A Bonds,
representing the aggregate principal amount of the 2005 Series A Bonds of such maturity. Upon
initial issuance, the ownership of all such 2005 Series A Bonds shall be registered in the
registration records maintained by the Trustee pursuant to Section 2.08 in the name of Cede &
Co., as nominee ofDTC, or such other nominee as DTC shall request pursuant to the
Representation Letter. The Trustee, the Local Agency and any paying agent may treat DTC (or
its nominee) as the sole and exclusive owner of the 2005 Series A Bonds registered in its name
for the purposes of payment of the principal or redemption price of and interest on such 2005
Series A Bonds, selecting the 2005 Series A Bonds or portions thereof to be redeemed, giving
any notice permitted or required to be given to Bond Owners hereunder, registering the transfer
of 2005 Series A Bonds, obtaining any consent or other action to be taken by Bond Owners of
the 2005 Series A Bonds and for all other purposes whatsoever; and neither the Trustee nor the
Local Agency or any paying agent shall be affected by any notice to the contrary. Neither the
Trustee nor the Local Agency or any paying agent shall have any responsibility or obligation to
any Participant (which shall mean, for purposes of this Section, securities brokers and dealers,
banks, trust companies, clearing corporations and other entities, some of whom directly or
indirectly own DTe), any person claiming a beneficial ownership interest in the 2005 Series A
Bonds under or through DTC or any Participant, or any other person which is not shown on the
registration records as being a Bond Owner, with respect to (i) the accuracy of any records
maintained by DTC or any Participant, (ii) the payment by DTC or any Participant of any
amount in respect of the principal or redemption price of or interest on the 2005 Series A Bonds,
(iii) any notice which is permitted or required to be given to Bond Owners of2005 Series A
DOCSSF1801656.6
27
Bonds hereunder, (iv) the selection by DTC or any Participant of any person to receive payment
in the event ofa partial redemption of the 2005 Series A Bonds, or (v) any consent given or other
action taken by DTC as Bond Owner of 2005 Series A Bonds. The Trustee shall pay all
principal of and interest on the 2005 Series A Bonds only at the times, to the accounts, at the
addresses and otherwise in accordance with the Representation Letter, and all such payments
shall be valid and effective to satisfy fully and discharge the Local Agency's obligations with
respect to the payment of the principal of and interest on the 2005 Series A Bonds to the extent
of the sum or sums so paid. Upon delivery by DTC to the Trustee of written notice to the effect
that DTC has determined to substitute a new nominee in place of its then existing nominee, the
2005 Series A Bonds will be transferable to such new nominee in accordance with subsection (e)
of this Section.
(c) Notwithstanding any other provision of this Trust Agreement to the contrary,
so long as all 2005 Series A Bonds Outstanding are registered in the name of any nominee of
DTC, all payments with respect to the principal of and interest on each such 2005 Series A Bond
and all notices with respect to each such 2005 Series A Bond shall be made and given,
respectively, to DTC as provided in any representation letter from the Local Agency or the
Trustee.
(d) In the event that the Local Agency determines that the 2005 Series A Bonds
should not be maintained in book-entry form, the Trustee shall, upon the written instruction of
the Local Agency, so notify DTC, whereupon DTC shall notify the Participants of the
availability through DTC ofbond certificates. In such event, the 2005 Series A Bonds will be
transferable in accordance with subsection (e) of this Section. DTC may determine to
discontinue providing its services with respect to the 2005 Series A Bonds or a portion thereof, at
any time by giving written notice of such discontinuance to the Local Agency or the Trustee and
discharging its responsibilities with respect thereto under applicable law. In such event, the 2005
Series A Bonds will be transferable in accordance with subsection (e) of this Section. If at any
time DTC shall no longer be registered or in good standing under the Securities Exchange Act or
other applicable statute or regulation and a successor securities depository is not appointed by the
Local Agency within 90 days after the Local Agency receives notice or becomes aware of such
condition, as the case may be, then this Section shall no longer be applicable and the Local
Agency shall execute and the Trustee shall authenticate and deliver certificates representing the
2005 Series A Bonds as provided below. Whenever DTC requests the Local Agency and the
Trustee to do so, the Trustee and the Local Agency will cooperate with DTC in taking
appropriate action after reasonable notice to arrange for another securities depository to maintain
custody of all certificates evidencing the 2005 Series A Bonds then Outstanding. In such event,
the 2005 Series A Bonds will be transferable to such securities depository in accordance with
subsection (e) of this Section, and thereafter, all references in this Trust Agreement to DTC or its
nominee shall be deemed to refer to such successor securities depository and its nominee, as
appropriate.
(e) The Trustee is hereby authorized and requested to execute and deliver the
Representation Letter and, in connection with any successor nominee for DTC or any successor
depository, enter into comparable arrangements, and shall have the same rights with respect to its
actions thereunder as it has with respect to its actions under this Trust Agreement.
DOCSSF1801656.6
28
(f) In the event that any transfer or exchange of 2005 Series A Bonds is
authorized under subsection (b) or (d) of this Section, such transfer or exchange shall be
accomplished upon receipt by the Trustee from the registered owner thereof of the 2005 Series A
Bonds to be transferred or exchanged and appropriate instruments of transfer to the permitted
transferee, all in accordance with the applicable provisions of this Trust Agreement. In the event
Bond certificates are issued to.Bond Owners other than Cede & Co., its successor as nominee for
DTC as holder of all the 2005 Series A Bonds, another securities depository as holder of all the
2005 Series A Bonds, or the nominee of such successor securities depository, the applicable
provisions of this Indenture shall apply to the registration, exchange and transfer of the 2005
Series A Bonds and the method of payment of principal of and interest on the 2005 Series A
Bonds.
ARTICLE III
ISSUANCE OF ADDITIONAL BONDS
SECTION 3.01. Conditions for the Issuance of Additional Bonds. The Local
Agency may at any time issue Additional Bonds on a parity with the 2005 Series A Bonds, but
only subject to the following specific conditions, which are hereby made conditions precedent to
the issuance of any such Additional Bonds:
(a) The Local Agency shall be in compliance with all agreements and covenants
contained herein.
(b) The issuance of such Additional Bonds shall have been authorized pursuant to
the Act and shall have been provided for by a Supplemental Trust Agreement which shall specify
the following:
(1) The purpose for which such Additional Bonds are to be issued;
provided that such Additional Bonds shall be applied solely for (i) the purpose of satisfying any
obligation to make payments to the System pursuant to the Retirement Law relating to pension
benefits accruing to the System's members, and/or for payment of all costs incidental to or
connected with the issuance of Additional Bonds for such purpose, and/or (ii) the purpose of
refunding any Bonds then Outstanding, including payment of all costs incidental to or connected
with such refunding;
(2) Whether such Bonds are current interest fixed rate bonds, listed
securities, index bonds, auction rate securities, variable rate bonds, tender option bonds, capital
appreciation bonds or bonds bearing interest at such other interest rate modes as may be set forth
in a Supplemental Trust Agreement;
(3) The authorized principal amount and designation of such
Additional Bonds;
(4) The date and the maturity dates of and the sinking fund payment
dates, if any, for such Additional Bonds;
(5)
The interest payment dates for such Additional Bonds;
DOCSSF 180 1656.6
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(6)
such Additional Bonds;
The denomination or denominations of and method of numbering
(7) The redemption premiums, if any, and the redemption terms, if
any, for such Additional Bonds;
(8) The amount, if any, to be deposited from the proceeds of sale of
such Additional Bonds in the Interest Account hereinafter referred to; and
(9) Such other provisions (including the requirements of a book-entry
Bond registration system, if any) as are necessary or appropriate and not inconsistent herewith.
SECTION 3.02. Procedure for the Issuance of Additional Bonds. At any time
after the sale of any Additional Bonds in accordance with the Act, the Local Agency shall
execute such Additional Bonds for issuance hereunder and shall deliver them to the Trustee, and
thereupon such Additional Bonds shall be delivered by the Trustee to the purchaser thereof upon
the Written Request of the Local Agency, but only upon receipt by the Trustee of the following
documents or money or securities, all of such documents dated or certified, as the case may be,
as of the date of delivery of such Additional Bonds by the Trustee:
(a) An executed copy of the Supplemental Trust Agreement authorizing the
issuance of such Additional Bonds;
(b) A Written Request of the Local Agency as to the delivery of such Additional
Bonds;
(c) An Opinion of Counsel to the effect that (I) the Local Agency has executed
and delivered the Supplemental Trust Agreement, and the Supplemental Trust Agreement is
valid and binding upon the Local Agency and (2) such Additional Bonds are valid and binding
obligations of the Local Agency;
(d) A Certificate of the Local Agency stating that all requirements of Article III
have been complied with and containing any other such statements as may be reasonably
necessary to show compliance with the conditions for the issuance of such Additional Bonds
contained herein;
(e) Such further documents, money or securities as are required by the provisions
of the Supplemental Trust Agreement providing for the issuance of such Additional Bonds.
DOCSSF1801656.6
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ARTICLE IV
FUNDS AND ACCOUNTS
SECTION 4.01. Bond Fund; Deposits to Bond Fund.
(a) In order to meet the Local Agency's obligations under the Retirement Law,
the Local Agency shall deposit or cause to be deposited with the Trustee on or before July 20 of
each Fiscal Year, commencing July 20, 2006, (or such other date as provided in a Supplemental
Trust Agreement) the amount which, together with moneys transferred pursuant to Section
4.02(c) hereof, is sufficient to pay the Local Agency's debt service obligations on the Bonds
payable during such Fiscal Year.
In establishing the amounts of the Local Agency's obligations on the Bonds to be
prepaid in each Fiscal Year, (i) (A) the debt service for Auction Rate Securities not subject to a
Qualified Swap Agreement with an Auction Rate Period ofless than 360 Rate Period Days shall
be prepaid at the actual average interest rate for the immediately preceding Fiscal Year plus 200
basis points (2.00%), and if such information is not available for the full immediately preceding
Fiscal Year, then the debt service for such Auction Rate Securities shall be prepaid at the average
one-month LIBOR plus 200 basis points (2.00%) for the immediately preceding Fiscal Year; the
debt service for Index Bonds not subject to a Qualified Swap Agreement shall be prepaid at the
average one-month LIBOR in effect during the immediately preceding Fiscal Year, plus 200
basis points (2.00%); or (B) the debt service for Auction Rate Securities not subject to a
Qualified Swap Agreement with an Auction Rate Period of 360 Rate Period Days or longer shall
be prepaid at the actual interest rate in effect for such Auction Rate Securities; and (ii) the debt
service for all other Bonds then Outstanding shall be prepaid at (A) the rate prescribed under the
applicable Qualified Swap Agreement, if any, for Auction Rate Securities and Index Bonds
subject to a Qualified Swap Agreement, and (B) the actual interest rate in effect for Fixed Rate
Bonds.
(b) All amounts payable by the Local Agency hereunder shall be promptly
deposited by the Trustee upon receipt thereof in a special fund designated as the "Bond Fund"
which fund is hereby created and shall be held in trust by the Trustee.
SECTION 4.02. Allocation ofMonevs in Bond Fund. On or before each Interest
Payment Date or date fixed for redemption of Bonds, the Trustee shall transfer from the Bond
Fund, in immediately available funds, for deposit into the following respective accounts (each of
which is hereby created and which the Trustee shall maintain in trust separate and distinct from
the other funds and accounts established hereunder), the following amounts in the following
order of priority, the requirements of each such account (including the making up of any
deficiencies in any such account resulting from lack of funds sufficient to make any earlier
required deposit) at the time of deposit to be satisfied before any deposit is made to any account
subsequent in priority:
(a)
(b)
Interest Account,
Principal Account, and
DOCSSFJ :801656.6
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(c) Surplus Account.
All money in each of such accounts shall be held in trust by the Trustee and shall be applied,
used and withdrawn only for the purposes hereinafter authorized in this section.
(a) Interest Account. On each Interest Payment Date, the Trustee shall set aside
from the Bond Fund and deposit in the Interest Account that amount of money which is equal to
the amount of interest becoming due and payable on all Outstanding Bonds on such Interest
Payment Date.
No deposit need be made in the Interest Account if the amount contained therein
is at least equal to the aggregate amount of interest becoming due and payable on all Outstanding
Bonds on such Interest Payment Date.
All money in the Interest Account shall be used and withdrawn by the Trustee
solely for the purpose of paying the interest on the Bonds as it shall become due and payable
(including accrued interest on any Bonds purchased or redeemed prior to maturity).
(b) Principal Account. On or before each Principal Payment Date, the Trustee
shall set aside from the Bond Fund and deposit in the Principal Account an amount of money
equal to the amount of all sinking fund payments required to be made on such Principal Payment
Date into the respective sinking fund accounts for all Outstanding Term Bonds and the principal
amount of all Outstanding Serial Bonds maturing on such Principal Payment Date.
No deposit need be made in the Principal Account if the amount contained therein
is at least equal to the aggregate amount of the principal or Accreted Value of all Outstanding
Serial Bonds maturing by their terms on such Principal Payment Date plus the aggregate amount
of all sinking fund payments required to be made on such Principal Payment Date for all
Outstanding Term Bonds.
The Trustee shall establish and maintain within the Principal Account a separate
subaccount for the Term Bonds of each series and maturity, designated as the "'_ Sinking
Account" (the "Sinking Account"), inserting therein the series and maturity (if more than one
such account is established for such series) designation of such Bonds. With respect to each
Sinking Account, on each mandatory sinking account payment date established for such Sinking
Account, the Trustee shall apply the mandatory sinking account payment required on that date to
the redemption (or payment at maturity, as the case may be) of Term Bonds of the series and
maturity for which such Sinking Account was established, upon the notice and in the manner
provided in Article II; provided that, at any time prior to giving such notice of such redemption,
the Trustee may upon the Written Request of the Local Agency, apply moneys in such Sinking
Account to the purchase for cancellation of Term Bonds of such series and maturity at public or
private sale, as and when and at such prices (including brokerage and other charges, but
excluding accrued interest, which is payable from the Interest Account), as may be directed by
the Local Agency, except that the purchase price (excluding accrued interest) shall not exceed
the redemption price that would be payable for such Bonds upon redemption by application of
such Mandatory Sinking Account Payment. If, during the twelve-month period immediately
preceding said mandatory sinking account payment date, the Trustee has purchased Term Bonds
DOCSSF1801656.6
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of such series and maturity with moneys in such Sinking Account, such Bonds so purchased shall
be applied, to the extent of the full principal amount or Accreted Value thereof, as applicable, to
reduce said mandatory sinking account payment.
All money in the Principal Account shall be used and withdrawn by the Trustee
solely for the purpose of paying the principal or Accreted Value of the Bonds, as applicable, as
they shall become due and payable, whether at maturity or redemption, except that any money in
any sinking fund account shall be used and withdrawn by the Trustee only to purchase or to
redeem or to pay Term Bonds for which such Sinking Account was created.
(c) Surplus Account. On the Business Day following the last Interest Payment
Date of each Fiscal Year, or on such other date as provided in a Supplemental Trust Agreement,
any moneys remaining in the Bond Fund shall be deposited by the Trustee in the Surplus
Account. So long as no Event of Default has occurred and is continuing, moneys deposited in
the Surplus Account shall be transferred by the Trustee to the Local Agency or as otherwise
specified in a Written Request of the Local Agency.
SECTION 4.03. Deposit and Investments of Money in Accounts and Funds. All
money held by the Trustee in any of the accounts or funds established pursuant hereto shall be
invested in Permitted Investments at the Written Request of the Local Agency. If no Written
Request of the Local Agency is received, the Trustee shall invest funds held by it in Permitted
Investments described in clause 6 of the definition thereof. Such investments shall, as nearly as
practicable, mature on or before the dates on which such money is anticipated to be needed for
disbursement hereunder. All interest, profits and other income received from any money so
invested shall be deposited in the Bond Fund. The Trustee shall have no liability or
responsibility for any loss resulting from any investment made or sold in accordance with the
provisions of this Article IV, except for any loss due to the negligence or willful misconduct of
the Trustee. The Trustee may act as principal or agent in the acquisition or disposition of any
investment and may impose its customary charge therefor.
SECTION 4.04. Establishment of Deposit Fund and Transfers Therefrom. The
following Section shall apply in the event the Local Agency were to elect to enter into a
Qualified Swap Agreement in connection with Additional Bonds. The Trustee shall establish a
special fund designated as the "City of San Bernardino Deposit Fund, Series _" (the "Deposit
Fund"). The Deposit Fund shall be funded and applied solely in accordance with this Section; it
is intended for the proper matching of debt service payments on the Auction Rate Securities and
Index Bonds, if any, that are covered by Qualified Swap Agreements, with the related Swap
Payments and the required netting of such payments in order to assure full and timely payments
to the Holders of the Auction Rate Securities and Index Bonds affected by such Qualified Swap
Agreements (collectively, "Swapped Bonds"). In the absence of any Qualified Swap
Agreements, the Deposit Fund will remain unfunded.
On or before the date that is two (2) Business Days prior to each Interest Payment
Date or such other date that may be established for Swapped Bonds, the Trustee shall transfer
into the Deposit Fund the portion of the Local Agency's Debt Service Prepayment Obligation on
deposit in the Bond Fund that is necessary in order to make Swap Payments for all Swapped
Bonds.
DOCSSF180 1656.6
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SECTION 4.05. Establishment of Pension Funding Stabilization Fund. The
Trustee shall establish a special fund designated as the "Pension Funding Stabilization Fund",
(the "Pension Funding Stabilization Fund"). At its sole option, the City may make deposits into
the Pension Funding Stabilization Fund at any time. Amounts in the Pension Funding
Stabilization Fund shall only be used by the Trustee to pay principal or Accreted Value of or
interest on the Bonds or to redeem Bonds prior to maturity or transferred to the City and applied
by the City to pension funding costs, as specified in a Written Request of the City.
ARTICLE V
COVENANTS OF THE LOCAL AGENCY
SECTION 5.01. Punctual Payment and Performance. The Local Agency will
punctually pay the interest on and the principal of and redemption premiums, if any, to become
due on every Bond issued hereunder in strict conformity with the terms hereof and of the Bonds,
and will faithfully observe and perform all the agreements and covenants to be observed or
performed by the Local Agency contained herein and in the Bonds.
SECTION 5.02. Extension of Payment of Bonds. The Local Agency shall not
directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the
time of payment of any claims for interest by the purchase of such Bonds or by any other
arrangement, and in case the maturity of any of the Bonds or the time of payment of any such
claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in
case of any default hereunder, to the benefits of this Trust Agreement, except subject to the prior
payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest
thereon which shall not have been so extended. Nothing in this Section shall be deemed to limit
the right of the Local Agency to issue Bonds for the purpose of refunding any Outstanding
Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the
Bonds.
SECTION 5.03. Additional Debt. The Local Agency expressly reserves the
right to enter into one or more other agreements or indentures for any of its purposes, and
reserves the right to issue other obligations for such purposes.
SECTION S.M. Power to Issue Bonds. The Local Agency is duly authorized
pursuant to law to issue the Bonds and to enter into this Trust Agreement. The Bonds and the
provisions of this Trust Agreement are the legal, valid and binding obligations of the Local
Agency in accordance with their terms. The Bonds constitute obligations imposed by law.
SECTION 5.05. Accounting Records and Reports.
(a) The Local Agency will keep or cause to be kept proper books of record and
accounts in which complete and correct entries shall be made of all transactions relating to the
receipts, disbursements, allocation and application of moneys on deposit in the funds and
accounts established hereunder.
(b) The Local Agency will prepare and file with the Trustee annually within two
hundred seventy (270) days after the close of each Fiscal Year (commencing with the Fiscal
DOCSSF 180 J 656.6
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Year ending June 30, 2005) financial statements of the City for the preceding Fiscal Year
prepared in accordance with Generally Accepted Accounting Principles. The Trustee shall
furnish a copy of the financial statements to Lehman Brothers Inc. as Original Purchaser and to
any Holder upon request.
SECTION 5.06. Prosecution and Defense of Suits. The Local Agency will
defend against every suit. action or proceeding at any time brought against the Trustee upon any
claim to the extent involving the failure of the Local Agency to fulfill its obligations hereunder;
provided that the Trustee or any affected Holder at its election may appear in and defend any
such suit action or proceeding. The Local Agency, to the extent permitted by law, will
indemnify and hold harmless the Trustee against any and all liability claimed or asserted by any
person to the extent arising out of such failure by the Local Agency, and will indemnify and hold
harmless the Trustee against any attorney's fees or other expenses which it may incur in
connection with any litigation to which it may become a party by reason of its actions hereunder,
except for any loss, cost, damage or expense resulting from the negligence, willful misconduct or
breach of duty by the Trustee. Notwithstanding any contrary provision hereof, this covenant
shall remain in full force and effect even though all Bonds secured hereby may have been fully
paid and satisfied.
SECTION 5.07. Further Assurances. Whenever and so often as reasonably
requested to do so by the Trustee or any Holder, the Local Agency will promptly execute and
deliver or cause to be executed and delivered all such other and further assurances, documents or
instruments, and promptly do or cause to be done all such other and further things as may be
necessary or reasonably required in order to further and more fully vest in the Holders all rights,
interests, powers, benefits, privileges and advantages conferred or intended to be conferred upon
them hereby.
SECTION 5.08. Waiver of Laws. The Local Agency shall not at any time insist
upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or
extension law now or at any time hereafter in force that may affect the covenants and agreements
contained in this Trust Agreement or in the Bonds, and all benefit or advantage of any such law
or laws is hereby expressly waived by the Local Agency to the extent permitted by law.
ARTICLE VI
THE TRUSTEE
SECTION 6.01. The Trustee. Wells Fargo Bank, National Association shall
serve as the Trustee for the Bonds for the purpose of receiving all money which the Local
Agency is required to deposit with the Trustee hereunder and for the purpose of allocating,
applying and using such money as provided herein and for the purpose of paying the interest on
and principal of and redemption premiums, if any, on the Bonds presented for payment at the
Corporate Trust Office of the Trustee with the rights and obligations provided herein. The Local
Agency agrees that it will at all times maintain a Trustee having a corporate trust office in Los
Angeles or San Francisco, California.
DOCSSF I :80 1656.6
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The Local Agency may at any time, unless there exists any event of default as
defined in Section 8.01, remove the Trustee initially appointed and any successor thereto and
may appoint a successor or successors thereto by an instrument in writing; provided that any
such successor shall be a bank or trust company doing business and having a corporate trust
office in Los Angeles or San Francisco, California, having a combined capital (exclusive of
borrowed capital) and surplus of at least one fifty million dollars ($50,000,000) and subject to
supervision or examination by federal or state authority. If such bank or trust company publishes
a report of condition at least annually, pursuant to law or to the requirements of any supervising
or examining authority above referred to, then for the purpose of this section the combined
capital and surplus of such bank or trust company shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. The Trustee may at any
time resign by giving written notice of such resignation to the Local Agency and by mailing to
the Holders notice of such resignation. Upon receiving such notice of resignation, the Local
Agency shall promptly appoint a successor Trustee by an instrument in writing. Any removal or
resignation of a Trustee and appointment of a successor Trustee shall become effective only
upon the acceptance of appointment by the successor Trustee. If, within thirty (30) days after
notice of the removal or resignation of the Trustee no successor Trustee shall have been
appointed and shall have accepted such appointment, the removed or resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor Trustee, which
court may thereupon, after such notice, if any, as it may deem proper and prescribe and as may
be required by law, appoint a successor Trustee having the qualifications required hereby.
The Trustee is hereby authorized to payor redeem the Bonds when duly presented
for payment at maturity or on redemption prior to maturity. The Trustee shall cancel all Bonds
upon payment thereof or upon the surrender thereof by the Local Agency and shall destroy such
Bonds and a certificate of destruction shall be delivered to the Local Agency. The Trustee shall
keep accurate records of all Bonds paid and discharged and cancelled by it.
