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06-11-13-Ordinance-Certificates of Obligation Series 2013, Water Wastewater Drainage Streets Parks-06/17/2013CITY OF SANGER, TEXAS $4,260,000 CERTIFICATES OF OBLIGATION SERIES 2013 INDEX OF CONTENTS CERTIFICATE PROCEEDINGS AND DOCUMENTS Closing Memorandum Resolution Authorizing Publication of Notice of Intention to Issue Certificates Affidavit of Publication of Notice of Intent Ordinance Authorizing Issuance of the Certificates Purchase Agreement Preliminary Official Statement Official Statement Paying Agent/Registrar Agreement CERTIFICATES General Certificate Signature Identification and No -Litigation Certificate Tax Exemption Certificate, Certificate of Underwriter, and Form 8038G Closing Certificate Required by Purchase Agreement OPINIONS Opinion of Bond Counsel Opinion of Attorney General of Texas with Certificate of Comptroller of Public Accounts Opinion of Underwriter's Counsel Supplemental Opinion of Bond Counsel 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 HOU:3306879.1 MISCELLANEOUS Receipt and Cross Receipt Registrar's Receipt Rating Agency Letter Specimen Certificate Bond Review Board Questionnaire 17 18 19 20 21 HOU:3306879.1 July 9, 2013 ISSUER City of Sanger Mike Brice — City Manager Cheryl Davenport — Finance Director PO Box 1729 Sanger, TX 76266 Phone: (940) 458-7930 mbrice@sangertexas.org FINANCIAL ADVISOR Government Capital Securities Corporation Ted Christensen / Wendy Dolan 559 Silicon Drive, Suite 102 Southlake, TX 76092 Phone: (817) 722-0239 tchristensen@govcapsecurities.com BOND COUNSEL Andrews Kurth LP Hoang Vu / Todd Brewer 600 Travis Street, Suite 4200 Houston, Texas 77002 Phone: (713) 220-3879 hoangvu@andrewskurth.com BOND UNDERWRITER Oppenheimer & Co., Inc. Daniel Roseveare / Brian Garcia 13455 Noel Rd., Suite 1200 2 Galleria Tower Dallas, Texas 75240 Phone: (972) 450-3823 Brian.garcia@opco.com UNDERWRITER'S COUNSEL Fulbright & Jaworski L.L.P. 1301 McKinney Suite 5100 Houston, Texas 77010-3095 Marcus Deitz Phone: (713) 651-5649 mdeitz@fulbright.com PAYING AGENT Bank of Texas (BOKF, NA) Jose A. Gaytan, Jr. 100 Congress Avenue, Ste.250 Austin, Texas 78701 Phone: (512) 279=7350 igaytan@bankoftexas.com Re: Closing Instructions with respect to the City of Sanger, Texas, $4,260,000 Combination Tax and Revenue Certificates of Obligation, Series 2013 (the "Bonds"). Payment for the above referenced Bonds is scheduled to occur at 10:00 A.M. CST on Tuesday, July 9, 2013 (the "Closing Date"), and payment therefore is to occur at the offices of The Bank of Texas, the paying agent/registrar ("BOKF"). SOURCES OF FUNDS Principal Amount of Bonds $4,260,000.00 PLUS: Premium 347,886.60 TOTAL SOURCES $4,607,886.60 USES OF FUNDS Deposit to Construction Fund $ 4,500,000.00 PLUS: Costs of Issuance (plus rounding amount) 73,352.85 PLUS: Underwriter's Discount 34,533.75 TOTAL USES $ 4,607886.60 CONFIRMATION OF PURCHASE PRICE Principal Amount of Bonds $4,260,000.00 PLUS: Premium 347,886.60 LESS: Underwriter's Discount 34,533.75 PURCHASE PRICE OF THE BONDS $4,573,352.85 ` 1 (A) Prior to 10:00 A.M. on the Closing Date, Oppenheimer & Co. (the "Underwriter") shall wire in immediately available funds $4,573,352.85 (consisting of the par amount of the Bonds of $4,260,000.00 plus original issue premium of $347,886.60 and less underwriter's discount of $34,533.75). Instructions for wiring funds to BOKF are as follows: BOKF, NA dba Bank of Texas ABA:103900036 Acct. No. 600024642 Acct Name: Wealth Management Account Re: City of Sanger Series 2013 Attn. Jose Gaytan. 512 279-7850. (B) BOKF is instructed to disburse the funds, no later than 1:00 P.M., described above as follows: (1) Deposit to Construction Fund: To: City of Sanger $4,500,000.00 Account Name: First United Bank and Trust Company (580) 920-4923 Address: 1400 W Main Durant, OK 74701 Routing Number: 111925061 Account No.: 2674823 Attn: Cheryl Davenport, CGFO, Finance Director (2) Wire transfer costs of issuance funds to: To: Wells Fargo Bank Texas, NA ABA:121000248 Account Name: Government Capital Securities Corporation Account No.: 6859041375 72,852.85 (3) Trustee Fees Retained by Trustee 500.00 Government Capital Securities Corporation is instructed and requested to make a full and complete accounting to the District of all costs and expenses paid with such amount and remit the balance, if any, to the City after payment of such issuance costs and expenses. Your cooperation regarding the wiring, receipt and disbursement of funds in accordance with this letter is greatly appreciated. Should you have any further questions, please advise me at (972) 450-3823. Very truly yours, c .1��C Z",—, Daniel C. Roseveare Brian Garcia Managing Director Director Oppenheimer & Co. Oppenheimer & Co. ra CERTIFICATE FOR RESOLUTION THE STATE OF TEXAS COUNTY OF DENTON THE CITY OF SANGER We, the undersigned officers of the City of Sanger, Texas (the "City"), hereby certify as follows: 1. The City Council of the City convened in a regular meeting on May 6, 2013, at the regular meeting place thereof, within the City, and the roll was called of the duly constituted officers and members of the City Council, to wit: Thomas Muir Mayor Russell Martin Mayor Pro Tern Allen Chick Councilman Gary Bilyeu Councilman Billy Ezell Councilman Scott Stephens Councilman and all of such persons were present, thus constituting a quorum. Whereupon, among other business, the following was transacted at said meeting: a written RESOLUTION AUTHORIZING PUBLICATION OF NOTICE OF INTENTION TO ISSUE CERTIFICATES OF OBLIGATION IN A PRINCIPAL AMOUNT NOT TO EXCEED $4,500,000, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO (the "Resolution") was duly introduced for the consideration of the City Council and read in full. It was then duly moved and seconded that such Resolution be adopted; and, after due discussion, the motion, carrying with it the adoption of the Resolution, prevailed and carried by the following vote: AYES: 5 NAYS: 0 ABSTENTIONS: 0 2. That a true, full and correct copy of the Resolution adopted at the meeting described in the above and foregoing paragraph is attached to and follows this certificate; that the Resolution has been duly recorded in the City Council's minutes of such meeting; that the above and foregoing paragraph is a true, full and correct excerpt from the City Council's minutes of such meeting pertaining to the adoption of the Resolution; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of the City Council as indicated therein; that each of the officers and members of the City Council was duly and sufficiently notified officially and personally, in advance, of the date, hour, place and subject of the aforesaid meeting, and that the Resolution would be introduced and considered for adoption at such meeting, and each of such officers and members consented, in advance, to the holding of such meeting for such purpose; that such meeting was open to the public as required HOU:3306873.1 by law; and that public notice of the date, hour, place and subject of such meeting was given as required by the Open Meetings Law, Chapter 551, Texas Government Code. SIGNED AND SEALED this May 6, 2013. City Secretary CITY OF SANGER, TEXAS OF S SEAL rEX AS. 41111U1113'O � 2 HOU:3306873.1 Mayor CITY OF SANGER, TEXAS RESOLUTION RESOLUTION AUTHORIZING PUBLICATION OF NOTICE OF INTENTION TO ISSUE CERTIFICATES OF OBLIGATION IN A PRINCIPAL AMOUNT NOT TO EXCEED $4,500,000, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO THE STATE OF TEXAS § COUNTIES OF DENTON § THE CITY OF SANGER § WHEREAS, the City Council (the "City Council") of the City of Sanger, Texas (the "City"), is authorized to issue certificates of obligation to pay contractual obligations to be incurred for water and sewer system repairs and improvements, street repairs, drainage repairs and improvements, and park repairs and improvements, and for the payment of contractual obligations for professional services pursuant to Subchapter C of Chapter 271, Texas Local Government Code, as amended; WHEREAS, the City Council has determined that it is in the best interests of the City and otherwise desirable to issue certificates of obligation in a principal amount not to exceed $4,500,000 styled "City of Sanger, Texas Certificates of Obligation, Series 2013" (the "Certificates"); WHEREAS, in connection with the Certificates, the City Council intends to publish notice of intent to issue the Certificates (the "Notice") in a newspaper of general circulation in the City; and WHEREAS, the City Council has been presented with and has examined the proposed form of Notice and finds that the form and substance thereof are satisfactory, and that the recitals and findings contained therein are true, correct and complete. BE IT THEREFORE RESOLVED BY THE CITY COUNCIL OF THE CITY OF SANGER, TEXAS: Section 1. Preamble. The facts and recitations contained in the preamble of this Resolution are hereby found and declared to be true and correct. Section 2. Authorization of Notice. The City Secretary is hereby authorized and directed to execute and deliver the Notice set forth in Exhibit A hereto and to publish such Notice on behalf of the City once a week for two (2) consecutive weeks in a newspaper which is of general circulation in the City, the date of the first publication to be before the 30th day before the date tentatively set for the passage of the ordinance authorizing the issuance of the Certificates. Section 3. Engagement of Professionals. This City Council hereby approves the engagement of Andrews Kurth LLP, as bond counsel ("Bond Counsel") in connection with the issuance of the Certificates. 1 HOU:3306873.1 Section 4. Authorization of Other Matters Relating Thereto. The Mayor, City Secretary and other officers and agents of the City are hereby authorized and directed to do any and all things necessary or desirable to carry out the provisions of this Resolution. Section 5. Effective Date. This Resolution shall take effect immediately upon passage. Section 6. Public Meeting. It is officially found, determined and declared that the meeting at which this Resolution is adopted was open to the public and public notice of the time, place and subject matter of the public business to be considered at such meeting, including this Resolution, was given all as required by the Texas Government Code, Chapter 551, as amended. [Remainder of Page Intentionally Left Blank] 2 HOU:3306873.1 PASSED AND APPROVED this 6th day of May, 2013. Mayor City of Sanger, Texas ATTEST: City Secretary City of Sanger, Texas 3 HOU:3306873.1 EXHIBIT A NOTICE OF INTENTION TO ISSUE CERTIFICATES NOTICE IS HEREBY GIVEN that the City Council of the City of Sanger, Texas (the "City") will meet at its regular meeting place at City Hall, Sanger, Texas at 7:00 p.m. on the 17th day of June, 2013, which is the time and place tentatively set for the passage of an ordinance and such other action as may be deemed necessary to authorize the issuance of the City's certificates of obligation, payable from ad valorem taxation and a limited (in an amount not to exceed $10,000) subordinate pledge of certain revenues of the water and sewer system of the City, in the maximum aggregate principal amount of $4,500,000, bearing interest at any rate or rates not to exceed the maximum interest rate now or hereafter authorized by law, as shall be determined within the discretion of the City Council at the time of issuance and maturing over a period of years not to exceed forty (40) years from the date thereof, for the purpose of evidencing the indebtedness of the City to pay all or any part of the contractual obligations to be incurred for water and sewer system repairs and improvements, street repairs, drainage repairs and improvements, and park repairs and improvements, and for the payment of contractual obligations for professional services. City Secretary City of Sanger, Texas HOU:3306573.1 THE STATE OF TEXAS COUNTY OF DENTON PUBLISHER'S AFFIDAVIT S1 �3 o it NANC vti , being duly sworn on his/her oath states that he/she is the of the "Denton Record Chronicle" a newspaper of general circulation in Denton County (the "Newspaper") and further state as follows: 1. This Affidavit is given pursuant to Section 2051,044 of the Texas Local Government Code, 2. The Newspaper devotes not less than 25% of its total column line inch to general interest items. 3. The Newspaper is published at least once a week. 4. The Newspaper is entered as second class postal matter in Denton County, its county of publication. 5. The Newspaper has been published regularly and continuously for at least twelve months before the publishing of a notice entitled "Notice of intention to Issue Certificates." 6. The attached Legal Notice appeared in the Newspaper in a conspicuous form and place on cat 3 , 2013 and on &A as t -2-z , 2013. Subscribed and sworn before me this G day of -:Y - n e- , 2013. Name: ; t Title: P�h Ls THE STATE OF TEXAS § COUNTY OF DENTON § THIS INSTRUMENT was acknowledged before me on �� ,�� , 2013, by oPRY Pie, JULIE K. HAMMOND * Notary Public State of Texas My Comm. Expires 1-5-2016 Not • ub t , a e of Texas HOU:3306934.1 Monday, May 13, 2013 3C NOTICE OF INTENTION TO ISSUE'CER71FICATES: NOTICE IS HEREBY GIVEN that the City Council of the City of , Sanger, Texas (the "City") will meet at its regular meeting place' at City Hall, Sanger, Texas at 7:00 p.m. on the 17th day of June, 2013, which is the time andplace tentatively set for the passage of an oreinanceand'such other action as may be deemed necessary to authorize the issuance of the, City's certificates of obligation, payable from ad valorem taxation and a limited (in an amount not to exceed $10,000) subordinate pledge of certain revenues,of.the waterand sewer system of the City, in the mextmum aggregate principal amount of $4,500,000,;bearing Interest at any rate or;rates not to exceed thi maximum interest rate: noworhereafter.authorized by . law,'as shall be determined wflhlwr the dlscrefiori of the'City Council l at the time of issuance and maturing over a period of years . not to exceed forty'(40) years from the:date thereof; for the Purpose of evidencing the i indebtedness of the City to pay all or any part of the contractual: obligations to be incurred for water and sewer system. repairs - and improvements, street repairs, S, drainage repairs and improve- - >, ments; and park repairs and improvements, and for the payment of contractual obligations - for professional services. Tami Taber, City Secretary City of Sanger, Texas DRC 5.13 & 5.20.13 ' Monday, May 20, 2013 3 at the discretion of the CltyCounc"Il � at the time of aminnna aur or and ivr processional services.. , Tami Taber, City Secretary City of Sanger; Texas DRC 5.13 R 5.2o-13 CERTIFICATE FOR ORDINANCE THE STATE OF TEXAS § COUNTIES OF DENTON § CITY OF SANGER § We, the undersigned officers of the City of Sanger, Texas (the "City"), hereby certify as follows: 1. The City Council of the City convened in a regular meeting on June 17, 2013, at the regular meeting place thereof, within the City, and the roll was called of the duly constituted officers and members of the City Council, to wit: Thomas Muir Russell Martin Allen Chick Gary Bilyeu Billy Ezell Scott Stephens Mayor Mayor Pro Tern Councilman Councilman Councilman Councilman and all of such persons were present except Gary Bilyeu, thus constituting a quorum. Whereupon, among other business, the following was transacted at said meeting: a written AN ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2013; PRESCRIBING THE TERMS AND FORM THEREOF; PROVIDING FOR THE PAYMENT OF THE PRINCIPAL THEREOF AND INTEREST THEREON; AWARDING THE SALE THEREOF; AUTHORIZING THE PREPARATION AND DISTRIBUTION OF AN OFFICIAL STATEMENT TO BE USED IN CONNECTION WITH THE SALE OF THE CERTIFICATES; AUTHORIZING THE PURCHASE OF BOND INSURANCE; MAKING OTHER PROVISIONS REGARDING SUCH CERTIFICATES, INCLUDING USE OF THE PROCEEDS THEREOF, AND MATTERS INCIDENT THERETO; AND DECLARING AN EMERGENCY (the "Ordinance") was duly introduced for the consideration of the City Council and read in full. It was then duly moved and seconded that the Ordinance be adopted on first reading; and, after due discussion, such motion, carrying with it the adoption of the Ordinance, prevailed and carried by the following vote: AYES: 4 NAYS: 0 ABSTENTIONS: 0 HOU:3306938.3 2. That a true, full and correct copy of the Ordinance adopted at the meeting described in the above and foregoing paragraph is attached to and follows this certificate; that the Ordinance has been duly recorded in the City Council's minutes of such meeting; that the above and foregoing paragraph is a true, full and correct excerpt from the City Council's minutes of such meeting pertaining to the adoption of the Ordinance; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of the City Council as indicated therein; that each of the officers and members of the City Council was duly and sufficiently notified officially and personally, in advance, of the date, hour, place and subject of the aforesaid meeting, and that the Ordinance would be introduced and considered for adoption at such meeting, and each of such officers and members consented, in advance, to the holding of such meeting for such purpose; that such meeting was open to the public as required by law; and that public notice of the date, hour, place and subject of such meeting was given as required by the Open Meetings Law, Chapter 551, Texas Government Code. SIGNED AND SEALED this June 17, 2013. City Secretary CITY OF SANGER, TEXAS Mayor CITY OF SANGER, TEXAS S-1 HOU:3306438. MR-U_._\0, AN ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2013; PRESCRIBING THE TERMS AND FORM THEREOF; PROVIDING FOR THE PAYMENT OF THE PRINCIPAL THEREOF AND INTEREST THEREON; AWARDING THE SALE THEREOF; AUTHORIZING THE PREPARATION AND DISTRIBUTION OF AN OFFICIAL STATEMENT TO BE USED IN CONNECTION WITH THE SALE OF THE CERTIFICATES; AUTHORIZING THE PURCHASE OF BOND INSURANCE; MAKING OTHER PROVISIONS REGARDING SUCH CERTIFICATES, INCLUDING USE OF THE PROCEEDS THEREOF, AND MATTERS INCIDENT THERETO; BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF SANGER: ARTICLE I FINDINGS AND DETERMINATIONS Section 1.1: Findings and Determinations. The City Council hereby officially finds and determines that: (a) The City of Sanger, Texas (the "City"), acting through its City Council, is authorized pursuant to and in accordance with the provisions of Texas Local Government Code, Chapter 271, Subchapter C, as amended (the "Act"), to issue certificates of obligation to provide all or part of the funds to pay (A) contractual obligations to be incurred for water and sewer system repairs and improvements, street repairs, drainage repairs and improvements, and park repairs and improvements, and (B) professional services rendered in connection with the above listed projects. (b) The City Council authorized the publication of a notice of intention to issue Combination Tax and Revenue Certificates of Obligation, Series 2013 (the "Certificates") to the effect that the City Council was tentatively scheduled to meet at 7:00 p.m. on June 17, 2013 at its regular meeting place to adopt an ordinance authorizing the issuance of the Certificates to be payable from (i) an ad valorem tax levied, within the limits prescribed by law, on the taxable property located within the City, and (ii) the surplus revenues to be derived from the City's water and sewer system (the "System") after the payment of all operation and maintenance expenses thereof (the "Net Revenues") in an amount not to exceed $10,000, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. (c) Such notice was published at the times and in the manner required by the Act. HOU:3306938.3 (d) No petition signed by at least five percent (5%) of the qualified voters of the City has been filed with or presented to any official of the City protesting the issuance of such Certificates on or before June 17, 2013, or the date of passage of this Ordinance. (e) The City has determined that it is in the best interests of the City and that it is otherwise desirable to issue the Certificates to provide all or part of the funds to pay contractual obligations to be incurred for the purposes authorized by the Act. ARTICLE II DEFINITIONS AND INTERPRETATIONS Section 2.1: Definitions. As used herein, the following terms shall have the meanings specified, unless the context clearly indicates otherwise: "Act" shall mean Texas Local Government Code, Chapter 271, Subchapter C, as amended. "Attorney General" shall mean the Attorney General of the State of Texas. "Bond Insurance Policy" shall mean the financial guaranty insurance policy issued by the Bond Insurer insuring the payment when due of the principal and interest on the Certificates as provided therein. "Bond Insurer" shall mean Assured Guaranty Corp. "Certificate" or "Certificates" shall mean any or all of the City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2013, authorized by this Ordinance. "City" shall mean the City of Sanger, Texas and, where appropriate, its City Council. "City Council" shall mean the governing body of the City. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Comptroller" shall mean the Comptroller of Public Accounts of the State of Texas. "DTC" shall mean The Depository Trust Company, New York, New York, or any successor securities depository. "DTC Participant" shall mean brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created to hold securities to facilitate the clearance and settlement of securities transactions among DTC Participants. "Fiscal Year" shall mean the City's then designated fiscal year, which currently is the twelve-month period beginning on the first day of October of a calendar year and ending on the 2 HOU:3306938.3 last day of September of the next succeeding calendar year and each such period may be designated with the number of the calendar year in which such period ends. "Interest Payment Date," when used in connection with any Certificate, shall mean February 1, 2014, and each February 1 and August 1 thereafter until maturity or earlier redemption of such Certificate. "Issuance Date" shall mean the date on which the Certificates are delivered to and paid for by the Underwriter. "Ordinance" shall mean this Ordinance and all amendments hereof and supplements hereto. "Outstanding," when used with reference to the Certificates, shall mean, as of a particular date, all Certificates theretofore and thereupon delivered pursuant to this Ordinance except: (a) any Certificates canceled by or on behalf of the City at or before such date; (b) any Certificates defeased pursuant to the defeasance provisions of this Ordinance or otherwise defeased as permitted by applicable law; and (c) any Certificates in lieu of or in substitution for which a replacement Certificate shall have been delivered pursuant to this Ordinance. "Paying Agent/Registrar" shall mean BOKF, NA dba Bank of Texas, and its successors in that capacity. "Record Date" shall mean the close of business on the fifteenth day of the calendar month immediately preceding the applicable Interest Payment Date. "Register" shall mean the registration books for the Certificates kept by the Paying Agent/Registrar in which are maintained the names and addresses of, and the principal amounts registered to, each Registered Owner of Certificates. "Registered Owner" shall mean the person or entity in whose name any Certificate is registered in the Register. "Underwriter" shall mean the entity or entities specified in Section 7.1 hereof. Section 2.2: InteKpretations. All terms defined herein and all pronouns used in this Ordinance shall be deemed to apply equally to singular and plural and to all genders. The titles and headings of the articles and sections of this Ordinance have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof. This Ordinance and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to sustain the validity of the Certificates and the validity of the levy of ad valorem taxes to pay the principal of and interest on the Certificates. 3 HOU:3306938.3 ARTICLE III TERMS OF THE CERTIFICATES Section 3.1: Amount, Purpose and Authorization. (a) The Certificates shall be issued in fully registered form, without coupons, under and pursuant to the authority of the Act in the total authorized aggregate principal amount of FOUR MILLION TWO HUNDRED SIXTY THOUSAND AND NO/100 DOLLARS ($4,260,000) for the purpose of providing all or part of the funds to pay contractual obligations to be incurred for the purposes described in paragraph 1.1(a) hereof. Section 3.2: Designation, Date and Interest Payment Dates. The Certificates shall be designated as the "City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2013," and shall be dated June 15, 2013. The Certificates shall bear interest at the rates set forth in Section 3.3 below, from the date of delivery calculated on the basis of a 360-day year of twelve 30-day months, payable on February 1, 2014, and each February 1 and August 1 thereafter until maturity or earlier redemption. If interest on any Certificate is not paid on any Interest Payment Date and continues unpaid for thirty (30) days thereafter, the Paying Agent/Registrar shall establish a new record date for the payment of such interest, to be known as a Special Record Date. The Paying Agent/Registrar shall establish a Special Record Date when funds to make such interest payment are received from or on behalf of the City. Such Special Record Date shall be fifteen (15) days prior to the date fixed for payment of such past due interest, and notice of the date of payment and the Special Record Date shall be sent by United States mail, first class, postage prepaid, not later than five (5) days prior to the Special Record Date, to each affected Registered Owner as of the close of business on the day prior to mailing of such notice. Section 3.3: Numbers Denomination Interest Rates and Maturities. The Certificates shall be initially issued bearing the numbers, in the principal amounts and bearing interest at the rates set forth in the following schedule, and may be transferred and exchanged as set out in this Ordinance. The Certificates shall mature on August 1 in each of the years and in the amounts set out in such schedule. Certificates delivered in transfer of or in exchange for other Certificates shall be numbered in order of their authentication by the Paying Agent/Registrar, shall be in the denomination of $5,000 or integral multiples thereof and shall mature on the same date and bear interest at the same rate as the Certificate or Certificates in lieu of which they are delivered. Certificate Year of Principal Interest Number Maturity Amount Rate R-1 2014 $150,000 2.000% R-2 2015 165,000 2.000% R-3 2016 165,000 2.000% R-4 2017 170,000 2.000% R-5 2018 175,000 2.500% R-6 2019 175,000 2.500% R-7 2020 180,000 3.000% R-8 2021 185,000 3.000% 4 HOU:3306938.3 R-9 2022 190,000 3.000% R-10 2023 200,000 3.000% R-11 2024 205,000 3.500% R-12 2026 430,000 4.500% R-13 2028 470,000 4.750% R-14 2030 520,000 5.000% R-15 2033 880,000 5.000% Section 3.4: Redemption Prior to Maturity. (a) The Certificates maturing on and after August 1, 2024 are subject to redemption prior to maturity, at the option of the City, in whole or in part, on August 1, 2023, or any date thereafter, at par plus accrued interest to the date fixed for redemption. (b) The Certificates maturing on August 1 in the years 2026, 2028, 2030 and 2033 (the "Term Certificates") are subject to mandatory sinking fund redemption in the following amounts (subject to reduction as hereinafter provided), on the following dates, in each case at a redemption price equal to the principal amount of the Certificates or the portions thereof so called for redemption plus accrued interest to the date fixed for redemption: Term Certificates Maturing August 1, 2026 Term Certificates Maturing August 1, 2028 Term Certificates Maturing August 1, 2030 Term Certificates Maturing August 1, 2033 Mandatory Redemption Dates Principal Amounts August 1, 2025 $210,000 August 1, 2026 (stated maturity) 220,000 Mandatory Redemption Dates Principal Amounts August 1, 2027 $230,000 August 1, 2028 (stated maturity) 240,000 Mandatory Redemption Dates Principal Amounts August 1, 2029 $255,000 August 1, 2030 (stated maturity) 265,000 Mandatory Redemption Dates Principal Amounts August 1, 2031 $280,000 August 1, 2032 295,000 August 1, 2033 (stated maturity) 305,000 The particular Term Certificates to be redeemed shall be selected by the Registrar by lot or other customary random selection method, on or before June 15 of each year in which Term Certificates are to be mandatorily redeemed. The principal amount of Term Certificates to be mandatorily redeemed in each year shall be reduced by the principal amount of such Term 5 HOU:3306938.3 Certificates that have been optionally redeemed and which have not been made the basis for a previous reduction. (c) Certificates may be redeemed in part only in integral multiples of $5,000. If a Certificate subject to redemption is in a denomination larger than $5,000, a portion of such Certificate may be redeemed, but only in integral multiples of $5,000. In selecting portions of Certificates for redemption, each Certificate shall be treated as representing that number of Certificates of $5,000 denomination which is obtained by dividing the principal amount of such Certificate by $5,000. Upon presentation and surrender of any Certificate for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of this Ordinance, shall authenticate and deliver in exchange therefor a Certificate or Certificates of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Certificate so surrendered. (d) Notice of any redemption, identifying the Certificates or portions thereof to be redeemed, shall be sent by United States mail, first class, postage prepaid, to the Registered Owners thereof at their addresses as shown on the Register, not less than thirty (30) days before the date fixed for such redemption. By the date fixed for redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the redemption price of the Certificates called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Certificates which are to be so redeemed thereby automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being Outstanding except for the purpose of being paid with the funds so provided for such payment. Section 3.5: Manner of Payment, Characteristics, Execution and Authentication. The Paying Agent/Registrar is hereby appointed the paying agent for the Certificates. The Certificates shall be payable, shall have the characteristics and shall be executed, sealed, registered and authenticated, all as provided and in the manner indicated in the FORM OF CERTIFICATES set forth in Article IV of this Ordinance. If any officer of the City whose manual or facsimile signature shall appear on the Certificates shall cease to be such officer before the authentication of the Certificates or before the delivery of the Certificates, such manual or facsimile signature shall nevertheless be valid and sufficient for all purposes as if such officer had remained in such office. The approving legal opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel, may be printed on the back of the Certificates over the certification of the City Secretary, which may be executed in facsimile. CUSIP numbers also may be printed on the Certificates, but errors or omissions in the printing of either the opinion or the numbers shall have no effect on the validity of the Certificates. Section 3.6: Authentication. Except for the Certificates to be initially issued, which need not be authenticated by the Registrar, only such Certificates as shall bear thereon a certificate of authentication, substantially in the form provided in Article IV of this Ordinance, manually executed by an authorized representative of the Paying Agent/Registrar, shall be entitled to the benefits of this Ordinance or shall be valid or obligatory for any purpose. Such 6 HOU:3306938.3 duly executed certificate of authentication shall be conclusive evidence that the Certificate so authenticated was delivered by the Paying Agent/Registrar hereunder. Section 3.7: Ownership. The City, the Paying Agent/Registrar and any other person may treat the person in whose name any Certificate is registered as the absolute owner of such Certificate for the purpose of making and receiving payment of the principal thereof and interest thereon and for all other purposes, whether or not such Certificate is overdue, and neither the City nor the Paying Agent/Registrar shall be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the Registered Owner of any Certificate in accordance with this Section shall be valid and effective and shall discharge the liability of the City and the Paying Agent/Registrar upon such Certificate to the extent of the sums paid. Section 3.8: Registration, Transfer and Exchange. The Paying Agent/Registrar is hereby appointed the registrar for the Certificates. So long as any Certificate remains Outstanding, the Paying Agent/Registrar shall keep the Register at the City Administrator's office in which, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of the Certificates in accordance with the terms of this Ordinance. Each Certificate shall be transferable only upon the presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar, accompanied by an assignment duly executed by the Registered Owner or his authorized representative in form satisfactory to the Paying Agent/Registrar. Upon due presentation of any Certificate for transfer, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor, within seventy-two (72) hours after such presentation, a new Certificate or Certificates, registered in the name of the transferee or transferees, in authorized denominations and of the same maturity and aggregate principal amount and bearing interest at the same rate as the Certificate or Certificates so presented and surrendered. All Certificates shall be exchangeable upon the presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar for a Certificate or Certificates, maturity and interest rate and in any authorized denomination, in an aggregate principal amount equal to the unpaid principal amount of the Certificate or Certificates presented for exchange. The Paying Agent/Registrar shall be and is hereby authorized to authenticate and deliver exchange Certificates in accordance with the provisions of this Section. Each Certificate delivered by the Paying Agent/Registrar in accordance with this Section shall be entitled to the benefits and security of this Ordinance to the same extent as the Certificate or Certificates in lieu of which such Certificate is delivered. All Certificates issued in transfer or exchange shall be delivered to the Registered Owners thereof at the principal corporate trust office of the Paying Agent/Registrar or sent by United States mail, first class, postage prepaid. The City or the Paying Agent/Registrar may require the Registered Owner of any Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of such Certificate. Any fee or charge of the Paying Agent/Registrar for such transfer or exchange shall be paid by the City. 7 HOU:3306938.3 The Paying Agent/Registrar shall not be required to transfer or exchange any Certificate called for redemption in whole or in part during the forty-five (45) day period immediately prior to the date fixed for redemption; provided, however, that this restriction shall not apply to the transfer or exchange by the Registered Owner of the unredeemed portion of a Certificate called for redemption in part. Section 3.9: Book -Entry Only System. The definitive Certificates shall be initially issued in the form of a separate single fully registered Certificate for each of the maturities thereof. Upon initial issuance, the ownership of each such Certificate shall be registered in the name of Cede & Co., as nominee of DTC, and except as provided in Section 3.11 hereof, all of the Outstanding Certificates shall be registered in the name of Cede & Co., as nominee of DTC. Upon delivery by DTC to the Paying Agent/Registrar of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions in this Ordinance with respect to interest checks being mailed to the Owner at the close of business on the Record Date, the word "Cede & Co." in this Ordinance shall refer to such new nominee of DTC. With respect to Certificates registered in the name of Cede & Co., as nominee of DTC, the City and the Paying Agent/Registrar shall have no responsibility or obligation to any DTC Participant or to any person on behalf of whom such a DTC Participant holds an interest in the Certificates. Without limiting the immediately preceding sentence, the City and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (a) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Certificates, (b) the delivery to any DTC Participant or any other person, other than a Certificateholder, as shown on the Register, of any notice with respect to the Certificates, including any notice of redemption or (c) the payment to any DTC Participant or any other person, other than a Certificateholder as shown in the Register, of any amount with respect to principal of Certificates, premium, if any, or interest on the Certificates. Except as provided in Section 3.10 of this Ordinance, the City and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Certificate is registered in the Register as the absolute owner of such Certificate for the purpose of payment of principal of, premium, if any, and interest on Certificates, for the purpose of giving notices of redemption and other matters with respect to such Certificate, for the purpose of registering transfer with respect to such Certificate, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of Certificates, premium, if any, and interest on the Certificates only to or upon the order of the respective owners, as shown in the Register as provided in this Ordinance, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to payment of principal of, premium, if any, and interest on the Certificates to the extent of the sum or sums so paid. No person other than an owner shall receive a Certificate evidencing the obligation of the City to make payments of amounts due pursuant to this Ordinance. Section 3.10: Payments and Notices to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, as long as any Certificates are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, 8 HOU:3306938.3 and interest on the Certificates, and all notices with respect to such Certificates shall be made and given, respectively, in the manner provided in the representation letter of the City to DTC. Section 3.11: Successor Securities Depository; Transfer Outside Book -Entry Only System. In the event that the City or the Paying Agent/Registrar determines that DTC is incapable of discharging its responsibilities described herein and in the representation letter of the City to DTC, and that it is in the best interest of the beneficial owners of the Certificates that they be able to obtain certificated Certificates, the City or the Paying Agent/Registrar shall (a) appoint a successor securities depository, qualified to act as such under Section 17(a) of the Securities and Exchange Act of 1934, as amended, notify DTC of the appointment of such successor securities depository and transfer one or more separate Certificates to such successor securities depository or (b) notify DTC of the availability through DTC of Certificates and transfer one or more separate Certificates to DTC Participants having Certificates credited to their DTC accounts. In such event, the Certificates shall no longer be restricted to being registered in the Register in the narne of Cede & Co., as nominee of DTC, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names Certificateholders transferring or exchanging Certificates shall designate, in accordance with the provisions of this Ordinance. Section 3.12: Replacement Certificates. Upon the presentation and surrender to the Paying Agent/Registrar of a damaged or mutilated Certificate, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a replacement Certificate, of the same maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding. The City or the Paying Agent/Registrar may require the Registered Owner of such Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith and any other expenses connected therewith, including the fees and expenses of the Paying Agent/Registrar and the City. If any Certificate is lost, apparently destroyed or wrongfully taken, the City, pursuant to the applicable laws of the State of Texas and ordinances of the City, and in the absence of notice or knowledge that such Certificate has been acquired by a bona fide purchaser, shall execute, and the Paying Agent/Registrar shall authenticate and deliver, a replacement Certificate of the same maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding, provided that the Registered Owner thereof shall have: (a) furnished to the City and the Paying Agent/Registrar satisfactory evidence of the ownership of and the circumstances of the loss, destruction or theft of such Certificate; (b) furnished such security or indemnity as may be required by the Paying Agent/Registrar and the City to save and hold them harmless; (c) paid all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Paying Agent/Registrar and any tax or other governmental charge that may be imposed; and (d) met any other reasonable requirements of the City and the Paying Agent/Registrar. 9 HOU:3306938.3 If, after the delivery of such replacement Certificate, a bona fide purchaser of the original Certificate in lieu of which such replacement Certificate was issued presents for payment such original Certificate, the City and the Paying Agent/Registrar shall be entitled to recover such replacement Certificate from the person to whom it was delivered or any person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the City or the Paying Agent/Registrar in connection therewith. If any such mutilated, lost, apparently destroyed or wrongfully taken Certificate has become or is about to become due and payable, the City in its discretion may, instead of issuing a replacement Certificate, authorize the Paying Agent/Registrar to pay such Certificate. Each replacement Certificate delivered in accordance with this Section shall be entitled to the benefits and security of this Ordinance to the same extent as the Certificate or Certificates in lieu of which such replacement Certificate is delivered. Section 3.13: Cancellation. All Certificates paid or redeemed in accordance with this Ordinance, and all Certificates in lieu of which exchange Certificates or replacement Certificates are authenticated and delivered in accordance herewith, shall be canceled and destroyed upon the making of proper records regarding such payment or redemption. The Paying Agent/Registrar shall periodically furnish the City with certificates of destruction of such Certificates. ARTICLE IV FORM OF CERTIFICATES The Certificates, including the Form of Comptroller's Registration Certificate, Form of Paying Agent/Registrar Authentication Certificate, Statement of Insurance and Form of Assignment, shall be in substantially the following forms, with such omissions, insertions and variations as may be necessary or desirable, and not prohibited by this Ordinance: 10 HOU:3306938.3 UNITED STATES OF AMERICA STATE OF TEXAS NUMBER R- REGISTERED DENOMINATION REGISTERED CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATE OF OBLIGATION SERIES 2013 INTEREST RATE: DELIVERY DATE: MATURITY DATE: CUSIP: July 9, 2013 , 20_ 800876 REGISTERED OWNER: June 15, 2013 OPPENHEIMER & CO. AND NO/100 DOLLARS THE CITY OF SANGER, TEXAS, a municipal corporation of the State of Texas (the "City"), for value received, hereby promises to pay to the Registered Owner identified above or its registered assigns, on the maturity date specified above (or on earlier redemption as herein provided), upon presentation and surrender of this Certificate at the principal corporate trust office of BOKF, NA dba Bank of Texas, Austin, Texas, or its successor (the "Paying Agent/Registrar"), the principal amount identified above (or so much thereof as shall not have been paid or deemed to have been paid upon prior redemption) payable in any coin or currency of the United States of America which on the date of payment of such principal is legal tender for the payment of debts due to the United States of America, and to pay interest thereon at the rate shown above, calculated on a basis of a 360-day year composed of twelve 30-day months, from the date of delivery. Interest on this Certificate is payable on February 1, 2014, and each February 1 and August 1 thereafter until maturity or earlier redemption of this Certificate, by check sent by United States mail, first class, postage prepaid, by the Paying Agent/Registrar to the Registered Owner of record as of the close of business on the fifteenth day of the calendar month immediately preceding the applicable interest payment date, as shown on the registration books kept by the Paying Agent/Registrar. Any accrued interest payable at maturity or earlier redemption shall be paid upon presentation and surrender of this Certificate at the principal corporate trust office of the Paying Agent/Registrar. THIS CERTIFICATE IS ONE OF A DULY AUTHORIZED SERIES OF CERTIFICATES (the "Certificates") in the aggregate principal amount of $4,260,000 issued pursuant to an ordinance adopted by the City Council of the City on June 17, 2013 (the "Ordinance") for the purpose of providing all or part of the funds to pay (A) contractual obligations to be incurred for water and sewer system repairs and improvements, street repairs, drainage repairs and improvements, and park repairs and improvements, and (B) professional services rendered in connection with the above listed projects. 11 HOU:3306938.3 THIS CERTIFICATE shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Certificate either (i) is registered by the Comptroller of Public Accounts of the State of Texas by due execution of the registration certificate endorsed hereon or (ii) is authenticated by the Paying Agent/Registrar by due execution of the authentication certificate endorsed hereon. THE CITY RESERVES THE RIGHT, at its option, to redeem, prior to their maturity, Certificates maturing on and after August 1, 2024, in whole or in part, on August 1, 2023, or any date thereafter, at par plus accrued interest to the date fixed for redemption. THE CERTIFICATES MATURING ON AUGUST 1 in the years 2026, 2028, 2030 and 2033 (the "Term Certificates") are subject to mandatory sinking fund redemption in the following amounts (subject to reduction as Hereinafter provided), on the following dates, in each case at a redemption price equal to the principal amount of the Certificates or the portions thereof so called for redemption plus accrued interest to the date fixed for redemption: Term Certificates Maturing August 1, 2026 Term Certificates Maturing August 1, 2028 Term Certificates Maturing August 1, 2030 Term Certificates Maturing August 1, 2033 Mandatory Redemption Dates Principal Amounts August 1, 2025 $210,000 August 1, 2026 (stated maturity) 220,000 Mandatory Redemption Dates Principal Amounts August 1, 2027 $230,000 August 1, 2028 (stated maturity) 240,000 Mandatory Redemption Dates Principal Amounts August 1, 2029 $255,000 August 1, 2030 (stated maturity) 265,000 Mandatory Redemption Dates Principal Amounts August 1, 2031 $280,000 August 1, 2032 295,000 August 1, 2033 (stated maturity) 305,000 The particular Term Certificates to be redeemed shall be selected by the Registrar by lot or other customary random selection method, on or before June 15 of each year in which Term Certificates are to be mandatorily redeemed. The principal amount of Term Certificates to be mandatorily redeemed in each year shall be reduced by the principal amount of such Term Certificates that have been optionally redeemed and which have not been made the basis for a previous reduction. CERTIFICATES MAY BE REDEEMED IN PART only in integral multiples of $5,000. If a Certificate subject to redemption is in a denomination larger than $5,000, a portion of such Certificate may be redeemed, but only in integral multiples of $5,000. In selecting portions of Certificates for redemption, each Certificate shall be treated as representing that number of Certificates of $5,000 denomination which is obtained by dividing the principal amount of such 12 HOU:3306938.3 Certificate by $5,000. Upon surrender of any Certificate for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of the Ordinance, shall authenticate and deliver in exchange therefor a Certificate or Certificates of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Certificate so surrendered. NOTICE OF ANY SUCH REDEMPTION, identifying the Certificates or portions thereof to be redeemed, shall be sent by United States mail, first class, postage prepaid, to the Registered Owners thereof at their addresses as shown on the books of registration kept by the Paying Agent/Registrar, not less than thirty (30) days before the date fixed for such redemption. By the date fixed for redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the redemption price of the Certificates called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Certificates which are to be so redeemed thereby automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being outstanding except for the purpose of being paid with the funds so provided for such payment. THIS CERTIFICATE IS TRANSFERABLE only upon presentation and surrender at the principal corporate trust office of the Paying Agent/Registrar, accompanied by an assignment duly executed by the Registered Owner or its authorized representative, subject to the terms and conditions of the Ordinance. THIS CERTIFICATE IS EXCHANGEABLE at the principal corporate trust office of the Paying Agent/Registrar for a Certificate or Certificates of the same maturity and interest rate and in the principal amount of $5,000 or any integral multiple thereof, subject to the terms and conditions of the Ordinance. THE PAYING AGENT/REGISTRAR is not required to accept for transfer or exchange any Certificate called for redemption, in whole or in part, during the forty-five (45) day period immediately prior to the date fixed for redemption; provided, however, that such limitation shall not apply to the transfer or exchange by the Registered Owner of an unredeemed portion of a Certificate called for redemption in part. THE CITY OR PAYING AGENT/REGISTRAR may require the Registered Owner of any Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of a Certificate. Any fee or charge of the Paying Agent/Registrar for a transfer or exchange shall be paid by the City. THE REGISTERED OWNER of this Certificate by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Ordinance. IT IS HEREBY DECLARED AND REPRESENTED that this Certificate has been duly and validly issued and delivered; that all acts, conditions and things required or proper to be performed, exist and to be done precedent to or in the issuance and delivery of this Certificate have been performed, exist and have been done in accordance with law; that the Certificates do not exceed any constitutional or statutory limitation; and that annual ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Certificate, as such interest 13 HOU3306938.3 comes due and such principal matures, have been levied and ordered to be levied, within the limits prescribed by law, against all taxable property in the City and have been irrevocably pledged for such payment. IT IS FURTHER DECLARED AND REPRESENTED that the surplus revenues to be derived from the City's water and sewer system, after the payment of all operation and maintenance expenses thereof (the "Net Revenues"), in an amount not to exceed $10,000, are pledged to the payment of the principal of and interest on the Certificates, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. The City also reserves the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind, secured in whole or in part by a pledge of Net Revenues, that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. REFERENCE IS HEREBY MADE TO THE ORDINANCE, a copy of which is filed with the Paying Agent/Registrar, for the full provisions thereof, to all of which the Registered Owners of the Certificates assent by acceptance of the Certificates. IN WITNESS WHEREOF, the City has caused its corporate seal to be impressed or placed in facsimile hereon and this Certificate to be signed by the Mayor, countersigned by the City Secretary by their manual, lithographed or printed facsimile signatures. (SEAL) CITY OF SANGER, TEXAS Mayor COUNTERSIGNED: City Secretary 14 HOU:3306938.3 FORM OF COMPTROLLER'S REGISTRATION CERTIFICATE The following form of Comptroller's Registration Certificate shall be attached or affixed to each of the Certificates initially delivered: THE STATE OF TEXAS REGISTER NO. OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS I hereby certify that this certificate has been examined, certified as to validity and approved by the Attorney General of the State of Texas, and that this certificate has been registered by the Comptroller of Public Accounts of the State of Texas. WITNESS MY SIGNATURE AND SEAL OF OFFICE this Comptroller of Public Accounts of the State of Texas am FORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE The following form of authentication certificate shall be printed on the face of each of the Certificates other than those initially delivered: AUTHENTICATION CERTIFICATE BOKF, NA dba Bank of Texas LOW Authorized Signature Date of Authentication: 15 HOU:3306938.3 FORM OF ASSIGNMENT The following form of assignment shall be printed on the back of each of the Certificates: ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto (Please print or type name, address, and zip code of Transferee) (Please insert Social Security or Taxpayer Identification Number of Transferee) the within bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer such bond on the books kept for registration thereof, with full power of substitution in the premises. DATED: Signature Guaranteed: NOTICE: Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. Registered Owner NOTICE: The signature above must correspond to the name of the Registered Owner as shown on the face of this bond in every particular, without any alteration, enlargement or change whatsoever. ARTICLE V SECURITY FOR THE CERTIFICATES Section 5.1: Pledge and Levy of Taxes and Revenues. (a) To provide for the payment of principal of and interest on the Certificates, there is hereby levied, within the limits prescribed by law, for the current year and each succeeding year thereafter, while the Certificates or any part of the principal thereof and the interest thereon remain outstanding and unpaid, an ad valorem tax upon all taxable property within the City sufficient to pay the interest on the Certificates and to create and provide a sinking fund of not less than 2% of the principal amount of the Certificates or not less than the principal payable out of such tax, whichever is greater, with full allowance being made for tax delinquencies and the costs of tax collection, and such taxes, when collected, shall be applied to the payment of principal of and interest on the Certificates by deposit to the Combination Tax and Revenue Certificates of Obligation, Series 2013 Debt Service Fund and to no other purpose. (b) The City hereby declares its purpose and intent to provide and levy a tax legally sufficient to pay the principal of and interest on the Certificates, it having been determined that the existing and available taxing authority of the City for such purpose is adequate to permit a legally sufficient tax. As long as any Certificates remain outstanding, all moneys on deposit in, or credited to, the Combination Tax and Revenue Certificates of Obligation, 16 HOU:3306938.3 Series 2013 Debt Service Fund shall be secured by a pledge of security, as provided by law for cities in the State of Texas. (c) In addition, pursuant to the authority of Chapter 1502, Texas Government Code, as amended, the City also hereby pledges the surplus revenues to be derived from the City's water and sewer system, after the payment of all operation and maintenance expenses thereof (the "Net Revenues"), in an amount not to exceed $10,000, to the payment of the principal of and interest on the Certificates, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. The City also reserves the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind, secured in whole or in part by a pledge of Net Revenues, that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. Section 5.2: Debt Service Fund. The Combination Tax and Revenue Certificates of Obligation, Series 2013 Debt Service Fund is hereby created as a special fund solely for the benefit of the Certificates. The City shall establish and maintain such fund at an official City depository and shall keep such fund separate and apart from all other funds and accounts of the City. Any amount on deposit in the Certificates of Obligation, Series 2013 Debt Service Fund shall be maintained by the City in trust for the Registered Owners of the Certificates. Such amount, plus any other amounts deposited by the City into such fund and any and all investment earnings on amounts on deposit in such fund, shall be used only to pay the principal of, premium, if any, and interest on the Certificates. Section 5.3: Further Proceedings. After the Certificates to be initially issued have been executed, it shall be the duty of the Mayor to deliver the Certificates to be initially issued and all pertinent records and proceedings to the Attorney General for examination and approval. After the Certificates to be initially issued shall have been approved by the Attorney General, they shall be delivered to the Comptroller for registration. Upon registration of the Certificates to be initially issued, the Comptroller (or a deputy lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's registration certificate prescribed herein to be affixed or attached to the Certificates to be initially issued, and the seal of said Comptroller shall be impressed, or placed in facsimile, thereon. ARTICLE VI CONCERNING THE PAYING AGENT/REGISTRAR Section 6.1: Acceptance. BOKF, NA dba Bank of Texas, Austin, Texas, is hereby appointed as the initial Paying Agent/Registrar for the Certificates pursuant to the terms and provisions of the Paying Agent/Registrar Agreement by and between the City and the Paying Agent/Registrar. The Paying Agent/Registrar Agreement shall be substantially in the form attached hereto as Exhibit A, the terms and provisions of which are hereby approved, and the Mayor is hereby authorized to execute and deliver such Paying Agent/Registrar Agreement on 17 HOU:3306938.3 behalf of the City in multiple counterparts and the City Secretary is hereby authorized to attest thereto and affix the City's seal. Such initial Paying Agent/Registrar and any successor Paying Agent/Registrar, by undertaking the performance of the duties of the Paying Agent/Registrar hereunder,'and in consideration of the payment of any fees pursuant to the terms of any contract between the Paying Agent/Registrar and the City and/or the deposits of money pursuant to this Ordinance, shall be deemed to accept and agree to abide by the terms of this Ordinance. Section 6.2: Trust Funds. All money transferred to the Paying Agent/Registrar in its capacity as Paying Agent/Registrar for the Certificates under this Ordinance (except any sums representing Paying Agent/Registrar's fees) shall be held in trust for the benefit of the City, shall be the property of the City and shall be disbursed in accordance with this Ordinance. Section 6.3: Certificates Presented. Subject to the provisions of Section 6.4, all matured Certificates presented to the Paying Agent/Registrar for payment shall be paid without the necessity of further instructions from the City. Such Certificates shall be canceled as provided herein. Section 6.4: Unclaimed Funds Held by the Pang Agent/Registrar. Funds held by the Paying Agent/Registrar that represent principal of and interest on the Certificates remaining unclaimed by the Registered Owner thereof after the expiration of three years from the date such funds have become due and payable (a) shall be reported and disposed of by the Paying Agent/Registrar in accordance with the provisions of Title 6 of the Texas Property Code, as amended, to the extent such provisions are applicable to such funds, or (b) to the extent such provisions do not apply to the funds, such funds shall be paid by the Paying Agent/Registrar to the City upon receipt by the Paying Agent/Registrar of a written request therefor from the City. The Paying Agent/Registrar shall have no liability to the Registered Owners of the Certificates by virtue of actions taken in compliance with this Section. Section 6.5: Paying Agent/Registrar May Own Certificates. The Paying Agent/Registrar in its individual or any other capacity, may become the owner or pledgee of Certificates with the same rights it would have if it were not the Paying Agent/Registrar. Section 6.6: Successor Paving Agents/Registrars. The City covenants that at all times while any Certificates are Outstanding it will provide a legally qualified bank, trust company, financial institution or other agency to act as Paying Agent/Registrar for the Certificates. The City reserves the right to change the Paying Agent/Registrar for the Certificates on not less than sixty (60) days' written notice to the Paying Agent/Registrar, as long as any such notice is effective not less than 60 days prior to the next succeeding principal or interest payment date on the Certificates. Promptly upon the appointment of any successor Paying Agent/Registrar, the previous Paying Agent/Registrar shall deliver the Register or a copy thereof to the new Paying Agent/Registrar, and the new Paying Agent/Registrar shall notify each Registered Owner, by United States mail, first class, postage prepaid, of such change and of the address of the new Paying Agent/Registrar. Each Paying Agent/Registrar hereunder, by acting in that capacity, shall be deemed to have agreed to the provisions of this Ordinance. W. HOU:3306938.3 ARTICLE VII PROVISIONS CONCERNING SALE AND APPLICATION OF PROCEEDS OF CERTIFICATES Section 7.1: Sale of Certificates; Execution of Purchase Agreement; Insurance. The Certificates are hereby sold and shall be delivered to Oppenheimer & Co. for a price of $4,573,352.85 (representing the par value thereof, plus a net original issue premium of $347,886.60 on the Certificates, and less an underwriting discount of $34,533.75), in accordance with the terms of and conditions in the Purchase Agreement. The Purchase Agreement, substantially in the form attached hereto as Exhibit C, is hereby approved. The Mayor and other appropriate officials of the City are hereby authorized and directed to execute the Purchase Agreement on behalf of the City, and the Mayor and all other appropriate officials, agents and representatives of the City are hereby authorized to do any and all things necessary or desirable to satisfy the conditions set out therein and to provide for the issuance and delivery of the Certificates. It is hereby found and determined that the terms of the sale of the Certificates contained in the Purchase Agreement are the most advantageous terms reasonably obtainable by the City at this time. Section 7.2: Approval, Registration and Delivery. The Mayor is hereby authorized to have control and custody of the Certificates and all necessary records and proceedings pertaining thereto pending their delivery, and the Mayor and other officers and employees of the City are hereby authorized and directed to make such certifications and to execute such instruments as may be necessary to accomplish the delivery of the Certificates and to assure the investigation, examination and approval thereof by the Attorney General and the registration of the initial Certificates by the Comptroller. Upon registration of the Certificates, the Comptroller (or the Comptroller's certificates clerk or an assistant certificates clerk lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's Registration Certificates prescribed herein to be attached or affixed to each Certificates initially delivered and the seal of the Comptroller shall be impressed or printed or lithographed thereon. Section 7.3: Offering Documents; Ratings. The City hereby approves the form and contents of the Preliminary Official Statement and the final Official Statement, dated as of the date hereof, relating to the Certificates, and any addenda, supplement or amendment thereto, and ratifies and approves the distribution of such Preliminary Official Statement substantially in the form attached hereto as Exhibit B and Official Statement in the offer and sale of the Certificates and in the reoffering of the Certificates by the Underwriter, with such changes therein or additions thereto as the officials executing same may deem advisable, such determination to be conclusively evidenced by their execution thereof. The Mayor is hereby authorized and directed to execute, and the City Secretary is hereby authorized and directed to attest, the final Official Statement. It is further hereby officially found, determined and declared that the statements and representations contained in the Preliminary Official Statement and final Official Statement are true and correct in all material respects, to the best knowledge and belief of the City Council, and that, as of the date thereof, the Preliminary Official Statement was an official statement of the City with respect to the Certificates that was deemed "final" by an authorized official of the City except for the omission of no more than the information permitted by subsection (b)(1) of Rule 15c2-12 of the Securities and Exchange Commission. 19 HOU:3306938.3 Further, the City Council hereby ratifies, authorizes and approves the actions of the Mayor, the City's financial advisor and other consultants in seeking a rating on the Certificates from Moody's Investors Service, Inc. and such actions are hereby ratified and confirmed. Section 7.4: Application of Proceeds of Certificates. Proceeds from the sale of the Certificates shall, promptly upon receipt by the City, be applied as follows: (1) A portion of the proceeds shall be applied to pay expenses arising in connection with the issuance of the Certificates; and (2) The remaining proceeds shall be applied, together with other funds of the City, to provide funds to pay contractual obligations to be incurred for the purposes set forth in Section 3.1 of this Ordinance. Section 7.5: Covenants to Maintain Tax Exempt Status. (a) Definitions. When used in this Section, the following terms have the following meanings: "Code" means the Internal Revenue Code of 1986, as amended by all legislation, if any, enacted on or before the Issue Date. "Computation Date" has the meaning stated in section 1.148-1(b) of the Regulations. "Gross Proceeds" has the meaning stated in section 1.148-1(b) of the Regulations. "Investment" has the meaning stated in section 1.148-1(b) of the Regulations. "Issue Date" for the Certificates or other obligations of the City is the respective date on which such obligations of the City are delivered against payment therefor. "Net Sale Proceeds" has the meaning stated in section 1.148-1(b) of the Regulations. "Nonpurpose Investment" has the meaning stated in section 1.148-1(b) of the Regulations. "Proceeds" has the meaning stated in section 1.148-1(b) of the Regulations. "Rebate Amount" has the meaning stated in section 1.148-3 of the Regulations. "Regulations" means the temporary or final Income Tax Regulations applicable to the Certificates issued pursuant to sections 141 through 150 of the Code. Any reference to a section of the Regulations shall also refer to any successor provision to such section hereafter promulgated by the Internal Revenue Service pursuant to sections 141 through 150 of the Code and applicable to the Certificates. "Yield of 20 HOU:3306938.3 (1) any Investment shall be computed in accordance with section 1.148-5 of the Regulations, and (2) the Certificates shall be computed in accordance with section 1.148-4 of the Regulations. (b) Not to Cause Interest to Become Taxable. The City shall not use, permit the use of or omit to use Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner which, if made or omitted, respectively, would cause the interest on any Certificates to become includable in the gross income, as defined in section 61 of the Code, of the owner thereof for federal income tax purposes. Without limiting the generality of the foregoing, unless and until the City shall have received a written opinion of counsel nationally recognized in the field of municipal bond law to the effect that failure to comply with such covenant will not adversely affect the exemption from federal income tax of the interest on any Certificate, the City shall comply with each of the specific covenants in this Section. (c) No Private Use or Private Payments. Except as permitted by section 141 of the Code and the regulations and rulings thereunder, the City shall, at all times prior to the last stated maturity of the Certificates, (1) exclusively own, operate, and possess all property the acquisition, construction, or improvement of which is to be financed directly or indirectly with Gross Proceeds of the Certificates and not use or permit the use of such Gross Proceeds or any property acquired, constructed, or improved with such Gross Proceeds in any activity carried on by any person or entity other than a state or local government, unless such use is solely as a member of the general public, or (2) not directly or indirectly impose or accept any charge or, other payment for use of Gross Proceeds of the Certificates or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with such Gross Proceeds other than taxes of general application and interest earned on investments acquired with such Gross Proceeds pending application for their intended purposes. (d) No Private Loan. Except to the extent permitted by section 141 of the Code and the regulations and rulings thereunder, the City shall not use Gross Proceeds of the Certificates to make or finance loans to any person or entity other than a state or local government. For purposes of the foregoing covenant, Gross Proceeds are considered to be "loaned" to a person or entity if (1) property acquired, constructed or improved with Gross Proceeds is sold or leased to such person or entity in a transaction which creates a debt for federal income tax purposes, (2) capacity in or service from such property is committed to such person or entity under a take -or -pay, output, or similar contract or arrangement, or (3) indirect benefits, or burdens and benefits of ownership, of such Gross Proceeds or such property are otherwise transferred in a transaction which is the economic equivalent of a loan. 21 HOU:3306938.3 (e) Not to Invest at Higher Yield. Except to the extent permitted by section 148 of the Code and the regulations and rulings thereunder, the City shall not, at any time prior to the earlier of the final stated maturity or final payment of the Certificates, directly or indirectly invest Gross Proceeds of such Certificates in any Investment (or use such Gross Proceeds to replace money so invested), if as a result of such investment the Yield of all Investments allocated to such Gross Proceeds whether then held or previously disposed of, exceeds the Yield on the Certificates. (f) Not Federally Guaranteed. Except to the extent permitted by section 149(b) of the Code and the regulations and rulings thereunder, the City shall not take or omit to take any action which would cause the Certificates to be federally guaranteed within the meaning of section 149(b) of the Code and the regulations and rulings thereunder. (g) Information Report. The City shall timely file with the Secretary of the Treasury the information required by section 149(e) of the Code with respect to the Certificates on such forms and in such place as such Secretary may prescribe. (h) Payment of Rebate Amount. Except to the extent otherwise provided in section 148(f) of the Code and the regulations and rulings thereunder, the City shall: (1) account for all Gross Proceeds (including all receipts, expenditures and investments thereof) on its books of account separately and apart from all other funds (and receipts, expenditures and investments thereof) and shall retain all records of such accounting for at least six years after the final Computation Date. The City may, however, to the extent permitted by law, commingle Gross Proceeds of the Certificates with other money of the City, provided that the City separately accounts for each receipt and expenditure of such Gross Proceeds and the obligations acquired therewith, (2) calculate the Rebate Amount with respect to the Certificates, not less frequently than each Computation Date, in accordance with rules set forth in section 148(f) of the Code, section 1.148-3 of the Regulations, and the rulings thereunder and shall maintain a copy of such calculations for at least six years after the final Computation Date, (3) as additional consideration for the purchase of the Certificates by the initial purchaser thereof and the loan of the money represented thereby, and in order to induce such purchase by measures designed to ensure the excludability of the interest thereon from the gross income of the owners thereof for federal income tax purposes, pay to the United States the amount described in paragraph (2) above at the times, in the installments, to the place, in the manner and accompanied by such forms or other information as is or may be required by section 148(f) of the Code and the regulations and rulings thereunder, and (4) exercise reasonable diligence to assure that no errors are made in the calculations required by paragraph (2) and, if such error is made, to discover and promptly to correct such error within a reasonable amount of time thereafter, including payment to the United States of any interest and any penalty required by the Regulations. 22 HOU:3306938.3 (i) Not to Divert Arbitrage Profits. Except to the extent permitted by section 148 of the Code and the regulations and rulings thereunder, the City shall not, at any time prior to the earlier of the final stated maturity or final payment of the Certificates, enter into any transaction that reduces the amount required to be paid to the United States pursuant to Subsection (h) of this Section because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm's length and had the Yield of the Certificates not been relevant to either party. 