Amounts, maturities, interest rates, yields, prices and CUSIPS for the 2011 Bonds are shown on the inside cover hereof.

Transcription

1 NEW ISSUE BOOK-ENTRY ONLY In the opinion of Bond Counsel, interest on the 2011 Bonds is not includable in gross income for purposes of federal income taxation under existing statutes, regulations, rulings and court decisions, subject to the condition described in TAX MATTERS herein and interest on the 2011 Bonds is not treated as an item of tax preference under Section 57 of the Internal Revenue Code of 1986, as amended (the Code ), for purposes of the individual and corporate alternate minimum taxes. However, under the Code, such interest may be subject to certain other taxes affecting corporate holders of the 2011 Bonds. Under the laws of the Commonwealth of Pennsylvania, the 2011 Bonds are exempt from personal property taxes in Pennsylvania, and interest on the 2011 Bonds is exempt from Pennsylvania personal income tax and the Pennsylvania corporate net income tax. For a more complete discussion, see TAX MATTERS herein. Dated: Date of Delivery $201,615,000 SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY CAPITAL GRANT RECEIPTS BONDS, SERIES 2011 (FEDERAL TRANSIT ADMINISTRATION SECTION 5309 FIXED GUIDEWAY MODERNIZATION FORMULA FUNDS) The Southeastern Pennsylvania Transportation Authority $201,615,000 Capital Grant Receipts Bonds, Series 2011 (Federal Transit Administration Section 5309 Fixed Guideway Modernization Formula Funds) (the 2011 Bonds ) will be issued pursuant to a Trust Indenture dated as of August 1, 2011 (the Indenture ), between the Southeastern Pennsylvania Transportation Authority (the Authority ), a body corporate and politic which exercises the public powers of the Commonwealth of Pennsylvania (the Commonwealth ) as an agency and instrumentality thereof, and The Bank of New York Mellon Trust Company, N.A., as trustee (the Trustee ). The 2011 Bonds will be issued in fully registered form, registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ), New York, New York, in denominations of $5,000 or any integral multiple thereof. Purchases of beneficial interests in the 2011 Bonds will be made in book-entry only form. Purchasers of beneficial interests in the 2011 Bonds (the Beneficial Owners ) will not receive physical delivery of certificates representing their interest in the 2011 Bonds. Interest on the 2011 Bonds, together with the principal of and redemption premium, if any, on the 2011 Bonds, will be paid directly to DTC, so long as the 2011 Bonds are held in book-entry only form. The final disbursements of such payments to the Beneficial Owners of the 2011 Bonds will be the responsibility of DTC, the DTC Participants and the Indirect Participants, all as defined and more fully described herein. See THE 2011 BONDS Book-Entry Only System. So long as Cede & Co. is the registered owner of the 2011 Bonds, as nominee of DTC, references herein to the holders or registered owners of the 2011 Bonds shall mean Cede & Co., as aforesaid, and shall not mean the Beneficial Owners of the 2011 Bonds. Interest on the 2011 Bonds will be payable semiannually on each June 1 and December 1 (each an Interest Payment Date ), commencing December 1, Amounts, maturities, interest rates, yields, prices and CUSIPS for the 2011 Bonds are shown on the inside cover hereof. The 2011 Bonds will be equally and ratably secured under the Indenture, except as otherwise set forth herein, with any Additional Bonds (defined herein) issued from time to time thereunder. The 2011 Bonds are not subject to acceleration upon the occurrence of an Event of Default (as defined in the Indenture). The 2011 Bonds are subject to redemption by the Authority prior to maturity as described herein. The proceeds from the sale of the 2011 Bonds will be used to (a) finance the acquisition of one hundred sixteen (116) Silverliner V regional rail cars, (b) finance the rehabilitation of the Wayne Junction Intermodal Facility, (c) fund a deposit to the Debt Service Reserve Fund (as defined in the Indenture), and (d) fund certain costs and expenses incurred or to be incurred by the Authority in connection with the issuance and sale of the 2011 Bonds. See PLAN OF FINANCE herein. The 2011 Bonds are limited obligations of the Authority and are payable solely from revenues of the Authority derived from (i) all moneys distributed or to be distributed to the Authority by the Federal Transit Administration Section 5309 (49 United States Code Section 5309) Fixed Guideway Modernization Formula Funds, or its successor grant program or programs, as amended, appropriated for the Federal Fiscal Year commencing October 1, 2011, and for each Federal Fiscal Year thereafter (the Grant Receipts ), (ii) certain moneys and securities, and investment earnings thereon, held by the Trustee and the Authority in certain funds established under the Indenture (except the Rebate Fund), and (iii) any and all other moneys and securities furnished from time to time to the Trustee by the Authority or on behalf of the Authority or by any other persons to be held by the Trustee under the terms of this Indenture. The 2011 Bonds are not a general obligation of the Authority, and the revenues, funds and assets of the Authority (other than the Grant Receipts) are not pledged or required to be used for the payment of the 2011 Bonds or the interest thereon. See SOURCES OF PAYMENT AND SECURITY FOR THE 2011 BONDS herein. This cover page contains certain information for quick reference only. It is not a summary of the issue. Investors must read the entire Official Statement to obtain information essential to making an informed investment decision. NEITHER THE CREDIT NOR THE TAXING POWER OF THE COMMONWEALTH, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED FOR THE PAYMENT OF THE PRINCIPAL OF, REDEMPTION PREMIUM, IF ANY, OR INTEREST ON, THE 2011 BONDS. THE 2011 BONDS DO NOT CONSTITUTE OBLIGATIONS OF THE COMMONWEALTH OF PENNSYLVANIA OR OF ANY POLITICAL SUBDIVISION THEREOF, AND NEITHER THE COMMONWEALTH NOR ANY POLITICAL SUBDIVISION THEREOF IS LIABLE FOR THE PAYMENTS OF PRINCIPAL OF, REDEMPTION PREMIUM, IF ANY, OR INTEREST ON, THE 2011 BONDS. THE AUTHORITY HAS NO TAXING POWER. The 2011 Bonds are offered when, as and if issued by the Authority and delivered to the underwriters listed below (the Underwriters ), subject to receipt of the approving opinion of Saul Ewing LLP, Philadelphia, Pennsylvania, Bond Counsel. Certain legal matters will be passed upon for the Authority by its General Counsel, Nicholas J. Staffieri, Esquire and by its Co-Special Counsel, Bowman and Partners, LLP, Philadelphia, Pennsylvania and Raffaele & Puppio, LLP, Media, Pennsylvania. Certain legal matters will be passed upon for the Underwriters by their counsel, Stradley Ronon Stevens & Young, LLP, Philadelphia, Pennsylvania. It is expected that the 2011 Bonds will be available for delivery to DTC in New York, New York, on or about August 16, Date: August 4, 2011 Piper Jaffray & Co. Citigroup Jefferies & Company Janney Montgomery Scott PNC Capital Markets Wells Fargo Securities Ratings: See RATINGS herein Due: June 1, as shown on the inside front cover

2 $201,615,000 SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY CAPITAL GRANT RECEIPTS BONDS, SERIES 2011 (FEDERAL TRANSIT ADMINISTRATION SECTION 5309 FIXED GUIDEWAY MODERNIZATION FORMULA FUNDS) PRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES, YIELDS, PRICES AND CUSIPS Maturity Date (June 1) Principal Amount Interest Rate Yield Price CUSIP 2012 $7,355, % 0.500% BE ,000, % 0.860% BF ,775, % 0.860% BY ,000, % 1.120% BG ,105, % 1.120% BZ ,000, % 1.450% BH ,450, % 1.450% CA ,000, % 1.830% BJ ,810, % 1.830% CB ,000, % 2.220% BK ,225, % 2.220% CC ,725, % 2.610% BL ,930, % 2.610% CD ,000, % 2.920% BM ,120, % 2.920% CE ,000, % 3.170% BN ,595, % 3.170% CF ,000, % 3.330% BP ,070, % 3.330% CG ,570, % 3.540% BQ ,150, % 3.710% BR ,760, % 3.900% BS , % 4.040% BT ,445, % 4.040% CH ,055, % 4.130% BU ,760, % 4.220% BV ,495, % 4.280% BW ,050, % 4.340% BX ,220, % 4.340% CJ6 Priced to first optional redemption date of June 1, 2021

3 SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY 1234 Market Street 10 th Floor Philadelphia, Pennsylvania (215) Board Members Hon. Charles H. Martin Joseph E. Brion, Esquire Thomas E. Babcock Thomas Jay Ellis, Esquire Beverly Coleman James C. Schwartzman, Esquire Herman M. Wooden Pasquale T. Deon Kevin L. Johnson, P.E. Daniel J. Kubik Michael J. O Donoghue, Esquire Rina Cutler Hon. Stewart J. Greenleaf, Esquire Christopher H. Franklin Authority Staff General Manager Joseph M. Casey, CPA Luther Diggs Nicholas J. Staffieri, Esquire Richard G. Burnfield Chief Operations Officer General Counsel CFO/Treasurer Authority Co-Special Counsel Bowman and Partners, LLP and Raffaele & Puppio, LLP Bond Counsel Saul Ewing LLP Financial Advisor Public Financial Management, Inc. Trustee The Bank of New York Mellon Trust Company, N.A.

4 No dealer, broker, salesman or other person has been authorized by the Authority or the Underwriters to give any information or to make any representations, other than those 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 the solicitation of an offer to buy, nor shall there be any sale of the 2011 Bonds, by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been furnished by the Authority and by other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by the Underwriters. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Authority since the date hereof or the date as of which particular information is given, if earlier. The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. IN CONNECTION WITH THE OFFERING OF THE 2011 BONDS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE 2011 BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME FROM TIME TO TIME WITHOUT PRIOR NOTICE. THE ORDER AND PLACEMENT OF MATERIALS IN THIS OFFICIAL STATEMENT, INCLUDING THE APPENDICES, ARE NOT TO BE DEEMED TO BE A DETERMINATION OF RELEVANCE, MATERIALITY OR IMPORTANCE, AND THIS OFFICIAL STATEMENT, INCLUDING THE APPENDICES, MUST BE CONSIDERED IN ITS ENTIRETY. THE OFFERING OF THE 2011 BONDS IS MADE ONLY BY MEANS OF THIS ENTIRE OFFICIAL STATEMENT. THE 2011 BONDS ARE NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR LISTED ON ANY STOCK OR OTHER SECURITIES EXCHANGE AND THE INDENTURE HAS NOT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY UPON THEIR OWN EXAMINATION OF THE 2011 BONDS AND THE SECURITY THEREFOR, INCLUDING AN ANALYSIS OF THE RISKS INVOLVED. THE 2011 BONDS HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. THE REGISTRATION OR QUALIFICATION OF THE 2011 BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF THE SECURITIES LAWS OF THE STATES IN WHICH THE 2011 BONDS HAVE BEEN REGISTERED OR QUALIFIED, IF ANY, AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION OF THE 2011 BONDS. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THE 2011 BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL, STATE, MUNICIPAL OR OTHER GOVERNMENTAL ENTITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFICIAL STATEMENT. i

5 TABLE OF CONTENTS INTRODUCTION... 1 General... 1 The Authority... 1 Authorization to Issue the 2011 Bonds... 1 The Project and the Plan of Finance... 2 Description of the 2011 Bonds... 2 Sources of Payment and Security for the 2011 Bonds... 2 Additional Bonds... 3 Parity Obligations... 3 Continuing Disclosure Undertaking... 4 Miscellaneous... 4 PLAN OF FINANCE... 5 General... 5 Estimated Sources and Uses of Funds... 5 THE 2011 BONDS... 5 General... 5 Payments of Principal and Interest... 6 Redemption Provisions... 6 Procedure for Redemption... 6 Book-Entry Only System... 7 Transfers and Exchanges of 2011 Bonds... 9 SOURCES OF PAYMENT AND SECURITY FOR THE 2011 BONDS Grant Receipts Pledge of Security Funds and Accounts Flow of Funds Grant Receipts Debt Service Reserve Account Additional Bonds Refunding Bonds Subordinated Indebtedness Investments Certain Remedies of Bondholders Potential Effects of Bankruptcy Limitations on Security Interest SECTION 5309 GRANT REVENUE PROGRAM Forward-Looking Statements Section General Mass Transit Account History Program Operations Section 5309 Grant Revenue Program Program Administration Timing of Receipt of Federal Transit Program Funding Apportionment Certain Covenants with Respect to the Section 5309 Grant Revenue Program Authority Participation in Section 5309 Grant Revenue Program Timing of Receipt of Federal Transit Program Funding Apportionment Page ii

6 DEBT SERVICE REQUIREMENTS THE AUTHORITY General Description Organization Managers Financial Operating Performance Act 44 Funding Operating Revenues and Subsidies Capital Program Labor Relations Insurance LITIGATION LEGAL INVESTMENT TAX MATTERS Tax Exemption Opinion of Bond Counsel Alternative Minimum Tax Branch Profits Tax S Corporations with Passive Investment Income Social Security and Railroad Retirement Benefits Deduction for Interest Paid by Financial Institutions to Purchase or Carry Tax-Exempt Obligations Property or Casualty Insurance Company Reportable Payments and Backup Withholding Accounting Treatment of Original Issue Discount and Amortizable Bond Premium] RATINGS CERTAIN LEGAL MATTERS UNDERWRITING TRUSTEE FINANCIAL ADVISOR CERTAIN RELATIONSHIPS CONTINUING DISCLOSURE UNDERTAKING MISCELLANEOUS Negotiable Instruments Certain References Appendix A Definitions of Certain Terms and Summary of Certain Provisions of the Indenture Appendix B Proposed Form of Opinion of Bond Counsel Appendix C Form of Continuing Disclosure Agreement iii

7 $201,615,000 SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY CAPITAL GRANT RECEIPTS BONDS, SERIES 2011 (FEDERAL TRANSIT ADMINISTRATION SECTION 5309 FIXED GUIDEWAY MODERNIZATION FORMULA FUNDS) General INTRODUCTION This Official Statement, including the cover page, table of contents and the attached appendices, sets forth information with respect to the issuance by the Southeastern Pennsylvania Transportation Authority (the Authority ) of its $201,615,000 Capital Grant Receipts Bonds, Series 2011 (Federal Transit Administration Section 5309 Fixed Guideway Modernization Formula Funds) (the 2011 Bonds ). This introduction is a brief description of certain matters described in this Official Statement and is qualified in its entirety by reference to the entire Official Statement. Persons considering the purchase of any of the 2011 Bonds should read this Official Statement, including the cover page, tables and all appendices, in its entirety. Capitalized terms used in this Official Statement and not otherwise defined herein shall have the respective meanings set forth in Appendix A hereto or in the Indenture (defined herein). The 2011 Bonds are not a general obligation of the Authority, and the revenues, funds and assets of the Authority (other than the Grant Receipts, as defined below) are not pledged or required to be used for the payment of the 2011 Bonds or the interest thereon. See SOURCES OF PAYMENT AND SECURITY FOR THE 2011 BONDS herein. The 2011 Bonds do not constitute obligations of the Commonwealth of Pennsylvania (the Commonwealth ) or of any political subdivision thereof, and neither the Commonwealth nor any political subdivision thereof is liable for the payments of principal of, redemption premium, if any, or interest on, the 2011 Bonds. The authority has no taxing power. The Authority The Authority is a separate body corporate and politic, exercising the public powers of the Commonwealth of Pennsylvania (the Commonwealth ) as an agency and instrumentality thereof. The Authority was formed in 1964 and operates pursuant to Chapter 17 of Title 74 of the Pennsylvania Consolidated Statutes (the Enabling Law ) and was formed for the purpose of, inter alia, planning, acquiring, holding, constructing, improving, maintaining and operating a comprehensive public transportation system (the System ) within the City of Philadelphia, Pennsylvania (the City ) and the Counties of Bucks, Chester, Delaware and Montgomery in the Commonwealth of Pennsylvania (collectively, the Local Counties ). See THE AUTHORITY herein. Authorization to Issue the 2011 Bonds The Authority is authorized to issue and sell the 2011 Bonds pursuant to the provisions of the Enabling Law and pursuant to a resolution of the Authority adopted on January 27, The 2011 Bonds will be issued pursuant to and secured under a Trust Indenture dated as of August 1, 2011 (the Indenture ), between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the Trustee ). For a summary of certain provisions of the Indenture, see APPENDIX A DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE hereto.

8 The Project and the Plan of Finance The proceeds from the sale of the 2011 Bonds will be used to (a) finance the acquisition of 116 Silverliner V regional rail cars, (b) finance the rehabilitation of the Wayne Junction Intermodal Facility, (c) fund a deposit to the Debt Service Reserve Fund and (d) fund certain costs and expenses incurred or to be incurred by the Authority in connection with the issuance and sale of the 2011 Bonds (the 2011 Project ). See PLAN OF FINANCE herein. Description of the 2011 Bonds The 2011 Bonds will be dated the date of delivery and will be issued as fully registered bonds, without coupons, in denominations of $5,000 or any integral multiple thereof, and will mature and bear interest as described on the inside front cover hereof. The 2011 Bonds are subject to redemption by the Authority prior to maturity as described herein. See THE 2011 BONDS Redemption Provisions herein. Interest on the 2011 Bonds will be paid semiannually on each June 1 and December 1 (each an Interest Payment Date ), commencing December 1, 2011, by check mailed by the Trustee or, under certain circumstances, by wire transfer as more fully set forth herein. Principal of and redemption premium, if any, on the 2011 Bonds is payable upon presentation and surrender thereof at the designated corporate trust office of the Trustee. See THE 2011 Bonds Payments of Principal and Interest. The 2011 Bonds, when issued, will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository under a book-entry only system for the 2011 Bonds. See THE 2011 Bonds Book-Entry Only System herein. THE 2011 BONDS ARE NOT SUBJECT TO ACCELERATION UPON THE OCCURRENCE OF AN EVENT OF DEFAULT UNDER THE INDENTURE. Sources of Payment and Security for the 2011 Bonds A portion of the funding that the Authority receives for the support of urban mass transportation capital improvement projects it undertakes is in the form of federal grant funding from the Federal Transit Administration of the United States Department of Transportation (the FTA ). Under the FTA s Fixed Guideway Modernization Formula Program, 49 U.S.C. Section 5309 (the Section 5309 Grant Revenue Program ), funds are made available to modernize or improve existing rail or fixed guideway systems ( Section 5309 Grant Revenue Funds ). The Authority has agreed to deposit all Section 5309 Grant Revenue Funds received by the Authority (the Grant Receipts ) into the Grant Receipts Deposit Fund established under the Indenture. The Indenture provides for the withdrawal of amounts from the Grant Receipts Deposit Fund for deposit with the Trustee for the purpose of paying debt service on the 2011 Bonds. See SOURCES OF PAYMENT AND SECURITY FOR THE 2011 BONDS Flow of Funds Grant Receipts. The 2011 Bonds are limited obligations of the Authority and the payment of principal, redemption premium, if any, and interest on the 2011 Bonds and any Parity Obligations (as defined in the Indenture) issued pursuant to the Indenture, are payable solely from and equally and ratably secured under the Indenture and held by the Trustee for such purpose with any Parity Obligations by a Trust Estate consisting of: (i) all Grant Receipts, (ii) all moneys and securities held by the Trustee under the Indenture in any fund and accounts created thereunder (except for the Rebate Fund) and any investment earnings thereon, subject to the use and application thereof as provided in the Indenture and (iii) any and all other moneys and securities furnished from time to time to the Trustee by the Authority or on behalf of the 2

9 Authority or by any other persons to be held by the Trustee under the terms of this Indenture. The Authority has agreed to deposit all Grant Receipts received by the Authority in the Grant Receipts Deposit Fund established under the Indenture. The Indenture provides for the withdrawal of funds from the Grant Receipts Deposit Fund for deposit with the Trustee for the purpose of paying debt service on the 2011 Bonds. The 2011 Bonds, any Additional Bonds and any Parity Obligations are sometimes collectively referred to herein as the Bonds. For a discussion of the issuance of Additional Bonds by the Authority and the limitations on such issuance, see SOURCES OF PAYMENT AND SECURITY FOR THE 2011 BONDS Additional Bonds herein. The 2011 Bonds are not a general obligation of the Authority, and the revenues, funds and assets of the Authority (other than the Grant Receipts) are not pledged or required to be used for the payment of the 2011 Bonds or the interest thereon. See SOURCES OF PAYMENT AND SECURITY FOR THE 2011 BONDS herein. There can be no assurance that sufficient Grant Receipts will be received by the Authority to pay the debt service on the 2011 Bonds. The amount of Grant Receipts available to the Authority for payment of debt service on the 2011 Bonds is subject to annual appropriation by Congress and to approval on an annual basis by the FTA. Section 5309 Grant Revenue Program funding can be projected through FFY After FFY 2011, there can be no assurance that Congress will pass a new multi-year authorization or continuing resolution authorization; or that, if adopted, it will be signed by the President; that, if adopted and signed into law, it will include provisions comparable to those in the current authorizing legislation; or that the amount of federal funds available to the Authority will not differ materially from the funds that are available under the current authorizing legislation. NEITHER THE CREDIT NOR THE TAXING POWER OF THE COMMONWEALTH OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED FOR THE PAYMENT OF THE PRINCIPAL OF, OR REDEMPTION PREMIUM, IF ANY, OR INTEREST ON, THE 2011 BONDS. THE 2011 BONDS DO NOT CONSTITUTE OBLIGATIONS OF THE COMMONWEALTH OR OF ANY POLITICAL SUBDIVISION THEREOF, AND NEITHER THE COMMONWEALTH NOR ANY POLITICAL SUBDIVISION THEREOF IS LIABLE FOR THE PAYMENT OF PRINCIPAL OF, OR REDEMPTION PREMIUM, IF ANY, OR INTEREST ON, THE 2011 BONDS. THE AUTHORITY HAS NO TAXING POWER. Additional Bonds The Authority may in the future issue Additional Bonds under the Indenture for such purposes as may be permitted under the Indenture and Enabling Law. Subject to the terms of the Enabling Law and the Indenture, such Additional Bonds may be issued by the Authority under the provisions of the Indenture on a parity basis with the 2011 Bonds. For a discussion of the issuance of Additional Bonds by the Authority under the Indenture and the limitations on such issuance, see SOURCES OF PAYMENT AND SECURITY FOR THE 2011 BONDS Additional Bonds herein. Parity Obligations One or more series of Additional Bonds may be issued on a parity basis with the 2011 Bonds, and any Bonds that may be outstanding under the Indenture at the time the Additional Bonds are issued, for the purpose of paying the costs of the Eligible Projects, to pay costs and expenses incident to the issuance of such Additional Bonds and to make deposits to any Fund, or Account under the Indenture. The Indenture also permits the issuance of one or more Series of Refunding Bonds on a parity basis with the 2011 Bonds, and any other Bonds that may be outstanding under the Indenture at the time the Refunding Bonds are issued, to refund or advance refund any or all Outstanding Bonds of one more Series, to refund any obligations incurred to reimburse the issuer or issuers of one or more Credit Facilities, to pay costs 3

10 and expenses incident to the issuance of such Refunding Bonds and to make deposits to any Fund, Account or Sub-Account under the Indenture. With the consent of the FTA, the Authority may enter into a Interest Rate Hedge Agreement with a Swap Provider (as such terms are defined in the Indenture), the periodic payments on which will be Parity Obligations payable from and secured, on a parity with Bonds, by the pledge of and lien on the Grant Receipts created by the Indenture. Should the FTA consent to the use of the Grant Receipts for such purposes, any termination payment required to be made by the Authority to the Swap Provider shall be junior and subordinate to the pledge of and lien on the Grant Receipts created by the Indenture as security for the payment of Parity Obligations. Under the Indenture, the Authority may also obtain one or more Credit Facilities (as defined in the Indenture) to secure the payment of the principal of, premium, if any, and interest on or the Purchase Price of one or more series of Bonds and, at the election of the Authority, the obligation of the Authority to reimburse or otherwise make payments to a Credit Facility Issuer (as defined in the Indenture), shall constitute a Parity Obligation under the Indenture payable and secured, on a parity with Bonds, by the pledge of and lien on the Grant Receipts created by the Indenture. Continuing Disclosure Undertaking In order to enable the Underwriters to comply with the requirements of Rule 15c2-12, as amended ( Rule 15c2-12 ), promulgated under the Securities Exchange Act of 1934, as amended, the Authority will enter into a Continuing Disclosure Agreement dated as of the date of issuance of the 2011 Bonds (the Continuing Disclosure Agreement ), between the Authority and The Bank of New York Mellon Trust Company, N.A., as Dissemination Agent, providing for, among other things, annual disclosure with respect to certain information and the disclosure of the occurrence, if any, of certain events material to the 2011 Bonds. The Continuing Disclosure Agreement will constitute a written undertaking for the benefit of the Beneficial Owners from time to time of the 2011 Bonds. See CONTINUING DISCLOSURE UNDERTAKING herein and Appendix C hereto. Miscellaneous Brief descriptions of the Enabling Law, the 5309 Grant Revenue Program, the Authority, the 2011 Bonds, and the Indenture and the proposed form of the Continuing Disclosure Agreement are included in this Official Statement. The summaries of the Enabling Law, the 5309 Grant Revenue Program and of other documents contained herein do not purport to be complete, comprehensive or definitive and are qualified in their entireties by reference to the entire text of the Enabling Law, the 5309 Grant Revenue Program and each of such documents and the description herein of the 2011 Bonds is qualified in its entirety by reference to the text thereof and the information with respect thereto included in the aforesaid documents. All such descriptions are further qualified in their entireties by reference to laws and principles of equity relating to or affecting generally the enforcement of creditors rights. Copies of the Indenture and the Continuing Disclosure Agreement may be obtained from the Authority and, after initial delivery of the 2011 Bonds, at the designated corporate trust office of the Trustee. This Official Statement, including the appendices, speaks only as of the date of this Official Statement printed on the cover hereof. The information contained herein is subject to change. 4

