Loading...
The URL can be used to link to this page
Your browser does not support the video tag.
Home
My WebLink
About
07-09-09-Ordinance-07-09-09 Ordinance Certificates of Obligation Series 2009-07/09/2009
CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION SERIES 2009 INDEX OF CONTENTS CERTIFICATE PROCEEDINGS AND DOCUMENTS Closing Memorandum Resolution Authorizing Publication of Notice of Intention to Issue Certificates Affidavit of Publication of Notice of Intent Ordinance Authorizing Issuance of the Certificates Purchase Agreement Preliminary Official Statement Official Statement Paying Agent/Registrar Agreement CERTIFICATES General Certificate Signature Identification and No -Litigation Certificate Federal Tax Certificate and Fo>m 803801 Closing Certificate Required by Purchase Agreement Certificate of the Bond Insurer Rule 15c2-12 Certificate OPINIONS Opinion of Bond Counsel Opinion of Attorney General of Texas with t Certificate of Comptroller of Public Accounts HOU:2937253.1 1 5 0 II 0 10 11 12 13 15 16 Opinion of Underwriter's Counsel Supplemental Opinion of Bond Counsel Opinion of Counsel to the Bond Insurer MISCELLANEOUS Receipt and Cross Receipt Insurance Commitment Insurance Policy Rating Agency Letter Specimen Certificate Bond Review Board Questionnaire Reliance Letter to Bond Insurer 20 21 22 23 24 25 26 HOU:2937253.1 W •o o� U a+ A o L,y C1 " CMf O) C U Od > H C5 = U � > U O C co fC d >� 3= o _ ca a �— fn CL) C C.1 (o N f7 'v N E'o Y O N C N Ol N O C W_ C CD N fo O O U C f>O a0— fD E oCr CD o CD "do U = (O y hCD N N o m Q1 U t C O E o E co iz cu co oCa o » a'E O E— 3 o d a) U O f0 L O d— = L '-r� N N fC QI ,/, 6 N U O U C Y y N y Z5 E ZU D U G C U C C ` N O N L U -O U C C L o� 3 E o c C � V C Cl) � C � • (oCD > CD M E D N a N U1 lQ — cn °, .- TaEd �WCU co d o Cn d > Co (o U w C w O Eo Fu W Q) N d c > h N � sEa, r- •Y wo NEW ISSUE - BOOK -ENTRY -ONLY Ratings: Moody's: "Baal" (See "OTHER PERTINENT INFORMATION - PRELIMINARY OFFICIAL STATEMENT Ratings" and "BOND INSURANCE" herein.) Dated May 7, 1999 In the opinion of Bond Counsel, interest on the Bonds 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.) The City has designated the Bond as "Quaed Tax -Exempt Obligations" See "TAX MATTERS - Qualified Tax -Exempt Obligations for Institutions" herein, $1,745,000* CITY OF SANGER, TEXAS (Denton County UTILITY SYSTEM REVENUE REFUNDING BONDS SERIES 1999 Dated Date: May 15, 1999 Due: May 15, as shown below The $1,745,000* City of Sanger (the "City" or "Issuer"), Texas Utility System Revenue Refunding Bonds, Series 1999 (the "Bonds") are being issued pursuant to the Constitution and general laws of the State of Texas (the "State"), including Texas Revised Civil Statutes Annotated, Articles 1111 through 1118 and Article 717k, as amended, and an ordinance adopted by the City Council (the "Ordinance"), (See "THE BONDS - Authority for Issuance" herein.) The Bonds are special obligations of the issuer payable solely from a first lien on and pledge of the Net Revenues derived from the operation of the Issuer's combined Waterworks, Electric and Sewer Systems (the "System") during the entire period the Bonds or interest thereon remain outstanding. In the Ordinance, the Issuer has reserved the right to issue additional Bonds without limitation as to principal amount but subject to any terms, conditions, or restrictions as may be applicable thereto under law or otherwise. The Issuer has not covenanted or 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. (See "THE BONDS - Security for the Bonds and Pledge' 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, commencinU November 15, 1999, and will be calculated on the basis of a 360 day year of twelve 30-day months. The definitive 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 )epository"), 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 Chase Bank of Texas, National Association, 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 Bonds, (See "BOOK -ENTRY -ONLY SYSTEM' herein.) Proceeds from the sale of the Bonds will be used to refund the 2002 through 2011 maturities of the City's Utility System Refunding and Improvement Revenue Bonds, Series 1991 to achieve debt service savings, and to pay the cost of issuance of the Bonds. (See "THE BONDS - Use of Bond Proceeds" herein.) The Issuer reserves the right to redeem the Bonds maturing on and after May 15, 2009, on May 15, 2008, or any date thereafter, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, at the redemption pace of par plus accrued interest as further described herein. (See "THE BONDS - Redemption Provision" herein.) The City is considering insuring the Bonds with municipal bond insurance and has made application to several municipal bond insurance companies in connection with such consideration. (See "BOND INSURANCE" herein.) [Insurance Logo] STATED MATURITY SCHEDULE* (Due May 15) Stated Principal Rate Yield Stated Principal Rate Yield Maturi Amount*(/°) (0/0) Maturity 2000 251000 2- 165,000 2001 25,000 2007 170,000 2002 1401000 2008 175,000 2003 145,000 2009 190,000 2004 150,000 2010 195,000 2005 160,000 2011 205,000 The Bonds are offered for delivery, when, as and if issued and received by the initial purchasers (the "Purchasers') 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., Bond Counsel, Dallas, Texas. The legal opinion of Bond Counsel will be printed on, or attached to, the Bonds. Certain matters will be passed upon for the Underwriter by Fulbright & Jaworski L•L.P., Dallas, Texas, as counsel to the Underwriter. It is expected that the Bonds will be available for delivery on or about June 17, 1999. DAIN RAUSCHER INCORPORATED * Preliminary, subject to change • ZOI Bolivar • Box 578 Term Term Name Title Commenced Expires Occupation Tommy Kincaid Mayor August 1998 May 1999 Postal Clerk Jerry Jenkins Mayor Pro Tern May 1998 May 2000 Retired Glenn Ervin Alderman May 1998 May 2000 Metering Electrician Mike James Alderman May 1997 May 1999 Consultant Carroll McNeill Alderman August 1998 May 1999 Retired Alice Madden Alderman May 1997 May 1999 Retired Name Jack L. Smith Rosalie Chavez Ronald J. Neiman Eddie Branham John Henderson Jeff Morris Bond Counsel Financial Advisor Position City Manager City Secretary City Attorney Water / Wastewater Superintendent Streets & Parks Supervisor Electric Superintendent Independent Auditor Length of Service lnlith the City 1 year 23 years 12 years 10 years 4.5 years 2 years CONSULTANTS AN®A®VISORS McCall, Parkhurst & Horton, L.L.P. Dallas, Texas Southwest Securities, Inc. Dallas, Texas William C. Spore & Company, PC. Bedford, Texas Jack L. Smith, City Manager Rosalie Chavez, City Secretary City of Sanger, Texas 201 Bolivar St. Sanger, Texas 75266 (940) 458-7930 Mr. Dan Almon Senior Vice President Southwest Securities, Inc. 1201 Elm Street, Suite 3500 Dallas, Texas 75270 (214) 658-9452 (Phone) 2 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 Bonds 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. THE BONDS ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH, THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE BONDS 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. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER -ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT PREVAIL IN THE OPEN MARKET, SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. TABLE OF CONTENTS ELECTEDOFFICIALS............................................................12 THE SYSTEM........................................................................12 ADMINISTRATION. . . . . . . . . 0 S 4 # 9 , a . . . & 0 * 0 . . . . 0 * a 0 1 a 4 9 6 4 0 9 a a 9 4 . 6 0 0 0 4 0 . . . . * ' 1 * ' a . . . . 6 2 Description of Water Supply and Facilities ....................12 CONSULTANTS AND ADVISORS. . 0 a I I I 1 4 0 0 4 1 1 1 a 4 0 * 0 4 1 * 0 * a a 0 0 a 0 4 , , 4 , 4 4 a 0 a 02 Description of Sewer Facilities......................................12 USE OF INFORMATION IN THE OFFICIAL STATEMENT......3 Description of the Electric System, . 0 0 0 4 1 4 1 1 0 1 1 4 0 1 1 1 1 0 1 0 1 1 12 TABLE OF CONTENTS. 0 * 0 R 9 1 1 0 * 4 a a I I a 0 a a a 9 V a a * 4 0 0 a a a . . . 4 1 0 W 0 , a , , 6 6 , & 0 a 1 0 a , , 4 6 0 4 03 INVESTMENT POLICIES.......................................................12 SELECTED DATA FROM THE OFFICIAL STATEMENT.....111.4 Investment Authority and Investment Practices ............12 INTRODUCTORY STATEMENT. . 1 4 1 1 a 0 0 4 0 a I I 1 0 a 0 4 V I I I I I & 4 0 a I I I I I & 0 4 1 1 a V I a I 1 1 5 Current Investments ......................................................13 PLANOF FINANCING.............................................................5 RETIREMENT PLAN, .............................................................13 Purpose...........................................................................5 Plan Descriptions. ..........................................................13 RefundedBonds. . 