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HomeMy WebLinkAbout103-Preliminary Official Statement.pdfHawkins Delafield & Wood LLP Draft of 5/25/11 136036.5 035180 OS Th i s P r e l i m i n a r y O f f i c i a l S t a t e m e n t a n d t h e i n f o r m a t i o n co n t a i n e d h e r e i n a r e s u b j e c t t o c o m p l e t i o n o r a m e n d m e n t w i t h o u t n o t i c e . U n d e r n o c i r c u m s t a n c e s s h a l l t h i s P r e l i m i n a r y O f f i c i a l S t a t e m e n t c o n s t i t u t e a n of f e r t o s e l l o r t h e s o l i c i t a t i o n o f a n o f f e r t o b u y , n o r s h a l l t h e r e b e a n y s a l e o f t h e s e s e c u r i t i e s , i n an y j u r i s d i c t i o n i n w h i c h s u c h o f f e r , s o l i c i t a t i o n , o r s a l e w o u l d b e u n l a w f u l p r i o r t o r e g i s t r a t i o n o r q u a l i f i c a t i o n un d e r t h e s e c u r i t i e s l a w s o f s u c h j u r i s d i c t i o n . PRELIMINARY OFFICIAL STATEMENT DATED _______, 2011 NEW ISSUE – BOOK-ENTRY ONLY RATINGS Moody's: : S&P: (See "RATINGS" herein) In the opinion of Hawkins Delafield & Wood LLP, Bond Counsel to the City, under existing statutes and court decisions and assuming continuing compliance with certain tax covenants described herein, (i) interest on the Bonds is excluded from gross income for Federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) interest on the Bonds is not treated as a preference item in calculating the alternative minimum tax imposed on individuals and corporations under the Code; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposed on such corporations. In addition, in the opinion of Bond Counsel to the City, under existing statutes, interest on the Bonds is exempt from State of California personal income taxes. See “TAX MATTERS” herein. $___________ CITY OF SARATOGA (SANTA CLARA COUNTY, CALIFORNIA) GENERAL OBLIGATION REFUNDING BONDS, SERIES 2011 (SARATOGA COMMUNITY LIBRARY PROJECT) Dated: Date of Delivery Due: August 1, as shown below The City of Saratoga (Santa Clara County, California) General Obligation Refunding Bonds, Series 2011 (Saratoga Community Library Project) (the "Bonds"), are being issued by the City of Saratoga (the "City") pursuant to Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code, commencing with Section 53550 of said Code (the "Act"); and a resolution adopted by the City Council of the City (the "Council") on June 1, 2011 (the "Bond Resolution"). See "INTRODUCTION – Authority for Issuance of the Bonds." The proceeds of the Bonds are authorized to be used to refund all of the City of Saratoga (Santa Clara County, California) General Obligation Bonds, Series 2001 (Saratoga Community Library Project) (the "2001 Bonds") which were issued in the aggregate principal amount of $15,000,000. See "PLAN OF REFUNDING” and "ESTIMATED SOURCES AND USES OF FUNDS." The Bonds will be dated and bear interest from their date of delivery at the rates shown below until paid in full. Interest on the Bonds will be payable on February 1 and August 1 of each year, commencing February 1, 2012. The Bonds will be issuable as fully-registered bonds without coupons and will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository for the Bonds. Purchases of beneficial interests in the Bonds will be made in book-entry form through DTC participants and no physical delivery of Bonds will be made to purchasers, except as otherwise described herein. Payment of principal, premium, if any, and interest will be made by The Bank of New York Mellon Trust Company, N.A., as Paying Agent (the "Paying Agent") to DTC, which is obligated to remit such payments to its participants for subsequent disbursement to the Beneficial Owners of the Bonds. See APPENDIX C – "DTC AND THE BOOK-ENTRY SYSTEM" herein. The Bonds will be issuable in denominations of $5,000 or any integral multiple thereof. The Bonds are subject to redemption prior to maturity as described herein. See "THE BONDS – Redemption of the Bonds." The following firm serves as financial advisor to the City. [logo] The Bonds will be sold by competitive sale pursuant to the terms of the Notice Inviting Proposals dated ______, 2011. This cover page contains certain information for general reference only. It is not intended to be a summary of the security or terms of the Bonds. Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. Capitalized terms used on this cover page not otherwise defined shall have the meanings set forth herein. MATURITY SCHEDULE(Base CUSIP Number: _______ * † Maturity Date ) Principal (August 1) Amount Interest * Price or Rate CUSIP Yield Suffix Maturity Date † Principal (August 1) Amount Interest * Price or Rate CUSIP Yield Suffix † The Bonds are offered when, as and if issued by the City and accepted by the initial purchasers, subject to the approval of validity by Hawkins Delafield & Wood LLP, Bond Counsel to the City, and certain other conditions. Certain legal matters will be passed upon for the City by Richard Taylor, † CUSIP data herein is provided by Standard and Poor's CUSIP Service Bureau, a division of the McGraw Hill Companies, Inc. CUSIP numbers are provided for reference only. Neither the County nor the Financial Advisor takes any responsibility for the accuracy of such numbers. 136036.5 035180 OS Esq., Shute, Mihaly & Weinberger LLP, City Attorney. Hawkins Delafield & Wood LLP also served as Disclosure Counsel to the City. It is expected that the Bonds in book-entry form will be available for delivery through the facilities of DTC in New York, New York, on or about July 14, 2011. Dated: ______, 2011. 136036.5 035180 OS No dealer, broker, salesperson or any other person has been authorized to give any information or to make any representations other than those contained in this Official Statement in connection with the offering made hereby and, if given or made, such information or representations must not be relied upon as having been authorized by the City. Neither the delivery of this Official Statement nor any sale hereunder will under any circumstances create any implication that there has been no change in the affairs of the City since the date hereof. This Official Statement does not constitute an offer or solicitation in any jurisdiction in which such offer or solicitation is not authorized, or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. IN CONNECTION WITH THIS OFFERING, THE PURCHASER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. No representation is made that past experience, as it might be shown by financial and other information, will necessarily continue or be repeated in the future. See "FORWARD-LOOKING STATEMENTS" herein. THE BONDS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE PAYING AGENT AGREEMENT HAS NOT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE SECURITIES COMMISSION OR ANY REGULATORY AUTHORITY OF ANY STATE, NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY OF ANY STATE PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR THE ADEQUACY OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Statements in this Official Statement are made as of the date hereof unless stated otherwise and neither the delivery of this Official Statement at any time, nor any sales thereunder, will under any circumstances create an implication that the information contained herein is correct as of any time subsequent to the date hereof. In making an investment decision, investors must rely on their own examination of the security for the Bonds, the City and the terms of the offering, including the merits and risks involved. Prospective investors should not construe the contents of this Official Statement as legal, tax or investment advice. 136036.5 035180 OS CITY OF SARATOGA Santa Clara County, California CITY COUNCIL Howard Miller, Mayor Chuck Page, Vice Mayor Jill Hunter, Council Member Emily Lo, Council Member Manny Cappello, Council Member CITY STAFF Dave Anderson, City Manager Mary Furey, Finance and Administrative Services Director Ann Sullivan, City Clerk Richard Taylor, Esq., Shute, Mihaly & Weinberger LLP, City Attorney FINANCIAL ADVISOR Public Financial Management, Inc. San Francisco, California BOND AND DISCLOSURE COUNSEL Hawkins Delafield & Wood LLP San Francisco, California PAYING AGENT THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. 136036.5 035180 OS TABLE OF CONTENTS INTRODUCTION ....................................................................................................................................................... Page 1 THE CITY OF SARATOGA ............................................................................................................................................ 1 AUTHORITY FOR ISSUANCE OF THE BONDS ................................................................................................................ 2 SUMMARIES NOT DEFINITIVE ..................................................................................................................................... 2 PLAN OF REFUNDING ............................................................................................................................................. 2 THE BONDS ................................................................................................................................................................ 2 GENERAL ................................................................................................................................................................... 2 REDEMPTION OF THE BONDS ...................................................................................................................................... 3 ESTIMATED SOURCES AND USES OF FUNDS .................................................................................................. 6 DEBT SERVICE SCHEDULE ................................................................................................................................... 7 SECURITY FOR THE BONDS ................................................................................................................................. 8 PAYING AGENT AGREEMENT ..................................................................................................................................... 8 LEVY, TAX RATE AND ASSESSED VALUATION ........................................................................................................... 8 PAYMENT DATES AND LIENS ................................................................................................................................... 10 TEETER PLAN ........................................................................................................................................................... 