11 PLAN OF FINANCE General The proceeds from the sale of the 2011 Bonds will be used to (a) finance the acquisition of 116 Silverliner V rail cars, (b) finance the rehabilitation of the Wayne Junction Intermodal Facility, (c) fund a deposit to the Debt Service Reserve Fund and (d) fund certain costs and expenses incurred or to be incurred by the Authority in connection with the issuance and sale of the 2011 Bonds. Estimated Sources and Uses of Funds The following table sets forth estimated sources and uses of funds in connection with the sale of the 2011 Bonds. General SOURCES OF FUNDS: Par Amount of the 2011 Bonds... $201,615, Net Original Issue Premium... 17,521, TOTAL SOURCES OF FUNDS... $219,136, USES OF FUNDS: Deposit to Project Fund... $209,000, Deposit to Debt Service Reserve Fund... 8,535, Costs of Issuance (1)... 1,600, TOTAL USES OF FUNDS... $219,136, (1) Includes Underwriters discount, the initial and first annual Trustee fee, fees and expenses of Bond Counsel, Authority s Counsel, and Underwriters Counsel, fee of the Authority s financial advisor, printing, rating agency and miscellaneous expenses. THE 2011 BONDS The 2011 Bonds will be dated the date of delivery and will bear interest at the rates and mature on the dates and in the principal amounts shown on the inside front cover of this Official Statement. The 2011 Bonds are issuable only as fully registered bonds without coupons, and, when issued, will be registered in the name of Cede & Co., as registered owner and nominee for DTC. DTC will act as securities depository for the 2011 Bonds. Purchases of the 2011 Bonds will be made in book-entry form, in denominations of $5,000 or any integral multiple thereof. Beneficial Owners will not receive certificates representing their interest in the 2011 Bonds purchased. So long as Cede & Co. is the registered owner, as nominee of DTC, references herein to the registered owners shall mean Cede & Co., as aforesaid, and shall not mean the Beneficial Owners of the 2011 Bonds. See THE 2011 BONDS Book-Entry Only System herein. The full text of the 2011 Bonds is included as an exhibit to the Indenture. Reference is made to the Indenture, including the text of the 2011 Bonds, and the discussion herein is qualified in its entirety by such reference. 5

12 THE 2011 BONDS ARE NOT SUBJECT TO ACCELERATION UPON THE OCCURRENCE OF AN EVENT OF DEFAULT UNDER THE INDENTURE. Payments of Principal and Interest Interest on the 2011 Bonds will be paid on each June 1 and December 1 (each, an Interest Payment Date ), commencing December 1, 2011, and will accrue on the basis of a 360-day year based on twelve 30-day months. The principal of and premium, if any, and interest on the 2011 Bonds will be paid by the Trustee on the applicable payment date by check mailed by the Trustee to the respective Holders thereof at the close of business on the 15th day of the calendar month (whether or not a Business Day) next preceding the applicable Interest Payment Date (each, a Record Date ) at their addresses as they appear in the books (the Bond Register ) maintained by the Trustee, as bond registrar (the Registrar ); provided, however, that interest on any 2011 Bonds will be paid by wire or bank transfer within the continental United States in immediately available funds to a Bondholder of at least $1,000,000 aggregate principal amount of 2011 Bonds if so requested in writing to the Trustee at least five Business Days prior to the Record Date, which request will remain in effect until revoked. The principal of and redemption premium, if any, on the 2011 Bonds shall be payable upon presentation and surrender thereof at the designated corporate trust office of the Trustee. In any case where the Interest Payment Date or the date of maturity of principal of any 2011 Bonds or the date fixed for redemption of any 2011 Bonds is not be a Business Day, then payment of principal, premium, if any, or interest need not be made on such date but may be made on the next succeeding Business Day with the same force and effect as if made on such Interest Payment Date or such maturity or redemption date and no interest shall accrue for the period after such Interest Payment Date, maturity date or redemption date. Redemption Provisions The 2011 Bonds are subject to redemption as follows: Optional Redemption: The 2011 Bonds maturing on or after June 1, 2022 are subject to redemption prior to maturity at the option of the written direction of the Authority in whole or in part at any time on or after June 1, Such redemption shall be specified by the Authority in any principal amount (in whole multiples of $5,000) within a maturity as specified by the Authority, and within a maturity as selected by lot by the Trustee. If there are 2011 Bonds of the same maturity bearing different interest rates, the Authority shall specify in its direction the 2011 Bonds to be redeemed by maturity and interest rate. Any such redemption shall be made at the Redemption Price of 100% of the principal amount of the 2011 Bonds to be redeemed plus accrued interest to the date fixed for redemption. Procedure for Redemption In the event any of the 2011 Bonds are called for redemption, the Trustee shall give notice, in the name of the Authority, of the redemption of such 2011 Bonds, which notice shall (i) specify the series and maturities and interest rates of the Bonds to be redeemed, the date fixed for redemption and the place or places where amounts due upon such date fixed for redemption will be payable and, if less than all of the 2011 Bonds of any like series and maturity and interest rate are to be redeemed, the letters and numbers or other distinguishing marks of such Bonds so to be redeemed, and, in the case of 2011 Bonds to be redeemed in part only, such notice shall also specify the respective portions of the principal amount thereof to be redeemed; (ii) state that on such date there shall become due and payable the redemption price of each 2011 Bond to be redeemed, or the redemption price of the specified portions of the principal thereof in the case of 2011 Bonds to be redeemed in part only, together with interest accrued to the date fixed for redemption, and that from and after such date interest thereon shall cease to accrue and be 6

13 payable; and (iii) state that on the redemption date, and upon the satisfaction of any such condition, the 2011 Bonds to be redeemed shall cease to bear interest. With respect to an optional redemption of any Bonds, unless moneys sufficient to pay the principal of, redemption premium, if any, and interest on the Bonds to be redeemed shall have been received by the Trustee prior to the giving of such notice of redemption, such notice may, at the option of the Authority, state that said redemption shall be conditioned upon the receipt of such moneys by the Trustee on or prior to the date fixed for redemption. If such moneys are not received, such notice shall be of no force and effect, the Authority shall not redeem such Bonds and the Trustee shall give notice, in the same manner in which the notice of redemption was given, that such moneys were not so received and that such Bonds will not be redeemed. The Trustee shall mail copies of such notice by first-class mail, postage prepaid, not more than 45 days nor less than 20 days before the redemption date to the Holders of the 2011 Bonds to be redeemed at their addresses as shown on the registration books of the Authority maintained by the Trustee. If the Trustee mails notices of redemption as herein provided, notice shall be conclusively presumed to have been duly given to all Owners. Any 2011 Bonds and portions of 2011 Bonds which have been duly selected for redemption and which are paid in accordance with the Indenture will cease to bear interest on the specified redemption date. So long as DTC or its nominee is the registered owner of the 2011 Bonds, any failure on the part of DTC or failure on the part of a nominee of a Beneficial Owner (having received notice from a DTC Participant or otherwise) to notify the Beneficial Owner affected by any redemption of such redemption shall not affect the validity of the redemption. So long as DTC or its nominee is the registered owner of the 2011 Bonds, if less than all of the 2011 Bonds of any one maturity shall be called for redemption, the particular 2011 Bonds or portions of 2011 Bonds of such maturity to be redeemed will be selected by lot by DTC, the DTC Participants and Indirect Participants in such manner as they may determine. Book-Entry Only System The information set forth herein concerning DTC and the book-entry only system described below has been extracted from materials provided by DTC for such purpose and is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Authority, the Trustee or the Underwriters. DTC will act as securities depository for the 2011 Bonds. The 2011 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 certificate will be issued for each maturity of the 2011 Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 120 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and 7

14 pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a AA+ rating from Standard & Poor s. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of 2011 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2011 Bonds on DTC s records. The ownership interest of each actual purchaser ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the 2011 Bonds, except in the event that use of the book-entry system for the 2011 Bonds is discontinued. To facilitate subsequent transfers, all 2011 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 2011 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2011 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such 2011 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 shall be sent to DTC. If less than all of the 2011 Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the 2011 Bonds unless authorized by a Direct Participant in accordance with DTC s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority 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 2011 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the 2011 Bonds will be made to Cede &Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail 8

15 information from the Authority or the Trustee, 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, the Trustee or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the 2011 Bonds at any time by giving reasonable notice to the Authority and the Trustee. Under such circumstances, in the event that a successor depository is not obtained, 2011 Bond certificates are required to be printed and delivered. The Authority may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, 2011 Bond certificates will be printed and delivered to DTC. THE INFORMATION IN THIS SECTION CONCERNING DTC AND DTC S BOOK-ENTRY SYSTEM HAS BEEN OBTAINED FROM DTC S WEBSITE AND IS PRESUMED TO BE RELIABLE. THE AUTHORITY, THE TRUSTEE AND THE UNDERWRITERS TAKE NO RESPONSIBILITY FOR THE ACCURACY THEREOF. THE AUTHORITY, THE TRUSTEE AND THE UNDERWRITERS WILL HAVE NO RESPONSIBILITY OR OBLIGATION TO DIRECT PARTICIPANTS, TO INDIRECT PARTICIPANTS OR TO ANY BENEFICIAL OWNER WITH RESPECT TO (i) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, ANY DIRECT PARTICIPANT, OR ANY INDIRECT PARTICIPANT; (ii) THE PAYMENTS BY DTC, ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT WITH RESPECT TO THE PRINCIPAL OF, OR PREMIUM, IF ANY, OR INTEREST ON THE 2011 BONDS; (iii) ANY NOTICE WHICH IS PERMITTED OR REQUIRED TO BE GIVEN TO BONDHOLDERS; (iv) ANY CONSENT GIVEN BY DTC OR OTHER ACTION TAKEN BY DTC AS BONDHOLDER; OR (v) THE SELECTION BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF A PARTIAL REDEMPTION OF THE 2011 BONDS. THE CURRENT RULES APPLICABLE TO DTC ARE ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION, AND THE CURRENT PROCEDURES OF DTC TO BE FOLLOWED IN DEALING WITH DTC PARTICIPANTS MAY BE OBTAINED FROM DTC. Transfers and Exchanges of 2011 Bonds Subject to the provisions of the Indenture, any 2011 Bond may, in accordance with its terms, be transferred, upon the bond registration books required to be kept pursuant to the provisions of the Indenture, by the Person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such registered 2011 Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form approved by the Trustee. Whenever any 2011 Bond or 2011 Bonds shall be surrendered for transfer, the Authority shall execute and the Trustee shall authenticate and deliver a new 2011 Bond or 2011 Bonds for a like aggregate principal amount, maturity and interest rate. The Trustee shall require the Bondholder 9

16 requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer Bonds may be exchanged at the corporate trust office of the Trustee established for such purpose for a like aggregate principal amount of 2011 Bonds of other authorized denominations and the same maturity and interest rate. The Trustee will require the Bondholder requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange. SOURCES OF PAYMENT AND SECURITY FOR THE 2011 BONDS The 2011 Bonds (and all other Parity Obligations) are limited obligations of the Authority and are payable solely from and secured solely by (i) all amounts received by the Authority from the Grant Receipts, (ii) amounts on deposit in certain funds and accounts established under the Indenture (except the Rebate Fund), including investment earnings thereon, subject, however, to the use and application thereof as permitted by the Indenture, and (iii) any and all other moneys and securities furnished from time to time to the Trustee by the Authority or on behalf of the Authority or by any other persons to be held by the Trustee under the terms of the Indenture. The 2011 Bonds are not a general obligation of the Authority and the revenues, funds and assets of the Authority (other than the Grant Receipts) are not pledged or required to be used for the payment of the Bonds or the interest thereon. The Indenture creates no liens upon any physical properties of the Authority. The 2011 Bonds do not constitute a debt, liability, or obligation of the Commonwealth or any political subdivision of the Commonwealth. Neither the faith and credit nor the taxing power of the Commonwealth or of a political subdivision of the Commonwealth is pledged to the payment of the 2011 Bonds. The Authority has no taxing power. Grant Receipts Grant Receipts consist of all amounts received by the Authority after the date of issuance of the 2011 Bonds from its share of FTA Section 5309 (49 United States Code Section 5309) Fixed Guideway Modernization Formula funds, or its successor grant program, appropriated for the Federal Fiscal Year commencing October 1, 2011, and for each Federal Fiscal Year thereafter. See SECTION 5309 GRANT REVENUE PROGRAM herein for descriptions of the Section 5309 Grant Revenue Program, and the methods for determining the amount of the Grant Receipts available to the Authority on an annual basis. Pledge of Security The Indenture pledges for the payment of the principal, premium, if any, and interest on, the 2011 Bonds, and the payment of Parity Obligations, in accordance with their terms and the provisions of the Indenture, and a lien is thereby granted for such purpose, subject only to the provisions of the Indenture permitting or requiring the application thereof for the purposes and on the terms and conditions set forth in the Indenture: (i) the Grant Receipts; (ii) amounts on deposit in certain Funds, Accounts and Sub- Accounts established under the Indenture (except the Rebate Fund), subject however to the use and application thereof as permitted by the Indenture (see SOURCES OF PAYMENT AND SECURITY FOR THE 2011 BONDS Grant Receipts and - Funds and Accounts ); and (iii) any and all other moneys and securities furnished from time to time to the Trustee by the Authority or on behalf of the Authority or by any other persons to be held by the Trustee under the terms of the Indenture. Funds and Accounts Pursuant to the Indenture, the Authority establishes (i) the Grant Receipts Deposit Fund; (ii) the Project Fund; (iii) the Debt Service Fund; (iv) the Debt Service Reserve Fund and (v) the Surplus Fund, each of which is held in trust by the Trustee except for the Grant Receipts Deposit Fund, which is held 10

17 by the Authority. Subject to use and application in accordance with the Indenture, moneys and investments held in the Grant Receipts Deposit Fund, the Debt Service Fund, and the Project Fund are pledged as security for the payment of the principal of, redemption premium, if any, and interest on the Bonds and other Parity Obligations. Pursuant to the Indenture, the Authority may establish one or more additional Debt Service Reserve Accounts within the Debt Service Reserve Fund for the purpose of providing additional security for one or more series of Additional Bonds. With regard to the 2011 Bonds, the 2011 Debt Service Reserve Account shall serve and be solely for the benefit of the 2011 Bonds. The Surplus Fund is also pledged as security for the payment of the principal of, redemption premium, if any, and interest on the Bonds and other Parity Obligations, however under certain circumstances, moneys held in the Surplus Fund may be withdrawn from the Surplus Fund and (1) transferred to any other Fund, Account or Sub-Account maintained under the Indenture or any Supplemental Indenture; (2) used to purchase, pay, redeem or defease Outstanding Bonds; or (3) used for any other purpose permitted by the Indenture. The Indenture also establishes a Rebate Fund which is not pledged to the payment of the 2011 or any Parity Obligations. The Indenture establishes three separate accounts in the Debt Service Fund, known as the Interest Account, the Principal Account and the Variable Rate Stabilization Account. For additional information regarding these funds and accounts, see APPENDIX A DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE - Grant Receipts and Establishment of Funds and Applications Thereof. For a description of the priority of payments made from the Debt Service Fund, see APPENDIX A DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE - Debt Service Fund. The Indenture establishes the 2011 Project Account as a special account within the Project Fund and the 2011 Debt Service Reserve Account as a special account within the Debt Service Reserve Fund. See APPENDIX A DEFINITIONS AND CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE 2011 Bonds. Flow of Funds Grant Receipts The Indenture provides that all Grant Receipts received by the Authority shall be deposited promptly into the Grant Receipts Deposit Fund held by the Authority. On or before the first Business Day of each Bond Year, and (if required) on any subsequent Business Day thereafter, the Authority shall withdraw from the Grant Receipts Deposit Fund and pay over to the Trustee an amount sufficient to enable the Trustee to make payments into the following several Funds and Accounts: First: Into the Interest Account of the Debt Service Fund, to the extent, if any, necessary to increase the amount in the Interest Account so that it equals the sum of the Interest Requirements for all Outstanding 2011 Bonds (including net payments pursuant to any Interest Rate Hedge Agreement), and related Section 207 Obligations due on the next two Interest Payment Dates together with any amounts relating to Parity Obligations as shall be required by a Supplemental Indenture; Second: Into the Principal Account of the Debt Service Fund, to the extent, if any, needed to increase the amount in the Principal Account so that it equals the Principal Requirements for all Outstanding 2011 Bonds and related Section 207 Obligations due on the next Principal Payment Date together with any amounts relating to Parity Obligations as shall be required by a Supplemental Indenture; Third: Into the Variable Rate Stabilization Account of the Debt Service Fund, to the extent, if any, needed to increase the amount in the Variable Rate Stabilization Account to the Variable Rate Stabilization Account Requirement, if any; Fourth: Into the Rebate Fund, the amount specified in the certificate of an Authorized Officer filed with the Trustee pursuant to the Indenture; 11

18 Fifth: Into each Debt Service Reserve Account in the Debt Service Reserve Fund, to the extent, if any, necessary to increase the amount in such Debt Service Reserve Account so that it equals the applicable Debt Service Reserve Requirement for such Debt Service Reserve Account; and Sixth: Into the Surplus Fund, the amount specified in a certificate of an Authorized Officer filed with the Trustee. See APPENDIX A DEFINITIONS AND CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE Deposits and Applications of Grant Receipts. The Authority has covenanted in the Indenture to pay over to the Trustee, within one Business Day of its receipt thereof, Grant Receipts in the amount required to fund the Funds and Accounts, as outlined above. Provided that the required transfers to the Trustee are made as described in paragraphs First through Sixth above, moneys held in the Grant Receipts Deposit Fund may be withdrawn from time to time by the Authority for the payment or reimbursement of the costs of Eligible Projects or other lawful purposes of the Authority. If, however, after any transfer described above, a deficiency then exists in the deposits required to be made by the Trustee from the Grant Receipts Deposit Fund as described above, no withdrawals may be made unless the Authority has obligated a sum sufficient for the payment to the Trustee of the amounts required by the Indenture as set forth above from appropriations applicable from the current or prior Federal Fiscal Year ( FFY ). The Indenture also requires that if, as of September 15, the grant approvals required to make the payments to the Trustee as described above have not been obtained, then the Authority must take all necessary actions to reprogram available Section 5309 Grant Revenue Funds already appropriated to the Authority to the extent required to make such payments. See APPENDIX A DEFINITIONS AND CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE Covenants And Representations Of The Authority Debt Service Reserve Account On the date of issuance of the 2011 Bonds, the Trustee shall deposit into the 2011 Debt Service Reserve Account $8,535, which shall be in an amount equal to the 2011 Debt Service Reserve Account Requirement. The Debt Service Reserve Account shall secure, and be solely for the benefit of the 2011 Bonds. If any withdrawal is made from the 2011 Debt Service Reserve Account, the Authority shall pay to the Trustee for deposit into the 2011 Debt Service Reserve Account an amount sufficient to restore such withdrawal in not more than twelve (12) equal consecutive monthly installments, commencing on the first day of the month following such withdrawal. If on any Interest Payment Date the value of the 2011 Debt Service Reserve Account is less than the 2011 Debt Service Reserve Account Requirement, the Authority shall pay to the Trustee for deposit into such Account the amount of such deficiency in not more than six (6) equal monthly installments, commencing on the first day of the month following such Interest Payment Date. The Authority may direct the Trustee to transfer moneys held in the Surplus Fund, to the extent available for such purpose, to the 2011 Debt Service Reserve Account to restore any deficiency in the 2011 Debt Service Reserve Account. The Trustee may not release monies in the Surplus Fund from the lien of the Indenture while there exists any deficiency in the 2011 Debt Service Reserve Account. The Authority may fund any deposit to a Debt Service Reserve Account in whole or in part with one or more irrevocable letter of credit, surety bond or insurance policy which (a) is issued in favor of the Trustee and is held by the Trustee to the credit of a Debt Service Reserve Account for the Owners of one 12

19 or more Series of Bonds; (b) in the case of any surety bond or insurance policy, is either (i) issued by a company licensed to issue an insurance policy guaranteeing the timely payment of debt service on the relevant Bonds with a claims paying ability rated "AAA" by Standard & Poors and "Aaa" by Moody s Investors Service, or (ii) approved by each Bond Insurer or Credit Facility Issuer which has issued a Bond Insurance policy or Credit Facility securing any bonds to which such insurance policy or surety will relate; (c) in the case of a letter of credit, is issued by a banking institution whose senior, unsubordinated, unsecured obligations are rated at least "AA" by Standard & Poors; and (d) meets the further requirements, if any, set forth in the Indenture (each a Reserve Fund Credit Facility and collectively, Reserve Fund Credit Facilities ). For more information See APPENDIX A DEFINITIONS AND CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE Debt Service Reserve Fund. Moneys held in the Accounts of the Debt Service Reserve Fund shall be invested as provided in the Indenture. At the time of valuation, if any amount in the 2011 Debt Service Reserve Account is in excess of the 2011 Debt Service Reserve Account Requirement, such excess amount shall be transferred to the Debt Service Fund and, at the option of the Authority, credited to either principal payments or interest payments in respect of the 2011 Bonds. The Authority s obligation to reimburse a Reserve Fund Credit Facility Issuer for any fees, expenses, claims or draws upon such Reserve Fund credit instrument shall be subordinate to the payment of debt service on the Bonds. Additional Bonds The issuance of one or more Series of Additional Bonds is authorized pursuant to the Indenture for the purpose of paying the cost of construction of one or more Eligible Projects under the Indenture or refunding any Subordinated Indebtedness issued for such purposes, to pay costs and expenses incident to the issuance of such Additional Bonds and to make deposits to any Fund, Account or Sub-Account under the Indenture. Such Additional Bonds (other than the Refunding Bonds described below) may be issued only upon the Authority s delivery of a certificate described as follows: (i) setting forth the current and prior two fiscal years beginning on the Federal Fiscal Year, the amount of FTA Section 5309 Fixed Guideway Modernization Formula funds that the Authority is entitled to receive from the FTA pursuant to appropriations designated for that Federal Fiscal Year; (ii) calculating the average of the Annual Apportionment Amount for the current and prior two Federal Fiscal Years (the Average Annual Apportionment Amount ); (iii) determining that the Average Annual Apportionment Amount is not less than 150% of, as of any date of calculation, the largest amount of principal and interest requirements due in any Federal Fiscal Year determined as of the time immediately following issuance of the Additional Bonds; (iv) a letter of no prejudice issued by the FTA, or a comparable letter indicating the FTA s concurrence with the issuance of Additional Bonds. In applying the foregoing test, if any of the Bonds Outstanding immediately following the issuance of the Additional Bonds to be issued constitute Optional Tender Bonds or Variable Rate Bonds, the provisions set forth in the Indenture regarding such Bonds shall be applied in determining the Annual Debt Service Requirements of such Bonds. See APPENDIX A DEFINITIONS AND CERTAIN 13

20 TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE Additional Bonds for Eligible Project Purposes. Refunding Bonds The issuance of one or more Series of Refunding Bonds is authorized pursuant to the Indenture to refund or advance refund any or all Outstanding Bonds of one or more Series, and any or all Section 207 Obligations Outstanding, to pay costs and expenses incident to the issuance of such Refunding Bonds and to make deposits in any Fund, Account or Sub-Account under the Indenture. Such Refunding Bonds may be issued only in the event that certain requirements set forth in the Indenture are satisfied. See APPENDIX A DEFINITIONS AND CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE Refunding Bonds. Subordinated Indebtedness No provision of the Indenture limits the ability of the Authority to issue bonds or other obligations payable from Grant Receipts on a basis junior or subordinate to the payment of principal of, premium, if any, any interest on the Bonds. See APPENDIX A DEFINITIONS AND CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE Subordinated Indebtedness. Investments All amounts held under the Indenture are invested at the direction of the Authority in Investment Securities, as defined in the Indenture, subject to certain limitations contained therein. See APPENDIX A DEFINITIONS AND CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE Investments. Certain Remedies of Bondholders Upon the occurrence of any Event of Default under the Indenture, the Indenture provides that the Trustee, if requested to do so by the holders of not less than a majority in principal amount of the Bonds Outstanding and upon being indemnified to its satisfaction shall proceed, to protect and enforce its rights and the rights of the holders of the 2011 Bonds forthwith by a suit or suits in equity or at law, whether for the specific performance of any covenant herein contained, or in aid of the execution of any power therein granted, or for an accounting against the Authority as if the Authority were the trustee of an express trust, or in the enforcement of any other legal or equitable right as the trustee, being advised by counsel, shall deem most effectual to enforce any of its rights or to perform any of its duties under this Indenture; provided, however, that there is no right to accelerate the payment of the principal of the 2011 Bonds. See APPENDIX A DEFINITIONS AND CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE hereto. THE 2011 BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM THE TRUST ESTATE. THE 2011 BONDS DO NOT OTHERWISE CONSTITUTE A PLEDGE OF THE CREDIT OF THE AUTHORITY. FURTHER, THE 2011 BONDS DO NOT CONSTITUTE A PLEDGE OF THE CREDIT OF THE COMMONWEALTH OR ANY POLITICAL SUBDIVISION THEREOF, NOR DO THE 2011 BONDS CONSTITUTE A PLEDGE OF THE TAXING POWER OF THE COMMONWEALTH OR ANY POLITICAL SUBDIVISION THEREOF. THE AUTHORITY HAS NO TAXING POWER. NEITHER THE COMMONWEALTH NOR ANY POLITICAL SUBDIVISION THEREOF IS LIABLE FOR THE PAYMENT OF THE PRINCIPAL OF, OR REDEMPTION PREMIUM, IF ANY, OR INTEREST ON, THE 2011 BONDS. 14

