Municipal Bonds – Disclosure
Requirements and the Role
of the City Attorney
Thursday, May 8, 2014 General Session; 10:45 a.m. – 12:00 p.m.
Stephen L. Taber, Meyers Nave
League of California Cities®
2014 Spring Conference
Renaissance Esmeralda, Indian Wells
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League of California Cities®
2014 Spring Conference
Renaissance Esmeralda, Indian Wells
LEAGUE OF CALIFORNIA CITIES
2014 City Attorneys’ Spring Conference
Indian Wells, CA
SEC Enforcement Actions against Municipalities
SEC ACTIONS BASED ON MUNICIPAL ISSUER
DISCLOSURE VIOLATIONS
Stephen L. Taber, Principal
Meyers Nave
575 Market Street, Suite 2080
San Francisco, CA 94105
415.677.3355
[email protected]
SEC ACTIONS BASED ON MUNICIPAL ISSUER DISCLOSURE VIOLATIONS
Stephen L. Taber, Meyers Nave
1.
Introduction
As a general proposition, while federal securities laws do not require municipal securities
to be registered, these laws impose a duty on municipal issuers to refrain from making false or
misleading statements in connection with the offering of its securities. This obligation is
typically fulfilled through a very formal process of the issuance of an “official statement” or
other offering document, which constitutes the issuer’s statement of facts surrounding the
issuance.
Heretofore, the Securities and Exchange Commission (the “SEC”) has not vigorously
enforced these legal standards. However, recent developments, such as the enhanced
enforcement powers granted in the Dodd-Frank Wall Street Reform and Consumer Protection
Act (“Dodd Frank”), as well as the SEC’s heightened concern about disclosure related to
municipal securities, have resulted in increased activity in this area, of which municipal issuers
should be aware.
2.
Background
SEC Rule 10b-5 (17 C.F.R. 240.10b-5), promulgated under Section 10(b) of the
Securities Exchange Act of 1934, provides: “It shall be unlawful for any person, directly or
indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or
of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice
to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact
necessary in order to make the statements made, in the light of the circumstances under which
they were made, not misleading, or (c) To engage in any act, practice, or course of business
which operates or would operate as a fraud or deceit upon any person, in connection with the
purchase or sale of any security."
SEC Rule 15c2-12 requires underwriters to obtain and review a “deemed final” official
statement and requires the underwriter to contract with the issuer to receive the official
statement within seven business days after an agreement to purchase, offer, or sell the securities.
It also prohibits the purchase and sale of municipal securities by an underwriter in a public
offering unless the issuer or an “obligated person” undertakes to provide continuing disclosure,
including the disclosure of certain enumerated events. Effective July 1, 2009, all continuing
disclosure must be provided to the MSRB, through its Electronic Municipal Market Access
System, or “EMMA.” The rule was amended, effective December 1, 2010, to require notices of
material events to be provided within 10 business days after occurrence.
A municipal issuer has no affirmative duty to disclose information unless it is engaged in
the offering, purchase or sale of securities, or disclosure is required under a continuing
disclosure undertaking (as described above). However, if an issuer chooses to disclose
information, it is prohibited from disclosing information that is materially untrue or misleading,
or that contains a material omission, making it misleading in light of the circumstances in which
the information is closed.
The Dodd-Frank, enacted in 2010, provided a number of enforcement tools, including
whistleblower provisions that provide an reporting incentive, and the ability to impose civil
penalties of up to $150,000 in administrative proceedings. Previously the SEC could obtain civil
penalties only by bringing an action in federal court.
3.
Focus of SEC Enforcement
The SEC has developed a body of cases, litigation releases, orders and investigative
reports that reflect areas in which the SEC has found disclosure to be deficient, including (i)
failure to disclose material interests in the transaction, (ii) failure to disclose intended use of
bond proceeds (including failure to disclose investment expectations), (iii) failure to disclose
potential taxability of bonds, (iv) failure to disclose existence of adverse reports , (v) failure to
disclose material terms, (vi) failure to disclose financial condition accurately, (vi) failure to
disclose kickbacks, broker fees and markups.