11 LARGEST TAXPAYERS .............................................................................................................................................. 11 TAXATION OF STATE-ASSESSED UTILITY PROPERTY ............................................................................................... 12 DIRECT AND OVERLAPPING DEBT REPORT .............................................................................................................. 13 FACTORS AFFECTING PROPERTY TAX SECURITY FOR THE BONDS ........................................................................... 15 CITY OF SARATOGA RECENT DEVELOPMENTS ......................................................................................................... 16 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS ............. 16 TAX MATTERS ........................................................................................................................................................ 19 FINANCIAL STATEMENTS .................................................................................................................................. 21 CERTAIN LEGAL MATTERS ............................................................................................................................... 22 ABSENCE OF LITIGATION .................................................................................................................................. 22 CONTINUING DISCLOSURE ................................................................................................................................ 22 FORWARD-LOOKING STATEMENTS ............................................................................................................... 22 RATINGS ................................................................................................................................................................... 23 SALE OF THE BONDS ............................................................................................................................................ 23 ADDITIONAL INFORMATION ............................................................................................................................. 23 AUDITED FINANCIAL STATEMENTS OF THE CITY OF SARATOGA FOR FISCAL YEAR 2009-10 ......................................................................................................... APPENDIX A PROPOSED FORM OF OPINION OF BOND COUNSEL ....................................................................APPENDIX B DTC AND THE BOOK-ENTRY SYSTEM ............................................................................................ APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE .................................................................. APPENDIX D 1 136036.5 035180 OS OFFICIAL STATEMENT $_______________* (Santa Clara County, California) General Obligation Refunding Bonds, Series 2011 City of Saratoga (Saratoga Community Library Project) INTRODUCTION This introduction is qualified in its entirety by reference to the more detailed information included and referred to elsewhere in this Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement. The purpose of this Official Statement, including the cover page and appendices hereto, is to provide certain information concerning the sale and delivery by the City of Saratoga (the "City") of its General Obligation Refunding Bonds, Series 2011 (Saratoga Community Library Project) (the "Bonds") in the aggregate principal amount of $___________.* The Official Statement makes reference to resolutions and to other documents and statutes. Such references do not purport to be complete, comprehensive or definite and are qualified in their entirety by reference to each such document. This Official Statement speaks only as of its date, and the information contained herein is subject to change. Except as required by the Continuing Disclosure Certificate to be executed by the City, the City has no obligation to update the information in this Official Statement. See "CONTINUING DISCLOSURE" and APPENDIX D – "FORM OF CONTINUING DISCLOSURE CERTIFICATE" herein. The City of Saratoga The City of Saratoga is located in the County of Santa Clara (the “County”), 26 miles east of the Pacific Ocean, ten miles southwest of San Jose and fifty miles south of San Francisco, and encompasses an area of approximately 12 square miles. The City was incorporated in 1956 and is a general law city pursuant to the California Government Code. The City has a Council-Manager form of government, with five elected Council members served by a full-time City Manager and staff. The 2010-11 assessed valuation of the City is $9,963,412,097. Upon issuance of the Bonds, the Bonds will be the only City’s outstanding general obligation bonds. The total direct and overlapping bonded debt of the City is $245,019,448 or approximately 2.46% of the 2010-11 assessed valuation. For certain economic, demographic and financial information with respect to the City, see Appendix A – “AUDITED FINANCIAL STATEMENTS OF THE CITY OF SARATOGA FOR FISCAL YEAR 2009-10” attached hereto and “SECURITY FOR THE BONDS – City of Saratoga Recent Developments” herein. * Preliminary, subject to change. 2 136036.5 035180 OS Authority for Issuance of the Bonds The Bonds are being issued pursuant to Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code, commencing with Section 53550 of said Code (the "Act") and other applicable laws, and according to the terms set forth in the Paying Agent Agreement between the City and The Bank of New York Mellon Trust Company, N.A., as paying agent (the "Paying Agent"), dated as of July 1, 2011 (the "Paying Agent Agreement"), as authorized by the resolution adopted by the Council on June 1, 2011 (the "Bond Resolution"). Summaries Not Definitive Brief descriptions of the Bonds and the City are included in this Official Statement, together with summaries of certain resolutions, documents and statutes. Such descriptions and summaries do not purport to be comprehensive or definitive. All references herein to the Bonds and such resolutions, documents and statutes are qualified in their entirety by reference to the actual documents, or with respect to the Bonds, the form thereof included in the Bond Resolution, copies of all of which are available for inspection at the offices of the Paying Agent at _______________. PLAN OF REFUNDING The Bonds are being issued to fully refund the $15,000,000 City of Saratoga (Santa Clara County, California) General Obligation Bonds, Series 2001 (Saratoga Community Library Project) (the "2001 Bonds"). The 2001 Bonds were issued to improve, renovate, and expand the Saratoga Community Library and to pay for costs of issuance of the 2001 Bonds. The 2001 Bonds were issued by the City on May 9, 2001, pursuant to Chapter 4 of Division 4 of Title 4 of the California Government Code a resolution of the City Council of the City authorizing the issuance of the 2001 Bonds. The 2001 Bonds were approved by more than two-thirds of the electors of the City voting at a general municipal election held in the City on March 7, 2000. On the date of issuance of the Bonds, $_______ of proceeds of the Bonds will be deposited with and held in trust by The Bank of New York Mellon Trust Company, N.A., the paying agent for the 2001 Bonds (the “2001 Paying Agent”). The amounts deposited, together with other available moneys held by the 2001 Paying Agent, will be sufficient for the 2001 Paying Agent to redeem the 2001 Bonds in full on August 1, 2011. Funds held in trust by the 2001 Paying Agent will not be available to pay principal of and interest on the Bonds. Upon the deposit of such proceeds and said moneys with the 2001 Paying Agent, the 2001 Bonds will no longer be deemed outstanding. THE BONDS General The Bonds will be dated their date of delivery and will mature at the times and in the principal amounts set forth on the cover page hereof. The Bonds will be issued in denominations of $5,000 or any integral multiple thereof ("Authorized Denominations"). Interest on the Bonds will be payable semiannually on February 1 and August 1 of each year, commencing February 1, 2012. Interest on the Bonds will be computed on the basis of a 360-day year of twelve 30-day months. For the debt service schedule for the Bonds, see "DEBT SERVICE SCHEDULE" herein. The Bonds will be delivered in book-entry only form and, when issued, will be registered in the name of Cede Co., as nominee of The Depository Trust Company ("DTC"), New York, New York, which 3 136036.5 035180 OS will act as securities depository for the Bonds. Beneficial ownership interests in the Bonds may be purchased by or through a Direct Participant (as defined in APPENDIX C – "BOOK-ENTRY ONLY SYSTEM") in book-entry form, in denominations of $5,000 or any integral multiple thereof. Beneficial Owners (as defined in APPENDIX C – "BOOK-ENTRY ONLY SYSTEM") of the Bonds will not receive or have the right to receive physical delivery of certificates representing their ownership interests in the Bonds. For so long as any purchaser is the Beneficial Owner of a Bond, such purchaser must maintain an account with a broker or dealer who is or acts through a Direct Participant to receive payment of the principal or interest on the Bonds. Payments of interest on, principal of and premium, if any, on the Bonds will be made by the Paying Agent to DTC or its nominee, Cede & Co., as registered owner of the Bonds. Each such payment to DTC or its nominee will be valid and effective to fully discharge all liability of the City or the Paying Agent with respect to the principal or redemption price of or interest on the Bonds to the extent of the sum or sums so paid. The City and the Paying Agent cannot and do not give any assurances that Direct Participants or Indirect Participants (as defined in APPENDIX C – "BOOK-ENTRY ONLY SYSTEM") will distribute to Beneficial Owners (i) payments of interest and principal with respect to the Bonds, (ii) confirmation of ownership interests in the Bonds, or (iii) redemption or other notices sent to DTC or Cede & Co., its nominee, as registered owner of the Bonds, or that Direct Participants or Indirect Participants will do so on a timely basis. So long as the Bonds are held in the book-entry only system of DTC, the registered owner, holder or Owner of the Bonds will be DTC, and not the Beneficial Owner. See APPENDIX C – "DTC AND THE BOOK-ENTRY SYSTEM" herein. Redemption of the Bonds* Optional Redemption. The Bonds maturing on or before August 1, 2021 *, are not subject to redemption prior to their stated maturity dates. Bonds maturing on or after August 1, 2022*, are subject to redemption prior to their respective stated