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Fixed Income Capital Markets Davidson Building • 8 Third St. N. • P.O. Box 5015 (59403) • Great Falls, MT 59401 • (406) 727-4200 • 1-[PHONE REDACTED] • FAX (406) 791-7346 www.davidsoncompanies.com/ficm $10,345,000 City of Missoula, Montana Taxable Sewer System Revenue Bonds, Series 2010 (Recovery Zone Economic Development Bonds) BOND PURCHASE AGREEMENT October 18, 2010 City of Missoula 435 Ryman Street Missoula, MT 59802 D.A. Davidson & Co. (the “Underwriter”) hereby offers to enter into this Bond Purchase Agreement (the “Agreement”) with the City of Missoula (the “City”) on October 18, 2010 regarding the issuance, sale and delivery of the City’s Taxable Sewer System Revenue Bonds, Series 2010 (Recovery Zone Economic Development Bonds) (the “Bonds”). Upon your acceptance, this Agreement shall be in full force and effect in accordance with its terms and shall be binding upon the City and the Underwriter. On November 1, 2010, the City is expected to adopt a resolution (the “Bond Resolution”) authorizing the issuance, sale and delivery of the Bonds. Reference is made to the Bond Resolution for definitions of capitalized terms used and not otherwise defined herein. 1) Upon the terms and conditions and in reliance upon the representations set forth herein, the Underwriter hereby agrees to purchase from the City, and the City hereby agrees to sell to the Underwriter, all (but not less than all) of the Bonds in the aggregate principal amount of $10,345,000 at an aggregate purchase price of $10,277,757.50 (representing the par amount of the Bonds less Underwriter’s Discount of $67,242.50). The Bonds shall be issued and secured under and pursuant to the Bond Resolution, shall be dated the Date of Delivery (estimated to be November 15, 2010), and shall mature and bear interest as set forth in Exhibit A hereto. The Underwriter agrees to make a public offering of the Bonds at the initial offering prices set forth in the Official Statement referred to in Section 2 herein, which prices may be changed from time to time by the Underwriter. The Underwriter’s offer to purchase the Bonds will expire at 10:00 PM (MT) on Monday, October 18, 2010. ---PAGE BREAK--- 2 2) The City shall deliver or cause to be delivered to the Underwriter, after acceptance hereof, a reasonable number of hard copies of the Official Statement, if one is printed, and the final electronic copy of the Official Statement, substantially in the form of the Preliminary Official Statement dated October 12, 2010 (the “Preliminary Official Statement”) with only such changes therein as shall have been accepted by us (such Preliminary Official Statement with such changes, if any, and including the cover page and all appendices, exhibits and statements included therein or attached thereto being called the “Official Statement”). The Official Statement is to be dated October 18, 2010. The City has authorized the distribution by the Underwriter of the Preliminary Official Statement and the Official Statement, when available, in offering the Bonds for sale to prospective purchasers of the Bonds. 3) On November 15, 2010, or on such other date as the Underwriter and the City may mutually agree (the “Closing Date” or “Date of Delivery”), the Underwriter will accept delivery of the Bonds and pay the purchase price thereof as set forth in Section 1 herein by Federal Reserve System wire transfer in immediately available Federal funds or by any other form of immediately available Federal funds. The Bonds shall be delivered through The Depository Trust Company, New York, New York (“DTC”) in definitive form, bearing CUSIP numbers and issued under a book-entry system. 4) The City makes the following representations and warranties: a) The City is a public body corporate organized and existing under the laws of the State of Montana and is authorized to issue the Bonds, to enter into this Agreement and all other agreements contemplated hereby and to adopt the Bond Resolution. b) The City has complied to date with all applicable provisions of the laws of the State of Montana in connection with the execution and issuance of the Bonds. c) As of the Closing Date, the Bond Resolution, the and this Agreement will have been duly and validly authorized, adopted and executed, as applicable, by the City. d) As of the Closing Date, the City will have authorized all necessary action to be taken by it for the issuance and sale of the Bonds upon the terms set forth herein, in the Official Statement and in the Bond Resolution; (ii) the execution, delivery, receipt and due performance of this Agreement, the Bonds and the Bond Resolution and all other agreements contemplated hereby or required in order to carry out, give effect to and consummate the transactions described in this Agreement; and (iii) carrying out, giving effect to and consummation of the transactions described in this Agreement. e) The Bonds when issued, delivered and paid for as provided for herein and in the Bond Resolution, will have been duly and validly authorized and issued and will constitute limited Taxable Sewer Revenue Bonds of the City secured as provided in the Bond Resolution and as described in the Official Statement. f) There are no legal or governmental proceedings pending or, to the knowledge of the City, threatened, wherein an unfavorable decision, ruling or finding would have a material adverse effect on the validity or security of the Bonds, the Bond Resolution, this Agreement or the transactions described herein or the authority of the City to execute and deliver the Bonds or this Agreement, or adopt the Bond Resolution. ---PAGE BREAK--- 3 g) As of the date hereof, the Preliminary Official Statement does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except for such information that may be omitted from a preliminary official statement pursuant to Rule 15c2-12), except that the City makes no representation or warranty with respect to information within the Preliminary Official Statement or Official Statement relating to DTC, the book entry system, the rating, or the Underwriter. h) The Preliminary Official Statement is deemed “final” in accordance with Rule 15c2- 12(b) under the Securities Exchange Act of 1934. 