NEW ISSUE — FULL BOOK-ENTRY In the opinion of Bond Counsel, under existing law and subject ta conditions described in “TAX MATTERS” herein, interest, including accrued original issue discount on the Series 1998 A, Series 1998 C, Series 1998 D and Series 1998 E Bonds (a) will not be included in gross income for federal income tax purposes and (6) will not be an iter: of tax preference for purposes of the federal alternative mini tax imposed on individudls and corporations, Under existing law, interest, including accrued original issue discount, on all Series 1998 Bonds, including the Series 1998 B Bonds, is exempt from personal income taxes imposed by the United States Virgin Islands, any state, other territory or possession of the United States or any political subdivision thereof, or by the District of Columbia, as described in the section “TAX MATTERS” herein. $541,820,000 VIRGIN ISLANDS PUBLIC FINANCE AUTHORITY Revenue and Refunding Bonds (Virgin Islands Matching Fund Loan Notes) $289,075,000 ; $26,015,000 . $81,170,000 $39,130,000 $106,430,000 Series 1998 A Series 1998 B _ Series 1998 Cc Series 1998 D Series 1998 E (Senior Lien/ (Senior Lien/ (Senior Lien/ (Subordinate Lien/ . (Subordinate Lien/ Refunding) Refunding/Taxable) Working Capital) Working Capital) Capital Program) DATED: May 1, 1998 DUE: October 1, as shown on the inside cover The Revenue and Refunding Bonds (Virgin Islands Matching Fund Loan Notes) Series 1998 A (Senior Lien/Refunding), Series 1998 B (Senior Lien/Refunding/Taxable), Series 1998 C (Senior Lien/Working Capital), Series 1998 D (Subordinate Lien/Working Capital), and Series 1998 E (Subor- dinare Lien/Capical Program) (collectively, the “1998 Bonds”) are issuable in minimum denominations of $5,000 and integral mulciples of $5,000 in excess thereof and will be issued initially as a single registered bond for each macuricy registered of each series in the name of Cede & Co., the nomi- nee of The Depository Trust Company (“DTC”), New York, New York. Beneficial ownership interests in che 1998 Bonds (defined below) will be avail- able for purchase in book-entry form only. Except in limited circumstances, purchasers of Bonds will not receive physical delivery of che 1998 Bond certificates, as further described herein. Principal of, Redemption Price of, if applicable, and interest payable on April 1 and October 1 of each year, commencing on October 1, 1998, on the 1998 Bonds, will be paid by the Paying Agent to DTC, who will remit paymenc co DTC Participants, with such payments co be subsequently disbursed to the beneficial owners of the 1998 Bonds, as further described herein. Cercain 1998 Bonds shall be sub- ject to redemption prior to maturity as described herein. (See “THE 1998 BONDS”.) The 1998 Bonds are being issued by the Virgin Islands Public Finance Authority (che “Auchority”) (i) to advance refund certain of the currently outstanding bonds of the Authority and the Government of che Virgin Islands (che “Government”), (ii) to pay in full che principal and accrued inter- est on the $106,845,000 United Stares Virgin Islands Revenue Anticipation Note which was issued cto pay certain working capital expenses of the Government and to provide additional working capital for che Government, (iii) to fund various capital projects in the Territory of the United States Virgin Islands, (iv) to fund the Series Debt Service Reserve Accounts and (v) co pay certain costs of issuing the 1998 Bonds. The 1998 Bonds will be issued under and secured by the Indenmure of Trust, dated as of May 1, 1998 (che “Indenture”) by and between the Authority and Uniced States Trust Company of New York, as trustee (the “Trustee”). The Trustee will act as Registrar and Paying Agent for the 1998 Bonds. The 1998 Bonds will be secured by five special limited obligation loan notes (the “Matching Fund Loan Notes”) issued by the Government pursuant to a Loan Agreement, dated as of May 1, 1998, among the Authority, the Trustee and the Government (the “Loan Agreement”). THE 1998 BONDS ARE LIMITED SPECIAL OBLIGATIONS OF THE AUTHORITY PAYABLE FROM AND SECURED BY A PLEDGE OF THE TRUST ESTATE WHICH INCLUDES CERTAIN FUNDS ESTABLISHED UNDER THE INDENTURE, INCLUDING THE PLEDGED REVENUE ACCOUNT AND THE RESPECTIVE DEBT SERVICE RESERVE ACCOUNTS. THE MATCHING FUND LOAN NOTES ARE SPECIAL LIMITED OBLIGATIONS OF THE GOVERNMENT AND ARE SOLELY SECURED BY A PLEDGE OF REVENUES RECEIVED BY THE GOVERNMENT FROM THE UNITED STATES DEPARTMENT OF THE TREASURY AS A TRANS- FER OF FEDERAL EXCISE TAXES IMPOSED AND COLLECTED UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, IN ANY FISCAL YEAR, ON RUM PRODUCED IN THE UNITED STATES VIRGIN ISLANDS AND EXPORTED TO THE UNITED STATES WHICH IS SUBJECT TO FEDERAL EXCISE TAX THAT QUALIFIES FOR TRANSFER TO THE GOVERNMENT (THE “MATCHING FUND REVENUES"). (SEE “MATCHING FUND REVENUES”.) The 1998 Bonds shall under no circumstances consticute a general obligation of the Authority, che United States Virgin Islands or the United Srares of America nor shall the 1998 Bonds be evidence of a debt of the United States of America or the United States Virgin Islands nor shall che United States of America or the United States Virgin Islands be liable thereon. The Authority has no taxing power. Payment from the Trust Estate of the Series 1998 D Bonds and the Series 1998 E Bonds (referred co collectively as the “Subordinate Lien Bonds”) will be subordinate to payment from the Trust Estate of the Series 1998 A Bonds, the Series 1998 B Bonds and the Series 1998 C Bonds (referred to collectively as the “Senior Lien Bonds”). THE PURCHASE AND OWNERSHIP OF THE 1998 BONDS INVOLVES CERTAIN INVESTMENT RISKS. INFORMATION CON- TAINED ON THIS COVER IS A SUMMARY ONLY. PROSPECTIVE PURCHASERS OF THE 1998 BONDS ARE ADVISED TO READ THIS OFFICIAL STATEMENT IN ITS ENTIRETY. (SEE “BONDHOLDER RISKS” .) Maturities, Amounts, Interest Rates and Prices or Yields (On Inside Cover) The 1998 Bonds ave offered, subject to prior sale, when, as and if issued by the Authority and accepted by the Underwriters, subject to the approval of legality by Hunton & Williams, Washington, D.C., Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the Underwriters by their counsel, Hawkins, Delafield & Wood, New York, New York. It is expected that the 1998 Bonds will be available for delivery ts DTC in New York, New York on about May 14, 1998. Salomon Smith Barney CIBC Oppenheimer Morgan Stanley Dean Witter | PaineWebber Incorporated April 30, 1998 MATURITIES, ‘AMOUNTS, INTEREST RATES AND PRICES OR YIELDS . $289, 075,000 — "SERIES 1998 A BONDS (SENIOR LIEN/REFUNDING) Interest Price or Interest Price or Maturity Amount Rate Yield Maturity Amount Rate Yield __ 2009 $13,135,000 5.20% 5.30% 2013 $16,245,000 54% 100% 2010 13,835,000 5.20 5.35 2014 17,165,000 5% 100 2011 14,580,000 5.30 5.40 2015 18,135,000 5% 5.52 2012 15,380,000 5.40 5.45 $60,795,000 544% Term Bond maturing October 1, 2018 at 99% $81,700,000 544% Term Bond maturing October 1, 2022 at 984% $38,105,000 555% Term Bond maturing October 1, 2025 at 994%6% (Plus Accrued Interest) $26,015,000 SERIES 1998 B BONDS (SENIOR LIEN/REFUNDING/TAXABLE) Interest Price or Interest Price or Maturity | Amount Rate Yield Maturity Amount Rate Yield 1998 $8,765,000 6.28% 100% 2001 $3,265,000 6.99% 100% 1999 7,525,000 6.69 100 2002 2,410,000 7.11 100 2000 4,050,000 6.83 100 (Plus Accrued Interest) ' Maturity 2000 2001 2002 2003 2004 Maturity 1999 2000 2001 2002 2003 $81,170,000 SERIES 1998 C BONDS (SENIOR LIEN/WORKING CAPITAL) Interest Price or ; Interest Price or Amount Rate ~ Yield Maturity * Amount Rate Yield $3,960,000 5% 4.55% 2005 $10,555,000 5'4% 5.10% 5,225,000 5 4% 2006 11,150,000 5% 5.15 6,575,000 5 4.85 2007 11,780,000 5% 5.20 9,480,000 5 4.90 2008 12,455,000 514 5% 9,990,000 5% 5 (Plus Accrued Interest) $39,130,000 SERIES 1998 D BONDS (SUBORDINATE LIEN/WORKING CAPITAL) Interest Price or Interest Price or Amount Rate Yield Maturity Amount Rate Yield $3,005,000 5’Uu% 4.70% 2004 $3,965,000 6% 5.40% 3,175,000 5” 4.95 2005 4,210,000 6 5% 3,355,000 5% 5.15 2006 4,470,000 6 5.55 3,540,000 5% 5% 2007 4,750,000 6 5.60 3,745,000 5% 5.30 2008 4,915,000 6 5.65 (Plus Accrued Interest) $106,430,000 SERIES 1998 E BONDS (SUBORDINATE LIEN/CAPITAL PROGRAM) $30,095,000 5%% Term Bond maturing October 1, 2013 at 5.90% $39,665,000 574% Term Bond maturing October 1, 2018 at 987A% $36,670,000 6% Term Bond maturing October 1, 2022 at 99%% (Plus Accrued Interest) VIRGIN ISLANDS PUBLIC FINANCE AUTHORITY 1050 Norre Gade Suite 102 Charlotte Amalie St. Thomas, United States Virgin Islands 00802 BOARD OF DIRECTORS The Honorable Roy L. Schneider, M-D., Governor - Chairman Juan Centeno, Commissioner of Finance - Executive Director Nellon L. Bowry, Director of the Office of Management and Budget - Secretary Paul Arnold, St. Croix Representative Roy Jackson, St. Thomas/St. John Representative TRUSTEE United States Trust Company of New York New York, New York BOND COUNSEL Hunton & Williams Washington, D.C. FINANCIAL ADVISOR Public Financial Management, Inc. Philadelphia, Pennsylvania This Official Statement is furnished in connection with the sale of securities as referred to herein and may not be reproduced or be.used, in whole or in part, for any other purpose. The information and expressions of opinion herein are subject to ‘change without notice. The delivery of this Official Statement, including the Appendices attached hereto, does not imply that information herein is correct as of any time subsequent to its date. No dealer, salesman or any other person has been authorized by the Authority, the Government or the Underwriters to give any information or to make any representation other ‘than as containéd in this Official Statement in connection with the offering described herein and, if given, or made, such other information or representation must not be relied upon as having been authorized by the Authority, the Government or the Underwriters. This Official Statement does not constitute an offer of any securities other than those described on the cover page or an offer to sell or a solicitation of any offer to buy in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. The information contained in this Official Statement has been obtained from the Authority, the Government and other sources which are believed to be reliable and while, based primarily on a review of such information and discussions with the Government and the Authority. While the Underwriters have no reason to believe such information is inaccurate or incomplete, no representation or warranty is made as to the accuracy or completeness of such information and nothing contained in this Official Statement is, or may be relied on, as a promise or representation by the Underwriters. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 1998 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. a TABLE OF CONTENTS INTRODUCTION. VIRGIN ISLANDS PUBLIC FINANCE AUTHORITY 2 Purposes and Powers Management ...--...-------- +++ eee eee 2 Outstanding Indebtedness of the Authority ...... 3 PLAN OF FINANCE .......--------+-+-55 4 General .......-.----- 2200-22 e ee eee 4 Plan of Refunding .......-..-...---..--- 4 Working Capital Financing ....-......----- 5 Capital Improvement Projects ........-..--- 6 SECURITY FOR THE 1998 BONDS .........-.- 9 General ...-. 222-222. eee ee ee eee 9 Matching Fund Loan Notes......-....----- 9 Loan Agreement .....--..------5--00- 10 Flow of Funds.........---.------++-+-- 10 Debt Service Reserve Accounts .-...-...-..-.- 12 Additional Bonds ...-....--...--------- 13 THE 1998 BONDS ......---.--.----+++--- 14 General ... 2.2202... ee es 14 Authorization and Purpose ..-......--...- 14 Senior/Subordinate Lien Structure........... 14 Book-Entry-Only System .....-....-.----. 14 Redemption ......-..-------+ eee eee 16 Total Debt Service Requirements ........... 20 SOURCES AND USES OF FUNDS .........-- 21 MATCHING FUND REVENUES .....-....-.-.- 22 General .....-.----------2---02--0005- 22 Verification of Matching Fund Revenues ...... 26 Potential Federal Offset of Matching Fund Revenues 26 ’ THE RUM INDUSTRY .........-...--- 12... 26 General .........--.----++2---0---- ... 26 Virgin Islands Rum Industries, Ltd. and Todhunter: International, Inc. ...-...-..... 27 Molasses Payments ......--.--..---+-+5-- 28 St. Croix Molasses Pier ......-...--.-+-- 29 (i) Page BONDHOLDER RISKS ... . . . Let -,.. 30 LITIGATION ......--.-0-02--0-0-22 220s 32 TAX MATTERS ........-----0--50-0+-5- 32 FINANCIAL STATEMENTS ..........----- 33 VERIFICATIONS .......-----2-00+-2--55 33 LEGAL OPINIONS ......------++--5005: 33 FINANCIAL ADVISOR ......--.-------+-- 34 RATING ...-.----0 2-22 eee eee eee eee 34 CONTINUING DISCLOSURE ........------- 34 UNDERWRITING ........--------+--035 34 MISCELLANEOUS .........-.02-0--5++--2 35 Appendix A: Glossary of Terms .........----- A-1 Appendix B: Summary of Certain Provisions of the Indenture .....--.----.----5ee- B-1 Appendix C: Summary of Certain Provisions of the Loan Agreement .....-...------+--5 C-1 Appendix D: Verification of Matching Fund Revenues D-1 Appendix E: Audited Financial Statements of the Authority .......--- 2-500 b eee E-1 Appendix F: United States Virgin Islands ......-.- F-1 Appendix G: Form of Proposed Opinion of Bond Counsel. ......--.-+-+---- G-1 Appendix H: Proposed Form of Continuing Disclosure Certificate... 2... ----- eee eee H-1 Neen eee ee eee ee ee ie ee a a ee ee OF FICIAL STATEMENT $541, $20, 000: _ VIRGIN ISLANDS PUBLIC. FINANCE AUTHORITY Revenue and Refunding Bonds ~ (Virgin Islands Matching Fund Loan Notes) $289,075,000 Series 1998 A (Senior Lien/Refunding) $26,015,000 Series 1998 B (Senior Lien/Refunding/Taxable) $81,170,000 Series 1998 C (Senior Lien/Working Capital) $39,130,000 Series 1998 D (Subordinate Lien/Working Capital) $106,430,000 Series 1998 E (Subordinate Lien/Capital Program) INTRODUCTION The purpose of this Official Statement, which includes the cover page and the appendices, is to furnish certain information concerning the Virgin Islands Public Finance Authority (the “Authority") and the sale and delivery of its Revenue and Refunding Bonds (Virgin Islands Matching Fund Loan Notes), Series 1998 A (Senior Lien/Refunding) (the "Series 1998 A Bonds"), Series 1998 B (Senior Lien/Refunding/Taxable) (the "Series 1998 B Bonds"), Series 1998 C (Senior Lien/Working Capital) (the "Series 1998 C Bonds" and, together with the Series 1998 A Bonds and the Series 1998 B Bonds, the "Senior Lien Bonds"), 1998 Series D (Subordinate Lien/Working Capital) (the "Series 1998 D Bonds") and Series 1998 E (Subordinate Lien/Capital Program) (the "Series 1998 E Bonds" and, together with the Series 1998 D Bonds, the "Subordinate Lien Bonds") (collectively, the "1998 Bonds") in the aggregate principal amount of $541,820,000. The 1998 Bonds are being issued pursuant to an Indenture of Trust, dated as of May 1, 1998 (the "Indenture"), by and between the Authority and United States Trust Company of New York, New York, as trustee (together with any appointed successor trustee, the “Trustee"), and the Loan Agreement, dated as of May 1, 1998 (the "Loan Agreement"), by and between the Government of the United States Virgin Islands (referred to herein as the "Government") and the Authority. The 1998 Bonds are being issued pursuant to the Virgin Islands Revised Organic Act 48 U.S.C.A. 1574 et seq. (West 1987), as amended (the "Revised Organic Act")), 1988 United States Virgin Islands Act No. 5365, 1997 Virgin Islands Act Nos. 6152 and 6190, 1998 Virgin Islands Act Nos. 6197 and 6227 and other applicable law (together, the "Act") and the Taxpayer Relief Act of 1997 (Pub. L. 105-34, Aug. 5, 1997, 111 Stat 788) and other applicable law. All capitalized terms not defined in this Official Statement have meanings as defined in Appendix A entitled "GLOSSARY OF TERMS". Proceeds from the 1998 Bonds will be used: (i) to advance refund the Prior Bonds (hereafter defined), (ii) to pay in full the principal and accrued interest on the $106,845,000 Revenue Anticipation Note (hereafter defined) and to provide additional working capital for the Government, (iii) to fund various capital projects in the Territory of the United States Virgin Islands (the "Virgin Islands"), (iv) to fund the respective Debt Service Reserve Accounts (hereafter defined), and (v) to pay certain costs of issuing the 1998 Bonds. The 1998 Bonds are payable and secured by a pledge of the Trust Estate as further described and as defined herein. Payment from the Trust Estate of the Subordinate Lien Bonds will be subordinate to payment from the Trust Estate of the Senior Lien Bonds. A default on the Subordinate Lien Bonds shall not result in a default on the Senior Lien Bonds. The 1998 Bonds will be secured by five special limited obligation Matching Fund Loan Notes issued by the Government pursuant to the Loan Agreement. The Government will be obligated under the Matching Fund Loan Notes to make payments to the Authority in amounts sufficient to pay all principal, premium, if any, and interest on the 1998 Bonds when due and to make the amount on deposit in the respective Debt Service Reserve Accounts equal to the applicable Debt Service Reserve Requirement pursuant to the terms of the Indenture. The Matching Fund Loan Notes have been issued in anticipation of the receipt of the Matching Fund Revenues over the full term of the Matching Fund Loan Notes, which Matching Fund Revenues are projected to be in excess of the amount necessary to pay all the principal of, premium, if any, and interest on, the Matching Fund Loan Notes which secure the 1998 Bonds. However, no assurances can be given as to the sufficiency of Matching Fund Revenues for such purpose. ‘ - : Matching Fund Revenues are those revenues received by the Government from the United States Department. of the Treasury as a transfer of federal excise taxes imposed and collected under the Internal Revenue Code of 1986, as amended (the "Code") in any Fiscal Year on any product produced in’ the Virgin Islands and exported to the United States and that is subject to federal excise tax that qualifies for transfer to the Government (the "Matching Fund Revenues"). Rum is the principal article presently produced in the Virgin Islands and exported to the United States that is subject to federal excise tax that qualifies for transfer to the Government under the applicable provisions of the Revised Organic Act and the Code. Matching Fund Revenues have been transferred to the Government since 1954 in accordance with certain Acts of the United States Congress. (See "MATCHING FUND REVENUES" and "THE RUM INDUSTRY".) This Official Statement describes, among other items, the 1998 Bonds, the Loan Agreement, the Matching Fund Loan Notes, Matching Fund Revenues, the Special Escrow Agreement (as hereafter defined), the Indenture, the Authority and the Virgin Islands. The descriptions do not purport to be comprehensive or definitive and reference is made to the Loan Agreement, the Special Escrow Agreement and the Indenture for full and complete statements of the provisions thereof. Copies of the Indenture, the Loan Agreement, and the Special Escrow Agreement, including the form of the 1998 Bonds and the Matching Fund Loan Notes, are available at the office of the Trustee, 114 West 47th Street, New York, New York 10036-1532 (212-852-1034), and at the Authority, 1050 Norre Gade, Suite 102, Charlotte Amalie, St. Thomas, United States Virgin Islands 00802 (340-714-1635); Attention: Amadeo I.D. Francis, Director of Finance and Administration. THE PURCHASE AND OWNERSHIP OF THE 1998 BONDS INVOLVE INVESTMENT RISKS. PROSPECTIVE PURCHASERS OF THE 1998 BONDS ARE ADVISED TO READ THIS OFFICIAL STATEMENT IN ITS ENTIRETY. FOR A DISCUSSION OF CERTAIN RISKS RELATING TO THE 1998 BONDS, SEE "BONDHOLDER RISKS" HEREIN. VIRGIN ISLANDS PUBLIC FINANCE AUTHORITY Purposes and Powers The Authority was created in 1988 by United States Virgin Islands Act No. 5365 of the Legislature of the Virgin Islands (the “Legislature") as a public corporation and autonomous govemmental instrumentality for the purposes of aiding the Government in the performance of its fiscal duties and in effectively carrying out its governmental responsibility of raising capital for essential public projects. Under its enabling legislation, the Authority is vested with, but not limited to, the following powers: (i) to have perpetual existence as a corporation, (ii) to borrow money and issue bonds, (iii) to lend the proceeds of its bonds or other money to the Government or any agency, authority or instrumentality thereof or private enterprise in the Virgin Islands subject to the approval of the Legislature of the Virgin Islands, (iv) to establish one or more revolving loan funds with the proceeds of bonds issued by the Authority or issued by the Government or any agency, authority or instrumentality thereof, (v) to invest its funds and to arrange for the investment of the funds of the Government or any agency, authority or instrumentality thereof, (vi) to enter into contracts and agreements with the government of the United States, the Government and any agency, authority or political subdivision thereof, (vii) to make, modify and repeal by-laws, rules and regulations, (viii) to acquire, sell, lease, mortgage, pledge, dispose of or encumber property or interests therein, and (ix) to sue and be sued. Management The powers of the Authority are exercised by a board of directors (the "Board of Directors") consisting of five members. The Governor of the Virgin Islands, the Commissioner of Finance and the Director of the Office of Management and Budget of the Virgin Islands, are members and serve ex-officio. The two remaining members are appointed by the Governor of the Virgin Islands with the advice and consent of the Legislature and represent the private sector. Of these two members, one must be a resident of the District of St. Thomas/St. John and one must be a resident of the District of St. Croix. Both must be experienced in the area of municipal finance. The Governor of the Virgin Islands serves as Chairman of the Board of Directors while the Commissioner of Finance serves as the Authority’s Executive Director and the Director of the Office of Management. and Budget serves as Secretary to the Authority. Amadeo I:D. Francis ‘serves as the Director of Finance and Administration of the Authority and is responsible for the administration and operation of the Authority. Mr. Francis | has served as the Director of Finance and Administration of the Authority since 1993. The following is a list of the current Board of Directors with their official posts or, for private sector representatives, their island of residency, and date of expiration of their current terms on the Board of Directors. The Governor of the Virgin Islands, the Commissioner of Finance and the Director of the Office of Management and Budget serve terms which are coincident with their terms in such offices. The Directors who represent the private sector serve 4-year terms. Government Post . Term Name or Profession/Residency Expiration Hon. Roy L. Schneider, M.D., Chairman .. Governor of the Virgin Islands ............. 1999 (ex officio) Juan Centeno, Executive Director ..._... Commissioner of Finance .......----.-.-.-- 1999 (ex officio) Nellon L. Bowry, Secretary ...........- Director of the Office of Management ......... 1999 (ex officio) and Budget Paul Arnold ............2.-.-.-0-. Personnel Manager, Virgin Islands Aluminum Co., St. Croix ...........-..-. 1997* Roy Jackson _........-.........-- Certified Public Accountant, St. Thomas ....... 