SUPPLEMENT TO OFFICIAL STATEMENT DATED SEPTEMBER 4, 2008 $289,150,000 LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY

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1 SUPPLEMENT TO OFFICIAL STATEMENT DATED SEPTEMBER 4, 2008 $289,150,000 LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY $65,700,000 Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2008-A1 $65,750,000 Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2008-A3 $65,800,000 Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2008-A2 $65,825,000 Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2008-A4 $26,075,000 Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2008-B This Supplement to the Official Statement (this Supplement ) supplements the Official Statement dated September 4, 2008 (the Official Statement ) with respect to the above-referenced bonds. This Supplement constitutes an integral part of the Official Statement and recipients are requested to attach this Supplement to the Official Statement. This Supplement should be read in conjunction with the Official Statement. All capitalized terms not defined herein shall have the meanings set forth in the Official Statement. The following discussion of recent developments affecting Bank of America is added to the end of the caption entitled THE LIQUIDITY FACILITIES FOR THE SERIES 2008-A BONDS AND THE LIQUIDITY PROVIDERS Bank of America appearing on pages 47 and 48 of the Official Statement: Recent Developments: On September 15, 2008, the Corporation and Merrill Lynch & Co., Inc. ( Merrill Lynch ) entered into an Agreement and Plan of Merger, dated as of September 15, 2008 (the Merger Agreement ). Under the terms of the Merger Agreement, the Corporation would exchange.8595 shares of Corporation common stock for each Merrill Lynch common share. The transaction is expected to close in the first quarter of It has been approved by directors of both companies and is subject to shareholder votes at both companies and standard regulatory approvals. 1

2 Additional information regarding the foregoing is available from the filings made by the Corporation with the SEC, which filings can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C , United States, at prescribed rates. In addition, the SEC maintains a website at which contains reports, proxy statements and other information regarding registrants that file such information electronically with the SEC. The information concerning the Corporation, Bank of America and the foregoing merger is furnished solely to provide limited introductory information and does not purport to be comprehensive. Such information is qualified in its entirety by the detailed information appearing in the documents and financial statements referenced herein. The Series 2008-A1 and Series 2008-A2 Liquidity Facility will be issued by Bank of America. As of September 15, 2008, Moody s Investors Service, Inc. ( Moody s ) currently rates Bank of America s long-term debt as Aaa and short-term debt as P-1. The outlook is stable. Standard & Poor s currently rates Bank of America s long-term debt as AA and its short-term debt as A-1+. The outlook is negative. Fitch Ratings, Inc. ( Fitch ) currently rates long-term debt of Bank of America as AA- and short-term debt as F1+. The outlook is stable. Further information with respect to such ratings may be obtained from Moody s, Standard & Poor s and Fitch, respectively. No assurances can be given that the current ratings of Bank of America s instruments will be maintained. Dated: September 17, 2008 LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY By: /s/ Roger Snoble Chief Executive Officer 2

3 NEW ISSUE BOOK-ENTRY ONLY RATINGS: See RATINGS herein. In the opinion of Bond Counsel, under existing law and assuming compliance with the tax covenants described herein, and the accuracy of certain representations and certifications made by the LACMTA described herein, interest on the Series 2008 Bonds is excluded from gross income for Federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the Code ). Bond Counsel is also of the opinion that such interest is not treated as a preference item in calculating the alternative minimum tax imposed under the Code with respect to individuals and corporations. Interest on the Series 2008 Bonds is, however, included in the adjusted current earnings of certain corporations for purposes of computing the alternative minimum tax imposed on such corporations. Bond Counsel is further of the opinion that interest on the Series 2008 Bonds is exempt from personal income taxes of the State of California under present state law. See TAX MATTERS herein regarding certain other tax considerations. $65,700,000 Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2008-A1 $65,750,000 Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2008-A3 $289,150,000 LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY $65,800,000 Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2008-A2 $65,825,000 Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2008-A4 $26,075,000 Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2008-B Dated: Date of Delivery Due: July 1, As Shown on Inside Cover The Los Angeles County Metropolitan Transportation Authority Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds, Series 2008-A1, Series 2008-A2, Series 2008-A3, Series 2008-A4 and Series 2008-B, are special obligations of the Los Angeles County Metropolitan Transportation Authority (the LACMTA ) payable from and secured by a first lien on and pledge of the Pledged Revenues (which includes the receipts from the imposition in the County of Los Angeles for public transit purposes of a one-half cent retail transactions and use tax, less 25% thereof paid to local jurisdictions and certain administrative fees) and by certain other amounts held under the Agreement. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2008 BONDS herein. The proceeds of the Series 2008 Bonds will be used by the LACMTA to (a) current refund the Refunded Bonds; (b) make a deposit to the Reserve Fund and to pay the premium for the municipal bond debt service reserve insurance policy to be provided by Financial Security Assurance Inc.; and (c) pay the costs associated with issuing the Series 2008 Bonds. Capitalized terms used but not defined on this cover page are defined herein. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE COUNTY OF LOS ANGELES, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION OR PUBLIC AGENCY THEREOF, OTHER THAN THE LACMTA TO THE EXTENT OF THE PLEDGED REVENUES, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL AND PURCHASE PRICE OF AND INTEREST ON THE SERIES 2008 BONDS. THE LACMTA HAS NO POWER TO LEVY PROPERTY TAXES TO PAY THE PRINCIPAL OR PURCHASE PRICE OF OR INTEREST ON THE SERIES 2008 BONDS. The Series 2008-A Bonds will initially bear interest in the Weekly Mode as described herein. The interest rate on each series of the Series 2008-A Bonds may be converted, at the option of the LACMTA and subject to the conditions described herein, to an ARS Rate, a Daily Rate, a Flexible Interest Rate, a Term Interest Rate or a Fixed Interest Rate, in which event such series of Series 2008-A Bonds will be subject to mandatory tender (except in the case of a conversion to a Daily Rate, unless such conversion is accompanied by an Alternate Liquidity Facility). Interest on the Series 2008-A Bonds in the Weekly Mode will be payable on the first Business Day of each calendar month commencing October 1, The maximum interest rate on the Series 2008-A Bonds will be 12% per annum; provided that the maximum interest rate on Liquidity Provider Bonds (as defined herein) will be the maximum rate set forth in the applicable Liquidity Facility. This Official Statement describes the Series 2008-A Bonds only while bearing interest at a Daily Rate or a Weekly Rate. There are significant differences in the terms of the Series 2008-A Bonds bearing interest at other rates. This Official Statement is not intended to provide information with respect to the Series 2008-A Bonds bearing interest at a rate other than a Daily Rate or a Weekly Rate. The Series 2008-B Bonds will bear interest at the rates set forth on the inside cover. Interest on the Series 2008-B Bonds will be payable on January 1 and July 1, commencing January 1, The Series 2008 Bonds are subject to optional and mandatory redemption, and the Series 2008-A Bonds are subject to optional and mandatory tender and purchase prior to maturity, as described herein. The Series 2008-B Bonds are not subject to optional or mandatory tender and purchase. The Series 2008 Bonds will be issued only in book-entry form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). Purchasers will not receive certificates from the LACMTA or The Bank of New York Mellon Trust Company, N.A., as trustee for the Series 2008 Bonds (the Trustee ) representing their interest in the Series 2008 Bonds. So long as the Series 2008 Bonds are held by DTC, payments of principal and purchase price of and interest on the Series 2008 Bonds will be paid by the Trustee to DTC for subsequent disbursements to DTC participants for remittance to beneficial owners of the Series 2008 Bonds, as more fully described herein. Payment of the purchase price of tendered Series 2008-A1 Bonds and Series 2008-A2 Bonds bearing interest at a Daily Rate or a Weekly Rate is payable from the proceeds of remarketing of such Series 2008-A1 Bonds or Series 2008-A2 Bonds (as applicable) and, to the extent remarketing proceeds are insufficient, initially from amounts available under a standby bond purchase agreement by and among the LACMTA, The Bank of New York Mellon Trust Company, N.A., as tender agent under the Twenty-Eighth Supplemental Agreement (the Tender Agent ), and Bank of America, N.A., and thereafter from such Alternate Liquidity Facility as may be obtained by the LACMTA to provide for the payment of the purchase price of the Series 2008-A1 Bonds and/or the Series 2008-A2 Bonds. The initial Series 2008-A1 and Series 2008-A2 Liquidity Facility terminates on September 16, Payment of the purchase price of tendered Series 2008-A3 Bonds and Series 2008-A4 Bonds bearing interest at a Weekly Rate is payable from the proceeds of remarketing of such Series 2008-A3 Bonds or Series 2008-A4 Bonds (as applicable) and, to the extent remarketing proceeds are insufficient, initially from amounts available under a standby bond purchase agreement by and among the LACMTA, the Trustee, the Tender Agent and Dexia Crédit Local, acting by and through its New York Branch, and thereafter from such Alternate Liquidity Facility as may be obtained by the LACMTA to provide for the payment of the purchase price of the Series 2008-A3 Bonds and/or the Series 2008-A4 Bonds. The initial Series 2008-A3 and Series 2008-A4 Liquidity Facility terminates on September 16, The obligations of Bank of America and Dexia to purchase Series 2008-A Bonds tendered by the owners thereof and subject to mandatory purchase may be terminated or suspended without notice. In such event, sufficient funds may not be available to purchase Series 2008-A Bonds tendered by the registered owners thereof or subject to mandatory purchase. The Liquidity Facilities do not guaranty the payment of the principal of or interest on the Series 2008-A Bonds in the event of non-payment of such principal or interest by the LACMTA. This cover page is not intended to be a summary of the Series 2008 Bonds or the security thereof. Investors are advised to read this Official Statement in its entirety to obtain information essential to making of an informed investment decision. The Series 2008 Bonds will be offered when, as and if issued by the LACMTA, and received by the Underwriters, subject to the approval as to their legality by Nixon Peabody LLP, Bond Counsel to the LACMTA. Certain legal matters will be passed upon for the LACMTA by the Los Angeles County Counsel, as General Counsel to the LACMTA, and by Nixon Peabody LLP, Disclosure Counsel. Certain legal matters will be passed upon for the Underwriters by their counsel, Kutak Rock LLP, Denver, Colorado, for Bank of America by its counsel, White & Case LLP, and for Dexia by its counsel, Kutak Rock LLP, Atlanta, Georgia. It is expected that the Series 2008 Bonds in book-entry form will be available for delivery through the DTC book-entry system on or about September 19, De La Rosa & Co. Underwriter and Remarketing Agent for the Series 2008-A1 Bonds and Underwriter for the Series 2008-B Bonds Dated: September 4, Goldman, Sachs & Co. Underwriter and Remarketing Agent for the Series 2008-A2 Bonds Morgan Stanley & Co. Incorporated Underwriter and Remarketing Agent for the Series 2008-A3 and Series 2008-A4 Bonds

4 MATURITY DATES, PRINCIPAL AMOUNTS, INTEREST RATES, PRICES AND CUSIP NUMBERS $263,075,000 LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2008-A Series Principal Amount Maturity Date Price CUSIP No. 1 Series 2008-A1 $65,700,000 July 1, % K76 Series 2008-A2 65,800,000 July 1, G97 Series 2008-A3 65,750,000 July 1, K84 Series 2008-A4 65,825,000 July 1, K92 $26,075,000 LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2008-B $21,050,000 Serial Bonds Maturity Date (July 1) Principal Amount Interest Rate Price CUSIP No $ 550, % % H , H , H , H , H , H , H , H , J ,005, J ,045, C J ,090, C J ,130, J ,180, J ,225, C J ,285, J ,340, K ,400, K ,460, K ,525, K50 $5,025, % Series 2008-B Term Bonds due July 1, Price % C; CUSIP No K Copyright 2008, American Bankers Association. CUSIP data is provided by Standard and Poor's, CUSIP Services Bureau, a Division of The McGraw-Hill Companies Inc. CUSIP numbers are provided only for the convenience of the reader. Neither the LACMTA nor the Underwriters undertake any responsibility for the accuracy for such CUSIP numbers or for any changes or errors in this list of CUSIP numbers. C Priced to call date of July 1, 2018.

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7 LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY Board Members Antonio R. Villaraigosa, Chair Don Knabe, First Vice Chair Ara Najarian, Second Vice Chair Michael D. Antonovich Yvonne Brathwaite Burke John Fasana David W. Fleming Richard Katz Bonnie Lowenthal Gloria Molina Pam C. O Connor Bernard Parks Zev Yaroslavsky Douglas R. Failing, Non-Voting Member LACMTA Officers Roger Snoble, Chief Executive Officer Terry Matsumoto, Chief Financial Services Officer and Treasurer LACMTA GENERAL COUNSEL Office of the County Counsel Los Angeles, California BOND COUNSEL AND DISCLOSURE COUNSEL Nixon Peabody LLP Los Angeles, California VERIFICATION AGENT Grant Thornton LLP Minneapolis, Minnesota FINANCIAL ADVISOR Public Financial Management, Inc. Los Angeles, California TRUSTEE AND ESCROW AGENT The Bank of New York Mellon Trust Company, N.A. Los Angeles, California

8 No dealer, broker, salesperson or other person has been authorized by the LACMTA or the Underwriters to give any information or to make any representations in connection with the offer or sale of the Series 2008 Bonds other than as set forth herein and, if given or made, such other information or representation must not be relied upon as having been authorized by the LACMTA or the Underwriters. 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 Series 2008 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers or owners of the Series 2008 Bonds. Statements contained in this Official Statement which involve estimates, projections or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of facts. See INTRODUCTION Forward-Looking Statements. 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 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. 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 LACMTA since the date hereof. This Official Statement is submitted in connection with the sale of the Series 2008 Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE LACMTA AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE SERIES 2008 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAS THE AGREEMENT (AS DEFINED HEREIN) BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXCEPTIONS CONTAINED IN SUCH ACTS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL, STATE OR OTHER GOVERNMENTAL ENTITY, NOR ANY AGENCY OR DEPARTMENT THEREOF, HAS PASSED UPON THE MERITS OF THE SERIES 2008 BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. THE SERIES 2008 BONDS HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. CUSIP data is provided by Standard and Poor s, CUSIP Service Bureau. CUSIP data herein are set forth herein for convenience of reference only. The LACMTA and the Underwriters assume no responsibility for the accuracy of such CUSIP data or for any changes or errors in this list of CUSIP numbers. ii

9 TABLE OF CONTENTS INTRODUCTION...1 The LACMTA...1 Purpose of the Series 2008 Bonds...2 Description of the Series 2008 Bonds...2 Redemption, Tender and Purchase of the Series 2008 Bonds...3 Security for the Series 2008 Bonds...3 Reserve Fund for the Series 2008 Bonds...4 Liquidity Facilities for the Series 2008-A Bonds...4 The Series 2008 Bonds Solely Debt of the LACMTA...5 Existing Proposition A Sales Tax Obligations...5 Additional Proposition A Obligations...5 Continuing Disclosure Certificate...6 Forward-Looking Statements...6 Reference to Documents and Definitions...6 PLAN OF REFUNDING AND APPLICATION OF SERIES 2008 BOND PROCEEDS...6 Use of Proceeds; Refunding Plan...6 Sources and Uses of Funds...7 DESCRIPTION OF THE SERIES 2008 BONDS...7 General...7 Determination of Interest Rates for Series 2008-A Bonds...8 Conversion of Series 2008-A Bonds to Other Interest Rate Modes...9 Optional Tender of Series 2008-A Bonds...10 Mandatory Tender for Purchase of Series 2008-A Bonds...10 Remarketing of Series 2008-A Bonds...11 Certain Considerations Related to the Remarketing Agents...12 Draws on the Liquidity Facilities for the Series 2008-A Bonds...13 Optional Redemption...14 Mandatory Sinking Fund Redemption...14 Mandatory Redemption of Liquidity Provider Bonds...16 Selection of Series 2008 Bonds to be Redeemed; Notice of Redemption...17 Effect of Redemption...17 BOOK-ENTRY-ONLY SYSTEM...17 Introduction...17 General...18 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2008 BONDS...20 General...20 The Proposition A Sales Tax...21 Initiatives and Changes to Proposition A Sales Tax...23 Flow of Funds...24 Reserve Fund for First Tier Senior Lien Bonds...27 Liquidity Facilities for Series 2008-A Bonds...30 Alternate Liquidity Facilities for the Series 2008-A Bonds...30 PROPOSITION A SALES TAX COLLECTIONS...31 PROPOSITION A SALES TAX OBLIGATIONS...31 iii

10 General...31 Debt Service Coverage...32 Outstanding Proposition A Sales Tax Obligations...32 Impact of Bond Insurer Rating Downgrades on the LACMTA s Auction Rate Securities and Variable Rate Demand Bonds...36 Additional First Tier Senior Lien Bonds...36 COMBINED DEBT SERVICE SCHEDULE...38 THE LIQUIDITY FACILITIES FOR THE SERIES 2008-A BONDS AND THE LIQUIDITY PROVIDERS...39 The Series 2008-A1 and Series 2008-A2 Liquidity Facility...39 Bank of America...47 The Series 2008-A3 and Series 2008-A4 Liquidity Facility...48 Dexia...54 THE LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY...55 General...55 Board of Directors...55 Management...58 Public Transportation Services Corporation...58 Rapid Transit System...59 Future Transportation Improvements...63 Labor Relations...64 Defined Benefit Pension Plan...64 Other Post-Employment Benefits...65 Enterprise Fund...66 Debt Policy...66 Interest Rate Swap Policy...66 Proposition C Sales Tax Obligations...67 Other Obligations...69 Excise Tax on Lease/Leaseback Transactions...70 LITIGATION...70 Sales Tax Litigation...70 Fare Increase Litigation...70 Construction Litigation...71 Other Litigation...71 INVESTMENT POLICY...71 General...71 Investment Balances...71 LEGAL MATTERS...72 TAX MATTERS...73 Federal Income Taxes...73 State Taxes...73 Original Issue Discount...73 Original Issue Premium...73 Ancillary Tax Matters...74 Changes in Law and Post Issuance Events...74 iv

11 UNDERWRITING...75 FINANCIAL ADVISOR...75 FINANCIAL STATEMENTS...75 CONTINUING DISCLOSURE OBLIGATION...76 VERIFICATION OF MATHEMATICAL COMPUTATIONS...76 RATINGS...76 ADDITIONAL INFORMATION...78 APPENDIX A SUMMARY OF LEGAL DOCUMENTS... A-1 APPENDIX B LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY GENERAL PURPOSE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, B-1 APPENDIX C FORM OF BOND COUNSEL APPROVING OPINION... C-1 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE... D-1 v

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13 OFFICIAL STATEMENT $ 289,150,000 LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY $65,700,000 Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2008-A1 $65,800,000 Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2008-A2 $65,750,000 Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2008-A3 $26,075,000 Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2008-B $65,825,000 Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds Series 2008-A4 INTRODUCTION This Official Statement, which includes the cover page and the appendices hereto, sets forth certain information in connection with the offering of Los Angeles County Metropolitan Transportation Authority Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds, Series 2008-A1 (the Series 2008-A1 Bonds ) in an aggregate principal amount of $65,700,000, Series 2008-A2 (the Series 2008-A2 Bonds ) in an aggregate principal amount of $65,800,000, Series 2008-A3 (the Series 2008-A3 Bonds ) in an aggregate principal amount of $65,750,000, Series 2008-A4 (the Series 2008-A4 Bonds and together with the Series 2008-A1 Bonds, the Series 2008-A2 Bonds and the Series 2008-A3 Bonds, the Series 2008-A Bonds ) in an aggregate principal amount of $65,825,000, and Series 2008-B (the Series 2008-B Bonds and together with the Series 2008-A Bonds, the Series 2008 Bonds ) in an aggregate principal amount of $26,075,000, all to be issued by the Los Angeles County Metropolitan Transportation Authority (the LACMTA ). This introduction is not a summary of this Official Statement. It is only a brief description of, and is qualified by, more complete and detailed information contained in the entire Official Statement and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Series 2008 Bonds to potential investors is made only by means of the entire Official Statement. See APPENDIX A SUMMARY OF LEGAL DOCUMENTS DEFINITIONS for definitions of certain words and terms used herein. The LACMTA The LACMTA was established in 1993, pursuant to the provisions of Section et seq. of the California Public Utilities Code (the LACMTA Act ), as a consolidated successor entity to the Southern California Rapid Transit District (the District ) and the Los Angeles County Transportation Commission (the Commission ). The LACMTA succeeded to all powers, duties, rights, obligations, liabilities, indebtedness, bonded or otherwise, immunities and exemption of the Commission and the District, including the Commission s responsibility for planning, engineering and constructing a county-wide rail transit system. The Commission was authorized, subject to approval by the electorate of the County of Los Angeles (the County ), to adopt a retail transactions and use tax ordinance, with the revenues of such tax to be used for public transit purposes. On November 4, 1980, the voters of the County approved the Proposition A Sales Tax

14 (as defined herein). AUTHORITY. See THE LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION Purpose of the Series 2008 Bonds The proceeds of the Series 2008 Bonds will be used by the LACMTA to (a) refund all of its outstanding Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds, Series 2005-C1, Series 2005-C2, Series 2005-C3 and Series 2005-C4 (the Refunded Bonds ), of which $263,075,000 aggregate principal amount is currently outstanding; (b) make a deposit to the Reserve Fund described herein under the heading SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2008 BONDS Reserve Fund for the First Tier Senior Lien Bonds and to pay the premium for the FSA Reserve Policy (defined below under Reserve Fund for the Series 2008 Bonds ); and (c) pay the costs associated with issuing the Series 2008 Bonds. See PLAN OF REFUNDING AND APPLICATION OF SERIES 2008 BOND PROCEEDS. Description of the Series 2008 Bonds The Series 2008 Bonds will be dated as of their date of initial delivery and will be issued in registered form in Authorized Denominations. The Series 2008-A Bonds will mature on July 1, 2031 and will initially bear interest in the Weekly Mode as described herein. The interest rate on each series of the Series 2008-A Bonds may be converted, at the option of the LACMTA and subject to the conditions described herein, to an ARS Rate, a Daily Rate, a Flexible Interest Rate, a Term Interest Rate or a Fixed Interest Rate, as described herein, in which event such series of Series 2008-A Bonds will be subject to mandatory tender as described herein (except in the case of a conversion to a Daily Rate, unless such conversion is accompanied by an Alternate Liquidity Facility). Interest on the Series 2008-A Bonds in Weekly Mode will be payable on the first Business Day of each calendar month commencing on October 1, The maximum interest rate on the Series 2008-A Bonds will be 12% per annum; provided that the maximum interest rate with respect to Liquidity Provider Bonds (as defined herein) will be the maximum rate set forth in the applicable Liquidity Facility. Interest on the Series 2008-A Bonds shall be computed on the basis of a 365 or 366-day year, for the actual number of days elapsed. This Official Statement describes the terms of the Series 2008-A Bonds while they bear interest at a Daily Rate or a Weekly Rate. There are significant differences in the terms of the Series 2008-A Bonds bearing interest at other rates. This Official Statement is not intended to provide information with respect to the Series 2008-A Bonds bearing interest at rates other than a Daily Rate or a Weekly Rate. The Series 2008-B Bonds will mature and will bear interest at the rates per annum shown on the inside cover page hereof, computed on the basis of a 360-day year and twelve 30-day months. The Series 2008 Bonds will be delivered in book-entry only form and, when delivered, the Series 2008 Bonds 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 for the Series 2008 Bonds. See BOOK-ENTRY-ONLY SYSTEM. So long as Cede & Co. is the registered Owner of the Series 2008 Bonds, principal and purchase price of and interest on the Series 2008 Bonds are payable to Cede & Co. by wire transfer by the Trustee for subsequent disbursement to the Beneficial Owners. See DESCRIPTION OF THE SERIES 2008 BONDS and APPENDIX A SUMMARY OF LEGAL DOCUMENTS for additional information with respect to the Series 2008 Bonds. 2

15 Redemption, Tender and Purchase of the Series 2008 Bonds The Series 2008 Bonds are subject to optional and mandatory sinking fund redemption prior to maturity. See DESCRIPTION OF THE SERIES 2008 BONDS Optional Redemption and Mandatory Sinking Fund Redemption. In addition, the Owners of any Series 2008-A Bonds bearing interest at a Weekly Rate or Daily Rate may elect to have their respective Series 2008-A Bonds purchased on any Business Day, by providing notice by 11:00 a.m., New York City time, on that Business Day (in the case of Series 2008-A Bonds in the Daily Mode) or by providing seven days notice (in the case of Series 2008-A Bonds in the Weekly Mode), at a price equal to the principal amount thereof plus accrued interest, if any. See DESCRIPTION OF THE SERIES 2008 BONDS Optional Tender of Series 2008-A Bonds. Each series of Series 2008-A Bonds is subject to mandatory tender for purchase at a purchase price equal to the principal amount thereof plus accrued interest, if any, on (i) any Mode Change Date (except a change in Mode between the Daily Mode and the Weekly Mode) or any date on which the applicable Series 2008-A Bonds are converted to bear interest at auction rates, (ii) the scheduled date of replacement of the applicable Liquidity Facility then in effect with an Alternate Liquidity Facility (a Substitution Date ), (iii) the fifth Business Day prior to the expiration of the applicable Liquidity Facility or Alternate Liquidity Facility (other than as a result of an Automatic Termination Event), (iv) the date specified by the Trustee following the occurrence of an event of default (other than an Automatic Termination Event) under the applicable Liquidity Facility or Alternate Liquidity Facility, which date shall be a Business Day not more than 25 nor less than 20 days after the Trustee s receipt of notice of such event of default from the applicable Liquidity Provider and in no event later than the day preceding the termination date specified by the applicable Liquidity Provider; and (v) any Business Day specified by the LACMTA in a notice to the Trustee not less than 20 days after the Trustee s receipt of such notice and in no event later than the day preceding the scheduled expiration of the applicable Liquidity Facility or Alternate Liquidity Facility. See DESCRIPTION OF THE SERIES 2008 BONDS Mandatory Tender for Purchase of Series 2008-A Bonds. See also Liquidity Facilities for the Series 2008-A Bonds herein and THE LIQUIDITY FACILITIES FOR THE SERIES 2008-A BONDS AND THE LIQUIDITY PROVIDERS herein for a discussion of the extent of the Liquidity Providers obligations to purchase Series 2008-A Bonds tendered but unremarketed. The Series 2008-B Bonds are not subject to optional or mandatory tender for purchase. Security for the Series 2008 Bonds The Series 2008 Bonds are special obligations of the LACMTA issued pursuant to, and payable from and secured under, a Trust Agreement, dated as of July 1, 1986, as amended and supplemented (the Trust Agreement ), by and between the LACMTA (as successor to the Commission) and The Bank of New York Mellon Trust Company, N.A., as successor in interest to Wells Fargo Bank, N.A., the successor to First Interstate Bank of California, as trustee (the Trustee ), and as further supplemented by the Twenty-Eighth Supplemental Trust Agreement, to be dated as of September 1, 2008 (the Twenty-Eighth Supplemental Agreement ), by and between the LACMTA and the Trustee. The Trust Agreement and the Twenty-Eighth Supplemental Agreement are collectively referenced herein as the Agreement. Pursuant to the Agreement, the LACMTA (as successor to the Commission) has granted a first lien on and pledged the Pledged Revenues, which are moneys collected as a result of the imposition of the Proposition A Sales Tax (as described under SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2008 BONDS The Proposition A Sales Tax ), less 25% thereof which is allocated to local jurisdictions for local transit purposes (the Local Allocation ) and less an administrative fee paid to the California State Board of Equalization (the State Board of Equalization ) in connection with the collection and disbursement of the Proposition A Sales Tax, plus interest, profits and other income received from investment of such amounts. 3

16 The LACMTA has issued other obligations under the Agreement which are secured by and payable from the Pledged Revenues on a parity with the Series 2008 Bonds, and the LACMTA is permitted, subject to compliance with the Agreement, to issue additional obligations in the future secured by and payable from the Pledged Revenues on a parity with the Series 2008 Bonds (the Series 2008 Bonds, the existing obligations on a parity with the Series 2008 Bonds and all future obligations issued on a parity with the Series 2008 Bonds are collectively referred to herein as the First Tier Senior Lien Bonds ). See PROPOSITION A SALES TAX OBLIGATIONS. Reserve Fund for the Series 2008 Bonds Pursuant to the Agreement, the Reserve Fund was established and is held by the Trustee and used to make payments of principal of and interest on all First Tier Senior Lien Bonds, including the Series 2008 Bonds, issued by the LACMTA under the Agreement to the extent the amounts in the Bond Interest Account or the Bond Principal Account (as both are defined herein) are not sufficient to pay in full the principal of and interest on the First Tier Senior Lien Bonds when due. The Reserve Fund is required to be funded in an amount equal to the Reserve Fund Requirement. At the time of issuance of the Series 2008 Bonds, the Reserve Fund Requirement (which is expected to be $146,942, at the time of issuance of the Series 2008 Bonds) is expected to be satisfied in part by a municipal bond debt service reserve insurance policy (the FSA Reserve Policy ) provided by Financial Security Assurance Inc. ( FSA ) with a policy limit of $85,500,000, with the balance satisfied by cash and investments held in the Reserve Fund. See APPENDIX A SUMMARY OF BOND DOCUMENTS DEFINITIONS Reserve Fund Requirement. The Reserve Fund also contains a municipal bond debt service reserve fund policy (the FGIC Reserve Policy ) provided by Financial Guaranty Insurance Company. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2008 BONDS Reserve Fund for First Tier Senior Lien Bonds. Liquidity Facilities for the Series 2008-A Bonds For so long as the Series 2008-A Bonds of a series bear interest at a Daily Rate or a Weekly Rate the Series 2008-A Bonds of such series are subject to optional and mandatory tender for purchase as described herein. The Series 2008-B Bonds are not subject to optional or mandatory tender for purchase prior to maturity. The purchase price of the Series 2008-A Bonds is payable from the proceeds of remarketing of such Series 2008-A Bonds. If remarketing proceeds of the Series 2008-A1 Bonds or the Series 2008-A2 Bonds are insufficient, the purchase price for Series 2008-A Bonds of such series bearing interest at a Daily Rate or a Weekly Rate will be payable initially from amounts available under the Standby Bond Purchase Agreement, dated as of September 1, 2008 (the Series 2008-A1 and Series 2008-A2 Liquidity Facility ), by and among the LACMTA, The Bank of New York Mellon Trust Company, N.A., as tender agent under the Twenty-Eighth Supplemental Agreement (the Tender Agent ) and Bank of America, N.A. ( Bank of America ), subject to the terms and conditions therein. See THE LIQUIDITY FACILITIES FOR THE SERIES 2008-A BONDS AND THE LIQUIDITY PROVIDERS The Series 2008-A1 and Series 2008-A2 Liquidity Facility. The Series 2008-A1 and Series 2008-A2 Liquidity Facility terminates on September 16, 2011, unless extended or terminated sooner in accordance with its terms. If remarketing proceeds of the Series 2008-A3 Bonds or the Series 2008-A4 Bonds are insufficient, the purchase price for Series 2008-A Bonds of such series bearing interest at a Weekly Rate will be payable initially from amounts available under the Standby Bond Purchase Agreement, dated September 19, 2008 (the Series 2008-A3 and Series 2008-A4 Liquidity Facility and together with the Series 2008-A1 and Series 2008-A2 Liquidity Facility, the Liquidity Facilities ), by and among the LACMTA, the Trustee, the Tender Agent and Dexia Crédit Local, acting by and through its New York Branch ( Dexia and together with Bank of America, the Liquidity Providers ), subject to the terms and conditions therein. See THE LIQUIDITY FACILITIES FOR THE SERIES 2008-A BONDS AND THE LIQUIDITY PROVIDERS The Series A3 and Series 2008-A4 Liquidity Facility. The Series 2008-A3 and Series 2008-A4 Liquidity Facility 4

17 terminates on September 16, 2011, unless extended or terminated sooner in accordance with its terms. The Series 2008-A3 and Series 2008-A4 Liquidity Facility is not available to purchase Series 2008-A3 Bonds or Series 2008-A4 Bonds bearing interest at a Daily Rate. Under the Twenty-Eighth Supplemental Agreement, an Alternate Liquidity Facility or Facilities may be obtained by the LACMTA to provide for payment of the purchase price of one or more series of Series 2008-A Bonds upon the satisfaction of certain conditions. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2008 BONDS Alternate Liquidity Facilities for the Series 2008-A Bonds. THE OBLIGATION OF THE LIQUIDITY PROVIDERS TO PURCHASE SERIES 2008-A BONDS TENDERED BY THE OWNERS THEREOF OR SUBJECT TO MANDATORY PURCHASE MAY BE SUSPENDED OR TERMINATED WITHOUT NOTICE. IN SUCH EVENT, SUFFICIENT FUNDS MAY NOT BE AVAILABLE TO PURCHASE SERIES 2008-A BONDS TENDERED BY THE REGISTERED OWNERS THEREOF OR SUBJECT TO MANDATORY PURCHASE. THE LIQUIDITY FACILITIES DO NOT GUARANTEE THE PAYMENT OF PRINCIPAL OR INTEREST ON THE SERIES 2008-A BONDS (OR THE SERIES 2008-B BONDS) IN THE EVENT OF NON-PAYMENT OF SUCH PRINCIPAL OR INTEREST BY THE LACMTA. IN ADDITION, THE LIQUIDITY PROVIDERS HAVE NO OBLIGATION TO PAY ANY INTEREST DUE ON THE SERIES 2008-A BONDS ON ANY INTEREST PAYMENT DATE. THE LIQUIDITY PROVIDERS HAVE NO OBLIGATION TO PURCHASE THE SERIES 2008-B BONDS. SEE THE LIQUIDITY FACILITIES FOR THE SERIES 2008-A BONDS AND THE LIQUIDITY PROVIDERS. The Series 2008 Bonds Solely Debt of the LACMTA NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE COUNTY, THE STATE OF CALIFORNIA (THE STATE ) OR ANY POLITICAL SUBDIVISION OR AGENCY THEREOF, OTHER THAN THE LACMTA TO THE EXTENT OF THE PLEDGED REVENUES, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OR PURCHASE PRICE OF OR INTEREST ON THE SERIES 2008 BONDS. THE LACMTA HAS NO POWER TO LEVY PROPERTY TAXES TO PAY THE PRINCIPAL OR PURCHASE PRICE OF OR INTEREST ON THE SERIES 2008 BONDS. Existing Proposition A Sales Tax Obligations The Series 2008 Bonds are payable from Pledged Revenues on a parity with the First Tier Senior Lien Bonds which, as of August 1, 2008 were outstanding in the aggregate principal amount of $1,606,670,000 (including the Refunded Bonds, as defined herein). The LACMTA has also caused the issuance of other obligations that are payable from Pledged Revenues on a basis subordinate to its obligations with respect to the First Tier Senior Lien Bonds, or that are payable from Pledged Revenues to the extent other sources are insufficient to pay such obligations, as described herein under PROPOSITION A SALES TAX OBLIGATIONS Outstanding Proposition A Sales Tax Obligations. Additional Proposition A Obligations The LACMTA may issue or incur additional bonds and other obligations ranking on a parity with the First Tier Senior Lien Bonds provided that the LACMTA complies with certain tests for additional obligations contained in the Agreement. See PROPOSITION A SALES TAX OBLIGATIONS Additional First Tier Senior Lien Bonds. The LACMTA may issue or incur additional bonds and other obligations subordinate to the payment of the First Tier Senior Lien Bonds upon compliance with certain tests for the issuance of such bonds and obligations. 5

18 Continuing Disclosure Certificate The LACMTA will covenant for the benefit of the Owners and Beneficial Owners of the Series 2008 Bonds to provide certain financial information and operating data to certain information repositories annually and to provide notice to the Municipal Securities Rulemaking Board and each Nationally Recognized Municipal Securities Information Repository certified by the Securities and Exchange Commission of certain enumerated events, pursuant to the requirements of Section (b)(5)(i) of Rule 15c2-12 of the Securities and Exchange Commission. See CONTINUING DISCLOSURE OBLIGATION and APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE. Forward-Looking Statements This Official Statement contains statements relating to future results that are forward-looking statements. When used in this Official Statement, the words estimate, forecast, projection, intend, expect and similar expressions identify forward-looking statements. Any forward-looking statement is subject to uncertainty and risks that could cause actual results to differ, possibly materially, from those contemplated in such forward-looking statements. Inevitably, some assumptions used to develop forward-looking statements will not be realized or unanticipated events and circumstances may occur. Therefore, investors should be aware that there are likely to be differences between forward-looking statements and actual results; those differences could be material. Reference to Documents and Definitions The descriptions and summaries of various documents set forth herein do not purport to be comprehensive or definitive and reference is made to each document for the complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each document. See APPENDIX A SUMMARY OF LEGAL DOCUMENTS DEFINITIONS for definitions of certain words and terms used herein. All capitalized terms used in this Official Statement and not otherwise defined herein have the same meanings as in the Agreement. Copies of the Agreement may be obtained from the LACMTA at One Gateway Plaza, 25 th Floor, Treasury Department, Los Angeles, California 90012, Attention: Chief Financial Services Officer and Treasurer, or by calling (213) PLAN OF REFUNDING AND APPLICATION OF SERIES 2008 BOND PROCEEDS Use of Proceeds; Refunding Plan The proceeds of the Series 2008 Bonds will be used by the LACMTA to (a) refund the Refunded Bonds; (b) make a deposit to the Reserve Fund and to pay the premium for the FSA Reserve Policy; and (c) pay the costs associated with issuing the Series 2008 Bonds. The LACMTA is undertaking a current refunding of the Refunded Bonds which consist of all of the LACMTA s outstanding Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds, Series C1, Series 2005-C2, Series 2005-C3 and Series 2005-C4, which are outstanding in the aggregate principal amount of $263,075,000. The net proceeds of the Series 2008 Bonds, together with other available moneys released from the Series 2005-C Subaccount of the Bond Interest Account in the Debt Service Fund (the 2005-C Interest Subaccount ) and other moneys of the LACMTA, will be deposited with The Bank of New York Mellon Trust Company, N.A., as escrow agent (the Escrow Agent ) and held in an escrow fund (the Escrow Fund ) to be created pursuant to an escrow agreement among the LACMTA, the Trustee and the Escrow Agent (the Escrow Agreement ). Proceeds deposited into the Escrow Fund will be invested in Government Obligations or held uninvested in cash, and such amounts, together with the earnings thereon, if any, will be used to pay on the respective redemption dates the redemption price of 100% of the principal amount of and the accrued 6

19 interest due on the Refunded Bonds. The redemption dates for the Refunded Bonds will be October 10, 2008 (for the Series 2005-C1 Bonds), October 7, 2008 (for the Series 2005-C2 Bonds), October 9, 2008 (for the Series 2005-C3 Bonds) and October 8, 2008 (for the Series 2005-C4 Bonds). Sources and Uses of Funds The following table presents the estimated sources and uses of funds in connection with the issuance of the Series 2008 Bonds. General Sources Principal Amount of Series 2008 Bonds $289,150, Net Original Issue Premium 384, LACMTA cash contribution and funds released from accounts under the Trust Agreement 920, Total Sources $290,454, Uses Deposit to Escrow Fund $263,995, Deposit to Reserve Fund and payment of FSA Reserve Policy premium 25,677, Costs of Issuance (1) 782, Total Uses $290,454, (1) Includes underwriters discount, legal fees and other costs of issuance. DESCRIPTION OF THE SERIES 2008 BONDS See Appendix A hereto for a list of definitions of certain terms used in this section of the Official Statement. The Series 2008 Bonds will be issued under a book-entry only system, and will be registered in the name of Cede & Co., as nominee for DTC, which will act as bond depository for the Series 2008 Bonds. Principal or purchase price of and interest on the Series 2008 Bonds are payable by the Trustee to Cede & Co., so long as Cede & Co. is the registered owner of the Series 2008 Bonds, as nominee for DTC, which will, in turn, remit such principal, purchase price and interest to the DTC Participants for subsequent disbursement to the Beneficial Owners (See BOOK-ENTRY ONLY SYSTEM herein). The Series 2008-A Bonds will be issued initially only as fully registered Series 2008-A Bonds in denominations of $100,000 or any integral multiple of $5,000 in excess thereof and the Series 2008-B Bonds will be issued initially only as fully registered Series 2008-B Bonds in denominations of $5,000 and integral multiples thereof (collectively, Authorized Denominations ). The Series 2008-A Bonds. The Series 2008-A Bonds will be dated the date of initial delivery and will be issued initially as Variable Rate Bonds in the Weekly Mode. At the option of the LACMTA and upon satisfaction of certain conditions provided in the Twenty-Eighth Supplemental Agreement, all or a portion of the Series 2008-A Bonds may be (a) converted or reconverted to bear interest at a Daily Rate (for one day Interest Periods), at a Flexible Rate (for Interest Periods of from one to 270 days), at a Weekly Rate or at a Term Rate (for Interest Periods generally of 180 days or longer), (b) converted or reconverted to bear interest at the ARS Rate, or (c) converted to bear interest at a Fixed Rate. See Conversion of Series 2008-A Bonds to Other Interest Rate Modes herein. The Series 2008-A Bonds will mature on July 1, The Series 2008-A Bonds are subject to mandatory tender in the event of any such conversion (except for conversions between the Weekly Mode and the Daily Mode). The Series 2008-A Bonds are also subject to mandatory 7