21 Potential Effects of Bankruptcy The rights and remedies of Bondholders could be limited by the provisions of the Federal Bankruptcy Code, as now or hereafter enacted (the Bankruptcy Code ), or by other laws or legal or equitable principles which may affect the enforcement of creditors rights. Chapter 9 of the Bankruptcy Code permits, under prescribed circumstances, a political subdivision of a state to commence a voluntary bankruptcy proceeding and to file a plan of adjustment in the repayment of its debts, if such political subdivision is generally not paying its debts as they became due (unless such debts are the subject of a bona fide dispute), or is unable to pay its debts as they become due. Under the Bankruptcy Code, an involuntary petition cannot be filed against a political subdivision. In order to proceed under Chapter 9 of the Bankruptcy Code, state law must specifically authorize the political subdivision to file a petition under the Bankruptcy Code. THE ENABLING LAW PROHIBITS THE AUTHORITY FROM FILING A PETITION UNDER THE BANKRUPTCY CODE WHILE ANY BONDS OF THE AUTHORITY ARE OUTSTANDING. Limitations on Security Interest The effectiveness of the security interests in the Trust Estate may be limited by a number of factors, including: (a) provisions of state or federal law which may limit the ability of the Trustee to enforce directly the security interest in the Trust Estate; (b) present and future statutory liens; (c) rights arising in favor of the United States of America or any agency thereof; (d) constructive trusts and equitable or other rights impressed or conferred by federal or state courts in the exercise of their equitable powers; (e) state and federal laws affecting the perfection and priority of security interests in proceeds of collateral and in collateral consisting of cash and cash equivalents; (f) state laws affecting the continuation of perfected and first priority security interests; (g) claims that might arise if appropriate financing or continuation statements are not filed in accordance with the Uniform Commercial Code as from time to time in effect; and (h) the factors described under Potential Effects of Bankruptcy above. SECTION 5309 GRANT REVENUE PROGRAM THE TERMS AND CONDITIONS OF PARTICIPATION IN THE SECTION 5309 GRANT REVENUE PROGRAM AS DESCRIBED HEREIN ARE SUBJECT TO CHANGE AT THE DISCRETION OF CONGRESS, AND THERE CAN BE NO ASSURANCE THAT THE LAWS AND REGULATIONS NOW GOVERNING THE SECTION 5309 GRANT REVENUE PROGRAM WILL NOT BE CHANGED IN THE FUTURE IN A MANNER THAT MAY ADVERSELY AFFECT THE ABILITY OF THE AUTHORITY TO RECEIVE ADEQUATE GRANT RECEIPTS TO MAKE DEBT SERVICE PAYMENTS ON THE 2011 BONDS. CURRENT LEGISLATION ONLY ASSURES THAT IN EACH YEAR S APPROPRIATIONS PROCESS THE SPECIFIED AMOUNTS OF AUTHORIZED FUNDING WILL BE AVAILABLE EACH YEAR FOR TRANSIT APPROPRIATIONS, MAKING IT UNLIKELY DURING THE APPROPRIATIONS PROCESS THAT THE FUNDS COULD BE DIVERTED FOR OTHER THAN TRANSIT PURPOSES. Forward-Looking Statements If and when included in this Official Statement, the words expects, forecasts, projects, intends, anticipates, estimates, assumes and analogous expressions are intended to identify forward-looking statements and any such statements inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those that have been projected. Such risks and uncertainties include, among others, changes in law and regulations, general economic and business conditions relating to the Authority, changes in political, social and economic conditions, regulatory initiatives and compliance with governmental regulations, litigation and various other events, 15

22 conditions and circumstances, many of which are beyond the control of the Authority. These forwardlooking statements speak only as of the date of this Official Statement. The Authority disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any changes in the Authority s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Section 5309 General The Section 5309 Grant Revenue Program of the FTA disburses funds to qualified recipients as part of the Federal Transit Program (the Program ) created by Congress in support of public transit in the United States. As codified under Title 49 of the U.S. Code, one of the purposes of the Section 5309 Program is to provide funds for, and assist in financing, urban public transportation capital improvement projects such as the 2011 Project. Proceeds of the 2011 Bonds will be used by the Authority to finance the costs of the 2011 Project. Section 5309 Grant Revenue Program grants are financed by revenues from the Mass Transit Account of the Highway Trust Fund as part of the Section 5309 Grant Revenue Program, pursuant to which the federal government reimburses grant recipients for the federal share of approved transit projects. Certain Program features or requirements are explained or further defined where they appear below but are introduced here for reference: Highway Trust Fund ( HTF ): The HTF is a dedicated federal fund with dedicated revenues held in trust for reimbursement of expenditures for costs of eligible transportation projects. Mass Transit Account ( MTA ): A separate account within the HTF, the MTA, contains funds reserved solely for public transit projects. Authorization: An authorization is the process by which Congress approves the expenditure of federal revenues on federal programs. For the Section 5309 Grant Revenue Program, authorization historically has been, and continues to be, provided on a multi-year basis. This, together with the availability of HTF revenues and future HTF collections, permits grant recipients more certainty in planning long-term transit projects. The current authorization, SAFETEA-LU (as hereinafter defined), approves funding through FFY Appropriation: An appropriation is the result of the annual federal budget process through which federal revenues are allocated to specific federal programs. Apportionment: An apportionment is the annual notification by the FTA of the allocation of federal transit funds among potential grant recipients according to legislatively determined formulas and other relevant criteria. Actual apportionments of various categories of funding and specific Congressional earmarks are published in the Federal Register, usually in October/November following the beginning of the FFY. Obligation of Funds: Following submission of an application for funds by a public body, FTA obligates federal funds for specific Eligible Projects and reserves those funds which remain available until expended by the grant recipient. Local Share Requirement: Like most federal programs, the Section 5309 Grant Revenue Program requires a matching non-federal share of the total project costs. Similar to most FTA grantees, the Authority s required match is 20 percent. 16

23 Guaranteed: The use of the term guaranteed with respect to funding of the Section 5309 Grant Revenue Program means only that the specified amounts of authorized funding will be available each FFY for transit appropriations, making it unlikely during the appropriations process that the authorized funds could be diverted to another federal program or appropriated for purposes other than transit. Current legislation (SAFETEA-LU, hereinafter defined) contains provisions designed to provide this assurance, which is referred to by the FTA as guaranteed. The use of the term guaranteed with respect to the Section 5309 Grant Revenue Program and its funding in this Official Statement is qualified in all respects by this definition. See Program Operations below for a further discussion of guaranteed funding. No assurance can be given that the legislation and regulations relating to guaranteed funding will not change in the future. The foregoing terms when used in this section of the Official Statement, whether or not capitalized, are qualified by reference to the foregoing definitions and explanations. The features of the Section 5309 Grant Revenue Program work in a complementary fashion to provide a regular flow of federal reimbursements to the eligible costs of approved transit projects including payment of debt service and related financing costs. The participation of the Authority in such reimbursements, and the role of such participation in providing payment and security for the 2011 Bonds, is discussed under the caption Authority Participation in Section 5309 Grant Revenue Program herein. Mass Transit Account The FTA administers payments under the Section 5309 Grant Revenue Program through approved grants paid from the MTA of the HTF and from the General Fund of the U.S. Treasury. Funded by collection of federally-imposed motor vehicle user fees, primarily fuel taxes, the HTF is a dedicated fund with dedicated revenues that are held in trust for reimbursement of the cost of transportation projects, including transit and highway projects. The HTF presently contains the Highway Account and the MTA. The MTA receives approximately 16 percent of federal gasoline tax revenues and 12 percent of federal diesel fuel tax revenues collected nationwide, with the remaining share of such revenues deposited in the Highway Account. Using revenues in the MTA, the FTA reimburses grant recipients for expenditures related to approved transit projects. The FTA distributes these revenues based on formulas, specific criteria and direction prescribed by federal law. The 18.4 cents per gallon of federal gasoline excise taxes are the largest revenue source for the HTF. The majority of these tax revenues, cents per gallon, go to the Highway Account, 2.86 cents per gallon go to the MTA and 0.1 cents per gallon goes to the Leaking Underground Storage Tank Trust Fund. The following table shows historical annual HTF collections deposited into the MTA for the period FFY 2000 to FFY [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 17

24 Total Annual Receipts -- Mass Transit Account ($000) FFY* MTA Funds 2000 $4,625, ,553, ,621, ,762, ,925, ,933, ,857, ,053, ,042, ,809, ,816,211** 2011*** 5,100,000 Source: Federal Transit Administration and the Bureau of Public Debt *Values reflect annual receipts to the Mass Transit Account after nominal other income, deductions and transfers to other funds. Source: Federal Highway Administration Office of Policy Information Status of Federal Highway Trust Fund Fiscal Years **Does not reflect $4.8 billion transfer from the General Fund in FFY 2010 ***Source: Congressional Budget Office. Testimony of Joseph Kile, Assistant Director for Microeconomic Studies, before United States Senate Committee on Finance The Highway Trust Fund and Paying for Highways (May 17, 2011) Collections of HTF taxes must periodically be reauthorized by Congress. Historically, the HTF and its constituent taxes have been authorized to operate for prescribed periods of time. The current multi-year reauthorization act, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users ( SAFETEA-LU ) authorizes HTF collections through FFY The current authorization is the latest extension in a series of a short-term extensions of SAFETEA-LU that have been approved by Congress since History The FTA s multi-billion dollar program in support of public transit in the United States had its origins in 1955 when Congress authorized the Administrator of the Housing and Home Finance Agency to make loans to public bodies to assist in financing urban mass transportation capital improvements projects. This authority was later transferred to the Department of Housing and Urban Development and then expanded in 1964 with the passage of the Urban Mass Transportation Act (the UMT Act ) and with the reorganization of functions among government departments in In that year, the Secretary of Transportation was given the authority and responsibility for administration of the UMT Act and a separate modal administration--the Urban Mass Transportation Administration (the UMTA )--was created within the Department of Transportation. The 1964 legislation greatly expanded the federal government s authority with respect to public assistance for transit. In addition to loans for capital improvements, a grant program was established to reimburse eligible costs of mass transportation facilities, equipment, techniques and methods. Section 3(B) of the UMT Act defined eligible costs to include the following: [T]he acquisition, construction, reconstruction, and improvement of facilities and equipment for use, by operation or lease or otherwise, in 18

25 mass transportation service and the coordination of such service with highway and other transportation. Eligible facilities and equipment may include personal property such as buses and other rolling stock, and rail and bus facilities, and real property and improvements... In 1991, the Intermodal Surface Transportation Efficiency Act (the ISTEA ) made important changes to the UMTA, most notably, it changed the name of the UMTA to the FTA and codified the legislation in the United States Code. The name change reflected Congress expanding vision of the role of public transit in the nation s transportation system. For some time, the UMTA had provided funding assistance to other than urbanized areas and the renaming reflected this broadening modal role. Codification brought together all transportation legislation in one place under Title 49 of the U.S. Code and changed the section numbers of the transit-related portions of the law. The former Section 3 of the UMT Act program became the Section 5309 program. Codification made no substantial changes to any of FTA s programs. Funding for transit under the ISTEA increased as did the requirements for decision making in planning and implementing major transportation improvements. The legislation strengthened and made uniform earlier requirements for environmental sensitivity and public involvement to level the playing field in the choice between highway and transit alternatives. The ISTEA also demonstrated Congress recognition of the growing importance of the role of mass transportation by linking its enhanced support of transit to national clean air goals and, for the first time, allowed funds appropriated under some highway programs to be transferred to transit projects at local discretion and under certain circumstances. Until the enactment of SAFETEA-LU on August 10, 2005 (and subsequent extensions thereof), the Transportation Equity Act for the 21 st Century ( TEA 21 ) was the most recent multi-year authorization act. TEA-21 was signed into law by President Clinton on June 9,1998 and amended by a technical corrections act which was signed on July 22, TEA-21 extended authorization of the Section 5309 Grant Revenue Program through FFY 2003 and was the subject of several interim extensions until the passage of SAFETEA-LU. The primary change in the Section 5309 Grant Revenue Program made by TEA-21 is the guarantee of certain fixed levels of funding for transit, which were constructed around the transit funding to prevent the money from being used for any other purpose and are discussed in greater detail below. See Section 5309 General Guaranteed and Program Operations Guaranteed Funding in this section of the Official Statement for an explanation of the term guaranteed. SAFETEA-LU authorizes a total of $286 billion for the federal surface transportation programs in FFYs 2005 through 2009, $244 billion of which was guaranteed. During the current extension period (FFY 2010 and 2011), another approximately $106 billion in guaranteed funding has been authorized based on obligation limitations contained in certain sections of the Hiring Incentives to Restore Employment Act of 2010, Pub. L. No and the Surface Transportation Extension Act of 2011 Pub. L. No This represents a significant increase in authorization over TEA 21. Program Operations The Section 5309 Grant Revenue Program under SAFETEA-LU continues to reimburse eligible expenditures incurred by public bodies for transit projects. The level of financial assurance provided by the Section 5309 Grant Revenue Program is unusual among federal programs in that a substantial portion of the Section 5309 Grant Revenue Program is based on dedicated revenues from a user-tax source which are deposited in the MTA and the budget and contract authority of the FTA is established by a multi-year authorization act rather than annually through appropriation acts. 19

26 The process for reimbursing eligible expenses incurred by a public body for a transit project may be summarized in three steps: authorization, obligation and program implementation. The authorization step is the most critical step in establishing overall spending authority for federal transit funding and creates continuing contracting authority for the Section 5309 Grant Revenue Program. Authorizing legislation by the United States Congress extends the life of the Section 5309 Grant Revenue Program; authorizes use of the funds from the MTA; sets Program objectives; and provides formulas for determining the distribution of appropriated resources among urbanized and non-urbanized areas. The existence of the dedicated revenues in the MTA and the existence of multi-year contract authorizations are designed to help to make available a predictable and uninterrupted flow of reimbursements to FTA grant recipients. The second step, obligation, is the process through which FTA makes appropriated funds available to grant recipients under the various grant programs. The third step, implementation, includes a wide range of activities which occur after federal grant approval, largely on the part of the grant recipient, to produce the project for which grant funds were made available and to seek federal reimbursement for eligible costs. Step 1: Authorization The first step, and the most crucial in financing the Section 5309 Grant Revenue Program, is the multi-year authorizing legislation which: (i) (ii) (iii) Establishes the taxes that fund the MTA and extends their life (reauthorization); Establishes the specific programs and procedures through which federal financial assistance for the transit program is made available; and Sets upper limits on funding for specific programs and for the overall Program. Annual Appropriations. All federal programs require congressional budget and contract authority before revenues may be committed and spent. Normally this authority is provided through a two-step process, with authorizing legislation describing the purposes for a specific program and setting a proposed level of spending, and appropriations legislation providing the budget authority or legal ability to spend federal revenues. Historically, appropriations have often been for a lower amount than that set by authorizations. The Section 5309 Grant Revenue Program is subject to this two step process; however, the guaranteed funding levels built into SAFETEA-LU make it highly unlikely that transit funds will not be appropriated or that they will be appropriated for another purpose. Guaranteed Funding. In both TEA-21 and subsequently SAFETEA-LU, the authors of the legislation were seeking some budgetary mechanism to statutorily assure that revenues deposited into the HTF would be spent for highway and transit programs and not be allowed to accumulate unspent in the U.S. Treasury as had been the case in the past. Prior to enactment of TEA-21, funding for surface transportation programs (highway and transit) was only one item among many on a list of discretionary priorities for federal spending in the budget. Often appropriations were below the authorization levels with the result that large HTF surpluses gave the appearance of a lower federal budget deficit. Under TEA-21 rules, guaranteed funding levels were built into the highway and transit programs. This process was continued under the SAFETEA-LU reauthorization. Transit funding is guaranteed at a selected fixed amount over the SAFETEA-LU period and can be used only to support transit programs. The amount guaranteed for transit is approximately $ billion over the five-year period of the authorization as shown below. 20

27 SAFETEA-LU Federal Transit Program Guaranteed Funding Levels (Shown in billions of dollars) * 2011* Total* Total $8.975 $9.731 $ $ $ $ Highway Trust Fund General Fund Source: Federal Transit Administration. *The 2010 and 2011 interim extensions of SAFETEA-LU increased the obligation ceiling (Sec of SAFETEA-LU) to $ billion (Pub. L. No and Pub. L. No ). The guaranteed funding level assumes that approximately 81.7 percent of transit allocations will be funded from the MTA of the HTF and the remaining percentage will be funded from the General Fund. Congress, through the annual budget process, could choose to raise the total funding level by allocating a part of some other federal program s budget to transit but, under current law, it cannot use any of the guaranteed amount for any other federal program. Lapsing of Authorization: All federal programs must be authorized through enacted legislation that defines the Section 5309 Grant Revenue Programs and establishes maximum funding levels, and for most programs, annual appropriations acts are necessary in order to create budget authority. For most federal domestic discretionary programs or formula programs, however, a lapsed authorization may have little or no effect on a program, so long as revenues are appropriated for the Section 5309 Grant Revenue Program. Following the expiration of SAFETEA-LU in September 2009, Congress has appropriated funds which allowed continuation of existing programs through the enactment of several continuing resolutions with the most recent continuing resolution running through September 30, Step 2: Obligation The second step of the federal funding process occurs when revenues that have been authorized and appropriated by legislation are apportioned and obligated for a specific purpose. Annual Apportionment of Funds: FTA apportionments are allocated for transit purposes specified in the authorizing legislation in several ways. FTA publishes a Notice in the Federal Register ( Notice ), after the President s signing of appropriation legislation, listing the amount apportioned to certain areas which operate existing rail service in the case of Section 5309 Grant Revenue Funds. FTA also lists specific Congressionally-mandated new fixed guideway systems projects which have been allocated discretionary funds under Section 5309 New Starts in the legislation itself. Also included in the Notice are any changes to program implementation guidelines that will govern the grant application/award cycle and/or implementation of the Section 5309 Grant Revenue Program after grant award. Grant Application Process: Once the Notice is published listing actual amounts available to each urbanized area, eligible public bodies are able to electronically submit grant applications to the FTA. A typical grant application for Section 5309 Grant Revenue Funds is made up of a program of projects, a line item budget and project implementation information. The Section 5309 Grant Revenue Program of projects consists of a list of individual projects (e.g., lease/purchase of railcars, construction of a 21

28 maintenance facility, overhaul of locomotives, etc.) with brief descriptions of the work to be accomplished for each of the individual projects for which money is requested. During the application review process, FTA confirms that required planning, environmental, and other necessary legal requirements have been satisfactorily fulfilled. Since 1995, FTA has allowed grant applicants to selfcertify compliance with many of the statutory requirements, subject to audit by FTA. Obligation of Funds: When FTA has determined that all grant requirements have been met, it obligates the requested funds in its main computer under a grant number unique to each individual applicant, thus reserving the funds for draw down by the grant recipient for the approved projects. Funds are available to the grant recipient until expended, on a reimbursement basis. See SECTION 5309 GRANT REVENUE PROGRAM for a detailed discussion of apportionments, the grant application process and the obligation of funds for each program below. Step 3: Program Implementation Implementation, the third and final step in the Section 5309 Grant Revenue Program funding process, occurs after authorized revenues have been obligated by FTA to grant recipients in specific urbanized areas. Once revenues have been authorized and obligated, grant recipients must have developed transit plans and programs which comply with applicable laws and regulations. This process has five stages: (1) budgeting; (2) planning; (3) programming; (4) grant approval; and (5) project implementation, fiscal management and FTA reimbursement. (1) Budgeting. Budgetary information about availability of capital funding is crucial to the development of transit capital programs. Transit operators must estimate the availability of short and long-term state, federal and other funding in order to plan their transit programs. (2) Planning. The long-range planning process provides a perspective on anticipated project needs statewide. At the Authority, long-range planning is done within a context outlined by the Authority s Board. Such plans are reviewed by the FTA and, where applicable, other regional, state or federal agencies. (3) Programming. Programming is the annual process through which individual projects are selected and scheduled for implementation in a given year. At the Authority, a list of capital projects and programs using federal, state and other funds is approved each May by the Board. A variety of projects is typically included in the list approved by the Board, including rehabilitation of rail stations and maintenance facilities, scheduled railcar replacements, cyclical railroad track, bridge, signal and communication system maintenance and improvements, computer enhancements and many more. For those projects which are programmed to use federal funds, the approved project list forms the basis of the Authority s grant application to FTA. (4) Grant Approval. FTA has implemented electronic grant making. Applicants input all necessary information into FTA s computer system to which they are networked. The information is reviewed and approved by FTA on-line. This obligation of funds by the FTA reserves the amount in the MTA and debits the urbanized area apportionment; these funds cannot be used for any other purpose or by any other grant recipient. (5) Project Implementation, Fiscal Management and FTA Reimbursement. Once budgeting, planning, programming and FTA approval have taken place, projects move into the implementation phase. During this phase, work to accomplish the project is undertaken, reimbursement is requested and received from FTA and payments are made. 22

29 Section 5309 Grant Revenue Program General. The Section 5309 Grant Revenue Program provides capital assistance for the modernization of existing rail systems. Annual Apportionment of Funds. Once appropriated by Congress, FTA funds are allocated for transit purposes in several ways as specified in the authorizing legislation. FTA publishes the Notice, after the President s signing of appropriation legislation, listing, along with other information, the amount of Section 5309 Grant Revenue Funds apportioned to each urbanized area. The Authority receives a portion of the funds that are apportioned to the Philadelphia Urbanized Area. Designated Recipient. The Authority is a designated recipient of Section 5309 Grant Revenue Funds. For an urbanized region with more than one designated recipient, the amounts available under the Federal Transit Program, as published in the Notice, must be further allocated among the region s designated recipients. The Authority, on behalf of the other Philadelphia Urbanized Area recipients of Section 5309 Grant Revenue Funds, calculates the sub-area allocation for all agencies based on the unit values and other information provided in the Federal Register tables. Each agency reviews the calculations and all recipients must agree to the allocation of the apportionment by agency and send a letter to the FTA stating their agreement to the apportionment split among the agencies. The Authority coordinates with each agency to ensure timely submission of the agreement letters to the FTA and addresses any issues that may come up regarding the allocation. As shown in the accompanying table, the Authority, which is the dominant provider of rail transit service, has received at least 84% of Section 5309 Grant Revenue Funds allocated to the Philadelphia Urbanized Area. Federal Fiscal Year History of Section 5309 Grant Revenue Funds by Agency for the Philadelphia Urbanized Area Southeastern Pennsylvania Transportation Authority Delaware River Port Authority Pennsylvania Department of Transportation Southeastern Pennsylvania Transportation Authority Share of Total NJ TRANSIT State of Delaware Total 1998 $68,204,531 $5,187,722 $1,752,525 $2,380,971 $0 $77,525,749 88% ,508,022 5,520,913 2,332,978 3,075, ,437,568 87% ,784,302 5,707,243 2,505,839 3,602, ,599,606 86% ,303,920 5,917,164 2,803,344 4,393, ,417,434 85% ,637,198 6,081,094 2,979,742 4,867, ,565,360 85% ,723,537 6,268,398 3,269,685 3,855, ,116,814 86% ,279,888 6,249,160 3,226,970 3,159, ,915,184 87% ,006,183 6,234,643 3,210,106 3,170, ,630 93,987,787 86% ,186,250 6,515,120 3,663,501 3,227, ,557 98,059,392 86% ,291,075 6,764,198 4,037,894 4,415, , ,056,751 85% ,982,389 7,034,310 4,429,839 4,876, , ,953,682 84% 2009* 94,167,367 7,314,615 2,502,687 5,317, , ,018,810 86% ,616,024 7,306,377 2,521,425 5,251, , ,396,511 86% ,126,952 7,353,580 2,518,901 5,362, , ,072,697 86% 2012** 94,616,024 7,306,377 2,521,425 5,251, , ,396,511 86% Source: Southeastern Pennsylvania Transportation Authority * Amount does not include American Recovery and Reinvestment Act (ARRA) Funding ** FY 2012 funds are projected to revert to FY 2010 funding level. Amount of Apportioned Section 5309 Grant Revenue Funds. The amount of Section 5309 Grant Revenue Funds apportioned to the Authority is based on 49 U.S.C (amended by Section 3035 of 23

30 SAFETEA-LU). Each year, the new fixed guideway modernization formula will allocate funds to the Authority by seven tiers as follows: Tier 1. The first $497,700,000 will be apportioned to the following urbanized areas: Baltimore, $8,372,000; Boston, $38,948,000; Chicago/Northwestern Indiana, $78,169,000; Cleveland, $9,509,500; New Orleans, $1,730,588; New York, $176,034,461; Northwestern New Jersey, $50,604,653; Philadelphia/Southern New Jersey, $58,924,764; Pittsburgh, $13,662,463; San Francisco, $33,989,571; Southwestern Connecticut, $27,755,000. Tier 2. The next $70,000,000 will be apportioned as follows: Tier 2A: 50 percent to areas identified in Tier 1; and Tier 2B: 50 percent to other urbanized areas with fixed guideway in operation at least seven years. The apportionments for both Tiers 2A and 2B will be based on the Urbanized Area Formula Program fixed guideway tier formula factors that were used to apportion funds for fixed guideway modernization in FFY Tier 3. The next $5,700,000 will be apportioned to the following urbanized areas as follows; Pittsburgh, percent; Cleveland, percent; New Orleans, 5.79 percent; the remaining percent will be apportioned to areas in Tier 2B on the basis of the fixed guideway tier formula factors used in FFY Tier 4. The next $186,600,000 will be apportioned to all eligible areas on the basis of the fixed guideway tier formula factors used in FFY Tier 5. The next $70,000,000 will be apportioned as follows: 65 percent to the 11 areas specified in Tier 1, and 35 percent to all other urbanized areas using the most current Urbanized Area Formula Program fixed guideway tier formula factors. Any segment that is less than seven years old has been deleted from this data base. Tier 6. The next $50,000,000 will be apportioned as follows: 60 percent to the 11 areas specified in Tier 1, and 40 percent to the other urbanized areas with fixed guideway system segments in revenue service for at least seven years. Allocations will be based on the latest available route miles and revenue vehicle miles for fixed guideway segments at least seven years old as reported to the National Transit Database. Tier 7. Any remaining amounts will be apportioned as follows: 50 percent to the 11 urbanized areas specified in Tier 1, and 50 percent to the other urbanized areas with fixed guideway system segments in revenue service for at least seven years. Allocations will be based on the latest available route miles and revenue miles for fixed guideway segments at least seven years old as reported to the National Transit Database. Grant Application and Section 5309 Grant Revenue Program Fund Obligation. Once the notice is published in the Federal Register listing the amount of Section 5309 Grant Revenue Funds that are available to the Authority, the Authority is allowed to submit grant applications to the FTA for reimbursement of eligible expenditures. Once the FTA approves the application, the FTA obligates federal funds for the specific Eligible Projects. Those funds are then reserved under the Section 5309 Grant Revenue Program. Once obligated and reserved, the funds are available to the Authority to expend on the approved projects. Lapsing of Apportioned Section 5309 Grant Revenue Funds. Section 5309 Grant Revenue Funds apportioned to an urbanized area must be requested by the designated recipient and obligated by the FTA within four FFYs (year of appropriation plus three years). If such funds are not obligated within the timeframe, the appropriation reverts back to the FTA which reapportions the funds the following year. 24