1997* *Members serve until the appointment and confirmation of a successor. In February 1990, the Authority created its Bond Proceeds Management Program. This program provides the Government and any agency, instrumentality, commission, authority or political subdivision of the Virgin Islands (other than the Virgin Islands Government Employees Retirement System ("GERS")) assistance with the investment of and accounting for bond proceeds in compliance with the arbitrage and rebate requirements of the Code, as amended. To date, the Government, the Authority and the Virgin Islands Water and Power Authority have participated in this program. Through this program, the Authority is responsible for the management of approximately $45 million as of March 1, 1998. Outstanding Indebtedness of the Authority Bonds. Since August 1989, the Authority has issued eight series of bonds in furtherance of its corporate " purposes to raise capital for essential public projects. Five series of bonds are currently outstanding, including the Highway Revenue Bonds (Transportation Trust Fund) Series 1989 (the "Series 1989 Bonds"), the Revenue Refunding Bonds (Virgin Islands General Obligation/Matching Fund Loan Notes) Series 1992 A (the "Series 1992 Bonds"), and the Government Development Program Revenue Bonds (Virgin Islands General Obligation/Matching Fund Loan Notes), Series 1994 A, Series 1994 B and Series 1994 C (collectively referred to as the "Series 1994 Bonds") (the Series 1989 Bonds, the Series 1992 Bonds and the Series 1994 Bonds collectively referred to herein as the “Authority’s Prior Bonds"). A portion of the proceeds of the 1998 Bonds will be used to refund the Authority’s Prior Bonds. (See "PLAN OF FINANCE—Plan of Refunding".) As of March 1, 1998, $15,677,643 of the proceeds of the Series 1989 Bonds, $20,091,383 of the proceeds of the Series 1992 Bonds (which was released from the Series 1992 Bonds debt service reserve fund) and $15,351,415 of the proceeds of the Series 1994 Bonds remained unexpended and have been reallocated and obligated to certain capital improvement projects. WICO Loan. In December 1993, the Authority received a loan in the principal amount of $19,000,000 from Banco Popular de Puerto Rico ("Banco Popular") to enable the Authority to repay an existing bond anticipation note issued by the Authority and held by Banco Popular for the purchase of the outstanding shares of The West Indian Company Limited ("WICO"), a corporation organized and existing under the laws of the United States Virgin Islands (the "WICO Loan"). WICO was purchased by the Government on June 30, 1993 and its stock assigned to the Authority. The principal assets of WICO are a 2,700 foot dock and related land and facilities, 7.235 acres of land on the St. Thomas waterfront, 3.9 acres of land at Estate Liverpool and a landmark mansion, together with 6 acres of land, located at Estate Catherineberg known as "Denmark Hill". The WICO cruise ship dock represents a substantial revenue generating asset and is one the of the busiest cruise ship destinations in the world. Cruise ships visit this dock throughout the year and pay-passenger fees, wharfage. fees, agency fees and miscellaneous me charges, such as water purchases. The WICO Loan is evidencéd by a special, limited obligation promissory. note of the Authotity (the "WICO -. Note"), which is payable solely from and secured by the pledge of certain revenues from WICO, all of whose issued and outstanding shares of stock are owned by the Authority. As of March 1, 1998, the balance due and payable on the WICO Loan was $15,870,261. No recourse may be had for the payment of the WICO Note against the general funds of the Authority or the Matching Fund Revenues that secure the 1998 Bonds. Hospital Facilities Loan. In June 1994, the Authority and the Government entered into a loan agreement (the “Hospital Loan Agreement") with Banco Popular de Puerto Rico for a loan in the principal amount of .510,600,000 (the “Hospital Facilities Loan"). The proceeds of the Hospital Facilities Loan have been applied to capital improvements and equipment for the St. Croix and St. Thomas Hospitals. The Hospital Facilities Loan is evidenced by a promissory note of the Government which constitutes a general obligation of the Government. In addition, the note is secured by a specific pledge of a $2,000,000 increase in annual real property tax revenues due or to be collected from the Hess Oil Virgin Islands Corporation. As of March 1, 1998, the balance due and payable on the Hospital Facilities Loan was $3,170,473. No recourse may be had for the payment of the Hospital Facility Loan against the general funds of the Authority or the Matching Fund Revenues that secure the 1998 Bonds. PLAN OF FINANCE General The Series 1998 Bonds are being issued to: (i) refund the Government’s Prior Bonds (hereinafter defined) and the Authority’s Prior Bonds (collectively, the "Prior Bonds"), (ii) provide working capital, and (iii) finance certain capital projects. Proceeds of the 1998 Bonds will also be used to fund the respective Debt Service Reserve Accounts and pay costs of issuance of the 1998 Bonds. The Series 1998 A Bonds and Series 1998 B Bonds, together with other available moneys, refund the Prior Bonds. All Prior Bonds, excluding the Authority’s Series 1989 Bonds, were secured in part by Matching Fund Revenues with a priority lien security structure. On June 12, 1997, Congress passed legislation amending the Revised Organic Act allowing the Government to issue parity lien debt. In addition in 1997, Congress enacted the Taxpayer Relief Act of 1997, which included a provision authorizing the Government to advance refund certain Prior Bonds that previously had been advance refunded. Replacing the priority lien structure with a parity lien-structure will: (i) lower the debt service payments of the Government, (ii) allow the extension of the maturities of such debt, (iii) release other revenue streams pledged to the Prior Bonds, and (iv) consolidate the security for the Government’s debt solely with Matching Fund Revenues. Proceeds of the Series 1998 C Bonds and Series 1998 D Bonds provide permanent financing for the Revenue Anticipation Note issued by the Government on February 10, 1998 and provide additional working capital. Proceeds of the Series 1998 E Bonds will finance various capital projects of the Government. Plan of Refunding The Series 1998 A Bonds and the Series 1998 B Bonds (collectively, the "Refunding Bonds") are being issued to refund all of the currently outstanding Prior Bonds, which include the Government’s Special Tax Bonds (General Obligation/Matching Fund/Hurricane Hugo Insurance Claims Fund Program) Series 1991 (the "Series 1991 Bonds") and its Subordinated Special Tax Bonds (General Obligation Matching Fund/Insurance Claims Fund Program) Series 1993 (the "Series 1993 Bonds", together with the Series 1991 Bonds, the "Government’s Prior Bonds", and, together with the Authority’s Prior Bonds, the "Prior Bonds"). The Refunding Bonds are being issued to refund each Series of the Prior Bonds to their earliest respective dates of maturity or redemption in accordance with the terms of each indenture pursuant to which the Prior Bonds were issued (each such indenture referred to as a "Prior Indenture"). All of the proceeds received by the Authority from the sale of the Series 1998 A Bonds and the Series 1998 B Bonds, other than accrued interest and amounts required to pay certain costs of issuance, will be transferred to United States Trust Company of New York, New York, New York, acting as Refunding Escrow Agent (the "Refunding Escrow Agent") under an Escrow Agréement, dated as of May 1, 1998, between the Authority and the Refunding Escrow Agent. (See "SOURCES AND USES OF FUNDS".) | , . Funds necessary to refund the Prior Bonds will be held under the Escrow Agreement as cash or applied to the purchase. of. the Escrow Obligations consisting of direct and general obligations of, or obligations which as . ‘to principal and interest are unconditionally guaranteed as to full and timely payment by, the United States of America, to the payment of which the full faith and credit of the United States of America are irrevocably and unconditionally pledged, and such other securities as are authorized for the defeasance of each respective series of Prior Bonds pursuant to the terms of each applicable Prior Indenture (the "Escrow Obligations"). Such Escrow Obligations are scheduled to mature at such times and in such amounts and bear interest at such rates so that sufficient money will be available to pay, when due, the principal of, redemption premium, if any, and interest on the Prior Bonds. The Authority expects to pay, upon the earlier of maturity or redemption, each Series of the Prior Bonds in the aggregate principal amounts as set forth below: Outstanding October 1 . Principal Redemption Series Amount Date Series 1989 $ 17,545,000 1999 Series 1991 20,885,000 2001 Series 1992 205,935,000 2002 Series 1993 9,235,000 2001 Series 1994 26,695,000 2004 Simultaneously with the transfer of the Series 1998 A Bonds and Series 1998 B Bond proceeds to the Refunding Escrow Agent, the pledge of any revenues and other moneys, securities, funds and property pledged to each Prior Indenture and all other rights granted thereby, including any Government Loan Notes delivered as security for the Prior Bonds, shall be released, discharged and satisfied. In accordance with the terms of each Prior Indenture, the deposit of such moneys with the Refunding Escrow Trustee and the investment thereof in Escrow Obligations, will serve to fully discharge and defease the liens of the Prior Indentures and, thereupon, there shall be paid over to the Trustee certain amounts held under each of the respective Prior Indentures. Upon such defeasance, the Prior Bonds will not be subject to redemption other than as described above. The mathematical accuracy of the computations of the maturing principal and interest rate on the Escrow Obligations to be purchased with the proceeds of the Refunding Bonds, together with any amounts currently held in the Prior Bonds debt service reserve funds under the Prior Indentures, and held pursuant to the Escrow Agreement to provide for the payment of the principal of, redemption premium, if any, and interest due and to become due on the Prior Bonds, will be independently verified by Causey, Demgen & Moore, Inc., independent certified public accountants. (See "VERIFICATIONS".) The Prior Bonds will be defeased pursuant to the terms of each respective Prior Indenture, and the holders of the Prior Bonds shall have no legal right to the Matching Fund Loan Notes pledged to the 1998 Bonds or the Matching Fund Revenues. (See "SECURITY FOR THE 1998 BONDS — Matching Fund Loan Notes".) Working Capital Financing Since Fiscal Year 1989, the Government has experienced substantial fluctuations in revenues and expenditures, resulting in both year end operating deficits and surpluses in the General Fund. (See Appendix F - United States Virgin Islands - Financial Position of the Government".) The operating deficits have had an adverse effect on the Government’s cash position. As of January 1, 1998, the Government had outstanding in excess of $40,000,000 of accounts payable to vendors and over $66,000,000 of income tax refunds due to citizens and businesses of the Virgin Islands totalling over $106,000,000. On February 10, 1998, the Government entered into a Loan Agreement, dated February 9, 1998, with Union Bank of Switzerland, New York Branch, Canadian Imperial Bank of Commerce, Inc. and Banco Popular (the "Interim Loan Agreement") to provide $106,845,000 of interim financing for the payment of a portion of the past due vendor payments and the income tax refunds referred to above. In anticipation of the issuance of the 1998 Bonds, the Government issued its note to secure the repayment of the Interim Loan Agreement (the "Revenue Anticipation Note"). ‘The Revenue Anticipation Note is due and payable on October 2,.1998, but under certain circumstances a portion of the loan may be converted to a term loan that is due and payable on October 2,'2003. The Authority intends to pay, on behalf of the Government, ‘the full principal balance and accrued interest due and payable on the Revenue Anticipation Note from the proceeds of the Series 1998 C Bonds and’ the Series 1998 D Bonds. .The Authority also intends to finance approximately $11,600,000 of additional working capital from the balance of the proceeds of the Series 1998 D Bonds. Capital Improvement Projects During the past ten years, the Government has expended approximately $145 million of bond proceeds for the construction of capital improvement projects throughout the Virgin Islands. These capital projects have included the construction and equipping of schools, emergency (and other) housing, the rehabilitation, refurbishing and equipping of hospitals and health centers, the renovation and construction of a pier, a criminal justice complex, solid waste land fills, and repair of other public buildings, among others. The Government intends to use a portion of the proceeds of the Series 1998 E Bonds, together with certain federal funds and other funds of the Government, to finance a portion of the following capital projects: Bond Federal Other Total Proceeds Funds Funding Cost School Construction $ $ - $ - $ 40,225,000 Peace Corps Elementary Schoo] 9,225,000 - - Lockhart Elementary School 10,500,000 - - Bertha C. Boschulte Junior High School 20,500,000 - - Waste Water Treatment Facilities 21,600,000 15,300,000 3,900,000 40,800,000 Correctional Facilities 24,375,000 - - 24,375,000 Hazard Mitigation 3,605,000 38,395,000 42,000,000 Flood Control (Savan Gut) 795,000 7,228,000 2,305,000 10,328,000 Government House Renovation 3,400,000 Q 8,600,000 12,000,000 Total $94,000,000 $60,923,000 $14,805,000 $169,728,000 © School Construction. The Department of Education of the United States Virgin Islands (the "Department”) has established educational goals for all schools, of which one major goal is "to upgrade and rehabilitate public school facilities in an effort to strengthen the physical plant and equip them with the necessary technological infrastructure”. The Peace Corps Elementary School, the Lockhart Elementary School and the Bertha C. Boschulte Junior High School all suffered severe structural damage in Hurricane Marilyn and Hurricane Bertha and are scheduled to be rebuilt in their entirety. The overall capital budget for rebuilding these schools is approximately $40,225,000. The Peace Corps Elementary School was established in 1973 to service children on the east end of St. Thomas. The new school will be built to accommodate a student body of 500 and will serve grades kindergarten through six and special education with a staff of 75. It has a gross square footage of approximately 54,770 and will provide 16 regular classrooms, 10 special education classrooms, and a multipurpose room which will accommodate the cafeteria and auditorium (the "cafetorium") and an administration building. The estimated cost of the new facility is approximately $9,225,000. Currently, students are accommodated in mobile units which were acquired shortly after Hurricane Marilyn. The Lockhart Elementary School, located in St. Thomas, has a student body of 800 and serves kindergarten through sixth grade, with a staff of 90. A new facility will have a gross square footage of approximately 62,210, provide 28 regular classrooms, four special education classrooms and a multipurpose room which will accommodate the cafeteria and auditorium (“cafetorium") and an administration building at a cost of approximately $10,500,000. © The student body at this school also is-currently being served out of temporary mobile classrooms which were acquired shortly after the hurricanes. , . The Bertha C. Boschulte Junior High School, located in: St. Thomas, services 800 students, grades six . through eight, with a staff of 130. The new school, approximately 120,587 gross square feet, will have 27 regular classrooms, eight special education classrooms, a cafeteria, a gymnasium and an 1000 seat auditorium in addition to laboratories and other support facilities. The budget for this new school is approximately $20,500,000. Waste Water Treatment. In September, 1995, the Government entered into an Amended Consent Decree with the United States Environmental Protection Agency (the "EPA") under which it is committed (i) to construct two regional waste water treatment facilities: the Mangrove Lagoon Regional Facility and outfall in St. Thomas and the Cruz Bay Regional Facility in St. John; (ii) to construct an outfall extension for the waste water treatment plant in St. Croix; (iii) to replace the Anguilla Force Main in St. Croix; and (iv) to implement plant-by-plant operational improvements and pump station rehabilitation throughout the Territory, including the replacement of equipment, repairs and maintenance at 37 waste water facilities. The Cruz Bay Regional Facility, will be funded in part by an EPA grant and will be available for competitive bidding in mid 1998. The Cruz Bay project is currently funded by a $5,300,000 EPA Grant. An additional $600,000 is required from proceeds of the Series 1998 E Bonds to meet the projected bid price requirements. The design of the Mangrove Lagoon Regional Facility is now complete and should be available for competitive bidding in the very near future. The cost of the project is estimated at approximately $26,000,000. Approximately $10,000,000 is available from an EPA grant and the remaining approximately $16,000,000 required to complete the construction is to be financed from proceeds of the 1998 Series E Bonds. The Anguilla Force Main is a 24-inch diameter, 13,500 linear foot long pipe that carries wastewater from the Figtree Pump Station towards the St. Croix Waste Water Treatment Plant. The existing force main has experienced failures since 1991 due to external corrosion. These failures have resulted in discharges of raw wastewater into adjacent ditches, which drain into the ocean. The Consent Decree with EPA requires that the Government replace the force main. The Authority allocated $1.9 million for this purpose in anticipation of a federal grant, which would complete total estimated costs, at that time, of $2,200,000. Requests for proposals for the design and construction of the replacement force main were recently advertised and the winning bid was $2,500,000 leaving a deficit of $600,000 above available funding, which will be covered by a portion of the proceeds of the Series 1998 E Bonds. The estimated cost of the pump station, wetwall upgrades, telemetry and waste water treatment plant rehabilitation. required by the consent decree is estimated at approximately $3,000,000. An additional $1,000,000 will be needed for cleaning the ponds and other miscellaneous improvements for a total cost of approximately $4,000,000. Two million dollars has been allocated by the Government from unexpended Prior Bond proceeds, leaving a deficit of approximately $2,000,000 to be funded from the proceeds of the Series 1998 E Bonds. An additional $2,400,000 is required for project management and inspection services, for a total requirement of approximately $21,600,000 from proceeds of the Series 1998 E Bonds. Correctional Facilities. The Government is under a consent decree with the United States Department of Justice to provide improved incarceration facilities for prisoners in the Territory. To comply with the terms of the consent decree, the Government has prepared a Request for Proposals to qualified offerors to develop, design and construct a new 400 bed adult prison and 150 bed jail facility to be located at Estate Adventure on the Island of St. Croix. It is anticipated that the cost of this facility will be approximately $24,375,000. Hazard Mitigation Projects. In addition to providing disaster relief funds in the form of grants, the Federal Emergency Management Assistance Agency ("FEMA") assists governmental entities in implementing long-term hazard mitigation measures following the declaration of a major disaster. Through its Hazard Mitigation Grant Program (the "HMG Program"), FEMA will fund from 50% to 90% of eligible project costs of previously identified Mitigation measures that benefit a declared disaster area. To take advantage of potential funding under the HMG Program, the Government has identified certain improvements. Through the HMG Program, FEMA is expected to fund up to 90% of the eligible costs of certain hazard mitigation capital projects estimated at approximately $42,000,000 with a Government contribution from certain proceeds of the Series 1998 E Bonds of approximately $3,605,000. All of the hazard mitigation projects to be funded in n part from proceeds of the Series 1998 E Bonds have a projected completion date of October 31, 1999., Flood Control (Savan Gut). Proceeds totalling $795, 000 of the Series 1998 E Bonds will be applied to the implementation of major long-term flood control measures in Savan Gut on the island of St. Thomas. The Savan Gut Flood Control Project is under the auspices of a Project Cooperation Agreement between the U.S. Army Corps of Engineers and the Government. The project entails the removal of existing bridges, relocation of utilities and the construction of upstream extensions and adequate flow-ways. Additionally, as a result of the flood control construction, a number of items will be removed and restored to adhere to historic preservation considerations. The estimated completion time for the Savan Gut Project is eighteen months from startup, which is scheduled for June 1998. The federal government has contributed $7,228,000 and the Government is providing $2,305,000 to complete the project. Government House Renovation. $3,4000,000 of the proceeds of the Series 1998 E Bonds will be applied to the payment of cost overruns on the renovation of office space housed within the historic Government House complex in Christiansted, St. Croix. Government House was built in 1747 and acquired by the Government in 1771 for use as the executive offices of the Danish government and has been used as government office space for the Government of the Virgin Islands for more than two centuries. . The Government has applied, and is intending to apply to the federal government for funding of certain additional capital projects. In the event the Government receives federal funding for capital improvements which have been approved for financing from proceeds of the Series 1998 E Bonds, the Government would reallocate such proceeds to other Approved Projects in accordance with the terms of the Indenture. SECURITY FOR THE 1998 BONDS General . , .-. , The 1998 Bonds are payable from and secured by a pledge of the Trust Estate which includes cértain funds established under the Indenture and the Matching Fund Loan Notes. Payment of the Subordinate Lien Bonds from the Trust Estate will be subordinate to the payment of the Senior Lien Bonds. The Matching Fund Loan Notes are special limited obligations of the Government and are secured solely by a pledge of the Matching Fund Revenues (as defined below). . Pursuant to the Indenture, the 1998 Bonds are secured by the Trust Estate which includes: (i) moneys deposited or required to be deposited in the Pledged Revenue Account, with respect to Senior Lien and Subordinate Lien Bonds, the Debt Service Accounts, and the Debt Service Reserve Accounts, including all right, title, and interest in and to the investments held in the respective Debt Service Accounts and Debt Service Reserve Accounts and any Credit Facility held in a Debt Service Reserve Account pursuant to the provisions of the Indenture; (ii) the Matching Fund Loan Notes, and the proceeds and collections therefrom, including all right, title and interest of the Authority in the Matching Fund Revenues; (iii) all right, title and interest of the Authority in the Loan Agreement; (iv) all right, title and interest of the Authority owned or hereafter acquired in and to proceeds from the sale of Bonds required to be deposited in the Construction Account pursuant to the provisions of the Indenture (except as limited below) and all right, title, and interest in and to the investments held in the Construction Account (except as limited in the Indenture) pursuant to the provisions of the Indenture and (v) any and all other property or security interest therein, of every name and nature from time to time hereafter by delivery or by writing of any kind granted, bargained, sold, conveyed, transferred, mortgaged, pledged and assigned as and for additional security under the Indenture. , THE 1998 BONDS ARE THE FIRST ISSUANCE OF BONDS UNDER THE INDENTURE. THE 1998 BONDS ARE LIMITED AND SPECIAL OBLIGATIONS OF THE AUTHORITY. PRINCIPAL, PREMIUM, IF ANY AND INTEREST ON THE 1998 BONDS ARE PAYABLE SOLELY FROM THE PROCEEDS OF REPAYMENT OF THE MATCHING FUND LOAN NOTES AND AMOUNTS PLEDGED PURSUANT TO THE INDENTURE AS DESCRIBED HEREIN. THE 1998 BONDS DO NOT CONSTITUTE A GENERAL OBLIGATION OF THE AUTHORITY, OF THE GOVERNMENT OR OF THE UNITED STATES OF AMERICA. THE AUTHORITY HAS NO TAXING POWER. THE MATCHING FUND REVENUES PLEDGED TO PAY DEBT SERVICE ON THE 1998 BONDS ARE DERIVED FROM THE MATCHING FUND LOAN NOTES WHICH ARE SPECIAL LIMITED OBLIGATIONS OF THE GOVERNMENT. THE MATCHING FUND LOAN NOTES ARE SECURED SOLELY BY A PLEDGE OF THE MATCHING FUND REVENUES. SUCH PLEDGE OF THE MATCHING FUND REVENUES TO THE MATCHING FUND LOAN NOTES IS SUBJECT TO A PRIOR PLEDGE TO SECURE CERTAIN EXISTING DEFEASED INDEBTEDNESS OF THE GOVERNMENT. THE MATCHING FUND LOAN NOTES DO NOT CONSTITUTE GENERAL OBLIGATIONS OF THE UNITED STATES OF AMERICA, NOR SHALL THE UNITED STATES OF AMERICA BE LIABLE THEREON. Matching Fund Loan Notes The 1998 Bonds will be secured by five special limited obligation Matching Fund Loan Notes (one for each Series of 1998 Bonds) issued by the Government pursuant to the Loan Agreement. The Government will be obligated under the Matching Fund Loan Notes to make payments to the Authority in amounts sufficient to pay all principal, premium, if any, and interest on the 1998 Bonds when due and to make the amount on deposit in the respective Debt Service Reserve Account equal to the applicable Debt Service Reserve Requirement pursuant to the terms of the Indenture. Pursuant to the terms of the Loan Agreement, the Government has authorized the issuance of the Matching Fund Loan Notes as security for the 1998 Bonds. The Matching Fund Loan Notes have been issued in anticipation of the receipt of the Matching Fund Revenues over the full term of the Matching Fund Loan Notes, which Matching Fund Revenues are anticipated to be in excess of the amount necessary to pay all the principal of, premium, if any, and interest on, the 1998 Bonds. However, no assurances can be given as to the sufficiency of . Matching Fund Revenues for such purpose. (See "MATCHING FUND REVENUES".) The Government, the Authority and United States Trust Company of New York, as Special Escrow Agent, have entered into a Special Escrow Agreement dated as of May 1, 1998 (the “Special Escrow Agreement") which provides for payment of all ‘Debt Service payments on the 1998 Bonds in the next Fiscal Year, and the funding of any deficiency in the Debt Service Reserve Accounts. prior to transfer of any excess Matching Fund Revenues to the Government for other uses. : The pledge of the Matching Fund Revenues by the Government under the Matching Fund Loan Notes is subordinate to a prior pledge of the Matching Fund Revenues which the Government has made in connection with its 1977 General Obligation Matching Fund Bonds and its 1978 General Obligation Matching Fund Bonds (collectively, the "Defeased Bonds") which were economically defeased with the proceeds of the Authority’s Revenue Bonds (Virgin Islands General Obligation/Matching Fund Loan Note) Series 1989A, but continue to hold a prior pledge of Matching Fund Revenues. The Defeased Bonds include an $11,873,000 final maturity of January 2, 2007 and a $5,945,000 final maturity of July 1, 2008. The Defeased Bonds are secured by an irrevocable escrow (currently invested in United States government obligations). In connection with the issuance of the Authority’s Series 1989A Bonds, Ernst & Young L.L.P. delivered its report verifying the sufficiency of the escrow to satisfy the debt service obligation of the Defeased Bonds. Due to the existence of the irrevocable escrow for the Defeased Bonds, it is not expected that Matching Fund Revenues will be required to pay any debt service on the Defeased Bonds. Loan Agreement Under the Loan Agreement, the Authority shall lend to the Government the sum of $541,820,000 as a loan which shall be evidenced collectively by the Matching Fund Loan Notes. The Government shall repay to the Authority, pursuant to the respective Matching Fund Loan Notes, in annual installments at a principal maturity schedule corresponding to each of the respective Series of 1998 Bonds. The Loan Notes shall bear interest from the issue date payable annually immediately upon receipt of the Matching Fund Revenues from the Special Escrow Agent, but in no event later than the second Business Day preceding October 1 of each year, commencing the second Business Day next preceding October 1, 1998, and ending on the second Business Day next preceding the respective final maturity of the Matching Fund Loan Notes. Each Matching Fund Loan Note may, at the option of the Government be redeemed, in whole or in part, prior to its maturity at the times, in the manner of and of the same maturities as an optional redemption of the Authority’s respective Series of Bonds and at a redemption price equal to the respective Series of Bonds, pursuant to the terms of the Indenture. The Government has covenanted in the Loan Agreement, among other things, to take all actions necessary to preserve, protect and enhance the pledge of Matching Fund Revenues and to request that the United States deliver and take all steps necessary to ensure the receipt of and the maximization of the Matching Fund Revenues to be received pursuant to Section 28(b) of the Revised Organic Act. The Government has further covenanted not to take any action or fail to take any actions that would in any way impair the Government’s right to receive the maximum amount of Matching Fund Revenues to which it may be entitled. In the event that the federal government discontinues the payment of Matching Fund Revenues to the Government and substitutes another stream of revenues in lieu thereof (the "Substitute Revenues"), the Government covenants to use its best efforts to pledge such Substitute Revenues to repayment of the Matching Fund Loan Notes. The Government also has covenanted to include in each annual operating budget of the Government submitted to the Legislature an appropriation for the molasses subsidy and to use its best efforts to ensure appropriation by the Legislature of an amount sufficient to satisfy the rum producers’ projected subsidy requirement for each Fiscal Year. (See "THE RUM INDUSTRY".) The Authority also has covenanted in the Loan Agreement to use its best efforts to cause