In 2010, the Enforcement Division of the Securities and Exchange Commission
announced the formation of a specialized municipal securities and public pensions enforcement
unit. Since then, the SEC has filed an increasing number of municipal market enforcement
actions. This unit announced five priority areas: (i) offering and disclosure fraud
(misrepresentations and omissions in offering documents) (ii) tax or arbitrage-driven fraud , (iii)
pay-to-play and public corruption violations(prohibiting a firm from underwriting bonds within
two years after on if its municipal finance professionals contributes more than $250 to an elected
official of the issuer), (iv) public pension accounting and disclosure violations (including a focus
on inadequate disclosure of public pension-funded liabilities), and (v) valuation and pricing
fraud.
4.
Enforcement tools
The SEC has a broad range of civil remedies that it can invoke, including these:
• initiation of an action to enjoin any person engaged in or about to engage in any
act or practice that violates the 1934 Act. In some cases, defendants may consent
to the entry of an injunction without admitting the alleged violations. A
defendant may contest a preliminary of final injunction by arguing that they have
not violated the Act or that any further violation is improbable.
• award of a monetary penalty against any person in violation of the federal
securities laws or an SEC cease and desist order. This may cover not only the
issuer, but individuals such as officials and staff of the issuer. The defendant
must agree to seek no tax benefit or insurance benefit for a penalty payment.
The following standards are applied in determining whether a fine is in the public
interest: (i) whether the act involves “fraud, deceit, manipulation, or deliberate or
reckless disregard of a regulatory requirement,” (ii) resulting harm to other
persons, (iii) extent of unjust enrichment, (iv) degree of recidivism, (v) the need
to “deter such persons and other persons from committing such acts or
omission,” and (vi) other considerations as justice may require.”
• requirement of an “undertaking,” which is a prospective action to ensure that the
issuer cannot and will not commit the same violation again.
• imposition of civil penalties under the Dodd-Frank Act
5.
Continuing disclosure
In addition to the requirement that issuers provide disclosure at the time of the sale of
securities, Rule 15c2-12 also generally prohibits any underwriter from purchasing or selling
municipal securities unless the issuer has committed to providing continuing disclosure
regarding the security and the issuer, including information about its financial condition and
operating data. This disclosure is regarded as critical in providing the markets sufficient
information to allow for fair and efficient trading of securities in the secondary market. A
sample of a continuing disclosure agreement for a typical municipal credit is attached.
The SEC is concerned that issuers abide by these obligations and has taken several
approaches to assure that compliance is obtained. It requires that each official statement in
connection with a primary offering of municipal securities contain a description of instances in
the previous five years in which the issuer has failed to comply, in all material respects, with any
previous commitment to provide such continuing disclosure. This presumably lets purchasers
ascertain the probability that the issuer will make competent disclosures in the future. In
addition, the SEC can take enforcement action against issuers, and also underwriters, which are
involved in failure to perform continuing disclosure. The issuer can be disciplined for failure to
make the agreed-upon disclosures and the underwriter can be disciplined for failing to do due
diligence on representations of the issuer regarding compliance with its continuing disclosure
obligations.
In March of 2014, the SEC announced the Municipalities Continuing disclosure
cooperation Initiative, to address potentially widespread violations of the continuing disclosure
requirement. It attempts to provide an incentive for issuers and underwriters to self-report
possible violations in return for lesser penalties than would be meted out if they were caught by
the SEC. In its announcement, it gave the following examples of parties who should self-report:
• Underwriters of offerings in which the final official statement contains materially
inaccurate statements regarding an issuer’s prior compliance with continuing
disclosure obligations.
• Issuers or underwriters that have already been contacted by the SEC as of March
10, 2014 regarding possible inaccurate statements as to past compliance with
continuing obligation disclosure obligations, but against whom no enforcement
action has been taken.