The Trustee shall, prior to an event of default, and after the curing of all events of
default that may have occurred, perform such duties and only such duties as are specifically set
forth in this Trust Agreement and no implied duties or obligations shall be read into this Trust
Agreement. The Trustee shall, during the existence of any event of default (that has not been
cured), exercise such of the rights and powers vested in it by this Trust Agreement. and use the
same degree of care and skill in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
SECTION 6.02. Liability of Trustee. The recitals offacts, agreements and
covenants herein and in the Bonds shall be taken as recitals of facts, agreements and covenants
of the Local Agency, and the Trustee assumes no responsibility for the correctness of the same or
makes any representation as to the sufficiency or validity hereof or of the Bonds, or shall incur
any responsibility in respect thereof other than in connection with the rights or obligations
assigned to or imposed upon it herein, in the Bonds or in law or equity. The Trustee shall not be
liable in connection with the performance of its duties hereunder except for its own negligence,
willful misconduct or breach of duty.
DOCSSF 180 1656.6
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The Trustee shall not be bound to recognize any person as the Holder of a Bond
unless and until such Bond is submitted for inspection, if required, and such Holder's title thereto
satisfactorily established, if disputed.
The Trustee shall not be liable for any error of judgment made in good faith by a
responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the
pertinent facts.
The Trustee shall not be liable with respect to any action taken or omitted to be
taken by it in good faith in accordance with the direction of the Holders of not less than a
majority in Aggregate Principal Amount of the Bonds at the time Outstanding, relating to the
time, method and place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee under this Trust Agreement.
The Trustee shall be under no obligation to exercise any of the rights or powers
vested in it by this Trust Agreement at the request, order or direction of any of the Holders
pursuant to the provisions of this Trust Agreement unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and liabilities that may be
incurred therein or thereby. The Trustee has no obligation or liability to the Holders for the
payment of interest on, principal of or redemption premium, if any, with respect to the Bonds
from its own funds; but rather the Trustee's obligations shall be limited to the performance of its
duties hereunder.
The Trustee shall not be bound to ascertain or inquire as to the performance or
observance of any of the terms, conditions, covenants or agreements herein or of any of the
documents executed in connection with the Bonds, or as to the existence of a default or event of
default thereunder. The Trustee shall not be responsible for the validity or effectiveness of any
collateral given to or held by it.
The Trustee may execute any of the trusts or powers hereunder or perform any
duties hereunder either directly or by or through attorneys-in-fact, agents or receivers, shall not
be answerable for the negligence or misconduct or any such attorney-in-fact, agent or receiver
appointed by it in accordance with the standards specified above. The Trustee shall be entitled to
advice of counsel and other professionals concerning all matters of trust and its duty hereunder,
but the Trustee shall not be answerable for the professional malpractice of any attorney-in-law or
certified public accountant in connection with the rendering of his professional advice in
accordance with the terms of this Trust Agreement, if such attorney-in-law or certified public
accountant was selected by the Trustee with due care.
Whether or not therein expressly so provided, every provision of this Trust
Agreement, or related documents relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Article.
The Trustee shall be protected in acting upon any notice, resolution, requisition,
request (including any Written Request of the Local Agency), consent, order, certificate, report.
opinion, bond or other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties. The Trustee may consult with counsel, who may be
DOCSSFl :801656.6
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counsel of or to the Local Agency, with regard to legal questions, and the opinion of such
counsel shall be full and complete authorization and protection in respect of any action taken or
suffered by it hereunder in good faith and in accordance therewith.
Whenever in the administration of its rights and obligations hereunder the Trustee
shall deem it necessary or desirable that a matter be established or proved prior to taking or
suffering any action hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of bad faith on the part of the Trustee, be deemed to
be conclusively proved and established by a Certificate of the Local Agency, which certificate
shall be full warrant to the Trustee for any action taken or suffered under the provisions hereof
upon the faith thereof, but in its discretion the Trustee may in lieu thereof accept other evidence
of such matter or may require such additional evidence as it may deem reasonable.
No provision of this Trust Agreement shall require the Trustee to expend or risk
its own funds or otherwise incur any financial liability in the performance or exercise of any of
its duties hereunder, or in the exercise of its rights or powers.
The Trustee shall have no responsibility, opinion, or liability with respect to any
information, statement or recital in any offering memorandum or other disclosure material
prepared or distributed with respect to the issuance of the Bonds.
All immunities, indemnifications and releases from liability granted herein to the
Trustee shall extend to the directors, employees, officers and agents thereof.
Any company into which the Trustee may be merged or converted or with which
it may be consolidated or any company resulting from any merger, conversion or consolidation
to which it shall be a party or any company to which the Trustee may sell or transfer all or
substantially all of its corporate trust business, provided that such company shall meet the
requirements set forth in Section 6.0 I, shall be the successor to the Trustee hereunder and vested
with all of the title to the trust estate and all of the trusts, powers, discretions, immunities,
privileges and all other matters as was its predecessor hereunder, without the execution or filing
of any paper or further act, anything herein to the contrary notwithstanding.
SECTION 6.03. Compensation and Indemnification of Trustee. The Local
Agency covenants to pay to the Trustee from time to time, and the Trustee shall be entitled to,
reasonable compensation for all services rendered by it in the exercise and performance of any of
the powers and duties hereunder of the Trustee, and the Local Agency will payor reimburse the
Trustee upon its request for all expenses, disbursements and advances incurred or made by the
Trustee in accordance with any of the provisions of this Trust Agreement (including the
reasonable compensation and the expenses and disbursements of its counsel and of all persons
not regularly in its employ) except any such expense, disbursement or advance as may arise from
its negligence, default or willful misconduct, including the negligence or willful misconduct of
any of its officers, directors, agents or employees. The Local Agency, to the extent permitted by
law, shall indemnify, defend and hold harmless the Trustee against any loss, damages, liability or
expense incurred without negligence, willful misconduct or bad faith on the part of the Trustee,
(i) arising out of or in connection with the acceptance or administration of the trusts created
hereby or the exercise or performance of any of its powers or duties hereunder, and (ii) any
DOCSSF1801656.6
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untrue statement or alleged untrue statement of any material fact or omission or alleged omission
to state a material fact necessary to make the statements made, in light of the circumstances
under which they were made, not misleading in any official statement or other offering circular
utilized in connection with the sale of the Bonds, including costs and expenses (including
attorneys' fees) of defending itself against any claim or liability in connection with the exercise
or performance of any of its powers hereunder. The rights of the Trustee and the obligations of
the Local Agency under this Section shall survive the discharge of the Bonds and this Trust
Agreement and the resignation or removal of the Trustee.
ARTICLE VII
AMENDMENT OF THE TRUST AGREEMENT
SECTION 7.01. Amendment of the Trust Agreement. The Trust Agreement and
the rights and obligations of the Local Agency and of the Holders may be amended at any time
by a Supplemental Trust Agreement which shall become binding when the written consents of
the Holders of a majority in Aggregate Principal Amount of the Bonds then Outstanding,
exclusive of Bonds disqualified as provided in Section 7.02, are filed with the Trustee. No such
amendment shall (I) extend the maturity of or reduce the interest rate on or amount of interest on
or principal of or redemption premium, if any, or extend the time of payment on any Bond
without the express written consent of the Holder of such Bond, or (2) reduce the percentage of
Bonds required for the written consent to any such amendment.
The Trust Agreement and the rights and obligations of the Local Agency and of
the Holders may also be amended at any time by a Supplemental Trust Agreement which shall
become binding upon adoption without the consent of any Holders, but only to the extent
permitted by law and after receipt of an approving Opinion of Counsel, for any purpose that will
not materially adversely affect the interests of the Holders, including (without limitation) for any
one or more of the following purposes --
(a) to add to the agreements and covenants required herein to be performed by the
Local Agency other agreements and covenants thereafter to be performed by the Local Agency,
to pledge or assign additional security for the Bonds (or any portion thereot), or to surrender any
right or power reserved herein to or conferred herein on the Local Agency;
(b) to make such provisions for the purpose of curing any ambiguity or of
correcting, curing or supplementing any defective provision contained herein and in any
Supplemental Trust Agreement or in regard to questions arising hereunder which the Local
Agency may deem desirable or necessary and not inconsistent herewith;
(c) to provide for the issuance of any Additional Bonds and to provide the terms
of such Additional Bonds, subject to the conditions and upon compliance with the procedure set
forth in Article III (which shall be deemed not to adversely affect Holders);
(d) to modify, amend or add to the provisions herein or in any Supplemental Trust
Agreement to permit the qualification thereof under the Trust Indenture Act of 1939, as
DOCSSF180 1656.6
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amended, or any similar federal statutes hereafter in effect, and to add such other terms,
conditions and provisions as may be permitted by such statute or similar statute;
(e) to modify, amend or add to the provisions herein or in any Supplemental Trust
Agreement pertaining to the terms or operations of interest on the Bonds at a variable rate, as the
Local Agency may deem necessary or desirable in order to conform to common market practices
for such bonds; or
(0 to modify, amend or supplement this Trust Agreement and any Supplemental
Trust Agreement in any manner that does not materially adversely affect the interest of Holders
of Bonds.
The Trustee shall not be required to enter into or consent to any supplemental
trust agreement which, in the sole judgment of the Trustee, may adversely affect the rights,
obligations, powers, privileges, indemnities and immunities provided the Trustee herein.
SECTION 7,02. Disqualified Bonds. Bonds owned or held by or for the account
of the Local Agency shall not be deemed Outstanding for the purpose of any consent or other
action or any calculation of Outstanding Bonds provided in this article, and shall not be entitled
to consent to or take any other action provided in this article.
SECTION 7,03. Endorsement or Replacement of Bonds After Amendment.
After the effective date of any action taken as hereinabove provided, the Local Agency may
determine that the Bonds may bear a notation by endorsement in form approved by the Local
Agency as to such action, and in that case upon demand of the Holder of any Outstanding Bonds
and presentation of his Bond for such purpose at the office of the Trustee a suitable notation as to
such action shall be made on such Bond. If the Local Agency shall so determine, new Bonds so
modified as, in the opinion of the Local Agency, shall be necessary to conform to such action
shall be prepared and executed, and in that case upon demand ofthe Holder of any Outstanding
Bond a new Bond or Bonds shall be exchanged at the office of the Trustee without cost to each
Holder for its Bond or Bonds then Outstanding upon surrender of such Outstanding Bonds.
SECTION 7.04, Amendment by Mutual Consent. The provisions of this article
shall not prevent any Holder from accepting any amendment as to the particular Bonds held by
him, provided that due notation thereof is made on such Bonds.
SECTION 7,05. Attorney's Opinion Regarding Supplemental Agreements. The
Trustee may obtain an opinion of counsel that any amendments or supplements to the Trust
Agreement complies with the provisions of this Article VII and the Trustee may conclusively
rely upon such opinion.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES OF HOLDERS
SECTION 8.01. Events of Default. If one or more of the following events
(herein called "events of default") shall happen, that is to say:
DOCSSF 1 :80 1656.6
40
(a) if default shall be made by the Local Agency in the due and punctual payment
of the interest on any Bond when and as the same shall become due and payable;
(b) if default shall be made by the Local Agency in the due and punctual payment
of the principal of or redemption premium, if any, on any Bond when and as the same shall
become due and payable, whether at maturity as therein expressed or by proceedings for
redemption;
(c) if default shall be made by the Local Agency in the performance of any of the
agreements or covenants required herein to be performed by the Local Agency, and such default
shall have continued for a period of sixty (60) days after the Local Agency shall have been given
notice in writing of such default by the Trustee or the Owners of not less than twenty-five (25%)
in Aggregate Principal Amount of the Bonds at the time Outstanding, specifying such default
and requiring the same to be remedied, provided, however, if the default stated in the notice can
be corrected, but not within the applicable period, the Trustee and such Owners shall not
unreasonably withhold their consent to an extension of such time if corrective action is instituted
by the Local Agency within the applicable period and diligently pursued until the default is
corrected: or
(d) if the Local Agency shall file a petition or answer seeking arrangement or
reorganization under the federal bankruptcy laws or any other applicable law of the United States
of America or any state therein, or if a court of competent jurisdiction shall approve a petition
filed with or without the consent of the Local Agency seeking arrangement or reorganization
under the federal bankruptcy laws or any other applicable law of the United States of America or
any state therein, or if under the provisions of any other law for the relief or aid of debtors any
court of competent jurisdiction shall assume custody or control of the Local Agency or of the
whole or any substantial part of its property;
SECTION 8.02. Institution of Legal Proceedings by Trustee. If one or more of
the events of default shall happen and be continuing, the Trustee may, and upon the written
request of the Holders of not less than fifty-one percent (51 %) in Aggregate Principal Amount of
the Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, shall,
proceed to protect or enforce its rights or the rights of the Holders of Bonds under this Trust
Agreement by a suit in equity or action at law, either for the specific performance of any
covenant or agreement contained herein, or in aid of the execution of any power herein granted,
or by mandamus or other appropriate proceeding for the enforcement of any other legal or
equitable remedy as the Trustee shall deem most effectual in support of any of its rights and
duties hereunder.
SECTION 8.03. Non-Waiver. Nothing in this article or in any other provision
hereof or in the Bonds shall affect or impair the obligation of the Local Agency, which is
absolute and unconditional, to pay the interest on and principal of and redemption premiums, if
any, on the Bonds to the respective Holders of the Bonds at the respective dates of maturity or
upon prior redemption as provided herein, or shall affect or impair the right of such Holders,
which is also absolute and unconditional, to institute suit to enforce such payment by virtue of
the contract embodied herein and in the Bonds.
DOCSSF1:801656.6
41
A waiver of any default or breach of duty or contract by the Trustee or any Holder
shall not affect any subsequent default or breach of duty or contract or impair any rights or
remedies on any such subsequent default or breach of duty or contract. No delay or omission by
the Trustee or any Holder to exercise any right or remedy accruing upon any default or breach of
duty or contract shall impair any such right or remedy or shall be construed to be a waiver of any
such default or breach of duty or contract or an acquiescence therein, and every right or remedy
conferred upon the Holders by the Act or by this Article may be enforced and exercised from
time to time and as often as shall be deemed expedient by the Trustee or the Holders.
If any action, proceeding or suit to enforce any right or exercise any remedy is
abandoned, the Local Agency, the Trustee and any Holder shall be restored to their former
positions, rights and remedies as if such action, proceeding or suit had not been brought or taken.
SECTION 8.04. Actions by Trustee as Attorney-in-Fact. Any action,
proceeding or suit which any Holder shall have the right to bring to enforce any right or remedy
hereunder may be brought by the Trustee for the equal benefit and protection of all Holders,
whether or not the Trustee is a Holder, and the Trustee is hereby appointed (and the successive
Holders, by taking and holding the Bonds issued hereunder, shall be conclusively deemed to
have so appointed it) the true and lawful attorney-in-fact of the Holders for the purpose of
bringing any such action, proceeding or suit and for the purpose of doing and performing any
and all acts and things for and on behalf of the Holders as a class or classes as may be advisable
or necessary in the opinion of the Trustee as such attorney-in-fact.
SECTION 8.05. Remedies Not Exclusive. No remedy herein conferred upon or
reserved to the Holders is intended to be exclusive of any other remedy, and each such remedy
shall be cumulative and shall be in addition to every other remedy given hereunder or now or
hereafter existing at law or in equity or by statute or otherwise and may be exercised without
exhausting and without regard to any other remedy conferred by the Act or any other law.
SECTION 8.06. Limitation on Bondholders' Right to Sue. No Holder of any
Bond issued hereunder shall have the right to institute any suit, action or proceeding at law or
equity, for any remedy under or upon this Trust Agreement. unless (a) such Holder shall have
previously given to the Trustee written notice of the occurrence of an event of default as defined
in Section 8.01 hereunder; (b) the Holders of at least a majority in Aggregate Principal Amount
of all the Bonds then Outstanding shall have made written request upon the Trustee to exercise
the powers hereinbefore granted or to institute such suit, action or proceeding in its own name;
(c) said Holders shall have tendered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee
shall have refused or omitted to comply with such request for a period of sixty (60) days after
such request shall have been received by, and said tender of indemnity shall have been made to,
the Trustee.
Such notification, request, tender of indemnity and refusal or omission are hereby
declared, in every case, to be conditions precedent to the exercise by any owner of Bonds of any
remedy hereunder; it being understood and intended that no one or more owners of Bonds shall
have any right in any manner whatever by his or their action to enforce any right under this Trust
Agreement, except in the manner herein provided, and that all proceedings at law or in equity to
DOCSSF 180 1656.6
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enforce any provision of the Trust Agreement shall be instituted, had and maintained in the
manner herein provided and for the equal benefit of all Holders of the Outstanding Bonds.
SECTION 8.07. Absolute Obligation of Local Agencv. Nothing in this Section
or in any other provision of this Trust Agreement or in the Bonds contained shall affect or impair
the obligation of the Local Agency, which is absolute and unconditional, to pay the principal of,
premium, if any and interest on the Bonds to the respective Holders of the Bonds at their
respective due dates as herein provided.
ARTICLE IX
DEFEASANCE
SECTION 9.01. Discharge of Bonds.
(a) If the Local Agency shall payor cause to be paid or there shall otherwise be
paid to the Holders of all Outstanding Bonds the interest thereon and the principal thereof and
the redemption premiums, if any, thereon at the times and in the manner stipulated herein and
therein, and shall payor provide for the payment of all fees and expenses of the Trustee, then all
agreements, covenants and other obligations of the Local Agency to the Holders of such Bonds
hereunder shall thereupon cease, terminate and become void and be discharged and satisfied. In
such event, the Trustee shall execute and deliver to the Local Agency all such instruments as
may be necessary or desirable to evidence such discharge and satisfaction, the Trustee shall pay
over or deliver to the Local Agency all money or securities held by it pursuant hereto which are
not required for the payment of the interest on and principal of and redemption premiums, if any,
on such Bonds.
(b) Any Outstanding Bonds shall prior to the maturity date or redemption date
thereof be deemed to have been paid within the meaning of and with the effect expressed in
subsection (a) of this section if (1) in case any of such Bonds are to be redeemed on any date
prior to their maturity date, the Local Agency shall have given to the Trustee in form satisfactory
to it irrevocable instructions to provide notice in accordance with Section 2.03, (2) there shall
have been deposited with the Trustee either (A) money in an amount which shall be sufficient or
(B) Defeasance Securities which are not subject to redemption prior to maturity (including any
such Defeasance Securities issued or held in book-entry form on the books of the Local Agency
or the Treasury of the United States of America), the interest on and principal of which when
paid will provide money which, together with the money, if any, deposited with the Trustee at
the same time, shall be sufficient, in the opinion of an Independent Certified Public Accountant,
to pay when due the interest to become due on such Bonds on and prior to the maturity date or
redemption date thereof, as the case may be, and the principal of and redemption premiums, if
any, on such Bonds, and (3) in the event such Bonds are not by their terms subject to redemption
within the next succeeding sixty (60) days, the Local Agency shall have given the Trustee in
form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the
Holders of such Bonds that the deposit required by clause (2) above has been made with the
Trustee and that such Bonds are deemed to have been paid in accordance with this section and
stating the maturity date or redemption date upon which money is to be available for the payment
of the principal of and redemption premiums, ifany, on such Bonds.
DOCSSF1801656.6
43
SECTION 9.02. Unclaimed Money. Anything contained herein to the contrary
notwithstanding, any money held by the Trustee in trust for the payment and discharge of any of
the Bonds or interest thereon which remains unclaimed for two (2) years after the date when such
Bonds or interest thereon have become due and payable, either at their stated maturity dates or
by call for redemption prior to maturity, if such money was held by the Trustee at such date, or
for two (2) years after the date of deposit of such money if deposited with the Trustee after the
date when such Bonds have become due and payable, shall be repaid by the Trustee to the Local
Agency as its absolute property free from trust, and the Trustee shall thereupon be released and
discharged with respect thereto and the Holders shall not look to the Trustee for the payment of
such Bonds; provided, however, that before being required to make any such payment to the
Local Agency, the Trustee may, and at the request of the Local Agency shall, at the expense of
the Local Agency, cause to be published once a week for two (2) successive weeks in a Financial
Newspaper of general circulation in Los Angeles and in San Francisco, California and in the
same or a similar Financial Newspaper of general circulation in New York, New York a notice
that such money remains unclaimed and that, after a date named in such notice, which date shall
not be less than thirty (30) days after the date of the first publication of each such notice, the
balance of such money then unclaimed will be returned to the Local Agency.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Benefits of the Trust Agreement Limited to Parties. Nothing
contained herein, expressed or implied, is intended to give to any person other than the Local
Agency. the Trustee and the Holders any right, remedy or claim under or by reason hereof. Any
agreement or covenant required herein to be performed by or on behalf of the Local Agency or
any member, officer or employee thereof shall be for the sole and exclusive benefit of the
Trustee and the Holders.
SECTION 10.02. Successor Is Deemed Included in All References to
Predecessor. Whenever herein either the Local Agency or any member, officer or employee
thereof or the Trustee is named or referred to, such reference shall be deemed to include the
successor or assigns thereof, and all agreements and covenants required hereby to be performed
by or on behalf of the Local Agency or the Trustee, or any member, officer or employee thereof.
shall bind and inure to the benefit of the respective successors thereof whether so expressed or
not.
SECTION 10.03. Execution of Documents by Holders. Any declaration, request
or other instrument which is permitted or required herein to be executed by Holders may be in
one or more instruments of similar tenor and may be executed by Holders in person or by their
attorneys appointed in writing. The fact and date of the execution by any Holder or his attorney
of any declaration, request or other instrument or of any writing appointing such attorney may be
proved by the certificate of any notary public or other officer authorized to make
acknowledgments of deeds to be recorded in the state or territory in which he purports to act that
the person signing such declaration, request or other instrument or writing acknowledged to him
the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such
notary public or other officer. The ownership of any Bonds and the amount, maturity, number
DOCSSF180 1656.6
44
and date of holding the same may be proved by the registration books relating to the Bonds at the
office of the Trustee.
Any declaration, request, consent or other instrument or writing of the Holder of
any Bond shall bind all future Holders of such Bond with respect to anything done or suffered to
be done by the Trustee or the Local Agency in good faith and in accordance therewith.
SECTION 10.04. Waiver of Personal Liability. No member. officer or
employee of the Local Agency or the Local Agency shall be individually or personally liable for
the payment of the interest on or principal of or redemption premiums, if any, on the Bonds by
reason of their issuance, but nothing herein contained shall relieve any such member, officer or
employee from the performance of any official duty provided by the Act or any other applicable
provisions of law or hereby.
SECTION 10.05. Acquisition of Bonds by Local Agency. All Bonds acquired
by the Local Agency, whether by purchase or gift or otherwise, shall be surrendered to the
Trustee for cancellation.
SECTION 10.06. Destruction of Cancelled Bonds. Whenever provision is made
for the return to the Local Agency of any Bonds which have been cancelled pursuant to the
provisions hereof, the Trustee shall destroy such Bonds and furnish to the Local Agency a
certificate of such destruction.
SECTION 10.07. Content of Certificates. Every Certificate of the Local Agency
with respect to compliance with any agreement, condition, covenant or provision provided herein
shall include (a) a statement that the person or persons making or giving such certificate have
read such agreement. condition, covenant or provision and the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the examination or investigation upon which
the statements contained in such certificate are based; (c) a statement that, in the opinion of the
signers, they have made or caused to be made such examination or investigation as is necessary
to enable them to express an informed opinion as to whether or not such agreement, condition,
covenant or provision has been complied with; and (d) a statement as to whether, in the opinion
of the signers, such agreement, condition, covenant or provision has been complied with.