0) Not Hedge Bonds. The City will not invest more than 50 percent of the Proceeds of the Certificates in Nonpurpose Investments having a guaranteed yield for four years or more. On the Issue Date of the Certificates, the City will reasonably expect that at least 85 percent of the Net Sale Proceeds will be used to carry out the governmental purpose of such series within three years after such Issue Date. (k) The City will not issue or use the Certificates as part of an "abusive arbitrage device" (as defined in Section 1.148-10(a) of the Regulations). Without limiting the foregoing, the Certificates are not and will not be a part of a transaction or series of transactions that attempts to circumvent the provisions of Section 148 of the Code and the Regulations, by (i) enabling the City to exploit the difference between tax-exempt and taxable interest rates to gain a material financial advantage, or (ii) increasing the burden on the market for tax-exempt obligations. (1) Proper officers of the City charged with the responsibility for issuing the Certificates are hereby directed to make, execute and deliver certifications as to facts, estimates or circumstances in existence as of the date of issuance of the Certificates and stating whether there are facts, estimates or circumstances that would materially change the City's expectations. On or after the date of issuance of the Certificates, the City will take such actions as are necessary and appropriate to assure the continuous accuracy of the representations contained in such certificates. (m)The City hereby designates the Certificates as "qualified tax-exempt obligations" as defined in section 265(b)(3) of the Code. In furtherance of such designation, the City represents, covenants and warrants the following: (a) that during the calendar year in which the Certificates are issued, the City (including any subordinate entities) has not designated nor will designate obligations that when aggregated with the Certificates, will result in more than $10,000,000 of "qualified tax-exempt obligations" being issued; and (b) that the City reasonably anticipates that the amount of tax-exempt obligations issued, during the calendar year in which the Certificates are issued, by the City (or any subordinate entities) will not exceed $10,000,000. (n) The covenants and representations made or required by this Section are for the benefit of the Certificate holders and any subsequent Certificate holder, and may be relied upon by the Certificate holders and any subsequent Certificate holder and bond counsel to the City. (o) In complying with the foregoing covenants, the City may rely upon an unqualified opinion issued to the City by nationally recognized bond counsel that any action by the City 23 HOU:3306938.3 or reliance upon any interpretation of the Code or Regulations contained in such opinion will not cause interest on the Certificates to be includable in gross income for federal income tax purposes under existing law. Notwithstanding any other provision of this Ordinance, the City's representations and obligations under the covenants and provisions of this Section 7.5 all survive the defeasance and discharge of the Certificates for as long as such matters are relevant to the exclusion of interest on the Certificates from the gross income of the owners for federal income tax purposes. Section 7.6: Related Matters. In order that the City shall satisfy in a timely manner all of its obligations under this Ordinance, the Mayor, the Mayor, City Secretary and all other appropriate officers, agents, representatives and employees of the City are hereby authorized and directed to take all other actions that are reasonably necessary to provide for the issuance and delivery of the Certificates, including, without limitation, executing and delivering on behalf of the City all certificates, consents, receipts, requests, notices, and other documents as may be reasonably necessary to satisfy the City's obligations under this Ordinance and to direct the transfer and application of funds of the City consistent with the provisions of this Ordinance. ARTICLE VIII CONTINUING DISCLOSURE UNDERTAKING Section 8.1: Continuing Disclosure Undertaking. The City shall provide annually to the MSRB, within six (6) months after the end of each fiscal year and in an electronic format prescribed by the MSRB and available via the Electronic Municipal Market Access ("EMMA") system at www.emma.msrb.org, financial information and operating data with respect to the City of the general type described in the Official Statement, being the information described in Exhibit D attached hereto. Any financial statements so to be provided shall be (a) prepared in accordance with generally accepted accounting principles for governmental units as prescribed by the Government Accounting Standards Board from time to time, as such principles may be changed from time to time to comply with state or federal law or regulation and (b) audited, if the City commissions an audit of such statements and the audit is completed within the period during which they must be provided. If audited financial statements are not available at the time the financial information and operating data must be provided, then the City shall provide unaudited financial statements for the applicable fiscal year to the MSRB and shall provide to the MSRB audited financial statements, when and if the same become available. If the City changes its Fiscal Year, it will notify the MSRB of the change (and of the date of the new fiscal year end) prior to the next date by which the City otherwise would be required to provide financial information and operating data pursuant to this Article. The financial information and operating data to be provided pursuant to this Article may be set forth in full in one or more documents or may be included by specific reference to documents (i) available to the public on the MSRB's internet web site or (ii) filed with the SEC. 24 HOU:3306938.3 Section 8.2: Material Event Notices. The City shall notify the MSRB in an electronic format prescribed by the MSRB, in a timely manner (not in excess of ten (10) days after the occurrence of the event), of any of the following events with respect to the Certificates: (i) Principal and interest payment delinquencies; (ii) Non-payment related defaults, if material; (iii) Unscheduled draws on debt service reserves reflecting financial difficulties; (iv) Unscheduled draws on credit enhancements reflecting financial difficulties; (v) Substitution of credit or liquidity providers or their failure to perform; (vi) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Certificates, or other material events affecting the tax status of the Certificates; (vii) Modifications to rights of holders of the Certificates, if material; (viii) Bond calls, if material, and tender offers; (ix) Defeasances; (x) Release, substitution, or sale of property securing repayment of the Certificates, if material; (xi) Rating changes; (xii) Bankruptcy, insolvency, receivership or similar event of the City; (xiii) The consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (xiv) Appointment of a successor or additional trustee or the change of name of a trustee, if material. The City shall notify the MSRB in an electronic format prescribed by the MSRB, in a timely manner, of any failure by the City to provide financial information or operating data in accordance with this Section by the time required by such Section. Section 8.3: Identifying Information. All documents provided to the MSRB shall be accompanied by identifying information, as prescribed by the MSRB. Section 8.4: Limitations Disclaimers and Amendments. The City shall be obligated to observe and perform the covenants specified in this Article for so long as, but only for so long as, the City remains an "obligated person" with respect to the Certificates within the meaning of the Rule, except that the City in any event will give the notice required by this Article of any Bond calls and defeasance that cause the City to be no longer such an "obligated person." 25 HOU:3306938.3 The provisions of this Article are for the sole benefit of the Holders and beneficial owners of the Certificates, and nothing in this Article, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The City undertakes to provide only the financial information, operating data, principal statements, and notices which it has expressly agreed to provide pursuant to this Article and does not hereby undertake to provide any other information that may be relevant or material to a complete presentation of the City's financial results, condition, or prospects or hereby undertake to update any information provided in accordance with this Article or otherwise, except expressly provided herein. The City does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Certificates at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY BOND OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS ARTICLE, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. No default by the City in observing or performing its obligations under this Article shall constitute a breach of or default under this Ordinance for purposes of any other provision of this Ordinance. Nothing in this Article is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities law. The provisions of this Section may be amended by the City from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, but only if (1) the provisions of this Section, as so amended, would have permitted an underwriter to purchase or sell the Certificates in the primary offering of the Certificates in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (2) either (a) the Registered Owners of a majority in aggregate principal amount (or any greater amount required by any other provision of this Ordinance that authorizes such an amendment) of the Outstanding Certificates consent to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interests of the Registered Owners and beneficial owners of the Certificates. If the City so amends the provisions of this Section, it shall include with any amended financial information or operating data next provided in accordance with this Section an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information or operating data so provided. The City may also amend or repeal the provisions of this Section if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, and the City also may amend the provisions of this Section in its discretion in any other manner or circumstance, but in any case only if and to the extent that the provisions of this sentence would not have prevented an 26 HOU:3306938.3 underwriter from lawfully purchasing or selling Certificates in the primary offering of the Certificates, giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. Section 8.5: Definitions. As used in this Article, the following terms have the meanings ascribed to such terms below: "MSRB" means the Municipal Securities Rulemaking Board. "Rule" means SEC Rule 15c2-12, as amended from time to time. "SEC" means the United States Securities and Exchange Commission. ARTICLE IX MISCELLANEOUS Section 9.1: Defeasance. Subject to Section 10.8 hereof, the City may defease the provisions of this Ordinance and discharge its obligations to the Registered Owners of any or all of the Certificates to pay the principal of and interest thereon in any manner permitted by law, including by depositing with the Paying Agent/Registrar or with the Comptroller of Public Accounts of the State of Texas either: (a) cash in an amount equal to the principal amount of such Certificates plus interest thereon to the date of maturity or redemption; or (b) pursuant to an escrow or trust agreement, cash and/or (i) direct noncallable obligations of United States of America, including obligations that are unconditionally guaranteed by the United States of America; (ii) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of the issuer adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent; or (iii) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the governing body of the issuer adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, which, in the case of (i), (ii) or (iii), may be in book -entry form, and the principal of and interest on which will, when due or redeemable at the option of the holder, without further investment or reinvestment of either the principal amount thereof or the interest earnings thereon, provide money in an amount which, together with other moneys, if any, held in such escrow at the same time and available for such purpose, shall be sufficient to provide for the timely payment of the principal of and interest thereon to the date of maturity or earlier redemption; provided, however, that if any of the Certificates are to be redeemed prior to their respective dates of maturity, provision shall have been made for giving notice of redemption as provided in this Ordinance. Upon such deposit, such Certificates shall no longer be regarded to be Outstanding or unpaid. Any surplus amounts not required to accomplish such defeasance shall be returned to the City. 27 HOU:3306938.3 Section 9.2: Ordinance a Contract - Amendments. This Ordinance shall constitute a contract with the Registered Owners from time to time, be binding on the City, and shall not be amended or repealed by the City so long as any Certificate remains Outstanding except as permitted in this Section. The City may, without the consent of or notice to any Registered Owners, from time to time and at any time, amend this Ordinance in any manner not detrimental to the interests of the Registered Owners, including the curing of any ambiguity, inconsistency, or formal defect or omission herein. In addition, the City may, with the consent of Registered Owners who own in the aggregate 51 % of the principal amount of the Certificates then Outstanding, amend, add to, or rescind any of the provisions of this Ordinance; provided that, without the consent of all Registered Owners of Outstanding Certificates, no such amendment, addition, or rescission shall (i) extend the time or times of payment of the principal of and interest on the Certificates, reduce the principal amount thereof, the redemption price, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of or interest on the Certificates, (ii) give any preference to any Certificate over any other Certificate, or (iii) reduce the aggregate principal amount of Certificates required to be held by Registered Owners for consent to any such amendment, addition, or rescission. Section 9.3: Legal Holidays. In any case where the date interest accrues and becomes payable on the Certificates or principal of the Certificates matures or the date fixed for redemption of any Certificates or a Record Date shall be in the City a Saturday, Sunday, legal holiday or a day on which banking institutions are authorized by law to close, then payment of interest or principal need not be made on such date, or the Record Date shall not occur on such date, but payment may be made or the Record Date shall occur on the next succeeding day which is not in the City a Saturday, Sunday, legal holiday or a day on which banking institutions are authorized by law to close with the same force and effect as if (i) made on the date of maturity or the date fixed for redemption and no interest shall accrue for the period from the date of maturity or redemption to the date of actual payment or (ii) the Record Date had occurred on the fifteenth day of that calendar month. Section 9.4: No Recourse Against City Officials. No recourse shall be had for the payment of principal of or interest on any Certificates or for any claim based thereon or on this Ordinance against any official of the City or any person executing any Certificates. Section 9.5: Further Proceedings. The Mayor, Mayor Pro-Tem, City Secretary and other appropriate officials of the City are hereby authorized and directed to do any and all things necessary and/or convenient to carry out the terms of this Ordinance. Section 9.6: Severability. If any Section, paragraph, clause or provision of this Ordinance shall for any reason be held to be invalid or unenforceable, the invalidity or unenforceability of such Section, paragraph, clause or provision shall not affect any of the remaining provisions of this Ordinance. Section 9.7: Open Meeting. It is hereby found, determined and declared that a sufficient written notice of the date, hour, place and subject of the meeting of the City Council at which this Ordinance was adopted was posted at a place convenient and readily accessible at all times to the general public at City Hall for the time required by law preceding this meeting, as required by the Open Meetings Law, Chapter 551, Texas Government Code, and that this HOU:3306938.3 meeting has been open to the public as required by law at all times during which this Ordinance and the subject matter thereof has been discussed, considered and formally acted upon. The City Council further ratifies, approves and confirms such written notice and the contents and posting thereof. Section 9.8: Repealer. All orders, resolutions and ordinances, or parts thereof, inconsistent herewith are hereby repealed to the extent of such inconsistency. Section 9.9: Effective Date. This Ordinance shall be in force and effect from and after its passage on the date shown below. 29 HOU:3306938.3 PASSED AND APPROVED on first reading this June 17, 2013. CITY OF SANGER, TEXAS Mayor ATTEST ::iaLd/ (SAf) - t �1 hi1RiK&5ta `frig Agent/Registrar Agreement Exh'AHVI'Preliminary Official Statement Exhibit C - Purchase Agreement Exhibit D - Insurance Provisions Exhibit E - Description of Annual Financial Information S-1 HOU:3306938.1 EXHIBIT A See Tab No. 8 HOU:3306938.3 10.14 Is i PRELIMINARY OFFICIAL STATEMENT See Tab No. 6 HOU:3306938.3 I�:i:ll: IiTI �7 PURCHASE AGREEMENT See Tab No. 5 HOU:3306938.3 INSURANCE PROVISIONS Not Applicable HOU:3306938.3 EXHIBIT E DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred in Article VI11 of this Ordinance. Annual Financial Statements and Operating Data The financial information and operating data with respect to the City to be provided annually in accordance with such Article are as specified (and included in the Appendix or under the headings of the Official Statement referred to) below: (1) The financial statements of the City, portions of which are appended to the Official Statement as Appendix D, but for the most recently concluded fiscal year. (2) The information included under Tables 1 through 10, inclusive of Appendix A of the Official Statement. Accounting Principles The accounting principles referred to in such Article are generally those described in Appendix D to the Official Statement as such principles may be changed from time to time to comply with state law or regulation. HOU:3306938.3 CITY OF SANGER, TEXAS (Denton County, Texas) $4,260,000 COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION SERIES 2013 PURCHASE AGREEMENT June 17, 2013 Honorable Mayor and City Council City of Sanger, Texas 502 Elm Street Sanger, Texas 76266 Ladies and Gentlemen: The undersigned, Oppenheimer & Co. (the "Representative"), acting on its own behalf and on behalf of the other underwriters listed on Schedule I hereto (collectively, the "Underwriters"), and not acting as fiduciary or agent for the City of Sanger, Texas (the "Issuer") hereby offers to enter into the following Agreement with the Issuer which, upon the Issuer's written acceptance of this offer, will be binding upon the Issuer and upon the Underwriters. This offer is made subject to the Issuer's written acceptance hereof on or before 10:00 p.m., Central Daylight Savings Time, on June 17, 2013, and, if not so accepted, will be subject to withdrawal by the Underwriters upon written notice delivered to the Issuer at any time prior to the acceptance hereof by the Issuer. Terms not otherwise defined i l this Agreement shall have the same meanings set forth in the Certificate Ordinance (as defined herein) or in the Official Statement (as defined herein). 1. Purchase and Sale of the Certificates. Subject to the terms and conditions and in reliance upon the representations, warranties and agreements set forth herein, the Underwriters hereby agree, jointly and severally, to purchase from the Issuer, and the Issuer hereby agrees to sell and deliver to the Underwriters, all, but not less than all, of the Issuer's $4,260,000 Combination Tax and Revenue Certificates of Obligation, Series 2013 (the "Certificates"). Inasmuch as this purchase and sale represents a negotiated transaction, the Issuer acknowledges and agrees that: (i) the transaction contemplated by this Agreement is an arm's length, commercial transaction between the Issuer and the Underwriters in which the Underwriters are acting solely as a principal and are not acting as a municipal advisor, financial advisor or fiduciary to the Issuer; (ii) the Underwriters have not assumed any advisory or fiduciary responsibility to the Issuer with respect to the transaction contemplated hereby and the 77soa935A discussions, undertakings and procedures leading thereto (irrespective of whether the Underwriters have provided other services or is currently providing other services to the Issuer on other matters); (iii) the Underwriters are acting solely in their capacity as underwriters for their own accounts, (iv) the only obligations the Underwriters have to the Issuer with respect to the transaction contemplated hereby expressly are set forth in this Agreement; and (v) the Issuer has consulted its own legal, accounting, tax, financial and other advisors, as applicable, to the extent it has deemed appropriate. The Issuer recognizes that the Underwriters expect to profit from the acquisition and potential distribution of the Certificates. The Representative has been duly authorized to execute this Agreement and to act hereunder. The principal amount of the Certificates to be issued, the dated date therefor, the maturities, redemption provisions and interest rates per annum are set forth in Schedule II hereto. The Certificates shall be as described in, and shall be issued and secured under and pursuant to the provisions of, the ordinance (the "Certificate Ordinance") adopted by the City Council of the Issuer (the "City Council") on June 17, 2013. The purchase price for the Certificates shall be $4,573,352.85(representing the par amount of the Certificates, plus a net original issue premium of $347,886.60 on the Certificates, and less an underwriting discount of $34,533.75). 2. Public Offering. The Underwriters agree to make a bona fide public offering of all of the Certificates at a price not to exceed the public offering price set forth on the inside cover of the Official Statement and may subsequently change such offering price without any requirement of prior notice. On or before Closing, the Underwriters shall execute an issue price certificate prepared by Andrews Kurth LLP ("Bond Counsel") verifying the initial offering prices to the public at which the Underwriters sold or reasonably expected to sell a substantial amount of each stated maturity of the Certificates to the public. After the initial public offering, the Underwriters may offer and sell Certificates to certain dealers (including dealers depositing Certificates into investment trusts) and others at prices lower than the public offering price stated on the inside cover of the Official Statement. 3. The Official Statement. (a) The Issuer previously has delivered copies of the Preliminary Official Statement dated June 11, 2013 (the "Preliminary Official Statement") to the Underwriters. The Issuer will prepare a final Official Statement relating to the Certificates, which will be (i) dated the date of this Agreement, (ii) complete within the meaning of the United States Securities and Exchange Commission's Rule 15c2-12, as amended (the "Rule"), and (iii) substantially in the form of the most recent version of the Preliminary Official Statement provided to the Underwriters before the execution hereof. Such final Official Statement, including the cover page thereto, all exhibits, schedules, appendices, maps, charts, pictures, diagrams, reports, and statements included or incorporated therein or attached thereto, and all amendments and supplements thereto that may be authorized for use with respect to the Certificates, is herein referred to as the "Official Statement." Until the Official Statement has been prepared and is available for distribution, the Issuer shall provide to the Underwriters sufficient quantities (which may be in electronic form) of the Preliminary Official Statement as the Representative deems 77804935.4 2 necessary to satisfy the obligation of the Underwriters under the Rule with respect to distribution to each potential customer, upon request, of a copy of the Preliminary Official Statement. (b) The Preliminary Official Statement has been prepared for use by the Underwriters in connection with the public offering, sale and distribution of the Certificates. The Issuer hereby represents and warrants that the Preliminary Official Statement has been deemed final by the Issuer as of its date for purposes of the Rule, except for the omission of such information which is dependent upon the final pricing of the Certificates for completion, all as permitted to be excluded by Section (b)(1) of the Rule. (c) The Issuer represents that the governing body of the Issuer has reviewed and approved the information in the Official Statement and hereby authorizes the Official Statement to be used by the Underwriters in connection with the public offering and sale of the Certificates. The Issuer consents to the use by the Underwriters prior to the date hereof of the Preliminary Official Statement in connection with the public offering of the Certificates. The Issuer shall provide, or cause to be provided, to the Underwriters as soon as practicable after the date of the Issuer's acceptance of this Agreement (but, in any event, not later than within seven business days after the Issuer's acceptance of this Agreement and in sufficient time to accompany any confirmation that requests payment from any customer) copies of the Official Statement which is complete as of the date of its delivery to the Underwriters in such quantity and format as the Representative shall request in order for the Underwriters to comply with Section (b)(4) of the Rule and the rules of the Municipal Securities Rulemaking Board ("MSRB"). (d) If, after the date of this Agreement to and including the date the Underwriters are no longer required to provide an Official Statement to potential customers who request the same pursuant to the Rule (the earlier of (i) ninety (90) days from the "end of the underwriting period" (as defined in the Rule) and (ii) the time when the Official Statement is available to any person from the MSRB, but in no case less than twenty-five (25) days after the "end of the underwriting period" for the Certificates), the Issuer becomes aware of any fact or event which might or would cause the Official Statement, as then supplemented or amended, to contain any untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or if it is necessary to amend or supplement the Official Statement to comply with law, the Issuer will notify the Representative (and for the purposes of this clause provide the Representative with such information as it may from time to time request), and if, in the reasonable judgment of the Representative, such fact or event requires preparation and publication of a supplement or amendment to the Official Statement, the Issuer will forthwith prepare and furnish, at the Issuer's own expense (in a form and manner approved by the Representative), a reasonable number of copies of either amendments or supplements to the Official Statement so that the statements in the Official Statement as so amended and supplemented will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or so that the Official Statement will comply with law; provided, however, that for all purposes of this 77804935.4 3 Agreement and any certificate delivered by the Issuer in accordance herewith, the Issuer makes no representations with respect to the descriptions in the Preliminary Official Statement or the Official Statement of The Depository Trust Company, New York, New York ("DTC ), or its book -entry -only system. If such notification shall be subsequent to the Closing, the Issuer shall furnish such legal opinions, certificates, instruments and other documents as the Representative may reasonably deem necessary to evidence the truth and accuracy of such supplement or amendment to the Official Statement. (e) The Representative hereby agrees to timely file the Official Statement with the MSRB in the format prescribed by the MSRB. Unless otherwise notified in writing by the Representative, the Issuer can assume that the "end of the underwriting period" for purposes of the Rule is the date of the Closing. 4. Representations , Warranties, and Covenants of the Issuer. The Issuer hereby represents and warrants to and covenants with the Underwriters that: (a) The Issuer is a home rule city duly created, organized and existing under the laws of the State of Texas (the "State") and the Issuer's Home Rule Charter, and has full legal right, power and authority, and at the date of the Closing will have full legal right, power and authority, under the laws of the State, including particularly Subchapter C of Chapter 271, Texas Local Government Code, as amended (the "Act"), the Issuer's Home Rule Charter, and the Certificate Ordinance (i) to enter into, execute and deliver this Agreement and the Certificate Ordinance (which contains the Continuing Disclosure Undertaking described in Section 6(i)(3)), and all documents required hereunder and thereunder to be executed and delivered by the Issuer (this Agreement and the Certificate Ordinance are hereinafter referred to as the "Issuer Documents"), (ii) to sell, issue and deliver the Certificates to the Underwriters as provided herein, and (iii) to carry out and consummate the transactions described by the Issuer Documents and the Official Statement; and, the Issuer has complied, and will at the Closing be in compliance in all respects, with the terms of the Act and the Issuer Documents as they pertain to such transactions; (b) By all necessary official action of the Issuer prior to or concurrently with the acceptance hereof, the Issuer has duly authorized all necessary action to be taken by it for (i) the adoption of the Certificate Ordinance and the issuance and sale of the Certificates, (ii) the approval, execution and delivery of, and the performance by the Issuer of the obligations on its part, contained in the Certificates and the Issuer Documents and (iii) the consummation by it of all other transactions contemplated by the Official Statement, and the Issuer Documents and any and all such other agreements and documents as may be required to be executed, delivered and/or received by the Issuer in order to carry out, give effect to, and consummate the transactions contemplated herein and in the Official Statement; (c) The Issuer Documents constitute legal, valid and binding obligations of the Issuer, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws and principles of equity relating to or affecting the enforcement of creditors' rights and principles of sovereign 77804935.4 4 immunity of political subdivisions; the Certificates, when issued, delivered and paid for, in accordance with the Certificate Ordinance and this Agreement, will constitute legal, valid and binding obligations of the Issuer entitled to the benefits of the Certificate Ordinance and enforceable in accordance with their terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws and principles of equity relating to or affecting the enforcement of creditors' rights and principles of sovereign immunity of political subdivisions; upon the issuance, authentication and delivery of the Certificates as aforesaid, the Certificate Ordinance will provide, for the benefit of the holders, from time to time, of the Certificates, the legally valid and binding pledge and lien it purports to create as set forth in the Certificate Ordinance; (d) The Issuer is not in breach of or default in any material respect under any applicable constitutional provision, law or administrative regulation of the State or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Issuer is a party or to which the Issuer is or any of its property or assets are otherwise subject, and no event has occurred and is continuing which constitutes or with the passage of time or the giving of notice, or both, would constitute a default or event of default by the Issuer in any material respect under any of the foregoing; and the execution and delivery of the Certificates, the Issuer Documents and the adoption of the Certificate Ordinance and compliance with the provisions on the Issuer's part contained therein, will not conflict with or constitute a material breach of or default in any material respect under any constitutional provision, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Issuer is a party or to which the Issuer is or to which any of its property or assets are otherwise subject nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of the Issuer to be pledged to secure the Certificates or under the terms of any such law, regulation or instrument, except as provided by the Certificates and the Certificate Ordinance; (e) Except for the approval of the Certificates by the Attorney General of the State of Texas and the registration thereof by the Comptroller of Public Accounts of the State, all authorizations, approvals, licenses, permits, consents and orders of any governmental authority, legislative body, board, agency or commission having jurisdiction of the matter which are required for the due authorization of, which would constitute a condition precedent to, or the absence of which would materially adversely affect the due performance by the Issuer of its obligations under the Issuer Documents and the Certificates have been duly obtained, except for such approvals, consents and orders as may be required under the Blue Sky or securities laws of any jurisdiction in connection with the offering and sale of the Certificates; (0 The Certificates and the Certificate Ordinance conform to the descriptions thereof contained in the Official Statement under the captions "THE CERTIFICATES" and "GENERAL INFORMATION REGARDING THE CERTIFICATES"; the proceeds of the sale of the Certificates will be applied generally as described in the Official Statement under the caption "THE CERTIFICATES — Sources and Uses of Funds""; and 77804935.4 the Continuing Disclosure Undertaking contained in the Certificate Ordinance conforms to the description thereof contained in the Official Statement under the caption "CONTINUING DISCLOSURE OF INFORMATION"; (g) Except as disclosed in the Official Statement under the caption "CONTINUING DISCLOSURE OF INFORMATION — Compliance with Prior Undertakings", during the last five years the Issuer has complied in all material respects with its previous continuing disclosure undertakings made by it in accordance with the Rule; (h) Except as disclosed in the Official Statement, there is no litigation, action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, pending or, to the best knowledge of the Issuer after due inquiry, threatened against the Issuer, affecting the existence of the Issuer or the titles of its officers to their respective offices, or affecting or seeking to prohibit, restrain or enjoin the sale, issuance or delivery of the Certificates or the levy and collection of taxes and revenues pledged to the payment of principal of and interest on the Certificates pursuant to the Certificate Ordinance or in any way contesting or affecting the validity or enforceability of the Certificates, the Issuer Documents, or contesting the exclusion from gross income of interest on the Certificates for federal income tax purposes, or contesting in any way the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto, or contesting the powers of the Issuer or any authority for the issuance of the Certificates, the adoption of the Certificate Ordinance or the execution and delivery of the Issuer Documents, nor, to the best knowledge of the Issuer, is there any basis therefor, wherein an unfavorable decision, ruling or fording would materially adversely affect the validity or enforceability of the Certificates or the Issuer Documents; (i) As of the date thereof, the Preliminary Official Statement did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that for all purposes of this Agreement including, without limitation, for purposes of subparagraphs (i), 0) and (k) of this Section, and any certificate delivered by the Issuer in accordance herewith, the Issuer makes no representations with respect to the descriptions in the Preliminary Official Statement or the Official Statement of DTC, or its book -entry - only system. 0) At the time of the Issuer's acceptance hereof and (unless the Official Statement is amended or supplemented pursuant to paragraph (d) of Section 3 of this Agreement) at all times subsequent thereto during the period up to and including the twenty-fifth (25th) day subsequent to the "end of the underwriting period," the Official Statement does not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; 77804935.4 6 (k) If the Official Statement is supplemented or amended pursuant to paragraph (d) of Section 3 of this Agreement, at the time of each supplement or amendment thereto and (unless subsequently again supplemented or amended pursuant to such paragraph) at all times subsequent thereto during the period up to and including the twenty-fifth (25th) day subsequent to the "end of the underwriting period," the Official Statement as so supplemented or amended will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which made, not misleading; (1) The Issuer will apply, or cause to be applied, the proceeds from the sale of the Certificates as provided in and subject to all of the terms and provisions of the Certificate Ordinance and not to take or omit to take any action which action or omission will adversely affect the exclusion from gross income for federal income tax purposes of the interest on the Certificates; (m) The Issuer will furnish such information and execute such instruments and take such action in cooperation with the Underwriters as the Representative may reasonably request (1) to (i) qualify the Certificates for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions in the United States as the Representative may designate and (ii) determine the eligibility of the Certificates for investment under the laws of such states and other jurisdictions and (2) to continue such qualifications in effect so long as required for the distribution of the Certificates (provided, however, that the Issuer will not be required to qualify as a foreign corporation or to file any consents to service of process under the laws of any jurisdiction) and will advise the Representative immediately of receipt by the Issuer of any notification with respect to the suspension of the qualification of the Certificates for sale in any jurisdiction or the initiation or threat of any proceeding for that purpose; (n) The financial statements of, and other financial information regarding the Issuer, in the Official Statement fairly present the financial position and results of the Issuer as of the dates and for the periods therein set forth and prior to the Closing, and there has been no adverse change of a material nature in such financial position, results of operations or condition, financial or otherwise, since the date of such statements and information; (o) Except as disclosed in the Official Statement, the Issuer is not a party to any litigation or other proceeding pending or, to its knowledge, threatened which, if decided adversely to the Issuer, would have a materially adverse effect on the financial condition of the Issuer; (p) Prior to the Closing the Issuer will not offer or issue any bonds, notes or other obligations for borrowed money or incur any material liabilities, direct or contingent, payable from or secured by any of the revenues or assets which will secure the Certificates, except as may be incurred in the ordinary course of business, without the prior approval of the Representative, which approval shall not be unreasonably withheld; 77804935.4 7 (q) The Issuer, to the extent heretofore requested by the Representative in writing, has delivered to the Representative true, correct, complete, and legible copies of all information, applications, reports, or other documents of any nature whatsoever submitted to any rating agency for the purpose of obtaining a rating for the Certificates true, correct, complete, and legible copies of all correspondence or other communications relating, directly or indirectly, thereto; (r) Any certificate, signed by any official of the Issuer authorized to do so in connection with the transactions described in this Agreement, shall be deemed a representation and warranty by the Issuer to the Underwriters as to the statements made therein; (s) The Issuer covenants that between the date hereof and the date of Closing, it will take no actions which will cause the representations and warranties made in this Section to be untrue in any material aspect as of the date of Closing. By delivering the Official Statement to the Underwriters, the Issuer shall be deemed to have reaffirmed, with respect to such Official Statement, the representations, warranties and covenants set forth above with respect to the Preliminary Official Statement. 5. Closing. (a) At 10:00 a.m. Central Daylight Time, on July 9, 2013, or at such other time and date as shall have been mutually agreed upon by the Issuer and the Representative (the "Closing"'), the Issuer will, subject to the terms and conditions hereof, deliver the Certificates to the Underwriters, duly executed and authenticated, together with the other documents hereinafter mentioned, and the Underwriters will, subject to the terms and conditions hereof, accept such delivery and pay the purchase price of the Certificates, as set forth in Section 1 of this Agreement in immediately available funds by wire transfer to the account of the Issuer as indicated by BOKF, NA dba Bank of Texas, Austin, Texas (the "Paying Agent/Registrar"). Payment for the Certificates as aforesaid shall be made at the offices of the Paying Agent/Registrar or such other place as shall have been mutually agreed upon by the Issuer and the Representative. (b) Delivery of the Certificates in definitive form, utilizing the book entry, shall be made through DTC, or at the office of the Paying Agent/Registrar acting on behalf of DTC. The Certificates shall be delivered in definitive fully registered form, bearing CUSIP numbers without coupons, with one Certificate for each maturity of the Certificates, registered in the name of Cede & Co., all as provided in the Certificate Ordinance, and shall be made available at the offices of the DTC (or if Certificates are to be held in safekeeping for the DTC by the Paying Agent/Registrar pursuant to DTC's FAST System, at the office of the Paying Agent/Registrar) to the Representative at least one (1) business day before the date of the Closing for the purposes of inspection. 6. Closing Conditions. The Underwriters have entered into this Agreement in reliance upon the representations, warranties and agreements of the Issuer contained herein, and in reliance upon the representations, warranties and agreements to be contained in the documents 77804935.4 8 and instruments to be delivered at the Closing and upon the performance by the Issuer of its obligations hereunder, both as of the date hereof and as of the date of the Closing. Accordingly, the Underwriters' obligations under this Agreement to purchase, to accept delivery of and to pay for the Certificates shall be conditioned upon the performance by the Issuer of its obligations to be performed hereunder and under such documents and instruments at or prior to the Closing, and shall also be subject to the following additional conditions, including the delivery, by the Issuer of such docurents as are enumerated herein, in form and substance reasonably satisfactory to the Representative unless waived in writing by the Representative on behalf of the Underwriters: (a) The representations and warranties of the Issuer contained herein shall be true, complete and correct in all material respects on the date hereof and on and as of the date of the Closing, as if made on the date of the Closing; (b) The Issuer shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing; (c) At the time of the Closing, (i) the Issuer Documents and the Certificates shall be in full force and effect in the form heretofore approved by the Underwriters and shall not have been amended, modified or supplemented, and the Official Statement shall not have been supplemented or amended, except in any such case as may have been agreed to by the Representative; and (ii) the net proceeds of the sale of the Certificates and any funds to be provided by the Issuer shall be deposited and applied as described in the Official Statement and in the Certificate Ordinance and (iii) all actions of the Issuer required to be taken by the Issuer shall be performed in order for Bond Counsel to deliver its opinion referred to hereafter; (d) At the time of the Closing, all official action of the Issuer relating to the Certificates and the Issuer Documents shall be in full force and effect and shall not have been amended, modified or supplemented, except as may have been agreed to by the Underwriters; (e) At or prior to the Closing, the Certificate Ordinance shall have been duly executed and delivered by the Issuer and the Issuer shall have duly executed and delivered and the Paying Agent/Registrar shall have duly authenticated the definitive Certificates; (fl At the time of the Closing, there shall not have occurred any change or any development involving a prospective change in the condition, financial or otherwise, or in the revenues or operations of the Issuer, from that set forth in the Official Statement that in the judgment of the Representative, is material and adverse and that makes it, in the judgment of the Representative, impracticable to market the Certificates on the terms and in the manner described in the Official Statement; (g) The Issuer shall not currently be in default in the payment of principal or iriterest when due on any of its outstanding obligations for borrowed money; 77804935.4 9 (h) All steps to be taken and all instruments and other documents to be executed, and all other legal matters in connection with the transactions described in this Agreement shall be reasonably satisfactory in legal form and effect to the Representative; (i) At or prior to the Closing, the Underwriters shall have received copies of each of the following documents: (1) The Official Statement, and each supplement or amendment thereto, if any, as may have been agreed to by the Representative; (2) The Certificate Ordinance, having been duly adopted by the Issuer and certified as being in full force and effect, with such supplements or amendments as may have been agreed to by the Representative; (3) The undertaking of the Issuer which satisfies the requirements of Section (b)(5)(i) of the Rule (the "Continuing Disclosure Undertaking"); (4) The approving opinion of Bond Counsel with respect to the Certificates, in substantially the form attached to the Official Statement; (5) A supplemental opinion of Bond Counsel addressed to the Issuer and the Underwriter, substantially to the effect that: (A) the Certificate Ordinance has been duly adopted and is in full force and effect; (B) the Certificates are exempted securities under section 3(a)(2) of the Securities Act of 1933, as amended (the "1933 Act"), and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act'), and it is not necessary, in connection with the offering and sale of the Certificates to register and the Certificates under the 1933 Act or to qualify the Certificate Ordinance under the Trust Indenture Act; and (C) Bond Counsel has reviewed the statements and information contained in the Official Statement under the captions and sub -captions "THE CERTIFICATES" (except the subcaption "Sources and Uses of Funds"), "GENERAL INFORMATION REGARDING THE CERTIFICATES," "REGISTRATION, TRANSFER AND EXCHANGE," "Tax Rate Limitations," "LEGAL MATTERS," "TAX MATTERS," "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES," "QUALIFIED TAX EXEMPT OBLIGATIONS," "LEGAL INVESTMENTS IN TEXAS," "REGISTRATION AND QUALIFICATION OF ISSUE FOR SALE" and "CONTINUING DISCLOSURE OF INFORMATION" (except the subcaption "Compliance With Prior Undertakings") and Bond Counsel is of the opinion that the information relating to the Certificates and the Certificate Ordinance contained under such captions fairly summarizes the 77804935.4 10 procedures and documents referred to therein and is correct as to matters of law; (6) An opinion, dated the date of the Closing and addressed to the Underwriters, of counsel for the Underwriters, to the effect that: (A) the Certificates are exempted securities that do not require registration under the 1933 Act and the Trust Indenture Act and it is not necessary, in connection with the offering and sale of the Certificates to register any securities under the 1933 Act and the Certificate Ordinance need not be qualified under the Trust Indenture Act; and (B) based upon their participation in the preparation of the Official Statement as counsel for the Underwriters and their participation at conferences at which the Official Statement was discussed, but without having undertaken to determine independently the accuracy, completeness or fairness of the statements contained in the Official Statement, such counsel has no reason to believe that the Official Statement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except for any financial, forecast, technical and statistical statements and data included in the Official Statement, the information regarding DTC and its book -entry system, as to which no view need be expressed); (7) A certificate, dated the date of Closing, of an appropriate official of the Issuer to the effect that (i) all official action of the Issuer relating to the Certificates, the Issuer Documents and the Official Statement have been duly adopted by the Issuer, are in full force and effect, and have not been amended, modified, supplemented or repealed; (ii) the representations and warranties of the Issuer contained herein are true and correct in all material respects on and as of the date of Closing as if made on the date of Closing; (iii) no litigation or proceeding against it is pending or, to his or her knowledge, threatened in any court or administrative body, nor is there a basis for litigation, which would (a) contest the right of the officials of the Issuer to hold and exercise their respective positions, (b) contest the due organization and valid existence of the Issuer, (c) contest the validity, due authorization and execution of the Certificates, the Issuer Documents or (d) attempt to limit, enjoin or otherwise prevent the Issuer from functioning and collecting taxes or revenues, including payments on the Certificates, pursuant to the Certificate Ordinance, and other income or the levy or collection of the taxes or revenues pledged or to be pledged to pay the principal of and interest on the Certificates, or the pledge thereof; (iv) to the best of his or her knowledge, no event affecting the Issuer has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein, in light of the circumstances under which made, not iisleading in any material respect as of the 77804935.4 11 time of Closing, and the information contained in the Official Statement is correct in all material respects and, as of the date of the Official Statement did not, and as of the date of the Closing does not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading; and (v) there has not been any material adverse change in the financial condition of the Issuer since September 30, 2012, the latest date as of which audited financial information is available; (8) A certificate of the Issuer in form and substance satisfactory to Bond Counsel and counsel to the Underwriters (a) setting forth the facts, estimates and circumstances in existence on the date of the Closing, which establish that it is not expected that the proceeds of the Certificates will be used in a manner that would cause the Certificates to be "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), and any applicable regulations (whether final, temporary or proposed), issued pursuant to the Code, and (b) certifying that to the best of the knowledge and belief of the Issuer there are no other facts, estimates or circumstances that would materially change the conclusions, representations and expectations contained in such certificate; (9) The approving opinion of the Attorney General of the State of Texas and the registration certificate of the Comptroller of Public Accounts of the State of Texas in respect of the Certificates; (10) Any other certificates and opinions required by the Certificate Ordinance for the issuance thereunder of the Certificates; (11) Evidence satisfactory to the Representative that the Certificates have been rated "A2" by Moody's Investors Service, and that all such ratings are in effect as of the date of Closing; and (12) Such additional legal opinions, certificates, instruments and other documents as the Representative or counsel to the Underwriters may reasonably request to evidence the truth and accuracy, as of the date hereof and as of the date of the Closing, of the Issuer's representations and warranties contained herein and of the statements and information contained in the Official Statement and the due performance or satisfaction by the Issuer on or prior to the date of the Closing of all the respective agreements then to be performed and conditions then to be satisfied by the Issuer. All of the opinions, letters, certificates, instruments and other documents mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof if, but only if, they are in form and substance satisfactory to the Underwriters. If the Issuer shall be unable to satisfy the conditions to the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Certificates contained in this 77804935.4 12 Agreement, or if the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Certificates shall be terminated for any reason permitted by this Agreement, this Agreement shall terminate and neither the Underwriters nor the Issuer shall be under any further obligation hereunder, except that the respective obligations of the Issuer and the Underwriters set forth in Sections 4 and 8 hereof shall continue in full force and effect. 7. Termination. The Underwriters shall have the right to cancel their obligation to purchase the Certificates if, between the date of this Agreement and the Closing, the market price or marketability of the Certificates shall be materially adversely affected, in the sole judgment of the Representative, reasonably exercised, by the occurrence of any of the following: (a) Legislation shall be enacted by or introduced in the Congress or recommended to the Congress for passage by the President of the United States, or the Treasury Department of the United States or the Internal Revenue Service or favorably reported for passage to either House of the Congress by any committee of such House to which such legislation has been referred for consideration, a decision by a court of the United States or of the State or the United States Tax Court shall be rendered, or an order, ruling, regulation (final, temporary or proposed), press release, statement or other form of notice by or on behalf of the Treasury Department of the United States, the Internal Revenue Service or other governmental agency shall be made or proposed, the effect of any or all of which would be to impose, directly or indirectly, federal income taxation upon interest received on obligations of the general character of the Certificates, of the interest on the Certificates as described in the Official Statement, or other action or events shall have transpired which may have the purpose or effect, directly or indirectly, of changing the federal income tax consequences of any of the transactions described herein, or any other similar action or event shall have occurred which, in the reasonable judgment of the Representative, materially adversely affect the market for the Certificates or the market price generally of obligations of the general character of the Certificates; (b) Legislation introduced in or enacted (or resolution passed) by the Congress or an order, decree, or injunction issued by any court of competent jurisdiction, or an order, ruling, regulation (final, temporary, or proposed), press release or other form of notice issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that obligations of the general character of the Certificates, including any or all underlying arrangements, are not exempt from registration under or other requirements of the 1933 Act, or that the Certificate Ordinance is not exempt from qualification under or other requirements of the Trust Indenture Act, or that the issuance, offering, or sale of obligations of the general character of the Certificates, including any or all underlying arrangements, as contemplated hereby or by the Official Statement or otherwise, is or would be in violation of the federal securities law as amended and then in effect; (c) Any state blue sky or securities commission or other governmental agency or body in any state in which more than 15% of the Certificates have been offered and sold shall have withheld registration, exemption or clearance of the offering of the Certificates as described herein, or issued a stop order or similar ruling relating thereto; 77804935.4 13 (d) A general suspension of trading in securities on the New York Stock Exchange, the establishment of minimum prices on such exchange, the establishment of material restrictions (not in force as of the date hereof) upon trading securities generally by any governmental authority or any national securities exchange, a general banking moratorium declared by federal, State of New York, or State officials authorized to do so or a material disruption in securities settlement, payment or clearance services in the United States shall have occurred; (e) The New York Stock Exchange or other national securities exchange or any governmental authority shall impose, as to the Certificates or as to obligations of the general character of the Certificates, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by, or the charge to the net capital of, the Underwriters; (f) Any amendment to the federal or Texas Constitution or action by any federal or Texas court, legislative body, regulatory body, or other authority materially adversely affecting the tax status of the Issuer, its property, income, securities (or interest thereon), or the validity or enforceability of the assessments or the levy of taxes to pay principal of and interest on the Certificates; (g) Any event occurring, or information becoming known which, in the reasonable judgment of the Representative, makes untrue in any material respect any material statement or information contained in the Official Statement, or has the effect that the Official Statement contains any untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the tight of the circumstances under which they were made, not misleading; (h) There shall have occurred since the date of this Agreement any materially adverse change in the affairs or financial condition of the Issuer, except for changes which the Official Statement discloses are expected to occur; (i) There shall have occurred (whether or not foreseeable) any (a) new material outbreak of hostilities (including, without limitation, an act of terrorism) or (b) new material other national or international calamity or crisis including, but not limited to, an escalation of hostilities that existed prior to the date hereof, or (c) material financial crisis or adverse change in the financial or economic conditions affecting the United States government or the securities markets in the United States; 0) Any fact or event shall exist or have existed that, in the Representative's reasonable judgment, requires or has required an amendment of or supplement to the Official Statement; (k) There shall have occurred or notice shall have been given of any downgrading, or any credit watch or credit review shall have been issued or other notice shall have been given of any intended or potential downgrading, in the rating accorded any of the Issuer's obligations (including the rating to be accorded the Certificates); and 77804935.4 14 (1) The purchase of and payment for the Certificates by the Underwriters, or the resale of the Certificates by the Underwriters, on the terms and conditions herein provided shall be prohibited by any applicable law, governmental authority, board, agency or commission. With respect to the condition described in subparagraphs (e) and (1) above, the Underwriters are not aware of any current, pending or proposed law or government inquiry or investigation as of the date of execution of this Agreement which would permit the Underwriters to invoke its termination rights thereunder. 8. Expenses. (a) The Underwriters shall be under no obligation to pay, and the Issuer shall pay all expenses incident to the performance of the Issuer's obligations hereunder, including, but not limited to (i) the cost of preparation and printing of the Certificates, Preliminary Official Statement, Official Statement and any amendment or supplement thereto, (ii) the fees and disbursements of Bond Counsel and other counsel retained by the Issuer, if any; (iii) the fees and disbursements of the Financial Advisor to the Issuer, if any; (iv) the fees and disbursements of the Paying Agent/Registrar; (v) the fees and disbursements of engineers, accountants, and other experts, consultants or advisers retained by the Issuer, if any; and (vi) all fees and expenses in connection with obtaining bond ratings and credit enhancement fees or premiums. (b) The Issuer acknowledges that the Representative will pay from the underwriters' expense allocation of the underwriting discount the applicable per bond assessment charged by the Municipal Advisory Council of Texas, a non-profit corporation whose purpose is to collect, maintain. and distribute information relating to issuing entities of municipal securities and of which the Representative is a member. (c) Except as provided for above, the Underwriters shall pay (i) the cost of preparation and printing of this Agreement, the Blue Sky Survey and Legal Investment Memorandum, if any; (ii) all advertising expenses in connection with the public offering of the Certificates; and (iii) all other expenses incurred by them in connection with the public offering of the Certificates, including the fees and disbursements of counsel retained by the Underwriters. Certain payments may be in the form of inclusion of such expenses in the expense component of the Underwriters' discount. 9. Notices. Any notice or other communication to be given to the Issuer under this Agreement may be given by delivering the same in writing at City of Sanger, Texas, 502 Elm Street, Sanger, Texas 76266, Attention: City Manager; and, any notice or other communication to be given to the Underwriters under this Agreement may be given by delivering the same in writing to Oppenheimer & Co., 13455 Noel Road, Suite 1200, 2 Galleria Tower, Dallas, Texas 75240, Attention: Dan Roseveare. 10. Parties in Interest. This Agreement as heretofore specified shall constitute the entire agreement between us and is made solely for the benefit of the Issuer and the Underwriters (including successors or assigns of the Underwriters) and no other person shall acquire or have 77804935.4 15 any right hereunder or by virtue hereof. This Agreement may not be assigned by the Issuer. All of the Issuer's representations, warranties and agreements contained in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigations made by or on behalf of any of the Underwriters; (ii) delivery of and payment for the Certificates pursuant to this Agreement; and (iii) any termination of this Agreement. 11. Effectiveness. This Agreement shall become effective upon the acceptance hereof by the Issuer and shall be valid and enforceable at the time of such acceptance. 12. Choice of Law. This Agreement shall be governed by and construed in accordance with the law of the State. 13. Severability. If any provision of this Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, or in all jurisdictions because it conflicts with any provisions of any Constitution, statute, rule of public policy, or any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions of this Agreement invalid, inoperative or unenforceable to any extent whatever. 14. Business Day. For purposes of this Agreement, "business day" means any day on which the New York Stock Exchange is open for trading. 15. Section Headinss. Section headings have been inserted in this Agreement as a matter of convenience of reference only, and it is agreed that such section headings are not a part of this Agreement and will not be used in the interpretation of any provisions of this Agreement. 16. Counterparts. This Agreement may be executed in several counterparts each of which shall be regarded as an original (with the same effect as if the signatures thereto and hereto were upon the same document) and all of which shall constitute one and the same document. 17. No Personal Liabilitv. Neither the Mayor, City Council, nor any officer, agent, or employee of the Issuer, shall be charged personally by the Underwriters with any liability, or be held liable to the Underwriters under any term or provision of this Agreement, or because of execution or attempted execution, or because of any breach or attempted or alleged breach, of this Agreement. 18. Entire Agreement. This Agreement represents the entire agreement between the Issuer and the Underwriters with respect to the preparation of the Preliminary Official Statement and the Official Statement, the conduct of the offering, and the purchase and sale of the Certificates. [signature page follows] 77804935.4 16 If the Issuer agrees with the foregoing, please sign the enclosed counterpart of this Agreement and return it to the Representative. This Agreement shall become a binding agreement between the Issuer and the Underwriters when at least the counterpart of this letter shall have been signed by or on behalf of each of the parties hereto. Respectfillly submitted, OPPENHEIMER & CO., as Representative of the Underwriters By: Name: s Title: i1,r' Date: APPROVED AND ACCEPTED as of the date hereof - CITY OF SANGER, TEXAS By: Nat Titl Date and Time of Acceptance Schedule I - List of Underwriters Schedule II - Schedule of Terms 77804935.3 Execution Page to Purchase Agreement for City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2013 If the Issuer agrees with the foregoing, please sign the enclosed counterpart of this Agreement and return it to the Representative. This Agreement shall become a binding agreement between the Issuer and the Underwriters when at least the counterpart of this letter shall have been signed by or on behalf of each of the parties hereto. Respectfully submitted, OPPENHEIMER & CO., as Representative of the Underwriters By:_ Name: Title: Date: APPROVED AND ACCEPTED as of the date hereof - CITY OF SANGER, TEXAS By: Name: 77t -g' Title: zlta 1l a 'T'/2�t - LWO Date bd Yime of Acceptance Schedule I - List of Underwriters Schedule II - Schedule of Terms 77304935.3 Execution Page to Purchase Agreement for City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2013 Schedule I List of Underwriters Oppenheimer & Co. 13455 Noel Rd., Suite 1200 2 Galleria Tower Dallas, Texas 75240 Duncan -Williams, Inc. 3131 McKinney Avenue, Suite 600 Dallas, Texas 75204 I-1 77804935.4 SCHEDULE II $4,260,000 City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2013 Interest Accrues From: Delivery Date Initial Maturity Principal Interest Reoffering August 1 (a) Amount Rate Yieldtb) 2014 $150,000 2.000% 0.500% 2015 165,000 2.000 0.600 2016 165,000 2.000 0.800 2017 170,000 2.000 1.100 2018 175,000 2.500 1.350 2019 175,000 2.500 1.650 2020 180,000 3.000 2.000 2021 185,000 3.000 2.350 2022 190,000 3.000 2.550 2023 200,000 3.000 2.800 2024 205,000 3.500 3.000 $430,000 4.500% Term Certificates due August 1, 2026, Yield 3.100%taubxc) $470,000 4.750% Term Certificates due August 1, 2028, Yield 3.300%1a)p>llc1 $520,000 5.000% Term Certificates due August 1, 2030, Yield 3.500%(a)(n)(`) $880,000 5.000% Term Certificates due August 1, 2033, Yield 3.700%(: )('))Ic) (a) The Issuer reserves the right, at its option, to redeem the Certificates having stated maturities on and after August 1, 2024, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, on August 1, 2023, or any date thereafter, at the par value thereof plus accrued interest from the most recent interest payment date to the date of redemption. (b) The initial reoffering prices or yields of the Certificates are furnished by the Underwriters and represent the initial offering prices or yields to the public, which may be changed by the Underwriters at any time. Yield shown is to maturity or the first optional redemption date, August 1, 2023, whichever produces a lower yield. (c) The Term Certificates are subject to mandatory sinking fund redemption on the dates and in the amounts set forth below: Term Certificate Maturitv Mandatory Redemption Dates Principal Amounts August 1, 2026 August 1, 2025 $210,000 August 1, 2026 (maturity) 220,000 August 1, 2028 August 1, 2027 $230,000 August 1, 2028 (maturity) 240,000 August 1, 2030 August 1, 2029 $255,000 August 1, 2030 (maturity) 265,000 August 1, 2033 August 1, 2031 $280,000 August 1, 2032 295,000 August 1, 2033 (maturity) 305.000 II- l 77804935.4 Rating: Moody's "AT' (See "RATINGS" herein) PRELIMINARY OFFICIAL STATEMENT Dated: June 11, 2013 NEW ISSUE: Book -Entry -Only In the opinion oj'Bond Counsel, interest on the Certificates is excludable from gross income for federal income tax purposes under existing law, subject to the matters described under "TV: MATTERS" herein, and is not includable in the alternative minimum taxable income of individuals. See "TAX MATTERS" for a discussion of the opinion of Bond Counsel, including the alternative minitnurn tax consequences for corporations. THE CERTIFICATES WILL BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS. Dated Date: June 15, 2013 $4,500,000* CITY OF SANGER, TEXAS (Denton County) Combination Tax and Revenue Certificates of Obligation, Series 2013 Due: August 1, as shown on inside cover Interest on the $4,500,000* City of Sanger, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2013 (the "Certificates"), will accrue from their delivery date to the underwriters listed below (the "Underwriters") and will be payable February 1 and August 1 of each year, commencing on February 1, 2014. The Certificates will be issued only in fully registered form in principal denominations of $5,000 or any integral multiple thereof. Principal of the Certificates will be payable to the registered owner (the "Owner") at maturity or prior redemption upon presentation at the principal corporate office of the paying agent/registrar (the "Paying Agent/Registrar"), initially BOKF, NA dba Bank of Texas, Austin, Texas. The Certificates will be initially registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ("DTC"). DTC will be responsible for distributing the principal and interest payments to the participating members of DTC and the participating members will be responsible for distributing the payment to the owners of beneficial interests in the Certificates. See "BOOK -ENTRY -ONLY SYSTEM" herein. Proceeds from the sale of the Certificates will be used (1) to pay for water and sewer system repairs and improvements, street repairs, drainage repairs and improvements, and park repairs and improvements, and (2) to pay for the payment of contractual obligations for professional services related thereto. See "THE CERTIFICATES — Sources and Uses of Funds" herein. The Certificates maturing on and after August 1, 20_, are subject to optional redemption in whole or in part on August 1, 20_, or on any date thereafter at a redemption price equal to the principal amount thereof plus accrued interest as more fully described herein. See "THE CERTIFICATES — Optional Redemption" herein. The Certificates will constitute direct obligations of the City of Sanger, Texas (the "City"), payable from ad valorem taxes levied against all taxable property within the City within the limits prescribed by law, and from a limited subordinate pledge (not to exceed $10,000) of surplus net revenues of the City's water and sewer system as provided in the ordinance authorizing the Certificates. See Principal Amounts, Maturities, Interest Rates, and Prices on the Inside Cover Page The Certificates are offered when, as and if issued, subject to the approval of legality by the Attorney General of the State of Texas and Andrews Kurth LLP, Bond Counsel, Houston, Texas. Certain legal matters will be passed upon for the Underwriters by their counsel, Fulbright & Jaworski LLP, Houston, Texas, a member of Norton Rose Fulbright. The Certificates are expected to be available for delivery to the Underwriters through DTC on or about July 9, 2013. OPPENHEIMER & CO. DUNCAN-WILLIAMS, INC. * Preliminary, subject to change. (a) (b) (c) MATURITY SCHEDULE $4,500,000* Combination Tax and Revenue Certificates of Obligation, Series 2013 Maturity Principal (Aulzust 1) (a) Amount 2014 $ 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Interest Initial Rate Yield/Price(b) CUSIP(`, Preliminary, subject to change. The Certificates maturing on and after August 1, 20_, are subject to optional redemption, in whole or in part, on August 1, 20_, or any date thereafter, at a price equal to the par value thereof, plus accrued interest from the most recent interest payment date to the date or redemption. (See `'THE CERTIFICATES — Optional Redemption"). The initial yields and prices are established by, and are the sole responsibility of the Underwriters and may subsequently be changed. CUSIP numbers have been assigned to this issue by the CUSIP Global Services managed by Standard and Poor's Financial Services LLC on behalf of the American Bankers Association and are included solely for the convenience of the purchasers of the Certificates. Neither the City, the Financial Advisor, nor the Underwriters shall be responsible for the selection or correctness of the CUSIP numbers set forth herein. CITY OF SANGER, TEXAS CITY COUNCIL Thomas Muir Mayor Russell Martin Couneilmember, Place 1 Billy Ezell Couneilmember, Place 2 Gary Bilyeu Couneilmember, Place 3 Allen Chick Couneilmember, Place 4 Scott Stephens Mayor Pro-Tem, Place 5 ADMINISTRATIVE OFFICERS Mike Brice City Manager Tami Taber City Secretary Robert Dillard, Esq. City Attorney Nichols Jackson Dillard & Smith Dallas, Texas CONSULTANTS, ADVISORS AND INDEPENDENT AUDITORS Andrews Kurth LLP, Houston, Texas Weaver and Tidwell LLP, Fort Worth, Texas Government Capital Securities Corporation, Southlake, Texas For additional information regarding the City, please contact: Mike Brice City Manager City of Sanger, Texas P.O. Box 1729 Sanger, Texas 76266 (940)458-7930 mbrice,Lgsangertexas.ore Bond Counsel Independent Auditor Financial Advisor Ted Christensen Government Capital Securities Corporation 559 Silicon Drive, Suite 102 Southlake, TX 76092 (817)722-0239 teliristensen�ii aovcaosecuri ti es.coin rttreinerct!aovcapsecun-ities.com USE OF INFORMATION IN OFFICIAL STATEMENT For purposes of compliance with Rule I5c2-12 of the United States Securities and Exchange Commission, this document constitutes an Of Statement of the City with respect to the Certificates that has been deemed 'final " by the City as of its date except for the omission of no more than the information permitted by Rule I5c2-12. This document, when fzuther supplemented by adding information specifying the interest rates and certain other information relating to the Certificates, shall constitute a "final official statement" of the City with respect to the Certificates, as such term is defined in Rule 15c2-12. T his Official Statement is not to be used in connection with an offer to sell or the solicitation of an offer to brry in anv jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to anv person to whom it is unlmvful to make such offer or solicitation. Any information and expressions of opinion herein contained are subject to change without notice, and neither the delivery of the Official Statement nor any sale made hereunder shall, under anv circumstances, create any implication that there has been no change in the affairs of the City or other matters described herein since the date hereof. See "CONTINUING DISCLOSURE OF INFORMATION" for a description of the City's undertaking to provide certain information on a continuing basis. THE CERTIFICATES ARE EXENIPTED FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR E VE.11PTION OF THE CERTIFICATES IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTION IN PPHICH THESE SECURITIES HAVE BEEN REGISTERED OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS rtLAY OVER -ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET SUCH STABILIZING, IF COMMENCED, MAYBE DISCONTINUED AT ANY TIME. The agreements of the City and others related to the Certificates are contained solely in the contracts described herein. Neither this Official Statement nor any other statement made in connection with the offer or sale of the Certificates is to be construed as constituting an agreement with the purchasers of the Certifreates. INVESTORS SHOULD READ THE ENTIRE OFFICIAL STATEMENT, INCLUDING ALL SCHEDULES AND APPENDICES ATTACHED HERETO, TO OBTAIN INFOR 47ION ESSENTIAL TO MAKING AN INFORMED IN17ESTMENT DECISION. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information set forth in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness ofsuch information. Neither the City, the Financial Advisor nor the Underwriters make any representation as to the accuracy, completeness or adequacy of the information contained in this Off cial Statement regarding The Depository Trust Company or its Book-Entry- Onlv Svstenr. TABLE OF CONTENTS SUMi\IARY STATEMENT ......................................... iv SELECTED FINANCIAL INFORMATION....... v INTRODUCTORY STATEMENT ...................... 1 THE CERTIFICATES ......................................... 