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18646ORDINANCE NO. 19,646 AN ORDINANCE PROVIDING FOR THE ISSUANCE AND SALE OF A SERIES OF LIBRARY IMPROVEMENT BONDS FOR THE PURPOSE OF FUNDING CONSTRUCTION AND CAPITAL IMPROVEMENT PROJECTS; PLEDGING TAX REVENUES SUFFICIENT TO PAY THE PRINCIPAL OF AND INTEREST ON THE BONDS; AUTHORIZING THE EXECUTION AND DELIVERY OF A SUPPLEMENTAL TRUST INDENTURE; AUTHORIZING THE ACCOMPLISHMENT OF THE PROJECTS; APPROVING AN OFFICIAL STATEMENT; PRESCRIBING OTHER MATTERS RELATING THERETO; AND DECLARING AN EMERGENCY. WHEREAS, at the general election held November 3, 1998, there was submitted to the voters of the City of Little Rock (the "City") the question of issuing bonds of the City (the "Bonds ") in the maximum principal amount of $19,500,000 to refund an outstanding issue of capital improvement bonds and to finance the cost of acquiring, constructing and equipping additional capital improvements to the public libraries operated by the City and the Central Arkansas Library System ( "CALS ") to be payable from a continuing annual ad valorem property tax to be levied at a new rate of 1.0 mill on the dollar of the assessed valuation of taxable real and personal property in the City; and WHEREAS, the voters approved the issuance of the Bonds by a vote of 26,914 votes FOR and 15,844 votes AGAINST; and WHEREAS, the City previously issued its $9,175,000 Library Improvement and Refunding Bonds, Series 1999B, dated September 1, 1999 (the "Series 1999B Bonds" or the "Parity Bonds "); the proceeds of which were used to fund the following projects: (1) Renovation of the Main Library and Terry Library; (2) Restoration of the Cox Building; (3) Construction of a new library in southwest Little Rock; (4) Prepayment of a lease with the Arkansas Aviation Historical Society; (5) Landscaping improvements at three branches; (6) Purchase of land in west Little Rock for future construction; (7) Enhancing CALS collection of books, videos, etc.; (8) Upgrading the computer system; (9) Purchase of a new delivery van; and (10) Accomplishing other projects which CALS' Board of Directors deems appropriate; and to currently refund the City of Little Rock, Arkansas Residential Housing and Public Facilities Board Capital Improvement Revenue Bonds (Central Arkansas Library System Project), Series 1997 which was in the original principal amount of $800,000 (the "Series 1997 Bonds "); and WHEREAS, the City intends to issue its $9,500,000 Library Improvement Bonds, Series 2002, dated March 1, 2002 (the "Series 2002 Bonds ") to fund the following projects: (1) Completion and renovation of the fifth floor of the Main library; (2) Construction of a new library in Southwest Little Rock; (3) Construction of a new library in West Little Rock; 309275 -v] • • (4) Enhancing CALS collection of books, videos, etc.; and (5) Accomplishing other projects which CALS' Board of Directors deems appropriate (collectively, the "2002 Project" or "2002 Projects "). WHEREAS, the City levied in 1998 for collection in 1999 and has levied each year since 1998 an ad valorem property tax at the rate of 1.0 mill on the dollar of the assessed valuation of taxable real and personal property in the City (the "Library Tax ") to be used to pay debt service on the Bonds, and the City covenants to levy the Library Tax every year until all bonds issued under the Master Trust Indenture, including the Series 2002 and Series 1999B Bonds, are fully redeemed; WHEREAS, the City will receive its allocable portion of the .5% statewide sales and use tax implemented pursuant to Amendment No. 79 to the Arkansas Constitution ( "Amendment 79 ") which is intended to offset any decrease in collections resulting from the homestead exemption also implemented pursuant to Amendment 79 (the "Debt Service Supplement "); WHEREAS, the City pledges the Debt Service Supplement to debt service on the Series 2002 Bonds and the Parity Bonds; WHEREAS, the Series 2002 Bonds and the Series 1999B Bonds shall be on a parity of security with one another (collectively, the Series 2002 and Series 1999B Bonds shall be referred to as the "Bonds "); and WHEREAS, in order to serve and fulfill the purposes for which it has been created and to provide funds for the financing of the 2002 Projects, the City desires to adopt this Ordinance authorizing the issuance and sale of the Series 2002 Bonds and other matters pertaining thereto. NOW, THEREFORE, BE IT ORDAINED by the Board of Directors of the City of Little Rock, Arkansas: Section L The Projects shall be accomplished. The Mayor, City Clerk, and Director of Finance are hereby authorized to take or cause to be taken all action necessary to accomplish the acquisition, construction and equipping of the Projects and to execute all required documents. Section 2. Under the authority of the Constitution and laws of the State of Arkansas, including particularly Amendment No. 30 to the Constitution of the State of Arkansas, as amended by Amendment No. 72 to the Arkansas Constitution, and Arkansas Code Annotated §§ 14- 142 -201 through 222 (Act 920 of the Acts of Arkansas of 1993), the City of Little Rock, Arkansas Library Improvement Bonds, Series 2002, are hereby authorized and ordered issued in the total aggregate principal amount of not to exceed 59,500,000, for a term not to exceed 30 years and at an average interest rate of all bonds issued of not to exceed six percent (6.0 %). The Series 2002 Bonds shall not be general obligations of the City, but shall be special obligations payable solely from the proceeds of the Library Tax and the Debt Service Supplement, more specifically identified in the Master Trust Indenture dated as of September 1, 1999 between the City and Metropolitan National Bank, as Trustee (the "Trustee), as supplemented and amended (the "Master Trust Indenture "), and the Supplemental Trust Indenture (identified hereinafter). The City hereby pledges the Library Tax and Debt Service Supplement to the Series 2002 and Series 1999B Bonds. Section 3. The proceeds of the Series 2002 Bonds, together with investment earnings thereon, shall be used (i) to finance the Projects; and (ii) to pay the costs of issuance of the Series 2002 Bonds. The Series 2002 Bonds will mature, bear interest and be subject to redemption in accordance with the provisions of the Supplemental Trust Indenture (identified hereinafter). The Series 2002 Bonds will be issued on a parity of 309275-1 security with the Series 1999B Bonds, and with such additional bonds, if any, to be issued under the Master Trust Indenture. Section 4. All actions heretofore taken by the Mayor, City Clerk, and Director of Finance in connection with the offering of the Series 2002 Bonds, including the preparation and distribution of the Preliminary Official Statement, preparation of the Official Statement, and preparation of this Ordinance (the "Authorizing Ordinance ") are hereby in all respects ratified and approved. The Official Statement is deemed a final Official Statement for purposes of the Securities and Exchange Commission Rule 15(c) 2 -12. The Official Statement of the City in the form presented at this meeting with such changes, omissions, insertions and revisions as the Mayor, City Clerk, and Director of Finance shall deem advisable is hereby authorized and approved, and the Director of Finance shall sign and deliver such final Official Statement to the Underwriters for distribution to the owners of the bonds and other interested persons. Section 5. To prescribe the terms and conditions upon which the Series 2002 Bonds are to be executed, issued, accepted, held and secured, the Mayor is hereby authorized and directed to execute and acknowledge a Supplemental Trust Indenture dated March 1, 2002 between the City and the Trustee (the "Supplemental Trust Indenture "), and the City Clerk is hereby authorized and directed to execute and acknowledge the Supplemental Trust Indenture and to affix the seal of the City thereto, and the Mayor and City Clerk are hereby authorized and directed to cause the Supplemental Trust Indenture to be accepted, executed and acknowledged by the Trustee. The Supplemental Trust Indenture is hereby approved in substantially the form submitted to this meeting with such changes as shall be approved by such persons executing the document, their execution to constitute conclusive evidence of such approval. Section 6. The Mayor, the City Clerk, the Director of Finance, and CALS, for and on behalf of the City, are authorized and directed to do any and all things necessary to effect the execution and delivery of the Supplemental Trust Indenture; the performance of all obligations of the City under the Master Trust Indenture and the Supplemental Trust Indenture; the issuance, execution, sale and delivery of the Bond including the execution of a Bond Purchase Agreement between the City and the Underwriters; and the performance of all acts of whatever nature necessary to effect and carry out the authority conferred by this Ordinance. The Mayor, City Clerk, the Director of Finance, and CALS are further authorized and directed, for and on behalf of the City, to execute all papers, documents, certificates and other instruments that may be required for the carrying out of such authority or to evidence the exercise thereof. All actions of the Mayor, City Clerk, Director of Finance or CALS which have previously been taken with respect to the matters set forth in this Section are hereby ratified, approved and confirmed. Section 7. The appointments of Wright, Lindsey & Jennings LLP as Bond Counsel and of Stephens Inc. as Underwriters representatives, respectively, are hereby approved and ratified. Section 8. It is hereby found and declared that an immediate need exists for the accomplishment of the Projects in order to achieve the most cost effective financing for the City's public libraries. It is, therefore, declared that an emergency exists. This Ordinance, being necessary for the immediate preservation of the public peace, health and safety, shall take effect and be in force from and after its passage. 309275 -v1 0 PASSED: February 19 , 2002 ATTEST: NANCY VOOD, Cl CLERK APPROVED AS TO FORM: ul THOMAS M. CARPENTERS — CITY ATTORNEY 309275 -vl 4 • APPROVED: JIM ILEY, MAYOR e no ry V_ V � o .a z� s o � 8 `o ^ �v av at �n o n iO g c T L�L D lJ O � u O}$ gT n C � D T = o O s Q C 0 0 c 'c oa „AA r �+ c ^ =g � j L o i wog E g c g "d= ti U Aeo ice r .E'a =eo y a " o - c y d A =_ng m � 3 ov =V �=o n7 0 n €,13 W o O —� �o 9 L - � 7 a = 9 r PRELIMINAOOFFICIAL STATEMENT DATED FEBY*Y 1, 2002 Series 2002 (BOOK -ENTRY ONLY) RATING: Standard and Poor's AA- (See Bond Rating section herein) In the opinion of Bond Counsel, under existing law and assuming compliance with certain covenants described herein, (i) interest on the Series 2002 Bonds is excluded from gross income far federal income tax purposes, (ii) interest on the Series 2002 Bonds is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, (iii) with respect to certain corporations, interest on the Series 2002 Bonds will be taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on such corporations, (iv) interest on the Series 2002 Bonds is exempt from State of Arkansas income tax and (v) the Series 2002 Bonds are not subject to property taxes in the State of Arkansas. (see LEGAL MATTERS, Legal Opinion). Dated: March 1, 2002 $9)5005000 CITY OF LITTLE ROCK, ARKANSAS LIBRARY IMPROVEMENT BONDS Series 2002 Due: March 1, as shown below [Maturity Scheduled included on inside cover page) The City of Little Rock, Arkansas Library Improvement Bonds, Series 2002 (the "Series 2002 Bonds" or the "Bonds ") are limited obligations of the City of Little Rock, Arkansas (the "City") payable solely from the collections of the Library Tax (as herein defined) and amounts on deposit in certain funds and accounts established under a Master Trust Indenture, dated September 1, 1999, between the City and Metropolitan National Bank, as Trustee, and a Supplemental Trust Indenture, between the City and Trustee, dated as of March 1, 2002 (collectively, the "Master Indenture "). The Bonds are issuable as fully registered bonds and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ( "DTC "), New York, New York, to which principal and interest payments on the Bonds will be [Wade so long as Cede & Co. is the registered owner of the Bonds. Individual purchases of the Bonds will be made only in book -entry form, in the denominations of $5,000 or any integral multiple thereof, Individual purchasers of the Bonds ("Beneficial Owners ") will not receive physical delivery of bond certificates. Interest is payable September 1, 2002 and semiannually thereafter on each September 1 and March 1. The Series 2002 Bonds are issuable only as fully registered bonds in the denomination of $5,000 or an integral multiple thereof. Principal is payable at the corporate trust office of Metropolitan National Bank, Little Rock, Arkansas, the trustee, bond registrar and paying agent (the "Trustee "). Interest is payable by check or draft drawn on the paying agent and mailed to the registered owners as of the Record Date (herein defined) on each interest payment date, or solely at the option of the Trustee, by wire fund transfer upon the terms and conditions of the Trustee. The Series 2002 Bonds are subject to mandatory and optional redemption prior to maturity as described herein. The Bonds are offered when, as and if issued and received by the Underwriters, subject to the approval of legality by Wright, Lindsey & Jennings LLP, Little Rock, Arkansas, Bond Counsel for the City, and to certain other conditions. It is expected that the Bonds will be available for delivery in New York, New York, on or about March 28, 2002. Dated: , 2002 313352 -v1 Stephens Inc. httve9:t�tttt I3aak0S 0 Series 2002 0 Maturity Principal Interest arch 1 Amount Rate 2002 2003 $490,000 2004 505,000 2005 520,000 2006 535,000 2007 555,000 2008 575,000 2009 805,000 2010 1,350,000 2011 1,410,000 2012 1,475,000 2013 1,280,000 (Accrued interest from date of Bonds to be added) ii 313352 -vi [THIS PAGE INTENTIONALLY LEFT BLANK] iii 313352 -v1 No dealer, broker, salesman otoer person has been authorized by the Cile the Underwriter to give any information or to make any representations other than contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy nor shall there be any offer, solicitation or sale of the Series 2002 Bonds by or to any person in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. The information set forth herein under the captions "Description of the City of Little Rock - General," "Debt Structure" and "Financial Information" has been furnished by the City, except where otherwise noted. All other information set forth herein has been obtained from sources other than the City that are believed to be reliable, but the adequacy, accuracy or completeness of such information is not guaranteed by, and it is not to be construed as a representation by, the City or Bond Counsel. The information and expressions of opinion herein are subject to change without notice. Neither the delivery of this Official Statement nor the sale of any of the Bonds implies that there has been no change in the matters described herein since the date hereof or that the information herein is correct as of any time subsequent to its date. The Series 2002 Bonds have not been registered under the Securities Act of 1933, as amended, nor has the Authorizing Ordinance described herein been qualified under the Trust Indenture Act of 1939, as amended, in reliance upon certain exemptions in such laws from such registration and qualification. IN CONNECTION WITH THE OFFERING OF THE SERIES 2002 BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2002 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET, SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. iv 313352 -v1 TABLE OF CONTENTS PAGE ��]88v�����,1[�������U7��B��]P�X�������,..�—.—.`—.^^'�—'.�~'^�^�`�,~^�.�^�^�---^�--^.—'^�^' 9 General.... ......^~--~^,,^,,,~^~,.,`_^'^`_~^,_^^,`',.^^,`_^'_^'^^ Main Library Fifth Floor Completion (0icnwvatiom) ....................... ~^,~~~~''`--^`.''' West Central Little Rock (New Building) ................. ..~'~`.'.`'—^^`.—^`.—^^',—^., West Little Rock (New Building) ................ `'^`.`^`',^~^--~..~'^.^^'.—^```-9 Jay Miller Aviation History Collection .......... .................... .^^^`—^^'~~~ ............ .......... r Collection Development and Other Equipment ............................................... .^~~`.~~.,`/ DESCRIPTION OF CENTRAL ARKANSAS LIBRARY SYSTEM ........ ^~^—^~',~^.,—~''.v General....................................... ~,^',^~,_^,,^'^^,_~~^`^'^,,~^`,'^`,,~ ......... ./ Organization ,,~,^_,__^^^,_~^,`^~~`'^^^^,_^^,`'^^`,`^`,_^,_....`...'l0 Operations Budget _'~,,__,,`~~,`^~,,,^,^'^,,_~,^,^'_~^_...—....'l) DESCRIPTION OF THE CITY OF LITTLE ROCK .............. .^~~~~.' ................... . .............. ll ��emeral..........^^^^`~—~`~'^`~~'`—^^^—~~~~^^^`~~'^`^`~``'^`-- ll Organization Governmental ~^'^,,'^,^,,'^`',^~'__~^,'^`,_^^^,..........'l2 Landm..,—...—...`^—~`~^^..~..---..~^`'—^.^—~^.,'^`.`. l� ^ / Income and ��etu0Sales —.......--~.~~^^..'.^.--..,~^^'—^^~—^~~.~~'^`. l4 0xmo...—~^—~^`--^^^^'^^^`'^^``^^`~~~^^`^~^`'^^~`~^```'``—~' l4 Commercial ^ - amd Residential Construction and Bunk Deposits ............................................... .l5 0u^ pr ' ..--^^^`—~~'`~'^`—~'^`~`^`—^``~~~^^^'—`~—~`^--' 16 ^ School Enrollment .—....'..,.'~`.—~,—^~'—^^`.~'^``~.,—^.``'.`--' l6 ��ioher]Kdmca1om—..^.—...—.^.—^~.^~,^^—`.^—^'—^^.~'.,~^`..'^'.--' \? )|B52-vt • • MedicalFacilities .............................. -- ................. ............................................... ..................... .... 17 CityEmployees ................................................................................................. .............................18 Portof Little Rock ............................................................................................ .............................18 LittleRock National Airport ........................................................................... .............................19 DEBTSTRUCTURE ............. ...................... .... ................. . ..................... -- ................................. . ........ . .... 19 Authorized and Outstanding General Obligation Debt. ................. -- ..................... -- ............... 19 General Obligation Debt Service ..................................................................... .............................19 Defaults.............................. ............................... -- ......................................................................... 21 Invalidityof Tourism Bonds ............................................................................ .............................21 OverlappingDebt ............................................................................................. .............................21 ........ .. .... ....... 36 RevenueBonds .................... -- ....................................... -- ........................................................... 21 FINANCIALINFORMATION ................................................................................... .............................22 7 TheCity Budget ..........-- ................................................................................. .............................22 ....37 Computation of Dollar Amount of Library Tax Levied ................................ .............................24 AssessedValuation ........................................................................................... .............................25 Collectionof Taxes.. ..................... ................................................................... ............................ 25 Debt Service Schedule and Coverage.. ............................................................... ..................... ... 26 Coverage........................................................................................................... .............................26 Overlapping Ad Valorem Taxes ......................................... ................ -- ....................... ............... 27 Assessment of Property and Collection of Property Taxes ............................ .............................27 Judicial Decisions and Constitutional Amendments Affecting Assessments of Taxable Property and Ad Valorem Tax Rate ....................... .............................29 AmendmentNo. 59 ........... .................................................... ........................... ........... ........... - 29 AmendmentNo. 71 ................................................................................... ............................... 32 OmegaTube & Conduit Corp ................................................................. ............................... 32 AmendmentNo. 79 ................................................................................... ............................... 32 Miscellaneous................ ......................................................... .................................. ........... -. 32 LEGALMATTERS ...................................................................................................... .............................32 LegalOpinion .................................................................................................. ..............................3 2 Non - Litigation Certificate ............................................................................... .............................33 ENFORCEABILITYOF REMEDIES ........................................................................ .............................34 UNDERWRITING........................................................................................................ .............................34 BONDRATING ............................................................................................................ .............................35 CONTINUING DISCLOSURE CERTIFICATE ...................................................... .............................35 Purpose of the Continuing Disclosure Certificate ........................................ .............................35 Provision of Annual Financial Information and Operating Data ............... .............................35 Noticeof Material Events .............................. -- ................................................................... ....... 35 City to Disseminate Information and Notices ............................................... .............................36 Amendment; Waiver ..... ................................................................. -- ..................... ........ .. .... ....... 36 AdditionalInformation .................................................................................. ..............................3 7 Noncompliance................................................................................................ ..............................3 7 MISCELLANEOUS............... -- ..................... .................. ..................... .... . .................... . ..................... ....37 vi 313352 -v1 0 0 APPENDIX A — Legal Opinion APPENDIX B — Summary of the Master Trust Indenture APPENDIX C — Summary of the Series 2002 Supplemental Indenture vii 313352 -v1 SUMMARY OF THE OFFICIAL STATEMENT This summary is subject in all respects to the more complete information contained in this Official Statement. The offering of the Series 2002 Bonds to potential investors is made only by means of the entire Official Statement, including the Cover Page. Purpose of Official Statement. This Official Statement is provided to furnish certain information in connection with the issuance by the City of Little Rock, Arkansas (the "City") of its $9,500,000 Library Improvement Bonds, Series 2002, dated March 1, 2002 (the "Series 2002 Bonds "). The City. The City is a city of the first class duly established and existing under the Constitution and laws of the State of Arkansas. See DESCRIPTION OF THE CITY OF LITTLE ROCK. Purpose. The Series 2002 Bonds are being issued to finance the cost of acquiring, constructing and equipping capital improvements to the public city libraries (the "Improvements ") operated by the City and the Central Arkansas Library System ( "CALS "). See DESCRIPTION OF THE PROJECT. Security and Source of Payment. The Series 2002 Bonds will be limited tax obligations of the City, payable solely from a special tax levied upon all taxable real and personal property located within the City (the "Library Tax ") and the pro rata portion of the proceeds of a Sales and Use Tax pursuant to Act 1492 of 1999 (the "Debt Service Supplement'). The City first levied the Library Tax at the rate of 1.0 mill (.001) for collection in 1999 and continuously in each year thereafter, the collection of which will be available to pay debt service on the Series 2002 Bonds. The City has covenanted that the Library Tax will be levied and collected annually and that it and the Debt Service Supplement will be pledged as security for the Series 2002 Bonds and the Parity Bonds (defined hereinafter) until all of the outstanding Series 2002 Bonds and any parity bonds together with interest thereon and related costs and fees have been paid in full. The City is prohibited by statute from using or committing proceeds from the Library Tax and the Debt Service Supplement for any purposes or uses other than payment of the Series 2002 Bonds, the Parity Bonds or other library purposes. The Series 2002 Bonds are part of an authorized issue of not to exceed $19,500,000 approved by voters of the City at the November 3, 1998 general election. The City previously issued its $8,175,000 Library Improvement and Refunding Bonds, Series 1999B, dated September 1, 1999 which are on a parity of security with the Series 2002 Bonds (the "Parity Bonds "). 313352 -v1 0 0 SERIES 2002 BONDS BEING OFFERED Generally. The Series 2002 Bonds are issuable in the form and denominations and are in the total principal amount shown on the Cover Page, and will be dated, mature and bear interest as set out on the Cover Page. Metropolitan National Bank, Little Rock, Arkansas, the trustee, bond registrar and paying agent ( "Trustee "), will maintain books for the registration and transfer of ownership of the Series 2002 Bonds. Interest due on a bond on each interest payment date will be paid to the person in whose name the bond was registered at the end of the fifteenth day of the month (whether or not a business day) next preceding the interest payment date (the "Record Date "), irrespective of any transfer of the bond subsequent to the Record Date and prior to the interest payment date. Payment of interest shall be made by check or draft drawn on the Trustee and mailed to such registered owner at the address shown on the registration books, or solely at the option of the Trustee, by wire fund transfer upon the terms and conditions of the Trustee. The City has also arranged to make the Series 2002 Bonds eligible for book -entry deposit with The Depository Trust Company ( "DTC "), New York, New York. Deposit of the Series 2002 Bonds, or any portion thereof, with DTC shall be at the option of the owner and at the expense of the owner or the participating securities dealer, as the case may be. A bond may be transferred, in whole or in part (in integral multiples of $5,000), but only upon delivery of the bond, together with a written instrument of transfer, to the Trustee. The transfer instrument must be signed by the registered owner or the registered owner's attomey -in -fact or legal representative, and the signature must be guaranteed by a member firm of the National Association of Securities Dealers, a commercial bank or a trust company. The transfer instrument shall state the name, mailing address and social security number or federal employer identification number of the transferee. Upon such transfer, the Trustee shall enter the transfer of ownership in the registration books and authenticate and deliver in the name or names of the new registered owner or owners a new fully registered bond or bonds of authorized denominations of the same maturity and interest rate for the aggregate principal amount of the bond transferred. Authority. The Series 2002 Bonds are issued under the authority of the Constitution and laws of the State of Arkansas, including particularly Amendment No. 30 to the Constitution of the State of Arkansas, as amended by Amendment 72 to the Arkansas Constitution ( "Amendment 30" and "Amendment 72" are collectively referred to herein as the "Constitution "), Arkansas Code Annotated § 14- 142 -201 through 222 (Act 920 of the Acts of Arkansas of 1993) (the "Act"), and Ordinance No. 18,085 duly adopted and approved by the City on August 3, 1999, as amended and supplemented by Ordinance No. _ duly adopted and approved by the City on , 2002 (the "Authorizing Ordinance "). The Constitution allows electors of the City to approve an annual tax on real and personal property to be levied for capital improvements to or construction of a public city library not to exceed three mills (.003) for each dollar of assessed value. The Constitution further states that electors may authorize the governing body of the City to issue bonds as prescribed by law for capital improvements to or construction of the . library and to authorize the pledge of all, or any part of, the tax for the purpose of retiring the bonds. The Act provides the procedures for the issuance of library bonds by municipalities and counties in implementation of the Constitutional provisions. The Act authorizes Arkansas municipalities to issue bonds for library capital improvements in amounts and for purposes approved by a majority of the qualified electors of the city voting on the question at an election called for that purpose. Such bonds shall be made payable from a special ad valorem tax on real and personal property in the city at the maximum rate specified on the election ballot. The Series 2002 Bonds are part of an issue of bonds approved by the voters of the City at the general election on November 3, 1998. Purposes. The proceeds of the Series 2002 Bonds, together with investment earnings thereon, will be used to finance the cost of acquiring, constructing and equipping capital improvements to the public city libraries 313352 -v1 • • set forth below and to pay the costs of issuance. The City expects that the construction period will be approximately three (3) years. A portion of the proposed improvements to be made with the proceeds of the Series 2002 Bonds are as follows: Estimated Improvement Cost New Construction in west Little Rock $3,100,000 New Construction in west central Little Rock 2,300,000 Complete 5`s Floor of Main Library 3,000,000 Purchase books, periodicals, audio - visuals, CD -Roms, and other materials for 1,000,000 library collections Purchase of Equipment for Various Branches 100,000 TOTAL $2 X40 004 (These improvements shall hereinafter be referred to either as the "Project" or the "Improvements" Sources and Uses of Funds. The estimated sources and uses of funds for the above purposes are as follows: Bond Issue Accrued Interest Total Issuance Expenses Underwriter's Discount Project Costs Accrued Interest Contingency Total Sources Series 2002 $9,500,000.00 Uses Security and Source of Payment. The Series 2002 Bonds are limited tax obligations of the City, payable from and secured by a pledge of the Library Tax and the Debt Service Supplement. The City has pledged the Library Tax and the Debt Service Supplement for the payment of the Series 2002 Bonds and the Parity Bonds. The Library Tax will be a continuing annual levy until sufficient moneys have been paid to retire all of the Series 2002 Bonds, the Parity Bonds and any additional parity bonds plus Trustee's fees and expenses. The rate of the Library Tax cannot exceed the rate specified on the ballot for the November 1998 election at which the Series 2002 Bonds were approved. The maximum rate specified for the Series 2002 Bonds was one mill (.001) per dollar of assessed value of taxable property in the City. The City is prohibited by statute from using or committing proceeds from the Library Tax and the Debt Service Supplement for any purposes or uses other than payment of the Series 2002 Bonds, the Parity Bonds or 313352w1 0 0 other library purposes. For a discussion of the estimated amount of Library Tax and the Debt Service Supplement to be collected in each year, see Computation of Dollar Amount of LibrarYTax Levied. 'Be electors adopted Constitutional Amendment No. 79 at the November 2000 General Election. This Amendment, which was effective January 1, 2001, provides for an annual state credit against ad valorem property tax on a homestead. As directed by the Amendment, the General Assembly has instituted a statewide sales and use tax in the amount of .5% (previously defined as the "Debt Service Supplement "). The purpose of the statewide sales and use tax is to assure that the tax or millage levied for bonded indebtedness will provide a level of income sufficient to meet current debt service and other expenses requirements. See FINANCIAL INFORMATION, Assessment of Properly and Collection of Property Taxes. Until retirement of the Series 2002 Bonds and the Parity Bonds, the proceeds of the Library Tax and the Debt Service Supplement cannot be used for any purpose other than payment of debt service on the Series 2002 Bonds and the Parity Bonds. Upon retirement of the Series 2002 Bonds and the Parity Bonds, any surplus tax collections which may have accumulated shall be transferred to the general fund of the City and shall be used for maintenance and operation of the public library. The Series 2002 Bonds are not secured by any lien on or security interest in any physical properties. The Series 2002 Bonds are limited obligations of the city payable solely from revenues collected from the Library Tax and the Debt Service Supplement. Arkansas property taxes are collected by the county collector and remitted to the respective taxing authorities. See FINANCIAL INFORMATION, Assessment of Property and Collection of Property Taxes. All collections of the Library Tax voted for the Series 2002 Bonds together with the Debt Service Supplement will be deposited as received into a special fund of the City held by the Trustee designated the "Series 2002 Library Bond Retirement Fund" (the "Bond Fund "). All moneys held for credit of the Bond Fund shall either be insured by the Federal Deposit Insurance Corporation or secured by direct or fully guaranteed obligations of the United States of America, or otherwise invested in a manner consistent with and authorized by the Master Indenture. Collections of the Library Tax and the Debt Service Supplement shall be used solely for the payment of principal of and interest on the Series 2002 Bonds and the Parity Bonds, fees of the Trustee, and costs of redemption either at maturity or at redemption prior to maturity. The proceeds of the Series 2002 Bonds will be used first to pay accrued interest on the Series 2002 Bonds, then the balance of the proceeds of the bond sale will be deposited in an account with the Trustee designated "Series 2002 Library Construction and Improvement Fund" (the "Construction Fund "). The moneys in the Construction Fund shall be disbursed for the payment of the cost of accomplishing the Improvements, paying necessary expenses and making necessary expenditures incidental thereto, paying engineering fees, paying legal fees, and paying the expenses of the authorization and issuance of the Series 2002 Bonds. For each disbursement related to construction costs, there shall be prepared a requisition signed by the City's Director of Finance and the Project Engineer or Architect. For disbursements related to purchases of equipment, books, and other items, CALS shall submit a requisition signed by the City's Director of Finance and the Director of CALS. Interest earned by the investments of the Construction Fund shall be retained in such Fund and used for the same purposes as other moneys in such Fund are authorized to be used. Redemption. The Series 2002 Bonds are subject to mandatory and optional redemption. The Series 1999B Bonds, which are on a parity of security, shall be fully defeased before the Series 2002 Bonds may be redeemed with surplus collections of the Library Tax and the Debt Service Supplement. 