5) The Underwriter enters into this Agreement in reliance upon the representations and warranties of the City contained herein and in the Bond Resolution and in reliance upon the representations and warranties to be contained in the documents and instruments to be delivered at the Closing and upon the performance by the City and its obligations hereunder both on and as of the date hereof and as of the Closing Date. Accordingly, the Underwriter’s obligation under this Agreement to accept delivery of and to pay for the Bonds shall be conditioned upon the performance by the City of its obligations to be performed hereunder and under such documents and instruments at or prior to the Closing, and shall also be subject to the following additional conditions: a) the representations and warranties of the City contained herein shall be true and correct on the date hereof and of the Closing, as if made on and at the Closing; b) at or prior to the Closing, the Underwriter shall receive the following documents: i) a certified copy of the Bond Resolution; ii) the opinion of Dorsey & Whitney LLP, as Bond Counsel, dated the Closing Date; iii) evidence satisfactory to the Underwriter that the Bonds have been rated “A2” by Moody’s Investors Services and that any such rating has not been revoked or downgraded; and iv) such additional legal opinions, certificates, proceedings, instruments and other documents as the Underwriter or Bond Counsel may reasonably request. If the conditions to the Underwriter’s obligations contained in this Agreement are not satisfied (unless otherwise waived in writing by the Underwriter) or if the Underwriter’s obligations shall be terminated for any reason permitted herein, this Agreement shall terminate and neither the Underwriter nor the City shall have any further obligation hereunder except to reimburse the Underwriter for expenses related to the preparation, printing and mailing of the preliminary and final official statements. 6) During the initial public offering of the Bonds (a period concluding the final date the Underwriter is charged with furnishing a copy of the Official Statement to a potential customer under SEC Rule 15c2-12 but no later than 25 days after the Closing Date), the City will not consent to the distribution of any amendment of or supplement to the Official Statement to which, after having been furnished with a copy, the Underwriter shall object in writing or which shall be disapproved by counsel for the Underwriter and if any event shall occur as a result of which it is necessary, in the opinion of the Underwriter, to amend or supplement the Official Statement in order to make the Official Statement not misleading in ---PAGE BREAK--- 4 light of the circumstances existing at the time it is delivered to a purchaser, consent to the distribution of an amendment of or supplement to the Official Statement, prepared without expense to the City (in form and substance satisfactory to the Underwriter) in a reasonable number of copies which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to a purchaser, not misleading. 7) The Underwriter shall have the right to cancel its obligation to purchase the Bonds if between the date hereof and the Closing, legislation shall have been enacted by the Congress of the United States or the legislature of the State of Montana or legislation shall have been reported out of committee of either body, or a decision shall have been rendered by a court of the United States or of the State of Montana or the Tax Court of the United States, or a ruling shall have been made or a regulation or temporary regulation shall have been proposed or made or any other release or announcement shall have been made by the Treasury Department of the United States or the Internal Revenue Service, with respect to federal taxation upon revenues or other income of the general character of the Bonds which, in the reasonable judgment of the Underwriter, materially adversely affects the market for the Bonds, or (ii) there shall exist any event which, in the reasonable judgment of the Underwriter, either makes untrue or incorrect in any material aspect as of such time any statement or information contained in the Official Statement or is not reflected in the Official Statement but should be reflected therein in order to make the statements and information contained therein not misleading in any material respect, or (iii) there shall have occurred an outbreak or escalation of hostilities or any other national or international calamity or crisis, the effect of which outbreak, escalation, calamity or crisis on the financial markets of the United States is such as, in the reasonable judgment of the Underwriter, would make it impracticable for the Underwriter to market or enforce contracts for the sale of the Bonds, or (iv) there shall be in force a general suspension of trading on the New York Stock Exchange or minimum or maximum prices for trading shall have been fixed and in force, or maximum ranges for prices for securities shall have been required and be in force on the New York Stock Exchange, whether by virtue of a determination by that Exchange or by order of the SEC or any other governmental authority having jurisdiction, or a general banking moratorium shall have been declared by either Federal, State of Montana or New York authorities having jurisdiction and be in force, or (vi) there shall be established any new restriction on transactions in municipal securities materially affecting the free market for municipal securities (including the imposition of any limitation on interest rates) or extension of credit by, or charge to the net capital requirements of, Underwriter established by the New York Stock Exchange, the SEC, any other federal or state agency or the Congress of the United States, or by Executive Order. 