20 tender in other circumstances as described below under Mandatory Tender for Purchase of Series 2008-A Bonds. This Official Statement describes the terms of the Series 2008-A Bonds while they bear interest at a Daily Rate or a Weekly Rate. There are significant differences in the terms of the Series 2008-A Bonds bearing interest at other rates. This Official Statement is not intended to provide information with respect to the Series 2008-A Bonds bearing interest at rates other than a Daily Rate or a Weekly Rate. While in the Weekly Mode or the Daily Mode, interest on the Series 2008-A Bonds shall be payable on a monthly basis on the first Business Day of each month commencing on October 1, 2008; each Mode Change Date for such series or the date of any conversion of the Series 2008-A Bonds of such series to bear interest at an ARS Rate; and on the maturity date of the Series 2008-A Bonds. Interest on the Series 2008-A Bonds shall be computed on the basis of a 365 or 366-day year, for the actual number of days elapsed. The Series 2008-B Bonds. The Series 2008-B Bonds will be dated their date of initial delivery and will bear interest at the rates and will mature on the dates and in the amounts set forth on the inside cover page of this Official Statement. Interest on the Series 2008-B Bonds will be payable semiannually each January 1 and July 1, commencing January 1, Interest on the Series 2008-B Bonds will be calculated on the basis of a 360-day year consisting of twelve 30-day months. Payment of Interest on the Series 2008 Bonds. Interest will be paid to the registered owners of the Series 2008 Bonds as of the Record Date prior to the applicable interest payment date. The Record Date is the last Business Day prior to the applicable interest payment date for Series 2008-A Bonds bearing interest at a Daily Rate or a Weekly Rate and is June 15 and December 15 for the Series 2008-B Bonds; provided that a special record date may be set with respect to overdue interest. If the Series 2008 Bonds cease to be held by DTC or by a successor securities depository, the principal or purchase price will be payable upon surrender of the Series 2008 Bonds at the principal office of the Trustee by check, provided that the Owner of $1,000,000 or more in aggregate principal amount of the Series 2008 Bonds may request payment by wire transfer to an account at a bank in the United States of immediately available funds; and the interest on the Series 2008 Bonds will be paid by check, provided that any Owner of more than $1,000,000 or more in aggregate principal amount of the Series 2008 Bonds may request payment by wire transfer to an account at a bank within the United States of immediately available funds. Determination of Interest Rates for Series 2008-A Bonds So long as a series of Series 2008-A Bonds is in the Weekly Mode, the Series 2008-A Bonds of such series will bear interest at a Weekly Rate for each Weekly Rate Period. Each Weekly Rate Period will be the period commencing on the Thursday of each week to and including Wednesday of the following week, except that (i) the first Weekly Rate Period will be from the date of issuance of the Series 2008-A Bonds to and including the Wednesday of the following week, (ii) in connection with a reconversion to the Weekly Rate, the first Weekly Rate Period will be from the Mode Change Date to and including the Wednesday of the following week, (iii) in the case of a Substitution Date or Mandatory Purchase Date specified in clause (v) in the first paragraph under the heading Mandatory Tender for Purchase of Series 2008 Bonds, the Weekly Rate Period shall end on the day before the Substitution Date or Mandatory Purchase Date and a new Weekly Rate Period shall commence on the Substitution Date or Mandatory Purchase Date and end on the Wednesday of the following week and (iv) in connection with the conversion from the Weekly Rate, the last Weekly Rate Period shall end on the day next preceding the Mode Change Date or the date of conversion to an ARS Rate. The Underwriter for each series of Series 2008-A Bonds will determine the interest rate for the initial Weekly Rate Period for such series of Series 2008-A Bonds prior to the date of issuance of the Series 2008-A Bonds. Thereafter, the Remarketing Agent for each series of Series 2008-A Bonds will determine the interest 8

21 rate for the applicable series of Series 2008-A Bonds for the following Weekly Rate Periods (i) each Wednesday or, if Wednesday is not a Business Day, then the Business Day next succeeding such Wednesday and (ii) not later than the Business Day prior to a Substitution Date, a Mode Change Date from the Weekly Mode or a Mandatory Purchase Date described in clause (v) of the first paragraph under the heading Mandatory Tender for Purchase of Series 2008 Bonds. In the case of a reconversion to the Weekly Mode, the Rate Determination Date shall be no later than the Business Day prior to the Mode Change Date to the Weekly Mode and thereafter as described above. While the Series 2008-A Bonds are in the Daily Mode, a new interest rate shall be determined by 10:00 a.m., New York City time, on each Business Day effective from and including that day to but not including the next Business Day. The Daily Rate and the Weekly Rate for each series of Series 2008-A Bonds for each Interest Period shall be the rate of interest determined by the applicable Remarketing Agent on and as of the applicable Rate Determination Date to be the minimum rate which in its opinion, under then-existing market conditions, would result in the sale of the applicable Series 2008-A Bonds at par plus accrued interest, if any. No Series 2008-A Bonds may bear interest at an interest rate higher than 12% per annum; provided that Liquidity Provider Bonds may bear interest at a rate no higher than the maximum rate set forth in the applicable Liquidity Facility. If a Remarketing Agent fails or is unable to make such determination, the method by which a Remarketing Agent determines the interest rate is held to be unenforceable by a court of law of competent jurisdiction, or a Remarketing Agent suspends its remarketing effort in accordance with the applicable Remarketing Agreement, then the rate to take effect on the first day of any Interest Period shall be the Alternate Rate. The Alternate Rate generally means 110% of the SIFMA Municipal Swap Index of Municipal Market Data most recently available as of the date of determination unless such rate is not available. See the complete definition of Alternate Rate in APPENDIX A SUMMARY OF LEGAL DOCUMENTS DEFINITIONS. Notwithstanding the foregoing, while any Series 2008-A Bond is a Liquidity Provider Bond, such Series 2008-A Bond shall bear interest and be payable at the times and in the amounts required pursuant to the Liquidity Facility then in effect. Conversion of Series 2008-A Bonds to Other Interest Rate Modes While the Series 2008-A Bonds are in the Weekly Mode or the Daily Mode, all or a portion of the Series 2008-A Bonds may be converted to any other Interest Rate Mode on any Interest Payment Date (except that conversion from the Weekly Mode to the Daily Mode or the Daily Mode from the Weekly Mode may be made on any Business Day) or may be converted to bear interest at an ARS Rate on any Interest Payment Date, upon not less than twenty days prior written notice from the Trustee to the registered owners of the applicable series of Series 2008-A Bonds. Upon such conversion or reconversion, the applicable Series 2008-A Bonds will be subject to mandatory tender for purchase (except conversion between the Weekly Mode and the Daily Mode, unless such conversion is accompanied by an Alternate Liquidity Facility) as described below under Mandatory Tender for Purchase of Series 2008 Bonds. Each conversion of the applicable Series 2008-A Bonds from one Interest Rate Mode to another Interest Rate Mode or to bear interest at an ARS Rate shall be subject to the conditions set forth in the Twenty-Eighth Supplemental Agreement. In addition, the LACMTA may rescind any election to convert to another Interest Rate Mode or to convert all or a portion of the Series 2008-A Bonds to bear interest at an ARS Rate up to 10:00 a.m., New York City time, on the Business Day preceding the proposed conversion date. In the event that the conditions for a proposed conversion are not met or the LACMTA rescinds the direction to convert, (i) such new Interest Rate Mode or ARS Rate shall not take effect on the proposed conversion date, notwithstanding any prior notice to the registered owners of such conversion, (ii) the applicable Series 2008-A Bonds shall remain in their prior Interest Rate Mode and (iii) such Series 2008-A 9

22 Bonds shall be subject to mandatory tender for purchase as described below if notice has been sent to the registered owners stating that such Series 2008-A Bonds would be subject to mandatory purchase on such date. In no event shall the failure of any Series 2008-A Bonds to be converted to another Interest Rate Mode or to an ARS Rate be deemed to be an Event of Default. Optional Tender of Series 2008-A Bonds While the Series 2008-A Bonds are in the Weekly Mode or the Daily Mode, the registered owners shall have the right to tender the Series 2008-A Bonds (or portions thereof) for purchase in Authorized Denominations at a price equal to the principal amount thereof, plus accrued interest, if any, to the Purchase Date (unless the Purchase Date is an Interest Payment Date, in which case the Purchase Price shall not include accrued interest, which shall be paid in the normal course), upon compliance with the conditions described below. In order to exercise the right to tender, the registered owners must deliver to the Trustee a written irrevocable notice of tender stating (i) the principal amount of Series 2008-A Bonds to be purchased, (ii) the Purchase Date, (iii) payment instructions and (iv) an irrevocable demand for purchase. If the Series 2008-A Bonds are in the Daily Mode, in order to exercise the right to tender, the registered owners must give notice to the Trustee not later than 11:00 a.m., New York City time, on any Business Day. If the Series 2008-A Bonds are in the Weekly Mode, the registered owners must give notice to the Trustee not later than 5:00 p.m., New York City time, on the Business Day that is seven calendar days before the applicable Purchase Date. Notice of tender of the Series 2008-A Bonds is irrevocable. If the registered owner of a Series 2008-A Bond has elected to require purchase as provided above, the registered owner shall be deemed, by such election, to have agreed irrevocably to sell such Series 2008-A Bond to any purchaser, on the date fixed for purchase at the Purchase Price. The Purchase Price of the Series 2008-A Bonds shall be paid to the registered owners by the Trustee on the Purchase Date or any subsequent Business Day on which such Series 2008-A Bonds are delivered to the Trustee. From and after the Purchase Date, no further interest on the Series 2008-A Bonds shall be payable to the registered owners who gave notice of tender for purchase, provided that there are sufficient funds available on the Purchase Date to pay the Purchase Price. So long as the Series 2008-A Bonds are registered in the name of Cede & Co., as nominee for DTC, the tender option rights of holders of Series 2008-A Bonds may be exercised only by DTC by giving notice of its election to tender Series 2008-A Bonds or portions thereof at the times and in the manner described above and delivery of Series 2008-A Bonds required to be tendered for purchase shall be effected by the transfer on the applicable Purchase Date of a book-entry credit to the account of the Trustee of a beneficial interest in such Bonds. See BOOK-ENTRY-ONLY SYSTEM herein. The Series 2008-B Bonds are not subject to optional tender by the owners thereof. Mandatory Tender for Purchase of Series 2008-A Bonds The Series 2008-A Bonds are subject to mandatory tender for purchase at a price equal to the principal amount thereof, plus accrued interest, if any, to the Mandatory Purchase Date (unless the Mandatory Purchase Date is an Interest Payment Date, in which case the Purchase Price shall not include accrued interest, which shall be paid in the normal course) (i) any Mode Change Date (except a change in Mode between the Daily Mode and the Weekly Mode) or any date on which the applicable Series 2008-A Bonds are converted to bear interest at ARS Rates, (ii) an applicable Substitution Date, (iii) the fifth Business Day prior to the expiration of the applicable Liquidity Facility or Alternate Liquidity Facility, (iv) the date specified by the Trustee following the occurrence of an event of default (other than an Automatic Termination Event) under the applicable Liquidity Facility or Alternate Liquidity Facility, which date shall be a Business Day not more than 25 nor less than 20 days after the Trustee s receipt of notice of such event of default from the applicable Liquidity Provider and in no event later than the day preceding the termination date specified by the applicable Liquidity Provider; and (v) any Business Day specified by the LACMTA not less than 20 days after the Trustee s receipt of such notice and in no event later than the day preceding the scheduled expiration of the applicable Liquidity 10

23 Facility or Alternate Liquidity Facility. See THE LIQUIDITY FACILITIES FOR THE SERIES 2008-A BONDS AND THE LIQUIDITY PROVIDERS The Series 2008-A1 and Series 2008-A2 Liquidity Facility and The Series 2008-A3 and Series 2008-A4 Liquidity Facility. Notice of mandatory tender shall be given by the Trustee in writing to the registered owners of the Series 2008-A Bonds subject to mandatory tender no less than 20 days prior to the Mandatory Purchase Date. From and after the Purchase Date, no further interest on the Series 2008-A Bonds shall be payable to the registered owners thereof, provided that there are sufficient funds available on the Purchase Date to pay the purchase price. The Series 2008-B Bonds are not subject to mandatory tender under any circumstances. Remarketing of Series 2008-A Bonds Each Remarketing Agent shall use its best efforts, subject to the terms and conditions of the applicable Remarketing Agreement, to offer for sale at par: (i) all of the Series 2008-A Bonds of the series for which it is Remarketing Agent or portions thereof as to which notice of optional tender has been given; and (ii) all of the Series 2008-A Bonds of such series required to be purchased on (A) a Mandatory Purchase Date constituting any Mode Change Date (except between the Weekly Mode and the Daily Mode) or any date on which the applicable Series 2008-A Bonds are converted to bear interest at an ARS Rate, (B) a Mandatory Purchase Date which is a Substitution Date and (C) a Mandatory Purchase Date designated by the LACMTA as described in clause (v) of the first paragraph under Mandatory Tender for Purchase of Series 2008-A Bonds above; and (iii) Agreement. any Liquidity Provider Bonds of such series as provided in the Twenty-Eighth Supplemental Notwithstanding anything in the Agreement to the contrary, if a Liquidity Provider Failure has occurred and is continuing, the applicable Remarketing Agent shall not remarket any Series 2008-A Bonds to which the Liquidity Provider Failure relates. All other provisions of the Agreement, including without limitation, those relating to the setting of interest rates and Interest Periods and mandatory and optional purchases, shall remain in full force and effect during the continuance of such Event of Default. On each date on which a Series 2008-A Bond is to be purchased, if the applicable Remarketing Agent has given notice to the Tender Agent pursuant to the Twenty-Eighth Supplemental Agreement that it has been unable to remarket such Series 2008-A Bond or if the Tender Agent has not received from the applicable Remarketing Agent an amount sufficient to pay the Series 2008-A Bond by the time the Tender Agent must draw on the applicable Liquidity Facility, the Tender Agent shall draw on the applicable Liquidity Facility an amount equal to the Purchase Price of such Series 2008-A Bond. Except as set forth in the Agreement, the Tender Agent shall purchase tendered Series 2008-A Bonds from the tendering owners at the applicable Purchase Price by wire transfer in immediately available funds. Funds for the payment of such Purchase Price shall be derived solely from the following sources in the order of priority indicated and none of the Tender Agent, the Trustee or the Remarketing Agents shall be obligated to provide funds from any other source: (i) immediately available funds on deposit in the applicable Remarketing Proceeds Account derived from the remarketing of tendered Series 2008-A Bonds; (ii) immediately available funds on deposit in the applicable Liquidity Facility Purchase Account drawn under the applicable Liquidity Facility; and 11

24 (iii) moneys of the LACMTA on deposit in the applicable LACMTA Purchase Account; provided that the LACMTA may, but is NOT obligated to, deposit moneys in the LACMTA Purchase Account so long as a Liquidity Facility is in effect with respect to the applicable series of Series 2008-A Bonds or if the Liquidity Facility previously in effect with respect to the applicable series of Series 2008-A Bonds is no longer in effect other than at the election of the LACMTA. If moneys sufficient to pay the Purchase Price of all tendered Series 2008-A Bonds of a series to be purchased on any Purchase Date are not available (1) no purchase shall be consummated on such Purchase Date; (2) all tendered Series 2008-A Bonds shall be returned to the holders thereof; and (3) all remarketing proceeds shall be returned to the applicable Remarketing Agent for return to the persons providing such moneys. All Series 2008-A Bonds of such series shall bear interest at the Maximum Rate during such period of time from and including the applicable Purchase Date to (but not including) the date that all such tendered Series 2008-A Bonds of such series are successfully remarketed. Certain Considerations Related to the Remarketing Agents The Remarketing Agents are Paid by the LACMTA. Each Remarketing Agent s responsibilities include determining the interest rate from time to time and remarketing of Series 2008-A Bonds of the applicable series that are optionally or manditorily tendered by the owners thereof (subject, in each case to the terms of the applicable Remarketing Agreement), all as further described in this Official Statement. The Remarketing Agents are appointed by the LACMTA and are paid by the LACMTA for their services. As a result, the interests of the Remarketing Agents may differ from those of existing holders and potential purchasers of the Series 2008-A Bonds. The Remarketing Agents Routinely Purchase Bonds for their Own Accounts. The Remarketing Agents act as remarketing agents for a variety of variable rate demand obligations, and, in their sole discretion, routinely purchase such obligations for their own accounts. The Remarketing Agents are permitted, but not obligated, to purchase tendered Series 2008-A Bonds for their own account. The Remarketing Agents, in their sole discretion, routinely acquire tendered bonds for their own inventories in order to achieve a successful remarketing of the bonds (i.e., because there otherwise are not enough buyers to purchase the bonds) or for other reasons. However, the Remarketing Agents are not obligated to purchase bonds including the Series 2008-A Bonds, and may cease doing so at any time without notice. The Remarketing Agents may also make a market in the Series 2008-A Bonds by routinely purchasing and selling Series 2008-A Bonds other than in connection with an optional tender and remarketing. Such purchases and sales may be at or below par. However, the Remarketing Agents are not required to make a market in the Series 2008-A Bonds. If the Remarketing Agents purchase Series 2008-A Bonds for their own accounts, they may offer those Series A Bonds at a discount to par to some investors. The Remarketing Agents may also sell any Series 2008-A Bonds they have purchased to one or more affiliated investment vehicles for collective ownership or enter into derivative arrangements with affiliates or others in order to reduce their exposure to the Series 2008-A Bonds. The purchase of Series 2008-A Bonds by the Remarketing Agents may cause the interest rate on the Series 2008-A Bonds to be lower than it would be if the Remarketing Agents did not purchase Series 2008-A Bonds and may create the appearance that there is greater third party demand for the Series 2008-A Bonds in the market than is actually the case. The practices described above also may reduce the supply of Series 2008-A Bonds that may be tendered in a remarketing. Series 2008-A Bonds May be Offered at Different Prices on any Date. Pursuant to each of the Remarketing Agreements, each of the Remarketing Agents is required to determine on the Rate Determination Date the applicable rate of interest that, in its judgment, is the lowest rate that would permit the sale of the applicable Series 2008-A Bonds at par plus accrued interest, if any, on the date the rate becomes effective (the Effective Date ). The interest rate will reflect, among other factors, the level of market demand for the Series 2008-A Bonds of such series (including whether the applicable Remarketing Agent is willing to purchase Series 2008-A Bonds for its own account). The purchase of the Series 2008-A Bonds by the Remarketing Agents may cause the interest rate on the Series 2008-A Bonds to be lower than it would be if the Remarketing 12

25 Agents did not purchase Series 2008-A Bonds. The Remarketing Agreements require that the Remarketing Agents use their best efforts to sell tendered bonds at par, plus accrued interest. There may or may not be Series 2008-A Bonds tendered and remarketed on a Rate Determination Date and the Remarketing Agents may or may not be able to remarket any Series 2008-A Bonds tendered for purchase on such date at par. As an owner of Series 2008-A Bonds, a Remarketing Agent may sell Series 2008-A Bonds at varying prices, including at a discount to par, to different investors on a Rate Determination Date or any other date. The Remarketing Agents are not obligated to advise purchasers in a remarketing if they do not have third party buyers for all of the Series 2008-A Bonds at the remarketing price. The Remarketing Agents, in their sole discretion, may offer Series 2008-A Bonds on any date, including the Rate Determination Date, at a discount to par to some investors. The Ability to Sell the Series 2008-A Bonds other than through Tender Process May Be Limited. While the Remarketing Agents may buy and sell Series 2008-A Bonds other than through the tender process, they are not obligated to do so and may cease doing so at any time without notice. Thus, investors who purchase the Series 2008-A Bonds, whether in a remarketing or otherwise, should not assume that they will be able to sell their Series 2008-A Bonds other than by tendering through the Trustee, the Series 2008-A Bonds in accordance with the tender process. Under certain circumstances, the Liquidity Providers are not obligated to purchase tendered Series 2008-A Bonds. In addition, the Liquidity Providers may fail to purchase tendered Series 2008-A Bonds even when they are obligated to do so. In both cases, unless the LACMTA provided funds to purchase tendered Series 2008-A Bonds (which the LACMTA is not obligated to do), tendered Series 2008-A Bonds would be returned to the holders thereof and bear interest at the Maximum Rate until such Series 2008-A Bonds can be successfully remarketed. It is not certain that following a failure to purchase Series 2008-A Bonds a secondary market for the Series 2008-A Bonds will develop. Under Certain Circumstances, a Remarketing Agent May Be Removed, Resign or Cease Remarketing the Series 2008-A Bonds, Without a Successor Being Named. Under certain circumstances a Remarketing Agent may be removed or have the ability to resign or cease its remarketing efforts, without a successor having been named, subject to the terms of the applicable Remarketing Agreement. Draws on the Liquidity Facilities for the Series 2008-A Bonds On each date on which Series 2008-A Bonds are to be purchased, if the proceeds of the remarketing of the applicable series of Series 2008-A Bonds are insufficient, the Tender Agent shall draw on the applicable Liquidity Facility in accordance with the terms thereof so as to receive thereunder an amount, in immediately available funds, sufficient, together with the proceeds of the remarketing of Series 2008-A Bonds of the applicable series on such date, to enable the Tender Agent to pay the Purchase Price in connection therewith. THE OBLIGATION OF THE LIQUIDITY PROVIDERS TO PURCHASE SERIES 2008-A BONDS, TENDERED BY THE OWNERS THEREOF OR SUBJECT TO MANDATORY PURCHASE MAY BE SUSPENDED OR TERMINATED WITHOUT NOTICE. IN SUCH EVENT, SUFFICIENT FUNDS MAY NOT BE AVAILABLE TO PURCHASE SERIES 2008-A BONDS TENDERED BY THE REGISTERED OWNERS THEREOF OR SUBJECT TO MANDATORY PURCHASE. THE LIQUIDITY FACILITIES DO NOT GUARANTEE THE PAYMENT OF PRINCIPAL OF OR INTEREST ON THE SERIES 2008-A BONDS (OR THE SERIES 2008-B BONDS) IN THE EVENT OF NON-PAYMENT OF SUCH INTEREST OR PRINCIPAL BY THE LACMTA. IN ADDITION, THE LIQUIDITY PROVIDERS HAVE NO OBLIGATION TO PAY ANY INTEREST DUE ON THE SERIES 2008-A BONDS ON ANY INTEREST PAYMENT DATE. THE LIQUIDITY PROVIDERS HAVE NO OBLIGATION TO PURCHASE THE SERIES 2008-B BONDS. SEE THE LIQUIDITY FACILITIES FOR THE SERIES 2008-A BONDS AND THE LIQUIDITY PROVIDERS. 13

26 Optional Redemption Series 2008-A Bonds. The Series 2008-A Bonds in the Weekly Mode or the Daily Mode are subject to redemption at the option of the LACMTA in whole or in part in Authorized Denominations on any Business Day at a redemption price equal to 100% of the principal amount thereof, together with accrued interest, if any, to the redemption date. Series 2008-B Bonds. The Series 2008-B Bonds due on or after July 1, 2019 are subject to redemption at the option of the LACMTA in whole or in part on any date on or after July 1, 2018 from any moneys that may be provided for such purpose, at a redemption price of 100% of the principal amount of such Series 2008-B Bonds so redeemed, together with accrued interest, if any, to the redemption date. Mandatory Sinking Fund Redemption The Series 2008-A1 Bonds are subject to mandatory sinking fund redemption in the amount of the principal thereof, without premium, plus accrued interest thereon to the redemption date, to be paid on July 1 of the years and in the amounts set forth below: Years Sinking Fund Installment Years Sinking Fund Installment 2009 $ 350, $4,300, , ,850, , ,025, , ,225, , ,400, ,075, ,600, ,150, ,725, ,225, ,625, ,300, , ,875, , ,000, , ,150,000 Final Maturity [Remainder of page intentionally left blank.] 14

27 The Series 2008-A2 Bonds are subject to mandatory sinking fund redemption in the amount of the principal thereof, without premium, plus accrued interest thereon to the redemption date, to be paid on July 1 of the years and in the amounts set forth below: Years Sinking Fund Installment Years Sinking Fund Installment 2009 $ 375, $4,300, , ,875, , ,050, , ,225, , ,400, ,075, ,600, ,150, ,725, ,175, ,625, ,325, , ,875, , ,025, , ,150,000 Final Maturity The Series 2008-A3 Bonds are subject to mandatory sinking fund redemption in the amount of the principal thereof, without premium, plus accrued interest thereon to the redemption date, to be paid on July 1 of the years and in the amounts set forth below: Years Sinking Fund Installment Years Sinking Fund Installment 2009 $ 350, $4,300, , ,850, , ,050, , ,200, , ,425, ,100, ,600, ,175, ,700, ,200, ,650, ,300, , ,875, , ,000, , ,150,000 Final Maturity 15

28 The Series 2008-A4 Bonds are subject to mandatory sinking fund redemption in the amount of the principal thereof, without premium, plus accrued interest thereon to the redemption date, to be paid on July 1 of the years and in the amounts set forth below: Years Sinking Fund Installment Years Sinking Fund Installment 2009 $ 375, $4,325, , ,875, , ,025, , ,225, , ,400, ,075, ,625, ,150, ,725, ,175, ,650, ,325, , ,900, , ,025, , ,175,000 Final Maturity The Series 2008-B Bonds maturing on July 1, 2031 are subject to mandatory sinking fund redemption in the amount of the principal thereof, without premium, plus accrued interest thereon to the redemption date, to be paid on July 1 of the years and in the amounts set forth below: Years Sinking Fund Installment 2029 $1,595, ,675, ,755,000 Final Maturity If some but not all of the Series 2008 Bonds of the applicable series have been redeemed as described under Optional Redemption above, the total of all sinking account payments shall be reduced by the aggregate principal amount of the Series 2008 Bonds of such series so redeemed to be allocated among sinking account payments as determined by the LACMTA. At the option of the LACMTA, it may (a) deliver to the Trustee for cancellation any Series 2008 Bonds or portions thereof (in Authorized Denominations) of the series subject to mandatory sinking fund redemption purchased in the open market or otherwise acquired by the LACMTA or (b) specify a principal amount of such Series 2008 Bonds of a series subject to mandatory sinking fund redemption or portions thereof (in Authorized Denominations) which prior to said date have been purchased and previously cancelled by the Trustee at the request of the LACMTA but not theretofore applied as a credit against any mandatory sinking fund redemption requirement. Mandatory Redemption of Liquidity Provider Bonds Liquidity Provider Bonds will be subject to mandatory redemption in accordance with the terms of the applicable Liquidity Facility. 16

29 Selection of Series 2008 Bonds to be Redeemed; Notice of Redemption In the case of redemptions of Series 2008 Bonds of a series at the option of the LACMTA, the LACMTA will select the maturities of the Series 2008 Bonds to be redeemed. If less than all of the Series 2008 Bonds of a maturity within a series are to be redeemed, the Trustee shall select by lot, in such manner as the Trustee deems appropriate, the particular Series 2008 Bonds or portions thereof to be redeemed. Notwithstanding anything to the contrary, Liquidity Provider Bonds of a series shall be redeemed prior to the redemption of any other Series 2008-A Bonds of such series. The Trustee is required give notice of redemption to the registered owners affected by such redemption at least 20 days but not more than 60 days before each redemption, send such notice of redemption by first-class mail (or, with respect to Series 2008 Bonds held by DTC, by an express delivery service for delivery on the next following Business Day). Each notice of redemption shall specify the series of Series 2008 Bonds to be redeemed, the date of issue and the maturity date thereof, if less than all Series 2008 Bonds of a maturity of a series are called for redemption the numbers of the Series 2008 Bonds and the CUSIP number assigned to the Series 2008 Bonds to be redeemed and the portions of the Series 2008 Bonds to be redeemed, the principal amount to be redeemed and the interest rate applicable to the Series 2008 Bonds to be redeemed, the redemption date, the redemption price, the Trustee's name, that payment will be made upon presentation and surrender of the Series 2008 Bonds to be redeemed, the place or places where amounts due upon such redemption will be payable, any conditions to the redemption, and that interest, if any, accrued to the date fixed for redemption and not paid will be paid as specified in said notice, and that on and after said date interest thereon will cease to accrue. If at the time of mailing of notice of an optional redemption there have not been deposited with the Trustee moneys sufficient to redeem all the Series 2008 Bonds called for redemption, at the election of the LACMTA such notice may state that it is conditional; that is, subject to the deposit of the redemption moneys with the Trustee not later than the opening of business one Business Day prior to the scheduled redemption date, and such notice will be of no effect unless such moneys are so deposited. In the event sufficient moneys are not on deposit on the required date, then the redemption will be canceled and on such cancellation date notice shall be mailed to the holders of such Series 2008 Bonds, to be redeemed in the same manner as the notice of redemption. Failure to give any required notice of redemption or any defect therein as to any particular Series 2008 Bonds will not affect the validity of the call for redemption of any Series 2008 Bonds in respect of which no failure occurs. Any notice sent as provided herein will be conclusively presumed to have been given whether or not actually received by the addressee. Effect of Redemption If notice is given as described above under Selection of Series 2008 Bonds to be Redeemed; Notice of Redemption and the moneys for payment of the redemption price are on deposit with the Trustee, the Series 2008 Bonds called for redemption will be due and payable on the redemption date, interest on such Series 2008 Bonds will cease to accrue after such date and the registered owners of the redeemed Series 2008 Bonds will have no rights under the Agreement after the redemption date other than the right to receive the redemption price for such Series 2008 Bonds. Introduction BOOK-ENTRY-ONLY SYSTEM Unless otherwise noted, the information contained under the subcaption General below has been provided by DTC. The LACMTA makes no representations as to the accuracy or completeness of such information. Further, the LACMTA undertakes no responsibility for and makes no representations as to the 17

30 accuracy or the completeness of the content of such material contained on DTC s websites as described under General, including, but not limited to, updates of such information or links to other Internet sites accessed through the aforementioned websites. The beneficial owners of the Series 2008 Bonds should confirm the following information with DTC, the Direct Participants or the Indirect Participants. NEITHER THE LACMTA NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DIRECT PARTICIPANTS, TO INDIRECT PARTICIPANTS OR TO ANY BENEFICIAL OWNER WITH RESPECT TO (A) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, ANY DIRECT PARTICIPANT OR ANY INDIRECT PARTICIPANT; (B) ANY NOTICE THAT IS PERMITTED OR REQUIRED TO BE GIVEN TO THE OWNERS OF THE SERIES 2008 BONDS UNDER THE AGREEMENT; (C) THE SELECTION BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY PERSON TO RECEIVE PAYMENT IN THE EVENT OF A PARTIAL REDEMPTION OF THE SERIES 2008 BONDS; (D) THE PAYMENT BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT TO THE OWNERS OF THE SERIES 2008 BONDS; (E) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS THE OWNER OF SERIES 2008 BONDS; OR (F) ANY OTHER MATTER REGARDING DTC. General The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the Series 2008 Bonds. The Series 2008 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 Series 2008 Bond certificate will be issued for each maturity of each series of the Series 2008 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC or held by the Trustee. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934 (the Exchange Act ). DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of the Series 2008 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2008 Bonds on DTC s records. The ownership interest of each actual purchaser of each Series 2008 Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. 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 18

31 which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2008 Bonds 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 Series 2008 Bonds, except in the event that use of the book-entry system for the Series 2008 Bonds is discontinued. To facilitate subsequent transfers, all Series 2008 Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2008 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 Series 2008 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Series 2008 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. Beneficial Owners of Series 2008 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2008 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Agreement. For example, Beneficial Owners of Series 2008 Bonds may wish to ascertain that the nominee holding the Series 2008 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. While the Series 2008 Bonds are in the book-entry only system, redemption notices shall be sent to DTC. If less than all of the Series 2008 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 Series 2008 Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the LACMTA as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Series 2008 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and purchase price of and interest payments on the Series 2008 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 information from the LACMTA 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 LACMTA, or the Trustee, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium, if any, purchase price and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the LACMTA 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. A Beneficial Owner shall give notice to elect to have its Series 2008 Bonds purchased or tendered, through its Participant, to the Tender Agent, and shall effect delivery of such Series 2008 Bonds by causing the Direct Participant to transfer the Participant s interest in the Series 2008 Bonds, on DTC s records, to the Tender Agent. The requirement for physical delivery of Series 2008-A Bonds in connection with an optional 19

32 tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Series 2008-A Bonds are transferred by the Direct Participants on DTC s records and followed by a book-entry credit of tendered Series 2008-A Bonds to the Tender Agent s DTC account. DTC may discontinue providing its services as depository with respect to the Series 2008 Bonds at any time by giving reasonable notice to the LACMTA or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Series 2008 Bond certificates are required to be printed and delivered. The LACMTA may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Series 2008 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 sources that the LACMTA believes to be reliable, but the LACMTA takes no responsibility for the accuracy thereof. BENEFICIAL OWNERS WILL NOT RECEIVE PHYSICAL DELIVERY OF SERIES 2008 BONDS AND WILL NOT BE RECOGNIZED BY THE TRUSTEE AS OWNERS THEREOF, AND BENEFICIAL OWNERS WILL BE PERMITTED TO EXERCISE THE RIGHTS OF OWNERS ONLY INDIRECTLY THROUGH DTC AND THE PARTICIPANTS. In the event that the book entry-only system is discontinued, payments of principal and purchase price of and interest on the Series 2008 Bonds will be payable as described herein under the caption DESCRIPTION OF THE SERIES 2008 BONDS General. General SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2008 BONDS The Series 2008 Bonds are special obligations of the LACMTA payable from and secured by a first lien on and a pledge of the Pledged Revenues, which are moneys collected as a result of the imposition of the Proposition A Sales Tax, less 25% thereof which constitutes the Local Allocation and less an administrative fee paid to the State Board of Equalization in connection with the collection and disbursement of the Proposition A Sales Tax, plus interest, profits and other income received from the investment of such amounts held by the Trustee. In addition, the Series 2008 Bonds are secured by all amounts held by the Trustee under the Agreement (except for amounts held in the Rebate Fund and the Redemption Fund). Additionally, the Agreement provides that Pledged Revenues also include any Local Allocation which a local jurisdiction authorizes to be pledged to secure the Series 2008 Bonds, plus such additional sources of revenue, if any, which are hereafter pledged to pay the Series 2008 Bonds under a subsequent supplemental trust agreement. As of the date of this Official Statement, no local jurisdiction has pledged its Local Allocation to secure any bonds issued under the Agreement, including the Series 2008 Bonds. Pledged Revenues do not include any Proposition A Sales Tax revenues that are released by the Trustee to (a) the payment of the Second Tier Obligations (as defined herein), (b) the payment of the Proposition A Commercial Paper Notes (as defined herein) or (c) the LACMTA for the payment, if necessary, of the Remaining Sales Tax Bonds (as defined herein) and certain other amounts described herein and any other lawful purposes of the LACMTA. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE COUNTY, THE STATE OR ANY POLITICAL SUBDIVISION OR PUBLIC AGENCY THEREOF, OTHER THAN THE LACMTA TO THE EXTENT OF THE PLEDGED REVENUES, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE SERIES 2008 BONDS. THE LACMTA HAS NO POWER TO LEVY PROPERTY TAXES TO PAY THE PRINCIPAL OR PURCHASE PRICE OF OR INTEREST ON THE SERIES 2008 BONDS. 20

33 The Proposition A Sales Tax General. Under the California Public Utilities Code, the LACMTA is authorized to adopt retail transactions and use tax ordinances applicable in the incorporated and unincorporated territory of the County in accordance with California s Transaction and Use Tax Law (California Revenue and Taxation Code Sections 7251 et seq.), upon authorization by a majority of the electors voting on the issue. In accordance with the County Transportation Commissions Act (Sections et seq. of the California Public Utilities Code (the Transportation Commissions Act )), the Commission, on August 20, 1980, adopted Ordinance No. 16 ( Ordinance No. 16 ) which imposed a retail transactions and use tax. Ordinance No. 16 was submitted to the electors of the County in the form of Proposition A and approved at an election held on November 4, Ordinance No. 16 imposed a tax of 1/2 of 1% of the gross receipts of retailers from the sale of tangible personal property sold at retail in the County and a use tax at the same rate upon the storage, use or other consumption in the County, subject to certain limited exceptions. The retail transactions and use tax imposed by Ordinance No. 16 and approved by the voters with the passage of Proposition A is referred to in this Official Statement as the Proposition A Sales Tax. As approved by the voters, the Proposition A Sales Tax is not limited in duration. The validity of the Proposition A Sales Tax was upheld in 1982 by the California Supreme Court in Los Angeles County Transportation Commission v. Richmond. See LITIGATION Sales Tax Litigation. Collection of the Proposition A Sales Tax is administered by the State Board of Equalization, which imposes a charge for administration. Such charge is based on the actual costs incurred by the State Board of Equalization in connection with the administration of the collection of the Proposition A Sales Tax. In accordance with Ordinance No. 16, the LACMTA is required to allocate the proceeds of the Proposition A Sales Tax as follows: TABLE 1 Proposition A Sales Tax Apportionment Use Percentage Local Allocation 25% Rail Development Program (1) 35 Discretionary 40 TOTAL 100% (2) (1) Pursuant to the Act of 1998 (as defined herein) the LACMTA is no longer allowed to expend Proposition A Sales Tax revenues on the costs of planning, design, construction or operation of any New Subway, including debt service on bonds, notes or other evidences of indebtedness issued for such purposes after March 30, See Initiatives and Changes to Proposition A Sales Tax The Act of 1998 below. (2) Up to 5% of the Proposition A Sales Tax revenues received by the LACMTA may be used by the LACMTA to pay administrative costs. Administrative costs are payable only from Proposition A Sales Tax revenues that have been released to the LACMTA and are no longer Pledged Revenues. See Flow of Funds below. Source: The LACMTA As described below, the State Board of Equalization, after deducting the costs of administering the Proposition A Sales Tax and disbursing the Local Allocation to the LACMTA (which for purposes of administrative ease, is first transferred to the Trustee who then disburses the Local Allocation to the LACMTA), has agreed to remit directly on a monthly basis the remaining Proposition A Sales Tax revenues to the Trustee. After application of such Proposition A Sales Tax revenues to the funds and accounts in accordance with the Agreement, the Trustee is required to transfer the remaining unapplied Proposition A 21

34 Sales Tax revenues for deposit to the funds and accounts established and maintained for the Second Tier Obligations and the Proposition A Commercial Paper Notes. Any Proposition A Sales Tax revenues remaining after the deposits described above are required to be released to the LACMTA to be used by the LACMTA first, to pay certain amounts owing to the Liquidity Providers pursuant to the Liquidity Facilities, second, if necessary, to pay debt service on the Remaining Sales Tax Bonds and termination payments under the Series 2005-C Swap Agreements, and third, for any lawful purposes of the LACMTA. The First Tier Senior Lien Bonds do not have a lien on and are not secured by any Proposition A Sales Tax revenues that are released by the Trustee and deposited to the funds and accounts established and maintained for the Second Tier Obligations or the Proposition A Commercial Paper Notes or that are transferred to the LACMTA to be used to pay certain amounts owing to the Liquidity Providers under the Liquidity Facilities, debt service on the Remaining Sales Tax Bonds, termination payments under the Series 2005-C Swap Agreements, or for any lawful purposes of the LACMTA. Prior to July 1993, the amount retained by the State Board of Equalization was based on a flat 1.3% of Proposition A Sales Tax Receipts. The amount retained by the State Board of Equalization from collections of Proposition A Sales Tax after July 1993 is based on the total local entity cost reflected in the annual budget of the State, and includes direct, shared and central agency costs incurred by the State Board of Equalization. The amount retained by the State Board of Equalization is adjusted to account for the difference between the State Board of Equalization s recovered costs and its actual costs during the prior two fiscal years. The State Board of Equalization s fee for fiscal year totaled approximately $7.3 million, representing 1.1% of Proposition A Sales Tax receipts; and the State Board of Equalization s fee for fiscal year totaled approximately $6.2 million, representing 0.9% of Proposition A Sales Tax receipts. The State Board of Equalization s fee for fiscal year totaled approximately $6.4 million, representing 0.9% of Proposition A Sales Tax receipts. The LACMTA assumes that such State Board of Equalization fee may increase incrementally each year thereafter. The State Board of Equalization can change the fee at its discretion in the future. Under the Agreement, the LACMTA has covenanted that (a) it will not take any action which will impair or adversely affect in any manner the pledge of the Pledged Revenues or the rights of the Holders of the First Tier Senior Lien Bonds, including the Series 2008 Bonds; and (b) it will be unconditionally and irrevocably obligated, so long as any of the First Tier Senior Lien Bonds, including the Series 2008 Bonds, are outstanding and unpaid, to take all lawful action necessary or required to continue to entitle the LACMTA to receive the Pledged Revenues at the same rates as provided by law (as of the date of the Agreement), to pay from the Pledged Revenues the principal of and interest on the First Tier Senior Lien Bonds in the manner and pursuant to the priority set forth in the Agreement, and to make the other payments provided for in the Agreement. Under the LACMTA Act, the State pledges to, and agrees with, the holders of any bonds issued under the LACMTA Act and with those parties who may enter into contracts with the LACMTA pursuant to the LACMTA Act that the State will not limit or alter the rights vested by the LACMTA Act in the LACMTA until such bonds, together with the interest thereon, are fully met and discharged and the contracts are fully performed on the part of the LACMTA. However, such pledge and agreement does not preclude the State from changing the transactions and items subject to the statewide sales tax and thereby altering the amount of Proposition A Sales Tax collected. The 1/2 of 1% Proposition A Sales Tax imposed by the LACMTA in the County is in addition to the general sales tax levied statewide by the State (currently 7.25%) and is in addition to a 1/2 of 1% sales tax for purposes imposed by the LACMTA in 1990 pursuant to Ordinance No. 49 of the Commission known as Proposition C. See THE LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY Proposition C Sales Tax Obligations. With limited exceptions, the Proposition A Sales Tax is imposed upon the same transactions and items subject to the general sales tax levied statewide by the State. The Budget Bill (the 1992 Budget Bill ) enacted by the State Legislature on June 22, 1991, and signed by the Governor of the State on July 16, 1991, included certain changes that expanded the transactions 22

