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03-05-12-Ordinance-Certificates of Obligation Series 2012, Refunding-03/05/2012CERTIFICATE FOR ORDINANCE THE STATE OF TEXAS COUNTY OF DENTON CITY OF SANGER I, the undersigned officer of the City of Sanger, Texas (the "City"), hereby certifies as follows: 1. The City Council of the City convened in a regular meeting on March 5, 2012, 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 Marjory Johnson Councilmember, Place 1 Gary Bilyeu Councilmember, Place 2 Russell Martin Councilmember, Place 3 Andy Garza Councilmember, Place 4 Scott Stephens Councilmember, Place 5 and all of such persons were present, thus constituting a quorum. Whereupon, among other business, the following was transacted at said meeting: a written AN ORDINANCE OF THE CITY OF SANGER, TEXAS AUTHORIZING AND ORDERING THE ISSUANCE OF GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012; AUTHORIZING A PRICING OFFICER TO APPROVE THE AMOUNT, THE 1. INTEREST RATES, PRICE, REDEMPTION PROVISIONS AND TERMS THEREOF AND CERTAIN OTHER PROCEDURES AND PROVISIONS RELATED THERETO; AND CONTAINING OTHER MATTERS RELATED THERETO (the "Ordinance") was duly introduced for the consideration of the City Council. 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: 5 NAYS:0 ABSTENTIONS: 0 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 HOU:3196112.1 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 March 5, 2012. 111-i��V City Secretary CITY OF SANGER, TEXAS 2 HOU:3196I12.1 AN ORDINANCE OF THE CITY OF SANGER, TEXAS AUTHORIZING AND ORDERING THE ISSUANCE OF GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012; AUTHORIZING A PRICING OFFICER TO APPROVE THE AMOUNT, THE INTEREST RATES, PRICE, REDEMPTION PROVISIONS AND TERMS THEREOF AND CERTAINOTHER PROCEDURES AND PROVISIONS RELATED THERETO; AND CONTAINING OTHER MATTERS RELATED THERETO BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF SANGER, TEXAS: ARTICLE I. FINDINGS AND DETERMINATIONS Section 1. L: 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, has heretofore issued, assumed or undertaken and there remain outstanding certain obligations described in Exhibit C attached hereto (hereinafter defined as the "Refundable Obligations"). (b) The City is authorized by Chapter 1207, Texas Government Code, as amended, to issue refunding bonds for the purpose of refunding all or a portion of the Refundable Obligations (hereinafter defined as the "Refunded Obligations"). (c) The City desires to refund the Refunded Obligations in advance of their maturities, which will benefit the City by reducing total net present value debt service. (d) The City is authorized by Chapter 1207, Texas Government Code, as amended, to accomplish such refunding by depositing directly with a trust company or commercial bank that does not serve as a depository for the City or with any place of payment for the Refunded Obligations, proceeds from the sale of such refunding bonds, together with any other available funds, in an amount sufficient to provide for the payment or redemption of the Refunded Obligations, and pursuant to such chapter such deposit shall constitute the making of firm banking and financial arrangements for the discharge and final payment or redemption of the Refunded Obligations; (e) The City desires, as authorized in Chapter 1207, Texas Government Code, as amended, to directly deposit a portion of the proceeds of the refunding bonds herein authorized, together with any other available funds, with the paying agent/registrar for the Refunded Obligations in a manner sufficient to provide for the full and timely payment of all principal of, premium, if any, and interest on certain of the Refunded Obligations; and HOU:3196112.1 (f) The City desires to enter into an escrow agreement with BOKF, NA dba Bank of Texas, as escrow agent (the "Escrow Agent"), as authorized in Chapter 1207, Texas Government Code, as amended, pursuant to which a portion of the proceeds of the refunding bonds herein authorized, and other legally available funds of the City, if any, will be deposited, invested and applied in a manner independently certified and verified to be sufficient to provide for the full and timely payment of all principal of, premium, if any, and interest on certain of the Refunded Obligations. (g) The City desires to authorize the purchase of certain direct obligations of the United States of America with a portion of the proceeds of the refunding bonds herein authorized for deposit into the escrow fund created pursuant to such escrow agreement. (h) Upon the issuance of the refunding bonds herein authorized and the deposits referenced above, the Refunded Obligations shall no longer be regarded as being outstanding, and the pledges, liens, trusts and all other covenants, provisions, terms and conditions of the ordinances authorizing the issuance of the Refunded Obligations shall be, with respect to the Refunded Obligations, discharged, terminated and defeased; and (i) It is hereby found and determined that the refunding must result in a net present value savings of at least three percent (3%) of the Refunded Obligations, and that such benefit is sufficient consideration and constitutes the public purpose for the issuance of the Bonds (as herein defined) and the refunding of the Refunded Obligations, and such refunding is in the best interests of the City; and (j) Pursuant to Section 1207.007, Texas Government Code, as amended, the City wishes to authorize the Pricing Officers herein designated to act on behalf of the City as herein provided; and (k) The City Council is of the opinion and hereby affirmatively finds that it is in the best interest of the City to issue the bonds in the amounts and for the purposes herein stated. 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 Chapter 1207, Texas Government Code, as amended. "Attorney General" shall mean the Attorney General of the State of Texas. "Bond" or "Bonds" shall mean any or all of the City of Sanger, Texas, General Obligation Refunding Bonds, Series 2012, authorized by this Ordinance. 01 HOU:3196112.1 Apr-10-2012 04:52pm From-ANDREWS AND KNRTH +713 220 4200 T-101 P.004/007 F-204 The term "Bond Purchase Agreement" shall mean the agreement between the City and the Underwriters providing for the sale of Bonds at such price, with and subject to such terms as determined by a Pricing Officer pursuant to Section 7.1 of 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. "Comptroller" shall mean the Comptroller of Public Accounts of the State of Texas. "DTC" shall mean The Depository Trust Company, New York, New York, br 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. "Debt Service Fund" shall mean the General Obligation Refunding Bonds, Series 2012 Debt Service Fund established by the City pursuant to Section 5.2 hereof. "Escrow Agent" shall mean BOKF, NA dba Bank of Texas, Austin, Texas, and its successors in that capacity. "Escrow Agreement" shall mean the agreement between the City and the Escrow Agent relating to the deposit of funds to pay certain Refunded Obligations. "Fiscal Year" shall mean the City's then designated fiscal year, which currently is the twelve-month period beginning on the first day of duly of a calendar year and ending on the last day of June 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 Bond, shall mean May 15, 2012, and each May 15 and November 15 thereafter until maturity or earlier redemption of such Bond. "MSRB" shall mean the Municipal Securities Rulemaking Board. "Ordinance" shall mean this Ordinance and all amendments hereof and supplements hereto. "Outstanding," when used with reference to the Bonds, shall mean, as of a particular date, all Bonds theretofore and thereupon delivered pursuant to this Ordinance except: (a) any Bonds canceled by or on behalf of the City ai or before such date; (b) any Bonds defeased pursuant to the defeasance provisions of this Ordinance or otherwise defeased as permitted by applicable law; and (c) any Bonds in lieu of or in substitution for which a replacement Bond shall have been delivered pursuant to this Ordinance. "Owner" shall have the meaning set forth under the definition of "Registered Owner." iioU:3196112.3 "Paying Agent/Registrar" shall mean BOKF, NA dba Bank of Texas, Austin, Texas, and its successors in that capacity. "Paying Agent/Registrar Agreement" shall mean the agreement between the City and the Paying Agent/Registrar setting forth the duties and obligations of the Paying Agent/Registrar with respect to the Bonds. "Pricing Officer" shall mean one or more of the following: the Mayor or the City Manager. "Pricing Officer's Certificate of Sale" shall mean the certificate of the Pricing Officer provided in accordance with Section 7.1 of this Ordinance. "Record Date" shall mean the close of business on the last business day of the month next preceding the applicable Interest Payment Date. "Refundable Obligations" shall mean those bonds identified in Exhibit C hereto that are Outstanding on the date of execution of the Bond Purchase Agreement by a Pricing Officer. "Refunded Obligations" shall mean one or more Refundable Obligations selected in accordance with Section 7.1 of this Ordinance, which are deemed to be paid, retired and no longer outstanding as a result of the deposit of the proceeds of the Bonds, together with other available funds of the City, if any, in an amount sufficient to defease such Refunded Obligations, as authorized by Chapter 1207 and the ordinances authorizing the Refunded Obligations. "Register" shall mean the registration books for the Bonds 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 Bonds. "Registered Owner" or "Owner" shall mean theperson or entity in whose name any Bond is registered in the Register. "Report" shall mean the verification report prepared by Grant Thornton LLP, Certified Public Accountants, verifying the accuracy of certain mathematical computations relating to the Bonds and the refunding of certain Refunded Obligations. "Underwriter" shall have the meaning given to such term in Section 7.1 hereof. Section 2.2.: Interpretations. 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 Bonds and the validity of the levy of ad valorem taxes to pay the principal of and interest on the Bonds. 0 HOU:3196112.1 ARTICLE III. TERMS OF THE BONDS Section 3.L: Amount. Purpose and Authorization. (a) The Bonds 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 not to exceed THREE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($3,500,000) for the purpose of refunding the Refunded Obligations and paying the costs of issuing the Bonds and refunding the Refunded Obligations. The Bonds are issued pursuant to Chapter 1207, Texas Government Code, as amended, and all other applicable law. (b) The principal amount of the Bonds shall be established by a Pricing. Officer in an amount necessary to provide funds sufficient to refund the Refunded Obligations and pay the costs associated with the refunding of the Refunded Obligations and the issuance of the Bonds; provided, however, that the following conditions shall be met for the issuance of the Bonds: in establishing the aggregate principal amount of the Bonds, the Pricing Officer shall establish the principal amount of the Bonds in an aggregate principal amount not to exceed the amount authorized in subsection (a) of this Section, which amount shall be sufficient to provide for the defeasance of the Refunded Obligations (as determined by the Pricing Officer) and which results in (i) net present value savings of at least three percent (3%) of the Refunded Obligations; and (ii) none of the Bonds bears interest at a rate greater than the maximum rate allowed by Chapter 1204, Texas Government Code, as amended. (c) In exercising the authority granted to the Pricing Officer to sell Bonds for the purpose of refunding the Refunded Obligations, such Pricing Officer, acting severally and individually, may exercise any authority granted under Chapter 1207, Texas Government Code (as in effect on the date the Pricing Officer executes the Bond Purchase Agreement), including, without limitation, (i) the selection of the particular maturities and principal amounts of the Refundable Obligations to be refunded (including the execution and delivery of any notices of redemption required in connection therewith) and (ii) establishing the terms and details related to the issuance and sale of the Bonds. Section 3.2.: Designation, Date and Payment Date. The Bonds shall be designated as the "City of Sanger, Texas, General Obligation Refunding Bonds, Series 2012." Interest on the Bonds shall be payable on each Interest Payment Date until maturity or prior redemption. The Bonds shall be dated and bear interest at the fixed rate or rates of interest per annum (which interest rate shall not exceed the Maximum Rate), calculated on the basis of a 360-day year composed of twelve 30-day months, determined in accordance with the procedures for the sale of the Bonds set forth in Section 7.1 of this Ordinance. The Bonds shall mature and become payable on the dates and in each of the years and amounts (either through serial maturities or mandatory redemptions of term bonds) as determined by a Pricing Officer pursuant to Section 7.1 of this Ordinance; provided that no Bond shall mature more than forty (40) years after the dated date thereof. Section 3.3.: Number, Denomination, Interest Rate and Maturity. (a) The Bonds shall be initially issued bearing the numbers, in the principal amounts and bearing interest at the E HOU:31961I2.1 rates and maturity dates as set forth in the Pricing Officer's Certificate of Sale, and may be transferred and exchanged as set out in this Ordinance. Bonds delivered in transfer of or in exchange for other Bonds 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 Bond or Bonds in lieu of which they are delivered. Section 3.4.: Redemption Prior to Maturity. (a) The Bonds shall be subject to redemption prior to maturity on such dates, at such prices and in such amounts as shall be provided in the Pricing Officer's Certificate of Sale and upon the terms and conditions set forth in Exhibit A to this Ordinance. (b) Bonds may be redeemed in part only in integral multiples of $5,000. If a Bond subject to redemption is in a denomination larger than $5,000, a portion of such Bond may be redeemed, but -only inintegralmultiples of $5,000. -In selecting -portions-of Bonds --for redemption, each Bond shall be treated as representing that number of Bonds of $5,000 denomination which is obtained by dividing the principal amount of such Bond by $5,000. Upon presentation and surrender of any Bond for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of this Ordinance, shall authenticate and deliver in exchange therefor a Bond or Bonds of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered. (c) Notice of any redemption, identifying the Bonds 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 Bonds called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Bonds 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 Bonds. The Bonds 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 BOND set forth in Article N of and Exhibit A to this Ordinance. If any officer of the City whose manual or facsimile signature shall appear on the Bonds shall cease to be such officer before the authentication of the Bonds or before the delivery of the Bonds, 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 Bonds over the certification of the City Secretary, which may be executed in facsimile. CUSIP numbers also may be printed on the Bonds, but errors or M HOU:3196112.1 omissions in the printing of either the opinion or the numbers shall have no effect on the validity of the Bonds. Section 3.6.: Authentication. Except for the Bond to be initially issued, which need not be authenticated by the Paying Agent/Registrar, only such Bonds as shall bear thereon a certificate of authentication, substantially in the form provided in Article IV of and Exhibit A to 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 duly executed certificate of authentication shall be conclusive evidence that the Bond 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 Bond is registered as the absolute owner of such Bond for the purpose of making and receiving payment of the principal thereof and interest -thereon-and for -all -other -purposes, -whether or not such Bond- 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 Bond 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 Bond 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 Bonds. So long as any Bond remains Outstanding, the Paying Agent/Registrar shall keep the Register at its office in Houston, Texas, in which, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of the Bonds in accordance with the terms of this Ordinance. Each Bond 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 Bond for transfer, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor, within seventy-two (72) hours after such presentation, a new Bond or Bonds, 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 Bond or Bonds so presented and surrendered. All Bonds shall be exchangeable upon the presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar for a Bond or Bonds, in any authorized denomination, in an aggregate principal amount equal to the unpaid principal amount of the Bond or Bonds presented for exchange. The Paying Agent/Registrar shall be and is hereby authorized to authenticate and deliver exchange Bonds in accordance with the provisions of this Section. Each Bond delivered by the Paying Agem/Registrar in accordance with this Section shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such Bond is delivered. All Bonds 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. 7 HOU:3196112.1 The City or the Paying Agent/Registrar may require the Registered Owner of any Bond 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 Bond. Any fee or charge of the Paying Agent/Registrar for such transfer or exchange shall be paid by the City. Section 3.9.: Book -Entry Only System. (a) The definitive Bonds shall be initially issued in the form of a single fully registered Bond for each of the maturities thereof. Upon initial issuance, the ownership of each such Bond shall be registered in the name of Cede & Co., as nominee of DTC, and except as provided in subsection (b) hereof, all of the Outstanding Bonds 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., the word "Cede & Co." in this Ordinance shall refer to such new nominee of DTC. With respect to Bonds registered in the name of Code. -&-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 Bonds. 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 Bonds, (b) the delivery to any DTC Participant or any other person, other than a Bondholder, as shown on the Register, of any notice with respect to the Bonds, or (c) the payment to any DTC Participant or any other person, other than a Bondholder, as shown in the Register, of any amount with respect to principal of Bonds, premium, if any, or interest on the Bonds. Except as provided 'in subsection (c) of this Section, the City and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Bond is registered in the Register as the absolute owner of such Bond for the purpose of payment of principal of, premium, if any, and interest on Bonds, for the purpose of giving notices of redemption, if any, and other matters with respect to such Bond, for the purpose of registering transfer with respect to such Bond, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of Bonds 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 Bonds to the extent of the sum or sums so paid. No person other than an owner shall receive a Bond evidencing the obligation of the City to make payments of amounts due pursuant to this Ordinance. rPayments-and- Notices-to-Cede-R Co.--Notwithstandnrg any otision-of-thin Ordinance to the contrary, as long as any Bonds are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on the Bonds, and all notices with respect to such Bonds shall be made and given, respectively, in the manner provided in the representation letter of the City to DTC. (c) 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 F] HOU:3196112.1 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 Bonds that they be able to obtain certificated Bonds, 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 Bonds to such successor securities depository or (b) notify DTC of the availability through DTC of Bonds and transfer one or more separate Bonds to DTC Participants having Bonds credited to their DTC accounts. In such event, the Bonds shall no longer be restricted to being registered in the Register in the name 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 Bondholders transferring or exchanging Bonds shall designate, in accordance with the provisions of this Ordinance. Section 3.10.: Replacement Bonds. Upon the presentation and surrender to the Paying Agent/Registrar of -a -damaged -or mutilated Bond, -the-Paying Agent/Registrar shall authenticate and deliver in exchange therefor a replacement Bond, 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 Bond 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 Bond 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 Bond has been acquired by a bona fide purchaser, shall execute, and the Paying Agent/Registrar shall authenticate and deliver, a replacement Bond 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 Bond; (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 Cityand_the Paying Agent/Registrar. If, after the delivery of such replacement Bond, a bona fide purchaser of the original Bond in lieu of which such replacement Bond was issued presents for payment such original Bond, the City and the Paying Agent/Registrar shall be entitled to recover such replacement Bond 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 E HOU:3196112.1 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 Bond has become or is about to become due and payable, the City in its discretion may, instead of issuing a replacement Bond, authorize the Paying Agent/Registrar to pay such Bond. Each replacement Bond delivered in accordance with this Section shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such replacement Bond is delivered. Section 3.11.: Cancellation. All Bonds paid in accordance with this Ordinance, and all Bonds in lieu of which exchange Bonds or replacement Bonds are authenticated and delivered in accordance herewith, shall be canceled and destroyed upon the making of proper records regarding such payment. The Paying AgentlRegistrar shallperiodicallyfurnish the City with certificates of destruction of such Bonds. ARTICLE IV. FORM OF BONDS The Bonds, including the Form of Comptroller's Registration Certificate, Form of Paying Agent/Registrar Authentication Certificate, Form of Assignment and Form of Statement of Insurance, if any, shall be in substantially the form shown in Exhibit A, with such omissions, insertions and variations as may be necessary or desirable and not prohibited by this Ordinance. ARTICLE V. SECURITY FOR THE BONDS Section 5.1.: Pledge and Levy of Taxes. (a) To provide for the payment of principal of and interest on the Bonds, there is hereby levied, within the limits prescribed by law, for the current year and each succeeding year thereafter, while the Bonds 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 Bonds and to create and provide a sinking fund of not less than 2% of the principal amount of the Bonds 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 Bonds by deposit to the 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 Bonds, 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 Bonds remain outstanding, all moneys on deposit in, or credited to, the Debt Service Fund shall be secured by a pledge of security, as provided by law for cities in the State of Texas. 10 HOU:3196112.1 (c) To pay the interest coming due on the Bonds prior to receipt of the taxes levied to pay such interest, there is hereby appropriated from current funds on hand, which are hereby certified to be on hand and available for such purpose, an amount sufficient to pay such interest, and such amount shall be used for no other purpose. Section 5.2.: Debt Service Fund. The General Obligation Refunding Bonds, Series 2012 Debt Service Fund (the "Debt Service Fund") is hereby created as a special fund solely for the benefit. of the Bonds. 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 Debt Service Fund shall be maintained by the City in trust for the Registered Owners of the Bonds. 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 Bonds. -Section 5.3.: Further Proceedings. After the. Bondstobe initially-issued.have been executed, it shall be the duty of the Mayor to deliver the Bonds to be initially issued and all pertinent records and proceedings to the Attorney General for examination and approval. After the Bonds 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 Bonds 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 Bonds 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 Bonds 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 B, 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 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 Bonds 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. 11 HOU3196112.1 Section 6.3.: Bonds Presented. Subject to the provisions of Section 6.4, all matured Bonds presented to the Paying Agent/Registrar for payment shall be paid without the necessity of further instructions from the City. Such Bonds shall be canceled as provided herein. Section 6.4.: Unclaimed Funds Held by the Paying Agent/Registrar. Funds held by the Paying Agent/Registrar that represent principal of and interest on the Bonds 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 Bonds by virtue of actions takenincompliance with this Section. Section 6.5.: Paving Agent/Registrar May Own Bonds. The Paying Agent/Registrar in its individual or any other capacity, may become the owner or pledgee of Bonds with the same rights it would have if it were not the Paying Agent/Registrar. Section 6.6.: Successor Paving Agents/Re isgl trars. The City covenants that at all times while any Bonds are Outstanding it will provide a legally qualified bank, trust company, financial institution or other agency to act as Paying Agent/Registrar for the Bonds. The City reserves the right to change the Paying Agent/Registrar for the Bonds 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 payment date for the Bonds. 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. ARTICLE VII. PROVISIONS CONCERNING SALE AND DELIVERY OF BONDS; Section 7.1.: Sale and Delivery of Bonds; Insurance. A Pricing Officer, acting severally and individually, is hereby authorized to act for and on behalf of the City in connection with the issuance and sale of.the Bonds. In that capacity, the Pricing Officer, acting for and on behalf of the City, shall determine (a) the date for issuance and sale of the Bonds and (b) subject to the limitations of Section 3.1, the aggregate principal amount and the principal amortization schedule for the Bonds, the rate or rates of interest to be borne by the Bonds, the price of the Bonds (which shall be not less than ninety-five percent (95%) of the par amount of the Bonds, plus any accrued interest thereon), the dates on which such interest shall be payable, the terms, if. any, on which the Bonds shall be subject to optional and mandatory redemption and other terms and conditions relating to the issuance, sale and delivery of the Bonds including the 12 HOU:3196112.1 determination to utilize or not utilize municipal bond insurance, all as shall be set forth in the Bond Purchase Agreement; provided, that at the time of issuance of the Bonds, the Pricing Officer, on behalf of the City, shall deliver a written certificate (i) stating that the parameters set forth in Section 3.1(b) have been satisfied (including a statement as to the present value savings as a percent of the Refunded Obligations), (ii) identifying the Refunded Obligations and setting forth the terms and details for the redemption prior to maturity (if applicable) of the Refunded Obligations and (iii) setting forth the amount of proceeds of the Bonds to be deposited with the paying agent for the Refunded Obligations. A Pricing Officer, acting severally and individually, is authorized to designate the senior managing underwriter for the Bonds and such additional underwriters as he deems appropriate to assure that the Bonds are sold on the most advantageous terms to the City; and, a Pricing Officer, acting severally and individually, for and on behalf of the City, is authorized to execute and deliver the Bond Purchase Agreement providing for the sale of Bonds at such price, with and subject to such -terms -as -determined -by the -Pricing Officer pursuant to this -Section. -Such Bond Purchase Agreement shall be substantially in the form and substance previously approved by the City Council in connection with the authorization of general obligation bonds with such changes as are acceptable to the Pricing Officer. In the event the Bond Purchase Agreement shall not be executed on or before 5:00 p.m. on September 5, 2012, the delegation to the Pricing Officer pursuant to this Ordinance shall cease to be effective unless the City shall act to extend such delegation. The obligation of the Underwriters to accept delivery of the Bonds shall be subject to the Underwriters being furnished with the final, approving opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel for the City, which opinion shall be dated as of and delivered on the date of delivery of the Bonds to the Underwriters. The engagement of such firm as Bond Counsel for the City in connection with the issuance, sale and delivery of the Bonds is hereby approved, ratified and confirmed. The City hereby acknowledges that the sale of the Bonds pursuant to the Bond Purchase Agreement may be contingent upon the issuance of a policy of municipal bond insurance. The Pricing Officer is authorized to apply for and pay any costs associated with one or more municipal bond insurance policies to guarantee the payment of the principal of and interest on the Bonds, which guarantee or insurance shall be specified in the Pricing Officer's Certificate of Sale; and, any acts of any Pricing Officer relating to applications for any such insurance are hereby authorized, approved, ratified and confirmed. The Pricing Officer's Certificate of Sale may contain provisions related to such bond insurance policies, if any, including payment provisions thereunder, and the rights of the bond insurer(s), and any such provisions shall be read and interpreted as an integral part of this Ordinance. The appropriate officials and representatives of the City are hereby authorized and directed to execute such commitments, agreements (including reimbursement agreements), certificates and other documents and to do any and all things necessary or desirable to obtain any such insurance, and the printing on the Bonds of an appropriate legend or statement regarding such guarantee or insurance, as provided by the a bond insurer for the Bonds, is hereby approved. Section 7.2.: Annroval, Registration and Delivery. The Mayor is hereby authorized to have control and custody of the Bonds and all necessary records and proceedings pertaining 13 HOU:3196112.1 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 Bonds and to assure the investigation, examination and approval thereof by the Attorney General and the registration of the initial Bonds by the Comptroller. Upon registration of the Bonds, 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 Bond initially delivered and the seal of the Comptroller shall be impressed or printed or lithographed thereon. Section 7.3.: Offering Documents; Ratings. A Pricing Officer, acting severally and individually, is authorized and directed to provide for and oversee the preparation of a - preliminary and final official statement in connection with the issuance of the Bonds, and to approve and deem final such official statement in compliance with the Rule 15c2-12 of the Securities and Exchange Commission (the "Rule") and to provide for and authorize the -delivery to the Underwriters of such preliminary and final official statement in compliance with such Rule. The Pricing Officers, each acting severally and individually, are hereby authorized to take such action as they deem necessary or appropriate in seeking ratings on the Bonds from one or more nationally recognized rating agencies, and any such action is hereby ratified and confirmed. Section 7.4.: Application of Proceeds of Bonds. Proceeds from the sale of the Bonds shall, promptly upon receipt by the City, be applied as follows: (a) An amount equal to the sum of the accrued interest, if any, on the Bonds shall be deposited into the Debt Service Fund; (b) Proceeds from the sale of the Bonds in an amount determined by the Pricing Officer (together with funds, if any, provided by the City) shall be applied to make a cash deposit to refund certain Refunded Obligations, as more fully provided below; (c) Proceeds from the sale of the Bonds in an amount determined by the Pricing Officer (together with funds, if any, provided by the City) shall be applied to make a cash deposit to establish the Escrow Fund to refund certain Refunded Obligations, as more fully provided below; (d) An amount equal to the costs of issuance of the Bonds, as approved by the City, shall be applied to pay such costs as the City may arrange; and (e) Any proceeds of the -Bonds remaining after making all such deposits and payments shall be deposited into the Debt Service Fund. Section 7.5.: Refunded Obligations. The discharge and defeasance of the Refunded Obligations shall be effectuated by a cash deposit with the paying agent for certain Refunded Obligations as shall be approved by a Pricing Officer and for the other Refunded Obligations pursuant to the terms and provisions of the Escrow Agreement to be entered into by and between 14 HOU:3196112.1 the City and the Escrow Agent, which shall be substantially in the form attached hereto as Exhibit E, the terms and provisions of which are hereby approved, subject to such insertions, additions and modifications as shall be necessary (a) to maximize the City's present value savings and to minimize the City's costs of refunding, (b) to comply with all applicable laws and regulations relating to the refunding of the Refunded Obligations and (c) to carry out the other intents and purposes of this Ordinance, and the Mayor is hereby authorized to execute and deliver such Escrow Agreement on behalf of the City in multiple counterparts and the City Secretary is hereby authorized to attest thereto and affix the City's seal. To assure the purchase of the Escrowed Securities referred to in the Escrow Agreement, the Pricing Officer is hereby authorized to subscribe for, agree to purchase and purchase obligations of the United States of America, in such amounts and maturities and bearing interest at such rates as may be provided for in the Report to be attached to the Escrow Agreement, and to execute any and all subscriptions, purchase agreements, commitments, letters of authorization and other documents necessary -to -effectuate the -foregoing, - Any -actions heretofore taken for such purpose are hereby ratified and approved. Section 7.6.: Notice of Redemption. (a) To maximize the City's present value savings and to minimize the City's costs of refunding, the City hereby authorizes and directs that certain of the Refunded Obligations shall be called for redemption prior to maturity in the amounts, on the dates and at the redemption prices determined by the Pricing Officer in accordance with Section 7.1 of this Ordinance, and the Pricing Officer is hereby authorized and directed to take all necessary and appropriate action to give or cause to be given a notice of redemption and/or a notice of defeasance to the holders or paying agent/registrars, as appropriate, of such Refunded Obligations, and, if required, to publish such notices, all in the manner required by the documents authorizing the issuance of such Refunded Obligations. (b) Any Pricing Officer or the designee thereof is hereby authorized and directed to take all necessary and appropriate action to give or file, or to cause to be given or filed, material events notices with respect to the Refunded Obligations, as required by the ordinances authorizing the issuance of the Refunded Obligations and the Rule. Section 7.7.: Tax Exemption. The City intends that the interest on the Bonds shall be excludable from gross income of the owners thereof for federal income tax purposes pursuant to Sections 103 and 141 through 150 of the Internal Revenue Code of 1986, as amended, (the "Code") and all applicable temporary, proposed and final regulations (the. "Regulations") and procedures promulgated thereunder and applicable to the Bonds. For this purpose, the City covenants that it will monitor and control the receipt, investment, expenditure and use of all gross proceeds of the Bonds (including all property, the acquisition, construction or improvement of which is to be financed directly or indirectly with the proceeds of the Bonds) and take or omit to take such other and further actions as may be required by Sections 103 and 141 through 150 of the Code and the Regulations to cause the interest on the Bonds to be and remain excludable from the gross income, as defined in Section 61 of the Code, of the owners of the Bonds for federal income tax purposes. Without limiting the generality of the foregoing, the City shall comply with each of the following covenants: fly HOU:3196112.1 (a) 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 Bond 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 Bond, the City shall comply with each of the specific covenants in this Section. (b) 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 Bonds, (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 such series of the Bonds (including property financed with Gross Proceeds of the Refunded Obligations or notes or bonds refunded by the Refunded Obligations 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 such series of the Bonds or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with such Gross Proceeds (including property financed with Gross Proceeds of the Refunded Obligations or notes or bonds refunded by the Refunded Obligations other than taxes of general application and interest earned on investments acquired with such Gross Proceeds pending application for their intended purposes. (c) 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 Bonds 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 (including property financed with Gross Proceeds of the Refunded Obligations or notes or bonds refunded by the Refunded Obligations 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. (d) 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 Refunded Obligations, directly or indirectly invest Gross Proceeds of 16 HOU:3196112.1 such Bonds 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 Refunded Obligations. (e) Based on all of the facts and estimates now known or reasonably expected to be in existence on the date the Bonds are delivered, the City reasonably expects that the proceeds of the Bonds and the Refunded Obligations (to the extent any of such proceeds remain unexpended) will not be used in a manner that would cause the Bonds or the Refunded Obligations or any portion thereof to be "arbitrage bonds" within the meaning of Section 148 of the Cod (i) At all times while the Bonds are outstanding, the City will identify and properly account for all amounts constituting gross proceeds of the Bonds in accordance with the Regulations. The City will monitor the yield on the investments of the proceeds of the Bonds and, to the extent required by the Code and the Regulations, will restrict the yield on such investments to_a_yield which is_not_materially higher -than the yield on the Bonds. To the extent necessary to prevent the Bonds from constituting "arbitrage bonds," the City will make such payments as are necessary to cause the yield on all yield restricted nonpurpose investments allocable to the Bonds to be less than the yield that is materially higher than the yield on the Bonds; (g) The City will not take any action or knowingly omit to take any action, if taken or omitted, would cause the Bonds to be treated as "federally guaranteed" obligations for purposes of Section 149(b) of the Code; (h) The City represents that not more than fifty percent (50%) of the proceeds of any new money portion of the Bonds or any new money issue refunded by, the Refunded Obligations was invested in nonpurpose investments (as defined in Section 148(f)(b)(A) of the Code) having a substantially guaranteed yield for four years or more within the meaning of Section 149(g)(3)(A)(ii) of the Code, and the City reasonably expected at the time each issue of the Refunded Obligations was issued that at least eighty-five percent (85%) of the spendable proceeds of the Bonds or the Refunded Obligations would be used to carry out the governmental purpose of such Bonds within the corresponding three-year period beginning on the respective dates of the Bonds or the Refunded Obligations. (i) The City will take all necessary steps to comply with the requirement that certain amounts earned by the City on the investment of the gross proceeds of the Bonds, if any, be rebated to the federal government. Specifically, the City will (i) maintain records regarding the receipt, investment and expenditure of the gross proceeds of the Bonds as may be required to calculate such excess arbitrage profits separately from records of amounts on deposit in the funds and accounts of the City allocable to other obligations of the City or moneys which do not represent gross proceeds of any obligations of the City and retain such records for at least six years after the day on which the last outstanding Bond is discharged, (ii) account for all gross proceeds under a reasonable, consistently applied method of accounting, not employed as an artifice or device to avoid, in whole or in part, the requirements of Section 148 of the Code, including any specified method of accounting required by applicable Regulations to be used for all or a portion of the gross proceeds, (iii) calculate, at such times as are required by applicable Regulations, the amount of excess arbitrage profits, if any, earned from the investment of the 17 HOU:3196112.1 gross proceeds of the Bonds and (iv) timely pay, as required by applicable Regulations, all amounts required to be rebated to the federal government. In addition, the City will exercise reasonable diligence to assure that no errors are made in the calculations required by the preceding sentence and, if such an error is made, to discover and promptly eorrect such error within a reasonable amount of time thereafter, including payment to the federal government of any delinquent amounts owed to it, including interest thereon and penalty. 0) The City will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Bonds that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in smaller profit or a larger loss than would have resulted if such arrangement had been at arm's length and had the yield on the issue not been relevant to either party. (k) The City will timely file or cause to be filed with the Secretary of the Treasury of the United States the information required by Section 149(e) of the Code with respect to the Bonds on such form and in such place as the Secretary may prescribe. (1) The City will not issue or use the Bonds as part of an "abusive arbitrage device" (as defined in Section 1.148 10(a) of the Regulations). Without limiting the foregoing, the Bonds 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. (m) Proper officers of the City charged with the responsibility for issuing the Bonds are hereby directed to make, execute and deliver certifications as to facts, estimates or circumstances in existence as of the Issue Date and stating whether there are facts, estimates or circumstances that would materially change the City's expectations. On or after the Issue Date, the City will take such actions as are necessary and appropriate to assure the continuous accuracy of the representations contained in such certificates. (n) The covenants and representations made or required by this Section are for the benefit of the Bond holders and any subsequent Bond holder, and may relied upon by the Bond holder and any subsequent Bond holder and bond counsel to the City. hi 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 or reliance upon any interpretation of the Code or Regulations contained in such opinion will not cause interest on the Bonds 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 shall survive the defeasance and discharge of the Bonds for as long as such matters are relevant to the exclusion of interest on the Bonds from the gross income of the owners for federal income tax purposes. m HOU:31961121 Section 7.8.: The City hereby designates the Bonds as "qualified tax-exempt obligations" as defined in Section 265(b)(3) of the Code. With respect to such designation, the City represents the following: (a) that during the calendar year 2012, the City (including all entities which issue obligations on behalf of the City) has not designated nor will designate obligations, which when aggregated with the Bonds, will result in more than $10,000,000 of "qualified tax-exempt obligations" being issued and (b) that the City has examined its financing needs for the calendar year 2012 and reasonably anticipates that the amount of bonds, leases, loans or other obligations, together with the Bonds and any other tax-exempt obligations heretofore issued by the City (plus those of all entities which issue obligations on behalf of the City) during the calendar year 2012, when the higher of the face amount or the issue price of each such tax-exempt obligation issued for the calendar year 2012 by the City is taken into account, will not exceed $10,000,000. Section 7.9.: Related Matters. In order that the City shall satisfy in a timely manner - all of its-obligations-under--this-Ordinance,--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 Bonds, 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. 19 HOU:3196112.1 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. 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 Bonds: (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 Bonds, or other material events affecting the tax status of the Bonds; (vii) Modifications to rights of holders of the Bonds, if material; (viii) Bond calls, if material, and tender offers; (ix) Defeasances; (x) Release, substitution, or sale of property securing repayment of the Bonds, 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.: Identifvine 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 Bonds within the 20 HOU3196112.1 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.,, The provisions of this Article are for the sole benefit of the Holders and beneficial owners of the Bonds, 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 Bonds 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 Bonds in the primary offering of the Bonds 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 Bonds 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 Bonds. 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 21 HOU:3196112.1 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 underwriter from lawfully purchasing or selling Bonds in the primary offering of the Bonds, giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. Section 8.5.: Section (a): 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.L: Defeasance. The City may defease the provisions of this Ordinance and discharge its obligations to the Registered Owners of any or all of the Bonds to pay the principal of and interest thereon in any manner now or hereafter permitted by law, including by depositing with the Paying Agent/Registrar, a trust company or commercial bank other than 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 Bonds plus interest thereon to the date of maturity or earlier 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 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 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; 22 HOU:3196112.1 provided, however, that if any of the Bonds 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 Bonds 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. Section 9.2.: Legal Holidays. hi any case where the date interest accrues and becomes payable on the Bonds or principal of the Bonds matures 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 and no interest shall accrue for the period from the date of maturity --to- the -date -of actual paymentor(ii)-the- Record -Date -had -occurred -on-the -last -day of that - -- calendar month. Section 9.3.: No Recourse Against City Officials. No recourse shall be had for the payment of principal of or interest on any Bonds or for any claim based thereon or on this Ordinance against any official of the City or any person executing any Bonds. Section 9A: Further Proceedings. The Mayor, 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. The Mayor, City Secretary and other appropriate officials of the City are each hereby authorized to execute, attest and impress the City's seal to such other agreements, assignments, bonds, certificates, contracts, documents, licenses, instruments, releases, financing statements, letters of instruction, notices of acceptance, notices of final payment, written requests and other documents, and to take all actions and to do all things whether or not mentioned herein, as may be necessary or convenient to carry out or assist in carrying out the purposes of this Ordinance and the Bonds. Section 9.5.: 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 9.6.: 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 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. 23 HOU:3196112.1 Section 9.7.: Repealer. All orders, resolutions and ordinances, or parts thereof, inconsistent herewith are hereby repealed to the extent of such inconsistency. Section 9.8.: Effective Date. This Ordinance shall be in force and effect from and after its passage on the date shown below. Section 9.9.: Power to Revise Form of Documents. Notwithstanding any other provision of this Ordinance, the Mayor, City Secretary and other appropriate officials of the City are each hereby authorized to make or approve such revisions, additions, deletions and variations in the form of the documents all hereto as exhibits as, in the judgment of the Mayor, City Secretary and other appropriate officials of the City, and in the opinion of Bond Counsel to the City, as may be necessary or convenient to carry out or assist in carrying out the purposes of this Ordinance, the Preliminary Official Statement, and the fmal Official Statement; provided, however, that any changes to such documents resulting in substantive amendments to the terms and conditions of the Bonds or such documents_ shall be subject to.the_prior approval of the City _ Council. Section 9.10.: 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 Bond 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 Bond 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 Bonds, no such amendment, addition, or rescission shall (i) extend the time or times of payment of the principal of and interest on the Bonds, reduce the principal amount thereof or the rate of interest thereon, or in any other way modify the terms of payment of the principal of or interest on the Bonds, (ii) give any preference to any Bond over any other Bond, or (iii) reduce the aggregate principal amount of Bonds required to be held by Registered Owners for consent to any such amendment, addition, or rescission. 24 HOU:3196112.1 PASSED AND ADOPTED on first and final reading this March 5, 2012. CITY OF SANGER, TEXAS Mayor ATTEST 1 IJt Y%:U 0- City Secretary i . w �rFxia�s ,,,,sa Exhibit A — Form of Bond Exhibit B — Form of Paying Agent/Registrar Agreement Exhibit C — Schedule of Refundable Obligations Exhibit D — Description of Annual Financial Information Exhibit E — Form of Escrow Agreement S-1 iu411Aicln1Pai Apr-10-2012 04:52pm From-ANDREWS AND KURTH +713 220 4200 T-191 P-005/007 F-204 EXHIBIT A FORM OF BOND [FRONT OF BOND] UNITED STATES OF AMERICA STATE OF TEXAS CITY OF SANGER, TEXAS, GENERAL. OBLIGATION REFUNDING BOND SERIES 2012 NUMBER R-1 REGISTERED INTEREST RATE: DATED DATE': % ,2012 REGISTERED OWNER. PRINCIPAL AMOUNT: PRINCIPAL AMOUNT MATURITY DATE: CUSIP2: May 15, DOLLARS THE CITY OF SANGER, TEXAS, a home rule municipality 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 Bond at the principal corporate trust office of BOYF, NA dba Bank of Texas, Austin, Texas, or its successor (the "Paying Agent/Registrar"), the principal amount identified above, payable in any coin ar 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 later of the Dated Date identified above or the most recent interest payment date to which interest has been paid or duly provided for. 4 Interest on this Bond is payable on ', and each May 15 Initial Bond shall be numbered T-1. : Omitted from initial Bond. ' To be completed pursuant to the terms of sale as referenced in the Pricing Officer's Certificate of Sale. The first sentence of the initial Certificate shall read as follows: THE CITY- OF SANGER TEXAS,a-home rulemunicipalityof the State of Texas (the "Cit)% for value received, hereby promises to pay to the Registered Owner identified above or its registered assigns, on May 15 of each of the years and in the principal amounts set forth in the following schedule: [Insert information regarding years of maturity, principal amounts and interest rates from Section 3.3 of the Ordinance,j (or on earlier redemption as herein provided), upon presentation and surrender of this Bond at the principal corporate trust office of BOKF, NA dba Bank of Texas, Austin, Texas, or its successor (the "Paying Agent/Registrar"), the principal amounts identified above (or so much thereof as shall not have A-1 HOU:3196112.3 and November 15 thereafter until maturity of this Bond, 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 last business day of the month next preceding the applicable interest payment date, as shown on the registration books kept by the Paying Agent/Registrar. Any accrued interest payable at maturity shall be paid upon presentation and surrender of this Bond at the office of the Paying Agent/Registrar. THIS BOND IS ONE OF A DULY AUTHORIZED SERIES OF BONDS (the "Bonds") in the aggregate principal amount of $ 5 issued pursuant to an ordinance adopted by the City Council of the City on March 5, 2012 (the "Ordinance") for the purpose of refunding certain outstanding obligations (the "Refunded Obligations") of the City under and pursuant to the authority of Chapter 1207, Texas Government Code, as amended. Proceeds of the Bonds will also be used to pay the costs of issuing the Bonds and refunding the Refunded Obligations. THIS BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Bond is authenticated by the Paying Agent/Registrar by due execution of the authentication certificate endorsed hereon. 6 7THE CITY RESERVES THE RIGHT, at its option, to redeem, prior to their maturity, Bonds maturing on or after in whole or in part, on or any date thereafter, at par plus accrued interest to the date fixed for redemption. sTHIS BOND is not subject to redemption prior to maturity. 9THE BONDS MATURING on May 15 in the years 5 (the "Term Bonds") 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 Bonds or the portions thereof so called for redemption plus accrued interest to the date fixed for redemption: Term Bonds Maturing Mandatory Redemption Dates Principal Amounts 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 later of the Dated Date identified above or the most recent interest payment date to which interest has been paid or duly provided for. s To be completed pursuant to the terms of sale as referenced in the Pricing Officer's Certificate of Sale. s In the initial Certificate, this paragraph shall read: `TIES BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Bond is registered by the Comptroller of Public Accounts of the State of Texas by due execution of the registration certificate endorsed hereon." 7 Included if optional redemption provisions are included in the Pricing Officer's Certificate of Sale. $ Included if optional redemption provisions are not included in the Pricing Officer's Certificate of Sale. 9 Paragraph included if mandatory sinking fund redemption provision are included in the Pricing Officer's Certificate of Sale. 70 To be completed pursuant to the terms of sale as referenced in the Pricing Officer's Certificate of Sale. A-2 HOU:3196112.1 to to 10$ The particular Term Bonds 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 Bonds are to be mandatorily redeemed. The principal amount of Term Bonds to be mandatorily redeemed in each year shall be reduced by the principal amount of such Tenn Bonds 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. "THE BONDS MAY BE REDEEMED IN PART only in integral multiples of $5,000. If a Bond subject to redemption is in a denomination larger than $5,000, a portion of such Bond may be redeemed, but only in integral multiples of $5,000. hi selecting portions of Bonds for redemption, each Bond .shall be treated as representing that number of Bonds of $5,000 denomination which is obtained by dividing the principal amount of such Bond by $5,000. Upon surrender of any Bond for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of the Ordinance, shall authenticate and deliver in exchange therefor a Bond or Bonds of like maturity and interest rate in an aggregate principal amount equal to the unredeemed - portion of the Bond so surrendered. - - - NOTICE OF ANY SUCH REDEMPTION, identifying the Bonds 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 Bonds called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Bonds 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 BOND 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 BOND IS EXCHANGEABLE at the principal corporate trust office of the Paying Agent/Registrar for a Bond or Bonds 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 CITY OR PAYING AGENT/REGISTRAR may require the Registered Owner of any Bond to pay a sum sufficient to cover any tax or other governmental charge that may be Included if optional redemption provisions or mandatory sinking fund redemption provisions are included in the Pricing Officer's Certificate of Sale. FEW HOU3196112.1 imposed in connection with the transfer or exchange of a Bond. 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 Bond 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 Bond 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 Bond have been performed, exist and have been done in accordance with law; that the Bonds 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 Bond, as such interest 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. 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 Bonds -assent by acceptance of -the -Bonds.- - - - - - - - - -- - - - - - IN WITNESS WHEREOF, the City has caused its corporate seal to be impressed or placed in facsimile hereon and this Bond to be signed by the Mayor, countersigned by the City Secretary by their manual, lithographed or printed facsimile signatures. CITY OF SANGER, TEXAS Mayor (SEAL) COUNTERSIGNED: City Secretary FORM OF COMPTROLLER'S REGISTRATION CERTIFICATE The following form of Comptroller's Registration Certificate shall be attached or affixed to each of the Bonds initially delivered: ICE HOU:3196112.1 OFFICE OF THE COMPTROLLER § OF PUBLIC ACCOUNTS § REGISTER NO. THE STATE OF TEXAS § I hereby certify that this Bond has been examined, certified as to validity and approved by the Attorney General of the State of Texas, and that this Bond has been registered by the Comptroller of Public Accounts of the State of Texas. WITNESS MY SIGNATURE AND SEAL OF OFFICE this (SEAL) Comptroller of Public Accounts of the State of Texas - FORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION -CERTIFICATE — - - - The following form of authentication certificate shall be printed on the face of each of the Bonds other than those initially delivered: AUTHENTICATION CERTIFICATE This Bond is one of the Bonds described in and delivered pursuant to the within - mentioned Ordinance; and, except for the Bonds initially delivered, this Bond has been issued in exchange for or replacement of a Bond, Bonds, or a portion of a Bond or Bonds of an issue which originally was approved by the Attorney General of the State of. Texas and registered by the Comptroller of Public Accounts of the State of Texas. as Paying Agent/Registrar By: Authorized Signature: Date of Authentication: A-5 HOU:3196112.1 FORM OF ASSIGNMENT The following form of assignment shall be printed on the back of each of the Bonds: 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 the within Bond on the books kept for registration thereof, with full power of substitution in the premises. DATED: Signature Guaranteed: Registered Owner NOTICE: Signature must be guaranteed by a NOTICE: The signature above must member firm of the New York Stock Exchange correspond to the name of the registered owner or a commercial bank or trust company. as shown on the face of this Bond in every particular, without any alteration, enlargement or change whatsoever. HOU:3196112.1 EXHIBIT B FORM OF PAYING AGENUREGISTRAR AGREEMENT 4 See Tab 7 HOUt3196112.1 EXHIBIT C SCHEDULE OF REFUNDABLE OBLIGATIONS Utility System Revenue Bonds, Series 1996 Utility System Revenue Bonds, Series 2002 Combination Tax and Revenue Certificates of Obligation, Series 2002 14OU:3196112.1 EXHIBIT D DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred to in Section 8.1 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 Section are as specified (and included in the Appendix or under the headings of the Official Statement referred to) below: 1. The portions of the audited financial statements, of the City appended to the Official Statement as Exhibit B, but for the most recently concluded fiscal year, and, to the extent that such statements are not completed and available, unaudited financial statements for such fiscal year. 2. The quantitative and financial information and operating data presented in the Official Statement in Tables 1 through 10 . Accounting Principles The accounting principles referred to in such Section are the accounting principles described in the notes to the financial statements referred to in paragraph 1 above. HOU:3196112.1 EXHIBIT E FORM OF ESCROW AGREEMENT See Tab 8 HOU:3196112.1 PiperJaffray April 24, 2012 ISSUER City of Sanger Mike Brice — City Manager Katie Griffi — 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 345 Miron Dr Southlake, Texas 76092 Phone: (817) 722-0239 BOND COUNSEL Andrews Kurth LP Hoang Vu / Todd Brewer 600 Travis Street, Suite 4200 Houston, Texas 77002 Phone: (713) 220-3879 INVESTMENT BANKER Piper Jaffray & Co. Dan Roseveare Brian Garcia 2626 Cole Avenue, Suite 500 Dallas, Texas 75204 Phone: (214) 855-0625 UNDERWRITER'S COUNSEL Fulbright & Jaworski L.L.P. Marcus Deitz Fulbright Tower 1301 McKinney Suite 5100 Houston, Texas 77010-3095 Phone: (713) 651-5649 PAYING AGENT/ESCROW AGENT The Bank of Texas Jose A. Gaytan, Jr. 111 Congress, Suite 400 Austin, TX 78701 Phone: (512) 279-7850 Re: Closing Instructions with respect to the City of Sanger, Texas, $3,495,000 General Obligation Refunding Bonds, Series 2012 (the "Bonds"). Payment for the above referenced Bonds is scheduled to occur at 10:00 A.M. CST on Tuesday, April 24, 2012 (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 $3,495,000.00 PLUS: Accrued Interest 5,702.08 PLUS: Premium 93,684.10 TOTAL SOURCES $3,594,386.18 USES OF FUNDS Deposit to Escrow Fund $3,477,749.59 PLUS: Deposit to Interest and Sinking Fund 5,702.08 PLUS: Costs of Issuance (plus rounding amount) 81,877.01 PLUS: Underwriter's Discount 29,057.50 TOTAL USES $3,594,386.18 CONFIRMATION OF PURCHASE PRICE Principal Amount of Bonds $3,495,000.00 PLUS: Accrued Interest 5,702.08 PLUS: Premium 93,684.10 LESS: Underwriter's Discount 29,057.50 PURCHASE PRICE OF THE BONDS $3,565,328.68 Pip erJaff ray. (A)Prior to 10:00 A.M. on the Closing Date, Piper Jaffray & Co. (the "Underwriter") shall wire in immediately available funds $3,565,328.68 (consisting of the par amount of the Bonds of $3,495,000.00 plus accrued interest of $5,702.08 plus original issue premium of $93,684.10 and less underwriter's discount of $29,057.50). Instructions for wiring funds to BOKF are as follows: BOKF, NA dba Bank of Texas ABA: 1039-00036 Acct. No. 600024642 Acct Name: Wealth Management Account Re: City of Sanger Series 2012 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 Escrow Fund: Purchase of certain State and Local Government Securities ("SLGS") Cash Deposit (2)Deposit to Interest and Sinking Fund: To: City of Sanger Account Name: First United Bank, Sanger, TX Routing Number: 111911321 Account No.: 2693585 Attn: Katie Griffin, CGFO, Finance Director (3)Wire transfer costs of issuance funds to: To: Wells Fargo Bank Texas, NA ABA:121000248 Account Name: Government Capital Securities Corporation Account No.: 6859041375 $3,161,278.00 316,471.59 $5,702.08 $81,127.01 (4) BOKF to retain funds for Escrow Agent fees $750.00 TOTAL $3,565,328.68 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 District 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 (214) 855-0625. Very truly yours, Daniel C. Roseveare Brian Garcia Managing Director Vice President Piper Jaffray & Co. Piper Jaffray & Co. CERTIFICATE FOR ORDINANCE THE STATE OF TEXAS § COUNTY OF DENTON CITY OF SANGER I, the undersigned officer of the City of Sanger, Texas (the "City"), hereby certifies as follows: 1.The City Council of the City convened in a regular meeting on March 5, 2012, 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 Marjory Johnson Councilmember, Place 1 Gary Bilyeu Councilmember, Place 2 Russell Martin Councilmember, Place 3 Andy Garza Councilmember, Place 4 Scott Stephens Councilmember, Place 5 and all of such persons were present, thus constituting a quorum. Whereupon, among other business, the following was transacted at said meeting: a written AN ORDINANCE OF THE CITY OF SANGER, TEXAS AUTHORIZING AND ORDERING THE ISSUANCE OF GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012; AUTHORIZING A PRICING OFFICER TO APPROVE THE AMOUNT, THE INTEREST RATES, PRICE, REDEMPTION PROVISIONS AND TERMS THEREOF AND CERTAIN OTHER PROCEDURES AND PROVISIONS RELATED THERETO; AND CONTAINING OTHER MATTERS RELATED THERETO (the "Ordinance") was duly introduced for the consideration of the City Council. 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: 5 NAYS: 0 ABSTENTIONS: 0 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 HOU:3196112.3 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 March 5, 2012. City Secretary CITY OF SANGER, TEXAS i^ab4t^e s c^ t/i (°i r ) /dd®Ellitlf7l^Od^1 OA HOU:3196112.1 AN ORDINANCE OF THE CITY OF SANGER, TEXAS AUTHORIZING AND ORDERING THE ISSUANCE OF GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012; AUTHORIZING A PRICING OFFICER TO APPROVE THE AMOUNT, THE INTEREST RATES, PRICE, REDEMPTION PROVISIONS AND TERMS THEREOF AND CERTAIN OTHER PROCEDURES AND PROVISIONS RELATED THERETO; AND CONTAINING OTHER MATTERS RELATED THERETO BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF SANGER, TEXAS: 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, has heretofore issued, assumed or undertaken and there remain outstanding certain obligations described in Exhibit C attached hereto (hereinafter defined as the "Refundable Obligations"). (b)The City is authorized by Chapter 1207, Texas Government Code, as amended, to issue refunding bonds for the purpose of refunding all or a portion of the Refundable Obligations (hereinafter defined as the "Refunded Obligations"). (c)The City desires to refund the Refunded Obligations in advance of their maturities, which will benefit the City by reducing total net present value debt service. (d)The City is authorized by Chapter 1207, Texas Government Code, as amended, to accomplish such refunding by depositing directly with a trust company or commercial bank that does not serve as a depository for the City or with any place of payment for the Refunded Obligations, proceeds from the sale of such refunding bonds, together with any other available funds, in an amount sufficient to provide for the payment or redemption of the Refunded Obligations, and pursuant to such chapter such deposit shall constitute the making of firm banking and financial arrangements for the discharge and final payment or redemption of the Refunded Obligations; (e)The City desires, as authorized in Chapter 1207, Texas Government Code, as amended, to directly deposit a portion of the proceeds of the refunding bonds herein authorized, together with any other available funds, with the paying agent/registrar for the Refunded Obligations in a manner sufficient to provide for the full and timely payment of all principal of, premium, if any, and interest on certain of the Refunded Obligations; and (f)The City desires to enter into an escrow agreement with BOKF, NA dba Bank of Texas, as escrow agent (the "Escrow Agent"), as authorized in Chapter 1207, Texas Government Code, as amended, pursuant to which a portion of the proceeds of the refunding bonds herein authorized, and other legally available funds of the City, if any, will be deposited, invested and applied in a manner independently certified and verified to be sufficient to provide for the full and timely payment of all principal of, premium, if any, and interest on certain of the Refunded Obligations. (g)The City desires to authorize the purchase of certain direct obligations of the United States of America with a portion of the proceeds of the refunding bonds herein authorized for deposit into the escrow fund created pursuant to such escrow agreement. (h)Upon the issuance of the refunding bonds herein authorized and the deposits referenced above, the Refunded Obligations shall no longer be regarded as being outstanding, and the pledges, liens, trusts and all other covenants, provisions, terms and conditions of the ordinances authorizing the issuance of the Refunded Obligations shall be, with respect to the Refunded Obligations, discharged, terminated and defeased; and (i)It is hereby found and determined that the refunding must result in a net present value savings of at least three percent (3%) of the Refunded Obligations, and that such benefit is sufficient consideration and constitutes the public purpose for the issuance of the Bonds (as herein defined) and the refunding of the Refunded Obligations, and such refunding is in the best interests of the City; and (j)Pursuant to Section 1207.007, Texas Government Code, as amended, the City wishes to authorize the Pricing Officers herein designated to act on behalf of the City as herein provided; and (k)The City Council is of the opinion and hereby affirmatively finds that it is in the best interest of the City to issue the bonds in the amounts and for the purposes herein stated. 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 Chapter 1207, Texas Government Code, as amended. "Attorney General" shall mean the Attorney General of the State of Texas. "Bond" or "Bonds" shall mean any or all of the City of Sanger, Texas, General Obligation Refunding Bonds, Series 2012, authorized by this Ordinance. HOU:3196112.3 The term "Bond Purchase Agreement" shall mean the agreement between the City and the Underwriters providing for the sale of Bonds at such price, with and subject to such terms as determined by a Pricing Officer pursuant to Section 7.1 of 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. "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. "Debt Service Fund" shall mean the General Obligation Refunding Bonds, Series 2012 Debt Service Fund established by the City pursuant to Section 5.2 hereof. "Escrow Agent" shall mean BOKF, NA dba Bank of Texas, Austin, Texas, and its successors in that capacity. "Escrow Agreement" shall mean the agreement between the City and the Escrow Agent relating to the deposit of funds to pay certain Refunded Obligations. "Fiscal Year" shall mean the City's then designated fiscal year, which currently is the twelve-month period beginning on the first day of July of a calendar year and ending on the last day of June 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 Bond, shall mean May 15, 2012, and each May 15 and November 15 thereafter until maturity or earlier redemption of such Bond. "MSRB" shall mean the Municipal Securities Rulemaking Board. "Ordinance" shall mean this Ordinance and all amendments hereof and supplements hereto. "Outstanding," when used with reference to the Bonds, shall mean, as of a particular date, all Bonds theretofore and thereupon delivered pursuant to this Ordinance except: (a) any Bonds canceled by or on behalf of the City at or before such date; (b) any Bonds defeased pursuant to the defeasance provisions of this Ordinance or otherwise defeased as permitted by applicable law; and (c) any Bonds in lieu of or in substitution for which a replacement Bond shall have been delivered pursuant to this Ordinance. "Owner" shall have the meaning set forth under the definition of "Registered Owner." 3 HOU:3196112.3 "Paying Agent/Registrar" shall mean BOKF, NA dba Bank of Texas, Austin, Texas, and its successors in that capacity. "Paying Agent/Registrar Agreement" shall mean the agreement between the City and the Paying Agent/Registrar setting forth the duties and obligations of the Paying Agent/Registrar with respect to the Bonds. "Pricing Officer" shall mean one or more of the following: the Mayor or the City Manager. "Pricing Officer's Certificate of Sale" shall mean the certificate of the Pricing Officer provided in accordance with Section 7.1 of this Ordinance. "Record Date" shall mean the close of business on the last business day of the month next preceding the applicable Interest Payment Date. "Refundable Obligations" shall mean those bonds identified in Exhibit C hereto that are Outstanding on the date of execution of the Bond Purchase Agreement by a Pricing Officer. "Refunded Obligations" shall mean one or more Refundable Obligations selected in accordance with Section 7.1 of this Ordinance, which are deemed to be paid, retired and no longer outstanding as a result of the deposit of the proceeds of the Bonds, together with other available funds of the City, if any, in an amount sufficient to defease such Refunded Obligations, as authorized by Chapter 1207 and the ordinances authorizing the Refunded Obligations. "Register" shall mean the registration books for the Bonds 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 Bonds. "Registered Owner" or "Owner" shall mean the person or entity in whose name any Bond is registered in the Register. "Report" shall mean the verification report prepared by Grant Thornton LLP, Certified Public Accountants, verifying the accuracy of certain mathematical computations relating to the Bonds and the refunding of certain Refunded Obligations. "Underwriter" shall have the meaning given to such term in Section 7.1 hereof. Section 2.2.: Interpretations. 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 Bonds and the validity of the levy of ad valorem taxes to pay the principal of and interest on the Bonds. 4 HOU:3196112.3 ARTICLE III. TERMS OF THE BONDS Section 3.1.: Amount, Purpose and Authorization. (a) The Bonds 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 not to exceed THREE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($3,500,000) for the purpose of refunding the Refunded Obligations and paying the costs of issuing the Bonds and refunding the Refunded Obligations. The Bonds are issued pursuant to Chapter 1207, Texas Government Code, as amended, and all other applicable law. (b)The principal amount of the Bonds shall be established by a Pricing Officer in an amount necessary to provide funds sufficient to refund the Refunded Obligations and pay the costs associated with the refunding of the Refunded Obligations and the issuance of the Bonds; provided, however, that the following conditions shall be met for the issuance of the Bonds: in establishing the aggregate principal amount of the Bonds, the Pricing Officer shall establish the principal amount of the Bonds in an aggregate principal amount not to exceed the amount authorized in subsection (a) of this Section, which amount shall be sufficient to provide for the defeasance of the Refunded Obligations (as determined by the Pricing Officer) and which results in (i) net present value savings of at least three percent (3%) of the Refunded Obligations; and (ii) none of the Bonds bears interest at a rate greater than the maximum rate allowed by Chapter 1204, Texas Government Code, as amended. (c)In exercising the authority granted to the Pricing Officer to sell Bonds for the purpose of refunding the Refunded Obligations, such Pricing Officer, acting severally and individually, may exercise any authority granted under Chapter 1207, Texas Government Code (as in effect on the date the Pricing Officer executes the Bond Purchase Agreement), including, without limitation, (i) the selection of the particular maturities and principal amounts of the Refundable Obligations to be refunded (including the execution and delivery of any notices of redemption required in connection therewith) and (ii) establishing the terms and details related to the issuance and sale of the Bonds. Section 3.2.: Designation, Date and Payment Date. The Bonds shall be designated as the "City of Sanger, Texas, General Obligation Refunding Bonds, Series 2012." Interest on the Bonds shall be payable on each Interest Payment Date until maturity or prior redemption. The Bonds shall be dated and bear interest at the fixed rate or rates of interest per annum (which interest rate shall not exceed the Maximum Rate), calculated on the basis of a 360-day year composed of twelve 30-day months, determined in accordance with the procedures for the sale of the Bonds set forth in Section 7.1 of this Ordinance. The Bonds shall mature and become payable on the dates and in each of the years and amounts (either through serial maturities or mandatory redemptions of term bonds) as determined by a Pricing Officer pursuant to Section 7.1 of this Ordinance; provided that no Bond shall mature more than forty (40) years after the dated date thereof. Section 3.3.: Number, Denomination, Interest Rate and Maturity. (a) The Bonds shall be initially issued bearing the numbers, in the principal amounts and bearing interest at the HOU:3196112.3 rates and maturity dates as set forth in the Pricing Officer's Certificate of Sale, and may be transferred and exchanged as set out in this Ordinance. Bonds delivered in transfer of or in exchange for other Bonds 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 Bond or Bonds in lieu of which they are delivered. Section 3.4.: Redemption Prior to Maturity. (a) The Bonds shall be subject to redemption prior to maturity on such dates, at such prices and in such amounts as shall be provided in the Pricing Officer's Certificate of Sale and upon the terms and conditions set forth in Exhibit A to this Ordinance. (b)Bonds may be redeemed in part only in integral multiples of $5,000. If a Bond subject to redemption is in a denomination larger than $5,000, a portion of such Bond may be redeemed, but only in integral multiples of $5,000. In selecting portions of Bonds for redemption, each Bond shall be treated as representing that number of Bonds of $5,000 denomination which is obtained by dividing the principal amount of such Bond by $5,000. Upon presentation and surrender of any Bond for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of this Ordinance, shall authenticate and deliver in exchange therefor a Bond or Bonds of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered. (c)Notice of any redemption, identifying the Bonds 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 Bonds called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Bonds 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 Bonds. The Bonds 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 BOND set forth in Article IV of and Exhibit A to this Ordinance. If any officer of the City whose manual or facsimile signature shall appear on the Bonds shall cease to be such officer before the authentication of the Bonds or before the delivery of the Bonds, 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 Bonds over the certification of the City Secretary, which may be executed in facsimile. CUSIP numbers also may be printed on the Bonds, but errors or HOU:3196112.3 omissions in the printing of either the opinion or the numbers shall have no effect on the validity of the Bonds. Section 3.6.: Authentication. Except for the Bond to be initially issued, which need not be authenticated by the Paying Agent/Registrar, only such Bonds as shall bear thereon a certificate of authentication, substantially in the form provided in Article IV of and Exhibit A to 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 duly executed certificate of authentication shall be conclusive evidence that the Bond 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 Bond is registered as the absolute owner of such Bond for the purpose of making and receiving payment of the principal thereof and interest thereon and for all other purposes, whether or not such Bond 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 Bond 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 Bond 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 Bonds. So long as any Bond remains Outstanding, the Paying Agent/Registrar shall keep the Register at its office in Houston, Texas, in which, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of the Bonds in accordance with the terms of this Ordinance. Each Bond 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 Bond for transfer, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor, within seventy-two (72) hours after such presentation, a new Bond or Bonds, 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 Bond or Bonds so presented and surrendered. All Bonds shall be exchangeable upon the presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar for a Bond or Bonds, in any authorized denomination, in an aggregate principal amount equal to the unpaid principal amount of the Bond or Bonds presented for exchange. The Paying Agent/Registrar shall be and is hereby authorized to authenticate and deliver exchange Bonds in accordance with the provisions of this Section. Each Bond 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 Bond or Bonds in lieu of which such Bond is delivered. All Bonds 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. 7 HOU:3196112.3 The City or the Paying Agent/Registrar may require the Registered Owner of any Bond 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 Bond. Any fee or charge of the Paying Agent/Registrar for such transfer or exchange shall be paid by the City. Section 3.9.: Book-Entry Only System. (a) The definitive Bonds shall be initially issued in the form of a single fully registered Bond for each of the maturities thereof. Upon initial issuance, the ownership of each such Bond shall be registered in the name of Cede & Co., as nominee of DTC, and except as provided in subsection (b) hereof, all of the Outstanding Bonds 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., the word "Cede & Co." in this Ordinance shall refer to such new nominee of DTC. With respect to Bonds 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 Bonds. 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 Bonds, (b) the delivery to any DTC Participant or any other person, other than a Bondholder, as shown on the Register, of any notice with respect to the Bonds, or (c) the payment to any DTC Participant or any other person, other than a Bondholder, as shown in the Register, of any amount with respect to principal of Bonds, premium, if any, or interest on the Bonds. Except as provided in subsection (c) of this Section, the City and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Bond is registered in the Register as the absolute owner of such Bond for the purpose of payment of principal of, premium, if any, and interest on Bonds, for the purpose of giving notices of redemption, if any, and other matters with respect to such Bond, for the purpose of registering transfer with respect to such Bond, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of Bonds 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 Bonds to the extent of the sum or sums so paid. No person other than an owner shall receive a Bond evidencing the obligation of the City to make payments of amounts due pursuant to this Ordinance. (b)Payments and Notices to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, as long as any Bonds are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on the Bonds, and all notices with respect to such Bonds shall be made and given, respectively, in the manner provided in the representation letter of the City to DTC. (c)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 8 HOU:3196112.3 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 Bonds that they be able to obtain certificated Bonds, 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 Bonds to such successor securities depository or (b) notify DTC of the availability through DTC of Bonds and transfer one or more separate Bonds to DTC Participants having Bonds credited to their DTC accounts. In such event, the Bonds shall no longer be restricted to being registered in the Register in the name 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 Bondholders transferring or exchanging Bonds shall designate, in accordance with the provisions of this Ordinance. Section 3.10.: Replacement Bonds. Upon the presentation and surrender to the Paying Agent/Registrar of a damaged or mutilated Bond, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a replacement Bond, 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 Bond 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 Bond 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 Bond has been acquired by a bona fide purchaser, shall execute, and the Paying Agent/Registrar shall authenticate and deliver, a replacement Bond 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 Bond; (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. If, after the delivery of such replacement Bond, a bona fide purchaser of the original Bond in lieu of which such replacement Bond was issued presents for payment such original Bond, the City and the Paying Agent/Registrar shall be entitled to recover such replacement Bond 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 HOU:3196112.3 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 Bond has become or is about to become due and payable, the City in its discretion may, instead of issuing a replacement Bond, authorize the Paying Agent/Registrar to pay such Bond. Each replacement Bond delivered in accordance with this Section shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such replacement Bond is delivered. Section 3.11.: Cancellation. All Bonds paid in accordance with this Ordinance, and all Bonds in lieu of which exchange Bonds or replacement Bonds are authenticated and delivered in accordance herewith, shall be canceled and destroyed upon the making of proper records regarding such payment. The Paying Agent/Registrar shall periodically furnish the City with certificates of destruction of such Bonds. ARTICLE IV. FORM OF BONDS The Bonds, including the Form of Comptroller's Registration Certificate, Form of Paying Agent/Registrar Authentication Certificate, Form of Assignment and Form of Statement of Insurance, if any, shall be in substantially the form shown in Exhibit A, with such omissions, insertions and variations as may be necessary or desirable and not prohibited by this Ordinance. ARTICLE V. SECURITY FOR THE BONDS Section 5.1.: Pledge and Levy of Taxes. (a) To provide for the payment of principal of and interest on the Bonds, there is hereby levied, within the limits prescribed by law, for the current year and each succeeding year thereafter, while the Bonds 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 Bonds and to create and provide a sinking fund of not less than 2% of the principal amount of the Bonds 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 Bonds by deposit to the 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 Bonds, 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 Bonds remain outstanding, all moneys on deposit in, or credited to, the Debt Service Fund shall be secured by a pledge of security, as provided by law for cities in the State of Texas. 10 HOU:3196112.3 (c) To pay the interest coming due on the Bonds prior to receipt of the taxes levied to pay such interest, there is hereby appropriated from current funds on hand, which are hereby certified to be on hand and available for such purpose, an amount sufficient to pay such interest, and such amount shall be used for no other purpose. Section 5.2.: Debt Service Fund. The General Obligation Refunding Bonds, Series 2012 Debt Service Fund (the "Debt Service Fund") is hereby created as a special fund solely for the benefit of the Bonds. 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 Debt Service Fund shall be maintained by the City in trust for the Registered Owners of the Bonds. 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 Bonds. Section 5.3.: Further Proceedings. After the Bonds to be initially issued have been executed, it shall be the duty of the Mayor to deliver the Bonds to be initially issued and all pertinent records and proceedings to the Attorney General for examination and approval. After the Bonds 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 Bonds 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 Bonds 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 Bonds 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 B, 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 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 Bonds 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. 11 HOU:3196112.3 Section 6.3.: Bonds Presented. Subject to the provisions of Section 6.4, all matured Bonds presented to the Paying Agent/Registrar for payment shall be paid without the necessity of further instructions from the City. Such Bonds shall be canceled as provided herein. Section 6.4.: Unclaimed Funds Held by the Paying Agent/Registrar. Funds held by the Paying Agent/Registrar that represent principal of and interest on the Bonds 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 Bonds by virtue of actions taken in compliance with this Section. Section 6.5.: Paving Agent/Registrar t/Registrar May Own Bonds. The Paying Agent/Registrar in its individual or any other capacity, may become the owner or pledgee of Bonds with the same rights it would have if it were not the Paying Agent/Registrar. Section 6.6.: Successor Paying Agents/Registrars. The City covenants that at all times while any Bonds are Outstanding it will provide a legally qualified bank, trust company, financial institution or other agency to act as Paying Agent/Registrar for the Bonds. The City reserves the right to change the Paying Agent/Registrar for the Bonds 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 payment date for the Bonds. 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. ARTICLE VII. PROVISIONS CONCERNING SALE AND DELIVERY OF BONDS; Section 7.1.: Sale and Delivery of Bonds; Insurance. A Pricing Officer, acting severally and individually, is hereby authorized to act for and on behalf of the City in connection with the issuance and sale of the Bonds. In that capacity, the Pricing Officer, acting for and on behalf of the City, shall determine (a) the date for issuance and sale of the Bonds and (b) subject to the limitations of Section 3.1, the aggregate principal amount and the principal amortization schedule for the Bonds, the rate or rates of interest to be borne by the Bonds, the price of the Bonds (which shall be not less than ninety-five percent (95%) of the par amount of the Bonds, plus any accrued interest thereon), the dates on which such interest shall be payable, the terms, if any, on which the Bonds shall be subject to optional and mandatory redemption and other terms and conditions relating to the issuance, sale and delivery of the Bonds including the 12 N:(.1s iIrsuP* determination to utilize or not utilize municipal bond insurance, all as shall be set forth in the Bond Purchase Agreement; provided, that at the time of issuance of the Bonds, the Pricing Officer, on behalf of the City, shall deliver a written certificate (i) stating that the parameters set forth in Section 3.1(b) have been satisfied (including a statement as to the present value savings as a percent of the Refunded Obligations), (ii) identifying the Refunded Obligations and setting forth the terms and details for the redemption prior to maturity (if applicable) of the Refunded Obligations and (iii) setting forth the amount of proceeds of the Bonds to be deposited with the paying agent for the Refunded Obligations. A Pricing Officer, acting severally and individually, is authorized to designate the senior managing underwriter for the Bonds and such additional underwriters as he deems appropriate to assure that the Bonds are sold on the most advantageous terms to the City; and, a Pricing Officer, acting severally and individually, for and on behalf of the City, is authorized to execute and deliver the Bond Purchase Agreement providing for the sale of Bonds at such price, with and subject to such terms as determined by the Pricing Officer pursuant to this Section. Such Bond Purchase Agreement shall be substantially in the form and substance previously approved by the City Council in connection with the authorization of general obligation bonds with such changes as are acceptable to the Pricing Officer. In the event the Bond Purchase Agreement shall not be executed on or before 5:00 p.m. on September 5, 2012, the delegation to the Pricing Officer pursuant to this Ordinance shall cease to be effective unless the City shall act to extend such delegation. The obligation of the Underwriters to accept delivery of the Bonds shall be subject to the Underwriters being furnished with the final, approving opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel for the City, which opinion shall be dated as of and delivered on the date of delivery of the Bonds to the Underwriters. The engagement of such firm as Bond Counsel for the City in connection with the issuance, sale and delivery of the Bonds is hereby approved, ratified and confirmed. The City hereby acknowledges that the sale of the Bonds pursuant to the Bond Purchase Agreement may be contingent upon the issuance of a policy of municipal bond insurance. The Pricing Officer is authorized to apply for and pay any costs associated with one or more municipal bond insurance policies to guarantee the payment of the principal of and interest on the Bonds, which guarantee or insurance shall be specified in the Pricing Officer's Certificate of Sale; and, any acts of any Pricing Officer relating to applications for any such insurance are hereby authorized, approved, ratified and confirmed. The Pricing Officer's Certificate of Sale may contain provisions related to such bond insurance policies, if any, including payment provisions thereunder, and the rights of the bond insurer(s), and any such provisions shall be read and interpreted as an integral part of this Ordinance. The appropriate officials and representatives of the City are hereby authorized and directed to execute such commitments, agreements (including reimbursement agreements), certificates and other documents and to do any and all things necessary or desirable to obtain any such insurance, and the printing on the Bonds of an appropriate legend or statement regarding such guarantee or insurance, as provided by the a bond insurer for the Bonds, is hereby approved. Section 7.2.: Approval, Registration and Delivery. The Mayor is hereby authorized to have control and custody of the Bonds and all necessary records and proceedings pertaining 13 HOU:3196112.3 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 Bonds and to assure the investigation, examination and approval thereof by the Attorney General and the registration of the initial Bonds by the Comptroller. Upon registration of the Bonds, 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 Bond initially delivered and the seal of the Comptroller shall be impressed or printed or lithographed thereon. Section 7.3.: Offering Documents; Ratings. A Pricing Officer, acting severally and individually, is authorized and directed to provide for and oversee the preparation of a preliminary and final official statement in connection with the issuance of the Bonds, and to approve and deem final such official statement in compliance with the Rule 15c2-12 of the Securities and Exchange Commission (the "Rule") and to provide for and authorize the delivery to the Underwriters of such preliminary and final official statement in compliance with such Rule. The Pricing Officers, each acting severally and individually, are hereby authorized to take such action as they deem necessary or appropriate in seeking ratings on the Bonds from one or more nationally recognized rating agencies, and any such action is hereby ratified and confirmed. Section 7.4.: Application of Proceeds of Bonds. Proceeds from the sale of the Bonds shall, promptly upon receipt by the City, be applied as follows: (a)An amount equal to the sum of the accrued interest, if any, on the Bonds shall be deposited into the Debt Service Fund; (b)Proceeds from the sale of the Bonds in an amount determined by the Pricing Officer (together with funds, if any, provided by the City) shall be applied to make a cash deposit to refund certain Refunded Obligations, as more fully provided below; (c)Proceeds from the sale of the Bonds in an amount determined by the Pricing Officer (together with funds, if any, provided by the City) shall be applied to make a cash deposit to establish the Escrow Fund to refund certain Refunded Obligations, as more fully provided below; (d)An amount equal to the costs of issuance of the Bonds, as approved by the City, shall be applied to pay such costs as the City may arrange; and (e)Any proceeds of the Bonds remaining after making all such deposits and payments shall be deposited into the Debt Service Fund. Section 7.5.: Refunded Obligations. ions. The discharge and defeasance of the Refunded Obligations shall be effectuated by a cash deposit with the paying agent for certain Refunded Obligations as shall be approved by a Pricing Officer and for the other Refunded Obligations pursuant to the terms and provisions of the Escrow Agreement to be entered into by and between 14 HOU:3196112.3 the City and the Escrow Agent, which shall be substantially in the form attached hereto as Exhibit E, the terms and provisions of which are hereby approved, subject to such insertions, additions and modifications as shall be necessary (a) to maximize the City's present value savings and to minimize the City's costs of refunding, (b) to comply with all applicable laws and regulations relating to the refunding of the Refunded Obligations and (c) to carry out the other intents and purposes of this Ordinance, and the Mayor is hereby authorized to execute and deliver such Escrow Agreement on behalf of the City in multiple counterparts and the City Secretary is hereby authorized to attest thereto and affix the City's seal. To assure the purchase of the Escrowed Securities referred to in the Escrow Agreement, the Pricing Officer is hereby authorized to subscribe for, agree to purchase and purchase obligations of the United States of America, in such amounts and maturities and bearing interest at such rates as may be provided for in the Report to be attached to the Escrow Agreement, and to execute any and all subscriptions, purchase agreements, commitments, letters of authorization and other documents necessary to effectuate the foregoing. Any actions heretofore taken for such purpose are hereby ratified and approved. Section 7.6.: Notice of Redemption. (a) To maximize the City's present value savings and to minimize the City's costs of refunding, the City hereby authorizes and directs that certain of the Refunded Obligations shall be called for redemption prior to maturity in the amounts, on the dates and at the redemption prices determined by the Pricing Officer in accordance with Section 7.1 of this Ordinance, and the Pricing Officer is hereby authorized and directed to take all necessary and appropriate action to give or cause to be given a notice of redemption and/or a notice of defeasance to the holders or paying agent/registrars, as appropriate, of such Refunded Obligations, and, if required, to publish such notices, all in the manner required by the documents authorizing the issuance of such Refunded Obligations. (b) Any Pricing Officer or the designee thereof is hereby authorized and directed to take all necessary and appropriate action to give or file, or to cause to be given or filed, material events notices with respect to the Refunded Obligations, as required by the ordinances authorizing the issuance of the Refunded Obligations and the Rule. Section 7.7.: Tax Exemption. The City intends that the interest on the Bonds shall be excludable from gross income of the owners thereof for federal income tax purposes pursuant to Sections 103 and 141 through 150 of the Internal Revenue Code of 1986, as amended, (the "Code") and all applicable temporary, proposed and final regulations (the "Regulations") and procedures promulgated thereunder and applicable to the Bonds. For this purpose, the City covenants that it will monitor and control the receipt, investment, expenditure and use of all gross proceeds of the Bonds (including all property, the acquisition, construction or improvement of which is to be financed directly or indirectly with the proceeds of the Bonds) and take or omit to take such other and further actions as may be required by Sections 103 and 141 through 150 of the Code and the Regulations to cause the interest on the Bonds to be and remain excludable from the gross income, as defined in Section 61 of the Code, of the owners of the Bonds for federal income tax purposes. Without limiting the generality of the foregoing, the City shall comply with each of the following covenants: 15 HOU:3196112.3 (a) 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 Bond 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 Bond, the City shall comply with each of the specific covenants in this Section. (b) 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 Bonds, (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 such series of the Bonds (including property financed with Gross Proceeds of the Refunded Obligations or notes or bonds refunded by the Refunded Obligations 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 such series of the Bonds or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with such Gross Proceeds (including property financed with Gross Proceeds of the Refunded Obligations or notes or bonds refunded by the Refunded Obligations other than taxes of general application and interest earned on investments acquired with such Gross Proceeds pending application for their intended purposes. (c) 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 Bonds 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 (including property financed with Gross Proceeds of the Refunded Obligations or notes or bonds refunded by the Refunded Obligations 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. (d) 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 Refunded Obligations, directly or indirectly invest Gross Proceeds of 16 HOU:3196112.3 such Bonds 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 Refunded Obligations. (e)Based on all of the facts and estimates now known or reasonably expected to be in existence on the date the Bonds are delivered, the City reasonably expects that the proceeds of the Bonds and the Refunded Obligations (to the extent any of such proceeds remain unexpended) will not be used in a manner that would cause the Bonds or the Refunded Obligations or any portion thereof to be "arbitrage bonds" within the meaning of Section 148 of the Cod (f)At all times while the Bonds are outstanding, the City will identify and properly account for all amounts constituting gross proceeds of the Bonds in accordance with the Regulations. The City will monitor the yield on the investments of the proceeds of the Bonds and, to the extent required by the Code and the Regulations, will restrict the yield on such investments to a yield which is not materially higher than the yield on the Bonds. To the extent necessary to prevent the Bonds from constituting "arbitrage bonds," the City will make such payments as are necessary to cause the yield on all yield restricted nonpurpose investments allocable to the Bonds to be less than the yield that is materially higher than the yield on the Bonds; (g)The City will not take any action or knowingly omit to take any action, if taken or omitted, would cause the Bonds to be treated as "federally guaranteed" obligations for purposes of Section 149(b) of the Code; (h)The City represents that, not more than fifty percent (50%) of the proceeds of any new money portion of the Bonds or any new money issue refunded by, the Refunded Obligations was invested in nonpurpose investments (as defined in Section 148(f)(b)(A) of the Code) having a substantially guaranteed yield for four years or more within the meaning of Section 149(g)(3)(A)(ii) of the Code, and the City reasonably expected at the time each issue of the Refunded Obligations was issued that at least eighty-five percent (85%) of the spendable proceeds of the Bonds or the Refunded Obligations would be used to carry out the governmental purpose of such Bonds within the corresponding three-year period beginning on the respective dates of the Bonds or the Refunded Obligations. (i)The City will take all necessary steps to comply with the requirement that certain amounts earned by the City on the investment of the gross proceeds of the Bonds, if any, be rebated to the federal government. Specifically, the City will (i) maintain records regarding the receipt, investment and expenditure of the gross proceeds of the Bonds as may be required to calculate such excess arbitrage profits separately from records of amounts on deposit in the funds and accounts of the City allocable to other obligations of the City or moneys which do not represent gross proceeds of any obligations of the City and retain such records for at least six years after the day on which the last outstanding Bond is discharged, (ii) account for all gross proceeds under a reasonable, consistently applied method of accounting, not employed as an artifice or device to avoid, in whole or in part, the requirements of Section 148 of the Code, including any specified method of accounting required by applicable Regulations to be used for all or a portion of the gross proceeds, (iii) calculate, at such times as are required by applicable Regulations, the amount of excess arbitrage profits, if any, earned from the investment of the 17 HOU:3196112.3 gross proceeds of the Bonds and (iv) timely pay, as required by applicable Regulations, all amounts required to be rebated to the federal government. In addition, the City will exercise reasonable diligence to assure that no errors are made in the calculations required by the preceding sentence and, if such an error is made, to discover and promptly correct such error within a reasonable amount of time thereafter, including payment to the federal government of any delinquent amounts owed to it, including interest thereon and penalty. (j)The City will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Bonds that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in smaller profit or a larger loss than would have resulted if such arrangement had been at arm's length and had the yield on the issue not been relevant to either party. (k)The City will timely file or cause to be filed with the Secretary of the Treasury of the United States the information required by Section 149(e) of the Code with respect to the Bonds on such form and in such place as the Secretary may prescribe. (1) The City will not issue or use the Bonds as part of an "abusive arbitrage device" (as defined in Section 1.148 10(a) of the Regulations). Without limiting the foregoing, the Bonds 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. (m)Proper officers of the City charged with the responsibility for issuing the Bonds are hereby directed to make, execute and deliver certifications as to facts, estimates or circumstances in existence as of the Issue Date and stating whether there are facts, estimates or circumstances that would materially change the City's expectations. On or after the Issue Date, the City will take such actions as are necessary and appropriate to assure the continuous accuracy of the representations contained in such certificates. (n)The covenants and representations made or required by this Section are for the benefit of the Bond holders and any subsequent Bond holder, and may be relied upon by the Bond holder and any subsequent Bond holder and bond counsel to the City. 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 or reliance upon any interpretation of the Code or Regulations contained in such opinion will not cause interest on the Bonds 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 shall survive the defeasance and discharge of the Bonds for as long as such matters are relevant to the exclusion of interest on the Bonds from the gross income of the owners for federal income tax purposes. 18 HOU:3196112.3 Section 7.8.: The City hereby designates the Bonds as "qualified tax-exempt obligations" as defined in Section 265(b)(3) of the Code. With respect to such designation, the City represents the following: (a) that during the calendar year 2012, the City (including all entities which issue obligations on behalf of the City) has not designated nor will designate obligations, which when aggregated with the Bonds, will result in more than $10,000,000 of "qualified tax-exempt obligations" being issued and (b) that the City has examined its financing needs for the calendar year 2012 and reasonably anticipates that the amount of bonds, leases, loans or other obligations, together with the Bonds and any other tax-exempt obligations heretofore issued by the City (plus those of all entities which issue obligations on behalf of the City) during the calendar year 2012, when the higher of the face amount or the issue price of each such tax-exempt obligation issued for the calendar year 2012 by the City is taken into account, will not exceed $10,000,000. Section 7.9.: Related Matters. In order that the City shall satisfy in a timely manner all of its obligations under this Ordinance, 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 Bonds, 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. 19 HOU:3196112.3 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. 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 Bonds: (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 Bonds, or other material events affecting the tax status of the Bonds; (vii)Modifications to rights of holders of the Bonds, if material; (viii)Bond calls, if material, and tender offers; (ix)Defeasances; (x)Release, substitution, or sale of property securing repayment of the Bonds, 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 Bonds within the 20 HOU:3196112.3 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." The provisions of this Article are for the sole benefit of the Holders and beneficial owners of the Bonds, 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 Bonds 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 Bonds in the primary offering of the Bonds 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 Bonds 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 Bonds. 