313352 -v1 0 0 Mandatory Redemption. The Series 2002 Bonds shall be subject to mandatory redemption prior to maturity, in inverse order of maturity, W on any interest payment date from proceeds of the Series 2002 Bonds not needed for the Improvements, and (ii) after the Series 1999B Bonds have been fully paid, on any interest payment date on or after September 1, 2002, from surplus collections of the Library Tax and Debt Service Supplement, being collections over and above (1) the amount necessary to pay the current requirements of interest and principal on the Series 2002 Bonds and the Parity Bonds and Trustee's fees, and (2) the interest due on the next interest payment date for the Series 2002 Bonds and the Panty Bonds, in whole or in part, at a redemption price equal to the principal amount being redeemed plus accrued interest to the redemption date. Moneys available for redemption shall be applied to the redemption of the Series 2002 Bonds, in inverse order of maturity (Series 2002 Bonds within a maturity to be selected by lot in such manner as the Trustee shall determine to be fair and equitable). Series 2002 Bonds of denominations greater than $5,000 may be redeemed partially in the amount of $5,000, or any integral multiple thereof. Optional Redemption of Series 2002 Bonds. The Series 2002 Bonds are subject to optional redemption in whole, but not in part, for the purpose of refunding from any moneys available therefor on or after March 1, 2008 if the Series 1999B Bonds have been fully paid, at a redemption price equal to the principal amount being redeemed, together with accrued and unpaid interest to the date of redemption and payment. Notice of Redemption. Notice of redemption identifying the Series 2002 Bonds or portions thereof to be redeemed shall be given by the Trustee, not less than 30 nor more than 60 days prior to the date fixed for redemption, by mailing a copy of the redemption notice by first-class mail, postage prepaid, to all registered owners of the Series 2002 Bonds to be redeemed at the address shown on the registration books. Failure to mail an appropriate notice or any such notice to one or more registered owners of the Series 2002 Bonds to be redeemed shall not affect the validity of the proceedings for redemption of other Series 2002 Bonds as to which notice of redemption is duly given and in proper and timely fashion. All such Series 2002 Bonds thus called for redemption shall cease to bear interest on and after the date fixed for redemption, provided funds for their redemption are on deposit with the Trustee at that time. Trustee, Bond Registrar and Paying Agent. The Trustee, Metropolitan National Bank, Little Rock, Arkansas, was designated by the City. The Trustee will maintain books for the registration and transfer of ownership of the Series 2002 Bonds. The principal of all Series 2002 Bonds, payable either at maturity or upon redemption prior to maturity, shall be paid upon surrender of the bond at the corporate trust office of the Trustee or in accordance with book -entry provisions acceptable to the Trustee. Interest shall be paid by check or draft drawn on the Trustee and mailed to each registered owner at the address shown on the registration books, or solely at the option of Trustee, by wire fund transfer upon the terms and conditions of the Trustee. The Trustee may resign by giving not less than 60 days notice in writing to the City specifying the date when such resignation shall take effect and mailing notice thereof to the owners of any and all Bond or Bonds (the "Holders") outstanding. Such resignation shall be effective upon the appointment of a successor Trustee by the City and acceptance of appointment by the successor. The City may at any time, with or without cause, remove the Trustee and appoint a successor. 5 313352 -v1 E s Any successor Trustee shall have capital and surplus of at least $50,000,000. Modification of Terms of Series 2002 Bonds. The terms of the Series 2002 Bonds, the Authorizing Ordinance, the Master Indenture and Supplemental Indenture (the Master Indenture and Supplemental Indenture shall collectively be referred to as the "Indentures ") will constitute a contract between the City and the registered owners of the Series 2002 Bonds. The owners of not less than 60% in aggregate principal amount of the Series 2002 Bonds then outstanding have the right, from time to time, to consent to the adoption by the City of ordinances modifying any of the terms or provisions contained in the Series 2002 Bonds, the Parity Bonds, the Authorizing Ordinance or the Indentures; provided, however, there shall not be permitted (a) extension of the fixed maturity of any Series 2002 Bond or Parity Bond, or reduction of the Principal amount of Redemption Price thereof, or reduction of the rate or extension of the time of payment of interest thereon, (b) reduction of the percentage of Bonds required for the affirmative vote or written consent to an amendment or modification of the Master Indenture or (c) modification of any of the rights or obligations of the Trustee. Defeasance. When all of the Series 2002 Bonds shall have been paid or deemed paid, the pledge in favor of' the Series 2002 Bonds (see Security and Source of Payment, supra) shall be discharged and satisfied. A Bond shall be deemed paid when there shall have been deposited in trust with the Trustee, as escrow agent under an escrow deposit agreement requiring the escrow agent to apply the proceeds of the deposit to pay the principal of and interest on the Series 2002 Bond as due at maturity or upon redemption prior to maturity, moneys or Government Obligations sufficient to pay when due the principal of, interest on and trustee's fees associated with the Series 2002 Bond. If the principal of the Series 2002 Bond is to become due by redemption prior to maturity, notice of such redemption must have been duly given or provided for. "Government Obligations" shall mean direct or fully guaranteed obligations of the United States of America, noncallable, maturing on or prior to the maturity or redemption date of the Bond. In determining the sufficiency of a deposit there shall be considered the principal amount of such Government Obligations and interest to be earned thereon until their maturity. Defaults and Remedies. The Trustee shall immediately notify the City of each default in the payment of principal of or interest on any Series 2002 Bond and of any other default under the Authorizing Ordinance or the Indentures of which the Trustee has knowledge. Any default in the payment of the principal of or interest on any Series 2002 Bond, and any default in the performance of any other covenant in the Authorizing Ordinance or the Indentures which continues for 60 days after written notice thereof is given to the City by the Trustee, shall constitute an event of default. None of the owners of the Series 2002 Bonds shall have any right in any manner by their action to affect, disturb or prejudice the security of the Authorizing Ordinance or the Indentures, or to enforce any right thereunder except in the manner provided in the Authorizing Ordinance or the Indentures. All proceedings at law or in equity shall be instituted, had and maintained in the manner provided in the Authorizing Ordinance or the Indentures and for the benefit of all owners of outstanding Series 2002 Bonds. Any individual rights of action are restricted by the Authorizing Ordinance or the Indentures to the rights and remedies therein provided. Nothing shall, however, affect or impair the right of a Holder to enforce the payment of the principal of and interest on any Series 2002 Bond at and after maturity thereof. No delay or omission of any Holder of a Series 2002 Bond to exercise any right or power accrued upon any default shall impair any such right or power or be construed to be a waiver of any such default or acquiescence therein, and every power and remedy given to the Holders of the Series 2002 Bonds may be exercised from time to time as often as may be deemed expedient. The Holders of not less than 50% in principal amount of the Series 2002 Bonds then outstanding shall have the right, during the continuance of an event of default, to direct the time, method and place of conducting 6 313352 -v1 • • any proceedings for any remedy of the Holders, and may waive any default which shall have been remedied before the entry of final judgment or decree in any suit, action or proceeding or before the completion of the enforcement of any other remedy. No such waiver shall extend to or affect any other existing or subsequent default or defaults or impair any rights or remedies consequent thereon. Additional Bonds. No additional bonds may be issued with a prior pledge of the proceeds of the Library Tax or Debt Service Supplement. Under certain circumstances, one or more series of additional bonds may, be issued on a parity of security with the Series 2002 Bonds, but only if the proceeds thereof are used only to refund all or a portion of the Parity Bonds or the Series 2002 Bonds. Bonds designated as "Library Refunding Bonds" are authorized to be issued by the City under the Master Indenture for the purpose of financing refundings; provided, the proceeds of the Library Tax and Debt Service Supplement for all outstanding bonds to which the proceeds are pledged are being maintained at 120% of the average annual debt service on all of the other outstanding bonds and the additional bonds then proposed to be issued. The maximum principal amount of the Bonds which may be issued thereunder is limited to $19,500,000. Bonds may be issued in such Series as from time to time shall be established and authorized by the City. The Bonds may be issued in one or more Series pursuant to one or more Supplemental Indentures. See Appendix B "SUMMARY OF THE MASTER TRUST INDENTURE: General Provisions for the Issuance of Bonds ". All additional bonds will be issued in compliance with the Master Indenture. Previously, the City issued its $825,000 Library Refunding Bonds, Series 1999A, and $8,175,000 Library Improvement and Refunding Bonds, Series 1999B, each dated September 1, 1999. The Series 1999A Bonds have matured, and $4,000,000 of the Series 1999B Bonds remain outstanding. The Series 1999B Bonds are on a parity of security with the Series 2002 Bonds. BOOK -ENTRY ONLY SYSTEM The Depository Trust Company ( "DTC "), New York, New York, will act as securities depository for the Series 2002 Bonds. The Series 2002 Bonds 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 Bond certificate will be issued for each maturity, in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC 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 securities that its participants ( "Participants ") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book -entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others, such as securities brokers and dealers, banks, and trust companies, that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( "Indirect Participants "). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of Series 2002 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2002 Bonds on DTC's records. The ownership interest of each 313352 -v1 0 actual purchaser of each Bond (`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, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as 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 interest in the Series 2002 Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interest in Series 2002 Bonds, except in the event that use of the book -entry system for the Series 2002 Bonds is discontinued. To facilitate subsequent transfers, all Series 2002 Bonds 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 Series 2002 Bonds with DTC and their registration in the name of Cede & Co., or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2002 Bonds; DTC records reflect only the identity of the Direct Participants to whose accounts such Series 2002 Bonds 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. 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. Redemption notices will be sent to DTC. If less than all of the Series 2002 Bonds of any maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in Series 2002 Bonds of such maturity to be redeemed. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to Series 2002 Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the 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 the Series 2002 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy.) Redemption proceeds, distributions, and dividend payments on the Series 2002 Bonds will be made to Cede & Co., or such other nominee as any 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 Issuer's 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, Issuer's 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 dividends to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Issuer's Agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursements of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Series 2002 Bonds at any time by giving reasonable notice to the Issuer or Issuer's Agent. Under such circumstances, in the event that a successor securities depositor is not obtained, Bond certificates are required to be printed and delivered. 8 313352 -v1 • i Issuer may decide to discontinue use of the system of book -entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. The information in this section concerning DTC and DTC's book -entry system has been obtained from sources that the Issuer believes to be reliable, but the Issuer takes no responsibility for the accuracy thereof. DESCRIPTION OF THE PROJECT General. The Central Arkansas Library System ( "CALS ") expects to undertake the construction of a branch library in west central Little Rock, the construction of a branch library in west Little Rock, and the renovation and completion of the fifth floor of the Main library. Remaining funds will be expended for purchases to enhance the system's collection and equipment. The following is a more detailed description of the project. Main Library Fifth Floor Completion (Renovation). Funds will be expended to renovate and complete the fifth floor of the Main Library located at 100 Rock Street in downtown Little Rock. The Main Library will be expanded by approximately 26,500 square feet to provide additional space for the library's book collection and to expand its computer technology center. West Central Little Rock (New Building). A new 10,000 square -foot full - service public library will be built in west central Little Rock near Barrow Road. This will likely be the home library for the book mobile. West Little Rock (New Building). A new 14,000 square -foot full service public library will be built in west Little Rock. The site is The Village at Rahling Road. Jay Miller Aviation History Collection. The Jay Miller Aviation History Collection is currently on loan from the Aviation Historical Society and is housed at the branch library located in the Aerospace Education Museum. This collection is the largest of its kind which is privately owned. If this collection becomes available for purchase and an acceptable price is negotiated, CALS anticipates adding it to the CALS collection. Collection Development and Other Equipment. Funds will be used to purchase books, videos, magazines, CD- ROM's, electronic information systems, and other items to augment the system's collection. In addition, funds will be used to upgrade the computer system which automates the card catalogue system. The balance of the bond funds will be used to purchase retrospective materials to add depth to the collection and other equipment to enhance CALS operations, such as vehicles or computers. DESCRIPTION OF CENTRAL ARKANSAS LIBRARY SYSTEM General. CALS, headquartered in Little Rock and serving a population of 300,000 persons, is the largest public library in Arkansas. In 2000 there were over 1 million visits to CALS' eleven branches and users checked out almost 1.25 million items. The system contains more than 600,000 volumes and is the largest research collection in central Arkansas. CALS was established in February 1975 pursuant to an Interlocal Cooperation Agreement between Pulaski County, Perry County and the City of Little Rock. It now includes eleven branches located in Pulaski County (Jacksonville, Sherwood and Maumelle), Perry County (Perryville), and the City of Little Rock (main library and six branches). The purpose of the agreement is to create and continue a library system for the central Arkansas area which provides library services to people in Pulaski and Perry County and the City of Little Rock; to establish a cooperative collection of books throughout a wider area; to eliminate 9 313352 -v1 unnecessary duplication of functions, facilities and assets; to take advantage of bulk discounts and purchase economies; and to provide for the addition of other participating units to the system. The Interlocal Cooperation Agreement was revised in 1999. The parties include the Cities of Little Rock, Jacksonville, Maumelle and Sherwood and the counties of Pulaski and Perry and allows CALS to take full advantage of the revised Interlocal Cooperation Act (Ark, Code Ann. §25 -20 -201 through 207). In addition to the purposes set forth in the original agreement, the revised agreement allows CALS to own property, broadens the representation of the parties, gives CALS eminent domain power, and generally expands CALS' authority. Organization. CALS is governed by a thirteen member Board of Trustees. The Board is responsible for fiscal and policy matters for the library system. Seven board members are residents of the City of Little Rock and are appointed by the Board of Directors of the City of Little Rock. Two members are Pulaski County residents appointed by the Pulaski County Quorum Court. One member is a Perry County resident appointed by the Perry County Quorum Court. The governing boards of the cities of Jacksonville, Sherwood and Maumelle appoint one resident each to the library board. Library trustees may serve two full three -year terms. The present members of the Board of Trustees are as follows: CITY APPOINTEES TERM OCCUPATION Frances O. "Freddie" Nixon 01/01/92 to 12/31/02 Community Volunteer David L. Rickard 01/01/99 to 12/31/02 Consultant Judith Faust 01/01/99 to 12/31/03 University Instructor Sherman Banks 01/01/99 to 12/31/02 Chamber of Commerce Shirley Jo Pine 01/01/99 to 02/31/03 Retired University Professor James M. McHaney, Jr. 01/01/99 to 12/31/04 Attorney Jesse J. Lacey, Jr. 01/01/99 to 12/31/04 Public School Administrator PULASKI COUNTY APPOINTEES TERM OCCUPATION Annette Herrington 01 /01 /01 to 12/31/02 Community Volunteer Fanye R. Porter 01/01/99 to 12/31/04 Community Volunteer PERRY COUNTY APPOINTEE B.M. "Buddy" Metcalf 01/01/99 to 12/31/02 Businessman JACKSONVILLE APPOINTEE Wally Nixon 01/01/99 to 12/31/04 Entergy Services Executive SHERWOOD APPOINTEE Cheryl "Nan" Gentry 01 /01 /01 to 12/31/03 City Government MAUMELLE APPOINTEE Joyce Wilson 04/25/01 to 01/01/03 Community Volunteer CALS is managed by a Director who is directly responsible to the Board of Trustees. The Director is responsible for implementing board policy and has operational control of the budget. Personnel decisions are the responsibility of the Director or designee. The Deputy Director supervises the main and branch librarians and oversees all public services. The Associate Director for Operational Services supervises departments that provide system -wide library services. The Associate Director for Institutional Services is responsible for human resources planning and training. All three report to the Director, and the four serve as the senior management team. 10 313352 -v1 0 The principal executive officers of CALS are P Director Dr. Bobby Roberts Deputy Director Linda Bly Associate Director, Operational Services Larrie Thompson Associate Director, Institutional Services Bob Razer The Director is appointed by the Board of Trustees and the Deputy/Assistant Directors are employed by the Director. CALS currently employs approximately 170 individuals at its eleven branches, including the main branch in Little Rock, Arkansas. Operations Budget. Following is a summary of Financial Information for CALS operations for the years ended 1995 -2000. 1995 1996 1997 1998 1999 2000 Income: Tax Collections $3,935,672 $4,217,299 $4,692,745 $4,867,086 $5,024,762 $5,254,229 State Aid 255,999 275,000 285,000 288,989 361,608 440,037 City /County 9,136 - 429 6 6 0 0 Bond Funds 0 0 0 0 0 655,852 Other Income 239,950 142,889 402,702 268,749 420,645 206,887 Interest/Dividends 58,338 73,456 90,588 78,945 139,534 68,758 Other Transfers 6,000 0 45,000 25,000 0 0 Misc. 0 0 0 0 9,864 0 LSCA Grants 30.467 42,914 192,121 148.841 0 0 Total Income 4.535.56 $4.751.987 55 708 1 s6 $ 41 2 7 } Expenses: Salaries/Benefits $2,695,504 $2,942,364 $3,249,526 $3,444,618 $3,653,425 $3,958,395 Library Materials 708,743 680,721 752,518 722,418 480,827 1,032,290 Operations 761,587 1,007,203 1,066,414 1,231,220 1,292,605 1,865,102 Capital 83,677 84,126 28,877 50,514 20,675 86,604 LSCA /Grant 24,468 5,00 19.300 18.174 0 0 Total Expenses 11Z7 4 1 414 55.116.63 5.466,944 SS 72 56,942 2" DESCRIPTION OF THE CITY OF LITTLE ROCK General. The City is organized under the laws of the State of Arkansas as a city of the first class. It is the State Capitol, the largest city in Arkansas and was chartered in 1835. The City is located in the central part of the State, approximately 135 miles west of Memphis, Tennessee. The City is the geographic, governmental, economic, cultural and financial center of the State of Arkansas. It is nearly equidistant from the four comers of the State and is the county seat of Pulaski County, Arkansas. Within a radius of 500 miles from the center of the City are located 24 metropolitan areas and substantial portions of 17 states containing over a third of the nation's population. Major cities near the City include: St. Louis, 360 miles northeast; Kansas City, 400 miles northwest; Atlanta, 520 miles east; New Orleans, 440 miles south; Oklahoma City, 350 miles northwest; Dallas, 310 miles southwest; and Memphis, 135 miles northeast. 11 313352 -v1 0 • The City is served by U.S. Interstates 30 and 40, U.S. Highways 65, 67, 70 and 167, and State Highways 10, 338, 365 and 367. Union Pacific Railroad Company and Amtrak provide railroad service to the City. The Little Rock National Airport is owned and operated by the Little Rock Municipal Airport Commission, and is served by American Airlines, ComAir, Continental Airlines, Delta Airlines, Northwest Airlines, Southwest Airlines Company, Trans World Airlines and U.S. Airways Express. Governmental Organization. The Issuer operates under the City Manager /City Board form of municipal government. It has a ten member Board of Directors, with seven Directors elected by wards and three Directors elected citywide. The Mayor's position is a citywide elected position and must be elected by at least 40% of the votes cast. If no candidate receives 40% or more of the votes cast, the two mayoral candidates receiving the most votes will face each other in a run -off election. All Directors and the Mayor serve four -year terms. The current members of the City of Little Rock Board of Directors are as follows: Name Jim Dailey, Mayor Brad A. Cazort, Vice Mayor B.J. (Brenda) Wyrick Willie Hinton Barbara Graves D. Dean Kumpuris Joan Adcock Larry Lichty Johnnie Pugh Michael Keck Genevieve Stewart Term Expires Principal Occupation December 31, 2002 Mayor, City of Little Rock December 31, 2004 Attorney at Law December 31, 2002 Area Manager Facility Assignment, Southwestern Bell Telephone Company December 31, 2002 Certified Vocational Teacher, Arkansas School for the Deaf December 31, 2004 Retail store owner, Barbara Graves Ltd. December 31, 2004 Physician, Kumpuris, Davis & Metrailer December 31, 2004 Retired December 31, 2002 Operator, LEL Enterprises December 31, 2002 Retired December 31, 2002 Director of Corporate Relations, St. Vincent Infirmary Medical Center December 31, 2002 The principal executive officers of the City include: City Manager Assistant City Manager Director of Finance City Attorney Teacher, Butterfly Learning Center Cy Carney, III Bruce Moore Robert K. Biles Thomas M. Carpenter The City Manager and the City Attorney are appointed by the Board of Directors. The Director of Finance and Assistant City Manager are employed by the City Manager. The City provides a broad range of municipal services under the auspices of the City Manager, including: Police, Fire, Parks and Recreation, Finance, Personnel, City Clerk, Neighborhoods and Planning, Public Works, General Services, and Information Technology. Boards and commissions have primary responsibility for the operation of the Wastewater Utility, Airport, and Emergency Medical Service. 12 313352 -v1 0 Following are selected indices and financial information for the City of Little Rock: Land Use/Population. Population of the City has grown this century as indicated below: 1900 38,165 1910 45,941 1920 65,142 1930 81,657 1940 88,039 1950 102,310 1960 107,813 1970 144,824 1980 159,024 1990 175,795 2000 183,133 In the late 1970s, Little Rock adopted land use policies designed to encourage the orderly growth and development of the City. The City required that developing areas annex to the City or agree to annex whenever the City desires in order to receive its water and sewer service. These policies contributed to the growth of the City as shown below: 13 313352 -v1 Land Area Year (square miles) Population 1980 88.43 159,024 1983 (Special Census) 89.62 167,331 1985 (Special Census) 102.84 178,134 1990 109.57 175,795 1992 (US Census Bureau Estimate) 110.59 176,870 1996 (Area Planning Commission Estimate) - -- 181,280 1998 (Area Planning Commission Estimate) 119.90 183,951 2000 116.81 183,133 Sources: U.S. Bureau of the Census (Population) Little Rock Department of Neighborhoods and Planning; and City of Little Rock. 13 313352 -v1 Income and Retail Sales. Per capita income and retail sales figures for the Little Rock Metropolitan Statistical Area (MSA) and Pulaski County are as follows: Employment. The civilian labor force in the Little Rock MSA and the United States and its employment have been as follows: Civilian Labor Force Personal Year Retail Sales ($000)0 Per Capita Incomeol Year Little Rock/NLR Pulaski County Pulaski County Little Rock1NLR 1994 $4,599,157 $3,746,040 $23,483 $21,458 1995 5,214,928 3,949,967 24,975 22,601 1996 5,618,366 4,138,789 26,114 23,919 1997 5,789,370 4,060,797 27,336 24,975 1998 5,977,432 4,093,406 29,149 26,445 1999 6,284,308 4,227,620 30,124 27,571 2000 7,937,368 5,566,835 302 1,238 Source: (1) Sales and Marketing Management, Survey of Buying Power; (2) Arkansas Personal 1,148 Income Handbook (July 2001), University of Arkansas at Little Rock, Institute for 1,148 Economic Advancement. 139,368 291 Employment. The civilian labor force in the Little Rock MSA and the United States and its employment have been as follows: Civilian Labor Force 14 313352 -v1 (in thousands) Year LR MSA AR 1990 271 1,126 1991 269 1,116 1992 279 1,154 1993 280 1,166 1994 290 1,208 1995 293 1,220 1996 298 1,231 1997 295 1,212 1998 296 1,215 1999 300 1,229 2000 302 1,238 14 313352 -v1 Number Employed (in thousands) US LR AR US 125,840 256 1,048 118,793 126,346 252 1,033 117,718 128,105 262 1,070 118,492 129,199 266 1,093 120,259 131,056 278 1,143 123,060 132,304 283 1,160 124,900 133,944 286 1,164 126,708 136,297 283 1,148 129,558 137,673 284 1,148 131,463 139,368 291 1,174 133,488 140,863 291 1,183 135,208 14 313352 -v1 0 The annual average unemployment rates for the City and the State since 1988 are as follows: Source: State of Arkansas Employment Security Department. Commercial and Residential Construction and Bank Deposits. The following table shows construction in the City, as reflected by building permits issued, and bank deposits at year end: New Commercial Construction Unemployment Rate Year LR MS A AR Us 1990 5.8 7.0 5.6 1991 6.1 7.4 6.8 1992 6.1 7.3 7.5 1993 4.9 6.2 6.9 1994 4.1 5.3 6.1 1995 3.6 4.9 5.6 1996 3.8 5.4 5.4 1997 3.9 5.3 4.9 1998 4.0 5.5 4.5 1999 3.2 4.9 4.2 2000 3.4 4.4 4.0 Source: State of Arkansas Employment Security Department. Commercial and Residential Construction and Bank Deposits. The following table shows construction in the City, as reflected by building permits issued, and bank deposits at year end: New Commercial Construction New Residential Construction Number of Number of Bank Deposits Year Permits Value Permits value (in thousands) 1991 58 $32,766,266 460 $60,501,445 $3,033,830 1992 119 59,276,386 622 87,749,492 3,182,127 1993 52 30,507,705 750 120,014,496 4,788,712 1994 107 88,711,602 653 112,877,658 3,188,094 1995 84 48,845,453 486 77,814,299 4,446,373 1996 159 119,408,307 496 87,379,145 5,282,203 1997 94 90,761,244 458 115,561,179 3,864,181 1998 84 68,475,000 556 110,179,000 1,981,092 1999 138 100,030,893 555 101,877,483 3,916,946 2000 139 193,487,215 510 101,839,118 2,712,083 Source: City of Little Rock Neighborhoods and Planning Department; Greater Little Rock Chamber of Commerce. 15 313352M C] • Major Employers. The City's economy is comprised of a diverse mix of financial, commercial, industrial, government, health and educational sectors. This diversity helps maintain a relatively stable employment environment in the City. The principal industries, commercial entities and other major employers (excluding governmental entities) within the boundaries of the City and Pulaski County as of December 31, 2000 are as follows: Source: Greater Little Rock Chamber of Commerce. School Enrollment. Public School enrollment in the Little Rock School District, whose boundaries are generally co- extensive with the City limits, has been as follows: School Year Employer 1. Local, State and Federal Government 2. Baptist Health 3. Alitel Corporation 4. Southwestern Bell Telephone 5. St. Vincent hrfirmary Medical Center 6. Arkansas Children's Hospital 7. Dillard Department Stores 8. Union Pacific Railroad 9. Arkansas Blue Cross & Blue Shield 10. Regions Bank Source: Greater Little Rock Chamber of Commerce. School Enrollment. Public School enrollment in the Little Rock School District, whose boundaries are generally co- extensive with the City limits, has been as follows: School Year Number of Product/Service Employees Government 20,000+ Medical Services 5,000 Telecommunications 4,500 Utility (Telephone) 3,000 Medical Services 2,500 Medical Services 2,496 Department Stores 2,029 Transportation (Railroad) 2,000 Insurance 1,600 Finance (Bank) 1,112 Source: Greater Little Rock Chamber of Commerce. School Enrollment. Public School enrollment in the Little Rock School District, whose boundaries are generally co- extensive with the City limits, has been as follows: School Year Enrollment 1993 27,540 1994 27,135 1995 26,926 1996 27,001 1997 27,351 1998 27,371 1999 27,511 2000 27,400 Source: Little Rock School District. 