Any Certificate of the Local Agency may be based, insofar as it relates to legal
matters, upon an Opinion of Counsel unless the person making or giving such certificate knows
that the Opinion of Counsel with respect to the matters upon which his certificate may be based,
as aforesaid. is erroneous, or in the exercise of reasonable care should have known that the same
was erroneous. Any Opinion of Counsel may be based, insofar as it relates to factual matters
information with respect to which is in the possession of the Local Agency, upon a
representation by an officer or officers of the Local Agency unless the counsel executing such
Opinion of Counsel knows that the representation with respect to the matters upon which his
opinion may be based, as aforesaid, is erroneous, or in the exercise of reasonable care should
have known that the same was erroneous.
SECTION 10.08. Publication for Successive Weeks. Any publication required
to be made hereunder for successive weeks in a Financial Newspaper may be made in each
DOCSSF 180 1656.6
45
instance upon any Business Day of the first week and need not be made on the same Business
Day of any succeeding week or in the same Financial Newspaper for any subsequent publication,
but may be made on different Business Days or in different Financial Newspapers, as the case
may be.
SECTION 10.09. Accounts and Funds; Business Days. Any account or fund
required herein to be established and maintained by the Trustee may be established and
maintained in the accounting records of the Trustee either as an account or a fund, and may, for
the purposes of such accounting records, any audits thereof and any reports or statements with
respect thereto, be treated either as an account or a fund; but all such records with respect to all
such accounts and funds shall at all times be maintained in accordance with sound accounting
practice and with due regard for the protection of the security of the Bonds and the rights of the
Holders. Any action required to occur hereunder on a day which is not a Business Day shall be
required to occur on the next succeeding Business Day.
SECTION 10.10. Notices. All written notices to be given hereunder shall be
given by mail to the party entitled thereto at its address set forth below, or at such other address
as such party may provide to the other party in writing from time to time, namely:
If to the Local Agency:
City of San Bernardino
300 North "D" Street
San Bernardino, CA 92418-000 I
Attention: City Administrator
If to the Trustee:
Attention: Corporate Trust Services
Wells Fargo Bank, National Association
707 Wilshire Boulevard
MAC # E2818-176
Los Angeles, CA 900 17
SECTION 10.11. Article and Section Headings and References. The headings
or titles of the several articles and sections hereof and the table of contents appended hereto shall
be solely for convenience of reference and shall not affect the meaning, construction or effect
hereof. All references herein to "Articles," "Sections" and other subdivisions or clauses are to
the corresponding articles, sections, subdivisions or clauses hereof; and the words "hereby,"
"herein," "hereof," "hereto," "herewith," "hereunder" and other words of similar import refer to
the Trust Agreement as a whole and not to any particular article, section, subdivision or clause
hereof.
SECTION 10.12. Partial Invalidity. If anyone or more of the agreements or
covenants or portions thereof required hereby to be performed by or on the part of the Local
Agency or the Trustee shall be contrary to law, then such agreement or agreements, such
DOCSSF 180 1656.6
46
covenant or covenants or such portions thereof shall be null and void and shall be deemed
separable from the remaining agreements and covenants or portions thereof and shall in no way
affect the validity hereof or of the Bonds, and the Holders shall retain all the benefit, protection
and security afforded to them under the Act or any other applicable provisions of law. The Local
Agency and the Trustee hereby declare that they would have executed and delivered the Trust
Agreement and each and every other article, section, paragraph, subdivision, sentence, clause
and phrase hereof and would have authorized the issuance of the Bonds pursuant hereto
irrespective of the fact that anyone or more articles, sections, paragraphs, subdivisions,
sentences, clauses or phrases hereof or the application thereof to any person or circumstance may
be held to be unconstitutional, unenforceable or invalid.
SECTION 10.13. Execution in Several Counterparts. This Trust Agreement
may be executed in any number of counterparts and each of such counterparts shall for all
purposes be deemed to be an original; and all such counterparts, or as many of them as the Local
Agency and the Trustee shall preserve undestroyed, shall together constitute but one and the
same instrument.
SECTION 10.14. Governing Law. This Trust Agreement shall be governed by
and construed in accordance with the laws of the State of California.
SECTION 10.15. CUSIP Numbers. Neither the Trustee nor the Local Agency
shall be liable for any defect or inaccuracy in the CUSIP number that appears on any Bond or in
any redemption notice. The Trustee may, in its discretion, include in any redemption notice a
statement to the effect that the CUSIP numbers on the Bonds have been assigned by an
independent service and are included in such notice solely for the convenience of the Holders
and that neither Local Agency nor the Trustee shall be liable for any inaccuracies in such
numbers.
[Remainder of Page Intentionally Left Blank]
DOCSSFI80 1656.6
47
IN WITNESS WHEREOF, the CITY OF SAN BERNARDINO has caused this
Trust Agreement to be signed in its name by the Authorized Representative and WELLS
F ARGO BANK, NATIONAL ASSOCIATION, in token of its acceptance of the trusts created
hereunder, has caused this Trust Agreement to be signed by the officer thereunder duly
authorized, all as of the day and year first above written.
CITY OF SAN BERNARDINO
By:
Judith Valles, Mayor
ATTEST:
By:
Rachel Clark, City Clerk
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Trustee
By
Authorized Officer
Approved as to form and
legal content:
JAMES F. PENMAN
City Attorney
By:
DOCSSF 180 1656.6
48
EXHIBIT A
[FORM OF STANDARD BOND]
CITY OF SAN BERNARDINO
TAXABLE PENSION OBLIGATION BONDS
2005 SERIES A-I
No. R-
$
THE OBLIGATIONS OF THE CITY OF SAN BERNARDINO
HEREUNDER, INCLUDING THE OBLIGATION TO MAKE ALL
PA YMENTS OF INTEREST AND PRINCIPAL WHEN DUE, ARE
OBLIGATIONS OF THE CITY OF SAN BERNARDINO IMPOSED BY
LA W AND ARE ABSOLUTE AND UNCONDITIONAL, WITHOUT
ANY RIGHT OF SET-OFF OR COUNTER CLAIM. THIS BOND
DOES NOT CONSTITUTE AN OBLIGATION OF THE CITY OF SAN
BERNARDINO FOR WHICH THE CITY OF SAN BERNARDINO IS
OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION
OR FOR WHICH THE CITY OF SAN BERNARDINO HAS LEVIED
OR PLEDGED ANY FORM OF TAXATION. NEITHER THE BONDS
NOR THE OBLIGATION OF THE CITY OF SAN BERNARDINO TO
MAKE PAYMENTS ON THE BONDS CONSTITUTE AN
INDEBTEDNESS OF THE CITY OF SAN BERNARDINO, THE
STATE OF CALIFORNIA, OR ANY OF ITS POLITICAL
SUBDIVISIONS WITHIN THE MEANING OF ANY
CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR
RESTRICTION.
BY POSSESSION OF THIS BOND, THE HOLDER CERTIFIES THAT
IT IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN
RULE 144A(a)(l) UNDER THE SECURITIES ACT OF 1993, AS
AMENDED. THE HOLDER HEREOF, BY THE ACCEPTANCE OF
THIS BOND, ACKNOWLEDGES THAT THIS BOND MAY ONLY BE
REGISTERED IN THE NAME OF, OR TRANSFERRED TO A
QUALIFIED INSTITUTIONAL BUYER IN A MINIMUM
DENOMINATION OF $1 00,000 AGGREGATE PRINCIPAL
AMOUNT.
Interest
Rate
Maturity
Date
Original
Issue Date
CUSIP
ISIN
REGISTERED OWNER:
PRINCIPAL SUM: DOLLARS
DOCSSF 1 :80 1656.6
A-I
The City of San Bernardino, duly organized and validly existing under and
pursuant to the Constitution and laws of the State of California (the "Local Agency"), for value
received hereby, promises to pay to the registered owner identified above or registered assigns,
on the maturity date specified above (subject to any right of prior redemption hereinafter
provided for) the principal sum specified above, together with interest on such principal sum
from the Interest Payment Date (as hereinafter defined) next preceding the date of authentication
of this Bond (unless this Bond is authenticated as of an Interest Payment Date or during the
period from the sixteenth day of the month preceding an Interest Payment Date to such Interest
Payment Date, in which event it shall bear interest from such Interest Payment Date, or unless
this Bond is authenticated prior to the first Interest Payment Date, in which event it shall bear
interest from the original issue date specified above) until the principal hereof shall have been
paid at the interest rate per annum specified above, payable on August I, 2006, and semiannually
thereafter on each February 1 and August 1 (each an "Interest Payment Date"). Interest due on
or before the maturity or prior redemption of this Bond shall be payable only by check mailed on
the Interest Payment Date by first-class mail to the registered owner hereof; provided that upon
the written request of a registered owner of $1 ,000,000 or more in aggregate principal amount of
Bonds received by the Trustee (as hereinafter defined) prior to the applicable record date, interest
shall be paid by wire transfer in immediately available funds. The principal hereof is payable in
lawful money of the United States of America at the Corporate Trust Office of Wells Fargo
Bank, National Association, as Trustee.
This Bond is one of a duly authorized issue of bonds of the Local Agency
designated as its "Taxable Pension Obligation Bonds, 2005 Series A-I" (the "Bonds") in
aggregate principal amount of dollars ($ ), all of like tenor
and date (except for variations relating to numbers, maturities and interest rates), and is issued
under and pursuant to the provisions of Articles 10 and 11 (commencing with Section 53570) of
Chapter 3 of Division 2 of Title 5 of the Government Code of the State of California and all laws
amendatory thereof or supplemental thereto (the "Act") and under and pursuant to the provisions
of a trust agreement, dated as of October 1, 2005 (the 'Trust Agreement"), between the Local
Agency and Wells Fargo Bank, National Association, as trustee (the "Trustee") (copies of which
are on file at the Corporate Trust Office of the Trustee). The Bonds and Additional Bonds may
be issued as Standard Bonds, Capital Appreciation Bonds, Listed Securities, Auction Rate
Securities and Index Bonds (as those terms are defined in the Trust Agreement); this Bond is a
Standard Bond.
Under the Trust Agreement, Additional Bonds and other obligations may be
issued on a parity with the Bonds, but subject to the conditions and upon compliance with the
procedures set forth in the Trust Agreement. The Bonds and any bonds or other obligations
issued on a parity with the Bonds are obligations imposed by law payable from funds to be
appropriated by the Local Agency pursuant to the Public Employees' Retirement Law,
commencing with Section 20000 of the Government Code of the State of California, as amended
(the "Retirement Law"). Reference is hereby made to the Act and to the Trust Agreement and
any and all amendments thereof and supplements thereto for a description of the terms on which
the Bonds are issued, the rights of the registered owners of the Bonds, security for payment of
the Bonds, remedies upon default and limitations thereon, and amendment of the Trust
Agreement (with or without consent of the registered owners of the Bonds); and all the terms of
the Trust Agreement are hereby incorporated herein and constitute a contract between the Local
DOCSSF 1.80 1656.6
A-2
Agency and the registered owner of this Bond, to all the provisions of which the registered
owner of this Bond, by acceptance hereof, agrees and consents.
The Bonds are subject to redemption on the dates, at the redemption prices and
pursuant to the terms set forth in the Trust Agreement. Notice ofredemption of any Bonds or
any portions thereof shall be given as set forth in the Trust Agreement. Failure by the Trustee to
give notice pursuant to the Trust Agreement to anyone or more of the Information Services, or
the insufficiency of any such notice or the failure of any registered owner to receive any
redemption notice mailed to such registered owner or any immaterial defect in the notice so
mailed shall not affect the sufficiency of the proceedings for the redemption of any Bonds.
This Bond is transferable only on a register to be kept for that purpose at the
above-mentioned office of the Trustee by the registered owner hereof in person or by his duly
authorized attorney upon payment of the charges provided in the Trust Agreement and upon
surrender of this Bond together with a written instrument of transfer satisfactory to the Trustee
duly executed by the registered owner or his duly authorized attorney, and thereupon a new fully
registered Bond or Bonds in the same aggregate principal amount of authorized denominations
will be issued to the transferee in exchange therefor. The Local Agency and the Trustee may
deem and treat the registered owner hereof as the absolute owner hereof for the purpose of
receiving payment of the interest hereon and principal hereof and for all other purposes, whether
or not this Bond shall be overdue, and neither the Local Agency nor the Trustee shall be affected
by any notice or knowledge to the contrary; and payment of the interest on and principal of this
Bond shall be made only to such registered owner, which payments shall be valid and effectual
to satisfy and discharge liability on this Bond to the extent of the sum or sums so paid.
This Bond shall not be entitled to any benefit, protection or security under the
Trust Agreement or become valid or obligatory for any purpose until the certificate of
authentication and registration hereon endorsed shall have been executed and dated by the
Trustee.
It is hereby certified that all acts, conditions and things required by law to exist, to
have happened and to have been performed precedent to and in the issuance of this Bond do
exist, have happened and have been performed in due time, form and manner as required by law
and that the amount of this Bond, together with all other indebtedness of the Local Agency, does
not exceed any limit prescribed by the Constitution or laws of the State of California and is not in
excess of the amount of Bonds permitted to be issued under the Trust Agreement.
DOCSSF 1:80 1656.6
A-3
IN WITNESS WHEREOF, the City of San Bernardino has caused this Bond to be
executed in its name and on its behalf by the facsimile signature of the Mayor and to be
countersigned by the facsimile signature of the City Clerk of the City of San Bernardino, and has
caused this Bond to be dated as of the original issue date specified above.
CITY OF SAN BERNARDINO
By
Mayor
Countersigned
City Clerk
[FORM OF CERTIFICATE OF AUTHENTICATION]
This is one of the Bonds described in the within-mentioned Trust Agreement
which has been authenticated on
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Trustee
By
Authorized Signatory
DOCSSF 1:80 1656.6
A-4
[FORM OF ASSIGNMENT]
For value received the undersigned hereby sells, assigns and transfers unto
(Taxpayer Identification Number: ) the within Bond and all rights
thereunder, and hereby irrevocably constitutes and appoints attorney
to transfer the within bond on the books kept for registration thereof, with full power of
substitution in the premises.
Dated:
Note: The signature to this Assignment must correspond with the name as written on the face of
the Bond in every particular, without alteration or enlargement or any change whatever.
Signature Guaranteed:
Notice: Signature must be guaranteed by an eligible guarantor institution.
DOCSSF1801656.6 A-5
EXHIBIT B
IFORM OF CAPITAL APPRECIATION BOND]
CITY OF SAN BERNARDINO
TAXABLE PENSION OBLIGATION BONDS
2005 SERIES A-2
No. R-
$
THE OBLIGATIONS OF THE CITY OF SAN BERNARDINO
HEREUNDER, INCLUDING THE OBLIGATION TO MAKE ALL
PA YMENTS OF INTEREST AND PRINCIPAL WHEN DUE, ARE
OBLIGATIONS OF THE CITY OF SAN BERNARDINO IMPOSED BY
LA W AND ARE ABSOLUTE AND UNCONDITIONAL, WITHOUT
ANY RIGHT OF SET-OFF OR COUNTER CLAIM. THIS BOND
DOES NOT CONSTITUTE AN OBLIGATION OF THE CITY OF SAN
BERNARDINO FOR WHICH THE CITY OF SAN BERNARDINO IS
OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION
OR FOR WHICH THE CITY OF SAN BERNARDINO HAS LEVIED
OR PLEDGED ANY FORM OF TAXATION. NEITHER THE BONDS
NOR THE OBLIGATION OF THE CITY OF SAN BERNARDINO TO
MAKE PAYMENTS ON THE BONDS CONSTITUTE AN
INDEBTEDNESS OF THE CITY OF SAN BERNARDINO, THE
ST A TE OF CALIFORNIA, OR ANY OF ITS POLITICAL
SUBDIVISIONS WITHIN THE MEANING OF ANY
CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR
RESTRICTION.
BY POSSESSION OF THIS BOND, THE HOLDER CERTIFIES THAT
IT IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN
RULE I44A(a)(l) UNDER THE SECURITIES ACT OF 1993, AS
AMENDED. THE HOLDER HEREOF, BY THE ACCEPTANCE OF
THIS BOND, ACKNOWLEDGES THAT THIS BOND MAY ONLY BE
REGISTERED IN THE NAME OF, OR TRANSFERRED TO A
QUALIFIED INSTITUTIONAL BUYER IN A MINIMUM
DENOMINA TION OF $300,000 MATURITY VALUE.
Interest Maturity Original
Rate Date Issue Date CUSIP ISIN
REGISTERED OWNER:
PRINCIP AL SUM: DOLLARS
ACCRETED VALUE AT MATURITY:
DOCSSFl80 1656.6 B-1
The City of San Bernardino, duly organized and validly existing under and
pursuant to the Constitution and laws of the State of California (the "Local Agency"), for value
received hereby, promises to pay to the registered owner identified above or registered assigns,
on the maturity date specified above (subject to any right of prior redemption hereinafter
provided for) the Accreted Value specified above. Interest on the principal sum specified above
at approximately the interest rate specified above from the Original Issue Date specified above
based on a 360-day year of twelve 30-day months, shall be compounded on August 1,2006, and
semiannually thereafter on February 1 and August 1 in each year to the maturity date specified
above, and shall be payable at maturity or at the earlier redemption hereof. Payment of such
principal and interest shall be in accordance with the amounts set forth in the Accreted Value
Table hereinafter set forth and for payments between compounding dates by straight line
interpolations. The Accreted Value hereof is payable in lawful money of the United States of
America at the Corporate Trust Office of Wells Fargo Bank, National Association, as Trustee.
This Bond is one of a duly authorized issue of bonds of the Local Agency
designated as its "Taxable Pension Obligation Bonds, 2005 Series A-2" (the "Bonds") in
aggregate principal amount of dollars ($ ), all of like tenor
and date (except for variations relating to numbers, maturities and interest rates), and is issued
under and pursuant to the provisions of Articles 10 and 11 (commencing with Section 53570) of
Chapter 3 of Division 2 of Title 5 of the Government Code of the State of California and all laws
amendatory thereof or supplemental thereto (the "Act") and under and pursuant to the provisions
of a trust agreement, dated as of October 1, 2005 (the "Trust Agreement"), between the Local
Agency and Wells Fargo Bank, National Association, as trustee (the "Trustee") (copies of which
are on file at the Corporate Trust Office of the Trustee). The Bonds and any Additional Bonds
may be issued as Standard Bonds, Capital Appreciation Bonds, Listed Securities, Auction Rate
Securities and Index Bonds (as those terms are defined in the Trust Agreement); this Bond is a
Capital Appreciation Bond.
Under the Trust Agreement, Additional Bonds and other obligations may be
issued on a parity with the Bonds, but subject to the conditions and upon compliance with the
procedures set forth in the Trust Agreement. The Bonds and any bonds or other obligations
issued on a parity with the Bonds are obligations imposed by law payable from funds to be
appropriated by the Local Agency pursuant to the Public Employees' Retirement Law,
commencing with Section 20000 ofthe Government Code of the State of California, as amended
(the "Retirement Law"). Reference is hereby made to the Act and to the Trust Agreement and
any and all amendments thereof and supplements thereto for a description of the terms on which
the Bonds are issued, the rights of the registered owners of the Bonds, security for payment of
the Bonds, remedies upon default and limitations thereon, and amendment of the Trust
Agreement (with or without consent of the registered owners of the Bonds); and all the terms of
the Trust Agreement are hereby incorporated herein and constitute a contract between the Local
Agency and the registered owner of this Bond, to all the provisions of which the registered
owner of this Bond, by acceptance hereof, agrees and consents.
The Bonds are subject to redemption on the dates, at the redemption prices and
pursuant to the terms set forth in the Trust Agreement. Notice of redemption ofany Bonds or
any portions thereof shall be given as set forth in the Trust Agreement. Failure by the Trustee to
give notice pursuant to the Trust Agreement to anyone or more of the Information Services, or
DOCSSF18016566
B-2
the insufficiency of any such notice or the failure of any registered owner to receive any
redemption notice mailed to such registered owner or any immaterial defect in the notice so
mailed shall not affect the sufficiency of the proceedings for the redemption of any Bonds.
This Bond is transferable only on a register to be kept for that purpose at the
above-mentioned office of the Trustee by the registered owner hereof in person or by his duly
authorized attorney upon payment of the charges provided in the Trust Agreement and upon
surrender of this Bond together with a written instrument of transfer satisfactory to the Trustee
duly executed by the registered owner or his duly authorized attorney, and thereupon a new fully
registered Bond or Bonds in the same aggregate principal amount of authorized denominations
will be issued to the transferee in exchange therefor. The Local Agency and the Trustee may
deem and treat the registered owner hereof as the absolute owner hereof for the purpose of
receiving payment of the interest hereon and principal hereof and for all other purposes, whether
or not this Bond shall be overdue, and neither the Local Agency nor the Trustee shall be affected
by any notice or knowledge to the contrary; and payment of the interest on and principal of this
Bond shall be made only to such registered owner, which payments shall be valid and effectual
to satisfy and discharge liability on this Bond to the extent of the sum or sums so paid.
This Bond shall not be entitled to any benefit, protection or security under the
Trust Agreement or become valid or obligatory for any purpose until the certificate of
authentication and registration hereon endorsed shall have been executed and dated by the
Trustee.
It is hereby certified that all acts, conditions and things required by law to exist, to
have happened and to have been performed precedent to and in the issuance ofthis Bond do
exist, have happened and have been performed in due time, form and manner as required by law
and that the amount of this Bond, together with all other indebtedness of the Local Agency, does
not exceed any limit prescribed by the Constitution or laws ofthe State of California and is not in
excess of the amount of Bonds permitted to be issued under the Trust Agreement.
DOCSSFl :801656.6
B-3
IN WITNESS WHEREOF, the City of San Bernardino has caused this Bond to be
executed in its name and on its behalf by the facsimile signature of the Mayor and to be
countersigned by the facsimile signature of the City Clerk of the City of San Bernardino, and has
caused this Bond to be dated as of the original issue date specified above.
CITY OF SAN BERNARDINO
By
Mayor
Countersigned
City Clerk
[FORM OF CERTIFICATE OF AUTHENTIC A TION]
This is one of the Bonds described in the within-mentioned Trust Agreement
which has been authenticated on
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Trustee
By
Authorized Signatory
DOCSSFl:801656.6
B-4
[FORM OF ASSIGNMENT]
For value received the undersigned hereby sells, assigns and transfers unto
(Taxpayer Identification Number: ) the within Bond and all rights
thereunder, and hereby irrevocably constitutes and appoints attorney to
transfer the within bond on the books kept for registration thereof, with full power of substitution
in the premises.
Dated:
Note: The signature to this Assignment must correspond with the name as written on the face of
the Bond in every particular, without alteration or enlargement or any change whatever.
Signature Guaranteed:
Notice: Signature must be guaranteed by an eligible guarantor institution.
DOCSSF1801656.6 B-5
EXHIBIT C
[FORM OF LISTED SECURITY]
$
(CONSISTING OF
IN $25 DENOMINATIONS OF)
CITY OF SAN BERNARDINO
TAXABLE PENSION OBLIGATION BONDS
[SERIES DESIGNATION]
No. R-
Maximum Number of Bonds
issued as of
THE OBLIGATIONS OF THE CITY OF SAN BERNARDINO
HEREUNDER, INCLUDING THE OBLIGATION TO MAKE ALL
PA YMENTS OF INTEREST AND PRINCIPAL WHEN DUE, ARE
OBLIGATIONS OF THE CITY OF SAN BERNARDINO IMPOSED BY
LA W AND ARE ABSOLUTE AND UNCONDITIONAL, WITHOUT
ANY RIGHT OF SET-OFF OR COUNTER CLAIM. THIS BOND
DOES NOT CONSTITUTE AN OBLIGATION OF THE CITY OF SAN
BERNARDINO FOR WHICH THE CITY OF SAN BERNARDINO IS
OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION
OR FOR WHICH THE CITY OF SAN BERNARDINO HAS LEVIED
OR PLEDGED ANY FORM OF TAXATION. NEITHER THE BONDS
NOR THE OBLIGATION OF THE CITY OF SAN BERNARDINO TO
MAKE PAYMENTS ON THE BONDS CONSTITUTE AN
INDEBTEDNESS OF THE CITY OF SAN BERNARDINO, THE
ST A TE OF CALIFORNIA, OR ANY OF ITS POLITICAL
SUBDIVISIONS WITHIN THE MEANING OF ANY
CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR
RESTRICTION.