35 and items subject to the general statewide sales tax. These same items and transactions consequently became subject to the Proposition A Sales Tax. Among the items that became subject to the general statewide sales tax as well as the Proposition A Sales Tax as a result of the 1992 Budget Bill were fuel for aviation and shipping, bottled water, rental equipment and newspapers and magazines. However, a voter initiative approved in 1992 eliminated taxation for candy, gum, bottled water and confectionery items. Initiatives and Changes to Proposition A Sales Tax Proposition 218. On November 5, 1996, the voters of the State approved Proposition 218, known as the Right to Vote on Taxes Act. Proposition 218 added Articles XIIIC and XIIID to the State Constitution. Among other things, Article XIIIC removes limitations, if any, that exist on the initiative power in matters of local taxes, assessments, fees and charges. Even though the LACMTA s enabling legislation did not limit the initiative power of the electorate prior to Proposition 218, Proposition 218 has affirmed the right of the voters to propose initiatives that could influence the Proposition A Sales Tax. The Act of One such initiative was submitted and approved by the voters of the County on November 3, 1998 in the form of the Metropolitan Transportation Authority Reform and Accountability Act of 1998 (the Act of 1998 ), which, among other things, prohibits the use of Proposition A Sales Tax and Proposition C Sales Tax to pay any costs of planning, design, construction or operation of any New Subway, including debt service on bonds, notes or other evidences of indebtedness issued for such purposes after March 30, New Subway is defined in the Act of 1998 to mean any rail line which is in a tunnel below the grade level of the earth s surface (including any extension or operating segment thereof), except for the Segment-1, Segment-2 and Segment-3 (North Hollywood) of the Red Line. Additionally, the Act of 1998 does not limit the use of Proposition A Sales Tax or Proposition C Sales Tax to provide public mass transit improvements to railroad right-of-ways. The Act of 1998 does not limit in any way the collection of the Proposition A Sales Tax or the Proposition C Sales Tax; it only limits the uses of such taxes. The LACMTA believes that the proceeds of all obligations previously issued by the LACMTA, which are secured by the Proposition A Sales Tax and/or the Proposition C Sales Tax, have been utilized for permitted purposes under the Act of Therefore, the Act of 1998 will have no effect on the LACMTA s ability to continue to utilize the Proposition A Sales Tax or the Proposition C Sales Tax to secure payment of its outstanding obligations secured by the Proposition A Sales Tax or the Proposition C Sales Tax. Additionally, the LACMTA has covenanted not to use the proceeds of the Series 2008 Bonds in a manner inconsistent with the provisions of the Act of 1998, and the Act of 1998 will not limit the ability of the LACMTA to secure payment of the Series 2008 Bonds with a pledge of the Proposition A Sales Tax. As required by the Act of 1998, the LACMTA contracted with an independent auditor to complete an audit with respect to the receipt and expenditure of Proposition A Sales Tax and Proposition C Sales Tax between the effective dates of Proposition A and Proposition C and June 30, In November, 1999, the independent auditor completed an audit and gave an unqualified opinion that the LACMTA was in compliance with Proposition A and Proposition C with regard to the receipt and expenditure of Proposition A Sales Tax and Proposition C Sales Tax. The Act of 1998 further requires the LACMTA to contract for an independent audit each subsequent fiscal year. For fiscal years 1999 through 2007, the independent auditors determined that the LACMTA was in compliance with the Act of 1998 for each such respective fiscal year. The Act of 1998 also established the Independent Citizens Advisory and Oversight Committee (the Committee ) whose responsibilities include reviewing the LACMTA s annual audit of its receipt and expenditure of Proposition A Sales Tax and Proposition C Sales Tax, the holding of public hearings regarding the annual audit and issuing reports based upon those audits and public hearings. The Committee is made up of five members, of which one member is appointed by the chair of the Los Angeles County Board of Supervisors, one member is appointed by the chair of the Board, one member is appointed by the Mayor of the City of Los Angeles, one member is appointed by the Mayor of the City of Long Beach, and one member is appointed by the Mayor of the City of Pasadena. 23

36 Legislative Changes and Other Matters. The State Legislature could further change the transactions and items upon which the statewide sales tax and the Proposition A Sales Tax are imposed, or the voters could place additional propositions on the ballot affecting the status of the sales tax. Any such change, amendment or proposition could have a positive or negative effect on Proposition A Sales Tax revenues depending on the nature of the change. The LACMTA is not currently aware of any proposed legislative or initiative change which would have a material adverse effect on Proposition A Sales Tax revenues. The increasing use of the Internet to conduct electronic commerce may affect the collection of the Proposition A Sales Tax. Internet sales of physical products by businesses located in the State, and internet sales of physical products delivered to the State by businesses located outside of the State are generally subject to the retail transactions and use tax imposed by Ordinance No. 16. To the extent that these transactions may avoid taxation due to incorrect or under-reporting, the LACMTA s receipt of Proposition A Sales Tax revenues may be adversely affected. Presently, the LACMTA is unable to determine what impact, if any, Internet sales may have on the amount of sales and use tax collected. The LACMTA can provide no assurances that Internet sales will not adversely affect the amount of Pledged Revenues available to meet the obligations of the Series 2008 Bonds. A measure approving an additional ½ of 1% sales tax to fund LACMTA transportation projects ( Measure R ) has been proposed to be put on the ballot for the November 2008 general election. If at least two-thirds of the voters in Los Angeles County approve Measure R, the new sales tax will be imposed. No assurance can be given whether Measure R will be approved or what impact, if any, the additional tax will have on retail sales in Los Angeles County and, therefore, on Pledged Revenues. In addition, the Governor of the State has proposed a temporary one-cent hike in the State s sales tax, which would be subject to approval by two-thirds of the State Legislature. No assurance can be given whether this tax will be implemented, or what impact, if any, the additional tax will have on retail sales in Los Angeles County and, therefore, on Pledged Revenues. Flow of Funds Pursuant to an agreement between the LACMTA and the State Board of Equalization, the State Board of Equalization is required to remit monthly directly to the Trustee the Proposition A Sales Tax receipts after deducting the State Board of Equalization s costs of administering the Proposition A Sales Tax and after paying directly to the LACMTA the Local Allocation (25% of net Proposition A Sales Tax cash receipts) (which for purposes of administrative ease is actually transferred first to the Trustee who then disburses the Local Allocation to the LACMTA). Under the Agreement, the Trustee is required to deposit and apply the moneys received from the State Board of Equalization, as needed (75% of net Proposition A Sales Tax cash receipts), taking into consideration any other funds previously deposited or applied in such month for such purposes, as follows: FIRST, to the credit of the Bond Interest Account for the First Tier Senior Lien Bonds, an amount equal to the Aggregate Accrued Interest for the current calendar month less any Excess Deposit made with respect to the last preceding calendar month plus any Deficiency existing on the first day of the calendar month plus any amount of interest which has become due and has not been paid and for which there are insufficient funds in the Bond Interest Account or other special accounts to be used to make such payment; SECOND, to the credit of the Bond Principal Account for the First Tier Senior Lien Bonds, the Aggregate Accrued Principal for the current calendar month plus any Accrued Premium and any Deficiency existing on the first day of the calendar month plus any amount of principal which has become due and has not been paid and for which there are insufficient funds in the Bond Principal Account or other special account to be used to make such payment; 24

37 THIRD, to the credit of the Reserve Fund for the First Tier Senior Lien Bonds, such portion of the balance, if any, remaining after making the deposits to the Bond Interest Account and the Bond Principal Account described above, as is necessary to increase the amount on deposit in the Reserve Fund to an amount equal to the Reserve Fund Requirement for the First Tier Senior Lien Bonds, or if the entire balance is less than the amount necessary, then the entire balance will be deposited into the Reserve Fund; provided, however, that so long as any Reserve Fund Insurance Policy is in effect and the Reserve Insurer is not in default of its obligations thereunder, the Trustee will pay the Reserve Insurer the greater of (i) the minimum amount required to be paid in accordance with the provisions of such Reserve Fund Insurance Policy and any related agreements between the LACMTA and the Reserve Insurer, or (ii) the amount necessary to reinstate the amount available to be drawn under such Reserve Fund Insurance Policy in order to meet the Reserve Fund Requirement for the First Tier Senior Lien Bonds (see Reserve Fund for First Tier Senior Lien Bonds below); FOURTH, to make deposits for the payment of Second Tier Obligations; provided that the Trustee may not use any portion of the remaining allocation for the Rail Development Program (See Table 1 Proposition A Sales Tax Apportionment ) to make payments under the Pledge Agreements; and FIFTH, to pay any remaining amount to the trustee under a subordinate trust agreement in such amounts and at such times as will be needed to provide for payment of such obligations in accordance with a Supplemental Trust Agreement or Supplemental Trust Agreements relating to such subordinate debt, including but not limited to the obligation of the LACMTA with respect to the Proposition A Commercial Paper Notes described herein. Any remaining funds will then be transferred to the LACMTA and will be available to be used for any lawful purpose, and will no longer be available to pay debt service on the First Tier Senior Lien Bonds. The LACMTA has granted pledges on the remaining Proposition A Sales Tax revenues to the payment of certain amounts under the Liquidity Facilities, the payment of and reserve requirements for the Remaining Sales Tax Bonds and termination payments under the Series 2005-C Swap Agreements. See PROPOSITION A SALES TAX OBLIGATIONS Outstanding Proposition A Sales Tax Obligations Other Obligations. After the payment of the Remaining Sales Tax Bonds, the LACMTA may use any remaining Proposition A Sales Tax revenues in accordance with the provisions of Ordinance No. 16. The following provides a graphic presentation of the flow of funds for Proposition A Sales Tax cash receipts. [Remainder of page intentionally left blank.] 25

38 Proposition A Sales Tax TABLE 2 Proposition A Sales Tax Flow of Funds State Board of Equalization 25% of Net Sales Tax Cash Receipts (Local Allocation) Trustee (First Tier Senior Obligations) 75% of Net Sales Tax Cash Receipts To the Trustee who transfers such amounts to the Los Angeles County Metropolitan Transportation Authority (To be utilized for Local Allocation) Bond Interest Account (First Tier Senior Obligations) Bond Principal Account (First Tier Senior Obligations) Reserve Fund (First Tier Senior Obligations) Second Tier Subordinate Lien Obligation Fund (Second Tier Obligations) Commercial Paper Notes (Third Tier Obligations) (Transferred to Commercial Paper Trustee) To LACMTA for payment of Liquidity Providers, Remaining Sales Tax Bonds and Obligations and certain swap termination payments To LACMTA for any lawful purposes 26

39 Reserve Fund for First Tier Senior Lien Bonds Pursuant to the Agreement, the Reserve Fund was established and is held by the Trustee and used to make payments of principal and interest with respect to all First Tier Senior Lien Bonds, including the Series 2008 Bonds, to the extent amounts in the Bond Interest Account or the Bond Principal Account are not sufficient to pay in full the interest on or principal (including accreted value) of the First Tier Senior Lien Bonds when due. The Reserve Fund is required to be funded in an amount equal to the Reserve Fund Requirement. See APPENDIX A SUMMARY OF BOND DOCUMENTS DEFINITIONS Reserve Fund Requirement. At the time of issuance of the Series 2008 Bonds, the Reserve Fund Requirement is expected to equal $146,942,930.27, which the LACMTA anticipates will be satisfied in part by the FSA Reserve Policy with a policy limit of $85,500,000, with the balance satisfied by cash and investments held in the Reserve Fund. Under the terms of the Agreement, the LACMTA may substitute an insurance policy provided by a bond insurer or a letter of credit in lieu of or in partial substitution for cash or securities deposited in the Reserve Fund in order to meet the Reserve Fund Requirement. See APPENDIX A SUMMARY OF BOND DOCUMENTS DEFINITIONS Reserve Fund Insurance Policy. The Agreement provides that any Reserve Fund Insurance Policy is to be valued at its face value less any unreimbursed drawings (of which there are none). The LACMTA anticipates that concurrently with the issuance of the Series 2008 Bonds, FSA will issue the FSA Reserve Policy in an amount not to exceed the lesser of $85,500,000 or the Reserve Fund Requirement. The FSA Reserve Policy. Generally, the FSA Reserve Policy will unconditionally and irrevocably guarantee the payment of that portion of the principal of and interest on the First Tier Senior Lien Bonds that becomes due for payment but shall be unpaid by reason of nonpayment by the LACMTA. Nonpayment means, in respect of a First Tier Senior Lien Bond, the failure of the LACMTA to have provided sufficient funds for the payment in full of all principal and interest that is due for payment on such First Tier Senior Lien Bond. Nonpayment also includes any payment of principal or interest that is due for payment made to an Owner by or on behalf of the LACMTA that has been recovered from such Owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. The FSA Reserve Policy will not cover payments due as a result of optional redemption of a First Tier Senior Lien Bond or payments of purchase price on tendered First Tier Senior Lien Bonds. The FSA Reserve Policy will terminate on July 1, The FSA Reserve Policy will be noncancellable and the premium therefor will be paid in full upon the issuance of the Series 2008 Bonds. The FSA Reserve Policy will not be covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law or by the California Insurance Guaranty Association established pursuant to Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1 of the California Insurance Code. The Twenty-Eighth Supplemental Agreement grants certain rights to FSA. Specifically, (a) if the LACMTA fails to reimburse FSA for draws on the FSA Reserve Policy or to pay expenses and accrued interest thereon, FSA is entitled to exercise any remedies available to it, including those provided under the Agreement, other than (i) acceleration of the First Tier Senior Lien Bonds, or (ii) remedies which would adversely affect Holders. In addition, the LACMTA and the Trustee have agreed with FSA that all cash and investments will be used to pay debt service on the First Tier Senior Lien Bonds prior to any drawing on the FSA Reserve Policy or any other Reserve Policy and that draws on Reserve Policies shall be made on a pro rata basis. Further, 27

40 draws on the FSA Reserve Policy and any other Reserve Policy are required to be reimbursed on a pro rata basis prior to the replenishment of any cash withdrawn from the Reserve Fund. Financial Security Assurance Inc. FSA is a New York domiciled financial guaranty insurance company and a wholly owned subsidiary of Financial Security Assurance Holdings Ltd. ( Holdings ). Holdings is an indirect subsidiary of Dexia, S.A., a publicly held Belgian corporation, and of Dexia Credit Local S.A., a direct wholly-owned subsidiary of Dexia, S.A. Dexia, S.A., through its bank subsidiaries, is primarily engaged in the business of public finance, banking and asset management in France, Belgium and other European countries. No shareholder of Holdings or FSA is liable for the obligations of FSA. At June 30, 2008, FSA's consolidated policyholders' surplus and contingency reserves were approximately $2,474,294,855 and its total net unearned premium reserve was approximately $2,618,981,067 in accordance with statutory accounting principles. At June 30, 2008, FSA's consolidated shareholder s equity was approximately $2,742,778,534 and its total net unearned premium reserve was approximately $2,065,001,822 in accordance with generally accepted accounting principles. Portions of the following documents filed by Holdings with the Securities and Exchange Commission ( SEC ) that relate to FSA are incorporated by reference into this Official Statement and shall be deemed to be a part hereof: (i) Annual Report of Holdings on Form 10-K for the year ended December 31, 2007, and (ii) Quarterly Report of Holdings on Form 10-Q for the quarter ended March 31, 2008, and (iii) Quarterly Report of Holdings on Form 10-Q for the quarter ended June 30, 2008, and (iv) Current Report of Holdings on Form 8-K filed on August 6, All information relating to FSA included in, or as exhibits to, documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the filing of the last document referred to above and before the termination of the offering of the Series 2008 Bonds shall be deemed incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such documents. Copies of materials incorporated by reference are available over the internet at the SEC s website at or at Holding s website at or will be provided upon request to FSA Assurance Inc.: 31 West 52 nd Street, New York, New York 10019, Attention: Communications Department (telephone (212) ). Any information regarding FSA included herein under the captions Financial Security Assurance Inc. and Recent Events Regarding FSA s Ratings or included in a document incorporated by reference herein (collectively, the FSA Information ) shall be modified or superseded to the extent that any subsequently included FSA Information (either directly or through incorporation by reference) modifies or supersedes such previously included FSA Information. Any FSA Information so modified or superseded shall not constitute a part of this Official Statement, except as so modified or superseded. The FSA Reserve Policy does not protect investors against changes in market value of the First Tier Senior Lien Bonds, which market value may be impaired as a result of changes in prevailing interest rates, changes in applicable ratings or other causes. FSA makes no representation regarding the First Tier Senior Lien Bonds, including the Series 2008 Bonds, or the advisability of investing in such bonds. FSA makes no representation regarding this Official Statement, nor has it participated in the preparation thereof, except that FSA has provided to the LACMTA the information presented under this caption and the caption Recent Events Regarding FSA s Ratings for inclusion in this Official Statement. 28

41 Recent Events Regarding FSA s Ratings. On August 6, 2008, Standard & Poor s Ratings Services revised its outlook on FSA to negative from stable, and affirmed FSA s AAA claims paying rating. On August 6, 2008, Fitch Ratings affirmed FSA s AAA /Stable insurer financial strength rating. On July 21, 2008, Moody s Investors Service, Inc. ( Moody s ) placed FSA s Aaa insurance financial strength ratings on review for possible downgrade due to concerns regarding elevated risks with the financial guaranty insurance market and within FSA s insured portfolio. Moody s noted that, while the outcome of the review is uncertain at this time, a downgrade of FSA s insurance financial strength rating below Aa2 is currently seen as unlikely. These ratings reflect only the views of the respective rating agencies, are not recommendations to buy, sell or hold securities and are subject to revision or withdrawal at any time by those rating agencies. See RATINGS. FGIC Reserve Policy. Concurrently with the issuance of the Proposition A Sales Tax Revenue Refunding Bonds Series 1991-B on December 4, 1991, Financial Guaranty Insurance Company ( Financial Guaranty ), issued the FGIC Reserve Policy in an amount not to exceed the lesser of $111,463, or the Reserve Fund Requirement. The FGIC Reserve Policy terminates on July 1, After the deposit of the FSA Reserve Policy to the Reserve Fund, the FGIC Reserve Policy will not be cancelled and will remain on deposit in the Reserve Fund. Recent developments in the financial markets, including the municipal bond market and the municipal bond insurance business, which have been the subject of substantial discussion in the financial press, have had a serious adverse effect on the financial condition and have weakened the credit status, as reflected in their ratings, of a number of financial guarantors, including Financial Guaranty. These developments may have seriously weakened Financial Guaranty s ability to pay claims under the FGIC Reserve Policy, and no assurance can be given as to Financial Guaranty s ability to pay such claims. No review of the business or affairs of Financial Guaranty has been conducted in connection with the issuance of the Series 2008 Bonds. This Official Statement does not contain any financial information about Financial Guaranty or the FGIC Reserve Policy and does not refer to any such information that may be available elsewhere, and Financial Guaranty has not reviewed or approved this Official Statement. PROSPECTIVE INVESTORS SHOULD NOT RELY ON THE FGIC RESERVE POLICY IN DECIDING WHETHER TO INVEST IN THE SERIES 2008 BONDS AND SHOULD ASSUME THAT, IN THE EVENT OF A DEFAULT IN THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE SERIES 2008 BONDS, FINANCIAL GUARANTY WILL NOT PAY ANY CLAIMS UNDER THE FGIC RESERVE POLICY IN RESPECT OF THOSE AMOUNTS. Due to the financial difficulties of Financial Guaranty, the LACMTA will deposit the FSA Reserve Policy and certain cash to the Reserve Fund at the time of the issuance of the Series 2008 Bonds. However, both before and after the occurrence of a payment or other default by the LACMTA in respect of the Series 2008 Bonds, Financial Guaranty may be entitled to exercise certain rights and remedies pursuant to the Agreement and a debt service reserve policy agreement with the LACMTA; such remedies shall not include acceleration or remedies which would adversely affect any holder of First Tier Senior Lien Bonds. While the FGIC Reserve Policy remains in effect, and so long as Financial Guaranty is not in default with respect to its obligations thereunder, Financial Guaranty will be entitled to consent to certain changes in documents, and if past due amounts are owing to Financial Guaranty under the FGIC Reserve Policy, Financial Guaranty will have the right to consent to the issuance of additional First Tier Senior Lien Bonds. In light of the Financial Guaranty s financial difficulties, under certain circumstances, there may be an increased likelihood that the interests of Financial Guaranty and the interests of the Bondholders will not be aligned with respect to these matters. 29

42 Liquidity Facilities for Series 2008-A Bonds For so long as the Series 2008-A Bonds of a series bear interest at a Daily Rate or a Weekly Rate, the Series 2008-A Bonds of such series are subject to optional and mandatory tender for purchase as described herein. The purchase price of the Series 2008-A Bonds is payable from the proceeds of remarketing of such Series 2008-A Bonds. If remarketing proceeds of the Series 2008-A1 Bonds or the Series 2008-A2 Bonds are insufficient, the purchase price for Series 2008-A Bonds of such series bearing interest at a Daily Rate or a Weekly Rate will be payable initially from amounts available under the Series 2008-A1 and Series 2008-A2 Liquidity Facility, subject to the terms and conditions therein. The Series 2008-A1 and Series 2008-A2 Liquidity Facility terminates on September 16, 2011, unless extended or terminated sooner in accordance with its terms. If remarketing proceeds of the Series 2008-A3 Bonds or the Series 2008-A4 Bonds are insufficient, the purchase price for Series 2008-A Bonds of such series bearing interest at a Weekly Rate will be payable initially from amounts available under the Series 2008-A3 and Series 2008-A4 Liquidity Facility, subject to the terms and conditions therein. The Series 2008-A3 and Series 2008-A4 Liquidity Facility terminates on September 16, 2011, unless extended or terminated sooner in accordance with its terms. The Series 2008-A3 and Series 2008-A4 Liquidity Facility does not apply to Series 2008-A3 Bonds or Series 2008-A4 Bonds bearing interest at a Daily Rate. See THE LIQUIDITY FACILITIES FOR THE SERIES 2008-A BONDS AND THE LIQUIDITY PROVIDERS. Under the Twenty-Eighth Supplemental Agreement, an Alternate Liquidity Facility or Facilities may be obtained by the LACMTA to provide for payment of the purchase price of one or more series of Series 2008-A Bonds. See Alternate Liquidity Facilities for the Series 2008-A Bonds. THE OBLIGATION OF THE LIQUIDITY PROVIDERS TO PURCHASE SERIES 2008-A BONDS TENDERED BY THE OWNERS THEREOF OR SUBJECT TO MANDATORY PURCHASE MAY BE SUSPENDED OR TERMINATED WITHOUT NOTICE. IN SUCH EVENT, SUFFICIENT FUNDS MAY NOT BE AVAILABLE TO PURCHASE SERIES 2008-A BONDS TENDERED BY THE REGISTERED OWNERS THEREOF OR SUBJECT TO MANDATORY PURCHASE. THE LIQUIDITY FACILITIES DO NOT GUARANTEE THE PAYMENT OF PRINCIPAL OF OR INTEREST ON THE SERIES 2008-A BONDS (OR THE SERIES 2008-B BONDS) IN THE EVENT OF NON-PAYMENT OF SUCH PRINCIPAL OR INTEREST BY THE LACMTA. IN ADDITION, THE LIQUIDITY PROVIDERS HAVE NO OBLIGATION TO PAY ANY INTEREST DUE ON THE SERIES 2008-A BONDS ON ANY INTEREST PAYMENT DATE. THE LIQUIDITY PROVIDERS HAVE NO OBLIGATION TO PURCHASE THE SERIES 2008-B BONDS. SEE THE LIQUIDITY FACILITIES FOR THE SERIES 2008-A BONDS AND THE LIQUIDITY PROVIDERS. Alternate Liquidity Facilities for the Series 2008-A Bonds If at any time there shall have been delivered to the Trustee (i) an Alternate Liquidity Facility in substitution for one or more of the Liquidity Facilities then in effect, (ii) a Favorable Opinion of Bond Counsel, (iii) a written Opinion of Counsel for the provider of the Alternate Liquidity Facility to the effect that such Alternate Liquidity Facility is a valid, legal and binding obligation of the provider thereof, and (iv) unless waived by such entity, written evidence satisfactory to the applicable Liquidity Provider of the provision for purchase from such Liquidity Provider of all Liquidity Provider Bonds held by such Liquidity Provider at a price equal to the principal amount thereof plus accrued and unpaid interest, and payment of all amounts due to the Liquidity Provider under the applicable Reimbursement Agreement(s) on or before the effective date of such Alternate Liquidity Facility, then the Trustee shall accept such Alternate Liquidity Facility on the Substitution Date and shall surrender the applicable Liquidity Facility then in effect to the provider thereof on the Substitution Date. The Trustee shall give notice of such proposed substitution by mail to the Owners of the affected Series 2008-A Bonds no less than 20 days prior to the proposed Substitution Date and such Series 30

43 2008-A Bonds shall be subject to mandatory tender on such date. See DESCRIPTION OF THE SERIES 2008 BONDS Mandatory Tender for Purchase of Series 2008-A Bonds above. PROPOSITION A SALES TAX COLLECTIONS The following table presents, among other things, collections of net Proposition A Sales Tax revenues and corresponding Pledged Revenues for the fiscal years ending June 30, 1998 through June 30, TABLE 3 Historic Net Proposition A Sales Tax Receipts, Local Allocations and Pledged Revenues (Dollars in Millions) Fiscal Year Net Sales Tax Revenue (1) Annual Percentage Change Allocations to Local Governments (2) Pledged Revenues (3) 1998 $ % $109.6 $ (1) Reflects Proposition A Sales Tax revenues, reported according to accrual basis accounting, presented in the LACMTA s audited financial statements, less administrative fee paid to the State Board of Equalization and deduction of special adjustments related to refunds arising from the litigation associated with Aerospace Corp. v. State Board of Equalization, but before local allocations. The LACMTA s obligations under the Aerospace Corp. litigation were satisfied in Fiscal Year Rounded to the closest $100,000. (2) Rounded to the closest $100,000. (3) Net Sales Tax Revenue less Allocations to Local Governments. Rounded to the closest $100,000. Source: The LACMTA. In Fiscal Year , reported according to cash basis accounting, Proposition A Sales Tax revenues were approximately $689,240,060, which is approximately equal to Proposition A Sales Tax revenues, on a cash basis, in Fiscal Year General PROPOSITION A SALES TAX OBLIGATIONS The LACMTA currently has four priority levels of obligations for Proposition A Sales Tax revenues: its First Tier Senior Obligations (which include all First Tier Senior Lien Bonds), its First Tier Second Senior Obligations (the LACMTA has no outstanding First Tier Second Senior Obligations and such lien has been closed off), its Second Tier Obligations and its Third Tier Obligations (which include the Proposition A Commercial Paper Notes). The LACMTA has incurred other obligations which are secured by certain remaining Proposition A Sales Tax cash receipts. See Outstanding Proposition A Sales Tax Obligations Other Obligations. 31

44 The LACMTA had outstanding the following Proposition A Sales Tax obligations as of August 1, 2008: First Tier Senior Lien Bonds in the aggregate principal amount of $1,606,670,000 (including the Refunded Bonds), Second Tier Obligations in the aggregate principal amount of $26,725,000 (excluding any regularly scheduled payments due under certain of the LACMTA s interest rate swaps) and Proposition A Commercial Paper Notes in the aggregate principal amount of $109,948,000. See Outstanding Proposition A Sales Tax Obligations. The LACMTA may issue additional First Tier Senior Lien Bonds upon the satisfaction of certain conditions contained in the Agreement. See Additional First Tier Senior Lien Bonds below. Debt Service Coverage The following table presents historical Pledged Revenues and First Tier Senior Lien Bond debt service coverage ratios for the fiscal years ending June 30, 1998 through June 30, TABLE 4 Proposition A Pledged Revenues and Debt Service Coverage (dollars in millions, except ratios; rounded to closest $100,000) Fiscal Year Pledged Revenues (1) First Tier Senior Lien Bonds Total Debt Service (2) First Tier Senior Lien Bonds Debt Service Coverage Ratio Net Receipts After Payment of First Tier Senior Lien Bonds (3) 1998 $328.7 $ $ (1) Pledged Revenue is 75% of Net Sales Tax Revenue (less special adjustments and local allocations). Rounded to closest $100,000. See Table 3 above. (2) Calculated on a bond year ending July 1 as opposed to a fiscal year ending June 30. Includes actual principal and interest on First Tier Senior Lien Bonds and payments made and received with respect to interest rate swaps associated with variable rate First Tier Senior Lien Bonds. (3) Rounded to the closest $100,000. Source: The LACMTA and Public Financial Management, Inc. Outstanding Proposition A Sales Tax Obligations Long-term obligations of the LACMTA, payable from the Proposition A Sales Tax, consist of sales tax revenue bonds, refunding bonds, lease revenue bonds, commercial paper notes, certain amounts owed under interest rate swap agreements and pledge agreements, notes and certificates of participation. At this time, the LACMTA has four priority levels of obligations: its First Tier Senior Obligations (which include all First Tier Senior Lien Bonds), its First Tier Second Senior Obligations (the LACMTA has no outstanding First Tier Second Senior Obligations and such lien has been closed off), its Second Tier Obligations and its Third 32

45 Tier Obligations (which include the Proposition A Commercial Paper Notes). The LACMTA has incurred other obligations which are secured by certain remaining Proposition A Sales Tax cash receipts. See Other Obligations below. First Tier Senior Lien Bonds. outstanding as of August 1, The LACMTA had the following First Tier Senior Lien Bonds Series Title Amount Sales Tax Revenue Refunding Bonds Series 2007-A $ 46,635,000 Sales Tax Revenue Refunding Bonds Series 2005-C 263,075,000 (1) Sales Tax Revenue Refunding Bonds Series 2005-B 29,000,000 Sales Tax Revenue Refunding Bonds Series 2005-A 227,765,000 Sales Tax Revenue Refunding Bonds Series 2003-B 243,635,000 Sales Tax Revenue Refunding Bonds Series 2003-A 214,185,000 Sales Tax Revenue Refunding Bonds Series 2001-B 178,235,000 Sales Tax Revenue Bonds Series 2001-A 13,110,000 Sales Tax Revenue Refunding Bonds Series 1999-C 166,735,000 Sales Tax Revenue Bonds Series 1999-B 23,535,000 Sales Tax Revenue Refunding Bonds Series 1999-A 124,365,000 Sales Tax Revenue Refunding Bonds Series 1992-A 36,600,000 (2) Sales Tax Revenue Refunding Bonds Series 1991-B 39,795,000 Total $1,606,670,000 (1) To be currently refunded upon the issuance of the Series 2008 Bonds. (2) The LACMTA has entered into a Standby Bond Purchase Agreement in connection with the Series 1992-A Bonds. Obligations with respect to bonds purchased under such Standby Bond Purchase Agreement are secured by Proposition A Sales Tax revenues on parity with the First Tier Senior Lien Bonds. The LACMTA expects to refund the Series 1992-A Bonds in the fall of Source: The LACMTA. All such obligations are payable from, and constitute prior first liens on, Proposition A Sales Tax revenues. First Tier Second Senior Obligations. The LACMTA has no outstanding First Tier Second Senior Obligations and such lien has been closed off. Second Tier Obligations. In connection with the issuance of the Refunded Bonds, the LACMTA entered into an interest rate swap agreement (the Series 2005-C BMO Swap Agreement ) with the Bank of Montreal ( BMO ) and an interest rate swap agreement (the Series 2005-C Deutsche Swap Agreement, and together with the Series 2005-C BMO Swap Agreement, the Series 2005-C Swap Agreements ) with Deutsche Bank AG, New York Branch ( Deutsche Bank, and together with BMO, the Series 2005-C Swap Counterparties ). Pursuant to the terms of the Series 2005-C BMO Swap Agreement, the LACMTA pays a fixed amount (the rate for which currently is equal to 3.359%) to BMO and BMO pays to the LACMTA a floating amount (the rate for which is equal to 63% of one-month London Interbank Offered Rate for deposits of U.S. dollars ( LIBOR ), plus 0.14%), in each case based on a notional amount equal to a portion of the principal amount of the Series 2008-A Bonds outstanding. Pursuant to the terms of the Series 2005-C Deutsche Swap Agreement, the LACMTA pays a fixed amount (the rate for which is equal to 3.358%) to Deutsche Bank and Deutsche Bank pays to the LACMTA a floating amount (the rate for which is equal to 63% of one-month LIBOR plus 0.14%), in each case based on a notional amount equal to a portion of the principal amount of the Series 2008-A Bonds outstanding. The Series 2005-C Swap Agreements are expected to terminate on July 1, 2031 (the final maturity date of the Series 2008-A Bonds), subject to the terms and 33

46 conditions of the respective Series 2005-C Swap Agreements. The Series 2005-C Swap Agreements are expected to remain in effect notwithstanding the refunding of the Refunded Bonds. However, in connection with the refunding of the Refunded Bonds, the LACMTA expects to amend some of the terms of the Series 2005-C Swap Agreements, including providing that the fixed rate to be paid by the LACMTA under the Series 2005-BMO Swap will be increased to 3.373%. The LACMTA s obligation to pay the Series 2005-C Swap Counterparties a fixed amount under the respective Series 2005-C Swap Agreements are on a parity basis with the Second Tier Obligations (as defined below). The terms of the Series 2005-C Swap Agreements do not alter any of the obligations of the LACMTA with respect to the payment of principal of or interest on the Series 2008-A Bonds. The payments received by the LACMTA from the Series 2005-C Swap Counterparties due under the Series 2005-C Swap Agreements do not constitute Pledged Revenues and are not pledged to the payment of principal or interest on the Series A Bonds, although payments made by BMO and Deutsche Bank under the Series 2005-C Swap Agreements (other than termination payments) will be deposited in the Series 2008-A Interest Subaccount and will be used to pay interest on the Series 2008-A Bonds. Under certain circumstances, the LACMTA may be obligated to make settlement payments to the Series 2005-C Swap Counterparties if the Series 2005-C Swap Agreements are terminated prior to their termination dates. The amount of any settlement payment will be determined pursuant to several factors, including the level of comparable interest rates at the time the applicable Series 2005-C Swap Agreement is terminated. Such settlement payments could be substantial. Such settlement payments would be secured by a lien on remaining Proposition A Sales Tax revenues on a parity with the LACMTA s obligations to pay debt service on the Remaining Sales Tax Bonds. See Other Obligations. However, the LACMTA may have to incur additional indebtedness secured by Proposition A Sales Tax revenue to make any settlement payments on the applicable Series 2005-C Swap Agreement. The LACMTA is also obligated to make regularly scheduled payments from Proposition A Sales Tax revenues on a parity with the Second Tier Obligations under an interest rate swap agreement (the Series A Swap Agreement ) with AIG Financial Products Corp. ( AIG ), relating to the Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds, Series 1992-A (the Series 1992-A Bonds ) issued by the Commission on June 10, Pursuant to the Series 1992-A Swap Agreement, AIG pays to the LACMTA (as successor to the Commission) a floating amount (generally the rate for which is equal to the variable interest rate on the Series 1992-A Bonds, but in certain circumstances, including when any Series 1992-A Bonds are being held by the liquidity provider for the Series 1993-A Bonds (Dexia) and until AIG determines that the marketability or market price of the Series 1992-A Bonds are not materially adversely affected by the event giving rise to the liquidity put, a percentage of either LIBOR or the SIFMA Municipal Swap Index at the option of AIG) on the Series 1992-A Bonds and the LACMTA pays AIG a fixed amount (the rate for which is equal to 5.86%), in each case based on a notional amount equal to the principal amount of the Series 1992-A Bonds outstanding. Because some of the Series 1992-A Bonds were acquired by the liquidity provider and continue to be held by the liquidity provider, AIG is currently paying the LACMTA a percentage of LIBOR rather than the actual rate of interest on the Series 1992-A Bonds. Under certain circumstances, the LACMTA may be obligated to make settlement payments to AIG if the Series 1992-A Swap Agreement is terminated. Such settlement payments would be secured by a pledge of Proposition A Sales Tax revenue on a parity basis with the Second Tier Obligations and could be substantial. The LACMTA expects to modify the Series A Swap Agreement to provide that regularly scheduled payments by AIG will be based on a percentage of LIBOR for the remainder of the term of the swap transaction and the percentage of LIBOR to be paid by AIG will be increased from the original percentage set forth in the swap documentation. Additionally, the amendment is expected to provide that the LACMTA s rights to terminate the Series 1992-A Swap Agreement will be broader than its rights currently and the language utilized in calculating any payment owed at termination will be modified from the current language. LACMTA additionally is currently planning to refund the Series 1992-A Bonds with the proceeds of additional variable rate and/or fixed rate First Tier Senior Lien Bonds and is considering terminating the Series 1992-A Swap Agreement in connection with such refunding of the Series 1992-A Bonds. 34

47 On October 6, 1993, the Community Redevelopment Financing Authority of the Community Redevelopment Agency of the City of Los Angeles, California issued its Grand Central Square Multifamily Housing Bonds, 1993 Series A (the Housing Bonds ) and its Grand Central Square Qualified Redevelopment Bonds, 1993 Series A (the Redevelopment Bonds ). The Redevelopment Bonds were refunded on April 30, 2002 with the proceeds of The Community Redevelopment Agency of the City of Los Angeles, California Grand Central Square Qualified Redevelopment Bonds, 2002 Refunding Series A (the Refunding Redevelopment Bonds ). The Housing Bonds were refunded on June 21, 2007 with the proceeds of The Community Redevelopment Agency of the City of Los Angeles, California Grand Central Square Multifamily Housing Revenue Refunding Bonds, 2007 Series A (the 2007 Series A Refunding Housing Bonds ) and Grand Central Square Multifamily Housing Revenue Refunding Bonds, 2007 Series B (the 2007 Series B Refunding Housing Bonds and, together with the 2007 Series A Refunding Housing Bonds, the Refunding Housing Bonds ). The LACMTA is obligated (but only from the LACMTA s 40% discretionary share of Proposition A Sales Tax revenues) to make debt service payments with respect to the Refunding Redevelopment Bonds and the 2007 Series B Refunding Housing Bonds. To the extent the trustee for the Refunding Redevelopment Bonds and the 2007 Series B Refunding Housing Bonds has sufficient revenues and other funds, the trustee will reimburse the LACMTA to the extent of its payment from such funds. As of August 1, 2008, $26,725,000 aggregate principal amount of the Series B Refunding Housing Bonds and the Refunding Redevelopment Bonds were outstanding. The LACMTA s obligations under the Series 2005-C Swap Agreements (other than termination payments), the Series 1992-A Swap Agreement, the Housing Bonds and the Refunding Redevelopment Bonds constitute Second Tier Obligations, and are payable from Proposition A Sales Tax revenues on a subordinate basis to the First Tier Senior Lien Bonds described above. Third Tier Subordinate Lien Obligations. On January 24, 1991, the Commission received authorization to issue $350,000,000 aggregate principal amount of its Proposition A tax-exempt Commercial Paper Notes (the Proposition A Commercial Paper Notes ). As of August 1, 2008, $109,948,000 aggregate principal amount of Proposition A Commercial Paper Notes were outstanding. The Proposition A Commercial Paper Notes are payable from Proposition A Sales Tax revenues on a subordinate basis to the First Tier Senior Lien Bonds, the First Tier Second Senior Obligations and the Second Tier Obligations. Other Obligations. The Liquidity Facilities impose obligations on the LACMTA to make payments of certain fees and other amounts to the Liquidity Providers. The LACMTA s obligation to make such payments is payable from Pledged Revenues on a subordinate basis to the First Tier Senior Lien Bonds, the First Tier Second Senior Obligations, the Second Tier Obligations and the Third Tier Subordinate Lien Obligations. On August 21, 2003, the LACMTA issued $88,485,000 aggregate principal amount of its General Revenue Refunding Bonds (Workers Compensation Funding Program) Series 2003 (Taxable) (the 2003 Workers Compensation Bonds ) and together with the 2004 Gateway Bonds, the Remaining Sales Tax Bonds ). On September 22, 2004, the LACMTA issued $197,050,000 aggregate principal amount of its General Revenue Refunding Bonds (Union Station Gateway Project) Series 2004-A, Series 2004-B, Series 2004-C and Series 2004-D (the 2004 Gateway Bonds and together with the 2003 Workers Compensation Bonds, the Remaining Sales Tax Bonds ), which refunded certain General Revenue Refunding Bonds issued by the LACMTA in The Remaining Sales Tax Bonds are secured by a pledge of fare box revenues, fee and advertising revenues and certain remaining Proposition A and C Sales Tax revenues. Remaining Proposition A and C Sales Tax revenues consist of such sales tax revenues remaining after applying such funds to the payment or satisfaction of debt service requirements relating to any other securities or obligations of the LACMTA secured by a pledge which is senior to the Remaining Sales Tax Bonds. The LACMTA s obligations to make debt service payments from such revenues is on a basis subordinate to any claim on Proposition A Sales Tax 35

48 revenues by the holders of the Series 2008 Bonds. As of August 1, 2008, there was $206,770,000 aggregate principal amount of Remaining Sales Tax Bonds outstanding. In connection with the issuance of the 2004 Gateway Bonds, the LACMTA entered into an interest rate swap agreement (the 2004 Gateway Swap Agreement ) with BMO. Under the terms of the 2004 Gateway Swap Agreement, the LACMTA pays a fixed amount (the rate for which is equal to 3.501% per annum) to BMO and BMO pays to the LACMTA a floating amount (the rate for which is equal to 64% of one-month LIBOR plus 0.21%), in each case based on a notional amount equal to the principal amount of the 2004 Gateway Bonds outstanding. The 2004 Gateway Swap Agreement is expected to terminate on July 1, 2027 (the final maturity date of the 2004 Gateway Bonds), subject to the terms and conditions of the 2004 Gateway Swap Agreement. Under certain circumstances, the LACMTA may be obligated to make settlement payments to BMO if the 2004 Gateway Swap Agreement is terminated. The LACMTA s obligations to pay amounts owed to BMO under the 2004 Gateway Swap Agreement are subordinate to any claim on Proposition A Sales Tax revenues by the holders of the Series 2008 Bonds. The LACMTA is currently considering amending some of the terms of the 2004 Gateway Swap Agreement. The LACMTA is currently planning to refund the 2004 Gateway Bonds with the proceeds of certain variable rate bonds and/or certain fixed rate bonds that would be secured by fare box revenues, fee and advertising revenues and Remaining Proposition A and C Sales Tax revenues. Impact of Bond Insurer Rating Downgrades on the LACMTA s Auction Rate Securities and Variable Rate Demand Bonds Beginning in September 2007, the auction rate securities market and the variable rate demand bond market experienced increased volatility due to, among other things, the negative attention on and downgrades of AAA-rated monoline insurers resulting from, among other things, exposure to sub-prime securities. The LACMTA has approximately $1.1 billion of auction rate securities and variable rate demand bonds outstanding as of August 1, 2008 which have experienced increased rates that have fluctuated from a high of 6.3% during February 2008 to an average rate of 3.5% in July Included in such amount are approximately $299.7 million of outstanding auction rate securities and variable rate demand bonds secured by Pledged Revenues from the Proposition A Sales Tax (as of August 1, 2008), approximately $263.1 million of which will be refunded with the proceeds of the Series 2008 Bonds. The LACMTA is actively pursuing options to restructure the balance of the affected bonds. Currently, the LACMTA expects to have substantially completed the restructuring of its auction rate securities and variable rate demand bonds by the fall of Due to the market volatility and resulting increases in debt service, debt service in Fiscal Year will exceed the budgeted amount. The LACMTA has included increased estimates of interest expense in its adopted budget for Fiscal Year , in order to account for continued higher interest rates in the auction rate securities and variable rate demand bond market. Based on July 2008 interest rates, the LACMTA estimates that it has budgeted sufficient funds to pay the debt service on its auction rate securities and variable rate demand bonds in Fiscal Year Additional First Tier Senior Lien Bonds Upon compliance with the terms of the Agreement, the LACMTA is permitted to issue Additional First Tier Senior Lien Bonds under the Agreement secured by Pledged Revenues on a parity basis with the Outstanding First Tier Senior Lien Bonds. First Tier Senior Lien Bonds may be issued for any purpose for which the LACMTA at the time of issuance may incur debt, which, if the LACMTA may then otherwise do so, may include the issuance of First Tier Senior Lien Bonds for the purpose of loaning the proceeds to other entities. Prior to issuance of any First Tier Senior Lien Bonds, including the issuance of the Series 2008 Bonds, there will be delivered to the Trustee, in addition to other items, a certificate prepared by a Consultant showing that 35% (or such greater percentage permitted by the immediately following paragraph) of the Proposition A 36