0 4 1 # I I I 1 4 0 a 4 1 1 1 6 6 0 4 1 a I I a 4 4 1 0 0 a * 0 4 0 W 4 a a 1 4 0 0 A 0 4 . . . 4 6 a 0 0 a f , 0 5 TAX MATTERS......................................................................13 SOURCESAND USES OF FUNDS.........................................6 Opinion..........................................................................13 THE BONDS.............................................................................6 Federal Income Tax Accounting Treatment of Original GeneralDescription.........................................................6 Issue Discount. ...........................................................14 Authority for Issuance. I I a I * a 0 * I I I 1 0 4 V 4 V , , 6 0 4 0 4 0 . . . . 4 a 4 0 * I . 0 4 0 & 0 0 0 a . . . . + 0 0 a 6 Collateral Federal Income Tax Consequences .............14 Security for the Bonds and Pledge..................................6 Qualified Tax -Exempt Obligations.................................15 Rate Covenant. 1 0 1 1 1 a a a 0 a I I I 1 4 & 4 * 1 0 1 Do & 0 as at , , a 0 * 0 4 V . . . a 4 , 4 0 k 0 a * 4 0 0 W I a a a a 4 a 4 0 4 7 State, Local and Foreign Taxes....................................015 Flow of Funds..................................................................7 CONTINUING DISCLOSURE OF INFORMATION ................15 Interest and Sinking Fund, I 1 0 0 4 1 1 1 1 4 1 . . . . . 1 0 a . . . . . . 0 4 0 0 V a a & a a 6 4 0 0 4 * . 7 Annual Reports..............................................................15 Reserve Fund. 0 * 4 0 1 0 1 1 1 * 4 0 4 V A 0 r a 4 0 t 0 a * I & a 6 0 0 V . . . . . 94 . . . 6 0 a 4 a a a * . 6 0 0 . 0 a a , , 0 4 a 07 Material Event Notices...................................................16 Emergency Fund.............................................................7 Availability of Information from SID and MSRB .............16 City's Right to Issue Additional Bonds, I I I I a a 0 V 4 1 4 6 0 A , , 4 . . . . a , 0 4 * 0 47 Limitations and Amendments. I V I I I 1 1 4 0 0 6 0 0 1 & 0 5 4 a 4 0 0 0 & 0 a a 0 a a V . . . . 0 a 16 Redemption Provision. 1 4 4 0 R 0 9 1 1 0 4 0 0 q V 0 a a 4 m 4 a a & 0 a 6 a a 0 1 4 1 1 1 t 0 0 V 0 1 1 1 a 6 4 a 0 A . 0 a * 8 Compliance with Prior Agreements...............................16 Payment Record..............................................................8 OTHER PERTINENT INFORMATION............................44010.616 REGISTERED OWNERS' REMEDIES. go "to* 04,11, 60 04 11 11*04*001 11 114 N049 Legal Matters.................................................. ... ......... *OR 16 Defeasance......................................................................9 Registration and Qualification of Bonds for Sale...........17 Defaultand Remedies.....................................................9 Litigation........................................................................17 REGISTRATION, TRANSFER AND EXCHANGE"... 16 to 9#0mW9 Legal Investments and Eligibility to Secure Public Paying Agent/Registrar. I I . I 1 0 f 0 q 0 1 1 1 4 00 'a . . . . 1 *0 . . . . a 1 0 * a V 0 % a 0 4 0 0 a a . . . . . 9 Funds in Texas...........................................................17 RecordDate. . I I I I I 1 0 a 0 . a I 1 1 4 4 0 a 1 9 1 1 0 4 0 4 . I a * am at 0* a a 6 go 0 . I I I I 1 0 4 0 1 1 a & a 4 6 0 0 4 0 0 1% 9 Ratings..........................................................................17 Future Registration. 0 1 1 1 1 4 1 0 1 V I I 1 6 0 a a 4 * 0 % a 1 0 a a a * a , , 6 0 a 4 . . . V , 1 0 0 a . . . . a , 0 0 , 0 4 . , 9 Verification of Arithmetical and Mathematical Special Record Date for Interest Payment.....................10 Calculations. ..............................................................417 Replacement Bonds......................................................10 Financial Advisor...........................................................18 BONDINSURANCE...............................................................10 Underwriting.......:.........................................................418 BOOK -ENTRY -ONLY SYSTEM.............................................10 Year 2000 Compliance..................................................18 DTC's Year 2000 Efforts................................................11 Concluding Statement..................................................418 Use of Certain Terms in Other Sections of this Official Statement..................................................................a11 Schedule of Refunded Bonds Schedule I Financial Information of the Issuer Appendix A General Information Regarding the City of Sanger and Denton County, Texas Appendix B Form of Legal Opinion of Bond Counsel Appendix C Selected Provisions of the Bond Ordinance Appendix D The Issuer's General Purpose Audited Financial Statements for the Year Ended September 30, 1998 Appendix E The cover page, subsequent pages hereof and appendices attached hereto, are part of this Official Statement. [t? 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 Bonds 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 Bonds The Bonds are being issued pursuant to the Constitution and general laws of the State of Texas (the "State"), including Texas Revised Civil Statutes Annotated Articles 1111 through 1118 and Article 717k, as amended, and an ordinance adopted by the City Council (the "Ordinance"). (See "THE BONDS - Authority for Issuance" herein.) Security for Payment The Bonds are special obligations of the issuer payable solely from a first lien on and pledge of the Net Revenues derived from the operation of the Issuer's combined Waterworks, Electric and Sewer Systems (the "System") during the entire period the Bonds or interest thereon rernain outstanding. In the Ordinance, the Issuer has reserved the right to issue additional Bonds without limitation as to principal amount but subject to any terms, conditions, or restrictions as may be applicable thereto under law or otherwise. The Issuer has not covenanted or obligated itself to pay the Bonds from monies raised or to be raised from taxation. (See "THE BONDS - Security for the Bonds and Pledge" herein.) Paying Agent/Registrar The initial Paying Agent/Registrar is Chase Bank of Texas, National Association, Dallas, Texas. Redemption Provision of The Issuer reserves the right to redeem the Bonds maturing on and after May 15, 2009, on the Bonds May 15, 2008, 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" herein.) Tax Batters In the opinion of Bond Counsel, the interest on the Bonds 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 - Form of Legal Opinion of Bond Counsel" herein.) Use of Bond Proceeds Proceeds from the sale of the Bonds will be used to refund the 2002 through 2011 maturities of the City's Utility System Refunding and Improvement Revenue Bonds, Series 1991 to achieve debt service savings, and to pay the cost of issuance of the Bonds. (See "THE BONDS - Use of Bond Proceeds" herein.) Qualified Tax -Exempt The Issuer will designate the bonds as "Qualified Tax -Exempt Obligations" for financial Obligations institutions. (See "TAX MATTERS - Qualified Tax -Exempt Obligations" herein.) Book-EntrypOnly System The Issuer intends to utilize the Book -Entry -Only System of The Depository Trust Company, New York, New York relating to the method and timing of payment and the method and transfer relating to the Bonds. (See "BOOK -ENTRY -ONLY SYSTEM" herein.) Bond Insurance The City is considering insuring the Bonds with municipal bond insurance and has made application to several municipal bond insurance companies in connection with such consideration. (See "BOND INSURANCE" herein.) Ratings Moody's Investors Service, Inc. ("Moody's") has issued a rating of "Baal" on the City's uninsured revenue debt. (See "OTHER PERTINENT INFORMATION - Ratings" herein.) Payment Record The City has never defaulted. Delivery When issued, anticipated on or about June 17, 1999. Legality Delivery of the Bonds 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. GI INTRODUCTORY STATEMENT This Official Statement provides certain information in connection with the issuance by the City of Sanger, Texas (the "City" or "Issuer") of its $1,745,000* Utility System Revenue Refunding Bonds, Series 1999 (the "Bonds") identified on the cover page hereof. The Issuer is a political subdivision of the State of Texas and a municipal corporation organized and existing under the laws of the State of Texas. The Bonds are being issued pursuant to the Texas Revised Civil Statutes Annotated