REGISTERED OWNER:
PRINCIP AL SUM:
DOLLARS
The City of San Bernardino, duly organized and validly existing under and
pursuant to the Constitution and laws of the State of California (the "Local Agency"), for value
received hereby, promises to pay to the registered owner identified above or registered assigns,
on the maturity date specified above (subject to any right of prior redemption hereinafter
provided for) the principal sum specified above, together with interest on such principal sum
from the Interest Payment Date (as hereinafter defined) next preceding the date of authentication
of this Bond (unless this Bond is authenticated as of an Interest Payment Date or during the
period from the sixteenth day of the month preceding an Interest Payment Date to such Interest
DOCSSF 180 1656.6
C-I
Payment Date, in which event it shall bear interest from such Interest Payment Date, or unless
this Bond is authenticated prior the first Interest Payment Date, in which event it shall bear
interest from the original issue date specified above) until the principal hereof shall have been
paid at the interest rate per annum specified above, payable on , and thereafter on
each (each an "Interest Payment Date"). Interest due on or before the maturity or
prior redemption of this Bond shall be payable only by check mailed on the Interest Payment
Date by first-class mail to the registered owner hereof; provided that upon the written request of
a registered owner of $1 ,000,000 or more in aggregate principal amount of Bonds received by
the Trustee (as hereinafter defined) prior to the applicable record date, interest shall be paid by
wire transfer in immediately available funds. The principal hereof is payable in lawful money of
the United States of America at the Corporate Trust Office of Wells Fargo Bank, National
Association, as Trustee.
This Bond is one of a duly authorized issue of bonds of the Local Agency
designated as its "Taxable Pension Obligation Bonds, [Series Designation]" (the "Bonds") in
aggregate principal amount of dollars ($ ), all of like tenor
and date (except for variations relating to numbers, maturities and interest rates), and is issued
under and pursuant to the provisions of Articles 10 and 11 (commencing with Section 53570) of
Chapter 3 of Division 2 of Title 5 of the Government Code of the State of California and all laws
amendatory thereof or supplemental thereto (the "Act") and under and pursuant to the provisions
of a trust agreement, dated as of October 1, 2005 (the "Trust Agreement"), between the Local
Agency and Wells Fargo Bank, National Association, as trustee (the "Trustee") (copies of which
are on file at the Corporate Trust Office of the Trustee). The Bonds and any Additional Bonds
may be issued as Standard Bonds, Capital Appreciation Bonds, Listed Securities, Auction Rate
Securities and Index Bonds (as those terms are defined in the Trust Agreement); this Bond is a
Listed Security.
Under the Trust Agreement, Additional Bonds and other obligations may be
issued on a parity with the Bonds, but subject to the conditions and upon compliance with the
procedures set forth in the Trust Agreement. The Bonds and any bonds or other obligations
issued on a parity with the Bonds are obligations imposed by law payable from funds to be
appropriated by the Local Agency pursuant to the Public Employees' Retirement Law,
commencing with Section 20000 of the Government Code of the State of California, as amended
(the "Retirement Law"). Reference is hereby made to the Act and to the Trust Agreement and
any and all amendments thereof and supplements thereto for a description of the terms on which
the Bonds are issued, the rights of the registered owners of the Bonds, security for payment of
the Bonds, remedies upon default and limitations thereon, and amendment of the Trust
Agreement (with or without consent of the registered owners of the Bonds); and all the terms of
the Trust Agreement are hereby incorporated herein and constitute a contract between the Local
Agency and the registered owner of this Bond, to all the provisions of which the registered
owner of this Bond, by acceptance hereof, agrees and consents.
The Bonds are subject to redemption on the dates, at the redemption prices and
pursuant to the terms set forth in the Trust Agreement. Notice of redemption of any Bonds or
any portions thereof shall be given as set forth in the Trust Agreement. Failure by the Trustee to
give notice pursuant to the Trust Agreement to anyone or more of the Information Services, or
the insufficiency of any such notice or the failure of any registered owner to receive any
DOCSSF 180 1656.6
C-2
redemption notice mailed to such registered owner or any immaterial defect in the notice so
mailed shall not affect the sufficiency of the proceedings for the redemption of any Bonds.
This Bond is transferable only on a register to be kept for that purpose at the
above-mentioned office of the Trustee by the registered owner hereof in person or by his duly
authorized attorney upon payment of the charges provided in the Trust Agreement and upon
surrender of this Bond together with a written instrument of transfer satisfactory to the Trustee
duly executed by the registered owner or his duly authorized attorney, and thereupon a new fully
registered Bond or Bonds in the same aggregate principal amount of authorized denominations
will be issued to the transferee in exchange therefor. The Local Agency and the Trustee may
deem and treat the registered owner hereof as the absolute owner hereof for the purpose of
receiving payment of the interest hereon and principal hereof and for all other purposes, whether
or not this Bond shall be overdue, and neither the Local Agency nor the Trustee shall be affected
by any notice or knowledge to the contrary; and payment of the interest on and principal of this
Bond shall be made only to such registered owner, which payments shall be valid and effectual
to satisfy and discharge liability on this Bond to the extent of the sum or sums so paid.
This Bond shall not be entitled to any benefit, protection or security under the
Trust Agreement or become valid or obligatory for any purpose until the certificate of
authentication and registration hereon endorsed shall have been executed and dated by the
Trustee.
It is hereby certified that all acts, conditions and things required by law to exist, to
have happened and to have been performed precedent to and in the issuance of this Bond do
exist, have happened and have been performed in due time, form and manner as required by law
and that the amount of this Bond, together with all other indebtedness ofthe Local Agency, does
not exceed any limit prescribed by the Constitution or laws of the State of California and is not in
excess of the amount of Bonds permitted to be issued under the Trust Agreement.
DOCSSF1801656.6
C-3
IN WITNESS WHEREOF, the City of San Bernardino has caused this Bond to be
executed in its name and on its behalf by the facsimile signature of the Mayor and to be
countersigned by the facsimile signature of the City Clerk of the City of San Bernardino, and has
caused this Bond to be dated as of the original issue date specified above.
CITY OF SAN BERNARDINO
By
Mayor
Countersigned
City Clerk
[FORM OF CERTIFICATE OF AUTHENTICA nON]
This is one of the Bonds described in the within-mentioned Trust Agreement
which has been authenticated on
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Trustee
By
Authorized Signatory
DOCSSFI :801656.6
C-4
[FORM OF ASSIGNMENT]
For value received the undersigned hereby sells, assigns and transfers unto
(Taxpayer Identification Number: ) the within Bond and all rights
thereunder, and hereby irrevocably constitutes and appoints attorney to
transfer the within bond on the books kept for registration thereof, with full power of substitution
in the premises.
Dated:
Note: The signature to this Assignment must correspond with the name as written on the face of
the Bond in every particular, without alteration or enlargement or any change whatever.
Signature Guaranteed:
Notice: Signature must be guaranteed by an eligible guarantor institution.
DOCSSF1801656.6 C-5
EXHIBIT D
[FORM OF AUCTION RATE SECURITY]
CITY OF SAN BERNARDINO
TAXABLE PENSION OBLIGA nON BONDS
[SERIES DESIGNA nON]
No. R-
$
THE OBLIGATIONS OF THE CITY OF SAN BERNARDINO
HEREUNDER, INCLUDING THE OBLIGATION TO MAKE ALL
PA YMENTS OF INTEREST AND PRINCIPAL WHEN DUE, ARE
OBLIGATIONS OF THE CITY OF SAN BERNARDINO IMPOSED BY
LA W AND ARE ABSOLUTE AND UNCONDITIONAL, WITHOUT
ANY RIGHT OF SET-OFF OR COUNTER CLAIM. THIS BOND
DOES NOT CONSTITUTE AN OBLIGATION OF THE CITY OF SAN
BERNARDINO FOR WHICH THE CITY OF SAN BERNARDINO IS
OBLIGA TED TO LEVY OR PLEDGE ANY FORM OF TAXATION
OR FOR WHICH THE CITY OF SAN BERNARDINO HAS LEVIED
OR PLEDGED ANY FORM OF TAXATION. NEITHER THE BONDS
NOR THE OBLIGATION OF THE CITY OF SAN BERNARDINO TO
MAKE PAYMENTS ON THE BONDS CONSTITUTE AN
INDEBTEDNESS OF THE CITY OF SAN BERNARDINO, THE
STATE OF CALIFORNIA, OR ANY OF ITS POLITICAL
SUBDIVISIONS WITHIN THE MEANING OF ANY
CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR
RESTRICTION.
Interest
Rate
Maturity
Date
Original
Issue Date
CUSIP
ISIN
REGISTERED OWNER:
PRINCIP AL SUM:
DOLLARS
The City of San Bernardino, duly organized and validly existing under and
pursuant to the Constitution and laws of the State of California (the "Local Agency"), for value
received hereby, promises to pay to the registered owner identified above or registered assigns,
on the maturity date specified above (subject to any right of prior redemption hereinafter
provided for) the principal sum specified above, together with interest on such principal sum
from the Interest Payment Date (as hereinafter defined) next preceding the date of authentication
of this Bond (unless this Bond is authenticated as of an Interest Payment Date or during the
period from the sixteenth day of the month preceding an Interest Payment Date to such Interest
Payment Date, in which event it shall bear interest from such Interest Payment Date, or unless
this Bond is authenticated prior to the first Interest Payment Date, in which event it shall bear
DOCSSF I :80 1656.6
D-l
interest from the original issue date specified above) until the principal hereof shall have been
paid. The principal hereof is payable in lawful money of the United States of America at the
Corporate Trust Office of Wells Fargo Bank, National Association, as Trustee.
This Bond is issued as an Auction Rate Security, and will initially bear interest at
the Applicable Auction Rate established pursuant to the Auction and Settlement Procedures set
forth in the Auction Agent Agreement. Interest on Auction Rate Securities will accrue for each
Auction Interest Period or portion thereof and will be payable in arrears on each succeeding
Interest Payment Date. The length of an Auction Interest Period may be adjusted pursuant to the
Trust Agreement.
While this Bond is an Auction Rate Security, except as otherwise specifically
provided in the Trust Agreement, the provisions of the Trust Agreement and the Auction and
Settlement Procedures set forth in the Auction Agent Agreement shall govern the interest rates
per annum and the payment terms of this Bond. Interest due on or before the maturity or prior
redemption of this Bond shall be payable only by check mailed on the Interest Payment Date by
first-class mail to the registered owner hereof by Wells Fargo Bank, National Association, as
trustee (the "Trustee") provided that upon the written request of an Owner of $1 ,000,000 or more
in aggregate principal amount of Bonds received by the Trustee prior to the applicable record
date, interest shall be paid to such Owner by wire transfer in immediately available funds. The
principal hereof is payable in lawful money of the United States of America at the Corporate
Trust Office of the Trustee.
This Bond is one of a duly authorized issue of bonds of the Local Agency
designated as its "Taxable Pension Obligation Bonds, [Series Designation)" (the "Bonds") in
aggregate principal amount of dollars ($ ), all of like tenor
and date (except for variations relating to numbers, maturities and interest rates), and is issued
under and pursuant to the provisions of Articles 10 and 11 (commencing with Section 53570) of
Chapter 3 of Division 2 of Title 5 of the Government Code of the State of California and all laws
amendatory thereof or supplemental thereto (the "Act") and under and pursuant to the provisions
of a trust agreement, dated as of October I, 2005 (the "Trust Agreement"), between the Local
Agency and Wells Fargo Bank, National Association, as trustee (the "Trustee") (copies of which
are on file at the Corporate Trust Office of the Trustee). The Bonds and any Additional Bonds
may be issued as Standard Bonds, Capital Appreciation Bonds, Listed Securities, Auction Rate
Securities and Index Bonds (as those terms are defined in the Trust Agreement); this Bond is an
Auction Rate Security Bond.
Under the Trust Agreement, Additional Bonds and other obligations may be
issued on a parity with the Bonds, but subject to the conditions and upon compliance with the
procedures set forth in the Trust Agreement. The Bonds and any bonds or other obligations
issued on a parity with the Bonds are obligations imposed by law payable from funds to be
appropriated by the Local Agency pursuant to the Public Employees' Retirement Law,
commencing with Section 20000 of the Government Code of the State of California, as amended
(the "Retirement Law"). Reference is hereby made to the Act and to the Trust Agreement and
. any and all amendments thereof and supplements thereto for a description of the terms on which
the Bonds are issued, the rights of the registered owners of the Bonds, security for payment of
the Bonds, remedies upon default and limitations thereon, and amendment of the Trust
DOCSSFl8016566
D-2
Agreement (with or without consent of the registered owners of the Bonds); and all the terms of
the Trust Agreement are hereby incorporated herein and constitute a contract between the Local
Agency and the registered owner of this Bond, to all the provisions of which the registered
owner of this Bond, by acceptance hereof, agrees and consents.
Interest on Auction Rate Securities shall accrue for each Interest Period and shall
be payable in arrears, on each succeeding Interest Payment Date. An "Interest Payment Date"
for the Bonds means, during the Initial Interest Period, , 2005 and thereafter each
and until and thereafter ; and shall also
mean the maturity date of Auction Rate Securities. An "Interest Period" means, (i) unless
otherwise changed as described in the Trust Agreement, the period commencing on the date of
the original issuance of the Bonds through and including the last day of the initial Interest Period,
the Initial Auction Period and thereafter each successive period of days,
commencing on a (or the day following the last Interest Period, if the prior Interest
Period does not end on a ) and ending on (and including) a (unless
such is not followed by a Business Day, in which case the next succeeding day (need
not be consecutive) that is followed by a Business Day), and (ii) if the Auction Periods are
changed as provided for in the Trust Agreement, each period commencing on an Interest
Payment Date and ending on, but excluding, the next succeeding Interest Payment Date. Interest
Payment Dates may change in the event of a change in the length of one or more Auction
Periods.
Interest on the Bonds during the initial Interest Period and during any Auction
Period shall be computed by the Trustee on the basis set forth in a Supplemental Trust
Agreement. The Trustee shall make the calculation described above not later than the close of
business of each Auction Date.
The rate of interest on the Auction Rate Securities during the Initial Interest
Period (which ends on , ---.J shall be the rate of % per annum. The rate of
interest on Auction Rate Securities for each Interest Period following the Initial Interest Period
(including the Initial Auction Period), shall be equal to the per annum rate of interest that results
from implementation of the Auction Procedures described in the Trust Agreement unless the
Auction Rate exceeds the Maximum Auction Rate, in which case the rate of interest shall be the
Maximum Rate; provided that if on any Auction Date, an Auction is not held for any reason,
then the rate of interest for the next succeeding Interest Period will be determined as set forth in a
Supplemental Trust Agreement. Notwithstanding the foregoing, (i) if the ownership of Auction
Rate Securities is no longer maintained in book-entry form by DTC, the rate of interest on
Auction Rate Securities for any Auction Period commencing after the delivery of certificates
representing Auction Rate Securities shall equal the Maximum Auction Rate on the Business
Day immediately preceding the first day of such Interest Period or (ii) if a Payment Default
occurs, Auctions will be suspended and the interest rate for the Interest Period commencing on or
after such Payment Default and for each Interest Period thereafter to and including the Interest
Period, if any, during which, or commencing less than two Business Days after, such Payment
Default is cured will equal the Default Rate. Notwithstanding anything herein to the contrary, no
Auction Rate shall exceed the Maximum Auction Rate.
DOCSSF 180 16566
D-3
Notwithstanding anything herein to the contrary, if the Auction Rate Securities, or
portion thereof, have been selected for redemption during the next succeeding Interest Period,
such Auction Rate Security or portion thereof will not be included in the Auction preceding such
redemption date, and will bear interest until the redemption date at the rate established for the
Interest Period prior to said Auction.
By purchasing Auction Rate Securities, whether in an Auction or otherwise, each
prospective purchaser or its Broker-Dealer must agree and will be deemed to have agreed: (i) to
participate in Auctions on the terms set forth in the Trust Agreement; (ii) so long as the
beneficial ownership of the Auction Rate Securities is maintained in book-entry form by DTC, to
sell, transfer or otherwise dispose of Auction Rate Securities only pursuant to a Bid or a Sell
Order in an Auction, or to or through a Broker-Dealer, provided that in the Auction Rate
Securities so transferred, its Participant or its Broker-Dealer advises the Auction Agent of such
transfer; and (iii) to have its beneficial ownership of Bonds maintained at all times in book-entry
form by the purchaser for the account of its Participants, which in turn will maintain records of
such beneficial ownership, and to authorize such Participants to disclose to the Auction Agent
such information with respect to such beneficial ownership as the Auction Agent may request.
Following the Initial Interest Period, Auction Rate Securities will bear interest at
the applicable Auction Rate, which will be established for the Initial Auction Period and each
Subsequent Auction Period in accordance with the Auction Procedures described in the Trust
Agreement; provided, however, that as of the Initial Auction Date, each Existing Owner of
Auction Rate Securities will be automatically deemed by the Auction Agent to have submitted a
Sell Order for all of the Auction Rate Securities then owned by such Existing Owner unless such
Existing Owner, prior to the Submission Deadline, submits a Hold Order to a Broker-Dealer
indicating the principal amount of Auction Rate Securities which such Existing Owner desires to
continue to hold regardless to the Auction Rate for the next succeeding Interest Period.
During the Initial Interest Period, this Bond is transferable as provided in the
Trust Agreement, only upon the books of the Trustee kept for the purpose at the principal
corporate trust office of the Trustee, by the registered owner hereof in person, or by his or her
duly authorized attorney, upon surrender of this Bond together with a written instrument of
transfer satisfactory to the Trustee duly executed by the registered owner or his or her duly
authorized attorney, and thereupon a new registered Bond or Bonds, in the same aggregate
principal amount, Mode and maturity, in the same denomination, or in different authorized
denominations equal in the aggregate to the principal amount of this Bond, shall be issued to the
transferee in exchange therefor as provided in the Trust Agreement, and upon payment of the
charges therein prescribed. During the Initial Interest Period, the Trustee shall not be required to
register the transfer or exchange of any Bond during the 15 day period next preceding selection
of Bonds for redemption (if applicable) or as to any Bond selected for any redemption.
Following the Initial Interest Period and so long as the ownership of the Auction
Rate Securities is maintained in book-entry form by DTC, an Existing Owner may sell, transfer
or otherwise dispose of the Bonds only pursuant to a Bid or Sell Order (as defined in the Trust
Agreement) placed in an Auction or through a Broker-Dealer, provided that, in the case of all
transfers other than pursuant to Auctions, such Existing Owner, its Broker-Dealer or its
Participant advises the Auction Agent of such transfer. An Auction shall be conducted on each
DOCSSF 180 1656.6
D-4
Auction Date, if there is an Auction Agent on such Auction Date, in the manner described in the
Trust Agreement.
Following the Initial Interest Period, the Market Agent, with the written consent
of the Local Agency, may change from time to time the length of one or more Auction Periods
(an "Auction Period Adjustment"). The Market Agent shall initiate the Auction Period
Adjustment by giving written notice to the Trustee, the Auction Agent, the Local Agency, the
Insurer and DTC at least 10 days prior to the Auction Date for such Auction Period. Any such
changed Auction Period shall not be less than seven days.
On any Interest Payment Date, at the option of the Local Agency, all, but not less
than all, of the Bonds of a [Series] [Tranche] may be converted from Auction Rate Securities to
Bonds bearing interest at fixed interest rates and on such date (the "Fixed Rate Conversion
Date"), the Auction Rate Securities of such [Series ][Tranche] will be subject to mandatory tender
for purchase at a price of par, plus accrued but unpaid interest (the "Tender Price"). Upon
satisfaction of certain conditions set forth in the Trust Agreement, the affected Auction Rate
Securities shall be purchased or deemed purchased at their Tender Price.
The Bonds are subject to redemption on the dates, at the redemption prices and
pursuant to the terms set forth in the Trust Agreement. Notice of redemption of any Bonds or
any portions thereof shall be given as set forth in the Trust Agreement. Failure by the Trustee to
give notice pursuant to the Trust Agreement to anyone or more of the Information Services, or
the insufficiency of any such notice or the failure of any registered owner to receive any
redemption notice mailed to such registered owner or any immaterial defect in the notice so
mailed shall not affect the sufficiency of the proceedings for the redemption of any Bonds.
This Bond is transferable only on a register to be kept for that purpose at the
above-mentioned office of the Trustee by the registered owner hereof in person or by his duly
authorized attorney upon payment of the charges provided in the Trust Agreement and upon
surrender of this Bond together with a written instrument of transfer satisfactory to the Trustee
duly executed by the registered owner or his duly authorized attorney, and thereupon a new fully
registered Bond or Bonds in the same aggregate principal amount of authorized denominations
will be issued to the transferee in exchange therefor. The Local Agency and the Trustee may
deem and treat the registered owner hereof as the absolute owner hereof for the purpose of
receiving payment of the interest hereon and principal hereof and for all other purposes, whether
or not this Bond shall be overdue, and neither the Local Agency nor the Trustee shall be affected
by any notice or knowledge to the contrary; and payment of the interest on and principal of this
Bond shall be made only to such registered owner, which payments shall be valid and effectual
to satisfy and discharge liability on this Bond to the extent of the sum or sums so paid.
This Bond shall not be entitled to any benefit, protection or security under the
Trust Agreement or become valid or obligatory for any purpose until the certificate of
authentication and registration hereon endorsed shall have been executed and dated by the
Trustee.
It is hereby certified that all acts, conditions and things required by law to exist, to
have happened and to have been performed precedent to and in the issuance of this Bond do
DOCSSF I :80 1656.6
D-5
exist, have happened and have been performed in due time, form and manner as required by law
and that the amount ofthis Bond, together with all other indebtedness of the Local Agency, does
not exceed any limit prescribed by the Constitution or laws of the State of California and is not in
excess of the amount of Bonds permitted to be issued under the Trust Agreement.
IN WITNESS WHEREOF, the City of San Bernardino has caused this Bond to be
executed in its name and on its behalf by the facsimile signature of the Mayor and to be
countersigned by the facsimile signature of the City Clerk of the City of San Bernardino, and has
caused this Bond to be dated as of the original issue date specified above.
CITY OF SAN BERNARDINO
By
Mayor
Countersigned
City Clerk
[FORM OF CERTIFICATE OF AUTHENTICATION]
This is one of the Bonds described in the within-mentioned Trust Agreement
which has been authenticated on
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Trustee
By
Authorized Signatory
DOCSSF1801656.6
D-6
[FORM OF ASSIGNMENT]
For value received the undersigned hereby sells, assigns and transfers unto
(Taxpayer Identification Number: ) the within Bond and all rights
thereunder, and hereby irrevocably constitutes and appoints attorney to transfer
the within bond on the books kept for registration thereof, with full power of substitution in the
premIses.
Dated:
Note: The signature to this Assignment must correspond with the name as written on the face of
the Bond in every particular, without alteration or enlargement or any change whatever.
Signature Guaranteed:
Notice: Signature must be guaranteed by an eligible guarantor institution.