49 Sales Tax collected for any 12 consecutive months out of the 15 consecutive months immediately preceding the issuance of the proposed First Tier Senior Lien Bonds was at least equal to 115% of Maximum Annual Debt Service for all First Tier Senior Lien Bonds which will be outstanding immediately after the issuance of the proposed First Tier Senior Lien Bonds. For First Tier Senior Lien Bonds issued at any time when the reimbursement agreement relating to the LACMTA s Proposition A Commercial Paper Notes is in effect, a written statement of an Authorized Authority Representative certifying that after the issuance of such First Tier Senior Lien Bonds, the ratio of Pledged Revenues to Projected Maximum Total Annual Debt Service (as defined in such reimbursement agreement) will be in compliance with the provisions of such reimbursement agreement is required to be delivered to the agent bank under such reimbursement agreement. If any city, entitled to receive a Local Allocation, has authorized the pledging of all or a portion of its share of the Local Allocation to secure the First Tier Senior Lien Bonds, the duration of such pledge is not less than the term of any First Tier Senior Lien Bonds then issued and Outstanding or currently proposed to be issued, and a certified copy of the city s ordinance, resolution or other official action authorizing the pledge and setting forth the terms of such pledge and a written opinion of bond counsel that the pledge of such portion of the Local Allocation is a valid pledge of the LACMTA have been filed with the Trustee, then the reference to 35% in the immediately preceding paragraph will be replaced with the percentage which is equal to 35% plus the percentage determined by dividing the amount of the Local Allocation then included in Pledged Tax by the total Proposition A Sales Tax. For purposes of the comparisons set forth in the Consultant s certificate, the actual historical Proposition A Sales Tax revenues may be adjusted by the Consultant if there has been or upon the issuance of the proposed First Tier Senior Lien Bonds there will be a change in the base upon which the Proposition A Sales Tax is imposed, the Proposition A Sales Tax revenues for the 12 months used in the comparisons will be adjusted to reflect the amount of Proposition A Sales Tax revenues which would have resulted had the change in the base occurred on the first day of such 12-month period. The certificate described above will not be required, however, if the Additional First Tier Senior Lien Bonds to be issued are being issued for the purpose of refunding then Outstanding First Tier Senior Lien Bonds and there is delivered to the Trustee, instead, a certificate of the Authorized Authority Representative showing that Maximum Annual Debt Service on all First Tier Senior Lien Bonds Outstanding after the issuance of the refunding First Tier Senior Lien Bonds will not exceed Maximum Annual Debt Service on all First Tier Senior Lien Bonds Outstanding prior to the issuance of such First Tier Senior Lien Bonds. So long as MBIA Insurance Corporation ( MBIA ) is insuring the payment with respect to any First Tier Senior Lien Bonds and has not defaulted on such insurance obligation, the LACMTA s issuance of First Tier Senior Lien Bonds which constitute Variable Rate Indebtedness with an option to tender such indebtedness to the LACMTA require a credit or liquidity facility or other arrangement for the tender of such Variable Rate Indebtedness, which facility or arrangement will be rated in the highest short-term Rating Category by both Moody s Investors Service ( Moody s ) and Standard & Poor s Rating Service, a Division of the McGraw Hill companies ( S&P ), unless MBIA consents to the issuance of such Variable Rate Indebtedness without such facility or arrangement and notice thereof is provided to Moody s and S&P. So long as there are past due any amounts validly owing to Financial Guaranty under the terms of the FGIC Reserve Policy and any related agreements between the LACMTA and Financial Guaranty, the LACMTA may not issue Additional First Tier Senior Lien Bonds without the prior written consent of the Financial Guaranty which consent will not be unreasonably withheld. [Remainder of page intentionally left blank.] 37

50 COMBINED DEBT SERVICE SCHEDULE The following table shows the combined parity debt service requirements on the LACMTA s First Tier Senior Lien Bonds after giving effect to the issuance of the Series 2008 Bonds and the refunding of the Refunded Bonds. Bond Years Ending July 1 TABLE 5 Los Angeles County Metropolitan Transportation Authority Combined Debt Service Schedule First Tier Senior Lien Bonds (1) Previously Issued First Tier Senior Lien Bonds Debt Service (2) Series 2008 Bonds Debt Service (3) Combined Total Debt Service First Tier Senior Lien Bonds 2009 $136,341,138 $ 9,829,267 $146,170, ,393,095 12,148, ,541, ,084,673 12,121, ,206, ,083,243 12,146, ,230, ,087,805 12,141, ,229, ,024,735 18,764, ,789, ,020,763 18,784, ,804, ,120,138 26,642, ,762, ,862,106 22,554, ,416, ,056,069 24,380, ,436, ,251,706 24,382, ,634, ,249,781 24,420, ,670, ,373,231 24,457, ,830, ,471,531 26,107,462 54,578, ,469,031 26,149,198 54,618, ,470,031 26,194,799 54,664, ,472,031 26,242,637 54,714, ,367,531 26,317,899 54,685, ,694,281 26,011,938 39,706, ,693,281 12,918,203 26,611, ,689,781 3,614,521 17,304, ,689,906 3,635,923 17,325, ,691,000 3,625,803 17,316, ,693,650-13,693, ,689,250-13,689, ,693,000-13,693, ,692,000-13,692,000 Total $1,953,424,787 $423,593,010 $2,377,017,798 (1) Numbers may not total due to rounding to nearest dollar. (2) Assumes the Series 1992-A Bonds bear interest at a fixed interest rate of 5.86% pursuant to the Series 1992-A Swap Agreement. Excludes debt service on the Refunded Bonds. (3) Assumes the Series 2008-A1 Bonds and the Series 2008-A2 Bonds bear interest at a fixed interest rate of 3.373% pursuant to the Series 2005-C BMO Swap Agreement and the Series 2008-A3 Bonds and the Series 2008-A4 Bonds bear interest at a fixed rate of 3.358% pursuant to the Series 2005-C Deutsche Swap Agreement. Source: The LACMTA and Public Financial Management Inc. 38

51 THE LIQUIDITY FACILITIES FOR THE SERIES 2008-A BONDS AND THE LIQUIDITY PROVIDERS The Series 2008-A1 and Series 2008-A2 Liquidity Facility General The following summarizes certain provisions of the Series 2008-A1 and Series 2008-A2 Liquidity Facility, to which document, in its entirety, reference is made for the complete provisions thereof. The provisions of any Alternate Liquidity Facility may be different from those summarized below. Capitalized terms used in this summary and not otherwise defined in this summary or elsewhere in this Official Statement shall have the meanings assigned to such terms at the end of this summary. Subject to the terms and conditions of the Series 2008-A1 and Series 2008-A2 Liquidity Facility, Bank of America will agree from time to time during the Commitment Period to purchase Eligible Bonds at the Purchase Price on a Purchase Date. The portion of the Purchase Price paid for any Eligible Bonds constituting principal purchased on any Purchase Date shall not exceed the Available Principal Commitment on such Purchase Date and shall be in Authorized Denominations. The portion of the Purchase Price paid for any Eligible Bonds constituting accrued but unpaid interest on such Eligible Bonds purchased on any Purchase Date shall not exceed the lesser of the accrued and unpaid interest on such Eligible Bonds and the Available Interest Commitment on such Purchase Date. Any Eligible Bonds purchased by Bank of America pursuant to the Series 2008-A1 and Series 2008-A2 Liquidity Facility shall thereupon constitute Liquidity Provider Bonds and, from the date of such purchase and while they are Liquidity Provider Bonds, such Liquidity Provider Bonds shall bear interest and shall have other characteristics as set forth in the Series 2008-A1 and Series 2008-A2 Liquidity Facility, in the Trust Agreement, the Twenty-Eighth Supplemental Agreement and in the Series 2008-A1 Bonds and Series 2008-A2 Bonds. Amounts drawn under the Series 2008-A1 and Series 2008-A2 Liquidity Facility may only be used to pay the Purchase Price of Series 2008-A1 Bond and Series 2008-A2 Bonds which are Eligible Bonds and may not be used for any other purpose. UNDER CERTAIN CIRCUMSTANCES DESCRIBED HEREIN, THE OBLIGATION OF BANK OF AMERICA TO PURCHASE SERIES 2008-A1 BONDS AND/OR SERIES 2008-A2 BONDS TENDERED BY THE OWNERS THEREOF OR SUBJECT TO MANDATORY PURCHASE MAY BE TERMINATED OR SUSPENDED WITHOUT NOTICE. IN SUCH EVENT, SUFFICIENT FUNDS MAY NOT BE AVAILABLE TO PURCHASE SERIES 2008-A1 BONDS OR SERIES 2008-A2 BONDS, AS THE CASE MAY BE, TENDERED BY THE OWNERS THEREOF OR SUBJECT TO MANDATORY PURCHASE. THE SERIES 2008-A1 AND SERIES 2008-A2 LIQUIDITY FACILITY DOES NOT GUARANTY THE PAYMENT OF PRINCIPAL OF OR INTEREST OR REDEMPTION PREMIUM, IF ANY, ON THE SERIES 2008-A1 BONDS OR SERIES 2008-A2 BONDS IN THE EVENT OF NON- PAYMENT OF SUCH INTEREST OR PRINCIPAL BY THE LACMTA. IN ADDITION, BANK OF AMERICA HAS NO OBLIGATION TO PAY ANY INTEREST DUE ON THE SERIES 2008-A1 BONDS OR SERIES 2008-A2 BONDS ON ANY INTEREST PAYMENT DATE. NO BONDS OTHER THAN THE SERIES 2008-A1 BONDS AND SERIES 2008-A2 BONDS ARE PAYABLE FROM THE SERIES 2008-A1 AND SERIES 2008-A2 LIQUIDITY FACILITY. The Available Commitment is, as of any day, the sum of the Available Principal Commitment and the Available Interest Commitment, in each case as of such day. The Available Principal Commitment is initially $ 131,500,000 and shall be adjusted from time to time as follows: (a) downward by the principal amount of Series 2008-A1 Bonds and Series 2008-A2 Bonds redeemed, paid or converted to any Interest Rate Period other than the Daily Rate Period or the Weekly Rate Period, 39

52 (b) downward by the principal amount of any Eligible Bonds purchased by Bank of America pursuant to the Series 2008-A1 and Series 2008-A2 Liquidity Facility, and (c) upward by the principal amount of any Eligible Bonds theretofore purchased by Bank of America pursuant to the Series 2008-A1 and Series 2008-A2 Liquidity Facility which (i) are remarketed by the applicable Remarketing Agent and for which Bank of America has received immediately available funds equal to the par amount thereof plus accrued interest or (ii) are no longer treated as Liquidity Provider Bonds as a result of the election by the holder thereof to retain such bonds after the applicable Remarketing Agent has located a purchaser therefor; provided, however, that the sum of (i) the Available Principal Commitment plus (ii) the aggregate principal amount of Liquidity Provider Bonds shall never exceed $131,500,000. Any adjustments to the Available Principal Commitment pursuant to clauses (a), (b) or (c) above shall occur simultaneously with the occurrence of the events described in such clauses. The Available Interest Commitment is initially $1,513,151, computed as thirty-five (35) days interest on the Available Principal Commitment at an assumed rate of 12% per annum, computed on the basis of a year of 365 days and the actual days elapsed; which amount shall be adjusted from time to time as follows: (a) downward by an amount that bears the same proportion to such amount as the amount of any reduction in the Available Principal Commitment in accordance with clause (a) or (b) of the Available Principal Commitment, described above, bears to the initial Available Principal Commitment and (b) upward by an amount that bears the same proportion to such amount as the amount of any increase in the Available Principal Commitment in accordance with clause (c) of the Available Principal Commitment, described above, bears to the initial Available Principal Commitment; provided, however the Available Interest Commitment shall never exceed $1,513,151. Any adjustments to the Available Interest Commitment shall occur simultaneously with any corresponding adjustments to the Available Principal Commitment. The Commitment Period is the period from the date the Series 2008-A1 and Series 2008-A2 Liquidity Facility is executed and delivered to and including the earliest of (a) September 16, 2011, as such date may be extended from time to time by Bank of America pursuant to the Series 2008-A1 and Series A2 Liquidity Facility; provided that if any such date is not a business day, the Expiration Date shall be the next preceding business day (the Expiration Date ), (b) the date on which no Eligible Bonds are Outstanding, (c) the date on which the Available Commitment is terminated in its entirety, (d) the fifth business day after the date on which all of the Series 2008-A1 Bonds and Series 2008-A2 Bonds are converted to bear interest at a rate of interest other than the Daily Rate or the Weekly Rate or another interest period of 35 days or less, (e) upon the effective date of an Alternate Liquidity Facility or (f) the date on which Bank of America ceases to be required to purchase Eligible Bonds under the Series 2008-A1 and Series 2008-A2 Liquidity Facility (see Remedies below). Events of Default The occurrence of any of the events described in paragraphs (a) through (p) below constitutes an Event of Default under the Series 2008-A1 and Series 2008-A2 Liquidity Facility. Upon the occurrence of an Event of Default, Bank of America may exercise the remedies described in Remedies below. (a) an event of default shall have occurred and shall be continuing under any of the LACMTA Related Documents (other than an Event of Default specified below); or (b) the LACMTA shall fail to pay or cause to be paid when due (i) any amounts with respect to the principal of or interest or premium, if any, on the Series 2008-A1 Bonds or Series A2 Bonds (other than Liquidity Provider Bonds which have been accelerated) other than the Interest Component, (ii) any Obligations (other than the payment of the Interest Component) or (iii) any other amount payable pursuant to the Series 2008-A1 and Series 2008-A2 Liquidity Facility (including the 40

53 payment of the Interest Component) and, in the case of any amount described in this clause (iii) (including the payment of the Interest Component), such failure shall continue unremedied for a period of five business days after notice (including telephonic notice) thereof from Bank of America to the LACMTA; or (c) the LACMTA shall fail to observe or perform certain covenants and agreements set forth in the Series 2008-A1 and Series 2008-A2 Liquidity Facility (this includes the following covenants and agreements: notice of the occurrence of an Event of Default; use of the proceeds of the Series 2008-A1 Bonds and the Series 2008-A2 Bonds; requirement that all amounts owing to Bank of America under the Series 2008-A1 and Series 2008-A2 Liquidity Facility are paid and all Liquidity Provider Bonds purchased in connection with a substitution of the Series 2008-A1 and Series 2008-A2 Liquidity Facility with an Alternate Liquidity Facility; limitation on the incurrence of any Debt or other obligations secured by Pledged Revenues; the LACMTA shall not dissolve nor shall it sell, lease, assign, transfer or otherwise dispose of all or a major portion of its assets; limitation on amendments and waivers of certain acts, ordinances and agreements; restriction on the LACMTA entering into conflicting agreements; limitations on the incurrence of liens over the Pledged Revenues; limitation on consolidation and merger of the LACMTA; and limitations upon actions or omissions that would adversely affect the exclusion of interest on the Series 2008-A1 Bonds and/or Series A2 Bonds from gross income for purposes of federal income taxation or the exemption of such interest from State of California personal income taxes); or (d) the LACMTA shall fail to observe or perform any other covenant or agreement contained (or incorporated by reference) in the Series 2008-A1 and Series 2008-A2 Liquidity Facility (other than those covered by clauses (b) or (c) above) for thirty (30) days after written notice thereof requesting that such default be remedied has been given to it by Bank of America; provided, however, such breach shall not constitute an Event of Default after such thirty (30) day period for such period of time as, in the judgment of Bank of America, the LACMTA is diligently pursuing a cure or correction of such failure, but in no event shall such period extend more than sixty (60) days after such written notice was initially given; or (e) a final non insured, non appealable judgment or order for the payment of money in excess of $20,000,000 payable from the Pledged Revenues shall be rendered against the LACMTA, and such judgment or order shall continue unsatisfied and unstayed for a period of one hundred twenty (120) days; or (f) (i) default by the LACMTA in the payment of any Debt of the type described in clauses (i), (iv) and (v) of the definition thereof (see below) secured by Pledged Revenues that is senior to, or on a parity with, the Series 2008-A1 Bonds and Series 2008-A2 Bonds, including, without limitation, any principal or sinking fund installment, any interest, any premium thereon (whether by scheduled maturity, required prepayment, acceleration, or demand) or within any applicable grace period, (ii) the occurrence of any event under any ordinance, indenture, agreement, resolution, or instrument giving rise to any Debt of the type described in clauses (i), (iv) and (v) of the definition thereof (see below) secured by Pledged Revenues that is senior to, or on a parity with, the Series 2008-A1 Bonds and Series 2008-A2 Bonds, which would entitle the obligee thereof or a trustee on behalf of such obligee to declare the acceleration of any maturity thereof or upon the lapse of time or the giving of notice or both would entitle the obligee thereof or a trustee on behalf of such obligee to accelerate any maturity thereof; or (iii) any Debt of the type described in clauses (i), (iv) and (v) of the definition thereof (see below) secured by Pledged Revenues that is senior to, or on a parity with, the Series 2008-A1 Bonds and Series 2008-A2 Bonds shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or 41

54 (g) the LACMTA shall commence a voluntary case or other proceeding seeking (i) liquidation, reorganization, moratorium, debt adjustment or other relief for the LACMTA under any bankruptcy, insolvency, or other similar law now or hereafter in effect or (ii) the appointment of a receiver, liquidator, custodian, or other similar official with respect to the LACMTA or any substantial part of its property, or the LACMTA shall consent to or acquiesce in such relief or the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it; (h) a receiver, liquidator, custodian, or other official, appointed in an involuntary case or proceeding commenced against the LACMTA, appointed without consent or acquiescence of the LACMTA, takes charge of a substantial part of the LACMTA s properties and such action is not dismissed, discharged, stayed or vacated for a period of sixty (60) days; (i) the LACMTA shall make a general assignment for the benefit of creditors, or publicly declare a moratorium with respect to its debts, or shall fail generally to pay its debts as they become due, or shall take any action to authorize any of the foregoing; (j) an involuntary case or other proceeding shall be commenced against the LACMTA seeking (i) liquidation, reorganization, or other relief with respect to the LACMTA s debts under any bankruptcy, insolvency, or other similar law now or hereafter in effect, or (ii) the appointment of a custodian, receiver, liquidator, trustee or other similar official for the LACMTA or for any substantial part of the LACMTA s property, and such proceeding or case shall not be dismissed, vacated, stayed or discharged within ninety (90) days after the filing thereof or an order of relief shall be entered against the LACMTA under the federal bankruptcy laws as now or hereafter in effect; (k) (i) the LACMTA shall (A) claim that any of the provisions of the Series 2008-A1 and Series 2008-A2 Liquidity Facility, the Trust Agreement, the Twenty-Eighth Supplemental Agreement, the Series 2008-A1 Bonds or the Series 2008-A2 Bonds that provide for the payment of principal or interest on the Series 2008-A1 Bonds or the Series 2008-A2 Bonds are not valid or binding on the LACMTA, (B) repudiate its obligations under any of the provisions of the Series A1 and Series 2008-A2 Liquidity Facility, the Trust Agreement, the Twenty-Eighth Supplemental Agreement, the Series 2008-A1 Bonds or the Series 2008-A2 Bonds that provide for the payment of principal or interest on the Series 2008-A1 Bonds and/or Series 2008-A2 Bonds and/or (C) initiate any legal proceedings to seek any adjudication that any of the provisions of the Series 2008-A1 and Series 2008-A2 Liquidity Facility, the Trust Agreement, the Twenty-Eighth Supplemental Agreement, the Series 2008-A1 Bonds or the Series 2008-A2 Bonds that provide for the payment of principal or interest on the Series 2008-A1 Bonds and Series 2008-A2 Bonds are not valid or binding on the LACMTA; or (ii) any court of competent jurisdiction or other governmental entity with jurisdiction to rule on the validity of the Series 2008-A1 and Series 2008-A2 Liquidity Facility, the Trust Agreement, the Twenty-Eighth Supplemental Agreement, the Series 2008-A1 Bonds or the Series 2008-A2 Bonds shall find or rule that any provision in the Series 2008-A1 and Series 2008-A2 Liquidity Facility, the Trust Agreement, the Twenty-Eighth Supplemental Agreement, the Series 2008-A1 Bonds or the Series 2008-A2 Bonds that provides for the payment of principal or interest on the Series 2008-A1 Bonds and Series 2008-A2 Bonds is not valid or not binding on the LACMTA; (l) each of Fitch, S&P and Moody s shall have (i) assigned a Proposition A First Tier Senior Sales Tax Rating below BBB-, in the case of Fitch and S&P, and Baa3, in the case of Moody s, or (ii) withdrawn or suspended their Proposition A First Tier Senior Sales Tax Rating for reasons related to the credit strength of the LACMTA; (m) any of Fitch, S&P and Moody s shall have (i) assigned a Proposition A First Tier Senior Sales Tax Rating below BBB-, in the case of Fitch and S&P, and Baa3, in the case of 42

55 Moody s, or (ii) withdrawn or suspended their Proposition A First Tier Senior Sales Tax Rating for reasons related to the credit strength of LACMTA; (n) the Series 2008-A1 Bonds and/or Series 2008-A2 Bonds shall cease to have an effective security interest to the extent and priority created or purported to be created by the Trust Agreement; (o) any representation or warranty made by or on behalf of the LACMTA in the Series 2008-A1 and Series 2008-A2 Liquidity Facility or in the Trust Agreement or the Twenty-Eighth Supplemental Agreement or in any certificate or statement delivered to Bank of America thereunder shall prove to have been incorrect or untrue in any material respect when made or deemed to have been made; or (p) (i) default by the LACMTA in the payment of any Debt of the type described in clauses (ii), (iii), (vi) and (vii) of the definition thereof (see below) secured by Pledged Revenues that is senior to, or on a parity with, the Series 2008-A1 Bonds and Series 2008-A2 Bonds, including, without limitation, any principal or sinking fund installment, any interest, any premium thereon (whether by scheduled maturity, required prepayment, acceleration, or demand) or within any applicable grace period, (ii) the occurrence of any event under any ordinance, indenture, agreement, resolution, or instrument giving rise to any Debt of the type described in clauses (ii), (iii), (vi) and (vii) of the definition thereof (see below) secured by Pledged Revenues that is senior to, or on a parity with, the Series 2008-A1 Bonds and Series 2008-A2 Bonds, which would entitle the obligee thereof or a trustee on behalf of such obligee to declare the acceleration of any maturity thereof or upon the lapse of time or the giving of notice or both would entitle the obligee thereof or a trustee on behalf of such obligee to accelerate any maturity thereof; or (iii) any Debt of the type described in clauses (ii), (iii), (vi) and (vii) of the definition thereof (see below) secured by Pledged Revenues that is senior to, or on a parity with, the Series 2008-A1 Bonds and Series 2008-A2 Bonds shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof. Remedies Termination Without Notice or Purchase. Upon the occurrence of any Immediate Termination Event, (i) the Commitment Period and the obligation of Bank of America to purchase Eligible Bonds shall immediately terminate without notice or demand, and thereafter Bank of America shall be under no obligation to purchase Eligible Bonds; and (ii) Bank of America may require that all Obligations become due and payable immediately, without demand therefor; provided, however, that if and to the extent any Event of Default under the Series 2008-A1 and Series 2008-A2 Liquidity Facility is deemed an Event of Default under the Trust Agreement permitting the acceleration of all bonds pursuant thereto and the bonds are in fact accelerated, then, in such event, Bank of America may require that all Liquidity Provider Bonds become due and payable immediately, without demand therefor. Suspension Without Notice or Purchase. Upon the occurrence of an Event of Default under paragraph (k)(i) above, Bank of America s obligation to purchase Eligible Bonds shall be immediately suspended without notice or demand and thereafter Bank of America shall be under no obligation to purchase Eligible Bonds until the Available Commitment is reinstated as described below. If a court with jurisdiction to rule on the validity of the documents described in paragraph (k)(i) above shall enter a final, non appealable judgment that any such document is not valid and binding on the LACMTA, then the Available Commitment, the Commitment Period and Bank of America s obligation to purchase Eligible Bonds shall immediately terminate. If a court with jurisdiction to rule on the validity of such documents shall find or rule that such documents are valid and binding on the LACMTA, Bank of America s obligations to purchase Eligible Bonds under the Series A1 and Series 2008-A2 Liquidity Facility shall be automatically reinstated and the terms of the Series 2008-A1 and Series 2008-A2 Liquidity Facility will continue in full force and effect (unless Bank of America s 43

56 obligation to purchase Eligible Bonds shall otherwise have terminated or been suspended in accordance with the terms of the Series 2008-A1 and Series 2008-A2 Liquidity Facility). Notwithstanding the foregoing, if, upon the earlier of the Expiration Date or the date which is two (2) years after the effective date of suspension of Bank of America s obligation to purchase Eligible Bonds as described in this paragraph, litigation is still pending or a judgment regarding the validity of the obligations described in paragraph (k)(i) above as is the subject of such Event of Default has not been obtained, then the Available Commitment, the Commitment Period and the obligation of Bank of America to purchase Eligible Bonds shall at such time immediately terminate, and thereafter Bank of America shall be under no obligation to purchase Eligible Bonds. Upon the occurrence of a Default described in paragraphs (h) or (j) above, Bank of America s obligation to purchase Eligible Bonds shall be immediately suspended without notice or demand and thereafter Bank of America shall be under no obligation to purchase Eligible Bonds until such obligation is reinstated as described below in this paragraph. In the event such Default is cured prior to becoming an Event of Default (and thereby becoming an Immediate Termination Event), Bank of America s obligations shall be automatically reinstated and the terms of the Series 2008-A1 and Series 2008-A2 Liquidity Facility will continue in full force and effect (unless Bank of America s obligation to purchase Series 2008-A1 Bonds and Series 2008-A2 Bonds under the Series 2008-A1 and Series 2008-A2 Liquidity Facility shall otherwise have terminated or been suspended or in accordance with the terms of the Series 2008-A1 and Series 2008-A2 Liquidity Facility). Other Remedies. Upon the occurrence of an Event of Default, Bank of America may also take one or more of the following actions: (a) give written notice of such Event of Default to the Trustee, the Tender Agent, the LACMTA and the applicable Remarketing Agent that the Commitment Period and Bank of America s obligation to purchase Eligible Bonds will terminate in thirty (30) days and request the Tender Agent to cause a mandatory purchase of the Series 2008-A1 Bonds and Series 2008-A2 Bonds in accordance with the Twenty-Eighth Supplemental Agreement, and the Commitment Period and Bank of America s obligation to purchase Eligible Bonds under the Series 2008-A1 and Series 2008-A2 Liquidity Facility shall thereafter terminate on the thirtieth (30th) day following the date such notice is received by the Tender Agent; and/or (b) take any other action or remedy permitted by law or in equity to enforce the rights of Bank of America under the Series 2008-A1 and Series 2008-A2 Liquidity Facility and under the Series 2008-A1 Bonds and Series 2008-A2 Bonds and any Related Document; and/or (c) deliver written notice to the LACMTA and the Tender Agent that all Liquidity Provider Bonds shall be subject to immediate mandatory redemption and upon delivery of such notice, the Liquidity Provider Bonds shall be subject to immediate mandatory redemption. Failure of Bank of America to take action in regard to one or more Events of Default shall not constitute a waiver of, or the right of Bank of America to take action in the future in regard to, such or subsequent Events of Default. Upon the occurrence of any Event of Default, all Obligations due and payable under the Series A1 and Series 2008-A2 Liquidity Facility shall bear interest at a default rate. Upon receipt of notice of the termination or suspension of the Series 2008-A1 and Series 2008-A2 Liquidity Facility the Trustee will give notice to the Owners of such an event. 44

57 Defined Terms As used in this summary of the Series 2008-A1 and Series 2008-A2 Liquidity Facility, the following terms shall have the following meanings: Debt means for any person or entity (without duplication) (i) all indebtedness created, assumed or incurred in any manner by such person or entity representing money borrowed (including by the issuance of debt securities), (ii) all obligations of such person or entity for the deferred purchase price of property or services (other than trade accounts payable arising in the ordinary course of business), (iii) all obligations secured by any lien upon property of such person or entity, whether or not such person or entity has assumed or become liable for the payment of such indebtedness, (iv) all obligations of such person or entity as lessee under any lease of property which in accordance with generally accepted accounting principles would be required to be capitalized on the balance sheet of such person or entity, (v) all obligations of such person or entity on or with respect to letters of credit, banker s acceptances and other evidences of indebtedness representing extensions of credit for borrowed money, (vi) certificates of participation evidencing an undivided ownership interest in payments made by such person or entity (A) as lessee under any lease of property which in accordance with generally accepted accounting principles would be required to be capitalized on the balance sheet of such person or entity, (B) as purchaser under an installment sale agreement or (C) otherwise as an obligor in connection therewith, and (vii) all Debt of any other person or entity of the kind referred to in clauses (i) through (vi) above which is guaranteed (regardless of form) directly or indirectly in any manner by such person or entity. Default means any condition or event which, with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. Eligible Bonds means any Outstanding Series 2008-A1 Bonds or Series 2008-A2 Bonds, excluding (i) Series 2008-A1 Bonds and/or Series 2008-A2 Bonds owned by or on behalf of the LACMTA, (ii) Liquidity Provider Bonds, (iii) Series 2008-A1 Bonds and/or Series 2008-A2 Bonds tendered or deemed tendered for purchase but not delivered by the owner thereof and for which the purchase price is held by the paying agent (undelivered bonds) or (iv) Series 2008-A1 Bonds and/or Series 2008-A2 Bonds in any Interest Period other than a Daily Rate Period or a Weekly Rate Period or other interest period of 35 days or less. Immediate Termination Event means any Event of Default described in paragraphs (b)(i), (e), (f)(i), (g), (h), (i), (j), (k)(ii), (l) or (n) under Events of Default above. Interest Component means the portion of the Purchase Price corresponding to accrued interest, if any, on the Eligible Bonds purchased on any Purchase Date. Liquidity Provider Bond means any Series 2008-A1 Bond or Series 2008-A2 Bond purchased by Bank of America pursuant to the Series 2008-A1 and Series 2008-A2 Liquidity Facility until such bonds are remarketed, or cease to be Liquidity Provider Bonds, as provided in the Series 2008-A1 and Series 2008-A2 Liquidity Facility. Obligations means all amounts owed by the LACMTA to Bank of America under the Series A1 and Series 2008-A2 Liquidity Facility other than principal of, and interest on, Liquidity Provider Bonds. Proposition A First Tier Senior Sales Tax Rating means the lowest long-term rating assigned to any long-term Debt of the LACMTA that is payable from Pledged Revenues and on a parity with, or senior to, the Series 2008-A1 Bonds and Series 2008-A2 Bonds (without regard to bond insurance or any other form of credit enhancement) assigned by any of Fitch, Moody s or S&P. 45

58 Purchase Date means any business day during the Commitment Period with respect to which Bank of America has received a notice to purchase Eligible Bonds pursuant to the Series 2008-A1 and Series A2 Liquidity Facility. Purchase Price means, with respect to any Eligible Bond or portion thereof, the principal amount thereof plus accrued interest, if any, to the Purchase Date, in each case without premium; unless, such Purchase Date is an Interest Payment Date for such Eligible Bond, in which case the accrued interest on the Eligible Bond shall exclude interest accrued on such Eligible Bond. Related Documents means the Trust Agreement, the Series 2008-A1 Bonds, the Series 2008-A2 Bonds, the Twenty-Eighth Supplemental Agreement, each Remarketing Agreement and the purchase contracts for the Series 2008-A1 Bonds and the Series 2008 A2 Bonds. Substitution Date means the date on which an Alternate Liquidity Facility is to be substituted for the Series 2008-A1 and Series 2008-A2 Liquidity Facility. Suspension Event means the occurrence of a Default described in paragraph (h) or (j) under Events of Default or an Event of Default described in paragraph (k)(i) as each is described under Events of Default above. Limitations of Series 2008-A1 and Series 2008-A2 Liquidity Facility The ability to obtain funds under the Series 2008-A1 and Series 2008-A2 Liquidity Facility in accordance with its terms may be limited by federal or state law. Bankruptcy, conservatorship, receivership and similar laws governing Bank of America may prevent or restrict payment under the Series 2008-A1 and Series 2008-A2 Liquidity Facility. To the extent the short term rating on the Series 2008-A1 Bonds and Series 2008-A2 Bonds depends in any manner on the rating of Bank of America, the short term ratings on the Series 2008-A1 Bonds and Series 2008-A2 Bonds could be downgraded or withdrawn if Bank of America were to be downgraded, placed on credit watch or have its ratings suspended or withdrawn or were to refuse to perform under the Series 2008-A1 and Series 2008-A2 Liquidity Facility. The obligation of Bank of America under the Series 2008-A1 and Series 2008-A2 Liquidity Facility to purchase unremarketed Eligible Bonds is subject to the conditions and limitations set forth therein and is also subject to all rights and defenses available to contracting parties generally. The Series 2008-A1 and Series 2008-A2 Liquidity Facility is not a guaranty to pay the purchase price of Eligible Bonds tendered for purchase. The Series 2008-A1 and Series 2008-A2 Liquidity Facility is a general contract, subject to certain conditions and limitations, and is not a letter of credit. Purchasers of the Series 2008-A1 Bonds and Series 2008-A2 Bonds should consult their legal counsel for an explanation of the differences between a general contract and a letter of credit or guaranty. The following is included as a summary of selected differences and does not purport to be complete or definitive. In general, a letter of credit is an independent, special contract by a bank to pay a third party such as a bond trustee holding the letter of credit for the benefit of owners of bonds. Banks are required by law to honor their letters of credit except in specified circumstances. If a dispute were to develop between a bank and its borrower, except in limited circumstances, the dispute should not jeopardize payment under the letter of credit because (a) the letter of credit would be independent of the disputed contract between the borrower and the bank and (b) the beneficiary of the letter of credit (typically, the bond trustee) would have direct rights under the letter of credit. Further, and although there are defenses to payment of letters of credit, such defenses are limited by law to specified circumstances. In contrast, the Series 2008-A1 and Series 2008-A2 Liquidity Facility is a general contract only. No law expressly requires performance of the contract, although the non-breaching party would be entitled to allowable damages if there were a breach of contract. Although the Tender Agent is authorized to draw funds 46

59 in accordance with the Series 2008-A1 and Series 2008-A2 Liquidity Facility, Bank of America has no independent obligation to the Tender Agent. If a dispute were to develop, Bank of America will have all defenses allowed by law or in equity to its payment under or other performance of the Series 2008-A1 and Series 2008-A2 Liquidity Facility, including but not limited to disputes (whether valid or not) regarding the authority of any party to enter into or perform under the Series 2008-A1 and Series 2008-A2 Liquidity Facility. Laws regarding contracts allow more of such defenses than laws regarding letters of credit do. Bank of America or the LACMTA may seek to have any future dispute resolved in court and appealed to final judgment before it performs under the Series 2008-A1 and Series 2008-A2 Liquidity Facility. Further, even if the LACMTA were to prevail against Bank of America, a court would not necessarily order Bank of America to perform under the Series 2008-A1 and Series 2008-A2 Liquidity Facility; it could instead award damages for breach of contract to the LACMTA. Any such award would not necessarily be in an amount sufficient to pay the purchase price of the Series 2008-A1 Bonds and Series 2008-A2 Bonds. Bank of America Bank of America is a national banking association organized under the laws of the United States, with its principal executive offices located in Charlotte, North Carolina. Bank of America is a wholly-owned indirect subsidiary of Bank of America Corporation (the Corporation ) and is engaged in a general consumer banking, commercial banking and trust business, offering a wide range of commercial, corporate, international, financial market, retail and fiduciary banking services. As of June 30, 2008, Bank of America had consolidated assets of $1,327 billion, consolidated deposits of $807 billion and stockholder s equity of $109 billion based on regulatory accounting principles. The Corporation is a bank holding company and a financial holding company, with its principal executive offices located in Charlotte, North Carolina. Additional information regarding the Corporation is set forth in its Annual Report on Form 10-K for the fiscal year ended December 31, 2007, together with any subsequent documents it filed with the SEC pursuant to the Exchange Act. Recent Development: On July 1, 2008, the Corporation acquired Countrywide through its merger with a subsidiary of the Corporation. Under the terms of the agreement, Countrywide shareholders received of a share of Bank of America Corporation common stock in exchange for one share of Countrywide common stock. As provided by the merger agreement, 583 million shares of Countrywide common stock were exchanged for 106 million shares of the Corporation s common stock. This represents approximately two percent of the Corporation s outstanding common stock. Countrywide shareholders also received cash of $346,000 in place of any fractional shares of the Corporation s common stock that would have otherwise been issued on July 1, The $2.0 billion of Countrywide s Series B convertible preferred shares that were previously held by the Corporation were cancelled. Additional information regarding the foregoing is available from the filings made by the Corporation with the SEC, which filings can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C , United States, at prescribed rates. In addition, the SEC maintains a website at which contains reports, proxy statements and other information regarding registrants that file such information electronically with the SEC. The information concerning the Corporation, Bank of America and the foregoing merger contained herein is furnished solely to provide limited introductory information and does not purport to be comprehensive. Such information is qualified in its entirety by the detailed information appearing in the documents and financial statements referenced herein. The Series 2008-A1 and Series 2008-A2 Liquidity Facility has been issued by Bank of America. Moody s Investors Service, Inc. ( Moody s ) currently rates Bank of America s long-term debt as Aaa and short-term debt as P-1. The outlook is stable. Standard & Poor s currently rates Bank of America s long- 47

60 term debt as AA+ and its short-term debt as A-1+. The outlook is negative. Fitch Ratings, Inc. ( Fitch ) currently rates long-term debt of Bank of America as AA- and short-term debt as F1+. The outlook is stable. Further information with respect to such ratings may be obtained from Moody s, Standard & Poor s and Fitch, respectively. No assurances can be given that the current ratings of Bank of America s instruments will be maintained. Bank of America will provide copies of the most recent Bank of America Corporation Annual Report on Form 10-K, any subsequent reports on Form 10-Q, and any required reports on Form 8-K (in each case as filed with the SEC pursuant to the Exchange Act), and the publicly available portions of the most recent quarterly Call Report of Bank of America delivered to the Comptroller of the Currency, without charge, to each person to whom this document is delivered, on the written request of such person. Written requests should be directed to: Bank of America Corporate Communications 100 North Tryon Street, 18th Floor Charlotte, North Carolina Attention: Corporate Communication The delivery hereof shall not create any implication that there has been no change in the affairs of the Corporation or Bank of America since the date hereof, or that the information contained or referred to in this subsection is correct as of any time subsequent to its date. The Series 2008-A3 and Series 2008-A4 Liquidity Facility The following description of the Series 2008-A3 and Series 2008-A4 Liquidity Facility is only a summary of certain provisions of such Series 2008-A3 and Series 2008-A4 Liquidity Facility and is not intended to be comprehensive or complete. Reference is made to the Series 2008-A3 and Series 2008-A4 Liquidity Facility for the complete text thereof, and the discussion herein is qualified by such reference. The provisions of any Alternate Liquidity Facility may be different from those summarized below. Various words or terms used in the following summary are defined in this Official Statement, the Series 2008-A3 and Series 2008-A4 Liquidity Facility or the Agreement, and reference thereto is made for full understanding of their import. General The LACMTA has initially arranged for Dexia to provide a liquidity facility for the Series 2008-A3 Bonds and the Series 2008-A4 Bonds in the form of the Series 2008-A3 and Series 2008-A4 Liquidity Facility. The obligation of Dexia to purchase Series 2008-A3 Bonds and Series 2008-A4 Bonds under the Series A3 and Series 2008-A4 Liquidity Facility will expire on September 16, 2011, unless extended or terminated in accordance with the terms thereof. During the term of the Series 2008-A3 and Series 2008-A4 Liquidity Facility and subject to the terms and conditions contained therein, Dexia has agreed to purchase, at the Purchase Price, tendered Series 2008-A3 Bonds and Series 2008-A4 Bonds which are Eligible Bonds, for Dexia s own account, from time to time during the Purchase Period at the Purchase Price. The aggregate principal amount (or portion thereof) of any Series 2008-A3 Bond or Series 2008-A4 Bond purchased by Dexia on any Purchase Date shall be an authorized denomination applicable to Series 2008-A3 Bonds or Series 2008-A4 Bonds pursuant to the Agreement, and the aggregate principal amount of all Series 2008-A3 Bonds and Series 2008-A4 Bonds purchased on any Purchase Date shall not exceed the Available Principal Commitment on such date. The Series 2008-A3 and Series 2008-A4 Liquidity Facility covers Series 2008-A3 Bonds and Series 2008-A4 Bonds bearing interest at a Weekly Rate. Eligible Bonds are defined as Series 2008-A3 Bonds and Series 2008-A4 Bonds bearing interest at a Weekly Rate, other than Series 2008-A3 Bonds and Series 2008-A4 Bonds owned by, for the account of, or on behalf of, the LACMTA or any affiliate thereof, and excludes 48