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 21 HOU:3196112.3 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 underwriter from lawfully purchasing or selling Bonds in the primary offering of the Bonds, giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. Section 8.5.: Section (a): 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. The City may defease the provisions of this Ordinance and discharge its obligations to the Registered Owners of any or all of the Bonds to pay the principal of and interest thereon in any manner now or hereafter permitted by law, including by depositing with the Paying Agent/Registrar, a trust company or commercial bank other than 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 Bonds plus interest thereon to the date of maturity or earlier 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 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 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; 22 HOU:3196112.3 provided, however, that if any of the Bonds 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 Bonds 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. Section 9.2.: Legal Holidays. In any case where the date interest accrues and becomes payable on the Bonds or principal of the Bonds matures 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 and no interest shall accrue for the period from the date of maturity to the date of actual payment or (ii) the Record Date had occurred on the last day of that calendar month. Section 9.3.: No Recourse Against City Officials. No recourse shall be had for the payment of principal of or interest on any Bonds or for any claim based thereon or on this Ordinance against any official of the City or any person executing any Bonds. Section 9.4.: Further Proceedings. The Mayor, 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. The Mayor, City Secretary and other appropriate officials of the City are each hereby authorized to execute, attest and impress the City's seal to such other agreements, assignments, bonds, certificates, contracts, documents, licenses, instruments, releases, financing statements, letters of instruction, notices of acceptance, notices of final payment, written requests and other documents, and to take all actions and to do all things whether or not mentioned herein, as may be necessary or convenient to carry out or assist in carrying out the purposes of this Ordinance and the Bonds. Section 9.5.: 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 9.6.: 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 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. 23 HOU:3196112.3 Section 9.7.: Repealer. All orders, resolutions and ordinances, or parts thereof, inconsistent herewith are hereby repealed to the extent of such inconsistency. Section 9.8.: Effective Date. This Ordinance shall be in force and effect from and after its passage on the date shown below. Section 9.9.: Power to Revise Form of Documents. Notwithstanding any other provision of this Ordinance, the Mayor, City Secretary and other appropriate officials of the City are each hereby authorized to make or approve such revisions, additions, deletions and variations in the form of the documents attached hereto as exhibits as, in the judgment of the Mayor, City Secretary and other appropriate officials of the City, and in the opinion of Bond Counsel to the City, as may be necessary or convenient to carry out or assist in carrying out the purposes of this Ordinance, the Preliminary Official Statement, and the final Official Statement; provided, however, that any changes to such documents resulting in substantive amendments to the terms and conditions of the Bonds or such documents shall be subject to the prior approval of the City Council. Section 9.10.: 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 Bond 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 Bond 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 Bonds, no such amendment, addition, or rescission shall (i) extend the time or times of payment of the principal of and interest on the Bonds, reduce the principal amount thereof or the rate of interest thereon, or in any other way modify the terms of payment of the principal of or interest on the Bonds, (ii) give any preference to any Bond over any other Bond, or (iii) reduce the aggregate principal amount of Bonds required to be held by Registered Owners for consent to any such amendment, addition, or rescission. 24 HOU:3196112.3 PASSED AND ADOPTED on first and final reading this March 5, 2012. CITY OF SANGER, TEXAS •-nay . Mai Mayor ATTEST City Secretary a^1t16&Ott!!)16n6Pq/pf1V y. •yam, '/,s'. I / a "'eun u tllt"``4 Exhibit A Form of Bond Exhibit B —Form of Paying Agent/Registrar Agreement Exhibit C — Schedule of Refundable Obligations Exhibit D — Description of Annual Financial Information Exhibit E —Form of Escrow Agreement S-1 HOU:3196112.1 EXHIBIT A FORM OF BOND [FRONT OF BOND] UNITED STATES OF AMERICA STATE OF TEXAS CITY OF SANGER, TEXAS, GENERAL OBLIGATION REFUNDING BOND SERIES 2012 NUMBER R-1 REGISTERED INTEREST RATE2: REGISTERED OWNER: PRINCIPAL AMOUNT: PRINCIPAL AMOUNT REGISTERED DATED DATE 3 : MATURITY DATE 2 : CUSIP2: ______,2012 May 15, THE CITY OF SANGER, TEXAS, a home rule municipality 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 Bond 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, 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 later of the Dated Date identified above or the most recent interest payment date to which interest has been paid or duly provided for. 4 Interest on this Bond is payable on 3, and each May 15 'Initial Bond shall be numbered T-1. 2 Omitted from initial Bond. 3 To be completed pursuant to the terms of sale as referenced in the Pricing Officer's Certificate of Sale. 4 The first sentence of the initial Certificate shall read as follows: THE CITY OF SANGER, TEXAS, a home rule municipality 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 May 15 of each of the years and in the principal amounts set forth in the following schedule: [Insert information regarding years of maturity, principal amounts and interest rates from Section 3.3 of the Ordinance.] (or on earlier redemption as herein provided), upon presentation and surrender of this Bond at the principal corporate trust office of BOKF, NA dba Bank of Texas, Austin, Texas, or its successor (the "Paying Agent/Registrar"), the principal amounts identified above (or so much thereof as shall not have A-1 HOU:3196112.3 and November 15 thereafter until maturity of this Bond, 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 last business day of the month next preceding the applicable interest payment date, as shown on the registration books kept by the Paying Agent/Registrar. Any accrued interest payable at maturity shall be paid upon presentation and surrender of this Bond at the office of the Paying Agent/Registrar. THIS BOND IS ONE OF A DULY AUTHORIZED SERIES OF BONDS (the "Bonds") in the aggregate principal amount of $ 5 issued pursuant to an ordinance adopted by the City Council of the City on March 5, 2012 (the "Ordinance") for the purpose of refunding certain outstanding obligations (the "Refunded Obligations") of the City under and pursuant to the authority of Chapter 1207, Texas Government Code, as amended. Proceeds of the Bonds will also be used to pay the costs of issuing the Bonds and refunding the Refunded Obligations. THIS BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Bond is authenticated by the Paying Agent/Registrar by due execution of the authentication certificate endorsed hereon. 6 7 THE CITY RESERVES THE RIGHT, at its option, to redeem, prior to their maturity, Bonds maturing on or after , in whole or in part, on , or any date thereafter, at par plus accrued interest to the date fixed for redemption. 8 THIS BOND is not subject to redemption prior to maturity. 9 THE BONDS MATURING on May 15 in the years 5 (the "Term Bonds") 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 Bonds or the portions thereof so called for redemption plus accrued interest to the date fixed for redemption: Term Bonds Maturing Mandatory Redemption Dates Principal Amounts 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 later of the Dated Date identified above or the most recent interest payment date to which interest has been paid or duly provided for. 5 To be completed pursuant to the terms of sale as referenced in the Pricing Officer's Certificate of Sale. 6 In the initial Certificate, this paragraph shall read: "THIS BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Bond is registered by the Comptroller of Public Accounts of the State of Texas by due execution of the registration certificate endorsed hereon." 7 Included if optional redemption provisions are included in the Pricing Officer's Certificate of Sale. 8 Included if optional redemption provisions are not included in the Pricing Officer's Certificate of Sale. 9 Paragraph included if mandatory sinking fund redemption provision are included in the Pricing Officer's Certificate of Sale. 10 To be completed pursuant to the terms of sale as referenced in the Pricing Officer's Certificate of Sale. A-2 HOU:3196112.3 10 10 lo$ The particular Term Bonds 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 Bonds are to be mandatorily redeemed. The principal amount of Term Bonds to be mandatorily redeemed in each year shall be reduced by the principal amount of such Term Bonds 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. "THE BONDS MAY BE REDEEMED IN PART only in integral multiples of $5,000. If a Bond subject to redemption is in a denomination larger than $5,000, a portion of such Bond may be redeemed, but only in integral multiples of $5,000. In selecting portions of Bonds for redemption, each Bond shall be treated as representing that number of Bonds of $5,000 denomination which is obtained by dividing the principal amount of such Bond by $5,000. Upon surrender of any Bond for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of the Ordinance, shall authenticate and deliver in exchange therefor a Bond or Bonds of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered. NOTICE OF ANY SUCH REDEMPTION, identifying the Bonds 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 Bonds called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Bonds 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 BOND 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 BOND IS EXCHANGEABLE at the principal corporate trust office of the Paying Agent/Registrar for a Bond or Bonds 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 CITY OR PAYING AGENT/REGISTRAR may require the Registered Owner of any Bond to pay a sum sufficient to cover any tax or other governmental charge that may be ii Included if optional redemption provisions or mandatory sinking fund redemption provisions are included in the Pricing Officer's Certificate of Sale. A-3 HOU:3196112.3 imposed in connection with the transfer or exchange of a Bond. 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 Bond 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 Bond 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 Bond have been performed, exist and have been done in accordance with law; that the Bonds 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 Bond, as such interest 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. 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 Bonds assent by acceptance of the Bonds. IN WITNESS WHEREOF, the City has caused its corporate seal to be impressed or placed in facsimile hereon and this Bond to be signed by the Mayor, countersigned by the City Secretary by their manual, lithographed or printed facsimile signatures. CITY OF SANGER, TEXAS Mayor (SEAL) COUNTERSIGNED: City Secretary * FORM OF COMPTROLLER'S REGISTRATION CERTIFICATE The following form of Comptroller's Registration Certificate shall be attached or affixed to each of the Bonds initially delivered: A-4 ^;[SI JVT1IP*] OFFICE OF THE COMPTROLLER § OF PUBLIC ACCOUNTS § REGISTER NO. THE STATE OF TEXAS § I hereby certify that this Bond has been examined, certified as to validity and approved by the Attorney General of the State of Texas, and that this Bond 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 (SEAL) of the State of Texas FORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE The following form of authentication certificate shall be printed on the face of each of the Bonds other than those initially delivered: AUTHENTICATION CERTIFICATE This Bond is one of the Bonds described in and delivered pursuant to the within mentioned Ordinance; and, except for the Bonds initially delivered, this Bond has been issued in exchange for or replacement of a Bond, Bonds, or a portion of a Bond or Bonds of an issue which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. as Paying Agent/Registrar By: Authorized Signature: Date of Authentication: * * * A-5 HOU:3196112.3 FORM OF ASSIGNMENT The following form of assignment shall be printed on the back of each of the Bonds: 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 the within Bond on the books kept for registration thereof, with full power of substitution in the premises. DATED: Signature Guaranteed: Registered Owner NOTICE: Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. 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. A-6 HOU:3196112.3 EXHIBIT B FORM OF PAYING AGENT/REGISTRAR AGREEMENT See Tab 7 HOU:3196112.3 EXHIBIT C SCHEDULE OF REFUNDABLE OBLIGATIONS Utility System Revenue Bonds, Series 1996 Utility System Revenue Bonds, Series 2002 Combination Tax and Revenue Certificates of Obligation, Series 2002 HOU:3196112.3 EXHIBIT D DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred to in Section 8.1 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 Section are as specified (and included in the Appendix or under the headings of the Official Statement referred to) below: 1.The portions of the audited financial statements of the City appended to the Official Statement as Exhibit B, but for the most recently concluded fiscal year, and, to the extent that such statements are not completed and available, unaudited financial statements for such fiscal year. 2.The quantitative and financial information and operating data presented in the Official Statement in Tables 1 through 10. Accounting Principles The accounting principles referred to in such Section are the accounting principles described in the notes to the financial statements referred to in paragraph 1 above. HOU:3196112.3 EXHIBIT E FORM OF ESCROW AGREEMENT See Tab 8 HOU:3196112.3 PRICING OFFICER'S CERTIFICATE OF SALE CITY OF SANGER, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012 THIS PRICING OFFICER'S CERTIFICATE OF SALE is executed as of the 20th day of March, 2012, by the undersigned, City Manager of the City of Sanger, Texas (the "City"), pursuant to the authorization contained in an Ordinance adopted by the City Council of the City on March 5, 2012 (the "Ordinance"), authorizing the issuance of the captioned series of bonds and delegating to the undersigned the authority to agree to and stipulate certain terms and provisions thereof, all of which are set forth herein. Capitalized terms used in this Pricing Officer's Certificate of Sale shall have the meanings assigned to them in the Ordinance. I. TERMS OF THE BONDS 1. Principal Amount. The Bonds shall be issued in the aggregate principal amount of $3,495,000. 2. Bond Date. The Bonds shall be dated April 1, 2012. 3. Initial Interest Payment Date. The initial interest payment date for the Bonds shall be May 15, 2012 and shall be payable on each May 15th and November 15th thereafter. 4. Maturities Amounts and Interest Rates. The Bonds shall be issued as serial current interest bonds maturing on the following dates in the following principal amounts and bear interest from their dated date at the following rates: Number Maturity Principal Amount Interest Rate R-1 05/15/2012 $ 75,000.00 2.000% R-2 05/15/2013 $395,000.00 2.000% R-3 05/15/2014 $400,000.00 2.000% R-4 05/15/2015 $415,000.00 2.000% R-5 05/15/2016 $420,000.00 3.000% R-6 05/15/2017 $350,000.00 3.000% R-7 05/15/2018 $355,000.00 3.000% R-8 05/15/2019 $370,000.00 3.000% R-8 05/15/2020 $385,000.00 2.500% R-9 05/15/2021 $330,000.00 2.750% 5. Savings. Attached as Exhibit A to this certificate is a schedule prepared by Government Capital Securities Corporation describing the savings produced by refunding the Refunded Obligations. As set forth in the attached schedule, the gross savings is $492,022.50, the present value savings is $395,703.60 and the net present value savings expressed as a percentage of the Refunded Obligations is 11.655482% (which is greater than the target present value savings for the HOU:3196152.2 refunding of at least three percent (3.00%) of the Refunded Obligations required by Section 2(b)(i) of the Ordinance). 6.Redemption Provisions. (a) Optional Redemption. The City reserves the right, at its option, to redeem the Bonds having stated maturities on and after May 15, 2021, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, on May 15, 2020, 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) Mandatory Sinking Fund Redemption. The Bonds are not subject to mandatory sinking fund redemption 7.Sales Price. The sale of the Bonds at the purchase price stated below is hereby approved, subject to the terms of the Bond Purchase Agreement of even date herewith between the City and the Underwriters. PRINCIPAL AMOUNT $3,495,000.00 LESS UNDERWRITER'S DISCOUNT -29,057.50 NET REOFFERING PREMIUM 93,684.10 PURCHASE PRICE (EXCLUDING ACCRUED INTEREST) $3,559,626.60 8.Deposit of Bond Proceeds. From the proceeds from the sale of the Bonds, there shall be deposited with the Paying Agent for the Refunded Obligations, The Bank of New York Mellon Trust Company, N.A., the amount of $3,477,749.59. From the existing debt service fund for the Refunded Obligations there shall be deposited with the Paying Agent for the Refunded Obligations the amount of $0 and to the Debt Service Fund the amount of $0. 9.Refunded Obligations. The principal amounts, maturity dates and redemption dates of the Refunded Obligations shall be as provided in Exhibit B to this certificate. II. FINDINGS AND DETERMINATIONS The Pricing Officer hereby finds and affirms that (a) the aggregate principal amount of the Bonds do not to exceed the amount authorized in subsection 3.1(a) of the Ordinance, (b) the Bonds are issued in an amount sufficient to provide for the defeasance of the Refunded Obligations, (c) the issuance of the Bonds results in net present value savings of at least three percent (3%) of the Refunded Obligations; and (d) none of the Bonds bears interest at a rate greater than the maximum rate allowed by Chapter 1204, Texas Government Code, as amended. The undersigned hereby finds, determines and declares that the issuance of the Bonds is in the best interest of the City and that this Pricing Officer's Certificate of Sale satisfies the terms and provisions of the Ordinance and complies with the parameters for the sale of the Bonds and the refunding of the Refunded Obligations contained therein. 2 HOU:3196152.2 EXECUTED as of the date first written above. City Manager City of Sanger, Texas HOU3196152.1 EXHIBIT A SAVINGS SCHEDULE SAVINGS City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 PENDING VERIFICATION Preliminary Analysis / Subject to Change Present Value Date Prior Debt Service Refunding Debt Service Refunding Receipts Refunding Net Cash Flow Savings to 04:24,2012 @ 2.1147417% 09,307012 84,20335 85,908.33 5,702.08 80,206.25 3,997,50 3,779.89 0913012013 483,407.50 482,750.00 482,750.00 657.50 -9713 09.3012014 481837.50 479,850.00 479,850.00 3,987.50 3,061.83 09/30/2015 488,317.50 486,850.00 486,850.00 1,467.50 601.62 09/3012016 486,667.50 483,550.00 483,550.00 3,117.50 2,068.54 0930/2017 404,025.00 400,950.00 400.950,00 3,075.00 1,942.45 093011 2018 399,305.00 395,450.00 395,450.00 3,855.00 2,579.10 0913012019 403,860.00 399,800.00 399.800,00 4,060.00 2,665.17 0913012020 407,010.00 403,700.00 403,700.00 3,310.00 1,939.93 09130.2021 403,790.00 339,075.00 339.07500 64,715.00 52,631.35 09.30/2022 399,780.00 399,780.00 322,653.84 4,444.203.75 3,957,883.33 5,702.08 3,952.181.25 492,022.50 393,826.59 Savings Summary PV of savings from cash flow 393,826.59 Plus: Refunding funds on hand 1,877.01 Net PV Swings 395,703.60 Exhibit A-i HOU:3196152.2 EXHIBIT B REFUNDED OBLIGATIONS SC1IMARY OF BONDS REFUNDED City of Sanger, Texas General Obligation Refuading Bonds, Series 2012 PENDG VERIFICATION Preliminary Analysis 'Subject to Change Maturity Interest Par Call Call Bond Date Rate Amount Date Price Series 1996 Utility Bonds (current), 1996: BOND 05/15--'2013 4700%70,000.00 04242012 100.000 05/15/2014 4.700%75,000.00 041242012 100.000 05/15/2015 4.750%80.000.00 04/24i2012 100.000 05/152016 4.750%85.000.00 04124.2012 100.000 310,000.00 Series 2002 Utility Bonds (current), 2002: SERIAL 05/152013 4.800%125,000.00 05/15/2012 100.000 05.152014 4.900%130,000.00 05 :15/2012 100.000 05/15.2015 5-0001,10 140,000.00 05/15/2012 100.000 05/15"21 016 5.100%14500000 051512012 100.000 05/15/2017 5.100%155,000.00 05/151'2012 100.000 051018 200°e 16000000 05152012 100.000 05/15:2019 5,3000'170,000,00 05/15/2012 100.000 TERM22 05/15.2022 5.400%565,000.00 05/15i2012 100.000 1,590,000.00 Series 2002 GO Bonds (adv)- 2002(X) SERIAL 09.01/2013 4.400%120,000.00 09012.012 100.000 09.01:2014 4.500%125M00.00 0901/2012 100.000 09 2 5 4.500%130,000.00 09:01.2012 100.000 09,011-12016 3.6000.10 135,000.00 09/01.2012 100,000 09'01.'2017 4.700%145,000.00 09M112012 100.000 09/01.2018 4.750%150,000.00 09/01i2012 100.000 09/01/2019 4.900%160,000.00 0901/2012 100.000 09/01/2020 5.000%170,000.00 0901 t2012 100.000 TERM22 09.012022 5.000%360,000.00 09'011"2012 100.000 1,495,000.00 37395,000.00 Exhibit B-i HOU:3196152.2 CITY OF SANGER, TEXAS (Denton County, Texas) $3,495,000 GENERAL OBLIGATION REFUNDING BONDS SERIES 2012 PURCHASE AGREEMENT March 20, 2012 Honorable Mayor and City Council City of Sanger, Texas 502 Elm Street Sanger, Texas 76266 Ladies and Gentlemen: The undersigned, Piper Jaffray & Co. (the "Underwriter"), acting on its own behalf, and not acting as fiduciary or agent for the City of Sanger, Texas (the "Issuer"), offers to enter into the following agreement (this "Agreement") with the Issuer which, upon the Issuer's written acceptance of this offer, will be binding upon the Issuer and upon the Underwriter. This offer is made subject to the Issuer's written acceptance hereof on or before 10:00 p.m., Central Daylight Time, on March 20, 2012, and, if not so accepted, will be subject to withdrawal by the Underwriter upon notice delivered to the Issuer at any time prior to the acceptance hereof by the Issuer. Terms not otherwise defined in this Agreement shall have the same meanings set forth in the Bond Ordinance (as defined herein) or in the Official Statement (as defined herein). 1. Purchase and Sale of the Bonds. Subject to the terms and conditions and in reliance upon the representations, warranties and agreements set forth herein, the Underwriter hereby agree to purchase from the Issuer, and the Issuer hereby agrees to sell and deliver to the Underwriter, all, but not less than all, of the Issuer's $3,495,000 General Obligation Refunding Bonds, Series 2012 (the "Bonds"). The Issuer acknowledges and agrees that: (i) the primary role of the Underwriter, as an underwriter, is to purchase securities for resale to investors in an arms-length commercial transaction between the Issuer and the Underwriter and that the Underwriter has financial and other interests that differ from those of the Issuer (ii) the Underwriter is not acting as a municipal advisor, financial advisor or fiduciary to the Issuer or any other person or entity and has not assumed any advisory or fiduciary responsibility to the Issuer with respect to the transaction contemplated hereby and the discussions, undertakings and proceedings leading thereto (irrespective of whether Underwriter has provided other services or is currently providing 77714085.3 other services to the Issuer on other matters) (iii) the only obligations Underwriter, has to the Issuer with respect to the transaction contemplated hereby expressly are set forth in this Agreement and (iv) the Issuer has consulted its own legal, accounting, tax, financial and other advisors, as applicable, to the extent it has deemed appropriate in connection with the transaction contemplated herein. The principal amount of the Bonds to be issued, the dated date therefor, the maturities, redemption provisions and interest rates per annum are set forth in Schedule I hereto. The Bonds shall be as described in, and shall be issued and secured under and pursuant to the provisions of, (i) the ordinance adopted by the City Council of the Issuer (the "City Council") on March 5, 2012, and (ii) a pricing certificate (the "Pricing Certificate"), dated the date of this Agreement, signed by an authorized representative of the Issuer appointed by the City Council and duly authorized to approve the terms of pricing and sale for the Bonds (collectively, the "Bond Ordinance"). The purchase price for the Bonds shall be $3,559,626.60 (representing the par amount of the Bonds, plus a net original issue premium of $93,684.10 on the Bonds, and less an underwriting discount of $29,057.50), plus accrued interest from April 1, 2012 to the date of Closing (as defined herein). Delivered to the Issuer herewith as a good faith deposit is a corporate check of the Underwriter payable to the order of the Issuer in the amount of $34,050. In the event the Issuer accepts this Agreement, such check shall be held uncashed by the Issuer until the time of Closing (as defined herein), at which time such check shall be returned uncashed to the Underwriter. In the event that the Issuer does not accept this Agreement, such check will be immediately returned to the Underwriter. Should the Issuer fail to deliver the Bonds at the Closing, or should the Issuer be unable to satisfy the conditions of the obligations of the Underwriter to purchase, accept delivery of and pay for the Bonds, as set forth in this Agreement (unless waived by the Underwriter), or should such obligations of the Underwriter be terminated for any reason permitted by this Agreement, such check shall immediately be returned to the Underwriter. In the event that the Underwriter fails (other than for a reason permitted hereunder) to purchase, accept delivery of and pay for the Bonds at the Closing as herein provided, such check shall be cashed and the amount thereof retained by the Issuer as and for fully liquidated damages for such failure of the Underwriter, and, except as set forth in Sections 8 and 10 hereof, no party shall have any further rights against the other hereunder. The Underwriter and the Issuer understand that in such event the Issuer's actual damages may be greater or may be less than such amount. Accordingly, the Underwriters hereby waive any right to claim that the Issuer's actual damages are less than such amount, and the Issuer's acceptance of this Agreement shall constitute a waiver of any right the Issuer may have to additional damages from the Underwriter. A portion of the proceeds received by the Issuer from the sale of the Bonds pursuant hereto and certain other funds of the Issuer, if any, shall be deposited with BOKF, NA dba Bank of Texas, Austin, Texas, as escrow agent (the "Escrow Agent"), under and pursuant to the escrow agreement (the "Escrow Agreement") referred to in the Bond Ordinance for the purpose of depositing cash and purchasing a portfolio of securities authorized by Section 1207.062, Texas Government Code, if any (the "Securities"), which shall mature and the interest on which shall be payable at such times and in such amounts so as to provide money which, together with cash 77714085.3 2 balances from time to time on deposit in the trust account established to refund a portion of the Refunded Obligations (as defined in the Bond Ordinance), will be sufficient to pay the principal of and interest on such Refunded Obligations when due at stated maturity or prior redemption, as applicable. A portion of the proceeds received by the Issuer from the sale of the Bonds pursuant hereto and certain other funds of the Issuer, if any, shall be deposited with the paying agent for. the Refunded Obligations to refund a portion of the Refunded Obligations, in an amount sufficient to pay the principal of and interest on such Refunded Obligations when due at stated maturity or prior redemption, as applicable. 2.Public Offerin'. The Underwriter agrees to make a bona fide public offering of all of the Bonds at a price not to exceed the public offering price set forth on the cover of the Official Statement and may subsequently change such offering price without any requirement of prior notice. On or before Closing, the Underwriter shall execute an issue price certificate prepared by Bond Counsel verifying the initial offering prices to the public at which the Underwriter sold or reasonably expected to sell a substantial amount of each stated maturity of the Bonds to the public. After the initial public offering, the Underwriter may offer and sell Bonds to certain dealers (including dealers depositing Bonds into investment trusts) and others at prices lower than the public offering price stated on the cover of the Official Statement. 3.The Official Statement. (a)The Issuer previously has delivered copies of the Preliminary Official Statement dated March 15, 2012 (the "Preliminary Official Statement") to the Underwriter. The Issuer will prepare a final Official Statement relating to the Bonds, 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 Underwriter 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 Bonds, 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 Underwriter sufficient quantities (which may be in electronic form) of the Preliminary Official Statement as the Underwriter deems necessary to satisfy the obligation of the Underwriter 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 Underwriter in connection with the public offering, sale and distribution of the Bonds. 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 Bonds 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 77714085.3 3 Statement to be used by the Underwriter in connection with the public offering and sale of the Bonds. The Issuer consents to the use by the Underwriter prior to the date hereof of the Preliminary Official Statement in connection with the public offering of the Bonds. The Issuer shall provide, or cause to be provided, to the Underwriter 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 Underwriter in such quantity and format as the Underwriter shall request in order for the Underwriter 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 Underwriter is 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 a nationally recognized municipal securities information repository, but in no case less than twenty-five (25) days after the "end of the underwriting period" for the Bonds), 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 Underwriter (and for the purposes of this clause provide the Underwriter with such information as it may from time to time request), and if, in the reasonable opinion of the Underwriter, 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 Underwriter), 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 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 Underwriter may reasonably deem necessary to evidence the truth and accuracy of such supplement or amendment to the Official Statement. (e)The Underwriter hereby agrees to file the Official Statement with the MSRB. Unless otherwise notified in writing by the Underwriter, the Issuer can assume that the "end of the underwriting period" for purposes of the Rule is the date of the Closing. 77714085.3 4 4. Representations, Warranties, and Covenants of the Issuer. The Issuer hereby represents and warrants to and covenants with the Underwriter 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 Chapter 1207, Texas Government Code, as amended, (the "Act"), the Issuer's Home Rule Charter, and the Bond Ordinance (i) to enter into, execute and deliver this Agreement, the Bond Ordinance, the Escrow Agreement and the Continuing Disclosure Undertaking, as defined in Section 6(j)(4) hereof, and all documents required hereunder and thereunder to be executed and delivered by the Issuer (this Agreement, the Bond Ordinance, the Escrow Agreement, the Continuing Disclosure Undertaking and the other documents referred to in this clause are hereinafter referred to as the "Issuer Documents"), (ii) to sell, issue and deliver the Bonds to the Underwriter 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 Bond Ordinance and the issuance and sale of the Bonds, (ii) the approval, execution and delivery of, and the performance by the Issuer of the obligations on its part, contained in the Bonds 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 andlor 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; the Bonds, when issued, delivered and paid for, in accordance with the Bond Ordinance and this Agreement, will constitute legal, valid and binding obligations of the Issuer entitled to the benefits of the Bond 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; upon the issuance, authentication and delivery of the Bonds as aforesaid, the Bond Ordinance will provide, for the benefit of the holders, from time to time, of the Bonds, the legally valid and binding pledge and lien it purports to create as set forth in the Bond 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 77714085.3 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 Bonds, the Issuer Documents and the adoption of the Bond 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 Bonds or under the terms of any such law, regulation or instrument, except as provided by the Bonds and the Bond Ordinance; (e)Except for the approval of the Bonds 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 Bonds 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 Bonds; (f)The Bonds and the Bond Ordinance conform to the descriptions thereof contained in the Official Statement under the caption "THE BONDS"; the proceeds of the sale of the Bonds will be applied generally as described in the Official Statement under the caption "THE BONDS — Sources and Uses of Funds" and THE BONDS — Refunded Obligations"; and the Continuing Disclosure Undertaking 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 Bonds or the levy and collection of taxes 77714085.3 6 pledged to the payment of principal of and interest on the Bonds pursuant to the Bond Ordinance or in any way contesting or affecting the validity or enforceability of the Bonds, the Issuer Documents, or contesting the exclusion from gross income of interest on the Bonds 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 Bonds, the adoption of the Bond 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 finding would materially adversely affect the validity or enforceability of the Bonds 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), (j) and (k), 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; (j)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; (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 Bonds as provided in and subject to all of the terms and provisions of the Bond 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 Bonds; (m) The Issuer will furnish such information and execute such instruments and take such action in cooperation with the Underwriter as the Underwriter may reasonably 77714085.3 7 request (1) to (i) qualify the Bonds 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 Underwriter may designate and (ii) determine the eligibility of the Bonds 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 Bonds (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 Underwriter immediately of receipt by the Issuer of any notification with respect to the suspension of the qualification of the Bonds 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 Bonds, except as may be incurred in the ordinary course of business, without the prior approval of the Underwriter, which approval shall not be unreasonably withheld; (q)The Issuer, to the extent heretofore requested by the Underwriter, has delivered to the Underwriter 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 Bonds 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 Underwriter 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. 77714085.3 8 By delivering the Official Statement to the Underwriter, 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 April 24, 2012, or at such other time and date as shall have been mutually agreed upon by the Issuer and the Underwriter (the "Closing"), the Issuer will, subject to the terms and conditions hereof, deliver the Bonds to the Underwriter, duly executed and authenticated, together with the other documents hereinafter mentioned, and the Underwriter will, subject to the terms and conditions hereof, accept such delivery and pay the purchase price of the Bonds, 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 Bonds 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 Underwriter. (b)Delivery of the Bonds 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 Bonds shall be delivered in definitive fully registered form, bearing CUSIP numbers without coupons, with one Bond for each maturity of the Bonds, registered in the name of Cede & Co., all as provided in the Bond Ordinance, and shall be made available at the offices of the DTC (or if Bonds 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 Underwriter at least one (1) business day before the date of the Closing for the purposes of inspection. 6. Closing Conditions. The Underwriter has 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 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 Underwriter's obligations under this Agreement to purchase, to accept delivery of and to pay for the Bonds 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 documents as are enumerated herein, in form and substance reasonably satisfactory to the Underwriter unless waived by the Underwriter: (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; 77714085.3 9 (c)At the time of the Closing, (i) the Issuer Documents and the Bonds shall be in full force and effect in the form heretofore approved by the Underwriter 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 Underwriter; and (ii) the net proceeds of the sale of the Bonds and any funds to be provided by the Issuer shall be deposited and applied as described in the Official Statement and in the Bond 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 Bonds 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 Underwriter; (e)At or prior to the Closing, the Bond 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 Bonds; (f)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 Underwriter, is material and adverse and that makes it, in the judgment of the Underwriter, impracticable to market the Bonds on the terms and in the manner described in the Official Statement; (g)The Issuer shall not have failed to pay principal or interest when due on any of its outstanding obligations for borrowed money; (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 Underwriter; (i)At or prior to the Closing, the Underwriter 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 Underwriter; (2)The Bond 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 Underwriter; (3)An executed copy of the Escrow Agreement, having been duly adopted by the Issuer, with such supplements or amendments as may have been agreed to by the Underwriter; 77714085.3 10 (4) The undertaking of the Issuer which satisfies the requirements of Section (b)(5)(i) of the Rule (the "Continuing Disclosure Undertaking"); (5) The approving opinion of Bond Counsel with respect to the Bonds, in substantially the form attached to the Official Statement; (6) A supplemental opinion of Bond Counsel addressed to the Issuer and the Underwriter, substantially to the effect that: (A)the Bond Ordinance has been duly adopted and is in full force and effect; (B)the Bonds 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 Bonds to register and the Bonds under the 1933 Act or to qualify the Bond 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 BONDS" (except the subcaptions "Book-Entry-Only System," "Use of Proceeds," "Future Debt," "Sources and Uses of Funds" and "Remedies in the Event of Default"), "TAX INFORMATION — Tax Rate Limitations," "LEGAL MATTERS — Legal Opinion," "TAX MATTERS — Tax Exemption," "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM BONDS," 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; (7) An opinion, dated the date of the Closing and addressed to the Underwriter, of counsel for the Underwriter, to the effect that: (A)the Bonds 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 Bonds to register any securities under the 1933 Act and the Bond 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 Underwriter 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 77714085.3 11 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); (8)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 Bonds, 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 Bonds, 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 Bonds, pursuant to the Bond Ordinance, and other income or the levy or collection of the taxes pledged or to be pledged to pay the principal of and interest on the Bonds, 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 misleading in any material 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 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, 2011, the latest date as of which audited financial information is available; (9)A certificate of the Issuer in form and substance satisfactory to Bond Counsel and counsel to the Underwriter (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 Bonds will be used in a manner that would cause the Bonds 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; 77714085.3 12 (10)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 Bonds; (11)Any other certificates and opinions required by the Bond Ordinance for the issuance thereunder of the Bonds; (12)Evidence satisfactory to the Underwriter that the Bonds have been rated "A2" by Moody's Investors Service, and that all such ratings are in effect as of the date of Closing; (13)A copy of a special report prepared by Grant Thornton LLP, Certified Public Accountants, (the "Verification Agent"), relating to the Refunded Obligations, addressed to the Issuer, Bond Counsel and the Underwriter, verifying (i) the arithmetical computations of the adequacy of the maturing principal and interest on the escrowed securities and uninvested cash on hand under the Escrow Agreement and deposited with the paying agent for the Refunded Obligations to pay, when due, the principal of and interest on the Refunded Obligations, and (ii) the computation of the yield with respect to such securities and the Bonds; (14)Evidence satisfactory to the Underwriter that the moneys and escrowed securities identified in the special report of the Verification Agent sufficient to effectuate the refunding of the Refunded Obligations have been received and that such moneys and escrowed securities have been deposited in an escrow fund under the Escrow Agreement and with the paying agent for the Refunded Obligations; and (15)Such additional legal opinions, certificates, instruments and other documents as the Underwriter or counsel to the Underwriter 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 Underwriter. If the Issuer shall be unable to satisfy the conditions to the obligations of the Underwriter to purchase, to accept delivery of and to pay for the Bonds contained in this Agreement, or if the obligations of the Underwriter to purchase, to accept delivery of and to pay for the Bonds shall be terminated for any reason permitted by this Agreement, this Agreement shall terminate and neither the Underwriter nor the Issuer shall be under any further obligation hereunder, except that the respective obligations of the Issuer and the Underwriter set forth in Sections 1 (with respect to the good faith check), 4 and 8 hereof shall continue in full force and effect. 77714085.3 13 7. Termination. The Underwriter shall have the right to cancel their obligation to purchase the Bonds if, between the date of this Agreement and the Closing, the market price or marketability of the Bonds shall be materially adversely affected, in the sole judgment of the Underwriter, 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 Bonds, of the interest on the Bonds 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 Underwriter, materially adversely affect the market for the Bonds or the market price generally of obligations of the general character of the Bonds; (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 Bonds, including any or all underlying arrangements, are not exempt from registration under or other requirements of the 1933 Act, or that the Bond 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 Bonds, 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 Bonds have been offered and sold shall have withheld registration, exemption or clearance of the offering of the Bonds as described herein, or issued a stop order or similar ruling relating thereto; (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 77714085.3 14 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 Bonds or as to obligations of the general character of the Bonds, 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 Underwriter; (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 Bonds; (g)Any event occurring, or information becoming known which, in the reasonable judgment of the Underwriter, 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 light 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 any financial crisis or a default with respect to the debt obligations of, or the institution of proceedings under the federal or the state bankruptcy laws by or against the State or any agency of the State; (j)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; (k)Any fact or event shall exist or have existed that, in the Underwriter's reasonable judgment, requires or has required an amendment of or supplement to the Official Statement; (1) 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 Bonds); (m) The purchase of and payment for the Bonds by the Underwriter, or the resale of the Bonds by the Underwriter, on the terms and conditions herein provided shall 77714085.3 15 be prohibited by any applicable law, governmental authority, board, agency or commission; and (n) If any portion of escrow fund established in the Escrow Agreement is funded with direct obligations of the United States of America, the debt ceiling of the United States is such that the securities required to fund any portion of such deposit are not available for delivery on the date of the delivery of the Bonds. With respect to the condition described in subparagraph (m) above, the Underwriter is 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 Underwriter to invoke its termination rights thereunder. 8. Expenses. (a)The Underwriter 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 Bonds, 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, including the Escrow Agent and the Verification Agent; and (vi) all fees and expenses in connection with obtaining bond ratings and credit enhancement fees or premiums. The Issuer shall also pay for any expenses (included in the expense component of the Underwriter's discount) mutually agreed by the Issuer and the Underwriter to be reasonably considered expenses of the Issuer and are incurred by the Underwriter which are incidental to implementing this Agreement and the issuance of the Bonds, including, but not limited to, meals, transportation and lodging, if any, and any other miscellaneous closing costs. (b)The Issuer acknowledges that the Underwriter will pay from the underwriter's 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. (c)Except as provided for above, the Underwriter 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 Bonds; and (iii) all other expenses incurred by them in connection with the public offering of the Bonds, including the fees and disbursements of counsel retained by the Underwriter. Certain payments may be in the form of inclusion of such expenses in the expense component of the Underwriter's discount. 77714085.3 16 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 Underwriter under this Agreement may be given by delivering the same in writing to Piper Jaffrey & Co., 2626 Cole Avenue, Suite 500, Dallas, Texas 75204, 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 Underwriter (including successors or assigns of the Underwriter) and no other person shall acquire or have 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 Underwriter; (ii) delivery of and payment for the Bonds 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 Headings. 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 Liability. Neither the Mayor, City Council, nor any officer, agent, or employee of the Issuer, shall be charged personally by the Underwriter with any liability, or be held liable to the Underwriter 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. 77714085.3 17 18.Status of the Underwriter. It is understood and agreed that for all purposes of this Agreement and the transactions contemplated hereby the Underwriter has, in its role as underwriter, acted solely as independent contractors and have not acted as financial or investment advisors, fiduciaries or agents to or for the Issuer, whether directly or indirectly through any person. The Issuer recognizes that the Underwriter expect to profit from the acquisition and potential distribution of the Bonds. 19.Entire Agreement. This Agreement represents the entire agreement between the Issuer and the Underwriter 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 Bonds. [signature page follows] 77714085.3 18 If the Issuer agrees with the foregoing, please sign the enclosed counterpart of this Agreement and return it to the Underwriter. This Agreement shall become a binding agreement between the Issuer and the Underwriter when at least the counterpart of this letter shall have been signed by or on behalf of each of the parties hereto. Respectfully submitted, PIPER JAFFREY & CO., the Underwriter APPROVED AND ACCEPTED as of the date hereof CITY OF SANGER, TEXAS By:_ Name: Title: Date and Time of Acceptance Schedule I - Schedule of Terms 77714085.1 Execution Page to Purchase Agreement for City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 If the Issuer agrees with the foregoing, please sign the enclosed counterpart of this Agreement and return it to the Underwriter. This Agreement shall become a binding agreement between the Issuer and the Underwriter when at least the counterpart of this letter shall have been signed by or on behalf of each of the parties hereto. Respectfully submitted, PIPER JAFFREY & CO., the Underwriter By:__ Name: Date: APPROVED AND ACCEPTED as of the date hereof CITY OF SANGER, TEXAS By: ^^`—3 Name: I i 4-'-) - — _ Title:c c - 3-O-/-- Date and Time of Acceptance Schedule I - Schedule of Terms 77714085.2 Execution Page to Purchase Agreement for City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 ^_ n c T ^. T - o J = " P J J PRELIMINARY OFFICIAL STATEMENT DATED MARCH 15, 2012 In the opinion of Bond Counsel, interest on the Bonds is excludable from gross income for federal income tax purposes under existing law, subject to the matters described under "TAX MATTERS - Tax Exemption" herein, and is not includable in the alternative minimum taxable income of individuals, or except as described herein, corporations. See " IAX MATTERS — Tax Exemption" for a discussion of the opinion of Bond Counsel, including the alternative minimum tax on corporations. NEW ISSUE: BOOK-ENTRY ONLY Ratings: Moody's Investors Service: "A2" See "SALE AND DISTRIBUTION OF THE BONDS — Municipal Bond Ratings" $3,405,000* CITY OF SANGER, TEXAS (A political subdivision of the State of Texas located within Denton County) GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012 Dated: April 1, 2012 Due: May 15, as shown below Principal of and interest on the $3,405,000* City of Sanger, Texas, General Obligation Refunding Bonds, Series 2012 (the `Bonds") are payable by BOKF, NA dba Bank of Texas, Austin, Texas, the initial paying agent/registrar (the "Paying Agent/Registrar"). The Bonds are initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the beneficial owners of the Bonds. See "THE BONDS - Book-Entry-Only System" herein. Interest on the Bonds will accrue from April 1, 2012 and will be payable on May 15 and November l5 of each year, commencing May 15, 2012, to the registered owners (initially Cede & Co.) appearing on the registration books of the Paying Agent/Registrar on the last business day of the month preceding each interest payment date (the "Record Date"). See "THE BONDS - Description." The Bonds, when issued, will constitute valid and binding obligations of the City of Sanger, Texas (the "City") and will be payable from the proceeds of a continuing, direct annual ad valorem tax levied, within the limits prescribed by law, against all taxable property within the City. See "THE BONDS - Source of Payment." The Bonds are issued pursuant to the Constitution and general laws of the State of Texas, particularly Chapter 1207, Texas Government Code, as amended, and an ordinance adopted by the City Council (the "Ordinance"). See "THE BONDS — Authorization of the Bonds." PRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES AND PRICES (Due May 15) Initial CUSIP Initial CUSIP Maturity Principal Interest Reoffering Nos. Maturity Principal Interest Reoffering Nos. May 15 Amount*Rate Yield (a)(b) May 15"'Amount*Rate Yield (a) (b) 2012 $70,000 % %2018 $300,000 % 2013 345,000 2019 315,000 2014 355,000 2020 325,000 2015 365,000 2021 330,000 2016 370,000 2022 335,000 2017 295,000 * Preliminary, subject to change. (a)The initial yields will be established by and are the sole responsibility of the Underwriter, and may subsequently be changed. (b)CUSIP numbers have been assigned to the Bonds by CUSIP Global Service, managed by Standard & Poor's Financial Services LLC on behalf of the American Banker Association, and are included solely for the convenience of the registered owners of the Bonds. Neither the City, the Financial Advisor, nor the Underwriter is responsible for the selection or correctness of the CUSIP numbers set forth herein. (c)The Bonds maturing on May 15, 20_ and thereafter, are subject to redemption on May 15, 20_ or any date thereafter, at the option of the City, at the par value thereof plus accrued interest from the most recent interest payment date to the date of redemption. See "THE BONDS - Redemption Provisions." Proceeds from the sale of the Bonds will be used for the refunding of certain outstanding obligations (the "Refunded Obligations") of the City as more specifically described in APPENDIX D attached hereto, and to pay the costs of issuance of the Bonds. See "THE BONDS—Use of Proceeds" and "THE BONDS — Sources and Uses of Funds." The Bonds are offered when, as and if issued, subject to the approving opinion of the Attorney General of the State of Texas and the opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel for the City, as to the validity of the issuance of the Bonds under the Constitution and laws of the State of Texas. See "LEGAL MATTERS." Certain legal matters will be passed upon for the underwriter listed below (the "Underwriter") by Fulbright & Jaworski L.L.P., Houston, Texas. Delivery of the Bonds through DTC is expected to be on or about April _, 2012. PIPER JAFFRAY & CO. * Preliminary, subject to change. 3 = J - J ^ ^ L n v C 'J ;f ^J 7 C P TABLE OF CONTENTS INTRODUCTORY STATEMENT ..........................4 SALE AND DISTRIBUTION OF THE BONDS......4 Underwriting .....................................................4 Prices and Marketability .....................................4 Securities Laws ..................................................4 Municipal Bond Ratings .....................................5 OFFICIAL STATEMENT SUMMARY ..................6 INTRODUCTION ....................................................8 THE BONDS ............................................................8 Description........................................................8 Redemption Provisions .......................................8 Mandatory Redemption ......................................9 Notice of Redemption .........................................9 Book-Entry-Only System ...................................9 Successor Paying Agent/Registrar .....................11 Source of Payment ...........................................11 Use of Proceeds ...............................................11 Refunded Obligations .......................................11 Authorization of the Bonds ...............................12 Sources and Uses of Funds ...............................12 Future Debt ......................................................12 Legal Investments in Texas ...............................12 Remedies in the Event of Default ......................13 INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE CITY ..............................................................13 Legal Investments ............................................13 Investment Policies ..........................................14 Additional Provisions .......................................15 TAX INFORMATION ...........................................15 Ad Valorem Tax Law .......................................15 Tax Rate Limitation .........................................17 Effective Tax Rate and Rollback Tax Rate........................................................17 Property Assessment and Tax Payment .............18 Penalties And Interest .......................................18 City Application of Tax Code ...........................18 Municipal Sales Tax .........................................18 RETIREMENT PLAN ............................................19 ADMINISTRATION OF THE CITY .....................19 Mayor and City Council ....................................19 Administration ..................................................19 Consultants .......................................................20 LEGAL MATTERS ................................................20 Legal Opinion ...................................................20 20 No-Litigation Certificate ...................................20 No Material Adverse Change ............................21 TAX MATTERS .....................................................21 Tax Exemption .................................................21 21 Impact of Proposal in President's 2013 Budget.....................................................22 TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM BONDS..........22 Discount Bonds ................................................22 Premium Bands ................................................23 CONTINUING DISCLOSURE OF INFORMATION ............................................23 Annual Reports .................................................23 Material Event Notices ......................................24 Availability of Information ................................24 Limitations and Amendments ............................24 Compliance With Prior Undertakings .................25 FINANCIAL ADVISOR .........................................25 VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS........25 GENERAL CONSIDERATIONS ...........................25 Sources and Compilation of Information............25 Forward Looking Statements .............................25 APPENDIX A — Financial Information Regarding the City of Sanger, Texas APPENDIX B — Audited Financial Statements of the City APPENDIX C — Form of Bond Counsel Opinion APPENDIX D — Schedule of Refunded Obligations Municipal Bond Ratings In connection with the sale of the Bonds, the City has made application to Moody's Investors Service ("Moody's") for ratings and a ratings of "AT' has been assigned to the Bonds. An explanation of the significance of such rating may be obtained from Moody's. The ratings reflect only the views of Moody's, and the City makes no representation as to the appropriateness of such ratings. There is no assurance that such ratings will continue for any period of time or that such ratings 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 the ratings may have an adverse effect on the market price of the Bonds. - Selected Financial Information - (Unaudited) 2011 Certified Net Taxable Assessed Valuation (100% of estimated $ 358,015,773 (a) marketvalue) ............................................................................................... Direct Debt: Outstanding Tax Supported Debt (as of February 1, 2012) ..................... $ 9,180,000 * Plus: The Bonds ................................................................................... $ 3,405,000 Total Tax Supported Debt ............................................................... $ 12,5$5,490 Estimated Overlapping Debt ........................................................................ $ 16.327.937 Direct and Estimated Overlapping Debt ........................................................ S 28.912.937 Debt Service Fund Balance (as of September 30, 2011) ................................ $ 261.375 %of2011 Per Assessed Capita Valuation (6,916) Debt Ratios: Direct Tax Supported Debt .................................3.52% 3.52% $ 1,820 Direct Tax Supported and Estimated Overlapping Debt .......................................... 8.08% $ 4,181 2011 Tax Rate (per $100 of Assessed Valuation) Maintenance and Operation ................................................................................... $0.446044 DebtService ........................................................................................................ $0.187005 Total .............................................................................................................. $0.633049 Estimated Annual Debt Service Requirements: (b) Average (Fiscal Years 20-20-1 ........................................................................ $ Maximum (20 J ............ ................................................................................... $ Tax Collections: Arithmetic Average, Tax Years (2006-2011)- Current Year Collections ................ In Process - Total Collections ............................ 99.11 % * Preliminary, subject to change. (a)Provided by the Denton County Appraisal District (the "Appraisal District") and net of exemptions. (b)Excludes the Refunded Obligations. 7 Mandatory Redemption If principal amounts designated in the serial maturity schedule herein are combined to create Term Bonds, each such Term Bond shall be subject to mandatory sinking fund redemption commencing on May 15 each year until the stated maturity date of that Term Bond. Term Bonds to be redeemed in any year by mandatory redemption shall be redeemed at par and shall be selected by lot, or other customary random selection method, from and among the Term Bonds then subject to redemption. The City, at its option, may credit against any mandatory redemption requirement Term Bonds of the maturity then subject to redemption which have been optionally redeemed and not theretofore applied as a credit against any mandatory redemption requirement. Notice of Redemption Not less than 30 days prior to a redemption date for the Bonds, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to the registered owners of the Bonds 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. 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, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, NOTWITHSTANDING THAT ANY BOND OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH BOND OR PORTION THEREOF SHALL CEASE TO ACCRUE. Book-Entry-Only System This section describes how ownership of the Bonds is to be transferred and how the principal of premium, if any, and interest on the Bonds are to be paid to and credited by The Depository Trust Company ("DTC'), New York, New York, while the Bonds 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 Official Statement. The City, the Financial Advisor and the Underwriter believe the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. The City, the Financial Advisor and the Underwriter cannot and do not give any assurance that (1) DTC will distribute payments of debt service on the Bonds, 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 Bonds), 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 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 Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered certificate will be issued for each maturity of the Bonds, in the aggregate principal amount of each such maturity, and will be deposited with DTC. DTC, the world's largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 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 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 . 9 The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the City believes to be reliable, but the City takes not responsibility for the accuracy thereof. Use of Certain Terms in Other Sections of this Official Statement In reading this Official Statement it should be understood that while the Bonds 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 Bonds, 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. Successor Paying Agent/Registrar Provision is made in the Ordinance for replacing 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 (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 or trust company organized under the laws of the United States or any state and duly qualified and legally authorized to serve and perform the duties of the Paying Agent/Registrar for the Bonds. Source of Payment The Bonds, when issued, will constitute valid and binding obligations of the City and will be payable from the proceeds of a continuing, direct annual ad valorem tax levied, within the limits prescribed by law, against all taxable property within the City. See "- Use of Proceeds." Use of Proceeds Proceeds from the sale of the Bonds will be used for the refunding of certain outstanding obligations (the "Refunded Obligations") of the City as more specifically described in APPENDIX D attached hereto, and to pay the costs of issuance of the Bonds. Refunded Obligations The Ordinance provides that a portion of the proceeds from the sale of the Bonds to the Underwriter will be deposited with the paying agent for certain of the Refunded Obligations in an amount, together with other available funds which, when added to the investment earnings thereon, if any, will be sufficient to accomplish the discharge and final payment of that portion of the Refunded Obligations. The Ordinance further provides the principal of, premium, if any, and interest on a portion of the Refunded Obligations are to be paid on the scheduled payment dates from funds to be deposited with BOKF, NA dba Bank of Texas, Austin, Texas (the "Escrow Agent") pursuant to an Escrow Agreement between the City and the Escrow Agent. The Ordinance provides that from the proceeds of the sale of the Bond, the City will deposit with the Escrow Agent an amount, together with other available funds, if any, which when added to the investment earning thereon, will be sufficient to accomplish the discharge and final payment of that portion of the Refunded Obligations. Such funds will be held by the Escrow Agent in a special escrow account (the "Escrow Fund") and used to purchase a portfolio of securities authorized by Section 1207.062, Texas Government Code, which authorized securities include direct noncallable obligations of the United States and noncallable obligations of an agency or instrumentality of the United States rated as to investment quality by a nationally recognized investment rating firm not less than "AAA" or its equivalent and guaranteed by the full faith and credit of the United States of America. Grant Thornton L.L.P., certified public accountants, will verify at the time of delivery of the Bonds that the funds deposited with the paying agent for the Refunded Obligations and deposited with the Escrow Agent will be sufficient to pay, when due, the principal of, premium, if any, and interest on the Refunded Obligations on their scheduled redemption dates. Such funds deposited with the paying agent for the Refunded Obligations and with the Escrow Agent will not be available to pay debt service on the Bonds. See "VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS." By the deposit with the paying agent for the Refunded Obligations and with the Escrow Agent pursuant to the Escrow Agreement, the City will have effected the defeasance of the Refunded Obligations pursuant to the terms of Chapter 1207, Texas Government Code, and the ordinances authorizing the issuance of the Refunded Obligations. It IF Remedies in the Event of Default The Ordinance does not establish specific events of default with respect to the Bonds or provide for the appointment of a trustee to represent the interests of the bondholders upon any failure of the City to perform in accordance with the terms of the Ordinance, or upon any other condition. If the City defaults in any payment due on the Bonds or if the City defaults in the observance or performance of any of the covenants, conditions, or obligations set forth in the Ordinance, any registered owner is entitled to seek a writ of mandamus or mandatory injunction from a court of proper jurisdiction to compel the City to levy, assess and collect an annual ad valorem tax sufficient to pay principal of and interest on the Bonds as they become due or to perform other material covenants, conditions or obligations 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 Bonds 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. Such rights are in addition to any other rights the registered owners of the Bonds may be provided by the laws of the State of Texas with respect to the Bonds. Under Texas law there is no right to the acceleration of maturity of the Bonds upon the failure of the City to observe any covenant under the Ordinance. A registered owner of Bonds could file suit against the City if a default occurred in the payment of principal of or interest on any such Bonds; however, a suit for monetary damages could be vulnerable to the defense of sovereign immunity and any judgment could not be satisfied by execution against any property of the City. 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 bondholders 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 opinion of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Bonds are qualified with respect to the customary rights of debtors relative to their creditors. INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE CITY The City invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the Mayor and Council of the City. Both state law and the City's investment policies are subject to change. Legal Investments Available City funds are invested as authorized by State law and in accordance with investment policies approved by the City Council. Both State law and the City's investment policies are subject to change. Under State 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 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 full faith and credit of, the State or the United States or their respective agencies and instrumentalities; (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) (a) certificates of deposit and share certificates issued by a depository institution that has its main office or a branch office in the State, that are (i) guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund or their respective successors, or are secured as to principal by obligations described in clauses (1) through (6) above or in any other manner and amount provided by law for City deposits, and (b) certificates of deposit or share certificates issued by a depository institution that has its main office or a branch office in the State that participates in the Certificate of Deposit Account Registry Service; (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State; (9) 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) 13 investment list. The City generally invests in obligations of the United States or its agencies and instrumentalities, fully collateralized demand deposit accounts and collateralized certificates of deposit. Additional Provisions Under State law, the City is additionally required to: (1) annually review its adopted policies and strategies, (2) adopt a rule, order, ordinance or resolution stating that it has reviewed its investment policy and investment strategies and records any changes made to either its investment policy or investment strategy in the respective rule, order, ordinance or resolution, (3) require any investment officers with personal business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council; (4) require the qualified representative of firms offering to engage in an investment transaction with the City to: (a) receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude investment transactions conducted between the City and the business organization that are not authorized by the City's investment policy (except to the extent that this authorization is dependent on an analysis of the makeup of the City's entire portfolio or requires an interpretation of subjective investment standards), and (c) deliver a written statement in a form acceptable to the City and the business organization attesting to these requirements; (5) perform an annual audit of the management controls on investments and adherence to the City's investment policy; (6) provide specific investment training for the City's designated Investment Officer(s); (7) 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 purchase agreement; (8) 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; (9) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements, and (10) at least annually review, revise, and adopt a list of qualified brokers that are authorized to engage in investment transactions with the City. Current Investments. As of December 31, 2012, the City had the following invested in local government pools, or securities. Investment Market Value % of Total Cash and Cash Equivalents $253,061.01 25.04% Certificates of Deposit 516,858.15 51.14% Money Market Accounts 240,690.57 23.82% Total $1,010,609.73 100% TAX INFORMATION Ad Valorem Tax Law 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 Texas Property Tax Code to appraise 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 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 method considered most appropriate by the chief appraiser is to be used. State law requires the appraised value of a residence homestead to be based solely on the property's value as a residence homestead, regardless of whether residential use is considered to be the highest and best use of the property. 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 property's market value in the most recent tax year in which the market value was determined by the appraisal office or (2) the sum of (a) 10% of the property's appraised value in the preceding tax year, plus (b) the property's appraised value the preceding tax year, plus (c) the market value of all new improvements to the property. The value placed upon property within the Appraisal District is subject to review by an 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 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 Texas 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 taxation purposes; and the procedures and limitations applicable to the levy and collection of ad valorem taxes. 15 vessel and out-board motor, heavy equipment and manufactured housing inventory. After holding a public hearing, a taxing unit may take action by January 1 of the year preceding a tax year to tax goods-in-transit during the following tax year. A taxpayer may obtain only a Freeport exemption or a goods-in-transit exemption, but not both for items of personal property. Article VIII, Section 1-I, provides for the exemption from ad valorem taxation of certain property used to control the pollution of air, water, or land. A person is entitled to an exemption from taxation of all or part of real and personal property that the person owns and that is used wholly or partly as a facility, device or method for the control of air, water or land pollution. The City may create one or more tax increment financing zones within the City ("TIRZ"), 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. Other overlapping taxing units levying taxes in the TIRZ may agree to contribute all or part of future ad valorem taxes levied and collected against the value of property in the TIRZ in excess of the "frozen values" to pay or finance the costs of certain public improvements in the TIRZ. Taxes levied by the City against the values of real property in the TIRZ in excess of the "frozen" value are not available for general City use but are restricted to paying or financing "project costs" within the TIRZ. The City also may enter into tax abatement agreements to encourage economic development. Under such tax abatement 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. A tax abatement agreement could last for a period of up to 10 years. Cities are also authorized, pursuant to Chapter 380, Texas Local Government Code ("Chapter 380") to establish programs to promote state or local economic development and to stimulate business and commercial activity in the City. In accordance with a program established pursuant to Chapter 380, the City may make loans or grant of public fund for economic development purposes, however, no obligations secured by ad valorem taxes may be issued for such purposes unless approved by voters of the City. Tax Rate Limitation All taxable property within the City is subject to the assessment, levy and collection by the City of a continuing, d irect annual ad valorem tax sufficient to provide for the payment of principal of and interest on all ad valorem tax debt within the limits prescribed by law. Article XI, Section 5, of the Texas Constitution limits the maximum ad valorem tax rate for home-rule cities to $2.50 per $100 taxable assessed valuation for all purposes. The Home Rule Charter of the City adopts the constitutionally authorized maximum tax rate of $2.50 per $100 taxable assessed valuation. Administratively, the Texas Attorney General's office will permit allocation of $1.50 of the $2.50 maximum tax rate for ad valorem tax debt. Effective Tax Rate and Rollback Tax Rate The City Council will be required to adopt the annual tax rate for the City before the later of September 30 or the 60th day after the date the certified appraisal roll is received by the City. 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". Under current law, 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 are held on the proposed tax rate following a notice of such public hearing (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. 17 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 8Y.%. 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'/,%). 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, Vernon's Annotated Texas Civil Statutes, and another one-half percent (1/2%) sales and use tax for economic development in accordance with Section 4B, Article 5190.6, Vernon's Annotated Texas Civil Statutes. Levy of the additional. Levy of the additional sales and use tax for economic development began in December 1998. The City's sales and use tax is not pledged to the payments of the Bonds. RETIREMENT PLAN The City provides pension benefits for all of its full-time employees through the Texas Municipal Retirement System ("TMRS"), a State-wide administered pension plan. The City makes annual contributions to the plan equal to the amounts accrued for pension expense. For more detailed information concerning the retirement plan, see Note 7 in APPENDIX B - Audited Financial Statements of the City. ADMINISTRATION OF THE CITY Mayor and City Council Policy-making and supervisory functions are the responsibility of and are vested in the Mayor and City Council for the City, under provisions of the home rule charter of the City of Sanger (the "Charter") approved by the electorate July 15,1999. The Council is elected at large on the second Saturday in May. The Mayor and five Council members serve two-year staggered terms. The Mayor is entitled to vote only in the event of a tie and has no power to veto Council action. Members of the Council are described below: Term Council Members Period Served Expires May Occupation Thomas Muir, Mayor 5 years 2012 CPA Marjory Johnson, Place 1 2 years 2013 Real Estate Broker Gary Bilyeu, Place 2 2 years 2012 Insurance Agent Russell Martin, Place 3 3 years 2013 Self Employed Andy Garza, Place 4 6 years 2012 Retired Scott Stephens, Place 5 1 year 2013 Banker Administration Under provisions of the Charter, the City Council enacts local legislation, adopts budgets, determines policies and appoints the City Manager, who is charged with the duties of executing the laws and administering the government of the City. The City Manager serves as the liaison between the Council and staff and is responsible for implementing the policies established by the Council. The City Manager is also responsible for developing and administering the budget and various strategic plans. The City Manager is also responsible for supervising city employees and has the final responsibility for all hiring, discipline and termination matters. 19 questioning the authority or proceedings for the issuance, execution, or delivery of the Bonds; or affecting the validity of the Bonds. No Material Adverse Change The obligations of the Underwriter to take and pay for the Bonds, and of the City to deliver the Bonds, are subject to the condition that, up to the time of delivery of and receipt of payment for the Bonds, there shall have been no material adverse change in the condition (financial or otherwise) of the City subsequent to the date of sale from that set forth or contemplated in the Preliminary Official Statement, as it may have been supplemented or amended through the date of sale. TAX MATTERS Tax Exemption In the opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel, interest on the Bonds is excludable under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), from gross income of the owners thereof for federal income tax purposes, and interest on the Bonds is not includable in the alternative minimum tax on individuals, or except as described below, corporations. The foregoing opinion 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 Bonds. Such authorities are subject to change and any such change could prospectively or retroactively result in the inclusion of the interest on the Bonds 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 opinion, 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 Bond proceeds and any facilities financed therewith, the source of repayment of the Bonds, the investment of Bond proceeds and certain other amounts prior to expenditure, and requirements that excess arbitrage earned on the investment of Bond 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 Bonds that are contained in the Ordinance should be determined to be inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery of the Bonds, regardless of the date on which the event causing such taxability occurs. Interest on tax-exempt obligations, such as the Bonds, 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 Bonds. 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 Bonds is commenced, under current procedures the Service is likely to treat the City as the "taxpayer," and the owners of the Bonds 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 Bonds, the City may have different or conflicting interests from the owners of the Bonds. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds 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 Bonds, received or accrued during the year. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations, such as the Bonds, 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 21 The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Discount Bonds by an owner that did not purchase such Bonds 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 Bonds 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 Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Discount Bonds. Premium Bonds Some of the Bonds may be offered at initial offering prices which exceed the stated redemption prices payable at the maturity of such Bonds. If a substantial amount of any maturity of the Bonds 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 Bonds of such maturity ("Premium Bonds") 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 Bond in the hands of an initial purchaser who purchases such Bond in the initial offering must be reduced each year and upon the sale or other taxable disposition of the Bond 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 Bond 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 Bond which is amortizable each year (or shorter period in the event of a sale or disposition of a Premium Bond) is determined under special tax accounting rules which use a constant yield throughout the term of the Premium Bond based on the initial purchaser's original basis in such Bond. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition by an owner of Bonds 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 Bonds of the same maturity may be determined according to rules which differ from those described above. Moreover, all prospective purchasers of Bonds 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 Bonds. 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 Bonds. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. 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 Rule Making Board ("MSRB"). Information will be available free of charge via the 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 via EMMA. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in this Official Statement in "Appendix A — Financial Information Regarding the City of Sanger, Texas" (Tables 1 — 10) and in "Appendix B — Audited Financial Statements of the City." 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 Rule 15c2-12. 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 commissioned or are not available by the required time, the City will provide unaudited financial statements and audited financial statements when and if they 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 March 31 in each year unless the City changes its fiscal year. If the City changes its fiscal year, it will notify the MSRB of the change. or repeals the applicable provisions of the SEC Rule 15c2-12 or a court of final jurisdiction enters judgment that such provisions of the SEC Rule 15c2-12 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 Bonds in the primary offering of the Bonds. If the City so amends the agreement, it has agreed to include with the next financial information and operating 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 the type of financial information and operating data so provided. Compliance With Prior Undertakings Due to an administrative oversight, the City filed its annual disclosure materials late in 2009 and 2010. The City has since made all filings and has implemented procedures to assure compliance in the future. Otherwise, during the last 5 years, the City has complied in all material respects with its prior continuing disclosure agreements made in accordance with Rule 15c2-12. FINANCIAL ADVISOR Government Capital Securities Corporation is employed as Financial Advisor to the City in connection with the issuance of the Bonds. The Financial Advisor's fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information in this Official Statement. VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS Grant Thornton LLP, a firm of independent public accountants, will deliver to the City, on or before the settlement date of the Bonds, its verification report indicating that it has verified, in accordance with attestation standards established by the American Institute of Certified Public Accountants, the mathematical accuracy of (a) the mathematical computations of the adequacy of the cash and the maturing principal of and interest on the securities, to pay, when due, the maturing principal of, interest on and related call premium requirements of certain Refunded Obligations and (b) the mathematical computations of yield used by Andrews Kurth LLP to support its opinion that interest on the Bonds will be excluded from gross income for federal income tax purposes. The verification performed by Grant Thornton LLP will be solely based upon data, information and documents provided to Grant Thornton LLP by the City and its representatives. Grant Thornton LLP has restricted its procedures to recalculating the computations provided by the City and its representatives and has not evaluated or examined the assumptions or information used in the computations. GENERAL CONSIDERATIONS Sources and Compilation of Information The information contained in this Official Statement has been obtained primarily from the City and from other sources believed to be reliable. No representation is made as to the accuracy or completeness of the information derived from sources other than the City. The summaries of the statutes, orders, ordinances and other related documents are included herein subject to all of the provisions of such documents. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. The information contained in this Official Statement in the section entitled "Appendix B - Audited Financial Statements of the City" has been provided by Weaver & Tidwell, L.L.P., Fort Worth, Texas and has been included herein in reliance upon their authority as an expert in the fields of auditing and accounting. Neither this Official statement nor any statement that may have been made orally or in writing is to be constructed as or as part of a contract with the original purchasers or subsequent owners of the Bonds. Forward Looking Statements The statements contained in this Official Statement, and in any other information provided by the City, that are not purely historical, are forward-looking statements, including statements regarding the City's expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Official Statement are based on information available to the City on the date hereof, and the City assumes no obligation to update any such forward-looking statements. It is important to note that the City's actual results could differ materially from those in such forward-looking statements. The forward-looking statements herein are necessarily based on various assumptions and estimates and are 25 APPENDIX A FINANCIAL INFORMATION REGARDING THE CITY OF SANGER, TEXAS ASSESSED VALUATION TABLE I 2011 Total Value of Taxable Property $446,545,967 Less Exemptions: Local, Optional Over-65 and/or Disabled Homestead Exemptions $ 9,958,294 Disabled and Deceased Veterans' Exemptions 718,819 Productivity Value Loss 27,959,005 Homestead 10% Cap Adjustment 401,207 Abatement 26,842,834 Freeport 12,407,179 Other 10,242,856 88,530,194 2011 Net Taxable Assessed Valuation (100% of Actual)$358,015,773 °) See "TAX 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 2011 Net Taxable 2010 Assessed Name Type of Business Assessed Valuation Valuation* Walmart Stores East, L.P. Distribution $78,887,514 22.03% Walmart Stores East, L.P. Distribution 28,200,000 7.87% Sanger Acquisitions, LLC Real Estate 4,000,000 1.11% Red Hawk Industries Manufacturing 2,254,040 .62% Intercapital Stonewood Ranch, LLC Real estate 2,123,889 .59% Vast, Inc.1,633,902 .45% Central Telephone Co Telephone/Utility 1,597,620 .44% Ashley Nim Marshall 1,575,000 .43% Miller Family Trust 2,615,360 .73% Lane EMJ, Inc 1,528.499 .42% Total $121,209,125 34.69% * Based on 2011 Net Taxable Assessed Valuation of $358,015,773. Source: Texas Comptroller of Public Accounts and Denton Central Appraisal District A-1 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 3.65 per thousand gallons Next 15,000 gallons 3.95 per thousand gallons Over 30,000 4.85 per thousand gallons PRINCIPAL WATER CUSTOMERS 2010-11' TABLE 6 (As of September 30, 2011) Average Monthly Consumption in Average Gallons Monthly Bill 718,700 $3,382.42 497,000 2,413.23 255,600 1,221.20 231,600 1,364.96 148,500 593.26 134,500 806.50 105,200 431.27 103,100 510.13 102,300 518.80 101.100 498.12 Total 2,397,600 $11,739.89 Name of Customer Intercapital Stonewood Ranch Sanger High School Intercapital Stonewood Ranch SISD Butterfield Elementary Khosrow Sadeghian Integra Peak Mgt. Elk River SISD Sanger Middle School Karl Klement Properties Sportsman * None of the City's revenues from its water system is pledged to the payment of the Bonds, and the City will not use such revenues to make payment on the Bonds. A-3 ELECTRIC RATES* TABLE 9 Existing Rates (Effective November 15, 2010) Large Residential Commercial Industrial Facility Charge (minimum per $ 10.00 S 16.00 $ 35.00 month) Energy Charge (per KWH) S 0.1175 S 0.12 S 0.105 PRINCIPAL ELECTRIC CUSTOMERS 2010-2011 TABLE 10 (As of September 30, 2011) Average Monthly Consumption in Name of Customer Kilowatt Hours Average Monthly Bill Walmart 1,174,400 $124,250.00 Golston Company 74,093 8,804.80 Waggon Master RV Park 47,520 5,413.75 SISD Chisholm Elementary 46,386 5,721.60 McDonalds 45,760 5,556.80 First Baptist Church 34,325 4,207.00 MacCamp 34,100 3,340.00 Sportsman 33,753 4,097.20 Jack in the Box 32,943 4,062.80 SISD Middle School 29.700 3,692.00 Total 1,552,980 $169,145.95 * None of the City's revenues from its electric system is pledged to the payment of the Bonds, and the City will not use such revenues to make payment on the Bonds. A-5 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY A-7 CONTENTS Page(s) INDEPENDENT AUDITOR'S REPORT ...................... MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) 3-11 BASIC FINANCIAL STATEMENTS Government-wide Financial Statements Statement of Net Assets .................................................................................................12 Statementof Activities .....................................................................................................13 Fund Financial Statements Governmental Funds BalanceSheet ...........................................................................................................14 Reconciliation of the Governmental Funds Balance Sheet to the Statement of 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 Statement of Activities .........................................................................................19 Proprietary Funds Statement of Net Assets ............................................................................................20 Statement of Revenues, Expenses, and Changes in Fund Net Assets ....................21 Statement of Cash Flows ..........................................................................................22 Notes to Basic Financial Statements ...............................................................................24-43 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Funding Progress for Participation for Texas Municipal Retirement System .............................................................................44 Budgetary Comparison Schedule — General Fund ....................... ...................................45 SUPPLEMENTARY INFORMATION Combining Schedule of Revenues and Expenses — Proprietary Fund by Department.........46 Analysis of Property Taxes Receivable .................................................................................48 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. The supplementary information on pages 46 through 48 is presented for purposes of additional analysis and is not a required part of the basic financial statements. This information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. WEAVER AND TIDWELL, L.L.P. Fort Worth, TX August 18, 2011 2 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. Overtime, 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). 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. 4 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 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. The notes provide additional information that is essential to understanding the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 24 through 43 of this report. 6 Changes in Net Assets Governmental activities decreased the City's net assets by $111,662 and business-type activities increased the City's net assets by $841,982. The key elements of these changes are contained in Table 2. Table 2- Changes in Net Assets Governmental Business -Type Activities Activities Total 2010 2009 2010 2009 2010 2009 Revenues Program Revenues: Charges for services $ 1,127,202 $ 1,732,063 $ 9,458,927 $9,490,083 $ 10,586,129 $11,222.146 Grants and donations -14,239 ---14,239 General Revenues: Taxes 3,759,621 3,889,376 --3,759,621 3,889,376 Licenses and permits 44,635 67,866 --44,635 67,866 Investment earnings 75,402 169,253 37,360 89,186 112,762 258,439 Transfers (231,245)(1,456,966)231,245 1,456,966 -- Miscellaneous 102,288 ---102,288 - Gain (loss) on sale of assets (33,255)32,322 11,814 2,500 (21,441)34,822 Total revenues 4,844,648 4,448,153 9,739,346 11,038,735 14,583,994 15,486,888 Expenses General government 725,355 733,052 --725,355 733,052 Public safety 1,276,750 1,262,219 --1,276,750 1,262,219 Streets and sanitation 1,260,016 1,211,307 --1,260,016 1,211,307 Fire and rescue 655,874 619,715 --655,874 619,715 Court 194,526 194,052 --194,526 194,052 Culture and recreation 465,034 452,868 --465,034 452,868 Interest on long-term debt 378,755 289,449 403,065 322,886 781,820 612,335 Proprietryexpenses -- - 8,494,299 8,646,150 8,494,299 8,646,150 Total expenses 4,956,310 4,762,662 8,897,364 8,969,036 13,853,674 13,731,698 Change in net assets (111,662)(314,509)841,982 2,069,699 730,320 1,755,190 Beginning net assets 8,458,142 5,006,725 9,953,317 11,530,821 18,411,459 16,537,546 Reclassifications -3,647,203 -(3,647,203)-- Prior-period adjustment -118,723 ---118,723 Ending net assets $ 8,346,480 $ 8,458,142 $ 10,795,299 $9,953,317 $ 19,141,779 $18,411,459 8 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, 2010, the City's governmental funds reported a combined ending fund balance of $5,726,234, a reduction of $275,185 from the previous fiscal year's balance of $6,001,419. The decline in fund balance is primarily due to expenditures for infrastructure improvements. Of this fund balance, $739,010 constitutes unreserved, undesignated fund balance, which is available for spending at the government's discretion. The remainder of the fund balance is reserved to indicate that it is not available for new spending because it has already been committed to either purchase or construct capital assets ($3,910,024), pay debt service ($106,546), or enhance economic development ($970,654). General Fund. The General Fund is the chief operating fund of the City. At September 30, 2010, the unreserved and undesignated fund balance of the General Fund was $739,010, an increase of $193,355 over the prior year. The increase is primarily due to reductions in spending and not filling nonessential personnel vacancies. The City took a very conservative approach to purchasing and employment during 2010 because of the depressed economic conditions. Capital Projects Fund. The entire balance of the capital projects fund is reserved for capital construction and acquisition. At September 30, 2010, the capital projects fund has a fund balance of $3,910,024, a decrease of $486,258 from 2009. At the end of 2010, the City had invested $24,345,631 in a broad range of capital assets, including land, equipment, buildings, and vehicles (see Table 3). Table 3— Capital Assets Governmental Business-Type Activities Activities Total 2010 2009 2010 2009 2010 2009 Land $ 600,351 $ 600,351 $ 323,164 $ 312,164 $ 923,515 $ 912,515 Construction in progress 3,039,158 3,975,123 -2,028,744 3,039,158 6,003,867 Infrastructure 6,131,964 6,433,265 21,653,018 20,039,369 27,784,982 26,472,634 Buildings and equipment 5,588,158 5,241,731 2,265,559 2,287,450 7,853,717 7,529,181 Total historical cost 15,359,631 16,250,470 24,241,741 24,667,727 39,601,372 40,918,197 Total accumulated depreciation (4,607,285)(5,346,789)(10,648,456)(10,562,915)(15,255,741)(15,909,704) Net capital assets $ 10,752,346 $ 10,903,581 $ 13,593,285 $ 14,104,812 $ 24,345,631 $ 25,008,493 10 1,128,152 14,440 276,825 2,171,109 123,161 323,164 • 13,270,121 $ 18,599,276 56,333 5,652,200 376,494 7,803,977 6,831,720 566,042 1,324,346 2,073,191 $ 10,795,299 1,128,152 77,607 276,825 11,910 7,246,906 439,453 3,962,673 20,382,958 $ 35,759,511 109,931 12,875,000 596,106 446,655 16,617,732 13,044,845 995,133 1,435,690 3,666,111 $ 19,141,779 $ 692,005 69,179 143,111 36,428 63,167 11,910 5,075,797 316,292 3,639,509 7,112,837 $ 17,160,235 $ 1,292,304 $ 1,984,309 - 69,179 - 143,111 36,428 53,598 7,222,800 596,106 70,161 8,813,755 6,213,125 429,091 111,344 1,592,920 $ 8,346,480 $ 198,142 $565,806 $ 763,948 -280,721 280,721 35,624 61,188 96,812 446,900 628,100 1,075,000 50,775 -50,775 78,035 118,394 196,429 61,614 64,741 126,355 CITY OF SANGER, TEXAS GOVERNMENT-WIDE STATEMENT OF NET ASSETS SEPTEMBER 30, 2010 Primary Government Governmental Business-type Activities Activities Total ASSETS Cash and cash equivalents Accounts receivable, net Property taxes Sales taxes Emergency medical services, net of allowance of $1,470,493 Utility accounts, net of allowance of $12,187 Other Inventories Prepaid expenses Restricted cash and cash equivalents 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 Bonds payable, due within one year Notes payable, due within one year Capital leases, due within one year Other Noncurrent liabilities Compensated absences 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, 12 CITY OF SANGER, TEXAS BALANCE SHEET — GOVERNMENTAL FUNDS SEPTEMBER 30, 2010 The Notes to Basic Financial Statements are an integral part of this statement. Debt Capital General Service Projects $ 668,434 $ 23,571 $ - 48,425 20,754 - 71,555 -- 36,428 -- 57,443 -3,030 11,910 -- 160,239 82,975 3,925,554 $ 1,054,434 $ 127,300 $ 3,928,584 $ 168,957 $ - $ 18,560 84,853 20,754 - 61,614 - - 315,424 20,754 18,560 - 3,910,024 106,546 - 739,010 - - 739,010 106,546 3,910,024 $ 1,054,434 $ 127,300 $ 3,928,584 ASSETS Cash and investments Accounts receivable, net Property taxes, net of allowance of $51,490 Sales taxes Emergency medical services, net of allowance of $1,470,493 Other Prepaid expenses Restricted cash and investments Total assets LIABILITIES AND FUND BALANCES Liabilities Accounts payable Deferred revenue Other current liabilities Total liabilities Fund balances Reserved - construction Reserved - debt service Reserved - economic development Unreserved Total fund balances TOTAL LIABILITIES AND FUND BALANCES 14 CITY OF SANGER, TEXAS RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS SEPTEMBER 30, 2010 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 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 on the fund financial statements. $ 5,726,234 10,752,346 316,292 (35,624) 105,607 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. (8,518,375) Net assets of governmental activities $ 8,346,480 The Notes to Basic Financial Statements are an integral part of this statement. 16 Total Governmental 4A Fund 4B Fund Funds $ -$ -$ 2,294,235 237,509 237,509 947,370 --44,635 --723,374 --451,346 --210,965 --527,872 2,871 8,722 75,402 2,333 -102,288 242,713 246,231 5,377,487 11,964 898 693,334 - - 1,206,731 - - 762,615 - - 559,344 - - 193,877 - - 387,810 187,262 - 699,065 31,931 561,190 29,336 374,776 260,493 898 5,438,742 (17,780) 245,333 (61,255) --17,315 --338,795 (20,000)(200,000)(570,040) (20,000)(200,000)(213,930) (37,780)45,333 (275,185) 402,706 560,395 6,001,419 $ 364,926 $ 605,728 $ 5,726,234 18 CITY OF SANGER, TEXAS STATEMENT OF NET ASSETS - PROPRIETARY FUNDS SEPTEMBER 30, 2010 Water, Sewer, and Electric Fund ASSETS CURRENT ASSETS Cash and investments Receivables Utility accounts receivable, net of allowance of $12,187 Other Inventories Restricted cash and cash equivalents Total current assets NONCURRENT ASSETS Capital assets, at cost Land and land improvements Buildings and equipment Infrastructure Accumulated depreciation Total capital assets, net of accumulated depreciation Bond issue costs Total noncurrent assets TOTAL ASSETS $ 1,292,304 1,128,152 14,440 276,825 2,171,109 4,882,830 323,164 2,265,559 21,653,018 (10,648,456) 13,593,285 123,161 13,716,446 $ 18,599,276 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable and accrued expenses Accrued interest payable Bonds payable, due within one year Capital lease obligation, due within one year Other Total current liabilities NONCURRENT LIABILITIES Compensated absences Bonds payable, due in more than one year Capital lease obligation, due in more than one year Customer deposits Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted Revenue bond retirement Capital improvements Unrestricted TOTAL NET ASSETS The Notes to Basic Financial Statements are an integral part of this statement. $ 565,806 61,188 628,100 118,394 64,741 1,438,229 56,333 5,652,200 376,494 280,721 7,803,977 6,831,720 566,042 1,324,346 2,073,191 $ 10,795,299 20 CITY OF SANGER, TEXAS STATEMENT OF CASH FLOWS — PROPRIETARY FUNDS YEAR ENDED SEPTEMBER 30, 2010 Water, Sewer, and Electric Fund CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers $ 9,434,771 Cash paid to employees (1,303,626) Cash paid to suppliers (6,452,708) Net cash provided by operating activities 1,678,437 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers from other funds 231,245 Net cash provided by noncapital financing activities 231,245 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Principal paid on long-term debt (686,107) Capital expenditures (320,639) Interest paid on long-term debt (390,698) Proceeds from sale of assets 29,897 Net cash used in capital and related financing activities (1,367,547) CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments 37,360 Net cash provided by investing activities 37,360 Net change in cash 579,495 CASH AND CASH EQUIVALENTS, beginning of the year 2,883,918 CASH AND CASH EQUIVALENTS, end of the year $ 3,463,413 The Notes to Basic Financial Statements are an integral part of this statement. 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 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 reserved 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 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 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 and are considered to be "cash equivalents" when preparing these financial statements. In addition, any marketable securities not included in the common pooled accounts that are purchased with a maturity of ninety days or less are also considered 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 contain 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 person 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. 28 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 Reservations of fund balances of the governmental funds indicate the portion of fund equity that is not available for appropriation for expenditure or is legally restricted by outside parties for use for a specific purpose. Designations of fund balance are the representations of management for utilization of resources in future periods. 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. Reclassifications Certain beginning balances have been reclassified to conform with the presentation in the current-year financial statements. NOTE 2. CASH AND INVESTMENTS Cash and investments as of September 30, 2010 consist of the following: Deposits with financial institutions $ 3,962,744 Investments 5,268,471 $ 9,231,215 30 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 2. CASH AND INVESTMENTS — CONTINUED 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. At September 30, 2010, the carrying amount of the City's cash on hand and deposits were $3,962,744 and the bank balance was $4,169,438. Of the bank balance, $250,000 was covered by federal depository insurance while the remaining $3,919,438 was secured with securities held by the pledging financial institution's trust department or agent 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 Enterprise Fund as follows: Debt service - interest and sinking fund $ 566,042 Capital improvements 1,324,346 Refundable utility deposits 280,721 $ 2,171,109 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 $ 82,975 Capital improvements 4,036,988 Economic and community development 955,834 $ 5,075,797 NOTE 4. CAPITAL ASSETS 32 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 4. CAPITAL ASSETS - CONTINUED Balance Balance October 1,Additions/Retirements/September 30, 2009 Completions Adjustments 2010 $ 312,164 $ 11,000 $ -$ 323,164 2,028,744 151,014 (2,179,758)- Business-type 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 business-type activities capital assets 2,340,908 162,014 (2,179,758) 323,164 20,039,369 1,748,296 (134,647) 21,653,018 371,856 528,204 (39,928) 860,132 1,915,594 61,883 (572,050) 1,405,427 22,326,819 2,338,383 (746,625)23,918,577 8,982,950 680,524 (141,450)9,522,024 140,399 11,960 (40,033)112,326 1,439,566 121,599 (547,059)1,014,106 10,562,915 814,083 (728,542)10,648,456 11,763,904 1,524,300 (18,083) 13,270,121 $ 14,104,812 $ 1,686,314 $ (2,197,841) $ 13,593,285 34 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 5. LONG-TERM DEBT At September 30, 2010, the City's bonds and notes payable consisted of the following: Governmental Business-type $1,060,000 Series 1996, Utility System Revenue Bonds, dated May 15, 1996, due in annual installments through 2016, bearing interest rates of 2.85% to 4.75%. $ $1,735,000 Series 1999, Utility System Revenue Refunding Bonds, dated May 15, 1999, due in annual installments through 2016, bearing interest rates of 4.25% to 4.4%. $ 445,000 205,000 1,820,000 2,767,500 1,042,800 $2,540,000 Series 2002, Utility System Revenue Bonds, dated June 1, 2002, due in annual installments through 2019, bearing interest rates of 4.5% to 6.0%.- $2,360,000 Series 2002, Combination Tax and Revenue Certificates of Obligation, dated June 1, 2002, due in annual installments through 2020, bearing interest rates of 4.2% to 5.7%.1,710,000 $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%.2,357,500 $1,750,000 Series 2007, Combination Tax and Revenue Certificates of Obligation, dated December 18, 2007, due in annual installments through 2027, bearing interest at 4.4%.537,200 $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%.3,065,000 Note payable to a financial institution in monthly installments of $1,542 including interest at 6.25%, due January 15, 2012, secured by property financed.26,396 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.620,485 $ 8,316,581 $ 6,280,300 36 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, 2010, are as follows: Revenue Bonds Business-Type Activities Due Fiscal Year Ending September 30 Principal Interest Total 2011 $ 628,100 $ 282,813 $ 910,913 2012 446,200 255,757 701,957 2013 462,600 236,442 699,042 2014 484,000 216,264 700,264 2015 507,100 195,010 702,110 2016-2020 2,537,500 628,947 3,166,447 2021-2025 1,046,500 128,916 1,175,416 2026-2030 168,300 11,180 179,480 $ 6,280,300 $ 1,955,329 $ 8,235,629 Certificates of Obligation Governmental Activities Due Fiscal Year Ending September 30 Principal Interest Total 2011 $ 446,900 $ 325,083 $ 771,983 2012 463,800 308,358 772,158 2013 487,400 290,888 778,288 2014 506,000 271,592 777,592 2015 522,900 251,425 774,325 2016-2020 2,972,500 908,832 3,881,332 2021-2025 1,928,500 300,945 2,229,445 2026-2030 341,700 17,872 359,572 $ 7,669,700 $ 2,674,995 $ 10,344,695 Notes Payable Governmental Activities Due Fiscal Year Ending September 30 Principal Interest Total 2011 $ 50,775 $ 28,996 $ 79,771 2012 44,053 26,466 70,519 2013 36,647 24,620 61,267 2014 38,368 22,898 61,266 2015 40,171 21,096 61,267 2016-2020 231,001 75,332 306,333 2021-2025 205,866 18,164 224,030 $ 646,881 $ 217,572 $ 864,453 38 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 7. PENSION PLAN — CONTINUED Benefits — Continued 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. 