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HomeMy WebLinkAbout05-13-02-Ordinance-Issuing Certificates of Obligation Series 2002 Street Repairs-05/20/2002Ordinance 05-13-02 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 of 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 -Chronicle, which is a newspaper of general circulation in said City, in its issue of May 3, 2002; and 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 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: 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 collectively 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) The Initial Certificate of Obligation is hereby authorized to be issued, sold, and delivered hereunder as a single fully registered Certificate of Obligation, without interest coupons, dated June 1, 2002, in the denomination and aggregate principal amount of $2,360,000, numbered R 1, payable in annual installments of principal to the initial registered owner thereof, to -wit: , 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 4 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 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: NO. R-1 FORM OF INITIAL CERTIFICATE OF OBLIGATION UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF DENTON CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATE OF OBLIGATION SERIES 2002 $2,360,000 CITY OF SANGER, in DENTON COUNTY (the "Issuer"), being a political subdivision of the State of Texas, hereby promises to pay to 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 in annual installments of principal due and payable on September 1 in each of the years, and in the respective principal amounts, as set forth in the following schedule: 1/em1_ u 0 10 /, 0 : u• 110MI 2003 40,000 2013 120,000 2004 75,000 2014 125,000 2005 80,000 2015 130,000 2006 85,000 2016 135,000 2007 85,000 2017 145,000 2008 90,000 2018 150,000 2009 95,000 2019 160,000 2010 100,000 2020 170,000 3 2011 105,000 2021 175,000 2012 110,000 2022 185,000 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, % maturity 2013, % maturity 2004, % maturity 2014, % maturity 2005, % maturity 2015, % maturity 2006, % maturity 2016, % maturity 2007, % maturity 2017, % maturity 2008, % maturity 2018, % maturity 2009, % maturity 2019, % maturity 2010, % maturity 2020, % maturity 2011, % maturity 2021, % maturity 2012, % maturity 2022, % with said interest being payable on March 1, 2003 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, lust -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 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 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 maybe 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. 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 5 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 AgentRRegistrar 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 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 whichthey 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. 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 of Obligation, as such interest and principal come due, have been levied and ordered to be levied against all taxable property in the Issuer, and have been pledged for such payment, within the limit prescribed by 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 the registered owner hereof and the Issuer. 7 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 CITY SEAL Mayor FORM OF REGISTRATION CERTIFICATE OF THE COMPTROLLER OF PUBLIC ACCOUNTS: 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 thereofonce 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 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. Ifany 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 E 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 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 Exchaneg or Replacement; Authentication Each Certificate of Obligation 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 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 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 11 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. 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 printing, execution, and delivery of the substitute Certificates of Obligation in the manner prescribed herein, and said Certificates of Obligation shall be of type composition printed on paper with lithographed or steel engraved borders of customary weight and strength. Pursuant to Chapter 1201, Texas Government Code, the duty of conversion and exchange or replacement of Certificates of Obligation as aforesaid is hereby imposed upon the Paying Agent/Registrar, and, upon the execution of the above Paying Agent/Regish&s Authentication Certificate, the converted and exchanged or replaced Certificate ofObligation 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 12 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) withrespect 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 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, fast -class postage prepaid, which notice also shall give the address of the new Paying 13 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 ofthe maturities thereof. Upon initial issuance, the ownership of each such Certificate of Obligation shall be registered in the name of Cede & Co., as nominee ofDepository 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 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 ofObligation 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 14 to such new nominee of DTC. (i) Successor Securities DepositM. 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 Obligationholders transferring or exchanging Certificates of Obligation shall designate, in accordance with the provisions of this Ordinance. 0) 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 of DTC, 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 Obligation 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. 15 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 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 and to pay interest thereon from June 1, 2002 to the maturity date specified above, or the date of redemption prior to maturity, at the interest rate per annum specified above with interest being payable on March 1, 2003, and semiannually on each September 1 and March 1 thereafter; except that if the date of authentication of this Certificate of Obligation is later than 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 daze, 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" for this Certificate of Obligation. The 16 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. 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. 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 AgendRegistrar 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. 17 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 of the 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 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 18 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 ofthis 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 19 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 taxable property in the Issuer, and have been pledged for such payment, within the limit prescribed by 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 Issuer to be duly impres;d, or placed in facsimile, on this Certificate of Obligation. Cep tr1*tary Mayor IS ALfa °F OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE I',4 PAYINGAGENT/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 ofand 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 :A 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 Including Payer Identification Number) 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 NOTICE: This signature must be guaranteed by a member of the New York Stock Exchange or a commercial bank or trust company. 21 NOTICE: This signature must correspond with the name of the Registered Owner appearing on the face of this Certificate of Obligation in every 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 and Sinking Fund shall be established and maintained by the Issuer at an official depository bank of the 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 Certificates of Obligation as such interest comes due, and to provide and maintain a sinking fund adequate to pay the principal of its Certificates of Obligation as such principal matures (but never less than 2% of the 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 credit of the aforesaid Interest and Sinking Fund. Said ad valorem taxes sufficient to provide for the payment of the interest on and principal of the Certificates of Obligation, as such interest comes due and such principal matures, are hereby pledged for such payment, within the limit prescribed 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 ofthe 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 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, being the Issuer's Waterworks, Sewer and Electric Systemwith such amount not to exceed $1,000, constituting "Surplus Revenues". The 22 Issuer shall deposit such Surplus Revenues to the credit of the Interest and Sinking Fund created pursuant to Section 8, to the extent necessary to pay the principal and interest on the Certificates of Obligation. Notwithstanding the requirements of Section 8, if Surplus Revenues or other lawfully available funds are actually on deposit or budgeted for deposit 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 I I(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 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 23 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 I l(a)(i) or (h). 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 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 24 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 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 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. (e) Authority for Issuing Replacement Certificates of Obligation In accordance with Chapter 1201, Texas Government Code, this Section 12 of this Ordinance shall constitute authority for the issuance of any such replacement certificate of obligation without necessity of further action by the governing body ofthe Issuer or any other body or person, and the duty of the replacement of such certificates of obligation is hereby authorized and imposed upon the Paying Agent/Registrar, and the Paying 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 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 25 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(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 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; (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 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 27 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 FORTHE 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 ofnationally-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 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 28 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 ofObligation. 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 18. CONTINUING DISCLOSURE. (a) Annual Reports. (i) The Issuer shall provide annually to any SID, within six months after the end of each fiscal year ending in or after 2002, 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 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; 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 29 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) UNDERNO CIRCUMSTANCES SHALL THE ISSUERBE 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. (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 9 majority in aggregate principal amount (or any greater amount required by any other provision of this Ordinance that authorizes such an amendment) of the Outstanding Certificates consent to such amendment or (b) a person that is unaffiliated with the 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 ofthis 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; OFFICIAL STATEMENT. The Initial Certificate is hereby sold and shall be delivered to for cash for the par value thereofand accrued interest thereon to date of delivery (accrued interest to be deposited into the Interest and Sinking Fund), plus a premium of $ (premium to be deposited into the Interest and Sinking Fund). It is hereby officially found, determined, 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 body of the Issuer, and their use in the offer and sale of the Certificates 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. 31 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 Sinking Fund. It is further provided, however, that interest earnings on the Certificates of Obligation proceeds which are required to be rebated to the United States of America pursuant to Section 14 hereof 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 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; 32 (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 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) Uponthe 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 ofthe Certificates of Obligation by and the payment of such premium and covenant to comply with all 33 of the terms of the insurance commitment, a copy of which is attached hereto as Exhibit B and is hereby adopted by this Ordinance. 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. 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. "R li i INSURANCE COMMITMENT The Insurance Commitment is omitted at this point, as it appears elsewhere in this transcript. TRANSCRIPT OF PROCEEDINGS RELATING TO $2,360,000 CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION SERIES 2002 McCall, Parkhurst &Horton L.L.P. 717 N. Harwood, 9"' Floor Dallas, Texas 75201 $2,360,000 City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation Series 2002 Table of Contents Document Number Certified Resolution Authorizing Publication of Notice of Intent to Issue Certificates of Obligation I Acknowledgment of Notice of Special Meeting for Absentee 2 Affidavits of Publication 3 Certified Ordinance Authorizing Issuance of the Certificates 4 Municipal Bond Insurance Policy and Commitment 5 Preliminary Official Statement 6 Official Statement � Paying Agent/Registrar Agreement g General Certificate 9 Certificate of Bond Insurer 10 Attorney General and Comptroller Instruction Letter 11 Approving Opinion of Attorney General of Texas and Certificate of Registration of Comptroller of Public Accounts 12 Rating Letter 13 Certificate of Underwriter Regarding Issue Price 14 Federal Tax Certificate 15 Information Return for Tax -Exempt Government Bond Issues Form 8038-G, and Transmittal 16 City's Letter of Closing Instructions to the Paying Agent/Registrar 17 Receipt and Delivery Certificate 18 Issuer's Receipt of Payment 19 Specimen Certificate 20 Opinion of Counsel to the Insurer 21 Opinion of on Counsel 22 CERTIFICATE FOR RESOLUTION THE STATE OF TEXAS § COUNTY OF DENTON § CITY OF SANGER § We, the undersigned officers of said City, hereby certify as follows: l . The City Council of said City convened in SPECIAL MEETING ON THE 29TH DAY OF APRIL, 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 Andy Garza, Mayor Pro Tem Carroll McNeill Glen Ervin Joe Higgs Craig Waggoner Rosalie Chavez, City Secretary and all of said persons were present, except the following absentees: Craig Waggoner, thus constituting a quorum. Whereupon, among other business, the following was transacted at said Meeting: a written RESOLUTION DIRECTING PUBLICATION OF NOTICE OF INTENTION TO ISSUE CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES_ 2002 was duly introduced for the consideration of said City Council and read in full. It was then duly moved and seconded that said Resolution be 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 "Ave" NOES: None 2. That a true, full and correct copy of the aforesaid Resolution passed at the Meeting described in the above and foregoing paragraph is attached to and follows this Certificate; that said Resolution has been duly recorded in said City Council's minutes of said Meetings 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 Resolution 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, 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 Resolution for all purposes. SIGNED AND SEALED the 29th day of April, 2002. City Secretary Mayor RESOLUTION NO. DIRECTING PUBLICATION OF NOTICE OF INTENTION TO ISSUE COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2002 THE STATE OF TEXAS COUNTY OF DENTON CITY OF SANGER WHEREAS, the City deems it advisable to give notice of intention to issue Combination Fax and Revenue Certificates of Obligation in the 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 I or paying legal, fiscal and engineering fees in connection with such projects; and WHEREAS, it is hereby officially found and determined that the meeting at which this Resolution was passed, 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. THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SANGER: 1. That attached hereto is a form of the Notice of Intention to issue Combination Tax and Revenue Certificates of Obligation, the form and substance of which is hereby adopted and approved. 2. That the City Secretary shall cause said notice to be published in substantially the form attached hereto, in a newspaper of general circulation in said City, and published in said City, on the same day in each of two consecutive weeks, the date of the first publication thereof to be at least 14 days prior to the time set for the issuance of such certificates of obligation as shown in said notice. 3. That this Resolution shall become effective immediately upon adoption. APPROVED AND ADOPTED on the 29th day of April, 2002 v v Tommy caid, Mayor ATTEST: Rosalie (Mavaz � 4 `\ City Secrary I �� � V "'A aOn CITY OF SANGER NOTICE OF INTENTION TO ISSUE COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2002 The City of Sanger does hereby give notice of intention to issue Combination Tax and Revenue Certificates of Obligation, Series 2002, in the maximum principal amount not to exceed $213603000 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 such projects. The City proposes to provide for the payment of such Certificates of Obligation from the levy and collection of ad valorem taxes in the City as provided by law, and from a limited pledge of the surplus revenues of the City's Utility System, being the City'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 City's revenue bonds or other obligations (now or hereafter outstanding), which are payable from all or any part of the Net Revenues ofthe City's Utility System. The City Council intends to consider for passage an Ordinance authorizing the issuance of City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2002, at the City Hall, Sanger, Texas, at a Regular Meeting to be held at 700 P.M. on May 20, 2002. Tommy Kincaid, Mayor ACKNOWLEDGMENT OF NOTICE OF SPECIAL MEETING FOR ABSENTEES THE STATE OF TEXAS § COUNTY OF DENTON § CITY OF SANGER § The undersigned officer or member of the City Council of said City acknowledges and certifies that he or she was duly and sufficiently notified officially and personally, in advance, of the time, place, and purpose of the Special Meeting of said City, which was held at the regular designated meeting place in said City on Apri129, 2002, and that an RESOLUTION DIRECTING PUBLICATION OF NOTICE OF INTENTION TO ISSUE CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2002 would be duly introduced and considered for passage at said Special Meeting, and that he or she consented in advance to the holding of said Special Meeting for such purpose. SIGNED the 30th day of April , 2002. THE STATE OF TEXAS COUNTY OF DENTON CITY OF SANGER AFFIDAVIT OF PUBLICATION r, BEFORE ME, a notary public in and for the above named County, on this day personally appeared the person whose name is subscribed below, who, having been duly sworn, says upon oath that he or she is a duly authorized officer or employee of the DENTON RECORD -CHRONICLE, which is a newspaper of general circulation in the above named County, devoting not less than 25% of its total column lineage to the carrying of items of general interest, published not less frequently than once each week, entered assecond-class postal matter in the county where published, and having been published regularly and continuously for not less than 12 months prior to the making of any publication; and that a true and correct copy of the NOTICE OF INTENTION TO ISSUE COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2002, a clipping of which is attached to this Affidavit, was published in said Newspaper on the following date: May 3, 2002 / u Authorized Officer or Employee SUBSCRIBED AND SWORN TO BEFORE ME on the �. day of �, 2002. 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E O N '0 O C R OI O m Z O U y0.. +L O i- U N 1- }O C H a THE STATE OF TEXAS COUNTY OF DENTON CTI'Y OF SANGER 0 BEFORE ME, a notary public in and for the above named County, on this day personally appeared the person whose name is subscribed below, who, having been duly sworn, says upon oath that he or she is a duly authorized officer or employee of the BANGER COURIER, which is a newspaper of general circulation in the above named County, devoting not less than 25% of its total column lineage to the carrying of items of general interest, published not less frequently than once each week, entered assecond-class postal matter in the county where published, and having been published regularly and continuously for not less than 12 months prior to the making of any publication; and that a true and correct copy of the NOTICE OF INTENTION TO ISSUE COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2002, a clipping of which is attached to this Affidavit, was published in said Newspaper on the following dates: May 9, 2002 May 16, 2002 Authorized Officer or Employee SUBSCRIBED AND SWORN TO BEFORE ME on the �i'V day of 002. �P��vP('Qn Si�MANTfiA RENZ , 0 PUBLIC � >TA7'F Off' T);<YAS Vogt! My Commission Expires 09-11-2002 Sange► Courier CITY OF NOTICE OF INTENTION TO ISSUE COMBINATION TAX AND CERTIFICATES OF OBLIGATION, SERIES 2002 The City of Sanger does hereby give notice of intention to issue Combination Tax and Revenue Certificates of Obliga. tion, Series 2002, in the maximum principal amount not to exceed $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 engi- neering fees in connection with such projects. The City pro- poses to provide for the payment of such Certificates of Obli- gation from the levy and collection of ad valorem taxes in the City as provided by law, and from a limited pledge of the sur- plus revenues of the City's Utility System, being the City's Waterworks, Sewer and Electric System, remaining after pay- ment of all operation and maintenance expenses thereof, and all debt service, reserve, and other requirements in connection with all of the City's revenue bonds or other obligations (now or hereafter outstanding), which are payable from all or any part of the Net Revenues of the City's Utility System. The City Council intends to consider for passage an Ordinance authorizing the issuance of City of Sanger, Texas Combina- tion Tax and Revenue Certificates of Obligation, Series 2002, at the City Hall, Sanger, Texas, at a Regular Meeting to be held at 7:00 P.M. on May 20, 2002. Tommy Kincaid, Mayor M9/2tb CERTIFICATE FOR ORDINANCE THE STATE OF TEXAS OnT n.rrry nr nnrrrnqKr CITY OF SANGER We, the undersigned officers of said City, hereby certify as follows: 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 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 $2936090009 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 A 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. I The Mayor of said City has approved and hereby approves the aforesaid Ordinance; that the Mayor and the City Secretary of said Citv have duly signed said Ordinance: and that the Mayor and the Cite Secretar\• 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. ayor ORDINANCE 05-13-02 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 $293609000, 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 W[ REAS, 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 of 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 WI REAS, said notice has been duly published in the Denton Records -Chronicle, which is a newspaper of general circulation in said City, in its issue of May 3, 2002; and 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 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: 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 1 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 collectively 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) The Initial Certificate of Obligation is hereby authorized to be issued, sold, and delivered hereunder as a single fully registered Certificate of Obligation, without interest coupons, dated June 1, 2002, in the denomination and aggregate principal amount of $2,360,000, numbered R-1, payable in annual installments of principal to the initial registered owner thereof, to -wit: SAMCO Capital Markets, 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 ofthe 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 I 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: NO. R-1 FORM OF INITIAL CERTIFICATE OF OBLIGATION UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF DENTON CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATE OF OBLIGATION SERIES 2002 $2,360,000 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 I iUNDRED SIXTY THOUSAND DOLLARS in annual installments of principal due and payable on September 1 in each of the years, and in the respective principal amounts, as set forth in the following schedule: . YEAR AMOUNT YEAR AMOUNT 2003 405000 2013 12000 2004 75;000 2014 1251000 2005 801000 2015 1307000 2006 8500 2016 1353000 2007 855000 2017 145,000 2008 901000 2018 1505000 2009 955000 2019 1601000 2010 1001000 2020 1705000 2011 1055000 ----------- 2012 1103000 2022 3605000 and to pay interest, from the date of this Certificate of Obligation hereinafter stated, on the balance 3 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 70 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, 2003 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 hereofthrough 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. 1. 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 0 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 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 ,all 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 September 1, 2021 September 1, 2022 Principal $175,000 $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 ofthe 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 )bligation) 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 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 ofthe 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 hereofis 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/Registrarfnr 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 of Obligation, as such interest and principal come due, have been levied and ordered to be levied against all taxable property in the Issuer, and have been pledged for such payment, within the limit prescribed by 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 ofthe 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: 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 FLORID& 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 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 US 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 ofthe 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 of the 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 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 ofthe 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 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 printing, execution, and delivery ofthe substitute Certificates of Obligation in the manner prescribed herein, and said Certificates of Obligation shall be of type composition printed on paper with lithographed or steel engraved borders of customary weight and strength. Pursuant to Chapter 1201, Texas Government Code, the duty of conversion and exchange or replacement of Certificates of 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. I (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 Paving A�ent/Re isg_trar. 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 inally 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 DepositoryTransfers 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 of DTC, 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 Obligation 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 ofPaying 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. NO. FORM OF SUBSTITUTE CERTIFICATE OF OBLIGATION 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 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 principal amount of assignee hereof (either being hereinafter. called the "registered owner") the 17•� and to pay interest thereon from June 1, 2002 to the maturity date specified above, or the date of redemption prior to maturity, at the interest rate per annum specified above with interest being payable on March 1, 2003, and semiannually on each September 1 and March 1 thereafter; except that if the date of authentication of this Certificate of Obligation is later than 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" for this 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 I 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. ON SEPTEMBER I, 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 September 1, 2021 September 1, 2022 Principal Amounts $175,000 $185,000 (payment at maturity) The principal amount of the Certificates of Obligation rec}uired 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 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 thereofwhich 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 (1) 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 hereoffor all purposes, including payment and discharge ofliability 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 th_e 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 m 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 taxable property in the Issuer, and have been pledged for such payment, within the limit prescribed by 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 ofthe 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 Issuer to be duly impressed, or placed in facsimile, on this Certificate of Obligation. City Secretary CITY SEAL Mayor 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 Authorized Representative FORM OF ASSIGNMENT: ASSIGNMENT FOR VALUE RECEIVED, the undersigned registered owner ofthis Certificate of Obligation, or duly authorized representative or attorney thereof, hereby assigns this Certificate of Obligation to (Assignee's Social Security or Tax Payer Identification Number) and hereby irrevocably constitutes and appoints (Print or type Assignee's Name and Address Including Zip Code) attorney, to transfer the registration ofthis 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 ofthis 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 and Sinking Fund shall be established and maintained by the Issuer at an official depository bank of the 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 Certificates of Obligation as such interest comes due, and to provide and maintain a sinking fund adequate to pay the principal of its Certificates of Obligation as such principal matures (but never less than 2% of the 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 credit of the aforesaid Interest and Sinking Fund. Said ad valorem taxes sufficient to provide for the payment of the interest on and principal of the Certificates of Obligation, as such interest comes due and such principal matures, are hereby pledged for such payment, within the limit prescribed 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, being the Issuer's Waterworks, Sewer and Electric System with such amount not to exceed $1,000, constituting "Surplus Revenues". The Issuer shall deposit such Surplus Revenues to the credit of the Interest and Sinking Fund created pursuant to Section 8, to the extent necessary to pay the principal and interest on the Certificates of Obligation. Notwithstanding the requirements of Section 8, if Surplus Revenues or other lawfully available funds are actually on deposit or budgeted for deposit 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 E 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 I I(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 Obli a tion. 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 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 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. (e) Authority for Issuing Replacement Certificates of Obligation. In accordance with Chapter 12015 Texas Government Code, this Section 12 of this Ordinance shall constitute authority for the issuance of any such replacement certificate of obligation 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 certificates of obligation is hereby authorized and imposed upon the Paying Agent/Registrar, and the Paying 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(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 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 Ithan 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) ofthe 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 il such proceeds are needed for the purpose for which the Certificates of 30 days or less unt 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 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 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. Section 18. CONTINUING DISCLOSURE. (a) Annual Reports. (i) The Issuer shall provide annually to any SID, within six months after the end of each fiscal year ending in or after 2002, 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 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; 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 (I) 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 by any other provision of this Ordinance that authorizes such an amendment) of the Outstanding Certificates consent to such amendment or (b) a person that is unaffiliated with the 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 start to be, a state information depository within the meaning of the Rule from time to time. Section 19. SALE OF CERTIFICATES OF OBLIGATIONS; OFFICIAL STATEMENT. (a) The Initial Certificate 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 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 Sinking Fund. It is further provided, however, that interest earnings on the Certificates of Obligation proceeds which are required to be rebated to the United States of America pursuant to Section 14 hereof 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 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 ofthe 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 ofthe 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 ofthe 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 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 1 above. � C i INSURANCE COMMITMENT The Insurance Commitment is omitted at this point, as it appears elsewhere in this transcript. Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 (212) 312-3000 (800)352-0001 A GE Capital Company Municipal Bond New Issue Insurance Policy N Issuer: City of Sanger, Texas Bonds: $2,360,000 in aggregate principal amount of Combination Tax and Revenue Certificates of Obligation, Series 2002 TX DISCLOSURE OF GUAR. FUND NONPARTICIPATION In the fulfill its this policy certificate ava�rt or be hb Ww a unabia to ctua contral obligation under or oontrM or appliestion evidence of coverage, protected by an insurance guaranty other solvency protection arrangement. Policy Number: 02010704 Control Number: 0010001 Premium: $17,500.00 the or not fund Financial Guaranty Insurance Company ("Financial Guaranty"), a New York stock insurance company, in consideration of the payment of the premium and subject to the terms of this Policy, hereby unconditionally and irrevocably agrees to pay to State Street Bank and Trust Company, N.A., or its successor, as its agent (the "Fiscal Agent"), for the benefit of Bondholders, that portion of the principal and interest on the above -described debt obligations (the "Bonds") which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. Financial Guaranty will make such payments to the Fiscal Agent on the date such principal or interest becomes Due for Payment or on the Business Day next following the day on which Financial Guaranty shall have received Notice of Nonpayment, whichever is later. The Fiscal Agent will disburse to the Bondholder the face amount of principal and interest which is then Due for Payment but is unpaid by reason of Nonpayment by the Issuer but only upon receipt by the Fiscal Agent, in form reasonably satisfactory to it, of (i) evidence of the Bondholder's right to receive payment of the principal or interest Due for Payment and (ii) evidence, including any appropriate instruments of assignment, that all of the Bondholder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Financial Guaranty. Upon such disbursement, Financial Guaranty shall become the owner of the Bond, appurtenant coupon or right to payment of principal or interest on such Bond and shall be fully subrogated to all of the Bondholder's rights thereunder, including the Bondholder's right to payment thereof. This Policy is non -cancellable for any reason. The premium on this Policy is not refundable for any reason, including the payment of the Bonds prior to their maturity. This Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bond. As used herein, the term "Bondholder" means, as to a particular Bond, the person other than the Issuer who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof. "Due for Payment" means, when referring to the principal of a Bond, the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity and means, when referring to interest on a Bond, the stated date for payment of interest. "Nonpayment" in respect of a Bond means the failure of the Issuer to have provided sufficient funds to the paying agent for payment in full of all principal and interest Due for Payment on such Bond. "Notice" means telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from a Bondholder or a paying Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 (212)312-3000 (800)352-0001 A GE Capital Company Municipal Bond New Issue Insurance Policy agent for the Bonds to Financial Guaranty. "Business Day" means any day other than a Saturday, Sunday or a day on which the Fiscal Agent is authorized by law to remain closed. In Witness Whereof, Financial Guaranty has caused this Policy to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. O✓ .00 �5 President Effective Date: June 19, 2002 - State Street Bank and Trust Company, N.A., acknowledges that it has agreed to perform the duties of Fiscal Agent under this Policy. Authorized Officer Form 9000 (10/93) Page 2 of 2 Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 (212)312-3000 (800)352-0001 A GE Capital Company Endorsement To Financial Guaranty Insurance Company Insurance Policy Policy Number: 02010704 Control Number: 0010001 It is further understood that the term "Nonpayment" in respect of a Bond includes any payment of principal or interest made to a Bondholder by or on behalf of the issuer of such Bond which has been recovered from such Bondholder pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. NOTHING HEREIN SHALL BE CONSTRUED TO WAIVE, ALTER, REDUCE OR AMEND COVERAGE IN ANY OTHER SECTION OF THE POLICY. IF FOUND CONTRARY TO THE POLICY LANGUAGE, THE TERMS OF THIS ENDORSEMENT SUPERSEDE THE POLICY LANGUAGE. In Witness Whereof, Financial Guaranty has caused this Endorsement to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. President Effective Date: June 19, 2002 Acknowledged as of the Effective Date written above: Authorized Officer State Street Bank and Trust Company, N.A., as Fiscal Agent Authorized Representative Financial Guaranty Insurance Company 125 Park Avenue r New York, NY 10017 JU V 1,� (212)312-3000 (800)352-0001 A GE Capita'Company Commitment For Municipal Bond Insurance Issuer: City of Sanger, Texas (Denton County) Bonds Insured: $2,360,000 in principal amount of Combination Tax and Revenue Certificates of Obligation, Series 2002 Date of Commitment: May 21, 2002 Expiration Date: July 22, 2002* Premium: $17,500 FINANCIAL GUARANTY INSURANCE COMPANY ("Financial Guaranty") A Stock Insurance Company hereby commits to issue a Municipal Bond New Issue Insurance Policy (the "Policy"), in the form attached hereto as Exhibit A, relating to the above -described debt obligations (the "Bonds"), subject to the terms and conditions contained herein or added hereto. To keep this Commitment in effect after the Expiration Date set forth above, a request for renewal must be submitted to Financial Guaranty prior to such Expiration Date. Financial Guaranty reserves the right to refuse wholly or in part to grant a renewal. THE MUNICIPAL BOND NEW ISSUE INSURANCE POLICY SHALL BE ISSUED IF THE CONDITIONS SPECIFIED BELOW ARE SATISFIED. In addition to the satisfaction of the other conditions set forth herein, Financial Guaranty shall be provided with: (a) (i) Executed copies of all financing documents, the official statement (or any similar disclosure document), and all Bond documentation evidencing the Issuer's ability and intent to comply with the Internal Revenue Code of 1986, as amended (if in the opinion of bond counsel (described below) ongoing compliance would be necessary to maintain the exemption from federal income taxation of interest on the Bonds), which shall be in form and substance acceptable to Financial Guaranty; (ii) the various legal opinions delivered in connection with the issuance and sale of the Bonds, including, without limitation, the unqualified approving opinion of bond counsel rendered by a law firm acceptable to Financial Guaranty and addressed to (or with a reliance letter addressed to) Financial Guaranty, which opinion shall include statements to the effect that (A) the interest on the Bonds is excludable from gross income of the holders thereof for federal income tax purposes under the Internal Revenue Code of 1986, as amended (if the Bonds are issued as tax-exempt obligations) and (B) the Bonds constitute a general obligation of the Issuer, for the payment of which all eligible taxable, real property within the jurisdiction of the Issuer is subject to the levy of ad valorem taxes, subject only to limitations on levies prescribed by applicable law. Copies of all drafts of such documents and legal opinions (blacklined as appropriate) prepared subsequent to the date of � Subject to written acceptance of this Commitment being furnished to Financial Guaranty by the earlier of the date on which the disclosure document relating to the Bonds is circulated and May 28, 2002. Page 1 of 2 Financial Guaranty Insurance Company this Commitment shall be furnished to Financial Guaranty. Final drafts of sue documents shall be provided to Financial Guaranty at least five (5) business days prior to the issuance of the Policy unless Financial Guaranty shall approve a shorter period and such documents shall be satisfactory to Financial Guaranty in all respects. (b) Evidence of wire transfer in federal funds in an amount equal to the insurance premium, unless alternative arrangements for the payment of the premium acceptable to Financial Guaranty have been made prior to the delivery date of the Bonds. In addition to the foregoing, all of the conditions contained in Exhibit D attached hereto shall be satisfied. All drafts of legal documents, the preliminary official statement, official statement or any other disclosure documents and the form of the Bonds should be directed to the attention of Joan Shichtman (212-312-3431) at Financial Guaranty for approval. Promptly after the closing of the Bonds, Financial Guaranty shall receive three completed sets of executed documents (one original and two photocopies), copies of which we will deliver to each agency rating the Bonds. To keep this commitment in effect to the Expiration Date set forth on the first page, Financial Guaranty must receive a duplicate of this Commitment executed by an appropriate officer of SAMCO Capital Markets, A Division of Service Asset Management Company by May 28, 2002. The undersigned agrees that if the Bonds are insured by a policy of municipal bond insurance, such insurance shall be provided by Financial Guaranty in accordance with the terms of this Commitment. Accepted as of by SAMCO Capital Markets, A Division of Service Asset Management Company. By: _ Name: Title: 6005296 Page 2 of 2 tXn1131t A Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 (212) 312-3000 (800) 35M001 A GE Capital Company Municipal Bond New Issue Insurance Policy t Issuer: Policy Number: Bonds: Financial Guaranty Insurance Company ("I consideration of the payment of the premium irrevocably agrees to pay to State Street B• "Fiscal Agent"), for the benefit of Bond o debt obligations (the "Bonds") which I Nonpayment by the Issuer. Control Number: 0010001 a , �a New York stock insurance company, in e t?Nit terms of this Policy, hereby unconditionally and f Company, N.A., or its successor, as its agent (the ortion of the principal and interest on the above -described e Due for Payment but shall be unpaid by reason of Financial Guaranty will make such payments to the Fiscal Agent on the date such principal or interest becomes Due for Payment or on the Business Day next following the day on which Financial Guaranty shall have received Notice of Nonpayment, whichever is later. The Fiscal Agent will disburse to the Bondholder the face amount of principal and interest which is then Due for Payment but is unpaid by reason of Nonpayment by the Issuer but only upon receipt by the Fiscal Agent, in form reasonably satisfactory to it, of (i) evidence of the Bondholder's right to receive payment of the principal or interest Due for Payment and (ii) evidence, including any appropriate instruments of assignment, that all of the Bondholder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Financial Guaranty. Upon such disbursement, Financial Guaranty shall become the owner of the Bond, appurtenant coupon or right to payment of principal or interest on such Bond and shall be fully subrogated to all of the Bondholder's rights thereunder, including the Bondholder's right to payment thereof. This Policy is non -cancellable for any reason. The premium on this Policy is not refundable for any reason, including the payment of the Bonds prior to their maturity. This Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bond. As used herein, the term "Bondholder" means, as to a particular Bond, the person other than the Issuer who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof. "Due for Payment" means, when referring to the principal of a Bond, the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity and means, when referring to interest on a Bond, the stated date FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company, FGIC Corporation. Form 9000 (10/93) Page I of Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 (212) 312-3000 (800) 35M001 A GE Capital Company Municipal Bond New Issue Insurance Policy r for payment of interest. "Nonpayment" in respect of a Bond means the failure of the Issuer to have provided sufficient funds to the paying agent for payment in full of all principal and interest Due for Payment on such Bond. "Notice" means telephonic or telegraphic notice, subsequently con i7ed in writing, or written notice by registered or certified mail, from a Bondholder or a paying age fo the Bonds to Financial Guaranty. "Business Day" means any day other than a Saturday, Sunday or n hich the Fiscal Agent is authorized by law to remain closed. In Witness Whereof, Financial Guaranty has cau his PP y to be affixed with its corporate seal and to be signed by its duly authorized officer in facsi e effective and binding upon Financial Guaranty by virtue of the countersignature of its duly j"tl ie resentative. President Effective Date: Authorized Representative State Street Bank and Trust Company, N,A., acknowledges that it has agreed to perform the duties of Fiscal Agent under this Policy. Authorized Officer FGIC is a registered service mark used by Financial Guaranty Insurance Company under license hom its parent company, FG1C Corporation. Fonn 9000 (10/93) Page 2 of 2 Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 (212) 312-3000 (800) 352-0001 A GE Capital Company Endorsement To Financial Guaranty Insurance Company Insurance Policy Policy Number: Control Number: 0010001 r It is further understood that the term "Nonpayment" in respect includes any payment of principal or interest made to a Bondholder by or on behalf of the issu r s nd which has been recovered from such Bondholder pursuant to the United States Bankrupt a trustee in bankruptcy in accordance with a final, nonappealable order of a court having co e t ju ' ction. SHALL BE CO D YO WAIVE ALTER REDUCE OR AMEND COVERAGE NOTHING HEREIN SHA , N ANY OTHER SECTION OF THE P . IF FOUND CONTRARY TO THE POLICY LANGUAGE, THE TERMS OF THIS ENDORSEMENT UPERSEDE THE POLICY LANGUAGE. In Witness Whereof, Financial Guaranty has caused this Endorsement to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. President Effective Date: Acknowledged as of the Effective Date written above: Authorized Representative Authorized Officer State Street Bank and Trust Company, N.A., as Fiscal Agent FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company, FGIC Corporation. Form E-0002 (10/93) Page I of I EXHIBIT B Page B-1 (To be printed on the Bonds) r STATEMENT OF INSURANCE Financial Guaranty Insurance Company ("Financial Guaranty") has issued a policy containing the following provisions with respect to the Bonds, such policy being on file at the principal office of Paying Agent, as paying agent (the "Paying Agent"): Financial Guaranty hereby unconditionally and irrevocably agrees to pay for disbursement to the Bondholders that portion of the principal or accreted value (if applicable) of and interest on the Bonds which is then due for payment and which the issuer of the Bonds (the "Issuer") shall have failed to provide. Due for payment means, with respect to principal or accreted value (if applicable) the stated maturity date thereof, or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which the payment of principal or accreted value (if applicable) of the Bonds is due by reason of call for redemption (other than mandatory sinking fund redemption), acceleration or other advancement of maturity, and with respect to interest, the stated date for payment of such interest. Upon receipt of telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from a Bondholder or the Paying Agent to Financial Guaranty that the required payment of principal, accreted value or interest (as applicable) has not been made by the Issuer to the Paying Agent, Financial Guaranty on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with State Street Bank and Trust Company, N.A., or its successor as its agent (the "Fiscal Agent"), sufficient to make the portion of such payment not paid by the Issuer. Upon presentation to the Fiscal Agent of evidence satisfactory to it of the Bondholder's right to receive such payment and any appropriate instruments of assignment required to vest all of such Bondholder's right to such payment in Financial Guaranty, the Fiscal Agent will disburse such amount to the Bondholder. As used herein the term "Bondholder" means the person other than the Issuer or the borrowers) of bond proceeds who at the time of nonpayment of a Bond is entitled under the terms of such Bond to payment thereof. The policy is non -cancellable for any reason. FINANCIAL GUARANTY INSURANCE COMPANY EXHIBIT C Page C- I [Disclosure Language For Official Statement] Bond Insurance r Concurrently with the issuance of the Bonds, Financial Guaranty Insurance Company ("Financial Guaranty") will issue its Municipal Bond New Issue Insurance Policy (the "Policy") for the Bonds described in the Policy (as used under this heading, the "Bonds"). The Policy unconditionally guarantees the payment of that portion of the principal or accreted value (if applicable) of and interest on the Bonds which has become due for payment, but shall be unpaid by reason of nonpayment by the issuer of the Bonds (the "Issuer"). Financial Guaranty will make such payments to State Street Bank and Trust Company, N.A., or its successor as its agent (the "Fiscal Agent"), on the later of the date on which such principal, accreted value or interest (as applicable) is due or on the business day next following the day on which Financial Guaranty shall have received telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from an owner of Bonds or the Paying Agent of the nonpayment of such amount by the Issuer. The Fiscal Agent will disburse such amount due on any Bond to its owner upon receipt by the Fiscal Agent of evidence satisfactory to the Fiscal Agent of the owner's right to receive payment of the principal, accreted value or interest (as applicable) due for payment and evidence, including any appropriate instruments of assignment, that all of such owner's rights to payment of such principal, accreted value or interest (as applicable) shall be vested in Financial Guaranty. The term "nonpayment" in respect of a Bond includes any payment of principal, accreted value or interest (as applicable) made to an owner of a Bond which has been recovered from such owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. The Policy is non -cancellable and the premium will be fully paid at the time of delivery of the Bonds. The Policy covers failure to pay principal or accreted value (if applicable) of the Bonds on their respective stated maturity dates or dates on which the same shall have been duly called for mandatory sinking fund redemption, and not on any other date on which the Bonds may have been otherwise called for redemption, accelerated or advanced in maturity, and covers the failure to pay an installment of interest on the stated date for its payment. This Official Statement contains a section regarding the ratings assigned to the Bonds and reference should be made to such section for a discussion of such ratings and the basis for their assignment to the Bonds. Reference should be made to the description of the Issuer for a discussion of the ratings, if any, assigned to such entity's outstanding parity debt that is not secured by credit enhancement. The Policy is not covered by the Property/('asualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. Financial Guaranty is a wholly -owned subsidiary of FGIC Corporation (the "Corporation"), a Delaware holding company. The Corporation is a subsidiary of General Electric Capital Corporation ("GE Capital"). Neither the Corporation nor GE Capital is obligated to pay the debts of or the claims against Financial Guaranty. Financial Guaranty is a monoline financial guaranty insurer domiciled in the State of New York and subject to regulation by the State of New York Insurance Department. As of December 31, 2001, thetotal capital and surplus of Financial Guaranty was approximately $1.002 billion. Financial Guaranty prepares financial statements on the basis of both statutory accounting principles and generally accepted accounting principles. Copies of such financial statements may be obtained by writing to Financial Guaranty at 125 Park Avenue, New York, New York 10017, Attention: Communications Department (telephone number: 212-312-3000) or to the New York State Insurance Department at 25 Beaver Street, New York, New York 10004-2319, Attention: Financial Condition Property/Casualty Bureau (telephone number: 212480-5187). EXHIBIT D Page D-I CONDITIONS TO ISSUANCE OF POLICY r 1. The documents to be executed and delivered in connection with the issuance and sale of the Bonds shall not contain any untrue or misleading statement of a material fact and shall not fail to state a material fact necessary in order to make the information contained therein not misleading. 2. No event shall occur which would permit any purchaser of the Bonds, otherwise required, not to be required to purchase the Bonds on the date scheduled for the issuance and delivery thereof. 3. There shall be no material change in or affecting the Bonds (including, without limitation, the security for the Bonds) or the financing documents or the official statement (or any similar disclosure document) to be executed and delivered in connection with the issuance and sale of the Bonds from the descriptions or forms thereof approved by Financial Guaranty. 4. The Bonds shall contain no reference to Financial Guaranty, the Policy or the municipal bond insurance evidenced thereby except as may be approved by Financial Guaranty. 5. The Bonds shall bear a Statement of Insurance in the form attached to the Commitment Letter as Exhibit B (also available online on our web site at www.f iQ c.com). BOND PROOFS SHALL BE APPROVED BY FINANCIAL GUARANTY PRIOR TO PRINTING. 6. The preliminary official statement and the official statement shall (a) be satisfactory in form and substance to Financial Guaranty and (b) shall contain the language attached to the Commitment Letter as Exhibit C and only such other references to Financial Guaranty as we shall supply or approve. Financial Guaranty's official statement language and cover logo are also available online on our web site at www&ic.com. REFUNDING PROVISIONS If the subject transaction includes the issuance of refunding bonds, the following additional conditions shall be met: 1. The Escrow Agreement (the "Escrow Agreement") providing for the refunding of the bonds to be refunded with the proceeds of the Bonds (the "Prior Bonds") shall permit the deposit solely of cash, direct non -callable obligations of the United States of America and securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the United States of America, to which direct obligation or guarantee the full faith and credit of the United States of America has been pledged, Refcoip interest strips, CATS, TIGRS, STRPS, or defeased municipal bonds rated AAA by S&P or Aaa by Moody's (or any combination thereof) ("Direct Obligations") and shall permit substitution of Direct Obligations for other Direct Obligations solely upon the receipt by the escrow agent of (a) a new verification of the sufficiency of the escrowed securities (assuming such substitution has been made) to provide for the payment of the Prior Bonds in accordance with the terms of the escrow agreement and (b) an opinion of bond counsel to the effect that such substitution shall not affect the tax-exempt status of interest on the Prior Bonds or the Bonds. Modification of the Escrow Agreement shall not be permitted unless the holders of all of the Prior Bonds consent to such modification. 2. At least five business days prior to the proposed date for delivery of the Policy, Financial Guaranty shall receive for its review and approval (a) the verification by independent certified public accountants satisfactory to Financial Guaranty of the accuracy of the mathematical computation of the adequacy of the escrow established to provide for the payment of the Prior Bonds in accordance with the terms and provisions of the Escrow Agreement, (b) as applicable, copies of the subscription forms for the purchase and issue of U.S. Treasury Securities - State and Local Government Series which have been stamped as received by the Federal Reserve Bank or copies of the confirmations of purchase of open market Direct Obligations, and (c) the form of an opinion of bond counsel addressed to Financial Guaranty (or a reliance letter relating thereto) to the effect that, upon the making of the required deposit to the escrow, the legal defeasance of the Prior Bonds shall have occurred. An executed copy of such opinion shall be forwarded to Financial Guaranty, together with the documentation requested in the Commitment Letter. EXHIBIT D Page D-2 3. The Escrow Agreement may provide that cash received by the escrow agent not required for purchase of the initial investments that are referenced in the verification report may be invested,rn accordance with an opinion of bond counsel as described in the Commitment Letter, by the escrow agent, but only in noncallable Direct Obligations that mature in an amount at least equal to the purchase price of such Direct Obligations prior to the next scheduled interest payment date for the Prior Bonds. The escrow agent shall be responsible for determining compliance with this requirement. 4. A forward supply contract relating to the provision of such investments which is acceptable to Financial Guaranty may be entered into at closing if (a) the terms thereof are consistent with the foregoing requirements, (b) the Escrow Agreement provides that in the event of any discrepancy or difference between the terms of the forward supply contract and the Escrow Agreement, the terms of the Escrow Agreement shall be controlling, and (c) the verification report shall expressly state that the adequacy of the escrow to accomplish the refunding project relies solely on the initial escrowed investments and the maturing principal thereof and interest income thereon and does not assume performance under or compliance with the forward supply contract. FINANCIAL GUARANTY INSURANCE COMPANY PROCEDURES FOR PAYMENT OF PREMIUM Financial Guaranty's issuance of its Municipal Bond New Issue Insurance Policy kor Debt Service Reserve Fund Policy, if appropriate) at closing is contingent upon its receipt of the premium. NO POLICY WILL BE RELEASED UNTIL ORAL CONFIRMATION OF THE FEDERAL RESERVE WIRE REFERENCE NUMBER HAS BEEN RECEIVED. Set forth below are the procedures to be followed for confirming the amount of the premium to be paid and for paying such amount: Confirmation of Upon determination of the final debt service schedule, provide Amount to be Paid: such schedule to Financial Guaranty, to the attention of the FGIC Closing Coordinator, whose name and telephone number are referenced in commitment letter, and subsequently confirm the amount of the premium with the Closing Coordinator. Payment: Premium Due Date Method of Payment: Wire Transfer of Federal Funds Wire Transfer BANKERS TRUST NEW YORK Instructions: ABA Number 021-001-033 16 Wall Street, New York, New York For Credit to Financial Guaranty Insurance Company Account # 50-256427 FGIC Policy # FGIC Contact: FGIC Closing Coordinator —see commitment letter Any questions concerning these procedures or any premium payment method other than outlined above should be directed to the attention of the FGIC Closing Coordinator at least two banking days prior to the scheduled payment date. CONFIRMATION OF RECEIPT OF PREMIUM Financial Guaranty will accept as confirmation of the premium payment a wire transfer number and the name of the sending bank, to be communicated on the closing date to the FGIC Closing Coordinator. Upon confirmation of the premium payment and satisfaction of the other conditions set forth in the commitment letter, Financial Guaranty will release the Policy. REQUESTS FOR FURTHER INFORMATION OR ALTERNATIVE PAYMENT ARRANGEMENTS Requests for additional information regarding the procedures described above or as to the acceptability of alternate payment procedures should be directed to the FGIC Closing Coordinator at least two business days prior to the closing date. Notice ot'Sale - Bonds Bid Form - Bonds Nntice ot'Sale - Cns Bid Form - CO,;; Preliminary Qfficial Statement Table of Contents OFFICIAL NOTICE OF SALE, B/D FORMS and PRELIMINARY OFFICIAL STATEMENT CITY OF SANGER, TEXAS (Denton County) $2,540,000 Utility System Revenue Bonds Series 2002 $2,360jF Combination Tax and Revenue Certificates of Obligation Series 2002 Designated by the City as "QUALIFIED TAX EXEMPT OBLIGATIONS' Bids Due Monday, May 20, 2002 at 11:30 A.M., Central Time (Rev) 12:30 P.M., Central Time (CO's) MAP SHOWING THE LOCATION OF THE CITY OF SANGER NAF or T€xas AI�ARi1dO SHOWING LWTION OF • CITY 0F LUSM:CK • • WIC**fA TEXARKANA MLL5 OALLAS AMILlNE fOg WORTH TYLER MMLA"D • "N Amp WACO L79 AU�ITi�1 • 1�#.AUMpetY • • SAN ANYpNIp HpUSTpN • CtldlrUS C=HRtin iROwNSYILIE This Official Notice of Sale does not alone constitute an invitation for bids but is merely notice of sale of the Bonds described herein. The invitation for bids on such Bonds is being made by means of this Official Notice of Sale, the Official Bid Form and the Official Statement. OFFICIAL NOTICE OF SALE a2,sao,000 CITY OF SANGER, TEXAS UTILITY SYSTEM REVENUE BONDS SERIES 2002 BONDS OFFERED FOR SALE AT COMPETITIVE BID: The City Council of the City of Sanger, Texas (the "City" or "Issuer") is offering for sale at competitive bid $2,540,000 Utility System Revenue Bonds, Series 2002 (the "Bonds"). BIDS BY DELIVERY: Sealed bids, which must be submitted in duplicate on the Official Bid Form, are to be addressed to "The City Council, City of Sanger, Texas," and delivered to the City's Financial Advisor, SWS Securities at 1201 Elm Street, Suite 3500, Dallas, Texas 75270, Attention: Dan Almon, prior to 11:30 A.M., Central Time, on Monday, May 20, 2002. Bids received after such scheduled time for their receipt will not be accepted and will be returned unopened. BIDS BY FACSIMILE: Interested bidders may, at their option, mail TWO SIGNED Bid Forms to Dan A. Almon, SWS Securities, 1201 Elm Street, Suite 3500, Dallas, Texas 75270 prior to the date and time bids are to be received, and submit their bid by facsimile to Mr. Almon at (214) 859=9475 by 11:30 A.M., Central Time, on Monday, May 20, 2002. Bids received Neither the City nor SWS Securities is responsible for any failure of the SWS Securities' or the bidder's fax machine. Bids received by facsimile after the bid deadline will not be accepted. Bidders who fax bids do so at their own risk. All such bids are binding on the bidder. BIDS BY INTERNET: Interested bidders may, at their option, mail TWO SIGNED Bid Forms to Dan A. Almon, SWS Securities, 1201 Elm Street, Suite 3500, Dallas, Texas 75270 prior to the date and time bids are to be received, and submit their bid by electronic media, as described below, by 11:30 A.M., Central Time, on Monday, May 20, 2002. Any prospective bidder that intends to submit an electronic bid must submit its electronic bid via the facilities of the i-Deal, LLC PARITY System ("PARITY"). In the event of a malfunction in the electronic bidding process, bidders may submit their bids by facsimile, as described above. Bids received after the scheduled time for their receipt will not be accepted The official time for the receipt of bids shall be the time maintained by PARITY. All electronic bids shall be deemed to incorporate the provisions of the Official Notice of Sale, Official Bid Form and the Official Statement. To the extent that any instructions or directions set forth in PARITY conflict with this Official Notice of Sale, the terms of this Official Notice of Sale shall control. For further information about the PARITY System, potential bidders may contact Bond Research Group, c/o i-Deal LLC, 395 Hudson Street, 3rd Floor, New York, New York 10014, 212-807-3800. An electronic bid made through the facilities of the i-Deal, LLC PARITY System shall be deemed an irrevocable offer to purchase the Bonds on the terms provided in the Official Notice of Sale, and shall be binding upon the bidder as if made by a signed sealed bid delivered to the City. The City shall not be responsible for any malfunction or mistake made by, or as a result of the use of PARITY, the use of such facilities being at the sole risk of the bidder. BIDS BY TELEPHONE: BIDS BY TELEPHONE WILL NOT BE ACCEPTED. PLACE AND TIME OF BID OPENING: The bids for the Bonds will be publicly reviewed at the office of the City's Financial Advisor at 11:30 A.M., Central Time, on Monday, May 20, 2002. AWARD AND SALE OF THE BONDS: At a regular meeting to commence at 7:00 P.M. Central Time, on Monday, May 20, 2002, the City Council will take action to reject all bids or award the sale of the Bonds pursuant to an ordinance authorizing the sale of the Bonds (the "Bond Ordinance"). The Issuer reserves the right to reject any or all bids and to waive any irregularities, except time of filing. 1. T*JkTs DESCRIPTION OF CERTAIN TERMS OF THE BONDS: The Bonds will be dated June 1, 2002 with interest payable initially on May 15, 2003 and semiannually on November 15 and May 15 thereafter until stated maturity or prior redemption. The Bonds will be issued as fully registered obligations in book -entry form only and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), New York, New York. DTC will act as securities depository (the "Securities Depository"). Book -entry interests in the Bonds will be made available for purchase in the principal amount of $5,000 or any integral multiple thereof. Purchasers of the Bonds ("Beneficial Owners") will not receive physical delivery of certificates representing their interest in the Bonds purchased. So long as DTC or its nominee is the registered owner of the Bonds, the principal of and interest on the Bonds will be payable by The Bank of New York Trust Company of Florida, N.A., Dallas, Texas, to the Securities Depository, which will in turn remit such principal and interest to its Participants, which will in turn remit such principal and interest to the Beneficial Owners of the Bonds. (See "BOOK -ENTRY -ONLY SYSTEM" in the Official Statement.) MATURITY SCHEDULE The Bonds will be stated to mature on May 15 in each of the following years in the following amounts: Stated Principal Stated Principal Stated Principal Maturity Amount Maturity Amount Maturity Amount 2003 $ 80,000 2010 $105,000 2017 $1550000 2004 80,000 2011 110,000 2018 160,000 2005 85,000 2012 120,000 2019 170,000 2006 85,000 2013 125,000 2020 180,000 2007 90,000 2014 13%000 2021 190,000 2008 95,000 2015 140,000 2022 1959000 2009 100,000 2016 1459000 OPTIONAL REDEMPTION: The Issuer reserves the right to redeem the Bonds maturing on and after May 15, 2013, on May 15, 2012, or any date thereafter, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, at the redemption price of par plus accrued interest as further described herein. (See "THE BONDS - Redemption Provision of the Bonds" herein.) SERIAL BONDS AND/OR TERM BONDS: Bidders may provide that all of the Bonds be issued as serial maturities or may provide that any two or more consecutive annual principal amounts for Bonds maturing after 2013 be combined into one or more term bonds. MANDATORY SINKING FUND: If the successful bidder designates principal amounts to be combined into one or more term bonds, each such term bond will be subject to mandatory sinking fund redemption commencing on May 15 of the first year which has been combined to form such term bond and continuing on May 15 in each year thereafter until the stated maturity date of that term bond. The amount redeemed in any year will be equal to the principal amount for such year set forth in the table under the caption "MATURITY SCHEDULE" above. Bonds to be redeemed in any year by mandatory sinking fund redemption will be redeemed at par and will be selected by lot from among the Term Bonds then subject to redemption. The principal amount of the Term Bonds for a Stated Maturity required to be redeemed pursuant to the operation of such mandatory redemption provisions may be reduced, at the option of the City, by the principal amount of Term Bonds of like Stated Maturity which, at least 50 days prior to a mandatory redemption date, (1) shall have been acquired by the City at a price not exceeding the principal amount of such Term Bonds pus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation or (2) shall have been redeemed pursuant to the optional redemption provisions set forth above and not theretofore credited against a mandatory redemption requirement. A final official statement will, incorporate the appropriate mandatory redemption provisions applicable to any Term Bonds, AUTHORITY FOR ISSUANCE AND SECURITY FOR PAYMENT: The Bands are being issued pursuant to the Constitution and general laws of the State of Texas, including V.T.C.A. Texas Local Government Code, Chapter 1502, as amended, and the Bond Ordinance. (See THE BONDS - Authority for Issuance" in the Official Statement.) The Bonds constitute constitute special obligations of the Issuer secured by and payable from an irrevocable first lien on and pledge of the Net Revenues (as defined in the Bond Ordinance) derived from the operations of the City's combined Waterworks, Electric and Sewer Systems (the "System"). (See "THE BONDS - Security for Payment" in the Official Statement.) PAYING AGENT/REGISTRAR: The initial Paying Agent/Registrar is The Bank of New York Trust Company of Florida, N.A., Dallas, Texas. In the Bond Ordinance, the City covenants to provide a Paying AgenURegistrar at all times while the Bonds are outstanding, and any Paying AgenURegistrar selected by the City shall be a bank, trust company, financial institution or other entity qualified and authorized to serve in such capacity and perform the duties and services of Paying AgenURegistrar. The Paying Agent/Registrar will maintain the Security Register containing the names and addresses of the registered owners of the Bonds. In the Bond Ordinance the City retains the right to replace the Paying Agent/Registrar, If the Paying Agent/Registrar is replaced by the Issuer, such Paying AgenURegistrar, promptly upon the appointment of a successor, is required to deliver the Security Register to the successor Paying AgenURegistrar. In the event there is a change in the Paying AgenvRegistrar, the City has agreed to notify each registered owner of the Bonds then outstanding by United States mail, first-class postage prepaid, at the address in the Security Register, stating the effective date of the change and the mailing address of the successor Paying Agent/Registrar. BOOK -ENTRY -ONLY SYSTEM: The City intends to utilize the Book -Entry -Only System of The Depository Trust Company, New York, New York ("DTC"), with respect to the issuance of the Bonds. (See "BOOK -ENTRY -ONLY SYSTEM" in the Official Statement.) OFFICIAL STATEMENT AND OTHER TERMS AND COVENANTS IN THE BOND ORDINANCE: Further details regarding the Bonds and certain covenants of the City contained in the Bond Ordinance are set forth in the Official Statement to which reference is made for all purposes. CONDITIONS OF SALE TYPES OF BIDS AND INTEREST RATES: The Bonds will be sold in one block on an "All or None" basis, and at a price of not less than their par value plus accrued interest from the date of initial delivery of the Bonds. Bidders are invited to name the rates) of interest to be bome by the Bonds, provided that each rate bid must be in a multiple of 1/8 of 1 % or 1/20 of 1 % and the net effective interest rate for the Bonds (calculated in the manner required by V.T.C.A., Government Code, Chapter 1204, as amended) must not exceed 15%. The highest rate bid may not exceed the lowest rate bid by more than 1 %% in rate. No limitation is imposed upon bidders as to the number of rates or changes which may be used. All Bonds of one stated maturity must bear one and the same rate. No bids involving supplemental interest rates will be considered. Any premium included in a bid must be less than one-half of one percent (%%). BASIS OF AWARD: The sale of the Bonds will be awarded to the bidder making a bid that conforms to the specifications herein and which produces the lowest True Interest Cost rate to the Issuer. The True Interest Cost rate is that rate which, when used to compute the total present value as of the Dated Date of all debt service payments on the Bonds on the basis of semi-annual compounding, produces an amount equal to the sum of the par value of the Bonds plus any premium bid, if any (but not interest accrued from the Dated Date to the date of their delivery). In the event of a bidder's error in interest cost rate calculation, the interest rates, and premium, if any, set forth in the Official Bid Form will be considered as the intended bid. In order to provide the Issuer with information required to enable it to comply with certain conditions of the Intemal Revenue Code of 1986 (the "Code"), as amended to the date of initial delivery of the Bonds, relating to the exclusion of interest on the Bonds from the gross income of their owners, the Purchaser will be required to complete, execute, and deliver to the City (on or Wore the date of delivery of the Bonds) a certification as to their initial offering prices ("issue price") of the Bonds substantially in the form and to the effect attached hereto or accompanying this Notice of Sale. In the event the successful bidder will not re - offer the Bonds for sale or is unable to sell a substantial amount of the Bonds of any stated maturity by the date of delivery, such certificate may be modified in a manner approved by Bond Counsel. Each bidder, by submitting its bid, agrees to complete, execute, and deliver such a certificate by the date of initial delivery of the Bonds, if its bid is accepted by the Issuer. Delivery of the Eonds is conditioned upon receipt by the Issuer from the Purchaser of such certificate, it will be the responsibility of the Purchaser to institute such syndicate reporting requirements, to make such investigation, or otherwise to ascertain the facts necessary to enable it to make such certification with reasonable certainty. Any questions concerning such certification should be directed to Bond Counsel. QUALIFIED TAX-EXEMPT OBLIGATIONS: The Issuer will, pursuant to the Bond Ordinance, designate the Bonds as "qualified tax�xempt obligations." Accordingly, it is anticipated that financial institutions that purchase the Bonds will not be subject to the 100 percent disallowance of interest expense allocable to interest on the Bonds under section 265(b) of the Code. However, interest expense incurred by a financial institution which is allocable to the interest on the Bonds would be subject to the 20 percent disallowance of interest expense rule which was generally applicable under section 265 of the Internal Revenue Code of 1954, See discussion under the caption "TAX MATTERS - Qualified Tax -Exempt Obligations for Institutions" contained in the Official Statement. GOOD FAITH DEPOSIT: A bank cashier's check payable to the order of "City of Sanger, Texas" in the amount of $50,800 which is 2% of the par value of the Bonds {the "Good Faith Deposit") is required. The good faith check of the Purchaser will be retained uncashed by the Issuer until the Bonds are delivered, and at that time it will be applied to the purchase price of the Bonds. The above mentioned Cashier's Check may accompany the bid, or it may be submitted separately; however, if submitted separately, it shall be made available to the Issuer prior to the opening of the bids and shall be accompanied by instructions from the bank on which it is drawn which will authorize its use as a Good Faith Deposit by the Purchaser who shall be named in such instructions. No interest will be paid or allowed on any Good Faith Deposit. The checks accompanying all other bids will be returned immediately after the bids are opened and the award of the sale of the Bonds has been made. iii FINANCIAL ADVISOR'S RIGHT TO BID: SWS Securities is employed as the Financial Advisor to the Issuer 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 Issuer has permitted SWS Securities the option to bid on the Bonds. SWS Securities may submit a bid for the Bonds, either independently or as a member of a syndicate organized to submit a bid for the Bonds. OFFICIAL STATEMENT To assist the Initial Purchaser in complying with Rule 15c2-12 of the Securities and Exchange Commission ("SEC"), the Issuer and the Initial Purchaser contract and agree, by the submission and acceptance of the winning bid, as follows: COMPLIANCE WITH RULE 15c2-12 OF THE SECURITIES AND EXCHANGE COMMISSION: The Issuer has approved and authorized distribution of the accompanying Official Statement for dissemination to potential purchasers of the Bonds, but does not presently intend to prepare any other document or version thereof for such purpose, except as described below. Accordingly, the Issuer deems the accompanying Official Statement to be final as of its date, within the meaning of Rule 15c2-12 of the Securities and Exchange Commission (the "Rule"), except for information relating to the offering prices, interest rates, final debt service schedule, selling compensation, identity of the Purchaser and other similar information, terms and provisions to be specified in the competitive bidding process. The Initial Purchaser shall be responsible for promptly informing the Issuer of the initial offering yields of the Bonds. Thereafter, the Issuer will complete and authorize distribution of the Official Statement identifying the Initial Purchaser and containing such omitted information. The Issuer does not intend to amend or supplement the Official Statement otherwise, except to take into account certain subsequent events, if any, as described below. By delivering the Final Official Statement or any amendment.or supplement thereto in the requested quantity to the Initial Purchaser on or after the sale date, the Issuer intends the same to be final as of such date, within the meaning of SEC Rule 15c2-12. Notwithstanding the foregoing, the Issuer makes no representation concerning the absence of material misstatements or omissions from the Official Statement, except only as and to the extent under "CERTIFICATION OF THE OFFICIAL STATEMENT" as described below. To the best knowledge and belief of the Issuer, the official Statement contains information, including financial information or operating data, concerning every entity, enterprise, fund, account, or person that is material to an evaluation of the offering of the Bonds. CONTINUING DISCLOSURE AGREEMENT: The City will agree in the Bond Ordinance to provide certain periodic information and notices of material events in accordance with the Rule, as described in the Official Statement under "CONTINUING DISCLOSURE OF INFORMATION." The Initial Purchaser's obligation to accept and pay for the Bonds is conditioned upon delivery to the Initial Purchaser or its agent of a certified copy of the Bond Ordinance containing the agreement described under such heading. COMPLIANCE WITH PRIOR UNDERTAKINGS: The Issuer has complied in all material respects with its undertakings made pursuant to the Rule, with the exception of a late filing for 1998, which was submitted on April 14, 1999. All the Issuer's filings since that time have been made on time. FINAL OFFICIAL STATEMENT: The Issuer will furnish to the Purchaser, within seven (7) business days after the sale date, an aggregate maximum of one hundred (100) copies of the Official Statement (and 100 copies of any addenda, supplement or amendment thereto), together with information regarding interest rates and other terms relating to the reoffering of the Bonds, in accordance with Rule 15c2A2 of the SEC. The Purchaser may arrange at his own expense to have the Official Statement reproduced and printed if he requires more than 100 copies and may also arrange, at his own expense and responsibility, for completion and perfection of the first or cover page of the Official Statement so as to reflect interest rates and other terms and information related to the reoffering of the Bonds. The Purchaser will be responsible for providing information concerning the Issuer and the Bonds to subsequent purchasers of the Bonds, and the Issuer will undertake no responsibility for providing such information other than to make the Official Statement available to the Purchaser as provided herein. The Issuer's obligation to supplement the Official Statement to correct key representations determined to be materially misleading, after the date of the Official Statement, shall terminate upon initial delivery of the Bonds to the Purchaser, unless the Purchaser notifies, in writing, the Issuer that less than all of the Bonds have been sold to ultimate customers on or before such date, in which case the obligation will extend for an additional period of time (but not more than 90 days after the sale date) until all of the Bonds have been sold to ultimate customers. CHANGES TO