8) Subject to the provisions of Section 1, all fees, expenses and costs incident to the execution and performance of this Agreement and to the authorization, issuance and sale of the Bonds to the Underwriter, including, but not limited to: the cost of printing the Bonds, if any (and full execution thereof); the fees of the Bond Registrar; costs of printing and distribution of the Preliminary and final Official Statement; and the fees and expenses of Bond Counsel, the Financial Advisor and Moody’s Investors Service shall be paid by the City. All expenses to be paid by the City pursuant to this Agreement may be paid from Bond proceeds to the extent permitted by the Bond Resolution. The obligation of the City under this Section 8 shall survive the payment of the Bonds. ---PAGE BREAK--- 9) Any notice or other communication to be given to the City under this Agreement may be given by delivering the same in writing at the address set forth above and any such notice or other communications to be given to the Underwriter may be given by delivering the same in writing to D.A. Davidson & Co., 8 Third Street North, Great Falls, Montana 59401, Attention: Aaron Rudio. The approval of the Underwriter when required hereunder or the determination of its satisfaction as to any document referred to herein shall be in writing signed by the Underwriter and delivered to you. 10) This Agreement is made solely for the benefit of the City and the Underwriter (including successors or assigns of the Underwriter, but excluding any purchaser, as such purchaser, of Bonds from the Underwriter) and, to the extent expressed herein, controlling persons thereof, and no other persons, partnership, association or corporation shall acquire to have any right hereunder or by virtue hereof. All representations and agreements of the parties to this Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriter and shall survive the delivery of and payment for the Bonds. Time shall be of the essence of this Agreement. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Montana. This Agreement may be executed in any number of counterparts each of which shall be an original but all of which together will constitute one and the same instrument. Very truly yours, D.A. DAVIDSON & CO. Aaron T. Rudio Vice President, Public Finance ---PAGE BREAK--- 6 Accepted and Agreed to: City of Missoula, Montana By: Mayor By: Finance Director Time: October 18, 2010 ---PAGE BREAK--- Exhibit A EXHIBIT A TERMS OF THE BONDS $10,345,000 City of Missoula, Montana Taxable Sewer System Revenue Bonds, Series 2010 (Recovery Zone Economic Development Bonds) Pricing Summary Maturity Type of Bond Coupon Yield Maturity Value Price Dollar Price 07/01/2012 Serial Coupon 1.755% 1.755% $50,000.00 100.000% $50,000.00 07/01/2013 Serial Coupon 2.058% 2.058% 125,000.00 100.000% 125,000.00 07/01/2014 Serial Coupon 2.421% 2.421% 130,000.00 100.000% 130,000.00 07/01/2015 Serial Coupon 2.871% 2.871% 130,000.00 100.000% 130,000.00 07/01/2016 Serial Coupon 3.346% 3.346% 135,000.00 100.000% 135,000.00 07/01/2017 Serial Coupon 3.596% 3.596% 140,000.00 100.000% 140,000.00 07/01/2018 Serial Coupon 4.199% 4.199% 145,000.00 100.000% 145,000.00 07/01/2019 Serial Coupon 4.349% 4.349% 150,000.00 100.000% 150,000.00 07/01/2020 Serial Coupon 4.549% 4.549% 255,000.00 100.000% 255,000.00 07/01/2021 Serial Coupon 4.649% 4.649% 270,000.00 100.000% 270,000.00 07/01/2022 Serial Coupon 4.749% 4.749% 380,000.00 100.000% 380,000.00 07/01/2023 Serial Coupon 4.849% 4.849% 355,000.00 100.000% 355,000.00 07/01/2025 Term 1 Coupon 4.949% 4.949% 1,000,000.00 100.000% 1,000,000.00 07/01/2030 Term 2 Coupon 6.038% 6.038% 3,020,000.00 100.000% 3,020,000.00 07/01/2035 Term 3 Coupon 6.138% 6.138% 4,060,000.00 100.000% 4,060,000.00 Total - - - $10,345,000.00 - $10,345,000.00 General Description of the Bonds. The Bonds will be issued as fully registered bonds and will be registered in the name of Cede & Co., as registered owner and nominee for DTC as securities depository of the Bonds. Individual purchases and sales of the Bonds may be made in book-entry form only, in the principal amount of $5,000 within a single maturity and in integral multiples thereof. The Bonds will be dated as originally issued as of the Date of Delivery. The Bonds shall mature on July 1, in the years and amounts set forth above and shall bear interest from the date of original registration to their respective maturities at the interest rate or rates per annum as shown above. Interest on the Bonds will be payable by the City semi-annually on January 1 and July 1, commencing July 1, 2011, by wire transfer on the Interest Payment Dates to Cede & Co. Interest on the Bonds will be payable to the Beneficial Owners of record as of the close of business on the 15th day of the month immediately preceding an interest payment date. Optional Redemption. The Bonds with stated maturities on or after July 1, 2021 will be subject to redemption on January 1, 2021, and any day thereafter, at the option of the City, in whole or in part, at a redemption price equal to the principal amount thereof to be redeemed plus interest accrued to the redemption date, without premium.