61 Liquidity Provider Bonds, Series 2008-A3 Bonds and Series 2008-A4 Bonds bearing interest at a Commercial Paper Rate, an ARS Rate, a Term Rate, a Daily Rate, or a Fixed Rate and Series 2008-A3 Bonds and Series 2008-A4 Bonds that have been removed from coverage under the Series 2008-A3 and Series 2008-A4 Liquidity Facility by redemption, defeasance or substitution of an Alternate Liquidity Facility. Liquidity Provider Bonds are defined as each Series 2008-A3 Bond or Series 2008-A4 Bond purchased with funds provided by Dexia under the Series 2008-A3 and Series 2008-A4 Liquidity Facility, until such Series 2008-A3 Bonds or Series 2008-A4 Bonds cease to be Liquidity Provider Bonds in accordance with the terms of the Series 2008-A3 and Series 2008-A4 Liquidity Facility. UNDER CERTAIN CIRCUMSTANCES THE OBLIGATION OF DEXIA TO PURCHASE SERIES 2008-A3 BONDS AND SERIES 2008-A4 BONDS TENDERED BY THE OWNERS THEREOF OR SUBJECT TO MANDATORY TENDER MAY BE TERMINATED OR SUSPENDED WITHOUT A PURCHASE BY DEXIA. IN SUCH EVENT, SUFFICIENT FUNDS MAY NOT BE AVAILABLE TO PURCHASE SERIES 2008-A3 BONDS AND SERIES 2008-A4 BONDS TENDERED BY THE OWNERS THEREOF OR SUBJECT TO MANDATORY PURCHASE. IN ADDITION, THE SERIES 2008-A3 AND SERIES 2008-A4 LIQUIDITY FACILITY DOES NOT PROVIDE SECURITY FOR THE PAYMENT OF PRINCIPAL OF OR INTEREST ON THE SERIES 2008-A3 BONDS OR ON THE SERIES 2008-A4 BONDS. THE SERIES 2008-A3 AND SERIES 2008-A4 LIQUIDITY FACILITY PROVIDES FOR THE PURCHASE OF TENDERED SERIES 2008-A3 BONDS AND SERIES 2008-A4 BONDS ONLY. Purchase of Tendered Series 2008-A3 Bonds and Series 2008-A4 Bonds by Dexia Dexia has agreed to purchase during the Purchase Period, Eligible Bonds which have been tendered for optional purchase or which are tendered for mandatory purchase and which are not remarketed as provided in the Agreement. The Purchase Period begins on the date the Series 2008-A3 and Series 2008-A4 Liquidity Facility shall become effective and ends on the earliest of (a) September 16, 2011 or the last day of any extension of such date pursuant to the terms of the Series 2008-A3 and Series 2008-A4 Liquidity Facility, provided that if such day is not a Business Day, the next preceding Business Day (the Stated Expiration Date ); (b) the date of receipt by Dexia of a certificate signed by the Trustee stating that the Series 2008-A3 and Series 2008-A4 Liquidity Facility has been terminated pursuant to the terms of the Agreement because (i) an Alternate Liquidity Facility has been provided and become effective under the Agreement, provided that the Series 2008-A3 and Series 2008-A4 Liquidity Facility shall not terminate until Dexia has purchased any Series 2008-A3 Bonds and Series 2008-A4 Bonds required to be purchased pursuant to any mandatory tender resulting from the provision of any Alternate Liquidity Facility; (ii) no Series 2008-A3 Bonds or Series A4 Bonds remain outstanding under the Agreement; or (iii) the Series 2008-A3 Bonds or Series 2008-A4 Bonds are converted to a Non-Covered Interest Rate (which is defined in the Series 2008-A3 and Series A4 Liquidity Facility as the Liquidity Provider Rate or a rate of interest borne by the Series 2008-A3 or Series 2008-A4 Bonds other than a Weekly Rate); (c) the date specified in a written notice delivered by the LACMTA to Dexia and the Trustee that LACMTA has elected to terminate the Series 2008-A3 and Series 2008-A4 Liquidity Facility in accordance with its terms; or (d) the date on which Dexia s commitment has been terminated in its entirety and Dexia is no longer obligated to purchase Series 2008-A3 Bonds or Series 2008-A4 Bonds. By no later than 12:30 p.m., New York City time, on the Business Day on which Series 2008-A3 Bonds and Series 2008-A4 Bonds are subject to an optional tender or mandatory purchase, the Tender Agent shall give a written Notice of Purchase to Dexia. If Dexia receives such Notice of Purchase as provided above, and subject to the satisfaction of the conditions set forth in the Series 2008-A3 and Series 2008-A4 Liquidity Facility, Dexia will transfer to the Tender Agent not later than 2:30 p.m., New York City time, on such date (a Purchase Date ), in immediately available funds, an amount equal to the aggregate Purchase Price of all or such portion of such Eligible Bonds as requested from the Tender Agent. Series 2008-A3 Bonds or Series 2008-A4 Bonds purchased pursuant to this summarized subsection shall be registered in the name of Dexia, or if directed in writing by Dexia, its nominee or designee, on the Bond Register and shall be held in trust by the Tender Agent for the benefit of Dexia, its nominee or designee, or as Dexia may otherwise direct in writing. 49

62 The Series 2008-A3 Bonds and Series 2008-A4 Bonds shall be delivered by the Tender Agent to Dexia, its nominee or designee, and prior to such delivery shall be held in trust by the Tender Agent for the benefit of Dexia. If the Series 2008-A3 Bonds or Series 2008-A4 Bonds purchased pursuant to this summarized subsection are Book-Entry Bonds, the beneficial ownership of such Series 2008-A3 Bonds or Series 2008-A4 Bonds shall be credited to the account of Dexia, or if directed in writing by Dexia, its nominee or designee, maintained at DTC. As described below, under certain circumstances the obligation of Dexia to purchase tendered Eligible Bonds will be automatically suspended or terminated, without prior notice or demand, and the Trustee will be unable to require the purchase of Series 2008-A3 Bonds or Series 2008-A4 Bonds under the Series 2008-A3 and Series 2008-A4 Liquidity Facility. Events of Termination Each of the following shall constitute an Event of Termination under the Series 2008-A3 and Series 2008-A4 Liquidity Facility: (a) Any failure to pay principal of or interest on any Series 2008-A3 Bonds or Series 2008-A4 Bonds when due (including any payments on Liquidity Provider Bonds other than payments on Liquidity Provider Bonds due solely as a result of acceleration caused by Dexia pursuant to the summarized subsection under the heading Consequences of Events of Termination below) or any failure to pay principal of, premium or interest on any other indebtedness evidenced by bonds, notes or similar instruments, payable from Pledged Revenues and that ranks on a parity with the Series 2008-A3 Bonds and Series 2008-A4 Bonds when due; or (b) The LACMTA shall (i) commence a voluntary case or other proceeding seeking liquidation, reorganization, arrangement, adjustment, winding-up, dissolution, composition or other similar relief with respect to itself or its debts under any bankruptcy, insolvency, reorganization or other similar law for the relief of debtors now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official for it or a substantial part of its property, (ii) consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, (iii) make a general assignment for the benefit of creditors, (iv) fail generally to pay its debts as they become due, or (v) take any official action to authorize any of the foregoing; or (c) Any of the following shall occur with respect to the LACMTA: (i) if applicable law permits the institution of such proceeding, an involuntary case or other proceeding shall be commenced against the LACMTA seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property and such case shall not be dismissed within 90 days, (ii) an order for relief shall be entered against the LACMTA under the federal bankruptcy laws as now or hereafter in effect or pursuant to any other State or federal laws concerning insolvency or of similar purpose or (iii) a debt moratorium, debt adjustment, debt restructuring or comparable restriction with respect to the payment of principal or interest on the debts of the LACMTA shall be declared or imposed by the LACMTA, the United States of America, the State, or any instrumentality thereof, having jurisdiction over the LACMTA or its debts; or (d) The occurrence of (i) an Incipient Invalidity Event, or (ii) an Invalidity Event; or (e) Each Rating Agency ( Rating Agency is defined to include S&P, Moody s and Fitch) that provides or at any time provided an Underlying Rating on the Series 2008-A3 Bonds, the Series 2008-A4 Bonds or on any First Tier Senior Lien Bonds ranking on a parity with the Series 50

63 2008-A3 Bonds or the Series 2008-A4 Bonds, respectively, either (i) withdraws or suspends the Underlying Rating of the Series 2008-A3 Bonds, the Series 2008-A4 Bonds or any First Tier Senior Lien Bonds ranking on a parity with the Series 2008-A3 Bonds or Series 2008-A4 Bonds, respectively, for credit related reasons or (ii) reduces such rating, in the case of S&P, below BBB-, in the case of Moody s, below Baa3 and in the case of Fitch, below BBB-; (f) A final, nonappealable judgment by any court of competent jurisdiction in a principal amount of $10,000,000 is entered against the LACMTA which is payable from the Pledged Revenues ranking on a parity with the Series 2008-A3 Bonds or Series 2008-A4 Bonds and such judgment is not vacated, bonded or contested in good faith by the LACMTA for a period of 60 days or otherwise satisfied or stayed for a period of 60 days; or (g) There is a default on any payment obligation (but not including administrative expenses, such as Credit or Liquidity Facility Fees) of the LACMTA under the Related Documents (defined in the Series 2008-A3 and Series 2008-A4 Liquidity Facility to mean the Series 2008-A3 Bonds, the Series 2008-A4 Bonds, the Agreement and any amendments and modifications thereto); or (h) Any material representation or warranty made by the LACMTA under or in connection with the Series 2008-A3 and Series 2008-A4 Liquidity Facility (including without limitation representations and warranties incorporated therein by reference) shall prove to be untrue in any material respect on the date as of which it was made or deemed made; or (i) Non payment of certain amounts payable under the Series 2008-A3 and Series A4 Liquidity Facility (together with interest thereon at the default rate specified in the Series 2008-A3 and Series 2008-A4 Liquidity Facility to the extent payable under the Series 2008-A3 and Series 2008-A4 Liquidity Facility) within 10 days after the Trustee and the LACMTA have received written notice from Dexia that the same were not paid when due; or (j) Non payment of any other fees or amounts payable under the Series 2008-A3 and Series 2008-A4 Liquidity Facility (together with interest thereon at the default rate specified in the Series 2008-A3 and Series 2008-A4 Liquidity Facility to the extent payable under the Series 2008-A3 and Series 2008-A4 Liquidity Facility) within 20 days after written notice thereof to the LACMTA and the Trustee by Dexia; or (k) The breach by the LACMTA of any of the terms or provisions of certain sections of the Series 2008-A3 and Series 2008-A4 Liquidity Facility; or (l) The breach by the LACMTA of any terms or provisions of the Series 2008-A3 and Series 2008-A4 Liquidity Facility which is not remedied within 20 days after written notice thereof shall have been received by the LACMTA and the Trustee from Dexia; or (m) The occurrence of any event of default as defined in any of the Related Documents (which is not waived pursuant to the terms thereof) which is not otherwise described in this summarized subsection, other than the failure of Dexia to provide funds for the purchase of tendered Series 2008-A3 Bonds and Series 2008-A4 Bonds which are Eligible Bonds when required by the terms and conditions of the Series 2008-A3 and Series 2008-A4 Liquidity Facility. Incipient Invalidity Event means (i) the validity or enforceability of any provision of the Act or Ordinance No. 16 that impacts the LACMTA s ability to levy the Proposition A Sales Tax in the incorporated and unincorporated territory of the County in accordance with the provisions of the Act and Ordinance No. 16, or that impacts the State Board of Equalization s ability to collect the Proposition A Sales Tax or to pay the Pledged Tax to the Trustee is contested by duly authorized action of the LACMTA or the State or any instrumentality of the State with appropriate jurisdiction or is determined by a court or the State or any 51

64 instrumentality of the State with appropriate jurisdiction in a proceeding subject to further appeals to be invalid or unenforceable, or (ii) the validity or enforceability of any Payment and Collateral Obligation (as defined within the term Invalidity Event below) is contested by duly authorized action of the LACMTA or is declared invalid or unenforceable by duly authorized action in a proceeding subject to further appeals by the State or any instrumentality of the State with appropriate jurisdiction or (iii) any provision of the Act or Ordinance No. 16 is supplemented, modified or amended in a manner that materially adversely impairs (A) the LACMTA s ability to levy the Proposition A Sales Tax in the incorporated and unincorporated territory of the County in accordance with the provisions of the Act and Ordinance No. 16 or (B) the State Board of Equalization s collection of the Proposition A Sales Tax or the State Board of Equalization s payment of the Pledged Tax to the Trustee. Invalidity Event means (i) the Act or Ordinance No. 16 is repealed, or (ii) a provision or provisions of the Act or Ordinance No. 16 that impacts the LACMTA s ability to levy the Proposition A Sales Tax in the incorporated and unincorporated territory of the County in accordance with the provisions of the Act and Ordinance No. 16 or that impacts the State Board of Equalization s collection of the Proposition A Sales Tax or the State Board of Equalization s payment of the Pledged Tax directly to the Trustee, is found to be invalid or unenforceable by a court or the State or any instrumentality of the State with appropriate jurisdiction in a final nonappealable order or judgment, (iii) the Act or Ordinance No. 16 is ruled to be null and void by a court or the State or any instrumentality of the State with appropriate jurisdiction, (iv) any provision of the Series 2008-A3 and Series 2008-A4 Liquidity Facility, any Series 2008-A3 Bond or Series 2008-A4 Bond or any Related Document relating to the LACMTA s obligation with respect to the payment of monies for principal and interest on the Series 2008-A3 Bonds or the Series 2008-A4 Bonds (including Liquidity Provider Bonds) under the Related Documents or the pledge of the Pledged Revenues to secure the payment of principal and interest on the Series 2008-A3 Bonds or the Series 2008-A4 Bonds (each such provision, a Payment and Collateral Obligation ) is ruled to be null and void by a court or the State or any instrumentality of the State with appropriate jurisdiction in a final nonappealable order or judgment by such court or the State or any instrumentality of the State, as applicable, or (v) the LACMTA, by duly authorized action, denies that the LACMTA has any or further liability or obligation with respect to payments of monies for principal and interest on the Series 2008-A3 Bonds or the Series 2008-A4 Bonds under the Act or Ordinance No. 16 or any Payment and Collateral Obligation, or denies that the Authority has any further liability or obligation to deposit the Pledged Tax pledged to the payment of principal and interest on the Series 2008-A3 Bonds or the Series 2008-A4 Bonds into the funds and accounts held by the Trustee. Consequences of Events of Termination Immediate Termination. In the case of an Event of Termination specified in summarized subsections (a), (b), (c), (d)(ii), (e), or (f) under the heading Events of Termination above, the Available Commitment and Purchase Period and the obligation of Dexia to purchase Series 2008-A3 Bonds or Series 2008-A4 Bonds shall immediately terminate without notice or demand, and thereafter Dexia shall be under no obligation to purchase Series 2008-A3 Bonds or Series 2008-A4 Bonds. Promptly upon Dexia obtaining knowledge of any such Event of Termination, Dexia shall give written notice of the same to the Trustee, the Tender Agent, the applicable Remarketing Agent and the LACMTA; provided that, Dexia shall incur no liability or responsibility whatsoever by reason of its failure to give such notice, and such failure shall in no manner affect the termination of Dexia s Available Commitment and of its obligation to purchase Series 2008-A3 Bonds or Series 2008-A4 Bonds pursuant to the Series 2008-A3 and Series 2008-A4 Liquidity Facility. Termination with Notice. In the case of an Event of Termination specified in any of summarized subsections (g), (h), (i), (j), (k), (l), or (m) under the heading Events of Termination above, Dexia may terminate the Available Commitment and Purchase Period by giving written notice (a Notice of Termination ) to the Trustee, the Tender Agent, the LACMTA and the applicable Remarketing Agent, specifying the date on which the Available Commitment and Purchase Period shall terminate, which shall be not less than 30 days from the date of receipt of such notice by the Trustee, and on and after the Purchase 52

65 Termination Date, Dexia shall be under no further obligation to purchase Series 2008-A3 Bonds or Series 2008-A4 Bonds under the Series 2008-A3 and Series 2008-A4 Liquidity Facility. Suspensions. During the pendency of an Event of Termination pursuant to summarized subsection (c)(i) under the heading Events of Termination above (prior to the expiration of the 90 day grace period specified in summarized subsection (c)(i) under the heading Events of Termination above) or summarized subsection (d)(i) under the heading Events of Termination above (each a Potential Event of Termination ), Dexia s obligations to purchase Series 2008-A3 Bonds or Series 2008-A4 Bonds shall be immediately suspended without notice or demand and thereafter Dexia shall be under no obligation to purchase Series 2008-A3 Bonds or Series 2008-A4 Bonds until the Available Commitment is reinstated as described in this paragraph. Promptly upon Dexia obtaining knowledge of any such Potential Event of Termination, Dexia shall give written notice of the same to the LACMTA, the Trustee, the Tender Agent and the applicable Remarketing Agent of such suspension; provided, however, that Dexia shall incur no liability or responsibility whatsoever by reason of its failure to give such notice and such failure shall in no way affect the suspension of Dexia s obligations under the Series 2008-A3 and Series 2008-A4 Liquidity Facility. In the event such Potential Event of Termination is cured, Dexia s obligations shall be automatically reinstated and the terms of the Series 2008-A3 and Series 2008-A4 Liquidity Facility will continue in full force and effect (unless the Series 2008-A3 and Series 2008-A4 Liquidity Facility shall otherwise have terminated or been suspended by its terms). If such Potential Event of Termination becomes an Event of Termination (through expiration of the 90 day grace period specified above or otherwise) the provisions of the above summarized subsection under the heading Immediate Termination shall apply. Other Remedies. In addition to the rights and remedies summarized above, in the case of any Event of Termination specified under the heading Events of Termination above, upon the election of Dexia: (i) all amounts payable under the Series 2008-A3 and Series 2008-A4 Liquidity Facility (including but not limited to principal of and interest on any Liquidity Provider Bonds and payments of Excess Bond Interest), shall, upon notice to the LACMTA, become immediately due and payable without presentment, demand, protest or further notice of any kind, all of which are expressly waived by the LACMTA; and (ii) Dexia shall have all the rights and remedies available to it under the Series 2008-A3 and Series 2008-A4 Liquidity Facility, the Related Documents or otherwise pursuant to law or equity; provided, however, that Dexia shall not have the right to terminate its obligation to purchase Series 2008-A3 Bonds or Series 2008-A4 Bonds or to declare any amount due under the Series 2008-A3 and Series 2008-A4 Liquidity Facility due and payable except as expressly provided therein. This subsection does not limit the exercise of Dexia s remedies expressly provided for under any other subsection of this summarized subsection. Upon receipt of notice of the termination or suspension of the Series 2008-A3 and Series 2008-A4 Liquidity Facility the Trustee will give notice to the Owners of such an event. Extension, Reduction, Adjustment or Termination of the Series 2008-A3 and Series 2008-A4 Liquidity Facility The Series 2008-A3 and Series 2008-A4 Liquidity Facility will expire on September 16, 2011 unless earlier terminated or, with the consent of Dexia in its sole and absolute discretion, extended for an additional period or periods, in each case in accordance with the provisions of the Series 2008-A3 and Series 2008-A4 Liquidity Facility. Upon (i) any redemption, defeasance or other payment of all or any portion of the principal amount of the Series 2008-A3 Bonds or Series 2008-A4 Bonds or (ii) any purchase by Dexia of Series 2008-A3 Bonds or Series 2008-A4 Bonds tendered or deemed tendered in accordance with the terms of the Agreement, Dexia s purchase commitment under the Series 2008-A3 and Series 2008-A4 Liquidity Facility with respect to principal of Series 2008-A3 Bonds or Series 2008-A4 Bonds shall automatically be reduced by the principal amount of the Series 2008-A3 Bonds or Series 2008-A4 Bonds so redeemed, defeased or otherwise paid or purchased, as the case may be. Dexia s commitment with respect to interest initially shall be equal to 35 days 53

66 interest on the Series 2008-A3 Bonds and Series 2008-A4 Bonds, computed as if the Series 2008-A3 Bonds and Series 2008-A4 Bonds bore interest at the rate of 12% per annum, based on a 365-day year. The commitment with respect to interest will be adjusted downward by an amount in proportion to the reduction of the commitment as to principal because of the redemption, defeasance or other payment of the Series 2008-A3 Bonds and Series 2008-A4 Bonds or the purchase by Dexia of Series 2008-A3 Bonds and Series 2008-A4 Bonds tendered or deemed tendered in accordance with the terms of the Agreement. Limitations of the Series 2008-A3 and Series 2008-A4 Liquidity Facility The ability to obtain funds under the Series 2008-A3 and Series 2008-A4 Liquidity Facility in accordance with its terms may be limited by federal or state law. Bankruptcy, conservatorship, receivership and similar laws governing financial institutions or any issuer of a standby purchase agreement may prevent or restrict payment under the Series 2008-A3 and Series 2008-A4 Liquidity Facility. To the extent the short-term rating on the Series 2008-A3 Bonds or Series 2008-A4 Bonds depends on the rating of Dexia, the short-term ratings on the Series 2008-A3 Bonds or Series 2008-A4 Bonds could be downgraded or withdrawn if Dexia were to be downgraded, placed on credit watch or have its ratings suspended or withdrawn or were to refuse to perform under the Series 2008-A3 and Series 2008-A4 Liquidity Facility. The obligation of Dexia to purchase unremarketed Series 2008-A3 Bonds and Series 2008-A4 Bonds pursuant to the Series 2008-A3 and Series 2008-A4 Liquidity Facility is subject to the conditions and limitations set forth therein, and is also subject to all rights and defenses available to contracting parties generally. The Series 2008-A3 and Series 2008-A4 Liquidity Facility is not a guaranty to pay the purchase price of Series 2008-A3 Bonds and Series 2008-A4 Bonds tendered for purchase. The Series 2008-A3 and Series 2008-A4 Liquidity Facility is a general contract, subject to certain conditions and limitations, and is not a letter of credit. Purchasers of the Series 2008-A3 Bonds and Series 2008-A4 Bonds should consult their legal counsel for an explanation of the differences between a general contract and a letter of credit or guaranty. Dexia Dexia Credit Local ( Dexia ) is a subsidiary of the Dexia Group, which was created in The Dexia Group is a major European banking organization that is the product of several cross-border mergers. Dexia is an authentically European bank in terms of both its management organization and the scope of its different lines of business. The Dexia Group is listed on the Brussels, Paris and Luxembourg stock exchanges. With a stock market capitalization of over 20 billion euros as of December 31, 2007, the Dexia Group ranks in the top third of the Euronext 100 companies. Dexia specializes in the Dexia Group s first line of business public and project finance and financial services for the public sector. Dexia has recognized expertise in local public sector financing and project finance. It is backed by a network of specialized banks, which employ over 3,500 professionals. Through this network of subsidiaries, affiliates and branches, Dexia is present in almost all of the countries of the European Union as well as Central Europe, the United States of America and Canada. Dexia also has operations in Latin America, the Asian-Pacific Region including Australia, and the countries around the Mediterranean. Dexia is a bank with its principal office located in La Défense, France. In issuing the Series 2008-A3 and Series 2008-A4 Liquidity Facility, Dexia will act through its New York Branch, which is licensed by the Banking Department of the State of New York as an unincorporated branch of Dexia. Dexia is the leading local authority lender in Europe, funding its lending activities in 2007 primarily through the issuance of euro and U.S. dollar-denominated bonds. In 2007, total funding raised by Dexia and Dexia Municipal Agency was 18.2 billion euros. The Dexia Group is the owner of Financial Security Assurance Holdings Ltd. ( FSA Holdings ), the holding company for Financial Security Assurance Inc., a leading financial guaranty insurer. 54

67 As of December 31, 2007, Dexia had total consolidated assets of 345 billion euros, outstanding medium and long-term loans to customers of billion euros and shareholders equity of over 6.29 billion euros (Tier I plus Tier II), and for the year then ended had consolidated net income of 991 million euros. These figures were determined in accordance with generally accepted accounting principles in France. Dexia maintains its records and prepares its financial statements in euros. At December 31, 2007, the exchange rate was euro equals United States dollar. Such exchange rate fluctuates from time to time. Dexia is rated Aa1 long-term and P-1 short-term by Moody s, AA long-term and A-1+ short-term by S&P, and AA+ long-term and F1+ short-term by Fitch. On July 9, 2008, S&P revised its outlook on Dexia from stable to negative. On July 17, 2008, Fitch revised its outlook on Dexia from stable to negative. On August 14, 2008, Moody s revised its outlook on Dexia from stable to negative. Dexia will provide without charge a copy of its most recent publicly available annual report. Written requests should be directed to: Dexia Credit Local, New York Branch, 445 Park Avenue, 8 th Floor, New York, New York 10022, Attention: General Manager. The delivery of this information shall not create any implication that the information contained or referred to herein is correct as of any time subsequent to its date. General THE LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY The LACMTA was established in 1993, pursuant to the LACMTA Act, as a consolidated successor entity to the District and the Commission. The LACMTA succeeded to all powers, duties, rights, obligations, liabilities, indebtedness, bonded or otherwise, immunities and exemptions of the Commission and the District, including the Commission s responsibility for planning, engineering and constructing a county wide rail transit system. The Commission was authorized subject to approval by the electorate of the County, to adopt a retail transactions and use tax ordinance, with the revenues of such tax to be used for public transit purposes. On November 4, 1980, the voters of the County approved the Proposition A Sales Tax. Board of Directors The LACMTA is governed by a 14-member Board of Directors (the Board ). The Board is composed of the five members of the County Board of Supervisors, the Mayor of the City of Los Angeles, two public members and one member of the City Council of the City of Los Angeles, four members who are either a mayor or a member of a city council of a city in the County (other than the City of Los Angeles) and who have been appointed by the Los Angeles County City Selection Committee, and a nonvoting member appointed by the Governor. The current members of the Board and a brief biography of each member are provided below. Antonio Villaraigosa, Chair. Mr. Villaraigosa was elected Mayor of the City of Los Angeles in He was formerly a City Councilman of the City of Los Angeles, and was first elected in 2003 to the City Council. Prior to his election, Mr. Villaraigosa served on the boards of the Southern California Rapid Transit District and the LACMTA. He was elected to the California State Assembly in 1994 and was elected as the Democratic Whip and Democratic Majority Leader before becoming Speaker of the Assembly in Mr. Villaraigosa holds a Bachelor of Arts degree from UCLA and a law degree from the People s College of Law. Don Knabe, First Vice-Chair. Mr. Knabe is the Los Angeles County Supervisor representing the Fourth Supervisorial District, having been elected in 1996 and re-elected in 2000 and Following a successful career as a small business owner, Mr. Knabe joined Los Angeles County Supervisor Deane Dana s staff in 1982 and later became Chief of Staff for Deane Dana. Mr. Knabe was also elected to the Cerritos City Council in 1980 and served for eight years, including two terms as Mayor. Mr. Knabe holds a Bachelor s degree in Business Administration from Graceland College in Lamoni, Iowa. 55

68 Ara Najarian, Second Vice-Chair. Mr. Najarian was elected to the Glendale City Council in April of He was appointed to the Board in 2006 by the Los Angeles County City Selection Committee. Before being elected to the city council, he was an elected member of the Glendale Community College Board of Trustees. He served 7 years on the Glendale Transportation and Parking Commission and served two of those years as Chairman. Mr. Najarian is currently Vice Chair of the Glendale Redevelopment Agency and is the Past Chair of the Glendale Housing Authority. Mr. Najarian has been an attorney in private practice for 20 years. He attended Occidental College where he received a BA in Economics and later earned his JD from University of Southern California School of Law. Michael D. Antonovich. Mr. Antonovich is the Los Angeles County Board of Supervisor representing the Fifth Supervisorial District, having been re-elected to his seventh four year term in From 1972 to 1978, he served as a member of the California State Assembly. He also served as a member of the Board of Trustees of the Los Angeles Community College District from 1968 to Mr. Antonovich has held teaching positions with the Los Angeles School District and Pepperdine University. He holds a Bachelor of Arts degree and Master s degree from California State University, Los Angeles. Yvonne Brathwaite Burke. Mrs. Burke is the Los Angeles County Supervisor for the Second Supervisorial District, having been elected in 1992 and re-elected in 1996, 2000 and Mrs. Burke served as a member of Congress from 1972 to 1978, and as an Assemblywoman from 1966 to She has served on numerous boards, including the University of California Board of Regents, the Board of Trustees of the Amateur Athletic Foundation (formerly the Los Angeles Olympic Organizing Committee), and Chair of the Los Angeles branch of the Federal Reserve Bank of San Francisco. Mrs. Burke received her Bachelor of Arts degree in Political Science from the University of California, Los Angeles, and a Juris Doctorate from the University of Southern California School of Law. John Fasana. Mr. Fasana has served on the Duarte City Council since 1987, and served as Mayor of the City of Duarte in 1990, 1997, and Mr. Fasana has represented 30 San Gabriel Valley cities on the LACMTA Board since its inception in Mr. Fasana serves as Chair of the San Gabriel Valley Council of Governments Transportation Committee, serves as Chair of Metro s newly created Ad hoc Committee on Congestion Pricing and is a member of the Foothill Transit Governing Board. Mr. Fasana has worked 27 years with Southern California Edison and is a graduate of Whittier College with a Bachelor of Arts degree in business administration. David W. Fleming. Mr. Fleming was appointed to the Board by Mayor Antonio Villaraigosa effective July An attorney for 43 years, Mr. Fleming has been of counsel to Latham & Watkins LLP since In 2003, he was appointed a trustee of the James Madison Foundation by President George W. Bush, and Mr. Fleming is currently the First Vice Chair of the Los Angeles Area Chamber of Commerce. In 1997, he co-chaired with then Mayor Riordan a voters initiative to reform Los Angeles City government, culminating in the creation of a citizens Charter Reform Commission, which drafted the new city charter that was adopted in From 1996 to 1999, he served as a member and vice chairman of the California Transportation Commission as an appointee of Governor Pete Wilson. He has also served as president of the Los Angeles Board of Fire Commissioners, commissioner on the Los Angeles City Ethics Commission and chairman of the board of the Los Angeles County Economic Development Corporation. Mr. Fleming holds a Bachelor of Arts Degree from Augustana College and a Juris Doctor from the University of California, Los Angeles. Richard Katz. Mr. Katz was appointed to the Board by Mayor Antonio Villaraigosa effective July From 2001 to 2006, Mr. Katz served on the State Water Resources Control Board. He served Governor Gray Davis as his Senior Advisor on Energy and Water and led negotiations on the Colorado River Agreement with the Federal Government, California Water Agencies, and the six other states. Mr. Katz was elected to the California State Assembly in 1980 and served continuously for 16 years, including a term as the Democratic Leader. For ten years, he chaired the Assembly Transportation Committee and, in 1990, authored Proposition 111, a ten-year Transportation Blueprint that provided additional funding for mass transit and highways. Mr. 56

69 Katz was instrumental in drafting legislation that created the LACMTA through a merger of the District and the Commission in He also created the Congestion Management Plan, which requires cities and counties to measure and mitigate impacts of land use decisions on their streets, highways and transit systems. Bonnie Lowenthal. Ms. Lowenthal is the Long Beach City Councilwoman for the First District, having been elected in 2001 and re-elected in 2002 and She was appointed to the Board in 2005 by the Los Angeles County City Selection Committee. Prior to her election to the Long Beach City Council, Ms. Lowenthal served on the Long Beach Unified School District Board from A licensed marriage, family and child counselor, Ms. Lowenthal earned a Bachelor of Science degree in sociology at the University of Wisconsin, Madison and a Master of Science degree in community and clinical psychology at California State University, Long Beach. Gloria Molina. Ms. Molina is the Los Angeles County Supervisor representing the First Supervisorial District, having been first elected to this office in March 1991 and re-elected in 1994, 1998, 2002 and Prior to her election to the Board of Supervisors, Ms. Molina served as State Assemblywoman for the 56th District from 1982 to In 1987, she was elected to the Los Angeles City Council where she served as the Councilwoman of the First District until Prior to being elected to public office, Ms. Molina served in the Carter White House as a Deputy for Presidential Personnel. After leaving the White House, Ms. Molina served as the Deputy Director for the Department of Health and Human Services in San Francisco. Pam C. O Connor. Ms. O Connor has served on the Santa Monica City Council since 1994 and twice has served as that city s mayor in 1997 and Ms. O Connor was appointed to the Board in 2001 by the Los Angeles County City Selection Committee. She has served as a member of the Southern California Association of Governments Regional Council and League of California Cities, transportation and public works committee. Ms. O Connor also works as a private consultant, specializing in historic preservation. Ms. O Connor earned a Bachelor of Science degree in journalism from Southern Illinois University and holds Master s degrees in historic preservation planning and in technology management from Eastern Michigan University. Bernard C. Parks. Mr. Parks was appointed to the Board by Mayor Antonio Villaraigosa effective July He is currently a City Councilman of the City of Los Angeles for the Eighth Council District, who was first elected in March He is Chair of the Budget and Finance Committee and Vice-President of the Coliseum Commission. Councilmember Parks also sits on the Public Safety Committee, the Claims Board, the Housing and Community and Economic Development Committee, the Board of Referred Powers and the Transportation Committee where he serves as Vice Chair. Prior to his election to the City Council, Mr. Parks served as a police officer for 38 years and rose through the ranks to become the Chief of Police of the Los Angeles Police Department in Mr. Parks holds a Bachelor of Science Degree from Pepperdine University and a Masters in Public Administration from the University of Southern California. Zev Yaroslavsky. Mr. Yaroslavsky is the Los Angeles County Supervisor representing the Third Supervisorial District, having been elected to this office in November 1994 and reelected in 1998, 2002 and Mr. Yaroslavsky served as a member of the City Council of the City of Los Angeles between 1975 and Prior to his election to the Los Angeles County Board of Supervisors, Mr. Yaroslavsky served on the Board as the alternate to Los Angeles Mayor Richard Riordan. The Los Angeles native earned his bachelor s degree in history and economics from UCLA in 1971, followed by a master s degree in history in Douglas R. Failing, Ex-Officio Member. Mr. Failing was re-appointed by the Governor of California as the Ex-Officio Member to the Board in April Mr. Failing previously served in this capacity from July 2002 to November Mr. Failing is the Director of District 7 of the California State Department of Transportation ( Caltrans ), having been named to this position in June In this position, he is responsible for managing 27 freeways and State highways in Los Angeles and Ventura Counties. Mr. Failing is a Registered Civil Engineer in the State of California and holds a Bachelor of Science degree in Civil Engineering from Michigan Technological University. 57

70 Management General. The LACMTA must exclusively conduct the following powers and responsibilities: (i) establishment of overall goals and objectives, (ii) adoption of the aggregate budget for all of its organizational units, (iii) designation of additional municipal bus operators under criteria enumerated in the LACMTA Act, (iv) approval of all final rail corridor selections, (v) final approval of labor contracts covering employees of the LACMTA and its organizational units, (vi) establishment of the LACMTA s organizational structure, (vii) conducting hearings and setting fares for the operating organizational units, (viii) approval of transportation zones, (ix) approval of any debt instrument with a maturity date exceeding the end of the Fiscal Year in which it is issued, (x) approval of benefit assessment districts and assessment rates and (xi) approval of contracts for construction and transit equipment acquisition which exceed $5,000,000 and making findings in connection with certain procurement decisions. The management of the LACMTA is under the direction of its Chief Executive Officer, who performs any duties delegated to him or her by the Board. The Board also appoints a General Counsel, Inspector General and Board Secretary. The Chief Executive Officer serves at the pleasure of the Board, as do the General Counsel, Inspector General and Board Secretary. Certain of the LACMTA s executives and a brief biography of each executive are provided below. Chief Executive Officer. Roger Snoble was hired as the LACMTA s Chief Executive Officer in September Mr. Snoble had been president/executive director of the Dallas Area Rapid Transit District ( DART ) since Prior to joining DART, he served as president and general manager of the San Diego Transit Corporation where he worked for 20 years. Mr. Snoble began his transportation career in 1965 as a planner for the TriCounty Regional Planning Commission in Akron, Ohio. He also worked as a planner for Akron Metro Transit District from Chief Financial Services Officer and Treasurer. Terry Matsumoto was appointed Chief Financial Services Officer and Treasurer in December Prior to this appointment, Mr. Matsumoto served as the LACMTA s Executive Officer, Finance beginning in October 1996 and as Treasurer beginning in April Mr. Matsumoto also served temporarily as Interim Deputy Chief Executive Officer for Finance and Administration for the LACMTA. As Chief Financial Services Officer and Treasurer, he is responsible for the oversight of the LACMTA s accounting, budget, risk management and treasury functions, including debt, investment, pension and benefits. He has also served as Executive Officer, Administration and Controller of the LACMTA and as Director of Strategic Funding Analysis for the LACMTA s Regional Transportation Planning and Development Division. Prior to joining the LACMTA, Mr. Matsumoto was the Controller with the Community Redevelopment Agency of the City of Los Angeles. His prior experience includes managing financial functions for Republic Geothermal, Inc., divisional finance and administration for Tetra Tech, Inc., in Arlington, Virginia, and auditing functions for Coopers & Lybrand. He is a Certified Public Accountant and holds a Bachelor of Arts in Economics and an MBA from the University of California, Los Angeles. Public Transportation Services Corporation In December 1996, the LACMTA created the Public Transportation Services Corporation ( PTSC ), a nonprofit public benefit corporation organized under the laws of the State. PTSC was created in order to transfer certain functions, then performed by the LACMTA, and the employees related to those functions, to this new corporation. The purpose of PTSC is to conduct essential public transportation activities including but not limited to the following: (a) to coordinate multimodal multi-jurisdictional transportation planning; (b) to program federal, state and local funds for transportation projects county-wide within the County; (c) to oversee construction; (d) to provide certain administrative services to the Los Angeles County Service Authority for Freeway Emergencies and the Southern California Regional Rail Authority; (e) to provide administrative support and security services for the foregoing and to the operation of the LACMTA s bus and rail system; and (f) such other activities and provide such other services as it deems necessary. One advantage 58

71 of the PTSC is that it allows the employees of the corporation, including those transferred from the LACMTA, to participate in the California Public Employees Retirement System. Rapid Transit System The LACMTA is a multi-faceted transportation agency responsible for the coordination of transportation policy, funding and planning within the County as well as the development and operation of bus, rail, highway and commuter rail within the greater Los Angeles region. This breadth of services distinguishes the LACMTA from other transportation agencies across the country. Most other transportation agencies specialize in three or fewer of the referenced transportation services. Bus System. The LACMTA is the largest public transit operator west of Chicago. The LACMTA provides bus service within its service area in the County and to portions of Orange and Ventura Counties, operating a vehicle fleet of over 2,500 buses that operates a weekday total of 259,400 revenue service miles over a route system of 2,870 miles carrying approximately 1.2 million weekday boardings. In addition, the LACMTA contracts with outside service providers for an additional 185 buses that operate a weekday total of 21,600 revenue service miles over a route system of 379 miles carrying approximately 44,000 weekday boardings. Approximately 95% of LACMTA s bus fleet is comprised of compressed-natural gas ( CNG ) powered buses. LACMTA continues to replace its older diesel powered buses and expects to receive 130 new CNG-powered articulated buses and six gasoline hybrid buses in Fiscal Year As of July 1, 2008, the average age of LACMTA s bus fleet is just under 7.6 years old. Metro Rapid Bus. In June 2000, the LACMTA launched the Metro Rapid Demonstration Program. The Metro Rapid Demonstration Program consisted of two lines one along Ventura Boulevard in the San Fernando Valley and the other along the Wilshire/Whittier transit corridor. In September 2002, based on the success of the Metro Rapid Demonstration Program, the Board adopted the Metro Rapid Five-Year Implementation Plan that identified additional Metro Rapid corridors to be implemented through Fiscal Year Twenty-six of the 28 planned Metro Rapid corridors are now operating representing nearly 400 miles in the City of Los Angeles, the County and 33 other cities. Included among the operating Metro Rapid corridors is the Lincoln Rapid 3, which is operated by Santa Monica s Big Blue Bus. The LACMTA implemented six new corridors in June 2008 with two additional corridors to be implemented in the near future by Culver City Bus and Torrance Transit. Metro Rapid service along Pico Boulevard will also soon be extended and operated from Pico/Rimpau to downtown Santa Monica by Santa Monica Big Blue Bus. The Metro Rapid Program provides fast, frequent regional bus service throughout the County. Key features of the Metro Rapid Program include simple route layouts, frequent service, fewer stops, low-floor buses to facilitate boarding and alighting, color-coded buses and stations, headway-based operations and traffic signal priority. Currently, more than 450 CNG-powered buses serve 25 of the 26 major corridors across the County. In addition, the Santa Monica Big Blue Bus operates ten buses on the Rapid 3 Line along Lincoln Boulevard. The Metro Rapid Program s success has garnered national acclaim from the federal government and major transit providers. Since the inception of the Metro Rapid Program, passenger travel times on Metro Rapid routes have been reduced by an average of 26% while demand for Metro Rapid service has increased significantly. Ridership has increased by as much as 40% in some corridors. Nearly one-third of this ridership increase has been generated by patrons who previously used automobiles. Metro Orange Line. The Metro Orange Line is a 14-mile Bus Rapid Transit service that operates along an exclusive right-of way and transports thousands of commuters between Warner Center in the west San Fernando Valley and the Metro Red Line subway station in North Hollywood. The Metro Orange Line buses operate in exclusive lanes along a 13-mile stretch of LACMTA-owned right-of-way and one mile in mixed flow traffic on public streets. The Metro Orange Line has fourteen stations, each located roughly one mile apart, with park and ride facilities at seven stations providing approximately 4,700 parking spaces. The 59

72 Metro Orange Line opened in October The projected total cost for the Metro Orange Line is $313.0 million. As of March 2008, $273.1 million has been spent. Approximately 50% has been paid from local sources and approximately 50% has been paid from discretionary State and federal sources. Ridership in June 2008 averaged approximately 26,500 boardings per weekday. Highway System. The High Occupancy Vehicle ( HOV ) lane program is a cooperative effort between Caltrans and the LACMTA, and is funded through a combination of federal, state and local resources. In November 2002, the Board approved a comprehensive evaluation report for its HOV Performance Program that fully documents the user and regional mobility benefits of HOV investments. Freeways were analyzed to determine the best and most cost-effective way to use HOV lanes with other transit services. There were 506 lane miles of HOV lanes on Los Angeles freeways as of May 1, As reported by Caltrans, as of June 30, 2007, the HOV lanes carried an average volume of 330,000 vehicles and over 750,000 people per day. Rail System General. In 1992, the Commission developed a comprehensive rail rapid transit system development plan (the Rail System ) which has been revised from time to time. The Rail System currently consists of the Metro Blue Line, the Metro Green Line, the Metro Gold Line, Segment 1, Segment 2, and Segment 3 (North Hollywood) of the Metro Red Line and the Purple Line. Metro Blue Line. The Metro Blue Line was designed as a modern, state-of-the-art light rail transit line, which extends approximately 22 miles from downtown Los Angeles, where it links to the Metro Red Line, to the City of Long Beach. The Metro Blue Line passes through portions of the cities of Los Angeles, Long Beach, Compton, Carson and other cities, and certain unincorporated areas of the County. A portion of the Metro Blue Line utilizes a reserved, but not necessarily grade-separated, right-of-way on which electrically powered vehicles, drawing current from overhead wire, operate singly or in trains. Passenger service began in July 1990 and had estimated average weekday boardings of approximately 84,000 in June The Metro Blue Line consists of a dual-track line with 22 stations, with a fleet of 54 articulated rail cars and a primary maintenance facility and yard located in Long Beach adjacent to the Long Beach Freeway with a storage and maintenance capacity of 89 vehicles. Due to the high level of ridership, the platforms of 19 of the 22 stations were expanded in order to permit longer train sets. The $14.5 million station platform expansion project was completed in summer The vehicle maintenance facility supports vehicles from both the Metro Blue Line and the Metro Green Line. Fares are collected through self-service, barrier-free fare collection machines. Total travel time between the terminal points of the Metro Blue Line is approximately 58 minutes. The Metro Blue Line project budget was $877 million, all of which was paid with local Proposition A funds. The total cost of constructing the Metro Blue Line was within budget. Metro Green Line. The Metro Green Line is a 19.5-mile light rail line linking the El Segundo employment area near the Los Angeles International Airport to the City of Norwalk near the San Gabriel River Freeway. The Green Line has fourteen stations including a station that intersects the Metro Blue Line and one that provides passenger connections to the Harbor Freeway Transitway, an elevated busway developed by Caltrans. Travel time between the terminal points of the Metro Green Line is approximately 35 minutes. The Metro Green Line began operations in August 1995, and had estimated average weekday boardings of approximately 44,000 in June The Metro Green Line Project budget was $712.3 million and the project was completed within budget. The overall project costs have been paid primarily from Proposition A Sales Tax revenues and Proposition C Sales Tax revenues. The project also received approximately $100 million of moneys contributed from the LACMTA s portion of the $1 billion Proposition 108 and 116 State rail bonds approved by the voters of the State in June of