the Government to comply with the terms and the covenants set forth in the Loan Agreement. Flow of Funds The Indenture provides that all Matching Fund Revenues received by the Trustee from the Special Escrow Agent and any such other revenues as may be received by the Trustee shall be deposited, upon receipt by the Trustee, to the credit of the Pledged Revenue Account, which is an account held by the Trustee. Amounts in the 10 Pledged Revenue Account shall be transferred annually not later than the Business Day immediately preceding the first day of each Bond Year by the Trustee, in the following amounts-and in. the following order of priority: (a) to each Senior Lien Interest Subaccount for (1) any Senior Lier’ Bonds which are Fixed Interest Rate Bonds and (2) for any Senior Lien Bonds which are not Fixed Interest Rate Bonds, an amount that . when added to any amounts on deposit in such Subaccount, will equal 100% of the interest accruing or to. . accrue with respect to all Interest Payment Periods that commence during the current Bond Year for such Bonds, subject in each case to any credit as contemplated in any applicable Supplemental Indenture; (b) to each Senior Lien Principal Subaccount, an amount that, when added to any amounts on deposit in such Subaccount, will equal 100% of the principal due on the next succeeding Principal Payment Date; (c) to each Senior Lien Credit Subaccount, an amount sufficient to pay any principal and interest then owing to a Credit Provider under the applicable Supplemental Indenture and Credit Agreement by reason of any drawing of amounts under the related Credit Facility for the payment of principal of or interest or premium on any Senior Lien Bonds subject to any required transfer, under other provisions of the Indenture or a Supplemental Indenture; (d) to each Senior Lien Redemption Subaccount, the amount of Revenues required to redeem Senior Lien Bonds subject to redemption pursuant to the related Supplemental Indenture; . (e) to the Senior Lien Debt Service Reserve Account, and ratably to each subaccount therein (if applicable), the amount of any transfer required by the Indenture to restore any deficiency in the Senior Lien Debt Service Reserve Account and any Subaccount therein (or to pay any amounts there owing to a Credit Provider pursuant to a Credit Agreement relating to a Senior Lien Debt Service Reserve Account Credit Facility); N (f) to each Senior Lien Expense Subaccount, any amounts then due and owing to the Trustee, any Paying Agent, Bond Registrar, Credit Provider, the Special Escrow Agent, or other Fiduciary which are Bond Service Charges or Bond Related Costs for Senior Lien Bonds, and the Authority’s Annual Administrative Fee, which otherwise have not been provided for above; (g) to each Rebate Account for Senior Lien Bonds; (h) to each Subordinate Lien Interest Subaccount for (1) any Subordinate Lien Bonds which are Fixed Interest Rate Bonds and (2) for any Subordinate Lien Bonds which are not Fixed Interest Rate Bonds (beginning in the first month of each Bond Year for Subordinate Lien Bonds which are not Fixed Rate Bonds) an amount that when added to any amounts on deposit in such Subaccount, will equal 100% of that portion of the interest accruing or to accrue with respect to all Interest Payment Periods that commence during the current Bond Year for such Bonds, subject in each case to any credit; (i) to each Subordinate Lien Principal Subaccount, an amount that, when added to any amounts on deposit in such Subaccount will equal 100% of the principal due on the next succeeding Principal Payment Date; : (j) to each Subordinate Lien Credit Subaccount, an amount sufficient to pay any principal and interest then owing to a Credit Provider under the applicable Supplemental Indenture and Credit Agreement by reason of any drawing of amounts under the related Credit Facility for the payment of principal of or interest or premium on any Subordinate Lien Bonds provided, that the amounts of the transfers shall be reduced to the extent of moneys previously transferred or required to be transferred to said Accounts under other provisions of the Indenture or a Supplemental Indenture; (k) to each Subordinate Lien Redemption Subaccount, the amount of Revenues required to redeem Subordinate Lien Bonds subject to redemption pursuant to the related Supplemental Indenture; 11 (L) to each Subordinate Lien Debt Service Reserve Account, and ratably to each Subaccount therein (if applicable), the amount of any transfer required by the Indenture to restore any deficiency in the Subordinate Lien Debt Service Reserve Account and any Subaccount therein (or to pay any amounts then owing to a Credit Provider pursuant to a Credit Agreement relating to a Subordinate Lien Debt Service Reserve Account Credit Facility); - (m) to each Subordinate Lien Expense Subaccount, any amounts then due and owing to the Trustee, any Paying Agent, Bond Registrar, Credit Provider, Special Escrow Agent or other Fiduciary which are Bond Service Charges or Bond Related Costs for Subordinate Lien Bonds and the Authority’s Annual Administrative Fee which otherwise have not been provided for above; (n) to each Rebate Account for Subordinate Lien Bonds; (0) except as may be provided in one or more Supplemental Indentures to the contrary, to the Surplus Account for application pursuant to the Indenture. Debt Service Reserve Accounts The Senior Lien Debt Service Reserve Account and the Subordinate Lien Debt Service Reserve Account established under the Indenture are referred to collectively as the Debt Service Reserve Accounts. The Trustee shall initially fund each Debt Service Reserve Account, as applicable, through a deposit to the credit of the respective Account from the proceeds of each Series of Bonds in an amount equal to the applicable Debt Service Reserve Requirement (if any) established in the Supplemental Indenture or, in lieu thereof, the Authority may cause a Debt Service Reserve Account Credit Facility to be delivered to the Trustee for such purpose. A valuation of each Debt Service Reserve Account shall be made on September 1 in each year pursuant to the Indenture. In the event the amount on deposit in such respective Debt Service Reserve Account is less than the applicable Debt Service Reserve Requirement because of any valuation of the investment securities or due to a payment made from such Account to cure an insufficiency of funds on any Interest Payment Date or Principal Payment Date, the Authority shall be required to restore the deficiency caused thereby by transfers of Revenues as described below. The Trustee shall notify the Authority and the Special Escrow Agent of the amount, if any, of the deficiency or excess in each Debt Service Reserve Account. No later than the second Business Day preceding the first day of the next Bond Year (which is defined in the Indenture as the Fiscal Year) (after the transfers, if any, to the Debt Service Account pursuant to the Indenture), the Authority shall transfer or provide for the transfer to the Trustee for deposit in each respective Debt Service Reserve Account, an amount not exceeding the aggregate amount necessary, together with the amounts already on deposit in each Debt Service Reserve Account to make the amounts on deposit in such Debt Service Reserve Account equal to the applicable Debt Service Reserve Requirement, from Matching Fund Revenues then on deposit in the Special Escrow Fund established under the Special Escrow Agreement (but only to the extent not required to pay principal of and interest on any Defeased Bonds) with respect to the Senior Lien Debt Service Reserve Account and the Subordinate Lien Debt Service Reserve Account, respectively. The Trustee shall send written direction to the Special Escrow Agent (with a copy to the Authority) to transfer such amount, to the extent available after transfer pursuant to the Indenture, from the Special Escrow Fund established under the Special Escrow Agreement. Pursuant to the terms of the First Supplemental Indenture of Trust, dated as of May 1, 1998, the Debt Service Reserve Requirement with respect to Senior Lien Bonds and Subordinate Lien Bonds, respectively, shall mean an amount equal to the least of (i) the maximum principal and interest due on the Senior Lien Bonds and the Subordinate Lien Bonds in the current or any future Fiscal Year, (ii) 10% of the original stated principal amount of the Senior Lien Bonds and the Subordinate Lien Bonds (or 10% of the issue price of the Senior Lien Bonds or the Subordinate Lien Bonds if required by the Code), or (iii) 125% of the average annual principal and interest due on the Senior Lien Bonds and on the Subordinate Lien Bonds in the current and each future Fiscal Year, as specified in the Indenture and the First Supplemental Indenture. 12 Additional Bonds ‘All of the Bonds issued under a Supplemental Indenture ‘shall collectively be a. charge and lien upon the Trust Estate as provided in the Indenture and such charge and lien shall-be prior to any other charge and lien upon . " the Trust Estate. Except as permitted in the Indenture, no obligations payable from Revenues or secured by a lien on the Trust Estate (except as to any Credit Facility or Liquidity Facility which secures Bonds or a specific Series of Bonds) shall be hereafter issued. So long as no Event of Default has occurred and is continuing, the Authority may from time to time enter into a Supplemental Indenture providing for the issuance of Additional Bonds pursuant to the Indenture. Additional Senior Lien Bonds may be issued if the conditions set forth in the Indenture are met, including that (i) the average Matching Fund Revenues received by the Government for the immediately preceding three Fiscal Years prior to the issuance of such Additional Senior.Lien Bonds equaled or exceeded 150% of the amount of maximum annual Adjusted Debt Service Requirement (including such proposed Additional Bonds) in the current or any subsequent Bond Year, (ii) the average Matching Fund Revenues projected to be received by the Government in the next succeeding two Fiscal Years following the issuance of the Additional Bonds is projected to equal or exceed 150% of the Adjusted Debt Service Requirement in the current or any subsequent Bond Year on Outstanding Senior Lien Bonds and such additional Senior Lien Bonds and (iii) the average Matching Fund Revenues received in the three Fiscal Years prior to the issuance of such Additional Bonds equaled or exceeded 110% of the Adjusted Debt Service Requirement (including such proposed Additional Bonds), and the average Matching Fund Revenues projected to be received by the Government for the next succeeding two Fiscal Years following the issuance of the additional Senior Lien Bonds is projected to equal or exceed 110% of the Adjusted Debt Service Requirement in the current or any subsequent Bond Year on Outstanding Senior Lien Bonds, such Additional Senior Lien Bonds and Outstanding Subordinate Lien Bonds. Additional Subordinate Lien Bonds may be issued if the conditions set forth in the Indenture are met, including that (i) the average Matching Fund Revenues received by the Government for the immediately preceding three Fiscal Years available after payment of Debt Service on Outstanding Senior Lien Bonds and any Senior Lien Bonds to be issued simultaneously with such additional Subordinate Lien Bonds (the "Available Matching Fund Revenues") equaled or exceeded 125% of the amount of maximum Adjusted Debt Service Requirement in the current or any subsequent Bond Year; (ii) the average Available Matching Fund Revenues projected to be received by the Government in the next succeeding two Fiscal Years following the issuance of the additional Subordinate Lien Bonds is projected to equal or exceed 125% of the Adjusted Debt Service Requirement in the current or any subsequent Bond Year on Outstanding Subordinate Lien Bonds and such additional Subordinate Lien Bonds; and (iii) the average Matching Fund Revenues received in the three Fiscal Years prior to the issuance of such Additional Bonds equaled or exceeded 110% of the Adjusted Debt Service Requirement (including such proposed Additional Bonds), and the average Matching Fund Revenues projected to be received by the Government for the next succeeding two Fiscal Years following issuance of the additional Subordinate Lien Bonds is projected to equal or exceed 110% of the Adjusted Debt Service Requirement in the current or any subsequent Bond Year on Outstanding Subordinate Lien Bonds, such additional Subordinate Lien Bonds and Outstanding Senior Lien Bonds. Such Additional Bonds may be for any purpose for which bonds or other obligations may be now or hereafter issued under the Act or as otherwise permitted under the laws of the Virgin Islands. Any such Additional Bonds may bear interest at any rate lawful at the time of the issuance thereof and may mature over any period of time not exceeding the maximum maturity permitted by law and may provide for such other payment terms and conditions as the Authority shall determine in a Supplemental Indenture. It is understood and agreed that any Additional Bonds shall be given a designation by year, alphabetical letter or other identifying language or symbol differentiating such Additional Bonds from other bonds then Outstanding as provided in the Supplemental Indenture authorizing the issuance thereof. The Authority has the right to issue other bonds, notes or other evidences of indebtedness that are not secured by the Indenture and are not secured by a pledge of Matching Fund Revenues. 13 THE 1998 BONDS General _ The 1998. Bonds will be dated May 1, 1998, and will bear interest at the rates and will mature on the dates set forth on the inside cover of this Official Statement: Interest on the 1998 Bonds will be payable on April 1 and October 1, commencing on October 1, 1998. The 1998 Bonds are subject to redemption at the times and in the manner set forth below in "THE 1998 BONDS - Redemption". Pursuant to the Indenture, the Authority has appointed the Trustee as the Paying Agent and Registrar. Interest on the 1998 Bonds shall be calculated on the basis of a 360-day year consisting of twelve 30-day months and will be payable to Cede & Co., or such other owner of record as shown in the registration books of the Authority maintained by the Paying Agent as Registrar. The 1998 Bonds will be available initially in minimum denominations of $5,000 and integral multiples of $5,000 in excess thereof, in book-entry only form as described below. Authorization and Purpose The 1998 Bonds will be issued pursuant to and secured by the Indenture and pursuant to United States Virgin Islands law. Proceeds of the 1998 Bonds will be used to (i) advance refund the outstanding Prior Bonds, (ii) repay the Revenue Anticipation Note, (iii) finance the payment of various capital projects, (iv) fund the Series Debt Service Reserve Accounts, and (v) pay certain costs of issuance of the 1998 Bonds. Senior/Subordinate Lien Structure Payment from the Trust Estate of the Subordinate Lien Bonds will be subordinate to the payment from the Trust Estate of the Senior Lien Bonds. The failure to pay interest, principal or the Redemption Price on the Senior Lien Bonds, shall constitute a cross default on the Subordinate Lien Bonds. The failure to pay interest, principal or the Redemption Price on the Subordinate Lien Bonds, however, shall not constitute an Event of Default on the Senior Lien Bonds. In no event shall an Event of Default on any 1998 Bonds, as defined in the Indenture, result in the acceleration of the Senior Lien Bonds or the Subordinate Lien Bonds. Book-Entry-Only System The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the 1998 Bonds. The 1998 Bonds will be issued as fully-registered securities in the name of Cede & Co. (DTC’s partnership nominee). One fully-registered 1998 Bond certificate will be issued for each series and maturity of the 1998 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC is a limited-purpose trust company organized under 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 New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds securities that its participants ("Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions such as transfers and pledges, in deposited securities through electronic computerized book- entry changes in Participants’ accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations ("Direct Participants"). DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system also is available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. 14 Purchases of 1998 Bonds under the DTC system must be made by or through Direct Participants, who will receive a credit for the 1998 Bonds on DTC’s records. The ownership interest of each actual purchaser of each "* 1908 Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are - expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. - Transfers of ownership interests in the 1998 Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in 1998 Bonds, except in the event that use of the book-entry system for the 1998 Bonds is discontinued. To facilitate subsequent transfers, all 1998 Bonds deposited by Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. The deposit of 1998 Bonds with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 1998 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such 1998 Bonds are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Notwithstanding any other provision herein to the contrary, the Authority and the Trustee may agree to allow DTC or its nominee to make a notation on any Bond redeemed in part to reflect, for informational purposes only, the principal amount and date of any such redemption. Notwithstanding any other provision to the contrary, so long as any Bond of a Series is registered in the name of DTC or its nominee, all payments with respect to the principal or redemption price of, and interest on, such Bond and all notices with respect to such Bond shall be made and given, respectively, to DTC or its nominee. In connection with any notice or other communication to be provided to Owners by the Authority, any agent thereof or the Trustee with respect to any consent or other action to be taken by Owners, the Authority, any agent thereof or the Trustee, as the case may be, shall establish a record date for such consent or other action and shall give DTC notice of such record date not less than 15 calendar days in advance of such record date to the extent possible. Neither DTC nor Cede & Co. will consent or vote with respect to 1998 Bonds. Under its usual procedures, DTC mails an omnibus proxy (the "Omnibus Proxy") to the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the 1998 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the 1998 Bonds will be made to DTC. DTC’s practice is to credit Direct Participants’ accounts on the payment date in accordance with their respective holdings shown on DTC’s records unless DTC has reason to believe that it will not receive payment on the payment date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name", and will be the responsibility of such Participant and not of DTC, the Trustee or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. With respect to Bonds registered in the name of DTC, the Authority, the Trustee and any agent thereof shall have no responsibility or obligation. to any Direct Participant or to any Beneficial Owner of such Bonds. Without limiting the immediately preceding sentence, the Authority, the Trustee and any agent thereof shall have no responsibility or obligation with respect to (i) the accuracy of the records of a Depository, its nominee, or any Direct Participant with respect to any beneficial ownership interest in the Bonds, (ii) the delivery to any Direct Participant, Beneficial Owner or other person, other than the Depository, of any notice with respect to the Bonds, including any notice or redemption, (iii) the payment to any Direct Participant, Beneficial Owner or other person, 15 other than DTC, of any amount with respect to the principal or redemption price of, or any interest on, the Bonds or (iv) any consent given or other action taken by DTC. The Authority, the Trustee and any agent thereof may treat DTC as,'and deem the Depository to be, the absolute owner of each Bond for all purposes whatsoever incliding: (but not limited to) (1) payment of the principal or redemption price of, and interest on, each such Bonds, (2) giving notices of purchase or redemption and other. matters with each such Bond, and (3) registering transfers with respect ‘to such Bonds. The Trustee shall pay the principal or redemption price of, and interest on, all Bonds registered in the name of DTC or its nominee only to or upon the order of DTC, and all such payments shall be valid and effective to fully satisfy and discharge the Authority’s obligations with respect to such principal or redemption price, and interest, to the extent of the sum or sums so paid. No person other than DTC shall receive a Bond of a Series evidencing the obligation of the Authority to make payments of principal or redemption price, and interest on, the Bonds of such Series registered in the name of a Depository to the Trustee of Written Order to the effect that DTC has determined to substitute a new nominee, and subject to the transfer provisions hereof, any references to the prior nominee contained herein or in a Supplemental Indenture shall refer to such new nominee. DTC may determine to discontinue providing its services with respect to the Bonds of a Series at any time by giving reasonable written notice to the Authority, the Trustee and any tender agent for a Series of Bonds and discharging its responsibilities with respect thereto under applicable law. The Authority, in its sole discretion and without the consent of any other Person, may terminate, upon provision of notice to the Trustee and any tender agent for a Series of Bonds, the services of the DTC with respect to a Series of Bonds if the Authority determines that the continuation of the system of book entry-only transfers through the DTC (or a successor securities depository) is not in the best interest of the Owners of the Bonds of the Series or is burdensome to the Authority. Upon the termination of the services of DTC with respect to a Bond or upon the termination of the services of DTC with respect to the Bond of a Series, the Authority in its sole discretion may select a new Depository or determine that the Bonds of such Series shall no longer be restricted to being registered in the Bond Register in the name of DTC or its nominee. If the Authority determines to discontinue the services of a Depository, the Authority shall issue and the Trustee shall transfer and exchange Bond certificates for such Series as requested by the DTC or Direct Participants of like principal amount, series and maturity, in authorized denominations to the identifiable Beneficial Owners of the Bonds in replacement of such Beneficial Owners’ beneficial interests in the Bonds. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the Authority believes to be reliable, but the Authority assumes no responsibility for the accuracy thereof. NEITHER THE AUTHORITY NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO SUCH DTC PARTICIPANTS, INDIRECT PARTICIPANTS, OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT TO THE PAYMENTS TO OR THE PROVIDING OF NOTICE FOR THE DTC PARTICIPANTS, THE INDIRECT PARTICIPANTS, OR THE BENEFICIAL OWNERS. PAYMENTS MADE TO DTC OR ITS NOMINEE SHALL SATISFY THE AUTHORITY’S OBLIGATION UNDER THE ACT AND THE INDENTURE TO THE EXTENT OF SUCH PAYMENTS. Redemption Optional Redemption - Series 1998 A Bonds The Series 1998 A Bonds are not subject to optional redemption prior to October 1, 2008. The Series 1998 A Bonds maturing after October 1, 2008 shall be subject to redemption at the option of the Authority prior to their stated maturity, on or after October 1, 2008, in whole or in part, at any time in such order of maturity as the Authority shall determine, and otherwise by lot within a maturity, from any funds available therefor, at the respective redemption prices (expressed as a percentage of the principal amount redeemed) set forth in the table below, together with the interest accrued on the principal amount redeemed to the date fixed for redemption: 16 Redemption Period (both dates inclusive) - ; . Redemption Price . October 1, 2008 through September 30, 2009 -- 101% October 1, 2009 through. September 30,-2010 - re 100% October 1, 2010 and thereafter 100 Optional Redemption - Series 1998 E Bonds The Series 1998 E Bonds are not subject to optional redemption prior to October 1, 2008. The Series 1998 E Bonds maturing after October 1, 2008 shall be subject to redemption at the option of the Authority prior to their stated maturity, on or after October 1, 2008, in whole or in part, at any time in such order of maturity as the Authority shall determine, and otherwise by lot within a maturity, from any funds available therefor, at the redemption prices (expressed as a percentage of the principal amount redeemed) set forth in the table below, together with the interest accrued on the principal amount redeemed to the date fixed for redemption: Redemption Period (both dates inclusive) Redemption Price October 1, 2008 through September 30, 2009 101% October 1, 2009 through September 30, 2010 100% October 1, 2010 and thereafter 100 No Optional Redemption - Series 1998 B Bonds, Series 1998 C Bonds and Series 1998 D Bonds The Series 1998 B Bonds, Series 1998 C Bonds and the Series 1998 D Bonds are not subject to optional redemption. Mandatory Sinking Fund Installment Redemption The Series 1998 A Term Bonds and the 1998 Series E Term Bonds are subject to redemption in part on each October 1, by operation of mandatory Sinking Fund Installment requirements, required: by the Indenture to be on deposit on October 1 in the years and the amounts set forth below, at a redemption price equal to the principal amount thereof, together with the interest accrued thereon to the date fixed for redemption: 17 fom] cw 4 oO S8 =) = mane x SE2 wn 00 Sos “~ BS lo) QQ Oo ooo 38 Vala all ayy wn wo wi A 69 Om Oo n Qoooo oo a=) BS wt Oo Manono am mo aon WMO OD 6 — — S88 vwunaw ™ Ow Ona shan = BI 2338 ounwn TN oN S NAN S ANNs oo Ono Ost H =—N MH Non “AQ mtn _ a MAANOMANOAANMTN OD “4 a | gaaaa SSs888 Soo oa oOo ooo oo ANAAAN S83qg > NANANANNANAANAN 18 Purchase of the 1998 Bonds Pursuant to the Indenture, the Trustee may purchase the 1998 Bonds on the open market whenever a redemption would otherwise occur, at the direction of the Authority, at such price not to exceed the principal of, and redemption premium, if any,-on the 1998-Bonds which would be payable on the next redemption date. Selection; Notice of Redemption In the event of any redemption of less than all of any Series 1998 Bonds, portions of the 1998 Bonds of such Series and maturity to be redeemed will be selected at random by the Trustee in such manner as the Trustee in its discretion may deem fair and appropriate; provided, however, that the portion of any of the 1998 Bonds of a denomination greater than $5,000 to be redeemed shall be in the principal amount of $5,000, or an integral multiple of $5,000 in excess thereof. In selecting portions of such Bonds for redemption, the Trustee shall treat each such Bond as representing that number of Bonds of $5,000 denomination which is obtained by dividing the principal amount of such Bond to be redeemed in part by $5,000; provided, however, notwithstanding the foregoing, the Trustee shall revise the Bonds or portions thereof to be redeemed as determined by the foregoing, in any manner deemed by the Trustee in its sole judgment to be fair and reasonable, so that no Bond Outstanding following any redemption shall be in a principal amount less than an authorized denomination therefor. Notice of any such redemption will be mailed by the Trustee not more than 60 nor less than 30 days prior to the date fixed for the redemption thereof, to each registered holder of the 1998 Bonds selected for redemption. The Authority, so long as a book-entry method is used for the 1998 Bonds, will send any such notice of redemption only to DTC. 19 O9L'7tr'o * 6SE'LPS‘8Z LOC'ILL'E 908'Cr8'0Z pp?'L90'Or 766'709'BE 90P'BLL'6E IPL'OP6'6E 871'LS6'6€ 166°€96'6E 17L'890'Or 910'906'6C' ¢L8'L90'Or 990'990'0r €06'L90'0P 1S€°690'0r 601'L90'OP OS7'7h6'6E £99'8S0'OP- 8e8'SSO'Or S7I'8S0'Op £9€'8S0'Or ¢20'290'Or- Clr‘ 6r0'Or CI9'€SO'Or, ZEP'SSO'OP 10r'6S0'0r SSp'G9E'DES | ZISTATIS G0 [BIOL - ae) 0 0 OOP’ Sr ost'O138 OS9'L8E'I 000'€76'I 609'09¢'7 vE0'L96'T “6ST SpP'E LOE'668'E 726'S7E'P 900'r2L'P 002'00I'S 90r'SSr'S SLL'O6L'S €1e'LO1'9 186'092'9 - 186'097'9 186'092'9 186'097'9 186'092'9 186'097@'9 186'09¢'9 186'092'9 186'092'9 186'097'9 EE7'GEL'SS sory 0 0 0 000'081'8 000'SP9'0T 000'S09'8 ° 000'0r2'6 000'S98'8 000'SLE'S 000'S06'L OO0'SSS'L 000'S96'9 000°0EL'9 o00'sse'9 000°000'9 000'S99's 000'SrE'S qooo0oo0oocoooqoc]e $ Jedrouitg a 8661 Sefzag 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Osr'Lrl 000'¢ 16'p OOr'LEP 000'0SL'p 000'r IL 000‘0Lb'y 00r'bL6 000'0I2'r 0s9'612'I 000°¢96'e 88S'IPr'l 0O0'SPL'E SZ6'1b9'l 000'0rS'E Bes LES] 000'SSE'E ELMTIO'% QOO'SLI'E £90'I81'Z 000'S00'E gso'so'7s$ OS STOUT Tedtourrg Cl 8661 S810§ syUaWaTM bay 991.198 1qaq [2}JOL 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 EIS'trE 000'SSP‘Z1 ¢46'300'! 