OFFICIAL STATEMENT: If, subsequent to the date of the Official Statement, the Issuer learns, through the ordinary course of business and without undertaking any investigation or examination for such purposes, or is notified by the Initial Purchaser of any adverse event which causes the Official Statement to be materially misleading, and unless the Initial Purchaser elects to terminate its obligation to purchase the Bonds, as described below under "DELIVERY AND ACCOMPANYING DOCUMENTS - CONDITIONS TO DELIVERY," the Issuer will promptly prepare and supply to the Initial Purchaser an appropriate amendment or supplement to the Official Statement satisfactory to the Initial Purchaser; provided, iv however, that the obligation of the Issuer to do so will terminate when the Issuer delivers the Bonds to the Initial Purchaser, unless the Initial Purchaser notifies the Issuer on or before such date that less than all of the Bonds have been sold to ultimate customers, in which case the Issuer's obligations hereunder will extend for an additional period of time (but not more than 90 days after the date the Issuer delivers the Bonds) until all of the Bonds have been sold to ultimate customers. CERTIFICATION OF THE OFFICIAL STATEMENT: At the time of payment for and delivery of the Inal Bonds, the Initial Purchaser will be furnished a certificate, executed by proper officials of the Issuer, acting in their official capacity, to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to the Issuer contained in its Official Statement, and any addenda, supplement or amendment thereto, for the Bonds, on the date of such Official Statement, on the date of sale of said Bonds and the acceptance of the best bid therefor, and on the date of the delivery, were and are true and correct in all material respects; (b) insofar as the Issuer and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an 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; (c) insofar as the descriptions and statements including financial data, of or pertaining to entities, other than the Issuer, and their activities contained in such Official Statement are concerned, such statements and data have been obtained from sources which the Issuer believes to be reliable and the Issuer has no reason to believe that they are untrue in any material respect; and (d) there has been no material adverse change in the financial condition of the Issuer, since September 30, 2001, the date of the last financial statements of the Issuer appearing in the Official Statement as Appendix E. The Official Statement and Official Notice of Sale will be approved as to form and content and the use thereof in the offering of the Bonds will be authorized, ratified and approved by the City Council on the date of sale, and the Initial Purchaser will be furnished, upon request, at the time of payment for and the delivery of the Bonds, a certified copy of such approval, duly executed by the proper officials of the Issuer. DELIVERY AND ACCOMPANYING DOCUMENTS INITIAL DELIVERY OF INITIAL BOND: The delivery of the Bonds (the "Initial Delivery" will ba accomplished by the issuance of either (i) a single fully registered Bond in the total principal amount of $2,540,000 payable in stated installments to the Initial Purchaser and numbered R-1, or (ii) one (1) fully registered Bond for each year of stated maturity in the applicable principal amount and denomination, to be numbered consecutively from R-1 and upward (the "Initial Bond(s)"), signed by the Mayor and City Secretary of the Issuer, approved by the Attorney General of Texas, and registered and manually signed by an authorized representative of the Comptroller of Public Accounts of the State of Texas. Initial Delivery will be at the designated office of the Paying Agent/Registrar. The Initial Bonds shall be immediately canceled following delivery and one global certificate for each maturity of the Bonds payable to Cede & Co. will be exchanged therefor and deposited with DTC in connection with DTC's Book -Entry -Only System. Payment for the Bonds must be made in immediately available funds for unconditional credit to the City, or as otherwise directed by the City. The Purchaser will be given six business days' notice of the time fixed for delivery of the Bonds. It is anticipated that the delivery of the Initial Bond(s) can be made on or about June 19, 2002, but if for any reason the City is unable to make delivery by July 19, 2002, then the City shall immediately contact the Purchaser and offer to allow the Purchaser to extend his obligation to take up and pay for the Bonds an additional 30 days. If the Purchaser does not elect to extend his offer within six days thereafter, then his Good Faith Deposit will be returned, and both the City and the Purchaser shall be relieved of any further obligation. In no event shall the City be liable for any damages by reason of its failure to deliver the Bonds, provided that such failure is due to circumstances beyond the City's reasonable control. DTC DEFINITIVE BONDS: The Bonds will be issued in book -entry -only form. Cede & Co. is the nominee for DTC. All reference herein and in the Official Statement to the certificate holders or registered owners of the Bonds shall mean Cede & Co. and not the beneficial owners of the Bonds. Purchases of beneficial interests in the Bonds will be made in book -entry form in the denomination of $5,000 principal amounts or any integral multiple thereof. Under certain limited circumstances, the City may determine to forego immobilization of the Bonds at DTC, or another securities depository, in which case, such beneficial interests would become exchangeable for definitive printed obligations of like principal amount. CUSIP NUMBERS: It is anticipated that CUSIP identification numbers will be printed on the Bonds, but neither the failure to print such number on any Bond nor any error with respect thereto shall constitute cause for a failure or refusal by the Initial Purchaser to accept delivery of and pay for the Bonds in accordance with the terms of the Official Bid Form and this Official Notice of Sale. All expenses in relation to the printing of CUSIP numbers on the Bonds shall be paid by the Issuer; however, the CUSIP Service Bureau's charge for the assignment of the numbers shall be paid by the Initial Purchaser, CONDITIONS TO DELIVERY: The obligation to take up and pay for the Bonds is subject to the following conditions: the issuance of an approving opinion of the Attorney General of Texas, delivery of the Initial Bond(s), the Initial Purchaser's receipt of the legal opinion of Bond Counsel and the no -litigation certificate, and the non-occurrence of the events described below under the caption "NO MATERIAL ADVERSE CHANGE," all as described below. In addition, if the Issuer fails to comply with its agreement described under "OFFICIAL STATEMENT" above, the initial Purchaser may terminate its contract to purchase the Bonds by delivering written notice to the Issuer within five (5) days thereafter. Tu NO MATERIAL ADVERSE CHANGE: The obligations of the Initial Purchaser to take up and pay for the Bonds, and of the Issuer to deliver the Initial Bonds, are subject to the condition that, up to the time of delivery of and receipt of payment for the Initial Bonds, there shall have been no material adverse change in the affairs of the Issuer subsequent to the date of sale from that set forth in the Official Statement, as it may have been finalized, supplemented or amended through the date of delivery. LEGAL OPINIONS: The Bonds are offered when, as and if issued, subject to the approval of certain legal matters by the Attorney General of the State of Texas and Bond Counsel (see discussion "OTHER PERTINENT INFORMATION - Legal Opinions and No -Litigation Certificate" in the Official Statement). The opinion of Bond Counsel will be printed on, or will accompany the definitive Bonds. CHANGE IN TAX-EXEMPT STATUS: At any time before the Bonds are tendered for initial delivery to the Initial Purchaser, the Initial Purchaser may withdraw its bid if the interest on obligations such as the Bonds shall be declared to be includable in the gross income, as defined in section 61 of the Tax Code, of the owners thereof for federal income tax purposes, either by Treasury regulations, by ruling or administrative guidance of the Internal Revenue Service, by a decision of any federal court, or by the terms of any federal income tax legislation enacted subsequent to the date of this Official Notice of Sale. GENERAL CONSIDERATIONS MUNICIPAL BOND INSURANCE: In the event the Bonds are qualified for municipal bond insurance, and the Initial Purchaser desires to purchase such insurance, the cost therefor will be paid by the Initial Purchaser. Any fees to be paid to Fitch Ratings or Standard & Poor's Rating Services, a Division of The McGraw-Hill Companies, Inc. as a result of said insurance will be paid by the Initial Purchaser. The fees of Moody's Investors Service, Inc. will be paid by the Issuer. It will be the duty of the Initial Purchaser to disclose the existence of insurance, its terms and the effect thereof with respect to the reoffering of the Bonds and any other information or certifications which may be required to determine the effect of such insurance on the yield or the Bonds for federal income tax purposes. RATING: A municipal bond rating application has been made to Moody's Investors Service, Inc. ("Moody's"). An explanation of the significance of such rating, when received, may be obtained from Moody's. The Issuer currently has an underlying rating of "Baal" from Moody's on its uninsured revenue debt and has no underlying rating on its uninsured general obligation debt and has. A rating by an agency reflects only the view of such company at the time the rating is given, and the Issuer makes no representations as to the appropriateness of the rating. There is no assurance that such a rating will continue for any given period of time, or that it will not be revised downward or withdrawn entirely by the rating agency if, in the judgment of such agency, circumstances so warrant. Any such downward revision or withdrawal of a rating may have an adverse effect on the market price of the Bonds. SALE OF ADDITIONAL REVENUE DEBT: The City has no plans to issue additional revenue debt in 2002. REGISTRATION AND QUALIFICATION OF BONDS FOR SALE: 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 exemptions provided in such Act. The Bonds have not been approved or disapproved by the Securities and Exchange Commission, nor has the Securities and Exchange Commission passed upon the accuracy or adequacy of the Official Statement. Any representation to the contrary is a criminal offense. The Bonds have not been registered or qualified under the Securities Act of Texas in reliance upon exemptions contained therein, nor have the Bonds been registered or qualified under the securities acts of any other jurisdiction. The Issuer assumes no responsibility for registration or qualification of the Bonds under the securities laws *of any jurisdiction in which the Bonds may be sold, assigned, pledged, hypothecated 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. It is the obligation of the Purchaser to register or qualify sale of the Bonds under the securities laws of any jurisdiction which so requires. The Issuer agrees to cooperate, at the Purchaser's written request and expense and within reasonable limits, in registering or qualifying the Bonds, or in obtaining an exemption from registration or qualification in any state where such action is necessary, but will in no instance execute a general consent to service of process in any state that the Bonds are offered for sale. ADDITIONAL COPIES: Subject to the limitations described under "OFFICIAL STATEMENT" herein, additional copies of this Official Notice of Sale, the Official Bid Form, and the Official Statement may be obtained from SWS Securities, 1201 Elm Street, Suite 3500, Dallas, Texas 75270, Attention: Mary Jane Dietz (214-859 6803). On the date of the sale, the City Council will, in the Bond Ordinance awarding the sale of the Bonds, approve the form and content of the Official Statement, and any addenda, supplement or amendment thereto, and authorize its further use in the reoffering of the Bonds by the Purchaser. ATTEST: /s/ Rosalie Chavez City Secretary City of Sanger, Texas vi lsl Tommy Kincaid Mayor City of Sanger, Texas OFFICIAL BID FORM FOR THE BONDS Honorable Mayor and City Council City of Sanger 201 Bolivar St. Sanger, Texas 75266 Ladies and Gentlemen: May 20, 2002 Reference is made to your Official Notice of Sale and Official Statement dated May 10, 2002 of $2,540,000 City of Sanger, Texas Utility System Revenue Bonds, Series 2002, both of which constitute a part hereof. For your legally issued Bonds, as described in said Official Notice of Sale and Official Statement, we will pay you a price of ar value thereof plus accrued interest from their date to the date of delivery to us, plus a cash premium of for Bonds maturing (May 15) and bearing interest as follows: Stated Principal Maturity Amount 2003 $ 80,000 2004 80,000 2005 85,000 2006 850000 2007 900000 2008 95,000 2009 100,000 Stated Principal Maturity Amount 2010 $105,000 2011 110,000 2012 120,000 2013 125000 2014 130:000 2015 140000 2016 145:000 Stated Principal Interest Maturi Amount Rate 2017 $155,000 % 2018 160,000 % 2019 1709000 % 2020 1809000 % 2021 1900000 % 2022 195,000 % Of the principal maturities set forth in the table above, we have created term bonds as indicated in the following table (which may include multiple term bonds, one term bond, or no term on if none is indicated). For those years which have been combined into a term bond, the principal amount shown in the table above will be the mandatory sinking fund redemption amounts in such years except that the amount shown in the year of the term bond maturity date will mature in such year. The term bonds created are as follows: Term Bond Maturity Principal Amount Interest Date Mav 15 of Term Bond Rate Year of First Mandatory Redemation Our calculation (which is not part of this bid) of the interest cost in accordance with the above bid is: TRUE INTEREST COST RATE The bid of the undersigned is submitted on the basis of the following maturities __—__—__—__—__ being insured by at a remium of $__—__—__—__ to be paid by the Purchaser. (See "MUNICIPAL 50N61N617RANug page v ofNotice ofPSale.) By accepting this bid, we understand the City will provide the copies of the Official Statement and of any amendments or supplements thereto in accordance with the Official Notice of Sale, and will cooperate to permit the undersigned to comply with Rule 15132-12 of the Securities and Exchange Commission. The Initial Bond(s) shall be registered in the name of(Syndicate Manager), which will' upon payment for the Bonds, be canceled by the Paying Agent/Registrar. The Bonds will then be registered in the name of Cede Co. (DTC's partnership nominee), under the Book -Entry -Only System. We will advise the DTC of registration instructions at least five business days prior to the date set for Initial Delivery, Cashier's Check of the represents our Good Fait and rs submitted in actor check shall be applied on in the amount of $50,800 which Bank, �posi, rs a ace ere o or as een made avaTa6reF to you prior to the opening of this bid) , ;e with the terms as set orth in the Official Notice of Sale. Upon delivery of the Bonds, said purchase price of the Bonds. We agree to accept delivery of the Initial Bonds) through DTC and make payment for the Initial Bond(s) in immediately available funds at The Bank of New York Trust CCoin_pany of Florida, N.A., Dallas, Texas, no later than 10:00 A.M., CST, on June 19, 2002, or thereafter on the date the Initial eond(s) are tendered for delivery, pursuant to the terms set forth in the Official Notice of Sale. The undersigned agrees to complete, execute and deliver to the City by the date of delivery of,the Bonds, a certificate relating to the "issue price" of the Bonds in the form and to the effect attached to or accompanying the Official Notice of Sale, with such changes thereto as may be acceptable to the Bond Counsel for the Issuer. Respectfully submitted, AuthonzedT�epresentative ACCEPTANCE CLAUSE THE ABOVE AND FOREGOING BID IS IN ALL THINGS HEREBY ACCEPTED this 20th day of May, 2002 by the City Council of the City of Sanger, Texas. ATTEST: ------------------------------- �ify �eoretary, �y of`�anger,-'%xas ____ Mayor, City of Sanger, Texas CERTIFICATE OF MANAGING UNDERWRITER FOR THE BONDS The undersigned hereby certifies as follows with respect to the sale of the "City of Sanger, Texas Utility System Revenue Bonds, Series 2002 (the "Bonds"), issued in the aggregate principal amount of $2,540,000, as follows: 1. The undersigned is the underwriter a the manager of the syndicate of underwriters, which has purchased the Bonds from City of Sanger, Texas (the "Issuer") at a competitive sale. 2. The undersigned and/or one or more other members of the underwriting syndicate, if any, have made a bona fide offering to the public of the Bonds of each stated maturity at the respective prices set forth below. 3. The inWal offering price (expressed as a percentage of principal amount or yield and exclusive of accrued interest) for the Bonds of each stated maturity at which at least ten percent (10%) of the Bonds of such stated maturity was sold to the public is as set forth below: Maturity Principal Maturity Principal Date Amount Yield Date Amount Yield 2003 $ 80,000 % 2013 $1259000 % 2004 80,000 % 2014 130,000 % 2005 859000 % 2015 140,000 % 2006 850000 % 2016 145,000 % 2007 90,000 % 2017 155,000 % 2008 95,000 % 2018 160,000 % 2009 100*000 % 2019 170,000 % 2010 105,000 % 2020 180,000 % 2011 1100000 % 2021 190,000 % 2012 120,000 % 2022 195,000 % 4. The term "public," as used herein, means persons other than bondhouses, brokers, dealers, and similar persons or organizations acting in the capacity of unde, ", ers or wholesalers. 5. The offering prices described above reflect current market prices at the time of such sale. 6. The undersigned and/or one or more other members of the underwriting syndicate, as the case may be, (have) (have not) purchased bond insurance for the Bonds. The bond insurance, if any, has been purchased from (the "Insurer") for a premium cost of $ (net of any nongurarantee costs, e.g. rating agency fees). The amount of such costs is set forth in the Insurer's commitment and is separately stated from all other fees or charges payable to the Insurer. The premium does not exceed a reasonable charge for the transfer of credit risk taking into account payments charged by guarantors in comparable transactions (including transactions in which a guarantor has no involvement other than as a guarantor). The present value of the debt service savings expected to be realized as a result of such insurance, discounted at a rate equal to the yield on the Bonds which results after recovery of the insurance premium, exceeds the present value of the bond insurance premium. 7. The CUSIP number of the Bonds with the latest stated maturity is 8. The undersigned understands that the statements made herein will be relied upon by the Issuer in its effort to comply with the conditions imposed by the Internal Revenue Code of 1986, as amended, and by Bond Counsel in rendering their legal opinion concerning the excludability of interest on the Bonds from the gross income of their owners. EXECUTED and DELIVERED this day of , 2002. (Name of Underwriter or Manager) By: Title: This Official Notice of Sale does not alone constitute an invitation for bids but is merely notice of sale of the Certificates described herein. The invitation for bids on such Certificates is being made by means of this Official Notice of Sale, the Official Bid Form and the Official Statement, OFFICIAL NOTICE OF SALE $2,360,000 CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION SERIES 2002 CERTIFICATES OFFERED FOR SALE AT COMPETITIVE BID: The City Council of the City of Sanger, Texas (the "City" or "Issuer") is offering for sale at competitive bid $2,360,000 Combination Tax and Revenue Certificates of Obligation, Series 2002 (the "Certificates"). BIDS BY DELIVERY: Sealed bids, which must be submitted in duplicate on the Official Bid Form, are to be addressed to "The City Council, City of Sanger, Texas," and delivered to the City's Financial Advisor, SINS Securities at 1201 Elm Street, Suite 3500, Dallas, Texas 75270, Attention: Dan Almon, prior to 12:30 P.M., Central Time, on Monday, May 20, 2002. Bids received after such scheduled time for their receipt will not be accepted and will be returned unopened. BIDS BY FACSIMILE: Interested bidders may, at their option, mail TWO SIGNED Bid Forms to Dan A. Almon, SWS Securities, 1201 Elm Street, Suite 3500, Dallas, Texas 75270 prior to the date and time bids are to be received, and submit their bid by facsimile to Mr. Almon at (214) 859-9475 by 12:30 P.M., Central Time, on Monday, May 20, 2002. Bids received Neither the City nor SWS Securities is responsible for any failure of the SWS Securities' or the bidder's fax machine. Bids received by facsimile after the bid deadline will not be accepted. Bidders who fax bids do so at their own risk. All such bids are binding on the bidder. BIDS BY INTERNET: Interested bidders may, at their option, mail TWO SIGNED Bid Forms to Dan A. Almon, SWS Securities, 1201 Elm Street, Suite 3500, Dallas, Texas 75270 prior to the date and time bids are to be received, and submit their bid by electronic media, as described below, by 12:30 P.M., Central Time, on Monday, May 20, 2002. Any prospective bidder that intends to submit an electronic bid must submit its electronic bid via the facilities of the i-Deal, LLC PARITY System ("PARITY"). In the event of a malfunction in the electronic bidding process, bidders may submit their bids by facsimile, as described above. Bids received after the scheduled time for their receipt will not be accepted. The official time for the receipt of bids shall be the time maintained by PARITY. All electronic bids shall be deemed to incorporate the provisions of the Official Notice of Sale, Official Bid Form and the Official Statement. To the extent that any instructions or directions set forth in PARITY conflict with this Official Notice of Sale, the terms of this Official Notice of Sale shall control. For further information about the PARITY System, potential bidders may contact Bond Research Group, c/o -Deal LLC, 395 Hudson Street, 3rd Floor, New York, New York 10014, 212-807-3800. An electronic bid made through the facilities of the i-Deal, LLC PARITY System shall be deemed an irrevocable offer to purchase the Certificates on the terms provided in the Official Notice of Sale, and shall be binding upon the bidder as if made by a signed sealed bid delivered to the City. The City shall not be responsible for any malfunction or mistake made by, or as a result of the use of PARITY, the use of such facilities being at the sole risk of the bidder. BIDS BY TELEPHONE: BIDS BY TELEPHONE WILL NOT BE ACCEPTED. PLACE AND TIME OF BID OPENING: The bids for the Certificates will be publicly reviewed at the office of the City's Financial Advisor at 12:30�.M., Central Time, on Monday, May 20, 2002. AWARD AND SALE OF THE CERTIFICATES: At a regular meeting to commence at 7:00 P.M. Central Time, on Monday, May 20, 2002, the City Council will take action to reject all bids or award the sale of the Certificates pursuant to an ordinance authorizing the sale of the Certificates (the "Certificate Ordinance"). The Issuer reserves the right to reject any or all bids and to waive any irregularities, except time of filing. THE CERTIFICATES DESCRIPTION OF CERTAIN TERMS OF THE CERTIFICATES: The Certificates will be dated June 1, 2002 with interest payable initially on March 1, 2003 and semiannually on September 1 and March 1 thereafter until stated maturity or prior redemption. The Certificates will be issued as fully registered obligations in book -entry form only and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), New York, New York. DTC will act as securities depository (the "Securities Depository'). Book -entry interests in the Certificates will be made available for purchase in the principal amount of $5,000 or any integral multiple thereof. Purchasers of the Certificates ("Beneficial Owners") will not receive physical delivery of certificates representing their interest in the Certificates purchased. So long as DTC or its nominee is the registered owner of the Certificates, the principal of and interest on the Certificates will be payable by The Bank of New York Trust Company of Florida, N.A., Dallas, Texas, to the Securities Depository, which will in turn remit such principal and interest to its Participants, which will in turn remit such principal and interest to the Beneficial Owners of the Certificates. (See "BOOK -ENTRY -ONLY SYSTEM" in the Official Statement.) MATURITY SCHEDULE The Certificates will be stated to mature on September 1 in each of the following years in the following amounts: Stated Principal Stated Principal Stated Principal Maturity Amount Maturi Amount Maturity Amount 2003 $409000 2010 $100,000 2017 $145,000 2004 759000 2011 105,000 2018 150,000 2005 809000 2012 110,000 2019 160,000 2006 859000 2013 120,000 2020 170,000 2007 85,000 2014 1259000 2021 175,000 2008 909000 2015 1309000 2022 185,000 2009 95,000 2016 135,000 OPTIONAL REDEMPTION: The Issuer reserves the right to redeem the Certificates maturing on and after September 1, 2013, on September 1, 2012, or any date thereafter, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, at the redemption price of par plus accrued interest as further described herein. (See "THE CERTIFICATES - Redemption Provision of the Certificates" herein.) SERIAL CERTIFICATES AND/OR TERM CERTIFICATES: Bidders may provide that all of the Certificates be issued as serial maturities or may provide that any two or more consecutive annual principal amounts for Certificates maturing after 2013 be combined into one or more term certificates. MANDATORY SINKING FUND: If the successful bidder designates principal amounts to be combined into one or more term certificates, each such term certificate will be subject to mandatory sinking fund redemption commencing on September 1 of the first year which has been combined to form such term certificate and continuing on September 1 in each year thereafter until the stated maturity date of that term certificate. The amount redeemed in any year will be equal to the principal amount for such year set forth in the table under the caption "MATURITY SCHEDULE" above. Certificates to be redeemed in any year by mandatory sinking fund redemption will be redeemed at par and will be selected by lot from among the Term Certificates then subject to redemption. The principal amount of the Term Certificates for a Stated Maturity required to be redeemed pursuant to the operation of such mandatory redemption provisions may be reduced, at the option of the City, by the principal amount of Term Certificates of like Stated Maturity which, at least 50 days prior to a mandatory redemption date, (1) shall have been acquired by the City at a price not exceeding the principal amount of such Term Certificates pus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation or (2) shall have been redeemed pursuant to the optional redemption provisions set forth.above and not theretofore credited against a.mandatory redemption requirement. A final official statement will incorporate the appropriate mandatory redemption provisions applicable to any Term Certificates. AUTHORITY FOR ISSUANCE AND SECURITY FOR PAYMENT: The Certificates are being issued pursuant to the Constitution and general laws of the State of Texas, including the Certificate of Obligation Act of 1971, as amended, V.T.C.A. Texas Local Government Code, Subchapter C of Chapter 271, as amended, and the Certificate Ordinance. (See "THE CERTIFICATES - Authority for Issuance" in the Official Statement.) The Certificates constitute direct obligations of the City payable from an annual ad valorem tax levied against all taxable property in the City, within the limits prescribed by law and are further secured by and payable from a limited pledge not to exceed $1,000 of the surplus Net Revenues derived from the operations of the City's combined Waterworks, Electric and Sewer Systems (the "System"). (See "THE CERTIFICATES - Security for Payment" in the Official Statement.) PAYING AGENT/REGISTRAR: The initial Paying Agent/Registrar is The Bank of New York Trust Company of Florida, N.A., Dallas, Texas. In the Certificate Ordinance, the City covenants to provide a Paying Agent/Registrar at all times while the Certificates are outstanding, and any Paying Agent/Registrar selected by the City shalt be a bank, trust company, financial institution or other entity qualified and authorized to serve in such capacity and perform the duties and services of Paying Agent/Registrar, The Paying Agent/Registrar will maintain the Security Register containing the names and addresses of the registered owners of the Certificates. In the Certificate Ordinance the City retains the right to replace the Paying Agent/Registrar, If the Paying Agent/Registrar is replaced by the Issuer, such Paying Agent/Registrar, promptly upon the appointment of a successor, is required to deliver the Security Register to the successor Paying Agent/Registrar. In the event there is a change in the Paying Agent/Registrar, the City has agreed to notify each registered owner of the Certificates then outstanding by United States mail, first-class postage prepaid, at the address in the Security Register, stating the effective date of the change and the mailing address of the successor Paying Agent/Registrar, BOOK -ENTRY -ONLY SYSTEM: The City intends to utilize the Book -Entry -Only System of The Depository Trust Company, New York, New York ("DTC"), with respect to the issuance of the Certificates. (See "BOOK -ENTRY -ONLY SYSTEM" in the Official Statement.) OFFICIAL STATEMENT AND OTHER TERMS AND COVENANTS IN THE CERTIFICATE ORDINANCE: Further details regarding the Certificates and certain covenants of the City contained in the Certificate Ordinance are set forth in the Official Statement to which reference is made for all purposes. CONDITIONS OF SALE TYPES OF BIDS AND INTEREST RATES: The Cert�cates will be sold in one block on an "All or None" basis, and at a price of not less than their par value plus accrued interest from the date of initial delivery of the Certificates. Bidders are invited to name the rate(s) of interest to be borne by the Certificates, provided that each rate bid must be in a multiple of 1/8 of 1% or 1/20 of 1% and the net effective interest rate for. the Certificates (calculated in the manner required by V.T.C.A., Government Code, Chapter 1204, as amended) must not exceed 15%. The highest rate bid may not exceed the lowest rate bid by more than 1%% in rate. No limitation is imposed upon bidders as to the number of rates or changes which may be used. All Certificates of one stated maturity must bear one and the same rate. No bids involving supplemental interest rates will be considered. Any premium included in a bid must be less than one-half of one percent ('/z%). BASIS OF AWARD: The sale of the Certificates will be awarded to the bidder making a bid that conforms to the specifications herein and which produces the lowest True Interest Cost Rate to the Issuer. The True Interest Cost rate is that rate which, when used to compute the total present value as of the Dated Date of all debt service payments on the Certificates on the basis A semi-annual compounding, produces an amount equal to the sum of the par value of the Certificates plus any premium bid, if any (but not interest accrued from the Dated Date to the date of their delivery). In the event of a bidder's error in interest cost rate calculation, the interest rates, and premium, if any, set forth in the Official Bid Form will be considered as the intended bid. In order to provide the Issuer with information required to enable it to comply with certain conditions of the Internal Revenue Code of 1986 (the "Code"), as amended to the date of initial delivery of the Certificates, relating to the exclusion of interest on the Certificates from the gross income of their owners, the Purchaser will be required to complete, execute, and deliver to the City (on or before the date of delivery of the Certificates) a certification as to their initial offering prices ("issue price") of the Certificates substantially in the form and to the effect attached hereto or accompanying this Notice of Sale. In the event the successful bidder will not re -offer the Certificates for sale or is unable to sell a substantial amount of the Certificates of any stated maturity by the date of delivery, such certificate may be modified in a manner approved by Bond Counsel. Each bidder, by submitting its bid, agrees to complete, execute, and deliver such a certificate by the date of initial delivery of the Certificates, if its bid is accepted by the Issuer. Delivery of the Certificates is conditioned upon receipt by the Issuer from the Purchaser of such certificate. It will be the responsibility of the Purchaser to institute such syndicate reporting requirements, to make such investigation, or otherwise to ascertain the facts necessary to -enable it to make such certification with reasonable certainty. Any questions concerning such certification should be directed to Bond Counsel. QUALIFIED TAX-EXEMPT OBLIGATIONS: The Issuer will, pursuant to the Certificate Ordinance, designate the Certificates as "qualified tax exempt obligations." Accordingly, it is anticipated that financial institutions that purchase the Certificates will not be subject to the 100 percent disallowance of interest expense allocable to interest on the Certificates under section 265(b) of the Code. However, interest expense incurred by a financial institution which is allocable to the interest on the Certificates would be subject to the 20 percent disallowance of interest expense rule which was generally applicable under section 265 of the Internal Revenue Code of 1954. See discussion under the caption "TAX MATTERS -Qualified Tax -Exempt Obligations for Institutions" contained in the Official Statement. GOOD FAITH DEPOSIT: A bank cashier's check payable to the order of "City of Sanger, Texas" in the amount of $47,200 which is 2% of the par value of the Certificates (the "Good Faith Deposit") is required. The good faith check of the Purchaser will be retained uncashed by the Issuer until the Certificates are delivered, and at that time it will be applied to the purchase price of the Certificates. The above mentioned Cashier's Check may accompany the bid, or it may be submitted separately; however, if submitted separately, it shall be made available to the Issuer prior to the opening of the bids and shall be iii accompanied by, instructions from the bank on which it is drawn which will authorize its use as a Good Faith Deposit by the Purchaser who shall be named in such instructions. No interest will be paid or allowed on any Good Faith Deposit. The checks accompanying all other bids will be returned immediately after the bids are opened and the award of the sale of the Certificates has been made. FINANCIAL ADVISOR'S RIGHT TO BID: SWS Secures is employed as the Financial Advisor to the Issuer in connection with the issuance of the Certificates. The Financial Advisor's fee for services rendered with respect to the sale of the Certificates is contingent upon the issuance and delivery of the Certificates. The Issuer has permitted SWS Securities the option to bid on the Certificates. SWS Securities may submit a bid for the Certificates, either independently or as a member of a syndicate organized to submit a bid for the Certificates. OFFICIAL STATEMENT To assist the Initial Purchaser in complying with Rule 15c2-12 of the Securities and Exchange Commission ("SEC"j, the Issuer and the Initial Purchaser contract and agree, by the submission and acceptance of the winning bid, as follows: COMPLIANCE WITH RULE 15c2-12 OF THE SECURITIES AND EXCHANGE COMMISSION: The Issuer has approved and authorized distribution of the accompanying Official Statement for dissemination to potential purchasers of the Certificates, but does not presently intend to prepare any other document or version thereof for such purpose, except as described below. Accordingly, the Issuer deems the accompanying Official Statement to be final as of its date, within the meaning of Rule 15c2-12 of the Securities and Exchange Commission (the "Rule"), except for information relating to the offering prices, interest rates, final debt service schedule, selling compensation, identity of the Purchaser and other similar information, terms and provisions to be specified in the competitive bidding process. The Initial Purchaser shall be responsible for promptly informing the Issuer of the initial offering yields of the Certificates. Thereafter, the Issuer will complete and authorize distribution of the Official Statement identifying the Initial Purchaser and containing such omitted information. The Issuer does not intend to amend or supplement the Official Statement otherwise, except to take into account certain subsequent events, if any, as described below. By delivering the Final Official Statement or any amendment or supplement thereto in the requested quantity to the Initial Purchaser on or after the sale date, the Issuer intends the same to be final as of such date, within the meaning of SEC Rule 15c2-12. Notwithstanding the foregoing, the Issuer makes no representation concerning the absence of material misstatements or omissions from the Official Statement, except only as and to the extent under "CERTIFICATION OF THE OFFICIAL STATEMENT' as described below. To the best knowledge and belief of the Issuer, the official Statement contains information, including financial information or operating data, concerning every entity, enterprise, fund, account, or person that is material to an evaluation of the offering of the Certificates. CONTINUING DISCLOSURE AGREEMENT: The City will agree in the Certificate Ordinance to provide certain periodic information and notices of material events in accordance with the Rule, as described in the Official Statement under "CONTINUING DISCLOSURE OF INFORMATION." The Initial Purchaser's obligation to accept and pay for the Certificates is conditioned upon delivery to the Initial Purchaser or its agent of a certified copy of the Certificate Ordinance containing the agreement described under such heading. COMPLIANCE WITH PRIOR UNDERTAKINGS: The Issuer has complied in all material respects with its undertakings made pursuant to the Rule, with the exception of a late filing for 1998, which was submitted on April 14, 1999. All the Issuer's filings since that time have been made on time. FINAL OFFICIAL STATEMENT: The Issuer will furnish to the Purchaser, within seven (7) business days after the sale date, an aggregate maximum of one hundred (100) copies of the Official Statement (and 100 copies of any addenda, supplement or amendment thereto), together with information regarding interest rates and other terms relating to the reoffering of the Certificates, in accordance with Rule 15c2-12 of the SEC. The Purchaser may arrange at his own expense to have the Official Statement reproduced and printed if he requires more than 100 copies and may also arrange, at his own expense and responsibility, for completion and perfection of the first or cover page of the Official Statement so as to reflect interest rates and other terms and information related to the reoffering of the Certificates. The Purchaser will be responsible for providing information concerning the Issuer and the Certificates to subsequent purchasers of the Certificates, and the Issuer will undertake no responsibility for providing such information other than to make the Official Statement available to the Purchaser as provided herein. The Issuer's obligation to supplement the Official Statement to correct key representations determined to be materially misleading, after the date of the Official Statement, shall terminate upon initial delivery of the Certificates to the Purchaser, unless the Purchaser notifies, in writing, the Issuer that less than all of the Certificates have been sold to ultimate customers on or before such date, in which case the obligation will extend for an additional period of time (but not more than 90 days after the sale date) until all of the Certificates have been sold to ultimate customers. CHANGES TO OFFICIAL STATEMENT: If, subsequent to the date of the Official Statement, the Issuer learns, through the ordinary course of business and without undertaking any investigation or examination for such purposes, or is notified by the Initial Purchaser of any adverse event which causes the Official Statement to be materially misleading, and unless the Initial iv Purchaser elects to terminate its obligation to purchase the Certificates, as described below under "DELIVERY AND ACCOMPANYING DOCUMENTS - CONDITIONS TO DELIVERY," the Issuer will promptly prepare and supply to the Initial Purchaser an appropriate amendment or supplement to the Official Statement satisfactory to the Initial Purchaser; provided, however, that the obligation of the Issuer to do so will terminate when the Issuer delivers the Certificates to the Initial Purchaser, unless the Initial Purchaser notifies the Issuer on or before such date that less than all of the Certificates have been sold to ultimate customers, in which case the Issuer's obligations hereunder will extend for an additional period of time (but not more than 90 days after the date the Issuer delivers the Certificates) until all of the Certificates have been sold to ultimate customers. CERTIFICATION OF THE OFFICIAL STATEMENT: At the time of payment for and delivery of the Initial Certificates, the Initial Purchaser will be furnished a certificate, executed by proper officials of the Issuer, acting in their official capacity, to the effect that to the best of their knowledge and belief. (a) the descriptions and statements of or pertaining to the Issuer contained in its Official Statement, and any addenda, supplement or amendment thereto, for the Certificates, on the date of such Official Statement, on the date of sale of said Certificates and the acceptance of the best bid therefor, and on the date of the delivery, were and are true and correct in all material respects; (b) insofar as the Issuer and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an 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; (c) insofar as the descriptions and statements including financial data, of or pertaining to entities, other than the Issuer, and their activities contained in such Official Statement are concerned, such statements and data have been obtained from sources which the Issuer believes to be reliable and the Issuer has no reason to believe that they are untrue in any material respect; and (d) there has been no material adverse change in the financial condition of the Issuer, since September 30, 2001, the date of the last financial statements of the Issuer appearing in the Official Statement as Appendix E. The Official Statement and Official Notice of Sale will be approved as to form and content and the use thereof in the offering of the Certificates will be authorized, ratified and approved by the City Council on the date of sale, and the Initial Purchaser will be furnished, upon request, at the time of payment for and the delivery of the Certificates, a certified copy of such approval, duly executed by the proper officials of the Issuer. DELIVERY AND ACCOMPANYING DOCUMENTS INITIAL DELIVERY OF INITIAL CERTIFICATE: The delivery of the Certificates (the "Initial Delivery" will be accomplished by the issuance of either (i) a single fully registered Certificate in the total principal amount of $2,360,000 payable in stated installments to the Initial Purchaser and numbered R-1, or (ii) one (1) fully registered Certificate for each year of stated maturity in the applicable principal amount and denomination, to be numbered consecutively from R-1 and upward (the "Initial Certificates)"), signed by the Mayor and City Secretary of the Issuer, approved by the Attorney General of Texas, and registered and manually signed by an authorized representative of the Comptroller of Public Accounts of the State of Texas. Initial Delivery will be at the designated office of the Paying Agent/Registrar. The Initial Certificates shall be immediately canceled following delivery and one global certificate for each maturity of the Certificates payable to Cede & Co. will be exchanged therefor and deposited with DTC in connection with DTC's Book -Entry -Only System. Payment for the Certificates must be made in immediately available funds for unconditional credit to the City, or as otherwise directed by the City. The Purchaser will be given six business days' notice of the time fixed for delivery of the Certificates. It is anticipated that the delivery of the Initial Certificate(s) can be made on or about June 19, 2002, but if for any reason the City is unable to make delivery by July 19, 2002, then the City shall immediately contact the Purchaser and offer to allow the Purchaser to extend his obligation to take up and pay for the Certificates an additional 30 days. If the Purchaser does not elect to extend his offer within six days thereafter, then his Good Faith Deposit will be returned, and both the City and the Purchaser shall be relieved of any further obligation. In no event shall the City be liable for any damages by reason of its failure to deliver the Certificates, provided that such failure is due to circumstances beyond the City's reasonable control. DTC DEFINITIVE CERTIFICATES: The Certificates will be issued in book -entry -only form. Cede & Co. is the nominee for DTC. All reference herein and in the Official Statement to the certificate holders or registered owners of the Certificates shall mean Cede & Co. and not the beneficial owners of the Certificates. Purchases of beneficial interests in the Certificates will be made in book -entry form in the denomination of $5,000 principal amounts or any integral multiple thereof. Under certain limited circumstances, the City may determine to forego immobilization of the Certificates at DTC, or another securities depository, in which case, such beneficial interests would become exchangeable for definitive printed obligations of like principal amount. CUSIP NUMBERS: It is anticipated that CUSIP identification numbers will be printed on the Certificates, but neither the failure to print such number on any Certificate nor any error with respect thereto shall constitute cause for a failure or refusal by the Initial Purchaser to accept delivery of and pay for the Certificates in accordance with I of the Official Bid Form and this Official Notice of Sale. All expenses in relation to the printing of CUSIP numbers on the Certificates shall be paid by the Issuer; however, the CUSIP Service Bureau's charge for the assignment of the numbers shall be paid by the Initial Purchaser. CONDITIONS TO DELIVERY: The obligation to take up and pay for the Certificates is subject to the following conditions: the issuance of an approving opinion of the Attorney General of Texas, delivery of the Initial Certificate(s), the Initial Purchaser's receipt of the legal opinion of Bond Counsel and the no -litigation certificate, and the v non-occurrence of the events described below under the caption "NO MATERIAL ADVERSE CHANGE," all as described below. In addition, if the Issuer fails to comply with its agreement described under "OFFICIAL STATEMENT" above, the initial Purchaser may terminate its contract to purchase the Certificates by delivering written notice to the Issuer within five (5) days thereafter. NO MATERIAL ADVERSE CHANGE: The obligations of the Initial Purchaser to take up and pay for the Certificates, and of the Issuer to deliver the Initial Certificates, are subject to the condition that, up to the time of delivery of and receipt of payment for the Initial Certificates, there shall have been no material adverse change in the affairs of the Issuer subsequent to the date of sale from that set forth in the Official Statement, as it may have been finalized, supplemented or amended through the date of delivery. LEGAL OPINIONS: The Certificates are offered when, as and if issued, subject to the approval of certain legal matters by the Attorney General of the State of Texas and Bond Counsel (see discussion "OTHER PERTINENT INFORMATION - Legal Opinions and No -Litigation Certificate" in the Official Statement). The opinion of Bond Counsel will be printed on, or will accompany the definitive Certificates. CHANGE IN TAX-EXEMPT STATUS: At any time before the Certificates are tendered for initial delivery to the Initial Purchaser, the Initial Purchaser may withdraw its bid if the interest on obligations such as the Certificates shall be declared to be includable in the gross income, as defined in section 61 of the Tax Code, of the owners thereof for federal income tax purposes, either by Treasury regulations, by ruling or administrative guidance of the Internal Revenue Service, by a decision of any federal court, or by the terms of any federal income tax legislation enacted subsequent to the date of this Official Notice of Sale. :CI�1�:7_\i�•T•7: Ertl •7�:7_� � [•7: G9 MUNICIPAL BOND INSURANCE: In the event the Certificates are qualified for municipal bond insurance, and the Initial Purchaser desires to purchase such insurance, the cost therefor will be paid by the Initial Purchaser. Any fees to be paid to Fitch Ratings or Standard & Poor's Rating Services, a Division of The McGraw-Hill Companies, Inc. as a result of said insurance will be paid by the Initial Purchaser. The fees of Moody's Investors Service, Inc. will be paid by the Issuer. It will be the duty of the Initial Purchaser to disclose the existence of insurance, its terms and the effect thereof with respect to the reoffering of the Certificates and any other information or certifications which may be required to determine the effect of such insurance on the yield or the Certificates for federal income tax purposes. RATING: A municipal bond rating application has been made to Moody's Investors Service, Inc. ("Moody's"). An explanation of the significance of such rating, when received, may be obtained from Moody's. The Issuer currently has no underlying rating on iIs uninsured general obligation debt and has an underlying rating of "Baal" from Moody's on its uninsured revenue debt, and has A rating by an agency reflects only the view of such company at the time the rating is given, and the Issuer makes no representations as to the appropriateness of the rating. There is no assurance that such a rating will continue for any given period of time, or that it will not be revised downward or withdrawn entirely by the rating agency if, in the judgment of such agency, circumstances so warrant. Any such downward revision or withdrawal of a rating may have an adverse effect on the market price of the Certificates. SALE OF ADDITIONAL GENERAL OBLIGATION DEBT: The City has no plans to issue additional general obligation debt in 2002. REGISTRATION AND QUALIFICATION OF CERTIFICATES FOR SALE: No registration statement relating to the Certificates has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, in reliance upon exemptions provided in such Act. The Certificates have not been approved or disapproved by the Securities and Exchange Commission, nor has the Securities and Exchange Commission passed upon the accuracy or adequacy of the Official Statement. Any representation to the contrary is a criminal offense. The Certificates have not been registered or qualified under the Securities Act of Texas in reliance upon exemptions contained therein, nor have the Certificates been registered or qualified under the securities acts of any other jurisdiction. The Issuer assumes no responsibility for registration or qualification of the Certificates under the securities laws of any jurisdiction in which the Certificates may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition of the Certificates shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions. It is the obligation of the Purchaser to register or qualify sale of the Certificates under the securities laws of any jurisdiction which so requires. The Issuer agrees to cooperate, at the Purchaser's written request and expense and within reasonable limits, in registering or qualifying the Certificates, or in obtaining an exemption from registration or qualification in any state where such action is necessary, but will in no instance execute a general consent to service of process in any state that the Certificates are offered for sale. vi ADDITIONAL COPIES: Subject to the limitations described under "OFFICIAL STATEMENT" herein, additional copies of this Official Notice of Sale, the Official Bid Form, and the Official Statement may be obtained from SWS Securities, 1201 Elm Street, Suite 3500, Dallas, Texas 75270, Attention: Mary Jane Dietz (214-859-6803). ` On the date of the sale, the City Council will, in the Certificate Ordinance awarding the sale of the Certificates, approve the form and content of the Official Statement, and any addenda, supplement or amendment thereto, and authorize its further use in the reoffering of the Certificates by the Purchaser. /s/ Tommy Kincaid • Mayor ATTEST: City of Sanger, Texas ls/ Rosalie Chavez City Secretary City of Sanger, Texas vii OFFICIAL BID FORM FOR THE CERTIFICATES Honorable Mayor and City Council City of Sanger 201 Bolivar St. Sanger, Texas 75266 May 20, 2002 Ladies and Gentlemen: Reference is made to your Official Notice of Sale and Official Statement dated May 10, 2002 of $2,360,000 City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2002, both of which constitute a part hereof. For your legally issued Certificates, as described in said Official Notice of Sale and Official Statement, we will pay you a price of par value thereof plus accrued interest from their date to the date of delivery to us, plus a cash premium of for Certificates maturing (September 1) and bearing interest as follows: Stated Principal Maturitv Amount 2003 $40,000 2004 75,000 2005 80,000 2006 85,000 2007 85,000 2008 90,000 2009 959000 Interest Rate 0 0 0 0 0 Stated Principal Maturitv Amount 2010 $100,000 2011 105,000 2012 110000 2013 120:000 2014 125,000 2015 130000 2016 135:000 Stated Principal Interest Maturitv Amount Rate 2017 $1459000 % 2018 150,000 % 2019 160,000 % 2020 170,000 % 2021 175,000 NO lop 2022 185,000 0/0 Of the principal maturities set forth in the table. above, we have created term certificates as indicated in the following table (which may include multiple term certificates, one term certificate, or no term certificate if none is indicated). For those years which have been combined into a term certificate, the principal amount shown in the table above will be the mandatory sinking fund redemption amounts in such ears except that the amount shown in the year of the term certificate maturity date will mature m such year. The term certificates created are as follows: Term Certificate Maturity 1 Date September Year of First Mandatory Redemption Principal Amount of Tenn Certificate Our calculation (which is not part of this bid) of the interest cost in accordance with the above bid is: Rate Interest TRUE INTEREST COST RATE The bid of the undersigned is submitted on the basis of the following maturities _____—__—_____ being insured by at a remium of $__—_____—___ to be paid by the Purchaser. (See "MUNICIPAL BAND'CRS 7R7A'RCE' page v ofN6tice of Sale.) By accepting this bid, we understand the City will provide the copies of the Official Statement and of any amendments or supplements thereto in accordance with the Official Notice of Sale, and will cooperate to permit the undersigned to comply with Rule 15c2-12 of the Securities and Exchange Commission. The Initial Certificate(s) shall be registered in the name of (Syndicate Manager), which will upon . payment for the Certificates, be canceled by the Paying Agent/Registrar. The Certificates will then be registered in the name of Cede & Co. (DTC's partnership nominee), under the Book -Entry -Only System. We will advise the DTC of registration instructions at least five business days prior to the date set for Initial Delivery. Cashiers Check of the Bank, ____— in the amount of $47,200 which represents our Good Fai eposi, is attached hereto) or as een made available to you prior to the opening of this bid), and is submitted in accordance with the terms as set forth in the Official Notice of Sale. Upon delivery of the Certificates, said check shall be applied on the purchase price of the Certificates. We agree to accept delivery of the Initial Certificate(s)) through DTC and make payment for the Initial Certificate(s) in immediately available funds at The Bank of New York Trust Company of Florida, N.A., Dallas, Texas, no later than 0:00 A.M., CST, on June 19, 2002, or thereafter on the date the Initial Certificate(s) are tendered for delivery, pursuant to the terms set forth in the Official Notice of Sale. The undersigned agrees to complete, execute and deliver to the City by the date of delivery of the Certificates, a certificate relating to the "issue price" of the Certificates in the form and to the effect attached to or accompanying the Official Notice of Sale, �nnth such changes thereto as may be acceptable to the Bond Counsel for the Issuer. Respectfully submitted, ACCEPTANCE CLAUSE Aut�iorized Representative THE ABOVE AND FOREGOING BID IS IN ALL THINGS HEREBY ACCEPTED this 20th day of May, 2002 by the City Council of the City of Sanger, Texas. ATTEST: Mayor, City of Sanger, Texas Oity ecretary,�ity, of�anger,exas CERTIFICATE OF MANAGING UNDERWRITER FOR THE CERTIFICATES The undersigned hereby certifies as follows with respect to the sale of the "City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2002 (the "Certificates"), issued in the aggregate principal amount of $2,360,000, as follows: 1. The undersigned is the underwriter or the manager of the syndicate of underwriters, which has purchased the Certificates from City of Sanger, Texas (the "Issuer") at a competitive sale. 2. The undersigned and/or one or more other members of the underwriting syndicate, if any, have made a bona fide offering to the public of the Certificates of each stated maturity at the respective prices set forth below. 3. The initial offering price (expressed as a percentage of principal amount or yield and exclusive of accrued interest) for the Certificates of each stated maturity at which at least ten percent (10%) of the Certificates of such stated maturity was sold to the public is as set forth below. Maturity Principal Maturity Principal Date Amount Yield Date Amount Yield 2003 $ 40,000 % 2013 $120,000 % 2004 75,000 % 2014 125,000 % 2005 80,000 % 2015 130,000 % 2006 85,000 % 2016 1359000 % 2007 859000 % 2017 1459000 % 2008 90,000 % 2018 150,000 % 2009 959000 % 2019 160,000 % 2010 100,000 % 2020 170,000 % 2011 105,000 % 2021 175,000 % 2012 110,000 % 2022 185,000 % 4. The term "public," as used herein, means persons other than bondhouses, brokers, dealers, and similar persons or organizations acting in the capacity of underwriters or wholesalers. 5. The offering prices described above reflect current market prices at the time of such sale. 6. The undersigned and/or one or more other members of the underwriting syndicate, as the case may be, (have) (have not) purchased bond insurance for the Certificates. The bond insurance, if any, has been purchased from (the "Insurer") for a premium cost of $ (net of any nongurarantee costs, e.g. rating agency fees). The amount of such costs is set forth in the Insurer's commitment and is separately stated from all other fees or charges payable to the Insurer. The premium does not exceed a reasonable charge for the transfer of credit risk taking into account payments charged by guarantors in comparable transactions (including transactions in which a guarantor has no involvement other than as a guarantor). The present value of the debt service savings expected to be realized as a result of such insurance, discounted at a rate equal to the yield on the Certificates which results after recovery of the insurance premium, exceeds the present value of the bond insurance premium. 7. The CUSIP number of the Certificates with the latest stated maturity is 8. The undersigned understands that the statements made herein will be relied upon by the Issuer in its effort to comply with the conditions imposed by the Internal Revenue Code of 1986, as amended, and by Bond Counsel in rendering their legal opinion concerning the excludability of interest on the Certificates from the gross income of their owners. EXECUTED and DELIVERED this day of 2002. (Name of Underwriter or Manager) Title: NEW ISSUE -BOOK -ENTRY -ONLY - Qualified PRELIMINARY OFFICIAL STATEMENT Dated: May 10, 2002 Ratings: Moody's: (See "BOND INSURANCE" and "OTHER PERTINENT INFORMATION -Ratings" herein) Institutions" herein. In the opinion of Bond Counsel, interest on the Obligations will be excludable from gross income for federal income tax purposes under statutes, regulations, published rulings, and court decisions existing on the date hereof, subject to the matters described under "TAX MATTERS" herein, including the alternative minimum tax on corporations. CITY OF BANGER, TEXAS (Denton County) $2,540,000 Utility System Revenue Bonds Series 2002 $2,360,000 Combination Tax and Revenue Certificates of Obligation Series 2002 Dated Date: June 1, 2002 Due: May 15 (Bonds) September 1 (Certificates (as shown on inside cover page) City of Sanger, Texas (the "City" or "Issuer") is issuing two series of obligations as shown above, to wit: $2,540,000 Utility System Revenue Bonds, Series 2002 (the "Bonds") and $2,360,000 Combination Tax and Revenue Certificates of Obligation, Series 2002 (the "Certificates"), collectively hereinafter called the "Obligations," in accordance with the Constitution and laws of the State of Texas (the "State") and Ordinances (the "Bond Ordinance" and the "Certificate Ordinance," collectively the "Ordinances") adopted by the City Council. (See "THE BONDS - Authority for Issuance" and "THE CERTIFICATES — Authority for Issuance" herein.) The Bonds constitute special obligations of the Issuer secured by and payable from an irrevocable first lien on and pledge of the Net Revenues (as defined in the Bond Ordinance) derived from the City's combined Waterworks, Electric and Sewer Systems (the "System"), The City has not covenanted nor obligated itself to pay the Bonds from monies raised or to be raised from taxation. (See "THE BONDS - Security for Payment" herein.) The Certificates constitute direct obligations of the Issuer payable from an annual ad valorem tax levied against all taxable property in the City, within the limits prescribed by law and are further secured by and payable from a limited pledge not to exceed $1,000 of the surplus net revenues derived from the operation of the City's combined Waterworks, Electric and Sewer Systems (the "System"). (See "THE CERTIFICATES - Security for Payment" herein.) Interest on the Bonds will accrue from the dated date as shown above and will be payable May 15 and November 15 of each year, commencing May 15, 2003, and interest on the Certificates will accrue from the dated date as shown above and will be payable March 1 and September 1 of each year, commencing March 1, 2003, Interest will be calculated on the basis of a 360-day year of twelve 30-day months. The definitive Obligations will be issued as fully registered obligations in book -entry form only and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), New York, New York. DTC will act as securities depository (the "Securities Depository"), Book -entry interests in the Obligations will be made available for purchase in the principal amount of $5,000 or any integral multiple thereof. Purchasers of the Obligations ("Beneficial Owners") will not receive physical delivery of certificates representing their interest in the Obligations purchased. So long as DTC or its nominee is the registered owner of the Obligations, the principal of and interest on the Obligations will be payable by The Bank of New York Trust Company of Florida, N.A., Dallas, Texas as Paying Agent/Registrar, to the Securities Depository, which will in turn remit such principal and.interest to its Participants, which will in turn remit such principal and interest to the Beneficial Owners of the Obligations. (See "BOOK -ENTRY -ONLY SYSTEM" herein.) Proceeds from the sale of the Bonds will be used to (i) improve and expand the City's Waterworks, Electric and Sewer Systems, including expansion of the City's wastewater treatment plant, and (ii) to pay cost related to the issuance of the Bonds. (See "THE BONDS - Use of Proceeds" herein.) Proceeds from the sale of the Certificates will be used (i) to construct and improve the City's streets and (ii) to pay costs related to the issuance of the Certificates. (See "THE CERTIFICATES - Use of Proceeds" herein.) The Issuer reserves the right to redeem the Bonds maturing on and after May 15, 2013 on May 15, 2012, or any date thereafter, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, at the redemption price of par plus accrued interest, as further described herein. (See "THE BONDS - Redemption Provisions" herein.) The Issuer reserves the right to redeem the Certificates maturing on and after September 1, 2013 on September 1, 2012, or any date thereafter, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, at the redemption price of par plus accrued interest, as further described herein. (See "THE CERTIFICATES - Redemption Provisions" herein.) The City is considering insuring the Obligations with municipal bond insurance and has made application to several municipal bond insurance companies in connection with such consideration (See "BOND INSURANCE" herein.) STATED MATURITY SCHEDULE (On Inside Cover) The Obligations are offered for delivery, when, as and if issued and subject to the approving opinion of the Attorney General of the State of Texas and the approval of certain legal matters by McCall, Parkhurst &Horton L.L.P. ,Dallas, Texas, Bond Counsel. The respective legal opinions of Bond Counsel will be printed on, or attached to, the Obligations, (See Appendix C -Forms of Legal Opinions of Bond Counsel.) It is expected that the Obligations will be available for delivery through DTC on or about June 19, 2002. STATED MATURITY SCHEDULES $2,540,000 Utility System Revenue Bonds, Series 2002 (Due May 15) Stated Principal Rate Yield Maturity Amount (0/°)_ 2003 $ 80,000 2004 809000 2005 859000 2006 85,000 2007 90,000 2008 95,000 2009 100,000 2010 105,000 2011 110,000 2012 120,000 2013 1259000 2014 1309000 2015 1409000 2016 145,000 2017 155,000 2018 160,000 2019 170,000 2020 180,000 2021 190,000 2022 195,000 (Interest to accrue from the Dated Date.) $2,360,000 Combination Tax and Revenue Certificates of Obligation, Series 2002 (Due September 1) Stated Principal Rate Yield Maturi Amount % _(°/� 2003 $ 40,000 2004 75,000 2005 800000 2006 850000 2007 85,000 2008 90,000 2009 95,000 2010 100,000 2011 105,000 2012 1109000 2013 l 20,000 2014 125,000 2015 130,000 2016 135,000 2017 145,000 2018 1500000 2019 1609000 2020 170,000 2021 175,000 2022 185,000 (Interest to accrue from the Dated Date.) CITY OF BANGER, TEXAS 201 Bolivar St. Sanger, Texas 75266 (940) 4584930 ELECTED OFFICIALS First Elected to Term Name Title Council Wav) Expires (May) Occupation Tommy Kincaid Mayor 1991 2002 Retired Andres G. Garza Mayor Pro Tern 1999 2004 Air Conditioning Repair Glenn Ervin Alderman 1995 2002 Electrician Jimmy Evans Alderman 2001 2003 Retired Joe Higgs Alderman 1999 2003 Retired Craig Waggoner Alderman 2000 2002 Sanitation Name Jack L. Smith Rosalie Chavez Bob Dillard Eddie Branham John Henderson Mike Prater Bond Counsel Financial Advisor ADMINISTRATION Length of Service Position With the City City Manager 3 years Assistant City Manager / City Secretary 26 years City Attorney 15 years Water / Sewer Superintendent 12 years Streets / Parks Superintendent 7 years Electric Superintendent 4 years Independent Auditor CONSULTANTS AND ADVISORS McCall, Parkhurst &Horton, L.L.P. Dallas, Texas SWS Securities, Inc. Dallas, Texas William C. Spore &Company, PC. Bedford, Texas For Additional Information Please Contact: Jack L. Smith, City Manager Rose Chavez, Assistant City Manager City of Sanger 201 Bolivar St. PO Box 1729 Sanger, Texas 75266 (940) 4584930 (Phone) iii . MrDan A. Almon Senior Vice President SWS Securities Suite 3500 1201 Elm Street Dallas, Texas 75270 (214) 859-9452 (Phone) USE OF INFORMATION IN THE OFFICIAL STATEMENT For purposes of compliance with Rule 15c2-12 of the Securities Exchange Commission (the 'Rule"), this document constitutes a preliminary official statement of the Issuer with respect to the Obligations that has been deemed "final" by the Issuer as of its date except for the omission of no more than the information permitted by the Rule. No dealer, broker, salesman, or other person has been authorized 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 Issuer. This Official Statement is not to be used in connection with an offer to sell or the solicitation of an offer to buy in any state in which 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. Any information or expression 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 an implication that there has been no change in the affairs of the Issuer or other matters described herein since the date hereof. Neither the City nor its Financial Advisor makes any representation or warranty with respect to the information contained in this Official Statement regarding The Depository Trust Company or its Book -Entry -Only. THE OBLIGATIONS ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE OBLIGATIONS IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTIONS IN WHICH THESE SECURITIES HAVE BEEN REGISTERED, QUALIFIED, OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. TABLE OF CONTENTS ELECTED OFFICIALS.............................................................iii ADMINISTRATION III CONSULTANTS AND ADVISORS .......................................... iii USE OF INFORMATION IN THE OFFICIAL STATEMENT .,,,iv TABLE OF CONTENTS. *we Oorwas iv SELECTED DATA FROM THE OFFICIAL STATEMENT.........v INTRODUCTORY STATEMENT. . 1 THEBONDS............................................................................ 1 General Description........................................................ 1 Authority for Issuance ..................................................... 1 Security for the Bonds and Pledge .................................. 1 Rate Covenant................................................................ 1 Flowof Funds.................................................................. 2 Interest and Sinking Fund ............................................... 2 Reserve Fund,. 0 a A *Oaoo bootee 00 0 04*0 000*0 0 0 0660 0 06*00 2 Emergency Fund............................................................. 2 City's Right to Issue Additional Bonds ............................ 2 Use of Bond Proceeds .................................................... 3 Redemption Provisions. . 3 RecordDate.................................................................... 3 Default and Remedies .................................................... 3 THE CERTIFICATES............................................................... 4 General........................................................................... 4 Authority for Issuance ..................................................... 4 Security for Payment, . V 0 0 a Q N 0 No** @a 0049#4 9 59 0 8 8 Doe 0 4 Use of Certificate Proceeds ............................................ 4 Redemption Provisions ................................................... 4 RecordData....;.... *0 8OW9400 ENO&&$ om'&o 00*0**6 * N @am roe 0*666*00004 4 *go* 5 Default and Remedies .................................................... 5 THE OBLIGATIONS................................................................ 6 Amendments................................................................... 6 Payment Record............................................................. 6 Legality............................................................................ 6 Defeasance..................................................................... 6 REGISTRATION, TRANSFER AND EXCHANGE ................... 6 Paying Agent/Registrar................................................... 6 Future Registration......................................................... 7 Limitation on Transfer or Exchange of Obligations ......... 7 Replacement Obligations ................................................ 7 BOND INSURANCE................................................................ 7 BOOK -ENTRY -ONLY SYSTEM ............................................... 8 Use of Certain Terms in Other Sections of this Official Statement..................................................................... 9 THE SYSTEM.......................................................................... 9 Description of Water Supply and Facilities ..................... 9 Description of Sewer Facilities ........................................ 9 Description of the Electric System...................................9 INVESTMENT POLICIES......................................................010 Investment Authority and Investment Practices of theCity........................................................................10 Additional Provisions.....................................................11 Current Investments......................................................11 RETIREMENT PLANS............................................................11 Plan Descriptions...........................................................11 AD VALOREM TAX PROCEDURES......................................12 Property Tax Code and Countywide Appraisal District ..12 Property Subject to Taxation by the Issuer.. 12 Effective Tax Rate and Rollback Tax Rate ....................13 Levy and Collection of Taxes.........................................13 Penalties and Interest....................................................13 Tax Rate Limitations......................................................13 Issuer's Rights in the Event of Tax Delinquencies,........14 CITY APPLICATION OF THE PROPERTY TAX CODE.........14 ADDITIONAL TAX COLLECTIONS........................................14 Municipal Sales Tax Collections....................................14 Optional Sales Tax.........................................................14 TAX MATTERS. . 1 5 Opinion..........................................................................15 Federal Income Tax Accounting Treatment of Original IssueDiscount................ a 0 a 4 V * 0 0 4 0 * 0 0 0 0 * e * 0 M * A 4 0 0 a 0 0 W * 0 0 a a a a e a 6 0 * 4 0 * 15 Collateral Federal Income Tax Consequences..............16 State, Local and Foreign Taxes:....................................16 Qualified Tax -Exempt Obligations.................................16 CONTINUING DISCLOSURE OF INFORMATION.................17 Annual Reports..............................................................17 Material Event Notices...................................................17 Availability of Information from SID and MSRB .............17 Limitations and Amendments........................................18 Compliance with Prior Agreements...............................18 OTHER PERTINENT INFORMATION....................................18 Registration and Qualification of Bonds and the Certificates for Sale....................................................18 Litigation........................................................................18 Legal Investments and Eligibility to Secure Public Fundsin Texas...........................................................18 Legal Opinions and No -Litigation Certificate .................19 Ratings...........................................................................19 Financial Advisor...........................................................19 Winning Bidder..............................................................19 Certification of the Official Statement ............................20 Forward -Looking Statements Disclaimer..... tytootos*e t*00600020 Concluding Statement...................................................20 Financial Information of the Issuer Appendix A General Information Regarding City of Sanger and Denton County, Texas Appendix B Forms of Legal Opinions of Bond Counsel Appendix C Selected Provisions of the Revenue Bond Ordinance Appendix D The Issuer's General Purpose Audited Financial Statements for the Year Ended September 30, 2001 Appendix E The cover page, subsequent pages hereof and appendices attached hereto, are part of this Official Statement. iv Description of the Electric System...................................9 INVESTMENT POLICIES......................................................010 Investment Authority and Investment Practices of theCity........................................................................10 Additional Provisions.....................................................11 Current Investments......................................................11 RETIREMENT PLANS............................................................11 Plan Descriptions...........................................................11 AD VALOREM TAX PROCEDURES......................................12 Property Tax Code and Countywide Appraisal District ..12 Property Subject to Taxation by the Issuer.. 12 Effective Tax Rate and Rollback Tax Rate ....................13 Levy and Collection of Taxes.........................................13 Penalties and Interest....................................................13 Tax Rate Limitations......................................................13 Issuer's Rights in the Event of Tax Delinquencies,........14 CITY APPLICATION OF THE PROPERTY TAX CODE.........14 ADDITIONAL TAX COLLECTIONS........................................14 Municipal Sales Tax Collections....................................14 Optional Sales Tax.........................................................14 TAX MATTERS. . 1 5 Opinion..........................................................................15 Federal Income Tax Accounting Treatment of Original IssueDiscount................ a 0 a 4 V * 0 0 4 0 * 0 0 0 0 * e * 0 M * A 4 0 0 a 0 0 W * 0 0 a a a a e a 6 0 * 4 0 * 15 Collateral Federal Income Tax Consequences..............16 State, Local and Foreign Taxes:....................................16 Qualified Tax -Exempt Obligations.................................16 CONTINUING DISCLOSURE OF INFORMATION.................17 Annual Reports..............................................................17 Material Event Notices...................................................17 Availability of Information from SID and MSRB .............17 Limitations and Amendments........................................18 Compliance with Prior Agreements...............................18 OTHER PERTINENT INFORMATION....................................18 Registration and Qualification of Bonds and the Certificates for Sale....................................................18 Litigation........................................................................18 Legal Investments and Eligibility to Secure Public Fundsin Texas...........................................................18 Legal Opinions and No -Litigation Certificate .................19 Ratings...........................................................................19 Financial Advisor...........................................................19 Winning Bidder..............................................................19 Certification of the Official Statement ............................20 Forward -Looking Statements Disclaimer..... tytootos*e t*00600020 Concluding Statement...................................................20 Financial Information of the Issuer Appendix A General Information Regarding City of Sanger and Denton County, Texas Appendix B Forms of Legal Opinions of Bond Counsel Appendix C Selected Provisions of the Revenue Bond Ordinance Appendix D The Issuer's General Purpose Audited Financial Statements for the Year Ended September 30, 2001 Appendix E The cover page, subsequent pages hereof and appendices attached hereto, are part of this Official Statement. iv Financial Information of the Issuer Appendix A General Information Regarding City of Sanger and Denton County, Texas Appendix B Forms of Legal Opinions of Bond Counsel Appendix C Selected Provisions of the Revenue Bond Ordinance Appendix D The Issuer's General Purpose Audited Financial Statements for the Year Ended September 30, 2001 Appendix E The cover page, subsequent pages hereof and appendices attached hereto, are part of this Official Statement. iv SELECTED DATA FROM THE OFFICIAL STATEMENT The selected data is subject in atl respects to the more complete information and definitions contained or incorporated in this Official Statement. The offering of the Obligations to potential investors is made only by means of this entire Official Statement. No person is authorized to detach this page from this Official Statement or to otherwise use it without the entire Official Statement. The Issuer The City of Sanger, Texas (the "City" or "Issuer"), located in Denton County, is a residential community located northeast of the Dallas -Fort Worth industrial area. The City operates under a Mayor/City Council form of government, with the City Council comprised of six members including the Mayor. All six Council members are elected at -large for two-year staggered terms. (See Appendix B - "General Information Regarding the City of Sanger and Denton County, Texas" herein.) The Certificates" The Certificates are being issued pursuant to the Constitution and general laws of the State, including the Certificate of Obligation Act of 1971, as amended, V.T.C.A. Texas Government Code, Subchapter C of Chapter 271, as amended, and an ordinance (the "Certificate Ordinance") adopted by the City Council. (See " THE CERTIFICATES - Authority for Issuance" herein.) The Bonds The Bonds are being issued pursuant to the Constitution and general laws of the State, including V.T.C.A. Texas Government Code, Chapter 1502, as amended, and an ordinance (the "Bond Ordinance") adopted by the City Council. (See "THE BONDS - Authority for Issuance" herein.) The Certificate Ordinance and the Bond Ordinance are collectively referred to herein as the "Ordinances." Paying Agent/Registrar The initial Paying Agent/Registrar is The Bank of New York Trust Company of Florida, N.A., Dallas, Texas. Security The Certificates constitute direct obligations of the Issuer payable from an annual ad valorem tax levied against all taxable property in the City, within the limits prescribed by law and are further secured by and payable from a limited pledge not to exceed $1,000 of the surplus Net Revenues derived from the operation of the City's System. The City has not covenanted nor obligated Itself to pay the Bonds from monies raised or to be raised from taxation. (See "THE CERTIFICATES - Security for Payment" herein.) The Bonds constitute special obligations of the Issuer secured by and payable from an irrevocable first lien on and pledge of the Net Revenues (as defined in the Bond Ordinance) derived from the operation of the City's System. (See "THE BONDS - Security for Payment" herein.) Redemption Provisions The Issuer reserves the right to redeem the Bonds maturing on and after May 15, 2013 on May 15, 2012, or any date thereafter, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, at the redemption price of par plus accrued interest, as further described herein. See "THE BONDS - Redemption Provisions" herein.) The Issuer reserves the right to redeem the Certificates maturing on and after September 1, 2013 on September 1, 2012, or any date thereafter, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, at the redemption price of par plus accrued interest, as further described herein. (See "THE CERTIFICATES — Redemption Provisions" herein.) Tax Matters in the opinion of Bond Counsel, the interest on the Obligations will be excludable from gross income for federal tax purposes under statutes, regulations, published rulings and court decisions existing on the date thereof, subject to the matters described under "TAX MATTERS" herein, including the alternative minimum tax on corporations. (See "TAX MATTERS" and "Appendix C - Forms of Legal Opinions of Bond Counsel" herein.) Qualified Tax"Exempt The Issuer will designate the Obligations as "Qualified Tax -Exempt Obligations" for financial Obligations institutions. (See "TAX MATTERS - Qualified Tax -Exempt Obligations" herein.) Use of Proceeds Proceeds from the sale of the Bonds will be used to (1) expand and improve the City's Waterworks, Electric and Sewer Systems and (ii) to pay costs related to the issuance of the Bonds. (See "THE BONDS - Use of Proceeds" herein.) Proceeds from the sale of the Certificates will be used (i) to construct and improve the City's streets and (iiI to pay costs related to the issuance of the Certificates. (See "THE CERTIFICATES — Use of Proceeds herein.) Bond Insurance The City is considering insuring the Obligations with municipal bond insurance and has made application to several municipal bond insurance companies in connection with such consideration (See "BOND INSURANCE" herein.) Book"Entry-Only System The Issuer intends to utilize the Book -Entry -Only System of The Depository Trust Company, New York, New York described herein. No physical delivery of the Obligations will be made to the beneficial owners of the Obligations. Such Book -Entry -Only System may affect the method and timing of payments on the Obligations and the manner the Obligations may be transferred. (See "BOOK -ENTRY -ONLY SYSTEM" herein.) Ratings The Issuer has made application to Moody's Investors Service CMoody's) for bond ratings on the Obligations. The Issuer currently has an underlying rating of "Baal on its uninsured revenue debt and has no underlying rating on its uninsured general obligation debt. An explanation of the significance of such ratings may be obtained from the rating agencies. (See "OTHER PERTINENT INFORMATION - Ratings" herein.) Payment Record The City has never defaulted. Issuance of Additional The Issuer does not anticipate the issuance of additional general obligation or revenue debt in the Debt year 2002. Delivery When issued, anticipated on or about June 19, 2002. Legality Delivery of the Obligations is subject to the approval by the Attorney General of the State of Texas and the rendering of an opinion as to legality by McCall, Parkhurst & Horton L.L.P., Bond Counsel, Dallas, Texas. 