DOCSSF1801656.6 D-7
[FORM OF NOTICE OF PAYMENT DEFAULT]
VIA FACSIMILE OR E-MAIL
To: Auction Agent
Broker Dealer(s)
NOTICE IS HEREBY GIVEN that a Payment Default has occurred in connection with the
above-referenced Bonds of the City of San Bernardino (the "Local Agency") as specified in the
Trust Agreement, dated as of , 2005, between the Local Agency and
, as trustee (the "Trustee"), and has not been cured.
Determination of the interest rate on the Auction Rate Securities pursuant to the Auction
Procedures will be suspended. The interest rate on the Auction Rate Securities for each Auction
Interest Period commencing after will equal the Non-Payment Rate as it is determined by the
Trustee on the first day of such Auction Interest Period. All terms used herein and not otherwise
defined shall have the meanings given such terms in the Trust Agreement.
Dated:
, as Trustee
By
Authorized Signatory
cc: City of San Bernardino
DOCSSF 1:801656.6
D-8
[NOTICE OF CURE OF PAYMENT DEF AUL T]
VIA FACSIMILE OR E-MAIL
To: Auction Agent
Broker Dealer(s)
NOTICE IS HEREBY GIVEN that the Payment Default previously reported in connection with
the above-referenced Bonds of the City of San Bernardino (the "Local Agency") as specified in
the Trust Agreement, dated as of ,2005, between the Local Agency and
, as trustee (the "Trustee"), has been cured.
Dated:
, as Trustee
By
Authorized Signatory
cc: City of San Bernardino
DOCSSFl :8016566
D-9
EXHIBIT E
[FORM OF INDEX BOND]
CITY OF SAN BERNARDINO
TAXABLE PENSION OBLIGA nON BONDS
[SERIES DESIGNA nON]
No. R-
$
THE OBLIGATIONS OF THE CITY OF SAN BERNARDINO
HEREUNDER, INCLUDING THE OBLIGATION TO MAKE ALL
PAYMENTS OF INTEREST AND PRINCIPAL WHEN DUE, ARE
OBLIGATIONS OF THE CITY OF SAN BERNARDINO IMPOSED BY
LA W AND ARE ABSOLUTE AND UNCONDITIONAL, WITHOUT
ANY RIGHT OF SET-OFF OR COUNTER CLAIM. THIS BOND
DOES NOT CONSTITUTE AN OBLIGATION OF THE CITY OF SAN
BERNARDINO FOR WHICH THE CITY OF SAN BERNARDINO IS
OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION
OR FOR WHICH THE CITY OF SAN BERNARDINO HAS LEVIED
OR PLEDGED ANY FORM OF TAXATION. NEITHER THE BONDS
NOR THE OBLIGATION OF THE CITY OF SAN BERNARDINO TO
MAKE PAYMENTS ON THE BONDS CONSTITUTE AN
INDEBTEDNESS OF THE CITY OF SAN BERNARDINO, THE
STATE OF CALIFORNIA, OR ANY OF ITS POLITICAL
SUBDIVISIONS WITHIN THE MEANING OF ANY
CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR
RESTRICTION.
Interest
Rate
Maturity
Date
Original
Issue Date
CUSIP
ISIN
LIBORplus_%
REGISTERED OWNER:
PRINCIPAL SUM:
DOLLARS
The City of San Bernardino, duly organized and validly existing under and
pursuant to the Constitution and laws of the State of California (the "Local Agency"), for value
received hereby, promises to pay to the registered owner identified above or registered assigns,
on the maturity date specified above (subject to any right of prior redemption hereinafter
provided for) the principal sum specified above, together with interest on such principal sum
from the Interest Payment Date (as hereinafter defined) next preceding the date of authentication
of this Bond (unless this Bond is authenticated as of an Interest Payment Date or during the
period from the sixteenth day of the month preceding an Interest Payment Date to such Interest
DOCSSF 180 1656.6
E-l
Payment Date, in which event it shall bear interest from such Interest Payment Date, or unless
this Bond is authenticated prior to the first Interest Payment Date, in which event it shall bear
interest from the original issue date specified above) until the principal hereof shall have been
paid. This Bond is issued as an Index Bond, and will bear interest at the Index Rate established
pursuant to the Trust Agreement. Interest on Index Bonds will accrue for each Index Rate Period
or portion thereof and will be payable in arrears on each succeeding Interest Payment Date. The
length of an Index Rate Period may be adjusted pursuant to the Trust Agreement. Interest due on
or before the maturity or prior redemption of this Bond shall be payable only by check mailed on
the Interest Payment Date by first-class mail to the registered owner hereof; provided that upon
the written request of an Owner of $1 ,000,000 or more in aggregate principal amount of Bonds
received by the Trustee prior to the applicable record date, interest shall be paid to such Owner
by wire transfer in immediately available funds. The principal hereof is payable in lawful money
of the United States of America at the Corporate Trust Office of the Trustee. shall
serve as initial Calculation Agent for the Index Bonds (the "Calculation Agent"); for so long as
there are Index Bonds, either or another designated member of the National
Association of Securities Dealers shall serve the Local Agency in the capacity of Calculation
Agent.
On each Index Rate Determination Date following the date of delivery of this
Bond, until the end of the applicable Interest Rate Period for Index Bonds (each, an "Index
Adjustment Date"), the Calculation Agent will (i) calculate the interest rate applicable to this
Bond, based on the above LIB OR Percentage (being the designated percentage of LIB OR or
LIBOR Spread, as set forth in a Supplemental Trust Agreement), and (ii) notify the Trustee of
such interest rate for the upcoming Interest Rate Period.
The Trust Agreement provides for the setting of an alternate rate for Index Bonds,
in the event that LIBOR is no longer a published index.
This Bond is one of a duly authorized issue of bonds of the Local Agency
designated as its "Taxable Pension Obligation Bonds, [Series Designation]" (the "Bonds") in
aggregate principal amount of dollars ($ ), all of like tenor
and date (except for variations relating to numbers, maturities and interest rates), and is issued
under and pursuant to the provisions of Articles 10 and I I (commencing with Section 53570) of
Chapter 3 of Division 2 of Title 5 of the Government Code of the State of California and all laws
amendatory thereof or supplemental thereto (the "Act") and under and pursuant to the provisions
of a trust agreement, dated as of October 1, 2005 (the "Trust Agreement"), between the Local
Agency and Wells Fargo Bank, National Association, as trustee (the 'Trustee") (copies of which
are on file at the Corporate Trust Office of the Trustee). The Bonds and any Additional Bonds
may be issued as Standard Bonds, Capital Appreciation Bonds, Listed Securities, Auction Rate
Securities and Index Bonds (as those terms are defined in the Trust Agreement); this Bond is an
Index Bond.
Under the Trust Agreement, Additional Bonds and other obligations may be
issued on a parity with the Bonds, but subject to the conditions and upon compliance with the
procedures set forth in the Trust Agreement. The Bonds and any bonds or other obligations
issued on a parity with the Bonds are obligations imposed by law payable from funds to be
appropriated by the Local Agency pursuant to the Public Employees' Retirement Law,
DOCSSF 180 1656.6
E-2
commencing with Section 20000 of the Government Code of the State of California, as amended
(the "Retirement Law"). Reference is hereby made to the Act and to the Trust Agreement and
any and all amendments thereof and supplements thereto for a description of the terms on which
the Bonds are issued, the rights of the registered owners of the Bonds, security for payment of
the Bonds, remedies upon default and limitations thereon, and amendment of the Trust
Agreement (with or without consent of the registered owners of the Bonds); and all the terms of
the Trust Agreement are hereby incorporated herein and constitute a contract between the Local
Agency and the registered owner of this Bond, to all the provisions of which the registered
owner of this Bond, by acceptance hereof, agrees and consents.
The Bonds are subject to redemption on the dates, at the redemption prices and
pursuant to the terms set forth in the Trust Agreement. Notice of redemption of any Bonds or
any portions thereof shall be given as set forth in the Trust Agreement. Failure by the Trustee to
give notice pursuant to the Trust Agreement to anyone or more of the Information Services, or
the insufficiency of any such notice or the failure of any registered owner to receive any
redemption notice mailed to such registered owner or any immaterial defect in the notice so
mailed shall not affect the sufficiency of the proceedings for the redemption of any Bonds.
This Bond is transferable only on a register to be kept for that purpose at the
above-mentioned office of the Trustee by the registered owner hereof in person or by his duly
authorized attorney upon payment of the charges provided in the Trust Agreement and upon
surrender of this Bond together with a written instrument of transfer satisfactory to the Trustee
duly executed by the registered owner or his duly authorized attorney, and thereupon a new fully
registered Bond or Bonds in the same aggregate principal amount of authorized denominations
will be issued to the transferee in exchange therefor. The Local Agency and the Trustee may
deem and treat the registered owner hereof as the absolute owner hereof for the purpose of
receiving payment of the interest hereon and principal hereof and for all other purposes, whether
or not this Bond shall be overdue, and neither the Local Agency nor the Trustee shall be affected
by any notice or knowledge to the contrary; and payment of the interest on and principal of this
Bond shall be made only to such registered owner, which payments shall be valid and effectual
to satisfy and discharge liability on this Bond to the extent of the sum or sums so paid.
This Bond shall not be entitled to any benefit, protection or security under the
Trust Agreement or become valid or obligatory for any purpose until the certificate of
authentication and registration hereon endorsed shall have been executed and dated by the
Trustee.
It is hereby certified that all acts, conditions and things required by law to exist, to
have happened and to have been performed precedent to and in the issuance of this Bond do
exist, have happened and have been performed in due time, form and manner as required by law
and that the amount of this Bond, together with all other indebtedness of the Local Agency, does
not exceed any limit prescribed by the Constitution or laws of the State of California and is not in
excess of the amount of Bonds permitted to be issued under the Trust Agreement.
DOCSSFl :801656.6
E-3
IN WITNESS WHEREOF, the City of San Bernardino has caused this Bond to be
executed in its name and on its behalf by the facsimile signature of the Mayor and to be
countersigned by the facsimile signature of the City Clerk of the City of San Bernardino, and has
caused this Bond to be dated as of the original issue date specified above.
CITY OF SAN BERNARDINO
By
Mayor
Countersigned
City Clerk
[FORM OF CERTIFICATE OF AUTHENTICATION]
This is one of the Bonds described in the within-mentioned Trust Agreement
which has been authenticated on
WELLS FARGO BANK, NATIONAL
ASSOCIA TION, as Trustee
By
Authorized Signatory
DOCSSF180 1656.6
E-4
EXHIBIT F
ACCRETED VALUE TABLE
2005 SERIES A-2 BONDS (CAPITAL APPRECIATION BONDS)
Date
Accreted Value
DOCSSF 180 1656.6
F-l
EXHIBIT G
PROVISIONS RELATING TO AUCTION RATE SECURITIES
The following definitions shall apply to this Exhibit G in addition to the
definitions found in Section 1.01 of this Trust Agreement.
All-Hold Rate
The term "All-Hold Rate" means, on any date of determination, the interest rate
per annum equal to the percentage set forth in a Supplemental Trust Agreement; provided that in
no event shall the All-Hold Rate be more than the Maximum Auction Rate.
Applicable Auction Rate
The term "Applicable Auction Rate" means the rate per annum at which interest
accrues with respect to the Auction Rate Securities of each Tranche for any Auction Interest
Period.
Applicable Percentage
The term "Applicable Percentage" means, on any date of determination, the
percentage (as such percentage may be adjusted pursuant hereto) based upon the prevailing
rating of the Auction Rate Securities in effect at the close of business on the Business Day
immediately preceding such date.
PREVAILING RATINGS
APPLICABLE PERCENTAGE
"Aaa"/"AAA"
"Aa"/"AA"
[Set forth in a Supplemental Trust
Agreement]
HA"/"A"
"Baa"/"BBB"
Below "Baa"/Below "BBB"
For purposes of this definition, the "prevailing rating" of the Auction Rate
Securities will be:
(i) "AAA"/ "Aaa," if the Auction Rate Securities have a rating of
"AAA" by S&P or Fitch and a rating of "Aaa" by Moody's, or the equivalent of such
ratings by a substitute rating agency or agencies selected as provided below:
(ii) if not "AN'/ "Aaa," then "AA"/ "Aa," if the Auction Rate
Securities have a rating of "AA-" or better by S&P or Fitch and a rating of "Aa" or better
by Moody's, or the equivalent of such ratings by a substitute Rating Agency or Agencies
selected as provided below;
(iii) ifnot "AAA"/ "Aaa" or "AA"/ "Aa," then "A"/ "A," if the Auction
Rate Securities have a rating of"A-" or better by S&P or Fitch and a rating of "A" or
DOCSSF 180 1656.6
G-l
better by Moody's, or the equivalent of such ratings by a substitute Rating Agency or
Agencies selected as provided below;
(iv) ifnot "AAA"I "Aaa," "AA"I "Aa," or "A"I "A," then "BBB"I
"Baa" If the Auction Rate Securities have a rating of"BBB-" or better by S&P or Fitch
and a rating of "Baa" or better by Moody's, or the equivalent of such ratings by a
substitute Rating Agency or Agencies selected as provided below; and
(v) ifnot any of the foregoing ratings, then below "BBB"I"Baa,"
whether or not the Auction Rate Securities are rated by any Rating Agency.
Auction
The term "Auction" means the implementation of the Auction Procedures on an
Auction Date.
Auction Agent Agreement
The term "Auction Agent Agreement" means the initial Auction Agent
Agreement for Auction Rate Securities identified in a Supplemental Trust Agreement, unless and
until a substitute Auction Agent Agreement acceptable to the Broker-Dealer and the Insurer is
entered into, after which "Auction Agent Agreement" shall mean such substitute Auction Agent
Agreement in each case as from time to time amended or supplemented.
Auction Agent
The term "Auction Agent" means the initial Auction Agent for the Auction Rate
Securities identified in a Supplemental Trust Agreement, unless and until a substitute Auction
Agent Agreement, acceptable to the Broker-Dealer and the Insurer, becomes effective, after
which "Auction Agent" shall mean the related substitute Auction Agent.
Auction Agent Fee
The term "Auction Agent Fee" means the fee set forth in the applicable Auction
Agent Agreement.
Auction Date
The term "Auction Date" means the Business Day immediately preceding the first
day of each Auction Interest Period for each Tranche of Auction Rate Securities, other than:
(a) each Auction Interest Period for each Tranche commencing after the
ownership of the Auction Rate Securities is no longer maintained in book-entry form by the
Securities Depository; or
(b) each Auction Interest Period commencing after the occurrence and during the
continuance of a Payment Default; or
DOCSSFl :801656.6
0-2
(c) any Auction Interest Period commencing less than two Business Days after
the cure or waiver of a Payment Default.
Auction Documents
The term "Auction Documents" means, collectively, the Auction Agent
Agreement, each Broker-Dealer Agreement and each Market Agent Agreement, in each case, as
supplemented or amended from time to time.
Auction Interest Period
The term "Auction Interest Period" or "Interest Period" means, as to the
applicable Auction Rate Securities of a Tranche, each period during which a specific Auction
Rate is in effect, as a result of an Auction, for such Tranche of Auction Rate Securities, which
Auction Interest Period may be a 7-,14-,21-, 28-or 35-day period or such other period as may be
designated from time to time by the Local Agency and the Market Agent with the consent of the
Insurer pursuant to an Auction Period Adjustment for a Tranche of Auction Rate Securities, each
Auction Interest Period running from, and including, the Rate Adjustment Date and ending on,
and including, the day immediately preceding the next succeeding Rate Adjustment Date;
provided that the initial Auction Interest Period, if any, shall be as stated in a Supplemental Trust
Agreement.
Auction Period Adiustment
The term "Auction Period Adjustment" means an adjustment to the length of an
Auction Interest Period implemented by the Local Agency and the Market Agent pursuant to this
Trust Agreement and the Market Agent Agreement as described below under Section 2.10 of this
Exhibit G.
Auction Procedures
The term "Auction Procedures" means the Auction and Settlement Procedures set
forth in the Auction Agent Agreement.
Auction Rate
The term "Auction Rate" means, as to the interest rate with respect to the
applicable Tranche of Auction Rate Securities, the rate of interest per annum that results from
implementation of the Auction Procedures with respect to such Tranche of Auction Rate
Securities, and determined as described in Section 2.03 or 2.04 of this Exhibit G; provided,
however, that the Auction Rate shall not exceed 17% per annum or the Maximum Auction Rate,
if lower than 17% per annum.
Auction Rate Period
The term "Auction Rate Period" means the Initial Auction Rate Period and any
Subsequent Auction Rate Period, including 7-, 14-, 21-, 28-and 35-day periods.
DOCSSFl :801656.6
G-3
Broker-Dealer
The term "Broker-Dealer" means any broker or dealer (each as defined in the
Securities Exchange Act of 1934). commercial bank or other entity permitted by law to perform
the functions required of a Broker- Dealer set forth in the Auction Procedures which is an
"Authorized Broker-Dealer" under the Broker-Dealer Agreement, and which:
(d) is a Securities Depository System Participant (or an affiliate of a Securities
Depository System Participant);
(e) has been appointed as such by the Local Agency and approved by the Insurer
pursuant to Section 2.16 of this Exhibit 0; and
(f) has entered into a Broker-Dealer Agreement that is in effect on the date of
reference.
When used herein at a time when more than one Broker-Dealer is acting under the Trust
Agreement, the term "the Broker-Dealer" shall mean, as the context dictates, either all such
Broker-Dealers collectively, or only each Broker-Dealer acting with respect to the applicable
Auction Rate Securities.
Broker-Dealer Agreement
The term "Broker-Dealer Agreement" means each agreement between the
Auction Agent and the applicable Broker-Dealer relating to the Auction Rate Securities pursuant
to which the Broker-Dealer agrees to participate in Auctions as set forth in the Auction
Procedures, as from time to time amended or supplemented, with the consent of the Insurer.
Broker-Dealer Fee
The term "Broker-Dealer Fee" means the fee set forth in the applicable Broker-
Dealer Agreement.
Date of Interest Accrual
The term "Date of Interest Accrual" means the first day of any Rate Period for
Auction Rate Securities.
Existing Owners
The term "Existing Owners" means, with respect to Auction Rate Securities,
those registered owners of such Auction Rate Securities as of the day prior to each Auction Date.
Existing Owners Registry
The term "Existing Owners Registry" means, with respect to each Tranche of
Auction Rate Securities, the registry of Persons who are Existing Owners of the related Tranche
DOCSSF180 1656.6
0-4
of Auction Rate Securities, maintained by the Auction Agent as provided in the applicable
Auction Agent Agreement.
Fixed Rate Conversion
The term "Fixed Rate Conversion" means the conversion of the interest rate mode
for the Bonds issued as Auction Rate Securities to a Fixed Rate.
Fixed Rate Conversion Date
The term "Fixed Rate Conversion Date" means the date upon which a Fixed Rate
Conversion occurs.
Initial Auction Rate Period
The term "Initial Auction Rate Period" means with respect to Auction Rate
Securities, the period from and including the Closing Date on such Auction Rate Securities to but
excluding the later of (a) the Initial Interest Payment Date or (b) the first day of the subsequent
Auction Rate Period for such Auction Rate Securities.
Initial Interest Payment Date
The term "Initial Interest Payment Date," with respect to Auction Rate Securities,
refers to the initial Interest Payment Date for such Auction Rate Securities set forth in a
Supplemental Trust Agreement.
Insurer
The term "Insurer," means the municipal bond insurer or other credit enhancer, if
any, for a Series of Auction Rate Securities.
Market Agent
The term "Market Agent" means the market agent or market agents appointed
pursuant to Section 2.14 of this Exhibit G, their successors and assigns.
Market Agent Agreement
The term "Market Agent Agreement" means any Market Agent Agreement
entered into with respect to Auction Rate Securities, including that certain Market Agent
Agreement delivered on the Closing Date, as it may from time to time be amended or
supplemented, with the Insurer's consent.
Maximum Auction Rate
The term "Maximum Auction Rate," on any date of determination for any
Auction Rate Period, means the interest rate per annum equal to the lowest on such date of:
(i)
the Applicable Percentage of LIBOR on such date, unless:
DOCSSFJ :80 16566
G-5
(1) such Auction Rate Period is proposed to be a Special
Auction Rate Period, in which case, the Applicable Percentage is applied to:
(a) the higher of (I) the Reference Rate for an Auction Rate
Period equal in length to the then-ending Auction Rate Period on such date and (II)
LIBOR, if any, for an Auction Rate Period equal in length to the then-ending Auction
Rate Period on such date;
(b) the higher of (1) the Reference Rate for such Special
Auction Rate Period on such date and (II) LIB OR, if any, for such Special Auction Rate
Period on such date; and
(c) the higher of (1) the Reference Rate for a Standard
Auction Rate Period on such date and (II) LIB OR, if any, for a Standard Auction Rate
Period on such date; or
(2) such Auction Rate Period succeeds a Special Auction Rate
Period and an Auction for a Standard Auction Rate Period at which Sufficient Clearing
Bids existed has not occurred since such Special Auction Rate Period, in which case, the
higher of:
(a) the Auction Rate for the then-ending Auction Rate
Period; and
(b) the Applicable Percentage of the higher of (1) the higher
of (aa) the Reference Rate for an Auction Rate Period equal in length to the then-ending
Auction Rate Period on such date and (bb) LIB OR, if any, for an Auction Rate Period
equal in length to the then-ending Auction Rate Period on such date and (II) the higher of
(aa) the Reference Rate for an Auction Rate Period equal in length to such Special
Auction Rate Period and (bb) LIB OR, if any, for an Auction Rate Period equal in length
to such Special Auction Rate Period;
(ii) 17% per annum; and
(iii) the maximum rate, ifany, established under the laws of the State
for obligations of public agencies such as the Local Agency.
Minimum Auction Rate
The term "Minimum Auction Rate," on any date of determination, means the rate
per annum as set forth in a Supplemental Trust Agreement; provided, however, that in no event
shall such Minimum Auction Rate exceed the lesser of (i) 17% per annum, and (ii) the maximum
rate, if any, established under the laws of the State for obligations of public agencies such as the
Local Agency.
DOCSSF I: 80 1656.6
0-6
Non-Payment Rate
The term "Non-Payment Rate" means, for Auction Rate Securities of each
Tranche, on any date of determination, the interest rate per annum equal to the Maximum
Auction Rate, provided that in no event shall the Non-Payment Rate be more than the maximum
rate permitted by State law.
Notice of Cure of Payment Default
The term "Notice of Cure of Payment Default" means a notice substantially in the
form appended to the form of Auction Rate Security in Exhibit D.
Notice of Payment Default
The term "Notice of Payment Default" means a written notice as to a payment
default of Auction Rate Securities, in form and substance acceptable to the applicable Auction
Agent.
Notice of Percentage Change
The term "Notice of Percentage Change" means a written notice to the Trustee,
the Broker-Dealer and the Auction Agent substantially in the form set forth in Exhibit H hereto.
Overdue Rate
The term "Overdue Rate" means, as to any Auction Rate Securities, on any date
of determination and for any Standard Auction Rate Period, the interest rate per annum equal to
265% ofthe Reference Rate equal in length to the then-ending Standard Auction Rate Period,
and for any Special Auction Rate Period, the interest rate per annum equal to 265% of LIB OR
equal in length to the then-ending Special Auction Rate Period; provided that in no event shall
the Overdue Rate exceed the lesser of (I) 17% per annum and (2) the maximum rate on such date
permitted by State law for public agencies such as the Local Agency.
Payment Default
The term "Payment Default" means the default of the Local Agency in the due
and punctual payment of (a) any installment of interest on the Bonds or (b) any principal of,
premium, if any, or interest on, the Bonds at their maturity (whether on the Stated Maturity Date,
prior redemption or otherwise), which default shall continue for a period of two Business Days
and which, in either case, is followed by the failure of the applicable Insurer to make, in
accordance with the related Insurance Policy, due and punctual payments to or on behalf of the
Owners of the Bonds of such installments or payments described in clause (a) or (b), if so
required under such Insurance Policy.