16 313352 -v1 • Higher Education. Little Rock offers educational institutions with instruction in undergraduate, graduate and professional fields. During the Fall 2001 semester, Arkansas public college and universities offered 730 distance learning courses enrolling 8,915 students. The following is a list of colleges and universities located within the Little Rock/North Little Rock MSA (or with relatively short commutes) with approximate on- campus enrollments for the 2001 fall academic semester: Fall 2001 Arkansas Baptist College 235 Philander Smith College 859 University of Arkansas at Little Rock 10,942 University of Arkansas Medical Sciences Campus 1,936 University of Arkansas Bowen School of Law 376 University of Central Arkansas (Conway) 8,486 Central Baptist College (Conway) 358 Hendrix College (Conway) 1,057 Source: Arkansas Department of Higher Education. Medical Facilities. Little Rock hospitals serve patients from throughout Arkansas. Baptist Medical Center, the area's largest hospital, has a 787 -bed capacity. A new Baptist Medical Center North campus has been recently constructed which has a 165 bed capacity. St. Vincent Infirmary Medical Center is a 691 -bed general hospital. The Arkansas Children's Hospital is a 280 -bed facility that administers acute pediatric care to children up to age 21. Doctors Hospital and the adjoining Medical Tower Complex add 296 beds to the total available in Little Rock. The John L. McClellan Memorial Veterans Administration Medical Center, which opened in July 1984, is a 505 -bed, eight -story facility located on the campus of the University of Arkansas Medical Center. The Arkansas Heart Hospital is an 84 -bed facility specializing in cardiac care. University Hospital has a 400 -bed capacity, and the State Psychiatric Hospital is a 345 -bed facility. Southwest Hospital, which opened in 1988, is a 125 -bed acute -care general hospital. Source: Arkansas Department of Health. [Remainder of Page Intentionally Left Blank] 17 313352 -v1 • • City Employees. The City bargains with three organized units: the American Federal, State, County and Municipal Employees ( AFSCME); the International Association of Firefighters (IAFF); and the Fraternal Order of Police (FOP). These organizations represent 77% of the full -time City governmental employees. None of the employees of the City's boards and commissions are organized. As of December 31, 2000, the City employment was as follows: Seasonal and City Government Total Full Time Part Time AFSCME 478 478 IAFF 373 373 FOP 532 532 Non -union 962 733 229 Subtotal 2,345 2,116 229 Commissions Water Works* 201 194 7 Wastewater Utility 191 190 2 Little Rock National Airport 133 125 8 Advertising and Promotion 263 128 135 Port Authority 8 8 0 Ambulance Authority 227 156 71 Central Arkansas Transit Authority 165 151 14 Museum of Science and History 43 23 20 Arkansas Arts Center 79 46 33 Central Arkansas Library System 164 107 57 Subtotal 1,474 1128 347 Total 11&1-2 1244 526 As of July 2001, the City and the City of North Little Rock entered into an interlocal cooperation agreement and formed Central Arkansas Water ( "CAW "). All City employees which were assigned to the Water Works' department became employees of CAW in July 2001. Port of Little Rock. The development of the Arkansas River through the McClellan -Kerr Arkansas River Navigation System has resulted in a 448 -mile navigation channel with 17 locks and dams from the Mississippi River northwest to a point 15 miles east of Tulsa, Oklahoma. The ability to provide low -cost, bulk transportation has created opportunities for industrial development in the area. Little Rock is also the location of Foreign Trade Zone #14. The Zone is located in the Little Rock Port industrial Park and allows imported goods to be stored or processed without payment of customs duty or posting of bond until the goods are moved out of the Zone and into normal domestic commerce. The facility includes an Industrial Harbor which is 4,500 feet long, 320 feet wide and 15 feet deep. The Harbor is surrounded by 312 acres of new industrial sites and provides an additional two miles of water frontage. Source: City of Little Rock, Arkansas Port Authority m 313352 -v1 • 0 Little Rock National Airport. The Little Rock National Airport is located within the City limits and is three miles from downtown. It is served by nine airlines. It has three runways and twelve gates (ten with jetways). In 2000, 2.6 million passengers traveled through this facility. Source: Little Rock National Airport Commission. DEBTSTRUCTURE Authorized and Outstanding General Obligation Debt. The City has one general obligation bond issue the Parity Bonds, and a street and drainage revenue bond outstanding: 1999 Library Improvements and Refunding Bonds (Series B) 1998A Street & Drainage Revenue Bonds 2001 Limited Tax General Obligation Refunding Bonds Total General Obligation Bond Debt Less Amount Available in Debt Service Fund Total Amount of Debt Applicable to Debt Limitation Legal Debt Margin Legal Debt Limit (20% of current assessed valuation of $2,275,961,928 Source: City of Little Rock Director of Finance Amount Outstanding as of Amount Issued December 31, 2001 $9,175,000 $4,500,000 19,000,000 17,745,000 20,635,000 20,635,000 $42,880,000 9.053.995 $ $421 366 381 $45192.386 General Obligation Debt Service. The scheduled consolidated annual debt service requirements for the general obligation debt of the City is as follows: Canital Imurovement Bonds Fiscal Year Endin December 31 Principal Interest Total 2002 6,360,000 1,699,281 8,059,281 2003 6,590,000 1,473,286 8,063,286 2004 6,840,000 1,215,503 8,055,503 2005 5,815,000 959,614 6,774,614 2006 1,380,000 81I,871 2,191,871 2007 1,445,000 748,740 2,193,740 2008 1,510,000 681,776 2,191,776 2009 1,375,000 615,842 1,990,842 2010 930,000 564,233 1,494,233 2011 975,000 521,918 1,496,918 2012 1,020,000 476,580 1,496,580 2013 1,065,000 428,640 1,493,640 2014 1,120,000 376,455 1,496,455 2015 1,175,000 321,575 1,496,575 2016 1,230,000 264,000 1,494,000 2017 1,295,000 202,500 1,497,500 2018 1,360,000 137,750 1,497,750 19 313352 -v1 0 Capital Improvement Bonds Fiscal Year Ending December 31 Principal Interest Total 2019 1,395,000 69,750 1,464,750 Ratio of Debt Service Payments for General Obligation Bonded Debt to Total General Expenditures: Year Principal 1991 $850,00010 1992 1,040,000" 1993 990,00011 1994 1,135,000'1 1995 4,055,000'1 1996 5,990,000'1 1997 7,050,000'1 1998 6,420,000'1 1999 7,705,000P' 2000 4,015,000('1 Interest and Fiscal Cha es $2,409,077° 2,359,676(" 2,297,331(') 2,532,15301 2,113,225111 3,090,68501 2,766,6071'1 2,258,545'1 3,004,142'1 2,240,514(" Total Debt Service $3,259,077 3,399,676 3,287,331 3,667,153 6,168,225 9,080,685 9,816,607 8,678,545 10,709, 149 6,255,574 (1) Excludes 9 -1 -1 Emergency Communications System revenue bonds issued in 1991. NOTE: Total general governmental expenditures include expenditures of the general and street funds. Ratio of General Net Obligation Bonded Debt to Assessed Value and Net bonded Debt Per Capita: Year Population* Assessed Value 1991 Ratio of Debt Service Total General to Total General Expenditures Expenditures $66,324,509 4.9% 72,194,696 4.7% 70,087,421 4.7% 72,034,164 5.1% 78,362,784 7.9% 86,867,214 10.5% 93,035,630 10.5% 94,678,526 9.2% 109,097,712 9.8% 102,317,127 6.1% (1) Excludes 9 -1 -1 Emergency Communications System revenue bonds issued in 1991. NOTE: Total general governmental expenditures include expenditures of the general and street funds. Ratio of General Net Obligation Bonded Debt to Assessed Value and Net bonded Debt Per Capita: Year Population* Assessed Value 1991 $175,818 "' $1,461,233,780 1992 176,870(21 1,515,714,141 1993 176,870(21 1,563,675,108 1994 176,870"' 1,630,053,815 1995 176,8702) 1,756,141,255 1996 181,280( �1 2,004,304,678 1997 181,280 �1 2,036,030,934 1998 183,951(" 2,097,545,721 1999 183,951 "' 2,178,840,160 2000 183,133(2) 2,275,013,986 Net Bonded Debt $24,071,19801 20,831,29801 17,486,06101 28,261,150" 52,701,42101 46,459,570(" 38,888,60501 31,290,64401 48,596,43401 40,126,74301 Ratio of Bonded Debt to Assessed Value 1.65% 1.37% 1.12% 1.73% 3.00% 2.32% 1.91% 1.49% 2.23% 1.76% Net Bonded Debt per Canita (1) Excludes 9 -1 -1 Emergency Communications System revenue bonds issued in 1991. (2) Estimated. (3) Revised Census. 136.91 117.78 98.86 159.78 297.97 256.29 214.52 170.10 264.18 219.11 NOTE: Assessments shown above were made in the year preceding the tax collection year which is indicated above. Net bonded debt excludes the 9 -1 -1 Revenue Bonds. *Sources: 1990 and 1991 U.S. Bureau of the Census 1987, 1988 and 1989 Little Rock Department of Comprehensive Planning estimates. City of Little Rock Finance Department and Pulaski County Tax Assessor. 20 313352 -v1 0 0 Defaults. No general obligation or revenue securities of the City have been in default as to principal or interest payments or in any other material respect at any time in the last 57 years. Invalidity of Tourism Bonds. In the case of Purvis v. City of Little Rock, 282 Ark. 101, 669 S.W.2d 900 (1984), a divided Arkansas Supreme Court held invalid an issue of bonds by the City of Little Rock to finance construction of a privately -owned motel on City property. Four of the seven justices concurred in the result on the basis of that either (1) the Bonds were issued without a required election, or (2) the Bonds were not issued for a proper public purpose. These Bonds were revenue bonds payable solely from lease rentals paid by the user of the motel, and the City was not obligated to use any other funds for payment of debt service. After the Supreme Court decision, the Lessee paid all Bondholders in full and took title to the motel property. No other obligations of the City have been declared invalid or unenforceable in the last 25 years. Overlapping Debt. Property within the City is also chargeable with a portion of the debt of the Little Rock School District, shown as follows as of December 31, 2000: Gross Debt Less Percentage Amount Chargeable Funds Available for Applicable to to Property Within Retirement the City City Little Rock Public School District $184,750,589 100% $184,750,589 Revenue Bonds. The City and its Commissions have issued revenue bonds, which are not general obligations of the City but which are repayable solely from the revenues of the commissions. The amount of these bonds outstanding at December 31, 2001, was as follows: 1993 Waste Disposal Revenue Bonds 1995 Waste Disposal Revenue Bonds 1997 Capital Improvement Revenue Bonds 1998A Parks and Recreation Bonds Sewer Revenue Bonds National Airport Revenue Bonds Advertising and Promotion Commission Bonds Total 313352 -v1 21 $12,780,000 9,930,000 2,260,000 16,045,000 46,505,228 34,950,000 21,165,000 X143.635.228 0 0 The annual requirements to amortize the principal and interest of all bonded indebtedness as of December 31, 2001, are as follows: FINANCIAL INFORMATION Upon request, the City will provide annual audited financial statements and other pertinent credit information relevant to the City's Series 2002 Bonds, including the City's Comprehensive Annual Financial Report, and will provide copies to one or more major information providers in the state and local government securities market. Appropriate credit information necessary for maintaining the rating on the Series 2002 Bonds will be provided by the City to the rating agency rating the Series 2002 Bonds. The City Budget, The three principal sources of revenue for the City's operating budget are sales taxes, utility franchise taxes and state tumback funds. The sales tax is levied by Pulaski County and distributed to the governmental entities on a per capita basis. Tax proceeds have increased steadily since the tax was approved by the voters in 1982, despite a successful lawsuit which required that the County discontinue collection of the Use Tax portion of the Sales and Use Tax in 1986. The Use Tax was reinstated in 1987 and successfully defended against litigation before the Arkansas Supreme Court in 1990. Utility franchise taxes are collected as a percentage of the gross revenues of the utilities doing business in the City of Little Rock: Entergy, Reliant Energy, Central Arkansas Water and Southwestern Bell. State tax tumback (intergovernmental revenues) consists of general revenue and gasoline tax revenues and is distributed to Arkansas municipalities on a per capita basis. [Remainder of Page Intentionally Left Blank.] 22 313352 -vt Discretely Second and Presented Waste Main Street Parks and Component General Disposal Project Recreation Total Unit Year Ending Obligation Revenue Revenue Projects Primary Revenue December 31 Bonds Bond Bonds Bonds Government Bonds 2001 6,189,424 $2,443,468 $238,450 $1,290,345 $10,161,697 $7,015,707 2002 8,059,281 2,439,850 238,200 1,294,113 12,031,444 8,907,850 2003 8,063,286 2,437,295 237,600 1,291,598 12,029,779 9,230,133 2004 8,055,503 2,435,218 241,650 1,292,800 12,025,171 9,216,800 2005 6,744,614 2,433,350 240,000 1,287,720 10,735,684 9,228,269 Thereafter 23.496,630 22,286,611 2,871,250 23.041,816 71,696,307 125.961,697 Total $60- 638.748 $34 475.792 7 1 $29.498.392 $128 680 082 169.560.456 FINANCIAL INFORMATION Upon request, the City will provide annual audited financial statements and other pertinent credit information relevant to the City's Series 2002 Bonds, including the City's Comprehensive Annual Financial Report, and will provide copies to one or more major information providers in the state and local government securities market. Appropriate credit information necessary for maintaining the rating on the Series 2002 Bonds will be provided by the City to the rating agency rating the Series 2002 Bonds. The City Budget, The three principal sources of revenue for the City's operating budget are sales taxes, utility franchise taxes and state tumback funds. The sales tax is levied by Pulaski County and distributed to the governmental entities on a per capita basis. Tax proceeds have increased steadily since the tax was approved by the voters in 1982, despite a successful lawsuit which required that the County discontinue collection of the Use Tax portion of the Sales and Use Tax in 1986. The Use Tax was reinstated in 1987 and successfully defended against litigation before the Arkansas Supreme Court in 1990. Utility franchise taxes are collected as a percentage of the gross revenues of the utilities doing business in the City of Little Rock: Entergy, Reliant Energy, Central Arkansas Water and Southwestern Bell. State tax tumback (intergovernmental revenues) consists of general revenue and gasoline tax revenues and is distributed to Arkansas municipalities on a per capita basis. [Remainder of Page Intentionally Left Blank.] 22 313352 -vt 0 • The following table summarizes City revenues and expenditures for operating funds for the years indicated: City of Little Rock, Arkansas Financial Summary - Operating Funds Actual Actual Actual Actual Actual REVENUE 1996 1997 1998 1999 2000 General Property Taxes $17,681,642 $19,884,342 $20,657,076 $23,871,010 $22,868,735 Sales Taxes 42,411,415 47,504,917 49,202,734 51,702,310 53,336,605 Licenses and Permits 5,920,580 5,721,198 5,763,625 6,181,976 7,431,080 Intergovernmental 22,591,046 17,099,128 21,798,234 17,220,874 14,598,419 Charges for Services 7,831,010 8,456,481 5,648,715 7,403,101 7,450,835 Fines 2,342,056 2,563,059 2,846,202 4,256,702 3,201,807 Utility Franchise Fees 17,247,978 19,107,881 18,683,481 18,559,057 19,069,532 Investment Income 5,541,312 3,774,025 2,822,367 2,987,259 4,960,856 Miscellaneous 6.986,068 4,045,438 3,355,561 5,160,408 7,496.166 Total $128.553,107 $128,156,469 $133,777,995 $137,342,697 $140,414,035 EXPENDITURES General Government $ 37,738,539 $32,520,066 $31,149,130 $35,749,900 $30,803,396 Public Works 14,532,513 13,825,336 15,840,611 16,154,987 17,279,948 Parks and Recreation 12,904,351 14,169,317 6,663,8148 8,838,181 8,476,433 Fire Department 18,158,521 19,148,640 20,648,381 21,442,886 22,368,4952 Police Department 28,817,791 31,992,949 36,087,298 38,445,483 40,619,776 Housing 2,368,654 5,861,504 7,442,561 6,926,609 6,542,668 Education 687,928 473,128 560,919 1,293,843 2,098,839 Administrative and General 947,717 1,300,503 1,391,816 1,204,597 664,426 Capital Outlay 22,013,272 14,465,124 9,412,887 7,658,666 9,471,549 Debt Service: Principal 6,374,658 7,455,000 7,388,333 8,155,000 8,470,000 Debt Service: Interest and fees 3.250,378 2,896,694 2,813,048 3,079,009 3.094,784 Total $147,794,322 $144,108,262 $140,398,798 $148,949,161 $149,890,314 Excess (Deficiency) of $(19.241.215 $t15 951 792J $(9.620.803 $(11.606.4641 $(9.476.2791 Revenues Over Expenditures OTHER FINANCING SOURCES: Transfers In: $17,378,781 $19,055,541 $26,172,913 $18,938,706 $18,037,988 Transfers Out: $(17,378,781) $(18,892,314) $(27,117,740) $(19,946,211) $(20,510,939) Proceeds from Bond Issue 18,527.618 9.944,151 Total other sources: $o $163,227 $17,582,791 $8,936,646 $(2,472,951) Excess (Deficiency) of revenues and other sources $(19,241,215) $(15,788,565) $7,961,988 $(2,669,818) $(11,949,230) over expenditures Fund Balances at Beginning $93,715,231 $74,518,720 $60,046,622(3) $68,008,610 $65,338,792 of Year Increase (Decrease) in reserve 44,704 (18,483) for inventory Residual Equity Transfer (88,554) Fund Balances at End of Year $74.518.720 X58 660.084(31 $68 008 610 U .U8.79 U 389.5 NOTES: (1) The amounts shown above were taken from the Combined Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual in the City's Comprehensive Annual Financial Report for those years. 23 313352 -v1 i • (2) The amounts shown are in accordance with the City's budget basis of accounting, which differs from generally accepted accounting principles (GAAP) basis. The major differences are recognition of revenue when received as opposed to when measurable (GAAP), recognition of payroll, employee benefits, and certain other liabilities on a cash basis as opposed to accrual (GAAP), and recognition of certain transfers between funds. (3) Effective January 1, 1998, the City and certain component units adopted GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, which established fair value standards for certain investments. The effect of this adoption has been reflected as a cumulative restatement to beginning fund equity. Computation of Dollar Amount of Library Tax Levied. The county-wide reassessment of taxable property required by the Arkansas Supreme Court was completed in Pulaski County in 1985. For purposes of Amendment 59, the year in which the reassessment is completed is known as the "Base Year." For a general discussion of the reassessment requirement and its effect on assessed value and the tax rate, see FINANCIAL INFORMATION, Judicial Decision and Constitutional Amendments Affecting Assessments of Taxable Property and Ad Valorem Tax Rate. A county-wide reassessment of taxable property is currently under way. It is expected that the reassessment will be completed in 2002 and will impact taxes levied in 2002 and collected in 2003. In 1996, Pulaski County underwent a comprehensive, county-wide reappraisal of all real and personal property subject to taxation. The conduct of the reappraisal process has been challenged in Pulaski County Circuit Court. See LEGAL MATTERS; Litigation herein for a discussion of pending litigation. The Library Tax is levied at the rate of 1.0 mill. For purposes of this computation it has been assumed that revenues from the collection of the Library Tax will remain constant for so long as any of the Series 2002 Bonds or the Parity Bonds remain outstanding. In connection with this assumption, it is assumed that Debt Service Supplement proceeds collected pursuant to Act 1492 of 1999 will equal the decrease in collections resulting from the Homestead exemption. See Assessment of Property and Collection of Property Taxes, infra. However, if the assessed valuation of the property in the City increases or decreases for any reason, the dollar amount of the Library Tax actually levied will increase or decrease proportionately as will the pro rata portion of the Debt Service Supplement. For purposes of this computation, it has been assumed that the assessed value of all property in the City will remain the same, without increase or decrease. Based on the actual tax charges with adjustments for the increase in assessed value from 1996 to 1997 which is the subject of the above - referenced litigation, at a rate of 1.0 mill, the Library Tax will produce approximately $2,122,348 taxes levied and approximately $2,073,534 in net taxes collected annually, assuming a collection rate of 97.91%. 24 313352 -v1 • • Assessed Valuation. The following table contains the assessed valuation of real, personal and utility property within the City: Year Real Property Personal Property Utility Property Total 1992 $1,065,007,710 $382,274,438 $68,431,993 $1,515,714,141 1993 1,080,121,753 408,820,984 74,732,371 1,563,675,108 1994 1,139,501,994 410,580,233 79,971,588 1,630,053,815 1995 1,226,462,449 446,947,082 82,731,724 1,756,141,255 1996 1,428,541,025 485,978,670 89,784,983 2,004,304,678 1997 1,456,295,246 481,789,958 97,945,730 2,036,030,934 1998 1,484,277,481 504,485,165 108,783,075 2,097,545,721 1999 1,525,806,492 558,481,620 94,552,048 2,178,840,160 2000 1,421,859,903 585,688,215 125,136,915 2,132,685,033 2001 1,564,188,838 585,688,215 225,246 2,150,102,299 Source: Pulaski County Tax Assessor. Collection of Taxes. Tax collections of ad valorem taxes levied by the City are shown in the following table: Year Total Tax Ended Levy Collection of Current Year's Taxes During Current Period Percentage of Levy Collected Prior Years' Collections Total Collections Percentage of Total Collections to Tax Levy 1991 15,759,924 14,524,000 92.16% 883,547 15,407,547 97.76% 1992 16,355,181 15,233,931 93.14% 1,000,166 16,234,097 99.26% 1993 19,104,813 17,294,048 90.52% 1,131,509 18,425,557 96.44% 1994 22,631,799 20,853,606 92.14% 1,386,701 22,240,307 98.27% 1995 22,720,938 21,175,275 93.20% 1,321,567 22,496,841 99.01% 1996 24,475,526 22,461,215 91.77% 1,125,487 23,586,702 96.37% 1997 26,963,108 24,787,129 91.93% 1,534,932 26,322,061 97.62% 1998 27,797,124 25,538,110 91.87% 1,391,375 26,929,485 96.88% 1999 31,692,004 29,654,167 93.57% 1,671,246 31,325,413 98.84% 2000 33,115,417 30,731,289 92.80% 1,938,078 32,669,367 98.65% Note: Property assessments are made, tax rates (rr llages) are established, and taxes are levied in one year for payment by the taxpayer and collection by local governments the following year. Data is not available to show the current level by year of outstanding delinquent taxes. Beginning in 1995, the County Treasurer changed the method of reporting total tax levies. The reporting change inflated the total tax levy approximately 3 %, causing a significant reduction in the collection percentages reflected above. Unaudited. 10 -year average rate of collections: 97.91% Source: Pulaski County Tax Assessor and Collector. 25 313352 -vt 1] • Debt Service Schedule and Coverage. The projected annual principal and interest requirements for the Series 2002 Bonds and the coverage afforded from the Library Tax and the Debt Service Supplement specifically voted for the Series 2002 Bonds are estimated as follows: Debt Service Schedule Maturity Principal Due 2003 $490,000 2004 505,000 2005 520,000 2006 535,000 2007 555,000 2008 575,000 2009 805,000 2010 1,350,000 2011 1,410,000 2012 1,475,000 2013 1,280,000 Coverage Series 2002 Interest Due Total Based on an estimated collection rate of 97.91 %, collection of the Library Tax levied on the taxable property within the City as supplemented by the Debt Service Supplement will provide coverage in excess of annual principal and interest requirements for the Bonds as shown below. (For information concerning the historical rate of tax collection see Collection of Taxes, supra.) Estimated Tax Revenue at 100% collection Average Collection Rate Estimated Available Tax Revenue Maximum Annual Debt Service Year Ending 2010 Coverage Ratio Average Annual Debt Service Coverage Ratio 313352 -v1 $2,122,348.08 x 97.91% $2,073,534.07 $1,611,890.00 1.28 x $1,585,661.00 1.307 x 0 0 Overlapping Ad Valorem Taxes. The ad valorem taxing entities in the State of Arkansas are municipalities, counties, school districts and community college districts. All taxable property located within the boundaries of a taxing entity is subject to taxation by that entity. Thus, property within a municipality is also subject to county ad valorem taxes. Property located within a school district and/or within a community college district is also subject to taxation by that entity or entities. The present rate of ad valorem taxation on taxable property within the City (not including the Library Tax) is 13.10 mills. The ad valorem tax entities whose boundaries overlap the City and their ad valorem taxing rates are: Names of Overlapping Entity* Mills Pulaski County 10.1 Little Rock School District (LRSD) 46.40 Pulaski County Special School District ( PCSSD) 40.6 *Portions of the City are located in LRSD with remainder being part of the PCSSD Assessment of Property and Collection of Property Taxes. Under Amendment No. 59 of the Arkansas Constitution, all property is subject to taxation except for the following exempt categories: (i) public property used exclusively for public purposes; (ii) churches used as such; (iii) cemeteries used exclusively as such; (iv) school buildings and apparatus; (v) libraries and grounds used exclusively for school purposes; (vi) buildings, grounds and materials used exclusively for public charity; and (vii) intangible personal property to the extent the General Assembly has exempted it from taxation, provided that it be taxed at a lower rate, or provided for its taxation on a basis other than ad valorem. Amendment No. 59 also authorizes the General Assembly to exempt from taxation the first $20,000 of value of a homestead of a taxpayer 65 years of age or older. Intangible personal property is exempt from taxation under present law, but the General Assembly has not yet exercised its homestead exemption authority pursuant to Amendment 59; however, Amendment 79 does provide for a general homestead exemption. Amendment No. 59 provides that, except as otherwise provided therein in connection with the transition period following a county-wide reassessment (see Constitutional Amendment No. 59, infra), (1) residential property used solely as the principal place of residence of the owner shall be assessed in accordance with its value as a residence, (2) land (but not improvements thereon) used primarily for agricultural, pasture, timber, residential and commercial purposes shall be assessed upon the basis of its value for such use, and (3) all other real and tangible personal property subject to taxation shall be assessed according to its value (the Arkansas Supreme Court has held that the unqualified word "value," as used in a prior, substantially identical, constitutional provision, means "current market value "). Property owned by public utilities and common carriers and "used or held for use in the operation of the company..." is assessed for tax purposes by the Tax Division of the Arkansas Public Service Commission. Ark. Code Ann. § 26 -26 -1605 (1997 Repl.) provides that the Tax Division "shall assess the property at its true and full market or actual value" and that all utility property of a company, whether located within or without the State of Arkansas, is to be valued as a unit. Annually, the company files a report with the Tax Division. The Tax Division reviews these reports, along with other reports (such as reports to shareholders, the Federal Communications Commission, the Federal Energy Regulatory Commission and the Interstate Commerce Commission), to determine the value of the property. Valuation is currently made on the basis of a formula, as set forth in Ark. Code Ann. § 26 -26 -1607 (1997 Rep1J, with consideration given to (i) original cost less depreciation, replacement cost less depreciation or reconstruction cost less depreciation; (ii) market value of all outstanding capital stock and funded debt; and (iii) capitalization of income. As provided in Ark. Code Ann. § 26 -26 -1611 (1997 Repl.), once the value of a company's property as a unit is determined, the Tax Division removes the value allocable to out -of -state property and assigns the remainder 27 313352 -vt among Arkansas taxing units on the basis of value within each jurisdiction. The Tax Division certifies the assessment to the county assessor who enters the assessment as certified on the county assessment roll. County officials have no authority to change such assessment. See Judicial Decisions and Constitutional Amendments Affecting Assessments of Taxable Property and Ad Valorem Tax Rate, infra. All other property is assessed by the elected assessor of each Arkansas county. This includes both real and tangible personal property. Constitutional Amendment No. 79, effective January 1, 2001, provides for an annual state credit against ad valorem property tax on a homestead in an amount not less than $300. The annual state credit applies beginning for taxes due in calendar year 2001. The tax reduction will be reflected on the tax bill sent to the property owner by the county collector. Amendment No. 79 provides that the credit shall be applied in a manner that would not impair a bondholder's interest in ad valorem debt service revenue. -In addition, Amendment No. 79 provides that the "General Assembly shall, by law, provide for procedures to be followed with respect to adjusting ad valorem taxes or millage pledged for bonded indebtedness purposes, to assure that the tax or millage levied for bonded indebtedness purposes will, at all times, provide a level of income sufficient to meet the current requirements of all principal, interest, paying agent fees, reserves, and other requirements of the bond indenture." Pursuant to Act 1492 of 1999, the taxing units within the county are entitled to reimbursement of the reduction from the annual state credit. On December 14, 2000, the Governor of the State called a special legislative session to head off potential lawsuits challenging Act 1492. As a result, House Bill 1002 was passed by both the House and Senate. It has been signed by the Governor. A lawsuit has been filed challenging the emergency clause of House Bill 1002. Under Act 1492 and House Bill 1002, the state sales tax would increase from 4.625% to 5.125 %. The purpose of the legislation is to raise revenue that the State will send back to taxing entities to replace the money they would lose as a result of the state credit. These revenues have been referred to herein as the Debt Service Supplement. Amendment No. 79 to the Arkansas Constitution requires each county to appraise all market value real estate normally assessed by the county assessor at its full and fair value at a minimum of once every five (5) years. Act 1185 of 1999 provides that one -third (1/3) of the counties shall complete reappraisal in year 2002, one -third (1/3) in year 2003, and one -third (1/3) in year 2004. Amendment No. 79 requires the county assessor (or other official or officials designated by law), after each county-wide reappraisal, to compare the assessed value of each parcel of real property reappraised or reassessed to the prior year's assessed value. If the assessed value of the parcel increased, then the assessed value of that parcel must be adjusted as provided below. If the parcel is not the homestead used as the principal place of residence of a taxpayer, then any increase in the assessed value in the first year after reappraisal cannot be greater, than 10% (or 5% if the parcel is the taxpayer's homestead) of the assessed value for the previous year. For each year thereafter, the assessed value shall increase by an additional 10% (or 5% if the parcel is the taxpayer's homestead) of the assessed value for the year preceding the first assessment resulting from reappraisal; however, the increase cannot exceed the assessed value determined by the reappraisal prior to adjustment under Amendment No. 79. For property owned by public utilities and common carriers, any annual increase in the assessed value cannot exceed more than 10% of the assessed value for the previous year. The provisions limiting the annual increases in assessed value of a homestead used as a principal place of residence resulting from a reappraisal do not apply to newly discovered real property, new construction or substantial improvements to real property. W. 313352 -v1 0 If a homestead is purchased or constructed on or after January 1, 2001 by a disabled person or by a person over age 65, then that parcel will be assessed based on the lower of the assessed value as of the date of purchase (or construction) or a later assessed value. If a person is disabled or is at least 65 years of age and owns a homestead on January 1, 2001, then the homestead will be assessed based on the lower of the assessed value on January 1, 2001, or a later assessed value. When a person becomes disabled or reaches age 65 on or after January 1, 2001, that person's homestead should thereafter be assessed based on the lower of the assessed value on the person's 0' birthday, on the date the person becomes disabled or a later assessed value. These provisions do not apply to substantial improvements to real property. If, however, there was no county -wide reappraisal and resulting assessed value of property between January 1, 1986 and December 1, 2000, then real property in that county is adjusted differently. In that case, the assessor (or other official or officials designated by law) compares the assessed value of each parcel to the assessed value of the parcel for the previous year. If the assessed value of the parcel increases, then the assessed value of the parcel for the year in which the parcel is reappraised or reassessed is adjusted by adding one -third (1/3) of the increase to the assessed value for the year prior to appraisal or reassessment. An additional one -third (1/3) of the increase is added in each of the next two (2) years. These provisions do not apply to assessed property within the City. The adjustment contemplated above does not apply to the property of public utilities or common carriers. No adjustment will be made for newly discovered real property, new construction or substantial improvements to real property. Property is currently assessed in an amount equal to 20% of its value. The percentage could be increased or decreased by the General Assembly. The total of the millage levied by each taxing entity (municipalities, counties, school districts and community college districts) in which the property is located is applied against the assessed value to determine the tax owed. The assessed value of taxable property is revised as of January 1 of each year and the total millage levied in that calendar year is applied against the assessed value as of January I of the calendar year. Tangible personal property, including automobiles, initially acquired after January 1 and before June 1 is required to be assessed in the year of acquisition. Otherwise, only property owned by a taxpayer on January I is assessed for that calendar year. The total taxes levied by all taxing authorities are collected together by the county collector of the county in which the property is located in the calendar year immediately following the year in which levied. Taxes are due and payable between the third Monday in February and October 10. Taxes not paid by October 10 are delinquent and subject to a 10% penalty. Real property as to which taxes are delinquent for two successive years is certified to the State Land Commissioner who offers the property for sale. The proceeds of such sale are distributed among the taxing authorities. If no bid is received for the delinquent real property, it is forfeited to the State, in which event there are no proceeds derived by the taxing authorities. Delinquent real property may be redeemed by the taxpayer within two years of the delinquency. Delinquent personal property taxes may be collected by distraint and public sale of the taxpayer's property. Judicial Decisions and Constitutional Amendments Affecting Assessments of Taxable Property and Ad Valorem Tax Rate. Amendment No. 59. Prior to the adoption of Amendment No. 59 to the Arkansas Constitution, the Constitution mandated that: "All property subject to taxation shall be taxed according to its value, that value to be ascertained in such manner as the General Assembly shall direct, making the same equal 29 313352 -v1 0 0 and uniform throughout the State. No one species of property from which a tax may be collected shall be taxed higher than other species of property of equal value...." In the case of Arkansas Public Service Commission v Pulaski County Board of Equalization, 266 Ark. 64, 582 S.W.2d 942 (June 25, 1979), the Supreme Court of Arkansas held that the then current assessment process, as prescribed by certain legislation and administrative regulations, was in violation of the Constitutional mandate in that (1) it provided for the assessment of certain property on the basis of "use value" as opposed to market value, (2) it did not provide for equal and uniform assessments throughout the State and (3) it provided for assessments based on past, as opposed to current, market values. The Court ordered a statewide reassessment to bring the assessments into conformity with the constitutional requirements. It was provided that the reassessment would be completed over a five -year period, with 15 of the 75 counties in the State to be reassessed each year. The reassessment was accomplished in calendar years 1981 through 1985. Legislative studies indicated that the effect of the Court- ordered reassessment would be to substantially increase assessments in most or all counties of the State, with the result being, if tax rates remained the same, to substantially increase property taxes. The Arkansas General Assembly submitted to the electors of the State a proposed Constitutional amendment designed to prevent the substantial tax increase that would otherwise result from the reassessment. The proposed Amendment was approved at the 1980 General Election and is now Amendment No. 59 to the Arkansas Constitution. Amendment No. 59 provides that whenever a county-wide reassessment results in an increase of assessed value of 10% or more, the tax rate of each taxing unit on property located in that county is to be adjusted as provided in the Amendment. The year in which the reassessment is completed is designated the 'Base Year." The assessed valuation for the Base Year is based on the reassessment. The tax rate of each taxing unit to be applied against the Base Year assessed value is computed separately for (1) property of public utilities and regulated carriers, (2) other real property and (3) other personal property. The tax rate applicable to other real property is computed by (1) deducting from the Base Year assessed value of the real property the assessed value of newly - discovered real property and new construction and improvements to real property to arrive at the reassessed value of previously assessed real property, (2) determining the tax rate necessary to produce from the previously assessed real property (on the basis of the Base Year assessment) the same amount of revenues produced from such property in the Base Year (on the basis of the last previous assessed value and the tax rate applicable to collections in the Base Year), and (3) either (a) fixing the tax rate determined in (2) as the tax rate for the real property, including newly discovered real property and new construction and improvements to real property, or (b) if the tax rate so fixed would produce less than 110% of the revenues from real property produced in the Base Year, increasing the tax rate in an amount sufficient to produce such 110% of revenues. The General Assembly, in Act No. 848 of 1981 (Ark. Code Ann. § 26- 26-401 through 410 (1997 Repl.)), implemented the procedures of Amendment No. 59. Act 848 provides that the computation is to be made separately for each tax source or millage levy, with the new tax rate for each millage levy to be rounded up to the nearest 1 /10 mill. In the case of debt service millage, the tax rate as so adjusted will continue as the continuing annual tax rate until retirement of the bonds to which pledged. The computations described above are made with respect only to the real property (other than property of public utilities and regulated tamers) and the tax rate so determined applies initially only to such real property. In fact, the county-wide reassessments reassessed only such real property. The procedures for assessing the property of public utilities and regulated carriers, and other personal property, remain the same. 30 3(3352 -v1 Amendment No. 59 provides that the tax rate for personal property (other than personal property of public utilities and regulated carriers) is to be adjusted so as to produce the same amount of revenues from personal property in each year as was produced in the Base Year, with the tax rate to be reduced annually as the assessed value of taxable personal property increases until the amount of revenues from personal property taxes, computed on the basis of the then current tax rate applicable to real property, would produce an equal or greater amount of revenues. Thereafter, the millage rate for personal property is the same as the millage rate for real property. For the first five years after the Base Year, the property of public utilities and regulated carriers is treated in a manner similar to other personal property. For such period, the annual taxes paid by each public utility and regulated carrier is required to be in an amount equal to the greater of the following: (1) The taxes paid to the taxing unit in the Base Year, less adjustments for properties disposed of or reductions in assessed value, or (2) An amount equal to the taxes due in that year computed on the basis of the then current assessed value of the property and the tax rate currently applicable to real property. In each of the sixth through ninth years after the Base Year, each public utility and regulated carrier is required to pay taxes as computed under (2) above plus, if the computation under (1) would result in a greater tax liability, a percentage of the difference, as follows: In the sixth year, 80% of the difference; in the seventh year, 60% of the difference; in the eighth year, 40% of the difference; in the ninth year, 20% of the difference. In and after the tenth year after the Base Year, or in and after such earlier year as the taxes of such utility or carrier computed under (2) above equals or exceeds its taxes computed under (1) above, the tax rate for such utility or carrier will be the same as the tax rate on real property. The tax rates for personal property and the property of public utilities and regulated carriers were equalized with the tax rate on real property in the City in 1991 for taxes levied in that year and to be collected in 1992. In implementation of Amendment No. 59, Ark, Code Ann. §26- 26- 402(a)(6) (1997 repl.) provides that if the provisions in the Amendment and the Act relating to the taxing of public utilities and regulated carriers, or any class thereof, are held to be contrary to the Constitution or statutes of the United States or of the State of Arkansas, all utilities and all classes of carriers shall receive the same treatment provided or required under the Court Order for a particular type of carrier or utility "if deemed necessary to promote equity between similar utilities or class of carriers." Certain regulated carriers (railroads) have successfully challenged Amendment No. 59, as applied to them, as contrary to federal statutes. The effect of a successful challenge by the railroads on utilities and on other classes of carriers cannot be predicted at this time. Amendment No. 59 contains the following specific provision in regard to debt service millage "The General Assembly shall, by law, provide for procedures to be followed with respect to adjusting ad valorem taxes or millage pledged for bonded indebtedness purposes, to assure that the adjusted or rolled -back rate of tax or millage levied for bonded indebtedness purposes will, at all times, provide a level of income sufficient to meet the current requirements of all principal, interest, Paying Agent's fees, reserves, and other requirements of the bond indenture." 