31 However, once Section 5309 Grant Revenue Funds are obligated by the FTA to a designated recipient, the funds remain available until spent by the designated recipient. Historically, the Authority has taken all necessary steps to apply for all apportioned and available funds in a FFY and has covenanted in the Indenture to do so. Program Administration After the federal grant approval process, administration of the Section 5309 Grant Revenue Program requires a wide range of activities. The designated recipient must begin work on the project for which grant funds were made available and seek draw downs from grant funds for reimbursement of eligible costs. Once the FTA has approved project budgets and plans, but prior to implementation of the project, the Authority may reprogram projects and their corresponding sources of funding. Reprogramming involves amending the previously approved capital project plans and budgets to allow for the expenditure of apportioned and allocated Program formula funds on other eligible and approved projects. The Indenture requires the Authority to take all necessary actions to reprogram available Section 5309 Grant Revenue Funds already appropriated to the extent there are insufficient Grant Receipts to pay debt service on the 2011 Bonds when due. See SOURCES OF PAYMENT AND SECURITY FOR THE 2011 BONDS Grant Receipts and Flow of Funds Grant Receipts and APPENDIX A DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE. Timing of Receipt of Federal Transit Program Funding Apportionment The Authority s ability to pay debt service on the 2011 Bonds will depend on several factors, including the amount of funding provided to the Authority under the Section 5309 Grant Revenue Program and the Authority s ability, pursuant to the grant application process, to use such funding. The apportioned amount of funding under the Section 5309 Grant Revenue Program sets the upper limit on the federal government s commitment to pay its share of eligible expenditures on approved projects. While the Authority believes that sufficient Section 5309 Grant Revenue Funds will be received to pay debt service on the 2011 Bonds to their maturity, various factors beyond the control of the Authority may affect such receipts, including, without limitation, non-reauthorization of future federal transportation legislative programs, federal budget limitations, and other possible changes in the Section 5309 Grant Revenue Program. Certain Covenants with Respect to the Section 5309 Grant Revenue Program Failure to maintain general eligibility for the receipt of federal funds or failure to maintain the eligibility of components of the 2011 Project for reimbursement under the Section 5309 Grant Revenue Program could prevent the Authority from receiving Grant Receipts sufficient to pay debt service on the 2011 Bonds when due. The Authority has covenanted in the Indenture to comply with all applicable laws of the United States of America and regulations of the FTA relating to the administration and disbursement of federal funds under the Section 5309 Grant Revenue Program in order to be eligible to receive Grant Receipts for the payment of the 2011 Bonds and to facilitate the prompt receipt of such Grant Receipts. See APPENDIX A - DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE Particular Covenants and Representations of the Authority. Availability of Section 5309 Grant Revenue Funds to Pay Debt Service. There can be no assurance that sufficient Grant Receipts will be received by the Authority to pay the debt service on 25

32 the 2011 Bonds. The amount of Grant Receipts available to the Authority for payment of debt service on the 2011 Bonds is subject to annual appropriation by Congress and to approval on an annual basis by the FTA. With the enactment and extension of SAFETEA-LU, funding can be projected through FFY After FFY 2011, there can be no assurance that Congress will pass a new multi-year authorization or continuing resolution authorization; or that, if adopted, it will be signed by the President; that, if adopted and signed into law, it will include provisions comparable to those in the current authorizing legislation; or that the amount of federal funds available to the Authority will not differ materially from the funds that are available under the current authorizing legislation. Authority Participation in Section 5309 Grant Revenue Program Eligible Expenditures. Financing of, or the reimbursement for prior expenditures related to, the 2011 Project is eligible for payment from the Grant Receipts made available to the Authority under the Section 5309 Grant Revenue Program, which are the sole source of the Grant Receipts. The FTA has acknowledged the eligibility of Section 5309 Grant Revenue Funds for payment of debt service on the 2011 Bonds in a Letter of No Prejudice delivered to the Authority on June 2, The Authority may pay for the costs of projects meeting the eligibility requirements of the Section 5309 Grant Revenue Program directly from Grant Receipts that may be periodically withdrawn from the Grant Receipts Deposit Fund as permitted under the Indenture. The Authority has covenanted in the Indenture to comply with all applicable laws of the United States of America and regulations of the FTA relating to the administration and disbursement of federal funds under the Section 5309 Program in order to be eligible to receive Grant Receipts for the payment of the 2011 Bonds and to facilitate the prompt receipt by the Authority of Grant Receipts. Matching Funds Requirement. The Federal Transit Program, of which the Section 5309 Program is a part, requires the recipients of funds under said programs to provide a matching non-federal share for a portion of the total costs of projects eligible for reimbursements. The Section 5309 Program provides for funding of up to 80 percent of the net project cost for eligible capital projects. The remainder of the net project costs are required to be funded from non-federal sources, with certain exceptions, sources other than revenues derived from providing mass transit. The following table sets forth the authorized funding allocation of Section 5309 Grant Revenue Funds to the Authority in FFY 2011, and the estimated funding for FFYs 2012 through 2014: FFY Section 5309 Grant Revenue Program 2011 $95,126, * 94,616, * 94,616, * 94,616,024 Source: FTA for FFY 2011; the Authority for estimates for FFYs FFY 2011 Apportionments are listed in the Section 5309 Capital Program published by the FTA. *The funding estimates for are based on SEPTA s share of 2010 apportionments of Authorized Amounts as published by the FTA in the May 13, 2010 Federal Register for the Section 5309 Capital Program. 26

33 The Authority does not receive Section 5309 Grant Revenue Funds from the FTA until moneys are expended for costs permitted by the underlying grants. The Authority generally expends the full amount of its annual apportionment in the year the grants are awarded and the Section 5309 Grant Revenue Funds are obligated. However, when the full amount of its annual apportionment is not expended in a FFY, these amounts will be carried over and expended with the following years apportionments. The amount of annual apportionment from prior FFYs not expended varies throughout the year and from year to year. Timing of Receipt of Federal Transit Program Funding Apportionment The flow of FTA funds under the Section 5309 Grant Revenue Program to the Authority and the resulting ability to pay debt service on the outstanding bonds will depend on several factors, most notably, the amount of funding provided to the Authority by the federal government under the Federal Transit Program and the Authority s ability, pursuant to the grant application process, to use such funding. The apportioned amount of formula funding under the Federal Transit Program sets the upper limit on the federal government s commitment to pay, through draw downs, its share of eligible expenditures on approved projects. Although the annual apportionment is not a direct representation of the amount of funding a designated recipient such as the Authority will receive under the applicable Federal Transit Program in a given year (due to the long-term nature of the construction and/or acquisition of capital projects), the apportionment level will determine over time the amount of funding that a designated recipient may receive. While the Authority believes that sufficient Grant Receipts will be received to pay debt service on the outstanding bonds to their maturity, various factors beyond the control of the Authority may affect such receipts, including, without limitation, non-reauthorization of future federal transportation legislative programs, federal budgetary limitations and other possible charges in the Federal Transit Program that cannot now be anticipated. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 27

34 DEBT SERVICE REQUIREMENTS The following table sets forth the annual debt service requirements on the 2011 Bonds for each fiscal year ending June 30: Year Ending June 30 Principal 2011 Bonds Interest Total Debt Service 2012 $007,355,000 $007,532, $014,887, ,775,000 9,293, ,068, ,105,000 8,964, ,069, ,450,000 8,619, ,069, ,810,000 8,257, ,067, ,225,000 7,846, ,071, ,655,000 7,415, ,070, ,120,000 6,949, ,069, ,595,000 6,473, ,068, ,070,000 6,000, ,070, ,570,000 5,497, ,067, ,150,000 4,919, ,069, ,760,000 4,311, ,071, ,395,000 3,673, ,068, ,055,000 3,013, ,068, ,760,000 2,310, ,070, ,495,000 1,572, ,067, ,270, , ,068, TOTAL $201,615,000 $103,452, $305,067, [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 28

35 THE AUTHORITY General Description THERE FOLLOWS A GENERAL DESCRIPTION OF THE AUTHORITY S FINANCES AND ITS OPERATIONS. THE 2011 BONDS ARE SECURED ONLY BY THE GRANT RECEIPTS AND CERTAIN MONEYS AND SECURITIES, AND INVESTMENT EARNINGS THEREON, HELD BY THE TRUSTEE IN CERTAIN FUNDS ESTABLISHED UNDER THE INDENTURE. THE 2011 BONDS ARE NOT A GENERAL OBLIGATION OF THE AUTHORITY, AND THE REVENUES, FUNDS AND ASSETS OF THE AUTHORITY (OTHER THAN THE GRANT RECEIPTS) ARE NOT PLEDGED OR REQUIRED TO BE USED FOR THE PAYMENT OF THE 2011 BONDS OR THE INTEREST THEREON. SEE SOURCES OF PAYMENT AND SECURITY FOR THE 2011 BONDS HEREIN. ALTHOUGH OTHER SOURCES OF REVENUES FOR THE AUTHORITY ARE ALSO DESCRIBED HEREIN, SUCH SOURCES ARE NOT AVAILABLE TO PAY AND DO NOT SECURE THE 2011 BONDS. The Authority was established in 1964 as a separate body corporate and politic, exercising the public power of the Commonwealth as an agency and instrumentality thereof. The Authority was formed for the purpose of among other things, planning, acquiring, holding, constructing, improving, maintaining and operating a comprehensive public transportation system (the System ) within the City and the Local Counties. The powers of the Authority under existing laws include, among other things, the power to: (1) borrow money for costs of projects of the Authority; (2) issue negotiable, interest-bearing debt obligations in connection with any such borrowings; and (3) secure the payment of such obligations with a pledge of any or all of the revenues of the Authority. Under no circumstances, however, shall any debt obligations issued by the Authority be or become an indebtedness or obligation of the Commonwealth or any political subdivision thereof. The Authority operates transportation facilities primarily in the City and the Local Counties encompassing approximately 2,200 square miles and serving approximately 4.0 million inhabitants. For internal management purposes, the Authority s operations are accounted for in three separate divisions, the percentages following each division representing its approximate share of the Authority s expense budget: City Transit (67%); Regional Railroad Division (23%); and Suburban (Frontier and Victory Divisions) (10%). The City Transit Division serves the City with a network of 84 subway-elevated, light rail, trackless trolley and bus routes, providing approximately 902,000 unlinked passenger trips per weekday. The Regional Railroad Division serves the City and the Local Counties with a network of 13 commuter rail lines providing approximately 123,000 unlinked passenger trips per weekday. The Suburban Division (Frontier/Victory), which includes the Norristown High Speed Line, serves the western and northern suburbs of the City through a series of 46 interurban trolley, streetcar and bus routes providing approximately 67,000 unlinked passenger trips per weekday. On an annual basis, approximately 321 million passengers utilize the Authority s transit system which consists of 1,860 route miles, 13,652 bus or trolley stops, 153 commuter rail stations and the following rolling stock: 1,460 buses, 185 light rail vehicles, 343 subway cars and 352 commuter rail cars. Organization The Authority s fifteen member Board is the governing and policy making body of the Authority. The Board does not involve itself in the day-to-day administration of the Authority s business. Its powers focus on such areas of discretion or policy as the functions and programs of the Authority, the Authority s operating and capital budgets, the Authority s standard of service, utilization of technology, the 29

36 organizational structure and in certain instances, the selection of personnel. Two members of the Board are appointed by each Local County (by the Mayor and confirmed by City Council in the case of Philadelphia), and one member is appointed by each of the following: Governor of the Commonwealth, Pennsylvania Senate Majority Leader, Pennsylvania Senate Minority Leader, Pennsylvania House of Representatives Majority Leader and Pennsylvania House of Representatives Minority Leader. The Board elects annually from among its members a Chairman and Vice Chairman. Members appointed by the Local Counties and the City are appointed for five year terms, the Governor s appointee s term is coterminous with that of the Governor and each legislative appointee serves at the pleasure of the associated appointing legislator during the appointing legislator s term. The current members of the Board and their terms are: Board Member Appointed by Term Expires Pasquale T. Deon Bucks County September 1, 2015 Honorable Charles H. Martin Bucks County September 1, 2013 Joseph E. Brion, Esquire Chester County December 31, 2013 Kevin L. Johnson, P.E. Chester County December 31, 2013 Thomas E. Babcock Delaware County September 1, 2011 Daniel J. Kubik Delaware County September 1, 2013 Michael J. O Donoghue, Esquire Montgomery County December 31, 2014 Beverly Coleman Philadelphia County September 1, 2010 (1) Rina Cutler Philadelphia County September 1, 2012 Thomas Jay Ellis, Esquire Hon. Stewart J. Greenleaf, Esquire James C. Schwartzman, Esquire Christopher H. Franklin Herman M. Wooden Governor Senate Majority Leader Senate Minority Leader House Majority Leader House Minority Leader (2) (3) (3) (3) (3) (1) (2) (3) If Board member not reappointed, he or she may continue to serve until officially replaced. Term is coterminous with Governor s term. Serves at the pleasure of the appointing legislator. Managers The General Manager reports directly to the Board and is responsible for, among other things, implementing and enforcing the resolutions, rules and regulations of the Board, managing the Authority s properties and attending to the day-to-day administration, fiscal management and operation of other Authority business. The Assistant General Manager of Operations, General Counsel and Treasurer report to the General Manager. The identities, professional experience and current responsibilities of the above mentioned persons are briefly described below. 30

37 Joseph M. Casey, General Manager. Joseph M. Casey is the ninth General Manager of the Authority, the fifth largest transit operation in the United States with a 9,000 person organization providing multi-modal public transit services to a 2,200 square mile, five-county service region and selected destinations in New Jersey and Delaware. He previously held senior level positions within the Authority in the areas of Internal Audit and Finance and Planning. Prior to becoming General Manager he served for six years as the Authority s Chief Financial Officer and Treasurer. Prior to joining the Authority he worked for Consolidated Rail Corporation (Conrail). A Certified Public Accountant, Mr. Casey received a B.S. in Accounting from Drexel University in 1979 and completed postgraduate MBA courses at Widener University. Richard G. Burnfield, Chief Financial Officer/Treasurer. Richard G. Burnfield has been employed in the transit industry for over 35 years, the last 32 years with the Authority. As Chief Financial Officer/Treasurer, Mr. Burnfield is responsible for managing the Authority s $1.1 billion operating budget and $400 million capital budget, and all Financial Service functions including Payroll, General Accounting, Public Finance, Accounts Payable and Cash Management. SEPTA has received the distinguished Budget Award from the Government Finance Officers Association for its Operating Budget for the last five consecutive fiscal years. Prior to his appointment as Chief Financial Officer, he held a number of positions in the Finance and Planning Division including Senior Director of Budgets and Manager of Capital Budgets. Mr. Burnfield is a graduate of Carnegie Mellon University (B.S. Civil Engineering), the University of Pennsylvania (M.S. Civil Engineering), and Pennsylvania State University (Masters of Business Administration with a concentration in Finance). Luther Diggs, Assistant General Manager of Operations. Luther Diggs is responsible for the operating division of the Authority including Rail Transportation, Vehicle Engineering & Maintenance, New Vehicles, Bus Transportation, Paratransit Service, Control Center Operations and Labor Relations. From 1982 to the present, he held the positions of Maintenance Manager; Superintendent; Chief Officer - Suburban Operations; Chief Bus Operations Officer; Chief Officer of Rolling Stock, Engineering and Shops; and Chief Officer - Vehicle Engineering and Maintenance. Prior to joining the Authority, he served in the U. S. Marine Corps. Nicholas J. Staffieri, Esquire, General Counsel. Nicholas J. Staffieri was appointed Acting General Counsel on May 26, 2000 and General Counsel on October 5, Between 1983 and 2000 Mr. Staffieri served in various positions within the Legal Division of SEPTA and specialized in litigating complex cases, mostly in the field of civil and constitutional rights. Before his employment with SEPTA, Mr. Staffieri was in private practice (1974 to 1977) and was an associate in a law firm that represented railroad employees in claims brought under the Federal Employers Liability Act (1977 to 1978). Between 1979 and 1983 he served as counsel, then as chief counsel of the Committee on Urban Affairs and Housing of the Pennsylvania Senate. Mr. Staffieri is a graduate of LaSalle University (1970, Bachelor of Arts); Temple University (1972, Master of Arts) and Wake Forest University School of Law (1974, Juris Doctor). He is admitted to practice before the state courts of Pennsylvania, the United States District Court for the Eastern District of Pennsylvania, the United States Court of Appeals for the Third Circuit and the United States Supreme Court. Financial Operating Performance The following summary statements of revenues and expenses for each of the fiscal years ended June 30, 2006, 2007, 2008, 2009 and 2010 were prepared by the Authority. In the opinion of the Authority s management there has been no material adverse change in the financial condition of the Authority since June 30, 2010, the date of the last audited financial statement. 31

38 Summary Statements of Revenues and Expenses Results of Financial Operations For the Fiscal Years Ended June 30, 2006 to June 30, 2010 (000 s) ** 2010** OPERATING REVENUES Passenger $ $ $ $ $ Other income Total operating revenues OPERATING EXPENSES Operating expenses, excluding depreciation , , ,212.2 Depreciation Total operating expenses 1, , , , NONOPERATING REVENUES (EXPENSES) Subsidies Federal State Local Senior citizen Asset maintenance Total subsidies Investment income (14.7) (4.3) Interest expense (21.0) (19.8) (20.5) (21.0) (24.9) Total nonoperating revenues (expenses) CAPITAL CONTRIBUTIONS AND AMORTIZATION OF CAPITAL Amortization of contributed capital Capital grants Total Increase in net assets * $ $ $ 87.2 $ 63.8 $ 41.5 OTHER Working capital surplus (deficiency) $ (18.9) $ (34.5) $ (50.0) $ (28.6) $ (30.9) Source: Extracted from the Audited Financial Statements of the Authority * Operating expenses subsequent to Fiscal Year 2007 include other postemployment benefit expenses related to the adoption in Fiscal Year 2008 of Governmental Accounting Standards Board Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. Beginning in fiscal year 2008, the source of subsidies also changed with the passage of Act 44 legislation. The former state system for funding transit, including asset maintenance subsidies received under Act 3 and Act 26 was repealed. Certain senior citizen subsidies received directly from the state lottery fund were eliminated and replaced with the new PTTF fund. ** Fiscal Year 2010 reflects the adoption of Governmental Accounting Standards Board Statement Nos. 51 and 53 related to the accounting for intangible assets and derivative instruments, respectively. Certain Fiscal Year 2009 amounts were restated accordingly. 32

39 Act 44 Funding THE FOLLOWING DESCRIPTIONS OF ACT 44 PUBLIC TRANSPORTATION PROGRAMS ARE INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY. ACT 44 EXPRESSLY DOES NOT AFFECT THE GRANT RECEIPTS TO BE PLEDGED TO THE 2011 BONDS. Under legislation enacted July 18, 2007, P.L. 169, No 44 ( Act 44 ), state funding for public transit in Pennsylvania was completely restructured. The former system of funding transit agencies from the Commonwealth General Fund, Lottery Fund, Act 26 of 1991, and Act 3 of 1997 was repealed and a new Public Transportation Trust Fund (the Trust Fund ) was established. The previous General Fund sources were replaced with a dedicated portion of the Sales and Use Tax to ensure that transit programs have a reliable and growing source of funding. State sources of funding deposited into the Trust Fund include Public Transportation Assistance Fund moneys, 4.4 percent of Sales Tax, Lottery Money, Pennsylvania Turnpike Commission funding and an amount of proceeds of Commonwealth capital bonds determined annually by the Secretary of the Budget. All public transportation funds are deposited into the Trust Fund for statewide distribution on an annual basis. The actual state funding that is ultimately available each year will be determined during the annual budgeting processes. Act 44 establishes five major public transportation programs: (i) Operating Program for public transportation providers that allows for allocation of operating funds among public transportation providers, (ii) Asset Improvement Program that allows for State Capital Bond funds to be used to match federal grants and support State funded initiatives, (iii) New Initiatives Program that provides the framework to advance new or the expansion of existing fixed guideway projects, (iv) Programs of Statewide Significance that allows for the inclusion of programs such as Persons with Disabilities, Welfare to Work, Job Access and Reverse Commute, intercity passenger rail and bus services, and community transportation capital and service stabilization, and (v) Capital Improvement Programs that allows for the distribution of the Trust Fund on a formula based on the number of passengers carried so that transit agencies will have a steady reliable stream of capital funding. Operating Revenues and Subsidies The Authority s operating revenues are primarily derived from passenger revenues collected from bus, rail transit and railroad operations and senior citizen reimbursement from the Commonwealth. Additionally, operating assistance and preventative maintenance funds are received from three sources: Federal Transportation Administration (primarily Section 5307 and Section 5309 Grant Revenue Funds) The Commonwealth City and Local Counties Capital Program The Authority has developed a comprehensive capital program (the Capital Program ) to revitalize and improve the condition of its transportation infrastructure. A long-term, twelve year Capital Program has been developed to take advantage of Federal legislation directing a more accurate plan for current capital funding projections and to focus not only on current needs, but also on what capital improvements will be necessary to maintain the Authority s viability into the twenty-first century. 33

40 The 12-year Capital Program is coordinated with the Pennsylvania Department of Transportation s ( PennDot ) statewide 12-year transportation plan, and totals $8.3 billion for the fiscal years 2012 through The objectives of the Capital Program include: restoring the existing system to a state of good repair, replacing assets on a routine and planned schedule, improving operations of the transit system and expanding network coverage. The Authority developed its Capital Program with a number of factors in mind, including: (i) the present condition of the Authority s infrastructure and the need for renewal and replacement to meet longterm service objectives; (ii) anticipated levels of federal funding; (iii) the ability of the Authority to utilize flexible highway funds for mass transit projects; (iv) the local match on federal funds; and (v) the anticipated level of Commonwealth and local match funds available for capital. A systematic upgrade of bus, rail transit and railroad facilities is included in the coordinated rehabilitation program. For the $8.3 billion Capital Program, projected spending by category is presently anticipated as follows: Project Projected Spending ($ in millions) Percent Rail Transit $2,064 25% Railroad 4, Bus 1, Multi-modal Highlights of the 2012 Capital Program include Regional Rail signal system modernization; purchase of 40-foot buses, 60-foot articulated buses and paratransit vehicles; station rehabilitation at the Ryers and Primos stations on the Regional Rail Lines, and at the Olney stations on the Broad Street Line; platform improvements at 69 th Street Station on the Norristown High Speed Line; and fare collection system upgrades. Completion of these major capital improvement projects will provide a stronger, more efficient and reliable public transportation system in the region. In addition, the Capital Program will promote economic development, facilitate non-automobile traffic, reduce traffic congestion, improve air quality and improve the region s quality of life. The Authority anticipates that 58% of the 2012 Capital Program will be funded by federal funds, 39% by state funds and 3% by local matching funds. The local match of FTA funds is 20%, of which % is provided by the Commonwealth and 0.645% is provided by the City and the Local Counties. The Commonwealth, through PennDOT, annually provides the Authority with funds to match federal grants. Each of the Local Counties and the City provides the local match to Commonwealth grants for Railroad Division capital grants. The allocation by county is based upon the Railroad Subsidy Formula. Based on this formula, the City contributes 70% of the local match while the Local Counties contributions range from 4.3% (Chester County) to 11.0% (Montgomery County). The Capital Improvement Matching Fund Formula for the Norristown High Speed Line requires Delaware County to provide 66-2/3% of the local match and Montgomery County 33-1/3% of the local match. The Red Arrow Subsidy Formula requires Delaware County to provide 86%, Montgomery County 12% and Chester County 2% of the local match. The City and the Authority provide the local match requirement for City Transit Division capital projects. Labor Relations As of June 1, 2011, the Authority has collective bargaining agreements with 11 of the 17 unions representing 82% of its unionized employees. The five-year agreement covering the largest number of transportation and maintenance employees of the Authority s City Transit Division was entered into in 34

41 November 2009, following a six-day work stoppage. The Authority is in negotiations with the remaining unions which have expired labor agreements. Insurance The Authority is primarily self-insured for claims arising from public liability and property damages. The Authority also maintains a self-funded insurance trust. As of June 30, 2010, the Authority maintains a self-funded insurance trust for excess amounts of $5 million to $20 million. The Authority is self-insured for workers compensation claims for its employees. LITIGATION There is no litigation of any nature now pending or threatened against the Authority seeking to restrain or enjoin the issuance, sale, execution or delivery of the 2011 Bonds, or in any way contesting or affecting the validity of the 2011 Bonds or any proceedings of the Authority taken with respect to the issuance or sale thereof, or the pledge or application of any moneys or the security provided for the payment of the 2011 Bonds or the existence or powers of the Authority. There are no judgments or other judicial or administrative orders outstanding against the Authority, nor are there any actions, suits or other proceedings pending, or to the Authority s knowledge threatened, against or affecting the Authority or its properties before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to the Authority, would have a material adverse effect on the financial condition, properties or operations of the Authority. LEGAL INVESTMENT The Enabling Law provides that the 2011 Bonds are legal investments, in which all public officers and the instrumentalities and agencies of the Commonwealth and its political subdivisions, all insurance companies, banks, bank and trust companies, trust companies, banking associations, banking corporations, savings banks, investment companies, executors, trustees, trustees of any retirement, pension or annuity fund or system of the Commonwealth, and other fiduciaries may properly and legally invest funds, including capital, deposits or other funds in their control received by any Commonwealth or municipal officer or any agency or instrumentality or political subdivision of the Commonwealth for any purpose for which the deposit of bonds or other obligations of the Commonwealth now or hereafter may be authorized by law. Tax Exemption Opinion of Bond Counsel TAX MATTERS The Internal Revenue Code of 1986, as amended (the Code ) contains provisions relating to the tax-exempt status of interest on obligations issued by governmental entities which apply to the 2011 Bonds. These provisions include, but are not limited to, requirements relating to the use and investment of the proceeds of the 2011 Bonds and the rebate of certain investment earnings derived from such proceeds to the United States Treasury Department on a periodic basis. These and other requirements of the Code must be met by the Authority subsequent to the issuance and delivery of the 2011 Bonds in order for interest thereon to be and remain excludable from gross income for purposes of federal income taxation. The Authority has made covenants to comply with such requirements. In the opinion of Bond Counsel, interest (including accrued original issue discount) on the 2011 Bonds is not includable in gross income for purposes of federal income taxation under existing statutes, 35