1 Purpose............................................................... I Authorization...................................................... I Security for the Certificates ................................. I Optional Redemption .......................................... I Notice of Redemption ......................................... 2 Sources and Uses of Funds .................................. 2 GENERAL INFORMATION REGARDING THE CERTIFICATES .................................... 2 General Description ............................................ 2 Legality.............................................................. 3 Defeasance.......................................................... 3 Amendments to the Ordinance ............................. 3 OWNERSHIP....................................................... 3 OWNER'S REMEDIES.......................................4 BOOK -ENTRY -ONLY SYSTEM ........................ 4 REGISTRATION, TRANSFER AND EXCHANGE .................................................... 6 Paying Agent/Registrar....................................... 6 Future Registration .............................................. 6 Record Date for Interest Payment ........................ 6 Limitation on Transfer of Certificates .................. 7 Replacement of Certificates ................................. 7 TAX INFORMATION .......................................... 7 Summary of Certain Provisions of the Property Tax Code ......................................... 7 Effective Tax Rate and Rollback Tax Rate........... 8 Property Assessment and Tax Payment ................ 9 Penalties and Interest ........................................... 9 City Application of Property Tax Code ................ 9 Municipal Sales Tax .......................................... 10 TAX RATE LIMITATIONS .............................. 10 RETIREMENT PLAN........................................10 INVESTMENT POLICIES.................................11 Accounting Principles Generally Accepted in the United States ........................................... I I Legal Investments..............................................11 Investment Policies............................................12 Additional Provisions........................................12 Current Investments...........................................12 RATINGS............................................................13 PENDING LITIGATION...................................13 LEGAL MATTERS............................................13 TAX MATTERS..................................................13 Tax Exemption..................................................13 Proposed Tax Legislation...................................14 TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES............................................14 Discount Certificates..........................................14 Premium Certificates.........................................15 QUALIFIED TAX-EXEMPT OBLIGATIONS.............................................15 LEGAL INVESTMENTS IN TEXAS.................16 REGISTRATION AND QUALIFICATION OF ISSUE FOR SALE...................................16 CONTINUING DISCLOSURE OF INFORMATION............................................16 Annual Reports..................................................16 Material Event Notices.......................................17 Limitations and Amendments .............................17 Compliance with Prior Undertakings ..................17 FINANCIAL ADVISOR.....................................18 UNDERWRITING..............................................18 CONCLUDING STATEMENT ..........................18 Financial Information Regarding the City of Sanger, Texas General Information Regarding the City of Sanger, Texas Form of Opinion of Bond Counsel Audited Financial Statements for the Fiscal Year Ended September 30, 2012 Appendix A Appendix B Appendix C Appendix D IN SUMMARY STATEMENT This Summary Statement is subject in all respects to the more complete information contained in this Official Statement. The offering of the Certificates to potential investors is made only by means of this entire Official Statement, including the schedules and appendices hereto. No person is authorized to detach this Summary Statement from this Official Statement or to otherwise use it without this entire Official Statement including the Appendices hereto. The Issuer The City of Sanger, Texas (the "City"), is located in Denton County, Texas. For information regarding the City, see Appendices A and B. The Certificates $4,500,000* Combination Tax and Revenue Certificates of Obligation, Series 2013, dated June 15, 2013, maturing on the dates and in the amounts set forth on the inside front cover of this Official Statement. Interest on the Certificates will accrue from their date of delivery and will be paid semiannually on February 1 and August 1, commencing February 1, 2014, until maturity or prior redemption. Purpose of Certificates Proceeds from the sale of the Certificates will be used (1) to pay for water and sewer system repairs and improvements, street repairs, drainage repairs and improvements, and park repairs and improvements, and (2) to pay for the payment of contractual obligations for professional services related thereto. See "THE CERTIFICATES — Sources and Uses of Funds" herein. Authorization and Security The Certificates are direct obligations of the City, issued pursuant to Chapter 271, Subchapter C, Texas Local Government Code, Chapter 1502, Texas Government Code, and an ordinance to be enacted by the City Council of the City (the "City Council") on June 17, 2013. The Certificates are payable from ad valorem taxes to be levied, within the limits prescribed by law, on all taxable property within the City and a limited pledge of surplus net revenues derived from the City's water and sewer system, not to exceed $10,000, as provided in the ordinance authorizing the Certificates. Optional Redemption The Certificates maturing on and after August 1, 20_ are subject to optional redemption in whole or in part on August 1, 20_, or on any date thereafter at a price of par plus accrued interest as more fully described herein. See "THE CERTIFICATES — Optional Redemption" herein. Tax Matters In the opinion of Bond Counsel, interest on the Certificates is excludable from gross income for federal income tax purposes under existing law, subject to the matters described under "TAX MATTERS" herein, and is not includable in the alternative minimum taxable income of individuals. See "TAX MATTERS" for a discussion of the opinion of Bond Counsel, including the alternative minimum tax on corporations. The City will designate the Certificates as qualified tax-exempt obligations. See "QUALIFIED TAX-EXEMPT OBLIGATIONS" herein. Ratings The Certificates are rated "AT' by Moody's hivestor's Service, Inc. ("Moody's"). An explanation of the significance of such rating may be obtained from Moody's. See "RATINGS" herein. Book -Entry -Only System The Certificates are initially issuable only to Cede & Co., the nominee of The Depository Trust Company, New York, New York, pursuant to the book -entry only system described herein. Beneficial ownership of the Certificates may be acquired in principal denominations of $5,000 or integral multiples thereof No physical delivery of the Certificates will be made to the purchasers thereof. Principal of, premium if any, and interest on the Certificates will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the DTC Participants (as defined herein) for subsequent remittance to the owners of the beneficial interests in the Certificates. See "BOOK -ENTRY -ONLY SYSTEM" herein. Payment Record The City has never defaulted on the payment of its bonded indebtedness. Preliminary, subject to change. iv SELECTED FINANCIAL INFORMATION (Unaudited) 2012 Certified Taxable Assessed Valuation......................................................... $389,390,028 (a) (100% of Market Value as of January 1, 2012) City Debt: Outstanding Tax Supported Debt (as of June 1, 2013).................................. $11,595,000 b> Plus: The Certificates........................................................................ 4,500,000 Total Tax Supported Debt................................................................... $16,095,000 Estimated Overlapping Debt........................................................................... $18,535,823 Direct and Estimated Overlapping Debt............................................................. $34,630,823 Debt Service Fund Balance (as of Sept. 30, 2012).................................................. $350,895 % of 2012 2012 Per Assessed Capita Valuation (7,162 ) Debt Ratios: Direct Tax Supported Debt ................ 4.13% $2,327 Direct Tax Supported and Estimated Overlapping Debt .............. 8.89% $5,007 2012 Tax Rate (per $100 of Assessed Valuation Maintenance and Operation $0.446044 Debt Service................................................................................. 0.187005 Total.......................................................................................... $0.633049 Estimated Annual Debt Service Requirements..................................................... Average....................................................................................... $1,010,903 Maximum(2014)............................................................................ $1,799,797 Tax Collections CurrentYear.................................................................................. 98.69% Total Collections............................................................................. 98.71% * Preliminary, subject to change. (a) Provided by the Denton Central Appraisal District (the "Appraisal District") and net of exemptions. Such value is further subject to changes as additions, corrections and deletions are made to the tax roll. (b) Includes self-supporting debt. v OFFICIAL STATEMENT RELATING TO $4,500,000' CITY OF SANGER, TEXAS (Denton County) Combination Tax and Revenue Certificates of Obligation, Series 2013 INTRODUCTORY STATEMENT This Official Statement, which includes the cover page, the schedules and the appendices hereto, provides certain information regarding the issuance by the City of Sanger, Texas (the "City") of $4,500,000* Combination Tax and Revenue Certificates of Obligation, Series 2013 (the "Certificates"). The Certificates will be authorized to be issued, sold and delivered by an ordinance enacted by the City's governing body (the "City Council"). and such ordinance is referred to herein as the "Ordinance." Capitalized terms used in this Official Statement have the same meaning assigned to such terms in the Ordinance, except as otherwise indicated herein. The City is a political subdivision of the State of Texas (the "State") and a municipal corporation organized and existing under the laws of the State and the City's home rule charter (the "City Charter"), which was initially approved by the electorate of the City on November 2, 1999. For information regarding the City, see Appendices A and B of this Official Statement. All financial and other information presented in this Official Statement has been provided by the City, except for information expressly attributed to other sources. The presentation of information, including tables of receipts from taxes and other sources, is intended to show recent historic information, and is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as is shown by that financial and other information, will necessarily continue to be repeated in the future. THE CERTIFICATES Purpose Proceeds from the sale of the Certificates will be used (1) to pay for water and sewer system repairs and improvements, street repairs, drainage repairs and improvements, and park repairs and improvements, and (2) to pay for the payment of contractual obligations for professional services related thereto. See "THE CERTIFICATES — Sources and Uses of Funds" herein. Authorization The Certificates are direct obligations of the City, issued pursuant to Chapter 271, Subchapter C, Texas Local Government Code, as amended. Chapter 1502, Texas Government Code, as amended, and the Ordinance, as authorized by the City Charter. Security for the Certificates The Certificates are payable from ad valorem taxes to be levied and collected, within the limits prescribed by law, on all taxable property within the City, and by a limited pledge of surplus net revenues derived from the City's water and sewer system (the "System"). not to exceed $10,000, as provided in the Ordinance. Optional Redemption The City reserves the right, at its option, to redeem the Certificates having stated maturities on and after August I, 20_, in whole or in part, in integral multiples of $5.000, on August 1, 20_ or any date thereafter, such redemption date or dates to be fixed by the City, at a redemption price equal to the principal amount thereof plus accrued interest to the date fixed for redemption. If less than all of the Certificates are to be redeemed, the City shall determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar (as defined herein) to select by lot the Certificates, or portions thereof, within each maturity to be redeemed. Preliminary, subject to change. Notice of Redemption Not less than 30 days prior to a redemption date for the Certificates, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to each registered owner of a Certificate to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. If notice is so given and sufficient finds are provided for the payment of the redemption price of the Certificates, interest shall cease to accrue after the date fixed for redemption whether or not the Certificates have been submitted for payment. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, AND THE FUNDS NECESSARY TO REDEEM SUCH CERTIFICATES HAVING BEEN PROVIDED, THE CERTIFICATES CALLED FOR REDEMPTION S1 ALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY CERTIFICATE OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH CERTIFICATE OR PORTION THEREOF SHALL CEASE TO ACCRUE. Sources and Uses of Funds The proceeds from the sale of the Certificates will be applied approximately as follows: Sources Principal Amount of Certificates Net Original Issue Discount Total Sources of Funds Uses Deposit to Construction Fund $ Costs of Issuance Underwriters' Discount Total Uses of Funds $ GENERAL INFORMATION REGARDING THE CERTIFICATES General Description The Certificates will be dated June 15, 2013 (the "Dated Date"), and will be issued in frilly registered form in denominations of $5,000 or any integral multiple thereof. The Certificates will bear interest from the date of delivery to the underwriters listed on the cover page hereof (the '`Underwriters"), and interest will be paid semiannually on each February 1 and August 1, commencing February 1, 2014. Interest will accrue on the Certificates on the basis of a 360-day year consisting of twelve 30-day months. The Certificates will be issued as book -entry only securities pursuant to arrangements made with The Depository Trust Company, New York, New York. See '`BOOK -ENTRY -ONLY SYSTEM." Principal of the Certificates will be payable to the registered owners (the "Owners") at maturity or prior redemption upon presentation and surrender of such Certificates at the principal corporate office of the paying agent/registrar (the "Paying Agent/Registrar"), initially BOKF, NA dba Bank of Texas, Austin, Texas. Interest on the Certificates will be payable by check dated as of the interest payment date and mailed by the Paying Agent/Registrar to Owners as shown on the records of the Paying Agent/Registrar on the Record Date (see "REGISTRATION, TRANSFER AND EXCHANGE — Record Date for Interest Payment" herein), or by such other customary banking arrangement, acceptable to the Paying Agent/Registrar. requested by, and at the risk and expense of, the Owner. If the date for the payment of the principal of or interest on a Certificate shall be a Saturday, Sunday, legal holiday, or a day on which banking institutions in the city where the Paying Agent/Registrar is located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not such a Saturday. Sunday, legal holiday, or a day on which banking institutions are authorized to close. and payment on such date shall have the same force and effect as if made on the original date payment was due. The Certificates will mature on the dates, in the amounts and bear interest at the rates as set forth on inside cover page of this Official Statement. Legality The Certificates are offered when, as and if issued, subject to the approvals of legality by the Attorney General of the State of Texas and Andrews Kurth LLP, Houston, Texas, Bond Counsel. (See "LEGAL MATTERS" and Appendix C — "Form of Opinion of Bond Counsel"). Defeasance The Ordinance provides that the City may defease the Certificates and discharge its obligation to the holders of any or all of the Certificates to pay the principal of and interest thereon in any manner now or hereafter permitted by law, including by depositing with the Registrar or with the Comptroller of the State of Texas either: (a) cash in an amount equal to the principal amount of and interest thereon to the date of maturity; or (b) pursuant to an escrow or trust agreement, cash and/or (i) direct noncallable obligations of United States of America, including obligations that are unconditionally guaranteed by the United States of America; (ii) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the Board approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than "AAA' or its equivalent; or (iii) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the Board approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than "AAA" or its equivalent, which, in the case of (i), (ii), or (iii), may be in book entry form, and the principal of and interest on which will, when due or redeemable at the option of the holder, without further investment or reinvestment of either the principal amount thereof or the interest earnings thereon, provide money in an amount which, together with other moneys, if any, held in such escrow at the same time and available for such purpose, shall be sufficient to provide for the timely payment of the principal of and interest thereon to the date of maturity or earlier redemption: provided, however, that if any of the Certificates are to be redeemed prior to their respective dates of maturity, provision shall be made for the giving of notice of redemption as provided in the Ordinance. Any surplus amount not required to accomplish such defeasance shall be returned to the City. Upon such deposit as described above, such Certificates shall no longer be regarded to be outstanding or unpaid. After firm banking and financial arrangements for the discharge and final payment or redemption of the Certificates have been made as described above, all rights of the City to initiate proceedings to call the Certificates for redemption or take any other action amending the terms of the Certificates are extinguished; provided, however. that the right to call the Certificates for redemption is not extinguished if the City: (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call the Certificates for redemption; (ii) gives notice of the reservation of that right to the owners of the Certificates immediately following the making of the firm banking and financial arrangements; and (iii) directs that notice of the reservation be included in any redemption notices that it authorize. Amendments to the Ordinance In the Ordinance, the City has reserved the right to amend such Ordinance without the consent of any holder of the Certificates in any manner not detrimental to the interests of the holders of the Certificates, including the curing of any ambiguity, defect or omission therein. The Ordinance further provides that the holders of the Certificates aggregating in principal amount 51% of the outstanding Certificates shall have the right from time to time to approve any amendment not described above to the Ordinance, provided, however, that without the consent of 100% of the holders in original principal amount of the then outstanding Certificates no amendment may be made for the purpose of: (i) making any change in the maturity of any of the outstanding Certificates; (ii) reducing the rate of interest borne by any of the outstanding Certificates; (iii) reducing the amount of the principal of, or redemption premium, if any, payable on any outstanding Certificates; (iv) modifying the terms of payment of principal or of interest or redemption premium on outstanding Certificates, or imposing any condition with respect to such payment; or (v�) changing the minimum percentage of the principal amount of the Certificates necessary for consent to such amendment. Reference is made to the Ordinance for further provisions relating to the amendment thereof. OWNERSHIP The City, the Paying Agent/Registrar and any other person may treat the person in whose name any Certificate is registered as the absolute owner of such Certificate for the purpose of making and receiving payment of principal and interest, and for all other purposes, whether or not such Certificate is overdue, and neither the City nor the Paying Agent/Registrar will be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the owner of any Certificate in accordance with the Ordinance will be valid and effectual and will discharge the liability of the City and the Paying Agent/Registrar upon such Certificate to the extent of the sums paid. OWNER'S REMEDIES The Ordinance does not provide for the appointment of a trustee to represent the interests of the Certiticateholders upon any failure of the City to perform in accordance with the terms of the Ordinance or upon any other condition and, in the event of any such failure to perform, the registered owners would be responsible for the initiation and cost of any legal action to enforce performance of the Ordinance. Furthermore, the Ordinance does not establish specific events of default with respect to the Certificates and, under State law, there is no right to the acceleration of maturity of the Certificates upon the failure of the City to observe any covenant under the Ordinance. A registered owner of Certificates could seek a judgment against the City if a default occurred in the payment of principal of or interest on any such Certificates; however, such judgment could not be satisfied by execution against any property of the City and a suit for monetary damages could be vulnerable to the defense of sovereign immunity. A registered owner's only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the City to levy, assess, and collect an annual ad valorem tax sufficient to pay principal of and interest on the Certificates as it becomes due or perform other material terms and covenants contained in the Ordinance. Iu general, Texas courts have held that a writ of mandamus may be issued to require a public official to perform legally imposed ministerial duties necessary for the performance of a valid contract, and Texas law provides that, following their approval by the Attorney General and issuance, the Certificates are valid and binding obligations for all purposes according to their terms. However, the enforcement of any such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. The City is also eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code ("Chapter 9"). Although Chapter 9 provides for the recognition of security interest represented by a specifically pledged source of revenues, the pledge of taxes in support of a general obligation of a bankrupt entity is not specifically recognized as a security interest under Chapter 9. Chapter 9 also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or Certificateholders of an entity which has sought protection under Chapter 9. Therefore, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinions of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Certificates are qualified with respect to the customary rights of debtors relative to their creditors, including rights afforded to creditors under the Bankruptcy Code. BOOK -ENTRY -ONLY SYSTEM This section describes how ownership of the Certificates is to be transferred and how the principal of, premium, if any, and interest on the Certificates are to be paid to and credited by The Depository Trust Company ("DTC ), New York, New York, while the Certificates are registered in its nominee name. The information in this section concerning DTC and the Book-Entry Onlv Svstem has been provided by DTCfor use in disclosure documents such as this Official Statement. The Citv, the Financial Advisor, and the Underwriters believe the source ofsuch information to be reliable, but take no responsibilityfor the accuracy or completeness thereof. The City cannot and does not give any assurance that (I) DTC will distribute payments of debt service on the Certificates, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Certificates), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the United States Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Certificates. The Certificates will be issued as hilly registered Certificates in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered security certificate will be issued for the Certificates, in the aggregate principal amount of such issue, and will be deposited with DTC. DTC, the world's largest securities depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meauvng of the New York Banking Law, a member of the Federal Reserve System, a '`clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation, and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor's rating of "AA+". The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at wtivw.dtcc.com. Purchases of Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC's records. The ownership interest of each actual purchaser of each Certificate ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Certificates are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Certificates, except in the event that use of the book -entry system for the Certificates is discontinued. To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Certificates with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates; DTC's records reflect only the identity of the Direct Participants to whose accounts such Certificates are credited, which may or may not be the Beneficial Owners. The Direct and hldirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Certificates may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Certificates, such as redemptions, tenders, defaults, and proposed amendments to the Certificate documents. For example, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Paying Agent/Registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Certificates within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Certificates unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City 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 Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, interest, and redemption payments on the Certificates will be made to Cede & Co.. or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or the Paying Agent/Registrar, on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name", and will be the responsibility of such Participant and not of DTC, the Paying Agent/Registrar, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, interest, and redemption payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving reasonable notice to the City or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book -entry transfers through DTC (or a successor Securities depository). In that event. physical certificates will be printed and delivered. Use of'Certain Terms in Other Sections of this Official Statement In reading this Official Statement it should be understood that while the Certificates are in the Book -Entry Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Certificates, but (i) all rights of ownership must be exercised through DTC and the Book - Entry Only System and (ii) except as described above, notices that are to be given to registered owners under the Ordinance will be given only to DTC. The information in this section concerning DTC and DTC's book -entry -only system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. REGISTRATION, TRANSFER AND EXCHANGE Paying Agent/Registrar BOKF, NA dba Bank of Texas, Austin, Texas has been named to serve as initial Paying Agent/Registrar for the Certificates. In the Ordinance, the City retains the right to replace the Paying Agent/Registrar. If the City replaces the Paying Agent/Registrar, such Paying Agent/Registrar shall, promptly upon the appointment of a successor, deliver the Paying Agent/Registrar's records to the successor Paying Agent/Registrar, and the successor Paying Agent/Registrar shall act in the same capacity as the previous Paying Agent/Registrar. Any successor Paying Agent/Registrar selected by the City shall be a commercial bank, a trust company organized under applicable law, or other entity duly qualified and legally authorized to serve and perform the duties of the Paying Agent/Registrar for the Certificates. Upon any change in the Paying Agent/Registrar for the Certificates, the City agrees to promptly cause a written notice thereof to be sent to each registered owner of the Certificates by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. In the event the Book -Entry Only System should be discontinued, interest on the Certificates will be paid to the registered owners appearing on the registration books of the Paying Agent/Registrar at the close of business on the Record Date (hereinafter defined), and such interest will be paid (i) by check sent United States mail, first class postage prepaid to the address of the registered owner recorded in the registration books of the Paying Agent/Registrar or (ii) by such other method, acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner. Principal and redemption payments of the Certificates will be paid to the registered owner at the stated maturity or earlier redemption upon presentation to the designated payment/transfer office of the Paying Agent/Registrar. If the date for the payment of the principal or interest on the Certificates is a Saturday, Sunday, a legal holiday, or a day when banking institutions in the city where the designated payment/transfer office of the Paying Agent/Registrar is located are authorized to close, then the date for such payment will be the next succeeding day which is not such a day, and payment on such date will have the same force and effect as if made on the date payment was due. So long as Cede & Co. is the registered owner of the Certificates, principal, interest, and redemption payments on the Certificates will be made as described in "BOOK -ENTRY ONLY SYSTEM" above. Future Registration In the event the book -entry only system should be discontinued, printed Certificates will be delivered to the Owners and thereafter the Certificates may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender to the Paying Agent/Registrar, and such registration and transfer shall be without expense or service charge to the Owner, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. Certificates may be assigned by the execution of an assignment form on the Certificates or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. A new Certificate will be delivered by the Paying Agent/Registrar in lieu of the Certificate being transferred or exchanged at the designated office of the Paying Agent/Registrar, or sent by United States mail, first class, postage prepaid, to the new registered Owner at the Owner's request, risk and expense. New Certificates issued in an exchange or transfer of Certificates will be delivered to the registered Owner or assignee of the Owner after the receipt of the Certificates to be canceled in the exchange or transfer and the written instrument of transfer or request for exchange duly executed by the Owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Certificates registered and delivered in an exchange or transfer shall be of like kind and in authorized denominations and for a like aggregate principal amount as the Certificate or Certificates surrendered for exchange or transfer. See "BOOK -ENTRY -ONLY SYSTEM" for a description of the system to be utilized initially in the settlement and transfer of the Certificates. Record Date for Interest Pavment The record date ("Record Date") for the interest payable on any interest payment date is the 15th day of the month next preceding such interest payment date, as specified in the Ordinance. In the event of a nonpayment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (the "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (the "Special Payment Date" which shall be 15 days after the Special Record Date) shall be sent at least 5 days prior to the Special Record Date by United States mail, first class, postage prepaid, to the address of each Owner of a Certificate appearing on the books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. Limitation on Transfer of Certificates Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Certificate (i) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date or (ii) with respect to any Certificate, or any portion thereof, called for redemption prior to maturity within 45 days prior to its redemption date, provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Certificate. Replacement of Certificates If any Certificate is mutilated, destroyed, stolen or lost, a new Certificate in the same principal amount as the Certificate so mutilated, destroyed, stolen or lost will be issued. In the case of a mutilated Certificate. such new Certificate will be delivered only upon surrender and cancellation of such mutilated Certificate. In the case of any Certificate issued in lieu of and in substitution for a Certificate which has been destroyed, stolen or lost, such new Certificate will be delivered only (a) upon filing with the City and the Paying Agent/Registrar evidence satisfactory to them that such Certificate has been destroyed, stolen or lost and proof of the ownership thereof and (b) upon furnishing the City and the Paying Agent/Registrar with indemnity satisfactory to them. The person requesting the authentication and delivery of a new Certificate must pay such expenses as the Paying Agent/Registrar may incur in connection therewith. TAX INFORMATION Summary of Certain Provisions of the Property Tax Code The appraisal of property within the City is the responsibility of the Denton Central Appraisal District (the "Appraisal District'). Excluding agricultural and open -space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Property Tax Code to assess all property within the Appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. In determining the market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the Appraisal District's chief appraiser determines the method to be used. The value placed upon property within the Appraisal District is subject to review by the Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least once every three years. The City may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the City by petition filed with the Appraisal Review Board. Reference is made to the V.A.T.C.S., Property Tax Code, for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed: the appraisal of property for ad valorem tax purposes, and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution ("Article VIII") and State law provide for certain exemptions from property taxes, the valuation of agricultural and open -space lands at productivity value, and the exemption of certain personal property from ad valorem taxation. Under Section 1-b, Article VIII, and State law, the governing body of a political subdivision, at its option, may grant: (1) An exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision; and (2) An exemption of «p to 20% of the market value of residence homesteads; minimum exemption $5,000. In the case of residence homestead exemptions granted under Section 1-b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. Legislation and a related amendment to the Texas Constitution authorize cities to limit the total ad valorem tax (except for increases attributable to certain improvements) on the residence homestead of the disabled or persons 65 years of age or older and their spouses to the amount of tax imposed in the later of (1) the year such residence qualified for an exemption based on the disability or age of the owner or (2) the year the City chose to establish the above-reterenced limitation. On the receipt of a petition signed by five percent of the registered voters of the City, the City shall call an election to determine by majority vote whether to establish such a tax limitation. Once established, a city may not repeal or rescind the tax limitation. If a disabled or elderly person dies in a year in which the person received a residence homestead exemption, the total amount of ad valorem taxes imposed on the homestead by a city may not be increased while it remains the residence homestead of that person's surviving spouse if the spouse is fifty-five years of age or older or disabled at the time of the person's death. A proportionate share of the limitation applicable to a person's homestead is transferred to a new residence homestead of such person if the person moves to a different residence within the same city. State law and Section 2. Article VIII, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to $12.000. dependent upon the degree of disability or whether the exemption is applicable to a surviving spouse or children. In addition, veterans who are 100% disabled (being a disabled veteran who receives from the United States Department of Veterans Affairs or its successor 100% disability compensation due to a service -connected disability and a rating of 100% disabled or of individual unemployability) are entitled to an exemption from taxation of the total appraised value of the veteran's residential homestead. Further, the surviving spouse of a deceased veteran who had received a disability rating of 100% is entitled to receive a residential homestead exemption equal to the exemption received by the deceased spouse until such surviving spouse remarries Article VIII provides that eligible owners of both agricultural land (Section I-d) and open -space land (Section 1-d-I), including open -space land devoted to farm or ranch purposes or open -space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Section 1-d and 1-d-1. State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of (1) the market value of the property or (2) the sum of (a) 10% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. Non -business personal property, such as automobiles or light trucks, are exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property. Boats owned as non -business property are exempt from ad valorem taxation. Section I- of Article VIII authorizes an ad valorem tax exemption for "freeport property". Freeport property is defined as goods detained in the State for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. The City and the other taxing bodies within its territory may agree to jointly create tax increment financing zones, under which the tax values on property in the zone are "frozen" at the value of the property at the time of creation of the zone. The City also may enter, into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The City in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years. The City has adopted a tax abatement policy with respect to certain areas within the City. Article VIII, Section 1-n of the Texas Constitution provides for the exemption from taxation of "goods -in -transit." "Goods -in - transit" is defined by Section 11.253 of the Tax Code as personal property acquired or imported into Texas and transported to another location in the State or outside of the State within 175 days of the date the property was acquired or imported into Texas. The exemption excludes oil, natural gas, petroleum products, aircraft and special inventory, including motor vehicle, vessel and out -board motor, heavy equipment and manufactured housing inventory. Section 11.253 of the Tax Code permits local governmental entities, on a local option basis, to take official action by January 1 of the year preceding a tax year, after holding a public hearing, to tax "goods -in -transit" during the following tax year. A taxpayer may only receive either the freeport exemption or the "goods -in -transit" exemption for items of personal property See Appendix A — Tables 1, 3 and 4 for information relating to the City s taxable assessed valuation, property tax rates and collections and tax rate distribution. Effective Tax Rate and Rollback Tax Rate Before the later of September 30 or the 60th day after the date the certified appraisal roll is received by the City, the City Council must adopt a tax rate per $100 taxable value for the current year. If the City Council does not adopt a tax rate by such required date the tax rate for that tax year is the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the City for the preceding tax year. The tax rate consists of two components: (1) a rate for finding of maintenance and operation expenditures, and (2) a rate for debt service. Under the Property Tax Code, the City must annually calculate and publicize its "effective tax rate" and "rollback tax rate". A tax rate cannot be adopted by the City Council that exceeds the lower of the rollback tax rate or the effective tax rate until two public hearings have been held on the proposed tax rate following notice of such public hearings (including the requirement that notice be posted on the City's website if the City owns, operates or controls an internet website and public notice be given by television if the City has free access to a television channel) and the City Council has otherwise complied with the legal requirements for the adoption of such tax rate. If the adopted tax rate exceeds the rollback tax rate the qualified voters of the City by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate. "Effective tax rate" means the rate that will produce last year's total tax levy (adjusted) from this year's total taxable values (adjusted). "Adjusted" means lost values are not included in the calculation of last year's taxes and new values are not included in this vear's taxable values. "Rollback tar rate" means the rate that will produce last year's maintenance and operation tax levy (adjusted) from this year's values (adjusted) multiplied by 1.08 plus a rate that will produce this year's debt service from this year's values (unadjusted) divided by the anticipated tax collection rate. The Property Tax Code provides that certain cities and counties in the State may submit a proposition to the voters to authorize an additional one-half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. Property Assessment and Tax Payment Property within the City is assessed as of January 1 of each year. Business inventory may, at the option of the taxpayer, be assessed as of September 1. Oil and gas reserves are assessed on the basis of a valuation process which uses an average daily price of oil and gas for the prior year. Taxes become due October 1 of the same year, and become delinquent on February 1 of the following year. Taxpayers 65 years of age and over and taxpayers qualifying for the disabled person exemption are allowed to pay taxes on their residential homestead in four installments with the first installment due on February I of each year and the final installment due on August 1. Penalties and Interest Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: Cumulative Cumulative Month Penaltv Interest Total February 6% 1% 7% March 7 2 9 April 8 3 11 May 9 4 13 June 10 5 15 July 27t0 6(2) 33 `1) Includes an additional 15% penalty to defray attorneys' fees. (2) Interest continues to accrue after July 1 at the rate that increases 1 % per month until paid. After July, penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, if an account is delinquent in July, an attorney's collection fee of up to 15% may be added to the total tax penalty and interest charge. Under certain circumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per annum with no additional penalties or interest assessed. In general, property subject to the City's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post -petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post -petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. City Application of Property Tax Code The City grants an exemption of $10,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled. See Appendix A —Table 1 for a listing ofthe total amount of these exemptions. The City does not grant an additional exemption for residence homesteads. The City taxes only business personal property. The County Tax Collector collects property taxes for the City. The County does not permit split payments and does not allow discounts. The City grants the Article VIII, Section 1 j ("freeport property") exemption but at this time has no Article VIII, Section I j property. Municipal Sales Tax The City has adopted the provisions of V.A.T.C.S. Tax Code § 321.001 et seq., which grants the City the power to impose and levy a 1% Local Sales and Use Tax within the City. The proceeds of such tax are credited to the General Fund and are not pledged to payment of the Certificates. Collections and enforcements are effected through the offices of the State Comptroller of Public Accounts, who monthly remits the proceeds of the tax, after deduction of a 2% service fee, to the City. The Tax Code provides certain cities and counties the option of assessing a maximum one-half percent (1/2%) sales tax on retail sales of taxable items for the purpose of reducing its ad valorem taxes, if approved by a majority of the voters in a local option election. If the additional tax is approved and levied, the ad valorem property tax levy must be reduced by the estimated amount of the sales tax revenues to be generated in the current year. Subject to the approval of a majority of the voters in a local option election, state law also provides certain cities the option of assessing a sales and use tax for a variety of other purposes, including economic and industrial development, municipal street maintenance and repair, and sports and community venues. State law limits the maximum aggregate sales and use tax rate in any area to 8'/4%. Accordingly, the collection of local sales and use taxes in the area of the City (including sales and use taxes levied by the City) is limited to no more than 2% (when combined with the State sales and use tax rate of 6'/4%). In addition to the one percent (1%) local sales and use tax referred to above, at an election held on May 2, 1998 voters of the City approved the imposition of an additional one-half percent (1/2%) sales and use tax for economic development purposes in accordance with Section 4A, Article 5190.6 of Vernon's Annotated Texas Civil Statutes. Levy of the additional sales and use tax began in December, 1998. At an election held on May 2, 1998 voters of the City approved the imposition of an additional one- half percent (1/2%) sales and use tax for economic development purposes in accordance with Section 413, Article 5190.6 of Vernon's Annotated Texas Civil Statutes. Levy of the additional sales and use tax began in December, 1998. The City has not held an election regarding an additional sales tax for the purpose of reducing its ad valorem taxes. TAX RATE LIMITATIONS Article XI, Section 5, of the State Constitution is applicable to the City and imposes a limitation on ad valorem taxes which can be imposed by the City of $2.50 per $100 taxable assessed valuation. The City Charter provides that the maximum tax rate is limited only by the maximum limit as may be imposed pursuant to the State Constitution, currently $2.50 per $100 taxable assessed valuation. The Attorney General of Texas follows a policy, with respect to Home Rule Cities which have such a $2.50 limitation, of approving ad valorem tax bonds only to the extent that all of such city's ad valorem tax debt can be serviced by a debt service tax rate of $1.50 at 90% collection. RETIREMENT PLAN The City participates in the Texas Municipal Retirement System which is a joint contributory retirement plan covering all full- time employees. There are no benefits guaranteed other than to the extent provided by employee and employer contributions, plus earnings, accumulated in the individual accounts of employees. The contribution rate for employees is 6% of their annual covered salary. The City is required to contribute at an actuarially determined rate. This rate consists of the normal cost contribution rate and the prior service contribution rate, both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate is the actuarially determined percent of payroll necessary to satisfy the obligation of the City to each employee at the time his/her retirement becomes effective. The prior service contribution rate amortizes the unfunded actuarial liability over the remainder of the plan's 25-year amortization period. Contributions by the City for the year ended September 30, 2012 totaled $191.163. For additional information regarding the City's Pension Plans, see Appendix D - "General Purpose Financial Statements for the Fiscal Year Ended September 30, 2012, Note 7 - Pension Plan". m INVESTMENT POLICIES Accounting Principles Generally Accepted in the United States The City policy is to adhere to accounting principles generally accepted in the United States (see Appendix D "General Purpose Financial Statements for the Fiscal Year Ended September 30, 2012"). Legal Investments Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, including letters of credit; (2) direct obligations of the State of Texas or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which is -uaranteed or insured by or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States; (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit (i) meeting the requirements of the Texas Public Funds Investment Act (Chapter 2256, Texas Government Code) that are issued by or through an institution that either has its main office or a branch in Texas, and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for City deposits or, (ii) where (a) the funds are invested by the City through (I) a broker that has its main office or a branch office in the State of Texas and is selected from a list adopted by the City as required by law or (II) a depository institution that has its main office or a branch office in the State of Texas that is selected by the City; (iii) the broker or the depository institution selected by the City arranges for the deposit of the funds in certificates of deposit in one or more federally insured depository institutions, wherever located, for the account of the City; (iv) the full amount of the principal and accrued interest of each of the certificates of deposit is insured by the United States or an instrumentality of the United States, and (v) the City appoints the depository institution selected under (ii) above, an entity as described by Section 2257.041(d) of the Texas Government Code, or a clearing broker -dealer registered with the Securities and Exchange Commission and operating pursuant to Securities and Exchange Commission Rule 15c3-3 (17 C.F.R. Section 240.15c3-3) as custodian for the City with respect to the certificates of deposit issued for the account of the City, (8) fully collateralized repurchase agreements that have a defined termination date, are secured by a combination of cash and obligations described in clause (1) require the securities being purchased by the City or cash held by the City to be pledged to the City, held in the City's name, and deposited at the time the investment is made with the City or with a third party selected and approved by the City, and are placed through a primary government securities dealer, as defined by the Federal Reserve, or a financial institution doing business in the State; (9) certain bankers' acceptances with the remaining term of 270 days or less, if the short- term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by at least one nationally recognized credit rating agency; (10) commercial paper with a stated maturity of 270 days or less that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank; (11) no-load money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share, and (12) no-load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in the this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date mid are secured by obligations, including letters of credit, of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested Linder such contract, other than the prohibited obligations described below. A political subdivision such as the City may enter into securities lending programs if (i) the securities loaned under the program are 100% collateralized, a loan made under the program allows for termination at any time and a loan made Linder the program is either secured by (a) obligations that are described in clauses (1) through (6) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm at not less than A or its equivalent or (c) cash invested in obligations described in clauses (1) through (6) above, clauses (10) through (12) above, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the City, held in the City's name and deposited at the time the investment is made with the City or a third party designated by the City; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than AAA or AAAm or an equivalent by at least one nationally recognized rating service. The City may also contract with an investment management firm registered under the Investment Advisers Act of 1940 is (15 U.S.C. Section 80b-1 et seq.) or with the State Securities Board to provide for the investment and management of its public finds or other finds under its control for a term up to two years, but the City retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the City must do so by order, ordinance, or resolution. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage -backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage -backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. Investment Policies Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that include a list of authorized investments for City finds, the maximum allowable stated maturity of any individual investment and the maximum average dollar -weighted maturity allowed for pooled fund groups, methods to monitor the market price of investments acquired with public fiords, a requirement for settlement of all transactions, except investment pool funds and mutual funds, on a delivery versus payment basis, and procedures to monitor rating changes in investments acquired with public finds and the liquidation of such investments consistent with the Texas Public Funds Investment Act. All City funds must be invested consistent with a formally adopted "hlvestment Strategy Statement" that specifically addresses each fiuid's investment. Each hlvestment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. Under Texas law, the City's investments must be made "with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment considering the probable safety of capital and the probable income to be derived." At least quarterly the City's investment officers must submit an investment report to the Board of Trustees detailing: (1) the investment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, and any additions and changes to market value and the ending value of each pooled fiord group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategies and (b) Texas law. No person may invest City funds without express written authority from the City Council. Additional Provisions Under Texas law, the City is additionally -required to: (1) annually review its adopted policies and strategies, (2) require any investment officers with personal business relationships or family relationships with firms seeking to sell securities to the City to disclose the relationship and file a statement with the Texas Ethics Commission and the City, (3) require the registered principal of finms seeking to sell securities to the City to: (a) receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) in conjunction with its annual financial audit, perform a compliance audit of the management controls on investments and adherence to the City's investment policy, (5) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement, (6) restrict the investment in non -money market mutual fiends in the aggregate to no more than 15% of the City's monthly average fund balance, excluding bond proceeds and reserves and other finds held for debt service, (7) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements and (8) provide specific investment training for the Treasurer, the chief financial officer (if not the Treasurer) and the investment officer. Current Investments As of September 30, 2012, the City's investment portfolio was invested in the following categories. As of such date, the market value of such investments was approximately 100% of their book value. Type of Investment Amount Deposits with Financial Institutions $5,00T904 Certificates of Deposit 2.803,623 Total S7,811,527 12 RATINGS The Certificates are rated "AT' by Moody's hivestor's Service, Inc. ("Moody's"). The ratings reflect only the view of such organization at the time such ratings were given and the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by Moody's, if in the judgment of Moody's, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates. PENDING LITIGATION There is no litigation currently pending against the City. LEGAL MATTERS The City will furnish a complete transcript of proceedings incident to the authorization and issuance of the Certificates, including the approving legal opinions of the Attorney General of the State of Texas to the effect that the Certificates are valid and binding obligations of the City, and based upon examination of such transcripts of proceedings, the approving legal opinions of Bond Counsel to the effect that (i) the Certificates issued in compliance with the provisions of the Ordinance are valid and legally binding obligations of the City and (ii) the interest on the Certificates is exempt from federal income taxation under existing statutes, published rulings, regulations, and court decisions (see "TAX MATTERS"). Bond Counsel has not been engaged to investigate the financial resources of the City or its ability to provide for payment of the Certificates, and the opinion of Bond Counsel will make no statement as to such matters, or any other information that may have been relied on by anyone in making the decision to purchase the Certificates. The legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Certificates are contingent on the sale and delivery of the Certificates. The applicable legal opinion will be printed on or attached to the definitive Certificates. Bond Counsel has reviewed the statements and information appearing in the Official Statement under the captions "THE CERTIFICATES" (except the subcaption "Sources and Uses of Funds"), "GENERAL INFORMATION REGARDING THE CERTIFICATES," "REGISTRATION, TRANSFER AND EXCHANGE," "TAX RATE LIMITATIONS," "LEGAL MATTERS," "TAX MATTERS," " fAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES," "QUALIFIED TAX EXEMPT OBLIGATIONS," "LEGAL INVESTMENTS IN TEXAS," "REGISTRATION AND QUALIFICATION OF ISSUE FOR SALE" and "CONTINUING DISCLOSURE OF INFORMATION" (except the subcaption "Compliance With Prior Undertakings") fairly summarizes the procedures and documents refereed to therein and is correct as to matters of law. Bond Counsel has not independently verified any of the factual information contained in this Official Statement nor have they conducted an investigation of the affairs of the City for the purpose of passing upon the accuracy or completeness of this Official Statement. No person is entitled to rely upon such firm's limited participation as an assumption of responsibility for, or an expression of opinion of any kind with regard to, the accuracy or completeness of any of the information contained herein. TAX MATTERS Tax Exemption In the opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel, interest on the Certificates is (1) excludable from gross income of the owners thereof for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), and (2) is not includable in the alternative minimum taxable income of individuals or, except as described below, corporations. The foregoing opinions of Bond Counsel are based on the Code and the regulations, rulings and court decisions thereunder in existence on the date of issue of the Certificates. Such authorities are subject to change and any such change could prospectively or retroactively result in the inclusion of the interest on the Certificates in gross income of the owners thereof or change the treatment of such interest for purposes of comporting alternative minimum taxable income. ht rendering its opinions, Bond Counsel has assumed continuing compliance by the City with certain covenants of the Ordinance and has relied on representations by the City with respect to matters solely within the knowledge of the City, which Bond Counsel has not independently verified. The covenants and representations relate to, among other things, the use of Certificate proceeds and any facilities financed therewith, the source of repayment of the Certificates, the investment of Certificate proceeds and certain other amounts prior to expenditure, and requirements that excess arbitrage earned on the investment of Certificate proceeds and certain other amounts be paid periodically to the United States and that the City file an information report with the Internal Revenue Service (the "Service"). If the City should fail to comply with the covenants in the Ordinance, or if its representations relating to the Certificates that are contained in the Ordinance should be determined to be inaccurate or incomplete, interest on the Certificates could become taxable from the date of delivery of the Certificates, regardless of the date on which the event causing such taxability occurs. 13 hnterest on the Certificates, owned by a corporation (other than an S corporation, a regulated investment company, a real estate investment trust (REIT), a real estate mortgage investment conduit (REMIC) or a financial asset securitization investment trust (FASIT)) will be included in such corporation's adjusted current earnings for purposes of calculating such corporation's alternative minimum taxable income. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is computed. Except as stated above, Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt or accrual of interest on or acquisition or disposition of the Certificates. Band Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the City described above. No ruling has been sought from the Service with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel's opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Certificates is commenced, under current procedures the Service is likely to treat the City as the "taxpayer," and the owners of the Certificates may have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Certificates, the City may have different or conflicting interests from the owners of the Certificates. Public awareness of any fixture audit of the Certificates could adversely affect the value and liquidity of the Certificates during the pendency of the audit, regardless of its ultimate outcome. Under the Code, taxpayers are required to provide information on their returns regarding the amount of tax-exempt interest, such as interest on the Certificates, received or accrued during the year. Prospective purchasers of the Certificates should be aware that the ownership of tax-exempt obligations, such as the Certificates, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations, and individuals otherwise eligible for the earned income tax credit. Such prospective purchasers should consult their tax advisors as to the consequences of investing in the Certificates. Proposed Tax Legislation Tax legislation, administrative actions taken by tax authorities, and court decisions may cause interest on tine Certificates to be subject, directly or indirectly, to federal income taxation or state income taxation, or otherwise prevent the beneficial owners of the Certificates from realizing the full current benefit of the tax status of such interest. For example, future legislation to resolve certain federal budgetary issues may significantly reduce the benefit of, or otherwise affect, the exclusion of gross income for federal income tax purposes of interest on all state and local obligations, including the Certificates. In addition, such legislation or actions (whether currently proposed, proposed in the future or enacted) could affect the market price or marketability of the Certificates. Prospective purchasers of the Certificates should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, and its impact on their individual situations, as to which Bond Counsel express no opinion TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES Discount Certificates Some of the Certificates may be offered at an initial offering price which is less than the stated redemption price at maturity of such Certificates. If a substantial amount of any maturity of the Certificates is sold to members of the public (which for this purpose excludes bond houses, brokers and similar persons or entities acting in the capacity of wholesalers or underwriters) at such initial offering price, each of the Certificates of that maturity (the "Discount Certificate") will be considered to have `original issue discount" for federal income tax purposes equal to the difference between (a) the stated redemption price payable at the maturity of such Discount Certificate and (b) the initial offering price to the public of such Discount Certificate. Under existing law, such original issue discount will be treated for federal income tax purposes as additional interest on a Discount Certificate and such initial owner will be entitled to exclude from gross income for federal income tax purposes that portion of such original issue discount deemed to be earned (as discussed below) during the period while such Discount Certificate continues to be owned by such initial owner. Except as otherwise provided herein, the discussion regarding interest on the Certificates under the caption "TAX EXEMPTION" generally applies to original issue discount deemed to be earned on a Discount Certificate while held by an owner who has purchased such Certificate at the initial offering price in the initial public offering of the Certificates and that discussion should be considered in connection with this portion of the Official Statement. 14 In the event of a redemption, sale, or other taxable disposition of a Discount Certificate prior to its stated maturity, however, any amount realized by such initial owner in excess of the basis of such Discount Certificate in the hands of such owner (increased to reflect the portion of the original issue discount deemed to have been earned while such Discount Certificate continues to be held by such initial owner) will be includable in gross income for federal income tax purposes. Because original issue discount on a Discount Certificate will be treated for federal income tax purposes as interest on a Certificate, such original issue discount must be taken into account for certain federal income tax purposes as it is deemed to be earned even though there will not be a corresponding cash payment. Corporations that purchase Discount Certificates must take into account original issue discount as it is deemed to be earned for purposes of determining alternative minimum tax. Other owners of a Discount Certificate may be required to take into account such original issue discount as it is deemed to be earned for purposes of determining certain collateral federal tax consequences of owning a Discount Certificate. See "TAX EXEMPTION" for a discussion regarding the alternative minimum taxable income consequences for corporations and for a reference to collateral federal tax consequences for certain other owners. The characterization of original issue discount as interest is for federal income tax purposes only and does not otherwise affect the rights or obligations of the owner of a Discount Certificate or of the City. The portion of the principal of a Discount Certificate representing original issue discount is payable upon the maturity or earlier redemption of such Certificate to the registered owner of the Discount Certificate at that time. Under special tax accounting rules prescribed by existing law, a portion of the original issue discount on each Discount Certificate is deemed to be earned each day. The portion of the original issue discount deemed to be earned each day is determined under an actuarial method of accrual, using the yield to maturity as the constant interest rate and semi-annual compounding. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Discount Certificates by an owner that did not purchase such Certificates in the initial public offering and at the initial offering price may be determined according to rules which differ from those described above. All prospective purchasers of Discount Certificates should consult their tax advisors with respect to the determination for federal, state and local income tax purposes of interest and original issue discount accrued upon redemption, sale or other disposition of such Discount Certificates and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Discount Certificates. Premium Certificates Some of the Certificates may be offered at an initial offering price which exceeds the stated redemption price payable at the maturity of such Certificates. If a substantial amount of any maturity of the Certificates is sold to members of the public (which for this purpose excludes bond houses, brokers and similar persons or entities acting in the capacity of wholesalers or underwriters) at such initial offering price, each of the Certificates of such maturity ("Premium Certificate") will be considered for federal income tax purposes to have "bond premium" equal to the amount of such excess. The basis for federal income tax purposes of a Premium Certificate in the hands of an initial purchaser who purchases such Certificate in the initial offering must be reduced each year and upon the sale or other taxable disposition of the Certificate by the amount of amortizable bond premium. This reduction in basis will increase the amount of any gain (or decrease the amount of any loss) recognized for federal income tax purposes upon the sale or other taxable disposition of a Premium Certificate by the initial purchaser. Generally, no corresponding deduction is allowed for federal income tax purposes, for the reduction in basis resulting from amortizable bond premium. "The amount of bond premium on a Premium Certificate which is amortizable each year (or shorter period in the event of a sale or disposition of a Premium Certificate) is determined under special tax accounting rules which use a constant yield throughout the term of the Premium Certificate based on the initial purchaser's original basis in such Certificate. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition by an owner of Certificates that are not purchased in the initial offering or which are purchased at an amount representing a price other than the initial offering prices for the Certificates of the same maturity may be determined according to rules which differ from those described above. Moreover, all prospective purchasers of Certificates should consult their tax advisors with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of Premium Certificates. QUALIFIED TAX-EXEMPT OBLIGATIONS Section 265(a) of the Code provides, in general, that interest expense incurred to acquire or carry tax-exempt obligations is not deductible from the gross income of the holder. For certain holders that are "financial institutions" within the meaning of such section, complete disallowance of such expense would apply to taxable years beginning after December 31, 1986. with respect to tax-exempt obligations acquired after August 7, 1986. Section 265(b) of the Code provides an exception to this rule for interest 15 expense incurred by financial institutions to carry tax-exempt obligations (other than certain private activity bonds) which are designated by an issuer as "qualified tax-exempt obligations." An issuer may only designate an issue as an issue of "qualified tax-exempt obligations" where less than $10 million of tax-exempt obligations are issued by the issuer during the calendar year 2013. The City will designate the Certificates as "qualited tax-exempt obligations." Further, the City will represent that it has or will take such action necessary for the Certificates to constitute "qualified tax-exempt obligations." Notwithstanding the designation of the Certificates as "qualified tax-exempt obligations," financial institutions acquiring the Certificates will be subject to a twenty percent (20%) disallowance of interest expenses allocable to the Certificates. LEGAL INVESTMENTS IN TEXAS Under the Texas Public Security Procedures Act (Texas Government Code, Chapter 1201), the Certificates (1) are negotiable instruments, (2) are investment securities to which Chapter 8 of the Texas Uniform Commercial Code applies, and (3) are legal and authorized investments for (A) an insurance company, (B) a fiduciary or trustee, or (C) a sinking fund of a municipality or other political subdivision or public agency of the State of Texas. The Certificates are eligible to secure deposits of any public fimds of the State, its agencies, and political subdivisions, and are legal security for those deposits to the extent of their market value. For political subdivisions in Texas which have adopted investment policies and guidelines in accordance with the Public Funds Investment Act (Texas Government Code, Chapter 2256), the Certificates may have to be assigned a rating of "A" or its equivalent as to investment quality by a national rating agency before such Certificates are eligible investments for sinking funds and other public funds. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Certificates are legal investments for state banks, savings banks, trust companies with at least $1 million of capital and savings and loan associations. The City has made no investigation of other laws, rules, regulations, or investment criteria which might apply to such institutions or entities or which might limit the suitability of the Certificates for any of the foregoing purposes or limit the authority of such institutions or entities to purchase or invest in the Certificates for such purposes. The City has made no review of laws in other states to determine whether the Certificates are legal investments for various institutions in those states. REGISTRATION AND QUALIFICATION OF ISSUE FOR SALE No registration statement relating to the Certificates has been filed with the United States Securities and Exchange Commission Linder the federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Certificates have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Certificates been registered or qualified Linder the securities acts of any other jurisdiction. The City assumes no responsibility for registration or qualification of the Certificates under the securities laws of any other jurisdiction in which the Certificates may be offered, sold, or otherwise transferred. This disclaimer of responsibility for registration and qualification for sale or other disposition of the Certificates shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions in such other jurisdictions. CONTINUING DISCLOSURE OF INFORMATION In the Ordinance, the City has made the following agreement for the benefit of the holders and beneficial owners of the Certificates. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Certificates. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to the Municipal Securities Rulemaking Board ('MSRB"). This information will be available free of charge from the MSRB via Electronic Municipal Market Access ("BMMA") system at www.emma.msrb.org. Annual Reports The City will provide certain updated financial information and operating data to the MSRB annually in an electronic format as prescribed by the MSRB. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included this Official Statement in Appendix A - Financial Information Regarding the City of Sanger. Texas (Tables 1-10) and in Appendix D. The City will update and provide this information within six months after the end of each fiscal year. The City may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12 (the -Rule"). The updated information will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the 10i required time, the City will provide unaudited financial statements by the required time and audited financial statements when and if such audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in APPENDIX B or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by the last day of March in each year following the end of its fiscal year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify the MSRB of the change. Material Event Notices The City will also provide timely notices of certain events to the MSRB (not in excess of ten (10) days after the occurrence of the event). The City will provide notice of any of the following events with respect to the Certificates: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Certificates, or other material events affecting the tax status of the Certificates; (7) modifications to rights of holders of the Certificates, if material; (8) Certificate calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Certificates, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of the City; (13) the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material. and (14) appointment of a successor or additional trustee or the change of name of a trustee, if material. (Neither the Certificates nor the Ordinance make any provision for debt service reserves, liquidity enhancement, or credit enhancement). In addition, the City will provide timely notice of any failure by the City to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports". All documents provided to the MSRB shall be accompanied by identifying information, as prescribed by the MSRB Limitations and Amendments The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell the Certificates at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders and beneficial owners of the Certificates may seek a writ of mandamus to compel the City to comply with its agreement. This continuing disclosure agreement may be amended by the City from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, but only if (1) the provisions, as so amended, would have permitted an underwriter to purchase or sell Certificates in the primary offering of the Certificates in compliance with the Rule, taking into account any amendments or interpretations of the Rule since such offering as well as such changed circumstances and (2) either (a) the registered owners of a majority in aggregate principal of the outstanding Certificates consent to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interest of the registered owners and beneficial owners of the Certificates. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provision of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rude are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Certificates in the primary offering of the Certificates. If the City amends its agreement, it must include with the next financial information and opening data provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of tine impact of any change in type of information and data provided. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provision of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Certificates in the primary offering of the Certificates. Compliance with Prior Undertakings During the last live years, the City has not failed to comply in any material respect with any continuing disclosure agreement made by it in accordance with the Rule. 17 FINANCIAL ADVISOR Government Capital Securities Corporation, Southlake, Texas (the "Financial Advisor"), is employed as financial advisor to the City to assist in the issuance of the Certificates. The fee of the financial advisor for services with respect to the Certificates is contingent upon the issuance and the sale of the Certificates. UNDERWRITING Oppenheimer & Co. Inc. and Duncan -Williams, Inc., the Underwriters, have agreed to purchase the Certificates from the City for $ (being the principal amount of the Certificates, plus a net premium of $ , less an Underwriters' discount of The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information set forth in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. CONCLUDING STATEMENT The information set forth herein has been obtained from the City's records, audited financial statements and other sources which are considered to be reliable. There is no guarantee that, any of the assumptions or estimates contained herein will ever be realized. All of the summaries of the statutes, documents and the Ordinance contained in this Official Statement are made subject to all of the provisions of such statutes, documents, and the Ordinance. These summaries do not purport to be complete statements of such provisions and reference is made to such summarized documents for fiu-ther information. Reference is made to official documents in all respects. The City has reviewed and approved the Official Statement and said instrument has been authorized for use and distribution by the Underwriters for the purpose of offering the Certificates. ATTEST: City Secretary, City of Sanger, Texas CITY OF SANGER, TEXAS Mayor, City of Sanger, Texas 18 APPENDIX A FINANCIAL INFORMATION REGARDING THE CITY OF SANGER, TEXAS FINANCIAL INFORMATION FOR THE CITY ASSESSED VALUATION TABLE 1 2012 Total Value of Taxable Property $451,067,425 Less Exemptions: Local, Optional Over-65 and/or Disabled Homestead Exemptions $ 10,104,305 Disabled and Deceased Veterans' Exemptions 865,520 Productivity Value Loss 28,764,878 Homestead 10% Cap Adjustment 169,206 Abatement 0 Freeport 10,748,969 Other 11,024,519 61,677,397 2012 Net Taxable Assessed Valuation (100% of Actual)(a) $389,390,028 'a' See "T-IX INFORAATION - City Application of the Property Tax Code" in the Official Statement ,for a description of the City's taxation procedures. Source: Denton County Appraisal District. PRINCIPAL TAXPAYERS TABLE 2 % of Total 2012 Net Taxable 2012 Assessed Name Type of Business Assessed Valuation Valuation* Walmart Stores East, L.P. Distribution $75,007,787 19.26% Walmart Stores East, L.P. Distribution 28,746,160 7.38% Intercapital Sanger Trails, LLC Real Estate 5,836,800 1.50% Intercapital Stonewood Ranch, LLC Real Estate 3,377,315 0.87% Maccamp Ltd. RV Sales and Service 2,973,113 0.76% Chubb Fire & Security Security Services 2,616,842 0.67% Springer Family Rentals, LLC Real Estate 2,341,874 0.60% Marsam Enterprises, Inc. Manufacturing 1,922,013 0.49% Central Telephone Co Telephone /Utility 1,600,530 0.41% Vast, Inc. Transportation 1,577,257 0.41% Total $125.999.691 32.36% * Based on 2012 Net Taxable Assessed Valuation of $389,390,028 Source: Texas Comptroller of Public Accounts and Denton Central Appraisal District A-1 PROPERTY TAX RATES AND COLLECTIONSta) TABLE 3 Fiscal Tax Net Taxable Tax Collection % Year Year Assessed Valuation Rate Current Totaltb) Ended 2002 226,882,983 0.565470 97.03% 99.39% 9-30-03 2003 289,937,097 0.565470 97.38% 99.71% 9-30-04 2004 312,537,172 0.570830 97.40% 99.70% 9-30-05 2005 338,298,363 0.590460 98.16% 99.70% 9-30-06 2006 353,244,529 0.599600 97.36% 99.74% 9-30-07 2007 372,374,916 0,620000 98.13% 99.68% 9-30-08 2008 383,511,572 0.620000 97.72% 99.43% 9-30-09 2009 363.053,298 0.620000 97.78% 98.99% 9-30-10 2010 365,706,678 0.633049 97.70% 97.70% 9-30-11 2011 358,015,773 0.633049 98.69% 98.71% 9 30-12 2012 389,390,028 0.633049 (In process) 9-30-13 See "TAX 1NFOkV1ATION - The City Application of the Property Tax Code" in the Official Statement for a description of the City's taxation procedures. in) Excludes interest and penalties. Source: Texas Municipal Report published by the iWimicipal Advisory Council of Texas, the Denton County Appraisal District, and the City's 2012 Annual Financial.Statements. Note: Assessed Valuations may change during the year due to various supplements and protests, and valuations on a later date or in other tables of this Official Statement inav not snatch those shown on this table. TAX RATE DISTRIBUTION TABLE 4 2012-13 2011-12 2010-11 2009-10 2008-09 2007-08 Maintenance & Operations $0.446044 $0.446044 $0.439418 $0.43009 $0,39214 $0.39214 Interest & Sinking Fund 0.187005 0.187005 0.193631 0.18991 0.22786 0.22786 TOTAL $0.633049 $0.633049 $0.633049 $0.62000 $0.62000 $0.62000 .Source: the City. WATER RATES TABLE 5 Existing Rates Residential (Effective September 6, 2011) Minimum per unit served for 0 - 1,000 gallons $17.00 Next 4,000 gallons 2.85 per thousand gallons Next 10,000 gallons 3.15 per thousand gallons Next 15,000 gallons 3.70 per thousand gallons Over 30,000 4.75 per thousand gallons Commercial (Effective September 6, 2011 Minimum per unit served for 0 - 1,000 gallons $21.00 Next 4,000 gallons 3.35 per thousand gallons Next 10,000 gallons 3.60 per thousand gallons Next 15,000 gallons 3.95 per thousand gallons Over 30,000 4.85 per thousand gallons A-2 PRINCIPAL WATER CUSTOMERS 2012-13* (For the twelve months ending September 30, 2012) Average Monthly Consumption in Name of Customer Gallons Intercapital Stonewood Ranch 722,200 Sanger High School 457,400 SISD Butterfield Elementary 312,600 Intercapital Stonewood Ranch 225,200 SISD Sanger Middle School 184,300 Golston Company 159,400 Indian Car Wash 122,500 Sportsman 114,500 Chisum Trail/Integra Peak Mgt. 108,200 Comet Cleaners 103,700 Total 2,510,000 TABLE 6 Average Monthly Bill $3,364 2,224 1,496 1,121 955 766 378 522 726 355 $11,907 * The Citv's pledge of'revenues from the water and sewer system for pavrnent of the Certificates is limited to $10, 000, and the City does not anticipate that it world ever use such revenues to make payment on the Certificates. SEWER RATES TABLE 7 Existing Rates Residential (Effective September 6, 2011 Minimum (first 1,000 gallons) $ 18.00 Per 1,000 gallons over first 1,000 gallons 2.50 Per 1,000 gallons in excess of 10,000 gallons 2.75 Maximum per month 50.00 Commercial (Effective September 6, 2011) 3/4 inch meter $ 26.50 1 inch meter 29.00 1'/2 inch meter 33.00 2 inch meter 40.15 3 inch meter 49.50 4 inch meter 91.85 6 inch meter 122.10 8 inch meter 161.15 Per 1,000 gallons over first 1,000 gallons 2.50 Per 1,000 gallons in excess of 10,000 gallons 2.75 Multi -Family Dwellings The amount due for multi -family dwellings shall be the residential rate multiplied by the number of occupied dwelling units. A-3 PRINCIPAL SEWER CUSTOMERS* TABLE 8 (For the twelve months ending September 30, 2012) Name of Customer Intercapital Stonewood Ranch Intercapital Stonewood Ranch Sanger High School Integra Peak Mgt. S & T Properties Golston Company Karl Klement Properties Sportsman Ohio Garden RV Inc. Sanger Inn Average Monthly Bill S 4,104 1,409 1,208 918 540 469 438 340 306 300 Total . 10 032 The City's pledge of revenues from the water and sewer system for payment of the Certificates is limited to S 10,000, and the City does not anticipate that it would ever use such revenues to make payment on the Certificates. ELECTRIC RATES TABLE 9 Existing Rates (Effective November 15. 2010) Large Residential Commercial Industrial Facility Charge (minimum per month) $ 10.00 $ 16.00 $ 35.00 Energy Charge (per KWH) $ 0.1175 $ 0.12 $ 0.105 PRINCIPAL ELECTRIC CUSTOMERS 2010-2012* TABLE 10 (For the twelve months ending September 30, 2012) Average Monthly Consumption in Name of Customer Kilowatt Hours Average Monthly Bill Walmart Distribution Center 1,147,800 $121,142 Super Save 100,333 11,804 Golston Company 86,106 10,505 McCamp Ltd. 56,215 7,491 SISD Indian Gym 53,075 6,705 Waggon Master RV Park 51,225 6,172 McDonald's 46,566 5,639 Sam's Distribution Center 45,950 5,525 SISD Chisholm Elementary 38,073 4,771 Sportsman 31023 4,006 Total E552,980 $182.237 * None of the City's revenues, from its electric system is pledged to the payment of the Certificates, and the City will not use such revenues to make payment on the Certificates. A-4 PRO FORMA GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS TABLE 11 Fiscal Year 30-Sept 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 TOTAL Existing Debt Service $1,476,673 1,473,868 1,474,968 1,474,993 1,394,923 1,379,283 1,387,443 1,393,723 1,330.045 404,436 405.410 400,445 400,030 403333 135,720 Principal* $170,000 180,000 180,000 185,000 190,000 195,000 195,000 200,000 210,000 215,000 220,000 225,000 235,000 245,000 250,000 260,000 270,000 280,000 290,000 305,000 $14,935,289 $4,500,000 Interest* $155,929 135,713 133,013 129,413 125,713 121,913 118,013 112,163 106,163 99,863 93,413 86,813 80,063 71,250 62,063 52,688 42,938 32,813 22,313 11,438 $1,793,679 * Preliminary; subject to change. Interest estimated at market rates for purposes of illustration. A-5 Total Debt Service* $1,476,673 1,799,797 1,790,680 1,788,005 1,709,335 1,694,995 1,704,355 1,706,735 1,642,208 720,599 720,273 713,858 711,843 718,395 451,970 312,063 312,688 312,938 312,813 312,313 316,438 $21,228,968 APPENDIX B GENERAL INFORMATION REGARDING THE CITY OF SANGER, TEXAS General The City of Sanger is a residential community located on Interstate Highway 35 northeast of the Dallas -Fort Worth industrial area. The City's close proximity to both Dallas and Fort Worth has been a significant factor in the City's growth. According to the 2010 U.S. Census. the City's 2010 population was 6,916. U.S. Census estimates indicate an estimated population of 7,162 as of July 1, 2012. The area continues to see a large influx of new residents each year and this trend is expected to continue for the foreseeable future. In addition to the City's close proximity to Interstate Highway 35, the City also provides ready access to both rail transportation and developable industrial land. The City of Sanger offers access to several financial institutes, churches of various denominations and a wide variety of retail outlets. The public school system offers a low student to teacher ratio and the City currently has three daycare centers. The City is also located within minutes of Lake Ray Roberts, which provides a variety of sporting and outdoor activities. The local economy is gaining strength and the City has recently seen increases in both construction and sales tax. Education The City is served by the Sanger Independent School District. The District covers approximately 42 square miles in Denton County and serves the City and its surrounding rural areas. The District is comprised of one early childhood center for grades pre -kindergarten through kindergarten, one elementary school for grades first through third, one intermediate school for grades fourth through sixth, one junior high school for grades seventh through eighth, and one high school for grades ninth through twelfth. All campuses offer enriched curricula with special programs for gifted/talented students as well as students achieving below grade level and are equipped with computers and cafeteria service. Denton County Denton County is located in north central Texas, encompassing 911 square miles, and was created in 1846 from Fannin County. The County is the third largest county of the nine counties comprising the Dallas -Fort Worth Consolidated Metropolitan Statistical Area. The County is traversed by Interstate Highway 35, US Highways 77, 377 and 380 and State Highways 114 and 121. The economy is diversified by manufacturing, state supported institutions and agriculture. According to the 2010 U.S. Census, the County's 2010 population was 662,614. B-1 0 99 pl►`t)] A(t7 FORM OF OPINION OF BOND COUNSEL AN D REWS ATTORNEYS K U RT H LLP 12013 600 Travis, Suite 4200 Houston, Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com WE HAVE ACTED as Bond Counsel for the CITY OF SANGER, TEXAS, a municipal corporation of the State of Texas (the "City") in connection with an issue of certificates of obligation (the "Certificates") described as follows: CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2013, dated June 15, 2013, in the aggregate principal amount of $ , maturing on August 1 in each year from 20_ through and including 20 , inclusive, and in the years 20_, 20 and 20 . The Certificates are issuable in fully registered form only, in denominations of $5,000 or integral multiples thereofbear interest and may be transferred and exchanged as set out in the Certificates and in the ordinance (the "Ordinance") adopted by the City Council of the City (the "City Council") authorizing their issuance. WE HAVE ACTED as Bond Counsel for the sole purpose of rendering an opinion with respect to the legality and validity of the Certificates under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Certificates from gross income under federal income tax law. In such capacity we have examined the Constitution and laws of the State of Texas; federal income tax law; and a transcript of certain certified proceedings pertaining to the issuance of the Certificates, as described in the Ordinance. The transcript contains certified copies of certain proceedings of the City; certain certifications and representations and other material facts within the knowledge and control of the City, upon which we rely; and certain other customary documents and instruments authorizing and relating to the issuance of the Certificates. We have also examined executed Certificate No. R-1. WE HAVE NOT BEEN REQUESTED to examine, and have not investigated or verified, any original proceedings, records, data or other material, but have relied upon the transcript of certified proceedings. We have not assumed any responsibility with respect to the financial condition or capabilities of the City or the disclosure thereof in connection with the sale of the Certificates. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Certificates has been limited as described therein. BASED ON SUCH EXAMINATION, it is our opinion as follows: (1) The transcript of certified proceedings evidences complete legal authority for the issuance of the Certificates in full compliance with the Constitution and laws of the State of Texas presently in effect; the Certificates Austin Beijing Dallas Houston London New York Research Triangle Park The Woodlands Washington, DC HOU:3306944.1 2013 Page 2 constitute valid and legally binding obligations of the City enforceable in accordance with the terms and conditions thereof, except to the extent that the rights and remedies of the owners of the Certificates may be limited by laws heretofore or hereafter enacted relating to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors of political subdivisions and the exercise of judicial discretion in appropriate cases; and the Certificates have been authorized and delivered in accordance with law: (2) The Certificates are payable, both as to principal and interest, from the receipts of an annual ad valorem tax levied, within the limits prescribed by law, upon taxable property located within the City, which taxes have been pledged irrevocably to pay the principal of and interest on the Certificates; and (3) The surplus revenues to be derived from the operation of the City's waterworks and sewer system, after the payment of all operation and maintenance expenses thereof (the "Net Revenues") in an amount not to exceed $10,000, are pledged to the payment of the principal of and interest on the Certificates; provided, however, that such pledge is junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of Net Revenues to the payment of the Certificates. The City has reserved the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind secured by a pledge of the Net Revenues that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. ALSO BASED ON OUR EXAMINATION AS DESCRIBED ABOVE, it is our further opinion that, subject to the restrictions hereinafter described, interest on the Certificates is excludable from gross income of the owners thereof for federal income tax purposes under existing law and is not subject to the alternative minimum tax on individuals, except as hereinafter described, or corporations. The opinion set forth in the first sentence of this paragraph is subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Certificates in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted in the Order to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Certificates in gross income for federal income tax purposes to be retroactive to the date of issuance of the Certificates. The Code and the existing regulations, rulings and court decisions thereunder, upon which the foregoing opinions of Bond Counsel are based, are subject to change, which could prospectively or retroactively result in the inclusion of the interest on the Certificates in gross income of the owners thereof for federal income tax purposes. INTEREST ON all tax-exempt obligations, including the Certificates, owned by a corporation (other than an S corporation, a regulated investment company, a real estate HOU:3306944.1 2013 Page 3 investment trust (REIT), a real estate mortgage investment conduit (REMIC) or a financial asset securitization investment trust (FASIT)) will be included in such corporation's adjusted current earnings for purposes of calculating such corporation's alternative minimum taxable income. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is computed. EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or local tax consequences under present law, or future legislation, resulting from the ownership of, receipt or accrual of interest on, or the acquisition or disposition of, the Certificates. Prospective purchasers of the Certificates should be aware that the ownership of tax-exempt obligations, such as the Certificates, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a financial asset securitization investment trust that holds tax-exempt obligations and individuals otherwise qualified for the earned income tax credit. For the foregoing reasons, prospective purchasers should consult their tax advisors as to the consequences of investing in the Certificates. OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above. HOU:3306944.1 APPENDIX D AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2012 CITY OF SANGER, TEXAS FINANCIAL REPORT 6*429:4 i1*4ilU� CONTENTS Page(s) MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED)..............................................3 BASIC FINANCIAL STATEMENTS Government -wide Financial Statements Statementof Net Assets.................................................................................................12 Statementof Activities....................................................................................................13 Fund Financial Statements Governmental Funds BalanceSheet...........................................................................................................14 Reconciliation of the Governmental Funds Balance Sheet to the Statementof Net Assets......................................................................................16 Statement of Revenues Expenditures and Changes in Fund Balances..................17 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statementof Activities.........................................................................................19 Proprietary Funds Statementof Net Assets............................................................................................ 20 Statement of Revenues, Expenses, and Changes in Fund Net Assets .................... 21 Statementof Cash Flows.......................................................................................... 22 N t t B i Financial Statements 9a oes o as c........................................................................ REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) Schedule of Funding Progress for Participation in Texas Municipal Retirement System.............................................................................47 Budgetary Comparison Schedule — General Fund............................................................... 48 SUPPLEMENTARY INFORMATION (UNAUDITED) Combining Schedule of Revenues and Expenses — Proprietary Fund by Department ......... 49 Analysis of Property Taxes Receivable................................................................................. 51 11►197:1»kJfi7QkWAII To the Honorable Mayor Thomas Muir and Members of the City Council City of Sanger, Texas We have audited the accompanying financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Sanger, Texas (the City) as of and for the year ended September 30, 2012, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City as of September 30, 2012, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, the schedule of funding progress and budgetary comparison schedule on pages 3 through 11 and 47 through 48 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the financial statements, and other knowledge we obtained during our audit of the financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. AN INDEPENDENT WEAVER AND TIDWELL LLP FORT WORTH MEMBER OF BAKER TILLY CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS 2821 W SEVENTH STREET, SUITE 700, FORT WORTH, TX 76107 INTERNATIONAL WWW.WEAVERLLP.COM P: (817) 332 7905 F: (817) 429 5936 To the Honorable Mayor Thomas Muir and the Members of the City Council City of Sanger, Texas Page 2 Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements as a whole. The Combining Schedule of Revenues and Expenses — Proprietary Fund by Department and Analysis of Property Taxes Receivable on pages 49 through 51 are presented for purposes of additional analysis and are not a required part of the financial statements. This information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. WEAVER AND TIDWELL, L.L.P. Fort Worth, TX February 21, 2013 MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2012 The management of the City of Sanger offers readers of the financial statements this narrative overview and analysis of the financial activities of the City of Sanger for the fiscal year ended September 30, 2012. We encourage readers to consider the information presented here in conjunction with the City's financial statements and accompanying footnotes of this report. FINANCIAL HIGHLIGHTS • The assets of the City of Sanger exceeded its liabilities at the close of the most recent fiscal year by $23,507,689 (net assets). Of this amount, $5,931,366 (unrestricted net assets) may be used to meet the government's ongoing obligations to citizens and creditors in accordance with the City's fund designation and fiscal policies. • The City's total capital assets increased by $451,268. • As of the close of the fiscal year, the City's governmental funds reported combined ending fund balances of $2,693,754. • The fund balance of the General Fund decreased by $26,826 or 3% to $773,397 at September 30, 2012 primarily due to a transfer to the Capital Projects Fund of $200,000. OVERVIEW OF THE FINANCIAL STATEMENTS The Management's Discussion and Analysis is intended to serve as an introduction to the City of Sanger's basic financial statements. This annual report consists of three components: (1) government -wide financial statements, (2) fund financial statements, and (3) notes to the financial statements. This report contains other supplementary information in addition to the basic financial statements themselves. Government -wide Statements. The government -wide financial statements are designed to provide readers with a broad overview of the City's finances in a manner similar to private - sector business. The statements report information about the City as a whole using accounting methods similar to those used by private -sector companies. The statement of net assets includes all of the government's assets and liabilities, with the difference between the two being reported as net assets. Over time, increases or decreases in net assets are an indicator as to whether the financial position of the City is improving or deteriorating. To assess the overall health of the City, additional non -financial factors (such as the City's tax base) will need to be considered. The statement of activities presents information on how the City's net assets changed during the fiscal year. All of the current year's revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned, but not used vacation leave). 3 MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2012 (CONTINUED) Major Features of the City of Sanger's Government -wide and Fund Financial Statements Both the statement of net assets and the statement of activities are prepared using the accrual basis of accounting as opposed to the modified accrual basis of accounting. In its Statement of Net Assets and Statement of Activities, the City of Sanger is divided between two kinds of activities: • Governmental activities. Most of the City's basic services are included here, such as general government, public safety, streets, sanitation, and culture and recreation. Property taxes, sales taxes, franchise fees, and charges for services finance most of these activities. • Business -type activities. A fee is charged to customers by the City to cover the cost of services it provides. The City's utility systems (electric, water, and wastewater) activities are reported here. Fund Financial Statements. The fund financial statements provide more detailed information about the City's most significant funds and not the City as a whole. Funds are accounting devices that the City uses to keep track of specific sources of funding and spending for particular purposes. • Certain funds are restricted by State law and by bond covenants. The City Council establishes guidelines to control and manage money for particular purposes or to show that it is properly using certain revenue resources. The City has two categories of funds: governmental funds and proprietary funds. Governmental funds. The City's basic services are included in governmental funds, which focus on cash and other financial assets that can readily be converted to cash flow, as well as the balances left at year-end that are available for spending. Consequently, the governmental fund statements provide a detailed short-term view that helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the City's programs. Because this information does not encompass the additional long-term focus of the government -wide statements, additional information is provided on the subsequent pages, explaining the relationship (or differences) between them. The relationship or differences between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is detailed in a reconciliation following each of the fund financial statements. • Proprietary funds (business -type funds). Services for which the City charges customers a fee are generally reported in proprietary funds. Proprietary funds, like government - wide statements, provide both short and long-term financial information. Proprietary funds are reported in the same manner that all activities are reported in the Statement of Net Assets and the Statement of Activities. 4 MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2012 (CONTINUED) Major Features of the City of Sanger's Government -wide and Fund Financial Statements Fund Statements Government- Governmental Proprietary wide Funds Funds Required Statement of net Balance Sheet Statement of net Financial assets assets Statements Type of asset/liability information Statement of activities All assets and liabilities, both financial and capital, short- term and long- term Statement of revenues, expenditures and changes in fund balances Only assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets included Statement of revenues, expenses and changes in fund net assets Statement of cash flows All assets and liabilities, both financial and capital, and short- term and long- term MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2012 (CONTINUED) GOVERNMENT -WIDE FINANCIAL ANALYSIS As of September 30, 2012, the City's combined net assets were $23,507,689, of which $10,313,749 can be attributed to governmental activities and $13,193,940 attributed to business -type activities. This analysis focuses on the net assets (Table 1) and changes in net assets (Table 2) of the City's governmental and business -type activities. Net Assets Net assets at September 30, 2012, were $23,507,689, representing an increase of $2,676,673 in total net assets of governmental and business -type activities. The largest portion of the City's net assets reflects its investment in capital assets (e.g., land, building, machinery, equipment, and infrastructure - streets, drainage, water, wastewater, and electric) less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Table 1 - Net Assets Governmental Business -Type Activities Activities Total 2012 2011 2012 2011 2012 2011 Assets Cash and cash equivalents $ 415,126 $ 477,062 $ 2,293,053 $ 1,053,839 $ 2,708,179 $ 1,530,901 Certificates of deposit 408,004 405,436 335,825 419,966 743,829 825,402 Accounts receivable, net 411,622 344,678 1,537,373 1,178,950 1,948,995 1,523,628 Inventories - 433,508 300,607 433,508 300,607 Due from other funds 263,811 - - - 263,811 - Restricted cash and cash equivalents 1,735,949 2,424,955 2,623,570 2,312,309 4,359,519 4,737,264 Bond issuance costs, net 281,317 295,168 73,087 102,643 354,404 397,811 Capital assets, net of accumulated depreciation 14,973,623 14,146,175 12,789,033 13,165,213 27,762,656 27,311,388 Total assets $ 18,489,452 $ 18,093,474 $ 20,085,449 $ 18,533,527 $ 38,574,901 $ 36,627,001 Liabilities Accounts payable $ 272,746 $ 684,916 $ 581,313 $ 498,353 $ 854,059 $ 1,183,269 Customer deposits - - 315,761 297,609 315,761 297,609 Other liabilities 163,986 99,009 147,008 166,171 310,994 265,180 Due to other funds - - 263,811 - 263,811 - Current portion long-term debt 676,619 578,015 657,993 534,466 1,334,612 1,112,481 Compensated absences 110,404 77,947 67,973 54,220 178,377 132,167 Long-term debt 6,951,948 7,311,051 4,857,650 5,494,228 11,809,598 12,805,279 Total liabilities $ 8,175,703 $ 8,750,938 $ 6,891,509 $ 7,045,047 $ 15,067,212 $ 15,795,985 Net assets Invested in capital assets $ 7,371,097 $ 6,274,498 $ 7,287,190 $ 7,150,229 $ 14,658,287 $ 13,424,727 Restricted for specific purpose 610,227 524,980 2,307,809 2,014,700 2,918,036 2,539,680 Unrestricted 2,332,425 2,543,058 3,598,941 2,323,551 5,931,366 4,866,609 Net assets $ 10,313,749 $ 9,342,536 $ 13,193,940 $ 11,488,480 $ 23,507,689 $ 20,831,016 MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2012 (CONTINUED) Changes in Net Assets Governmental activities increased the City's net assets by $971,213 and business -type activities increased the City's net assets by $1,705,460. The key elements of these changes are contained in Table 2. Revenues Program Revenues: Charges for services Grants and donations General Revenues: Taxes Licenses and permits Investment earnings Transfers Miscellaneous Gain (loss) on sale of assets Total revenues Expenses General government Police and animal control Streets and sanitation Fire and EMS Court Culture and recreation Interest on long-term debt Proprietary expenses Total expenses Change in net assets Beginning net assets Ending net assets Table 2 - Changes in Net Assets Governmental Business -Type Activities Activities Total 2012 2011 2012 2011 2012 2011 $ 1,511,279 $ 1,424,884 $ 10,740,154 $ 10,189,544 $ 12,251,433 $ 11,614,428 500,000 195,102 - - 500,000 195,102 4,108,822 4,046,632 - - 4,108,822 4,046,632 130,869 44,827 - - 130,869 44,827 16,826 34,292 32,902 30,882 49,728 65,174 - 307,241 - (307,241) - - 211,956 150,708 - 211,956 150,708 - 7,436 - - - 7,436 6,479,752 6,211,122 10,773,056 9,913,185 17,252,808 16,124,307 750,649 705,012 - - 750,649 705,012 1,503,327 1,436,505 - 1,503,327 1,436,505 1,445,542 1,349,968 - 1,445,542 1,349,968 766,011 692,184 - - 766,011 692,184 209,333 228,030 - - 209,333 228,030 493,541 425,674 - - 493,541 425,674 340,136 377,693 217,588 317,323 557,724 695,016 - - 8,850,008 8,902,681 8,850,008 8,902,681 5,508,539 5,215,066 9,067,596 9,220,004 14,576,135 14,435,070 971,213 996,056 1,705,460 693,181 2,676,673 1,689,237 9,342,536 8,346,480 11,488,480 10,795,299 20,831,016 19,141,779 $ 10,313,749 $ 9,342,536 $ 13,193,940 $ 11,488,480 $ 23,507,689 $ 20,831,016 7 MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2012 (CONTINUED) The City's total revenues for the year ended September 30, 2012, were $17,252,808 with a significant portion, 71 %, of the City's total revenue coming from charges for services, 14% from property taxes, 7% from sales taxes, while 8% is obtained from the remaining revenue sources (see Figure 1). Because Sanger owns an electric utility, revenues from charges for services are a large percentage of overall revenues. Without the ownership of its electricity utility, the City's property tax rate would be approximately ten cents higher per $100 valuation than its current rate in order to generate the same amount of operating revenue. Figure 1 (Revenue Sources Governmental activities revenues total $6,479,752 for the year ended September 30, 2012, of which $4,108,822 (63%) is attributed to taxes. Significant general governmental expenses include public safety (including Fire and EMS and police and animal control), which incurred expenses of $2,269,338, and streets and sanitation, which incurred expenses of $1,445,542. Business -type activities increased the City's net assets by $1,705,460 and governmental activities increased the City's net assets by $971,213, accounting for positive growth in the government -wide net assets in fiscal year ended September 30, 2012. Business -type operating revenues increased by $859,871 to $10,773,056 for the year ended September 30, 2012, as a result of an increase in tap fees for new construction. Business -type expenses decreased in fiscal year ending September 30, 2012 mainly due to decreases in interest expense and transfers, resulting in total business -type activity expenses of $9,067,596. MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2012 (CONTINUED) FINANCIAL ANALYSIS OF THE GOVERNMENT'S FUNDS The City uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. Governmental Funds The focus of the City's governmental funds is to provide information on near -term inflows, outflows, and balances of resources available to spend. This information is useful in assessing the financial requirements of the City. As of September 30, 2012, the City's governmental funds reported a combined ending fund balance of $2,693,754, a reduction of $52,546 from the previous fiscal year's balance of $2,746,300. The decline in fund balance is primarily due to infrastructure improvements. Of this fund balance, $773,397 constitutes unassigned fund balance, which is available for spending at the government's discretion. The remainder of the fund balance is restricted to indicate that it is not available for new spending because it has already been committed to pay debt service ($350,895), complete capital projects ($224,097), or enhance economic development ($1,345,365). General Fund. The General Fund is the chief operating fund of the City. At September 30, 2012, the unassigned fund balance of the General Fund was $773,397 a decrease of $26,826 from the prior year. The decrease is primarily due to a $200,000 transfer from the Streets Department to the Capital Projects Fund for infrastructure improvements. The City has continued a very conservative approach to purchasing and employment during 2012 as a result of the uncertain economic conditions. Capital Projects Fund. The entire balance of the capital projects fund is restricted for capital construction and acquisition. At September 30, 2012, the capital projects fund had a fund balance of $224,097, a decrease of $525,881 from 2011. At the end of 2012, the City had invested $27,762,656 in a broad range of capital assets, including land, equipment, buildings, vehicles, streets, drainage, water, wastewater, and electrical systems. (see Table 3). Table 3 — Capital Assets Governmental Business -Type Activities Activities Total 2012 2011 2012 2011 2012 2011 Land $ 862,307 $ 862,307 $ 323,164 $ 323,164 $ 1,185,471 $ 1,185,471 Construction in progress 272,385 3,239,639 291,414 - 563,799 3,239,639 Infrastructure 10,550,634 9,800,941 22,112,636 22,072,504 32,663,270 31,873,445 Buildings and equipment 9,614,364 5,667,489 2,459,441 2,282,128 12,073,805 7,949,617 Total historical cost 21,299,690 19,570,376 25,186,655 24,677,796 46,486,345 44,248,172 Total accumulated depreciation (6,326,067) (5,424,201) (12,397,622) (11,512,583) (18,723,689) (16,936,784) Net capital assets $ 14,973,623 $ 14,146,175 $ 12,789,033 $ 13,165,213 $ 27,762,656 $ 27,311,388 MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2012 (CONTINUED) Debt Service Fund. The debt service fund has a total fund balance of $350,895 at September 30, 2012, an increase of $114,360 over 2011. As of September 30, 2012, the City had $13,144,210 in long-term debt (see Table 4). Notes payable Capital leases Bonds payable Total long-term debt Table 4 — Long-term Debt Governmental Activities 2012 2011 $ 553,391 $ 596,104 340,119 70,162 6,735,057 7,222,800 $ 7,628,567 $ 7,889,066 Business -Type Activities Total 2012 2011 2012 2011 $ - $ - $ 553,391 $ 596,104 370,401 376,494 710,520 446,656 5,145,242 5,652,200 11,880,299 12,875,000 $ 5,615,643 $ 6,028,694 $ 13,144,210 $ 13,917,760 Proprietary Fund. The City's proprietary fund provides the same type of information found in the government -wide financial statements, but in more detail. Table 5 represents the cost of each of the City's business -type activities as well as each function's net cost (total cost less fees generated by the activities and intergovernmental aid). The cost of business -type activities for fiscal year ended September 30, 2012 was $8,850,008. The amount for charges for services that the City's tax payers paid for these activities was $10,740,154. Excess funds are used by the City to help support the general fund, keeping the property tax rate from increasing. Excess funds are also used to fund capital improvements. Table 5 — Proprietary Fund Activities Total Operating Expenses 2012 2011 Water $ 1,064,019 $ 1,166,704 Sewer 824,434 785,829 Electric 6,307,713 6,249,768 Other 653,842 700,380 Total $ 8,860,008 $ 8,902,681 % Change Total Operating Income (Loss) % Change 2012 2011 8.80% $ 438,488 $ 113,337 286.89% 4.91 % 519,495 306,110 69.71 % 0.93% 1,527,218 1,498,344 1.93% -6.64% (595,055) (630,928) -5.69% -0.59% $ 1,890,146 $ 1,286,863 46.88% ECONOMIC FACTORS AND FISCAL YEAR BUDGET AND RATES The fiscal year 2012-2013 budget incorporates no increase in the property tax rate. It remains at $.633049 per $100 valuation. Certified appraised values used for the fiscal year 2013 budget are $37 million higher than the amounts budgeted in the 2011-2012 fiscal year, thus increasing the budgeted property tax revenue. The General Fund budgeted increase in fund balance for fiscal year 2012-2013 is $9,805. The 2012-2013 budget includes no change in either the water or wastewater rates. The Enterprise Fund budgeted increase in fund balance is $161,318. If revenues projected in the 2013 budget are realized, the City will be able to continue operations, absorb inflationary costs, and increase its total fund balance by $461,516 for the City as a whole. We MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2012 (CONTINUED) REQUESTS FOR INFORMATION This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the City's finances and to demonstrate the City's accountability for the funds it receives. If you have questions about this report or would like additional information, please contact the City Manager at the City of Sanger City Hall at 502 Elm Street, Sanger, Texas 76266. 11 CITY OF SANGER, TEXAS STATEMENT OF NET ASSETS SEPTEMBER 30, 2012 ASSETS Cash and cash equivalents Certificates of deposit Accounts receivable, net Property taxes net of allowance of $60,667 Sales taxes Emergency medical services, net of allowance of $1,582,222 Utility accounts, net of allowance of $111,174 Other Inventories Internal balances Restricted cash Restricted certificates of deposit Bond issue costs, net Capital assets Capital assets not being depreciated Capital assets being depreciated, net TOTAL ASSETS LIABILITIES Accounts payable and accrued liabilities Customer deposits Accrued interest payable Deferred rent Compensated absences, due within one year Bonds payable, due within one year Notes payable, due within one year Capital leases, due within one year Other Noncurrent liabilities Compensated absences, due in more than one year Bonds payable, due in more than one year Notes payable, due in more than one year Capital leases, due in more than one year TOTAL LIABILITIES NET ASSETS Invested in capital assets, net of related debt Restricted Debt service Capital improvements Unrestricted TOTAL NET ASSETS The Notes to Basic Financial Statements are an integral part of this statement. Primary Government Governmental Business -type Activities Activities Total $ 415,126 $ 2,293,053 $ 2,708,179 408,004 335,825 743,829 80,907 - 80,907 183,600 - 183,600 107,490 - 107,490 - 1,504,299 1,504,299 39,625 33,074 72,699 - 433,508 433,508 263,811 (263,811) - 1,259,697 1,040,028 2,299,725 476,252 1,583,542 2,059,794 281,317 73,087 354,404 1,134,692 614,578 1,749,270 13,838,931 12,174,455 26,013,386 $ 18,489,452 $ 19,821,638 $ 38,311,090 $ 272,746 $ 581,313 $ 854,059 - 315,761 315,761 46,257 53,033 99,290 40,008 - 40,008 45,164 34,108 79,272 537,288 479,993 1,017,281 36,576 - 36,576 102,755 178,000 280,755 77,721 93,975 171,696 65,240 6,197,769 516,815 237,364 8,175, 703 7,371,097 610,227 2,332,425 $ 10,313,749 12 33,865 4,665,249 192,401 6,627,698 7,287,190 951,238 1,356,571 3,598,941 $ 13,193, 440 99,105 10, 863, 018 516,815 429,765 14, 803,401 14,658,287 1,561,465 1,356,571 5,931,366 $ 23,507,689 d z uj H F— N V � Q 0 N U. <C0M E.W., Z W W rn W W W H z . a. (n LU CO LL 0 O � 0 F= I - W U W 2a W Z�// w W ,O V R O H N N -It CD co V M (0 u) M u) ccV u) Cl! N M u) Q) n M 0 n (c) M V - (h K, 1 60T V 1Z• N � a:;, Ic-i-t O N N V O Cl) -IT co u) cM u7 ccV u) N N M u) D) n M n u) O v v. V � M O I O Cl O O O O O O O 03 co Cl) co O O O n. ' N Q) ' N M O - oo D N tD � O n N 7 CO (D "IV N 'IT CO V .M- M (D M u7 O Ili u) u1 O M u) CD m M O 00 LO C. V (D O O V O n u7 V n N V M u) u7 co (f) co c0 (f) N N cc) O) co LO u) O V V N u) O u) n co D) n n u) N V CO N m1 n N V u7 u7 N u7 (D N 6% N"INNu)1 Nl N co O N u) o m V V Cl! I C (L) u) co D) n n m N N CO N CM n n V u] u7 N tD (D (D 61) N u) 00 O) co N( r- ( M d rnN u) N (D N (D u n NccV N n O cM (D (D O) Q) D) O O (DM N ('') � VnO Cl) N u) N tD (D u) 6% I"',IN:,I� N ' I N) 'D OI CDID CD ID N V ' ' ' ' m m V V O co co O co n v N u) u) D) N 10 M M (D O N u) N (D N .1 n M V V N V N N O V N (D n m O D) O (D r co N M CO N M� (D n V M N u) N V D) M M N V O O O Cl O C) a@i T N O a) m c o n Q n C. N M N V M Cl)a) n > N a n rn rn n N � <r (D a) co Q o co •p m N m o N CO V CD IT (1) LO O V t(') 7 E C DO = N u) M N n N Q) (an){— n O N > o L m C a) W W N G o Nn 0) N> N Z5 0 LL T a a cc H J 69� z z O V cM N N (D U) O V n (ND oc (OD V V n n M n (D O W OClN ((DD O u �i N d N d U U O 9 O R Q R C R N O Q d E O U •> (6 �_ 75 2 Qf E a+ C t� C E C N O) C U N N N > R O C N U C y > R C O c O '� m > @ O (D a c O d R E @ @ N C N R N U N (aE O N U a) ` U O •� >O U` d cn LL. 0 0 � � (n W (9 00 10- CITY OF SANGER, TEXAS BALANCE SHEET - GOVERNMENTAL FUNDS SEPTEMBER 30, 2012 ASSETS Cash and equivalents Certificates of deposit Accounts receivable, net Property taxes, net of allowance of $60,667 Sales taxes Emergency medical services, net of allowance of $1,582,222 Other Due from other funds Restricted cash Restricted certificates of deposit Total assets LIABILITIES AND FUND BALANCES Liabilities Accounts payable Deferred revenue Other liabilities Total liabilities Fund balances Restricted Debt service Capital projects Economic development Unassigned Total fund balances TOTAL LIABILITIES AND FUND BALANCES The Notes to Basic Financial Statements are an integral part of this statement. Debt General Service $ 277,434 $ 408,004 56,635 91,800 107,490 26,356 94,796 111,565 $ 1,174,080 $ Capital Projects 4,466 $ - 24,272 - 11,594 - 263,811 346,997 45,677 375,735 $ 321,082 $ 157,511 $ - 165,451 24,840 77,721 - 400,683 24,840 773,397 773,397 350,895 $ 96,985 96,985 224,097 350,895 224,097 $ 1,174,080 $ 375,735 $ 14 321,082 4A Fund 4B Fund Total Governmental Funds $ 113,031 $ 20,195 $ 415,126 - - 408,004 - - 80,907 45,900 45,900 183,600 - - 107,490 277 1,398 39,625 - - 263,811 606,454 165,773 1,259,697 93,343 271,344 476,252 $ 859,005 $ 504,610 $ 3,234,512 $ - $ 18,250 $ 272,746 - 190,291 - 77,721 18,250 540,758 350,895 - - 224,097 859,005 486,360 1,345,365 - - 773,397 859,005 486,360 2,693,754 $ 859,005 $ 504,610 $ 3,234,512 15 CITY OF SANGER, TEXAS RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS SEPTEMBER 30, 2012 Total fund balances - governmental funds Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not current financial resources and therefore are not reported in the governmental funds balance sheet. Costs associated with the issuance of governmental long-term debt are expensed when incurred in the fund statements and capitalized and amortized over the life of the debt in the government -wide financial statements. Interest payable on long-term debt does not require current financial resources, therefore interest payable is not reported as a liability in the governmental funds balance sheet. Revenues earned but not available within sixty days of the year end are not recognized as revenue in the fund financial statements. Escalating payments for rent income are recorded when received as current financial resources in the fund financial statements whereas they are are deferred and recorded ratably over the life of lease in the government -wide financial statements. Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the fund financial statements. Net assets of governmental activities The Notes to Basic Financial Statements are an integral part of this statement. 16 $ 2,693,754 14,973,623 281,317 (46,257) 190,291 (40,008) (7,738,971) $ 10,313,749 CITY OF SANGER, TEXAS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS YEAR ENDED SEPTEMBER 30, 2012 REVENUES Property taxes Sales taxes Licenses and permits Charges for services Fire and rescue Court Franchise taxes Intergovernmental revenues Interest Miscellaneous Total revenues EXPENDITURES Current General government Police and animal control Streets and sanitation Fire and EMS Court Culture and recreation Capital outlay Debt service Principal retirement Interest charges Fiscal agent's fees and debt issue costs Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources (uses) Proceeds on sale of assets Proceeds from capital lease Proceeds from bond refunding Premium on bond refunding Payment on bond refunding Transfers in Transfers out Total other financing sources (uses) Net change in fund balances FUND BALANCES, beginning of year FUND BALANCES, end of year The Notes to Basic Financial Statements are an integral part of this statement. Debt General Service Capital Projects $ 1,637,637 $ 701,845 $ - 616,427 130,869 - - 803,173 - - 479,381 - - 191,903 - - 539,485 - - - - 500,000 5,326 2,986 3,400 87,875 - 36,000 4,492,076 704,831 539,400 628,847 22 - 1,408,666 - - 838,133 - - 633,763 - - 208,947 - - 419, 795 - - 481,377 - 1,265,281 79,211 496,800 - 1,282 273,649 - - 48,811 - 4,700,021 819,282 1,265,281 (207,945) (114,451) (725,881) 10,000 - - 340,119 - - - 1,537,800 - - 41,221 - - (1,530,210) - 31,000 180,000 200,000 (200,000) - - 181,119 228,811 200,000 (26,826) 114,360 (525,881) 800,223 236,535 749,978 $ 773,397 $ 350,895 $ 224,097 17 4A Fund 4B Fund Total Governmental Funds $ - $ - $ 2,339,482 306,714 306,714 1,229,855 - - 130,869 - - 803,173 - - 479,381 - - 191,903 - - 539,485 - - 500,000 1,633 3,481 16,826 52,778 5,311 181,964 361,125 315,506 6,412,938 18,563 647,432 - 1,408,666 - - 838,133 - - 633,763 - - 208,947 - - 419,795 - - 1,746,658 33,664 - 609,675 27,603 - 302,534 - - 48,811 61,267 18,563 6,864,414 299,858 296,943 (451,476) - - 10,000 - - 340,119 - - 1,537,800 - - 41,221 - - (1,530,210) - - 411,000 (15,500) (195,500) (411,000) (15,500) (195,500) 398,930 284,358 101,443 (52,546) 574,647 384,917 2,746,300 $ 859,005 $ 486,360 $ 2,693,754 18 CITY OF SANGER, TEXAS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED SEPTEMBER 30, 2012 Net change in fund balances - total governmental funds $ (52,546) Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount of capital assets recorded in the current period. 1,746,658 Depreciation expense on capital assets is reported in the statement of activities and does not require the use of current financial resources. Therefore, depreciation expense is not reported as expenditures in the governmental funds. (964,491) Governmental funds recognize all amounts received on the sale of fixed assets as a gain. However, in the statement of activities, the gain or loss is offset by the remaining net book value of the asset. (24,719) The issuance of long-term debt (e.g. bonds) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas the amounts are deferred and amortized in the statement of activities. This amount consists of repayments of $609,675 and issuance costs of $48,811 less proceeds of $340,119, premiums of $41,221, amortization of debt issuance costs of $22,908 and a change in long-term compensated absences payable of $32,457, which is the net effect of these differences in the treatment of long-term debt and related items. 221,781 The refunding of long-term debt (e.g. bonds) provides current financial resources and consumes current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. (7,590) Current year changes in accrued interest payable do not require the use of current financial resources; therefore, are not reported as expenditures in governmental funds. (14,694) Governmental funds recognize escalating rental income as received. However, in the statement of activities, the rent is deferred and recognized ratably over the term of the lease agreement. 29,992 Certain revenues in the government -wide statement of activities that do not provide current financial resources are not reported as revenue in the governmental funds. 36,822 Change in net assets of governmental activities $ 971,213 The Notes to Basic Financial Statements are an integral part of this statement. 19 CITY OF SANGER, TEXAS STATEMENT OF NET ASSETS — PROPRIETARY FUNDS SEPTEMBER 30, 2012 Water, Sewer, and Electric Fund ASSETS CURRENT ASSETS Cash and investments $ 2,293,053 Certificates of deposit 335,825 Receivables Utility accounts receivable, net of allowance of $111,174 1,504,299 Other 33,074 Inventories 433,508 Total current assets 4,599,759 NONCURRENT ASSETS Capital assets, at cost Land and land improvements 323,164 Buildings and equipment 2,459,441 Infrastructure 22,112,636 Construction in progress 291,414 Accumulated depreciation (12,397,622) Total capital assets, net of accumulated depreciation 12,789,033 Bond issue costs, net 73,087 Restricted cash and cash equivalents 1,040,028 Restricted certificates of deposit 1,583,542 Total noncurrent assets 15,485,690 TOTAL ASSETS $ 20,085,449 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable and accrued liabilities $ 581,313 Accrued interest payable 53,033 Compensated absences, due within one year 34,108 Bonds payable, due within one year 479,993 Capital lease obligation, due within one year 178,000 Due to other funds 263,811 Other 93,975 Total current liabilities 1,684,233 NONCURRENT LIABILITIES Compensated absences, due in more than one year 33,865 Bonds payable, due in more than one year 4,665,249 Capital lease obligation, due in more than one year 192,401 Customer deposits 315,761 Total liabilities 6,891,509 NET ASSETS Invested in capital assets, net of related debt 7,287,190 Restricted Revenue bond retirement 951,238 Capital improvements 1,356,571 Unrestricted 3,598,941 TOTAL NET ASSETS $ 13,193,940 The Notes to Basic Financial Statements are an integral part of this statement. 20 CITY OF SANGER, TEXAS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS — PROPRIETARY FUNDS YEAR ENDED SEPTEMBER 30, 2012 Water, Sewer, and Electric Fund OPERATING REVENUES Charges for services $ 10,228,112 Connection fees 58,410 Tap fees 396,350 Miscellaneous 57,282 Total operating revenue 10,740,154 OPERATING EXPENSES Salaries, wages and benefits 1,334,282 Purchased professional and technical services 148,115 Utilities 343,184 Materials and supplies 126,149 Water and electric purchases 5,045,931 Franchise fees 355,622 Depreciation 885,039 Repairs and maintenance 535,312 Bad debt expense 76,374 Total operating expenses 8,850,008 Operating income 1,890,146 NONOPERATING REVENUES (EXPENSES) Interest and investment income 32,902 Interest and amortization expense (217,588) Total nonoperating expenses (184,686) Change in net assets 1,705,460 NET ASSETS, beginning of year 11,488,480 NET ASSETS, end of year $ 13,193,940 The Notes to Basic Financial Statements are an integral part of this statement. 21 CITY OF SANGER, TEXAS STATEMENT OF CASH FLOWS — PROPRIETARY FUNDS YEAR ENDED SEPTEMBER 30, 2012 Water, Sewer, and Electric Fund CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers $ 10,399,883 Cash paid to employees (1,354,368) Cash paid to suppliers (6,693,881) Net cash provided by operating activities 2,351,634 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Principal paid on long-term debt (494,293) Capital expenditures (217,445) Interest and fees paid on debt issuance (206,464) Net cash used in capital and related financing activities (918,202) CASH FLOWS FROM INVESTING ACTIVITIES Reinvested interest (10,490) Proceeds on maturity of investments 200,000 Interest on investments 32,902 Net cash provided by investing activities 222,412 Net change in cash 1,655,844 CASH AND CASH EQUIVALENTS, beginning of the year 1,677,237 CASH AND CASH EQUIVALENTS, end of the year The Notes to Basic Financial Statements are an integral part of this statement. 22 $ 3,333,081 CITY OF SANGER, TEXAS STATEMENT OF CASH FLOWS — PROPRIETARY FUNDS YEAR ENDED SEPTEMBER 30, 2012 (CONTINUED) Water, Sewer, and Electric Fund RECONCILIATION OF CASH AND CASH EQUIVALENTS PER STATEMENT OF CASH FLOWS TO THE STATEMENT OF NET ASSETS Cash and investments $ 2,293,053 Restricted cash and cash equivalents 1,040,028 Cash and cash equivalents - ending $ 3,333,081 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 1,890,146 Adjustments to reconcile operating income to net cash provided by operating activities Depreciation 885,039 Increase in accounts receivable (358,423) Increase in inventory (132,901) Decrease in accounts payable and accrued liabilities 55,357 Increase in other liabilities (5,736) Increase in customer deposits 18,152 Net cash provided by operating activities $ 2,351,634 NON -CASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES Related to issuance of refunding bonds: Decrease in bond issue costs, net $ (22,061) Increase in bonds payable (57,200) Increase in deferred loss on refunding bonds 79,261 Related to capital asset additions: Capital assets additions financed through inter -fund balances $ 291,414 The Notes to Basic Financial Statements are an integral part of this statement. 23 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Sanger (the City) was incorporated in 1886. The City operates under a Council - Manager form of government and provides the following services as authorized by its charter: general government, police and fire protection, emergency ambulance services, highways and streets, water and wastewater operations, electricity operations, and public improvements. The accounting and reporting policies of the City relating to the funds included in the accompanying basic financial statements conform to accounting principles generally accepted in the United States of America applicable to state and local governments. Generally accepted accounting principles for local governments include those principles prescribed by the Governmental Accounting Standards Board (GASB), the American Institute of Certified Public Accountants in the publication entitled Audits of State and Local Governmental Units and by the Financial Accounting Standards Board (when applicable). As allowed in Section P80 of GASB's Codification of Governmental Accounting and Financial Reporting Standards, the City has elected not to apply Financial Accounting Standards Board Statements and Interpretations, Accounting Principles Board Opinions, and Accounting Research Bulletins of the Committee of Accounting Procedure issued after November 30, 1989. The more significant accounting policies of the City are described below. Financial Reporting Entity As required by accounting principles generally accepted in the United States of America, these financial statements include the primary government and organizations for which the primary government is financially accountable and other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. The definition of the reporting entity is based primarily on the notion of financial accountability. A primary government is financially accountable for the organizations that make up its legal entity. It is also financially accountable for legally separate organizations if its officials appoint a voting majority of an organization's governing body and either it is able to impose its will on that organization or there is a potential for the organization to provide specific financial benefits to, or to impose specific financial burdens on, the primary government. A primary government may also be financially accountable for governmental organizations that are fiscally dependent on it. A primary government has the ability to impose its will on an organization if it can significantly influence the programs, projects, or activities of, or the level of services performed or provided by, the organization. A financial benefit or burden relationship exists if the primary government (a) is entitled to the organization's resources; (b) is legally obligated or has otherwise assumed the obligation to finance the deficits of, or provide financial support to, the organization; or (c) is obligated in some manner for the debt of the organization. Some organizations are included as component units because of their fiscal dependency on the primary government. 24 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED Financial Reporting Entity — Continued An organization is fiscally dependent on the primary government if it is unable to adopt its budget, levy taxes, set rates or charges, or issue bonded debt without approval by the primary government. The following entities were found to be component units of the City and are included in the accompanying financial statements: Blended Component Unit (4A) - The Sanger Texas Industrial Development Corporation (STIDC) is governed by a board of five directors, all of whom are appointed by the City Council of the City of Sanger and any of whom can be removed from office by the City Council at its will. The STIDC was incorporated in the state of Texas a non-profit industrial development corporation under Section 4A of the Development Corporation Act of 1979. The purpose of the STIDC is to promote economic development within the City of Sanger. Blended Component Unit (413) - The Sanger Texas Development Corporation (STDC) is governed by a board of seven directors, all of whom are appointed by the City Council at its will. The STDC was incorporated in the state of Texas as a non- profit industrial development corporation under Section 413 of the Development Corporation Act of 1979. The purpose of the STDC is to promote economic and community development within the City of Sanger. Basis of Presentation The government -wide financial statements (the statement of net assets and the statement of activities) report information on all of the activities of the City. The effect of interfund activity within the governmental and business -type activities columns has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business -type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given program are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific program. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given program and 2) operating or capital grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Taxes and other items not properly included among program revenues are reported instead as general revenues. 25 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED Fund Financial Statements The City segregates transactions related to certain functions or activities in separate funds in order to aid financial management and to demonstrate legal compliance. Separate statements are presented for governmental and proprietary activities. These statements present each major fund as a separate column on the fund financial statements; all non -major funds are aggregated and presented in a single column. Governmental funds are those funds through which most governmental functions typically are financed. The measurement focus of governmental funds is on the sources, uses and balance of current financial resources. The City has presented the following major governmental funds: General Fund The General Fund is the main operating fund of the City. This fund is used to account for all financial resources not accounted for in other funds. All general tax revenues and other receipts that are not restricted by law or contractual agreement to some other fund are accounted for in this fund. General operating expenditures, fixed charges and capital improvement costs that are not paid through other funds are paid from the General Fund. Debt Service Fund The Debt Service Fund is used to account for the accumulation of financial resources for the payment of principal, interest and related costs on general long-term debt paid primarily from taxes levied by the City. The fund balance of the Debt Service Fund is restricted to signify the amounts that are restricted exclusively for debt service expenditures. Capital Projects Fund The Capital Projects Fund is used to account for funds received and expended for the construction and renovation of thoroughfares, arterial streets and drainage improvements in the City and construction, renovation, expansion and major improvement of various City facilities, acquisition of land and other large nonrecurring projects. 4A and 4B Funds The 4A and 4B Funds are used to account for sales tax revenues collected for the purposes set forth by the Sanger Economic Development Corporation. 26 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED Fund Financial Statements — Continued Proprietary Funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. The accounting objectives are determinations of net income, financial position and cash flow. All assets and liabilities are included on the Statement of Net Assets. The City has presented the following major proprietary fund: Water, Sewer and Electric Fund The Water, Sewer and Electric Fund is the primary operating fund for water, sewer distribution and electric. It also accounts for all financial resources of the City concerning water, sewer and electric sales. Its activity is financed with debt secured by a pledge of the net revenues and has the requirement that the cost of providing services, including capital costs, be recovered by user fees and charges. Proprietary funds distinguish operating revenues and expenses from non -operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. Operating expenses for the proprietary funds include the cost of personnel and contractual services, supplies and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non -operating revenues and expenses. Measurement Focus and Basis of Accounting Measurement focus refers to what is being measured; basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurement made, regardless of the measurement focus applied. The government -wide statements and fund financial statements for proprietary funds are reported using the economic resources measurement focus and the accrual basis of accounting. The economic resources measurement focus means all assets and liabilities (whether current or non -current) are included on the statement of net assets and the operating statements present increases (revenues) and decreases (expenses) in net total assets. Under the accrual basis of accounting, revenues are recognized when earned, including unbilled water and wastewater services which are accrued. Expenses are recognized at the time the liability is incurred. Governmental fund financial statements are reported using the current financial resources measurement focus and are accounted for using the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual; i.e., when they become both measurable and available. Measurable means the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. The City considers receivables collected within sixty days after year-end to be available and recognizes them as revenues of the current year. Expenditures are recorded when the related fund liability is incurred. 27 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED Measurement Focus and Basis of Accounting — Continued However, debt service expenditures are recorded only when payment is due. The revenues susceptible to accrual are property taxes, franchise fees, licenses, charges for service, interest income and intergovernmental revenues. Sales taxes collected and held by the state at year end on behalf of the government are also recognized as revenue. All other governmental fund revenues are recognized when received. Cash and Investments Cash of all funds, including restricted cash, are pooled into common pooled accounts in order to maximize investment opportunities. Each fund whose monies are deposited in the pooled cash accounts has equity therein, and interest earned on the investment of these monies is allocated based upon relative equity at month end. An individual fund's pooled cash and investments are available upon demand. The City considers pooled and other cash and investments amounts that are purchased with a maturity of ninety days or less to be cash equivalents. All investments are recorded at fair value based on quoted market prices. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties. State statutes authorize the City to invest in obligations of the U.S. Government or its agencies; obligations of the State of Texas or its agencies; and certain other obligations, repurchase agreements, money market mutual funds and certificates of deposits within established criterion. Restricted Resources If both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first and unrestricted resources as needed. Property Taxes Property taxes are levied by October 1 on the assessed value listed as of the prior January 1 for all real and business personal property in conformity with Subtitle E, Texas Property Tax Code. Taxes are due on receipt of the tax bill and are delinquent if not paid before February 1 of the year following the year in which imposed. On January 1 of each year, a tax lien attaches to property to secure the payment of all taxes, penalties, and interest ultimately imposed. Property tax revenues are considered available when they become due or past due and receivable within the current period. Personal property taxes not collected by April 1 are forwarded for collection proceedings. Real property taxes not collected by July 1 are forwarded for collection proceedings. m CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED Inventories and Prepaid Items Inventories, which are recognized as expenses as consumed, are stated at cost (first -in, first -out method). Inventories consist primarily of expendable supplies for the Proprietary Fund. Prepaid balances are for payments made by the City in the current year to provide services occurring in the subsequent fiscal year. Interfund Receivables and Payables Any residual balances outstanding between the governmental activities and business - type activities are reported in the government -wide financial statements as internal balances. Transactions between Funds Interfund services provided and used are accounted for as revenues and expenditures or expenses. Transactions that constitute reimbursements to a fund for expenditures or expenses initially made from it that are properly applicable to another fund, are recorded as expenditures or expenses in the reimbursing fund and as a reduction of expenditures or expenses in the fund reimbursed. All other interfund transactions are recorded as transfers. Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets, are reported in the applicable governmental or business -type activities columns in the government -wide financial statements and in the fund financial statements for proprietary funds. All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated assets are valued at their fair market value on the date donated. Repairs and maintenance are recorded as expenses. Renewals and betterments are capitalized. Assets capitalized, not including infrastructure assets, have an original cost of $5,000 or more and over one year of useful life. Depreciation has been calculated on each class of depreciable property using the straight-line method. Estimated useful lives are as follows: Buildings and improvements Machinery and equipment Infrastructure 29 5-50 years 3-20 years 10-30 years CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED Accumulated Vacation, Compensatory Time and Sick Leave The amounts owed to employees for unpaid vacation and sick leave liabilities, including the City's share of employment -related taxes, are reported on the accrual basis of accounting in the applicable governmental or business -type activity columns of the government -wide statements and in the enterprise activities of the fund financial statements. The liabilities and expenditures are reported on the modified accrual basis in the governmental fund financial statements. Nature and Purpose of Reservations and Designations of Fund Equity The City implemented Governmental Accounting Standards Board Statement 54, Fund Balance Reporting and Governmental Fund Type Definitions (GASB 54) during the year ended September 30, 2011. This statement establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. The objective of this statement is to enhance the usefulness of fund balance information by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing governmental fund type definitions. Fund balance categories under GASB 54 are Nonspendable and Spendable. Classifications under the Spendable category are Restricted, Committed, Assigned, and Unassigned. These classifications reflect not only the nature of funds, but also provide clarity to the level of restriction placed upon fund balance. Unassigned fund balance is a residual classification within the General Fund. The General Fund should be the only fund that reports a positive unassigned balance. In all other funds, unassigned is limited to negative residual fund balance. In accordance with GASB 54, the City classifies governmental fund balances in its financial statements as follows: Nonspendable Fund Balance — Includes fund balance amounts that cannot be spent either because they are not in spendable form or because of legal or contractual requirements. Examples include inventories, long-term receivables, endowment principal, and/or prepaid/deferred items. 2. Spendable Fund Balance a. Restricted Fund Balance — Includes amounts that can be spent only for the specific purposes as imposed by law, or imposed by creditors, grantors, contributors, or other governments' laws and regulations. Examples include federal and state grant programs, retirement of long- term debt, and construction. i. The aggregate fund balance of the debt service fund is legally restricted for payment of bonded indebtedness and is not available for other purposes until all bonded indebtedness is liquidated. 