31 313352 -vi • • Ark. Code Ann. §26- 26- 402(b) (1997 Repl.) provides: "If it is determined that the adjustment or rollback of millages as provided for [herein] will render income from millages pledged to secure any bonded indebtedness insufficient to meet the current requirements of all principal, interest, paying agents' fees, reserves, and other requirements of a bond indenture, any such pledged millage shall be rolled back or adjusted only to a level which will produce at least a level of income sufficient to meet the current requirements of all principal, interest, paying agents' fees, reserves, and other requirements of the bond indenture." Amendment No. 71. In November 1992, Arkansas electors approved Amendment 71 to the Constitution of the State of Arkansas which exempts items of household furniture and furnishings, clothing, appliances, and other personal property used within the home, if not held for sale, rental, or other commercial or professional use, from all ad valorem taxes levied by any city, county, school district, or other taxing unit in the state. Omega Tube & Conduit Corp. On April 5, 1993, the Arkansas Supreme Court in Omega Tube & Conduit Corp v Ed Maples Pulaski County Tax Collector and B A Mchttosh Pulaski County Assessor, 312 Ark. 489, 850 S.W.2d 317 (1993), and in a supplemental opinion in the same case at 313 Ark. 499A, 850 S.W.2d 822, 1993 Ark. Lexis 300 (1993), decided that pursuant to Ark. Code Ann. §26 -26 -1102, raw materials shipped to Arkansas for inclusion in tangible personal property manufactured, processed, or refined within the state for shipment outside the state does not attain a tax situs in Arkansas and is thus not subject to ad valorem taxation. Amendment No. 79. At the 2000 general election, Constitutional Amendment No. 79 was adopted by a majority of the voters and went into effect on January 1, 2001. Among other things, Amendment No. 79 allows for an annual state credit against ad valorem property tax on a homestead in the amount of not less than $300. The annual state credit applies beginning for taxes due in calendar year 2001. The credit must not be applied in a manner that would impair a bondholder's interest in ad valorem debt service revenues. Amendment No. 79 provides that the tax rate for personal property and property of public utilities and regulated carriers should be the same as that for real property. Personal property rates currently not equal to real property rates should be reduced to the level of the real property rate unless a higher rate is "necessary to provide a level of income sufficient to meet the current requirements of all principal, interest, paying agent fees, reserves, and other requirements" of a bond issue. Miscellaneous. If the assessed value of all classes of taxable property located in the City remains at the same level, without increase or decrease, and the total tax rates applicable to all taxable property in the City remain constant, the annual revenues derived from taxable property will be the same in each year. This would be true of annual revenues available for debt service on the Bonds, as well as other annual revenues of the City (subject in the case of such other revenues to adjustments in the tax rate). In recent years, initiatives which would reduce or abolish property taxes collected pursuant to the Arkansas Constitution have been approved for submission to the voters of Arkansas; however, to date, no initiatives have been approved for submission to the voters at the next general election. LEGAL MATTERS Legal Opinion. Issuance of the Series 2002 Bonds is subject to the unqualified approving opinion of Wright, Lindsey & Jennings LLP, Little Rock, Arkansas, Bond Counsel, in substantially the, form attached hereto as Exhibit A. 32 313352 -v1 0 0 The Internal Revenue Code of 1986, as amended (the "Code "), imposes a number of requirements that must be satisfied in order for interest on state or local obligations, such as the Series 2002 Bonds, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of bond proceeds, limitations on the investment of bond proceeds prior to expenditure, a requirement that excess earnings on the investment of bond proceeds be paid periodically to the United States of America and a requirement that the City file an information report with the Internal Revenue Service. The opinion of Bond Counsel will assume continuing compliance with the covenants of the City pertaining to those sections of the Code which affect the exclusion from gross income of interest on the Series 2002 Bonds for federal income tax purposes and, in addition, will rely on representations by the City with respect to matters solely within its knowledge which Bond counsel has not independently verified. If the City should fail to comply with the covenants or if the foregoing representations should be determined to be inaccurate or incomplete, interest on the Series 2002 Bonds could become taxable from the date of delivery thereof, regardless of the date on which the event causing such taxability occurs. The Code imposes a 20% alternative minimum tax on the "alternative minimum taxable income" of a corporation (other than an "S" corporation, a regulated investment company, a REIT, or a REMIC), if the amount of such alternative minimum tax is greater than the amount of the corporation's regular income tax. The "Superfund Revenue Act of 1986" also imposes an additional .12% "environmental tax" on the alternative minimum taxable income of a corporation in excess of $2,000,000. Generally, for taxable years after 1989, a corporation's alternative minimum taxable income will include its "adjusted current earnings." Because interest on obligations the interest on which is excludable from gross income for federal income tax purposes, such as the Series 2002 Bonds, is included in a corporation's "adjusted current earnings," ownership of the Series 2002 Bonds could subject a corporation to alternative minimum tax consequences. Except as stated in Exhibit A, Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt of interest on or disposition of the Series 2002 Bonds. Prospective purchasers of the Series 2002 Bonds should be aware that (i) with respect to insurance companies subject to the tax imposed by Section 831 of the Code, for taxable years beginning after December 31, 1986, Section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15% of the sum of certain items, including interest on the Series 2002 Bonds, (ii) for taxable years beginning after December 31, 1986, interest on the Series 2002 Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by Section 884 of the Code, (iii) passive investment income including interest on the Series 2002 Bonds, may be subject to federal income taxation under Section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income and (iv) Section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account in determining gross income, receipts or accruals of interest on the Series 2002 Bonds. Non - Litigation Certificate. Upon delivery of the Series 2002 Bonds the City will furnish a certificate to the effect that no litigation, except for that described in the Official Statement, is then pending which would materially affect the validity of or security for the Series 2002 Bonds. On December 28, 1998, an Order was entered in a case styled Nora Harris Individually v Pulaski County Jul Floyd Villines, et al., Pulaski County Circuit Court No. CV 97 -8317, which could be interpreted as having enjoined Pulaski County, Arkansas from assessing and collecting any property taxes based upon the results of a countywide reappraisal conducted in 1996. The Order was subsequently stayed by a second order entered January 11, 1999, pending an appeal of the case by the Defendants. In the second Order the 33 313352 -v1 0 0 Defendants were also directed to escrow the sum of $814.29, which represented the difference between the amount of the plaintiffs 1997 and 1998 taxes and her 1996 taxes. The Petitioner also sought relief in the form of certification as a class representative of all similarly affected taxpayers in Pulaski County and damages based upon the defective reassessment. The County filed its Notice of Appeal to the Arkansas Supreme Court on January 6, 1999 with respect to the injunction preventing the assessing or collecting of any real property tax as a result of or based upon the 1996 county-wide reappraisal. The injunction was reversed, and the case was remanded to the Circuit Court for further action. On January 3, 2002, the Court entered its Order certifying Petitioner as a class representative and defined the class as persons who owned property in 1996 who experienced an increase in assessed value in 1997 as a result of the 1996 appraisal. No further action has occurred since the filing of the referenced order. In a separate proceeding before the County Court of Pulaski County styled Herbert Harris and Nora Harris v Pulaski County Board of Equalization, Case No. 4410140006000, a special county judge found that the Defendant and the Pulaski County Judge failed to follow the proper statutory procedure for engaging professional appraisers employed in connection with the 1996 county-wide reappraisal and that, as a result, the Plaintiff s constitutional rights to due process had been violated. On March 19, 1999, the County Court granted the Defendant's application seeking appeal to Pulaski County Circuit Court where the matter is now pending as Pulaski County Circuit Court Case No. 99 -77. Neither the City nor CALS is a party to either of the above described actions. Although the City and CALS are unable to accurately predict the impact of an adverse ruling in this case, the City and CALS do not believe that an adverse decision, if any, will materially adversely affect the availability of proceeds from the Library Tax or Debt Service Supplement to meet the obligations on the Series 2002 Bonds. ENFORCEABILITY OF REMEDIES Rights of the registered owners of the Series 2002 Bonds and the enforceability of the remedies available under the Authorizing Ordinance may depend on judicial action and may be subject to the valid exercise of the constitutional powers of the United States of America and of the sovereign police powers of the State of Arkansas or other governmental units having jurisdiction, and to the application of federal bankruptcy laws or other debtor relief or moratorium laws in general. Therefore, enforcement of those remedies may be delayed or limited, or the remedies may be modified or unavailable, subject to the exercise of judicial discretion in accordance with general principles of equity. Bond counsel expresses no opinion as to any effect upon any right, title, interest or relationship created by or arising under the Authorizing Ordinance resulting from the application of state or federal bankruptcy, insolvency, reorganization, moratorium or similar debtor relief laws affecting creditors' rights which are presently or may from time to time be in effect. UNDERWRITING Under a Bond Purchase Agreement (the "Agreement ") entered into by and between the City and Stephens Inc. as Underwriters (collectively the "Underwriter "), the Series 2002 Bonds are being purchased for $_ (which represents the par amount of the Bonds less an Underwriter's discount of $ . The Agreement provides that the Underwriter will purchase all of the Series 2002 Bonds if any are purchased. The obligations of the Underwriter to accept delivery of the Series 2002 Bonds is subject to various conditions contained in the Agreement, including the absence of pending or threatened litigation questioning the validity of the Series 2002 Bonds or any proceedings in connection with the issuance thereof, and the absence of material adverse changes in the financial or business condition of the City. The Underwriter intends to offer the Series 2002 Bonds to the public initially at the offering prices set forth on the cover page of this Official Statement, which prices may subsequently change without any 34 313352 -v1 0 requirement of prior notice. The Underwriter reserves the right to join with dealers and other underwriters in offering the Series 2002 Bonds to the public. The Underwriter may offer and sell Series 2002 Bonds to certain dealers at prices lower than the public offering price. BOND RATING The Bonds are rated "AA-" by Standard and Poor's. Standard and Poor's has placed these Bonds and the Parity Bonds on Credit Watch with negative implications. The rating agency states that it will act to resolve the ratings on Credit Watch upon receipt of the City's audited financial statements for 2001. The rating reflects only the view of the rating agency. Any explanation of the significance of the rating may be obtained only from the rating agency. The City furnished to the rating agency certain information and materials, some of which have been included in this Preliminary Official Statement, relating to the Series 2002 Bonds and the City. Generally, rating agencies base their ratings on such information and materials and investigation, studies and assumptions by the rating agencies. There can be no assurance that a rating when assigned will continue for any given period of time or that it will not be lowered or withdrawn entirely by a rating agency if in its judgment circumstances so warrant. Any such downward change in or withdrawal of the rating may have an adverse effect on the secondary market price of the Bonds. CONTINUING DISCLOSURE CERTIFICATE Purpose of the Continuing Disclosure Certificate. The Continuing Disclosure Certificate describes the City's continuing obligation to provide certain financial and other information with respect to the Bonds, and is for the benefit of the Beneficial Owners of the Bonds. Provision of Annual Financial Information and Operating Data. The City has agreed to provide within one hundred eighty (180) days after the end of the City's fiscal year, its Comprehensive Annual Financial Report ( "CAFR "). The CAFR will include, among other things, the information contained under DESCRIPTION OF THE CITY, Assessed Valuation, DEBT STRUCTURE and FINANCIAL INFORMATION. The City will also provide its audit within sixty (60) days after the audit has been completed and received by the City. The audit will be prepared in accordance with generally accepted auditing standards. Additionally, the City will provide timely notice of the occurrence of material events relating to the Bonds as hereinafter described. The City has agreed to provide this information in an effort to comply with Rule 15c2 -12 of the Securities and Exchange Commission (the "Rule "). Any or all of the foregoing information may be incorporated by reference from other documents, including official statements of debt issues with respect to the City that have been filed with any Nationally Recognized Municipal Securities Information Repository or the Securities and Exchange Commission, and in the case of a final official statement, that is available from the Municipal Securities Rulemaking Board ( "MSRB "). Notice of Material Events. The City agrees that it will furnish to the MSRB and each State Repository ( "SID "), if any, as promptly as practicable notice of any of the following events with respect to the Bonds: (1) Any principal or interest payment delinquency; (2) Any nonpayment related default under the Resolution; (3) Any unscheduled draws on debt service reserves reflecting financial difficulties; (4) Any unscheduled draws on credit enhancements reflecting financial difficulties; 35 313352 -v1 9 0 (5) Any substitution of credit or liquidity providers, or their failure to perform; (6) Any adverse tax opinion or event affecting the tax - exempt status of the Bonds; (7) Any modifications to rights of the owners of the Bonds: (8) Any call of the Bonds for redemption, in whole or in part; (9) Any defeasance of the Bonds, in whole or in part; (10) Any release, substitution, or sale of property securing repayment of the securities; and (11) Any rating changes. The City further agrees that it will furnish to the MSRB and also to the SID, if any, as promptly as practicable, notice of any failure of the City to provide the annual financial information or operating data required hereunder on or before the date specified, City to Disseminate Information and Notices. The City agrees to disseminate the CAFR and the audit to each NRMSIR and to the SID, if any, and to disseminate any notice of a material event specified above to the SID, if any, and to the MSRB. Amendment; Waiver. Notwithstanding any other provision of the Continuing Disclosure Certificate, the City may amend the Continuing Disclosure Certificate, and any provision of the Continuing Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(A), 4, or 5(A) of the Continuing Disclosure Certificate, it may only be made in connection with a change in circumstances that arises from a change in the identify, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the owners of the Bonds in the same manner as provided in the Resolution for amendments to the Resolution with the consent of owners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the owners or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of the Continuing Disclosure Certificate, the City shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(B), and (ii) the Annual Report for the year in which the change is made should be present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. 36 313352 -v1 0 0 Additional Information. Nothing in the Continuing Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in the Continuing Disclosure Certificate or any other means of communication, or including any other information in any report or notice made hereunder, in addition to that which is required by the Continuing Disclosure Certificate. If the City chooses to include any information in any report or notice made hereunder in addition to that which is specifically required by the Continuing Disclosure Certificate, the City shall have no obligation under the Continuing Disclosure Certificate to update such information or include it in any future report or notice. Noncompliance. In the event of a failure of the City to comply with any provision of the Continuing Disclosure Certificate, any owner may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the City to comply with its obligations under the continuing Disclosure Certificate. Noncompliance with the Continuing Disclosure Certificate shall not be deemed an Event of Default under the Resolution, and the sole remedy under the Disclosure Agreement in the event of any failure of the City to comply with the Continuing Disclosure Certificate shall be an action to compel performance. MISCELLANEOUS Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or owners of any of the Series 2002 Bonds. The execution of this Official Statement has been duly authorized by the City. CITY OF LITTLE ROCK, ARKANSAS By: /s/ Robert Bites Robert Biles, Director of Finance Dated: As of the Cover Page hereof. 37 313352 -v1 9 0 APPENDIX "A" Form of Bond Counsel's Opinion Re: $9,500,000 City of Little Rock, Arkansas Library Improvement Bonds, Series 2002 Ladies and Gentlemen: We have acted as Bond Counsel in connection with the issuance by the City of Little Rock, Arkansas (the "City") of $9,500,000 City of Little Rock, Arkansas Library Improvement Bonds, Series 2002, dated March 1, 2002 (the "Series 2002 Bonds "). The Series 2002 Bonds are being issued to finance the cost of acquiring, constructing and equipping capital improvements to the public city library operated by the City and the Central Arkansas Library System ( "Improvements "). The Series 2002 Bonds, in an amount not to exceed $19,500,000, were authorized by the electors of the City at the general election held on November 3, 1998. We have examined the law and such certified proceedings and other papers as we deem necessary to render this opinion, including, particularly a certified copy of Ordinance No. 18,085 of the City adopted and approved on August 3, 1999 as supplemented and amended by Ordinance No. _ adopted and approved on , 2002, authorizing the issuance of the Series 2002 Bonds (the "Authorizing Ordinance "). As to questions of fact material to our opinion we have relied upon the certified proceedings and other certifications of public officials furnished to us without undertaking to verify such facts by independent investigation. Based on our examination, we are of the opinion, as of the date hereof and under existing law, as follows: 1. The Series 2002 Bonds have been lawfully authorized and issued under the Constitution and laws of the State of Arkansas now in force, including particularly Amendment No. 30, as amended by Amendment No. 72 to the Constitution of the State of Arkansas and Arkansas Code Annotated § 14 -142- 201, et seq. (Act 920 of the Acts of Arkansas of 1993), and are valid and binding limited obligations of the City enforceable in accordance with their terms. 2. The Series 2002 Bonds are payable from a tax of 1.0 mill for each dollar of the assessed valuation of the taxable real and personal property in the City (the "Library Ta)C) which was approved by the electors of the City at the general election on November 3, 1998, The City first levied the Library Tax at the rate of 1.0 mill (.001) for collection in 1999 and continuously in each year thereafter, the collection of which will be available to pay debt service on the Series 2002 Bonds. The City has covenanted that the Library Tax will be levied and collected annually and that it and the Debt Service Supplement will be pledged as security for the Series 2002 Bonds and the Parity Bonds until all of the outstanding Series 2002 Bonds and any parity bonds together with interest thereon and related costs and fees have been paid in full. The Series 2002 Bonds will be limited tax obligations of the City, payable solely from proceeds of the Library Tax and the pro rata portion of the proceeds of a statewide .5% Sales and Use Tax implemented pursuant to Act 1492 of 1999 (the `Debt Service Supplement "). 3. The interest on the Series 2002 Bonds (a) is excluded from gross income for federal income tax purposes, (b) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, it should be noted that with respect to corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on such corporations. The opinion set forth in clause (a) above is subject to the condition that the Issuer comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code "), that must be satisfied subsequent to the 313352 -v1 • • issuance of the Series 2002 Bonds in order that interest thereon be (or continue to be) excluded from gross income for federal income tax purposes. Failure to comply with certain of such requirements could cause the interest on the Series 2002 Bonds to be so included in gross income retroactive to the date of issuance of the Series 2002 Bonds. The City has covenanted in the Authorizing Ordinance to comply with all such requirements. We express no opinion regarding other federal tax consequences arising with respect to the Series 2002 Bonds except as set forth in paragraph 4 below. 4. Interest on the Series 2002 Bonds is exempt from State of Arkansas income taxes and the Series 2002 Bonds are not subject to property taxes in the State of Arkansas. It is understood that the rights of the registered owners of the Series 2002 Bonds and the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors heretofore or hereafter enacted and that their enforcement may be subject to the exercise of judicial discretion in accordance with general principles of equity. Certain requirements and procedures contained or referred to in the Authorizing Ordinance and other relevant documents may be changed and certain actions may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with an approving opinion of nationally recognized bond counsel. No opinion is expressed herein as to any Bond or the interest thereon on or after such change that occurs or action that is taken or omitted upon the advice or approval of counsel other than ourselves. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions. Such opinions may be affected by actions taken or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or occur. Sincerely, WRIGHT, LINDSEY & JENNINGS LLP 2 313352 -v1 0 • APPENDIX "B" Summary of the Master Indenture The following, in addition to certain other information contained under the caption "The Bonds" herein, summarizes certain provisions of the Master Indenture, to which document in its entirety reference is made for the detailed provisions thereof. Capitalized terms not defined herein shall have the definition set forth in the Master Indenture. General Provisions for the Issuance of Bonds Whenever the City shall determine to issue any Series of Bonds or Bond Anticipation Notes, the City shall approve and execute a Supplemental Indenture that shall specify, among other things, the following: (1) The purpose for which such Series of Bonds or Bond Anticipation Notes is to be issued, which shall be, in the case of Bonds, for the purpose of (a) paying all or a portion of the Cost of Construction of a Project, Principal, Redemption Price, and interest on Bond Anticipation Notes, or any combination thereof; or (b) refunding of all or a part of the Bonds outstanding of one or more Series or all or part of any other borrowing of the City payable in whole or in part from the Library Tax, including in each case the payment of all expenses in connection with such refunding; and in the case of Bond Anticipation Notes, for the purpose of paying or providing for the payment of all or a portion of the Cost of Construction of a Project, the refunding of Bond Anticipation Notes, or a combination of such purposes. (2) Any Debt Service Reserve Requirement for such Series of Bonds and the amount, if any, to be deposited from the proceeds of such Series of Bonds into any Series Subaccount in the Debt Service Reserve Account established for such Series of Bonds. Special Provisions for the Issuance of Construction Bonds One or more Series of Construction Bonds may be issued in such Principal amount as may be determined by the City for the purpose of paying all or a portion of the Cost of Construction of a Project, Principal, Redemption Price, and interest on Bond Anticipation Notes, or any combination of these purposes. Each Series shall be in such Principal amount which, when taken together with other funds legally available for such Project, will provide the City with sufficient funds to pay the estimated Cost of Construction of such Project. Each Supplemental Indenture authorizing the issuance of a Series of Construction Bonds: (1) Shall specify the Project for which the proceeds of such Series of Construction Bonds will be applied; and (2) May require the City to deposit, or cause CALS to deposit, a specified amount of money from the proceeds of the sale of such Series of Construction Bonds or from other legally available sources into the applicable Project Account capitalized interest to the Estimated Completion Date plus up to one Year thereafter. Each Series of Construction Bonds and any Bond Anticipation Notes shall be authenticated and delivered by the Trustee only upon receipt by the Trustee of a written certificate of the City setting forth the Estimated Completion Date and estimated cost of construction, a certificate of the City that there is no default under the Master Indenture, and one of the following: 313352 -v1 (a) An Accountant's Certificate (i) setting forth for any Year within the 24 calendar months next preceding the authentication and delivery of such Series of Bonds, the proceeds of the Library Tax for such period, and (ii) showing that such proceeds of the Library Tax for such Year, together with any Other Available Funds, would not be less than the Rate Covenant Requirement (for each Fiscal Year to and including the Fiscal Year in which occurs the latest maturity of such Series of Construction Bonds) with respect to all Bonds to be Outstanding at any time during the Year next following the issuance of the proposed Series of Bonds and to the Repayment Obligations to be outstanding at any time during the Year next following the issuance of the proposed Series of Bonds; or (b)(1) A Library Consultant's Certificate setting forth the estimated proceeds of the Library Tax (assuming the completion of the Project on its then Estimated Completion Date) for whichever of the following periods shall extend until the latest date: (A) If the Supplemental Indenture authorizing the Series of Bonds being issued requires that interest on the Series of Bonds be capitalized until a certain date, for each of the three Fiscal Years succeeding such date, or (B) If the Supplemental Indenture authorizing the Series of Bonds being issued does not require that interest on the Series of Bonds be capitalized, for the then current Fiscal Year and each succeeding Fiscal Year to and including the fifth Fiscal Year succeeding the date of issuance of such Series of Bonds; and (2) A Written Certificate of the City showing the Aggregate Debt Service for each of the Fiscal Years set forth in the Library Consultant's Certificate delivered pursuant to (b)(1) above and showing that the proceeds of the Library Tax as shown in such Library Consultant's Certificate for each of such Fiscal Years, together with any Other Available Funds, are not less than the Rate Covenant Requirement for each of such Fiscal Years with respect to all Series of Bonds to be outstanding after the issuance of the proposed Series of Construction Bonds and to the Repayment Obligations to be outstanding after the issuance of the proposed Series of Construction Bonds. Notwithstanding any other provision of the Master Indenture, the provisions described above shall not apply: (1) to any Series of Construction Bonds all of the proceeds of which are to be applied to pay the Cost of Construction of a Project necessary, as expressed in a Library Consultant's Certificate delivered to the Trustee, to comply with requirements of any governmental agency having jurisdiction over the Library; (2) to any Series of Bonds, the aggregate Principal amount of which, together with the aggregate Principal amount of all other Outstanding Bonds issued pursuant to this paragraph (2) during any Fiscal Year, does not exceed 10% of the Library Tax proceeds for the most recent Fiscal Year prior to the issuance of such Series of Bonds for which audited financial statements are available, as