000'082'TI Oss'6£9'1 000'OST'IT 8EP'9E7'T o00'sss'ol Str‘ 108'% 000'066'6 OST‘EI€'€ 000'08r'6 S@S'PIL'E o00'sis'9 S7S'600'F 000'S7z's OS1'6EC'P 000'096'E OSI'SEE'p 0 8EO'OL6'ES OS D 8661 Sertag ocscoocooocococoooococoocoooooooo ocooocoocooocoocoooocoocooooeoeo°oo 9L9'¢8 000'0Ir'Z E9b'SBC 000'S97'E Z88'LES 000‘0S0'r 106'L26 000'SZS'L ZOO'OIE'IS O0O'SOL'8$ TSIO}O] Tedrourtg @ 866T Settag Stupunvs of anp ppv jou At » 99L'LST 000'S91'6 6SE'787 I 000's9z'Lz L67'960'% —-000'SL9'I 90r'8Ir'% 000'000°01 POO'LSE'E 00'SZz7'Sz PrE'LEL'p 00'S L8'EZ 90r'S10°9 — 000'009'7Z IEI'SZ7'L =: OOO'06E' IZ PGO'OLE'S — 000'S#2'07 eL'eSp’6 00009161 PrE'6LP'O] O00'SEI'SI P60'OSr'IT O00'sor‘LI 698'R9E'Z1 000'Sr7'91 998'0EZ'EI O00‘08E'SI 96r'ZEO'PT 000°08S'rI OLS'SLL'pI COO'SER'EI 96L'6LP'ST O00'SEIEI SOE'IZ8‘SI 0 SOE'I78'ST 0 Q0E'1Z8'ST 0 90E'TZ8'SI 0 90c'IZ9'SI 0 9o0e'1za'st 0 g0€'1z3'SI 0 90c'1za'ST 0 goc'Izs'sl 0 QOc'IzB'ST 0 POB'ZOS' PIS OF TSorOTUT Tedrsung V 8661 Salles 9707 TAU v70z £707 tt0@ 1207 0707 6107 8107 L107 9102 ¢10@ #102 £10@ 7107 1102 0102 8007 L007 9007 S007 007 £002 7007 1007 0007 6661 Jest 20 Z19‘LI9'SOI$ 808‘ 1P0‘Or$ ESL‘O8L'78$ LE9‘909‘87$ 19p'11Z'80E$ Sas] [BIOL 16€°790'1 LOS ECE ¢¥9'999 Z9OP'SIZ BPO LZL'T wUNOdISIC, $.JOIMIOpUp) / VdUeNSs] JO s}SOD 160'97Z Srl‘ 19 6co9‘9ST pLb't9 SE ILS jUNODDY SdIAIES 1qG9q 0} jIsodeq 000°SZE'Ol OOO‘ T6I‘T 0 00S ‘T09‘7 000‘LTI'9z WUNOIY DAlVsay IOIAJag Jqaq 0} Wsodeq Of ‘P00'b6 0 ; 0) 0 0 yuNODDY UOTONIISUOD 0} ysodoq 0 , SOT LIO'TI 0 ) 0 junosoy JeldeD suryJoAA 0} 1sodaq 0 1€Z‘878 ‘97 ESp'LS6‘18 0 0 ajON UOHedionuy enueragy Aeq 0} jIsodaq o¢ o¢ o¢ 10@' PZL'S7$ 88 S6L'8LT$ spun MorOsY 0} syisodaq SGNQ4 40 Sasn ZIO'LIO'SOI$ 808‘ 1 P0‘Or$ ESL'OSL*78$ L€9‘909'87$ 19P'T1Z'80e$ S9OINOG [BIOL 160°97Z SPL'I8 SS9'9ST PLy'zZ9 S7EILS ysalaju] pomooy 0 0 0 £91 ‘67S ‘Z TE‘ LOE TZ SJUNODDY BO1AIOG 1G9q PUP SoATOSAY Bd1AIIG hos 199d spuog IOI wold} pasea]oy JUNOUIY (6Lb'8E0'1) £90'0E8 L60'PS¥'I 0 (981'Z€8'7) (quNOdsIq| anss] [eUIdIO) / WntWaIg 000'DEr'90T$ 000‘0ET '6E$ 000'OLT‘18$ 000'ST0'97$ 000°SL0'687$ wnowy Jeg 21 SGNNW fO SHDUNOS aH 8661 SoLtog C8667 S818§ O 8661 Seles WT 8661 Seltas V 8667 Seog SQNN4 40 SASN ONY SHOUNOS MATCHING FUND REVENUES General ; ; The Secretary of the United States Department of the Treasury (the "Secretary of the.Treasury") is directed to ~ ’ make certain transfers to'the Government of certain excise taxes imposed.and collected under the Code in any Fiscal Year on certain products produced in the Virgin Islands and exported to the United States mainland from the Virgin Islands. Rum is the principal article presently produced in the Virgin Islands and exported to the United States which is subject to federal excise tax that qualifies for transfer to the Government under the applicable provisions of the Revised Organic Act, as amended, and the Code. (See "THE RUM INDUSTRY".) In order to encourage the Virgin Islands to raise local revenues, the amount required to be remitted to the Government by the Secretary of the Treasury pursuant to the applicable excise tax transfer provisions is limited to an amount no greater than the total amount of local duties, taxes and fees collected by the Government in the applicable Fiscal Year. The term "Matching Fund Revenues" is used to denote these payments. Such revenue collections by the Government have always substantially exceeded federal excise tax collections and the Government has been the recipient of the full amount of such excise tax collections permitted under Section 28(b) of the Revised Organic Act, as amended, Section 7652 of the Code and 48 U.S.C.A. §1645. In 1976, Section 1574a of the Revised Organic Act was enacted, in part, to authorize the Government, under certain conditions, to issue bonds secured by Matching Fund Revenues to be received by the Government. Until 1978, the Code provided that the Secretary of the Treasury would determine the amount of excise taxes imposed and collected during the calendar quarter and transfer such amounts, on a quarterly basis, to a designated Government fund, to be expended as determined by the Virgin Islands Legislature. Section 1645 of the Revised Organic Act, enacted in 1978, changed the manner in which Matching Fund Revenues were paid. Under Section 1645, the Governor of the Virgin Islands, with the concurrence of the Office of Management and Budget, estimates the amount of federal excise taxes to be collected in the ensuing Fiscal Year. Prepayment of estimated Matching Fund Revenues for a Fiscal Year, which commences on October 1, is made to the Government prior to September 30 of the immediately preceding Fiscal Year and transferred to the designated Government fund. This prepayment is subject to subsequent adjustment for the amount of revenue actually collected by the Government and the actual amount of the above described federal excise taxes collected by the Department of Treasury during such Fiscal Year. Such adjustments are made to the requested prepayments for the next succeeding Fiscal Year. (See "THE RUM INDUSTRY" and "Appendix D - Verification of Matching Fund Revenues".) The federal excise tax rate and the rate at which such excise taxes are eligible to be transferred back to the Government are set by Congress and codified in Sections 5001(a)(1) and 7652(b)(3) of the Code. Since the enactment of Section 1574a of the Revised Organic Act in 1976, until the amendments to Section 5001 and 7652 under the Deficit Reduction Act of 1984, the federal excise tax on distilled spirits produced in, or imported into the United States was $10.50 per proof gallon, and the entire amount of such excise tax qualified for transfer to the Government. The Deficit Reduction Act of 1984 increased the excise tax under Section 5001 of the Code to $12.50 per proof gallon but also provided a limit to the rate of federal excise taxes eligible to be transferred to the Government. Section 7652(f) provides that the amount eligible for transfer to the Government shall be the lesser rate of $10.50 per proof gallon or the actual federal excise tax imposed under Section 5001(a)(1) of the Code. Pursuant to the Omnibus Budget Reconciliation Act of 1990, the rate of the federal excise taxes was increased to $13.50, but the transfer rate of such taxes to the Government remained unchanged at $10.50. The Omnibus Budget Reconciliation Act of 1993 amended Section 7652(f) to increase the transfer rate to $11.30 per proof gallon for a five year period ending on September 30, 1998. Beginning on October 1, 1998, the amount of federal excise taxes transferred to the Virgin Islands will return, pursuant to Section 7652(f), to the lesser of $10.50 per proof gallon or the actual excise tax imposed as provided in Section 5001(a)(1) of the Code. The Government has requested that the rate of the federal excise taxes transferred to the Government be increased to $13.50 per proof gallon. Federal executive agency officials support this request for an increase in the amount of federal excise taxes transferred to the Virgin Islands and the President of the United States has included in his proposed Fiscal Year 1999 budget the rate of $13.50 per proof gallon. Expiration of the rate of reimbursement is subject to change by Congress and no assurances can be given as to how or whether the Congress might change the rate of the transfer of such excise taxes to the Government. 22 Matching Fund Revenues are currently pledged, in whole or in part, in respect of payments due on the Prior ° Bonds and a portion of the Revenue Anticipation Note (which Prior Bonds and the Revenue Anticipation Note are being: refunded or paid in whole from a portion of the proceeds of the 1998 Bonds) and the Defeased Bonds... (See "THE AUTHORITY - Outstanding Indebtedness of the Authority" and "PLAN OF FINANCE".) “MATCHING FUND’ REVENUES ARE DERIVED FROM CERTAIN EXCISE TAXES PAYABLE ON PRODUCTS, PRINCIPALLY RUM, PRODUCED IN THE VIRGIN ISLANDS AND IMPORTED INTO THE UNITED STATES. THERE CAN BE NO ASSURANCE THAT VIRGIN ISLANDS RUM PRODUCTION OR THE FEDERAL EXCISE TAX WILL BE MAINTAINED AT LEVELS SUFFICIENT TO GENERATE EXCISE TAXES AND MATCHING FUND REVENUES IN AMOUNTS SUFFICIENT TO PAY THE DEBT SERVICE ON THE 1998 BONDS. (SEE "THE RUM INDUSTRY" AND "BONDHOLDER RISKS".) The following is a summary of Matching Fund Revenues received by the Government for Fiscal Years 1992 through 1997: 23 QOLEZ9' SPS LOZ 1b9'7H$ of Hg OE'IIS OOP LEN'R * SSS ELL'E (P68'OLP'T 1). (Lrt'009) OOLEZO' TP ESP'RZE OE Q00'QOS'TS$ N08'826'0ES SH61 | P66T OOLELO PES - (rog'ycr' 11) NO0"OS ORs CSO'LTO'EPS (Lee 009) NNO'879' EFS Loel : 9661 (,Sanuaaay puny duryayepy Jo uoytaniaA,—q xipusddy sag) ‘joday uo}eoyaA Waa BU) pue spuels] W19ayA ay) Jo jUIUTIDAOS ISL LATS Jo Waunsn(pe PL VE SOPNPU ESOT IBAA [BSI ALVA Aq pauoday sev paddes suojjyd jena yajaJ 0) 289A [BISTY JO asoj9 Jaye pasnipy “(aL LVEG,) SURI Pu¥ Ondeqo], ‘[oyoa|y Jo neaing Aq jadpng puy jwawladeuep jo adtjjO spuels] UITILA O1 Ajyiow payodsy 901'EZ0'TH$ oe’ ris £9E'0L9'E £76'L0Z €26'LOZ'67 000'000'62$ £661 £76'LOL'7S$ £26'L0Z 000'0NS'7S$ wn Nn — ESP SZE'OES osO1$ b7r'BR8'Z 008'0E (08' OLS '8Z 000‘00S‘8z$ 7661 009'6S6'0ES 008'0£ 008'876'0ES «661 £76‘ LOZ'67$ os'o1$ 88S'66L'Z (9¢L'08b'T) b27'61S' LZ 000°000'62$ 1661 v27'61S‘L7$ (9LL‘08¢'1) 000'000'67$ 008‘0ES'S7$ os O1¢ GIT‘ LIL'? (9¢Z'1S1) OPT IST‘67Z 000°000'67$ 0661 9v7'1S9'87$ (9b7' IST) 000‘00S‘'8z$ HAIN SANLAADY XL Payaaljo.y UL Paayjad OU st ayes Jaysuen OE TTS 3p "J9AMMOH “OC TTS 9) OS'OTS WO PEG] IBAA [WISI 10) OBI JAysueI) ai Jo aduBYyo oy PazioI Ne ssarsu0D ¢yS8eNuaaay XB] Paysa]|OD ary XBL 9AN0I33q ypaddey, suo]]eg Joold SONUZADY XBL pa}99]}0- Jo uoreEpnoje;D quawisnfpy juswAeg sonusady XB] p2saj[oD saonuaaay xe], psoureapy Aq Woy quowysni[py JUIUNISHIpY yWeWAeY jo woljelna]e- paalasay aoueApy jenoy juawjsnipy juawAeg SNUIAy/SN|d Jeo, [eosiy 1sLIND Jo} sonusaay xe poqefolg paalavay auBApy JBnpy Jo uoyeElnae> eax [eosty juawng 192T10g () Ae) Ww v ts] The advance of Matching Fund Revenues to the Virgin Islands in Fiscal Year 1995 was $52.5 million. This amount, which was paid to the Virgin Islands on September 29, 1994, was substantially in excess of prior year advances of Matching Fund Revenues. The projected level of rum exports was increased for Fiscal Year 1995 in anticipation of substantial changes at the VIRIL (hereafter defined) facility, including (i) the acquisition of VIRIL by Todhunter (hereafter defined) in February 1994 and (ii) the consequent expansion of the VIRIL rum production . facilities. The anticipated changes at the VIRIL facility and the increase in the rate per proof gallon to be remitted to the Government materially affected the ability of the Department of Interior and the Government to accurately project rum production for that year. In Fiscal Year 1995, production increased substantially and exports of rum were much higher than in prior years; the increase in the transfer rate from $10.50 to $11.30 is also reflected in full for the first time in Fiscal Year 1995 collected Matching Fund Revenues. Appropriate adjustments for the $52,500,000 advance received in Fiscal Year 1995, were made in the advance of Matching Fund Revenues the Government received in September 1996 for Fiscal Year 1997. Further, estimates by the Department of Interior and the Government have not varied significantly from the actual results in any year other than Fiscal Year 1995. The following table presents Matching Fund Revenues projected by WEFA, Inc. ("WEFA"), an economic consulting firm, for Fiscal Years 1998 to 2003. WEFA was engaged to verify Matching Fund Revenues received by the Government from Fiscal Year 1992 through Fiscal Year 1997 and to project Matching Fund Revenues for Fiscal Years 1998 through 2003. A copy of their report is attached to this Official Statement. (See "Appendix D - Verification of Matching Fund Revenues"). The table also includes the Matching Fund Revenues used to determine the par amount of the 1998 Bonds to be issued. Pro Forma Debt Service Coverage ($000’s) Projected FY FY FY FY FY FY 1998 1999 2000 2001 2002 2003 Matching Fund Revenues!) $46,016 $45,804 $45,905 $45,974 $45 680 $45,593 Matching Fund Revenues for Debt Sizing 43,100 43,100 43,100 43,100 43,100 43,100 Debt Service on Senior Lien 1998 Bonds - 28,555 28,612 28,608 28,606 28,607 Debt Service on Subordinate Lien 1998 Bonds - 7,814 11,447 11,447 11,448 11,443 Coverage Based on: WEFA Matching Fund Revenues Senior Coverage - 1.60x 1.60x 1.61x 1.60x 1.59x Subordinate Coverage - 2.21x 1.51x 1.52x 1.49x 1.48x Matching Fund Revenues for Sizing , Senior Coverage - 1.51x 1.51x 1.51x 1.51x 1.51x Subordinate Coverage - 1.86x 1.27x 1.27x 1.27x 1.27x (1) Based on WEFA Constant Market Share Model, assuming $11.30 per proof gallon ("WEFA Revenues"). (2) Based on average of the collected tax revenues for Fiscal Year 1995 through Fiscal Year 1997 shown in the chart on the immediately preceding page ("Sizing Revenues"); used to determine initial debt service coverage of 1.50x on Senior Lien Bonds and 1.25x on Subordinate Lien Bonds. 25 Verification of Matching Fund Revenues WEFA was engaged to verify the collection and transfer of federal excise taxes that qualify for transfer - to.the Government as Matching Fund Revenues for Fiscat Years beginning 1992 through 1997 and ‘to’ develop _ projections for Matching Fund Revenues from Fiscal Year 1998 through 2003. WEFA’s review of the records that document the Matching Fund Revenue collection and transfer process concluded that annual Matching Fund Revenues transferred to the Virgin Islands during the Fiscal Year 1992 through Fiscal Year 1998 period were consistent with excise taxes collected from United States distillers on purchases of bulk rum produced in the Virgin Islands and Customs duties levied on cased Virgin Islands rum. In connection with its revenue projections, WEFA developed two models to project future Matching Fund Revenues. The first model, the Constant Market Share Model, projects Matching Fund Revenues as a function of historical rum excise tax revenues, resulting in projected Matching Fund Revenues averaging approximately $45.8 © - million from Fiscal Year 1998 through Fiscal Year 2003. The Trend Market Share Model bases future revenue projections on historical rum production in the Virgin Islands and forecasts Matching Fund Revenues averaging approximately $49.1 million from Fiscal Year 1998 through Fiscal Year 2003. WEFA’s models assumed: (i) a constant $11.30 per proof gallon rate eligible for transfer to the Government, (ii) that VIRIL (hereafter defined) would maintain its operations in the Virgin Islands, and (iii) that VIRIL would maintain its production levels to meet future demand. WEFA found that, given the economic incentives provided to VIRIL by the Government, it was reasonable to assume that VIRIL would maintain its operations in the Virgin Islands. Furthermore, WEFA found VIRIL currently maintains a stable niche in the overall United States rum market and should continue to enjoy the benefits associated with its acquisition by Todhunter (hereafter defined) which further supported their conclusion that production capabilities would not limit VIRIL’s future ability to meet demand. Potential Federal Offset of Matching Fund Revenues The primary security for the 1998 Bonds are Matching Fund Revenues. The Government has obtained federal community disaster loan assistance from FEMA following the occurrence of certain natural disasters. In order to obtain such federal financial assistance, the Government entered into certain loan agreements with FEMA which provide that in the event of the occurrence of an event of default under such loan agreements, FEMA, or the Department of Treasury, may be authorized to intercept federal funds payable to the Government, which may include Matching Fund Revenues. (See "Appendix F — United States Virgin Islands — Outstanding Indebtedness of the Government" .) THE RUM INDUSTRY General Rum produced in the United States Virgin Islands is exported to the United States mainland, primarily in bulk, and sold to local and regional bottlers and rectifiers for sale under a variety of private label and regional brand names, and to certain other bottlers for use in prepared cocktails, liqueurs and drink mixes. Approximately 4,620,000 proof gallons of rum were exported from the Virgin Islands to the United States in calendar year 1997. Consumption and sales of distilled spirits in the United States declined from 1979 to 1996. In 1996; ° however, the distilled spirits market in the United States showed an increase of 0.5% from the previous year. Rum’s share of the distilled spirits market in the United States, during the period from 1975 to 1990, consistently increased from 3.8% in 1975 to a high of 8.5% in 1990. Between 1990 and 1993 this percentage fell slightly, but since 1994 rum consumption has increased and in 1996 represented 9.4% of the distilled spirits market as shown below. 26 Distilled Spirits Market Share . 1989 ~ 1990 1991: 1992 1993 . = 1994 1995 1996 Whiskeys : 39.2% 37.7% ~° 36.8%. 36.1% 36.4% 35.8% 34.6% 33.3% - U.S. Whiskeys 17.1 16.4 16.2 © 15.9. 15.8 15.4 15.1 14.2 Scotch 9.0 © 8.4 “19 ~ 75 - 7.8 7.8 7.4 ‘71 Other Whiskeys(1) 13.1 12.9 12.7 12.7 12.8 12.6 12.1 12.0 Non-Whiskeys 60.8% 62.3% 63.2% 63.9% 63.6% 64.2% 65.4% 66.7% Rums 8.5 8.5 8.4 8.0 8.2 8.4 8.8 9.4 Vodka 22.5 22.2 22.7 22.2 22.5 22.8 23.4 23.7 Gin 8.4 8.5 8.6 8.5 8.5 8.8 8.6 8.4 Others(2) 21.5 23.1 23.5 25.2 24.4 24.2 24.6 25.2 NOTE: Numbers may not add to totals due to rounding. (1) Includes Canadian Whiskeys. : . (2) Includes brandies, cordials, liqueurs, tequila and prepared cocktails. Source: Adams’ Liquor Handbook (1997). According to the Adams’ Liquor Handbook (1997), through the year 2001, rum consumption is expected to remain relatively stable. Early projections show 13 million 9-liter cases of rum being consumed in 1997 reflecting a 0.4% increase over 1996, with future projections showing rum consumption increasing up to 13.4 million 9-liter cases in the year 2001 with an annual compounding growth rate since 1996 of 0.7%. (See "Appendix D - Verification of Matching Fund Revenues"). Virgin Islands Rum Industries, Ltd. and Todhunter International, Inc. Rum has been produced in the Virgin Islands for more than 300 years. All of the rum currently produced in the Virgin Islands is distilled by Virgin Islands Rum Industries; Ltd. ("VIRIL"). VIRIL was founded in 1946 and has produced rum consistently since its inception. The VIRIL facilities consist of six principal buildings of approximately 200,000 square feet on 30 acres. Todhunter International, Inc. ("Todhunter"), a Delaware corporation with principal executive offices located in West Palm Beach, Florida, acquired VIRIL in February of 1994. VIRIL is a wholly owned subsidiary of Todhunter. Todhunter has produced rum since 1971 and had competed with VIRIL in the bulk rum market since that time. To reduce costs through economies of scale, Todhunter acquired VIRIL in 1994 for $16,000,000. In 1995, Todhunter invested over $3,000,000 to expand the VIRIL facility to consolidate its ram production in the Virgin Islands. By transferring its bulk rum production (approximately 2,000,000 proof gallons per year) from its Florida facilities to the VIRIL facilities, Todhunter has reduced its cost of production and increased its margins making its products more competitive. Through the acquisition of VIRIL, Todhunter has benefited from the popularity and the good will or "market cache" of Virgin Islands rum and the molasses subsidy provided by the Government. Since its acquisition of VIRIL, Todhunter has expanded the distribution of its flagship brand, Cruzan Rum, to new markets. It has increased production of its rums at the VIRIL facility by 40%; total production capacity at the VIRIL facility is approximately 8,800,000 proof gallons per year. The acquisition of VIRIL and the consolidation of its bulk rum production in the Virgin Islands has solidified its position as the largest producer of bulk rums for the United States. According to the Todhunter Annual Report for its Fiscal Year ending September 30, 1997, VIRIL has consistently dominated the bulk rum market in the United States. For Fiscal Year 1997, VIRIL budgeted rum shipments of 4,600,000 proof gallons. Actual shipments, however, were approximately 4,900,000 proof gallons. For Fiscal Year 1998, VIRIL is projecting shipments of approximately 4,785,000 proof gallons. For the first five months of Fiscal Year 1998, however, VIRIL shipped 2,057,300 proof gallons, up 11.30% for the same period in Fiscal Year 1997. For Todhunter’s fiscal year ending September 30, 1997, Todhunter had total assets in excess of $95,000,000 and net sales in excess of $77,000,000. Todhunter has five major lines of business: production of citrus and cane-based bulk alcohol for beverages and foods; production and bottling of case goods spirits; importing and marketing of premium branded spirits including Cruzan Rum, from the Virgin Islands and Porfidio Tequila from Mexico; production of vinegar, cooking wine and other alcohol-related products, and contract bottling of beverage 27 alcohol and other beverages. In addition to its status as the leading: bulk rum supplier to the United States, Todhunter projects growth through its premium ‘brands division. Todhunter believes its Cruzan branded rums, tropical flavored rums and cork-finished ultra premium rums are all well positioned to capitalize on the growth trend in.dark and aged rum. The introduction of the premium tier brands as well as increased margins and distribution .. has resulted in. greater investment opportunities in Todhunter’s brands, as well as higher visibility in the retail trade. With the expansion of the rum market and shifts in consumer attitudes, Todhunter repositioned, re-packaged and launched several new rums in 1997. In 1997, bulk alcohol products represented 38% of all sales with Todhunter selling 11.3 million proof gallons of distilled products. Sales and volume figures reflect the success of Todhunter’s focus on new product development. In the United States, total Cruzan Rum sales were up 23% and sales of the Cruzan tropical fruit flavored rums were up 244% in 1997. Brand extension opportunities for existing core rum brands, including cork-finished ultra premium rums, will continue to drive new products. As a result of the expansion of the VIRIL facility and Todhunter’s new business of importing, marketing and distributing branded alcoholic beverages, unit sales of rum and popular price spirits have increased. While net sales of popular priced spirits, other than branded beverages, have decreased due to soft demand in the United States, the Government has experienced an overall increase in Matching Fund Revenues since Todhunter’s purchase and expansion of VIRIL. Todhunter is a publicly traded corporation subject to federal securities law registration. For further information on Todhunter, the Annual Report filed pursuant to Section 13 or 15 (d) of Securities Exchange Act of 1934 (Form 10-K) may be obtained from the Securities and Exchange Commission. Molasses Payments Molasses, the principal ingredient of rum, is a commodity traded in the international commodity markets. The price of molasses is therefore subject to fluctuation based upon supply and demand. All of the molasses used by the Virgin Islands rum producer is purchased on such commodity markets from sources outside the Virgin Islands. The Government maintains a program, established pursuant to law, by which it stabilizes the cost of molasses to the Virgin Islands rum producer to ensure the competitive pricing of rum produced in the Virgin Islands. The effect of the molasses payments is to maintain the competitive position of the Virgin Islands rum producer relative to the rum producers in other countries in which local molasses supplies are readily available. Since 1967, the Government has authorized a molasses subsidy and since 1988 has provided the following molasses subsidies to the Virgin Islands rum producers: 28 Molasses Subsidy Claims - 1988 to 1997 Molasses" : Dollar Amount | Fiscal Year - _ Gallons . . ___ Subsidy 1988 ....-....-.-.- 3,233,178 $ 973,405 1989 ............. 4,612,406 1,173,334 1990 ............. 3,454,026 829,189 1991 .. 2... eee. 4,072,687 1,501,214 1992... 2.2.22. 5,832,386 2,009,090 1993 ............. 4,294,917 1,405,482 1994... 2.2... eee. 4,484,973 1,406,132 1995 ........---5. 5,316,699 , 2,008,392 1996 ............. 9,017 ,562* 4,045 ,509* 1997 .........02.. 