Articles 1111 through 1118 and Article 717k, as amended, and an ordinance (the "Ordinance") adopted by the City Council. (See "THE BONDS - Authority for Issuance" herein.) Unless otherwise indicated, capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Ordinance. Included in this Official Statement are descriptions of the Bonds 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 maybe obtained from the Issuer or the Financial Advisor. Pl�4N OF FINANCING Purpose The Bonds are being issued to refund the 2002 through 2011 maturities of the City's Utility System Refunding and Improvement Revenue Bonds, Series 1991 (the "Refunded Bonds") to achieve debt service savings (see "Schedule I - Schedule of Refunded Bonds") and to pay the costs of issuance for the Bonds (see "THE BONDS - Authorization and Purpose" herein). Refunded Bonds The Refunded Bonds, and interest due thereon, are to be paid from funds deposited with Chase Bank of Texas, National Association, Dallas, Texas (the "Escrow Agent") or its successor. The Ordinance approves and authorizes the execution of an escrow agreement (the "Escrow Agreement") between the Issuer and the Escrow Agent. The Ordinance further provides that, from a portion of the proceeds of the sale of the Bonds and other lawfully available funds of the Issuer, if any, the Issuer will deposit with the Escrow Agent the amount, together with investment earnings thereon, sufficient to accomplish the discharge and final payment of the Refunded Bonds. Such amount will be held by the Escrow Agent in an escrow account (the "Escrow Fund") and used to purchase direct obligations of the United States of America (the "Escrowed Securities"). McGladrey & Pullen, LLP, Certified Public Accountants, will verify the mathematical accuracy of schedules provided by the Underwriter at the time of delivery of the Bonds to the Underwriter and that the Escrowed Securities will mature at such times and yield interest in amounts, together with uninvested funds, if any, in the Escrow Fund, to provide sufficient funds to pay the principal of and interest on the Refunded Bonds as the same will become due by reason of stated maturity or earlier redemption. Under the Escrow Agreement, the Escrow Fund is irrevocably pledged to the payment of principal of and interest on the Refunded Bonds. Such maturing principal of and interest on the Escrowed Securities will not be available to pay principal of or interest on the Bonds. By the deposit of the Escrowed Securities and cash with the Escrow Agent pursuant to the Escrow Agreement, the City will have effected the defeasance of the Refunded Bonds pursuant to the terms of Texas Revised Civil Statutes Article 717k, as amended, and the order authorizing the issuance of the Refunded Bonds. It is the opinion of Bond Counsel that, as a result of such defeasance, the Refunded Bonds will no longer be payable from ad valorem taxes but will be payable solely from the principal of and interest on the Escrowed Securities and cash held for such purpose by the Escrow Agent, and that the Refunded Bonds will be defeased and thus will cease to be obligations payable from and secured by a lien on and pledge of the Net Revenues of the System and will not be deemed as outstanding obligations of the City or the System for any purpose other than being payable from the funds held in the Escrow Fund. The City has covenanted in the Escrow Agreement to make timely deposits to the Escrow Fund, from lawfully available funds, of additional funds in the amount required to pay the principal of and interest on the Refunded Bonds should, for any reason, the cash balances on deposit or scheduled to be on deposit in the Escrow Fund be insufficient to make such payments. * Preliminary, subject to change � • " :_ � Cr � 1. rt ;. The proceeds from the sale of the Bonds will be applied approximately as follows: Sources of Funds Principal Amount of Bonds Less: Original Issue Discount Accrued Interest on the Bonds Total Sources of Funds Uses of Funds Purchase U.S. Securities for Escrow Cash Deposit to Escrow Cost of Issuance, Including Bond Insurance Underwriters Discount Deposit to Interest and Sinking Fund Contingency Total Uses of Funds The Bonds will be dated May 15, 1999 and will mature on the dates and in the principal amounts and will bear interest at the rates set forth on the cover page of this Official Statement. The Bonds shall bear interest from their dated date on the unpaid principal amounts and the amount of interest to be paid each interest 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 November 15, 1999. Principal is payable at maturity or on a prior redemption date, upon presentation and surrender of the Bonds, at the designated office of the Paying Agent/Registrar, initially Chase Bank of Texas, National Association, Dallas, Texas, or its successor. Interest on the Bonds is payable to the registered owner on the Record Date (as defined herein) appearing on the registration and transfer books of the Paying Agent/Registrar and shall be paid by check mailed on or before each interest payment date by the Paying Agent/Registrar to the address appearing on the Paying Agent/Registrar Is books or by such other method acceptable to the Paying Agent/Registrar, requested by and at the risk and expense of the registered owner. The Bonds will be issued in fully registered form in denominations of $5,000 or any integral multiple thereof for any one stated maturity. If the date for the payment of the principal of or interest on the Bonds 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 or the United States Post Office is not open for business, 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. Initially, the Bonds will be registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Bank -Entry -Only System described below. No physical delivery of the Bonds will be made to the beneficial owners. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will distribute the amounts paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See "BOOK -ENTRY -ONLY SYSTEM" below for a more complete description of such system. The Bonds are being issued pursuant to the Constitution and general laws of the State of Texas (the "State"), including Texas Revised Civil Statutes Annotated Articles 1111 through 1118 and Article 717k, as amended, and an ordinance adopted by the City Council (the "Ordinance"). The Bonds, together with certain Outstanding Bonds 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 0 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. Rate Covenant In the 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 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 Outstanding Bonds, the Bonds and all Additional Bonds, and to accumulate and maintain the Funds created and established by this Ordinance. Additionally, the 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 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 o, 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 $246,747 (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 $234,554 (the "New Reserve"). Following the delivery of the Bonds, the City shall cause the difference, if any, 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 -sixth 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. 0 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 terrn "Net Earnings" as used in this subsection 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.) The Issuer reserves the right, at its sole option, to redeem Bonds stated to mature May 15, 2009, on May 15, 2008 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 within a stated maturity are to be redeemed, the particular Bonds to be redeemed shall be selected at random and by lot by 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 (i) 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 and (ii) a notice of such redemption to be published one (1) time in a financial journal or publication of general circulation among securities dealers in the City of New York, New York, or in the State of Texas. PROVIDED, HOWEVER, THAT THE FAILURE TO SEND, MAIL OR RECEIVE SUCH NOTICE DESCRIBED IN (i) ABOVE, OR ANY DEFECT THEREIN OR IN THE SENDING; OR MAILING THEREOF, SHALL NOT AFFECT THE VALIDITY OR EFFECTIVENESS OF THE PROCEEDINGS FOR THE REDEMPTION OF ANY BOND, AND PUBLICATION OF NOTICE AS DESCRIBED IN (ii) ABOVE SHALL BE THE ONLY NOTICE ACTUALLY REQUIRED IN CONNECTION WITH OR AS A PREREQUISITE TO THE REDEMPTION OF ANY BOND. 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. - • •. 'i � • i' . 1 r • • r r i ..