expressed in writing by the City; provided that the Trustee shall have received a Written Certificate of the City showing that the estimated Library Tax proceeds for the next succeeding Fiscal Year, together with any Other Available Funds, are not less than the Rate Covenant Requirement for such Fiscal Year with respect to all Series of Bonds to be Outstanding at any time during such Fiscal Year and to the Repayment Obligations to be outstanding at any time during such Fiscal Year; or 2 313352 -v1 0 • (3) to any Series of Bonds issued to pay the Cost of Construction necessary to complete any Project for which Construction Bonds have previously been issued, provided that the Trustee shall have received: (a) A Written Certificate of the City stating that the nature and purpose of such Project has not materially changed; and (b) A Written Certificate of the City to the effect that (i) all of the proceeds (including investment earnings) of Construction Bonds (or Bond Anticipation Obligations) previously issued to finance such Project have been or will be used to pay Costs of Construction of the Project, (ii) the then estimated Costs of Construction of the Project as contained in the Written Certificate of the City delivered pursuant to the Master Indenture exceeds the sum of the Costs of Construction already paid plus moneys available in the Project Account established for the Project (including unspent proceeds of Bonds previously issued for such purpose) plus other legally available moneys in the Revenue Fund, (iii) the issuance of such Series of Bonds is necessary to provide funds to pay Costs of Construction necessary for the Project, and (iv) the Principal amount of such Series of Bonds does not exceed 10% of the Principal amount of all Construction Bonds previously issued to finance such Project. Special Provisions for the Issuance of Refunding Bonds One or more Series of Refunding Bonds may be issued to accomplish the refunding of all or a part of the Outstanding Bonds of one or more Series or all or part of any other borrowing of the City payable in whole or in part from the proceeds of the Library Tax, including in each case the payment of all expenses in connection with such refunding. As used herein, the term "Refunded Debt" shall refer to such Bonds or other debt to be so refunded. Each Supplemental Indenture authorizing the issuance of a Series of Refunding Bonds shall specify the "Refunded Debt." Each Series of Refunding Bonds shall be authenticated and delivered by the Trustee only upon receipt by the Trustee of a certificate of the City stating that the issuance complies with the Master Indenture and one of the following: (a) A Written Certificate of the City setting forth the Aggregate Debt Service for each Fiscal Year to and including the Fiscal Year in which occurs the latest maturity of the Refunded Debt to be refunded or such Series of Refunding Bonds, whichever is later, (i) with respect to the Refunded Debt to be refunded and (ii) with respect to the Series of Refunding Bonds to be authenticated and delivered, and stating that the maximum amount of Aggregate Debt Service for any Fiscal Year set forth pursuant to clause (ii) of this paragraph (a) is no greater than the maximum amount of Aggregate Debt Service for any Fiscal Year set forth pursuant to clause (i) of this paragraph (a); or (b) An Accountant's Certificate (i) setting forth for any Year within the 24 calendar months next preceding the authentication and delivery of such Series of Bonds, the proceeds of the Library Tax for such period, and (ii) showing that such proceeds of the Library Tax for such Year, together with Other Available Funds, would not be less than the Rate Covenant Requirement (for each Fiscal Year to and including the Fiscal Year in which occurs the latest maturity of such Series of Refunding Bonds) with respect to all Bonds to be Outstanding at any time during the Year next following the issuance of the proposed Series of Bonds and to the Repayment Obligations to be 313352 -v1 outstanding at any time during the Year next following the issuance of the proposed Series of Bonds. Conditions for Issuance of Bond Anticipation Notes One or more Series of Bond Anticipation Notes, payable on a parity with all Outstanding Bonds (except as described in the paragraph below), may be issued in such Principal amount as may be determined by the City for the purpose of paying or providing for the payment of all or a portion of the Cost of Construction of a Project, or the refunding of Bond Anticipation Notes, or a combination of such purposes. Each such Series shall be in such Principal amount which, when taken together with funds previously used or to be provided by the City or CALS for such Project, will provide the City with sufficient funds to pay the estimated Cost of Construction of such Project. In the Master Indenture the City covenants to apply so much of the proceeds of the Bonds in anticipation of which such Bond Anticipation Notes have been issued as shall be necessary to provide for the payment of all Principal Installments on such Bond Anticipation Notes. If so provided in the Supplemental Indenture providing for the issuance of any Series of Bond Anticipation Notes, the payment of the Principal Installments on such Bond Anticipation Notes shall be subject to the prior lien and charge created in the Master Indenture for the payment of the Bonds out of the Principal and Interest Fund. No Bond Anticipation Notes shall mature later than five years from its date, including all refundings thereof by Bond Anticipation Notes. As of the date of issuance of any Series of Bond Anticipation Notes, the aggregate Principal amount of all outstanding Bond Anticipation Notes (including such Series) shall never exceed the Principal amount of a hypothetical Series of Bonds which could be issued by the City on such date in compliance with the provisions of the Master Indenture relating to required Library Tax Proceeds or estimated Library Tax Proceeds for the issuance of a Series of Construction Bonds (see the caption "Summary of the Master Indenture — Special Provisions for the Issuance of Construction Bonds" herein), having an assumed final maturity of 30 years, bearing an assumed rate of interest equal to the highest rate then borne by any Outstanding Bond Anticipation Notes, and having Debt Service due in each Fiscal Year in approximately equal amounts; provided that if no Series of Bond Anticipation Notes are then Outstanding under the Master Indenture, the interest rate used for purposes of this calculation shall be the interest rate bome by the Series of Bond Anticipation Notes to be issued. Provisions Regarding Bonds Secured by a Security Instrument The City may include such provisions in a Supplemental Indenture authorizing the issuance of a Series of Bonds secured by a Security Instrument as the City deems appropriate, including: (1) So long as the Security Instrument is in full force and effect and payment on the Security Instrument is not in default, (a) the Security Instrument Issuer shall be deemed to be the Holder of the Outstanding Bonds of such Series when the approval, consent, or action of the Bondholders for such Series of Bonds is required or may be exercised under the Master Indenture and following an Event of Default and (b) the Master Indenture may not be amended in any manner which affects the rights of such Security Instrument Issuer without its prior written consent. (2) In the event that the Principal and Redemption Price, if applicable, and interest due on any Series of Bonds Outstanding shall be paid under the provisions of a Security Instrument, all covenants, agreements, and other obligations of the City to the Bondholders of such Series of Bonds shall continue to exist and such Security Instrument Issuer shall be subrogated to the rights of such Bondholders in accordance with the terms of such Security Instrument. 313352 -v1 In addition, such Supplemental Indenture may establish such provisions as are necessary to provide relevant information to the Security Instrument Issuer and to provide a mechanism for paying Principal Installments and interest on such Series of Bonds from the Security Instrument. Registration and Exchange Transfer of Bonds. Unless otherwise provided in a Supplemental Indenture authorizing a Series of Bonds, Any Bond may, in accordance with its terms, be transferred, upon the books required to be kept pursuant to the provisions of the Master Indenture, by the person in whose name it is registered, in person or by a duly authorized attorney, upon surrender of such Bond for cancellation or, if applicable, notation of the new Holder together with the signature of the Trustee or any applicable Transfer Agent on the back of such Bond or on a form of record attached to such Bond for such purpose, accompanied by delivery of a written instrument of transfer in a form approved by the Trustee, duly executed. Whenever any Bond shall be surrendered for transfer, the Trustee or any Transfer Agent shall authenticate and deliver a new fully registered Bond or Bonds duly executed by the City or, if applicable, shall deliver the same Bond, duly annotated with the new Holder and signed by the Trustee or any applicable Transfer Agent on the back of such Bond or on a form of record attached to such Bond for such purpose, for like aggregate principal amount. The Trustee or any Transfer Agent shall require the payment by the Bondholder requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer. The City, the Trustee, and any Transfer Agent shall not be required (a) to issue, register the transfer of, or exchange any Bond during a period beginning at the opening of business 15 days before the date of the mailing of a notice of redemption of Bonds selected for redemption under the Master Indenture and ending at the close of business on the day of such mailing, or (b) to register the transfer of or exchange any Bond so selected for redemption in whole or in part, except the unredeemed portion of Bonds being redeemed in part. Exchange of Bonds. Fully registered Bonds may be exchanged at the principal corporate trust office of the Trustee or of any Transfer Agent for a like aggregate Principal amount of fully registered Bonds of the same Series and maturity of authorized denominations. The Trustee or any Transfer Agent shall require the payment by the Bondholder requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. Except as otherwise provided in a Supplemental Indenture authorizing a Series of Bonds, no such exchange shall be required to be made subsequent to the Record Date. Bond Registration Books. The Trustee will keep or cause to be kept, at its principal corporate trust office, sufficient books for the registration and transfer of Bonds, which shall at all times be open to inspection by the City; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer bonds on said books. Selection of Bonds for Redemption Except as otherwise provided in a Supplemental Indenture: If less than all of the Bonds of any Series are called for redemption and if the Bonds of such Series shall mature on more than one date, the Bonds of such Series shall be redeemed from the Outstanding Bonds of such Series in inverse order of maturities. If less than all of the Bonds of any Series maturing on any single date are called for redemption, the Trustee shall select the Bonds to be redeemed, from the Outstanding Bonds of such Series maturing on that date not previously called for redemption, in such manner as in the Trustee's sole discretion it shall deem 313352 -v1 appropriate and fair; provided, however, that subject to other applicable provisions of the Master Indenture or of any Supplemental Indenture, the portion of any Bond to be redeemed shall be in a Principal amount equal to a denomination in which Bonds of such Series are authorized to be issued. In selecting Bonds for redemption the Trustee shall treat each Bond as representing the number of Bonds which is obtained by dividing the Principal amount of each Bond by the minimum denomination in which such Series of Bonds is authorized to be issued. If part but not all of a Bond shall be selected for redemption, the Holder thereof or the Holder's attorney or legal representative shall present and surrender such Bond to the Trustee for payment of the Principal amount thereof so called for redemption and the redemption premium, if any, on such Principal amount. The City shall execute and the Trustee or any Transfer Agent shall authenticate and deliver to or upon the order of such Holder or the Holder's legal representative, without charge therefor, a Bond or Bonds of the same maturity and bearing interest at the same rate as the Bond so surrendered for the unredeemed portion of the surrendered Bond. Notice and Effect of Redemption Notice of Redemption. Except as otherwise provided in a Supplemental Indenture authorizing a Series of Bonds, notice of redemption shall be given by first class mail, postage prepaid, not less than 30 nor more than 60 days prior to the redemption date, to the registered owner of such Bond, at the owner's address as it appears on the bond registration books of the Trustee or at such address as the owner may have filed with the Trustee for that purpose, but neither failure to mail any such notice nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the redemption of any of the Bonds. Each notice of redemption shall state the redemption date, the place of redemption, the source of the funds to be used for such redemption, the Principal amount, and, if less than all of the Bonds of any like Series and maturity are to be redeemed, the distinctive numbers of the Bonds to be redeemed, and shall also state that the interest on the Bonds or portions thereof in such notice designated for redemption shall cease to accrue from and after such redemption date and that on said date there will become due and payable on each of said Bonds the Redemption Price thereof and interest accrued thereon to the redemption date. Deposit of Redemption Price. Except as otherwise provided in a Supplemental Indenture authorizing a Series of Bonds, the City shall deposit with the Trustee the money required for payment of the Redemption Price of and the accrued interest to the redemption date on all Bonds then to be called for redemption at least one day before the date fixed for such redemption. Partial Redemption of Bonds; Disposition of Redeemed Bonds. Except as otherwise provided in a Supplemental Indenture authorizing a Series of Bonds, upon surrender of any Bond redeemed in part only, the City shall duly execute and the Trustee or any Transfer Agent shall authenticate and deliver to the registered owner thereof, at the expense of the City, a new Bond or Bonds of the same Series and maturity and of authorized denominations equal in aggregate Principal amount to the unredeemed portion of the Bond surrendered. Effect of Redemption. Except as otherwise provided in a Supplemental Indenture authorizing a Series of Bonds, if notice of redemption has been duly given as described above, and moneys for payment of the Redemption Price, together with interest to the redemption date on the Bonds so called for redemption, are held by the Trustee, then such Bonds shall, on the redemption date designated in such notice, become due and payable at the Redemption Price specified in such notice and interest accrued thereon to the redemption date; and from and after the date so designated, interest on the Bonds so called for redemption shall cease to accrue. 3)3352 -v1 Construction Fund The Master Indenture creates and establishes a Construction Fund, to be held by the Trustee, in which the Trustee shall establish a Project Account for each Project. The Trustee may establish one or more subaccounts in each Project Account. There shall be paid into the Construction Fund the amounts required to be so paid by the provisions of the Master Indenture or any Supplemental Indenture. The proceeds of insurance maintained in connection with a Project during the period of construction of such Project against physical loss of or damage to properties of the Library, or of contractors' performance bonds with respect thereto, pertaining to the period of construction thereof, shall be paid into the appropriate Project Account in the Construction Fund. Amounts in each Project Account established for a Project shall be applied to pay the Cost of Construction of the Project. Unless otherwise provided in a Supplemental Indenture authorizing a Series of Construction Bonds, all net income earned on any moneys or investments in the Project Account established in the Construction Fund for a Project shall be held in such Project Account and applied to pay Cost of Construction of the Project. The substantial completion of construction of each Project shall be evidenced by a Written Certificate of the City. Upon the filing of such Certificate, the balance in the applicable Project Account in the Construction Fund in excess of the amount, if any, stated in such Certificate as being required for payment of any remaining part of the Cost of Construction of such Project shall be used to purchase Bonds (see the caption "Summary of the Master Indenture— Purchase of Bonds" herein), (b) deposited into the Debt Service Reserve Account to fund any amounts required to be deposited therein, (c) deposited into the Bond Account, (d) transferred into another Project Account to pay Cost of Construction of a Project, or (e) used for any other purpose for which proceeds of Bonds may be used under applicable law and covenants regarding the use of proceeds of Bonds. Proceeds of Library Tax; Revenue Fund All Library Tax proceeds and Other Available Funds as permitted by law shall be promptly deposited by the City, and CALS on behalf of the City, to the credit of the Revenue Fund. There shall be retained in the Revenue Fund, to the extent such amounts are not otherwise required to be transferred from the Revenue Fund pursuant to the provisions of the Master Indenture described in the caption "Summary of the Master Indenture —Flow of Funds," "— Principal and Interest Account —Bond Account," and "— Principal and Interest Account —Debt Service Reserve Account" herein: (1) the amount required to be deposited into the Principal and Interest Fund in the next succeeding month, and (2) any amounts designated as Other Available Funds for the current or any future Fiscal Year. Moneys in the Revenue Fund in excess of the amounts in (I)and (2) above must be transferred to the Redemption Account of the Bond Fund. 313352 -v1 Flow of Funds On or before the last Business Day of each month, the City shall transfer and deposit from the Revenue Fund into the Principal and Interest Fund the amounts set forth below and in the following order: FIRST: for credit to the Bond Account, the amount, if any, required so that the balance in each of the Series Subaccounts in the Bond Account shall equal the Accrued Debt Service on the Series of Bonds and, to the extent required by a Supplemental Indenture, on any Security Instrument Obligations for which such Series Subaccount was established; provided that, if there are not sufficient moneys to satisfy the requirements of this paragraph with respect to all Series Subaccounts in the Bond Account, all moneys available for distribution among such Series Subaccounts shall be deposited into the Bond Account and distributed on a pro rata basis to the deficient Series Subaccounts in the Bond Account, such distribution to be determined by multiplying the amount available for distribution by the proportion that the deficiency for each Series Subaccount bears to the total deficiency for all Series Subaccounts; and provided further, that in the event and to the extent moneys have been deposited in any Project Account as capitalized interest, such moneys shall be transferred from the appropriate Project Account and deposited into the appropriate Series Subaccount in the Bond Account in an amount sufficient to cause the balance in such Series Subaccount to equal the interest component of Accrued Debt Service on the Series of Bonds; and SECOND: for credit to each Series Subaccount established within the Debt Service Reserve Account, the amount, if any, required to be deposited therein pursuant to a Supplemental Indenture; provided that, if there are not sufficient moneys to satisfy the requirements of this paragraph with respect to all Series Subaccounts in the Debt Service Reserve Account, all moneys available for distribution among such Series Subaccounts shall be deposited into the Debt Service Reserve Account and distributed on a pro rata basis to the deficient Series Subaccounts in the Debt Service Reserve Account, such distribution to be determined by multiplying the excess amount in the Revenue Fund by the proportion that the deficiency for each Series Subaccount bears to the total deficiency for all Series Subaccounts; provided, however, that so long as there shall be held in the Principal and Interest Fund, excluding any Reserve Instrument Coverage, an amount sufficient to pay in full all Outstanding Bonds and all Repayment Obligations in accordance with their terms (including Principal or applicable sinking fund Redemption Price and interest thereon), no deposits shall be required to be made into the Principal and Interest Fund. Principal and Interest Fund The Master Indenture creates and establishes a Principal and Interest Fund, to be held by the Trustee, consisting of (i) a Bond Account, in which the Trustee shall establish a separate Series Subaccount for each Series of Bonds, and (ii) a Debt Service Reserve Account, in which the Trustee may establish a separate Series Subaccount for each Series of Bonds. Bond Account. Each Supplemental Indenture providing for the issuance of a Series of Bonds shall establish a separate Series Subaccount in the Bond Account for each related Series of Bonds. There shall be deposited into each Series Subaccount, the amounts required to be so deposited pursuant to the Master Indenture (see the caption "Summary of the Master Indenture —Flow of Funds— FIRST" herein). Any payments made by a Security Instrument Issuer with respect to a Series of Bonds shall be deposited into the Series Subaccount in the Bond Account relating to such Series of Bonds, subject to the provisions of the Supplemental Indenture authorizing the issuance of such Series of Bonds. 313352 -v1 The Trustee shall pay out of the appropriate Series Subaccount in the Bond Account to the respective Paying Agent (1) on or before each interest payment date for each Series of Bonds, the amount required for the interest payable on such date; (2) on or before each Principal Installment due date, the amount required for the Principal Installment payable on such due date; and (3) on or before any redemption date for each Series of Bonds, the amount required for the payment of the Redemption Price of and accrued interest on such Bonds then to be redeemed. The Trustee shall pay out of the appropriate Series Subaccount in the Bond Account to the Security Instrument Issuer, if any, that has issued a Security Instrument with respect to such Series of Bonds an amount equal to any Security Instrument Repayment Obligation then due and payable to such Security Instrument Issuer. If payment is so made on Pledged Bonds held for the benefit of the Security Instrument Issuer, a corresponding payment on the Security Instrument Repayment Obligation shall be deemed to have been made (without requiring an additional payment by the City) and the Trustee shall keep its records accordingly. Except as otherwise provided in a Supplemental Indenture authorizing a Series of Bonds, amounts accumulated in any Series Subaccount in the Bond Account with respect to any Sinking Fund Installment (together with amounts accumulated therein with respect to interest on the Bonds for which such Sinking Fund Installment was established) shall, if so directed by the City in a Written Request not less than 30 days before the due date of such Sinking Fund Installment, be applied by the Trustee to (1) the purchase of Bonds of the Series and maturity for which such Sinking Fund Installment was established, (2) the redemption at the applicable sinking fund Redemption Price of such Bonds, if then redeemable by their terms, or (3) any combination of (1) and (2). All purchases of any Bonds as described in this paragraph shall be made at prices not exceeding the applicable sinking fund Redemption Price of such Bonds plus accrued interest. As soon as practicable after the 60" day preceding the due date of any such Sinking Fund Installment, the Trustee shall proceed to call for redemption on such due date, by giving notice as required by the Master Indenture, Bonds of the Series and maturity for which such Sinking Fund Installment was established (except in the case of Bonds maturing on a Sinking Fund Installment date) in such amount as shall be necessary to complete the retirement of the unsatisfied balance of such Sinking Fund Installment. Debt Service Reserve Account. Each Supplemental Indenture providing for the issuance of a Series of Bonds shall establish in the Debt Service Reserve Account a separate Series Subaccount for such Series of Bonds. The Supplemental Indenture shall specify any Debt Service Reserve Requirement, the manner in which the Debt Service Reserve Account may be funded, and the manner in which any deficiency in the Debt Service Reserve Account may be replenished; provided that, the time for replenishing any deficiency in full shall not exceed 12 months. Subject to any limitations contained in a Supplemental Indenture, the City may satisfy any Debt Service Reserve Requirement by means of a Reserve Instrument (or may substitute one Reserve Instrument for another) if the City has provided to the Trustee written evidence satisfactory to the Trustee from each rating agency then having a rating in effect for any Series of Bonds then Outstanding to the effect that the rating agency has reviewed the proposed Reserve Instrument and that the use of such Reserve Instrument (or the substitution of one Reserve Instrument for another, as appropriate) will not, by itself, result in a reduction or withdrawal of such Rating Agency's rating of such Series of Bonds. If on the final Business Day of any month, after the deposit of moneys required by the Master Indenture (see the caption "Summary of the Master Indenture —Flow of Funds — SECOND" herein), the amount in any Series Subaccount in the Bond Account shall be less than the amount required to be in such Series Subaccount, the Trustee shall apply amounts from the corresponding Series Subaccount, if any, in the Debt Service Reserve Account to the extent necessary to make good the deficiency; and to the extent those moneys and investments are not sufficient to eliminate the deficiency in the Series Subaccount in the Bond Account and Reserve Instruments are in effect for the corresponding Series of Bonds, immediately make a 313352 -v1 demand for payment on all such Reserve Instruments in the amount necessary to make up such deficiency, and immediately deposit such payment upon receipt thereof in the appropriate Series Subaccount in the Bond Account. Whenever the moneys on deposit in a Series Subaccount in the Debt Service Reserve Account for a Series of Bonds, including investment earnings and Reserve Instrument Coverage with respect thereto, shall exceed the Debt Service Reserve Requirement for all Outstanding Bonds of such Series and related Repayment Obligations, such excess shall be transferred by the Trustee and deposited into the Revenue Fund. Whenever the amount in a Series Subaccount in the Debt Service Reserve Account, excluding any Reserve Instrument Coverage, together with the amount in the corresponding Series Subaccount in the Bond Account for a Series of Bonds, is sufficient to pay in full all Outstanding Bonds of such Series and related Repayment Obligations in accordance with their terms (including Principal or applicable sinking fund Redemption Price and interest thereon), the funds on deposit in such Series Subaccount in the Debt Service Reserve Account shall be transferred to the corresponding Series Subaccount in the Bond Account and no deposits shall be required to be made into such Series Subaccount in the Debt Service Reserve Account. Unless otherwise provided in a Supplemental Indenture authorizing a Series of Bonds, in calculating the amount on deposit in a Series Subaccount in the Debt Service Reserve Account, the amount of the Reserve Instrument Coverage for the corresponding Series of Bonds will be treated as an amount on deposit in such Series Subaccount in the Debt Service Reserve Account. So long as any Series of Bonds rated by a Rating Agency is Outstanding, the City may not invest moneys held in a Series Subaccount in the Debt Service Reserve Account in a Reserve Instrument without obtaining the prior consent of the Trustee and providing notice of such investment to such Rating Agency. Unless otherwise specified in the Supplemental Indenture authorizing a Series of Bonds, no Reserve Instrument for such Series of Bonds shall be allowed to expire unless and until cash has been deposited into the appropriate Series Subaccount in the Debt Service Reserve Account, or a new Reserve Instrument has been issued in place of the expiring Reserve Instrument, in an amount or to provide coverage at least equal to the Debt Service Reserve Requirement for the corresponding Series of Bonds. Purchase of Bonds The City may purchase Bonds of any Series from any available funds at public or private sale, as and when and at such prices as the City may in its discretion determine, but at a price not exceeding the Principal amount thereof plus accrued interest thereon, or in the case of Bonds which by their terms are subject to redemption prior to maturity, at the then current or first applicable Redemption Price (plus accrued interest), as the case may be. In the case of the purchase of Bonds of a Series and maturity for which Sinking Fund Installments shall have been established, the City shall elect the manner in which the Principal amount of such Bonds shall be credited toward Sinking Fund Installments (see the caption "Summary of the Master Indenture — Principal and Interest Fund —Bond Account" herein). Covenants of the City Punctual Payment of Bonds, The City will punctually pay or cause to be paid the Principal, Redemption Price of and interest on the Bonds and any Repayment Obligations in strict conformity with the terms of the Bonds, any Security Instrument Agreement, any Reserve Instrument Agreement, and the Master Indenture, and the City will punctually pay or cause to be paid all Sinking Fund Installments which may be established for any Series of Bonds. The City's obligations under the Master Indenture are limited to the proceeds of the Library Tax and any other funds or assets which constitute part of the Trust Estate. 10 313352 -v1 Construction of Projects. If the City undertakes the acquisition or construction of a Project, the City shall cause the acquisition or construction to be accomplished in a sound and economic manner and as expeditiously as is practicable except: (1) the City may delay, postpone, or cancel the acquisition of the Project if it files with the Trustee a Library Consultant's Certificate to the effect that delaying, postponing, or canceling the Project will not likely cause Library Tax proceeds to be less than the Rate Covenant Requirement or (2) following damage or destruction of a useful portion of the Library, to the extent permitted by the Master Indenture (see the caption "Summary of the Master Indenture — Reconstruction of Library; Application of Insurance Proceeds" herein). Against Encumbrances. The City will not create, and will use its good faith efforts to prevent the creation of, any mortgage or lien upon the Public Libraries or any property essential to the proper operation of the Public Libraries. The City will not create, or permit the creation of, any pledge, lien, charge, or encumbrance upon the Library Tax proceeds except only as provided in or permitted by the Master Indenture. Limitation on Sale or Other Disposition of Property. The City will not sell or otherwise dispose of all or a substantial part of the Public Libraries except: (1) The City may sell or otherwise dispose of any facilities, or an interest in facilities, constituting a part of the Public Libraries which have ceased to be necessary for the efficient operations of the Public Libraries. (2) The City may sell or otherwise dispose of any facilities, or an interest in facilities, constituting a part of the Public Libraries if the City files with the Trustee a Library Consultant's Certificate demonstrating that, following such sale or disposition and after giving effect both to the proposed sale or disposition of the facilities and the application of the proceeds of such sale, the estimated Library Tax proceeds will be not less than the Rate Covenant Requirement. The City will not enter into any lease or other agreement which impairs or impedes the operation of the Public Libraries or which impairs or impedes the rights of the Bondholders with respect to the Library Tax proceeds. The proceeds of any sale or other disposition described above shall be deposited into the Revenue Fund. Operation and Maintenance. The City will operate the Public Libraries continuously in an efficient and economical manner, to the extent practicable under then existing conditions. The City will at all times maintain, preserve, and keep the Public Libraries in good repair, working order, and condition so that the operating efficiency thereof will be of high character. The City will cause all necessary and proper repairs and replacements to be made so that the business carried on in connection with the Public Libraries may be properly and advantageously conducted at all times in a manner consistent with prudent management, and that the rights and security of the Holders of the Bonds, Security Instrument Issuers, and Reserve Instrument Issuers may be fully protected and preserved. Maintenance of Library Tax Proceeds. The City will not sell, convey, mortgage, encumber, or otherwise dispose of any part of the Library Tax Proceeds, except as otherwise permitted by the Master Indenture. 