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 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. 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, 2009 valuation is effective for rates beginning January 2011). The annual pension cost is $187,668 for the year ended September 30, 2010, and there is no net pension obi igation as of September 30, 2010. 40 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 8. COMMITMENTS The City entered into a three (3) year contract in 2009 with the AEP Energy Partners, Inc. for the delivery of electricity. Payments under this contract are based on meter readings charged per month. The City had outstanding encumbrances totaling $40,887 as of September 30, 2010. In January 2011, the City entered into a contract totaling $2,958,566 for the construction of a sports complex. NOTE 9. INTERFUND TRANSFERS All interfund transfers between the various funds are approved supplements to the operations of those funds. Transfers In Transfers Out Amount General fund 4A fund $ 20,000 General fund 4B fund 20,000 General fund Capital projects fund 14,680 General fund Debt service fund 104,115 Debt service fund 46 fund 180,000 Enterprise fund Capital projects fund 231,245 $ 570,040 Transfers are primarily used to move funds from: - The 4A and 4B funds to the general fund for payment of administrative costs. - The capital projects fund to the general fund for security cameras purchased through the general fund. - The debt service fund to the general fund to pay the debt paid for from the general fund. - 4B fund to the debt service fund to service the debt related to the 4B fund. - Capital projects fund to the enterprise fund for completed assets transferred to the enterprise fund. 42 REQUIRED SUPPLEMENTARY INFORMATION CITY OF SANGER, TEXAS BUDGETARY COMPARISON SCHEDULE - GENERAL FUND YEAR ENDED SEPTEMBER 30, 2010 Variance with Budgeted Amounts Actual Final Budget Original Final Amount Over! (Under) Revenues Property taxes Sales taxes Licenses and permits Charges for services Fire and rescue Court Franchise taxes Interest Miscellaneous revenues Total revenues Expenditures Current General government Public safety Streets and sanitation Fire and rescue Court Culture and recreation Principal Interest and other Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources (uses) Proceeds on sale of assets Operating transfers in Total other financing sources (uses) Excess (deficiency) of revenues and other financing sources over expenditures and other financing uses FUND BALANCE, beginning of year FUND BALANCES, end of year $ 1,501,390 $ 1,501,390 $ 1,587,954 $ 86,564 4,441,317 4,441,317 4,136,435 (304,882) 751,145 751,145 555,668 (195,477) 1,159,319 1,194,319 1,206,731 12,412 1,013,147 1,013,147 762,615 (250,532) 890,114 890,114 559,344 (330,770) 244,311 244,311 193,877 (50,434) 776,909 776,909 387,810 (389,099) •-90,877 90,877 --13,238 13,238 --349,030 349,030 4,834,945 4,869,945 4,119,190 (750,755) (393,628) (428,628) 17,245 445,873 - - 17,315 17,315 225,000 369,115 158,795 (210,320) 225,000 369,115 176,110 (193,005) (168,628) (59,513) 193,355 252,868 545,655 545,655 545,655 - $ 377,027 $ 486,142 $ 739,010 $ 252,868 500,000 500,000 472,352 (27,648) 88,525 88,525 44,635 (43,890) 652,377 652,377 723,374 70,997 775,000 775,000 451,346 (323,654) 215.925 215.925 210,965 (4,960) 559,500 559,500 527,872 (31,628) 40,000 40,000 17,982 (22,018) 108,600 108,600 99,955 (8,645) 45 CITY OF SANGER, TEXAS COMBINING SCHEDULE OF REVENUES AND EXPENSES PROPRIETARY FUND BY DEPARTMENT YEAR ENDED SEPTEMBER 30, 2010 Water Sewer Electric 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 Gain/loss on sale of asset $ 1,095,408 $ 907,980 $ 7,295,442 - - 62,532 30,500 22,000 - 1,125,908 929,980 7,357,974 249,302 148,454 475,068 2,682 5,001 4,231 141,572 171,921 11,894 15,068 12,314 37,095 230,080 -4,723,499 --354,842 220,836 237,065 356,182 102,665 131,177 128,445 35,854 8,963 111,076 998,059 714,895 6,202,332 127,849 215,085 1,155,642 (168,148) (96,561) (138,356) Total nonoperating revenues (expenses) (168,148) (96,561) (138,356) Income (loss) before transfers (40,299) 118,524 1,017,286 Transfers in 231,245 CHANGE IN NET ASSETS $ (40,299) $ 118,524 $ 1,248,531 46 CITY OF SANGER, TEXAS ANALYSIS OF PROPERTY TAXES RECEIVABLE YEAR ENDED SEPTEMBER 30, 2010 WITH COMPARATIVE TOTALS FOR FOUR YEARS PRIOR Fiscal Year 2010 2009 2008 2007 2006 Adjusted tax roll $ 2,256,987 $ 2,308,903 $ 2,118,117 $ 2,014,381 $ 1,785,686 Less collections 2,216,114 2,256,275 2,078,588 1,961241 241 1,752,921 Current year property taxes receivable 40,873 52,628 39,529 53,140 32,765 Prior year property taxes receivable 79,796 74,407 71,283 66,629 61,995 Total property taxes receivable, gross (1)$ 120,669 $ 127,035 $ 110,812 $ 119,769 $ 94,760 Total assessed property value $ 364,030,183 $ 341,028,251 $ 336,831,151 $ 341,154,524 $ 312,822,804 Tax rate per $100 $ 0.62000 $ 0.62000 $ 0.59960 $ 0.59046 $ 0.59083 Percent of current taxes collected to billed 98.19%97.72%98.13%.97.36%98.17% (1) before deducting allowance for doubtful accounts 48 ANDREWS ATTORNEYS KU R T H LLP Andrews & Kurth L.L.P. 600 Travis, Suite 4200 Houston, Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com 2012 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 bonds (the "Bonds") described as follows: CITY OF SANGER, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2010, dated March 1, 2012, in the aggregate principal amount of $ maturing on May 15 in each year from 20_ through 20_, inclusive. The Bonds 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 Bonds and in the ordinance (the "Ordinance") adopted by the City Council of the City 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 Bonds under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Bonds 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 Bonds and the bonds and certificates of obligation that are being refunded (the "Refunded Obligations") with the proceeds of the Bonds, as described in the Ordinance. The transcript contains certified copies of certain proceedings of the City, BOKF, NA dba Bank of Texas (the "Escrow Agent") and, with respect to certain of the Refunded Obligations, The Bank of New York Mellon Trust Company, N.A. (the "Paying Agent for the Refunded Obligations"); the certificate of the Paying Agent for the Refunded Obligations (the "Certificate") and the report (the "Report") of Grant Thornton L.L.P., certified public accountants, which verifies the sufficiency of the deposits made with the Escrow Agent and, with respect to certain of the Refunded Obligations, the deposits made with the Paying Agent for the Refunded Obligations for the defeasance of the Refunded Obligations; 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 Bonds and the firm banking and financial arrangements for the discharge and final payment of the Refunded Obligations. We have also examined executed Bond No. R-1 of this issue. 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 Bonds. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein. Austin Beijing Dallas Houston London New York The Woodlands Washington, DC HOU:3197543.1 , 2012 Page 3 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 Bonds 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 Ordinance to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. 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 Bonds in gross income of the owners thereof for federal income tax purposes. We have further relied on the Report regarding the mathematical accuracy of certain computations and, with respect to certain of the Refunded Obligations, the Certificate regarding the sufficiency of the deposit made with the Paying Agent for the Refunded Obligations, without investment, for the defeasance of the Refunded Obligations. If such representations, the Certificate or the Report are determined to be inaccurate or incomplete or the District fails to comply with the foregoing provisions of the Order, interest on the Bonds could become includable in gross income from the date of original delivery, regardless of the date on which the event causing such inclusions occurs. INTEREST ON all tax-exempt obligations, including the Bonds, 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. Purchasers of Bonds are directed to the discussion entitled "TAX EXEMPTION" set forth in the Official Statement. 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 Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations, such as the Bonds, 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 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 Bonds. 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 HOU:3197543.1 APPENDIX D SCHEDULE OF REFUNDED OBLIGATIONS* Original Principal Call Series Maturity Amount Date/Price* Combination Tax and 09/01/2013 $120,000 09/01/2012 @ 100 Revenue Certificates of 09/01/2014 125,000 09/01/2012 @ 100 Obligation, Series 2002 09/01/2015 130,000 09/01/2012 @ 100 09/01/2016 135,000 09/01/2012 @ 100 09/01/2017 145,000 09/01/2012 @ 100 09/01/2018 150,000 09/01/2012 @ 100 09/01/2019 160,000 09/01/2012 @ 100 09/01/2020 170,000 09/01/2012 @ 100 09/01/2022(a)360,000 09/01/2012 @ 100 Utility System Revenue Bonds 05/15/2013 125,000 05/15/2012 @ 100 Series 2002 05/15/2014 130,000 05/15/2012 @ 100 05/15/2015 140,000 05/15/2012 @ 100 05/15/2016 145,000 05/15/2012 @ 100 05/15/2017 155,000 05/15/2012 @ 100 05/15/2018 160,000 05/15/2012 @ 100 05/15/2019 170,000 05/15/2012 @ 100 05/15/2022(a)565,000 05/15/2012 @ 100 Utility System Revenue Bonds 05/15/2013 $70,000 (b) Series 1996 05/15/2014 75,000 (b) 05/15/2015 80,000 (b) 05/15/2016 85,000 (b) * Preliminary, subject to change. (a)Represents a Term Bond. (b)To be determined. A-9 OFFICIAL STATEMENT DATED MARCH 20, 2012 In the opinion of Bond Counsel, interest on the Bonds is excludable from gross income for federal income tax purposes under existing law, subject to the matters described under "TAX MATTERS - Tax Exemption" herein, and is not includable in the alternative minimum taxable income of individuals, or except as described herein, corporations. See "TAX MATTERS — Tax Exemption" for a discussion of the opinion of Bond Counsel, including the alternative minimum tax on corporations. NEW ISSUE: BOOK-ENTRY ONLY Ratings: Moody's Investors Service: "A2" See "SALE AND DISTRIBUTION OF THE BONDS — Municipal Bond Ratings" THE BONDS WILL BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS $3,495,000 CITY OF SANGER, TEXAS (A political subdivision of the State of Texas located within Denton County) GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012 Dated: April 1, 2012 Due: May 15, as shown below Principal of and interest on the $3,495,000 City of Sanger, Texas, General Obligation Refunding Bonds, Series 2012 (the "Bonds") are payable by BOKF, NA dba Bank of Texas, Austin, Texas, the initial paying agent/registrar (the "Paying Agent/Registrar"). The Bonds are initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the beneficial owners of the Bonds. See "THE BONDS - Book-Entry-Only System" herein. Interest on the Bonds will accrue from April 1, 2012 and will be payable on May 15 and November 15 of each year, commencing May 15, 2012, to the registered owners (initially Cede & Co.) appearing on the registration books of the Paying Agent/Registrar on the last business day of the month preceding each interest payment date (the "Record Date"). See "THE BONDS - Description." The Bonds, when issued, will constitute valid and binding obligations of the City of Sanger, Texas (the "City") and will be payable from the proceeds of a continuing, direct annual ad valorem tax levied, within the limits prescribed by law, against all taxable property within the City. See "THE BONDS - Source of Payment." The Bonds are issued pursuant to the Constitution and general laws of the State of Texas, particularly Chapter 1207, Texas Government Code, as amended, and an ordinance adopted by the City Council (the "Ordinance"). See "THE BONDS — Authorization of the Bonds." PRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES AND PRICES (Due May 15) Initial CUSIP Initial CUSIP Maturity Principal Interest Reoffering Nos. Maturity Principal Interest Reoffering Nos. May 15 t°) Amount Rate Yield (a) 800876(b) May 15 (°) Amount Rate Yield (a) 800876 (b) 2012 $75,000 2.000% 0.500% DM 3 2017 $350,000 3.000% 1.700% DS 0 2013 395,000 2.000 0.750 DN 1 2018 355,000 3.000 2.100 DT 8 2014 400,000 2.000 1.000 DP 6 2019 370,000 3.000 2.400 DU 5 2015 415,000 2.000 1.250 DQ 4 2020 385,000 2.500 2.650 DV 3 2016 420,000 3.000 1.500 DR 2 2021 330,000 2.750 2.900 DW 1 (a)The initial yields will be established by and are the sole responsibility of the Underwriter, and may subsequently be changed. (b)CUSIP numbers have been assigned to the Bonds by CUSIP Global Service, managed by Standard & Poor's Financial Services LLC on behalf of the American Banker Association, and are included solely for the convenience of the registered owners of the Bonds. Neither the City, the Financial Advisor, nor the Underwriter is responsible for the selection or correctness of the CUSIP numbers set forth herein. (c)The Bonds maturing on May 15, 2021 and thereafter, are subject to redemption on May 15, 2020 or any date thereafter, at the option of the City, at the par value thereof plus accrued interest from the most recent interest payment date to the date of redemption. See "THE BONDS - Redemption Provisions." Proceeds from the sale of the Bonds will be used for the refunding of certain outstanding obligations (the "Refunded Obligations") of the City as more specifically described in APPENDIX D attached hereto, and to pay the costs of issuance of the Bonds. See "THE BONDS — Use of Proceeds" and "THE BONDS — Sources and Uses of Funds." The Bonds are offered when, as and if issued, subject to the approving opinion of the Attorney General of the State of Texas and the opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel for the City, as to the validity of the issuance of the Bonds under the Constitution and laws of the State of Texas. See "LEGAL MATTERS." Certain legal matters will be passed upon for the underwriter listed below (the "Underwriter") by Fulbright & Jaworski L.L.P., Houston, Texas. Delivery of the Bonds through DTC is expected to be on or about April 24, 2012. PIPER JAFFRAY & CO. No dealer, broker, salesman or other person has been authorized by the City to give any information or to make any representation other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by the City. This Official Statement is not to be used in an offer to sell or the solicitation of an offer to buy in any state 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 unlawful to make such offer or solicitation. This Official Statement contains, in part, estimates, assumptions and matters of opinion which are not intended as statements of fact, and no representation is made as to the correctness of such estimates, assumptions or matters of opinion or as to the likelihood that they will be realized. Any information and expressions of opinion herein contained are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the condition of the City or other matters described herein since the date hereof. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of their responsibilities to investors under federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. NEITHER THE CITY, THE FINANCIAL ADVISOR, THE UNDERWRITER NOR BOND COUNSEL MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT REGARDING DTC OR ITS BOOK-ENTRY-ONLY SYSTEM. THE COVER PAGE CONTAINS CERTAIN INFORMATION FOR GENERAL REFERENCE ONLY AND IS NOT INTENDED AS A SUMMARY OF THIS OFFERING. INVESTORS SHOULD READ THIS ENTIRE OFFICIAL STATEMENT, INCLUDING THE ATTACHED APPENDICES, TO OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INVESTMENT DECISION. TABLE OF CONTENTS INTRODUCTORY STATEMENT ............................ 4 SALE AND DISTRIBUTION OF THE BONDS...... 4 Underwriting...........................................................4 Prices and Marketability .........................................4 Securities Laws .......................................................4 Municipal Bond Ratings ........................................4 OFFICIAL STATEMENT SUMMARY .................... 6 INTRODUCTION ......................................................... 8 THEBONDS .................................................................. 8 Description..............................................................8 Redemption Provisions ..........................................8 Notice of Redemption ............................................8 Book-Entry-Only System .......................................9 Successor Paying Agent/Registrar .......................10 Source of Payment ................................................11 Use of Proceeds ....................................................11 Refunded Obligations ...........................................11 Authorization of the Bonds ..................................11 Sources and Uses of Funds ..................................12 FutureDebt ...........................................................12 Legal Investments in Texas ..................................12 Remedies in the Event of Default ........................12 INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE CITY ....................................................................13 Legal Investments .................................................13 Investment Policies ...............................................14 Additional Provisions ...........................................14 TAX INFORMATION ...............................................15 Ad Valorem Tax Law ...........................................15 Tax Rate Limitation ..............................................17 Effective Tax Rate and Rollback Tax Rate ..............................................................17 Property Assessment and Tax Payment ...............17 Penalties And Interest ...........................................18 City Application of Tax Code ..............................18 Municipal Sales Tax .............................................18 RETIREMENT PLAN ...............................................19 ADMINISTRATION OF THE CITY .......................19 Mayor and City Council .......................................19 Administration ......................................................19 Consultants ...........................................................19 LEGAL MATTERS ....................................................20 Legal Opinion .......................................................20 No-Litigation Certificate ......................................20 No Material Adverse Change ...............................20 TAX MATTERS ..........................................................20 TaxExemption .....................................................20 Impact of Proposal in President's 2013 Budget..........................................................21 TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM BONDS ..........21 Discount Bonds ....................................................21 Premium Bonds ....................................................22 QUALIFIED TAX-EXEMPT OBLIGATIONS......23 CONTINUING DISCLOSURE OF INFORMATION ................................................23 Annual Reports .....................................................23 Material Event Notices .........................................23 Availability of Information ..................................24 Limitations and Amendments ..............................24 Compliance With Prior Undertakings ..................25 FINANCIAL ADVISOR ............................................25 VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS ........25 GENERAL CONSIDERATIONS .............................25 Sources and Compilation of Information .............25 Forward Looking Statements ...............................25 APPENDIX A — Financial Information Regarding the City of Sanger, Texas APPENDIX B — Audited Financial Statements of the City APPENDIX C — Form of Bond Counsel Opinion APPENDIX D — Schedule of Refunded Obligations $3,495,000 CITY OF SANGER, TEXAS (A political subdivision of the State of Texas located within Denton County) GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012 INTRODUCTORY STATEMENT Information contained in this Official Statement, including Appendices A and B, has been obtained from the City of Sanger, Texas (the "City") in connection with the offering by the City of its $3,495,000 General Obligation Refunding Bonds, Series 2012 (the "Bonds") identified on the cover page hereof. All financial and other information presented in this Official Statement has been provided by the City from its records, 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 or be repeated in the future. SALE AND DISTRIBUTION OF THE BONDS Underwriting Piper Jaffray & Co. (the "Underwriter") has agreed to purchase the Bonds from the City for $3,559,626.60 (being the principal amount of the Bonds, plus a premium on the Bonds of $93,684.10 and less an Underwriter's discount of $29,057.50), plus accrued interest from the dated date to the date of delivery. Prices and Marketability The delivery of the Bonds is conditioned upon the receipt by the City of a certificate executed and delivered by the Underwriter on or before the date of delivery of the Bonds stating the prices at which a substantial amount of the Bonds of each maturity have been sold to the public. For this purpose, the term "public" shall not include any person who is a bondhouse, broker or similar person acting in the capacity of underwriter or wholesaler. The City has no control over trading of the Bonds after a bona fide offering of the Bonds is made by the Underwriter at the yields specified on the cover page. Information concerning reoffering yields or prices is the responsibility of the Underwriter. The prices and other terms respecting the offering and sale of the Bonds may be changed from time to time by the Underwriter after the Bonds are released for sale, and the Bonds may be offered and sold at prices other than the initial offering price, including sales to dealers who may sell the Bonds into investment accounts. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. Securities Laws No registration statement relating to the Bonds has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, in reliance upon the exemptions provided thereunder. The Bonds have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been registered or qualified under the securities acts of any jurisdiction. The City assumes no responsibility for registration or qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be offered, sold or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition of the Bonds 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 jurisdictions. Municipal Bond Ratings In connection with the sale of the Bonds, the City has made application to Moody's Investors Service ("Moody's") for ratings and a ratings of "A2" has been assigned to the Bonds. An explanation of the significance of such rating may be obtained from Moody's. The ratings reflect only the views of Moody's, and the City makes no representation as to the appropriateness of such ratings. There is no assurance that such ratings will continue for any period of time or that such ratings 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 the ratings may have an adverse effect on the market price of the Bonds. OFFICIAL STATEMENT SUMMARY The following material is a summary of certain information contained herein and is qualified in its entirety by the detailed information and financial statements appearing elsewhere in this Official Statement. The reader should refer particularly to sections that are indicated for more complete information. The Issuer ....................................... The City of Sanger, Texas (the "City") is a political subdivision and home rule city of the State of Texas located within Denton County, Texas. For additional information regarding the City, see "Appendix A — Economic and Demographic Characteristics." The Bonds ....................................... $3,495,000 General Obligation Refunding Bonds, Series 2012 (the "Bonds"), are dated April 1, 2012 and will mature on May 15, 2012 through May 15, 2021 inclusive. Interest on the Bonds accrues from April 1, 2012, and is payable initially on May 15, 2012, and on each November 15 and May 15 thereafter until the earlier of maturity or prior redemption. See "THE BONDS - Description." Other Characteristics ...................... The Bonds are issued in fully registered form in integral multiples of $5,000. The Bonds maturing on and after May 15, 2021 are subject to redemption on May 15, 2020 or any date thereafter, at the option of the City, at a price of the par value thereof plus accrued interest from the most recent interest payment date to the date of redemption. See "THE BONDS - Redemption Provisions." Authority .........................................The The Bonds are being issued pursuant to an ordinance passed by the City Council of the City (the "Ordinance"), the Texas Constitution and the general laws of the State of Texas, particularly chapter 1207, Texas Government Code. In the Ordinance, the City Council of the City delegated the authority of certain City officials to execute a pricing certificate establishing the pricing terms for the Bonds. Paying Agent/Registrar ................... The initial paying agent/registrar is BOKF, NA dba Bank of Texas, Austin, Texas (the "Paying Agent/Registrar"). The City intends to use the book-entry- only system of The Depository Trust Company ("DTC"), but reserves the right on its behalf or on behalf of the DTC to discontinue such system. (See "THE BONDS - Book-Entry-Only System.") Source of Payment .......................... The Bonds, when issued, will constitute valid and binding obligations of the City and will be payable from the proceeds of a continuing, direct annual ad valorem tax levied, within the limits prescribed by law, against all taxable property within the City. See "THE BONDS - Source of Payment." Use of Proceeds .............................. Proceeds from the sale of the Bonds will be used for the refunding of certain outstanding obligations (the "Refunded Obligations") of the City as more specifically described in APPENDIX D attached hereto, and to pay the costs of issuance of the Bonds. See "THE BONDS — Use of Proceeds" and "THE BONDS — Sources and Uses of Funds." Ratings ............................................ Moody's Investors Service (Unenhanced)................................................... "A2" Tax Exemption ............................... In the opinion of Bond Counsel, interest on the Bonds is excludable from gross income for federal income tax purposes under existing law, subject to the matters described under "TAX MATTERS — Tax Exemption" herein, and is not includable in the alternative minimum taxable income of individuals. See "TAX MATTERS — Tax Exemption" for a discussion of the opinion of Bond Counsel, including the alternative minimum tax on corporations. The City designated the Bonds as qualified tax-exempt obligations. See "QUALIFIED TAX-EXEMPT OBLIGATIONS" herein. - Selected Financial Information - (Unaudited) 2011 Certified Net Taxable Assessed Valuation (100% of estimated $ 358,015,773 (a) marketvalue) ................................................................................................... Direct Debt: Outstanding Tax Supported Debt (as of February 1, 2012) ...................... $ 9,480,000 (b) Plus: The Bonds ....................................................................................... $ 3,495,000 Total Tax Supported Debt ................................................................. 12.975.000 Estimated Overlapping Debt ............................................................................ $ 16,327,937 Direct and Estimated Overlapping Debt .......................................................... $ 29.302,937 Debt Service Fund Balance (as of September 30, 2011) .................................5 261.375 % of 2011 Per Assessed Capita Valuation (6,916) Debt Ratios: Direct Tax Supported Debt ................................... 3.62% $ 1,876 Direct Tax Supported and Estimated Overlapping Debt ............................................. 8.19% $ 4,237 2011 Tax Rate (per $100 of Assessed Valuation) Maintenance and Operation ....................................................................................... $0.446044 DebtService ............................................................................................................. 0.187005 Total ................................................................................................................... $0.633049 Estimated Annual Debt Service Requirements: (b) Average (Fiscal Years 2012-2027) ............................................................................ $ 1,008,275 Maximum(2013) ....................................................................................................... $ 1,476,745 Tax Collections: Arithmetic Average, Tax Years (2006-2011) - Current Year Collections ................. In Process - Total Collections .............................. 99.11 % (a)Provided by the Denton County Appraisal District (the "Appraisal District") and net of exemptions. (b)Excludes the Refunded Obligations. 7 INTRODUCTION This Official Statement and the Appendices hereto provide certain information with respect to the issuance by the City of Sanger, Texas (the "City") in connection with the offering by the City of its $3,495,000 General Obligation Refunding Bonds, Series 2012 (the "Bonds"). The Bonds, when issued, will constitute valid and binding obligations of the City of Sanger, Texas (the "City") and will be payable from the proceeds of a continuing, direct annual ad valorem tax levied, within the limits prescribed by law, against all taxable property within the City. See "THE BONDS — Source of Payment." There follows in this Official Statement descriptions of the Bonds, the plan of financing, and certain information about the City and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the City upon request. Certain capitalized terms used in this Official Statement have the same meanings assigned to such terms in the ordinance authorizing the Bonds (the "Ordinance"), except as otherwise indicated herein. THE BONDS Description The Bonds are dated April 1, 2012 and bear interest from such date at the stated interest rates indicated under "PRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES AND PRICES" on the cover page hereof, which interest is payable initially on May 15, 2012, and each November 15 and May 15 thereafter until the earlier of maturity or prior redemption. The Bonds are issued in fully registered form in denominations of $5,000 each or any multiple thereof. Principal of the Bonds is payable at the principal payment office of BOKF, NA dba Bank of Texas, Austin, Texas (the "Paying Agent/Registrar"). Interest on the Bonds will be payable by check, dated as of the interest payment date, and mailed by the Paying Agent/Registrar to registered owners as shown on the records of the Paying Agent/Registrar. The Bonds initially will be registered only to Cede & Co., the nominee of The Depository Trust Company pursuant to the Book-Entry-Only System described below. In the event the Book-Entry-Only-System is discontinued, the Bonds may be transferred and exchanged on the bond register kept by the Paying Agent/Registrar upon surrender and reissuance. The Bonds are exchangeable for an equal principal amount of Bonds of the same maturity in any authorized denomination upon surrender of the Bonds to be exchanged at the principal payment office of the Paying Agent/Registrar. No service charge will be made for any transfer, but the City may require payment of a sum sufficient to cover any tax or governmental charge payable in connection therewith. The record date (the "Record Date") for the interest payable on any interest payment date means the last business day of the month next preceding such interest payment date. It will be required that all transfers be made within three business days after request and presentation. The City has agreed to replace mutilated, destroyed, lost or stolen Bonds upon surrender of the mutilated Bonds, or receipt of satisfactory evidence of such destruction, loss or theft, and receipt by the City and the Paying Agent/Registrar of security or indemnity to keep them harmless. The City may require payment of taxes, governmental charges and other expenses in connection with any such replacement. Redemption Provisions The Bonds maturing on May 15, 2021 and thereafter are subject to optional redemption prior to maturity, in whole or in part, on May 15, 2020, or any date thereafter, at the option of the City at a price equal to the principal amount thereof plus accrued interest from the most recent interest payment date to the date of redemption. If a Bond (or any portion of the principal sum thereof) shall have been called for redemption and notice of such redemption shall have been given, such Bond (or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date. Notice of Redemption Not less than 30 days prior to a redemption date for the Bonds, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to the registered owners of the Bonds 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. 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, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, NOTWITHSTANDING THAT ANY BOND OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH BOND OR PORTION THEREOF SHALL CEASE TO ACCRUE. Book-Entry-Only System This section describes how ownership of the Bonds is to be transferred and how the principal of premium, if any, and interest on the Bonds are to be paid to and credited by The Depository Trust Company ("DTC'), New York, New York, while the Bonds 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 Official Statement. The City, the Financial Advisor and the Underwriter believe the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. The City, the Financial Advisor and the Underwriter cannot and do not give any assurance that (1) DTC will distribute payments of debt service on the Bonds, 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 Bonds), 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 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 Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered certificate will be issued for each maturity of the Bonds, in the aggregate principal amount of each such maturity, and will be deposited with DTC. DTC, the world's largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 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 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.dtce.com . Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds 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 Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the 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 the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds and principal and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or the Paying Agent/Registrar, on payable dates 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 in 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 or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds and principal and interest 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. A Beneficial Owner shall give notice to elect to have its Bonds purchased or tendered, through its Participant, to the Tender Agent, and shall effect delivery of such Bonds by causing the Direct Participant to transfer the Participant's interest in the Bonds, on DTC's records, to the Tender Agent. The requirement for physical delivery of Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Bonds are transferred by Direct Participants on DTC's records and followed by a book-entry credit of tendered Bonds to the Tender Agent's DTC account. DTC may discontinue providing its services as depository with respect to the Bonds 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, Bond 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, Bond certificates will be printed and delivered. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the City believes to be reliable, but the City takes not responsibility for the accuracy thereof. Use of Certain Terms in Other Sections of this Official Statement In reading this Official Statement it should be understood that while the Bonds 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 Bonds, 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. Successor Paying Agent/Registrar Provision is made in the Ordinance for replacing 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 10 Paying Agent/Registrar's records to the successor paying agent/registrar (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 or trust company organized under the laws of the United States or any state and duly qualified and legally authorized to serve and perform the duties of the Paying Agent/Registrar for the Bonds. Source of Payment The Bonds, when issued, will constitute valid and binding obligations of the City and will be payable from the proceeds of a continuing, direct annual ad valorem tax levied, within the limits prescribed by law, against all taxable property within the City. See "- Use of Proceeds." Use of Proceeds Proceeds from the sale of the Bonds will be used for the refunding of certain outstanding obligations (the "Refunded Obligations") of the City as more specifically described in APPENDIX D attached hereto, and to pay the costs of issuance of the Bonds. Refunded Obligations The Ordinance provides that a portion of the proceeds from the sale of the Bonds to the Underwriter will be deposited with the paying agent for certain of the Refunded Obligations in an amount, together with other available funds which, when added to the investment earnings thereon, if any, will be sufficient to accomplish the discharge and final payment of that portion of the Refunded Obligations. The Ordinance further provides the principal of, premium, if any, and interest on a portion of the Refunded Obligations are to be paid on the scheduled payment dates from funds to be deposited with BOKF, NA dba Bank of Texas, Austin, Texas (the "Escrow Agent") pursuant to an Escrow Agreement between the City and the Escrow Agent. The Ordinance provides that from the proceeds of the sale of the Bond, the City will deposit with the Escrow Agent an amount, together with other available funds, if any, which when added to the investment earning thereon, will be sufficient to accomplish the discharge and final payment of that portion of the Refunded Obligations. Such funds will be held by the Escrow Agent in a special escrow account (the "Escrow Fund") and used to purchase a portfolio of securities authorized by Section 1207.062, Texas Government Code, which authorized securities include direct noncallable obligations of the United States and noncallable obligations of an agency or instrumentality of the United States rated as to investment quality by a nationally recognized investment rating firm not less than "AAA" or its equivalent and guaranteed by the full faith and credit of the United States of America. Grant Thornton L.L.P., certified public accountants, will verify at the time of delivery of the Bonds that the funds deposited with the paying agent for the Refunded Obligations and deposited with the Escrow Agent will be sufficient to pay, when due, the principal of, premium, if any, and interest on the Refunded Obligations on their scheduled redemption dates. Such funds deposited with the paying agent for the Refunded Obligations and with the Escrow Agent will not be available to pay debt service on the Bonds. See "VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS." By the deposit with the paying agent for the Refunded Obligations and with the Escrow Agent pursuant to the Escrow Agreement, the City will have effected the defeasance of the Refunded Obligations pursuant to the terms of Chapter 1207, Texas Government Code, and the ordinances authorizing the issuance of the Refunded Obligations. It is the opinion of Bond Counsel that as a result of such deposit and in reliance upon the report of Grant Thornton LLP, firm banking arrangements for the discharge and final payment of the Refunded Obligations have been made and therefore such Refunded Obligations are deemed fully paid and no longer outstanding except for the purpose of receiving payments from the securities and cash, if any, held for such purpose by the paying agent for the Refunded Obligations and the Escrow Agent. The City has covenanted in the Escrow Agreement to make timely deposits with the Escrow Agent from lawfully available funds of any additional amounts required to pay the principal of and interest on the Refunded Obligations, if for any reason the balances on deposit or scheduled to be on deposit in the Escrow Fund are insufficient to make such payment. Authorization of the Bonds The Bonds are issued pursuant to the Constitution and general laws of the State of Texas, particularly Chapter 1207, Texas Government Code, as amended, and an ordinance adopted by the City Council of the City. In the Ordinance the City Council delegates the authority to certain City officials to execute a pricing certificate establishing the pricing terms for the Bonds. 11 Sources and Uses of Funds The proceeds from the sale of the Bonds will be applied as follows: SOURCES OF FUNDS: Principal Amount of Bonds $ 3,495,000.00 Net Premium on the Bonds 93,684.08 Accrued Interest 5,702.08 Total Sources of Funds $ 3,594,386.18 USES OF FUNDS Deposit to Escrow Account $ 3,161,278.00 Deposit with Paying Agent for the Refunded Obligations 316,471.59 Deposit Accrued Interest to Interest and Sinking Fund 5,702.08 Expenses: Underwriter's Discount $ 29,057.50 Other Issuance Expenses 81,877.01 Total Uses of Funds S 3.594.386.18 Future Debt The City has no remaining authorized but unissued bonds. The City may issue unvoted certificates of obligation payable from ad valorem taxes for City projects. Depending on the rate of development within the City, changes in assessed valuation, and the amounts, interest rates, maturities and time of issuance of additional certificates of obligation or bonds, increases in the City's annual ad valorem tax rate may be required to provide for the payment of the principal of and interest on the City's outstanding bonds, the Bonds, and future certificates of obligation or bonds. Legal Investments in Texas Pursuant to the Texas Public Securities Procedures Act, Chapter 1201, Texas Government Code, as amended, the Bonds, whether rated or unrated, are (a) legal investments for insurance companies, fiduciaries and trustees and (b) legal investments for the sinking funds of political subdivisions or public agencies of the State. Most political subdivisions in the State of Texas are required to adopt investment guidelines under the Public Funds Investment Act, Chapter 2256, Texas Government Code, as amended, and such political subdivisions may impose a requirement consistent with such act that the Bonds have a rating of not less than "A" or its equivalent to be legal investments for such entity's funds. The Bonds are eligible under the Public Funds Collateral Act, Chapter 2257, Texas Government Code, as amended, to secure deposits of public funds of the State or any political subdivision or public agency of the State and are lawful and sufficient security for those deposits to the extent of their market value. Again, political subdivisions in the State of Texas may impose a requirement that the Bonds have a rating of not less than "A" or its equivalent to be eligible to serve as collateral for their funds. The City has not made any investigations of any other laws, rules, regulations or investment criteria that might affect the suitability of the Bonds for any of the above purposes or limit the authority of any of the above entities or persons to purchase or invest in the Bonds. Remedies in the Event of Default The Ordinance does not establish specific events of default with respect to the Bonds or provide for the appointment of a trustee to represent the interests of the bondholders upon any failure of the City to perform in accordance with the terms of the Ordinance, or upon any other condition. If the City defaults in any payment due on the Bonds or if the City defaults in the observance or performance of any of the covenants, conditions, or obligations set forth in the Ordinance, any registered owner is entitled to seek a writ of mandamus or mandatory injunction from a court of proper jurisdiction to compel the City to levy, assess and collect an annual ad valorem tax sufficient to pay principal of and interest on the Bonds as they become due or to perform other material covenants, conditions or obligations 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 Bonds 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. Such rights are in addition to any other rights the registered owners of the Bonds may be provided by the laws of the State of Texas with respect to the Bonds. Under Texas law there is no right to the acceleration of maturity of the 12 Bonds upon the failure of the City to observe any covenant under the Ordinance. A registered owner of Bonds could file suit against the City if a default occurred in the payment of principal of or interest on any such Bonds; however, a suit for monetary damages could be vulnerable to the defense of sovereign immunity and any judgment could not be satisfied by execution against any property of the City. 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 bondholders 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 opinion of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Bonds are qualified with respect to the customary rights of debtors relative to their creditors. INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE CITY The City invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the Mayor and Council of the City. Both state law and the City's investment policies are subject to change. Legal Investments Available City funds are invested as authorized by State law and in accordance with investment policies approved by the City Council. Both State law and the City's investment policies are subject to change. Under State 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 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 full faith and credit of, the State or the United States or their respective agencies and instrumentalities; (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) (a) certificates of deposit and share certificates issued by a depository institution that has its main office or a branch office in the State, that are (i) guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund or their respective successors, or are secured as to principal by obligations described in clauses (1) through (6) above or in any other manner and amount provided by law for City deposits, and (b) certificates of deposit or share certificates issued by a depository institution that has its main office or a branch office in the State that participates in the Certificate of Deposit Account Registry Service; (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State; (9) 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 (11) through (13) below, 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; and (iv) the agreement to lend securities has a term of one year or less; (10) 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-l" or "P-l" or the equivalent by at least one nationally recognized credit rating agency; (11) commercial paper with a stated maturity of 270 days or less that is rated at least "A-l" 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; (12) 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 (13) no-load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two 13 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. Bond proceeds may additionally 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 in the next succeeding paragraph. 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 AAA-m 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 funds or other funds 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. 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 includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each funds' 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, City 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 investment officers of the City shall submit an investment report detailing: (1) the investment position of the City; (2) that all investment officers jointly prepared and signed the report, (3) the beginning and the ending market value for each pooled fund group, (4) the book value and market value of each separately listed asset at the 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 related to: (a) adopted investment strategy statements and (b) state law. No person may invest City funds without express written authority from the Mayor and Council of the City. The City's policies require investments in accordance with applicable state law. The City's Investment Policy and Investment Strategy excludes certain investments allowable under State law described above under "Legal Investments." Investments specifically prohibited by the City's Investment Policy and Investment Strategy include (1) collateralized mortgage obligations, (2) commercial paper, including pools which invest in commercial paper, (3) all swaps including but not limited to even-basis swaps and interest rate swaps, (4) forwards and futures, (5) options, (6) foreign exchange, (7) planned amortization classes, (8) regular floaters tied to government securities, (9) investments with various interest rate caps floors and collars, (10) investment pools in which the City would own more than 10% of the market value of the pool, and (11) any other investments that are not on the authorized investment list. The City generally invests in obligations of the United States or its agencies and instrumentalities, fully collateralized demand deposit accounts and collateralized certificates of deposit. Additional Provisions Under State law, the City is additionally required to: (1) annually review its adopted policies and strategies, (2) adopt a rule, order, ordinance or resolution stating that it has reviewed its investment policy and investment strategies and records any changes made to either its investment policy or investment strategy in the respective rule, order, ordinance or resolution, (3) require any investment officers with personal business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council; (4) require the qualified representative of firms offering to engage in an investment transaction with the City to: (a) receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude investment transactions conducted between the City and the business organization that are not authorized by the City's investment policy (except to the extent that this authorization is dependent on an analysis of the makeup of the City's entire portfolio or requires an interpretation of subjective investment standards), and (c) deliver a written statement in a form acceptable to the City and the business organization attesting to these requirements; (5) perform an annual audit of the management 14 controls on investments and adherence to the City's investment policy; (6) provide specific investment training for the City's designated Investment Officer(s); (7) 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 purchase agreement; (8) 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; (9) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements, and (10) at least annually review, revise, and adopt a list of qualified brokers that are authorized to engage in investment transactions with the City. Current Investments. As of December 31, 2012, the City had the following invested in local government pools, or securities. Investment Market Value % of Total Cash and Cash Equivalents $253,061.01 25.04% Certificates of Deposit 516,858.15 51.14% Money Market Accounts 240,690.57 23.82% Total $1,010,609.73 100% TAX INFORMATION Ad Valorem Tax Law 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 Texas Property Tax Code to appraise 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 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 method considered most appropriate by the chief appraiser is to be used. State law requires the appraised value of a residence homestead to be based solely on the property's value as a residence homestead, regardless of whether residential use is considered to be the highest and best use of the property. 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 property's market value in the most recent tax year in which the market value was determined by the appraisal office or (2) the sum of (a) 10% of the property's appraised value in the preceding tax year, plus (b) the property's appraised value the preceding tax year, plus (c) the market value of all new improvements to the property. The value placed upon property within the Appraisal District is subject to review by an 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 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 Texas 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 taxation 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; (2) an exemption of up to 20% of the market value of residence homesteads. The minimum exemption under this provision is $5,000. The surviving spouse of an individual who qualifies for the foregoing exemption for the residence homestead of a person 65 or older (but not the disabled) is entitled to an exemption for the same property in an amount equal to that of the exemption for which the deceased taxpayer qualified if (1) the taxpayer died in a year in which the taxpayer qualified for the exemption, (2) the surviving spouse was at least 55 years of age at the time of the death of the taxpayer and (3) the property was the residence homestead of the surviving spouse when the taxpayer died and remains the residence homestead of the surviving spouse. 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 15 pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. 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 a maximum of $12,000, depending on degree of disability or whether the exemption is applicable to a surviving spouse or children. In addition, a disabled veteran who receives 100% disability compensation from the United States Department of Veterans Affairs or its successor due to a service connected disability and a rating of 100% disabled or of individual un-employability is entitled to an exemption from taxation of the total appraised value of the veteran's residence homestead. Additionally, effective January 1, 2012, subject to certain conditions, the surviving spouse of a disabled veteran who is entitled to an exemption for the full value of the veteran's residence homestead is also entitled to an exemption from taxation of the total appraised value of the same property to which the disabled veteran's exemption applied. Under Article VIII, Section 1-b(h) and State law, a city at its option may provide a prohibition on increasing the total ad valorem tax, except for increases attributable to certain improvements, on the residence homestead of a disabled person or person 65 years of age or older above 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 chooses to establish the tax limitation. The above-referenced tax limitation is transferable to (1) a different residence homestead within the city and (2) to a surviving spouse living in such homestead who is disabled or is at least 55 years of age. 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. If improvements (other than maintenance or repairs) are made to the property, the value of the improvements is taxed at the then current tax rate, and the total amount of taxes imposed is increased to reflect the new improvements with the new amount of taxes then serving as the ceiling on taxes for the following years. Once established, the tax limitation may not be repealed or rescinded. 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 1-d and Section 1-d-1. Nonbusiness 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 nonbusiness property are exempt from ad valorem taxation. Article VIII, Section 1 j, provides for "freeport property" to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas 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. In addition, Article VII, Section 1-n of the Texas Constitution provides for an exemption from taxation for "goods- in-transit," which are defined as personal property acquired or imported into the state and transported to another location inside or outside the state within 175 days of the date the property was acquired or imported into the state. 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. After holding a public hearing, a taxing unit may take action by January 1 of the year preceding a tax year to tax goods-in-transit during the following tax year. A taxpayer may obtain only a Freeport exemption or a goods-in-transit exemption, but not both for items of personal property. Article VIII, Section 1-I, provides for the exemption from ad valorem taxation of certain property used to control the pollution of air, water, or land. A person is entitled to an exemption from taxation of all or part of real and personal property that the person owns and that is used wholly or partly as a facility, device or method for the control of air, water or land pollution. The City may create one or more tax increment financing zones within the City ("TIRZ"), 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. Other overlapping taxing units levying taxes in the TIRZ may agree to contribute all or part of future ad valorem taxes levied and collected against the value of property in the TIRZ in excess of the "frozen values" to pay or finance the costs of certain public improvements in the TIRZ. Taxes levied by the City against the values of real property in the TIRZ in excess of the "frozen" value are not available for general City use but are restricted to paying or financing "project costs" within the TIRZ. The City also may enter into tax abatement agreements to encourage economic 16 development. Under such tax abatement 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. A tax abatement agreement could last for a period of up to 10 years. Cities are also authorized, pursuant to Chapter 380, Texas Local Government Code ("Chapter 380") to establish programs to promote state or local economic development and to stimulate business and commercial activity in the City. In accordance with a program established pursuant to Chapter 380, the City may make loans or grant of public fund for economic development purposes, however, no obligations secured by ad valorem taxes may be issued for such purposes unless approved by voters of the City. Tax Rate Limitation All taxable property within the City is subject to the assessment, levy and collection by the City of a continuing, direct annual ad valorem tax sufficient to provide for the payment of principal of and interest on all ad valorem tax debt within the limits prescribed by law. Article XI, Section 5, of the Texas Constitution limits the maximum ad valorem tax rate for home-rule cities to $2.50 per $100 taxable assessed valuation for all purposes. The Home Rule Charter of the City adopts the constitutionally authorized maximum tax rate of $2.50 per $100 taxable assessed valuation. Administratively, the Texas Attorney General's office will permit allocation of $1.50 of the $2.50 maximum tax rate for ad valorem tax debt. Effective Tax Rate and Rollback Tax Rate The City Council will be required to adopt the annual tax rate for the City before the later of September 30 or the 60th day after the date the certified appraisal roll is received by the City. 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". Under current law, 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 are held on the proposed tax rate following a notice of such public hearing (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 generally 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 of the 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 old or older are permitted by State law to pay taxes on homesteads in four installments with the first due on February 1 of each year and the final installment due on August 1. 17 Penalties And Interest Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: Cumulative Cumulative Month Penalty Interest Total February 6%1%7% March 7 2 9 April 8 3 11 May 9 4 13 June 10 5 15 July 12 6 18 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, up to 20% attorney's collection fee is 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 Tax Code The City grants an exemption of $10,000 to the market value of the residence homestead of persons 65 years of age or older and the disabled. See Appendix A - Table 9 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. The City has entered into a tax abatement agreement with Wal-Mart Regional Warehouse. The abatement agreement, which is for 50% of the assessed valuation, was first reflected on the 2002-2003 property valuation and will expire in 2012. Municipal Sales Tax The City has adopted the Municipal Sales and Use Tax Act, Chapter 321, Texas Tax Code, which grants the City the power to impose and levy a 1.0% Local Sales and Use Tax within the City; the proceeds are credited to the General Fund and are not pledged to the payment of the Bonds. 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, Vernon's Annotated Texas Civil Statutes, and another one-half percent (1/2%) sales and use tax for economic development in accordance with Section 4B, Article 18 5190.6, Vernon's Annotated Texas Civil Statutes. Levy of the additional. Levy of the additional sales and use tax for economic development began in December 1998. The City's sales and use tax is not pledged to the payments of the Bonds. RETIREMENT PLAN The City provides pension benefits for all of its full-time employees through the Texas Municipal Retirement System ("TMRS"), a State-wide administered pension plan. The City makes annual contributions to the plan equal to the amounts accrued for pension expense. For more detailed information concerning the retirement plan, see Note 7 in APPENDIX B - Audited Financial Statements of the City. ADMINISTRATION OF THE CITY Mayor and City Council Policy-making and supervisory functions are the responsibility of and are vested in the Mayor and City Council for the City, under provisions of the home rule charter of the City of Sanger (the "Charter") approved by the electorate July 15,1999. The Council is elected at large on the second Saturday in May. The Mayor and five Council members serve two-year staggered terms. The Mayor is entitled to vote only in the event of a tie and has no power to veto Council action. Members of the Council are described below: Term Council Members Period Served Expires May Occupation Thomas Muir, Mayor 5 years 2012 CPA Marjory Johnson, Place 1 2 years 2013 Real Estate Broker Gary Bilyeu, Place 2 2 years 2012 Insurance Agent Russell Martin, Place 3 3 years 2013 Self Employed Andy Garza, Place 4 6 years 2012 Retired Scott Stephens, Place 5 1 year 2013 Banker Administration Under provisions of the Charter, the City Council enacts local legislation, adopts budgets, determines policies and appoints the City Manager, who is charged with the duties of executing the laws and administering the government of the City. The City Manager serves as the liaison between the Council and staff and is responsible for implementing the policies established by the Council. The City Manager is also responsible for developing and administering the budget and various strategic plans. The City Manager is also responsible for supervising city employees and has the final responsibility for all hiring, discipline and termination matters. Members of the administrative staff are described below: Name Position Mike Brice City Manager Tami Taber City Secretary Mike Prater Electric Department Superintendent John Henderson Streets Superintendent Jim Bolz Water/Wastewater Superintendent Robert Woods Director of Public Works/City Engineer Joseph Iliff Director of Development Services John Schubert Parks Superintendent Consultants The City has retained several consultants to perform professional services in connection with the independent auditing of its books and records and other City activities. Several of these consultants are identified below: BondCounsel ............................................................................................................................... Andrews Kurth LLP Houston, Texas Certified Public Accountants ............................................................................................... Weaver & Tidwell, L.L.P. Fort Worth, Texas Financial Advisor ..................................................................................... Government Capital Securities Corporation Southlake, Texas 19 LEGAL MATTERS Legal Opinion The delivery of the Bonds is subject to the approving opinion of the Attorney General of Texas to the effect that the Bonds are valid and legally binding obligations of the City payable from the proceeds of an annual ad valorem tax levied, without legal limit as to rate or amount, upon all taxable property in the City and, the approving legal opinion of Andrews Kurth LLP, Bond Counsel to the City ("Bond Counsel"), in substantially the form attached as APPENDIX C. In connection with the issuance of the Bonds, Bond Counsel has represented only the City. The legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds is contingent upon the sale and delivery of the Bonds. Bond Counsel has reviewed the statements and information appearing in the Official Statement under the captions "THE BONDS" (except the subcaptions "Book-Entry-Only System," "Use of Proceeds," "Future Debt," "Sources and Uses of Funds" and "Remedies in the Event of Default"), "TAX INFORMATION — Tax Rate Limitations," "LEGAL MATTERS — Legal Opinion," "TAX MATTERS — Tax Exemption," "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM BONDS," 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. The various legal opinion to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinion as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of the expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. No-Litigation Certificate The City will furnish to the Underwriter a certificate, dated as of the date of delivery of the Bonds, executed by appropriate City officials, to the effect that no litigation of any nature has been filed or is then pending or threatened, either in state or federal courts, contesting or attacking the Bonds; restraining or enjoining the issuance, execution or delivery of the Bonds; affecting the provisions made for the payment of or security for the Bonds; in any manner questioning the authority or proceedings for the issuance, execution, or delivery of the Bonds; or affecting the validity of the Bonds. No Material Adverse Change The obligations of the Underwriter to take and pay for the Bonds, and of the City to deliver the Bonds, are subject to the condition that, up to the time of delivery of and receipt of payment for the Bonds, there shall have been no material adverse change in the condition (financial or otherwise) of the City subsequent to the date of sale from that set forth or contemplated in the Preliminary Official Statement, as it may have been supplemented or amended through the date of sale. TAX MATTERS Tax Exemption In the opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel, interest on the Bonds is excludable under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), from gross income of the owners thereof for federal income tax purposes, and interest on the Bonds is not includable in the alternative minimum tax on individuals, or except as described below, corporations. The foregoing opinion 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 Bonds. Such authorities are subject to change and any such change could prospectively or retroactively result in the inclusion of the interest on the Bonds in gross income of the owners thereof or change the treatment of such interest for purposes of computing alternative minimum taxable income. 20 In rendering its opinion, 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 Bond proceeds and any facilities financed therewith, the source of repayment of the Bonds, the investment of Bond proceeds and certain other amounts prior to expenditure, and requirements that excess arbitrage earned on the investment of Bond 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 Bonds that are contained in the Ordinance should be determined to be inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery of the Bonds, regardless of the date on which the event causing such taxability occurs. Interest on tax-exempt obligations, such as the Bonds, 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 Bonds. 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 Bonds is commenced, under current procedures the Service is likely to treat the City as the "taxpayer," and the owners of the Bonds 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 Bonds, the City may have different or conflicting interests from the owners of the Bonds. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds 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 Bonds, received or accrued during the year. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations, such as the Bonds, 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 Bonds. Impact of Proposal in President's 2013 Budget On February 13, 2012, President Obama released the language of his proposed budget for fiscal year 2013 (the "Budget"). One provision of the Budget would have the effect of imposing an additional amount of tax on certain "high income" taxpayers based on, among other things, the amount of interest on tax-exempt obligations, such as the Bonds, received by such taxpayers. As originally proposed, this provision will be effective for taxable years beginning on or after January 1, 2013, and will apply to interest on the Bonds and other tax-exempt obligations received by such taxpayers on or after that date. The introduction or enactment of this provision or any similar legislative proposal may also affect the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds are advised to consult their tax advisors with respect to the impact of the Budget or other legislative proposals, as to which Bond Counsel expresses no opinion.. TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM BONDS Discount Bonds Some of the Bonds are offered at initial offering prices which are less than the stated redemption prices at maturity of such Bonds. If a substantial amount of any maturity of the Bonds 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 21 underwriters) at such initial offering price, an initial owner who purchases the Bonds of that maturity (the "Discount Bonds") 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 Bond and (b) the initial offering price to the public of such Discount Bond. Under existing law, such original issue discount will be treated for federal income tax purposes as additional interest on a Bond 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 Bond continues to be owned by such initial owner. Except as otherwise provided herein, the discussion regarding interest on the Bonds under the caption "TAX MATTERS — Tax Exemption" generally applies to original issue discount deemed to be earned on a Discount Bond while held by an owner who has purchased such Bond at the initial offering price in the initial public offering of the Bonds and that discussion should be considered in connection with this portion of the Official Statement. In the event of a redemption, sale, or other taxable disposition of a Discount Bond prior to its stated maturity, however, any amount realized by such initial owner in excess of the basis of such Discount Bond in the hands of such owner (increased to reflect the portion of the original issue discount deemed to have been earned while such Discount Bond 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 Bond will be treated for federal income tax purposes as interest on a Bond, 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 Bonds 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 Bond 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 Bond. See "TAX MATTERS — 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 Bond or of the City. The portion of the principal of a Discount Bond representing original issue discount is payable upon the maturity or earlier redemption of such Bond to the registered owner of the Discount Bond at that time. Under special tax accounting rules prescribed by existing law, a portion of the original issue discount on each Discount Bond 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 Bonds by an owner that did not purchase such Bonds 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 Bonds 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 Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Discount Bonds. Premium Bonds Some of the Bonds are offered at initial offering prices which exceed the stated redemption prices payable at the maturity of such Bonds. If a substantial amount of any maturity of the Bonds 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 Bonds of such maturity ("Premium Bonds") 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 Bond in the hands of an initial purchaser who purchases such Bond in the initial offering must be reduced each year and upon the sale or other taxable disposition of the Bond 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 Bond 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 Bond which is amortizable each year (or shorter period in the event of a sale or disposition of a Premium Bond) is determined under special tax accounting rules which use a constant yield throughout the term of the Premium Bond based on the initial purchaser's original basis in such Bond. 22 The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition by an owner of Bonds 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 Bonds of the same maturity may be determined according to rules which differ from those described above. Moreover, all prospective purchasers of Bonds 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 Bonds. QUALIFIED TAX-EXEMPT OBLIGATIONS Section 265(a) of the Code provides, in general, that interest expenses incurred to acquire or carry tax-exempt obligations are 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 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 in which the issue so designated is issued. The City will designate the Bonds as "qualified tax-exempt obligations." Further, the City will represent that it has or will take such action necessary for the Bonds to constitute "qualified tax-exempt obligations." Notwithstanding the designation of the Bonds as "qualified tax-exempt obligations," financial institutions acquiring the Bonds will be subject to a twenty percent (20%) disallowance of interest expenses allocable to the Bonds. 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 Bonds. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. 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 Rule Making Board ("MSRB"). Information will be available free of charge via the 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 via EMMA. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in this Official Statement in "Appendix A — Financial Information Regarding the City of Sanger, Texas" (Tables 1 — 10) and in "Appendix B — Audited Financial Statements of the City." 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 Rule 15c2-12. 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 commissioned or are not available by the required time, the City will provide unaudited financial statements and audited financial statements when and if they 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 March 31 in each 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. The City will provide notice in a timely manner not in excess of ten business days after the occurrence of the event of any of the following events with respect to the Bonds, if such event is material to a decision to purchase or Bonds: (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 23 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 Bonds, or other material events affecting the tax status of the Bonds; (7) modifications to rights of holders of the Bonds, if material; (8) bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds, 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 Paying Agent/Registrar or change in the name of the Paying Agent/Registrar, if material. As used above, the phrase "bankruptcy, insolvency, receivership or similar event" means the appointment of a receiver, fiscal agent or similar officer for the City in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court of governmental authority has assumed jurisdiction over substantially all of the assets or business of the City, or if jurisdiction has been assumed by leaving the existing governmental entity and officials or officers of the City in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City. (Neither the Bonds nor the Ordinance make any provision for debt service reserves, liquidity enhancement or credit enhancement, merger, consolidation, or acquisition). 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." For these purposes, any event described in (12) in the immediately preceding paragraph is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the City, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City. Availability of Information The City has agreed to provide the foregoing information only as described above. Investors will be able to access continuing disclosure information filed with the MSRB free of charge at www.emma.msrb.org . 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 bonds at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from a breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Bonds may seek a writ of mandamus to compel the City to comply with its agreement. The City may amend its continuing disclosure agreement 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, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the offering described herein 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 (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Bonds consent to the amendment or (b) any person unaffiliated with the City (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provisions of the SEC Rule 15c2-12 or a court of final jurisdiction enters judgment that such provisions of the SEC Rule 15c2-12 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 Bonds in the primary offering of the Bonds. If the City so amends the agreement, it has agreed to include with the next financial information and operating 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 the type of financial information and operating data so provided. Compliance With Prior Undertakings Due to an administrative oversight, the City filed its annual disclosure materials late in 2009 and 2010. The City has since made all filings and has implemented procedures to assure compliance in the future. Otherwise, during the last 5 years, the City has complied in all material respects with its prior continuing disclosure agreements made in accordance with Rule 15c2-12. FINANCIAL ADVISOR Government Capital Securities Corporation is employed as Financial Advisor to the City in connection with the issuance of the Bonds. The Financial Advisor's fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information in this Official Statement. VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS Grant Thornton LLP, a firm of independent public accountants, will deliver to the City, on or before the settlement date of the Bonds, its verification report indicating that it has verified, in accordance with attestation standards established by the American Institute of Certified Public Accountants, the mathematical accuracy of (a) the mathematical computations of the adequacy of the cash and the maturing principal of and interest on the securities, to pay, when due, the maturing principal of, interest on and related call premium requirements of certain Refunded Obligations and (b) the mathematical computations of yield used by Andrews Kurth LLP to support its opinion that interest on the Bonds will be excluded from gross income for federal income tax purposes. The verification performed by Grant Thornton LLP will be solely based upon data, information and documents provided to Grant Thornton LLP by the City and its representatives. Grant Thornton LLP has restricted its procedures to recalculating the computations provided by the City and its representatives and has not evaluated or examined the assumptions or information used in the computations. GENERAL CONSIDERATIONS Sources and Compilation of Information The information contained in this Official Statement has been obtained primarily from the City and from other sources believed to be reliable. No representation is made as to the accuracy or completeness of the information derived from sources other than the City. The summaries of the statutes, orders, ordinances and other related documents are included herein subject to all of the provisions of such documents. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. The information contained in this Official Statement in the section entitled "Appendix B - Audited Financial Statements of the City" has been provided by Weaver & Tidwell, L.L.P., Fort Worth, Texas and has been included herein in reliance upon their authority as an expert in the fields of auditing and accounting. Neither this Official statement nor any statement that may have been made orally or in writing is to be constructed as or as part of a contract with the original purchasers or subsequent owners of the Bonds. Forward Looking Statements The statements contained in this Official Statement, and in any other information provided by the City, that are not purely historical, are forward-looking statements, including statements regarding the City's expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Official Statement are based on information available to the City on the date hereof, and the City assumes no obligation to update any such forward-looking statements. It is important to note that the City's actual results could differ materially from those in such forward-looking statements. The forward-looking statements herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the City. Any of 25 such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement would prove to be accurate. This Official Statement was duly authorized and approved by the City Council of the City of Sanger, Texas as of the date specified on the first page hereof. /s/ Thomas Muir Mayor City of Sanger, Texas ATTEST: /s/ Tami Taber City Secretary City of Sanger, Texas 26 APPENDIX A FINANCIAL INFORMATION REGARDING THE CITY OF SANGER, TEXAS ASSESSED VALUATION TABLE 1 2011 Total Value of Taxable Property $446,545,967 Less Exemptions: Local, Optional Over-65 and/or Disabled Homestead Exemptions $ 9,958,294 Disabled and Deceased Veterans' Exemptions 718,819 Productivity Value Loss 27,959,005 Homestead 10% Cap Adjustment 401,207 Abatement 26,842,834 Freeport 12,407,179 Other 10,242,856 88,530,194 2011 Net Taxable Assessed Valuation (100% of Actual)°a)$358,015,773 a) See "TAX 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 2011 Net Taxable 2010 Assessed Name Type of Business Assessed Valuation Valuation* Walmart Stores East, L.P. Distribution $78,887,514 22.03% Walmart Stores East, L.P. Distribution 28,200,000 7.87% Sanger Acquisitions, LLC Real Estate 4,000,000 1.11% Red Hawk Industries Manufacturing 2,254,040 .62% Intercapital Stonewood Ranch, LLC Real estate 2,123,889 .59% Vast, Inc.1,633,902 .45% Central Telephone Co Telephone/Utility 1,597,620 .44% Ashley Nim Marshall 1,575,000 .43% Miller Family Trust 2,615,360 .73% Lane EMJ, Inc 1,528,499 .42% Total $121.209,125 34.69% * Based on 2011 Net Taxable Assessed Valuation of $358,015,773. Source: Texas Comptroller of Public Accounts and Denton Central Appraisal District A-1 PROPERTY TAX RATES AND COLLECTIONS (3 'TABLE 3 Fiscal Tax Net Taxable Tax Collection %Year Year Assessed Valuation Rate Current Total lbl Ended 2002 $226,882,983 0.56547 97.03% 99.39%9-30-03 2003 289,937,097 0.56547 97.38% 99.71%9-30-04 2004 312,537,172 0.57083 97.40% 99.70%9-30-05 2005 338,298,363 0.59046 98.16% 99.70%9-30-06 2006 353,244,529 0.59960 97.36% 99.74%9-30-07 2007 372,374,916 0.62000 98.13% 99.68%9-30-08 2008 383,511,572 0.62000 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 (in progress)9-30-12 °) See "TAX INFORMATION - The City Application of the Property Tax Code" in the Official Statement for a description of the City's taxation procedures. (b) Excludes interest and penalties. Source: Texas Municipal Report published by the Municipal Advisory Council of Texas,the Denton County Appraisal District, and the City's 2011 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 may not match those shown on this table. TAX RATE DISTRIBUTION TABLE 4 2011-12 2010-11 2009-10 2008-09 2007-08 2006-07 Maintenance & $0.446044 $0.439418 $0.43009 $0.39214 $0.36893 $0.43325 Operations I & S Fund 0.187005 0.193631 0.18991 0.22786 0.23067 0.15721 TOTAL $0.633049 $0.633049 $0.62000 $0.62000 $0.59960 $0.59046 Source: City '-Wi 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 Next 4,000 gallons Next 10,000 gallons Next 15,000 gallons Over 30,000 PRINCIPAL WATER CUSTOMERS 2010-11 * $21.00 3.35 3.65 3.95 4.85 per thousand gallons per thousand gallons per thousand gallons per thousand gallons TABLE 6 (As of September 30, 2011) Average Monthly Consumption in Average Name of Customer Gallons Monthly Bill Intercapital Stonewood Ranch 718,700 $3,382.42 Sanger High School 497,000 2,413.23 Intercapital Stonewood Ranch 255,600 1,221.20 SISD Butterfield Elementary 231,600 1,364.96 Khosrow Sadeghian 148,500 593.26 Integra Peak Mgt.134,500 806.50 Elk River 105,200 431.27 SISD Sanger Middle School 103,100 510.13 Karl Klement Properties 102,300 518.80 Sportsman 101,100 498.12 Total 2,397,600 $11,739.89 None of the City's revenues from its water system is pledged to the payment of the Bonds, and the City will not use such revenues to make payment on the Bonds. A-3 SEWER RATES * TABLE 7 Existing Rates Residential (Effective September 6, 2011) Minimum (first 1,000 gallons) $ Per 1,000 gallons over first 1,000 gallons Per 1,000 gallons in excess of 10,000 gallons Maximum per month Commercial (Effective September 6, 2011) 18.00 2.50 2.75 45.00 3/4 inch meter $26.50 1 inch meter 29.00 1 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. PRINCIPA L SEWER CUSTOMERS * (As of September 30, 2011) Name of Customer Average Monthly Bill Intercapital Stonewood Ranch $ 4,080.43 Intercapital Stonewood Ranch 1,492.98 Sanger High School 1,411.72 Integra Peak Mgt.992.68 SISD Sanger Middle School 332.30 Sportsman 323.23 Karl Klement Properties 292.26 Sportsman 261.27 Indian Car Wash 287.91 Sanger Inn 285.55 Total S9.760.33 TABLE 8 None of the City's revenues from its sewer system is pledged to the payment of the Bonds, and the City will not use such revenues to make payment on the Bonds. A-4 ELECTRIC RATES * TABLE 9 Existing Rates (Effective November 15, 2010) Large Residential Commercial Industrial Facility Charge (minimum per $ 10.00 $ 16.00 $ 35.00 month) Energy Charge (per KWH) $ 0.1175 $ 0.12 $ 0.105 PRINCIPAL ELECTRIC CUSTOMERS 2010-2011 ` TABLE 10 (As of September 30, 2011) Average Monthly Consumption in Name of Customer Kilowatt Hours Average Monthly Bill Walmart 1,174,400 $124,250.00 Golston Company 74,093 8,804.80 Waggon Master RV Park 47,520 5,413.75 SISD Chisholm Elementary 46,386 5,721.60 McDonalds 45,760 5,556.80 First Baptist Church 34,325 4,207.00 MacCamp 34,100 3,340.00 Sportsman 33,753 4,097.20 Jack in the Box 32,943 4,062.80 SISD Middle School 29,700 3,692.00 Total 1,552,980 $169,145.95 None of the City's revenues from its electric system is pledged to the payment of the Bonds, and the City will not use such revenues to make payment on the Bonds. A-5 PRO FORMA DEBT SERVICE REQUIREMENTS TABLE 11 FYE 9/30 Outstanding Debt Serviced) Less: Refunded Debt Service Principal Plus: The Bonds Interest Total Total Debt Service 2012 $1,192,117 $84,204 $75,000 $10,908 $85,908 $1,193,821 2013 1,477,402 483,408 395,000 87,750 482,750 1,476,775 2014 1,477,938 483,838 400,000 79,850 479,850 1,473,951 2015 1,476,512 488,318 415,000 71,850 486,850 1,475,045 2016 1,478,145 486,668 420,000 63,550 483,550 1,475,027 2017 1,398,092 404,025 350,000 50,950 400,950 1,395,017 2018 1,383,223 399,305 355,000 40,450 395,450 1,379,368 2019 1,391,598 403,860 370,000 29,800 399,800 1,387,538 2020 1,397,134 407,010 385,000 18,700 403,700 1,393,824 2021 1,394,870 403,790 330,000 9,075 339,075 1,330,155 2022 804,602 399,780 0 0 0 404,822 2023 405,815 0 0 0 0 405,815 2024 400,851 0 0 0 0 400,851 2025 400,456 0 0 0 0 400,456 2026 403,794 0 0 0 0 403,794 2027 136,165 0 0 0 0 136,165 $16,618,714 $4,444,206 $3,495,000 $462,883 $3,916,858 $16,132,393 (1) Includes both ad valorem tax and revenue debt of the City. GQ:7 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY CITY OF SANGER, TEXAS FINANCIAL REPORT SEPTEMBER 30, 2010 CONTENTS Page(s) INDEPENDENT AUDITOR'S REPORT ........................................................................................1 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) 3-11 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 Statement of 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 Statement of Activities .........................................................................................19 Proprietary Funds Statementof Net Assets ............................................................................................20 Statement of Revenues, Expenses, and Changes in Fund Net Assets ....................21 Statementof Cash Flows ..........................................................................................22 Notes to Basic Financial Statements ...............................................................................24-43 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Funding Progress for Participation for Texas Municipal Retirement System .............................................................................44 Budgetary Comparison Schedule — General Fund ...............................................................45 SUPPLEMENTARY INFORMATION Combining Schedule of Revenues and Expenses — Proprietary Fund by Department.........46 Analysis of Property Taxes Receivable .................................................................................48 weave :P-, INDEPENDENT AUDITOR'S REPORT 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, 2010, 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 of Sanger, Texas as of September 30, 2010, 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. The management's discussion and analysis, the schedule of funding progress and budgetary comparison schedule on pages 3 through 11 and 44 through 45, are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. 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. The supplementary information on pages 46 through 48 is presented for purposes of additional analysis and is not a required part of the basic financial statements. This information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. r s r WEAVER AND TIDWELL, L.L.P. Fort Worth, TX August 18, 2011 MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2010 The City of Sanger's Management's Discussion and Analysis is designed to provide a narrative overview of the City's financial activity, and assist the reader in identifying changes in the City's financial position. The information presented here should be considered in conjunction with the City's financial statements and accompanying footnotes, which can be found on pages 24 through 43 of this report. FINANCIAL HIGHLIGHTS • The City's total combined net assets were $19,141,779 at September 30, 2010. • The General Fund reported a fund balance of $739,010 at September 30, 2010. • The City's combined governmental funds reported a fund balance of $5,726,234 at September 30, 2010. 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 also contains other supplementary information in addition to the basic financial statements themselves. The basic financial statements include two types of statements that present different views of the City: The first two statements are government-wide financial statements that provide both long-term and short-term information about the City's overall financial status. The two remaining sets of statements are fund financial statements that focus on individual parts of the government, reporting the City's operations in more detail than the government-wide statements. o The governmental fund statements tell how general government services were financed in the short term as well as what remains for future spending. o Proprietary fund statements provide short and long-term financial information about the activities the government operates like businesses, such as utility services. The financial statements also include notes to the financial statements explaining information in the financial statements and providing more detailed data. The report also 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. Overtime, 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). 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. 4 Major Features of the City of Sanger's Government-wide and Fund Financial Statements Fund Statements Government-wide Governmental Funds Proprietary Funds Fiduciary Funds Scope Entire Agency's The activities of the Activities the City Instances In which government (except City that are not operates similar to the City is the fiduciary funds) and proprietary or fiduciary private business:trustee or agent for the Agency's electric, water, and someone else's component units wastewater utilities resources Required Financial Statement of net Balance Sheet Statement of net Statement of Statements assets assets fiduciary net assets Statement of Statement of revenues,Statement of revenues,Statement of activities expenditures and expenses and changes changes in changes in fund in fund balances fiduciary net balances assets Accounting basis Accrual accounting and measurement and economic focus resources focus Type of All assets and asset/liability liabilities, both information financial and capital, short-term and long- term Type of All revenues and inflow,/outflow expenses during information year, regardless of when cash is received or paid Modified accrual accounting and current financial resources focus Only assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets included Revenues for which cash is received during or soon after the end of the year, expenditures when goods or services have been received and payment is due during the year or soon thereafter Statement of cash flows Accrual accounting and economic resources focus All assets and liabilities, both financial and capital, and short- term and long-term All revenues and expenses during year, regardless of when cash is received or paid Accrual accounting and economic resources focus All assets and liabilities, both short-term and long-term, the Agency's funds do not currently contain capital assets, although they can All revenues and expenses during year_ regardless of when cash is received or paid 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. • Some 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. 5 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 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. The notes provide additional information that is essential to understanding the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 24 through 43 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As of September 30, 2010, the City's combined net assets were $19,141,779, of which $8,346,480 can be attributed to governmental activities and $10,795,299 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, 2009, were $18,411,459, representing an increase of $730,320 in total net assets of governmental and business-type activities. The largest portion of the City's net assets (68%) reflects its investment in capital assets (e.g., land, building, machinery, and equipment) 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 2010 2009 2010 2009 2010 2009 Assets Cash and cash equivalents ^"$692,005 $585,460 $1,292,304 $621,600 $1,984,309 $1,207,060 Accounts receivable, net 311,885 554,332 1,142,592 1,079,401 1,454,477 1,633,733 Inventories --276,825 276,825 276,825 276,825 Prepaid expense 11,910 --6,653 11,910 6,653 Internal balances -(4,779)-4,779 -- Restricted cash and cash equivalents "5,075,797 6,117,609 2,171,109 2,262,318 7,246,906 8,379,927 Bond issuance costs, net 316,292 337,415 123,161 146,747 439,453 484,162 Capital assets, net of accumulated depreciation 10,752,346 10,903,681 13,593,285 14,104,813 24,345,631 25,008,494 Total assets $17,160,235 $18,493,718 $18,599,276 $18,503,136 $35,759,511 $ 36,996,854 Liabilities Accounts payable $198,142 $800,043 $565,806 $457,572 $763,948 $1,257,615 Customer deposits --280,721 241,686 280,721 241,686 Other liabilities 97,238 129,982 125,929 327,210 223,167 457,192 Current portion long-term debt 575,710 547,176 746,494 714,216 1,322,204 1,261,392 Compensated absences 53,598 79,584 56,333 62,056 109,931 141,640 Long-term debt 7,889,067 8,478,791 6,028,694 6,747,079 13,917,761 15,225,870 Total liabilities $8,813,755 $10,035,576 $7,803,977 $8,549,819 $16,617,732 $18,585,395 Net assets Invested in capital assets $6,213,125 $2,162,363 $6,831,720 $6,741,443 $13,044,845 $8,903,806 Restricted for specific purpose 540,435 5,660,836 1,890,388 2,262,318 2,430,823 7,923,154 Unrestricted 1,592,920 634,943 2,073,191 949,556 3,666,111 1,584,499 Net assets $8,346,480 $8,458,142 $10,795,299 $9,953,317 $19,141,779 $18,411,459 (1) Approximately 57% and 78% of the City's cash equivalent balances at September 30, 2010 and 2009, respectively, were comprised of bank certificates of deposit which, in accordance with generally accepted accounting principles, are treated as cash for financial statement presentation purposes. 7 $ 1,127,202 $ 1,732,063 $ 9,458,927 $ 9,490,083 $ 10,586,129 $ 11,222,146 - 14,239 - - - 14,239 3,759,621 3,889,376 --3,759,621 3,889,376 44,635 67,866 --44,635 67,866 75,402 169,253 37,360 89,186 112,762 258,439 (231,245)(1,456,966)231,245 1,456,966 -- 102,288 ---102,288 - (33,255)32,322 11,814 2,500 (21,441)34,822 4,844,648 4,448,153 9,739,346 11,038,735 14,583,994 15,486,888 725,355 733,052 --725,355 733,052 1,276,750 1,262,219 --1,276,750 1,262,219 1,260,016 1,211,307 --1,260,016 1,211,307 655,874 619,715 --655,874 619,715 194,526 194,052 --194,526 194,052 465,034 452,868 --465,034 452,868 378,755 289,449 403,065 322,886 781,820 612,335 --8,494,299 8,646,150 8,494,299 8,646,150 4,956,310 4,762,662 8,897,364 8,969,036 13,853,674 13,731,698 (111,662)(314,509)841,982 2,069,699 730,320 1,755,190 8,458,142 5,006,725 9,953,317 11,530,821 18,411,459 16,537,546 -3,647,203 -(3,647,203)-- 118,723 ---118,723 $ 8,346,480 $ 8,458,142 $ 10,795,299 $ 9,953,317 $ 19,141,779 $ 18,411,459 Changes in Net Assets Governmental activities decreased the City's net assets by $111,662 and business-type activities increased the City's net assets by $841,982. The key elements of these changes are contained in Table 2. Table 2 - Changes in Net Assets Governmental Business-Type Activities Activities Total 2010 2009 2010 2009 2010 2009 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 Public safety Streets and sanitation Fire and rescue Court Culture and recreation Interest on long-term debt Proprietry expenses Total expenses Change in net assets Beginning net assets Reclassifications Prior-period adjustment Ending net assets 8 The City's total revenues for the year ended September 30, 2010, was $14,583,994 with a significant portion, 72%, of the City's total revenue coming from charges for services, 16% from property taxes, 6% from sales taxes, while 6% 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 Sourc es Other income x x Sales Taxes r fx3 jas. sI ki d d irk £ 'f C'#her Tf'3x''5. esr s , 'fxI -i } `s'^ r xE st'; r».z ri `'^Ii s f K i` r .,x -^ # kdns.»"d Y7' 1'3 ^' r sy._' 4% ,.:,,, '€uaYr Mc. ^. ^& 3yi,.^a iY li;'^la^s 4 ^^ ^ a^.xc,^r^y^4 < x S £. s sq ^ ^ :i^,?.:- u^^^^ I^ ^ji ^•.{r,^ ^,. - `X' Y^ FE a :a IIi r 3' ^ i A^ agrr. Y:' `^41 ! ' f^ j c, i^£'F s'x^£I Kx^a ^^ ^: tyj ^..^ :ayv it Governmental activities revenues total $4,844,648 for the year ended September 30, 2010, of which $3,759,621 (78%) is attributed to taxes. Significant general governmental expenses include public safety (police and animal control), which incurred expenses of $1,276,750, and streets and sanitation, which incurred expenses of $1,260,016. Business-type activities increased the City's net assets by $841,982, accounting for all positive growth in the government-wide net assets in fiscal year ended September 30, 2010. Compared to last year, business-type operating revenues decreased by $31,156 to $9,458,927 for the year ended September 30, 2010, as a result of minimal decreases in both water and electric revenues. Business-type expenses also decreased in fiscal year ending September 30, 2010 due to a decrease in water and electric expenses, resulting in total business-type activity expenses of $8,897,364. 9 Land Construction in progress Infrastructure Buildings and equipment 2010 2009 $ 323,164 $ 312,164 -2,028,744 21,653,018 20,039,369 2,265,559 2,287,450 Business-Type Activities Governmental Activities 2010 2009 $ 600,351 $ 600,351 3,039,158 3,975,123 6,131,964 6,433,265 5,588,158 5,241,731 Total 2010 2009 $ 923,515 $ 912,515 3,039,158 6,003,867 27,784,982 26,472,634 7,853,717 7,529,181 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, 2010, the City's governmental funds reported a combined ending fund balance of $5,726,234, a reduction of $275,185 from the previous fiscal year's balance of $6,001,419. The decline in fund balance is primarily due to expenditures for infrastructure improvements. Of this fund balance, $739,010 constitutes unreserved, undesignated fund balance, which is available for spending at the government's discretion. The remainder of the fund balance is reserved to indicate that it is not available for new spending because it has already been committed to either purchase or construct capital assets ($3,910,024), pay debt service ($106,546), or enhance economic development ($970,654). General Fund. The General Fund is the chief operating fund of the City. At September 30, 2010, the unreserved and undesignated fund balance of the General Fund was $739,010, an increase of $193,355 over the prior year. The increase is primarily due to reductions in spending and not filling nonessential personnel vacancies. The City took a very conservative approach to purchasing and employment during 2010 because of the depressed economic conditions. Capital Projects Fund. The entire balance of the capital projects fund is reserved for capital construction and acquisition. At September 30, 2010, the capital projects fund has a fund balance of $3,910,024, a decrease of $486,258 from 2009. At the end of 2010, the City had invested $24,345,631 in a broad range of capital assets, including land, equipment, buildings, and vehicles (see Table 3). Table 3 — Capital Assets Total historical cost 15,359,631 16,250,470 24,241,741 24,667,727 39,601,372 40,918,197 Total accumulated depreciation (4,607,285) (5,346,789) (10,648,456) (10,562,915) (15,255,741) (15,909,704) Net capital assets $ 10,752,346 $ 10,903,681 $ 13,593,285 $ 14,104,812 $ 24,345,631 $ 25,008,493 10 Debt Service Fund. The debt service fund has a total fund balance of $106,546 at September 30, 2010, an increase of $10,165 over 2009. As of September 30, 2010, the City had $15,239,965 in long-term debt (see Table 4). Table 4— Long-term Debt Governmental Business-Type Activities Activities Total 2010 2009 2010 2009 2010 2009 Notes payable $ 646,881 $695,108 $ - $6,654 $ 646,881 $ 701,762 Capital leases 148,196 222,777 494,888 592,723 643,084 815,500 Bonds payable 7,669,700 8,108,082 6,280,300 6,861,918 13,950,000 14,970,000 Total long-term debt $ 8,464,777 $9,025,967 $ 6,775,188 $7,461,295 $ 15,239,965 $ 16,487,262 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, 2010 was $8,897,364. The amount for charges for services that the City's tax payers paid for these activities was $9,458,927. 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 Cost of Services 2010 2009 Water $ 998,059 $ 1,114,181 Sewer 714,895 646,543 Electric 6,202,332 6,255,536 Other 982,078 952,776 Total $ 8,897,364 $ 8,969,036 % Change Total Operating Income % Change 2010 2009 -10.42%$ 127,849 $ 102,185 25.12% 10.57%215,085 272,236 -20.99% -0.85%1,155,642 1,086,223 6.39% 3.08%(937,013)(939,597)-0.28% -0.80%$ 561,563 $ 521,047 7.78% ECONOMIC FACTORS AND FISCAL YEAR BUDGET AND RATES Certified appraised values used for the fiscal year 2011 budget preparation are consistent with the amounts budgeted in the 2010 fiscal year. If revenues projected in the 2011 budget are realized, the City will be able to continue operations and absorb inflationary costs without a decrease in its fund balance. 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 $ 692,005 $ 1,292,304 $ 1,984,309 69,179 69,179 143,111 143,111 36,428 36,428 63,167 11,910 5,075,797 316,292 3,639,509 7,112,837 $ 17,160,235 1,128,152 14,440 276,825 2,171,109 123,161 323,164 13,270,121 $ 18,599,276 1,128,152 77,607 276,825 11,910 7,246,906 439,453 3,962,673 20,382,958 $ 35,759,511 $ 198,142 $565,806 $ 763,948 -280,721 280,721 35,624 61,188 96,812 446,900 628,100 1,075,000 50,775 -50,775 78,035 118,394 196,429 61,614 64,741 126,355 53,598 7,222,800 596,106 70,161 8,813,755 56,333 5,652,200 376,494 7,803,977 109,931 12,875,000 596,106 446,655 16,617,732 6,213,125 6,831,720 13,044,845 429,091 111,344 1,592,920 $ 8,346,480 566,042 1,324,346 2,073,191 $ 10,795,299 995,133 1,435,690 3,666,111 $ 19,141,779 CITY OF SANGER, TEXAS GOVERNMENT-WIDE STATEMENT OF NET ASSETS SEPTEMBER 30, 2010 Primary Government Governmental Business-type Activities Activities Total ASSETS Cash and cash equivalents Accounts receivable, net Property taxes Sales taxes Emergency medical services, net of allowance of $1,470,493 Utility accounts, net of allowance of $12,187 Other Inventories Prepaid expenses Restricted cash and cash equivalents 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 Bonds payable, due within one year Notes payable, due within one year Capital leases, due within one year Other Noncurrent liabilities Compensated absences 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. 12 Program Revenues Fees, Fines and Charges for Services Net (Expenses) Revenue and Changes in Net Assets Governmental Business- type Expenses $ 725,355 $723,374 $(1,981)$-$ (1,981) 1,276,750 -(1,276,750)-(1,276,750) 1,260,016 -(1,260,016)-(1,260,016) 655,874 192,863 (463,011)-(463,011) 194,526 210,965 16,439 -16,439 465,034 -(465,034)-(465,034) 378,755 -(378,755)-(378,755) 4,956,310 1,127,202 (3,829,108)-(3,829,108) 998,059 1,125,908 -127,849 127,849 714,895 929,980 -215,085 215,085 6,202,332 7,357,974 -1,155,642 1,155,642 403,065 --(403,065)(403,065) 579,013 45,065 -(533,948)(533,948) 8,897,364 9,458,927 -561,563 561,563 $ 13,853,674 $10,586,129 $(3,829,108)$561,563 $ (3,267,545) General revenues Taxes Ad valorem $2,284,379 $-$ 2,284,379 Sales 947,370 -947,370 Franchise taxes 527,872 -527,872 Licenses and permits 44,635 -44,635 Interest income 75,402 37,360 112,762 Gain (loss) on sale of assets (33,255)11,814 (21,441) Miscellaneous revenues 102,288 -102,288 Transfers (231,245)231,245 - Total general revenues and transfers 3,717,446 280,419 3,997,865 Change in net assets (111,662)841,982 730,320 NET ASSETS, beginning of year 8,458,142 9,953,317 18,411,459 NET ASSETS, end of year $8,346,480 $10,795,299 $ 19,141,779 CITY OF SANGER, TEXAS GOVERNMENT - WIDE STATEMENT OF ACTIVITIES YEAR ENDED SEPTEMBER 30, 2010 Program Activities Governmental activities General government Public safety Streets and sanitation Fire and rescue Court Culture and recreation Interest on long term debt Total governmental activities Business-type activities Water Sewer Electric Interest on long-term debt Other Total business-type activities Total primary government The Notes to Basic Financial Statements are an integral part of this statement. 13 CITY OF SANGER, TEXAS BALANCE SHEET — GOVERNMENTAL FUNDS SEPTEMBER 30, 2010 Debt Capital General Service Projects $ 668,434 $ 23,571 $ - 48,425 20,754 - 71,555 -- 36,428 -- 57,443 -3,030 11,910 -- 160,239 82,975 3,925,554 $ 1,054,434 $ 127,300 $ 3,928,584 ASSETS Cash and investments Accounts receivable, net Property taxes, net of allowance of $51,490 Sales taxes Emergency medical services, net of allowance of $1,470,493 Other Prepaid expenses Restricted cash and investments Total assets LIABILITIES AND FUND BALANCES Liabilities Accounts payable Deferred revenue Other current liabilities Total liabilities Fund balances Reserved - construction Reserved - debt service Reserved - economic development Unreserved Total fund balances TOTAL LIABILITIES AND FUND BALANCES $ 168,957 $ - $ 18,560 84,853 20,754 - 61,614 - - 315,424 20,754 18,560 3,910,024 106,546 739,010 - 739,010 106,546 3,910,024 $ 1,054,434 $ 127,300 $ 3,928,584 The Notes to Basic Financial Statements are an integral part of this statement. 14 Total Governmental 4A Fund 4B Fund Funds $ - $ - $ 692,005 - 69,179 35,778 35,778 143,111 - 36,428 548 2,146 63,167 - - 11,910 339,225 567,804 5,075,797 $ 375,551 $ 605,728 $ 6,091,597 $ 10,625 $ - $ 198,142 - - 105,607 - - 61,614 10,625 - 365,363 3,910,024 - - 106,546 364,926 605,728 970,654 - - 739,010 364,926 605,728 5,726,234 $ 375,551 $ 605,728 $ 6,091,597 15 CITY OF SANGER, TEXAS RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS SEPTEMBER 30, 2010 Total fund balances - governmental funds $ 5,726,234 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 10,752,346 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. 316,292 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. (35,624) Revenues earned but not available within sixty days of the year end are not recognized as revenue on the fund financial statements. 105,607 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. (8,518,375) Net assets of governmental activities $ 8,346,480 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, 2010 Debt Capital General Service Projects REVENUES Property taxes Sales taxes Licenses and permits Charges for services Fire and rescue Court Franchise taxes Interest Miscellaneous Total revenues EXPENDITURES Current General government Public safety Streets and sanitation Fire and rescue Court Culture and recreation Capital outlay Debt service Principal retirement Interest charges Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources (uses) Proceeds on sale of assets 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. $ 1,587,954 $ 706,281 $ - 472,352 44,635 - - 723,374 - - 451,346 - - 210,965 - - 527,872 - - 17,982 1,011 44,816 99,955 - - 4,136,435 707,292 44,816 555,668 2,428 122,376 1,206,731 - - 762,615 - - 559,344 - - 193,877 - - 387,810 - - 349,030 - 162,773 90,877 438,382 - 13,238 332,202 - 4,119,190 773,012 285,149 17,245 (65,720)(240,333) 17,315 -- 158,795 180,000 - -(104,115)(245,925) 176,110 75,885 (245,925) 193,355 10,165 (486,258) 545,655 96,381 4,396,282 $ 739,010 $ 106,546 $ 3,910,024 17 4A Fund 237,509 2,871 2,333 242,713 4B Fund $ 237,509 8,722 246,231 Total Governmental Funds $ 2,294,235 947,370 44,635 723,374 451,346 210,965 527,872 75,402 102,288 5,377,487 11,964 898 693,334 - - 1,206,731 - - 762,615 - - 559,344 - - 193,877 - - 387,810 187,262 - 699,065 31,931 -561,190 29,336 -374,776 260,493 898 5,438,742 (17,780)245,333 (61,255) --17,315 --338,795 (20,000)(200,000)(570,040) (20,000)(200,000)(213,930) (37,780)45,333 (275,185) 402,706 560,395 6,001,419 $ 364,926 $ 605,728 $ 5,726,234 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, 2010 Net change in fund balances - total governmental funds $ (275,185) 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.699,065 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 (799,830) governmental funds. 