30 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED Nature and Purpose of Reservations and Designations of Fund Equity — Continued ii. The fund balance of the capital projects fund reflects an amount restricted for construction and major renovation projects, and it usually represents unexpended proceeds from the sale of bonds, which primarily have restricted use. iii. The proceeds of specific revenue sources which are restricted to expenditures for specified purposes as designated by grantors, contributors, by vote of citizens, or governmental entities over state or local program grants. b. Committed Fund Balance — Includes amounts that can be used only for the specific purposes as determined by the governing body by formal action recorded in the minutes of the governing body. Commitments may be changed or lifted only by the governing body taking the same formal action that imposed the constraint originally. Examples include, but are not specifically limited to, council action regarding construction, claims, and judgments, retirement of loans/notes payable, and capital expenditures. The City Council must take action to commit funds for a specific purpose prior to the end of the fiscal year, but the amount of the commitment may be determined after the end of the fiscal year. c. Assigned Fund Balance — Includes amounts intended to be used by the City for specific purposes. Pursuant to GASB 54, this intent can be expressed by an official or body to which the governing body delegates that authority. The City has delegated to the City Manager the ability to determine and define the amounts of those components of fund balance that are classified as Assigned. Examples take on the similar appearance as those enumerated for committed fund balance, including the appropriation of existing fund balance to eliminate a deficit in next year's budget. d. Unassigned Fund Balance — Includes the residual classification of the General Fund and includes all amounts not contained in other classifications. By accounting for amounts in other funds, the City has implicitly assigned the funds for the purposes of those particular funds. In circumstances where an expenditure is to be made for a purpose for which amounts are available in multiple fund balance classifications, the order in which resources will be expended is as follows: restricted fund balance, followed by committed fund balance, assigned fund balance, and lastly unassigned fund balance. 31 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED Net Assets Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition, construction or improvements of those assets, and adding back unspent proceeds. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislations adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. NOTE 2. CASH AND INVESTMENTS Cash and investments as of September 30, 2012 consist of the following: Deposits with financial institutions $ 5,007,904 Certificates of deposit 2,803,623 $ 7,811,527 Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by investing mainly in certificates of deposit which purchase a combination of shorter term investments with an average maturity of less than 30 days thus reducing the interest rate risk. The City monitors the interest rate risk inherent in its portfolio by measuring the weighted average maturity of its portfolio. The City has no specific limitations with respect to this metric. 32 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 2. CASH AND INVESTMENTS — CONTINUED As of September 30, 2012, the City had the following investments: Investment Type Amount Weighted Average Maturity Certificates of deposit $ 2,803,623 134 days As of September 30, 2012 the City did not invest in any securities which are highly sensitive to interest rate fluctuations. Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the Public Funds Investment Act, the City's investment policy, or debt agreements, and the actual rating as of year-end for each investment type. Investment Type Certificates of deposit Concentration of Credit Risk Minimum Legal Rating as of Amount Rating September 30, 2012 $ 2,803,623 N/A =A The investment policy of the City contains no limitations on the amount that can be invested in any one issuer. As of September 30, 2012, other than certificates of deposit, the City did not have 5% or more of its investments with one issuer. Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The Public Funds Investment Act and the City's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The Public Funds Investment Act requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least the bank balance less the FDIC insurance at all times. 33 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 2. CASH AND INVESTMENTS — CONTINUED Custodial Credit Risk — Continued At September 30, 2012, the carrying amount of the City's cash on hand and deposits was $5,007,904 and the bank balance was $5,183,145. The full bank balance was covered by depository insurance under the FDIC and pledged securities in the City's name. NOTE 3. RESTRICTED ASSETS Restricted assets are held for the following purposes in accordance with bond ordinances or other legal restrictions for the Proprietary Fund as follows: Debt service - interest and sinking fund $ 951,238 Capital improvements 1,356,571 Refundable utility deposits 315,761 $ 2,623,570 Restricted assets are held for the following purposes in accordance with bond ordinances or other legal restrictions for the Governmental Funds as follows: Debt service $ 346,997 Capital improvements 202,110 Economic and community development 1,186,842 $ 1,735,949 34 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 4. CAPITAL ASSETS Capital asset activity for the year ended September 30, 2012, was as follows: Balance Balance October 1, Additions/ Retirements/ September 30, 2011 Completions Adjustments 2012 Governmental activities Capital assets not being depreciated Land Construction in progress Total capital assets not being depreciated Capital assets being depreciated Infrastructure Buildings and improvements Machinery and equipment Total capital assets being depreciated Less accumulated depreciation Infrastructure Buildings and improvements Machinery and equipment Total accumulated depreciation Total capital assets being depreciated, net Net governmental activities capital assets $ 862,307 $ - $ - $ 862,307 3,239,639 1,265,281 (4,232,535) 272,385 4,101,946 1,265,281 (4,232,535) 1,134,692 9,800,941 - 749,693 10,550,634 3,567,983 70,000 3,482,842 7,120,825 2,099,506 481,377 (87,344) 2,493,539 15,468,430 551,377 4,145,191 20,164,998 3,305,559 580,486 - 3,886,045 787,822 149,475 - 937,297 1,330,820 234,530 (62,625) 1,502,725 5,424,201 964,491 (62,625) 6,326,067 10,044,229 (413,114) 4,207,816 13,838,931 $ 14,146,175 $ 852,167 $ (24,719) $ 14,973,623 35 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 4. CAPITAL ASSETS - CONTINUED Balance Balance October 1, Additions/ Retirements/ September 30, 2011 Completions Adjustments 2012 Business -type activities Capital assets not being depreciated Land $ 323,164 $ - $ Construction in progress - 291,414 _ Total capital assets not being depreciated 323,164 291,414 Capital assets being depreciated Infrastructure 22,072,504 40,132 Buildings and improvements 860,132 - Machinery and equipment 1,421,996 177,313 _ Total capital assets being depreciated 24,354,632 217,445 Less accumulated depreciation Infrastructure 10,235,131 724,578 Buildings and improvements 164,565 52,239 Machinery and equipment 1,112,887 108,222 _ Total accumulated depreciation 11,512,583 885,039 _ Total capital assets being depreciated, net Net business -type activities capital assets 12,842,049 (667,594) $ 323,164 291,414 614,578 22,112,636 860,132 1,599,309 24, 572,077 10,959,709 216,804 1,221,109 12,397,622 12,174,455 $ 13,165,213 $ (376,180) $ - $ 12,789,033 36 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 4. CAPITAL ASSETS — CONTINUED Depreciation expense was charged as direct expense to programs of the primary government as follows: Governmental activities General government $ 70,760 Public safety 94,661 Streets and sanitation 607,409 Fire and rescue 117,529 Court 386 Culture and recreation 73,746 Total governmental activities $ 964,491 Business -type activities Water $ 273,790 Sewer 220,701 Electric 375,093 Other 15,455 Total business -type activities $ 885,039 37 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 5. LONG-TERM DEBT At September 30, 2012, the City's bonds and notes payable consisted of the following: Governmental Business -type $6,500,000 Series 2006, Combination Tax and Revenue Ceritifcates of Obligation, dated August 7, 2006, due in annual installments through 2022, bearing interest rates of 4% to 5%. $ 2,001,000 $ 2,349,000 $1,750,000 Series 2007, Combination Tax and Revenue Certificates of Obligation, dated June 15, 2007, due in annual installments through 2027, bearing interest at 4.4%. 493,000 957,000 $3,200,000 Series 2009, Combination Tax and Revenue Certificates of Obligation, dated July 30, 2009, due in annual installments through 2026, bearing interest rates of 3% to 4.75%. $3,495,000 Series 2012, General Obligation Refunding, dated March 20, 2012, due in annual installments through 2021, bearing interest rates of 2% to 3%. Note payable to a financial institution in monthly installments of $5,106 including interest at 4.6%, due June 5, 2024, secured by property financed. Deferred loss on refunding bonds. 38 2,770,000 1,504,800 553,391 1,915,200 (33,743) (75,958) $ 7,288,448 $ 5,145,242 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 5. LONG-TERM DEBT — CONTINUED The following is a summary of long-term debt transactions of the City for the year ended September 30, 2012: Governmental activities Compensated absences Notes payable Certificates of obligation Capital leases Deferred loss on refunding bonds Total governmental activities Business -type activities Compensated absences Revenue bonds Capital leases Deferred loss on refunding bonds Total business -type activities Total primary government Balance Balance Due Beginning End within of Year Increases Decreases of Year One Year $ 77,947 $ 108.885 $ (76,428) $ 110,404 $ 45,164 596,104 - (42,713) 553,391 36,576 7,222,800 1,537,800 (1,991,800) 6,768,800 541,200 70,162 340,119 (70,162) 340,119 102,755 - (35,210) 1,467 (33,743) (3,912) 71967,013 1,951,594 (2,179,636) 7,738,971 721,783 54,220 82,211 (68,458) 67,973 34,108 5,652,200 1,957,200 (2,388,200) 5,221,200 488,800 376,494 - (6,093) 370,401 178,000 - (79,261) 3,303 (75,958) (8,807) 6,082,914 1,960,150 (2,459,448) 5,583,616 692,101 $ 14,049,927 $ 3,911,744 $ (4,639,084) $ 13,322,587 $ 1,413,884 The City issues general obligation bonds, which are direct obligations of the City and pledge the full faith and credit of the City. For the governmental activities, compensated absences are generally liquidated with resources of the General Fund. General obligation bonds issued for governmental activity purposes are liquidated by the debt service fund. Notes payable issued for governmental activity purposes are liquidated by the General Fund. Revenue bonds and notes payable issued for business -type activities are repaid from those activities. During fiscal year 2012, the City issued $3,495,000 in General Obligation Refunding Bonds with interest rates ranging from 2% - 3%, which was used to advance refund the outstanding Series 1996 and Series 2002 Utility System Revenue Bonds and the Series 2002 Combination Tax and Revenue Certificates of Obligation for a total of $3,395,000. The average interest rate on the bonds being refunded was 4.86%. The net proceeds of $3,477,750 (after payment of issuance costs) were used to pay the outstanding balance on the refunded bonds. As a result, the refunded bonds were considered defeased, and the liability for those bonds has been removed from the government -wide statements. As of September 30, 2012, $3,395,000 of bonds outstanding are considered defeased. The City advance refunded the bonds to reduce its total debt service payments over the next 10 years by $492,023 and to obtain an economic gain of $395,704 (the difference between the present value of the debt service payments on the old and new debt). 39 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 5. LONG-TERM DEBT - CONTINUED The annual requirements to amortize all debts outstanding as of September 30, 2012, are as follows: Revenue Bonds Business -Type Activities Due Fiscal Year Ending September 30 Principal Interest Total 2013 $ 488,800 $ 360,480 $ 849,280 2014 503,000 352,391 855,391 2015 519,500 349,433 868,933 2016 536,400 340,551 876,951 2017 514,000 286,608 800,608 2018-2022 2,270,100 1,054,317 3,324,417 2023-2027 389,400 52,998 442,398 $ 5,221,200 $ 2,796,778 $ 8,017,978 Certificates of Obligation Governmental Activities Due Fiscal Year Ending September 30 Principal Interest Total 2013 $ 541,200 $ 258,253 $ 799,453 2014 557,000 240,761 797,761 2015 575,500 222,699 798,199 2016 593,600 204,054 797,654 2017 581,000 180,783 761,783 2018-2022 2,759,900 562,028 3,321,928 2023-2027 1,160,600 141,939 1,302,539 $ 6,768,800 $ 1,810,517 $ 8,579,317 Notes Payable Governmental Activities Due Fiscal Year Ending September 30 Principal Interest Total 2013 $ 36,576 $ 24,620 $ 61,196 2014 38,368 22,898 61,266 2015 40,171 21,094 61,265 2016 42,058 19,209 61,267 2017 44,034 17,233 61,267 2018-2022 253,217 53,118 306,335 2023-2027 98,967 3,939 102,906 $ 553,391 $ 162,111 $ 715,502 40 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 6. CAPITAL LEASE OBLIGATIONS The City has entered into capital lease agreements. The leased property under capital leases is classified as machinery and equipment with a total capitalized cost of approximately $948,989 and an amortized value of approximately $750,515 at September 30, 2012. Amortization expense has been included in depreciation expense for the year ended September 30, 2012. The following is a schedule of future minimum payments under the capital leases together with the present value of the net minimum lease payments as of September 30, 2012: 2013 2014 2015 2016 Less amount representing interest Present value of net minimum lease payments 7501g:W11111111111101MIJOROWTV Plan Description $ 315,905 211,451 211,478 36,946 775,780 65,260 $ 710,520 The City of Sanger provides pension benefits for all of its full-time employees through a non-traditional, joint contributory, hybrid defined benefit plan in the state-wide Texas Municipal Retirement System (TMRS), an agent multiple -employer public employee retirement system. The plan provisions that have been adopted by the City are within the options available in the governing state statutes of TMRS. TMRS issues a publicly available comprehensive annual financial report that includes financial statements and required supplementary information (RSI) for TMRS; the report also provides detailed explanations of the contributions, benefits and actuarial methods and assumptions used by the System. The report may be obtained from TMRS' website at www.TMRS.com. 41 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 7. PENSION PLAN — CONTINUED The plan provisions are adopted by the governing body of the City, within the options available in the state statutes governing TMRS and within the actuarial constraints also in the statutes. Plan provisions for the City are as follows: Deposit rate 6% Matching ratio (City to employee) 2-1 A member is vested after 5 years Updated service credit 100% repeating, transfers Annuity increase (to retirees) 0% of CPI repeating Benefits Benefits depend upon the sum of the employee's contributions to the plan, and City - financed monetary credits, both with interest. At the date the plan began, the City granted monetary credits for service rendered before the plan began of a theoretical amount equal to two times what would have been contributed by the employee with interest, prior to establishment of the plan. Monetary credits for service since the plan began are a percent (100%, 150%, 200%) of the employee's accumulated contributions. In addition, the City can grant as often as annually another type of monetary credit referred to as an updated service credit which is a theoretical amount which, when added to the employee's accumulated contributions and the monetary credits for service since the plan began, would be the total monetary credits and employee contributions accumulated with interest if the current employee contribution rate and the City matching percent had always been in existence and if the employee's salary had always been the average of his salary in the last three years that are one year before the effective date. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions with interest and the employer -financed monetary credits with interest were used to purchase an annuity. Members can retire at certain ages, based on the years of service with the City. The Service Retirement Eligibilities for the City are 5 years at 60 years of age or 20 years at any age. Contributions Under the state law governing TMRS, the contribution rate for each city is determined annually by the actuary, using the Projected Unit Credit actuarial cost method. This rate consists of the normal cost contribution rate and the prior service cost contribution rate, which is calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the portion of an active member's projected benefit allocated annually; the prior service contribution rate amortizes the unfunded (overfunded) actuarial liability (asset) over the applicable period for the City. Both the normal cost and prior service contribution rates include recognition of the projected impact of annually repeating benefits, such as Updated Service Credits and Annuity Increases. 42 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 7. PENSION PLAN — CONTINUED Contributions — Continued The City contributes to the TMRS Plan at an actuarially determined rate. Both the employees and the City make contributions monthly. Since the City needs to know its contribution rate in advance for budgetary purposes, there is a one-year delay between the actuarial valuation that serves as the basis for the rate and the calendar year when the rate goes into effect (i.e., December 31, 2011 valuation is effective for rates beginning January 2013). The annual pension cost is $191,163 for the year ended September 30, 2012, and there is no net pension obligation as of September 30, 2012. Trend information for the past three years for TMRS is as follows: Annual Percentage Actual Amount Net Pension Cost of APC of APC Pension Year (APC) Contributed Contributed Obligation 2010 $ 187,668 100% $ 187,668 $ - 2011 217,754 100% 217,754 - 2012 191,163 100% 191,163 - The required contribution rates for fiscal year 2012 were determined as part of the December 31, 2009 and 2010 actuarial valuations. Additional information as of the latest actuarial valuation, December 31, 2011, also follows: Valuation Date Actuarial Cost Method Amortization Method GASB 25 Equivalent Single Amortization Period Amortization Period For New Gains/Losses Asset Valuation Method Actuarial Assumptions: Investment Rate of Return* Projected Salary Increases* * Includes inflation at cost of living adjustments 12/31 /09 Projected Unit Credit Level Percent of Payroll 23 years; closed period 25 years 10-Year Smoothed Market 7.5% Varies by age and service 3.0% 0.0% 43 12/31 /10 12/31 /11 Projected Unit Credit Level Percent of Payroll 22.7 years; closed period 25 years 10-Year Smoothed Market 7.0% Varies by age and service 3.0% 0.0% Projected Unit Credit Level Percent of Payroll 21.8 years; closed period 25 years 10-Year Smoothed Market 7.0% Varies by age and service 3.0% 0.0% CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 7. PENSION PLAN — CONTINUED Contributions — Continued The funded status as of December 31, 2011, the most recent actuarial valuation date, is as follows: Actuarial Actuarial Actuarial UAAL as a Valuation Value of Accrued Funded Unfunded AAL Covered percentage of Date Assets Liability (AAL) Ratio (UAAL) Payroll Covered Payroll 12/31/11 $ 4,691,607 $ 5,122,534 91.6% $ 430,927 $ 2,662,684 16.2% Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. Actuarial calculations are based on the benefits provided under the terms of the substantive plan in effect at the time of each valuation, and reflect a long-term perspective. Consistent with that perspective, actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. The schedule of funding progress, presented as Required Supplementary Information following the notes to basic financial statements, presents multi -year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability of benefits. NOTE 8. COMMITMENTS The City entered into a three year contract in 2009 with the AEP Energy Partners, Inc. for the delivery of electricity. During 2012, this contract was extended for an additional seven years to expire in 2019. Payments under this contract are based on meter readings charged per month. The City had outstanding encumbrances totaling $108,398 as of September 30, 2012. At September 30, 2012, the City was committed to several long-term construction contracts. The Capital Projects Fund and the Enterprise Fund were contractually committed to $73,076 and $27,603, respectively, under these contracts. 44 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS I'Lell 111l:7:11r•11i-IaIz10Z91r, W On March 1, 2012, the City entered into a non -cancelable lease agreement with a corporation of which a city council member is a principal member of management. The leased property is owned by the 4A Fund and has a cost $1,083,797 with accumulated depreciation of $99,706 as of September 30, 2012. The lease provides for a base rent and an adjustment each year related to excess operating expenses (if any) incurred annually. During the year ended September 30, 2012, the City received $32,778 in rental revenue. Minimum future rentals on non -cancelable tenant operating leases at September 30, 2012 are as follows for fiscal years ending September 30: 2013 $ 78,667 2014 78,667 2015 45,889 Future minimum rentals $ 203,223 NOTE 10. INTERFUND BALANCES AND TRANSFERS The Enterprise Fund owes the Capital Projects Fund $263,811 at September 30, 2012. The interfund balance is related to reimbursement for capital assets, and is to be repaid or collected in the normal course of business, within one year of the fiscal year-end. All interfund transfers between the various funds are approved supplements to the operations of those funds. Transfers In General fund General fund Capital projects fund Debt service fund Transfers Out 4A fund 4B fund General fund 4B fund Transfers are primarily used to move funds from: Amount $ 15,500 15,500 200,000 180,000 $ 411,000 - The 4A and 4B funds to the general fund for payment of administrative costs. - The general fund to the capital projects fund to reimburse for project costs. - 4B fund to the debt service fund to service the debt related to the 413 fund. 45 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTEII. RISK MANAGEMENT The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City insures its buildings and contents, law enforcement liability, public officials' liability, general liability and auto liability under a renewable one year policy with the Texas Municipal League. The City insures its workers compensation risk by participating in the Texas Municipal League Intergovernmental Risk Pool which is a self-insurance policy mechanism for political subdivisions in Texas. Rates are set by the State Insurance Board. Each participant's contribution to the pool is adjusted based on its workers' compensation history. The City is responsible only to the extent of premiums paid and contributions made to Texas Municipal League and the Intergovernmental Risk Pool. There have been no significant changes in insurance coverage as compared to last year and settlements have not exceeded coverage in each of the past three fiscal years. NOTE 12. CONDUIT DEBT The City issued notes payable totaling $232,358,091 for the purpose of assisting with financing needed by not -for -profit organizations to promote their cause. Final maturities on notes payable range from March 2017 through December 2041. The notes are secured by various assets of the borrower. The total amount outstanding on all of the notes payable is $230,350,185 as of September 30, 2012. The City has no liability for the notes payable in the event of default by the borrowers. Accordingly, the bonds are not reported as liabilities in the City's financial statements. NOTE 13. PLEDGED REVENUES The City has pledged revenues derived from the operation of the utility system, net of operating and maintenance expenses, to repay $6,617,200 in utility revenue bonds. The total amount of outstanding principal as of September 30, 2012 was $5,221,200. Proceeds from the bonds provided financing for improvements to the utility system, as well as refunding $1,900,000 in bonds. The bonds are payable solely from the net earnings of the utility system and are payable through 2027. The total principal and interest remaining to be paid on the bonds is $8,017,978. Principal and interest paid for the current year and net utility system revenues were $699,669 and $1,890,146, respectively. 46 CITY OF SANGER, TEXAS SCHEDULE OF FUNDING PROGRESS FOR PARTICIPATION IN TEXAS MUNICIPAL RETIREMENT SYSTEM YEAR ENDED SEPTEMBER 30, 2012 Actuarial Actuarial Actuarial Valuation Value of Accrued Date Assets Liability 12/31/09 $ 3,419,092 $ 3,973,365 12/31/10 4,202,344 4,663,669 12/31/11 4,691,607 5,122,534 Percentage Funded 86.1 % 90.1 % 91.6% 47 Unfunded Actuarial Unfunded Accrued Liability Actuarial Annual as a Accrued Covered Percentage of Liability Payroll Covered Payroll $ 554,273 $ 2,503,067 22.1% 461,325 2,454,429 18.8% 430,927 2,662,684 16.2% CITY OF SANGER, TEXAS BUDGETARY COMPARISON SCHEDULE - GENERAL FUND YEAR ENDED SEPTEMBER 30, 2012 Variance with Budgeted Amounts Actual Final Budget Original Final Amount Over / (Under) Revenues Property taxes $ 1,671,380 $ 1,671,380 $ 1,637,637 $ (33,743) Sales taxes 483,420 483,420 616,427 133,007 Licenses and permits 53,990 53,990 130,869 76,879 Charges for services 690,575 690,575 803,173 112,598 Fire and rescue 457,000 457,000 479,381 22,381 Court 345,122 345,122 191,903 (153,219) Franchise taxes 543,800 543,800 539,485 (4,315) Interest 10,000 10,000 5,326 (4,674) Miscellaneous revenues 145,600 145,600 87,875 (57,725) Total revenues 4,400,887 4,400,887 4,492,076 91,189 Expenditures Current General government 684,998 684,998 628,847 (56,151) Public safety 1,454,823 1,454,823 1,408,666 (46,157) Streets and sanitation 918,523 918,523 838,133 (80,390) Fire and rescue 675,709 675,709 633,763 (41,946) Court 233,095 233,095 208,947 (24,148) Culture and recreation 493,214 493,214 419,795 (73,419) Principal 78,153 78,153 79,211 1,058 Interest and other - - 1,282 1,282 Capital outlay 329,015 329,015 481,377 152,362 Total expenditures 4,867,530 4,867,530 4,700,021 (167,509) Excess (deficiency) of revenues over expenditures (466,643) (466,643) (207,945) 258,698 Other financing sources (uses) Proceeds on sale of assets 7,500 7,500 10,000 2,500 Proceeds from capital lease - - 340,119 340,119 Operating transfers in 109,154 109,154 31,000 (78,154) Operating transfers out - - (200,000) (200,000) Total other financing sources (uses) 116,654 116,654 181,119 64,465 Excess (deficiency) of revenues and other financing sources over expenditures and other financing uses (349,989) (349,989) (26,826) 323,163 FUND BALANCE, beginning of year 800,223 800,223 800,223 - FUND BALANCE, end of year $ 450,234 $ 450,234 $ 773,397 $ 323,163 48 CITY OF SANGER, TEXAS COMBINING SCHEDULE OF REVENUES AND EXPENSES PROPRIETARY FUND BY DEPARTMENT YEAR ENDED SEPTEMBER 30, 2012 OPERATING REVENUES Charges for services Connection fees Tap fees Miscellaneous Total operating revenue OPERATING EXPENSES Salaries and wages Purchased professional and technical services Utilities Materials and supplies Water and electric purchases Franchise fees Depreciation Repairs and maintenance Bad debt expense Total operating expenses Operating income (loss) NONOPERATING REVENUES (EXPENSES) Interest and investment income Interest and amortization expense Total nonoperating revenues (expenses) CHANGE IN NET ASSETS 49 Water Cnuinr $ 1,321,657 $ 1,128,429 180,850 215,500 1,502,507 1,343,929 217,647 123,675 10,243 3,325 154,409 162,689 20,960 25,433 220,743 - 289,245 220,701 141,508 279,965 9,264 8,646 1,064,019 824,434 438,488 519,495 (73,259) (37,266) (73,259) (37,266) $ 365,229 $ 482,229 Fleet Data Electric Services Administration Processing Total $ 7,776,521 $ - $ 1,505 $ - $ 10,228,112 58,410 - - - 58,410 - - - - 396,350 - - 57,282 - 57,282 7,834,931 - 58,787 - 10,740,154 507,409 45,938 228,984 210,629 1,334,282 46,198 689 44,766 42,894 148,115 11,569 4,141 5,279 5,097 343,184 49,454 2,303 14,253 13,746 126,149 4,825,188 - - - 5,045,931 355,622 - - - 355,622 375,093 - - - 885,039 78,716 5,325 19,280 10,518 535,312 58,464 - - - 76,374 6,307,713 58,396 312,562 282,884 8,850,008 1,527,218 (58,396) (253,775) (282,884) 1,890,146 - - 32,902 - 32,902 (105,974) - (1,089) - (217,588) (105,974) - 31,813 - (184,686) $ 1,421,244 $ (58,396) $ (221,962) $ (282,884) $ 1,705,460 m uj J CO a > N U N O Q w M J �xuj F F a W W W U) C9 �' P aWaw Na�� U.poLLJ a� �aamo f_ IL uj 50QF J Q Z a N 0 N tl- 00 O M N O 00 N 00 Lo to L t.f) N 00 c- O Cn M �- 00 t` W cM t` O r- M 0 �- O �- M O N N CO M M � 69- M 61P M LO 00 ti tf) — O G Cl CNO V O N O N O LO LI) ti N 06 N 0 M N r- O O CV N M t` 'IT M CO d7 M O 00 r- ti (3) 0 00 O O 00 t` 0 — O N CO LO CO — C) a) N O co 0 N N O O N N d co co 60- 69- 6r> co CD O d0' U) 00 IT � M M co O � cli U') 00 0 � W Cp M CV — v O N N O M c>r 6p#. 61:3- m LO 00 000 It M 1-0 O O O -- et tt) — M M .- �- O 0 O M — d ttl - co M CV O O N N u M 0 M M O 0 0 .0, 0 O I` t--: O 0 O 0p m 70 co a) o 0 0) 0 U > U) N > O N > a) 0 V T tq a) T x N X i N Q O Q � X O c a)O O �- Q.. O N X L V Q ^` W L Q a) 4— Q T O 0 a) u) N +- U >, Q- t6 = Rf _ _R �- O i= 0 0 m N Q J U CL I— I— f— o- t= O c) v 75 ra zi O 0 N V C (t3 O (tS Z07 C a) ^0 0 O LO OFFICIAL STATEMENT Dated: June 17, 2013 NEW ISSUE: Book -Entry -Only Rating: Moody's "AT' (See "RATINGS" herein) In the opinion of Bond Counsel, interest on the Certificates is excludable from gross income for federal income tax purposes under existing law, subject to the matters described under "TAX MATTERS" herein, and is not includable in the alternative minimum taxable income of individuals. See "TAX MATTERS" for a discussion of the opinion of Bond Counsel, including the alternative minimum tax consequences for corporations. THE CERTIFICATES WILL BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS. Dated Date: June 15, 2013 $4,260,000 CITY OF SANGER, TEXAS (Denton County) Combination Tax and Revenue Certificates of Obligation, Series 2013 Due: August 1, as shown on inside cover Interest on the $4,260,000 City of Sanger, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2013 (the "Certificates"), will accrue from their delivery date to the underwriters listed below (the "Underwriters") and will be payable February I and August 1 of each year, commencing on February 1, 2014. The Certificates will be issued only in fully registered form in principal denominations of $5,000 or any integral multiple thereof. Principal of the Certificates will be payable to the registered owner (the "Owner") at maturity or prior redemption upon presentation at the principal corporate office of the paying agent/registrar (the "Paying Agent/Registrar"), initially BOKF, NA dba Bank of Texas, Austin, Texas. The Certificates will be initially registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ("DTC"). DTC will be responsible for distributing the principal and interest payments to the participating members of DTC and the participating members will be responsible for distributing the payment to the owners of beneficial interests in the Certificates. See "BOOK -ENTRY -ONLY SYSTEM" herein. Proceeds from the sale of the Certificates will be used (1) to pay for water and sewer system repairs and improvements, street repairs, drainage repairs and improvements, and park repairs and improvements, and (2) to pay for the payment of contractual obligations for professional services related thereto. See "THE CERTIFICATES — Sources and Uses of Funds" herein. The Certificates maturing on and after August 1, 2024, are subject to optional redemption in whole or in part on August 1, 2023, or on any date thereafter at a redemption price equal to the principal amount thereof plus accrued interest as more fully described herein. See "THE CERTIFICATES — Optional Redemption" herein. The Certificates will constitute direct obligations of the City of Sanger, Texas (the "City"), payable from ad valorem taxes levied against all taxable property within the City within the limits prescribed by law, and from a limited subordinate pledge (not to exceed $10,000) of surplus net revenues of the City's water and sewer system as provided in the ordinance authorizing the Certificates. See Principal Amounts, Maturities, Interest Rates, and Prices on the Inside Cover Page The Certificates are offered when, as and if issued, subject to the approval of legality by the Attorney General of the State of Texas and Andrews Kurth LLP, Bond Counsel, Houston, Texas. Certain legal matters will be passed upon for the Underwriters by their counsel, Fulbright & Jaworski LLP, Houston, Texas, a member of Norton Rose Fulbright. The Certificates are expected to be available for delivery to the Underwriters through DTC on or about July 9, 2013. OPPENHEIMER & CO. DUNCAN-WILLIAMS, INC. MATURITY SCHEDULE $4,260,000 Combination Tax and Revenue Certificates of Obligation, Series 2013 $1,960,000 Serial Certificates Maturity Principal Interest Initial CUSIPtc) (AU-90-1.111 Amount Rate Yield/Price(b) Prefix: 800876 2014 $150,000 2.000% 0.500% DY 7 2015 165,000 2.000 0.600 DZ 4 2016 165,000 2.000 0.800 EA 8 2017 170,000 2.000 1.100 EB 6 2018 175,000 2.500 1.350 EC 4 2019 175,000 2.500 1.650 ED 2 2020 180,000 3.000 2.000 EE 0 2021 185,000 3.000 2.350 EF 7 2022 190,000 3.000 2.550 EG 5 2023 200,000 3.000 2.800 EH 3 2024(a) 205,000 3.500 3.000 EJ 9 $430,000 4.500% Term Certificates due August 1, 2026, Yield 3.100%, CUSIP 800876 EL411)1b)(c)(d) $470,000 4.750% Term Certificates due August 1, 2028, Yield 3.300%, CUSIP 800876 EN01a)(1)tc)(d) $520,000 5.000% Term Certificates due August 1, 2030, Yield 3.500%, CUSIP 800876 EQ3(")(1)(c)(d) $880,000 5.000% Term Certificates due August 1, 2033, Yield 3.700%, CUSIP 800876 ERlta)(b)(c)(d) (a) The initial yields and prices are established by, and are the sole responsibility of the Underwriters and may subsequently be changed. (b) CUSIP numbers have been assigned to this issue by the CUSIP Global Services managed by Standard and Poor's Financial Services LLC on behalf of the American Bankers Association and are included solely for the convenience of the purchasers of the Certificates. Neither the City, the Financial Advisor, nor the Underwriters shall be responsible for the selection or correctness of the CUSIP numbers set forth herein. (c) The Certificates maturing on and after August 1, 2024, are subject to optional redemption, in whole or in part, on August 1, 2023, or any date thereafter, at a price equal to the par value thereof, plus accrued interest from the most recent interest payment date to the date or redemption. (See "THE CERTIFICATES — Optional Redemption"). (d) Subject to mandatory redemption in the year and in the amount set forth herein under the caption "THE CERTIFICATES — Mandatory Redemption." CITY OF SANGER, TEXAS CITY COUNCIL Thomas Muir Mayor Russell Martin Councilmember, Place 1 Billy Ezell Councilmember, Place 2 Gary Bilyeu Councilmember, Place 3 Allen Chick Councilmember, Place 4 Scott Stephens Mayor Pro-Tem. Place 5 ADMINISTRATIVE OFFICERS Mike Brice City Manager Tami Taber City Secretary Robert Dillard, Esq. City Attorney Nichols Jackson Dillard & Smith Dallas, Texas CONSULTANTS, ADVISORS AND INDEPENDENT AUDITORS Andrews Kurth LLP, Houston, Texas................................................................................................................ Bond Counsel Weaver and Tidwell LLP, Fort Worth, Texas..........................................................................................Independent Auditor Government Capital Securities Corporation, Southlake, Texas................................................................... Financial Advisor For additional information regarding the City, please contact: Mike Brice City Manager City of Sanger, Texas P.O. Box 1729 Sanger, Texas 76266 (940)458-7930 mbrice(d>sanertexas.org> Ted Christensen Government Capital Securities Corporation 559 Silicon Drive, Suite 102 Southlake, TX 76092 (817)722-0239 Christensen <i-,,eovcansecurities.com reremer!(ii.aovcai)securrties.com i USE OF INFORMATION IN OFFICIAL STATEMENT This Official Statement is not to be used in connection with an offer to sell or the solicitation of an offer to buy in an.1 jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any, person to whom it is unlau f l to make such offer or solicitation. Any information and expressions of opinion herein contained are subject to change without notice, and neither the delivery of the Official Statement nor any sale made hereunder shall, under anv circumstances, create any implication that there has been no change in the affairs of the City or other matters described herein since the date hereof See "CONTINUING DISCLOSURE OF INFORMATION" for a description of the City's undertaking to provide certain information on a continuing basis. THE CERTIFICATES ARE EXEMPTED FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE CERTIFICATES IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTION IN WHICH THESE SECURITIES HAVE BEEN REGISTERED OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF, IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER -ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAYBE DISCONTINUED AT ANY TIME. The agreements of the City and others related to the Certificates are contained solely in the contracts described herein. Neither this Official Statement nor airy other statement made in connection with the offer or sale of the Certificates is to be construed as constituting an agreement with the purchasers of the Certificates. INVESTORS SHOULD READ THE ENTIRE OFFICIAL STATEMENT, INCLUDING ALL SCHEDULES AND APPENDICES ATTACHED HERETO, TO OBTAIN INFORMATION ESSENTIAL TO iWAKING AN INFORMED INVESTMENT DECISION. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information set forth in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. Neither the City, the Financial Advisor nor the Underwriters make any representation as to the accuracy, completeness or adequacy of the information contained in this Official Statement regarding The Depository Trust Company or its Book-Entry- Onlv Systerrr. TABLE OF CONTENTS SUMMARY STATEMENT............................................iv SELECTED FINANCIAL INFORMATION ........ v INTRODUCTORY STATEMENT ........................I THE CERTIFICATES............................................I Purpose.................................................................. I Authorization......................................................... I Security for the Certificates ................................... I Optional Redemption ............................................. I Mandatory Redemption.........................................2 Notice of Redemption............................................2 Sources and Uses of Funds....................................3 GENERAL INFORMATION REGARDING THE CERTIFICATES......................................3 General Description...............................................3 Legality..................................................................3 Defeasance.............................................................3 Amendments to the Ordinance...............................4 OWNERSHIP..........................................................4 OWNER'S REMEDIES..........................................4 BOOK -ENTRY -ONLY SYSTEM ..........................5 REGISTRATION, TRANSFER AND EXCHANGE.......................................................6 Paying Agent/Registrar..........................................6 Future Registration................................................7 Record Date for Interest Payment ..........................7 Limitation on Transfer of Certificates ...................7 Replacement of Certificates...................................8 TAX INFORMATION............................................8 Summary of Certain Provisions of the Property Tax Code............................................8 Effective Tax Rate and Rollback Tax Rate ............ 9 Property Assessment and Tax Payment...............10 Penalties and Interest...........................................10 City Application of Property Tax Code ...............10 Municipal Sales Tax............................................10 TAX RATE LIMITATIONS................................11 RETIREMENT PLAN..........................................11 INVESTMENT POLICIES..................................11 Accounting Principles Generally Accepted in the United States ............................................. I I Legal Investments ................................................ I I Investment Policies..............................................12 Additional Provisions...........................................13 Current Investments.............................................13 RATINGS...............................................................13 PENDING LITIGATION.....................................13 LEGAL MATTERS..............................................13 TAX MATTERS....................................................14 Tax Exemption.....................................................14 Proposed Tax Legislation....................................15 TAX TREATMENT OF ORIGINAL ISSUE PREMIUM CERTIFICATES .........................15 QUALIFIED TAX-EXEMPT OBLIGATIONS...............................................15 LEGAL INVESTMENTS IN TEXAS..................16 REGISTRATION AND QUALIFICATION OF ISSUE FOR SALE.....................................16 CONTINUING DISCLOSURE OF INFORMATION..............................................16 Annual Reports....................................................16 Material Event Notices........................................17 Limitations and Amendments..............................17 Compliance with Prior Undertakings ...................17 FINANCIAL ADVISOR.......................................17 UNDERWRITING................................................18 CONCLUDING STATEMENT ...........................18 Financial Information Regarding the City of Sanger, Texas General Information Regarding the City of Sanger, Texas Form of Opinion of Bond Counsel Audited Financial Statements for the Fiscal Year Ended September 30, 2012 Appendix A Appendix B Appendix C Appendix D SUMMARY STATEMENT This Summary Statement is subject in all respects to the more complete information contained in this Official Statement. The offering of the Certificates to potential investors is made only by means of this entire Official Statement, including the schedules and appendices hereto. No person is authorized to detach this Summary Statement from this Official Statement or to otherwise use it without this entire Official Statement including the Appendices hereto. The Issuer The City of Sanger, Texas (the "City"), is located in Denton County, Texas. For information regarding the City, see Appendices A and B. The Certificates $4,260,000 Combination Tax and Revenue Certificates of Obligation, Series 2013, dated June 15, 2013, maturing on the dates and in the amounts set forth on the inside front cover of this Official Statement. Interest on the Certificates will accrue from their date of delivery and will be paid semiannually on February I and August 1, commencing February 1, 2014, until maturity or prior redemption. Purpose of Certificates Proceeds from the sale of the Certificates will be used (1) to pay for water and sewer system repairs and improvements, street repairs, drainage repairs and improvements, and park repairs and improvements, and (2) to pay for the payment of contractual obligations for professional services related thereto. See "THE CERTIFICATES — Sources and Uses of Funds" herein. Authorization and Security The Certificates are direct obligations of the City, issued pursuant to Chapter 271, Subchapter C, Texas Local Government Code, Chapter 1502, Texas Government Code, and an ordinance to be enacted by the City Council of the City (the "City Council") on June 17, 2013. The Certificates are payable from ad valorem taxes to be levied, within the limits prescribed by law, on all taxable property within the City and a limited pledge of surplus net revenues derived from the City's water and sewer system, not to exceed $10,000, as provided in the ordinance authorizing the Certificates. Optional Redemption The Certificates maturing on and after August 1, 2024, are subject to optional redemption in whole or in part on August 1, 2023, or on any date thereafter at a price of par plus accrued interest as more fully described herein. See "THE CERTIFICATES — Optional Redemption" herein. Mandatory Redemption The Certificates maturing on August 1 in the years 2026, 2028, 2030 and 2033 (the "Term Certificates") are subject to mandatory sinking fund redemption prior to maturity as described herein. (See "THE CERTIFICATES — Mandatory Redemption"). Tax Matters In the opinion of Bond Counsel, interest on the Certificates is excludable from gross income for federal income tax purposes under existing law, subject to the matters described under "TAX MATTERS" herein, and is not includable in the alternative minimum taxable income of individuals. See "TAX MATTERS" for a discussion of the opinion of Bond Counsel, including the alternative minimum tax on corporations. The City will designate the Certificates as qualified tax-exempt obligations. See "QUALIFIED TAX-EXEMPT OBLIGATIONS" herein. Ratings The Certificates are rated "AT' by Moody's Investor's Service, Inc. ("Moody's"). An explanation of the significance of such rating may be obtained from Moody's. See "RATINGS" herein. Book -Entry -Only System The Certificates are initially issuable only to Cede & Co., the nominee of The Depository Trust Company, New York, New York, pursuant to the book -entry only system described herein. Beneficial ownership of the Certificates may be acquired in principal denominations of $5,000 or integral multiples thereof. No physical delivery of the Certificates will be made to the purchasers thereof. Principal of, premium if any, and interest on the Certificates will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the DTC Participants (as defined herein) for subsequent remittance to the owners of the beneficial interests in the Certificates. See "BOOK -ENTRY -ONLY SYSTEM" herein. Payment Record The City has never defaulted on the payment of its bonded indebtedness. uv SELECTED FINANCIAL INFORMATION (Unaudited) 2012 Certified Taxable Assessed Valuation......................................................... $389,390,028 (a) (100% of Market Value as of January 1, 2012) City Debt: Outstanding Tax Supported Debt (as of June 1, 2013).................................. $11,595,000 Plus: The Certificates........................................................................ 4,260,000 Total Tax Supported Debt................................................................... $15,855,000 Estimated Overlapping Debt........................................................................... $18,535,823 Direct and Estimated Overlapping Debt............................................................. $34,390,823 Debt Service Fund Balance (as of Sept. 30, 2012).................................................. $350,895 % of 2012 2012 Per Assessed Capita Valuation 7162 Debt Ratios: Direct Tax Supported Debt ................ 4.07% $2,214 Direct Tax Supported and Estimated Overlapping Debt .............. 8.83% $4,802 2012 Tax Rate (per $100 of Assessed Valuation Maintenance and Operation $0.446044 Debt Service................................................................................. 0.187005 Total.......................................................................................... $0.633049 Estimated Amoral Debt Service Requirements..................................................... Average....................................................................................... $1,018,641 Maximum(2015)............................................................................ $1,800,218 Tax Collections CurrentYear.................................................................................. 98.69% Total Collections............................................................................. 98.71% (a) Provided by the Denton Central Appraisal District (the "Appraisal District') and net of exemptions. Such value is further subject to changes as additions, corrections and deletions are made to the tax roll. (b) Includes self-supporting debt. v OFFICIAL STATEMENT RELATING TO $4,260,000 CITY OF SANGER, TEXAS (Denton County) Combination Tax and Revenue Certificates of Obligation, Series 2013 INTRODUCTORY STATEMENT This Official Statement, which includes the cover page, the schedules and the appendices hereto, provides certain information regarding the issuance by the City of Sanger, Texas (the "City") of $4,260,000 Combination Tax and Revenue Certificates of Obligation, Series 2013 (the "Certificates"). The Certificates will be authorized to be issued, sold and delivered by an ordinance enacted by the City's governing body (the "City Council"), and such ordinance is referred to herein as the "Ordinance." Capitalized terms used in this Official Statement have the same meaning assigned to such terms in the Ordinance, except as otherwise indicated herein. The City is a political subdivision of the State of Texas (the "State") and a municipal corporation organized and existing under the laws of the State and the City's home rule charter (the "City Charter"), which was initially approved by the electorate of the City on November 2, 1999. For information regarding the City, see Appendices A and B of this Official Statement. All financial and other information presented in this Official Statement has been provided by the City, except for information expressly attributed to other sources. The presentation of information, including tables of receipts from taxes and other sources, is intended to show recent historic information, and is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as is shown by that financial and other information, will necessarily continue to be repeated in the future. THE CERTIFICATES Purpose Proceeds from the sale of the Certificates will be used (1) to pay for water and sewer system repairs and improvements, street repairs, drainage repairs and improvements, and park repairs and improvements, and (2) to pay for the payment of contractual obligations for professional services related thereto. See "THE CERTIFICATES — Sources and Uses of Funds" herein. Authorization The Certificates are direct obligations of the City, issued pursuant to Chapter 271. Subchapter C, Texas Local Government Code, as amended, Chapter 1502, Texas Government Code, as amended, and the Ordinance, as authorized by the City Charter. Security for the Certificates The Certificates are payable from ad valorem taxes to be levied and collected, within the limits prescribed by law, on all taxable property within the City, and by a limited pledge of surplus net revenues derived from the City's water and sewer system (the "System"), not to exceed $10,000, as provided in the Ordinance. Optional Redemption The City reserves the right, at its option, to redeem the Certificates having stated maturities on and after August 1.. 2024, in whole or in part, in integral multiples of $5,000, on August 1, 2023 or any date thereafter, such redemption date or dates to be fixed by the City, at a redemption price equal to the principal amount thereof plus accrued interest to the date fixed for redemption. If less than all of the Certificates are to be redeemed, the City shall determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar (as defined herein) to select by lot the Certificates, or portions thereof, within each maturity to be redeemed. Mandatory Redemption The Certificates maturing on August I in the years 2026, 2028, 2030 and 2033 (the "Term Certificates") are subject to mandatory sinking fund redemption prior to maturity at random, in part by lot or other customary method selected by the Paying Agent/Registrar, at par plus accrued interest to the redemption date, in amounts sufficient to redeem the Term Certificates on August I in each of the years and the amounts set forth below: $430,000 Term Certificates Maturing August 1, 2026 Mandatory Redemption Date Principal Amount 08/01 /2025 $210,000 08/01/2026 (stated maturity) 220,000 $470,000 Term Certificates Maturing August 1, 2028 Mandatory Redemption Date Principal Amount 08/01/2027 $230,000 08/01/2028 (stated maturity) 240,000 $520,000 Term Certificates Maturing August 1, 2030 Mandatory Redemption Date Principal Amount 08/01/2029 $255,000 08/01/2030 (stated maturity) 265,000 $880,000 Term Certificates Maturing August 1, 2033 v[andatory Redemption Date Principal Amount 08/01/2031 $280,000 08/01/2032 295,000 08/01/2033 (stated maturity) 305,000 The particular Term Certificates to be redeemed shall be selected by the Paying Agent/Registrar by lot or other customary random selection method, on or before June 15 of each year in which Term Certificates are to be mandatorily redeemed. The principal amount of Term Certificates to be mandatorily redeemed in each year shall be reduced by the principal amount of such Term Certificates that have been optionally redeemed on or before June 15 of such year and which have not been made the basis for a previous reduction. Notice of Redemption Not less than 30 days prior to a redemption date for the Certificates, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to each registered owner of a Certificate to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. If notice is so given and sufficient funds are provided for the payment of the redemption price of the Certificates, interest shall cease to accrue after the date fixed for redemption whether or not the Certificates have been submitted for payment. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, AND THE FUNDS NECESSARY TO REDEEM SUCH CERTIFICATES HAVING BEEN PROVIDED, THE CERTIFICATES CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY CERTIFICATE OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH CERTIFICATE OR PORTION THEREOF SHALL CEASE TO ACCRUE. Sources and Uses of Funds The proceeds from the sale of the Certificates will be applied approximately as follows: Sources Principal Amount of Certificates $ 4,260,000.00 Original Issue Premium 347,886.60 S 4,607,886.60 Total Sources of Funds Uses Deposit to Construction Fund $ 4,500,000.00 Costs of Issuance 73,352.85 Underwriters' Discount 34,533.75 Total Uses of Funds $ 4 607 886 60 GENERAL INFORMATION REGARDING THE CERTIFICATES General Description The Certificates will be dated June 15, 2013 (the "Dated Date"), and will be issued in frilly registered form in denominations of $5,000 or any integral multiple thereof. The Certificates will bear interest from the date of delivery to the underwriters listed on the cover page hereof (the "Underwriters"), and interest will be paid semiannually on each February I and August 1, commencing February 1, 2014. Interest will accrue on the Certificates on the basis of a 360-day year consisting of twelve 30-day months. The Certificates will be issued as book -entry only securities pursuant to arrangements made with The Depository Trust Company, New York, New York. See "BOOK -ENTRY -ONLY SYSTEM." Principal of the Certificates will be payable to the registered owners (the "Owners") at maturity or prior redemption upon presentation and surrender of such Certificates at the principal corporate office of the paying agent/registrar (the ``Paying Agent/Registrar"), initially BOKF, NA dba Bank of Texas, Austin, Texas. Interest on the Certificates will be payable by check dated as of the interest payment date and mailed by the Paying Agent/Registrar to Owners as shown on the records of the Paying Agent/Registrar on the Record Date (see "REGISTRATION, TRANSFER AND EXCHANGE — Record Date for Interest Payment' herein), or by such other customary banking arrangement, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the Owner. If the date for the payment of the principal of or interest on a Certificate shall be a Saturday, Sunday, legal holiday, or a day on which banking institutions in the city where the Paying Agent/Registrar is located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday, or a day on which banking institutions are authorized to close; and payment on such date shall have the same force and effect as if made on the original date payment was due. The Certificates will mature on the dates, in the amounts and bear interest at the rates as set forth on inside cover page of this Official Statement. Legality The Certificates are offered when, as and if issued, subject to the approvals of legality by the Attorney General of the State of Texas and Andrews Kurth LLP, Houston, Texas, Bond Counsel. (See "LEGAL MATTERS" and Appendix C — "Form of Opinion of Bond Counsel'). Defeasance The Ordinance provides that the City may defease the Certificates and discharge its obligation to the holders of any or all of the Certificates to pay the principal of and interest thereon in any manner now or hereafter permitted by law, including by depositing with the Registrar or with the Comptroller of the State of Texas either: (a) cash in an amount equal to the principal amount of and interest thereon to the date of maturity; or (b) pursuant to an escrow or trust agreement, cash and/or (i) direct noncallable obligations of United States of America, including obligations that are unconditionally guaranteed by the United States of America; (ii) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the Board approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than "AAA" or its equivalent; or (iii) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the Board approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than "AAA" or its equivalent, which, in the case of (i), (ii), or (iii), may be in book entry form, and the principal of and interest on which will, when due or redeemable at the option of the holder, without further investment or reinvestment of either die principal amount thereof or the interest earnings thereon, provide money in an amount which, together with other moneys, if any, held in such escrow at the same time and available for such purpose, shall be sufficient to provide for the timely payment of the principal of and interest thereon to the date of maturity or earlier redemption; provided, however, that if any of the Certificates are to be redeemed prior to their respective dates of maturity, provision shall be made for the giving of notice of redemption as provided in the Ordinance. Any surplus amount not required to accomplish such defeasance shall be returned to the City. Upon such deposit as described above, such Certificates shall no longer be regarded to be outstanding or unpaid. After firm banking and financial arrangements for the discharge and final payment or redemption of the Certificates have been made as described above, all rights of the City to initiate proceedings to call the Certificates for redemption or take any other action amending the terms of the Certificates are extinguished; provided, however, that the right to call the Certificates for redemption is not extinguished if the City: (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call the Certificates for redemption; (ii) gives notice of the reservation of that right to the owners of the Certificates immediately following the making of the firm banking and financial arrangements; and (iii) directs that notice of the reservation be included in any redemption notices that it authorize. Amendments to the Ordinance In the Ordinance, the City has reserved the right to amend such Ordinance without the consent of any holder of the Certificates in any manner not detrimental to the interests of the holders of the Certificates, including the curing of any ambiguity, defect or omission therein. The Ordinance further provides that the holders of the Certificates aggregating in principal amount 51% of the outstanding Certificates shall have the right from time to time to approve any amendment not described above to the Ordinance; provided, however, that without the consent of 100% of the holders in original principal amount of the then outstanding Certificates no amendment may be made for the purpose of: (i) making any change in the maturity of any of the outstanding Certificates; (ii) reducing the rate of interest borne by any of the outstanding Certificates; (iii) reducing the amount of the principal of, or redemption premium, if any, payable on any outstanding Certificates; (iv) modifying the terns of payment of principal or of interest or redemption premium on outstanding Certificates, or imposing any condition with respect to such payment; or (v) changing the minimum percentage of the principal amount of the Certificates necessary for consent to such amendment. Reference is made to the Ordinance for further provisions relating to the amendment thereof. OWNERSHIP The City, the Paying Agent/Registrar and any other person may treat the person in whose name any Certificate is registered as the absolute owner of such Certificate for the purpose of making and receiving payment of principal and interest, and for all other purposes, whether or not such Certificate is overdue, and neither the City nor the Paying Agent/Registrar will be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the owner of any Certificate in accordance with the Ordinance will be valid and effectual and will discharge the liability of the City and the Paying Agent/Registrar upon such Certificate to the extent of the sums paid. OWNER'S REMEDIES The Ordinance does not provide for the appointment of a trustee to represent the interests of the Certificateholders upon any failure of the City to perform in accordance with the terms of the Ordinance or upon any other condition and, in the event of any such failure to perform, the registered owners would be responsible for the initiation and cost of any legal action to enforce performance of the Ordinance. Furthermore, the Ordinance does not establish specific events of default with respect to the Certificates and, under State law, there is no right to the acceleration of maturity of the Certificates upon the failure of the City to observe any covenant under the Ordinance. A registered owner of Certificates could seek a judgment against the City if a default occurred in the payment of principal of or interest on any such Certificates; however, such judgment could not be satisfied by execution against any property of the City and a suit for monetary damages could be vulnerable to the defense of sovereign immunity. A registered owners only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the City to levy, assess, and collect an annual ad valorem tax sufficient to pay principal of and interest on the Certificates as it becomes due or perform other material terms and covenants contained in the Ordinance. In general, Texas courts have held that a writ of mandamus may be issued to require a public official to perform legally imposed ministerial duties necessary for the performance of a valid contract, and Texas law provides that, following their approval by the Attorney General and issuance, the Certificates are valid and binding obligations for all purposes according to their terms. However, the enforcement of any such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. The City is also eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code ("Chapter 9"). Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of taxes in support of a general obligation of a bankrupt entity is not specifically recognized as a security interest under Chapter 9. Chapter 9 also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or Certificateholders of an entity which has sought protection under Chapter 9. Therefore, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinions of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Certificates are qualified with respect to the customary rights of debtors relative to their creditors, including rights afforded to creditors under the Bankruptcy Code. BOOK -ENTRY -ONLY SYSTEM This section describes how ownership of the Certificates is to be transferred and how the principal of, prernhan, if any, and interest on the Certificates are to be paid to and credited by The Depository Trust Company ("DTC"), New York, New York, while the Certificates are registered in its nominee name. The information in this section concerning DTC and the Book -Entry Only System has been provided by DTC for use in disclosure documents such as this Off cial Statement. The City, the Financial Advisor, and the Underwriters believe the source of such information to be reliable, but take no responsibility for the accuracv or completeness thereof. The City cannot and does not give any assurance that (I) DTC will distribute payments of debt service on the Certificates, or redemption or other notices, to DTC Participants, (2) DTC Participants or• others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Certificates), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the United States Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Certificates. The Certificates will be issued as fully registered Certificates in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fitly registered security certificate will be issued for the Certificates, in the aggregate principal amount of such issue, and will be deposited with DTC. DTC, the world's largest securities depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation, and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor's rating of "AA+". The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc,com. Purchases of Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC's records. The ownership interest of each actual purchaser of each Certificate ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Certificates are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Certificates, except in the event that use of the book -entry system for the Certificates is discontinued. To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Certificates with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates; DTC's records reflect only the identity of the Direct Participants to whose accounts such Certificates are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Certificates may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Certificates, such as redemptions, tenders, defaults, and proposed amendments to the Certificate documents. For example, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Paying Agent/Registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Certificates within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Certificates unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City 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 Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, interest, and redemption payments on the Certificates will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or the Paying Agent/Registrar, on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name", and will be the responsibility of such Participant and not of DTC, the Paying Agent/Registrar, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, interest, and redemption payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving reasonable notice to the City or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book -entry transfers through DTC (or a successor Securities depository). In that event, physical certificates will be printed and delivered. Use of Certain Terms in Other Sections of this Of Statement hi reading this Official Statement it should be understood that while the Certificates are in the Book -Entry Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Certificates, but (i) all rights of ownership must be exercised through DTC and the Book - Entry Only System and (ii) except as described above, notices that are to be given to registered owners under the Ordinance will be given only to DTC. The information in this section concerning DTC and DTC's book -entry -only system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. REGISTRATION, TRANSFER AND EXCHANGE Paying Agent/Registrar BOKF, NA dba Bank of Texas, Austin, Texas has been named to serve as initial Paying Agent/Registrar for the Certificates. In the Ordinance, the City retains the right to replace the Paying Agent/Registrar. If the City replaces the Paying Agent/Registrar. such Paying Agent/Registrar shall, promptly upon the appointment of a successor, deliver the Paying Agent/Registrar's records to the successor Paying Agent/Registrar, and the successor Paying Agent/Registrar shall act in the same capacity as the previous Paying Agent/Registrar. Any successor Paving Agent/Registrar selected by the City shall be a commercial bank; a trust company organized under applicable law; or other entity duly qualified and legally authorized to serve and perform the duties of the Paying Agent/Registrar for the Certificates. Upon any change in the Paying Agent/Registrar for the Certificates, the City agrees to promptly cause a written notice thereof to be sent to each registered owner of the Certificates by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. In the event the Book -Entry Only System should be discontinued, interest on the Certificates will be paid to the registered owners appearing on the registration books of the Paying Agent/Registrar at the close of business on the Record Date (hereinafter defined), and such interest will be paid (i) by check sent United States mail, first class postage prepaid to the address of the registered owner recorded in the registration books of the Paying Agent/Registrar or (ii) by such other method, acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner. Principal and redemption payments of the Certificates will be paid to the registered owner at the stated maturity or earlier redemption upon presentation to the designated payment/transfer office of the Paying Agent/Registrar. If the date for the payment of the principal or interest on the Certificates, is a Saturday, Sunday, a legal holiday, or a day when banking institutions in the city where the designated payment/transfer office of the Paving Agent/Registrar is located are authorized to close, then the date for such payment will be the next succeeding day which is not such a day, and payment on such date will have the same force and effect as if made on the date payment was due. So long as Cede & Co. is the registered owner of the Certificates, principal, interest, and redemption payments on the Certificates will be made as described in `BOOK -ENTRY ONLY SYSTEM" above. Future Registration In the event the book -entry only system should be discontinued, printed Certificates will be delivered to the Owners and thereafter the Certificates may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender to the Paying Agent/Registrar, and such registration and transfer shall be without expense or service charge to the Owner, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. Certificates may be assigned by the execution of an assignment form on the Certificates or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. A new Certificate will be delivered by the Paying Agent/Registrar in lieu of the Certificate being transferred or exchanged at the designated office of the Paying Agent/Registrar, or sent by United States mail, first class, postage prepaid, to the new registered Owner at the Owner's request, risk and expense. New Certificates issued in an exchange or transfer of Certificates will be delivered to the registered Owner or assignee of the Owner after the receipt of the Certificates to be canceled in the exchange or transfer and the written instrument of transfer or request for exchange duly executed by the Owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Certificates registered and delivered in an exchange or transfer shall be of like kind and in authorized denominations and for a like aggregate principal amount as the Certificate or Certificates surrendered for exchange or transfer. See "BOOK -ENTRY -ONLY SYSTEM" for a description of the system to be utilized initially in the settlement and transfer of the Certificates. Record Date for Interest Payment The record date ("Record Date") for the interest payable on any interest payment date is the 15th day of the month next preceding such interest payment date, as specified in the Ordinance. In the event of a nonpayment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (the "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (the "Special Payment Date" which shall be 15 days after the Special Record Date) shall be sent at least 5 days prior to the Special Record Date by United States mail, first class, postage prepaid, to the address of each Owner of a Certificate appearing on the books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. Limitation on Transfer of Certificates Neither the City nor the Paving Agent/Registrar shall be required to transfer or exchange any Certificate (i) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date or (ii) with respect to any Certificate, or any portion thereof, called for redemption prior to maturity within 45 days prior to its redemption date, provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Certificate. Replacement of Certificates If any Certificate is mutilated, destroyed, stolen or lost, a new Certificate in the same principal amount as the Certificate so mutilated, destroyed, stolen or lost will be issued. In the case of a mutilated Certificate, such new Certificate will be delivered only upon surrender and cancellation of such mutilated Certificate. In the case of any Certificate issued in lieu of and in substitution for a Certificate which has been destroyed, stolen or lost, such new Certificate will be delivered only (a) upon filing with the City and the Paying Agent/Registrar evidence satisfactory to them that such Certificate has been destroyed, stolen or lost and proof of the ownership thereof and (b) upon furnishing the City and the Paying Agent/Registrar with indemnity satisfactory to them. The person requesting the authentication and delivery of a new Certificate must pay such expenses as the Paying Agent/Registrar may incur in connection therewith. TAX INFORMATION Summary of Certain Provisions of the Property Tax Code The appraisal of property within the City is the responsibility of the Denton Central Appraisal District (the "Appraisal District"). Excluding agricultural and open -space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Property Tax Code to assess all property within the Appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. In determining the market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the Appraisal District's chief appraiser determines the method to be used. The value placed upon property within the Appraisal District is subject to review by the Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least once every three years. The City may require amoral review at its own expense, and is entitled to challenge the determination of appraised value of property within the City by petition filed with the Appraisal Review Board. Reference is made to the V.A.T.C.S., Property Tax Code, for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem tax purposes, and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution ("Article VIII") and State law provide for certain exemptions from property taxes, the valuation of agricultural and open -space lands at productivity value, and the exemption of certain personal property from ad valorem taxation. Under Section I-b, Article VIII, and State law, the governing body of a political subdivision, at its option, may grant: (1) An exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision; and (2) An exemption of up to 20% of the market value of residence homesteads; minimum exemption $5,000. In the case of residence homestead exemptions granted under Section I-b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. Legislation and a related amendment to the Texas Constitution authorize cities to limit the total ad valorem tax (except for increases attributable to certain improvements) on the residence homestead of the disabled or persons 65 years of age or older and their spouses to the amount of tax imposed in the later of (1) the year such residence qualified for an exemption based on the disability or age of the owner or (2) the year the City chose to establish the above -referenced limitation. On the receipt of a petition signed by five percent of the registered voters of the City, the City shall call an election to determine by majority vote whether to establish such a tax limitation. Once established, a city may not repeal or rescind the tax limitation. If a disabled or elderly person dies in a year in which the person received a residence homestead exemption, the total amount of ad valorem taxes imposed on the homestead by a city may not be increased while it remains the residence homestead of