maturity dates, at the option of the City, from any source of available funds, as a whole or in part on any date, on or after August 1, 2021* Mandatory Redemption. The $________ Term Bond maturing on August 1, 20__, is subject to mandatory sinking fund redemption on August 1 in each of the years and in the respective principal amounts as set forth in the following schedule, at a redemption price equal to the principal amount thereof to be redeemed (without premium), together with interest accrued thereon to the date fixed for redemption: at the principal amount of the Bonds called for redemption, together with interest accrued thereon to the date of redemption, without premium. Mandatory Sinking Fund Payment Date (August 1) Mandatory Sinking Fund Payment Amount $ † _____________________ † * Preliminary, subject to change. Final maturity 4 136036.5 035180 OS The principal amount of each mandatory sinking fund payment of any maturity will be reduced as specified by the City, in $5,000 increments, by the amount of any Bonds of that maturity optionally redeemed prior to the mandatory sinking fund payment date. Selection of Bonds for Redemption. If less than all of the Bonds are called for redemption, the Bonds will be redeemed in inverse order of maturities (or as otherwise directed by the City), and if less than all of the Bonds of any given maturity are called for redemption, the portions of the Bonds of a given maturity to be redeemed will be redeemed by lot. Notice of Redemption. Notice of redemption of any Bonds will be given by the Paying Agent upon the written request of the City by first class mail to the registered owners of any Bonds designated for redemption at least 30 but not more than 60 days prior to the redemption date. Each notice of redemption will contain the following information: (i) the date of such notice; (ii) the name of the Bonds and the date of issue of the Bonds; (iii) the redemption date; (iv) the redemption price; (v) the dates of maturity of the Bonds to be redeemed; (vi) (if less than all of the Bonds of any maturity are to be redeemed) the distinctive numbers of the Bonds of each maturity to be redeemed; (vii) (in the case of Bonds redeemed in part only) the respective portions of the principal amount of the Bonds of each maturity to be redeemed; (viii) the CUSIP number, if any, of each maturity of Bonds to be redeemed; (ix) a statement that such Bonds must be surrendered by the Owners at the Principal Corporate Trust Office of the Paying Agent, or at such other place or places designated by the Paying Agent; (x) notice that further interest on such Bonds will not accrue after the designated redemption date; and (xi) in the case of a conditional notice, that such notice is conditioned upon certain circumstances and the manner of rescinding such conditional notice. Effect of Redemption. A certificate of the Paying Agent or the City that notice of call and redemption has been given to Owners is conclusive as against all parties. The actual receipt by the registered owner of any Bond or by any securities depository or any other party of notice of redemption is not a condition precedent to redemption, and failure to receive such notice, or any defect in the notice given, will not affect the validity of the proceedings for the redemption of such Bonds or the cessation of interest on the date fixed for redemption. When notice of redemption has been given substantially as provided for in the Paying Agent Agreement, and when the redemption price of the Bonds called for redemption is set aside as provided in the Paying Agent Agreement, the Bonds designated for redemption will become due and payable on the specified redemption date and interest will cease to accrue thereon as of the redemption date, and upon presentation and surrender of such Bonds at the place specified in the notice of redemption, such Bonds will be redeemed and paid at the redemption price thereof out of the money provided therefor. The Owners of such Bonds so called for redemption after such redemption date will look for the payment of such Bonds and the redemption premium thereon, if any, only to the interest and sinking fund (the "Interest and Sinking Fund") or the escrow fund established for such purpose. All Bonds redeemed must be cancelled forthwith by the Paying Agent and will not be reissued. Conditional Notice of Redemption. Any notice of optional redemption of the Bonds delivered in accordance with the Paying Agent Agreement may be conditional and if any condition stated in the notice of redemption has not been satisfied on or prior to the redemption date, the notice will be of no force and effect and the City will not be required to redeem such Bonds and the redemption will not be made. The Paying Agent will within a reasonable time thereafter give notice, to the persons and in the manner in which the notice of redemption was given, that such condition or conditions were not met and that the redemption was cancelled. Right to Rescind Notice of Redemption. The City may rescind any optional redemption and notice thereof for any reason on any date on or prior to the date fixed for optional redemption by causing written notice of the rescission to be given to the registered owners of the Bonds so called for redemption. 5 136036.5 035180 OS In addition, any optional redemption and notice thereof will be rescinded if for any reason on the date fixed for redemption moneys are not available in the Interest and Sinking Fund established pursuant to the Paying Agent Agreement or otherwise held in trust for such purpose in an amount sufficient to pay in full on said date the principal of, interest, and any premium due on the Bonds called for redemption. Any notice of rescission will be given in the same manner in which notice of redemption was originally given. The actual receipt by the registered owner of any Bond of notice of such rescission is not a condition precedent to rescission, and failure to receive such notice or any defect in such notice will not affect the validity of the rescission. Pursuant to the Paying Agent Agreement, the Defeasance. If at any time the City pays or causes to be paid or there is otherwise paid to the registered owners of all outstanding Bonds all of the principal, interest and premium, if any, represented by Bonds at the times and in the manner provided in the Paying Agent Agreement and in the Bonds, or as provided pursuant to the provisions of the Paying Agent Agreement described below, or as otherwise provided by law consistent with the Paying Agent Agreement, then the Bond Resolution and other assets made under the Bond Resolution and all agreements and covenants of the City under the Bond Resolution will thereupon be satisfied and discharged and will terminate, except only that the City will remain liable for payment of all principal, interest and premium, if any, represented by the Bonds, but only out of monies on deposit in the Interest and Sinking Fund or otherwise held in trust for such payment. City may pay and discharge any or all of the Bonds by depositing in trust with the Paying Agent (or an escrow agent) at or before maturity, Defeasance Securities in an amount which, together with the interest to accrue thereon and available monies then on deposit in the Interest and Sinking Fund of the City, will be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates. "Defeasance Securities" means non-callable, non-prepayable obligations of the type listed in clause (i) or (ii) of the definition of Investment Securities herein. See "INVESTMENT OF BOND PROCEEDS" herein. Payments, Transfers and Exchanges Upon Abandonment of Book-Entry Only System In the event that the book-entry only system is no longer used with respect to the Bonds, payment of interest on the Bonds will be made on each interest payment date to the person whose name appears on the bond registration books of the Paying Agent as the owner of the Bonds as of the close of business on the fifteenth day of the month prior to such interest payment date, whether or not such day is a Business Day (the "Record Date"). Payment of the interest on any Bond will be made by check or draft mailed by first class mail to the registered owner of such Bond at such owner's address as it appears on the bond registration books of the Paying Agent or at such address as such owner may have filed with the Paying Agent for that purpose; or, upon the written request of the registered owner of Bonds aggregating not less than $1,000,000 in principal amount, given no later than the Record Date preceding the applicable interest payment date, by wire transfer in immediately available funds to an account maintained in the United . The book-entry only system for registration of the ownership of the Bonds in book-entry form may be discontinued at any time if: (1) DTC resigns as securities depository for the Bonds; or (2) the City determines that a continuation of the system of book-entry transfers through DTC (or through a successor securities depository) is not in the best interests of the City. In each of such events (unless the City appoints a successor securities depository), the Bonds will be delivered in such denominations and registered in the names of such persons as are requested in a certificate of the City, but without any liability on the part of the City or the Paying Agent for the accuracy of such designation. Whenever DTC requests the City and the Paying Agent to do so, the City and the Paying Agent will cooperate with DTC in taking appropriate action after reasonable notice to arrange for another securities depository to maintain custody of or to print bonds evidencing the Bonds. Thereafter, all Bonds are transferable or exchangeable as described in the Paying Agent Agreement. 6 136036.5 035180 OS States at such wire address as such owner specifies in its written notice. Principal of, and premium, if any, on the Bonds will be payable at the principal corporate trust office of the Paying Agent or at such other location as the Paying Agent may designate. The Bonds will be in the form of fully-registered Bonds and will be issued in denominations of $5,000 or any integral multiple thereof. ESTIMATED SOURCES AND USES OF FUNDS The following table sets forth the estimated sources and uses of proceeds with respect to the sale of the Bonds. Sources Principal Amount of the Bonds ........................................... [Net Original Issue Premium] ............................................. Total Sources ............................................. Uses Redemption of the 2001 Bonds Underwriter's Discount ....................................................... Costs of Issuance(1) .............................................................. Total Uses .................................................. ____________________ (1) Costs of issuance include printing costs, rating agency fees, legal fees and other miscellaneous expenses. See "SALE OF THE BONDS" herein. [Remainder of Page Intentionally Left Blank] 7 136036.5 035180 OS DEBT SERVICE SCHEDULE The following table sets forth the annual debt service schedule for the Bonds. Year Ending August 1, Principal Interest Annual Debt Service 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Total(1) (1) Totals may not add up correctly due to independent rounding. 