To be eligible for the self-reporting program, the report must be submitted during a period
beginning March 10, 2014 and ending September 10, 2014. For eligible issuers, the SEC will
recommend a settlement in which there is no payment of a civil penalty by the issuer and
reduced civil penalties by the underwriter. In addition, the issuer and the underwriter will need
to agree to undertakings designed to assure that corrective action is taken and procedures put in
place to prevent violations of the continuing disclosure obligation in the future.
The role of the city attorney is important in compliance with compliance with the
continuing disclosure obligations of the city. While the official statement and the continuing
disclosure agreement a re typically prepared by underwriter’s counsel or disclosure counsel, these
attorneys usually have limited knowledge of the city and their role usually ends when the bond
issue is closed. The city attorney, with greater familiarity with the city and its affairs, should
participate in the preparation of the official statement and the drafting of the continuing
disclosure agreement so that these documents accurately reflect the legal status and obligations
of the city. Post-closing, the city attorney should take care that the city is complying with its
obligations under the continuing disclosure agreement.
6.
Recent Enforcement Activity
The following are examples of cases in which the SEC has targeted municipal issuers
and/or their officers:
• In August, 2010, the SEC settled a claim against the State of New Jersey that it
misled investors in $25 billion of municipal bonds by masking underfunding of
two of its pension funds. The SEC had found that the bond offering documents
failed to disclose the pension plans’ asset and funded ratio information on a
market-value basis. This resulted in concealing an unfunded liability.
• In October, 2010, the SEC announced that four former San Diego city officials
agreed to pay financial penalties for roles in misleading investors in municipal
bonds about the city’s fiscal problems related to its pension and retiree health
care obligations. It was the first time that the SEC had secured financial penalties
against city officials in a municipal bond fraud case. Three were fined $25,000
each and one was fined $5,000. The SEC stated that, “municipal officials have a
personal obligation to ensure that investors are provided with complete and
accurate information about the issuer’s financial condition.”
• In March of 2013, the SEC accused the State of Illinois of misleading investors
about the condition of its public pension program. The SEC maintained that the
pension contribution schedule was not sufficient to cover both the cost of
benefits and payments to amortize the unfunded actuarial liability, which was
masked by the use of longer than customary amortization period. The result,
according to the SEC, was that Illinois issued municipal bonds that were
marketed under false pretenses, in that investors could not see the increasing risk
of investing in the state’s bonds while the unfunded pension liability grew and
placed financial pressure on the state’s budget. The case was settled with a cease
and desist order, without a monetary penalty
• .In May of 2013, the SEC charged the City of Harrisburg, PA with misleading
investors about the financial health of the city, based on statements made by the
mayor in his annual State of the City address, as well as in financial and budget
reports. At the same time, the city had failed to comply with its continuing
disclosure obligations. This case raises the specter of the SEC attempting to
regulate “political speech,” but the SEC emphasized that, in the absence of
information that would otherwise have been available by compliance with the
continuing disclosure requirement, investors reasonably relied on the only
information available. One SEC commissioner cited this case as an example in
which individuals should have been held responsible.
• In July of 2013, the SEC filed an enforcement action in federal court against the
city of Miami, Florida, and its former budget director alleging securities fraud in
connection with the city’s 2007 and 2008 annual financial statements and a
subsequent 2009 bond issue. The SEC alleged that from 2007 to 2009, the city
made transfers from capital project funds to a general use fund to mask deficits in
the general fund. The SEC alleged that these improper transfers falsely inflated
the general fund balance to meet a reserve level requirement for that fund,
resulting in a higher rating for the bonds. The SEC is pleaded claims against both
the city and its former budget director.
• In July of 2013, the SEC for the first time charged a municipal issuer, the West
Clark Community Schools , an Indiana school district, with securities fraud for
stating in an official statement that it was in full compliance with prior continuing
disclosure undertakings when in fact is had failed to make numerous filings. In
that case, issuer and the underwriter agreed to a settlement in which they
consented to a cease and desist order and the underwriter agreed to pay
disgorgement and prejudgment interest of $270,446 and a penalty of $300,000.