5,296,588 2,175,536 * Due to Hurricane Marilyn, a portion of the 1995 Fiscal Year subsidy payment was made in Fiscal Year 1996. It is anticipated that a portion of the 1997 molasses subsidy will be paid in Fiscal Year 1998. Source: Virgin Islands Office of Management and Budget. The molasses subsidy is administered by the Commissioner of Finance through the establishment of a legislatively mandated Molasses Subsidy Fund. The Molasses Subsidy Fund consists of amounts appropriated from time to time by the Legislature of the Virgin Islands exclusively for such purpose. Amounts available in the Molasses Subsidy Fund are requisitioned by the rum producer on a quarterly basis by certified vouchers to the Commissioner of Finance upon receipt of the molasses shipment. The Commissioner of Finance verifies the accuracy of such voucher and makes payment to the rum producer to the extent funds are available in the Molasses Subsidy Fund. The Governor includes in each Annual Budget submitted for approval to the Legislature of the Virgin Islands a request for appropriation for the Molasses Subsidy Fund based upon an estimate of molasses to be acquired by VIRIL for the next Fiscal Year. In the event of a deficiency in the Molasses Subsidy Fund, the Commissioner of Finance would seek legislative appropriation of additional funds, as required, from the Legislature of the Virgin Islands. The Legislature, however, is not obligated to appropriate such amounts. To date, the Legislature of the Virgin Islands has never failed to appropriate an amount sufficient to satisfy the annual subsidy required. There can be no assurance that the molasses payments will continue in the future or that, if continued, such payments will be in amounts: sufficient to ensure the viability of the Virgin Islands rum production. St. Croix Molasses Pier The Government has substantially completed the construction of the expansion and improvements to the St. Croix Molasses Pier which will increase the capacity for deliveries and storing of molasses and will increase the safety and availability of molasses cargoes to the island of St. Croix. The improvements to the St. Croix Molasses Pier, also known as the Third Port, consist of the construction of a 560 foot sheet pile bulkhead, dredging of the harbor to a depth of 32 feet, construction of a concrete apron for loading and unloading the tankers, installation of apron lighting and installation of potable water lines. Security fencing, asphalt and molasses pipelines and a partial roadway complete with lighting and signage are also part of the St. Croix Molasses Pier project. A highway connecting the Pier to the Container Port road is currently under design and the Pier will contain a 1.5 million gallon storage tank which will more than double the on-pier molasses storage capacity for the Virgin Islands rum producer. The St. Croix Molasses Pier improvements will allow the docking of larger cargo vessels and the delivery of larger molasses shipments thereby reducing the per gallon shipping cost of imported molasses. The addition of a second storage tank also will permit the purchase of molasses when market conditions are most favorable and. 29 produce economies of scale and safer conditions for storage of molasses. These improvements should enable the Government to continue to provide favorable conditions within the Virgin Islands for VIRIL to maintain its dominant position in the United States bulk ram market. BONDHOLDER RISKS THE PURCHASE AND OWNERSHIP OF THE 1998 BONDS MAY INVOLVE INVESTMENT RISKS. PROSPECTIVE PURCHASERS OF THE 1998 BONDS ARE URGED TO READ THIS OFFICIAL STATEMENT IN ITS ENTIRETY. THIS SECTION ENTITLED "BONDHOLDER RISKS" DOES NOT PURPORT TO PROVIDE INVESTORS WITH A COMPREHENSIVE ENUMERATION OF ALL POSSIBLE INVESTMENT RISKS. THE FACTORS SET FORTH BELOW, AMONG OTHERS, MAY AFFECT THE SECURITY FOR THE 1998 BONDS. IN ADDITION TO POSSIBLE ADVERSE AFFECTS ON SECURITY FOR THE 1998 BONDS, PURCHASERS SHOULD BE AWARE THAT THESE FACTORS, AMONG OTHERS, MAY ADVERSELY AFFECT THE MARKET PRICE OF THE 1998 BONDS IN THE SECONDARY MARKET. (SEE ALSO "SECURITY FOR THE 1998 BONDS".) Matching Fund Revenues Sole Security for Matching Fund Loan Notes. The 1998 Bonds are secured solely by the Trust Estate, including the Matching Fund Loan Notes. The Matching Fund Loan Notes are special limited obligations of the Government. The Government has not pledged its full faith and credit to the payment of the Matching Fund Loan Notes. The Matching Fund Loan Notes are secured solely by the Matching Fund Revenues, which are derived solely from the sale of rum produced in the Virgin Islands and subject to federal excise taxation. There can be no assurance that the United States Congress will not reduce the rate of the federal excise tax that qualifies for transfer to the Government under the applicable provisions of the Revised Organic Act or that the Congress will not amend or eliminate the federal excise tax. There also can be no assurance as to the amount of local duties, taxes and fees which will be collected by the United States Treasury and Customs and which would be available for transfer to the Government. (See "MATCHING FUND REVENUES".) Demand for Rum. Consumption and sales of distilled spirits in the United States declined from 1989 through 1996. Rum consumption as a percentage of the distilled spirits market increased during this period from 8.5% in 1989 to 9.4% in 1996. Rum sales in the United States decreased from the high of 13-6 million 9-liter cases in 1990 to 11.7 million 9-liter cases in 1994. Since 1994, rum sales have steadily increased to the current level of 13 million 9-liter cases. No assurance can be given as to the future level of consumption of distilled spirits, or rum consumption, or the future market share to be garmered by Virgin Islands rum. (See "THE RUM INDUSTRY".) Single Production Source. All the rum produced in the Virgin Islands is produced by a single producer, VIRIL, a subsidiary of Todhunter. There can be no assurance that VIRIL will continue to operate in the Virgin Islands or that it will continue to produce rum in sufficient quantities to generate Matching Fund Revenues sufficient to meet debt service on the 1998 Bonds. There also can be no assurance that another producer will not enter the bulk rum market and compete with VIRIL or that VIRIL will maintain its production quantity or current margins. (See “THE RUM INDUSTRY".) Fluctuating Price, Availability and Subsidy on Molasses. Molasses, the principal ingredient of rum, is a commodity traded in the international commodity markets. The market price of molasses is therefore subject to fluctuation based upon supply and demand. Substantially all of the molasses used for Virgin Islands rum production is purchased on such commodity markets from sources outside the Virgin Islands. While the Government has provided a subsidy to stabilize the price of molasses and has covenanted to take actions necessary to maintain the subsidy in the future, there can be no assurance that such subsidy will be available in the future, that the Virgin Islands Legislature will appropriate such funds in the future, or that funds will be available for appropriation. There also can be no assurance that molasses will be available for the Virgin Islands rum production in the international commodity markets or, if available, will be at a price that the Government can afford. (See "THE RUM INDUSTRY'".) 30 FEMA Remedy of Federal Intercept. The Government currently has outstanding $157, 100,000 (including $13,413,985 of capitalized interest on the Hurricane Hugo Community Disaster Loan) in FEMA Community Disaster Loans and $7,718,000 in FEMA State Share Loans. The Government has been actively negotiating with FEMA to convert its Hurricane Hugo and Hurricane Marilyn Community Disaster Loans into grants under existing FEMA regulations. To the extent not otherwise canceled, Community Disaster Loans become due-arid payable in accordance with the terms and conditions of the Government’s respective promissory notes which provide that, in the event of a default by the Government, FEMA is entitled to recover the delinquent outstanding principal, plus any accrued and unpaid interest, under Federal debt collection procedures, including administrative offset against other Federal funds due the Government, which may include Matching Fund Revenues. In addition to Matching Fund Revenues, the Government receives on average each year, in excess of $100,000,000 in direct Federal grants. The Government is current on its debt service payments on all FEMA loans. (See "Appendix F — United States Virgin Islands — Outstanding Indebtedness of the Government".) Deteriorating Financial Position of the Government’s General Fund. The Government has experienced substantial fluctuations in revenues and expenditures since Fiscal Year 1989. Asa result, the Government had accumulated deficits in Fiscal Years 1995, 1996 and 1997 of approximately $158,170,000, $245,155,000 and $221,216,000, respectively. The Government estimates an accumulated deficit for Fiscal Year ended September 30, 1998, of approximately $287,000,000. The Government faces certain potential claims against the General Fund which are not reflected in the Government’s financial statements. The most significant of these claims is the Government’s contractual liability to various local labor unions for retroactive salary increases. The Government’s recurring and accumulating deficits and its projected deficiency of revenues to cover expenditures in the foreseeable future could affect the Government’s ability to provide funds to pay the FEMA loans and to continue the molasses subsidy. The Government has no current audited financial statements. The last audited financial statements for the Government were for Fiscal Year 1994. (See "Appendix F — United States Virgin Islands — Financial Position of the Government”".) Federal Bankruptcy Code Presently Inapplicable. The Bankruptcy Reform Act of 1978, Title 11, United States Code, as amended (the “Federal Bankruptcy Code"), provides a codified regime for the reorganization, liquidation or debt adjustment of various types of insolvent debtors. Generally, only a “person” or a "municipality" may be debtor in a case under the Federal Bankruptcy Code. The term "person" includes individuals, partnerships and corporations, but does not include any "governmental unit." For purposes of the Federal Bankruptcy Code, a governmental unit which cannot file for protection under the Federal Bankruptcy Code, would be (i) a Territory, such as the Government, or (ii) an instrumentality of a Territory, such as the Authority. The term "municipality" is defined to mean a political subdivision or public agency or instrumentality of a State. Therefore, neither the Government nor the Authority may be a debtor in a case under the Federal Bankruptcy Code. Consequently, no Bondholder would be able to avail itself of Federal Bankruptcy Code provisions protecting rights of creditors since the Government and the Authority are both “governmental units" and neither of them is a “person” or a "municipality" for purposes thereof. Since neither the Authority nor the Government are subject to the Federal Bankruptcy Code, there can be no assurance how the pledge of Matching Fund Revenues would be treated by a court of law in the event of an insolvency or other inability to pay debt by the Government or the Authority. Matching Fund Revenues Payment Procedures. 48 U.S.C.A. §1645 (West 1987) ("Section 1645"), which provides for annual prepayments of Matching Fund Revenues to the Government, was adopted in 1978 and establishes procedures which are inconsistent with previously enacted Section 7652 of the Code which provides for quarterly payments of Matching Fund Revenues. The legislative history of Section 1645 contains indications of an intent to amend the Code; however, this was not reflected in the final version of Section 1645, as adopted. The Department of Interior and Treasury have consistently followed Section 1645 since 1978. There can be no assurance that these payment procedures will not be changed by statute or otherwise. 31 LITIGATION . There is no litigation pending in any court or, to the best of the knowledge of the Authority or the Government, threatened, questioning the corporate existence of the Authority or which would restrain or enjoin the issuance or delivery of the 1998 Bonds, or which concems’ the proceedings of the Authority or the Government ’ taken in connection with the 1998 Bonds or the pledge or application of any Matching Fund Revenues provided for their payment, or which contest the powers of the Authority or the Government with respect to the foregoing. TAX MATTERS Series 1998 A, C, D and E Bonds In the opinion of Bond Counsel, under existing law, interest, including accrued original issue discount ("OID"), on the Series 1998 A, Series. 1998 C, Series 1998 D and Series 1998 E Bonds (collectively, the "Tax-Exempt Bonds") (a) will not be included in gross income for federal income tax purposes, (b) will not be an item of tax preference for purposes of the federal alternative minimum income tax imposed on individuals and corporations; however, with respect to corporations (as defined for federal income tax purposes) subject to alternative minimum income tax, such interest, including accrued OID, is taken into account in determining adjusted current earnings for purposes of computing such tax, and (c) will be exempt from personal income taxes imposed by the United States Virgin Islands, any state, other territory or possession of the United States or any political subdivision thereof, or by the District of Columbia. In the case of the Series 1998 A Bonds maturing on October 1, 2009 through 2012, October 1, 2015, October 1, 2018, October 1, 2022 and October 1, 2025 and all of the Series 1998 E Bonds (collectively, the "OID Bonds"), the difference between (i) the stated principal amount of each maturity of the OID Bonds and (ii) the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of such maturities of OID Bonds is sold will constitute OID; OID will accrue for federal income tax purposes on a constant yield-to-maturity method; and a holder’s basis in such Series 1998 A Bonds and Series 1998 E Bonds will be increased by the amount of OID treated for federal income tax purposes as having accrued on the Series 1998 A and Series 1998 E Bonds while the holder holds the Series 1998 A and Series 1998 E Bonds. The Series 1998 C Bonds and the Series 1998 D Bonds are expected to be issued at prices greater than their principal amounts. A holder who purchases a Series 1998 C Bond or a Series 1998 D Bond at a premium to its principal amount must amortize bond premium as provided in applicable United States Treasury regulations, and amortized premium is to be treated as an offset against interest in such Series 1998 Bond and reduces the holder’s basis in such Series 1998 Bond for federal income tax purposes. No other opinion is expressed by Bond Counsel regarding the federal tax consequences of the ownership of or the receipt or accrual of interest or OID or premium on the Tax-Exempt Bonds. Bond Counsel’s opinion will be given in reliance upon certification by representatives of the Authority as to certain facts relevant to both its opinion and the Internal Revenue Code of 1986, as amended (the "Code"). The Authority has covenanted to comply with various provisions of the Code regarding, among other matters, the use, expenditure arid investment of proceeds of the Tax-Exempt Bonds and timely payment to the United States of America of any arbitrage rebate amounts with respect to the Tax Exempt Bonds. Failure of the Authority to comply with such covenants could cause interest, including accrued OID, on the Tax-Exempt Bonds to be included in gross income for federal income tax purposes retroactively to their date of issue. Bond Counsel will assume no responsibility for and will not monitor compliance with such covenants. In addition to the matters above, prospective purchasers of the Tax-Exempt Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to certain taxpayers, including without limitation financial institutions, property and casualty insurance companies, S corporations, foreign corporations subject to branch profits tax, corporations subject to the environmental tax, recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. Prospective purchasers of the Tax-Exempt Bonds should consult their tax advisors as to the applicability and impact of such consequences. 32 Series 1998 B Bonds ; In the opinion of Bond Counsel, interest on the Series 1998 B Bonds will not be ‘excluded from: gross income for federal income tax purposes under Section 103 of the Code. :Therefore, it is expected that interest on - the Series 1998 B Bonds will be includable in gross income based on the holder’s method of tax accounting and, thus, subject to federal income tax to the same extent any other interest includable in gross income is subject to such tax. Under existing law, in the opinion of Bond Counsel, interest on the Series 1998 B Bonds will be exempt from personal income taxes imposed by the United States Virgin Islands, any state, other territory or possession of the United States or any political subdivision thereof, or by the District of Columbia. FINANCIAL STATEMENTS The financial statements of the Authority for the Fiscal Year ending September 30, 1997, appended hereto as Appendix E as part of this Official Statement, have been audited by Ernst & Young LLP, certified public accountants, as set forth in their report dated February 28, 1998, except for the second paragraph of Note 11, as to which the date is April 17, 1998, which report is also appended hereto. Such financial statements are included herein for informational purposes only, and the information contained in these financial statements should not be read to in any way modify the description of the security for the 1998 Bonds contained herein. The assets of the © Authority, other than those pledged pursuant to the Indenture, are not pledged to nor are they available to 1998 Bondowners. Audited financial statements for the Government are not included herein. The Government has no current audited financial statements. The last audited financial statements for the Government were prepared by Ernst & Young for Fiscal Year 1994. VERIFICATIONS Causey Demgen & Moore, Inc., independent certified public accountants, has prepared a report to verify the mathematical accuracy the computation of the maturing principal and interest earned on the Defeasance Securities to be purchased with the proceeds of the Refunding Bonds and amounts transferred from the debt service reserve funds and debt service funds securing the Prior Bonds and held pursuant to the Escrow Agreement to provide for payment of the principal of, redemption premium, if any, and interest due and to be due on the Prior Bonds. WEFA, Inc., Eddystone, Pennsylvania, an economic consulting firm, has been engaged to verify Matching Fund Revenues received by the Government from Fiscal Year 1992 through Fiscal Year 1997 and to project Matching Fund Revenues for Fiscal Years 1998 through 2003. (See Appendix D— Verification of Matching Fund Revenues".) LEGAL OPINIONS. Certain legal matters incident to the issuance of the 1998 Bonds are subject to the approving opinion of Hunton & Williams, Washington, D.C., Bond Counsel. The approving opinion of Bond Counsel, substantially in the form set forth in Appendix G hereto, is to be furnished upon delivery of the 1998 Bonds. Bond Counsel’s approving opinion does not express any ‘opinion with respect to information in this Official Statement. However, Bond Counsel will deliver an opinion at closing addressed solely to the Underwriters for their purposes which opinion will address the accuracy of certain information in this Official Statement. Certain legal matters will be passed upon for the Underwriters by their counsel Hawkins, Delafield & Wood, New York, New York. 33 FINANCIAL ADVISOR . The Authority has retained Public Financial Management, Inc. of Philadelphia, Pennsylvania, as financial advisor in connection with the issuance of the 1998 Bonds. Although Public Financial.Management, Inc. has assisted in the preparation of the Official. Statement, Public Financial Management, Inc. 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 the Official Statement. Public Financial Management, Inc. is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities. RATING The Senior Lien Bonds have been assigned a rating of "BBB-" by Standard & Poor’s Ratings Services. The rating reflects only the view of Standard & Poor’s Ratings Services and an explanation of the significance of the rating may be obtained from Standard & Poor’s Ratings Services. There can be no assurance that the rating will continue for any given period of time or that it will not be revised or withdrawn entirely by Standard & Poor’s Ratings Services, if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the Senior Lien Bonds. The Subordinate Lien Bonds are not rated. CONTINUING DISCLOSURE The Authority has covenanted, and the Government has acknowledged and accepted, for the benefit of Bondholders, to provide certain financial information and operating data relating to the Authority and the Government by not later than 180 days following the end of the Authority’s fiscal year beginning with the fiscal year ending September 30, 1999 (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events. The Annual Report will be filed by the Authority with the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in the Annual Report or the notices of material events is summarized in "Appendix H — Proposed Form of Continuing Disclosure Certificate". These covenants have been made in order to assist the Underwriters in complying with S.E.C. Rule 15c2-12 (the “Rule"). Neither the Authority nor the Government have been required to provide annual financial information or notices of material events pursuant to the requirements of the Rule. UNDERWRITING The 1998 Bonds are being purchased by Smith Barney Inc., CIBC Oppenheimer, Morgan Stanley & Co. Incorporated and PaineWebber, Inc. (the "Underwriters"). The aggregate purchase price payable by the Underwriters for the 1998 Bonds is $537,339,703. The Underwriters are obligated to purchase all of the 1998 Bonds, if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the Purchase Contract by and between the Authority and the Underwriters, the approval of certain legal matters by counsel and certain other conditions. The Underwriters will receive an aggregate underwriting discount of $3,992,083 in connection with the underwriting of the 1998 Bonds. Salomon Smith Barney is a service mark of Smith Barney Inc. Smith Barney Inc. and Salomon Inc. are affiliated but separately registered broker/dealers under common control of Salomon Smith Barney Holdings Inc. Salomon Brothers Inc. and Salomon Smith Barney Holdings Inc. have been licensed to use the Salomon Smith Barney service mark. The initial public offering price and other terms respecting the offering and sale of the 1998 Bonds may be changed from time to time by the Underwriters after the 1998 Bonds are released for sale, and the 1998 Bonds may be offered and sold at prices other than the initial offering price, including sales to certain dealers (including 34 “ dealers who may sell the 1998 Bonds into investment accounts, some of which may be managed by the Underwriters) and’ certain dealer banks and banks acting as agents. Se - ‘Morgan Stanley & Co. Incorporated (' "Morgan Stanley”) has entered i into a written agreement with Popular . Securities, Inc. ("Popular Securities"), a subsidiary of Popular, Inc., pursuant to which Popular Securities has- agreed to cooperate in connection with Morgan Stanley’s provision of underwriting and investment banking services to the Authority with respect to the 1998 Bonds. Pursuant to these arrangements, the existence of which has been disclosed to the Authority, Popular Securities will be entitled to receive a portion of Morgan Stanley’s actual net profits, if any, in connection with the underwriting of the 1998 Bonds. MISCELLANEOUS In this Official Statement, any summaries or descriptions of provisions in the Indenture or the Loan Agreement and all references to other materials not purported to be quoted in full are only brief outlines of certain provisions thereof and do not constitute complete statements of such documents or provisions. Reference is hereby made to the complete documents relating to such matters for further information, copies of which may be obtained from the principal corporate trust office of the Trustee. Any statement in this Official Statement involving matters of estimates or opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Authority and the owners or holders of, or of interests in, any of the 1998 Bonds. Financial and statistical information has been provided by the Authority and the Government, certain of its agencies and instrumentalities and other sources deemed reliable by the Authority and the Goverment. The Underwriters are not responsible for any of such information nor have the Underwriters independently verified such information. , The execution and delivery of this Official Statement has been duly authorized by the Authority. VIRGIN ISLANDS PUBLIC FINANCE AUTHORITY By: /s/ Roy L. Schneider, M.D. Chairman of the Board Dated: April 30, 1998 35 APPENDIX A GLOSSARY OF TERMS DEFINITIONS OF CERTAIN TERMS IN THE INDENTURE, THE FIRST SUPPLEMENTAL AND THE LOAN AGREEMENT Certain terms used in the Indenture, the First Supplemental Indenture and the Loan Agreement are defined below unless otherwise defined herein or the context clearly indicates . otherwise. When and if such terms are used in this Official Statement they shall have the meanings set forth below. Any capitalized term used in this Official Statement regarding the Indenture and the Loan Agreement and not defined herein shall have the meaning given such term by the Indenture and the Loan Agreement. Act means, collectively, the Virgin Islands Revised Organic Act, 48 U.S.C. 1574-1574c (West 1987), 1988 V.I. Act 5365, 1997 VJ. Acts 6152 and 6190 and 1998 VI. Acts 6197 and 6227, and other applicable law, as the same may be amended from time to time. Act of Bankruptcy means (i) the entity under consideration shall have applied for or consented to the appointment of a custodian, receiver, trustee or liquidator of all or substantially all of its assets; (i1) a custodian shall have been appointed with or without consent of such entity; (iii) such entity has made a. general assignment for the benefit of creditors, or has filed a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage of any insolvency law; (iv) such entity has filed an answer admitting the material allegations of a petition in any bankruptcy, reorganization or insolvency proceeding, or taken any action for the purpose of effecting any of the foregoing; (v) a petition in bankruptcy shall have been filed against such entity and shall not have been dismissed for a period of 60 consecutive days; (vi) an order for relief has been entered under the Bankruptcy Code with respect to such entity; (vii) an order, judgment or decree ‘shall have been entered, without the application, approval or consent of such entity by any court of competent jurisdiction approving a petition seeking reorganization of such entity or appointing a receiver, trustee, custodian or liquidator of such entity or substantially all of its assets, and such order, judgment or decree shall have continued unstayed and in effect for any period of 60 consecutive days; or (viii) such entity shall have suspended the transaction of its usual business. Accreted Value means with respect to any Bond that is a Capital Appreciation Bond, for each authorized. denomination, an amount equal to the principal amount of such Capital Appreciation Bond (determined on the basis of the initial offering price for such denomination at maturity thereof) plus the amount of earnings which would be produced on the investment of such principal amount, assuming compounding (as set forth in the applicable Supplemental Indenture) beginning on the dated date of such Capital Appreciation Bond and ending at the maturity date thereof, at a yield which, if produced until maturity, will produce an amount equal to such denomination at maturity. As of any Valuation Date, the Accreted Value of any Capital Appreciation Bond means the amount set forth for such date in the applicable Supplemental A-l Indenture authorizing such Bond and as of any date other than a’ Valuation Date, the sum of (i) the Accreted Value on the preceding Valuation Date and (ii) the product of (1) a fraction, the _ numerator of which is the number of days having elapsed from the preceding Valuation Date and the denominator of which is the number of days from such preceding Valuation Date to the next succeeding Valuation Date, using for such calculation 30 day months and a 360 day year and (2) the difference between the Accreted Values for such Valuation Dates. Additional Bonds means Bonds other than the Initial Series of Bonds. Adjusted Debt Service Requirement means, for any period, as of any date of calculation, the aggregate Debt Service on Outstanding Senior Lien Bonds or Subordinated Lien ~ Bonds, for such period taking into account the following adjustments: (i) With respect to Bonds that bear interest at a Variable Interest Rate, the aggregate Debt Service thereon is determined as if each such Bond bore interest at the Certified Interest Rate; provided, however, (1) if the Authority (A) enters into a Qualified Swap Agreement with a Swap Provider requiring the Authority to pay a fixed interest rate on a notional amount, and (B) has made a determination that such Qualified Swap Agreement was entered into for the purpose of providing substitute interest payments for a particular maturity of Bonds in a principal amount equal to the notional amount of the Qualified Swap Agreement, then during the term of such Qualified Swap Agreement and so long as the Swap Provider under such Qualified Swap Agreement is not in default under such Qualified Swap Agreement, the interest rate on such Bonds shall be determined as if such Bonds bore interest at the fixed interest rate payable by the Authority under such Qualified Swap Agreement, and (2) if (A) Bonds of a specific maturity within a Series bear interest at a Variable Interest Rate and Bonds which bear a Variable Interest Rate of another Series with the same maturity are issucd in an equal principal amount to the first such Series of Bonds of the same maturity and (B) the Variable Interest Rate of the first Series of such Bonds varies inversely to the Variable Interest Rate of the second Series of such Bonds of the same maturity so that the combined interest rate for the aggregate principal amount of such Bonds of the same specific maturity for both such Series is determined by the Authority to result in a combined fixed interest rate, then - so long as the same principal amount of each maturity of such Series of Bonds remain Outstanding, the aggregate Debt Service thereon shall be determined as if all such Variable Rate Bonds of such Series and maturity bore interest at the combined fixed interest rate so determined by the Authority with respect to such aggregate principal amount of such Bonds. (ii) With respect to Fixed Interest Rate Bonds, if the Authority (1) enters into a Qualified Swap Agreement with a Swap Provider requiring the Authority to pay a variable interest rate on a notional amount and (2) has made a determination that such Qualified Swap Agreement was entered into for the purpose of providing substitute interest payments for a particular A-2 maturity of Bonds in a principal amount equal to the notional amount of the Qualified Swap Agreement, then during the term of such Qualified-Swap -.Agreement.and so long as the Swap Provider under such Qualified Swap Agreement is, not in default under such Qualified Swap. Agreement the interest rate on such Bonds is determined as if such Bonds bore interest at the Certified Interest Rate on the notional amount of such Bonds. iii) Except to the extent described in (iv) below, with respect to Bonds secured by a Credit Facility, the aggregate Debt Service thereon shall be deemed to include all periodic Bond Related Costs and other payments to (including any payments required. to reimburse) the related Credit Provider (including any Debt Service Reserve Account Credit Provider), but shall not include any amounts payable as principal of and interest and premium with respect to any reimbursement obligation to such Credit Provider except and to the extent that such payments on such reimbursement obligation are required to be made to the Credit Provider in excess of any corresponding Debt Service with respect to such Bonds during such period. Gav) With respect to Optional Tender Bonds, the aggregate Debt Service thereon shall not include any amounts payable to a Credit Provider pursuant to any reimbursement obligation arising as the result of the payment of any purchase price with respect to such Bonds on a Purchase Date except to the extent that, and for any period during which, the Authority is obligated to reimburse the Credit Provider for payments made by such Credit Provider directly or indirectly in satisfaction of any obligation to purchase such Bonds on any Purchase Date following the application of any proceeds of any remarketing of such Bonds. (Vv) The aggregate Debt Service for any period on any Bonds shall not include (1) any interest which is payable from Capitalized Interest which is to be transferred to the Debt Service Accounts for payment of interest on such Bonds or (2) the amount of Debt Service on Bonds to be paid from amounts in a Debt Service Reserve Account at the time of such computation for the period in question, but only if any such amount described in (1) or (2) is available and is to be applied under the applicable Supplemental Indenture to make interest payments on such Bonds when due. (vi) Ifthe Authority enters into a Qualified Swap Agreement with a Swap Provider requiring the Authority to pay any amount in excess of the amount to be received by the Authority in connection therewith for the period for which any calculation of Adjusted Debt Service Requirements is to be made hereunder, then, to the extent not taken into account in (i) and (ii) above, the net amount of such payments which may be required of the Authority (using the Certified Interest Rate or its equivalent for such purpose if such amount is subject to any variation and excluding any breakage fees or termination A-3 payments paid by the Authority) shall be included in | Adjusted Debt Service Requirements. For purposes of this definition of Adjusted Debt Service Requirements, the ptincipal and interest portions of the Acereted Value of Capital ‘Appreciation Bonds and the Appreciated Value of any Deferred Interest Bonds becoming due at maturity or by virtue of Mandatory Sinking Fund Requirements shall be included in the calculation of accrued and unpaid and accruing interest or principal installments on the date on which or for the period during which such amounts become due and payable unless otherwise specified in the Supplemental Indenture authorizing such Capital Appreciation Bonds or Deferred Interest Bonds. Aggregate Debt Service for any period means, as of any date of calculation, the sum of the amounts of Debt Service for such period with respect to the Bonds. Annual Administrative Fee means the amount authorized to be transferred annually from the Senior Lien Expense Account and the Subordinated Lien Expense Account to the Authority to pay the Authority's expenses in accordance with the annual budget approved by the Board of the Authority. Annual Debt Service means, as of any date of calculation with respect to a specified Bond Year, Debt Service plus any premium, if any, payable for the Bonds in the respective Bond Year. Appreciated Value means with respect to any Bond that is a Deferred Interest Bond until the Interest Commencement Date thereon, for each authorized denomination, an amount equal to the principal amount of such Deferred Interest Bond (determined on the basis of the initial offering price for such denomination at the Interest Commencement Date thereof) plus the amount, of earnings. which would be produced on the investment of such principal ‘amount, assuming compounding (as set forth in the applicable Supplemental Indenture) beginning on the dated date of such Deferred Interest Bond and ending on the Interest Commencement Date, at a yield which, if produced until the Interest Commencement Date, will produce an amount equal to such denomination at the Interest Commencement Date. As of any Valuation Date, the Appreciated Value of any Bond that is a Deferred Interest Bond means the amount set forth for such date in the Supplemental Indenture authorizing such Deferred Interest Bond and as of any date other than a Valuation Date accruing for that period or due and payable on that date, the sum of (i) the Appreciated Value on the preceding Valuation Date and (ii) the product of (1) a fraction, the numerator of which is the number of days having elapsed from the preceding Valuation Date and the denominator of which is the number of days from such preceding Valuation Date to the next succeeding Valuation Date, and (2) the difference between the Appreciated Values for such Valuation Dates. Approved Project means any public improvement or public undertaking authorized by act of the Legislature of the Virgin Islands and by resolution of the Authority to be financed with the proceeds of Authority bonds. A-4 Authority means the Virgin Islands’ Public Finance Authority, a body corporate and politic constituting 4 public corporation and autonomous governmental instrumentality of the Government of.the Virgin Islands, or, if said Authority shall be abolished, any authority, board, body-or officer succeeding to the principal functions thereof. , ; , Authorized Officer means the Executive Director or Chairman of the Authority or any other person authorized by the Authority to perform an act or sign a document on behalf of the Authority for purposes of the Indenture or a Supplemental Indenture as set forth in a Supplemental Indenture or a certificate of the Authority which has been delivered to the Trustee. Bankruptcy Code means the Federal Bankruptcy Code, 11 U.S.C. § § 101, et seq. and any amendments thereto. Board means the Board of Directors of the Authority. Bond or Bonds means any bond or bonds, as the case may be, issued pursuant to the Indenture or any Supplemental Indenture, and may include notes, commercial paper, or other obligations and shall include Senior Lien Bonds and Subordinate Lien Bonds. Bond Counsel means an attorney or firm of attorneys nationally recognized expertise in matters relating to the issuance of obligations by states and local governments and_political subdivisions thereof. Bond Register means the register maintained by the Bond Registrar pursuant to the Indenture. Bond Registrar means the Trustee, any successor trustee or bond Registrar appointed as Bond Registrar pursuant to the Indenture. Bond Related Costs means (i) all costs, fees and expenses of the Authority incurred or reasonably related to any Liquidity Facility, Credit Facility, any remarketing or other secondary market transactions and any Qualified Swap Agreement (whether requiring the Authority to pay fixed or variable amounts and excluding breakage fees on or termination payments under such Qualified Swap Agreements) that the Authority has determined was entered into for the purposes of providing substitute interest payments for a particular Series or maturity of Bonds, (ii) initial and acceptance fees of any Fiduciary together with any fees of Bond Counsel, attorneys, feasibility consultants, engineers, financial advisors, remarketing agents, rebate consultants, accountants and other advisors retained by the Authority in connection with a Series of Bonds and (iii) any other fees, charges and expenses that may be lawfully incurred by the Authority relating to Bonds, including, without limitation, any obligation of the Authority to a Credit Provider for a Series of Bonds to repay or reimburse any amounts paid by such Credit Provider due to payment under such Credit Facility and any interest on such repayment obligation. Bond Service Charges means for any applicable time period or date, principal of and premium, if any, and interest payments due and the fees, expenses and costs of the Trustee, Bond Registrar and Paying Agent, if any, on any of the Bonds accruing for that period or due and payable on that date. In determining Bond Service Charges accruing for any period or due and payable on any date, Mandatory Sinking Fund Requirements accruing for that period or due on |. that date shall be included together with any amount required to be paid f for the replenishment of any Bond Reserve Account. Bond Year means for each Series of Bonds a period of twelve (12) consecutive months beginning on October 1 in any calendar year and ending on September 30 of the succeeding calendar year; provided that for purposes of Section 148 of the Code the Authority may elect a different Bond Year for any Series of Bonds. Borrower means the Government of the Virgin Islands. Business Day means any day that is not a Saturday, Sunday or legal holiday in the United States Virgin Islands or a day on which the Trustee, the Special Escrow Agent or banking institutions organized under the laws of the United States Virgin Islands are legally authorized to close. Capital Appreciation Bonds means any Bonds as to which interest is payable only at the maturity or prior redemption thereof. For the purposes of (i) receiving payment of the redemption price, if any, of a Capital Appreciation Bond that is redeemed prior to maturity, and (il) computing the principal amount of Capital Appreciation Bonds held by the Owner thereof in giving any notice, consent, request, or demand pursuant to the applicable Supplemental Indenture for any purpose whatsoever, the Accreted Value of a Capital Appreciation Bond as of a specific date shall be deemed to be its principal amount as of such date. Capitalized Interest means that portion of the proceeds of any Series of Bonds together with any available earnings thereon that are intended to be used to pay interest due or to become due on any Bonds. Certified Interest Rate means a rate estimated and certified by the financial advisor to the Authority as the rate that would be borne by a Variable Rate Bond if on the date of such certification such Bond was issued as a Bond bearing interest at a fixed rate to its stated maturity. Code means the Internal Revenue Code of 1986, as amended from time to time. Each reference to a Code section herein shall be deemed to include the Treasury Regulations proposed or in effect thereunder and applicable to the Bonds. Construction Account means the account of that name established pursuant to the Indenture. Corporate Trust Office means the principal corporate trust office of the Trustee in which the corporate trust business of the Trustee shall, at any particular time, be principally administered, which office is, at the date as of which the Indenture is dated, located at 114 West 47" Street, New York, NY 10036except that, with respect to presentation of Bonds for payment or registration of transfer and exchange and the location of the Bond Register, such term means the office or agency of the Bond Registrar in said city at which at any particular time its corporate agency business shall be conducted, which is, at the date as of which the Indenture is dated, is:the same address as the corporate trust office as indicated above. : Cost of Issuance means the items of expense payable or reimbursable directly or indirectly by the Authority and related to the authorization, sale and issuance of Bonds which items of expense shall include without limiting the generality of the foregoing: travel expenses; printing costs; costs of reproducing documents; computer fees and expenses, filing and recording fees: initial fees and charges of the Trustee; initial fees and charges of Credit Providers or other parties (including specifically providers of bond insurance policies and surety policies) pursuant to remarketing, indexing or similar agreements; discounts; legal fees and charges; auditing fees and expense; financial advisor's fees and charges; costs of credit ratings; insurance premiums; fees and charges for execution, transportation and safekeeping of Bonds; and other administrative or other costs of issuing, carrying and repaying such Bonds and investing the proceeds thereof. Cost of Issuance Account means the account of that name established pursuant to the Indenture. Counsel’s Opinion means an opinion signed by an attorney or firm of attorneys of recognized standing in the field of law relating to municipal bonds (who may be counsel to the Authority) selected by the Authority and reasonably satisfactory to the Trustee. Credit Agreement means any reimbursement agreement or similar instrument between the Authority (and, if so drafted, the Trustee) and a Credit Provider with respect to a Credit Facility. Credit Facility means a letter of credit, surety bond, liquidity facility, insurance policy or comparable instrument furnished by a Credit Provider which is rated in one of the two highest rating categories by the Rating Agency rating the Bonds with respect to all or a specific portion of one or more Series of Bonds to satisfy in whole or in part the Authority's obligation to maintain a Debt Service Reserve Requirement with respect thereto or to secure (a) the payment of Debt Service (which may include the premium due on payment of a Bond) on Bonds of a specified Series, or a specific portion thereof, (b) the payment of the purchase price (which may include accrued interest to the date of purchase) of Bonds of a specified Series, or a specific portion thereof, on the applicable purchase dates or tender dates, or (c) both the payment of Debt Service on a specified Series of Bonds, or a specific portion thereof. Credit Provider means the bank, insurance company, financial institution or other entity providing a Credit Facility or Liquidity Facility pursuant to a Credit Agreement. Current Interest Bonds mean all Bonds which are not (a) Capital Appreciation Bonds or (b) prior to the Interest Commencement Date, Deferred Interest Bonds. Debt Service for any period means, as of any date of calculation and with respect to any Series of Bonds then Outstanding, the Bond Service Charges on such series. For purposes of this definition, unless provided to the contrary in an applicable Supplemental Indenture authorizing the issuance of Capital Appreciation Bonds and Deferred Interest Bonds, the scheduled principal and interest portions of the Accreted Value of Capital Appreciation Bonds and the Appreciated _ Value of Deferred Interest ‘Bonds becoming due at maturity or by virtue, of Mandatory Sinking Fund Requirements shall be included in the: calculations of accrued and unpaid and accruing interest or principal payments in the year in which such payments are required to be made. Debt Service Account or Accounts means the Senior Lien Debt Service Account or the Subordinate Lien Debt Service Account, or, collectively, the Senior Lien Debt Service Account and the Subordinate Lien Debt Service Account, as applicable. Debt Service Reserve Account means the Senior Lien Debt Service Reserve Account or the Subordinate Lien Debt Service Reserve Account established pursuant to the Indenture, as applicable. Debt Service Reserve Accounts means collectively the Senior Lien Debt Service Reserve Account and the Subordinate Lien Debt Service Reserve Account established pursuant to the Indenture. Debt Service Reserve Account Credit Facility means a Credit Facility provided to satisfy all or any portion of a Debt Service Reserve Requirement. Debt Service Reserve Account Credit Provider means the Credit Provider of a Debt Service Reserve Amount Credit Facility. Debt Service Reserve Requirement means, as of any date of calculation, the sum of the Debt Service Reserve Requirements applicable to Series of Bonds then Outstanding. The Debt Service Reserve Requirement may be calculated individually for each Series of Bonds or in the aggregate if more than one Series of Bonds are issued at the same time, and as set forth in the applicable Supplemental Indenture. The Debt Service Reserve Requirement may be satisfied by cash, Permitted Investments or a Debt Service Reserve Account Credit Facility, or any combination thereof. Defeasance Securitics means (i) direct and general obligations of, or obligations which as to principal and interest are unconditionally guaranteed as to full and timely payment by, the United States of America, to’ the payment of which the full faith and credit of the United States of America is irrevocably and unconditionally pledged. The obligations described in this paragraph are ‘hereinafter called "United States Government Obligations;" and (ii) pre-refunded municipal obligations meeting the following conditions: (1) the municipal obligations (A) are not subject to redemption prior to maturity or (2) the trustee has been given irrevocable instructions concerning their calling and redemption and the issuer of such municipal obligations has covenanted not to redeem such municipal obligations other than as set forth in such instructions; (2) the municipal obligations are secured by cash or non-callable United States Government Obligations that may be applied only to “interest, principal and premium’ payments of such municipal | _obligations; - : (3) the principal of and interest on such United States Government Obligations (plus any cash in the escrow fund) are sufficient to meet the liabilities of the municipal obligations; (4) the cash and United States Government Obligations serving as security for the municipal obligations are held by an escrow agent or trustee; and (5) the United States Government Obligations are not available to satisfy any other claims, including those against the trustee or escrow agent. Deferred Interest Bonds means any Bonds as to which accruing interest is not paid prior to the Interest Commencement Date specified in the Supplemental Indenture authorizing such Series. Depository or DTC means The Depository Trust Company, New York, New York, and its successors and assigns. Escrow Agent shall mean U.S. Trust Company of New York as Escrow Agent under the Escrow Deposit Agreement. Escrow Deposit Agreement shall mean the Escrow Deposit Agreement dated as of April 1, 1998, between the Authority, the Government and the Escrow Agent providing for the refunding and defeasance of the Prior Bonds and the investment of certain proceeds of the Series 1998 A Bonds and Series 1998 B Bonds. Escrow Fund shall mean the Escrow Fund established by the Escrow Deposit Agreement. Fiduciary or Fiduciaries means any bank or other organization acting in a fiduciary capacity with respect to any Bonds whether as Trustee, Paying Agent, Bond Registrar, tender agent, escrow agent or any or all of them, as may be appropriate. First Supplemental Indenture means the First Supplemental Indenture of Trust between the Authority and the Trustee dated as of April 1, 1998, authorizing the issuance of and securing the Initial Series of Bonds. Fiscal Year means the Authority’s fiscal year, which is presently October 1 to the following September 30. A-9 Fitch means Fitch Investor Service, Inc., or any successor thereof which qualifies asa Rating Agency hereunder. . -- . . Fixed Interest Rate Bond means (i) a Bond, the interest rate on which is established (with no right to vary) at the time’of calculation at a single numerical rate for the remaining term of such Bond, or (ii) all of those Bonds of a specific maturity described in clause (2)(A) and (B) of paragraph (i) of the definition of Adjusted Debt Service Requirement. Funds means those funds and accounts specified in the Indenture. Government means the Government of the United States Virgin Islands. Indenture means the Indenture of Trust dated as of April 1, 1998, between the Authority and the Trustee and, as to each Series of Bonds, the Supplemental Indenture pertaining thereto, as the Indenture or any Supplemental Indenture may from time to time be amended or supplemented in accordance with the terms hereof. Independent Counsel means an attorney, or firm thereof, admitted to practice law before the highest court of any state in the United States of America, the United States Virgin Islands or the District of Columbia and not an employee on a full-time basis of either the Authority or the Trustee (but who or which may be regularly retained by any one or more of them). Independent Verification Analyst means a firm retained by the Authority to prepare the certificates required pursuant to the Indenture in connection with the issuance of Additional Senior Lien or Subordinate Lien Bonds. Initial Series of Bonds means the Series 1998 A, Series 1998 B, Series 1998 C, Series 1998 D and Series 1998 E Bonds. Interest Commencement Date means, with respect to any particular Deferred Interest Bonds, the date specified in the applicable Supplemental Indenture authorizing such Deferred Interest Bonds (which date must be prior to the maturity date for such Deferred Interest Bonds), after which interest accruing on such Deferred Interest Bonds shall be payable with the first such payment date being the applicable Interest Payment Date immediately succeeding such Interest Commencement Date. Interest Payment Date means each date specified in a Supplemental Indenture as a date for the payment of interest to Owners of Bonds of a specific Series. Interest Payment Period with respect to any Bond or Series of Bonds, means, if prior to the first Interest Payment Date, the period from but not including the date specified in each Supplemental Indenture as the date for commencement of accrual of interest for such Bond or Series and after the first regularly scheduled Interest Payment Date means the period from but not including a regularly scheduled Interest Payment Date, in each case to and including the next regularly scheduled Interest Payment Date, provided that any Supplemental Indenture may adjust this definition with respect to any Bond or Series of Bonds authorized to be issued thereunder in A-10 order to provide for the proper computation of or the timely transfer of amounts payable with respect to interest borne by such Bond or Series of Bonds on any Interest Payment Date. Issue Date means, for the Bonds of a particular Series, the date on which the Bonds-of — such Series are delivered against payment therefor: us , : Letter of Representation means the Letter of Representation from the Authority to the Depository in substantially the form set forth in Appendix A hereto, such form as may be acceptable to the Authority and the Depository. Liquidity Facility means any agreement with a Credit Provider under or pursuant to which it agrees to purchase Optional Tender Bonds provided that the debt obligations of such Credit Provider are rated in one of the two highest Rating Categories by S&P, Moody's or Fitch. Loan Agreement means a loan agreement by and between the Authority and the Borrower, as the same may from time to time be amended or supplemented in accordance with the terms thereof. Loan Notes means, with respect to each of the Series 1998 A, Series 1998 B, Series 1998 C, Series 1998 D and Series 1998 E Bonds or any future Series of Additional Bonds, the special limited obligation note in the aggregate principal amount of each of the respective Series 1998 A, Series 1998 B, Series 1998 C, Series 1998 D and Series 1998 E Bonds or such Series of Additional Bonds isstied by the Authority for the benefit of the Borrower, each note signed by the Borrower and delivered to the Authority, and collectively, all such Loan Notes. Mandatory Sinking Fund Requirements means the principal amount of Term Bonds which are required to be redeemed by mandatory sinking fund redemption, in the principal amounts at the prices and on the dates as set forth in the applicable Supplemental Indenture. Mandatory Tender Date means a date on which a Series of Bonds, or specific Bonds included in such Series, are required to be purchased by, or on behalf of, the Authority as provided in the Indenture or in the Supplemental Indenture authorizing such Series of Bonds. Matching Fund Revenues means amounts paid to the Special Escrow Agent on behalf of the Government of the Virgin Islands pursuant to Section 28(b) of the Revised Organic Act, 48 U.S.C. §§ 1574-1574c (West 1987), or any successor provisions thereto. Moody’s means Moody’s Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Authority, by notice to the Trustee. 