42 regulations, rulings and court decisions. The opinion of Bond Counsel is subject to the condition that the Authority comply with all applicable federal income tax law requirements that must be satisfied subsequent to the issuance of the 2011 Bonds in order that interest thereon continues to be excluded from gross income. Failure to comply with certain of such requirements could cause the interest on the 2011 Bonds to be so includable in gross income retroactive to the date of issuance of the 2011 Bonds. The Authority has covenanted to comply with all such requirements. Interest on the 2011 Bonds is not treated as an item of tax preference under Section 57 of the Code for purposes of the individual and corporate alternative minimum taxes; however, under the Code, to the extent that interest on bonds is a component of a corporate holder s adjusted current earnings, a portion of that interest may be subject to the corporate alternative minimum tax. Bond Counsel expresses no opinion regarding other federal tax consequences relating to the 2011 Bonds or the receipt of interest thereon. See discussion of Alternative Minimum Tax, Branch Profits Tax, S Corporations with Passive Investment Income, Social Security and Railroad Retirement Benefits, Deduction for Interest Paid by Financial Institutions to Purchase or Carry Tax-Exempt Obligations, Property or Casualty Insurance Company, Reportable Payments and Backup Withholding, and Accounting Treatment of Original Issue Discount and Amortizable Bond Premium. In the opinion of Bond Counsel, under the laws of the Commonwealth of Pennsylvania as enacted and construed on the date hereof, the 2011 Bonds, and the interest thereon are free from taxation for state and local purposes within the Commonwealth of Pennsylvania, but such exemption does not extend to gift, estate, succession or inheritance taxes or any other taxes not levied or assessed directly on the 2011 Bonds or the interest thereon. Profits, gains or income derived from the sale, exchange, or other disposition of the 2011 Bonds are subject to state and local taxation within the Commonwealth of Pennsylvania. Specifically, the 2011 Bonds are exempt from personal property taxes in Pennsylvania and interest on the 2011 Bonds is exempt from the Pennsylvania personal income tax and the Pennsylvania corporate net income tax. Alternative Minimum Tax The Code includes, for purposes of the corporate alternative minimum tax, a preference item consisting of, generally, 75% of the excess of a corporation s adjusted current earnings over its alternative minimum taxable income (computed without regard to this particular preference item and the alternative tax net operating loss deduction). Thus, to the extent that tax-exempt interest on bonds is a component of a corporate holders adjusted current earnings a portion of that interest may be subject to the alternative minimum tax. Branch Profits Tax Under the Code, foreign corporations engaged in a trade or business in the United States will be subject to a branch profits tax equal to thirty percent (30%) of the Authority s dividend equivalent amount for the taxable year. The term dividend equivalent amount includes interest on tax-exempt obligations. S Corporations with Passive Investment Income Section 1375 of the Code imposes a tax on the income of certain small business corporations for which an S Corporation election is in effect, and that have passive investment income. For purposes of Section 1375 of the Code, the term passive investment income includes interest on the 2011 Bonds. This tax applies to an S Corporation for a taxable year if the S Corporation has Subchapter C earnings and profits at the close of the taxable year and has gross receipts, more than twenty-five percent (25%) of which are passive investment income. Thus, interest on the 2011 Bonds may be subject to federal income taxation under Section 1375 of the Code if the requirements of that provision are met. 36

43 Social Security and Railroad Retirement Benefits Under Section 86 of the Code, certain Social Security and Railroad Retirement benefits (the benefits ) may be includable in gross income. The Code provides that interest on tax-exempt obligations (including interest on the 2011 Bonds) is included in the calculation of modified adjusted gross income in determining whether a portion of the benefits received are to be includable in gross income of individuals. Deduction for Interest Paid by Financial Institutions to Purchase or Carry Tax-Exempt Obligations The Code, subject to limited exceptions not applicable to the 2011 Bonds, denies the interest deduction for indebtedness incurred or continued to purchase or carry tax-exempt obligations, such as the 2011 Bonds. With respect to banks, thrift institutions and other financial institutions, the denial to such institutions is one hundred percent (100%) for interest paid on funds allocable to the 2011 Bonds and any other tax-exempt obligations acquired after August 7, Property or Casualty Insurance Company The Code also provides that a property or casualty insurance company may also incur a reduction, by a specified portion of its tax-exempt interest income, of its deduction for losses incurred. Reportable Payments and Backup Withholding Under amendments to the Code, payments of interest on the 2011 Bonds will be reported to the Internal Revenue Service by the payor on Form 1099 unless the Bondholder is an exempt person under Section 6049 of the Code. A Bondholder who is not an exempt person may be subject to backup withholding at a specified rate prescribed in the Code if the Bondholder does not file Form W-9 with the payor advising the payor of the Bondholder s taxpayer identification number. Bondholders should consult with their brokers regarding this matter. The Trustee will report to the Bondholders and to the Internal Revenue Service for each calendar year the amount of any reportable payments during such year and the amount of tax withheld, if any, with respect to payments made on the 2011 Bonds. Accounting Treatment of Original Issue Discount and Amortizable Bond Premium The 2011 Bonds maturing June 1, 2020 in the principal amount of $3,000,000; June 1, 2021 in the principal amount of $3,000,000; June 1, 2025 in the principal amount of $950,000; and June 1, 2029 in the principal amount of $2,050,000 are herein referred to as the Discount Bonds. In the opinion of Bond Counsel, the difference between the initial public offering price of the Discount Bonds set forth on the inside front cover page and the stated redemption price at maturity of each such 2011 Bond constitutes original issue discount, all or a portion of which will, on the disposition or payment of such 2011 Bonds, be treated as tax-exempt interest for federal income tax purposes. Original issue discount will be apportioned to an owner of the Discount Bonds under a constant interest method, which utilizes a periodic compounding of accrued interest. If an owner of a Discount Bond who purchases it in the original offering at the initial public offering price owns that Discount Bond to maturity, that Bondholder will not realize taxable gain for federal income tax purposes upon payment of the Discount Bond at maturity. An owner of a Discount Bond who purchases it in the original offering at the initial public offering price and who later disposes of the Discount Bond prior to maturity will be deemed to have accrued tax-exempt income in a manner described above; amounts realized in excess of the sum of the original offering price of such Discount Bond and the amount of accrued original issue discount will be taxable gain. 37

44 Purchasers of Discount Bonds should consider possible state and local income, excise or franchise tax consequences arising from original issue discount on the Discount Bonds. Prospective purchasers of the Discount Bonds should consult their tax advisors regarding Pennsylvania tax treatment of original issue discount. All 2011 Bonds, other than the Discount Bonds, are hereinafter referred to as the Premium Bonds. An amount equal to the excess of the initial public offering price of a Premium Bond set forth on the inside front cover page over its stated redemption price at maturity constitutes premium on such Premium Bond. A purchaser of a Premium Bond must amortize any premium over such Premium Bond s term using constant yield principles, based on the purchaser s yield to maturity. As premium is amortized, the purchaser s basis in such Premium Bond is reduced by a corresponding amount, resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser s basis is reduced, no federal income tax deduction is allowed. Purchasers of any Premium Bonds, whether at the time of initial issuance or subsequent thereto, should consult their own tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to state and local tax consequences of owning Premium Bonds. RATINGS Moody s Investors Service, Inc. and Standard & Poor s Rating Services have assigned the 2011 Bonds ratings of A1 and A+ respectively. Such ratings reflect only the views of such organizations and there is no assurance that any rating will continue for any given period of time or that it may not be raised, lowered or withdrawn entirely if, in a rating agency s judgment, circumstances so warrant. Any downward change in or withdrawal of such rating may have an adverse effect on the price at which the 2011 Bonds may be resold. Neither the Authority, the Trustee or the Underwriters have assumed any responsibility to advise the holders of the 2011 Bonds of any change in any rating on the 2011 Bonds or to maintain any particular rating on the 2011 Bonds. Any desired explanation of the significance of such ratings should be obtained from the rating agency furnishing the same, at the following addresses: Moody s Investors Service, Inc., 7 World Trade Center at 250 Greenwich Street, New York, New York 10007; Standard & Poor s Ratings Services, 55 Water Street, New York, New York CERTAIN LEGAL MATTERS Certain legal matters incident to the authorization, issuance, sale and delivery of the 2011 Bonds are subject to the approval of Saul Ewing LLP, Philadelphia, Pennsylvania, Bond Counsel to the Authority. Bond Counsel will render an opinion in substantially the form set forth in Appendix B to this Official Statement. Certain legal matters will be passed upon for the Authority by its General Counsel, Nicholas J. Staffieri, Esquire and by its Co-Special Counsel, Bowman and Partners, LLP, Philadelphia, Pennsylvania, and Raffaele & Puppio, LLP, Media, Pennsylvania. Certain legal matters will be passed upon for the Underwriters by their Counsel, Stradley Ronon Stevens & Young, LLP, Philadelphia, Pennsylvania. UNDERWRITING The 2011 Bonds are being purchased by the underwriters listed on the front cover of this Official Statement (the Underwriters ), pursuant to the terms of a bond purchase contract between the Authority and Citigroup Global Markets Inc. ( Citigroup ), as representative of the Underwriters. The Underwriters 38

45 have agreed to purchase the 2011 Bonds at a purchase price equal to $218,007,403.46, which is equal to the par amount of $201,615,000.00, plus net original issue premium of $17,521, and less underwriters discount of $1,129, The initial public offering prices of the 2011 Bonds may be changed from time to time by the Underwriters without notice. The Underwriters may offer and sell the 2011 Bonds to certain dealers (including dealers depositing 2011 Bonds into investment trusts, certain of which may be sponsored or managed by one or more of the Underwriters) and others at prices lower than the offering prices set forth on the inside front cover page hereof. The purchase contract for the 2011 Bonds provides that the Underwriters obligation to purchase the 2011 Bonds is subject to certain conditions and that the Underwriters are obligated to purchase all of the 2011 Bonds, if any 2011 Bonds are purchased. Citigroup Inc., the parent company of Citigroup, an underwriter of the 2011 Bonds, has entered into a retail brokerage joint venture with Morgan Stanley. As part of the joint venture, Citigroup will distribute municipal securities to retail investors through the financial advisor network of a new brokerdealer, Morgan Stanley Smith Barney LLC. This distribution arrangement became effective on June 1, As part of this arrangement, Citigroup will compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the 2011 Bonds. Wells Fargo Securities is the trade name for certain capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Bank, National Association. Wells Fargo Bank, National Association ("WFBNA"), one of the underwriters of the Bonds, has entered into an agreement (the "Distribution Agreement") with Wells Fargo Advisors, LLC ("WFA") for the retail distribution of certain municipal securities offerings, including the 2011 Bonds. Pursuant to the Distribution Agreement, WFBNA will share a portion of its underwriting compensation with respect to the 2011 Bonds with WFA. WFBNA and WFA are both subsidiaries of Wells Fargo & Company. TRUSTEE The obligations of the Trustee are described in the Indenture. Prior to the occurrence and continuance of an Event of Default under the Indenture, the Trustee has undertaken only those obligations and duties which are expressly set out in the Indenture. In case an Event of Default has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by the Indenture and use the same degree of care and skill in the exercise of such rights and powers as a prudent person would exercise under the circumstances in the conduct of his own affairs. The Trustee has not independently passed upon the validity of the 2011 Bonds or the security for the payments thereof, the adequacy of the provisions for such payment, or the status for federal or state income tax purposes of the interest on the 2011 Bonds. The Indenture expressly provides that the Trustee will not be responsible for any loss or damage resulting from any action or inaction taken (i) in good faith, and if appropriate, in reliance upon an opinion of counsel or (ii) absent the Trustee s gross negligence, willful misconduct or bad faith. FINANCIAL ADVISOR The Authority has retained Public Financial Management, Inc., Philadelphia, Pennsylvania, as financial advisor ( Financial Advisor ), in connection with the issuance of the 2011 Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. The Financial Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading, or distributing municipal securities or other public securities. 39

46 CERTAIN RELATIONSHIPS Saul Ewing LLP and Stradley Ronon Stevens & Young, LLP have represented the Authority in connection with certain legal matters not related to the 2011 Bonds. CONTINUING DISCLOSURE UNDERTAKING In order to enable the Underwriters to comply with the requirements of Rule 15c2-12, the Authority will enter into the Continuing Disclosure Agreement to be dated the date of the issuance of the 2011 Bonds. See Appendix C for the proposed form of Continuing Disclosure Agreement. Pursuant to the Continuing Disclosure Agreement, the Authority agrees to provide certain continuing disclosure for the benefit of the holders of the 2011 Bonds. The Authority agrees to file with the Municipal Securities Rulemaking Board (the MSRB ) through its Electronic Municipal Market Access (EMMA) system, certain financial and operating information. In addition, the Authority agrees to file in a timely manner, with the MSRB, notice of the occurrence of certain events (if material) with respect to the 2011 Bonds. The Authority previously has undertaken continuing disclosure obligations pursuant to other continuing disclosure agreements, and in the last five years the Authority has made all filings required thereunder in a timely manner. The proposed form of the Continuing Disclosure Agreement is included as Appendix C to this Official Statement. Negotiable Instruments MISCELLANEOUS The Enabling Law provides that bonds of the Authority shall have the qualities of negotiable instruments under the Uniform Commercial Code of the Commonwealth. Certain References All summaries of the provisions of the 2011 Bonds and the security therefor, the Section 5309 Grant Revenue Program, Act 44, and the Indenture set forth herein, and all summaries and references to other documented material not purported to be quoted in full, are only brief outlines of certain provisions thereof and do not constitute complete statements of such documents or provisions. Reference is made hereby to the complete documents relating to such matters for the complete terms and provisions thereof, or for the information contained therein. Copies of the Indenture are on file at the designated corporate trust office of the Trustee. All estimates, projections and assumptions herein and in the Appendices hereto have been obtained from officials of the Authority and other sources which are believed to be reliable, but no representations whatsoever are made that such estimates, projections or assumptions are correct or will be realized. Insofar as any statements are made in this Official Statement involving matters of opinion, whether or not expressly so stated, they are made merely as such and not as representations of fact. Appendices attached hereto are expressly incorporated herein as a part hereof. 40

47 This Official Statement has been duly authorized, executed and delivered by the Authority. Neither any advertisement for the 2011 Bonds nor this Official Statement is to be deemed or construed as constituting a contract between the Authority and the purchasers of the 2011 Bonds. SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY By: /s/ James C. Schwartzman Vice Chairman 41

48 [ THIS PAGE INTENTIONALLY LEFT BLANK ]

49 APPENDIX A DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE

50 [ THIS PAGE INTENTIONALLY LEFT BLANK ]

51 DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE The following sets forth the definitions of certain terms used in the Indenture and a summary of certain provisions of the Indenture. Reference should be made to the Indenture for a complete statement of all of the provisions which are not summarized in this Official Statement. Copies of the Indenture may be obtained from the Trustee. DEFINITIONS OF CERTAIN TERMS "Accountant" means an independent certified public accountant or a firm of independent certified public accountants (who may be the accountants who regularly audit the books and accounts of the Authority) who are selected and paid by the Authority. "Additional Bonds" means Bonds authenticated and delivered on original issuance pursuant to the Indenture. "Additional Project" means any Eligible Project that the Authority determines to finance in whole or in part by the issuance of Additional Bonds. "Annual Apportionment Amounts" means with respect to any Federal Fiscal Year, the amount of FTA Section 5309 (49 United States Code Section 5309) Fixed Guideway Modernization Formula funds that the Authority is entitled to receive from the FTA pursuant to appropriations designated for that Federal Fiscal Year. "Annual Debt Service Requirement" means, with respect to any Bond Year, the aggregate of the Interest Requirement and the Principal Requirement for such Bond Year. "Authorized Denominations" means $5,000 or any integral multiple thereof, or, in the case of Additional Bonds or Refunding Bonds, such other denominations as may be specified in the Supplemental Indenture authorizing the issuance thereof. "Authorized Officer" means the person or persons at the time designated to act on behalf of the Authority by written certificate furnished to the Trustee containing the specimen signatures of such person or persons and signed on behalf of the Authority by its duly authorized agent. Such certificate may designate an alternate or alternates. "Average Annual Debt Service Requirement" means, as of any date of calculation, and as to any Parity Obligations under consideration, an amount equal to (a) the aggregate of the Annual Debt Service Requirements on such Parity Obligations for the period beginning with the Fiscal Year within which such calculation shall be made and ending with the Fiscal Year in which the last maturity date of the relevant Parity Obligations shall occur, divided by (b) the number of Fiscal Years of the Authority contained in the calculation period. "Bond" or "Bonds" means any bond or bonds, including the 2011 Bonds, Additional Bonds and Refunding Bonds, authenticated and delivered under and pursuant to the Indenture, other than Subordinated Indebtedness. A-1

52 "Bond Counsel" means an attorney or attorneys or a law firm or law firms appointed by the Authority having a national reputation in the field of municipal law whose opinions are generally accepted by purchasers of municipal obligations. "Bond Insurer" means any Person issuing a Bond Insurance Policy. "Bond Insurance Policy" means any municipal bond insurance policy insuring and guaranteeing the payment of the principal of and interest on a Series of Bonds or certain maturities thereof as may be provided in the Supplemental Indenture authorizing such Series or as otherwise may be designated by the Authority. "Bond Year" means the 12-month period commencing on October 2 of a year, and ending on October 1 of the next succeeding year. "Business Day" means any day which is not a Saturday, a Sunday, a legal holiday or a day on which banking institutions in the city offices responsible for administration of the Indenture of any Fiduciary are located are authorized or required by law or executive order to close (and such Fiduciary is in fact closed). "Capital Projects" means the projects that qualify for federal financial participation. "Code" means the Internal Revenue Code of 1986, as amended, and with respect to a specific section thereof, such reference shall be deemed to include (i) the regulations prescribed under such section, (ii) any predecessor or successor provision of similar import hereafter enacted, (iii) any corresponding provisions of any subsequent Internal Revenue Code, and (iv) the regulations prescribed under the provisions described in (ii) and (iii). "Cost of a Project" or "Cost" means with respect to the 2011 Project or any Additional Project, the cost of acquisition, construction and equipping thereof, including the cost of acquisition of all land, rights of way, property, rights, easements and interests, acquired by the Authority for such construction, the cost of all machinery and equipment, financing charges, financial advisory fees, interest prior to and during construction and for such period after completion of construction as the Authority shall determine, the cost of design, engineering and legal expenses, plans, specifications, surveys, estimates of cost and revenues, other expenses necessary or incident to determining the feasibility or practicability of carrying out the 2011 Project or any Additional Project, administrative expenses and such other costs, expenses and funding as may be necessary or incident to the construction, the financing of such construction and the placing of the 2011 Project or any Additional Project in operation. "Credit Facility" means, as to any particular Series of Bonds, a letter of credit, a line of credit, a guaranty, a standby bond purchase agreement or other credit or liquidity enhancement facility, other than a bond insurance policy. "Credit Facility Issuer" means, as to any particular Series of Bonds, the person (other than a Bond Insurer) providing a Credit Facility. "Current Funds" means moneys which are immediately available in the hands of the payee at the place of payment. A-2

53 "Debt Service Fund" means the Debt Service Fund established pursuant to the Indenture. "Debt Service Reserve Account" means the 2011 Debt Service Reserve Account and any other Account established in the Debt Service Reserve Fund. "Debt Service Reserve Fund" means the Debt Service Reserve Fund established pursuant to the Indenture. "Debt Service Reserve Requirement" means, with respect to the 2011 Bonds, the 2011 Debt Service Reserve Requirement, and with respect to any Series of Additional Bonds, the Debt Service Reserve Requirement, if any, established for such Series of Bonds in a Supplemental Indenture. "Defeasance Obligations" means Government Obligations that are not subject to redemption or prepayment other than at the option of the holder thereof. "Depository" means any bank, national banking association or trust company having capital stock, surplus and retained earnings aggregating at least $10,000,000, selected by an Authorized Officer as a Depository of moneys and securities held under the provisions of the Indenture, and may include the Trustee. "DTC" means The Depository Trust Company, a limited purpose trust company organized under the law of the State of New York, or any successor thereto. "DTC Participant" shall mean any securities broker or dealer, bank, trust company, clearing corporation or other Person having an account with DTC pursuant to the book-entry only system described the Indenture. "Eligible Project" means a capital improvement to be used for transportation projects of the Authority the Costs of which may be paid by the Authority from Grant Receipts. "Event of Default" means any event so designated in the Indenture. "Federal Fiscal Year" means the annual period commencing on October 1 of a calendar year and ending on September 30 of the next calendar year. "FTA" means the Federal Transit Administration of the Department of Transportation of the United States of America. "Fiduciary" or "Fiduciaries" means the Trustee, the Registrar, the Paying Agent and any Depository, or any or all of them, as may be appropriate without regard to the capacity in which such Person is acting. "Fiscal Year" means the period July 1 through June 30. "Government Obligations" means any direct obligations of the United States of America and any obligations guaranteed as to the timely payment of principal and interest by the United A-3

54 States of America or any agency or instrumentality of the United States of America, when such obligations are backed by the full faith and credit of the United States of America. "Grant Receipts" means all amounts received by the Authority after the date of issuance of the 2011 Bonds from its share of FTA Section 5309 (49 United States Code Section 5309) Fixed Guideway Modernization Formula funds, or any successor grant program, appropriated for the Federal Fiscal Year commencing October 1, 2011, and for each Federal Fiscal Year thereafter. "Grant Receipts Deposit Fund" means the Grant Receipts Deposit Fund established pursuant to the Indenture. "Interest Account" means the account of that name in the Debt Service Fund established pursuant to the Indenture. "Interest Payment Date" means any Payment Date on which interest on any Parity Obligation is payable. "Interest Period" means the period from the date of any Parity Obligation to and including the day immediately preceding the first Interest Payment Date and thereafter shall mean each period from and including an Interest Payment Date to and including the day immediately preceding the next Interest Payment Date. "Interest Rate Hedge Agreement" means (a) any interest rate swap or exchange agreement, (b) any interest rate cap, collar, corridor, ceiling or floor agreement, (c) any forward agreement, (d) any float agreement and (e) any other similar arrangement which, in any such case, is entered into by the Authority in accordance with the Enabling Law and the Indenture with respect to any Series of Bonds. Interest Requirement for any Bond Year or any Interest Period, as the context may require, as applied to Bonds of any Series then Outstanding and each Section 207 Obligation then Outstanding, shall mean the total of the sums that would be deemed to accrue on such Bonds or Section 207 Obligations during such Bond Year or Interest Period if the interest on the Bonds or Section 207 Obligations were deemed to accrue daily during such Bond Year or Interest Period in equal amounts, and employing the methods of calculation set forth in the Indenture. "Interest Payment Date" means, with respect to the 2011 Bonds, June 1 and December 1 of each year, commencing December 1, 2011 and continuing thereafter so long as any 2011 Bonds remain Outstanding, and with respect to any other Series shall have the meaning specified in the Supplemental Indenture authorizing such Series. "Maximum Annual Debt Service Requirement" means, as of any date of calculation, the largest Annual Debt Service Requirement occurring in the then current and any succeeding Bond Year. A-4

55 "Opinion of Counsel" means an opinion signed by an attorney or firm of attorneys of recognized standing in the area of law to which the opinion relates, who may be counsel to the Authority (including the General Counsel of the Authority). "Outstanding," when used with reference to Parity Obligations, means, as of any date, all Bonds theretofore or thereupon being authenticated and delivered under the Indenture, all Section 206 Obligations incurred under Interest Rate Hedge Agreements, all Section 207 Obligations incurred under Credit Facilities except as set forth in the Indenture. "Owner" means any Person who shall be the registered owner of any Bond or Bonds. "Parity Obligation" means any Bond any Section 206 Obligation and any Section 207 Obligation. "Paying Agent" means any bank, national banking association or trust company designated by resolution of the Authority or by an Authorized Officer as paying agent for the Bonds of any Series, and any successor or successors appointed by an Authorized Officer under the Indenture. "Payment Date" means any date on which the principal of (including any Sinking Fund Installment) or interest on any Series of Bonds is payable in accordance with its terms and the terms of the Indenture and the Supplemental Indenture creating such Series. "Person" means and includes an association, unincorporated organization, a corporation, a partnership, a limited liability company, a joint venture, a business trust, a government or an agency or a political subdivision thereof, or any other public or private entity, or a natural person. "Principal" or "principal" means (i) with respect to any Capital Appreciation Bond, the Accreted Amount thereof (the difference between the stated amount to be paid at maturity and the Accreted Amount being deemed unearned interest) except as used in the Indenture in connection with the authorization and issuance of Bonds and with the order of priority of payments of Bonds after an Event of Default, in which case "principal" means the initial public offering price of a Capital Appreciation Bond (the difference between the Accreted Amount and the initial public offering price being deemed interest) but when used in connection with determining whether the Owners of the requisite principal amount of Bonds then Outstanding have given any request, demand, authorization, direction, notice, consent or waiver or with respect to the Redemption Price of any Capital Appreciation Bond, "principal amount" means the Accreted Amount (ii) with respect to any Current Interest Bond, the principal amount of such Bond payable in satisfaction of a Sinking Fund Installment, if applicable, or at maturity or (iii) with respect to a Section 207 Obligation, the principal amount payable on each repayment date. "Principal Account" means the account of that name in the Debt Service Fund established pursuant to the Indenture. "Principal Payment Date" means any Payment Date upon which the principal of any Parity Obligation is stated to mature or upon which the principal of any Term Bond is subject to redemption in satisfaction of a Sinking Fund Installment. A-5

56 "Project Account" means any project account within the Project Fund, including the 2011 Project Account and any additional project account established in connection with the issuance of a Series of Additional Bonds. "Project Fund" means the Project Fund established pursuant to the Indenture. "Rating Services" means each and every one of the nationally recognized rating services that shall have assigned published ratings to any Bonds Outstanding as requested by or on behalf of the Authority, and which ratings are then currently in effect and for which ratings the Authority has not requested a termination. "Rebate Fund" means the Rebate Fund established pursuant to the Indenture. "Record Date" means with respect to the 2011 Bonds, the fifteenth (15th) day (whether or not a Business Day) preceding each Interest Payment Date and, with respect to any other Series of Bonds, such other day as may be determined in an applicable Supplemental Indenture. "Redemption Price" means, with respect to any Bond, the principal thereof plus the applicable premium, if any, payable upon the date fixed for redemption. "Refunding Bonds" means Bonds issued pursuant to the Indenture. "Registrar" means any bank, national banking association or trust company appointed by an Authorized Officer under the Indenture and designated as registrar for the Bonds of any Series, and its successor or successors. "Reserve Fund Credit Facility" means any irrevocable letter of credit, surety bond or insurance policy which (a) is issued in favor of the Trustee and is held by the Trustee to the credit of a Debt Service Reserve Account for the Owners of one or more Series of Bonds; (b) in the case of any surety bond or insurance policy, is either (i) issued by a company licensed to issue an insurance policy guaranteeing the timely payment of debt service on the relevant Bonds with a claims paying ability rated "AAA" by Standard & Poors and "Aaa" by Moody s Investors Service, or (ii) approved by each Bond Insurer or Credit Facility Issuer which has issued a Bond Insurance policy or Credit Facility securing any Bonds to which such insurance policy or surety will relate; (c) in the case of a letter of credit, is issued by a banking institution whose senior, unsubordinated, unsecured obligations are rated at least "AA" by Standard & Poors; and (d) meets the further requirements, if any, set forth in the Indenture or in any Supplemental Indenture. "Reserve Fund Credit Facility Issuer" means the issuer of any particular Reserve Fund Credit Facility, and its successor and assigns as such issuer. "Section 206 Obligations" means any payment obligations incurred by the Authority to any one or more Swap Providers pursuant to subsection (B) of Section 206 and shall not include termination payments due to any Swap Providers. "Section 207 Obligations" means any obligations incurred by the Authority to reimburse a Credit Facility Issuer securing one or more Series of Bonds as described in Section 207, A-6