01 INTRODUCTORY STATEMENT This Official Statement provides certain information in connection with the issuance by City of Sanger, Texas (the "City" or "Issuer") of its $2,540,000 Utility System Revenue Bonds, Series 2002 (the "Bonds") and its $2,360,000 Combination Tax and Revenue Certificates of Obligation, Series 2002 (the "Certificates") (collectively, the "Obligations") identified on the cover page hereof. The Issuer is a political subdivision of the State of Texas and operates under the statutes and the Constitution of the State of Texas (the "State") as a Type A general law municipality. The Obligations are being issued pursuant to the Constitution and general laws of the State and ordinances (the "Bond Ordinance" and the "Certificate Ordinance," collectively, the "Ordinances") adopted by the City Council authorizing issuance of the Obligations. (See "THE BONDS - Authority for Issuance" and "THE CERTIFICATES — Authority for Issuance" herein.) The Bonds and the Certificates are being offered concurrently by the Issuer under a common Official Statement, and such Bonds and Certificates are hereinafter sometimes referred to collectively as the "Obligations". The Bonds and Certificates are separate and distinct securities offerings being issued and sold independently except for the common Official Statement, and, while the Obligations share certain common attributes, each issue is separate from the other and should be reviewed and analyzed independently, including the type of obligation being offered, its terms for payment, the security for its payment, the rights of holders, and other features. Unless otherwise indicated, capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Ordinances. See Appendix D — "Selected. Provisions of the Revenue Bond Ordinance" herein. Included in this Official Statement are descriptions of the Obligations, the System and certain information about the Issuer and its finances. ALL DESCRIPTIONS OF DOCUMENTS CONTAINED HEREIN ARE SUMMARIES ONLY AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO EACH SUCH DOCUMENT. Copies of such documents may be obtained from the Issuer or the Financial Advisor. THE BONDS General Description The Bonds will be dated June 1, 2002. The Bonds are stated to mature on May 15 in the years and in the principal amounts set forth on the inside cover page hereof. The Bonds shall bear interest from their date on the unpaid principal amounts, and the amount of interest to be paid each payment period shall be computed on the basis of a 360-day year of twelve 30-day months. Interest on the Bonds will be payable on May 15 and November 15 of each year commencing May 15, 2003, Principal is payable at the designated offices of the Paying Agent/Registrar, initially, The Bank of New York Trust Company of Florida, N.A., Dallas, Texas. Interest on the Bonds is payable by check mailed on or before each interest payment date by the Paying Agent/Registrar to the registered owner at the address appearing on the Paying Agent/Registrar's books on the Record Date as defined herein) or by such other method acceptable to the Paying Agent/Registrar, requested by and at the risk and expense of the registered owner. Authority for Issuance The Bonds are being issued pursuant to the Constitution and general laws of the State, including V.T.C.A. Texas Government Code, Chapter 1502; as amended, and an ordinance (the "Bond Ordinance") adopted by the City Council. Security for the Bonds and Pledge The Bonds, together with certain Outstanding Bonds (see Appendix A —Table 19) and any Additional Bonds shall be secured by and payable from a first lien on and pledge of the Net Revenues of the City's Waterworks, Sewer and Electric Systems (the "System"), and the Net Revenues are further pledged to the establishment and maintenance of the Funds created by the Ordinance, and any Funds created by any ordinance authorizing the issuance of any Additional Bonds, The Bonds, together with certain Outstanding Bonds and any Additional Bonds are not and will not be secured by or payable from a mortgage or deed of trust on any real, personal, or mixed properties constituting the System. The Bonds are not a charge upon any other income or revenues of the City and shall never constitute an indebtedness or pledge of the general credit or taxing powers of the City. The Ordinance does not create a lien on or mortgage on the System and any judgment against the City may not be enforced by levy and execution against any property owned by the City, except Net Revenues. The City has not covenanted nor obligated itself to pay the Bonds from monies raised or to be raised from taxation. The Bonds do not constitute general obligations of the City, the State or any political subdivision of the State. The taxing power of neither the City or the State is pledged as security for the Bonds. Rate Covenant In the Bond Ordinance, the City agrees to fix, maintain, charge, and collect for services rendered by the System, rates and 1 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 defined in the Bond Ordinance and to produce each month Net Revenues which together with other pledged revenues, if any, will be adequate to pay promptly all of the principal of and interest on the Outstanding Bonds, the Bonds and all Additional Bonds, and to accumulate and maintain the Funds created and established by the Bond Ordinance. Additionally, the Bond Ordinance provides that if the System should become legally liable for any other obligations or indebtedness, the City shall fix, maintain, charge and collect additional rates and charges for services rendered by the System sufficient to establish and maintain funds for the payment thereof. (See Appendix D - "Selected Provisions of the Bond Ordinance" for more details.) Flow of Funds In the Bond Ordinance, the Issuer covenants that the gross revenues of the System shall be kept separate and apart from all other revenues of the Issuer and confirms the establishment and maintenance of the "City of Sanger Utility System Revenue Bonds Revenue Fund" at an official depository of the City into which all revenues derived from the operation and ownership of the System are to be deposited as collected. The revenues deposited to the credit of such Fund are to be used to pay the reasonable, necessary and proper expenses of operation and maintenance of the System and then to make deposits to the following special Fund in the amounts and manner provided and in the priority indicated, to wit: a. City of Sanger Utility System Revenue Bonds Interest and Sinking Fund maintained for the payment of the principal of and interest on the Outstanding Bonds, the Bonds and Additional Bonds as the same shall become due and payable. b. City of Sanger Utility System Revenue Bonds Reserve Fund maintained to provide a reserve amount for the payment of the Outstanding Bonds, the Bonds and Additional Bonds when moneys in the Interest and Sinking Fund are insufficient for such purpose. c. City of Sanger Utility System Revenue Bonds Emergency Fund maintained to provide funds to pay the cost of any repairs or extensions to the System for which no other funds are available and to pay the principal of or interest on the Outstanding Bonds, the Bonds and Additional Bonds at any time when there are not sufficient amounts in the Interest and Sinking Fund and the Reserve Fund for such purpose. Interest and Sinking Fund In addition to the deposits for the payment of the Outstanding Bonds, the Issuer shall cause to be deposited to the credit of the Interest and Sinking fund from the Net Revenues of the System substantially equal monthly amounts sufficient to pay the next maturing principal and next succeeding interest on the Bonds. Reserve Fund The amount required to be accumulated and maintained as a reserve in the Reserve Fund is an amount equal to not less than the average annual principal and interest requirements of the Outstanding Bonds and the Bonds. In accordance with the ordinance authorizing the issuance of the Outstanding Bonds, the amount currently on deposit in the Reserve Fund is $258,550 the "Old Reserve") and by reason of the issuance of the Bonds, the amount to be accumulated in the Reserve Fund as a reserve amount shall be $ (the "New Reserve"). Following the delivery of the Bonds, the City shall cause the difference between the New Reserve and the Old Reserve Fund to be deposited in the Reserve Fund within sixty-one months from the date of the Bonds. Furthermore, should the amount on deposit in the Reserve Fund be reduced below the New Reserve, there shall be deposited into the Reserve Fund an amount equal to at least one -sixtieth (1/60) of the average annual principal and interest requirements of the Outstanding Bonds and the Bonds. 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. City's Right to Issue Additional Bonds In the Ordinance the City 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 Outstanding Bonds and the Bonds, and be on a parity with the Outstanding Bonds and the Bonds, or any bonds issued to refund same, and the Outstanding Bonds, 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, however under the Ordinance, various conditions must be met for the issuance of Additional Bonds or any other parity obligations. Among other conditions which must be satisfied, the City must obtain a certificate from a Certified Public Accountant to the effect that, during the last complete fiscal year of the City, 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, the Net Earnings of the System 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" shall mean the gross 2 revenues of the 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. (See Appendix ) - "Selected Provisions of the Bond Ordinance" for more details.) The Bond Ordinance provides that proceeds from the sale of the Bonds are to be used to (i) make improvements to the City's Waterworks, Electric and Sewer Systems including, but not limited to, the expansion of the wastewater treatment plant and (ii) to pay costs related to the issuance of the Bonds. Redemption Provisions The Issuer reserves the right, at its sole option, to redeem Bonds stated to mature on and after May 15, 2013, on May 15, 2012 or any date thereafter, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof (and, if within a stated maturity, selected at random and by lot by the Paying Agent/Registrar) at the par value thereof plus accrued interest to the date fixed for redemption. The election of the Issuer to redeem Bonds, identifying the stated maturity or maturities and the amount thereof to be redeemed, shall be entered in the minutes of the City Council, and a copy thereof shall be delivered to the Paying Agent/Registrar. If less than all of the Bonds subject to redemption are to be redeemed, the City shall determine the amounts of each maturity or maturities to be redeemed and shall direct the Paying Agent/Registrar to select by lot the Bonds, or portions thereof, within such maturity or maturities to be redeemed. Not less than thirty (30) days prior to a redemption date for the Bonds, the City shall cause a notice of such redemption to be sent by United States mail, first-class postage prepaid, to the registered owners of each Bond or a portion thereof to be redeemed at its address as it appeared on the registration books of the Paying Agent/Registrar on the day such notice of redemption is mailed. ANY NOTICE OF REDEMPTION SO MAILED TO THE REGISTERED OWNERS WILL BE DEEMED TO HAVE BEEN DULY GIVEN IRRESPECTIVE OF WHETHER ONE OR MORE OF THE REGISTERED OWNERS FAILED TO RECEIVE SUCH NOTICE. 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. if such notice of redemption is given and if due provision for such payment is made, all as provided above, the Bonds or portion thereof which are to be 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 from the Paying Agent/Registrar out of the funds provided for such payment. The Paying Agent/Registrar and the Issuer, so long as a Book -Entry -Only System is used for the Bonds, will send any notice of redemption, notice of proposed amendment to the Bonds or other notices with respect to the Bonds only to DTC. Any failure by DTC to advise any DTC participant, or of any DTC participant or indirect participant to notify the Beneficial Owner, will not affect the validity of the redemption of the Bonds called for redemption or any other action premised on any such notice. Redemption of portions of the Bonds by the Issuer will reduce the outstanding principal amount of such Bonds held by DTC. In such event, DTC may implement, through its Book -Entry -Only System, a redemption of such Bonds held for the account of DTC participants in accordance with its rules or other agreements with DTC participants and then DTC participants and indirect participants may implement a redemption of such Bonds from the Beneficial Owners. Any such selection of Bonds to be redeemed will not be governed by the Bond Ordinance and •will not be conducted by the Issuer or the Paying Agent/Registrar. Neither the Issuer nor the Paying Agent/Registrar will have any responsibility to DTC participants, indirect participants- or the persons for whom DTC participants act as nominees, with respect to the payments on the Bonds or the providing of notice to DTC participants, indirect participants, or Beneficial Owners of the selection of portions of the Bonds for redemption. (See "BOOK -ENTRY -ONLY SYSTEM" herein. Record Date The record date ("Record Date") for interest payable to the registered owner of a Bond on any interest payment date means the last business day of the month next preceding such interest payment date. In the event of anon -payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment In "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 (the "Special Payment Date" which shall be 15 days after the Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each registered owner of a Bond appearing on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. If the Issuer defaults in the payment of the principal of or interest on any of the Bonds when due or defaults in the observance or performance of any of the covenants, conditions, or obligations set forth in the Bond Ordinance, any registered owner is entitled to seek a writ of mandamus from a court of proper jurisdiction requiring the Issuer to make such payment or 3 observance and perform such covenant, obligations, or condition. Such right is in addition to any other rights the registered owners of the Bonds may be provided by the laws of the State of Texas. The Bond Ordinance do not specifically provide for the appointment of a trustee to protect and enforce the interests of the registered owners or for acceleration of the stated maturities of the Bonds in the event of default. Consequently, the remedy of mandamus may have to be relied upon from year to year. Under Texas law, no judgment obtained against the Issuer may be enforced by direct levy and execution against the Issuer's property. Further, the registered owners of the Bonds may not themselves foreclose on any of the properties of the System to pay the principal of and interest on the Bonds. The enforceability of the rights and remedies of the registered owners may be further limited by laws relating to bankruptcy, reorganization, or other similar laws of general application affecting the rights of creditors of political subdivisions such as the Issuer. Specifically, during the pendency of a bankruptcy proceeding the remedy for mandamus may not be available unless authorized by the bankruptcy judge. THE CERTIFICATES The Certificates will be dated June 1, 2002. The Certificates are stated to mature on September 1 in the years and in the principal amounts set forth on the inside cover page hereof. The Certificates shall bear interest from their date on the unpaid principal amounts, and the amount of interest to be paid each payment period shall be computed on the basis of a 360-day year of twelve 30-day months. Interest on the Certificates will be payable on March 1 and September 1 of each year commencing March 1, 2003. Principal is payable at the designated offices of the Paying Agent/Registrar, initially, The Bank of New York Trust Company of Florida, N.A., Dallas, Texas. Interest on the Certificates is payable by check mailed on or before each interest payment date by the Paying Agent/Registrar to the registered owner at the address appearing on the Paying Agent/Registrar's books on the Record Date (as defined herein) or by such other method acceptable to the Paying Agent/Registrar, requested by and at the risk and expense of the registered owner. Authority for Issuance The Certificates are being issued pursuant to the Constitution and general laws of the State, including the Certificate of Obligation Act of 1971, as amended, V.T.C.A. Texas Government Code, Subchapter C of Chapter 271, as amended, and an ordinance (the "Certificate Ordinance") adopted by the City Council. Security for Payment The Certificates constitute direct obligations of the Issuer payable from an annual ad valorem tax levied against all taxable property in the City, within the limits prescribed by law and are further secured by and payable from a limited pledge not to exceed $1,000 of the surplus Net Revenues derived from the operation of the City's System, remaining after payment of all operation and maintenance expenses thereof, and all debt service, reserve, and other requirements in connection with any of the City's revenue bonds or other obligations (now or hereafter outstanding), which are payable from all or any part of the Net Revenues of the System. (See "CITY APPLICATION OF THE PROPERTY TAX CODE" herein.) Use of Certificate Proceeds The Certificate Ordinance provides that the proceeds from the sale of the Certificates are to be used (i) to construct and improve the City's streets and (ii) to pay costs related to the issuance of the Certificates. Redemption Provisions The Issuer reserves the right to redeem the Certificates maturing on and after September 1, 2013 on September 1, 2012, or any date thereafter, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof (and, if within a stated maturity, selected at random and by lot by the Paying AgenURegistrar), at the redemption price of par plus accrued interest to 0 the date fixed for redemption. The election of the Issuer to redeem Certificates, identifying the stated maturity or maturities and the amount thereof to be redeemed, shall be entered in the minutes of the City Council, and a copy thereof shall be delivered to the Paying Agent/Registrar. ! If less than all of the Certificates subject to redemption are to be redeemed, the City shall determine the amounts of each maturity or maturities to be redeemed and shall direct the Paying Agent/Registrar to select by lot the Certificates, or portions thereof, within such maturity or maturities to be redeemed. Not less than thirty (30) days prior to a redemption date for the Certificates, the City shall cause a notice of such redemption to be sent by United States mail, first-class postage prepaid, to the registered owners of each Certificate or a portion thereof to be redeemed at its address as it appeared on the registration books of the Paying Agent/Registrar on the day such notice of redemption is mailed. ANY NOTICE OF REDEMPTION SO MAILED TO THE REGISTERED OWNERS WILL BE DEEMED TO HAVE BEEN DULY GIVEN IRRESPECTIVE OF WHETHER ONE OR MORE OF THE REGISTERED OWNERS FAILED TO RECEIVE SUCH NOTICE. 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 or portions thereof which are to be so redeemed. If such notice of redemption is given and if due provision for such payment is made, all as provided above, the Certificates or portion thereof which are to be 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 from the Paying Agent/Registrar out of the funds provided for such payment. The Paying Agent/Registrar and the Issuer, so long as aBook-Entry-Only System is used for the Certificates, will send any notice of redemption, notice of proposed amendment to the Certificates or other notices with respect to the Certificates only to DTC. Any failure by DTC to advise any DTC participant, or of any DTC participant or indirect participant to notify the Beneficial Owner, will not affect the validity of the redemption of the Certificates called for redemption or any other action premised on any such notice. Redemption of portions of the Certificates by the Issuer will reduce the outstanding principal amount of such Certificates held by DTC. In such event, DTC may implement, through its Book -Entry -Only System, a redemption of such Certificates held for the account of DTC participants in accordance with its rules or other agreements with DTC participants and then DTC participants and indirect participants may implement a redemption of such Certificates from the Beneficial Owners. Any such selection of Certificates to be redeemed will not be governed by the Certificate Ordinance and will not be conducted by the Issuer or the Paying Agent/Registrar. Neither the Issuer nor the Paying Agent/Registrar will have any responsibility to DTC participants, indirect participants or the persons for whom DTC participants act as nominees, with respect to the payments on the Certificates or the providing of notice to DTC participants, indirect participants, or Beneficial Owners of the selection of portions of the Certificates for redemption. (See "BOOK -ENTRY -ONLY SYSTEM" herein.) rw The record date ("Record Date") for interest payable to the registered owner of an Certificate on any interest payment date means the 15�h day of the month next preceding such interest payment date. In the event of anon -payment of interest on a scheduled payment date, and for 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 (the "Special Payment Date" which shall be 15 days after the Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each registered owner of an Certificate appearing 'onthe registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. Default and Remedies If the Issuer defaults in the payment of the principal of or interest on any of the Certificates when due or defaults in the observance or performance of any of the covenants, conditions, or obligations set forth in the Certificate Ordinance, any registered owner is entitled to seek a writ of mandamus from a court of proper jurisdiction requiring the Issuer to make such payment or observance and perform such covenant, obligations, or condition. Such right is in addition to any other rights the registered owners of the Certificates may be provided by the laws of the State of Texas. The Certificate Ordinance do not specifically provide for the appointment of a trustee to protect and enforce the interests of the registered owners or for acceleration of the stated maturities of the Certificates in the event of default. Consequently, the remedIT of mandamus may have to be relied upon from year to year. Under Texas law, no judgment obtained against the Issuer may be enforced by direct levy and execution against the Issuer's property. Further, the registered owners of the Certificates may not themselves foreclose on taxable property within the Issuer to collect any unpaid taxes to pay the principal of and interest on the Certificates. The enforceability of the rights and remedies 5 of the registered owners may be further limited by laws relating to bankruptcy, reorganization, or other similar laws of general application affecting the rights of creditors of political subdivisions such as the Issuer. Specifically, during the pendency of a bankruptcy proceeding the remedy for mandamus may not be available unless authorized by the bankruptcy judge. THE OBLIGATIONS Amendments The City may amend the respective Ordinances without the consent of or notice to any registered owners in any manner not detrimental to the interests of the registered owners, including the curing of any ambiguity, inconsistency, or formal defect or omission therein. In addition, the City may, with the written consent of the holders of a majority in aggregate principal amount of the Bonds or Certificates, as the case may be, then outstanding affected thereby, amend, add to, or rescind any of the provisions of such Ordinance; except that, without the consent of the registered owners of all of the Bonds or Certificates, as the case may be, affected, no such amendment, addition, or rescission may (1) change the date specified as the date on which the principal of, or any installment of interest on any obligation is due and payable, reduce the principal amount thereof, or the rate of interest thereon, change the place or places at or the coin or currency in which any obligation or interest thereon is payable, or in any other way modify the terms of payment of the principal of, or interest on the obligations, (2) give any preference to any obligation over any other obligation, or (3) reduce the aggregate principal amount of obligations required for consent to any amendment, addition, or waiver. Payment Record The City has never defaulted. Legality The Obligations are offered when, as and if issued, subject to the approval by the Attorney General of the State of Texas and the rendering of an opinion as to legality by McCall, Parkhurst & Horton L.L.P., Dallas, Texas. The legal opinion of Bond Counsel will be printed on will accompany the Obligations deposited with DTC. Respective forms of the legal opinions of Bond Counsel with respect to the Obligations appear in Appendix C attached hereto. Defeasance The respective Ordinances provide for the defeasance each series of the Obligations when the payment of the principal of and premium, if any, of the respective Obligations, plus interest thereon to the due date thereof (whether such due date be by reason of maturity, redemption, or otherwise), is provided by irrevocably depositing with a paying agent, in trust (1) lawful money of the United States of America money sufficient to make such payment or (2) Defeasance Securities, certified by an independent public accounting firm of national reputation to mature as to principal and interest in such amounts and at such times to insure the availability, without reinvestment, of sufficient money to make such payment, and all necessary and proper fees, compensation and expenses of the paying agent for the Obligations. The Ordinances provide that "Defeasance Securities" means (a) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United Sates of America, (b) noncallabie 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 are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (c) noncallabie 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. The City has additionally reserved the right, subject to satisfying the requirements of (1) and (2) above, to substitute other Defeasance Securities for the Defeasance Securities originally deposited, to reinvest the uninvested moneys on deposit for such defeasance and to withdraw for the benefit of the City moneys in excess of the amount required for such defeasance. Upon such deposit as described above, such Obligations shall no longer be regarded to be outstanding or unpaid. Provided, however, the City has reserved the option, to be exercised at the time of the defeasance of the Obligations, to call for redemption, at an earlier date, those Obligations which have been defeased to their maturity date, if the City: (i) in the proceeding providing for the firm banking and financial arrangements, expressly reserves the right to call the Obligations for redemption; (ii) gives notice of the reservation of that right to the owners of the Obligations immediately following the making of the firm banking and financial arrangements; and (iii) directs that notice of the reservation be included in any redemption notices that it authorizes. Paying Agent/Registrar REGISTRATION, TRANSFER AND EXCHANGE C� The initial Paying Agent/Registrar for the Bonds and Certificates is The Bank of New York Trust Company of Florida, N.A., Dallas, Texas. In the Ordinances, the Issuer retains the right to replace the Paying Agent/Registrar. If the Paying Agent/Registrar is replaced by the Issuer, the new Paying Agent/Registrar shall accept the previous Paying Agent/Registrar's records and act in the same capacity as the previous Paying Agent/Registrar. Any successor Paying Agent/Registrar, selected at the sole discretion of the Issuer, shall be a national or state banking institution, trust company or other entity authorized to serve as a Paying Agent/Registrar. Upon a change in the Paying Agent/Registrar for the Bonds or the Certificates, or both, the Issuer agrees to promptly cause written notice thereof to be sent to each registered owner of the Obligations affected by the change by United States mail, first-class, postage prepaid. The Obligations will be issued in fully registered form in multiples of $5,000 for any one stated maturity, and principal and semiannual interest will be paid by the Paying Agent/Registrar. Interest will be paid by check or draft mailed on each interest payment date by the Paying Agent/Registrar to the registered owner at the last known address as it appears on the Paying Agent/Registrar's books or by such other method, acceptable to the Paying Agent/Registrar, requested by and at the risk and expense of the registered owner. Principal will be paid to the registered owner at stated maturity upon presentation to the Paying Agent/Registrar. If the date for the payment of the principal of or interest on the Obligations shall be a Saturday, Sunday, a legal holiday or a day when banking institutions in the city where the Paying Agent/ Registrar is located are authorized to close, then the date for such payment shall be the next succeeding day which is not such a day, and payment on such date shall have the same force and effect as if made on the date payment was due. Future Registration The Obligations are initially to be issued utilizing the Book-Entry-0nly System of The Depository Trust Company, New York, New York. In the event such Book -Entry -Only System should be discontinued, the Obligations may be transferred, registered, and assigned on the registration books of the Paying Agent/Registrar only upon presentation and surrender thereof to the Paying Agent/Registrar, and such registration and transfer shall be without expense or service charge to the registered owner, except for any tax or other governmental charges required to be paid with respect to such registration and transfer. An Obligation may be assigned by the execution of an assignment form on the Obligation or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. A new Obligation or Obligations will be delivered by the Paying Agent/Registrar in lieu of the Obligations being transferred or exchanged at the designated office of the Paying Agent/Registrar, or sent by United States registered mail to the new registered owner at the registered owner's request, risk and expense. New Obligations issued in an exchange or transfer of Obligations will be delivered to the registered owner or assignee of the registered owner in not more than three (3) business days after the receipt of the Obligations to be canceled in the exchange or transfer and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Obligations registered and delivered in an exchange or transfer shall be in denominations of $5,000 for any one stated maturity or any integral multiple thereof and for a like aggregate principal amount and rate of interest as the Obligation or Obligations surrendered for exchange or transfer. (See "BOOK -ENTRY -ONLY SYSTEM" herein for a description of the system to be initially utilized in regard to ownership and transferability of the Obligations.) Limitation on Transfer or Exchange of Obligations The Paying Agent/Registrar is not required to transfer or exchange any Obligation during the period commencing with the close of business on any Record Date immediately preceding a principal or interest payment date for such Bonds and ending with the opening of business on the next following principal or interest payment date; or with respect to any Obligation or portion called for redemption prior to maturity, within 45 days prior to its redemption date. Replacement Obligations In the Ordinances, provision is made for the replacement of mutilated, destroyed, lost, or stolen Obligations issued under such Ordinances upon surrender of the mutilated Obligations to the Paying Agent/Registrar, or the receipt of satisfactory evidence of destruction, loss, or theft, and the receipt by the Issuer and Paying Agent/Registrar of security or indemnity as may be required by either of them to hold them harmless. The Issuer may require payment of taxes, governmental charges, and other expenses in connection with any such replacement. The Issuer is considering insuring the Obligations with municipal bond insurance and has made application to several bond insurance companies in connection with such consideration. No representation is hereby made that the Issuer will use municipal bond insurance in connection with the issuance of the Obligations. If municipal bond insurance is obtainable, its use will be at the bidder's option, and any premium to be paid will be at the bidder's expense. BOOK -ENTRY -ONLY SYSTEM This section describes how ownership of the Obligations is to be transferred and now the principal of, premium, if any, and interest on the Obligations are to be paid to and credited by DTC while the Obligations 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 and the Financial Advisor believe the source of such information to be reliable, but take no responsibility for the accuracy or completeness thereof. The City cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Obligations, 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 Obligations), 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 rile with DTC. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Obligations. The Obligations 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 Obligation certificate will be issued for the Obligations, in the aggregate principal amount of each maturity, and will be deposited with DTC. DTC, the world's largest depository, is alimited-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 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 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, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"), DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Obligations under the DTC system must be made by or through Direct Participants, which will receive a credit for the Obligations on DTC's records. The ownership interest of each actual purchaser of each Obligations ("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 Director Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Obligations 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 Obligations, except in the event that use of the book -entry system for the Obligations is discontinued. To facilitate subsequent transfers, all Obligations 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 Obligations 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 Obligations; DTC's records reflect only the identity of the Direct Participants to whose accounts such Obligations 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 Obligations may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Obligations, such as redemptions, tenders, defaults, and proposed amendments to the Obligations documents. For example, Beneficial Owners of Obligations may wish to ascertain that the nominee holding the Obligations 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 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 Obligations within an issue are being redeemed, DTC's practice 8 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 Obligations unless authorized by I a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Obligations are credited on the record date .(identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Obligations 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 Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, Agent, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Obligations at any time by giving reasonable notice to the City or Agent. Under such circumstances, in the event that a successor depository is not obtained, Obligation 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, Obligation 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 no 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 Obligations 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 Direct or Indirect Participant acquires an interest in the Obligations, 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 Ordinances will be given only to DTC. t�lii: �F3��li Sul The City's Waterworks, Electric and Sewer Systems (the "System"j are described below. Description of Water Supply and Facilities The City source of water supply is provided by five (6) wells with a combined pumping capacity of 1,585 gallons per minute. In addition, 500,000 gallons ground storage from surface supply is provided from Denton- Upper Trinity, with pump capacity of two (2) pumps with 400 GPM. Overhead storage is 900,000 and Ground Storage is 1,200,000, for a total of 2,100,000mgallon storage, with pump capacity of 2,600,000 gallons per day. The water system is fully computerized to allow for monitoring and efficiency. In addition, alarms monitor high levels, low levels and loss of prime. Main lines range from two (2) inches to twenty (20) inches. Description of Sewer Facilities The City owns and operates its wastewater treatment facilities under permit number TX0022403. The Sewer System consists of a 480,000 gallon per day contact stabilization sewage treatment plant and related appurtenances. Collection lines range in size from four inches to eighteen inches. An expansion of the facilities to increase treatment to 780,000 gallons per day (GPD) was complete in May 1999. The treatment facilities, along with all lift stations are computerized. The City has received a permit from the Sate to further expand the treatment facilities in the summer of 2003 to a capacity of 980,000 GPD, and that expansion is being funded with proceeds of from the sale of the Series 2002 Utility System Revenue Bonds. Description of the Electric System The City owns and operates its own electric distribution system. On June 5, 1995, the City entered into an eight (8) year contract with the Brazos Electric Power Cooperative, Inc. whereby the City purchases electric power and energy at the rates shown below. Rates shown below are subject to a transmission adjustment charge, a power adjustment on demand charge and an energy charge. Charges are effective as of January 1, 2001. 9 Distribution Charge Based on Direct Assignment $0.4850000 per kW per month Production Charge 5.3690000 per kW of CP Billing Demand $0.022545 per kWh Production Charge 5.3690000 per kW for Power Factor Adjustment Required to Meet a 95% Power Factor Transmission Charge $1.2550000 per kW Based on ERCOT 4 CP (Average of June, July, August & September of Previous Year) ISO Charge $0.0002200 per kWh Support Fees 0.0001910 per kWh INVESTMENT POLICIES The City invests funds in instruments authorized by Texas law in accordance with investment policies approved by the Council of the City. Both state law and the City's investment policies are subject to change. Investment Authority and Investment Practices of the City Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, including letters of credit; (2) direct obligations of the State of Texas or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligation, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities; (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit that are issued by a state or national bank domiciled in the State of Texas, a savings bank domiciled in the State of Texas, or a state or federal credit union domiciled in the State of Texas and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for City deposits, (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 of Texas, (9) certain bankers' acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by at least one nationally recognized credit rating agency, (10) commercial paper with a stated maturity of 270 days or less that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank, (11) no-load money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share, and (12) no-load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in the this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined termination.date 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 AAAm or an equivalent by at least one nationally recognized rating service. The City may also contract with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State Securities Board to provide for the investment and management of its public 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. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage -backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage -backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that include a list of authorized investments for City funds, the maximum allowable stated maturity of any individual investment and the maximum average dollar -weighted maturity allowed for pooled fund groups. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each fund's investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) 10 yield. ! Under Texas law, the Citys 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 probable income to be derived." At least quarterly the City's investment officers must submit an investment report to the City Council detailing: (1) the investment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, and any additions and changes to market value and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategies and (b) Texas law. No person may invest City funds without express written authority from the City Council, Additional Provisions Under Texas law, the City is additionally required to: (1) annually review its adopted policies and strategies, (2) require any investment officers with personal business relationships or family relationships with firs seeking to sell securities to the City to disclose the relationship and file a statement with the Texas Ethics Commission and the City, (3) require the registered principal of firs seeking to sell securities to the City to: (a) receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements, (4) in conjunction with its annual financial audit, perform a compliance audit of the management controls on investments and adherence to the City's investment policy, (5) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement, (6) restrict the investment in non -money market mutual funds in the aggregate to no more than 15% of the City's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service, (7) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements and (8) provide specific investment training for the Treasurer, the chief financial officer (if not the Treasurer) and the investment officer. Current Investments As of April 3, 2002, the following percentages of the City's investable funds were invested in the following categories of investments. As of such date, the market value of such investments (as determined by the City by reference to published quotations, dealer bids, and comparable information) was approximately 100% of their book value. No funds of the City are invested in derivative securities, i.e., securities whose rate of return is determined by reference to some other instrument, index, or commodity. Percentage Fund and Investment Type Amount of Portfolio lool Certificates of Deposit (CD's) $ 795,815 44.92% Checking Accounts (Operating Funds) (4-15-02) 447,065 25.23% Checking Account (Meter Deposits) 67,153 3.79% Savings Accounts 177,673 10.03% Money Market Funds (4A and 4B Corporations) 284,108 16.03% Total Investments 10D 0" RETIREMENT PLANS Plan Descriptions Emnlovee Retirement Plan: In addition to City employee participation in the U.S. Social Security Program, the City provides pension benefits for all of its full-time employees through a nontraditional, joint contributory, defined contribution plan in the state-wide Texas Municipal Retirement System (TMRS), one of 745 municipalities administered by TMRS, an agent multiple - employer public employee retirement system. The TMRS is a contributory, annuity -purchase type plan, which is covered by the State statute and is administered by six trustees appointed by the Governor of the State of Texas. The TMRS operates independently of its member cities. The contribution rate for the employees is 5.00% of their gross earnings, and the City provides 3.62% of the monthly gross earnings, both as adopted by the City Council. Employee contributions are tax deferred and not subject to federal income tax until they are withdrawn. The City's contributions for the fiscal year ended September 30, 2001 totaled $52,300. Firemen's Pension Fund: The City's firemen are covered by the firemen's pension plan. This contributory plan is operated as part of the State Firemen's Relief and Retirement Funds. The pension expense for the year ended September 30, 2001 was $3,278. For additional information regarding the City's Retirement Plans, see Note B on page 14 in the audited financial statements attached hereto in Appendix E. 11 AD VALOREM TAX PROCEDURES AaAlh�� •Ml The Texas Property Tax Code (the "Property Tax Code") provides for countywide appraisal and equalization of taxable property values and establishes in each county of the State an appraisal district and an appraisal review board responsible for appraising property for all taxable units within the county. The Ellis County Appraisal District (the "Appraisal District") is responsible for appraising property within the City, generally, as of January 1 of each year. Excluding agricultural and open - space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Property Tax Code to 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 further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of (1) the market value of the property, or (2) the sum of (a) 10% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. The appraisal values set by the Appraisal District are subject to review and change by the Appraisal Review Board (the "Appraisal Review Board") consisting of three members, which are appointed by the Board of Directors of the Appraisal District, Such appraisal rolls, as approved by the Appraisal Review Board, are used by the City in establishing its tax roll and tax rate. The Appraisal District is required to review the value of property within the Appraisal District al 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. Property Subject to Taxation by the Issuer Reference is made to the V.T.C.A., 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, Homestead Exemptions: Under Section 1-b, Article VIII, and State law, the governing body of a political subdivision, at its optionI may grant: (1) an exemption of not less than $3,000 of 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. In the case of residence homestead exemptions granted under Section 1-b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. Disabled/Deceased Veterans Exemption: 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. Aclricultural/Oren-Land Exemption: 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 1-d-1. Nonbusiness Personal Property Exemption: Nonbusiness personal property, such as automobiles or light trucks, is 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. Freeport Exemption: 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. Tax Increment Fnnancina Zone and Tax Abatements: The City and other taxing bodies within its territory may agree to jointly create tax increment financing zones, under which the tax values on property in the zone are "frozen" at the value of the property at the time of creation of the zone. The City also may enter into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The City, in turn, agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years. 12 Effective Tax Rate and Rollback Tax Rate Section 26.05 of the Property Tax Code provides that the governing body of a taxing unit is required to adopt its annual tax rate for the unit before the later of September 30 or the 60t" day after the date the certified appraisal roll is received by the taxing unit. If the City Council does not adopt a tax rate by such required date, the tax rate for the tax year is the lower of the effective tax rate calculated for the tax year or the tax rate adopted by the City for the preceding 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". The City Council may not adopt a tax rate that exceeds the lower of the rollback tax rate or 103 percent (103%) of the effective tax rate until a public hearing is 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. 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. Levy and Collection of Taxes The Issuer is responsible for the levy and collection of its taxes unless it elects to transfer such functions to another governmental entity. Property within the City is generally assessed as of January 1 of each year based upon the valuation of property within the City as of the preceding January 1. 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 are due October 1, or when billed, whichever comes later, and become delinquent after January 31 of the following year. The Property Tax Code makes provision for the split payment of taxes, discounts for early payment and the postponement of the delinquency date of taxes under certain circumstances. 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 final installment due on August 1. Penalties and Interest Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: 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(a) 12 6 18 r8T 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, a 15% attorneys collection fee is added fo 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. Tax Rate Limitations 13 Imposed by Article At, Section 5 of the Texas Constitution applicable to cities of more than 5,000 population: $2.50 per $100 assessed valuation. The Property Tax Code establishes a procedure for notice to property owners of reappraisals reflecting increased property value, appraisals which are higher than renditions and appraisals of property not previously on an appraisal roll. Article VIII, Section 21 of the Texas Constitution provides that, subject to any exception prescribed by general law, the total amount of property taxes imposed by a political subdivision in any year may not exceed the total amount of property taxes imposed in the preceding year unless a notice of intent to consider an increase in taxes is given and a public hearing on the proposed increase is held before the total taxes are increased. Issuer's Rights in the Event of Tax Delinquencies Taxes levied by the Issuer are a personal obligation of the owner of the property as of January 1 of the year for which the tax is imposed. On January 1 of each year, a tax lien attaches to property to secure the payment of all state and local taxes, penalties, and interest ultimately imposed for the year on the property. The lien exists in favor of the State of Texas and each local taxing unit, including the Issuer, having power to tax the property. The Issuer's tax lien is on a parity with tax liens of such other taxing units. A tax lien on real property takes priority over the claim of most creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax lien; however, whether a lien of the United States is on a parity with or takes priority over a tax lien of the Issuer is determined by applicable federal law. Personal property, under certain circumstances, is subject to seizure and sale for the payment of delinquent taxes, penalty, and interest. At any time after taxes on property become delinquent, the Issuer may file suit to foreclose the lien securing payment of the tax, to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real property, the Issuer must join other taxing units that have claims for delinquent taxes against all or part of the same property. Collection of delinquent taxes may be adversely affected by the amount of taxes owed to other taxing units, by the effects of market conditions on the foreclosure sale price, by taxpayer redemption rights (a taxpayer may redeem property within two (2) years after the purchaser's deed issued at the foreclosure sale is filed in the City records) or by bankruptcy proceedings which restrict the collection of taxpayer debts. Federal bankruptcy law provides that an automatic stay of actions 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 THE PROPERTY 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 VI11, Section 1-j property. The City has entered into a tax abatement agreement with Walmart Regional Warehouse and has adopted criteria therefore, which is a prerequisite to the execution of abatement agreements. The abatement agreement, which is for 50% of the assessed valuation, will first be reflected on the 2002-2003 property valuation and will expire in 2012. ADDITIONAL TAX COLLECTIONS Municipal Sales Tax Collections The City has adopted the provisions of Article 1065c, Section 9, Vemon's Texas Civil Statutes, which provides for the maximum levy of a one percent 11 %) sales tax which may be used by the City for any lawful purpose except that the City may not pledge any of the anticipated sales tax revenue to secure the payment of obligations or other indebtedness. Net collections on a calendar year basis are shown in Table 16 of Appendix A. Optional Sales Tax The Tax Code provides certain cities and counties the option of assessing a maximum one-half percent (%%)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 amount of the estimated sales tax revenues to be generated in the current year. Further the Tax Code provides certain cities the option of 14 assessing a maximum one-half percent (%%)sales tax on retail sales of taxable items for economic development purposes, if approved by a majority of the voters in a local option election. At an election held on May 2, 1998, the City's registered voters approved an additional one-half percent (%%) sales tax to be collected for economic development purposes in accordance with Section 4A, Article 5190.6 of Vernon's Annotated Texas Civil Statutes. Collections of the additional 4A sales tax began in December 1998, At an election held on May 2, 1998, the City's registered voters approved an additional one-half percent (%%) sales tax to be collected for economic development purposes in accordance with Section 413, Article 5190.6 of Vernon's Annotated Texas Civil Statutes. Collections of the additional 4B sales tax began in December 1998. The City has not held an election regarding an additional sales tax for the purpose of reducing its ad valorem taxes. Opinion On the date of initial delivery of the Obligations, McCall, Parkhurst &Horton L.L.P., Dallas, Texas, Bond Counsel, will render their opinions that, in accordance with statutes, regulations, published rulings and court decisions existing on the date thereof ("Existing Law"), (1) interest on the Obligations for federal income tax purposes will be excludable from the "gross income" of the holders thereof and (2) the Obligations will not be treated as "specified private activity bonds" the interest on which would be included as do alternative minimum tax preference item under section 57(a)(5) of the Internal Revenue Code of 1986 (the "Tax Code"), Except as stated above, Bond Counsel will express no opinion as to any other federal, state or local tax consequences of the purchase, ownership or disposition of the Obligations. See Appendix C - Form of Legal Opinions of Bond Counsel. In rendering their opinion, Bond Counsel will rely upon (a) certain information and representations of the Issuer, including information and representations contained in the Issuers federal tax certificate, and to) covenants of the issuer contained in the Ordinances relating to certain matters, including arbitrage and the use of the proceeds of the Obligations and the property financed therewith. Although it is expected that the Obligations will qualify as tax-exempt obligations for federal income tax purposes as of the date of issuance, the tax-exempt status of the Obligations could be affected by future events. However, future events beyond the control of the Issuer, as well as the failure to observe the aforementioned representations or covenants, could cause the interest on the Obligations to become taxable retroactively to the date of issuance. A ruling was not requested from the Internal Revenue Service by the City with respect to the Obligations or property financed with proceeds of the Obligations. The Existing Law is subject to change by the Congress and to subsequent judicial and administrative interpretation by the courts and the Department of the Treasury. There can be no assurance that such Existing Law or the interpretation thereof will not be changed in a manner which would adversely affect the tax treatment of the purchase, ownership or disposition of the Obligations. Bond Counsel's opinion represents its legal judgment based upon its review of Existing Law and the reliance on the aforementioned information, representations and covenants. Bond Counsel's opinion is not a guarantee of a result. No assurances can be given as to whether or not the Internal Revenue Service will commence an audit of the Obligations, or as to whether the Internal Revenue Service would agree with the opinion of Bond Counsel. If an audit is commenced, under current procedures the Internal Revenue Service is likely to treat the Issuer as the taxpayer and .the Obligationholders may have no right to participate in such procedure. No additional interest will be paid upon any determination of taxability. Federal Income Tax Accounting Treatment of Original Issue Discount The initial public offering price to be paid for one or more maturities of the Obligations (the "Original Issue Discount Obligations") may be less than the principal amount thereof or one or more periods for the payment of interest on the bonds may not be equal to the accrual period or be in excess of one year. In such event, the difference between (i) the "stated redemption price at maturity" of each Original Issue Discount Obligation, and (ii) the initial offering price to the public of such Original Issue Discount Obligation would constitute original issue discount. The "stated redemption price at maturity" means the sum of all payments to be made on the bonds less the amount of all periodic interest payments. Periodic interest payments are payments which are made during equal accrual periods (or during any unequal period if it is the initial or final period) and which are made during accrual periods which do not exceed one year. Under existing law, any owner who has purchased such Original Issue Discount Obligation in the initial public offering is entitled to exclude from gross income (as defined in section 61 of the Code) an amount of income with respect to such Original Issue Discount Obligation equal to that portion of the amount of such original issue discount allocable to the accrual period. For a discussion of certain collateral federal tax consequences, see discussion set forth below. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Obligation prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Obligation in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Obligation was held by such initial owner) is includable in gross income. 15 Under existing law, the original issue discount on each Original Issue Discount Obligation is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the date of the Obligations and ratably within each such six-month period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Obligation for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Original Issue Discount Obligation. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Original Issue Discount Obligations which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Obligations should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of the treatment of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Obligations and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Obligations. Collateral Federal Income Tax Consequences The following discussion is a summary of certain collateral federal income tax consequences resulting from the purchase, ownership or disposition of the Obligations. This discussion is based on existing statutes, regulations, published rulings and court decisions, all of which are subject to change or modification, retroactively. The following discussion is applicable to investors, other than those who are subject to special provisions of the Code, such as financial institutions, property and casualty insurance companies, life insurance companies, owners of interests in a FASIT, individual recipients of Social Security or Railroad Retirement benefits, individuals allowed an earned income credit, certain S corporations with Subchapter C earnings and profits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase tax-exempt obligations. THE DISCUSSION CONTAINED HEREIN MAY NOT BE EXHAUSTIVE, INVESTORS, INCLUDING THOSE WHO ARE SUBJECT TO SPECIAL PROVISIONS OF THE CODE, SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX TREATMENT WHICH MAY BE ANTICIPATED TO RESULT FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF TAX-EXEMPT OBLIGATIONS BEFORE DETERMINING WHETHER TO PURCHASE THE OBLIGATIONS. Interest on the Obligations will be includable as an adjustment for "adjusted current earnings" to calculate the alternative minimum tax imposed on corporations by section 55 of the Code. Section 55 of the Code imposes a tax equal to 20 percent for corporations, or 26 percent for non -corporate taxpayers (28 percent for taxable income exceeding $175,000), of the taxpayer's "alternative minimum taxable income," if the amount of such alternative minimum tax is greater than the taxpayer's regular income tax for the taxable year. Interest on the Obligations may be subject to the "branch profits tax" imposed by section 884 of the Code on the effectively - connected earnings and profits of a foreign corporation doing business in the United States. Under section 6012 of the Code, holders of tax-exempt obligations, such as the Obligations, may be required to disclose interest received or accrued during each taxable year on their returns of federal income taxation. Section 1276 of the Code provides for ordinary income tax treatment of gain recognized upon the disposition of atax-exempt obligation, such as the Obligations, if such obligation was acquired at a "market discount" and if the fixed maturity of such obligation is equal to, or exceeds, one year from the date of issue. Such treatment applies to "market discount bonds" to the extent such gain does not exceed the accrued market discount of such bonds; although for this purpose, a de minimis amount of market discount is ignored. A "market discount bond" is one which is acquired by the holder at a purchase price which is less than the stated redemption price at maturity or, in the case of a bond issued at an original issue discount, the "revised issue price" (i.e., the issue price plus accrued original issue discount). The "accrued market discount" is the amount which bears the same ratio to the market discount as the number of days during which the holder holds the obligation bears to the number of days between the acquisition date and the final maturity date. State, Local and Foreign Taxes Investors should consult their own tax advisors concerning the tax implications of the purchase, ownership or disposition of the Obligations under applicable state or local laws. Foreign investors should also consult their own tax advisors regarding the tax consequences unique to investors who are not United States persons. Qualified Tax -Exempt Obligations Section 265(a) of the Code provides, in pertinent part, that interest paid or incurred by a taxpayer, including a "financial institution," on indebtedness incurred or continued to purchase or carry tax-exempt obligations is not deductible by such taxpayer in determining taxable income. Section 265(b) of the Code provides an exception to the disallowance of such 16 deduction for any interest expense paid or incurred on indebtedness of a taxpayer which is a "financial institution" allocable to tax-exempt obligations, other than "private activity bonds," which are designated by an issuer as "qualified tax-exempt obligations." Section 265(b)(5) of the Code defines the term "financial institution" as referring to any corporation described in section 585(a)(2) of the Code, or any person accepting deposits from the public in the ordinary course of such person's trade or business which is subject to federal or state supervision as a financial institution. The Issuer expects to designate the Obligations as "qualified tax-exempt obligations" within the meaning of section 265(b) of the Code. In furtherance of that designation, the Issuer will covenant to take such action which would assure, or to refrain from such action which would adversely affect, the treatment of the Obligations as "qualified tax-exempt obligations." Potential purchasers should be aware that if the issue price to the public (or, in the case of discount certificates, the amount payable at maturity) exceeds $10,000,000 during the same calendar year, then such obligations might fail to satisfy the $10,000,000 limitation and the obligations would not be "qualified taxwexempt obligations." CONTINUING DISCLOSURE OF INFORMATION The offering of the Bonds and the Certificates qualifies for the Rule 15c2-12(d)(2) exemption from continuing disclosure obligations because the City has less than $10,000,000 in aggregate amount of outstanding obligations and no person, other than the City, is committed by contract or other arrangement with respect to payment of the Bonds or the Certificates. Pursuant to the exemption, the City in the Ordinance has made the following agreement for the benefit of the holders and beneficial owners of the Bonds or the Certificates. The Issuer is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds or the Certificates. Under the agreement, the Issuer will be obligated to provided certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. Annual Reports The Issuer will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the Issuer of the general type included in this Official Statement that is a matter of public record. 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, with respect to the Bonds, the System, and regarding, with respect to the Certificates, property valuation, tax rates and tax collections. The Issuer will update and provide this information within six months after the end of each fiscal year beginning in 2002, The Issuer will provide the updated information to any state information depository ("SID") that is designated by the State of Texas and approved by the staff of the United States Securities and Exchange Commission (the "SEC"). The Issuer may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12 (the "Rule"). The updated information will include audited financial statements for the Issuer, if the Issuer commissions an audit and it is completed by the required time. If audited financial statements cannot be provided, the Issuer will provide unaudited financial statements until the audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in the Issuer's annual financial statements, or such other accounting principles as the Issuer may be required to employ from time to time pursuant to state law or regulation. The Issuer's current fiscal year end is September 30. Accordingly, it must provide updated information by the last day in March in each year, unless the Issuer changes its fiscal year. If the Issuer changes its fiscal year, it will notify any SID of the change. Material Event Notices The Issuer will also provide timely notices of certain events to certain information vendors. The Issuer will provide notice of any of the following events with respect to the Bonds or the Certificates, if such event is material to a decision to purchase or sell Bonds or the Certificates: (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 or the Certificates; (7) modifications to rights of holders of the Bonds or the Certificates; (8) Bond or Certificate calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds or the Certificates; and (11) rating changes. Neither the Obligations nor the Ordinances make any provision for credit enhancement or liquidity enhancement, nor do the Certificates nor the Certificate Ordinance make any provision for debt service reserves. In addition, the Issuer will provide timely notice of any failure by the Issuer to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports". The Issuer will provide each notice described in this paragraph to any SID and the Municipal Securities Rulemaking Board ("MSRB"). Availability of Information from SID and MSRB The Issuer has agreed to provide the foregoing information only to any SID and the MSRB. The information will be available to holders of Bonds or the Certificates only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. 17 The Municipal Advisory Council of Texas has been designated by the State of Texas as a SID, and has been qualified as a SID by the staff of the SEC. The address of the Municipal Advisory Council is 600 West 8th Street, P.O. Box 2177, Austin, Texas 78768-2177, and its telephone number is 512/476=6947. Limitations and Amendments The Issuer has agreed to update information and to provide notices of material events only as described above. The Issuer 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 Issuer makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds or the Certificates at any future date. The Issuer disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders or beneficial owners of Bonds or the Certificates may seek a writ of mandamus to compel the Issuer to comply with its agreement. The Issuer may amend its continuing disclosure agreement 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, if the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds or Certificates 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 either the holders of a majority in aggregate principal amount of the outstanding Bonds or Certificates consent or any person unaffiliated with the Issuer (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the beneficial owners of the Bonds or the Certificates. The Issuer may also repeal or amend these provisions if the SEC amends or repeals the applicable provisions of the Rule or any court of final jurisdiction enters judgment that such provisions of the Rule are invalid, and the Issuer also may amend the provisions of this Article in its discretion in any other manner or circumstance, but in either case only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Bonds or Certificates in the primary offering of the Bonds or the Certificates giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. If the Issuer amends its agreement, it must 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 information and data provided. Compliance with Prior Agreements The City has complied in all material respects with its undertakings made pursuant to the Rule, with the exception of a late filing for 1998, which was submitted on April 14, 1999. All the Issuer's filings since that time have been made on time. OTHER PERTINENT INFORMATION Registration and Qualification of Bonds and the Certificates for Sale The sale of the Bonds and the.Certificates has not been registered under the Federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Bonds and the Certificates have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds or the Certificates been qualified under the securities acts of any jurisdiction. The Issuer assumes no responsibility for qualification of the Bonds or the Certificates under the securities laws of any jurisdiction in which the Bonds or the Certificates may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds and the Certificates shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions. Litigation In the opinion of the City Attorney, the Issuer is not a party to any litigation or other proceeding pending or to its knowledge, threatened, in any court, agency or other administrative body (either state or federal) which, if decided adversely to the Issuer, would have a material adverse effect on the financial condition of the City. Legal Investments and Eligibility to Secure Public Funds in Texas Section 1201.049 of the Public Security Procedures Act provides the Obligations are (i) negotiable instruments, (ii) investment securities to which Chapter 8, Business and Commerce Code applies and (iii) legal and authorized investments for insurance companies, fiduciaries or trustees and sinking funds of municipalities or other political subdivisions or public agencies of the State of Texas. The Texas Finance Code also contains provisions that, subject to the prudent investor standard, provide for the Bonds to be legal investments for state banks, savings banks, trust companies with capital of one million dollars or more, and savings and loan associations. For the Bonds to be eligible investments for municipalities, political subdivisions or public agencies of Texas, the Public Funs Investment Act, V.T.C.A., Government Code, Chapter 2256, provides a rating of "A" or its 18 equivalent as to investment quality must be assigned by a national rating agency. Furthermore, the Bonds are eligible to secure the deposits of any public funs of the State of Texas, its agencies and its political subdivisions and are legal security for those deposits to the extent of their market value. Legal Opinions and No -Litigation Certificate The Issuer will furnish the Purchasers of the respective series of Obligations with a complete transcript of proceedings incident to the authorization and issuance of the respective Obligations, including the unqualified approving legal opinions of the Attorney General of the State of Texas to the effect that the respective Obligations are valid and legally binding obligations of the Issuer, and based upon examination of such transcript of proceedings, the approval of certain legal matters by Bond Counsel, to the effect that the Obligations are valid and legally binding obligations of the Issuer and, subject to the qualifications set forth herein under "TAX MATTERS — Tax Exemption," the interest on the Obligations is excludable from the gross income of the owners thereof for federal income tax purposes under existing statutes, regulations, published rulings, and court decisions existing on the date thereof. The customary closing papers, including a certificate to the effect that no litigation of any nature has been filed or is then pending to restrain the issuance and delivery of the respective Obligations, or which would affect the provision made for their payment or security, or in any manner questioning the validity of the respective Obligations will also be furnished. Bond Counsel was not requested to participate, and did not take part, in the preparation of the Notice of Sale and Bidding Instructions, the Official Bid Form and the Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information describing the Bonds and the Certificates in the Official Statement to verify that such description conforms to the provisions of the respective Ordinance. Such firm has not, however, independently verified any of the factual information contained in this Official Statement nor has it conducted an investigation of the affairs of the Issuer 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 legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Obligations are contingent on the sale and delivery of the respective Obligations. The legal opinions of Bond Counsel will be printed on, or will accompany the definitive Obligations and the form of such opinion is attached hereto as Appendix C. The various legal opinions to be delivered concurrently with the delivery of the respective Obligations express the professional judgment of the attorneys rendering the opinions 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 from the transaction. Ratings A municipal bond rating application has been made to Moody's Investors Service, Inc. ("Moody's"). The Issuer currently has a an underlying rating of "Baal" on its uninsured revenue debt and has no underlying rating on its uninsured general obligation debt. An explanation of the significance of such rating, when received, may be obtained from Moody's. A rating by a rating agency reflects only the view of such company at the time the rating is given, and the Issuer makes no representations as to the appropriateness of the rating. There is no assurance that such a rating will continue for any given period of time, or that it will not be revised downward or withdrawn entirely by the rating agency if, in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the Bonds. Financial Advisor SWS Securities is employed as a Financial Advisor to the Issuer in connection with the issuance of the Obligations. In this capacity, the Financial Advisor has compiled certain data relating to the Obligations and has assisted in drafting this Official Statement, The Financial Advisor has not independently verified any of the data contained herein or conducted a detailed investigation of the affairs of the Issuer to determine the accuracy or completeness of this Official Statement. Because of its limited participation, the Financial Advisor assumes no responsibility for the accuracy or completeness of any of the information contained herein. The fees for Financial Advisor are contingent upon the issuance, sale and delivery of the Obligations. The Issuer has permitted SWS Securities the option to bid on the Obligations. SWS Securities may submit a bid for the Obligations, either independently or as a member of a syndicate organized to submit a bid for the Obligations. Winning Bidder On May 20, 2002 the Bonds were awarded to an underwriter or group of underwriters managed by ______________ (the "Purchasers"). The initial reoffering yields were supplied to the City by the Purchasers. The initial reoffering yields shown on the inside cover page will produce compensation to the Purchasers of approximately $__________, after paying an insurance premium of On May 20, 2002 the Certificates were awarded to an underwriter or group of underwriters managed by (the "Purchasers"), The initial reoffering yields were supplied to the City by the Purchasers. The initial reoffering yields shown on the inside cover page will produce compensation to the Purchasers of approximately $, after paying an insurance premium of $__________ 19 Certification of the Official Statement At the time of payment for and delivery of the Bonds, the Purchaser of each series of Obligations will be furnished a certificate executed by the proper officials of the City acting in their official capacity, to the effect that: (a) the descriptions and statements of or pertaining to the City contained in its Official Statement relating to the Bonds or Certificates, as applicable, and any addenda, supplement or amendment thereto, on the date of such Official Statement, on the date of the sale of said Bonds, and on the date of the delivery, were and are true and correct in all material respects; (b) insofar as the City and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statement therein, in the light of the circumstances under which they were made, not misleading; (c) to the best of their knowledge, insofar as the descriptions and statements, including financial data, or pertaining to entities, other than the City and its activities, contained in such Official Statement are concerned, such statements and data have been obtained from sources which the City believes to be reliable and the City has no reason to believe that they are untrue in any material respect; and (d) there has been no material adverse change in the financial condition of the City since September 30, 2001, the date of the last audited financial statements of the Issuer, portions of which appear in the Official Statement, The Official Statement will be approved as to form and content and the use thereof in the offering of the Bonds will be authorized, ratified and approved by the City Council on the date of sale, and the Purchasers will be furnished, upon request, at the time of payment for and the delivery of the Obligations, a certified copy of such approval, duly executed by the proper officials of the Issuer. The Ordinances will also approve the form and content of this Official Statement, and any addenda, supplement or amendment thereto issued on behalf of the Issuer, and authorize its further use in the reoffering of the Bonds by the Purchasers. Forward -Looking Statements Disclaimer 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 Cityexpectations, 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. The City's actual results could differ materially from those discussed in such forward -looking statements. The forward -looking statements included 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 such assumptions could be inaccurate and, therefore, there can be no assurance that the forward -looking statements included in this Official Statement will prove to be accurate. Concluding Statement The financial data and other information contained in this Official Statement have been obtained from the City's records, audited financial statements and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Official Statement are made subject to all of the provisions of such statues, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information . Reference is made to original documents in all respects. This Official Statement has been approved by the City Council of the Issuer for distribution in accordance with the provisions of the Securities and Exchange Commission's rule codified at 17 C.F.R. Section 240.15c2-12. ATTEST: City Secretary City of Sanger, Texas 20 CITY OF SANGER, TEXAS Mayor City of Sanger, Texas I_TJT�:I7i:�_l FINANCIAL INFORMATION OF THE ISSUER (This appendix contains quantitative financial information and operating data with respect to the Issuer. The information is only a partial representation and does not purport to be complete. For further and more complete information, reference should be made to the original documents, which can be obtained from various sources, as noted.) FINANCIAL INFORMATION OF THE ISSUER ASSESSED VALUATION TABLE 1 2001 Total Value of Taxable Property Less Exemptions: Local, Optional Over-65 and/or Disabled Homestead Exemptions Disabled and Deceased Veterans' Exemptions Productivity Value Loss Homestead 10% Cap Adjustment Other 2002 Net Taxable Assessed Valuation (100% of Actual) (e) $ 2,284,339 171,148 69240,508 1,856,629 $ 155,361,145 10,552,624 $ 144,828,521 a See "CITY APPLICATION OF THE PROPERTY TAX CODE" in the Official Statement for a description of the Issuer's taxation procedures. Source: Denton County Appraisal District GENERAL OBLIGATION BONDED DEBT (As of June 1, 2001I General Obligation Debt Principal Outstanding: Certificates of Obligation, Series 1994 Combination Tax and Revenue Certificates of Obligation, Series 2002 (This Issue) Total General Obligation Debt Principal Outstanding: General Obligation Interest and Sinking Fund Balance as of 4-15-02 Ratio of Gross General Obligation Debt to 2001 Net Assessed Valuation 2001 Net Assessed Valuation�a� $ 1,290,000 2,360,000 $ 3,650,000 2.52% $ 144,828,521 �e1 See "CITYAPPLICATION OF THE PROPERTY TAX CODE" in the Official Statement for a description of theassuer's taxation procedures.. Population: 1980 - 21574; 1990 - 3,508; 2000 - 4,534 Current (Estimate) - Per Capita 2001 Net Assessed Valuation - Per Capita Gross General Obligation Debt - A-1 5,200 $27,852 $102 OTHER OBLIGATIONS TABLE 3 A summary of the City's Notes Paybale and Capital Leases is shown below. Balances are as of September 30, 2001, unless noted otherwise. These obligations are grouped under the fund from which the obligations are being paid. More detailed information regarding the City's long-term debt can be found in the Notes to the City's 2001 Audited Financial Statements, which are included herein as Appendix E. General Fund Notes Payable Guaranty National Bank $ 17,408 Guaranty National Bank 20,881 Guaranty National Bank 38,956 Guaranty National Bank 31,421 Guaranty National Bank 11,308 Guaranty National Bank 10,229 Guaranty National Bank 17,105 Guaranty National Bank(a) 801,687 (a) Guaranty National Bank (added since 9-30-01) 150,000 $ 1 t098,995 Less Amount Paid by Sanger IDC (4A Corp) (801,687) Total Notes Payable $ 297,308 Total Notes /Leases Paid From General Fund Leases Midwest Bankers Lubbock National Bank Ford Motor Credit Company Ford Motor Credit Company Ford Motor Credit Company Total Capital Leases 63,592 9,283 336 1,382 8,635 $ 83,228 $ 380,536 leJ The Sanger Industrial Development Corporation (4A Co►p) is the legal borrower on this note, and Me proceeds are being used to purchase land for development of a Walmart Regional Warehouse. The Corporation is using the 4A Corp Sales Tax Revenues to pay this obligation. Notes GuarantyiJational Bank (original $379,000 Total Notes Payable Enterprise Fund $ 400,744 75,525 9,850 19,424 95,560 $ 6019103 Total Notes /Leases Paid From Enterprise Fund Lubbock National Bank Ford Motor Credit Company Ford Motor Credit Company Ford Motor Credit Company A-2 Leases 10,484 10, 500 1,949 3,909 Total Capital Leases $ 26,842 $ 627,945 GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS TABLE 4 The Certificates Fiscal Year Current Total Combined 31-Aug Debt Service lPrincipal Interest(') Total Debt Servicet'� 2002 $ 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021. 