8 136036.5 035180 OS SECURITY FOR THE BONDS Paying Agent Agreement The City and the Paying Agent will enter into the Paying Agent Agreement to provide for the payment of the principal of and interest on the Bonds. Pursuant to the Paying Agent Agreement, the City covenants that the money for the payment of principal and interest on the Bonds will be raised by ad valorem taxation without limitation as to rate or amount (except with respect to certain personal property which is taxable at limited rates) upon all taxable property located within the City, and provision will be made for the levy and collection of such taxes in the manner provided by law, and the City will cause such money to be transferred to the Paying Agent for deposit in the Interest and Sinking Fund. Levy, Tax Rate and Assessed Valuation According to the requirements of Article XIII A of the California Constitution (initially adopted by California voters as Proposition 13 in 1978), the County of Santa Clara levies a one percent ad valorem property tax on behalf of all taxing agencies in the County and the ad valorem property tax for payment of the Bonds and the general obligation bonds of school districts and other governmental entities in Santa Clara County. The one percent ad valorem property tax and the property tax for the Bonds are assessed and collected by the County at the same time and on the same tax rolls. The proceeds of the property tax collected for the Bonds would be applied by the City to pay debt service on the Bonds when due. The proceeds of the one percent ad valorem property taxes are apportioned on the basis of a formula established by State law. Under this formula, the City and all other taxing entities receive a base year allocation plus an allocation on the basis of "situs" growth in assessed value prorated among the jurisdictions which serve the tax rate areas within which the growth occurs. Tax rate areas are specifically defined geographic areas which were developed to permit the levying of taxes for less than countywide or less than citywide special districts. Certain other ad valorem property taxes and assessments and other per-parcel taxes and assessments are also included in the levy pursuant to the County's tax rolls. The assessed valuation of property located within the County is established by the County Assessor, except for public utility property, which is assessed by the State Board of Equalization. Assessed valuations are reported at 100 percent of the full cash value of the property, as defined in Article XIII A of the California Constitution. Full cash value is defined as "the county assessor's valuation of real property as shown on the 1975-76 tax bill under "full cash value," or thereafter, the appraised value of real property newly constructed, or when a change in ownership has occurred after the 1975 assessment." The full cash value may be adjusted annually to reflect inflation at a rate not to exceed two percent per year, or a reduction in the consumer price index or comparable local data for the area or may be reduced in the event of declining property value caused by damage, destruction or other factors including a general economic downturn. The full cash value may also be adjusted due to change of ownership or new construction. See "CONSTITUTIONAL AND STATUTORY TAX LIMITATIONS ON TAXES AND APPROPRIATIONS" herein. The County Assessor may also temporarily reduce assessed values of property within the County. Pursuant to Proposition 8, property owners are entitled to the lower of the fair market value of their property as of January 1 or the assessed value as determined at the time of purchase or construction, and increased by no more than two percent annually. See "– Proposition 8 Reductions and Appeals to Assessed Value" below. Article XIII A has had the general effect of stabilizing assessed valuation such that it does not fluctuate to the same degree as the market value of property in a taxing area, but instead gradually reflects changes in ownership of longer held properties that are reassessed upon ransfer and other permitted increases and decreases of assessed value. As a result of Article XIII A and its restrictions on the County 9 136036.5 035180 OS Assessor's ability to increase assessed value, property that has been owned by the same taxpayer for many years can have an assessed value that is much lower than the market value of the property. Property that is similarly situated that has recently been acquired may have a substantially higher assessed value reflecting the recent acquisition price. Increases in assessed value in a taxing area may occur due to the change in ownership of property even when the rate of inflation or consumer price index do not permit a full two percent annual increase in assessed valuation of other property located in the taxing area. The table below shows a history of assessed valuations of property within the City. The total assessed value for Fiscal Year 2010-11 is $9,963,412,097, a decline of 1.03% from Fiscal Year 2009-10. TABLE 1 CITY OF SARATOGA ASSESSED VALUATION HISTORY FISCAL YEARS ENDED JUNE 30, 2006-2010 (In Thousands) Type of Property 2006 2007 2008 2009 2010 Residential $7,883,965 $8,467,894 $9,025,628 $ 9,605,309 $ 9,729,087 Commercial 177,149 187,142 208,369 213,951 231,691 Industrial 8,921 9,099 9,281 9,467 9,656 Institutional 38,027 45,706 50,590 51,052 57,495 Vacant 90,611 107,228 110,656 128,898 110,225 Other 32,858 39,536 49,023 43,240 44,856 Unsecured 46,874 39,764 35,775 43,933 58,210 Total Assessed Property $8,278,405 $8,896,369 $9,489,322 $10,095,850 $10,241,220 Less: Tax Exempt Real Property (133,951) (140,859) (159,369) (161,488) (173,628) Total Taxable Assessed Value $8,144,454 $8,755,510 $9,329,953 $9,934,362 $10,067,592 Source: City of Saratoga Comprehensive Annual Financial Report, Fiscal Year 2009-10. 10 136036.5 035180 OS Proposition 8 Reductions and Appeals to Assessed Value. The County reviews assessment appeals upon individual request. In November 1978, State voters passed Proposition 8, which provides that property owners are entitled to an assessment based on the lower of the fair market value of their property as of the lien date (January 1), or the assessed value as determined at the time of purchase or construction, and increased by no more than two percent annually. As a matter of policy and in accordance with Proposition 8, the County Assessor has proactively responded to declining market values by temporarily reducing assessed values. According to the County Assessor, there are 286 active appeals in the City, requesting an aggregate reduction of $206 million in assessed value. See "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS – Article XIII A." Payment Dates and Liens Taxes are levied for each fiscal year from July 1 to June 30 on taxable real and personal property situated in the County as of the preceding January 1. However, upon a change in ownership of property or completion of new construction, State law permits an accelerated recognition and taxation of increases in real property assessed valuation (known as a "floating lien date"). For assessment and collection purposes, all property (both real and personal) is classified either as "secured" or "unsecured" and is listed accordingly on separate parts of the assessment roll. Property taxes arising on a floating lien date are posted on a supplemental assessment roll (secured or unsecured, as the case may be). The "secured roll" is that part of the assessment roll containing (i) property, the taxes on which are secured by a lien on the real property which is sufficient, in the opinion of the County Assessor, to secure payment of the taxes and (ii) State Board of Equalization assessed (public utilities) property. The "unsecured roll" is that part of the assessment roll containing property, such as business property or leased or rented premises, which is not secured by the underlying real property. California law provides partial exemptions from taxation for owner-occupied residences (the "homeowner's exemption") in an amount of up to $7,000 per single family residence. Under State law, revenues lost to local governments due to this exemption are reimbursed by the State. Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a ten percent penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is declared to be in default on or about October 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus a redemption penalty of 1.5 percent per month to the time of redemption. If taxes are unpaid for a period of five years or more, the tax-defaulted property is declared to be subject to the County Tax Collector's power of sale and may be subsequently sold within two years by the County Tax Collector. Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if unpaid, on August 31. A 10 percent penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of 1.5 percent per month begins to accrue beginning November 1. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for recordation in the County Recorder's office, in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests, belonging to the assessee. 