57 including any fees or other amounts payable to the Credit Facility Issuer, whether such obligations are set forth in one or more reimbursement agreements entered into between the Authority and the Credit Facility Issuer, or evidenced in one or more notes or other evidences of indebtedness executed and delivered by the Authority pursuant thereto, or any combination thereof. "Serial Bonds" means the Bonds of a Series which are stated to mature in annual installments. "Series" means all of the Bonds designated as a series and authenticated and delivered on original issuance in a simultaneous transaction, and any Bonds thereafter authenticated and delivered in lieu of or in substitution for such Bonds. "Sinking Fund Installment" means with respect to the 2011 Bonds and any Series of Additional Bonds or Refunding Bonds, each principal amount of Bonds scheduled to be redeemed through mandatory sinking fund redemption provisions by the application of amounts on deposit in the Principal Account. "Subordinated Indebtedness" means indebtedness permitted to be issued or incurred pursuant to the Indenture. "Subordinated Indebtedness Account" means any subordinate indebtedness account established within the Surplus Fund pursuant to a Supplemental Indenture. "Supplemental Indenture" means any Supplemental Indenture authorized pursuant to Article X of the Indenture. "Surplus Fund" means the Surplus Fund established pursuant to the Indenture. "Swap Provider" means any counterparty with whom the Authority enters into a Interest Rate Hedge Agreement. "Tax Compliance Certificate" means the tax compliance certificate dated as of the date of original issuance and delivery of the 2011 Bonds and executed by the Authority. "Term Bonds" means the Bonds of a Series other than Serial Bonds which shall be stated to mature on one or more dates through the payment of Sinking Fund Installments. "Trustee" means The Bank of New York Mellon Trust Company, N.A., and any successor or successors appointed under the Indenture. "Trust Estate" means the Trust Estate described in the Granting Clauses of the Indenture. "2011 Debt Service Reserve Account" means the account of that name established in the Debt Service Reserve Fund. "2011 Debt Service Reserve Account Requirement" means fifty percent (50%) of the Maximum Annual Debt Service Requirement for the 2011 Bonds. A-7

58 "2011 Project" means, collectively, the Capital Projects, each constituting an Eligible Project, as set forth in Exhibit "A" of the Indenture, and such additional Eligible Projects as may designated as part of the 2011 Project pursuant to a certificate of the Authority signed by an Authorized Officer and filed with the Trustee. "2011 Project Account" means the account of that name established in the Project Fund. SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE Pledge Effected by the Indenture; Limited Obligations Pursuant to the Indenture, in order to secure the payment of the principal of, premium, if any, and interest on all Parity Obligations (as defined therein) issued and to be issued thereunder or incurred or to be incurred pursuant to Section 206 and Section 207 of the Indenture, according to the import thereof, and the performance and observance of each and every covenant and condition therein and in the Parity Obligations contained, and for and in consideration of the premises and of the acceptance by the Trustee of the trusts thereby created, and of the purchase and acceptance of the Bonds by the respective Owners (as defined therein) thereof, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, and for the purpose of fixing and declaring the terms and conditions upon which the Bonds will be issued, authenticated, delivered, secured and accepted by all Persons who from time to time be or become Owners thereof, and the terms and conditions upon which Section 206 Obligations and Section 207 Obligations may be issued and incurred, the Authority has pledged and granted a lien on and security in the Trust Estate described below to the Trustee and its successors in trust and assigns, to the extent provided in the Indenture: (A) The Grant Receipts; (B) All moneys and securities and earnings thereon in all Funds, Accounts and Sub- Accounts established pursuant to the Indenture (except the Rebate Fund) subject, however, to the use and application thereof as permitted by the Indenture; and (C) Any and all other moneys and securities furnished from time to time to the Trustee by the Authority or on behalf of the Authority or by any other Persons to be held by the Trustee under the terms of the Indenture. The Parity Obligations are limited obligations of the Authority payable solely from and secured solely by the Trust Estate, in accordance with the Indenture. The Parity Obligations are not general obligations of the Authority and the revenues, funds and assets, tangible or intangible, real or personal of the Authority (other than the Trust Estate) are not and will not be pledged for or required to be used for the payment of any amounts due under the Parity Obligations. The Parity Obligations are not, and shall not be or become, a debt, a liability or obligation of the Commonwealth or any political subdivision of the Commonwealth or a pledge of the faith and credit of the Commonwealth or a political subdivision of the Commonwealth. A-8

59 Additional Bonds for Eligible Project Purposes (A) One or more Series of Additional Bonds may be authorized and delivered upon original issuance for the purpose of paying the Costs of one or more Eligible Projects or refunding any Subordinated Indebtedness issued for such purposes or issued to refund Subordinated Indebtedness originally issued for such purposes, to pay costs and expenses incident to the issuance of such Additional Bonds and to make deposits to any Fund, Account or Sub-Account under the Indenture. The Additional Bonds of any such Series shall be authenticated and delivered by the Trustee only upon receipt by it (in addition to the documents, securities and moneys required by the Indenture) of a certificate of an Authorized Officer: (1) setting forth the current and prior two fiscal years beginning on the Federal Fiscal Year, the amount of FTA Section 5309 Fixed Guideway Modernization Formula funds that the Authority is entitled to receive from the FTA pursuant to appropriations designated for that Federal Fiscal Year. (2) calculating the average of the Annual Apportionment Amount for the current and prior two Federal Fiscal Years (the "Average Annual Apportionment Amount") (3) determining that the Average Annual Apportionment Amount is not less than 150% of, as of any date of calculation, the largest amount of principal and interest requirements due in any Federal Fiscal Years determined as of the time immediately following issuance of the Additional Bonds. (4) a letter of no prejudice issued by the FTA, or a comparable letter indicating the FTA s concurrence with the issuance of Additional Bonds. (B) The proceeds, including accrued interest, of Additional Bonds of each Series shall be applied upon their delivery as follows: (1) there shall be deposited in any Fund, Account or Sub-Account under the Indenture the amount, if any, required by the Supplemental Indenture providing for the issuance of such Bonds; (2) the remaining balance shall be deposited in the Project Account established in the Project Fund for the Additional Project specified in such Supplemental Indenture. (C) Such Additional Bonds may be issued as provided in the Supplemental Indenture providing for their issuance. Refunding Bonds (A) One or more Series of Refunding Bonds may be authenticated and delivered upon original issuance to refund or advance refund any or all Outstanding Bonds of one or more Series, and any or all Outstanding Section 207 Obligations, to pay costs and expenses incident to the issuance of such Refunding Bonds and to make deposits in any Fund, Account or Sub- Account under the Indenture. A-9

60 (B) Additional Bonds of a Series to refund or advance refund Outstanding Bonds or Section 207 Obligations shall be authenticated and delivered by the Trustee only upon receipt by it (in addition to the documents, securities and moneys required by the Indenture) of: (1) such instructions to the Trustee as necessary to comply with all requirements set forth in the Indenture so that the Bonds and Section 207 Obligations to be refunded or advance refunded will be paid or deemed to be paid pursuant to the Indenture. (2) either (i) moneys in an amount sufficient to effect payment of the principal and Redemption Price, if applicable, and interest due and to become due on the Bonds and Section 207 Obligations to be refunded or advance refunded on and prior to the redemption date or maturity date thereof, as the case may be, which moneys shall be held by the Trustee or any of the Paying Agents in a separate account irrevocably in trust for and assigned to the respective Owners of the Bonds or the Persons entitled to payment of the Section 207 Obligations, as the case may be, to be refunded or advance refunded, or (ii) Defeasance Obligations in such principal amounts, of such maturities, and bearing interest at such rates as shall be necessary, together with the moneys, if any, deposited with the Trustee at the same time, to comply with the provisions of the Indenture. (C) The proceeds, including accrued interest, of the Refunding Bonds of each Series shall be applied upon their delivery as follows: (1) there shall be deposited in any other Fund, Account or Sub-Account under the Indenture the amount, if any, required by the Supplemental Indenture authorizing such Series, including, but not limited to, an amount to be applied to the payment of costs and expenses incident to the issuance of such Refunding Bonds; (2) the amount of such proceeds needed for the refunding of the Bonds to be refunded and for the payment of expenses incidental to such refunding shall be used for such purposes; and (3) any balance of such proceeds shall be applied in accordance with the written instructions of the Authority, signed by an Authorized Officer and filed with the Trustee. (D) Refunding Bonds may be as provided in the Supplemental Indenture providing for the issuance thereof. Hedging Transactions (A) The Authority will not enter into, or cause the Trustee to enter into, any Interest Rate Hedge Agreement unless and until (a) the Authority has given the Rating Services and any Credit Facility Issuer with respect to the related Series of Bonds at least 15 days prior written notice thereof, (b) the Authority has received written confirmation from the Rating Services that such Interest Rate Hedge Agreement will not adversely affect any ratings then maintained by such rating agencies on any Outstanding Bonds, and (c) the Authority has received approval from the FTA before any Grant Receipts are paid to a Swap Provider. A-10

61 (B) If the Authority shall enter into a Interest Rate Hedge Agreement with a Swap Provider requiring the Authority to pay a fixed interest rate on a notional amount, or requiring the Authority to pay a variable interest rate on a notional amount, and the Authority has made a determination that such Interest Rate Hedge Agreement was entered into for the purpose of providing substitute interest payments for Bonds of a particular maturity or maturities in a principal amount equal to the notional amount of the Interest Rate Hedge Agreement, then during the term of the Interest Rate Hedge Agreement and so long as the Swap Provider under such Interest Rate Hedge Agreement is not in default under such Interest Rate Hedge Agreement: (1) for purposes of any calculation of Interest Requirements, the interest rate on the Bonds of such maturity or maturities shall be determined as if such Bonds bore interest at the fixed interest rate or the variable interest rate, as the case may be, payable by the Authority under such Interest Rate Hedge Agreement; (2) any net payments required to be made by the Authority to the Swap Provider pursuant to such Interest Rate Hedge Agreement from Grant Receipts shall be made, at the written direction of the Authority to the Trustee, from amounts on deposit to the credit of the Interest Account (or from the Variable Rate Stabilization Account to the extent that the amount then held in the Interest Account is not sufficient to make such payment); and (3) any net payments received by the Authority from the Swap Provider pursuant to such Interest Rate Hedge Agreement shall be deposited, at the written direction of the Authority to the Trustee, to the credit of the Interest Account. (C) If the Authority shall enter into a swap agreement of the type generally described in subparagraph (B) of this caption that does not satisfy the requirements for qualification as a Interest Rate Hedge Agreement, then: (1) the interest rate adjustments or assumptions referred to in paragraph (1) of said subparagraph (B) shall not be made; (2) any net payments required to be made by the Authority to the Swap Provider pursuant to such swap agreement shall be made either (i) from sources other than Grant Receipts or (ii) if made from Grant Receipts, such payments, and any lien on Grant Receipts securing such payments, shall be junior and subordinate to the pledge of and lien on Grant Receipts created by the Indenture as security for the payment of Parity Obligations; and (3) any net payments received by the Authority from the Swap Provider pursuant to such swap agreement may be treated as Grant Receipts at the option of the Authority, and if so treated, shall be deposited in the same manner as Grant Receipts are to be deposited pursuant to the Indenture. (D) With respect to a Interest Rate Hedge Agreement described in subparagraph (B) of this caption or a swap agreement described in subparagraph (C) of this caption, any termination payment required to be made by the Authority to the Swap Provider shall be made either (1) from sources other than Grant Receipts, or (2) if made from Grant Receipts, such termination payment and any lien on Grant Receipts securing such termination payment, shall be A-11

62 junior and subordinate to the pledge of and lien on Grant Receipts created by the Indenture as security for the payment of Parity Obligations. If the rating assigned to the unsecured obligations of the Swap Provider or its guarantor under a Interest Rate Hedge Agreement falls below "Baa2" by Moody s or "BBB" by Standard & Poor s, then clause (1) of subparagraph (B) above shall apply to such Interest Rate Hedge Agreement. Credit Facilities to Secure Bonds (A) The Authority reserves the right to obtain one or more Credit Facilities, or a combination thereof, to secure the payment of the principal of, premium, if any, and interest on one or more Series of Bonds, or in the event Owners of such Bonds have the right to require purchase thereof, to secure the payment of the Purchase Price of such Bonds upon the demand of the Owner thereof. In connection with any such Credit Facility, the Authority may execute and deliver an agreement setting forth the conditions upon which drawings or advances may be made under such Credit Facility, and the method by which the Authority will reimburse the Credit Facility Issuer that issued such Credit Facility for such drawings together with interest thereon at such rate or rates and otherwise make payments as may be agreed upon by the Authority and such Credit Facility Issuer. (B) At the election of the Authority expressed in a certificate of an Authorized Officer filed with the Trustee, any such obligation of the Authority to reimburse or otherwise make payments to the Credit Facility Issuer shall constitute a Parity Obligation under the Indenture (as elected, a "Section 207 Obligation") to the same extent as any Series of Bonds, and any and all amounts payable by the Authority to reimburse such Credit Facility Issuer, together with interest thereon, shall for purposes of the Indenture be deemed to constitute the payment of principal of, premium, if any, and interest on Parity Obligations. Establishment of Funds and Accounts The Authority has established under the Indenture the Grant Receipts Deposit Fund, which shall be a special fund of the Authority held by the Authority as part of the Trust Estate, the Project Fund, the Debt Service Fund, the Debt Service Reserve Fund and the Surplus Fund, each of which shall be a special fund of the Authority held in trust by the Trustee as part of the Trust Estate. Subject to use and application in accordance with the Indenture, all of the moneys and securities held in the Grant Receipts Deposit Fund, the Project Fund, the Debt Service Fund, the Debt Service Reserve Fund and the Surplus Fund have been pledged as security for all of the Parity Obligations and shall be subject to the lien of the Indenture. The Authority has established the Rebate Fund as a special fund of the Authority held in trust by the Trustee. The Rebate Fund is not subject to the lien of the Indenture. The Authority has established the Interest Account, the Principal Account and the Variable Rate Stabilization Account as special accounts within the Debt Service Fund, the 2011 Project Account as a special account within the Project Fund and the 2011 Debt Service Reserve Account within the Debt Service Fund. The Authority shall establish within the Project Fund in connection with the issuance of each Series of Additional Bonds specified Project Accounts for the deposit of the proceeds of Additional Bonds. A-12

63 Project Fund (A) On the date of issuance of the 2011 Bonds, the Trustee shall deposit into the 2011 Project Account the amount set forth in the Indenture. The Trustee shall make payment of the Costs of the 2011 Project from the 2011 Project Account as described under this caption. The Trustee shall withdraw from the appropriate Project Account in the Project Fund and deposit into the Rebate Fund the amount specified in any certificate filed with the Trustee pursuant to the Indenture. The Trustee shall withdraw moneys from the appropriate Project Account in the Project Fund to pay costs of issuance of the Bonds in accordance with the directions of the Authority expressed in a certificate of an Authorized Officer filed with the Trustee. At the direction of the Authority expressed in a certificate of an Authorized Officer filed with the Trustee, the Trustee shall withdraw from a Project Account and deposit into the Variable Rate Stabilization Account the amount specified in such certificate provided that before making such withdrawal, the Trustee shall have received an opinion of Bond Counsel stating that such withdrawal and deposit will not cause the Authority to violate any of the tax covenants contained in the Indenture. All other payments from the Project Fund shall be subject to the provisions and restrictions as described under this caption. (B) The Trustee shall, during and upon completion of the 2011 Project or any Additional Project, make payments from the appropriate Project Account within the Project Fund in addition to those made pursuant to subparagraph (B) of this caption, in the amounts, at the times, in the manner, and on the other terms and conditions described in this caption. Before any such payment shall be made, the Authority shall file with the Trustee: (1) its requisition therefor, in substantially the form of Exhibit "D" annexed to the Indenture, stating in respect of each payment to be made: (i) the name of the Person to whom payment is due, (ii) the amount to be paid, and (iii) in reasonable detail the purpose for which the obligation was incurred; and (2) its certificate attached to the requisition certifying: (i) that obligations in the stated amounts have been incurred by the Authority in or about the construction of the 2011 Project or Additional Project, as applicable, and that each item thereof is a proper charge against the appropriate Project Account within the Project Fund, and is a proper Cost of a Project, and has not been paid, (ii) that there has not been filed with or served upon the Authority notice of any lien, right to lien, or attachment upon, or claim affecting the right to receive payment of, any of the moneys payable under such requisition, or if any such lien, attachment or claim has been filed or served upon the Authority, that such lien, attachment or claim has been released or discharged, and (iii) that such requisition contains no item representing payment on account of any retained percentages which the Authority is at the date of such certificate entitled to retain. Upon receipt of each such requisition and accompanying certificates, the Trustee shall transfer the requisitioned amount from the appropriate Project Account within the Project Fund to the Authority for payment to the Person named in and in accordance with the requisition. In making such transfer, the Trustee may rely upon such requisition and accompanying certificates and such Person shall look solely to the Authority for payment and without recourse to the Trustee. A-13

64 The Authority shall make the payments to the Person listed in the requisition within one Business Day of receipt of said funds from the Trustee. (C) The Trustee shall withdraw from any Project Account and pay into the Surplus Fund any balance in such Project Account, or any part thereof, in the amounts, at the times, in the manner, and on the other terms and conditions set forth in this subparagraph. Before any such withdrawal and payment shall be made, the Authority shall file with the Trustee its certificate certifying: (1) that the 2011 Project or Additional Project with respect to which such Project Account was established has been completed or substantially completed, and (2) that a sum stated in the certificate is sufficient to pay, and is required to be reserved in such Project Account to pay, all Costs then remaining unpaid, including the estimated amount of any such items the amount of which is not finally determined and all claims against the Authority arising out of the construction thereof. Upon receipt of such requisition and accompanying certificates, the Trustee shall withdraw from such Project Account and pay into the Surplus Fund the amount stated in such requisition, provided that no such withdrawal shall be made if it would reduce the amount in such Project Account below the amount stated in the said certificate of the Authority as required to be reserved in such Project Account. Deposit and Application of Grant Receipts (A) Under the Indenture, all Grant Receipts received by the Authority are deposited promptly into the Grant Receipts Deposit Fund. On or before the first Business Day of each Bond Year, and (if required) on any subsequent Business Day thereafter, the Authority is required to withdraw from the Grant Receipts Deposit Fund and pay over to the Trustee an amount sufficient to enable the Trustee to make payments into the following several Funds and Accounts, but as to each such Fund or Account only within the limitation below indicated with respect thereto and only after maximum payment within such limitation into every such Fund or Account previously mentioned in the following tabulation: First: Into the Interest Account, to the extent, if any, necessary to increase the amount in the Interest Account so that it equals the sum of the Interest Requirements for all Outstanding 2011 Bonds (including net payments under Section 206(B)(2)), and related Section 207 Obligations due on the next two Interest Payment Dates together with any amounts relating to Parity Obligations as shall be required by a Supplemental Indenture. Second: Into the Principal Account, to the extent, if any, needed to increase the amount in the Principal Account so that it equals the Principal Requirements for all Outstanding 2011 Bonds and related Section 207 Obligations due on the next Principal Payment Date together with any amounts relating to Parity Obligations as shall be required by a Supplemental Indenture. Third: Into the Variable Rate Stabilization Account, to the extent, if any, needed to increase the amount in the Variable Rate Stabilization Account to the Variable Rate Stabilization Account Requirement, if any. A-14

65 Fourth: Into the Rebate Fund, the amount specified in the certificate of an Authorized Officer filed with the Trustee pursuant to the Indenture. Fifth: Into each Debt Service Reserve Account in the Debt Service Reserve Fund, to the extent, if any, necessary to increase the amount in such Debt Service Reserve Account so that it equals the applicable Debt Service Reserve Requirement for such Debt Service Reserve Account. If the required transfer to a Debt Service Reserve Account is an installment payment required pursuant to the Indenture, such transfer shall be made in the amount of the required installment. Sixth: Into the Surplus Fund, the amount specified in a certificate of an Authorized Officer filed with the Trustee. (B) Provided that the required transfers to the Trustee are made as described in subparagraph (A) hereof, the Authority may apply the Grant Receipts Deposit Fund to the costs of Eligible Projects or other lawful purposes of the Authority. (C) Provided further and notwithstanding the foregoing, the Authority shall pay over to the Trustee, within one (1) Business Day of its receipt thereof, Grant Receipts in the amounts required to fund the Funds and Accounts as required in subparagraph (A) above. Debt Service Fund (A) Pursuant to the Indenture, the Trustee shall pay to the respective Paying Agents in Current Funds (1) out of the Interest Account on or before each Interest Payment Date or redemption date, as applicable, for any of the Outstanding Bonds and Section 207 Obligations, the amount required for the interest payable on such date (including net payments under the Indenture); (2) out of the Variable Rate Stabilization Account on or before each Interest Payment Date or redemption date, as applicable, for any of the Outstanding Bonds and Section 207 Obligations, the amount required for the interest payable on such date (including net payments under the Indenture); (3) out of the Principal Account on or before each Principal Payment Date, an amount equal to the principal amount of the Outstanding Bonds and Section 207 Obligations, if any, which mature on such date; and (4) out of the Principal Account on or before each Principal Payment Date occasioned by redemption of Outstanding Bonds from Sinking Fund Installments, the amount required for the payment of the Redemption Price of such Outstanding Bonds then to be redeemed. Such amounts shall be paid to the Owners of the Outstanding Bonds by the Paying Agent for the aforesaid purposes on the due dates thereof. The Trustee shall also pay out of the Interest Account (or from the Variable Rate Stabilization Account to the extent that the amount then held in the Interest Account is not sufficient to make such payment) the accrued interest included in the purchase price of Outstanding Bonds purchased for retirement. (B) Amounts in the Principal Account available for the payment of Sinking Fund Installments shall be applied to the purchase or redemption of Bonds as provided in the Indenture and described under this caption. (1) Amounts deposited to the credit of the Principal Account to be used in satisfaction of any Sinking Fund Installment may, and if so directed by the Authority shall, be applied by the Trustee, on or prior to the 45th day next preceding the next Principal Payment A-15

66 Date on which a Sinking Fund Installment is due, to the purchase of Outstanding Bonds of the Series and maturity for which such Sinking Fund Installment was established. That portion of the purchase price attributable to accrued interest shall be paid from the Interest Account (or from the Variable Rate Stabilization Account to the extent that the amount then held in the Interest Account is not sufficient to make such payment). All such purchases of Outstanding Bonds shall be made at prices not exceeding the applicable sinking fund Redemption Price of such Bonds plus accrued interest, and such purchases shall be made in such manner as the Trustee shall determine. The principal amount of any Bonds so purchased shall be deemed to constitute part of the Principal Account until the Principal Payment Date on which such Sinking Fund Installment is due, for the purpose of calculating the amount on deposit in such Account. (2) At any time up to the 45th day next preceding the next Principal Payment Date on which a Sinking Fund Installment is due, the Authority may purchase with any available funds Outstanding Bonds for which such Sinking Fund Installment was established and surrender such Bonds to the Trustee at any time up to said date. (3) After giving effect to the Outstanding Bonds purchased by the Trustee and Outstanding Bonds surrendered by the Authority as described in paragraphs (2) and (3) of this subparagraph (B), which shall be credited against the Sinking Fund Installment at the applicable sinking fund Redemption Price thereof, and as soon as practicable after the forty-fifth day next preceding the next Principal Payment Date on which a Sinking Fund Installment is due, the Trustee shall proceed to call for redemption on such Principal Payment Date Outstanding Bonds of the Series and maturity for which such Sinking Fund Installment was established in such amount as shall be necessary to complete the retirement of the unsatisfied portion of such Sinking Fund Installment. The Trustee shall pay out of the Principal Account to the appropriate Paying Agents, on or before the day preceding such redemption date, the Redemption Price required for the redemption of the Outstanding Bonds so called for redemption, and such amount shall be applied by such Paying Agents to such redemption. (4) If the principal amount of Outstanding Bonds retired pursuant to this subparagraph through application of amounts in satisfaction of any Sinking Fund Installment shall exceed such Sinking Fund Installment, or in the event of the purchase or redemption from moneys other than from the Principal Account of Outstanding Bonds of any Series and maturity for which Sinking Fund Installments have been established, such excess or the principal amount of Outstanding Bonds so purchased or redeemed, as the case may be, shall be credited toward future scheduled Sinking Fund Installments either (i) in the order of their due dates or (ii) in such order as the Authority establishes in a certificate signed by an Authorized Officer and delivered to the Trustee not more than 45 days after the payment in excess of such Sinking Fund Installment. (C) The Indenture requires that moneys held in the Accounts of the Debt Service Fund be invested as described below under the caption Investment of Certain Moneys. Investment income earned as a result of such investment shall be retained in said Accounts. (D) The amount, if any, deposited in the Interest Account from the proceeds of Bonds shall be set aside in such Account and applied to the payment of the interest on the Bonds with A-16