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.(50,570) 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 proceeds of $0 less repayments of $561,190 plus amortization of debt issuance costs of $21,123 plus a change in long-term compensated absences payable of $25,986, which is the net effect of these differences in the treatment of long- term debt and related items.566,053 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.17,142 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.(268,337) Change in net assets of governmental activities $ (111,662) 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, 2010 Water, Sewer, and Electric Fund ASSETS CURRENT ASSETS Cash and investments Receivables Utility accounts receivable, net of allowance of $12,187 Other Inventories Restricted cash and cash equivalents Total current assets NONCURRENT ASSETS Capital assets, at cost Land and land improvements Buildings and equipment Infrastructure Accumulated depreciation Total capital assets, net of accumulated depreciation Bond issue costs Total noncurrent assets TOTAL ASSETS $ 1,292,304 1,128,152 14,440 276,825 2,171,109 4,882,830 323,164 2,265,559 21,653,018 (10,648,456) 13,593,285 123,161 13,716,446 $ 18,599,276 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable and accrued expenses Accrued interest payable Bonds payable, due within one year Capital lease obligation, due within one year Other Total current liabilities NONCURRENT LIABILITIES Compensated absences Bonds payable, due in more than one year Capital lease obligation, due in more than one year Customer deposits Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted Revenue bond retirement Capital improvements Unrestricted TOTAL NET ASSETS The Notes to Basic Financial Statements are an integral part of this statement. $ 565,806 61,188 628,100 118,394 64,741 1,438,229 56,333 5,652,200 376,494 280,721 7,803,977 6,831,720 566,042 1,324,346 2,073,191 $ 10,795,299 20 CITY OF SANGER, TEXAS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS — PROPRIETARY FUNDS YEAR ENDED SEPTEMBER 30, 2010 Water, Sewer, and Electric Fund OPERATING REVENUES Charges for services $ 9,301,619 Connection fees 62,532 Tap fees 52,500 Miscellaneous 42,276 Total operating revenue 9,458,927 OPERATING EXPENSES Salaries and wages 1,282,370 Purchased professional and technical services 108,606 Utilities 340,594 Materials and supplies 106,931 Water and electric purchases 4,953,579 Franchise fees 354,842 Depreciation 814,083 Repairs and maintenance 377,401 Bad debt expense 155,893 Total operating expenses 8,494,299 Operating income 964,628 NONOPERATING REVENUES (EXPENSES) Interest and investment income 37,360 Interest and amortization expense (403,065) Gain on sale of asset 11,814 Total nonoperating expenses (353,891) Income before transfers 610,737 Transfers in 231,245 Change in net assets 841,982 NET ASSETS, beginning of year 9,953,317 NET ASSETS, end of year $ 10,795,299 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, 2010 Water, Sewer, and Electric Fund CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers $ 9,434,771 Cash paid to employees (1,303,626) Cash paid to suppliers (6,452,708) Net cash provided by operating activities 1,678,437 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers from other funds 231,245 Net cash provided by noncapital financing activities 231,245 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Principal paid on long-term debt (686,107) Capital expenditures (320,639) Interest paid on long-term debt (390,698) Proceeds from sale of assets 29,897 Net cash used in capital and related financing activities (1,367,547) CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments 37,360 Net cash provided by investing activities 37,360 Net change in cash CASH AND CASH EQUIVALENTS, beginning of the year CASH AND CASH EQUIVALENTS, end of the year The Notes to Basic Financial Statements are an integral part of this statement. 579,495 2,883,918 $ 3,463,413 22 CITY OF SANGER, TEXAS STATEMENT OF CASH FLOWS — PROPRIETARY FUNDS YEAR ENDED SEPTEMBER 30, 2010 (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 Restricted cash and cash equivalents Cash and cash equivalents - ending RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income Adjustments to reconcile operating income to net cash provided by operating activities Depreciation Amortization of bond issue costs Increase in accounts receivable Decrease in internal balances Decrease in prepaid expenses Increase in accounts payable and accrued expenses Decrease in other liabilities Increase in customer deposits Net cash provided by operating activities $ 1,292,304 2,171,109 $ 3,463,413 $ 964,628 814,083 23,586 (63,191) 4,780 6,653 108,234 (219,371) 39,035 $ 1,678,437 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. Complete financial statements for the individual component units may be obtained at the City's office. 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 (4B) - 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 4B 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 reserved 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 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 personal 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 and are considered to be "cash equivalents" when preparing these financial statements. In addition, any marketable securities not included in the common pooled accounts that are purchased with a maturity of ninety days or less are also considered 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 contain 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 person 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. 28 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 5-50 years Machinery and equipment 3-20 years Infrastructure 10-30 years 29 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 Reservations of fund balances of the governmental funds indicate the portion of fund equity that is not available for appropriation for expenditure or is legally restricted by outside parties for use for a specific purpose. Designations of fund balance are the representations of management for utilization of resources in future periods. 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. Reclassifications Certain beginning balances have been reclassified to conform with the presentation in the current-year financial statements. NOTE 2. CASH AND INVESTMENTS Cash and investments as of September 30, 2010 consist of the following: Deposits with financial institutions $ 3,962,744 Investments 5,268,471 $ 9,231,215 30 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 2. CASH AND INVESTMENTS — CONTINUED 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. As of September 30, 2010, the City had the following investments: Weighted Average Investment Type Amount Maturity Certificate of deposit $ 5,268,471 95 days As of September 30, 2010 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. Minimum Legal Rating as of Investment Type Amount Rating September 30, 2010 Certificate of deposit $ 5,268,471 N/A N/A Concentration of Credit Risk The investment policy of the City contains no limitations on the amount that can be invested in any one issuer. As of September 30, 2010, other than certificates of deposit, the City did not have 5% or more of its investments with one issuer. 31 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 2. CASH AND INVESTMENTS — CONTINUED 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. At September 30, 2010, the carrying amount of the City's cash on hand and deposits were $3,962,744 and the bank balance was $4,169,438. Of the bank balance, $250,000 was covered by federal depository insurance while the remaining $3,919,438 was secured with securities held by the pledging financial institution's trust department or agent 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 Enterprise Fund as follows: Debt service - interest and sinking fund $ 566,042 Capital improvements 1,324,346 Refundable utility deposits 280,721 $ 2,171,109 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 $ 82,975 Capital improvements 4,036,988 Economic and community development 955,834 $ 5,075,797 NOTE 4. CAPITAL ASSETS 32 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS Capital asset activity for the year ended September 30, 2010, was as follows: Balance Balance October 1, Additions/ Retirements/ September 30, 2009 Completions Adjustments 2010 Governmental activities Capital assets not being depreciated Land $ 600,351 $ - $ - $ 600,351 Construction in progress 3,975,123 229,518 (1,165,483) 3,039,158 Total capital assets not being depreciated 4,575,474 229,518 (1,165,483)3,639,509 Capital assets being depreciated Infrastructure 6,433,265 601,493 (902,794)6,131,964 Buildings and improvements 2,093,513 859,319 (14,573)2,938,259 Machinery and equipment 3,148,218 174,218 (672,537)2,649,899 Total capital assets being depreciated 11,674,996 1,635,030 (1,589,904)11,720,122 Less accumulated depreciation Infrastructure 3,294,227 437,434 (902,794)2,828,867 Buildings and improvements 515,795 138,566 -654,361 Machinery and equipment 1,536,767 223,830 (636,540)1,124,057 Total accumulated depreciation 5,346,789 799,830 (1,539,334)4,607,285 Total capital assets being depreciated, net 6,328,207 835,200 (50,570) 7,112,837 Net governmental activities capital assets $ 10,903,681 $ 1,064,718 $ (1,216,053) $ 10,752,346 33 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 4. CAPITAL ASSETS - CONTINUED Balance Balance October 1, Additions/ Retirements/ September 30, 2009 Completions Adjustments 2010 Business-type 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 business-type activities capital assets $ 312,164 $ 11,000 $ - $ 323,164 2,028,744 151,014 (2,179,758) - 2,340,908 162,014 (2,179,758) 323,164 20,039,369 1,748,296 (134,647) 21,653,018 371,856 528,204 (39,928) 860,132 1,915,594 61,883 (572,050) 1,405,427 22,326,819 2,338,383 (746,625)23,918,577 8,982,950 680,524 (141,450)9,522,024 140,399 11,960 (40,033)112,326 1,439,566 121,599 (547,059)1,014,106 10,562,915 814,083 (728,542)10,648,456 11,763,904 1,524,300 (18,083) 13,270,121 $ 14,104,812 $ 1,686,314 $ (2,197,841) $ 13,593,285 34 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 $ 58,007 Public safety 70,019 Streets and sanitation 497,401 Fire and rescue 96,530 Court 649 Culture and recreation 77,224 Total governmental activities $ 799,830 Business-type activities Water $ 203,188 Sewer 237,065 Electric 356,182 Other 17,648 Total business-type activities $ 814,083 35 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 5. LONG-TERM DEBT At September 30, 2010, the City's bonds and notes payable consisted of the following: Governmental $1,060,000 Series 1996, Utility System Revenue Bonds, dated May 15, 1996, due in annual installments through 2016, bearing interest rates of 2.85% to 4.75%. $ $1,735,000 Series 1999, Utility System Revenue Refunding Bonds, dated May 15, 1999, due in annual installments through 2016, bearing interest rates of 4.25% to 4.4%. $2,540,000 Series 2002, Utility System Revenue Bonds, dated June 1, 2002, due in annual installments through 2019, bearing interest rates of 4.5% to 6.0%. $2,360,000 Series 2002, Combination Tax and Revenue Certificates of Obligation, dated June 1, 2002, due in annual installments through 2020, bearing interest rates of 4.2% to 5.7%. $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%. $1,750,000 Series 2007, Combination Tax and Revenue Certificates of Obligation, dated December 18, 2007, due in annual installments through 2027, bearing interest at 4.4%. $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%. Note payable to a financial institution in monthly installments of $1,542 including interest at 6.25%, due January 15, 2012, secured by property financed. 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. Business-type $ 445,000 205,000 1,820,000 1,710,000 2,357,500 2,767,500 537,200 1,042,800 3,065,000 26,396 620,485 - $ 8,316,581 $ 6,280,300 36 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, 2010: Balance Balance Due Beginning End within of Year Increases Decreases of Year One Year Governmental activities Compensated absences $ 79,584 $ 142,608 $ (168,594)$ 53,598 $- Notes payable 695,108 - (48,227)646,881 50,775 Certificates of obligation 8,108,082 - (438,382)7,669,700 446,900 Capital leases 222,777 - (74,581)148,196 78,035 Total governmental activities 9,105,551 142,608 (729,784) 8,518,375 575,710 Business-type activities Compensated absences 62,056 100,250 (105,973)56,333 - Notes payable 6,654 - (6,654)- - Revenue bonds 6,861,918 - (581,618)6,280,300 628,100 Capital leases 592,723 - (97,835)494,888 118,394 Total business-type activities 7,523,351 100,250 (792,080)6,831,521 746,494 Total primary government $ 16,628,902 $ 242,858 $ (1,521,864) $ 15,349,896 $ 1,322,204 The City issues general obligation bonds, which are direct obligations of the City and pledge the full faith and credit of the City. In prior years, the City issued $1,735,000 in Revenue Refunding Bonds to defease $1,580,000 in Revenue Bonds. Of the $1,580,000 originally defeased, $205,000 remains outstanding at September 30, 2010. 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 liquated by the General Fund. Revenue bonds and notes payable issued for business-type activities are repaid from those activities. 37 Due Fiscal Year Ending September 30 Principal 2011 $ 50,775 2012 44,053 2013 36,647 2014 38,368 2015 40,171 2016-2020 231,001 2021-2025 205,866 $ 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, 2010, are as follows: Revenue Bonds Business-Type Activities Due Fiscal Year Ending September 30 Principal Interest Total 2011 $628,100 $282,813 $910,913 2012 446,200 255,757 701,957 2013 462,600 236,442 699,042 2014 484,000 216,264 700,264 2015 507,100 195,010 702,110 2016-2020 2,537,500 628,947 3,166,447 2021-2025 1,046,500 128,916 1,175,416 2026-2030 168,300 11,180 179,480 $6,280,300 $1,955,329 $8,235,629 Certificates of Obligation Governmental Activities Due Fiscal Year Ending September 30 Principal Interest Total 2011 $446,900 $325,083 $771,983 2012 463,800 308,358 772,158 2013 487,400 290,888 778,288 2014 506,000 271,592 777,592 2015 522,900 251,425 774,325 2016-2020 2,972,500 908,832 3,881,332 2021-2025 1,928,500 300,945 2,229,445 2026-2030 341,700 17,872 359,572 $7,669,700 $2,674,995 $10,344,695 Notes Payable Governmental Activities I ntaract 28,996 26,466 24,620 22,898 21,096 75,332 1R 1Rt Tntnl $ 79,771 70,519 61,267 61,266 61,267 306,333 99t nnn $ 646,881 $ 217,572 $ 864,453 38 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 $1,248,652 and an amortized value of approximately $878,539 at September 30, 2010. Amortization expense has been included in depreciation expense for the year ended September 30, 2010. 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, 2010: 2011 $ 221,712 2012 178,156 2013 104,455 2014 104,455 2015 104,453 713,231 Less amount representing interest 70,147 Present value of net minimum lease payments $ 643,084 NOTE 7. PENSION PLAN Plan Description 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), one of 833 administered by 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. Benefits Benefits depend upon the sum of the employee's contributions to the plan, with interest, and City-financed monetary credits, 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 39 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 7. PENSION PLAN — CONTINUED Benefits — Continued 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. 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 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. 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, 2009 valuation is effective for rates beginning January 2011). The annual pension cost is $187,668 for the year ended September 30, 2010, and there is no net pension obligation as of September 30, 2010. 40 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 7. PENSION PLAN — CONTINUED Contributions — Continued The required contribution rates for fiscal year 2010 were determined as part of the December 31, 2007 and 2008 actuarial valuations. Additional information as of the latest actuarial valuation, December 31, 2009, also follows: Valuation Date Actuarial Cost Method Amortization Method Remaining Amortization Period Asset Valuation Method Actuarial Assumptions: Investment Rate of Return* Projected Salary Increases* * Includes inflation at Cost of Living Adjustments 12/31/07 Projected Unit Credit Level Percent of Payroll 25 years; closed period Amortized Cost 7.0% Varies by age and service 3.0% 0.0% 12/31/08 Projected Unit Credit Level Percent of Payroll 24 years; closed period Amortized Cost 7.5% Varies by age and service 3.0% 0.0% 12/31/09 Projected Unit Credit Level Percent of Payroll 23 years; closed period 10-Year Smoothed Market 7.5% Varies by age and service 3.0% 0.0% The funded status as of December 31, 2009, 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 12/31/09 $ 3,419,092 $ 3,973,365 86.1%$ 554,273 $ 2,503,067 22.1% 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. The City is one of 833 municipalities having the benefit plan administered by TMRS. Each of the 833 municipalities has an annual, individual actuarial valuation performed. All assumptions for the December 31, 2009 valuations are contained in the 2009 TMRS Comprehensive Annual Financial Report, a copy of which may be obtained by writing to P.O. Box 149153, Austin, Texas 78714-9153 or by calling 800-924-8677; in addition, the report is available on TMRS' website at www.TMRS.com . 41 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 8. COMMITMENTS The City entered into a three (3) year contract in 2009 with the AEP Energy Partners, Inc. for the delivery of electricity. Payments under this contract are based on meter readings charged per month. The City had outstanding encumbrances totaling $40,887 as of September 30, 2010. In January 2011, the City entered into a contract totaling $2,958,566 for the construction of a sports complex. NOTE 9. INTERFUND TRANSFERS All interfund transfers between the various funds are approved supplements to the operations of those funds. Transfers In Transfers Out Amount General fund 4A fund $ 20,000 General fund 4B fund 20,000 General fund Capital projects fund 14,680 General fund Debt service fund 104,115 Debt service fund 4B fund 180,000 Enterprise fund Capital projects fund 231,245 $ 570,040 Transfers are primarily used to move funds from: - The 4A and 4B funds to the general fund for payment of administrative costs. - The capital projects fund to the general fund for security cameras purchased through the general fund. - The debt service fund to the general fund to pay the debt paid for from the general fund. - 4B fund to the debt service fund to service the debt related to the 4B fund. - Capital projects fund to the enterprise fund for completed assets transferred to the enterprise fund. 42 CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS NOTE 10. 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 11. CONDUIT DEBT The City issued notes payable totaling $34,626,407 for the purpose of assisting with financing needed by not-for-profit organizations to promote their cause. Final maturities on the notes payable range from March 2017 through July 2040. The notes are secured by various assets of the borrower. The total amount outstanding on all of the notes payable is $34,151,507 as of September 30, 2010. 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 12. PLEDGED REVENUES The City has pledged revenues derived from the operation of the utility system, net of operating and maintenance expenses, to repay $9,995,000 in utility revenue bonds. The total amount of outstanding principal as of September 30, 2010 was $6,280,300. Proceeds from the bonds provided financing for improvements to the utility system, as well as refunding a $1,735,000 bond. The bonds are payable solely from the net earnings of the utility system and are payable through 2022. The total principal and interest remaining to be paid on the bonds is $8,235,630. Principal and interest paid for the current year and net utility system revenues were $906,739 and $964,628, respectively. 43 REQUIRED SUPPLEMENTARY INFORMATION CITY OF SANGER, TEXAS SCHEDULE OF FUNDING PROGRESS FOR PARTICIPATION IN TEXAS MUNICIPAL RETIREMENT SYSTEM YEAR ENDED SEPTEMBER 30, 2010 Unfunded Actuarial Unfunded Accrued Liability Actuarial Actuarial Actuarial Actuarial Annual as a Valuation Value of Accrued Percentage Accrued Covered Percentage of Date Assets Liability Funded Liability Payroll Covered Payroll 12/31/07 $ 2,594,197 $ 3,268,266 79.4%$ 674,069 $ 2,420,270 27.9% 12/31/08 2,981,655 3,457,019 86.2%475,364 2,495,573 19.0% 12/31/09 3,419,092 3,973,365 86.1%554,273 2,503,067 22.1% 44 CITY OF SANGER, TEXAS BUDGETARY COMPARISON SCHEDULE - GENERAL FUND YEAR ENDED SEPTEMBER 30, 2010 Variance with Budgeted Amounts Actual Final Budget Original Final Amount Over I (Under) Revenues Property taxes Sales taxes Licenses and permits Charges for services Fire and rescue Court Franchise taxes Interest Miscellaneous revenues Total revenues Expenditures Current General government Public safety Streets and sanitation Fire and rescue Court Culture and recreation Principal Interest and other Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources (uses) Proceeds on sale of assets Operating transfers in Total other financing sources (uses) Excess (deficiency) of revenues and other financing sources over expenditures and other financing uses FUND BALANCE, beginning of year FUND BALANCES, end of year $ 1,501,390 $ 1,501,390 $ 1,587,954 $ 86,564 4,441,317 4,441,317 4,136,435 (304,882) 751,145 751,145 555,668 (195,477) 1,159,319 1,194,319 1,206,731 12,412 1,013,147 1,013,147 762,615 (250,532) 890,114 890,114 559,344 (330,770) 244,311 244,311 193,877 (50,434) 776,909 776,909 387,810 (389,099) --90,877 90,877 --13,238 13,238 --349,030 349,030 4,834,945 4,869,945 4,119,190 (750,755) (393,628) (428,628) 17,245 445,873 - - 17,315 17,315 225,000 369,115 158,795 (210,320) 225,000 369,115 176,110 (193,005) (168,628) (59,513) 193,355 252,868 545,655 545,655 545,655 - $ 377,027 $ 486,142 $ 739,010 $ 252,868 500,000 500,000 472,352 (27,648) 88,525 88,525 44,635 (43,890) 652,377 652,377 723,374 70,997 775,000 775,000 451,346 (323,654) 215,925 215,925 210,965 (4,960) 559,500 559,500 527,872 (31,628) 40,000 40,000 17,982 (22,018) 108,600 108,600 99,955 (8,645) 45 SUPPLEMENTARY INFORMATION CITY OF SANGER, TEXAS COMBINING SCHEDULE OF REVENUES AND EXPENSES PROPRIETARY FUND BY DEPARTMENT YEAR ENDED SEPTEMBER 30, 2010 Water Sewer Electric $ 1,095,408 $ 907,980 $ 7,295,442 --62,532 30,500 22,000 - 1,125, 908 929,980 7,357,974 249,302 148,454 475,068 2,682 5,001 4,231 141,572 171,921 11,894 15,068 12,314 37,095 230,080 -4,723,499 --354,842 220,836 237,065 356,182 102,665 131,177 128,445 35,854 8,963 111,076 nnn I.,1.4 a nnr n nnn nnn 127,849 215,085 1,155,642 (168,148)(96,561)(138,356) (168,148)(96,561)(138,356) (40,299)118,524 1,017,286 - 231,245 $ (40,299) $ 118,524 $ 1,248,531 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 Gain/loss on sale of asset Total nonoperating revenues (expenses) Income (loss) before transfers Transfers in CHANGE IN NET ASSETS 46 Fleet Data Services Administration Processing Total $ -$ 2,789 $ -$ 9,301,619 ---62,532 ---52,500 -42,276 -42,276 -45,065 -9,458,927 30,442 220,217 158,887 1,282,370 12 65,409 31,271 108,606 4,469 6,006 4,732 340,594 6,767 22,198 13,489 106,931 ---4,953,579 ---354,842 ---814,083 3,442 4,066 7,606 377,401 ---155,893 45,132 317,896 215,985 8,494,299 (45,132)(272,831)(215,985)964,628 37,360 - 37,360 - - (403,065) 11,814 - 11,814 49,174 - (353,891) (45,132) (223,657) (215,985) 610,737 - 231,245 $ (45,132) $ (223,657) $ (215,985) $ 841,982 47 CITY OF SANGER, TEXAS ANALYSIS OF PROPERTY TAXES RECEIVABLE YEAR ENDED SEPTEMBER 30, 2010 WITH COMPARATIVE TOTALS FOR FOUR YEARS PRIOR Fiscal Year 2010 2009 2008 2007 2006 Adjusted tax roll $ 2,256,987 $ 2,308,903 $ 2,118,117 $ 2,014,381 $ 1,785,686 Less collections 2,216,114 2,256,275 2,078,588 1,961,241 1,752,921 Current year property taxes receivable 40,873 52,628 39,529 53,140 32,765 Prior year property taxes receivable 79,796 74,407 71,283 66,629 61,995 Total property taxes receivable, gross (1)$ 120,669 $ 127,035 $ 110,812 $ 119,769 $ 94,760 Total assessed property value $ 364,030,183 $ 341,028,251 $ 336,831,151 $ 341,154,524 $ 312,822,804 Tax rate per $100 $ 0.62000 $ 0.62000 $ 0.59960 $ 0.59046 $ 0.59083 Percent of current taxes collected to billed 98.19%97.72%98.13%97.36%98.17% (1) before deducting allowance for doubtful accounts 48 APPENDIX C FORM OF BOND COUNSEL OPINION ATTORNEYS KU Q T H LLP Andrews & Kurth L.L.P. 600 Travis, Suite 4200 Houston, Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com April 24, 2012 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 bonds (the "Bonds") described as follows: CITY OF SANGER, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012, dated April 1, 2012, in the aggregate principal amount of $3,495,000 maturing on May 15 in each year from 2012 through 2021, inclusive. The Bonds 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 Bonds and in the ordinance (the "Ordinance") adopted by the City Council of the City 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 Bonds under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Bonds 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 Bonds and the bonds and certificates of obligation that are being refunded (the "Refunded Obligations") with the proceeds of the Bonds, as described in the Ordinance. The transcript contains certified copies of certain proceedings of the City, BOKF, NA dba Bank of Texas (the "Escrow Agent") and, with respect to certain of the Refunded Obligations, The Bank of New York Mellon Trust Company, N.A. (the "Paying Agent for the Refunded Obligations"); and the report (the "Report") of Grant Thornton L.L.P., certified public accountants, which verifies the sufficiency of the deposits made with the Escrow Agent and, with respect to certain of the Refunded Obligations, the deposits made with the Paying Agent for the Refunded Obligations for the defeasance of the Refunded Obligations and the mathematical accuracy of certain computations of the yield on the Bonds and the obligations acquired with the proceeds of the Bonds; 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 Bonds and the firm banking and financial arrangements for the discharge and final payment of the Refunded Obligations. We have also examined executed Bond No. R-1 of this issue. 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 Bonds. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein. Austin Beijing Dallas Houston London New York The Woodlands Washington, DC HOU:3 197543.1 April 24, 2012 Page 2 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 Bonds in full compliance with the Constitution and laws of the State of Texas presently in effect; the Bonds 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 Bonds 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 Bonds have been authorized and delivered in accordance with law; (2)The Bonds 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 Bonds; and (3)The escrow agreement between the District and the Escrow Agent (the "Escrow Agreement") has been duly executed and delivered and constitutes a binding and enforceable agreement in accordance with its terms; the establishment of the Escrow Fund pursuant to the Escrow Agreement and the deposit made therein and, with respect to certain of the Refunded Obligations, the deposit of cash with the Paying Agent for the Refunded Obligations constitute the making of firm banking and financial arrangements for the discharge and final payment of the Refunded Obligations; in reliance upon the accuracy of the calculations contained in the Report, the Refunded Obligations, having been discharged and paid, are no longer outstanding and the lien on and pledge of ad valorem taxes and other revenues as set forth in the ordinance authorizing their issuance will be appropriately and legally defeased; the holders of the Refunded Obligations may obtain payment of the principal of, redemption premium, if any, and interest on the Refunded Obligations only out of the funds provided therefor now held in escrow for that purpose by the Escrow Agent pursuant to the terms of the Escrow Agreement and, with respect to certain of the Refunded Obligations, by the Paying Agent for the Refunded Obligations; and therefore the Refunded Obligations are deemed to be fully paid and no longer outstanding, except for the purpose of being paid from the funds provided therefor. ALSO BASED ON OUR EXAMINATION AS DESCRIBED ABOVE, it is our further opinion that, subject to the restrictions hereinafter described, interest on the Bonds 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 or, except as hereinafter described, HOU:3197543.1 April 24, 2012 Page 3 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 Bonds 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 Ordinance to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. 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 Bonds in gross income of the owners thereof for federal income tax purposes. We have further relied on the Report regarding the mathematical accuracy of certain computations. If such representations or the Report are determined to be inaccurate or incomplete or the District fails to comply with the foregoing provisions of the Order, interest on the Bonds could become includable in gross income from the date of original delivery, regardless of the date on which the event causing such inclusions occurs. INTEREST ON all tax-exempt obligations, including the Bonds, 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. Purchasers of Bonds are directed to the discussion entitled "TAX EXEMPTION" set forth in the Official Statement. 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 Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations, such as the Bonds, 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 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 Bonds. 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 HOU:3197543.1 April 24, 2012 Page 4 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:3197543.1 APPENDIX D SCHEDULE OF REFUNDED OBLIGATIONS Original Principal Call Series Maturity Amount Date/Price Combination Tax and 09/01/2013 $120,000 09/01/2012 @ 100% Revenue Certificates of 09/01/2014 125,000 09/01/2012 @ 100% Obligation, Series 2002 09/01/2015 130,000 09/01/2012 @ 100% 09/01/2016 135,000 09/01/2012 @ 100% 09/01/2017 145,000 09/01/2012 @ 100% 09/01/2018 150,000 09/01/2012 @ 100% 09/01/2019 160,000 09/01/2012 @ 100% 09/01/2020 170,000 09/01/2012 @ 100% 09/01/2022(a)360,000 09/01/2012 @ 100% Utility System Revenue Bonds 05/15/2013 125,000 05/15/2012 @ 100% Series 2002 05/15/2014 130,000 05/15/2012 @ 100% 05/15/2015 140,000 05/15/2012 @ 100% 05/15/2016 145,000 05/15/2012 @ 100% 05/15/2017 155,000 05/15/2012 @ 100% 05/15/2018 160,000 05/15/2012 @ 100% 05/15/2019 170,000 05/15/2012 @ 100% *********** 05/15/2022(a)565,000 05/15/2012 @ 100% Utility System Revenue Bonds 05/15/2013 $70,000 04/24/2012 @ 100% Series 1996 05/15/2014 75,000 04/24/2012 @ 100% 05/15/2015 80,000 04/24/2012 @ 100% 05/15/2016 85,000 04/24/2012 @ 100% (a) Represents a Term Bond. PAYING AGENT/REGISTRAR AGREEMENT THIS PAYING AGENT/REGISTRAR AGREEMENT dated as of March 5, 2012 (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 General Obligation Refunding Bonds, Series 2012 ( the "Obligations"); WHEREAS, all things necessary to make the Obligations (as defined herein) 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 Obligations, in accordance with the terms thereof, and under which the Bank will act as Registrar for the Obligations; 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 Obligations, to pay to the Registered Owners of the Obligations, in accordance with the terms and provisions of this Agreement and the Ordinance, the principal of, redemption premium, if any, and interest on all or any of the Obligations. The Issuer hereby appoints the Bank as Registrar with respect to the Obligations. The Bank hereby accepts its appointment, and agrees to act as Paying Agent and Registrar with respect to the Obligations. HOU:3196154.2 Section 1.02. Compensation. As compensation for the Bank's Services as Paying Agent and Registrar, the Issuer hereby agrees to pay the Bank the fees set forth in the Bank's fee schedule attached as Exhibit A hereto. The Bank reserves the right to amend the fee schedule at any time, provided the Bank shall have furnished the Issuer with a written copy of such amended fee schedule at least 60 days prior to the date that the new fees are to become effective. In consideration of the deposits of funds required to be made with the Bank by the Issuer pursuant to the provisions of the Ordinance (hereinafter defined), the Bank 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. "Obligations" means all of the "City of Sanger, Texas General Obligation Refunding Bonds, Series 2012" authorized by the Ordinance. "Issuer" means the City of Sanger, Texas. "Ordinance" means the ordinance authorizing issuance of the Obligations of the Issuer approved by its City Council on March 5, 2012. "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 Obligation 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:3196154.2 ARTICLE THREE DUTIES OF THE BANK Section 3.01. Initial Delivery of the Obligations. The Obligations will be initially registered and delivered by the Bank to the purchasers designated by the Issuer as set forth in the Ordinance. If a 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 Obligations initially delivered for Obligations of authorized denominations, registered in accordance with the instructions in such request and the Ordinance. Section 3.02. Duties of Paying 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 Obligation in accordance with the provisions of the Ordinance. If the Obligations are to be Depository Trust Company (DTC) eligible, the Bank will comply with all eligibility requirements as outlined and agreed upon in the eligibility questionnaire. Section 3.03. Duties of Registrar. trar. The Bank shall provide for the proper registration of the Obligations and the exchange, replacement and registration of transfer of the Obligations in accordance with the provisions of the Order. The Bank will maintain the books of registration in accordance with transfer agent regulations promulgated by the Securities and Exchange Commission and the applicable provisions of the Uniform Commercial Code. The Bank shall maintain a copy of the books of registration at the District's administrative offices. Section 3.04. Unauthenticated Obligations. ions. The Issuer shall provide an adequate inventory of unauthenticated Obligations to facilitate transfers. The Bank covenants that it will maintain such unauthenticated Obligations in safekeeping and will use reasonable care in maintaining such Obligations 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. 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 Obligations 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 Obligations and in the Bank's possession at any time the Bank is customarily open for business, provided that HOU:3196154.2 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 Obligations. All Obligations 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 Obligations previously authenticated and delivered which the Issuer may have acquired in any manner whatsoever, and all Obligations so delivered shall be promptly canceled by the Bank. All canceled Obligations 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 Obligations 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. 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 Obligations and shall be continuously collateralized by securities or obligations which qualify and are eligible under both the laws of the State of Texas and the laws of the United States of America to secure and be pledged as collateral for fiduciary accounts to the extent such money is not insured by the Federal Deposit Insurance Corporation. 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. 4 HOU:3196154.2 Any money deposited with the Bank for the payment of the principal of or interest on any Obligations 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 Obligations by virtue of actions taken in compliance with the foregoing provision. ARTICLE FOUR MISCELLANEOUS PROVISIONS Section 4.01. May Own Obligations. The Bank, in its individual or any other capacity, may become the owner or pledgee of Obligations with the same rights it would have if it were not the Paying Agent and Registrar for the Obligations. 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. 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 Headings. 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. 5 HOU:3196154.2 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 Obligations. 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, Obligations and all books and records pertaining to the Bank's role as Paying Agent and Registrar with respect to the Obligations, including, but not limited to, the books of registration. Section 4.11. Interpleader The Issuer and the Bank agree that the Bank may seek adjudication of any adverse claim, demand, or controversy over its person as well as funds on deposit hereunder, in either the District Court of Harris County, Texas or the United States Federal District Court for the Southern District of Texas, waive personal service of any process, and agree that service of process by certified or registered mail, return receipt requested, to the address set forth herein shall constitute adequate service. The Issuer and the Bank further agree that the Bank has the right to file a Bill of Interpleader in any court of competent jurisdiction within the State of Texas, at the expense of the Issuer, to determine the rights of any person claiming any interest hereunder. Section 4.12. Counterparts This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement. Cel HOU:3196154.2 Section 4.13. Governing Law. This Agreement shall be construed in accordance with and shall be governed by the laws of the State of Texas. HOU:3196154.2 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CITY OF SANGER, TEXAS Mayor ADDRESS: P.O. Box 1729 Sanger, Texas 76266 ATTEST: City Secretary (^v yg444?t!l86dOgE$ (S S Fl 1,^^ si^^^/ion I , r^ ^'•^S a^`° ♦♦ `♦ ^^,^^tlli61B144®44^^ By: S-1 HOU:3196154.1 BOKF, NA dba BANK OF TEXAS By: Name: Jc sE A GAYTAN JR. Title: VICE PRESIDENT ADDRESS: BOKF, NA dba Bank of Texas 111 Congress, Suite 400 Austin, Texas 78701 Attention: Jose A. Gaytan, Jr. S-1 HOU:3196154.1 EXHIBIT A FEE SCHEDULE HOU:3196154.2 $3,495,000 City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 Paying Agent/Registrar and Refunding Escrow Agent Schedule of Fees Acceptance Fee: $0 Annual Administration Fee: $500.00 For ordinary administration services by Paying Agent/Registrar — includes daily routine account management; cash transaction processing in accordance with the agreement; and mailing of trust account statements to all applicable parties. Float credit received by the bank for receiving funds that remain uninvested are deemed part of the Paying Agent's compensation. Refunding Escrow Agent Administration Fee: $500.00 For ordinary administrative services by Escrow Agent — includes daily routine account management; investment transactions; cash transaction processing (including wire and check processing); monitoring claim notices pursuant to the agreement; disbursement of funds in accordance with the agreement; and mailing of trust account statements to all applicable parties. This fee is payable in advance, with the first installment due at the time of settlement. The fee covers the life of the transaction (Estimated Termination Date 8/15/13) or any part thereof and therefore will not be prorated or refunded upon early termination. Fee is based on the following assumptions: • Number of Escrow Accounts to be established: One (i) • Number of Deposits to Escrow Account: One (1) • Number of Withdrawals from the Escrow Fund: Per Report Charges for performing extraordinary or other services not contemplated at the time of the execution of the transaction or not specifically covered elsewhere in this schedule will be determined by appraisal in the amounts commensurate with the service provided. Counsel fees, if ever retained as a result of a default, or other extraordinary occurrences on behalf of the bondholders or Bank of Texas, will be billed at cost. Services not included in this Fee Schedule, but deemed necessary or desirable by you, may be subject to additional charges based on a mutually agreed upon fee schedule. Our proposal is subject in all aspects to review and acceptance of the final financing documents which sets forth our duties and responsibilities. Jose Gaytan Bank of Texas Vice President Corporate Trust Services Tel: 512.279.7850 iii Congress Avenue Fax: 512.2 79 .7853 Suite 400 JGaytan(a)bankotexas.com Austin, TX 78701 March q n_ 2n12 '1 ESCROW AGREEMENT THIS ESCROW AGREEMENT (this "Escrow Agreement"), dated for convenience as of March 5, 2012, but effective on the Escrow Funding Date described herein, is made and entered into by and between the CITY OF SANGER, TEXAS, a political subdivision of the State of Texas (together with any successor to its duties and functions, the "City"), and BOKF, NA dba BANK OF TEXAS, Austin, Texas, as escrow agent (together with any successor or assign in such capacity, the "Escrow Agent"). WHEREAS, the City has heretofore issued certain obligations (hereinafter defined as the "Refunded Obligations") that it desires to refund in advance of their maturities; WHEREAS, Chapter 1207, Texas Government Code, as amended, authorizes and empowers the City to issue, sell and deliver refunding bonds payable from ad valorem taxes and to deposit with a paying agent for any of the Refunded Obligations, or a trust company or commercial bank that does not act as a depository for the City, from the proceeds of such bonds, together with any other available funds, an amount sufficient to provide for the payment or redemption of the Refunded Obligations; WHEREAS, the governing body of the City has adopted an ordinance (the "Refunding Bond Ordinance") authorizing the issuance, sale and delivery by the City of its General Obligation Refunding Bonds, Series 2012, in the aggregate principal amount of $3,495,000 (the "Refunding Bonds"), for the purpose, among other purposes, of providing the funds necessary to refund the Refunded Obligations to achieve actual and present value debt service savings to the City; WHEREAS, to provide for the payment of the Refunded Obligations, the City has provided for the transfer to the Escrow Agent pursuant to this Escrow Agreement of proceeds of the Refunding Bonds and other money lawfully available for such purpose; and WHEREAS, the governing body of the City has further determined to effectuate the advance refunding of the Refunded Obligations pursuant to this Escrow Agreement, under which provision is made for the safekeeping, investment, reinvestment, administration and disposition of proceeds of the Refunding Bonds so as to provide firm banking and financial arrangements for the discharge and final payment of the Refunded Obligations; NOW, THEREFORE, in consideration of the mutual undertakings, promises and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, and in order to secure the full and timely payment of the principal of and interest on the Refunded Obligations, the City and the Escrow Agent contract and agree as follows: ARTICLE I. DEFINITIONS AND INTERPRETATIONS Section 1.1. Definitions. Unless otherwise expressly provided or unless the context clearly requires otherwise, the following terms shall have the respective meanings specified below for all purposes of this Escrow Agreement: "Board" shall mean the City's Board of Trustees. "City" shall mean the City of Sanger, Texas, and any successor to its duties and functions. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the applicable regulations thereunder and under the Internal Revenue Code of 1954. "Escrow Agent" shall mean BOKF, NA dba Bank of Texas, Austin, Texas, in its capacity as escrow agent hereunder, and any successor or assign in such capacity. HOU:3197400.1 "Escrow Agreement" shall mean this escrow agreement. "Escrow Deposit" shall mean the initial deposit into the Escrow Fund, as more particularly described in Section 2.1. "Escrow Fund" shall mean the fund created in Section 3.1 of this Escrow Agreement to be administered by the Escrow Agent pursuant to the provisions of this Escrow Agreement. "Escrow Funding Date" shall mean the date on which the City deposits with the Escrow Agent the Escrow Deposit described in Section 2.1, which date shall be no later than April 24, 2012. "Escrowed Securities" shall mean the Limited Yield Securities and the Open Market Securities. "Limited Yield Securities" shall mean the noncallable United States Treasury Obligations-State and Local Government Series to be initially purchased with proceeds of the Refunding Bonds, as more fully described in the Report attached hereto, together with all reinvestments of the proceeds thereof as may be directed in Section 4.2 or permitted in Section 4.3(b). "Open Market Securities" shall mean the (i) United States Treasury securities (or other direct non-callable obligations of the United States, including obligations that are unconditionally guaranteed by the United States); (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 hereof, 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 hereof, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, to be purchased in the open market with cash and the proceeds of the Refunding Bonds, as more fully described in the Report attached hereto, together with all reinvestments of the proceeds thereof as may be directed in Section 4.2 or permitted in Section 4.3(b), or cash or obligations substituted therefor pursuant to Section 4.3(a). "Paying Agent for the Refunded Obligations" shall mean The Bank of New York Mellon Trust Company, N.A., as applicable. "Refunded Bond Ordinances" shall mean the City's ordinances authorizing the issuance, sale and delivery of the Refunded Obligations. "Refunded Obligations" shall mean the outstanding obligations of the City shown on Exhibit C hereto. "Refunding Bonds" shall mean the City's General Obligation Refunding Bonds, Series 2012, dated April 1, 2012, in the initial aggregate principal amount of $3,495,000. "Report" shall mean the verification report prepared by Grant Thornton LLP, Certified Public Accountants, relating to the advance refunding of the Refunded Obligations, a copy of which is attached hereto as Exhibit B, and any subsequent verification report required by Section 4.3. Section 1.2. Interpretations. The titles and headings of the articles and sections of this Escrow Agreement 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 the terms hereof. This Escrow Agreement and all of the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to achieve the intended purpose of providing for the refunding of the Refunded Obligations in accordance with applicable law. 2 HOU:3197400.1 ARTICLE II. DEPOSIT OF FUNDS AND ESCROWED SECURITIES Section 2.1. Deposits to Escrow Fund. On the Escrow Funding Date, the City shall deposit, or cause to be deposited, into the Escrow Fund the Escrow Deposit, consisting of the following: (a)as the beginning cash balance for the Escrow Fund as shown in the Report, $0; (b)the initial Limited Yield Securities with a purchase price of $3,161,278.00; and (C) the initial Open Market Securities with a purchase price of $0.00. ARTICLE III. CREATION AND OPERATION OF ESCROW FUND Section 3.1. Escrow Fund. On the Escrow Funding Date the Escrow Agent will create in its books a special fund and irrevocable escrow to be known as the "City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 Escrow Fund" (the "Escrow Fund"). On the Escrow Funding Date, the Escrow Deposit described in Section 2.1 will be deposited to the credit of the Escrow Fund. The Escrow Deposit and all proceeds therefrom shall be the property of the Escrow Fund and shall be applied only in strict conformity with the terms and conditions hereof. All Escrowed Securities, all proceeds therefrom and all cash balances from time to time on deposit in the Escrow Fund are hereby irrevocably pledged to the payment of the principal of, redemption premium, if any, and interest on the Refunded Obligations, which payment shall be made by timely transfers to the Paying Agent for the Refunded Obligations of such amounts at such times as are provided in Section 3.2. When the final transfers have been made to the Paying Agent for the Refunded Obligations for the payment of such principal of, redemption premium, if any, and interest on the Refunded Obligations, any balance then remaining in the Escrow Fund shall be transferred to the City, and the Escrow Agent shall thereupon be discharged from any further duties hereunder. Section 3.2. Payment of Principal, Redemption Premium, if any, and Interest; Redemption of Certain Refunded Obligations. ions. (a) The Escrow Agent is hereby irrevocably instructed to transfer to the Paying Agent for the Refunded Obligations from the cash balance from time to time on deposit in the Escrow Fund the amounts required to pay the principal of, redemption premium, if any, and interest on the Refunded Obligations in the amounts and at the times shown in the Report; provided, however, that funds transferred to the Escrow Fund from the interest and sinking fund for the Refunded Obligations and all investment earnings thereon shall be used for the payment of the principal of, redemption premium, if any, and interest on the Refunded Obligations prior to the use of proceeds of the Refunding Bonds for such purpose. (b) Except for amounts transferred to the Paying Agent for the Refunded Obligations pursuant to Section 3.2(a) and to the City pursuant to Section 4.2, the Escrow Agent agrees that it shall never make any withdrawals from the Escrow Fund or assert any claims, liens or charges against the Escrow Fund. Section 3.3. Sufficiency of Escrow Fund. The City represents (based upon the Report) that the successive receipts of the principal of and interest on the Escrowed Securities will assure that the cash balance on deposit from time to time in the Escrow Fund will be at all times sufficient to provide money for transfer to the Paying Agent for the Refunded Obligations at the times and in the amounts required to pay the interest on the Refunded Obligations as such interest comes due and to pay the principal of, redemption premium, if any, and interest on the Refunded Obligations as the Refunded Obligations mature or are called for redemption, all as more fully set forth in the Report. If, for any reason, at any time, the cash balances on deposit or scheduled to be on deposit in the Escrow Fund shall be insufficient to transfer the amounts required by the Paying Agent for the Refunded Obligations to make the payments set forth in Section 3.2, the City shall timely deposit into the Escrow Fund, from lawfully available funds, additional. funds in the amounts required to make such payments. Notice of HOU:3197400.1 any such insufficiency shall be given promptly by the Escrow Agent to the City as hereinafter provided, but the Escrow Agent shall not in any manner be responsible for any insufficiency of funds in the Escrow Fund or the City's failure to make additional deposits thereto. Section 3.4. Trust Fund. The Escrow Agent at all times shall hold the Escrow Fund, the Escrowed Securities and all other assets of the Escrow Fund wholly segregated from all other funds and securities on deposit with the Escrow Agent; it shall never allow the Escrowed Securities or any other assets of the Escrow Fund to be commingled with any other funds or securities of the Escrow Agent; and it shall hold and dispose of the assets of the Escrow Fund only as set forth herein. The Escrowed Securities and other assets of the Escrow Fund always shall be maintained by the Escrow Agent for the benefit of the holders of the Refunded Obligations; and a special account evidencing such fact shall be maintained at all times on the books of the Escrow Agent. The holders of the Refunded Obligations shall be entitled to the same preferred claim and first lien upon the Escrowed Securities, the proceeds thereof and all other assets of the Escrow Fund to which they are entitled as holders of the Refunded Obligations. The amounts received by the Escrow Agent under this Escrow Agreement shall not be considered as a banking deposit by the City, and the Escrow Agent shall have no right or title with respect thereto except as escrow agent under the terms hereof. The amounts received by the Escrow Agent hereunder shall not be subject to warrants, drafts or checks drawn by the City or, except to the extent expressly herein provided, by the Paying Agent for the Refunded Obligations. Section 3.5. Security for Cash Balances. Cash balances from time to time on deposit in the Escrow Fund, to the extent not insured by the Federal Deposit Insurance Corporation or its successor, shall be continuously secured by a pledge of direct obligations of, or obligations unconditionally guaranteed by, the United States of America, having a market value at least equal to such cash balances. ARTICLE IV. LIMITATION ON INVESTMENTS Section 4.1. General. Except as herein otherwise expressly provided, the Escrow Agent shall not have any power or duty to invest any money held hereunder, to make substitutions of the Escrowed Securities or to sell, transfer or otherwise dispose of the Escrowed Securities. Section 4.2. Reinvestment of Proceeds of Escrowed Securities. The Escrow Agent is hereby authorized and directed to reinvest proceeds of the Escrowed Securities which are attributable to amounts received as principal of or interest on the Escrowed Securities and which are not immediately needed to pay the Refunded Obligations in direct obligations of the United States of America, i.e., United States Treasury Bonds, Bills and Notes, in the amounts, and maturing and bearing interest, all as set out in the Report. The City hereby designates and appoints the Escrow Agent as its agent and duly authorized representative for purposes of subscribing for and purchasing such obligations, all of which shall constitute Escrowed Securities. Any income or increment earned from such reinvestment remaining after final payment of the Refunded Obligations shall be promptly transferred to the City. Section 4.3. Substitution of Securities. (a) Concurrently with the sale and delivery of the Refunding Bonds, the City may, upon compliance with the conditions stated in subsection (c) of this Section 4.3, at its option, substitute cash or non-interest bearing obligations of the United States Treasury (i.e., Treasury obligations which mature and are payable in a stated amount on the maturity date thereof and for which there are no payments other than the payment made on the maturity date) for non-interest bearing Open Market Securities listed in the Report, but only if such cash and/or substituted non-interest bearing direct obligations of the United States Treasury: (i)are in an amount, and/or mature in an amount, which, together with any cash substituted for such obligations, is equal to or greater than the amount payable on the maturity date of the obligation listed in the Report for which such obligation is substituted, and (ii)mature on or before the maturity date of the obligation listed in the Report for which such obligation is substituted. 11 HOU:3197400.1 The City may at any time substitute any Open Market Securities which, as permitted by the preceding sentence, were not deposited to the credit of the Escrow Fund, for the cash and/or obligations that were substituted concurrently with the sale and delivery of the Refunding Bonds for such Open Market Securities. (b)At the written request of the City, and upon compliance with the conditions hereinafter stated in subsection (c) of this Section 4.3, the Escrow Agent shall sell, transfer, otherwise dispose of or request the redemption of all or any portion of the Escrowed Securities and apply the proceeds therefrom to purchase Refunded Obligations or direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America which do not permit the redemption thereof at the option of the obligor. (c)Any such transaction described in subsections (a) and (b) of this Section 4.3 may be affected by the Escrow Agent only if (1) the Escrow Agent shall have received a written opinion from a recognized firm of certified public accountants that such transaction will not cause the amount of money and securities in the Escrow Fund to be reduced below an amount which will be sufficient, when added to the interest to accrue thereon, to provide for the payment of principal of, redemption premium, if any, and interest on the remaining Refunded Obligations as they become due, and (2) the Escrow Agent shall have received the unqualified written legal opinion of nationally recognized bond counsel or tax counsel acceptable to the City and the Escrow Agent to the effect that (a) such transaction will not cause any of the Refunded Obligations or Refunding Bonds to be an "arbitrage bond" within the meaning of the Code and (b) that such transaction complies with the Constitution and laws of the State of Texas and with all relevant documents relating to the issuance of the Refunded Obligations and the Refunding Bonds. Section 4.4. Arbitrage. The City hereby covenants and agrees that it shall never request the Escrow Agent to exercise any power hereunder or permit any part of the money in the Escrow Fund or proceeds from the sale of Escrowed Securities to be used directly or indirectly to acquire any securities or obligations if the exercise of such power or the acquisition of such securities or obligations would cause any Refunding Bond to be an "arbitrage bond" within the meaning of the Code. ARTICLE V. RECORDS AND REPORTS Section 5.1. Records. The Escrow Agent shall keep books of record and account in which complete and correct entries shall be made of all transactions relating to the receipt, disbursement, allocation and application of the money and Escrowed Securities deposited to the Escrow Fund and all proceeds thereof, and such books shall be available for inspection at reasonable hours and under reasonable conditions by the City and the holders of the Refunded Obligations. Section 5.2. Reports. For the period beginning on the Escrow Funding Date and ending on December 31, 2011, and for each twelve (12) month period thereafter while this Agreement remains in effect, the Escrow Agent shall prepare and send to the City within thirty (30) days following the end of such period a written report summarizing all transactions relating to the Escrow Fund during such period, including, without limitation, credits to the Escrow Fund as a result of interest payments on or maturities of the Escrowed Securities and transfers from the Escrow Fund to the Paying Agent for the Refunded Obligations or otherwise, together with a detailed statement of all Escrowed Securities and the cash balance on deposit in the Escrow Fund as of the end of such period. ARTICLE VI. CONCERNING THE ESCROW AGENT Section 6.1. Representations of Escrow Agent. BOKF, NA dba Bank of Texas hereby represents that it is (a) either (i) a Paying Agent for the Refunded Obligations or (ii) a trust company or commercial bank that does not act as a depository for the City and (b) that it has all necessary power and authority to enter into this Escrow Agreement and undertake the obligations and responsibilities imposed upon it herein and that it will carry out all of its obligations hereunder. 5 HOU:3197400.1 Section 6.2. Limitation on Liability. The liability of the Escrow Agent to transfer funds to the Paying Agent for the Refunded Obligations for the payments of the principal of, redemption premium, if any, and interest on the Refunded Obligations shall be limited to the proceeds of the Escrowed Securities and the cash balances from time to time on deposit in the Escrow Fund. Notwithstanding any provision contained herein to the contrary, the Escrow Agent shall have no liability whatsoever for the insufficiency of funds from time to time in the Escrow Fund or any failure of the obligor of the Escrowed Securities to make timely payment thereon, except for its obligation to notify the City promptly of any such occurrence. The recitals herein and in the proceedings authorizing the Refunding Bonds shall be taken as the statements of the City and shall not be considered as made by, or imposing any obligation or liability upon, the Escrow Agent. The Escrow Agent is not a party to the Refunding Bond Ordinance or the Refunded Bond Ordinances and in its capacity as Escrow Agent is not responsible for or bound by any of the provisions thereof. In its capacity as Escrow Agent, it is agreed that the Escrow Agent need look only to the terms and provisions of this Escrow Agreement. The Escrow Agent makes no representation as to the value, condition or sufficiency of the Escrow Fund, or any part thereof, or as to the title of the City thereto, or as to the security afforded thereby or hereby, and the Escrow Agent shall incur no liability or responsibility with respect to any of such matters. It is the intention of the City and the Escrow Agent that the Escrow Agent shall never be required to use or advance its own funds or otherwise incur personal financial liability in the performance of any of its duties or the exercise of any of its rights and powers hereunder. The Escrow Agent shall not be liable for the performance of any duties, except such duties as are specifically set forth in this Escrow Agreement, and no implied covenants or obligations shall be read into this Escrow Agreement. Nothing herein contained shall relieve the Escrow Agent from liability for its own negligent action, negligent failure to act or willful misconduct, except that this sentence shall not be construed to limit the effect of the immediately preceding sentence. The Escrow Agent shall not incur any liability for any error of judgment made in good faith by a responsible officer thereof, unless it shall be proved that it was negligent in ascertaining the pertinent facts. The Escrow Agent shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bond or other paper or document believed by it to be genuine, and to have been signed or presented by the proper party or parties. The Escrow Agent may consult with counsel, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it in good faith and in accordance therewith. Unless it is specifically provided otherwise herein, the Escrow Agent has no duty to determine or inquire into the happening or occurrence of any event or contingency or the performance or failure of performance of the City with respect to arrangements or contracts with others, with the Escrow Agent's sole duty hereunder being to safeguard the Escrow Fund and to dispose of and deliver the same in accordance with this Escrow Agreement. If, however, the Escrow Agent is called upon by the terms of this Escrow Agreement to determine the occurrence of any event or contingency, the Escrow Agent shall be obligated, in making such determination, only to exercise reasonable care and diligence, and in the event of error in making such determination the Escrow Agent shall be liable only for its own misconduct or its negligence. In determining the occurrence of any such event or contingency the Escrow Agent may request from the City or any other person such reasonable additional evidence as the Escrow Agent in its discretion may deem necessary to determine any fact relating to the occurrence of such event or contingency, and in this connection may make inquiries of, and consult with, the City, among others, at any time. The Escrow Agent shall not be liable for any action taken or neglected to be taken by it in good faith in the exercise of reasonable care and believed by it to be within the discretion or power conferred upon it by this Escrow Agreement, nor shall the Escrow Agent be responsible for the consequences of any error of judgment; nor shall the Escrow Agent be answerable, except for its own neglect or fault, for any loss unless the same shall have been through its negligence or want of good faith. In the absence of bad faith, the Escrow Agent may rely conclusively upon the truth, completeness and accuracy of the statements, certificates, opinions, resolutions and other documents conforming to the requirements of this Escrow Agreement, and shall not be obligated to make any independent investigation with respect thereto. HOU:3197400.1 To the full extent permitted by law, the parties agree to indemnify, defend and hold the Escrow Agent harmless from and against any and all loss, damage, tax, liability and expense that may be incurred by the Escrow Agent arising out of or in connection with its acceptance or appointment as Escrow Agent hereunder, including attorneys' fees and expenses of defending itself against any claim or liability in connection with its performance hereunder except that the Escrow Agent shall not be indemnified for any loss, damage, tax, liability, or expense resulting from its own negligence or willful misconduct. Section 6.3. Compensation. On the Escrow Funding Date, the City will pay BOKF, NA dba Bank of Texas for performing its services as Escrow Agent hereunder and for all expenses incurred or to be incurred by the Escrow Agent in the administration of this Escrow Agreement, the fees set out in Exhibit A. If the Escrow Agent is requested to perform any extraordinary services hereunder, the City hereby agrees to pay reasonable fees to the Escrow Agent for such extraordinary services and to reimburse the Escrow Agent for all expenses incurred by the Escrow Agent in performing such extraordinary services. It is expressly provided that the Escrow Agent shall look only to the City for the payment of such additional fees and reimbursement of such additional expenses. The Escrow Agent hereby agrees that in no event shall it ever assert any claim or lien against the Escrow Fund for any fees for its services, whether regular, additional or extraordinary, as Escrow Agent, or in any other capacity, or for reimbursement for any of its expenses. Section 6.4. Successor Escrow Agents. If at any time the Escrow Agent or its legal successor or successors should become unable, through operation of law or otherwise, to act as escrow agent hereunder, or if its property and affairs shall be taken under the control of any state or federal court or administrative body because of insolvency or bankruptcy or for any other reason, a vacancy shall forthwith exist in the office of Escrow Agent hereunder. In such event the City, by appropriate action, shall promptly appoint an Escrow Agent to fill such vacancy. If no successor Escrow Agent shall have been appointed by the City within 60 days of such vacancy, a successor may be appointed by the holders of a majority in aggregate principal amount of the Refunded Obligations then outstanding by an instrument or instruments in writing filed with the City, signed by such holders or by their duly authorized attorneys. If, in a proper case, no appointment of a successor Escrow Agent shall be made pursuant to the foregoing provisions of this section within three months after a vacancy shall have occurred, the holder of any Refunded Obligation then outstanding may apply to any court of competent jurisdiction to appoint a successor Escrow Agent. Such court may thereupon, after such notice, if any, as it may deem proper, prescribe and appoint a successor Escrow Agent. Any successor Escrow Agent shall be qualified to act in such capacity under Chapter 1207, Texas Government Code, as amended, and shall be a corporation organized and doing business under the laws of the United States or the State of Texas, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal or state authority. Any successor Escrow Agent shall execute, acknowledge and deliver to the City and the Escrow Agent an instrument accepting such appointment hereunder, and the Escrow Agent shall execute and deliver an instrument transferring to such successor Escrow Agent, subject to the terms of this Agreement, all the rights, powers and trusts of the Escrow Agent hereunder. Upon the request of any such successor Escrow Agent, the City shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor Escrow Agent all such rights, powers and duties. The Escrow Agent shall pay over to its successor Escrow Agent a proportional part of the Escrow Agent's fee paid hereunder. The Escrow Agent at the time acting hereunder may at any time resign and be discharged from the escrow hereby created by giving not less than sixty (60) days' written notice to the City specifying the date when such resignation will take effect. No such resignation shall take effect unless a successor Escrow Agent shall have been appointed by the holders of the Refunded Obligations or by the City as herein provided and such successor Escrow Agent shall have accepted such appointment, in which event such resignation shall take effect immediately upon the appointment and acceptance of a successor Escrow Agent. The Escrow Agent may be removed at any time by an instrument or concurrent instruments in writing delivered to the Escrow Agent and to the City and signed by the holders of a majority in aggregate principal amount of the Refunded Obligations then outstanding. 7 HOU:3197400.1 ARTICLE VII. MISCELLANEOUS Section 7.1. Notices. Any notice, authorization, request or demand required or permitted to be given hereunder shall be made or given in writing and shall be deemed to have been duly given when mailed by registered or certified mail, postage prepaid, addressed as follows: To the Escrow Agent: BOKF, NA dba Bank of Texas 111 Congress, Suite 400 Austin, Texas 78701 Attention: Jose A. Gaytan, Jr. To the City: City of Sanger, Texas P.O. Box 1729 Sanger, Texas 76266 Attention: Mayor The United States Post Office registered or certified mail receipt showing delivery of the aforesaid shall be conclusive evidence of the date and fact of delivery. Either party hereto may change the address to which notices are to be delivered by giving to the other party not less than ten (10) days' prior written notice thereof. Section 7.2. Termination of Responsibilities. Upon the taking by the Escrow Agent of all the actions as described herein, the Escrow Agent shall have no further obligations or responsibilities hereunder to the City, the holders of the Refunded Obligations or to any other person or persons in connection with this Escrow Agreement. Section 7.3. Binding Agreement; Amendment. This Escrow Agreement shall be binding upon the City and the Escrow Agent and their respective successors and legal representatives and shall inure solely to the benefit of the holders of the Refunded Obligations, the City, the Escrow Agent and their respective successors and legal representatives. This Escrow Agreement shall not be subject to amendment without the written consent of the holders of all Refunded Obligations then outstanding. Section 7.4. Severability. If any one or more of the provisions contained in this Escrow Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Escrow Agreement, but this Escrow Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. Section 7.5. Governing Law. This Escrow Agreement shall be governed exclusively by the provisions hereof and by the applicable laws of the State of Texas. Section 7.6. Time of Essence. Time shall be of the essence in the performance of obligations from time to time imposed upon the Escrow Agent by this Escrow Agreement. 8 HOU:3197400.1 EXECUTED as of the date first written above, but effective as set forth herein. THE CITY OF SANGER, TEXAS By: Mayor ATTEST: City Secretary 7s t^/179771t71N6 s-i HOU:3197400.1 BOKF, NA db TEXAS Y Name: VICE PRESIDENT S-2 HOU:3197400.1 EXHIBIT A Escrow Agent Fees HOU:3197400.1 $3,495,000 City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 Paying Agent/Registrar and Refunding Escrow Agent Schedule of Fees Acceptance Fee: $0 Annual Administration Fee: $500.00 For ordinary administration services by Paying Agent/Registrar — includes daily routine account management; cash transaction processing in accordance with the agreement; and mailing of trust account statements to all applicable parties. Float credit received by the bank for receiving funds that remain uninvested are deemed part of the Paying Agent's compensation. Refunding Escrow Agent Administration Fee: $500.00 For ordinary administrative services by Escrow Agent — includes daily routine account management; investment transactions; cash transaction processing (including wire and check processing); monitoring claim notices pursuant to the agreement; disbursement of funds in accordance with the agreement; and mailing of trust account statements to all applicable parties. This fee is payable in advance, with the first installment due at the time of settlement. The fee covers the life of the transaction (Estimated Termination Date 8/15/13) or any part thereof and therefore will not be prorated or refunded upon early termination. Fee is based on the following assumptions: • Number of Escrow Accounts to be established: One (i) • Number of Deposits to Escrow Account: One (i) • Number of Withdrawals from the Escrow Fund: Per Report Charges for performing extraordinary or other services not contemplated at the time of the execution of the transaction or not specifically covered elsewhere in this schedule will be determined by appraisal in the amounts commensurate with the service provided. Counsel fees, if ever retained as a result of a default, or other extraordinary occurrences on behalf of the bondholders or Bank of Texas, will be billed at cost. Services not included in this Fee Schedule, but deemed necessary or desirable by you, may be subject to additional charges based on a mutually agreed upon fee schedule. Our proposal is subject in all aspects to review and acceptance of the final financing documents which sets forth our duties and responsibilities. Jose Gaytan Bank of Texas Vice President Corporate Trust Services Tel: 512.279.7850 111 Congress Avenue Fax: 512.279.7853 Suite 400 JGaytan(abankoftexas.com Austin, TX 78701 March 2n. 2012 2 EXHIBIT B Verification Report HOU:3197400.1 Cash Flow and Yield Verification Report City of Sanger, Texas April 24, 2012 Contents Letter Exhibit A Schedule of Sources and Uses of Funds Exhibit B Escrow Account Cash Flow Exhibit B-1 Cash Receipts From and Yield on the SLGS Exhibit B-2 Debt Service Payment on the 1996 Bonds Exhibit B-3 Debt Service Payment on the 2002 Bonds Exhibit B-4 Debt Service Payment on the 2002 Certificates Exhibit C Debt Service Payments and Yield on the Bonds Exhibit C-1 Net Original Issue Premium on the Bonds Appendix I Applicable schedules provided by Piper Jaffray & Co. GrantThornton Report of Independent Certified Public Accountants On Applying Agreed-Upon Procedures City of Sanger P.O. Box 1729 Sanger, Texas Andrews Kurth LLP 600 Travis Street, Suite 4200 Houston, Texas Audit • Tax • Advisory Grant Thornton LLP 200 S 6th Street, Suite 500 Minneapolis, MN 55402-1459 T 612.332.0001 F 612.332.8361 www.Grantlhornton.com Government Capital Securities Corporation 559 Silicon Drive, Suite 102 Southlake, Texas Piper Jaffray & Co. 2626 Cole Avenue, Suite 500 Dallas, Texas The Bank of Texas 111 Congress, Suite 400 Austin, Texas Texas Attorney General's Office 300 West 15 th Street, Seventh Floor Austin, Texas $3,495,000 City of Sanger, Texas (A political subdivision of the State of Texas located within Denton County) General Obligation Refunding Bonds, Series 2012 Dated April 1, 2012 We have performed the procedures described in this report, which were agreed to by the City of Sanger, Texas (the "City") and Government Capital Securities Corporation (the "Financial Advisor"), to verify the mathematical accuracy of certain computations contained in the schedules attached in Appendix I provided by Piper Jaffray & Co. (the "Underwriter"). The Underwriter is responsible for these schedules. These procedures were performed solely to assist you in the issuance of the above-captioned bond issue (the "Bonds") for the purpose of refunding portions of the City's outstanding Utility System Revenue Bonds, Series 1996 (the "1996 Bonds"), System Revenue Bonds, Series 2002 (the "2002 Bonds"), and Combination Tax and Revenue Certificates of Obligation, Series 2002 (the "2002 Certificates") (collectively referred to as the "Refunded Obligations") as summarized on the next page. This engagement was performed in accordance with Statements on Standards for Attestation Engagements established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of the addressees of this report who are the specified parties. Consequently, we make no representation regarding the sufficiency of the procedures described in this report either for the purpose for which this report has been requested or for any other purpose. Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd Page 2 Principal Principal Maturities Redemption Redemption Series Issued Dated Refunded Refunded Date Price 1996 5-15-13 to Bonds $1,060,000 March 15, 1996 $310,000 5-15-16 4-24-12 100% 5-15-13 to 2002 5-15-19 and Bonds $2,540,000 June 1, 2002 $1,590,000 5-15-22 5-15-12 100% 9-1-13 to 2002 9-1-20 and Certs.$2,360,000 June 1, 2002 $1,495,000 9-1-22 9-1-12 100% VERIFICATION OF ESCROW ACCOUNT CASH FLOW SUFFICIENCY The Underwriter provided us with schedules (Appendix I) summarizing future escrow account cash receipts and disbursements. These schedules indicate that there will be sufficient cash available in the escrow account to pay the principal and interest on the Refunded Obligations assuming the 1996 Bonds will be redeemed on April 24, 2012 at 100 percent of par plus accrued interest, the 2002 Bonds will be redeemed on May 15, 2012 at 100 percent of par plus accrued interest, and the 2002 Certificates will be redeemed on September 1, 2012 at 100 percent of par plus accrued interest. The attached Exhibit A (Schedule of Sources and Uses of Funds) was compiled based upon information provided by the Underwriter. As part of our engagement to recalculate the schedules attached as Appendix I we prepared schedules attached hereto as Exhibits B through B-4 independently calculating future escrow account cash receipts and disbursements and compared the information used in our calculations to the information listed below contained in applicable pages of the following documents: Subscription confirmation, dated March 20, 2012, and Schedule of U.S. Treasury Securities provided by the Underwriter used to acquire certain United States Treasury Securities - State and Local Government Series (the "SLGS") insofar as the SLGS are described as to the principal amounts, interest rates, maturity dates and issuance date; and • Ordinance for the 1996 Bonds and Official Statements for the 2002 Bonds and the 2002 Certificates provided by the Underwriter insofar as the Refunded Obligations are described as to the maturity and interest payment dates, principal amounts, interest rates and optional redemption dates and price. In addition, we compared the interest rates for each maturity of the SLGS, as shown on the Schedule of U.S. Treasury Securities, with the maximum allowable interest rates shown on the Department of Treasury, Bureau of Public Debt, SLGS Table for use on March 20, 2012 and found that the interest rates were equal to the maximum allowable interest rates for each maturity. Page 3 Our procedures, as summarized in Exhibits B through B-4, prove the mathematical accuracy of the schedules provided by the Underwriter summarizing future escrow account cash receipts and disbursements. The schedules provided by the Underwriter and those prepared by us reflect that the anticipated receipts from the SLGS, together with an initial cash deposit of $316,471.59 to be deposited into the escrow account on April 24, 2012, will be sufficient to pay, when due, the principal and interest related to the Refunded Obligations assuming the 1996 Bonds will be redeemed on April 24, 2012 at 100 percent of par plus accrued interest, the 2002 Bonds will be redeemed on May 15, 2012 at 100 percent of par plus accrued interest, and the 2002 Certificates will be redeemed on September 1, 2012 at 100 percent of par plus accrued interest. VERIFICATION OF YIELDS The Underwriter provided us with schedules (Appendix I) which indicate that the yield on the cash receipts from the SLGS is less than the yield on the Bonds. These schedules were prepared based on the assumed settlement date of April 24, 2012 using a 360-day year with interest compounded semi-annually. The term "yield", as used herein, means that yield which, when used in computing the present value of all payments of principal and interest to be paid or received on an obligation produces an amount equal to, in the case of the cash receipts from the SLGS, the purchase price, and in the case of the Bonds, the issue price. As part of our engagement to recalculate the schedules attached as Appendix I we prepared schedules attached hereto as Exhibits B-1 and C independently calculating the yields on (i) the cash receipts from the SLGS calculated on Exhibit B-1, and (ii) the Bonds using the Official Statement provided by the Underwriter insofar as the Bonds are described as to the maturity and interest payment dates, dated date, principal amounts, interest rates and issue price to the public. The results of our calculations, based on the aforementioned assumptions, are summarized below: Yield Exhibit • Yield on the cash receipts from the SLGS 0.094416% B-1 • Yield on the Bonds 2.114742% C Our procedures, as summarized in Exhibits B-1 and C, prove the mathematical accuracy of the schedules provided by the Underwriter summarizing the yields. The schedules provided by the Underwriter and those prepared by us reflect that the yield on the cash receipts from the SLGS is less than the yield on the Bonds. We were not engaged to, and did not, perform an examination or a review in accordance with Statements on Standards for Attestation Engagements established by the American Institute of Certified Public Accountants, the objective of which would be the expression of an examination opinion or limited assurance on the items referred to above. Accordingly we do not express such an opinion or limited assurance. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. Page 4 This report is intended solely for the information and use of those to whom this letter is addressed and is not intended to be and should not be used by anyone other than these specified parties. Minneapolis, Minnesota April 24, 2012 Exhibit A City of Sanger, Texas (Denton County) SCHEDULE OF SOURCES AND USES OF FUNDS April 24, 2012 SOURCES: Principal amount of the Bonds $3,495,000.00 Accrued interest 5,702.08 Net original issue premium 93,684.10 $3,594,386.18 USES: Purchase price of the SLGS $3,161,278.00 Beginning cash deposit to the escrow account 316,471.59 Accrued interest 5,702.08 Costs of issuance 80,000.00 Underwriter's discount 29,057.50 Contingency 1,877.01 $3,594,386.18 Exhibit B City of Sanger, Texas (Denton County) ESCROW ACCOUNT CASH FLOW Debt service payments on the Refunded Cash receipts Obligations from SLGS (Exhibits B-2 Cash Dates (Exhibit B-1) through B-4) balance Cash deposit on April 24, 2012 $316,471.59 04-24-12 $316,471.52 0.07 05-15-12 $1,631,255.00 1,631,255.00 0.07 09-01-12 1,530,622.43 1,530,622.50 0.00 $3,161,877.43 $3,478,349.02 Exhibit B-1 City of Sanger, Texas (Denton County) CASH RECEIPTS FROM AND YIELD ON THE SLGS Receipt Interest date Principal rate 05-15-12 $1,631,255 0.000% 09-01-12 1,530,023 0.110% $3,161,278 Cash receipts Interest from SLGS $1,631,255.00 $599.43 1,530,622.43 $599.43 $3,161,877.43 Present value on April 24, 2012 using a yield of 0.094416% $1,631,165.18 1,530,112.82 $3,161,278.00 Purchase price of the SLGS $3,161,278.00 The sum of the present values of the cash receipts from the SLGS on April 24, 2012, using a yield of 0.094416%, is equal to the purchase price of the SLGS. Exhibit B -2 City of Sanger, Texas (Denton County) DEBT SERVICE PAYMENT ON THE 1996 BONDS Interest Debt service Date Principal rate Interest payment 04-24-12 $310,000 (1) $6,471.52 $316,471.52 (1) Actual maturity dates, principal amounts and interest rates are as follows: Maturity Principal Interest date amount rate 05-15-13 $70,000 4.700% 05-15-14 75,000 4.700% 05-15-15 80;000 4.750% 05-15-16 85,000 4.750% $310,000 Exhibit B-3 City of Sanger, Texas (Denton County) DEBT SERVICE PAYMENT ON THE 2002 BONDS Interest Debt service Date Principal rate Interest payment 05-15-12 $1,590,000 (1) $41,255.00 $1,631,255.00 (1) Actual maturity dates, principal amounts and interest rates are as follows: Maturity Principal Interest date amount rate 05-15-13 $125,000 4.800% 05-15-14 130,000 4.900% 05-15-15 140,000 5.000% 05-15-16 145,000 5.100% 05-15-17 155,000 5.100% 05-15-18 160,000 5.200% 05-15-19 170,000 5.300% 05-15-22 565,000 5.400% $1,590,000 Exhibit B-4 City of Sanger, Texas (Denton County) DEBT SERVICE PAYMENT ON THE 2002 CERTIFICATES Interest Debt service Date Principal rate Interest payment 09-01-12 $1,495,000 (1) $35,622.50 $1,530,622.50 (1) Actual maturity dates, principal amounts and interest rates are as follows: Maturity Principal Interest date amount rate 09-01-13 $120,000 4.400% 09-01-14 125,000 4.500% 09-01-15 130,000 4.500% 09-01-16 135,000 4.600% 09-01-17 145,000 4.700% 09-01-18 150,000 4.750% 09-01-19 160,000 4.900% 09-01-20 170,000 5.000% 09-01-22 360,000 5.000% $1,495,000 $3,495,000 issue dated April 24, 2012 Interest Principal rate $75,000 2.000% 395,000 2.000% 400,000 2.000% 415,000 2.000% 420,000 3.000% 350,000 3.000% 355,000 3.000% 370,000 3.000% 385,000 2.500% 330,000 2.750% $3,495,000 Tnterest $10,908.33 43,875.00 43,875.00 39,925.00 39,925.00 35,925.00 35,925.00 31,775.00 31,775.00 25,475.00 25,475.00 20,225.00 20,225.00 14,900.00 14,900.00 9,350.00 9,350.00 4,537.50 4,537.50 $462,883.33 Date 05-15-12 11-15-12 05-15-13 11-15-13 05-15-14 11-15-14 05-15-15 11-15-15 05-15-16 11-15-16 05-15-17 11-15-17 05-15-18 11-15-18 05-15-19 11-15-19 05-15-20 11-15-20 05-15-21 Exhibit C City of Sanger, Texas (Denton County) DEBT SERVICE PAYMENTS AND YIELD ON THE BONDS Total debt service $85,908.33 43,875.00 438,875.00 39,925.00 439,925.00 35,925.00 450,925.00 31,775.00 451,775.00 25,475.00 375,475.00 20,225.00 375,225.00 14,900.00 384,900.00 9,350.00 394,350.00 4,537.50 334,537.50 $3,957,883.33 Present value on April 24, 2012 using a yield of 2.114742% $85,802.97 43,362.69 429,212.06 38,637.41 421,282.80 34,042.69 422,827.68 29,483.34 414,806.26 23,145.65 337,573.34 17,993.17 330,326.10 12,979.84 331,789.81 7,975.52 332,859.52 3,789.90 276,495.43 $3,594,386.18 The present value of the future payments is equal to: Principal amount of the Bonds Accrued interest Net original issue premium $3,495,000.00 5,702.08 93,684.10 $3,594,386.18 The sum of the present values of the debt service payments of the Bonds on April 24, 2012, using a yield of 2.114742%, is equal to the issue price of the Bonds. Exhibit C-1 City of Sanger, Texas (Denton County) NET ORIGINAL ISSUE PREMIUM ON THE BONDS Initial Net original public issue Maturity Interest offering premium date Principal rate Yield price (discount) 05-15-12 $75,000 2.000%0.500%100.087%$65.25 05-15-13 395,000 2.000%0.750%101.315%5,194.25 05-15-14 400,000 2.000%1.000%102.032%8,128.00 05-15-15 415,000 2.000%1.250%102.243%9,308.45 05-15-16 420,000 3.000%1.500%105.883%24,708.60 05-15-17 350,000 3.000%1.700%106.274%21,959.00 05-15-18 355,000 3.000%2.100%105.094%18,083.70 05-15-19 370,000 3.000%2.400%103.873%14,330.10 05-15-20 385,000 2.500%2.650%98.917%(4,169.55) 05-15-21 330,000 2.750%2.900%98.811%(3,923.70) $3,495,000 $93,684.10 APPENDIX I Applicable schedules provided by Piper Jaffray & Co. Mar 20, 2012 2:41 pm (Finance 6.022 City of Sanger:2012-2012,2012) Page 1 SOURCES AND USES OF FUNDS City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 FINAL VERIFIED NUMBERS Sources: Bond Proceeds: Par Amount 3,495,000.00 Accrued Interest 5,702.08 Net Premium 93,684.10 3,594,386.18 Uses: Refunding Escrow Deposits: Cash Deposit 316,471.59 SLGS Purchases 3,161,278.00 3,477,749.59 Other Fund Deposits: Accrued Interest 5,702.08 Delivery Date Expenses: Cost of Issuance 80,000.00 Underwriter's Discount 29,057.50 109,057.50 Other Uses of Funds: Additional Proceeds 1,877.01 3,594,386.18 HE J OU WY y. trial ouavex^ PiperJaffra IW 1tl64 k G. Aa IA95 Vulu WC a11LAA- Mar 20, 2012 2:41 pm (Finance 6.022 City of Sanger:2012-2012,2012) Page 19 ESCROW SUFFICIENCY City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 FINAL VERIFIED NUMBERS Escrow Net Escrow Excess Excess Date Requirement Receipts Receipts Balance 04/24/2012 316,471.52 316,471.59 0.07 0.07 05/15/2012 1,631,255.00 1,631,255.00 0.07 09/01/2012 1,530,622.50 1,530,622.43 -0.07 3,478,349.02 3,478,349.02 0.00 PiperJaffray. T}1C^OU2NEY.' Pw7^v r n. sw ias v.^m me o^ rnun. Mar 20, 2012 2:41 pm (Finance 6.022 City of Sanger:2012-2012,2012) Page 18 ESCROW COST City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 FINAL VERIFIED NUMBERS Type of Maturity Par Total Security Date Amount Rate Cost SLGS 05/15/2012 1,631,255 1,631,255.00 SLGS 09/01/2012 1,530,023 0.110%1,530,023.00 3,161,278 3,161,278.00 Purchase Cost of Cash Total Date Securities Deposit Escrow Cost 04/24/2012 3,161,278 316,471.59 3,477,749.59 3,161,278 316,471.59 3,477,749.59 Guu^rsrok ^ r,^L J OURVFYp PiperJaffray vqI.mv &C.. my uu. new vc of rn+M. Mar 20, 2012 2:41 pm (Finance 6.022 City of Sanger:2012-2012,2012) Page 17 PiperJaffray. T1IT^OUR.NCY.' Nul^v to. s.o 1495. t4 4C ul FDUA. ESCROW CASH FLOW City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 FINAL VERIFIED NUMBERS Net Escrow Date Principal Interest Receipts 05/15/2012 1,631,255.00 1,631,255.00 09/01/2012 1,530,023.00 599.43 1,530,622.43 3,161,278.00 599.43 3,161,877.43 Escrow Cost Summary Purchase date 04/24/2012 Purchase cost of securities 3,161,278.00 Mar 20, 2012 2:41 pm (Finance 6.022 City of Sanger:2012-2012,2012) Page 14 Type of Type of Security SLGS Apr 24, 2012: ESCROW DESCRIPTIONS City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 FINAL VERIFIED NUMBERS Maturity First Int Par Max Date Pmt Date Amount Rate Rate "°'°"°R PiperJaff ray. THEJOUR4EY.°^ Pi,n)tltr4kti. See 1f5. dllk( K u1IPb.1. SLGS Certificate 05/15/2012 05/15/2012 1,631,255 SLGS Certificate 09/01/2012 09/01/2012 1,530,023 0.110% 0.110% 3,161,278 SLGS Summary SLGS Rates File 20MAR12 Total Certificates of Indebtedness 3,161,278.00 Mar 20, 2012 2:41 pm (Finance 6.022 City of Sanger:2012-2012,2012) Page 15 ESCROW REQUIREMENTS City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 FINAL VERIFIED NUMBERS Period Principal Ending Interest Redeemed Total 09/30/2012 83,349.02 3,395,000.00 3,478,349.02 83,349.02 3,395,000.00 3,478,349.02 PiperJaffray. r}i^founwrv° WJ& q 0 C.. S pa IB95. AY*W aal NUA. Mar 20, 2012 2:41 pm (Finance 6.022 City of Sanger:2012-2012,2012) Page 7 SUMMARY OF BONDS REFUNDED City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 FINAL VERIFIED NUMBERS Maturity Interest Par Call Call Bond Date Rate Amount Date Price Series 1996 Utility Bonds (current), 1996: BOND 05/15/2013 05/15/2014 05/15/2015 05/15/2016 Series 2002 Utility Bonds (current), 2002: SERIAL 05/15/2013 05/15/2014 05/15/2015 05/15/2016 05/15/2017 05/15/2018 05/15/2019 TERM22 05/15/2022 Series 2002 GO Bonds (adv), 2002GO: 4.700%70,000.00 04/24/2012 4.700%75,000.00 04/24/2012 4.750%80,000.00 04/24/2012 4.750%85,000.00 04/24/2012 310,000.00 4.800%125,000.00 05/15/2012 4.900%130,000.00 05/15/2012 5.000%140,000.00 05/15/2012 5.100%145,000.00 05/15/2012 5.100%155,000.00 05/15/2012 5.200%160,000.00 05/15/2012 5.300%170,000.00 05/15/2012 5.400%565,000.00 05/15/2012 1,590,000.00 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 SERIAL 09/01/2013 4.400%120,000.00 09/01/2012 100.000 09/01/2014 4.500%125,000.00 09/01/2012 100.000 09/01/2015 4.500%130,000.00 09/01/2012 100.000 09/01/2016 4.600%135,000.00 09/01/2012 100.000 09/01/2017 4.700%145,000.00 09/01/2012 100.000 09/01/2018 4.750%150,000.00 09/01/2012 100.000 09/01/2019 4.900%160,000.00 09/01/2012 100.000 09/01/2020 5.000%170,000.00 09/01/2012 100.000 TERM22 09/01/2022 5.000%360,000.00 09/01/2012 100.000 1,495,000.00 3,395,000.00 Tinc PiperJaffray. ouave.v.° M ,J.&q k C.. Sou IH5 b hSFC of RMA. Mar 20, 2012 2:41 pm (Finance 6.022 City of Sanger:2012-2012,2012) Page 6 BOND DEBT SERVICE City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 FINAL VERIFIED NUMBERS Period Annual Ending Principal Coupon Interest Debt Service Debt Service 05/15/2012 75,000 2.000%10,908.33 85,908.33 09/30/2012 85,908.33 11/15/2012 43,875.00 43,875.00 05/15/2013 395,000 2.000%43,875.00 438,875.00 09/30/2013 482,750.00 11/15/2013 39,925.00 39,925.00 05/15/2014 400,000 2.000%39,925.00 439,925.00 09/30/2014 479,850.00 11/15/2014 35,925.00 35,925.00 05/15/2015 415,000 2.000%35,925.00 450,925.00 09/30/2015 486,850.00 11/15/2015 31,775.00 31,775.00 05/15/2016 420,000 3.000%31,775.00 451,775.00 09/30/2016 483,550.00 11/15/2016 25,475.00 25,475.00 05/15/2017 350,000 3.000%25,475.00 375,475.00 09/30/2017 400,950.00 11/15/2017 20,225.00 20,225.00 05/15/2018 355,000 3.000%20,225.00 375,225.00 09/30/2018 395,450.00 11/15/2018 14,900.00 14,900.00 05/15/2019 370,000 3.000%14,900.00 384,900.00 09/30/2019 399,800.00 11/15/2019 9,350.00 9,350.00 05/15/2020 385,000 2.500%9,350.00 394,350.00 09/30/2020 403,700.00 11/15/2020 4,537.50 4,537.50 05/15/2021 330,000 2.750%4,537.50 334,537.50 09/30/2021 339,075.00 3,495,000 462,883.33 3,957,883.33 3,957,883.33 c^ ^c1lt FAA PiperJaffray T71li^0UANF.Y." nN7^9 k G. ^a UA. Yu1v 9[ of NUA. Mar 20, 2012 2:41 pm (Finance 6.022 City of Sanger:2012-2012,2012) Page 22 PROOF OF ARBITRAGE YIELD City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 FINAL VERIFIED NUMBERS Present Value to 04/24/2012 Date Debt Service @ 2.1147417% 05/15/2012 85,908.33 85,802.97 11/15/2012 43,875.00 43,362.69 05/15/2013 438,875.00 429,212.06 11/15/2013 39,925.00 38,637.41 05/15/2014 439,925.00 421,282.80 11/15/2014 35,925.00 34,042.69 05/15/2015 450,925.00 422,827.68 11/15/2015 31,775.00 29,483.34 05/15/2016 451,775.00.414,806.26 11/15/2016 25,475.00 23,145.65 05/15/2017 375,475.00 337,573.34 11/15/2017 20,225.00 17,993.17 05/15/2018 375,225.00 330,326.10 11/15/2018 14,900.00 12,979.84 05/15/2019 384,900.00 331,789.81 11/15/2019 9,350.00 7,975.52 05/15/2020 394,350.00 332,859.52 11/15/2020 4,537.50 3,789.90 05/15/2021 334,537.50 276,495.43 3,957,883.33 3,594,386.18 Proceeds Summary Delivery date 04/24/2012 Par Value 3,495,000.00 Accrued interest 5,702.08 Premium (Discount)93,684.10 Target for yield calculation 3,594,386.18 THEJOURNE Gumec roe PiperJaffray Mar 20, 2012 2:41 pm (Finance 6.022 City of Sanger:2012-2012,2012) Page 4 BOND PRICING City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 FINAL VERIFIED NUMBERS Maturity Premium Bond Component Date Amount Rate Yield Price (-Discount)Takedown Serial Bond: 05/15/2012 75,000 2.000% 0.500%100.087 65.25 5.000 05/15/2013 395,000 2.000% 0.750%101.315 5,194.25 2.500 05/15/2014 400,000 2.000% 1.000%102.032 8,128.00 3.750 05/15/2015 415,000 2.000% 1.250%102.243 9,308.45 3.750 05/15/2016 420,000 3.000% 1.500%105.883 24,708.60 3.750 05/15/2017 350,000 3.000% 1.700%106.274 21,959.00 3.750 05/15/2018 355,000 3.000% 2.100%105.094 18,083.70 3.750 05/15/2019 370,000 3.000% 2.400%103.873 14,330.10 5.000 05/15/2020 385,000 2.500% 2.650%98.917 -4,169.55 5.000 05/15/2021 330,000 2.750% 2.900%98.811 -3,923.70 5.000 3,495,000 93,684.10 04/01/2012 04/24/2012 05/15/2012 3,495,000.00 93,684.10 3,588,684.10 102.680518% -29,057.50 -0.831402% 3,559,626.60 101.849116% 5,702.08 3,565,328.68 Dated Date Delivery Date First Coupon Par Amount Premium Production Underwriter's Discount Purchase Price Accrued Interest Net Proceeds r°,°"NEk PiperJaffray. rnejouxvev.^ AF^1^4 4 C, 9&n 1195. Abk, rnC ,u (IIOA. EXHIBIT C Refunded Obligations SUM!L&RY OF BONDS REFUNDED City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 FThAL. VERIFiED NUMBERS Maturity Interest Par Call Bond Date Rate Amount Date Call Price Series 1-09 6 Utility Bonds (current). 1996: BOND 05/1 5:2013 4.7000"0 70,000.00 0424.2012 100.000 05/152014 4.700"7500000 04 4'12 ,220 100.000 05;"15:'2015 4.750%80.00000 04.24.2012 100.000 05/15.2016 4.750%85,000.00 04:24.2012 100.000 310,000.00 Series 2002 Utility Bonds (current). 2002: SERIAL 05/15.2013 4.800%125,000-00 05/15.2012 100.000 051'15.2014 4.900%130,000.00 05.15.2012 100.000 05.15.2015 5.000%140,000.00 05.15/2012 100.000 05. 15.2016 5.100%145-000.00 05:15/2012 100.000 05/15/2017 5100%155.000,00 05115.2012 100.000 05/151,2018 5.200'160,000.00 05115.2012 100.000 05/15.2019 5.300%170,000.00 05.15.2012 100-000 TERM22 05/15.2022 5.400%565,000-00 05/15.2012 100-000 1,590,000.00 Series 2002 GO Bonds (adv), 2002G0: SERIAL 09012013 4400%12000000 00012012 100.000 09i01'2014 4.500%125,000.00 09:01.2012 100.000 09 .012015 4.500%130,000.00 09,01/2012 100.000 09.01.2016 4.600%135.000,00 09.01/2012 100.000 09.01/2017 4.700%145/000.00 09:01.2012 100.000 09.01.2018 4.750%1 5 0,000M 09.01.2012 100.000 09/01.2019 4.900%160.000.00 09.01/2012 100.000 09/01:2020 5.000%170,000.00 09!0121 012 100.000 TERM22 09,01.2022 5.000%360.000,00 09.01.2012 100-000 1,495,000.00 3,395,000.00 I[sISMV1LIOJl BOKF, NATIONAL ASSOCIATION CERTIFICATE OF SECRETARY 1, Frederic Dorwart, being the duly elected Secretary of BOKF, Nationa Association, do hereby certify that the following resolution was adopted by the Board of Directors of BOKF, National Association on January 25. 2011: RESOLVED, that the senior officer of BOKF NA shall he responsible for the day-to-day executive management of BOKF, NA. Trust Officers appointed from time to time by the Board of Directors and appointed Trust Committees shall have the authority to execute, on behalf of BOKF, NA contracts, documents, or papers pertaining to the performance of the fiduciary powers of BOKF, NA and, if necessary, to cause the seal of the organization to be affixed thereto; and the senior fiduciary officer of BOKF, NA shall designate those Trust Officers and staff mernbers who are authorized and empowered, having established the limits of such authority, to purchase or otherwise acquire, sell, assign, transfer and deliver all shares of stocks, bonds, debentures, notes, real estate, evidence of indebtedness, deeds, conveyances, contracts, including oil and gas interests of all kinds and of contracts for the development thereof and to execute mortgage, and releases of mortgage, on any and all property or securities now or hereafter standing in the name of the organization in any fiduciary capacity, and to make, execute, and deliver, any and all written instruments necessary or proper to effectuate the authority here delegated. FURTHER RESOLVED, All other officers and agents designated by the Board of Directors and assigned to the Wealth Management Division shall, under the sion of the senio fiduciary officer perform any duties as may be required of such last named officer or agent, and may exercise any of the powers and authorities by this Resolution vested in him/her. BOKF, NATIONAL ASSOCIATION [SEAL] By: BOKF, NA. CORPORATE TRUST WEALTH MANAGEMENT DIVISION AUTHORIZED SIGNATURES AND INITIALS Sorted by: (1) Location; (2) Department; (3) Name Division Manager LOCATION 600809107 103503051 (AR, ti 600024642 207923401 Trust Bondholder 700002411 Dept, Mgr's OK, Tx. Co Trust Funds EB Pension Voucher Account Investor Approval NAME TITLE SIGNATURE INITIALS DEPARTMENT a UT) Fund Sweep (Initials) Sr. Vice Timothy Cook President Corporate Trust OK-OKC x x Vice 'iflZ Ti Mark McCoy President Corporate Trust OK-OKC x x Vice (, Rachel Redd-Singleton President orporate Trust OK-OKC x x Vice Barbara Bailey President Corporate Trust OK-OKC x X Vice Brenda Batchelor President Corporate Trust OK-OKC x x Sr. Vice Marrien Neilson President Corporate Trust OK-Tulsa X x Cyndi Wilkinson President Vice Corporate Trust OK-Tulsa X X Vice Mary Campbell President orporate Trust OK-Tulsa x X (/3 Vice Judy Foster Pr ' ant i4 f C Corporate Trust OK-Tulsa x x st ^G Dawn Pollock Oitic Corporate Trust OK-Tulsa x x Vice ,f NM - Donald Fennema President j,/4^F Corporate Trust Albuquerque x x Vice ( NM - Helene Cobos Chenier President orporate Trust Albuquerque X x Trust NM - ' !/ Susan Ellis Officer orporate Trust Albuquerque x x GG __N___ N __ 2 EXCERPT OF MINUTES OF DIRECTORS / TRUST COMMITTEE Pursuant to the authority vested in the Directors' Trust Committee under the resolution of the Board of Directors of the Bank of Oklahoma dated April 8, i93l the manager of the Trust Division is hereby directed to establish an Internal Trust Committee The manager of the Trust Division is designated as Chairman of the Internal Trust Committee and shall appoint, with the approval of the Chief Executive Officer of the bank, at least six trust officers but not more than ten to serve as committee members. He sha|| also designate two additional trust officers to serve as alternates, anyone of whom is authorized co serve in the place of any regular member who is unable to attend a committee meeting. The Executive Officers of the bank shall also be members of this committee. A majorY of such committee shad constitute a quorum for the transaction of business. The Internal Trust Committee shall have the following duties, powers and responsibilities to be performed within policies and gu idelines which may be established from time to time by the Directors [ommittaa: 1.To establish policies for the conduct of fiduciary responsibilities and obligations of the Trust Division; 2.To review the Administrative practices in trie Trust Division to confirm that accounts are being handled in accordance with division policies; 3.T000rdinate and review the marketing plans of the TrUSt Division; 4, To review the Security Working List used by the Investment Officers on a periodic basis and receive recommendations for changes therein from time to time; 5 To approve all fiduciary appointments accept^d or rejected by toe Senicr Trust Officers; 6. To receive reDorts on the termination of all trust estates and other fiduciary accounts administered by the Trust Division; 7 To review the schedule of fees for trust services; 8. To keep minutes of all meetings of the |htsrnai Trust Committee and to rsv:sw the minutes of the Trust Review Committee and Investment Policy Committee; 9 To perform such other duties as the Directors / Trust Committee, the Chiaf Executive Officer of the Bank or the Trust Division Manager may, from time to time, aSsioO to the internal Trust Committee, The manager of the Trust Division is further directed to establish the Trust Review Committee, The manager of the Trust Investment Department is designated as ch8irman. The Committee shell consist of eight to ten members appointed by the manager of the Trust Division with the approval of the Chief Executive Officer of the Bank. Two alternate members shall also be appointed by the division manager. The Executive Officers of the Bank shall also be members of this committee. A majority of such cnmmitt^e shall constitute a quorum for the transaction of business. ' The Directors' Trust Committee hereby delegates to the Trust Review Committee the followin g duties, powers and responsibilities. 1.To review each .fiduciary account accepted by the Bank within 60 days after receipt of the assets or as soon thereafter as practicable; 2.To review each fiduciary account and the assets held by such trust at least once every 12 month period in accordance with the requirements of Re g ulation 9; 3.To review the minutes of the Trust Policy Committee makin g a record of such action in the minutes and reviewing the transactions of the Investment Oe ent to see that they are in conformity with cur/^nt policy and that exceptions thereto are documented by the investment and account officers; 4.To keep minutes of each meeting showing which accounts have been reviewed, approved, or such other actions which may have been taken by the committee in connection with the review of the particular accounts; S. To perform such other dutics as may bs assigned to it from time to time by the Directors Trust Committee, the Chief Executive Officer of the Bank or the Trust Division Manager. The manager of the Trust Division is hereby directed to establish the |nves1nent Policy Committee. This committee shall consist of eight members appointed by the mana g er of the Trust Division with the approval of Chief Executive GJicer ef the Bank. The manager of the Trust Division shall serve as Chairman. The Executive Officers of the Bank shall also be members of this committee. Two alternate members are to be appointed by the Division Manager. A majority of such committee shaH constitute a quorum for the transaction of businessThis Committee sha|| have the fuUow'n duties, . / g u es, priorities and responsibilities: 1. To set Investment Policy for the Trust Division under a monthly review procram which considers the current economic environment; Z. To consider chanoes, deletions and additions to the working list of the |nvaSbnent Department; 3, To review the Common Trust Fund Accounts on each valuation date; 4. To perform such other duties as may be assigned to it from time to time by the Directors Trust Committee Chief Executive Officer 01 the Bank or by the Trust Division Manager. The officers assigned to the Trust. Division b ^h ^ d e o cer /gns o e rus y the Board of o Directors and the management of the Bank shall have the following powers and duties, in addition to those herein above setforth^ 1. The Manager of the Trust Division shall be responsible for the Executive Management of the Trust Division, and he and the other trust officers unir his supervision shall have the authority to eX'cUte. on behalf of the Bank, contracts, documents or papers pertaining to the performance by the Trust Division' of the fiduciary powers of the bank, and, if necessary, to cause the seal of the bank to be affixed thereto; and he, and the other officers assigned to the Trust Division under his supervision, are hereby authorized and empowered where permitted by the governing instrumsnt of an account to purchase or otherwise acquire, sell, assign, transfer and deliver all shares of stocks, bonds, debentures, notes, real estate, evidence of indebtedness, deeds, conveyances, contracts, including oil and gas interests of all kinds and of [ontracts for the development, thereof, and to execute morL' aoas, and releases of mortgages on any and all property or securities now or hereafter standing in the name of the bank in any fiduciary capacity, and to make, execute and deliver, any and all written instruments necessary or proper hereby delegated the Trust Division and the Trust Officers working under his supervision; 2.Either he, or any other officer of the Trust Division Or any other Trust Operations Officer of the Bank performing operation functions for the Trust Division, shsU balances to the credit of the Trust Division of this Bank, when manaaer of the Trust Division and, such checks are countersigned by another of the desi g nated signatory officers;. 3.The Manager, and any Senior Vice President, any Vice President, and any Trust Officer assigned to the Trust Division will have the authority to execute acce p t g n[es of trusts under the authori ty granted by the Directors' Trust Committee and within the policy guidelines as set out by the T"ust Division Manager. 5uch Officers are also authorized to qualify the bank as executor administrator, Guardian Escrow Agent, Investment Agent, Receiver or assignee, and in any other fiduciary capacity appropriate to tne business of the Trust Division, and in accordance with Trust Division Policies, such officers shell exercise generally all of the authority vested by the bylaws of this benk in an Executive Officer thereof, provided at all questionable matters, which in the opinion of the Division Manager requires further consideration, shall be submitted to the Internal Trust Committee before acceptance; 4.The Division Manager will establish policies for the 2pp v8| for the invasion of principal and the p2 ents from income in any account where such pa yments are discretionary and the Trust Division Manager may delegate to designated Trust Officer such authority as he deems appropriate for the exercise of the discretionary powers conferred upon the bank in its fiduciary capacity in various accounts. 5.The Division K1an^oer shall cause a rec0rt to be made monthly to the Chief Executive Qfiicsr of the Bank, his d s ^ ^ summarizing t^operational or s /gna e, mm / ^ g c administrative and financial status of the division He shall make such further and additional reports as may be required from time to time by the Directors' Trust Committee, the Chief Executive Officer of the Bank, the Comptroller of the Currency or any governncn:a| agency exercising supervisory powers over the Trust Division for the Bank of Oklahoma; B. The Division M8ncoer and the other Trust Officer under his supervision shall have the authority to authorize admissions and withdrawals to the common trust funds administered by this bank in accordance with the terms of the Common Trust Fund Agreements and the provisions of the Comptroller of the [urrencys Reau|atiun A. The manager the Trust Division shall kee2 the records of the Trust Division separate end distinct from other books and records of the bank, and they shall contain full information relative to each account, all in accordance with the Regulation S of the Comptroller of [urrsnc\ governing fiduciary powers of national banks, and the laws of the State of Oklahoma. This Committee of the Board of Directors shall cause external audits to be made at regular intervals of the Trust Division, or in lieu thereof adopt an adequate continuous audit system, as the committee may elect, all in compliance with the regulations of the Comptroller of Currency governing fiduciary powers of national ban<s The Manager of the Trust Division is charged with the responsibility of keeping Trust Securities and Investments held in Trust by the Trust Division separate and distinct from the securities owned by the bank and, in addition thereto, that the said Trust Securities may be kept in any manner allowed by the regulation of the Comptroller of [urrency, as may be amended and issued from time to time hereafter. Whenever the said securities are deposited in the security vault of the bank, or in any depositor and are withdrawn therefrom, such deposits or withdrawals sll be made only upon the written request of any officer aSSi d to the Trust Division, or upon the written request of other trust personnel who may be appoihted, from time to time, by the manager of the Trust Divisiwn. Funds held by the Trust Division in a fiduciary capacity awaiting -_-__ or undi iut for any longer than is reasonable. Investments of trust funds shall he made only in compliance with the . regulations of th Comptroller of the Currency, in accordance with the terms ann provisions of the instrument creating the fiduciary relationship, and the statutes of the state of Oklahoma. The investment of fiduciary funds in stock or obli g ations of the bunk, the sale or transfer of property held by the bank as fiduciary to any officer, director, employee or relative thereof, any transactions b:[\,een various trust accounts, the loan of money from ihe bank to any account, [h loan ol monay from one fiduciary account to anoth^r, is prch'bited except in thosa instances s eci'ica|k/ authorized by the terms and provisions of the reQu}atiOns of the Comptroller of the Currency, the laws of the state of Oklahoma, and the coverning trust instrument. 