73 Metro Gold Line. The Metro Gold Line (formerly known as the Pasadena Gold Line) is a 13.7-mile light rail line which extends from downtown Los Angeles (where it links to the Metro Red Line) to the City of Pasadena. The Metro Gold Line consists of a dual-track line with 13 stations. Travel time between the terminal points of the Metro Gold Line is approximately 35 minutes. The Metro Gold Line began operations in July 2003 and had estimated average weekday boardings of approximately 26,000 in June The Metro Gold Line project budget was $725 million, $451 million of which was funded by the Pasadena Metro Blue Line Construction Authority and $274 million of which was funded by LACMTA. The total project costs were primarily paid from a combination of State grants, bond proceeds and Proposition C Sales Tax revenues. Metro Red Line and Metro Purple Line. The Metro Red Line and Metro Purple Line were designed as state-of-the-art, modern heavy rail subway lines comparable to transit systems in San Francisco, Atlanta and Washington, D.C. The Metro Red Line and Metro Purple Line are dual-rail steel-wheeled, high speed rapid subway systems that originally were to consist of a 19.7 mile 18-station line that was to connect the Los Angeles central business district to the San Fernando Valley, through the Wilshire Corridor and Hollywood, and to East Los Angeles through Union Station. However, due to the Act of 1998 and federal and state funding shortfalls, the development of the Metro Red Line and Metro Purple Line have been drastically reduced, including the indefinite suspension of certain of the extensions. The Act of 1998 prohibits the LACMTA from utilizing any of the Proposition A Sales Tax or the Proposition C Sales Tax for the costs of planning, design, construction or operation of any new subway, including debt service on any obligations issued for such purposes after March 30, However, the LACMTA is not precluded from continuing the construction of the Metro Red Line and Metro Purple Line as long as such design, construction and operation are paid from funds other than Proposition A Sales Tax revenues and Proposition C Sales Tax revenues. The initial 4.4-mile Metro Red Line Segment 1, previously known as MOS-1, extends from Union Station to Alvarado Street in the downtown section of the City of Los Angeles, with five stations located along the line. Segment 1 began operating in January The total cost of constructing Segment 1 was $1.45 billion. Funding of Segment 1 was derived from local, state and federal funds, including Proposition A Sales Tax revenues. In addition to constructing the rail line, the total cost of Segment 1 included the purchase of passenger vehicles, fare collection equipment, automatic train control equipment, the yards and shops required for the full construction of the Metro Red Line alignment. Segment 2 of the Metro Red Line, previously known as MOS-2, is 6.8-miles long with eight stations extending west from Alvarado Street to Vermont Avenue where it branches north and west. The west branch continues west under Wilshire Boulevard to Western Avenue. The west branch became operational in July 1996 and was renamed the Purple Line in August The north branch turns up Vermont Avenue and travels through Hollywood to Hollywood Boulevard and Vine Street. The north branch opened for service in June As of February 2008, $1.81 billion had been spent on Segment 2. Funding for Segment 2 was derived from local, state and federal funds, including Proposition A Sales Tax revenues. Segment 3 of the Metro Red Line, previously known as MOS-3, was originally designed to consist of the north and west extensions from Segment 2 and an east extension from Union Station of Segment 1. As a result of the passage of the Act of 1998, funding shortfalls and the internal guidelines adopted by the Board, only the north extension was completed. At this time the western extension has been indefinitely suspended. The eastside extension has been reengineered as a light rail line. See Gold Line Eastside Extension below. The north extension runs west and north from the Segment 2 Hollywood and Vine station to a North Hollywood station with two intermediate stops. The budget for the North Hollywood segment is $1.314 billion with $1.29 billion expended as of February Funding for Segment 3 was derived from state and local sources, including Proposition A Sales Tax revenues and Proposition C Sales Tax revenues, and federal Section 5309 and 5307 funds. This final segment of the subway opened in June

74 The average weekday ridership estimate for the entire Metro Red Line and Metro Purple Line was 153,928 in June The Metro Red Line and Metro Purple Line are serviced by a main storage yard and maintenance facility located near the Los Angeles River at the eastern terminus of the line. As currently planned, primary passenger access to the Metro Red Line and Metro Purple Line will be provided from other rail projects and from the LACMTA s extensive bus network which is proposed to be expanded and will include bus terminals at Metro Red Line and Metro Purple Line stations, park-and-ride facilities and passenger drop-off areas. Gold Line Eastside Extension. The LACMTA is currently in the process of constructing the Gold Line Eastside Extension Project ( Eastside Extension ). Projected to open in mid-2009, the Eastside Extension will be a six-mile, dual track light rail system with eight new stations and one station modification. The system will originate at Union Station in downtown Los Angeles, where it will connect with the Metro Gold Line, traveling generally east to Pomona and Atlantic Boulevards through one of the most densely populated areas of the County. The total estimated project cost for the Eastside Extension is $898.8 million. In June 2004, the Federal Transit Administration of the United States Department of Transportation approved $490.7 million in federal funding pursuant to Section 5309 of the Capital Investment Grant and Loan Program for the Eastside Extension (the Eastside Extension FTA Grant ). In July 2005, the LACMTA issued its Grant Receipts Bonds, the proceeds of which are being used to fund a portion of the Eastside Extension. The Grant Receipts Bonds are secured by the amounts received from the Eastside Extension FTA Grant and amounts received pursuant to grants awarded to the LACMTA by the Federal Transit Administration pursuant to Section 5307 of the Urbanized Area Formula Program (the Section 5307 Grants ). The remaining project costs will be paid from the remaining Eastside Extension FTA Grant moneys, other federal funding sources, local and State sources, and Proposition A Sales Tax revenues and Proposition C Sales Tax revenues (with respect to non-tunnel portions of the Eastside Extension). Construction on the Eastside Extension is progressing on schedule. Exposition Light Rail Transit Project. The Exposition Light Rail Transit Project (the Exposition Project ) is a light rail project under development by the LACMTA that is being designed and constructed by the Exposition Metro Line Construction Authority ( Exposition Authority ), a single purpose entity created under State law. The light rail transit line will be approximately 15 miles and run from downtown Los Angeles to Santa Monica along the Exposition Boulevard corridor. Phase One of the project will extend approximately 8.6-miles from downtown Los Angeles to Washington/National Boulevards in Culver City and is scheduled to open in In April 2005, the Board approved a full funding plan for Phase One of the project, not to exceed $640 million. During Fiscal Year , the Board approved increasing the budget by $222.3 million to $862.3 million. Pursuant to the current full funding plan for Phase One, approximately 85% of the projected total costs will be paid from State and federal sources, and approximately 15% will be paid from Proposition A Sales Tax revenues, Proposition C Sales Tax revenues and other local sources. Construction on the Exposition Project began in September Commuter Rail. The LACMTA initiated, with the active participation of five surrounding counties (Riverside, Ventura, Orange, San Bernardino and San Diego), joint planning, project development and procurement activities related to the initiation of new commuter rail services. Such services from multiple corridors, principally into Los Angeles Union Passenger Terminal, currently operate on existing rights-of-way for which the purchase and operating rights were acquired. The commuter rail initiative is principally geared toward providing better commuter rail service from outlying communities to downtown Los Angeles. In July 1991, the Southern California Regional Rail Authority ( SCRRA ) was created to oversee commuter rail services in the region. The LACMTA is the Los Angeles County participant in the SCRRA. Other participants include the Orange County Transportation Authority, the Riverside County Transportation Commission, the San Bernardino Association of Governments and the Ventura County Transportation Authority. 62

75 On October 26, 1992, SCRRA opened the first three Commuter Rail ( Metrolink ) lines to downtown Los Angeles initiating commuter rail service for the first time ever in the County. Service is being provided between Los Angeles and Lancaster in the County, Oxnard in Ventura County, San Bernardino in San Bernardino County, Riverside in Riverside County, San Clemente in Orange County, and Oceanside in San Diego County. Metrolink also provides service between San Bernardino in San Bernardino County and San Juan Capistrano in Orange County. As of June 2008, the Metrolink system consists of seven lines totaling 512 miles and 55 stations serving approximately 46,000 weekday commuters daily. These facilities were constructed within their project budgets and time specifications. Future Transportation Improvements The LACMTA, as the State-designated planning and programming agency for the County, identifies future transportation needs and transportation funding and construction priorities in the County. The LACMTA prepares both a Long Range Transportation Plan and a Short Range Transportation Plan that identify the costs of major transportation projects and the anticipated funding sources. Long Range Transportation Plan. The Board adopted the 2001 Long Range Transportation Plan ( 2001 LRTP ) on April 26, The 2001 LRTP superseded the previous plan that was adopted on March 22, 1995 and amended in The 2001 LRTP identifies the transportation needs and challenges that the County may experience through The 2001 LRTP is the blueprint for implementing transportation improvements needed for the County s transportation system, including highway, arterial, transit (bus, rail and commuter rail), bicycle, pedestrian, rideshare and transportation demand management projects and programs. A basic premise of the 2001 LRTP is that County residents will use public transportation if it is safe, convenient, clean, on time and affordable. The LACMTA intends to make sure that the County transportation system achieves these objectives. The goal of the 2001 LRTP is to develop a multimodal system that better serves the needs of transit dependent riders, while also providing a network that will attract solo drivers out of their cars, primarily through faster transit speeds, improved quality of service and more commuter choices. The 2001 LRTP identifies major transportation projects that have priority for future funding and construction and funding for the Call for Projects process. The 2001 LRTP also includes a strategic plan of projects that are regionally significant and should be considered for implementation if additional funding becomes available. The LACMTA released a draft version of a revised Long Range Transportation Plan (the 2008 LRTP ) for public comment on March 12, This draft version of the 2008 LRTP is based upon the existing 2001 LRTP and incorporates changes in policy and system needs since the 2001 LRTP s adoption. The draft 2008 LRTP reflects the LACMTA s assessment of growth patterns, regional congestion, strategies to improve local air quality, transit-oriented development, technical assumptions, climate change issues and the substantial shortage of transportation funding in today s environment. The 2008 LRTP proposes funding a transportation program in an amount exceeding $152 billion through 2030 and will continue funding for those projects already identified in the LACMTA s 2001 LRTP. Further, the 2008 LRTP updates projects and anticipated completion dates and introduces funding opportunities for accelerating capital projects throughout the County. Further, the new plan will revise and prioritize the LACMTA s plans of regionally significant projects that could be implemented if additional funding becomes available. Short Range Transportation Plan. The Board approved the 2003 Short Range Transportation Plan ( SRTP ) in August The SRTP is a focused, near-term action plan that advances the long-term goals outlined in the LRTP, and identifies specific transportation projects and funding sources through Among the items funded in the SRTP are: bus and rail vehicle purchases; the expansion of the Metro Rapid bus program; construction of the Eastside Extension and Metro Orange Line; preliminary engineering for the Exposition Light Rail Project, rail system rehabilitation and replacement costs; and the addition of 70 miles of car pool lanes. Board actions subsequent to the approval of the SRTP have accelerated the completion date and funding of several projects identified in the SRTP, including the Exposition Light Rail Project and car pool lanes on portions of Interstate 5. 63

76 Labor Relations The LACMTA currently employs approximately 9,100 employees. As of July 1, 2008, approximately 87% of LACMTA employees are covered by labor agreements. Full- and part-time LACMTA bus and train operators are represented by the United Transportation Union ( UTU ), while LACMTA mechanics and service attendants are members of the Amalgamated Transit Union ( ATU ). LACMTA clerks are members of the Transportation Communications Union ( TCU ); bus and rail transportation and maintenance supervisors are members of the American Federation of State County and Municipal Employees ( AFSCME ); and LACMTA security guards are members of the Teamsters Union. The following table summarizes the number of employees covered by, and the expiration dates of, the labor agreements of the LACMTA with each of its employee bargaining units as of July 1, Employee Bargaining Unit Number of Employees Contract Expiration Date United Transportation Union 4,510 06/30/09 Amalgamated Transit Union 2,088 06/30/09 Transportation Communications Union /30/09 American Federation of State, County and /30/11 Municipal Employees Teamsters Union 79 09/30/09 In June 2006, the LACMTA renegotiated contracts (effective as of July 1, 2006) with the UTU, the ATU and the TCU. Terms of the new labor agreements, which expire on June 30, 2009, include a 10.5% wage increase over a three-year period and an increase in LACMTA contributions to the health plan. In exchange, the unions agreed to, among other things, changes in work rules. In June 2008, the LACMTA and the AFSCME reached a successor agreement for a three-year term ending June 30, In December 2006, the LACMTA renegotiated its contract with the Teamsters. Terms of the new labor agreement, which expires on September 30, 2009, include a 10.5% wage increase over a three-year period. Since September 16, 2000, the LACMTA has suffered two major work stoppages. In September 2000, members of the UTU went on strike and many members of the TCU, ATU and AFSCME honored the picket lines, and in October 2003, members of the ATU went on strike and many members of the UTU, TCU and AFSCME honored the picket lines. During both strikes the LACMTA was able to provide substitute service on a limited basis through contracted services and other operators. The strike in 2000 lasted 32 days and the strike in 2003 lasted 35 days. Defined Benefit Pension Plan The LACMTA provides pension benefits that cover substantially all full-time employees through five self-administered defined benefit plans and, with respect to PTSC employees, the California Public Employees Retirement System ( PERS ), a multiple-employer pension system. PERS provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State. PERS is a contributory plan deriving funds from employee contributions as well as from employer contributions and earnings from investments. State statutes within the Public Employees Retirement Law have established several benefit provisions for participating public agencies. The PTSC selects optional benefit provisions by contract with PERS. The contribution requirements of the plan members are established by State statute and the employer contribution rate is established and may be amended by PERS. For the year ended June 30, 2007, the contribution rate of covered payroll was 14.73%. The PTSC s annual required contribution (including employer and employee contributions) for the PERS plan for the Fiscal Year ended June 30, 2007 was $18.0 million. The PTSC s estimated annual contribution (including employer and 64

77 employee contributions) for the PERS plans for the Fiscal Year ended June 30, 2008 was approximately $17.7 million. The PTSC makes contributions to PERS based on actuarially determined employer contribution rates. The actuarial methods and assumptions used are those adopted by the PERS Board of Administration. Employees are required to contribute 7% of their earnings (excluding overtime pay) to PERS. As of the June 30, 2006 valuation date, the actuarial value of assets in the PTSC s share of the PERS pension plan was approximately $213.6 million, and the PTSC s share of the plan s unfunded liability was approximately $1.6 million. The Fiscal Year contribution requirement is based on the June 30, 2004 valuation report. The individual entry-age normal cost was the actuarial method used to determine the annual required contributions. Initial unfunded liabilities are amortized over a closed period with subsequent plan amendments amortized as a level percentage of pay over a closed 20-year period. The actuarial assumptions included (a) a 7.75% investment rate of return, (b) an inflation component of 3.00% and (c) projected salary increases between 3.25% and 14.5% dependent upon employee age, years of service and type of employment. The LACMTA also has a single-employer public employee retirement system that includes five defined benefit plans (the Plans ) that covers substantially all employees (except PTSC employees) and provides retirement, disability, and death benefits. The benefit provisions and all other requirements are established by state statute, ordinance, collective bargaining agreements or Board actions. Four of the Plans are restricted to specific union members, while the fifth provides benefits to non-represented employees and to the Brotherhood of Teamsters. The annual required contribution for the Plans for the Fiscal Year ended June 30, 2007 was $37.8 million. The Fiscal Year annual pension cost was approximately $37.7 million, for which the LACMTA contributed approximately $37.9 million. The contribution for the year ended June 30, 2008 was approximately $35.5 million. As of the December 31, 2006 valuation date, the actuarial value of assets in the plans administered by the LACMTA was approximately $660.3 million, and, collectively, the plans had an unfunded liability of approximately $256.3 million. See APPENDIX B LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY GENERAL PURPOSE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, Other Post-Employment Benefits The LACMTA provides post-employment health care and life insurance benefits for retired employees and families. The LACMTA funds such benefits on a pay-as-you-go basis. Payments were $22.9 million for Fiscal Year , $17.0 million for Fiscal Year , $18.4 million for Fiscal Year and $54.4 million for Fiscal Year Under Governmental Accounting Standards Board Statement No. 45, Accounting and Financial Reporting by Employers of Post-employment Benefits Other Than Pensions ( GASB 45 ), the LACMTA will be required to account for and report the outstanding obligations and commitments related to such post-employment employment benefits ( OPEB ) on an accrual basis for the fiscal year ending June 30, The LACMTA established an OPEB Trust Fund on August 1, 2007 with an initial deposit of $158 million. The LACMTA will begin implementing the reporting requirements of GASB 45 and its obligations with respect to the OPEB Trust Fund beginning with its financial statements for the fiscal year ended June 30, For Fiscal Year , the LACMTA s annual required contribution ( ARC ) for OPEB cost is estimated to be $72 million. Contributions to be made of $17.9 million are expected to be equal to the pay-asyou go amount and represent 25% of the annual OPEB cost. The LACMTA intends to continue funding on a pay-as-you-go-basis while it reviews various funding options. (See Note III to the LACMTA s audited financial statements in Appendix B for additional information on OPEB cost and net OPEB obligation.) See APPENDIX B LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY GENERAL PURPOSE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30,

78 Enterprise Fund As is generally true with large transit systems, the LACMTA does not generate sufficient fare box or other revenues from the operation of its bus and rail systems to pay for the operation of the bus and rail systems. Thus, the operational costs of the LACMTA s transit system are subsidized from other sources, primarily, from the Proposition A Sales Tax and the Proposition C Sales Tax. The LACMTA anticipates that transit operations will require substantial subsidies for the foreseeable future. The LACMTA s enterprise fund is used to account for the LACMTA s ongoing transit operations and activities. Prior to the implementation of GASB 34, the LACMTA s Fiscal Year 2001 financial statements showed a cumulative retained deficit in the enterprise fund of approximately $63.3 million, compared to the Fiscal Year 1998 cumulative deficit of $102 million. The deficit reduction over that period reflected increased operating subsidies and reduced overhead. GASB 34 significantly altered the presentation of the financial statements for enterprise funds. As a result of GASB 34, the LACMTA reports net assets instead of retained earnings in the enterprise fund, although it continues to subsidize its transit operations at roughly the same levels as in prior years. See APPENDIX B LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY GENERAL PURPOSE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, Debt Policy In August 2007, the LACMTA updated its formal Debt Policy (the Debt Policy ). The Debt Policy sets forth guidelines for the issuance and management of the LACMTA s debt. Among other things, the Debt Policy requires the LACMTA to develop a capital improvement plan which includes the capital projects the LACMTA plans to undertake in future years and the source of funding for such capital projects. Such capital improvement plans were adopted with the annual budgets for fiscal years 2000 through The Debt Policy also sets forth guidance on the type of debt that may be incurred by the LACMTA (i.e., long term versus short term), the source of payment for such debt, and other factors to be considered when incurring debt. A revised debt policy is expected to be presented to the Board for approval on September 25, Interest Rate Swap Policy In August 2007, the LACMTA updated its Interest Rate Swap Policy (the Swap Policy ). The Swap Policy includes guidelines to be used by the LACMTA when entering into interest rate swaps and management practices that address the special risks associated with interest rate swaps. The Swap Policy requires that the LACMTA evaluate the risks, on an on going basis, of existing interest rate swaps. A revised swap policy is expected to be presented to the Board for approval on September 25, The LACMTA has entered into the Series 2005-C Swap Agreements, pursuant to which regularly scheduled payments payable by the LACMTA are secured by Proposition A Sales Tax revenues on a parity with the Second Tier Obligations, and the Series 1992-A Swap Agreement, pursuant to which all payments payable by the LACMTA are secured by the Proposition A Sales Tax revenues on a parity with the Second Tier Obligations. See PROPOSITION A SALES TAX OBLIGATIONS Outstanding Proposition A Sales Tax Obligations Second Tier Obligations. The LACMTA has also entered into the 2004 Gateway Swap Agreement (see PROPOSITION A SALES TAX OBLIGATIONS Outstanding Proposition A Sales Tax Obligations-Other Obligations ), the Proposition C Series 2003 Swap Agreements (as described below under Proposition C Sales Tax Obligations Second Senior Bonds ) and the Proposition C Series 1993 Swap Agreement (as described below under Proposition C Sales Tax Obligations Second Senior Bonds ). 66

79 Proposition C Sales Tax Obligations In addition to obligations issued by the LACMTA which are secured by the Proposition A Sales Tax, the LACMTA has also issued obligations secured by the Proposition C Sales Tax. First Senior Bonds. The LACMTA had no Proposition C Sales Tax First Senior Bonds outstanding as of August 1, Second Senior Bonds. The LACMTA had the following Proposition C Sales Tax Second Senior Bonds outstanding as of August 1, 2008: TABLE 6 Los Angeles County Metropolitan Transportation Authority Proposition C Sales Tax Revenue Bonds, Second Senior Bonds (Outstanding as of August 1, 2008) Proposition C Sales Tax Second Senior Bonds Outstanding Principal Amount Proposition C Sales Tax Revenue Refunding Bonds, Second Senior Bonds, Series 2008-A $128,745,000 Proposition C Sales Tax Revenue Bonds, Second Senior Bonds, Series 2006-A 128,720,000 Proposition C Sales Tax Revenue Bonds, Second Senior Bonds, Series 2004-A 164,285,000 Proposition C Sales Tax Revenue Refunding Bonds, Second Senior Bonds, Series 2003-C 211,500,000 (1) Proposition C Sales Tax Revenue Refunding Bonds, Second Senior Bonds, Series 2003-B 167,300,000 (1) Proposition C Sales Tax Revenue Refunding Bonds, Second Senior Bonds, Series 2003-A 50,730,000 Proposition C Sales Tax Revenue Bonds, Second Senior Bonds, Series 2000-A 15,390,000 Proposition C Sales Tax Revenue Bonds, Second Senior Bonds, Series 1999-A 102,705,000 Proposition C Sales Tax Revenue Refunding Bonds, Second Senior Bonds, Series 1998-A 71,250,000 Proposition C Sales Tax Revenue Refunding Bonds, Second Senior Bonds, Series 1993-A (1) (2) 193,210,000 Total $1,233,835,000 (1) The LACMTA expects to refund these bonds in the fall of (2) The LACMTA has entered into a Standby Bond Purchase Agreement, in connection with the Series 1993-A Bonds. Obligations with respect to bonds purchased under Standby Bond Purchase Agreement are secured by Proposition C Sales Tax revenues on parity with the Second Senior Bonds. Source: The LACMTA. The LACMTA is also obligated to make regularly scheduled payments under various interest rate swap agreements from Proposition C Sales Tax on parity with the Proposition C Sales Tax Second Senior Bonds. 67

80 Proposition C Series 2003 Swap Agreements. In connection with the issuance of the Proposition C Sales Tax Revenue Refunding Bonds, Series 2003-B (the Proposition C Series 2003-B Bonds ), the LACMTA entered into an interest rate swap agreement (the Proposition C Series 2003-B Swap Agreement ) with Wachovia Bank, National Association ( Wachovia ). Pursuant to the terms of the Proposition C Series 2003-B Swap Agreement, the LACMTA pays a fixed amount (the rate for which is equal to 3.444%) to Wachovia and Wachovia pays to the LACMTA a floating amount (the rate for which is equal to 68% of onemonth LIBOR), in each case based on a notional amount equal to the principal amount of the Proposition C Series 2003-B Bonds outstanding. The Proposition C Series 2003-B Swap Agreement is expected to terminate on July 1, 2023 (the final maturity date of the Proposition C Series 2003-B Bonds), subject to the terms and conditions of the Proposition C Series 2003-B Swap Agreement. In connection with the issuance of the Proposition C Sales Tax Revenue Refunding Bonds, Series 2003-C (the Proposition C Series 2003-C Bonds ), the LACMTA entered into an interest rate swap agreement (the Proposition C Series 2003-C Swap Agreement, and together with the Proposition C Series 2003-B Swap Agreement, the Proposition C Series 2003 Swap Agreements ) with Goldman Sachs Mitsui Marine Derivative Products, L.P. ( GSMMDP, and together with Wachovia, the Proposition C Series 2003 Swap Counterparties ). Pursuant to the terms of the Proposition C Series 2003-C Swap Agreement, the LACMTA pays a fixed amount (the rate for which is equal to 3.382%) to GSMMDP and GSMMDP pays to the LACMTA a floating amount (the rate for which is equal to 68% of one-month LIBOR), in each case based on a notional amount equal to the principal amount of the Proposition C Series 2003-C Bonds outstanding. The Proposition C Series 2003-C Swap Agreement is expected to terminate on July 1, 2025 (the final maturity date of the Proposition C Series 2003-C Bonds), subject to the terms and conditions of the Proposition C Series 2003-C Swap Agreement. The LACMTA is currently considering amending some of the terms of the Proposition C Series 2003 Swap Agreements. The LACMTA is currently planning to refund the Proposition C Series 2003-B Bonds and the Proposition C Series 2003-C Bonds with the proceeds of certain variable rate bonds and/or certain fixed rate bonds that would be secured by Proposition C Sales Tax revenues. The LACMTA s obligation to pay the Proposition C Series 2003 Swap Counterparties a fixed amount under the respective Proposition C Series 2003 Swap Agreements is on a parity basis with the Proposition C Sales Tax Second Senior Bonds. The terms of the Proposition C Series 2003 Swap Agreements do not alter any of the obligations of the LACMTA with respect to the payment of principal of or interest on the Proposition C Series 2003-C Bonds. The fixed payments payable by the LACMTA under the respective Proposition C Series 2003 Swap Agreements are insured by two separate surety bonds issued by Ambac Assurance Corporation ( Ambac ). Under certain circumstances, the LACMTA may be obligated to make settlement payments to the respective Proposition C Series 2003 Swap Counterparties if the applicable Proposition C Series 2003 Swap Agreement is terminated prior to its termination date. The amount of the settlement payments will be determined by several factors, including the level of comparable interest rates at the time the applicable Proposition C Series 2003 Swap Agreement is terminated. Such settlement payments could be substantial. Such settlement payments would be secured by a pledge on certain fare box revenues, fee and advertising revenues and certain remaining Proposition A and C Sales Tax Revenues on parity with the Remaining Sales Tax Bonds, as hereinafter defined. See PROPOSITION A SALES TAX OBLIGATIONS Outstanding Proposition A Sales Tax Obligations Other Obligations. Such pledge would be subordinate to any claim on Proposition A Sales Tax revenues by the holders of the Series 2008 Bonds. However, the LACMTA may have to incur additional indebtedness secured by Proposition A Sales Tax revenue and/or Proposition C Sales Tax revenue to make any settlement payments on the applicable Proposition C Series 2003 Swap Agreement. Proposition C Series 1993 Swap Agreement. In connection with the issuance of the Proposition C Sales Tax Revenue Refunding Bonds, Series 1993-A (the Proposition C Series 1993-A Bonds ), the LACMTA entered into an interest rate swap agreement (the Proposition C Series 1993 Swap Agreement ) with AIG and a standby bond purchase agreement (the Proposition C Series 1993-A Standby Bond Purchase Agreement ) with Dexia. Pursuant to the terms of the Proposition C Series 1993 Swap Agreement, the LACMTA pays a fixed amount (the rate for which is equal to 5.155%) to AIG and AIG pays to the LACMTA 68

81 a floating amount (the rate for which is equal to the actual interest rate on the Proposition C Series 1993-A Bonds unless and until there occurs and is continuing an event or condition as identified in the Proposition C Series 1993 Swap Agreement which results in a conversion of such rate to a percentage of either LIBOR or the SIFMA Municipal Swap Index), in each case based on a notional amount equal to the principal amount of the Proposition C Series 1993-A Bonds outstanding. Because some of the Proposition C Series 1993-A Bonds were previously acquired by the liquidity provider, AIG is currently paying the LACMTA a percentage of LIBOR rather than the actual rate of interest on the Proposition C Series 1993-A Bonds. The LACMTA expects to modify the Proposition C Series 1993 Swap Agreement to provide that regularly scheduled payments by AIG will be based on a percentage of LIBOR for the remainder of the term of the swap transaction and the percentage of LIBOR to be paid by AIG will be increased from the original percentage set forth in the swap documentation. Additionally, the amendment is expected to provide that the LACMTA s rights to terminate the Series 1993 Swap Agreement will be broader than its rights currently and the language utilized in calculating any payment owed at termination will be modified from the current language. The LACMTA additionally is currently planning to refund the Proposition C Series 1993-A Bonds with proceeds of additional variable rate and/or fixed rate bonds that would be secured by Proposition C Sales Tax revenues and is considering terminating the Proposition C Series 1993 Swap Agreement in connection with such refunding. The LACMTA s obligation to pay AIG a fixed amount under the Proposition C Series 1993 Swap Agreement, and any obligation to make reimbursement payments to Dexia under the Proposition C Series 1993-A Standby Bond Purchase Agreement are on a parity basis with the Proposition C Sales Tax Second Senior Bonds. The Proposition C Series 1993 Swap Agreement is expected to terminate on July 1, 2020 (the final maturity date of the Proposition C Series 1993-A Bonds). The terms of the Proposition C Series 1993 Swap Agreement do not alter any of the obligations of the LACMTA with respect to the payment of principal of or interest on the Proposition C Series 1993-A Bonds. Under certain circumstances, the LACMTA may be obligated to make settlement payments to AIG if the Proposition C Series 1993 Swap Agreement is terminated prior to July 1, The amount of the settlement payments will be determined by several factors, including the level of comparable interest rates at the time the Proposition C Series 1993 Swap Agreement is terminated. Such settlement payments could be substantial. Such settlement payments would be secured by a pledge of subordinate Proposition C Sales Tax revenue on a basis subordinate to the Proposition C Sales Tax Second Senior Bonds. However, the LACMTA may have to incur additional indebtedness secured by Proposition A Sales Tax revenue and/or Proposition C Sales Tax revenue to make any settlement payments on the Proposition C Series 1993 Swap Agreement. Subordinate Lien Obligations. On June 9, 1993, the LACMTA received authorization to issue $150,000,000 of taxable commercial paper notes (the Proposition C Commercial Paper Notes ). As of August 1, 2008, $74,360,000 aggregate principal amount of the Proposition C Commercial Paper Notes were outstanding. The Proposition C Commercial Paper Notes are payable from Proposition C Sales Tax revenue on a basis subordinate to the lien on Proposition C Sales Tax revenues granted to the Proposition C Sales Tax First Senior Bonds and the Proposition C Sales Tax Second Senior Bonds. Other Obligations On July 21, 2005, the LACMTA issued $264,885,000 aggregate principal amount of its Capital Grant Receipts Revenue Bonds (Gold Line Eastside Extension Project) Series 2005A, Series 2005B-1 and Series 2005B-2 (the Grant Receipts Bonds ), to provide funds to finance a portion of the costs of the Eastside Extension. See Rapid Transit System Rail System Gold Line Eastside Extension. The Grant Receipt Bonds are limited obligations of the LACMTA and are payable solely from and secured by amounts received from the Eastside Extension FTA Grant, the Section 5307 Grants, and certain amounts on deposit in the funds and accounts, and the interest earnings thereon, established in connection with the issuance of the Grant Receipts Bonds. As of August 1, 2008 there was $216,685,000 aggregate principal amount of Grant Receipts Bonds outstanding. 69

82 The LACMTA has previously issued revenue anticipation notes ( RANs ) to fund working capital operations until portions of the County-wide one-half cent retail transactions and use tax on sales, governmental subsidy funds, including Federal Transit Administration moneys and State and local transportation fund subsidies, were received. Although the LACMTA currently does not have any RANs outstanding, the LACMTA reserves the right to issue revenue anticipation notes in the future to fund operational costs. Excise Tax on Lease/Leaseback Transactions On May 17, 2006, President Bush signed into law the Tax Increase Prevention and Reconciliation Act of 2005 (the 2005 Tax Act ). Pursuant to the 2005 Tax Act, a new Section 4965 was added to the Internal Revenue Code of 1986, as amended (the Code ). Section 4965 imposes a federal excise tax (the New Excise Tax ) on the net income or proceeds of certain types of leasing transactions entered into by tax-exempt entities, including states and their political subdivisions, such as the LACMTA. Based on Notice published by the Internal Revenue Service in February 2007 and proposed and temporary regulations published in July 2007 which provide clarifications to and guidance on the application of the language included in the 2005 Tax Act, the LACMTA does not expect to incur any material excise tax liability with respect to any of its lease transactions. LITIGATION Except as stated herein, there is no litigation pending or, to the knowledge of the LACMTA, threatened, in any way questioning or affecting the validity of the Series 2008 Bonds, the imposition and collection of the Proposition A Sales Tax or the pledge of the Pledged Revenues. Sales Tax Litigation On April 30, 1982, the California Supreme Court, in Los Angeles County Transportation Commission v. Richmond, upheld the constitutionality of the Proposition A Sales Tax. On March 3, 1992, the California Court of Appeal, in Vernon v. State Board of Equalization, upheld the validity of the Proposition C Sales Tax. On September 28, 1995, the California Supreme Court affirmed the California Court of Appeal s ruling in Santa Clara County Local Transportation Authority v. Guardino, which invalidated a half cent sales tax by the Santa Clara County Local Transportation Authority. The LACMTA does not believe such decision has any effect on the validity of the LACMTA s Proposition A Sales Tax. Fare Increase Litigation On August 31, 1994, the Labor/Community Strategy Center, Bus Riders Union, Southern Christian Leadership Conference of Greater Los Angeles County, Korean Immigrant Workers Advocates and several individuals represented by the NAACP Legal Defense and Educational Funds, Inc. (the Class Action Plaintiffs ) filed a civil rights class action complaint in the United States District Court for the Central District of California (Case No. CA TJH (MCx)) (the Complaint ). The Complaint named the LACMTA and then Chief Executive Officer, Franklin E. White, as defendants, and alleged various discriminatory practices by the LACMTA and its predecessor agencies in providing transportation services in the County. In the Complaint, the Class Action Plaintiffs sought to enjoin the LACMTA from implementing a new fare structure in late 1994 which, among other things, would have increased bus fares from $1.10 to $1.35 and eliminated the regular monthly bus passes. On October 28, 1996, Judge Terry Hatter approved a Consent Decree (the Consent Decree ) reached between the LACMTA and the Class Action Plaintiffs. A Special Master was appointed to oversee LACMTA compliance with the Consent Decree. The Consent Decree provides for the LACMTA to: (i) agree to reduce its load factor (i.e., the number of people who stand on the bus) to certain targets, (ii) expand bus service 70

83 improvements by making available a net of 102 additional buses by June 1997, (iii) implement a Five Year New Service Plan to facilitate access to County-wide jobs, education and health centers, (iv) not increase base bus fares for two years and pass fares for three years beginning December 1, 1996, after which the LACMTA is permitted to raise fares subject to certain conditions of the Consent Decree and (v) introduce a weekly pass and an off peak discount fare on selected lines. The ten-year Consent Decree ended by its own terms on October 29, The court rejected an attempt by the plaintiffs to extend the term of the Consent Decree. In rejecting plaintiffs request, the court stated that the LACMTA has substantially complied with the terms of the Consent Decree and that it would not be extended. The trial court retained jurisdiction to ensure that the LACMTA s New Service Implementation Plan will continue to be implemented until its expiration on November 30, The New Service Plan provides for additional bus and transit services to improve the access of the transit-dependent to jobs, education and medical services throughout the county. The plaintiffs appealed the trial court s denial of their motion to extend the Consent Decree. On May 12, 2008 the United States Court of Appeals for the Ninth Circuit heard oral arguments on the matter. No decision has been made by the court at this time. Construction Litigation Tutor-Saliba-Perini ( TSP ), a construction company, filed suit against the LACMTA claiming extra charges under certain Metro Red Line Segment 2 contracts. The LACMTA cross-complained for violation of the California False Claims Act and for breaches of contract. The trial on the complaint and cross-complaint concluded in August 2001, with a judgment for the LACMTA, which judgment was reversed in January The trial court judge has decided to retry the case in a series of separate trials. No final judgment will be issued until all of the separate trials are concluded or resolved. Other Litigation In addition to the matters herein discussed, various other claims have been asserted against the LACMTA. In the opinion of the LACMTA, none of the pending claims will materially and adversely affect the LACMTA s ability to pay the principal and purchase price of and interest on any of its obligations, including the Series 2008 Bonds. General INVESTMENT POLICY Certain features of the LACMTA s Investment Policy are summarized in Note III. DETAILED NOTES ON ALL FUNDS A. Cash and Investments to the LACMTA s financial statements for the Fiscal Year ended June 30, 2007 which are attached hereto as Appendix B. Investment Balances As of June 30, 2008 (based on unaudited financial information), the LACMTA had approximately $2.2 billion in market value deposited in non-discretionary trust accounts (including bond proceeds and escrows), primarily invested in U.S. Treasury securities, municipal bonds, commercial paper and the County of Los Angeles Pooled Surplus Investments (the Los Angeles County Pool ) maintained by the County of Los Angeles Treasurer and Tax Collector (the County Treasurer and Tax Collector ). As of June 30, 2008 (unaudited), the LACMTA also had approximately $1.72 billion in book value deposited in discretionary (operating) accounts. Such discretionary investments are summarized below: 71

84 Investments Percentage of Total Book Value as of June 30, 2008 Los Angeles County Investment Pool Local Agency Investment Fund 4.9% Bank Deposits 1.6 Certificates of Deposit 0.0 Managed Investments Federal Agencies 43.1 Treasuries 18.3 Commercial Paper 11.2 Corporate Notes 9.5 Money Market Funds 6.6 Asset Backed Securities; Mortgages 0.0 Bankers Acceptance 3.1 Repurchase Agreements 1.7 Sub Total Managed Investments 93.5 Total Cash and Investments (1) 100.0% (1) Numbers may not add due to rounding. Source: The LACMTA. As of June 30, 2008 (unaudited), the liquid reserve of the discretionary accounts, which totaled approximately $695.0 million in both book value and market value, was managed internally by the LACMTA and had an average maturity of 25 days. The LACMTA s Investment Policy prohibits investing in reverse repurchase agreements. The March 11, 2008 investment policy of the County Treasurer and Tax Collector permits investment in reverse repurchase agreements subject to certain limitations, including a maximum par amount in the portfolio of $500 million. The County Treasurer and Tax Collector s unaudited June 30, 2008 statement lists its current holdings of reverse repurchase agreements as 0% of the portfolio s total book value. The total market value of the Los Angeles County Pool as of June 30, 2008 was approximately $ billion (unaudited). Additional information regarding the LACMTA s investments are included in Note III. DETAILED NOTES ON ALL FUNDS A. Cash and Investments to the LACMTA s financial statements for the fiscal year ended June 30, 2007 which are attached hereto as Appendix B. LEGAL MATTERS Legal matters incident to the issuance of the Series 2008 Bonds are subject to the approving opinion of Nixon Peabody LLP, Bond Counsel. The form of the opinion to be delivered by Bond Counsel is attached hereto as Appendix C. Nixon Peabody LLP undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the LACMTA by the Los Angeles County Counsel, as General Counsel to the LACMTA, and by Nixon Peabody LLP, Disclosure Counsel. Certain legal matters will be passed upon for the Underwriters by their counsel, Kutak Rock LLP, Denver, Colorado for Bank of America by its counsel, White & Case LLP and for Dexia by its counsel, Kutak Rock LLP, Atlanta, Georgia. 72

85 TAX MATTERS Federal Income Taxes The Internal Revenue Code of 1986, as amended (the Code ), imposes certain requirements that must be met subsequent to the issuance and delivery of the Series 2008 Bonds for interest thereon to be and remain excluded from gross income for Federal income tax purposes. Noncompliance with such requirements could cause the interest on the Series 2008 Bonds to be included in gross income for Federal income tax purposes retroactive to the date of issue of the Series 2008 Bonds. Pursuant to the Agreement and the Tax Certificate the LACMTA has covenanted to comply with the applicable requirements of the Code in order to maintain the exclusion of the interest on the Series 2008 Bonds from gross income for Federal income tax purposes pursuant to Section 103 of the Code. In addition, the LACMTA has made certain representations and certifications in the Agreement and the Tax Certificate. Bond Counsel will not independently verify the accuracy of these representations and certifications. In the opinion of Nixon Peabody LLP, Bond Counsel, under existing law and assuming compliance with the aforementioned covenant, and the accuracy of certain representations and certifications made by the LACMTA described above, interest on the Series 2008 Bonds is excluded from gross income for Federal income tax purposes under Section 103 of the Code. Bond Counsel is also of the opinion that such interest is not treated as a preference item in calculating the alternative minimum tax imposed under the Code with respect to individuals and corporations. Interest on the Series 2008 Bonds is, however, included in the adjusted current earnings of certain corporations for purposes of computing the alternative minimum tax imposed on such corporations. State Taxes Bond Counsel is also of the opinion that interest on the Series 2008 Bonds is exempt from personal income taxes of the State of California under present state law. Bond counsel expresses no opinion as to other state or local tax consequences arising with respect to the Series 2008 Bonds nor as to the taxability of the Series 2008 Bonds or the income therefrom under the laws of any state other than State. Original Issue Discount Bond Counsel is further of the opinion that the difference between the principal amount of the Series 2008-B Bonds maturing July 1, 2021, July 1, 2022 and July 1, 2024 through 2028, inclusive; (collectively the Discount Bonds ) and the initial offering price to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which price a substantial amount of such Discount Bonds of the same maturity was sold constitutes original issue discount which is excluded from gross income for federal income tax purposes to the same extent as interest on the Series 2008 Bonds. Further, such original issue discount accrues actuarially on a constant interest rate basis over the term of each Discount Bond and the basis of each Discount Bond acquired at such initial offering price by an initial purchaser thereof will be increased by the amount of such accrued original issue discount. The accrual of original issue discount may be taken into account as an increase in the amount of tax-exempt income for purposes of determining various other tax consequences of owning the Discount Bonds, even though there will not be a corresponding cash payment. Owners of the Discount Bonds are advised that they should consult with their own advisors with respect to the state and local tax consequences of owning such Discount Bonds. Original Issue Premium The Series 2008-B Bonds maturing on July 1, 2009 through 2020, inclusive, and July 1, 2023 and July 1, 2031 (collectively, the Premium Bonds ) are being offered at prices in excess of their principal amounts. An initial purchaser with an initial adjusted basis in a Premium Bond in excess of its principal amount will have amortizable bond premium which is not deductible from gross income for federal income tax purposes. 73