Potential Beneficial Owner
The term "Potential Beneficial Owner" shall mean a customer of a Broker-Dealer
that is not a Beneficial Owner of Auction Rate Securities but that wishes to purchase Auction
DOCSSF1801656.6
0-7
Rate Securities, or that is a Beneficial Owner of Auction Rate Securities that wishes to purchase
an additional principal amount of Auction Rate Securities.
Potential Owner
The term "Potential Owner" shall mean a Broker-Dealer (or any such other person
as may be permitted by the Local Agency) that is not an Existing Owner or that is an Existing
Owner that wishes to become the Existing Owner of an additional principal amount of Auction
Rate Securities.
Rate Adiustment Date
The term "Rate Adjustment Date" means with respect to each Tranche of the
Auction Rate Securities, the date on which a new Interest Rate becomes effective with respect to
such Tranche of Auction Rate Securities, and shall mean the initial Rate Adjustment Date and,
thereafter, the first Business Day following each Rate Determination Date (which, until an
Auction Period Adjustment, generally is each fourth Wednesday, or the next Business Day if
such Wednesday is not a Business Day).
Rate Determination Date
The term "Rate Determination Date" means, initially, those dates set forth for the
Tranches of Auction Rate Securities in a Supplemental Trust Agreement, and thereafter, the
Business Day immediately preceding the first day of each related Auction Interest Period, other
than: (i) an Auction Interest Period which commences on a Fixed Rate Conversion Date: (ii)
each Auction Interest Period commencing after the ownership of Auction Rate Securities is no
longer maintained in Book-Entry Form; (iii) each Auction Interest Period commencing after and
during the continuance of a Payment Default; or (iv) an Auction Interest Period commencing less
than two Business Days after the cure or waiver of a Payment Default. Notwithstanding the
foregoing, the Rate Determination Date for one or more Auction Interest Periods may be
changed as described below under Section 2.10 of this Exhibit G.
Rate Period
The term "Rate Period" means that period commencing on a Date of Interest
Accrual and ending on the earlier of the Fixed Rate Conversion Date or the stated maturity date
of the affected Auction Rate Security.
Rate Period Days
The term "Rate Period Days" means for any Auction Rate Period or Interest
Period, shall mean the number of days that would constitute such Auction Rate Period or Interest
Period but for the application of Section 2.10 of this Exhibit G.
Reference Rate
The term "Reference Rate" means (i) for a Standard Auction Rate Period or any
Special Auction Rate Period of at least 35 but fewer than 180 Rate Period Days, the "AA"
DOCSSFl:80 1656.6
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Financial Commercial Paper Rate or the Applicable LIBOR Percentage for such Auction Rate
Period, whichever is lesser; (ii) for an Auction Rate Period of more than 180 but fewer than 365
Rate Period Days, the Treasury Note Rate for such Auction Rate Period; and (iii) for an Auction
Rate Period of more than 364 Rate Period Days, the Treasury Note Rate for such Auction Rate
Period.
Regular Record Date
The term "Regular Record Date" means, with respect to Auction Rate Securities,
the second Business Day immediately preceding each Interest Payment Date.
Sell Order
The term "Sell Order" has the meaning given to such term in the Auction
Procedures.
Special Auction Rate Period
The term "Special Auction Rate Period" means a Subsequent Auction Rate
Period, other than a Standard Auction Rate Period, designated pursuant to Section 2.11 of this
Exhibit G that consists of a specified number of Rate Period Days not fewer than 28 and not
more than 1,820 and evenly divisible by 7, subject to adjustment as provided in said Section,
provided that the consent of the Insurer shall be required for the establishment of any Auction
Rate Period which exceeds 35 days.
Standard Auction Rate Period
The term "Standard Auction Rate Period" means any Auction Rate Period
consisting of7, 14,21,28 or 35 Rate Period Days.
Stated Maturity Date
The term "Stated Maturity Date" means the date given as the stated maturity date
on each Bond.
Submission Deadline
The term "Submission Deadline" means 1 :00 p.m., New York time, on any
Auction Date or such other time on any Auction Date by which Broker-Dealers are required to
submit Orders (as defined in Section 2.05(a)(i) of this Exhibit G) to the Auction Agent, as
specified by the Auction Agent from time to time.
Subsequent Auction Rate Period
The term "Subsequent Auction Rate Period" means the period from and including
the Initial Interest Payment Date for Auction Rate Securities to but excluding the next Interest
Payment Date for Auction Rate Securities and each period thereafter from and including one
Interest Payment Date to but excluding the next succeeding Interest Payment Date; provided that
DOCSSF1801656.6
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if any Subsequent Auction Rate Period is a Special Auction Rate Period consisting of more than
91 days, such term shall mean the period commencing on the first day of such Special Auction
Rate Period and ending on the last day of the last Interest Period thereof; provided, further, that
the Subsequent Auction Rate Period shall normally begin on the respective Interest Payment
Date after the end of such Special Auction Rate Period, and the Auction therefor shall normally
be held on the preceding Business Day.
Substitute Commercial Paper Dealer
The term "Substitute Commercial Paper Dealer" means the dealer identified in a
Supplemental Trust Agreement, or their affiliates or successors, if such affiliate or successor is a
commercial paper dealer, provided that neither such person nor any of its affiliates or successors
shall be a Commercial Paper Dealer.
Sufficient Clearing Bids
The term "Sufficient Clearing Bids" shall have the meaning set forth in this
Exhibit G.
Tender Price
The term "Tender Price" means the price at which Auction Rate Securities are
tendered for purchase upon conversion to Fixed Rate Bonds, comprised ofthe principal amount
thereof, plus interest, if any, accrued to the date of purchase, being payable solely from the
proceeds of remarketing of said Auction Rate Securities in the form of Fixed Rate Bonds.
Undelivered Bond
The term "Undelivered Bond" means any Auction Rate Security which constitutes
an Undelivered Bond under the provisions of the Trust Agreement.
SECTION 2.01. Auction Interest Periods. After the Initial Auction Rate Period
for any Bonds issued as Auction Rate Securities, each Auction Interest Period shall be that
period established in accordance with the definition of Subsequent Auction Interest Period.
SECTION 2.02. Dated Date of Auction Rate Securities, Initial Accrual of
Interest. Each Auction Rate Security shall be dated its date of delivery. Interest thereon shall be
payable from the Interest Payment Date next preceding the date of execution thereof, unless:
(a) it is executed on an Interest Payment Date, in which event interest
with respect thereto shall be payable from such Interest Payment Date; or
(b) it is executed after a Regular Record Date and on or before the
following Interest Payment Date, in which event interest with respect thereto shall be payable
from such Interest Payment Date; or
(c) it is executed on or before the first Regular Record Date, in which
event interest with respect thereto shall be payable from its Dated Date;
DOCSSF1801656.6
G-I0
provided, however, that if, as of the date of execution of any Auction Rate Security, interest is in
default with respect to any Outstanding Auction Rate Security, interest on such Auction Rate
Security shall be payable from the Interest Payment Date to which interest has previously been
paid or made available for payment with respect to the Outstanding Auction Rate Securities.
SECTION 2.03. Interest on Auction Rate Securities - General.
(a) Auction Rate Securities shall bear interest at an Auction Rate
(computed on the basis set forth in a Supplemental Trust Agreement).
(b) Interest on Auction Rate Securities shall accrue at the Auction Rate
for each Auction Rate Period and shall be payable in arrears, commencing on the Initial Interest
Payment Date specified in a Supplemental Trust Agreement and payable on each Interest
Payment Date for the Bonds, from the date of delivery of such Auction Rate Securities, or, as to
Auction Rate Securities delivered following the applicable Closing Date, from the most recent
Interest Payment Date to which interest thereon has been paid. More specifically interest is
payable on the dates set forth in a Supplemental Trust Agreement.
SECTION 2.04. Interest on Auction Rate Securities During Subsequent Auction
Rate Periods. The rate of interest on Auction Rate Securities during each Subsequent Auction
Rate Period therefor shall be equal to the Auction Rate; provided that:
(a) if a Notice of Percentage Change and the Applicable Percentage
used to determine the Maximum Auction Rate shall have been given by the applicable Market
Agent in accordance with Section 2.09 of this Exhibit G and because of a failure to satisfy the
condition set forth in clause (ii) of Section 2.09( c) of this Exhibit G, such adjustment shall not
have taken effect, an Auction shall not be held on the Auction Date immediately preceding the
next succeeding Subsequent Auction Rate Period, the rate of interest for such Subsequent
Auction Rate Period shall equal the Maximum Auction Rate on such Auction Date, and the
length of such Subsequent Auction Rate Period shall be 7 Rate Period Days, provided, that if
such Maximum Auction Rate shall be in effect for the lesser of (a) three such Auction Rate
Periods or (b) 35 days, following which, the Local Agency shall initiate proceedings to convert
such Auction Rate Securities to a Fixed Rate;
(b) if a notice of Fixed Rate Conversion of the Auction Rate Securities
shall have been given by the Local Agency in accordance with Section 2.02 of this Exhibit G and
because of the failure to satisfy one or more of the conditions set forth in the applicable Section,
such Conversion shall not have taken effect, the rate of interest for the next succeeding
Subsequent Auction Rate Period shall equal the Maximum Auction Rate on the proposed
effective Fixed Rate Conversion Date and the length of such Subsequent Auction Rate Period
shall be 7 Rate Period Days, provided, that if such Maximum Auction Rate shall be in effect for
the lesser of (a) three such Auction Rate Periods or (b) 35 days, following which, the Local
Agency shall initiate proceedings to convert such Auction Rate Securities to a Fixed Rate;
(c) if on any Auction Date, an Auction is not held for any other
reason, the rate of interest for the next succeeding Subsequent Auction Rate Period and the
DOCSSF1801656.6
G-l I
length of such Subsequent Auction Rate Period shall be as set forth in a Supplemental Trust
Agreement; and
(d) if a notice of a change in the length of a Standard Auction Rate
Period shall have been given by the Local Agency in accordance with Section 2.10 of this
Exhibit 0 and because of a failure to satisfy the condition set forth in clause (c) of Section 2.10
of this Exhibit 0, such change in length of the Standard Auction Rate Period shall not have taken
effect, the rate of interest for the next succeeding Subsequent Auction Rate Period shall equal the
Maximum Auction Rate on the proposed date of such change in length of the Standard Auction
Rate Period, and the length of such Subsequent Auction Rate Period will be 7 Rate Period Days,
provided that if such Maximum Auction Rate shall be in effect for the lesser of (a) three such
Auction Rate Periods or (b) 35 days, following which, the Local Agency shall initiate
proceedings to convert such Auction Rate Securities to a Fixed Rate.
(e)
Notwithstanding the foregoing, if:
(i) the ownership of Auction Rate Securities is no longer maintained
in book-entry form by the Securities Depository, no further Auctions will be held, and the
applicable Auction Rate for any Subsequent Auction Rate Period commencing after the
delivery of certificated securities representing the Auction Rate Securities shall equal the
Maximum Auction Rate as determined by the Auction Agent on the Business Day
immediately preceding the first day of such Subsequent Auction Rate Period, and the
length of such Subsequent Auction Rate Period shall be 7 Rate Period Days; provided,
that if such Maximum Auction Rate shall be in effect for the lesser of (a) three such
Auction Rate Periods or (b) 35 days, following which, the Local Agency shall initiate
proceedings to convert such Auction Rate Securities to a Fixed Rate;
(ii) a Payment Default shall have occurred during any Auction Rate
Period (other than an Auction Rate Period consisting of more than 364 Rate Period
Days), the rate of interest for each Subsequent Auction Rate Period commencing
thereafter to and including the Subsequent Auction Rate Period, if any, during which, or
commencing less than two Business Days after all such Payment Defaults are cured, shall
equal the Overdue Rate for a Standard Auction Rate Period on the first day of each such
Subsequent Auction Rate Period; or
(iii) a Payment Default shall have occurred during a Special Auction
Rate Period consisting of more than 364 Rate Period Days, (i) the rate of interest for the
portion of such Special Auction Rate Period during which such Payment Default shall not
have been cured shall equal the Overdue Rate for such Special Auction Rate Period on
the day of the occurrence of such Payment Default and (ii) if such Payment Default shall
have not been cured at least two Business Days prior to the next succeeding Subsequent
Auction Rate Period, the rate of interest for such Subsequent Auction Rate Period and for
each Subsequent Auction Rate Period commencing thereafter, to and including the
Subsequent Auction Rate Period, if any, during which, or commencing less than two
Business Days after, such Payment Default is cured, shall equal the Overdue Rate for
such Special Auction Rate Period on the first day of each such Subsequent Auction Rate
Period.
DOCSSF I :80 1656.6
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Following the Trustee's delivery ofa Notice of Cure of Payment Default to the
Auction Agent, the restrictions set forth in clauses (ii) and (iii) above shall be suspended and the
interest rate shall be established pursuant to the Auction Procedures.
SECTION 2.05. Auction Procedures. Subject to the provisions of subsection (b)
of this Section, Auctions shall be conducted on each Auction Date in the following manner:
(a)
(i)
Prior to the Submission Deadline on each Auction Date:
(A) each Beneficial Owner of Auction Rate Securities may
submit to a Broker-Dealer by telephone or facsimile transmission
information as to:
(I) the principal amount of Outstanding Auction Rate
Securities, if any, held by such Beneficial Owner which such Beneficial
Owner desires to continue to hold, without regard to the Auction Rate for
the next succeeding Auction Rate Period;
(II) the principal amount of Outstanding Auction Rate
Securities, if any, which such Beneficial Owner offers to sell, if the
Auction Rate for the next succeeding Auction Rate Period shall be less
than the rate per annum specified by such Beneficial Owner; and/or
(III) the principal amount of Outstanding Auction Rate
Securities, if any, held by such Beneficial Owner which such Beneficial
Owner offers to sell, without regard to the Auction Rate that may be set
for the next succeeding Auction Rate Period; and
(B) one or more Broker-Dealers may contact Potential
Beneficial Owners to determine the principal amount of Auction Rate
Securities which each such Potential Beneficial Owner offers to purchase
if the Auction Rate for the next succeeding Auction Rate Period shall not
be less than the rate per annum specified by such Potential Beneficial
Owner.
For the purposes hereof, the communication to a Broker-Dealer of information
referred to in paragraphs (A) or (B) of this clause is hereinafter referred to as an "Order" and
each Beneficial Owner and each Potential Beneficial Owner placing an Order is hereinafter
referred to as a "Bidder;" an Order containing the information referred to (x) in paragraph (A)(I)
hereof is hereinafter referred to as a "Hold Order," (y) in paragraph (A)(I1) or (B) hereof is
hereinafter referred to as a "Bid," and (z) in paragraph (A)(III) hereof is hereinafter referred to as
a "Sell Order." The submission by a Broker-Dealer of an Order to the Auction Agent shall
likewise be referred to herein as an "Order," and an Existing Owner or Potential Owner who
places an Order with the Auction Agent or on whose behalf an Order is Placed with the Auction
Agent shall likewise be referred to herein as a "Bidder."
DOCSSF 180 1656.6
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(ii) (A) Subject to the provisions of subsection (b) of this Section, a
Bid by a Beneficial Owner or an Existing Owner shall constitute an irrevocable offer to
sell:
(I) the principal amount of Outstanding Auction Rate
Securities specified in such Bid if the Auction Rate determined as
provided in this Section shall be less than the rate specified therein; or
(II) such principal amount or a lesser principal amount
of Outstanding Auction Rate Securities to be determined as set forth in
subsection (d)(i)(D) of this Section if the Auction Rate determined as
provided in this Section shall be equal to the rate specified therein; or
(III) such principal amount of Outstanding Auction Rate
Securities if the rate specified therein shall be higher than the Maximum
Auction Rate, or such principal amount or a lesser principal amount of
Outstanding Auction Rate Securities to be determined as set forth in
subsection (d)(ii)(C) of this Section if the rate specified therein shall be
higher than the Maximum Auction Rate and Sufficient Clearing Bids do
not exist.
(B) Subject to the provisions of subsection (b) of this Section, a
Sell Order by a Beneficial Owner shall constitute an irrevocable offer to
sell:
(I) the principal amount of Outstanding Auction Rate
Securities specified in such Sell Order if Sufficient Clearing Bids exist; or
(II) such principal amount or a lesser principal amount
of Outstanding Auction Rate Securities as set forth in clause (C) of
paragraph (ii) of subsection (d) of this Section if Sufficient Clearing Bids
do not exist.
(C) Subject to the provisions of subsection (b) of this Section, a
Bid by a Potential Beneficial Owner or a Potential Owner shall constitute
an irrevocable offer to purchase:
(I) the principal amount of Outstanding Auction Rate
Securities specified in such Bid if the Auction Rate determined as
provided in this Section shall be higher than the rate specified therein; or
(II) such principal amount or a lesser principal amount
of Outstanding Auction Rate Securities as set forth in subsection (d)(i)(E)
of this Section if the Auction Rate determined as provided in this Section
shall be equal to the rate specified therein.
(b) (i) Each Broker-Dealer shall submit in writing to the Auction
Agent prior to the Submission Deadline on each Auction Date all Orders obtained by such
DOCSSF 1 :80 1656.6
G-14
Broker-Dealer, designating itself (unless otherwise permitted by the Local Agency) as an
Existing Owner in respect of the principal amount of Auction Rate Securities subject to Orders
submitted or deemed submitted to it by Beneficial Owners or by Potential Beneficial Owners,
and shall specify with respect to each such Order:
(A) the name of the Bidder placing such Order (which shall be
the Broker-Dealer, unless otherwise permitted by the Local Agency);
(B) the aggregate principal amount of Auction Rate Securities
that are the subject of such Order;
(C) to the extent that such Bidder is an Existing Owner:
(I) the principal amount of Auction Rate Securities, if
any, subject to any Hold Order placed by such Existing Owner;
(II) the principal amount of Auction Rate Securities, if
any, subject to any Bid placed by such Existing Owner and the rate
specified in such Bid; and
(III) the principal amount of Auction Rate Securities, if
any, subject to any Sell Order placed by such Existing Owner; and
(D) to the extent such Bidder is a Potential Owner, the rate
specified in such Potential Owner Bid.
(ii) If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent shall round such rate up to the next
highest one thousandth (.001) of 1%.
(iii) If an Order or Orders covering all Outstanding Auction Rate
Securities held by any Existing Owner is not submitted to the Auction Agent prior to the
Submission Deadline, the Auction Agent shall deem a Hold Order to have been submitted
on behalf of such Existing Owner covering the principal amount of Outstanding Auction
Rate Securities held by such Existing Owner and not subject to an Order submitted to the
Auction Agent.
(iv) None of the Local Agency, the Trustee or the Auction Agent shall
be responsible for any failure of a Broker-Dealer to submit an Order to the Auction Agent
on behalf of any Existing Owner, Beneficial Owner, Potential Owner or Potential
Beneficial Owner, nor shall any such party be responsible for failure by a Securities
Depository to effect any transfer or to provide the Auction Agent with current
information regarding registration of transfers.
(v) If any Existing Owner submits to the Auction Agent, through a
Broker-Dealer, one or more Orders covering in the aggregate more than the principal
amount of Outstanding Auction Rate Securities held by such Existing Owner, such
Orders shall be considered valid as follows and in the following order of priority:
DOCSSF1:801656.6
G-15
(A) all Hold Orders shall be considered valid, but only up to
and including in the aggregate the principal amount of Auction Rate
Securities held by such Existing Owner, and if the aggregate principal
amount of Auction Rate Securities subject to such Hold Orders exceeds
the aggregate principal amount of Outstanding Auction Rate Securities
held by such Existing Owner, the aggregate principal amount of Auction
Rate Securities subject to each such Hold Order shall be reduced pro rata
to cover the aggregate principal amount of Outstanding Auction Rate
Securities held by such Existing Owner;
(B) (I) any Bid shall be considered valid up to and
including the excess of the principal amount of Outstanding Auction Rate
Securities held by such Existing Owner over the aggregate principal
amount of Auction Rate Securities subject to any Hold Orders referred to
in clause (A) of this paragraph (v);
(II) subject to subclause (I) of this clause (B), ifmore
than one Bid with the same rate is submitted on behalf of such Existing
Owner and the aggregate principal amount of Outstanding Auction Rate
Securities subject to such Bids is greater than such excess, such Bids shall
be considered valid up to and including the amount of such excess, and the
principal amount of Auction Rate Securities subject to each Bid with the
same rate shall be reduced pro rata to cover the principal amount of
Auction Rate Securities equal to such excess;
(III) subject to subclause (I) and (II) of this clause (B), if
more than one Bid with different rates is submitted on behalf of such
Existing Owner, such Bids shall be considered valid first in the ascending
order of their respective rates until the highest rate is reached at which
such excess exists and then at such rate up to and including the amount of
such excess; and
(IV) in any such event, the aggregate principal amount of
Outstanding Auction Rate Securities, if any, subject to Bids not valid
under this clause (B) shall be treated as the subject of a Bid by a Potential
Owner at the rate therein specified; and
(C) all Sell Orders shall be considered valid up to and including
the excess of the principal amount of Outstanding Auction Rate Securities
held by such Existing Owner over the aggregate principal amount of
Auction Rate Securities subject to Hold Orders referred to in clause (A) of
this paragraph and valid Bids referred to in clause (B) of this paragraph.
(vi) Ifmore than one Bid for Auction Rate Securities is submitted by or
on behalf of any Potential Owner, each Bid submitted shall be a separate Bid with the
rate and principal amount therein specified.
DOCSSF 180 1656.6
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(vii) Any Bid or Sell Order submitted by an Existing Owner covering
an aggregate principal amount of Auction Rate Securities not equal to $25,000 or an
integral multiple thereof shall be rounded down to the nearest integral multiple of
$25,000. Any Bid submitted by a Potential Owner covering an aggregate principal
amount of Auction Rate Securities not equal to $25,000 or an integral multiple thereof
shall be rounded down to the nearest integral multiple of $25,000.
(viii) Any Bid submitted by an Existing Owner or a Potential Owner
specifying a rate lower than the Minimum Rate, if any, shall be treated as a Bid
specifying the Minimum Rate, if any.
(c) (i) Not earlier than the Submission Deadline on each Auction
Date, the Auction Agent shall assemble all valid Orders submitted or deemed submitted to it by
the Broker-Dealers (each such Order as submitted or deemed submitted by a Broker-Dealer
being hereinafter referred to individually as a "Submitted Hold Order," a "Submitted Bid" or a
"Submitted Sell Order," as the case may be, or as a "Submitted Order") and shall determine:
(A) the excess of the total principal amount of Outstanding
Auction Rate Securities over the sum of the aggregate principal amount of
Outstanding Auction Rate Securities subject to Submitted Hold Orders
(such excess being hereinafter referred to as the "Available Auction Rate
Securities"); and
(B) from the Submitted Orders whether:
(I) the aggregate principal amount of Outstanding
Auction Rate Securities subject to Submitted Bids by Potential Owners
specifying one or more rates equal to or lower than the Auction Rate
Securities Maximum Auction Rate;
exceeds or is equal to the sum of:
(II) the aggregate principal amount of Outstanding
Auction Rate Securities subject to Submitted Bids by Existing Owners
specifying one or more rates higher than the Maximum Auction Rate; and
(III) the aggregate principal amount of Outstanding
Auction Rate Securities subject to Submitted Sell Orders
(in the event such excess or such equality exists (other than
because the sum of the principal amounts of Auction Rate Securities in
subclauses (II) and (III) above is zero because all of the Outstanding
Auction Rate Securities are subject to Submitted Hold Orders), such
Submitted Bids in subclause (I) above being hereinafter referred to
collectively as "Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate specified in
such Submitted Bids (the "Winning Bid Rate") which if:
DOCSSF 1:801656.6
0-17
(I) (aa) each such Submitted Bid from Existing
Owners specifying such lowest rate and (bb) all other Submitted Bids
from Existing Owners specifying lower rates were rejected, thus entitling
such Existing Owners to continue to hold the principal amount of Auction
Rate Securities subject to such Submitted Bids; and
(II) (aa) each such Submitted Bid from Potential
Owners specifying such lowest rate and (bb) all other Submitted Bids
from Potential Owners specifying lower rates were accepted, would result
in such Existing Owners described in clause (B)(I) above continuing to
hold an aggregate principal amount of Outstanding Auction Rate
Securities which, when added to the aggregate principal amount of
Outstanding Auction Rate Securities to be purchased by such Potential
Owners described in clause (B)(II) above, would equal not less than the
Available Auction Rate Securities.