• In November of 2013, the SEC charged a municipal issuer in the Wenatchee
Valley of Washington with misleading statements in its offering document and,
the public agency settled by paying a $20,000 penalty. This is the first time the
SEC assessed a financial penalty against a municipal issuer.
7.
Conclusion
Since the recent financial crisis, there has been heightened scrutiny by the SEC over
activities in the securities market that are manipulative or dishonest. The SEC has undertaken a
heightened interest in enforcement of disclosure standards in the municipal market, as can be
seen the examples cited above. Issuers and their officers can best protect themselves by taking
the following actions:
• Engage competent disclosure counsel and follow industry standards for
disclosure in connection with new issues
• Enter into a well-crafted continuing disclosure agreement with respect to new
issues.
• Designate an employee to take responsibility for continuing disclosure and assure
that regular disclosure in compliance with the continuing disclosure agreement is
done on schedule and that material events are disclosed promptly within the
required time limits.
• Maintain books and records in accordance with appropriate accounting standards
and engage an accounting firm familiar with the industry standards, particularly
with respect to the reporting of pension liabilities and the allocation of bond
proceeds.
• Maintain and enforce up-to-date policies and compliance with applicable laws,
related to conflicts of interest and political contributions.
2265111.2
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League of California Cities®
2014 Spring Conference
Renaissance Esmeralda, Indian Wells
$__________
CITY OF _________________
REVENUE BONDS, SERIES ______
CONTINUING DISCLOSURE AGREEMENT
THIS CONTINUING DISCLOSURE AGREEMENT (the “Disclosure Agreement”)
dated as of ____________ is executed and delivered by the City of _________ (the “City”), a
municipal corporation duly organized and existing under the laws of the State of California, and
____________l, as dissemination agent (the “Dissemination Agent”), in connection with the
issuance and delivery of $__________________ Revenue Bonds, Series ______ (the “Bonds”).
The Bonds are being issued pursuant to a Trust Agreement dated as of _____________ (the
“Trust Agreement”), by and between _____________ and ______________, as Trustee. The
City and the Dissemination Agent covenant as follows:
SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is
being executed and delivered by the City and the Dissemination Agent for the benefit of the
Owners of the Bonds and in order to assist the Underwriter in complying with the Rule.
SECTION 2. Definitions. In addition to the definitions set forth in the Trust Agreement,
which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined
in this Section, the following capitalized terms shall have the following meanings:
“Annual Report” shall mean any Annual Report provided by the City pursuant to, and as
described in, Sections 3 and 4 of this Disclosure Agreement.
“Disclosure Representative” shall mean the City Manager, the Assistant City Manager or
the __________________ of the City, or his or her designee, or such other officer or employee
as the City shall designate in writing to the Dissemination Agent from time to time.
“Dissemination Agent” shall mean, initially, _______________, acting in its capacity as
Dissemination Agent hereunder, or any successor Dissemination Agent designed in writing by
the City and which has been filed with the then current Dissemination Agent a written
acceptance of such designation.
“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure
Agreement.
“MSRB” means the Municipal Securities Rulemaking Board, which has been designated
by the Securities and Exchange Commission as the sole repository of disclosure information for
purposes of the Rule, or any other repository of disclosure information that may be designated by
the Securities and Exchange Commission as such for purposes of the Rule in the future.
“Official Statement” shall mean the Official Statement for the Bonds dated
________________.
“Participating Underwriter” shall mean _____________ as the original underwriter of the
Bonds.
“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as the same may be amended from time
to time.
“State” shall mean the State of California.
SECTION 3. Provision of Annual Reports.
(a)
The City shall, or shall cause the Dissemination Agent upon written direction to,
not later than the ____________ 1 next succeeding the end of a fiscal year, commencing
__________________, provide to MSRB an Annual Report which is consistent with the
requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted
as a single document or as separate documents comprising a package, and may include by
reference other information as provided in Section 4 of this Disclosure Agreement; provided that
the audited financial statements of the City may be submitted separately from and later than the
balance of the Annual Report if they are not available by the date required above for the filing of
the Annual Report.