67 respect to which such proceeds were deposited in accordance with the provisions of the Supplemental Indenture authorizing the issuance of such Bonds. Debt Service Reserve Fund (A) On the date of issuance of the 2011 Bonds, the Trustee shall deposit into the 2011 Debt Service Reserve Account an amount equal to the 2011 Debt Service Reserve Account Requirement. The 2011 Debt Service Reserve Account shall secure, and be solely for the benefit of the 2011 Bonds. If any withdrawal is made from the 2011 Debt Service Reserve Account, the Authority shall pay to the Trustee for deposit into the 2011 Debt Service Reserve Account an amount sufficient to restore such withdrawal in not more than twelve (12) equal consecutive monthly installments, commencing on the first day of the month following such withdrawal. If on any Interest Payment Date the value of the 2011 Debt Service Reserve Account is less than the 2011 Debt Service Reserve Account Requirement, and such deficiency is not due to a transfer to the Debt Service Fund in order to cure a deficiency in said Debt Service Fund, the Authority shall pay to the Trustee for deposit into such Account the amount of such deficiency in not more than six (6) equal monthly installments, commencing on the first day of the month following such Interest Payment Date. (B) follows: Withdrawals from the 2011 Debt Service Reserve Account shall be applied as (1) On each Interest Payment Date and Principal Payment Date with respect to the 2011 Bonds, moneys drawn under the 2011 Debt Service Reserve Account shall be applied to cure any deficiency in the Debt Service Fund related to the 2011 Bonds. (2) if there is a Reserve Fund Credit Facility in the 2011 Debt Service Reserve Account, the Trustee shall draw on such Reserve Fund Credit Facility and the Authority shall repay costs related to such Reserve Fund Credit Facility prior to replenishment of any cash draws referred to in clause (3) of this subparagraph. (3) if and to the extent there is any cash in the 2011 Debt Service Reserve Account, all such cash and any investments thereof in the 2011 Debt Service Reserve Account shall be used by the Trustee prior to any draw on a Reserve Fund Credit Facility in the 2011 Debt Service Reserve Account. (C) Moneys held in the Accounts of the Debt Service Reserve Fund shall be invested as provided in the Indenture and described below under the caption Investment of Certain Moneys. At the time of valuation, if any amount in the 2011 Debt Service Reserve Account is in excess of the 2011 Debt Service Reserve Account Requirement, such excess amount shall be transferred to the Debt Service Fund and, at the option of the Authority, credited to either principal payments or interest payments in respect of the 2011 Bonds. (D) At the commencement of the twelve-month period preceding the final maturity date of the 2011 Bonds, so long as no Event of Default has occurred and is continuing, any moneys then held in the 2011 Debt Service Reserve Account shall be credited against the payment of principal of and interest on 2011 Bonds and shall be transferred to the Debt Service Fund established for the 2011 Bonds for the payment of such principal and interest. A-17

68 (E) The 2011 Debt Service Reserve Account Requirement shall be recalculated by the Trustee as of each Interest Payment Date, and in connection with the optional or special redemption of any of the 2011 Bonds or the issuance of any Parity Obligations. (F) Notwithstanding anything in the Indenture to the contrary, the Authority may fund any deposit to a Debt Service Reserve Account in whole or in part with one or more Reserve Fund Credit Facilities to be issued by a Reserve Fund Credit Facility Issuer, all as shall be set forth in a certificate of any Authorized Officer. Any Reserve Fund Credit Facility deposited into the 2011 Debt Service Reserve Account shall comply with the requirements set forth in Exhibit E of the Indenture. (G) The Authority may establish one or more additional Debt Service Reserve Accounts within the Debt Service Reserve Fund for the purpose of providing additional security for one or more Series of Additional Bonds, by Supplemental Indenture. Surplus Fund (A) The Authority may establish one or more Subordinated Indebtedness Accounts in the Surplus Fund for the purpose of securing the payment of Subordinated Indebtedness; provided, however, that in no event shall the terms of administration of any such Subordinated Indebtedness Account limit the application of moneys in the Surplus Fund (including any Account therein) for the payment of interest or principal due on Outstanding Bonds and Section 207 Obligations (and any other net amounts payable by the Authority from the Interest Account pursuant to the Indenture) all as provided in subparagraph (B) of this caption. (B) If on any Interest Payment Date or Principal Payment Date the aggregate amount to the credit of the Debt Service Fund shall be less than the amount required to pay such interest or principal due on the Outstanding Bonds and Section 207 Obligations (and any other net amounts payable by the Authority from the Interest Account pursuant to the Indenture), the Trustee shall, prior to drawing amounts from the Debt Service Reserve Fund to cure such deficiency, apply amounts from the Surplus Fund (including any amount then held in a Subordinated Indebtedness Account) to the extent necessary to cure such deficiency, in the following order of priority: first, to the credit of the Interest Account and then to the credit of the Principal Account. (C) Subject to any provisions limiting withdrawals from Subordinated Indebtedness Accounts, not inconsistent with the Indenture, at the direction of the Authority expressed in a certificate of an Authorized Officer filed with the Trustee, moneys held in the Surplus Fund may be withdrawn from the Surplus Fund and (1) transferred to any other Fund, Account or Sub- Account maintained under the Indenture or any Supplemental Indenture; (2) used to purchase, pay, redeem or defease Outstanding Bonds; or (3) used for any other purpose permitted by the Indenture. (D) Subject to the Indenture, moneys in the Surplus Fund shall be withdrawn promptly by the Trustee and paid over to the Authority free from the lien of the Indenture. (E) Any withdrawal of amounts held in a Subordinated Indebtedness Account pursuant to the Indenture shall be limited by the terms of administration of such Account. No A-18

69 withdrawal from the Surplus Fund pursuant to subparagraph (D) of this caption shall be made unless, at the time of such withdrawal, (1) no deficiency shall exist with respect to the required deposits to the Interest Account and the Principal Account pursuant to the Indenture; (2) the sum then held in the Variable Rate Stabilization Account shall be not less than the Variable Rate Stabilization Account Requirement; (3) no deficiency shall exist in a Debt Service Reserve Account; and (4) no Event of Default shall have occurred and shall remain unremedied. Subordinated Indebtedness Nothing in the Indenture shall prohibit or prevent, or be deemed or construed to prohibit or prevent, the Authority (to the extent now or hereafter permitted by law) from (A) issuing bonds, certificates or other evidences of indebtedness or contractual obligations payable as to principal and interest from Grant Receipts, or (B) incurring contractual obligations other than Parity Obligations that are payable from Grant Receipts, but only if such indebtedness or contractual obligation is junior and subordinate as to pledge, security interest and lien and as to priority of payment in all respects to any and all Parity Obligations issued under the Indenture. Investment of Certain Moneys (A) Moneys held in the Debt Service Fund and its Accounts, the Debt Service Reserve Fund and its Accounts, the Surplus Fund and its Accounts, the Rebate Fund and the Project Fund and its Accounts shall be invested and reinvested by the Trustee at the written direction of an Authorized Officer promptly confirmed in writing to the fullest extent practicable in Investment Securities which mature no later than necessary to provide moneys when needed for payments to be made from such Funds or Accounts. In the event that no such directions are received by the Trustee, such amounts shall be invested in Dreyfus Government Prime Cash Management Fund Agency Class Share money market funds, pending receipt of investment directions. The Trustee may make any and all such investments through its own investment department or that of its affiliates or subsidiaries. Moneys held in any separate, segregated account of the Project Fund held by the Authority in a Depository may be invested and reinvested by the Authority at the written direction of an Authorized Officer in Investment Securities which mature no later than necessary to provide moneys when needed for payments to be made from such accounts. Investments shall be considered as maturing on the first day on which they are redeemable without penalty at the option of the holder or the date on which the Trustee may require their repurchase pursuant to repurchase agreements. Investments of moneys, if any, in the 2011 Debt Service Reserve Account not payable upon demand shall be restricted to maturities of five years or less. (B) Moneys held in two or more Funds, Accounts or Sub-Accounts may be jointly invested in one or more Investment Securities, provided that such investment complies with all the terms and conditions thereof relating to the investment of moneys in such Funds, Accounts or Sub-Accounts, as the case may be, and the Authority maintains books and records as to the allocation of such investment as among such Funds, Accounts or Sub-Accounts. Investment income from investments held in the various Funds, Accounts and Sub-Accounts shall remain in and be a part of the respective Funds, Accounts and Sub-Accounts in which such investments are held, except as otherwise provided in the Indenture. A-19

70 Covenants and Representations of the Authority Power to Issue Bonds and Pledge Grant Receipts The Authority covenants in the Indenture that it is duly authorized under the Enabling Law, the Bond Resolution and all applicable laws to issue the Bonds and to execute and deliver the Indenture and to pledge the Grant Receipts and other moneys, securities and funds constituting the Trust Estate and pledged by the Indenture and to grant the lien granted by the Indenture thereon in the manner and to the extent provided in the Indenture. The Grant Receipts and other moneys, securities and funds so pledged, constituting the Trust Estate and subject to the lien of the Indenture, are and will be free and clear of any other pledge, lien, charge or encumbrance thereon or with respect thereto prior to, or of equal rank with, the pledge and lien created by the Indenture, and all action on the part of the Authority to that end has been and will be duly and validly taken. The Bonds and the provisions of the Indenture are and will be valid and legally enforceable obligations of the Authority in accordance with their terms and the terms of the Indenture, except to the extent enforceability may be limited by bankruptcy, insolvency and other laws or legal principles affecting conditions, rights or remedies of creditors and the availability of equitable remedies. The Authority covenants that upon the date of issuance of any of the Bonds, all conditions, acts and things required by the Constitution and laws of the Commonwealth and the Indenture to exist, to have happened and to have been performed precedent to or in the issuance of such Bonds shall exist, have happened and have been performed. The Authority shall at all times, to the extent permitted by law, defend, preserve and protect the pledge of and lien on the Grant Receipts and other moneys, securities and funds constituting the Trust Estate and pledged under the Indenture and all the rights of the Owners under the Indenture against all claims and demands. The Authority covenants that it will pay over to the Trustee, within one (1) Business Day of its receipt thereof, Grant Receipts in the amounts required to fund the Funds and Accounts as required in Section 504(A) of the Indenture. Indebtedness and Liens The Authority covenants in the Indenture that it will not issue any bonds or other evidences of indebtedness or incur any indebtedness, other than the Parity Obligations, Interest Rate Hedge Agreements and Subordinated Indebtedness, which are secured by a pledge of or lien on the Grant Receipts or the moneys, securities or funds held or set aside by the Authority or by the Trustee under the Indenture, and shall not, except as expressly authorized in the Indenture, create or cause to be created any lien or charge on the Trust Estate; provided, however, that nothing contained in the Indenture shall prevent the Authority from issuing or incurring (A) evidences of indebtedness payable from or secured by amounts that may be withdrawn from the Surplus Fund free and clear of the lien of the Indenture or (B) evidences of indebtedness payable from, or secured by the pledge of, Grant Receipts to be derived on and after such date as the pledge of Grant Receipts provided in the Indenture shall be discharged and satisfied as provided in the provisions of the Indenture described below under the caption Defeasance. Completion of 2011 Project The Authority shall forthwith proceed to complete the Capital Projects included in the 2011 Project as Eligible Projects in conformity with all requirements of all governmental A-20

71 authorities having jurisdiction thereover, and in accordance with and as more fully shown on the plans therefor, and the specifications relative thereto, subject to such modifications of such plans and specifications as may be approved from time to time by the Authority. Payment of Lawful Charges The Authority shall pay or cause to be discharged, or will make adequate provision to satisfy and discharge, all judgments and court orders, and all lawful claims and demands for labor, materials, supplies or other objects which, if unsatisfied or unpaid, might by law become a lien upon the Grant Receipts; provided, however, that this covenant shall not require the Authority to pay or cause to be discharged, or make provision for, any such lien or charge, so long as the validity thereof shall be contested in good faith and by appropriate legal proceedings. Accounts and Reports The Authority will keep proper books of record and account (separate from all other records and accounts) in which complete and correct entries will be made of its transactions relating to the 2011 Project, Grant Receipts and the Funds, Accounts and Sub-Accounts established by the Indenture and any Supplemental Indenture, and which shall at all reasonable times be available for the inspection of the Trustee and the Owners of not less than 25 percent in aggregate principal amount of Outstanding Bonds or their representatives duly authorized in writing. The Authority further covenants that it will keep an accurate record of the Grant Receipts received and of the payment thereof to the Trustee. Tax Covenants The Authority shall not take, or omit to take, any action lawful and within its power to take, which action or omission would cause interest on any Bond to become subject to federal income taxes in addition to federal income taxes to which interest on such Bond is subject on the date of original issuance thereof. In connection with the foregoing, the Authority shall comply with the provisions of the Tax Compliance Certificate throughout the term of the Bonds. FTA Funds (A) The Authority shall comply with all applicable laws of the United States of America and regulations of the FTA relating to the administration and disbursement of federal funds under 49 United States Code Section 5309 in order to be eligible to receive Grant Receipts for the payment of Parity Obligations and to facilitate the prompt receipt by the Authority of Grant Receipts. (B) Within 10 days of the date that any FTA Section 5309 (49 United States Code Section 5309) Fixed Guideway Modernization Formula funds appropriated with respect to a Federal Fiscal Year (commencing with the Federal Fiscal Year beginning on October 1, 2011) become available for disbursement to the Authority for payment obligations then due, the Authority shall take all reasonable actions as shall be necessary or desirable to facilitate the prompt payment of such Section 5309 Fixed Guideway Modernization Formula funds to the Authority. All of such moneys constituting Grant Receipts, when received by the Authority, shall be deposited promptly into the Grant Receipts Deposit Fund. A-21

72 (C) For each Federal Fiscal Year, the Authority shall apply for the appropriation of FTA Section 5309 Fixed Guideway Modernization Formula funds on a priority basis for the payment of a sum sufficient to fund all of the payments to the Trustee required to be made by Section 504 to the end of the next Bond Year, and shall cause such FTA Section 5309 Fixed Guideway Modernization Formula funds to be obligated for such purposes on the earliest possible date in each Federal Fiscal Year. (D) If by September 15th of each year the grant approvals required to make the payments required on December 1st and/or June 1st have not been obtained, then the Authority shall reprogram available FTA Section 5309 Fixed Guideway Modernization Formula funds already appropriated to the Authority to the extent required to pay such obligations due on December 1st and/or June 1st. (E) Moneys held in the Grant Receipts Deposit Fund may be withdrawn from time to time by the Authority for the payment or reimbursement of the costs of Eligible Projects or other lawful purposes of the Authority; provided, however, that after the first Business Day of a Bond Year, if any deficiency then exists in the deposits required to be made by the Trustee under the Indenture, no such withdrawal shall be made unless the Authority shall have obligated from appropriations applicable from the current or prior Federal Fiscal Years a sum sufficient to fund the payments to the Trustee required to be made by the Indenture on the first Business Day of a Bond Year. Events of Default; Remedies of Owners Events of Default (A) Each of the following events is declared an "Event of Default" in the Indenture: (1) if a default shall occur in the due and punctual payment of the principal or Redemption Price of any Parity Obligation when and as the same shall become due and payable, whether at maturity or by call for mandatory redemption or otherwise; (2) if a default shall occur in the due and punctual payment of interest on any Parity Obligation, when and as such interest shall become due and payable; (3) if a default shall occur in the performance or observance by the Authority of any other of the material covenants, agreements or conditions in the Indenture or in the Parity Obligations contained, and such default shall continue for a period of 60 days after written notice thereof to the Authority by the Trustee or after written notice thereof to the Authority and to the Trustee by (a) the Owners of not less than a majority in principal amount of the Outstanding Bonds or (b) the Person entitled to payment under any other outstanding Parity Obligation; or (4) if the Authority shall file a petition seeking to become a debtor under the federal bankruptcy laws or under any other similar and applicable law or statute of the United States of America or of the Commonwealth. A-22

73 Application of Grant Receipts and Other Moneys after Default (A) The Authority covenants that if an Event of Default shall happen and shall not have been remedied, the Authority, upon demand of the Trustee, shall pay over or cause to be paid over to the Trustee (1) forthwith, all moneys, securities and funds then held by the Authority in any Fund, Account or Sub-Account pursuant to the terms of the Indenture, and (2) all Grant Receipts as promptly as practicable after receipt thereof. (B) During the continuance of an Event of Default, the Trustee shall apply such moneys, securities, funds and Grant Receipts and the income therefrom as follows and in the following order: (1) to the payment of the reasonable and proper charges and expenses of the Trustee, including the reasonable fees and expenses of counsel employed by it pursuant to the Indenture; (2) to the payment of the principal of, Redemption Price of and interest on the Parity Obligations then due, as follows: First: to the payment to the Persons entitled thereto of all installments of interest then due on the Parity Obligations (or, if such Parity Obligations are Interest Rate Hedge Agreements, the periodic scheduled payments then due under such Interest Rate Hedge Agreements) in the order of the maturity of such installments, together with accrued and unpaid interest on the Parity Obligations theretofore called for redemption, and, if the amount available shall not be sufficient to pay in full any installment or installments of interest or periodic scheduled payments 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 Parity 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 Parity 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; and Third: to the payment of the Persons entitled thereto of the unpaid termination payments, if any, then due from the Authority to be paid from Grant Receipts under any Interest Rate Hedge Agreements Agreement and, if the amount available shall not be sufficient to pay in full all of the termination payments then due on any date, then to the payment thereof ratably, according to the amounts due on that date, to the Persons entitled thereto, without any discrimination or preference. (C) If and whenever all overdue installments of principal and Redemption Price of and interest on all Parity Obligations together with the reasonable and proper charges and expenses of the Trustee, and all other overdue sums payable by the Authority under the Indenture, including the overdue principal and Redemption Price of and accrued unpaid interest A-23

74 on all Parity Obligations held by or for the account of the Authority have been paid, or provision satisfactory to the Trustee shall be made for such payment, and all defaults under the Indenture or the Parity Obligations shall be made good or secured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall be made therefor, the Trustee shall pay over to the Authority all moneys, securities and funds then remaining unexpended and held by the Trustee (except moneys, securities and funds deposited or pledged, or required by the terms of the Indenture to be deposited or pledged, with the Trustee), and thereupon the Authority, the Trustee, the Credit Facility Issuers, the Reserve Fund Credit Facility Issuers, Swap Providers, Bond Insurers and the Owners shall be restored, respectively, to their former positions and rights under the Indenture. No such payment over to the Authority by the Trustee nor such restoration of the Authority and the Trustee to their former positions and rights shall extend to or affect any subsequent default under the Indenture or impair any right consequent thereon. Proceedings Brought by the Trustee (A) If an Event of Default shall happen and shall not have been remedied, then and in every such case, the Trustee, by its agents and attorneys, may proceed, and upon written request of the Owners of not less than a majority in principal amount of the Bonds Outstanding and upon being indemnified to its satisfaction shall proceed, to protect and enforce its rights and the rights of the Owners of the Bonds under the Indenture forthwith by a suit or suits in equity or at law, whether for the specific performance of any covenant therein contained, or in aid of the execution of any power therein granted, or for an accounting against the Authority as if the Authority were the trustee of an express trust, or in the enforcement of any other legal or equitable right as the trustee, being advised by counsel, shall deem most effectual to enforce any of its rights or to perform any of its duties under the Indenture; provided, however, that there shall be no right to accelerate the time for payment of the Bonds. (B) All rights of action under the Indenture may be enforced by the Trustee without the possession of any of the Parity Obligations or the production thereof in any suit or other proceeding, and any such suit or other proceeding instituted by the Trustee shall be brought in its name. (C) All actions against the Authority under the Indenture shall be brought in the courts of the Commonwealth with appropriate jurisdiction. (D) The Owners of not less than a majority in principal amount of the Bonds at the time Outstanding may direct the time, method and place of conducting any proceedings to be taken in connection with the enforcement of the terms and conditions of the Indenture or for the enforcement of any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, provided that the Trustee shall have the right to decline to follow any such direction if the Trustee shall be advised by counsel that the action or proceeding so directed may not lawfully be taken, or if the Trustee in good faith shall determine that the action or proceeding so directed would involve the Trustee in personal liability or be unjustly prejudicial to the Owners not parties to such direction. (E) Upon commencing any suit at law or in equity or upon commencement of other judicial proceedings by the Trustee to enforce any right under the Indenture, the Trustee shall be A-24

75 entitled to exercise any and all rights and powers conferred in the Indenture and provided to be exercised by the Trustee upon the occurrence of any Event of Default. (F) Regardless of the happening of an Event of Default, the Trustee shall have power, but unless requested in writing by the Owners of a majority in principal amount of the Bonds then Outstanding, and furnished with reasonable security and indemnity, shall be under no obligation, to institute and maintain such suits and proceedings as may be necessary or expedient to prevent any impairment of the security under the Indenture and to preserve or protect its interests and the interest of the Owners. Restrictions on Owners Actions (A) No Owner of any Bond shall have any right to institute any suit or proceeding at law or in equity for the enforcement or violation of any provision of the Indenture or the execution of any trust under the Indenture or for any remedy under the Indenture, unless such Owner shall have previously given to the Trustee written notice of the happening of an Event of Default, as provided in the Indenture, and the Owners of at least a majority in principal amount of the Bonds then Outstanding shall have filed a written request with the Trustee, and shall have offered it reasonable opportunity either to exercise the powers granted in the Indenture or by the laws of the Commonwealth or to institute such suit or proceeding in its own name, and unless such Owners shall have offered to the Trustee adequate security and indemnity against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee shall have refused or failed to comply with such request within 60 days after receipt by it of such notice, request and offer of indemnity, it being understood and intended that no one or more Owners of Bonds shall have any right in any manner whatever by its or their action to affect, disturb or prejudice the pledge created by the Indenture or to enforce any right under the Indenture, except in the manner therein provided; and that all proceedings at law or in equity to enforce any provision of the Indenture shall be instituted, had and maintained in the manner provided in the Indenture and for the equal benefit of all Owners of the Outstanding Bonds. (B) Nothing contained in the Indenture or in the Bonds shall affect or impair the obligation of the Authority, which is absolute and unconditional, to pay at the respective dates of maturity and places therein expressed the principal of and interest on the Bonds to the respective Owners thereof, or affect or impair the right of action, which is also absolute and unconditional, of any Owner to enforce such payment of its Bond from the sources provided in the Indenture. Remedies Not Exclusive No remedy by the terms of the Indenture conferred upon or reserved to the Trustee, any Credit Facility Issuer, Reserve Fund Credit Facility Issuer, Swap Provider or Bond Insurer or the Owners is intended to be exclusive of any other remedy, but each remedy shall be cumulative and shall be in addition to every other remedy given under the Indenture or existing at law or in equity or by statute on or after the date of the execution and delivery of the Indenture. Rights of Credit Facility Issuer or Bond Insurer Subject to the provisions of the Indenture or any applicable Supplemental Indenture, any Credit Facility Issuer or any Bond Insurer shall be treated as the Owner of Bonds upon which A-25

76 such Credit Facility Issuer or Bond Insurer is obligated pursuant to a Credit Facility or Bond Insurance Policy, as applicable, for the purposes of calculating whether or not the Owners of the requisite percentage of Bonds then Outstanding have consented to any request, consent, directive, waiver or other action permitted to be taken by the Owners of the Bonds pursuant to the Indenture; provided, however, that (a) the Owners of the Bonds shall retain the right to exercise all rights under the Indenture related to the enforcement of the tax covenants of the Authority contained in the Indenture, and (b) such Credit Facility Issuer or Bond Insurer shall cease to be so regarded as Owner of such Bonds in the event such Credit Facility Issuer or Bond Insurer is in default of its obligations under the applicable Credit Facility or Bond Insurance Policy. Notwithstanding anything contained in the Indenture to the contrary, but subject to the provisions of any applicable Supplemental Indenture, until the Authority has reimbursed a Credit Facility Issuer for amounts paid under a Credit Facility to pay the interest on or the principal of any Bonds on any Interest Payment Date or Principal Payment Date or to the extent any Bond Insurer has exercised its rights as subrogee for the particular Bonds of which it has insured payment, such Bonds shall be deemed to be Outstanding and such Credit Facility Issuer or Bond Insurer shall succeed to the rights and interests of the Owners to the extent of the amounts paid under the Credit Facility or as specified in respect of the applicable Bond Insurance Policy until such amount has been reimbursed. Supplemental Indentures Not Requiring Consent of Owners (A) The Authority and the Trustee may without the consent of any of the Owners or any Credit Facility Issuer, Bond Insurer, Reserve Fund Credit Facility Issuer and Swap Provider, enter into a Supplemental Indenture or Supplemental Indentures as shall not be inconsistent with the terms and provisions of the Indenture for any one or more of the following purposes: (1) to authorize Additional Bonds, Refunding Bonds or Section 206 obligations and Section 207 Obligations and in connection therewith specify and determine or authorize any matters and things relating thereto which are not contrary to or inconsistent with the Indenture; (2) to close the Indenture against, or impose additional limitations or restrictions on, the issuance of Parity Obligations, or of other notes, bonds, obligations or evidences of indebtedness; Authority; (3) to impose additional covenants or agreements to be observed by the (4) to impose other limitations or restrictions upon the Authority; (5) to surrender any right, power or privilege reserved to or conferred upon the Authority by the Indenture; (6) to confirm, as further assurance, any pledge of or lien upon the Grant Receipts or any other moneys, securities or funds constituting the Trust Estate; A-26

77 (7) to authorize the issuance of Subordinated Indebtedness and in connection therewith, specify and determine any matters and things relative thereto which are not contrary to or inconsistent with the Indenture; (8) to cure any ambiguity, omission or defect in the Indenture; (9) to provide for the appointment of a successor securities depository in the event any Series of Bonds is held in book-entry only form; (10) to provide for the appointment of any successor Fiduciary; and (11) to make any other change which in the judgment of the Trustee is not to the prejudice of the Trustee, the Owners, the Bond Insurers, the Credit Facility Issuers, the Reserve Fund Credit Facility Issuers or the Swap Providers. Powers of Amendment; Supplemental Indentures Effective only upon Consent of Owners Except for Supplemental Indentures described under the preceding caption, any modification or amendment of the Indenture and of the rights and obligations of the Authority and of the Owners of the Bonds thereunder, may be made by a Supplemental Indenture with the written consent given as provided in the Indenture (A) of the Owners of at least a majority in principal amount of the Bonds Outstanding at the time such consent is given, and (B) in case less than all of the several Series of Bonds then outstanding are affected by the modification or amendment, of the Owners of at least a majority in principal amount of the Bonds of each Series so affected and Outstanding at the time such consent is given; provided, however, that if such modification or amendment will, by its terms, not take effect so long as any Bonds of any specified like Series and maturity remain Outstanding, the consent of the Owners of such Bonds shall not be required and such Bonds shall not be deemed to be Outstanding for the purpose of any calculation of Outstanding Bonds. No such modification or amendment shall permit a change in the terms of redemption or maturity of the principal of any Outstanding Bonds, or of any installment of interest thereon or a reduction in the principal amount or the Redemption Price thereof or in the rate of interest thereon or impair the exclusion from federal income taxation of interest on any Bond without the consent of the Owner of such Bond, or shall reduce the percentages or otherwise affect the classes of Bonds the consent of the Owners of which is required to effect any such modification or amendment, or shall change or modify any of the rights or obligations of any Fiduciary without its written assent thereto. A Series shall be deemed to be affected by a modification or amendment of the Indenture if the same adversely affects or diminishes the rights of the Owners of Bonds or Bond Insurer of such Series. The Trustee may in its discretion determine whether or not the rights of the Owners of Bonds of any particular Series or maturity would be adversely affected or diminished by any such modification or amendment, and its determination shall be binding and conclusive on the Authority and all Owners of the Bonds. Any amendment or modification of the Indenture that adversely affects or diminishes the rights of any Bond Insurer, or of any Credit Facility Issuer or Reserve Fund Credit Facility Issuer or Swap Provider with respect to the payment of any Section 206 Obligation or any Section 207 Obligation or the security provided by the Indenture to any Bond Insurer or with respect to the A-27