• iwi amount of such Bondsheld by DTC. In such event,DTC may implement, through`.i• i 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 `•,. the Beneficial Owners, Any selectionof Bonds to be redeemed will notbe governed by the Ordinance participantswill 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 . nominees, respect• the payments Bonds the providing of • to DTC participants,• participants, or Beneficial Owners of the selection of portions of the Bonds for redemption, (See "BOOKmENTRY= ONLY SYSTEM" The City has never defaulted on the payment of its general obligation or revenue indebtedness. 0 REGISTERED OWNERS' REMEDIES Defeasance The Ordinance provides that any Bond will be deemed paid and shall no longer be considered to be outstanding within the meaning of the Ordinance when payment of principal of and interest on such Bond to its stated maturity or redemption has been made or duly provided. Payment may be provided for by deposit of any combination of (1) money in an amount sufficient to make such payment and (2) non -callable direct obligations of the United States of America. (See Appendix D - "Selected Provisions of the Bond Ordinance" for a further description.) 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, conditions, or obligations set forth in the 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 Ordinance does 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 taxable property within the Issuer to collect any unpaid taxes 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. REGISTRATION, TRANSFER AND EXCHANGE Paying Agent/Registrar The initial Paying Agent/Registrar is Chase Bank of Texas, National Association, Dallas, Texas. In the Ordinance, the Issuer retains the right to replace the Paying AgenvRegistrar. 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, the Issuer agrees to promptly cause written notice thereof to be sent to each registered owner of the Bonds by United States mail, first-class, postage prepaid. 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 will be established by the Paying Agent/Registrar, (See "Special Record Date for Interest Payment" herein.) Future Registration In the event the Bonds are not in the Book -Entry -Only System, the Bonds may be transferred, registered, and assigned on the registration books of the Paying Agent/Registrar only upon their presentation and surrender 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. A Bond may be assigned by the execution of an assignment form on the Bond or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. A new Bond or Bonds will be delivered by the Paying Agent/Registrar in lieu of the Bonds being transferred or exchanged at the corporate trust 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 Bonds issued in an exchange or transfer of Bonds 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 Bonds 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 Bonds 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 Bond or Bonds surrendered for exchange or transfer. (See "BOOK -ENTRY - ONLY SYSTEM" herein for a description of the system to be utilized in regard to ownership and transferability of the Bonds.) In the event of a non-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 payrnent 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. The Issuer has agreed to replace mutilated, destroyed, lost, or stolen Bonds upon surrender ofi the mutilated Bonds to the Paying Agent/Registrar, or receipt of satisfactory evidence of such destruction, loss, or theft, and 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 has made application to municipal bond insurance companies to have the payment of the principal ofi and interest on the Bonds insured by a municipal bond insurance policy. The Issuer shall notify the Underwriter upon obtaining a commitment from a bond insurance company concerning this matter. The Final Official Statement shall disclose, to the extent necessary, any relevant information relating to this municipal bond insurance policy, This section describes how ownership of the Bonds is to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by DTC while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book -Entry -Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The Issuer believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. DTC will act as securities depository for the Bonds. One fully registered Bond for each stated maturity in the aggregate principal amount of all Bonds of such stated maturity, will be registered in the name of Cede & Co., DTG's partnership nominee, and will be deposited with DTC. DTC 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 ("UCC"), and a "clearing agency" registered pursuant to the provisions of UCC Section 17A of the Securities Exchange Act of rl934, DTC holds securities that its participants ("DTC Participants") deposit with DTC. DTC also facilitates the settlement, among DTC Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic Book -Entry -Only changes in accounts of DTC Participants, thereby eliminating the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is owned by a number of the DTC Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly. The Rules applicable to DTC and the DTC Participants are on file with the Securities and Exchange Commission. Ownership interests in the Bonds may be purchased by or through DTC Participants and will be recorded on the records of the DTC Participants, whose ownership interests will be recorded on a computerized Book -Entry -Only system operated by DTC. Such DTC Participants and the persons for whom they acquire interests in the Bonds as nominees will not receive Bonds, but each such DTC Participant will receive a credit balance on the records of DTC in the amount of such DTC Participant's interest in the Bonds, which will be confirmed in accordance with DTC's standard procedures. Each such person for whom a DTC Participant has an interest in the Bonds, as nominee, may desire to make arrangements with such DTC Participant to receive a credit balance in the records of such DTC Participant and may desire to make arrangements with such DTC Participant to have all other communications of the City to DTC, which may affect such persons, to be forwarded in writing by such DTC Participant and to have notification made of all interest payments. THE CITY WILL HAVE NO RESPONSIBILITY OR OBLIGATION TO SUCH DTC PARTICIPANTS OR THE PERSONS FOR WHICH THEY ACT AS NOMINEES WITH RESPECT TO THE PAYMENTS TO, OR THE PROVIDING NOTICE FOR, THE DTC PARTICIPANTS OR THE PERSONS FOR WHICH THEY ACT AS NOMINEES OR WITH RESPECT TO MAINTENANCE, SUPERVISION OR REVIEWING ANY RECORDS RELATING TO BENEFICIAL OWNERS. For the purpose of this Official Statement, the term "Beneficial Owner" shall be defined to include the 10 person for which the DTC Participant acquires an interest in the Bonds. DTC has no knowledge of the actual Beneficial Owners A the Bonds; DTC's records reflect only the identity of the DTC Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The DTC Participants will remain responsible for keeping account of their holdings on behalf of their customers. Interest and principal on the Bonds are payable by the City to DTC which will, in turn, remit such interest and other payment to its DTC Participants, which will in turn remit such interest to the Beneficial Owners. When reference is made to any action which is required or permitted to be taken by the Beneficial Owners, such reference shall only relate to those permitted to act (by statute, regulation or otherwise) on behalf of such Beneficial Owners for such purposes. When notices are given, they shall be sent by the City to DTC. DTC will notify the DTC Participants that a notice has been received by DTC or forward (or cause to be forwarded) the notice to the DTC Participants so that such DTC Participants may notify the Beneficial Owners that a notice has been received or forwarded (or caused to be forwarded). Conveyance of notices and other communications by DTC to DTC Participants and by DTC 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. New Beneficial Owners will not receive written confirmations from DTC of their purchases, but Beneficial Owners are expected to receive written confirmations of their purchases providing details of the transaction from the DTC Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds will be accomplished by book entries made by the DTC Participants who act on behalf of the Beneficial Owners and, in turn, by DTC. Beneficial Owners will not receive bond certificates representing their ownership in the Bonds, except as described below. For every transfer and exchange of the Bonds, the Beneficial Owners may be charged a sum sufficient to cover any tax, fee or other governmental charge that may be imposed