11 136036.5 035180 OS The City receives the full ad valorem property tax levy regardless of any delinquencies due to the County’s Teeter Plan described below. See also Appendix A – “AUDITED FINANCIAL STATEMENTS OF THE CITY OF SARATOGA FOR FISCAL YEAR 2009-10” attached hereto. Teeter Plan The Board of Supervisors of the County has approved the implementation if the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”), as provided for in Section 4701 et seq. of the California Revenue and Taxation Code. Under the Teeter Plan, the County apportions secured property taxes on an accrual basis when due (irrespective of actual collections) to local political subdivisions, including the City, for which the County acts as the tax-levying or tax-collecting agency. The Teeter Plan was effective beginning the fiscal year commencing July 1, 1993. The Teeter Plan is applicable to all tax levies on secured property for which the County acts as the tax-levying or tax-collecting agency, or for which the County treasury is the legal depository of the tax collections. The ad valorem property tax to be levied to pay the interest on and principal of the Bonds will be subject to the Teeter Plan[, beginning in the first year of such levy in fiscal year]. The City will receive 100% of the ad valorem property tax on secured property levied to pay the Bonds irrespective of actual delinquencies in the collection of the tax by the County. The Teeter Plan is to remain in effect unless the Board of Supervisors of the County orders its discontinuance or unless, prior to the commencement of any fiscal year, the Board of Supervisors of the County receives a petition for its discontinuance adopted by resolution of two-thirds of the participating revenue districts in the County. Further, the County may, by resolution adopted not later than July 15 of any subsequent fiscal year after a public hearing, discontinue the Teeter Plan as to any tax levying or assessment levying agency if the rate of secured tax delinquency in that agency in any year exceeds three percent of the total of all taxes and assessments levied on the secured rolls for that agency. Largest Taxpayers If the Teeter Plan is discontinued, only those secured property taxes actually collected would be allocated to political subdivisions (including the City) for which the County acts as the tax-levying or tax collecting agency. The twenty largest taxpayers in the City for Fiscal Year 2010-11 and their taxable assessed values are set forth in the following table. 12 136036.5 035180 OS TABLE 2 CITY OF SARATOGA LARGEST SECURED PROPERTY TAXPAYERS FISCAL YEAR 2010-11 Property Owner Primary Land Use 2010-11 Assessed Valuation % of Total (1) 1. Cupertino Village Associates LLC Office Building $ 34,806,646 0.35% 2. Quito Village Associates LLC Shopping Center 19,000,000 0.19 3. John I. and Michelle Keller Residential 18,456,155 0.19 4. San Jose Water Works Water Company 14,675,569 0.15 5. Gregpenn Properties LLC Residential 14,389,914 0.15 6. David J. and Terri E. Morrison Office Building 13,753,273 0.14 7. John M. and Abby J. Sobrato Residential 13,288,933 0.13 8. Argonaut Associates, LLC Shopping Center 10,485,540 0.11 9. Ashok Krishnamurthi Residential 10,414,429 0.11 10. Public Storage Inc. Mini Storage 9,395,090 0.09 11. Coyote Properties IV LLC Residential 8,305,507 0.08 12. Ashok K. and Shipra Jain Residential 8,195,887 0.08 13. Venkatesh and Neelakantan Harinarayan Residential 7,897,238 0.08 14. David L. House Residential 7,455,760 0.08 15. JF Plaza Partners LP Shopping Center 7,379,806 0.07 16. Brian and Lorilee Dexheimer Residential 7,372,534 0.07 17. Ray A. Russo, Sr. Shopping Center 7,367,323 0.07 18. Michael A. and Patricia A. Klayko Residential 7,060,729 0.07 19. Eliyahou and Britt M. Harari Residential 6,950,981 0.07 20. Stephen J. Luczo Residential 6,942,929 0.07 $233,594,243 2.36% (1) Based on 2010-11 Secured Assessed Valuation of $9,911,516,040. Source: California Municipal Statistics, Inc. The County Assessor reports that the following top taxpayers have unresolved appeals to their assessed valuations: Cupertino Village Associates has one active appeal with $16.9 million at risk, David House has two active appeals with $1,667,000 at risk, and Ashok Krishnamurthi has one active appeal with $300,000 at risk. Taxation of State-Assessed Utility Property The State Constitution provides that most classes of property owned or used by regulated utilities be assessed by the State Board of Equalization (the "BOE") and taxed locally. Property valued by the BOE as an operating unit in a primary function of the utility taxpayer is known as "unitary property," a concept designed to permit assessment of the utility as a going concern rather than assessment of each individual element of real and personal property owned by the utility taxpayer. State-assessed unitary and "operating nonunitary" property (which excludes nonunitary property of regulated railways) is allocated to the counties based on the situs of the various components of the unitary property. Except for unitary property of regulated railways and certain other excepted property, all unitary and operating nonunitary property is taxed at special county-wide rates and distributed to taxing jurisdictions according to statutory formulae generally based on the distribution of taxes in the prior year. Assembly Bill 454 ("AB 454") (Chapter 921, Statutes of 1986) provides that revenues derived from unitary property, commencing with Fiscal Year 1988-89, will be allocated as follows: (i) each 13 136036.5 035180 OS jurisdiction will receive up to 102 percent of its prior year State-assessed revenue; and (ii) if county-wide revenues generated from unitary property are less than the previous year's revenues or greater than 102 percent of the previous year's revenues, each jurisdiction will share the burden of the shortfall or excess revenues by a specified formula. This provision applies to all unitary property except railroads, the valuation of which continues to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination of the assessment of any State-assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of unitary property to be shared by all jurisdictions in a county. In the past, the State has passed legislation that resulted in a decrease in the amount of assessed utility property and corresponding tax revenues allocated to the State's local taxing agencies, including the City. The City is unable to predict whether legislation will be proposed or enacted in the future in response to industry restructuring, or whether any future legislation or litigation may affect the State's methods of assessing utility property and the allocation of assessed value to local taxing agencies. Direct and Overlapping Debt Report Contained within the City's tax code area are districts providing public services, a number of which have issued general obligation bonds and lease obligations. Direct debt constitutes debt directly issued by the City while overlapping debt constitutes that portion of debt issued by different public entities within the same tax code area as the City's. The City is not responsible for the overlapping debt of other local agencies. The statement of direct and overlapping debt (the "Debt Report") set forth below was prepared by California Municipal Statistics, Inc., and is dated as of June 30, 2011. The Debt Report includes only such information as has been reported to California Municipal Statistics, Inc. by the issuers of the debt described therein and by others. The Debt Report is included for general information purposes only. The City has not independently verified its completeness or accuracy and makes no representations in connection therewith. TABLE 3 CITY OF SARATOGA ESTIMATED DIRECT AND OVERLAPPING BONDED DEBT AS OF JUNE 30, 2011 2010-11 Assessed Valuation: $9,963,412,097 Total Debt City’s Share of DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: 6/30/11 % Applicable (1) Debt 6/30/11 Santa Clara County $334,900,000 3.755% $12,575,495 Santa Clara Valley Water District, Zone W-1 405,000 4.034 16,338 Foothill-De Anza Community College District 466,224,288 1.718 8,009,733 West Valley Community College District 213,049,346 11.820 25,182,433 Campbell Union High School District 167,315,000 5.606 9,379,679 Fremont Union High School District 265,975,108 3.709 9,865,017 Los Gatos-Saratoga Joint Union High School District 55,215,000 40.690 22,466,984 Campbell Union School District 119,646,120 6.953 8,318,995 Cupertino Union School District 122,479,905 6.109 7,482,297 Moreland School District 71,683,662 12.793 9,170,491 Saratoga Union School District 47,550,032 85.966 40,876,861 Saratoga Fire Protection District 4,818,737 97.261 4,686,752 City of Saratoga 12,605,000 100. 12,605,000 Santa Clara Valley Water District Benefit Assessment District 143,160,000 3.755 5,375,658 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $176,011,733 14 136036.5 035180 OS OVERLAPPING GENERAL FUND DEBT: Santa Clara County General Fund Obligations $786,980,000 3.755% $29,551,099 Santa Clara County Pension Obligations 386,024,822 3.755 14,495,232 Santa Clara County Board of Education Certificates of Participation 12,580,000 3.755 472,379 Santa Clara County Vector Control District Certificates of Participation 3,800,000 3.755 142,690 Foothill-DeAnza Community College District Certificates of Participation 21,215,000 1.718 364,474 West Valley-Mission Community College District General Fund Obligations 56,120,000 11.820 6,633,384 Los Gatos-Saratoga Joint Union High School District Certificates of Participation 9,650,000 40.690 3,926,585 Saratoga Union School District Certificates of Participation 6,110,000 85.966 5,252,523 Midpeninsula Regional Open Space Park District General Fund Obligations 131,003,031 6.236 8,169,349 TOTAL OVERLAPPING GENERAL FUND DEBT $69,007,715 TOTAL DIRECT DEBT $12,605,000 TOTAL OVERLAPPING DEBT $232,414,448 COMBINED TOTAL DIRECT AND OVERLAPPING DEBT $245,019,448 (2) (1) Percentage of overlapping agency's assessed valuation located within boundaries of the city. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Ratios to 2010-11 Assessed Valuation: Direct Debt ($12,605,000) ............................................... 