78 payment of any Section 206 Obligation or Section 207 Obligation shall not take effect unless such amendment or modification is consented to by such Bond Insurer, Credit Facility Issuer or Reserve Fund Credit Facility Issuer or Swap Provider (or in the event of an assignment of such Section 206 Obligation or Section 207 Obligation, the Person entitled to payment of such Section 206 Obligation or Section 207 Obligation). Defeasance (A) If the Authority shall pay or cause to be paid or there shall otherwise be paid (1) to the Owners 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 in the Indenture, and to each Bond Insurer all amounts due to such Bond Insurer, then the pledge of any Grant Receipts and other moneys and securities pledged under the Indenture and all covenants, agreements and other obligations of the Authority to the Owners shall thereupon be discharged and satisfied and (2) to the applicable Credit Facility Issuers, Reserve Fund Credit Facility Issuer and Swap Providers (or their assignees) all payments due upon the instruments creating Section 206 Obligations and Section 207 Obligations then the pledge of any Grant Receipts and other moneys and securities pledged under the Indenture and all covenants, agreements and obligations of the Authority to the Credit Facility Issuers, the Reserve Fund Credit Facility Issuers, the Swap Providers and any of their assignees with respect to the payment of Section 206 Obligations and Section 207 Obligations shall thereupon be discharged and satisfied. In such event, the Trustee, upon request of the Authority, shall provide an accounting of the assets managed by the Trustee to be prepared and filed with the Authority for any year or part thereof requested, and shall execute and deliver to the Authority all such instruments as may be desirable to evidence such discharge and satisfaction, and the Fiduciaries shall pay over or deliver to the Authority all moneys and securities held by them pursuant to the Indenture which are not required for the payment of Bonds not previously surrendered for such payment or redemption or for the payment of amounts due to Bond Insurers or of Section 206 Obligations and Section 207 Obligations. If the Authority shall pay or cause to be paid, or there shall otherwise be paid, to the Owners of all Outstanding Bonds of a particular Series, maturity within a Series or portion of any maturity within a Series (which portion shall be selected by lot by the Trustee in the manner provided in Section 406 for the selection of Bonds to be redeemed in part), the principal or Redemption Price, if applicable, thereof and interest due or to become due thereon, at the times and in the manner stipulated therein and in the Indenture, such Bonds shall cease to be entitled to any lien, benefit or security under the Indenture, and all covenants, agreements and obligations of the Authority to the Owners of such Bonds and to the Trustee shall thereupon be discharged and satisfied. (B) The Bonds or interest installments for the payment or redemption of which moneys shall have been set aside and held in trust by the Trustee at or prior to their maturity or redemption date shall be deemed to have been paid within the meaning of and with the effect expressed in the Indenture if the Authority shall have delivered to or deposited with the Trustee (1) irrevocable instructions to pay or redeem all of said Bonds in specified amounts no less than the respective amounts of, and on specified dates no later than the respective due dates of, their principal, (2) irrevocable instructions to publish or mail the required notice of redemption of any Bonds so to be redeemed, (3) either moneys in an amount which shall be sufficient, or Defeasance Obligations the principal of and the interest on which when due will provide moneys A-28

79 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, and interest due and to become due on said Bonds on and prior to each specified redemption date or maturity date thereof, as the case may be, (4) if any of said Bonds are not to be redeemed within the next succeeding 60 days, irrevocable instructions to mail to all Owners of said Bonds a notice that such deposit has been made with the Trustee and that said Bonds are deemed to have been paid in accordance with the Indenture and stating the 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 and (5) a written report from an Accountant shall have been delivered to the Trustee verifying that the cash and Defeasance Obligations so deposited under clause (3) of this subparagraph will be adequate to provide sufficient moneys to pay when due the principal of, Redemption Price, if any, and interest on the relevant Bonds to the due date thereof (whether at maturity or upon prior redemption, as appropriate). If a forward supply contract or similar arrangement is employed in connection with the deposit described in clause (3) of this caption, such verification report shall expressly state that the adequacy of such deposit is determined solely on the basis of the original deposit of cash and Defeasance Obligations and the maturing principal thereof and income thereon and does not assume performance under or compliance with such forward supply contract or similar arrangement. If a forward supply contract is employed in connection with the refunding the applicable escrow agreement shall provide that in the event of any discrepancy or difference between the terms of the forward supply contract and the escrow agreement (or the authorizing document, if no separate escrow agreement is utilized), the terms of the escrow agreement or authorizing document, if applicable, shall be controlling. The Defeasance Obligations and moneys deposited with the Trustee pursuant to the Indenture shall be held in trust for the payment of the principal or Redemption Price, if applicable, and interest on said Bonds. No payments of principal of any such Defeasance Obligations or interest thereon shall be withdrawn or used for any purpose other than the payment of such principal or Redemption Price of, or interest on, said Bonds unless after such withdrawal the amount held by the Trustee and interest to accrue on Defeasance Obligations so held shall be sufficient to provide fully for the payment of the principal of or Redemption Price and interest on such Bonds, at maturity or upon redemption, as the case may be. (C) Amounts deposited with the Trustee for the payment of the principal of and interest on any Bonds deemed to be paid pursuant to the Indenture described under this caption, if so directed by the Authority, shall be applied by the Trustee to the purchase of such Bonds in accordance with the Indenture. Bonds for which a redemption date has been established may be purchased on or prior to the 45th day preceding the redemption date. The principal amount of Bonds to be redeemed shall be reduced by the principal amount of Bonds so purchased. Bonds which mature on a single future date may be purchased at any time prior to the maturity date. All such purchases shall be made at prices not exceeding the applicable principal amount or Redemption Price established pursuant to the Indenture, plus accrued interest, and such purchases shall be made in such manner as the Trustee shall determine. No purchase shall be made by the Trustee pursuant to the Indenture if such purchase would result in the Trustee holding less than the moneys and Defeasance Obligations required to be held for the payment of all other Bonds deemed to be paid pursuant to the provisions of the Indenture described under this caption. A-29

80 (D) The Authority may purchase with any available funds any Bonds deemed to be paid pursuant the provisions of the Indenture described under this caption. Bonds for which a redemption date has been established may be purchased by the Authority on or prior to the 45th day preceding the redemption date. On or prior to the 45th day preceding the redemption date, the Authority shall give notice to the Trustee of its intention to surrender such Bonds on the redemption date. The Trustee shall proceed to call for redemption the remainder of the Bonds due on the redemption date and shall pay to the Authority on the redemption date the Redemption Price of and interest on such Bonds upon surrender of such Bonds to the Trustee. Bonds which mature on a single future date may be purchased at any time prior to the maturity date. The Trustee shall pay to the Authority the principal amount of and interest on such Bonds upon surrender of such Bonds on the maturity date. No Recourse on Parity Obligations (A) No recourse shall be had for the payment of the Principal or Redemption Price of or interest on the Parity Obligations or for any claim based thereon or on the Indenture against any past, present or future member of the Board, officer, employee or agent of the Authority, or any successor, public body or any Person executing the Parity Obligations, either directly or through the Authority, under any rule of law or equity, statute or constitution or otherwise, and all such liability of any such officers, members, employees or agents as such is hereby expressly waived and released as a condition of and a material and explicit portion of the consideration running to the Authority to induce the Authority to execute the Indenture and issue the Parity Obligations. (B) No member of the Board, officer, agent or employee of the Authority shall be individually or personally liable for the payment of the Principal or Redemption Price of or interest on the Parity Obligations; but nothing therein contained shall relieve any such officer, director, agent or employee from the performance of any official duty provided by law. (C) All covenants, stipulations, obligations and agreements of the Authority contained in the Indenture shall be deemed to be covenants, stipulations, obligations and agreements of the Authority to the full extent authorized and permitted by the Constitution and laws of the Commonwealth, and no covenants, stipulations, obligations or agreements contained therein shall be deemed to be a covenant, stipulation, obligation or agreement of any present or future member of the Board, officer, agent or employee of the Authority in his or her individual capacity, and no officer executing the Parity Obligations shall be liable personally on the Parity Obligations or be subject to any personal liability or accountability by reason of the issue thereof. No member of the Board, officer, director, agent or employee of the Authority shall incur any personal liability in acting or proceeding or in not acting or not proceeding in accordance with the terms of the Indenture. A-30

81 APPENDIX B [PROPOSED FORM OF OPINION OF BOND COUNSEL] August, 2011 SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY CAPITAL GRANT RECEIPTS BONDS, SERIES 2011 (FEDERAL TRANSIT ADMINISTRATION SECTION 5309 FIXED GUIDEWAY MODERNIZATION FORMULA FUNDS) To the Purchasers of the above mentioned Bonds: We have acted as bond counsel to the Southeastern Pennsylvania Transportation Authority (the "Authority") in connection with the issuance and sale by the Authority of $201,615,000 Southeastern Pennsylvania Transportation Authority Capital Grant Receipts Bonds, Series 2011 (Federal Transit Administration Section 5309 Fixed Guideway Modernization Formula Funds) (the "2011 Bonds"). In such capacity, we have examined such law and such certified proceedings and other documents and opinions as we have deemed necessary to render this opinion. The 2011 Bonds are issued under the provisions of Chapter 17 of Title 74 of the Pennsylvania Consolidated Statutes (the "Act") and a Trust Indenture dated as of August 1, 2011 (the "Indenture") from the Authority to The Bank of New York Mellon Trust Company, N.A. (the "Trustee". The 2011 Bonds are being issued for the purposes of financing: (a) the acquisition of one hundred sixteen (116) Silverliner V regional rail cars; (b) the rehabilitation of the Wayne Junction Intermodal Facility; (c) a deposit to the Debt Service Reserve Fund; and (d) certain costs and expenses incurred or to be incurred by the Authority in connection with the issuance and sale of the 2011 Bonds. The 2011 Bonds do not constitute obligations of the Commonwealth of Pennsylvania (the "Commonwealth") or of any political subdivision thereof. Neither the Commonwealth nor any political subdivision thereof is liable for the payment of principal of, or redemption premium, if any, or interest on, the 2011 Bonds. The Authority has no taxing power. In the course of the performance of our duties as bond counsel to the Authority and in connection with the preparation of this opinion, we have examined the Act, a resolution of the Authority adopted on January 27, 2011, Letters of No Prejudice issued to the Authority from the Federal Transit Administration dated March 31, 2011 and June 2, 2011, copies of the form of the 2011 Bond, the Indenture, the Authority's Tax Compliance Agreement, the opinions of Bowman Kavulich, Ltd. and Raffaele & Puppio LLP, co-special counsel to the Authority, each dated the date hereof, the opinion of Nicholas J. Staffieri, general counsel to the Authority, dated B-1

82 the date hereof, incumbency and other certificates executed and delivered by the parties upon the issuance of the 2011 Bonds and certificates issued by public officials with respect to incorporation, subsistence and certain proceedings of the Authority. As to questions of fact material to our opinion, we have relied upon the representations of the Authority in the Indenture and in the certified proceedings and other certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation. Based upon the foregoing, we are of the opinion that under existing law: 1. The Authority is validly existing under the Act and the laws of the Commonwealth and has the corporate power and lawful authority to execute and deliver the Indenture and to issue and deliver the 2011 Bonds. 2. The Indenture has been duly authorized, executed and delivered by the Authority, is the legal, valid and binding obligation of the Authority and is enforceable in accordance with its terms. 3. The 2011 Bonds have been validly authorized, executed, issued and delivered by the Authority and, when authenticated by the Trustee, constitute valid, legal and binding limited obligations of the Authority entitled to the benefits of the Indenture and are enforceable in accordance with their terms. 4. The 2011 Bonds are payable from and secured by the Trust Estate (as defined in the Indenture). 5. Interest (including accrued original issue discount) on the 2011 Bonds is not includable in gross income for purposes of federal income taxation under existing statutes, regulations, rulings, and court decisions. The opinion set forth in the preceding sentence is subject to the condition that the Authority comply with all applicable federal income tax law requirements that must be satisfied subsequent to the issuance of the 2011 Bonds in order that interest thereon continues to be excluded from gross income for purposes of federal income taxation. Failure to comply with certain of such requirements could cause the interest on the 2011 Bonds to be includable in gross income retroactive to the date of issuance of the 2011 Bonds. The Authority has covenanted to comply with all such requirements. Interest on the 2011 Bonds is not treated as an item of tax preference under Section 57 of the Internal Revenue Code of 1986, as amended (the "Code") for purposes of the individual and corporate alternative minimum taxes; however, we call to your attention that under the Code, to the extent that interest on the 2011 Bonds is a component of a corporate holder's "adjusted current earnings", a portion of that interest may be subject to the corporate alternative minimum tax. 6. Under the laws of the Commonwealth of Pennsylvania, as enacted and construed on the date hereof, the 2011 Bonds and the interest thereon are free from taxation for state and local purposes within the Commonwealth of Pennsylvania, but such exemption does not extend to gift, inheritance, succession or estate taxes or any other taxes not levied or assessed directly on the 2011 Bonds or the interest thereon. B-2

83 The rights of the owners of the 2011 Bonds and the enforceability of the 2011 Bonds are limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting creditors rights generally, and by equitable principles, whether considered at law or in equity. We express no opinion herein regarding the accuracy, adequacy, or completeness of the Official Statement dated August 4, 2011, relating to the 2011 Bonds. This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. B-3

84 [ THIS PAGE INTENTIONALLY LEFT BLANK ]

85 APPENDIX C FORM OF CONTINUING DISCLOSURE AGREEMENT CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the Disclosure Agreement ) is executed and delivered as of August 1, 2011, by and between the SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY (the Authority ) and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as dissemination agent (the Dissemination Agent ). WITNESSETH: WHEREAS, the Authority is issuing its $201,615,000 Capital Grant Receipts Bonds, Series 2011 (Federal Transit Administration Section 5309 Fixed Guideway Modernization Formula Funds) (the Bonds ) pursuant to a Bond Purchase Agreement dated August 4, 2011 by and between the Authority and Citigroup Global Markets Inc., for itself and on behalf of various participating underwriters (collectively, the Underwriters ); and WHEREAS, in connection with the issuance of the bonds, the Authority has delivered its Official Statement dated August 4, 2011 (the Official Statement ); and WHEREAS, Rule 15c2-12 promulgated under the Securities Exchange Act of 1934, as amended (the Rule ), provides that a Participating Underwriter (as defined in the Rule) shall not purchase or sell municipal securities in connection with an Offering (as defined in the Rule) unless the Participating Underwriter has reasonably determined that an issuer of municipal securities, or an obligated person for whom financial or operating data is presented in the final official statement has undertaken, either individually or in combination with other issuers of such municipal securities or obligated persons, in a written agreement or contract for the benefit of holders of such securities, to provide, either directly or indirectly through an indenture trustee or a designated agent, certain specified financial information and operating data and notices of certain material events; and WHEREAS, the Authority currently is the only obligated person with respect to the Bonds for purposes of the Rule; and WHEREAS, in order to enable the Underwriters to comply with the requirements of the Rule, the Authority, as such obligated person, agrees to undertake to provide the information and notices required by the Rule. NOW, THEREFORE, in consideration of the premises, the Authority, intending to be legally bound hereby, agrees as follows: Section 1. Covenants of the Authority. The Authority covenants to comply with all requirements of the Rule in furtherance of the foregoing and without limiting the generality thereof: C-1

86 (a) So long as any of the Bonds are outstanding, the Authority shall deliver to the Dissemination Agent in such format as is required by the Rule and the Municipal Securities Rulemaking Board ( MSRB ), and in sufficient time to allow the Dissemination Agent to file (a) within 240 days after the end of each fiscal year of the Authority (the Annual Financials Filing Date ), commencing with the fiscal year ending June 30, 2011 updates of the information and supporting schedules contained in the Official Statement under the captions THE AUTHORITY -- Financial Operating Performance, and (b) by July 1 of each year (together with the Annual Financials Filing Date, the Filing Date ) commencing July 1, 2012, updates of the information and supporting schedules in the Official Statement under the captions SECTION 5309 GRANT REVENUE PROGRAM -- Authority Participation in Section 5309 Grant Revenue Program. (The foregoing annual disclosures being hereinafter referred to as the Annual Disclosure ): If any of the tables listed in the above references sections of the Official Statement reflect information that is no longer calculated and available or relevant because of changes in operations, the Authority will provide notice of such change in the first annual disclosure filing after such changes are undertaken. The format of the tables may also be altered. (b) The Dissemination Agent shall promptly upon receipt thereof file the reports described in paragraph (a) with MSRB, through MSRB s Electronic Municipal Market Access System ( ( EMMA ) or through alternate means as so provided by MSRB. (c) If the Dissemination Agent has not received the Annual Disclosure by 12:00 noon on the first business day following the applicable Filing Date for such report, the Authority irrevocably directs the Dissemination Agent to immediately file a notice with MSRB, through EMMA or through alternate means as so provided by MSRB, of such failure. (d) The Authority shall, in a timely manner (but in no event later than the date necessary to enable the Dissemination Agent to file with MSRB, as hereinafter provided, within ten (10) business days after the occurrence of the event), deliver to the Dissemination Agent notice, in such format as is required by the Rule and MSRB, of any of the following events with respect to the Bonds (each a "Reportable Event"), and the Dissemination Agent shall, immediately upon receipt of the Authority's notice, file with MSRB through EMMA (or through alternate means as so provided by MSRB) notice of the occurrence of any of such events: (i) Principal and interest payment delinquencies; (ii) Non-payment related defaults, if material; (iii) Unscheduled draws on debt service reserves reflecting financial difficulties; (iv) Unscheduled draws on credit enhancements reflecting financial difficulties; (v) Substitution of credit or liquidity providers, or their failure to perform; (vi) Adverse tax opinions, the issuance by the IRS of proposed or final determinations of taxability, Notices of Proposed Issue or other material notices or determinations with respect to the tax status of the Bonds or events affecting the tax-exempt status of the Bonds; C-2

87 Bonds, if material; (vii) Modifications to rights of bond holders, if material; (viii) Bond calls, if material and tender offers; (ix) Defeasances; (x) Release, substitution or sale of property securing repayment of the (xi) Rating changes; (xii) Bankruptcy, insolvency, receivership or similar event of the obligated person;* (xiii) The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (xiv) Appointment of a successor or additional trustee for the Bonds or the change of name of a trustee, if material. (e) The Authority agrees to provide information required in subsection (a) or (d) above for all persons who are determined by it to be Obligated Persons under the Rule. (f) The Authority agrees that the provisions of this Section 1 shall be for the benefit of the holders and beneficial owners of the Bonds, and shall be enforceable by any holders or beneficial owners of the Bonds, or by the Dissemination Agent on their behalf, in accordance with the provisions of Section 4 herein. Section 2. Duties of Dissemination Agent. (a) The Dissemination Agent shall retain copies, which may be in electronic or digital format, of all annual information and notices of Reportable Events provided by the Authority hereunder until all of the Bonds have been fully paid. (b) The Dissemination Agent shall have no responsibility or liability in connection with the Authority s filing obligations under this Disclosure Agreement. The Dissemination Agent shall have only those duties specifically set forth in this Disclosure Agreement and no other duties shall be implied. The Authority agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents (collectively, the Indemnitees ), from and against any and all claims, liabilities, losses, damages, fines, penalties, and expenses, including out-of-pocket expenses, incidental expenses, legal fees and expenses, the allocated costs and expenses of in-house counsel and legal staff and the costs and expenses of * This event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. C-3

88 defending or preparing to defend against any claim ( Losses ) that may be imposed on, incurred by, or asserted against, the Indemnitees or any of them for following any instruction or other direction upon which the Dissemination Agent is authorized to rely pursuant to the terms of this Disclosure Agreement. In addition to and not in limitation of the immediately preceding sentence, the Authority also covenants and agrees to indemnify and save the Indemnitees and each of them harmless from and against any and all Losses that may be imposed on, incurred by, or asserted against the Indemnitees or any of them in connection with or arising out of the Dissemination Agent s performance under this Disclosure Agreement provided the Dissemination Agent has not acted with gross negligence or in violation of this Disclosure Agreement or engaged in willful misconduct. The provisions of this Section 2(b) shall survive the termination of this Disclosure Agreement and the resignation or removal of the Dissemination Agent for any reason. Anything in this Disclosure Agreement to the contrary notwithstanding, in no event shall the Dissemination Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Dissemination Agent has been advised of the likelihood of such loss or damage and regardless of the form of action. This Section 2 shall survive the termination of this Disclosure Agreement. Section 3. Termination of Reporting Obligations. The Authority s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If the Authority s obligations with respect to the payment of the Bonds are assumed in full by some other entity, such other entity shall be responsible for compliance with this Disclosure Agreement in the same manner as if it were the Authority s, and the Authority shall have no further responsibility hereunder, except as provided in Section 7 hereof. In addition, the Authority s obligation to provide information and notices as specified in Section 1 hereof shall terminate (i) at such other times as such information and notices (or any portion thereof) are no longer required to be provided by the Rule as it applies to the Bonds, (ii) in the event of a repeal or rescission of the Rule or (iii) upon a determination that the Rule is invalid or unenforceable. Section 4. Amendment. The Authority and the Dissemination Agent may amend this Disclosure Agreement and waive any of the provisions hereof, but no such amendment or waiver shall be executed and effective unless (i) the amendment or waiver is made in connection with a change in legal requirements, change in law or change in the identity, nature or status of the Authority or the operations conducted by the Authority, (ii) this Disclosure Agreement, as modified by the amendment or waiver complies with the requirements of the Rule, and (iii) the amendment or waiver does not materially impair the interests of the beneficial Owners of the Bonds. Prior to executing any requested amendment, the Authority shall provide an opinion of counsel knowledgeable in federal securities laws to the effect that the proposed amendment satisfies the requirements described above. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Authority shall describe such amendment in its next annual report delivered pursuant to Section 1(a) hereof, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the financial information or operating data being presented by the Authority. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements (i.e., changes other than those prescribed by generally accepted accounting principles), (i) notice of such change shall be given pursuant to the Reportable Event notice requirements as set forth in this C-4

89 Disclosure Agreement; and (ii) the annual report for the year in which the change is made will present a comparison 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. To the extent that the Rule requires or permits an approving vote of beneficial owners of the Bonds in connection with an amendment, the approving vote of beneficial owners of Bonds constituting more than 50% of the aggregate principal amount of the then outstanding Bonds shall constitute such approval. The Authority shall direct the Dissemination Agent to provide notice of any amendment to this Disclosure Agreement to MSRB and to the registered holders of the Bonds. Section 5. Remedies for Default. In the event of a breach or default by the Authority of its covenants to provide annual financial information and notices as provided in Section 1 hereof, the Dissemination Agent, the Underwriter, or any holder or beneficial owner of Bonds shall have the right to bring an action in a court of competent jurisdiction to compel specific performance by the Authority. A breach or default under this Disclosure Agreement shall not constitute an event of default under the Bonds or any other agreement. The Dissemination Agent shall be under no obligation to enforce this Disclosure Agreement but may do so and may require that it be furnished with indemnity and security for expenses satisfactory to it. Section 6. Electronic Filing Authorized. All filings with MSRB pursuant to this Disclosure Agreement; (a) shall be made in an electronic format as prescribed by MSRB; and (b) shall be accompanied by identifying information as prescribed by MSRB. Reference is made to Commission Release No , dated December 8, 2008 (the Release ), relating to EMMA. To the extent applicable to its obligations pursuant to this Disclosure Agreement, the Authority shall comply with the Release and with EMMA. Unless and until otherwise prescribed by MSRB, all documents provided to MSRB in compliance with this Disclosure Agreement shall be submitted through EMMA in the format prescribed by MSRB. Section 7. Miscellaneous. (a) Binding Nature of Undertaking. This Disclosure Agreement shall be binding upon and inure to the benefit of the Underwriters, and their respective successors and assigns. In addition, registered owners of the Bonds, which for the purposes of this Section 7 includes the holders of a book-entry credit evidencing an interest in the Bonds, from time to time shall be third party beneficiaries hereof and shall be entitled to enforce the provisions hereof as if they were parties hereto; but no consent of beneficial owners of the Bonds shall be required in connection with any amendment of this Disclosure Agreement, except as required by the Rule. Holders of book-entry credits evidencing an interest in the Bonds may file their names and addresses with the Authority for the purposes of receiving notices or giving direction under this Disclosure Agreement. (b) Notices. Except with respect to the electronic submission of information to MSRB through EMMA, as permitted by this Disclosure Agreement, all notices and other communications required or permitted under this Disclosure Agreement shall be in writing and shall be deemed to have been duly given, made and received only when delivered (personally, by recognized national or regional courier service, or by other messenger, for delivery to the intended addressee) or when deposited in the United States mail, registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below: C-5

90 If to the Dissemination Agent: The Bank of New York Mellon Trust Company, N.A. Attention: Global Corporate Trust - Public Finance 1600 Market Street Suite 1500 Philadelphia, PA If to the Authority: Southeastern Pennsylvania Transportation Authority 1234 Market Street Philadelphia, PA Attention: Treasurer/CFO Facsimile No.: (215) If to MSRB: Municipal Services Rulemaking Board 1900 Duke Street Suite 600 Alexandria, VA Attn: CDI Telecopy No. (203) Any party may alter the address to which communications are to be sent by giving notice of such change of address in conformity with the provisions of this Section. (c) Controlling Law. This Disclosure Agreement and all questions relating to its validity, interpretation, performance and enforcement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania and the Rule. (d) Successor and Assigns. Notwithstanding anything herein to the contrary, any successor trustee under the Indenture (as defined in the Official Statement) shall automatically succeed to the rights of the Dissemination Agent under this Disclosure Agreement. Signatures follow on next page. C-6

91 IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written. SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY By: James C. Schwartzman Vice Chairman THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. By: Authorized Signatory C-7

92 [ THIS PAGE INTENTIONALLY LEFT BLANK ]

93