in relation thereto. DTC may determine to discontinue providing its services with respect to the Bonds at any time by giving notice to the City and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, if there is not a successor Securities Depository, the City shall be obliged to deliver certificated Bonds as described in the Ordinance. The City may decide to terminate the system of Book -Entry -Only transfer through DTC (or a successor Securities Depository). In such event, certificated Bonds will be delivered to the Beneficial Owners. DTC's Year 2000 Efforts DTC management is aware that some computer applications, systems, and the like for processing data ("Systems') that are dependent upon calendar dates, including dates before, on, and after January 1, 2000, may encounter "Year 2000 Problems." DTC has informed its Participants and other members of the financial community (the "Industry') that it has developed and is implementing a program so that its Systems, as the same relate to the timely payment of distributions (including principal and income payments) to security holders, book -entry deliveries, and settlement of trades within DTC ("DTC Services"), continue to function appropriately. This program includes a technical assessment and a remediation plan, each of which is complete. Additionally, DTC's plan includes a testing phase, which is expected to be completed within appropriate time frames. However, DTC's ability to perform properly its services is also dependent upon other parties, including, but not limited to, issuers and their agents, as well as third party vendors from whom DTC licenses software and hardware, and third party vendors on whom DTC relies for information or the provision of services, including telecommunication and electrical utility service providers, among others. DTC has informed the industry that it is contacting (and will continue to contact) third party vendors from whom DTC acquires services to: (i) impress upon them the importance of such services being Year 2000 compliant; and (ii) determine the extent of their efforts for Year 2000 remediation (and, as appropriate, testing) of their services. In addition, DTC is in the process of developing such contingency plans, as it deems appropriate. According to DTC, the foregoing information with respect to DTC has been provided to the Industry for informational purposes only and is not intended to serve as a representation, warranty, or contract modification of any kind. DTC has established a Year 2000 Project Office and will provide information concerning DTC's Year 2000 compliance to persons requesting such information. The address is as follows: The Depository Trust Company, Year 2000 Project Office, 55 Water Street, New York, NY 10041. Telephone numbers for the DTC Year 2000 Project Office are (212) 855-8068 and (212) 855-8881. In addition, information concerning DTC's Year 2000 compliance can be obtained from its website at the following address: WWW.DTC.ORG. Use of Certain Terms in Other Sections of this Official Statement In reading this Official Statement it should be understood that while the Bonds are in the Book -Entry -Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Direct or Indirect Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the Only System, System, and (ii) except as described above, notices that are to be given to registered owners under the Bond Ordinance will be given only to DTC. 11 h6•rL The City Electric, Waterworks and Sewer Systems (the "System") are described below. The City source of water supply is provided by five (5) wells with a combined pumping capacity of 785 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 500,000 and Ground Storage is 1,200,000, for a total of 1,700,000 gallon storage, with pump capacity of 1,600,000 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 frorn two inches to twelve inches. Computer software is Year 2000 ("Y21<") compliant. 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 will be complete by May 1, 1999. The treatment facilities are also computerized along with all lift stations. Monitoring flows, high levels, loss of prime and repair programs are all Y2K compliant. 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, subject to a fuel adjustment charge, a power adjustment on demand charge and energy charges. Power purchased for the fiscal year ended September- 30, 1998 totaled $1,596,920. The electric system serves approximately 1,717 meters. Facilities Charge Demand Charge Power Supply On -Peak Off -Peak Delivery Facilities Energy Charge On -Peak Off -Peak $293.00 per delivery point per month $6.26 per kW of CP Billing Demand 5.26 per kW of CP Billing Demand 1.59 per kW of NCP Billing Demand $0.0188048 per kWh 0$0167590 per kWh The Issuer invests its investable funds in securities and investments prescribed by the Texas Public Funds Investment Act, Chapter 2256, Texas Government Code, as amended (the "Investment Act"). The Investment Act requires that the Issuer establish an investment policy to ensure that Issuer's funds are invested only in accordance with State law. The Issuer's investments are managed by its City Manager and City Secretary, who report to the City Council, The Investment Act requires that investments be made with judgment and care, under prevailing circumstances that a person of prudence, discretion and intelligence would exercise in the management of his or her own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived. The Investment Act requires that investment policies be written, primarily emphasize safety of principal and liquidity, and address investment diversification, yield and maturity and the quality and capability of investment management. The Issuer's investment policies meet these criteria. The Investment Act and other state laws provides that political subdivisions in the State may invest in (i) obligations of the United States or its agencies and instrumentalities, (ii) direct obligations of the State or its agencies, (iii) other obligations unconditionally guaranteed or insured by or backed by the full faifih and credit of the State, the United States or its agencies and instrumentalities, (iv) obligations of states and political subdivisions of any state which are rated as to investment quality at least "A" or its equivalent, (v) certificates of deposit issued by state and national banks or savings and loan associations domiciled in the State, (vi) prime domestic banker's acceptances, (vii) commercial paper with a stated maturity of 270 days or less that meets certain rating criteria, (viii) fully collateralized repurchase agreements having a defined termination date which are secured by obligations described in clause (i) that are pledged to the Issuer and deposited with a third party, (ix) no load money market mutual funds which are regulated by the Federal Securities and Exchange Commission with a dollar weighted average stated maturity of 90 days or less 12 and whose objectives include seeking to maintain a stable asset value of $1.00 per share and (x) an eligible public funds investment pool, (xi) Bonds issued, assumed, or guaranteed by the State of Israel, and (xii) a qualified common trust fund or comparable investment device that is owned or administered by a Texas -domiciled bank and consists exclusively of obligations described above. The Issuer may invest in such obligations directly or through government investment pools that invest solely in such obligations. Current Investments As of April 9, 1999, 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) I&S Reserve - CD's Meter Deposit Checking Account Contingency Savings Account I&S Savings Account Bond Reserve - CD's Cash on Hand (Enterprise Fund) Total Investments Plan Descriptions Percentage ortfolio Amount of P $340,026 32.94% 243,694 23.60% 47,211 4.57% 36,112 3.50% 184,267 17.85% 14,441 1.40% 166,650 16.14% 1 032 401 100.00% 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 over 688 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 4.07% 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, 1998 totaled $35,004. 