7 I i3kbfwfJ,Vt?mo-Atrbip 1)Y? iYY(//!/. (. (12 1lc' '/%f> y ' 7/(/ '/7??/('/) /7%;%y, 7///J1Y //, 1((K (//(Y/ //(J/21/ t(J///> 71/77/ /'// 1/ //( // 4((/(((' yt%: c(7/J Y(1// !/////(( (/177(1/1') //1//1(/7/ // Y// ////7 (/7/(/ Y' / 7r////1/// 1'/ Y7//7J/ 777(71/7) 7/7//(71///(7///1' (?2//Ø(///77/ / Y/(Y?///7///J /j//)//7//,, )//(7 •7 / Y7/((7;%Y/! 7(7 /; //;/ ulr 1 01,ii i;_ii W UEfJ1 f1f11) SHMN ,E A IiJ1siIintcIL ED. (ii.. ( I o iv frViler uf tile 1 - W1IEltAS, ThA NKj OF OK LA I-JO MA, N. A - , located in Tulsa, State of Oklahoma, being a National Asocialion organized under the statutes of the United States, has lg - application for authority to act as fiduciary AND VFl1lREAS, aplicablc provisions of the statutes of the United States authorize the grant of such athoi-Ly; I NOW T1iERFFOPE I hereby certify that the necessary approval has been given and that the said association is authorized to act in all fiduciary capacities permt1ed c;t1l th f f'* IN TESTIMONY WHEREOF, witness my signature and seal of Office this first clay of July, 1)75 James Z. Smith Cor-nptrol1e of the Currency RESOLUTION ESTALSHHG TRUST DIVISION AND DIRECTORS' TRUST COiiITTEE Under the authority of Section 1.76, Statute 66 (12 U.S.C. ?a); F.S. 2O as amended (12 U 431) and the Comptroller of the Currency's Re;ulazion 9, 'Fiduciary Powers of National Bank and Co cti'e Investment Funds, the Board of Directors of the Sank of Oklahoma, by this recljtion, hereby assions the administration of the Trust Division to the Directors' Trust Committea, confers on, delegates to, and assigns to this Ccinrvttee 311 of its authority, 2nd full responsibility for the pcpr exercise of 2i1 the fiduciary por:ers, duties, obligations, and res p eosibilities of the Bank of Oahoma relating to the eercise of its trust owes, in ccrnolicnce with applicable aws and rEculations, includftg the right to delegate and assign such of its authority and responsibili t y to other CCmitt2E(S) it may, in its discretion esblish, and/or to such omcr(s) as it n3,' dsicnate 7 k 1 ( I 3^r1n+yY- a.^ i'(t t(f•n" tt.gr , ^F^ 1CJ ^^^ ^ t ^^,/^^^^^`tf2 ^ 7't y;vw l u 'rY`• r.<.;(; r,, y*- Y-- t •i ..s.^^, i .. i.. r• r ^ ((Y• 1,,y1 j ^' ,(Y.'L i^`y ( r`j^,^^'1...1.-iii t^ .l ! t^ ^'` jt.^ ` ^. 1 •Y ^. ^Y ' ,s. ;it n:.. t(^:i'^'1^^'`'^Yjl••^`!t^ `^1-^(, { `^ {^! ^ ) ^ (,/ r t ^ ^r `{^j+^^^t^^^^ ^pil! f J t L+ , I t t ^+^" t A t... 4 1 It tll r /^, f1 L }^^•^^1^ a^'i ..^ .'!r•^1 ^ I ^1^,J ir:^1 ,^ ', r E t^.•`.}$lr.t^ii '''' t (-`^.. ,t '^' ^''yi ^ ^ i. ) ^^^! ^¢{ i 1 r ♦ ter vt 7{ r 1 , ... ....:1^::v' _ t.:_,r^ • `^E4 II G ^''^ ^'^ t• ^7 ` ^` t 1 4(11 44 ( a. ,3 {t •cl^ _r_.:%_ k1^:^:: . .7.,.L-...=: ^;^ ^ ^ ^^•1+ ^ti) k `}^j"ir ^ ^ ^ nr+^r'f•^^`t (^!t ( + '' S^^} + ^'^ ^ tr _} Q,. rr^ Z ^' i ^i .4 i. ti^^^1^j'^ ..,.-. frr r., ,•et•,^t ^f J^;x•:,'^^^ `.Y t{^•!I'^f-t^lt lOit. 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I1 tt a' 'ta U is n St a .. N `S 17 ti ^^`•^ u tit IL u' r.^ ua ( r! ie n Ar th ti • o tt. i^ ^ 0- c'{ _z~ t-i H ("t u• ._.__,..__. -• WAS NGTON.O.C... 't (fJ fFiov!f (/ltfti (!l'ffttJ!/ftl^/ftr'L to Gtr O7lf^tf,^Iro , ( / I CC1L e:(+^. f IC/ ^( rf 1'Ki:N f'// 1 c1 / 'Lt l'r'/CCtjU'C ft7a f awwrL Cf(r/(0:w a1C action I(rtJ ICCII t('a/en U tj. I(ATIOtLSL A'tJH( Cf7 'MESA, TULSAA .Ja1'c l: OKLtihC`.,, In etCCC.rrrfetr(cc 11/X (f t.' Jtrrtrr(CJ •r(r•J, to trtc('/a-rr Jr,: a c/rtftye c./ (Xe naiitr; o 'I rrl rrJJacirr(Ion. (a IWIX d.F t71tIJ HOMA J U. A. ('G(((r')(rrt(rj. fltrrt (th- (C(( L'! r'f (!!r' &llitr(rr( 10(11 1 lid c ft','C ( LG Cl XC2(e/y C0')'(tL[Cfl (kd :JtLCJL cJ/LL`)trye, r^L 71 GLJtC O/'IU d C(JJCCLrt,(tUlt / J / r1 a//ri'ovcf r fr (iv:e July 1, 1975. alt t'tt11111i Ltd 11C1'L'Uf, rtrt IteJJ vlt 3 /-/zalrtfxe and l Scutt a o/)2cc (/J 21(th rla 0/. June, 15. Crlratitcc . 13679 EXCERPT OF JOINT RESOLUTION REGARDING THE ORGANIZATION AND OPERATION OF ThE TRUST DIVISION of BANK OF ALBUQUERQUE, N.A. BANK OF ARIZONA, N.A. BANK OF ARKANSAS, N.A. BANK OF OKLAHOMA, N.A. BANK OF TEXAS, N.A. COLORADO STATE BANK and TRUST, N.A. and SOUTHWEST TRUST COMPANY, N.A. RESOLVED, that the senior fiduciary officer of each entity (Bank of Albuquerque, N.A. (BAQ); Bank of Arizona, N.A. (BAZ); Bank of Arkansas, N.A (BOA); Bank of Oklahoma, N.A. (80K): Bank of Texas, N.A. (SOT); Colorado State Bank and Trust, N.A.( CSBT); and Southwest Trust Company, N.A. (SWTC)) shall be responsible for the day-to-day executive management of respective entities, Trust Officers appointed from time to time by the Boards of Directors or Board authorized and appointed Trust Committees shall have the authority to execute, on behalf of the respective organizations, contracts, documents, or papers pertaining to the performance of the fiduciary powers of and, if necessary, to cause the seal of the organization to be affixed thereto and the senior fiduciary officer of SAO, BAZ, BOA, 80K BOT, CSBT, and SWIC shall designate those Trust Officers and staff members who are authorized and empowered, having established the limits of such authority, to purchase or otherwise acquire, sell, assign, transfer and deliver all shares of stocks, bonds, debentures, notes, realestate, evidence of indebtedness, deeds, conveyances, contracts, including oil and gas interests of all kinds and of contracts for the development thereof, and to execute mortgages, and releases of mortgages on any and all property or securities now or hereafter standing in the name of the organization in any fiduciary capacity, and to make, execute, and deliver, any and all written instruments necessary or proper to effectuate the authority hereby delegated. All other officers and agents designated by the respective Boards of Directors and assigned to the Trust Division, shall, under the supervision of the senior fiduciary officer, perform any duties as may be required of such last name officer or agent, and may exercise any of the powers and authorities by this Resolution vested in him/her. CERTIFICATION I, the undersigned, Corporate Secretary of Bank of Albuquerque, NA.; Bank of Arizona, NA.; Bank of Arkansas, NA.: Bank of Oklahoma, NA.; Bank of Texas, N.A.: Colorado State Bank and Trust, N.A., and Southwest Trust Company, N.A. (as a subsidiary of Bank of Oklahoma, NA); hereby certify that the above is a true and correct excerpt from the Join! Resolution Regarding the Organization and Operation of Bank of Albuquerque, NA.; Bank of Arizona, NA; Bank of Arkansas, NA.; Bank of Oklahoma, N.A.; Bank of Texas, N.A.; Colorado Slate Bank and Trust, N.A.; and Southwest Trust Company, N.A.; passed at a regular monthly meeting as reflected by the Minutes in the Minute Book of said entity(ies), and I further certify that at said meetings, a quorum of the Directors was present and voting throughout, and I further certify that the following officers and agents are duly elected, qualified, and now acting: Dated br7.. ... day of / Secr€tar Page 1 F3ank of Aibuqur9uo, N.A. Bank of Arizona, N.A.; Bank of Arkanas, N.A flank of Oklahoma, N.A.; Bank of Texas, N A.; Coioracic, Sto Bank and Trust N.A.; and Southwest Trust C ^N^' ~— Comptroller of the Currency Administrator of National Banks Southern DbtrinLicansing 500 North Akard, Suite 1600 Dallas, Texas 75201'3323 December 15, 2010 Tamara Wagman Frederic Dorwart Lawyers Old City Hail Tulsa, Oklahoma 74103-5010 Re: Reorganization of Bank of Oklahoma, NA, Tulsa, /CAIS#2UlO-SO-02-UO2D Dear Ms. Wagman: This letter is the official certification of the Comptroller of the Currency (0CC) to merg Bank of A National Association, Albuquerque, New Mexico; Bank of Arizona, National Association, Phoenix, Arizona; Bank of Arkansas, National Association, Fayetteville, Arkansas; Bank of Kansas City, National Association, Overland Park, Kansas; Bank of Texas, National Association, Dallas, Texas and Colorado State Bank and Trust, National Association, Denver, Colorado with and into Bank of Oklahoma, National Association, Tulsa, Oklahoma effective as of January 1, 2011. The resulting bank title is BOKF, Nationa Association, charter number l3679. This is also the official authorization given to BOKF, National Association to operate the branches of the target institutions and the main office of the target institutions as branches, A listing of each newly authorized branch and its assigned 0CC branch number is attached. Branches of a. national bank target are not listed since they are automatically carried over to the resulting bank and retain their current OCC branch numbers. If the combination does not occur as represented in your letter of December 8, 2010, this certification must be returned to the OCC. Sin erely, E B0eNoaoo NBB/SzdorIiououiog Analyst Enclosure cc: Stephen Howell, ETC Branch Number Branch Name 149363A Bank of Albuquerque, NA 149364A Bank of Arizona, NA 149365A Bank of Arkansas, NA 149366A Bank of Kansas City, NA 149367A Bank of Texas, NA 149368A Colorado State Bank and Trust, NA Branch Listing Branch Location 201 Third Street, N.W., Albuquerque, NM 5050 N. 44"'Street, Phoenix, AZ 3500 N. College, Fayetteville, AR 7500 College Blvd., Overland Park, KS 7600 W. NW Highway, Dallas, TX 1600 Broadway, Denver, CO 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 $3,495,000 CITY OF SANGER, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012, dated April 1, 2012 (the "Bonds"), 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 Combination Tax and Revenue Certificates of Obligation, Series 2009, dated July 15, 2009, which were the last obligations issued by or on behalf of the City. (2)The Bonds were sold at a price equal to $3,495,000 (representing the par value thereof plus a net premium of $93,684.10, minus an Underwriter's Discount of $29,057.50) plus accrued interest, by means of a negotiated sale to Piper Jaffray & Co. (3)The following individuals were the duly elected and qualified Mayor and City Council of the City holding the offices opposite their names: Thomas Muir Mayor Marjory Johnson Councilmember, Place 1 Gary Bilyeu Councilmember, Place 2 Russell Martin Councilmember, Place 3 Andy Garza Councilmember, Place 4 Scott Stephens Councilmember, Place 5 (4)The following individuals were the duly appointed and qualified officers of the City holding the positions opposite their names: Administration Position Mike Brice City Manager Tami Taber City Secretary (5)The City is not in default with respect to the Bonds or the ordinance authorizing the issuance of the Bonds. (6)Attached to this certificate as Exhibit A is a true, full and correct debt service schedule for the Bonds and for all presently outstanding obligations of the City which are HOU:3196157.2 payable from ad valorem taxes. The principal amount of the City's total outstanding tax-supported debt, including the Obligations is $12,975,000. (7)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 2011, 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 $358,015,773. (8)All of the meetings held by the City Council of the City, pursuant to which any proceedings were passed, adopted and approved in connection with the Bonds, were meetings open to the public for which public notice had been given, all as required by law and particularly as required by the Open Meetings Law, Chapter 551, Texas Government Code, as amended. HOU:3196157.2 SIGNED AND SEALED this 5th day of March, 2012. CITY OF SANGER, TEXAS By: _i -? — i £. /1/t(- i)& Mayor ADDRESS: P. O. Box 1729 Sanger, Texas 76266 ATTEST: 1 City Secretary ^da^ssoaaas.=4° SAI D °% ° °°0je°orsa111111 < HOU:3196157.1 EXHIBIT A Debt Service Schedule of the City's Outstanding Ad Valorem Debt City of Sanger. Texas General Obligation Refunding Bonds, Series 2012 FINAL VERIFIED NUMBERS Series 2012 General Obligation Refunding Bonds Unreñinded Aggregate Bonds Debt Service 09130/2012 85.908..33 1,107.913.13 1.193.821.46 09130.2013 482,750.00 993,994.91 1,476.744.91 09130,2014 479.850,00 994,100.83 1.473.950.83 09/30.2015 486,850.00 988.194.65 1.475.044.65 0930/2016 483.550.00 991,477.25 1.475.027.25 09."30/2017 400,950.00 994.067,27 1.395.017.27 09/30.2018 395,450.00 983,918.39 1.379.368.39 09.:30 ,2019 39 80000 98773761 138753761 09/30.2020 403,700.00 990,124.03 1.393.824.03 09.130.2021 339,075,00 991,079.75 1.330.154.75 09/30.2022 404,821.72 404,821.72 09 .30 .2023 405,814.57 405,814.57 09130.2024 400,850.82 400,850.82 09302025 400,455.88 400,455.88 0930.2026 403.793.92 403,793.92 09/30/2027 136,164.89 136,164.89 3.957.883.33 12.174.509.62 16.132.392.95 HOU:3196157.2 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 bonds, to wit: CITY OF SANGER, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012, dated April 1, 2012, and aggregating $3,495,000 (the `Bonds"); and That the Bonds 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 Bonds, 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 Bonds, 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 to restrain or enjoin the issuance or delivery of the Bonds, 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 Bonds, or the pledge thereof, or in any way contesting or affecting the validity of the Bonds, the ordinance dated March 5, 2012, authorizing the issuance, sale and delivery of the Bonds (the "Bond Ordinance"), or contesting the powers of the City or the authorization of the Bonds or the Bond 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 Bonds is the legally adopted, proper and only official seal of the City, such official seal being impressed upon this certificate. We further certify that neither the corporate existence or the boundaries of the City nor the right to hold office of any member of the governing body of the City or any other elected or appointed official of the City is being contested or otherwise questioned. We further certify that the information and data contained in the General Certificate dated March 5, 2012, remain true and correct as of this date. HOU:3196158.1 WITNESS OUR HANDS AND THE SEAL OF THE CITY this 2012. SIGNATURES TITLE OF OFFICE G^--- yl . /4t c.^ k. Mayor, City of Sanger, Texas YtjvItk City Secretary, City of Sanger, Texas (''^ .^yl ^tttE1ii89tt?lAY ^`^Btprttttttat06°°00s 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 March _ , 2012. :tiPg4 P4iy CHERYL 1. PRICE 6 y ^, `^'^ Notary Public, State of Texas ^s.. :yo My Commission Expires p•.;,;. ^.... December 12, 2015 Notary lic, State of Texas 2 HOU:3196158.1 FEDERAL TAX CERTIFICATE CITY OF SANGER, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012 I, the undersigned officer of the City of Sanger, Texas of Denton County, Texas, a political subdivision of the State of Texas (together with any successor to its duties and functions, the "City") make this certification for the benefit of all persons interested in the exclusion from gross income and certain other treatment for federal income tax purposes of the interest to be paid on the City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 (the "Bonds") in the aggregate principal amount of $3,495,000, which are being issued and delivered simultaneously with the delivery of this certificate (the "Certificate"). I do hereby certify as follows: 1.General. I am the duly chosen, qualified and acting officer of the City for the office shown below my signature. In such capacity, I am charged, along with others, with responsibility for issuing the Bonds. I am familiar with the facts, estimates and expectations certified herein, and I am duly authorized to execute and deliver this Certificate. I am familiar with the provisions of the ordinance adopted on March 5, 2012 and the Pricing Officer's Certificate of Sale, executed as of March 20, 2012, authorizing the issuance of the Bonds (collectively, the "Ordinance"), and particularly the provisions thereof relating to the treatment of the Bonds and the interest thereon for federal income tax purposes. I am aware of the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), including Sections 103 and 141 through 150 thereof, and the Treasury Regulations (the "Regulations") promulgated under the Code. This Certificate is being executed and delivered pursuant to the relevant provisions of the Code and Sections 1.141-1 through 1.141-15, 1.148-0 through 1.148-11, 1.149(d), 1.149(g)-1, 1.150-1 and 1.150-2 of the Regulations. Certain terms used herein have the same meanings as given to those terms in the Code and the Regulations. Capitalized terms used in this Certificate (unless otherwise indicated herein) shall have the meanings ascribed to them in the Ordinance. 2.Reasonable Expectations. As an officer of the City responsible for issuing the Bonds, the undersigned hereby certifies, in good faith, that the City's expectations, as of the Issue Date (as defined herein), regarding the amount and use of the gross proceeds of the Bonds and other matters relevant to the treatment of interest on the Bonds for federal income tax purposes are accurately and completely stated herein, that all of such expectations are reasonable and are based on the facts and estimates stated in this Certificate, and that all of the facts and estimates stated in this Certificate are accurate. The undersigned has relied on certain representations made by Piper Jaffray & Co., the lead underwriter of the underwriting group that purchased the Bonds from the City (the "Underwriter") in the Certificate of Underwriter, attached hereto as Exhibit A and certain representations of Government Capital Securities, Inc., the financial advisor to the City (the "Financial Advisor") in the Certificate of Financial Advisor, attached hereto as Exhibit B. The undersigned is aware of no other facts, estimates or circumstances which would indicate that any of the expectations stated herein are not reasonable. 3.Description of Governmental Purposes. The City is issuing the Bonds pursuant to the Ordinance to provide funds, which will be used: HOU:3206172.2 (a) to refund, pursuant to an Escrow Agreement (the "Escrow Agreement"), between the City and BOKF, NA, dba Bank of Texas (the "Escrow Agent"), a portion of the City's outstanding indebtedness described in the Report (as defined below) including the City's: (i)Utility System Revenue Bonds, Series 1996 (the "Series 1996 Bonds") in the aggregate principal amount of $310,000, maturing in the years 2013 to 2016 (the "Series 1996 Refunded Bonds"); (ii)System Revenue Bonds, Series 2002 (the "Series 2002 Bonds") in the aggregate principal amount of $1,590,000, maturing in the years 2013 to 2019, and 2022 (the "Series 2002 Refunded Bonds"); (iii)Combination Tax and Revenue Certificates of Obligation, Series 2002 (the "Series 2002 Certificates") in the aggregate principal amount of $1,495,000, maturing in the years 2013 to 2020, and 2022 (the "Series 2002 Refunded Certificates"); and (b) to pay the costs issuing the Bonds and of refunding the Refunded Bonds. The Series 1996 Bonds, the Series 2002 Bonds, and the Series 2002 Certificates will be referred to herein as the "Prior Bonds." The Series 1996 Refunded Bonds, the Series 2002 Refunded Bonds, and the Series 2002 Refunded Certificates will be referred to herein collectively as the "Refunded Bonds." The Refunded Bonds are being refunded and defeased in order to provide present value debt service savings to the City. The Series 1996 Refunded Bonds will be called on April 24, 2012, a date that is within 90 days of the date hereof. The Series 2002 Refunded Bonds will be called on May 15, 2012, a date that is within 90 days of the date hereof. The Series 2002 Refunded Certificates will be called on September 1, 2012, the first call date for the Series 2002 Refunded Certificates after the date hereof. The escrow fund established with the Escrow Agent pursuant to the Escrow Agreement for the purpose of refunding and defeasing the Refunded Bonds is referred to as the "Escrow Fund." 4.Accountants' Report. At the request of the City, Grant Thornton LLP, has prepared a series of schedules and a report based thereon dated as of April 24, 2012, detailing all relevant aspects of the investment and application of the proceeds of the Bonds and the City's program to refund the Refunded Bonds, including the debt service requirements of the Refunded Bonds, the dates on which the principal of, redemption premium, if any, and interest on, the Refunded Bonds will be paid with the proceeds of the Bonds and certain other matters referred to herein and therein (including all schedules, appendices and attachments thereto, the "Report"). 5.The Refunded Bonds. (a) Issuance and Purpose. With respect to the Refunded Bonds: (i) The Series 1996 Bonds were issued on April 2, 1996, in accordance with the provisions of an ordinance adopted by the City on or about February 26, 1996 (the "Series 1996 Ordinance"). The proceeds of the Series 1996 Bonds were used for capital improvement to the City's utilities. In -2- HOU:3206172.2 connection with the issuance of the Series 1996 Bonds, the City executed the Federal Tax Certificate (the "1996 Federal Tax Certificate"), dated April 2, 1996. The City confirms the statements and representations contained in the 1996 Federal Tax Certificate concerning the use and investment of the proceeds of the Series 1996 Bonds. (ii)The Series 2002 Bonds were issued on June 19, 2002, in accordance with the provisions of an ordinance adopted by the City on or about May 20, 2002 (the "Series 2002 Ordinance"). The proceeds of the Series 2002 Bonds were used for capital improvements to the City's utilities. In connection with the issuance of the Series 2002 Bonds, the City executed the Federal Tax Certificate (the "2002 Federal Tax Certificate"), dated June 19, 2002. The City confirms the statements and representations contained in the 2002 Federal Tax Certificate concerning the use and investment of the proceeds of the Series 2002 Bonds and the Prior Refunded Bonds. (iii)The Series 2002 Certificates were issued on June 19, 2002, in accordance with the provisions of an ordinance adopted by the City on or about May 20, 2002 (the "Series 2002 Certificates Ordinance"). The proceeds of the Series 2002 Certificates were used for construction and improvement of City streets. In connection with the issuance of the Series 2002 Certificates, the City executed the Federal Tax Certificate (the "2002 Certificates Federal Tax Certificate"), dated June 19, 2002. The City confirms the statements and representations contained in the 2002 Certificates Federal Tax Certificate concerning the use and investment of the proceeds of the Series 2002 Certificates. (b)No Private Activity Bonds. No obligation which is part of the Prior Bonds is or was a private activity bond within the meaning of Section 141(a) of the Code or an industrial development bond or private loan bond under Section 103 of the Internal Revenue Code of 1954. None of the facilities financed or refinanced or to be financed or refinanced with proceeds of the Prior Bonds has been or is expected to be disposed of, or used in any manner other than as provided in the Prior Ordinance, prior to the final maturity date of the Bonds. (c)No Other Refundings. No portion of the proceeds of the Prior Bonds has been or will be used to pay, directly or indirectly, principal of, or interest or redemption premium on, another issue of Bonds of which the City or a related party with respect to the City is or was an obligor except as described herein. (d)Not a Conduit Loan. None of the proceeds of the Prior Bonds is or was proceeds of an obligation issued by another governmental entity and loaned to the City to carry out the governmental purpose of such other obligation. 6. Unspent Proceeds of the Refunded Bonds. The City has identified all amounts on hand as of the date hereof which constitute proceeds of Refunded Bonds and will identify all amounts, if any, which in the future will constitute proceeds of the Refunded Bonds (such as transferred proceeds, if any, and investment proceeds, if any; collectively, the "Unspent -3- HOU:3206172.2 Proceeds"), the funds in which such amounts (to the extent, if any, currently on hand) are held, all investments which are allocable to such amounts, the governmental purposes for which such amounts were originally borrowed and will be expended, and the dates by which such expenditures are expected to be paid. As of the date hereof, no proceeds of the Refunded Bonds remain unexpended. There are no other amounts that may be considered Unspent Proceeds of the Refunded Bonds and none are expected to arise after the date hereof. 7. Replacement Proceeds of the Refunded Bonds. (a) Refunded Debt Service Balance. The City has determined the amount of the Debt Service Balance (as defined below) as of the date hereof and the portion of the Debt Service Balance properly allocable to the Refunded Bonds (the "Refunded Debt Service Balance"). (i) The term "Debt Service Balance" means the sum of: (A)the balances of all debt service funds, reserve funds, replacement funds, and all similar funds and all other amounts and investments on hand and reasonably expected to be used (or to have been used, as if the Bonds had not been issued and the Refunded Bonds had not been refunded), directly or indirectly (such as, by the generation of income to be used), and (B)the balances of all funds and all other amounts and investments that are pledged, directly or indirectly, to pay principal of, or redemption premium or interest on, the indebtedness of the City outstanding immediately prior to the issuance of the Bonds and payable from ad valorem taxes of the City, including the Refunded Bonds. For this purpose, a pledge includes, but is not limited to, any arrangement, regardless of its form, which provides reasonable assurance that the amount will be available to pay principal or interest, even if the City encounters financial difficulty. A pledge to a guarantor or an agreement to maintain an amount at a particular level or balance for the direct or indirect benefit of a bondholder or a guarantor would constitute a pledge for this purpose. (ii) The City has a debt service fund for the purpose of payment of debt service on the Refunded Bonds, as well as all other outstanding tax-exempt debt of the City (the "Existing Debt Service Fund"), and has on hand in the Existing Debt Service Fund certain amounts allocable to the Refunded Bonds. The current balance in the Existing Debt Service Fund allocable to the Refunded Bonds (the "Refunded Debt Service Balance") is $88,654.93, of which $83,349.02 (the "Current Portion") represents an amount of taxes the City levied for the current year and had on hand to pay the current debt service on the -4- HOU:3206172.2 Refunded Bonds had the Bonds not been issued and the Refunded Bonds not been refunded. The remainder of the Refunded Debt Service Balance equal to $5,305.91 (the "Reserve Portion") represents the amount held by the City in the debt service fund for the Refunded Bonds in excess of the amount needed to pay current debt service on the Refunded Bonds. The Current Portion of the Refunded Debt Service Balance will be transferred to the Debt Service Fund and used on to pay the principal of, premium, if any, and interest on the Bonds on May 15, 2012, the first interest payment date of the Bonds. The Reserve Portion of the Refunded Debt Service Balance was determined by allocating on a pro rata basis the total balance as of August 31, 2011, in the City's debt service funds for all of its outstanding tax-exempt Bonds, as shown on the City's most recent financial information included on page 7 of the Official Statement, dated March 20, 2012, and issued in connection with the sale of the Bonds. The Reserve Portion will be transferred to the Debt Service Fund for the Bonds to be used to pay debt service on the Bonds and to the extent not so required, will be maintained in the Debt Service Fund to pay debt service on the Bonds based on the representation by the City's Financial Advisor in Exhibit B hereto, such balance should be maintained to pay debt service on the Bonds as a reserve against periodic fluctuations in the amount and timing of ad valorem tax collections by the City for debt service purposes. The Reserve Portion does not exceed the least of (a) 10 percent of the sale proceeds of the Bonds, (b) maximum annual debt service payments on the Bonds, and (d) 125 percent of the average annual debt service payments on the Bonds. Prior to disbursement to pay debt service on the Bonds, such amount will be invested for an allowable temporary period, as applicable. (b) No Other Replacement Proceeds of Refunded Bonds. (i)Other than the Refunded Debt Service Balance, there are no amounts on hand which at any time had a sufficiently direct nexus to the Refunded Bonds or to the governmental purposes of the Refunded Bonds to conclude that such amounts would have been used for that governmental purpose if the proceeds of the Refunded Bonds had not been or will not be used for that governmental purpose. (ii)Other than the Refunded Debt Service Balance, there are no other funds, amounts, or investments on hand which at any time were pledged, intended or expected to be used to pay debt service on the Refunded Bonds or which otherwise constitute gross proceeds of the Refunded Bonds. (iii)The term to maturity of the Refunded Bonds is not longer than reasonably necessary for the respective governmental purposes of the Refunded Bonds. The weighted average maturity of the Refunded Bonds does not exceed 120 percent of the average reasonably expected economic life of the projects and facilities financed or refinanced by the Refunded Bonds, determined in the same manner as provided under Section 147(b) of the Code. For this purpose, any proceeds of the Refunded Bonds that have been, or will be, used to finance -5- HOU:3206172.2 working capital expenditures have been assigned an expected economic life of zero. 8. Proceeds of the Bonds. The sales proceeds from the sale of the Bonds is $3,588,684.10, which represents the aggregate principal amount of the Bonds of $3,495,000.00 plus net original issue premium of $93,684.10. 9. Use of Proceeds of the Bonds. The sales proceeds from the sale of the Bonds will be expended and applied by the City as follows: (a)Proceeds of the Bonds in the amount of $3,161,278.00 will be deposited in the Escrow Fund on the date hereof and used to purchase United States Treasury Securities (State and Local Government Series) (the "Escrowed Securities") the proceeds of which will be used together with the beginning cash balance of $316,471.59, to pay the principal of, redemption premium, if any, and interest on the Refunded Bonds. (b)Proceeds of the Bonds in the amount of $316,471.59 represent the beginning cash balance in the Escrow Fund, and will be used to pay the principal of, redemption premium, if any, and interest on the Refunded Bonds. (c)Proceeds of the Bonds in the amount of $29,057.50 represents the underwriter's compensation and will be retained by the Underwriter from the sales proceeds as a cost to the City of issuing the Bonds. (d)Proceeds of the Bonds in the amount of approximately $80,000.00 will be used by the City to pay costs of issuance of the Bonds. (e)Proceeds of the Bonds in the amount of $1,877.01 represents a rounding amount that will be used to pay additional costs of issuance, if any, and thereafter will be deposited in the Debt Service Fund (as defined below) to be used on May 15, 2012, to pay interest on the Bonds. 10. Pre -Issuance Accrued Interest. In addition to the sale proceeds described in paragraph 8, the City will receive, upon the issuance of the Bonds, the amount of $5,702.08 representing interest on the Bonds accruing during the period from April 1, 2012, to the date hereof. Such amount will be deposited in the City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 Debt Service Fund (the "Debt Service Fund") and, along with all investment earnings therefrom, will be disbursed to pay interest on the Bonds on May 15, 2012, the first interest payment date on the Bonds. Because the amount of $5,702.08 represents accrued interest on the Bonds for a period of less than one year and will be used to pay interest on the Bonds within one year from the Issue Date, such amount constitutes pre-issuance accrued interest on the Bonds and, as such, is not considered proceeds of the Bonds. 11. Transferred Proceeds. Any proceeds of the Refunded Bonds remaining unspent as of the date proceeds of the Bonds are used to discharge principal of a Refunded Bond will be subject to becoming transferred proceeds of the Bonds. The Report reflects the amount of proceeds of the Bonds that will be used to refund the Refunded Bonds and the date or dates on which each of such amounts will be so used. The Report also reflects the dates on which 1I HOU:3206172.2 principal of the Refunded Bonds is scheduled to be discharged with proceeds of the Bonds. All of the proceeds of the Refunded Bonds has been spent, and the City does not expect to receive or to have on hand at any time while the Bonds are outstanding any amounts or investments representing proceeds of the Refunded Bonds. Therefore, there will be no proceeds of the Refunded Bonds that will become transferred proceeds of the Bonds other than those described above in this paragraph. 12. Replacement Proceeds. There are no amounts on hand, and there are no amounts expected to be received, other than amounts identified herein as proceeds of the Bonds and amounts to be held in the Debt Service Fund for the payment of debt service on the Bonds (as discussed in paragraphs 10 and 23) which have or will have at any time a sufficiently direct nexus to the Bonds or to any governmental purpose of the Bonds to conclude that such amounts would have been used for that governmental purpose if the proceeds of the Bonds were not used or to be used for that governmental purpose. More specifically -- (a) Sinking Funds and Pledged Funds. Other than the Debt Service Fund and the amounts and investments on deposit therein from time to time, there are not now and will not be at any time while the Bonds are outstanding -- (i)any debt service fund, reserve fund, replacement fund, any similar fund, or any amount or investment reasonably expected to be used, directly or indirectly (such as, by the generation of income to be used), to pay principal or interest on the Bonds; and (ii)any fund, amount, or investment that is directly or indirectly pledged to pay principal or interest on the Bonds. A pledge includes, but is not limited to, any arrangement, regardless of its form, which provides reasonable assurance that the amount will be available to pay principal or interest, even if the City encounters financial difficulty. A pledge to a guarantor or an agreement to maintain an amount at a particular level or balance for the direct or indirect benefit of bondholder or a guarantor would constitute a pledge for this purpose. (b) No Other Replacement Proceeds. There will be no other replacement proceeds allocable to the Bonds. Based on the reasonable expectations of the City as of the date hereof, the term of the Bonds is not longer than, and the City will not allow the Bonds to remain outstanding longer than, is reasonably necessary for the governmental purposes for which the Bonds are being issued. The weighted average maturity of the Bonds does not exceed 120 percent of the reasonably expected economic life of the capital projects being financed and/or refinanced by the Bonds, determined in the same manner as provided under Section 147(b) of the Code. In addition, none of the proceeds of the Bonds will be used to finance working capital expenditures. 13. No Other Issue. There are no other tax-exempt Bonds issued by the City or any related party of the City which (a) were sold at the same time as the Bonds (within 15 days), (b) are reasonably expected to be paid from the same source of funds as the Bonds and (c) were or will be sold pursuant to the same plan of financing as the Bonds. -7- HOU:3206172.2 14. No Excess Gross Proceeds. (a)Refunding Escrow. All of the proceeds of the Bonds described in paragraphs 9(a) and 9(b), including all investment proceeds therefrom, if any, will be deposited in the Escrow Fund. The City does not expect any investment proceeds or other amounts constituting proceeds of the Bonds in the Escrow Fund other than the amounts reflected in the Report. All proceeds of the Bonds deposited in the Escrow Fund and all investment proceeds therefrom will be used to pay the principal of, and redemption premium, if any, and interest on the Refunded Bonds, as reflected in the Report. (b)Issuance Costs. All proceeds of the Bonds described in paragraphs 9(c) through 9(d), and all investment proceeds therefrom (although, no investment proceeds are expected on the amount described in paragraph 9(c)), will be used to pay costs of issuing the Bonds. (c)Rounding Amount. All of the proceeds of the Bonds described in paragraph 9(e) and all investment proceeds therefrom will be deposited in the Debt Service Fund and used on May 15, 2012, the first interest payment date for the Bonds, to pay debt service on the Bonds. (d)Pre -Issuance Accrued Interest. The amount described in paragraph 10 will be used to pay pre-issuance accrued interest on the Bonds, and all investment earnings on such amount will be used to pay interest on the Bonds on the first interest payment date. (e)Unspent Proceeds. The Unspent Proceeds with respect to the Refunded Bonds, if any, will be treated as described in paragraph 6 above. As discussed in paragraph 6, there is no other replacement proceeds allocable to the Refunded Bonds other than the Refunded Debt Service Amount, all of which will be used to pay debt service on the Bonds. (f)Debt Service Fund. All of the amounts expected to constitute gross proceeds of the Bonds which are not referred to in the preceding sentences of this paragraph are amounts which will be on deposit in the Debt Service Fund from time to time and which will be used to pay debt service on the Bonds. Accordingly, the City expects that there are and will be no amounts which represent gross proceeds of the Bonds other than the amounts which are expected to be allocable to (i) the payment of the principal of, redemption premium, if any, and interest on the Refunded Bonds and other costs related to the refunding of the Refunded Bonds, (ii) the payment of pre-issuance accrued interest on the Bonds, (iii) a reasonably required reserve or replacement fund for the Bonds, (iv) the payment of the costs of issuing and insuring the Bonds, (v) the payment of expenditures for the governmental purposes for which such amounts were originally borrowed, or (vi) replacement proceeds that will be used or maintained for the governmental purpose of the Bonds, including the payment of debt service thereon on particular dates. Based on the foregoing, the City reasonably expects that the amount of the proceeds from the issuance of the -8- HOU:3206172.2 Bonds, plus all investment proceeds to be received with respect to the Bonds, does not exceed by more than one percent of the proceeds of the Bonds, the amount required for the governmental purposes for which the Bonds are being issued. 15. Temporary Period Requirements for the Bonds. (a) Compliance with Yield Restriction on Proceeds. With respect to all amounts constituting proceeds of the Bonds at any time, the City reasonably expects that such amounts will be invested for an allowable temporary period (and, to such extent, may be invested without regard to the yield on the Bonds), will be invested at a yield not materially higher than the yield on the Bonds, or will not be invested pending expenditure or reinvestment at a yield not materially higher than the yield on the Bonds. (b) Proceeds of the Bonds. With respect to the proceeds of the Bonds, the City expects that: (i)The sale proceeds described in paragraphs 9(a) and 9(b) and all investment proceeds therefrom, will be invested in the Escrowed Securities at a yield not higher than the yield on the Bonds. (ii)The sale proceeds described in paragraph 9(c), which represents the underwriter's compensation will be retained by the Underwriters and will not be received or invested by the City. (iii)The sale proceeds described in paragraph 9(d), and all investment proceeds therefrom, will be used to pay costs of issuing the Bonds. To the extent not spent within 30 days from the date hereof, such amounts will be invested at a yield not materially higher than the yield on the Bonds. (iv)The sale proceeds described in paragraph 9(e), and all investment proceeds therefrom, will be deposited in the Debt Service Fund, and used on May 15, 2012, the first interest payment date for the Bonds, to pay interest on the Bonds. (v)As stated in paragraph 6, all proceeds of the Refunded Bonds were spent prior to the date hereof. On the date that proceeds of the Bonds are used to pay principal on the Refunded Bonds, no proceeds of the Refunded Bonds will remain unexpended. There are no other amounts which are expected to be eligible to become transferred proceeds of the Bonds. (vi)Other than the sale proceeds and investment proceeds referred to above in this paragraph 15 there are no other amounts which are expected to constitute proceeds of the Bonds. (c) Replacement Proceeds of the Bonds. Based on the expectations set forth in this Certificate, all amounts constituting replacement proceeds of the Bonds, if any, are expected to qualify at all times until spent for either the temporary period of 13 months applicable to a bona fide debt service fund or as a reasonably required reserve or ME HOU:3206172.2 replacement fund for the Bonds and, in either case, may be invested, to such extent, without regard to yield restriction. To the extent amounts constitute replacement proceeds of the Bonds that do not qualify for either of such exceptions, such amounts will be invested at a yield not materially higher than the yield on the Bonds. (d) All Amounts in Compliance. Based on the foregoing, the City reasonably expects that all gross proceeds of the Bonds will be invested for an allowable temporary period (and, to such extent, may be invested without regard to the yield on the Bonds), will be invested (or will be treated as invested) at a yield not materially higher than the yield on the Bonds, will not be invested pending expenditure, or will be invested as a reasonably required reserve or replacement fund for the Bonds (and, to such extent, may be invested without regard to the yield on the Bonds). All gross proceeds of the Refunded Bonds will be invested (or will be treated as invested) at a yield not materially higher than the yield on the Prior Bonds. To the extent any amounts constituting gross proceeds of the Bonds or of the Refunded Bonds are not received, invested, or expended as described herein, the City will restrict the investment and reinvestment of such amounts to a yield, not materially higher than the yield on the Bonds or on the Prior Bonds, as applicable. The City will monitor all receipts, investments, reinvestments, and expenditures while the Bonds are outstanding in order to assure that the foregoing expectations are realized. 16.No Overissuance. Based on the expectations set forth in the preceding paragraphs, the amount of the proceeds from the issuance of the Bonds, plus all investment proceeds to be received with respect to the Bonds, does not exceed by any amount, the amount required for the governmental purposes for which the Bonds are being issued, as described in paragraph 3 above. 17.Flow of Funds. Pursuant to the Ordinance, the City is obligated to levy, assess and collect an ad valorem tax on property located in the City in an amount sufficient to pay debt service on the Bonds. All amounts levied, assessed and collected by the City for and on account of the Bonds will be deposited into the Debt Service Fund. 18.Issue Price. The term "Issue Price," with respect to the entire issue of Bonds, means the aggregate of the initial offering prices for all of the Bonds, plus pre-issuance accrued interest as of date of issue on the entire issue of Bonds (unless as otherwise indicated herein). For substantially identical Bonds, the Issue Price is the first price at which a substantial amount (i.e., at least ten percent) was sold to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters and wholesalers). Based on the foregoing and on the Certificate of Underwriter, attached as Exhibit A and incorporated herein by reference, the Issue Price of the Bonds, without taking into account any costs of issuance or pre-issuance accrued interest, is $3,588,684.10. 19.Yield on the Bonds. For purposes of this Certificate, the term "yield" shall have the meaning ascribed to it in Section 148(h) of the Code and the Regulations in effect thereunder and, when used with respect to the Bonds, shall mean that interest rate which when used as a discount factor to compute the present value as of the Issue Date of all scheduled payments of principal of and interest on the Bonds produces an amount equal to (i) the Issue Price of the -10- HOU:3206172.2 Bonds, plus (ii) pre-issuance accrued interest on the Bonds as of the Issue Date. Yield on the Bonds shall not take into account or reflect any underwriter's discount or cost of issuance of the Bonds. For purposes hereof, yield is and shall be calculated on the basis of a 360-day year with interest compounded semi-annually. The yield with respect to the Bonds subject to optional redemption is computed by treating each Bond as retired at the stated redemption price on the final maturity date because (i) the City has no present intention to redeem prior to maturity the Bonds which are subject to optional redemption, (ii) no Bond is subject to optional redemption at any time for a price less than the retirement price at final maturity plus accrued interest, (iii) no Bond is subject to optional redemption within five years of the Issue Date, (iv) no Bond subject to optional redemption is issued at an Issue Price that exceeds the stated redemption price at maturity of such Bond by more than one-fourth of one percent multiplied by the product of the stated redemption price at maturity of such Bond and the number of complete years to the first optional redemption date for such Bond; and (v) no Bond subject to optional redemption bears interest at a rate that increases during the term of the Bond. The yield on the Bonds, calculated in this manner and as verified in the Report, is 2.114742 percent. 20.Yield on the Escrowed Securities. The yield on the Escrowed Securities is computed using the same compounding interval and financial conventions used to compute the yield on the Bonds. The yield on such Escrowed Securities is the discount rate that, when used in computing the present value as of the date the Escrowed Securities were first allocated to the Bonds of all unconditionally payable receipts to be actually or constructively received from the Escrowed Securities, produces an amount equal to the amounts to be actually or constructively paid for the Escrowed Securities. The Escrowed Securities are all yield-restricted nonpurpose investments that are a single class of investments and that are treated as a single investment because all of the Escrowed Securities were purchased with Bond proceeds and held in a refunding escrow as described in section 1.148-6(c) of the Regulations. Such purchase price is equal to the price paid by the City to the United States Treasury for the Escrowed Securities. As verified in the Report, the yield on the Escrowed Securities on deposit in the Escrow Fund determined in this manner is 0.094416 percent, a yield that is not higher than the yield on the Bonds. 21.Weighted Average Maturity. As calculated by the Financial Advisor in the manner described below and set forth in the Certificate of Financial Advisor, Exhibit B hereto, the weighted average maturity of the Bonds, the Current Refunded Bonds and the Series 2002 Refunded Certificates is 4.8061 years, 5.4320 years and 6.2591 years, respectively, which is the sum of the products of the Issue Price of each group of identical Bonds and the number of years to maturity (determined separately for each group of identical Bonds and taking into account mandatory redemptions), divided by the aggregate sale proceeds of the Bonds. 22.IRS Form 8038-G. Attached as Exhibit C is a copy of the IRS Form 8038-G required to be filed with the Internal Revenue Service in connection with the issuance of the Bonds. To the best of my knowledge, the information included in the attached IRS Form 8038-G is true, accurate and complete. -11- 23.Debt Service Fund. Pursuant to the Ordinance, the City created the Debt Service Fund to be used primarily to achieve a proper matching of revenues and debt service on the Bonds within each bond year. The City expects that the taxes levied, assessed and collected each year, and amounts received from investment of moneys held in the Debt Service Fund, will be sufficient to pay debt service each year on the Bonds. The City will adjust the annual tax rates as necessary, taking into account other moneys available or to be available for the payment of debt service on the Bonds. The portion of the Debt Service Fund which will be depleted by the payment of debt service on the Bonds at least once each bond year, except for a reasonable carryover amount not to exceed the greater of (a) one year's earnings on the Debt Service Fund for the immediately preceding bond year or (b) one-twelfth of the principal and interest payments on the issue for the immediately preceding bond year, will constitute a bona fide Debt Service Fund and will be treated as a separate fund (the "Bona Fide Portion") for purposes of this Certificate. Amounts, other than proceeds of the Bonds, remaining in the Debt Service Fund, after the annual payment of all principal of and interest and premium, if any, on the Bonds, other than the reasonable carryover amount described in the preceding sentence will be treated for purposes of this Certificate as a separate fund (the "Carryover Portion"). The City reasonably expects that the sum of any amounts in the Debt Service Fund which (i) are allocable to such Carryover Portion or (ii) are allocable to the Bona Fide Portion, but are not spent for the payment of debt service on the Bonds within 13 months after the date of receipt of such amount, will not exceed the least of (x) 10 percent of the Issue Price (as defined in paragraph 18), (y) the maximum annual principal and interest requirements on the Bonds, or (z) 125 percent of the average annual principal and interest requirement on the Bonds, at any time so long as the Bonds are outstanding. To the extent any such accumulations exceed such amount, the excess amount will be invested at a yield not in excess of the yield on the Bonds, except as set forth in paragraph 26 below. 24.No Other Sinking Funds. Other than the Debt Service Fund, there are no other funds or accounts comprised of investment property established by and on behalf of the City (a) which are expected to be used, or expected to generate earnings to be used, to pay debt service on the Bonds, or which are reserved or pledged as collateral for payment of debt service on the Bonds and (b) for which there is reasonable assurance that amounts therein will be available to pay debt service on the Bonds if the City encounters financial difficulties. Use of amounts in the Debt Service Fund is described above. There is no other fund established, or to be created or established, which would be treated as a sinking fund with respect to the Bonds. 25.Qualified Tax -Exempt Bonds. Section 265 of the Code permits designation of governmental Bonds such as the Bonds as "qualified-tax-exempt Bonds." The Bonds have been, or are hereby, designated by the City as a "qualified tax-exempt Bonds" for purposes of Section 265(b)(3) of the Code. The Bonds are not private activity Bonds within the meaning of Section 141(a) of the Code. The City (and all entities related to the City) does not reasonably expect to issue, and will not designate, tax-exempt Bonds, including the City, in an aggregate amount (based in each case on the higher of the principal amount or the issue price) in excess of $10,000,000 during the calendar year 2012. 26.Minor Portion. The City expects that the gross proceeds of the Bonds, including all proceeds received with respect to the Bonds and all investment proceeds received on such amounts, and all other amounts pledged or anticipated to be used to pay principal of and interest -12- HOU:3206172.2 on the Bonds, other than amounts representing a portion of the Bona Fide Portion of the Debt Service Fund, will be expended in accordance with paragraphs 9 and 15 above. To the extent that such amounts remain unexpended or are otherwise on hand following the periods set forth in paragraph 15 above exceeds the amount specified in this paragraph 26, the City will invest such amounts, other than a minor portion in an amount not exceeding the lesser of 5 percent of the sale proceeds of the Bonds or $100,000 in the aggregate, at a yield not materially higher than the yield on the Bonds. 27.Identification of Replacement Proceeds. Notwithstanding the expectations of the City as stated above in paragraph 12 the City will (at all times while the Bonds are outstanding) identify all replacement proceeds with respect to the Bonds, including any sinking fund created for repayment of the principal or interest on the Bonds or any other amounts held in any fund of the City reasonably expected by the City to be used to pay the principal of or interest on the Bonds. If the City identifies any replacement proceeds and determines that a temporary period pursuant to Section 1.148-2(e) of the Regulations is not applicable to such replacement proceeds, the City will limit the yield on the investment of such replacement proceeds to the yield on the Bonds until such proceeds are treated as spent in accordance with the Regulations. The City acknowledges that failure to properly identify replacement proceeds and account for the investment and expenditure thereof as required by the Regulations may result in interest on the Bonds being includable in the gross income of the holders of the Bonds. 28.Compliance with Rebate Requirements. (a) Rebate Compliance. The City has covenanted in the Ordinance that, unless the Bonds meet an exception to the rebate requirement, it will take all necessary steps to comply with the requirement that rebatable arbitrage earnings on the investment of the gross proceeds of the Bonds, within the meaning of Section 148(f) of the Code, be rebated to the federal government. Specifically, the City will: (i)maintain separate records regarding the amount and timing of disbursements of proceeds of the Bonds; (ii)maintain records regarding the investment of the gross proceeds of the Bonds as may be required to calculate the amount earned on the investment of the gross proceeds of the Bonds which are part of a reasonably required reserve or replacement fund separately from records of amounts in other funds or accounts maintained for the Bonds amounts on deposit in the funds and accounts of the City allocable to other bond issues of the City or moneys which do not represent gross proceeds of any obligation of the City; (iii)calculate at such times as required by applicable Regulations, the rebatable amount earned from the investment of the gross proceeds of any obligation of the City; (iv)calculate at such times as required by applicable Regulations, the rebatable amount earned from the investment of the gross proceeds of the Bonds which are part of a reasonably required reserve or replacement fund; and -13- HOU:3206172.2 (v) pay, not less often than every fifth anniversary date of the delivery of the Bonds or on such other dates as permitted or required by applicable Regulations, all amounts required to be rebated and all penalties required to be paid to the federal government. The City acknowledges that the purposes of compliance with Section 148 of the Code, gross proceeds of the Bonds must be accounted for on the basis of a reasonable, consistently applied method of accounting, not employed in whole or in part as an artifice or device. The City will employ accountants or other persons with expertise in performing the rebate calculations as is necessary to insure compliance with the Code. The City will employ legal counsel as is necessary to resolve the interpretive issues involved in complying with the rebate requirements of the Code. Further, the City will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Bonds. In the event that the City fails to comply with the rebate requirements of the Code, the City agrees to take all steps available under the Code to bring the Bonds into compliance with the Code; such steps include paying any penalty, interest or other amounts which will allow the City to return to compliance with the rebate requirements of the Code. If the City is required to pay rebate or other amounts, such as penalties and interest, to the United States with respect to the Bonds pursuant to Section 148(f) of the Code in order to prevent the Bonds from constituting arbitrage Bonds or being otherwise classified or treated such that interest on the Bonds would not be excludable from the gross income of the holders thereof for federal income tax purposes, the City will timely make such payments from available funds of the City and the City reasonably expects that it will have the ability to make such payments from available funds of the City in the event such payments become necessary. The undersigned reasonably expects that the City will fulfill its covenants and representations in this regard. 29.Not a Refunding of Any Other Bonds. No portion of the proceeds of the Bonds are expected to be used to pay any principal of or interest on any issue of governmental Bonds other than the Bonds and the Refunded Bonds. 30.Not a Reimbursement. No portion of the proceeds of the Bonds will be allocated to, or otherwise used to reimburse, any expenditure paid by the City, either actually or constructively, prior to the date of issue. 31.No Change in Use. The City does not expect to dispose of any portion of any project related to the Bonds or the Refunded Bonds, or to change the use of the proceeds of the Bonds or the Refunded Bonds while any of the Bonds are outstanding. 32.Not a Hedge Bond. Neither the Bonds nor the Refunded Bonds are "hedge Bonds" within the meaning of Section 1.149(g)-1 of the Regulations. 33.No Abusive Arbitrage Device. The Bonds are not and will not be a part of an issue in which an abusive arbitrage device (as defined in Section 1.148-10(a) of the Regulations) is used. Without limiting the foregoing, the Bonds 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 -14- HOU:3206172.2 taxable interest rates to gain a material financial advantage, and (ii) increasing the burden on the market for tax-exempt Bonds. In this regard, the City issued the Bonds for the primary purpose of accomplishing the bona fide governmental purposes set forth in paragraph 3 of this Certificate. Based on all the facts and circumstances, the City has not issued the Bonds in an amount higher than is reasonably necessary to accomplish the governmental purposes of the Bonds, the City has not issued the Bonds earlier than is reasonably necessary to accomplish the governmental purposes of the Bonds and the City is not allowing the Bonds to remain outstanding longer than is reasonably necessary to accomplish the governmental purposes of the Bonds. The City would have issued the Bonds regardless of any arbitrage benefit, which it may realize in connection with the Bonds. In fact, the City reasonably expects that even if the Bonds were not tax-exempt Bonds and if market rates of interest on taxable and tax-exempt Bonds were equal to each other and to the rates at which the Bonds are in fact now being issued, the City would have issued the Bonds, notwithstanding the loss of any opportunity to borrow at lower tax-exempt rates and invest at higher taxable rates. (a)No Impermissible Sinking Fund. No portion of the Bonds has a maturity determined primarily for the purpose of creating a sinking fund with respect to the Bonds the yield on which will be blended with the yield on the investment of other proceeds of the Bonds to reduce the negative arbitrage related to such investment. (b)No Working Capital. Except for an amount that does not exceed 5 percent of the Sale Proceeds of the Bonds (and that is directly related to capital expenditures financed by the Bonds), the City will only expend proceeds of the Bonds for (i) costs that would be chargeable to the capital accounts of the Project if the City's income were subject to federal income taxation and (ii) interest on the Bonds in an amount that does not cause the aggregate amount of interest paid on all of the Bonds to exceed that amount of interest on the Bonds that is attributable to the period that commences on the date hereof and ends on the later of (A) the date that is three years from the issue date of the Bonds or (B) the date that is one year after the date on which the Project is placed in service. (c)No Related Sinking Fund. No portion of the Bonds has a maturity determined primarily for the purpose of creating a sinking fund with respect to the Bonds the yield on which will be blended with the yield on the Escrowed Securities to reduce the negative arbitrage in the Escrow Fund. (d)No Noncallable Bonds. The Refunded Bonds do not include any noncallable Bonds refunded for the primary purpose of investing the proceeds of the Bonds in the Escrow Fund allocable to the noncallable Bonds. at a yield that is higher than the yield on the Bonds in order to reduce negative arbitrage in the Escrow Fund. (e)No Window Refunding. No portion of the Bonds has been structured with the primary purpose of making available released revenues that will allow the City to avoid transferred proceeds, to invest such released revenues at a yield materially higher than the yield on the Bonds or to pay principal and interest on another issue of Bonds of the City. -15- HOU:3206172.2 (f)No Sale of a Conduit Loan. No portion of the gross proceeds of the Bonds or the Refunded Bonds has been or will be used to acquire, finance or refinance a conduit loan. (g)No Re-refunding. None of the Refunded Bonds has been refunded or defeased except pursuant to the issuances of the Bonds. 34. No Private Use, Payments or Loan Financing. (a) General. The City reasonably expects, as of the date hereof, that no action or event during the entire stated term of the Bonds will cause either the "private business tests" or the "private loan financing test," as such terms are defined in the Regulations, to be met. (i)No portion of the proceeds of the Bonds, or the facilities refinanced by the Bonds, will be used in a trade or business of a nongovernmental person. For purposes of determining use, the City will apply rules set forth in applicable Regulations and Revenue Procedures promulgated by the Internal Revenue Service, including, among others, the following rules: (A) any activity carried on by a person other than a natural person or a state or local governmental unit will be treated as a trade or business of a nongovernmental person; (B) the use of all or any portion of the proceeds of the Bonds is treated as the direct use of proceeds; (C) a nongovernmental person will be treated as a private business user of proceeds of the Bonds as a result of ownership, actual or beneficial use of the proceeds pursuant to a lease, or a management or incentive payment contract, or certain other arrangements such as a take-or-pay or other output-type contract; and (D) the private business use test is met if a nongovernmental person has special legal entitlements to use directly or indirectly the proceeds of the Bonds. (ii)The City has not taken and will not take any deliberate action that would cause or permit the use of any portion of the proceeds of the Bonds, or the facilities refinanced by the Bonds, to change such that such portion will be deemed to be used in the trade or business of a nongovernmental person for so long as any of the Bonds remain outstanding (or until an opinion of nationally recognized bond counsel is received to the effect that such change in use will not adversely affect the excludability from gross income for federal income tax. purposes of interest payable on the Bonds). For this purpose any action within the control of the City is treated as a deliberate action. A deliberate action occurs on the date the City enters into a binding contract with a nongovernmental person for use of the proceeds of the Bonds that is not subject to any material contingencies. (iii)No portion of the proceeds of the Bonds will be directly or indirectly used to make or finance a loan to any person other than a state or local governmental unit. (b) Dispositions of Personal Property in the Ordinary Course. Dispositions of personal property financed or refinanced with any portion of the proceeds -16- HOU:3206172.2 of the Bonds will occur in the ordinary course of an established governmental program and will satisfy the following requirements: (i)The weighted average maturity of the portion of the Bonds financing personal property is not greater than 120 percent of the reasonably expected actual use of such personal property for governmental purposes; (ii)The reasonably expected fair market value of such personal property on the date of disposition will be not greater than 25 percent of its cost; (iii)Such personal property will no longer be suitable for its governmental purposes on the date of disposition; and (iv)The City is required to deposit amounts received from such disposition in a commingled fund with substantial tax or other governmental revenues and the City reasonably expects to spend such amounts on governmental programs within 6 months from the date of commingling. 35.No Arbitrage. On the basis of the foregoing facts, estimates and circumstances, it is expected that the proceeds of the Bonds will not be used in a manner that would cause any of the Bonds to be an "arbitrage bond" within the meaning of Section 148 of the Code and the Regulations. To the best of the knowledge and belief of the undersigned, there are no other facts, estimates or circumstances that would materially change such expectations. 36.Records Retention. The City will take steps to ensure that all materials, records, and information necessary to confirm the exclusion of the interest on the Bonds under Section 103 of the Code are retained for a period beginning on the issue date of the Bonds and ending three years after the date the Bonds are retired. [SIGNATURE PAGE FOLLOWS] -17- HOU:3206172.2 WITNESS MY HAND, on April 24, 2012. s; C ,.,4lSE°^°E2^t1A^^af^1 t S,/i A sar • Efjid d^ifi:361E iiZ;^ • EXHIBIT A — Certificate of Underwriter CITY OF SANGER, TEXAS By: *Gctl& Thomas Muir Mayor EXHIBIT B — Certificate of Financial Advisor EXHIBIT C — IRS Form 8038-G Signature Page City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 HOU:3206172.1 EXHIBIT A CERTIFICATE OF UNDERWRITER The undersigned hereby certifies with respect to the sale of the City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 (the "Bonds"), as follows: 1.The undersigned is a duly authorized representative of Piper Jaffray & Co. ("the Underwriter"), that purchased the Bonds from the City of Sanger, Texas (the "City"), pursuant to a negotiated sale. In this capacity, the undersigned is familiar with the facts stated herein. Capitalized terms not defined herein have the same meaning set forth in the. Federal Tax Certificate to which this Certificate is attached (the "Federal Tax Certificate"). 2.The respective initial offering prices (exclusive of accrued interest) for each maturity (stated in term of dollars) of the Bonds are set forth on the cover page of the Official Statement, issued in connection with the sale of the Bonds and dated March 20, 2012. 3.The Underwriters made a bona fide public offering to the Public of all of the Bonds of each maturity at the initial offering prices set forth on the cover of the Official Statement (the "Initial Offering Prices"). The Initial Offering Prices were determined by the Underwriters on the Sale Date based on their reasonable expectations regarding the Initial Offering Prices on such date. The first price at which at least 10 percent of each maturity of the Bonds, except any Retained Bonds (as defined below), was sold to the Public pursuant to the bona fide public offering on the Sale Date, was the respective Initial Offering Price for such maturity of the Bonds. For the Bonds maturing in the years 2015, 2016, 2017, 2018, 2019 and 2021, of which at least 10 percent of each maturity was not sold to the Public at the respective Initial Offering Prices (the "Retained Bonds), the Underwriters reasonably expected, as of the Sale Date, to sell at least 10 percent of each maturity of such Bonds to the Public at the Initial Offering Prices for such Retained Bonds. Based on prevailing market conditions on the Sale Date, the Underwriter believe[s] that the respective Initial Offering Prices, described herein, do not exceed the fair market value for the Bonds on the Sale Date. Based on the foregoing, the aggregate of the Initial Offering Prices for each maturity of the Bonds (without taking into account costs of issuance or pre-issuance accrued interest), is $3,588,684.10. The pre-issuance accrued interest on the Bonds as of the Issue Date is $5,702.08. 4.The term "Public" shall not include bond houses, brokers or similar persons or organizations acting in the capacity of wholesalers or underwriters. The term "Sale Date" means the first day on which there was a binding contract in writing for the issuance of the Bonds by the City to the Underwriter of the Bonds on specific terms that were not -later modified or adjusted in any material respect. In the case of the Bonds, the Sale Date is March 20, 2012. The term "Issue Date" means the first day on which there is physical delivery of the written evidence of the Bonds in exchange for the purchase price (but not earlier than the day interest on the Bonds begins to accrue for federal income tax purposes). In the case of the Bonds, the Issue Date is April 24, 2012. A-19 City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 HOU:3206172.2 The Underwriter hereby authorizes the City to rely on the statements made herein in connection with making the representations set forth in the Federal Tax Certificate to which this Certificate is attached and in connection with compliance by the City with the provisions of the Code regarding the exclusion from gross income interest on the Bonds. Further, we hereby authorize Andrews Kurth LLP, Bond Counsel to the City, to rely on the statements made herein in connection with its opinion that interest on the Bonds is excludable from gross income for federal income tax purposes; provided, however that nothing herein reflects the Underwriter's interpretation of any rules or regulations under the Code. EXECUTED this April 24, 2012. PIPER JAFFRAY & CO. B Y: Daniel C. Roseveare Managing Director A-20 City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 HOU:3206172.2 EXHIBIT B CERTIFICATE OF FINANCIAL ADVISOR The undersigned hereby certifies with respect to the sale of City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 (the "Bonds"), as follows: 1.The undersigned is a duly authorized representative of Government Capital Securities, Inc., the financial advisor (the "Financial Advisor") to City of Sanger, Texas (the "City") in connection with the sale and delivery of the Bonds. In this capacity, the undersigned is familiar with the facts stated herein. 2.Based upon the scheduled debt service on the Bonds, an amount of not less than $5,305.91 should be maintained as a reserve balance in the City's Debt Service Fund and is consistent with accepted standards of prudent fiscal management for government entities similar to the City in order to provide a reserve against periodic fluctuations in the amount and timing of ad valorem tax collections by the City for debt service purposes. Furthermore, the amount of $5,305.91 does not exceed the least of 10 percent of the proceeds of the Bonds, 100 percent of maximum annual debt service and 125 percent of average annual debt service on the Bonds. 3.The weighted average maturity of the Bonds, the Current Refunded Bonds and the Series 2002 Refunded Certificates is 4.8061 years, 5.4320 years and 6.2591 years, respectively. The weighted average maturity is the sum of the products of the Issue Price of each group of identical Bonds and the number of years to maturity (determined separately for each group of identical Bonds and taking into account mandatory redemptions), divided by the aggregate sale proceeds of the Bonds. 4.With respect to the issuance of the Bonds, the representations set forth in paragraph 33 of the Federal Tax Certificate are, to the best of our knowledge, true, correct and complete. [SIGNATURE PAGE FOLLOWS] B-1 HOU:3206172.2 The Financial Advisor hereby authorizes the City to rely on the statements made herein in connection with making the representations set forth in the Federal Tax Certificate to which this Certificate is attached and in connection with compliance by the City with the provisions of the Code regarding the exclusion from gross income of the interest on the Bonds. Further, we hereby authorize Andrews Kurth LLP, Bond Counsel to the City, to rely on the statements made herein in connection with its opinion that interest on the Bonds is excludable from gross income for federal income tax purposes. EXECUTED and DELIVERED as of and on April 24, 2012. GOVERNMENT CAPITAL SECURITIES, INC. By: Y Ted Christensen President B-2 City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 HOU:3206172.2 EXHIBIT C IRS FORM 8038-G C-1 HOU:3206172.2 Form 8038-G I Information Return for Tax -Exempt Governmental Obligations (Rev. September 2011 Rev. Se ► Under Internal Revenue Code section 149(e) 2011) ► See separate instructions. OM8 No. 1545 -0720 Intternalernal Revenue v R ue Seervice ce Department the ry Caution: If the issue price is under $100,000, use Form 8038-GC. If Amended Return, check here ► 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) 300 Bolivar Street, P.O. Box 537 I3 ' 6 City, town, or post office, state, and ZIP code 7 Date of issue Sanger, Texas 76266 04/24/2012 8 Name of issue 9 CUSIP number General Obligation Refunding Bonds, Series 2012 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 Thomas Muir, Mayor 940.458.7702 ThlII Type of Issue (enter the issue price). See the instructions and attach schedule. 11 Education . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Health and hospital . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Public safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Environment (Including sewage bonds) . . . . . . . . . . . . . . . . . . . . 16 Housing . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . 17 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Other. Describe ► 19 If obligations are TANS or RANs, check only box 19a . . . . . . . . . . . . . ► q If obligations are BANS, check only box 19b . . . . . . . . . . . . . . . . ► q 20 If obligations are in the form of a lease or installment sale, check box . . . . . . . . ► q 11 $0 00 12 $0 00 13 $0 00 14 $0 00 15 50 00 16 50 00 17 $0 00 18 $3,588,684 10 1fliI II 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 (d) Weighted O ty O p price at maturity average maturity (e) Yield 21 05/15/2021 3,588,684.10 3,495,000.00 4.8061 years 2.114742 % Uses of Proceeds of Bond Issue (including underwriters' discount) 22 Proceeds used for accrued interest . . . . . . . . . . . . . . . . . . . . .22 $5,702 08 23 Issue price of entire issue (enter amount from line 21, column (b)) . . . . .23 $3,588,684 10 24 Proceeds used for bond issuance costs (including underwriters' discount) . . 24 $109,057 50 25 Proceeds used for credit enhancement . . . . . . . . . . . . 25 $0 00 .. 26 Proceeds allocated to reasonably required reserve or replacement fund 26 $0 00 .. ` 27 Proceeds used to currently refund prior issues . . . . . . . . . 27 $1,947,726 59 28 Proceeds used to advance refund prior issues . . . . . . . . . 28 $1,530,023 00 29 Total (add lines 24 through 28) . . .29 $3,586,807 09 30 Nonrefunding proceeds of the issue (subtract line 29 from line 23 and enter amount here)30 $1,877 01 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 . . . . ►5.4320 years 32 Enter the remaining weighted average maturity of the bonds to be advance refunded . . . . ►6.2591 years 33 Enter the last date on which the refunded bonds will be called (MM/DD/YYYY) . . . . . . ►09/01/2012 34 Enter the date(s) the refunded bonds were issued ► (MM/DD/YYY Y) 04/02/1996; 06/19/2002 For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 63773S Form 8038-G (Rev. 9-2011) 3208869_1 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 WA 36a Enter the amount of gross proceeds Invested or to be invested in a guaranteed investment contract (GIC) (see instructions) b Enter the final maturity date of the GIG ► c Enter the name of the GIC provider ► = 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 00 38a If this issue is a loan made from the proceeds of another tax-exempt issue, check box ► q 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)(B)(()(ili) (small issuer exception), check box . . . . ► 40 If the issuer has elected to pay a penalty in lieu of arbitrage rebate, check box . . . . . . . . . . . . . ► q 41a If the issuer has identified a hedge, check here ► q and enter the following information: b Name of hedge provider ► C Type of hedge ► d Term of hedge ► 42 If the issuer has superintegrated the hedge, check box . . . . . . . . . . . . . . . . . ► q 43 If the issuer has established written procedures to ensure that all nonqualified bonds of this issue are rernediated according to the requirements under the Code and Regulations (see instructions), check box . . . . . . . . ► q 44 If the issuer has established written procedures to monitor the requirements of section 148, check box . . . . . ► q 45a If some portion of the proceeds was used to reimburse expenditures, check here ► q and enter the amount of reimbursement . . . . . . . . . ► b Enter the date the official intent was adopted ► Under penattiea of perjury, I declare that I have examined this return and accompanying schedules and staterrwnts, and to the beet of my knowledge Signature and ballet, they as true, correct, and complete. t bather declare that t corvont to me IRS's disclosure of the csuer's rerun Infomratbn, as necessary to and process this return, to the person that I have authorized above. Consent , i fete Lam. A't 4' 2. ^{^Z 3/2 0/ Tho mas Muir, Mayor Signature of 'suer', au8wnzed repreaentafive ' Date I Type or print name and title Paid Fr,ntfrype preparers rams PrcaerePS signature Data Check q d PriN Preparer GreggH. Jones self-employed P00960069 se Only Rnn's nrn ► Andrews Kurth LIP Rrm'sPIN ► 74-10 n's address ► 600 Travis, Suits 4200, Houston, TX 77002 phone no. 713-220.4479 Form 5038 -G (Rev. 9-2011) 3208869_I Form 8038-G I Information Return for Tax -Exempt Governmental Obligations i Rev. September ► Under Internal Revenue Code section 149(e) (Rev. 2011 ) ► See separate instructions. OMB No. 1545-0720 Internal Revenue ue S Seervice Department the ry Caution: If the issue price is under $100,000, use Form 8038-GC. Service If Amended Return. check here ► 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) 300 Bolivar Street, P.O. Box 537 3 6 City, town, or post office, state, and ZIP code 7 Date of issue Sanger, Texas 76266 04/24/2012 8 Name of issue 9 CUSIP number General Obligation Refunding Bonds, Series 2012 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 Thomas Muir, Mayor 940.458.7702 fliIII Type of Issue (enter the issue price). See the instructions and attach schedule. 11 Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Health and hospital . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Public safety . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Environment (including sewage bonds) . . . . . . . . . . . . . . . . . . . . 16 Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Other. Describe ► 11 $0 00 12 $o on 13 $o on 14 soon 15 $0 00 16 $o on 17 $0 00 18 $3,588,684 10 19 If obligations are TANS or RANs, check only box 19a . . . . . . . . . . . . . ► q If obligations are BANS, check only box 19b . . . . . . . . . . . . . . . . ► El 20 If obligations are in the form of a lease or installment sale, check box . . . . . . . . ► q 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 (d) Weighted (e) Yield price at maturity average maturity 21 05/15/2021 $ 3,588,684.10 $ 3,495,000.001 4.8061 years 2.114742 • .Uses of Proceeds of Bond Issue (including underwriters' discount) 22 Proceeds used for accrued interest . . . . . . . . . . . . . . ... . . . ..22 $5,702 08 23 Issue price of entire issue (enter amount from line 21, column (b)) . . . . .23 $3,588,684 10 24 Proceeds used for bond issuance costs (including underwriters' discount) . . 24 $109,057 50 25 Proceeds used for credit enhancement . . . . . . . . . . . . 25 $0 o0 26 Proceeds allocated to reasonably required reserve or replacement fund . 26 $0 00 27 Proceeds used to currently refund prior issues . . . . . . . . . 27 $1,947,726 59 28 Proceeds used to advance refund prior issues . . . . . . . . . 28 $1,530,023 00 29 Total (add lines 24 through 28) . . . . . . . . . . . . . . . . . . . . . ..29 $3,586,807 09 30 Nonrefunding proceeds of the issue (subtract line 29 from line 23 and enter amount here)30 $1,877 01 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 . . . .► 5.4320 years 32 Enter the remaining weighted average maturity of the bonds to be advance refunded . . . .► 6.2591 years 33 Enter the last date on which the refunded bonds will be called (MM/DD/YYYY) . . . . . .► 09/01/2012 34 Enter the date(s) the refunded bonds were issued ► (MM/DD/YYYY) 04/02/1996;06/19/2002 For Paperwork Reduction Act Notice, see separate instructions. cat. No. 63773S Form 8038-G (Rev. 9-2011) 3208869_1 Form 8038-G (Rev. 9.2011)Page 2 fl9e Miscellaneous 35 Enter the amount of the state volume cap allocated to the issue under section 141 (bx5) . . . . 35 N/A 38a Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract (GIC) (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . 36a so 00 b Enter the final maturity date of the GIC ► c Enter the name of the GIC provider ► 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 so 00 38a If this issue is a loan made from the proceeds of another tax-exempt issue, check box ► q 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 1 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)(B)(i)(III) (small issuer exception), check box . . .. ► Q 40 If the issuer has elected to pay a penalty in lieu of arbitrage rebate, check box . . . . . . . . . . . .. ► q 41a If the issuer has identified a hedge, check here ► q and enter the following information: b Name of hedge provider ► c Type of hedge ► d Term of hedge ► 42 If the issuer has superintegrated the hedge, check box . . . . . . . . . . . . . . . . . . . .. ► q 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 . . . . . . .. ► q 44 If the issuer has established written procedures to monitor the requirements of section 148, check box . . . .. ► q 45a If some portion of the proceeds was used to reimburse expenditures, check here ► q and enter the amount of reimbursement . . . . . . . ► b Enter the date the official intent was adopted ► Under penalties of peryury, 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 turther declare that I consent to the IRS's disdosure of the issuer 's return Information, as necessary to and process this return, to the parson that I have authorized above. Consent ^ T.+. '' Thomas ' /Z ^ Muir, Mayor Signature of issuer's authorized representative 7 Date Type or print name and title Paid Print/Type preparer's name Preparer's signature Data Check q If PTIN Preparer GreggH. Jones I I self-employed Use Only Fire's were ► Andrews Kurth LIP I Firm's EIN ► Firm's address ► 600 Travis, Suite 4200, Houston, TX 77002 I Phone no. 713-220-4479 Form 803$-G (Rev. 9-2011) 3208869_1 CLOSING CERTIFICATE THE STATE OF TEXAS § COUNTY OF DENTON § CITY OF SANGER § We, the undersigned, Mayor and City Manager of the City of Sanger, Texas (the "Isser"), acting solely in our respective official capacities, hereby certify with respect to the $3,495,000 City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 (the "Bonds"), as follows: 1.All official action of the Issuer relating to the Bonds, 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; 2.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; 3.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 Bonds, 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 Bonds, pursuant to the Bond Ordinance, and other income or the levy or collection of the taxes pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof; 4.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 misleading in any material 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 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 5.There has not been any material adverse change in the financial condition of the Issuer since September 30, 2011, the latest date as of which audited financial information is available. HOU:3196159.1 EXECUTED ON BEHALF OF THE CITY as of k 2012. CITY OF SANGER, TEXAS Mayor By: HOU:3196159.1 ANDREWS ATTORNEYS KU R T H LLP 600 Travis, Suite 4200 Houston, Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com April 24, 2012 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 bonds (the "Bonds") described as follows: CITY OF SANGER, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012, dated April 1, 2012, in the aggregate principal amount of $3,495,000 maturing on May 15 in each year from 2012 through 2021, inclusive. The Bonds 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 Bonds and in the ordinance (the "Ordinance") adopted by the City Council of the City 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 Bonds under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Bonds 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 Bonds and the bonds and certificates of obligation that are being refunded (the "Refunded Obligations") with the proceeds of the Bonds, as described in the Ordinance. The transcript contains certified copies of certain proceedings of the City, BOKF, NA dba Bank of Texas (the "Escrow Agent") and, with respect to certain of the Refunded Obligations, The Bank of New York Mellon Trust Company, N.A. (the "Paying Agent for the Refunded Obligations"); and the report (the "Report") of Grant Thornton L.L.P., certified public accountants, which verifies the sufficiency of the deposits made with the Escrow Agent and, with respect to certain of the Refunded Obligations, the deposits made with the Paying Agent for the Refunded Obligations for the defeasance of the Refunded Obligations and the mathematical accuracy of certain computations of the yield on the Bonds and the obligations acquired with the proceeds of the Bonds; 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 Bonds and the firm banking and financial arrangements for the discharge and final payment of the Refunded Obligations. We have also examined executed Bond No. R-1 of this issue. 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 Bonds. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein. Austin Beijing Dallas Houston London New York Research Triangle Park The Woodlands Washington, DC HOU:3197543.1 April 24, 2012 Page 2 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 Bonds in full compliance with the Constitution and laws of the State of Texas presently in effect; the Bonds 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 Bonds 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 Bonds have been authorized and delivered in accordance with law; (2)The Bonds 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 Bonds; and (3)The escrow agreement between the District and the Escrow Agent (the "Escrow Agreement") has been duly executed and delivered and constitutes a binding and enforceable agreement in accordance with its terms; the establishment of the Escrow Fund pursuant to the Escrow Agreement and the deposit made therein and, with respect to certain of the Refunded Obligations, the deposit of cash with the Paying Agent for the Refunded Obligations constitute the making of firm banking and financial arrangements for the discharge and final payment of the Refunded Obligations; in reliance upon the accuracy of the calculations contained in the Report, the Refunded Obligations, having been discharged and paid, are no longer outstanding and the lien on and pledge of ad valorem taxes and other revenues as set forth in the ordinance authorizing their issuance will be appropriately and legally defeased; the holders of the Refunded Obligations may obtain payment of the principal of, redemption premium, if any, and interest on the Refunded Obligations only out of the funds provided therefor now held in escrow for that purpose by the Escrow Agent pursuant to the terms of the Escrow Agreement and, with respect to certain of the Refunded Obligations, by the Paying Agent for the Refunded Obligations; and therefore the Refunded Obligations are deemed to be fully paid and no longer outstanding, except for the purpose of being paid from the funds provided therefor. ALSO BASED ON OUR EXAMINATION AS DESCRIBED ABOVE, it is our further opinion that, subject to the restrictions hereinafter described, interest on the Bonds 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 or, except as hereinafter described, 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 Bonds 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 Ordinance to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. The Code and the existing regulations, rulings and court decisions thereunder, HOU:3197543.1 April 24, 2012 Page 3 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 Bonds in gross income of the owners thereof for federal income tax purposes. We have further relied on the Report regarding the mathematical accuracy of certain computations. If such representations or the Report are determined to be inaccurate or incomplete or the District fails to comply with the foregoing provisions of the Order, interest on the Bonds could become includable in gross income from the date of original delivery, regardless of the date on which the event causing such inclusions occurs. INTEREST ON all tax-exempt obligations, including the Bonds, 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. Purchasers of Bonds are directed to the discussion entitled "TAX EXEMPTION" set forth in the Official Statement. 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 Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations, such as the Bonds, 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 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 Bonds. 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. 4 HOU:3197543.1 600 Travis, Suite 4200 Houston, Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com ANDREWS ATTORNEYS KU RT (_j LLP April 24, 2012 Piper Jaffray & Co. 2626 Cole Avenue, Suite 500 Dallas, Texas 75204 Re: $3,495,000 City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 Ladies and Gentlemen: This letter is provided pursuant to Section 6(i)(6) of the Bond Purchase Agreement (the "Agreement"), dated March 20, 2012, 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 General Obligation Refunding Bonds, Series 2012 (the "Bonds"). Capitalized terms used herein and not otherwise defined shall have the meaning ascribed to them in the ordinance authorizing issuance of the Bonds (the "Ordinance"). We have acted as Bond Counsel in connection with the issuance and sale of the Bonds. 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 Bonds on the date hereof and such other materials as we deem relevant, we are of the opinion that: 1.The Ordinance has been duly adopted by the City and is in full force and effect; 2.The Bonds 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 Bonds, to register the Bonds under the 1933 Act or to qualify the Ordinance under the Trust Indenture Act; and 3.The information contained in the Official Statement under the captions or subcaptions "THE BONDS" (except the subcaptions "Book-Entry-Only System," "Use of Proceeds," "Future Debt," "Sources and Uses of Funds" and "Remedies in the Event of Default"), "TAX INFORMATION — Tax Rate Limitations," "LEGAL MATTERS — Legal Opinion," "TAX MATTERS - Tax Exemption," "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM BONDS," "CONTINUING DISCLOSURE OF INFORMATION" (except "Compliance with Prior Undertakings"), fairly summarizes the procedures and documents referred to therein and is correct as to matters of law. HOU:3197334.1 Austin Beijing Dallas Houston London New York Research Triangle Park The Woodlands Washington, DC April 24, 2012 Page 2 This opinion is given only to the parties to whom it is addressed in connection with the sale of the Bonds and may not be relied upon by any other party without the prior written consent of the undersigned. Reference is made hereby to our Bond Counsel opinion of even date herewith relating to the Bonds. Please be advised that such opinion may be relied upon by you as if it were addressed to you. Very truly yours, HOU:3197334.1 Y V ATTORNEY GENERAL OF TEXAS GREG ABBOTT April 20, 2012 THIS IS TO CERTIFY that the City of Sanger, Texas (the "Issuer") has submitted to me Cit y of San g er. Texas General Obli g ation Refundin g Bond. Series 2012 (the "Bond") in the principal amount of $3,495,000 for approval. The Bond is dated April 1, 2012, numbered T- 1, and was authorized by an Ordinance of the Issuer passed on March 5, 2012. I have examined the law and such certified proceedings and other papers as I deem necessary to render this opinion. As to questions of fact material to my opinion, I have relied upon representations of the Issuer contained in the certified proceedings and other certifications of public officials furnished to me without undertaking to verify the same by independent investigation. I express no opinion relating to any official statement or any other offering material relating to the Bond. Based on my examination, I am of the opinion, as of the date hereof and under existing law, as follows: (1)The Bond has been issued in accordance with law and is a valid and binding obligation of the Issuer. (2)In accordance with the provisions of the law, including an Escrow Agreement dated as of March 5, 2012, firm banking arrangements have been made for the discharge and final payment or redemption of the obligations being refunded upon deposit of an amount sufficient to pay said obligations when due. (3)The Bond is payable from the proceeds of an annual ad valorem tax levied, within the limits prescribed by law, against all taxable property in the Issuer. Therefore, the Bond is approved. The Comptroller is instructed that she may register the Bond without the cancellation of the underlying securities being refunded thereby. No.53556 Attorney ral of the State of Texas Book No. 2012-B MA POST OFFICE Box 12548, AUSTIN, TExAS 78711-2548 TEL: (512) 463-2100 WWW.TEXASATTORNEYGENERA L. GOV An Equal Employment Opportunity Employer • Printed on Recycled Paper OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, Brenda Kizzee, [) Bond ClerkQX Assistant Bond Clerk in the office of the Comptroller of the State of Texas, do hereby certify that, acting under the direction and authority of the Comptroller on the 20th day of April 2012, I signed the name of the Comptroller to the certificate of registration endorsed upon the: City of Sanger, Texas General Obligation Refunding Bond, Series 2012, numbered Tit dated April 1, 2012, and that in signing the certificate of registration I used the following signature: IN WITNESS WHEREOF I have executed this certificate this the 20th day of April 2012. ^l^/^tt2JP1.J I, Susan Combs, Comptroller of Public Accounts of the State of Texas, certify that the person who has signed the above certificate was duly designated and appointed by me under authority vested in me by Chapter 403, Subchapter 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 me, and was acting as such on the date first mentioned in this certificate, and that the bonds/certificates described in this certificate have been duly registered in the office of the Comptroller, under Registration Number 79943. GIVEN under my hand and seal of office at Austin, Texas, this the 20th day of April 2012. Susan Combs Comptroller of Public Accounts of the State of Texas OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, 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 General Obligation Refunding Bond, Series 2012 numbered T-1, of the denomination of $ 3,495,000, dated April 1, 2012, as authorized by issuer, interest various percent, under and by authority of which said bonds/certificates were registered electronically in the office of the Comptroller, on the 20th day of April 2012, under Registration Number 79943. Given under my hand and seal of office, at Austin, Texas, the 20th day of April 2012. SUSAN COMBS Comptroller of Public Accounts of the State of Texas FULBRIGHT Ja L. I.. Fulbright Tower • 1301 McKinney, Suite 5100 • Houston, Texas 77010-3095 Telephone: 713 651 5151 • Facsimile: 713 651 5246 April 24, 2012 PIPER JAFFRAY & CO. 2626 Cole Avenue, Suite 500 Dallas, Texas 75204 Re: City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 Ladies and Gentlemen: We have represented Piper Jaffray & Co. (the "Underwriter") in the purchase of $3,495,000 in aggregate principal amount of General Obligation Refunding Bonds, Series 2012 (the "Bonds") of the City of Sanger, Texas (the "City"), issued pursuant to a Purchase Agreement dated March 20, 2012 (the "Purchase Agreement") 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 March 5, 2012, and a pricing certificate dated March 20, 2012 (together, the "Bond Ordinance"), (ii) the Purchase Agreement, and (iii) the Official Statement dated March 20, 2012 (the "Official Statement"). We have also discussed the Official Statement with the Financial Advisor of the City and others and reviewed such other materials and records of the City as we deem relevant to our review of the Official Statement. Such review did not include records concerning compliance with continuing disclosure undertakings. 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 Bonds to the public are exempt from registration under the Securities Act of 1933, as amended, and, in connection therewith, the Bond 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 77779631.1 AUSTIN • BEIJING • DALLAS • DENVER • DUBAI • HONG KONG • HOUSTON • LONDON • LOS ANGELES • MINNEAPOLIS MUNICH • NEW YORK • PITTSBURG • SOUTHPOINTE • RIYADH • SAN ANTONIO • ST. LOUIS • WASHINGTON DC www.fulbright.com Piper Jaffray & Co. April 24, 2012 Page 2 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 a 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. 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 Underwriter and by other persons to whom written permission to rely hereon is granted by us. 4 77779631.1 CITY OF SANGER, TEXAS, GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012 RECEIPT AND CROSS RECEIPT April 24, 2012 I, the undersigned, a duly authorized representative of BOKF, NA dba BANK OF TEXAS, Austin, Texas, hereby acknowledge receipt on behalf of the City of Sanger, Texas (the "City"), of the full purchase price for the City's General Obligation Refunding Bonds, Series 2012, in the total amount of $3,559,626.60 (representing the principal amount of the Bonds of $3,495,000, excluding accrued interest, plus reoffering premium of $93,684.10 less underwriters discount of $29,057.50) on the date hereof. BOKF, NA dba BANK OF TEXAS By: Aa...^:.- Name: ,e - laiAe'& Title: Tfi sr Di^icE^ I, the undersigned, a duly authorized representative of Piper Jaffray & Co. hereby acknowledge receipt from the City of the $3,495,000 General Obligation Refunding Bonds, Series 2012. PIPER JAFFRAY & CO By: Authorized Representative HOU:3196164.1 CITY OF SANGER, TEXAS, GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012 RECEIPT AND CROSS RECEIPT April 24, 2012 I, the undersigned, a duly authorized representative of BOKF, NA dba BANK OF TEXAS, Austin, Texas, hereby acknowledge receipt on behalf of the City of Sanger, Texas (the "City"), of the full purchase price for the City's General Obligation Refunding Bonds, Series 2012, in the total amount of $3,559,626.60 (representing the principal amount of the Bonds of $3,495,000, excluding accrued interest, plus reoffering premium of $93,684.10 less underwriters discount of $29,057.50) on the date hereof. BOKF, NA dba BANK OF TEXAS By: Name: Title: I, the undersigned, a duly authorized representative of Piper Jaffray & Co. hereby acknowledge receipt from the City of the $3,495,000 General Obligation Refunding Bonds, Series 2012. PIPER JAFFRAY & CO By: Autorized Representative HOU:3196164.1 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 GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012, in the total authorized aggregate amount of $3,495,000 certifies that it has duly registered the above-mentioned Bonds in accordance with the Ordinance, dated March 5, 2012 and that such Bonds have been delivered to the purchaser thereof. EXECUTED AND DELIVERED this April 24, 2012. BOKF, NA dba BANK OF TEXAS By: Name: A IAI, - Ilia4t( 44f•USe7c) Title: SST- # 4 c ' HOU:3196165.1 ESCROW AGENT'S RECEIPT The undersigned, acting through its duly authorized officer, as Escrow Agent (the "Escrow Agent") under the Escrow Agreement, dated as of March 5, 2012 (the "Escrow Agreement"), between it and the City of Sanger, Texas (the "City"), relating to the City's General Obligation Refunding Bonds, Series 2012 (the "Refunding Bonds"), hereby acknowledges receipt of the following: 1.A copy of the Escrow Agreement; and 2.The following securities and funds which have been deposited to the Escrow Fund as provided in Section 2.1 of the Escrow Agreement as of the date hereof: (a)As the beginning cash balance for the Escrow Fund as shown in the Report, $0.00; (b)the initial Limited Yield Securities with a purchase price of $3,161,278.00; and (c)the initial Open Market Securities with a purchase price of $0.00. As a result of the receipt of the foregoing, the Escrow Agreement between the Escrow Agent and the City has become effective as of the date hereof. IN WITNESS WHEREOF, I have hereunto set my hand this April 24, 2012. BOKF, NA dba BANK OF TEXAS By: - Qtr ^..;.•-^^ Name: — * Title: m -Jr d - . - HOU:3211779.1 CITY OF SANGER, TEXAS P. O. Box 1729 Sanger, Texas 76266 March 21, 2012 The Bank of New York Mellon Trust Company, N.A. Attn: Corporate Trust Services 2001 Bryan Street 11th Floor Dallas, TX 75201 Re: City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 (the "Bonds") Ladies and Gentlemen: The City has authorized the issuance of the referenced Bonds for the purpose of refunding certain of the City's Utility System Revenue Bonds, Series 1996, Utility System Revenue Bonds, Series 2002, and Combination Tax and Revenue Certificates of Obligation, Series 2002 (together, the "Refunded Obligations"). The ordinances authorizing the issuance of the Refunded Obligations (the "Ordinances") require that written notice be sent in the name of the City not less than 30 days prior to a redemption date. As paying agent/registrar for the Refunded Obligations, The Bank of New York Mellon Trust Company, N.A. is instructed to send notices in connection with the Refunded Obligations in accordance with the Ordinances. With respect to the Utility System Revenue Bonds, Series 1996 and Utility System Revenue Bonds, Series 2002, such notices have been sent in accordance with the Ordinances authorizing such bonds. The Bank of New York Mellon Trust Company, N.A. will continue to act as paying agent for the life of the Refunded Obligations. The Bank of New York Mellon Trust Company, N.A. hereby acknowledges and represents that it will not demand the payment of or collect future fees or expenses, if any, from funds to be provided to it for the payment of the principal and of and interest on the Refunded Obligations, but will look to payment of such fees and expenses from other funds provided by the City. Please acknowledge your receipt of this letter and the enclosures by signing the enclosed counterpart of this letter in the space provided below and returning it to Hoang T. Vu at Andrews Kurth LLP, 600 Travis, Suite 4200, Houston, Texas 77002. HOU:3196160.3 CITY OF SANGER, TEXAS By:' City Manager HOU31961602 Acknowledged this day of c C, n 2012: THE BANK OF NEW YORK. MELLON TRUST COMPANY, N.A. By: ! Name. a L. ankersle Title: OOIa e HOU;3196160.2 NOTICE OF REDEMPTION NOTICE is hereby given that the City of Sanger, Texas (the "City") has called for redemption the following obligations of the City on April 24, 2012: CITY OF SANGER, TEXAS UTILITY SYSTEM REVENUE BONDS. SERIES 1996, dated March 15, 1996, maturing on May 15 in the years 2013 through 2016, inclusive, as shown below: Bond :Maturity- Interest Par Call Call Date Rate Amount Date Price Series 1996 Utility Bonds (current) 1996: BOND 5/15/2013 4.700%70,000.00 4/24/2012 100.000 5/1512014 4.700%75,000.00 4/24/2012 100.000 5115/2015 4.750%80,000.00 4/24//2012 100.000 5/1.5/2016 4.750%85.000.00 4/24/2012 100.000 310,000.00 The redemption price for the above obligations is 100% of the par value thereof as of the date of redemption. Upon the City's making due provision for the payment of the redemption price thereof, the obligations shall become due and payable on the redemption date and the interest thereon shall cease to accrete from and after the date of redemption. The redemption price for the bonds shall be paid upon presentation and surrender by the holder thereof at the principal payment office of The Bank of New York Mellon Trust Company, N.A., 2001 Bryan Street 11th Floor, Dallas, Texas 75201. Dated: 3 0 , 2012 City Manager, City of Sanger, Texas HOU 3196160.2 NOTICE OF REDEMPTION NOTICE is hereby given that the City of Sanger, Texas (the "City") has called for redemption the followin g obligations of the City on May 15, 2012: CITY OF SANGER, TEXAS UTILITY SYSTEM REVENUE BONDS, SERIES 2002, dated June 1, 2002, maturing on May 15 in the years 2013 through 2019, inclusive, and 2022, as shown below: Bond Maturity Interest Par Call Call Date Rate Amount Date Price Series 2002 Utility Bonds (current). 2002: SERIAL 51f 15/2013 4.800%125,000.00 5/1512012 100.000 5115/2014 4.900%130,000.00 5/15/2012 100.000 5/15/2015 5.000%140,000.00 5115/2012 100.000 5/15/2016 5.100%145,000.00 5/15/2012 100.000 5/15/2017 5.1.00%155.000.00 5/15/2012 100.000 5/1512018 5.200%160.000.00 5/1512012 100.000 5115/2019 5.300%170.000.00 5/15/2012 100.000 TERM22 5/15/2022 5.400%565,000.00 5115/2012 100.000 1.590.000.00 The redemption price for the above obligations is 100% of the par value thereof as of the date of redemption. Upon the City's making due provision for the payment of the redemption price thereof, the obligations shall become due and payable on the redemption date and the interest thereon shall cease to accrete from and after the date of redemption. The redemption price for the bonds shall be paid upon presentation and surrender by the holder thereof at the principal payment office of The Bank of New York Mellon Trust Company, N.A., 2001 Bryan Street 11th Floor, Dallas, Texas 75201. Dated: 0 , 2012 City Manager, City of Sanger, Texas HOU31961602 NOTICE OF REDEMPTION NOTICE is hereby given that the City of Sanger, Texas (the "City") has called for redemption the following obligations of the City on September 1, 2012: CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2002, dated June 1, 2002. maturing on June 15 in the years 2013 through 2020, inclusive, and 2022, as shown below: Bond Maturity Interest Par Call Call Date Rate Amount Date Price Series 2002 GO Bonds (adv). 2002 GO: SERIAL TERM 22 9/1/2013 4.400%120.000.00 9/112012 100.000 9/1/2014 4.500%125,000.00 9/1/2012 100.000 9/1/2015 4.500%130,000.00 911/2012 100.000 9/1/2016 4.600%135,000.00 9/1/2012 100.000 9/1/2017 4.700%145.000.00 9/1/2012 100.000 9/1/2018 4.750%150,000.00 9/1/2012 100.000 9/1/2019 4.900%160,000.00 911/2012 100.000 9/1/2020 5.000%170,000.00 911/2012 100.000 9/1/2022 5.000%360,000.00 9/112012 100.000 1,495,000.00 The redemption price for the above obligations is 100% of the par value thereof as of the date of redemption. Upon the City's making due provision for the payment of the redemption price thereof, the obligations shall become due and payable on the redemption date and the interest thereon shall cease to accrete from and after the date of redemption. The redemption price for the bonds shall be paid upon presentation and surrender by the holder thereof at the principal payment office of The Bank of New York Mellon Trust Company, N.A., 2001 Bryan Street 11th Floor, Dallas, Texas 75201. Dated: 3 V 2012 City Manager, City of ganger, Texas HOU:3196160.2 CERTIFICATE FOR ORDINANCE THE STATE OF TEXAS COUNTY OF DENTON CITY OF SANGER We, the undersigned officers of said City, hereby certify as follows: 1. The City Council of said City convened in SPECIAL MEETING ON THE 26TH DAY OF FEBRUARY, 1996, at the City Hall, and the roll was called of the duly constituted officers and members of said City Council, to-wit: Net Armstrong, Mayor Tommy Kincaid, Mayor Pro Tern Joe Bell Margie C. Braxton Glen Ervin Jack Richardson Rosalie Chavez, City Secretary and all of said persons were present, except the following absentees: ERVIN, thus constituting a quorum. Whereupon, among other business, the following was transacted at said Meeting: a written ORDINANCE AUTHORIZING THE ISSUANCE OF UTILITY SYSTEM REVENUE BONDS, SERIES 1996, AND OTHER MATTERS RELATED THERETO was duly introduced for the consideration of said City Council and read in full. It was then duly moved and seconded that said Ordinancebe passed; and, after due discussion, said motion carrying with it the passage of said Resolution, prevailed and carried by the following vote: AYES: All members of said City Council shown present above voted "Aye". NOES: None. City Secre .:•^.... .