0.13% Total Direct and Overlapping Tax and Assessment Debt ........................1.77% Combined Total Direct and Overlapping Debt ........................................2.46% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/10: $0 Source: California Municipal Statistics, Inc. [Remainder of Page Intentionally Left Blank] 15 136036.5 035180 OS Factors Affecting Property Tax Security for the Bonds The annual property tax rate for repayment of the Bonds will be based on the total assessed value of taxable property located within the City and the scheduled debt service on the Bonds in each year. Because of Article XIII A's limitations on the annual increase in assessed values of taxable properties (generally a two percent per year limit on increases in the assessed value of a property absent changes in ownership or new improvements), the assessed value of many properties within the City remains below current market values. In general, Article XIII A may cause assessed values to lag behind both increases and decreases in market values. See "SECURITY FOR THE BONDS – Levy, Tax Rate and Assessed Valuation" and "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS" herein. Fluctuations in the annual debt service on the Bonds and the assessed value of taxable property within the City may cause the annual property tax rate applicable to the Bonds to fluctuate. Issuance by the City, the County or other taxing entities of additional authorized bonds payable from ad valorem property taxes may cause the overall property tax rate in the City to increase. Certain factors that may affect the security for the Bonds are discussed in more detail below. Total Assessed Value of Taxable Property in the City. The greater the assessed value of taxable property located within the City, the lower the tax rate necessary to generate taxes sufficient to pay scheduled debt service on general obligation bonds. Total assessed valuation of taxable property within the City in Fiscal Year 2010-11 was approximately $9,963,412,097. See "SECURITY FOR THE BONDS – Levy, Tax Rate and Assessed Valuation" and accompanying discussion of assessed valuation for Fiscal Year 2010-11. Natural and economic forces can affect the assessed value of taxable property within the City. The City is located in a seismically active region, and damage from an earthquake in or near the City could cause moderate to extensive damage to taxable property. See "SECURITY FOR THE BONDS – Factors Affecting Property Tax Security for the Bonds – Seismic Risks" below. Other natural or manmade disasters, such as flood, fire, toxic dumping or acts of terrorism, could cause a reduction in the assessed value of taxable property within the City. Economic and market forces, such as a downturn in the regional economy generally, can also affect assessed values, particularly as these forces might reverberate in the residential housing and commercial property markets. In addition, the total assessed value can be reduced through the reclassification of taxable property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes). Reductions in the market values of taxable property may cause property owners to appeal assessed values and may be associated with an increase in delinquency rates for taxes. See "SECURITY FOR THE BONDS – Levy, Tax Rate and Assessed Valuation – Proposition 8 Reductions and Appeals to Assessed Value" herein. Concentration of Taxable Property Ownership. The more property (by assessed value) owned by any single taxpayer, the more exposure of tax collections to weakness in that taxpayer's financial situation and ability or willingness to pay property taxes. In Fiscal Year 2010-11, no single taxpayer owned more than __ percent of the total taxable property within the City. See "SECURITY FOR THE BONDS – Largest Taxpayers" herein. Property Tax Rates. One factor in the ability of taxpayers to pay taxes for general obligation bonds is the overall rate of tax. Parcels in the City are subject to a number of tax rate areas, which are specifically defined geographic areas developed to permit the levying of taxes for less than countywide or less than citywide special districts. Each tax area has a unique combination of taxing agencies and special 16 136036.5 035180 OS assessments. A typical tax rate area has tax rates per $100 of assessed value that include a base rate of one percent (or $1.00 per $100 of assessed value), plus a levy for school bonds, a levy for water bonds, a levy for the County's pension funding and miscellaneous other levies and assessments for other debt. See "SECURITY FOR THE BONDS – Levy, Tax Rate and Assessed Valuation." Debt Burden on Owners of Taxable Property within the City. Another measure of the debt burden on local taxpayers is total debt as a percentage of taxable property value. See "SECURITY FOR THE BONDS – Levy, Tax Rate and Assessed Valuation" and "SECURITY FOR THE BONDS – Direct and Overlapping Debt Report." Seismic Risks. The State, including Santa Clara County, is a seismically active region. Active earthquake faults underlie both Santa Clara County and the surrounding Bay Area, including the San Andreas Fault and the Hayward Fault. In addition to the potential damage to City-owned buildings and facilities (on which the City does not generally carry earthquake insurance), a major earthquake may cause significant temporary and possibly long-term harm to the City's economy, tax receipts and residential and business real property values. City of Saratoga Recent Developments For certain economic, demographic and financial information with respect to the City, see Appendix A – “AUDITED FINANCIAL STATEMENTS OF THE CITY OF SARATOGA FOR FISCAL YEAR 2009-10” attached hereto and “SECURITY FOR THE BONDS – City of Saratoga Recent Developments” herein. In addition, below is a description of recent developments in the City since June 30, 2010. [describe] CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS California law permits citizens to effect changes to the State's Constitution and statutes, without involvement by the legislature, through the initiative process. Under this process, initiative supporters submit petitions to State election officials, who are required to submit the initiative to voters if the petitions meet statutory requirements. Many provisions of State law have been added or affected by initiatives. The initiatives described as follows have materially adversely affected the City's ability to raise revenues or spend money. Article XIII A. Article XIII A of the California Constitution limits the amount of ad valorem tax on real property to one percent of the full cash value of the real property plus amounts necessary to pay debt service on specified indebtedness approved by voters. Full cash value means "the county assessor's valuation of real property as shown on the 1975-76 tax bill under "full cash value," or thereafter, the appraised value of real property newly constructed, or when a change in ownership has occurred after the 1975 assessment." The full cash value may be adjusted annually to reflect inflation at a rate not to exceed two percent per year, or a reduction in the consumer price index or comparable local data for the area or may be reduced in the event of declining property value caused by damage, destruction or other factors including a general economic downturn. The full cash value may be adjusted due to change of ownership or new construction. See "SECURITY FOR THE BONDS – Levy, Tax Rate and Assessed Valuation" herein. 17 136036.5 035180 OS Article XIII B. Article XIII B of the California Constitution limits the annual appropriations of governmental agencies. The appropriations limit for the City in each year is based on the limit for the prior year, adjusted for changes in the costs of living and changes in population, and adjusted, where applicable, for transfer of financial responsibility of providing services to or from another unit of government, with other provisions applicable in case of emergency. The change in the cost of living is, at the City's option, either (i) the percentage change in State per capita personal income, or (ii) the percentage change in the local assessment roll for the jurisdiction due to the addition of nonresidential new construction. The measurement of change in population is a blended average of statewide overall population growth, and change in attendance at local school and community college districts. Article XIII B permits the City to change the appropriations limit by vote of the electorate in conformity with statutory and Constitutional voting requirements, but any such voter-approved change can only be effective for a maximum of four years. Appropriations subject to Article XIII B include generally any authorization to expend during the fiscal year the proceeds of taxes levied by the City, exclusive of State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance and disability insurance funds. Appropriations subject to limitation pursuant to Article XIII B do not include debt service on specified indebtedness, appropriations required to comply with mandates of courts or the Federal government and appropriations for qualified outlay projects. Debt service on the Bonds, as voter-approved obligations, are not subject to Article XIII B appropriation limitations. "Proceeds of taxes" include, but are not limited to, all tax revenues and the proceeds to the County from (i) regulatory licenses, user charges, and user fees to the extent such proceeds exceed the cost of providing the service or regulation, (ii) the investment of tax revenues and (iii) State subventions received by the City. The appropriations limit is tested over consecutive two-year periods. Any excess of the aggregate "proceeds of taxes" received by the City over such two-year period above the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years. The City's appropriations limit for Fiscal Year 2009-10 was $31,261,971, and the amount subject to the limitation was approximately $9,941,500. The City's appropriations limit for Fiscal Year 2010-11 was $30,851,813 and the amount of appropriations subject to limitation for that year was approximately $9,599,500. Proposition 62. Provisions of State law added by the voter approval of Proposition 62 in 1986 (a) require that any new or higher taxes for general governmental purposes imposed by the local agency be approved by a two-thirds vote of the Board and by a majority vote of the voters of the local agency voting in an election on the tax, (b) require that any special tax (defined as taxes levied for other than general governmental purposes) imposed by the local agency be approved by a two-thirds vote of the voters of the local agency voting in an election on the tax, (c) restrict the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed, (d) prohibit the imposition of ad valorem taxes on real property by the local agency except as permitted by Article XIII A of the California Constitution and (e) prohibit the imposition of transaction taxes and sales taxes on the sale of real property by the City. Article XIII C. Articles XIII C and XIII D of the California Constitution were added in 1996. Article XIII C requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City require a majority vote and taxes for specific purposes require a two-thirds vote. In addition Article XIII C removed many of the limitations on the initiative power in matters of reducing or repealing any local tax, assessment, fee or charge. As a result, voters of the City could approve initiatives which reduce or repeal local taxes, assessments, fees or charges currently comprising a substantial part of the City's general fund. No such initiative is currently pending, or to the knowledge of the City, proposed. 