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, 1998 was $3,728. For additional information regarding the City's Retirement Plans, see Note 14B on page 13 in the audited financial statements attached hereto in Appendix E. TAX MATTERS Opinion On the date of initial delivery of the Bonds, McCall, Parkhurst &Horton L.L.P., Dallas, Texas, Bond Counsel, will render their opinion that, in accordance with statutes, regulations, published rulings and court decisions existing on the date thereof, (1) interest on the Bonds will be excludable from the "gross income" of the holders thereof and (2) the Bonds will not be treated as "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 "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 Bonds. (See Appendix C - "Form of Opinion of Bond Counsel " herein.) In rendering their opinion, Bond Counsel will rely upon (a) the Issuer's federal tax certificate (b) Verification Report of McGladrey & Pullen, LLP and (c) covenants of the Issuer with respect to arbitrage, the application of the proceeds to be received from the issuance and sale of the Bonds and certain other matters. Failure of the Issuer to comply with these representations or covenants could cause the interest on the Bonds to become includable in gross income retroactively to the date of issuance of the Bonds. 13 The law upon which Bond Counsel have based their opinion is subject to change by the United States Congress and to subsequent judicial and administrative interpretation by the courts and the Department of the Treasury. There can be no assurance that such 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 Bonds. klaUUMMIMIJ The initial public offering price to be paid for certain of the Bonds, as stated on the cover of the Official Statement (the "Original Issue Discount Bonds"), may be less than the principal amount thereof. The difference between (i) the amount payable at the maturity of each Original Issue Discount Bond, and (ii) the initial public offering of the Bonds constitutes original issue discount with respect to such Original Issue Discount Bond in the hands of any owner who has purchased such Original Issue Discount Bond in the initial public offering of the Bonds. Under existing law, such initial owner 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 equal to that portion of the amount of such original issue discount allocable to the period that such original issue discount continues to be owned by such owner. For a discussion of certain collateral federal tax consequences, see discussion set forth below. In the event of the sale or other taxable disposition of such Original Issue Discount Bond prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Bond 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 Bond was held by such initial owner) is includable in gross income. Under existing law, the original issue discoun# on each Original Issue Discount Bond 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 Bonds and ratably within each six-month period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Bond for purposes of determining the amount of gain or lass recognized by such owner upon the 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 Bond. The federal income tax consequences of the purchase, ownership, sale or other disposition of Original Issue Discount Bonds which are noY 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 Bonds should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of interest accrued upon sale or other disposition of such Original Issue Discount Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, sale or other disposition of such Original Issue Discount Bonds. The following discussion is a summary of certain collateral federal income tax consequences resulting from the purchase, ownership or disposition of the Bonds. 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 an interest in a FASIT, individual recipients of Social Security or Railroad Retirement benefits, 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. 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 BONDS. Interest on the Bonds will be includable as an adjustment for "adjusted earnings and profits" 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 taxpayers "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 Bonds may be subject to the "branch profits tax' imposed 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 Bonds, may be required to disclose interest received or accrued during each taxable year on their returns of federal income taxation. 14 Section 1276 of the Code provides for ordinary income tax treatment of gain recognized upon the disposition of a tax-exempt obligation, such as the Bonds, 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. Qualified Tax -Exempt Obligations Section 265 of the Code provides, in general, that interest expense to acquire or carry tax-exempt obligations is not deductible from the gross income of the owner of such obligations. In addition, Section 265 of the Code completely disallows any deduction for interest expense which is incurred by "financial institutions" described in such section and is allocable, as computed in such section, to tax-exempt interest on obligations acquired after August 7, 1986, Section 265(b) of the Code provides an exception to this rule for interest expense allocable to tax-exempt obligations (other than private activity bonds) which are designated by an issuer, such as the Issuer, as "qualified tax-exempt obligations." An issuer may designate obligations as "qualified tax-exempt obligations" only if the amount of the issue of which they are a part, when added to the amount of all other tax-exempt obligations (other than private activity bonds) issued or reasonable anticipated to be issued by the issuer during the same calendar year, does not exceed $10,000,000. The Issuer has designated the Bond as "qualified tax-exempt obligations" and certified its expectation that the above -described $10,000,000 ceiling will not be exceeded. Accordingly, it is anticipated that financial institutions which purchase the Bond will not be subject to the one -hundred percent (100%) disallowance of interest expense allocable to interest on the Bond under Section 265(b) of the Code. However, twenty percent (20%) of the interest expense incurred by a financial institution which is allocable to the interest on the Bond will not be deductible pursuant to Section 291 or the code. State, Local and Foreign Taxes Investors should consult their own tax advisors concerning the tax implications of the purchase, ownership or disposition of the Bonds 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. CONTINUING DISCLOSURE OF INFORMATION The offering of the Bonds qualifies for the Rule 15c2-12(d)(2) exemption from continuing disclosure obligations because the City has less than P10,000,000 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. 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. The Issuer is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. 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 regarding the System, which is normally available to the public. The Issuer will update and provide this information within six months after the end of each fiscal year beginning in 1999. 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 Issuers 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. 15 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, if such event is material to a decision to purchase or sell Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7) modifications to rights of holders of the Bonds; (8) Bonds calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds; and (11) rating changes. Neither the Bonds nor the Ordinance make any provision for debt service reserves, credit enhancement or liquidity enhancement. 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"). 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 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. 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 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 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 requirementsI 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 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 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. 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 in the primary offering of the Bonds giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. 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. The City has complied in all material respects with all continuing disclosure agreements made by it in accordance with the Rule. Legal matters incident to the authorization, issuance and sale of the Bonds are subject to the approving opinion of the Attorney General of the State of Texas and McCall, Parkhurst &Horton L.L.P., Bond Counsel, whose opinion will accompany the Bonds. In its capacity as Bond Counsel, McCall, Parkhurst &Horton L.L.P. has reviewed the information appearing in this Official Statement under the captions "PLAN OF FINANCING," "THE BONDS," 'TAX MATTERS," "CONTINUING DISCLOSURE OF INFORMATION" and "OTHER PERTINENT INFORMATION - Registration and Qualification of Bonds for Sale, Legal Matters, and Legal Investments and Eligibility to Secure Public Funds in Texas" to determine whether such information fairly summarizes the material and documents referred to therein and is correct as to matters of law. 