1998 Approved Projects mean the projects authorized to be financed with the proceeds of the Series 1998 E Bonds pursuant to the First Supplemental Indenture. Officer’s Certificate means a certificate signed by an Authorized Officer. A-il Optional Tender Bonds means any Bonds which by their terms may be tendered by and at the option of, or required to be tendered by, the Owner thereof for payment or purchase by the Authority or another party prior to the stated maturity thereof, or the maturities of which may be extended by and at the option of the Owner thereof, provided, however, a Supplemental Indenture may expressly provide that specific Bonds are not "Optional Tender Bonds" if, in the reasonable judgment of the Authority, the tender requirements of such Bonds are not of the character intended to be included within this definition. Outstanding Bonds, Bonds Outstanding and Bonds then Outstanding means as of the date of determination, all Bonds theretofore issued and delivered under the Indenture as from time to time supplemented except: (1) Bonds theretofore canceled by the Trustee or Paying Agent or delivered to the Trustee or Paying Agent canceled or for cancellation; (ii) for which payment or redemption moneys or securities (as provided for in the Indenture) shall have been theretofore deposited with the Trustee or Paying Agent in trust for the Owners of such Bonds; provided, however, that if such Bonds are to be redeemed, notice of such redemption shall have been duly given pursuant to the Indenture or irrevocable action shall have ‘been taken to call such Bonds for redemption at a stated redemption date; (iii) | Bonds in exchange for or in Jieu of which other Bonds shall have been issued and delivered pursuant to the Indenture; and (iv) | Optional Tender Bonds deemed tendered in accordance with the provisions of the Supplemental Indenture authorizing such Bonds on the applicable tender, adjustment or conversion date, if interest thereon shall have been paid through such applicable date and the purchase price thereof shall have been paid or amounts are available for such payments as provided therein (but not if held for reoffering). In determining requisite percentages of the Owners of aggregate principal amount of Bonds Outstanding for the purposes of direction, consent, approval or waiver under the terms and provision of the Indenture and any Supplemental Indenture: (1) the aggregate "principal amount" of any Bonds that are Capital Appreciation Bonds shall be determined by their Accreted Value as of the date of such determination, and (2) the aggregate "principal amount" of any Bonds that are Deferred Interest Bonds shall be determined by their Appreciated Value as of the date of such ’ determination and provided, however, that in determining whether the Owners of the requisite principal amount of Outstanding Bonds have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Bonds owned by the Authority shall be disregarded and deemed not to be Outstanding Bonds, except that in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, or waiver, only Bonds which the Trustee knows to be so owned shall be disregarded. Each Supplemental Indenture may further specify the conditions under which a Credit Provider will be deemed the Owner of Outstanding Bonds for purposes of consents hereto. A-12 Owner or Bondowner, or any similar term, means any-Person who shall be the registered " owner.of any Bond or Bonds. Participants means those broker-dealers, banks and ‘other financial institutions from time to time for which the Depository holds Bonds as securities depository. _ Paying Agent means any commercial bank or trust company organized under the laws of the United States Virgin Islands, any state of the United States, or the United States of America, or any national banking association designated as paying agent for the Bonds, and its successor or successors hereafter appointed in the manner provided 1 in the Indenture or a Supplemental Indenture. Permitted Investments means any of the following securities, if and to the extent the same are at the time legal for the investment of funds held under the Indenture: (i) direct obligations of the United States or obligations guaranteed as to principal and interest by the United States; (11) general obligations of any _ state, - territory, possession or commonwealth of the United States with a rating at the time of-purchase in either of the two highest Rating Categories as designated by any Rating Agency; (iii) prerefunded obligations of any state, territory, possession or Commonwealth of the United States or political subdivision thereof secured by cash or obligations listed in subsection (i) above, with a rating at the time of purchase in one of the two highest Rating Categories as designated by S&P or any Rating Agency then rating the Bonds; (iv) obligations of the Government of the United States Virgin Islands, or obligations guaranteed as to both principal and interest, by the Government of the United States Virgin Islands with a rating at the time of purchase in one,of the two highest Rating Categories as designated by S&P or any Rating Agency; (v) obligations issued, or the principal of and interest on which are unconditionally guaranteed, by any agency or instrumentality of or a corporation wholly owned by the United States with a rating at the time of purchase in one of the two highest Rating Categories as designated by any Rating Agency; (vi) | repurchase agreements with banks, savings and loan associations or trust companies organized under the laws of the United States Virgin Islands, the United States, or any state, territory, possession or commonwealth of the United States, provided, however, that any such bank, savings and loan association or trust company shall have a combined capital and surplus at least equal to $200,000,000 and, further provided that (1) such agreements are fully secured by obligations set forth in (i), (ii), and (iii) above; (2) such collateral is not subject to liens or claims of third parties; (3) such collateral has a market value at least equal to (102%) of the A-13 amount invested and is held by the Trustee or its agent or, in the case of uncertificated securities, are registered in the name of the Trustee as pledgee; (4) the . ‘Trustee has a valid security interest in such collateral and (5) such agreement shall provide that the failure to maintain such collateral at the level required by clause (3) for a period of 10 days will require the Trustee or its agents to liquidate the © investments; and (6) shall be rated in one of the two highest Rating Categories as designated by S&P or any Rating Agency then rating the Bonds. (vii) investment agreements, guaranteed investment contracts or similar funding agreements issued by insurance companies or other financial institutions; provided that (1) such agreements are fully secured by obligations set forth in (i), (ii) and (iii) above; (2) such collateral is not subject to liens or claims of third parties; (3) _ such collateral has a market value at least equal to (102%) of the amount invested and is held by the Trustee or its agent or, in the case of uncertificated securities, are registered in the name of the Trustee as pledgee; (4) the Trustee has a valid security interest in such collateral, (5) such agreement shall provide that the failure to maintain such collateral at the level required by clause (3) for a period of 10 days will require the Trustee or its agents to liquidate the investments; and (6) such insurance company or financial institution is rated in one of the two highest Rating Categories designated by S&P or any Rating Agency then rating the Bonds; (viii) U.S. dollar denominated bankers’ acceptances with domestic commercial banks which have a rating on their short-term certificates of deposit on the date of purchase in the highest short-term rating category by a national rating agency and maturing no more than 360 days after the date of purchase. (Ratings on holding companies are not considered as the rating of the bank); and (ix) Certificates of deposit with domestic commercial banks which have a rating on their short-term certificates of deposit on the date of purchase in the two highest short-term rating categories by S&P or any Rating Agency rating the Bonds and maturing no more than 360 days after the date of purchase. Certificates of deposit will be placed directly with depository institutions and secured by obligations set forth in (i), (ii) and (iii) above; (2) such collateral is not subject to liens of claims of third parties; (3) such collateral has a market value at least equal to (102%) of the amount invested and is held by the Trustee or its agent or, in the case of uncertificated securities, are registered in the name of the Trustee as pledgee; (4) the Trustee has a valid security interest in such collateral and (5) such agreement shall provide that the failure to maintain such collateral at the level required by clause (3) for a period of 10 days will require the Trustee or its agents to liquidate the investments; and (x) Investments in a money market fund rated in the two highest rating categories by S&P or any other Rating Agency rating the Bonds including money market funds sponsored by the Authority; and A-14 - (xi). Commercial Paper issued by U.S. Corporations which is rated at the : time of purchase in the two highest short-term rating category by S&P or any other- Rating Agency rating the Bonds and which matures not more.than 270 days.after the date of purchase. | , : Any such Permitted Investment may be purchased or sold by, from or through the Authority or the Trustee. The Authority will not direct the Trustee to hold investments described in (vi), (vii) and (viii) unless arrangements satisfactory to the Trustee are in place to verify and monitor compliance with such provisions. Person means an individual, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof, or any other legal entity or groups of legal entities. Pledge Agreement means a Pledge Agreement entered into with respect to a specific Series of Bonds or specific Bond within a Series of Variable Rate Bonds and related to the Credit Facility for such Bonds. Pledged Revenue Account means the fund by that name established pursuant to the Indenture. Principal Installment means, as of any date of calculation and with respect to the Bonds, so long as any Bonds thereof are Outstanding, (i) the principal amount of Bonds due on a certain future date, or (ii) the unsatisfied balance of any Sinking Fund Installments due on a certain future date for the Bonds. Principal Payment Date means any date on which a Principal Installment is scheduled to become due on Bonds whether by scheduled maturity or Mandatory Sinking Fund Requirements or otherwise. Prior Bonds shall mean Prior Bonds previously issued by the Authority or the Government, including collectively, (a) the Authority's Revenue Bonds (Virgin Islands General Obligation/Matching Fund Loan Note) Series 1989 A (the "1989 A Bonds"), which Series of Bonds have been economically defeased; (b) the Authority's Highway Revenue Bonds (Transportation Trust Fund) Series 1989B (the “1989B Bonds”); (c) the Government's Special Tax Bonds (General Obligation Matching Fund/Hugo Insurance Claims Fund Program) Series 1991 (the “Series 1991 Bonds”); (d) the Authority's Revenue and Refunding Bonds (Virgin Island General Obligation/Matching Fund Loan Notes) Series 1992A (the “Series 1992 Bonds”); A-15 ; (e) the Government's Subordinated Special Tax Bonds (General Obligation ‘Matching Fund/Insurance Claims Fund Program) Series 1993 (the “Series 1993 Bonds’); and (f) the ‘Authority's Governmeiit Development Program Revenue Bonds (General Obligation/Matching Fund Loan Notes) Series 1994 A, Series 1994 B and Series 1994 C (the “Series 1994 Bonds”). Proportionate Basis means, when used with respect to the redemption of Bonds of a specific Series, that the aggregate principal amount of such Bonds of each maturity of such Series to be redeemed shall be determined as nearly as practicable by multiplying the total amount of funds available for redemption by the ratio which the principal amount of Bonds of that Series to be redeemed bears to the principal amount of all Bonds of that Series then Outstanding; provided that if the amount available for redemption of Bonds of any maturity is insufficient to redeem a multiple of the minimum authorized denomination of such maturity, such amount shall be applied to the redemption of the highest possible integral multiple of the minimum authorized denomination of such maturity. For purposes of the foregoing, Term Bonds shall be deemed to mature in the years and in the amounts of the Mandatory Sinking Fund Requirements set forth in the applicable Supplemental Indenture. Any Bonds purchased with moneys which would otherwise be applied to redemption on a Proportionate Basis on the next succeeding Payment Date shall be taken into account in determining Proportionate Basis with respect to such redemption. When used with respect to the purchase of Bonds, Proportionate Basis shall have the same meaning as set forth above, substituting "purchase" for "redemption," and "purchased" for "redeemed." Purchase Date means the date on which any Outstanding Bonds are purchased pursuant to the Indenture or any applicable Supplemental Indenture. Qualified Swap Agreement means an agreement between the Authority and a Swap Provider (i) which agreement is either approved by, or following review of such agreement the rating upon all affected Bonds is confirmed by, each Rating Agency then rating the Swap Provider, and (ii) under which the Authority agrees to pay the Swap Provider an amount calculated at an agreed-upon rate or index based upon a notional amount and the Swap Provider agrees to pay the Authority for a specific period of time an amount calculated at an agreed-upon rate or index based upon such notional amount, where the Swap Provider, or the Person who guarantees the obligation of the Swap Provider to make its payments to the Authority, has unsecured obligations rated, as of the date the swap agreement is entered into, in one of the two highest applicable Rating Categories by each Rating Agency then rating such Swap Provider or other Person who guarantees such obligation. Rating Agency means Moody’s, S&P and Fitch or any successor or comparable Rating Agency as long as such Rating Agency shall maintain an outstanding rating on any Series of Bonds. Rating Category means a generic securities rating category, without regard to any refinement or gradation of such rating category by a numerical modifier or otherwise. Rebate Account means the Rebate Account established pursuant to the Indenture and the applicable Supplemental Indenture. Rebate Amount Certificate shall have the meaning set forth in the First Supplemental Indenture. : Rebate Requirement means the amount required to be paid to the United States Treasury pursuant to Section 148(f) of the Code. Record Date means with respect to an Interest Payment Date for the Bonds, unless otherwise provided by any Supplemental Indenture, the fifteenth day (or if such day shall not be a Business Day, the preceding Business Day) next preceding such Interest Payment Date. Redemption Price means with respect to any Bond, the principal amount of such Bond plus the applicable premium, if any, payable upon redemption thereof pursuant to such Bond, the Indenture or the applicable Supplemental Indenture. Related Agreements or Related Documents means any Credit Facility, Credit Agreement or Pledge Agreement related to a Series of Bonds or a specific portion thereof, including security agreements or instruments heretofore or hereafter made for the benefit and with the consent of the Trustee or a Credit Provider as creditor to secure payment of any Series or Bonds or a specific portion thereof or any amount due to a Credit Provider; but excluding the Indenture and all Supplemental Indentures; provided, that the term "Related Agreements" or "Related Documents," when used in relation to a specific Series of Bonds or a specific portion thereof, shall include only such Related Agreements or Related Documents as have been entered into for such Series of Bonds or a specific portion thereof, and shall not include documents, agreements or other items entered into only for the purposes of a different Series of Bonds or a specific portion thereof. Remarketing Agent means the firm appointed as Remarketing Agent for a specific Series of Optional Tender Bonds. Remarketing Agreement means the Remarketing Agreement for a Series of Bonds or a specific portion thereof, including any amendments and supplements thereto, between the Remarketing Agent and the Authority. Revenues means (i) any proceeds and collections from any Loan Notes deposited in the Pledged Revenue Account, including any investment earnings earned thereon, and (ii) any proceeds which arise with respect to any disposition of the Trust Estate. S&P means Standard & Poor’s Ratings Services, a corporation organized and existing under the laws of the State of New York, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “S&P” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Authority, by notice to the Trustee. A-17 Senior Lien Bonds means obligations of the Authority issued pursuant “to any Supplemental Indenture as. Senior Lien Bonds permitted by the Indenture. Senior Lien Capitalized Interest Subaccount means the subaccount by that name in the Senior Lien Debt Service Account established by the Indenture and the applicable Supplemental Indenture. Senior Lien Credit Subaccount means a subaccount by that name in the Senior Lien Debt Service Account or Senior Lien Debt Service Reserve Account, as applicable, established pursuant to the Indenture. Senior Lien Debt Service Account means the fund by the name established pursuant to the Indenture. Senior Lien Debt Service Reserve Account means the fund by that name established pursuant to the Indenture. Senior Lien Expense Account means the Account by that name established pursuant to the Indenture. Senior Lien Interest Subaccount means the Subaccount by that name in the Senior Lien Debt Service Account established pursuant to the Indenture and the applicable Supplemental Indenture. Senior Lien Redemption Subaccount means the subaccount by that name in the Senior Lien Debt Service Account established pursuant to the Indenture. Senior Lien Principal Subaccount means the subaccount by that name in the Senior Lien Debt Service Account established pursuant to the Indenture and the applicable Supplemental Indenture. Series means all Bonds, delivered on original issuance in a simultaneous transaction, regardless of variations in maturity, interest rate, Sinking Fund Installments, or other provisions. Series 1998 Arbitrage Rebate Fund shall mean the Arbitrage Rebate Fund established pursuant to the First Supplemental Indenture. Series 1998 Bonds shall mean collectively the Authority’s $541,820,000 Revenue and Refunding Bonds, Series 1998 A, Series 1998 B, Series 1998 C, Series 1998 D and Series 1998 E, authorized to be issued pursuant to the First Supplemental Indenture. Series 1998 A Bonds shall mean the $289,075,000 Revenue and Refunding Bonds, Series 1998 A (Senior Lien Refunding) authorized to be issued pursuant to the First Supplemental Indenture. Series 1998 B Bonds shall mean the $26,015,000 Revenue and Refunding Bonds, Series 1998 B (Senior Lien/Refunding/Taxable) authorized to be issued pursuant to the First _ Supplemental Indenture. Series 1998 C Bonds shail mean the $81,170,000 Revenue and Refunding Bonds, Series 1998 C (Senior Lien/Working Capital), authorized to be issued pursuant to the First Supplemental Indenture. Series 1998 D Bonds shall mean the $39,130,000 Revenue and Refunding Bonds, Series 1998 D (Subordinate Lien/Working Capital), authorized to be issued pursuant to the First Supplemental Indenture. Series 1998 E Bonds shall mean the $106,430,000 Revenue and Refunding Bonds, Series 1998 E (Subordinate Lien/Capital Program), authorized to be issued pursuant to the First Supplemental Indenture. Series 1998 Debt Service Reserve Requirement shall mean an amount equal to the least of (a) the maximum principal and interest due on the 1998 Senior Lien Bonds and on the 1998 Subordinate Lien Bonds in the current or any future Fiscal Year, (b) 10% of the original stated principal amount of the 1998 Senior Lien Bonds and on the 1998 Subordinate Lien bonds (or 10% of the issue price of the 1998 Senior Lien Bonds or the 1998 Subordinate Lien bonds if required by the Code) or (c) 125% of the average annual principal and interest due on the 1998 Senior Lien Bonds and on the 1998 Subordinate Lien Bonds in the current and each future Fiscal Year, as specified in the Indenture and the First Supplemental Indenture. Series 1998 Senior Lien Bonds shall mean the Series 1998 A Bonds, the Series 1998 B Bonds and the Series 1998 C Bonds. . Series 1998 Subordinate Lien Bonds shall meau the Series 1998 D Bonds and the Series 1998 E Bonds. Series 1998 Construction Subaccount shall mean the Series 1998 Construction Subaccount of. the Construction Account established pursuant to the First Supplemental Indenture. Series 1998 Cost of Issuance Subaccount shall mean the Series 1998 Cost of Issuance Subaccount of the Cost of Issuance Account established pursuant to the First Supplemental Indenture. Serics 1998 Interest Subaccount shall mean the Series 1998 Interest Subaccount established pursuant the First Supplemental Indenture. Series 1998 Principal Subaccount shall mean the Series 1998 Principal Subaccount established pursuant to the First Supplemental Indenture. A-19 Series 1998 Senior Lien Debt Service Reserve Account shall mean the Series 1998 Senior Lien Debt Service Reserve Account of the Senior Lien Debt Service Reserve Account established pursuant to the First Supplemental Indenture. Series 1998 Senior Lien Debt Service Reserve Requirement shall mean for the Series 1998 Senior Lien Bonds an amount equal to the least of (a) the maximum principal and interest ‘ due on the Series 1998 Senior Lien Bonds in the current or any future Fiscal Year, (b) 10% of the original stated principal amount of the Series 1998 Senior Bonds (or 10% of the issue price of the Series 1998 Bonds if required by the Code) or (c) 125% of the average annual principal and interest due on the Series 1998 Bonds i in the current and each future Fiscal Year. Series 1998 Subordinate Lien Debt Service Account shall mean the Series 1998 Subordinate Lien Debt Service Reserve Account of the Subordinate Lien Debt Service Reserve Account established pursuant to the First Supplemental Indenture. Series 1998 Subordinate Lien Debt Service Reserve Requirement for the Series 1998 Subordinate Lien Bonds shall be an amount equal to the least of (a) the maximum principal and interest due on the Series 1998 Subordinate Lien Bonds in the current or any future Fiscal Year, (b) 10% of the original stated principal amount of the Series 1998 Subordinate Bonds (or 10% of the issue price of the Series 1998 Bonds if required by the Code) or (c) 125% of the average annual principal and interest due on the Series 1998 Bonds in the current and each future Fiscal Year. Sinking Fund Installment means with respect to any Series of Bonds an amount so designated which is established pursuant to the Supplemental Indenture authorizing such Series of Bonds. SLGS means United States Treasury Obligations, State and Local Government Series, as provided for in the United States Treasury Regulations 31 CFR 344. Special Escrow Agent means U.S. Trust Company of New York, the special escrow agent under the Special Escrow Agreement, or any successor thereto. Special Escrow Agreement means the Special Escrow Agreement by and between the Authority, the Special Escrow Agent and the Borrower dated as of the date the Initial Series of Bonds are issued, as the same may be supplemented or amended from time to time. Special Escrow Fund means the Special Escrow Fund established under the Special Escrow Agreement. Special Record Date means if the Authority shall be in default in payment of principal or interest due, a special Record Date for the payment of such defaulted principal or interest established by notice mailed by the Trustee on behalf of the Authority; notice of such Special Record Date shall be mailed not less than 10 days preceding such Special Record Date, to the owner at the close of business on the fifth Business Day preceding the date of mailing. A-20 Subordinate Lien Bonds means obligations of the Authority issued pursuant to the First Supplemental Indenture’ as Subordinate Lien Bonds permitted under the Indenture. Subordinate Lien Capitalized Interest Subaccount means the subaccount by that name in the Subordinate Lien Debt’ Service Account established pursuant to the Indenture and the applicable Supplemental Indenture. Subordinate Lien Credit Subaccount means a subaccount by that name in the Subordinate Lien Debt Service Account or Subordinate Lien Debt Service Reserve Account, as applicable, established pursuant to the Indenture. Subordinate Lien Debt Service Account means the fund by that name established pursuant to the Indenture. Subordinate Lien Debt Service Reserve Account means the fund by that name established pursuant to the Indenture. Subordinate Lien Expense Account means the account by that name established pursuant to the Indenture. Subordinate Lien Interest Subaccount means the subaccount by that name in the Subordinate Lien Debt Service Account established pursuant to the Indenture and the First Supplemental Indenture. Subordinate Lien Principal Subaccount means the subaccount by that name in the Subordinate Lien Debt Service Account established pursuant to the Indenture and the First Supplemental Indenture. Subordinate Lien Redemption Subaccount means the subaccount by that name in