86 The amount of amortizable bond premium for a taxable year is determined actuarially on a constant interest rate basis over the term of each Premium Bond based on the purchaser s yield to maturity (or, in the case of Premium Bonds callable prior to their maturity, over the period to the call date, based on the purchaser s yield to the call date and giving effect to any call premium). For purposes of determining gain or loss on the sale or other disposition of a Premium Bond, an initial purchaser who acquires such obligation with an amortizable bond premium is required to decrease such purchaser s adjusted basis in such Premium Bond annually by the amount of amortizable bond premium for the taxable year. The amortization of bond premium may be taken into account as a reduction in the amount of tax-exempt income for purposes of determining various other tax consequences of owning such Series 2008-B Bonds. Owners of the Premium Bonds are advised that they should consult with their own advisors with respect to the state and local tax consequences of owning such Premium Bonds. Ancillary Tax Matters Ownership of the Series 2008 Bonds may result in other federal tax consequences to certain taxpayers, including, without limitation, certain S corporations, foreign corporations with branches in the United States, property and casualty insurance companies, individuals receiving Social Security or Railroad Retirement benefits, individuals seeking to claim the earned income credit, and taxpayers (including banks, thrift institutions and other financial institutions) who may be deemed to have incurred or continued indebtedness to purchase or to carry the Series 2008 Bonds. Commencing with interest paid in 2006, interest paid on tax-exempt obligations such as the Series 2008 Bonds is subject to information reporting to the Internal Revenue Service (the IRS ) in a manner similar to interest paid on taxable obligations. In addition, interest on the Series 2008 Bonds may be subject to backup withholding if such interest is paid to a registered owner that (a) fails to provide certain identifying information (such as the registered owner s taxpayer identification number) in the manner required by the IRS, or (b) has been identified by the IRS as being subject to backup withholding. Bond Counsel is not rendering any opinion as to any Federal tax matters other than those described in the opinion attached as Appendix C. Prospective investors, particularly those who may be subject to special rules described above, are advised to consult their own tax advisors regarding the federal tax consequences of owning and disposing of the Series 2008 Bonds, as well as any tax consequences arising under the laws of any state or other taxing jurisdiction. Changes in Law and Post Issuance Events Legislative or administrative actions and court decisions, at either the federal or state level, could have an adverse impact on the potential benefits of the exclusion from gross income of the interest on the Series 2008 Bonds for Federal or state income tax purposes, and thus on the value or marketability of the Series 2008 Bonds. This could result from changes to Federal or state income tax rates, changes in the structure of Federal or state income taxes (including replacement with another type of tax), repeal of the exclusion of the interest on the Series 2008 Bonds from gross income for Federal or state income tax purposes, or otherwise. It is not possible to predict whether any legislative or administrative actions or court decisions having an adverse impact on the Federal or state income tax treatment of holders of the Series 2008 Bonds may occur. Prospective purchasers of the Series 2008 Bonds should consult their own tax advisers regarding such matters. Bond Counsel has not undertaken to advise in the future whether any events after the date of issuance and delivery of the Series 2008 Bonds may affect the tax status of interest on the Series 2008 Bonds. Bond Counsel expresses no opinion as to any Federal, state or local tax law consequences with respect to the Series 2008 Bonds, or the interest thereon, if any action is taken with respect to the Series 2008 Bonds or the proceeds thereof upon the advice or approval of other counsel. 74

87 UNDERWRITING The Series 2008-A1 Bonds are being purchased by E. J. De La Rosa & Co., Inc. ( De La Rosa ) pursuant to and subject to the conditions set forth in the purchase contract for the Series 2008-A1 Bonds. De La Rosa will purchase the Series 2008-A1 Bonds at an aggregate purchase price of $65,634,300.00, which represents the principal amount of the Series 2008-A1 Bonds less an underwriter s discount of $65, De La Rosa is obligated to purchase all of the Series 2008-A1 Bonds if any are purchased. The Series 2008-A2 Bonds are being purchased by Goldman, Sachs & Co. ( Goldman Sachs ) pursuant to and subject to the conditions set forth in the purchase contract for the Series 2008-A2 Bonds. Goldman Sachs will purchase the Series 2008-A2 Bonds at an aggregate purchase price of $65,734,200.00, which represents the principal amount of the Series 2008-A2 Bonds less an underwriter s discount of $65, Goldman Sachs is obligated to purchase all of the Series 2008-A2 Bonds if any are purchased. The Series 2008-A3 Bonds are being purchased by Morgan Stanley & Co. Incorporated ( Morgan Stanley ) pursuant to and subject to the conditions set forth in the purchase contract for the Series 2008-A3 Bonds. Morgan Stanley will purchase the Series 2008-A3 Bonds at an aggregate purchase price of $65,684,250.00, which represents the principal amount of the Series 2008-A3 Bonds less an underwriter s discount of $65, Morgan Stanley is obligated to purchase all of the Series 2008-A3 Bonds if any are purchased. The Series 2008-A4 Bonds are being purchased by Morgan Stanley pursuant to and subject to the conditions set forth in the purchase contract for the Series 2008-A4 Bonds. Morgan Stanley will purchase the Series 2008-A4 Bonds at an aggregate purchase price of $65,759,175.00, which represents the principal amount of the Series 2008-A4 Bonds less an underwriter s discount of $65, Morgan Stanley is obligated to purchase all of the Series 2008-A4 Bonds if any are purchased. The Series 2008-B Bonds are being purchased by De La Rosa pursuant to and subject to the conditions set forth in the purchase contract for the Series 2008-B Bonds. De La Rosa will purchase the Series 2008-B Bonds at an aggregate purchase price of $26,361,524.72, which represents the principal amount of the Series 2008-B Bonds, plus a net original issue premium of $384, less an underwriter s discount of $97, De La Rosa is obligated to purchase all of the Series 2008-B Bonds if any are purchased. FINANCIAL ADVISOR The LACMTA has retained Public Financial Management, Inc. as Financial Advisor (the Financial Advisor ) for the sale of the Series 2008 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 with its principal office in Philadelphia, Pennsylvania and is not engaged in the business of underwriting, trading or distributing municipal or other public securities. FINANCIAL STATEMENTS The financial statements of the LACMTA for the fiscal year ended June 30, 2007 and the Management s Discussion and Analysis and certain supplementary information, and the Report of PricewaterhouseCoopers LLP, independent accountants, dated November 28, 2007 (collectively, the 2007 Financial Statements ) are included as Appendix B to this Official Statement. The LACMTA s financial statements as of June 30, 2007 and for the year then ended, included in this Official Statement, have been audited by PricewaterhouseCoopers LLP, independent accountants, as stated in their report appearing in Appendix B. 75

88 Data for the 2007 Financial Statements has been extracted from the LACMTA s Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2007 (the 2007 CAFR ). The complete 2007 CAFR has not been included in this Official Statement. Certain page references contained in the 2007 Financial Statements, included in Appendix B, are references to pages as they appear in the complete version of the 2007 CAFR. Potential investors should not rely upon such page references. Potential investors may request a complete copy of the 2007 CAFR from the LACMTA at the office of the Treasurer of the Los Angeles County Metropolitan Transportation Authority, One Gateway Plaza, 25 th Floor, Los Angeles, California 90012, Attention: Treasury Department, (213) CONTINUING DISCLOSURE OBLIGATION In connection with the issuance of the Series 2008 Bonds, the LACMTA will covenant to provide, or cause to be provided, for purposes of Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission ( Rule 15c2-12(b)(5) ), certain annual financial information and operating data relating to the LACMTA to each nationally recognized municipal securities information repository (collectively, the Repositories ) and notice of certain material events to the Repositories or to the Municipal Securities Rulemaking Board. See APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE. A failure by the LACMTA to comply with these covenants will not constitute an Event of Default under the Agreement. The LACMTA has complied in all material respects with its previous undertakings under Rule 15c2-12(b)(5) for the past five years. VERIFICATION OF MATHEMATICAL COMPUTATIONS Grant Thornton LLP, certified public accountants, will verify, from the information provided to them, the mathematical accuracy of the computations contained in the provided schedules which set forth certain yield computations that will be relied upon by Bond Counsel in providing its opinion as to the tax-exempt status of the Series 2008 Bonds. Grant Thornton LLP also will verify, from the information provided to them, the mathematical accuracy of the computations contained in the provided schedules to determine that the anticipated receipts from the Government Obligations and the cash deposits, to be held in the Escrow Fund, will be sufficient to pay, when due, the principal of and interest on the Refunded Bonds on their respective redemption dates. Grant Thornton LLP will express no opinion on the sufficiency of the amounts to be deposited to the Escrow Fund, the assumptions provided to them, nor as to the exemption from taxation of the interest on the Series 2008 Bonds. RATINGS Moody s Investors Service ( Moody s ) and Standard & Poor s Rating Service, a Division of The McGraw Hill Companies ( S&P ) are expected to assign short-term ratings of VMIG 1 and A-1+ respectively to the Series 2008-A1 Bonds and the Series 2008-A2 Bonds based in part on the delivery of the Series 2008-A1 and Series 2008-A2 Liquidity Facility. Moody s and S&P are expected to assign short-term ratings of VMIG 1 and A-1+, respectively to the Series 2008-A3 Bonds and the Series 2008-A4 Bonds based in part on the delivery of the Series 2008-A3 and Series 2008-A4 Liquidity Facility. Moody s and S&P are expected to assign long-term ratings of Aa3 and AAA to the Series 2008 Bonds. Such ratings reflect only the views of such organizations and 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, 250 Greenwich Street, New York, New York 10007; Standard & Poor s Ratings Services, 55 Water Street, New York, New York The LACMTA furnished to such rating agencies certain information and materials regarding the Series 2008 Bonds and the LACMTA. Generally, rating agencies base their ratings on the information and materials furnished to them and on their own investigations, studies and assumptions. There is no assurance that such ratings will continue for any given period of time or that such ratings will not subsequently be revised or withdrawn entirely if, in the judgment of the applicable rating agency, circumstances so warrant. Any such change in or withdrawal of such ratings could have an adverse effect on the market price of the Series 2008 Bonds. 76

89 Moody s, Standard & Poor s and Fitch (collectively referred to herein as the Rating Agencies ) have each released statements on the health of the financial guaranty industry that cite financial guarantors exposure to subprime mortgage risk as an area of stress for the financial guaranty industry. In various releases, the Rating Agencies have each outlined the processes that they intend to follow in evaluating the effect of this risk on their respective ratings of financial guarantors. The Rating Agencies have already announced downgrades of some financial guarantors (including FGIC, MBIA and Ambac) and have indicated that they have a negative outlook for others (including FSA). Further downgrades and the placement of additional guarantors on negative outlook, are possible. Potential investors are directed to the Rating Agencies for additional information on their respective evaluations of the financial guaranty industry and individual financial guarantors, including FSA, FGIC, MBIA and Ambac. [Remainder of page intentionally left blank.] 77

90 ADDITIONAL INFORMATION Additional information may be obtained upon request from the office of the Treasurer of the Los Angeles County Metropolitan Transportation Authority, One Gateway Plaza, 25 th Floor, Los Angeles, California 90012, Attention: Treasury Department, (213) , or from the LACMTA s Financial Advisor, Public Financial Management, Inc., 633 West Fifth Street, Suite 6700, Los Angeles, CA 90071; Telephone (213) The LACMTA maintains a website at Information on such website is not part of this Official Statement and has such information has not been incorporated by reference herein and should not be relied upon in deciding whether to invest in the Series 2008 Bonds. LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY By: /s/ Roger Snoble Chief Executive Officer 78

91 APPENDIX A SUMMARY OF LEGAL DOCUMENTS

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93 APPENDIX A SUMMARY OF BOND DOCUMENTS The following is a brief summary of certain provisions of the First Tier Senior Lien Agreement and the Twenty-Eighth Supplemental Agreement and is supplemental to the summary of other provisions of such documents elsewhere in this Supplemental Official Statement. This summary is not intended to be definitive and is qualified in its entirety by reference to the full text of the First Tier Senior Lien Agreement and the Twenty-Eighth Supplemental Agreement. Copies of said documents are available from the LACMTA. This Appendix A describes the terms of the Series 2008-A Bonds while they bear interest at a Daily Rate or a Weekly Rate. There are significant differences in the terms of the Series 2008-A Bonds bearing interest at other rates. This Appendix A is not intended to provide information with respect to the Series 2008-A Bonds bearing interest at rates other than a Daily Rate or a Weekly Rate. DEFINITIONS The following terms, as used in the Agreement, as supplemented and amended, in the Twenty-Eighth Supplemental Agreement and in this summary, have the meanings set forth below. Accrued Interest means, for any calendar month, the amount of interest which has accrued or will accrue on a Series of First Tier Senior Lien Bonds during that month less any interest which accrues during such period, but for which a separate fund has been established and into which has been deposited monies or Government Obligations which, with the earnings thereon, will be sufficient to pay such interest and which fund is irrevocably pledged to payment of such interest; with respect to First Tier Senior Lien Bonds the interest rate on which will or may fluctuate from the date of calculation to the end of such calendar month, interest after the calculation date, for purposes of calculating Accrued Interest for such month, will be assumed to accrue at a rate equal to 12% per annum. Accrued Premium means, with respect to any First Tier Senior Lien Bonds which are to be redeemed or otherwise prepaid, the full amount of the premium or prepayment penalty imposed as a condition of such redemption or prepayment; the full amount of the premium or penalty will accrue in the calendar month in which notice of the redemption or prepayment is given by the LACMTA to the Trustee. Accrued Principal means, with respect to any calendar month, the amount of principal which has accrued or will accrue on a Series of First Tier Senior Lien Bonds during that month less any principal which accrues during such period but for which a separate fund has been established and into which has been deposited moneys or Government Obligations which, with the earnings thereon, will be sufficient to pay such principal and which fund is irrevocably pledged to the payment of such principal; for purposes of this definition, it will be assumed that, for any principal payment, principal commences to accrue on the later of (i) the date of issue of the Series or (ii) one year prior to the payment date (unless principal is payable more frequently than annually, in which case, principal will, for the first payment, be assumed to accrue from the later of the date of issuance or one year prior to the first payment date and thereafter principal will accrue from the date of each principal payment) and principal will be assumed to accrue in equal monthly installments during each calendar month or portion of any calendar month occurring from the time of commencement of such accrual to the payment date. If First Tier Senior Lien Bonds have been declared to be due and payable as provided in the Agreement, then in each calendar month, the entire unpaid principal of all First Tier Senior Lien Bonds which have been accelerated under the Agreement will be deemed to have accrued in that calendar month. Act means the Los Angeles County Transportation Commission Revenue Bond Act, Sections et seq. of the California Public Utilities Code, as amended from time to time. A-1

94 Additional First Tier Senior Lien Bonds means additional bonds and other obligations ranking on a parity with the First Tier Senior Lien Bonds that the LACMTA may issue or incur provided that the LACMTA complies with certain tests for additional obligations contained in the Agreement. Aggregate Accrued Interest means, for any calendar month, the sum of the Accrued Interest for all Series of Outstanding First Tier Senior Lien Bonds. Aggregate Accrued Principal means, for any calendar month, the sum of the Accrued Principal for all Series of Outstanding First Tier Senior Lien Bonds. Agreement means the Trust Agreement, dated as of July 1, 1986, between the LACMTA and the Trustee, together with all amendments and supplements thereto, including the Twenty-Eighth Supplemental Agreement. Alternate Credit Enhancement or Alternate Liquidity Facility means a letter of credit, insurance policy, line of credit, surety bond, standby purchase agreement or other security or liquidity instrument, as the case may be, issued in accordance with the terms of the Twenty-Eighth Supplemental Agreement as a replacement or substitute for any Credit Enhancement or Liquidity Facility, as applicable, then in effect. Alternate Rate means, on any Rate Determination Date, for any Mode, a rate per annum equal to 110% of (a) the SIFMA Municipal Swap Index of Municipal Market Data, most recently available as of the date of determination, or (b) if such index is no longer available, or if the SIFMA Municipal Swap Index is no longer published, the S&P Weekly High Grade Index (formerly the Kenny Index), or if neither the SIFMA Municipal Swap Index nor the S&P Weekly High Grade Index is published, the index determined to equal the prevailing rate determined by the applicable Remarketing Agent for tax-exempt state and local government bonds meeting criteria determined in good faith by the applicable Remarketing Agent to be comparable under the circumstances to the criteria used by the Securities Industry and Financial Markets Association to determine the SIFMA Municipal Swap Index just prior to when the Securities Industry and Financial Markets Association stopped publishing the SIFMA Municipal Swap Index. The Tender Agent will make the determinations required by this determination, upon notification from the Authority, if there is no Remarketing Agent, if the applicable Remarketing Agent fails to make any such determination or if the applicable Remarketing Agent has suspended its remarketing efforts in accordance with the applicable Remarketing Agreement. ARS Rate means for each series of the Series 2008-A Bonds bearing interest at an ARS Rate, the rate of interest to be borne by the Series 2008-A Bonds of such series during each Auction Period determined in accordance with the Twenty-Eighth Supplemental Agreement; provided, however, in no event may the ARS Rate exceed the maximum interest rate specified in the Twenty-Eighth Supplemental Agreement. Authorized Authority Representative means the Chairperson or Treasurer of the LACMTA or such other officer or employee of the LACMTA or other person who has been designated an agent of the LACMTA by resolution of the LACMTA. Authorized Denomination means (i) with respect to Series 2008-A Bonds in a Daily Mode or Weekly Mode, $100,000 and any integral multiple of $5,000 in excess thereof and (ii) with respect to Series 2008-B Bonds, $5,000 and any integral multiple thereof. Automatic Termination Event means an event of default set forth in the applicable Reimbursement Agreement between the LACMTA and the applicable Liquidity Provider which would result in the immediate termination of the applicable Liquidity Facility prior to its stated expiration date without at least twenty-five days' prior notice from the applicable Liquidity Provider to the Tender Agent, other than a termination upon the substitution of an Alternate Liquidity Facility. A-2

95 Balloon Indebtedness means indebtedness 25% or more of the principal of which matures on the same date and such amount is not required by the documents governing such indebtedness to be amortized by payment or redemption prior to such date. If any indebtedness consists partially of Variable Rate Indebtedness and partially of indebtedness bearing interest at a fixed rate, the portion constituting Variable Rate Indebtedness and the portion bearing interest at a fixed rate will be treated as separate issues for purposes of determining whether any such indebtedness constitutes Balloon Indebtedness. First Tier Senior Lien Bonds and Second Tier Obligations which are issued as commercial paper will be deemed to be both Balloon Indebtedness and Variable Rate Indebtedness. Beneficial Owner means, whenever used with respect to a Series 2008 Bond, the person in whose name such Series 2008 Bond is recorded as the beneficial owner of such Series 2008 Bond by a Participant on the records of such Participant. Bond Counsel means a firm of attorneys which are nationally recognized as experts in the area of municipal finance and which are familiar with the transactions contemplated under the Agreement and which are acceptable to the LACMTA and the Trustee. Bond Interest Account means the trust account by that name established within the Debt Service Fund pursuant to the Agreement. Bond Principal Account means the trust account of that name established within the Debt Service Fund pursuant to the Agreement. Book-Entry Bonds means the Series 2008 Bonds held by DTC (or its nominee) as the registered owner thereof pursuant to the terms and provisions of the Twenty-Eight Supplemental Agreement. Business Day means any day other than (a) a Saturday or Sunday; (b) a day on which commercial banks in New York, New York or Los Angeles, California are authorized or required by law to close; or (c) with respect to the Series 2008 Bonds, a day on which the New York Stock Exchange is closed, provided that for provisions relating solely to the Series 2008-A Bonds, Business Day means any business day other than (i) a Saturday or Sunday or (ii) a day on which the Trustee, Tender Agent, Paying Agent or the applicable Remarketing Agent are required or authorized to be closed or (iii) a day on which the office of the applicable Credit Provider or Liquidity Provider at which it will pay draws or advances are required or authorized to be closed or (iv) a day on which the New York Stock Exchange is closed. Cede & Co. means Cede & Co., the nominee of DTC and any successor nominee of DTC with respect to the Series 2008 Bonds, as the case may be. Chairperson means the Chairperson of the LACMTA and his or her successors. Code means the Internal Revenue Code of 1986, as amended, or with respect to provisions applicable to the Series 1986 Bonds, the Internal Revenue Code of 1954, as amended, and in each case, the United States Treasury Regulations proposed or in effect with respect thereto. Construction Fund means the fund or funds by that name authorized to be created by the Agreement. Consultant means the consultant, consulting firm, accountant or accounting firm retained by the LACMTA to perform acts and carry out the duties provided for such Consultant in the Agreement or any Supplemental Agreement. Such consultant, consulting firm, accountant or accounting firm will be nationally recognized within its profession for work of the character required and will be acceptable to the Trustee and the LACMTA. A-3

96 Costs of Issuance means all costs and expenses incurred by the LACMTA in connection with the issuance of the Series 2008 Bonds, including, but not limited to, costs and expenses of printing and copying documents and the Series 2008 Bonds and the fees, costs and expenses of rating agencies, credit or liquidity providers or enhancers, if any, the Trustee, bond counsel, disclosure counsel, underwriters counsel, verification agents, accountants, financial advisors and other consultants and the premium for the reserve fund surety bond insurance, if any. Credit Provider means any bank, insurance company, pension fund or other financial institution which provides a Credit Enhancement or Alternate Credit Enhancement for the Series 2008-A Bonds. Daily Mode means the Mode during which the Series 2008-A Bonds bear interest at the Daily Rate. Daily Rate means the per annum interest rate on any Series 2008-A Bond in the Daily Mode determined pursuant to the Twenty-Eighth Supplemental Agreement. Debt Service Fund means the debt service fund by that name created by the Agreement. Default or Event of Default means any occurrence or event described in this Appendix A under the caption Events of Default and Remedies. Deficiency means, at any time, the difference between the amount on deposit in the Bond Interest Account or the Bond Principal Account, as the case may be, and the Aggregate Accrued Interest or Aggregate Accrued Principal, respectively, for all prior calendar months which is unpaid on such day. DTC means The Depository Trust Company, a limited-purpose trust company organized under the laws of the State of New York, and its successors and assigns. Excess Deposit means, with respect to a previous calendar month, the amount of Pledged Revenues deposited into the Bond Interest Fund in excess of the amount of interest which actually accrued on the Outstanding First Tier Senior Lien Bonds during such previous calendar month. Favorable Opinion of Bond Counsel means, with respect to any action the occurrence of which requires such an opinion, an unqualified opinion of Bond Counsel, to the effect that such action is permitted under the Act and the Agreement and this Twenty-Eighth Supplemental Agreement and will not adversely affect the validity of the Series 2008-A Bonds or the exclusion of interest on the Series 2008-A Bonds from gross income for purposes of federal income taxation (subject to the inclusion of any exceptions contained in the opinion delivered upon original issuance of the Series 2008-A Bonds). Financial Guaranty means Financial Guaranty Insurance Company, a New York stock insurance company, and any successor thereto as provider of the Reserve Policy. Financial Guaranty is a Reserve Insurer. First Supplemental Agreement means the First Supplemental Trust Agreement dated as of July 1, 1986 between the LACMTA and the Trustee, which includes the terms of the Series 1986-A Bonds. First Tier Senior Lien Bond or First Tier Senior Lien Bonds means indebtedness and securities of any kind or class, including bonds, notes, bond anticipation notes, commercial paper and other obligations, issued under the provisions of the Agreement. First Tier Senior Lien Bond or First Tier Senior Lien Bonds will not include any subordinated obligations incurred by the LACMTA as permitted by the Agreement. Fiscal Year means the period of time beginning on July 1 of each given year and ending on June 30 of the immediately subsequent year, or such other similar period as the LACMTA designates as its fiscal year. A-4

97 Fixed Interest Rate or Fixed Rate means the per annum interest rate on any Series 2008-A Bond in the Fixed Rate Mode determined pursuant to the Twenty-Eighth Supplemental Agreement. Flexible Interest Rate or Flexible Rate means the per annum interest rate on a Series 2008-A Bond in the Flexible Mode determined for such Series 2008-A Bond pursuant to the Twenty-Eighth Supplemental Agreement. The Series 2008-A Bonds in the Flexible Mode may bear interest at different Flexible Rates. Rate. Flexible Mode means the Mode during which the Series 2008-A Bonds bear interest at the Flexible Government Obligations means (i) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America, (ii) securities or receipts evidencing ownership interests in obligations or specified portions (such as principal or interest) of obligations described in clause (i) above, and (iii) direct obligations of agencies of the United States of America which obligations are rated Aaa by Moody s and AAA by S&P and the guaranteed investment agreements of such agencies. Holder or Bondholder or Owner means the registered owner of any First Tier Senior Lien Bond, including DTC or its nominee as the sole registered owner of Book-Entry Bonds. Initial Bonds means those First Tier Senior Lien Bonds issued under the Agreement and the First Supplemental Agreement and designated as Los Angeles County Transportation Commission Sales Tax Revenue Bonds, Series 1986-A, Series 1986-B, Series 1986-C, Series 1986-D and Series 1986-E. Initial Bonds Reserve Requirement means $61,097,689 or such lesser amount as will be equal to Maximum Annual Debt Service on the Initial Bonds. The Initial Bonds Reserve Requirement may, if the LACMTA deems it appropriate or necessary to meet the expectations or needs of Bondholders, be increased above the amount determined under the foregoing provisions of this definition if, prior to such increase, there is delivered to the Trustee a written opinion of Bond Counsel to the effect that such increase will not adversely affect the exemption of interest on the Bonds from federal income taxation. Interest Payment Date means the first Business Day of each month for the Series 2008-A Bonds bearing interest in a Daily Rate or a Weekly Rate and means each January 1 and July 1, commencing January 1, 2009, for the Series 2008-B Bonds. Interest Period means, with respect to Series 2008-A Bonds in the Variable Rate Mode or the Fixed Rate Mode, the period of time that the Series 2008-A Bonds bear interest at the rate (per annum) which becomes effective at the beginning of such period, and will include a Flexible Rate Period, a Daily Rate Period, a Weekly Rate Period, a Term Rate Period and a Fixed Rate Period. LACMTA means the Los Angeles County Metropolitan Transportation Authority created under the provisions of the LACMTA Act, and any successor to its function. LACMTA Act means Chapter 2, Division 12 of the California Public Utilities Code (commencing with Section ). Liquidity Facility or Liquidity Facilities means any letter of credit, line of credit, standby purchase agreement or other instrument then in effect which provides for the payment of the purchase price of all or a portion of the Series 2008-A Bonds upon the tender thereof in the event remarketing proceeds are insufficient therefor. Liquidity Provider or Liquidity Providers means any bank, insurance company, pension fund or other financial institution which provides a Liquidity Facility or Alternate Liquidity Facility for the Series A-5

98 2008-A Bonds. The initial Liquidity Providers will be Bank of America, N.A. with respect to the Series A1 Bonds and the Series 2008-A2 Bonds and Dexia Credit Local, acting by and through its New York Branch, with respect to the Series 2008-A3 Bonds and the Series 2008-A4 Bonds. Liquidity Provider Bonds means any Series 2008-A Bonds purchased by a Liquidity Provider with funds drawn on or advanced under the applicable Liquidity Facility. Local Allocation means 25% of the Proposition A Sales Tax, calculated on an annual basis, which 25% is, under Ordinance No. 16, allocated to local jurisdictions for local transit. Mandatory Purchase Date means (i) with respect to a Flexible Rate Bond the first Business Day following the last day of each Flexible Rate Period with respect to such Series 2008-A Bond, (ii) for Series 2008-A Bonds in the Term Rate Mode, on the first Business Day following the last day of each Term Rate Period, (iii) any Mode Change Date (except a change in Mode between the Daily Mode and the Weekly Mode) or any date on which the applicable Series 2008-A Bonds are converted to bear interest at auction rates in accordance with the Twenty-Eighth Supplemental Agreement, (iv) any Substitution Date, (v) the fifth Business Day prior to the Expiration Date (other than as a result of an Automatic Termination Event), (vi) the date specified by the Trustee following the occurrence of an event of default (other than an Automatic Termination Event) under the Reimbursement Agreement, which date will be a Business Day not more than twenty-five nor less than twenty days after the Trustee s receipt of notice of such event of default from the applicable Credit Provider or Liquidity Provider and in no event later than the day preceding the termination date specified by the applicable Credit Provider or Liquidity Provider; (vii) the date specified by the Trustee following receipt of notice by the Trustee from the applicable Credit Provider that the applicable Credit Enhancement will not be reinstated following a drawing to pay interest on the Series 2008-A Bonds covered by such Credit Enhancement (other than interest on Series 2008-A Bonds no longer Outstanding after such drawing) which date will be a Business Day not more than five days after the Trustee s receipt of such notice, and (viii) for Series 2008-A Bonds in the Daily Mode or Weekly Mode, any Business Day specified by the LACMTA in a notice to the Trustee not less than 20 days after the Trustee s receipt of such notice and in no event later than the day preceding the Expiration Date. Maximum Annual Debt Service means, at any point in time, with respect to First Tier Senior Lien Bonds then Outstanding, the maximum amount of principal and interest becoming due in the then current or any future Fiscal Year, calculated by the LACMTA or by a Consultant as provided in this definition. For purposes of calculating Maximum Annual Debt Service, as used in determining the Reserve Fund Requirement for the First Tier Senior Lien Bonds and as used in the Agreement, the following assumptions will be used to calculate the principal and interest becoming due in any Fiscal Year: a. in determining the principal amount due in each year, payment will (unless a different subsection of this definition applies for purposes of determining principal maturities or amortization) be assumed to be made in accordance with any amortization schedule established for such debt, including any scheduled redemption of First Tier Senior Lien Bonds on the basis of accreted value, and for such purpose, the redemption payment will be deemed a principal payment; b. if any of the Outstanding Series of First Tier Senior Lien Bonds constitute Balloon Indebtedness or Balloon Indebtedness and Variable Rate Indebtedness or if First Tier Senior Lien Bonds then proposed to be issued would constitute Balloon Indebtedness or Balloon Indebtedness and Variable Rate Indebtedness, then, for purposes of determining Maximum Annual Debt Service, such amounts as constitute Balloon Indebtedness will be treated as if the principal amount of such First Tier Senior Lien Bonds were to be amortized in substantially equal annual installments of principal and interest over a term of 25 years; the interest rate used for such computation will be 12% per annum; c. if any Outstanding First Tier Senior Lien Bonds constitute Tender Indebtedness or if First Tier Senior Lien Bonds then proposed to be issued would constitute Tender Indebtedness, then A-6

99 for purposes of determining the amounts of principal and interest due in any Fiscal Year on such First Tier Senior Lien Bonds, the options or obligations of the owners of such First Tier Senior Lien Bonds to tender the same for purchase or payment prior to their stated maturity or maturities will be treated as a principal maturity (but any such amount treated as a maturity will not be eligible for treatment as Balloon Indebtedness) occurring on the first date on which owners of such First Tier Senior Lien Bonds may or are required to tender such First Tier Senior Lien Bonds, except that any such option or obligation to tender First Tier Senior Lien Bonds will be ignored and not treated as a principal maturity if (1) such First Tier Senior Lien Bonds are rated in one of the two highest long-term rating categories (without reference to gradations such as plus or minus ) by Moody s, if Moody s is then maintaining a rating on First Tier Senior Lien Bonds Outstanding under the Agreement, and by S&P, if S&P is then maintaining a rating on First Tier Senior Lien Bonds Outstanding under the Agreement, or such First Tier Senior Lien Bonds are rated in the highest short-term, note or commercial paper rating categories by Moody s, if Moody s is then maintaining a rating on First Tier Senior Lien Bonds Outstanding under the Agreement, and by S&P, if S&P is then maintaining a rating on First Tier Senior Lien Bonds Outstanding under the Agreement, and (2) any obligation, if any, the LACMTA may have, other than its obligations on such First Tier Senior Lien Bonds, to reimburse any person for having extended a credit or liquidity facility or a bond insurance policy, or similar arrangement, will either be subordinated to the obligation of the LACMTA on the First Tier Senior Lien Bonds or be an obligation incurred under and meeting the tests and conditions set forth in Article II of the Agreement; d. (a) if any Outstanding First Tier Senior Lien Bonds issued prior to May 4, 1993 constitute Variable Rate Indebtedness, the interest rate on such First Tier Senior Lien Bonds will be assumed to be 110% of the greater of (1) the daily average interest rate on such First Tier Senior Lien Bonds during the 12 months ending with the month preceding the date of calculation, or such shorter period that such First Tier Senior Lien Bonds will have been Outstanding, or (2) the rate of interest on such First Tier Senior Lien Bonds on the date of calculation or (b) if any First Tier Senior Lien Bonds issued, or proposed to be issued, on or after May 4, 1993 constitute Variable Rate Indebtedness, the interest rate on such First Tier Senior Lien Bonds will be assumed to be the maximum interest rate specified in any credit or liquidity facility or other arrangement for the tender of such First Tier Senior Lien Bonds, or if no such facility or arrangement exists, the maximum stated interest rate which may be borne by such First Tier Senior Lien Bonds; provided that in the event that such Variable Rate Indebtedness is issued in connection with an interest rate swap agreement in which the LACMTA has agreed to pay a fixed interest rate and such interest rate swap agreement has been reviewed and approved by S&P, and to the extent Financial Guaranty or MBIA are then insuring any First Tier Senior Lien Bonds and are not in default under the related insurance policy, Financial Guaranty and/or MBIA, as applicable, for purposes of this definition, then the interest rate for purposes of computing Maximum Annual Debt Service will be such fixed interest rate for the period that such interest rate swap agreement is contracted to remain in full force and effect and thereafter will be assumed to be such maximum interest rate described above; e. if any interest rate swap agreement or similar agreement or arrangement, entered into, or proposed to be entered into, on or after May 4, 1993, in which the LACMTA has agreed to pay the floating amount thereunder is in effect with respect to the First Tier Senior Lien Bonds to which it relates, no fixed amounts payable under such interest rate swap agreement will be included in the calculation of Maximum Annual Debt Service, and the interest rate with respect to such First Tier Senior Lien Bonds will be assumed to be 12% per annum, unless the interest rate swap agreement has been reviewed and approved by S&P, and to the extent Financial Guaranty and MBIA are then insuring any First Tier Senior Lien Bonds and are not in default under the related insurance policy, Financial Guaranty and/or MBIA, as applicable, for purposes of this definition, in which event only the amount of such floating payments to be made by the LACMTA (at an assumed interest rate of 12% per annum) that exceed the fixed amounts to be paid under the interest rate swap agreement will be included in the calculation of Maximum Annual Debt Service; A-7

100 f. if moneys or Government Obligations have been irrevocably deposited with and are held by the Trustee or another fiduciary to be used to pay principal and/or interest on specified First Tier Senior Lien Bonds, then the principal and/or interest to be paid from such moneys, Government Obligations or from the earnings thereon will be disregarded and not included in calculating Maximum Annual Debt Service; and if the First Tier Senior Lien Bonds are Paired Obligations, the interest rate on such First Tier Senior Lien Bonds will be the resulting linked rate or effective fixed interest rate to be paid by the LACMTA with respect to such Paired Obligations. Maximum Rate means, with respect to the Series 2008-A Bonds, 12% per annum; provided that the Maximum Rate with respect to Liquidity Provider Bonds will be the maximum rate set forth in the applicable Liquidity Facility. thereto. MBIA means MBIA Insurance Corporation, a New York stock insurance company, or any successor Mode or Interest Rate Mode means as the context may require, the Flexible Mode, the Daily Mode, the Weekly Mode, the Term Rate Mode or the Fixed Rate Mode. Mode Change Date means with respect to the Series 2008-A Bonds in a particular Mode, the day on which another Mode for the Series 2008-A Bonds begins. Moody s means Moody s Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and its assigns, and, if such corporation will for any reason no longer perform the functions of a securities rating agency, Moody s will be deemed to refer to any other nationally recognized rating agency designated by the LACMTA. Ordinance No. 16 means An Ordinance Establishing A Retail Transactions and Use Tax In The County of Los Angeles For Public Transit Purposes adopted by the LACMTA on August 20, Outstanding means, when used with reference to Series 2008 Bonds, all Series 2008 Bonds which have been authenticated and delivered by the Trustee under the Agreement and the Twenty-Eighth Supplemental Agreement, except: 1. Series 2008 Bonds cancelled or purchased by the Trustee for cancellation or delivered to or acquired by the Trustee for cancellation and, in all cases, with the intent to extinguish the debt represented thereby; 2. Series 2008 Bonds deemed to be paid in accordance with Article VII of the Agreement; 3. Series 2008 Bonds in lieu of which other Series 2008 Bonds have been authenticated under the Agreement; 4. Series 2008 Bonds that have become due (at maturity or on redemption, acceleration or otherwise) and for the payment of which sufficient moneys, including interest accrued to the due date, are held by the Trustee or a Paying Agent; and 5. for purposes of any consent or other action to be taken by the holders of a specified percentage of Series 2008 Bonds under the Agreement, any Series 2008 Bonds held by or for the account of the LACMTA or by any person controlling, controlled by or under common control with the LACMTA, unless such Series 2008 Bonds are pledged to secure a debt to an unrelated party, in which case such Series 2008 Bonds will, for purposes of consents and other Bondholder action, be deemed to be outstanding and owned by the party to which such Series 2008 Bonds are pledged. A-8

101 Paired Obligations means any indebtedness or portion of indebtedness designated as Paired Obligations in the Supplemental Agreement or other document authorizing the issuance or incurrence thereof, which are simultaneously issued or incurred (i) the principal of which is of equal amount maturing and to be redeemed (or cancelled after acquisition thereof) on the same dates and in the same amounts, and (ii) the interest rates which, taken together, result in any irrevocably fixed interest rate obligation of the LACMTA for the terms of such indebtedness. Participant means the participants of DTC which include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Paying Agent or Paying Agents means, with respect to the First Tier Senior Lien Bonds or any Series of First Tier Senior Lien Bonds, the banks, trust companies or other financial institutions or other entities designated in a Supplemental Agreement or a resolution of the LACMTA as the place where such First Tier Senior Lien Bonds will be payable. Pledge Agreements means, collectively or individually as the context requires, the Multifamily Housing Bonds Pledge Agreement, dated as of September 1, 1993, between the LACMTA and Bank of America National Trust and Savings Association, and the Qualified Redevelopment Bonds Pledge Agreement, dated as of April 1, 2002, among the LACMTA, the Community Redevelopment Agency of the City of Los Angeles, California and U.S. Bank, N.A., as trustee. Pledged Revenues means the Pledged Tax less the administrative fee deducted by the State Board of Equalization. Pledged Revenues will also include such additional sources of revenue, if any, pledged to pay the Bonds as set forth in a Supplemental Agreement. Pledged Tax means the Proposition A Sales Tax (i) less the Local Allocation, (ii) plus such amount, if any, of the Local Allocation as any city entitled to such amount has authorized to be pledged to secure the Bonds. The portion of the Local Allocation to be included as Pledged Tax under (ii) will not be included until a certified copy of the city s ordinance, resolution or other official action authorizing the pledge and setting forth the terms of such pledge has been filed with the Trustee and there has been filed with the Trustee a written opinion of Bond Counsel that the pledge of such portion of the Local Allocation is a valid pledge of the LACMTA. Proposition A Commercial Paper Notes means the Los Angeles County Transportation Commission Second Subordinate Sales Tax Revenue Commercial Paper Notes, Series A, issued in accordance with the Subordinate Agreement and the First Supplemental Subordinate Agreement. Proposition A Sales Tax means the ½ of 1% retail transactions and use tax imposed by Ordinance No. 16 and approved by the electors of the County at an election held November 4, Purchase Date means, (i) for a Series 2008-A Bond in the Daily Mode or the Weekly Mode, any Business Day selected by the Beneficial Owner of said Series 2008-A Bond pursuant to the provisions of the Twenty-Eighth Supplemental Agreement, and (ii) any Mandatory Purchase Date. Purchase Price means an amount equal to the principal amount of any Series 2008-A Bonds in the Variable Rate Mode purchased on any Purchase Date, plus accrued interest to the Purchase Date (unless the Purchase Date is an Interest Payment Date, in which case the Purchase Price will not include accrued interest, which will be paid in the normal course). Rate Determination Date means any date on which the interest rate on Series 2008-A Bonds in the Variable Rate Mode or the Fixed Rate Mode will be determined, which, (i) in the case of the Daily Mode, will be each Business Day commencing with the first day (which must be a Business Day) the Series 2008-A Bonds become subject to the Daily Mode, and (ii) in the case of the Weekly Mode, will be (A) for the initial A-9

102 Interest Accrual Period, September 18, 2008 and in the case of any conversion to the Weekly Mode, a Business Day prior to the Mode Change Date selected by the applicable Remarketing Agent and agreed to by the LACMTA, (B) thereafter, each Wednesday or, if Wednesday is not a Business Day, then the Business Day next succeeding such Wednesday, and (C) not later than the Business Day preceding a Mode Change Date, a Substitution Date or a Mandatory Purchase Date specified in clause (viii) of the definition of Mandatory Purchase Date. Rating Agencies means Moody s and S&P. Rebate Fund means the Series 2008 Rebate Fund established pursuant to the Twenty-Eighth Supplemental Agreement. Rebate Requirement means the Rebate Requirement, as defined in the Tax Certificate. Record Date means a Regular Record Date or a Special Record Date. Registrar means, for purposes of the Twenty-Eighth Supplemental Agreement, the Trustee. Regular Record Date means (i) with respect to Series 2008-A Bonds in a Daily Mode or Weekly Mode, the last Business Day before an Interest Payment Date, and (ii) with respect to the Series 2008-B Bonds, June 15 and December 15. Reimbursement Agreement means any reimbursement agreement, credit agreement, line of credit agreement, standby purchase agreement or other agreement, by and between a Credit Provider or Liquidity Provider, as applicable, and the LACMTA. Remarketing Agent means Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated and E. J. De La Rosa & Co. Inc. or any other investment banking firm or firms which may be substituted in their place as provided in the Twenty-Eighth Supplemental Agreement. Remarketing Agreement means each Remarketing Agreement relating to all or a portion of the Series 2008-A Bonds, by and between the LACMTA and a Remarketing Agent or any similar agreement between the LACMTA and a Remarketing Agent, as it may be amended or supplemented from time to time in accordance with its terms Reserve Fund means the trust account of that name established pursuant to the Agreement. Reserve Fund Insurance Policy or Reserve Policy means an insurance policy provided by a bond insurer or a letter of credit, deposited in the Reserve Fund in lieu of or partial substitution for cash or securities on deposit therein. The entity providing such Reserve Fund Insurance Policy will be rated in one of the two highest classifications by both Moody s and S&P. Reserve Fund Requirement means, for the First Tier Senior Lien Bonds, the sum of the Initial Bonds Reserve Requirement and Maximum Annual Debt Service on any Outstanding First Tier Senior Lien Bonds issued subsequently to the Initial Bonds; for purposes of the Reserve Fund Requirement, Maximum Annual Debt Service on Variable Rate Indebtedness will not, after the issuance of such Variable Rate Indebtedness, be required to be adjusted because of the fluctuations in the interest rate on such Variable Rate Indebtedness; the Reserve Fund Requirement is subject to the limitation that the Reserve Fund Requirement will never exceed an amount which would, in the opinion of Bond Counsel, be determined to be a reasonably required reserve fund within the meaning of the Code and the rulings issued by the United States Department of the Treasury. For purposes of determining if the amount on deposit in the Reserve Fund meets the Reserve Fund Requirement, any Reserve Fund Insurance Policy deposited with the Trustee will be deemed to be a deposit in the face A-10