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 Bonds are contingent on the sale and delivery of the Bonds. The legal opinion of Bond Counsel will be printed on printed Bonds or will accompany the global Bonds deposited with DTC and the form of such opinion is attached hereto as Appendix C. Certain legal matters will be passed upon for the Underwriters by Fulbright & Jaworski L.L.P., Dallas, Texas, counsel for the Underwriters. Registration and Qualification of Bonds for Sale The sale of the Bonds 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 have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been qualified under the securities acts of any jurisdiction. The Issuer assumes no responsibility for 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 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 provisions. Litigation According to City officials, there is no litigation or other proceeding pending against or, to their knowledge threatened against the City in any court, agency or administrative body (either state or federal) wherein an adverse decision would materially adversely affect the financial condition of the City. Legal Investments and Eligibility to Secure Public Funds in Texas Section 9 of the Bond Procedures Act provides that obligations such as the Bonds "shall constitute negotiable instruments, and are investment securities governed by Chapter 8, Texas Uniform Commercial Code, notwithstanding any provisions of law or court decision to the contrary, and are legal and authorized investments for banks, savings banks, trust companies, building and loan associations, savings and loan associations, insurance companies, fiduciaries, and trustees, and for the sinking fund of cities, towns, villages, school districts, and other political subdivisions or public agencies of the State of Texas." Texas law further provides that the Bonds are eligible to secure deposits of any public funds of the State of Texas, its agencies and political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the Issuer has been made A the laws in other states to determine whether the Bonds are legal investments for various institutions in those states. Ratings Moody's Investors Service, Inc. ("Moody's") has issued a rating of "Baa1" on the City's uninsured revenue debt. An explanation of the significance of such rating may be obtained from Moody's. A rating by Moody's 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 Moody's if, in the its judgment, circumstances so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the Bonds. Verification of Arithmetical and Mathematical Calculations McGladrey &Pullen, LLP, a firm of independent certified public accountants, upon delivery of the Bonds, will deliver to the City its report indicating that they have examined the mathematical accuracy of computations prepared by Southwest Securities relating to the sufficiency of the anticipated receipts from the Escrowed Securities and on the Bonds. The report of McGladrey &Pullen will include the statement that the scope of their engagement was limited to verifying the mathematical accuracy of the computations contained in such schedules provided to them and that they have no obligation to update their report because of events occurring, or data or information coming to their attention, subsequent to the date of their report. The report will be relied upon by Bond Counsel in rendering its opinion with respect to the Tax Matters of interest on the Bonds and with respect to the defeasance of the Refunded Bonds. 17 Southwest Securities is employed as a Financial Advisor to the Issuer in connection with the issuance of the Bonds. In this capacity, the Financial Advisor has compiled certain data relating to the Bonds 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 Bonds. The Underwriter has agreed, subject to certain conditions, to purchase the Bonds from the Issuer at a price of $ (representing the par amount of the Bonds of $ , less (plus) original issue discount (premium) of $ less an Underwriter's discount of $ ), plus accrued interest on the Bonds to the date of initial delivery of the Bonds to the Underwriter. The Underwriter's obligation is subject to certain conditions precedent. The Underwriter will be obligated to purchase all of the Bonds, if and of the Bonds are purchased. The Bonds may be offered and sold to certain dealers and others at prices lower than such public offering prices, and such public prices may be changed, from time to time, by the Underwriter. � rt The "Year 2000" issue arises because most computer software programs allocate tv✓o digits to the date filed for "year" on the assumption that the first two digits will be 19". Such programs will thus interpret the year 2000 as the year 1900, the year 2001 as 1901, etc., absent reprogramming. The Year 2000 issue affects both computer hardware (i.e. the embedded logic of computer chips) and computer software, and could impact both the ability to enter data into computer programs and the ability of such programs to correctly process data. The Year 2000 compliance issues primarily relate to the City's computer systems as they are used for the processing of utility billing and collection transactions, municipal court, accounts payable, payroll and general ledger transactions. At September 30, 1998 the City had completed the assessment and remediation. Additionally, the City contracts with others to provide assistance with respect to certain aspects of the City's business affairs and operations, including, but not limited to, local banks, utility vendors, the Denton County Appraisal District, the Paying Agent/Registrar, the Depository Trust Company, etc. The City has not received any information from its vendors that would indicate that they will have a year 2000 problem and be unable to provide the City with services. The City makes no representation with respect to whether such third parties will be year 2000 compliant and may not receive any warning from such third parties of year 2000 problems with respect to their computer systems prior to the year 2000. To the extent year 2000 problems are not adequately addressed by such third parties, disruptions in the operations and affairs of the City could occur, including the timely payment of the Bonds. This Official Statement has been prepared using informatian received from the City and other sources which is considered to be reliable. Ail information contained in this OfFcial Statement is subject, in all respects, to the complete body of information contained in the original sources thereof and no guaranty, warranty or other representation is made concerning the accuracy or completeness of the information herein. In particular, no opinion or representation is rendered as to whether any projection will approximate actual results, and all opinions, estimates and assumptions, whether or not expressly identified as such, should not be considered statements of fact. 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 Mayor City of Sanger, Texas m SCHEDULEI Issue Utility System Refunding and Improvement Revenue Bonds, Series 1991 SCHEDULE OF REFUNDED BONDS Original Issue Amount $ 21230,000 Maturities Amount to Being Redemption be Refunded Refunded Date $ 11580,000 2002-2011 5-15-01 @ par � This page is intentionally left blank. j 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 :• ..m4ZILTILLSIM mini• Fiscal Year 30-Sep 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Current Total Debt Service $ 305,043 307,378 304,083 310,243 305,345 304,880 308,560 306,160 307,860 313,483 307,585 310,913 87,908 84,653 86,363 87,838 89,038 $ 4.127.328 Less Debt Service on Refunded Bonds Series 1999 Bonds,81 Principal Interest�al Total $ 109,498 $ 25,000 $ 74,758 $ 99,758 109,498 25,000 73,870 98,870 224,498 140,000 72,933 2121933 227,138 145,000 67,473 212,473 223,950 150,000 61,673 211,673 225,240 160,000 55,523 215,523 225,720 165,000 48,883 213,883 225,370 170,000 41,870 211,870 224,170 1751000 34,560 209,560 227,185 190,000 261860 216,860 223,958 195,000 18,405 213,405 225,015 205,000 91533 214,533 ray Preliminary, subject to change. Interest calculated at 4.38% for illustration purposes only. Fiscal Year Ending 9-30 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Principal Re Outstanding Bonds�b� $ 140,000 $ 150,000 40,000 45,000 45,000 45,000 50,000 50,000 55,000 60,000 60,000 65,000 70,000 701000 75,000 80,000 85,000 ment Schedule�a� Bonds 25,000 25,000 140,000 145,000 150,000 