2022 200,720 203,658 205,963 207,625 208,635 208,900 2131400 212,000 40,000 75,000 80,000 85,000 85,000 90,000 95,000 100,000 105,000 110,000 1209000 1251000 130,000 1359000 1451000 1501000 1601000 170,000 175,000 111 .1 111 154,875 121,800 117,863 113,663 109,200 104,738 100,013 95,025 89,775 84,263 78,488 72,188 65,625 58,800 51,713 44,100 36,225 27,825 18,900 9,713 $ 165546788 194,875 196,800 197,863 198,663 194,200 194,738 195,013 195,025 194,775 194,263 198,488 197,188 195,625 193,800 196,713 194,100 196,225 197,825 1939900 194.713 $ 3.914.788 e l�calculated at 5.25% for illustration purposes only. Preliminary, subJect to change $ 200,720 398,533 402,763 405,488 407,298 403,100 408,138 407,013 195,025 194,775 194,263 198,488 197,188 195,625 193,800 196,713 1949100 196,225 1979825 193,900 194,713 5,575.688 TAX ADEQUACY TABLE 5 2001 Assessed Valuation $ 144,828,521 Maximum Annual Debt Service Requirements (Fiscal Year Ending 9-30-08) $ 408,138 Indicated Maximum Interest and Sinking Fund Tax Rate at 95% Collections $ 0.29664 Note: Above computation is exclusive of investment eamings, delinquent tax collections and penalties and interest on delinquenf tax collections. INTEREST AND SINKING FUND MANAGEMENT INDEX TABLE 6 Interest and Sinking Fund Balance, Fiscal Year Ended September 30, 2001 $ 45,812 2001 Interest and Sinking (I&S) Fund Tax Levy at 95%Collections Produce (a) 298,082 Total Available for Debt Service $ 343,894 Less: General Obligation Debt Service Requirements, Fiscal Year Ending 9-30-02 (b) 200,720 Estimated Surplus at Fiscal Year Ending 9-30-02 $ 143,174 �D> Does not include delinquent tax collections, penalties and interest on delinquent tax collections or investment earnings, tb1 This surplus is being used to pay notes and leases payable. A-3 GENERAL OBLIGATION PRINCIPAL REPAYMENT SCHEDULE TABLE 7 Schedule Fiscal Year Endina 9130 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 E Debt 125,000 135,000 145,000 155,000 165,000 175,000 190,000 200,000 $ 1,290,000 Series 2001 Certificates 40,000 75,000 80,000 85,000 85,000 90,000 95,000 1 MOW 105,000 110,000 120,000 125,000 130,000 135,000 145,000 1500000 1609000 170,000 175,000 185,000 $ 2,360,000 TAXABLE ASSESSED VALUATION HISTORY Net Taxable Year Assessed Valuation 1995-96 $ 789-240,705 1996-97 84,76092 1997-98 91,372,796 1998-99 96,449,856 1999-00 109,642,638 2000-01 129,014,176 2001-02 144,828,521 Total $ 1259000 175,000 220,000 235,000 250,000 260,000 2809000 2959000 1000000 105,000 110,000 1209000 125,000 1309000 135,000 145,000 150,000 160,000 170,000 1759000 185,000 $ 3,650,000 Debt Unpaid at End of Year $ 31525,000 3,350,000 3,130,000 21895,000 2,645,000 2,385,000 2,105,000 1,810,000 1,710,000 11605,000 1,495,000 1,375,000 1,250,000 1,120,000 985,000 840,000 6909000 530,000 360,000 185,000 Change From Preceding Year Amount ($) 2,699,487 6,523,387 6,608,704 59077,060 13,192, 782 191371,538 15,814,345 Percent 3.57% 8.34% 7.80% 5.56% 13.68% 17.67% 12.26% Percent of Principal Retired (%) 3.42% 8.22% 14.25% 20.68% 27.53% 34.66% 42.33% 50.41 % 53.15% 56.03% 59.04% 62.33% 65.75% 69.32% 73.01 % 76.99% 81.10% 85.48% 90.14% 94.93% 100.00% TABLE 8 Sources: Texas Municipal Report published by the Municipal Advisory Council of Texas and the Denton Central Appraisal District 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. m � 0 0 0 0 oe o 00 0 0 0 00 0 0 0 W y. aD O M CO a0 to M 00 cD to cs7 O OI OI J pCcc0 M .- 00 ti M U) CD O to O O O O 0 M e•M fV 0 0 et h C C 0 0 OO low et cD M to O M to O M h O ' ' N U) O ' ' c0 (D tO 00 a) N to U) O M D) ►� U) cO N O et (0 0) et to ti .- to O cO O 00 CO N 0) O U) v ti ti) In �' O M N W h m 00 c0 O to (M •- N N C) M O N U) h cc O N M V� N V) 1 O ti Of M O ti h m cO U) 00 U) O M N •- O m NO C_ M M N •- M 4e c0 CD N N to EA Efl Eli ER 69 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 OI COD M N M � M O ee too 0 0 00 F- N LO U) O 0 fO O O O fM c0 CO O CD M 0) 0) M N to CC)M 000 to � O Oqtt h CO O E M to Q? 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Qwest Communications Corporation Global Crossing North American Sanger k35 Joint Venture Sanger Bank Tvk: of Business Utility Real Estate Restroom Stalls Manufacturing Plastics Manufacturing Care Inn Clinical Testing Laboratory Fiber Optics Cable Real Estate Financial Institution Total Based on a 2001 Net Taxable Assessed Valuatio $ 144,828,521 2001 Net Taxable Assessed Valuation $ 298779680 2,625,724 1,297,674 1,192,634 1,069,794 1,047,460 11041,710 1,0111763 902,160 8899305 $13.955.904 Source: Texas comptroller of Public Accounts and Denton Central Appraisal District of Total 2001 Assessed Valuation 1.99% 1.81 % 0.90% 0.82% 0.74% 0.72% 0.72% 0.70% 0.62% PROPERTY TAX RATES AND COLLECTIONS t'I TABLE 11 Fiscal Tax Net Taxable Tax Collection % Year Year Assessed Valuation Rate Current Total"' Ended 1995-96 $ 78,240,705 $ 0648370 95.81 % 97.90% 9-30-96 1996-97 84,764,092 0.48130 96.31 % 100.68% 9-30-97 1997-98 91,372,796 0,47260 96.20% 98.24% 9w30-98 1998-99 96144%856 0950280 95.53% 99.76% 9-30=99 1999-00 1099642,638 0.52280 95.88% 99.86% 9-30-00 2000-01 129,0141176 0.52280 96.14% 98.15% 9-30-01 2001-02 144,828,521 0.58879 94.56% 96.38% (`) 9w30-02 t'� See 'THE CITY APPLICATION OF THE PROPERTY TAX CODE" in the Ott`icial Statement for a description of the Issuers taxation procedures. (b) Excludes interest and penalties. (`) Collections through April 30, 2002 Source: Texas Municipal Report published by the Municipal Advisory Council of Texas, the Denton County Appraisal District, and the City's 2001 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 12 2001 2000 1999 1998 1997 1996 Maintenance &Operations $0.37214 $0.36510 $0.33900 $0.29380 $0.24700 $0.37170 I & S Fund 0.21665 0.15770 0.18380 0.20900 0.22560 0.10960 TOTAL $0.58879 $0.52280 $0.52280 $0.50280 $0.47260 $0448130 Source: Issuer MUNICIPAL SALES TAX TABLE 13 The Issuer has adopted the provision of Chapter 321, as amended, Texas Tax Code. In addition, some issuers are subject to a property tax relief and/or an economic and industrial development tax. The voters of the City approved an additional %% sales tax for each of 4A and 4B economic development on May 2, 1998, with collections beginning effective October 1, 1998 and receipts first received in December 1998. Net collections on calendar year basis follow: Calendar Total 1.00% 1.00% (4A & 4B) % of Ad Valorem ($) Equivalent of Ad Year Collected Citv Economic Dev. Tax Levy Valorem Tax Rate 1995 $ 1359567 $ 135,567 $ - 35.82% $0.17 1996 167,104 167,104 - 40.96% $0.20 1997 169,975 169*975 - 43.11 % $0.21 1998 213,071 204,143 8,928 18> 47.82% $0.23 1999 446,219 2239110 223,110 49.09% $0.25 2000 450t879 225,440 225,440 39.77% $0.21 2001 491,010 245,505 245,505 36.02% $0.19 2002 (b) 358,832 (b) 179,416 (b) 179,416 (b) 21.25% (b) $0.13 (b) �DJ Estimate only, based on average monthly collections. Additional 1 %for economic development sales tax received only for month of December. fib) Current year collections are as of April 2, 2002 Source: State Comptroller's Office of the State of Texas and information from the Issuer. FUND BALANCES TABLE 14 (As of April 15, 2002) General Funds General Operating Fund $ 182,145 General Obligation Interest and Sinking Fund 93,161 Unrestricted Funds Accumulated for Future Debt Service Payments on Series 2002 CO's 74,153 Notes Payable Fund 42,498 Parks Project Fund 7,440 General Fund Equipment Replacement 12,211 Enterprise Funds Utility System Operating Fund 264,919 Revenue Bond Interest and Sinking Funds 122,512 Revenue Bond Reserve Fund 258,550 Emergency Fund 16,212 Meter Deposit Fund 55,000 Water Deposit Fund 67,153 Unrestricted Funds Accumulated for Future Debt Service Payments on Series 2002 Utility System Rev Bonds 24,557 Water Capital Improvement Fund 89,749 Sewer Capital Improvement Fund 1139002 Utility Equipment Replacement Fund 17,332 Water Well Project Fund 47,111 Total $ 1,487,705 DIRECT AND OVERLAPPING DEBT DATA INFORMATION Gross Debt Taxing Bodv As of Principal Denton County 1-01-02 $ 139,412,570 Sanger Independent School District 3-22-01 26,162,493 Total Gross Overlapping Debt City of Sanger 6-01-02 39650,000 iei Total Direct and Overlapping Debt Ratio of Direct and Overlapping Debt to 2001 Assessed Valuation Ratio of Direct and Overlapping Debt to 2001 Actual Value Per Capita Direct and Overlapping Debt OVerlapping 0.56% �61 Includes the self-supporting debt. (See "GENERAL OBLIGATION BONDED DEBT' herein.) Sources: The most recent Texas Municipal Report published by the Municipal Advisory Council of Texas /_F-�•� ��9=t�1%l��� ir[�7� /1:1 �j r1:�7_\I Ii��7��I�1�:7 A_\ »P. tr7�: iii ii�=� 49.99% 100.00% 2001 Net Taxable Governmental Entity Assessed Valuation % of Actual Denton County $ 1,1981745,758 100% Sanger Elm Independent School District 285,626,355 100% Source: The most recent Texas Municipal Report published by the Municipal Advisory Council of Texas AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS OF DIRECT AND OVERLAPPING GOVERNMENTAL ENTITIES Taxing Bodv Denton County Date of Amount Authorizatio Purpose Authorized 11-5-91 Road &Bridge 1-16-99 Road &Bridge $ 34,000,000 85,320,000 Totals $ 1191320,000 Issued To -Date $ 28,875,000 24,600,000 $ 531475,000 Sanger Independent School District 3-8-75 School Building $ 1,310,000 $ 1,260,000 Sanger, City of None gel The District currently has no plans to issue the remaining authorized but unissued bonds. Source: The most recent Texas Municipal Report published by the Municipal Advisory Council of Texas TABLE 15 Amount Overlapping $ 780,710 13,078,630 $ 13,859,341 39650,000 $ 17,509,341 12.09% 11.27% $3,367 TABLE 16 2001 Tax Rate $ 0.25193 1.67000 TABLE 17 Unissued $ 5,125,000 so,72o,000 $ 651845,000 $ 50,000 GENERAL FUND COMBINED STATEMENT OF REVENUES AND EXPENDITURES AND CHANGES IN FUND BALANCES Revenues Property Taxes Nonproperty Taxes Penalty and Interest on Delinquent Taxes Licenses and Permits Fees and Services Grants and Intergovernmental Interest Income Miscellaneous Income Other Revenues( Donations) Total Revenues Expenditures Current: General Government Public Safety Highways and Streets Health and Welfare Culture and Recreation Capital Outlay Debt Service Principal Debt Service Interest Total Expenditures Excess (Deficit) of Revenues Over Expenditures Other Financing Sources (Uses): Proceeds of Capital Leases/Notes Payable Sale of Assets Operating Transfer In (Out) Total Other Financing Sources (Uses) Excess (Deficit) of Revenues and Other Sources Over Expenditures and Other Uses Fund Balance -Beginning of Year $ 676,511 488,405 13,829 45,823 4739901 129,180 7,093 13,906 19,557 $ 198689205 $ 547,547 649,899 132,966 57,225 3479623 207,490 258,156 101,800 $ 2*302,706 $ (434,501) $ 19,098 19,508 459,295 $ 497,901 $ 63,400 $ 93,042 Fiscal Year Ended $ 580,937 390o431 12,924 28,793 403,841 84,593 5,212 13,118 30,787 $ 1,550,636 $ 490,984 536,295 133,849 45,200 2709563 263,898 202,188 108,477 240514454 $ 502,660 380,004 %953 25,244 374,497 102,066 5,873 10,707 2,644 $ 1,4139648 $ 470,159 499,734 119,378 30,025 255,357 266,663 187,270 117,523 $ 1.946.109 $ (500,818) $ (532,461) $ 167,763 305,452 $ 473,215 $ 181,969 5,000 357,743 $ 5449712 $ (27,603) $ 12,251 30 $ 425,761 344,181 8,402 101,147 279,192 77,325 4,651 18,489 2,022 $ 1,261,170 $ 438,325 424,147 107,937 25,362 235,077 158,176 146,070 119,747 $ 1.654,841 $ (393,671) $ 53,053 348,767 $ 401,820 TABLE 18 1997 $ 406,208 2969516 8,125 31,864 293,938 349,695 11,134 43,037 23,240 $ 1,463,757 $ 462,911 399,425 242,165 333,688 117,918 55,366 128,867 127,170 $ 1,867.510 $ (403,753) 325,370 $ 325,370 $ 120,645 $ 108,394 (a) $ 143,107 $ 221,490 te1 Beginning fiscal year 1999, fhe Hotel Motel Tax and 4A / 48 Sales Tax Revenues in the amount of $42, 862 were moved to a separate "Special Revenue Fund" for audit purposes. Source: The Issuer's Audited Financial Statements A-9 Revenue Bond Debt Principal Outstanding: Utility System Revenue Bonds, Series 1996 Utility System Revenue Refunding Bonds, Series 1999 Utility System Revenue Bonds, Series 2002 Total Revenue Debt Principal Outstanding $ 855,000 1,555,000 2,360,000 $ 4,770,000 CONDENSED WATERWORKS AND SEWER SYSTEM OPERATING STATEMENTS TABLE 20 Operating Revenues Charges and Fees Other Total Operating Expenses Personnel Services Purchase of Services Materials and Supplies Franchise Fees Total Available for Debt Service Annual Debt Service Requirements Coverage per Rate Covenant Customer Counttel Water Sewer Electric Fiscal Year Ended September 30 2001 2000 1999 1998 1997 $ 4,983,147 33,328 $ 59016,475 $ 828,030 2,738,352 111,092 106,122 $ 39783,596 $ 1,232,879 $ 4,086,359 32,141 $ 41118,5001 $ 745,233 2,232,882 87,584 81,662 $ 31147,361 $ 971,139 $ 3,929,244 60,763 $ 31990,007 $ 629,610 2,077,216 109,543 81,476 $ 2,897,845 $ 1,092,162 $ 3,977,591 49,808 $ 41027*399 $ 524,132 2,019,451 79,802 83,694 $ 21707,079 $ 1,320,320 $ 3,452,372 68,372 $ 3,520,744 $ 506,671 1,699,137 71,466 72,091 $ 2,349,365 $ 1,171,379 $ 291,780 $ 290,295 $ 307,198 $ 303,503 $ 293,085 4.23 X 3.35 X 3.56 X 4.35 X 4.00 X 2,017 1,942 1,887 1,835 1,704 2,006 1, 921 1,859 1,807 1,674 1,796 1,761 19718 1,664 1,621 gel -Meter counts for 2001-2002 as of April 15, 2002 are Water - 2, 025, Sewer - 2, 014 and Electric - 1, 823 Source: The Issuers annual audited financial statements and the most recent Texas Municipal Report published by the Municipal Advisory Council of Texas. COVERAGE OF THE BONDS TABLE 21 2001 Net Revenues Available for Debt Service Annual Debt Service Requirement (2001) Coverage Estimated Annual Average Debt Service Requirements Upon the Issuance of the Bonds Coverage Estimated Maximum Debt Service Requirements Upon the Issuance of the Bonds (2009) Coverage $ 1,232,879 291,780 4.23 X 362,593 3.40 X 508,523 2.42 X REVENUE BOND DEBT SERVICE REQUIREMENTS TABLE 22 Fiscal Year - 30-Sep 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Current Total Debt Service $ 295,205 292,333 289,203 295,815 291,753 297,343 302,210 296,228 2999918 87,908 84,653 86,363 87,838 89,038 Principal $ 80,000 80,000 85,000 85,000 90,000 95,000 100,000 105,000 110,000 120,000 125,000 130,000 140,000 145,000 155,000 1609000 170,000 1809000 190,000 195,000 $ 2,540,000 The Bonds Interestl'I $ 127,423 129,150 124,950 120,488 1169025 111,300 106,313 1019063 95,550 89,775 83,475 76,913 70,088 62,738 55,125 46,988 38,588 29,663 20,213 10,238 $ 1.616.061 Total $ 207,423 209,150 209,950 205,488 206,025 206,300 206,313 206,063 205,550 209,775 208,475 206,913 210,088 207,738 210,125 2069988 208,588 209,663 210,213 205,238 $ 4,156,061 Combined Debt Service $ 502,628 501,483 499,153 501,303 497,778 503,643 508,523 502,290 505,468 297,683 293,128 293,275 297,925 296,775 210,125 206,988 208,588 209,663 210,213 205,238 $ 7.251.863 �'� Interest calculated at 5.25% for illustration purposes only. Preliminary, sub)ect to change. PRINCIPAL REPAYMENT SCHEDULE TABLE 23 Fiscal Year Endins� 9-30 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Principal Repayment Schedule Currently The Outstanding Bonds Total $ 190,000 $ 40,000 $ 230,000 195,000 75,000 270,000 2009000 80,000 280,000 215,000 85,000 300,000 220,000 85,000 305,000 235,000 900000 325,000 250,000 95,000 345,000 2559000 100,000 355,000 2709000 105,000 3759000 70, 000 1102000 180, 000 70, 000 120, 000 19 0, 000 75,000 125,000 200,000 80,000 130,000 210,000 85,000 135,000 2209000 145,000 1459000 150,000 150,000 160,000 160,000 170,000 170,000 175,000 175,000 185,000 185,000 $ 2,410,000 $ 2,3609000 $ 4,770,000 �'� Excludes the Refunded Bonds. Bonds Unpaid at End of Year $ 4,540,000 4,270,000 3,990,000 31690,000 3,385,000 3,060,000 2,715,000 2,360,000 1,985,000 1,805,000 1,615,000 1,415,000 11205,000 985,000 840,000 690,000 530,000 360,000 185,000 Percent of 100.00% UTILITY PLANT IN SERVICE TABLE 24 (As of September 30, 2001) Water System Sewer System Electric System Equipment Furniture & Office Equipment Building Improvements Easement Total Less: Total Accumulated Depreciation Net Utility Plant in Service Source: The Issuer's annual audited financial statements for fiscal year ended September 30, 2001 WATER RATES Existing Rates Residential (Effective June 30, 2001) Minimum per unit served for 0 -1,000 gallons Next 4,000 gallons Next 10,000 gallons Next 15,000 gallons Over 30,000 $ 2,714,309 3,567,071 2,735,786 1,014,072 204,333 322,858 1,500 $ 10,559,929 (5,026,132) $ 5,533,797 $14.25 2.35 per thousand gallons 2.60 per thousand gallons 3.05 per thousand gallons 3.90 per thousand gallons Commercial (Effective October 1, 2001) Minimum per unit served for 0 - 1,000 gallons $17.00 Next 4,000 gallons 2.75 per thousand gallons Next 10,000 gallons 3.00 per thousand gallons Next 15,000 gallons 3.25 per thousand gallons Over 30,000 4.00 per thousand gallons PRINCIPAL WATER CUSTOMERS 2001-2002 Average Monthly Consumption in Name of Customer Gallons Comet Cleaners 228,000 Living Center of America 149,900 Sanger Inn 104,900 Sanger Intermediate School 76,300 Dairy Queen 74,900 North Texas Plastics 54,900 Jamal & Associates 46,200 McDonalds 41,300 No Frills Grill 409200 Total 816,600 TABLE 25 tr:T'-iL�3� Average Monthly Bill $ 837.33 558.76 384.39 317.05 305.24 236.20 117,070.00 265.54 153.48 $ 120,127.99 �IW5'104:4 NA5 OF] TABLE 27 Existing Rates (Effective June 30, 2001) Residential Minimum (first 1,000 gallons) $ 15.00 Per 1,000 gallons over first 1,000 gallons 1.00 Maximum 30.00 Commercial '/. inch meter $ 21.00 1 inch meter 23.00 1% inch meter 27.00 2 inch meter 32.00 3 inch meter 40.00 4 inch meter 75.00 Per 1,000 gallons over first 1,000 gallons 1.00 Multi -Family Dwellings The amount due for multi -family dwellings shall be the residential rate multiplied by the number of occupied dwelling units. PRINCIPAL SEWER CUSTOMERS 2001-2002 TABLE 28 Name of Customer Comet Cleaners Living Center of America Sangerinn Sanger Intermediate School Dairy Queen North Texas Plastics No Frills Grill McDonalds Jamal & Associates Total Average Monthly Bill $ 248.07 176.95 130.55 111.55 105.90 87.80 66.37 63.54 56.92 $ 990.73 Existing Rates (Effective June 30, 2001) Residential Facilities Charge (minimum per month) Energy Charge (per kWh) Facility Charge Plus per kWH Charge Small Commercial $ 15.00 $ 0.0816960 $ 040377050 $ 35.00 $ 9.00 PRINCIPAL ELECTRIC CUSTOMERS 2001 (January -December) TABLE 30 Name of Customer Walmart Burrus Living Center of America North Texas Plastics McDonalds Golston's Dairy Queen Jack In The Box Gary Lynch Average Monthly Consumption in Kilowatt Hours 1,068,200 96,060 47,140 48,993 39,773 38,413 33,546 29,706 21,367 Total 354,998 ELECTRIC SYSTEM CONSUMPTION HISTORY Average Monthly Bill $ 76,114.73 6,295.17 3,444.24 4,113.00 2,830.17 3, 757.52 2,251.03 2,268.73 1,456.68 $ 26,416.54 TABLE 31 Annual Average Fiscal Year Consumption Daily Ended 9-30 Kilowatt Hours Consumption 1997 30,357,000 82,928,000 1998 32,824,000 92,991,600 1999 33,941,931 96,837,380 2000 35,345,644 75,1801000 2001 42,0409724 77,195,830 2002(8) 28,176,478 Iel Current year figures are as of March 31, 2002. I_177�:I�IF:� GENERAL INFORMATION REGARDING THE CITY OF BANGER AND DENTON COUNTY, TEXAS GENERAL INFORMATION REGARDING THE CITY OF BANGER AND DENTON COUNTY, TEXAS General The City of Sanger is a residential community located on Interstate Highway 35 northeast of the Dallas -Fort Worth industrial area. The City's close proximity to both Dallas and Fort Worth has been a significant factor in the City's recent growth. The City's 2000 census was 4,534, which is a 29.25% increase since 1990, The current estimated population is 5,200. Population: T4l�P Of Tb:%AS AMARnio SNOWING LOCATION Oi • CITY OF t4,0: • W C"TA T�xARK/WX FALLS gALLAi • • AINLENE VDAT WORTH TVUR MOLAND 9L ►ASO • SAN Ax"o WACO AUVW • *ALMONT is SAN ANtOM HOUSTON • DEL RIO LAAVDC COMM CHRt5T1 iROWNSWILLE Census City of Denton Report Sanger County Current Estimate 59200 444,900 2000 41534 423,976 1990 3,508 273,525 1980 21574 143,126 Sources: United States Bureau of the Census, Texas Municipal Reports, Sales and Marketing Magazine, 1998 Survey of Buying Power and the City of Sanger Leading Employers of the City: Employer Walmart Sanger Independent School District City of Sanger Burrus Sonic McDonald's Ampco North Texas Plastics Golston's Jack In The Box Source; Information from the Issuer Education Number of Employees Type of Business (April 2002) Retail Sales 500 Public School Education 326 Municipal Government 49 Grocery Store 45 Fast Food Sales 40 Fast Food Sales 36 Restroom Stall Manufacturer 35 Plastics Manufacturer 33 Plastics Manufacturer 30 Fast Food Sales 22 Financial Institution 22 The City is served by the Sanger Independent School District (the "District"). The District covers approximately 42 square miles in Denton County and serves the City of Sanger and its surrounding rural areas. The District is comprised of one early childhood center for grades pre -kindergarten through kindergarten, one elementary school for grades first through third, one intermediate school for grades fourth through sixth, one junior high school for grades seventh through eighth, and one high school for grades ninth through twelfth. All campuses offer enriched curricula with special programs for gifted/talented students as well as students achieving below grade level and are equipped with computers and full cafeteria service. The District serves a total 2001-2002 estimated enrollment of 2,102 students. Source: Sanger Independent School District DENTON COUNTY Denton County (the "County") is located in north central Texas, encompassing 911 square miles, and was created in 1846 from Fannin County. It is the third largest county of the nine counties comprising the Dallas -fort Worth Consolidated Metropolitan Statistical Area (CMSA). The County is traversed by Interstate Highway 35, United States Highways 77, 377 and 380 and State Highways 114 and 121. The County is divided north and south geographically by the East Cross Timers, which is a narrow strip of woodland that extends from the Red River to the Brazos River around Waco. The economy is diversified by manufacturing, state supported institutions, and agriculture. The Texas Almanac designates cattle, horses, poultry, hay and wheat as the principal sources of agricultural income. Minerals produced in Denton County include natural gas and clay. Institutions of higher education include University of North Texas and Texas Woman's University, Lake Lewisville attracts over 3,000,000 visitors annually. Alliance Airport, located in the County has continued to expand. A major NASCAR racetrack was opened in 1997, which has had a positive impact on employment and recreational spending for the area. Several growing urban centers are located in the County, including the cities of Denton, Lewisville, Carrollton and The Colony. The 2000 census was 423,976, which is a 55% increase since 1990. The 2001 estimated population for the County is 444,900. Source: Latest Texas Municipal Report published by the Municipal Advisory Council of Texas Leading Employers for Denton County: Employer University of North Texas, Denton Lewisville Independent School District Frito-Lay American Airlines Peterbilt Motors Co. Denton Independent School District Xerox Corporation Boeing Electronics, Corinth Denton State School Texas Woman's University Denton County Federal Express City of Denton Denton Regional Medical Center Medical Center of Lewisville Source: Denton County website Type of Business State University Public Education Food Distribution Maintenance Base and Engineering Center Diesel Truck Manufacturing Public Education Office Equipment Electronics Mental health, mental retardation facility State University County Government Package Processing and Delivery Municipal Government Health Care Acute Care hospital L� Number Employees 5,500 4,600 2,200 2,000 1,994 1,648 1,628 1,583 1, 384 1,384 1,327 1,200 1,200 1,000 750 Labor Force Statistics Civilian Labor Force Total Employed Total Unemployed Unemployed Unemployed (Texas) Unemployed (United States) Denton County March 2002 March 2001 264,032 264,128 252,355 258,527 11,677 5,601 4.4% 2.1 % 5.6% 4.2% 6.1 % 4.6% Source: Texas Workforce Commission, Labor Market Information Department. Estimated Retail Sales Statistics ($OOO,$) Denton State of Year Coun Texas 2001 $5,124,640 $288,5359506 2000 51501,681 263,430,625 1999 3,1801028 1899976,641 1998 2,853,148 176,7719820 1997 21632,353 170,864,051 1996 29376,981 165,526,050 1995 29068,617 153,3031008 1994 2,2439289 142,854,877 Source: Sales &Marketing Magazine, Survey of Buying Power 1994-2001. Figures represent estimates as of January 1 of each Yaw r given. Estimated Total Effective Buying Income (EBI) Denton County Total Effective Median Buying Income Household Year ($000) EBI 2001 $9,338,442 49,146 2000 81627,101 479952 1999 71988,953 46,069 1998 6,9111926 43,635 1997 61294,683 41,613 1996 51877,466 40,471 1995 6,3689568 46,100 1994 5,838,246 439711 State of Texas Total Effective Median Buying Income Household ($000) EBI $373,7071911 $37,636 345,952,116 35,942 326,986,186 34,084 306,018,615 33,190 285,732,128 31,923 271,0279180 30,747 2959243,928 34,851 276,963,985 33,402 Source: Sales & Marketing Magazine, Survey of Buying Power 1994-2001. Figures represent estimates as of January 1 of the year noted. Agriculture The Texas Almanac designates cattle, horses, poultry, hay and wheat as the principal sources of agricultural income. Cash receipts from farm marketings are as follows: Crops Livestock and Livestock Products AG Cash Receipts Total 20 0II $13,129,000 $24,709,200 $89,257,440 1 93i3 $19,360,000 $33,861,000 $102,784,350 19 98 $23,692,000 $33,044,000 $99,987,400 Source: Texas Utilities Electric Company Agriculture Income Evaluation, 1997 through 2000. Government payments not included B-3 1 39Z $22,329,000 $429139,000 $1071100,000 FORM OF LEGAL OPINIONS OF BOND COUNSEL Proposed Form of Opinion of on Counsel An opinion in substantially the following form will be delivered by McCall, Parkhurst & Horton L.L.P., Bond Counsel, upon the delivery of the Bonds, assuming no material changes In facts or law. McCALL, 600 CONGRESS AVENUE 1250 ONE AMERICAN CENTER AUSTIN, TEXAS 78701-3248 Telephone: 512 4784805 Facsimile: 512 472-0871 lAW OFFICES PARKHURST & HORTON L.L.P. 717 NORTH HARWOOD STREET NINTH FLOOR DALLAS, TEXAS 75201-6587 Telephone: 214 7544200 Facsimile: 214 754-9250 700 N. ST. MARY'S STREET 1225 ONE RIVERWALK PLACE SAN ANTONIO, TEXAS 78205-3503 Telephone: 210 225-2800 Facsimile: 210-225-2984 CITY OF SANGER, TEXAS UTILITY SYSTEM REVENUE BONDS SERIES 2002, DATED JUNE 11 2002, IN THE PRINCIPAL AMOUNT OF $295409000 AS BOND COUNSEL FOR THE CITY OF BANGER, TEXAS (the "City") in connection with the issuance of the Utility System Revenue Bonds, Series 2002 described above (the "Bonds"), we have examined into the legality and validity of the Bonds, which bear interest from the dates and mature on the dates, and are subject to redemption, in accordance with the terms and conditions stated in the text ofthe Bonds. Terms used herein and not otherwise defined shall have the meaning given in the Ordinance of the City authorizing the issuance and sale of the Bonds (the "Ordinance"). WE HAVE EXAMINED the Constitution and laws of the State of Texas, certified copies of the proceedings of the City Council of the City relating to the issuance of the Bonds, including the Ordinance and other documents authorizing and relating to the issuance of the Bonds; and we have examined various certificates and documents executed by officers and officials of the City upon which certificates and documents we rely as to certain matters stated below. We have also examined one of the executed Bonds which we found to be in proper form and duly executed. BASED ON SAID EXAMINATION, IT 1S OUR OPINION that the Bonds have been duly authorized, issued, and delivered in accordance with law, and that the Bonds, except as may be limited by laws applicable to the City relating to bankruptcy, reorganization, and other similar matters affecting creditors' rights, constitute valid and legally binding obligations of the City; and that the principal of and interest on the Bonds, together with other outstanding revenue bonds of the City, are payable from and secured by a lien on and pledge of Net Revenues of the Issuer's Utility System, being the Waterworks, Sewer and Electric System. THE CITY HAS RESERVED THE RIGHT, subject to the restrictions stated in the Bond Ordinance, to issue additional parity revenue bonds which also may be made payable from and secured by a lien on and pledge of the Net Revenues on a parity with the Bonds. THE OWNERS OF THE BONDS shall never have the right to demand payment of the Bonds out of any funds raised or to be raised by taxation. I 1S FURTHER OUR OPINION, except as discussed below, that the interest on the Bonds is excludable from the gross income of the owners for federal income tax purposes under the statutes, regulations, published rulings, and court decisions existing on the date of this opinion. We are further of the opinion that the Bonds are not "specified private activity bonds" and that, accordingly, interest on the Bonds will not be included as an individual or corporate alternative minimum tax preference item under section 57(a)(5) of the Internal Revenue Code of 1986 (the "Code"). In expressing the aforementioned opinions, we have relied on, certain representations, the accuracy of which we have not independently verified, and assume compliance with certain covenants, regarding the use and investment of the proceeds of the Bonds and the use of the property financed therewith. We call your attention to the fact that if such representations are determined to be inaccurate or upon a failure by the City to comply with such covenants, interest on the Bonds may become includable in gross income retroactively to the date of issuance of the Bonds. WE CALL YOUR ATTENTION TO THE FACT that the interest ontax-exempt obligations, such as the Bonds, is (a) included in a corporation's alternative minimum taxable income for purposes of determining the alternative minimum tax imposed on corporations by section 55 of the Code, (b) subject to the branch profits tax imposed on foreign corporations by section 884 of the Code, and (c) included in the passive investment income of an S corporation and subject to the tax imposed by section 1375 of the Code. EXCEPT AS STATED ABOVE, we express no opinion as to any other federal, state, or local tax consequences of acquiring, carrying, owning, or disposing of the Bonds. WE EXPRESS NO OPINION as to any insurance policies issued with respect to the payments due for the principal of and interest on the Bonds, nor as to any such insurance policies issued in the future. OUR SOLE ENGAGEMENT in connection with the issuance of the Bonds is as Bond Counsel for the City, and, in that capacity, we have been engaged by the City 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 from gross income of the interest on the Bonds for federal income tax purposes, and for no other reason or purpose. We have not been requested to investigate or verify, and have not independently investigated or verified any records, data, or other material relating to the financial condition or capabilities of the City, or the disclosure thereof in connection with the sale of the Bonds, and have not assumed any responsibility with respect thereto. We express no opinion and make no comment with respect to the marketability of the Bonds and have relied solely on certificates executed by officials of the City as to the availability and sufficiency of the Net Revenues of the Issuer's Utility System.. 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. THE FOREGOING OPINIONS represent our legal judgment based upon a review of existing legal authorities that we deem relevant to render such opinions and are not a guarantee of a result. Respectfully, Proposed Form of Opinion of Bond Counse! An opinion in substantially the following form will be delivered by McCall, Parkhurst & Horton L.L.P., Bond Counsel, upon the delivery of the Certificates of Obligation, assuming no material changes in facts or law. LAW OFRCES McCALL, PARKHURST & HORTON L.L.P. 600 CONGRESS AVENUE 717 NORTH HARWOOD STREET 1250 ONE AMERICAN CENTER NINTH FLOOR AUSTIN, TEXAS 78701-3248 Telephone: 512 47&3805 Facsimile: 512 472-0871 DALLAS, TEXAS 75201-6587 Telephone: 214 754-9200 Facsimile: 214 7544250 700 N. ST. MARY'S STREET 1225 ONE RIVERWALK PLACE SAN ANTONIO, TEXAS 78205-3503 Telephone: 210 225-2800 Facsimile: 210-225-2984 CITY OF BANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION SERIES 2002, DATED JUNE 19 2002, IN THE PRINCIPAL AMOUNT OF $2,360,000 AS BOND COUNSEL FOR THE CITY OF SANGER, TEXAS (the "City") in connection with the issuance of the Certificates of Obligation, Series 2002 described above (the "Certificates of Obligation"), we have examined into the legality and validity of the Certificates of Obligation, which bear interest from the dates and mature on the dates, and are subject to redemption, in accordance with the terms and conditions stated in the text of the Certificates of Obligation. Terms used herein and not otherwise defined shall have the meaning given in the Ordinance of the City authorizing the issuance and sale of the Certificates of Obligation (the "Ordinance"), WE HAVE EXAMINED the Constitution and laws of the State of Texas, certified copies of the proceedings of the City Council of the City relating to the issuance of the Certificates of Obligation, including the Ordinance and other documents authorizing and relating to the issuance of the Certificates of Obligation; and we have examined various certificates and documents executed by officers and officials of the City upon which certificates and documents we rely as to certain matters stated below. We have also examined one of the _executed Certificates of Obligation which we found to be in proper form and duly executed. BASED ON SAID EXAMINATION, IT IS OUR OPINION that the Certificates of Obligation have been duly authorized, issued, and delivered in accordance with law, and that the Certificates of Obligation, except as may be limited by laws applicable to the City relating to bankruptcy, reorganization, and other similar matters affecting creditors' rights, constitute valid and legally binding obligations of the City; and that ad valorem taxes sufficient to provide for the payment of the interest on and principal of said Certificates of Obligation have been levied and pledged for such purpose, within the limit prescribed by law, as provided in the Ordinance, and that the Certificates of Obligation are additionally secured by and payable from the limited surplus net revenues of the City's combined 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 City's revenue bonds or other obligations (now or hereafter outstanding), which are payable from all or any part of the net revenues of the City's combined waterworks, sewer and electric system. IT IS FURTHER OUR OPINION, except as discussed below, that the interest on the Certificates of Obligation is excludable from the gross income of the owners for federal income tax purposes under the statutes, regulations, published rulings, and court decisions existing on the date of this opinion. We are further of the opinion that the Certificates of Obligation are not "specified private activity bonds" and that, accordingly, interest on the Certificates of Obligation will not be included as an individual or corporate alternative minimum tax preference item under section 57(a)(5) of the internal Revenue Code of 1986 (the "Code"). In expressing the aforementioned opinions, we have relied on, certain representations, the accuracy of which we have not independently verified, and assume compliance with certain covenants, regarding the use and investment of the proceeds of the Certificates of Obligation and the use of the property financed therewith. We call your attention to the fact that if such representations are determined to be inaccurate or upon a failure by the City to comply with such covenants, interest on the Certificates of Obligation may become includable in gross income retroactively to the date of issuance of the Certificates of Obligation. WE CALL YOURATTENTION TO THE FACT that the interest ontax-exempt obligations, such as the Certificates of Obligation, is (a) included in a corporation's alternative minimum taxable income for purposes of determining the alternative minimum tax imposed on corporations by section 55 of the Code, (b) subject to the branch profits tax imposed on foreign corporations by section 884 of the Code, and (c) included in the passive investment income of an S corporation and subject to the tax imposed by section 1375 of the Code. EXCEPT AS STATED ABOVE, we express no opinion as to any other federal, state, or local tax consequences of acquiring, carrying, owning, or disposing of the Certificates of Obligation. WE EXPRESS NO OPINION as to any insurance policies issued with respect to the payments due for the principal of and interest on the Certificates of Obligation, nor as to any such insurance policies issued in the future. OUR SOLE ENGAGEMENT in connection with the issuance of the Certificates of Obligation is as Bond Counsel for the City, and, in that capacity, we have been engaged by the City for the sole purpose of rendering an opinion with respect to the legality and validity of the Certificates of Obligation under the Constitution and laws of the State of Texas, and with respect to the exclusion from gross income of the interest on the Certificates of Obligation for federal income tax purposes, and for no other reason or purpose. We have not been requested to investigate or verify, and have not independently investigated or verified any records, data, or other material relating to the financial condition or capabilities of the City, or the disclosure thereof in connection with the sale of the Certificates of Obligation, and have not assumed any responsibility with respect thereto. We express no opinion and make no comment with respect to the marketability of the Certificates of Obligation and have relied solely on certificates executed by officials of the City as to the current outstanding indebtedness of, and assessed valuation of taxable property within the City. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Certificates of Obligation has been limited as described therein. THE FOREGOING OPINIONS represent our legal judgment based upon a review of existing legal authorities that we deem relevant to render such opinions and are not a guarantee of a result. Respectfully, APPENDIX D SELECTED PROVISIONS OF THE BOND ORDINANCE The following are selected provisions of the Bond Ordinance and are not to be considered a full statement of the terms of the Bond Ordinance. Accordingly, these selected provisions are qualified in their entirety by reference to the Bond Ordinance and are subject to the full text thereof, a copy of which may be obtained from the Issuer or its Financial Advisor, 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 Issuers 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 ofthe Utility System, afterdeducting 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. (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 City of Sanger, Texas Utility System Revenue Bonds, Series 1996 Bonds and the City of Sanger, Texas Utility System Revenue Refunding Bonds, 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. 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 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 1996, and Sections 8 through 25 of the Ordinance that authorized the City of Sanger, Texas Utility System Revenue Bonds, Series 1996 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, 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, 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 grass 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. D-1 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 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 that authorized the Outstanding Bonds, the total amount required to be accumulated and maintained in the Reserve Fund as a result of the issuance of the Bonds is hereby determined to be $, 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 Jay of each month, commencing July 10, 2002, the amount of $ until the Reserve Fund shall contain Whenever said Reserve Fund is reduced below said aggregate amount (other than as a result of the issuance of Additional Bonds as provided in Section 19 hereof), 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 pay- ments 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 Sink- ing 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. 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 bylaw 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; D-2 (c) A certificate is executed by a Certified Public Accountant to the effect that, in his opinion, the Net Eamings 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; (f) 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, the Outstanding 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, 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; (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 instrumentaes 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 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. THE ISSUER'S GENERAL PURPOSE AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED SEPTEMBER 3U, 2UU1 (Independent Auditor's Report, General Financial Statements and Notes to the Financial Statements -not intended to be a complete statement of the Issuers financial condition. Reference is made to the complete Annual Financial Report for further information.) William C. Spore; ,P.C. Certified Public Accountant . ` In enent3ent Auditor's Rr, o, rt To the City Council City of Sanger, Texas We have audited the accompanying .general-purpose financial statements of the City of Sanger, Texas, as of and for the yeaf ended September 30, 2001, as listed in the table of contents. These general-purpose financialstatements are the responsibility of the City of Sanger's management. Our r4sportsibility is to express an opinion on these general-purpose financial statements based on our audit. We conducted our audit in accordance with auditing standards and the standards generally accepted in the United States of America applicable to financial audits contained in Government Auditing Standards, issued'by the Comptroller General of the United States. 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 opinion. In our opinion, the general-purpose financial statements referred to above present fairly, in all material respects, the financial position of the City of Sanger, Texas, as of September 30, 2001, and the results of its operations and the cash flows of its proprietary fund types for the year then ended iri conformity with generally accepted accounting principles. ]n accordance with Government Auditing Standards, we have also issued our report dated February 22, 2002 on our consideration of the City of Sanger's internal control over financial reporting and our tests of .its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of operations. Our audit was conducted for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The combining and individual fund and account group financial statements and schedules listed in the table of contents are presented for purposes of additional analysis and are not a required part of the general purpose financial statement of the City of Sanger, Texas. Such information has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion is fairly presented in all material respects in relation to the general purpose financial statements taken as a whole. w William C. Spore, P.C. February 22, 2002 CITY OF SANGER COMBINED BALANCE SHEET - ALL FUND TYPES AND ACCOUNT GROUPS ASSETS Cash Receivables, Net of Allowances for Uncoliectibles, Property Taxes Other Receivables Services Due from Other Funds inventory/Prepaid Expense Restricted Assets - Cash Property, Plant and Equipment Net of Accumulated Depreciation Construction in Process Amount to be Provided. for Retirement of General Long -Term Debt TOTAL ASSETS LIABILITIES Accounts Payable Accrued Expenses Due to Other Funds Customer & Escrow Deposits Deferred Revenues Long -Term Debt, Compensated.Absences Revenue Bonds Payable Certificate of Obligation Payable Notes Payable Capital Leases .TOTAL LIABILITIES FUND EQUITY Contributed Capital Investment in General Fixed Assets Retained Earning - Reserved Retained Earning - Unreserved Fund Balance - Reserved Fund Balance - Unreserved TOTAL FUND EQUITY TOTAL LIABILITIES AND FUND EQUITY GOVERNMENTAL FUNDS TYPE 74,975 88,419 0 94,204 0 76,496 0 0 0 $ 402,865 SPECIAL REVENUE FUND Cal 0 57,175 0 0 0 442,801 0 0 0 499,976 PROPRIETARY FUND TYPES UTILITY FUNDS $ 438,442 0 286,254 510,423 0 379,576 563,141 5,533,797 1,3141197 0 $ 91025,830 $ 170,636 0 $ 640,191 812 0 821437 0 0 94,204 0 0 153,691 74,975 0 0 0 0 38,378 0 0 2,590,000 0 0 0 0 0 579,359 0 0 26,842 246,423 0 41205,102 0 0 1,635,292 0 0 0 0 0 306,841 0 0 21878,595 68,684 499,976 87,758 0 156,442 499,976 41820,728 $_ 402,865 499,976 $_ 9,025,830 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE - 3 ACCOUNT GROUPS 0 TOTALS (memorandum only) Z001 2000 $ 507,213 $ 384,488 0 0 74,975 70,208 0 0 431,848 699297 0 0 510,423 511,871 0 0 94,204 11,697 0 0 3799576 437,414 0 0 11082,438 809,695 3,232,473 0 0 $ 312329473 0 0 0 0 0 0 0 0 2,369,923 $ 21369,923 $ 0 0 D 0 47,700 0 11290,000 948,995 83,228 213699923 8,766,270 1,314,197 2,369,923 $ 15,531,067 $ 810,827 83,249 94,204 153,691 74,975 86,078 2,590,000 1,290,000 1,5289354 110,070 6,821,448 0 0 1,635,292 3,232,473 0 3,232,473 0 0 306,841 0 0 21878595 0 0 558,660 0 0 87,758 3,232,473 0 81709,619 $ 3,232,473 $ 2,369,923 $ 15,531,067 8,730,835 $6,913 2,644,670 $ 13,717,088 586,946 68,554 11,697 103,804 70,208 75,762 2,760,000 1,4101000 1,4501776 2331800 6,771,547 442,674 3,063,257 306,315 2,722,600 67,466 3431229 6,945,541 $ 13,717,088 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE - 3 CITY OF SANGER COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - ALL GOVERNMENTAL FUND TYPES For the Year Ended September 30, 2001 REVENUES Property Taxes Nonproperty Taxes Penalties and Interest on Delinquent Taxes License and Permits Fees and Services Grants and Intergovernmental Interest Income Miscellaneous Income Donations TOTAL REVENUES EXPENDITURES General Government Public Safety Highways and Streets Health and Welfare Culture and Recreation Capital Outlay Debt Service: Principal Interest TOTAL EXPENDITURES EXCESS REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Proceeds of Capital LeasesMotes Payable Sale of Assets Transfers In (Out) TOTAL OTHER FINANCING SOURCES (USES) EXCESS OF REVENUES AND OTHER SOURCES OVER EXPENDITURES FUND BALANCE -BEGINNING FUND BALANCE -ENDING $ 6761511 $ 488,405 13,829 45,823 473,901 1299180 7,093 13,906 19,557 1,868,205 SPECIAL REVENUE 0 $ 3201626 0 0 0 0 15,671 0 0 336,297 TOTALS (memorandum only) 20012000 676,511 809,031 13,829 45,823 473,901 129,180 22,764 13,906 19,557 29204,502 $ 580,937 631,085 12,924 28,793 403,841 84,593 16,115 13,118 30,787 1,802,193 547,547 41,898 589,445 1,504,051 6491899 0 649,899 536,295 132,966 0 132,966 133,849 571225 0 57,225 45,200 3471623 0 347,623 270,563 2071490 0 207,490 263,898 258,156 42,791 300,947 101,800 47,202 149,002 2,302,706 '131,891 2,434,597 (434,501) 204,406 19,098 19,508 459,295 4971901 63,400 93, 042 0 0 (22,083) (22,083) 182,323 317,653 (230,095) 19,098 19,508 437,212 475,818 245,723 410,695 207,711 117,953 3,079,520 (1,277,327) 1,017,763 0 305,452 1,323,215 364 ,807 $ 156,442 $ 499,976 $ 656,418 $ 410,695 SEE ACCOUNTANT'S REPORT AND NOTES ATTACHED Page - 4 CITY OF SANGER COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GENERAL FUND For the Year Ended September 30, Z001 REVENUES Property Taxes Nonproperty Taxes Penalties and Interest on Delinquent Taxes License and Permits Fees and Services Grants and Intergovernmental Interest Income Miscellaneous Income Donations TOTAL REVENUES EXPENDITURES General Government Public Safety Highways and Streets Health and Welfare Culture and Recreation Capital Outlay Debt Service. Principal Interest TOTAL EXPENDITURES EXCESS REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES.(USES) Proceeds of Capital Leases/Notes Payable Sale of Assets Transfers In (Out) TOTAL OTHER FINANCING SOURCES (USES) EXCESS OF REVENUES AND OTHER SOURCES OVER EXPENDITURES FUND BALANCE -BEGINNING FUND BALANCE -ENDING BUDGET $ 670,000 478,160 9,D00 60,300 4331000 98,000 4,000 30,500 2,500 1,785,460 514,383 702,282 129,401 55,300 404,307 1561050 259,887 101,453 21323,063 (537,603) 0 0 525,603 525,603 ...�fiENiFRAiw� ,RK ACTUAL $ 678,511 488,405 13,829 45,823 4731901 1291180 7,093 131906 19,557 1,868,205 547,547 649,899 1321966 57,225 3471623 2071490 258,156 101,800 21302,706 (434,501) 19,098 19,508 459,295 497,901 63,400 93,042 $ 156,442 VARIANCE $ 6,511 10,245 4,829 (14,477) 40,901 31,180 3,093 (16,594) 17,057 82,745 (33,164) 52,383 (3,565) (1,925) 56,684 (51,440) 1,731 (347) 20,357 19,098 19,508 (66,308) (27,702) $ 75,400 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE - 5 BUDGET :.: :�?'<<>;;><<<< E111....1.FUND ......: VARIANCE $ 0 $ 0 $ 0 $ 292,000 320,626 28,626 292,000 0 0 0 0 15,671 0 0 336,297 • 0 0 0 0 15,671 0 0 44,297 BUDGE ACTUA 0 6701000 $ 676,511 7701160 809,031 9,000 60,300 433,000 98,000 4,000 30,500 2,500 2,077,460 13,829 45,823 473,901 129,180 22,764 13,906 19,557 2,204,502 VARIANCE $ 6,511 38,871 4,829 (14,477) 40,901 31,180 18,764 (16,594) 17,057 127,042 5,900 41,898 (35,998) 520,283 589,445 (69,162) 0 0 0 702,282 649,899 52,383 0 0 0 ' 129,401 132,966 (31565) 0 0 0 55,300 57,225 (11925) 0 0 0 404,307 347,623 56,684 0 0 0 156,050 207,490 (51,440) 0 0 5,900 286,100 0 0 0 C�] 286,100 42,791 47,202 131,891 204,406 0 0 (22,083) (22,083) 182,323 317,653 $ 499,976 (42791) , (47,202) (125,991) (81,694) 0 0 (22,083) (22,083) $ (103,777) 259887 , 101,453 21328,963 (251,503) 0 D 525,603 525,603 274,100 300,947 149,002 21434,597 (230,095) 19,098 19,508 437,212 - 475,818 245,723 410,695 $ 656,418 (41,060) (47,549) (105,634) 21,408 19,098 19,508 (88,391) (49,785) SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE - 5 CITY OF SANGER COMBINED STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN RETAINED EARNINGS - PROPRIETARY FUND OPERATING REVENUES Charges and Fees Far the Year Ended September 30, 200I $ 4,983,147 $ 4,08B,359 OPERATING EXPENSES Personnel Services 828,030 745,233 Purchase of Services 21738,352 212320882 Materials and Supplies 111,092 87,584 Depreciation 465,139 444,407 Franchise Fees 106,122 81,662 TOTAL OPERATING EXPENSES OPERATING INCOME NONOPERATING REVENUES (EXPENSES) Interest Income Debt Service Interest, Fees & Discounts Transfers Out TOTAL NONOPERATING REVENUES (EXPENSES) NET INCOME RETAINED EARNINGS -BEGINNING RETAINED EARNINGS -ENDING 4,248,735 734,412 33,328 (174,007) (437*212) (577,891) 156,521 3,028,915 3,591,768 494,591 32,141 (187,235) (305,452) (460,546) 34,045 2,994,870 $. 3,185,436 $ 3,028,915 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE - 6 CITY OF SANGER COMBINED STATEMENT OF CASH FLOWS - ALL PROPRIETARY FUND TYPES CASH FLOWS FROM OPERATING ACTIVITIES: Cash Received from Customers $ Cash Payments to Suppliers for Goods and Services Cash Payments for Employees Services NET CASH PROVIDED BY OPERATING ACTIVITIES CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Acquisition of Capital Assets Additions to Long -Term Debt Principal Paid on Bonds and Notes Interest Paid on Bonds and Notes Capital Contributed - Grants Cash Transferred to Other Funds NET CASH USED FOR CAPITAL AND RELATED FINANCING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES: Interest on Investments NET INCREASE (DECREASE) IN CASH CASH -BEGINNING OF YEAR CASH - END OF YEAR Operating Income 5,041,169 (3,185,000) (824,814) 1,031,355 (1,120,987) 290,696 (345,001) (151,087) 816,139 (354,705) (864,945) 34,640 201,050 800,533 $ 1,001,583 $ 4,023,869 (2,281,098) (740,030) 1,002,741 (496,494) 111,882 (300,470) (164,144) 0 (298,784) (1,148,010) 30,655 (114,614) 915,147 $ 800,533 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Adjustment to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation (Increase) Decrease in Receivables (Increase) Decrease in Inventory/Prepaid Expense Increase (Decrease) in Accounts Payable Increase (Decrease) in Accrued Expenses Increase (Decrease) in Customer Deposits NET CASH PROVIDED BY OPERATING ACTIVITIES 734,412 $ 465,139 8,135 43,382 (278,235) 8,635 49,887 $ 1,031,355 $ 494,591 444,407 (72,944) (2081625) 329,455 5A03 10,454 $ 1,0021741 NON -CASH ACTIVITIES: During the fiscal year a developer and the local garbage collection company conveyed land, water and sewer systems to the City totaling $90,225, SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE - 7 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 NOTE A: burumARY OF SIGNIFICANT ACCOUNTING POLICIES - The City of Sanger operates under a Council -Manager form of government, following the laws of a Home Rule Charter City as defined• by the State of Texas. The City provides the following services: public safety police, fire and ambulance, parks, streets, sanitation, a public library senior center, community center and general administrative services along with water, sewer and electrical services. The accounting policies of the City conform to generally accepted accounting principles as applicable to governments. The following s a summary of the more significant polici ies: 1. REPORTING ENTITY: As required by generally accepted accounting principles, the financial statements of the reporting entity include those of the City of Sanger (the primary government) and its component units. The following component units are included in the City's reporting entity because of its operational and financial relationship with the City. The City has two blended component units as follows: (4A) The Sanger Texas Industrial Development Corporation (S.T.I.D.C.) 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 S.T.I.D.C. was incorporated in the state of Texas as a non-profit industrial development corporation under Section 4A of the Development Corporation Act of 1979. The purpose of the S.T.I.D.C. is to promote economic development within the City of Sanger. Separate financial statements of the component unit can be obtained from the City's administrative offices. (4B) The Sanger Texas Development Corporation (S.T.D.C.) is governed by a board of seven 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 S.T.D.C. 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 S.T.D.C. is to promote economic and community development within the City of Sanger. Separate financial statements of the component unit can be obtained from the City's administrative offices. Page - 8 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 2. FUND ACCOUNTING: The accounts of the City are organized on the basis of funds or account groups, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for by providing a separate set of self -balancing accounts which are comprised of each fund's assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate. Governmental resources are allocated to and for individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The various funds are grouped, in the financial statements in this report, into two generic fund types and two broad fund categories as follows: GOVERNMENTAL FUND TYPES General Fund The general fund is the general operating fund of the City. It is used to account for all financial resources except those requi ured to be accounted for in another fund. PROPRIETARY FUND TYPES Enterprise Funds Enterprise funds are used to account for operations (a) that are financed and operated in a manor similar to private business enterprises - where the intent of the governing body is that costs (expenses, including depreciation) of providing goods or services to the general public on a continuing .basis be financed or recovered primarily through user charges or (b) where the governing body, has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. 3. PROPERTY, PLANT AND EQUIPMENT AND LONG-TERM LIABILITIES: The accounting and reporting treatment applied to property plant and equipment and long-term liabilities associated with a fund are determined by its measurement focus. All governmental fund types are accounted for on a "financial flow" measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. Their reported fund balance is considered a measure of "available spendable resources". Governmental fund operating statements present increases (revenue and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Accordingly, they are said to present a summary of sources and uses of "available spendable resources" during a period. Page - 9 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 Plant, property and equipment used in governmental fund type operations are accounted for in the General.' Fixed Assets Account Group, rather than in governmental funds. No depreciation has been provided on such property, plant and equipment. All property, plant and equipment are valued at historical cost or estimated historical cost if actual cost is not available. Donated property, plant and equipment are valued at their estimated fair value on the date donated. Public domain "infrastructure" general fixed assets consisting of certain improvements other than buildings, such as roads, sidewalks, and bridges are not capitalized. Long-term liabilities expected to be financed from governmental fund types are accounted for in the General Long -Term Debt Account Group, not in the governmental funds. The two account groups are not "funds". They are concerned only with the measurement of financial position. They are not involved with measurement of results of.operations. Special reporting treatments are applied to governmental fund prepaid expenses to indicate that they do not represent "available spendable resources", even though they are a component of net current assets. Such amounts are generally offset by fund balance reserve accounts. Because of their spending measurement focus, expenditure recognition for governmental fund types is limited to exclude amounts represented by non -current liabilities. Since they do not affect net current assets, such long-term amounts are not recognized as governmental fund type expenditures or fund liabilities. They are instead reported as liabilities in the General Long -Term Debt Account Group. All proprietary funds are accounted for on a cost of services or "capital maintenance" measurement focus. This means that all assets and liabilities (whether current or noncurrent) associated with their activity are included on their balance sheets. Their report fund equity (net total assets) is segregated into contributed capital and retained earnings components. Depreciation is provided in the proprietary funds in amounts sufficient to relate the cost of the depreciable assets, to operations over their estimated service lives on the straight-line basis. The service lives by type are as follows: Electric System 20 to 50 years Water and sewer system 10 to 50 years Furniture and Equipment 3 to 10 years Page - 10 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 6. ENCUMBRANCES: Encumbrances represent commitments related to unperformed contracts for goods and services. Encumbrance accounting, under which purchase orders, contracts and other commitments for the expenditure of resources are recorded to reserve that portion of the applicable appropriation, is utilized in the General Fund. Encumbrances outstanding at year end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be honored during the subsequent year. 7. CASH: At year=end the City's cash accounts totaled $1,589,651 of which $1,589,551 was held in checking, savings or certificate of deposit accounts at a local bank. Of the Bank balances, $105,384 was covered by federal depository insurance and the remaining $1,484,167 was covered by collateral held by the pledging Bank's agent in the name of the City. There were no uncollateral 1zed cash accounts. The securities pledged by the City's depository institution are as follows: LWN SECURITY 8. CAPITALIZED INTEREST: The City capitalizes construction There was no interest requiring year. 9: INVENTORIES: 2,300,000 FMV 2,426,500 period interest when applicable. capitalization during the fiscal Inventories of the Enterprise Fund are valued at the lower of cost (first -in, first -out) or market. 10. ACCUMULATED COMPENSATED ABSENCES: It is the City's policy to permit employees to accumulate a limited amount of earned but unused vacation and sick time, which will be paid to employees upon separation from the City's service. In governmental funds, the cost of vacation and sick leave is recognized when paid. A long-term liability of $47,700 of accrued vacation and sick leave has been recorded in the General Long -Term Debt Account Group, representing the City's commitment to fund such costs from future operations. Proprietary funds accrue vacation Leave in the period they are earned. Page - 12 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 11. REVENUE RECOGNITION - PROPERTY TAXES: Property taxes attach as an enforceable lien on property as of lanuary,l. Taxes are levied on October 1 and are due and payable at that time. All unpaid taxed levied October 1 become delinquent February 1 of the following year. Property tax revenues are recognized when they become available. Delinquent taxes are considered fully collectable and, therefore, no allowance for doubtful faxes is provided. 12. ALLOWANCE FOR UNCOLLECTABLE ACCOUNTS: Allowance for uncollectable accounts receivable in the Proprietary Fund at September 30, 2001 is $50,659, 13: GRANT ACCOUNTING: All grant funds received by the general fund are included as intergovernmental revenues in the statements of revenues and expenditures. All grant funds received by the proprietary fund that are to be used for capital projects are recorded as contributed capital in the balance sheet while grant funds received for operating purposes are included in the proprietary fund statement of revenues and expenses as other operating revenues. During the fiscal year the City received capital grants in the proprietary fund totaling $1,102,393. 14. COMPARATIVE DATA: Comparative data for the prior year have been presented in the accompanying statements in order' to provide an understanding of changes in the City's financial position and operations. However, complete comparative data (i.e., presentation of prior year totals by fund type in each of the statements) have not been presented since their inclusion would make the statements unduly complex and difficult to read. 15. TOTAL COLUMNS ON COMBINED STATEMENTS: Total columns on the Combined Statements are captioned "memorandum only" to indicate that they are presented only to facilitate financial analysis. Data in these columns do not present financial position, results of operations, or changes in financial position in conformity with generally accepted accounting principles. Neither is such data comparable to a consolidation. Interfund elimination's have not been made in the aggregation of this data. Page - 13 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 Firemen's Pension Fund: The City's firemen are covered contributory plan is operated and Retirement Funds. The September 30, 2001 was $3,278, Employee Retirement Plan: by the firemen's pension plan. This as part of the State Firemen's Relief pension expense for the year ended The City provides pension benefits for all of its full-time employees through a non-traditional, joint contributory, defined benefit plan in the state-wide Texas Municipal Retirement System (TMRS), an agent multiple -employer public retirement system. Benefits depend upon the sum of the employee's contributions to the plan, with interest, and the City -financed monetary credits, with interest. Members can retire at ages sixty and above with ten or more years of service or with twenty five years of service regardless of age. A member is vested after ten years. The contribution rate for the employees is 5� of gross earning and the City provides a monthly contribution of 3.62% of gross earnings. This rate consists of the normal cost contribution and the prior service contribution rate. The normal cost contribution rate finances the currently accruing monetary credits and the prior service contribution rate amortizes the unfunded (overfunded) actuarial liability (asset) over the remainder of the plan's twenty five year amortization period. The City's contributions for the fiscal year totaled $52,300. The schedule of Actuarial Liabilities and Funding Progress for the year ended September 30, 2001 is as follows: Actuarial valuation date Actuarial valuation of assets Actuarial Accrued Liability Percentage funded Unfunded (Overfunded) actuarial accrued liability (UAAL) Annual covered payroll UAAL as percentage of covered payroll Net pension obligation - beginning Annual required contributions Contributions made Net pension obligation - ending 12/31/00 $1,048,189 $ 991,883 105.7k $ (56,306) $1,240,306 -4.5% $ 0 $ 52,300 $ (52F300) $ 0 Page - 14 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 The City of Sanger is one of 745 municipalities having the benefit plan administered by TMRS. Each of the 745 Municipalities have an annual, individual actuarial valuation performed. All assumptions for the 12-31-00 valuations are contained in the 2000 TMRS Comprehensive Annual Financial Report, a copy of which may be obtained by writing to P.O. Box 149153, Austin, Texas 78714-9153, NOTE C: LONG-TERM DEBT: The following is a summary of the City's Long -Term Debt. The future debt requirements are detailed in schedules included in these financial statements. General Long Term Debt: Certificates of Obligation, Series 1994 - Original amount of $1,900,000; principal paid annually starting September 1, 1995; Interest paid semi-annually on March 1, and September 1, at rates ranging from 5.60 to 7.50%. The Bonds were issued for street improvements and library building construction and are to be repaid from property tax revenues and are further secured by a pledge of Enterprise Fund Net Revenues. The Certificates of Obligation require that certain reserve accounts be maintained. Note Payable - Guaranty National Bank - Original amount of $38,969, the note requires forty eight monthly installments of $914 with the final installment due April 2003. The note bears interest at 6% and has twenty installments remaining at September 30, 2000. The note proceeds were used to purchase various pieces of equipment, which also serve as collateral for the note. Note Payable - Guaranty National Bank - Original amount of $38,023, the note requires thirty six monthly installments of $1,159 with the final installment due April 2003. The note bears I nterest at 6% and has nineteen installments remaining at September 30, 2000. The note proceeds were used to purchase a police vehicle, which also serves as collateral for the note. Note Payable $53,540, the Note Payable $43,184, the $1,029 with interest at Guaranty National Bank Original amount of - Guaranty NationalOriginal amount of note requires forty eight monthly installments of the final installment due July 2004. The note bears two percent under prime rate and has thirty four Page - 15 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 installments remaining at September 30, 2001. The note proceeds were used to purchase a dump truck, which also serves as collateral for the note. Note Payable - Guaranty National Bank - Original amount of $18,028, the note requires thirty six monthly installments of $555, with the final installment due July 2003. The note bears interest at two percent under prime rate and has twenty two installments remaining at September 30, 2001. The note proceeds were used to purchase a Chevy truck, which also serves as collateral for the note. Note Payable - Guaranty National Bank - Original amount of $14,998, the note requires thirty six monthly installments of $461, with the final installment due September 2003..The note bears interest at two percent under prime rate and has twenty four installments remaining at September 30, 2001. The note proceeds were used to purchase a Dodge pickup, which also serves as collateral for the note. Note Payable - Guaranty National Bank - Original amount of $19,098, the note requires thirty six monthly installments of $570, A the final installment due May 2004. The note bears interest at 2.80 percent under prime rate and has thirty two installments remaining at September 30, 2001. The note proceeds were used to purchase a police vehicle, which also serves as collateral for the note. Note Payable - Guaranty National Bank - Original amount of $850,000, the note requires one hundred eighty monthly installments of $7,499, with the final installment due July 2015. The note bears interest at two percent under prime rate and has one hundred sixty six installments remaining at September 30, 2001. The note proceeds were 'used "to purchase" land for a development project between the Sanger Texas Industrial Development Corporation and 4almart Stores East, Inc. The loan will be repaid from the 4A sales tax proceeds to be collected by the Sanger Texas Industrial Development Corporation, Capital Lease - Midwest Bankers Group - Original balance of $172,179. The lease requires a down payment of $13,150 (paid in February 1995) plus nine annual rental payments of $24,105 beginning in February 1996. The City has a purchase option during the term of the lease to purchase the equipment at a designated early term/purchase option price. The City intends to exercise this option at the end of the lease term. The proceeds of the lease were used to purchase a new pumper fire truck. The truck is security for the lease. Capital Lease - Ford Motor Credit Company - Original balance of $14,300. The lease requires. forty eight monthly rental payments of $3381 with one payments remaining at September 30, 2001. The City has a purchase option during the term of the lease to purchase the Page - 16 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 equipment at a designated purchase option price. The City intends to exercise this option at the end of the lease term. The proceeds of the lease were used to purchase a Asphalt Roller. The equipment is security for the lease. Capital Lease - Ford Motor Credit Company - Original balance of $46,548. The lease originally required thirty six monthly rental payments of $1,401, One of the vehicles collateralized for the loan was wrecked during the fiscal year and the insurance proceeds paid off the remaining portion of the lease related to that vehicle. The lease now requires payments of $699 with two payments remaining at September 30, 2001. The City has a purchase option during the term of the lease to purchase the equipment at a designated purchase option price. The City intends to exercise this option at the end of the lease term. The proceeds of the lease were used to purchase two police vehicles. The remaining vehicle is security for the lease. Capital Lease - Ford Motor Credit Company - Original balance of $95,453. The lease requires thirty six monthly rental payments of $2,903 with three payments remaining at September 30, 2001. The City has a purchase option during the term of the lease to purchase the equipment at a designated purchase option price. The City intends to exercise this option at the end of the lease term. The proceeds of the lease were used to purchase four vehicles. The vehicles are security for the lease. Capital Lease - Lubbock NationalOriginal balance of $361753. The lease requires sixty monthly rental payments of $734, A fourteen payments remaining at September 30, 2001. The City has a purchase option during the term of the lease to purchase the equipment at a designated purchase option price. The City intends to exercise this option at the end of the lease term. The proceeds of the lease were used to purchase computer hardware and software. The equipment is security for the lease. Proprietary Fund: Texas Utility System Revenue Bonds, Series 1996 - Original amount of $1,0600,000, principal paid annually on May 15; Interest paid semi-annually on May 15 and November 15, at rates ranging from 4.2% to 4.75%. The bonds were issued to provide funds for improving and extending the City's Sewer System. The Bonds are to be repaid from and are secured by the Enterprise Fund Net Revenues, Texas Utility System Refunding Revenue Bonds, Series 1999 - Original amount of $1,735,000, principal paid annually on May 15; Interest paid semi-annually on May 15 and November 15, at rates ranging from 4.25% to 4.40%. The bonds were issued to provide funds sufficient to advance refund maturities 2002 through 2011 of the City's outstanding Series 1991 Bonds, The Bond proceeds were Page - 17 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 used to purchase U.S. government securities. These securities were deposited into an irrevocable trust to provide for debt service of maturities 2002 through 2011. As a result, that portion of the 1991 series bonds is considered defeased, and the City has removed the liability from its accounts. The outstanding principle of the defeased bonds is $1,580,000 at September 30, 2001. The 1999 Bonds are to be repaid from and are secured by the Enterprise Fund Net Revenues, The Bond Obligations require that certain cash reserve accounts be maintained. Note Payable - Guaranty National Bank - Original amount of $379,000, the note is due on demand, if no demand is made then the note requires five annual principal payments of $75,800 beginning in October 2001. The note bears interest at 2.8 percent under prime rate with annual interest payments also due each October until the note is paid in full. The note proceeds were used for water storage facilities. Note Payable - Guaranty National Bank - Original amount of $169,076, the note requires forty eight monthly installments of $3,967 with the final installment due April 2003. The note bears interest at 6% and has twenty installments remaining at September 30, 2001. The note proceeds were used to purchase various pieces of equipment, which also serve as collateral for the note. Note Payable an Guaranty NationalOriginal amount of $17,934, the note requires thirty six monthly installments of $547 with the final installment due April 2003. The note bears interest at 6!k and has nineteen installments remaining at September 30, 2001. The note proceeds were used to purchase a city vehicle, which also serves as collateral for the note. Note Payable - Guaranty National Bank - Original amount of $29,652, the note requires thirty six monthly installments of $912, with the final installment due August 2003. The note bears interest at two percent under prime rate and has twenty three installments remaining at September 30, 2001. The note proceeds were used to purchase a Ford pickup, which also serves as collateral for the note. Note Payable - Guaranty National Bank - Original amount of $106,666, the note requires thirty six monthly installments of $3,186 with the final installment due May 2004. The note bears interest at 2.80 percent under prime rate and has thirty two installments remaining at September 30, 2001. The note proceeds were used to purchase a dump truck and a backhoe, which also serves as collateral for the note. Capital Lease - Ford Motor Credit Company - Original balance of $40,432. The lease requires sixty monthly rental payments of $779, Page - 18 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 with fourteen payments remaining at September 30, 2001. The City has a purchase option during the term of the lease to purchase the equipment at a designated purchase option price. The City intends to exercise this option at the end of the lease term. The proceeds A the lease were used to purchase a New Holland Backhoe. The equipment is security for the lease. Capital Lease - Ford Motor Credit Company - Original balance of $32,657. The lease requires thirty six monthly rental payments of $983, with two payments remaining at September 30, 2001. The City has a purchase option during the term of the lease to purchase the equipment at a designated purchase option price. The City intends to exercise this option at the end of the lease term. The proceeds of the lease were used to purchase a vehicle. The vehicle is security for the lease. Capital Lease - Ford Motor Credit Company - Original balance of $43,781. The lease requires thirty six monthly rental payments of $1,318 with three payments remaining at September 30, 2001. The City has a purchase option during the term of the lease to purchase the equipment at a designated purchase option price. The City intends to exercise this option at the end of the lease term. The proceeds of the lease were used to purchase two vehicles. The vehicles are security for the lease. Capital Lease - Lubbock NationalOriginal balance of $36,753. The lease requires sixty monthly rental payments of $734, with fifteen payments remaining at September 30, 2001. The City has a purchase option during the term of the lease to purchase the equipment at a designated purchase option price. The City intends to exercise this option at the end of the lease term. The proceeds of the lease were used to purchase computer hardware and software. The equipment is security for the lease. NOTE D: DEBT SERVICE REQIIIREMENTS NEXT FIVE YEARS: Debt service requirements for each of the next five years are as follows: General Fund: Proprietary Fund: Year Principal. Interest principal Interest 2002 $287,168 $118,455 $ 374,618 $ 147,371 2003 276,010 103,750 3491224 _ 128,895 2004 256,665 91,006 295,759 113,094 2005 221,508 76,110 275,800 99,359 2006 234,218 64,410 290,800 85,894 Future 1,046,654 1300550 1,6101000 313,248 Page - 19 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 NOTE E : P Untwx ASE CO1MlITMENT : On June 5, 1995 the City entered into a eight year contract with the Brazoz Electric Power Cooperative, Inc., whereby the City purchases electric power and energy at agreed upon rates, subject to a fuel adjustment charge and power adjustment on demand and energy charges. Power purchased for the current fiscal year totaled $2,177,1606 NOTE F: INTERFUND RECEIVABLE AND PAYABLE: At September 30, 2001 the Proprietary Fund 494,204, The receivable and payable result expenditure for another fund. owed the General Fund from one fund paying an Financial Advisory Services Provided By: 2V sws ZWSKURITIES NEW ISSUE -BOOK -ENTRY -ONLY OFFICIAL STATEMENT Dated: May 20, 2002 Ratings: Moody's CO's: "Aaa$1 Rev's: "Baal" (See "BOND INSURANCE" and "OTHER PERTINENT INFORMATION -Ratings" herein) In the opinion of Bond Counsel, interest on the Obligations will be excludable from gross income for federal income tax purposes under statutes, regulations, published rulings, and court decisions existing on the date hereof, subject to the matters described under "TAX MATTERS" herein, including the alternative minimum tax on corporations. See "T, $2,540,000 Utility System Revenue Bonds Series 2002 [ No Insurance CITY OF BANGER, TEXAS (Denton County) $23ti0000 Combination,Tax,and Revenue Certificates of Obligation Series 2002 Ly!' Financial Guaranty Insurance 1' Vil , Company IY;If.4 • miftLvmf.mty mul uM Lt tlsanrW Qvrnas IiwnOvc finyeni. Dated Date: June 1, 2002 Due: May 15-Bonds; September 1-Certificates as shown on inside cover page) City of Sanger, Texas (the "City" or "Issuer") is issuing two series of obligations as shown above, to wit: $2,540,000 Utility System Revenue Bonds, Series 2002 (the "Bonds") and $2,360,000 Combination Tax and Revenue Certificates of Obligation, Series 2002 the "Certificates"), collectively hereinafter called the "Obligations," in accordance with the Constitution and laws of the State of Texas the "State") and Ordinances (the "Bond Ordinance" and the "Certificate Ordinance," collectively the "Ordinances") adopted by the ity Council. (See "THE BONDS - Authority for Issuance" and "THE CERTIFICATES — Authority for Issuance" herein.) The Bonds constitute special obligations of the Issuer secured by and payable from an irrevocable first lien on and pledge of the Net Revenues (as defined in the Bond Ordinance) derived from the City's combined Waterworks, Electric and Sewer Systems (the "System"). The City has not covenanted nor obligated itself to pay the Bonds from monies raised or to be raised from taxation. (See "THE BONDS - Security for Payment" herein.) The Certificates constitute direct obligations of the Issuer payable from an annual ad valorem tax levied against all taxable property in the City, within the limits prescribed by law and are further secured by and payable from a limited pledge not to exceed $1,000 of the surplus net revenues derived from the operation of the City's combined Waterworks, Electric and Sewer Systems (the "System"). (See "THE CERTIFICATES - Security for Payment" herein.) Interest on the Bonds will accrue from the dated date as shown above and will be payable May 15 and November 15 of each year, commencing May 15, 2003, and interest on the Certificates will accrue from the dated date as shown above and will be payable March 1 and September 1 of each year, commencing March 1, 2003. Interest will be calculated on the basis of a 360-day year of twelve 30-day months. The definitive Obliggations will be issued as fully registered obligations in book -entry form only and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), New York, New York. DTC will act as securities depository (the "Securities Depository ). Book -entry interests in the Obligations will be made available for purchase in the principal amount of $5,000 or any integral multiple thereof. Purchasers of the Obligations ("Beneficial Owners") will not receive physical delivery of certificates representing their interest in the Obligations purchased. So long as DTC or its nominee is the registered owner of the Obligations, the principal of and interest on the Obligations will be payable by The Bank of New York Trust Company of Florida, N.A., Dallas, Texas as Paying Agent/Registrar, to the Securities Depository, which will in turn remit such principal and interest to its Participants, which will in turn remit such principal and interest to the Beneficial Owners of the Obligations. (See "BOOK -ENTRY -ONLY SYSTEM" herein.) Proceeds from the sale of the Bonds will be used to (i) improve and expand the City's Waterworks, Electric and Sewer Systems, including expansion of the ("ity's wastewater treatment plant, and (ii) to pay cost related to the issuance of the Bonds. (See "THE BONDS -Use of Proceeds" herein.) Proceeds from the sale of the Certificates will be used (i) to construct and improve the City's streets and (ii) to pay costs related to the issuance of the Certificates. (See "THE CERTIFICATES - Use of Proceeds" herein.) The Issuer reserves the right to redeem the Bonds maturing on and after May 15, 2013 on May 15, 2012, or any date thereafter, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, at the redempption price of par plus accrued interest, as further described herein. In addition, the Term Bonds maturing May 15, 2022 are subject to mandatory sinking p, fund redemtionas described herein. (See It BONDS - Redemption Provisions" herein.) The Issuer reserves the right to redeem the Certificates maturing on and after September 1, 2013 on September 1, 2012, or any date thereafter, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, at the redemption price of par plus accrued interer` as further described herein. In addition, the Term Certificates maturing September 1, 2022 are subject to mandatory sinking fund redemption, as described herein. (See "THE CERTIFICATES - Redemption Provisions" herein.) The Bonds HAVE NOT been insured by a municipal bond insurance policy The Certificates: The Payment of the principal of and interest on the Certificates when due will be insured by a municipal bond insurance policy to be issued by Financial Guaranty Insurance Company ("Financial Guaranty") simultaneously with the delivery of the Certificates. (See "BOND INSURANCE" herein.) STATED MATURITY SCHEDULE (On Inside Cover) The Obligations are offered for delivery, when, as and if issued and subject to the approving opinion of the Attorney General of the State of Texas and the approval of certain legal matters by McCall, Parkhurst & Horton L.L.P. , Dallas, Texas, Bond Counsel. The respective legal opinions of Bond Counsel will be printed on, or attached to, the Obligations. (See Appendix C - Forms of Legal Opinions of Bond Counsel.) It is expected that the Obligations will be available for delivery through DTC on or about June 19, 2002. STATED MATURITY SCHEDULES $2,540,000 Utility System Revenue Bonds, Series 2002 (Due May 15) Stated Principal R�a�te Yield Maturi I°/0) Amount 0//0 2003 $ 80,000 6.00 2.25 2004 80,000 6.00 2.75 2005 85,000 6.00 3.30 2006 85,000 6.00 3.60 2007 90,000 6.00 3.80 2008 95,000 6.00 4.00 2009 100,000 6.00 4.20 2010 105,000 6.00 4.35 2011 110,000 4.50 4.50 2012 120,000 4.70 4.60 2013 125,000 4.80 4.70 2014 130,000 4.90 4.85 2015 140,000 5.00 4.90 2016 145,000 5.10 4.95 2017 155,000 5.10 5.05 2018 160,000 5.20 5.15 2019 170,000 5.30 5.20 $565,000 5.40% Term Bond due May 15, 2022, Price to Yield 5.40% (Interest to accrue from the Dated Date.) $2,360,000 Combination Tax and Revenue Certificates of Obligation, Series 2002 (Due September 1) Stated Principal Rate Yield Maturi Amount 2003 $ 40,000 5.70 2.10 2004 75,000 5.70 2.60 2005 80,000 5.70 3.10 2006 85,000 5.70 3.40 2007 85,000 5.70 3.60 2008 90,000 5.70 3.82 2009 95,000 5.70 4.00 2010 100,000 4.85 4.10 2011 105,000 4.20 4.25 2012 110,000 4.30 4.35 2013 120,000 4.40 4.47 2014 125,000 4.50 4.57 2015 130,000 4.50 4.62 2016 135,000 4.60 4.72 2017 145,000 4.70 4.82 2018 150,000 4.75 4.92 2019 160,000 4.90 5.02 2020 170,000 5.00 5.05 $360,000 5.00% Term Certificate due September 1, 2022, Price to Yield (Interest to accrue from the Dated Date.) CITY OF SANGER, TEXAS 201 Bolivar St. Sanger, Texas 75266 (940) 4584930 ELECTED OFFICIALS First Elected to Term Name Title Council (May) Expires (May) Occupation Tommy Kincaid Mayor 1991 2004 Retired Andres G. Garza Mayor Pro Tern 1999 2003 Air Conditioning Repair Glenn Ervin Alderman 1995 2004 Electrician Jimmy Evans Alderman 2001 2003 Retired Joe Higgs Alderman 1999 2003 Retired Mike James Alderman 2002 2004 Self -Employed ADMINISTRATION Length of Service Name Position With the City Jack L. Smith City Manager 3 years Rosalie Chavez Assistant City Manager / City Secretary 26 years Bob Dillard City Attorney 15 years Eddie Branham Water / Sewer Superintendent 12 years John Henderson Streets / Parks Superintendent 7 years Mike Prater Electric Superintendent 4 years CONSULTANTS AND ADVISORS Bond Counsel McCall, Parkhurst &Horton, L.L.P. Dallas, Texas Financial Advisor SWS Securities, Inc. Dallas, Texas Independent Auditor William C. Spore &Company, PC. Bedford, Texas For Additional Information Please Contact: Jack L. Smith, City Manager Mr. Dan A. Almon Rose Chavez, Assistant City Manager Senior Vice President City of Sanger SWS Securities 201 Bolivar St. Suite 3500 PO Box 1729 1201 Elm Street Sanger, Texas 75266 Dallas, Texas 75270 (940) 458-7930 (Phone) (214) 859-9452 (Phone) iii USE OF INFORMATION IN THE OFFICIAL STATEMENT No dealer, broker, salesman, or other person has been authorized 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 Issuer. This Official Statement is not to be used in connection with an offer to sell or the solicitation of an offer to buy in any state in which 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. Any information or expression 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 an implication that there has been no change in the affairs of the Issuer or other matters described herein since the date hereof. NEITHER THE CITY NOR ITS FINANCIAL ADVISOR MAKES ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY OR ITS BOOK -ENTRY -ONLY OR ANY INFORMATION REGARDING THE INSURER OR ITS POLICY, AS DESCRIBED UNDER "BOND INSURANCE" HEREIN., THE OBLIGATIONS ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH, THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE OBLIGATIONS IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTIONS IN WHICH THESE SECURITIES HAVE BEEN REGISTERED, QUALIFIED, OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. TABLE OF CONTENTS ELECTED OFFICIALS............................................................ iii Description of the Electric System.................................11 ADMINISTRATION.................................................................. iii INVESTMENT POLICIES.......................................................11 CONSULTANTS AND ADVISORS .......................................... iii Investment Authority and Investment Practices of USE OF INFORMATION IN THE OFFICIAL STATEMENT..... iv the City.......................................................................11 TABLE OF CONTENTS.......................................................... iv Additional Provisions.....................................................12 SELECTED DATA FROM THE OFFICIAL STATEMENT......."v Current Investments......................................................13 INTRODUCTORY STATEMENT..,..,. Pill, 1 0 P I I 1 0 P d h d h . 4 1 , 1 RETIREMENT PLANS...........................................................13 THEBONDS.............................................................................1 Plan Descriptions...........................................................13 General Description.........................................................1 AD VALOREM TAX PROCEDURES......................................13 Authority for Issuance......................................................1 Property Tax Code and Countywide Appraisal District..13 Security for the Bonds and Pledge..................................1 Property Subject to Taxation by the Issuer......,.............14 Rate Covenant.....,.............. 2 Effective Tax Rate and Rollback Tax Rate....................14 Flow of Funds..................................................................2 Levy and Collection of Taxes........................................15 Interest and Sinking Fund................................................2 Penalties and Interest....................................................15 Reserve Fund. 0 4 4 1 0 1 4 a 1 9 1 1 1 1 1 1 1 o a oesopl4maml "I'll 2 Tax Rate Limitations ............................ loop ....... ...............15 Emergency Fund.............................................................2 Issuer's Rights in the Event of Tax Delinquencies ........16 City's Right to Issue Additional Bonds .............................2 CITY APPLICATION OF THE PROPERTY TAX CODE* 16 Use of Bond Proceeds.....................................................3 ADDITIONAL TAX COLLECTIONS.............,...pod ............. .......16 Redemption Provisions....................................................3 Municipal Sales Tax Collections....... P............................16 Record Date....... Optional Sales Tax........................................................16 Default and Remedies.....................................................4 TAX MATTERS......................................................................17 THECERTIFICATES.............................................................PA Opinion. 0 1 9 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 h I I I I I I o I I I I a 0 b 4 1 0 1 0 4 0 1 1 1 1 1 1 1 1 . I I I I 1 17 General..........................................................................PA Federal Income Tax Accounting Treatment of Original Authority for Issuance......................................................5 Issue Discount ................................. sun ........................17 Security for Payment.......................................................5 Collateral Federal Income Tax Consequences .............18 Use of Certificate Proceeds.............................................5 State, Local and Foreign Taxes....................................918 Redemption Provisions....................................................5 Qualified Tax -Exempt Obligations ................................. 19 Record Date. I I a 1 0 0 0 P 0 0 4 1 4 a I I 1 4 1 1 1 d a 0 a 0 0 1 1 1 1 1 0 1 0 1 o i a d 1 CONTINUING DISCLOSURE OF INFORMATION ................19 Default and Remedies.....................................................6 Annual Reports ............................................ ..................19 THE OBLIGATIONS.................................................................6 Material Event Notices...................................................19 Amendments....................................................................6 Availability of Information from SID and MSRB .............20 Payment Record.............................................................07 Limitations and Amendments........................................20 Legality............................................................................7 Compliance with Prior Agreements...............................20 Defeasance......................................................................7 OTHER PERTINENT INFORMATION. I I I I I I 1 0 1 4 1 a 9 1 .... 120 REGISTRATION, TRANSFER AND EXCHANGE*,,,,,,,,,,,,,,,,, 117 Registration and Qualification of Bonds and the Paying Agent/Registrar....................................................7 Certificates for Sale. 1 0 0 IV 1 0 0 1 0 1 a I a I I I I 1 4 4 0 1 20 Future Registration..........................................................8 Litigation........................................................................21 Limitation on Transfer or Exchange of Obligations. .........8 Legal Investments and Eligibility to Secure Public Replacement Obligations.................................................8 Funds in Texas. ..............................1.......... .................21 BOND INSURANCE.................................................................8 Legal Opinions and No -Litigation Certificate .................21 BOOK -ENTRY -ONLY SYSTEM...............................................9 Ratings..........................................................................21 Use of Certain Terms in Other Sections of this Official Financial Advisor...........................................................22 Statement...................................................................10 Winning Bidder..............................................................22 THE SYSTEM, 1 0 1 1 1 1 0 1 1 1 1 1 1 1 1 0 1 0 1 1 ..... 1 Certification of the Official Statement .,..........................22 Description of Water Supply and Facilities ....................11 Forward -Looking Statements Disclaimer.,.....................22 Description of Sewer Facilities.............,. .......... 606104dolossompoll Concluding Statement...........Dollop ................. ................. 23 Financial Information of the Issuer Appendix A General Information Regarding City of Sanger and Denton County, Texas Appendix B Forms of Legal Opinions of Bond Counsel Appendix C Selected Provisions of the Revenue Bond Ordinance Appendix D The Issuer's General Purpose Audited Financial Statements for the Year Ended September 30, 2001 Appendix E Municipal Bond Insurance Policy Specimen (For the Certificates Only) Appendix F The cover page, subsequent pages hereof and appendices attached hereto, are part of this Official Statement. iv SELECTED DATA FROM THE OFFICIAL STATEMENT The selected data is subject in all respects to the more complete information and definitions contained or incorporated in this Official Statement. The offering of the Obligations to potential investors is made only by means of this entire Official Statement. No person is authorized to detach this page from this Official Statement or to otherwise use it without the entire Official Statement, The Issuer The City of Sanger, Texas (the "City" or 'Issuer'), located in Denton County, is a residential community located northeast of the Dallas -Fort Worth industrial area. The City operates under a Mayor/City Council form of government, with the City Council comprised of six members including the Mayor. All six Council members are elected atdarge for two-year staggered terms. (See Appendix B - "General Information Regarding the City of Sanger and Denton County, Texas" herein.) The Certificates The Certificates are being issued pursuant to the Constitution and general laws of the State, including the Certificate of Obligation Act of 1971, as amended, V.T.C.A. Texas Government Code, Subchapter C of Chapter 271, as amended, and an ordinance (the "Certificate Ordinance") adopted by the City Council. (See" THE CERTIFICATES - Authority for Issuance" herein.) The Bonds The Bonds are being issued pursuant to the Constitution and general laws of the State, including V.T.C.A. Texas Government Code, Chapter 1502, as amended, and an ordinance (the "Bond Ordinance") adopted by the City Council. (See "THE BONDS - Authority for Issuance" herein.) The Certificate Ordinance and the Bond Ordinance are collectively referred to herein as the "Ordinances." Paying Agent/Registrar The initial Paying Agent/Registrar is The Bank of New York Trust Company of Florida, N.A., Dallas, Texas, Security The Certificates constitute direct obligations of the Issuer payable from an annual ad valorem tax levied against all taxable property in the City, within the limits prescribed by law and are further secured by and payable from a limited pledge not to exceed $1,000 of the surplus Net Revenues derived from the operation of the City's System, The City has not covenanted nor obligated itself to pay the Bonds from monies raised or to be raised from taxation. (See "THE CERTIFICATES - Security for Payment" herein.) The Bonds constitute special obligations of the Issuer secured by and payable from an irrevocable first lien on and pledge of the Net Revenues (as defined in the Bond Ordinance) derived from the operation of the City's System. (See "THE BONDS - Security for Payment" herein.) Redemption Provisions The Issuer reserves the right to redeem the Bonds maturing on and after May 15, 2013 on May 15, 2012, or any date thereafter, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, at the redemption price of par plus accrued interest, as further described herein. In addition, the Term Bonds maturing May 15, 2022 are subject to mandatory sinking fund redemption, as described herein. (See "THE BONDS - Redemption Provisions" herein.) The Issuer reserves the right to redeem the Certificates maturing on and after September 1, 2013 on September 1, 2012, or any date thereafter, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, at the redemption price of par plus accrued interest, as further described herein. In addition, the Term Certificates maturing September 1, 2022 are subject to mandatory sinking fund redemption, as described herein. (See "THE CERTIFICATES — Redemption Provisions" herein.) Tax Matters In the opinion of Bond Counsel, the interest on the Obligations will be excludable from gross income for federal tax purposes under statutes, regulations, published rulings and court decisions existing on the date thereof, subject to the matters described under "TAX MATTERS" herein, including the alternative minimum tax on corporations. (See "TAX MATTERS" and "Appendix C - Forms of Legal Opinions of Bond Counsel" herein.) Qualified Tax -Exempt The Issuer has designated the Obligations as "Qualified Tax -Exempt Obligations" for financial institutions. Obligations (See "TAX MATTERS - Qualified Tax -Exempt Obligations" herein.) Use of Proceeds Proceeds from the sale of the Bonds will be used to (i) expand and improve the City's Waterworks, Electric and Sewer Systems and (ii) to pay costs related to the issuance of the Bonds. (See "THE BONDS- Use of Proceeds" herein.) Proceeds from the sale of the Certificates will be used (i) to construct and improve the City's streets and (ii) to pay costs related to the issuance of the Certificates. (See "THE CERTIFICATES — Use of Proceeds" herein.) Bond Insurance The Bonds HAVE NOT been insured by a municipal bond insurance policy. The Certificates: The Payment of the principal of and interest on the Certificates when due will be insured by a municipal bond insurance policy to be issued by Financial Guaranty Insurance Company ("Financial Guaranty") simultaneously with the delivery of the Certificates. (See "BOND INSURANCE" herein.) Book -Entry -Only System The Issuer intends to utilize the Book -Entry -Only System of The Depository Trust Company, New York, New York described herein. No physical delivery of the Obligations will be made to the beneficial owners of the Obligations. Such Book -Entry -Only System may affect the method and timing of payments on the Obligations and the manner the Obligations may be transferred. (See "BOOK -ENTRY -ONLY SYSTEM" herein.) Ratings The Bonds: Moody's Investors Service, Inc. ("Moody's") has apczigned a rating of "Baal" to the Bonds(See "OTHER PERTINENT INFORMATION - Ratings" herein.) The Certificates: Moody's Investors Service, Inc. ("Moody's") has assigned a rating of "Aad to the Certificates with the understanding that, concurrently with the delivery of the Certificates, a municipal bond insurance policy will be issued by Financial Guaranty. Moody's has assigned an underlying rating of "Baa2" to the Certificates. (See "OTHER PERTINENT INFORMATION - Ratings" herein.) Payment Record The City has never defaulted. Issuance of Additional The Issuer does not anticipate the issuance of additional general obligation or revenue debt in the year Debt 2002, Delivery When issued, anticipated on or about June 19, 2002. Legality Delivery of the Obligations is subject to the approval by the Attorney General of the State of Texas and the rendering of an opinion as to legality by McCall, Parkhurst & Horton L.L.P., Bond Counsel, Dallas, Texas. v This page is intentionally left blank.] INTRODUCTORY STATEMENT This Official Statement provides certain information in connection with the issuance by City of Sanger, Texas (the "City" or "Issuer") of its $2,540,000 Utility System Revenue Bonds, Series 2002 (the "Bonds") and its $2,360,000 Combination Tax and Revenue Certificates of Obligation, Series 2002 (the "Certificates") (collectively, the "Obligations") identified on the cover page hereof. The Issuer is a political subdivision of the State of Texas and operates as a home -rule municipality under the statutes and the Constitution of the State of Texas (the "State"), and a charter approved by the voters on November 2, 1999. The Obligations are being issued pursuant to the Constitution and general laws of the State and ordinances (the "Bond Ordinance" and the "Certificate Ordinance," collectively, the "Ordinances") adopted by the City Council authorizing issuance of the Obligations. (See "THE BONDS - Authority for Issuance" and "THE CERTIFICATES — Authority for Issuance" herein.) The Bonds and the Certificates are being offered concurrently by the Issuer under a common Official Statement, and such Bonds and Certificates are hereinafter sometimes referred to collectively as the "Obligations". The Bonds and Certificates are separate and distinct securities offerings being issued and sold independently except for the common Official Statement, and, while the Obligations share certain common attributes, each issue is separate from the other and should be reviewed and analyzed independently, including the type of obligation being offered, its terms for payment, the security for its payment, the rights of holders, and other features. Unless otherwise indicated, capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Ordinances. See Appendix D — "Selected Provisions of the Revenue Bond Ordinance" herein. Included in this Official Statement are descriptions of the Obligations, the System and certain information about the Issuer and its finances. ALL DESCRIPTIONS OF DOCUMENTS CONTAINED HEREIN ARE SUMMARIES ONLY AND ARE QUALIFIED /N THEIR ENTIRETY BY REFERENCE TO EACH SUCH DOCUMENT. Copies of such documents may be obtained from the Issuer or the Financial Advisor, General Description The Bonds will be dated June 1, 2002. The Bonds are stated to mature on May 15 in the years and in the principal amounts set forth on the inside cover page hereof. The Bonds shall bear interest from their date on the unpaid principal amounts, and the amount of interest to be paid each payment period shall be computed on the basis of a 360-day year of twelve 30-day months. Interest on the Bonds will be payable on May 15 and November 15 of each year commencing May 15, 2003. Principal is payable at the designated offices of the Paying Agent/Registrar, initially, The Bank of New York Trust Company of Florida, N.A., Dallas, Texas. Interest on the Bonds is payable by check mailed on or before each interest payment date by the Paying Agent/Registrar to the registered owner at the address appearing on the Paying Agent/Registrar's books on the Record Date (as defined herein) or by such other method acceptable to the Paying Agent/Registrar, requested by and at the risk and expense of the registered owner. Authority for Issuance The Bonds are being issued pursuant to the Constitution and general laws of the State, including V.T.C.A. Texas Government Code, Chapter 1502, as amended, and an ordinance (the "Bond Ordinance") adopted by the City Council. Security for the Bonds and Pledge The Bonds, together with certain Outstanding Bonds (see Appendix A —Table 19) and any Additional Bonds shall be secured by and payable from a first lien on and pledge of the Net Revenues of the City's Waterworks, Sewer and Electric Systems (the "System"), and the Net Revenues are further pledged to the establishment and maintenance of the Funds created by the Ordinance, and any Funds created by any ordinance authorizing the issuance of any Additional Bonds, The Bonds, together with certain Outstanding Bonds and any Additional Bonds are not and will not be secured by or payable from a mortgage or deed of trust on any real, personal, or mixed properties constituting the System. The bonds are not a charge upon any other income or revenues of the City and shall never constitute an indebtedness or pledge of the general credit or taxing powers of the City. The Ordinance does not create a lien on or mortgage on the System and any judgment against the City may not be enforced by levy and execution against any property owned by the City, except Net Revenues, The City has not covenanted nor obligated itself to pay the Bonds from monies raised or to be raised from taxation. The Bonds do not constitute general obligations of the City, the State or any political subdivision of the State. The taxing power of neither the City nor the State is pledged as security for the Bonds. E Rate Covenant In the Bond Ordinance, the City agrees to fix, maintain, charge, and collect for services rendered by the 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 defined in the Bond Ordinance and to produce each month Net Revenues which together with other pledged revenues, if any, will be adequate to pay promptly all of the principal of and interest on the Outstanding Bonds, the Bonds and all Additional Bonds, and to accumulate and maintain the Funds created and established by the Bond Ordinance. Additionally, the Bond Ordinance provides that if the System should become legally liable for any other obligations or indebtedness, the City shall fix, maintain, charge and collect additional rates and charges for services rendered by the System sufficient to establish and maintain funds for the payment thereof. (See Appendix D - "Selected Provisions of the Bond Ordinance" for more details.) Flow of Funds In the Bond Ordinance, the Issuer covenants that the gross revenues of the System shall be kept separate and apart from all other revenues of the Issuer and confirms the establishment and maintenance of the "City of Sanger Utility System Revenue Bonds Revenue Fund" at an official depository of the City into which all revenues derived from the operation and ownership of the System are to be deposited as collected. The revenues deposited to the credit of such Fund are to be used to pay the reasonable, necessary and proper expenses of operation and maintenance of the System and then to make deposits to the following special Fund in the amounts and manner provided and in the priority indicated, to wit: a. City of Sanger Utility System Revenue Bonds Interest and Sinking Fund maintained for the payment of the principal of and interest on the Outstanding Bonds, the Bonds and Additional Bonds as the same shall become due and payable. b. City of Sanger Utility System Revenue Bonds Reserve Fund maintained to provide a reserve amount for the payment of the Outstanding Bonds, the Bonds and Additional Bonds when moneys in the Interest and Sinking Fund are insufficient for such purpose. c. City of Sanger Utility System Revenue Bonds Emergency Fund maintained to provide funds to pay the cost of any repairs or extensions to the System for which no other funds are available and to pay the principal of or interest on the Outstanding Bonds, the Bonds and Additional Bonds at any time when there are not sufficient amounts in the Interest and Sinking Fund and the Reserve Fund for such purpose. Interest and Sinking Fund In addition to the deposits for the payment of the Outstanding Bonds, the Issuer shall cause to be deposited to the credit of the Interest and Sinking fund from the Net Revenues of the System substantially equal monthly amounts sufficient to pay the next maturing principal and next succeeding interest on the Bonds. Reserve Fund The amount required to be accumulated and maintained as a reserve in the Reserve Fund is an amount equal to not less than the average annual principal and interest requirements of the Outstanding Bonds and the Bonds. In accordance with the ordinance authorizing the issuance of the Outstanding Bonds, the amount currently on deposit in the Reserve Fund is $258,550 the "Old Reserve") and by reason of the issuance of the Bonds, the amount to be accumulated in the Reserve Fund as a reserve amount shall be $362,836.49 (the "New Reserve"). Following the delivery of the Bonds, the City shall cause the difference between the New Reserve and the Old Reserve Fund to be deposited in the Reserve Fund within sixty-one months from the date of the Bonds by depositing $1,740.00 per month, beginning July 10, 2002. Furthermore, should the amount on deposit in the Reserve Fund be reduced below the New Reserve, there shall be deposited into the Reserve Fund an amount equal to at least one -sixtieth (1/60) of the average annual principal and interest requirements of the Outstanding Bonds and the Bonds. 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. City's Right to Issue Additional Bonds In the Ordinance the City 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 Outstanding Bonds and the Bonds, and be on a parity with the Outstanding Bonds and the Bonds, or any bonds issued to refund same, and the Outstanding Bonds, 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, however under the Ordinance, various conditions must be met for the issuance of Additional Bonds or any other parity obligations. Among other conditions which must be satisfied, the City must obtain a certificate from a Certified Public Accountant to the effect that, during the last complete fiscal year of the City, 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, the Net Earnings of the System 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" shall mean the gross revenues of the 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. (See Appendix D - "Selected Provisions of the Bond Ordinance" for more details.) Use of Bond Proceeds The Bond Ordinance provides that proceeds from the sale of the Bonds are to be used to (i) make improvements to the City's Waterworks, Electric and Sewer Systems including, but not limited to, the expansion of the wastewater treatment plant and (ii) to pay costs related to the issuance of the Bonds. Redemption Provisions Optional Redemption: The Issuer reserves the right, at its sole option, to redeem Bonds stated to mature on and after May 15, 2013, on May 15, 2012 or any date thereafter, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof (and, if within a stated maturity, selected at random and by lot by the Paying Agent/Registrar) at the par value thereof plus accrued interest to the date fixed for redemption. The election of the Issuer to redeem Bonds, identifying the stated maturity or maturities and the amount thereof to be redeemed, shall be entered in the minutes of the City Council, and a copy thereof shall be delivered to the Paying Agent/Registrar, Mandatory Sinking Fund Redemption: The Bonds maturing May 15, 2022 (collectively, the "Term Bonds") are subject to mandatory sinking fund redemption in part prior to their stated maturity, and will be redeemed by the Issuer at a redemption price equal to the principal amount thereof plus interest accrued thereon to the redemption date, on the date and in the principal amounts shown in the following schedule: Term Bond Due May 15, 2022 Redemption Date Principal Amount May 15, 2020 $180,000 May 15, 2021 190,000 May 15, 2022* 195,000 * Represents Maturity -- Approximately forty-five (45) days prior to the mandatory redemption date, the Paying Agent/Registrar shall select by lot the numbers of the Term Bonds to be redeemed. Any Term Bonds not selected for prior redemption shall be paid on the date of their Stated Maturity. The principal amount of said Bonds maturing in 2022 to be redeemed pursuant to the operation of such mandatory redemption provision shall be reduced, at the option of the City, by the principal amount of said Bonds of the respective maturity which, at least 45 days prior to the mandatory redemption date, (1) shall have been acquired by the City at a price not exceeding the principal amount of such Bonds plus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation, (2) shall have been purchased and cancelled by the Paying Agent/Registrar at the request of the City at a price not exceeding the principal amount of such Bonds plus accrued interest to the date of purchase, or (3) shall have been redeemed pursuant to the optional redemption provisions and not theretofore credited against a mandatory redemption requirement. If less than all of the Bonds subject to redemption are to be redeemed, the City shall determine the amounts of each maturity or maturities to be redeemed and shall direct the Paying Agent/Registrar to select by lot the Bonds, or portions thereof, within such maturity or maturities to be redeemed. Not less than thirty (30) days prior to a redemption date for the Bonds, the City shall cause a notice of such redemption to be sent by United States mail, first-class postage prepaid, to the registered owners of each Bond or a portion thereof to be redeemed at its address as it appeared on the registration books of the Paying Agent/Registrar on the day such notice of redemption is mailed. ANY NOTICE OF REDEMPTION SO MAILED TO THE REGISTERED OWNERS WILL BE DEEMED TO HAVE BEEN DULY GIVEN IRRESPECTIVE OF WHETHER ONE OR MORE OF THE REGISTERED OWNERS FAILED TO RECEIVE SUCH NOTICE. 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. If such notice of redemption is given and if due provision for such payment is made, all as provided above, the Bonds or portion thereof which are to be redeemed thereby automatically shall be treated as 3 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 from the Paying Agent/Registrar out of the funds provided for such payment. The Paying Agent/Registrar and the Issuer, so long as a Book -Entry -Only System is used for the Bonds, will send any notice of redemption, notice of proposed amendment to the Bonds or other notices with respect to the Bonds only to DTC. Any failure by DTC to advise any DTC participant, or of any DTC participant or indirect participant to notify the Beneficial Owner, will not affect the validity of the redemption of the Bonds called for redemption or any other action premised on any such notice. Redemption of portions of the Bonds by the Issuer will reduce the outstanding principal amount of such Bonds held by DTC. In such event, DTC may implement, through its Book -Entry -Only System, a redemption of such Bonds held for the account of DTC participants in accordance with its rules or other agreements with DTC participants and then DTC participants and indirect participants may implement a redemption of such Bonds from the Beneficial Owners. Any such selection of Bonds to be redeemed will not be governed by the Bond Ordinance and will not be conducted by the Issuer or the Paying Agent/Registrar. Neither the Issuer nor the Paying Agent/Registrar will have any responsibility to DTC participants, indirect participants or the persons for whom DTC participants act as nominees, with respect to the payments on the Bonds or the providing of notice to DTC participants, indirect participants, or Beneficial Owners of the selection of portions of the Bonds for redemption. (See "BOOK -ENTRY -ONLY SYSTEM" herein. Record Date The record date ("Record Date") for interest payable to the registered owner of a Bond on any interest payment date means the last business day of the month next preceding such interest payment date. In the event of anon -payment of interest on a scheduled payment date, and for 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 (the "Special Payment Date" which shall be 15 days after the Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each registered owner of a Bond appearing on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. Default and Remedies If the Issuer defaults in the payment of the principal of or interest on any of the Bonds when due or defaults in the observance or performance of any of the covenants, conons, or obligations set forth in the Bond Ordinance, any registered owner is entitled to seek a writ of mandamus from a court of proper jurisdiction requiring the Issuer to make such payment or observance and perform such covenant, obligations, or condition. Such right is in addition to any other rights the registered owners of the Bonds may be provided by the laws of the State of Texas. The Bond Ordinance do not specifically provide for the appointment of a trustee to protect and enforce the interests of the registered owners or for acceleration of the stated maturities of the Bonds in the event of default. Consequently, the remedy of mandamus may have to be relied upon from year to year. Under Texas law, no judgment obtained against the Issuer may be enforced by direct levy and execution against the Issuer's property. Further, the registered owners of the Bonds may not themselves foreclose on any of the properties of the System to pay the principal of and interest on the Bonds. The enforceability of the rights and remedies of the registered owners may be further limited by laws relating to bankruptcy, reorganization, or other similar laws of general application affecting the rights of creditors of political subdivisions such as the Issuer. Specifically, during the pendency of a bankruptcy proceeding the remedy for mandamus may not be available unless authorized by the bankruptcy judge. THE CERTIFICATES General The Certificates will be dated June 1, 2002. The Certificates are stated to mature on September 1 in the years and in the principal amounts set forth on the inside cover page hereof. The Certificates shall bear interest from their date on the unpaid principal amounts, and the amount of interest to be paid each payment period shall be computed on the basis of a 360 day year of twelve 30-day months. Interest on the Certificates will be payable on March 1 and September 1 of each year commencing March 1, 2003. Principal is payable at the designated offices of the Paying Agent/Registrar, initially, The Bank of New York Trust Company of Florida, N.A., Dallas, Texas. Interest on the Certificates is payable by check mailed on or before each interest payment date by the Paying Agent/Registrar to the registered owner at the address appearing on the Paying Agent/Registrar's books on the Record Date (as defined herein) or by such other method acceptable to the Paying Agent/Registrar, requested by and at the risk and expense of the registered owner. Authority for Issuance The Certificates are being issued pursuant to the Constitution and general laws of the State, including the Certificate of Obligation Act of 1971, as amended, V.T.C.A. Texas Government Code, Subchapter C of Chapter 271, as amended, and an ordinance (the "Certificate Ordinance") adopted by the City Council. Security for Payment The Certificates constitute direct obligations of the Issuer payable from an annual ad valorem tax levied against all taxable property in the City, within the limits prescribed by law and are further secured by and payable from a limited pledge not to exceed $1,000 of the surplus Net Revenues derived from the operation of the City's System, remaining after payment of all operation and maintenance expenses thereof, and all debt service, reserve, and other requirements in connection with any of the City's revenue bonds or other obligations (now or hereafter outstanding), which are payable from all or any part of the Net Revenues of the System. (See "CITY APPLICATION OF THE PROPERTY TAX CODE" herein.) Use of Certificate Proceeds The Certificate Ordinance provides that the proceeds from the sale of the Certificates are to be used (i) to construct and improve the City's streets and (ii) to pay costs related to the issuance of the Certificates. Redemption Provisions Optional Redemption: The Issuer reserves the right to redeem the Certificates maturing on and after September 1, 2013 on September 1, 2012, or any date thereafter, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof (and, if within a stated maturity, selected at random and by lot by the Paying Agent/Registrar), at the redemption price of par plus accrued interest to the date fixed for redemption. The election of the Issuer to redeem Certificates, identifying the stated maturity or maturities and the amount thereof to be redeemed, shall be entered in the minutes of the City Council, and a copy thereof shall be delivered to the Paying Agent/Registrar, Mandatory Sinking Fund Redemption: The Certificates maturing September 1, 2022 (collectively, the "Term Certificates") are subject to mandatory sinking fund redemption in part prior to their stated maturity, and will be redeemed by the Issuer at a redemption price equal to the principal amount thereof plus interest accrued thereon to the redemption date, on the date and in the principal amounts shown in the following schedule: Term Certificate Due September 1, 2022 Redemption Date Principal Amount September 1, 2021 $175,000 September 1, 2022* 185,000 * Represents Maturity Approximately forty-five (45) days prior to the mandatory redemption date, the Paying Agent/Registrar shall select by lot the numbers of the Term Certificates to be redeemed. Any Term Certificates not selected for prior redemption shall be paid on the date of their Stated Maturity. The principal amount of said Certificates maturing in 2022 to be redeemed pursuant to the operation of such mandatory redemption provision shall be reduced, at the option of the City, by the principal amount of said Certificates of the respective maturity which, at least 45 days prior to the mandatory redemption date, (1) shall have been acquired by the City at a price not exceeding the principal amount of such Certificates plus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation, (2) shall have been purchased and cancelled by the Paying Agent/Registrar at the request of the City at a price not exceeding the principal amount of such Certificates plus accrued interest to the date of purchase, or (3) shall have been redeemed pursuant to the optional redemption provisions and not theretofore credited against a mandatory redemption requirement. If less than all of the Certificates subject to redemption are to be redeemed, the City shall determine the amounts of each maturity or maturities to be redeemed and shall direct the Paying Agent/Registrar to select by lot the Certificates, or portions thereof, within such maturity or maturities to be redeemed. Not less than thirty (30) days prior to a redemption date for the Certificates, the City shall cause a notice of such redemption to be sent by United States mail, first-class postage prepaid, to the registered owners of each Certificate or a portion thereof to be redeemed at its address as it appeared on the registration books of the Paying Agent/Registrar on the day such notice of redemption is mailed. ANY NOTICE OF REDEMPTION SO MAILED TO THE REGISTERED OWNERS WILL BE DEEMED TO HAVE BEEN DULY GIVEN IRRESPECTIVE OF WHETHER ONE OR MORE OF THE REGISTERED OWNERS FAILED TO RECEIVE SUCH NOTICE. By the date fixed for any such redemption, due provision shall be made with the Paying AgenURegistrar for the payment of the required redemption price for the Certificates or portions thereof which are to be so redeemed. If such notice of redemption is given and if due provision for 5 such payment is made, all as provided above, the Certificates or portion thereof which are to be 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 from the Paying Agent/Registrar out of the funds provided for such payment. The Paying Agent/Registrar and the Issuer, so long as aBook-Entry-Only System is used for the Certificates, will send any notice of redemption, notice of proposed amendment to the Certificates or other notices with respect to the Certificates only to DTC. Any failure by DTC to advise any DTC participant, or of any DTC participant or indirect participant to notify the Beneficial Owner, will not affect the validity of the redemption of the Certificates called for redemption or any other action premised on any such notice. Redemption of portions of the Certificates by the Issuer will reduce the outstanding principal amount of such Certificates held by DTC. In such event, DTC may implement, through its Book -Entry -Only System, a redemption of such Certificates held for the account of DTC participants in accordance with its rules or other agreements with DTC participants and then DTC participants and indirect participants may implement a redemption of such Certificates from the Beneficial Owners. Any such selection of Certificates to be redeemed will not be governed by the Certificate Ordinance and will not be conducted by the Issuer or the Paying Agent/Registrar. Neither the Issuer nor the Paying Agent/Registrar will have any responsibility to DTC participants, indirect participants or the persons for whom DTC participants act as nominees, with respect to the payments on the Certificates or the providing of notice to DTC participants, indirect participants, or Beneficial Owners of the selection of portions of the Certificates for redemption. (See "BOOK -ENTRY -ONLY SYSTEM" herein.) Record Date The record date ("Record Date") for interest payable to the registered owner of an Certificate on any interest payment date means the 15th day of the month next preceding such interest payment date. In the event of anon -payment of interest on a scheduled payment date, and for 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 (the "Special Payment Date" which shall be 15 days after the Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each registered owner of an Certificate appearing on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. Default and Remedies If the Issuer defaults in the payment of the principal of or interest on any of the Certificates when due or defaults in the observance or performance of any of the covenants, conons, or obligations set forth in the Certificate Ordinance, any registered owner is entitled to seek a writ of mandamus from a court of proper jurisdiction requiring the Issuer to make such payment or observance and perform such covenant, obligations, or condition. Such right is in addition to any other rights the registered owners of the Certificates may be provided by the laws of the State of Texas. The Certificate Ordinance do not specifically provide for the appointment of a trustee to protect and enforce the interests of the registered owners or for acceleration of the stated maturities of the Certificates in the event of default. Consequently, the remedy of mandamus may have to be relied upon from year to year. Under Texas law, no judgment obtained against the Issuer may be enforced by direct levy and execution against the Issuer's property. Further, the registered owners of the Certificates may not themselves foreclose on taxable property within the Issuer to collect any unpaid taxes to pay the principal of and interest on the Certificates. The enforceability of the rights and remedies of the registered owners may be further limited by laws relating to bankruptcy, reorganization, or other similar laws of general application affecting the rights of creditors of political subdivisions such as the Issuer. Specifically, during the pendency of a bankruptcy proceeding the remedy for mandamus may not be available unless authorized by the bankruptcy judge. THE OBLIGATIONS Amendments The City may amend the respective Ordinances without the consent of or notice to any registered owners in any manner not detrimental to the interests of the registered owners, including the curing of any ambiguity, inconsistency, or formal defect or omission therein. In addition, the City may, with the written consent of the holders of a majority in aggregate principal amount of the Bonds or Certificates, as the case may be, then outstanding affected thereby, amend, add to, or rescind any of the provisions of such Ordinance; except that, without the consent of the registered owners of all of the Bonds or Certificates, as the case may be, affected, no such amendment, addition, or rescission may (1) change the date specified as the date on which the principal of, or any installment of interest on any obligation is due and payable, reduce the principal amount thereof, or the rate of interest thereon, change the place or places at or the coin or currency in which any obligation or interest thereon is payable, or in any other way modify the terms of payment of the principal of, or interest on the obligations, (2) give any preference to any obligation over any other obligation, or (3) reduce the aggregate principal amount of obligations required for consent to any amendment, addition, or waiver. Payment Record The City has never defaulted. Legality The Obligations are offered when, as and if issued, subject to the approval by the Attorney General of the State of Texas and the rendering of an opinion as to legality by McCall, Parkhurst & Horton L.L.P., Dallas, Texas. The legal opinion of Bond Counsel will be printed on will accompany the Obligations deposited with DTC. Respective forms of the legal opinions of Bond Counsel with respect to the Obligations appear in Appendix C attached hereto. Defeasance The respective Ordinances provide for the defeasance each series of the Obligations when the payment of the principal of and premium, if any, of the respective Obligations, plus interest thereon to the due date thereof (whether such due date be by reason of maturity, redemption, or otherwise), is provided by irrevocably depositing with a paying agent, in trust (1) lawful money of the United States of America money sufficient to make such payment or (2) Defeasance Securities, certified by an independent public accounting firm of national reputation to mature as to principal and interest in such amounts and at such times to insure the availability, without reinvestment, of sufficient money to make such payment, and all necessary and proper fees, compensation and expenses of the paying agent for the Obligations. The Ordinances provide that "Defeasance Securities" means (a) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United Sates of America, (b) 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 are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (c) 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. The City has additionally reserved the right, subject to satisfying the requirements of (1) and (2) above, to substitute other Defeasance Securities for the Defeasance Securities originally deposited, to reinvest the uninvested moneys on deposit for such defeasance and to withdraw for the benefit of the City moneys in excess of the amount required for such defeasance. Upon such deposit as described above, such Obligations shall no longer be regarded to be outstanding or unpaid. Provided, howeverI the City has reserved the option, to be exercised at the time of the defeasance of the Obligations, to call for redemption, at an earlier date, those Obligations which have been defeased to their maturity date, if the City: (i) in the proceeding providing for the firm banking and financial arrangements, expressly reserves the right to call the Obligations for redemption; (ii) gives notice of the reservation of that right to the owners of the Obligations immediately following the making of the firm banking and financial arrangements; and (iii) directs that notice of the reservation be included in any redemption notices that it authorizes. REGISTRATION, TRANSFER AND EXCHANGE Paying Agent/Registrar The initial Paying Agent/Registrar for the Bonds and Certificates is The Bank of New York Trust Company of Florida, N.A., Dallas, Texas. In the Ordinances, the Issuer retains the right to replace the Paying Agent/Registrar. If the Paying Agent/Registrar is replaced by the Issuer, the new Paying Agent/Registrar shall accept the previous Paying Agent/Registrar's records and act in the same capacity as the previous Paying Agent/Registrar. Any successor Paying Agent/Registrar, selected at the sole discretion of the Issuer, shall be a national or state banking institution, trust company or other entity authorized to serve as a Paying Agent/Registrar. Upon a change in the Paying Agent/Registrar for t: ; Bonds or the Certificates, or both, the Issuer agrees to promptly cause written notice thereof to be sent to each registered owner of the Obligations affected by the change by United States mail, first-class, postage prepaid. The Obligations will be issued in fully registered form in multiples of $5,000 for any one stated maturity, and principal and semiannual interest will be paid by the Paying Agent/Registrar. Interest will be paid by check or draft mailed on each interest payment date by the Paying Agent/Registrar to the registered owner at the last known address as it appears on the Paying Agent/Registrar's books or by such other method, acceptable to the Paying Agent/Registrar, requested by and at the risk and expense of the registered owner. Principal will be paid to the registered owner at stated maturity upon presentation to the Paying Agent/Registrar, If the date for the payment of the principal of or interest on the Obligations shall be a Saturday, 7 Sunday, a legal holiday or a day when banking institutions in the city where the Paying Agent/ Registrar is located are authorized to close, then the date for such payment shall be the next succeeding day which is not such a day, and payment on such date shall have the same force and effect as if made on the date payment was due. Future Registration The Obligations are initially to be issued utilizing the Book Entry -Only System of The Depository Trust Company, New York, New York. In the event such Book -Entry -Only System should be discontinued, the Obligations may be transferred, registered, and assigned on the registration books of the Paying Agent/Registrar only upon presentation and surrender thereof to the Paying Agent/Registrar, and such registration and transfer shall be without expense or service charge to the registered owner, except for any tax or other governmental charges required to be paid with respect to such registration and transfer. An Obligation may be assigned by the execution of an assignment form on the Obligation or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. A new Obligation or Obligations will be delivered by the Paying Agent/Registrar in lieu of the Obligations being transferred or exchanged at the designated office of the Paying Agent/Registrar, or sent by United States registered mail to the new registered owner at the registered owner's request, risk and expense. New Obligations issued in an exchange or transfer of Obligations will be delivered to the registered owner or assignee of the registered owner in not more than three (3) business days after the receipt of the Obligations to be canceled in the exchange or transfer and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Obligations registered and delivered in an exchange or transfer shall be in denominations of $5,000 for any one stated maturity or any integral multiple thereof and for a like aggregate principal amount and rate of interest as the Obligation or Obligations surrendered for exchange or transfer. (See "BOOK -ENTRY -ONLY SYSTEM" herein for a description of the system to be initially utilized in regard to ownership and transferability of the Obligations.) Limitation on Transfer or Exchange of Obligations The Paying AgenURegistrar is not required to transfer or exchange any Obligation during the period commencing with the close of business on any Record Date immediately preceding a principal or interest payment date for such Bonds and ending with the opening of business on the next following principal or interest payment date; or with respect to any Obligation or portion called for redemption prior to maturity, within 45 days prior to its redemption date. Replacement Obligations In the Ordinances, provision is made for the replacement of mutilated, destroyed, lost, or stolen Obligations issued under such Ordinances upon surrender of the mutilated Obligations to the Paying AgentRegistrar, or the receipt of satisfactory evidence of destruction, loss, or theft, and the receipt by the Issuer and Paying AgenURegistrar of security or indemnity as may be required by either of them to hold them harmless. The Issuer may require payment of taxes, governmental charges, and other expenses in connection with any such replacement. BONDINSURANCE The Bonds HAVE NOT been insured by a municipal bond insurance policy. The Certificates: The following information regarding municipal bond insurance on the Certificates was provided by Financial Guaranty Insurance Company. Concurrently with the issuance of the Certificates, Financial Guaranty Insurance Company ("Financial Guaranty") will issue its Municipal Bond New Issue Insurance Policy for the Certificates (the "Policy"). The Policy unconditionally guarantees the payment of that portion of the principal of and interest on the Certificates, which has become due for payment, but shall be unpaid by reason of nonpayment by the issuer of the Certificates (the "Issuer"). Financial Guaranty will make such payments to State Street Bank and Trust Company, N.A., or its successor as its agent (the "Fiscal Agent"), on the later of the date on which such principal and interest is due or on the business day next following the day on which Financial Guaranty shall have received telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from an owner of Certificates or the Paying Agent of the nonpayment of such amount by the Issuer. The Fiscal Agent will disburse such amount due on any Certificate to its owner upon receipt by the Fiscal Agent of evidence satisfactory to the Fiscal Agent of the owner's right to receive payment of the principal and interest due for payment and evidence, including any appropriate instruments of assignment, that all of such owner's rights to payment of such principal and interest shall be vested in Financial Guaranty. The term "nonpayment" in respect of a Certificate includes any payment of principal or interest made to an owner of a Certificate, which has been recovered from such owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. 0 The Policy is non -cancelable and the premium will be fully paid at the time of delivery of the Certificates. The Policy covers failure to pay principal of the Certificates on their respective stated maturity dates or dates on which the same shall have been duly called for mandatory sinking fund redemption, and not on any other date on which the Certificates may have been otherwise called for redemption, accelerated or advanced in maturity, and covers the failure to pay an installment of interest on the stated date for its payment. This Official Statement contains a section regarding the ratingsassigned to the Certificates and reference should be made to such section for a discussion of such ratings and the basis for their assignment to the Certificates. Reference should be made to the description of the Issuer for a discussion of the ratings, if any, assigned to such entity's outstanding parity debt that is not secured by credit enhancement. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. Financial Guaranty is a wholly owned subsidiary of FGIC Corporation (the "Corporation"), a Delaware holding company. The Corporation is a subsidiary of General Electric Capital Corporation ("GE Capital"), Neither the Corporation nor GE Capital is obligated to pay the debts of or the claims against Financial Guaranty. Financial Guaranty is a monoline financial guaranty insurer domiciled in the State of New York and subject to regulation by the State of New York Insurance Department. As of December 31, 2001, the total capital and surplus of Financial Guaranty was approximately $1.002 billion. Financial Guaranty prepares financial statements on the basis of both statutory accounting principles and generally accepted accounting principles. Copies of such financial statements may be obtained by writing to Financial Guaranty at 125 Park Avenue, New York, New York 10017, Attention: Communications Department (telephone number: 212-312-3000) or to the New York State Insurance Department at 25 Beaver Street, New York, New York 10004-2319, Attention: Financial Condition Property/Casualty Bureau (telephone number: 212-480-5187). BOOK -ENTRY -ONLY SYSTEM This section describes how ownership of the Obligations is to be transferred and how the principal of, premium, if any, and interest on the Obligations are to be paid to and credited by DTC while the Obligations 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 and the Financial Advisor believe the source of such information to be reliable, but take no responsibility for the accuracy or completeness thereof. The City cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Obligations, 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 Obligations), 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. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Obligations. The Obligations 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 Obligation certificate will be issued for the Obligations, in the aggregate principal amount of each maturity, and will be deposited with DTC. DTC, the world's largest depository, is alimited-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 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 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, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com, 7 Purchases of Obligations under the DTC system must be made by or through Direct Participants, which will receive a credit for the Obligations on DTC's records. The ownership interest of each actual purchaser of each Obligations ("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 Obligations 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 Obligations, except in the event that use of the book -entry system for the Obligations is discontinued. To facilitate subsequent transfers, all Obligations 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 Obligations 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 Obligations; DTC's records reflect only the identity of the Direct Participants to whose accounts such Obligations 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 Obligations may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Obligations, such as redemptions, tenders, defaults, and proposed amendments to the Obligations documents. For example, Beneficial Owners of Obligations may wish to ascertain that the nominee holding the Obligations 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 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 Obligations 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 Obligations unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Obligations are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Obligations 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 Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, Agent, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Obligations at any time by giving reasonable notice to the City or Agent. Under such circumstances, in the event that a successor depository is not obtained, Obligation 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, Obligation 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 no 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 Obligations 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 iM Direct or Indirect Participant acquires an interest in the Obligations, 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 Ordinances will be given only to DTC. THE SYSTEM The City's Waterworks, Electric and Sewer Systems (the "System") are described below. Description of Water Supply and Facilities The City source of water supply is provided by five (6) wells with a combined pumping capacity of 1,585 gallons per minute. In addition, 500,000 gallons ground storage from surface supply is provided from Denton - Upper Trinity, with pump capacity of two (2) pumps with 400 GPM. Overhead storage is 900,000 and Ground Storage is 1,200,000, for a total of 2,100,000-gallon storage, with pump capacity of 2,600,000 gallons per day. The water system is fully computerized to allow for monitoring and efficiency. In addition, alarms monitor high levels, low levels and loss of prime. Main lines range from two (2) inches to twenty (20) inches. Description of Sewer Facilities The City owns and operates its wastewater treatment facilities under permit number TX0022403. The Sewer System consists of a 480,000 gallon per day contact stabilization sewage treatment plant and related appurtenances. Collection lines range in size from four inches to eighteen inches. An expansion of the facilities to increase treatment to 780,000 gallons per day (GPD) was complete in May 1999. The treatment facilities, along with all lift stations are computerized. The City has received a permit from the Sate to further expand the treatment facilities in the summer of 2003 to a capacity of 980,000 GPD, and that expansion is being funded with proceeds of from the sale of the Series 2002 Utility System Revenue Bonds. Description of the Electric System The City owns and operates its own electric distribution system. On June 5, 1995, the City entered into an eight (8) year contract with the Brazos Electric Power Cooperative, Inc. whereby the City purchases electric power and energy at the rates shown below. Rates shown below are subject to a transmission adjustment charge, a power adjustment on demand charge and an energy charge. Charges are effective as of January 1, 2001, Distribution Charge Based on Direct Assignment Production Charge Production Charge Transmission Charge ISO Charge Support Fees $0.4850000 per kW per month 5.3690000 per kW of CP Billing Demand $0.022545 per kWh 5.3690000 per kW for Power Factor Adjustment Required to Meet a 95% Power Factor $1.2550000 per kW Based on ERCOT 4 CP (Average of June, July, August & September of Previous Year) $0.0002200 per kWh 0.0001910 per kWh INVESTMENT POLICIES The City invests funds in instruments authorized by Texas law in accordance with investment policies approved by the Council of the City. Both state law and the City's investment policies are subject to change. Investment Authority and Investment Practices of the City Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, including letters of credit; (2) direct obligations of the State of Texas or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligation, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities; (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit that are issued by a state or national bank domiciled in the State of Texas, a savings bank domiciled in the State of Texas, or a state or federal credit union domiciled in the State of Texas and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for City deposits, (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 of Texas, (9) certain bankers' acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by at least one nationally recognized credit rating agency, (10) commercial paper with a stated maturity of 270 days or less that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank, (11) no-load money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share, and (12) no-load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in the this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date 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 AAAm or an equivalent by at least one nationally recognized rating service. The City may also contract with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State Securities Board to provide for the investment and management of its public 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. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage -backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage -backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquty; that address investment diverscation, yield, maturity, and the quality and capability of investment management; and that include a list of authorized investments for City funds, the maximum allowable stated maturity of any individual investment and the maximum average dollar -weighted maturity allowed for pooled fund groups. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each fund's investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. Under Texas law, the City's investments must be made with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment considering the probable safety of capital and probable income to be derived." At least quarterly the City's investment officers must submit an investment report to the City Council detailing: (1) the investment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, and any additions and changes to market value and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategies and (b) Texas law. No person may invest City funds without express written authority from the City Council. Additional Provisions Under Texas law, the City is additionally required to: (1) annually review its adopted policies and strategies, (2) require any investment officers with personal business relationships or family relationships with firms seeking to sell securities to the City to disclose the relationship and He a statement with the Texas Ethics Commission and the City, (3) require the registered principal of firms seeking to sell securities to the City to: (a) receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) in conjunction with its annual financial audit, perform a compliance audit of the management controls on investments and adherence to the City's investment policy, (5) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement, (6) restrict the investment in non -money market mutual funds in the aggregate to no more than 15% of the City's monthly average fund balance, excluding bond proceeds and reserves and other funds held for 12 debt service, (7) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements and (8) provide specific investment training for the Treasurer, the chief financial officer (if not the Treasurer) and the investment officer. Current Investments As of April 3, 2002, the following percentages of the City's investable funds were invested in the following categories of investments. As of such date, the market value of such investments (as determined by the City by reference to published quotations, dealer bids, and comparable information) was approximately 100% of their book value. No funds of the City are invested in derivative securities, i.e., securities whose rate of return is determined by reference to some other instrument, index, or commodity. Fund and Investment Type Certificates of Deposit (CD's) Checking Accounts (Operating Funds) (4-15-02) Checking Account (Meter Deposits) Savings Accounts Money Market Funds (4A and 4B Corporations) Total Investments Plan Descriptions Percentage Amount of Portfolio $ 795,815 44.92% 447,065 25.23% 67,153 3.79% 1771673 10.03% 2845108 16.03% $1_,7711814 100.00°° ��Iil��li7�►i i��P►>~? Employee Retirement Plan: In addition to City employee participation in the U.S. Social Security Program, the City provides pension benefits for all of its full-time employees through a nontraditional, joint contributory, defined contribution plan in the state-wide Texas Municipal Retirement System (TMRS), one of 745 municipalities administered by TMRS, an agent multiple - employer public employee retirement system. The TMRS is a contributory, annuity -purchase type plan, which is covered by the State statute and is administered by six trustees appointed by the Governor of the State of Texas. The TMRS operates independently of its member cities. The contribution rate for the employees is 5.00% of their gross earnings, and the City provides 3.620/n of the monthly gross earnings, both as adopted by the City Council. Employee contributions are tax deferred and not subject to federal income tax until they are withdrawn. The City's contributions for the fiscal year ended September 30, 2001 totaled $52,300. Firemen's Pension Fund: The City's firemen are covered by the firemen's pension plan. This contributory plan is operated as part of the State Firemen's Relief and Retirement Funds. The pension expense for the year ended September 30, 2001 was $3,278. For additional information regarding the City's Retirement Plans, see Note B on page 14 in the audited financial statements attached hereto in Appendix E. AD VALOREM TAX PROCEDURES Property Tax Code and Countywide Appraisal District The Texas Property Tax Code (the "Property Tax Code") provides for countywide appraisal and equalization of taxable property values and establishes in each county of the State an appraisal district and an appraisal review board responsible for appraising property for all taxable units within the county. The Ellis County Appraisal District (the "Appraisal District") is responsible for appraising property within the City, generally, as of January 1 of each year. Excluding agricultural and open - space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Property Tax Code to 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 further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of (1) the market value of the property, or (2) the sum of (a) 10% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. The appraisal values set by the Appraisal District are subject to review and change by the Appraisal Review Board (the "Appraisal Review Board") consisting of three members, which are appointed by the Board of Directors of the Appraisal District. Such appraisal rolls, as approved by the Appraisal Review Board, are used by the City in establishing its tax roll and tax rate. The Appraisal District is required to 13 review the value of property within the Appraisal District al 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, Property Subject to Taxation by the Issuer Reference is made to the V.T.C.A., 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. Homestead Exemptions: 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 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, In the case of residence homestead exemptions granted under Section 1-b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. Disabled/Deceased Veterans Exemption: 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. Agricultural/Open-Land Exemption: Article VIII provides that eligible owners of both agricultural land (Section 1-d) and pace land land (Section 1-d-1), including open -space an devoted to farm or ranch purposes or open -space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Section 1-d and 1-d-1. Nonbusiness Personal Property Exemption: Nonbusiness personal property, such as automobiles or light trucks, is 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. Freeport Exemption: 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. Tax Increment Financing Zone and Tax Abatements: The City and other taxing bodies within its territory may agree to jointly create tax increment financing zones, under which the tax values on property in the zone are "frozen" at the value of the property at the time of creation of the zone. The City also may enter into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The City, in turn, agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years. Effective Tax Rate and Rollback Tax Rate Section 26.05 of the Property Tax Code provides that the governing body of a taxing unit is required to adopt its annual tax rate for the unit before the later of September 30 or the 60th day after the date the certified appraisal roll is received by the taxing unit. If the City Council does not adopt a tax rate by such required date, the tax rate for the tax year is the lower of the effective tax rate calculated for the tax year or the tax rate adopted by the City for the preceding 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". The City Council may not adopt a tax rate that exceeds the lower of the rollback tax rate or 103 percent (103%) of the effective tax rate until a public hearing is 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 14 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. 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. Levy and Collection of Taxes The Issuer is responsible for the levy and collection of its taxes unless it elects to transfer such functions to another governmental entity. Property within the City is generally assessed as of January 1 of each year based upon the valuation of property within the City as of the preceding January 1. 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 are due October 1, or when billed, whichever comes later, and become delinquent after January 31 of the following year. The Property Tax Code makes provision for the split payment of taxes, discounts for early payment and the postponement of the delinquency date of taxes under certain circumstances. 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 final installment due on August 1. - Penalties and Interest Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: 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(a) 12 6 18 (a) 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, a 15% 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. Tax Rate Limitations Imposed by Article XI, Section 5 of the Texas Constitution applicable to home -rule cities: $2.50 per $100 assessed valuation. The Property Tax Code establishes a procedure for notice to property owners of reappraisals reflecting increased property value, appraisals which are higher than renditions and appraisals of property not previously on an appraisal roll. Article VIII, Section 21 of the Texas Constitution provides that, subject to any exception prescribed by general' law, the total amount of property taxes imposed by a political subdivision in any year may not exceed the total amount of property taxes imposed in the preceding year unless a notice of intent to consider an increase in taxes is given and a public hearing on the proposed increase is held before the total taxes are increased. 15 Issuer's Rights in the Event of Tax Delinquencies Taxes levied by the Issuer are a personal obligation of the owner of the property as of January 1 of the year for which the tax is imposed. On January 1 of each year, a tax lien attaches to property to secure the payment of all state and local taxes, penalties, and interest ultimately imposed for the year on the property. The lien exists in favor of the State of Texas and each local taxing unit, including the Issuer, having power to tax the property. The Issuer's tax lien is on a parity with tax liens of such other taxing units. A tax lien on real property takes priority over the claim of most creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax lien; however, whether a lien of the United States is on a parity with or takes priority over a tax lien of the Issuer is determined by applicable federal law. Personal property, under certain circumstances, is subject to seizure and sale for the payment of delinquent taxes, penalty, and interest. At any time after taxes on property become delinquent, the Issuer may file suit to foreclose the lien securing payment of the tax, to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real property, the Issuer must join other taxing units that have claims for delinquent taxes against all or part of the same property. Collection of delinquent taxes may be adversely affected by the amount of taxes owed to other taxing units, by the effects of market conditions on the foreclosure sale price, by taxpayer redemption rights (a taxpayer may redeem property within two (2) years after the purchaser's deed issued at the foreclosure sale is filed in the City records) or by bankruptcy proceedings which restrict the collection of taxpayer debts. Federal bankruptcy law provides that an automatic stay of actions 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 THE PROPERTY 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 and has adopted criteria therefore, which is a prerequisite to the execution of abatement agreements. The abatement agreement, which is for 50% of the assessed valuation, will first be reflected on the 2002-2003 property valuation and will expire in 2012. ADDITIONAL TAX COLLECTIONS Municipal Sales Tax Collections The City has adopted the provisions of Article 1065c, Section 9, Vernon's Texas Civil Statutes, which provides for the maximum levy of a one percent (1 %) sales tax which may be used by the City for any lawful purpose except that the City may not pledge any of the anticipated sales tax revenue to secure the payment of obligations or other indebtedness. Net collections on a calendar year basis are shown in Table 16 of Appendix A. Optional Sales Tax The Tax Code provides certain cities and counties the option of assessing a maximum one-half percent ('/z%)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 electionI If the additional tax is approved and levied, the ad valorem property tax levy must be reduced by the amount of the estimated sales tax revenues to be generated in the current year. Further the Tax Code provides certain cities the option of assessing a maximum one-half percent ('h%)sales tax on retail sales of taxable items for economic development purposes, if approved by a majority of the voters in a local option election. 16 At an election held on May 2, 1998, the City's registered voters approved an additional one-half percent ('/z%) sales tax to be collected for economic development purposes in accordance with Section 4A, Article 5190.6 of Vernon's Annotated Texas Civil Statutes. Collections of the additional 4A sales tax began in December 1998. At an election held on May 2, 1998, the City registered voters approved an additional one-half percent ('/2%) sales tax to be collected for economic development purposes in accordance with Section 4B, Article 5190.6 of Vernon's Annotated Texas Civil Statutes. Collections of the additional 46 sales tax began in December 1998, The City has not held an election regarding an additional sales tax for the purpose of reducing its ad valorem taxes. TAX MATTERS Opinion On the date of initial delivery of the Obligations, McCall, Parkhurst &Horton L.L.P., Dallas, Texas, Bond Counsel, will render their opinions that, in accordance with statutes, regulations, published rulings and court decisions existing on the date thereof ("Existing Law"), (1) interest on the Obligations for federal income tax purposes will be excludable from the "gross income" of the holders thereof and (2) the Obligations will not be treated as "specified private activity bonds" the interest on which would be included as an alternative minimum tax preference item under section 57(a)(5) of the Internal Revenue Code of 1986 (the "Tax Code"). Except as stated above, Bond Counsel will express no opinion as to any other federal, state or local tax consequences of the purchase, ownership or disposition of the Obligations. See Appendix C - Form of Legal Opinions of Bond Counsel. In rendering their opinion, Bond Counsel will rely upon (a) certain information and representations of the Issuer, including information and representations contained in the Issuer's federal tax certificate, and (b) covenants of the Issuer contained in the Ordinances relating to certain matters, including arbitrage and the use of the proceeds of the Obligations and the property financed therewith. Although it is expected that the Obligations will qualify as tax-exempt obligations for federal income tax purposes as of the date of issuance, the tax-exempt status of the Obligations could be affected by future events. However, future events beyond the control of the Issuer, as well as the failure to observe the aforementioned representations or covenants, could cause the interest on the Obligations to become taxable retroactively to the date of issuance. Bond Counsel's opinion represents its legal judgment based upon its review of Existing Law and the reliance on the aforementioned information, representations and covenants. The Existing Law is subject to change by the Congress and to subsequent judicial and administrative interpretation by the courts and the Department of the Treasury. There can be no assurance that such Existing Law or the interpretation thereof will not be changed in a manner which would adversely affect the tax treatment of the purchase, ownership or disposition of the Obligations. A ruling was not requested from the Internal Revenue Service by the City with respect to the Obligations or property financed with proceeds of the Obligations. Bond Counsel's opinion is not a guarantee of a result. No assurances can be given as to whether or not the Internal Revenue Service will commence an audit of the Obligations, or as to whether the Internal Revenue Service would agree with the opinion of Bond Counsel. If an audit is commenced, under current procedures the Internal Revenue Service is likely to treat the Issuer as the taxpayer and the Obligation holders may have no right to participate in such procedure. No additional interest will be paid upon any determination of taxability. Federal Income Tax Accounting Treatment of Original Issue Discount The initial public offering price to be paid for one or more maturities of the Obligations (the "Original Issue Discount Obligations") may be less than the principal amount thereof or one or more periods for the payment of interest on the bonds may not be equal to the accrual period or be in excess of one year. In such event, the difference between (i) the "stated redemption price at maturity" of each Original Issue Discount Obligation, and (ii) the initial offering price to the public of such Original Issue Discount Obligation would constitute original issue discount. The "stated redemption price at maturity" means the sum of all payments to be made on the bonds less the amount of all periodic interest payments. Periodic interest payments are payments which are made during equal accrual periods (or during any unequal pr eiod if it is the initial or final period) and which are made during accrual periods which do not exceed one year. Under existing law, any owner who has purchased such Original Issue Discount Obligation in the initial public offering is entitled to exclude from gross income (as defined in section 61 of the Code) an amount of income with respect to such Original Issue Discount Obligation equal to that portion of the amount of such original issue discount allocable to the accrual period. For a discussion of certain collateral federal tax consequences, see discussion set forth below. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Obligation prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Obligation in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Obligation was held by such initial owner) is includable in gross income. 17 Under existing law, the original issue discount on each Original Issue Discount Obligation is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the date of the Obligations and ratably within each such six-month period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Obligation for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Original Issue Discount Obligation. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Original Issue Discount Obligations which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Obligations should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of the treatment of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Obligations and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Obligations, Collateral Federal Income Tax Consequences The following discussion is a summary of certain collateral federal income tax consequences resulting from the purchase, ownership or disposition of the Obligations. This discussion is based on existing statutes, regulations, published rulings and court decisions, all of which are subject to change or modification, retroactively. The following discussion is applicable to investors, other than those who are subject to special provisions of the Code, such as financial institutions, property and casualty insurance companies, life insurance companies, owners of interests in a FASIT, individual recipients of Social Security or Railroad Retirement benefits, individuals allowed an earned income credit, certain S corporations with Subchapter C earnings and profits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase tax-exempt obligations. THE DISCUSSION CONTAINED HEREIN MAY NOT BE EXHAUSTIVE. INVESTORS, INCLUDING THOSE WHO ARE SUBJECT TO SPECIAL PROVISIONS OF THE CODE, SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX TREATMENT WHICH MAY BE ANTICIPATED TO RESULT FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF TAX-EXEMPT OBLIGATIONS BEFORE DETERMINING WHETHER TO PURCHASE THE OBLIGATIONS. Interest on the Obligations will be includable as an adjustment for "adjusted current earnings" to calculate the alternative minimum tax imposed on corporations by section 55 of the Code. Section 55 of the Code imposes a tax equal to 20 percent for corporations, or 26 percent for non -corporate taxpayers (28 percent for taxable income exceeding $175,000), of the taxpayer's "alternative minimum taxable income," if the amount of such alternative minimum tax is greater than the taxpayer's regular income tax for the taxable year. Interest on the Obligations may be subject to the "branch profits tax" imposed by section 884 of the Code on the effectively - connected earnings and profits of a foreign corporation doing business in the United States. Under section 6012 of the Code, holders of tax-exempt obligations, such as the Obligations, may be required to disclose interest received or accrued during each taxable year on their returns of federal income taxation. Section 1276 of the Code provides for ordinary income tax treatment of gain recognized upon the disposition of atax-exempt obligation, such as the Obligations, if such obligation was acquired at a "market discount" and if the fixed maturity of such obligation is equal to, or exceeds, one year from the date of issue. Such treatment applies to "market discount bonds" to the extent such gain does not exceed the accrued market discount of such bonds; although for this purpose, a de minimis amount of market discount is ignored. A "market discount bond" is one which is acquired by the holder at a purchase price which is less than the stated redemption price at maturity or, in the case of a bond issued at an original issue discount, the "revised issue price" (i.e., the issue price plus accrued original issue discount). The "accrued market discount" is the amount which bears the same ratio to the market discount as the number of days during which the holder holds the obligation bears to the number of days between the acquisition date and the final maturity date. State, Local and Foreign Taxes Investors should consult their own tax advisors concerning the tax implications of the purchase, ownership or disposition of the Obligations under applicable state or local laws. Foreign investors should also consult their own tax advisors regarding the tax consequences unique to investors who are not United States persons. We Qualified Tax -Exempt Obligations Section 265(a) of the Code provides, in pertinent part, that interest paid or incurred by a taxpayer, including a "financial institution," on indebtedness incurred or continued to purchase or carry tax-exempt obligations is not deductible by such taxpayer in determining taxable income. Section 265(b) of the Code provides an exception to the disallowance of such deduction for any interest expense paid or incurred on indebtedness of a taxpayer which is a "financial institution" allocable to tax-exempt obligations, other than "private activity bonds," which are designated by an issuer as "qualified tax-exempt obligations." Section 265(b)(5) of the Code defines the term "financial institution" as referring to any corporation described in section 585(a)(2) of the Code, or any person accepting deposits from the public in the ordinary course of such person's trade or business which is subject to federal or state supervision as a financial institution. The Issuer has designated the Obligations as "qualified tax-exempt obligations" within the meaning of section 265(b) of the Code. In furtherance of that designation, the Issuer will covenant to take such action which would assure, or to refrain from such action which would adversely affect, the treatment of the Obligations as "qualified tax-exempt obligations." Potential purchasers should be aware that if the issue price to the public (or, in the case of discount bonds or certificates, the amount payable at maturity) exceeds $10,000,000 during the same calendar year, then such obligations might fail to satisfy the $10,000,000 limitation and the obligations would not be "qualified tax-exempt obligations." CONTINUING DISCLOSURE OF INFORMATION The offering of the Bonds and the Certificates qualifies for the Rule 15c2-12(d)(2) exemption from continuing disclosure obligations because the City has less than $10,000,000 in aggregate amount of outstanding obligations and no person, other than the City, is committed by contract or other arrangement with respect to payment of the Bonds or the Certificates. Pursuant to the exemption, the City in the Ordinance has made the following agreement for the benefit of the holders and beneficial owners of the Bonds or the Certificates. The Issuer is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds or the Certificates. Under the agreement, the Issuer will be obligated to provided certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. Annual Reports The Issuer will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the Issuer of the general type included in this Official Statement that is a matter of public record. 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, with respect to the Bonds, the System, and regarding, with respect to the Certificates, property valuation, tax rates and tax collections. The Issuer will update and provide this information within six months after the end of each fiscal year beginning in 2002. The Issuer will provide the updated information to any state information depository ("SID") that is designated by the State of Texas and approved by the staff of the United States Securities and Exchange Commission (the "SEC"). The Issuer may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12 (the "Rule"). The updated information will include audited financial statements for the Issuer, if the Issuer commissions an audit and it is completed by the required time. If audited financial statements cannot be provided, the Issuer will provide unaudited financial statements until the audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in the Issuer's annual financial statements, or such other accounting principles as the Issuer may be required to employ from time to time pursuant to state law or regulation. The Issuer's current fiscal year end is September 30. Accordingly, it must provide updated information by the last day in March in. each year, unless the Issuer changes its fiscal year. If the Issuer changes its fiscal year, it will notify any SID of the change. Material Event Notices The Issuer will also provide timely notices of certain events to certain information vendors. The Issuer will provide notice of any of the following events with respect to the Bonds or the Certificates, if such event is material to a decision to purchase or sell Bonds or the Certificates: (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) adverseJax opinions or events affecting the tax-exempt status of the Bonds or the Certificates; (7) modifications to rights of holders of the Bonds or the Certificates; (8) Bond or Certificate calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds or the Certificates; and (11) rating changes. Neither the Obligations nor the Ordinances make any provision for credit enhancement or liquidity enhancement, nor do the Certificates nor the Certificate Ordinance make any provision for debt 19 service reserves. In addition, the Issuer will provide timely notice of any failure by the Issuer to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports". The Issuer will provide each notice described in this paragraph to any SID and the Municipal Securities Rulemaking Board ("MSRB"). Availability of Information from SID and MSRB The Issuer has agreed to provide the foregoing information only to any SID and the MSRB. The information will be available to holders of Bonds or the Certificates only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. The Municipal Advisory Council of Texas has been designated by the State of Texas as a SID, and has been qualified as a SID by the staff of the SEC. The address of the Municipal Advisory Council is 600 West 8th Street, P.O. Box 2177, Austin, Texas 78768-2177, and its telephone number is 512/476-6947. Limitations and Amendments The Issuer has agreed to update information and to provide notices of material events only as described above. The Issuer 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 Issuer makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds or the Certificates at any future date. The Issuer disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders or beneficial owners of Bonds or the Certificates may seek a writ of mandamus to compel the Issuer to comply with its agreement. The Issuer may amend its continuing disclosure agreement 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, if the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds or Certificates 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 either the holders of a majority in aggregate principal amount of the outstanding Bonds or Certificates consent or any person unaffiliated with the Issuer (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the beneficial owners of the Bonds or the Certificates. The Issuer may also repeal or amend these provisions if the SEC amends or repeals the applicable provisions of the Rule or any court of final jurisdiction enters judgment that such provisions of the Rule are invalid, and the Issuer also may amend the provisions of this Article in its discretion in any other manner or circumstance, but in either case only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Bonds or Certificates in the primary offering of the Bonds or the Certificates giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. If the Issuer amends its agreement, it must 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 information and data provided. Compliance with Prior Agreements The City has complied in all material respects with its undertakings made pursuant to the Rule, with the exception of a late filing for 1998, which was submitted on April 14, 1999. All the Issuer's filings since that time have been made on time. OTHER PERTINENT INFORMATION Registration and Qualification of Bonds and the Certificates for Sale The sale of the Bonds and the Certificates has not been registered under the Federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Bonds and the Certificates have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; no, have the Bonds or the Certificates been qualified under the securities acts of any jurisdiction. The Issuer assumes no responsibility for qualification of the Bonds or the Certificates under the securities laws of any jurisdiction in which the Bonds or the Certificates may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds and the Certificates shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions. 20 Litigation In the opinion of the City Attorney, the Issuer is not a party to any litigation or other proceeding pending or to its knowledge, threatened, in any court, agency or other administrative body (either state or federal) which, if decided adversely to the Issuer, would have a material adverse effect on the financial condition of the City. Legal Investments and Eligibility to Secure Public Funds in Texas Section 1201.041 of the Public Security Procedures Act provides the Obligations are (i) negotiable instruments, (ii) investment securities to which Chapter 8, Business and Commerce Code applies and (iii) legal and authorized investments for insurance companies, fiduciaries or trustees and sinking funds of municipalities or other political subdivisions or public agencies of the State of Texas. The Texas Finance Code also contains provisions that, subject to the prudent investor standard, provide for the Bonds to be legal investments for state banks, savings banks, trust companies with capital of one million dollars or more, and savings and loan associations. For the Bonds to be eligible investments for municipalities, political subdivisions or public agencies of Texas, the Public Funs Investment Act, V.T.C.A., Government Code, Chapter 2256, provides a rating of "A" or its equivalent as to investment quality must be assigned by a national rating agency. Furthermore, the Bonds are eligible to secure the deposits of any public funs of the State of Texas, its agencies and its political subdivisions and are legal security for those deposits to the extent of their market value. Legal Opinions and No -Litigation Certificate The Issuer will furnish the Purchasers of the respective series of Obligations with a complete transcript of proceedings incident to the authorization and issuance of the respective Obligations, including the unqualified approving legal opinions of the Attorney General of the State of Texas to the effect that the respective Obligations are valid and legally binding obligations of the Issuer, and based upon examination of such transcript of proceedings, the approval of certain legal matters by Bond Counsel, to the effect that the Obligations are valid and legally binding obligations of the Issuer and, subject to the qualifications set forth herein under "TAX MATTERS — Tax Exemption," the interest on the Obligations is excludable from the gross income of the owners thereof for federal income tax purposes under existing statutes, regulations, published rulings, and court decisions existing on the date thereof. The customary closing papers, including a certificate to the effect that no litigation of any nature has been filed or is then pending to restrain the issuance and delivery of the respective Obligations, or which would affect the provision made for their payment or security, or in any manner questioning the validity of the respective Obligations will also be furnished. Bond Counsel was not requested to participate, and did not take part, in the preparation of the Notice of Sale and Bidding Instructions, the Official Bid Form and the Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information describing the Bonds and the Certificates in the Official Statement to verify that such description conforms to the provisions of the respective Ordinance. Such firm has not, however, independently verified any of the factual information contained in this Official Statement nor has it conducted an investigation of the affairs of the Issuer 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 legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Obligations are contingent on the sale and delivery of the respective Obligations. The legal opinions of Bond Counsel will be printed on, or will accompany the definitive Obligations and the form of such opinion is attached hereto as Appendix C. The various legal opinions to be delivered concurrently with the delivery of the respective Obligations express the professional judgment of the attorneys rendering the opinions 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 from the transaction. Ratings The Bonds: Moody's Investors Service, Inc. ("Moody's") has assigned a rating of "Baa1" to the Bonds The Certificates: Moody's Investors Service, Inc. ("Moody's") has assigned a rating of "Aaa" to the Certificates with the understanding that, concurrently with the delivery of the Certificates, a municipal bond insurance policy will be issued by Financial Guaranty. Moody's has assigned an underlying rating of "B002" to the Certificates. (See "OTHER PERTINENT INFORMATION - Ratings" herein.) An explanation of the significance of such ratings may be obtained from Moody's. A rating by a rating agency reflects only the view of such company at the time the rating is given, and the Issuer makes no representations as to the appropriateness of the rating. There is no assurance that such a rating will continue for any given period of time, or that it will not be revised downward or withdrawn entirely by the rating agency if, in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the Bonds. 21 Financial Advisor AS Securities is employed as a Financial Advisor to the Issuer in connection with the issuance of the Obligations. In this capacity, the Financial Advisor has compiled certain data relating to the Obligations and has assisted in drafting this Official Statement. The Financial Advisor has not independently verified any of the data contained herein or conducted a detailed investigation of the affairs of the Issuer to determine the accuracy or completeness of this Official Statement. Because of its limited participation, the Financial Advisor assumes no responsibility for the accuracy or completeness of any of the information contained herein. The fees for Financial Advisor are contingent upon the issuance, sale and delivery of the Obligations. The Issuer has permitted SWS Securities the option to bid on the Obligations. SWS Securities may submit a bid for the Obligations, either independently or as a member of a syndicate organized to submit a bid for the Obligations. Winning Bidder On May 20, 2002 the Bonds were awarded to an underwriter or group of underwriters managed by SAMCO Capital Markets the "Purchasers"). The initial reoffering yields were supplied to the City by the Purchasers. The initial reoffering yields shown on the inside cover page will produce compensation to the Purchasers of approximately $39,494,75, On May 20, 2002 the Certificates were awarded to an underwriter or group of underwriters managed by SAMCO Capital Markets (the "Purchasers"). The initial reoffering yields were supplied to the City by the Purchasers. The initial reoffering yields shown on the inside cover page will produce compensation to the Purchasers of approximately $17,738.30, after paying an insurance premium of $17,500.00, Certification of the Official Statement At the time of payment for and delivery of the Bonds, the Purchaser of each series of Obligations will be furnished a certificate executed by the proper officials of the City acting in their official capacity, to the effect that: (a) the descriptions and statements of or pertaining to the City contained in its Official Statement relating to the Bonds or Certificates, as applicable, and any addenda, supplement or amendment thereto, on the date of such Official Statement, on the date of the sale of said Bonds, and on the date of the delivery, were and are true and correct in all material respects; (b) insofar as the City and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statement therein, in the light of the circumstances under which they were made, not misleading; (c) to the best of their knowledge, insofar as the descriptions and statements, including financial data, or pertaining to entities, other than the City and its activities, contained in such Official Statement are concerned, such statements and data have been obtained from sources which the City believes to be reliable and the City has no reason to believe that they are untrue in any material respect; and (d) there has been no material adverse change in the financial condition of the City since September 30, 2001, the date of the last audited financial statements of the Issuer, portions of which appear in the Official Statement. The Official Statement will be approved as to form and content and the use thereof in the offering of the Bonds will be authorized, ratified and approved by the City Council on the date of sale, and the Purchasers will be furnished, upon request, at the time of payment for and the delivery of the Obligations, a certified copy of such approval, duly executed by the proper officials of the Issuer. The Ordinances will also approve the form and content of this Official Statement, and any addenda, supplement or amendment thereto issued on behalf of the Issuer, and authorize its further use in the reoffering of the Bonds by the Purchasers. Forward -Looking Statements Disclaimer 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' 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. The City's actual results could differ materially from those discussed in such forward -looking statements. The forward -looking statements included 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, 22 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 such assumptions could be inaccurate and, therefore, there can be no assurance that the forward -looking statements included in this Official Statement will prove to be accurate. Concluding Statement The financial data and other information contained in this Official Statement have been obtained from the City's records, audited financial statements and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Official Statement are made subject to all of the provisions of such statues, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information . Reference is made to original documents in all respects. This Official Statement has been approved by the City Council of the Issuer for distribution in accordance with the provisions of the Securities and Exchange Commission's rule codified at 17 C.F.R. Section 240.15c2-12. ATTEST: /s/ Rosalie Chavez City Secretary City of Sanger, Texas CITY OF BANGER, TEXAS lsl Tommy Kincaid Mayor City of Sanger, Texas 23 (This page is intentionally left blank.] APPENDIX A FINANCIAL INFORMATION OF THE ISSUER (This appendix contains quantitative financial information and operating data with respect to the Issuer. The information is only a partial representation and does not purport to be complete. For further and more complete information, reference should be made to the original documents, which can be obtained from various sources, as noted.) FINANCIAL INFORMATION OF THE ISSUER ASSESSED VALUATION TABLE 1 2001 Total Value of Taxable Property Less Exemptions: Local, Optional Over-65 and/or Disabled Homestead Exemptions Disabled and Deceased Veterans' Exemptions Productivity Value Loss Homestead 10% Cap Adjustment Other 2002 Net Taxable Assessed Valuation (100% of Actual)�a� $ 2,284,339 171,148 61240,508 1,856,629 $ 155,381,145 10,552,624 $ 144,828,521 ray See "CITYAPPL/CAT/ON OF THE PROPERTY TAX CODE" in the Official Statement for a description of the Issuers taxation procedures. Source: Denton County Appraisal District GENERAL OBLIGATION BONDED DEBT TABLE 2 (As of June 1, 200 q General Obligation Debt Principal Outstanding: Certificates of Obligation, Series 1994 Combination Tax and Revenue Certificates of Obligation, Series 2002 (This Issue) Total General Obligation Debt Principal Outstanding: General Obligation Interest and Sinking Fund Balance as of 4-15-02 Ratio of Gross General Obligation Debt to 2001 Net Assessed Valuation 2001 Net Assessed Valuation�e� $ 1,290,000 2,360,000 $ 31650,000 $ 55,161 2.52% $ 144,828,521 ray See "CITY APPLICATION OF THE PROPERTY TAX CODE" in the Ofircial Statement for a description of the Issuer's taxation procedures. Population: 1980 - 2,574; 1990 - 3,508; 2000 - 4,534 Current (Estimate) - Per Capita 2001 Net Assessed Valuation - Per Capita Gross General Obligation Debt - 51200 $27,852 $702 OTHER OBLIGATIONS TABLE 3 A summary of the City's Notes Paybale and Capital Leases is shown below. Balances are as of September 30, 2001, unless noted otherwise. These obligations are grouped under the fund from which the obligations are being paid. More detailed information regarding the City's long-term debt can be found in the Notes to the City's 2001 Audited Financial Statements, which are included herein as Appendix E. General Fund Notes Payable Guaranty National Bank $ 17,408 Guaranty National Bank 20,881 Guaranty National Bank 38,956 Guaranty National Bank 31,421 Guaranty National Bank 11,308 Guaranty National Bank 10,229 Guaranty National Bank 17,105 Guaranty National Bank (a) 801,687 (a) Guaranty National Bank (added since 9-30-01) 150,000 $ 11098,995 Less Amount Paid by Sanger IDC (4A Corp) (801,687) Total Notes Payable $ 297,308 Total Notes I Leases Paid From General Fund Capital Leases Midwest Bankers $ 63,592 Lubbock National Bank 91283 Ford Motor Credit Company 336 Ford Motor Credit Company 11382 Ford Motor Credit Company 81635 Total Capital Leases $ 83,228 $ 380,536 (a) The Sanger Industrial Development Corporation (4A Corp) is the legal borrower on this note, and the proceeds are being used to purchase land for development of a Walmart Regional Warehouse, The Corporation is using the 4A Corp Sales Tax Revenues to pay this obligation. Notes Payable Guaranty National Bank (original $379,000 note was refunded and extended 1 yr.) Guaranty National Bank Guaranty National Bank Guaranty National Bank Guaranty National Bank rise Fund Capital Leases $ 400,744 Lubbock National Bank $ 10,484 Ford Motor Credit any 10,500 Ford Motor Credit Company 11949 75,525 Ford Motor Credit Company 31909 9,850 19,424 95,560 Total Notes Payable $ 601,103 Total Notes /Leases Paid From Enterprise Fund Total Capital Leases 26,842 $ $ 627,945 A-2 GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS TABLE 4 The Certificates Fiscal Year Current Total 31-Aug DebtService(a) Principal Interest Total 2002 $ 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 200,720 cbJ 203,658 205,963 207,625 208,635 208,900 213,400 212,000 40,000 75,000 80,000 85,000 85,000 90,000 95,000 100,000 105,000 110,000 120,000 125,000 130,000 135,000 145,000 1150, 000 160,000 170,000 175,000 185,000 $ 2,360,000 145,731 114,305 1101030 105,470 100,625 95,780 90,650 85,235 80,385 75,975 71,245 65,965 60,340 54,490 48,280 41,465 34,340 26,500 18,000 9,250 $ 1,434,061 185,731 189,305 190,030 190,470 185,625 185,780 185,650 185,235 185,385 185,975 191,245 190,965 190,340 189,490 193,280 191,465 1949340 196,500 193,000 194,250 $ 3,794,061 Combined Debt Service(a) $ 200,720 389,389 395,268 3979655 399,105 394,525 399,180 3971650 1859235 1859385 185,975 191,245 190,965 190,340 189,490 193,280 191,465 194,340 196,500 193,000 1946250 $ 5,454,961 2001 Assessed Valuation $ 144,828,521 Maximum Annual Debt Service Requirements (Fiscal Year Ending 9-30-08) $ 399,180 Indicated Maximum Interest and Sinking Fund Tax Rate at 95% Collections $ 0,29013 Note: Above computation is exclusive of investment eamings, delinquent tax collections and penalties and interest on delinquent tax collections. INTEREST AND SINKING FUND MANAGEMENT INDEX TABLE 6 Interest and Sinking Fund Balance, Fiscal Year Ended September 30, 2001 $ 45,812 2001 Interest and Sinking (I&S) Fund Tax Levy at 95% Collections Produce (a) 298,082 Total Available for Debt Service $ 343,894 Less: General Obligation Debt Service Requirements, Fiscal Year Ending 9-30-02(b) 200,720 Estimated Surplus at Fiscal Year Ending 9-30-02 $ 143,174 cbi (a) Does not include delinquent tax collections, penalties and interest on delinquent tax collections or investment earnings. rb1 This surplus is being used to pay notes and leases payable. A-3 GENERAL OBLIGATION PRINCIPAL REPAYMENT SCHEDULE TABLE 7 (As of June 1, 2001) Fiscal Year Ending 9/30 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Principal Repayment Schedule Outstanding Series 2001 Debt Certificates $ 125,000 $ 135,000 40,000 1457000 75,000 1553000 80,000 1655000 85,000 175,000 85,000 1909000 90,000 2005000 95,000 100,000 105,000 1101000 120,000 125,000 130,000 135,000 145,000 150,000 160,000 170,000 - 175,000 185,000 $ 11290,000 $ 21360,000 Total $ 125,000 175,000 220,000 235,000 250,000 260,000 280,000 295,000 100,000 105,000 110,000 120,000 125,000 130,000 135,000 1451000 150,000 160,000 170,000 175,000 185,000 $ 31650,000 Debt Unpaid at End of Year $ 3,525,000 313501000 3,130,000 21895,000 21645,000 21385,000 2,105,000 11810,000 11710,000 11605,000 11495,000 113751000 11250,000 1,120, 000 985,000 8401000 690,000 530,000 360,000 1851000 Percent of Principal Retired (%) 3.42% 8.22% 14.25% 20.68% 27.53% 34.66% 42.33% 50.41 % 53.15% 56.03% 59.04% 62.33% 65.75% 69.32% 73.01 % 76.99% 81.10% 85.48% 90.14% 94.93% 100,00% TAXABLE ASSESSED VALUATION HISTORY TABLE 8 Net Taxable Change From Preceding Year Year Assessed Valuation Amount ($) Percent 1995-96 $ 78,240,705 21699,487 3.57% 1996-97 84,764,092 61523,387 8.34% 1997-98 91,372,796 61608,704 7.80% 1998=99 96,449,856 51077,060 5.56% 1999-00 109,642,638 13,192,782 13.68% 2000-01 129,014,176 19,371,538 17.67% 2001-02 144,8281521 159814,345 12.26% Sources: Texas Municipal Report published by the Municipal Advisory Council of Texas and the Denton Central Appraisal District 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. IQ! \ \ \ \ \ \ \ \ \o \ \ \ \ \ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 p (O M a0 n M t0 f0 O LO 0 0 0 O 0 CO M N 0 0� t` 0 0 0 0 O o r LO O - ' ' CD (D N O (D CA OOOOMW N O O n nl LO �t O Lr) N LO n CA 00 (D 0) LO 0) CM 00 N LO �- n 0 0 0 N M n N M rt O n O) M �- o n r` 0) (D LO 00 LO 0) M N •- (D O M r � M M N �- CA � CON N Ln E9 E9 EA 69 69 \ o 0 0 0 0 0 0 0 0 0 0 %0� 0 0 0 p Z O •- LD N (O to M O N N O O O � 0 WMNri0a44Lri6r-o0 ci e N n w�t 0 n N m 9qt O w CA v O 0) co rt CM CO N n 0 m M (O CO O O O M (D �- O CO M 0) LO N 0 CO M 00 0 0 O - O 'IT n 00 O - M Li) O) 00 r- (D n r- v 0) O 00 O O O O N n 00 e- c- O 0)per) to co CO n N (O 0) 0)M O M N (D (O 00 00 n n It O) 41;11 N UN) N M LO M O (M N .- (M r- LO � (o V T" 0) CM N M CY) IT (0 O (V N Ln co 609- 69 1 69 K} 69 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0� 0 �O �� O) N O O L) N O 0) O O O O (O 00 n 0) N Lr) 00 N CO N O O O -0L6NN O CD �t LO N 0 0 Oe CO N .- n O 0 CO M M O ' ' O N O N 00 ' CV 00 LO v (D N O O CO In 00 9qt O (D •- O N 00 N co 0 n 0 0 o (O N M V M (D O Ln LO n CO N N n oo M Lo N Lr) 00 (M O N q�t N 00 n N a) LO CM CM It co N O LO o C) 00 O M 00 N c- to d' CD n M M N 00 LO Lr) O V N n (O n (D TM Lr) CM CO) M Lr) (0 M .- LO N N Lr) cr n O F!-? 63 69 61)H3 C 0 0 %0 0 0 0 0 0 0 0 0 0 0 .� Mrnrnnn(o��n�.-on o 02 O O o E CD O d' Lr) O 00 n M M M O ow O O M 00 CO LC) CO Lr) n (fl n 0 CO Ll) rn n CA ao N n .- O M O M Ln r- pl �- O O M O (D mt O O M O N rt n v rn n It p N Lr) 0 N 0 e- M O N O M O d' V' CO Nqqt N N �- p n LO N N n 00 N r- 0o Lr) to co N (O M N CO O N t�: M qti d' � 00 n r- c- t% N CM N Cd CA 00 M N 6rk 64 E9 (fi 69 O O O O O O 0 O 0 O O O O O 0 0 0 0 0 0 0 0 0 0 0 0 0 0 LO (M CA N M O 00 N N 00 LO O p rl N V' 00 Lo O O qt d LO O O d I O e 0 r- N N mt M M �a t c- c- O 0 O �-- (D O (D O r1 M N CO M w n o •- 0 LO O 00 00 0) ' NT � M rt (D CD M M O n M w4t � M 4ct O N N N M CO O O M N M M M O M M CO LO (D CO Lr) M O O N M t� �t In O O .- d O (o N 00 �I (O 00 Co O O Ln wt CD LO n n (M 00 00 n et LO LO N p n� 0 0 N n CA 00 � LO V O CM N N 00 LO 00 C L M Ni n (M N ti O N L N (D O NCD 69 69 69 60 (H N G N C 0 m m m co m E LL T N E N� N .I U N O E 3 N O a y a m= m MO 00> ` p C 0 m a m 0 m ri N Q. � U N > N O U N Q C N Cc 0 .0 m CO C0 N O m m (�6 N J� U N ,(6 � N m N C, 'O > U Q v wm ti ti o a�i `p E o m X no p o> Q 06 U ��� ��� U Q Lu �� � y m m `.0 � (D H °�' mmmm €mmm CO) c)o c�co Co o U)) > m o o s � � m N 0 N 0 m 0) N N m m PRINCIPAL TAXPAYERS TABLE 10 Name Central Telephone Company of Texas Hughes Family Partners AMPCO Products, Inc. Golston Company Studer i Morton Co. Qwest Communications Corporation Global Crossing North American Sanger 1-35 Joint Venture Sanger Bank Type of Business Utility Real Estate Restroom Stalls Manufacturing Plastics Manufacturing Care Inn Clinical Testing Laboratory Fiber Optics Cable Real Estate Financial Institution Total Based on a 2001 Net Taxable Assessed Valuatio $ 144,828,521 of Total 2001 2001 Net Taxable Assessed AS Valuation Valuation $ 21877,680 1.99% 2,625,724 1.81 % 11297,674 0.90% 11192,634 0.82% 11069, 794 0.74% 11047,460 0.72% 11041,710 0.72% 1,0111763 0.70% 902,160 0.62% 88%305 0.61 % $13,9551904 9.64% Source: Texas comptroller of Public Accounts and Denton Central Appraisal District PROPERTY TAX RATES AND COLLECTIONS Ia1 TABLE 11 Tax Net Taxable Year Assessed Valuation 1995-96 $ 78,240,705 1996-97 84, 764, 092 1997-98 91,372,796 1998-99 96,449,856 1999-00 109,642,638 2000-01 129, 014,176 2001-02 144, 828, 521 Tax Rate 0048370 0448130 0A7260 0.50280 0.52280 0.52280 0.58879 Collection Current 95.81 96.31 96.20% 95.53% 95.88% 96.14% 94.56% Total' 97.90% 100,68% 98.24% 99.76% 99.86% 98.15% Fiscal Year Ended 9-30-96 9-30-97 9 30-98 9-30 99 9-30 00 9-30 01 9-30-02 �1� See "THE CITY APPLICATION OF THE PROPERTY TAX CODE" in the Official Statement for a description of the Issuer's taxation procedures. (b) Excludes interest and penalties. (°) Collections through April 30, 2002 Source: Texas Municipal Report published by the Municipal Advisory Council of Texas, the Denton County Appraisal District, and the City's 2001 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 12 2001 2000 1999 1998 1997 1996 Maintenance &Operations $0.37214 $0.36510 $0.33900 $0.29380 $0.24700 $0.37170 I & S Fund 0.21665 0.15770 0.18380 0.20900 0.22560 0,10960 TOTAL $0.58879 $0.52280 $0.52280 $0,50280 $0,47260 $0048130 Source: Issuer A-6 MUNICIPAL SALES TAX TABLE 13 The Issuer has adopted the provision of Chapter 321, as amended, Texas Tax Code. In addition, some issuers are subject to a property tax relief and/or an economic and industrial development tax. The voters of the City approved an additional %% sales tax for each of 4A and 4B economic development on May 2, 1998, with collections beginning effective October 1, 1998 and receipts first received in December 1998. Net collections on calendar year basis follow: Calendar Total 1.00% 1.00% (4A & 4131 % of Ad Valorem ($) Equivalent of Ad Year Collected City Economic Dev. Tax Levy Valorem Tax Rate 1995 $ 135,567 $ 135,567 $ - 35.82% $0.17 1996 167,104 167,104 - 40.96% $0.20 1997 169,975 169,975 - 43.11 % $0.21 1998 213,071 204,143 81928 (a) 47.82% $0.23 1999 446,219 223,110 223,110 49.09% $0.25 2000 450,879 225,440 225,440 39.77% $0.21 2001 491,010 245,505 245,505 36.02% $0.19 2002 (b) 358,832 (b) 179,416 (b) 179,416 (b) 21.25% (b) $0.13 (b) (b) Estimate only, based on average monthly collections. Additional 1 %for economic development sales" tax received only for month of December. (b) Current year collections are as of April 2, 2002. Source: State Comptrollers Office of the State of Texas and information from the Issuer. FUND BALANCES TABLE 14 (As of April 15, 2002) General Funds General Operating Fund General Obligation Interest and Sinking Fund Unrestricted Funds Accumulated for Future Debt Service Payments on Series 2002 CO's Notes Payable Fund Parks Project Fund General Fund Equipment Replacement Enterprise Funds Utility System Operating Fund Revenue Bond Interest and Sinking Funds Revenue Bond Reserve Fund Emergency Fund Meter Deposit Fund Water Deposit Fund Unrestricted Funds Accumulated for Future Debt Service Payments on Series 2002 Utility System Rev Bonds Water Capital Improvement Fund Sewer Capital Improvement Fund Utility Equipment Replacement Fund Water Well Project Fund Total $ 182,145 93,161 74,153 42,498 7,440 12,211 264, 919 122,512 258,550 16,212 55,000 67,153 24,557 89,749 113,002 17,332 47,111 $ 11487,705 A-7 DIRECT AND OVERLAPPING DEBT DATA INFORMATION Gross Debt Taxing Body As of Principal Denton County 1-01-02 $ 139,412,570 Sanger Independent School District 3-22-01 26,162,493 Total Gross Overlapping Debt City of Sanger 6-01-02 3,650,000 (a) Total Direct and Overlapping Debt Ratio of Direct and Overlapping Debt to 2001 Assessed Valuation Ratio of Direct and Overlapping Debt to 2001 Actual Value Per Capita Direct and Overlapping Debt 70 Overlapping 0.56% 49.99% 100.00% �b� Includes the self-supporting debt. (See "GENERAL OBLIGATION BONDED DEBT" herein.) Sources: The most recent Texas Municipal Report published by the Municipal Advisory Council of Texas TABLE 15 Amount Overlapping $ 780,710 131078,630 $ 13,859,341 3,650,000 $ 171509,341 12.09% 11.27% $3,367 ASSESSED VALUATION AND TAX RATE OF OVERLAPPING ENTITIES TABLE 16 2001 Net Taxable Governmental Entity Assessed Valuation % of Actual Denton County $ 11198,745,758 100% Sanger Elm Independent School District 285,626,355 100% Source: The most recent Texas Municipal Report published by the Municipal Advisory Council of Texas AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS OF DIRECT AND OVERLAPPING GOVERNMENTAL ENTITIES Taxing Body Denton County Date of Authorizatio 11-5-91 1-16-99 Purpose Road &Bridge Road &Bridge Amount Authorized $ 34,000,000 85,320,000 Issued To -Date $ 28,875,000 24,600,000 Totals $ 119,320,000 $ 531475,000 Sanger Independent School District 3-5-75 School Building $ 11310,000 $ 11260,000 Sanger, City of None dal The District currently has no plans to issue the remaining authorized but unissued bonds. Source: The most recent Texas Municipal Report published by the Municipal Advisory Council of Texas 2001 Tax Rate $ 0425193 1.67000 TABLE 17 Unissued $ 5,125,000 60, 720, 000 $ 651845,000 I�3 GENERAL FUND COMBINED STATEMENT OF REVENUES AND EXPENDITURES AND CHANGES IN FUND BALANCES TABLE 18 Fiscal Year Ended September 30 2001 2000 1999 1998 1997 Revenues Property Taxes $ 676,511 $ 580,937 $ 502,660 $ 425,761 $ 406,208 Nonproperty Taxes 488,405 390,431 380,004 344,181 296,516 Penalty and Interest on Delinquent Taxes 13,829 12,924 91953 81402 8,125 Licenses and Permits 45,823 28,793 25,244 101,147 31,864 Fees and Services 473,901 403,841 374,497 279,192 293,938 Grants and Intergovernmental 129,180 84,593 102,066 77,325 349,695 Interest Income 71093 53212 51873 41651 11,134 Miscellaneous Income 13,906 131118 10,707 18,489 43,037 Other Revenues( Donations) 19,557 30,787 21644 21022 23,240 Total Revenues $ 19868,205 $ 11550,636 $ 19413,648 $ 11261,170 $ 11463,757 Expenditures Current: General Government $ 547,547 $ 490,984 $ 470,159 $ 438,325 $ 462,911 Public Safety 649,899 536,295 499,734 424,147 399,425 Highways and Streets 132,966 133,849 119,378 107,937 242,165 Health and Welfare 57,225 45,200 30,025 25,362 333,688 Culture and Recreation 347,623 270,563 255,357 235,077 117,918 Capital Outlay 207,490 263,898 266,663 158,176 55,366 Debt Service Principal 258,156 202,188 187,270 146,070 128,867 Debt Service Interest 101,800 108,477 117,523 119,747 127,170 Total Expenditures $ 24302,706 $ 21051,454 $ 1,946,109 1,654,841 $ 1,867,510 Excess (Deficit) of Revenues Over Expenditures $ (434,501) $ (500,818) $ (532,461) $ (393,671) $ (403,753) Other Financing Sources (Uses): Proceeds of Capital Leases/Notes Payable $ 19,098 $ 167,763 $ 181,969 $ 53,053 $ - Sale of Assets 19,508 - 51000 - Operating Transfer In (Out) 459,295 305,452 357,743 348,767 325,370 Total Other Financing Sources (Uses) $ 497,901 $ 473,215 $ 544,712 $ 401,820 $ 325,370 Excess (Deficit) of Revenues and Other Sources Over Expenditures and Other Uses $ 63,400 $ (27,603) $ 12,251 $ 81149 $ (78,383) Fund Balance - Beginning of Year $ 93,042 $ 120,645 $ 108,394 (a) $ 143,107 $ 2219490 Fund Balance - End of Year 156,442 $ 93,042 $ 120,645 151,256 a) $ 143,107 �a) Beginning fiscal year 1999, the Hotel Motel Tax and 4A / 48 Sales Tax Revenues in the amount of $42, 862 were moved to a separate "Special Revenue Fund" for audit purposes. Source: The Issuer's Audited Financial Statements A-9 REVENUE BOND DEBT DATA As of June 1, 2001 ) Revenue Bond Debt Principal Outstanding: Utility System Revenue Bonds, Series 1996 Utility System Revenue Refunding Bonds, Series 1999 Utility System Revenue Bonds, Series 2002 Total Revenue Debt Principal Outstanding CONDENSED WATERWORKS, SEWER AND ELECTRIC SYSTEM OPERATING STATEMENTS Operating Revenues Charges and Fees Other Total Operating Expenses Personnel Services Purchase of Services Materials and Supplies Franchise Fees Total Available for Debt Service Annual Debt Service Requirements Coverage per Rate Covenant Customer Count(a) Water Sewer Electric TABLE 19 $ 855,000 1,555,000 2,360,000 $ 4,770,000 TABLE 20 Fiscal Year Ended September 30 2001 2000 1999 1998 1997 $ 4,9831147 $ 4,086,359 $ 31929,244 $ 31977,591 $ 31452,372 33,328 32,141 60,763 49,808 68,372 $ 51016,475 $ 41118,500 $ 3,990,007 $ 41027,399 $ 31520,744 $ 828,030 $ 745,233 $ 629,610 $ 524,132 $ 506,671 21738,352 2,232,882 2,077,216 21019,451 11699,137 111,092 87,584 1091543 79,802 71,466 106,122 81,662 81,476 83,694 72,091 $ 31783,596 $ 31147,361 $ 21897,845 $ 21707,079 $ 21349,365 $ 1,232,879 $ 971,139 $ 11092,162 $ 11320,320 $ 11171,379 $ 291,780 $ 290,295 $ 307,198 $ 3.56 X 303,503 $ 293,085 4.00 X 2,017 1,942 1,887 1,835 1,704 2,006 1,921 1,859 1,807 1,674 1,796 11761 11718 19664 11621 �a) Meter counts for 2001-2002 as of April 15, 2002 are Water - 2, 025, Sewer - 2, 014 and Electric - 1, 823 Source: The Issuer's annual audited financial statements and the most recent Texas Municipal Report published by the Municipal Advisory Council of Texas. COVERAGE OF THE BONDS 2001 Net Revenues Available for Debt Service Annual Debt Service Requirement (2001) Coverage Estimated Annual Average Debt Service Requirements Upon the Issuance of the Bonds (2003-2022) Coverage Estimated Maximum Debt Service Requirements Upon the Issuance of the Bonds (2009) Coverage TABLE 21 79 $ 1,232,8 291,780 4.23 X 362,836 3.40 X 507,610 2.43 X A-10 Fiscal Year 30-Sep 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Current Total Debt Service $ 295,205 292,333 289,203 295,815 291,753 297,343 302,210 296,228 299,918 87,908 84,653 86,363 87,838 89,038 3,095,803 Principal $ 80,000 80,000 85,000 85,000 90,000 95,000 100,000 105,000 110,000 120,000 125,000 130,000 140,000 145,000 155,000 160,000 170,000 180,000 190,000 195,000 $ 2,540,000 PRINCIPAL REPAYMENT SCHEDULE Fiscal Year Ending 9-30 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 The Bonds Interest $ 130,242 131, 500 126,700 121,600 116,500 1111100 105,400 99,400 93,100 88,150 82,510 76,510 70,140 63,140 55,745 47,840 39,520 30,510 20,790 109530 1,620,927 Principal Repayment Schedule Currently The Outstanding Bonds Total $ 190,000 $ 40,000 $ 230,000 195,000 75,000 270,000 200,000 80,000 280,000 215*000 85,000 300,000 220,000 85,000 305,000 235,000 90,000 325,000 250,000 95,000 345,000 255,000 1009000 355,000 270,000 105,000 375,000 70,000 110,000 18 0, 000 70,000 120,000 190,000 75,000 125,000 200,000 80,000 130,000 210,000 85,000 135,000 220,000 145,000 145,000 150,000 150,000 160,000 160,000 170,000 170,000 175,000 175,000 185,000 185,000 $ 21410,000 $ 21360,000 $ 41770,000 Total $ 210,242 211,500 211,700 206,600 206,500 206,100 205,400 204,400 203,100 208,150 207,510 206,510 210,140 208,140 210,745 207,840 209,520 210,510 210,790 205,530 4,1601927 Bonds Unpaid at End of Year $ 41540,000 41270,000 31990, 000 31690, 000 31385,000 31060,000 21715,000 21360,000 11985,000 11805,000 11615,000 114155000 11205,000 985,000 840,000 690,000 530,000 360,000 185,000 Combined Debt Service $ 505,447 503,833 500,903 502,415 498,253 503,443 507,610 500,628 503,018 296,058 292,163 292,873 297,978 297,178 210,745 207,840 209,520 210,510 210,790 205,530 7,256,730 TABLE 23 Percent of Principal Retired (%) 4.82% '10.48% 16.35% 22.64% 29.04% 35.85% 43.08% 50.52% 58.39% 62.16% 66.14% 70.34% 74.74% 79.35% 82.39% 85.53% 88,89% 92.45% 96.12% 100,00% �a� Excludes the Refunded Bonds. A-11 UTILITY PLANT IN SERVICE As of September 30, 2001) Water System Sewer System Electric System Equipment Furniture & Office Equipment Building Improvements Easement Total Less: Total Accumulated Depreciation Net Utility Plant in Service Source: The Issuers annual audited financial statements for fiscal year ended September 30, 2001 WATER RATES Existing Rates Residential (Effective June 30, 2001) Minimum per unit served for 0 - 1,000 gallons $14,25 Next 4,000 gallons 2.35 Next 10,000 gallons 2.60 Next 15,000 gallons 3.05 Over 30,000 3.90 Commercial (Effective October 1, 2001) Minimum per unit served for 0 - 1,000 gallons Next 4,000 gallons Next 10,000 gallons Next 15,000 gallons Over 30,000 TABLE 24 $ 2,71,309 31567,071 2,735,786 1,014,072 204,333 322,858 1,500 $ 101559,929 51026,132) $ 5,533,797 4 per thousand gallons per thousand gallons per thousand gallons per thousand gallons $17.00 $17.00 2.75 per thousand gallons 3.00 per thousand gallons 3.25 per thousand gallons 4.00 per thousand gallons TABLE 25 PRINCIPAL WATER CUSTOMERS�a� TABLE 26 (FY 2001-2002 October -April) Name of Customer Comet Cleaners Living Center of America Sanger Inn McDonalds Sanger Intermediate School Dairy Queen No Frills Grill North Texas Plastics Jamal & Associates Total Average Monthly Consumption in Gallons 196,100 143,100 101,300 67,900 59,600 57,700 56,700 50,700 55,700 788,800 Average Monthly Bill $ 771.44 559.33 384,93 254.04 209.04 217,49 217,07 192.73 188,06 $ 2,994.13 �a1 Fiscal Year 2001-2002 figures are based on seven months only (October -April) and do not include the high consumption summer months. A-12 SEWER RATES TABLE 27 Existing Rates (Effective June 30, 2001) Residential Minimum (first 1,000 gallons) Per 1,000 gallons over first 1,000 gallons Maximum Commercial 3/a inch meter 1 inch meter 1 Y2 inch meter 2 inch meter 3 inch meter 4 inch meter Per 1,000 gallons over first 1,000 gallons 0 15.00 1.00 30.00 21.00 23.00 27.00 32.00 40.00 75.00 1.00 Multi -Family Dwellings The amount due for multi -family dwellings shall be the residential rate multiplied by the number of occupied dwelling units. PRINCIPAL SEWER CUSTOMERS TABLE 28 (FY 2001-2002 October -April) Name of Customer Comet Cleaners Living Center of America Sanger Inn No Frills Grill Sanger Intermediate School Dairy Queen Jamal & Associates North Texas Plastics McDonalds Total Average Monthly Bill $ 216.17 174.15 132.33 88.50 79,63 77:69 75.70 70477 7n 71 $ 985:15 ELECTRIC RATES Facilities Charge (minimum per month) Energy Charge (per kWh) Facility Charge Plus per kWH Charge PRINCIPAL ELECTRIC CUSTOMERS�a� (FY 2001-2002 October -April) Existing Rates (Effective June 30, 2001) Small Residential Commercial $ 9,00 $ 15,00 $ 0,0761634 $ 0.0816960 Average Monthly Consumption in Name of Customer Kilowatt Hours Walmart 1,252,114 Burrus 911577 Living Center of America 45,702 North Texas Plastics 41,783 McDonalds 35,257 Golston's 31,262 Dairy Queen 26,389 Jack In The Box 271531 No Frills Grill 20,194 Gary Lynch 185163 Total 11589,972 TABLE 29 Large Commercial $ 0.0377050 $ 35,00 $ 9,00 TABLE 30 Average Monthly Bill $ 75,818.67 55894,95 3,127.62 3/269152 2,535.63 31281,44 1,908,67 11859,82 11502,41 1,235,38 $ 100,434.11 (a) Fiscal Year 2001-2002 figures are based on seven months only (October -April) and do not include the high consumption summer months. ELECTRIC SYSTEM CONSUMPTION HISTORY Annual Fiscal Year Consumption Ended 9=30 Kilowatt Hours 1997 30,357,000 1998 32,824,000 1999 33,941,931 2000 35, 345,644 2001 42,040,724 2002(a' 28,176,478 (a) Current year figures are as of March 31) 2002. A-14 TABLE 31 Average Daily Consumption 82,928,000 92,991,600 96,837,380 75,180,000 77,1951830 l GENERAL INFORMATION REGARDING THE CITY OF BANGER AND DENTON COUNTY, TEXAS GENERAL INFORMATION REGARDING THE CITY OF SANGER AND DENTON COUNTY, TEXAS THE CITY OF BANGER General The City of Sanger is a residential community located on Interstate Highway 35 northeast of the Dallas -Fort Worth industrial area. The City's close proximity to both Dallas and Fort Worth has been a significant factor in the City's recent growth. The City's 2000 census was 4,534, which is a 29.25% increase since 1990. The current estimated population is 51200. Population: AMARILLO 4 MAP O6 TEffAS SHOVING LOCATION Or • WIITA & TFXARKANA FALLS DALLAS f • AIIILENE FORT WORTH *ER • MIDLAND £i PASO ® SAN AN6ELO WACO • DEL AUSTlN • EEAUhiONi � 5AN ANrS;NiO HQUSTOH w LAREs�4 cor;Pl�S GHtUsn eaawNswuE Census City of Denton Report Sanger Coun Current Estimate 51200 444,900 2000 41534 423,976 1990 31508 273,525 1980 21574 143,126 Sources: United States Bureau of the Census, Texas Municipal Reports, Sales and Marketing Magazine, 1998 Survey of Buying Power and the City of Sanger Leading Employers of the City: Employer Walmart Sanger Independent School District City of Sanger Burrus Sonic McDonald's Ampco North Texas Plastics Golston's Jack In The Box Sanger Bank Source; Information from the Issuer Education Number of Employees Type of Business (April 2002) Retail Sales 500 Public School Education 326 Municipal Government 49 Grocery Store 45 Fast Food Sales 40 Fast Food Sales 36 Restroom Stall Manufacturer 35 Plastics Manufacturer 33 Plastics Manufacturer 30 Fast Food Sales 22 Financial Institution 22 The City is served by the Sanger Independent School District (the "District"). The District covers approximately 42 square miles in Denton County and serves the City of Sanger and its surrounding rural areas. The District is comprised of one early childhood center for grades pre -kindergarten through kindergarten, one elementary school for grades first through third, one intermediate school for grades fourth through sixth, one junior high school for grades seventh through eighth, and one high school for grades ninth through twelfth. All campuses offer enriched curricula with special programs for gifted/talented students as well as students achieving below grade level and are equipped with computers and full cafeteria service. The District serves a total 2001-2002 estimated enrollment of 2,102 students. Source: Sanger Independent School District DENTON COUNTY Denton County (the "County") is located in north central Texas, encompassing 911 square miles, and was created in 1846 from Fannin County. It is the third largest county of the nine counties comprising the Dallas -fort Worth Consolidated Metropolitan Statistical Area (CMSA). The County is traversed by Interstate Highway 35, United States Highways 77, 377 and 380 and State Highways 114 and 121. The County is divided north and south geographically by the East Cross Timers, which is a narrow strip of woodland that extends from the Red River to the Brazos River around Waco. The economy is diversified by manufacturing, state supported institutions, and agriculture. The Texas Almanac designates cattle, horses, poultry, hay and wheat as the principal sources of agricultural income. Minerals produced in Denton County include natural gas and clay. Institutions of higher education include University of North Texas and Texas Woman's University, Lake Lewisville attracts over 3,000,000 visitors annually. Alliance Airport, located in the County has continued to expand. A major NASCAR racetrack was opened in 1997, which has had a positive impact on employment and recreational spending for the area. Several growing urban centers are located in the County, including the cities of Denton, Lewisville, Carrollton and The Colony. The 2000 census was 423,976, which is a 55% increase since 1990. The 2001 estimated population for the County is 444,900, Source: Latest Texas Municipal Report published by the Municipal Advisory Council of Texas Leading Employers for Denton County: Employer University of North Texas, Denton Lewisville Independent School District Frito-Lay American Airlines Peterbilt Motors Co. Denton Independent School District Xerox Corporation Boeing Electronics, Corinth Denton State School Texas Woman's University Denton County Federal Express City of Denton Denton Regional Medical Center Medical Center of Lewisville Source: Denton County website Type of Business State University Public Education Food Distribution Maintenance Base and Engineering Center Diesel Truck Manufacturing Public Education Office Equipment Electronics Mental health, mental retardation facility State University County Government Package Processing and Delivery Municipal Government Health Care Acute Care hospital Number Emplovees 5,500 4,600 2,200 2,000 11994 1,648 1,628 1,583 1,384 1,384 1,327 11200 11200 1,000 750 B-2 Labor Force Statistics Civilian Labor Force Total Employed Total Unemployed • Unemployed • Unemployed (Texas) • Unemployed (United States) Denton County March 2002 March 2001 264,032 264,128 252,355 258,527 11,677 51601 4.4% 2.1 % 5.6% 4.2% 6.1 % 4.6% Source: Texas Workforce Commission, La6orMarket Information Department. Estimated Retail Sales Statistics ($OOO,$) Denton State of Year County Texas 2001 $5,124,640 $2881535,506 2000 51501,681 263,430,625 1999 31180,028 189,976,641 1998 21853,148 176,771,820 1997 21632,353 170,8641051 1996 21376,981 165,526,050 1995 21068,617 153,303,008 1994 21243,289 142,854,877 Source: Sales & Martceting Magazine, Survey of Buying Power 1994-2001. Figures represent estimates as of January 1 of each year given. Estimated Total Effective Buying Income (EBI) Denton County State of Texas Total Effective Median Total Effective Median Buying Income Household Buying Income Household Year ($000) EBI ($000) EBI 2001 $9,338,442 49,146 $373,707,911 $37,636 2000 81627,101 47,952 345,952,116 35,942 1999 71988,953 461069 326,986,186 340084 1998 61911,926 43,635 306,018,615 33,190 1997 61294,683 41,613 285,732,128 31,923 1996 51877,466 40,471 271,027,180 30,747 1995 61368,568 46,100 295,2439928 34,851 1994 51838,246 43,711 276,963,985 33,402 Source: Sales & Marfceting Magazine, Survey of Buying Power 1994-2001. Figures represent estimates as of January 1 of the year noted. Agriculture The Texas Almanac designates cattle, horses, poultry, hay and wheat as the principal sources of agricultural income. Cash receipts from farm marketings are as follows: 2000 1999 1998 Crops $13,129,000 $19,360,000 $23,692,000 Livestock and Livestock Products $24,709,200 $331861,000 $33,044,000 AG Cash Receipts Total $89,257,440 $102,784,350 $99,9879400 Source: Texas Utilities Electric Company Agriculture Income Evaluation, 1997 through 2000. Government payments not included 1997 $22,329,000 $42,139,000 $1071100, 000 B-3 (This page is intentionally left blank.] APPENDIX C FORM OF LEGAL OPINIONS OF BOND COUNSEL Proposed Form of Opinion of Bond Counsel An opinion in substantially the following form will be delivered by McCall, Parkhurst & Horton L.L.P., Bond Counsel, upon the delivery of the Bonds, assuming no material changes in facts or law. McCALL, 600 CONGRESS AVENUE 1250 ONE AMERICAN CENTER AUSTIN, TEXAS 78701-3248 Telephone: 512 478-3805 Facsimile: 512 472-0871 LAW OFFICES PARKHURST & HORTON L.L.P. 717 NORTH HARWOOD STREET NINTH FLOOR DALLAS, TEXAS 75201-6587 Telephone: 214 754-9200 Facsimile: 214 754-9250 700 N. ST. MARY'S STREET 1225 ONE RIVERWALK PLACE SAN ANTONIO, TEXAS 78205-3503 Telephone: 210 225-2800 Facsimile: 210-225-2984 CITY OF BANGER, TEXAS UTILITY SYSTEM REVENUE BONDS SERIES 2002, DATED JUNE 19 2002, IN THE PRINCIPAL AMOUNT OF $2,5409000 AS BOND COUNSEL FOR THE CITY OF BANGER, TEXAS (the "City") in connection with the issuance of the Utility System Revenue Bonds, Series 2002 described above (the "Bonds"), we have examined into the legality and validity of the Bonds, which bear interest from the dates and mature on the dates, and are subject to redemption, in accordance with the terms and conditions stated in the text of the Bonds. Terms used herein and not otherwise defined shall have the meaning given in the Ordinance of the City authorizing the issuance and sale of the Bonds (the "Ordinance"). WE HAVE EXAMINED the Constitution and laws of the State of Texas, certified copies of the proceedings of the City Council of the City relating to the issuance ofthe Bonds, including the Ordinance and other documents authorizing and relating to the issuance of the Bonds; and we have examined various certificates and documents executed by officers and officials of the City upon which certificates and documents we rely as to certain matters stated below. We have also examined one of the executed Bonds which we found to be in proper form and duly executed. BASED ON SAID EXAMINATION, IT IS OUR OPINION that the Bonds have been duly authorized, issued, and delivered in accordance with law, and that the Bonds, except as may be limited by laws applicable to the City relating to bankruptcy, reorganization, and other similar matters affecting creditors' rights, constitute valid and legally binding obligations of the City; and that the principal of and interest on the Bonds, together with other outstanding revenue bonds of the City, are payable from and secured by a lien on and pledge of Net Revenues of the Issuer's Utility System, being the Waterworks, Sewer and Electric System. THE CITY HAS RESERVED THE RIGHT, subject to the restrictions stated in the Bond Ordinance, to issue additional parity revenue bonds which also may be made payable from and secured by a lien on and pledge of the Net Revenues on a parity with the Bonds. THE OWNERS OF THE BONDS shall never have the right to demand payment of the Bonds out of any funds raised or to be raised by taxation. IT IS FURTHER OUR OPINION, except as discussed below, that the interest on the Bonds is excludable from the gross income of the owners for federal income tax purposes under the statutes, regulations, published rulings, and court decisions existing on the date of this opinion. We are further of the opinion that the Bonds are not "specified private activity bonds" and that, accordingly, interest on the Bonds will not be included as an individual or corporate alternative minimum tax preference item under section 57(a)(5) of the Internal Revenue Code of 1986 (the "Code"). In expressing the aforementioned opinions, we have relied on, certain representations, the accuracy of which we have not independently verified, and assume compliance with certain covenants, regarding the use and investment of the proceeds of the Bonds and the use of the property financed therewith. We call your attention to the fact that if such representations are determined to be inaccurate or upon a failure by the City to comply with such covenants, interest on the Bonds may become includable in gross income retroactively to the date of issuance of the Bonds. WE CALL YOUR ATTENTION TO THE FACT that the interest ontax-exempt obligations, such as the Bonds, is (a) included in a corporation's alternative minimum taxable income for purposes of determining the alternative minimum tax imposed on corporations by section 55 of the Code, (b) subject to the branch profits tax imposed on foreign corporations by section 884 of the Code, and (c) included in the passive investment income of an S corporation and subject to the tax imposed by section 1375 of the Code. EXCEPT AS STATED ABOVE, we express no opinion as to any other federal, state, or local tax consequences of acquiring, carrying, owning, or disposing of the Bonds. WE EXPRESS NO OPINION as to any insurance policies issued with respect to the payments due for the principal of and interest on the Bonds, nor as to any such insurance policies issued in the future. OUR SOLE ENGAGEMENT in connection with the issuance of the Bonds is as Bond Counsel for the City, and, in that capacity, we have been engaged by the City 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 from gross income of the interest on the Bonds for federal income tax purposes, and for no other reason or purpose. We have not been requested to investigate or verify, and have not independently investigated or verified any records, data, or other material relating to the financial condition or capabilities of the City, or the disclosure thereof in connection with the sale ofthe Bonds, and have not assumed any responsibility with respect thereto. We express no opinion and make no comment with respect to the marketability of the Bonds and have relied solely on certificates executed by officials of the City as to the availability and sufficiency of the Net Revenues of the Issuer's Utility System.. 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. THE FOREGOING OPINIONS represent our legal judgment based upon a review of existing legal authorities that we deem relevant to render such opinions and are not a guarantee of a result. Respectfully, Proposed Form of Opinion of Bond Counsel An opinion in substantially the following form will be delivered by McCall, Parkhurst & Horton L.L.P., Bond Counsel, upon the delivery of the Certificates of Obligation, assuming no material changes in facts or law. McCALL, 600 CONGRESS AVENUE 1250 ONE AMERICAN CENTER AUSTIN, TEXAS 78701-3248 Telephone: 512 478-3805 Facsimile: 512 472-0871 LAW OFFICES PARKHURST & HORTON L.L.P. 717 NORTH HARWOOD STREET NINTH FLOOR DALLAS, TEXAS 75201-6587 Telephone: 214 754-9200 Facsimile: 214 754-9250 700 N. ST. MARY'S STREET 1225 ONE RIVERWALK PLACE SAN ANTONIO, TEXAS 78205-3503 Telephone: 210 225-2800 Facsimile: 210-225-2984 CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION SERIES 2002, DATED JUNE 19 20025 IN THE PRINCIPAL AMOUNT OF $233609000 AS BOND COUNSEL FOR THE CITY OF SANGER, TEXAS (the "City") in connection with the issuance of the Certificates of Obligation, Series 2002 described above (the "Certificates of Obligation"), we have examined into the legality and validity of the Certificates of Obligation, which bear interest from the dates and mature on the dates, and are subject to redemption, in accordance with the terms and conditions stated in the text of the Certificates of Obligation. Terms used herein and not otherwise defined shallhave the meaning given in the Ordinance of the City authorizing the issuance and sale of the Certificates of Obligation the "Ordinance"). WE HAVE EXAMINED the Constitution and laws of the State of Texas, certified copies of the proceedings of the City Council of the City relating to the issuance ofthe Certificates of Obligation, including the Ordinance and other documents authorizing and relating to the issuance of the Certificates of Obligation; and we have examined various certificates and documents executed by officers and officials of the City upon which certificates and documents we rely as to certain matters stated below. We have also examined one of the executed Certificates of Obligation which we found to be in proper form and duly executed. BASED ON SAID EXAMINATION, IT IS OUR OPINION that the Certificates of Obligation leave been duly authorized, issued, and delivered in accordance with law, and that the Certificates of Obligation, except as may be limited by laws applicable to the City relating to bankruptcy, reorganization, and other similar matters affecting creditors' rights, constitute valid and legally binding obligations of the City; and that ad valorem taxes sufficient to provide for the payment of the interest on and principal of said Certificates of Obligation have been levied and pledged for such purpose, within the limit prescribed by law, as provided in the Ordinance, and that the Certificates of Obligation are additionally secured by and payable from the limited surplus net revenues of the City's combined 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 City's revenue bonds or other obligations (now or hereafter )utstanding), which are payable from all or any part of the net revenues of the City's combined waterworks, sewer and electric system. YB IS FURTHER OUR OPINION, except as discussed below, that the interest on theCertificates of Obligation is excludable from the gross income of the owners for federal income tax purposes under the statutes, regulations, published rulings, and court decisions existing on the date of this opinion. We are further of the opinion that the Certificates of Obligation are not "specified private activity bonds" and that, accordingly, interest on the Certificates of Obligation will not be included as an individual or corporate alternative minimum tax preference item under section 57(a)(5) of the Internal Revenue Code of 1986 (the "Code"). In expressing the aforementioned opinions, we have relied on, certain representations, the accuracy of which we have not independently verified, and assume compliance with certain covenants, regarding the use and investment of the proceeds of the Certificates of Obligation and the use of the property financed therewith. We call your attention to the fact that if such representations are determined to be inaccurate or upon a failure by the City to comply with such covenants, interest on the Certificates of Obligation may become includable in gross income retroactively to the date of issuance of the Certificates of Obligation. WE CALL YOUR ATTENTION TO THE FACT that the interest on tax exempt obligations, such as the Certificates of Obligation, is (a) included in a corporation's alternative minimum taxable income for purposes of determining the alternative minimum tax imposed on corporations by section 55 of the Code, (b) subject to the branch profits tax imposed on foreign corporations by section 884 of the Code, and (c) included in the passive investment income of an S corporation and subject to the tax imposed by section 1375 of the Code. EXCEPT AS STATED ABOVE, we express no opinion as to any other federal, state, or local tax consequences of acquiring, carrying, owning, or disposing of the Certificates of Obligation. WE EXPRESS NO OYyYI`�1ION as to any insurance policies issued with respect to the payments due for the principal of and interest on the Certificates of Obligation, nor as to any such insurance policies issued in the future. OUR SOLE ENGAGEMENT in connection with the issuance ofthe Certificates of Obligation is as Bond Counsel for the City, and, in that capacity, we have been engaged by the City for the sole purpose of rendering an opinion with respect to the legality and validity of the Certificates of Obligation under the Constitution and laws of the State of Texas, and with respect to the exclusion from gross income of the interest on the Certificates of Obligation for federal income tax purposes, and for no other reason or purpose. We have not been requested to investigate or verify, and have not independently investigated or verified any records, data, or other material relating to the financial condition or capabilities of the City, or the disclosure thereof in connection with the sale of the Certificates of Obligation, and have not assumed any responsibility with respect thereto. We express no opinion and make no comment with respect to the marketability of the Certificates of Obligation and have relied solely on certificates executed by officials of the City as to the current outstanding indebtedness of, and assessed valuation of taxable property within the City. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Certificates of Obligation has been limited as described therein. THE FOREGOING OPINIONS represent our legal judgment based upon a review of existing legal authorities that we deem relevant to render such opinions and are not a guarantee of a result. Respectfully, l_1;���1�7►:��7 SELECTED PROVISIONS OF THE BOND ORDINANCE SELECTED PROVISIONS OF THE BOND ORDINANCE The following are selected provisions of the Bond Ordinance and are not to be considered a full statement of the terms of the Bond Ordinance. Accordingly, these selected provisions are qualified in their entirety by reference to the Bond Ordinance and are subject to the full text thereof, a copy of which may be obtained from the Issuer or its Financial Advisor, Section 8. DEFINITIONS. For all purposes of this Ordinance and in particular for clarity with respect to the issuance ofthe 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 Issuers 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 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 1996 Bonds 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 of the Net Revenues of the Utility System, The Bonds authorized by this Ordinance are parity Additional Bonds as defined and permitted in the ordinances that authorized the Series 1996 and Series 1999 Bonds, and Sections 8 through 25 of the ordinances that authorized the Series 1996 and Series 1999 Bonds 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. (b) Article 1208, 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, 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." D-1 (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 (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 that authorized the Outstanding Bonds, the total amount required to be accumulated and maintained 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 pay- ments 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 Sink- ing 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. Section 16. DEFICIENCIES IN FUNDS. If in any month the Issuer shall fail to deposit into any Fund created b;i is Ordinance the full amounts required, amounts equivalent to such deficiencies shall be set apart and paid into said Funds from �� �e is available and unallocated pledged revenues for the following month or months, and such payments shall be i"a U" 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. D-2 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 1 g. 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. (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 Outstanding Bonds, the then outstanding Bonds and Additional Bonds; (f) 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, the Outstanding 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, 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; D-3 (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 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. APPENDIX E THE ISSUER'S GENERAL PURPOSE AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED oarEMBER ", 2001 (Independent Auditors Report, General Financial Statements and Notes to the Financial Statements -not intended to be a complete statement of the Issuer's financial condition. Reference is made to the complete Annual Financial Report for further information.) William C. Spore, P.C. Certified Public Accountants Independent,Auditor's Rem To the City Council City of Sanger, Texas We have audited the accompanying general-purpose financial statements of the City of Sanger, Texas, as of and for the year ended September 30, 2001, as listed in the table of contents. These general-purpose financial statements are the responsibility of the City of Sanger's management. Our responsibility is to express an opinion on these general-purpose financial statements based on our audit. We conducted our audit in accordance with auditing standards and the standards generally accepted in the United States of America applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. 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 opinion. In our opinion, the general-purpose financial statements referred to above present fairly, in all material respects, the financial position of the City of Sanger, Texas, as of September 30, 2001, and the results of its operations and the cash flows of its proprietary fund types for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued our report dated February 22, 2002 on our consideration of the City of Sanger's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of operations. Our audit was conducted for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The combining and individual fund and account group financial statements and schedules listed in the table of contents are presented for purposes of additional analysis and are not a required part of the general purpose financial statement of the City of Sanger, Texas. Such information has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion is fairly presented in all material respects in relation to the general purpose financial statements taken as a whole. William C. Spore, P.C. February 22, 2002 .3950 Higl c ay 36 , SuitFT02 # l 'rz ac>z i te, TA' i611.51 # < 1 / 21--h6 9 .. CITY OF SANGER COMBINED BALANCE SHEET - ALL FUND TYPES AND ACCOUNT GROUPS Septentber 30, 2001 GOVERNMENTAL FUNDS TYPE$ PROPRIETARYI FUND TYPES SPECIAL ASSETS GENERAL REVENUE UTILITY FUND FUND FUNDS Cash $ 68,771 $ 0 $ 438,442 Receivables, Net of Allowances for Uncollectibles: Property Taxes 74,975 0 0 Other Receivables 881419 57,175 2861254 Services 0 0 5101423 Due from Other Funds 94,204 0 0 Inventory/Prepaid Expense 0 0 3791576 Restricted Assets - Cash 76,496 4421801 5631141 Property, Plant and Equipment Net of Accumulated Depreciation 0 0 51533,797 Construction in Process 0 0 11314,197 Amount to be Provided for Retirement of General Long -Term Debt 0 0 0 TOTAL ASSETS $ 4021865 4991976 $ 910251830 LIABILITIES Accounts Payable $ 1701636 0 $ 6401191 Accrued Expenses 812 0 82,437 Due to Other Funds 0 0 94,204 Customer & Escrow Deposits 0 0 153,691 Deferred Revenues 74,975 0 0 Long -Term Debt: Compensated Absences 0 0 38,378 Revenue Bonds Payable 0 0 25590,000 Certificate of Obligation Payable 0 0 0 Notes Payable 0 0 5791359 Capital Leases 0 0 26,842 TOTAL LIABILITIES 2461423 0 41205,102 FUND EQUITY Contributed Capital 0 0 116351292 Investment in General Fixed Assets 0 0 0 Retained Earning - Reserved 0 0 306,841 Retained Earning - Unreserved 0 0 21878,595 Fund Balance - Reserved 68,684 4991976 Fund Balance - Unreserved 872758 0 TOTAL FUND EQUITY 156,442 4991976 41820,728 TOTAL LIABILITIES AND FUND EQUITY $ 402,865 499,976 $ 9,025,830 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE - 3 ACCOUNT GROUPS GENERAL FIXED ASSETS $ 0 GENERAL LONG- TERM DEBT $ 0 TOTALS (memorandum only) 2001 2000 $ 507,213 $ 384,488 0 0 74,975 70,208 0 0 4312848 69,297 0 0 510,423 511,871 0 0 94,204 11,697 0 0 379,576 437,414 0 0 11082,438 809,695 3,232,473 0 0 $ 31232,473 0 0 0 0 0 0 0 0 0 2,369,923 $ 2,369,923 8,766,270 1,314,197 2,369,923 $ 15,531,067 0 $ 810,827 0 83,249 94,204 47,700 0 1,290,000 948,995 83,228 2,369,923 8Ei,078 2,590,000 1,290,000 1,528,354 110,070 6,821,448 8,730,835 46,913 2,644,670 $ 13,717,088 586,946 68,554 11,697 1031804 701208 75,762 2,760,000 1,410,000 1,450,776 233,800 6,771,547 0 0 1,635,292 442,674 3,232,473 0 3,232,473 3,063,257 0 0 306,841 306,315 0 0 21878,595 21722,600 0 0 568,660 67,466 0 0 872758 343,229 31232,473 0 8,709,619 61945,541 $ 31232,473 $ 21369,923 $ 15,531;,i�` ��` 1 ;,717,088 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE-3 (This page is intentionally left blank.] CITY OF SANGER COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - ALL GOVERNMENTAL FUND TYPES For the Year Ended September 30, 2001 Property Taxes Nonproperty Taxes Penalties and Interest on Delinquent Taxes License and Permits Fees and Services Grants and Intergovernmental Interest Income Miscellaneous Income Donations TOTAL REVENUES EXPENDITURES General Government Public Safety Highways and Streets Health and Welfare Culture and Recreation Capital Outlay Debt Service: Principal Interest TOTAL EXPENDITURES EXCESS REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Proceeds of Capital Leases/Notes Payable Sale of Assets Transfers In (Out) TOTAL OTHER FINANCING SOURCES (USES) EXCESS OF REVENUES AND OTHER SOURCES OVER EXPENDITURES FUND BALANCE -ENDING GENERAL $ 6761511 $ 488,405 13,829 45,823 4731901 1291180 7,093 13,906 19,557 1,868,205 SPECIAL REVENUE 0 $ 3201626 0 0 0 0 15,671 0 0 336,297 TOTALS (memorandum only) 2001 2000 676,511 8091031 13,829 45,823 4731901 129,180 22,764 13,906 19,557 2,204,502 $ 580,937 631,085 12,924 28,793 4039841 84,593 16,115 13,118 30,787 1,802,193 547,547 41,898 589,445 1,504,051 649,899 0 6491899 536,295 132,966 0 132,966 1331849 57,225 0 571225 45200 347,623 0 347,623 270,563 207,490 0 2071490 263,898 258,156 42,791 3001947 2071711 101,800 47,202 149,002 _ 117,953 21302,706 131,891 21434,597 31079520 (434,501) 204,406 (230,095) (112771327) 19,098 0 19,098 13017,763 191508 0 191508 0 459,295 (22,083) 437,212 305,452 497,901 (22,083) 475,818 11323,215 63,400 182,323 245,723 45,888 931042 317,653 4105695 364,807 $ 156,442 $ 499,976 $ 656,418 $ 4101695 SEE ACCOUNTANT'S REPORT AND NOTES ATTACHED Page - 4 CITY OF SANGER COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GENERAL FUND For the Year Ended September 30, 2001 NERALFUND REVENUES BUDGET L ACTUAL VARIANCE Property Taxes $ 670,000 $ 6761511 $ 61511 Nonproperty Taxes 4781160 4881405 10,245 Penalties and Interest on Delinquent Taxes 91000 131829 41829 License and Permits 601300 451823 (14,477) Fees and Services 4331000 473,901 40,901 Grants and Intergovernmental 98,000 129,180 31,180 Interest Income 41000 71093 31093 Miscellaneous Income 301500 131906 (16,594) Donations 21500 191557 17,057 TOTAL REVENUES 1,785,460 11868,205 82,745 EXPENDITURES General Government 514,383 5471547 (33,164) Public Safety 702,282 6491899 52,383 Highways and Streets 1291401 132,966 (31565) Health and Welfare 551300 571225 (11925) Culture and Recreation 404,307 347,623 56,684 Capital Outlay 1561050 207,490 (51,440) Debt Service: Principal 2591887 258,156 11731 Interest 101,453 1011800 (347) TOTAL EXPENDITURES 2,323,063 2,302,706 201357 EXCESS REVENUES OVER (UNDER) EXPENDITURES (537,603) (434,501) 103,102 OTHER FINANCING SOURCES (USES) Proceeds of Capital Leases/Notes Payable 0 191098 191098 Sale of Assets 0 191508 19,508 Transfers In (Out) 5251603 4591295 (66,308) TOTAL OTHER FINANCING SOURCES (USES) 525503 497,901 (27,702) EXCESS OF REVENUES AND OTHER SOURCES OVER EXPENDITURES $ (12,000) 631400 $ 75,400 FUND BALANCE - BEGINNING 931042 FUND BALANCE -ENDING $ 156,442 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE - 5 REVENUES BUDGET L ACTUAL VARIANCE Property Taxes $ 670,000 $ 6761511 $ 61511 Nonproperty Taxes 4781160 4881405 10,245 Penalties and Interest on Delinquent Taxes 91000 131829 41829 License and Permits 601300 451823 (14,477) Fees and Services 4331000 473,901 40,901 Grants and Intergovernmental 98,000 129,180 31,180 Interest Income 41000 71093 31093 Miscellaneous Income 301500 131906 (16,594) Donations 21500 191557 17,057 TOTAL REVENUES 1,785,460 11868,205 82,745 EXPENDITURES General Government 514,383 5471547 (33,164) Public Safety 702,282 6491899 52,383 Highways and Streets 1291401 132,966 (31565) Health and Welfare 551300 571225 (11925) Culture and Recreation 404,307 347,623 56,684 Capital Outlay 1561050 207,490 (51,440) Debt Service: Principal 2591887 258,156 11731 Interest 101,453 1011800 (347) TOTAL EXPENDITURES 2,323,063 2,302,706 201357 EXCESS REVENUES OVER (UNDER) EXPENDITURES (537,603) (434,501) 103,102 OTHER FINANCING SOURCES (USES) Proceeds of Capital Leases/Notes Payable 0 191098 191098 Sale of Assets 0 191508 19,508 Transfers In (Out) 5251603 4591295 (66,308) TOTAL OTHER FINANCING SOURCES (USES) 525503 497,901 (27,702) EXCESS OF REVENUES AND OTHER SOURCES OVER EXPENDITURES $ (12,000) 631400 $ 75,400 FUND BALANCE - BEGINNING 931042 FUND BALANCE -ENDING $ 156,442 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE - 5 SPI C{AL REVENUEtUND j j BUDGET $ 0 292,000 0 0 0 0 0 0 0 292,000 ACTUAL $ 0 $ 320,626 0 0 0 0 15,671 0 0 336,297 VARIANCE 0 $ 28,626 . 0 0 0 0 15,671 0 0 44,297 670,000 7701160 9,000 60,300 4331000 98,000 4,000 30,500 2,500 2,077,460 [-ACTUAL $ 676,511 809,031 13,829 45,823 4731901 1291180 22,764 131906 19,557 2,204,502 VAR ANI CE $ 6,511 38,871 4,829 (14,477) 40,901 31,180 18,764 (16)594) 17,057 127,042 5,900 41,898 (35,998) 520,283 589,445 (69,162) 0 0 0 702,282 6491899 521383 0 0 0 129,401 132,966 (3,565) 0 0 0 55,300 57,225 (11925) 0 0 0 404,307 347,623 56,684 0 0 0 1561050 207,490 (51,440) 0 0 5,900 286.100 r� 286,100 42,791 _ 47,2C"'. 131,89 204,406 0 0 (22,083) (22,083) 182,323 317,653 $ 499,976 k�, i .' )2) (;15,991) 259,887 101,453 2,328,963 (81,694) (251,503) 0 0 (22,083) (22,083) 0 0 5251603 525,603 274,100 300,947 149,002 2,434,597 (230,095) 19,098 19,508 437,212 475,818 245,723 410,695 $ 656,418 (41,060) (47,549) (105,634) 21,408 19,098 19,508 (88,391) (49,785) SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE - 5 CITY OF SANGER COMBINED STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN RETAINED EARNINGS = PROPRIETARY FUND For the Year Ended September 30, 2001 OPERATING REVENUES Charges and Fees OPERATING EXPENSES Personnel Services Purchase of Services Materials and Supplies Depreciation Franchise Fees TOTAL OPERATING EXPENSES OPERATING INCOME NONOPERATING REVENUES (EXPENSES) Interest Income Debt Service Interest, Fees & Discounts Transfers Out TOTAL NONOPERATING REVENUES (EXPENSES) NET INCOME RETAINED EARNINGS -BEGINNING RETAINED EARNINGS -ENDING 2001 2000 $ 4,983,147 $ 4,086,359 8281030 745,233 21738,352 2,2321882 111,092 871584 465,139 4441407 106,122 81,662 41248,735 315911768 7341412 494,591 33,328 32,141 (174,007) (187,235) (437,212) (305,452) (577,891) (460,546) 156,521 34,045 3,028,915 2,994,870 $ 3,185,436 $ 3,028,915 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE - 6 CITY OF SANGER COMBINED STATEMENT OF CASH FLOWS - ALL PROPRIETARY FUND TYPES For the Year Ended September 30, 2001 CASH FLOWS FROM OPERATING ACTIVITIES: Cash Received from Customers $ Cash Payments to Suppliers for Goods and Services Cash Payments for Employees Services NET CASH PROVIDED BY OPERATING ACTIVITIES CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Acquisition of Capital Assets Additions to Long -Term Debt Principal Paid on Bonds and Notes Interest Paid on Bonds and Notes Capital Contributed - Grants Cash Transferred to Other Funds NET CASH USED FOR CAPITAL AND RELATED FINANCING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES: Interest on Investments NET INCREASE (DECREASE) IN CASH CASH -BEGINNING OF YEAR CASH -END OF YEAR Operating Income 2001 5,041,169 (3,185,000) (824,814) 11031,355 (1,120,987) 290,696 (345,001) (151,087) 8161139 (354,705) (864,945) 34,640 201,050 800,533 2000 $ 4,023,869 (2,281,098) (740,030) 11002,741 (496,494) 111,882 (300,470) (164,144) 0 (298,784) (1,148,010) 30,655 (114,614) 915,147 $ 1,001,583 $ 800,533 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Adjustment to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation (Increase) Decrease in Receivables (Increase) Decrease in Inventory/Prepaid Expense Increase (Decrease) in Accounts Payable Increase (Decrease) in Accrued Expenses Increase (Decrease) in Customer Deposits NET CASH PROVIDED BY OPERATING ACTIVITIES 734412 $ , 465,139 8,135 43,382 (278,235) 8,635 49,887 $ 11031,355 $ 494,591 444,407 (72,944) (2081625) 3291455 5,403 10.454 $ 1,002,741 NON -CASH ACTIVITIES: During the fiscal year a developer and the local garbage collection company conveyed land, water and sewer systems to the City totaling $90,225. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE - 7 CITY OF BANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The City of Sanger operates under a Council -Manager form of government, following the laws of a Home Rule Charter City as defined by the State of Texas. The City provides the following services: public safety police, fire and ambulance, parks, streets, sanitation, a public library senior center, community center and general administrative services along with water, sewer and electrical services. The accounting policies of the City conform to generally accepted accounting principles as applicable to governments. The following is a summary of the more significant policies: 1. REPORTING ENTITY: As required by generally accepted accounting principles, the financial statements of the reporting entity include those of the City of Sanger (the primary government) and its component units. The following component units are included in the City's reporting entity because of its operational and financial relationship with the City. The C: t_�•,r h�;�: two blended component units as follows (4A; `."F;:e Sanger Texas Industrial Development Corporation (S.T.I.D.C.) 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 S.T.I.D.C. was incorporated in the state of Texas as a non-profit industrial development corporation under Section 4A of the Development Corporation Act of 1979. The purpose of the S.T.I.D.C. is to promote economic development within the City of Sanger. Separate financial statements of the component unit can be obtained from the City's administrative offices. (4B) The Sanger Texas Development Corporation (S.T.D.C.) is governed by a board of seven directors, all of whom are appointed by the City Council of the City of Sanger and any of whom can be removed f.��om office by the City Council at its' will. The S.T.D.C. was in :'.•:.�t r'.:'� r��......��i in the state of Texas as a non-profit industrial develop•,,-�.•::,.., ���� poration under Section 4B of the Development Corpora:: i .;��� .'act of 1979 . The purpose of the S . T . D . C . is to promote economic and community development within the City of Sanger. Separate financial statements of the component unit can be obtained from the City's administrative offices. Page - 8 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 2. FUND ACCOUNTING: The accounts of the City are organized on the basis of funds or account groups, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for by providing a separate set of self -balancing accounts which are comprised of each fund's assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate. Governmental resources are allocated to and for individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The various funds are grouped, in the financial statements in this report, into two generic fund types and two broad fund categories as follows: GOVERNMENTAL FUND TYPES General Fund The general fund is the general operating fund of the City. It is used to account for all financial resources except those required to be accounted for in another fund. PROPRIETARY FUND TYPES Enterprise Funds Enterprise funds are used to account for operations (�:<) `ha�- are financed and operated in a manor similar to privat business enterprises - where the intent of the governing body is that costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. 3. PROPERTY, PLANT AND EQUIPMENT AND LONG-TERM LIABILITIESc The accounting and reporting treatment applied to property plant and equipment and long-term liabilities associated with a fund are determined by its measurement focus. All governmental fund types are accounted for on a "financial flow" measurement focuti. Th;.s means that only current assets and current liabili_��: generally included on their balance sheets. Their repor'... =un-' balance is considered a measure of "available spendable res°�urces". Governmental fund operating statements present increases (revenue and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Accordingly, they are said to present a summary of sources and uses of "available spendable resources" during a period. Page - 9 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 Plant, property and equipment used in governmental fund type operations are accounted for in the General Fixed Assets Account Group, rather than in governmental funds. No depreciation has been provided on such property, plant and equipment. All property, plant and equipment are valued at historical cost or estimated historical cost if actual cost is not available. Donated property, plant and equipment are valued at their estimated fair value on the date donated. Public domain "infrastructure" general fixed assets consisting of certain improvements other than buildings, such as roads, sidewalks, and bridges are not capitalized. Long-term liabilities expected to be financed from governmental fund types are accounted for in the General Long -Term Debt Account Group, not in the governmental funds. The two account groups are not "funds". They are concerned only with the measurement of financial position. They are not involved with measurement of results of operations. Special reporting treatments are applied to governmental fund prepaid expenses to indicate that they do not represent "available spendable resources", even though they are a component of net current assets. Such amounts are generally offset by fund balance reserve accounts. Because of their spending measurement focus, expenditure recognon for governmental fund types is limited to exclude amounts represented by non -current liabilities. Since they do not affect net current assets, such long-term amounts are not recognized as governmental fund type expenditures or fund Liabilities. They are instead reported as liabilities in the General Long -Term Debt Account Group. All proprietary funds are accounted for on a cost of services or "capital maintenance" measurement focus. This means that all assets and liabilities (whether current or noncurrent) associated with their activity are included on their balance sheets. Their report fund equity (net total assets) is segregated into contributed capital and retained earnings components. Depreciation is provided in the proprietary funds Electric System 20 to 50 years Water and sewer system 10 to 50 years Furniture and Equipment 3 to 10 years n amount Page - 10 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 4. BASIS OF ACCOUNTING: Basis of accounting refers to when revenues and expenditures or expenses 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. All governmental funds are accounted for using the modified accrual basis of accounting. Their revenues are recognized when they become measurable and available as net current assets. Gross receipts and sales taxes are considered "measurable" when in the hands of intermediary collecting governments and are recognized as revenues at that time. All major revenues are susceptible to accrual. Expenditures are generally recognized under the modified basis of accounting when the related fund liability is incurred. Exceptions to this general rule include accumulated unpaid vacation and sick time which are not accrued and principal and interest on general long-term debt which is recognized when due. All proprietary funds are accounted for using the accrual basis of accounting. Their revenues are recognized when they are earned, and their expenses are recognized when they are incurred. 5. BUDGETS AND BUDGETARY ACCOUNTING: City follows these procedures in establishing the budgetary data reflected in the financial statements: A: Prior to July 1, the City Manager submits to the City Council a proposed operating budget for the fiscal year commencing the following October 1. The operating budget includes proposed expenditures and the means of financing them. B: Public hearings are conducted to obtain taxpayer comments. C: Prior to October 1, the budget is legally enacted through the passage of an ordinance. D: The City Manager is authorized to transfer budgeted amounts between departments within any fund; any revisions that alter the total expenditures of any fund must be approved by the City Council. �... zdgets for the General and Proprietary Funds are adopted on a t�a:�s consistent with generally accepted accounting principles (GAAP) . F: Unused appropriations for all of the above annually budgeted funds lapse at the end of the fiscal year. Page - 11 CITY OF BANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 6. ENCUMBRANCES: Encumbrances represent commitments related to unperformed contracts for goods and services. Encumbrance accounting, under which purchase orders, contracts and other commitments for the expenditure of resources are recorded to reserve that portion of the applicable appropriation, is utilized in the General Fund. Encumbrances outstanding at year end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be honored during the subsequent year. 7. CASH: At year-end the City's cash accounts totaled $1,589,651 of which $1,589,551 was held in checking, savings or certificate of deposit accounts at a local bank. Of the Bank balances, $105,384 was covered by federal depository insurance and the remaining $1,484,167 was covered by collateral held by the pledging Bank's agent in the name of the City. There were no uncollateralized cash accounts. The securities pledged by the follows: SECURITY :• .I 8. CAPITALIZED INTEREST: City's depository PAR 2,300,OOC The City capitalizes construction There was no interest requiring year. 9: INVENTORIES: institution are as FMV ,426,500 period interest when applicable. capitalization during the fiscal Inventories of the Enterprise Fund are valued at the lower of cost (first -in, first -out) or market. 10. ACCUMULATED COMPENSATED ABSENCES: It is the City's policy to permit employees to amount of earned but unused vacation and sick paid to employees upon separation from the governmental funds, the cost of vacation accumulate a limited time, which will be C'i.t�r � ;= service . Ii� ;� -�_� '- leave is recognized when paid. A long-term liability of vacation and sick leave has been recorded in tr� r t �f accrued �',:_�:�::i�l Long -Term Debt Account Group, representing the City's commitment costs from future operations. Proprietary funds ace leave in the period they are earned. to fund such Prue vacation Page - 12 CITY OF BANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 11. REVENUE RECOGNITION - PROPERTY TAXES: Property taxes attach as an enforceable lien on property as of January 1. Taxes are levied on October 1 and are due and payable at that time. All unpaid taxed levied October 1 become delinquent February 1 of the following year. Property tax revenues are recognized when they become available. Delinquent taxes are considered fully collectable and, therefore, no allowance for doubtful `taxes is provided. 12. ALLOWANCE FOR UNCOLLECTABLE ACCOUNTS: Allowance for uncollectable accounts receivable in the Proprietary Fund at September 30, 2001 is $50,659. 13: GRANT ACCOUNTING: All grant funds received by the general fund are included as intergovernmental revenues in the statements of revenues and expenditures. All grant funds received by the proprietary fund that are to be used for capital projects are recorded as contributed capital in the balance sheet while grant funds received for operating purposes are included in the proprietary fund statement of revenues and expenses as other operating revenues. During the fiscal year the City received capital grants in the proprietary fund totaling $1,102,393. 14. COMPARATIVE DATA: Comparative data for the prior year have been presented in the accompanying statements in order to provide an understanding of changes in the City's financial position and operations. However, complete comparative data (i.e., presentation of prior year totals by fund type in each of the statements) have not been presented since their inclusion would make the statements unduly complex and difficult to read. 15. TOTAL COLUMNS ON COMBINED STATEMENTS: Total columns on the Combined Statements are captioned "memorandum only" to indicate that they are presented only to facilitate financial analysis. Data in these columns do not present financial position, results of operations, or changes in financial position in conformity with generally accepted accounting principles. Neither is such data comparable to a consolidation. Interfund elimination's have not been made in the aggregation of this data. Page - 13 CITY OF BANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 NOTE B: RETIREMENT PLANS: Firemen's Pension Fund: The City's firemen are covered contributory plan is operated and Retirement Funds. The September 30, 2001 was $3,278. Employee Retirement Plan: by the firemen's pension plan. This as part of the State Firemen's Relief pension expense for the year ended The City provides pension benefits for all of its full-time employees through a non-traditional, joint contributory, defined benefit plan in the state-wide Texas Municipal Retirement System (TMRS), an agent multiple -employer public retirement system. Benefits depend upon the sum of the employee's contributions to the plan, with interest, and the City -financed monetary credits, with interest. Members can retire at ages sixty and above with ten or more years of service or with twenty five years of service regardless of age. A member is vested after ten years. The contribution rate for the employees is 50 of gross earning and the City provides a monthly contribution of 3.620 of gross earnings. This rate consists of the normal cost contribution and the prior service contribution rate. The normal cost contribution rate finances the currently accruing monetary credits and the prior service contribution rate amortizes the unfunded (overfunded) actuarial liability (asset) over the remainder of the plan's twenty five year amortization period. The City's contributions for the fiscal year totaled $52,300. The schedule of Actuarial Liabilities and Funding Progress for the year ended September 30, 2001 is as follows: Actuarial valuation date Actuarial valuation of assets Actuarial Accrued Liability Percentage funded Unfunded (Overfunded) actuarial accrued liability (UARL) Annual covered payroll UAAL as percentage of covered payroll Net pension obligation - beginning Annual required contributions Contributions made Net pension obligation - ending 12/31/00 $1,048,189 $ 991,883 105.70 $ (56,306) $1,240,306 -4.5% $ 0 $ 52,300 $ (52� 300) $ 0 Page - 14 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 The City of Sanger is one of 745 municipalities having the benefit plan administered by TMRS. Each of the 745 Municipalities have an annual, individual actuarial valuation performed. All assumptions for the 12-31-00 valuations are contained in the 2000 TMRS Comprehensive Annual Financial Report, a copy of which may be obtained by writing to P.O. Box 149153, Austin, Texas 78714-9153. NOTE C: LONG-TERM DEFT: The following is a summary of the City's Long -Term Debt. The future debt requirements are detailed in schedules included in these financial statements. General Long Term Debt: Certificates of Obligation, Series 1994 - Original amount of $1,900,000; principal paid annually starting September 1, 1995; Interest paid semi-annually on March 1, and September 1, at rates ranging from 5.60 to 7.500. The Bonds were issued for street improvements and library building construction and are to be repaid from property tax revenues and are further secured by a pledge of Enterprise Fund Net Revenues. The Certificates of Obligation require that certain reserve accounts be maintained. Note Payable - Guaranty N�': i=`...1C, f. dank - Original amount of $38,969, the note requires f��t-.y eight monthly installments of $914 with the final installment due April 2003. The note bears interest at 6o and has twenty installments remaining at September 30, 2000. The note proceeds were used to purchase various pieces of equipment, which also serve as collateral for the note. Note Payable - Guaranty National Bank - Original amount of $38,023, the note requires thirty six monthly installments of $1,159 with the final installment due April 2003. The note bears interest at 6o and has nineteen installments remaining at September 30, 2000. The note proceeds were used to purchase a police vehicle, which also serves as collateral for the note. Note Payable - Guaranty National Bank - Original amount of ', $53,540, the note requires forty eight monthly installments of $1,276 with the final installm.�n.t dui July 2004. The note bears interest at two percent unde__ t an�: .rate and has thirty four installments remaining at Sept::;r�t��_� :' ` 2001. The note proceeds were used to purchase a backh��., whim also serves as collateral for the note. Note Payable - Guaranty National Bank - Original amount of $43,184, the note requires forty eight monthly installments of $1,029 with the final installment due July 2004. The note bears interest at two percent under prime rate and has thirty four Page - 15 CITY OF BANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 installments remaining at September 30, 2001. The note proceeds were used to purchase a dump truck, which also serves as collateral for the note. Note Payable - Guaranty National Bank - Original amount of $18,028, the note requires thirty six monthly installments of $555, with the final installment due July 2003. The note bears interest at two percent under prime rate and has twenty two installments remaining at September 30, 2001. The note proceeds were used to purchase a Chevy truck, which also serves as collateral for the note. Note Payable - Guaranty National Bank - Original amount of $14,998, the note requires thirty six monthly installments of $461, with the final installment due September 2003. The note bears interest at two percent under prime rate and has twenty four installments remaining at September 30, 2001. The note proceeds were used to purchase a Dodge pickup, which also serves as collateral for the note. Note Payable - Guaranty National Bank - Original amount of $19,098, the note requires thirty six monthly installments of $570, with the final installment due May 2004. The note bears interest at 2.80 percent under prime rate and has thirty two installments remaining at September 30, 2001. The note proceeds were used to purchase a police vehicle, which also serves as collateral for the note. Note Payable - Guaranty National Bank - Original amount of $850,000, the note requires one hundred eighty monthly installments of $7,499, with the final installment due July 2015. The note bears interest at two percent under prime rate and has one hundred sixty six installments remaining at September 30, 2001. The note proceeds were used to purchase land for a development project between the Sanger Texas Industrial Development Corporation and Walmart Stores East, Inc. The loan will be repaid from the 4A sales tax proceeds to be collected by the Sanger Texas Industrial Development Corporation. Capital Lease - Midwest Bankers Group - Original balance of $172,179. The lease requires a down payment of $13,150 (paid in February 1995) plus nine annual rental. payments of $24,105 beginning in February 1996. The City has a purchase option during the term of the lease to purchase the equipment at a designat�a early term/purchase option price. The City intends to exercise this option at the end of the lease term. The proceeds of the lease were used to purchase a new pumper fire truck. The truck is security for the lease. Capital Lease - Ford Motor Credit Company - Original balance of $14,300. The lease requires forty eight monthly rental payments of $338, with one payments remaining at September 30, 2001. The City has a purchase option during the term of the lease to purchase the Page - 16 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 equipment at a designated purchase option price. The City intends to exercise this option at the end of the lease term. The proceeds of the lease were used to purchase a Asphalt Roller. The equipment is security for the lease. Capital Lease - Ford Motor Credit Company - Original balance of $46,548. The lease originally required thirty six monthly rental payments of $1,401. One of the vehicles collateralized for the loan was wrecked during the fiscal year and the insurance proceeds paid off the remaining portion of the lease related to that vehicle. The lease now requires payments of $699 with two payments remaining at September 30, 2001. The City has a purchase option during the term of the lease to purchase the equipment at a designated purchase option price. The City intends to exercise this option at the end of the lease term. The proceeds of the lease were used to purchase two police vehicles. The remaining vehicle is security for the lease. Capital Lease - Ford Motor Credit Company - Original balance of $95,453. The lease requires thirty six monthly rental payments of $2,903 with three payments remaining at September 30, 2001. The City has a purchase option during the term of the lease to purchase the equipment at a designated purchase option price. The City intends to exercise this option at the end of the lease term. The proceeds of the lease were used to purchase four vehicles. The vehicles are security for the lease. Capital Lease - Lubbock National Bank - Original balance of $36,753. The lease requires sixty monthly rental payments of $734, with fourteen payments remaining at September 30, 2001. The City has a purchase option during the term of the lease to purchase the equipment at a designated purchase option price. The City intends to exercise this option at the end of the lease term. The proceeds of the lease were used to purchase computer hardware and software. The equipment is security for the lease. Proprietary Fund: Texas Utility System Revenue Bonds, Series 1996 - Original amount of $1,0600,000, principal paid annually on May 15; Interest paid - semi-annually on May 15 and November 15, at rates ranging from 4.2% to 4.75%. The bonds were issued to provide funds for improving and extending the City's Sewer System. The Bonds are to be repaid from and are secured by the Enterprise Fund Net Revenues. Texas Utility System Refunding Revenue Bonds, Series 1999 - Original amount of $1,735,000, principal paid annually on May 15; Interest paid semi-annually on May 15 and November 15, at rates ranging from 4.25% to 4.40%. The bonds were issued to provide funds sufficient to advance refund maturities 2002 through 2011 of the City's outstanding Series 1991 Bonds. The Bond proceeds were Page - 17 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 used to purchase U.S. government securities. These securities were deposited into an irrevocable trust to provide for debt service of maturities 2002 through 2011. As a result, that portion of the 1991 series bonds is considered defeased, and the City has removed the liability from its accounts. The outstanding principle of the defeased bonds is $1,580,000 at September 30, 2001. The 1999 Bonds are to be repaid from and are secured by the Enterprise Fund Net Revenues. The Bond Obligations require that certain cash reserve accounts be maintained. Note Payable - Guaranty National Bank - Original amount of $379,000, the note is due on demand, if no demand is made then the note requires five annual principal payments of $75,800 beginning I n October 2001. The note bears interest at 2.8 percent under prime rate with annual interest payments also due each October until the note is paid in full. The note proceeds were used for water storage facilities. Note Payable - Guaranty National Bank - Original amount of $169,076, the note requires forty eight monthly installments of $3,967 with the final installment due April 2003. The note bears interest at 6% and has twenty installments remaining at September 30, 2001. The note ray ;,cr_.,ds were used to purchase various pieces of equipment, which ::,: as collateral for the note. Note Payable - ..i�llty National Bank - Original amount of $17,934, the note requires thirty six monthly installments of $547 with the final installment due April 2003. The note bears interest at 6% and has nineteen installments remaining at September 30, 2001. The note proceeds were used to purchase a city vehicle, which also serves as collateral for the note. Note Payable - Guaranty National Bank - Original amount of $29,652, the note requires thirty six monthly installments of $912, with the final installment due August 2003. The note bears interest at two percent under prime rate and has twenty three installments remaining at September 30, 2001. The note proceeds were used to purchase a Ford pickup, which also serves as collateral for the note. Note Payable - Gua,91F,r7 National Bank - Original amount of $106,666, the note ._,:,��'..::� thirty six monthly installments of $3,186 with the fir.,'. .:.t,.iment due May 2004. The note bears interest at 2.80 under prime rate and has thirty two installments remaining at September 30, 2001. The note proceeds were used to purchase a dump truck and a backhoe, which also serves as collateral for the note. Capital Lease - Ford Motor Credit Company - Original balance of $40,432. The lease requires sixty monthly rental payments of $779, Page - 18 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 with fourteen payments remaining at September 30, 2001. The City has a purchase option during the term of the lease to purchase the equipment at a designated purchase option price. The City intends to exercise this option at the end of the lease term. The proceeds of the lease were used to purchase a New Holland Backhoe. The equipment is security for the lease. Capital Lease - Ford Motor Credit Company - Original balance of $32,657. The lease requires thirty six monthly rental payments of $983, with two payments remaining at September 30, 2001. The City has a purchase option during the term of the lease to purchase the equipment at a designated purchase option price. The City intends to exercise this option at the end of the lease term. The proceeds of the lease were used to purchase a vehicle. The vehicle is security for the lease. Capital Lease - Ford Motor Credit Company - Original balance of $43,781. The lease requires thirty six monthly rental payments of $1,318 with three payments remaining at September 30, 2001. The City has a purchase option during the term of the lease to purchase the equipment at a designated purchase option price. The City intends to exercise this option at the end of the lease term. The proceeds of the lease were used to purchase two vehicles. The vehicles are security for the lease. Capital Lease - Lubbock National Bank - Original balanc<:� ->; $36,753. The lease requires sixty monthly rental payments of ,"'., with fifteen payments remaining at September 30, 2001. The �.:i�::.y has a purchase option during the term of the lease to purchasE cite equipment at a designated purchase option price. The City intends to exercise this option at the end of the lease term. The proceeds of the lease were used to purchase computer hardware and software. The equipment is security for the lease. NOTE D: DEBT SERVICE REQUIREMENTS NEXT FIVE YEARS: Debt service requirements for each of the next five years are as follows: General Fund: Proprietary Fund: Year Principal Interest Principal Interest 2002 $287,168 $118,455 $ 374,618 $ 147,371 2003 276,010 103,750 349,224_ 128,895 2004 256,665 91,006 295,759 113,094 2005 221,508 76,110 275,800 99,359 2006 234,218 64,410 290,800 85,894 Future 1,046,654 130,550 1,610,000 313,248 Total $2 322,223 $ 584,281 $�,196,201 $ 887,861 Page - 19 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 2001 NOTE E: PURCHASE COMMITMENT: On June 5, 1995 the City entered into a eight year contract with the Brazoz Electric Power Cooperative, Inc., whereby the City purchases electric power and energy at agreed upon rates, subject to a fuel adjustment charge and power adjustment on demand and energy charges. Power purchased for the current fiscal year totaled $2,177,160. NOTE F: INTERFUND RECEIVABLE AND PAYABLE: At September 301 2001 the Proprietary Fund owed the General Fund '94,204. The receivable and payable result from one fund paying an expenditure for another fund. I_L77�►17 l� MUNICIPAL BOND INSURANCE POLICY SPECIMEN ( For the Certificates Only ) Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 (212) 312-3000 (800)352-0001 A GE Capital Company Municipal Bond New Issue Insurance Policy Issuer: Policy Number: Control Number: 0010001 Bonds: Financial Guaranty Insurance Company ("Financial �,`aNew York stock insurance company, in consideration of the payment of the premium and qVect toVt irrevocably agrees to pay to State Street "Fiscal Agent"), for the benefit of Bond , th debt obligations (the "Bonds") which 1 ecom Nonpayment by the Issuer. Financial Guaranty will make such payments to the Fiscal Agent on the date such principal or interest becomes Due for Payment or on the Business Day next following the day on which Financial Guaranty shall have received Notice of Nonpayment, whichever is later. The Fiscal Agent will disburse to the Bondholder the face amount of principal and interest which is then Due for Payment but is unpaid by reason of Nonpayment by the Issuer but only upon receipt by the Fiscal Agent, in form reasonably satisfactory to it, of (i) evidence of the Bondholder's right to receive payment of the principal or interest Due for Payment and (ii) evidence, including any appropriate instruments of assignment, that all of the Bondholder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Financial Guaranty. Upon such disbursement, Financial Guaranty shall become the owner of the Bond, appurtenant coupon or right to payment of principal or interest on such Bond and shall be fully subrogated to all of the Bondholder's rights thereunder, including the Bondholder's right to payment thereof. B Exhibit A FGIC. terms of this Policy, hereby unconditionally and Company, N.A., or its successor, as its agent (the ortion of the principal and interest on the above -described e Due for Payment but shall be unpaid by reason of Tllis Policy is non -cancellable for any reason. The premium on this Policy is not refundable for any t•eason, including the payment of the Bonds prior to their maturity. This Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bond. As used herein, the term "Bondholder" means, as to a particular Bond, the person other than the Issuer who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof. "Due for Payment" means, when referring to the principal of a Bond, the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity and means, when referring to interest on a Bond, the stated date FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company, FGIC Corporatiai. Form 9000 (]0/93) Pa e 1 of 2 6 Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 (212) 312-3000 (800) 352-0001 A GE Capital Company l/1Iu-tlrlt llhu�®rr11�Y Iqew issue nsulrance POKY for payment of interest. "Nonpayment' in respect of a Bond means the failure of the Issuer to have provided sufficient funds to the paying agent for payment in full of all principal and interest Due for Payment on such Bond. "Notice" means telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from a Bondholder or a paying age fo the Bonds to Financial Guaranty. "Business Day" means any day other than a Saturday, Sunday or n hich the Fiscal Agent is authorized by law to remain closed. _ w 1A` In Witness Whereof, Financial Guaranty has signed by its duly authorized officer in facsil virtue of the countersignature of its duly ptl President Effective Date: iffy be ffixed corporate seal and to be to awith its effective and binding upon Financial Guaranty by Authorized Representative State Street Bank and Trust Company, N.A., acknowledges that it has agreed to perform the duties of Fiscal Agent under this Policy. Authorized Officer FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company, FGIC Corporation. Form 9000 (10/93) Page 2 oF2 Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 (212) 312-3000 (800)352-0001 A GE Capital Company Endorsement To Financial Guaranty Insurance Company Insurance Policy M71 Policy Number: Control Number: 0010001 It is further understood that the term "I�Ionpayment" in respect %1 includes any payment of principal or interest made to a Bondholder by or on behalf of the issu r f s t nd which has been recovered from such Bondholder pursuant to the United States Bankrupt 'a trustee in bankruptcy in accordance with a final, nonappealable order of a court having com e t jur' ction. NOTHING HEREIN SHALL BE CON! D WAIVE, ALTER, REDUCE OR AMEND COVERAGE IN ANY OTHER SECTION OF THE IF FOUND CONTRARY TO THE POLICY LANGUAGE, THE TERMS OF THIS ENDORSEMENT UPERSEDE THE POLICY LANGUAGE, In Witness Whereof, Financial Guaranty has caused this Endorsement to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. President Effective Date: Acknowledged as of the Effective Date written above: Authorized Representative Authorized Officer State Street Bank and Trust Company, N.A., as Fiscal Agent FG1C is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company, FG1C Corporation. Form E-0002 (10/93) Page I of I This page is intentionally left blank.] Financial Advisory Services Provided By: 2 MIN k4 mm INVESTMENT BANKERS PAYING AGENT/REGIS I KAR AGREEMENT THIS AGREEMENT entered into as of June 1, 2002 (this "Agreement"), by and between the CITY OF SANGER, TEXAS (the "Issuer"), and THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A. a banking association duly organized and existing under the laws of the United States of America (the "Bank"). RECITALS WHEREAS, the Issuer has duly authorized and provided for the issuance of its COMBINATION TAXAND REVENUE CERTIFICATES OF OBLIGA TION, SERIES 2002 (the "Securities") in the aggregate principal amount of $2,360,000, such Securities to be issued in fully registered form only as to the payment of principal and interest thereon; and WHEREAS, the Securities are scheduled to be delivered to the initial purchasers thereof on or about June 19, 20024 and WHEREAS, the Issuer has selected the Bank to serve as Paying Agent/Registrar in connection with the payment of the principal of, premium, if any, and interest on said Securities and with respect to the registration, transfer and exchange thereof by the registered owners thereof; and WHEREAS, the Bank has agreed to serve in such capacities for and on behalf of the Issuer and has full power and authority to perform and serve as Paying Agent/Registrar for the Securities; NOW, THEREFORE, it is mutually agreed as follows: APPOINTMENT OF BANK AS PAYING AGENT AND REGISTRAR Section 1.01. Appointment. The Issuer hereby appoints the Bank to serve as Paying Agent with respect to the Securities. As Paying Agent for the Securities, the Bank shall be responsible for paying on behalf of the Issuer the principal, premium (if any), and interest on the Securities as the same become due and payable to the registered owners thereof, all in accordance with this Agreement and the "Ordinance" (hereinafter defined). The Issuer hereby appoints the Bank as Registrar with respect to the Securities. As Registrar for the Securities, the Bank shall keep and maintain for and on behalf of the Issuer books and records as to the ownership of said Securities and with respect to the transfer and exchange thereof as provided herein and in the "Ordinance." The Bank hereby accepts its appointment, and agrees to serve as the Paying Agent and Registrar for the Securities. Section 1.02. Compensation. As compensation for the Bank's services as Paying Agent/Registrar, the Issuer hereby agrees to pay the Bank the fees and amounts set forth in Schedule A attached hereto for the first year of this Agreement and thereafter the fees and amounts set forth in the Bank's current fee schedule then in effect for services as Paying Agent/Registrar for municipalities, which shall be supplied to the Issuer on or before 90 days prior to the close of the Fiscal Year of the Issuer, and shall be effective upon the first day of the following Fiscal Year. In addition, the Issuer agrees to reimburse the Bank upon its request for all reasonable expenses, disbursements and advances incurred or made by the Bank in accordance with any of the provisions hereof (including the reasonable compensation and the expenses and disbursements of its agents and counsel). ARTICLE TWO DEFINITIONS Section 2.01. Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires. "Acceleration Date" on any Security means the date on and after which the principal or any or all installments of interest, or both, are due and payable on any Security which has become accelerated pursuant to the terms of the Security. "Bank Office" means the principal corporate trust office of the Bank as indicated on the signature page hereof. The Bank will notify the Issuer in writing of any change in location of the Bank Office. "Fiscal Year" means the fiscal year of the Issuer, ending September 30. "Holder" and "Security Holder" each means the Person in whose name a Security is registered in the Security Register. 2 "Issuer Request" and "Issuer Ordinance" means a written request or ordinance signed in the name of the Issuer by the Mayor of the Issuer, any one or more of said officials, delivered to the Bank. "Legal Holiday" means a day on which the Bank is required or authorized to be closed. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision of a government. "Predecessor Securities" of any particular Security means every previous Security evidencing all or a portion of the same obligation as that evidenced by such particular Security (and, for the purposes of this definition, any mutilated, lost, destroyed, or stolen Security for which a replacement Security has been registered and delivered in lieu thereof pursuant to Section 4.06 hereof and the Ordinance). "Redemption Date" when used with respect to any Bond to be redeemed means the date fixed for such redemption pursuant to the terms of the Ordinance. "Ordinance" means the ordinance of the governing body of the Issuer pursuant to which the Securities are issued, certified by the City Secretary or any other officer of the Issuer and delivered to the Bank. "Responsible Officer" when used with respect to the Bank means the Chairman or Vice - Chairman of the Board of Directors, the Chairman or Vice-chairman of the Executive Committee of the Board of Directors, the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any Assistant Cashier, any Trust Officer or Assistant Trust Officer, or any other officer of the Bank customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Security Register" means a register maintained by the Bank on behalf of the Issuer providing for the registration and transfer of the Securities. "Stated Maturity" means the date specified in the Ordinance the principal of a Security is scheduled to be due and payable. 3 Section 2.02, Other Definitions. The terms "Bank," Issuer," and Securities (Security)" have the meanings assigned to them 4 in the recital paragraphs of this Agreement. The term "Paying Agent/Registrar" refers to the Bank in the performance of the duties and functions of this Agreement. ARTICLE THREE PAYING AGENT Section 3.01. Duties of Paving Agent. As Paying Agent, the Bank shall, provided adequate collected funds have been provided to it for such purpose by or on behalf of the Issuer, pay on behalf of the Issuer the principal of each Security at its Stated Maturity, Redemption Date, or Acceleration Date, to the Holder upon surrender of the Security to the Bank at the Bank Office, As Paying Agent, the Bank shall, provided adequate collected funds have been provided to it for such purpose by or on behalf of the Issuer, pay on behalf of the Issuer the interest on each Security when due, by computing the amount of interest to be paid each Holder and preparing and sending checks by United States Mail, first class postage prepaid, on each payment date, to the Holders of the Securities (or their Predecessor Securities) on the respective Record Date, to the address appearing on the Security Register or by such other method, acceptable to the Bank, requested in writing by the Holder at the Holder's risk and expense. Section 3.02. Payment Dates. The Issuer hereby instructs the Bank to pay the principal of and interest on the Securities on the dates specified in the Ordinance. ARTICLE FOUR REGISTRAR Section 4.01. Security Register -Transfers and Exchanges. The Bank agrees to keep and maintain for and on behalf of the Issuer at the Bank Office books and records (herein sometimes referred to as the "Security Register") for recording the names and addresses of the Holders of the Securities, the transfer, exchange and replacement of the Securities and the payment of the principal of and interest on the Securities to the Holders and containing such other information as may be reasonably required by the Issuer and subject to such reasonable regulations as the Issuer and the Bank may prescribe. All transfers, exchanges and replacement of Securities shall be noted in the Security Register. Every Security surrendered for transfer or exchange shall be duly endorsed or be accompanied by a written instrument of transfer, the signature on which has been guaranteed by an officer of a federal or state bank or a member of the National Association of Securities Dealers, in form satisfactory to the Bank, duly executed by the Holder thereof or his agent duly authorized in writing. The Bank may request any supporting documentation it feels necessary to effect a re - registration, transfer or exchange of the Securities. To the extent possible and under reasonable circumstances, the Bank agrees that, in relation to an exchange or transfer of Securities, the exchange or transfer by the Holders thereof will be completed and new Securities delivered to the Holder or the assignee of the Holder in not more than three (3) business days after the receipt of the Securities to be canceled in an exchange or transfer and the written instrument of transfer or request for exchange duly executed by the Holder, or his duly authorized agent, in form and manner satisfactory to the Paying Agent/Registrar, Section 4.02. Certificates. The Issuer shall provide an adequate inventory of printed Securities to facilitate transfers or exchanges thereof. The Bank covenants that the inventory of printed Securities will be kept in safekeeping pending their use, and reasonable care will be exercised by the Bank in maintaining such Securities in safekeeping, which shall be not less than the care maintained by the Bank for debt securities of other political subdivisions or corporations for which it serves as registrar, or that is maintained for its own securities. Section 4.03. Form of Security Register. The Bank, as Registrar, will maintain the Security Register relating to the registration, payment, transfer and exchange of the Securities in accordance with the Bank's general practices and procedures in effect from time to time. The Bank shall not be obligated to maintain such Security Register in any form other than those which the Bank has currently available and currently utilizes at the time. The Security Register may be maintained in written form or in any other form capable of being converted into written form within a reasonable time. Section 4.04. List of Security Holders. The Bank will provide the Issuer at any time requested by the Issuer, upon payment of the required fee, a copy of the information contained in the Security Register. The Issuer may also E inspect the information contained in the Security Register at any time the Bank is customarily open for business, provided that reasonable time is allowed the Bank to provide an up-to-date listing or to convert the information into written form. The Bank will not release or disclose the contents of the Security Register 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 court order or as otherwise required by law. Upon receipt of a court order and prior to the release or disclosure of the contents of the Security Register, the Bank will notify the Issuer so that the Issuer may contest the court order or such release or disclosure of the contents of the Security Register, Section 4.05. Return of Canceled Certificates. All certificates surrendered to the Bank, at the designated Payment/Transfer Office, for payment, redemption, transfer, or replacement, shall be promptly canceled by the Bank. The Bank will provide to the Issuer, at reasonable intervals determined by the Bank, a certificate evidencing the destruction of canceled certificates. Section 4.06. Mutilated, Destroyed, Lost or Stolen Securities. The Issuer hereby instructs the Bank, subject to the applicable provisions of the Ordinance, to deliver and issue Securities in exchange for or in lieu of mutilated, destroyed, lost, or stolen Securities as long as the same does not result in an overissuance. Incase any Security shall be mutilated, or destroyed, lost or stolen, the Bank, in its discretion, may execute and deliver a replacement Security of like form and tenor, and in the same denomination and bearing a number not contemporaneously outstanding, in exchange and substitution for such mutilated Security, or in lieu of and in substitution for such destroyed lost or stolen Security, only after (i) the filing by the Holder thereof with the Bank of evidence satisfactory to the Bank of the destruction, loss or theft of such Security, and of the authenticity of the ownership thereof and (ii) the furnishing to the Bank of indemnification in an amount satisfactory to hold the Issuer and the Bank harmless. All expenses and charges associated with such indemnity and with the preparation, execution and delivery of a replacement Security shall be borne by the Holder of the Security mutilated, or destroyed, lost or stolen. Section 4.07. Transaction Information to Issuer. The Bank will, within a reasonable time after receipt of written request from the Issuer, furnish the Issuer information as to the Securities it has paid pursuant to Section 3.01, Securities it has delivered upon the transfer or exchange of any Securities pursuant to Section 4.01, and Securities it has delivered in exchange for or in lieu of mutilated, destroyed, lost, or stolen Securities pursuant to Section 4.06. 0 ARTICLE FIVE THE BANK Section 5.01. Duties of Bank. The Bank undertakes to perform the duties set forth herein and agrees to use reasonable care in the performance thereof. Section 5.02. Reliance on Documents Etc. (a) The Bank may conclusively rely, as to the truth of the statements and correctness of the opinions expressed therein, on certificates or opinions furnished to the Bank. (b) The Bank shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Bank was negligent in ascertaining the pertinent facts. (c) No provisions of this Agreement shall require the Bank to expend or risk its own funds or otherwise incur any financial liability for performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity satisfactory to it against such risks or liability is not assured to it. (d) The Bank may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note, security, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. Without limiting the generality of the foregoing statement, the Bank need not examine the ownership of any Securities, but is protected in acting upon receipt of Securities containing an endorsement or instruction of transfer or power of transfer which appears on its face to be signed by the Holder or an agent of the Holder. The Bank shall not be bound to make any investigation into the facts or matters stated in a resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note, security, or other paper or document supplied by Issuer. (e) The Bank may consult with counsel, and the written advice of such counsel or any opinion of counsel shall be full and complete authorization and protection with respect to any action taken, suffered, or omitted by it hereunder in good faith and in reliance thereon. (f) The Bank may exercise any of the powers hereunder and perform any duties hereunder either directly or by or through agents or attorneys of the Bank. 7 Section 5.03. Recitals of Issuer. The recitals contained herein with respect to the Issuer and in the Securities shall be taken as the statements of the Issuer, and the Bank assumes no responsibility for their correctness. The Bank shall in no event be liable to the Issuer, any Holder or Holders of any Security, or any other Person for any amount due on any Security from its own funds. Section 5.04. May Hold Securities. The Bank, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Issuer with the same rights it would have if it were not the Paying Agent/Registrar, or any other agent. Section 5.05. Moneys Held by Bank. The Bank shall deposit any moneys received from the Issuer into a trust account to be held in a paying agent capacity for the payment of the Securities, with such moneys in the account that exceed the deposit insurance available to the Issuer by the Federal Deposit Insurance Corporation, to be fully collateralized with securities or obligations that are eligible under the laws of the State of Texas, and to the extent practicable under the laws of the United States of America, to secure and be pledged as collateral for trust accounts until the principal and interest on such securities have been presented for payment and paid to the owner thereof. Payments made from such trust account shall be made by check drawn on such trust account unless the owner of such Securities shall, at its own expense and risk, request such other medium of payment. Subject to the Unclaimed Property Law of the State of Texas, any money deposited with the Bank for the payment of the principal, premium (if any), or interest on any Security and remaining unclaimed for three years after the final maturity of the Security has become due and payable will be paid by the Bank to the Issuer if the Issuer so elects, and the Holder of such Security shall hereafter look only to the Issuer for payment thereof, and all liability of the Bank with respect to such monies shall thereupon cease. If the Issuer does not elect, the Bank is directed to report and dispose of the funds in compliance with Title Six of the Texas Property Code, as amended. Section 5.06. Indemnification. To the extent permitted by law, the Issuer agrees to indemnify the Bank for, and hold it harmless against, any loss, liability, or expense incurred without negligence or bad faith on its part, arising out of or in connection with its acceptance or administration of its duties hereunder, including the cost and expense against any claim or liability in connection with the exercise or performance of any of its powers or duties under this Agreement. �3 Section 5.07. 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, in either a Federal or State District Court located in the State and County in Texas where the administrative offices of the Issuer is located, and agree that service of process by certified or registered mail, return receipt requested, to the address referred to in Section 6.03 of this Agreement 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 to determine the rights of any Person claiming any interest herein. Section 5.08. Depository Trust Company Services. It is hereby represented and warranted that, in the event the Securities are otherwise qualified and accepted for "Depository Trust Company" services or equivalent depository trust services by other organizations, the Bank has the capability and, to the extent within its control, will comply with the "Operational Arrangements," effective August 1, 1987, which establishes requirements for securities to be eligible for such type depository trust services, including, but not limited to, requirements for the timeliness of payments and funds availability, transfer turnaround time, and notification of redemptions and calls. hereto. other. MISCELLANEOUS PROVISIONS Section 6.01. Amendment. This Agreement may be amended only by an agreement in writing signed by both of the parties Section 6.02. Assignment. This Agreement may not be assigned by either party without the prior written consent of the Section 6.03. 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 on the signature page of this Agreement. 0 Section 6.04. Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 6.05: Successors and Assigns. All covenants and agreements herein by the Issuer shall bind its successors and assigns, whether so expressed or not. Section 6.06. Severability. Incase any provision herein shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 6.0'7. 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 6.08. Entire Agreement. This Agreement and the Ordinance constitute the entire agreement between the parties hereto relative to the Bank acting as Paying Agent/Registrar and if any conflict exists between his Agreement and the Ordinance, the Ordinance shall govern. Section 6.09. 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. SectionTermination. This Agreement will terminate (i) on the date of final payment of the principal of and interest on the Securities to the Holders thereof or (ii) may be earlier terminated by either party upon sixty (60) days written notice; provided, however, an early termination of this Agreement by either party shall not be effective until (a) a successor Paying Agent/Registrar has been appointed by the Issuer and such appointment accepted and (b) notice has been given to the Holders of the Securities of the appointment of a successor Paying Agent/Registrar. Furthermore, the Bank and Issuer mutually agree that the effective date of an early termination of this Agreement shall not occur at any time which would disrupt, delay or otherwise adversely affect the payment of the Securities. �17 Upon an early termination of this Agreement, the Bank agrees to promptly transfer and deliver the Security Register (or a copy thereof), together with other pertinent books and records relating to the Securities, to the successor Paying Agent/Registrar designated and appointed by the Issuer. The provisions of Section 1.02 and of Article Five'shail survive and remain in full force and effect following the termination of this Agreement. Section 6.11. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Texas. [REMAINDER OF PAGE LEFT INTENTIONALL Y BLANKJ 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. [BANK SEAL] ATTEST: City Secretary [ISSUER SEAL] THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A. By Title ASSISTANT TREASURER 600 North Pearl, Suite 920, Dallas, Texas 75201 CITY OF SANGER BY. Mayor 20l Bolivar Street, Sanger, Texas 75266 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ATTEST: Title [BANK SEAL] ATTEST: City Secretary �rmn fbT77°AnT 14 / 4 THE BANK OF NEW YORK By_ Title 600 Nortla Pearl, Suite 420, Dallas, T�Yas 75201 CITY OF BANGER BY ' �Lc��� Mayor 201 Bolivar Street, Sanger, Texas 75266 12 SCHEDULE A Paying Agent/Registrar Fee Schedule (To be supplied by the Bank) THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A. Schedule of Fees for Paying Agent and Registrar Services CITY OF SANGER, TEXAS $2,360,000.00 Combination Tax and Revenue Certificates of Obligation, Series 2002 I. ACCEPTANCE FEE: WAIVED Payable at closing. II. ADMINISTRATION FEES: PAYING AGENT FEE: $ 550.00 (Book Entry or Fast Closings Only) Paying Agent fee is payable annually in advance. III. MISCELLANEOUS EXPENSES: Reasonable Out -of -Pocket -ongoing At Cost (Shipping, telephone, postage, etc.) The charges for performing services not contemplated at the time of the execution of the Agreement or not specifically covered elsewhere in this schedule will be determined by appraisal in amounts commensurate with the service to be provided. The Bank of New York Trust Company of Florida, N.A.Is final account acceptance is subject to the full review of all documentation related hereto, and standard conflict procedures. Should this transaction terminate prior to closing, all out-of-pocket expenses incurred, including legal fees, will be billed at cost. There will be additional charges for set-up and disbursements for COST OF ISSUANCE accounts. Our proposal is subject in all aspects to The Bank of New York Trust Company of Florida, N.A.'s review and acceptance by the Trust Committee of those final financing documents wMich set forth our duties and responsibilities. Dated: June 4, 2002 u:\debbie\texas bids anger co 2002.dac GENERAL CERTIFICATE We, the undersigned, Mayor and City Secretary of the City of Sanger, Texas (the "City"), hereby certify the following information: I. General l.1 This certificate relates to the City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2002, in the aggregate principal amount of $2,360,000 (the "Certificates"). Capitalized terms shall have the meanings assigned to such terms in the ordinance authorizing the issuance of the Certificates. 1.2 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 said City, which Charter has not been changed or amended since the adoption thereof by the City Council on November 15, 1999. 1.3 Thetotal principal amount ofthe presently outstanding general obligation indebtedness of the City, excluding the Certificates, is $1,290,000, 1.4 The currently effective ad valorem tax appraisal roll of said City (the "Tax Roll") is the Tax Roll prepared and approved for tax year 2001, being the most recently approved Tax Roll of said City; that the taxable property in said City has been appraised, assessed, and valued as required and provided by the Texas Constitution and Property Tax Code (collectively, "Texas law"); that the Tax Roll for said year has been submitted to the City Council of said City as required by Texas law, and has been approved and recorded by said City Council; and according to the Tax Roll for said year the net aggregate taxable value of taxable property in said City (after deducting the amount of all applicable exemptions required or authorized under Texas law), upon which the annual ad valorem tax of said City has been or will be imposed and levied, is $144,828,521, 1.5 The debt service requirements of the City's outstanding debt secured by a pledge of ad valorem taxes, including the Certificates, are set forth on Exhibit A attached hereto. 1.6 The gross revenues, operating expenses and net revenues of the City's Utility System for the years stated, and the rates being charged by the City for water, sewer, and electric service, are as set forth on Exhibit B attached hereto. 1.7 The City is not in default in the .payment of principal or interest on any of its outstanding obligations; and neither the corporate existence nor boundaries of the City nor the title of its present officers to their respective offices is being contested, and no authority or proceedings for the issuance of the Certificates have been repealed, revoked, or rescinded. 1.8 No petition protesting the issuance of the Certificates or requesting a referendum election has been received. 1.9 Attached hereto as Exhibit C is a true and correct copy of the bid submitted and accepted by the City Council for the purchase of the Certificates. 1.10 None of the revenues or income of said City's Utility System have been pledged or encumbered to the payment of any debt or obligation of said City or said System, except in connection with the aforesaid proposed Certificates and the outstanding obligations as follows: Combination Tax and Revenue Certificates of Obligation, Series 1994, now outstanding in the principal amount of $1,290,000. Utility System Revenue Bonds, Series 1996, now outstanding in the principal amount of $8555000 Utility System Revenue Refunding Bonds, Series 1999, now outstanding in the principal amount of $1,555,000 Utility System Revenue Bonds, Series 2002, in the principal amount of $2,540,000, to be issued concurrently with the Certificates of Obligation II. Official Statement 2.1 The descriptions and statements of or pertaining to the City contained in the Official Statement for the Certificates, and any addenda, supplement or amendment thereto, on the date of such Official Statement, on the date of sale of the Certificates, and on the date hereof, were and are true and correct in all material respects. 2.2 Insofar as the City and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 2.3 To the best of our knowledge, insofar as the descriptions and statements, including financial data, of or pertaining to entities other than the City, and their activities contained in such Official Statement are concerned, said statements and data have been obtained from sources which the City believes to be reliable, and the City has no reason to believe they are untrue in any material respect. 2.4 There has been no material adverse change in the financial condition of the City since September 1, 2001, the date of the last audited financial statements of the City, portions of which appear in the Official Statement. -2- III. Signature Identification and No -Litigation 3.1 The undersigned Mayor and City Secretary officially executed and signed the Certificates, including the initial Certificate to be delivered to the purchaser thereof (the "Initial Certificate"), and each copy of the Official Statement, by manual signature or by causing facsimiles of our manual signatures to be imprinted or lithographed on each of the Certificates and each copy of the Official Statement, and we hereby adopt said facsimile signatures as our own, respectively, and declare that said facsimile signatures constitute our signatures the same as if we had manually signed each of the Certificates and each copy of the Official Statement; at the time we so executed and signed the Certificates and Official Statement we were, and at the time of executing this certificate we are, the duly chosen, qualified, and acting officers indicated therein and authorized to execute the same; and we have caused the official seal of the City to be impressed, printed, lithographed, stamped or otherwise placed on each of the Certificates, and said seal on the Certificates has been duly adopted as, and is hereby declared to be, the official seal of the City. 3.2 The Certificates, including the Initial Certificate, are substantially in the form, and have been duly executed and signed in the manner prescribed in the ordinance authorizing the issuance of the Certificates. 3.3 No litigation of any nature has been filed or is now pending to restrain or enjoin the issuance or delivery of any of the Certificates, or which would affect the provision made for their payment or security, or in any manner questioning the proceedings or authority concerning the issuance of the Certificates, and that so far as we know and believe no such litigation is threatened. 3.4 Neither the corporate existence nor boundaries of the City is being contested, that no litigation has been filed or is now pending which would affect the authority of the officers of the City to issue, execute, sign, and deliver any of the Certificates, and that no authority or proceedings for the issuance of any of the Certificates have been repealed, revoked, or rescinded. (Execution Page Follows) -3- EXECUTED AND DELIVERED this JUN 1 9 ZWl Manual Si natures Execute either I or II below: Official Titles Mayor, City of Sanger, Texas City Secretary, City of Sanger, Texas I. The signatures of the officers subscribed above are hereby certified to be true and genuine. Bank Authorized Officer (BANK SEAL) or (initials of Authorized Officer if Bank has no seal on premises ) II. Before me, on this day personally appeared the foregoing individuals, known to me to be the persons whose true and genuine signatures were subscribed to the foregoing instrument in my presence. Given under my hand and seal of office this Notary Pu N1y Commission Exirires 09-11-2002 GENERAL OBLIGATION DEBT SEF EXHIBIT A MENTS The Certificates Fiscal Year Current Total 31-Aug Debt Service Principal Interest Total 2002 $ 2009720 �b> $ - $ 2003 203,658 40,000 145,731 2004 205,963 75,000 114,305 2005 207,625 80,000 1103030 2006 208,635 85,000 105,470 2007 208,900 85,000 100,625 2008 213,400 90,000 95,780 2009 212,000 95,000 90,650 2010 - 100,000 85,235 2011 105,000 80,385 2012 - 110,000 75,975 2013 120,000 71,245 2014 - 125,000 65,965 2015 - 130,000 60,340 2016 - 135,000 54,490 2017 - 145,000 48,280 2018 - .150,000 41,465 2019 - 160,000 34,340 2020 - 1709000 26,500 2021 - 175,000 18,000 2022 - 185,000 9,250 $ 1,660,900 $ 2,360,000 $ 1AUQ61 0 1859731 189, 305 190, 030 190,470 185,625 185,780 185,650 185,235 185,385 185, 975 191, 245 190, 965 190,340 189,490 193,280 191,465 194, 340 196,500 193, 000 194.250 $ 3.794.061 Combined Debt Service $ 200, 720 389,389 395,268 397,655 399,105 394,525 NUN 397,650 185,235 185,385 185,975 191,245 190, 965 190,340 189,490 193,280 191,465 194,340 196,500 193,000 194,250 $ 5.454.961 EXHIBIT B Part 1. Gross Income, Operating Expenses and Net Revenues of the City's Utililt1 3stem Fiscal Year Ending 9/30 1999 2000 2001 Gross Revenues $3,990,007 4,1185500 5,016,475 Operating Expenses $2,897,845 351473361 3,783,596 Net Revenues $150925162 9715139 152325879 Part 2. Water and Sewer Rates The City's current Utility System rates are set forth in tables 25, 27 and 29 of the Official Statement. C I: BID FOR CERTIFICATES See Attached Page 1 of 2 SAMCO Capital Markets - Dallas, TX's Bid s F'- Sanger $2,360,000 Combination Tax and Revenue Certificates of Obligation, Series 2002 For the aggregate principal amount of $2,360,000.00, we will pay you $2,360,000.00, plus accrued interest from the date of issue to the date of delivery. The Bonds are to bear interest at the following rate(s): Maturity Date Amount $Coupon %Bond Insurance 09/01/2003 40M 5.7000 FGIC 09/01/2004 75M 5.7000 FGIC 09/01/2005 80M 5.7000 FGIC 09/01/2006 85M 5.7000 FGIC 09/01/2007 85M 5.7000 FGIC 09/01/2008 90M 5.7000 FGIC 09/01/2009 95M 5.7000 FGIC 09/01/2010 100M 4.8500 FGIC 09/01/2011 105M 4.2000 FGIC 09/01/2012 110M 4.3000 FGIC 09/01/2013 120M 4A000 FGIC 09/01/2014 125M 4.5000 FGIC 09/01/2015 130M 4.5000 FGIC 09/01/2016 135M 4.6000 FGIC 09/01/2017 145M 4.7000 FGIC 09/01/2018 150M 4.7500 FGIC 09/01/2019 160M 4.9000 FGIC 09/01/2020 170M 5.0000 FGIC 12 N 360M 5.0000 FGIC Total Interest Cost: $1,434,061.25 Discount: $0.00 Net Interest Cost: $1,434,061.25 TIC: 4.843915 Total Insurance Premium: $17,499.99 Time Last Bid Received On:05/20/2002 12:27:53 CDST This proposal is made subject to all of the terms and conditions of the Official Bid Form, the Official Notice of Sale, and the Preliminary Official Statement, atl of which are made a part hereof. Bidder: ISAMCO Capital Markets, Dallas , TX Contact: Michael Wadsworth Title: Managing Director Telephone: 214--76.5.14 Fax: .../main.htm?frame=content&page=parityBidform&customer=TM3&issue_key_no=42658&bid_no=3 &s5/20/02 PARITY Bid Form Issuer Name: City of Sanger Company Name: Pa�e of , Accepted By: roo Accepted By: Date: ,J — 02 to � D y Date: T.homsonMunicipalMarket Monitor, THOMSON FINANCI © 1995-2002 Thomson Financial Municipals Group. All rights reserved. Trademarks oaoe.(S2) TM3 Client Services 1-800-367-8215, 7:30 a.m. to 5:00 p.m. EST. ' Please send comments to webmaster(@tm3.com. MUNICIPALS GROUP Mon May 20 13:31:58 2002 .../main.htm?frame=content&page=parityBidform&customer=TM3&issue_key_no=42658&bid_no=3& 5/20/02 Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 (212) 312-3000 (800) 35M001 A GE Capital Company June 19, 2002 City of Sanger McCall, Parkhurst &Horton L.L.P. Re: $2,360,000 in aggregate principal amount of City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2002 Ladies and Gentlemen: In connection with the issuance of the above -referenced obligations (the "Bonds"), Financial Guaranty Insurance Company ("Financial Guaranty") is issuing a municipal bond insurance policy securing the payment of principal and interest on the Bonds (the "Insurance Policy"). This letter is to advise you that, as more fully set forth in the Insurance Policy, (i) the Insurance Policy is an unconditional and recourse obligation of Financial Guaranty (enforceable by or on behalf of the holder of the Bonds) to pay scheduled principal and interest on the Bonds when due in the event of a failure to so pay by the City of Sanger, Texas (the "Issuer"); (ii) the insurance premium is a charge for the transfer of substantially all of the credit risk for the payment of principal and interest on the Bonds; (iii) except for payments under the Insurance Policy in the case of a failure to pay by the Issuer, there is no obligation to pay any amount of principal or interest on the Bonds (A) by Financial Guaranty, (B) by any person related to Financial Guaranty (within the meaning of section 1.150-1(b) of the Income Tax Regulations), (C) by any entity of which Financial Guaranty owns more than ten percent (by fair market value) of its beneficial ownership interests, or (D) by any entity which owns more than 10 percent (by fair market value) of the beneficial ownership interests of Financial Guaranty; and (iv) except for the premium paid to Financial Guaranty for the Insurance Policy, Financial Guaranty and any related party within the meaning of section 1.150-1(b) of the Income Tax Regulations) will not use any portion of the Bond proceeds. Further, Financial Guaranty does not reasonably expect to make payments under the Insurance Policy other than under a direct -pay letter of credit or similar arrangement for which Financial Guaranty will be June 19, 2002 Page 2 reimbursed immediately, and, in the event of any such payment, Financial Guaranty will immediately become subrogated to the rights of the Bondholders to receive the full amount of such payment. Financial Guaranty is reasonably assured (based on a binding obligation of an entity with sufficient funds) that sufficient funds will be available to fully retire the Bonds in the event the Issuer fails to pay scheduled principal and interest on the Bonds when due. In addition, this letter is to advise you that (i) the premium paid for the Insurance Policy does not include any payment (A) for any direct or indirect services other than the transfer of credit risk, (B) for the provision of additional services by Financial Guaranty, or (C) for a cost, risk or other element that is not customarily borne by insurers of tax-exempt bonds (in transactions in which the guarantor has no involvement other than as guarantor); (ii) the premium paid includes the overhead costs of Financial Guaranty, such Fees paid by Financial Guaranty to maintain its ratings, and other costs that are taken into account in the formulation of the rate structures (iii) no portion of such premium is a payment for costs of issuance on the Bonds (including rating agency fees, the cost of underwriting or remarketing the Bonds, and the cost of insurance for casualty to Bond - financed property), and, if the requirements of section 1.148-2(e)(2) of the Income Tax Regulations (relating to temporary periods for capital projects) are not satisfied, Financial Guaranty is reasonably assured that the Bonds will be repaid if the project to be financed by the Bonds is not completed. Further, the Issuer is not entitled to a refund of any portion of the premium for the Insurance Policy in the event a Bond is retired before its final maturity date. Very trul yours, Isabel Guerra Senior Counsel o2oio�oa Sanger, Texas May 20, 2002 The Attorney General of Texas 300 West 15`'' Street, 9`' Floor Austin, Texas 78701 Attention: Public Finance Division Texas State Comptroller of Public Accounts 208 East 10' Street, Room 636 Austin, Texas 78701-2407 Attention: Melissa Mora Cash and Securities Management Division Re: City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2002 To the Attorney General: The Initial Certificate and transcript of the captioned series are being sent to your office, and it is requested that you examine and approve the Certificates in accordance with the law. After such approval, please deliver the Initial Certificate to the Comptroller of Public Accounts for registration. Enclosed herewith is a signed but undated copy of the General Certificate for the Certificates. You are hereby authorized and directed to We this certificate concurrently with the date of approval of the Certificates. If any litigation or contest should develop pertaining to the Certificates or any other matters covered by said certificate, the undersigned will notify you thereof immediately by telephone and telecommunication. With this assurance, you can rely on the absence of any such litigation or contest and on the veracity and currency of said certificate at the time you approve the Certificates, unless you are notified otherwise as aforesaid. To the Comptroller: The approved Initial Certificates of the captioned series will be delivered to you by the Attorney General of Texas. You are hereby requested to register the Certificates, evidenced by the approved Initial Certificate, as required by law and by the proceedings authorizing the Certificates. After such registration, you are authorized and directed to notify and deliver the Initial Certificate to McCall, Parkhurst &Horton L.L.P., 717 N. Harwood, 9`" Floor, Dallas, Texas 75201, Attention: Leroy Grawunder, Jr. The Attorney General of Texas Comptroller of Public Accounts May 20, 2002 Page 2 Please also send to McCall, Parkhurst &Horton L.L.P., five copies of each of the following: 1. Attorney General's Approving Opinion; and 2. Comptroller's Signature Certificate. Your statement of charges should be billed to SWS Securities, 1201 Elm Street, Suite 3500, Dallas, Texas 7�270. Sincerely, CITY OF BANGER, TEXAS May OFFICE OF THE ATTORNEY GrNERAL • STATE OF TEXAS ]OHN CORNYN June 17, 2002 THIS IS TO CERTIFY that the City of Sanger, Texas (the "Issuer") has submitted to me City of Sanger Texas Combination Tax and Revenue Certificate of Obligation, Series 2002 (the "Certificate") in the principal amount of $2,360,000 for approval. The Certificate is dated June 1, 2002, numbered R-1, and was authorized by an Ordinance of the Issuer passed on May 20, 2002 (the "Ordinance"). 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 the official statement or any other offering material relating to the Certificate. Based on my examination, I am of the opinion, as of the date hereof and under existing law, as follows (capitalized terms, except as herein defined, have the meanings given to them in the Ordinance): (1) The Certificate has been issued in accordance with law andvalid and binding obligation of the Issuer. (2) The Certificate is payable from the proceeds of an annual ad valorem tax levied, within the limits prescribed by law, upon all taxable property in the Issuer, and 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 all payment of 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. Therefore, the Certificate is app Attorney {general of the State of Texas No. 37968 Book No. 2002-B hcn PosT OFFIcr Box 12548, AusnN, TEXAS 78711-2548 Tr.L: (512)463-2100 �e�ela: ww���.onc.sTATr.rX.us Au Equal L: uiFlnynient C pj�ornuiih� Iim�lnprr Printr�l on Rrq'r/rd Pnj�rr OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, Carolyn Turney, Lj Bond Clerk ❑X 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 o n the 17th day of June. 2002, 1 signed the name of the Comptroller to the certificate of registration endorsed upon the: City of Sanger. Texas Combination Tax and Revenue Certificate of Obligation. Series 2002, numbered R-1. dated June 1. 2002, and that in signing the certificate of registration I used the following signature: IN WITNESS WHEREOF I have executed this certificate this the 17th day of June. 2002. I, Carole Keeton Rylander, 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 65702. GIVEN under my hand and seal of office at Austin, Texas, this the 17th day of June. 2002. CAROLS KEETON RYLANDER Comptroller of Public Accounts of the State of Texas OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, CAROLE KEETON RYLANDER, Comptroller of Public Accounts %J the State of Texas, do hereby certify that the attachment is a true and correct copy of the opinion of the Attorney General approving the, City of Sanger. Texas Combination Tax and Revenue Certificate of Obligation, Series 2002 numbered R-1, of the denomination of $ 2 360,000, dated June 1. 2002, 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 17th day of June, 2002, under Registration Number 65702. Given under my hand and seal of office, at Austin, Texas, the 17th day of June. 2002. CAROLE KEETON RYLANDER Comptroller of Public Accounts of the State of Texas Mood,'* investors Service .., June 17, 2002 Finaneia! Guaranty Insurance Company 125 Park Avenue, 5th Floor New York, New York 10017 To Wham !t May Conc�m: Moody's Investors Service has assigned the rating of Aaa (Financia! Guaranty Insurance Company Insured - Policy No. 02010704) to the $21360p000.00 , City of Sanger, Texas-•wCombination Tax and Revenue Certificates of Obligation, Series 2002 , dated June 1, 2002 which sold on May 20, 2002, The rating is based upon an insurance policy provided by Financial Guaranty insurance Company. Should you have any questions regarding the above, please do not hesitate to contact rot the assigned analyst, Margaret Kessler at (212) 553-7884. Sincerely yours, `nZan.�ana.� .�oonPan. Margaret L. Kessler Vice PresidentlSeniorAnelyst MK:SY eaggregareprincipalamount ❑!x:.c Certificatesof • 'Texas The undersigned andVor one or mom othei memben; of the undervirriting syndicate, ir any, have made a boria ftle oftring to the pubic of ft Certiff cates of each abftd maturily at the respedW prices set lbrth below, The Initial oftbring price (expressed as a petcantage of principal amount or yield and e)Wu5ive of accrued Interest) for the Certificates of each ststed Matutity at which at least ten percent (10%) of the Ceffliostes of such stated maturity was sold to the public M' as set florth belom 13zle Amount TWId Date Amount, i 1 1 111 ! 1 111 01 . /11 % 2D14 125,000 01. 111 1 • 13540M 2007 854000 % 2017 1456000 11: 'i I!1 % 2018 1506000 Ft• 95oWD 1 • 1808000 2010 1009000 2020 170100D 2011 lost000 % Z021 17stom 2012 1109000 % 2022 185,000 The term "Public,� as used herein, means persons; other than bondhouses, brokers, dealers, and similar pemons or organi=OnS 1 • in the capaCrty of r - orwholowlers, offeringThe prices described above reflect prices at the tinic of suchsalm 6. The undersigned and/or one or more other memtrers of the underwriting syndicate, as the case may be, (have) (have not) purchased bond insurance for the Certificates. The bond insurance, if any, hsa been purchased from P&* fca (the 'insurer'] for a premium cost of $ /07 D (net of any nongurarantee costs, e.g. rating agency fees). The amount of such costs is set forth In the Insurer's commitment and is separately stated from all other fees er Charges payable to the Insurer. The premium does not exceed a reasonatrle charge for the transfer of credit risk taking into account payments charged by guarantors In comparable transsdion5 (Including transactions in which a guarantor has no involvement other than as a guarantor). The present value of the debt service savings effected to be realized as a result of such insurance, discounted at a rate equal to the yield on the Certificates which results after recovery of the Insurance premium, exceeds the present value of the bond insurance premium. 7. The ¢USIA number of the Certificates with the latest stated maturity is Y DD 9 07L rendenng :.r : r r • • • Ir • •1 IM• r• - their owners. cl Title: 761 IN f11►`i:fi `i a�' �T7 Page ] of l SAMCO Capital Marketss Reoffering Scale Sanger �2,360,000 Combination Tax and Revenue Certificates of Obligation, Series 2002 Maturity Date Amount $Coupon °Yo leld % Dv ar P"ce Can Date 09/01/2003 40M 5.7000 2.1000 104,240 09/01/2004 75M 5.7000 24000 106.582 09/01/2005 80M 5.7000 3.1000 107.857 09/01 /2006 85M 5.7006 3.4000 108.925 09/01/2007 85M 5.7000 3,6000 109*872 09/01/2008 90M 5.7000 3.8200 110.285 09/01/2009 95M 5,7000 4.0000 110.537 09/01/2010 100M 4.8500 4.1000 105A72 09/01/2011 105M 4.2000 4.2500 99.617 09/01/2012 110M 4.3000 4,3500 99.586 09/01/2013 12QM 4,4000 4.4700 99.382 09/01/2014 125M 4.6000 4.5700 99.344 09/01/2015 130M 4.5000 4.6200 98.817 09/01/2016 135M 4.6000 4.7200 98.761 09/01/2017 145M 4,7000 4.8200 98.710 09/01/2018 150M 4.7500 4.9200 98.110 160M 4.9000 5.0200 98.621 g 170M 5.0000 5.0500 99.401 360M 1 5.0000 5.1000 98.740 Accrued Interest: N/A Gross Production: NIA Thomson Munitip8l Market Monitor. ">t'i-�OiV7S�H FINAHtI � 1995-Z00Z Thomson Fnancial Municipals Group. All rights reserved. TradEmarles page.(52� TM3 Llient Services 1-800-367-8215, 7:30 a.m. to 5:00 p.m. EST. Please send comments to webrnasteriftm3.eom, MUNICIPALS GROUP Tue May 21 09:45:43 2002 FEDERAL TAX CERTIFICATE 1. In General, 1.1. The undersigned is the Mayor of the City of Sanger, Texas (the "Issuer"). 1.2. This Certificate is executed for the purpose ofestablishing the reasonable expectations of the Issuer as to future events regarding the Issuer's Combination Tax and Revenue Certificates of Obligation, Series 2002 (the "Certificates"). The Certificates are being issued pursuant to an Ordinance of the Issuer (the "Ordinance") adopted on the date of sale of the Certificates. The Ordinance is incorporated herein by reference. 1.3. To the best of the undersigned's knowledge, information and belief, the expectations contained in this Certificate are reasonable. 1.4. The undersigned is an officer of the Issuer delegated with the responsibility of issuing and delivering the Certificates. 2. The Pumose of the Certificates of Obligation and Useful Lives of Projects. 2.1. The Certificates are being issued pursuant to the Ordinance (a) to provide for the payment of costs of issuing the Certificates and (b) to pay all or a portion of the Issuer's contractual obligations for the purpose of constructing and improving the Issuer's streets (the "Projects"). 2.2. The Issuer expects that the aggregate useful lives ofthe Projects exceed 20 years from the later of the date the Projects are placed in service or the date on which the Certificates are issued. 2.3. All earnings, such as interest and dividends, received from the investment of the proceeds of the Certificates during the period of acquisition and construction of the Projects and not used to pay interest on the Certificates, will be used to pay the costs of the Projects, unless required to be rebated and paid to the United States in accordance with section 148(f) of the Internal Revenue Code 'of 1986 (the "Code"). The proceeds of the Certificates, together with any investment earnings thereon, are expected not to exceed the amount necessary for the governmental purpose of the Certificates. The Issuer expects that no disposition proceeds will arise in connection with the Projects or the Certificates. 3. Expenditure of Bond Proceeds and Use of Projects. 3.1. The Issuer will incur, within six months after the date of issue of the Certificates, a binding obligation to commence the Projects, either by entering into contracts for the construction of the Projects or by entering into contracts for architectural or engineering services for such Projects, or contracts for the development, purchase of construction materials, or purchase of equipment, for the Projects, with the amount to be paid under such contracts to be in excess of five percent of the proceeds which are estimated to be used for the cost of the Projects. 