313352 -vl Insurance. Subject in each case to the condition that insurance is obtainable at reasonable rates and upon reasonable terms and conditions: (1) the City will procure and maintain insurance on the Public Libraries and public liability insurance in such amounts and against such risks as are usually insurable in connection with similar libraries and are usually carried by municipalities operating similar libraries; (2) the City will procure and maintain adequate fidelity insurance or bonds on the positions of City Manager, City Treasurer, Library Director, and on any other person or persons handling or responsible for funds of the City related to the Public Libraries; and (3) the City will place on file with the Trustee annually, within 120 days after the beginning of each Fiscal Year, a Written Statement of the City or a certificate from the insurer containing a summary of all insurance policies then in effect with respect to the Public Libraries. Accounts and Reports. The City will at all times keep proper books of record and accounts, separately identified from all other records and accounts of the City, in which complete and accurate entries shall be made of all transactions relating to the Public Libraries and the Library Tax proceeds. Such books of record and accounts shall at all times during business hours be subject to the inspection of the Trustee, the Holders of not less than five percent of the Bonds then Outstanding, any party specified by a Supplemental Indenture, or their representatives authorized in writing. So long as any Bonds are outstanding, the City will place on file with the Trustee and with any party specified by a Supplemental Indenture semiannually, within 60 days after the first days of January and July of each Year, an unaudited financial statement in reasonable detail for the preceding six months and the preceding 12 months, respectively, showing the Library Tax proceeds and all expenditures from the Library Tax proceeds applicable to the Public Libraries and the resulting Library Tax proceeds available for Debt Service for such periods. The City will place on file with the Trustee and with any party specified by a Supplemental Indenture annually within 120 days after the close of each Fiscal Year a financial statement in reasonable detail for the preceding Fiscal Year showing the Library Tax proceeds, and all expenditures from the Library Tax proceeds applicable to the Public Libraries and the resulting Library Tax proceeds available for Debt Service, and a balance sheet in reasonable detail reflecting the financial condition of the City, including the balances of all Funds relating to the Public Libraries at the end of the Fiscal Year for which such balance sheet has been prepared. Such financial statement and balance sheet shall each be accompanied by an Accountant's Certificate. The reports, statements, and other documents required to be furnished to the Trustee pursuant to any provisions of the Master Indenture shall be available for the inspection of Bondholders, Security Instrument Issuers, and Reserve Instrument Issuers at the principal corporate trust office of the Trustee and shall be mailed to each Bondholder, Security Instrument City, Reserve Instrument City, investment banker, security dealer, or other person interested in the Bonds who shall file a written request therefor with the City. Library Tax Collections In order to assure full and continuous performance of the covenants contained in the Master Indenture relating to the punctual payment of Bonds and the collection of Library Tax proceeds, with a margin for contingencies and temporary unanticipated reduction in Library Tax proceeds, the City covenants and agrees to collect Library Tax proceeds, together with other income, which are reasonably expected to yield available revenues at least equal to the Rate Covenant Requirement for the forthcoming Fiscal Year. The term "Rate Covenant Requirement" shall mean: 12 313352 -v1 (1) Library Tax proceeds at least equal to the sum of 100% of the Aggregate Debt Service excluding amounts payable on Repayment Obligations for the Fiscal Year, plus 100% of the Repayment Obligations, if any, which will be due and payable during the forthcoming Fiscal Year, plus 100% of the amounts, if any, required by the Master Indenture to be deposited into the Debt Service Reserve Account during the forthcoming Fiscal Year, and (2) Library Tax proceeds which together with Other Available Funds, are (a) 120% of Aggregate Debt Service excluding amounts payable on Repayment Obligations for the Fiscal Year, (b) 100% of the Repayment Obligations, if any, which will be due and payable during the forthcoming Fiscal Year, and (c) 100% of the amounts, if any, required by the Master Indenture to be deposited into the Debt Service Reserve Account during the forthcoming Fiscal Year. In the event that there are no Other Available Funds for purposes of this paragraph (2), Library Tax proceeds must equal 120% of items (a), (b), and (c). If the annual financial statements relating to Library Tax proceeds disclose that the Library Tax proceeds were not at least equal to the Rate Covenant Requirement, the City shall not be in default under the provisions of the Master Indenture described above if, (1) within 60 days after the date of such financial statement the City obtains recommendations from an Library Consultant as to the revision of the procedures for collection necessary to produce Library Tax proceeds at least equal to the Rate Covenant Requirement and (2) on the basis of such recommendations, the City revises the procedures for collection insofar as is practicable so as to produce Library Tax proceeds at least equal to the Rate Covenant Requirement. Eminent Domain If all or any part of the Public Libraries shall be taken by eminent domain proceedings or conveyance in lieu thereof, the net proceeds realized by the City therefrom shall be deposited with the Trustee in a special fund in trust and shall be applied and disbursed by the Trustee subject to the following conditions: (1) If such funds are sufficient to provide for the payment of the entire amount of Principal due or to become due upon all of the Outstanding Bonds and outstanding Repayment Obligations, together with all of the interest due or to become due thereon and any redemption premiums thereon, so as to enable the City to retire all of the Bonds then Outstanding, either by call and redemption at the then current Redemption Prices or by payment at maturity or partly by redemption prior to maturity and partly by payment at maturity, and to pay all Repayment Obligations, the Trustee shall apply such moneys to such retirement or payment, as appropriate, and to the payment of such interest. Pending the application of such proceeds for such purpose, such moneys shall be invested by the Trustee in Government Obligations. The balance of such moneys, if any, shall be transferred to the City. (2) If such proceeds are insufficient to provide the moneys required for the purposes set forth in paragraph (1) above, the City shall request the Trustee to apply such proceeds for one of the following purposes: (a) To the purchase, redemption, or retirement of Bonds then Outstanding and Repayment Obligations then outstanding. If more than one Series of Bonds is then Outstanding, such proceeds shall be applied pro rata among each such Series to the purchase, redemption, or retirement of the Bonds of each such Series and the payment of Repayment Obligations in the proportion which the Principal amount of Bonds of each 13 313352 -v1 such Series then Outstanding and Repayment Obligations then outstanding bears to the aggregate Principal amount of all Bonds then Outstanding and Repayment Obligations then outstanding. Pending the application of such proceeds for such purpose, such moneys shall be invested by the Trustee in Government Obligations. (b) To deliver such proceeds to the City to apply to the cost of additions, improvements, or extensions to the Public Libraries. The City shall also file with the Trustee a Library Consultant's Certificate showing the loss in annual Library Tax proceeds, if any, suffered or to be suffered by the City by reason of such eminent domain proceedings, together with a general description of the additions, improvements, or extensions to the Public Libraries then proposed to be acquired or constructed by the City from such proceeds. The City shall hold such proceeds in trust and apply them to the acquisition or construction of the additions, improvements, or extensions substantially in accordance with such Library Consultant's Certificate. The City shall acquire or construct such additions or improvements in a sound and economic manner and as expeditiously as is practicable. Any balance of such proceeds not required by the City for such additions, improvements, or extensions shall be deposited into the Revenue Fund, (c) To deposit such proceeds into the Revenue Fund upon the basis that such eminent domain proceedings have had no effect, or at the most a relatively immaterial effect, upon the security of the Bonds. The City shall file with the Trustee a Library Consultant's Certificate stating that such eminent domain proceedings have not substantially impaired or affected the operation of the Library or the ability of the City to collect Library Tax proceeds at least equal to the Rate Covenant Requirement. The Trustee shall deposit such proceeds into the Revenue Fund. Reconstruction of Libraries; Application of Insurance Proceeds If any useful portion of a Library shall be damaged or destroyed, the City shall, as expeditiously as is practicable, continuously and diligently prosecute or cause to be prosecuted the reconstruction or replacement thereof, unless the City shall file with the Trustee a Library Consultant's Certificate to the effect that such reconstruction or replacement is not in the interests of the City and the Bondholders. The proceeds of any insurance paid on account of such damage or destruction, other than business interruption loss insurance or public liability insurance, shall, if the appropriate Project Account in the Construction Fund has not been closed, be paid into the Construction Fund, or if the Construction Fund has been closed, shall be held by the Trustee in a special account and made available for, and to the extent necessary applied to, the cost of such reconstruction or replacement, if any. Pending such application, such proceeds may be invested by the City in Investment Securities which mature not later than such times as shall be necessary to provide moneys when needed to pay such cost of reconstruction or replacement. Any balance of such proceeds of insurance not needed to pay such cost of reconstruction or replacement shall be deposited into the Revenue Fund. Operation by CALS The City recognizes that CALS is the instrumentality of the City designated by ordinances of the City to operate and manage the Public Libraries and their related properties and facilities, with full and complete authority to manage, operate, improve, extend, and maintain the Public Libraries and their related properties and facilities. Such authority and responsibility of CALS is confirmed and continued, and CALS is further designated and appointed as the agency and instrumentality of the City to act for and on behalf of the City in connection with the discharge of the duties of the City, and the realization of all rights of the City, under and pursuant to the Master Indenture. The City covenants with the Trustee and the Holders of the Bonds that such authorization and authority will not be rescinded so long as any Bonds are Outstanding. 14 313352 -v1 The Trustee The City has appointed Metropolitan National Bank, Little Rock, Arkansas, as Trustee for the Holders of the Bonds, to act as the legal depository of the City for the purpose of receiving all moneys which the City is required to pay to the Trustee under the Master Indenture and to hold, allocate, use, and apply the same as provided in the Master Indenture. The Trustee shall also act as registrar and Transfer Agent for the Bonds, with the duties provided in the Master Indenture. In acting as registrar and Transfer Agent, the Trustee shall be the agent of the City. Resignation of the Trustee. The Trustee may at any time resign or be discharged of its duties and obligations created by the Master Indenture by giving not less than 60 days' written notice to the City, specifying the date when such resignation shall take effect, and mailing notice thereof to the Holders of all Bonds then Outstanding, and such resignation shall take effect on the day specified in such notice unless previously a successor shall have been appointed in the manner described below and as provided in the Master Indenture, in which event such resignation shall take effect immediately upon the appointment of such successor; provided, however, that such resignation of the Trustee shall in no event take effect until such successor shall have been appointed and accepted the duties of Trustee. Removal of the Trustee. The City may at any time remove the Trustee initially appointed or any successor thereto by the adoption by CALS of a resolution providing for such removal, for the appointment of a successor, and for the effective date of the change of Trustee; provided, however, that such removal of the Trustee shall in no event take effect until such successor shall have been appointed and accepted the duties of Trustee. Appointment of Successor Trustee. Notice of the resignation or removal of the Trustee and the appointment of a successor shall be mailed by first class mail to the registered Holders of all Bonds then Outstanding (and by publication in a Financial Newspaper or Journal if any Bonds then Outstanding are not in fully registered form) and to each Security Instrument Issuer and Reserve Instrument Issuer then having a Security Instrument or Reserve Instrument outstanding, within 30 days after adoption by CALS of the resolution providing for such appointment. Any successor Trustee appointed by resolution adopted subsequent to the issuance of the first Series of Bonds issued under the Master Indenture shall be a bank or trust company with a capital stock, undivided profits, and surplus of not less than $50,000,000 (or in the case of a corporation or trust company included in a bank holding company system, the related bank holding company system shall have a capital stock, undivided profits, and surplus of not less than $50,000,000). Terms and Conditions of the Trusts. The Trustee shall perform the trusts contained in the Master Indenture as a corporate trustee ordinarily would perform said trusts under a corporate indenture, only upon and subject to the express terms and conditions of the Master Indenture, including without limitation the following: (1) The Trustee shall not be required to take notice or be deemed to have notice of any default under the Master Indenture except (a) failure by the City to cause to be made any of the payments to the Trustee required to be made pursuant to Article V of the Master Indenture; (b) failure of the City to file with the Trustee any document required by the Master Indenture to be so filed prior to or subsequent to the issuance of the Bonds; or (c) any default with respect to a Security Instrument Agreement or Reserve Instrument Agreement as to which any of the parties thereto has notified the Trustee in writing; provided that, the Trustee shall be required to take notice or be deemed to have notice of any default under the Master Indenture if specifically notified in writing of such default by the Holders of not less than 10% in aggregate Principal amount of Bonds then Outstanding, by any Security Instrument Issuer, or by any Reserve Instrument Issuer, and all notices or other instruments required by the Master Indenture to be delivered to the Trustee must, in order 15 313352 -vt to be effective, be delivered at the principal corporate trust office of the Trustee and in the absence of such notice, the Trustee may conclusively assume there is not default except as aforesaid; (2) The Trustee shall be under no obligation to exercise any of the trusts or powers vested in it by the Master Indenture at the request, order, or direction of any of the Bondholders, Security Instrument Issuers, or Reserve Instrument Issuers, pursuant to the provisions of the Master Indenture, unless such Bondholders, Security Instrument Issuers, or Reserve Instrument Issuers, shall have offered to the Trustee reasonable security or indemnity against the costs, expenses, and liabilities which might be incurred therein or thereby. (3) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, ordinance, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, appraisal, Bond, or other paper or document, unless requested in writing to do so by (1) the Holders of not less than 25% in aggregate Principal amount of the Bonds then Outstanding, (2) any Security Instrument Issuer of a Security Instrument then in full force and effect and not in default on a payment obligation, or (3) any Reserve Instrument Issuer of a Reserve Instrument then in full force and effect and not in default on a payment obligation; provided that if the timely payment to the Trustee of the costs, expenses, or liabilities likely to be incurred in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of the Master Indenture, the Trustee may require reasonable indemnity against such expenses or liabilities as a condition to so proceeding. The reasonable expense of every such inquiry or examination shall be paid by the City or, if paid by the Trustee, shall be repaid by the City. Intervention by the Trustee. In any judicial proceeding to which the City is a party and which in the opinion of the Trustee has a substantial bearing on the interests of Holders of the Bonds, the Trustee may intervene on behalf of Bondholders and shall do so if requested in writing by the Holders of a majority of the aggregate Principal amount of Bonds then Outstanding or any Security Instrument Issuer of a Security Instrument then in full force and effect and not in default on a payment obligation. The rights and obligations of the Trustee described in this paragraph are subject to the approval of a court of competent jurisdiction. Successor Trustee. Any corporation or association into which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its corporate trust business or assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation, or transfer to which it is a party, shall be and become a successor Trustee under the Master Indenture and vested with all the trusts, powers, discretion, immunities, privileges, and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed, or conveyance on the part of the Trustee or the City. Compensation of the Trustee and its Lien. The City covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation and, except as otherwise expressly provided, the City covenants and agrees to pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements, and advances incurred or made by the Trustee in accordance with any of the provisions of the Master Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ including but not limited to any Paying Agent, Transfer Agent, or Depository) except any such expense, disbursement, or advance as may arise from its negligence or bad faith. The City also covenants to indemnify the Trustee for, and to hold it harmless against, any loss, liability, or expense incurred without negligence or bad faith on the part of the Trustee, arising out of or in connection with the acceptance or administration of the trust evidenced by the Master Indenture, including the costs and expenses of defending itself against any claim of liability in the premises. The obligations of the City to compensate and indemnify the Trustee and to pay or reimburse the 16 313352 -v1 0 0 Trustee for expenses, disbursements, and advances shall constitute additional indebtedness under the Master Indenture, shall be subject to the same limitations with respect to sources of payment as all other indebtedness of the City thereunder, and shall survive the satisfaction and discharge of the Master Indenture. Such additional indebtedness shall be secured by a lien prior to that of the Bonds upon all property and funds held or collected by the Trustee as such, except funds held in any Rebate Fund and funds held in trust for the benefit of the Holders of particular Bonds. Modification or Amendment of the Master Indenture and Supplemental Indentures Amendments Permitted. The Master Indenture or any Supplemental Indenture and the rights and obligations of the City and of the Holders of the Bonds may be modified or amended at any time by a Supplemental Indenture and pursuant to the affirmative vote at a meeting of Bondholders, or with the written consent without a meeting, (1) of the Holders of at least 60% in Principal amount of the Bonds then Outstanding, (2) in case less than all of the several Series of Bonds then Outstanding are affected by the modification or amendment, of the Holders of at least 60% in Principal amount of the Bonds of each Series so affected and then Outstanding, and (3) in case the modification or amendment changes the terms of any Sinking Fund Installment, of the Holders of at least 60% in Principal amount of the Bonds of the particular Series and maturity entitled to such Sinking Fund Installment and then Outstanding; provided, however, that if such modification or amendment will not, by its terms, take effect so long as any Bonds of any specified Series remain Outstanding, the consent of the Holders of Bonds of such Series shall not be required and Bonds of such Series shall not be deemed to be Outstanding for the purpose of any calculation of Outstanding Bonds described in this paragraph. The Master indenture or any Supplemental Indenture and the rights and obligations of the Issuer, the Holders of the Bonds, the Security Instrument Issuers, and the Reserve Instrument Issuers may also be modified or amended at any time by a Supplemental Indenture, without the consent of any Bondholders, for any of the following purposes: (1) to add to the covenants and agreements of the City contained in the Master Indenture, to add other covenants and agreements thereafter to be observed, or to surrender any right or power therein reserved to or conferred upon the City; (2) to make such provisions for the purpose of curing any ambiguity, or of curing or correcting any defective provision contained in the Master Indenture or in regard to questions arising under the Master Indenture, as the City may deem necessary or desirable, and which shall not adversely affect the interests of the Holders of the Bonds; (3) to provide for the issuance of a Series of Bonds in accordance with the provisions of the Master Indenture (see the caption "Summary of the Master Indenture --- General Provisions for the Issuance of Bonds" herein); (4) to provide for the issuance of the Bonds pursuant to a book -entry system; (5) to make any change which in the judgment of the Trustee shall not materially adversely affect the rights or interests of the Holders of any Outstanding Bonds requested by a Rating Agency in order to obtain or maintain any rating on the Bonds or by a Security Instrument Issuer or Reserve Instrument Issuer in order to insure or provide other security for any Bonds; (6) to make any change necessary (a) to establish or maintain the exemption from federal income taxation of interest on any Series of Bonds as a result of any modifications or amendments to section 148 of the Code (or any successor provision of law) or interpretations thereof by the Internal Revenue Service, or (b) to comply with the provisions of section 148(f) of the Code (or any successor provision of law), including provisions for the payment of all or a 17 313352 -v1 i portion of the investment earnings of any of the Funds established under the Master Indenture to the United States of America; (7) if the Bonds affected by such change are rated by a Rating Agency, to make any change which does not result in a reduction of the rating applicable to any of the Bonds so affected, provided that if any of the Bonds so affected are secured by a Security Instrument, such change must be approved in writing by the related Security Instrument Issuer; (8) if the Bonds affected by such change are secured by a Security Instrument, to make any change approved in writing by the related Security Instrument Issuer, provided that if any of the Bonds so affected are rated by a Rating Agency, such change shall not result in a reduction of the rating applicable to any of the Bonds so affected; and (9) to the extent permitted by a Supplemental Indenture authorizing a Series of Construction Bonds (or Bond Anticipation Notes), the designation of additions, improvements, and extensions to the Public Libraries as a Project by such Supplemental Indenture may be modified or amended if the City delivers to the Trustee a Library Consultant's Certificate to the effect that such modification or amendment will not adversely effect the City's ability to perform the covenants contained in the Master Indenture relating to the collection of Library Tax proceeds. No modification or amendment shall be permitted pursuant to paragraph (7), (8), or (9) unless the City delivers to the Trustee an Opinion of Counsel, with nationally recognized standing in the field of law relating to municipal bonds, to the effect that such modification or amendment will not adversely affect the tax- exempt status or validity of any Bonds affected by such modification or amendment. No modification or amendment permitted as described above shall (1) extend the fixed maturity of any Bond, or reduce the Principal amount or Redemption Price thereof, or reduce the rate or extend the time of payment of interest thereon, without the consent of the Holder of each Bond so affected, (2) reduce the aforesaid percentage of Bonds required for the affirmative vote or written consent to an amendment or modification of the Master Indenture, without the consent of the Holders of all of the Bonds then Outstanding, or (3) without its written consent thereto, modify any of the rights or obligations of the Trustee. Each Supplemental Indenture authorized as described above shall become effective as of the date of its adoption or such later date as shall be specified in such Supplemental Indenture. No amendment, as described above, shall be permitted which shall affect (1) the rights or duties of a Security Instrument Issuer or Reserve Instrument Issuer of a Security Instrument or a Reserve Instrument, as the case may be, then in full force and effect and not in default on a payment obligation, or (2) the Series of Bonds for which a Security Instrument Issuer or Reserve Instrument Issuer provides security, without the consent of such Security Instrument Issuer or Reserve Instrument Issuer, as the case may be. Bondholders' Meetings. The Trustee may, and upon the Written Request of the City shall, at any time, call a meeting of the Holders of Bonds, to be held at such place as may be selected by the Trustee and specified in the notice calling such meeting. Written notice of such meeting, stating the time and place of the meeting and in general terms the business to be submitted, shall be mailed by the Trustee, postage prepaid, not less than 30 nor more than 60 days before such meeting to any Security Instrument Issuer or Reserve Instrument Issuer that is in full force and effect with respect to any Series of Bonds Outstanding and to each registered owner of Bonds then Outstanding at the owner's address, if any, appearing upon the Bond register of the City. The cost and expense of the giving of such notice shall be home by the City, and the Trustee shall be reimbursed by the City for any expense incurred by it. lu 313352 -v1 0 0 Prior to calling any meeting of the Holders of Bonds, the Trustee shall adopt regulations for the holding and conduct of such meeting, and copies of such regulations shall be filed at the principal corporate trust office of the Trustee and at the office of the City and shall be open to the inspection of all Bondholders. The regulations shall include such provisions as the Trustee may deem advisable for evidencing the ownership of Bonds, for voting in person or by proxy, for the selection of temporary and permanent officers to conduct the meeting and inspectors to tabulate and canvass the votes cast at the meeting, the adjournment of any meeting, and the records to be kept of the proceedings of such meeting, including rules of order for the conduct of such meeting and such other regulations as, in the opinion of the Trustee, may be necessary or desirable. No resolution adopted by such meeting of Bondholders shall be binding unless and until a valid Supplemental Indenture has been passed containing the modifications or amendments authorized by the resolution adopted at such meeting. Such Supplemental Indenture shall become effective upon the filing with the Trustee of the resolution adopted at such meeting and such Supplemental Indenture. Amendment by Written Consent. The City may at any time adopt a valid Supplemental Indenture amending the provisions of the Bonds or of the Master Indenture or any Supplemental Indenture, to the extent that such an amendment is permitted by the Master Indenture, to become effective when and as approved by written consent of the Bondholders, and any necessary Security Instrument Issuers and Reserve Instrument Issuers, and as provided in the Master Indenture. Such Supplemental Indenture shall not be effective unless there shall have been filed with the City or the Trustee the written consents of the necessary number of Holders of the Bonds then Outstanding and the consents of any necessary Security Instrument Issuers and Reserve Instrument Issuers and a notice shall have been published as described below. It shall not be necessary for any consent to approve the particular form of any proposed Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof. Each consent of a Bondholder shall be effective only if accompanied by proof of ownership of the Bonds for which such consent is given. Any such consent shall be binding upon the Holder of the Bonds giving such consent and on any subsequent Holder thereof (whether or not such subsequent Holder has notice thereof) unless such consent is revoked in writing by the Holder of the Bonds giving such consent or a subsequent Holder thereof by filing such revocation with the City prior to the date when the notice described below has been mailed. Notice of the fact of the adoption of such Supplemental Indenture shall be mailed by the City to Bondholders (but failure to mail copies of such notice shall not affect the validity of the Supplemental Indenture when assented to by the requisite percentage of the Holders of the Bonds as aforesaid) and to each Security Instrument Issuer and Reserve Instrument Issuer of a Security Instrument or a Reserve Instrument, as the case may be, then in full force and effect and not in default in a payment obligation. Disqualified Bonds. Bonds owned or held by or for the account of the City shall not be deemed Outstanding for the propose of any vote, consent, or other action or any calculation of Outstanding Bonds for the purpose of approving Supplemental Indentures, and neither the City nor any owner or Holder of such Bonds shall be entitled to vote or consent to, or to take, any other such action. Any Pledged Bonds shall be deemed Outstanding and, for the purposes of any vote, shall be considered to be owned by the appropriate Security Instrument Issuer. Events of Default and Remedies Events of Default. The occurrence of one or more of the following events shall constitute an "Event of Default": (1) failure by the City to make the due and punctual payment of the Principal or Redemption Price of any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by declaration, or otherwise; W 313352 -v1 (2) failure by the City to make the due and punctual payment of any installment of interest on any Bond or any Sinking Fund Installment when and as such interest installment or Sinking Fund Installment shall become due and payable; (3) failure by the City to observe any of the covenants, agreements, or conditions on its part contained in the Master Indenture or the Bonds, and failure to remedy the same for a period of 60 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Trustee, or to the City and the Trustee by the Holders of not less than 25% in aggregate principal amount of the Bonds at the time Outstanding; (4) bankruptcy, reorganization, arrangement, insolvency, or liquidation proceedings, including without limitation proceedings under Chapter 9 of Title 11, United States Code (as the same may from time to time be hereafter amended), or other proceedings for relief under any federal or state bankruptcy law or similar law for the relief of debtors are instituted by or against the City and, if instituted against the City, said proceedings are consented to or are not dismissed within 30 days after such institution; or (5) any event specified in a Supplemental Indenture as constituting an Event of Default under the Master hndenture; provided that any failure by the City to make payment as described in subparagraph (1) or (2) above shall not constitute an Event of Default with respect to any Bond if the Supplemental Indenture authorizing the issuance of such Bond provides that due and punctual payment by a Security Instrument Issuer or a Reserve Instrument Issuer shall not give rise to an Event of Default and such payment is, in fact, duly and punctually made. The Trustee shall give notice to any Security Instrument Issuer or Reserve Instrument Issuer of any Event of Default known to the Trustee within 30 days after it has knowledge thereof. Acceleration. Upon the occurrence of an Event of Default, unless the principal of all the Bonds shall have already become due and payable: (1) the Trustee may, or (2) upon receipt of the written request of (a) the Holders of not less than 25% of the aggregate Principal amount of the Bonds at the time Outstanding (subject to any limitations specified in a Supplemental Indenture authorizing a Series of Bonds with respect to the rights of the Holders of such Bonds), (b) Security Instrument Issuers at the time providing Security Instruments which are in full force and effect and not in default on any payment obligation and which secure not less than 25% in aggregate Principal amount of the Bonds at the time Outstanding, or (c) any combination of Bondholders and Security Instrument Issuers described in clauses (a) and (b) representing not less than 25% in aggregate Principal amount of the Bonds at the time Outstanding, the Trustee shall, or (3) the Trustee shall, if an Event of Default specified to be such in a Supplemental hndenture and the Supplemental Indenture specifying such Event of Default requires acceleration upon occurrence of such Event of Default (provided that if the Supplemental Indenture specifies that any conditions relating to such Event of Default to be satisfied prior to acceleration, such conditions are satisfied), declare upon notice in writing to the City the Principal of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately. Upon such declaration such Principal and interest shall be immediately due and payable, notwithstanding anything to the contrary contained in the Master Indenture 20 313352 -v1 or in the Bonds; provided that with respect an Event of Default described in (1) or (2) relative to any Series of Bonds Outstanding secured by a Security Instrument which is in full force and effect and not in default on any payment obligation thereunder, no acceleration of such Series of Bonds shall occur without the written consent of the Security Instrument Issuer that provided such Security Instrument, which consent shall not be unreasonably withheld. The right of the Trustee, or of the parties described in paragraph (2) above, to request the Trustee to make any such declaration as aforesaid, however, is subject to the conditions that: (1) If, at any time after such declaration, any overdue installments of interest upon the Bonds, together with the reasonable and proper charges, expenses, and liabilities of the Trustee, and all other sums then payable by the City under the Master Indenture (except the Principal of and interest accrued since the next preceding interest payment date on the Bonds due and payable solely by virtue of such declaration) shall either be paid by the City or provision satisfactory to the Trustee shall be made for such payment, and all defaults under the Bonds or under the Master Indenture (other than the payment of Principal and interest due and payable solely by reason of such declaration) shall be made good or be secured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall be made therefor; and (2) If, at any time after such declaration, no event of default, however defined in any Security Instrument Agreement, has occurred and is continuing under such Security Instrument Agreement; (3) If the amount available to be drawn by the Trustee under each Reserve Instrument is then equal to the Reserve Instrument Limit; and (4) If any other requirement specified in a Supplemental Indenture shall have been satisfied; then and in every such case (a) the Holders of a majority in aggregate Principal amount of the Bonds at the time Outstanding (subject to any limitations specified in a Supplemental Indenture authorizing a Series of Bonds with respect to the rights of the Holders of such Bonds), (b) Security Instrument Issuers at the time providing Security Instruments which are in full force and effect and not in default on any payment obligation and which secure a majority in aggregate Principal amount of the Bonds then Outstanding, or (c) any combination of Bondholders and Security Instrument Issuers described in clauses (a) and (b) representing a majority in aggregate Principal amount of the Bonds at the time Outstanding, by written notice to the City and to the Trustee, may rescind such declaration and annul such default in its entirety or, if the Trustee shall have acted without a direction from the Holders or Security Instrument Issuers representing not less than 25% in aggregate Principal amount of the Bonds at the time Outstanding at the time of such request, and if there shall not have been theretofore delivered to the Trustee written request to the contrary by (i) the Holders of a majority in aggregate Principal amount of the Bonds then Outstanding (subject to any limitations specified in a Supplemental Indenture authorizing a Series of Bonds with respect to the rights of the Holders of such Bonds), (ii) Security Instrument Issuers at the time providing Security Instruments which are in full force and effect and not in default on any payment obligation and which secure a majority in aggregate Principal amount of the Bonds then Outstanding, or (iii) any combination of Bondholders and Security Instrument Issuers described under clauses (i) and (ii) representing a majority in aggregate Principal amount of the Bonds at the time Outstanding, then any such declaration shall ipso facto be deemed to be rescinded and any such default and its consequences shall ipso facto be deemed to be annulled, but no such rescission and annulment shall extend to or affect any subsequent default or impair or exhaust any right or power consequent thereon. 