18 136036.5 035180 OS Article XIII D. Article XIII D imposes requirements and limitations for "assessments" for governmental services and programs. "Assessment" is defined to mean any levy or charge upon real property for a special benefit conferred upon the real property. Article XIII D limits "fees" and "charges," defined to mean "any levy other than an ad valorem tax, a special tax, or an assessment, imposed by a local government upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property related service." Property related fees and charges (i) must not generate revenues exceeding the funds required to provide the property related service, (ii) must not be used for any purpose other than those for which the fees and charges are imposed, (iii) must be for a service actually used by, or immediately available to, the owner of the property in question, or (iv) must not be used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. Further, before any property related fee or charge may be imposed or increased, written notice must be given to the record owner of each parcel of land affected by such fee or charge. The City must then hold a hearing upon the proposed imposition or increase, and if written protests against the proposal are presented by a majority of the owners of the identified parcels, the City may not impose or increase the fee or charge. Moreover, except for fees or charges for sewer, water and refuse collection services, or fees for electrical and gas service, which are not treated as "property related" for purposes of Article XIII D, no property related fee or charge may be imposed or increased without majority approval by the property owners subject to the fee or charge or, at the option of the local agency, two-thirds voter approval by the electorate residing in the affected area. Proposition 1A. Proposition 1A, proposed by the Legislature in connection with the 2004-05 Budget Act, approved by the voters in November 2004 and generally effective in Fiscal Year 2006-07, provides that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions. Proposition 1A generally prohibits the State from shifting to schools or community colleges any share of property tax revenues allocated to local governments for any fiscal year, as set forth under the laws in effect as of November 3, 2004. Any change in the allocation of property tax revenues among local governments within a county must be approved by two-thirds of both houses of the Legislature. Proposition 1A provides, however, that beginning in Fiscal Year 2008-09, the State may shift to schools and community colleges up to eight percent of local government property tax revenues, which amount must be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a severe state financial hardship, the shift is approved by two-thirds of both houses and certain other conditions are met. The State may also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1A also provides that if the State reduces the vehicle license fee rate currently in effect, 0.65 percent of vehicle value, the State must provide local governments with equal replacement revenues. Proposition 1A may result in increased and more stable City revenues. The magnitude of such increase and stability is unknown and would depend on future actions by the State. However, Proposition 1A could also result in decreased resources being available for State programs. This reduction, in turn, could affect actions taken by the State to resolve budget difficulties. Such actions could include increasing State taxes, decreasing spending on other State programs or other action, some of which could be adverse to the finances of the City. Future Initiatives. Article XIII A, Article XIII B, Article XIII C and Article XIII D of the State Constitution and the statutes added by Proposition 62 and Proposition 1A were all adopted pursuant to the State's initiative process. The limitations imposed upon the City by these provisions hinder the City’s ability to raise revenues through taxes or otherwise and may therefore prevent the City from meeting increased expenditure requirements. The City expects that other initiative measures will be adopted, some of which may place further limitations on the ability of the State, the City or local districts to 19 136036.5 035180 OS increase revenues or to spend money or which could have other financially adverse effects such as requiring the City to undertake new responsibilities. Such other initiatives could have a material adverse effect on the City's financial condition. TAX MATTERS Opinion of Bond Counsel In the opinion of Hawkins Delafield & Wood LLP, Bond Counsel to the City, under existing statutes and court decisions and assuming continuing compliance with certain tax covenants described herein, (i) interest on the Bonds is excluded from gross income for Federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) interest on the Bonds is not treated as a preference item in calculating the alternative minimum tax imposed on individuals and corporations under the Code; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposed on such corporations. In rendering its opinion, Bond Counsel has relied on certain representations, certifications of fact, and statements of reasonable expectations made by the City in connection with the Bonds, and Bond Counsel has assumed compliance by the City with certain ongoing covenants to comply with applicable requirements of the Code to assure the exclusion of interest on the Bonds from gross income under Section 103 of the Code. In addition, in the opinion of Bond Counsel to the City, under existing statutes, interest on the Bonds is exempt from State of California personal income taxes. Bond Counsel expresses no opinion regarding any other Federal or state tax consequences with respect to the Bonds. Bond Counsel renders its opinion under existing statutes and court decisions as of the issue date, and assumes no obligation to update, revise or supplement its opinion to reflect any action hereafter taken or not taken, or any facts or circumstances that may hereafter come to its attention, or changes in law or in interpretations thereof that may hereafter occur, or for any other reason. Bond Counsel expresses no opinion on the effect of any action hereafter taken or not taken in reliance upon an opinion of other counsel on the exclusion from gross income for Federal income tax purposes of interest on the Bonds, or under state and local tax law. Certain Ongoing Federal Tax Requirements and Covenants The Code establishes certain ongoing requirements that must be met subsequent to the issuance and delivery of the Bonds in order that interest on the Bonds be and remain excluded from gross income under Section 103 of the Code. These requirements include, but are not limited to, requirements relating to use and expenditure of gross proceeds of the Bonds, yield and other restrictions on investments of gross proceeds, and the arbitrage rebate requirement that certain excess earnings on gross proceeds be rebated to the Federal government. Noncompliance with such requirements may cause interest on the Bonds to become included in gross income for Federal income tax purposes retroactive to their issue date, irrespective of the date on which such noncompliance occurs or is discovered. The City has covenanted to comply with certain applicable requirements of the Code to assure the exclusion of interest on the Bonds from gross income under Section 103 of the Code. Certain Collateral Federal Tax Consequences The following is a brief discussion of certain collateral Federal income tax matters with respect to the Bonds. It does not purport to address all aspects of Federal taxation that may be relevant to a 20 136036.5 035180 OS particular owner of a Bond. Prospective investors, particularly those who may be subject to special rules, are advised to consult their own tax advisors regarding the Federal tax consequences of owning and disposing of the Bonds. Prospective owners of the Bonds should be aware that the ownership of such obligations may result in collateral Federal income tax consequences to various categories of persons, such as corporations (including S corporations and foreign corporations), financial institutions, property and casualty and life insurance companies, individual recipients of Social Security and railroad retirement benefits, individuals otherwise eligible for the earned income tax credit, and taxpayers deemed to have incurred or continued indebtedness to purchase or carry obligations the interest on which is excluded from gross income for Federal income tax purposes. Interest on the Bonds may be taken into account in determining the tax liability of foreign corporations subject to the branch profits tax imposed by Section 884 of the Code. Original Issue Discount “Original issue discount” (“OID”) is the excess of the sum of all amounts payable at the stated maturity of a Bond (excluding certain “qualified stated interest” that is unconditionally payable at least annually at prescribed rates) over the issue price of that maturity. In general, the “issue price” of a maturity means the first price at which a substantial amount of the Bonds of that maturity was sold (excluding sales to bond houses, brokers, or similar persons acting in the capacity as underwriters, placement agents, or wholesalers). In general, the issue price for each maturity of Bonds is expected to be the initial public offering price set forth on the cover page of the Official Statement. Bond Counsel further is of the opinion that, for any Bonds having OID (a “Discount Bond”), OID that has accrued and is properly allocable to the owners of the Discount Bonds under Section 1288 of the Code is excludable from gross income for Federal income tax purposes to the same extent as other interest on the Bonds. In general, under Section 1288 of the Code, OID on a Discount Bond accrues under a constant yield method, based on periodic compounding of interest over prescribed accrual periods using a compounding rate determined by reference to the yield on that Discount Bond. An owner’s adjusted basis in a Discount Bond is increased by accrued OID for purposes of determining gain or loss on sale, exchange, or other disposition of such Bond. Accrued OID may be taken into account as an increase in the amount of tax-exempt income received or deemed to have been received for purposes of determining various other tax consequences of owning a Discount Bond even though there will not be a corresponding cash payment. Owners of Discount Bonds should consult their own tax advisors with respect to the treatment of original issue discount for Federal income tax purposes, including various special rules relating thereto, and the state and local tax consequences of acquiring, holding, and disposing of Discount Bonds. Bond Premium In general, if an owner acquires a Bond for a purchase price (excluding accrued interest) or otherwise at a tax basis that reflects a premium over the sum of all amounts payable on the Bond after the acquisition date (excluding certain “qualified stated interest” that is unconditionally payable at least annually at prescribed rates), that premium constitutes “bond premium” on that Bond (a “Premium Bond”). In general, under Section 171 of the Code, an owner of a Premium Bond must amortize the bond premium over the remaining term of the Premium Bond, based on the owner’s yield over the remaining term of the Premium Bond determined based on constant yield principles (in certain cases involving a Premium Bond callable prior to its stated maturity date, the amortization period and yield may be required to be determined on the basis of an earlier call date that results in the lowest yield on such bond). An owner of a Premium Bond must amortize the bond premium by offsetting the qualified stated interest 21 136036.5 035180 OS allocable to each interest accrual period under the owner’s regular method of accounting against the bond premium allocable to that period. In the case of a tax-exempt Premium Bond, if the bond premium allocable to an accrual period exceeds the qualified stated interest allocable to that accrual period, the excess is a nondeductible loss. Under certain circumstances, the owner of a Premium Bond may realize a taxable gain upon disposition of the Premium Bond even though it is sold or redeemed for an amount less than or equal to the owner’s original acquisition cost. Owners of any Premium Bonds should consult their own tax advisors regarding the treatment of bond premium for Federal income tax purposes, including various special rules relating thereto, and state and local tax consequences, in connection with the acquisition, ownership, amortization of bond premium on, sale, exchange, or other disposition of Premium Bonds. Information Reporting and Backup Withholding Information reporting requirements apply to interest paid on tax-exempt obligations, including the Bonds. In general, such requirements are satisfied if the interest recipient completes, and provides the payor with, a Form W-9, “Request for Taxpayer Identification Number and Certification,” or if the recipient is one of a limited class of exempt recipients. A recipient not otherwise exempt from information reporting who fails to satisfy the information reporting requirements will be subject to “backup withholding,” which means that the payor is required to deduct and withhold a tax from the interest payment, calculated in the manner set forth in the Code. For the foregoing purpose, a “payor” generally refers to the person or entity from whom a recipient receives its payments of interest or who collects such payments on behalf of the recipient. If an owner purchasing a Bond through a brokerage account has executed a Form W-9 in connection with the establishment of such account, as generally can be expected, no backup withholding should occur. In any event, backup withholding does not affect the excludability of the interest on the Bonds from gross income for Federal income tax purposes. Any amounts withheld pursuant to backup withholding would be allowed as a refund or a credit against the owner’s Federal income tax once the required information is furnished to the Internal Revenue Service. Miscellaneous Tax legislation, administrative actions taken by tax authorities, or court decisions, whether at the Federal or state level, may adversely affect the tax-exempt status of interest on the Bonds under Federal or state law and could affect the market price or marketability of the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding the foregoing matters. FINANCIAL STATEMENTS The audited financial statements of the City for fiscal year 2009-2010 are attached hereto as Appendix A and should be read in their entirety. The City’s independent auditor was not requested to consent to the inclusion of its report in Appendix A, nor has such auditor undertaken to update its report or take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this official statement, and no opinion is expressed by such auditor with respect to any event subsequent to the date of its report. 22 136036.5 035180 OS CERTAIN LEGAL MATTERS Hawkins Delafield & Wood LLP, San Francisco, California, Bond Counsel to the City, will render an opinion with respect to the validity of the Bonds. A complete copy of the proposed form of the opinion to be delivered by Bond Counsel is contained in Appendix B hereto. Certain legal matters will be passed upon for the City by Richard Taylor, Esq., Shute, Mihaly & Weinberger LLP, City Attorney. Hawkins Delafield & Wood LLP has also served as Disclosure Counsel to the City. Bond Counsel/Disclosure Counsel will receive compensation from the City contingent upon the sale and delivery of the Bonds. ABSENCE OF LITIGATION No litigation is pending or threatened concerning the validity of the Bonds, and a certification to that effect will be furnished to purchasers at the time of the original delivery of the Bonds. The City is not aware of any litigation pending or threatened questioning the political existence of the City or Contesting the City’s ability to receive assessments or to collect other revenues or contesting the City’s ability to issue and retire the Bonds. CONTINUING DISCLOSURE The City will execute a Continuing Disclosure Certificate, to be dated as of the Closing Date (the "Continuing Disclosure Certificate"), which provides for certain disclosure obligations on the part of the City. Under the Continuing Disclosure Certificate, the City will covenant for the benefit of Owners and beneficial owners of the Bonds to provide certain financial information and operating data relating to the City by not later than March 30 of each year, commencing with the reports for Fiscal Year 2010-11 which is to be filed by March 30, 2012 (the "Annual Reports"), and to provide notices of the occurrence of certain enumerated events (the "Listed Events"), if material. All Annual Reports and notices of Listed Events must be filed with the MSRB's Electronic Municipal Market Access System. These covenants have been made in order to assist the initial purchasers of the Bonds in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the "Rule") For a form of the Continuing Disclosure Certificate, see APPENDIX D – "FORM OF CONTINUING DISCLOSURE CERTIFICATE" attached hereto. The City has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of Listed Events. FORWARD-LOOKING STATEMENTS Certain statements included or incorporated by reference in this Official Statement constitute "forward-looking statements." Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "budget," "intend," "projection" or other similar words. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE CITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN 23 136036.5 035180 OS THEIR EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR OR DO NOT OCCUR. RATINGS Moody's Investors Service ("Moody's") and Standard & Poor's Ratings Service ("S&P") have assigned the Bonds the ratings of "__" and "___," respectively. Certain information was supplied by the City to the rating agencies to be considered in evaluating the Bonds. Such ratings express only the views of the rating agencies and are not a recommendation to buy, sell or hold the Bonds. There is no assurance that such ratings will continue for any given period of time or that they will not be reduced or withdrawn entirely by the rating agencies, or either of them, if in their, or its, judgment, circumstances so warrant. The City undertakes no responsibility to oppose any such revision or withdrawal, although the City will covenant in the Continuing Disclosure Certificate to provide notice of any rating changes to the MSRB's Electronic Municipal Market Access System. Any such downward revision or withdrawal may have an adverse effect on the market price of the Bonds. SALE OF THE BONDS The Bonds were sold at competitive bid on __________, 2011. The Bonds were awarded to ________________ (the "Purchaser"), at a purchase price of $___________ (consisting of $___________ aggregate principal amount, plus $___________ of [net original issue premium], less underwriter's discount of $___________). The Official Notice of Sale provided that all Bonds would be purchased if any were purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the Official Notice of Sale, the approval of certain legal matters by Bond Counsel, and certain other conditions. The Purchaser of the Bonds has represented to the City that the Bonds have been re- offered to the public at the yields stated on the inside cover page hereof. See "ESTIMATED SOURCES AND USES OF FUNDS." ADDITIONAL INFORMATION The purpose of this Official Statement is to supply information to prospective buyers of the Bonds. Quotations and summaries and explanations of the Bonds and of statutes and documents contained in this Official Statement do not purport to be complete, and reference is made to such documents and statutes for full and complete statements of their provisions. The execution and delivery of this Official Statement have been duly authorized by the City. CITY OF SARATOGA By: City Manager 136036.5 035180 OS APPENDIX A CITY OF SARATOGA AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2010 [Please Use File Sent Separately] 136036.5 035180 OS APPENDIX B PROPOSED FORM OF OPINION OF BOND COUNSEL [Please Use File Sent Separately] 136036.5 035180 OS APPENDIX C DTC AND THE BOOK-ENTRY SYSTEM The information in numbered paragraphs 1-10 of this Appendix C concerning The Depository Trust Company, New York, New York ("DTC") and DTC's book-entry system, has been furnished by DTC for use in official statements and the City takes no responsibility for the completeness or accuracy thereof. The City cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest or principal with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current "Procedures" of DTC to be followed in dealing with DTC Participants are on file with DTC. As used in this appendix, "Securities" means the Bonds, "Issuer" means the City, and "Agent" means the Paying Agent. 1. The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the securities (the "Securities"). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for the Securities, in the aggregate principal amount of such issue, and will be deposited with DTC. 2. DTC, the world's largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. 3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as C-2 136036.5 035180 OS well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued. 4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. 6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. 7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. 9. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. 10. Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC. 136036.5 035180 OS APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE [Please Use File Sent Separately] 136036.5 035180 OS