3.2. After entering into binding obligations, work on such Projects will proceed promptly with due diligence to completion. 3.3. All original proceeds derived from the sale of the Certificates to be applied to the Projects and all investment earnings thereon (other than any amounts required to be rebated to the United States pursuant to section 148(f) of the Code) will be expended for the Projects no later than a date which is three years after the date of issue of the Certificates. 3.4. The Ordinance provides that allocations of proceeds to expenditures for the Projects are expected not to be later than 18 months after the later of the date of the expenditure or the date that the Projects are placed in service, but, in any event, not longer than 60 days after the earlier of five years of the date hereof or the date the Certificates are retired. 3.5. The Issuer will not invest the proceeds prior to such expenditure in any guaranteed investment contract or other nonpurpose investment with a substantially guaranteed yield for a period equal to or greater than four years. 3.6. Otherthan members ofthe general public, the Issuer expects that throughout the lesser of the term of the Certificates, or the useful lives of the Projects, the only user of the Projects will be the Issuer or the Issuer's employees and agents. The Issuer will be the manager of the Projects. 3.7. Except as stated below, the Issuer expects not to sell or otherwise dispose of property constituting the Projects prior to the earlier of the end of such property's useful life or the final maturity of the Certificates. The Ordinance provides that the Issuer will not sell or otherwise dispose of the Projects unless the Issuer receives an opinion of nationally -recognized bond counsel that such sale or other disposition will not adversely affect the tax-exempt status of the Certificates. 3.8. For purposes of Section 3.7 hereof, the Issuer has not included the portion of the Projects comprised of personal property that is disposed in the ordinary course at a price that is expected to be less than 25 percent of the original purchase price. The Issuer, upon any disposition of such property, will transfer the receipts from the disposition of such property to the general operating fund and expend such receipts within six months for other governmental programs. 4. Interest and Sinking Fund. 4.1. A separate and special Interest and Sinking Fund has been created and established solely to pay the principal of and interest on the Certificates, with a portion of the Interest and Sinking Fund constituting a bona fide debt service fund for the Certificates, and money deposited into the Interest and Sinking Fund for the Certificates will not be invested at a yield higher than the yield on the Certificates, except during the thirteen month period beginning on the date of each such deposit of money, and the amounts received from the investment of money in the Interest and Sinking Fund will not be invested at a yield higher than the yield on the Certificates, except during the one year period beginning on the date of receipt of such amounts; provided, however, and except that, if any money so deposited, and any amounts received from the investment thereof, are accumulated in the Interest and Sinking Fund and remain on hand in the Interest and Sinking Fund after thirteen months from the date of deposit of any such money or one year after the receipt of any such amounts from the investment thereof, such money and amounts, to the extent of an aggregate not exceeding the lesser of five percent of the proceeds of the Certificates or $100,000 will not be subject to investment yield restrictions, and shall constitute a separate portion of the Interest and Sinking Fund. 4.2. It is expected that a portion of the Interest and Sinking Fund will be used primarily to achieve a proper matching of revenues collected for the Certificates and debt service on the 2 Certificates within each bond year, and it is expected that such portion ofthe Interest and Sinking Fund will be depleted once a year on a first4n - first -out basis, except for a possible carryover amount which will not exceed the greater of one year's earnings on such fund or 1/12 of annual debt service payable from such fund, but any money and amounts which may be accumulated in the Interest and Sinking Fund, to constitute a debt service reserve fund for the Certificates as described in Section 4.1, above, shall constitute a separate portion of the Interest and Sinking Fund, and will not be depleted annually, and will not be subject to yield restrictions; provided that in no event will such debt service reserve fund portion of the Interest and Sinking Fund ever exceed the lesser of five percent of the proceeds of the Certificates or $100,0001 5. Invested Sinking Fund Proceeds, Replacement Proceeds. 5,1. The Issuer has, in addition to the moneys received from the sale of the Certificates, certain other moneys that are invested in various funds which are pledged for various purposes. These other funds are not available to accomplish the purposes described in Section 2 of this Certificate. 5.2. Other than the Interest and Sinking Fund, there are, and will be, no other funds or accounts established, or to be established, by or on behalf of the Issuer (a) which are reasonably expected to be used, or to generate earnings to be used, to pay debt service on the Certificates, or (b) which are reserved or pledged as collateral for payment of debt service on the Certificates and for which there is reasonable assurance that amounts therein will be available to pay such debt service if the Issuer encounters financial difficulties. Accordingly, there are no other amounts constituting "gross proceeds" of the Certificates, within the meaning of section 148 of the Code. 6. Other Obligations. There are no other obligations of the Issuer which (a) are sold at substantially the same time as the Certificates, i.e., within 15 days of the date of sale of the Certificates, (b) are sold pursuant to a common plan of financing with the Certificates, and (c) will be payable from the same source of funds as the Certificates. 7. Rebate to United States. The Issuer has covenanted in the Ordinance that it will comply with the requirements of the Code, including section 148(f) of the Code, relating to the required rebate to the United States. Specifically, the Issuer will take steps to ensure that all earnings on gross proceeds of the Certificates in excess of the yield on the Certificates required to be rebated to the United States will be timely paid to the United States. The Issuer acknowledges receipt of the memorandum attached hereto as Exhibit "A" which discusses regulations promulgated pursuant to section 148(f) of the Code. This memorandum does not constitute an opinion of Bond Counsel as to the proper federal tax or accounting treatment of any specific transaction. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.) 3 CITY OF SANGER, TEXAS By: Exhibit "A" LAW OFFICES MCCALL, PARKHURST & HORTON L.L.P. 600 CONGRESS AVENUE 1250 ONE AMERICAN CENTER AUSTIN, TEXAS 78701-3248 TELEPHONE: (512) 478-3805 FACSIMILE: (512)472-0871 717 NORTH HARWOOD NINTH FLOOR DALLAS,TEXAS 752016587 TELEPHONE:(214)754-9200 FACSIMILE: (214)754.9250 January 1, 1995 700 N. ST. MARY S STREET 1225 ONE RIVERWALK PLACE SAN ANTONIO, TEXAS 78205J503 ARBITRAGE REBATE REGULATIONS© TELEPHONE: (210) 225-2800 FACSIMILE:(210)225-2984 The Tax Reform Act of 1986 amended the provisions of the Internal Revenue Code by providing a newly -enacted section 148(f) of the Internal Revenue Code of 1986 (the "Code"), relating to arbitrage rebate. This arbitrage rebate requirement generally provides that in order for interest on any issue of obligations to be excluded from gross income (i.e., tax-exempt) the issuer must rebate to the United States the sum of, (1) the excess of the amount earned on all Inonpurpose investments" acquired with "gross proceeds" of the issue over the amount which would have been earned if such investments had been invested at a yield equal to the yield on the issue, and (2) the earnings on such excess earnings. These rules are substantially similar to the rules which, prior to the Tax Reform Act of 1986, applied to industrial development bonds and mortgage revenue bonds. Section 148(f) of the Code has been amended by several subsequent tax acts, most notably, the Revenue Reconciliation Acts of 1989 and 1990. These amendments primarily provided a special exception to rebate for certain construction issues, as discussed under the heading "Exceptions to Rebate." On June 18, 1993, the U.S. Treasury Department promulgated regulations relating to the computation of arbitrage rebate and the rebate exceptions. These regulations, which replace the previously -published regulations promulgated on May 15, 1989, and on May 18, 1992, are effective for bonds issued after June 30, 1993. These newly -promulgated regulations also replace the arbitrage regulations, other than those relating to rebate, which were published in 1978. This memorandum was prepared by McCall, Parkhurst & Horton L.L.P. and provides a general discussion of the arbitrage rebate regulations. This memorandum does not otherwise discuss the general arbitrage regulations, otherthan as they may incidentally relate to rebate. This memorandum also does not attempt to provide an exhaustive discussion of the arbitrage rebate regulations and should not be considered advice with respect to the arbitrage rebate requirements as applied to any individual or governmental unit or any specific transaction. McCall, Parkhurst & Horton L.L.P. remains available to provide legal advice to issuers with respect to the provisions of these tax regulations but recommends Copyright 1995 by Harold T. Flanagan, McCall, Parkhurst &Horton L.L.P. All rights reserved. that issuers seek competent financial and accounting assistance in calculating the amount of such issuer's rebate liability under section 148(f) of the Code and in making elections to apply the rebate exceptions. In this memorandum the word "bond" is defined to include any bond, note, certificate, financing lease or other obligation of an issuer. Effective Dates The regulations promulgated on June 18,1993, generally apply to bonds delivered after June 30, 1993, but, as discussed below, also permit an issuer to elect to apply the newly - promulgated rules to bonds issued prior to that date. The temporary regulations adopted by the U.S. Treasury Department in 1989 and 1992 incorporated the same effective dates which generally apply for purposes of section 148(f) of the Code. The statutory provisions of section 148(f) of the Code, other than the exception for construction issues, apply to all bonds issued after August 15, 1986, (for private activity bonds) and August 31, 1986, (for governmental public purpose bonds). As such, the previous versions of the rebate regulations generally applied to bonds issued between August 1986 and June 30, 1993 (or, with an election, to bonds issued prior to August 15, 1993). The statutory exception to rebate applicable to construction issues generally applies to such issues if delivered after December 19, 1989. The newly -promulgated regulations provide numerous transitional rules for bonds sold prior to July 1, 1993. Moreover, since, under prior law, rules were previously published with respect to industrial development bonds and mortgage revenue bonds, the transitional rules contained in these newly -promulgated regulations permit an issuer to elect to apply certain of these rules for computing rebate on pre-1986 bonds. The regulations provide for numerous elections which would permit an issuer to apply the newly -promulgated rules (other than 18- month spending exception) to bonds which were issued prior to July 1, 1993 and remain outstanding on June 30, 1993. Due to the complexity of the regulations, it is impossible to discuss in this memorandum all circumstances for which specific elections are provided. If an issuerwould prefer, in certain circumstances, to use the newly -promulgated regulations in lieu of the computational method stated under prior law (e.g., due to prior redemption) or the previously -published regulations, please contact McCall, Parkhurst & Horton L.L.P. for advice as to the availability of such options. Future Value Computation Method The regulations employ an actuarial method for computing the rebate amount based on the future value of the investment receipts (i.e., earnings) and payments. The rebate method employs a two-step computation to determine the amount of the rebate payment. First, the issuer determines the bond yield. Second, the issuer determines the arbitrage rebate amount. The regulations require that the computations be made at the end of each five-year period and upon final maturity of the issue (the "computation dates"). THE FINAL MATURITY DATE WILL ACCELERATE IN CIRCUMSTANCES IN WHICH THE BONDS ARE OPTIONALLY REDEEMED PRIOR TO MATURITY. AS SUCH, IF BONDS ARE REFUNDED OR OTHERWISE REDEEMED, THE REBATE MAY BE DUE EARLIER THAN INITIALLY McCall, Parkhurst &Horton L.L.P. -Page 2 PROJECTED. In order to accommodate accurate record -keeping and to assure that sufficient amounts will be available for the payment of arbitrage rebate liability, however, we recommend that the computations be performed at least annually. Under the future value method, the amount of rebate is determined by compounding the aggregate earnings on all the investments from the date of receipt by the issuer to the computation date. Similarly, a payment for an investment is future valued from the date that the payment is made to the computation date. The receipts and payments are future valued at a discount rate equal to the yield on the bonds. The rebatable arbitrage, as of any computation date, is equal to the excess of the (1) future value of all receipts (i.e., earnings) from investments, over (2) the future value of all payments. The following example is provided in the regulations to illustrate how arbitrage rebate is computed under the future value method for a fixed -yield bond: "On January 1, 1994, City A issues a fixed yield issue and invests all the sale proceeds of the issue ($49 million). There are no other gross proceeds. The issue has a yield of 7.0000 percent per year compounded semiannually (computed on a 30 day month/360 day year basis). City A receives amounts from the investment and immediately expends them for the governmental purpose of the issue as follows: Date Amount 2/1 /1994 $ 610001000 4/1 /1994 510001000 6/1 /1994 14, 000, 000 9/1/1994 201000,000 7/1/1995 10,000,000 City A selects a bond year ending on January 1, and thus the first required computation date is January 1, 1999. The rebate amount as of this date is computed by determining the future value of the receipts and the payments for the investment. The compounding interval is each 6-month (or shorter) period and the 30 day month/360 day year basis is used because these conventions were used to compute yield on the issue. The future value of these amounts, plus the computation credit, as of January 1, 1999, is: McCall, Parkhurst &Horton L.L.P. -Page 3 Date Receipts (Payments) FY (7.0000 percent) 0I/1/1994 (4)49,000,000) ($6911197339) 02/1/1994 3,0001000 41207,602 04/1 /1994 510001000 61932,715 06/1 /1994 141000,000 19,190,277 09/1 /1994 20, 000, 000 26, 947,162 01/1/1995 (11000) (11317) 07/1/1995 10,000,000 121722,793 01/1/1996 (11000) (1,229) Rebate amount (01/01/1999) $878,664" General Method for Computing Yield on Bonds In general, the term "yield," with respect to a bond, means the discount rate that when used in computing the present value of all unconditionally due payments of principal and interest and all of the payments for a qualified guarantee produces an amount equal to the present value of the issue price of the bond. For this purpose, the term "issue price" has the same meaning as provided in sections 1273 and 1274 of the Code. That is, if bonds are publicly offered (i.e., sold by the issuer to a bond house, broker or similar person acting in the capacity of underwriter or wholesaler), the issue price of each bond is determined on the basis of the initial offering price to the public (not to the aforementioned intermediaries) at which price a substantial amount of such bond was sold to the public (not to the aforementioned intermediaries). The "issue price" is separately determined for each bond (i.e., maturity) which comprises an issue. The regulations also provide varying periods for computing yield on the bonds depending on the method by which the interest payment is determined. Thus, for example, yield on an issue of bonds sold with variable interest rates (i.e., interest rates which are reset periodically based on changes in market) is computed separately for each annual period ending on the first anniversary of the delivery date that the issue is outstanding. In effect, yield on a variable yield issue is determined on each computation date by "looking back" at the interest payments for such period. The regulations, however, permit an issuer of a variable - yield issue to elect to compute the yield for annual periods ending on any date in order to permit a matching of such yield to the expenditure of the proceeds. Any such election must be made in writing, is irrevocable, and must be made no later than the earlier of (1) the fifth anniversary date, or (2) the final maturity date. Yield on a fixed interest rate issue (i.e., an issue of bonds the interest rate on which is determined as of the date of the issue) is computed over the entire term of the issue. Issuers of fixed -yield issues generally use the yield computed as of the date of issue for all rebate computations. Such yield on fixed -yield issues generally is recomputed only if (1) the issue is sold at a substantial premium, may be retired within five years of the date of delivery, and such date is earlier than its scheduled maturity date, or (2) the issue is a stepped -coupon bond. In such cases, the regulations require the issuer to recompute the yield on such issues by taking McCall, Parkhurst &Horton L.L.P. -Page 4 into account the early retirement value of the bonds. Similarly, recomputation occurs in circumstances in which the issuer or bondholder modify or waive certain terms of, or rights with respect to, the issue or in sophisticated hedging transactions. IN SUCH CIRCUMSTANCES ISSUERS ARE ADVISED TO CONSULT McCALL PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS. For purposes of determining the principal or redemption payments on a bond, different rules are used for fixed-rate and variable -rate bonds. The payment is computed separately on each maturity of bonds rather than on the issue as a whole. In certain circumstances, the yield on the bond is determined by assuming that principal on the bond is paid as scheduled and that the bond is retired on the final maturity date for the stated retirement price. For bonds subject to early redemption or stepped -coupon bonds, described above, or for bonds subject to mandatory early redemption, the yield is computed assuming the bonds are paid on the early redemption date for an amount equal to their value. Section 148 of the Code provides that premiums paid to guarantee the payment of debt service on bonds are taken into account in computing the yield on the bond. Payments for guarantees are taken into account by treating such premiums as the payment of interest on the bonds. This treatment, in effect, raises the yield on the bond, thereby permitting the issuer to recover such fee with excess earnings. The guarantee must be an unconditional obligation of the guarantor enforceable by the bondholder for the payment of principal or interest on the bond or the tender price of a tender bond. The guarantee may be in the form of an insurance policy, surety bond, irrevocable letter or line of credit, or standby purchase agreement. Importantly, the guarantor must be legally entitled to full reimbursement for any payment made on the guarantee either immediately or upon commercially reasonable repayment terms. The guarantor may not be a co -obligor of the bonds or a user of more than 10 percent of the proceeds of the bonds. Payments for the guarantee may not exceed a reasonable charge for the transfer of credit risk. This reasonable charge requirement is not satisfied unless it is reasonably expected that the guarantee will result in a net present value savings on the bond (i.e., the premium does not exceed the present value of the interest savings resulting by virtue of the guarantee). If the guarantee is entered into after June 14, 1989, then any fees charged for the nonguarantee services must be separately stated or the guarantee fee is not recoverable. The regulations also treat certain "hedging" transactions in a mannersimilarto qualified guarantees. "Hedges" are contracts, e.g., interest rate swaps, futures contracts or options, which are intended to reduce the risk of interest rate fluctuations. Hedges and other financial derivatives are sophisticated and ever -evolving financial products with which a memorandum, such as this, can not readily deal. IN SUCH CIRCUMSTANCES ISSUERS ARE ADVISED TO CONSULT McCALL PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS. McCall, Parkhurst &Horton L.L.P. -Page 5 Earnings on Nonpurpose Investments The arbitrage rebate provisions apply only to the receipts from the investment of "gross proceeds" in "nonpurpose investments." Forthis purpose, nonpurpose investments are stock, bonds or other obligations acquired with the gross proceeds of the bonds for the period prior to the use of the gross proceeds for its ultimate purpose. For example, investments deposited to construction funds, reserve funds (including surplus taxes or revenues deposited to sinking funds) or other similar funds are nonpurpose investments. Such investments include only those which are acquired with "gross proceeds." For this purpose, "gross proceeds" include original proceeds received from the sale of the bonds, investment earnings from the investment of such original proceeds, amounts pledged to the payment of debt service on the bonds or amounts actually used to pay debt service on the bonds. The regulations do not provide a sufficient amount of guidance to include an exhaustive list of "gross proceeds" for this purpose; however, it can be assumed that "gross proceeds" represent all amounts received from the sale of bonds, amounts earned as a result of such sale or amounts (including taxes and revenues) which are used to pay, or secure the payment of, debt service for the bonds. The total amount of "gross proceeds" allocated to a bond generally can not exceed the outstanding principal amount of the bonds. The regulations provide generally that an investment is allocated to an issue for the period (1) that begins on the date gross proceeds are used to acquire the investment, and (2) that ends on the date such investment ceases to be allocated to the issue. In general, proceeds are allocated to a bond issue until expended for the ultimate purpose for which the bond was issued or for which such proceeds are received (e.g., construction of a bond - financed facility or payment of debt service on the bonds). Deposit of gross proceeds to the general fund of the issuer (or other fund in which they are commingled with revenues or taxes) does not alleviate the obligation to compute rebate in most cases. As such, proceeds commingled with the general revenues of the issuer are not "freed -up" from the rebate obligation. An exception to this commingling limitation for bonds, other than private activity bonds, permits "investment earnings" (but not sale proceeds or other types of gross proceeds) to be considered spent when deposited to a commingled fund if those amounts are reasonably expected to be spent within six months. Other than for these amounts, issuers may consider segregating investments in order to more easily compute the amount of such arbitrage earnings by not having to allocate investments. Special rules are provided for purposes of advance refundings. These rules are too complex to discuss in this memorandum. Essentially, the rules relating to refundings, however, do not require that amounts deposited to the escrow fund to defease the prior obligations of the issuer be subject to arbitrage rebate to the extent that the investments deposited to the escrow fund do not have a yield in excess of the yield on the bonds. Any loss resulting from the investment of proceeds in an escrow fund below the yield on the bonds, however, may be recovered by combining those investments with investments deposited to other funds, e.g., reserve or construction funds. The arbitrage regulations also provide that the investment of bond proceeds in tax- exempt obligations does not result in arbitrage. The provisions of the Technical and Miscellaneous Revenue Act of 1988, however, amended that rule by providing that investment McCall, Parkhurst &Horton L.L.P. -Page 6 of bond proceeds in "private activity bonds" (i.e., bonds subject to the alternative minimum tax under section 57(a)(5) of the Code) are treated as investments in taxable obligations. As such, earnings from these tax-exempt investments are subject to rebate. Similarly, the investment of gross proceeds in certain tax-exempt mutual funds are treated as a direct investment in the tax-exempt obligations deposited in such fund. While issuers may invest in such funds for purposes of avoiding arbitrage rebate, they should be aware that if "private activity bonds" are included in the fund then a portion of the earnings will be subject to arbitrage rebate. Issuers should be prudent in assuring that the funds do not contain private activity bonds. The arbitrage regulations provide a number of instances in which earnings will be imputed to the nonpurpose investments. Receipts generally will be imputed to investments that do not bear interest at an arms -length (i.e., market) interest rate. As such, the regulations adopt a "market price" rule. In effect, this rule prohibits an issuer from investing bond proceeds in investments at a price which is higher than the market price of comparable obligations, in order to reduce the yield. Special rules are included for determining the market price for investment contracts, certificates of deposit and certain U.S. Treasury obligations. For example, to establish the fair market value of investment contracts a bidding process between three qualified bidders must be used. The fair market value of certificates of deposit which bear a fixed interest rate and are subject to an early withdrawal penalty is its purchase price if that price is not less than the yield on comparable U.S. Treasury obligations and is the highest yield available from the institution. In any event, a basic "common sense" rule -of -thumb that can be used to determine whether a fair market value has been paid is to ask whether the general funds of the issuer would be invested at the same yield. An exception to this market price rule is available for United States Treasury Obligations - State or Local Government Series in which case the purchase price is always the market price. Reimbursement and Working Capital The final regulations provide new rules for purposes of determining whether gross proceeds are used forworking capital and, if so, at what times those proceeds are considered spent. In general, working capital financings are subject to many of the same rules that have existed since the mid-1970s. For example, the regulations generally continue the 13-month temporary period. By adopting a "proceeds -spent -last" rule, the regulations also generally require that an issuer actually incur a deficit (i.e., expenditures must exceed receipts) for the computation period (which generally corresponds to the issuer's fiscal year). Also, the regulations continue to permit an operating reserve, but unlike prior regulations the amount of such reserve may not exceed five percent of the issuer's actual working capital expenditures for the prior fiscal year. Another change made by the regulations is that the issuer may not finance the operating reserve with proceeds of a tax-exempt obligation. Importantly, the regulations also adopt rules for determining whether proceeds used to reimburse an issuer for costs paid prior to the date of issue of the obligation, in fact, are considered spent at the time of reimbursement. These rules apply to an issuer who uses general revenues for the payment of all or a portion of the costs of a project then uses the proceeds of the bonds to reimburse those general revenues. Failure to comply with these rules McCall, Parkhurst &Horton L.L.P. -Page 7 would result in the proceeds continuing to be subject to federal income tax restrictions, including rebate. To qualify for reimbursement, a cost must be described in an expression (e.g., resolution, legislative authorization) evidencing the issuer's intent to reimburse which is made no later than 60 days after the payment of the cost. Reimbursement must occur no later than 18 months after the later of (1) the date the cost is paid or (2) the date the project is placed in service. Except for projects requiring an extended construction period or small issuers, in no event can a cost be reimbursed more than three years after the cost is paid. Reimbursement generally is not permitted forworking capital; only capital costs, grants and loans may be reimbursed. Moreover, certain anti -abuse rules apply to prevent issuers from avoiding the limitations on refundings. IN CASES INVOLVING WORKING CAPITAL OR REIMBURSEMENT, ISSUERS ARE ADVISED TO CONTACT McCALL, PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION, Rebate Payments Rebate payments generally are due 60 days after each installment computation date. The interim computation dates occur each fifth anniversary of the issue date. The final computation date is on the latest of (1) the date 60 days after the date the issue of bonds is no longer outstanding, (2) the date eight months after the date of issue for certain short-term obligations (i.e., obligations retired within three years), or (3) the date the issuer no longer reasonably expects any spending exception, discussed below, to apply to the issue. On such payment dates, other than the final payment date, an issuer is required to pay 90 percent of the rebatable arbitrage to the United States. On the final payment date, an issuer is required to pay 100 percent of the remaining rebate liability. Failure to timely pay rebate does not necessarily result in the loss of tax -exemption. Late payments, however, are subject to the payment %J interest, and unless waived, a penalty of 50 percent (or, in the case of private activity bonds, other than qualified 501(c)(3) bonds,100 percent) of the rebate amount which is due. IN SUCH CIRCUMSTANCES, ISSUERS ARE ADVISED TO CONSULT McCALL, PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS. Rebate payments are refundable. The issuer, however, must establish to the satisfaction of the Commissioner of the Internal Revenue Service that the issuer paid an amount in excess of the rebate and that the recovery of the overpayment on that date would not result in additional rebatable arbitrage. An overpayment of less than $5,000 may not be recovered before the final computation date. Alternative Penalty Amount In certain cases, an issuer of a bond the proceeds of which are to be used for construction may elect to pay a penalty, in lieu of rebate. The penalty may be elected in circumstances in which the issuer expects to satisfy the two-year spending exception which is McCall, Parkhurst & Horton L.L.P. - Page 8 more fully described under the heading "Exceptions to Rebate." The penalty is payable, if at all, within 60 days after the end of each six-month period. This is more often than rebate. The election of the alternative penalty amount would subject an issuer, which fails the two-year spend -out requirements, to the payment of a penalty equal to one and one-half of the excess of the amount of proceeds which was required to be spent during that period over the amount which was actually spent during the period. The penalty has characteristics which distinguish it from arbitrage rebate. First, the penalty would be payable without regard to whether any arbitrage profit is actually earned. Second, the penalty continues to accrue until either (1) the appropriate amount is expended or (2) the issuer elects to terminate the penalty. To be able to terminate the penalty, the issuer must meet specific requirements and, in some instances, must pay an additional penalty equal to three percent of the unexpended proceeds. Exceptions to Rebate The Code and regulations provide certain exceptions to the requirement that the excess investment earnings be rebated to the United States. a. Small Issuers. The first exception provides that if an issuer (together with all subordinate issuers) during a calendar year does not issue tax-exempt obligations in an aggregate face amount exceeding $5 million, then the obligations are not subject to rebate. Only issuers with general taxing powers may take advantage of this exception. For this purpose, "private activity bonds" neither are afforded the benefit of this exception nor are taken into account for purposes of determining the amount of bonds issued. Subordinate issuers are those issuers which derive their authority to issue bonds from the same issuer, e.g., a city and a health facilities development corporation, or which are controlled by the same issuer, e.g., a state and the board of a public university. b. Spendin_c�Exceptions. Montii Exception. The second exception to the rebate requirement is available to all tax-exempt bonds, all of the gross proceeds of which are expended during six months. The six month rule is available to bonds issued after the effective date of the Tax Reform Act of 1986. See the discussion of effective dates on page two. For this purpose, proceeds used for the redemption of bonds (other than proceeds of a refunding bond deposited to an escrow fund to discharge refunded bonds) can not be taken into account as expended. As such, bonds with excess gross proceeds generally can not satisfy the second exception unless the amount does not exceed the lesser of five percent or $100,000 and such de minimis amount must be expended within one year. Certain gross proceeds are not subject to the spend -out requirement, including amounts deposited to a bona fide debt service fund, to a reserve fund and amounts which become gross proceeds received from purpose investments. These amounts themselves, however, may be subject to rebate even though the originally expended proceeds were not. McCall, Parkhurst &Horton L.L.P. -Page 9 The Code provides a special rule for tax and revenue anticipation notes (i.e., obligations issued to pay operating expenses in anticipation of the receipt of taxes and other revenues). Such notes are referred to as TRANs. To determine the timely expenditure of the proceeds of a TRAN, the computation of the "cumulative cash flow deficit" is important. If the "cumulative cash flow deficit" (i.e., the point at which the operating expenditures of the issuer on a cumulative basis exceed the revenues of the issuer during the fiscal year) occurs within the first six months of the date of issue and must be equal to at least 90 percent of the proceeds of the TRAN, then the notes are deemed to satisfy the exception. This special rule requires, however, that the deficit actually occur, not that the issuer merely have an expectation that the deficit will occur. In lieu of the statutory exception for TRANs, the regulations also provide a second exception. Under this exception, 100 percent of the proceeds must be spent within six months, but before note proceeds can be considered spent, all other available amounts of the issuer must be spent first ("proceeds -spent -last" rule). In determining whether all available amounts are spent, a reasonable working capital reserve equal to five percent of the prior year's expenditures may be set aside and treated as unavailable. 18-Month Exception. The regulations also establish anon -statutory exception to arbitrage rebate if all of the gross proceeds (including investment earnings) are expended within 18 months after the date of issue. Under this exception, 15 percent of the gross proceeds must be expended within a six-month spending period, 60 percent within a 12-month spending period and 100 percent within an 18-month spending period. The rule permits an issuer to rely on its reasonable expectations for computing investment earnings which are included as gross proceeds during the first and second spending period. A reasonable retainage not to exceed five percent of the sale proceeds of the issue is not required to be spent within the 18-month period but must be expended within 30 months. Rules similar to the six-month exception relate to the definition of gross proceeds. Two Year Exception. Bonds issued after December 19, 1989 (i.e., the effective date of the Omnibus Reconciliation Act of 1989), at least 75 percent of the net proceeds of which are to be used for construction, may be exempted from rebate if the gross proceeds are spent within two years. Bonds more than 25 percent of the proceeds of which are used for acquisition or working capital may not take advantage of this exception. The exception applies only to governmental bonds, qualified 501(c)(3) bonds and private activity bonds for governmentally - owned airports and docks and wharves. The two-year exception requires that at least 10 percent of the available construction proceeds must be expended within six months after the date of issue, 45 percentwithin 12 months, 75 percentwithin 18 months and 100 percent within 24 months. The term "available construction proceeds" generally means sale proceeds of the bonds together with investment earnings less amounts deposited to a qualified reserve fund or used to pay costs of issuance. Under this rule, a reasonable retainage not to exceed five percent need not be spent within 24 months but must be spent within 36 months. The two-year rule also provides for numerous elections which must be made not later than the date of issuance of the bonds. Once made, the elections are irrevocable. Certain elections permit an issuer to bifurcate bond issues, thereby treating only a portion of the issue as a qualified construction bond; and, permit an issuer to disregard earnings from reserve funds for purposes of determining "available construction proceeds." Another election permits an issuer to pay the alternative penalty amount discussed above in lieu of rebate if the issuer McCall, Parkhurst &Horton L.L.P. -Page 10 ultimately fails to satisfy the two-year rule. Issuers should discuss these elections with their financial advisors priorto issuance of the bonds. Of course, McCall, Parkhurst & Horton L.L.P. remains available to assist you by providing legal interpretations thereof. c. Debt Service Funds. Additionally, an exception to the rebate requirement, whether or not any of the previously discussed exceptions are available, applies for earnings on "bona fide debt service funds." A "bona fide debt service fund" is one in which the amounts are expended within 13 months of the accumulation of such amounts by the issuer. In general, most interest and sinking funds (other than any excess taxes or revenues accumulated therein) satisfy these requirements. For private activity bonds, short term bonds (i.e., have a term of less than five years) or variable rate bonds, the exclusion is available only if the gross earnings in such fund does not exceed $100,000, for the bond year. For other bonds issued after November 11, 1988, no limitation is applied to the gross earnings on such funds for purposes of this exception. Therefore, subject to the foregoing discussion, the issuer is not required to take such amounts into account for purposes of the computation. FOR BONDS ISSUED AFTER THE EFFECTIVE DATE OF THE TAX REFORM ACT OF 1986 WHICH WERE OUTSTANDING AS OF NOVEMBER 11, 1988, OTHER THAN PRIVATE ACTIVITY BONDS, SHORT TERM BONDS OR VARIABLE RATE BONDS, A ONE-TIME ELECTION MAY BE MADE TO EXCLUDE EARNINGS ON "BONA FIDE DEBT SERVICE FUNDS" WITHOUT REGARD TO THE $100,000, LIMITATION. THE ELECTION MUST BE MADE IN WRITING (AND MAINTAINED AS PART OF THE ISSUER'S BOOKS AND RECORDS) NO LATER THAN THE LATER OF MARCH 21, 1990, OR THE FIRST DATE A REBATE PAYMENT IS REQUIRED, Conclusion McCall, Parkhurst &Horton L.L.P. hopes that this memorandum will prove to be useful as a general guide to the arbitrage rebate requirements. Again, this memorandum is not intended as an exhaustive. discussion nor as specific advice with respect to any specific transaction. We advise our clients to seek competent financial and accounting assistance. Of course, we remain available to provide legal advice regarding all federal income tax matters, including arbitrage rebate. If you have any questions, please feel free to contact Harold T. Flanagan at (214) 754-9200. McCall, Parkhurst &Horton L.L.P. -Page 11 Exhibit "B" LAW OFFICES MCCALL, PARKHURST & HORTON L.L.P. 600 CONGRESS AVENUE 1250 ONE AMERICAN CENTER AUSTIN, TEXAS 7870/J248 TELEPHONE: (512) 478-3805 FACSIMILE: (512) 472-0871 Mr. Jack L. Smith City Manager City of Sanger, Texas 201 Bolivar Street Sanger, Texas 76266 717 NORTH HARWOOD DALLAS, TEXAS 75201-6587 TELEPHONE:(214)754-9200 FACSIMILE: (214)754-9250 May 20, 2002 1225 ONE RIVERWALK PLACE SAN ANTONIO, TEXAS 78205.3503 TELEPHONE: (210) 225-2800 FACSIMILE: (210) 22&2984 Re: City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2002 Dear Mr. Smith: As you know, the City of Sanger, Texas (the "Issuer") will issue the captioned bonds in order to provide for the acquisition and construction of the project. As a result of that issuance, the federal income tax laws impose certain restrictions on the investment and expenditure of amounts to be used for the project or to be deposited to the interest and sinking fund for the captioned bonds. The purpose of this letter is to set forth, in somewhat less technical language, those provisions of the tax law which require the tinnely use of bond proceeds and that investment of these amounts be at a yield which is not higher than the yield on the captioned bonds. For this purpose, please refer to line 21(e) of the Form 8038-G included in the transcript of proceedings for the yield on the captioned bonds. Generally, the federal tax laws provide that, unless excepted, amounts to be used for the project or to be deposited to the interest and sinking fuund must be invested in obligations the combined yield on which does not exceed the yield on the bonds. Importantly, for purposes of administrative convenience, the bonds, however, have been structured in such a way as to avoid, for the most part, this restriction on investmentyield. They also contain certain covenants relating to expenditures of proceeds designed to alert you to unintentional failures to comply with the laws affecting expenditures of proceeds and dispositions of property. First, the sale and investment proceeds to be used for the project may be invested for up to three years without regard to yield. (Such amownts, however, maybe subject to rebate.) Thereafter, they nnust be invested at or below the bond yield. Importantly, expenditure of these proceeds must be accounted in your books and records. Allocations of these expenditures must occur within 18 months of the later of the date paid or the date the project is completed. The foregoing notwithstanding, the allocation should not occur later than 60 days after the earlier of (1) of five years after the delivery date of the bonds or (2) the date the bonds are retired unless you obtain an opinion of bond counsel. Second, the interest and sinking fund is made up of amounts which are received annually for the payment of current debt service on all the Issuer's outstanding bonds. Any taxes or revenues deposited to the interest and sinking fund which are to be used for the payment of current debt service on the captioned bonds, or any other outstanding bonds, are not subject to yield restriction. By definition, current debt service refers only to debt service to be paid within one year of the date of receipt of these amounts. For the most part, this would be debt service in the current fiscal year. These amounts deposited to the account for current debt service may be invested without regard to any constraint imposed by the federal income tax laws. Third, a portion of the interest and sinking fund is pernnitted to be invested without regard to yield restriction as a "minor portion." The "minor portion" exception is available for de minimis amounts of taxes or revenues deposited to the interest and sinking fund. The maximum amount that may be invested as part of this account may not exceed the lesser of five percent of the principal amount of the bonds or $100,000. Accordingly, you should review the current balance in the interest and sinking fund in order to determine if such balance exceeds the aggregate amounts discussed above. Additionally, in the future it is important that you be aware of these restrictions as additional amounts are deposited to the interest and sinking fund. The amounts in this fund which are subject to yield restriction would only be the amounts which are in excess of the sum of (1) the current debt service account and (2) the "minor portion" account. Moreover, to the extent that additional bonds are issued by the Issuer, whether for new money projects or for refunding, these amounts will change in their proportion. Finally, you should notice that the ordinance contains a covenant that limits tine ability of the Issuer to sell or otherwise dispose of bond -financed property for compensation. Begimiing for obligations issued after May 15, 1997 (including certain refunding bonds), or in cases in which an issuer elects to apply new private activity bond regulations, such sale or disposition causes the creation of a class of proceeds referred to as "disposition proceeds." Disposition proceeds, like sale proceeds and investment earnings, are tax - restricted funds. Failure to appropriately account, invest or expend such disposition proceeds would adversely affect the tax=exempt status of the bonds. In the event that you anticipate selling property, even in the ordinary course, please contact us. - Obviously, this letter only pxesents a fundamental discussion of the yield restriction rules as applied to amounts deposited to the interest and sinking fund. Moreover, this letter does not address the rebate consequences with respect to the interest and sinking fund and you should review the memorandum attached to the Federal Tax Certificate as Exhibit "A" for this purpose. If you have certain concerns with respect to the matters discussed in this letter or wish to ask additional questions with regards to certain limitations imposed, please feel free to contact our firm. Thank you for your consideration and we look forward to our continued relationship. Very truly yours, McCALL, PARICHURST & HORTON L.L.P. LAW OFFICES 600 CONGRESS AVENUE I250 ONE AMERICAN CENTER AUSTIN, TEXAS 78701-3248 TELEPHONE: 512 478.3805 FgCSIM ILE: Si2472.0871 McCALL, PARKHURST & HORTON L.L.P 717 NORTH HARWOOD NINTH FLOOR DALLAS, TEXAS 75201-6587 TELEPHONE: 214 754-9200 FACSIMILE: 214 754.9250 August 5, 2002 CERTIFIED MAIL RRR: 7099 3220 0001 4461 7184 Internal Revenue Service Center Ogden, Utah 84201 700 N. ST. MARY'S STREET 1225 ONE RIVERWALK PLACE SAN ANTONIO, TEXAS 78205-3503 TELEPHONE: 210 225-2800 FACSIMILE: 210 225-2984 Re: Information Reporting -Tax-Exempt Bonds City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2002 Ladies and Gentlemen: Pursuant to the requirements of Section 149(e) of the Internal Revenue Code of 1986, enclosed please find an original and a photocopy of Form 8038-G which is hereby submitted to you for the above -captioned bonds issued June 19, 2002. Please file the original and return the receipted copy of Form 8038-G to the undersigned in the enclosed self-addressed, postage paid envelope. HTF: knw Enclosures cc: Mr. Leroy 0 Grawunder Sincerely, McCALL, PARKHURST & HORTON L.L.P. Harold T. Flanagan Form 8038-G (Rev. November 2000) Department of the Treasury Internal Revenue Service Information Return for Tax -Exempt Governmental Obligations ► Under Internal Revenue Code section 149(e) ► See separate Instructions. Caution: If the issue price is under $100,000, use Form 8038-GC. OMB No. 1545-0720 F.P., Reporting Authority If Amended Return, check here ► ❑ 1 Issuer's name SANGER TEXAS CITY OF 2 Issuer's employer identification number 75- Number and street (or P.O. box if mail is not delivered to street address) 201 BOLIVAR STREET Room/suite 4 Report number 3 02 6 City, town, or post office, state, and ZIP code SANGER TEXAS 76266-0578 6 Date of issue 6-19-02 7 Name of issue COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIBATION SERIES 2002 8 CUSIP number 800876 CF9 9 Name and title of officer or legal representative whom the IRS may call for more information JACK L. SMITH CITY MANAGER 10 Telephone number of officer or legal representative 940 4584930 Pa11' ...:.......:.......... Type of Issue (check applicable box(es) and enter the issue price) See instructions and attach schedule 11 12 13 14 15 16 17 18 19 20 ❑ Education.................................................................. ❑ Health and hospital........................................................... ❑ Transportation.............................................................. ❑ Public safety................................................................ Environment (including sewage bonds) ............................................ ❑ Housing ❑ Utilities ❑X Other. Describe► Street Improvements If obligations are TANS or RANs, check box ► ❑ If obligations are BANS, check box ...... If obligations are in the form of a lease or installment sale, check box ► ❑ 11 12 13 14 15 16 17 18 Pa�#'Ill Description of Obligations. (Complete for the entire issue for which this form is being filed.) (a) Final maturity date (b) Issue price (c) Stated redemption price at maturity (d) Weighted average maturity (e) Yield 21 9-1-2022 $ 2,395v238 $ Z Years 4a7588 % Dar+ ...................... IV,. Uses of Proceeds of Bond Issue (including underwriters' discount) 22 23 24 25 26 27 28 29 30 Proceeds used for accrued interest. Issue price of entire issue (enter amount from line 21, column (b)) .......................... Proceeds used for bond issuance costs (including underwriters' discount) 24 50 248 Proceeds used for credit enhancement ........................... 25 17 500 Proceeds allocated to reasonably required reserve or replacement fund .. 26 -0- Proceeds used to currently refund prior issues ..................... 27 Proceeds used to advance refund prior issues 28 1 Total (add lines 24 through 28)...................................................... Nonrefunding proceeds of the issue (subtract line 29 from line 23 and enter amount here) ........ 22 5,829 23 2 395 238 ` "°".. .............. 29 30 29327,490 PartU MIND Description of Refunded Bonds (Complete this part only for refunding bonds.) NOT APPLICABLE 31 Enter the remaining weighted average maturity of the bonds to be currently refunded ........... ► years 32 Enter the remaining weighted average maturity of the bonds to be advance refunded ........... ► years 33 Enter the last date on which the refunded bonds will be called ............................ ► 34 Enter the dates) the refunded bonds were issued ► ..P4W---VfJ Miscellaneous 35 Enter the amount of the state volume cap allocated to the issue under section 141(b)(5) ......... 35 36a Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract (see instructions) .... 36a _n_ b Enter the final maturity date of the guaranteed investment contract ► 37 Pooled financings: a Proceeds of this issue that are to be used to make loans to other governmental units ........... 37a b If this issue is a loan made from the proceeds of another tax-exempt issue, check box ► ❑ and enter the name of the issuer ► and the date of the issue ► N/A 38 If the issuer has designated the issue under section 265(b)(3)(B)(i)(III) (small issuer exception), check box ............ ►] 39 If the issuer has elected to pay a penalty in lieu of arbitrage rebate, check box .................................. ► ❑ 40 If the issuer has identified a hedge, check box .......................................................... ► ❑ Sign Here Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belie(, they are true, correct, and complete. Type or print name and title of Date For Paperwork Reduction Act Notice, see page 2 of the Instructions. Isn STF FED6403F Form 8038-G (Rev. 11-2000) The Bank of New York Trust Company of Florida, N. A. Corporate Trust Division 600 North Pearl Street, Suite 420 Dallas, Texas 75201 Ladies &Gentlemen: $2,360,000 CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2002 The Issuer and the Purchaser of the captioned Certificates have designated your bank as the place, and as their agent, for the delivery and payment of the Certificates. The Certificates, which initially has been issued as a single fully registered Certificate payable in installments, will be sent to you in the near future, together with a certified copy of the Ordinance authorizing the issuance of the Certificates. Upon your receipt of the final unqualified approving legal opinion of McCall, Parkhurst &Horton, Attorneys at Law, 717 North Harwood Street, Ninth Floor, Dallas, Texas 75201 as to the validity of the Certificates, you are authorized and directed to deliver the Certificates to the Purchaser thereof, to -wit: SAMCO Capital Markets when you have received payment for the Certificates, in immediately available funds, for the purchase price thereof and accrued interest to the date of delivery. You are further authorized and directed to cause the proceeds of the above -referenced Certificates to be distributed and deposited, and the Certificates to be delivered to the Purchaser, in accordance with the attached Closing Memorandum. Enclosed herewith are two signed but undated copies of each of the ISSUER'S RECEIPT OF PAYMENT and GENERAL CERTIFICATE for said Certificates. You are hereby authorized and directed to date all copies of each of said documents concurrently with the date of delivery and payment for the Certificates. If any litigation or contest should develop or be filed, or if any event should occur, or any knowledge should come to our attention, which would change or affect the veracity of the statements and representations contained in any of said documents, the undersigned will notify you thereof immediately by telephone. With this assurance you can rely on the absence of any such litigation, contest, event, or knowledge, and on the veracity and currency of each of said documents at the time of delivery of and payment for the Certificates, unless you are notified otherwise as aforesaid. After all copies of each of said documents have been dated in accordance with the foregoing instructions, please send all of them to McCall, Parkhurst & Horton. Sincerely yours, CITY OF SANGER, TEXAS FINAL TO: FROM: DATE: MIDLTM♦/MRA\MW1)kVM Individuals Listed Below Dan A. Almon June 14, 2002 RE: $2,360,000 City of Sanger, Texas Combination Tax & Revenue Certificates of Obligation, Series 2002 Please find attached the closing memorandum for the above captioned Certificates. If you have any questions, give me a call at (214) 859-9452 or Mary Jane Dietz (214) 859-6803 or fax at (214) 859-9475. Distribution to: Name Mr. Jack Smith Ms. Rose Chavez Or. Entity City of Sanger City of Sanger Leroy Grawunder McCall, Parkhurst &Horton L.L.P Ms. Tina Ward McCall, Parkhurst &Horton L.L.P Or. Mike Wadsworth SAMCO Capital Markets Ms. Kristel Richards Bank of NY Trust Co. of Florida S. Joan Shichtman Financial Guaranty Insurance Co. Ema11 or Fax Number Phone jack smith@airmail.net 940-458-7930 04584180 940-458-7930 94 Igrawunder@mphlegal.com 214-754-9201 tward@mphlegal. com 214-754-9220 mwadsworth@serviceasset.com 214-765-1437 krichards@bankofny.com 214-880-8222 Joan.shichtman@gecapital.com 212-312-3431 CITY OF SANGER, TEXAS FINAL ;P2,360,000 Combination Tax & Revenue Certificates of Obligation, Series 2002 CLOSING MEMORANDUM CLOSING Payment for and delivery of the captioned Certificates is scheduled to occur on Wednesday, June 19, 2002 (the "Closing Date") at 10:00 A.M. at the offices of The Bank of New York Trust Company of Florida, N.A., Dallas, Texas ("BONY") Plaza of the Americas. Suite 420 — South Tower, 600 N. Pearl Street, Dallas, TX 75201. INSURANCE PREMIUM TRANSFER On the Closing Date, the Purchaser (SAMCO Capital Markets.) will wire transfer the FGIC insurance premium of $17,500.00 to Bankers Trust, New York, ABA # 021-001-033, 16 Wall Street, New York, New York, for credit to Financial Guaranty Insurance Company, Account # 50-256-127, for Policy # 02010704, City of Sanger, Texas, Attention; Joan Shichtman (212-312-3431) Upon transmission of the premium to FGIC, the Purchaser will notify Bond Counsel of the wire reference number and the time such wire was sent. Bond Counsel will contact FGIC to obtain release of the municipal bond insurance policy, and upon such release Bond Counsel will contact the Paying Agent/Registrar with regard to disbursement of the funds listed below and the release of the definitive Certificates. RECEIPT AND DISBURSEMENT OF FUNDS On the Closing Date, SAMCO Capital Markets will wire transfer to The Bank of New York, N.A. (BONY) ABA #021-0000-18, GLA 111-565, TAS # 184152 REF: City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2002, Attn: Kristel Richards (214-880-8223), the following amount representing the purchase price for the Certificates. Par Amount of Certificates Plus Accrued Interest Less Good Faith Check Total Upon receipt of such funds the following disbursements are to be made by BONY: $2,360,000.00 5,829.25 (47,200,00) 1. BONY will retain 550.00 in payment of the first year's paying agent fee, leaving.' to be distributed as follows: 2. By wire transfer, transmit the amount of $2,266,118.99 to Guaranty National Bank, Sanger, Texas, ABA #111901454, Attention Sandra Lloyd 940-458-7404, for credit to the Clty of Sanger as follows: 3) 2002 CO Bond Construction Account (# 900022871) in the amount of $2,280,289.74 b) 2002 CO Interest and Sinking Account (# 902155323) in the amount of $5,829.25 wire transfer, transmit the amount of 24 060.26 to JPMorgan Chase Bank, ABA # 113 000 6099 FAO SWS Securities, Account # 08805076955, Attention: JoAnne McKenna, Reference: City of Sanger, # 9003-119106. This amount is in payment of the Financial Advisory and Official Statement (OS) Preparation Fees and reimbursable expenses, as listed in Exhibit "A" attached hereto. 4. By wire transfer, transmit the amount of 7 900.00 to Colonial BHAM, 1999 Bryan St., Dallas Texas, ABA # 0620-0131-9, Account # 00000-0152-9, for credit to McCall, Parkhurst &Horton L.L.P. Operating Account, for further credit to Client Reference #2199.008 City of Sanger COs. This amount is in payment of Bond Counsel fee and expenses as listed in Exhibit "A" attached hereto. 2 FINAL GOOD FAITH CHECK Upon payment for and delivery of the Certificates, the City shall deposit the Good Faith Check in the amount of $47,200.00 into its 2002 CO Bond Construction Account with Guaranty National Bank in Sanger (# 900022871). This good faith deposits brings the total deposited for construction to $2,327,489.746 CITY OF BANGER, TEXAS $2,360,000 Combination Tax & Revenue Certificates of Obligation, Series 2002 �:I:TI=Iy�1 SWS Securities Financial Advisory Fee Reimbursable Expenses (audit duplication cost) Official Statement Preparation Fee Official Statement Electronic Posting/Distribution Via the Internet McCall, Parkhurst &Horton L.L.P. Bond Counsel Fee and Expenses (Includes $750 for A.G.) $21,950.00 110.26 1,250.00 Total $24,060.26 7.900.00 RECEIPT AND DELIVERY CERTIFICATE The undersigned, authorized representative of The Bank of New York Trust Company of Florida, N.A., as Paying Agent/Registrar with respect to City of Sanger, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2002 (the "Obligations"), in the aggregate principal amount of $2,360,000, hereby: 1. Acknowledges (i) receipt from the purchaser of the Obligations, SAMCO Capital Markets the "Purchaser"), of $2,318,629.25, representing the purchase price for said Obligations as set forth in the closing instructions attached hereto (the "Closing Instructions") prepared by SWS Securities, financial advisor to the City of Sanger, Texas, and (ii) the disposition of said purchase price in accordance with the Closing Instructions; and 2. Certifies that Obligation No. R-1, registered by the Comptroller of Public Accounts of the State of Texas and representing the aggregate principal amount of said issue of Obligations, was delivered to or upon the order of the Purchaser and duly canceled this date by an authorized officer of the undersigned Paying Agent/Registrar upon delivery of definitive Obligations of said aggregate principal amount to or upon the order of said Purchaser. �• '� ► ' 11 THE BANK OF NEW YORK TRUST COMPANY OF, FLORIDA, N.A. as Paying Agent/Registrar By: � Titl FINAL TO: FROM: DATE: RE: min OV/I/IIAONI/vLIVE Individuals Listed Below Dan A. Almon June 14, 2002 $2,360,000 City of Sanger, Texas Combination Tax & Revenue Certificates of Obligation, Series 2002 Please find attached the closing memorandum for the above captioned Certificates. If you have any questions, give me a call at (214) 859-9452 or Mary Jane Dietz (214) 859-6803 or fax at (214) 859-9475. Distribution to: Name Enti Mr. Jack Smith City of Sanger Ms. Rose Chavez City of Sanger Mr. Leroy Grawunder McCall, Parkhurst &Horton L.L.P As. Tina Ward McCall, Parkhurst &Horton L.L.P. Mr. Mike Wadsworth SAMCO Capital Markets As. Kristel Richards Bank of NY Trust Co. of Florida Ms. Joan Shichtman Financial Guaranty Insurance Co Email or Fax Number Phone jack smith@airmail.net 940-458-7930 9404584180 940458-7930 Igrawunder@mphlegal.com 214454-9201 rd@mphlegal.com 214454-9220 mwadsworth@serviceasset.com 214465-1437 krichards@bankofny.com 214-880-8222 Joan.shichtman@gecapital.com 212-312-3431 CITY OF SANGER, TEXAS FINAL $2,360,000 Combination Tax S Revenue Certificates of Obligation, Series 2002 CLOSING MEMORANDUM CLOSING Payment for and delivery of the captioned Certificates is scheduled to occur on Wednesday, June 19, 2002 (the "Closing Date") at 10:00 A.M. at the offices of The Bank of New York Trust Company of Florida, N.A., Dallas, Texas ("BONY") Plaza of the Americas. Suite 420 — South Tower, 600 N. Pearl Street, Dallas, TX 75201. INSURANCE PREMIUM TRANSFER On the Closing Date, the Purchaser (SAMCO Capital Markets.) will wire transfer the FGIC insurance premium of $17,500.00 to Bankers Trust, New York, ABA # 021-001-033, 16 Wall Street, New York, New York, for credit to Financial Guaranty Insurance Company, Account # 50-256-127, for Policy # 02010704, City of Sanger, Texas, Attention; Joan Shichtman (212-312.3431) Upon transmission of the premium to FGIC, the Purchaser will notify Bond Counsel of the wire reference number and the time such wire was sent. Bond Counsel will contact FGIC to obtain release of the municipal bond insurance policy, and upon such release Bond Counsel will contact the Paying Agent/Registrar with regard to disbursement of the funds listed below and the release of the definitive Certificates. RECEIPT AND DISBURSEMENT OF FUNDS On the Closing Date, SAMCO Capital Markets will wire transfer to The Bank of New York, N.A. (BONY) ABA #021-0000-18, GLA 111-565, TAS # 184152 REF: City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2002, Attn: Kristel Richards (214-880-8223), the following amount representing the purchase price for the Certificates. Par Amount of Certificates Plus Accrued Interest Less Good Faith Check Total Upon receipt of such funds the following disbursements are to be made by BONY: $2,360,000.00 5,829.25 (47, 200.001 1. BONY will retain 550.00 in payment of the first year's paying agent fee, leaving $2,318,079.25 to be distributed as follows; 2. By wire transfer, transmit the amount of 12.28.8,118.99 to Guaranty National Bank, Sanger, Texas, ABA #111901454, Attention Sandra Lloyd 940-458-7404, for credit to the Clty of Sanger as follows: a) 2002 CO Bond Construction Account (# 900022871) in the amount of $2,280,289.74 b) 2002 CO Interest and Sinking Account (# 902155323) in the amount of $51829.25 wire transfer, transmit the amount of 24 080.26 to JPMorgan Chase Bank, ABA # 113 000 609, FAO SWS Securities, Account # 08805076955, Attention: JoAnne McKenna, Reference: City of Sanger, # 9003-119106. This amount is in payment of the Financial Advisory and Official Statement (OS) Preparation Fees and reimbursable expenses, as listed in Exhibit "A" attached hereto. 4. By wire transfer, transmit the amount of 7 900.00 to Colonial BHAM, 1999 Bryan St., Dallas Texas, ABA # 0620-0131-9, Account # 00000-0152-9, for credit to McCall, Parkhurst &Horton L.L.P. Operating Account, for further credit to Client Reference #2199.008 City of Sanger COs. This amount is in payment of Bond Counsel fee and expenses as listed in Exhibit "A" attached hereto. 2 FINAL GOOD FAITH CHECK Upon payment for and delivery of the Certificates, the City shall deposit the Good Faith Check in the amount of $47,200.00 into its 2002 CO Bond Construction Account with Guaranty National Bank in Sanger (# 900022871). This good faith deposits brings the total deposited for construction to $2,327,489,74, CITY OF BANGER, TEXAS 52,360,000 Combination Tax & Revenue Certificates of Obligation, Series 2002 SWS Securities Financial Advisory Fee $21,950.00 Reimbursable Expenses (audit duplication cost) 110.26 Official Statement Preparation Fee 1,250.00 Official Statement Electronic Posting/Distribution Via the Internet 750.00 $24,060.26 McCall, Parkhurst &Horton L.L.P. Bond Counsel Fee and Expenses (Includes $750 for A.G.) 71900400 Total $31�6.4:2.6 3 ISSUER'S RECEIPT OF PAYMENT The undersigned hereby certifies the following information: (a) This certificate is executed and delivered with reference to the City of Sanger, Texas Combination Tax and Revenue (Limited Pledge) Certificates of Obligation, Series 2002, in the aggregate principal amount of $2,360,000 (the "Obligations"), issued by City of Sanger, Texas (the "City"). (b) The undersigned is the duly chosen, qualified and acting officer of the City hereinafter indicated. (c) The Obligations have been duly delivered to the purchaser thereof set forth in the ordinance authorizing the issuance and sale of the Obligations. (d) The Obligations have been paid for in full by said purchaser concurrently with the delivery of this certificate, and the City has received, and hereby acknowledges receipt of, the agreed purchase price for the Obligations. JON2002- EXECUTED AND DELIVERED this Mayor, City of Sanger, Texas Memo Oft N' r !UNITED STATES OF AMERICA STATE OF TEXAS I COUNTY OF DENTON CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATE OF OBLIGATION SERIES 2002 $2.360,000 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 rincipal amountof aaa ± 9 ` TWO MILLION THREE HUNDRED SIXTY THOUSAND DOLLAZS in annual installments of principal due and payable on September 1 in each of the years, and in the respective principal amounts, as set forth in the following schedule: YEAR AMOUNT YEAR AMOUNT 2003 40,000 2013 120,000 2004 75,000 2014 125,000 2005 803000 2015 1305000 2006 85,000 2016 135,000 2007 855000 2017 145,000 2008 905000 2018 150,000 2009 95,000 2019 160,000 2010 1009000 2020 170,000 2011 1059000 ----------- 2012 110,000 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 % mate maturity 2005, 5.70 % matu 1 maturity 2006, 5.70 % maturity 2016, 4.60 % maturity 2007, 5.70 % maturity 2017, 4.70 % SPEM15.70 % maturity 2018, 4.75 a N 5.70 % maturity 2019, 4.90 % maturity 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, 2003 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/Aee 'Vw hereinafter provided; and such check or draft shall be sent by the 11 n t 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 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 authp ' � r a the Constitution and laws of the State of Texas, in the principal amo (�.OQ� . 1 or a portion of the City's contractual obligations for the purpose o construc mg as i i it g Y 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 Ce b ' i n be prepaid or redeemed prior to their scheduled due dates, at the option oft h in any available source, as a whole, or in part, and, if in part, the Issu s all e 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: 1 1 1 s i ( / 1 6 pi September000 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 o17;W117tt I* la wy a t written notice of such prepayment or redemption shall be mailedw= ' e r to the registered owner hereof. By the date fixed for any such pr me nt 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 rede tt ce of prepayment or redemption is given, and if due provision for suc� r ed above, this Certificate of Obligation, or the portion thereof which is to be so prepaid o d, 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 portr`un tiple of $5,000, to the assignee or assignees in whose name or na is n or any such portion or portions EC 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 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 assigni�.eg9l Ns g by the initial registered owner hereof, or to the initial registered owiie o a ' e ertificate 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 h 11 have a single stated principal maturity date), upon surrender of thi�t a Paying Agent/Registrar for cancellation, all in accordance with th rt in the Certificate of Obligation Ordinance. If this Certificate of Ob a ion 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 th' aC 1' o any portion thereof, but the one requesting such transfer, conve PaEe�, ny taxes or governmental charges required to be paid with respect thereto. The Paying g istrar shall not be required to make any such assignment, conversion, or exchange (1) 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. 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 of Obligation, as such interest and principal come due, have been levied and ordered to be levied against all taxable property in the I , b �1 d for such payment, within the limit prescribed by law, and that this i c t n, is additionally secured by and payable from the limited surplus revenues o t e 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 s tow, - • � , l� :.• ail• • • � • r 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 SEAL" t ~� - ++ '^-� •\ f�, •+++.• '�r COMPTROLLER'S REGISTRATION CERTIFICATE REGISTER NO. I ereEUME11 by 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'S SEAL) Comptroller of Public Accounts of the State of Texas E t� STATEMENT OF INSURANCE Financial Guar ntiLl ram any ("Financial Guaranty") has issued a policy containing the folio i ns i e t he City of Sanger (Denton County), Texas, Combination Tax and Rev e b igation, Series 2002 (the "Certificates"), such policy being on file at the principal office of The Bank of New York Trust Company of Florida, N.A., Dallas, Texas, as paying agent (the "Paying Agent"), Financial Guaranty hereby unconditionally and irrevocably agrees to pay for disbursement to the Certificateholders that portion of the principal of and interest on the Certificates which is then due for payment and which the issuer of the Certificates (the "Issuer") shall have failed to provide. Due for payment means, with respect to principal, the stated maturity date thereof, or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which the payment of principal of the Certificates is due by reason of call for redemption (other than mandatory sinking fund redemption), acceleration or other advancement of maturity, and with respect to interest, the stated date for payment of such interest. Upon receipt of telephonic or tele is LL; IME lifirmed in writing, or written notice by registered or certified mail, from a Certificateholder or the Paying Agent to Financial Guaranty that the required payment of principal or interest has not been made by the Issuer to the Paying Agent, Financial Guaranty on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with State Street Bank and Trust Company, N.A., or its successor as its agent (the "Fiscal Agent"), sufficient to make the portion of such payment not paid by the Issuer. Upon presentation to the Fiscal Agent of evidence satisfactory to it of the Certificateholder's right to receive such payment and any appropriate instruments of assignment required to vest all of such CertificatehoIder's right to such payment in Financial Guaranty, the Fiscal Agent will disburse such amount to the Certificateholder. As used herein the term "Certificateholder" means the person other than the Issuer or the borrowers) of bond proceeds who at the time of nonpayment of a Certificate is entitled under the terms of such Certificate to payment thereof. The policy is non -cancellable for any reason. FINANCIAL GUARANTY INSURANCE COMPANY Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 (212) 312-3000 (800) 35M001 A GE Capital Company June 19, 2002 City of Sanger SAMCO Capital Markets, A Division of Service Asset Management Company, as Underwriter or as Representative of the Underwriters Re: $2,360,000 in aggregate principal amount of City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2002 Ladies and Gentleman: I am Senior Counsel of Financial Guaranty Insurance Company ("Financial Guaranty"), and have been requested to render an opinion concerning the issuance by Financial Guaranty of its Municipal Bond New Issue Insurance Policy (the "Policy") in connection with the issuance of the captioned obligations (the "Bonds"). I have examined such documents and records as I have deemed relevant for purposes of this opinion, including (a) the Certificate of Incorporation of Financial Guaranty, including all amendments thereto, (b) the amended By-laws of Financial Guaranty as in effect on the date hereof, (c) the certificate of authority issued to Financial Guaranty by the Superintendent of Insurance of the State of New York, (d) the certificate of authority issued to Financial Guaranty by the Commissioner of Insurance of the State of Texas, (e) the executed Policy and (f) the statements in the Official Statement dated May 20, 2002 relating to the Bonds the "Official Statement") under the caption "BOND INSURANCE". On the basis of the foregoing, it is my opinion that: (1) Financial Guaranty is a stock insurance corporation validly existing and in good standing under the laws of the State of New York and qualified to do business therein and is licensed and authorized to issue its financial guaranty insurance policies under the laws of the State of Texas. June 19, 2002 Page 2 (2) The Policy is valid and binding upon Financial Guaranty and enforceable in accordance with its terms, subject to applicable laws affecting creditors' rights generally. (3) Financial Guaranty, as an insurance company, is not eligible for relief under the Federal Bankruptcy Laws. Any proceedings for the liquidation, conservation or rehabilitation of Financial Guaranty would be governed by the provisions of the Insurance Law of the State of New York. (4) The statements described above in the Official Statement relating to Financial Guaranty and the Policy accurately and fairly present the summary information set forth therein and do not omit any material fact with respect to the description of Financial Guaranty relative to the material terms of the Policy or the ability of Financial Guaranty to meet its obligations under the Policy. Very truly yours, Isabel Guerra Senior Counsel o2oio�oa LAW OFFICES McCALL, PARKHURST & HORTON L.L.P. 600 CONGRESS AVENUE 717 NORTH HARWOOD STREET 700 N. ST. MARY'S STREET 1250 ONE AMERICAN CENTER NINTH FLOOR 1225 ONE RIVERWALK PLACE AUSTIN, TEXAS 78701-3248 Telephone: 512 478-3805 Facsimile: 512 472-0871 DALLAS, TEXAS 75201-6587 Telephone: 214 754-9200 Facsimile: 214 754-9250 June 195 2002 SAN ANTONIO, TEXAS 78205-3503 Telephone: 210 225-2800 Facsimile: 210-225-2984 CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION SERIES 2002, DATED DUNE 19 20025 IN THE PRINCIPAL AMOUNT OF $2,3609000 AS BOND COUNSEL FOR THE CITY OF SANGER, TEXAS (the "City") in connection with the issuance of the Certificates of Obligation, Series 2002 described above (the "Certificates of Obligation"), we have examined into the legality and validity of the Certificates of Obligation, which bear interest from the dates and mature on the dates, and are subject to redemption, in accordance with the terms and conditions stated in the text of the Certificates of Obligation. Terms used herein and not otherwise defined shall have the meaning given in the Ordinance of the City authorizing the issuance and sale of the Certificates of Obligation (the "Ordinance"). WE HAVE EXAMINED the Constitution and laws of the State of Texas, certified copies of the proceedings of the City Council of the City relating to the issuance of the Certificates of Obligation, including the Ordinance and other documents authorizing and relating to the issuance of the Certificates of Obligation; and we have examined various certificates and documents executed by officers and officials of the City upon which certificates and documents we rely as to certain matters stated below. We have also examined one of the executed Certificates of Obligation which we found to be in proper form and duly executed. BASED ON SAID EXAMINATION, IT IS OUR OPINION that the Certificates of Obligation have been duly authorized, issued, and delivered in accordance with law, and that the Certificates of Obligation, except as may be limited by laws applicable to the City relating to bankruptcy, reorganization, and other similar matters affecting creditors' rights, constitute valid and legally binding obligations of the City; and that ad valorem taxes sufficient to provide for the payment of the interest on and principal of said Certificates of Obligation have been levied and pledged for such purpose, within the limit prescribed by law, as provided in the Ordinance, and that the Certificates of Obligation are additionally secured by and payable from the limited surplus net revenues of the City's combined 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 City's revenue bonds or other obligations (now or hereafter )utstanding), which are payable from all or any part of the net revenues of the City's combined waterworks, sewer and electric system. IT IS FURTHER OUR OPINION, except as discussed below, that the interest on the Certificates of Obligation is excludable from the gross income of the owners for federal income tax purposes under the statutes, regulations, published rulings, and court decisions existing on the date of this opinion. We are further of the opinion that the Certificates of Obligation are not "specified private activity bonds" and that, accordingly, interest on the Certificates of Obligation will not be included as an individual or corporate alternative minimum tax preference item under section 57(a)(5) of the Internal Revenue Code of 1986 (the "Code"). In expressing the aforementioned opinions, we have relied on, certain representations, the accuracy of which we have not independently verified, and assume compliance with certain covenants, regarding the use and investment of the proceeds of the Certificates of Obligation and the use of the property financed therewith. We call your attention to the fact that if such representations are determined to be inaccurate or upon a failure by the City to comply with such covenants, interest on the Certificates of Obligation may become includable in gross income retroactively to the date of issuance of the Certificates of Obligation. WE CALL YOUR ATTENTION TO THE FACT that the interest ontax-exempt obligations, such as the Certificates of Obligation, is (a) included in a corporation's alternative minimum taxable income for purposes of determining the alternative minimum tax imposed on corporations by section 55 of the Code, (b) subject to the branch profits tax imposed on foreign corporations by section 884 of the Code, and (c) included in the passive investment income of an S corporation and subject to the tax imposed by section 1375 of the Code. EXCEPT AS STATED ABOVE, we express no opinion as to any other federal, state, or local tax consequences of acquiring, carrying, owning, or disposing of the Certificates of Obligation. WE EXPRESS NO OPINION as to any insurance policies issued with respect to the payments due for the principal of and interest on the Certificates of Obligation, nor as to any such insurance policies issued in the future. OUR SOLE ENGAGEMENT in connection with the issuance of the Certificates of Obligation is as Bond Counsel for the City, and, in that capacity, we have been engaged by the City for the sole purpose A rendering an opinion with respect to the legality and validity of the Certificates of Obligation under the Constitution and laws of the State of Texas, and with respect to the exclusion from gross income of the interest on the Certificates of Obligation for federal income tax purposes, and for no other reason or purpose. We have not been requested to investigate or verify, and have not independently investigated or verified any records, data, or other material relating to the financial condition or capabilities of the City, or the disclosure thereof in connection with the sale of the Certificates of Obligation, and have not assumed any responsibility with respect thereto. We express no opinion and make no comment with respect to the marketability of the Certificates of Obligation and have relied solely on certificates executed by officials of the City as to the current outstanding indebtedness of, and assessed valuation of taxable property within the City. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Certificates of Obligation has been limited as described therein. THE FOREGOING OPINIONS represent our legal judgment based upon a review of existing legal authorities that we deem relevant to render such opinions and are not a guarantee of a result. Respectfully, LAW OFFICES 600 CONGRESS AVENUE I250 ONE AMERICAN CENTER AUSTIN, TEXAS 78701.3248 TELEPHONE: 512 478.3805 PACSIM ILE: 512 472.0871 Mr. Jack L. Smith City Manager City of Sanger 201 Bolivar Street Sanger, Texas 75266 McCAL.L, PARKHURST & HORTON L.L,P 717 NORTH HARWOOD NINTH FLOOR DALLAS, TEXAS 75201-6587 TELEPHONE: 214 754-9200 FACSIMILE: ZI4 754.9250 August 6, 2002 700 N. S I I MAR I' STREET 1225 ONE RIVERWALK PLACE SAN ANTONIO, TEXAS 78205-3503 TELEPHONE: 210 225-2800 FACSIMILE: 210 225-2984 Re: $2,360,000 City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2002 Dear Jack: Enclosed are for the above -referenced transaction are two copies (one original for your official records, one "working" copy) of the transcript of proceedings. We appreciated the opportunity to work with you on this transaction. Please call if you have any questions or comments regarding the above, or if we may be of further assistance. Sincerely, McC L, PARKHURST & HORTON L.L.P. 0e7y 4WPV toy/rawunder, Jr. lb/LG Enclosures 600 CONGRESS AVENUE 250 ONE AMERICAN CENTER AUSTIN, TEXAS 78701-3248 TELEPHONE: 512 478-3805 FACSIMILE: 512 472-0871 LAW OFFICES McCALL, PARKHURST & HORTON L,L,P 717 NORTH HARWOOD NINTH FLOOR DALLAS, TEXAS 75201-6587 TELEPHONE: 214 754-9200 FACSIMILE: 214 754-9250 700 N. ST. MAm I' STREET 1225 ONE RIVERWALK PLACE SAN ANTONIO, TEXAS 78205-3503 TRANSCRIPT DISTRIBUTION MEMORANDUM TO: Distribution List FROM: Leroy Grawunder, Jr� DATE: August 6, 2001 TELEPHONE: 210 225-2800 FACSIMILE: 210 225-2984 RE: $2,360,000 City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2002 Enclosed please find the Transcript of Proceedings for the above referenced issue. If you have any questions, please do not hesitate to contact me. DISTRIBUTION LIST $2,360,000 CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION SERIES 2002 ISSUER Mr. Jack L. Smith City Manager City of Sanger 201 Bolivar St. (76266) P.O. Box 1729 Sanger, TX 762664729 FINANCIAL ADVISOR Dan Almon SWS Securities 1201 Elm Street, Suite 3500 Dallas, TX 75270 PAYING AGENT Ms. Kristel Richards The Bank of New York Trust Company of Florida, N.A. Corporate Trust Division 600 North Pearl Street, Suite 420 Dallas, TX 75201 UNDERWRITER Mike Wadsworth SAMCO Capital Markets 1700 Pacific Ave., Suite 2000 Has, Texas 75201 BOND INSURANCE Ms. Joan Shichtman Financial Guaranty Insurance Company 125 Park Avenue New York, New York 10017