^ F SEAL '4Ih. TEX AS.."o-0, 77 Mayor 2.That a true, full and correct copy of the aforesaid Ordinancepassed at the Meeting described in the above and foregoing paragraph is attached to and follows this Certificate; that said Ordinancehas been duly recorded in said City Council 's minutes of said Meeting; that the above and foregoing paragraph is a true, full and correct excerpt from said City Council 's minutes of said Meeting pertaining to the passage of said Resolution; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of said City Council as indicated therein; that each of the officers and members of said City Council was duly and sufficiently notified officially and personally, in advance, of the time, place and purpose of the aforesaid Meeting, and that said Ordinancewould be introduced and considered for passage at said Meeting, and each of said officers and members consented, in advance, to the holding of said Meeting for such purpose, and that said Meeting was open to the public and public notice of the time, place and purpose of said meeting was given, all as required by Chapter 551, Texas Government Code. 3.That the Mayor of said City has approved and hereby approves the aforesaid Resolution; that the Mayor and the City Secretary of said City have duly signed said Resolution; and that the Mayor and the City Secretary of said City hereby declare that their signing of this Certificate shall constitute the signing of the attached and following copy of said Ordinance for all purposes. SIGNED AND SEALED the 26th day of February, 1996. ORDINANCE AUTHORIZING THE ISSUANCE OF UTILITY SYSTEM REVENUE BONDS, SERIES 1996, AND OTHER MATTERS RELATED THERETO THE STATE OF TEXAS § COUNTY OF DENTON § CITY OF SANGER § WHEREAS, the following Utility System Revenue Bonds of the City of Sanger, Texas (the "Issuer") are presently outstanding: City of Sanger, Texas Utility System Refunding and Improvement Revenue Bonds, Series 1991, dated December 1, 1991, outstanding in the aggregate principal amount of $2,155,000 ("Series 1991 Bonds"); and WHEREAS, the City Council has heretofore, on the 5th day of February, 1996, adopted a resolution authorizing and directing the City Secretary to give notice of intention to issue revenue bonds; and WHEREAS, said notice has been duly published in the Sanger Courier, which is a newspaper of general circulation in said City, in its issues of February 8, 1996 and February 15, 1996; and WHEREAS, the City received no petition from the qualified electors of the City protesting the issuance of such bonds; and WHEREAS, the bonds hereinafter authorized and designated are to be issued and delivered pursuant to Article 2368a, V.A.T.C.S. and Articles 1111 through 1118; and WHEREAS, it is hereby officially found and determined that public notice of the time, place and purpose of said meeting was given, all as required by Chapter 551, Texas Government Code. BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF SANGER, THAT: Section 1. AMOUNT AND PURPOSE OF THE BONDS. The bond or bonds of the City of Sanger, Texas (the "Issuer") are hereby authorized to be issued and delivered in the aggregate principal amount of $1,060,000 for the purpose of improving and extending the Sewer System. Section 2. DESIGNATION OF THE BONDS. Each bond issued pursuant to this Ordinance shall be designated: "CITY OF SANGER, TEXAS UTILITY SYSTEM REVENUE BOND, SERIES 1996", and initially there shall be issued, sold, and delivered hereunder a single 1 fully registered bond, without interest coupons, payable in installments of principal (the "Initial Bond"), but the Initial Bond may be assigned and transferred and/or converted into and exchanged for a like aggregate principal amount of fully registered bonds, without interest coupons, having serial maturities, and in the denomination or denominations of $5,000 or any integral multiple of $5,000, all in the manner hereinafter provided. The term "Bonds" as used in this Ordinance shall mean and include collectively the Initial Bond and all substitute bonds exchanged therefor, as well as all other substitute bonds and replacement bonds issued pursuant hereto, and the term "Bond" shall mean any of the Bonds. Section 3. INITIAL DATE, DENOMINATION, NUMBER, MATURITIES, INITIAL REGISTERED OWNER, AND CHARACTERISTICS OF THE INITIAL BOND. (a) The Initial Bond is hereby authorized to be issued, sold, and delivered hereunder as a single fully registered Bond, without interest coupons, dated March 15, 1996, in the denomination and aggregate principal amount of $1,060,000, numbered R-1, payable in annual installments of principal to the initial registered owner thereof, to-wit: TEXAS WATER DEVELOPMENT BOARD, or to the registered assignee or assignees of said Bond or any portion or portions thereof (in each case, the "registered owner"), with the annual installments of principal of the Initial Bond to be payable on the dates, respectively, and in the principal amounts, respectively, stated in the FORM OF INITIAL BOND set forth in this Ordinance. (b) The Initial Bond (i) may be prepaid or redeemed prior to the respective scheduled due dates of installments of principal thereof, (ii) may be assigned and transferred, (iii) may be converted and exchanged for other Bonds, (iv) shall have the characteristics, and (v) shall be signed and sealed, and the principal of and interest on the Initial Bond shall be payable, all as provided, and in the manner required or indicated, in the FORM OF INITIAL BOND set forth in this Ordinance. Section 4. INTEREST. The unpaid principal balance of the Initial Bond shall bear interest from the date of delivery of the Initial Bond, and will be calculated on the basis of a 360-day year of twelve 30-day months to the respective scheduled due dates, or to the respective dates of prepayment or redemption, of the installments of principal of the Initial Bond, and said interest shall be payable, all in the manner provided and at the rates and on the dates stated in the FORM OF INITIAL BOND set forth in this Ordinance. Section 5. FORM OF INITIAL BOND. The form of the Initial Bond, including the form of Registration Certificate of the Comptroller of Public Accounts of the State of Texas to be endorsed on the Initial Bond, shall be substantially as follows: 2 FORM OF INITIAL BOND NO. R-1 $1,060,000 UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF DENTON CITY OF SANGER, TEXAS UTILITY SYSTEM REVENUE BOND SERIES 1996 CITY OF SANGER, in DENTON COUNTY (the "Issuer"), being a political subdivision of the State of Texas, hereby promises to pay to TEXAS WATER DEVELOPMENT BOARD or to the registered assignee or assignees of this Bond or any portion or portions hereof (in each case, the "registered owner") the aggregate principal amount of ONE MILLION SIXTY THOUSAND DOLLARS in annual installments of principal due and payable on May 15 in each of the years, and in the respective principal amounts, as set forth in the following schedule: 1997 $20,000 2007 $56'000 1998 35,000 2008 55,000 1999 35,000 2009 60,000 2000 35,000 2010 60,000 2001 40,000 2011 65,000 2002 40,000 2012 70,000 2003 45,000 2013 70,000 2004 45,000 2014 75,000 2005 45,000 2015 80,000 2006 50,000 2016 85000-. and to pay interest, from t1ie 'date of delivery of this Bond (which daie iappears on the back hereof), on the balance of each such installment of principal, respectively, from time to time remaining unpaid, at the rates as follows: 3 maturity 1997, 2.85% maturity 2007,4.20% maturity 1998, 3.10% maturity 2008,4.35% maturity 1999, 3.30% maturity 2009, 4.45% maturity 2000, 3.45 % maturity 2010, 4.55 % maturity 2001, 3.55% maturity 2011, 4.60% maturity 2002, 3.70% maturity 2012, 4.65% maturity 2003, 3.80% maturity 2013, 4.70% maturity 2004, 3.90% maturity 2014, 4.70% maturity 2005, 4.00% maturity 2015, 4.75% maturity 2006, 4.10% maturity 2016, 4.75% with said interest being payable on November 15, 1996 and semiannually on each May 15 and November 15 thereafter while this Bond or any portion hereof is outstanding and unpaid. THE INSTALLMENTS OF PRINCIPAL OF AND THE INTEREST ON this bond are payable in lawful money of the United States of America, without exchange or collection charges. The installments of principal and the interest on this Bond are payable to the registered owner hereof through the services of Texas Commerce Bank National Association, Dallas, Texas, which is the "Paying Agent/Registrar" for this Bond. Payment of all principal of and interest on this Bond shall be made by the Paying Agent/Registrar to the registered owner hereof on each principal and/or interest payment date by check or draft, dated as of such date, drawn by the Paying Agent/Registrar on, and payable solely from, funds of the Issuer required by the ordinance authorizing the issuance of this Bond (the "Bond Ordinance") to be on deposit with the Paying Agent/Registrar for such purpose as hereinafter provided; and such check or draft shall be sent by the Paying Agent/Registrar by United States mail, first class postage prepaid, on each such principal and/or interest payment date, to the registered owner hereof, at the address of the regis- tered owner, as it appeared on the last business day of the month next preceding each such date (the "Record Date") on the Registration Books kept by the Paying Agent/Registrar, as hereinafter described, or by such other method acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner; however, if the Bond is owned by the Texas Water Development Board, there will be no charge to the Texas Water Development Board. The Issuer covenants with the registered owner of this Bond that on or before each principal and/or interest payment date for this Bond it will make available to the Paying Agent/Registrar, from the "Bond Fund" created by the Bond Ordinance, the amounts required to provide for the payment, in immediately available funds, of all principal of and interest on this Bond, when due. IF THE DATE for the payment of the principal of or interest on this Bond shall be a Saturday, Sunday, a 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 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. 4 THIS BOND has been authorized in accordance with the Constitution and laws of the State of Texas, in the principal amount of $1,060,000 for the purpose of improving and extending the Sewer System. ON MAY 15, 2006, or any date thereafter, the unpaid installments of principal of this Bond may be prepaid or redeemed prior to their scheduled due dates, at the option of the Issuer, with funds derived from any available source, as a whole, or in part, and, if in part, the Issuer shall, in inverse order of annual maturity, select and designate the maturity, or maturities, and the amount that is to be redeemed, and if less than a whole maturity is to be redeemed, the Issuer shall direct the Paying Agent/Registrar to call by lot (provided that a portion of this Bond may be redeemed only in an integral multiple of $5,000), at a price equal to the principal amount to be so prepaid or redeemed, plus accrued interest to the date fixed for prepayment or redemption. AT LEAST 30 days prior to the date fixed for any such prepayment or redemption a written notice of such prepayment or redemption shall be mailed by the Paying Agent/Registrar to the registered owner hereof. By the date fixed for any such prepayment or redemption due provision shall be made by the Issuer with the Paying Agent/Registrar for the payment of the required prepayment or redemption price for this Bond or the portion hereof which is to be so prepaid or redeemed, plus accrued interest thereon to the date fixed for prepayment or redemption. If such written notice of prepayment or redemption is given, and if due provision for such payment is made, all as provided above, this Bond, or the portion thereof which is to be so prepaid or redeemed, thereby automatically shall be treated as prepaid or redeemed prior to its scheduled due date, and shall not bear interest after the date fixed for its prepayment or redemption, and shall not be regarded as being outstanding except for the right of the registered owner to receive the prepayment or redemption price plus accrued interest to the date fixed for prepayment or redemption from the Paying Agent/Registrar out of the funds provided for such payment. The Paying Agent/Registrar shall record in the Registration Books all such prepayments or redemptions of principal of this Bond or any portion hereof. THIS BOND, to the extent of the unpaid or unredeemed principal balance hereof, or any unpaid and unredeemed portion hereof in any integral multiple of $5,000, may be assigned by the initial registered owner hereof and shall be transferred only in the Registration Books of the Issuer kept by the Paying Agent/Registrar acting in the capacity of registrar for the Bonds, upon the terms and conditions set forth in the Bond Ordinance. Among other requirements for such transfer, this Bond must be presented and surrendered to the Paying Agent/Registrar for cancellation, together with proper instruments of assignment, in form and with guarantee of signa- tures satisfactory to the Paying Agent/Registrar, evidencing assignment by the initial registered. owner of this Bond, or any portion or portions hereof in any integral multiple of $5,000, to the assignee or assignees in whose name or names this Bond or any such portion or portions hereof is or are to be transferred and registered. Any instrument or instruments of assignment satisfac- tory to the Paying Agent/Registrar may be used to evidence the assignment of this Bond or any such portion or portions hereof by the initial registered owner hereof. A new bond or bonds payable to such assignee or assignees (which then will be the new registered owner or owners of 5 such new Bond or Bonds) or to the initial registered owner as to any portion of this Bond which is not being assigned and transferred by the initial registered owner, shall be delivered by the Paying Agent/Registrar in conversion of and exchange for this Bond or any portion or portions hereof, but solely in the form and manner as provided in the next paragraph hereof for the conver- sion and exchange of this Bond or any portion hereof. The registered owner of this Bond shall be deemed and treated by the Issuer and the Paying Agent/Registrar as the absolute owner hereof for all purposes, including payment and discharge of liability upon this Bond to the extent of such payment, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary. AS PROVIDED above and in the Bond Ordinance, this Bond, to the extent of the unpaid or unredeemed principal balance hereof, may be converted into and exchanged for a like aggregate principal amount of fully registered bonds, without interest coupons, payable to the assignee or assignees duly designated in writing by the initial registered owner hereof, or to the initial registered owner as to any portion of this Bond which is not being assigned and transferred by the initial registered owner, in any denomination or denominations in any integral multiple of $5,000 (subject to the requirement hereinafter stated that each substitute bond issued in exchange for any portion of this Bond shall have a single stated principal maturity date), upon surrender of this Bond to the Paying Agent/Registrar for cancellation, all in accordance with the form and pro- cedures set forth in the Bond Ordinance. If this Bond or any portion hereof is assigned and transferred or converted each bond issued in exchange for any portion hereof shall have a single stated principal maturity date corresponding to the due date of the installment of principal of this Bond or portion hereof for which the substitute bond is being exchanged, and shall bear interest at the rate applicable to and borne by such installment of principal or portion thereof. Such bonds, respectively, shall be subject to redemption prior to maturity on the same dates and for the same prices as the corresponding installment of principal of this Bond or portion hereof for which they are being exchanged. No such bond shall be payable in installments, but shall have only one stated principal maturity date. AS PROVIDED IN THE BOND ORDINANCE, THIS BOND IN ITS PRESENT FORM MAY BE ASSIGNED AND TRANSFERRED OR CONVERTED ONCE ONLY, and to one or more assignees, but the bonds issued and delivered in exchange for this Bond or any portion hereof may be assigned and transferred, and converted, subsequently, as provided in the Bond Ordinance. The Issuer shall pay the Paying Agent/ Registrar's standard or customary fees and charges for transferring, converting, and exchanging this Bond or any portion thereof, but the one requesting such transfer, conversion, and exchange shall pay any taxes or governmental charges required to be paid with respect thereto. The Paying Agent/Registrar shall not be required to make any such assignment, conversion, or exchange (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 Bond or portion thereof called for prepayment or redemption prior to maturity, within 30 days prior to its prepayment or redemption date. IN THE EVENT any Paying Agent/Registrar for this Bond is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted in the Bond Ordinance that 31 it promptly will appoint a competent and legally qualified substitute therefor, and promptly will cause written notice thereof to be mailed to the registered owner of this Bond. IT IS HEREBY certified, recited, and covenanted that this Bond has been duly and validly authorized, issued, and delivered pursuant to the laws of the State of Texas; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the authorization, issuance, and delivery of this Bond and the Series of which it is a part have been performed, existed, and been done in accordance with law; that this Bond is a special obligation of said Issuer, and that the principal of and interest on this Bond, together with other outstanding revenue bonds of the Issuer, are payable and secured by a first lien on and pledge of the Net Revenues of the Issuer's Utility System, being the Waterworks, Sewer and Electric System. THE ISSUER has reserved the right, subject to the restrictions stated, and adopted by reference, in the Ordinance authorizing this Series of Bonds, to issue additional parity revenue bonds which also may be made payable from, and secured by a first lien on and pledge of, the aforesaid Net Revenues. THE OWNER HEREOF shall never have the right to demand payment of this obligation out of any funds raised or to be raised by taxation, or from any source other than the Net Revenues. BY BECOMING the registered owner of this Bond, the registered owner thereby acknowledges all of the terms and provisions of the Bond Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Bond Ordinance is duly recorded and available for inspection in the official minutes and records of the governing body of the Issuer, and agrees that the terms and provisions of this Bond and the Bond Ordinance constitute a contract between the registered owner hereof and the Issuer. IN WITNESS WHEREOF, the Issuer has caused this Bond to be signed with the manual signature of the Mayor of the Issuer and countersigned with the manual signature of the City Secretary of the Issuer, has caused the official seal of the Issuer to be duly impressed on this Bond, and has caused this Bond to be dated March 15, 1996. City Secretary Mayor (CITY SEAL) The following shall be printed on the back of said Initial Bond: "This Initial Bond was delivered to and paid for by the Purchaser thereof on " 7 FORM OF REGISTRATION CERTIFICATE OF THE COMPTROLLER OF PUBLIC ACCOUNTS: COMPTROLLER'S REGISTRATION CERTIFICATE: REGISTER NO. I hereby certify that this Bond has been examined, certified as to validity, and approved by the Attorney General of the State of Texas, and that this Bond has been registered by the Comptroller of Public Accounts of the State of Texas. Witness my signature and seal this Comptroller of Public Accounts of the State of Texas (COMPTROLLER'S SEAL) Section 6. ADDITIONAL CHARACTERISTICS OF THE BONDS. Registration and Transfer. (a) The Issuer shall keep or cause to be kept at the principal corporate trust office of Texas Commerce Bank National Association, Dallas, Texas (the "Paying Agent/Registrar") books or records of the registration and transfer of the Bonds (the "Registration Books"), and the Issuer hereby appoints the Paying Agent/Registrar as its registrar and transfer agent to keep such books or records and make such transfers and registrations under such reasonable regulations as the Issuer and Paying Agent/Registrar may prescribe; and the Paying Agent/Registrar shall make such transfers and registrations as herein provided. The Paying Agent/Registrar shall obtain and record in the Registration Books the address of the registered owner of each Bond to which payments with respect to the Bonds shall be mailed, as herein provided; but it shall be the duty of each registered owner to notify the Paying Agent/Registrar in writing of the address to which payments shall be mailed, and such interest payments shall not be mailed unless such notice has been given. The Issuer shall have the right to inspect the Registration Books during regular business hours of the Paying Agent/Registrar, but otherwise the Paying Agent/Registrar shall keep the Registration Books confidential and, unless otherwise required by law, shall not permit their inspection by any other entity. Registration of each Bond may be transferred in the Registration Books only upon presentation and surrender of such Bond to the Paying Agent/Registrar for transfer of registration and cancellation, together with proper written instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, (i) evidencing the assignment of the Bond, or any portion thereof in any integral multiple of $5,000, to the assignee or assignees thereof, and (ii) the right of such assignee or assignees to have the Bond or any such portion thereof registered in the name of such assignee or assignees. Upon the assignment and transfer of any Bond or any portion thereof, a new substitute Bond or Bonds shall be issued in conversion and exchange therefor in the manner herein provided. The Initial Bond, to the extent of the unpaid or unredeemed principal balance thereof, may be assigned and transferred by the initial registered owner thereof once only, and to one or more assignees designated in writing by the 8 initial registered owner thereof. All Bonds issued and delivered in conversion of and exchange for the Initial Bond shall be in any denomination or denominations of any integral multiple of $5,000 (subject to the requirement hereinafter stated that each substitute Bond shall have a single stated principal maturity date), shall be in the form prescribed in the FORM OF SUBSTITUTE BOND set forth in this Ordinance, and shall have the characteristics, and may be assigned, trans- ferred, and converted as hereinafter provided. If the Initial Bond or any portion thereof is assigned and transferred or converted the Initial Bond must be surrendered to the Paying Agent/Registrar for cancellation, and each Bond issued in exchange for any portion of the Initial Bond shall have a single stated principal maturity date, and shall not be payable in installments; and each such Bond shall have a principal maturity date corresponding to the due date of the installment of principal or portion thereof for which the substitute Bond is being exchanged; and each such Bond shall bear interest at the single rate applicable to and borne by such installment of principal or portion thereof for which it is being exchanged. If only a portion of the Initial Bond is assigned and transferred, there shall be delivered to and registered in the name of the initial registered owner substitute Bonds in exchange for the unassigned balance of the Initial Bond in the same manner as if the initial registered owner were the assignee thereof. If any Bond or portion thereof other than the Initial Bond is assigned and transferred or converted each Bond issued in exchange therefor shall have the same principal maturity date and bear interest at the same rate as the Bond for which it is exchanged. A form of assignment shall be printed or en- dorsed on each Bond, excepting the Initial Bond, which shall be executed by the registered owner or its duly authorized attorney or representative to evidence an assignment thereof. Upon surrender of any Bonds or any portion or portions thereof for transfer of registration, an authorized representative of the Paying Agent/Registrar shall make such transfer in the Registration Books, and shall deliver a new fully registered substitute Bond or Bonds, having the characteristics herein described, payable to such assignee or assignees (which then will be the registered owner or owners of such new Bond or Bonds), or to the previous registered owner in case only a portion of a Bond is being assigned and transferred, all in conversion of and exchange for said assigned Bond or Bonds or any portion or portions thereof, in the same form and manner, and with the same effect, as provided in Section 6(d), below, for the conversion and exchange of Bonds by any registered owner of a Bond. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for making such transfer and delivery of a substitute Bond or Bonds, but the one requesting such transfer shall pay any taxes or other governmental charges required to be paid with respect thereto. The Paying Agent/Registrar shall not be required to make transfers of registration of any Bond or any portion thereof (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 Bond or any portion thereof called for redemption prior to maturity, within 45 days prior to its redemp- tion date. (b) Ownership of Bonds. The entity in whose name any Bond shall be registered in the Registration Books at any time shall be deemed and treated as the absolute owner thereof for all purposes of this Ordinance, whether or not such Bond shall be overdue, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary; and payment of, or on account of, the principal of, premium, if any, and interest on any such Bond shall be made only to such registered owner. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid. (c)Payment of Bonds and Interest. The Issuer hereby further appoints the Paying Agent/Registrar to act as the paying agent for paying the principal of and interest on the Bonds, and to act as its agent to convert and exchange or replace Bonds, all as provided in this Ordinance. The Paying Agent/Registrar shall keep proper records of all payments made by the Issuer and the Paying Agent/Registrar with respect to the Bonds, and of all conversions and exchanges of Bonds, and all replacements of Bonds, as provided in this Ordinance. However, in the event of a nonpayment of interest on a scheduled payment date, and for thirty (30) days thereafter, a new record date for such interest payment (a "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 District. Notice of the Special Record Date and of the scheduled payment date of the past due interest (which shall be 15 days after the Special Record Date) shall be sent at least five (5) business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each Bondholder appearing on the Security Register at the close of business on the last business day next preceding the date of mailing of such notice. (d)Conversion and Exchange or Replacement: Authentication. Each Bond issued and delivered pursuant to this Ordinance, to the extent of the unpaid or unredeemed principal balance or principal amount thereof, may, upon surrender of such Bond at the principal corporate trust office of the Paying Agent/Registrar, together with a written request therefor duly executed by the registered owner or the assignee or assignees thereof, or its or their duly authorized attorneys or representatives, with guarantee of signatures satisfactory to the Paying Agent/Registrar, may, at the option of the registered owner or such assignee or assignees, as appropriate, be converted into and exchanged for fully registered bonds, without interest coupons, in the form prescribed in the FORM OF SUBSTITUTE BOND set forth in this Ordinance, in the denomination of $5,000, or any integral multiple of $5,000 (subject to the requirement hereinafter stated that each substitute Bond shall have a single stated maturity date), as requested in writing by such registered owner or such assignee or assignees, in an aggregate principal amount equal to the unpaid or unre- deemed principal balance or principal amount of any Bond or Bonds so surrendered, and payable to the appropriate registered owner, assignee, or assignees, as the case may be. If the Initial Bond is assigned and transferred or converted each substitute Bond issued in exchange for any portion of the Initial Bond shall have a single stated principal maturity date, and shall not be payable in installments; and each such Bond shall have a principal maturity date corresponding to the due date of the installment of principal or portion thereof for which the substitute Bond is being exchanged; and each such Bond shall bear interest at the single rate applicable to and borne by such installment of principal or portion thereof for which it is being exchanged. If a portion of any Bond (other than the Initial Bond) shall be redeemed prior to its scheduled maturity as provided herein, a substitute Bond or Bonds having the same maturity date, bearing interest at the same rate, in the denomination or denominations of any integral multiple of $5,000 at the request of the registered owner, and in aggregate principal amount equal to the unredeemed portion 10 thereof, will be issued to the registered owner upon surrender thereof for cancellation. If any Bond or portion thereof (other than the Initial Bond) is assigned and transferred or converted, each Bond issued in exchange therefor shall have the same principal maturity date and bear interest at the same rate as the Bond for which it is being exchanged. Each substitute Bond shall bear a letter and/or number to distinguish it from each other Bond. The Paying Agent/Registrar shall convert and exchange or replace Bonds as provided herein, and each fully registered bond delivered in conversion of and exchange for or replacement of any Bond or portion thereof as permitted or required by any provision of this Ordinance shall constitute one of the Bonds for all purposes of this Ordinance, and may again be converted and exchanged or replaced. It is specifically provided that any Bond authenticated in conversion of and exchange for or replacement of another Bond on or prior to the first scheduled Record Date for the Initial Bond shall bear interest from the date of the Initial Bond, but each substitute Bond so authenticated after such first scheduled Record Date shall bear interest from the interest payment date next preceding the date on which such substitute Bond was so authenticated, unless such Bond is authenticated after any Record Date but on or before the next following interest payment date, in which case it shall bear interest from such next following interest payment date; provided, however, that if at the time of delivery of any substitute Bond the interest on the Bond for which it is being exchanged is due but has not been paid, then such Bond shall bear interest from the date to which such interest has been paid in full. THE INITIAL BOND issued and delivered pursuant to this Ordinance is not required to be, and shall not be, authenticated by the Paying Agent/Registrar, but on each substitute Bond issued in conversion of and exchange for or replacement of any Bond or Bonds issued under this Ordinance there shall be printed a certificate, in the form substantially as follows: "PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE It is hereby certified that this Bond has been issued under the provisions of the Bond Ordinance described on the face of this Bond; and that this Bond has been issued in conversion of and exchange for or replacement of a bond, bonds, or a portion of a bond or bonds of an issue which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. Paying Agent/Registrar Dated By Authorized Representative An authorized representative of the Paying Agent/Registrar shall, before the delivery of any such Bond, date and manually sign the above Certificate, and no such Bond shall be deemed to be issued or outstanding unless such Certificate is so executed. The Paying Agent/Registrar promptly shall cancel all Bonds surrendered for conversion and exchange or replacement. No additional ordinances, orders, or resolutions need be passed or adopted by the governing body of the Issuer or any other body or person so as to accomplish the foregoing conversion and exchange or 11 replacement of any Bond or portion thereof, and the Paying Agent/Registrar shall provide for the printing, execution, and delivery of the substitute Bonds in the manner prescribed herein, and said Bonds shall be of type composition printed on paper with lithographed or steel engraved borders of customary weight and strength. Pursuant to Vernon's Ann. Tex. Civ. St. Art. 717k-6, and particularly Section 6 thereof, the duty of conversion and exchange or replacement of Bonds as aforesaid is hereby imposed upon the Paying Agent/Registrar, and, upon the execution of the above Paying Agent/Registrar's Authentication Certificate, the converted and exchanged or re- placed Bond shall be valid, incontestable, and enforceable in the same manner and with the same effect as the Initial Bond which originally was issued pursuant to this Ordinance, approved by the Attorney General, and registered by the Comptroller of Public Accounts. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for transferring, converting, and exchanging any Bond or any portion thereof, but the one requesting any such transfer, conver- sion, and exchange shall pay any taxes or governmental charges required to be paid with respect thereto as a condition precedent to the exercise of such privilege of conversion and exchange. The Paying Agent/Registrar shall not be required to make any such conversion and exchange or replacement of Bonds or any portion thereof (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 Bond or portion thereof called for redemption prior to maturity, within 30 days prior to its redemption date. (e)In General. All Bonds issued in conversion and exchange or replacement of any other Bond or portion thereof, (i) shall be issued in fully registered form, without interest coupons, with the principal of and interest on such Bonds to be payable only to the registered owners thereof, (ii) may be redeemed prior to their scheduled maturities, (iii) may be transferred and assigned, (iv) may be converted and exchanged for other Bonds, (v) shall have the characteristics, (vi) shall be signed and sealed, and (vii) the principal of and interest on the Bonds shall be payable, all as provided, and in the manner required or indicated, in the FORM OF SUBSTITUTE BOND set forth in this Ordinance. (f)Payment of Fees and Charges. The Issuer hereby covenants with the registered owners of the Bonds that it will (i) pay the standard or customary fees and charges of the Paying Agent/Registrar for its services with respect to the payment of the principal of and interest on the Bonds, when due, and (ii) pay the fees and charges of the Paying Agent/Registrar for services with respect to the transfer of registration of Bonds, and with respect to the conversion and exchange of Bonds solely to the extent above provided in this Ordinance. (g)Substitute Paying Agent/Registrar. The Issuer covenants with the registered owners of the Bonds that at all times while the Bonds are outstanding the Issuer will provide a competent and legally qualified bank, trust company, financial institution, or other agency to act as and perform the services of Paying Agent/Registrar for the Bonds under this Ordinance, and that the Paying Agent/Registrar will be one entity. The Issuer reserves the right to, and may, at its option, change the Paying Agent/Registrar upon not less than 120 days written notice to the Paying Agent/Registrar, to be effective not later than 60 days prior to the next principal or interest 12 payment date after such notice. In the event that the entity at any time acting as Paying Agent/Registrar (or its successor by merger, acquisition, or other method) should resign or other- wise cease to act as such, the Issuer covenants that promptly it will appoint a competent and legally qualified bank, trust company, financial institution, or other agency to act as Paying Agent/Registrar under this Ordinance. Upon any change in the Paying Agent/Registrar, the previous Paying Agent/Registrar promptly shall transfer and deliver the Registration Books (or a copy thereof), along with all other pertinent books and records relating to the Bonds, to the new Paying Agent/Registrar designated and appointed by the Issuer. Upon any change in the Paying Agent/Registrar, the Issuer promptly will cause a written notice thereof to be sent by the new Paying Agent/Registrar to each registered owner of the Bonds, by United States mail, first-class postage prepaid, which notice also shall give the address of the new Paying Agent/Registrar. By accepting the position and performing as such, each Paying Agent/Registrar shall be deemed to have agreed to the provisions of this Ordinance, and a certified copy of this Ordinance shall be delivered to each Paying Agent/Registrar. Section 7. FORM OF SUBSTITUTE BONDS. The form of all Bonds issued in conversion and exchange or replacement of any other Bond or portion thereof, including the form of Paying Agent/Registrar's Certificate to be printed on each of such Bonds, and the Form of Assignment to be printed on each of the Bonds, shall be, respectively, substantially as follows, with such appropriate variations, omissions, or insertions as are permitted or required by this Ordinance. FORM OF SUBSTITUTE BOND NO. PRINCIPAL AMOUNT UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF DENTON CITY OF SANGER, TEXAS UTILITY SYSTEM REVENUE BOND SERIES 1996 DATE OF ORIGINAL ISSUE March 15, 1996 ON THE MATURITY DATE specified above, CITY OF SANGER (the "Issuer"), in DENTON COUNTY, being a political subdivision of the State of Texas, hereby promises to pay to 13 or to the registered assignee hereof (either being hereinafter called the "registered owner") the principal amount of and to pay interest thereon from the date of delivery of this Bond (which date appears on the back hereof) to the date of its scheduled maturity, or the date of redemption prior to maturity, at the interest rate per annum specified above, with interest being payable on November 15, 1996, and semiannually on each May 15 and November 15; except that if the date of authentication of this Bond is later than October 31, 1996, such principal amount shall bear interest from the interest payment date next preceding the date of authentication, unless such date of authentication is after any Record Date (hereinafter defined) but on or before the next following interest payment date, in which case such principal amount shall bear interest from such next following interest payment date. THE PRINCIPAL OF AND INTEREST ON this Bond are payable in lawful money of the United States of America, without exchange or collection charges. The principal of this Bond shall be paid to the registered owner hereof upon presentation and surrender of this Bond at maturity or upon the date fixed for its redemption prior to maturity, at the principal corporate trust office of Texas Commerce Bank National Association, Dallas, Texas, which is the "Paying Agent/Registrar" for this Bond. The payment of interest on this Bond shall be made by the Paying Agent/Registrar to the registered owner hereof on each interest payment date by check or draft, dated as of such interest payment date, drawn by the Paying Agent/Registrar on, and payable solely from, funds of the Issuer required by the ordinance authorizing the issuance of the Bonds (the "Bond Ordinance") to be on deposit with the Paying Agent/Registrar for such purpose as hereinafter provided; and such check or draft shall be sent by the Paying Agent/Registrar by United States mail, first class postage prepaid, on each such interest payment date, to the registered owner hereof, at the address of the registered owner, as it appeared on the last business day of the month next preceding each such date (the "Record Date") on the Registration Books kept by the Paying Agent/Registrar, as hereinafter described, or by such other method acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner; however, if the Bond is owned by the Texas Water Development Board, there will be no charge to the Texas Water Development Board. Any accrued interest due upon the redemption of this Bond prior to maturity as provided herein shall be paid to the registered owner at the principal corporate trust office of the Paying Agent/Registrar upon presentation and surrender of this Bond for redemption and payment at the principal corporate trust office of the Paying Agent/Registrar. The Issuer covenants with the registered owner of this Bond that on or before each principal payment date, interest payment date, and accrued interest payment date for this Bond it will make available to the Paying Agent/Registrar, from the "Bond Fund" created by the Bond Ordinance, the amounts required to provide for the payment, in immediately available funds, of all principal of and interest on the Bonds, when due. 14 IF THE DATE for the payment of the principal of or interest on this Bond shall be a Saturday, Sunday, a 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 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. THIS BOND is one of an issue of Bonds initially dated March 15, 1996, authorized in accordance with the Constitution and laws of the State of Texas in the principal amount of $1,060,000 for the purpose of improving and extending the Sewer System. ON MAY 15, 2006, or on any date thereafter, the Bonds of this Series may be redeemed prior to their scheduled maturities, at the option of the Issuer, with funds derived from any available and lawful source, as a whole, or in part, and, if in part, the maturity or maturities of Bonds and the amounts thereof, to be redeemed shall, in inverse order of annual maturity, be selected and designated by the Issuer, and the Issuer shall direct the Paying Agent/Registrar to call by lot Bonds, or portions thereof within such maturities and in such principal amounts, for redemption (provided that a portion of a Bond may be redeemed only in an integral multiple of $5,000), at the redemption price of the principal amount thereof, plus accrued interest to the date fixed for prepayment or redemption. AT LEAST 30 days prior to the date fixed for any redemption of Bonds or portions thereof prior to maturity a written notice of such redemption shall be published once in a financial publication, journal, or reporter of general circulation among securities dealers in the City of New York, New York (including, but not limited to, The Bond Buyer and The Wall Street Journal), or in the State of Texas (including, but not limited to, The Texas Bond Reporter). Such notice also shall be sent by the Paying Agent/Registrar by United States mail, first class postage prepaid, not less than 20 days prior to the date fixed for any such redemption, to the registered owner of each Bond to be redeemed at its address as it appeared on the 30th day prior to such redemption date; provided, however, that the failure to send, mail, or receive such notice, or any defect therein or in the sending or mailing thereof, shall not affect the validity or effectiveness of the proceedings for the redemption of any Bond, and it is hereby specifically provided that the publication of such notice as required above shall be the only notice actually required in connection with or as a prerequisite to the redemption of any Bonds or portions thereof. By the date fixed for any such redemption due provision shall be made with the Paying Agent/Registrar for the payment of the required redemption price for the Bonds or portions thereof which are to be so redeemed, plus accrued interest thereon to the date fixed for redemption. If such written notice of redemption is published and if due provision for such payment is made, all as provided above, the Bonds or portions thereof which are to be so redeemed thereby automatically shall be treated as redeemed prior to their scheduled maturities, and they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being outstanding except for the right of the registered owner to receive the redemption price plus accrued interest from the Paying Agent/Registrar out of the funds provided for such payment. If a portion of any Bond shall be 15 redeemed a substitute Bond or Bonds having the same maturity date, bearing interest at the same rate, in any denomination or denominations in any integral multiple of $5,000, at the written request of the registered owner, and in aggregate principal amount equal to the unredeemed portion thereof, will be issued to the registered owner upon the surrender thereof for cancellation, at the expense of the Issuer, all as provided in the Bond Ordinance. THIS BOND OR ANY PORTION OR PORTIONS HEREOF IN ANY INTEGRAL MULTIPLE OF $5,000 may be assigned and shall be transferred only in the Registration Books of the Issuer kept by the Paying Agent/Registrar acting in the capacity of registrar for the Bonds, upon the terms and conditions set forth in the Bond Ordinance. Among other requirements for such assignment and transfer, this Bond must be presented and surrendered to the Paying Agent/Registrar, together with proper instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, evidencing assignment of this Bond or any portion or portions hereof in any integral multiple of $5,000 to the assignee or assignees in whose name or names this Bond or any such portion or portions hereof is or are to be transferred and registered. The form of Assignment printed or endorsed on this Bond shall be executed by the registered owner or its duly authorized attorney or representative, to evidence the assignment hereof. A new Bond or Bonds payable to such assignee or assignees (which then will be the new registered owner or owners of such new Bond or Bonds), or to the previous registered owner in the case of the assignment and transfer of only a portion of this Bond, may be delivered by the Paying Agent/Registrar in conversion of and exchange for this Bond, all in the form and manner as provided in the next paragraph hereof for the conversion and exchange of other Bonds. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for making such transfer, but the one requesting such transfer shall pay any taxes or other governmental charges required to be paid with respect thereto. The Paying Agent/Registrar shall not be required to make transfers of registration of this Bond or any portion hereof (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 Bond or any portion thereof called for redemption prior to maturity, within 30 days prior to its redemption date. The registered owner of this Bond shall be deemed and treated by the Issuer and the Paying Agent/Registrar as the absolute owner hereof for all purposes, including payment and discharge of liability upon this Bond to the extent of such payment, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary. ALL BONDS OF THIS SERIES are issuable solely as fully registered bonds, without interest coupons, in the denomination of any integral multiple of $5,000. As provided in the Bond Ordinance, this Bond, or any unredeemed portion hereof, may, at the request of the registered owner or the assignee or assignees hereof, be converted into and exchanged for a like aggregate principal amount of fully registered bonds, without interest coupons, payable to the appropriate registered owner, assignee, or assignees, as the case may be, having the same maturity date, and bearing interest at the same rate, in any denomination or denominations in any integral multiple of $5,000 as requested in writing by the appropriate registered owner, assignee, or assignees, as the case may be, upon surrender of this Bond to the Paying Agent/Registrar for 16 cancellation, all in accordance with the form and procedures set forth in the Bond Ordinance. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for trans- ferring, converting, and exchanging any Bond or any portion thereof, but the one requesting such transfer, conversion, and exchange shall pay any taxes or governmental charges required to be paid with respect thereto as a condition precedent to the exercise of such privilege of conversion and exchange. The Paying Agent/Registrar shall not be required to make any such conversion and exchange (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 Bond or portion thereof called for redemption prior to maturity, within 30 days prior to its redemption date. IN THE EVENT any Paying Agent/Registrar for the Bonds is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted in the Bond Ordinance that it promptly will appoint a competent and legally qualified substitute therefor, and promptly will cause written notice thereof to be mailed to the registered owners of the Bonds. IT IS HEREBY certified, recited, and covenanted that this Bond has been duly and validly authorized, issued, and delivered pursuant to the laws of the State of Texas; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the authorization, issuance, and delivery of this Bond and the Series of which it is a part have been performed, existed, and been done in accordance with law; that this Bond is a special obligation of said Issuer, and that the principal of and interest on this Bond, together with other outstanding revenue bonds of the Issuer, are payable and secured by a first lien on and pledge of the Net Revenues of the Issuer's Utility System, being the Waterworks, Sewer and Electric System. THE ISSUER has reserved the right, subject to the restrictions stated, and adopted by reference, in the Ordinance authorizing this Series of Bonds, to issue additional parity revenue bonds which also may be made payable from, and secured by a first lien on and pledge of, the aforesaid Net Revenues. THE OWNER HEREOF shall never have the right to demand payment of this obligation out of any funds raised or to be raised by taxation, or from any source other than the Net Revenues. BY BECOMING the registered owner of this Bond, the registered owner thereby acknowledges all of the terms and provisions of the Bond Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Bond Ordinance is duly recorded and available for inspection in the official minutes and records of the governing body of the Issuer, and agrees that the terms and provisions of this Bond and the Bond Ordinance constitute a contract between each registered owner hereof and the Issuer. 17 IN WITNESS WHEREOF, the Issuer has caused this Bond to be signed with the facsimile signature of the Mayor of the Issuer and countersigned with the facsimile signature of the City Secretary of the Issuer, and has caused the official seal of the Issuer to be duly impressed, or placed in facsimile, on this Bond. City Secretary Mayor (CITY SEAL) The following shall be printed on the back of said Bonds: "This Bond was originally delivered to and paid for by the Purchaser thereof on PAYING AGENTIREGISTRAR'S AUTHENTICATION CERTIFICATE (To be executed if this Bond is not accompanied by an executed Registration Certificate of the Comptroller of Public Accounts of the State of Texas) It is hereby certified that this Bond has been issued under the provisions of the Bond Ordinance described in the text of this Bond; and that this Bond has been issued in conversion or replacement of, or in exchange for, a bond, bonds, or a portion of a bond or bonds of a Series which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. Dated Texas Commerce Bank National Association Dallas, Texas By Authorized Representative 18 FOR VALUE RECEIVED, the undersigned registered owner of this Bond, or duly authorized representative or attorney thereof, hereby assigns this Bond to (Assignee's Social Security (print or type Assignee's name or Taxpayer Identification Number and address, including zip code) and hereby irrevocably constitutes and appoints attorney to transfer the registration of this Bond on the Paying Agent/Registrar's Registration Books with full power of substitution in the premises. Dated Signature Guaranteed: NOTICE: This signature must be guaranteed by a member of the New York Stock Exchange or a commercial bank or trust company. Registered Owner NOTICE: This signature must correspond with the name of the Registered Owner appearing on the face of this Bond in every particular without alteration or enlargement or any change whatsoever. Section 8. DEFINITIONS. For all purposes of this ordinance and in particular for clarity with respect to the issuance of the Bonds herein authorized and the pledge and appropriation of revenues for the payment of the Bonds, the following definitions are provided: (a)The term "Utility System" as used in this Ordinance, shall mean and include the Issuer's entire Waterworks, Sewer and Electric System, together with all future improvements, extensions, enlargements, and additions thereto, and replacements thereof. (b)The term "Net Revenues," as used in this Ordinance, shall mean gross revenues of the Utility System, after deducting the expenses of operation and maintenance of the Utility System, including all salaries, labor, materials, repairs and extensions necessary to render efficient service, provided, however, that only such repairs and extensions, as in the judgment of the City Council of said Issuer, reasonably and fairly exercised by the passage of appropriate ordinances, are necessary to keep the Utility System in operation and render adequate service to said Issuer and the inhabitants thereof, or such as might be necessary to meet some physical accident or condition which would otherwise impair the Bonds and any Additional Bonds shall be deducted in determining "Net Revenues." Depreciation, and payments into and out of the Interest and Sinking Fund, Reserve Fund, and Emergency Fund hereinafter created, shall never be considered as expenses of operation and maintenance. 19 (c)The term "Bonds" shall mean the Bonds authorized to be issued and delivered by this Ordinance and the outstanding Series 1991 Bonds. (e) The term "Additional Bonds" shall mean the additional parity revenue bonds which the Issuer reserves the right to issue and deliver in the future, as provided by this Ordinance. Section 9. PLEDGE. The Bonds and all Additional Bonds, and the interest thereon, are and shall be payable from and secured by an irrevocable first lien on and pledge of the Net Revenues of the Utility System. The Bonds authorized by this Ordinance are parity Additional Bonds as defined and permitted in the ordinance that authorized the City of Sanger, Texas Utility System Revenue Bonds, Series 1969, and Sections 9 through 27 of the ordinance that authorized the City of Sanger, Texas Utility System Revenue Bonds, Series 1969 are hereby adopted by reference and shall be restated and be applicable to the Bonds authorized by this Ordinance in Sections 8 through 25 hereof for all purposes except to the extent hereinafter specifically modified and supplemented. Section 10. RATES. The Issuer covenants and agrees with the holders of the Bonds and all Additional Bonds, as follows: (a)That it will at all times fix, maintain, charge and collect for services rendered by the Utility System, rates and charges which will produce gross revenues at least sufficient to pay all operating, maintenance, depreciation, replacement and betterment expenses, and other costs deductible in determining "Net Revenues" as herein defined and to produce each month Net Revenues which together with other pledged revenues will be adequate to pay promptly all of the principal of and interest on the Bonds and all Additional Bonds, and to accumulate and maintain the Funds created and established by this Ordinance, and (b)That if the Utility System should become legally liable for any other indebtedness, the Issuer shall fix, maintain, charge and collect additional rates for services rendered by the Utility System sufficient to establish and maintain funds for the payment thereof. Section 11. FUNDS, All gross revenues of the Utility System shall be kept separate and apart from all other funds of the Issuer and the following Special Funds have been created and shall be established and maintained in an official depository bank of the Issuer, so long as any of the Bonds or Additional Bonds, or interest thereon, are outstanding and unpaid: (a)City of Sanger Utility System Revenue Bonds Revenue Fund, hereinafter called the "Revenue Fund." (b)City of Sanger Utility System Revenue Bonds Interest and Sinking Fund, hereinafter called the "Interest and Sinking Fund." 20 (c)City of Sanger Utility System Revenue Bonds Reserve Fund, hereinafter called the "Reserve Fund." (d)City of Sanger Utility System Revenue Bonds Emergency Fund, hereinafter called the "Emergency Fund." Section 12. REVENUE FUND. All gross revenues of every nature received from the operation and ownership of the Utility System shall be deposited from day to day as collected into the Revenue Fund. The reasonable, necessary, and proper expenses of operation and maintenance of the Utility System shall be paid from the gross revenues of the Utility System. The revenues remaining in the Revenue Fund shall be deposited into the other Funds, in the manner and amounts hereinafter provided, and each of such Funds shall have priority as to such deposits in the order in which they are treated in the following sections. Section 13.. INTEREST AND SINKING FUND, There shall be deposited into the Interest and Sinking Fund the following: (a). such amounts, in equal monthly installments commencing on or before the tenth day of each month hereafter, as will be sufficient to pay the interest scheduled to come due on the Bonds on the next interest payment date; and (b)such amounts, in equal monthly installments, made on or before the tenth day of each month, commencing May 10, 1996, as will be sufficient to pay the next maturing principal of the bonds. Section 14. RESERVE FUND. There shall be deposited into the Reserve Fund, commencing May 10, 1996 and on the 10th day of each month hereafter, $403 per month until the Reserve Fund contains an aggregate amount of $251,619. Whenever said Reserve Fund is reduced below said aggregate amount, there shall be deposited into the Reserve Fund an amount of at least equal to 1/60th of the average annual principal and interest requirements of the outstanding Bonds, until such time as the Fund has been restored to said aggregate amount. The Reserve Fund shall be used to pay the principal of or interest on the Bonds and any Additional Bonds falling due at any time when there is not sufficient money available in the Interest and Sinking Fund created for their payment. Money in the Reserve Fund may, upon authorization by the City Council of said Issuer, be invested in direct obligations of, or obligations, the principal of and interest on which are guaranteed by, the United States of America, or invested in direct obligations of the Federal Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage Association, Federal Home Loan Banks or Banks for Cooperatives, provided that each of the aforesaid obligations must mature, or be subject to redemption at the option of the holder thereof. Any obligation in which money in said Reserve Fund is so invested shall be kept and held by the Bank holding said Fund in escrow and in trust for the benefit of the holders of the Bonds and all Additional Bonds, and shall be promptly sold and the proceeds of sale applied to the making of all payments required to be made from the Reserve Fund. 21 Section 15. EMERGENCY FUND. There is presently on deposit in the Emergency Fund $16,212. No deposits shall be required to be made into the Emergency Fund as long as the Emergency Fund contains said aggregate amount, but if and whenever said Emergency Fund is reduced below said aggregate amount, the aforesaid monthly deposits into the Emergency Fund shall be resumed and continued until such time as the Emergency Fund has been restored to said aggregate amount. The Emergency Fund shall be used to pay the cost of any repairs or extensions to the System authorized by Vernon's Article 1113, for the payment of which no other funds are available. Also, the Emergency Fund shall be used to pay the principal of or interest on the Bonds and all Additional Bonds, at any time when there are not sufficient amounts in the Interest and Sinking Fund and the Reserve Fund for such purpose. Money in the Emergency Fund may, upon authorization by the City Council, be invested in the same manner and to the same extent as provided for money in the Reserve Fund. Any obligation in which money in the Emergency Fund is so invested shall be kept and held in an official depository bank of the Issuer in escrow and in trust for the benefit of the holders of the Bonds and all Additional Bonds, and shall be promptly sold and the proceeds of sale applied to the making of payments permitted or required to be made from the Emergency Fund. Section 16. DEFICIENCIES IN FUNDS. If in any month the Issuer shall fail to deposit into any Fund created by this Ordinance the full amounts required, amounts equivalent to such deficiencies shall be set apart and paid into said Funds from the first available and unallocated pledged revenues for the following month or months, and such payments shall be in addition to the amounts otherwise required to be paid into said Funds during such month or months. To the extent necessary, the Issuer shall increase the rates and charges for services of the Utility System to make up for any such deficiencies. Section 17. EXCESS REVENUES. The revenues pledged hereunder, in excess of those necessary to establish and maintain the Funds as required in this Ordinance, or as hereafter may be required in connection with the issuance of Additional Bonds, may be used for any lawful purpose. Section 18. SECURITY FOR FUNDS, All Funds created by this Ordinance shall be secured in the manner and to the fullest extent permitted or required by law for the security of public funds, and such Funds shall be used only for the purposes and in the manner permitted or required by this Ordinance. Section 19. ADDITIONAL BONDS. The Issuer reserves the right to issue additional parity revenue bonds, to be known as Additional Bonds, which when issued and delivered, shall be payable from and secured by a lien on and pledge of the same revenues as those securing the Bonds, and be on a parity with the Bonds and all outstanding Additional Bonds, or any bonds issued to refund same, and the Bonds and all Additional Bonds shall in all respects be on a parity and of equal dignity. The Additional Bonds may be issued in one or more installments or series, provided, however, that no installment or series of Additional Bonds shall be issued unless: 22 ((a) A certificate is executed by the Mayor and City Secretary of said Issuer to the effect that no (default exists in connection with any of the covenants or requirements of the ordinance or ordinances authorizing the issuance of all then outstanding Bonds and Additional Bonds; (b)A certificate is executed by the Mayor and City Secretary of said Issuer to the effect that the Interest and Sinking Fund and the Reserve Fund each maintain the amount then required to be on deposit therein; (c)A certificate is executed by a Certified Public Accountant to the effect that, in his opinion, the Net Earnings of the Utility System, either for the last complete fiscal year of the Issuer, or for any twelve consecutive calendar month period ending not more than ninety days prior to the passage of the ordinance authorizing the issuance of such Additional Bonds, were at least 1.25 times the average annual principal and interest requirements for all then outstanding Bonds and Additional Bonds, and for the installment or series of Additional Bonds then proposed to be issued. The term "Net Earnings" as used in this subsection (c) shall mean the gross revenues of the Utility System after deducting the expenses of operation and maintenance but not deducting depreciation, bond interest or expenditures which under standard accounting practice should be charged to capital expenditures. (d)The Additional Bonds are scheduled to mature only on May 15, and the interest thereon is scheduled to be paid only on November 15 and May 15. (e)The ordinance authorizing the issuance of such installment or series of Additional Bonds provides that the aggregate amount to be accumulated and maintained in the Reserve Fund shall be increased by an additional amount not less than the average annual principal and interest requirements for said Additional Bonds, and that such additional amount shall be so accumulated within sixty-one months from the date of the Additional Bonds by the deposit in the Reserve Fund of the necessary amount in equal monthly installments; provided, however, that the aggregate amount to be accumulated in the Reserve Fund shall never be required to exceed the average annual principal and interest requirements for all then outstanding Bonds and Additional Bonds; (t) All calculations of average annual principal and interest requirements made pursuant to this Section are made as of and from the date of the Additional Bonds then proposed to be issued. Section 20. MAINTENANCE AND OPERATION; INSURANCE. While any of the Bonds or Additional Bonds are outstanding the Issuer covenants and agrees to maintain the Utility System in good condition and operate the same in an efficient manner and at reasonable expense, and to maintain insurance on the Utility System, for the benefit of the holder or holders of the Bonds and Additional Bonds, of a kind and in an amount which usually would be carried by private companies engaged in a similar type of business. Nothing in this Ordinance shall be construed as requiring the Issuer to expend any funds which are derived from sources other than the Utility System, but nothing herein shall be construed as preventing the Issuer from doing so. 23 Section 21. ACCOUNTS AND FISCAL YEAR. The Issuer shall keep proper books of records and accounts, separate from all other records and accounts of the Issuer, in which complete and correct entries shall be made of all transactions relating to the Utility System, and shall have said books audited once each fiscal year by a certified public accountant. The Issuer agrees to operate the Utility System and keep its books of records and accounts pertaining thereto on the basis of its current fiscal year; provided, however, that the City Council may change such fiscal year by ordinance duly passed, and if such change is deemed necessary by the City Council. Section 22. ACCOUNTING REPORTS, Within ninety days after the close of each fiscal year hereafter., the Issuer will furnish, without cost, to any holder of any outstanding Bonds or Additional Bonds who may so request, a signed or certified copy of a report by a Certified Public Accountant, covering the next preceding fiscal year, showing the following information: (a)A detailed statement of all gross revenues of the Utility System and all expenses of operation and maintenance thereof for said fiscal year; (b)Balance sheet as of the end of said fiscal year; (c)Accountant's comment regarding the manner in which the Issuer has complied with the requirements of this Ordinance and his recommendations, if any, for any changes or improvements in the operation of the Utility System; (d)List of insurance policies in force at the end of said fiscal year, showing, as to each policy, the name of the insurer, and the expiration date; (e)The number of properties connected with the water system, sewer system and electric system, and the gross revenues from the Utility System for said fiscal year. Section 23. INSPECTION. Any holder or holders of any Bonds or Additional Bonds shall have the right at all reasonable times to inspect the Utility System and all records, accounts, and data of the Issuer relating thereto. Section 24. SPECIAL COVENANTS. The Issuer further covenants as follows: (a)That other than for the payment of the Bonds herein authorized, the revenues pledged hereunder have not in any manner been pledged to the payment of any debt or obligation of the Issuer or the Utility System. (b)That while any of the Bonds or Additional Bonds are outstanding, the Issuer will not sell or encumber the Utility System or any substantial part thereof, and that, with the exception of the Additional Bonds expressly permitted by this Ordinance to be issued, it will not encumber the revenues pledged hereunder unless such encumbrance is made junior and subordinate in all respects to the Bonds and Additional Bonds and all liens and pledges in connection therewith. 24 (c)That no free service of the Utility System shall be allowed, and should the Issuer or any of its agencies or instrumentalities make use of the services and facilities of the Utility System, payment of the reasonable value thereof shall be made by the Issuer out of funds from sources other than the revenues and income of the Utility System. (d)That to the extent it legally may, the Issuer further covenants and agrees that while any of the Bonds or Additional Bonds are outstanding, no franchise shall be granted for the installation or operation of any competing water system, sewer system or electric system; that the Issuer will prohibit the operation of any such competing system; and the operation of any such competing system is hereby prohibited. Section 25. BONDS ARE SPECIAL OBLIGATIONS, The Bonds and Additional Bonds shall be special obligations of the Issuer payable solely from the pledged Net Revenues, and the holder or holders thereof shall never have the right to demand payment thereof out of funds raised or to be raised by taxation. Section 26. DEFEASANCE OF BONDS. (a) Any Bond and the interest thereon shall be deemed to be paid, retired, and no longer outstanding (a "Defeased Bond") within the meaning of this Ordinance, except to the extent provided in subsection (d) of this Section, when payment of the principal of such Bond, plus interest thereon to the due date (whether such due date be by reason of maturity, upon redemption, or otherwise) either (i) shall have been made or caused to be made in accordance with the terms thereof (including the giving of any required notice of redemption), or (ii) shall have been provided for on or before such due date by irrevocably depositing with or making available to the Paying Agent/Registrar for such payment (1) lawful money of the United States of America sufficient to make such payment or (2) Government Obligations which mature as to principal and interest in such amounts and at such times as will insure the availability, without reinvestment, of sufficient money to provide for such payment, and when proper arrangements have been made by the Issuer with the Paying Agent/Registrar for the payment of its services until all Defeased Bonds shall have become due and payable. At such time as a Bond shall be deemed to be a Defeased Bond hereunder, as aforesaid, such Bond and the interest thereon shall no longer be secured by, payable from, or entitled to the benefits of, revenue pledged as provided in this Ordinance, and such principal and interest shall be payable solely from such money or Government Obligations. (b)Any moneys so deposited with the Paying Agent/Registrar may at the written direction of the Issuer also be invested in Government Obligations, maturing in the amounts and times as hereinbefore set forth, and all income from such Government Obligations received by the Paying Agent/Registrar which is not required for the payment of the Bonds and interest thereon, with respect to which such money has been so deposited, shall be turned over to the Issuer, or deposited as directed in writing by the Issuer. (c)The term "Government Obligations" as used in this Section shall mean direct obligations of the United States of America, including obligations the principal of and interest on 25 which are unconditionally guaranteed by the United States of America, which may be United States Treasury obligations such as its State and Local Government Series, which may be in book- entry form. (d) Until all Defeased Bonds shall have become due and payable, the Paying Agent/Registrar shall perform the services of Paying Agent/Registrar for such Defeased Bonds the same as if they had not been defeased, and the Issuer shall make proper arrangements to provide and pay for such services as required by this Ordinance. Section 27. DAMAGED, MUTILATED, LOST, STOLEN, OR DESTROYED BONDS. (a) Replacement Bonds. In the event any outstanding Bond is damaged, mutilated, lost, stolen, or destroyed, the Paying Agent/Registrar shall cause to be printed, executed, and delivered, a new bond of the same principal amount, maturity, and interest rate, as the damaged, mutilated, lost, stolen, or destroyed Bond, in replacement for such Bond in the manner hereinafter provided. (b)Application for Replacement Bonds. Application for replacement of damaged, mutilated, lost, stolen, or destroyed Bonds shall be made by the registered owner thereof to the Paying Agent/Registrar. In every case of loss, theft, or destruction of a Bond, the registered owner applying for a replacement bond shall furnish to the Issuer and to the Paying Agent/Registrar such security or indemnity as may be required by them to save each of them harmless from any loss or damage with respect thereto. Also, in every case of loss, theft, or destruction of a Bond, the registered owner shall furnish to the Issuer and to the Paying Agent/Registrar evidence to their satisfaction of the loss, theft, or destruction of such Bond, as the case may be. In every case of damage or mutilation of a Bond, the registered owner shall surrender to the Paying Agent/Registrar for cancellation the Bond so damaged or mutilated. (c)No Default Occurred. Notwithstanding the foregoing provisions of this Section, in the event any such Bond shall have matured, and no default has occurred which is then continuing in the payment of the principal of, redemption premium, if any, or interest on the Bond, the Issuer may authorize the payment of the same (without surrender thereof except in the case of a damaged or mutilated Bond) instead of issuing a replacement Bond, provided security or indemnity is furnished as above provided in this Section. (d)Charge for Issuing Replacement Bonds. Prior to the issuance of any replacement bond, the Paying Agent/Registrar shall charge the registered owner of such Bond with all legal, printing, and other expenses in connection therewith. Every replacement bond issued pursuant to the provisions of this Section by virtue of the fact that any Bond is lost, stolen, or destroyed shall constitute a contractual obligation of the Issuer whether or not the lost, stolen, or destroyed Bond shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Ordinance equally and proportionately with any and all other Bonds duly issued under this Ordinance. FM (e) Authority for Issuing Replacement Bonds. In accordance with Section 6 of Vernon's Ann. Tex. Civ. St. Art. 717k-6, this Section of this Ordinance shall constitute authority for the issuance of any such replacement bond without necessity of further action by the governing body of the Issuer or any other body or person, and the duty of the replacement of such bonds is hereby authorized and imposed upon the Paying Agent/Registrar, and the Paying Agent/Registrar shall authenticate and deliver such bonds in the form and manner and with the effect, as provided in Section 4(d) of this Ordinance for Bonds issued in conversion and exchange for other Bonds. Section 28. CUSTODY, APPROVAL, AND REGISTRATION OF BONDS; BOND COUNSEL'S OPINION; and CUSIP NUMBERS. The Mayor of the Issuer is hereby authorized to have control of the Initial Bond issued hereunder and all necessary records and proceedings per- taining to the Initial Bond pending delivery and investigation, examination, and approval by the Attorney General of the State of Texas, and its registration by the Comptroller of Public Accounts of the State of Texas. Upon registration of the Initial Bond said Comptroller of Public Accounts (or a deputy designated in writing to act for said Comptroller) shall manually sign the Comptroller's Registration Certificate on the Initial Bond, and the seal of said Comptroller shall be impressed, or placed in facsimile, on the Initial Bond. The approving legal opinion of the Issuer's Bond Counsel and the assigned CUSIP numbers may, at the option of the Issuer, be printed on the Initial Bond or on any Bonds issued and delivered in conversion of and exchange or replacement of any Bond, but neither shall have any legal effect, and shall be solely for the convenience and information of the registered owners of the Bonds. Section 29. COVENANTS REGARDING TAX EXEMPTION. The Issuer covenants to refrain from taking any action which would adversely affect, and to take any required action to ensure, the treatment of the Bonds as obligations described in Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), the interest on which is not includable in the "gross income" of the holder for purposes of federal income taxation. In furtherance thereof, the Issuer covenants as follows: (a)to take any action to assure that no more than 10 percent of the proceeds of the Bonds or the projects financed therewith (less amounts deposited to a reserve fund, if any) are used for any "private business use," as defined in Section 141(b)(6) of the Code or, if more than 10 percent of the proceeds or the projects financed therewith are so used, such amounts, whether or not received by the Issuer, with respect to such private business use, do not, under the terms of this Ordinance, or any underlying arrangement, directly or indirectly, secure or provide for the payment of more than 10 percent of the debt service on the Bonds, in contravention of Section 141(b)(2) of the Code; (b)to take any action to assure that in the event that the "private business use" described in subsection (a) hereof exceeds 5 percent of the proceeds of the Bonds or the projects financed therewith (less amounts deposited into a reserve fund, if any) then the amount in excess of 5 percent is used for a "private business use" which is "related" and not "disproportionate," within the meaning of Section 141(b)(3) of the Code, to the governmental use; 27 (c) to take any action to assure that no amount which is greater than the lesser of $5,000,000, or 5 percent of the proceeds of the Bonds (less amounts deposited into a reserve fund, if any) is directly or indirectly used to finance loans to persons, other than state or local governmental units, in contravention of Section 141(c) of the Code; (d) to refrain from taking any action which would otherwise result in the Bonds being treated as "private activity bonds" within the meaning of Section 141(b) of the Code; (e) to refrain from taking any action that would result in the Bonds being "federally guaranteed" within the meaning of Section 149(b) of the Code; (f) to refrain from using any portion of the proceeds of the Bonds, directly or indirectly, to acquire or to replace funds which were used, directly or indirectly, to acquire investment property (as defined in Section 148(b)(2) of the Code) which produces a materially higher yield over the term of the Bonds, other than investment property acquired with -- (1)proceeds of the Bonds invested for a reasonable temporary period of 3 years or less or, in the case of a refunding bond, for a period of 30 days or less until such proceeds are needed for the purpose for which the bonds are issued, (2)amounts invested in a bona fide debt service fund, within the meaning of Section 1.148-1(b) of the Treasury Regulations, and (3)amounts deposited in any reasonably required reserve or replacement fund to the extent such amounts do not exceed 10 percent of the proceeds of the Bonds; (g) to otherwise restrict the use of the proceeds of the Bonds or amounts treated as proceeds of the Bonds, as may be necessary, so that the Bonds do not otherwise contravene the requirements of Section 148 of the Code (relating to arbitrage) and, to the extent applicable, Section 149(d) of the Code (relating to advance refundings); and (h) to pay to the United States of America at least once during each five-year period (beginning on the date of delivery of the Bonds) an amount that is at least equal to 90 percent of the "Excess Earnings," within the meaning of Section 148(f) of the Code and to pay to the United States of America, not later than 60 days after the Bonds have been paid in full, 100 percent of the amount then required to be paid as a result of Excess Earnings under Section 148(f) of the Code. For the purposes of the foregoing (a) and (b), the Issuer understands that the term "proceeds" includes "disposition proceeds" as defined in the Treasury Regulations and, in the case of refunding bonds, transferred proceeds (if any) and proceeds of the refunded bonds expended prior to the date of issuance of the Bonds. It is the understanding of the Issuer that the covenants contained herein are intended to assure compliance with the Code and any regulations or rulings 28 promulgated by the U.S. Department of the Treasury pursuant thereto. In the event that regulations or rulings are hereafter promulgated which modify or expand provisions of the Code, as applicable to the Bonds, the Issuer will not be required to comply with any covenant contained herein to the extent that such failure to comply, in the opinion of nationally-recognized bond counsel, will not adversely affect the exemption from federal income taxation of interest on the Bonds under Section 103 of the Code. In the event that regulations or rulings are hereafter promulgated which impose additional requirements which are applicable to the Bonds, the Issuer agrees to comply with the additional requirements to the extent necessary, in the opinion of nationally-recognized bond counsel, to preserve the exemption from federal income taxation of interest on the Bonds under Section 103 of the Code. In furtherance of such intention, the Issuer hereby authorizes and directs the Mayor of the Issuer to execute any documents, certificates or reports required by the Code and to make such elections, on behalf of the Issuer, which may be permitted by the Code as are consistent with the purpose for the issuance of the Bonds. In order to facilitate compliance with the above covenant (h), a "Rebate Fund" is hereby established by the Issuer for the sole benefit of the United States of America, and such fund shall not be subject to the claim of any other person, including without limitation the bondholders. The Rebate Fund is established for the additional purpose of compliance with Section 148 of the Code. Section 30. DESIGNATION AS QUALIFIED TAX-EXEMPT OBLIGATIONS. The Issuer hereby designates the Bonds as "qualified tax-exempt obligations" as defined in Section 265(b)(3) of the Code. In furtherance of such designation, the Issuer represents, covenants and warrants the following: (a) that during the calendar year in which the Bonds are issued, the Issuer (including any subordinate entities) has not designated nor will designate obligations, which when aggregated with the Bonds, will result in more than $10,000,000 of "qualified tax-exempt obligations" being issued; and (b) that the Issuer reasonably anticipates that the amount of tax-ex- empt obligations issued, during the calendar year in which the Bonds are issued, by the Issuer (or any subordinate entities) will not exceed $10,000,000. Section 31. SALE OF BONDS. The Bonds is hereby sold and shall be delivered to the TEXAS WATER DEVELOPMENT BOARD for cash for the principal amount thereof. Section 32. APPROVAL OF ESCROW AGREEMENT AND TRANSFER OF FUNDS. The Mayor of the Issuer is hereby authorized and directed to execute and deliver and the City Secretary of the Issuer is hereby authorized and directed to attest an Escrow Agreement in substantially the form attached hereto as Exhibit A. The Issuer shall cause $957,925 to be deposited into an Escrow Account created by the Escrow Agreement pending authorization from the Development Fund Manager on behalf of the Texas Water Development Board. Section 33. CONSTRUCTION FUND. There shall be established a Construction Fund with the Issuer's depository bank and upon the delivery of the purchase price for such Bonds, $102,075 initially shall be deposited into this Construction Fund. The cost of issuance of the Bonds, being legal, fiscal and engineering fees, may be paid from this Fund. There shall be 29 prothu,1gated by the U.S. Department of the Treasury pursuant thereto. /n the event that regulatibs or rulings are hereafter promulgated which modify or expand pr isions of the Code, as applicable to the Bonds, the Issuer will not be required to comply with y covenant contained herein to th extent that such failure to comply, in the opinion of onally-recognized bond counsel, will Iot adversely affect the exemption from federal inco taxation of interest on the Bonds under S ion 103 of the Code. In the event that regula "ons or rulings are hereafter promulgated which\mpose additional requirements which are ap cable to the Bonds, the Issuer agrees to comply wlt the additional requirements to the a nt necessary, in the opinion of nationally-recognized bqnd counsel, to preserve the exempt' n from federal income taxation of interest on the Bonds undr Section 103 of the Code. In fuptherance of such intention, the Issuer hereby authorizes and direr the Mayor of the Issuer to xecute any documents, certificates or reports required by the Code ad to make such electio , on behalf of the Issuer, which may be permitted by the Code as are cogsistent with the pu se for the issuance of the Bonds. In order to facilitate complia a with the a ove covenant (h), a "Rebate Fund" is hereby established by the Issuer for the sole be fit of th United States of America, and such fund shall not be subject to the claim of any other pe n, ' luding without limitation the bondholders. The Rebate Fund is established for the additional se of compliance with Section 148 of the Code. Section 30. DESIGNATION AS qUAL1IED TAX-EXEMPT OBLIGATIONS. The Issuer hereby designates the Bonds as "qialified -exempt obligations" as defined in Section 265(b)(3) of the Code. In furtherance of such designs 'on, the Issuer represents, covenants and warrants the following: (a) that during tkie calendar year ' which the Bonds are issued, the Issuer (including any subordinate entities) had not designated nor 4l designate obligations, which when aggregated with the Bonds, will r suit in more than $1000,000 of "qualified tax-exempt obligations" being issued; and (b) tlát the Issuer reasonably anti ' ates that the amount of tax-ex- empt obligations issued, during th calendar year in which the BoiI4 are issued, by the Issuer (or any subordinate entities) will no exceed $10,000,000., Section 31. SALE O BONDS. The Bonds is hereby sold athshall be delivered to the TEXAS WATER DEVELOP ENT BOARD for cash for the principal , ount thereof. Section 32. APPROVAL OF ESCROW AGREEMENT AND TRANSFER OF FUNDS. The Mayor of the Issuer is hereby authorized and directed to execute and deli (er and the City Secretary of the Issuer is hereby authorized and directed to attest an Escrow\Agreement in substantially the form attached hereto as Exhibit A. The Issuer shall cause $1,0'0,000 to be deposited into an Escrow Account created by the Escrow Agreement pending author' ztion from the Development Fur) l Manager on behalf of the Texas Water Development Board. Section 33. CONSTRUCTION FUND. There shall be established a Constrution' and with the Issuer's epository bank and upon the delivery of the purchase price for such Bonds, $20,000 initiall shall be deposited into this Construction Fund. The cost of issuance of the Bonds, being } gal, fiscal and engineering fees, may be paid from this Fund. There shall be 29 deposited into the Construction Fund all amounts released from the Escrow Account created by the Escrow Agreement as provided in Section 32 hereof and in Section 2 of the Escrow Agreement. The cost of the construction of the sewer system improvements will be paid from this Fund upon directionof the City Council of the Issuer. All interest and profits from investments made with moneys in the Construction Fund shall remain on deposit in the Construction Fund as a part thereof. After compeltion of the payment of all costs of the construction of the sewer system improvements, any residue remaining in the Construction Fund shall be applied in accordance with Section 35 hereof. Section 34. FINAL ACCOUNTING. That the Issuer shall render a final accounting to the Texas Water Development Board in reference to the total cost incurred by the Issuer for Sewer System improvements together with a copy of "as built" plans of the project upon completion. Section 35. SURPLUS BOND PROCEEDS. That the Issuer shall use any surplus proceeds from the Bonds remaining after completion of the Utility System improvements, to redeem in inverse annual order of maturity, the Bonds owned by the Texas Water Development Board. Section 36. ANNUAL AND MONTHLY REPORTS. That monthly operating statements and annual audits of the Issuer shall be delivered to the Texas Water Development Board as long as the State of Texas owns any of the Bonds, and that the monthly operating statement shall be in such detail as requested by the Development Fund Manager of the Texas Water Development Board until this requirement is waived by the Development Fund Manager. Section 37. COMPLIANCE WITH THE TEXAS WATER DEVELOPMENT BOARD'S RULES AND REGULATIONS. That the Issuer covenants to comply with the rules and regulations of the Texas Water Development Board, and to maintain insurance on the Issuer's Utility System in that amount required by the Texas Water Development Board. Section 38. FINDING. It is hereby officially found and determined that said meeting was open to the public, and public notice of the time, place and purpose of said meeting was given, all as required by Chapter 551, Texas Government Code. 30 EXHIBIT A ESCROW AGREEMENT THIS ESCROW AGREEMENT, dated as of March 15, 1996 ("Escrow Agreement"), together with any amendments or supplements hereto, is entered into by and between the City of Sanger, Texas (the "Issuer") and Gainesville National Bank, Sanger, Texas, as Escrow Agent (the "Bank") together with any successor in such capacity. WITNESSETH: WHEREAS, the Issuer has authorized and sold to the Texas Water Development Board, City of Sanger, Texas Utility System Revenue Bonds, Series 1996, in the aggregate principal amount of $1,060,000 (the "Bonds"); and WHEREAS, the Texas Water Development Board is initially depositing $ of the Bonds proceeds to be held by the Escrow Agent until the Development Fund Manager, or authorized representative, of the Texas Water Development Board, on behalf of the Texas Water Development Board, authorizes in written form the release of such funds from the Escrow Account into the Construction Fund as established with the Issuer pursuant to the Ordinance that authorized such Bonds; and WHEREAS, the Bank is located in the State of Texas, is a member of the Federal Deposit Insurance Corporation, and is otherwise qualified and empowered to enter into this Escrow Agreement. NOW, THEREFORE, in consideration of the mutual agreements herein contained and in consideration of Ten Dollars ($10.00) duly paid by the Issuer to the Bank concurrently herewith, the receipt whereof is hereby acknowledged, and in order to secure the delivery of the Bonds, the parties hereto mutually undertake, promise and agree for themselves, their respective representatives, successors, and assigns, as follows: 1.That there is hereby deposited by the Issuer with the Bank, to be held in a special Escrow Account designated as "City of Sanger, Texas Utility System Revenue Bonds, Series 1996 Escrow Account ("Escrow Account"), the sum of $__________ from the sale of the Bonds, which sum will be held therein until the Development Fund Manager authorizes the release of such monies from the Escrow Account as provided in Section 2 hereof. 2.That the Bank shall invest the monies in the Escrow Account for the benefit of the Issuer, as directed in writing by the Issuer, and any income made from such investments shall be deposited into the Escrow Account, and that the Development Fund Manager, or authorized representative, of the Texas Water Development Board, on behalf of the Texas Water Development Board, may authorize in written form the transfer of such monies from the Escrow Account into the Construction Fund. 3.That monies in this Escrow Account shall be secured in the same manner as all other public funds of the Issuer. 4.That upon notification of the approval of the release of those monies from the Escrow Account by the Development Fund Manager, or authorized representative, of the Texas Water Development Board, the Bank shall transfer such monies together with any interest earned on such account as directed by the Issuer. 5.That the Bank shall not be liable for any act done or step taken or omitted by it or any mistake of fact or law, except for its negligence or default or failure in the performance of any obligation imposed upon it hereunder. The Bank shall not be responsible in any manner for any proceedings in connection with the Bonds or any recitation contained in the Bonds. 6.That this Escrow Agreement shall expire upon transfer of the funds in the Escrow Account to the Issuer. IN WITNESS WHEREOF, the Mayor of said Issuer signed this instrument on behalf of said Issuer, and the Issuer's official seal is affixed hereto, and the Mayor's signature is attested to by the City Secretary of the Issuer and has caused this instrument to be signed by the Bank in its corporate name by its President, or one of its Vice Presidents, and sealed with its corporate seal, and attested to by a Vice President, or Cashier, all as of the 15th day of March, 1996. Mayor City of Sanger, Texas City Secretary City of Sanger, Texas SEAL Gainesville National Bank Sanger, Texas Vice President ATTEST: Title: BANK SEAL CERTIFICATE FOR ORDINANCE THE STATE OF TEXAS COUNTY OF DENTON CITY OF SANGER We, the undersigned officers of said City, hereby certify as follows: V 1.The City Council of said City convened in REGULAR MEETING ON THE 20TH DAY OF MAY, 2002, at the City Hall, and the roll was called of the duly constituted officers and members of said City Council, to-wit: Tommy Kincaid, Mayor Andres G. Garza, Mayor Pro Tern Glenn Ervin Jimmy Evans Mike James Joe Higgs Rosalie Chavez, City Secretary t; and all of said persons were present, except the following absentees: none, thus constituting a quorum. Whereupon, among other business, the following was transacted at said Meeting: a written ORDINANCE AUTHORIZING THE ISSUANCE AND SALE OF UTILITY SYSTEM REVENUE BONDS, SERIES 2002, IN THE PRINCIPAL AMOUNT OF $2,540,000, APPROVING AN OFFICIAL STATEMENT, MAKING PROVISION FOR THE PAYMENT AND SECURITY THEREOF, AND ORDAINING OTHER MATTERS RELATING THERETO was duly introduced for the consideration of said City Council and read in full. It was then duly moved and seconded that said Ordinance be passed; and, after due discussion, said motion carrying with it the passage of said Ordinance, prevailed and carried by the following vote: AYES: All members of said City Council shown present above voted "Aye". NOES: None. 2.A true, full and correct copy of the aforesaid Ordinance passed at the Meeting described in the above and foregoing paragraph is attached to and follows this Certificate; that said Ordinance has been duly recorded in said City Council's minutes of said Meeting; that the above and foregoing paragraph is a true, full and correct excerpt from said City Council's minutes of said Meeting pertaining to the passage of said Ordinance; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of said City Council as indicated therein; that each of the officers and members of said City Council was duly and sufficiently notified officially and personally, in advance, of the time, place and purpose of the aforesaid Meeting, and that said Ordinance would be introduced and considered for passage at said Meeting, and each of said officers and members consented, in advance, to the holding of said Meeting for such purpose, and that said Meeting was open to the public and public notice of the time, place and purpose of said meeting was given, all as required by Chapter 551, Local Goverment Code. 3. The Mayor of said City has approved and hereby approves the aforesaid Ordinance: that the Mayor and the City Secretary of said City have dul y signed said Ordinance, and that the Mayor and the Cit y Secretary of said City hereby declare that their signing of this Certificate shall constitute the signing of the attached and following copy of said Ordinance for all purposes. SIGNED AND SEALED the 20th day of May, 2002. Ci Secretary Mayor,,,/ SEAL' 4% •\ I ORDINANCE AUTHORIZING THE ISSUANCE AND SALE OF UTILITY SYSTEM REVENUE BONDS, SERIES 2002, IN THE PRINCIPAL AMOUNT OF $2,540,000, APPROVING AN OFFICIAL STATEMENT, MAKING PROVISION . FOR THE PAYMENT AND SECURITY THEREOF, AND ORDAINING OTHER MATTERS RELATING THERETO THE STATE OF TEXAS COUNTY OF DENTON CITY OF SANGER WHEREAS, there is presently outstanding the following bonds of the City of Sanger (the "Issuer"), which are secured by the Net Revenues of the Issuer's Utility System: City of Sanger, Texas Utility System Revenue Bonds, Series 1996, dated March 15, 1996, maturing May 15, 2003 through May 15, 2016, now outstanding in the aggregate principal amount of $855,000 ("Series 1996 Bonds"); and City of Sanger, Texas Utility System Revenue Refunding Bonds, Series 1999, dated May 15, 1999, maturing May 15, 2003 through May 15, 2011, now outstanding in the aggregate principal amount of $1,555,000 ("Series 1999 Bonds"); WHEREAS, the bonds hereinafter authorized are to be issued and delivered pursuant to Chapter 1502, Texas Government Code; and WHEREAS, the meeting was open to the public and public notice of the time, place and purpose of said meeting was given pursuant to Chapter 551, Texas Government Code. THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF SANGER, TEXAS: Section 1. RECITALS; AMOUNT AND PURPOSE OF THE BONDS. The bond or bonds of the City of Sanger (the "Issuer") are hereby authorized to be issued and delivered in the aggregate principal amount of $2,540,000, for the purpose of improving and extending the City's Utility System, being the Issuer's Waterworks, Sewer and Electric System, to wit improving and enlarging the Issuer's wastewater treatment plant and replacing various water and sewer lines. Section 2. DESIGNATION OF THE BONDS. The recitals set forth in the preamble hereof are incorporated herein and shall have the same force and effect as if set forth in this Section. Each bond issued pursuant to this Ordinance shall be designated: "CITY OF SANGER, TEXAS UTILITY SYSTEM REVENUE BOND, SERIES 2002", and initially there shall be issued, sold, and delivered hereunder a single fully registered bond, without interest coupons, payable in annual installments of principal (the "Initial Bond"), but the Initial Bond may be assigned and transferred and/or converted into and exchanged for a like aggregate principal amount of fully registered bonds, without interest coupons, having serial and annual maturities, and in the denomination or denominations of $5,000 or any integral multiple of $5,000, all in the manner hereinafter provided. The term "Bonds" as used in this Ordinance shall mean and include collectively the Initial Bond and all substitute bonds ex- changed therefor, as well as all other substitute bonds and replacement bonds issued pursuant hereto, and the term "Bond" shall mean any of the Bonds. Section 3. INITIAL DATE, DENOMINATION, NUMBER, MATURITIES, INITIAL REGISTERED OWNER, AND CHAR.ACTE TICS OF THE INITIAL BOND. (a) The Initial Bond is hereby authori d to be issued, sol , and delivered hereunder as a single fully registered Bond, without intere coupons, dated June 1, 2002, in the denomination and aggregate principal amount of $2,549,%00, numbe e l -1, payable in annual installments of principal to the initial registered owner thereof, to- SAMCO Capital Markets, or to the registered assignee or assignees of said Bond or any portion or portions thereof (in each case, the "registered owner"), with the annual installments of principal of the Initial Bond to be payable on the dates, respectively, and in the principal amounts, respectively, stated in the FORM OF INITIAL BOND set forth in this Ordinance. (b) The Initial Bond (i) may be prepaid or redeemed prior to the respective scheduled due dates of installments of principal thereof, (ii) may be assigned and transferred, (iii) may be converted and exchanged for other Bonds, (iv) shall have the characteristics, and (v) shall be signed and sealed, and the principal of and interest on the Initial Bond shall be payable, all as pr vided, and in the manner required or indicated, in the FORM OF INITIAL BOND set forth in th Ordinance. Section 4. INTEREST. The unpaid principal balance of the Initial Bond shall bear interest from the date of the Initial Bond and will be calculated on the basis of a 360-day year of twelve 3t- day months to the respective scheduled due dates, or to the respective dates of prepayment or redemption, of the installments of principal of the Initial Bond, and said interest shall be payable, all in the manner provided and at the rates and on the dates stated in the FORM OF INITIAL BOND set forth in this Ordinance. Section 5. FORM OF INITIAL BOND. The form of the Initial Bond, including the form of Registration Certificate of the Comptroller of Public Accounts of the State of Texas to be endorsed on the Initial Bond, shall be substantially as follows: 2 FORM OF INITIAL BOND NO. R- $25946 UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF DENTON CITY OF SANGER, TEXAS UTILITY SYSTEM REVENUE BOND SERIES 2002 The CITY OF SANGER, in Denton County, Texas (the "Issuer"), being a political subdivision of the State of Texas, hereby promises to pay to SAMCO Capital Markets or to the registered assignee or assignees of this Bond or any portion or portions hereof (in each case, the "registered owner") the aggregate principal amount of TWO MILLION FIVE HUNDRED FORTY THOUSAND DOLLARS t^ in annual installments of principal due and payable on May each of the years, and in the respective principal amounts, as set forth in the following schedule: YEAR AMOUNT YEAR AMOUNT 2003 $ 80,000 2013 $125,000 2004 80,000 2014 130,000 2005 85,000 2015 140,000 2006 85,000 2016 145,000 2007 90,000 2017 155,000 2008 95,000 2018 160,000 2009 100,000 2019 170,000 2010 105,000 --- ---- 2011 110,000 --- ---- 2012 120,000,,,,,'2022 565,000 and to pay interest, from the date of this Bond hereinafter stated, on the balance of each such installment of principal, respectively, from time to time remaining unpaid, at the rates as follows: • maturity 2003, 6.00% maturity 2013, 4.80% maturity 2004, 6.00% maturity 2014, 4.90 % maturity 2005, 6.00% maturity 2015, 5.00% 3 maturity 2006,6.00% maturity 2007,6.00% maturity 2008,6.00% maturity 2009,6.00% maturity 2010,6.00% maturity 2011,4.50% maturity 2016, 5.10% maturity 2017, 5.10% maturity 2018, 5.20% maturity 2019, 5.30% maturity 2012, 4.70% maturity 2022, 5.40% with said interest being payable on May 15, 2003, and semiannually on each May 15 and Novembe 15 thereafter while this Bond or any portion hereof is outstanding and unpaid. THE INSTALLMENTS OF PRINCIPAL OF AND THE INTEREST ON this Bond are payable in lawful money of the United States of America, without exchange or collection charges. The installments of principal and the interest on this Bond are payable to the registered owner hereof through the services of THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A., DALLAS, TEXAS, which is the "Paying Agent/Registrar for this Bond. Payment of all principal of and interest on this Bond shall be made by the Paying Agent/Registrar to the registered owner hereof on each principal and/or interest payment date by check or draft, dated as of such date, drawn by the Paying Agent/Registrar on, and payable solely from, funds of the Issuer required by the ordinance authorizing the issuance of this Bond (the "Bond Ordinance") to be on deposit with the Paying Agent/Registrar for such purpose as hereinafter provided; and such check or draft shall be sent by the Paying Agent/Registrar by United States mail, first-class postage prepaid, on each such princi- pal and/or interest payment date, to the registered owner hereof, at the address of the registered owner, as it appeared on the last business day of the month next preceding each such date (the "Record Date") on the Registration Books kept by the Paying Agent/Registrar, as hereinafter described, or by such other method acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner. The Issuer covenants with the registered owner of this Bond that on or before each principal and/or interest payment d e for this Bond it will make available to the Paying Agent/Registrar, from the "Interest and Sinkin und" created by the Bond Ordinance, the amounts required to provide for the payment, in im diately available funds, of all principal of and interest on this Bond, when due. IF THE DATE for the payment of the principal of or interest on this Bond shall be a Saturday, Sunday, a 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 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. 4 THIS BOND has been authorized in accord Ln a with the Constitution and laws of the State of Texas in the principal amount of $2, 540,000 the purpose of improving and extending the City's Utility System, being the Issuers Waterworks, Sewer and Electric System, to wit: improving and enlarging the Issuer's wastewater treatment plant and replacing various water and sewer lines. ON MAY 15, 2012, or any to thereafter, the unpaid installments of principal of this Bond may be prepaid or redeemed prioeir scheduled due dates, at the option of the Issuer, with funds derived from any available source, as a whole, or in part, and, if in part, the Issuer shall select and designate the maturity, or maturities, and the amount that is to be redeemed, and if less than a whole maturity is to be called, the Issuer shall direct the Paying Agent/Registrar to call by lot (provided that a portion of this Bond may be redeemed only in an integral multiple of $5,000), at the redemption price of the principal amount, plus accrued interest to the date fixed for prep ,,y1nent or redemption. TEE Bonds of this Series scheduled to mature on May 15, 2022/e subject to mandatory redemption prior to their scheduled maturities, and shall be redeemed by the Issuer, in part, prior to their scheduled maturities, with money from the Mandatory Redemption Account of the Interest and Sinking Fund, with the particular Bonds or portion thereof to be redeemed to be selected by the Paying Agent/Registrar, by lot or other customary method (provided that a portion of a Bond may be redeemed only in an integral multiple of $5,000), at a redemption price equal to the par or principal amount thereof and accrued interest to the date of redemption, on the dates, and in the principal amounts, respectively, as shown in the following schedule: May 15, 2022 Maturity Mandatory Redemption Dates Principal Amounts May 15, 2020 $180,000 May 15, 2021 $190,000 May 15, 2022 $195,0 (payment at maturity) The principal amount of the Bonds required to be redeemed on each such redemption date pursuant to the foregoing operation of the Mandatory Redemption Account shall be reduced, at the option of the Issuer, by the principal amount of any Bonds, which at least 45 days prior to the mandatory sinking fund redemption date, (1) shall have been defeased or acquired by the Issuer and delivered to the Paying Agent/Registrar for cancellation, or (2) shall have been purchased and canceled by the Paying Agent/Registrar at the request of the Issuer at a price not exceeding the principal amount of such Bonds plus accrued interest to the date of purchase, (3) have been redeemed pursuant to the optional redemption provisions set forth above and not theretofore credited against a mandatory sinking fund redemption. During any period in which ownership of the Bonds is determined by a book entry at a securities depository for the Bonds, if fewer than all of the Bonds of the same maturity and bearing the same interest rate are to be redeemed, the particular Bonds of such maturity and bearing such interest rate shall be selected in accordance with the arrangements between the Issuer and the securities depository. AT LEAST 30 days prior to the date fixed for any such prepayment or redemption a written notice of such prepayment or redemption shall be mailed by the Paying Agent/Registrar to the registered owner hereof. By the date fixed for any such prepayment or redemption due provision shall be made by the Issuer with the Paying Agent/Registrar for the payment of the required prepay- ment or redemption price for this Bond or the portion hereof which is to be so prepaid or redeemed, plus accrued interest thereon to the date fixed for prepayment or redemption. If such written notice of prepayment or redemption is given, and if due provision for such payment is made, all as provided above, this Bond, or the portion thereof which is to be so prepaid or redeemed, thereby automatically shall be treated as prepaid or redeemed prior to its scheduled due date, and shall not bear interest after the date fixed for its prepayment or redemption, and shall not be regarded as being outstanding except for the right of the registered owner to receive the prepayment or redemption price plus accrued interest to the date fixed for prepayment or redemption from the Paying Agent/Registrar out of the funds provided for such payment. The Paying Agent/Registrar shall record in the Registration Books all such prepayments or redemptions of principal of this Bond or any portion hereof. THIS BOND, to the extent of the unpaid or unredeemed principal balance hereof, or any unpaid and unredeemed portion hereof in any integral multiple of $5,000, may be assigned by the initial registered owner hereof and shall be transferred only in the Registration Books of the Issuer kept by the Paying Agent/Registrar acting in the capacity of registrar for the Bonds, upon the terms and conditions set forth in the Bond Ordinance. Among other requirements for such transfer, this Bond must be presented and surrendered to the Paying Agent/Registrar for cancellation, together with proper instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, evidencing assignment by the initial registered owner of this Bond, or any portion or portions hereof in any integral multiple of $5,000, to the assignee or assignees in whose name or names this Bond or any such portion or portions hereof is or are to be transferred and registered. Any instrument or instruments of assignment satisfactory to the Paying Agent/Registrar may be used to evidence the assignment of this Bond or any such portion or portions hereof by the initial registered owner hereof. A new bond or bonds payable to such assignee or assignees (which then will be the new registered owner or owners of such new Bond or Bonds) or to the initial registered owner as to any portion of this Bond which is not being assigned and transferred by the initial registered owner, shall be delivered by the Paying Agent/Registrar in conversion of and exchange for this Bond or any portion or portions hereof, but solely in the form and manner as provided in the next paragraph hereof for the conversion and exchange of this Bond or any portion hereof. The registered owner of this Bond shall be deemed and treated by the Issuer and the Paying Agent/Registrar as the absolute owner hereof for all purposes, including payment , and discharge of liability upon this Bond to the extent of such payment, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary. AS PROVIDED above and in the Bond Ordinance, this Bond, to the extent of the unpaid or unredeemed principal balance hereof, may be converted into and exchanged for a like aggregate principal amount of fully registered bonds, without interest coupons, payable to the assignee or assignees duly designated in writing by the initial registered owner hereof, or to the initial registered 0 owner as to any portion of this Bond which is not being assigned and transferred by the initial registered owner, in any denomination or denominations in any integral multiple of $5,000 (subject to the requirement hereinafter stated that each substitute bond issued in exchange for any portion of this Bond shall have a single stated principal maturity date), upon surrender of this Bond to the Paying Agent/Registrar for cancellation, all in accordance with the form and procedures set forth in the Bond Ordinance. If this Bond or any portion hereof is assigned and transferred or converted each bond issued in exchange for any portion hereof shall have a single stated principal maturity date corresponding to the due date of the installment of principal of this Bond or portion hereof for which the substitute bond is being exchanged, and shall bear interest at the rate applicable to and borne by such installment of principal or portion thereof. Such bonds, respectively, shall be subject to redemption prior to maturity on the same dates and for the same prices as the corresponding installment of principal of this Bond or portion hereof for which they are being exchanged. No such bond shall be payable in installments, but shall have only one stated principal maturity date. AS PROVIDED IN THE BOND ORDINANCE, THIS BOND IN ITS PRESENT FORM MAY BE ASSIGNED AND TRANSFERRED OR CONVERTED ONCE ONLY, and to one or more assignees, but the bonds issued and delivered in exchange for this Bond or any portion hereof may be assigned and transferred, and converted, subsequently, as provided in the Bond Ordinance. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for transferring, converting, and exchanging this Bond or any portion thereof, but the one requesting such transfer, conversion, and exchange shall pay any taxes or governmental charges required to be paid with respect thereto. The Paying Agent/Registrar shall not be required to make any such assignment, conversion, or exchange (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 Bond or portion thereof called for prepayment or redemption prior to maturity, within 45 days prior to its prepayment or redemption date. IN THE EVENT any Paying Agent/Registrar for this Bond is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted in the Bond Ordinance that it promptly will appoint a competent and legally qualified substitute therefor, and promptly will cause written notice thereof to be mailed to the registered owner of this Bond. IT IS HEREBY certified, recited, and covenanted that this Bond has been duly and validly authorized, issued, and delivered pursuant to the laws of the State of Texas; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the authorization, issuance, and delivery of this Bond and the Series of which it is a part have been performed, existed, and been done in accordance with law; that this Bond is a special obligation of said Issuer, and that the principal of and interest on this Bond, together with other outstanding revenue bonds of the Issuer, are payable and secured by a first lien on and pledge of the Net Revenues of the Issuer's Utility System, being the Waterworks, Sewer and Electric System. THE ISSUER has reserved the right, subject to the restrictions stated, and adopted by reference, in the Ordinance authorizing this Series of Bonds, to issue additional parity revenue bonds 7 which also may be made payable from, and secured by a first lien on and pledge of, the aforesaid Net Revenues. THE REGISTERED OWNER HEREOF shall never have the right to demand payment of this Bond or the interest hereon out of any funds raised or to be raised by taxation, or from any sources whatsoever other than those described in the Bond Ordinance. THE ISSUER HAS RESERVED THE RIGHT to amend the Bond Ordinance as provided therein, and under some (but not all) circumstances amendments thereto must be approved by the registered owners of a majority in aggregate principal amount of the outstanding Bonds. BY BECOMING the registered owner of this Bond, the registered owner thereby acknowledges all of the terms and provisions of the Bond Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Bond Ordinance is duly recorded and available for inspection in the official minutes and records of the governing body of the Issuer, and agrees that the terms and provisions of this Bond and the Bond Ordinance constitute a contract between the registered owner hereof and the Issuer. IN WITNESS WHEREOF, the Issuer has caused this Bond to be signed with the manual or facsimile signature of the Mayor of the Issuer and countersigned with the manual or facsimile signature of the City Secretary of the Issuer, has caused the official seal of the Issuer to be duly impressed, or placed in facsimile, on this Bond, and has caused this Bond to be dated June 1, 2OO2. City Secretary Mayor (CITY SEAL) FORM OF REGISTRATION CERTIFICATE OF THE COMPTROLLER OF PUBLIC ACCOUNTS: COMPTROLLER'S REGISTRATION CERTIFICATE: REGISTER NO. I hereby certify that this Bond has been examined, certified as to validity, and approved by the Attorney General of the State of Texas, and that this Bond has been registered by the Comptroller of Public Accounts of the State of Texas. Witness my signature and seal this Comptroller of Public Accounts of the State of Texas (COMPTROLLER'S SEAL) Section 6. ADDITIONAL CHARACTERISTICS OF THE BONDS. (a) Registration and Transfer. The Issuer shall keep or cause to be kept at the principal corporate trust office of THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A., DALLAS, TEXAS, (the "Paying Agent/Registrar") books or records of the registration and transfer of the Bonds (the "Registration Books"), and the Issuer hereby appoints the Paying Agent/Registrar as its registrar and transfer agent to keep such books or records and make such transfers and registrations under such reasonable regulations as the Issuer and Paying Agent/Registrar may prescribe; and the Paying Agent/Registrar shall make such transfers and registrations as herein provided. The Paying Agent/Registrar shall obtain and record in the Registration Books the address of the registered owner of each Bond to which payments with respect to the Bonds shall be mailed, as herein provided; but it shall be the duty of each registered owner to notify the Paying Agent/Registrar in writing of the address to which payments shall be mailed, and such interest payments shall not be mailed unless such notice has been given. The Issuer shall have the right to inspect the Registration Books during regular business hours of the Paying Agent/Registrar, but otherwise the Paying Agent/Registrar shall keep the Registration Books confidential and, unless otherwise required by law, shall not permit their inspection by any other entity. Registration of each Bond may be transferred in the Registration Books only upon presentation and surrender of such Bond to the Paying Agent/Registrar for transfer of registration and cancellation, together with proper written instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, (i) evidencing the assignment of the Bond, or any portion thereof in any integral multiple of $5,000, to the assignee or assignees thereof, and (ii) the right of such assignee or assignees to have the Bond or any such portion thereof registered in the name of such assignee or assignees. Upon the assignment and transfer of any Bond or any portion thereof, a new substitute Bond or Bonds shall be issued in conversion and exchange therefor in the manner herein provided. The Initial Bond, to the extent of the unpaid or unredeemed principal balance thereof, may be assigned and transferred by the initial registered owner thereof once only, and to one or more assignees designated in writing by the initial registered owner thereof. All Bonds issued and delivered in conversion of and exchange for the Initial Bond shall be in any denomination or denominations of any integral multiple of $5,000 (subject to the requirement herein- after stated that each substitute Bond shall have a single stated principal maturity date), shall be in 6 the form prescribed in the FORM OF SUBSTITUTE BOND set forth in this Ordinance, and shall have the characteristics, and may be assigned, transferred, and converted as hereinafter provided. If the Initial Bond or any portion thereof is assigned and transferred or converted the Initial Bond must be surrendered to the Paying Agent/Registrar for cancellation, and each Bond issued in exchange for any portion of the Initial Bond shall have a single stated principal maturity date, and shall not be payable in installments; and each such Bond shall have a principal maturity date corresponding to the due date of the installment of principal or portion thereof for which the substitute Bond is being ex- changed; and each such Bond shall bear interest at the single rate applicable to and borne by such installment of principal or portion thereof for which it is being exchanged. If only a portion of the Initial Bond is assigned and transferred, there shall be delivered to and registered in the name of the initial registered owner substitute Bonds in exchange for the unassigned balance of the Initial Bond in the same manner as if the initial registered owner were the assignee thereof. If any Bond or portion thereof other than the Initial Bond is assigned and transferred or converted each Bond issued in exchange shall have the same principal maturity date and bear interest at the same rate as the Bond for which it is exchanged. A form of assignment shall be printed or endorsed on each Bond, excepting the Initial Bond, which shall be executed by the registered owner or its duly authorized attorney or representative to evidence an assignment thereof. Upon surrender of any Bonds or any portion or portions thereof for transfer of registration, an authorized representative of the Paying Agent/Registrar shall make such transfer in the Registration Books, and shall deliver a new fully registered substitute Bond or Bonds, having the characteristics herein described, payable to such assignee or assignees (which then will be the registered owner or owners of such new Bond or Bonds), or to the previous registered owner in case only a portion of a Bond is being assigned and transferred, all in conversion of and exchange for said assigned Bond or Bonds or any portion or portions thereof, in the same form and manner, and with the same effect, as provided in Section 6(d), below, for the conversion and exchange of Bonds by any registered owner of a Bond. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for making such trans- fer and delivery of a substitute Bond or Bonds, but the one requesting such transfer shall pay any taxes or other governmental charges required to be paid with respect thereto. The Paying Agent/Registrar shall not be required to make transfers of registration of any Bond or any portion thereof (i) duringihe 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 Bond or any portion thereof called for redemption prior to maturity, within 30 days prior to its redemption date. (b) Ownership of Bonds. The entity in whose name any Bond shall be registered in the Registration Books at any time shall be deemed and treated as the absolute owner thereof for all purposes of this Ordinance, whether or not such Bond shall be overdue, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary; and payment of, or on account of, the principal of, premium, if any, and interest on any such Bond shall be made only to such registered owner. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid. 10 (c)Payment of Bonds and Interest. The Issuer hereby further appoints the Paying Agent/Registrar to act as the paying agent for paying the principal of and interest on the Bonds, and to act as its agent to convert and exchange or replace Bonds, all as provided in this Ordinance. The Paying Agent/Registrar shall keep proper records of all payments made by the Issuer and the Paying Agent/Registrar with respect to the Bonds, and of all conversions and exchanges of Bonds, and all replacements of Bonds, as provided in this Ordinance. However, in the event of a nonpayment of interest on a scheduled payment date, and for thirty (30) days thereafter, a new record date for such interest payment (a "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 Issuer. Notice of the Special Record Date and of the scheduled payment date of the past due interest (which shall be 15 days after the Special Record Date) shall be sent at least five (5) business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each Bondholder appearing on the Security Register at the close of business on the last business day next preceding the date of mailing of such notice. (d)Conversion and Exchange or Replacement; Authentication. Each Bond issued and delivered pursuant to this Ordinance, to the extent of the unpaid or unredeemed principal balance or principal amount thereof, may, upon surrender of such Bond at the principal corporate trust office of the Paying Agent/Registrar, together with a written request therefor duly executed by the registered owner or the assignee or assignees thereof, or its or their duly authorized attorneys or representatives, with guarantee of signatures satisfactory to the Paying Agent/Registrar, may, at the option of the registered owner or such assignee or assignees, as appropriate, be converted into and exchanged for fully registered bonds, without interest coupons, in the form prescribed in the FORM OF SUBSTITUTE BOND set forth in this Ordinance, in the denomination of $5,000, or any integral multiple of $5,000 (subject to the requirement hereinafter stated that each substitute Bond shall have a single stated maturity date), as requested in writing by such registered owner or such assignee or assignees, in an aggregate principal amount equal to the unpaid or unredeemed principal balance or principal amount of any Bond or Bonds so surrendered, and payable to the appropriate registered owner, assignee, or assignees, as the case may be. If the Initial Bond is assigned and transferred or converted each substitute Bond issued in exchange for any portion of the Initial Bond shall have a single stated principal maturity date, and shall not be payable in installments; and each such Bond shall have a principal maturity date corresponding to the due date of the installment of principal or portion thereof for which the substitute Bond is being exchanged; and each such Bond shall bear interest at the single rate applicable to and borne by such installment of principal or portion thereof for which it is being exchanged. If a portion of any Bond (other than the Initial Bond) shall be redeemed prior to its scheduled maturity as provided herein, a substitute Bond or Bonds having the same maturity date, bearing interest at the same rate, in the denomination or denominations of any integral multiple of $5,000 at the request of the registered owner, and in aggregate principal amount equal to the unredeemed portion thereof, will be issued to the registered owner upon surrender thereof for cancellation. If any Bond or portion thereof (other than the Initial Bond) is assigned and transferred or converted, each Bond issued in exchange therefor shall have the same principal maturity date and bear interest at the same rate as the Bond for which it is being exchanged. Each substitute Bond shall bear a letter and/or number to distinguish it from each other Bond. The Paying Agent/Registrar shall 11 convert and exchange or replace Bonds as provided herein, and each fully registered bond delivered in conversion of and exchange for or replacement of any Bond or portion thereof as permitted or required by any provision of this Ordinance shall constitute one of the Bonds for all purposes of this Ordinance, and may again be converted and exchanged or replaced. It is specifically provided that any Bond authenticated in conversion of and exchange for or replacement of another Bond on or prior to the first scheduled Record Date for the Initial Bond shall bear interest from the date of the Initial Bond, but each substitute Bond so authenticated after such first scheduled Record Date shall bear interest from the interest payment date next preceding the date on which such substitute Bond was so authenticated, unless such Bond is authenticated after any Record Date but on or before the next following interest payment date, in which case it shall bear interest from such next following interest payment date; provided, however, that if at the time of delivery of any substitute Bond the interest on the Bond for which it is being exchanged is due but has not been paid, then such Bond shall bear interest from the date to which such interest has been paid in full. THE INITIAL BOND issued and delivered pursuant to this Ordinance is not required to be, and shall not be, authenticated by the Paying Agent/ Registrar, but on each substitute Bond issued in conversion of and exchange for or replacement of any Bond or Bonds issued under this Ordinance there shall be printed a certifi- cate, in the form substantially as follows: "PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE It is hereby certified that this Bond has been issued under the provisions of the Bond Ordinance described on the face of this Bond; and that this Bond has been issued in conversion of and exchange for or replacement of a bond, bonds, or a portion of a bond or bonds of an issue which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A. Paying Agent/Registrar Dated By Authorized Representative An authorized representative of the Paying Agent/Registrar shall, before the delivery of any such Bond, date and manually sign the above Certificate, and no such Bond shall be deemed to be issued or outstanding unless such Certificate is so executed. The Paying Agent/Registrar promptly shall cancel all Bonds surrendered for conversion and exchange or replacement. No additional ordinances, orders, or resolutions need be passed or adopted by the governing body of the Issuer or any other body or person so as to accomplish the foregoing conversion and exchange or replacement of any Bond or portion thereof, and the Paying Agent/Registrar shall provide for the printing, execution, and delivery of the substitute Bonds in the manner pres ibed herein, and said Bonds shall be of type composition printed on paper with lithographed or eel engraved borders of customary weight and strength. Pursuant to Subchapter D, Chapter 1201 exas Government Code, the duty of conversion 12 and exchange or replacement of Bonds as aforesaid is hereby imposed upon the Paying Agent/Registrar, and, upon the execution of the above Paying Agent/Registrar's Authentication Certificate, the converted and exchanged or replaced Bond shall be valid, incontestable, and enforceable in the same manner and with the same effect as the Initial Bond which originally was issued pursuant to this Ordinance, approved by the Attorney General, and registered by the Comptrol- ler of Public Accounts. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for transferring, converting, and exchanging any Bond or any portion thereof, but the one requesting any such transfer, conversion, and exchange shall pay any taxes or governmental charges required to be paid with respect thereto as a condition precedent to the exercise of such privilege of conversion and exchange. The Paying Agent/Registrar shall not be required to make any such conversion and exchange or replacement of Bonds or any portion thereof (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 Bond or portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date. (e)In General. All Bonds issued in conversion and exchange or replacement of any other Bond or portion thereof, (i) shall be issued in fully registered form, without interest coupons, with the principal of and interest on such Bonds to be payable only to the registered owners thereof, (ii) may be redeemed prior to their scheduled maturities, (iii) may be transferred and assigned, (iv) may be converted and exchanged for other Bonds, (v) shall have the characteristics, (vi) shall be signed and sealed, and (vii) the principal of and interest on the Bonds shall be payable, all as provided, and in the manner required or indicated, in the FORM OF SUBSTITUTE BOND set forth in this Ordinance. (f)Payment of Fees and Charges. The Issuer hereby covenants with the registered owners of the Bonds that it will (i) pay the standard or customary fees and charges of the Paying Agent/Registrar for its services with respect to the payment of the principal of and interest on the Bonds, when due, and (ii) pay the fees and charges of the Paying Agent/Registrar for services with respect to the transfer of registration of Bonds, and with respect to the conversion and exchange of Bonds solely to the extent above provided in this Ordinance. (g)Substitute Paying Agent/Registrar. The Issuer covenants with the registered owners of the Bonds that at all times while the Bonds are outstanding the Issuer will provide a competent and legally qualified bank, trust company, financial institution, or other agency to act as and perform the services of Paying Agent/Registrar for the Bonds under This Ordinance, and that the Paying Agent/Registrar will be one entity. The Issuer reserves the right to, and may, at its option, change the Paying Agent/Registrar upon not less than 120 days written notice to the Paying Agent/Registrar, to be effective not later than 60 days prior to the next principal or interest payment date after such notice. In the event that the entity at any time acting as Paying Agent/Registrar (or its successor by merger, acquisition, or other method) should resign or otherwise cease to act as such, the Issuer covenants that promptly it will appoint a competent and legally qualified bank, trust company, financial institution, or other agency to act as Paying Agent/Registrar under this Ordinance. Upon any change in the Paying Agent/Registrar, the previous Paying Agent/Registrar promptly shall 13 transfer and deliver the Registration Books (or a copy thereof), along with all other pertinent books and records relating to the Bonds, to the new Paying Agent/Registrar designated and appointed by the Issuer. Upon any change in the Paying Agent/Registrar, the Issuer promptly will cause a written notice thereof to be sent by the new Paying Agent/Registrar to each registered owner of the Bonds, by United States mail, first-class postage prepaid, which notice also shall give the address of the new Paying Agent/Registrar. By accepting the position and performing as such, each Paying Agent/Regis- trar shall be deemed to have agreed to the provisions of this Ordinance, and a certified copy of this Ordinance shall be delivered to each Paying Agent/Registrar. (h) Book-Entry Only System. The Bonds issued in exchange for the Bonds initially issued to the purchaser specified herein shall be initially issued in the form of a separate single fully registered Bond for each of the maturities thereof. Upon initial issuance, the ownership of each such Bond shall be registered in the name of Cede & Co., as nominee of Depository Trust Company of New York ("DTC"), and except as provided in subsection (f) hereof, all of the outstanding Bonds shall be registered in the name of Cede & Co., as nominee of DTC. With respect to Bonds registered in the name of Cede & Co., as nominee of DTC, the Issuer 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 on the Bonds. Without limiting the immediately preceding sentence, the Issuer and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any DTC Participant or any other person, other than a Bondholder, as shown on the Registration Books, of any notice with respect to the Bonds, including any notice of redemption, or (iii) the payment to any DTC Participant or any other person, other than a Bondholder, as shown in the Registration Books of any amount with respect to principal of, premium, if any, or interest on, as the case may be, the Bonds. Notwithstanding any other provision of this Ordinance to the contrary, the Issuer and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Bond is registered in the Registration Books as the absolute owner of such Bond for the purpose of payment of principal, premium, if any, and interest, as .the case may be, with respect to such Bond, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfers with respect to such Bond, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of, premium, if any, and interest on the Bonds only to or upon the order of the respective owners, as shown in the Registration Books 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 Issuer's obligations with respect to payment of principal of, premium, if any, and interest on, or as the case may be, the Bonds to the extent of the sum or sums so paid. No person other than an owner, as shown in the Registration Books, shall receive a Bond certificate evidencing the obligation of the Issuer to make payments of principal, premium, if any, and interest, as the case may be, pursuant to this Ordinance. 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 14 being mailed to the registered 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. (i)Successor Securities Depository, Transfers Outside Book-Entry Only System. In the event that the Issuer or the Paying Agent/Registrar determines that DTC is incapable of discharging its responsibilities described herein and in the representation letter of the Issuer to DTC and that it is in the best interest of the beneficial owners of the Bonds that they be able to obtain certificated Bonds, the Issuer or the Paying Agent/Registrar shall (i) 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 and DTC Participants of the appointment of such successor securities depository and transfer one or more separate Bonds to such successor securities depository or (ii) notify DTC and DTC Participants of the availability through DTC of Bonds and transfer one or more separate Bonds to DTC Participants having Bonds credited to their DTC accounts. In such event, the Bonds shall no longer be restricted to being registered in the Registration Books in the name 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 Bondholders transferring or exchanging Bonds shall designate, in accordance with the provisions of this Ordinance. (j)Payments to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, so long as any Bond is registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on, or as the case may be, such Bond and all notices with respect to such Bond shall be made and given, respectively, in the manner provided in the representation letter of the Issuer to DTC. Section 7. FORM OF SUBSTITUTE BONDS. The form of all Bonds issued in conversion and exchange or replacement of any other Bond or portion thereof, including the form of Paying Agent/Registrar's Certificate to be printed on each of such Bonds, and the Form of Assignment to be printed on each of the Bonds, shall be, respectively, substantially as follows, with such appropriate variations, omissions, or insertions as are permitted or required by this Ordinance. FORM OF SUBSTITUTE BOND PRINCIPAL NO. AMOUNT UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF DENTON CITY OF SANGER, TEXAS UTILITY SYSTEM REVENUE BOND SERIES 2002 INTEREST MATURITY DATE OF CUSIP RATE DATE ORIGINAL ISSUE NO. June 1, 2002 J 15 ON THE MATURITY DATE specified above, the CITY OF SANGER, in Denton Cou y, Texas (the "Issuer"), being a political subdivision of the State of Texas, hereby promises to ay to or to the registered assignee hereof (either being hereinafter called the "registered o' yher") the principal amount of V and to pay interest thereon from June 1, 02 to the maturity date specified above, or the date of redemption prior to maturi , at the interest rate per annum specified bove; with terest being payable on May 15, 2004hd semiannually thereafter on each May 15 d NovembeVl 5, except that if the date of authentication of this Bond is later than April 30, 2003, such principal amount shall bear interest from the interest payment date next preceding the date of authentication, unless such date of authentication is after any Record Date (hereinafter defined) but on or before the next following interest payment date, in which case such principal amount shall bear interest from such next following interest payment date. THE PRINCIPAL OF AND INTEREST ON this Bond are payable in lawful money of the United States of America, without exchange or collection charges. The principal of this Bond shall be paid to the registered owner hereof upon presentation and surrender of this Bond at maturity or upon the date fixed for its redemption prior to maturity, at the principal corporate trust office of THE 3 BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A., DALLAS, TEXAS, which is the "Paying Agent/Registrar" for this Bond. The payment of interest on this Bond shall be made by the Paying Agent/Registrar to the registered owner hereof on each interest payment date by check or draft, dated as of such interest payment date, drawn by the Paying Agent/Registrar on, and payable solely from, funds of the Issuer required by the ordinance authorizing the issuance of the Bonds (the "Bond Ordinance") to be on deposit with the Paying Agent/Registrar for such purpose as hereinafter provided; and such check or draft shall be sent by the Paying Agent/Registrar by United States mail, first-class postage prepaid, on each such interest payment date, to the registered owner hereof, at the address of the registered owner, as it appeared on the last business day of the month next preceding each such date (the "Record Date") on the Registration Books kept by the Paying Agent/Registrar, as hereinafter described, or by such other method acceptable to the Paying Agent/Registrar requested by, and the risk and expense of, the registered owner. Any accrued interest due upon the redemption of this Bond prior to maturity as provided herein shall be paid to the registered owner upon presen- tation and surrender of this Bond for redemption and payment at the principal corporate trust office of the Paying Agent/Registrar. The Issuer covenants with the registered owner of this Bond that on or before each principal payment date, interest payment date, and accrued interest payment date for this Bond it will make available to the Paying Agent/Registrar, from the "Interest and Sinking Fund" created by the Bond Ordinance, the amounts required to provide for the payment, in immediately available funds, of all principal of and interest on the Bonds, when due. IF THE DATE for the payment of the principal of or interest on this Bond shall be a Saturday, Sunday, a 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 day IR on which banking institutions are authorized to close; and payment on such date shall have tJie same force and effect as if made on the original date payment was due. THIS BOND is one of an issue of Bonds initially dated June 1, 2002, authorized in accordance with the Constitution and laws of the State of Texas in the principal amount of $2,540,000, for the purpose of improving and extending the City's Utility System, being the Issuer's Waterworks, Sewer and Electric System, to wit: improving and enlarging the Issuer's wastewater treatment plant and replacing various water and sewer lines. ON MAY 15, 2012, or any date thereafter, the Bonds of this Series may be redeemed prior to their scheduled maturities, at the option of the Issuer, with funds derived from any available and lawful source, as a whole, or in part, and, if in part, the Issuer shall select and designate the maturity or maturities and the amount that is to be redeemed, and if less than a whole maturity is to be called, the Issuer shall direct the Paying Agent/Registrar to call by lot (provided that a portion of a Bond may be redeemed only in an integral multiple of $5,000), at the redemption price of the principal amount thereof, plus accrued interest to the date fixed for redemption. THE Bonds of this Series scheduled to mature on . May 15, 2022 are subject to mandatory redemption prior to their scheduled maturities, and shall be redeemed by the Issuer, in part, prior to their scheduled maturities, with money from the Mandatory Redemption Account of the Interest and Sinking Fund, with the particular Bonds or portion thereof to be redeemed to be selected by the Payin Agent/Registrar, by lot or other customary method (provided that a portion of a Bond may be redeemed only in an integral multiple of $5,000), at a redemption price equal to the par or principal amount thereof and accrued interest to the date of redemption, on the dates, and in the principal amounts, respectively, as shown in the following schedule: May 15, 2022 Maturity Mandatory Redemption Dates Principal Amounts May 15, 2020 $180,000 May 15, 2021 $190,000 May 15, 2022 $195,000 (payment at maturity) The principal amount of the Bonds required to be redeemed on each such redemption date pursuant to the foregoing operation of the Mandatory Redemption Account shall be reduced, at the option of the Issuer, by the principal amount of any Bonds, which at least 45 days prior to the mandatory sinking fund redemption date, (1) shall have been defeased or acquired by the Issuer and delivered to the Paying Agent/Registrar for cancellation, or (2) shall have been purchased and canceled by the Paying Agent/Registrar at the request of the Issuer at a price not exceeding the principal amount of such Bonds plus accrued interest to the date of purchase, (3) have been redeemed pursuant to the optional redemption provisions set forth above and not theretofore credited against a mandatory sinking fund redemption. During any period in which ownership of the Bonds is determined by a book entry at a securities depository 17 for the Bonds, if fewer than all of the Bonds of the same maturity and bearing the same interest rate are to be redeemed, the particular Bonds of such maturity and bearing such interest rate shall be selected in accordance with the arrangements between the Issuer and the securities depository. AT LEAST 30 days prior to the date fixed for any redemption of Bonds or portions thereof prior to maturity a written notice of such redemption shall be published once in a financial publication, journal, or reporter of general circulation among securities dealers in The City of New York, New York (including, but not limited to, The Bond Buyer and The Wall Street Journal), or in the State of Texas (including, but not limited to, The Texas Bond Reporter). Such notice also shall be sent by the Paying Agent/Registrar by United States mail, first class postage prepaid, not less than 30 days prior to the date fixed for any such redemption, to the registered owner of each Bond to be redeemed at its address as it appeared on the 45th day prior to such redemption date; provided, however, that the failure to send, mail, or receive such notice, or any defect therein or in the sending or mailing thereof, shall not affect the validity or effectiveness of the proceedings for the redemption of any Bond, and it is hereby specifically provided that the publication of such notice as required above shall be the only notice actually required in connection with or as a prerequisite to the redemption of any Bonds or portions thereof. By the date fixed for any such redemption due provision shall be made with the Paying Agent/Registrar for the payment of the required redemption price for the Bonds or portions thereof which are to be so redeemed, plus accrued interest thereon to the date fixed for redemption. If such written notice of redemption is published and if due provision for such payment is made, all as provided above, the Bonds or portions thereof which are to be so redeemed thereby automatically shall be treated as redeemed prior to their scheduled maturities, and they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being outstanding except for the right of the registered owner to receive the redemption price plus accrued interest from the Paying Agent/Registrar out of the funds provided for such payment. If a portion of any Bond shall be redeemed a substitute Bond or Bonds having the same maturity date, bearing interest at the same rate, in any denomination or denominations in any integral multiple of $5,000, at the written request of the registered owner, and in aggregate principal amount equal to the unredeemed portion thereof, will be issued to the registered owner upon the surrender thereof for cancellation, at the expense of the Issuer, all as provided in the Bond Ordinance. THIS BOND OR ANY PORTION OR PORTIONS HEREOF IN ANY INTEGRAL MULTIPLE OF $5,000 may be assigned and shall be transferred only in the Registration Books of the Issuer kept by the Paying Agent/Registrar acting in the capacity of registrar for the Bonds, upon the terms and conditions set forth in the Bond Ordinance.' Among other requirements for such assignment and transfer, this Bond must be presented and surrendered to the Paying Agent/Registrar, together with proper instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, evidencing assignment of this Bond or any portion or portions hereof in any integral multiple of $5,000 to the assignee or assignees in whose name or names this Bond or any such portion or portions hereof is or are to be transferred and registered. The form of Assignment printed or endorsed on this Bond shall be executed by the registered owner or its duly authorized attorney or representative, to evidence the assignment hereof. A new Bond or Bonds payable to such assignee or assignees (which then will be the new registered owner or owners of such new Bond or Bonds), or to the previous registered owner in the case of the assignment and transfer 18 of only a portion of this Bond, may be delivered by the Paying Agent/Registrar in conversion of and exchange for this Bond, all in the form and manner as provided in the next paragraph hereof for the conversion and exchange of other Bonds. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for making such transfer, but the one requesting such transfer shall pay any taxes or other governmental charges required to be paid with respect thereto. The Paying Agent/Registrar shall not be required to make transfers of registration of this Bond or any portion hereof (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 Bond or any portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date. The registered owner of this Bond shall be deemed and treated by the Issuer and the Paying Agent/Registrar as the absolute owner hereof for all purposes, including payment and discharge of liability upon this Bond to the extent of such payment, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary. ALL BONDS OF THIS SERIES are issuable solely as fully registered bonds, without interest coupons, in the denomination of any integral multiple of $5,000. As provided in the Bond Ordinance, this Bond, or any unredeemed portion hereof, may, at the request of the registered owner or the assignee or assignees hereof, be converted into and exchanged for a like aggregate principal amount of fully registered bonds, without interest coupons, payable to the appropriate registered owner, assignee, or assignees, as the case may be, having the same maturity date, and bearing interest at the same rate, in any denomination or denominations in any integral multiple of $5,000 as requested in writing by the appropriate registered owner, assignee, or assignees, as the case may be, upon sur- render of this Bond to the Paying Agent/Registrar for cancellation, all in accordance with the form and procedures set forth in the Bond Ordinance. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for transferring, converting, and exchanging any Bond or any portion thereof, but the one requesting such transfer, conversion, and exchange shall pay any taxes or governmental charges required to be paid with respect thereto as a condition precedent to the exercise of such privilege of conversion and exchange. The Paying Agent/Registrar shall not be required to make any such conversion and exchange (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 Bond or portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date. IN THE EVENT any Paying Agent/Registrar for the Bonds is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted in the Bond Ordinance that it promptly will appoint a competent and legally qualified substitute therefor, and promptly will cause written notice thereof to be mailed to the registered owners of the Bonds. IT IS HEREBY certified, recited, and covenanted that this Bond has been duly and validly authorized, issued, and delivered pursuant to the laws of the State of Texas; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the authorization, issuance, and delivery of this Bond and the Series of which it is a part have been performed, existed, and been done in accordance with law; that this Bond is a special obligation of said Issuer, and that the principal of and interest on this Bond, together with other outstanding revenue bonds of the 19 Issuer, are payable and secured by a first lien on and pledge of the Net Revenues of the Issuer's Utilit System, being the Waterworks, Sewer and Electric System. THE ISSUER has reserved the right, subject to the restrictions stated, and adopted by reference, in the Ordinance authorizing this series of Bonds, to issue additional parity revenue bonds which also may be made payable from, and secured by a first lien on and pledge of, the aforesaid Net Revenues. THE REGISTERED OWNER HEREOF shall never have the right to demand payment of this Bond or the interest hereon out of any funds raised or to be raised by taxation, or from any source whatsoever other than those described in the Bond Ordinance. THE ISSUER HAS RESERVED THE RIGHT to amend the Bond Ordinance as provided therein, and under some (but not all) circumstances amendments thereto must be approved by the registered owners of a majority in aggregate principal amount of the outstanding Bonds. BY BECOMING the registered owner of this Bond, the registered owner thereby acknowledges all of the terms and provisions of the Bond Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Bond Ordinance is duly recorded and available for inspection in the official minutes and records of the governing body of the Issuer, and agrees that the terms and provisions of this Bond and the Bond Ordinance constitute a contract between each registered owner hereof and the Issuer. IN WITNESS WHEREOF, the Issuer has caused this Bond to be signed with the facsimile signature of the Mayor of the Issuer and countersigned with the facsimile signature of the City Secretary of the Issuer, and has caused the official seal of the Issuer to be duly impressed, or placed in facsimile, on this Bond. (facsimile signature) (facsimile signature) City Secretary Mayor SEAL FORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE (To be executed if this Bond is not accompanied by an executed Registration Certificate of the Comptroller of Public Accounts of the State of Texas) It is hereby certified that this Bond has been issued under the provisions of the Bond Ordinance described in the text of this Bond; and that this Bond has been issued in conversion or replacement of, or in exchange for, a bond, bonds, or a portion of a bond or bonds of a Series which originally was approved by the 20 Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. Dated The Bank of New York Trust Company of Florida, N.A. Paying Agent/Registrar By Authorized Representative FORM OF ASSIGNMENT: ASSIGNMENT FOR VALUE RECEIVED, the undersigned registered owner of this Bond, or duly authorized representative or attorney thereof, hereby assigns this Bond to / (Assignee's Social Security (print or type Assignee's name or Taxpayer Identification Number and address, including zip code) and hereby irrevocably constitutes and appoints attorney to transfer the registration of this Bond on the Paying Agent/Registrar's Registration Books with full power of substitution in the premises. Dated Signature Guaranteed: NOTICE: This signature must be guaranteed by a member of the New York Stock Exchange or a commercial bank or trust company. Registered Owner NOTICE: This signature must correspond with the name of the Registered Owner appearing on the face of this Bond in every particular without alteration or enlargement or any change whatsoever. Section 8. DEFINITIONS. For all purposes of this Ordinance and in particular for clarity with respect to the issuance of the Bonds herein authorized and the pledge and appropriation of revenues for the payment of the Bonds, the following definitions are provided: (a)The term "Utility System" as used in this Ordinance, shall mean and include the Issuer's entire Waterworks, Sewer and Electric System, together with all future improvements, extensions, enlargements, and additions thereto, and replacements thereof. (b)The term "Net Revenues," as used in this Ordinance, shall mean gross revenues of the Utility System, after deducting the expenses of operation and maintenance of the Utility System, 21 including all salaries, labor, materials, repairs and extensions necessary to render efficient service, provided, however, that only such repairs and extensions, as in the judgment of the City Council of said Issuer, reasonably and fairly exercised by the passage of appropriate ordinances, are necessary to keep the Utility System in operation and render adequate service to said Issuer and the inhabitants thereof, or such as might be necessary to meet some physical accident or condition which would otherwise impair the Outstanding Bonds, the Bonds and any Additional Bonds shall be deducted in determining "Net Revenues." Depreciation, and payments into and out of the Interest and Sinking Fund, Reserve Fund, and Emergency Fund hereinafter created, shall never be considered as expenses of operation and maintenance. (c)The term "Bonds" shall mean the Bonds authorized to be issued and delivered by this Ordinance. (d)The term "Outstanding Bonds" shall mean the outstanding Series 19 Bonds and the Series 1999 Bonds. (e)The term "Additional Bonds" shall mean the additional parity revenue bonds which the Issuer reserves the right to issue and deliver in the future, as provided by this Ordinance. Section 9. PLEDGE. (a) The Bonds, the Outstanding Bonds and all Additional Bonds, and the interest thereon, are and shall be payable from and secured by an irrevocable first lien on and pledge ofthe Net Revenues ofthe Utility System. The Bonds authorized by this Ordinance are parity Additional Bonds as defined and permitted in the ordinances that authorized the Series 1991 and Series 1999 Bonds, and Sections 8 through 25 of the ordinances that authorized the Series 1991 and Series 1999 Bonds are hereby adopted by reference and shall be restated and be applicable to the Bonds authorized by this Or 'nance in Sections 8 through 25 hereof for all purposes except to the extent hereinafter specific modified and supplemented. (b) Article 12 8, Government Code, applies to the issuance of the Bonds and the pledge of the Net Revenues granted by the Issuer under this Section, and is therefore valid, effective, and perfected. Should Texas law be amended at any time while the Bonds are outstanding and unpaid, the result of such amendment being that the pledge of the Net Revenues granted by the Issuer under this Section is to be subject to the filing requirements of Chapter 9, Business & Commerce Code, in order to preserve to the registered owners of the Bonds a security interest in said pledge, the Issuer agrees to take such measures as it determines are reasonable and necessary under Texas law to comply with the applicable provisions of Chapter 9, Business & Commerce Code and enable a filing of a security interest in said pledge to occur. Section 10. RATES. The Issuer covenants and agrees with the holders of the Bonds, the Outstanding Bonds and all Additional Bonds, as follows: (a) That it will at all times fix, maintain, charge and collect for services rendered by the Utility System, rates and charges which will produce gross revenues at least sufficient to pay all operating, 22 maintenance, depreciation, replacement and betterment expenses, and other costs deductible in determining "Net Revenues" as herein defined and to produce each month Net Revenues which together with other pledged revenues will be adequate to pay promptly all of the principal of and interest on the Bonds, the Outstanding Bonds and all Additional Bonds, and to accumulate and maintain the Funds created and established by this Ordinance, and (b) That if the Utility System should become legally liable for any other indebtedness, the Issuer shall fix, maintain, charge and collect additional rates for services rendered by the Utility System sufficient to establish and maintain funds for the payment thereof. Section 11. FUNDS, All gross revenues of the Utility System shall be kept separate and apart from all other funds of the Issuer and the following Special Funds have been created and shall be established and maintained in an official depository bank of the Issuer, so long as any of the Bonds, the Outstanding Bonds or Additional Bonds, or interest thereon, are outstanding and unpaid: (a)City of Sanger Utility System Revenue Bonds Revenue Fund, hereinafter called the "Revenue Fund." (b)City of Sanger Utility System Revenue Bonds Interest and Sinking Fund, hereinafter called the "Interest and Sinking Fund." (c)City of Sanger Utility System Revenue Bonds Reserve Fund, hereinafter called the "Reserve Fund." (d)City of Sanger Utility System Revenue Bonds Emergency Fund, hereinafter called the "Emergency Fund." Section 12. REVENUE FUND. All gross revenues of every nature received from the operation and ownership of the Utility System shall be deposited from day to day as collected into the Revenue Fund. The reasonable, necessary, and proper expenses of operation and maintenance of the Utility System shall be paid from the gross revenues of the Utility System. The revenues remaining in the Revenue Fund shall be deposited into the other Funds, in the manner and amounts hereinafter provided, and each of such Funds shall have priority as to such deposits in the order in which they are treated in the following sections. Section 13. INTEREST AND SINKING FUND, There shall be deposited into the Interest and Sinking Fund the following: (a) such amounts, in equal monthly installments commencing on or before the tenth day of each month hereafter, as will be sufficient to pay the interest scheduled to come due on the Bonds on the next interest payment date; and 23 (b) such amounts, in equal monthly installments, made on or before the tenth day of each month, commencing July 10, 2002 as will be sufficient to pay the next maturing principal of the Bonds and the Outstanding Bonds. Section 14. RESERVE FUND. In accordance with the requirements of the ordinances at authorized the Outstanding Bonds, the total amount required to be accumulated and maintai ed in the Reserve Fund as a result of the issuance of the Bonds is hereby determined to be $362,837, which amount is hereby found to be at least equal to the average annual principal and interest requirements for the Bonds and the Outstanding Bonds. The Issuer shall deposit in the Reserve Fund on or before the tenth day of each month, commencing July 10, 2002, the amount of $1,740 until the Reserve Fund shall contain $362,837. Whenever said Reserve Fund is reduced below said aggregate amount, there shall be deposited into the Reserve Fund an amount of at least equal to 1/60th of the average annual principal and interest requirements of the outstanding Bonds, until such time as the Reserve Fund has been restored to said aggregate amount. The Reserve Fund shall be used to pay the principal of or interest on the Bonds, the Outstanding Bonds and any Additional Bonds falling due at any time when there is not sufficient money available in the Interest and Sinking Fund created for their payment. Money in the Reserve Fund may, upon authorization by the City Council of said Issuer, be invested in direct obligations of, or obligations, the principal of and interest on which are guaranteed by, the United States of America, or invested in direct obligations of the Federal Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage Association, Federal Home Loan Banks or Banks for Cooperatives, provided that each of the aforesaid obligations must mature, or be subject to redemption at the option of the holder thereof. Any obligation in which money in said Reserve Fund is so invested shall be kept and held by the Bank holding said Fund in escrow and in trust for the benefit of the holders of the Bonds, the Outstanding Bonds and all Additional Bonds, and shall be promptly sold and the proceeds of sale applied to the making of all payments required to be made from the Reserve Fund. Section 15. EMERGENCY FUND. There is presently on deposit in the Emergency Fund $16,212. No deposits shall be required to be made into the Emergency Fund as long as the Emergency Fund contains said aggregate amount, but if and whenever said Emergency Fund is reduced below said aggregate amount, the aforesaid monthly deposits into the Emergency Fund shall be resumed and continued • until such time as the Emergency Fund has been restored to said aggregate amount. The Emergency Fund shall be used to pay the cost of any repairs or extensions to the System authorized by Chapter 1502, Texas Government Code, for the payment of which no other funds are available, Also, the Emergency Fund shall be used to pay the principal of or interest on the Bonds, the Outstanding Bonds and all Additional Bonds, at any time when there are not sufficient amounts in the Interest and Sinking Fund and the Reserve Fund for such purpose. Money in the Emergency Fund may, upon authorization by the City Council, be invested in the same manner and to the same extent as provided for money in the Reserve Fund. Any obligation in which money in the Emergency Fund is so invested shall be kept and held in an official depository bank of the Issuer in escrow and in trust for the benefit of the holders of the Bonds, the Outstanding Bonds and all Additional Bonds, and shall be promptly sold and the proceeds of sale applied to the making of payments permitted or required to be made from the Emergency Fund. 24 Section 16. DEFICIENCIES IN FUNDS. If in any month the Issuer shall fail to deposit into any Fund created by this Ordinance the full amounts required, amounts equivalent to such deficiencies shall be set apart and paid into said Funds from the first available and unallocated pledged revenues for the following month or months, and such payments shall be in addition to the amounts otherwise required to be paid into said Funds during such month or months. To the extent necessary, the Issuer shall increase the rates and charges for services of the Utility System to make up for any such deficiencies. Section 17. EXCESS REVENUES. The revenues pledged hereunder, in excess of those necessary to establish and maintain the Funds as required in this Ordinance, or as hereafter may be required in connection with the issuance of Additional Bonds, may be used for any lawful purpose. Section 18. SECURITY FOR FUNDS, All Funds created by this Ordinance shall be secured in the manner and to the fullest extent permitted or required by law for the security of public funds, and such Funds shall be used only for the purposes and in the manner permitted or required by this Ordinance. Section 19. ADDITIONAL BONDS. The Issuer reserves the right to issue additional parity revenue bonds, to be known as Additional Bonds, which when issued and delivered, shall be payable from and secured by a lien on and pledge of the same revenues as those securing the Bonds, and be on a parity with the Bonds and all outstanding Additional Bonds, or any bonds issued to refund same, and the Bonds and all Additional Bonds shall in all respects be on a parity and of equal dignity. The Additional Bonds may be issued in one or more installments or series, provided, however, that no installment or series of Additional Bonds shall be issued unless: (a) A certificate is executed by the Mayor and City Secretary of said Issuer to the effect that no (default exists in connection with any of the covenants or requirements of the ordinance or ordinances authorizing the issuance of all then outstanding Bonds and Additional Bonds; . (b) A certificate is executed by the Mayor and City Secretary of said Issuer to the effect that the Interest and Sinking Fund and the Reserve Fund each maintain the amount then required to be on deposit therein; (c) A certificate is executed by a Certified Public Accountant to the effect that, in his opinion, the Net Earnings of the Utility System, either for the last complete fiscal year of the Issuer, or for any twelve consecutive calendar month period ending not more than ninety days prior to the passage of the ordinance authorizing the issuance of such Additional Bonds, were at least 1.25 times the average annual principal and interest requirements for all then outstanding Bonds and Additional Bonds, and for the installment or series of Additional Bonds then proposed to be issued. The term "Net Earnings" as used in this subsection (c) shall mean the gross revenues of the Utility System after deducting the expenses of operation and maintenance but not deducting depreciation, bond interest or expenditures which under standard accounting practice should be charged to capital expenditures. 25 (d)The Additional Bonds are scheduled to mature only on May 15, a d the interest thereon is scheduled to be paid only on November 15 and May 15. (e)The ordinance authorizing the issuance of such installment or series of Additional Bonds provides that the aggregate amount to be accumulated and maintained in the Reserve Fund shall be increased by an additional amount not less than the average annual principal and interest requirements for said Additional Bonds, and that such additional amount shall be so accumulated within sixty-one months from the date of the Additional Bonds by the deposit in the Reserve Fund of the necessary amount in equal monthly installments; provided, however, that the aggregate amount to be accumulated in the Reserve Fund shall never be required to exceed the average annual principal and interest requirements for all then Outstanding Bonds, the then outstanding Bonds and Additional Bonds; h 1 (f)All calculations of average annual principal and interest requi ements made pursuant to this Section are made as of and from the date of the Additional Bonds tlèn proposed to be issued. Section 20. MAINTENANCE AND OPERATION; RSJJI.AN. While any of the Bonds, the Outstanding Bonds or Additional Bonds are outstanding suer covenants and agrees to maintain the Utility System in good condition and operate the same in an efficient manner and at reasonable expense, and to maintain insurance on the Utility System, for the benefit of the holder or holders of the Bonds, the Outstanding Bonds and Additional Bonds, of a kind and in an amount which usually would be carried by private companies engaged in a similar type of business. Nothing in this Ordinance shall be construed as requiring the Issuer to expend any funds which are derived from sources other than the Utility System, but nothing herein shall be construed as preventing the Issuer from doing so. Section 21. ACCOUNTS AND FISCAL YEAR. The Issuer shall keep proper books of records and accounts, separate from all other records and accounts of the Issuer, in which complete and correct entries shall be made of all transactions relating to the Utility System, and shall have said books audited once each fiscal year by a certified public accountant. The Issuer agrees to operate the Utility System and keep its books of records and accounts pertaining thereto on the basis of its current fiscal year; provided, however, that the City Council may change such fiscal year by ordinance duly passed, and if such change is deemed necessary by the City Council. Section 22. ACCOUNTING REPORTS, Within ninety days after the close of each fiscal year hereafter., the Issuer will furnish, without cost, to any holder of any outstanding Bonds, the Outstanding Bonds or Additional Bonds who may so request, a signed or certified copy of a report by a Certified Public Accountant, covering the next preceding fiscal year, showing the following information: (a) A detailed statement of all gross revenues of the Utility System and all expenses of operation and maintenance thereof for said fiscal year; 26 (b)Balance sheet as of the end of said fiscal year; (c)Accountant's comment regarding the manner in which the Issuer has complied with the requirements of this Ordinance and his recommendations, if any, for any changes or improvements in the operation of the Utility System; (d)List of insurance policies in force at the end of said fiscal year, showing, as to each policy, the name of the insurer, and the expiration date; (e)The number of properties connected with the water system, sewer system and electric system, and the gross revenues from the Utility System for said fiscal year. Section 23. INSPECTION. Any holder or holders of any Bonds, the Outstanding Bonds or Additional Bonds shall have the right at all reasonable times to inspect the Utility System and all records, accounts, and data of the Issuer relating thereto. Section 24. SPECIAL COVENANTS. The Issuer further covenants as follows: (a) That other than for the payment of the Bonds herein authorized and the Outstanding Bonds, the revenues pledged hereunder have not in any manner been pledged to the payment of any debt or obligation of the Issuer or the Utility System. (b) That while any of the Bonds, the Outstanding Bonds or Additional Bonds are outstanding, the Issuer will not sell or encumber the Utility System or any substantial part thereof, and that, with the exception of the Additional Bonds expressly permitted by this Ordinance to be issued, it will not encumber the revenues pledged hereunder unless such encumbrance is made junior and subordinate in all respects to the Bonds, the Outstanding Bonds and Additional Bonds and all liens and pledges in connection therewith. (c)That no free service of the Utility System shall be allowed, and should the Issuer or any of its agencies or instrumentalities make use of the services and facilities of the Utility System, payment of the reasonable value thereof shall be made by the Issuer out of funds from sources other than the revenues and income of the Utility System. (d)That to the extent it legally may, the Issuer further covenants and agrees that while any of the Bonds, the Outstanding Bonds or Additional Bonds are outstanding, no franchise shall be granted for the installation or operation of any competing water system, sewer system or electric system; that the Issuer will prohibit the operation of any such competing system; and the operation of any such competing system is hereby prohibited. Section 25. BONDS ARE SPECIAL OBLIGATIONS, The Bonds, the Outstanding Bonds and Additional Bonds shall be special obligations of the Issuer payable solely from the pledged Net 27 Revenues, and the holder or holders thereof shall never have the right to demand payment thereof out of funds raised or to be raised by taxation. Section 26. DEFEASANCE OF BONDS. (a) Any Bond and the interest thereon shall be deemed to be paid, retired, and no longer outstanding (a "Defeased Bond") within the meaning of this Ordinance, except to the extent provided in subsection (d) of this Section, when payment of the principal of such Bond, plus interest thereon to the due date (whether such due date be by reason of maturity or otherwise) either (i) shall have been made or caused to be made in accordance with the terms thereof, or (ii) shall have been provided for on or before such due date by irrevocably depositing with or making available to the Paying Agent/Registrar in accordance with an escrow agreement or other instrument (the "Future Escrow Agreement") for such payment (1) lawful money of the United States of America sufficient to make such payment or (2) Defeasance Securities that mature as to principal and interest in such amounts and at such times as will insure the availability, without reinvestment, of sufficient money to provide for such payment, and when proper arrangements have been made by the Issuer with the Paying Agent/Registrar for the payment of its services until all Defeased Bonds shall have become due and payable. At such time as a Bond shall be deemed to be a Defeased Bond hereunder, as aforesaid, such Bond and the interest thereon shall no longer be secured by, payable from, or entitled to the benefits of, the Net Revenues pledged as provided in this Ordinance, and such principal and interest shall be payable solely from such money or Defeasance Securities. Notwithstanding any other provision of this Ordinance to the contrary, it is hereby provided that any determination not to redeem Defeased Bonds that is made in conjunction with the payment arrangements specified in subsection 26(a)(i) or (ii) shall not be irrevocable, provided that: (1) in the proceedings providing for such payment arrangements, the Issuer expressly reserves the right to call the Defeased Bonds for redemption; (2) gives notice of the reservation of that right to the owners of the Defeased Bonds immediately following the making of the payment arrangements; and (3) directs that notice of the reservation be included in any redemption notices that it authorizes. (b)Any moneys so deposited with the Paying Agent/Registrar may at the written direction of the Issuer also be invested in Defeasance Securities, maturing in the amounts and times as hereinbefore set forth, and all income from such Defeasance Securities received by the Paying Agent/Registrar that is not required for the payment of the Bonds and interest thereon, with respect to which such money has been so deposited, shall be turned over to the Issuer, or deposited as directed in writing by the Issuer. Any Future Escrow Agreement pursuant to which the money and/or Defeasance Securities are held for the payment ofDefeased Bonds may contain provisions permitting the investment or reinvestment of such moneys in Defeasance Securities or the substitution of other Defeasance Securities upon the satisfaction of the requirements specified in subsection 26(a)(i) or (ii). All income from such Defeasance Securities received by the Paying Agent/Registrar which is not required for the payment of the Defeased Bonds, with respect to which such money has been so deposited, shall be remitted to the Issuer or deposited as directed in writing by the Issuer. (c)The term "Defeasance Securities" means (i) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of 28 America, (ii) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date of the purchase thereof are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (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 financial arrangements are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. (d)Until all Defeased Bonds shall have become due and payable, the Paying Agent/Registrar shall perform the services of Paying Agent/Registrar for such Defeased Bonds the same as if they had not been defeased, and the Issuer shall make proper arrangements to provide and pay for such services as required by this Ordinance. (e)In the event that the Issuer elects to defease less than all of the principal amount of Bonds of a maturity, the Paying Agent/Registrar shall select, or cause to be selected, such amount of Bonds by such random method as it deems fair and appropriate. Section 27. DAMAGED, MUTILATED, LOST, STOLEN, OR DESTROYED BONDS. (a) Replacement Bonds. In the event any outstanding Bond is damaged, mutilated, lost, stolen, or destroyed, the Paying Agent/Registrar shall cause to be printed, executed, and delivered, a new bond of the same principal amount, maturity, and interest rate, as the damaged, mutilated, lost, stolen, or destroyed Bond, in replacement for such Bond in the manner hereinafter provided. (b)Application for Replacement Bonds. Application for replacement of damaged, mutilated, lost, stolen, or destroyed Bonds shall be made by the registered owner thereof to the Paying Agent/Registrar. In every case of loss, theft, or destruction of a Bond, the registered owner applying for a replacement bond shall furnish to the Issuer and to the Paying Agent/Registrar such security or indemnity as may be.required.by them to. save each of them harmless from any loss or damage with respect thereto. Also, in every case of loss, theft, or destruction of a Bond, the registered owner shall furnish to the Issuer and to the Paying Agent/Registrar evidence to their satisfaction of the loss, theft, or destruction of such Bond, as the case may be. In every case of damage or mutilation of a Bond, the registered owner shall surrender to the Paying Agent/Registrar for cancellation the Bond so damaged or mutilated. (c)No Default Occurred. Notwithstanding the foregoing provisions of this Section, in the event any such Bond shall have matured, and no default has occurred which is then continuing in the payment of the principal of, redemption premium, if any, or interest on the Bond, the Issuer may authorize the payment of the same (without surrender thereof except in the case of a damaged or mutilated Bond) instead of issuing a replacement Bond, provided security or indemnity is furnished as above provided in this Section. 29 (d)Charge for Issuing Replacement Bonds. Prior to the issuance of any replacement bond, the Paying Agent/Registrar shall charge the registered owner of such Bond with all legal, printing, and other expenses in connection therewith. Every replacement bond issued pursuant to the provisions of this Section by virtue of the fact that any Bond is lost, stolen, or destroyed shall constitute a contractual obligation of the Issuer whether or not the lost, stolen, or destroyed Bond shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Ordinance equally and proportionately with any and all other Bonds duly issued under this Ordinance. (e)Authority for Issuing Replacement Bonds. In accordance with Subchapter D, Chapter 1201, Texas Government Code, this Section of this Resolution shall constitute authority for the issuance of any such replacement bond without necessity of further action by the governing body of the Issuer or any other body or person, and the duty of the replacement of such bonds is hereby authorized and imposed upon the Paying Agent/Registrar, and the Paying Agent/Registrar shall authenticate and deliver such Bonds in the form and manner and with the effect, as provided in Section 6(d) of this Resolution for Bonds issued in conversion and exchange for other Bonds. Section 28. CUSTODY, APPROVAL, AND REGISTRATION OF BONDS; BOND COUNSEL'S OPINION; CUSIP NUMBERS; AND CONTINGENT INSURANCE PROVISION, IF OBTAINED. The Mayor of the Issuer is hereby authorized to have control of the Bonds issued hereunder and all necessary records and proceedings pertaining to the Bonds pending its delivery and its investigation, examination, and approval by the Attorney General of the State of Texas, and its registration by the Comptroller of Public Accounts of the State of Texas. Upon registration of the Bonds said Comptroller of Public Accounts (or a deputy designated in writing to act for said Comptroller) shall manually sign the Comptroller's Registration Certificate on the Bonds, and the seal of said Comptroller shall be impressed, or placed in facsimile, on the Bonds. The approving legal opinion of the Issuer's bond counsel and the assigned CUSIP numbers may, at the option of the Issuer, be printed on the Bond or any Bonds issued and delivered in conversion of and exchange or replacement of any Bond, but neither shall have any legal effect, and shall be solely for the convenience and information of the registered owners of the Bonds. In addition, if bond insurance is obtained, the Bonds may bear an appropriate legend as provided by the Insurer. Section 29. COVENANTS REGARDING TAX EXEMPTION. The Issuer covenants to refrain from taking any action which would adversely affect, and to take any required action to ensure, the treatment of the Bonds as obligations described in Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), the interest on which is not includable in the "gross income" of the holder for purposes of federal income taxation. In furtherance thereof, the Issuer covenants as follows: (a) to take any action to assure that no more than 10 percent of the proceeds of the Bonds or the projects financed therewith (less amounts deposited to a reserve fund, if any) are used for any "private business use," as defined in Section 141(b)(6) ofthe Code or, if more than 10 percent of the proceeds or the projects financed therewith are so used, such amounts, whether or not received by the Issuer, with respect to such private business use, do not, under the terms of this Ordinance, or 30 any underlying arrangement, directly or indirectly, secure or provide for the payment of more than 10 percent of the debt service on the Bonds, in contravention of Section 141 (b)(2) of the Code; (b) to take any action to assure that in the event that the "private business use" described in Subsection (a) hereof exceeds 5 percent of the proceeds of the Bonds or the projects financed therewith (less amounts deposited into a reserve fund, if any) then the amount in excess of 5 percent is used for a "private business use" which is "related" and not "disproportionate," within the meaning of Section 141(b)(3) of the Code, to the governmental use; (c) to take any action to assure that no amount which is greater than the lesser of $5,000,000, or 5 percent of the proceeds of the Bonds (less amounts deposited into a reserve fund, if any) is directly or indirectly used to finance loans to persons, other than state or local governmental units, in contravention of Section 141(c) of the Code; (d) to refrain from taking any action which would otherwise result in the Bonds being treated as "private activity bonds" within the meaning of Section 141(b) of the Code; (e) to refrain from taking any action that would result in the Bonds being "federally guaranteed" within the meaning of Section 149(b) of the Code; (f) to refrain from using any portion of the proceeds of the Bonds, directly or indirectly, to acquire or to replace funds which were used, directly or indirectly, to acquire investment property (as defined in Section 148(b)(2) of the Code) which produces a materially higher yield over the term of the Bonds, other than investment property acquired with -- (1)proceeds of the Bonds invested for a reasonable temporary period of 3 years or less or, in the case of a refunding bond, for a period of 30 days or less until such proceeds are needed for the purpose for which the Bonds are issued, (2)amounts invested in a bona fide debt service fund, within the meaning of Section 1.148-1(b) of the Treasury Regulations, and (3)amounts deposited in any reasonably required reserve or replacement fund to the extent such amounts do not exceed 10 percent of the proceeds of the Bonds; (g) to otherwise restrict the use of the proceeds of the Bonds or amounts treated as proceeds of the Bonds, as may be necessary, so that the Bonds do not otherwise contravene the requirements of Section 148 of the Code (relating to arbitrage) and, to the extent applicable, Section 149(d) of the Code (relating to advance refundings); and (h) to pay to the United States of America at least once during each five-year period (beginning on the date of delivery of the Bonds) an amount that is at least equal to 90 percent of the "Excess Earnings," within the meaning of Section 148(f) of the Code and to pay to the United States 31 of America, not later than 60 days after the Bonds have been paid in full, 100 percent of the amount then required to be paid as a result of Excess Earnings under Section 148(f) of the Code. The Issuer understands that the term "proceeds" includes "disposition proceeds" as defined in the Treasury Regulations and, in the case of refunding bonds, transferred proceeds (if any) and proceeds of the refunded bonds expended prior to the date of issuance of the Bonds. It is the understanding of the Issuer that the covenants contained herein are intended to assure compliance with the Code and any regulations or rulings promulgated by the U.S. Department of the Treasury pursuant thereto. In the event that regulations or rulings are hereafter promulgated which modify or expand provisions of the Code, as applicable to the Bonds, the Issuer will not be required to comply with any covenant contained herein to the extent that such failure to comply, in the opinion of nationally-recognized bond counsel, will not adversely affect the exemption from federal income taxation of interest on the Bonds under Section 103 of the Code. In the event that regulations or rulings are hereafter promulgated which impose additional requirements which are applicable to the Bonds, the Issuer agrees to comply with the additional requirements to the extent necessary, in the opinion of nationally-recognized bond counsel, to preserve the exemption from federal income taxation of interest on the Bonds under Section 103 of the Code. In furtherance of such intention, the Issuer hereby authorizes and directs the Mayor of the Issuer to execute any documents, certificates or reports required by the Code and to make such elections, on behalf of the Issuer, which may be permitted by the Code as are consistent with the purpose for the issuance of the Bonds. In order to facilitate compliance with the above covenant (h), a "Rebate Fund" is hereby established by the Issuer for the sole benefit of the United States of America, and such Fund shall not be subject to the claim of any other person, including without limitation the bondholders. The Rebate Fund is established for the additional purpose of compliance with Section 148 of the Code. Section 30. ALLOCATION OF, AND LIMITATION ON, EXPENDITURES FOR THE PROJECT. The Issuer covenants to account for the expenditure of sale proceeds and investment earnings to be used for the purposes described in Section 1 of this Ordinance (the "Project") on its books and records in accordance with the requirements of the Internal Revenue Code. The Issuer recognizes that in order for the proceeds to be considered used for the reimbursement of costs, the proceeds must be allocated to expenditures within 18 months of the later of the date that (1) the expenditure is made, or (2) the Project is completed; but in no event later than three years after the date on which the original expenditure is paid. The foregoing notwithstanding, the Issuer recognizes that in order for proceeds to be expended under the Internal . Revenue Code, the sale proceeds or investment earnings must be expended no more than 60 days after the earlier of (1) the fifth anniversary of the delivery of the Bonds, or (2) the date the Bonds are retired. The Issuer agrees to obtain the advice of nationally-recognized bond counsel if such expenditure fails to comply with the foregoing to assure that such expenditure will not adversely affect the tax-exempt status of the Bonds. For purposes hereof, the Issuer shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. 32 Section 31 DESIGNATION AS QUALIFIED TAX-EXEMPT OBLIGATIONS. The Issuer hereby designates the Bonds as "qualified tax-exempt obligations" as defined in Section 265(b)(3) of the Code. In furtherance of such designation, the Issuer represents, covenants and warrants the following: (a) that during the calendar year in which the Bonds are issued, the Issuer (including any subordinate entities) has not designated nor will designate obligations, which when aggregated with the Bonds, will result in more than $10,000,000 of "qualified tax-exempt obligations" being issued, and (b) that the Issuer reasonably anticipates that the amount of tax-exempt obligations issued, during the calendar year in which the Bonds are issued, by the Issuer (or any subordinate entities) will not exceed $10,000,000. Section 32. DISPOSITION OF PROJECT. The Issuer covenants that the property constituting the Project originally financed by Refunded Bonds and the Project financed by the Bonds will not be sold or otherwise disposed in a transaction resulting in the receipt by the Issuer of cash or other compensation, unless the Issuer obtains an opinion of nationally-recognized bond counsel that such sale or other disposition will not adversely affect the tax-exempt status of the Bonds. For purposes of the foregoing, the portion of the property comprising personal property and disposed in the ordinary course shall not be treated as a transaction resulting in the receipt of cash or other compensation. For purposes hereof, the Issuer shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. Section 33. CONTINUING DISCLOSURE. (a) Annual Reports. (i) The Issuer shall pro )?de annually to any SID, within six months after the end of each fiscal year ending in or after 2b2, financial information and operating data with respect to the Issuer of the general type described in Exhibit A. Any financial statements so to be provided shall be prepared in accordance with the accounting principles described in Exhibit A thereto, or such other accounting principles as the Issuer may be required to employ from time to time pursuant to state law or regulation, and audited, if the Issuer commissions an audit of such statements and the audit is completed within the period during which they must be provided. If the audit of such financial statements is not complete within such period, then the Issuer shall provide audited financial statements for the applicable fiscal year to each any SID, when and if the audit report on such statements become available. (ii) If the Issuer changes its fiscal year, it will notify any SID of the change (and of the date of the new fiscal year end) prior to the next date by which the Issuer otherwise would be required to provide financial information and operating data pursuant to this Section. The financial information and operating data to be provided pursuant to this Section may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document, if it is available from the MSRB) that theretofore has been provided to any SID or filed with the SEC. (b) Material Event Notices. The Issuer shall notify any SID or the MSRB, in a timely manner, of any of the following events with respect to the Bonds, if such event is material within the meaning of the federal securities laws: 33 1.Principal and interest payment delinquencies; 2.Non-payment related defaults; 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 or events affecting the tax-exempt status of the Bonds. 7.Modifications to rights of holders of the Bonds; 8.Bond calls; 9.Defeasances; 10.Release, substitution, or sale of property securing repayment of the Bonds and 11.Rating changes. The Issuer shall notify any SID or the MSRB, in a timely manner, of any failure by the Issuer to provide financial information or operating data in accordance with subsection (a) of this Section by the time required by such subsection. (c) Limitations Disclaimers, and Amendments. (i) The Issuer shall be obligated to observe and perform the covenants specified in this Section for so long as, but only for so long as, the Issuer remains an "obligated person" with respect to the Bonds within the meaning of the Rule, except that the Issuer in any event will give notice of any deposit made in accordance with this Ordinance or applicable law that causes Bonds no longer to be outstanding. (ii)The provisions of this Section are for the sole benefit of the holders and beneficial owners of the Bonds, and nothing in this Section, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The Issuer undertakes to provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide pursuant to this Section and does not hereby undertake to provide any other information that may be relevant or material to a complete presentation of the Issuer's financial results, condition, or prospects or hereby undertake to update any information provided in accordance with this Section or otherwise, except as expressly provided herein. The Issuer does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Bonds at any future date. (iii)UNDER NO CIRCUMSTANCES SHALL THE ISSUER 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 ISSUER, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS SECTION, 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. 34 (iv)No default by the Issuer in observing or performing its obligations under this Section shall comprise a breach of or default under the Ordinance for purposes of any other provision of this Ordinance. Nothing in this Section is intended or shall act to disclaim, waive, or otherwise limit the duties of the Issuer under federal and state securities laws. (v)The provisions of this Section may be amended by the Issuer 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 Issuer, but only if (1) the provisions of this Section, as so amended, would have permitted an underwriter to purchase or sell Bonds in the primary offering of the Bonds 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 holders 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 Bonds consent to such amendment or (b) a person that is unaffiliated with the Issuer (such as bond counsel) determined that such amendment will not materially impair the interest of the holders and beneficial owners of the Bonds. If the Issuer so amends the provisions of this Section, it shall include with any amended financial information or operating data next provided in accordance with subsection (a) of this Section an explanation, in narrative form, of the reason for the amendment and of the impact of any change in the type of financial information or operating data so provided. The Issuer may also amend or repeal the provisions of this continuing disclosure agreement ifthe 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 Bonds in the primary offering of the Bonds. (d) Definitions. As used in this Section, 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. "SID" means any person designated by the State of Texas or an authorized department, officer, or agency thereof as, and determined by the SEC or its staffto be, a state information depository within the meaning of the Rule from time to time. Section 34. SALE OF BONDS; OFFICIAL STATEMENT; FURTHER PROCEDURES. (a) The Initial Bond is hereby sold and shall be delivered to SAMCO Capital Markets for cash for the par value thereof and accrued interest thereon to date of delivery (accrued interest to be deposited into the Interest and Sinking Fund), plus a premium of $ -0- (premium to be deposited into the Interest and Sinking Fund). It is hereby officially found, determined, and declared that the Initial 35 Bond has been sold at public sale to the bidder offering the lowest interest cost, after receiving sealed bids pursuant to an Official Notice of Sale and Bidding Instructions and Preliminary Official Statement dated May 10, 2002, prepared and distributed in connection with the sale of the Initial Bond. Said Official Notice of Sale and Bidding Instructions and Official Statement, and any addenda, supplement, or amendment thereto have been and are hereby approved by the governing body of the Issuer, and their use in the offer and sale of the Bonds is hereby approved. It is further officially found, determined, and declared that the statements and representations contained in said Official Notice of Sale and Official Statement are true and correct in all material respects, to the best knowledge and belief of the governing body of the Issuer. (b)The Mayor and City Secretary and all other officers, employees and agents of the Issuer, and each of them, shall be and they are hereby expressly authorized, empowered and directed from time to time and at any time to do and perform all such acts and things and to execute, acknowledge and deliver in the name and under the corporate seal and on behalf of the Issuer a Paying Agent/Registrar Agreement with the Paying Agent/Registrar and all other instruments, whether or not herein mentioned, as may be necessary or desirable in order to carry out the terms and provisions of this Ordinance, the Bonds, the sale of the Bonds and the Official Statement. In case any officer whose signature shall appear on any Bond shall cease to be such officer before the delivery of such Bond, such signature shall nevertheless be valid and sufficient for all purposes the same as if such officer had remained in office until such delivery. (c)The obligation of the initial purchaser to accept delivery of the Bonds is subject to the initial purchaser being furnished with the final, approving opinion of McCall, Parkhurst & Horton L.L.P., bond counsel to the Issuer, which opinion shall be dated as of and delivered on the date of initial delivery of the Bonds to the initial purchaser. The engagement of such firm as bond counsel to the Issuer in connection with issuance, sale and delivery of the Bonds is hereby approved and confirmed. The execution and delivery of an engagement letter between the Issuer and such firm, with respect to such services as bond counsel, is hereby authorized in such form as may be approved by the Mayor, and the Mayor is hereby authorized to execute such engagement letter. Section 35. INTEREST EARNINGS ON BOND PROCEEDS. The earnings derived from the investment of proceeds from the sale of the Bonds shall be used along with other Bond proceeds as described in Section 1 hereof; provided that after completion of such project, if any of such interest earnings remain on hand, such interest earnings shall be deposited in the Interest and Sinking Fund. It is further provided, however, that interest earnings on the Bonds proceeds which are required to be rebated to the United States of America pursuant to Section 29 hereof in Ordinance to prevent the Bonds from being arbitrage Bonds shall be so rebated and not considered as interest earnings for the purpose of this Section. Section 36. METHOD OF AMENDMENT. The Issuer hereby reserves the right to amend this Ordinance subject to the following terms and conditions, to-wit: 36 (a) The Issuer may from time to time, without the consent of any holder, except as otherwise required by paragraph (b) below, amend or supplement this Ordinance in order to (i) cure any ambiguity, defect or omission in this Ordinance that does not materially adversely affect the interests of the holders, (ii) grant additional rights or security for the benefit of the holders, (iii) add events of default as shall not be inconsistent with the provisions of this Ordinance and that shall not materially adversely affect the interests of the holders, (v) qualify this Ordinance under the Trust Indenture Act of 1939, as amended, or corresponding provisions of federal laws from time to time in effect, or (iv) make such other provisions in regard to matters or questions arising under this Ordinance as shall not be inconsistent with the provisions of this Ordinance and that shall not in the opinion of the Issuer's Bond Counsel materially adversely affect the interests of the holders. (b) Except as provided in paragraph (a) above, the holders of Bonds aggregating in principal amount 51% of the aggregate principal amount of then outstanding Bonds that are the subject of a proposed amendment shall have the right from time to time to approve any amendment hereto that may be deemed necessary or desirable by the Issuer; provided, however, that without the consent of 100% ofthe holders in aggregate principal amount of the then outstanding Bonds, nothing herein contained shall permit or be construed to permit amendment of the terms and conditions of this Ordinance or in any of the Bonds so as to: (1)Make any change in the maturity of any of the outstanding Bonds; (2)Reduce the rate of interest borne by any of the outstanding Bonds; (3)Reduce the amount ofthe principal of, or redemption premium, if any, payable on any outstanding Bonds; (4)Modify the terms of payment of principal or of interest or redemption premium on outstanding Bonds or any of them or impose any condition with respect to such payment; or (5)Change the minimum percentage of the principal amount of any series of Bonds necessary for consent to such amendment. (c) If at any time the Issuer shall desire to amend this Ordinance under this Section, the Issuer shall send by U.S. mail to each registered owner of the affected Bonds a copy of the proposed amendment and cause notice of the proposed amendment to be published at least once in a financial publication published in The City of New York, New York or in the State of Texas. Such published notice shall briefly set forth the nature of the proposed amendment and shall state that a copy thereof is on file at the office of the Issuer for inspection by all holders of such Bonds. (d) Whenever at anytime within one year from the date of publication of such notice the Issuer shall receive an instrument or instruments executed by the holders of at least 51% in aggregate principal amount of all of the Bonds then outstanding that are required for the amendment, which 37 instrument or instruments shall refer to the proposed amendment and that shall specifically consent to and approve such amendment, the Issuer may adopt the amendment in substantially the same form. (e)Upon the adoption of any amendatory Ordinance pursuant to the provisions of this Section, this Ordinance shall be deemed to be modified and amended in accordance with such amendatory Ordinance, and the respective rights, duties, and obligations of the Issuer and all holders of such affected Bonds shall thereafter be determined, exercised, and enforced, subject in all respects to such amendment. (f)Any consent given by the holder of a Bond pursuant to the provisions of this Section shall be irrevocable for a period of six months from the date of the publication of the notice provided for in this Section, and shall be conclusive and binding upon all future holders of the same Bond during such period. Such consent may be revoked at any time after six months from the date of the publication of said notice by the holder who gave such consent, or by a successor in title, by filing notice with the Issuer, but such revocation shall not be effective if the holders of 51% in aggregate principal amount of the affected Bonds then outstanding, have, prior to the attempted revocation, consented to and approved the amendment. (g)For the purposes of establishing ownership of the Bonds, the Issuer shall rely solely upon the registration of the ownership of such Bonds on the registration books kept by the Paying Agent/Registrar. EXHIBIT A DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred to in Section 33 of this Ordinance. I. Annual Financial Statements and Operating Data The financial information and operating data with respect to the Issuer to be provided annually in accordance with such Section are as specified, all quantitative financial information and operating data with respect to the Issuer of the general type included in the Official Statement that is customarily prepared and publicly available. The information to be updated includes (1) the annual audited financial statements of the City and (2) information which is customarily prepared and publicly available regarding the System. H. Accounting Principles The accounting principles referred to in such Section are the accounting principles described in the notes to the financial statements referred to in paragraph 1 above. CERTIFICATE FOR ORDINANCE THE STATE OF TEXAS COUNTY OF DENTON CITY OF SANGER We, the undersigned officers of said City, hereby certify /fows: 1.The City Council of said City convened in REGULTING ON THE 20TH D Y OF MAY, 2002, at the City Hall, and the roll was called of the duly constituted officers and members of said City Council, to-wit: Tommy Kincaid, Mayor Andres G. Garza, Mayor Pro Tem Glenn Ervin Jimmy Evans Mike James Joe Higgs Rosalie Chavez, City Secretary and all of said persons were present, except the following absentees: none, thus constituting a quorum. Whereupon, among other business, the following was transacted at said Meeting: a written ORDINANCE AUTHORIZING THE ISSUANCE AND SALE OF CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2002, IN THE PRINCIPAL AMOUNT OF $2,360,000, APPROVING AN OFFICIAL STATEMENT, MAKING PROVISIONS FOR THE PAYMENT AND SECURITY THEREOF AND ORDAINING OTHER MATTERS RELATING THERETO was duly introduced for the consideration of said City Council and read in full. It was then duly moved and seconded that said Ordinance be passed; and, after due discussion, said motion carrying with it the passage of said Ordinance, prevailed and carried by the following vote: AYES: All members of said City Council shown present above voted "Aye". NOES: None. 2.A true, full and correct copy of the aforesaid Ordinance passed at the Meeting described in the above and foregoing paragraph is attached to and follows this Certificate; that said Ordinance has been duly recorded in said City Council's minutes of said Meeting; that the above and foregoing paragraph is a true, full and correct excerpt from said City Council's minutes of said Meeting pertaining to the passage of said Ordinance; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of said City Council as indicated therein; that each of the officers and members of said City Council was duly and sufficiently notified officially and personally, in advance, of the time, place and purpose of the aforesaid Meeting, and that said Ordinance would be introduced and considered for passage at said Meeting, and each of said officers and members consented, in advance, to the holding of said Meeting for such purpose, and that said Meeting was open to the public and public notice of the time, place and purpose of said meeting was given, all as required by Chapter 551, Local Goverment Code. 3. The Mayor of said City has approved and hereby approves the aforesaid Ordinance: that the Mayor and the City Secretary of said City have dul y signed said Ordinance: and that the Ma yor and the Cit y Secretary of said City hereby declare that their signing of this Certificate shall constitute the signing of the attached and following copy of said Ordinance for all purposes. SIGNED AND SEALED the 20th da y of May . 2002. City Secr^t '. '>> ayor SEAL :: / ORDINANCE AUTHORIZING THE ISSUANCE AND SALE OF CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2002, IN THE PRINCIPAL AMOUNT OF $2,360,000, APPROVING AN OFFICIAL STATEMENT, MAKING PROVISIONS FOR THE PAYMENT AND SECURITY THEREOF AND ORDAINING OTHER MATTERS RELATING THERETO THE STATE OF TEXAS § COUNTY OF DENTON § CITY OF SANGER § WHEREAS, the City deems it advisable to give notice of intention to issue Combination Tax and Revenue Certificates of Obligation for paying all or a portion of the City's contractual obligations for the purpose of constructing and improving City streets, and for paying legal, fiscal, and engineering fees in connection with this project; and WHEREAS, the Certificates of Obligation hereinafter authorized and designated are to be issued and delivered for cash pursuant to Subchapter C of Chapter 271 of the Local Government Code, and Chapter 1502, Texas Government Code; and WHEREAS, the City Council has heretofore, on the 29th day'ef April, 2002, adopted a resolution authorizing and directing the City Secretary to give notice of intention to issue Certificates of Obligation; and WHEREAS, said notice has been duly published in the Sanger Courier, which is a newspaper of general circulation in said City, in its issues of May 9, 2002 and May 16, 2002; and / WHEREAS, said notice has been duly published in the Denton Records-Chronicl , which is a newspaper of general circulation in said City, in its issue of May 3, 2002; and V WHEREAS, the City received no petition from the qualified electors of the City protesting the issuance of such Certificates of Obligation. WHEREAS, the meeting was open to the public and publ' notice of the time, place and purpose of said meeting was given pursuant to Chapter 551, Tex Government Code. THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF SANGER: Section 1. RECITALS; AMOUNT AND PURPOSE OF THE CERTIFICATES OF OBLIGATION. The recitals set forth in the preamble hereof are incorporated herein and shall have the same force and effect as if set forth in this Section. The certificate of obligation or certificates of obligation of the City of Sanger (the "Issuer") are hereby authorized to be issued and delivered in the aggregate principal amount of $2,360,000 for paying all or a portion of the City's contractual obligations for the purpose of constructing and improving City streets, and for paying legal, fiscal, / and engineering fees in connection with this project. Section 2. DESIGNATION OF THE CERTIFICATES OF OBLIGATION. Each certificate of obligation issued pursuant to this Ordinance shall be designated: "CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATE OF OBLIGATION, SERIES 2002", and initially there shall be issued, sold, and delivered hereunder a single fully registered certificate of obligation, without interest coupons, payable in installments of principal (the "Initial Certificate of Obligation"), but the Initial Certificate of Obligation may be assigned and transferred and/or converted into and exchanged for a like aggregate principal amount of fully registered certificates of obligation, without interest coupons, having serial maturities, and in the denomination or denominations of $5,000 or any integral multiple of $5,000, all in the manner hereinafter provided. The term "Certificates of Obligation" as used in this Ordinance shall mean and include collective) the Initial Certificate of Obligation and all substitute certificates of obligation exchanged therefor, as well as all other substitute certificates of obligation and replacement certificates of obligation issued pursuant hereto, and the term "Certificate of Obligation" shall mean any of the Certificates of Obligation. Section 3. INITIAL DATE, DENOMINATION, NUMBER, MATURITIES, INITIAL REGISTERED OWNER, AND CHARACTERISTICS OF THE INITIAL CERTIFICATE OF OBLIGATION. (a) he Initial Certificate of Obligation is hereby authorized to be issued, sold, and delivered hereund as a single fully registered Certificate of Obligation, without intere coupons, /dated June 1, 2002, in the denomination and aggregate principal amount of $2,3609ø, numbered R-I, payable in annyaI installments of principal to the initial registered owner thereof, to-wit: SAMCO CapVMarkets, or to the registered assignee or assignees of said Certificate of Obligation or any portion or portions thereof (in each case, the "registered owner"), with the annual installments of principal of the Initial Certificate of Obligation to be payable on the dates, respectively, and in the principal amounts, respectively, stated in the FORM OF INITIAL CERTIFICATE OF OBLIGATION set forth in this Ordinance. (b) The Initial Certificate of Obligation (i) may be prepaid or redeemed prior to the respective scheduled due dates of installments of principal thereof, (ii) may be assigned and transferred, (iii) may be converted and exchanged for other Certificates of Obligation, (iv) shall have the characteristics, and (v) shall be signed and sealed, and the principal of and interest on the Initial Certificate of Obligation shall be payable, all as provided, and in the manner required or indicated, in the FORM OF INITIAL CERTIFICATE OF OBLIGATION set forth in this Ordinance. Section 4. INTEREST. The unpaid principal balance of the Initial Certificate of Obligation shall bear interest from the date of the Initial Certificate of Obligation, and will be calculated on the basis of a 360-day year of twelve 30-day months to the respective scheduled due dates, or to the respective dates of prepayment or redemption, of the installments of principal of the Initial Certificate of Obligation, and said interest shall be payable, all in the manner provided and at the rates and on the dates stated in the FORM OF INITIAL CERTIFICATE OF OBLIGATION set 2 forth in this Ordinance. Section 5. FORM OF INITIAL CERTIFICATE OF OBLIGATION. The form of the Initial Certificate of Obligation, including the form of Registration Certificate of the Comptroller of Public Accounts of the State of Texas to be endorsed on the Initial Certificate of Obligation, shall be substantially as follows: FORM OF INITIAL CERTIFir,ATE OF OBLIGATION NO. R-1 $360,000 UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF DENTON ; CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATE OF OBLIGATION SERIES 2002 CITY OF SANGER, in DENTON COUNTY (the "Issuer"),, being a political subdivision of the State of Texas, hereby promises to pay to SAMCO Capital Markets/ or to the registered assignee or assignees of this Certificate of Obligation or any portion or portions hereof (in each case, the "registered owner") the aggregate principal amount of TWO MILLION THREE HUNDRED SIXTY THOUSAND DOLLARS I in annual installments of principal due and payable on Sep"mber 1 in each of the years, and in the respective principal amounts, as set forth in the following schedule: YEAR AMOUNT 2003 40,000 2004 75,000 2005 80,000 2006 85,000 2007 85,000 2008 90,000 2009 95,000 2010 100,000 2011 105,000 20,3. 110,000 YEAR AMOUNT 2013 120,000 2014 125,000 2015 130,000 2016 135,000 2017 145,000 2018 150,000 2019 160,000 2020 170,000 2022 360,000 and to pay interest, from the date of this Certificate of Obligation hereinafter stated, on the balance of each such installment of principal, respectively, from time to time remaining unpaid, at the rates as follows: maturity 2003,5.70 %maturity 2013,4.40 % maturity 2004,5.70 %maturity 2014,4.50 % maturity 2005,5.70 %maturity 2015,4.50 % maturity 2006,5.70 %maturity 2016,4.60 % maturity 2007,5.70 %maturity 2017,4.70 % maturity 2008,5.70 %maturity 2018,4.75 % maturity 2009,5.70 %maturity 2019,4.90 % maturity 2010,4.85 %maturity 2020,5.00 % maturity 2011, 4.20 % --------- ---- maturity 2012, 4.30 %/maturity 2022, 5.00 % with said interest being payable on March 1, 003 and semiannually on each September 1 and March 1, hereafter while this Certificate of Obligation or any portion hereof is outstanding and unpaid. THE INSTALLMENTS OF PRINCIPAL OF AND THE INTEREST ON this Certificate of Obligation are payable in lawful money of the United States of America, without exchange or collection charges. The installments of principal and the interest on this Certificate of Obligation are payable to the registered owner hereof through the services of THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A., DALLAS, TEXAS, which is the "Paying Agent/Registrar" for this Certificate of Obligation. Payment of all principal of and interest on this Certificate of Obligation shall be made by the Paying Agent/Registrar to the registered owner hereof on each principal and/or interest payment date by check or draft, dated as of such date, drawn by the Paying Agent/Registrar on, and payable solely from, funds of the Issuer required by the ordinance authorizing the issuance of this Certificate of Obligation (the "Certificate of Obligation Ordinance") to be on deposit with the Paying Agent/Registrar for such purpose as hereinafter provided; and such check or draft shall be sent by the Paying Agent/Registrar by United States mail, first-class postage prepaid, on each such principal and/or interest payment date, to the registered owner hereof, at the address of the registered owner, as it appeared on the 15th day of the month next preceding each such date (the "Record Date") on the Registration Books kept by the Paying Agent/Registrar, as hereinafter described, or by such other method acceptable to Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner. The Issuer covenants with the registered owner of this Certificate of Obligation that on or before each principal and/or interest payment date for this Certificate of Obligation it will make available to the Paying Agent/Registrar, from the "Interest and Sinking Fund" created by the Certificate of Obligation Ordinance, the amounts required to provide for the payment, in immediately available funds, of all principal of and interest on this Certificate of Obligation, when due. IF THE DATE for the payment of the principal of or interest on this Certificate of Obligation shall be a Saturday, Sunday, a 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 4 holiday, or 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. THIS CERTIFICATE OF OBLIGATION has been authorized in accordance with the Constitution and laws of the State of Texas, in the principal amount of $2,360,000, for paying all or a portion of the City's contractual obligations for the purpose of constructing and improving City rr streets, and for paying legal, fiscal, and engineering fees in connection with this project. ON SEPTEMBER 1, 2012, or any date thereafter, the unpaid installments of principal of this Certificate of Obligation may be prepaid or redeemed prior to their scheduled due dates, at the option of the Issuer, with funds derived from any available source, as a whole, or in part, and, if in part, the Issuer shall select and designate the maturity, or maturities, and the amount that is to be redeemed, and if less than a whole maturity is to be called, the Issuer shall direct the Paying Agent/Registrar to call by lot (provided that a portion of this Certificate of Obligation may be redeemed only in an integral multiple of $5,000), at the redemption price of the principal amount, plus accrued interest to the date fixed for prepayment or redemption. THE Certificates of Obligation of this Series scheduled to mature on September 1, 2022 are subject to mandatory redemption prior to their scheduled maturities, and shall be redeemed by the Issuer, in part, prior to their scheduled maturities, with money from the Mandatory Redemption Account of the Interest and Sinking Fund, with the particular Certificates of Obligation or portion thereof to be redeemed to be selected by the Paying Agent/Registrar, by lot or other customary method (provided that a portion of a Bond may be redeemed only in an integral multiple of $5,000), at a redemption price equal to the par or principal amount thereof and accrued interest to the date of redemption, on the dates, and in the principal amounts, respectively, as shown in the following schedule: September 1, 2022 Maturity Mandatory Redemption Dates . Principal Amounts September 1, 2021 $175,000 September 1, 2022 $185,000 (payment at maturity) The principal amount of the Certificates of Obligation required to be redeemed on each such redemption date pursuant to the foregoing operation of the Mandatory Redemption Account shall be reduced, at the option of the Issuer, by the principal amount of any Certificates of Obligation, which at least 45 days prior to the mandatory sinking fund redemption date, (1) shall have been defeased or acquired by the Issuer and delivered to the Paying Agent/Registrar for cancellation, or (2) shall have been purchased and canceled by the Paying Agent/Registrar at the request of the Issuer at a price not exceeding the principal amount of such Certificates of Obligation plus accrued interest to the date of purchase, (3) have been redeemed pursuant to the optional redemption provisions set forth above and not theretofore credited against a mandatory sinking fund redemption. During any period in which ownership of the Certificates of Obligation is determined by a book entry at a securities depository for the Certificates of Obligation, if fewer than all of the Certificates of Obligation of the same maturity and bearing the same interest rate are to be redeemed, the particular Certificates of Obligation of such maturity and bearing such interest rate shall be selected in accordance with the arrangements between the Issuer and the securities depository. AT LEAST 30 days prior to the date fixed for any such prepayment or redemption a written notice of such prepayment or redemption shall be mailed by the Paying Agent/Registrar to the registered owner hereof. By the date fixed for any such prepayment or redemption due provision shall be made by the Issuer with the Paying Agent/Registrar for the payment of the required prepayment or redemption price for this Certificate of Obligation or the portion hereof which is to be so prepaid or redeemed, plus accrued interest thereon to the date fixed for prepayment or redemption. If such written notice of prepayment or redemption is given, and if due provision for such payment is made, all as provided above, this Certificate of Obligation, or the portion thereof which is to be so prepaid or redeemed, thereby automatically shall be treated as prepaid or redeemed prior to its scheduled due date, and shall not bear interest after the date fixed for its prepayment or redemption, and shall not be regarded as being outstanding except for the right of the registered owner to receive the prepayment or redemption price plus accrued interest to the date fixed for prepayment or redemption from the Paying Agent/Registrar out of the funds provided for such payment. The Paying Agent/Registrar shall record in the Registration Books all such prepayments or redemptions of principal of this Certificate of Obligation or any portion hereof. THIS CERTIFICATE OF OBLIGATION, to the extent of the unpaid or unredeemed principal balance hereof, or any unpaid and unredeemed portion hereof in any integral multiple of $5,000, may be assigned by the initial registered owner hereof and shall be transferred only in the Registration Books of the Issuer kept by the Paying Agent/Registrar acting in the capacity of registrar for this Certificate of Obligation, upon the terms and conditions set forth in the Certificate of Obligation Ordinance. Among other requirements for such transfer, this Certificate of Obligation must be presented and surrendered to the Paying Agent/Registrar for cancellation, together with proper instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, evidencing assignment by the initial registered owner of this Certificate of Obligation, or any portion or portions hereof in any integral multiple of $5,000, to the assignee or assignees in whose name or names this Certificate of Obligation or any such portion or portions hereof is or are to be transferred and registered.. Any instrument or instruments of assignment satisfactory to the Paying Agent/Registrar may be used to evidence the assignment of this Certificate of Obligation or any such portion or portions hereof by the initial registered owner hereof. A new certificate of obligation or certificates of obligation payable to such assignee or assignees (which then will be the new registered owner or owners of such new certificate of obligation or certificates of obligation) or to the initial registered owner as to any portion of this Certificate of Obligation which is not being assigned and transferred by the initial registered owner, shall be delivered by the Paying Agent/Registrar in conversion of and exchange for this Certificate of Obligation or any portion or portions hereof, but solely in the form and manner as provided in the next paragraph hereof for the conversion and exchange of this Certificate of Obligation or any portion hereof. The registered owner of this Certificate of Obligation shall be deemed and treated by the Issuer and the Paying Agent/Registrar as the absolute owner hereof for all purposes, including payment and discharge of M liability upon this Certificate of Obligation to the extent of such payment, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary. AS PROVIDED above and in the Certificate of Obligation Ordinance, this Certificate of Obligation, to the extent of the unpaid or unredeemed principal balance hereof, may be converted into and exchanged for a like aggregate principal amount of fully registered certificates of obligation, without interest coupons, payable to the assignee or assignees duly designated in writing by the initial registered owner hereof, or to the initial registered owner as to any portion of this Certificate of Obligation which is not being assigned and transferred by the initial registered owner, in any denomination or denominations in any integral multiple of $5,000 (subject to the requirement hereinafter stated that each substitute certificate of obligation issued in exchange for any portion of this Certificate of Obligation shall have a single stated principal maturity date), upon surrender of this Certificate of Obligation to the Paying Agent/Registrar for cancellation, all in accordance with the form and procedures set forth in the Certificate of Obligation Ordinance. If this Certificate of Obligation or any portion hereof is assigned and transferred or converted each certificate of obligation issued in exchange for any portion hereof shall have a single stated principal maturity date corresponding to the due date of the installment of principal of this Certificate of Obligation or portion hereof for which the substitute certificate of obligation is being exchanged, and shall bear interest at the rate applicable to and borne by such installment of principal or portion thereof. Such certificates of obligation, respectively, shall be subject to redemption prior to maturity on the same dates and for the same prices as the corresponding installment of principal of this Certificate of Obligation or portion hereof for which they are being exchanged. No such certificate of obligation shall be payable in installments, but shall have only one stated principal maturity date. AS PROVIDED IN THE CERTIFICATE OF OBLIGATION ORDINANCE, THIS CERTIFICATE OF OBLIGATION IN ITS PRESENT FORM MAY BE ASSIGNED AND TRANSFERRED OR CONVERTED ONCE ONLY, and to one or more assignees, but the certificates of obligation issued and delivered in exchange for this Certificate of Obligation or any portion hereof may be assigned, transferred and converted, subsequently, as provided in the Certificate of Obligation Ordinance. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for transferring, converting, and exchanging this Certificate of Obligation or any portion thereof, but the one requesting such transfer, conversion, and exchange shall pay any taxes or governmental charges required to be paid with respect thereto. The Paying Agent/Registrar shall not be required to make any such assignment, conversion, or exchange (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 of Obligation or portion thereof called for prepayment or redemption prior to maturity, within 45 days prior to its prepayment or redemption date. IN THE EVENT any Paying Agent/Registrar for this Certificate of Obligation is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted in the Certificate of Obligation Ordinance that it promptly will appoint a competent and legally qualified substitute therefor, and promptly will cause written notice thereof to be mailed to the registered owner of this Certificate of Obligation. 7 . IT IS HEREBY certified, recited, and covenanted that this Certificate of Obligation has been duly and validly authorized, issued, sold, and delivered; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the authorization, issuance, and delivery of this Certificate of Obligation have been performed, existed, and been done in accordance with law; that this Certificate of Obligation is a general obligation of the Issuer, issued on the full faith and credit thereof, and that ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Certificate o bligation, as such interest and principal come due, have been levied and ordered to be levied aainst all taxable property in the Issuer, and have been pledged for such payment, within the limit scribed by law, and that this Certificate of Obligation, is additionally secured by and payable from he limited surplus revenues of the Issuer's Utility System, being the Issuer's Waterworks, Sewer and Electric System, remaining after payment of all operation and maintenance expenses thereof, and all debt service, reserve, and other requirements in connection with all of the Issuer's revenue bonds or other obligations (now or hereafter outstanding), which are payable from all or any part of the Net Revenues of the Issuer's Utility System. THE ISSUER HAS RESERVED THE RIGHT to amend the Certificate of Obligation Ordinance as provided therein, and under some (but not all) circumstances amendments thereto must be approved by the registered owners of a majority in aggregate principal amount of the outstanding Certificates of Obligation. BY BECOMING the registered owner of this Certificate of Obligation, the registered owner thereby acknowledges all of the terms and provisions of the Certificate of Obligation Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Certificate of Obligation Ordinance is duly recorded and available for inspection in the official minutes and records of the governing body of the Issuer, and agrees that the terms and provisions of this Certificate of Obligation and the Certificate of Obligation Ordinance constitute a contract between the registered owner hereof and the Issuer. IN WITNESS WHEREOF, the Issuer has caused this Certificate of Obligation to be signed with the manual or facsimile signature of the Mayor of the Issuer, countersigned with the manual or facsimile signature of the City Secretary of the Issuer, and has caused the official seal of the Issuer to be duly impressed, or placed in facsimile, on this Certificate of Obligation to be dated June 1, 2002. City Secretary Mayor CITY SEAL FORM OF REGISTRATION CERTIFICATE OF THE COMPTROLLER OF PUBLIC ACCOUNTS: 8 COMPTROLLER'S REGISTRATION CERTIFICATE REGISTER NO. I hereby certify that this Certificate of Obligation has been examined, certified as to validity, and approved by the Attorney General of the State of Texas, and that this Certificate of Obligation has been registered by the Comptroller of Public Accounts of the State of Texas. Witness my signature and seal this Comptroller of Public Accounts of the State of Texas (COMPTROLLER'S SEAL) Section 6. ADDITIONAL CHARACTERISTICS OF THE CERTIFICATES OF OBLIGATION. Registration and Transfer. (a) The Issuer shall keep or cause to be kept at the principal corporate trust office of THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A., DALLAS, TEXAS, (the "Paying Agent/Registrar") books or records of the registration and transfer of the Certificates of Obligation (the "Registration Books"), and the Issuer hereby appoints the Paying Agent/Registrar as its registrar and transfer agent to keep such books or records and make such transfers and registrations under such reasonable regulations as the Issuer and Paying Agent/Registrar may prescribe; and the Paying Agent/Registrar shall make such transfers and registrations as herein provided. The Paying Agent/Registrar shall obtain and record in the Registration Books the address of the registered owner of each Certificate of Obligation to which payments with respect to the Certificates of Obligation shall be mailed, as herein provided; but it shall be the duty of each registered owner to notify the Paying Agent/Registrar in writing of the address to which payments shall be mailed, and such interest payments shall not be mailed unless such notice has been given. The Issuer shall have the right to inspect the Registration Books during regular business hours of the Paying Agent/Registrar, but otherwise the Paying Agent/Registrar shall keep the Registration Books confidential and, unless otherwise required by law, shall not permit their inspection by any other entity. Registration of each Certificate of Obligation may be transferred in the Registration Books only upon presentation and surrender of such Certificate of Obligation to the Paying Agent/Registrar for transfer of registration and cancellation, together with proper written instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/ Registrar, (i) evidencing the assignment of the Certificate of Obligation, or any portion thereof in any integral multiple of $5,000, to the assignee or assignees thereof, and (ii) the right of such assignee or assignees to have the Certificate of Obligation or any such portion thereof registered in the name of such assignee or assignees. Upon the assignment and transfer of any Certificate of Obligation or any portion thereof, a new substitute Certificate of Obligation or Certificates of Obligation shall be issued in conversion and exchange therefor in the manner herein provided. The Initial Certificate of Obligation, to the extent of the unpaid or unredeemed principal balance thereof, may be assigned and transferred by the initial registered owner thereof once only, and to one or more assignees designated in writing by the initial registered owner thereof. All Certificates of Obligation issued and delivered in conversion of and exchange for the Initial Certificate of Obligation shall be in any denomination 9 or denominations of any integral multiple of $5,000 (subject to the requirement hereinafter stated that each substitute Certificate of Obligation shall have a single stated principal maturity date), shall be in the form prescribed in the FORM OF SUBSTITUTE CERTIFICATE OF OBLIGATION set forth in this Ordinance, and shall have the characteristics, and may be assigned, transferred, and converted as hereinafter provided. If the Initial Certificate of Obligation or any portion thereof is assigned and transferred or converted the Initial Certificate of Obligation must be surrendered to the Paying Agent/Registrar for cancellation, and each Certificate of Obligation issued in exchange for any portion of the Initial Certificate of Obligation shall have a single stated principal maturity date, and shall not be payable in installments; and each such Certificate of Obligation shall have a principal maturity date corresponding to the due date of the installment of principal or portion thereof for which the substitute Certificate of Obligation is being exchanged; and each such Certificate of Obligation shall bear interest at the single rate applicable to and borne by such installment of principal or portion thereof for which it is being exchanged. If only a portion of the Initial Certificate of Obligation is assigned and transferred, there shall be delivered to and registered in the name of the initial registered owner substitute Certificates of Obligation in exchange for the unassigned balance of the Initial Certificate of Obligation in the same manner as if the initial registered owner were the assignee thereof. If any Certificate of Obligation or portion thereof other than the Initial Certificate of Obligation is assigned and transferred or converted each Certificate of Obligation issued in exchange therefor shall have the same principal maturity date and bear interest at the same rate as the Certificate of Obligation for which it is exchanged. A form of assignment shall be printed or endorsed on each Certificate of Obligation, excepting the Initial Certificate of Obligation, which shall be executed by the registered owner or its duly authorized attorney or representative to evidence an assignment thereof. Upon surrender of any Certificates of Obligation or any portion or portions thereof for transfer of registration, an authorized representative of the Paying Agent/Registrar shall make such transfer in the Registration Books, and shall deliver a new fully registered substitute Certificate of Obligation or Certificates of Obligation, having the characteristics herein described, payable to such assignee or assignees (which then will be the registered owner or owners of such new Certificate of Obligation or Certificates of Obligation), or to the previous registered owner in case only a portion of a Certificate of Obligation is being assigned and transferred, all in conversion of and exchange for said assigned Certificate of Obligation or Certificates of Obligation or any portion or portions thereof, in the same form and manner, and with the same effect, as provided in Section 6(d), below, for the conversion and exchange of Certificates of Obligation by any registered owner of a Certificate of Obligation. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for making such transfer and delivery of a substitute Certificate of Obligation or Certificates of Obligation, but the one requesting such transfer shall pay any taxes or other governmental charges required to be paid with respect thereto. The Paying Agent/Registrar shall not be required to make transfers of registration of any Certificate of Obligation or any portion thereof (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 of Obligation or any portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date. (b) Ownership of Certificates of Obligation. The entity in whose name any Certificate of 10 Obligation shall be registered in the Registration Books at any time shall be deemed and treated as the absolute owner thereof for all purposes of this Ordinance, whether or not such Certificate of Obligation shall be overdue, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary; and payment of, or on account of, the principal of, premium, if any, and interest on any such Certificate of Obligation shall be made only to such registered owner. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Certificate of Obligation to the extent of the sum or sums so paid. (c)Payment of Certificates of Obligation and Interest. The Issuer hereby further appoints the Paying Agent/Registrar to act as the paying agent for paying the principal of and interest on the Certificates of Obligation, and to act as its agent to convert and exchange or replace Certificates of Obligation, all as provided in this Ordinance. The Paying Agent/Registrar shall keep proper records of all payments made by the Issuer and the Paying Agent/Registrar with respect to the Certificates of Obligation, and of all conversions and exchanges of Certificates of Obligation, and all replacements of Certificates of Obligation, as provided in this Ordinance. However, in the event of a nonpayment of interest on a scheduled payment date, and for thirty (30) days thereafter, a new record date for such interest payment (a "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 Issuer. Notice of the Special Record Date and of the scheduled payment date ofthe past due interest (which shall be fifteen (15) days after the Special Record Date) shall be sent at least five (5) business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each Bondholder appearing on the Security Register at the close of business on the 15th day next preceding the date of mailing of such notice. (d)Conversion and Exchange or Replacement; Authentication. Each Certificate of Obligation issued and delivered pursuant to this Ordinance, to the extent ofthe unpaid or unredeemed principal balance or principal amount thereof, may, upon surrender of such Certificate of Obligation at the principal corporate trust office of the Paying Agent/Registrar, together with a written request therefor duly executed by the registered owner or the assignee or assignees thereof, or its or their duly authorized attorneys or representatives, with guarantee of signatures satisfactory to the Paying Agent/Registrar, may, at the option of the registered owner or such assignee or assignees, as appropriate, be converted into and exchanged for fully registered certificates of obligation, without interest coupons, in the form prescribed in the FORM OF SUBSTITUTE CERTIFICATE OF OBLIGATION set forth in this Ordinance, in the denomination of $5,000, or any integral multiple of $5,000 (subject to the requirement hereinafter stated that each substitute Certificate of Obligation shall have a single stated maturity date), as requested in writing by such registered owner or such assignee or assignees, in an aggregate principal amount equal to the unpaid or unredeemed principal balance or principal amount of any Certificate of Obligation or Certificates of Obligation so surrendered, and payable to the appropriate registered owner, assignee, or assignees, as the case may be. If the Initial Certificate of Obligation is assigned and transferred or converted each substitute Certificate of Obligation issued in exchange for any portion of the Initial Certificate of Obligation shall have a single stated principal maturity date, and shall not be payable in installments; and each such Certificate of Obligation shall have a principal maturity date corresponding to the due date of 11 the installment of principal or portion thereof for which the substitute Certificate of Obligation is being exchanged, and each such Certificate of Obligation shall bear interest at the single rate applicable to and borne by such installment of principal or portion thereof for which it is being exchanged. If a portion of any Certificate of Obligation (other than the Initial Certificate of Obligation) shall be redeemed prior to its scheduled maturity as provided herein, a substitute Certificate of Obligation or Certificates of Obligation having the same maturity date, bearing interest at the same rate, in the denomination or denominations of any integral multiple of $5,000 at the request of the registered owner, and in aggregate principal amount equal to the unredeemed portion thereof, will be issued to the registered owner upon surrender thereof for cancellation. If any Certificate of Obligation or portion thereof (other than the Initial Certificate of Obligation) is assigned and transferred or converted, each Certificate of Obligation issued in exchange therefor shall have the same principal maturity date and bear interest at the same rate as the Certificate of Obligation for which it is being exchanged. Each substitute Certificate of Obligation shall bear a letter and/or number to distinguish it from each other Certificate of Obligation. The Paying Agent/Registrar shall convert and exchange or replace Certificates of Obligation as provided herein, and each fully registered certificate of obligation delivered in conversion of and exchange for or replacement of any Certificate of Obligation or portion thereof as permitted or required by any provision of this Ordinance shall constitute one of the Certificates of Obligation for all purposes of this Ordinance, and may again be converted and exchanged or replaced. It is specifically provided that any Certificate of Obligation authenticated in conversion of and exchange for or replacement of another Certificate of Obligation on or prior to the first scheduled Record Date for the Initial Certificate of Obligation shall bear interest from the date of the Initial Certificate of Obligation, but each substitute Certificate of Obligation so authenticated after such first scheduled Record Date shall bear interest from the interest payment date next preceding the date on which such substitute Certificate of Obligation was so authenticated, unless such Certificate of Obligation is authenticated after any Record Date but on or before the next following interest payment date, in which case it shall bear interest from such next following interest payment date; provided, however, that if at the time of delivery of any substitute Certificate of Obligation the interest on the Certificate of Obligation for which it is being exchanged is due but has not been paid, then such Certificate of Obligation shall bear interest from the date to which such interest has been paid in full. THE INITIAL CERTIFICATE OF OBLIGATION issued and delivered pursuant to this Ordinance is not required to be, and shall not be, authenticated by the Paying Agent/Registrar, but on each substitute Certificate of Obligation issued in conversion of and exchange for or replacement of any Certificate of Obligation or Certificates of Obligation issued under this Ordinance there shall be printed a certificate, in the form substantially as follows: "PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE It is hereby certified that this Certificate of Obligation has been issued under the provisions of the Certificate of Obligation Ordinance described on the face of this Certificate of Obligation; and that this Certificate of Obligation has been issued in conversion of and exchange for or replacement of a certificate of obligation, certificates of obligation, or a portion of a certificate of obligation or certificates of obligation of an issue which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. 12 I THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A. Paying Agent/Registrar Dated By Authorized Representative An authorized representative of the Paying Agent/Registrar shall, before the delivery of any such Certificate of Obligation, date and manually sign the above Certificate, and no such Certificate of Obligation shall be deemed to be issued or outstanding unless such Certificate is so executed. The Paying Agent/Registrar promptly shall cancel all Certificates of Obligation surrendered for conversion and exchange or replacement. No additional ordinances, orders, or resolutions need be passed or adopted by the governing body of the Issuer or any other body or person so as to accomplish the foregoing conversion and exchange or replacement of any Certificate of Obligation or portion thereof, and the Paying Agent/Registrar shall provide for the pinting, execution, and delivery of the substitute Certificates of Obligation in the manner prescribe herein, and said Certificates of Obligation shall be of type composition printed on paper with lit graphed or steel engraved borders of customary weight and strength. Pursuant to Chapter 1207, Texas Government Code, the duty of conversion and exchange or replacement of Certificate9f Obligation as aforesaid is hereby imposed upon the Paying Agent/Registrar, and, upon the execution of the above Paying Agent/Registrar's Authentication Certificate, the converted and exchanged or replaced Certificate of Obligation shall be valid, incontestable, and enforceable in the same manner and with the same effect as the Initial Certificate of Obligation which originally was issued pursuant to this Ordinance, approved by the Attorney General, and registered by the Comptroller of Public Accounts. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for transferring, converting, and exchanging any Certificate of Obligation or any portion thereof, but the one requesting any such transfer, conversion, and exchange shall pay any taxes or governmental charges required to be paid with respect thereto as a condition precedent to the exercise of such privilege of conversion and exchange. The Paying Agent/Registrar shall not be required to make any such conversion and exchange or replacement of Certificates of Obligation or any portion thereof (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 of Obligation or portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date. (e) In General. All Certificates of Obligation issued in conversion and exchange or replacement of any other Certificate of Obligation or portion thereof, (i) shall be issued in fully registered form, without interest coupons, with the principal of and interest on such Certificates of Obligation to be payable only to the registered owners thereof, (ii) may be redeemed prior to their scheduled maturities, (iii) may be transferred and assigned, (iv) may be converted and exchanged for other Certificates of Obligation, (v) shall have the characteristics, (vi) shall be signed and sealed, and (vii) the principal of and interest on the Certificates of Obligation shall be payable, all as provided, and in the manner required or indicated, in the FORM OF SUBSTITUTE CERTIFICATE OF 13 OBLIGATION set forth in this Ordinance. (f)Payment of Fees and Charges. The Issuer hereby covenants with the registered owners of the Certificates of Obligation that it will (i) pay the standard or customary fees and charges of the Paying Agent/Registrar for its services with respect to the payment of the principal of and interest on the Certificates of Obligation, when due, and (ii) pay the fees and charges of the Paying Agent/Registrar for services with respect to the transfer of registration of Certificates of Obligation, and with respect to the conversion and exchange of Certificates of Obligation solely to the extent above provided in this Ordinance. (g)Substitute Paying Agent/Registrar. The Issuer covenants with the registered owners of the Certificates of Obligation that at all times while the Certificates of Obligation are outstanding the Issuer will provide a competent and legally qualified bank, trust company, financial institution, or other agency to act as and perform the services of Paying Agent/Registrar for the Certificates of Obligation under this Ordinance, and that the Paying Agent/Registrar will be one entity. The Issuer reserves the right to, and may, at its option, change the Paying Agent/Registrar upon not less than 120 days written notice to the Paying Agent/Registrar, to be effective not later than 60 days prior to the next principal or interest payment date after such notice. In the event that the entity at any time acting as Paying Agent/Registrar (or its successor by merger, acquisition, or other method) should resign or otherwise cease to act as such, the Issuer covenants that promptly it will appoint a competent and legally qualified bank, trust company, financial institution, or other agency to act as Paying Agent/Registrar under this Ordinance. Upon any change in the Paying Agent/Registrar, the previous Paying Agent/Registrar promptly shall transfer and deliver the Registration Books (or a copy thereof), along with all other pertinent books and records relating to the Certificates of Obligation, to the new Paying Agent/Registrar designated and appointed by the Issuer. Upon any change in the Paying Agent/Registrar, the Issuer promptly will cause a written notice thereof to be sent by the new Paying Agent/Registrar to each registered owner of the Certificates of Obligation, by United States mail, first-class postage prepaid, which notice also shall give the address of the new Paying Agent/Registrar. By accepting the position and performing as such, each Paying Agent/Registrar shall be deemed to have agreed to the provisions of this Ordinance, and a certified copy of this Ordinance shall be delivered to each Paying Agent/Registrar. (h)Book-Entry Only System. The Certificates of Obligation issued in exchange for the Certificates of Obligation initially issued to the purchaser specified herein shall be initially issued in the form of a separate single fully registered Certificate of Obligation for each of the maturities thereof. Upon initial issuance, the ownership of each such Certificate of Obligation shall be registered in the name of Cede & Co., as nominee of Depository Trust Company of New York ("DTC"), and except as provided in subsection (f) hereof, all of the outstanding Certificates of Obligation shall be registered in the name of Cede & Co., as nominee of DTC. With respect to Certificates of Obligation registered in the name of Cede & Co., as nominee of DTC, the Issuer 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 on the 14 Certificates of Obligation. Without limiting the immediately preceding sentence, the Issuer and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Certificates of Obligation, (ii) the delivery-to any DTC Participant or any other person, other than a Certificate of Obligation holder, as shown on the Registration Books, of any notice with respect to the Certificates of Obligation, including any notice of redemption, or (iii) the payment to any DTC Participant or any other person, other than a Certificate of Obligation holder, as shown in the Registration Books of any amount with respect to principal of, premium, if any, or interest on, as the case may be, the Certificates of Obligation. Notwithstanding any other provision of this Ordinance to the contrary, the Issuer and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Certificate of Obligation is registered in the Registration Books as the absolute owner of such Certificate of Obligation for the purpose of payment of principal, premium, if any, and interest, as the case may be, with respect to such Certificate of Obligation, for the purpose of giving notices of redemption and other matters with respect to such Certificate of Obligation, for the purpose of registering transfers with respect to such Certificate of Obligation, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of, premium, if any, and interest on the Certificates of Obligation only to or upon the order of the respective owners, as shown in the Registration Books 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 Issuer's obligations with respect to payment of principal of, premium, if any, and interest on, or as the case may be, the Certificates of Obligation to the extent of the sum or sums so paid. No person other than an owner, as shown in the Registration Books, shall receive a Certificate of Obligation certificate evidencing the obligation of the Issuer to make payments of principal, premium, if any, and interest, as the case may be, pursuant to this Ordinance. 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 registered 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. (i) Successor Securities Depository: Transfers Outside Book-Entry Only System. In the event that the Issuer or the Paying Agent/Registrar determines that DTC is incapable of discharging its responsibilities described herein and in the representation letter of the Issuer to DTC and that it is in the best interest of the beneficial owners of the Certificates of Obligation that they be able to obtain certificated Certificates of Obligation, the Issuer or the Paying Agent/Registrar shall (i) 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 and DTC Participants of the appointment of such successor securities depository and transfer one or more separate Certificates of Obligation to such successor securities depository or (ii) notify DTC and DTC Participants of the availability through DTC of Certificates of Obligation and transfer one or more separate Certificates of Obligation to DTC Participants having Certificates of Obligation credited to their DTC accounts. In such event, the Certificates of Obligation shall no longer be restricted to being registered in the Registration Books in the name 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 Certificate of 15 Obligation holders transferring or exchanging Certificates of Obligation shall designate, in accordance with the provisions of this Ordinance. (j) Payments to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, so long as any Certificate of Obligation is registered in the name of Cede & Co., as nominee ofDTC, all payments with respect to principal of, premium, if any, and interest on, or as the case may be, such Certificate of Obligation and all notices with respect to such Certificate of Obli g ation shall be made and given, respectively, in the manner provided in the representation letter of the Issuer to DTC. Section 7. FORM OF SUBSTITUTE CERTIFICATES OF OBLIGATION. The form of all Certificates of Obligation issued in conversion and exchange or replacement of any other Certificate of Obligation or portion thereof, including the"form of Paying Agent/Registrar's Certificate to be printed on each of such Certificates of Obligation, and the Form of Assignment to be printed on each of the Certificates of Obligation, shall be, respectively, substantially as follows, with such appropriate variations, omissions, or insertions as are permitted or required by this Ordinance. FORM OF SUBSTITUTE CERTIFICATE OF OBLIGATION NO. PRINCIPAL AMOUNT UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF DENTON CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATE OF OBLIGATION SERIES 2002 INTEREST MATURITY DATE OF CUSIP RATE DATE ORIGINAL ISSUE NO. June 1, 2002 l • ON THE MATURITY DATE specified above, the CITY OF SANGER (the "Issuer") in DENTON COUNTY, being a political subdivision of the State of Texas, hereby promises to pay to or to the registered assignee hereof (either being hereinafter called the "registered owner") the principal amount of m and to pay interest thereon from June 1, 200 o the maturity date specified above, or the date of redemption prior to maturity, at the interest rate per annum specified a ove with interest being payable on March 1, 2003, and semiannually on each September 1 and M 1 thereafter; except that if the date of authentication of this Certificate of Obligation is lat r an February 15, 2003, such principal amount shall bear interest from the interest payment date next preceding the date of authentication, unless such date of authentication is after any Record Date (hereinafter defined) but on or before the next following interest payment date, in which case such principal amount shall bear interest from such next following interest payment date. THE PRINCIPAL OF AND INTEREST ON this Certificate of Obligation are payable in lawful money of the United States of America, without exchange or collection charges. The principal of this Certificate of Obligation shall be paid to the registered owner hereof upon presentation and surrender of this Certificate of Obligation at maturity or upon the date fixed for its redemption prior to maturity, at the principal corporate trust office of THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A., DALLAS, TEXAS, which is the "Paying Agent/Registrar" forth Certificate of Obligation. The payment of interest on this Certificate of Obligation shall be made by the Paying Agent/Registrar to the registered owner hereof on the interest payment date by check or draft, dated as of such interest payment date, drawn by the Paying Agent/Registrar on, and payable solely from, funds of the Issuer required by the Ordinance authorizing the issuance of the Certificates of Obligation (the "Certificate of Obligation Ordinance") to be on deposit with the Paying Agent/ Registrar for such purpose as hereinafter provided; and such check or draft shall be sent by the Paying Agent/Registrar by United States mail, first-class postage prepaid, on each such interest payment date, to the registered owner hereof, at the address of the registered owner, as it appeared on the 15th day of the month next preceding such date (the "Record Date") on the Registration Books kept by the Paying Agent/Registrar, as hereinafter described, or by such other method acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner. Any accrued interest due upon the redemption of this Certificate of Obligation prior to maturity as provided herein shall be paid to the registered owner at the principal corporate trust office of the Paying Agent/Registrar upon presentation and surrender of this Certificate of Obligation for redemption and payment at the principal corporate trust office of the Paying Agent/Registrar. The Issuer covenants with the registered owner of this Certificate of Obligation that on or before each principal payment date, interest payment date, and accrued interest payment date for this Certificate of Obligation, it will make available to the Paying Agent/Registrar, from the "Interest and Sinking Fund" created by the Certificate of Obligation Ordinance, the amounts required to provide for the payment, in immediately available funds, of all principal of and interest on the Certificates of Obligation, when due. IF THE DATE for the payment of the principal of or interest on this Certificate of Obligation shall be a Saturday, Sunday, a 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 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. 17 THIS CERTIFICATE OF OBLIGATION is one of an issue of Certificates of Obligation initially dated June 1, 2002, authorized in accordance with the Constitution and laws of the State of Texas in the original principal amount of $2,360,000, for constructing and improving City streets, and for paying legal, fiscal, and engineering fees in connection with this project. V ON SEPTEMBER 1, 2012, or any date thereafter, the Certificates of Obligation of this Series may be redeemed prior to their scheduled maturities, at the option of the Issuer, with funds derived from any available source, as a whole, or in part, and, if in part, the maturity or maturities of Certificates of Obligation and the amounts thereof, to be redeemed shall be selected and designated by the Issuer, and the Issuer shall direct the Paying Agent/Registrar to call by lot Certificates of Obligation, or portions thereof within such maturities and in such principal amounts, for redemption (provided that a portion of this Certificate of Obligation may be redeemed only in an integral multiple of $5,000), at the prepayment or redemption price of the principal amount thereof, plus accrued interest to the date fixed for prepayment or redemption. THE Certificates of Obligation of this Series scheduled to mature on September 1, 2022 are subject to mandatory redemption prior to their scheduled maturities, and shall be redeemed by the Issuer, in part, prior to their scheduled maturities, with money from the Mandatory Redemption Account of the Interest and Sinking Fund, with the particular Certificates of Obligation or portion thereof to be redeemed to be selected by the Paying Agent/Registrar, by lot or other customary method (provided that a portion of a Bond may be redeemed only in an integral multiple of $5,000), at a redemption price equal to the par or principal amount thereof and accrued interest to the date of redemption, on the dates, and in the principal amounts, respectively, as shown in the following schedule: September 1, 2022 Maturity Mandatory Redemption Dates Principal Amounts ////f September 1, 2021 $175,000 September 1, 2022 $185,000 (payment at maturity) The principal amount of the Certificates of Obligation required to be redeemed on each such redemption date pursuant to the foregoing operation of the Mandatory Redemption Account shall be reduced, at the option of the Issuer, by the principal amount of any Certificates of Obligation, which at least 45 days prior to the mandatory sinking fund redemption date, (1) shall have been defeased or acquired by the Issuer and delivered to the Paying Agent/Registrar for cancellation, or (2) shall have been purchased and canceled by the Paying Agent/Registrar at the request of the Issuer at a price not exceeding the principal amount of such Certificates of Obligation plus accrued interest to the date of purchase, (3) have been redeemed pursuant to the optional redemption provisions set forth above and not theretofore credited against a mandatory sinking fund redemption. During any period in which ownership of the Certificates of Obligation is determined by a book entry at a 18 securities depository for the Certificates of Obligation, if fewer than all of the Certificates of Obligation of the same maturity and bearing the same interest rate are to be redeemed, the particular Certificates of Obligation of such maturity and bearing such interest rate shall be selected in accordance with the arrangements between the Issuer and the securities depository. AT LEAST 30 days prior to the date fixed for any redemption of Certificates of Obligation or portions thereof prior to maturity a written notice of such redemption shall be sent by the Paying Agent/Registrar by United States mail, first-class postage prepaid, not less than 30 days prior to the date fixed for any such redemption, to the registered owner of each Certificate of Obligation to be redeemed at its address as it appeared on the 45th day prior to such redemption date; provided, however, that the failure to receive such notice, or any defect therein or in the sending or mailing thereof, shall not affect the validity or effectiveness of the proceedings for the redemption of any Certificate of Obligation, and it is hereby specifically provided that the mailing of such notice as required above shall be the only notice actually required in connection with or as a prerequisite to the redemption of any Certificates of Obligation or portions thereof. By the date fixed for any such redemption due provision shall be made with the Paying Agent/Registrar for the payment of the required redemption price for the Certificates of Obligation or portions thereof which are to be so redeemed, plus accrued interest thereon to the date fixed for redemption. If such written notice of redemption is mailed and if due provision for such payment is made, all as provided above, the Certificates of Obligation or portions thereof which are to be so redeemed thereby automatically shall be treated as redeemed prior to their scheduled maturities, and they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being outstanding except for the right of the registered owner to receive the redemption price plus accrued interest from the Paying Agent/Registrar out of the funds provided for such payment. If a portion of any Certificate of Obligation shall be redeemed a substitute Certificate of Obligation or Certificates of Obligation having the same maturity date, bearing interest at the same rate, in any denomination or denominations in any integral multiple of $5,000, at the written request of the registered owner, and in aggregate principal amount equal to the unredeemed portion thereof, will be issued to the registered owner upon the surrender thereof for cancellation, at the expense of the Issuer, all as provided in the Certificate of Obligation Ordinance. THIS CERTIFICATE OF OBLIGATION OR ANY PORTION OR PORTIONS HEREOF IN ANY INTEGRAL MULTIPLE OF $5,000 may be assigned and shall be transferred only in the Registration Books ofthe Issuer kept by the Paying Agent/Registrar acting in the capacity of registrar for the Certificates of Obligation, upon the terms and conditions set forth in the Certificate of Obligation Ordinance. Among other requirements for such assignment and transfer, this Certificate of Obligation must be presented and surrendered to the Paying Agent/Registrar, together with proper instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, evidencing assignment of this Certificate of Obligation or any portion or portions hereof in any integral multiple of $5,000 to the assignee or assignees in whose name or names this Certificate of Obligation or any such portion or portions hereof is or are to be transferred and registered. The form of Assignment printed or endorsed on this Certificate of Obligation shall be executed by the registered owner or its duly authorized attorney or representative to evidence the 19 assignment hereof. A new Certificate of Obligation or Certificates of Obligation payable to such assignee or assignees (which then will be the new registered owner or owners of such new Certificate of Obligation or Certificates of Obligation), or to the previous registered owner in the case of the assignment and transfer of only a portion of this Certificate of Obligation, may be delivered by the Paying Agent/Registrar in conversion of and exchange for this Certificate of Obligation, all in the form and manner as provided in the next paragraph hereof for the conversion and exchange of other Certificates of Obligation. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for making such transfer, but the one requesting such transfer shall pay any taxes or other governmental charges required to be paid with respect thereto. The Paying Agent/Registrar shall not be required to make transfers of registration of this Certificate of Obligation or any portion hereof (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 of Obligation or any portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date. The registered owner of this Certificate of Obligation shall be deemed and treated by the Issuer and the Paying Agent/Registrar as the absolute owner hereof for all purposes, including payment and discharge of liability upon this Certificate of Obligation to the extent of such payment, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary. ALL CERTIFICATES OF OBLIGATION OF THIS SERIES are issuable solely as fully registered certificates of obligation, without interest coupons, in the denomination of any integral multiple of $5,000. As provided in the Certificate of Obligation Ordinance, this Certificate of Obligation, or any unredeemed portion hereof, may, at the request of the registered owner or the assignee or assignees hereof, be converted into and exchanged for a like aggregate principal amount of fully registered Certificates of Obligation, without interest coupons, payable to the appropriate registered owner, assignee, or assignees, as the case may be, having the same maturity date, and bearing interest at the same rate, in any denomination or denominations in any integral multiple of $5,000 as requested in writing by the appropriate registered owner, assignee, or assignees, as the case may be, upon surrender of this Certificate of Obligation to the Paying Agent/Registrar for cancellation, all in accordance with the form and procedures set forth in the Certificate of Obligation Ordinance. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for transferring, converting, and exchanging any Certificate of Obligation or any portion thereof, but the one requesting such transfer, conversion, and exchange shall pay any taxes or governmental charges required to be paid with respect thereto as a condition precedent to the exercise of such privilege of conversion and exchange. The Paying Agent/Registrar shall not be required to make any such conversion and exchange (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 of Obligation or portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date. IN THE EVENT any Paying Agent/Registrar for the Certificates of Obligation is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted in the Certificate of Obligation Ordinance that it promptly will appoint a competent and legally qualified substitute therefor, and promptly will cause written notice thereof to be mailed to the registered owners of the Certificates of Obligation. IT IS HEREBY certified, recited, and covenanted that this Certificate of Obligation has been duly and validly authorized, issued, and delivered; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the authorization, issuance, and delivery of this Certificate of Obligation have been performed, existed, and been done in accordance with law, that this Certificate of Obligation is a general obligation of the Issuer, issued on the full faith and credit thereof, and that ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Certificate of Obligation, as such interest and principal come due, have been levied and ordered to be levied against all table property in the Issuer, and have been pledged for such payment, within the limit prescrl(y law, and that this Certificate of Obligation, is additionally secured by and payable from the limited surplus revenues of the Issuer's Utility System, being the Issuer's Waterworks, Sewer and Electric System, remaining after payment of all operation and maintenance expenses thereof, and all debt service, reserve, and other requirements in connection with all of the Issuer's revenue bonds or other obligations (now or hereafter outstanding), which are payable from all or any part of the Net Revenues of the Issuer's Utility System. THE ISSUER HAS RESERVED THE RIGHT to amend the Certificate of Obligation Ordinance as provided therein, and under some (but not all) circumstances amendments thereto must be approved by the registered owners of a majority in aggregate principal amount of the outstanding Certificates of Obligation. BY BECOMING the registered owner of this Certificate of Obligation, the registered owner thereby acknowledges all of the terms and provisions of the Certificate of Obligation Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Certificate of Obligation Ordinance is duly recorded and available for inspection in the official minutes and records of the governing body of the Issuer, and agrees that the terms and provisions of this Certificate of Obligation and the Certificate of Obligation Ordinance constitute a contract between each registered owner hereof and the Issuer. IN WITNESS WHEREOF, the Issuer has caused this Certificate of Obligation to be signed with the manual or facsimile signature of the Mayor of the Issuer and countersigned with the manual or facsimile signature of the City Secretary of the Issuer, and has caused the official seal of the Iss er to be duly impressed, or placed in facsimile, on this Certificate of Obligation. City Secretary Mayor CITY SEAL FORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE 21 PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE (To be executed if this Certificate of Obligation is not accompanied by an executed Registration Certificate of the Comptroller of Public Accounts of the State of Texas) It is hereby certified that this Certificate of Obligation has been issued under the provisions of the Certificate of Obligation Ordinance described on the face of this Certificate of Obligation; and that this Certificate of Obligation has been issued in conversion of and exchange for or replacement of a certificate of obligation, certificates of obligation, or a portion of a certificate of obligation or certificates of obligation of an issue which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. Dated The Bank of New York Trust Company of Florida, N.A. Paying Agent/Registrar By Authorized Representative FORM OF ASSIGNMENT: ASSIGNMENT FOR VALUE RECEIVED, the undersigned registered owner of this Certificate of Obligation, or duly authorized representative or attorney thereof, hereby assigns this Certificate of Obligation to (Assignee's Social Security or Tax (Print or type Assignee's Name and Address Payer Identification Number) Including Zip Code) and hereby irrevocably constitutes and appoints attorney, to transfer the registration of this Certificate of Obligation on the Paying Agent/Registrar's Registration Books with full power of substitution in the premises. Dated 22 NOTICE: This signature must be NOTICE: This signature must correspond with guaranteed by a member of the New York the name of the Registered Owner appearing on Stock Exchange or a commercial bank or the face of this Certificate of Obligation in every trust company. particular without alteration or enlargement or any change whatsoever. Section 8. TAX LEVY. A special Interest and Sinking Fund (the "Interest and Sinking Fund") is hereby created solely for the benefit of the Certificates of Obligation, and the Interest an Sinking Fund shall be established and maintained by the Issuer at an official depository bank of th Issuer. The Interest and Sinking Fund shall be kept separate and apart from all other funds and accounts of the Issuer, and shall be used only for paying the interest on and principal of the Certificates of Obligation. All ad valorem taxes levied and collected for and on account of the Certificates of Obligation, together with any premium received from the sale of the Certificates of Obligation, shall be deposited, as collected, to the credit of the Interest and Sinking Fund. During each year while any of the Certificates of Obligation or interest thereon are outstanding and unpaid, the governing body of the Issuer shall compute and ascertain a rate and amount of ad valorem tax which will be sufficient to raise and produce the money required to pay the interest on the C Vea of Obligation as such interest comes due, and to provide and maintain a sinking fund adequ the principal of its Certificates of Obligation as such principal matures (but never less than original principal amount of the Certificates of Obligation as a sinking fund each year). Said tax shall be based on the latest approved tax rolls of the Issuer, with full allowance being made for tax delinquencies and the cost of tax collection. Said rate and amount of ad valorem tax is hereby levied, and is hereby ordered to be levied, against all taxable property in the Issuer for each year while any of the Certificates of Obligation or interest thereon are outstanding and unpaid; and said tax shall be assessed and collected each such year and deposited to the cr it of the aforesaid Interest and Sinking Fund. Said ad valorem taxes sufficient to provide for the yment of the interest on and principal of the Certificates of Obligation, as such interest comes ue and such principal matures, are hereby pledged for such payment, within the limit prescri e by law. Article 1208, Government Code, applies to the issuance of the Certificates of Obligation and the pledge of the taxes and Surplus Revenues granted by the Issuer under this Section and Section 9, respectively, and is therefore valid, effective, and perfected. Should Texas law be amended at any time while the Certificates of Obligation are outstanding and unpaid, the result of such amendment being that the pledge of the taxes and Surplus Revenues granted by the Issuer under this Section and Section 9, respectively, is to be subject to the filing requirements of Chapter 9, Business & Commerce Code, in order to preserve to the registered owners of the Certificates of Obligation a security interest in said pledge, the Issuer agrees to take such measures as it determines are reasonable and necessary under Texas law to comply with the applicable provisions of Chapter 9, Business & Commerce Code and enable a filing of a security interest in said pledge to occur. Section 9. REVENUES. That said Certificates of Obligation, are additionally secured by and shall be payable from and secured by the collection of the limited surplus revenues of the 23 Issuer's Utility System, being the Issuer's Waterworks, Sewer and Electric System, after payment of all expenses of operation and maintenance thereof, and all debt service, reserve, and other requirements in connection with all of the Issuer's revenue bonds or other obligations (now or hereafter outstanding), which are payable from all or any part of the Net Revenues of the Issuer's Utility System, be' the Issuer's Waterworks, Sewer and Electric System with such amount not to exceed 51,900 onstituting "Surplus Revenues". The Issuer shall depos' uch Surplus Revenues to the credit ç4ie Interest and Sinking Fund created pursuant to S cti 8, to the extent necessary to pay the p pcipal and interest on the Certificates of Obligation. NàIwithstanding the requirements of Secioj,8, if Surplus Revenues or other lawfully available funds are actually on deposit or budgeted for posit in the Interest and Sinking Fund in advance of the time when ad valorem taxes are scheduled to be levied for any year, then the amount of taxes which otherwise would have been required to be levied pursuant to Section 8 may be reduced to the extent and by the amount of the revenues then on deposit in the Interest and Sinking Fund or budgeted for deposit therein. Section 10. TRANSFER. That the Mayor and the City Secretary are hereby ordered to do any and all things necessary to accomplish the transfer of monies to the Interest and Sinking Fund of this issue in ample time to pay such items of principal and interest. Section 11. DEFEASANCE OF CERTIFICATES OF OBLIGATION. (a) Any Certificate of Obligation and the interest thereon shall be deemed to be paid, retired, and no longer outstanding (a "Defeased Certificate of Obligation") within the meaning of this Ordinance, except to the extent provided in subsection (d) of this Section, when payment of the principal of such Certificate of Obligation, plus interest thereon to the due date (whether such due date be by reason of maturity or otherwise) either (i) shall have been made or caused to be made in accordance with the terms thereof, or (ii) shall have been provided for on or before such due date by irrevocably depositing with or making available to the Paying Agent/Registrar in accordance with an escrow agreement or other instrument (the "Future Escrow Agreement") for such payment (1) lawful money of the United States of America sufficient to make such payment or (2) Defeasance Securities that mature as to principal and interest in such amounts and at such times as will insure the availability, without reinvestment, of sufficient money to provide for such payment, and when proper arrangements have been made by the Issuer ' with the Paying Agent/Registrar for the payment of its services until all Defeased Certificates of Obligation shall have become due and payable. At such time as a Certificate of Obligation shall be deemed to be a Defeased Certificate of Obligation hereunder, as aforesaid, such Certificate of Obligation and the interest thereon shall no longer be secured by, payable from, or entitled to the benefits of, the ad valorem taxes herein levied and pledged as provided in this Ordinance, and such principal and interest shall be payable solely from such money or Defeasance Securities. Notwithstanding any other provision of this Ordinance to the contrary, it is hereby provided that any determination not to redeem Defeased Certificates of Obligation that is made in conjunction with the payment arrangements specified in subsection 11(a)(i) or (ii) shall not be irrevocable, provided that: (1) in the proceedings providing for such payment arrangements, the Issuer expressly reserves the right to call the Defeased Certificates of Obligation for redemption; (2) gives notice of the reservation of that right to the owners of the Defeased Certificate of Obligations immediately following the making of the payment arrangements; and (3) directs that notice of the 24 reservation be included in any redemption notices that it authorizes. (b)Any moneys so deposited with the Paying Agent/Registrar may at the written direction of the Issuer also be invested in Defeasance Securities, maturing in the amounts and times as hereinbefore set forth, and all income from such Defeasance Securities received by the Paying Agent/Registrar that is not required for the payment of the Certificates of Obligation and interest thereon, with respect to which such money has been so deposited, shall be turned over to the Issuer, or deposited as directed in writing by the Issuer. Any Future Escrow Agreement pursuant to which the money and/or Defeasance Securities are held for the payment of Defeased Certificates of Obligation may contain provisions permitting the investment or reinvestment of such moneys in Defeasance Securities or the substitution of other Defeasance Securities upon the satisfaction of the requirements specified in subsection 11(a)(i) or -(ii). All income from such Defeasance Securities received by the Paying Agent/Registrar which is not required for the payment of the Defeased Certificates of Obligation, with respect to which such money has been so deposited, shall be remitted to the Issuer or deposited as directed in writing by the Issuer. (c)The term "Defeasance Securities" means (i) direct, noncallable obligations of the 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 of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date of the purchase thereof are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (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 financial arrangements are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. (d)Until all Defeased Certificates of Obligation shall have become due and payable, the Paying Agent/Registrar shall perform the services of Paying Agent/Registrar for such Defeased Certificates of Obligation the same as if they had not been defeased, and the Issuer shall make proper arrangements to provide and pay for such services as required by this Ordinance. (e)In the event that the Issuer elects to defease less than all of the principal amount of Certificates of Obligation of a maturity, the Paying Agent/Registrar shall select, or cause to be selected, such amount of Certificates of Obligation by such random method as it deems fair and appropriate. Section 12. DAMAGED, MUTILATED, LOST, STOLEN, OR DESTROYED CERTIFICATES OF OBLIGATION. (a) Replacement Certificates of Obligation. In the event any outstanding Certificate of Obligation is damaged, mutilated, lost, stolen, or destroyed, the Paying Agent/Registrar shall cause to be printed, executed, and delivered, a new certificate of obligation of the same principal amount, maturity, and interest rate, as the damaged, mutilated, lost, stolen, or destroyed Certificate of Obligation, in replacement for such Certificate of Obligation in the manner 25 hereinafter provided. (b)Application for Replacement Certificates of Obligation. Application for replacement of damaged, mutilated, lost, stolen, or destroyed Certificates of Obligation shall be made by the registered owner thereof to the Paying Agent/Registrar. In every case of loss, theft, or destruction of a Certificate of Obligation, the registered owner applying for a replacement certificate of obligation shall furnish to the Issuer and to the Paying Agent/Registrar such security or indemnity as ma y be required by them to save each of them harmless from any loss or damage with respect thereto. Also, in every case of loss, theft, or destruction of a Certificate of Obligation, the registered owner shall furnish to the Issuer and to the Paying Agent/Registrar evidence to their satisfaction of the loss, theft, or destruction of such Certificate of Obligation, as the case may be. In every case of damage or mutilation of a Certificate of Obligation, the registered owner shall surrender to the Paying Agent/Registrar for cancellation the Certificate of Obligation so damaged or mutilated. (c)No Default Occurred. Notwithstanding the foregoing provisions of this Section, in the event any such Certificate of Obligation shall have matured, and no default has occurred which is then continuing in the payment of the principal of, redemption premium, if any, or interest on the Certificate of Obligation, the Issuer may authorize the payment of the same (without surrender thereof except in the case of a damaged or mutilated Certificate of Obligation) instead of issuing a replacement Certificate of Obligation, provided security or indemnity is furnished as above provided in this Section. (d)Charge for Issuing Replacement Certificates of Obligation. Prior to the issuance of any replacement certificate of obligation, the Paying Agent/Registrar shall charge the registered owner of such Certificate of Obligation with all legal, printing, and other expenses in connection therewith. Every replacement certificate of obligation issued pursuant to the provisions of this Section by virtue of the fact that any Certificate of Obligation is lost, stolen, or destroyed shall constitute a contractual obligation of the Issuer whether or not the lost, stolen, or destroyed Certificate of Obligation shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Ordinance equally and proportionately with any and all other Certificates of Obligation duly issued under this Ordinance. (0 Authority for Issuing Replacement Certificates of Obligation. In accordance with Chapter 1201, xas Government Code, this Section 12 of this Ordinance shall constitute authority for the issuan a of any such replacement certificate of obligation without necessity of further action by the gceing body of the Issuer or any other body or person, and the duty of the replacement of such ce i Cates of obligation is hereby authorized and imposed upon the Paying Agent/Registrar, and the Pa g Agent/Registrar shall authenticate and deliver such Certificates of Obligation in the form and manner and with the effect, as provided in Section 6(d) of this Ordinance for Certificates of Obligation issued in conversion and exchange for other Certificates of Obligation. Section 13. CUSTODY, APPROVAL, AND REGISTRATION OF CERTIFICATES OF OBLIGATION; BOND COUNSEL'S OPINION; CUSIP NUMBERS AND CONTINGENT 26 INSURANCE PROVISION, IF OBTAINED. The Mayor of the Issuer is hereby authorized to have control of the Initial Certificate of Obligation issued hereunder and all necessary records and proceedings pertaining to the Initial Certificate of Obligation pending its delivery and its investigation, examination, and approval by the Attorney General of the State of Texas, and its registration by the Comptroller of Public Accounts of the State of Texas. Upon registration of the Initial Certificate of Obligation said Comptroller of Public Accounts (or a deputy designated in writing to act for said Comptroller) shall manually sign the Comptroller's Registration Certificate on the Initial Certificate of Obligation, and the seal of said Comptroller shall be impressed, or placed in facsimile, on the Initial Certificate of Obligation. The approving legal opinion of the Issuer's bond counsel and the assigned CUSIP numbers may, at the option of the Issuer, be printed on the Initial Certificate of Obligation or on any Certificates of Obligation issued and delivered in conversion of and exchange or replacement of any Certificate of Obligation, but neither shall have any legal effect, and shall be solely for the convenience and information of the registered owners of the Certificates of Obligation. In addition, if bond insurance is obtained, the Certificates of Obligation may bear an appropriate legend as provided by the insurer. Section 14. COVENANTS REGARDING TAX EXEMPTION. The Issuer covenants to refrain from taking any action which would adversely affect, and to take any required action to ensure, the treatment of the Certificates of Obligation as obligations described in Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), the interest on which is not includable in the "gross income" of the holder for purposes of federal income taxation. In furtherance thereof, the Issuer covenants as follows: (a)to take any action to assure that no more than 10 percent of the proceeds of the Certificates of Obligation or the projects financed therewith (less amounts deposited to a reserve fund, if any) or the projects financed therewith are used for any "private business use," as defined in Section 141(b)(6) of the Code or, if more than 10 percent of the proceeds or the projects financed therewith are so used, such amounts, whether or not received by the Issuer, with respect to such private business use, do not, under the terms of this Ordinance, or any underlying arrangement, directly or indirectly, secure or provide for the payment of more than 10 percent of the debt service on the Certificates of Obligation, in contravention of Section 141(6)(2) of the Code; . (b)to take any action to assure that in the event that the "private business use" described in subsection (a) hereof exceeds 5 percent of the proceeds of the Certificates of Obligation or the projects financed therewith (less amounts deposited into a reserve fund, if any) then the amount in excess of 5 percent is used for a "private business use" which is "related" and not "disproportionate," within the meaning of Section 141(b)(3) of the Code, to the governmental use; (c)to take any action to assure that no amount which is greater than the lesser of $5,000,000, or 5 percent of the proceeds of the Certificates of Obligation (less amounts deposited into a reserve fund, if any) is directly or indirectly used to finance loans to persons, other than state or local governmental units, in contravention of Section 141(c) of the Code; 27 (d) to refrain from taking any action which would otherwise result in the Certificates of Obligation being treated as "private activity Certificates of Obligation" within the meaning of Section 141(b) of the Code; (e) to refrain from taking any action that would result in the Certificates of Obligation being "federally guaranteed" within the meaning of Section 149(b) of the Code; (f) to refrain from using any portion of the proceeds of the Certificates of Obligation, directly or indirectly, to acquire or to replace funds which were used, directly or indirectly, to acquire investment property (as defined in Section 148(b)(2) of the Code) which produces a materially higher yield over the term of the Certificates of Obligation, other than investment property acquired with -- (1)proceeds of the Certificates of Obligation invested for a reasonable temporary period of 3 years or less or, in the case of a refunding Certificate of Obligation, for a period of 30 days or less until such proceeds are needed for the purpose for which the Certificates of Obligation are issued, (2)amounts invested in a bona fide debt service fund, within the meaning of Section 1.148-1(b) of the Treasury Regulations, and (3)amounts deposited in any reasonably required reserve or replacement fund to the extent such amounts do not exceed 10 percent of the proceeds of the Certificates of Obligation; (g) to otherwise restrict the use of the proceeds of the Certificates of Obligation or amounts treated as proceeds of the Certificates of Obligation, as may be necessary, so that the Certificates of Obligation do not otherwise contravene the requirements of Section 148 of the Code (relating to arbitrage) and, to the extent applicable, Section 149(d) of the Code (relating to advance refundings); and (h) to pay to the United States of America at least once during each five-year period (beginning on the date of delivery of the Certificates of Obligation) an amount that is at least equal to 90 percent of the "Excess Earnings," within the meaning of Section 148(f) of the Code and to pay to the United States of America, not later than 60 days after the Certificates of Obligation have been paid in full, 100 percent of the amount then required to be paid as a result of Excess Earnings under Section 148(f) of the Code. For the purposes of the foregoing (a) and (b), the Issuer understands that the term "proceeds" includes "disposition proceeds" as defined in the Treasury Regulations and, in the case of refunding Certificates of Obligation, transferred proceeds (if any) and proceeds of the refunded Certificates of Obligation expended prior to the date of issuance of the Certificates of Obligation. It is the understanding of the Issuer that the covenants contained herein are intended to assure compliance 28 with the Code and any regulations or rulings promulgated by the U.S. Department of the Treasury pursuant thereto. In the event that regulations or rulings are hereafter promulgated which modify or expand provisions of the Code, as applicable to the Certificates of Obligation, the Issuer will not be required to comply with any covenant contained herein to the extent that such failure to comply, in the opinion of nationally-recognized bond counsel, will not adversely affect the exemption from. federal income taxation of interest on the Certificates of Obligation under Section 103 of the Code. In the event that regulations or rulings are hereafter promulgated which impose additional requirements which are applicable to the Certificates of Obligation, the Issuer agrees to comply with the additional requirements to the extent necessary, in the opinion of nationally-recognized bon counsel, to preserve the exemption from federal income taxation of interest on the Certificates of Obligation under Section 103 of the Code. In furtherance of such intention, the Issuer hereby authorizes and directs the Mayor of the Issuer to execute any documents, certificates or reports required by the Code and to make such elections, on behalf of the Issuer, which may be permitted by the Code as are consistent with the purpose for the issuance of the Certificates of Obligation. In order to facilitate compliance with the above covenant (h), a "Rebate Fund" is hereby established by the Issuer for the sole benefit of the United States of America, and such fund shall not be subject to the claim of any other person, including without limitation the Certificate of Obligation holders. The Rebate Fund is established for the additional purposes of compliance with Section 148 of the Code. Section 15. ALLOCATION OF, AND LIMITATION ON, EXPENDITURES FOR THE PROJECT. The Issuer covenants to account for the expenditure of sale proceeds and investment earnings to be used for the purposes described in Section 1 of this Ordinance (the "Project") on its books and records in accordance with the requirements of the Internal Revenue Code. The Issuer recognizes that in order for the proceeds to be considered used for the reimbursement of costs, the proceeds must be allocated to expenditures within 18 months of the later of the date that (1) the expenditure is made, or (2) the Project is completed; but in no event later than three years after the date on which the original expenditure is paid. The foregoing notwithstanding, the Issuer recognizes that in order for proceeds to be expended under the Internal Revenue Code, the sale proceeds or investment earnings must be expended no more than 60 days after the earlier of (1) the fifth anniversary of the delivery of the Certificates of Obligation, or (2) the date the Certificates of Obligation are retired. The Issuer agrees to obtain the advice of nationally-recognized bond counsel if such expenditure fails to comply with the foregoing to assure that such expenditure will not adversely affect the tax-exempt status of the Certificates of Obligation. For purposes hereof, the Issuer shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. Section 16. DESIGNATION AS QUALIFIED TAX-EXEMPT OBLIGATIONS. The Issuer 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 Issuer represents, covenants and warrants the following: (a) that during the calendar year in which the Certificates are issued, the FM Issuer (including any subordinate entities) has not designated nor will designate obligations, which when aggregated with the Certificates, will result in more than $10,000,000 of"qualified tax-exempt obligations" being issued; and (b) that the Issuer reasonably anticipates that the amount of tax-exempt obligations issued, during the calendar year in which the Certificates are issued, by the Issuer (or any subordinate entities) will not exceed $10,000,000. Section 17. DISPOSITION OF PROJECT. The Issuer covenants that the property constituting the Project will not be sold or otherwise disposed in a transaction resulting in the receipt by the Issuer of cash or other compensation, unless the Issuer obtains an opinion of nationally- recognized bond counsel that such sale or other disposition will not adversely affect the tax-exempt status of the Certificates of Obligation. For purposes of the foregoing, the portion of the property comprising personal property and disposed in the ordinary course shall not be treated as a transaction resulting in the receipt of cash or other compensation. For purposes hereof, the Issuer shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. Sec ' n 18. CONTINUING DISCLOSURE. (a) Annual Reports. (i) The Issuer shall provide ajihuaily to any SID, within six months after the end of each fiscal year ending in or after 2002, ancial information and operating data with respect to the Issuer of the general type descried in Exhibit A. Any financial statements so to be provided shall be prepared in accordance wityfhe accounting principles described in Exhibit A thereto, or such other accounting principles as the Issuer may be required to employ from time to time pursuant to state law or regulation, and audited, if the Issuer commissions an audit of such statements and the audit is completed within the period during which they must be provided. If the audit of such financial statements is not complete within such period, then the Issuer shall provide audited financial statements for the applicable fiscal year to each any SID, when and if the audit report on such statements become available. (ii) If the Issuer changes its fiscal year, it will notify any SID of the change (and of the date of the new fiscal year end) prior to the next date by which the Issuer otherwise would be required to provide financial information and operating data pursuant to this Section. The financial information and operating data to be provided pursuant to this Section may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document, if it is available from the MSRB) that theretofore has been provided to any SID or filed with the SEC. (b) Material Event Notices. The Issuer shall notify any SID or the MSRB, in a timely manner, of any of the following events with respect to the Certificates, if such event is material within the meaning of the federal securities laws: 1.Principal and interest payment delinquencies; 2.Non-payment related defaults; 3.Unscheduled draws on debt service reserves reflecting financial difficulties; 4.Unscheduled draws on credit enhancements reflecting financial difficulties; W 5.Substitution of credit or liquidity providers, or their failure to perform; 6.Adverse tax opinions or events affecting the tax-exempt status of the Certificates. 7.Modifications to rights of holders of the Certificates; 8.Certificate calls; 9.Defeasances; 10.Release, substitution, or sale of property securing repayment of the Certificates and 11.Rating changes. The Issuer shall notify any SID or the MSRB, in a timely manner, of any failure by the Issuer to provide financial information or operating data in accordance with subsection (a) of this Section by the time required by such subsection. (c) Limitations Disclaimers, and Amendments. (i) The Issuer shall be obligated to observe and perform the covenants specified in this Section for so long as, but only for so long as, the Issuer remains an "obligated person" with respect to the Certificates within the meaning of the Rule, except that the Issuer in any event will give notice of any deposit made in accordance with this Ordinance or applicable law that causes Certificates no longer to be outstanding. (ii)The provisions of this Section are for the sole benefit of the holders and beneficial owners of the Certificates, and nothing in this Section, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The Issuer undertakes to provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide pursuant to this Section and does not hereby undertake to provide any other information that may be relevant or material to a complete presentation of the Issuer's financial results, condition, or prospects or hereby undertake to update any information provided in accordance with this Section or otherwise, except as expressly provided herein. The Issuer 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. (iii)UNDER NO CIRCUMSTANCES SHALL THE ISSUER BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY Certificate OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE ISSUER, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS SECTION, 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. (iv)No default by the Issuer in observing or performing its obligations under this Section shall comprise a breach of or default under the Ordinance for purposes of any other provision of this Ordinance. Nothing in this Section is intended or shall act to disclaim, waive, or otherwise limit the duties of the Issuer under federal and state securities laws. 31 (v) The provisions of this Section may be amended by the Issuer 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 Issuer, but only if (1) the provisions of this Section, 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 holders of a majority in aggregate principal amount (or any greater amount required b y 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 Issuer (such as bond counsel) determined that such amendment will not materially impair the interest of the holders and beneficial owners of the Certificates. If the Issuer so amends the provisions of this Section, it shall include with any amended financial information or operating data next provided in accordance with subsection (a) of this Section an explanation, in narrative form, of the reason for the amendment and of the impact of any change in the type of financial information or operating data so provided. The Issuer 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. (d) Definitions. As used in this Section, 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. "SID" means any person designated by the State of Texas or an authorized department, officer, or agency thereof as, and determined by the SEC or its staff to be, a state information depository within the meaning of the Rule from time to time. Section 19. SALE OF CERTIFICATES OF OBLIGATIONS; OFF lAL STATEMENT. (a). The Initial Certificate is hereby sold and shall be delivered to SAM Capital Markets for cash for the par value thereof and accrued interest thereon to date of deli ery (accrued interest to be deposited into the Interest and Sinking Fund), plus a premium of -0 premium to be deposited into the Interest and Sinking Fund). It is hereby officially found, dete fined, and declared that the Initial Certificate has been sold at public sale to the bidder offering the lowest interest cost, after receiving sealed bids pursuant to an Official Notice of Sale and Bidding Instructions and Preliminary Official Statement dated May 10, 2002, prepared and distributed in connection with the sale of the Initial Certificate. Said Official Notice of Sale and Bidding Instructions and Official Statement, and any addenda, supplement, or amendment thereto have been and are hereby approved by the governing 32 body of the Issuer, and their use in the offer and sale of the Certificates of Obligation is hereby approved. It is further officially found, determined, and declared that the statements and representations contained in said Official Notice of Sale and Official Statement are true and correct in all material respects, to the best knowledge and belief of the governing body of the Issuer. (b)The Mayor and City Secretary and all other officers, employees and agents of the Issuer, and each of them, shall be and they are hereby expressly authorized, empowered and directed from time to time and at any time to do and perform all such acts and things and to execute, acknowledge and deliver in the name and under the corporate seal and on behalf of the Issuer a Paying Agent/Registrar Agreement with the Paying Agent/Registrar and all other instruments, whether or not herein mentioned, as may be necessary or desirable in order to carry out the terms and provisions of this Ordinance, the Certificates of Obligation, the sale of the Certificates of Obligation and the Official Statement. In case any officer whose signature shall appear on any Certificate of Obligation shall cease to be such officer before the delivery of such Certificate of Obligation, such signature shall nevertheless be valid and sufficient for all purposes the same as if such officer had remained in office until such delivery. (c)The obligation of the initial purchaser to accept delivery of the Certificates of Obligation is subject to the initial purchaser being furnished with, the final, approving opinion of McCall, Parkhurst & Horton L.L.P., bond counsel to the Issuer, which opinion shall be dated as of and delivered on the date of initial delivery of the Certificates of Obligation to the initial purchaser. The engagement of such firm as bond counsel to the Issuer in connection with issuance, sale and delivery of the Certificates of Obligation is hereby approved and confirmed. The execution and delivery of an engagement letter between the Issuer and such firm, with respect to such services as bond counsel, is hereby authorized in such form as may be approved by the Mayor, and the Mayor is hereby authorized to execute such engagement letter. Section 20. INTEREST EARNINGS ON CERTIFICATES OF OBLIGATION PROCEEDS. The earnings derived from the investment of proceeds from the sale of the Certificates of Obligation shall be used along with other Certificate of Obligation proceeds as described in Section 1 hereof, provided that after completion of such project, if any of such interest earnings remain on hand, such interest earnings shall be deposited in the Interest and Sinkig Fund. It is further provided, however, that interest earnings on the Certificates of Obligation pr ceeds which are required to be rebated to the United States of America pursuant to Section I4,1ireof in Ordinance to prevent the Certificates of Obligation from being arbitrage Certificates of obligation shall be so rebated and not considered as interest earnings for the purpose of this Section. Section 21. METHOD OF AMENDMENT. The Issuer hereby reserves the right to amend this Ordinance subject to the following terms and conditions, to-wit: (a) The Issuer may from time to time, without the consent of any holder, except as otherwise required by paragraph (b) below, amend or supplement this Ordinance in order to (i) cure any ambiguity, defect or omission in this Ordinance that does not materially adversely affect the 33 interests of the holders, (ii) grant additional rights or security for the benefit of the holders, (iii) add events of default as shall not be inconsistent with the provisions of this Ordinance and that shall not materially adversely affect the interests of the holders, (v) qualify this Ordinance under the Trust Indenture Act of 1939, as amended, or corresponding provisions of federal laws from time to time in effect, or (iv) make such other provisions in regard to matters or questions arising under this Ordinance as shall not be inconsistent with the provisions of this Ordinance and that shall not in the opinion of the Issuer's Bond Counsel materially adversely affect the interests of the holders. (b) Except as provided in paragraph (a) above, the holders of Certificates of Obligation aggregating in principal amount 51% of the aggregate principal amount of then outstanding Certificates of Obligation that are the subject of a proposed amendment shall have the right from time to time to approve any amendment hereto that may be deemed necessary or desirable by the Issuer; provided, however, that without the consent of 100% of the holders in aggregate principal amount of the then outstanding Certificates of Obligation, nothing herein contained shall permit or be construed to permit amendment of the terms and conditions of this Ordinance or in any of the Certificates of Obligation so as to: (1)Make any change in the maturity of any of the outstanding Certificates of Obligation; (2)Reduce the rate of interest borne by any of the outstanding Certificates of Obligation; (3)Reduce the amount of the principal of, or redemption premium, if any, payable on any outstanding Certificates of Obligation; (4)Modify the terms of payment of principal or of interest or redemption premium on outstanding Certificates of Obligation or any of them or impose any condition with respect to such payment; or (5)Change the minimum percentage of the principal amount of any series of Certificates of Obligation necessary for consent to such amendment. (c) If at any time the Issuer shall desire to amend this Ordinance under this Section, the Issuer shall send by U.S. mail to each registered owner of the affected Certificates of Obligation a copy of the proposed amendment and cause notice of the proposed amendment to be published at least once in a financial publication published in The City of New York, New York or in the State of Texas. Such published notice shall briefly set forth the nature of the proposed amendment and shall state that a copy thereof is on file at the office of the Issuer for inspection by all holders of such Certificates of Obligation. (d) Whenever at any time within one year from the date of publication of such notice the Issuer shall receive an instrument or instruments executed by the holders of at least 51% in aggregate 34 principal amount of all of the Certificates of Obligation then outstanding that are required for the amendment, which instrument or instruments shall refer to the proposed amendment and that shall specifically consent to and approve such amendment, the Issuer may adopt the amendment in substantially the same form. (e)Upon the adoption of any amendatory Ordinance pursuant to the provisions of this Section, this Ordinance shall be deemed to be modified and amended in accordance with such amendatory Ordinance, and the respective rights, duties, and obligations of the Issuer and all holders of such affected Certificates of Obligation shall thereafter be determined, exercised, and enforced, subject in all respects to such amendment. (f)Any consent given by the holder of a Certificate of Obligation pursuant to the provisions of this Section shall be irrevocable for a period of six months from the date of the publication of the notice provided for in this Section, and shall be conclusive and binding upon all future holders of the same Certificate of Obligation during such period. Such consent may be revoked at any time after six months from the date of the publication of said notice by the holder who gave such consent, or by a successor in title, by filing notice with the Issuer, but such revocation shall not be effective if the holders of 51% in aggregate principal amount of the affected Certificates of Obligation then outstanding, have, prior to the attempted revocation, consented to and approved the amendment. (g)For the purposes of establishing ownership of the Certificates of Obligation, the Issuer shall rely solely upon the registration of the ownership of such Certificates of Obligation on the registration books kept by the Paying Agent/Registrar. Section 22. INSURANCE. The Issuer approves the insurance of the Certificates of Obligation by Financial Guaranty Insurance Corporation and the payment of such premium and covenant to comply with all of the terms of the insurance commitment, a copy of which is attached hereto as Exhibit B and is hereby adopted by this Ordinance. 35 EXHIBIT A DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred to in Section 18 of this Ordinance. I.Annual Financial Statements and Operating Data The financial information and operating data with respect to the Issuer to be provided annually in accordance with such Section are as specified, all quantitative financial information and operating data with respect to the Issuer of the general type included in the Official Statement that is customarily prepared and publicly available. The information to be updated includes (1) the annual audited financial statements of the City and (2) information which is customarily prepared and publicly available regarding property valuation, tax rates and tax collections, information regarding the System. II.Accounting Principles The accounting principles referred to in such Section are the accounting principles described in the notes to the financial statements referred to in paragraph I above. EXHIBIT B INSURANCE COMMITMENT The Insurance Commitment is omitted at this point, as it appears elsewhere in this transcript. MOODY'S INVESTORS SERVICE New Issue: MOODY'S ASSIGNS A2 RATING TO THE CITY OF SANGER'S $3.4 MILLION GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012 Global Credit Research - 09 Mar 2012 A2 RATING AFFECTS $12.5 MILLION IN PARITY DEBT, INCLUDING CURRENT ISSUE SANGER (CITY OF) TX Cities (including Towns, Villages and Townships) TX Moody's Rating ISSUE RATING General Obligation Refunding Bonds, Series 2012 A2 Sale Amount $3,405,000 Expected Sale Date 03/09/12 Rating Description General Obligation Moody's Outlook N/A Opinion NEW YORK, March 09, 2012 --Moody's Investors Service has assigned an A2 rating on the City of Sanger's [TX] $3.4 million General Obligation Refunding Bonds, Series 2012. At the same time, Moody's has affirmed the A2 rating on the city's $9.18 million in 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 relatively small tax base near the Dallas/Fort Worth Metroplex, a healthy General Fund balance, and high yet manageable debt burdens. STRENGTHS Healthy General Fund balance Growth in tax base expected in near term 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 and increased only 0.7% in fiscal 2011. Another 2.1% decrease in fiscal 2012 yielded a total full valuation of $358 million. The top ten taxpayers are concentrated with a Wal-Mart distribution center comprising 30% of the total tax base. Officials indicated that a Sam's warehouse is locating next to the Wal-Mart which will add to the tax base during the current calendar year. Additionally, McClain's RV has purchased an empty RV lot and will renovate it into a new dealership. The city will benefit from the additional tax base as well as from the sales taxes as the recreational vehicles are sold. 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. HEALTHY GENERAL FUND BALANCE Beginning in fiscal 2009, the city broke out the Debt Service Fund from the General Fund establishing allowing the fund balances for each fund to be distinct. 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. 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 surpluses were the result of conservative budgeting and better than projected sales tax collections. For fiscal 2012, sales taxes are projected to be $80,000 over the prior year and the total General Fund balance is projected to be $880,000. The stable General Fund balance is key to the rating assignment and management has demonstrated its willingness and ability to maintain healthy fiscal operations for the long term. HIGH YET MANAGEABLE DEBT BURDENS The city's debt position is high yet manageable with debt burdens of 3.5% direct and 8.1% overall. Payout is steady with 80.9% 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 Trend of significant tax base declines Trend of declining General Fund balance KEY STATISTICS: 2012 Taxable Valuation: $358 million 2012 Full Value Per Capita: $51,766 2000 Per Capita Income: $17,840 (82.6% of US) Direct Debt Burden: 3.5% Overall Debt Burden: 8.1 % Payout of Principal (10 years): 80.9% 2011 Unassigned Balance: $800,000 (18.4% of General Fund revenues) Post-sale general obligation limited tax parity debt: $12.5 million The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology. REGULATORY DISCLOSURES Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com . For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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 . Information sources used to prepare the rating are the following: parties involved in the ratings and public information Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating. Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process. Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests. Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter. Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery. Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information. 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. Analysts Kristin Button Lead Analyst Public Finance Group Moody's Investors Service Toby Cook 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 © 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved. 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In such a case, "MIS" in the foregoing statements shall be deemed to be replaced with "MJKK". MJKK is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly owned by Moody's Overseas Holdings Inc., a wholly-owned subsidiary of MCO. This 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 investors. It would be dangerous for retail investors to make any investment decision based on this credit rating. If in doubt you should contact your financial or other professional adviser. CITY OF SANGER, TEXAS $3,495,000 GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012 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 Official Statement and the following information, if not included in the Official Statement or such statement has not been prepared. 1. Name of bond issue: City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 2. a) par amount of issue: $3,495,000 b)dollar amount of bond premium, if any: $93,684.10 c)dollar amount of bond original issue discount, if any: $29,057.50 3. Dated date: April 1, 2012 4. Closing date (expected delivery date, on or about): April 24, 2012 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: N/A. 8. Debt-service schedule, principal and interest, and annual totals, with fiscal year identified: See Official Statement. 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: See Official Statement. 11. Pledge: tax (ad valorem, sales, other), revenue, combination: Ad valorem tax 12. Type of credit enhancement (including PSF guarantee): N/A. 13. Rating service(s) and rating(s) assigned to issue: Moody's "A2" B. Additional Information 1.Type of sale: Negotiated 2.Pricing: March 20, 2012 3.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 5.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. HOU:3196163.1 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 together should equal total debt service by maturity: 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 Moody's $9,500.00 Standard & Poor's N/A Fitch N/A Other General Costs of Issuance (b)$67,000 $500 Any Specialized Costs of Issuance (c)$3,000 Credit Facility N/A Bond Insurance N/A Total Underwriting Spread (d)$29,057.50 Did underwriter pay rating fee(s)No Which one(s)? 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 Piper Jaffray & Co. Trustee None Underwriter's Counsel Fulbright & Jaworski LLP (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:3196163.1 UNITED STATES OF AMERICA STATE OF TEXAS CITY OF SANGER, TEXAS, GENERAL OBLIGATION REFUNDING BOND SERIES 2012 NUMBER PRINCIPAL AMOUNT R-1 $75,000 REGISTERED REGISTERED INTEREST RATE DATED DATE MATURITY DATE CUSIP 2.000% April 1, 2012 May 15, 2012 800876 DM3 REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: SEVENTY-FIVE THOUSAND DOLLARS THE CITY OF SANGER, TEXAS, a home rule municipality 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 Bond 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, 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 later of the Dated Date identified above or the most recent interest payment date to which interest has been paid or duly provided for. Interest on this Bond is payable on May 15, 2012, and each May 15 and November 15 thereafter until maturity of this Bond, 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 last business day of the month next preceding the applicable interest payment date, as shown on the registration books kept by the Paying Agent/Registrar. Any accrued interest payable at maturity shall be paid upon presentation and surrender of this Bond at the office of the Paying Agent/Registrar. THIS BOND IS ONE OF A DULY AUTHORIZED SERIES OF BONDS (the "Bonds") in the aggregate principal amount of $3,495,000 issued pursuant to an ordinance adopted by the City Council of the City on March 5, 2012 (the "Ordinance") for the purpose of refunding certain outstanding obligations (the "Refunded Obligations") of the City under and pursuant to the authority of Chapter 1207, Texas Government Code, as amended. Proceeds of the Bonds will also be used to pay the costs of issuing the Bonds and refunding the Refunded Obligations. Page 1 of 6 THIS BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Bond 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, Bonds maturing on or after May 15, 2021, in whole or in part, on May 15, 2020, or any date thereafter, at par plus accrued interest to the date fixed for redemption. THE BONDS MAY BE REDEEMED IN PART only in integral multiples of $5,000. If a Bond subject to redemption is in a denomination larger than $5,000, a portion of such Bond may be redeemed, but only in integral multiples of $5,000. In selecting portions of Bonds for redemption, each Bond shall be treated as representing that number of Bonds of $5,000 denomination which is obtained by dividing the principal amount of such Bond by $5,000. Upon surrender of any Bond for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of the Ordinance, shall authenticate and deliver in exchange therefor a Bond or Bonds of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered. NOTICE OF ANY SUCH REDEMPTION, identifying the Bonds 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 Bonds called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Bonds 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 BOND 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 BOND IS EXCHANGEABLE at the principal corporate trust office of the Paying Agent/Registrar for a Bond or Bonds 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 CITY OR PAYING AGENT/REGISTRAR may require the Registered Owner of any Bond 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 Bond. Any fee or charge of the Paying Agent/Registrar for a transfer or exchange shall be paid by the City. Page 2 of 6 THE REGISTERED OWNER of this Bond 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 Bond 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 Bond have been performed, exist and have been done in accordance with law; that the Bonds 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 Bond, as such interest 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. 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 Bonds assent by acceptance of the Bonds. Page 3 of 6 IN WITNESS WHEREOF, the City has caused its corporate seal to be impressed or placed in facsimile hereon and this Bond to be signed by the Mayor, countersigned by the City Secretary by their manual, lithographed or printed facsimile signatures. CITY OF SANGER, TEXAS Mayor (SEAL) COUNTERSIGNED: City Secretary * Page 4 of 6 AUTHENTICATION CERTIFICATE This Bond is one of the Bonds described in and delivered pursuant to the within- mentioned Ordinance; and, except for the Bonds initially delivered, this Bond has been issued in exchange for or replacement of a Bond, Bonds, or a portion of a Bond or Bonds of an issue which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. BOKF, NA dba BANK OF TEXAS as Paying Agent/Registrar By: Authorized Signature:_ Date of Authentication: Page 5 of 6 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 the within Bond on the books kept for registration thereof, with full power of substitution in the premises. DATED: Signature Guaranteed: Registered Owner NOTICE: Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. 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 6 of 6 MUNICIPAL SECONDARY MARKET DISCLOSURE INFORMATION COVER SHEET This cover sheet should be sent with all submissions made to the Municipal Securities Rulemaking Board, National Recognized Municipal Securities Information Repositories, and any applicable State Information Depository pursuant to Securities and Exchange Commission Rule 15c2-12 or any analogous state statute. Issuer's and/or Other Obligated Person's Name: City of Sanger, Texas CU SIP Number (attach additional sheet if necessary): © Nine-digit number(s) to which the information relates: See attached O Information relates to all securities issued by the issuer having the following six-digit number(s): Number of pages of attached information: Description of Material Event Notice/Financial Information (Check One): 1._ Principal and interest payment delinquencies 2.— Non-payment related defaults 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 or events affecting the tax-exempt status of the security 7._ Modifications to rights of security holders 8.X Bond calls 9.X Defeasances 10._ Release, substitution, or sale of property securing repayment of the securities 11.Rating changes 12._ Failure to provide annual financial information as required 13._ Other material event notice (specify): * 14. _ Financial information: Please check all appropriate boxes: OCAFR: (a) O includes O does not include Annual Financial Information (b) O Audited? Yes O No O O Annual Financial Information: Audited? Yes O No O O Operating Data Fiscal Period Covered: *Financial information should not be filed with the MSRB. I hereby represent that I am authorized by the issuer or its agent to distribute this information publicly: Name: Hoang T. Vu Title: Attorney Employer:Andrews Kurth LLP Address: 600 Travis., Suite 4200 City, State, Zip Code: Houston, TX 77002 Voice Telephone Number: (713) 220-4200 Date: November 4, 2011 HOU:3229468.1 CUSIP NOS. Combination Tax and Revenue Certificates of 800876BW3 Obligation, Series 2002 800876BX1 800876BY9 800876BZ6 800876CAO 800876CB8 800876CC6 800876CD4 800876CF9 Utility System Revenue Bonds, Series 2002 800890GE9 800890GF6 800890GG4 800890GH2 800890GJ8 800890GK5 800890GL3 800890GP4 Utility System Revenue Bonds, Series 1996 800890FC4 800890FD2 800890FEO 800890FF7 HOU:3229468.1 CITY OF SANGER, TEXAS P. 0. Box 1729 Sanger, Texas 76266 March 21, 2012 The Bank of New York Mellon Trust Company, N.A. Attu, Corporate Trust Services 2001 Bryan Street Ii th Floor Dallas, TX 75201 Re: City of Sanger, Texas General Obligation Refunding Bonds, Series 2012 (the "Bonds") Ladies and Gentlemen: The City has authorized the issuance of the referenced Bonds for the purpose of refunding certain of the City's Utility System Revenue Bonds, Series 1996, Utility System Revenue Bonds, Series 2002, and Combination Tax and Revenue Certificates of Obligation, Series 2002 (together, the "Refunded Obligations'). The ordinances authorizing the issuance of the Refunded Obligations (the "Ordinances") require that written notice be sent in the name of the City not less than 30 days prior to a redemption date. As paying agent/registrar for the Refunded Obligations, The [lank of New York Mellon Trust Company, N.A.is instructed to send notices in connection with the Refunded Obligations in accordance with the Ordinances. Please acknowledge your receipt of this letter and the enclosures by signing the enclosed counterpart of this letter in the space provided below and returning it to Hoang T. Vu at Andrews Kurth LLP, 600 Travis, Suite 4200, Houston, Texas 77002. HOU:3229468.1 CITY OF SANGER, TEXAS City Manager HOU:3229468.1 Aeknwkdged Ibis day f _,2012- IUE. Bi\NK oj: NW YORK MELLON TRUST COMPANY, N.A. Nom"! •. HOU:3229468.1 NOT-ICE OF RllWMF11ON NOTICE is hereby given that the City of Sanger, Texas (the "City") has called for redemption the following obligations of the City on April 24, 2012: CITY OF SANGER, TEXAS UTILITY SYSTEM REVENUE BONDS, SERIES 1996, dated March 15, 1996, maturing on May 15 in the years 2013 through 2016, inclusive, as shown below: Bond Maturity Interest Par Call call Date Rate ,rnOunt Date Price Series 1996 Utility Bonds (eurtent), 1996: BOND 5/1512013 4.7001/6 70,000.00 4/2412012 100.000 5/15/2014 4.7(10%75,000.00 4/24/2012 100.000 5/15/2015 4.750%*10,000.00 4/24/2012 100.000 5/1512016 4.750%85,000.00 4124/2012 100,000 310,000.00 The redemption price fbi the above obligations is 100% of the par value thereof as of the date of redemption. Upon the City's making due provision for the payment of the redemption price thereof, the obligations shall become due and payable on the redemption date and the interest thereon shall cease to accrete from and after the date of redemption. The redemption price for the bonds shall be paid upon presentation and surrender by the holder thereof at the principal payment office of The Bank of New York Mellon Trust Company, N.A., 2001 Bryan Street 11th Floor, Dallas, Texas 75201. Dated: ?_:2.0 ,20I2 City Manager, City of Sanger, Texas HOU:3229468.1 NOTICE OF REDEMPTION NOTICE is hereby given that the City of Sanger, Texas (the "City") has called for redemption the following obligations of the City on May 15, 2012: CITY OF SANGER, TEXAS UTILITY SYSTEM REVENUE BONDS, SERIES 2002, dated June 1, 2002, maturing on May 15 in the years 2013 through 2019, inclusive, and 2022, as shown below: Bond Maturity Interest Par call Call Date Rate Amount Date Price Scrics 2002 1iffly Bonds (cunnt). 2002: SIflI1/tL 511512013 4.800 019 125,0000 5/1512012 100.000 311512014 4.900%130,000.00 5/1512012 100.000 5/1512015 5.000%140,000.00 511512012 100.000 5/15/2016 5.100%145,000.00 511512012 100.000 5/1512017 5.100%155,000.00 5/1512012 100.000 5/15/2018 5,200%160,000,00 5115)2012 100.000 511512019 5.300%170.000.00 5/1512012 100.000 TE11M22 5/15/2022 5.400%565,000.00 5/15/2012 100.000 1,590,000.00 The redemption price for the above obligations is 100% of the par value thereof as of the date of redemption. Upon the City's making due provision for the payment of the redemption price thereof, the obligations shall become due and payable on the redemption date and the interest thereon shall cease to accrete from and after the date of redemption. The redemption price for the bonds shall be paid upon presentation and surrender by the holder thereof at the principal payment office of The Bank of New York Mellon Trust Company, N.A., 2001 Bryan Street 1 ith Floor, Dallas, Texas 75201. Dated: '- -5 2012 • City Manager, City of Sanger, Texas HOU:3229468.1 NOTICE OF RE[HMFTION NOTICE is hereby given that. the City of Sanger, Texas (the "City") has called for redemption the following obligations of the City on September 1, 2012: CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2002, dated June 1, 2002, maturing on June 15 in the years 2013 through 2020, inclusive, and 2022, as shown below: Bond Maturity Interest Par call Call Date Rate Amount Date Price Seri 2002 GO Bonds (d), 2002 GO: SERIA1. 9/112013 4.400%120,000.00 9/1/2012 100.000 911/2014 4.500%125,000.00 91112012 100.000 911/2015 4.500%130,000.00 9/1/2012 100.000 911/2016 4.600%135,000.00 911/2012 100.000 911/2017 4.700%145,000.00 91112012 100.000 91112018 4.750%150,000.00 911/2012 IOOMOO 9/1/2019 4.900%160,000.00 91112012 100.000 9/1/2020 5.000%170,000.00 9/112012 100.000 TERM 22 91112022 5.000%360,000.00 9/112012 100.000 1,495,000,00 The redemption price for the above obligations is 100% of the par value thereof as of the date of redemption. Upon the City's making due provision for the payment of the redemption price thereof, the obligations shall become due and payable on the redemption date and the interest thereon shall cease to accrctc from and after the date of redemption. The redemption price for the bonds shall be paid upon presentation and surrender by the holder thereof at the principal payment office of The Bank of New York Mellon Trust Company, N,A. 2001 Bryan Street 11th Floor, Dallas, Texas 75201. Dated: 2012 City Manager, City ofIffg Texas HOU:3229468.1