the Subordinate Lien Debt Service Account established pursuant to the Indenture. Supplemental Indenture means any indenture amending or supplementing the Indenture ' in accordance with the terms hereof. Surplus Account means the Surplus Account established pursuant to the Indenture. _ Swap Provider means the counter party with whom the Authority enters into a Qualified Swap Agreement. Tax Covenants means the covenants of the Authority expressed in or incorporated by reference in the Indenture, or in the corresponding section of a Supplemental Indenture providing for assurance of the preservation of the tax-exempt status of the interest on a Series of Tax- Exempt Bonds. Tax-Exempt Bonds means Bonds issued pursuant to the Indenture for which the Authority receives, on the date of the closing therefor, an opinion of Bond Counsel to the effect A-21 that interest on such Bonds is excludable from the gross income of the owners thereof for federal . Income tax purposes under section 103 of the Code. .Tax Opinion means, with respect to any action requiring such a an opinion hereunder, a Counsel’s Opinion to'the effect that such action, of itself, will not adversely affect the exclusion of interest on any Series of Tax-Exempt Bonds from gross income for Federal income tax purposes. Tax_Regulatory Agreement means that agreement between the Authority and the Government of the Virgin Islands dated as of the date the Initial Series of Bonds are issued, as amended from time to time, relating to the requirements of Sections 148 and 103 of the Code for exemption of interest on the Tax-Exempt Bonds from Federal income tax. Taxable Bonds means any Bonds which are not Tax-Exempt Bonds on the date of original issue thereof. Term Bonds means Bonds which are designated in a Supplemental Indenture as subject to scheduled Mandatory Sinking Fund Requirements prior to maturity. Treasury Regulations means all final, temporary or proposed Income Tax Regulations issued or amended with respect to the Code by the Treasury or Internal Revenue Service and applicable to the Bonds. Any reference to a section of the Treasury Regulations shall also refer to any successor provision to such section hereafter promulgated by the Internal Revenue Service pursuant to the Code and applicable to the Bonds. Trust Estate means the Revenues and the rights to receive the same, the tangible and intangible properties, rights and other assets described in the Granting Clauses of the Indenture as from time to time supplemented, and (with respect to a specific Series of Bonds or specific Bonds within a Series) such funds, rights, properties and assets pledged to secure a Series of Bonds or specific Bonds within a Series pursuant to a Supplemental Indenture. Trustee means U.S. Trust Company of New York, a federal banking association duly organized and existing under the laws of the United States, designated as trustee under the Indenture, and its successor or successors hereafter appointed in the manner provided in the Indenture. Valuation Date means with respect to any Bonds that are Capital Appreciation Bonds or Deferred Interest Bonds, the date or dates set forth as such in the Supplemental Indenture authorizing such Bonds on which specific Accreted Values or Appreciated Values, respectively, are assigned to such Bonds. Variable Interest Rate means a variable interest rate or rates to be borne by a Series of Bonds or other obligations or by any Bond within a Series of Bonds. The method of computing such variable interest rate shall be specified in the Supplemental Indenture authorizing such Bonds or Related Agreements approved thereby. A-22 Variable Rate Bonds means any Bond that bears interest at a rate which is not established: at the time of-calculation at a single numerical rate for the remaining term of such bond. De oo Written Order means a written direction of the Authority to the Trustee signed by an Authorized Officer. A-23 APPENDIX B- _ SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE The following is a summary of certain provisions of the Indenture. Such‘summary does not purport to be complete or definitive and reference is made to the Indenture ‘for a full and complete statement of the terms and provisions and for the definition of capitalized terms used in this summary and not otherwise defined under “Definitions of Certain Terms in the Indenture and the Loan Agreement.” Pledge of Revenues. The Bonds shall be special, limited obligations of the Authority payable as to principal or Redemption Price, if any, and interest thereon, in accordance with their terms and the terms and provisions of the Indenture solely from Revenues, and secured by a lien on and security interest in the Trust Estate, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture. The Authority has no taxing power and its debts are not debts of the United States Virgin Islands or any political subdivision of the United States Virgin Islands. No holder of the Bonds shall have the right to compel any exercise of the taxing power of the United States Virgin Islands to pay the principal of or interest on the Bonds. Authorization of Bonds. The Indenture authorizes Bonds of the Authority to be issued and designated as “Revenue Bonds (Virgin Islands Matching Fund Loan Notes)” or “Revenue and Refunding Bonds (Virgin Islands Matching Fund Loan Notes),” as applicable. The aggregate principal amount of the Bonds under the Indenture and Supplemental Indenture is not limited except as provided in the Indenture, the Act, or as may be limited by law. Sinking Fund Redemption; Purchase. The Bonds of any Series issued pursuant to the Indenture and a Supplemental Indenture may be subject to optional, mandatory or extraordinary redemption or prepayment on a scheduled or other basis, provided that the Mandatory Sinking Fund Requirements of Bonds of a particular Series and-maturity shall be reduced to the extent the Bonds of that Series and maturity have been optionally or mandatorily redeemed prior to or on the date scheduled for payment of the specified principal amount and at the redemption prices specified in the applicable Supplemental Indenture. Additional Bonds; Other Revenue Obligations. All of the Bonds issued under a Supplemental Indenture shall have a lien upon the Trust Estate as provided in the Indenture and shall be prior to any other charge and lien upon the Trust Estate. Except as permitted by the _ Indenture, no obligations payable from Revenues or secured by a lien on the Trust Estate shall be hereafter issued. If no Event of Default has occurred or will contemporaneously, the Authority may issue Additional Bonds with a Supplemental Indenture. Additional Senior Lien Bonds. (a) Senior Lien Bonds shall be payable from Revenues and secured by a lien on the Trust Estate (except as to any Credit Facility which secures only a specific Series of Bonds or specific Bonds of a Series) on a parity basis with all Outstanding B-1 Senior Lien Bonds and any Additional Senior Lien Bonds that may be hereafter issued. if the | _ Trustee shall receive: (i) a certificate of the Authority that no Event of Default under the _ ‘Indenture has occurred and shall continue to exist immediately following the. . date of issuance of the Senior Lien Bonds to be issued; and (ii) a certificate of an Independent Verification Analyst stating: (1) (A) the actual amount of Matching Fund Revenues received by the Borrower for its immediately preceding Fiscal Year, (B) the average amount of Matching Fund Revenues received by the Borrower for the immediately preceding three Fiscal Years prior to the issuance of such Additional Senior Lien Bonds and (C) the average Matching Fund Revenues projected to be received by the Borrower in the next succeeding two Fiscal Years following issuance of such Additional Senior Lien Bonds; (2) the maximum annual Adjusted Debt Service Requirement in the current or any subsequent Bond Year on Outstanding Senior Lien Bonds after giving effect to the issuance of the proposed Senior Lien Bonds; and (3) (A) that the average Matching Fund Revenues received by the Borrower for the immediately preceding three Fiscal Years equaled or exceeded 150% of the amount of maximum Adjusted Debt Service Requirement in the current or any subsequent Bond Year, (B) the average Matching Fund Revenues projected to be received by the Borrower for the next succeeding two Fiscal Years following the issuance of the Additional Bonds is projected to equal or exceed 150% of the Adjusted Debt Service Requirement in the current or any subsequent Bond Year on Outstanding Senior Lien Bonds and such Additional Senior Lien Bonds and (C) the average Matching Fund Revenues projected to be received by the Borrower for the next succeeding two Fiscal years following the issuance of the additional Senior Lien Bonds is projected to equal or exceed 110% of the Adjusted Debt Service Requirement in the current or any subsequent Bond Year on Outstanding Senior Lien Bonds, such Additional Senior Lien Bonds and Outstanding Subordinate Lien Bonds. (b) For purposes of the certifications described in the Indenture, there shall be excluded from the Adjusted Debt Service Requirement any amounts otherwise due or to become due on Outstanding Bonds which are to be refunded and will be no longer Outstanding as a result of the issuance of such Additional Senior Lien Bonds. (c) Any Supplemental Indenture that authorizes Senior Lien Bonds under this Section shall establish the amount that shall be the Debt Service Reserve Requirement to be funded in connection with such Series of Bonds and may amend the Indenture in order to provide for the funding, application and replenishment of any account within the Senior Lien Debt Service Reserve Account in connection therewith, provided that no such amendment may adversely affect the Bonds of any Series then Outstanding except such Series of Senior Lien Bonds. (d) If the Senior Lien Bonds are subject to mandatory purchase or are to be purchased upon optional tender by the Owners thereof, any amounts required to be segregated or set aside by the Authority to fulfill its purchase obligation shall be deemed additional Adjusted Debt Service Requirements with respect to the related Series of Senior Lien Bonds in the amounts and at the times such amounts are required to be so set aside. © (e) The conversion of Senior Lien Bonds that are Variable Rate Bonds to Fixed Interest Rate Bonds shall not be treated as the issuance of additional Senior Lien Bonds subject to the other requirements of this Section unless the interest rate to be borne by such Senior Lien Bonds from and after the date of conversion will exceed the Certified Interest Rate taken into account for the purposes of computing Adjusted Debt Service Requirements. (f) Prior to the issuance of any Series of Senior Lien Bonds under the provisions of this Section, and as a condition precedent thereto, the following documents and showings shall be executed and delivered: (i) A Supplemental Indenture, executed by the Authority and the Trustee, providing for the issuance of such Senior Lien Bonds and the terms and conditions thereof; and (ii) An Authority certificate setting forth information sufficient to satisfy the Trustee that the requirements set forth above have been fulfilled. Additional Subordinate Lien Bonds. (a) Additional Subordinate Lien Bonds payable from Matching Fund Revenues and secured by a lien on the Trust Estate on a junior and subordinate basis to the payment obligation to the Senior Lien Bonds may be issued on a parity basis with all Outstanding Subordinate Lien Bonds if the Trustee shall receive: (i) a certificate of the Authority that no Event of Default under this Indenture has occurred and shall continue to exist immediately following the date of issuance of the additional Subordinate Lien Bonds to be issued; and (ii) a certificate of an Independent Verification Analyst stating (1)(A) the actual amount of Matching Fund Revenues received by the Borrower for its immediately preceding Fiscal Year, (B) the average amount of Matching Fund Revenues received by the Borrower for its immediately preceding two Fiscal Years prior to the issuance of such Additional Subordinate Lien Bonds and (c) the average Matching Fund Revenues projected to be received by the Borrower in the next succeeding two Fiscal Years following issuance of such Subordinate Lien Bonds; (ii) the maximum annual Adjusted Debt Service Requirement in the current or any subsequent Bond Year on Outstanding Subordinate Lien Bonds after giving effect to the issuance of the proposed Subordinate Lien Bonds; and (3)(A) that the average Available Matching Fund Revenues of the Borrower after payment of Debt Service on any Senior Lien Bonds then outstanding or any Senior Lien Bonds to be issued simultaneously with such Additional Subordinate Lien Bonds (the "Available Matching Fund Revenues") for the immediately preceding three Fiscal Years equaled or.exceeded 125% of.the amount of the maximum, Adjusted Debt | Service Requirement in the current or any subsequent Bond Year and (B) the average Available Matching Fund Revenues projected to be received by the ' Borrower for the next succeeding two Fiscal Years following the issuance of the Additional Subordinate Lien Bonds is projected to equal or exceed 125% of the Adjusted Debt Service Requirement in the current or any subsequent Bond Year on Outstanding Subordinate Lien Bonds and such Additional Subordinate Lien Bonds and (C) the average Matching Fund Revenues projected to be received by the Borrower for the next succeeding two Fiscal Years following issuance of the additional Subordinate Lien Bonds is projected to equal or exceed 110% of the Adjusted Debt Service Requirement in the current or any subsequent Bond Year on Outstanding Senior Lien Bonds and Outstanding Subordinate Lien Bonds. (b) For purposes of the certifications described above, there shall be excluded from the Adjusted Debt Service Requirements any amounts otherwise due or to become due on Outstanding Bonds which are to be refunded and will be no longer Outstanding as a result of the issuance of such Additional Subordinate Lien Bonds. (c) Any Supplemental Indenture which authorizes Additional Subordinate Lien Bonds shall establish the amount which shall be the Debt Service Reserve Requirement to be funded in connection with such Series of Additional Bonds and may amend the Indenture in order to provide for the funding, application and replenishment of any account within the Subordinate Lien Debt Service Reserve Account in connection therewith, provided that no such amendment may adversely affect the Bonds of any Series then Outstanding except such Series of Additional Subordinate Lien Bonds. (d) If the Additional Subordinate Lien Bonds are subject to mandatory purchase or are to be purchased upon optional tender by the Owners thereof, any amounts required to be segregated or set aside by the Authority to fulfill its purchase obligation shall be deemed additional Adjusted Debt Service.Requirements with respect to the related Series of Subordinate Lien Bonds in the amounts and at the times such amounts are required to be so set aside. (e) The conversion of Subordinate Lien Bonds which are Variable.Rate Bonds to Fixed Interest Rate Bonds shall not be treated as the issuance of additional Subordinate Lien Bonds subject to the other requirements of this Section unless the interest rate to be borne by such Subordinate Lien Bonds from and after the date of conversion will exceed the Certified Interest Rate taken into account for the purposes of computing Adjusted Debt Service Requirements. . (f) Prior to the issuance of any Series of Additional Subordinate Lien Bonds, and as a condition precedent thereto, the following documents and showings shall be executed and delivered: (i) A Supplemental Indenture, executed by the Authority and the Trustee, providing for the issuance of the Additional Subordinate Lien Bonds and the terms and conditions thereof; and ~~ oS (ii) An Authority certificate setting forth information sufficient to satisfy the Trustee that the requirements of this Section have been fulfilled. (g) No Subordinate Lien Bond may be accelerated as long as any Senior Lien Bonds are outstanding. , Refunding Bonds. Additional Bonds may be issued to refund Outstanding Bonds. The Additional Bonds may be on a parity with or subordinate to the Bonds that are being refunded and are not required to satisfy the tests for issuance of .Additional Senior Lien Bonds or Additional Subordinate Lien Bonds if the aggregate Debt Service on the Refunding Bonds ts equal to or less than aggregate Debt Service on the Refunded Bonds, provided that Additional Senior Lien Bonds issued to refund Outstanding Subordinate Bonds must satisfy the requirements for issuance of Additional Senior Lien Bonds. Supplemental Indenture. A Supplemental Indenture authorizing the issuance of a Series of Bonds may modify the terms of those Bonds and the prescribed form thereof in a manner consistent with the Indenture. Credit Facilities. The Indenture or any Supplemental Indenture does not limit the Authority’s right to obtain a Credit Facility for the benefit of the Owners of all or any portion of any Series of Bonds issued hereunder. Each Credit Facility shall be held by the Trustee for the sole and exclusive benefit of the Owners of the Series of Bonds secured by such Credit Facility and not be an asset available for the benefit of the Owners of any other Bonds. Book-entry System. Ownership of one or more fully registered Bonds for each maturity of each Series of Bonds shall be registered in the name of Cede and Company, as nominee for the Depository Trust Company (“DTC”). Payments of interest on, principal of, or any premium on such Series of Bonds shall be made to the account of the DTC on each payment date at the address indicated for the DTC in the Bond Register by transfer of immediately available funds. DTC maintains a book-entry system for recording ownership interests of its Direct Participants, and the ownership interests of a purchaser of a beneficial interest in the Bonds will be recorded through book entries on the records of the Direct Participants. With respect to Bonds registered in the name of DTC, the Authority, the Trustee and any agent thereof shall have no responsibility or obligation to any Direct Participant or to any Beneficial Owner of such Bonds as specified in the Indenture. DTC may determine to discontinue providing its services with respect to the Bonds of a Series at any time by giving reasonable written notice to the Authority, the Trustee and any tender agent for a Series of Bonds and discharging its responsibilities with respect thereto under applicable law. Additionally, the Authérity may terminate, upon provision of notice to the Trustee and any tender agent for a Series of Bonds, the services of the DTC with respect to a Series of Bonds if the continuation of the system of book entry-only transfers is not in the best interests of the Owners of the Bonds of the Series or is burdensome to the Authority. B-5 The Authority may select a new v Depository or discontinue the services of a Depository and issue ° Bond certificates. General Provisions. The Bonds shall be in minimum denominations of $5,000, or in integral multiples thereof in the form set forth in the exhibit to the appropriate Supplemental Indenture. The Authority shall execute the Bonds by the manual or facsimile signature of the Governor of the Virgin Islands with the seal or facsimile seal of the Authority and attestation by the manual or facsimile signature of the Secretary of the Authority in accordance with the provisions of the Indenture. The Bonds shall be transferable only upon the books of the Authority by the Trustee. In all cases in which the privilege of exchanging Bonds or transferring registered Bonds is exercised, the Authority shall execute and the Trustee shall authenticate and deliver Bonds in accordance with, and subject to the restrictions of, the Indenture. Neither the Authority nor the Trustee shall be required (a) to transfer or exchange Bonds for a period beginning on the Record Date next preceding an interest payment date for the Bonds and ending on such interest payment date, or for a period of fifteen days next preceding the date (as determined by the Trustee) of any selection of Bonds to be redeemed or thereafter until after the mailing of any notice of redemption; or (b) to transfer or exchange any Bonds called or tendered for redemption, in whole or in part. Exchanges and Transfers of Bonds. The Indenture provides when a Bond is exchanged or transferred, the Authority shall execute and the Trustee shall authenticate and deliver Bonds in accordance with the provisions of the Indenture. Bonds surrendered for exchange or transfer shall be canceled by the Trustee. The Authority may only make a charge sufficient to reimburse it for any tax or other governmental charge required to be paid with respect to such exchange or transfer. The Indenture provides specific time periods when the Authority and the Trustee cannot be required to transfer or exchange Bonds. Redemption. Bonds subject to mandatory, optional or extraordinary redemption prior to maturity pursuant to any Supplemental Indenture shall be redeemable, upon notice, at such times, at such Redemption Prices and upon such terms in addition to the terms contained in the Indenture as may be specified in any Supplemental Indenture. At the election or-direction of the Authority, the Board shall notify the Trustee of the Authority’s decision to redeem and of the particulars of the redemption. If less than all of the Bonds of like maturity of any Series shall be called for prior redemption, the Trustee shall randomly select the particular Bonds or portions of the Bonds to be redeemed. Notice of Redemption. When the Trustee shall receive notice from the Board, acting on behalf of the Authority, of its election or direction to redeem Bonds pursuant to the Indenture, and when redemption of Bonds is required or authorized pursuant to the Indenture, the Trustee shall give notice, in the name of the Authority, of the redemption of such Bonds, which notice shall specify the Series and maturities of the Bonds to be redeemed, the redemption date and the place or places where amounts due upon such redemption will be payable and, if less than all of the Bonds of any like Series and maturity are to be redeemed, the letters and numbers or other distinguishing marks of such Bonds so to be redeemed, and, in the case of Bonds to be redeemed in part only, such notice shall also specify the respective portions of the principal amount thereof to be redeemed. Such notice shall further state that on such date there shall become due and B-6 payable upon each Bond to be redeemed the Redemption Price thereof, or the Redemption Price of the specified portions of the principal thereof in the case of Bonds to be redeemed in part only, together with interest accrued to the redemption date, and that from: and after such date interest thereon shall cease to accrue and be payable. ‘Such notice shall be mailed by the Trustee by first - ’ class mail, postage prepaid, not more than 60 days nor less than 35 days before the redemption date, to each of the Owners of any Bonds or portions of Bonds which are to be redeemed, at their last addresses, if any, appearing upon the Bond Register, but any defect in, or the failure of any Bondowner to receive, any such notice shall not affect the validity of the proceedings for the redemption of Bonds. Notwithstanding the foregoing, failure to mail any such notice pursuant to the Indenture to any particular Owner of a Bond shall not affect the validity of any proceedings for the redemption of any other Bond. Payment of Redeemed Bonds. Notice having been given in the manner provided in the Indenture, the Bonds or portions thereof so called for redemption shall become due and payable on the redemption date so designated at the Redemption Price, plus interest accrued and unpaid to the redemption date, and, upon presentation and surrender thereof at the office specified in such notice, such Bonds or portions thereof shall be paid at the Redemption Price, plus interest accrued and unpaid to the redemption date. If there shall be called for redemption less than all of a Bond, the Authority shall execute and the Trustee shall deliver, upon the surrender of such Bond, without charge to the owner thereof, for the unredeemed balance of the principal amount of the Bond so surrendered, at the option of the Owner thereof, Bonds of like Series and maturity in any of the authorized denominations. If, on the redemption date, moneys for the redemption of all the Bonds or portions thereof of any like Series and maturity to be redeemed, together with interest to the redemption date, shall be held by the Paying Agent so as to be available therefor on said date and if notice of redemption shall have been given as aforesaid, then, from and after the redemption date interest on the Bonds or portions thereof of such Series and maturity so called for redemption shall cease to accrue and become payable. If said moneys shall not be so available on the redemption date, such Bonds or portions thereof shall continue to bear interest until paid at the same rate as they would have borne had they not been called for redemption. Creation of Accounts, and Subaccounts; Deposit of and Use of Moneys. The proceeds of each Series of Bonds and all Revenues and other sums pledged and assigned by the Indenture to the Trustee for the benefit of Bondholders are to be deposited to the Accounts established by the Indenture and shall not be subject to any lien or attachment by any Creditor of the Authority or any Credit Provider or other person other than the lien of the Indenture. The Accounts and separate Subaccounts within the Accounts created with respect to each series of Bonds under the Indenture shall be held and administered by the Trustee or the Authority in accordance with the terms of the Indenture and may include the following: (1) The Pledged Revenue Account, to be held by the Trustee; (2) The Senior Lien Debt Service Account, to be held by the Trustee with such separate Subaccounts as provided in the Indenture or Supplemental Indenture, including, any of the following accounts therein: (A) A Senior Lien Interest Subaccount; B-7 (B) A Senior Lien Principal Subaccount; (C) . A Senior Lien Redemption Subaccount; (D) . A Senior Lien Credit Subaccount with respect to each Credit.: . ) Facility which is not a Debt Service Reserve Account Credit Facility; (E) A Senior Lien Expense Subaccount; (F) A Senior Lien Purchase Subaccount; (G) ~ A Capitalized Interest Subaccount; (H) = Any other Account or Subaccount established by the applicable Supplemental Indenture. (3) The Senior Lien Debt Service Reserve Account, to be held by the Trustee, with such separate Series Senior Lien Debt Service Reserve Subaccounts and Senior Lien Credit Subaccounts therein as in any Supplemental Indenture; (4) The Subordinate Lien Debt Service Account, to be held by the Trustee with such separate Subaccounts therein as provided in the Indenture or Supplemental Indenture creating such Series of Subordinate Lien Bonds, including, applicable accounts therein: (A) — A Subordinate Lien Interest Subaccount; (B) A Subordinate Lien Principal Subaccount; (C)