that person's surviving spouse if the spouse is fifty-five years of age or older or disabled at the time of the person's death. A proportionate share of the limitation applicable to a person's homestead is transferred to a new residence homestead of such person if the person moves to a different residence within the same city. State law and Section 2, Article VIII, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to $12,000, dependent upon the degree of disability or whether the exemption is applicable to a surviving spouse or children. In addition, veterans who are 100% disabled (being a disabled veteran who receives from the United States Department of Veterans Affairs or its successor 100% disability compensation due to a service -connected disability and a rating of 100% disabled or of individual unemployability) are entitled to an exemption from taxation of the total appraised value of the veteran's residential homestead. Further, the surviving spouse of a deceased veteran who had received a disability rating of 100% is entitled to receive a residential homestead exemption equal to the exemption received by the deceased spouse until such surviving spouse remarries Article VIII provides that eligible owners of both agricultural land (Section 1-d) and open -space land (Section 1-d-1), including open -space land devoted to farm or ranch purposes or open -space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Section I-d and 1-d-1. State law fturther limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of (1) the market value of the property or (2) the sum of (a) 10% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. Non -business personal property, such as automobiles or light trucks, are exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property. Boats owned as non -business property are exempt from ad valorem taxation. Section 1 i of Article VIII authorizes an ad valorem tax exemption for "freeport property". Freeport property is defined as goods detained in the State for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. The City and the other taxing bodies within its territory may agree to jointly create tax increment financing zones, under which the tax values on property in the zone are "frozen" at the value of the property at the time of creation of the zone. The City also may enter, into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The City in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years. The City has adopted a tax abatement policy with respect to certain areas within the City. Article VIII, Section I-n of the Texas Constitution provides for the exemption from taxation of "goods -in -transit." "`Goods -in - transit" is defined by Section 11.253 of the Tax Code as personal property acquired or imported into Texas and transported to another location in the State or outside of the State within 175 days of the date the property was acquired or imported into Texas. The exemption excludes oil, natural gas, petroleum products, aircraft and special inventory, including motor vehicle, vessel and out -board motor, heavy equipment and manufactured housing inventory. Section 11.253 of the Tax Code permits local governmental entities, on a local option basis, to take official action by January I of the year preceding a tax year, after holding a public hearing, to tax "goods -in -transit" during the following tax year. A taxpayer may only receive either the freeport exemption or the "goods -in -transit" exemption for items of personal property See Appendix A — Tables 1, 3 and 4 for information relating to the City's taxable assessed valuation, property tax rates and collections and tax rate distribution. Effective Tax Rate and Rollback Tax Rate Before the later of September 30 or the 60th day after the date the certified appraisal roll is received by the City, the City Council must adopt a tax rate per $100 taxable value for the current year. If the City Council does not adopt a tax rate by such required date the tax rate for that tax year is the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the City for the preceding tax year. The tax rate consists of two components: (1) a rate for funding of maintenance and operation expenditures, and (2) a rate for debt service. Under the Property Tax Code, the City must annually calculate and publicize its "effective tax rate" and "rollback tax rate". A tax rate cannot be adopted by the City Council that exceeds the lower of the rollback tax rate or the effective tax rate until two public hearings have been held on the proposed tax rate following notice of such public hearings (including the requirement that notice be posted on the City's website if the City owns, operates or controls an internet website and public notice be given by television if the City has free access to a television channel) and the City Council has otherwise complied with the legal requirements for the adoption of such tax rate. If the adopted tax rate exceeds the rollback tax rate the qualified voters of the City by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate. "Effective tax rate" means the rate that will produce last year's total tax levy (adjusted) from this year's total taxable values (adjusted). "Adjusted" means lost values are not included in the calculation of last year's taxes and new values are not included in this year's taxable values. "Rollback tax rate" means the rate that will produce last year's maintenance and operation tax levy (adjusted) from this year's values (adjusted) multiplied by 1.08 plus a rate that will produce this year's debt service from this year's values (unadjusted) divided by the anticipated tax collection rate. The Property Tax Code provides that certain cities and counties in the State may submit a proposition to the voters to authorize an additional one-half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. Property Assessment and Tax Payment Property within the City is assessed as of January 1 of each year. Business inventory may, at the option of the taxpayer, be assessed as of September 1. Oil and gas reserves are assessed on the basis of a valuation process which uses an average daily price of oil and gas for the prior year. Taxes become due October I of the same year, and become delinquent on February 1 of the following year. Taxpayers 65 years of age and over and taxpayers qualifying for the disabled person exemption are allowed to pay taxes on their residential homestead in four installments with the first installment due on February I of each year and the final installment due on August I. Penalties and Interest Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: Cumulative Cumulative Month Penaltv Interest Total February 6% 1% 7% March 7 2 9 April 8 3 11 May 9 4 13 June 10 5 15 July 27(') 6(2) 33 Includes an additional 15% penalty to defray attorneys' fees. Interest continues to accrue after July I at the rate that increases I % per month until paid. After July, penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, if an account is delinquent in July, an attorneys collection fee of up to 15% may be added to the total tax penalty and interest charge. Under certain circumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per ,tritium with no additional penalties or interest assessed. In general, property subject to the City's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post -petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post -petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. City Application of Property Tax Code The City grants an exemption of $10,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled. See Appendix A — Table I for a listing of the total amount of these exemptions. The City does not grant an additional exemption for residence homesteads. The City taxes only business personal property. The County Tax Collector collects property taxes for the City. The County does not permit split payments and does not allow discounts. The City grants the Article VIII, Section 1 j ("freeport property") exemption but at this time has no Article VIII, Section 1 j property. Municipal Sales Tax The City has adopted the provisions of V.A.T.C.S. Tax Code § 321.001 et seq., which grants the City the power to impose and levy a 1% Local Sales and Use Tax within the City. The proceeds of such tax are credited to the General Fund and are not [to] pledged to payment of the Certificates. Collections and enforcements are effected through the offices of the State Comptroller of Public Accounts, who monthly remits the proceeds of the tax, after deduction of a 2% service fee, to the City. The Tax Code provides certain cities and counties the option of assessing a maximum one-half percent (1/2%) sales tax on retail sales of taxable items for the purpose of reducing its ad valorem taxes, if approved by a majority of the voters in a local option election. If the additional tax is approved and levied, the ad valorem property tax levy must be reduced by the estimated amount of the sales tax revenues to be generated in the current year. Subject to the approval of a majority of the voters in a local option election, state law also provides certain cities the option of assessing a sales and use tax for a variety of other purposes, including economic and industrial development, municipal street maintenance and repair, and sports and community venues. State law limits the maximum aggregate sales and use tax rate in any area to 8'/4%. Accordingly, the collection of local sales and use taxes in the area of the City (including sales and use taxes levied by the City) is limited to no more than 2% (when combined with the State sales and use tax rate of 6'/4%). In addition to the one percent (1%) local sales and use tax referred to above, at an election held on May 2, 1998 voters of the City approved the imposition of an additional one-half percent (1/2%) sales and use tax for economic development purposes in accordance with Section 4A, Article 5190.6 of Vernon's Annotated Texas Civil Statutes. Levy of the additional sales and use tax began in December, 1998. At an election held on May 2, 1998 voters of the City approved the imposition of an additional one- half percent (1/2%) sales and use tax for economic development purposes in accordance with Section 413, Article 5190.6 of Vernon's Annotated Texas Civil Statutes. Levy of the additional sales and use tax began in December, 1998. The City has not held an election regarding an additional sales tax for the purpose of reducing its ad valorem taxes. TAX RATE LIMITATIONS Article XI, Section 5, of the State Constitution is applicable to the City and imposes a limitation on ad valorem taxes which can be imposed by the City of $2.50 per $100 taxable assessed valuation. The City Charter provides that the maximum tax rate is limited only by the maximum limit as may be imposed pursuant to the State Constitution, currently $2.50 per $100 taxable assessed valuation. The Attorney General of Texas follows a policy, with respect to Home Rule Cities which have such a $2.50 limitation, of approving ad valorem tax bonds only to the extent that all of such city's ad valorem tax debt can be serviced by a debt service tax rate of $1.50 at 90% collection. RETIREMENT PLAN The City participates in the Texas Municipal Retirement System which is a joint contributory retirement plan covering all full- time employees. There are no benefits guaranteed other than to the extent provided by employee and employer contributions, plus earnings, accumulated in the individual accounts of employees. The contribution rate for employees is 6% of their annual covered salary. The City is required to contribute at an actuarially determined rate. This rate consists of the normal cost contribution rate and the prior service contribution rate, both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate is the actuarially determined percent of payroll necessary to satisfy the obligation of the City to each employee at the time his/her retirement becomes effective. The prior service contribution rate amortizes the unfunded actuarial liability over the remainder of the plan's 25-year amortization period. Contributions by the City for the year ended September 30, 2012 totaled $191,163. For additional information regarding the City's Pension Plans, see Appendix D - "General Purpose Financial Statements for the Fiscal Year Ended September 30, 2012. Note 7 - Pension Plan". INVESTMENT POLICIES Accounting Principles Generally Accepted in the United States The City policy is to adhere to accounting principles generally accepted in the United States (see Appendix D "General Purpose Financial Statements for the Fiscal Year Ended September 30, 2012"). Legal Investments Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, including letters of credit; (2) direct obligations of the State of Texas or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which is guaranteed or insured by or backed by the fall faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States; (5) obligations of states, agencies, counties, cities, and 11 other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit (i) meeting the requirements of the Texas Public Funds Investment Act (Chapter 2256, Texas Government Code) that are issued by or through an institution that either has its main office or a branch in Texas, and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for City deposits or, (ii) where (a) the finds are invested by the City through (1) a broker that has its main office or a branch office in the State of Texas and is selected from a list adopted by the City as required by law or (11) a depository institution that has its main office or a branch office in the State of Texas that is selected by the City; (iii) the broker or the depository institution selected by the City arranges for the deposit of the funds in certificates of deposit in one or more federally insured depository institutions, wherever located, for the account of the City; (iv) the full amount of the principal and accrued interest of each of the certificates of deposit is insured by the United States or an instrumentality of the United States, and (v) the City appoints the depository institution selected under (ii) above, an entity as described by Section 2257.041(d) of the Texas Government Code, or a clearing broker -dealer registered with the Securities and Exchange Commission and operating pursuant to Securities and Exchange Commission Rule 15c3-3 (17 C.F.R. Section 240.15c3-3) as custodian for the City with respect to the certificates of deposit issued for the account of the City; (8) fully collateralized repurchase agreements that have a defined termination date, are secured by a combination of cash and obligations described in clause (1) require the securities being purchased by the City or cash held by the City to be pledged to the City, held in the City's name, and deposited at the time the investment is made with the City or with a third party selected and approved by the City, and are placed through a primary government securities dealer, as defined by the Federal Reserve, or a financial institution doing business in the State; (9) certain bankers' acceptances with the remaining term of 270 days or less, if the short- term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by at least one nationally recognized credit rating agency; (10) commercial paper with a stated maturity of 270 days or less that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is hilly secured by an irrevocable letter of credit issued by a U.S. or state bank; (11) no-load money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share; and (12) no-load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in the this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations, including letters of credit, of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described below. A political subdivision such as the City may enter into securities lending programs if (i) the securities loaned under the program are 100% collateralized, a loan made under the program allows for termination at any time and a loan made under the program is either secured by (a) obligations that are described in clauses (1) through (6) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm at not less than A or its equivalent or (c) cash invested in obligations described in clauses (1) through (6) above, clauses (10) through (12) above, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the City, held in the City's name and deposited at the time the investment is made with the City or a third party designated by the City; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than AAA or AAAm or an equivalent by at least one nationally recognized rating service. The City may also contract with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State Securities Board to provide for the investment and management of its public finds or other finds under its control for a term up to two years, but the City retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the City must do so by order, ordinance, or resolution. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage -backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage -backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. Investment Policies Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that include a list of authorized investments for City funds, the maximum allowable stated maturity of any individual investment and the maximum average dollar -weighted maturity allowed for pooled find groups, methods to monitor the market price of investments acquired with public funds, a requirement for settlement of all transactions, except investment 12 pool finds and mutual funds, on a delivery versus payment basis, and procedures to monitor rating changes in investments acquired with public funds and the liquidation of such investments consistent with the Texas Public Funds Investment Act. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each fund's investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. Under Texas law, the City's investments must be made "with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment considering the probable safety of capital and the probable income to be derived." At least quarterly the City's investment officers must submit an investment report to the Board of Trustees detailing: (1) the investment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, and any additions and changes to market value and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or find or pooled find group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategies and (b) Texas law. No person may invest City funds without express written authority from the City Council. Additional Provisions Under Texas law, the City is additionally required to: (1) annually review its adopted policies and strategies, (2) require any investment officers with personal business relationships or family relationships with firms seeking to sell securities to the City to disclose the relationship and file a statement with the Texas Ethics Commission and the City, (3) require the registered principal of firms seeking to sell securities to the City to: (a) receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) in conjunction with its annual financial audit, perform a compliance audit of the management controls on investments and adherence to the City's investment policy, (5) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement, (6) restrict the investment in non -money market mutual funds in the aggregate to no more than 15% of the City's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service, (7) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements and (8) provide specific investment training for the Treasurer, the chief financial officer (if not the Treasurer) and the investment officer. Current Investments As of September 30, 2012, the City's investment portfolio was invested in the following categories. As of such date, the market value of such investments was approximately 100% of their book value. Tvoe of Investment Amount Deposits with Financial Institutions $5,007,904 Certificates of Deposit 2,803.623 Total $7,811,527 RATINGS The Certificates are rated "AT' by Moody's Investor's Service, Inc. ("Moody's"). The ratings reflect only the view of such organization at the time such ratings were given and the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by Moody's, if in the judgment of Moody's, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates. PENDING LITIGATION There is no litigation currently pending against the City. LEGAL MATTERS The City will furnish a complete transcript of proceedings incident to the authorization and issuance of the Certificates, including the approving legal opinions of the Attorney General of the State of Texas to the effect that the Certificates are valid and binding obligations of the City, and based upon examination of such transcripts of proceedings, the approving legal opinions of Bond Counsel to the effect that (i) the Certificates issued in compliance with the provisions of the Ordinance are valid and legally 13 binding obligations of the City and (ii) the interest on the Certificates is exempt from federal income taxation under existing statutes, published rulings, regulations, and court decisions (see "TAX MATTERS"). Bond Counsel has not been engaged to investigate the financial resources of the City or its ability to provide for payment of the Certificates, and the opinion of Bond Counsel will make no statement as to such matters, or any other information that may have been relied on by anyone in making the decision to purchase the Certificates. The legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Certificates are contingent on the sale and delivery of the Certificates. The applicable legal opinion will be printed on or attached to the definitive Certificates. Bond Counsel has reviewed the statements and information appearing in the Official Statement under the captions "THE CERTIFICATES" (except the subcaption "Sources and Uses of Funds"), "GENERAL INFORMATION REGARDING THE CERTIFICATES." "REGISTRATION, TRANSFER AND EXCHANGE," "TAX RATE LIMITATIONS," "LEGAL MATTERS," "TAX MATTERS." "TAX TREATMENT OF ORIGINAL ISSUE PREMIUM CERTIFICATES," "QUALIFIED TAX EXEMPT OBLIGATIONS," "LEGAL INVESTMENTS IN TEXAS," "REGISTRATION AND QUALIFICATION OF ISSUE FOR SALE" and "CONTINUING DISCLOSURE OF INFORMATION" (except the subcaption "Compliance With Prior Undertakings") fairly summarizes the procedures and documents referred to therein and is correct as to matters of law. Bond Counsel has not independently verified any of the factual information contained in this Official Statement nor have they conducted an investigation of the affairs of the City for the purpose of passing upon the accuracy or completeness of this Official Statement. No person is entitled to rely upon such firm's limited participation as an assumption of responsibility for, or an expression of opinion of any kind with regard to, the accuracy or completeness of any of the information contained herein. TAX MATTERS Tax Exemption In the opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel, interest on the Certificates is (1) excludable from gross income of the owners thereof for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), and (2) is not includable in the alternative minimum taxable income of individuals or, except as described below, corporations. The foregoing opinions of Bond Counsel are based on the Code and the regulations, rulings and court decisions thereunder in existence on the date of issue of the Certificates. Such authorities are subject to change and any such change could prospectively or retroactively result in the inclusion of the interest on the Certificates in gross income of the owners thereof or change the treatment of such interest for purposes of computing alternative minimum taxable income. In rendering its opinions, Bond Counsel has assumed continuing compliance by the City with certain covenants of the Ordinance and has relied on representations by the City with respect to matters solely within the knowledge of the City, which Bond Counsel has not independently verified. The covenants and representations relate to, among other things, the use of Certificate proceeds and any facilities financed therewith, the source of repayment of the Certificates, the investment of Certificate proceeds and certain other amounts prior to expenditure, and requirements that excess arbitrage earned on the investment of Certificate proceeds and certain other amounts be paid periodically to the United States and that the City file an information report with the Internal Revenue Service (the "Service"). If the City should fail to comply with the covenants in the Ordinance, or if its representations relating to the Certificates that are contained in the Ordinance should be determined to be inaccurate or incomplete, interest on the Certificates could become taxable from the date of delivery of the Certificates, regardless of the date on which the event causing such taxability occurs. Interest on the Certificates, owned by a corporation (other than an S corporation, a regulated investment company, a real estate investment trust (REIT), a real estate mortgage investment conduit (REMIC) or a financial asset securitization investment trust (FASIT)) will be included in such corporation's adjusted current earnings for purposes of calculating such corporation's alternative minimum taxable income. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is computed. Except as stated above, Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt or accrual of interest on or acquisition or disposition of the Certificates. Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the City described above. No ruling has been sought from the Service with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel's opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Certificates is commenced, under current procedures the Service is likely to treat the City as the "taxpayer," and the owners of the Certificates may have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Certificates, the City may have different or conflicting interests from the owners of the Certificates. Public awareness of any future audit of the Certificates could adversely affect the value and liquidity of the Certificates during the pendency of the audit, regardless of its ultimate outcome. 14 Under the Code, taxpayers are required to provide information on their returns regarding the amount of tax-exempt interest, such as interest on the Certificates, received or accrued during the year. Prospective purchasers of the Certificates should be aware that the ownership of tax-exempt obligations, such as the Certificates, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with Subehapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations, and individuals otherwise eligible for the earned income tax credit. Such prospective purchasers should consult their tax advisors as to the consequences of investing in the Certificates. Proposed Tax Legislation Tax legislation, administrative actions taken by tax authorities, and court decisions may cause interest on the Certificates to be subject, directly or indirectly, to federal income taxation or state income taxation, or otherwise prevent the beneficial owners of the Certificates from realizing the full current benefit of the tax status of such interest. For example, future legislation to resolve certain federal budgetary issues may significantly reduce the benefit of, or otherwise affect, the exclusion of gross income for federal income tax purposes of interest on all state and local obligations, including the Certificates. In addition, such legislation or actions (whether currently proposed, proposed in the fixture or enacted) could affect the market price or marketability of the Certificates. Prospective purchasers of the Certificates should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, and its impact on their individual situations, as to which Bond Counsel express no opinion TAX TREATMENT OF ORIGINAL ISSUE PREMIUM CERTIFICATES Some of the Certificates may be offered at an initial offering price which exceeds the stated redemption price payable at the maturity of such Certificates. If a substantial amount of any maturity of the Certificates is sold to members of the public (which for this purpose excludes bond houses, brokers and similar persons or entities acting in the capacity of wholesalers or underwriters) at such initial offering price, each of the Certificates of such maturity ("Premium Certificate") will be considered for federal income tax purposes to have "bond premium" equal to the amount of such excess. The basis for federal income tax purposes of a Premium Certificate in the hands of an initial purchaser who purchases such Certificate in the initial offering must be reduced each year and upon the sale "or other taxable disposition of the Certificate by the amount of amortizable bond premium. This reduction in basis will increase the amount of any gain (or decrease the amount of any loss) recognized for federal income tax purposes upon the sale or other taxable disposition of a Premium Certificate by the initial purchaser. Generally, no corresponding deduction is allowed for federal income tax purposes, for the reduction in basis resulting from amortizable bond premium. The amount of bond premium on a Premium Certificate which is amortizable each year (or shorter period in the event of a sale or disposition of a Premium Certificate) is determined tinder special tax accounting rules which use a constant yield throughout the term of the Premium Certificate based on the initial purchaser's original basis in such Certificate. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition by an owner of Certificates that are not purchased in the initial offering or which are purchased at an amount representing a price other than the initial offering prices for the Certificates of the same maturity may be determined according to rules which differ from those described above. Moreover, all prospective purchasers of Certificates should consult their tax advisors with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of Premium Certificates. QUALIFIED TAX-EXEMPT OBLIGATIONS Section 265(a) of the Code provides, in general, that interest expense incurred to acquire or carry tax-exempt obligations is not deductible from the gross income of the holder. For certain holders that are "financial institutions" within the meaning of such section, complete disallowance of such expense would apply to taxable years beginning after December 31, 1986, with respect to tax-exempt obligations acquired after August 7, 1986. Section 265(b) of the Code provides an exception to this Wile for interest expense incurred by financial institutions to carry tax-exempt obligations (other than certain private activity bonds) which are designated by an issuer as "qualified tax-exempt obligations." An issuer may only designate an issue as an issue of "qualified tax-exempt obligations" where less than $10 million of tax-exempt obligations are issued by the issuer during the calendar year 2013. The City will designate the Certificates as "qualified tax-exempt obligations." Further, the City will represent that it has or will take such action necessary for the Certificates to constitute "qualified tax-exempt obligations." 15 Notwithstanding the designation, of the Certificates as "qualified tax-exempt obligations," financial institutions acquiring the Certificates will be subject to a twenty percent (20%) disallowance of interest expenses allocable to the Certificates. LEGAL INVESTMENTS IN TEXAS Under the Texas Public Security Procedures Act (Texas Government Code, Chapter 1201), the Certificates (1) are negotiable instruments, (2) are investment securities to which Chapter 8 of the Texas Uniform Commercial Code applies, and (3) are legal and authorized investments for (A) an insurance company, (B) a fiduciary or trustee, or (C) a sinking find of a municipality or other political subdivision or public agency of the State of Texas. The Certificates are eligible to secure deposits of any public funds of the State, its agencies, and political subdivisions, and are legal security for those deposits to the extent of their market value. For political subdivisions in Texas which have adopted investment policies and guidelines in accordance with the Public Funds Investment Act (Texas Government Code, Chapter 2256), the Certificates may have to be assigned a rating of "A" or its equivalent as to investment quality by a national rating agency before such Certificates are eligible investments for sinking fiords and other public finds. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Certificates are legal investments for state banks, savings banks, trust companies with at least $1 million of capital and savings and loan associations. The City has made no investigation of other laws, rules, regulations, or investment criteria which might apply to such institutions or entities or which might limit the suitability of the Certificates for any of the foregoing purposes or limit the authority of such institutions or entities to purchase or invest in the Certificates for such purposes. The City has made no review of laws in other states to determine whether the Certificates are legal investments for various institutions in those states. REGISTRATION AND QUALIFICATION OF ISSUE FOR SALE No registration statement relating to the Certificates has been filed with the United States Securities and Exchange Commission under the federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Certificates have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Certificates been registered or qualified under the securities acts of any other jurisdiction. The City assumes no responsibility for registration or qualification of the Certificates under the securities laws of any other jurisdiction in which the Certificates may be offered, sold, or otherwise transferred. This disclaimer of responsibility for registration and qualification for sale or other disposition of the Certificates shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions in such other jurisdictions. CONTINUING DISCLOSURE OF INFORMATION In the Ordinance, the City has made the following agreement for the benefit of the holders and beneficial owners of the Certificates. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Certificates. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to the Municipal Securities Rulemaking Board ("MSRB"). This information will be available free of charge from the MSRB via Electronic Municipal Market Access ("EMMA") system at www.emma.msrb.org. Annual Reports The City will provide certain updated financial information and operating data to the MSRB annually in an electronic format as prescribed by the MSRB. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included this Official Statement in Appendix A - Financial Information Regarding the City of Sanger. Texas (Tables 1-10) and in Appendix D. The City will update and provide this information within six months after the end of each fiscal year. The City may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12 (the "Rule"). The updated information will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the City will provide unaudited financial statements by the required time and audited financial statements when and if such audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in APPENDIX B or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by the last day of March in each year following the end of its fiscal year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify the MSRB of the change. HM Material Event Notices The City will also provide timely notices of certain events to the MSRB (not in excess of ten (10) days after the occurrence of the event). The City will provide notice of any of the following events with respect to the Certificates: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties, (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TES) or other material notices or determinations with respect to the tax status of the Certificates, or other material events affecting the tax status of the Certificates; (7) modifications to rights of holders of the Certificates, if material; (8) Certificate calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Certificates, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of the City; (13) the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) appointment of a successor or additional trustee or the change of name of a trustee, if material. (Neither the Certificates nor the Ordinance make any provision for debt service reserves, liquidity enhancement, or credit enhancement). In addition, the City will provide timely notice of any failure by the City to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports". All documents provided to the MSRB shall be accompanied by identifying information, as prescribed by the MSRB. Limitations and Amendments The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell the Certificates at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders and beneficial owners of the Certificates may seek a writ of mandamus to compel the City to comply with its agreement. This continuing disclosure agreement may be amended by the City from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, but only if (1) the provisions, as so amended, would have permitted an underwriter to purchase or sell Certificates in the primary offering of the Certificates in compliance with the Rule, taking into account any amendments or interpretations of the Rule since such offering as well as such changed circumstances and (2) either (a) the registered owners of a majority in aggregate principal of the outstanding Certificates consent to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interest of the registered owners and beneficial owners of the Certificates. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provision of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawftilly purchasing or selling Certificates in the primary offering of the Certificates. If the City amends its agreement, it must include with the next financial information and opening data provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in type of information and data provided. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provision of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Certificates in the primary offering of the Certificates. Compliance with Prior Undertakings During the last five years, the City has not failed to comply in any material respect with any continuing disclosure agreement made by it in accordance with the Rule. FINANCIAL ADVISOR Government Capital Securities Corporation, Southlake, Texas (the "Financial Advisor"), is employed as financial advisor to the City to assist in the issuance of the Certificates. The fee of the financial advisor for services with respect to the Certificates is contingent upon the issuance and the sale of the Certificates. 17 UNDERWRITING Oppenheimer & Co. Inc. and Duncan -Williams, Inc., the Underwriters, have agreed to purchase the Certificates from the City for $4,573,352.85 (being the principal amount of the Certificates, plus an original issue premium of $347,886.60, less an Underwriters' discount of $34,533.75). The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information set forth in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. CONCLUDING STATEMENT The information set forth herein has been obtained from the City's records, audited financial statements and other sources which are considered to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will ever be realized. All of the summaries of the statutes, documents and the Ordinance contained in this Official Statement are made subject to all of the provisions of such statutes, documents, and the Ordinance. These summaries do not purport to be complete statements of such provisions and reference is made to such summarized documents for further information. Reference is made to official documents in all respects. The City has reviewed and approved the Official Statement and said instrument has been authorized for use and distribution by the Underwriters for the purpose of offering the Certificates. ATTEST: /si Tami Taber City Secretary, City of Sanger, Texas CITY OF SANGER, TEXAS Is/Thomas Muir Mayor, City of Sanger, Texas 18 APPENDIX A FINANCIAL INFORMATION REGARDING THE CITY OF SANGER, TEXAS FINANCIAL INFORMATION FOR THE CITY ASSESSED VALUATION 2012 Total Value of Taxable Property Less Exemptions: Local, Optional Over-65 and/or Disabled Homestead Exemptions Disabled and Deceased Veterans' Exemptions Productivity Value Loss Homestead 10% Cap Adjustment Abatement Freeport Other 2012 Net Taxable Assessed Valuation (100% of Actual)(') TABLE I $451,067,425 $ 10,104,305 865,520 28,764,878 169,206 0 10,748,969 11,024,519 61,677,397 $389,390,028 See "T.4X INFORMATION - City Application of the Property Tax Code" in the Official Statement for a description of the City's taxation procedures. Source: Denton County Appraisal District. PRINCIPAL TAXPAYERS TABLE 2 % of Total 2012 Net Taxable 2012 Assessed Name Tvpe of Business Assessed Valuation Valuation* Walmart Stores East, L.P. Distribution $75,007,787 19.26% Walmart Stores East, L.P. Distribution 28,746,160 7.38% Intercapital Sanger Trails, LLC Real Estate 5,836,800 1.50% Intercapital Stonewood Ranch, LLC Real Estate 3,377,315 0.87% Maceamp Ltd. RV Sales and Service 2,973,113 0.76% Chubb Fire & Security Security Services 2,616,842 0.67% Springer Family Rentals, LLC Real Estate 21,341,874 0.60% Marsam Enterprises, Inc. Manufacturing 1,922,013 0.49% Central Telephone Co Telephone /Utility 1,600,530 0.41% Vast, Inc. Transportation 1,577.257 0.41% Total $125,999.691 32.36° o * Based on 2012 Net Taxable Assessed Valuation of $389,390.028 Source, Texas Comptroller of Public Accounts and Denton Central Appraisal District A-1 PROPERTY TAX RATES AND COLLECTIONS(') TABLE 3 Fiscal Tax Net Taxable Tax Collection % Year Year Assessed Valuation Rate Current Totaltbl Ended 2002 226,882,983 0.565470 97.03% 99.39% 9-30-03 2003 289,937,097 0.565470 97.38% 99.71% 9-30-04 2004 312,537,172 0.570830 97.40% 99.70% 9-30-05 2005 338,298,363 0.590460 98.16% 99.70% 9-30-06 2006 353,244,529 0.599600 97.36% 99.74% 9-30-07 2007 372,374,916 0.620000 98.13% 99.68% 9-30-08 2008 383,511,572 0.620000 97.72% 99.43% 9-30-09 2009 363,053,298 0.620000 97.78% 98.99% 9-30-10 2010 365,706,678 0.633049 97.70% 97.70% 9-30-11 2011 358,015,773 0.633049 98.69% 98.71% 9-30-12 2012 389,390,028 0.633049 (In process) 9-30-13 ° See "TAX INFORMATION - The City Application of the Property Tax Code" in the Official Statement for a description of the City's taxation procedures. (h) Excludes interest and penalties. Source: Texas Iunicipal Report published by the Municipal Advisory Council of Texas, the Denton County Appraisal District, and the City's 2012.4nnual Financial Statements. Note: Assessed Valuations may change during the year due to various supplements and protests, and valuations on a later date or in other tables of this Official Statement may not match those shown on this table. TAX RATE DISTRIBUTION Maintenance & Operations Interest & Sinking Fund TOTAL Source: the City. WATER RATES TABLE 4 2012-13 2011-12 2010-11 2009-10 2008-09 2007-08 $0.446044 $0.446044 $0.439418 $0.43009 $0.39214 $0.39214 0.187005 0.187005 0.193631 0.18991 0.22786 0.22786 $0.633049 $0.633049 $0.633049 $0.62000 $0.62000 $0.62000 Existing Rates Residential (Effective September 6, 2011 TABLE 5 Minimum per unit served for 0 - 1,000 gallons $17.00 Next 4,000 gallons 2.85 per thousand gallons Next 10,000 gallons 3.15 per thousand gallons Next 15,000 gallons 3.70 per thousand gallons Over 30,000 4.75 per thousand gallons Commercial (Effective September 6, 2011 Minimum per unit served for 0 - 1,000 gallons $21.00 Next 4,000 gallons 3.35 per thousand gallons Next 10,000 gallons 3.60 per thousand gallons Next 15,000 gallons 395 per thousand gallons Over 30,000 4.85 per thousand gallons A-2 PRINCIPAL WATER CUSTOMERS 2012-13* (For the twelve wonths ending September 30, 2012) Name of Customer Intercapital Stonewood Ranch Sanger High School SISD Butterfield Elementary Intercapital Stonewood Ranch SISD Sanger Middle School Golston Company Indian Car Wash Sportsman Chisum Trail/Integra Peak Mgt. Comet Cleaners Average Monthly Consumption in Gallons 722,200 457,400 312,600 225,200 184,300 159,400 122,500 114,500 108,200 103,700 Total 2,510,000 TABLE 6 Average Monthly Bill $3,364 2,224 1,496 1,121 955 766 378 522 726 355 $11,907 The City's pledge of revenues from the water and server system for payment of the Certificates is limited to $10,000, and the City does not anticipate that it would ever use such revenues to make payment on the Certificates. SEWER RATES TABLE 7 Existing Rates Residential (Effective September 6, 2011 Minimum (first 1,000 gallons) $ 18.00 Per 1,000 gallons over first 1,000 gallons 2.50 Per 1,000 gallons in excess of 10,000 gallons 2.75 Maximum per month 50.00 Commercial (Effective September 6, 2011 3/4 inch meter $ 26.50 1 inch meter 29.00 1'/2 inch meter 33.00 2 inch meter 40.15 3 inch meter 49.50 4 inch meter 91.85 6 inch meter 122.10 8 inch meter 161.15 Per 1,000 gallons over first 1,000 gallons 2.50 Per 1,000 gallons in excess of 10,000 gallons 2.75 Multi -Family Dwellings The amount due for multi -family dwellings shall be the residential rate multiplied by the number of occupied dwelling units. A-3 PRINCIPAL SEWER CUSTOMERS* TABLE 8 (For the twelve months ending September 30, 2012) Name of Customer Intercapital Stonewood Ranch Intercapital Stonewood Ranch Sanger High School Integra Peak Mgt. S & T Properties Golston Company Karl Klement Properties Sportsman Ohio Garden RV Inc. SangerInn Average Monthlv Bill $ 4,104 1,409 1,208 918 540 469 438 340 306 300 Total $10.032 The City's pledge of revenues from the water and server system for payment of the Certificates is limited to $10,000, and the City does not anticipate that it would ever use such revenues to snake payment on the Certificates. ELECTRIC RATES TABLE 9 Existing Rates (Effective November 15, 2010) Large Residential Commercial Industrial Facility Charge (minimum per month) $ 10.00 $ 16.00 $ 35.00 Energy Charge (per KWH) $ 0.1175 $ 0.12 $ 0.105 PRINCIPAL ELECTRIC CUSTOMERS 2010-2012* TABLE 10 (For the tivelve months ending September 30, 2012) Average Monthly Consumption in Name of Customer Kilowatt Hours Average Monthly Bill Walmart Distribution Center 1,147,800 $121,142 Super Save 100,333 11,804 Golston Company 86,106 10,505 McCamp Ltd. 56,215 7,491 SISD Indian Gym 53,075 6,705 Waggon Master RV Park 51,225 6,172 McDonald's 46,566 5,639 Sam's Distribution Center 45,950 5,525 SISD Chisholm Elementary 38,073 4,771 Sportsman 33,023 4,006 Total 1,552,980 $182.237 * None of the ChY's revenues from its electric system is pledged to the payment of the Certificates, and the City will not use such revenues to rnake payment on the Certificates. A-4 GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS TABLE 11 Fiscal Year 30-Sent 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 TOTAL Existing Debt Service $1,476,673 1,473,868 1,474,968 1,474,993 1,394,923 1,379,283 1,387,443 1,393,723 1,330,045 404,436 405,410 400,445 400,030 403,333 135,720 $14,935,289 Principal $150,000 165,000 165,000 170,000 175,000 175,000 180,000 185,000 190,000 200,000 205.000 210,000 220,000 230,000 240,000 255,000 265,000 280,000 295,000 305,000 $4,260,000 A-5 Interest $173,226 160,250 156,950 153,650 150,250 145,875 141,500 136,100 130,550 124,850 118,850 111,675 102,225 92,325 81,400 70,000 57,250 44,000 30,000 15,250 $2,196,176 Total Debt Service $1,476,673 1,797,094 1,800,218 1,796,943 1,718,573 1,704,533 1,708,318 1,715,223 1,651,145 724,986 730,260 724,295 721,705 725,558 458,045 321,400 325,000 322,250 324,000 325,000 320,250 $21,391,465 APPENDIX B GENERAL INFORMATION REGARDING THE CITY OF SANGER, TEXAS General The City of Sanger is a residential community located on Interstate Highway 35 northeast of the Dallas -Fort Worth industrial area. The City's close proximity to both Dallas and Fort Worth has been a significant factor in the City's growth. According to the 2010 U.S. Census, the City's 2010 population was 6,916. U.S. Census estimates indicate an estimated population of 7.162 as of July 1, 2012. The area continues to see a large influx of new residents each year and this trend is expected to continue for the foreseeable future. In addition to the City's close proximity to Interstate Highway 35, the City also provides ready access to both rail transportation and developable industrial land. The City of Sanger offers access to several financial institutes, churches of various denominations and a wide variety of retail outlets. The public school system offers a low student to teacher ratio and the City currently has three daycare centers. The City is also located within minutes of Lake Ray Roberts, which provides a variety of sporting and outdoor activities. The local economy is gaining strength and the City has recently seen increases in both construction and sales tax. Education The City is served by the Sanger Independent School District. The District covers approximately 42 square miles in Denton County and serves the City and its surrounding rural areas. The District is comprised of one early childhood center for grades pre -kindergarten through kindergarten, one elementary school for grades first through third, one intermediate school for grades fourth through sixth, one junior high school for grades seventh through eighth, and one high school for grades ninth through twelfth. All campuses offer enriched curricula with special programs for gifted/talented students as well as students achieving below grade level and are equipped with computers and cafeteria service. Denton County Denton County is located in north central Texas, encompassing 911 square miles, and was created in 1846 from Fannin County. The County is the third largest county of the nine counties comprising the Dallas -Fort Worth Consolidated Metropolitan Statistical Area. The County is traversed by Interstate Highway 35, US Highways 77, 377 and 380 and State Highways 114 and 121. The economy is diversified by manufacturing, state supported institutions and agriculture. According to the 2010 U.S. Census, the County's 2010 population was 662,614. II APPENDIX C FORM OF OPINION OF BOND COUNSEL ATTORNEYS ;ij U RT H LLP July 9, 2013 600 Travis, Suite 4200 Houston, Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com WE HAVE ACTED as Bond Counsel for the CITY OF SANGER, TEXAS, a municipal corporation of the State of Texas (the "City") in connection with an issue of certificates of obligation (the "Certificates") described as follows: CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2013, dated June 15, 2013, in the aggregate principal amount of $4,260,000, mattering on August 1 in each year from 2014 through and including 2024, inclusive, and in the years 2026, 2028, 2030 and 2033. The Certificates are issuable in fully registered form only, in denominations of $5,000 or integral multiples thereof, bear interest and may be transferred and exchanged as set out in the Certificates and in the ordinance (the "Ordinance") adopted by the City Council of the City (the "City Council") authorizing their issuance. WE HAVE ACTED as Bond Counsel for the sole purpose of rendering an opinion with respect to the legality and validity of the Certificates under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Certificates from gross income under federal income tax law. In such capacity we have examined the Constitution and laws of the State of Texas; federal income tax law; and a transcript of certain certified proceedings pertaining to the issuance of the Certificates, as described in the Ordinance. The transcript contains certified copies of certain proceedings of the City; certain certifications and representations and other material facts within the knowledge and control of the City, upon which we rely; and certain other customary documents and instruments authorizing and relating to the issuance of the Certificates. We have also examined executed Certificate No. R-1. WE HAVE NOT BEEN REQUESTED to examine, and have not investigated or verified, any original proceedings, records, data or other material, but have relied upon the transcript of certified proceedings. We have not assumed any responsibility with respect to the financial condition or capabilities of the City or the disclosure thereof in connection with the sale of the Certificates. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Certificates has been limited as described therein. BASED ON SUCH EXAMINATION, it is our opinion as follows: (1) The transcript of certified proceedings evidences complete legal authority for the issuance of the Certificates in full compliance with the Constitution and laws of the State of Texas presently in effect; the Certificates Austin Beijing Dallas Houston London New York Research Triangle Park The Woodlands Washington, DC FIOU:3306944.2 July 9, 2013 Page 2 constitute valid and legally binding obligations of the City enforceable in accordance with the terms and conditions thereof, except to the extent that the rights and remedies of the owners of the Certificates may be limited by laws heretofore or hereafter enacted relating to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors of political subdivisions and the exercise of judicial discretion in appropriate cases; and the Certificates have been authorized and delivered in accordance with law; (2) The Certificates are payable, both as to principal and interest, from the receipts of an annual ad valorem tax levied, within the limits prescribed by law, upon taxable property located within the City, which taxes have been pledged irrevocably to pay the principal of and interest on the Certificates; and (3) The surplus revenues to be derived from the operation of the City's waterworks and sewer system, after the payment of all operation and maintenance expenses thereof (the "Net Revenues") in an amount not to exceed $10,000, are pledged to the payment of the principal of and interest on the Certificates; provided, however, that such pledge is junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of Net Revenues to the payment of the Certificates. The City has reserved the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind secured by a pledge of the Net Revenues that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. ALSO BASED ON OUR EXAMINATION AS DESCRIBED ABOVE, it is our further opinion that, subject to the restrictions hereinafter described, interest on the Certificates is excludable from gross income of the owners thereof for federal income tax purposes under existing law and is not subject to the alternative minimum tax on individuals, except as hereinafter described, or corporations. The opinion set forth in the first sentence of this paragraph is subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Certificates in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted in the Order to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Certificates in gross income for federal income tax purposes to be retroactive to the date of issuance of the Certificates. The Code and the existing regulations, rulings and court decisions thereunder, upon which the foregoing opinions of Bond Counsel are based, are subject to change, which could prospectively or retroactively result in the inclusion of the interest on the Certificates in gross income of the owners thereof for federal income tax purposes. INTEREST ON the Certificates owned by a corporation (other than an S corporation, a regulated investment company, a real estate investment trust (REIT), a real estate mortgage HOU:3306944.2 July 9, 2013 Page 3 investment conduit (REMIC) or a financial asset securitization investment trust (FASIT)) will be included in such corporation's adjusted current earnings for purposes of calculating such corporation's alternative minimum taxable income. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is computed. EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or local tax consequences under present law, or future legislation, resulting from the ownership of, receipt or accrual of interest on, or the acquisition or disposition of, the Certificates. Prospective purchasers of the Certificates should be aware that the ownership of tax-exempt obligations, such as the Certificates, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a financial asset securitization investment trust that holds tax-exempt obligations and individuals otherwise qualified for the earned income tax credit. For the foregoing reasons, prospective purchasers should consult their tax advisors as to the consequences of investing in the Certificates. OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above. HOU:3306944.2 APPENDIX D AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2012 CITY OF SANGER, TEXAS SEPTEMBER 30, 2012 CONTENTS INDEPENDENT AUDITOR'S REPORT ........................................................................................ 1 BASIC FINANCIAL STATEMENTS Government -wide Financial Statements Statement ofNet Assets ................................................................................................. 12 StatementofActivities ..................................................................................................... 13 Fund Financial Statements Governmental Funds BalanceSheet ........................................................................................................... 14 Reconciliation ofthe Governmental Funds Balance Sheet tothe Statement ofNet Assets ...................................................................................... 1G Statement of Revenues, Expenditures, and Changes in Fund Balances .................. 17 Reconciliation of the Statement ofRevenues, Expenditures and Changes inFund Balances ofGovernmental Funds hothe Statement ofActivities ......................................................................................... 1S Proprietary Funds StatementofNet Assets ............................................................................................ 2D Statement of Revenues, Expenses, and Changes in Fund Net Assets .................... 21 StatementufCash Flows .......................................................................................... 22 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITEO) Schedule ofFunding Progress for Participation in Texas Municipal Retirement System ............................................................................. 47 SUPPLEMENTARY INFORMATION (UNAU0TED) Combining Schedule ofRevenues and Expenses — Proprietary Fund bvDepartment ......... 48 To the Honorable Mayor Thomas Muir and Members of the City Council City of Sanger, Texas We have audited the accompanying financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Sanger, Texas (the City) as of and for the year ended September 30, 2012, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City as of September 30, 2012, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, the schedule of funding progress and budgetary comparison schedule on pages 3 through 11 and 47 through 48 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the financial statements, and other knowledge we obtained during our audit of the financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. AN INDEPENDENT WEAVER AND TIDWELL LLP FORT WORTH MEMBER OF BAKER TILLY CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS 2821 W SEVENTH STREET, SUITE 700, FORT WORTH, TX 76107 INTERNATIONAL WWW.WEAVERLLP.COM P: (817) 332 7905 F: (817) 429 5936 To the Honorable Mayor Thomas Muir and the Members of the City Council City of Sanger, Texas Page 2 Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements as a whole. The Combining Schedule of Revenues and Expenses — Proprietary Fund by Department and Analysis of Property Taxes Receivable on pages 49 through 51 are presented for purposes of additional analysis and are not a required part of the financial statements. This information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. aa WEAVER AND TIDWELL, L.L.P. Fort Worth, TX February 21, 2013 MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2012 The management of the City of Sanger offers readers of the financial statements this narrative overview and analysis of the financial activities of the City of Sanger for the fiscal year ended September 30, 2012. We encourage readers to consider the information presented here in conjunction with the City's financial statements and accompanying footnotes of this report. FINANCIAL HIGHLIGHTS • The assets of the City of Sanger exceeded its liabilities at the close of the most recent fiscal year by $23,507,689 (net assets). Of this amount, $5,931,366 (unrestricted net assets) may be used to meet the government's ongoing obligations to citizens and creditors in accordance with the City's fund designation and fiscal policies. The City's total capital assets increased by $451,268. • As of the close of the fiscal year, the City's governmental funds reported combined ending fund balances of $2,693,754. • The fund balance of the General Fund decreased by $26,826 or 3% to $773,397 at September 30, 2012 primarily due to a transfer to the Capital Projects Fund of $200,000. OVERVIEW OF THE FINANCIAL STATEMENTS The Management's Discussion and Analysis is intended to serve as an introduction to the City of Sanger's basic financial statements. This annual report consists of three components: (1) government -wide financial statements, (2) fund financial statements, and (3) notes to the financial statements. This report contains other supplementary information in addition to the basic financial statements themselves. Government -wide Statements. The government -wide financial statements are designed to provide readers with a broad overview of the City's finances in a manner similar to private - sector business. The statements report information about the City as a whole using accounting methods similar to those used by private -sector companies. The statement of net assets includes all of the government's assets and liabilities, with the difference between the two being reported as net assets. Over time, increases or decreases in net assets are an indicator as to whether the financial position of the City is improving or deteriorating. To assess the overall health of the City, additional non -financial factors (such as the City's tax base) will need to be considered. The statement of activities presents information on how the City's net assets changed during the fiscal year. All of the current year's revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned, but not used vacation leave). MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2012 (CONTINUED) Major Features of the City of Sanger's Government -wide and Fund Financial Statements Both the statement of net assets and the statement of activities are prepared using the accrual basis of accounting as opposed to the modified accrual basis of accounting. In its Statement of Net Assets and Statement of Activities, the City of Sanger is divided between two kinds of activities: Governmental activities. Most of the City's basic services are included here, such as general government, public safety, streets, sanitation, and culture and recreation. Property taxes, sales taxes, franchise fees, and charges for services finance most of these activities. • Business -type activities. A fee is charged to customers by the City to cover the cost of services it provides. The City's utility systems (electric, water, and wastewater) activities are reported here. Fund Financial Statements. The fund financial statements provide more detailed information about the City's most significant funds and not the City as a whole. Funds are accounting devices that the City uses to keep track of specific sources of funding and spending for particular purposes. • Certain funds are restricted by State law and by bond covenants. The City Council establishes guidelines to control and manage money for particular purposes or to show that it is properly using certain revenue resources. The City has two categories of funds: governmental funds and proprietary funds. Governmental funds. The City's basic services are included in governmental funds, which focus on cash and other financial assets that can readily be converted to cash flow, as well as the balances left at year-end that are available for spending. Consequently, the governmental fund statements provide a detailed short-term view that helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the City's programs. Because this information does not encompass the additional long-term focus of the government -wide statements, additional information is provided on the subsequent pages, explaining the relationship (or differences) between them. The relationship or differences between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is detailed in a reconciliation following each of the fund financial statements. • Proprietary funds (business -type funds). Services for which the City charges customers a fee are generally reported in proprietary funds. Proprietary funds, like government - wide statements, provide both short and long-term financial information. Proprietary funds are reported in the same manner that all activities are reported in the Statement of Net Assets and the Statement of Activities. 4 MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2012 (CONTINUED) Major Features of the City of Sanger's Government -wide and Fund Financial Statements Fund Statements Government- Governmental Proprietary wide Funds Funds Required Statement of net Balance Sheet Statement of net Financial assets assets Statements Type of asset/liability information Statement of activities All assets and liabilities, both financial and capital, short- term and long- term Statement of revenues, expenditures and changes in fund balances Only assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets included Statement of revenues, expenses and changes in fund net assets Statement of cash flows All assets and liabilities, both financial and capital, and short- term and long- term MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2012 (CONTINUED) GOVERNMENT -WIDE FINANCIAL ANALYSIS As of September 30, 2012, the City's combined net assets were $23,507,689, of which $10,313,749 can be attributed to governmental activities and $13,193,940 attributed to business -type activities. This analysis focuses on the net assets (Table 1) and changes in net assets (Table 2) of the City's governmental and business -type activities. Net Assets Net assets at September 30, 2012, were $23,507,689, representing an increase of $2,676,673 in total net assets of governmental and business -type activities. The largest portion of the City's net assets reflects its investment in capital assets (e.g., land, building, machinery, equipment, and infrastructure - streets, drainage, water, wastewater, and electric) less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Table 1 - Net Assets Governmental Business -Type Activities Activities Total 2012 2011 2012 2011 2012 2011 Assets Cash and cash equivalents $ 415,126 $ 477,062 $ 2,293,053 $ 1,053,839 $ 2,708,179 $ 1,530,901 Certificates of deposit 408,004 405,436 335,825 419,966 743,829 825,402 Accounts receivable, net 411,622 344,678 1,537,373 1,178,950 1,948,995 1,523,628 Inventories - 433,508 300,607 433,508 300,607 Due from other funds 263,811 - - - 263,811 - Restricted cash and cash equivalents 1,735,949 2,424,955 2,623,570 2,312,309 4,359,519 4,737,264 Bond issuance costs, net 281,317 295,168 73,087 102,643 354,404 397,811 Capital assets, net of accumulated depreciation 14,973,623 14,146,175 12,789,033 13,165,213 27,762,656 27,311,388 Total assets $ 18,489,452 $ 18,093,474 $ 20,085,449 $ 18,533,527 $ 38,574,901 $ 36,627,001 Liabilities Accounts payable $ 272,746 $ 684,916 $ 581,313 $ 498,353 $ 854,059 $ 1,183,269 Customer deposits - - 315,761 297,609 315,761 297,609 Other liabilities 163,986 99,009 147,008 166,171 310,994 265,180 Due to other funds - - 263,811 - 263,811 - Current portion long-term debt 676,619 578,015 657,993 534,466 1,334,612 1,112,481 Compensated absences 110,404 77,947 67,973 54,220 178,377 132,167 Long-term debt 6,951,948 7,311,051 4,857,650 5,494,228 11,809,598 12,805,279 Total liabilities $ 8,175,703 $ 8,750,938 $ 6,891,509 $ 7,045,047 $ 15,067,212 $ 15,795,985 Net assets Invested in capital assets $ 7,371,097 $ 6,274,498 $ 7,287,190 $ 7,150,229 $ 14,658,287 $ 13,424,727 Restricted for specific purpose 610,227 524,980 2,307,809 2,014,700 2,918,036 2,539,680 Unrestricted 2,332,425 2,543,058 3,598,941 2,323,551 5,931,366 4,866,609 Net assets $ 10,313,749 $ 9,342,536 $ 13,193,940 $ 11,488,480 $ 23,507,689 $ 20,831,016 2 MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2012 (CONTINUED) Changes in Net Assets Governmental activities increased the City's net assets by $971,213 and business -type activities increased the City's net assets by $1,705,460. The key elements of these changes are contained in Table 2. Revenues Program Revenues: Charges for services Grants and donations General Revenues: Taxes Licenses and permits Investment earnings Transfers Miscellaneous Gain (loss) on sale of assets Total revenues Expenses General government Police and animal control Streets and sanitation Fire and EMS Court Culture and recreation Interest on long-term debt Proprietary expenses Total expenses Change in net assets Beginning net assets Ending net assets Table 2 - Changes in Net Assets Governmental Business -Type Activities Activities Total 2012 2011 2012 2011 2012 2011 $ 1,511,279 $ 1,424,884 $ 10,740,154 $ 10,189,544 $ 12,251,433 $ 11,614,428 500,000 195,102 - - 500,000 195,102 4,108,822 4,046,632 - - 4,108,822 4,046,632 130,869 44,827 - - 130,869 44,827 16,826 34,292 32,902 30,882 49,728 65,174 - 307,241 - (307,241) - - 211,956 150,708 - - 211,956 150,708 - 7,436 - - - 7,436 6,479,752 6,211,122 10,773,056 9,913,185 17,252,808 16,124,307 750,649 705,012 - - 750,649 705,012 1,503,327 1,436,505 - - 1,503,327 1,436,505 1,445,542 1,349,968 - - 1,445,542 1,349,968 766,011 692,184 - - 766,011 692,184 209,333 228,030 - - 209,333 228,030 493,541 425,674 - - 493,541 425,674 340,136 377,693 217,588 317,323 557,724 695,016 - - 8,850,008 8,902,681 8,850,008 8,902,681 5,508,539 5,215,066 9,067,596 9,220,004 14,576,135 14,435,070 971,213 996,056 1,705,460 693,181 2,676,673 1,689,237 9,342,536 8,346,480 11,488,480 10,795,299 20,831,016 19,141,779 $ 10,313,749 $ 9,342,536 $ 13,193,940 $ 11,488,480 $ 23,507,689 $ 20,831,016 19 MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2012 (CONTINUED) The City's total revenues for the year ended September 30, 2012, were $17,252,808 with a significant portion, 71 %, of the City's total revenue coming from charges for services, 14% from property taxes, 7% from sales taxes, while 8% is obtained from the remaining revenue sources (see Figure 1). Because Sanger owns an electric utility, revenues from charges for services are a large percentage of overall revenues. Without the ownership of its electricity utility, the City's property tax rate would be approximately ten cents higher per $100 valuation than its current rate in order to generate the same amount of operating revenue. Figure 1 Governmental activities revenues total $6,479,752 for the year ended September 30, 2012, of which $4,108,822 (63%) is attributed to taxes. Significant general governmental expenses include public safety (including Fire and EMS and police and animal control), which incurred expenses of $2,269,338, and streets and sanitation, which incurred expenses of $1,445,542. Business -type activities increased the City's net assets by $1,705,460 and governmental activities increased the City's net assets by $971,213, accounting for positive growth in the government -wide net assets in fiscal year ended September 30, 2012. Business -type operating revenues increased by $859,871 to $10,773,056 for the year ended September 30, 2012, as a result of an increase in tap fees for new construction. Business -type expenses decreased in fiscal year ending September 30, 2012 mainly due to decreases in interest expense and transfers, resulting in total business -type activity expenses of $9,067,596. MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2012 (CONTINUED) FINANCIAL ANALYSIS OF THE GOVERNMENT'S FUNDS The City uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. Governmental Funds The focus of the City's governmental funds is to provide information on near -term inflows, outflows, and balances of resources available to spend. This information is useful in assessing the financial requirements of the City. As of September 30, 2012, the City's governmental funds reported a combined ending fund balance of $2,693,754, a reduction of $52,546 from the previous fiscal year's balance of $2,746,300. The decline in fund balance is primarily due to infrastructure improvements. Of this fund balance, $773,397 constitutes unassigned fund balance, which is available for spending at the government's discretion. The remainder of the fund balance is restricted to indicate that it is not available for new spending because it has already been committed to pay debt service ($350,895), complete capital projects ($224,097), or enhance economic development ($1,345,365). General Fund. The General Fund is the chief operating fund of the City. At September 30, 2012, the unassigned fund balance of the General Fund was $773,397 a decrease of $26,826 from the prior year. The decrease is primarily due to a $200,000 transfer from the Streets Department to the Capital Projects Fund for infrastructure improvements. The City has continued a very conservative approach to purchasing and employment during 2012 as a result of the uncertain economic conditions. Capital Projects Fund. The entire balance of the capital projects fund is restricted for capital construction and acquisition. At September 30, 2012, the capital projects fund had a fund balance of $224,097, a decrease of $525,881 from 2011. At the end of 2012, the City had invested $27,762,656 in a broad range of capital assets, including land, equipment, buildings, vehicles, streets, drainage, water, wastewater, and electrical systems. (see Table 3). Table 3 — Capital Assets Governmental Business -Type Activities Activities Total 2012 2011 2012 2011 2012 2011 Land $ 862,307 $ 862,307 $ 323,164 $ 323,164 $ 1,185,471 $ 1,185,471 Construction in progress 272,385 3,239,639 291,414 - 563,799 3,239,639 Infrastructure 10,550,634 9,800,941 22,112,636 22,072,504 32,663,270 31,873,445 Buildings and equipment 9,614,364 5,667,489 2,459,441 2,282,128 12,073,805 7,949,617 Total historical cost 21,299,690 19,570,376 25,186,655 24,677,796 46,486,345 44,248,172 Total accumulated depreciation (6,326,067) (5,424,201) (12,397,622) (11,512,583) (18,723,689) (16,936,784) Net capital assets $ 14,973,623 $ 14,146,175 $ 12,789,033 $ 13,165,213 $ 27,762,656 $ 27,311,388 MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2012 (CONTINUED) Debt Service Fund. The debt service fund has a total fund balance of $350,895 at September 30, 2012, an increase of $114,360 over 2011. As of September 30, 2012, the City had $13,144,210 in long-term debt (see Table 4). Notes payable Capital leases Bonds payable Total long-term debt Table 4 — Long-term Debt Governmental Activities 2012 2011 $ 553,391 $ 596,104 340,119 70,162 6,735,057 7,222,800 $ 7,628,567 $ 7,889,066 Business -Type Activities Total 2012 2011 2012 2011 $ - $ - $ 553,391 $ 596,104 370,401 376,494 710,520 446,656 5,145,242 5,652,200 11,880,299 12,875,000 $ 5,515,643 $ 6,028,694 $ 13,144,210 $ 13,917,760 Proprietary Fund. The City's proprietary fund provides the same type of information found in the government -wide financial statements, but in more detail. Table 5 represents the cost of each of the City's business -type activities as well as each function's net cost (total cost less fees generated by the activities and intergovernmental aid). The cost of business -type activities for fiscal year ended September 30, 2012 was $8,850,008. The amount for charges for services that the City's tax payers paid for these activities was $10,740,154. Excess funds are used by the City to help support the general fund, keeping the property tax rate from increasing. Excess funds are also used to fund capital improvements. Table 5 — Proprietary Fund Activities Total Operating Expenses % Change Total Operating Income (Loss) % Change 2012 2011 2012 2011 Water $ 1,064,019 $ 1,166,704 -8.80% $ 438,488 $ 113,337 286.89% Sewer 824,434 785,829 4.91% 519,495 306,110 69.71% Electric 6,307,713 6,249,768 0.93% 1,527,218 1,498,344 1.93% Other 653,842 700,380 -6.64% (595,055) (630,928) -5.69% Total $ 8,850,008 $ 8,902,681 -0.59% $ 1,890,146 $ 1,286,863 46.88% ECONOMIC FACTORS AND FISCAL YEAR BUDGET AND RATES The fiscal year 2012-2013 budget incorporates no increase in the property tax rate. It remains at $.633049 per $100 valuation. Certified appraised values used for the fiscal year 2013 budget are $37 million higher than the amounts budgeted in the 2011-2012 fiscal year, thus increasing the budgeted property tax revenue. The General Fund budgeted increase in fund balance for fiscal year 2012-2013 is $9,805. The 2012-2013 budget includes no change in either the water or wastewater rates. The Enterprise Fund budgeted increase in fund balance is $161,318. If revenues projected in the 2013 budget are realized, the City will be able to continue operations, absorb inflationary costs, and increase its total fund balance by $461,516 for the City as a whole. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2012 (CONTINUED) REQUESTS FOR INFORMATION This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the City's finances and to demonstrate the City's accountability for the funds it receives. If you have questions about this report or would like additional information, please contact the City Manager at the City of Sanger City Hall at 502 Elm Street, Sanger, Texas 76266. IF CITY OF SANGER, TEXAS STATEMENT OF NET ASSETS SEPTEMBER 30, 2012 ASSETS Cash and cash equivalents Certificates of deposit Accounts receivable, net Property taxes net of allowance of $60,667 Sales taxes Emergency medical services, net of allowance of $1,582,222 Utility accounts, net of allowance of $111,174 Other Inventories Internal balances Restricted cash Restricted certificates of deposit Bond issue costs, net Capital assets Capital assets not being depreciated Capital assets being depreciated, net TOTAL ASSETS LIABILITIES Accounts payable and accrued liabilities Customer deposits Accrued interest payable Deferred rent Compensated absences, due within one year Bonds payable, due within one year Notes payable, due within one year Capital leases, due within one year Other Noncurrent liabilities Compensated absences, due in more than one year Bonds payable, due in more than one year Notes payable, due in more than one year Capital leases, due in more than one year TOTAL LIABILITIES NET ASSETS Invested in capital assets, net of related debt Restricted Debt service Capital improvements Unrestricted TOTAL NET ASSETS The Notes to Basic Financial Statements are an integral part of this statement. Primary Government Governmental Business -type Activities Activities Total $ 415,126 $ 2,293,053 $ 2,708,179 408,004 335,825 743,829 80,907 - 80,907 183,600 - 183,600 107,490 - 107,490 - 1,504,299 1,504,299 39,625 33,074 72,699 - 433,508 433,508 263,811 (263,811) - 1,259,697 1,040,028 2,299,725 476,252 1,583,542 2,059,794 281,317 73,087 354,404 1,134,692 614,578 1,749,270 13,838,931 12,174,455 26,013,386 $ 18,489,452 $ 19,821,638 $ 38,311,090 $ 272,746 $ 581,313 $ 854,059 - 315,761 315,761 46,257 53,033 99,290 40,008 - 40,008 45,164 34,108 79,272 537,288 479,993 1,017,281 36,576 - 36,576 102,755 178,000 280,755 77,721 93,975 171,696 65,240 6,197, 769 516,815 237,364 8,175,703 7,371,097 610,227 2,332,425 $ 10,313,749 12 33,865 4,665,249 192,401 6,627,698 7,287,190 951,238 1,356,571 3,598,941 $ 13,193,940 99,105 10, 863, 018 516,815 429,765 14, 803,401 14,658,287 1,561,465 1,356,571 5,931,366 $ 23,507,689 U) W F- N U r Q 0 N U) LL O X � M W Z W h- Z W W MM W W LL Z r W N U) w LL 0 0 O � 0 = H W U W 2a Z� W ry W ,O V LNCJ M � c MV I q .M- N N Cl) to O co O r (n O N m c�T7 0) Cl) (g V' r N W 0 � O O N N V' C) co -ItM (0 Ll M cn o0 V' (n N N M (0 0)r Cl)0 r (n CD 7 It O V' O n O N c V' co (fl O IC)C) C:)C) C)� LO CD (a co Cl) M O O O r co 0 - C) rn 'o L O Ih N �: M CO O ,It N V' M V' co co c0 M (n Cl M (n cn O M (n to O M O O (n O IT (0 O O IT O r cn V' r N V M cn r to (a co U-)coW 1n co N c0 a) co (n (n O V' V' N cn O cn r N O r r u) N V O r N I? cnN N (n CO I o0 (Al co co co 4 07 co c0 O c0 cn (n V' IT N (n O (n In N O r r (n N N co N O 1- r V' (n In N cn (0 (0 EH O O m M l o O O CD CD N cn (n O co (0 to co C2 CD 00 cn co (0 N U') r r co V' 00 V' 00 r 0 M c0 C:, (0 O 0) O O 0) �_ Uo r M N M V' O r M O (`7 N Lo N (n (O W (n N V N O M N N U9. 1 1 1 (A> N N O O O O O (D c0 V N N (n W M co M C. O O r v c (7 H3 d} N O O M cO O N (ncn c0In c0 NU7 (n r 2 (M V' V' e0 V' co M O V' N Lq r O O O O U7 .- c0 N M M N M C) (0 r V' M N (n N V' O M M N — V O O eg, (iT m III y 4,1 Q0) y 7 a)C m C m C > y C w- r 0) r C) N M co V' Cl) co N > a) N ` m N C O n O rn r v_ a) m Q a) c c o v M ai y (D (Ln c o °� m = N N (n cl oc r N m _ m m m .0 'C y w w m C to co m N m@ G a> w to U a`) M Q (n U- .mc Q Q N t C7 Z Z O V' M N N (D (n C:)V' r IIn cc lx7 M V= v r r co Ir (D InNcl N (0 CO co Vi c0 O V' 64 y � m Z cc O m a) m m C y C C C 'O �mr N 'O C. m 0 1:a) U m m (aC m a) d E d U) m C m > U ` E U O) U O) m O C T. Cn Q) Cp y m C C O > m O y CI am.. O W CO � C O C m m (Q m .y. C a) a)) d m 'C m O U) N p O E aci m °) ~ c m 3 m m s F a >(Do-wLLC)) C��cow �O (7 m F m is y c m a) m C n E m � C y m C wLL U p to r m m m Q O y O d p Z •— m c t m F— M CITY OF SANGER, TEXAS BALANCE SHEET - GOVERNMENTAL FUNDS SEPTEMBER 30, 2012 ASSETS Cash and equivalents Certificates of deposit Accounts receivable, net Property taxes, net of allowance of $60,667 Sales taxes Emergency medical services, net of allowance of $1,582,222 Other Due from other funds Restricted cash Restricted certificates of deposit Total assets LIABILITIES AND FUND BALANCES Liabilities Accounts payable Deferred revenue Other liabilities Total liabilities Fund balances Restricted Debt service Capital projects Economic development Unassigned Total fund balances TOTAL LIABILITIES AND FUND BALANCES General $ 277,434 $ 408,004 56,635 91,800 107,490 26,356 94,796 111,565 $ 1,174,080 $ $ 157,511 $ 165,451 77,721 400,683 Debt Capital Service Projects 4,466 $ - 24,272 - 11,594 - 263,811 346,997 45,677 375,735 $ 321,082 $ 96,985 24,840 - 24,840 350,895 773,397 - 773,397 350,895 $ 1,174,080 $ 375,735 $ The Notes to Basic Financial Statements are an integral part of this statement. 14 96,985 224,097 224,097 321,082 Total Governmental 4A Fund 4B Fund Funds $ 113,031 $ 20,195 $ 415,126 - - 408,004 - - 80,907 45,900 45,900 183,600 - - 107,490 277 1,398 39,625 - - 263,811 606,454 165,773 1,259,697 93,343 271,344 476,252 $ 859,005 $ 504,610 $ 3,234,512 859,005 859,005 18,250 $ 272,746 - 190,291 - 77,721 18,250 540,758 486,360 486,360 350,895 224,097 1,345,365 773,397 2,693,754 $ 859,005 $ 504,610 $ 3,234,512 15 CITY OF SANGER, TEXAS RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS SEPTEMBER 30, 2012 Total fund balances - governmental funds $ 2,693,754 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not current financial resources and therefore are not reported in the governmental funds balance sheet. 14,973,623 Costs associated with the issuance of governmental long-term debt are expensed when incurred in the fund statements and capitalized and amortized over the life of the debt in the government -wide financial statements. 281,317 Interest payable on long-term debt does not require current financial resources, therefore interest payable is not reported as a liability in the governmental funds balance sheet. (46,257) Revenues earned but not available within sixty days of the year end are not recognized as revenue in the fund financial statements. 190,291 Escalating payments for rent income are recorded when received as current financial resources in the fund financial statements whereas they are are deferred and recorded ratably over the life of lease in the government -wide financial statements. (40,008) Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the fund financial statements. (7,738, 971) Net assets of governmental activities $ 10,313,749 The Notes to Basic Financial Statements are an integral part of this statement. 16 CITY OF SANGER, TEXAS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS YEAR ENDED SEPTEMBER 30, 2012 REVENUES Property taxes Sales taxes Licenses and permits Charges for services Fire and rescue Court Franchise taxes Intergovernmental revenues Interest Miscellaneous Total revenues EXPENDITURES Current General government Police and animal control Streets and sanitation Fire and EMS Court Culture and recreation Capital outlay Debt service Principal retirement Interest charges Fiscal agent's fees and debt issue costs Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources (uses) Proceeds on sale of assets Proceeds from capital lease Proceeds from bond refunding Premium on bond refunding Payment on bond refunding Transfers in Transfers out Total other financing sources (uses) Net change in fund balances FUND BALANCES, beginning of year FUND BALANCES, end of year The Notes to Basic Financial Statements are an integral part of this statement. Debt Capital General Service Projects $ 1,637,637 616,427 130,869 803,173 479,381 191,903 539,485 5,326 87,875 4,492,076 $ 701,845 $ - 2,986 704,831 500,000 3,400 36,000 539,400 628,847 22 - 1,408,666 - - 838,133 - - 633,763 - - 208,947 - 419,795 - - 481,377 - 1,265,281 79,211 496,800 - 1,282 273,649 - - 48,811 - 4,700,021 819,282 1,265,281 (207,945) (114,451) (725,881) 10,000 - - 340,119 - - - 1,53.7,800 - - 41,221 - - (1,530,210) - 31,000 180,000 200,000 (200,000) - - 181,119 228,811 200,000 (26,826) 114,360 (525,881) 800,223 236,535 749,978 $ 773,397 $ 350,895 $ 224,097 17 Total Governmental 4A Fund 4B Fund Funds $ - $ - $ 2,339,482 306,714 306,714 1,229,855 - - 130,869 - - 803,173 - - 479,381 - - 191,903 - - 539,485 - - 500,000 1,633 3,481 16,826 52,778 5,311 181,964 361,125 315,506 6,412,938 18,563 647,432 - 1,408,666 - - 838,133 - - 633,763 - - 208,947 - - 419,795 - - 1,746,658 33,664 - 609,675 27,603 - 302,534 - - 48,811 61,267 18,563 6,864,414 299,858 296,943 (451,476) - - 10,000 - - 340,119 - - 1,537,800 - - 41,221 - - (1,530,210) - - 411,000 (15,500) (195,500) (411,000) (15,500) (195,500) 398,930 284,358 101,443 (52,546) 574,647 384,917 2,746,300 $ 859,005 $ 486,360 $ 2,693,754 iE. CITY OF SANGER, TEXAS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED SEPTEMBER 30, 2012 Net change in fund balances - total governmental funds $ (52,546) Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount of capital assets recorded in the current period. 1,746,658 Depreciation expense on capital assets is reported in the statement of activities and does not require the use of current financial resources. Therefore, depreciation expense is not reported as expenditures in the governmental funds. (964,491) Governmental funds recognize all amounts received on the sale of fixed assets as a gain. However, in the statement of activities, the gain or loss is offset by the remaining net book value of the asset. (24,719) The issuance of long-term debt (e.g. bonds) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas the amounts are deferred and amortized in the statement of activities. This amount consists of repayments of $609,675 and issuance costs of $48,811 less proceeds of $340,119, premiums of $41,221, amortization of debt issuance costs of $22,908 and a change in long-term compensated absences payable of $32,457, which is the net effect of these differences in the treatment of long-term debt and related items. 221,781 The refunding of long-term debt (e.g. bonds) provides current financial resources and consumes current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. (7,590) Current year changes in accrued interest payable do not require the use of current financial resources; therefore, are not reported as expenditures in governmental funds. (14,694) Governmental funds recognize escalating rental income as received. However, in the statement of activities, the rent is deferred and recognized ratably over the term of the lease agreement. 29,992 Certain revenues in the government -wide statement of activities that do not provide current financial resources are not reported as revenue in the governmental funds. 36,822 Change in net assets of governmental activities $ 971,213 The Notes to Basic Financial Statements are an integral part of this statement. 19 CITY OF SANGER, TEXAS STATEMENT OF NET ASSETS — PROPRIETARY FUNDS SEPTEMBER 30, 2012 Water, Sewer, and Electric Fund ASSETS CURRENT ASSETS Cash and investments $ 2,293,053 Certificates of deposit 335,825 Receivables Utility accounts receivable, net of allowance of $111,174 1,504,299 Other 33,074 Inventories 433,508 Total current assets 4,599,759 NONCURRENT ASSETS Capital assets, at cost Land and land improvements 323,164 Buildings and equipment 2,459,441 Infrastructure 22,112,636 Construction in progress 291,414 Accumulated depreciation (12,397,622) Total capital assets, net of accumulated depreciation 12,789,033 Bond issue costs, net 73,087 Restricted cash and cash equivalents 1,040,028 Restricted certificates of deposit 1,583,542 Total noncurrent assets 15,485,690 TOTAL ASSETS $ 20,085,449 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable and accrued liabilities $ 581,313 Accrued interest payable 53,033 Compensated absences, due within one year 34,108 Bonds payable, due within one year 479,993 Capital lease obligation, due within one year 178,000 Due to other funds 263,811 Other 93,975 Total current liabilities 1,684,233 NONCURRENT LIABILITIES Compensated absences, due in more than one year 33,865 Bonds payable, due in more than one year 4,665,249 Capital lease obligation, due in more than one year 192,401 Customer deposits 315,761 Total liabilities 6,891,509 NET ASSETS Invested in capital assets, net of related debt 7,287,190 Restricted Revenue bond retirement 951,238 Capital improvements 1,356,571 Unrestricted 3,598,941 TOTAL NET ASSETS $ 13,193,940 The Notes to Basic Financial Statements are an integral part of this statement. 20 CITY OF SANGER, TEXAS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS — PROPRIETARY FUNDS YEAR ENDED SEPTEMBER 30, 2012 Water, Sewer, and Electric Fund OPERATING REVENUES Charges for services $ 10,228,112 Connection fees 58,410 Tap fees 396,350 Miscellaneous 57,282 Total operating revenue 10,740,154 OPERATING EXPENSES Salaries, wages and benefits 1,334,282 Purchased professional and technical services 148,115 Utilities 343,184 Materials and supplies 126,149 Water and electric purchases 5,045,931 Franchise fees 355,622 Depreciation 885,039 Repairs and maintenance 535,312 Bad debt expense 76,374 Total operating expenses 8,850,008 Operating income 1,890,146 NONOPERATING REVENUES (EXPENSES) Interest and investment income 32,902 Interest and amortization expense (217,588) Total nonoperating expenses (184,686) Change in net assets 1,705,460 NET ASSETS, beginning of year 11,488,480 NET ASSETS, end of year $ 13,193,940 The Notes to Basic Financial Statements are an integral part of this statement. 21 CITY OF SANGER, TEXAS STATEMENT OF CASH FLOWS — PROPRIETARY FUNDS YEAR ENDED SEPTEMBER 30, 2012 Water, Sewer, and Electric Fund CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers $ 10,399,883 Cash paid to employees (1,354,368) Cash paid to suppliers (6,693,881) Net cash provided by operating activities 2,351,634 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Principal paid on long-term debt (494,293) Capital expenditures (217,445) Interest and fees paid on debt issuance (206,464) Net cash used in capital and related financing activities (918,202) CASH FLOWS FROM INVESTING ACTIVITIES Reinvested interest (10,490) Proceeds on maturity of investments 200,000 Interest on investments 32,902 Net cash provided by investing activities 222,412 Net change in cash 1,655,844 CASH AND CASH EQUIVALENTS, beginning of the year 1,677,237 CASH AND CASH EQUIVALENTS, end of the year The Notes to Basic Financial Statements are an integral part of this statement. 22 $ 3,333,081 CITY OF SANGER, TEXAS STATEMENT OF CASH FLOWS — PROPRIETARY FUNDS YEAR ENDED SEPTEMBER 30, 2012 (CONTINUED) Water, Sewer, and Electric Fund RECONCILIATION OF CASH AND CASH EQUIVALENTS PER STATEMENT OF CASH FLOWS TO THE STATEMENT OF NET ASSETS Cash and investments $ 2,293,053 Restricted cash and cash equivalents 1,040,028 Cash and cash equivalents - ending $ 3,333,081 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 1,890,146 Adjustments to reconcile operating income to net cash provided by operating activities Depreciation 885,039 Increase in accounts receivable (358,423) Increase in inventory (132,901) Decrease in accounts payable and accrued liabilities 55,357 Increase in other liabilities (5,736) Increase in customer deposits 18,152 Net cash provided by operating activities $ 2,351,634 NON -CASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES Related to issuance of refunding bonds: Decrease in bond issue costs, net $ (22,061) Increase in bonds payable (57,200) Increase in deferred loss on refunding bonds 79,261 Related to capital asset additions: Capital assets additions financed through inter -fund balances $ 291,414 The Notes to Basic Financial Statements are an integral part of this statement. 23 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Sanger (the City) was incorporated in 1886. The City operates under a Council - Manager form of government and provides the following services as authorized by its charter: general government, police and fire protection, emergency ambulance services, highways and streets, water and wastewater operations, electricity operations, and public improvements. The accounting and reporting policies of the City relating to the funds included in the accompanying basic financial statements conform to accounting principles generally accepted in the United States of America applicable to state and local governments. Generally accepted accounting principles for local governments include those principles prescribed by the Governmental Accounting Standards Board (GASB), the American Institute of Certified Public Accountants in the publication entitled Audits of State and Local Governmental Units and by the Financial Accounting Standards Board (when applicable). As allowed in Section P80 of GASB's Codification of Governmental Accounting and Financial Reporting Standards, the City has elected not to apply Financial Accounting Standards Board Statements and Interpretations, Accounting Principles Board Opinions, and Accounting Research Bulletins of the Committee of Accounting Procedure issued after November 30, 1989. The more significant accounting policies of the City are described below. Financial Reporting Entity As required by accounting principles generally accepted in the United States of America, these financial statements include the primary government and organizations for which the primary government is financially accountable and other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. The definition of the reporting entity is based primarily on the notion of financial accountability. A primary government is financially accountable for the organizations that make up its legal entity. It is also financially accountable for legally separate organizations if its officials appoint a voting majority of an organization's governing body and either it is able to impose its will on that organization or there is a potential for the organization to provide specific financial benefits to, or to impose specific financial burdens on, the primary government. A primary government may also be financially accountable for governmental organizations that are fiscally dependent on it. A primary government has the ability to impose its will on an organization if it can significantly influence the programs, projects, or activities of, or the level of services performed or provided by, the organization. A financial benefit or burden relationship exists if the primary government (a) is entitled to the organization's resources; (b) is legally obligated or has otherwise assumed the obligation to finance the deficits of, or provide financial support to, the organization; or (c) is obligated in some manner for the debt of the organization. Some organizations are included as component units because of their fiscal dependency on the primary government. iJ CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED Financial Reporting Entity — Continued An organization is fiscally dependent on the primary government if it is unable to adopt its budget, levy taxes, set rates or charges, or issue bonded debt without approval by the primary government. The following entities were found to be component units of the City and are included in the accompanying financial statements: Blended Component Unit (4A) - The Sanger Texas Industrial Development Corporation (STIDC) is governed by a board of five directors, all of whom are appointed by the City Council of the City of Sanger and any of whom can be removed from office by the City Council at its will. The STIDC was incorporated in the state of Texas a non-profit industrial development corporation under Section 4A of the Development Corporation Act of 1979. The purpose of the STIDC is to promote economic development within the City of Sanger. Blended Component Unit (413) - The Sanger Texas Development Corporation (STDC) is governed by a board of seven directors, all of whom are appointed by the City Council at its will. The STDC was incorporated in the state of Texas as a non- profit industrial development corporation under Section 46 of the Development Corporation Act of 1979. The purpose of the STDC is to promote economic and community development within the City of Sanger. Basis of Presentation The government -wide financial statements (the statement of net assets and the statement of activities) report information on all of the activities of the City. The effect of interfund activity within the governmental and business -type activities columns has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business -type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given program are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific program. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given program and 2) operating or capital grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Taxes and other items not properly included among program revenues are reported instead as general revenues. 25 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED Fund Financial Statements The City segregates transactions related to certain functions or activities in separate funds in order to aid financial management and to demonstrate legal compliance. Separate statements are presented for governmental and proprietary activities. These statements present each major fund as a separate column on the fund financial statements; all non -major funds are aggregated and presented in a single column. Governmental funds are those funds through which most governmental functions typically are financed. The measurement focus of governmental funds is on the sources, uses and balance of current financial resources. The City has presented the following major governmental funds: General Fund The General Fund is the main operating fund of the City. This fund is used to account for all financial resources not accounted for in other funds. All general tax revenues and other receipts that are not restricted by law or contractual agreement to some other fund are accounted for in this fund. General operating expenditures, fixed charges and capital improvement costs that are not paid through other funds are paid from the General Fund. Debt Service Fund The Debt Service Fund is used to account for the accumulation of financial resources for the payment of principal, interest and related costs on general long-term debt paid primarily from taxes levied by the City. The fund balance of the Debt Service Fund is restricted to signify the amounts that are restricted exclusively for debt service expenditures. Capital Projects Fund The Capital Projects Fund is used to account for funds received and expended for the construction and renovation of thoroughfares, arterial streets and drainage improvements in the City and construction, renovation, expansion and major improvement of various City facilities, acquisition of land and other large nonrecurring projects. !ItZ-TirK, 1_= 21 irk The 4A and 413 Funds are used to account for sales tax revenues collected for the purposes set forth by the Sanger Economic Development Corporation. 26 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED Fund Financial Statements — Continued Proprietary Funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. The accounting objectives are determinations of net income, financial position and cash flow. All assets and liabilities are included on the Statement of Net Assets. The City has presented the following major proprietary fund: Water, Sewer and Electric Fund The Water, Sewer and Electric Fund is the primary operating fund for water, sewer distribution and electric. It also accounts for all financial resources of the City concerning water, sewer and electric sales. Its activity is financed with debt secured by a pledge of the net revenues and has the requirement that the cost of providing services, including capital costs, be recovered by user fees and charges. Proprietary funds distinguish operating revenues and expenses from non -operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. Operating expenses for the proprietary funds include the cost of personnel and contractual services, supplies and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non -operating revenues and expenses. Measurement Focus and Basis of Accounting Measurement focus refers to what is being measured; basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurement made, regardless of the measurement focus applied. The government -wide statements and fund financial statements for proprietary funds are reported using the economic resources measurement focus and the accrual basis of accounting. The economic resources measurement focus means all assets and liabilities (whether current or non -current) are included on the statement of net assets and the operating statements present increases (revenues) and decreases (expenses) in net total assets. Under the accrual basis of accounting, revenues are recognized when earned, including unbilled water and wastewater services which are accrued. Expenses are recognized at the time the liability is incurred. Governmental fund financial statements are reported using the current financial resources measurement focus and are accounted for using the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual; i.e., when they become both measurable and available. Measurable means the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. The City considers receivables collected within sixty days after year-end to be available and recognizes them as revenues of the current year. Expenditures are recorded when the related fund liability is incurred. 01A, CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED Measurement Focus and Basis of Accounting — Continued However, debt service expenditures are recorded only when payment is due. The revenues susceptible to accrual are property taxes, franchise fees, licenses, charges for service, interest income and intergovernmental revenues. Sales taxes collected and held by the state at year end on behalf of the government are also recognized as revenue. All other governmental fund revenues are recognized when received. Cash and Investments Cash of all funds, including restricted cash, are pooled into common pooled accounts in order to maximize investment opportunities. Each fund whose monies are deposited in the pooled cash accounts has equity therein, and interest earned on the investment of these monies is allocated based upon relative equity at month end. An individual fund's pooled cash and investments are available upon demand. The City considers pooled and other cash and investments amounts that are purchased with a maturity of ninety days or less to be cash equivalents. All investments are recorded at fair value based on quoted market prices. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties. State statutes authorize the City to invest in obligations of the U.S. Government or its agencies; obligations of the State of Texas or its agencies; and certain other obligations, repurchase agreements, money market mutual funds and certificates of deposits within established criterion. Restricted Resources If both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first and unrestricted resources as needed. Property Taxes Property taxes are levied by October 1 on the assessed value listed as of the prior January 1 for all real and business personal property in conformity with Subtitle E, Texas Property Tax Code. Taxes are due on receipt of the tax bill and are delinquent if not paid before February 1 of the year following the year in which imposed. On January 1 of each year, a tax lien attaches to property to secure the payment of all taxes, penalties, and interest ultimately imposed. Property tax revenues are considered available when they become due or past due and receivable within the current period. Personal property taxes not collected by April 1 are forwarded for collection proceedings. Real property taxes not collected by July 1 are forwarded for collection proceedings. O CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED Inventories and Prepaid Items Inventories, which are recognized as expenses as consumed, are stated at cost (first -in, first -out method). Inventories consist primarily of expendable supplies for the Proprietary Fund. Prepaid balances are for payments made by the City in the current year to provide services occurring in the subsequent fiscal year. Interfund Receivables and Payables Any residual balances outstanding between the governmental activities and business - type activities are reported in the government -wide financial statements as internal balances. Transactions between Funds Interfund services provided and used are accounted for as revenues and expenditures or expenses. Transactions that constitute reimbursements to a fund for expenditures or expenses initially made from it that are properly applicable to another fund, are recorded as expenditures or expenses in the reimbursing fund and as a reduction of expenditures or expenses in the fund reimbursed. All other interfund transactions are recorded as transfers. Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets, are reported in the applicable governmental or business -type activities columns in the government -wide financial statements and in the fund financial statements for proprietary funds. All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated assets are valued at their fair market value on the date donated. Repairs and maintenance are recorded as expenses. Renewals and betterments are capitalized. Assets capitalized, not including infrastructure assets, have an original cost of $5,000 or more and over one year of useful life. Depreciation has been calculated on each class of depreciable property using the straight-line method. Estimated useful lives are as follows: Buildings and improvements Machinery and equipment Infrastructure W 5-50 years 3-20 years 10-30 years CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED Accumulated Vacation, Compensatory Time and Sick Leave The amounts owed to employees for unpaid vacation and sick leave liabilities, including the City's share of employment -related taxes, are reported on the accrual basis of accounting in the applicable governmental or business -type activity columns of the government -wide statements and in the enterprise activities of the fund financial statements. The liabilities and expenditures are reported on the modified accrual basis in the governmental fund financial statements. Nature and Purpose of Reservations and Designations of Fund Equity The City implemented Governmental Accounting Standards Board Statement 54, Fund Balance Reporting and Governmental Fund Type Definitions (GASB 54) during the year ended September 30, 2011. This statement establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. The objective of this statement is to enhance the usefulness of fund balance information by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing governmental fund type definitions. Fund balance categories under GASB 54 are Nonspendable and Spendable. Classifications under the Spendable category are Restricted, Committed, Assigned, and Unassigned. These classifications reflect not only the nature of funds, but also provide clarity to the level of restriction placed upon fund balance. Unassigned fund balance is a residual classification within the General Fund. The General Fund should be the only fund that reports a positive unassigned balance. In all other funds, unassigned is limited to negative residual fund balance. In accordance with GASB 54, the City classifies governmental fund balances in its financial statements as follows: 1. Nonspendable Fund Balance — Includes fund balance amounts that cannot be spent either because they are not in spendable form or because of legal or contractual requirements. Examples include inventories, long-term receivables, endowment principal, and/or prepaid/deferred items. 2. Spendable Fund Balance a. Restricted Fund Balance — Includes amounts that can be spent only for the specific purposes as imposed by law, or imposed by creditors, grantors, contributors, or other governments' laws and regulations. Examples include federal and state grant programs, retirement of long- term debt, and construction. i. The aggregate fund balance of the debt service fund is legally restricted for payment of bonded indebtedness and is not available for other purposes until all bonded indebtedness is liquidated. 30 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED Nature and Purpose of Reservations and Designations of Fund Equity — Continued ii. The fund balance of the capital projects fund reflects an amount restricted for construction and major renovation projects, and it usually represents unexpended proceeds from the sale of bonds, which primarily have restricted use. iii. The proceeds of specific revenue sources which are restricted to expenditures for specified purposes as designated by grantors, contributors, by vote of citizens, or governmental entities over state or local program grants. Committed Fund Balance — Includes amounts that can be used only for the specific purposes as determined by the governing body by formal action recorded in the minutes of the governing body. Commitments may be changed or lifted only by the governing body taking the same formal action that imposed the constraint originally. Examples include, but are not specifically limited to, council action regarding construction, claims, and judgments, retirement of loans/notes payable, and capital expenditures. The City Council must take action to commit funds for a specific purpose prior to the end of the fiscal year, but the amount of the commitment may be determined after the end of the fiscal year. c. Assigned Fund Balance — Includes amounts intended to be used by the City for specific purposes. Pursuant to GASB 54, this intent can be expressed by an official or body to which the governing body delegates that authority. The City has delegated to the City Manager the ability to determine and define the amounts of those components of fund balance that are classified as Assigned. Examples take on the similar appearance as those enumerated for committed fund balance, including the appropriation of existing fund balance to eliminate a deficit in next year's budget. Unassigned Fund Balance — Includes the residual classification of the General Fund and includes all amounts not contained in other classifications. By accounting for amounts in other funds, the City has implicitly assigned the funds for the purposes of those particular funds. In circumstances where an expenditure is to be made for a purpose for which amounts are available in multiple fund balance classifications, the order in which resources will be expended is as follows: restricted fund balance, followed by committed fund balance, assigned fund balance, and lastly unassigned fund balance. 31 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED Net Assets Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition, construction or improvements of those assets, and adding back unspent proceeds. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislations adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. NOTE 2. CASH AND INVESTMENTS Cash and investments as of September 30, 2012 consist of the following: Deposits with financial institutions $ 5,007,904 Certificates of deposit 2,803,623 $ 7,811,527 Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by investing mainly in certificates of deposit which purchase a combination of shorter term investments with an average maturity of less than 30 days thus reducing the interest rate risk. The City monitors the interest rate risk inherent in its portfolio by measuring the weighted average maturity of its portfolio. The City has no specific limitations with respect to this metric. 32 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 2. CASH AND INVESTMENTS — CONTINUED As of September 30, 2012, the City had the following investments: Investment Type Amount Weighted Average Maturity Certificates of deposit $ 2,803,623 134 days As of September 30, 2012 the City did not invest in any securities which are highly sensitive to interest rate fluctuations. Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the Public Funds Investment Act, the City's investment policy, or debt agreements, and the actual rating as of year-end for each investment type. Investment Type Certificates of deposit Concentration of Credit Risk Minimum Legal Rating as of Amount Rating September 30, 2012 $ 2,803,623 N/A The investment policy of the City contains no limitations on the amount that can be invested in any one issuer. As of September 30, 2012, other than certificates of deposit, the City did not have 5% or more of its investments with one issuer. Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The Public Funds Investment Act and the City's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The Public Funds Investment Act requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least the bank balance less the FDIC insurance at all times. 33 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 2. CASH AND INVESTMENTS — CONTINUED Custodial Credit Risk — Continued At September 30, 2012, the carrying amount of the City's cash on hand and deposits was $5,007,904 and the bank balance was $5,183,145. The full bank balance was covered by depository insurance under the FDIC and pledged securities in the City's name. NOTE 3. RESTRICTED ASSETS Restricted assets are held for the following purposes in accordance with bond ordinances or other legal restrictions for the Proprietary Fund as follows: Debt service - interest and sinking fund $ 951,238 Capital improvements 1,356,571 Refundable utility deposits 315,761 $ 2,623,570 Restricted assets are held for the following purposes in accordance with bond ordinances or other legal restrictions for the Governmental Funds as follows: Debt service $ 346,997 Capital improvements 202,110 Economic and community development 1,186,842 $ 1,735,949 34 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 4. CAPITAL ASSETS Capital asset activity for the year ended September 30, 2012, was as follows: Balance Balance October 1, Additions/ Retirements/ September 30, 2011 Completions Adjustments 2012 Governmental activities Capital assets not being depreciated Land Construction in progress Total capital assets not being depreciated Capital assets being depreciated Infrastructure Buildings and improvements Machinery and equipment $ 862,307 $ - $ - $ 862,307 3,239,639 1,265,281 (4,232,535) 272,385 4,101,946 1,265,281 (4,232,535) 1,134,692 9,800,941 - 749,693 10,550,634 3,567,983 70,000 3,482,842 7,120,825 2,099,506 481,377 (87,344) 2,493,539 Total capital assets being depreciated 15,468,430 551,377 4,145,191 20,164,998 Less accumulated depreciation Infrastructure 3,305,559 580,486 - 3,886,045 Buildings and improvements 787,822 149,475 - 937,297 Machinery and equipment 1,330,820 234,530 (62,625) 1,502,725 Total accumulated depreciation 5,424,201 964,491 (62,625) 6,326,067 Total capital assets being depreciated, net 10,044,229 (413,114) 4,207,816 13,838,931 Net governmental activities capital assets $ 14,146,175 $ 852,167 $ (24,719) $ 14,973,623 35 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 4. CAPITAL ASSETS - CONTINUED Balance Balance October 1, Additions/ Retirements/ September 30, 2011 Completions Adjustments 2012 Business -type activities Capital assets not being depreciated Land $ 323,164 $ - $ - $ 323,164 Construction in progress - 291,414 - 291,414 Total capital assets not being depreciated 323,164 291,414 - 614,578 Capital assets being depreciated Infrastructure 22,072,504 40,132 - 22,112,636 Buildings and improvements 860,132 - - 860,132 Machinery and equipment 1,421,996 177,313 - 1,599,309 Total capital assets being depreciated 24,354,632 217,445 - 24,572,077 Less accumulated depreciation Infrastructure 10,235,131 724,578 - 10,959,709 Buildings and improvements 164,565 52,239 - 216,804 Machinery and equipment 1,112,887 108,222 - 1,221,109 Total accumulated depreciation 11,512,583 885,039 - 12,397,622 Total capital assets being depreciated, net 12,842,049 (667,594) - 12,174,455 Net business -type activities capital assets $ 13,165,213 $ (376,180) $ - $ 12,789,033 36 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 4. CAPITAL ASSETS — CONTINUED Depreciation expense was charged as direct expense to programs of the primary government as follows: Governmental activities General government $ 70,760 Public safety 94,661 Streets and sanitation 607,409 Fire and rescue 117,529 Court 386 Culture and recreation 73,746 Total governmental activities $ 964,491 Business -type activities Water $ 273,790 Sewer 220,701 Electric 375,093 Other 15,455 Total business -type activities $ 885,039 37 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 5. LONG-TERM DEBT At September 30, 2012, the City's bonds and notes payable consisted of the following: Governmental Business -type $6,500,000 Series 2006, Combination Tax and Revenue Ceritifcates of Obligation, dated August 7, 2006, due in annual installments through 2022, bearing interest rates of 4% to 5%. $ 2,001,000 $ 2,349,000 $1,750,000 Series 2007, Combination Tax and Revenue Certificates of Obligation, dated June 15, 2007, due in annual installments through 2027, bearing interest at 4.4%. 493,000 957,000 $3,200,000 Series 2009, Combination Tax and Revenue Certificates of Obligation, dated July 30, 2009, due in annual installments through 2026, bearing interest rates of 3% to 4.75%. $3,495,000 Series 2012, General Obligation Refunding, dated March 20, 2012, due in annual installments through 2021, bearing interest rates of 2% to 3%. Note payable to a financial institution in monthly installments of $5,106 including interest at 4.6%, due June 5, 2024, secured by property financed. Deferred loss on refunding bonds. 38 2,770,000 1,504,800 553,391 (33,743) $ 7,288,448 1;915,200 (75,958) $ 5,145,242 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 5. LONG-TERM DEBT — CONTINUED The following is a summary of long-term debt transactions of the City for the year ended September 30, 2012: Balance Balance Due Beginning End within of Year Increases Decreases of Year One Year Governmental activities Compensated absences $ 77,947 $ 108,885 $ (76,428) $ 110,404 $ 45,164 Notes payable 596,104 - (42,713) 553,391 36,576 Certificates of obligation 7,222,800 1,537,800 (1,991,800) 6,768,800 541,200 Capital leases 70,162 340,119 (70,162) 340,119 102,755 Deferred loss on refunding bonds - (35,210) 1,467 (33,743) (3,912) Total governmental activities 7,967,013 1,951,594 (2,179,636) 7,738,971 721,783 Business -type activities Compensated absences 54,220 82,211 (68,458) 67,973 34,108 Revenue bonds 5,652,200 1,957,200 (2,388,200) 5,221,200 488,800 Capital leases 376,494 - (6,093) 370,401 178,000 Deferred loss on refunding bonds - (79,261) 3,303 (75,958) (8,807) Total business -type activities 6,082,914 1,960,150 (2,459,448) 5,583,616 692,101 Total primary government $ 14,049,927 $ 3,911,744 $ (4,639,084) $ 13,322,587 $ 1,413,884 The City issues general obligation bonds, which are direct obligations of the City and pledge the full faith and credit of the City. For the governmental activities, compensated absences are generally liquidated with resources of the General Fund. General obligation bonds issued for governmental activity purposes are liquidated by the debt service fund. Notes payable issued for governmental activity purposes are liquidated by the General Fund. Revenue bonds and notes payable issued for business -type activities are repaid from those activities. During fiscal year 2012, the City issued $3,495,000 in General Obligation Refunding Bonds with interest rates ranging from 2% - 3%, which was used to advance refund the outstanding Series 1996 and Series 2002 Utility System Revenue Bonds and the Series 2002 Combination Tax and Revenue Certificates of Obligation for a total of $3,395,000. The average interest rate on the bonds being refunded was 4.86%. The net proceeds of $3,477,750 (after payment of issuance costs) were used to pay the outstanding balance on the refunded bonds. As a result, the refunded bonds were considered defeased, and the liability for those bonds has been removed from the government -wide statements. As of September 30, 2012, $3,395,000 of bonds outstanding are considered defeased. The City advance refunded the bonds to reduce its total debt service payments over the next 10 years by $492,023 and to obtain an economic gain of $395,704 (the difference between the present value of the debt service payments on the old and new debt). 39 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 5. LONG-TERM DEBT - CONTINUED The annual requirements to amortize all debts outstanding as of September 30, 2012, are as follows: Revenue Bonds Business -Type Activities Due Fiscal Year Ending September 30 Principal Interest Total 2013 $ 488,800 $ 360,480 $ 849,280 2014 503,000 352,391 855,391 2015 519,500 349,433 868,933 2016 536,400 340,551 876,951 2017 514,000 286,608 800,608 2018-2022 2,270,100 1,054,317 3,324,417 2023-2027 389,400 52,998 442,398 $ 5,221,200 $ 2,796,778 $ 8,017,978 Certificates of Obligation Governmental Activities Due Fiscal Year Ending September 30 Principal Interest Total 2013 $ 541,200 $ 258,253 $ 799,453 2014 557,000 240,761 797,761 2015 575,500 222,699 798,199 2016 593,600 204,054 797,654 2017 581,000 180,783 761,783 2018-2022 2,759,900 562,028 3,321,928 2023-2027 1,160,600 141,939 1,302,539 $ 6,768,800 $ 1,810,517 $ 8,579,317 Notes Payable Governmental Activities Due Fiscal Year Ending September 30 Principal Interest Total 2013 $ 36,576 $ 24,620 $ 61,196 2014 38,368 22,898 61,266 2015 40,171 21,094 61,265 2016 42,058 19,209 61,267 2017 44,034 17,233 61,267 2018-2022 253,217 53,118 306,335 2023-2027 98,967 3,939 102,906 $ 553,391 $ 162,111 $ 715,502 40 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 6. CAPITAL LEASE OBLIGATIONS The City has entered into capital lease agreements. The leased property under capital leases is classified as machinery and equipment with a total capitalized cost of approximately $948,989 and an amortized value of approximately $750,515 at September 30, 2012. Amortization expense has been included in depreciation expense for the year ended September 30, 2012. The following is a schedule of future minimum payments under the capital leases together with the present value of the net minimum lease payments as of September 30, 2012: 2013 2014 2015 2016 Less amount representing interest Present value of net minimum lease payments Plan Description $ 315,905 211,451 211,478 36,946 775,780 65,260 $ 710,520 The City of Sanger provides pension benefits for all of its full-time employees through a non-traditional, joint contributory, hybrid defined benefit plan in the state-wide Texas Municipal Retirement System (TMRS), an agent multiple -employer public employee retirement system. The plan provisions that have been adopted by the City are within the options available in the governing state statutes of TMRS. TMRS issues a publicly available comprehensive annual financial report that includes financial statements and required supplementary information (RSI) for TMRS; the report also provides detailed explanations of the contributions, benefits and actuarial methods and assumptions used by the System. The report may be obtained from TMRS' website at www.TMRS.com. 41 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 7. PENSION PLAN — CONTINUED The plan provisions are adopted by the governing body of the City, within the options available in the state statutes governing TMRS and within the actuarial constraints also in the statutes. Plan provisions for the City are as follows: Deposit rate Matching ratio (City to employee) A member is vested after Updated service credit Annuity increase (to retirees) Benefits 6% 2-1 5 years 100% repeating, transfers 0% of CPI repeating Benefits depend upon the sum of the employee's contributions to the plan, and City - financed monetary credits, both with interest. At the date the plan began, the City granted monetary credits for service rendered before the plan began of a theoretical amount equal to two times what would have been contributed by the employee with interest, prior to establishment of the plan. Monetary credits for service since the plan began are a percent (100%, 150%, 200%) of the employee's accumulated contributions. In addition, the City can grant as often as annually another type of monetary credit referred to as an updated service credit which is a theoretical amount which, when added to the employee's accumulated contributions and the monetary credits for service since the plan began, would be the total monetary credits and employee contributions accumulated with interest if the current employee contribution rate and the City matching percent had always been in existence and if the employee's salary had always been the average of his salary in the last three years that are one year before the effective date. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions with interest and the employer -financed monetary credits with interest were used to purchase an annuity. Members can retire at certain ages, based on the years of service with the City. The Service Retirement Eligibilities for the City are 5 years at 60 years of age or 20 years at any age. Contributions Under the state law governing TMRS, the contribution rate for each city is determined annually by the actuary, using the Projected Unit Credit actuarial cost method. This rate consists of the normal cost contribution rate and the prior service cost contribution rate, which is calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the portion of an active member's projected benefit allocated annually; the prior service contribution rate amortizes the unfunded (overfunded) actuarial liability (asset) over the applicable period for the City. Both the normal cost and prior service contribution rates include recognition of the projected impact of annually repeating benefits, such as Updated Service Credits and Annuity Increases. 42 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 7. PENSION PLAN — CONTINUED Contributions — Continued The City contributes to the TMRS Plan at an actuarially determined rate. Both the employees and the City make contributions monthly. Since the City needs to know its contribution rate in advance for budgetary purposes, there is a one-year delay between the actuarial valuation that serves as the basis for the rate and the calendar year when the rate goes into effect (i.e., December 31, 2011 valuation is effective for rates beginning January 2013). The annual pension cost is $191,163 for the year ended September 30, 2012, and there is no net pension obligation as of September 30, 2012. Trend information for the past three years for TMRS is as follows: Annual Pension Cost Year (APC) 2010 $ 187,668 2011 217,754 2012 191,163 Percentage Actual Amount Net of APC of APC Pension Contributed Contributed Obligation 100% $ 187,668 $ 100% 217,754 100% 191,163 The required contribution rates for fiscal year 2012 were determined as part of the December 31, 2009 and 2010 actuarial valuations. Additional information as of the latest actuarial valuation, December 31, 2011, also follows: Valuation Date Actuarial Cost Method Amortization Method GASB 25 Equivalent Single Amortization Period Amortization Period For New Gains/Losses Asset Valuation Method Actuarial Assumptions: Investment Rate of Return` Projected Salary Increases* * Includes inflation at cost of living adjustments 12/31 /09 Projected Unit Credit Level Percent of Payroll 23 years; closed period 25 years 10-Year Smoothed Market 7.5% Varies by age and service 3.0% 0.0% 43 Projected Unit Credit Level Percent of Payroll 22.7 years; closed period 25 years 10-Year Smoothed Market 7.0% Varies by age and service 3.0% 0.0% 12/31/11 Projected Unit Credit Level Percent of Payroll 21.8 years; closed period 25 years 10-Year Smoothed Market 7.0% Varies by age and service 3.0% 0.0% CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 7. PENSION PLAN — CONTINUED Contributions — Continued The funded status as of December 31, 2011, the most recent actuarial valuation date, is as follows: Actuarial Actuarial Actuarial UAAL as a Valuation Value of Accrued Funded Unfunded AAL Covered percentage of Date Assets Liability (AAL) Ratio (UAAL) Payroll Covered Payroll 12/31/11 $ 4,691,607 $ 5,122,534 91.6% $ 430,927 $ 2,662,684 16.2% Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. Actuarial calculations are based on the benefits provided under the terms of the substantive plan in effect at the time of each valuation, and reflect a long-term perspective. Consistent with that perspective, actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. The schedule of funding progress, presented as Required Supplementary Information following the notes to basic financial statements, presents multi -year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability of benefits. NOTE 8. COMMITMENTS The City entered into a three year contract in 2009 with the AEP Energy Partners, Inc. for the delivery of electricity. During 2012, this contract was extended for an additional seven years to expire in 2019. Payments under this contract are based on meter readings charged per month. The City had outstanding encumbrances totaling $108,398 as of September 30, 2012. At September 30, 2012, the City was committed to several long-term construction contracts. The Capital Projects Fund and the Enterprise Fund were contractually committed to $73,076 and $27,603, respectively, under these contracts. 44 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 9. RENTAL INCOME On March 1, 2012, the City entered into a non -cancelable lease agreement with a corporation of which a city council member is a principal member of management. The leased property is owned by the 4A Fund and has a cost $1,083,797 with accumulated depreciation of $99,706 as of September 30, 2012. The lease provides for a base rent and an adjustment each year related to excess operating expenses (if any) incurred annually. During the year ended September 30, 2012, the City received $32,778 in rental revenue. Minimum future rentals on non -cancelable tenant operating leases at September 30, 2012 are as follows for fiscal years ending September 30: 2013 $ 78,667 2014 78,667 2015 45,889 Future minimum rentals $ 203,223 NOTE 10. INTERFUND BALANCES AND TRANSFERS The Enterprise Fund owes the Capital Projects Fund $263,811 at September 30, 2012. The interfund balance is related to reimbursement for capital assets, and is to be repaid or collected in the normal course of business, within one year of the fiscal year-end. All interfund transfers between the various funds are approved supplements to the operations of those funds. Transfers In General fund General fund Capital projects fund Debt service fund Transfers Out 4A fund 413 fund General fund 46 fund Transfers are primarily used to move funds from: Amount $ 15,500 15,500 200,000 180,000 $ 411,000 - The 4A and 413 funds to the general fund for payment of administrative costs. - The general fund to the capital projects fund to reimburse for project costs. - 413 fund to the debt service fund to service the debt related to the 413 fund. 45 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 11. RISK MANAGEMENT The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City insures its buildings and contents, law enforcement liability, public officials' liability, general liability and auto liability under a renewable one year policy with the Texas Municipal League. The City insures its workers compensation risk by participating in the Texas Municipal League Intergovernmental Risk Pool which is a self-insurance policy mechanism for political subdivisions in Texas. Rates are set by the State Insurance Board. Each participant's contribution to the pool is adjusted based on its workers' compensation history. The City is responsible only to the extent of premiums paid and contributions made to Texas Municipal League and the Intergovernmental Risk Pool. There have been no significant changes in insurance coverage as compared to last year and settlements have not exceeded coverage in each of the past three fiscal years. ii•C��t F 11i101:401 The City issued notes payable totaling $232,358,091 for the purpose of assisting with financing needed by not -for -profit organizations to promote their cause. Final maturities on notes payable range from March 2017 through December 2041. The notes are secured by various assets of the borrower. The total amount outstanding on all of the notes payable is $230,350,185 as of September 30, 2012. The City has no liability for the notes payable in the event of default by the borrowers. Accordingly, the bonds are not reported as liabilities in the City's financial statements. NOTE 13. PLEDGED REVENUES The City has pledged revenues derived from the operation of the utility system, net of operating and maintenance expenses, to repay $6,617,200 in utility revenue bonds. The total amount of outstanding principal as of September 30, 2012 was $5,221,200. Proceeds from the bonds provided financing for improvements to the utility system, as well as refunding $1,900,000 in bonds. The bonds are payable solely from the net earnings of the utility system and are payable through 2027. The total principal and interest remaining to be paid on the bonds is $8,017,978. Principal and interest paid for the current year and net utility system revenues were $699,669 and $1,890,146, respectively. 46 CITY OFSANGER, TEXAS SCHEDULE OFFUNDING PROGRESS FOR PARTICIPATION IN TEXAS MUNICIPAL RETIREMENT SYSTEM YEAR ENDED SEPTEKOBER 30,2012 Actuarial Actuarial Actuarial Valuation Value of Accrued Date Assets Liability 12/3108 $ 3.419.082 $ 3.973.305 12/31/10 4.202.344 4.863.688 Percentage Funded 47 Unfunded Actuarial Unfunded Accrued Liability Actuarial Annual as Accrued Covered Percentage of Liability PovmU Covered PaU $ 554.273 $ 2.503.007 22196 481.325 2.454.429 18.8% 430.927 2.062.884 102% CITY OF SANGER, TEXAS BUDGETARY COMPARISON SCHEDULE - GENERAL FUND YEAR ENDED SEPTEMBER 30, 2012 Variance with Budgeted Amounts Actual Final Budget Original Final Amount Over / (Under) Revenues Property taxes $ 1,671,380 $ 1,671,380 $ 1,637,637 $ (33,743) Sales taxes 483,420 483,420 616,427 133,007 Licenses and permits 53,990 53,990 130,869 76,879 Charges for services 690,575 690,575 803,173 112,598 Fire and rescue 457,000 457,000 479,381 22,381 Court 345,122 345,122 191,903 (153,219) Franchise taxes 543,800 543,800 539,485 (4,315) Interest 10,000 10,000 5,326 (4,674) Miscellaneous revenues 145,600 145,600 87,875 (57,725) Total revenues 4,400,887 4,400,887 4,492,076 91,189 Expenditures Current General government 684,998 684,998 628,847 (56,151) Public safety 1,454,823 1,454,823 1,408,666 (46,157) Streets and sanitation 918,523 918,523 838,133 (80,390) Fire and rescue 675,709 675,709 633,763 (41,946) Court 233,095 233,095 208,947 (24,148) Culture and recreation 493,214 493,214 419,795 (73,419) Principal 78,153 78,153 79,211 1,058 Interest and other - - 1,282 1,282 Capital outlay 329,015 329,015 481,377 152,362 Total expenditures 4,867,530 4,867,530 4,700,021 (167,509) Excess (deficiency) of revenues over expenditures (466,643) (466,643) (207,945) 258,698 Other financing sources (uses) Proceeds on sale of assets 7,500 7,500 10,000 2,500 Proceeds from capital lease - - 340,119 340,119 Operating transfers in 109,154 109,154 31,000 (78,154) Operating transfers out - - (200,000) (200,000) Total other financing sources (uses) 116,654 116,654 181,119 64,465 Excess (deficiency) of revenues and other financing sources over expenditures and other financing uses (349,989) (349,989) (26,826) 323,163 FUND BALANCE, beginning of year 800,223 800,223 800,223 - FUND BALANCE, end of year $ 450,234 $ 450,234 $ 773,397 $ 323,163 48 CITY OF SANGER, TEXAS COMBINING SCHEDULE OF REVENUES AND EXPENSES PROPRIETARY FUND BY DEPARTMENT YEAR ENDED SEPTEMBER 30, 2012 OPERATING REVENUES Charges for services Connection fees Tap fees Miscellaneous Total operating revenue OPERATING EXPENSES Salaries and wages Purchased professional and technical services Utilities Materials and supplies Water and electric purchases Franchise fees Depreciation Repairs and maintenance Bad debt expense Total operating expenses Operating income (loss) NONOPERATING REVENUES (EXPENSES) Interest and investment income Interest and amortization expense Total nonoperating revenues (expenses) CHANGE IN NET ASSETS 49 Wntar Cawar $ 1,321,657 $ 1,128,429 180,850 215,500 1,502,507 1,343,929 217,647 123,675 10,243 3,325 154,409 162,689 20,960 25,433 220,743 - 289,245 220,701 141,508 279,965 9,264 8,646 1 f AA 01 Q R9A AIA 438,488 519,495 (73,259) (37,266) (73,259) (37,266) $ 365,229 $ 482,229 Electric $ 7,776,521 $ 58,410 7,834,931 507,409 46,198 11,569 49,454 4,825,188 355,622 375,093 78,716 58,464 1,527,218 Fleet Data Services Administration Processing $ 1,505 $ - 57,282 - 58,787 - 45,938 689 4,141 2,303 5,325 228,984 44,766 5,279 14,253 19,280 58,396 312, 562 (58,396) (253,775) 210,629 42,894 5,097 13,746 10,518 282,884 Total $ 10,228,112 58,410 396,350 57,282 10, 740,154 1,334,282 148,115 343,184 126,149 5,045,931 355,622 885,039 535,312 76,374 (282, 884) 1,890,146 32,902 - 32,902 (105,974) - (1,089) - (217,588) (105,974) - 31,813 - (184,686) $ 1,421,244 $ (58,396) $ (221,962) $ (282,884) $ 1,705,460 50 LU J m a > N Q N U. UJ O QOGoJIx Ul LLJ 0 F- x ui �a2F—a w 0��>_� Q W W Q W cnaCl) >- 0W0CL= U. W 0O Cl) i a z a il- 00 o') M N O o �- 00 CV 00 Cn CD M 1- LL> if N 00 O O pp — 1� M ti MLO a) p — O 00 O N N N (D co co V ( � � CD O O C) N (O NlN N I - 6N co co ti 1- � m � O m LO N N p M N O O N N N co 64 y} (A Cfl f-- V co CD O co O o 00 0 co 00 O O 0 00 f` (D •- O �- p N O m It-Lo o O N N O O co d co c- d I Cn o 'ITI-- C) O O d C 0~0 M 000 r o I,-U') 0vi d0 co o O 0 N N N co 09- 60 60 61)- (D t— m UD d' O Un o C) CD— o rn — � N 0 ti r 0 0 0 .- a CD M N CDO N N U) (0 ER 64 Cf} Q:)- v a) Z U) O O _ M U O a 21 U) coo 7 i N N X co A CU CL OL Q L- (6 a) a s- a) :E > V N a) >, a) O L Q- i M j, L O s= o L O1 O j U a) X N CZ O CL (4 O O j (1) CL O Q N (D � Ca (Q O C) OC) a) CL a) (a X N 0 U N O N x N L) U O O N Q J U d H H H CL T PAYING AGENT/REGISTRAR AGREEMENT THIS PAYING AGENT/REGISTRAR AGREEMENT dated as of June 17, 2013 (together with any amendments or supplements hereto, the "Agreement") is entered into by and between the CITY OF SANGER, TEXAS (the "Issuer"), and BOKF, NA dba Bank of Texas, Austin, Texas, as paying agent/registrar (together with any successor in such capacity, the "Bank" WITNESSETH: WHEREAS, the Issuer has duly authorized and provided for the issuance of its City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2013 (the "Certificates") in the aggregate principal amount of $4,260,000 to be issued as fully registered certificates; WHEREAS, all things necessary to make the Certificates the valid obligations of the Issuer, in accordance with their terms, will be done upon the issuance and delivery thereof, WHEREAS, the Issuer and the Bank wish to provide the terms under which the Bank will act as Paying Agent to pay the principal of, redemption premium, if any, and interest on the Certificates, in accordance with the terms thereof, and under which the Bank will act as Registrar for the Certificates; and WHEREAS, the Issuer and the Bank have duly authorized the execution and delivery of this Agreement; and all things necessary to make this Agreement the valid agreement of the parties, in accordance with its terms, have been done. NOW, THEREFORE, it is mutually agreed as follows: ARTICLE ONE APPOINTMENT OF BANK AS PAYING AGENT AND REGISTRAR Section 1.01. Appointment. The Issuer hereby appoints the Bank to act as Paying Agent with respect to the Certificates, to pay to the Registered Owners of the Certificates, in accordance with the terms and provisions of this Agreement and the ordinance authorizing the issuance of the Certificates (the "Ordinance"), the principal of, redemption premium, if any, and interest on all or any of the Certificates. The Issuer hereby appoints the Bank as Registrar with respect to the Certificates. IIN[oil,W-Uln. %[IRA The Bank hereby accepts its appointment, and agrees to act as Paying Agent and Registrar with respect to the Certificates. Section 1.02. Compensation. In consideration of the deposits of funds required to be made with the Bank by the Issuer pursuant to the provisions of the Ordinance, the Bank shall be paid the fees set forth in the Bank's fee schedule attached as Exhibit A hereto and agrees to abide by and accept the terms hereof and of the Ordinance relating to the duties of the Paying Agent/Registrar. ARTICLE TWO DEFINITIONS Section 2.01. Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: "Bank" means BOKF, NA dba Bank of Texas, Austin, Texas, a commercial bank which is a national bank duly organized and existing under the laws of the United States of America. "Certificate" or "Certificates" means any one or all of the "City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2013" authorized by the Ordinance. "Issuer" means the City of Sanger, Texas. "Ordinance" means the ordinance of the Issuer approved by its City Council on June 17, 2013 pursuant to which the Certificates are issued. "Paying Agent" means the Bank when it is performing the function of paying agent. "Person" means any individual, corporation, partnership, joint venture, associations, joint stock company, trust, unincorporated organization or government or any agency or political subdivision of a government or any entity whatsoever. "Registrar" means the Bank when it is performing the function of registrar. "Registered Owner" means the Person in whose name any Certificate is registered in the books of registration maintained by the Bank under this Agreement. All other capitalized terms shall have the meanings assigned to them in the Ordinance. 2 HOU:3306940.2 ARTICLE THREE DUTIES OF THE BANK Section 3.01. Initial Delivery of the Certificates. The Certificates will be initially registered and delivered by the Bank to the purchaser designated by the Issuer as set forth in the Ordinance. If such purchaser delivers a written request to the Bank not later than five business days prior to the date of initial delivery, the Bank will, on the date of initial delivery, exchange the Certificates initially delivered for Certificates of authorized denominations, registered in accordance with the instructions in such request and the Ordinance. Section 3.02. Duties of Pa in Agent. As Paying Agent, the Bank shall, provided adequate funds have been provided to it for such purpose by or on behalf of the Issuer, timely pay on behalf of the Issuer the principal of and interest on each Certificate in accordance with the provisions of the Ordinance. If the issue is to be Depository Trust Company (DTC) eligible, the Paying Agent will comply with all eligibility requirements as outlined and agreed upon in the eligibility questionnaire. Section 3.03. Duties of Registrar. The Bank shall provide for the proper registration of the Certificates and the timely exchange, replacement and registration of transfer of the Certificates in accordance with the provisions of the Ordinance. Any changes to Registered Owners for such exchange, replacement and registration shall be made by the Bank only in accordance with the Ordinance. The Bank will maintain the books of registration in accordance with the Bank's general practices and procedures in effect from time to time; provided, however, that the Bank agrees to maintain books of registration for the Certificates at the City Secretary's office in City of Sanger, Texas, which books of registration may be a copy of the register which shall be kept current by the Bank. Section 3.04. Unauthenticated Certificates. The Issuer shall provide an adequate inventory of unauthenticated Certificates to facilitate transfers. The Bank covenants that it will maintain such unauthenticated Certificates in safekeeping and will use reasonable care in maintaining such Certificates in safekeeping, which shall be not less than the care it maintains for debt securities of other government entities or corporations for which it serves as registrar, or which it maintains for its own bonds. 3 HOU:3306940.2 Section 3.05. Reports. Upon request of the Issuer, the Bank will provide the Issuer reports which will describe in reasonable detail all transactions pertaining to the Certificates and the books of registration for the period of time specified by the Issuer. The Issuer may also inspect and make copies of the information in the books of registration and such other documents related to the Certificates and in the Bank's possession at any time the Bank is customarily open for business, provided that reasonable time is allowed the Bank to provide an up-to-date listing or to convert the information into written form. The Bank will not release or disclose the content of the books of registration to any person other than to, or at the written request of, an authorized officer or employee of the Issuer, except upon receipt of a subpoena, court order or as otherwise required by law. Upon receipt of a subpoena, court order or other lawful request, the Bank will notify the Issuer immediately so that the Issuer may contest the subpoena, court order or other request if it so chooses. Section 3.06. Canceled Certificates. All Certificates surrendered for payment, redemption, transfer, exchange or replacement, if surrendered to the Bank, shall be promptly canceled by it and, if surrendered to the Issuer, shall be delivered to the Bank and, if not already canceled, shall be promptly canceled by the Bank. The Issuer may at any time deliver to the Bank for cancellation any Certificates previously authenticated and delivered which the Issuer may have acquired in any manner whatsoever, and all Certificates so delivered shall be promptly canceled by the Bank. All canceled Certificates held by the Bank shall be destroyed and evidence of such destruction shall be furnished to the Issuer. Section 3.07. Reliance on Documents Etc. (a) The Bank may conclusively rely, as to the truth of the statements and correctness of the opinions expressed therein, on certificates or opinions furnished to the Bank by the Issuer. (b) The Bank shall not be liable to the Issuer for actions taken under this Agreement as long as it acts in good faith and exercises due diligence, reasonableness and care, as prescribed by law, with regard to its duties hereunder. (c) This Agreement is not intended to require the Bank to expend its own funds for performance of any of its duties hereunder. (d) The Bank may exercise any of the powers hereunder and perform any duties hereunder either directly or by or through agents or attorneys. (e) The Bank is also authorized to transfer funds relating to the closing and initial delivery of the securities in the manner disclosed in the closing memorandum approved by the Issuer as prepared by the Issuer's financial advisor or other agent. The Bank may act on a 4 HOU:3306940.2 facsimile transmission of the closing memorandum to be followed by an original of the closing memorandum signed by the financial advisor or the Issuer. Section 3.08. Money Held by Bank. Money held by the Bank hereunder shall be held in trust for the benefit of the Registered Owners of the Certificates. The Bank shall be under no obligation to pay interest on any money received by it hereunder. All money deposited with the Bank hereunder shall be secured in the manner and to the fullest extent required by law for the security of funds of the Issuer. Any money deposited with the Bank for the payment of the principal of or interest on any Certificates and remaining unclaimed by the Registered Owner after the expiration of three years from the date such funds have become due and payable shall be reported and disposed of by the Bank in accordance with the provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. To the extent such provisions of the Property Code do not apply to the funds, such funds shall be paid by the Bank to the Issuer upon receipt of a written request therefor from the Issuer. The Bank shall have no liability to the Registered Owners of the Certificates by virtue of actions taken in compliance with the foregoing provision. ARTICLE FOUR MISCELLANEOUS PROVISIONS Section 4.01. May Own Certificates. The Bank, in its individual or any other capacity, may become the owner or pledgee of Certificates with the same rights it would have if it were not the Paying Agent and Registrar for the Certificates. Section 4.02. Amendment. This Agreement may be amended only by an agreement in writing signed by both of the parties hereof. Section 4.03. Assignment. This Agreement may not be assigned by either party without the prior written consent of the other. 5 HOU:3306940.2 Section 4.04. Notices. Any request, demand, authorization, direction, notice, consent, waiver or other document provided or permitted hereby to be given or furnished to the Issuer or the Bank shall be mailed or delivered to the Issuer or the Bank, respectively, at the addresses shown herein, or such other address as may have been given by one party to the other by 15 days' written notice. Section 4.05. Effect of HeadiM. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 4.06. Successors and Assigns. All covenants and agreements herein by the Issuer and the Bank shall bind their successors and assigns, whether so expressed or not. This Agreement shall not be assigned by the Bank without the prior written consent of the Issuer. Section 4.07. Severability. If any provision of this Agreement shall be invalid or unenforceable, the validity and enforceability of the remaining provisions hereof shall not in any way be affected or impaired. Section 4.08. Benefits of Agreement. Nothing herein, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any benefit or any legal or equitable right, remedy or claim hereunder. Section 4.09. Ordinance Governs Conflicts. This Agreement and the Ordinance constitute the entire agreement between the parties hereto relative to the Bank acting as Paying Agent and Registrar and if any conflict exists between this Agreement and the Ordinance, the Ordinance shall govern. The Bank agrees to be bound by the terms of the Ordinance with respect to the Certificates. Section 4.10. Term and Termination. This Agreement shall be effective from and after its date and may be terminated for any reason by the Issuer or the Bank at any time upon 60 days' written notice; provided, however, that no such termination shall be effective until a successor has been appointed and has accepted the duties of the Bank hereunder. In the event of early termination, regardless of circumstances, the Bank shall deliver to the Issuer or its designee all funds, Certificates and all books and records pertaining to the Bank's role as Paying Agent and Registrar with respect to the Certificates, including, but not limited to, the books of registration. 6 HOU:3306940.2 Section 4.11. Governing Law, This Agreement shall be construed in accordance with and shall be governed by the laws of the State of Texas. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CITY OF SANGER, TEXAS C Mayor ADDRESS: 201 Bolivar Street Sanger, Texas 76266 ATTEST: City Secretary ,��a45>'s�9ttatairrt��¢ BOKF, NA dba Bank of Texas By: Title: ADDRESS: 100 Congress Avenue Suite 250 Austin, Texas 78701 Attn: Corporate Trust Dept. ATTEST: By: Title: (SEAL) 7 HOU:3306940.1 Section 4.11. Governing Law. This Agreement shall be construed in accordance with and shall be governed by the laws of the State of Texas. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CITY OF SANGER, TEXAS By: Mayor ADDRESS: 201 Bolivar Street Sanger, Texas 76266 ATTEST: City Secretary (SEAL) BOKF, NA dba Bank of Texas By: GA Title: VICE PRFSIDF�j,-� ADDRESS: 100 Congress Avenue Suite 250 Austin, Texas 78701 Attn: Corporate Trust Dept. ATTEST: EXHIBIT A Fee Schedule HOU:3306940.2 City of Sanger, Texas Co, mbin.ation Tax and Re -venue Certificates of Obligation, Series 2013 PAYING AGENT/REGISTRAR Schedule of Fees Acceptance Fee: $0 Annual Administration Fee: s-.-)00.00 (Billed Semi -Annually @, $2.50.00 w/Debt Ser-.ice) For ordinary administration services by Pa.Ong lkgent/Registrar — includes daily routine account mang aement ; invcstmer�t transactions ; cash transaction processing' in accordance with the agreenietiL ; crud mailing of trust account staterneriL.'i to all applicablc parties. Float credit received by the batik for receiving funds that remain UninvesLed Marc` deeined part of Lfie Paying Agent's compensaLion, Call or Redclilption of Bonds At Cost Cost includes distribution to holders of record, redempLion prmessing and notification to EMNL. Any and all publication exj)erises including Bond Buyer, Regional and Financial Pcriodicals for the call notice willbebilled to the Issuer at cost. Charges for performing extraordinary or other services not contemplated at the tinie of the execution of Lhe Lransaction or not specifically covered clsmhere in this schedule will be determined by appraisal in the aniounts commensurate with the service provide(]. Counsel fees, if' ever retained as a result of a default, Or Offiff extraordinary occurrences on belialf of the bondholders or 13-an"k of Texas. will be billed at coA.. Services not included in this ice Schedule, but deemed necessary. or desirable by you, may, be subject to additional charges biased on a inutually agreed upon fc c schedule. Our proposal is sub ' ject in all aspects to review and acceptance of the final financing documentswhich sets forth our duties and responsibilities. Jose Gayfan Vive, President Tel: 512-813-2002 1"ax: 512-813-2020 13ft n k of Texus 1 Corporal e Tnmt Services 100 Congress Avenue suite L-50 I A us$ jrj, I X 787o1 JULle- 2,J, 201,1 GENERAL CERTIFICATE STATE OF TEXAS COUNTY OF DENTON CITY OF SANGER We, the undersigned officers of the City of Sanger, Texas (the "City"), do hereby make and execute this certificate for the benefit of the Attorney General of the State of Texas and all other persons interested in the City's $4,260,000 CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2013, dated June 15, 2013 (the "Certificates"), now in the process of issuance, as follows: (1) The City is a duly incorporated Home Rule City, having more than 5,000 inhabitants, operating and existing under the Constitution and laws of the State of Texas and the duly adopted Home Rule Charter of the City, which Charter has not been changed since the approval by the Attorney General of the State of Texas of the City of Sanger, Texas General Obligation Refunding Bond, Series 2012, dated April 1, 2012, which were the last obligations issued by or on behalf of the City. (2) The Certificates are being issued to provide funds to pay (A) contractual obligations to be incurred for water and sewer system repairs and improvements, street repairs, drainage repairs and improvements, and park repairs and improvements, and (B) and the payment for professional services related thereto. (3) The currently effective ad valorem tax appraisal roll of the City (the "Tax Roll") is the Tax Roll prepared and approved during the calendar year 2012, being the most recently approved Tax Roll of the City; the taxable property in the City has been appraised, assessed and valued as required and provided by the Texas Constitution and Property Tax Code (collectively, "Texas law"); the Tax Roll for the year has been submitted to the City Council of the City as required by Texas law, and has been approved and recorded by the City Council; and according to the Tax Roll for the year, the net aggregate taxable value of taxable property in the City (after deducting the amount of all applicable exemptions required or authorized under Texas law), upon which the annual ad valorem tax of the City has been or will be imposed or levied, is $389,390,028. (4) The following individuals were the duly elected and qualified Mayor, and City Council of the City holding the offices opposite their names: Thomas Muir Russell Martin Allen Chick Gary Bilyeu Billy Ezell Scott Stephens Mayor Mayor Pro Tem Councilman Councilman Councilman Councilman (5) Tami Taber has been the duly appointed and qualified City Secretary of the City. (6) Save and except for the pledge of the Net Revenues of the System to the payment of the Certificates and the City's Combination Tax and Revenue Certificates of Obligation, Series 2006, Combination Tax and Revenue Certificates of Obligation, Series 2007, and Combination Tax and Revenue Certificates of Obligation, Series 2009, the Net Revenues of the System have not been pledged in any other manner or for any other purpose, and the pledge of the Net Revenues of the System to the HOU:3306941.2 Certificates evidences the only lien, encumbrance, or indebtedness of the System or against Net Revenues of the System. (7) Attached to this certificate as Exhibit A is a true, full and correct debt service schedule for the Certificates. Attached as Exhibit B is a true, full and correct debt service schedule for all of the City's outstanding tax supported debt, including the Certificates. The principal amount of the City's total outstanding tax supported debt, including the Certificates, is $15,855,000. (8) The following is a true, full and current schedule of System revenues, remaining after the payment of all operation and maintenance expenses thereof ("Net Revenues"), for the last three fiscal years: Fiscal Year Ended September 30, 2010 2011 2012 $342,934 $419,447 $957,983 (9) The current monthly rates and charges for services provided by the System are as follows: WATER RATES TAME 5, ^xhni� Fates Residential (Tffecti-ve September 6, 2011) Minim= per tout served for 0 - 1,000 gallons $17.00 `:Next 4,000 gallons -1.85 per thousand gallons Next 10.000 gallons 3.15 per thousand gallons `Text 15.000 gallons 3.70 per thousand gallons Ovw 30,000 4.75 per thousand galtors Commercial (Effective September 6. 2011) Nfinitntun per iuut sewed for 0 - 1,000 gallons $71.00 Next 41000 gallons 3 3 5 per thousand gallons Next 10.000 gallons 3.60 per thousand gallons Next 15,000 gallons 3.95 per thousand gallons Over K.000 4.85 per thousand gallons 2 HOU:3306941.2 SENITR RATES U22M Rates Residential (Effective September 6, 2011 Minimum (first 1,000 gallons) S 18.00 I Per 1,000 zallons mw first 1,000 gallons 2.50 Per 11000 gallons in excess of 10,000 gallons 2.75 lvfwxinwnper month 50.00 Commerd-M (Effective September 6. :011) inch n-w--ter $ 26.50 I inch meter 29.00 inch meter 33.00 2 inch meter 40.15 3 inch meter 49.50 4 inch meter 91.85 6 inch nieter 122.10 8 inch meter 161-15 Per 1,000 gallows over first 1.000 gallons 2-50 Per 1,000 gallons in exces--> of 107000 gallons 2.75 MUN-Family Dwellings The ainount clue for multi -family dwelliugs shall be the residential rate multiplied by the nim1ber of occupied dxx,eUin-- units. I (11) The City is not in default as to any covenant, condition or obligation on any prior bonds or other obligations payable from the Net Revenues of the System. HOU:3306941.2 SIGNED AND SEALED this June 17, 2013. City Secretary CITY OF SANGER, TEXAS F a Mayor HOU:3306941.1 Exhibit A Debt Service Schedule for the Certificates HOU:3306941.2 GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS Fiscal Year 30-Sept 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 M1; Existing Debt Service $1,476,673 1,473,868 1,474,968 1,474,993 1,394,923 1,379,283 1,387,443 1,393,723 1,330,045 404,436 405,410 400,445 400,030 403,333 135,720 TOTAL $14,935,289 Principal $150,000 165,000 165,000 170,000 175,000 175,000 180,000 185,000 190,000 200,000 205,000 210,000 220,000 230,000 240,000 255,000 265,000 280,000 295,000 305,000 $4,260,000 A-5 Interest $173,226 160,250 156,950 153,650 150,250 145,875 141,500 136,100 130,550 124,850 118,850 111,675 102,225 92,325 81,400 70,000 57,250 44,000 30,000 15,250 $2,196,176 TABLE 11 Total Debt Service $1,476,673 1,797,094 1,800,218 1,796,943 1,718,573 1,704,533 1,708,318 1,715,223 1,651,145 724,986 730,260 724,295 721,705 725,558 458,045 321,400 325,000 322,250 324,000 325,000 320,250 $21,391,465 Exhibit B Debt Service Schedule for All of the City's Outstanding Tax Supported Debt HOU:3306941.2 GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS Fiscal Year 30-Sept 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 InI ; Existing Debt Service $1,476,673 1,473,868 1,474,968 1,474,993 1,394,923 1,379,283 1,387,443 1,393,723 1,330,045 404,436 405,410 400,445 400,030 403,333 135,720 TOTAL $14,935,289 Principal $150,000 165,000 165,000 170,000 175,000 175,000 180,000 185,000 190,000 200,000 205,000 210,000 220,000 230,000 240,000 255,000 265,000 280,000 295,000 305,000 $4,260,000 A-5 Interest $173,226 160,250 156,950 153,650 150,250 145,875 141,500 136,100 130,550 124,850 118,850 111,675 102,225 92,325 81,400 70,000 51,250 44,000 30,000 15,250 $2,196,176 TABLE 11 Total Debt Service $1,476,673 1,797,094 1,800,218 1,796,943 1,718,573 1,704,533 1,708,318 1,715,223 1,651,145 724,986 730,260 724,295 721,705 725,558 458,045 321,400 325,000 322,250 324,000 325,000 320,250 $21,391,465 SIGNATURE IDENTIFICATION AND NO -LITIGATION CERTIFICATE THE STATE OF TEXAS § COUNTY OF DENTON § CITY OF SANGER § We, the undersigned officers of the City of Sanger, Texas (the "City"), certify that we officially signed, by our manual or facsimile signatures, on behalf of the City, the following described certificates of obligation, to wit: CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2013, dated June 15, 2013, and aggregating $4,260,000 (the "Certificates"). That the Certificates have been duly and officially executed by the undersigned with their manual or facsimile signatures in the same manner appearing hereon, and the undersigned hereby adopt and ratify their respective signatures in the manner appearing on each of the Certificates, whether in manual or facsimile form, as the case may be, as their own signatures. That on the date of such signing and on the date hereof, we were and are the duly chosen, qualified and acting officers authorized to execute the Certificates, and holding the official titles set forth below opposite such signatures. We further certify that no litigation is pending or, to our knowledge, threatened in any court in any way affecting the existence or boundaries of the City or the titles of its officers to their respective positions or their authority to act on the City's behalf or to restrain or enjoin the issuance or delivery of the Certificates, or the levy, collection or application of the ad valorem taxes or revenues pledged or to be pledged to pay the principal of and interest on the Certificates, or the pledge thereof, or in any way contesting or affecting the validity of the Certificates, the ordinance adopted on June 17, 2013 authorizing the issuance, sale and delivery of the Certificates (the "Ordinance"), or contesting the powers of the City or the authorization of the Certificates or the Ordinance, or contesting in any way the accuracy, completeness or fairness of the Official Statement. We further certify that the seal that has been impressed, or placed in facsimile, upon each of the Certificates is the legally adopted, proper and only official seal of the City, such official seal being impressed upon this certificate. We further certify that no petition or other request has been filed with or presented to any official of the City requesting that any of the proceedings authorizing the Certificates be submitted to a referendum or other election. We further certify that the information and data contained in the General Certificate dated June 17, 2013 remain true and correct as of this date. HOU:3306942.1 WITNESS OUR HANDS AND THE SEAL OF THE CITY this,(,"`,, 2013. SIGNATURES TITLE OF OFFICE Mayor, City of Sanger, Texas City Secretary, City of Sanger, Texas Before me, on this day personally appeared the foregoing individuals, known to me to be the persons whose names were subscribed in my presence to the foregoing instrument. Given under my hand and seal of office this June 11, 2013. 1411 eom'�., CHERYL L. PRICE Notary Public, State of Texas My Commission Expires ',;foj�Ea December 12, 2015 (Notary Sea rL l Notary P bl' HOU:3306942.1 TAX EXEMPTION CERTIFICATE The undersigned, being the duly chosen and qualified City Manager of the City of Sanger, Texas (the "City"), hereby certifies with respect to the City's $4,260,000 Combination Tax and Revenue Certificates of Obligation, Series 2013 (the "Certificates"), as follows: A. General. 1. I, along with other officers of the City, am charged with the responsibility for issuing the Certificates. 2. This certificate is made pursuant to sections 103 and 141-150 of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), and the final, temporary, and proposed Treasury Regulations promulgated thereunder and applicable to the Bonds (the "Regulations"). 3. This certificate is based on the facts and estimates described herein in existence on the date hereof; and, on the basis of such facts and estimates, the City expects that the future events described herein will occur. To the best of the knowledge and belief of the undersigned, the expectations set forth herein are reasonable. 4. A capitalized term used and not otherwise defined herein has the meaning ascribed to such term in the Ordinance authorizing the issuance of the Certificates, adopted by the City Council on June 17, 2013 (the "Ordinance"). B. Purpose and Size. 1. The Certificates are being issued to finance (i) repairs and improvements to the City's water and sewer system, street repairs, drainage repairs and improvements, park repairs and improvements, and related professional services (the "Projects") and (ii) costs of issuing the Certificates. 2. Each of the Projects will be owned and operated and maintained by the City. The City has not contracted in any manner with any company, firm or other person or entity to operate and/or maintain the Projects or all or part of any one, for and on behalf of the City. The City does not expect to enter into any contract for the operation, maintenance or management of the Projects or all or part of any one, except for contracts complying with Rev. Proc 97-13. 3. There is not, and as of the date hereof the City does not anticipate entering into, any lease, contract or other understanding or arrangement having a term of more than one year, such as a take -or -pay contract or output contract, with any person other than a state or local governmental unit (including a municipal utility district), pursuant to which the City expects that proceeds of the Bonds, or the Projects financed therewith, will be used in the trade or business of such person (including all activities of such persons who are not individuals). 4. The amount received from the sale of the Certificates, when added to the amounts expected to be received from the investment thereof, is not expected to exceed the amounts required to pay costs of the Projects and pay costs of issuing the Certificates. 5. No receipts from the sale of the Certificates or amounts received from the investment thereof will be used to pay the principal of or interest on any presently outstanding issue of bonds or other similar obligations of the City other than the Certificates. 6. The weighted average maturity of the Certificates is not more than 120% of the remaining expected useful life of the Projects. C. Source and Disbursement of Funds. 1. The City has sold the Certificates to Oppenheimer & Co., Inc. (the "Underwriter") in a public offering for a purchase price of $4,573,352.85, which is the issue price of the Bonds to the public (consisting of the par amount of the Certificates plus net original issue premium of $347,886.60), less underwriter's discount of $34,533.75, with no accrued interest. 2. The City has caused the closing agent to deposit this day such amounts, as follows: Disposition Amount Deposit to Construction Fund $4,500,000.00 Disbursed to pay costs of issuance 73,352.85 Total $4,573,352.85 D. Temporary Periods and Time for Expenditures. 1. The amount disbursed or set aside to pay costs of issuance on the Certificates will be so used within one year from the date hereof, will not be used to pay debt service on the Refunded Bonds, and may be invested without restriction as to Yield until so used. 2. Within six (6) months from the date hereof, the City reasonably expects to enter into binding obligations for the acquisition and construction of the Projects which require the Issuer to expend at least $230,394.33, which is 5% of the net sale proceeds of the Certificates. 3. The City will pursue acquisition and construction of the Projects with due diligence until completion. 4. The City reasonably expects to expend within three years from the date hereof, in addition to the costs of issuance of the Certificates, an amount of proceeds of the Certificates equal to not less than 85% of the net sale proceeds of the Certificates. E. Yield and Nonpurpose Investments. 1. Government Capital Securities Corporation, as financial advisor to the City (the "Financial Advisor") has calculated that a discount factor of at least 3.0128% is required to reduce the principal and interest to be paid on the Certificates to a present value on the date hereof, compounding semiannually, equal to the issue price of the Certificates, plus the accrued interest. -2- HOU:3328444.1 2. Other than the Certificates, no obligations of the City have been sold or delivered pursuant to the same plan of financing and payable from the same source of funds within 15 days before or after June 17, 2013, the date on which the City entered into a binding contract to sell the Certificates (the "Sale Date"). 3. The City has covenanted in the Ordinance that it will account for the Gross Proceeds of the Certificates separately and apart from all other funds of the City from the date hereof, that it will calculate the earnings on all Nonpurpose Investments made with Gross Proceeds of the Certificates and that it will make payments to the United States Treasury of any Rebate Amount as a result of such investments at least every five years and at the maturity of the Certificates, together with any such reports as the Secretary of the Treasury shall prescribe, as may be required by Section 148(f) of the Code. F. Debt Service Fund. 1. The City has levied an ad valorem tax on all taxable property within its boundaries and has pledged such tax, together with the Net Revenues, to pay debt service on the Certificates. Such amounts will be deposited to the credit of the Debt Service Fund maintained in the books of the City. 2. The Debt Service Fund will be maintained to achieve a proper matching of revenues and debt service within each bond year. The City expects that the following will occur with respect to the Debt Service Fund (other than that portion of the Debt Service Fund, if any, consisting of deposits made to defease in whole or in part the contractual obligations of the City to make deposits thereto): (a) the Debt Service Fund will be depleted at least once a year except possibly for a carry-over amount not greater than the larger of one year's income from the investment of such portion or one -twelfth (1/12) of annual debt service requirements on the Certificates; (b) all deposits to the Debt Service Fund will be spent within 13 months of deposit; and (c) all amounts received from investment of money in the Debt Service Fund will be deposited in the Debt Service Fund and within twelve months of receipt will be expended to pay principal or interest on the Certificates. 3. Except as described herein, no funds of the City have been pledged to pay principal of or interest on the Certificates or otherwise restricted so as to give reasonable assurance of the availability of such funds for such purpose. G. Bonds Not Hedge Bonds. 1. The City reasonably expects that at least 85% of the proceeds of the Certificates will be used to carry out the governmental purpose of the Certificates within three years after the date hereof. 2. Not more than 50% of the proceeds of the Certificates will be invested in Nonpurpose Investments having a substantially guaranteed Yield for 4 years or more. -3- HOU:3328444.1 H. No Abusive Arbitraee Device. 1. In connection with the issuance of the Certificates, the City has not employed any action which has the effect of overburdening the market for tax-exempt obligations by issuing more bonds, issuing bonds earlier, or allowing bonds to remain outstanding longer than is reasonably necessary to accomplish the governmental purposes of the Certificates. 2. In connection with the issuance of the Certificates, the City has not taken or omitted to take any action which has the effect of enabling the City to exploit the difference between tax-exempt and taxable interest rates to gain a material financial advantage. EXECUTED this July 9, 2013. CITY OF SANGER, TEXAS By:�" - Mike Brice City Manager -4- HOU:3328444.1 CERTIFICATE OF UNDERWRITER The undersigned hereby certifies as follows with respect to the sale and delivery by the City of Sanger, Texas (the "Issuer") of its $4,260,000 Combination Tax and Revenue Certificates of Obligation, Series 2013 (the "Certificates"): 1. The undersigned is the senior manager of the group of underwriters that has purchased the Certificates from the Issuer by negotiated sale. 2. The undersigned has made a bona fide offering of all the Certificates of each maturity to the public (as defined in paragraph 6) at the respective initial offering price set forth on the inside cover page of the Issuer's Official Statement dated as of June 17, 2013, with respect to the Certificates (the "Official Statement"). 3. The initial offering price (expressed as a dollar amount, yield percentage, or percentage of principal amount and exclusive of accrued interest) at which at least 10% of the Certificates of each maturity, except for the Certificates maturing in the years 2015 and 2017, was sold to the public, as defined in paragraph 6, is set forth on the inside cover page of the Official Statement. 4. On June 17, 2013, the date the Issuer entered into a binding obligation to sell the Certificates, the undersigned reasonably expected to sell at least 10% of the Certificates maturing in the years 2015 and 2017 to the public (as defined in paragraph 6) at the price set forth in the inside cover page of the Official Statement. 5. Based on the foregoing, the Issue Price of the Certificates was $4,607,886.60, with no accrued interest. 6. The term "public," as used herein, means persons other than bondhouses, brokers, dealers, and similar persons or organizations acting in the capacity of underwriters or wholesalers. 7. The initial offering prices described above reflect current market prices at the time of such sales. 8. The undersigned understands that the statements made herein will be relied upon by the Issuer in its effort to comply with the conditions imposed by the Internal Revenue Code of 1986, as amended, on, and by Andrews Kurth LLP in rendering its opinion with respect to, the exclusion of interest on the Certificates from the gross income of their owners. EXECUTED and DELIVERED this 9th day of July, 2013. OPPENHEIMER & CO., INC. IN HOU:3328436.1 Form 8038-G Information Return for Tax -Exempt Governmental Obligations (Rev. September 2011) ► Under Internal Revenue Code section 149(e) OMB No. 1545-0720 ► See separate instructions. Department of the Treasury Internal Revenue Service Caution: If the issue price is under$100,000, use Form 8038-GC. Reporting Authority If Amended Return. check here ► n 1 Issuer's name 2 Issuer's employer identification number (EIN) City of Sanger, Texas 3a Name of person (other than issuer) with whom the IRS may communicate about this return (see instructions) 3b Telephone number of other person shown on 3a Hoang Vu, Bond Counsel 713-220-3879 4 Number and street (or P.O. box if mail is not delivered to street address) Room/suite 5 Report number (For IRS Use Only) P.O. Box 1729 3 6 City, town, or post office, state, and ZIP code 7 Date of issue Sanger, Texas 76266 07/09/2013 8 Name of issue 9 CUSIP number Combination Tax and Revenue Certificates of Obligation, Series 2013 10a Name and title of officer or other employee of the issuer whom the IRS may call for more information (see 10b Telephone number of officer or other instructions) employee shown on 10a ■mil■ I VDe Ot Issue (enter the Issue Driee). See the instructions and attach schedule. 11 12 13 14 15 16 17 18 19 20 Education . . . . . . . . . . . . . . . . . . . . . . . . Health and hospital . . . . . . . . . . . . . . . . . . . . Transportation . . . . . . . . . . . . . . . . . . . . . . Public safety . . . . . . . . . . . . . . . . . . . . . . . Environment (including sewage bonds) . . . . . . . . . . . . . . Housing . . . . . . . . . . . . . . . . . . . . . . . . Utilities . . . . . . . . . . . . . . . . . . . . . . . . Other. Describe ► VARIOUS CAPITAL IMPROVEMENTS If obligations are TANS or RANs, check only box 19a . . . . . . . . . If obligations are BANS, check only box 19b . . . . . . . . . . . . If obligations are in the form of a lease or installment sale, check box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ► ❑ . . . . ► ❑ . . . . 0- 11 12 13 14 15 16 17 18 4,607,886 60 Description of Obligations. Complete for the entire issue for which this form is being filed. (a) Final maturity date (b) Issue price (c) Stated redemption price at maturity (d) Weighted average maturity (e) Yield 21 08/01/2033 4,607,886.60 4,260,000.00 11.9324 years 3.0128 % LiULW Uses OT i-roceeas OT bona Issue (incluaing underwriters- discount) 22 Proceeds used for accrued interest . . . . . . . . . . . . . 22 -0- 23 Issue price of entire issue (enter amount from line 21, column (b)) . . . . . 23 4,607,886 60 24 Proceeds used for bond issuance costs (including underwriters' discount) . 24 107,886 60 25 Proceeds used for credit enhancement . . . . . . . . . . . . 25 -0- 26 Proceeds allocated to reasonably required reserve or replacement fund 26 -0- 27 Proceeds used to currently refund prior issues . . . . . . . . . 27 -0- 28 Proceeds used to advance refund prior issues . . . . . . . . . 28 -0- 29 Total (add lines 24 through 28) . . . . . . . . . . . . . . . . . . . . . . . 29 107,886 60 30 Nonrefunding proceeds of the issue (subtract line 29 from line 23 and enter amount here) 30 1 4,500,0001 00 Description of Refunded Bonds. Complete this part only for refunding bonds. 31 Enter the remaining weighted average maturity of the bonds to be currently refunded . . . . ► years 32 Enter the remaining weighted average maturity of the bonds to be advance refunded . . . . ► years 33 Enter the last date on which the refunded bonds will be called (MM/DDNYYY) . . . . . . ► 34 Enter the date(s) the refunded bonds were issued ► (MM/DD/YYYY) For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 63773S Form 8038-G (Rev. 9-2011) HOU: 3325706 Form 8038-G (Rev. 9-2011) Page 2 Miscellaneous 35 Enter the amount of the state volume cap allocated to the issue under section 141(b)(5) . . . . 35 -0- 36a Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract (GIC) (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . 36a -0- b Enter the final maturity date of the GIC Do- c Enter the name of the GIC provider Do 37 Pooled financings: Enter the amount of the proceeds of this issue that are to be used to make loans to other governmental units . . . . . . . . . . . . . . . . . . . . . . . 37 -0- 38a If this issue is a loan made from the proceeds of another tax-exempt issue, check box ® ❑ and enter the following information: b Enter the date of the master pool obligation c Enter the EIN of the issuer of the master pool obligation d Enter the name of the issuer of the master pool obligation 39 If the issuer has designated the issue under section 265(b)(3)(13)(i)(III) (small issuer exception), check box . . . . ® ❑� 40 If the issuer has elected to pay a penalty in lieu of arbitrage rebate, check box . . . . . . . . . . . . . ® ❑ 41a If the issuer has identified a hedge, check here ® ❑ and enter the following information: b Name of hedge provider c Type of hedge d Term of hedge 0- 42 If the issuer has superintegrated the hedge, check box . . 10- ❑ 43 If the issuer has established written procedures to ensure that all nonqualified bonds of this issue are remediated according to the requirements under the Code and Regulations (see instructions), check box . . . . . . . . 0- ❑ 44 If the issuer has established written procedures to monitor the requirements of section 148, check box . . . . . I>- ❑ 45a If some portion of the proceeds was used to reimburse expenditures, check here ® ❑ and enter the amount of reimbursement . . . . . . . . . b Enter the date the official intent was adopted Under penalties of perjury, I declare that I.have examined this return and accompanying schedules and statements, and to the best of my knowledge Signature and belief, they are true, correct, and complete. I further declare that I consent to the IRS's disclosure of the issuer's return information, as necessary to and process this return, to the person that I have authorized above. Consent �f ..sue �'-- --�� " / � Signature of issuer's authorized representative Date Type or print name and title ! Print/Type preparer's name Preparer's signature Date PTIN Paid Check ❑ if Preparer Gregg H. Jones self-employed I Use Only Firm's name > Andrews Kurth LLP Firm's EIN ► Firm's address ► 600 Travis Street, Suite 4200, Houston, TX 77002 Phone no. 713.220.4479 Form 8038-G (Rev. 9-2011) HOU: 3325706 CLOSING CERTIFICATE STATE OF TEXAS § COUNTY OF DENTON § In accordance with Section 6(i)(7) of the Purchase Agreement entered into by the Underwriter referred to therein and the City of Sanger, Texas (the "Issuer") in connection with the sale of the Issuer's Combination Tax and Revenue Certificates of Obligation, Series 2013 (the "Certificates"), I, the undersigned, Mayor of the Issuer, acting in my official capacity, hereby certify as follows: The representations and warranties of the Issuer contained in the Purchase Agreement are true and correct in all material respects on and as of the date of Closing as if made on the date of Closing. 2. Except as disclosed in the Official Statement, no litigation or proceeding against the Issuer is pending or, to the best of his or her knowledge, threatened in any court or administrative body, nor is there a basis for litigation, which would (a) contest the right of the council members, officers or officials of the Issuer to hold and exercise their respective positions, (b) contest the due organization and valid existence of the Issuer, (c) contest the validity, due authorization and execution of the Certificates or the Issuer Documents or (d) attempt to limit, enjoin or otherwise restrict or prevent the Issuer from functioning and collecting revenues, including payments on the Certificates, pursuant to the Ordinance, and other income or the levy or collection of the taxes and the net revenues of the System pledged or to be pledged to pay the principal of and interest on the Certificates, or the pledge thereof. 3. All official action of the Issuer relating to the Official Statement, the Certificates and Issuer Documents have been duly taken by the Issuer, are in full force and effect and have not been modified, amended, supplemented or repealed. 4. To the best of my knowledge, no event affecting the Issuer has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein, in light of the circumstances under which made, not misleading in any respect as of the time of Closing, and the information contained in the Official Statement is correct in all material respects and, as of the date of the Official Statement did not, and as of the date of Closing does not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. 5. "There has not been any material adverse change in the financial condition of the Issuer since September 30, 2012, the latest date as of which audited financial information is available HOU:3306943.1 EXECUTED as of� �� , 2013. CITY OF SANGER, TEXAS Z f-- Mayor HOU:3306943.1 ATTORNEYS K U R T H LLP July 9, 2013 600 Travis, Suite 4200 Houston, Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com WE HAVE ACTED as Bond Counsel for the CITY OF SANGER, TEXAS, a municipal corporation of the State of Texas (the "City") in connection with an issue of certificates of obligation (the "Certificates") described as follows: CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2013, dated June 15, 2013, in the aggregate principal amount of $4,260,000, maturing on August I in each year from 2014 through and including 2024, inclusive, and in the years 2026, 2028, 2030 and 2033. The Certificates are issuable in fully registered form only, in denominations of $5,000 or integral multiples thereof, bear interest and may be transferred and exchanged as set out in the Certificates and in the ordinance (the "Ordinance") adopted by the City Council of the City (the "City Council") authorizing their issuance. WE HAVE ACTED as Bond Counsel for the sole purpose of rendering an opinion with respect to the legality and validity of the Certificates under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Certificates from gross income under federal income tax law. In such capacity we have examined the Constitution and laws of the State of Texas; federal income tax law; and a transcript of certain certified proceedings pertaining to the issuance of the Certificates, as described in the Ordinance. The transcript contains certified copies of certain proceedings of the City; certain certifications and representations and other material facts within the knowledge and control of the City, upon which we rely; and certain other customary documents and instruments authorizing and relating to the issuance of the Certificates. We have also examined executed Certificate No. R-1. WE HAVE NOT BEEN REQUESTED to examine, and have not investigated or verified, any original proceedings, records, data or other material, but have relied upon the transcript of certified proceedings. We have not assumed any responsibility with respect to the financial condition or capabilities of the City or the disclosure thereof in connection with the sale of the Certificates. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Certificates has been limited as described therein. BASED ON SUCH EXAMINATION, it is our opinion as follows: (1) The transcript of certified proceedings evidences complete legal authority for the issuance of the Certificates in full compliance with the Constitution and laws of the State of Texas presently in effect; the Certificates Austin Beijing Dallas Houston London New York Research Triangle Park The Woodlands Washington, DC HOU:3306944.2 July 9, 2013 Page 2 constitute valid and legally binding obligations of the City enforceable in accordance with the terms and conditions thereof, except to the extent that the rights and remedies of the owners of the Certificates may be limited by laws heretofore or hereafter enacted relating to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors of political subdivisions and the exercise of judicial discretion in appropriate cases; and the Certificates have been authorized and delivered in accordance with law; (2) The Certificates are payable, both as to principal and interest, from the receipts of an annual ad valorem tax levied, within the limits prescribed by law, upon taxable property located within the City, which taxes have been pledged irrevocably to pay the principal of and interest on the Certificates; and (3) The surplus revenues to be derived from the operation of the City's waterworks and sewer system, after the payment of all operation and maintenance expenses thereof (the "Net Revenues") in an amount not to exceed $10,000, are pledged to the payment of the principal of and interest on the Certificates; provided, however, that such pledge is junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of Net Revenues to the payment of the Certificates. The City has reserved the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind secured by a pledge of the Net Revenues that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. ALSO BASED ON OUR EXAMINATION AS DESCRIBED ABOVE, it is our further opinion that, subject to the restrictions hereinafter described, interest on the Certificates is excludable from gross income of the owners thereof for federal income tax purposes under existing law and is not subject to the alternative minimum tax on individuals, except as hereinafter described, or corporations. The opinion set forth in the first sentence of this paragraph is subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Certificates in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted in the Order to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Certificates in gross income for federal income tax purposes to be retroactive to the date of issuance of the Certificates. The Code and the existing regulations, rulings and court decisions thereunder, upon which the foregoing opinions of Bond Counsel are based, are subject to change, which could prospectively or retroactively result in the inclusion of the interest on the Certificates in gross income of the owners thereof for federal income tax purposes. INTEREST ON the Certificates owned by a corporation (other than an S corporation, a regulated investment company, a real estate investment trust (REIT), a real estate mortgage HOU:3306944.2 July 9, 2013 Page 3 investment conduit (REMIC) or a financial asset securitization investment trust (FASIT)) will be included in such corporation's adjusted current earnings for purposes of calculating such corporation's alternative minimum taxable income. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is computed. EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or local tax consequences under present law, or future legislation, resulting from the ownership of, receipt or accrual of interest on, or the acquisition or disposition of, the Certificates. Prospective purchasers of the Certificates should be aware that the ownership of tax-exempt obligations, such as the Certificates, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a financial asset securitization investment trust that holds tax-exempt obligations and individuals otherwise qualified for the earned income tax credit. For the foregoing reasons, prospective purchasers should consult their tax advisors as to the consequences of investing in the Certificates. OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above. x: 2_4 HOU:3306944.2 ATTORNEY GENERAL OF TEXAS GREG ABBOTT July 3, 2013 THIS IS TO CERTIFY that the City of Sanger, Texas (the "Issuer"), has Submitted the Cite of Sans-,cr. Texas Combination Tax and Revenue Certificates of Obligation. Series 2013 (the "Certificates") in the aggregate principal amount of $4,260,000 for approval. The Certificates are dated June 15, 2013, numbered R-1 through R- 15, and were authorized by an Ordinance of the Issuer passed on June 17, 2013 (the "Ordinance"). The Office of the Attornev General has examined the law and such certified proceedings and 11 1 other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the Issuer contained in the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigation. We express no opinion relating to the official statement or any other offering material relating to the Certificates. Based on our examination, we are of the opinion, as of the date hereof and under existing law, as follows (capitalized terms, except as herein defined, have the meanings given to them in the Ordinance): (1) The Certificates have been issued in accordance with law and are valid and binding obligations of the Issuer. (2) The Certificates are payable from the proceeds of an annual ad valorem tax levied, within the limits prescribed by law, against all taxable property in the Issuer and are further payable from a pledge of the Net Revenues., in an amount not to exceed $10,.000, as provided in the Ordinance. Therefore, the Certificates are approved. ttorney > -ral of ietate of Texas No, 55693 13,xik No, 20 13 )-C MA *See attached Signature Authorization Po,,i Omci Boy, 1254i, Acsr!N, T'- XAS 7871 1-21548' ��- �512) 463•2100 OFFICE OF THE ATTORNEY GENERAL OF ME STATE OF TEXAS I, GREG ABBOTT, Attorney General for the State of Texas, do hereby authorize the employees of the Public Finance Division of the Office of the Attorney General to affix. a digital image of my signature; in my capacity as Attorney General, to the opinions issued by this office approving the issuance of public securities by the various public agencies, non-profit corporations, districts, entities, bodies politic or corporate, or political subdivisions of this State as required by law, the opinions approving those contracts designated by the Legislature as requiring the approval of the Attorney General, and the obligations, proceedings and credit agreements required by law to be approved by the Attorney General, The authorized digital image of my signature is attached as Exhibit A and is hereby adopted as my own for the purposes set forth herein. This supersedes any prior signature authorizations for the same purpose. The authority granted herein is to be exercised on those occasions when I am unavailable to personally sign said opinions, and upon the condition that the opinions to which the digital image signature is affixed have been approved by an authorized Assistant Attorney General following the completion of the Public Finance Division's review of the transcripts of proceedings to which the opinions relate. 9 "1 Given under my hand and seal of office at Austin, Texas, this the day of January, GREG A -- TT 1, Mal of the State of Texas OFFICE OFCOMPTROLLER OF THE STATE (lFTEXAS i Anabel Santos, n Bond C|erkFX�Assistant Bond Clerk in the office of the Comptroller of the State ofTexas, dohereby certify that,acting under the direction and authority ofthe Comptroller on the 3rd day of July 20. , | signed the rmne of the Comptroller to the certificate ofregistration endorsed upon the: City of Sanger, Texas Combination Tax and Revenue Certificatft�i _ofO�-Iigg�o—n �i�r-i(�q-2-013, numbered dated June _i6, 2013and that insigning the certificate ofregistration | used the following signature: 4t'-14� 6��6L IN WITNESS WHEREQF I have executed this certificate this the 3rd day of July 2013. iSusan Combs, Comptroller ofPublic Accounts of the State ofTexas, certify that the person who has signed the above certificate was duly designated and appointed by me under authority vested in me by Chapter403. Subohaptar H. Government Code, with authority to sign my name to all certificates of registration, and/or cancellation of bonds required by law to be registered and/or cancelled by mo, and was acting as such on the date first mentioned in this uartifioaVs, and that the bonds/certificates described in this oerd§oa0a have been duly registered in the office of the Comptroller, under Registration NumberQ2{X66L GIVEN under my hand and seal of office at Austin, Texas, this the 3rd day of July 2013. 8UGANCOMBS Comptroller ofPublic Accounts of the State of Texas OFFICE OF COMPTROLLER OF THE STATE OF TEXAS 1, SUSAN COMBS, Comptroller of Public Accounts of the State of Texas, do hereby certify that the attachment is a true and correct copy of the opinion of the Attorney General approving the: City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation. Series 2013 numbered R-1 through R-15, of the denomination of $ various, dated June 15, 2013, as authorized by issuer, interest various percent, under and by authority of which said bond s/certificates were registered electronically in the office of the Comptroller, on the 3rd day of July 2013, under Registration Number 82066. Given tinder my hand and seal of office, at Austin, Texas, the 3rd day o July 2013. A4,"t- SUSAN COMBS Comptroller of Public Accounts of the State of Texas July 9, 2013 Fulbright & Jaworski LLP 1301 McKinney, Suite 5100 Houston, Texas 77010-3095 United States Tel +1 713 651 5151 Fax +1 713 651 5246 nortonrosefulbright.com Oppenheimer & Co., Inc. 13455 Noel Road, Suite 1200 Dallas, Texas 75240 Ladies and Gentlemen: We have represented you in your purchase, as the Underwriter (the "Underwriter"), of an aggregate of $4,260,000 City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2013 (the "Certificates") issued by the City of Sanger, Texas (the "City') pursuant to a Purchase Agreement dated June 17, 2013, between the City and the Underwriter. All capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such terms in the Purchase Agreement. With regard to the above, we have examined originals or copies, certified or otherwise identified to our satisfaction, of (i) the ordinance of the City Council of the City dated June 17, 2013 (, the "Certificate Ordinance"), authorizing the issuance of the Certificates, (ii) the Purchase Agreement, and (iii) the Official Statement of the City dated June 17, 2013 (the "Official Statement'). We have also discussed the Official Statement with representatives of the City and others and reviewed certain records of the City. In our examination and reviews, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies, and the accuracy of statements contained in such documents. Based upon the foregoing, and subject to the following qualifications, assumptions, exclusions, and limitations, we are of the opinion that the offer and sale of the Certificates to the public are exempt from registration under the Securities Act of 1933, as amended, and, in connection therewith, the Certificate Ordinance need not be qualified under the Trust Indenture Act of 1939, as amended. Although we are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Official Statement, we advise you that, in the course of our review and discussions with respect to the Official Statement and our review of the other materials described above, nothing has come to our attention that leads us to believe that the Official Statement (except for any financial, forecast, technical and statistical statements and data included in the Official Statement, the information regarding The Depository Trust Company and its book -entry system, as to which no view need be expressed) contains any untrue statement of any material fact or omits to state any information or fact required to be stated therein or any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Fulbright & Jaworski LLP is a limited liability partnership registered under the laws of Texas. 79118562.1 Fulbright & Jaworski LLP, Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz, Inc.), each of which is a separate legal entity, are members of Norton Rose Fulbright Verein, a Swiss Verein. Details of each entity, with certain regulatory information, are at nortonrosefulbright.com. Norton Rose Fulbright Verein helps coordinate the activities of the members but does not itself provide legal services to clients. Oppenheimer & Co., Inc. NORTON ROSE FULBRIGHT July 9, 2013 Page 2 The foregoing opinion is limited in all respects to the federal securities laws of the United States of America. We express no opinion concerning any other laws. This opinion may be relied upon by the addressee hereof and by other persons to whom written permission to rely hereon is granted by us. 79118562.1 AN D REWS ATTORNEYS K U R T H LLP July 9, 2013 Oppenheimer & Co. 13455 Noel Road, Suite 1200 2 Galleria Tower Dallas, Texas 75240 Duncan -Williams, Inc. 3131 McKinney Avenue, Suite 600 Dallas, Texas 75204 600 Travis, Suite 4200 Houston, Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com Re: $4,260,000 City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2013 (the "Certificates") Ladies and Gentlemen: This letter is provided pursuant to Section 6(i)(5) of the Purchase Agreement (the "Agreement"), dated June 17, 2013, among the Underwriters referred to therein and the City of Sanger, Texas (the "City"), relating to the issuance and sale by the City of its Combination Tax and Revenue Certificates of Obligation, Series 2013 (the "Certificates"). Capitalized terms used herein and not otherwise defined shall have the meaning ascribed to them in the ordinance authorizing issuance of the Certificates (the "Ordinance"). We have acted as Bond Counsel in connection with the issuance and sale of the Certificates. Based upon our review of the documents described in our other opinion dated as of even date herewith, our discussions with you and others, our review of the documents, certificates, opinions and other instruments delivered at the closing of the sale of the Certificates on the date hereof and such other materials as we deem relevant, we are of the opinion that: The Ordinance has been duly adopted and is in full force and effect; 2. The Certificates are exempted securities under the Securities Act of 1933, as amended (the "1933 Act"), and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") and it is not necessary, in connection with the offering and sale of such Certificates, to register the Certificates under the 1933 Act or to qualify the Ordinance under the Trust Indenture Act. The statements and information appearing in the Official Statement under the captions "THE CERTIFICATES" (except the subcaptions "Sources and Uses of Funds"), "GENERAL INFORMATION REGARDING THE CERTIFICATES," "REGISTRATION, TRANSFER AND EXCHANGE," "TAX RATE LIMITATIONS", "LEGAL MATTERS", "TAX EXEMPTION", "LEGAL INVESTMENTS IN TEXAS," "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES," "QUALIFIED TAX EXEMPT OBLIGATIONS," and Austin Dallas Houston London New York Research Triangle Park The Woodlands Washington, DC HOU:3306956.1 July 9, 2013 Page 2 "CONTINUING DISCLOSURE OF INFORMATION" (except the subcaption "Compliance with Prior Undertakings") accurately and fairly describe the provisions of the Ordinance and the Certificates and are correct as to matters of law. This opinion may be relied upon only by you. Reference is made hereby to our Bond Counsel opinion of even date herewith. Please be advised that such opinion may be relied upon as if it were addressed to you. Very truly yours, t r,. H011:3306956.1 $4,260,000 CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION SERIES 2013 RECEIPT AND CROSS RECEIPT July 9, 2013 I, the undersigned, a duly authorized representative of BOKF, NA dba Bank of Texas, paying agent/registrar for the City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2013 (the "Certificates"), hereby acknowledge receipt on the date hereof on behalf of the City of Sanger, Texas (the "City") of the full purchase price for the Certificates in the total amount of $4,573,352.85 (representing the par amount of the Certificates, plus a net original issue discount of $347,886.60 on the Certificates and less an underwriting discount of $34,533.75). BOKF, NA dba Bank of Texas By:_ Name: Title: I, the undersigned, a duly authorized representative of Oppenheimer & Co., hereby acknowledge receipt from the City of the initial Certificates of its $4,260,000 Combination Tax and Revenue Certificates of Obligation, Series 2013, dated June 15, 2013, which have been delivered to the undersigned in proper form on the date hereof. OPPENHEIMER & CO. By:_ Name: Title: HOU:3306946.1 REGISTRAR'S RECEIPT The undersigned duly authorized representative of BOKF, NA dba BANK OF TEXAS, Austin, Texas, the Registrar of the following described certificates: CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2013, in the total authorized aggregate amount of $4,260,000 certifies that it has duly registered the above -mentioned Bonds in accordance with the Ordinance, dated June 17, 2013 and that such Bonds have been delivered to the purchaser thereof. EXECUTED AND DELIVERED this July 9, 2013. BOKF, NA dba BANK OF TEXAS By:_ Name: Title: HOU:3331860.1 MOODY'S INVESTORS SERVICE June 10, 2013 Mike Brice SANGER (CITY OF) TX PO Box 1729 Sanger, TX 76266 Dear Mr. Brice : Plaza of the Americas 600 North Pearl Street, Suite 2105 Dallas, "IBC 75201 +1.214.979.6800 tel We wish to inform you that on June 3, 2013, Moody's Investors Service reviewed and assigned a rating of • A2 to SANGER (CITY OF) TX, Combination Tax and Revenue Certificates of Obligation, Series 2013 In assigning such rating, Moody's has relied upon the truth, accuracy and completeness of the information supplied by you or on your behalf to Moody's. Moody's expects that you will, on an ongoing basis, continue to provide Moody's with updated information necessary for the purposes of monitoring the rating, including current financial and statistical information. Moody's will monitor this rating and reserves the right, at its sole discretion, to revise or withdraw this rating at any time in the future. The rating, as well as any revisions or withdrawals thereof, will be publicly disseminated by Moody's through normal print and electronic media and in response to verbal requests to Moody's Rating Desk. In accordance with our usual policy, assigned ratings are subject to revision or withdrawal by Moody's at any time, without notice, in the sole discretion of Moody's. For the most current rating, please visit www.moodys.com. This letter is strictly confidential and you may not disclose it to any other person except: (i) to your legal counsel acting in their capacity as such; (ii) to your other authorized agents, acting in their capacity as such; (iii) as required by the law or regulation; or (iv) with the prior written consent of Moody's, in which case Moody's reserves the right to impose conditions upon such consent such as requiring that you only disclose this letter in its entirety and/or requiring any third party to sign a confidentiality and/or non -reliance agreement. Should you have any questions regarding the above, please do not hesitate to contact me or the analyst assigned to this transaction, Kristin Button at 214-979-6840. Sincerely, Toby Coo VP -Senior Analyst/Manager cc: Mr. Ted Christensen Government Capital Securities 559 Silicon Drive Suite 102 Southlake, TX 76092 MOODY'S INVESTORS SERVICE New Issue: Moody's assigns an A2 rating on the City of Sanger's [TX] $4.5 million Combination Tax and Revenue Certificates of Obligation, Series 2013 Global Credit Research - 03 Jun 2013 A2 rating affects $15.4 million in parity debt, including current issue SANGER (CITY OF) TX Cities (including Towns, Villages and Townships) TX Moody's Rating ISSUE RATING Combination Tax and Revenue Certificates of Obligation, Series 2013 A2 Sale Amount $4,500,000 Expected Sale Date 06/05/13 Rating Description General Obligation Moody's Outlook NOO Opinion NEW YORK, June 03, 2013--Moody's Investors Service has assigned an A2 rating on the City of Sanger's [TX] $4.5 million Combination Tax and Revenue Certificates of Obligation, Series 2013. At the same time, Moody's has affirmed the A2 rating on the city's $10.9 million of outstanding parity debt. SUMMARY RATING RATIONALE The bonds are payable from ad valorem taxes to be levied and collected, within the limits prescribed by law, on all taxable property within the city. Assignment of the A2 rating reflects a relatively small tax base near the Dallas/Fort Worth Metroplex, a relatively healthy General Fund balance, and high yet manageable debt burdens. STRENGTHS Relatively healthy General Fund balance Growth in tax base expected in near term Favorable location 40 miles north of Dallas on Interstate 35 CHALLENGES Relatively small tax base High debt burdens DETAILED CREDIT DISCUSSION GROWTH EXPECTED ON TAX BASE IN NEAR TERM Located in Denton County (Aaa), 40 miles north of Dallas on Interstate 35, the city is primarily a residential community. Between the 2005 and 2009, the tax base experienced favorable growth increasing an average of 5.8% annually. Given the National recession and declines on existing property values, the full valuation decreased 5.3% in fiscal 2010, increased only 0.7% in fiscal 2011, and declined 2.1% in fiscal 2012. However, in fiscal 2013, the tax base increased a notable 8.8% yielding a total full valuation of $389 million. Of the $31 million added to the tax roll, $26 million is attributed to the tax abatement for the local Walmart distribution center rolling off. Walmart is also the largest taxpayer comprising 19.3% of the total tax base. Additionally, a Sam's warehouse and McClains RV sales located in the city during fiscal 2013. Although the city's tax base is relatively small, ongoing new development and its favorable location near the Dallas/Fort Worth Metroplex keep it consistent with the A2 rating. The city's socioeconomic profile is somewhat weak with the American Community Survey 2010 per capita income equal to 67.9% of the US and a median family income equal to a stronger 90.3% of the US. However, the unemployment rate for Denton County is favorable at 5.7% for March of 2013 versus the 7.6% for the US. RELATIVELY HEALTHY GENERAL FUND BALANCE For the last three years, the General Fund balance has fluctuated somewhat but remained healthy for the A2 rating. In fiscal 2010, the General Fund ended with a $193,000 surplus making the fund balance $739,000 which was equal to 17% of General Fund revenues. Another $61,000 surplus in fiscal 2011 brought fund balance to $800,000, or 18.4% of General Fund revenues. In fiscal 2012, the General Fund ended with a $27,000 operating deficit bringing the fund balance to $773,000 or 15.9% of General Fund revenues. Officials have a goal of building the General Fund balance up to $1 million which would approximate 90 days of operating expenditures in reserve. The budget in fiscal 2013, includes a $10,000 surplus and sales taxes are over budget indicating a further surplus is likely. With property tax and sales tax growth, general fund operations should remain stable for the medium to long term. HIGH YET MANAGEABLE DEBT BURDENS The city's debt position is high yet manageable with debt burdens of 2.4% direct and 7.0% which takes into consideration debt supported by other funds. Without this support the debt burdens would be 4.5% direct and 9.1 % overall. The current issue will fund water and sewer infrastructure to be supported by water and sewer revenues and a water spray park to be supported by economic development corporation sales taxes. Payout is strong with 86.9% of principal retired in ten years. There are currently no plans to issue additional debt in the near term. With fast payout of debt and tax base expansion expected, the debt burdens should moderate over time. WHAT COULD MAKE THE RATING GO UP Trend of significant tax base expansion Substantial improvement in wealth levels WHAT COULD MAKE THE RATING GO DOWN Protracted tax base declines Trend of declining General Fund balance KEY STATISTICS: 2012 Taxable Valuation: $389 million 2012 Full Value Per Capita: $54,323 2010 Per Capita Income: 67.9% Direct Debt Burden: 2.4% Overall Debt Burden: 7.0% Payout of Principal (10 years): 86.9% 2011 Unassigned Balance: $773,000 (17.1 % of General Fund revenues) Post -sale general obligation limited tax parity debt: $15.4 million The principal methodology used in this rating was General Obligation Bonds Issued by US Local Governments published in April 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology. REGULATORY DISCLOSURES For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review. Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating. Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Analysts Kristin Button Lead Analyst Public Finance Group Moody's Investors Service Edward Damutz Backup Analyst Public Finance Group Moody's Investors Service James Hobbs Additional Contact Public Finance Group Moody's Investors Service Contacts Journalists: (212) 553-0376 Research Clients: (212) 553-1653 Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 USA MOODY'S INVESTORS SERVICE © 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, WOODY'S"). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. ("MIS") AND ITS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT -LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATIONS") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT -LIKE SECURITIES. 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For Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761 G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761 G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail clients. It would be dangerous for retail clients to make any investment decision based on MOODY'S credit rating. If in doubt you should contact your financial or other professional adviser. UNITED STATES OF AMERICA STATE OF TEXAS NUMBER R-1 REGISTERED DENOMINATION $150,000.00 REGISTERED CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATE OF OBLIGATION SERIES 2013 INTEREST RATE: DELIVERY DATE: MATURITY DATE: CUSIP: 2.000% July 9, 2013 August 1, 2014 800876 DY 7 DATED DATE: JUNE 15, 2013 REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: ONE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS THE CITY OF SANGER, TEXAS, a municipal corporation of the State of Texas (the "City"), for value received, hereby promises to pay to the Registered Owner identified above or its registered assigns, on the maturity date specified above (or on earlier redemption as herein provided), upon presentation and surrender of this Certificate at the principal corporate trust office of BOKF, NA dba Bank of Texas, Austin, Texas, or its successor (the "Paying Agent/Registrar"), the principal amount identified above (or so much thereof as shall not have been paid or deemed to have been paid upon prior redemption) payable in any coin or currency of the United States of America which on the date of payment of such principal is legal tender for the payment of debts due to the United States of America, and to pay interest thereon at the rate shown above, calculated on a basis of a 360-day year composed of twelve 30-day months, from the date of delivery. Interest on this Certificate is payable on February 1, 2014, and each February 1 and August I thereafter until maturity or earlier redemption of this Certificate, by check sent by United States mail, first class, postage prepaid, by the Paying Agent/Registrar to the Registered Owner of record as of the close of business on the fifteenth day of the calendar month immediately preceding the applicable interest payment date, as shown on the registration books kept by the Paying Agent/Registrar. Any accrued interest payable at maturity or earlier redemption shall be paid upon presentation and surrender of this Certificate at the principal corporate trust office of the Paying Agent/Registrar. THIS CERTIFICATE IS ONE OF A DULY AUTHORIZED SERIES OF CERTIFICATES (the "Certificates") in the aggregate principal amount of $4,260,000 issued pursuant to an ordinance adopted by the City Council of the City on June 17, 2013 (the "Ordinance") for the purpose of providing all or part of .the funds to pay (A) contractual obligations to be incurred for water and sewer system repairs and improvements, street repairs, drainage repairs and improvements, and park repairs and improvements, and (B) professional services rendered in connection with the above listed projects. HOU:3331855.1 Page 1 of 7 THIS CERTIFICATE shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Certificate either (i) is registered by the Comptroller of Public Accounts of the State of Texas by due execution of .the registration certificate endorsed hereon or (ii) is authenticated by the Paying Agent/Registrar by due execution of the authentication certificate endorsed hereon. THE CITY RESERVES THE RIGHT, at its option, to redeem, prior to their maturity, Certificates maturing on and after August 1, 2024, in whole or in part, on August 1, 2023, or any date thereafter, at par plus accrued interest to the date fixed for redemption. THE CERTIFICATES MATURING ON August 1 in the years 2026, 2028, 2030 and 2033 (the "Term Certificates") are subject to mandatory sinking fund redemption in the following amounts (subject to reduction as hereinafter provided), on the following dates, in each case at a redemption price equal to the principal amount of the Certificates or the portions thereof so called for redemption plus accrued interest to the date fixed for redemption: Term Certificates Maturing August 1, 2026 Term Certificates Maturing August 1, 2028 Term Certificates Maturing August 1, 2030 Term Certificates Maturing August 1, 2033 Mandatory Redemption Dates Principal Amounts August 1, 2025 $210,000 August 1, 2026 (stated maturity) 220,000 Mandatory Redemption Dates Principal Amounts August 1, 2027 $230,000 August 1, 2028 (stated maturity) 240,000 Mandatory Redemption Dates Principal Amounts August 1, 2029 $255,000 August 1, 2030 (stated maturity) 265,000 Mandatory Redemption Dates Principal Amounts August 1, 2031 $280,000 August 1, 2032 295,000 August 1, 2033 (stated maturity) 305,000 The particular Term Certificates to be redeemed shall be selected by the Registrar by lot or other customary random selection method, on or before June 15 of each year in which Term Certificates are to be mandatorily redeemed. The principal .amount of Term Certificates to be mandatorily redeemed in each year shall be reduced by the principal amount of such Term Certificates that have been optionally redeemed and which have not been made the basis for a previous reduction. CERTIFICATES MAY BE REDEEMED IN PART only in integral multiples of $5,000. If a Certificate subject to redemption is in a denomination larger than $5,000, a portion of such Certificate may be redeemed, but only in integral multiples of $5,000. In selecting portions of Certificates for redemption, each Certificate shall be treated as representing that number of Certificates of $5,000 denomination which is obtained by dividing the principal amount of such HOU:3331855.1 Page 2 of 7 Certificate by $5,000. Upon surrender of any Certificate for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of the Ordinance, shall authenticate and deliver in exchange therefor a Certificate or Certificates of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Certificate so surrendered. NOTICE OF ANY SUCH REDEMPTION, identifying the Certificates or portions thereof to be redeemed, shall be sent by United States mail, first class, postage prepaid, to the Registered Owners thereof at their addresses as shown on the books of registration kept by the Paying Agent/Registrar, not less than thirty (30) days before the date fixed for such redemption. By the date fixed for redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the redemption price of the Certificates called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Certificates which are to be so redeemed thereby automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being outstanding except for the purpose of being paid with the funds so provided for such payment. THIS CERTIFICATE IS TRANSFERABLE only upon presentation and surrender at the principal corporate trust office of the Paying Agent/Registrar, accompanied by an assignment duly executed by the Registered Owner or its authorized representative, subject to the terms and conditions of the Ordinance. THIS CERTIFICATE IS EXCHANGEABLE at the principal corporate trust office of the Paying Agent/Registrar for a Certificate or Certificates of the same maturity and interest rate and in the principal amount of $5,000 or any integral multiple thereof, subject to the terms and conditions of the Ordinance. THE PAYING AGENT/REGISTRAR is not required to accept for transfer or exchange any Certificate called for redemption, in whole or in part, during the forty-five (45) day period immediately prior to the date fixed for redemption; provided, however, that such limitation shall not apply to the transfer or exchange by the Registered Owner of an unredeemed portion of a Certificate called for redemption in part. THE CITY OR PAYING AGENT/REGISTRAR may require the Registered Owner of any Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of a Certificate. Any fee or charge of the Paying Agent/Registrar for a transfer or exchange shall be paid by the City. THE REGISTERED OWNER of this Certificate by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Ordinance. IT IS HEREBY DECLARED AND REPRESENTED that this Certificate has been duly and validly issued and delivered; that all acts, conditions and things required or proper to be performed, exist and to be done precedent to or in the issuance and delivery of this Certificate have been performed, exist and have been done in accordance with law; that the Certificates do not exceed any constitutional or statutory limitation; and that annual ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Certificate, as such interest HOU:3331855.1 Page 3 of 7 comes due and such principal matures, have been levied and ordered to be levied, within the limits prescribed by law, against all taxable property in the City and have been irrevocably pledged for such payment. IT IS FURTHER DECLARED AND REPRESENTED that the surplus revenues to be derived from the City's water and sewer system, after the payment of all operation and maintenance expenses thereof (the "Net Revenues"), in an amount not to exceed $10,000, are pledged to the payment of the principal of and interest on the Certificates, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. The City also reserves the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind, secured in whole or in part by a pledge of Net Revenues, that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. REFERENCE IS HEREBY MADE TO THE ORDINANCE, a copy of which is filed with the Paying Agent/Registrar, for the full provisions thereof, to all of which the Registered Owners of the Certificates assent by acceptance of the Certificates. HOU:3331855.1 Page 4 of 7 IN WITNESS WHEREOF, the City has caused its corporate seal to be impressed or placed in facsimile hereon and this Certificate to be signed by the Mayor, countersigned by the City Secretary by their manual, lithographed or printed facsimile signatures. CITY OF SANGER, TEXAS IvItivor (SF / 1 A COUNTERSICNF I7. _--i - _. CITY Secretary HOU:3331855.1 Page 5 of 7 PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE The following form of authentication certificate shall be printed on the face of each of the Certificates other than those initially delivered: HOU:3331855.1 AUTHENTICATION CERTIFICATE BOKF, NA dba Bank of Texas Page 6 of 7 Authorized Signature Date of Authentication: ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto (Please print or type name, address, and zip code of Transferee) (Please insert Social Security or Taxpayer Identification Number of Transferee) the within bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer such bond on the books kept for registration thereof, with full power of substitution in the premises. DATED: Signature Guaranteed: NOTICE: Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. HOU:3331855.1 Registered Owner NOTICE: The signature above must correspond to the name of the Registered Owner as shown on the face of this bond in every particular, without any alteration, enlargement or change whatsoever. Page 7 of 7 CITY OF SANGER, TEXAS $4,260,000 CERTIFICATES OF OBLIGATION SERIES 2013 The following information is included in the transcript submitted to the Office of the Attorney General for the purpose of obtaining Attorney General approval of the issuance of the referenced bonds, as required by H.B. 1564, 74th Legislature, Regular Session (Tex. Laws 1995, ch. 383, at 2930). A. An additional copy of the Final Official Statement and the following information, if not included in the Final Official Statement or such statement has not been prepared. 1. Name of bond issue: City of Sanger, Texas Certificates of Obligation, Series 2013 2. a) par amount of issue: $4,260,000 b) dollar amount of bond premium, if any: $347,886.60 c) dollar amount of bond original issue discount, if any: $0 3. Dated date: July 15, 2009 4. Closing date (expected delivery date, on or about): July 9, 2013 5. By year, maturity amounts, coupon rates, prices or yields: See Official Statement. (If no reoffering yield (NRO) indicated, please provide yield separately.) 6. Call provisions, including premiums, if any: See Official Statement 7. Mandatory redemption provisions: See Official Statement 8. Debt -service schedule, principal and interest, and annual totals, with fiscal year identified: See Exhibit A. 9. Use of derivative products associated with financing: N/A 10. If applicable, schedule of bonds refunded, including, by year, principal amount, coupon, and interest cost: N/A II. Pledge: tax (ad valorem, sales, other), revenue, combination: Ad valorem tax with limited revenue pledge of utility system 12. Type of credit enhancement (including PSF guarantee): Assured Guaranty 13. Rating service(s) and rating(s) assigned to issue: Moody's A2 B. Additional Information Type of sale: Negotiated 2. Pricing: Negotiated sale: June 17, 2013 Competitive sale: N/A If purchaser of bonds is a governmental entity, such as the Texas Water Development Board, please name purchaser: N/A 4. If a refunding bond issue, please provide final schedule of cash and present value savings (loss): N/A If a school district refunding bond issue, and the refunding involves "old debt" per the Texas Education Code, please provide schedule of principal and interest payments of refunding bonds associated with "old debt": N/A If the same issue also involves "new debt," please provide a schedule of principal and interest payments on the "new debt" portion as well. These two schedules HOU:3306952,2 together should equal total debt service by maturity: All of the refunded bonds represent (and accordingly all of the refunding bonds are associated with) "new debt." N/A 6. CAB's and CIB's — please provide the per annum bond interest rates by maturity as shown in the bond order document: N/A 7. Costs of Issuance — please provide best estimate of costs. If final costs are significantly different, please submit changes directly to the Texas Bond Review Board. Call (512) 463-1741 or (512) 475-4802 (FAX). SERVICE FIRM ONE-TIME FEE ( ANNUAL FEE(a) in dollars Bond Rating Mood 's $10,000.00 Standard & Poor's N/A Fitch N/A Other General Costs of Issuance b $63,352.85 $500 Any Specialized Costs of Issuance c Credit Facility N/A N/A Bond Insurance N/A Total Underwriting Spread d $34,533.75 Did underwriter pay rating fees No Which ones ? Did underwriter pay bond insurance fee? No PARTICIPANTS FIRM Financial Advisor Government Capital Securities Corporation Bond Counsel Andrews Kurth LLP Paying Agent/Registrar; Authenticating Agent BOKF, NA dba Bank of Texas Underwriters Oppenheimer & Co. and Duncan -Williams, Inc. Trustee None Underwriter's Counsel Fulbri ht & Jaworski LLP Administrator None (a) relates to the ongoing fees or recurring costs of a financing for services such as paying agent, remarketing agent, credit provider and other similar services (may be expressed as a formula as appropriate) (b) e.g., bond counsel, financial advisor, paying agent, printing, AG approval (c) e.g., remarketing fees, escrow verification fees, etc. (d) the cost for marketing and selling the bonds, including takedown, structuring fee, underwriting risk and expenses. PERSON COMPLETING FORM: Telephone No. (713) 220-3879 Name: Hoang T. Vu Fax No. (713) 238-7129 HOU:3306952.2 Exhibit A HOU:3306952.2 GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS Fiscal Year 30-Sept 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 TOTAL Existing Debt Service $1,476,673 1,473,868 1,474,968 1,474,993 1,394,923 1,379,283 1,387,443 1,393,723 1,330,045 404,436 405,410 400,445 400,030 403,333 135,720 $14,935,289 Principal $150,000 165,000 165,000 170,000 175,000 175,000 180,000 185,000 190,000 200,000 205,000 210,000 220,000 230,000 240,000 255,000 265,000 280,000 295,000 305,000 $4,260,000 A-5 Interest $173,226 160,250 156,950 153,650 150,250 145,875 141,500 136,100 130,550 124,850 118,850 111,675 102,225 92,325 81,400 70,000 57,250 44,000 30,000 15,250 $2,196,176 TABLE 11 Total Debt Service $1,476,673 1,797,094 1,800,218 1,796,943 1,718,573 1,704,533 1,708,318 1,715,223 1,651,145 724,986 730,260 724,295 721,705 725,558 458,045 321,400 325,000 322,250 324,000 325,000 320,250 $21,391,465