The Annual Report shall be provided at least annually notwithstanding any fiscal
year longer than 12 calendar months. The City’s fiscal year is currently effective from July 1 to
the immediately succeeding June 30 of the following year. The City will promptly notify MSRB
and, in either case, the Dissemination Agent of a change in the fiscal year dates. The City shall
provide a written certification with each Annual Report furnished to the Dissemination Agent to
the effect that such Annual Report constitutes the Annual Report required to be furnished by it
hereunder. The Dissemination Agent may conclusively rely upon such certification of the City
and shall have no duty or obligation to review such Annual Report.
(b)
Not later than fifteen (15) Business Days prior to the date specified in subsection
(a) for providing the Annual Report to MSRB, the City shall provide the Annual Report to the
Dissemination Agent. If by fifteen (15) Business Days prior to such date the Dissemination
Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the
City to determine if the City is in compliance with subsection (a).
(c)
If the Dissemination Agent is unable to verify that an Annual Report has been
provided to MSRB by the date required in subsection (a), the Dissemination Agent shall send a
notice to MSRB, in substantially the form attached as Exhibit A.
(d)
The Dissemination Agent shall promptly after receipt of the Annual Report, file a
report with the City certifying that the Annual Report has been provided pursuant to this
Disclosure Agreement, stating the date it was provided to the MSRB. The Dissemination
Agent’s duties under this paragraph (d)) shall exist only if the City provides the Annual Report to
the Dissemination Agent for filing.
SECTION 4. Content of Annual Reports. The City’s Annual Report shall contain or
include by reference the following:
(a)
Financial Statements. The audited financial statements of the City for the prior
fiscal year, if any have been prepared and which, if prepared, shall be prepared in accordance
with generally accepted accounting principles as promulgated to apply to the City from time to
time by the Governmental Accounting Standards Board. If the City is preparing audited
financial statements and such audited financial statements are not available by the time the
Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain
unaudited financial statements, and the audited financial statements shall be filed in the same
manner as the Annual Report when they become available. In the event that the City shall
modify the basis upon which its financial statements, if any, are prepared, the City shall provide
a notice of such modification to the MSRB, including a reference to the specific federal or state
law or regulation describing such accounting basis.
(b)
A copy of the City’s budget for the current fiscal year.
(c)
To the extent that neither the audited financial statements nor the budget includes
the information contained in Tables _________ through ____________ of the Official
Statement, then the Annual Report shall contain an update of the appropriate table or tables.
Any or all of the items listed above may be included by specific reference to other
documents, including official statements of debt issues of the City or related public entities,
which have been submitted to the MSRB. If the document included by reference is a final
official statement, it must be available from the MSRB. The City shall clearly identify in the
Annual Report each such other document so included by reference.
SECTION 5. Reporting of Significant Events.
(a)
Pursuant to the provisions of this Section 5, the City shall give, or cause to be
given, notice of the occurrence of any of the following events with respect to the Bonds, if
material:
(1)
principal and interest payment delinquencies.
(2)
non-payment related defaults.
(3)
difficulties.
unscheduled draws on any reserve fund for the Bonds reflecting financial
(4)
unscheduled draws on any credit enhancements securing the Bonds
reflecting financial difficulties.
(5)
any change in the provider of any letter of credit or any municipal bond
insurance policy securing the Bonds, or any failure by the providers of such letters of
credit or municipal bond insurance policies to perform on the letter of credit or municipal
bond insurance policy.
(6)
the Bonds.
adverse tax opinions or events adversely affecting the tax-exempt status of
(7)
amendment to the Trust Agreement or this Disclosure Agreement
modifying the rights of Bond Owners.
(8)
unscheduled redemption of any Bond.
(9)
defeasances.
(10)
any release, substitution, or sale of property securing repayment of the
(11)
rating changes.
Bonds.