21 313352 -v1 Accounting and Examination of Records After Default. The City covenants that if an Event of Default shall have happened and shall not have been remedied, the books of record and accounts of the City and CALS and all other records of the City relating to the Public Libraries shall at all times be subject to the inspection and use of the Trustee and of its agents and attorneys. The City covenants that if an Event of Default shall happen and shall not have been remedied, the City, upon demand of the Trustee, will account, as if it were the trustee of an express trust, for all Library Tax proceeds and other moneys, securities, and funds pledged or held under the Master Indenture for such period as shall be stated in such demand. Application of Library Tax Proceeds and Other Moneys After Default. During the continuance of an Event of Default, the Trustee shall apply Library Tax proceeds and such moneys, securities, and funds and the income therefrom as follows and in the following order, provided that moneys held in any Series Subaccount in the Bond Account or in the Debt Service Reserve Account or received under any Security Instrument shall not be used for purposes other than payment of the interest and Principal or Redemption Price then due on the Series of Bonds corresponding to such Series Subaccount or such Security Instrument in accordance with paragraph (3) below: (1) to the payment of the reasonable and proper charges and expenses of the Trustee and the reasonable fees and disbursements of its counsel; (2) to the payment of the interest and Principal or Redemption Price then due on the Bonds and Security Instrument Repayment Obligation, as follows: (a) unless the Principal of all of the Bonds shall have become or have been declared due and payable, FIRST: To the payment to the persons entitled thereto of all installments of interest then due on the Bonds and security Instrument Repayment Obligations in the order of the maturity of such installments and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and SECOND: To the payment to the persons entitled thereto of the unpaid Principal or Redemption Price of any Bonds and Security Instrument Repayment Obligations which shall have become due, whether at maturity or by call for redemption, in the order of their due dates and, if the amount available shall not be sufficient to pay in full all the Bonds and Security Instrument Repayment Obligations due on any date, then to the payment thereof ratably, according to the amounts of Principal or Redemption Price due on such date, to the persons entitled thereto, without any discrimination or preference. (b) if the Principal of all of the Bonds shall have become or have been declared due and payable, to the payment of the Principal and interest then due and unpaid upon the Bonds and Security Instrument Repayment Obligations without preference or priority of Principal over interest or of interest over Principal, or of any installment of interest over any other installment of interest, or of any Bond or Security Instrument Repayment Obligations over any other Bond or Security Instrument Repayment Obligations, ratably, according to the amounts due respectively for Principal and interest, to the persons entitled thereto without any discrimination or preference. (3) to the payment of all obligations owed to all Reserve Instrument Issuers, ratably, according to the amounts due without any discrimination or preference. 22 313352 -vi If and whenever all overdue payments on all Bonds and Repayment Obligations, together with the reasonable and proper charges and expenses of the Trustee, shall be paid, or provision satisfactory to the Trustee shall be made for such payment, and all defaults under the Master Indenture or the Bonds shall be made good or secured to the satisfaction of the Trustee and the Repayment Obligations shall be made good or secured to the satisfaction of the Security Instrument Issuers and the Reserve Instrument Issuers, as appropriate, or provision deemed to be adequate shall be made therefor, the Trustee shall pay over to the City all Library Tax proceeds then remaining unexpended in the hands of the Trustee (except Library Tax proceeds deposited or pledged with the Trustee). The City and the Trustee shall be restored to their former positions and rights under the Master Indenture, and all Library Tax proceeds shall thereafter be applied as provided in the Master Indenture. No such payment over to the City by the Trustee or resumption of the application of Library Tax proceeds as provided in the Master Indenture shall extend to or affect any subsequent default under the Master Indenture or impair any right consequent thereon. Rights and Remedies of Bondholders. No Holder of any Bond, any Security Instrument Issuer, or any Reserve Instrument Issuer shall have any right to institute any proceeding, judicial or otherwise, with respect to the Master Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder, any Security Instrument Issuer, or any Reserve Instrument Issuer has previously given written notice to the Trustee of a continuing Event of Default; (2) either (a) the Holders of not less than 25% in aggregate Principal amount of the Outstanding Bonds, (b) Security Instrument Issuers at the time providing Security Instruments which are in full force and effect and not in default on any payment obligation and which secure 25% in aggregate Principal amount of the Bonds at the time Outstanding, or (c) any combination of Bondholders and Security Instrument Issuers described in clauses (a) and (b) representing not less than 25% in aggregate Principal amount of the Bonds at the time Outstanding, shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee under the Master Indenture; (3) such Holders or Security Instrument Issuer have offered to the Trustee reasonable indemnity against the costs, expenses, and liabilities to be incurred in compliance with such request; (4) the Trustee has failed to institute any such proceedings for 60 days after its receipt of such notice, request, and offer of indemnity; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60 day period by (a) the Holders of a majority in Principal amount of the Outstanding Bonds, (b) Security Instrument Issuers at the time providing Security Instruments which are in full force and effect and not in default on any payment obligation and which secure a majority in aggregate Principal amount of the Bonds then Outstanding, or (c) any combination of Bondholders and Security Instrument Issuers described in clauses (a) and (b) representing a majority in aggregate Principal amount of the Bonds at the time Outstanding; it being understood and intended that no one or more Holders of Bonds, Security Instrument Issuers, or Reserve Instrument Issuers shall have any right in any manner whatever by virtue of, or by availing of, any provision of the Master Indenture to affect, disturb, or prejudice the rights of any other such parties, or to obtain or to seek to obtain priority or preference over any other such parties or to enforce any right under the Master Indenture, except in the manner therein provided and for the equal and ratable benefit of all such parties in accordance with the provisions of the Master Indenture. 23 313352 -v1 0 0 Notwithstanding any other provision in the Master Indenture, the Holder of any Bond shall have the right which is absolute and unconditional to receive payment of the Principal and Redemption Price of and interest on such Bond on the respective stated maturities expressed in such Bond (or, in the case of redemption, on the redemption date of such Bond) and to institute suit for the enforcement of any such payment, subject only to any conditions of any Security Instrument Issuer providing a Security Instrument securing such Bond. Such right to receive payment shall not be impaired without the consent of such Holder. The (1) Holders of a majority of the Principal amount of the Outstanding Bonds, (2) Security Instrument Issuers at the time providing Security Instruments which are in full force and effect and not in default on any payment obligation and which secure a majority in aggregate Principal amount of the Bonds then Outstanding, or (3) any combination of Bondholders and Security Instrument Issuers described under clauses (1) and (2) representing a majority in aggregate Principal amount of the Bonds at the time Outstanding, shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that: such direction shall not be in conflict with any rule of law or the Master Indenture, the Trustee shall not determine that the action so directed would be unjustly prejudicial to the Holders and Security Instrument Issuers not taking part in such direction, and the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Appointment of Receiver. Upon the occurrence of an Event of Default, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Bondholders, the Security Instrument Issuers, and the Reserve Instrument Issuers, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver or receivers of the trust estate created by the Master Indenture, including, without limitation, the proceeds of the sale of the Bonds, the Library Tax proceeds, and the Funds, including the investments, if any, thereof, pending such proceedings, with such powers as a court making such appointments shall confer. Investment of Funds Moneys held in any Fund or account shall be invested and reinvested by the City or the Trustee to the fullest extent practicable in Investment Securities which mature not later than such times as shall be necessary to provide moneys when needed for payments to be made from such Fund or account, subject to the following: (1) the Trustee shall make such investments only in accordance with instructions received from an Authorized Officer of the City; (2) any Supplemental Indenture authorizing a Series of Bonds may impose additional restrictions on moneys held in any Fund or account; and (3) any Supplemental Indenture authorizing a Series of Bonds may authorize the investment of moneys to be held in any Project Account, Series Subaccount in the Bond Account, or Series Subaccount in the Debt Service Reserve Account created by such Supplemental Indenture and relating to such Series of Bonds in such other investments as may be specified by the Supplemental Indenture. Subject to any required rebate of earnings on investments in any Fund or account to the United States of America pursuant to section 148(f) of the Code and except as otherwise provided in a Supplemental Indenture establishing a Series Subaccount: (1) all moneys earned as an investment of moneys in the Construction Fund shall be retained therein; (2) net income earned on any moneys or investments in the Revenue Fund and the Bond Account shall be transferred to the Revenue Fund; and (3) whenever a Series 24 313352 -v1 o Subaccount in the Debt Service Reserve Account is in its full required amount, net income earned on any moneys or investments in such Series Subaccount shall be transferred to the Revenue Fund as provided in the Master Indenture (see the caption "Summary of the Master Indenture — Principal and Interest Fund —Debt Service Reserve Account" herein), otherwise, to be retained therein. Defeasance Discharge of Indebtedness. If the City shall pay, or there shall otherwise be paid to the Holder of all Bonds the Principal or Redemption Price, if applicable, and interest due or to become due thereon, at the times and in the manner stipulated therein, and if all Repayment Obligations owed to Security Instrument Issuers and Reserve Instrument Issuers shall have been paid in full, then the pledge of any Library Tax proceeds and other moneys, securities, and Funds pledged under the Master Indenture and all covenants, agreements, and other obligations of the City to the Bondholders, Security Instrument Issuers, and Reserve Instrument Issuers shall thereupon cease, terminate, and become void and be discharged and satisfied. Such Bonds shall cease to be entitled to any lien, benefit, or security under the Master Indenture, and all covenants, agreements, and obligations of the City to the Holders of such Bonds shall thereupon cease, terminate, and become void and be discharged and satisfied. Bonds or interest installments for the payment or redemption of which moneys shall have been set aside and shall be held in trust by the Fiduciaries (through deposit by the City of funds for such payment or redemption or otherwise) at the maturity or redemption date thereof shall be deemed to have been paid within the meaning and with the effect expressed in the paragraph above. All Outstanding Bonds of any Series shall be, prior to the maturity or redemption date thereof, deemed to have been paid within the meaning and with the effect expressed in the paragraph above if (1) in case any of said Bonds are to be redeemed on any date prior to their maturity, the City shall have given to the Trustee in form satisfactory to it irrevocable instructions to mail notice of redemption of such Bonds on said date, (2) there shall have been deposited with the Trustee either moneys in an amount which shall be sufficient, or Government Obligations (including any Government Obligations issued or held in book -entry form on the books of the Department of the Treasury of the United States of America) the principal of and the interest on which when due will provide moneys which, together with the moneys, if any, deposited with the Trustee at the same time, shall be sufficient, to pay when due the Principal or Redemption Price, if applicable, of and interest due and to become due on said Bonds on and prior to the redemption date or maturity date thereof, as the case may be, and (3) in the event said Bonds are not by their terms subject to redemption within the next succeeding 60 days, the City shall have given the Trustee in form satisfactory to it irrevocable instructions to mail, first class postage prepaid, a notice to the Holders of such Bonds that the deposit required by (2) above has been made with the Trustee and that said Bonds are deemed to have been paid in accordance with the Master Indenture and stating such maturity or redemption date upon which moneys are to be available for the payment of the Principal or Redemption Price, if applicable, of said Bonds. Neither Government Obligations nor moneys deposited with the Trustee nor principal or interest payments on any such Government Obligations shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the Principal or Redemption Price, if applicable, and interest on said Bonds; provided that any cash received from such principal or interest payments on such Government Obligations deposited with the Trustee, if not then needed for such purpose, shall be, to the extent practicable, reinvested in Government Obligations maturing at times and in amounts sufficient to pay when due the Principal or Redemption Price, if applicable, and interest to become due on said Bonds on and prior to such redemption date or maturity date thereof, as the case may be, and interest earned from such reinvestments shall be paid over to the City, as received by the Trustee, free and clear of any trust, lien, or pledge. Unclaimed Moneys. Any moneys held by a Fiduciary in trust for the payment and discharge of any of the Bonds which remain unclaimed for five years after the date when such Bonds have become due and payable, either at their stated maturity dates or by call for earlier redemption, if such moneys were held by the Fiduciary at such date, or for five years after the date of deposit of such moneys if deposited with the 25 313352 -v1 Fiduciary after the said date when such Bonds become due and payable, shall be repaid by the Fiduciary to the City, as its absolute property and free from trust, and the Fiduciary thereupon shall be released and discharged with respect thereto and the Bondholders shall look only to the City for the payment of such Bonds. Before being required to make any such payment to the City, the Fiduciary shall, at the expense of the City, cause to be published at least twice in a Financial Newspaper or Journal of general circulation in New York, New York, at an interval of not less than seven days between publications, a notice that said moneys remain unclaimed and that, after a date named in said notice, which date shall be not less than 30 days after the date of the first publication of such notice, the balance of such moneys then unclaimed will be returned to the City. Pill 313352 -v1 0 0 APPENDIX C SUMMARY OF THE SUPPLEMENTAL INDENTURE In addition to certain other information contained under the caption "The Series 2002 Bonds" herein, the following summarizes certain provisions of the Supplemental Indenture, to which documents in their entirety reference is made for the detailed provisions thereof. Establishment of Subaccounts The Supplemental Indenture establishes the Series 2002 Project Account in the Construction Fund and the Series 2002 Subaccount in the Bond Account and Debt Service Reserve Account in the Principal and Interest Fund. Series 2002 Debt Service Reserve Subaccount There is no debt service reserve requirement for the 2002 Bonds. Application of Proceeds of Series 2002B Bonds From the proceeds of the Series 2002B Bonds there shall be paid: To the Trustee for deposit as follows: (a) Into the Series 2002 Bond Subaccount, the amount of interest accrued from March 1, 2002 to the date of delivery of the Series 2002 Bonds; (b) Into the Series 2002 Cost of Issuance Subaccount, the amount set forth in the delivery instructions; and (c) Into the Series 2002 Project Account in the Construction Fund, the balance of the proceeds of the Series 2002 Bonds. 313352 -v1 10RELIMINARY DRAFT Dated: 2/11/02 FOR DISCUSSION PURPOSES ONLY CITY OF LITTLE ROCK, ARKANSAS as Issuer TO METROPOLITAN NATIONAL BANK as Trustee SUPPLEMENTAL TRUST INDENTURE Dated as of March 1, 2002 Providing For: City of Little Rock, Arkansas Library Improvement Bonds Series 2002 This instrument constitutes a Security Agreement under the Arkansas Uniform Commercial Code. This instrument prepared by: WRIGHT, LINDSEY & JENNINGS LLP 200 West Capitol Avenue, Suite 2200 Little Rock, Arkansas 72201 -3699 (501) 371 -0808 309272 -v1 a PRELIMINARY DRAFT Dated: 2/11/02 FOR DISCUSSION PURPOSES ONLY TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND AUTHORITY Section101. De finitions ...................................................................................... ..............................2 Section 102. Authority for Supplemental indenture ........................................... ..............................3 Section 103. Aggregate Amount oflssuable Bonds ............................................ ..............................3 ARTICLE H AUTHORIZATION, TERMS AND ISSUANCE OF SERIES 2002 BONDS Section 201. Authorization of Bonds, Principal Amount, Designation and Series ..........................3 Section 202. Finding and Purpose; Series 2002 Project .................................... ..............................4 Section203. Series 2002 Bonds. ... . .................................................................. ................................ 4 Section 204. Registered Bonds; Denomination and Numbers ............................ ..............................4 Section205. Paying Agent .................................................................................. ..............................4 Section 206. Optional Redemption and Mandatory Redemption. Section 207. Sale of Series 2002 Bonds .............................................................. ..............................6 Section 208. Execution of Series 2002 Bonds..... .............................................................................. 6 Section 209. Delivery of Series 2002 Bonds ........................................................ ..............................6 ARTICLE HI ESTABLISHMENT OF ACCOUNTS AND APPLICATION OF SERIES 2002 BOND PROCEEDS Section 301. Series 2002 Project Account ........................................................... ..............................7 Section 302. Series 2002 Bond Subaccount ........................................................ ..............................7 Section 303. Series 2002 Debt Service Reserve Subaccount .............................. ..............................7 Section 304. Cost oflssuance Account ............................................................... ..............................7 Section 305. Application of Proceeds of Series 2002 Bonds ............................... ..............................7 ARTICLE IV COMPLIANCE WITH REBATE AND OTHER REQUIREMENTS OF THE CODE Section 401. Authorization and Covenants ......................................................... ..............................7 Section 402. Creation of Series 2002 Rebate Fund ............................................ ..............................8 Section403. Additional Payments ....................................................................... ..............................8 Section 404. Investments to Be LegaL ................................................................ ..............................9 Section 405. Opinion of Bond Counsel; Amendments ....................................... ..............................9 Section 406. Additional Covenants; Agreements ................................................ ..............................9 Section 407. Agreement to Pay Rebate Amount, Penalty And Interest .............. ..............................9 ARTICLE V FORM OF SERIES 2002 BONDS Section 501. Form of Series 2002 Bonds . ........................................................... ..............................9 309272 -v1 ARTICLE VI MISCELLANEOUS Section 601. Article and Section Headings . ..... ........................................... .................................. 18 Section602. Partial Invalidity . ......... ...................... ....................................................................... 18 Section603. Effective Date . ................................................................................ ........................... 18 Section 604. Limitation on Issuance of Additional Bonds .......... ... - ... — .................................. 18 Section 605. Additional Conditions for Defeasance . ..... ................................................................ 18 CONSENT AND AGREEMENT TO SERIES SUPPLEMENTAL INDENTURE . .............................20 ii 309272 PRELIMINARY DRAFT Dated: 2/11/02 FOR DISCUSSION PURPOSES ONLY SUPPLEMENTAL TRUST INDENTURE This SUPPLEMENTAL TRUST INDENTURE dated as of the first day of March, 2002, by and between the CITY OF LITTLE ROCK, ARKANSAS, a city of the first class under the laws of the State of Arkansas ( "City"), and Metropolitan National Bank, an institution organized under and existing by virtue of the laws of the United States of America, with its principal office in Little Rock, Arkansas ( "Trustee "). WITNESSETH: WHEREAS, the City, Pulaski County, Arkansas and Perry County, Arkansas entered into an Interlocal Cooperation Agreement in February of 1975 which established the Central Arkansas Library System ( "CALS ") which currently operates ten branches located in the cities of Little Rock (main library and five branches), Sherwood, Jacksonville, Maumelle and Perryville; WHEREAS, pursuant to Ark. Code Ann. § §25 -20 -201 through 207, the City, Pulaski County, Perry County and the cities of Sherwood, Jacksonville and Maumelle entered into a new interlocal agreement in 1999 whereby CALS has expanded authority; WHEREAS, the City is authorized and empowered under the laws of the State of Arkansas, including particularly Amendment 30 to the Arkansas Constitution Ark. Code Ann. §§14-142-201 through 222 (Act 920 of the Acts of Arkansas of 1993) (the "Act "), and Ordinance No. 18,085 duly adopted and approved by the City on August 3, 1999, as amended and supplemented by Ordinance No. _ duly adopted and approved by the City on ' 2002, to issue bonds for the purpose of financing improvements to public libraries and to refund outstanding library bonds; WHEREAS, CALS, on behalf of the City, has determined that certain improvements to the public libraries operated by CALS should be accomplished; WHEREAS, the City and CALS intend to fund the following projects with the proceeds of the Series 2002 Bonds: (1) Complete 5b floor of the Main Library; (2) Purchase equipment for various branches; (3) Construction of a new library in southwest Little Rock; (4) Purchase of land in west Little Rock for new construction; (5) Enhancing CALS collection of books, videos, etc.; and (6) Accomplishing other projects which CALS' Board of Directors deems appropriate; (collectively, the "Project" or "Projects "); and WHEREAS, the costs of the Project and the costs of issuance are to be provided by the proceeds of the Series 2002 Bonds; WHEREAS, the series of Bonds issued under this Supplemental Indenture will be designated "City of Little Rock, Arkansas Library Improvement Bonds, Series 2002"; and WHEREAS, all things necessary to make the Series 2002 Bonds, when authenticated by the Trustee and issued as provided in this Supplemental Indenture, the valid, binding and legal obligations of the City according to the import thereof, and to constitute this Supplement Indenture a valid pledge of the proceeds of the Library Tax and the Debt Service Supplement to the payment of the principal of, premium, if any, and 309272 -v1 interest on the Series 2002 Bonds, in accordance with the provisions hereof, have or will have been done and performed, and the creation, execution and delivery of this Supplemental Indenture and the creation, execution and delivery of the Series 2002 Bonds, subject to the terms hereof, have in all respects been duly authorized; NOW, THEREFORE, know all men by these presents, this Supplemental Indenture witnesseth: ARTICLE I DEFINITIONS AND AUTHORITY Section 101. Definitions. (a) Except as provided in Section 101(b), all defined terms contained in the Master Indenture shall have the same meanings when used in this Series 2002 Supplemental Indenture as set forth in the Master Indenture. (b) As used in this Series 2002 Supplemental Indenture, the following terms shall have the following meanings, unless the context otherwise requires: "Bond Counsel" means Wright, Lindsey & Jennings LLP, Little Rock, Arkansas, or other counsel of nationally recognized standing in matters pertaining to the tax-exempt status of interest on obligations issued by states and their political subdivisions, duly admitted to the practice of law before the highest court of any state of the United States. "Closing Date" means the date of the delivery of the Series 2002 Bonds to the Underwriters. "Debt Service Supplement" means receipts of a .5% statewide sales and use tax implemented pursuant to Amendment No. 79 to the Arkansas Constitution. "Issue Date" means March 1, 2002, as designated in Section 203(a) hereof. "Master Indenture" means the Master Trust Indenture between the City and the Trustee dated as of September 1, 1999, providing for the issuance of Library Improvement Bonds, as amended and supplemented from time to time by Supplemental Indentures. "Maximum Annual Debt Service" means the maximum amount of Debt Service due in any Year with respect to the Series 2002 Bonds Outstanding. "Ordinance" means Ordinance No. 18,085 duly adopted and approved by the City on August 3, 1999, as amended and supplemented by Ordinance No. duly adopted and approved by the City on 2002. "Parity Bonds" means the City of Little Rock, Arkansas Library Improvement and Refunding Bonds, Series 1999B issued pursuant to the Master Indenture and a Supplemental Trust Indenture dated September 1, 1999 between the City and the Trustee. "Project or "Projects" means: (1) Complete 5b floor of the Main Library; (2) Purchase equipment for various branches; (3) Construction of a new library in southwest Little Rock; (4) Purchase of land in west Little Rock for new construction; 309272 0 (5) Enhancing CALS collection of books, videos, etc.; and (6) Accomplishing other projects which CALS' Board of Directors deems appropriate; "Record Date" means the fifteenth day of the month next preceding any interest payment date. "Series 2002 Bonds" means the City's Library Improvement Bonds, Series 2002, authorized by the Supplemental Indenture. "Series 2002 Bond Subaccount" means the Series Subaccount in the Bond Account established in Section 303. "Series 2002 Project" means and includes the costs associated with the accomplishment of the Projects, and the costs related to the issuance of the Series 2002 Bonds. "Series 2002 Project Account" means the Series 2002 Project Account in the Construction Fund established in Section 302. "Supplemental Indenture" means this Supplemental Trust Indenture executed by the City and effective as of March 1, 2002, authorizing the issuance and sale of the Series 2002 Bonds. "Tax Regulatory Agreement" means (a) the Tax Regulatory Agreement, dated the Closing Date, between the City and the Trustee, (b) the Project Certificate of the City addressed to Bond Counsel and dated the Closing Date, and (c) any other agreement or certificate of the City executed and delivered in connection with the Series 2002 Bonds in order to assure the tax- exempt status of interest received on the Series 2002 Bonds. "Trustee" means Metropolitan National Bank, and its successors and permitted assigns under the Master Indenture. "Underwriters" means Stephens Inc. The terms "hereby ", "hereof', "hereto ", "herein ", "hereunder ", and any similar terms as used in this Supplemental Indenture refer to this Supplemental Indenture. Section 102. Authority for Supplemental Indenture. This Series 2002 Supplemental Indenture is adopted pursuant to the provisions of the Act, the Master Indenture and the Ordinance. Section 103. Aggregate Amount of Issuable Bonds. The Series 2002 are a part of the $19,500,000 of Bonds authorized to be issued by the Master Indenture. The Series 2002 Bonds shall be issued on a parity of security with any other bonds issued pursuant to the Master Indenture. ARTICLE II AUTHORIZATION, TERMS AND ISSUANCE OF SERIES 2002 BONDS Section 201. Authorization of Bonds, Principal Amount, Designation and Series. In order to provide sufficient funds to complete the Series 2002 Project and in accordance with and subject to the terms, conditions and limitations established in the Master Indenture, including this Supplemental Indenture, a Series of Library Improvement Bonds is hereby authorized to be issued in the aggregate principal amount of not to exceed $9,500,000. Such Series of Bonds shall be designated "Library Improvement Bonds, Series 2002." 