(ii) Promptly after the Auction Agent has made the determinations
pursuant to subsection (c )(i) hereof, the Auction Agent, by telecopy confirmed in writing,
shall advise the Local Agency and the Trustee of the Maximum Auction Rate and the
Minimum Rate, if any, and the components thereof on the Auction Date and, based on
such determinations, the Auction Rate for the next succeeding Auction Rate Period as
follows:
(A) if Sufficient Clearing Bids exist, that the Auction Rate for
the next succeeding Auction Rate Period shall be equal to the Winning Bid
Rate so determined;
(B) if Sufficient Clearing Bids do not exist (other than because
all of the Outstanding Auction Rate Securities are subject to Submitted
Hold Orders), that the Auction Rate for the next succeeding Auction Rate
Period shall be equal to the Maximum Auction Rate, which succeeding
Auction Rate Period shall be 7 Rate Period Days; or
(C) if all Outstanding Auction Rate Securities are subject to
Submitted Hold Orders, that the Auction Rate for the next succeeding
Auction Rate Period shall be equal to the All-Hold Rate on such Auction
Date.
(d) Existing Owners shall continue to hold the principal amount of
Auction Rate Securities that are subject to Submitted Hold Orders, and, based on the
determinations made pursuant to subsection (c)(i) of this Section, Submitted Bids and Submitted
Sell Orders shall be accepted or rejected and the Auction Agent shall take such other action as
set forth below:
(i) If Sufficient Clearing Bids have been made, all Submitted Sell
Orders shall be accepted and, subject to the provisions of subsection (d)(iv) and (v)
DOCSSF 180 1656.6
G-18
hereof, Submitted Bids shall be accepted or rejected as follows in the following order of
priority and all other Submitted Bids shall be rejected:
(A) Any Existing Owner's Submitted Bids specifying any rate
that is higher than the Winning Bid Rate shall be accepted, thus requiring
each such Existing Owner to sell the aggregate principal amount of
Auction Rate Securities subject to such Submitted Bids;
(B) Any Existing Owner's Submitted Bids specifying any rate
that is lower than the Winning Bid Rate shall be rejected, thus entitling
each such Existing Owner to continue to hold the aggregate principal
amount of Auction Rate Securities subject to such Submitted Bids;
(C) Any Potential Owner's Submitted Bids specifying any rate
that is lower than the Winning Bid Rate shall be accepted, thus requiring
each such Potential Owner to purchase the aggregate principal amount of
Auction Rate Securities subject to such Submitted Bids;
(D) Any Existing Owner's Submitted Bid specifying a rate that
is equal to the Winning Bid Rate shall be rejected, thus entitling such
Existing Owner to continue to hold the aggregate principal amount of
Auction Rate Securities subject to such Submitted Bid, unless the
aggregate principal amount of Outstanding Auction Rate Securities subject
to all such Submitted Bids shall be greater than the principal amount of
Auction Rate Securities (the "remaining principal amount") equal to the
excess of the Available Auction Rate Securities over the aggregate
principal amount of Auction Rate Securities subject to Submitted Bids
described in clauses (B) and (C) of this paragraph (i), in which event such
Submitted Bid of such Existing Owner shall be rejected in part, and such
Existing Owner shall be entitled to continue to hold the principal amount
of Auction Rate Securities subject to such Submitted Bid, but only in an
amount equal to the aggregate principal amount of Auction Rate Securities
obtained by multiplying the remaining principal amount by a fraction, the
numerator of which shall be the principal amount of Outstanding Auction
Rate Securities held by such Existing Owners subject to such Submitted
Bid and the denominator of which shall be the sum of the principal
amount of Outstanding Auction Rate Securities subject to such Submitted
Bids made by all such Existing Owners that specified a rate equal to the
Winning Bid Rate; and
(E) Each Potential Owner's Submitted Bid specifying a rate
that is equal to the Winning Bid Rate shall be accepted but only in an
amount equal to the principal amount of Auction Rate Securities obtained
by multiplying the excess of the aggregate principal amount of Available
Auction Rate Securities over the aggregate principal amount of Auction
Rate Securities subject to Submitted Bids described in clauses (B), (C) and
(D) of this paragraph by a fraction, the numerator of which shall be the
DOCSSF 180 1656.6
G-19
aggregate principal amount of Outstanding Auction Rate Securities subject
to such Submitted Bids and the denominator of which shall be the sum of
the principal amount of Outstanding Auction Rate Securities subject to
Submitted Bids made by all such Potential Owners that specified a rate
equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than because
all of the Outstanding Auction Rate Securities are subject to Submitted Hold Orders),
subject to the provisions of paragraph (iv) of this subsection, Submitted Orders shall be
accepted or rejected as follows in the following order of priority and all other Submitted
Bids shall be rejected:
(A) Any Existing Owner's Submitted Bids specifying any rate
that is equal to or lower than the Maximum Auction Rate shall be rejected,
thus entitling such Existing Owners to continue to hold the aggregate
principal amount of Auction Rate Securities subject to such Submitted
Bids;
(B) Any Potential Owner's Submitted Bids specifying any rate
that is equal to or lower than the Maximum Auction Rate shall be accepted
and any rate that is higher than the Maximum Auction Rate shall be
rejected, thus requiring such Potential Owners to purchase the aggregate
principal amount of Auction Rate Securities subject to such Submitted
Bids; and
(C) Each Existing Owner's Submitted Bid specifying any rate
that is higher than the Maximum Auction Rate and the Submitted Sell
Order of each Existing Owner shall be accepted, thus entitling each
Existing Owner that submitted any such Submitted Bid or Submitted Sell
Order to sell the subject to such Submitted Bid or Submitted Sell Order,
but in both cases only in an amount equal to the aggregate principal
amount of Auction Rate Securities obtained by multiplying the aggregate
principal amount of Auction Rate Securities subject to Submitted Bids
described in clause (B) of this paragraph by a fraction, the numerator of
which shall be the aggregate principal amount of Outstanding Auction
Rate Securities held by such Existing Owner subject to such Submitted
Bid or Submitted Sell Order and the denominator of which shall be the
aggregate principal amount of Outstanding Auction Rate Securities subject
to all such Submitted Bids and Submitted Sell Orders.
(iii) If all Outstanding Auction Rate Securities are subject to Submitted
Hold Orders, all Submitted Bids shall be rejected.
(iv) If, as a result of the procedures described in paragraphs (i) or (ii) of
this subsection, any Existing Owner would be entitled or required to sell, or any Potential
Holder would be entitled or required to purchase, a principal amount of Auction Rate
Securities that is not equal to $25,000 or an integral multiple thereof the Auction Agent
DOCSSF1801656.6
G-20
shall, in such manner as, in its sole discretion, it shall determine, round up or down the
principal amount of Auction Rate Securities to be purchased or sold by any Existing
Owner or Potential Owner so that the principal amount of Auction Rate Securities
purchased or sold by each Existing Owner or Potential Owner shall be equal to $25,000
or an integral multiple thereof.
(v) If, as a result of the procedures described in paragraph (ii) of this
subsection, any Potential Owner would be entitled or required to purchase less than
$25,000 principal amount or an integral multiple thereof of Auction Rate Securities, the
Auction Agent shall, in such manner as, in its sole discretion, it shall determine, allocate
Auction Rate Securities for purchase among Potential Owners so that only Auction Rate
Securities in principal amounts of $25,000 or an integral multiple thereof are purchased
by any Potential Owner, even if such allocation results in one or more of such Potential
Owners not purchasing any Auction Rate Securities.
(e) Based on the results of each Auction, and in accordance with the
Settlement Procedures set forth in the applicable Auction Agent Agreement, the Auction Agent
shall determine the aggregate principal amount of Auction Rate Securities to be purchased and
the aggregate principal amount of Auction Rate Securities to be sold by Potential Owners and
Existing Owners and, with respect to each Potential Owner and Existing Owner, to the extent
that such aggregate principal amount of Auction Rate Securities to be sold differs from such
aggregate principal amount of Auction Rate Securities to be purchased, determine to which other
Potential Owner(s) or Existing Owner(s) they shall deliver, or from which other Potential
Owner(s) or Existing Owner(s) they shall receive, as the case may be, Auction Rate Securities.
SECTION 2.06. Deposit and Application of Interest Payments. The following
times and dates are modified as required by the terms of any Insurance Policy applicable to the
Bonds at the time payments of interest are required to be made to the respective Owners thereof.
The Trustee is instructed to comply with the particular terms of the Insurance Policy in order to
insure timely and full payment of interest on the Bonds covered thereby.
(a) During any period while Auction Rate Securities are Outstanding,
the Local Agency shall pay to the Trustee not later than 5:00 P.M., New York time, on the third
Business Day next preceding each Interest Payment Date an aggregate amount of funds available
on such Interest Payment Date in New York equal to the aggregate amount of interest payable on
the Auction Rate Securities on such Interest Payment Date.
(b) Not later than 12: 15 P.M., New York time, on the third Business
Day next preceding each Interest Payment Date that is immediately preceded by an Auction
Date, the Trustee shall determine the payment (or nonpayment, as the case may be) of the
aggregate amount of interest payable on the Auction Rate Securities on such Interest Payment
Date. So long as no Payment Default with respect to the Auction Rate Securities has previously
occurred and is continuing and the ownership of the Auction Rate Securities is maintained in
book-entry form by the Securities Depository, (i) if the Trustee determines that a Payment
Default has occurred, the Trustee shall immediately send a notice thereof in substantially the
form of the appropriate exhibit to the Auction Agent and to the Owners of the Auction Rate
Securities by telecopy or similar means, and (ii) if all such nonpayments are cured prior to 1 :00
DOCSSF 180 1656.6
0-21
P.M., New York time, on such Interest Payment Date, the Trustee shall immediately send a
notice thereof in substantially the form of the appropriate exhibit to the Auction Agent and to the
Owners of the Auction Rate Securities by telecopy or similar means.
(c) The Trustee shall calculate the amount of interest due and payable
on each Interest Payment Date by 10:00 A.M., New York time, on the third Business Day next
preceding such Interest Payment Date or date set for purchase, as the case may be and shall
immediately notify the Local Agency of such amount. In preparing such calculation, the Trustee
may rely on calculations or other services provided by the Market Agent, the Auction Agent, the
Local Agency or any person or persons selected by the Trustee in its discretion.
SECTION 2.07. Calculation of Maximum Auction Rate, Minimum Rate, All-
Hold Rate and Overdue Rate During Auction Rate Period. The Auction Agent shall calculate the
Maximum Auction Rate, the All-Hold Rate and the Minimum Rate, if any, on each Auction
Date. If the ownership of the Auction Rate Securities is no longer maintained in book-entry
form by DTC, the Auction Agent shall calculate the Maximum Auction Rate on the Business
Day immediately preceding the first day of each Subsequent Auction Rate Period commencing
after the delivery of certificates representing the Auction Rate Securities pursuant to this Trust
Agreement. If a Payment Default shall have occurred, the Auction Agent shall calculate the
Overdue Rate (i) as of the first day of the Subsequent Auction Rate Period commencing after the
occurrence of and during the continuance of such Payment Default, (ii) on the date of the
occurrence of a Payment Default during a Special Auction Rate Period consisting of more than
364 Rate Period Days and (iii) as of the first day of any Subsequent Auction Rate Period
commencing after the occurrence of a Payment Default to and including the Subsequent Auction
Rate Period, if any, commencing less than two Business Days after all such Payment Defaults
are cured.
SECTION 2.08. Notification of Payment Dates. Promptly after the Date of
Interest Accrual and each Interest Payment Date and in any event at least 10 days prior (unless
the then current Auction Rate Period is a Standard Auction Rate Period of 7 Rate Period Days, in
which case, at least 6 days prior) to the next Interest Payment Date following the Date of Accrual
or such Interest Payment Date, as the case may be, the Auction Agent shall advise the Trustee
and any Paying Agent, so long as no Payment Default has occurred and is continuing and the
ownership of the Auction Rate Securities is maintained in book-entry form by DTC, of such next
succeeding Interest Payment Date. In the event that any day that is scheduled to be an Interest
Payment Date shall be changed after the Auction Agent shall have given the notice referred to in
the preceding sentence, not later than 9:15 A.M., New York time, on the Business Day next
preceding the earlier of the new Interest Payment Date or the previous Interest Payment Date, the
Auction Agent will, by such means as the Auction Agent deems practicable, give notice of such
change to the Trustee and to any Paying Agent, so long as no Payment Default has occurred and
is continuing and the ownership of the Auction Rate Securities is maintained in book-entry form
by DTC.
SECTION 2.09. Adjustment in Percentages.
(a) During any period while Auction Rate Securities are Outstanding,
the Market Agent may, with the consent of the Insurer, adjust the percentage used in determining
DOCSSF 180 16566
G-22
the Minimum Rate and the Applicable Percentage used in determining the Maximum Auction
Rate if any such adjustment is necessary, in the judgment of the Market Agent, to reflect any
Change of Preference Law such that the Maximum Auction Rate and Minimum Rate shall have
substantially equal market values before and after such Change of Preference Law. In making
any such adjustment, the Market Agent shall take the following factors, as in existence both
before and after such Change of Preference Law, into account:
(i) short-term taxable market rates and indices of such short-term
rates;
(ii) the market supply and demand for short-term taxable securities;
(iii) yield curves for short-term and long-term taxable securities or
obligations having a credit rating that is comparable to the Auction Rate Securities;
(iv) general economic conditions; and
(v) economic and financial factors present in the securities industry
that may affect or that may be relevant to the Auction Rate Securities.
(b) The Market Agent shall communicate its determination to adjust
the percentage used in determining the Minimum Rate and the Applicable Percentage used in
determining the Maximum Auction Rate pursuant to subsection (a) of this Section by means of
Notice of Percentage Change delivered at least 10 days prior to the Auction Date on which the
Market Agent desires to effect the change to the Local Agency, the Trustee and the Auction
Agent in substantially the form set forth herein as Exhibit H.
(c) An adjustment in the percentage used to determine the Minimum
Rate and the Applicable Percentage used to determine the Maximum Auction Rate shall take
effect on an Auction Date only if:
(i) the Trustee, the Insurer and the Auction Agent receive, by
11 :00 A.M., New York time, on the Business Day immediately preceding such Auction
Date, a certificate from the Market Agent by telecopy or similar means, authorizing the
adjustment of the percentage used to determine the Minimum Rate and the Applicable
Percentage used to determine the Maximum Auction Rate which shall be specified in
such authorization; and
(ii) the Trustee, the Insurer and the Auction Agent receive by
9:30 A.M., New York time, on such Auction Date, an opinion of Bond Counsel to the
effect that the adjustment in the percentage used to determine the Minimum Rate and the
Applicable Percentage used to determine the Maximum Auction Rate is authorized by
this Agreement.
SECTION 2.10. Change in Standard Auction Rate Period.
(a) While any Auction Rate Securities are Outstanding, the Local
Agency, at its option, with the consent of the Insurer, may from time to time on any Interest
DOCSSF 1 :80 1656.6
0-23
Payment Date change the length of the Standard Auction Rate Period on all or a portion of any
Auction Rate Securities from one period to another in order to accommodate economic and
financial factors that may affect or be relevant to the length of the Standard Auction Rate Period
and the interest rate borne by such Auction Rate Securities. The Local Agency shall initiate the
change in the length of a Standard Auction Rate Period by giving written notice to the Trustee,
the Auction Agent, the Broker-Dealers, the Insurer and the Securities Depository that the
Standard Auction Rate Period will change if the conditions described below are satisfied and the
proposed effective date of the change, at least ten Business Days prior to the Auction Date for
such Standard Auction Rate Period and that such Auction Rate Securities are subject to
mandatory tender for purchase on the Interest Payment Date immediately following the Auction
Date on which there has been a successful Auction of such Auction Rate Securities for the first
Standard Auction Rate Period.
(b) The change in the length of a Standard Auction Rate Period shall
not be allowed unless Sufficient Clearing Bids existed at both the Auction before the date which
the notice of the proposed change was given as provided in (a) above and the Auction
immediately preceding the proposed change.
(c) The change in length of a Standard Auction Rate Period shall take
effect only if (A) the Trustee and the Auction Agent receive by 11 :00 a.m., New York time, on
the Business Day before the Auction Date for the first such Standard Auction Rate Period, a
certificate from the Local Agency Representative, authorizing the change in the length of the
Standard Auction Rate Period specified in such certificate, and (B) Sufficient Clearing Bids exist
at the Auction on the Auction Date for such first Standard Auction Rate Period. If the condition
referred to in (A) above is not met, the Auction Rate for the next Auction Rate Period shall be
determined pursuant to the Auction Procedures and the Auction Rate Period shall be the Auction
Rate Period determined without reference to the proposed change. If the condition referred to in
(B) above is not met, the Auction Rate for the next Auction Rate Period shall be established at
the Maximum Auction Rate for the lesser of (a) three Standard Auction Periods or (b) 35 days,
following which period, the Local Agency shall initiate proceedings to convert such Auction
Rate Securities to a Fixed Rate.
(d) Any Auction Rate Securities for which the Standard Auction Rate
Period is changed shall be subject to mandatory tender for purchase on the Interest Payment Date
immediately following the Auction Date on which there has been a successful Auction of such
Auction Rate Securities (subject to the availability of funds sufficient to pay the Tender Price of
such Auction Rate Securities having been provided to the Trustee through the remarketing of
such Auction Rate Securities to new Owners) at a price equal to the principal amount being
tendered and accrued interest thereon.
SECTION 2.11. Designation of Special Auction Rate Periods.
(a) The Local Agency, at its option, with the consent of the Insurer,
may designate any succeeding Subsequent Auction Rate Period as a Special Auction Rate
Period. A designation of a Special Auction Rate Period shall be effective only if (i) notice
thereof shall have been given in accordance with subsection (c) and subsection (d)(i) of this
Section, (ii) an Auction shall have been held on the Auction Date for such Special Auction Rate
DOCSSFl :801656.6
G-24
Period and Sufficient Clearing Bids shall have existed in such Auction, and (iii) if any notice of
redemption shall have been mailed by the Trustee, the related redemption price shall be on
deposit with the Trustee.
(b) In the event the Local Agency wishes to designate a Subsequent
Auction Rate Period as a Special Auction Rate Period, but the day following what would
otherwise be the last day of such Special Auction Rate Period is not the day set forth in a
Supplemental Trust Agreement that is a Business Day, then the Local Agency shall designate
such Subsequent Auction Rate Period as a Special Auction Rate Period consisting of the period
commencing on the first day following the end of the immediately preceding Auction Rate
Period and ending on the first preceding day that is followed by the day set forth in a
Supplemental Trust Agreement that is a Business Day preceding what would otherwise be such
last day.
(c) If the Local Agency proposes to designate any succeeding
Subsequent Auction Rate Period as a Special Auction Rate Period pursuant to subsection (a) of
this Section, not less than 20 (or such lesser number of days as may be agreed to from time to
time by the Auction Agent and the Insurer) nor more than 30 days prior to the date the Local
Agency proposes to designate as the first day of such Special Auction Rate Period (which shall
be the day that would otherwise be the first day of the next succeeding Auction Rate Period), the
Local Agency shall give written notice thereof to the Trustee, the Insurer, the Auction Agent, the
Market Agent and the Securities Depository. Each such notice shall state (i) that the Local
Agency may exercise its option to designate a succeeding Subsequent Auction Rate Period as a
Special Auction Rate Period, specifying the first and last days thereof, and the conditions thereto
and (ii) that the Local Agency wilL by 11 :00 A.M., New York time, on the second Business Day
next preceding the first day of such proposed Special Auction Rate Period (or by such later time
or date, or both, as may be agreed to by the Auction Agent) notify the Auction Agent of either
(x) its determination, to exercise such option, in which case, the Local Agency Representative
shall specify the Special Auction Rate Period designated, or (y) its determination not to exercise
such option.
(d) No later than 11 :00 A.M., New York time, on the second Business
Day next preceding the first day of any proposed Special Auction Rate Period as to which notice
has been given as set forth in subsection (c) of this Section (or such later time or date, or both, as
may be agreed to by the Auction Agent), the Local Agency Representative shall deliver to the
Auction Agent either:
(i) (A) a notice stating (1) that the Local Agency has determined to
designate the next succeeding Auction Rate Period as a Special Auction Rate Period,
specifying the same and the first day thereof, (2) the Auction Date immediately prior to
the first day of such Special Auction Rate Period, (3) that such Special Auction Rate
Period shall not commence if (x) an Auction shall not be held on such Auction Date for
any reason or (y) an Auction shall be held on such Auction Date but Sufficient Clearing
Bids shall not exist in such Auction, (4) the Interest Payment Dates during such Special
Auction Rate Period and (B) an opinion of Bond Counsel to the effect that such
designation of a Special Auction Rate Period is authorized by this Trust Agreement; or
DOCSSF1:80 1656.6
G-25
(ii) a notice stating that the Local Agency has determined not to
exercise its option to designate a Special Auction Rate Period and that the next
succeeding Auction Rate Period shall be a Standard Auction Rate Period.
(e) If the Local Agency fails to deliver either of the notices or the
opinion described in subsection (d)(i) or (ii) of this Section with respect to any designation of
any proposed Special Auction Rate Period to the Auction Agent by 11 :00 A.M., New York time,
on the second Business Day next preceding the first day of such proposed Special Auction Rate
Period (or by such later time or date, or both, as may be agreed to by the Auction Agent), the
Local Agency shall be deemed to have delivered a notice to the Auction Agent with respect to
such Special Auction Rate Period to the effect set forth in paragraph (ii) of subsection (d) of this
Section.
SECTION 2.12. Conversion of Auction Rate Securities to Fixed Interest Rate
Bonds. (a) At the option of the Local Agency, with the prior written consent of the Insurer, the
Qualified Swap Counterparty and the Swap Policy Provider (if the affected Auction Rate
Securities are covered by a Qualified Swap Agreement), all but not less than all of any Series of
Bonds may be converted from Auction Rate Securities to Fixed Rate Bonds as follows:
(i) The Fixed Rate Conversion Date shall be an Interest Payment
Date.
(ii) The Local Agency shall give written notice of any such conversion
to the Trustee, the applicable Auction Agent, the Insurer, the Qualified Swap
Counterparty and the Swap Policy Provider (if applicable) and the applicable Broker-
Dealer not less than fifteen (15) days nor more than thirty (30) days prior to the date on
which the Trustee is required to notify the affected Owners of the conversion of the
applicable Tranche or Series pursuant to subparagraph (iii) immediately below. Such
notice shall specify the proposed Fixed Rate Conversion Date of the applicable Tranche
and the principal amount of Auction Rate Securities to be converted to Fixed Rate Bonds
bearing interest at fixed interest rates. Together with such notice, the Local Agency shall
file with the applicable Broker-Dealer and the Trustee a form of Opinion of Counsel
addressed to the Broker-Dealer, the Trustee, the Local Agency and the Insurer to the
effect that the conversion of the Auction Rate Securities of the applicable Tranche to
fixed interest rates will not adversely affect the validity of the Fixed Rate Bonds under
State law. No conversion shall become effective unless on or before the proposed Fixed
Rate Conversion Date, the Local Agency shall also file with the Trustee an Opinion of
Counsel addressed to the Trustee, the Local Agency and the Insurer substantially in the
form described in the immediately preceding sentence, dated the Fixed Rate Conversion
Date, and subject to the availability offunds sufficient to pay the Tender Price of such
Auction Rate Securities having been provided to the Trustee through the remarketing of
such Auction Rate Securities to new Owners.