103 amount of the policy or the stated amount of the credit facility provided less any unreimbursed drawings or other amounts not reinstated under such Reserve Fund Insurance Policy. Reserve Insurer means the provider of a Reserve Fund Insurance Policy. Revenue Fund means the fund by that name created by the Agreement. Second Supplemental Agreement means the Second Supplemental Trust Agreement dated as of May 1, 1987 between the LACMTA and the Trustee. Second Tier Obligations means obligations payable from Pledged Revenues on a subordinated basis to the Bonds, and meeting the conditions set forth in the Twelfth Supplemental Agreement. Series means First Tier Senior Lien Bonds issued at the same time or sharing some other common term or characteristic and designated as a separate Series. Series 2008 Bond Interest Subaccount means the subaccount of that name established within the Bond Interest Account of the Debt Service Fund pursuant to the Twenty-Eight Supplemental Agreement. Series 2008 Bonds Principal Subaccount means the subaccount of that name established within the Bond Principal Account of the Debt Service Fund pursuant to the Twenty-Eight Supplemental Agreement. Series 2008 Bonds means, collectively, the Series 2008-A Bonds and the Series 2008-B Bonds. Series 2008 Costs of Issuance Fund means the fund of that name established under and pursuant to the Twenty-Eight Supplemental Agreement. Series 2008 Reserve Account means the account of that name established under and pursuant to the Twenty-Eight Supplemental Agreement. Series 2008-A Bonds means, collectively, the Series 2008-A1 Bonds, the Series 2008-A2 Bonds, the Series 2008-A3 Bonds and the Series 2008-A4 Bonds. Series 2008-A1 Bonds means the $65,700,000 original principal amount of Bonds issued under the Agreement and the Twenty-Eighth Supplemental Agreement and designated as Los Angeles County Metropolitan Transportation Authority Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds, Series 2008-A1. Series 2008-A2 Bonds means the $65,800,000 original principal amount of Bonds issued under the Agreement and the Twenty-Eighth Supplemental Agreement and designated as Los Angeles County Metropolitan Transportation Authority Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds, Series 2008-A2. Series 2008-A3 Bonds means the $65,750,000 original principal amount of Bonds issued under the Agreement and the Twenty-Eighth Supplemental Agreement and designated as Los Angeles County Metropolitan Transportation Authority Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds, Series 2008-A3. Series 2008-A4 Bonds means the $65,825,000 original principal amount of Bonds issued under the Agreement and the Twenty-Eighth Supplemental Agreement and designated as Los Angeles County Metropolitan Transportation Authority Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds, Series 2008-A4. A-11

104 Series 2008-B Bonds means the $26,075,000 original principal amount of Bonds issued under the Agreement and the Twenty-Eighth Supplemental Agreement and designated as Los Angeles County Metropolitan Transportation Authority Proposition A First Tier Senior Sales Tax Revenue Refunding Bonds, Series 2008-B. Subordinate Agreement means the Subordinate Trust Agreement dated as of January 1, 1991 between the LACMTA and the Subordinate Trustee, as supplemented by the First Supplemental Subordinate Agreement. Subordinate Lien Obligation Fund means the fund by that name created by the Agreement. Subordinate Trustee means U.S. Bank. National Association, and any successor thereto as trustee under the Subordinate Agreement. Substitution Date means the date upon which an Alternate Credit Enhancement or Alternate Liquidity Facility is scheduled to be substituted for the Credit Enhancement or Liquidity Facility then in effect. Sixth Supplemental Agreement means the Sixth Supplemental Trust Agreement dated as of January 1, 1991 between the LACMTA and the Trustee. Special Record Date means the date and time established by the Trustee for determination of which Owner will be entitled to receive overdue interest on the Series 2008 Bonds pursuant to the Twenty-Eight Supplemental Agreement. Standard & Poor s or S&P means Standard & Poor s Ratings Services, a division of The McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, its successors and their assigns, and if such entity will for any reason no longer perform the functions of a securities rating agency, S&P will be deemed to refer to any other nationally recognized securities rating agency designated by the LACMTA. State means the State of California. State Board of Equalization means the State Board of Equalization which collects the Proposition A Sales Tax. Supplemental Agreement means any supplemental trust agreement then in full force and effect which has been duly approved by resolution of the LACMTA and signed by the LACMTA and the Trustee and providing for the issuance of a Series or multiple Series of First Tier Senior Lien Bonds, amending and/or supplementing the Agreement or amending and/or supplementing another Supplemental Agreement. Tax Certificate means the Tax and Nonarbitrage Certificate executed and delivered by the LACMTA at the time of issuance and delivery of the Series 2008 Bonds, as the same may be amended or supplemented in accordance with its terms. Tender Agent means the commercial bank, trust company or other entity which may from time to time be appointed to serve as Tender Agent as provided in the Agreement. Until such time as an alternate Tender Agent is appointed, the Tender Agent will be the Trustee Tender Indebtedness means any indebtedness or portions of indebtedness a feature of which is an option, on the part of the holders of such indebtedness, or an obligation, under the terms of such indebtedness, to tender all or a portion of such indebtedness to the LACMTA, the Trustee, the Paying Agent or other fiduciary or agent for payment or purchase and requiring that such indebtedness or portions of indebtedness be purchased if properly presented. A-12

105 Term Interest Rate or Term Rate means the per annum interest rate for the Series 2008-A Bonds in the Term Rate Mode determined pursuant to the Twenty-Eighth Supplemental Agreement. Third Supplemental Agreement means the Third Supplemental Trust Agreement dated as of May 1, 1988 between the LACMTA and the Trustee which includes the terms of the Series 1988-A Bonds. Treasurer means the chief financial officer of the LACMTA or such other title as the LACMTA may from time to time assign for such position, and the officer or officers succeeding to such position as certified to the Trustee by the LACMTA. Trustee means The Bank of New York Mellon Trust Company, N.A., as successor in interest to Wells Fargo Bank, N.A. as successor by merger to First Interstate Bank of California, as trustee under the Agreement, and its successors. Twenty-Eighth Supplemental Agreement means the Twenty-Eighth Supplemental Agreement dated as of September 1, 2008, between the LACMTA and the Trustee. Variable Rate Indebtedness means any portion of indebtedness the interest rate on which is not established at the time of incurrence of such indebtedness and has not at some subsequent date been established at a single numerical rate for the entire term of the indebtedness. First Tier Senior Lien Bonds and Second Tier Obligations which are issued as commercial paper will be deemed to be both Balloon Indebtedness and Variable Rate Indebtedness. Rate. Weekly Mode means the Mode during which the Series 2008-A Bonds bear interest at the Weekly Weekly Rate means the per annum interest rate on the Series 2008-A Bonds in the Weekly Mode determined pursuant to the Twenty-Eighth Supplemental Agreement. Weekly Rate Period means the period during which a Series 2008-A Bond in the Weekly Mode will bear a Weekly Rate, which will be the period commencing on Thursday of each week to and including Wednesday of the following week, except (i) if the Series 2008-A Bonds are issued in the Weekly Mode, in which case the first Weekly Rate Period will be from the initial issuance of the Series 2008-A Bonds to and including the Wednesday of the following week, (ii) in connection with a conversion to the Weekly Rate, in which case the first Weekly Rate Period will be from the Mode Change Date to and including the Wednesday of the following week, (iii) in the case of a Substitution Date or Mandatory Purchase Date specified in clause (viii) of the definition of Mandatory Purchase Date, in which case the Weekly Rate Period prior to the Substitution Date or such Mandatory Purchase Date will end on the day before the Substitution Date or such Mandatory Purchase Date and a new Weekly Rate Period will commence on the Substitution Date or such Mandatory Purchase Date and end on the Wednesday of the fallowing week and (iv) in connection with a conversion from the Weekly Mode, the last Weekly Rate Period will end on the day next preceding the Mode Change Date or conversion to an ARS Rate. TRUST AGREEMENT The following is a summary of certain provisions of the Agreement. Such summary is only a brief description of limited provisions of such document and is qualified in its entirety by reference to the full text of the Agreement. Grant to Secure the First Tier Senior Lien Bonds; Pledge of Pledged Revenues To secure the payment of the First Tier Senior Lien Bonds and the performance and observance by the LACMTA of all the covenants, agreements and conditions expressed or implied in the Agreement and in the A-13

106 First Tier Senior Lien Bonds, the LACMTA, pursuant to the Agreement, pledges and assigns to the Trustee and grants to the Trustee a security interest in all right, title and interest of the LACMTA in and to (a) the Pledged Revenues, and (b) all moneys and securities held from time to time by the Trustee under the Agreement for the equal and proportionate benefit and security of all First Tier Senior Lien Bonds; except that such rant for the benefit and security of all First Tier Senior Lien Bonds does not extend to any funds held by the Trustee for the payment of specific First Tier Senior Lien Bonds which are deemed to have been paid or to any funds deposited with the Trustee specifically to be held in escrow or otherwise to provide additional security or an additional source of payment for specified First Tier Senior Lien Bonds or a specified Series of First Tier Senior Lien Bonds. The Agreement states that the First Tier Senior Lien Bonds authorized and issued under the Agreement will be secured by a lien on and pledge of Pledged Revenues, and the LACMTA represents that it has not previously created any charge or lien on the Pledged Revenues and covenants that, until all the First Tier Senior Lien Bonds issued under the Agreement and the interest thereon have been paid or are deemed to have been paid, it will not grant any prior or, except as provided in the Agreement, any parity pledge of the Pledged Revenues or create or permit to be created any charge or lien on the Pledged Revenues ranking prior to the charge or lien of the First Tier Senior Lien Bonds (including First Tier Senior Lien Bonds issued after the Initial Bonds). The LACMTA is permitted to encumber the Pledged Revenues with a pledge ranking junior and subordinate to the charge or lien of the First Tier Senior Lien Bonds. The LACMTA covenants that it will not take any action which will impair or adversely affect the Pledged Revenues or impair or adversely affect in any manner the pledge of the Pledged Revenues or the rights of the holders of the First Tier Senior Lien Bonds. The LACMTA covenants that it will not issue any other obligations, except upon the condition and in the manner provided in the Agreement, payable from the Pledged Revenues on a parity with the First Tier Senior Lien Bonds, which term includes Additional First Tier Senior Lien Bonds and debt hereafter incurred under the Agreement, nor voluntarily create or cause to be created any debt, lien, pledge, assignment, encumbrance or any other charge having priority to or being on a parity with the lien held by the holders of the First Tier Senior Lien Bonds, including any Additional First Tier Senior Lien Bonds issued hereafter, upon the Pledged Revenues or any part thereof. The LACMTA agrees that it will be unconditionally and irrevocably obligated, so long as any of the First Tier Senior Lien Bonds are outstanding and unpaid, to take all lawful action necessary or required to continue to entitle the LACMTA to receive the Pledged Revenues at the same rates as provided by law at the time of execution of the Agreement and to pay from the Pledged Revenues the principal of and interest on the First Tier Senior Lien Bonds and to make the other payments provided for in the Agreement. Payment of Principal and Interest The LACMTA covenants and agrees that it will duly and punctually pay or cause to be paid from and to the extent of the Pledged Revenues the principal of, premium, if any, and interest on every First Tier Senior Lien Bond at the place and on the dates specified and that it will faithfully do and perform all covenants and agreements contained in the Agreement and in the First Tier Senior Lien Bonds. The LACMTA may, in its discretion, provide funds other than Pledged Revenues to the Trustee to be used to pay principal of, premium, if any, and interest on the First Tier Senior Lien Bonds, but is under no obligation to do so. Subordinated Obligations The LACMTA may incur obligations on a subordinated basis and such obligations may be secured by and payable from the Pledged Revenues; provided that such other obligations contain an express statement that such obligations are junior and subordinate in all respects to the First Tier Senior Lien Bonds issued under the Agreement as to liens on and source and security for payment from the Pledged Revenues. A-14

107 Funds and Accounts The Agreement creates the Revenue Fund, the Debt Service Fund containing a Bond Interest Account and a Bond Principal Account, the Reserve Fund and the Subordinate Lien Obligation Fund. Provision is also made for a Construction Fund which is created and funded under the terms of the First Supplemental Agreement. The Second Supplemental Agreement amended the Agreement to provide subaccounts within the Bond Interest Account and the Bond Principal Account. Such subaccounts were created within each such account, one for the Initial Bonds and one for each subsequent Series of First Tier Senior Lien Bonds. The Agreement provides that the moneys in each of such funds and accounts, with the exception of the Construction Fund which may be held in whole or part by the LACMTA, will be held by the Trustee in trust and applied as hereinafter provided with regard to each such fund and account and, pending such application, will be subject to a lien and charge in favor of the holders of the First Tier Senior Lien Bonds for the further security of such holders until paid out or transferred as provided in the Agreement. Revenue Fund; Flow of Pledged Revenues. The Trustee is required under the Agreement, on each day that Pledged Revenues are deposited into the Revenue Fund, to withdraw from the Revenue Fund an amount sufficient, with any other funds, if any, provided to the Trustee and previously used in such month to make such deposits, to make the deposits described in clauses (a) to (d) below and deposit such sum so withdrawn to the credit of the following accounts: (a) to the credit of the Bond Interest Account an amount equal to the Aggregate Accrued Interest for the current calendar month less any Excess Deposit made with respect to the last preceding calendar month plus any Deficiency existing on the first day of such calendar month plus any amount of interest which has become due and has not been paid and for which there are insufficient funds in the Bond Interest Account or another special account to be used to make such payment and the amounts so deposited will be credited to the subaccounts within the Bond Interest Account on the basis of the portion of such deposit for the Bond Interest Account attributable to the Series of First Tier Senior Lien Bonds for which such subaccount was credited; (b) to the credit of the Bond Principal Account the Aggregate Accrued Principal for the current calendar month plus any Accrued Premium and any Deficiency existing on the first day of such calendar month plus any amount of principal which has become due and has not been paid and for which there are insufficient funds in the Bond Principal Account or another special account to make such payment and the amounts so deposited will be credited to the subaccounts within the Bond Principal Account on the basis of the portion of such deposit for the Bond Principal Account attributable to the Series of First Tier Senior Lien Bonds for which such subaccount was credited; (c) to the credit of the Reserve Fund such portion of the balance, if any, remaining after making the deposits described in clauses (a) and (b) above needed to increase the amount on deposit in the Reserve Fund to an amount equal to the Reserve Fund Requirement for the First Tier Senior Lien Bonds, or if the entire balance is less than the amount necessary, then the entire balance will be deposited into the Reserve Fund; provided, however, that so long as any Reserve Fund Insurance Policy will be in effect and the Reserve Insurer will not be in default of its obligations thereunder, the Trustee will withdraw from the Reserve Fund an amount sufficient to pay the Reserve Insurer the greater of (i) the minimum amount required to be paid in accordance with the provisions of such Reserve Fund Insurance Policy and any related agreements between the LACMTA and the Reserve Insurer, or (ii) the amount necessary to reinstate the amount available to be drawn under such Reserve Fund Insurance Policy in order to meet the Reserve Fund Requirement; and (d) if the LACMTA has incurred debt on a subordinate basis, to the credit of the Subordinate Lien Obligation Fund in such amounts and at such times as will be needed to provide for payment of such obligations in accordance with the terms of a Supplemental Agreement or Supplemental Agreements relating to such subordinated debt. A-15

108 Any Pledged Revenues remaining after making the deposits described in clauses (a) through (d), above will, pursuant to the Sixth Supplemental Agreement, immediately be transferred to the trustee for the Proposition A Commercial Paper Notes. Any amounts remaining after the payment of debt service on the Proposition A Commercial Paper Notes will be transferred to the LACMTA and will no longer be considered Pledged Revenues. If, by the twenty-fifth day of any month, the Trustee has not received revenues from the State Board of Equalization in amounts necessary to make the deposits required by clauses (a), (b) and (c) above, the Trustee will immediately notify the LACMTA. If the Pledged Revenues are at any time insufficient to make the deposits required by the Agreement, or at any time, the LACMTA may, at its election, deposit with the Trustee funds from any available sources with the direction that such funds be deposited into the funds and accounts or specified funds and accounts held by the Trustee. If the Pledged Revenues and any other funds provided by the LACMTA, are in any month insufficient to make the full deposits required by clause (a) or clause (b), the Trustee will credit the respective subaccount on a pro rata basis. Debt Service Fund. In addition to the amounts deposited into the Bond Interest Account and Bond Principal Account, as described above, the Trustee may accept and deposit into the Debt Service Fund other amounts from the LACMTA or from other sources to be used for regularly scheduled principal and interest payments or for the redemption of First Tier Senior Lien Bonds. There will be withdrawn from the Bond Interest Account and the Bond Principal Account from time to time and set aside or deposited with the Paying Agent sufficient money for paying the interest on the First Tier Senior Lien Bonds and the principal of and premium on the First Tier Senior Lien Bonds as the same will fall due, or if such interest, principal or premium is paid by or through a form of credit enhancement provided for the First Tier Senior Lien Bonds, amounts in the Bond Interest Account and Bond Principal Account may, if so provided by a Supplemental Agreement, be used to reimburse such amounts to the party providing the credit support. Moneys in the subaccounts within the Bond Interest Account or the Bond Principal Account will, when withdrawn as provided above, be used to pay interest, principal or premium, as the case may be, on the Series of First Tier Senior Lien Bonds for which the subaccount was created. Reserve Fund. Moneys held in the Reserve Fund will be used for the purpose of paying principal and interest on the First Tier Senior Lien Bonds if the amounts in the bond Interest Account or Bond Principal Account are insufficient for such payments. On or about July 1 of each year, the Trustee will value the Reserve Fund; provided that no valuation will be required in any year in which all investments in the Reserve Fund have an expected weighted average life of less than five years. At any time when the Trustee is required to value the Reserve Fund, all investments which have expected weighted average lives of less than 10 years will be valued at amortized cost and all other investments will be valued at the then current market value. If, on any valuation of the Reserve Fund, the value of the Reserve Fund will exceed the Reserve Fund Requirement for the First Tier Senior Lien Bonds, such excess will be withdrawn and transferred to the LACMTA to be used for any lawful purpose. In addition, at such time as any Series of First Tier Senior Lien Bonds will be paid in full or will be deemed to have been paid in full, the Trustee will value the Reserve Fund, and if the amount on deposit in the Reserve Fund exceeds the Reserve Fund Requirement for the First Tier Senior Lien Bonds, such excess will be withdrawn and transferred to the LACMTA to be used for any lawful purpose. If, on any valuation of the Reserve Fund, the value is less than the Reserve Fund Requirement for the First Tier Senior Lien Bonds, the Trustee will make deposits into the Reserve Fund from and to the extent of Pledged Revenues as provided under the caption Funds and Accounts Revenue Fund; Flow of Pledged Revenues in clause (c) above until the Reserve Fund Requirement for the First Tier Senior Lien Bonds is restored. A-16

109 Investments Moneys held by the Trustee in the funds and accounts created under the Agreement are to be invested and reinvested as directed by the LACMTA, subject to the investment restrictions imposed upon the LACMTA by the laws of the State and provided that moneys in Debt Service Fund and the Reserve Fund will be invested solely in Government Obligations of the type described in provision (a) or (b) of the definition thereof, or in obligations, of any agency or instrumentality of the United States of America backed by the full faith and credit of the United States of America. The Agreement was amended by the Third Supplemental Agreement to recognize a provision recently added to the California Government Code which expands the permissible investments, for trustee-held funds. As a result, those funds which may be invested subject only to the investment restrictions imposed by the laws of the State may be invested in any investment which the LACMTA deems to be prudent. Defeasance First Tier Senior Lien Bonds or portions thereof which have been paid in full or which are deemed to have been paid in full will no longer be secured by or entitled to the benefits of the Agreement except for the purposes of payment from moneys or Government Obligations held by the Trustee or a Paying Agent for such purpose. When all First Tier Senior Lien Bonds have been paid in full or are deemed to have been paid in full, and all other sums payable by the LACMTA under the Agreement, including all necessary and proper fees, compensation and expenses of the Trustee, the Registrar and the Paying Agent, have been paid or are duly provided for, then the right, title and interest of the Trustee in and to the Pledged Revenues will cease, and thereupon the Trustee will cancel, discharge and release the Agreement and will assign and deliver to the LACMTA any property and revenues at the time subject to the Agreement which may then be in the Trustee s possession, except funds or securities in which such funds are invested and held by the Trustee or a Paying Agent for the payment of the principal of, premium, if any, and interest on the First Tier Senior Lien Bonds. A First Tier Senior Lien Bond will be deemed to be paid when (a) payment of the principal, interest and premium, if any, either (i) have been made or caused to be made in accordance with the terms of the First Tier Senior Lien Bonds and the Agreement, or (ii) have been provided for by irrevocably depositing with the Trustee in trust and irrevocably setting aside exclusively for such payment; moneys sufficient to make such payment and/or Government Obligations of the type described in provisions (a) or (b) of the definition thereof, maturing as to principal and interest in such amounts and at such times as will insure the availability of sufficient moneys to make such payment; (b) all necessary and proper fees, compensation and expenses of the Trustee, the Registrar and the Paying Agents have been paid or provision made for the payment thereof; and (c) if the deposit is made under the provision described in (a)(ii), then certain opinions of counsel will have been delivered to the Trustee and proper notice of redemption of such First Tier Senior Lien Bonds will have been given or, in the event such First Tier Senior Lien Bonds are not to be redeemed within the next succeeding 60 days, the LACMTA will have given the Trustee irrevocable instructions to notify, as soon as practicable, the holders of the First Tier Senior Lien Bonds that the deposit has been made and that such First Tier Senior Lien Bonds are deemed to have been paid. Events of Default and Remedies Events of Default. Each of the following events is defined in the Agreement to constitute an Event of Default : (a) a failure to pay the principal of or premium, if any, on any of the First Tier Senior Lien Bonds when the same become due and payable at maturity or upon redemption; (b) a failure to pay any installment of interest on any of the First Tier Senior Lien Bonds when such interest becomes due and payable; A-17

110 (c) a failure to pay the purchase price of any First Tier Senior Lien Bond when such purchase price is due and payable upon an optional or mandatory tender date as provided in the First Tier Senior Lien Bond; (d) a failure by the LACMTA to observe and perform any covenant, condition, agreement or provision (other than as specified in clauses (a), (b) and (c) above) contained in the First Tier Senior Lien Bonds or in the Agreement, which failure continues for a period of 60 days after written notice has been given to the LACMTA as provided in the Agreement, unless an extension of such period has been granted as provided in the Agreement; provided, however, that such an extension will be deemed to have been granted if corrective action is initiated by the LACMTA within such period and is being diligently pursued; (e) any proceeding will be instituted by or with the consent of the LACMTA, for the purpose of effecting a composition between the LACMTA and its creditors or for the purpose of adjusting the claims of such creditors, pursuant to any federal or State statute now or hereafter enacted, if the claims of such creditors are under any circumstances payable from Pledged Revenues; (f) a default on the part of the LACMTA in payment of the principal of or interest on any obligation for the repayment of borrowed money and such default will continue for a period of 30 days or any default on the part of the LACMTA with respect to a debt obligation which results in an acceleration of the principal and accrued interest of such debt and, in either case, the principal amount of such debt will be at least equal to 3.5% of the Proposition A Sales Tax revenues for the most recent complete Fiscal Year; provided that a payment default as described in this clause (f) will not be an Event of Default if the LACMTA, in good faith, commences proceedings to contest the existence of such default or required payment and sufficient moneys are escrowed or a bond provided to secure for the full payment of the amount claimed to be owed; (g) the use of amounts from the Reserve Fund to pay principal and/or interest on the First Tier Senior Lien Bonds and the failure to restore the amount on deposit in the Reserve Fund to the Reserve Fund Requirement for the First Tier Senior Lien Bonds within one year from the date of such withdrawal; (h) there will be a failure on the part of the State Board of Equalization (or any successor to the functions of the State Board of Equalization) to collect the Proposition A Sales Tax or to pay the Pledged Tax to the Trustee or the LACMTA, or the LACMTA diverts or attempts to divert the Pledged Tax for any use prior to the deposit of the Pledged Tax into the funds and accounts held by the Trustee or there is created a lien on or a charge against the Pledged Revenues or the funds and accounts held by the Trustee under the Agreement for the benefit of all the First Tier Senior Lien Bonds which is prior to, or, except to the extent permitted by the Agreement, on a parity with that granted to secure the First Tier Senior Lien Bonds; or Agreement. (i) the occurrence of any other Event of Default as is provided in a Supplemental Acceleration; Other Remedies. Upon the occurrence and continuance of an Event of Default, the Trustee may, at any time, and the Trustee will, upon the written request of holders of 25% or more of the principal amount of First Tier Senior Lien Bonds then Outstanding and subject to acceleration, declare the First Tier Senior Lien Bonds which are subject to acceleration to be immediately due and payable. All First Tier Senior Lien Bonds Outstanding under the Agreement will be subject to acceleration unless, under the terms of the Supplemental Agreement providing for such issuance of such First Tier Senior Lien Bonds, a specific Series is, for a specified period, which may include the entire term of such Series, secured by a separate source and not subject to acceleration during such period. If, however, after the principal of the First Tier Senior Lien Bonds which are subject to acceleration will have been declared to be due and payable, and before any judgment or decree for the payment of the moneys due will have been obtained or entered, there is deposited with the Trustee a sum sufficient to pay all matured installments of interest and the principal of any and all First Tier Senior Lien Bonds which will have become due otherwise than by reason of such declaration A-18

111 and such amount as will be sufficient to compensate and reimburse the Trustee, and all Events of Default, other than nonpayment of the principal of First Tier Senior Lien Bonds which will have become due by such declaration, will have been remedied, then the Trustee may, and at the request of the holders of a majority in principal amount of First Tier Senior Lien Bonds outstanding will, waive the Event of Default and rescind or annul the acceleration and its consequences. Upon the occurrence and continuance of any Event of Default. the Trustee in its discretion may, and upon the written direction of the holders of 25% or more of the principal amount of the First Tier Senior Lien Bonds then outstanding and receipt of indemnity to its satisfaction will: (a) by mandamus, or other suit, action or proceeding at law or equity, enforce all rights of the First Tier Senior Lien Bondholders, and require the LACMTA to cancel out any agreements with or for the benefit of the First Tier Senior Lien Bondholders and to perform its or their duties under the Act or any other law to which it is subject and the Agreement; provided that any such remedy may be taken only to the extent under the applicable provisions of the Agreement; (b) bring suit upon the First Tier Senior Lien Bonds; (c) commence an action or suit in equity to require the LACMTA to account as if it were the trustee of an express trust for the First Tier Senior Lien Bondholders; or (d) by action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the First Tier Senior Lien Bondholders. First Tier Senior Lien Bondholders Right To Direct Proceedings. The holders of a majority in principal amount of the First Tier Senior Lien Bonds then Outstanding will have the right, at any time, by an instrument in writing executed and delivered to the Trustee, to direct the time, method and place of conducting all remedial proceedings available to the Trustee under the Agreement to be taken in connection with the enforcement of the terms of the Agreement or exercising any trust or power conferred on the Trustee by the Agreement; provided that such direction will not be otherwise than in accordance with the provisions of law and the Agreement and that the Trustee will first have been indemnified and provided security to the extent satisfactory to the Trustee against the costs, expenses and liabilities to be incurred as a result thereof by the Trustee. Limitation on First Tier Senior Lien Bondholders Right To Institute Proceedings. No First Tier Senior Lien Bondholder will have any right to institute any suit, action or proceeding for the execution of any trust or power under the Agreement, or any other remedy, unless (a) such First Tier Senior Lien Bondholder or Senior Lien Bondholders have given the Trustee written notice of an Event of Default; (b) the holders of 25% or more of the principal amount of the First Tier Senior Lien Bonds then Outstanding will have made written request of the Trustee so to do and will have afforded the Trustee a reasonable opportunity to proceed to institute the same; (c) there also will have been offered to the Trustee security and indemnity satisfactory to the Trustee; and (d) the Trustee will not have complied with such request within a reasonable time. Rights and Duties of the Trustee; Other Agents Under the Agreement, if an Event of Default has occurred and is continuing, the Trustee will exercise its rights and powers and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of such person s own affairs. Except during the continuance of an Event of Default, the Trustee need perform only those duties that are specifically set forth in the Agreement and no others and, in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed, upon certificates or opinions furnished to the Trustee and conforming to the requirements of the Agreement. A-19

112 The Agreement states that the Trustee will not be liable for any error of judgment made in good faith by an officer of the Trustee unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; the Trustee will not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it from First Tier Senior Lien Bondholders or the LACMTA in the manner provided in the Agreement; and no provision of the Agreement requires the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties thereunder or in the exercise of any of its rights or powers, if it will have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. The Trustee may, unless such right is restricted by a Supplemental Agreement, refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense, but the Trustee may not require indemnity as a condition to declaring the principal of and interest on the First Tier Senior Lien Bonds to be due immediately. The LACMTA or the Trustee may from time to time appoint other agents to perform duties and obligations under the Agreement or a Supplemental Agreement, which agents may include, but not be limited to, tender agents, remarketing agents and authenticating agents all as provided by a Supplemental Agreement or resolution of the LACMTA. Replacement of Trustee The Trustee may resign by notifying the LACMTA in writing at least 60 days prior to the proposed effective date of the resignation. The holders of a majority in principal amount of the First Tier Senior Lien Bonds may remove the Trustee by notifying the removed Trustee and may appoint a successor Trustee with the LACMTA s consent. The LACMTA may remove the Trustee by notice in writing delivered to the Trustee 60 days prior to the proposed removal date, if (a) the Trustee fails to comply with the eligibility requirements for the Trustee as set forth in the Agreement which include the requirement that the Trustee have a combined capital and surplus of at least $ 100,000,000; (b) the Trustee is adjudged a bankrupt or an insolvent; (c) a receiver or other public officer takes charge of the Trustee or its property; (d) the Trustee otherwise becomes incapable of acting; or (e) the LACMTA determines that the Trustee s services are no longer satisfactory to the LACMTA; provided, however, that the LACMTA will have no right to remove the Trustee during any time when an Event of Default has occurred and is continuing. The Agreement states that no resignation or removal of the Trustee will be effective until a new Trustee has taken office. Amendments Without the Consent of First Tier Senior Lien Bondholders. The LACMTA may, without the consent of or notice to the First Tier Senior Lien Bondholders, execute and deliver Supplemental Agreements as follows: (a) to provide for the issuance of a Series or multiple Series of First Tier Senior Lien Bonds under the provisions of the Agreement and to set forth the terms of such First Tier Senior Lien Bonds and the special provisions which will apply to such First Tier Senior Lien Bonds; (b) to cure any formal defect, omission, inconsistency or ambiguity in the Agreement or any Supplemental Agreement; (c) to add to the covenants and agreements of the LACMTA in the Agreement or any Supplemental Agreement or other covenants and agreements, or to surrender any right or power reserved or conferred upon the LACMTA, and which will not adversely affect the interests of the Senior Lien Bondholders; A-20

113 (d) to confirm, as further assurance, any interest of the Trustee in and to the Pledged Revenues or in and to the funds and accounts held by the Trustee or in and to any other moneys, securities or funds of the LACMTA provided pursuant to the Agreement or otherwise to add additional security for the First TierSenior Lien Bondholders; (e) to evidence any change made in the terms of any Series of First Tier Senior Lien Bonds if such changes are authorized by the Supplemental Agreement at the time the Series of First Tier Senior Lien Bonds is issued and such change is made in accordance with the terms of such Supplemental Agreement; time amended; (f) to comply with the requirements of the Trust Indenture Act of 1939, as from time to (g) to modify, alter, amend or supplement the Agreement or any Supplemental Agreement in any other respect which in the judgment of the LACMTA, as concurred in by the Trustee, is not materially adverse to the First Tier Senior Lien Bondholders; (h) to provide for uncertificated First Tier Senior Lien Bonds or for the issuance of coupons and bearer First Tier Senior Lien Bonds or First Tier Senior Lien Bonds registered only as to principal; (i) to qualify the First Tier Senior Lien Bonds or a Series of First Tier Senior Lien Bonds for a rating or ratings by Fitch, Moody s and/or S&P; and (j) to comply with the requirements of the Code as are necessary, in the opinion of bond counsel, to prevent the federal income taxation of the interest on the First Tier Senior Lien Bonds. Before the LACMTA will, without First Tier Senior Lien Bondholder consent, execute any Supplemental Agreement subsequent to the First Supplemental Agreement, there will be delivered to the LACMTA an opinion of bond counsel stating that such Supplemental Agreement is authorized or permitted by the Agreement, the Act and other applicable law, complies with their respective terms, will, upon the execution and delivery thereof, be valid and binding upon the LACMTA in accordance with its terms and will not adversely affect the exemption from federal income taxation of interest on First Tier Senior Lien Bonds which are then unpaid and for which there has been delivered an opinion of bond counsel to the effect that interest in such First Tier Senior Lien Bonds is exempt from federal income taxation. In addition to the foregoing provisions, if at any time when the reimbursement agreement relating to the Proposition A Commercial Paper Notes is in effect, the LACMTA will request that the Trustee execute a Supplemental Agreement, and such Supplemental Agreement provides for the deposit of Pledged Revenues into the Subordinate Lien Obligation Fund to be used to pay subordinate obligations, the Trustee will execute and deliver such Supplemental Agreement only if it has first received a written statement of an Authorized Authority Representative certifying that, after the issuance of such subordinated obligations, the ratio of Pledged Revenues to Projected Maximum Total Annual Debt Service (as defined in such reimbursement agreement) will be in compliance with the provisions of such reimbursement agreement and a written statement of the agent bank under such reimbursement agreement that it has reviewed the information on which the LACMTA has relied in making such certificate and finds it to be satisfactory. With the Consent of First Tier Senior Lien Bondholders. Except for amendments described above or amendments affecting less than all Series of First Tier Senior Lien Bonds as described in the following paragraph, the holders of not less than 60% in aggregate principal amount of the First Tier Senior Lien Bonds then Outstanding will have the right to consent to and approve the execution of any Supplemental Agreement deemed necessary or desirable by the LACMTA for the purposes of modifying, altering, amending, supplementing or rescinding, any of the terms or provisions contained in the Agreement or a Supplemental A-21

114 Agreement; provided, however, that, unless approved in writing by the holders of all the First Tier Senior Lien Bonds then Outstanding or unless such change affects less than all Series of First Tier Senior Lien Bonds and the following paragraph is applicable, no amendment may (a) change the times, amounts of currency of payment of the principal of or interest on any Outstanding First Tier Senior Lien Bonds; (b) reduce the principal amount or redemption price of any Outstanding First Tier Senior Lien Bonds or the rate of interest thereon; and no amendment will, unless approved in writing by the holders of all the First Tier Senior Lien Bonds then Outstanding, permit or be construed as permitting; (c) the creation of a lien except as expressly permitted by the Agreement as originally executed upon or pledge of the Pledged Revenues created by the Agreement, ranking prior to or on a parity with the claim created by the Agreement; (d) except with respect to additional security which may be provided for a particular Series of First Tier Senior Lien Bonds, a preference or priority of any Senior Lien Bond or First Tier Senior Lien Bonds over any other Senior Lien Bond or First Tier Senior Lien Bonds; or (e) a reduction in the aggregate principal amount of First Tier Senior Lien Bonds the consent of the Senior Lien Bondholders of which is required for any such Supplemental Agreement. The LACMTA may, from time to time and at any time, execute a Supplemental Agreement which amends the provisions of an -earlier Supplemental Agreement under which a Series or multiple Series of First Tier Senior Lien Bonds were issued. If such Supplemental Agreement is executed for one of the purposes set forth under the caption -Amendments-Without the Consent of Senior Lien Bondholders, no notice to or consent of the Senior Lien Bondholders will be required. If such Supplemental Agreement contains provisions which affect the rights and interests of less than all Series of First Tier Senior Lien Bonds Outstanding, then the holders of not less than 60% in aggregate principal amount of the First Tier Senior Lien Bonds of all Series which are affected by such changes will have the right from time to time to consent to and approve the execution of any Supplemental Agreement deemed necessary or desirable by the LACMTA for the purposes of modifying, altering, amending, supplementing or rescinding, in any particular any of the terms or provisions contained in such Supplemental Agreement and affecting only the First Tier Senior Lien Bonds of such Series; provided, however, that, unless approved in writing by the holders of all the First Tier Senior Lien Bonds of all the affected Series, no amendment may (a) change the times, amounts or currency of payment of the principal of or interest on any outstanding First Tier Senior Lien Bonds of such Series; or (b) reduce the principal amount or redemption price of any outstanding First Tier Senior Lien Bonds of such Series or the rate of interest thereon. TWENTY-EIGHTH SUPPLEMENTAL TRUST AGREEMENT The following is a summary of certain provisions of the Twenty-Eighth Supplemental Agreement. Such summary is only a brief description of limited provisions of such document and is qualified in its entirety by reference to the full text of the Twenty-Eighth Supplemental Agreement. This Appendix A describes the terms of the Series 2008-A Bonds while they bear interest at a Daily Rate or a Weekly Rate. There are significant differences in the terms of the Series 2008-A Bonds bearing interest at other rates. This Appendix A is not intended to provide information with respect to the Series 2008-A Bonds bearing interest at rates other than a Daily Rate or a Weekly Rate. Terms of the Series 2008 Bonds The Twenty-Eighth Supplemental Agreement sets forth the terms of the Series 2008 Bonds, most of which terms are described earlier in this Official Statement under the caption DESCRIPTION OF THE SERIES 2008 BONDS. A-22

115 Rebate Fund The LACMTA agrees that it will instruct the Trustee to establish and maintain a Rebate Fund which fund will be established for the purpose of complying with certain provisions of the Code which require that the LACMTA pay to the United States of America the excess, if any, of the amounts earned on certain funds held with respect to the Series 2008 Bonds over the amounts which would have been earned on such funds if such funds earned interest at a rate equal to the yield on the Series 2008 Bonds. Such excess is to be deposited into the Rebate Fund and periodically paid to the United States of America. The Rebate Fund to be held by the Trustee under the terms of the Twenty-Eighth Supplemental Agreement will be held in trust to the extent required to satisfy the Rebate Requirement, for the account of the LACMTA, and will not be pledged as security for nor be available to make payment on the Series 2008 Bonds. Separate Accounts The Twenty-Eighth Supplemental Agreement creates, among other funds and accounts, the Series 2008 Costs of Issuance Fund, the Series 2008 Reserve Account in the Reserve Fund, the Series 2008 Bond Interest Subaccount of the Bond Interest Account of the Debt Service Fund, the Series 2008 Bond Principal Subaccount of the Bond Principal Account of the Debt Service Fund, and with respect to each series of Series 2008-A Bonds, a Purchase Fund and a Liquidity Facility Purchase Account, Remarketing Proceeds Account and Authority Purchase Account within each such Purchase Fund. Tax Covenants In order to maintain the exclusion from gross income of the interest on the Series 2008 Bonds for federal income tax purposes, the LACMTA will make all calculations relating to any rebate of excess investment earnings on the proceeds of the Series 2008 Bonds due to the federal government of the United States in a reasonable and prudent fashion and will segregate and set aside the lawfully available amounts such calculations indicate may be required to be paid to the federal government of the United States, and otherwise will at all times do and perform all acts and things within its power and authority necessary to comply with each applicable requirement of the Code. Additional Event of Default The LACMTA agrees to comply with the Tax Certificate. The Trustee, by acceptance of its duties under the Twenty-Eighth Supplemental Agreement, agrees to comply with any instructions received from the LACMTA which the LACMTA indicates must be followed in order to comply with the Tax Certificate. The failure of the LACMTA to comply with the Tax Certificate, certain provisions of the Twenty-Eighth Supplemental Amendment or this summarized section is determined to be an Event of Default under the Twenty-Eighth Supplemental Agreement. A-23

116 [THIS PAGE INTENTIONALLY LEFT BLANK]

117 APPENDIX B LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY GENERAL PURPOSE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2007

118 [THIS PAGE INTENTIONALLY LEFT BLANK]

119 Los Angeles County Metropolitan Transportation Authority California COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2007 Submitted by: Submitted by Accounting Department Josephine V. Nicasio, Controller Terry Matsumoto, Chief Financial Services Officer and Treasurer

120 LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY COMPREHENSIVE ANNUAL FINANCIAL REPORT FINANCIAL SECTION For the Fiscal Year Ended June 30, 2007 TABLE OF CONTENTS Report of Independent Auditors...1 Management's Discussion and Analysis...3 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets...15 Statement of Activities...16 Fund Financial Statements: Balance Sheet - Governmental Funds...18 Reconciliation of the Balance Sheet to the Statement of Net Assets- Governmental Activities...21 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds...22 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities...24 Statement of Net Assets - Proprietary Fund - Enterprise Fund...25 Statement of Revenues, Expenses, and Changes in Fund Net Assets - Proprietary Fund - Enterprise Fund...26 Statement of Cash Flows - Proprietary Fund - Enterprise Fund...27 Statement of Net Assets - Fiduciary Funds...28 Statement of Changes in Net Assets - Fiduciary Funds...29 Notes to the Financial Statements...31 Required Supplementary Information: Schedule of Funding Progress - Pension Plans...79 Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual: General Fund...80 Proposition A Fund...81 Proposition C Fund...82 Traffic Congestion Relief Program Fund...83 Transportation Development Act Fund...84 State Transit Assistance Fund...85 i

121 PricewaterhouseCoopers LLP 350 South Grand Avenue Los Angeles CA Telephone (213) Facsimile (813) Report of Independent Auditors

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