309272 0 Section 202. Finding and Purpose; Series 2002 Project. (a) The City hereby finds, determines and declares that the requirements of Sections 2.02 and 2.04 of the Master Indenture will have been complied with upon the delivery of the Series 2002 Bonds. (b) The Series 2002 Bonds are hereby authorized to be issued for the purpose of paying a portion of the costs to accomplish the Projects and to pay all expenses properly incident thereto and to the issuance of the Series 2002 Bonds. There are no other outstanding bonds, notes or other obligations payable from and secured by a pledge of the Library Tax or the Debt Service Supplement, other than the City of Little Rock, Arkansas Library Improvement Bonds, Series 1999B dated September 1, 1999, and issued on a parity of security therewith (the "Parity Bonds "). The Master Indenture grants the City the authority to issue additional Series of bonds on a parity of security with the Series 2002 Bonds. However, the maximum aggregate principal amount of bonds which may be issued under the Master Indenture is $19,500,000, which will be completely issued after issuance of the Series 2002 Bonds. Section 203. Series 2002 Bonds. (a) The Series 2002 Bonds shall be dated as of March 1, 2002, which is hereby designated as the Issue Date. The Series 2002 Bonds shall constitute Current Interest Bonds under the Master Indenture, shall bear interest from March 1, 2002, payable September 1, 2002, and semi - annually thereafter on March 1 and September 1 in each year at the rates shown below, and shall mature on the dates and in the principal amounts shown below: March 1 Amount of the Year Maturine 2003 $490,000.00 2004 505,000.00 2005 520,000.00 2006 535,000.00 2007 555,000.00 2008 575,000.00 2009 805,000.00 2010 1,350,000.00 2011 1,410,000.00 2012 1,475,000.00 2013 1,280,000.00 Interest Rate (b) Each Series 2002 Bond shall bear interest from the interest payment date next preceding the date of registration and authentication thereof unless it is registered as of an interest payment date, in which event it shall bear interest from the date thereof, or unless it is registered prior to the first interest payment date, in which event it shall bear interest from its date, or unless, as shown by the records of the Trustee, interest on the Series 2002 Bonds shall be in default, in which event it shall bear interest from the date to which interest has been paid in full. Section 204. Registered Bonds; Denomination and Numbers. The Series 2002 Bonds shall be issued solely as fully registered Bonds, without coupons, in the denomination of $5,000 or any integral multiple thereof, provided that no individual Series 2002 Bond shall represent more than one maturity of Series 2002 Bonds. The Series 2002 Bonds shall be numbered from one (1) consecutively upwards with the prefix "R" preceding each number. Section 205. Paying Agent The Trustee is hereby appointed the Paying Agent for the Series 2002 Bonds, pursuant and subject to Section 7.02 of the Master Indenture. Principal and Redemption Price on the Series 309272 2002 Bonds when due shall be payable at the principal corporate trust office of the Trustee, or of its successor as Paying Agent. Payment of interest on the Series 2002 Bonds shall be made to the registered Holder thereof and shall be paid (1) by check or draft mailed to the person who is the registered Holder of record as of the close of business on the Record Date at the address as it appears on the registration books of the Trustee or at such other address as is furnished in writing by such registered Holder to the Trustee prior to the Record Date or (2) solely at the option of Trustee, by wire transfer to the registered Holder thereof upon written notice by such Holder to the Trustee given not later than the Record Date prior to an interest payment date. Section 206. Optional Redemption and Mandatory Redemption. (a) The Series 2002 Bonds maturing on or after March 1, 2008 are subject to optional redemption on or after Match 1, 2008 and after the Parity Bonds have been fully paid, at the election of the City, in whole, but not in part, on any date, upon notice as provided in Section 4.03 of the Master Indenture and Section 206(c) hereof, and at a price equal to the par amount plus accrued interest to the redemption date. At least one day before the date fixed for such redemption, the City shall deposit with, or otherwise make available to, the Trustee for deposit into the Series 2002 Bond Subaccount moneys sufficient to pay the principal of, and premium, if any, and interest on, the Series 2002 Bonds to be redeemed on the redemption date. With respect to any notice of optional redemption of Series 2002 Bonds, unless upon the giving of such notice such Series 2002 Bonds shall be deemed to have been paid within the meaning of Article XI of the Master Indenture, such notice may state that such redemption shall be conditioned upon the receipt by the Trustee on or prior to the date fixed for such redemption of money sufficient to pay the Redemption Price of and interest on the Series 2002 Bonds to be redeemed, and that if such money shall not have been so received said notice shall be of no force and effect, and the City shall not be required to redeem such Series 2002 Bonds. In the event that such notice of redemption contains such a condition and such money is not so received, the redemption shall not be made and the Trustee shall within a reasonable time thereafter give notice, in the manner in which the notice of redemption was given, that such money was not so received and that such redemption was not made. (b) The Series 2002 Bonds shall be subject to mandatory redemption prior to maturity, in inverse order of maturity, (i) on any interest payment date from proceeds of the Series 2002 Bonds not needed for the Series 2002 Project, and (ii) on any interest payment date on or after September 1, 2002 and after the Parity Bonds have been paid in full, from surplus collections of the Library Tax and Debt Service Supplement, being collections over and above the amount necessary to pay the current requirements of interest and principal, and Trustee's fees, and the interest and principal due and Sinking Fund Installments to be paid on the next interest payment date, in whole or in part, at a redemption price equal to the principal amount being redeemed plus accrued interest to the redemption date. If less than all of the Series 2002 Bonds shall be called for mandatory redemption, the Series 2002 Bonds shall be redeemed in inverse order of maturity. If fewer than all of the Series 2002 Bonds of any one maturity (so called for mandatory redemption) shall be called for mandatory redemption, the Trustee shall select the particular Bonds or portions of Bonds to be redeemed from such maturity by lot or in such other manner as the Trustee in its discretion may deem proper. The portion of any Series 2002 Bonds to be redeemed shall be in the principal amount of $5,000 or an integral multiple thereof, provided that, in selecting Series 2002 Bonds for redemption, the Trustee shall treat each Series 2002 Bond as representing that number of Series 2002 Bonds which is obtained by dividing the principal amount of such Bond by $5,000. 309272 • 4 0 i (c) In addition to the notice described in Section 4.03 of the Master Indenture, further notice of any redemption of the Series 2002 Bonds shall be given by the Trustee as set out below, but no defect in such further notice nor any failure to give all or any portion of such further notice shall in any manner defeat the effectiveness of a call for redemption if notice thereof is given as described in Section 4.03 of the Master Indenture. (1) Each further notice of redemption given hereunder shall contain (i) the CUSIP numbers of all Series 2002 Bonds being redeemed; (ii) the date of issue of the Series 2002 Bonds as originally issued; (iii) the rate of interest born by each Series 2002-Bond being redeemed; (iv) the maturity date of each Series 2002 Bond being redeemed; and (v) any other descriptive information needed to identify accurately the Series 2002 Bonds being redeemed. (2) Each further notice of redemption shall be sent at least 30 days before the redemption date by registered or certified mail or overnight delivery service to: (i) the following registered securities depositories (if at the time of such notice such depositaries are then in the business of holding substantial amounts of obligations of types comprising the Series 2002 Bonds): Depository Trust Company of New York, New York, (ii) Moody's Municipal and Government and Standard and Poor's Called Bond Record; and (iii) any other such depositaries or national information services that disseminate notices of redemption of obligations such as the Series 2002 Bonds, designated by the City to receive such notice. (3) Upon the payment of the redemption price of the Series 2002 Bonds being redeemed, each check or other transfer of funds issued for such purpose shall bear the CUSIP number identifying, by issue and maturity, the Series 2002 Bonds being redeemed with the proceeds of such check or other transfer. Section 207. Sale of Series 2002 Bonds. (a) The Series 2002 Bonds authorized to be issued herein are hereby sold to the Underwriters at an aggregate price of $ plus accrued interest on the Series 2002 Bonds from March 1, 2002 to the date of delivery of and payment for the Series 2002 Bonds, on the terms and conditions set forth in the Purchase Contract and upon the basis of the representations therein set forth. (b) The City agrees that it will not issue any bonds, refunding bonds or other obligations payable from the proceeds of the Library Tax or Debt Service Supplement within a period of at least 31 days after the date of delivery of the Series 2002 Bonds to the Underwriters. (c) The City agrees that it will not issue any bonds, refunding bonds or other obligations payable from the proceeds of the Library Tax and Debt Service Supplement unless the Library Tax and Debt Service Supplement proceeds for the preceding twelve consecutive months are in excess of 120% of the average annual debt service requirements for the Series 2002 Bonds and any bonds issued on a panty of security therewith. Section 208. Execution of Series 2002 Bonds. The Series 2002 Bonds shall be executed on behalf of the City by the Mayor by his manual or facsimile signature, and attested and countersigned by the City Clerk by her manual or facsimile signature, and the City's seal (or a facsimile thereof) shall be imprinted upon the Series 2002 Bonds. The Series 2002 Bonds shall then be delivered to the Trustee and manually authenticated by it. Section 209. Delivery of Series 2002 Bonds. The Series 2002 Bonds shall be delivered to the Underwriters, upon compliance with the provisions of Section 3.02 of the Master Indenture and the provisions of the Supplement Indenture. 0 309272 ARTICLE III ESTABLISHMENT OF ACCOUNTS AND APPLICATION OF SERIES 2002 BOND PROCEEDS Section 301. Series 2002 Project Account. There is hereby established a Project Account in the Construction Fund designated as the "Series 2002 Project Account', moneys in which shall be used for the purpose and as authorized by Section 5.03 of the Master Indenture to pay the costs necessary to complete the Series 2002 Project as provided in Section 202(b) hereof. Upon receipt by the Trustee of the Written Certificate of the City specifying amounts to be paid to accomplish the Projects and pay the costs associated therewith, the Trustee shall transfer the funds in the Series 2002 Project Account to the entities and in the amounts set forth in such Certificate. Any remaining balance in the Series 2002 Project Account, not set forth in a Certificate of the City, shall be deposited into the Series 2002 Bond Subaccount for use in accordance with Section 302. Section 302. Series 2002 Bond Subaccount. Pursuant to Section 5.07(a) of the Master Indenture, there is hereby established a subaccount in the Bond Account in the Principal and Interest Fund designated as the "Series 2002 Bond Subaccount". Moneys shall be deposited into and paid from the Series 2002 Bond Subaccount in accordance with Section 5.07 of the Master Indenture to pay Debt Service on the Series 2002 Bonds. Section 303. Series 2002 Debt Service Reserve Subaccount. A Debt Service Reserve Account shall not be established for the Series 2002 Bonds. Section 304. Cost of Issuance Account. There is hereby established a Series 2002 Cost of Issuance Account in the Construction Fund. Upon receipt of a requisition from the City, the Trustee shall transfer funds in the Series 2002 Cost of Issuance Account to the entities in the amount set forth on the requisition for the purpose of paying the costs of issuing the Series 2002 Bonds. Any remaining balance in the Series 2002 Cost of Issuance Account shall be deposited into the Series 2002 Bond Subaccount for use in accordance with Section 302. Section 305. Application of Proceeds of Series 2002 Braids. From the proceeds of the Series 2002 Bonds there shall be paid: To the Trustee for deposit as follows: (a) Into the Series 2002 Bond Subaccount, the amount of interest accrued from March 1, 2002 to the date of delivery of the Series 2002 Bonds; (b) Into the Series 2002 Cost of Issuance Subaccount, the amount set forth in the delivery instructions; and (c) Into the Series 2002 Project Account in the Construction Fund, the balance of the proceeds of the Series 2002 Bonds. ARTICLE IV COMPLIANCE WITH REBATE AND OTHER REQUIREMENTS OF THE CODE Section 401. Authorization and Covenants. (a) The City covenants and certifies to and for the benefit of the purchasers of the Series 2002 Bonds that: (i) it will at all times comply with the provisions of any Tax Regulatory Agreement; 7 309272 (ii) it will at all times comply with the rebate requirements contained in Section 148(f) of the Code (or successor provision) including, without limitation, establishing any necessary separate funds or accounts, entering into any necessary rebate calculation agreement to provide for the calculations of amounts required to be rebated to the United States, the keeping of records necessary to enable such calculations to be made and the timely payment to the United States of all amounts, including any applicable penalties and interest, required to be rebated; (iii) no use will be made of the proceeds of the issue and sale of the Series 2002 Bonds, or any funds or accounts of the City which may be deemed to be proceeds of the Series 2002 Bonds, pursuant to Section 148 of the Code (or successor provision) and applicable regulations (proposed or promulgated) which use, if it had been reasonably expected on the date of issuance of the Series 2002 Bonds, would have caused the Series 2002 Bonds to be classified as "arbitrage bonds" within the meaning of Section 148 of the Code (or successor provision); (iv) it will not take any action that would cause interest on the Series 2002 Bonds to be or to become ineligible for the exclusion from gross income of the owners of the Series 2002 Bonds as provided in Section 103 of the Code (or successor provision), nor will it omit to take or cause to be taken, in timely manner, any action, which omission would cause interest on the Series 2002 Bonds to be or to become ineligible for the exclusion from gross income of the owners of the Series 2002 Bonds as provided in Section 103 of the Code (or successor provision). (b) Notwithstanding anything in the Master Indenture to the contrary and in accordance with the City's covenants in this Article, all moneys and investments held in the Funds and Accounts established and administered under the Master Indenture shall be subject to the requirements of the Tax Regulatory Agreement relating to the rebate of certain excess amounts computed in accordance with Section 148(f) of the Code (or successor provision) held therein to the United States at the times and in the amounts determined in accordance with the applicable provisions of the Tax Regulatory Agreement to maintain the excludability of interest on the Series 2002 Bonds from gross income of the owners thereof for federal income tax purposes. (c) Pursuant to the foregoing covenants, the City obligates itself to comply throughout the term of the issue of the Series 2002 Bonds with the requirements of Section 103 of the Code (or successor provision) and the regulations proposed or promulgated thereunder. Section 402. Creation of Series 2002 Rebate Fund. Pursuant to Section 2.02(a)(14) of the Master Indenture, there is hereby created by the City and ordered established with the Trustee an irrevocable trust fund, to be kept separate and apart from all other funds and accounts established by this Series 2002 Supplemental Indenture, the Master Indenture, or any other indenture created pursuant to the Master Indenture and designated "Series 2002 Rebate Fund," which shall be administered in accordance with the Tax Regulatory Agreement and the requirements of the Code. The Trustee shall make deposits to and disbursements from the Series 2002 Rebate Fund from time to time in accordance with the Tax Regulatory Agreement and shall invest moneys on deposit in the Series 2002 Rebate Fund in accordance with the Tax Regulatory Agreement. Section 403. Additional Payments. The City hereby agrees to deposit into the Series 2002 Rebate Fund or pay to the United States from the Library Tax and Debt Service Supplement proceeds (whether or not such moneys are on deposit in any fund or account related to the Series 2002 Bonds) any amount which is required to be deposited into the Series 2002 Rebate Fund or paid to the United States, but which is not available in a fund or account related to the Series 2002 Bonds for transfer to the Series 2002 Rebate Fund or payment to the United States. This obligation shall not be construed as constituting a debt or liability of the City within the meaning of any constitutional or statutory provision or limitation. 309272 • Section 404. Investments to Be Legal. All investments subject to rebate shall be made to the extent permitted by law and shall comply with the investment provisions contained in the Tax Regulatory Agreement. Section 405. Opinion of Bond Counsel; Amendments. The provisions of this Article N and the provisions of any Tax Regulatory Agreement need not be observed and the provisions of this Article IV and any Tax Regulatory Agreement may be amended or supplemented at any time by the City if the Trustee receives an opinion of Bond Counsel to the effect that the failure to comply with such provisions, and the terms of such amendment or supplement, will not adversely affect the exemption from federal income taxation of interest on the Series 2002 Bonds. Section 406. Additional Covenants; Agreements. The City hereby covenants to make, execute and enter into (and to take such actions, if any, as may be necessary to enable it to do so) any Supplemental Indenture or Tax Regulatory Agreement necessary to comply with any changes in law or regulations in order to preserve the exemption from federal income taxation of interest on the Series 2002 Bonds to the extent that the City may lawfully do so. The City further covenants to (a) impose such limitations on the investment or use of moneys or investments related to the Series 2002 Bonds, (b) make such payments to the United States Treasury, (c) maintain such records, (d) perform such calculations and (e) perform such other acts as may be necessary to preserve the exemption from federal income taxation of interest on the Series 2002 Bonds and which the City may lawfully do. Section 407. Agreement to Pay Rebate Amount, Penalty And Interest. Except as otherwise provided in Section 405 hereof, the City covenants to pay when due to the United States from Library Tax proceeds an amount equal to the payment due, following receipt of a notice from the Secretary of the Treasury of the United States of nonpayment or underpayment of any amount due to the United States pursuant to any provision of the Code requiring that a payment be made to the United States Treasury to preserve the tax - exempt status of interest on the Series 2002 Bonds. This obligation shall not be construed as constituting a debt or liability of the City within the meaning of any constitutional or statutory provision or limitation. ARTICLE V FORM OF SERIES 2002 BONDS Section 501. Form of Series 2002 Bonds. Subject to the provisions of the Master Indenture, each Series 2002 Bond shall be in substantially the following form, with such insertions or variations as to any redemption or amortization provisions and such other insertions or omissions, endorsements and variations as may be required or permitted by the Master Indenture: [Series 2002 Bond Form follows on next page] 309272 REGISTERED No. R- Interest Commencement Date: Maturity Date: Principal Amount: Registered Owner: _ (Face of Bond) STATE OF ARKANSAS COUNTY OF PULASKI CITY OF LITTLE ROCK LIBRARY IMPROVEMENT BOND SERIES 2002 DATED MARCH 1, 2002 Interest Rate: CUSIP: REGISTERED For value received, the City of Little Rock, Arkansas (the "City "), promises to pay to the registered owner shown above, or registered assigns, the principal amount shown above on the Maturity Date identified above and to pay interest (computed on the basis of a 360 -day year of twelve 30 -day months) on such principal amount from the Interest Commencement Date specified above until paid at the Interest Rate per annum set forth above. Interest is payable semiannually on March 1 and September 1 of each year, commencing on March 1, 2002. Principal of this Bond is payable to the Registered Owner, in lawful money of the United States of America, upon presentation when due at the corporate trust office of Metropolitan National Bank (the "Trustee ") in Little Rock, Arkansas. Payment of each installment of interest shall be made to the person in whose name this Bond is registered on the registration books of the City maintained by the Trustee at the close of business on the fifteenth day of the month (whether or not a business day) next preceding each interest payment date (the "Record Date "), irrespective of any transfer or exchange of this Bond subsequent to such Record Date and prior to such interest payment date. Such interest payments shall be by check or draft drawn on the Trustee, and mailed to such registered owner at the address appearing on such registration books, or solely at the option of the Trustee, by wire fund transfer to an account identified by the registered owner. The Bonds are issued on a parity of security with the City of Little Rock, Arkansas Library Improvement and Refunding Bonds, Series 1999B, dated September 1, 1999 (the "Parity Bonds "). This Bond is one of an issue of City of Little Rock, Arkansas Library Improvement Bonds, Series 2002, aggregating Nine Million, Five Hundred Thousand Dollars ($9,500,000) in principal amount (the "Bonds "), issued for the purpose(s) of (1) Completion of the Fifth Floor of the Main Library; (2) Purchasing equipment for various branches; (3) Construction of a new library in southwest Little Rock; (4) Purchasing land in west Little Rock for new construction; (5) Enhancing CALS collection of books, videos, etc.; and (6) Accomplishing other projects which CALS' Board of Directors deems appropriate and paying the costs and expenses incidental thereto, authorized pursuant to Emergency Ordinance No. 18,085 of the City adopted on August 3, 1999, as supplemented and amended by Ordinance No. _ dated 2002 (the "Authorizing Ordinance "). The Series 2002 Bonds are issuable as fully registered bonds in denominations of $5,000 or any integral multiple thereof. 10 309272 THIS BOND IS ISSUED PURSUANT TO AND IN FULL COMPLIANCE WITH THE CONSTITUTION AND LAWS OF THE STATE OF ARKANSAS, INCLUDING PARTICULARLY ACT NO. 920 OF THE ACTS OF ARKANSAS OF 1993 (CODIFIED AT ARK. CODE ANN. § §14- 142 -201 THROUGH 222) (THE "ACT "), AND PURSUANT TO A MASTER TRUST INDENTURE DATED AS OF SEPTEMBER 1, 1999, AS SUPPLEMENTED BY A SUPPLEMENTAL TRUST INDENTURE DATED AS OF MARCH 1, 2002 (COLLECTIVELY, THE "MASTER INDENTURE ") DULY EXECUTED AND DELIVERED BY THE CITY TO THE TRUSTEE, AND DOES NOT CONSTITUTE AN INDEBTEDNESS OF THE CITY WITHIN ANY CONSTITUTIONAL OR STATUTORY LIMITATION. THE BONDS ARE NOT GENERAL OBLIGATIONS OF THE CITY, BUT ARE SPECIAL OBLIGATIONS PAYABLE SOLELY FROM THE PROCEEDS OF THE LIBRARY TAX AND FROM FUNDS AND MONEYS PLEDGED TO THE PAYMENT OF THE BONDS UNDER THE MASTER INDENTURE. (SEE REVERSE SIDE FOR ADDITIONAL PROVISIONS AND DEFINITIONS WHICH HAVE THE SAME EFFECT AS IF FULLY SET FORTH IN THIS PLACE.) IN WITNESS WHEREOF, the City has caused this bond to be executed by its Mayor and City Clerk by their facsimile signatures and a facsimile of its corporate seal to be reproduced hereon. CITY OF LITTLE ROCK, ARKANSAS By; (facsimile signature) Mayor By; (facsimile signature) City Clerk (FACSIMILE SEAL) 11 309272 0 0 CERTIFICATE OF AUTHENTICATION This bond is one of the Series 2002 Bonds described in the within mentioned Master Indenture and Ordinance and is one of the Library Improvement Bonds, Series 2002, dated March 1, 2002, of the City of Little Rock, Arkansas. Registration Date: By: 309272 Metropolitan National Bank, Little Rock, Arkansas, Trustee Authorized Officer 12 (Back of Bond) CITY OF LITTLE ROCK, ARKANSAS LIBRARY IMPROVEMENT BOND SERIES 2002 ADDITIONAL PROVISIONS Reference is made to the Master Indenture for a detailed statement of the terms and conditions upon which the Bonds are issued, of the terms and conditions for the issuance of additional bonds payable from the Library Tax and Debt Service Supplement proceeds, of the nature and extent of the security for the Bonds, and of the rights and obligations of the City, the Trustee and the registered owners of the Bonds. The City has covenanted to levy the Library Tax annually which with the Debt Service Supplement shall be sufficient at all times to provide for the payment of the principal of and interest on the Bonds and any additional bonds issued pursuant to the Master Indenture, and the payment of Trustee's fees, as the same become due and payable. This Bond is transferable by the Holder hereof in person or by such Holder's attorney duly authorized in writing at the principal corporate trust office of the Trustee, but only in the manner, subject to the limitations and upon payment of the charges provided in the Master Indenture, and upon surrender and cancellation of this Bond. Upon such transfer a new fully registered Bond or Bonds of the same Series and the same maturity, of authorized denomination or denominations, for the same aggregate principal amount, will be issued to the transferee in exchange therefor. The City and the Trustee may deem and treat the registered Holder hereof as the absolute owner hereof for the purpose of receiving payment of or on account of principal hereof and premium, if any, hereon and interest due hereon and for all other purposes, and neither the City nor the Trustee nor any paying agent shall be affected by any notice to the contrary. This Bond may, upon surrender at the office of the Trustee, be exchanged for fully registered Bonds for the same maturity in like aggregate principal amount of any authorized denominations, upon the terms and conditions specified in the Master Indenture. The Series 2002 Bonds maturing on or after March 1, 2008 are subject to optional redemption on or after March 1, 2008 and after redemption of all Parity Bonds, at the election of the City, in whole, but not in part, on any date, upon notice as provided in Section 4.03 of the Master Indenture and Section 206(c) of the 2002 Supplemental Indenture, and at a price equal to the par amount plus accrued interest to the redemption date. The Series 2002 Bonds shall be subject to mandatory redemption prior to maturity, in inverse order of maturity, (i) on any interest payment date from proceeds of the Series 2002 Bonds not needed for the Series 2002 Project, and (ii) on any interest payment date on or after September 1, 2002 and after redemption of all Parity Bonds, from surplus collections of the Library Tax and the Debt Service Supplement. Surplus collections shall mean collections over and above the amount necessary to pay the current requirements of interest and principal, and Trustee's fees, and the interest and principal due and Sinking Fund Installments to be paid on the next interest payment date, in whole or in part, at a redemption price equal to the principal amount being redeemed plus accrued interest to the redemption date. At least one day before the date fixed for such redemption, the City shall deposit with, or otherwise make available to, the Trustee for deposit into the Series 2002 Bond Subaccount moneys sufficient to pay the principal of, and premium, if any, and interest on, the Series 2002 Bonds to be redeemed on the redemption date. 13 309272 0 & With respect to any notice of optional or mandatory redemption of Series 2002 Bonds, unless upon the giving of such notice such Series 2002 Bonds shall be deemed to have been paid within the meaning of Article XI of the Master Indenture, such notice may state that such redemption shall be conditioned upon the receipt by the Trustee on or prior to the date fixed for such redemption of money sufficient to pay the Redemption Price of and interest on the Series 2002 Bonds to be redeemed, and that if such money shall not have been so received said notice shall be of no force and effect, and the City shall not be required to redeem such Series 2002 Bonds. In the event that such notice of redemption contains such a condition and such money is not so received, the redemption shall not be made and the Trustee shall within a reasonable time thereafter give notice, in the manner in which the notice of redemption was given, that such money was not so received and that such redemption was not made. In addition to the notice described in Section 4.03 of the Master Indenture, further notice of any redemption of the Series 2002 Bonds shall be given by the Trustee as set out below, but no defect in such further notice nor any failure to give all or any portion of such further notice shall in any manner defeat the effectiveness of a call for redemption if notice thereof is given as described in Section 4.03 of the Master Indenture. (1) Each further notice of redemption given hereunder shall contain (i) the CUSIP numbers of all Series 2002 Bonds being redeemed; (ii) the date of issue of the Series 2002 Bonds as originally issued; (iii) the rate of interest born by each Series 2002 Bond being redeemed; (iv) the maturity date of each Series 2002 Bond being redeemed; and (v) any other descriptive information needed to identify accurately the Series 2002 Bonds being redeemed. (2) Each further notice of redemption shall be sent at least 30 days before the redemption date by registered or certified mail or overnight delivery service to: (i) the following registered securities depositories (if at the time of such notice such depositaries are then in the business of holding substantial amounts of obligations of types comprising the Series 2002 Bonds): Depository Trust Company of New York, New York, (ii) Moody's Municipal and Government and Standard and Poor's Called Bond Record; and (iii) any other such depositaries or national information services that disseminate notices of redemption of obligations such as the Series 2002 Bonds, designated by the City to receive such notice. (3) Upon the payment of the redemption price of the Series 2002 Bonds being redeemed, each check or other transfer of funds issued for such purpose shall bear the CUSIP number identifying, by issue and maturity, the Series 2002 Bonds being redeemed with the proceeds of such check or other transfer. If less than all of the Series 2002 Bonds shall be called for mandatory redemption, the Series 2002 Bonds shall be redeemed in inverse order of maturity. If fewer than all of the Series 2002 Bonds of any one maturity (so called for extraordinary redemption) shall be called for extraordinary redemption, the Trustee shall select the particular Bonds or portions of Bonds to be redeemed from such maturity by lot or in such other manner as the Trustee in its discretion may deem proper. The portion of any Series 2002 Bonds to be redeemed shall be in the principal amount of $5,000 or an integral multiple thereof; provided that, in selecting Series 2002 Bonds for redemption, the Trustee shall treat each Series 2002 Bond as representing that number of Series 2002 Bonds which is obtained by dividing the principal amount of such Bond by $5,000. This Bond shall not be valid until it shall have been authenticated by the certificate hereon duly signed by the Trustee. IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts, conditions and things required to exist, happen and be performed precedent to and in the issuance of this Series 2002 Bond have existed, have 14 309272 • & happened and have been performed in due time, form and manner, as required by law; that the indebtedness represented by this Series 2002 Bond and the issue of which it forms a part does not exceed any constitutional or statutory limitation; and that all of the proceeds of the Library Tax have been pledged to the payment of the principal of premium, if any, and interest on the Series 2002 Bonds. 15 309272 0 ABBREVIATIONS 0 The following abbreviations, when used in the inscription on the face of the within Bond, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship not as tenants in common UNIF GIFT MIN ACT - Custodian (Cost) (Minor) under Uniform Gifts to Minors Act (State) Additional abbreviations may also be used though not in the list above. 309272 16 FOR VALUE RECEIVED, transfer unto TRANSFER "name and address of transferee" (Social Security or Federal Employer Identification No. ( "Transferor") hereby sells, assigns and the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints ( "Transferee ") as attorney to transfer the within Bond on the books kept for registration thereof, with full power of substitution in the premises. Dated: (Transferor) Transferor NOTICE: No transfer will be issued in the name of the Transferee, unless the signature to this assignment corresponds with the name appearing upon the face of the within Bond in every particular, without alteration or enlargement or any change whatever and the Social Security or Federal Employer Identification Number of the Transferee is supplied. Signature Guaranteed: NOTICE: Signature(s) must be guaranteed by a member firm of or a participant in the Securities Transfer Agent Medallion Program ( "STAMP "), or another signature guaranty program recognized by the Trustee. 17 309272 0 0 ARTICLE VI MISCELLANEOUS Section 601. Article and Section Headings. The headings or titles of the several articles and sections hereof, and any table of contents appended to copies hereof, shall be solely for convenience of reference and shall not affect the meaning, construction or effect of this Supplemental Indenture. Section 602. Partial Invalidity. If any one of more of the covenants or agreements, or portions thereof, provided in this Supplemental Indenture to be performed shall be contrary to law (other than the provisions of the Master Indenture limiting the liability of the City to make payments on the Bonds solely from Library Tax proceeds and other amounts pledged therefor by the Master Indenture), then such covenant or covenants, such agreement or agreements, or such portions thereof, shall be null and void and shall be deemed separable from the remaining covenants and agreements or portions thereof and shall in no way affect the validity of this Supplemental Indenture or of the Series 2002 Bonds; but the holders of the Series 2002 Bonds shall retain all the rights and benefits accorded to them under the Act or any other applicable provisions of law. Section 603. Effective Date. This Supplemental Indenture shall take effect immediately. Section 604. Limitation on Issuance of Additional Bonds. No additional Bonds may be issued pursuant to or under the terms of this Supplemental Indenture. Section 605. Additional Conditions for Defeasance. Series 2002 Bonds shall, prior to the maturity or redemption date thereof, be deemed to have been paid within the meaning and effect of Section 11.01(a) of the Master Indenture upon satisfaction of the conditions specified in Section 11.01(b) of the Master Indenture provided that (a) the Government Obligations deposited with the Trustee pursuant to Section 11.01(b) of the Master Indenture are direct non - callable obligations of the United States of America or other Government Obligations, and (b) the Trustee shall have received a verification report from an independent nationally recognized public accountant experienced in the preparation of such reports to the effect that funds from such Government Obligations and other available cash deposited with the Trustee will be available in sufficient amounts to satisfy the requirements of Section 11.01 of the Master Indenture. [Signature Page Follows] W. 309272 0 Executed this I" day of March, 2002. ATTEST: Robbie Hancock, City Clerk [SEAL] M ATTEST: 309272 0 CITY OF LITTLE ROCK, ARKANSAS Jim Dailey, Mayor METROPOLITAN NATIONAL BANK, TRUSTEE 19 0. CONSENT AND AGREEMENT TO SERIES 2002 SUPPLEMENTAL INDENTURE The Central Arkansas Library System hereby consents to the execution and delivery of the foregoing Supplemental Trust Indenture, and agrees that it shall have and undertake the right and responsibility to perform all covenants and obligations of the City of Little Rock, Arkansas under and in accordance with the provisions of the Master Indenture and the Supplemental Indenture to the extent CALS is authorized by law to do so. CENTRAL ARKANSAS LIBRARY SYSTEM Dr. Bobby Roberts, Director ATTEST: Lame Thompson, Associate Director of Operations pill 309272