(iii) Not fewer than forty (40) days prior to the Fixed Rate Conversion
Date established for the applicable Series or Tranche, the Trustee shall mail a written
notice of the conversion to the Owners of all Auction Rate Securities (with a copy to the
DOCSSF 180 1656.6
0-26
Insurer and the Auction Agent) of the applicable Series or Tranche to be converted,
which notice shall:
(1) specify the Fixed Rate Conversion Date established for the
affected Bonds;
(2) notify such Owners that the Auction Rate Securities of the
applicable Series or Tranche to be converted will be subject to mandatory
tender for purchase on such Fixed Rate Conversion Date at a price equal
to 100% of the principal amount of such Auction Rate Securities, plus
interest accrued and unpaid with respect thereto, if any, to but not
including the Fixed Rate Conversion Date;
(3) notify such Owners that in the event of a failed conversion,
or in the event the Local Agency exercises its right of election to revoke
the conversion pursuant to subparagraph (v) below, such Auction Rate
Securities will not be subject to mandatory tender, will be returned to their
Owners, will automatically convert to the Auction Interest Period in effect
immediately prior to the Fixed Rate Conversion Date and will bear interest
at the Maximum Auction Rate;
(4) set forth the time, the place and the manner for tendering
such Auction Rate Securities for purchase; and
(5) set forth any other matters required to be stated pursuant to
this paragraph.
(iv) Not later than 12:00 noon, New York time, on the Business Day
immediately preceding the Fixed Rate Conversion Date established for the applicable
Series or Tranche, at the direction of the Local Agency, the applicable Broker-Dealer
shall determine, by offering for sale and using at least its best efforts to find purchasers
for the Tranches of Auction Rate Securities which are to be converted to Fixed Rate
Bonds:
(I) the Fixed Rate(s) applicable to such Bonds after such Fixed
Rate Conversion Date;
(2) the allocation of such Bonds between Serial Bonds and
Term Bonds, which allocation shall be subject to the approval of the
Insurer and shall be made in such manner as shall:
A.
produce the lowest aggregate interest payable with
respect to the Auction Rate Securities to be
converted to Fixed Rate Bonds;
B.
establish mandatory Redemption Dates and related
principal amounts for Serial Bonds, if any, and
establish mandatory redemption dates and related
DOCSSFl:80 1656.6
G-27
Principal Amounts for Tcrm Bonds other than
Serial Bonds, if any, which are consistent, on a pro
rata basis, with the principal of such Bonds prior to
such Fixed Rate Conversion Date;
C. permit Bond Counsel to render the opinion
described in subparagraph (ii) above;
provided, however, that if Bond Counsel is unable to render such opinion because of the
allocation procedures set forth in this subparagraph (iv), all such converted Bonds shall
be redesignated as Serial Bonds with mandatory redemption dates and related principal
amounts which are consistent, on a pro rata basis, with the applicable principal of such
Bonds prior to the Fixed Rate Conversion Date, subject to the Insurer's approval of the
new redemption dates and principal amounts.
Such determination shall be conclusive and binding upon the Local Agency, the
Trustee and the Owners of the Auction Rate Securities of the applicable Series or
Tranche to be converted to which such rate or rates will be applicable. Not later than
5:00 p.m., New York time, on the date of determination of the fixed interest rate(s), as
provided in the first sentence ofthis subparagraph, the applicable Broker-Dealer shall
notify the Local Agency and the Trustee of the following by facsimile notice:
(3) the aggregate principal amount of the Bonds bearing
interest at fixed rates as a result of such Fixed Rate Conversion;
(4) a schedule of the mandatory redemption dates and related
principal amounts of converted Bonds which the Local Agency has
redesignated as Serial Bonds and which the Insurer has approved; and
(5) a schedule of the mandatory redemption dates and related
principal amounts of converted Bonds which are to be Term Bonds, if any,
and which the Insurer has approved.
If necessary or appropriate in the Opinion of Counsel, the Local Agency shall
execute and deliver a supplement to this Trust Agreement setting forth, among other
things, the terms of the Fixed Rate Bonds;
(v) The Local Agency may revoke its election to effect a conversion of
the applicable Series or Tranche of the Auction Rate Securities to Fixed Rate Bonds by
giving written notice of such revocation to the Trustee, the Insurer, the Qualified Swap
Provider (if applicable), the Swap Policy Provider (if applicable), and the applicable
Broker-Dealer and at any time prior to the Business Day immediately preceding the
Fixed Rate Conversion Date.
(vi) Auction Rate Securities of the applicable Series or Tranche which
are to be converted to Fixed Rate Bonds shall be subject to mandatory tender for
purchase on a proposed Fixed Rate Conversion Date (subject to the availability of funds
sufficient to pay the Tender Price of such Auction Rate Securities having been provided
DOCSSF 180 1656.6
G-28
to the Trustee through the remarketing of such Bonds) at a price equal to 100% of the
principal amount of such Auction Rate Securities, if any, plus interest accrued and unpaid
with respect thereto to, but not including, the Fixed Rate Conversion Date.
(vii) If on a proposed Fixed Rate Conversion Date, any condition
precedent to such conversion required under this paragraph shall not be satisfied, the
Trustee shall give written notice by first-class mail, postage prepaid, as soon as
practicable and in any event not later than the next succeeding Business Day to the
Owners of the applicable Series or Tranche to be converted that such conversion has not
occurred, that the particular Auction Rate Securities to be converted shall not be
purchased on the failed Fixed Rate Conversion Date, that the Auction Agent shall
continue to implement the Auction Procedures on the Auction Dates with respect to the
Auction Rate Securities which otherwise would have been converted, excluding,
however, the AuctionDate falling on the Business Day next preceding the failed Fixed
Rate Conversion Date, and that the interest rate with respect to the affected Bonds shall
continue to be the applicable Auction Rate; provided, however, that the interest rate on
the Auction Rate Securities during the Auction Interest Period commencing on such
failed Fixed Rate Conversion Date shall be established at the Maximum Auction Rate for
thc lesser of (a) three Standard Auction Periods or (b) 35 days, following which period,
the Local Agency shall initiate new proceedings to convert such Auction Rate Securities
to a Fixed Rate.
(b)
Purchase of Auction Rate Securities.
(1) Mandatory Tender for Purchase Upon Conversion to Fixed
Interest Rates. The Auction Rate Securities shall be subject to mandatory
tender for purchase if at any time the Trustee gives written notice mailed
to the Owners of the affected Auction Rate Securities, in accordance with
the procedures set forth in subsection (2) immediately below, that, at the
option of the Local Agency, particular Auction Rate Securities are to be
converted to a Fixed Rate pursuant to the provisions of the immediately
preceding paragraph; subject to the availability of funds sufficient to pay
the Tender Price of such Auction Rate Securities having been provided to
the Trustee through the remarketing of such Auction Rate Securities. The
Auction Rate Securities of such Series or Tranche subject to mandatory
tender shall be purchased or deemed purchased at the Tender Price.
(2) Notice of Mandatory Tender for Purchase. In connection
with any mandatory tender for purchase of any Auction Rate Securities of
any Series or Tranche in accordance with the immediately preceding
paragraphs, the Trustee shall give written notice to the affected Owners
and to the Auction Agent by facsimile transmission, to be received no later
than 2:00 p.m. New York time, on the day the notice is sent:
A.
that the Tender Price of any Auction Rate Security
subject to mandatory tender for purchase shall be
payable only upon surrender of that Auction Rate
DOCSSF1801656.6
G-29
DOCSSF 180 1656.6
Security to the Trustee at its Principal Office for
delivery of Auction Rate Securities, accompanied
by an instrument of transfer, in form satisfactory to
the Trustee, executed in blank by the duly
authorized attorney for such Owner or Owners, with
such signature guaranteed in the manner set forth in
the form attached to the Auction Rate Securities;
B.
that, provided that moneys sufficient to effect such
purchase have been provided to the Trustee through
the remarketing of such Auction Rate Securities by
the applicable Broker-Dealer, and provided that the
Local Agency has not exercised its right of election
to revoke the conversion pursuant to paragraph
(a)(v) of this Section, Auction Rate Securities
subject to mandatory tender for purchase shall be
purchased on the Tender Date;
c.
that if any Owner of an Auction Rate Security
subject to mandatory tender for purchase does not in
fact surrender such Auction Rate Security to the
Trustee for purchase on the Tender Date, then such
Auction Rate Security, on and after such Tender
Date, shall be deemed to be an Undelivered Auction
Rate Security, that no interest shall accrue with
respect to such Auction Rate Security on and after
such Tender Date and that the Auction Rate
Security shall have no rights under the Trust
Agreement other than to receive payment of the
Tender Price; and
D.
that, in the event moneys sufficient to pay the
Tender Price of such Auction Rate Securities have
not been provided to the Trustee through the
remarketing of such Auction Rate Securities, such
Auction Rate Securities shall not be purchased or
deemed purchased and shall continue to have
interest accrue with respect thereto as if such failed
purchase had not occurred.
E.
If the circumstances described in clause D above
should occur, then the affected Auction Rate
Securities shall not be purchased or deemed
purchased and shall continue to have interest accrue
thereon as described in clause D above. The
Insurance Policy may not be drawn upon to
purchase any Auction Rate Securities hereunder.
0-30
DOCSSFl:801656.6
(3) Undelivered Auction Rate Securities. The following
provisions shall apply to Auction Rate Securities not delivered by a date
established for its surrendered, properly endorsed by its Owner (each, an
"Undelivered Auction Rate Security"):
A. The Trustee may refuse to accept delivery of any
Undelivered Auction Rate Security for which a
proper instrument oftransfer has not been provided;
provided, however, that such refusal shall not affect
the validity of the purchase of such Undelivered
Auction Rate Security.
B. If funds in the amount of the purchase price of the
Undelivered Auction Rate Security are available for
payment to the Owners thereof on the Tender Date
and at the time specified, then, from and after the
Tender Date and time of such required delivery:
(I) such Undelivered Auction Rate Security
shall be deemed to be purchased and shall no longer
be deemed to be Outstanding under this Trust
Agreement;
(2) interest shall no longer accrue with respect
to such Undelivered Auction Rate Security; and
(3) funds in the amount of the purchase price of
the Undelivered Auction Rate Security shall be held
uninvested by the Trustee for the benefit of the
Owner thereof (provided that such Auction Rate
Security shall have no right to any investment
proceeds derived from such funds), to be paid on
delivery (and proper endorsement) of such
Undelivered Auction Rate Security to the Trustee at
its Principal Office for delivery of the Auction Rate
Securities. Any money which the Trustee
segregates and holds in trust for the payment of the
Tender Price of any Auction Rate Security which
remains unclaimed for two years after the date of
purchase shall be paid to the Local Agency. After
the payment of such unclaimed money to the Local
Agency, the former Owner of such Auction Rate
Security shall look only to the Local Agency for the
payment of the Tender Price. The Local Agency
shall not be liable for any interest on unclaimed
money and shall not be regarded as a trustee of such
money.
G-3l
(c) Determination by Trustee; Notice of Tender. For purposes of this
Section, the Trustee shall determine timely and proper delivery of Auction Rate Securities and
the proper endorsement of Auction Rate Securities delivered. Such determination shall be
binding on the Owners of such Auction Rate Securities, the Local Agency, and the Broker-
Dealer, absent manifest error.
SECTION 2.13. Transfer and Exchange of Auction Rate Securities.
(a) The registration of any Auction Rate Security may, in accordance
with its terms, be transferred upon the Registration Books by the Person in whose name it is
registered, in Person or by his attorney duly authorized in writing upon surrender of such
Auction Rate Security for cancellation at the Office of the Trustee, accompanied by delivery of a
written instrument of transfer in a form acceptable to the Trustee, duly executed. Whenever any
Auction Rate Security shall be surrendered for registration of transfer, the Trustee shall execute
and deliver a new Auction Rate Security or Auction Rate Securities for a like aggregate principal
amount in authorized denominations. The Trustee shall require the payment by the Auction Rate
Security Owners requesting such transfer of any tax or other governmental charge required to be
paid with respect to such transfer. The cost of printing any Auction Rate Securities and any
services rendered or any expenses incurred by the Trustee in connection with any transfer shall
be paid by the Local Agency. The Trustee shall not be required to transfer:
(i) any Auction Rate Securities during the period between the date
fifteen (15) days prior to the date of selection of Auction Rate Securities for redemption
and such date of selection, or
(ii) any Auction Rate Securities selected for redemption.
(b) Auction Rate Securities may be exchanged, upon surrender
thereof, at the Office of the Trustee for a like aggregate principal amount of Auction Rate
Securities of other Authorized Denominations of the same maturity. Whenever any Auction
Rate Security or Auction Rate Securities shall be surrendered for exchange, the Trustee shall
execute and deliver a new Auction Rate Security or Auction Rate Securities for like aggregate
principal amount in Authorized Denominations. The Trustee shall require the payment by the
Auction Rate Security Owners requesting such exchange of any tax or other governmental
charge required to be paid with respect to such exchange. The cost of printing any Auction Rate
Securities and any services rendered or any expenses incurred by the Trustee in connection with
any exchange shall be paid by the Local Agency. The Trustee shall not be required to exchange:
(i) any Auction Rate Securities during the period between the date
fifteen (15) days prior to the date of selection of Auction Rate Securities for redemption
and such date of selection, or
(ii) any Auction Rate Securities selected for redemption.
SECTION 2.14. Market Agent. The Local Agency hereby authorizes and
expressly directs the Trustee, as agent for the Beneficial Owners of the Auction Rate Securities,
to enter into a Market Agent Agreement relating to any Auction Rate Securities with a Market
Agent, with the consent of the Insurer. The Market Agent shall serve in such capacity under the
DOCSSF 1 :80 1656.6
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terms and provisions hereof and of the applicable Market Agent Agreement. The Market Agent
shall be a member of the National Association of Securities Dealers, Inc., having capitalization
of at least $25,000,000, and be authorized by law to perform all the duties imposed upon it by
this Trust Agreement and the Market Agent Agreement. The Market Agent will promptly resign
following receipt of a request by the Trustee or the Insurer (with a copy to any Qualified Swap
Provider, any Swap Policy Provider, the Local Agency and the Trustee) or at any time, with the
prior written consent of the Insurer, upon and pursuant to the written direction of the Beneficial
Owners of at least two-thirds of the aggregate principal amount of the Auction Rate Securities
then Outstanding filed with the Market Agent, the Insurer, any Qualified Swap Provider, any
Swap Policy Provider, and the Local Agency, provided that such removal shall not take effect
until the appointment by the Local Agency of a substitute Market Agent and the successors
acceptance of their duties and obligations pursuant to appropriate documentation. The Market
Agent may also resign upon 30 days' prior written notice delivered to the Trustee, provided that
such resignation shall not take effect until the appointment by the Local Agency of a substitute
Market Agent. If the Local Agency is unable to appoint a substitute Market Agent within 30
days following receipt of such written notice of resignation, the Market Agent may petition the
appropriate court having jurisdiction to appoint a substitute Market Agent. Notwithstanding the
provisions of this paragraph, the Market Agent may be removed at any time, at the request of the
Local Agency with the consent of the Insurer, for any breach of its obligations under this Section
or under the Market Agent Agreement. Any substitute Market Agent must be approved by the
Insurer.
The periodic fees of the Market Agent shall be invoiced to the Trustee with a
copy to the Local Agency, and paid from the Service Account. The Trustee may conclusively
rely upon the determinations made by the Market Agent with regard to its compensation and any
representations made in such invoice.
The Trustee shall not be liable under any circumstances for any action taken,
suffered or omitted by the Market Agent and shall be indemnified as set forth herein.
SECTION 2.15. Auction Agent.
(a) The Local Agency authorizes and expressly directs the Trustee, as
agent for the Beneficial Owners of the Auction Rate Securities, to enter into an Auction Agent
Agreement relating to Auction Rate Securities with a designated Auction Agent, including any
Auction Agent for Auction Rate Securities as may be appointed in a Supplemental Trust
Agreement. Any Auction Agent shall be:
(i) subject to the written approval of the applicable Broker-Dealer and
the Insurer; and either:
(A) a bank or trust company duly organized under the laws of
the United States of America or any state or territory thereof having its
principal place of business in New York, New York, or such other location
as approved by the Trustee and the Market Agent in writing and having a
combined capital stock or surplus of at least $15,000,000; or
DOCSSF180 1656.6
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(B) a member of the National Association of Securities
Dealers, Inc., having a capitalization of at least $15,000.000, and, in either
case, authorized by law to perform all the duties imposed upon it under the
applicable Auction Agent Agreement and Section 2.05 of this Exhibit O.
The Auction Agent may at any time resign and be discharged of its duties
as Auction Agent and obligations under the Auction Agent Agreement by
giving at least 90 days' prior notice to the Trustee, the Local Agency, the
Insurer, any Qualified Swap Provider, any Swap Policy Provider and the
Market Agent. The Auction Agent may be removed at any time by a
request of the Trustee or the Insurer (with a copy to the Trustee and the
Local Agency) and upon thirty days' notice to the Auction Agent or upon
the written direction of the Local Agency or, with the prior written consent
of the Insurer, any Qualified Swap Provider (if applicable), any Swap
Policy Provider (if applicable), the Beneficial Owners of at least two-
thirds of the aggregate principal amount of the Auction Rate Securities
then Outstanding, by an instrument signed by such Beneficial Owners or
their attorneys and filed with the Auction Agent, the applicable Broker-
Dealer, the Trustee, the Insurer, any Qualified Swap Provider (if
applicable), any Swap Policy Provider (if applicable), and the Market
Agent upon at least 30 days' prior notice. Neither resignation nor removal
of the Auction Agent pursuant to the provisions of the preceding two
sentences shall be effective until and unless a Substitute Auction Agent
has been appointed and has accepted such appointment. A substitute
Auction Agent Agreement shall be entered into with any substitute
Auction Agent. Notwithstanding the foregoing, the Auction Agent may
terminate the Auction Agent Agreement if, within 45 days after notifying
the Trustee, the applicable Broker-Dealer, the Local Agency, the Insurer
and the Market Agent in writing that it has not received payment of any
Auction Agent Fee due it in accordance with the terms of the Auction
Agent Agreement, the Auction Agent does not receive such payment. The
Trustee shall not be liable for any action taken, suffered or omitted by the
Auction Agent.
(b) The periodic fees of the Auction Agent shall be invoiced to the
Trustee, with a copy to the Local Agency, and paid from the Service Account. The Trustee may
conclusively rely upon the determinations made by the Auction Agent with regard to its
compensation and any representations made in such invoice.
(c) If the Auction Agent shall resign or be removed or be dissolved, or
if the property or affairs of the Auction Agent shall be taken under the control of any state or
federal court or administrative body because of bankruptcy or insolvency, or for any other
reason, the Trustee, at the direction of the Local Agency, with the consent of the Insurer, the
Qualified Swap Provider (if applicable), the Swap Policy Provider (if applicable), shall use its
best efforts to appoint a substitute Auction Agent for such Series of Bonds.
(d) The Auction Agent is acting as agent for the Beneficial Owners of
the Auction Rate Securities in connection with Auctions. In the absence of bad faith, negligent
DOCSSF1801656.6
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failure to act or negligence on its part, the applicable Auction Agent shall not be liable for any
action taken. suffered or omitted or any error of judgment made by it in the performance of its
duties under the Auction Agent Agreement and shall not be liable for any error of judgment
made in good faith unless the Auction Agent shall have been guilty of gross negligent in
ascertaining (or failing to ascertain) the pertinent facts.
(e) Notwithstanding the provisions of paragraph (a) of this Section, the
Auction Agent may be removed at any time, at the request of the Local Agency, with the consent
of the Insurer, the Qualified Swap Provider (if applicable) and the Swap Policy Provider (if
applicable), for any breach of its obligations under this Trust Agreement or under the related
Auction Agent Agreement.
SECTION 2.16. Broker-Dealers.
(a) The Auction Agent will enter into a Broker-Dealer Agreement
with a Broker-Dealer for the Auction Rate Securities, including any Broker-Dealer Agreement
with a Broker-Dealer appointed in a Supplemental Trust Agreement. The Local Agency may,
from time to time, with the consent of the Insurer approve one or more additional Persons to
serve as Broker-Dealers under Broker-Dealer Agreements and shall be responsible for providing
such Broker-Dealer Agreements to the Trustee and the applicable Auction Agent, promptly
following the execution thereof.
(b) The periodic fees of the Broker-Dealer shall be invoiced to the
Trustee, with a copy to the Local Agency, and paid from the Service Account. The Trustee may
conclusively rely upon the determinations made by the Broker-Dealer with regard to its
compensation and any representations made in such invoice.
(c) Any Broker-Dealer may be removed at any time, at the request of
the Local Agency, for any breach of is obligations hereunder or under the Broker-Dealer
Agreement, provided that at least one Broker-Dealer Agreement must be in effect immediately
following such removal.
SECTION 2.17. No Local Agency or Trustee Liability for Auction Failures.
Neither the Local Agency nor the Trustee shall be responsible for any failure of a Broker-Dealer
to submit an Order (as defined in the applicable Auction Agent Agreement) to the Auction Agent
on behalf of any Owners or prospective Owners, nor shall the Local Agency nor the Trustee be
responsible for failure by any Securities Depository to effect any transfer or to provide the
Auction Agent with current information regarding registration of transfers. The Local Agency
shall have no liability if there are not Sufficient Clearing Bids (as such term is defined in the
applicable Auction Agent Agreement) from time to time pursuant to the Auction Procedures.
DOCSSF1801656.6
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EXHIBIT H
FORM OF NOTICE OF PERCENTAGE CHANGE
$
CITY OF SAN BERNARDINO
TAXABLE PENSION OBLIGATION BOND, 2005 SERIES A
NOTICE OF CHANGE IN LIB OR RATE
CUSIP NUMBER(S):
NOTICE IS HEREBY GIVEN by , as Trustee in
connection with the referenced Bonds that the following LIBOR rate will become effective
through
[SPREAD]
One-Month LIBOR Rate
Currently in Effect:
Rate Reset:
_% (Month Rate)
Fixed Spread to LIBOR
%
%
Rate Determination
%
By:
Authorized Officer
DOCSSFI801656.6
H-l
SCHEDULE I
PRICING TERMS
The following provisions shall apply to the 2005 Series A Bonds:
2005 Series A-I (Standard Bonds)
1. Interest Payment Date: and , commencmg ,
2006
2. Principal Payment Dates: _' commencIng ,
-
3. Record Date: The fifteenth day of each month immediately
preceding an Interest Payment Date
4. Reference Treasury Dealer:
5. Maturity Dates, Principal Amounts and
Interest Rates:
Maturity Date Principal Interest
( ) Amount Rate
6. Sinking Fund Redemptions:
Date
( ) Amount
SCH-I
DOCSSF1801656.6
2005 Series A-2 (Capital Appreciation Bonds)
I. Interest Payment Date: and , commencing ,
2006
2. Principal Payment Dates: , commencmg , -
3. Record Date: The fifteenth day of each month immediately
preceding an Interest Payment Date
4. Maturity Dates, Principal Amounts and
Interest Rates:
Maturity Date Principal Accreted Value Interest
( ) Amount at Maturity Rate
5. Sinking Fund Redemptions:
Date
( ) Amount
SCH-I
DOCSSF 180 1656.6