(b)
Whenever the City obtains knowledge of the occurrence of a Listed Event, the
City shall as soon as possible determine if such event would be material under applicable federal
securities laws.
(c)
If the City has determined that knowledge of the occurrence of a Listed Event
would be material under applicable federal securities laws, the City shall promptly notify the
Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the
occurrence pursuant to subsection (e).
(d)
If in response to a request under subsection (b), the City determines that the
Listed Event would not be material under applicable federal securities laws, the City shall so
notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the
occurrence pursuant to subsection (e).
(e)
If the Dissemination Agent has been instructed by the City to report the
occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with
the MSRB. Notwithstanding the foregoing, notice of Listed Events described in subsections
(a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of the
underlying event is given to Owners of affected Bonds pursuant to the Trust Agreement. In each
case of the Listed Event, the Dissemination Agent shall not be obligated to file a notice as
required in this subsection (e) prior to the occurrence of such Listed Event.
(f)
The City hereby agrees that the undertaking set forth in this Disclosure
Agreement is the responsibility of the City and that the Dissemination Agent shall not be
responsible for determining whether the City’s instructions to the Dissemination Agent under
this Section 5 comply with the requirements of the Rule.
SECTION 6. Termination of Reporting Obligation. The obligation of the City and the
Dissemination Agent under this Disclosure Agreement shall terminate upon the legal defeasance,
prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the
final maturity of the Bonds, the City shall give notice of such termination in the same manner as
for a Listed Event under Section 5.
SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage
a Dissemination Agent to assist it in carrying out its obligations under the Disclosure Agreement,
and may discharge any such Dissemination Agent, with or without appointing a successor
Dissemination Agent. The Dissemination Agent may resign by providing thirty days written
notice to the City. The Dissemination Agent shall not be responsible for the content of any
report or notice prepared by the City. The Dissemination Agent shall have no duty to prepare
any information report nor shall the Dissemination Agent be responsible for filing any report not
provided to it by the City in a timely manner and in a form suitable for filing.
SECTION 8. Amendment. (a) This Disclosure Agreement may be amended, by written
agreement of the parties, without the consent of the Owners, if all of the following conditions are
satisfied: (1) such amendment is made in connection with a change in circumstances that arises
from a change in legal (including regulatory) requirements, a change in law (including rules or
regulations) or in interpretations thereof, or a change in the identity, nature or status of the City
or the type of business conducted thereby, (2) this Disclosure Agreement as so amended would
have complied with the requirements of the Rule as of the date of this Disclosure Agreement,
after taking into account any amendments or interpretations of the Rule, as well as any change in
circumstances, (3) there shall have been delivered to the City an opinion of a nationally
recognized bond counsel or counsel expert in federal securities laws, addressed to the City, to the
same effect as set forth in clause (2) above, (4) the City shall have delivered to the Dissemination
Agent an opinion of nationally recognized bond counsel or counsel expert in federal securities
laws, addressed to the City, to the effect that the amendment does not materially impair the
interests of the Owners, and (5) the City shall have delivered copies of such opinion and
amendment to the MSRB.
(b)
This Disclosure Agreement may be amended, by written agreement of the parties,
upon obtaining consent of Owners at least 25% of the outstanding Bonds; provided that the
conditions set forth in Section 8(a)(1), (2) and (3) have been satisfied; and provided, further, that
the Dissemination Agent shall not be obligated to enter into any such amendment that modifies
or increases its duties or obligations hereunder.
(c)
To the extent any amendment to this Disclosure Agreement results in a change in
the type of financial information or operating data provided pursuant to this Disclosure
Agreement, the first Annual Report provided thereafter shall include a narrative explanation of
the reasons for the amendment and the impact of the change.
(d)
If an amendment is made to the basis on which financial statements are prepared,
the Annual Report for the year in which the change is made shall present a comparison between
the financial statements or information prepared on the basis of the new accounting principles
and those prepared on the basis of the former accounting principles. Such comparison shall
include a quantitative and, to the extent reasonably feasible, qualitative discussion of the
differences in the accounting principles and the impact of the change in the accounting principles
on the presentation of the financial information.
SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be
deemed to prevent the City from disseminating any other information, using the means of
dissemination set forth in this Disclosure Agreement or any other means of communication, or
including any other information in any Annual Report or notice of occurrence of a Listed Event,
in addition to that which is required by this Disclosure Agreement. If the City chooses to include
any information in any Annual Report or notice of occurrence of a Listed Event in addition to
that which is specifically required by this Disclosure Agreement, the City shall have no
obligation under this Agreement to update such information or include it in any future Annual
Report or notice if occurrence of a Listed Event.
The City acknowledges and understands that other state and federal laws, including but
not limited to the Securities Act of 1933 and Rule 10b-5 promulgated under the Securities
Exchange Act of 1934, may apply to the City, and that under some circumstances compliance
with this Disclosure Agreement, without additional disclosures or other action, may not fully
discharge all duties and obligations of the City under such laws.
SECTION 10. Default. In the event of a failure of the City or the Dissemination Agent to
comply with any provision of this Disclosure Agreement, any Owner of the Bonds may take such
actions as may be necessary and appropriate, including seeking mandate or specific performance
by court order, to cause the City to comply with its obligations under this Disclosure Agreement.
A default under this Disclosure Agreement shall not be deemed an Event of Default under the
Trust Agreement, and the sole remedy under this Disclosure Agreement in the event of any
failure of the City to comply with this Disclosure Agreement shall be an action to compel
performance.
SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. Section 7(c)
of the Trust Agreement is hereby made applicable to this Disclosure Agreement as if this
Disclosure Agreement were (solely for this purpose) contained in the Trust Agreement and the
Dissemination Agent shall be entitled to the same protections, limitations from liability and
indemnities afforded the Trustee thereunder. The Dissemination Agent shall have only such
duties as are specifically set forth in this Disclosure Agreement, and the City agrees to indemnify
and save the Dissemination Agent, its officers, directors, employees and agents, harmless against
any loss, expense and liabilities which it may incur arising out of or in the exercise or
performance of its powers and duties hereunder, including the costs and expenses (including
attorneys fees) of defending against any claim of liability, but excluding liabilities due to the
Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent shall be paid
compensation by the City for its services provided hereunder in accordance with its schedule of
fees as amended from time to time and all expenses, legal fees and advances made or incurred by
the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent
shall have no duty or obligation to review any information provided to it hereunder and shall not
be deemed to be acting in any fiduciary capacity for the City, the Bond holders, or any other
party. The obligations of the City under this Section shall survive resignation or removal of the
Dissemination Agent and payment of the Bonds. No person shall have any right to commence
any action against the Dissemination Agent hereunder, seeking any remedy other than to compel
specific performance of this Disclosure Agreement. The Dissemination Agent shall not be liable
under any circumstances for monetary damages to any person for any breach under this
Disclosure Agreement.
SECTION 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit
of the City, the Dissemination Agent, the Participating Underwriter and Owners from time to
time of the Bonds, and shall create no rights in any other person or entity.
SECTION 13. Notices. Notices should be sent in writing to the following addresses.
The following information may be conclusively relied upon until changed in writing.
Disclosure Representative:
Participating Underwriter:
SECTION 14. Counterparts. This Disclosure Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall constitute but one and the
same instrument.
Dated: ___________________, ____
CITY OF _________________
By:
Authorized Representative
______________________
By:
Authorized Representative
EXHIBIT A
NOTICE TO MSRB OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer:
___________________________________
Name of Issue:
$______________ ______________ Bonds, Series ____
Date of Issuance:
______________, ____
NOTICE IS HEREBY GIVEN that the City has not provided an Annual Report with
respect to the above-named Bonds as required by the Continuing Disclosure Agreement
approved pursuant to a Resolution adopted by the City Council of the City on ______________,
The City anticipates that the Annual Report will be filed by ________.
Dated:
CITY OF ________
By:
2265167.1