160,000 165,000 170,000 75,000 190,000 195,000 >05,000 $ 1,185,000 $ 1,745,000 �a� Preliminary, subject to change (b1 Excludes the Refunded Bonds. Total $ 165,000 175,000 180,000 190,000 195,000 205,000 215,000 220,000 230,000 250,000 255,000 270,000 70,000 70,000 75,000 80,000 85,000 $ 21930,000 Bonds Unpaid at End of Year $ 21765,000 2,590,000 2,410,000 21220,000 21025,000 11820,000 11605,000 11385,000 11155,000 905,000 6501000 380,000 310,000 240,000 165,000 85,000 Combined Debt Service $ 295,303 296,750 292,518 295,578 293,068 295,163 296,723 292,660 293,250 303,158 297,033 300,430 87,908 84,653 86,363 87,838 89,038 $ 3.987.428 Percent of Principal Retired (%) 5.63% 11.60% 17.75% 24.23% 30.89% 37.88% 45.22% 52.73% 60.58% 69.11 % 77.82% 87.03% 89.42% 91.81 % 94.37% 97.10% 100.00% A-1 Revenue Bond Debt Outstanding: Utility System Refunding and Improvement Revenue Bonds, Series 1991 (excludes refunded bonds) $ 215,000 Utility System Revenue Bonds, Series 1996 970,000 The Bonds, Series 1999 117459000 Total Revenue Debt Outstanding $ 21930,000 " Preliminary, subject to change. Caoital Lease Ford Motor Credit Lubbock National Bank Construction of ground storage tank and painting water towers $ 325,000 Purchase of computer hardware and software $ 33,733 Purchase of computer hardware and software 32,058 $ 65,791 Source: The Issuer's annual audited financial statements for fiscal year ended September 30, 1998, Page 25 &(Vote C, Page 15 Water System Sewer System Electric System Equipment Furniture & Office Equipment Building Improvements Easement Total Less: Total Accumulated Depreciation Source: The Issuer's annual audited financial statements for fiscal year ended September 3q, 1998 Revenue Bonds Interest and Sinking Funds Revenue Bond Reserve Funds Utility System Operating Fund Emergency Fund Meter Deposit Fund Water Capital Reserve Fund Utility Equipment Replacement Fund Contingency Fund Source: The Issuer $ 2,553,906 2,154,911 2,414,526 569,490 184,648 34,433 11500 $ 71913,414 (3,717,789) $ 41195,625 241,923 166,650 16,212 102,211 29,290 10,797 281,051 Total $ 1,032,401 A-2 CONDENSED WATERWORKS AND SEWER SYSTEM OPERATING STATEMENTS TABLE 7 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 Water Sewer Electric Fiscal Year Ended 9.30.98 -39 0.97 9-3 -96 9-30-95 99- Q-94 $ 31977,591 $ 3,452,372 $ 3,361,752 $ 3,120,834 $ 2,899,777 491808 68,372 45,506 20,001 14,097 $ 4,027,399 $ 31520,744 $ 31407,258 $ 31140,835 $ 2,913,874 $ 524,132 $ 506,671 $ 532,034 $ 474,890 $ 502,407 21019,451 1,699,137 11569,683 1,514, 747 11431,368 79,802 71,466 77,078 73,073 64,719 83,694 72,091 72,359 69,031 64,532 $ 21707,079 $ 21349,365 $ 21251,154 $ 21131,741 $ 21063,026 $ 1,320,320 $ 303,503 4.35 X $ 1,171,379 293,085 $ 4.00 X $ 1,156,104 $ 1,009,094 $ 228,400 $ 227,737 5.06 X 4.43 X $ 226,782 3.75 X 1,835 1,704 1,624 1,614 1,542 1,807 11674 12585 11640 11517 1,965 11621 11598 11589 11542 Source: The Issuer's annual audited financial statements and the most recent Texas Municipal Report published by the Municipal Advisory Council of Texas. 1998 Net Revenues Available for Debt Service Annual Debt Service Requirement (1998) 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 $ 11320,320 303, 503 4.35 X 234,555 5.63 X 303,158 4.36 X A-3 WATER RATES TABLE Existing Rates I Effective October 1. 19981 Residential and Commercial Minimum per unit served for 0 - 1,000 gallons 11001 - 4,999 gallons 51000 - 14,999 gallons 150000 - 29,999 gallons 30,000 + gallons $14.25 $1.95 per thousand gallons $2.15 per thousand gallons $2.55 per thousand gallons $3.35 per thousand gallons Average Monthly Consumption in Average Name of Customer Gallons Monthly Bill Living Center of America 210,400 $ 679.88 Sanger High School 205,000 537.75 Sanger Inn 104,100 336.41 Dairy Queen 101,800 335.97 Sanger Elementary School 75,600 345.09 North Texas Plastics 57,200 205.30 Am pco 24,100 77.89 Burrus 24,000 60.12 Colston 191900 77.20 SMS 17,600 77.05 Total 839,700 $ 21732.66 EWER R TES TABLE 11 CX1811rig mates Residential Minimum (first 1,000 gallons) $ 15.00 Per 1,000 gallons over first 1,000 gallons $ 1.00 Maximum $ 25.00 Commercial Minimum (first 1,000 gallons) $ 21.00 Per 1,000 gallons over first 1,000 gallons $ 1.00 Maximum $ 125.00 Multi -Family Dwellings The amount due for multi -family dwellings shall be the residential rate multiplied by the number of occupied dwelling units. Name of Customer Living Center of America Sanger High School Dairy Queen Sangerinn Sanger Elementary School North Texas Plastics Colston Ampco Burrus SMS Total Average Monthly Bill $ 125.00 121.98 116.63 110.76 94A8 87.43 48.21 47.98 42.03 37.08 $ 831.58 A-5 Existing Rates (Effective March 15 1999X Facilities Charge (minimum per month) Energy Charge (per KWH) Demand Charge First 6 KWH (minimum per month) Over 6KWH (per KWH) Residential $ 8.00 $ 0,0621629 k Small Large Commercial Commercial $ 12.50 $ - $ 0$0676962 $ 0,0237048 $ - $ 8.29 Only the Residential Facilites Charge was changed on this date. All other rates remain as they were when originally put into effect September 16, 1996. Average Monthly Consumption in Name of Customer Kilowatt Hours North Texas Plastics 97,740 Burrus 95,527 Chisolm Trail Elementary 74,540 Living Center of America 47,130 Sanger High School 45,020 Golston 411013 Dairy Queen 38,187 Sanger Middle School 33,341 Ampco 20,777 Sanger Inn 14,620 Total 410,155 $ 5,941.79 5,629.56 51251,85 31134,62 4,963.36 31329,80 21422,13 2,448.95 1, 718.66 21266,91 $ 31,165.84 A-6 APPENDIX B General Information Regarding the City of Sanger and Denton County, Texas GENERAL INFORMATION REGARDING THE CITY OF SANGER 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 1990 census was 3,508, which is a 36.3% increase since 1980. The current estimated population is 5,200. Denton County (the "County") is located in north central Texas and was created in 1846 from Fannin County. The 1990 census was 273,525, which is a 91.1% increase since 1980. The 1998 estimated population for the county was 367,800, 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 race track was opened in 1997, which has had a positive impact on employment and recreational spending for the area. *Source: Latest Texas Municipal Report published by the Municipal Advisory Council of Texas Population: Census City of Denton Report Sanger County 1980 21574 143,126 1990 31508 273,525 1998 (Est.) 5,200 367,800 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: Employer Sanger Independent School District B&W Backhoe Living Centers of America Burrus Supermarket North Texas Plastics Colston Cattle Rustlers Ampco Jack -in -the -Box Sanger Bank Source; Information from the Issuer Education Type of Business Public School Education Sub Contractor Nursing Home Grocery Store Plastics Manufacturer - Banks Food Service Manufacturer - Bathrooms Food Service Bank Number of Employees (September 1997) 350 125 55 50 48 30 27 25 20 20 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 middle 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 1998 estimated enrollment of 2,088 students with approximately 280 instructional personnel (teachers and aides). Source: Sanger Independent School District Labor Force Statistics Civilian Labor Force Total Employed Total Unemployed Unemployed Unemployed (Texas) Unemployed (United States) Denton County March 1999 March 1998 236,714 224,725 2321400 220,253 41314 41472 1.8% 2.0% 4.4% 4.6% 4.4% 5.0% Source: Texas Workforce Commission, Labor Market Information Department. Estimated Retail Sales Statistics ($OOO,$) Denton State of Year Coun Texas 1998 $2,853,148 $176,771,820 1997 2,6321353 170,864,051 1996 21376,981 165,526,050 1995 21068,617 1531303,008 1994 21243,289 142,854,877 1993 21090,983 137,242,431 1992 11867,462 126,161,041 Source: Sales & Marteting Magazine, Survey of Buying Power 1992-1998. Figures represent estimates as of January 1 of each year given. Denton County Total Effective Median Buying Income Household Year 00 0EBI 1998 $6,911,926 $43,635 1997 61294,683 41,613 1996 51877,466 40,471 1995 61368,568 46,100 1994 5,838,246 43,711 1993 51248,650 401644 1992 4,890,310 391214 Buying Total Effective Median Income Household ($000) EBI $306,018,615 $33,190 285,732,128 31,923 271,027,180 30,747 295,243,928 341851 276,963,985 33,402 2547375,017 31,253 240,066,570 30,122 Source: Sales &Marketing Magazine, Survey of Buying Power 1992-1998. 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 for Denton County. Cash receipts from farm marketings are as follows: Crops Livestock and Livestock Products Government Payments Total Cash Receipts 1997 $ 47,859,233 80, 528, 775 11544,742 $ 1291932,750 In Thousand Dollars 9,541,151 1996 $ 2 56,477,335 1,027,978 $ 87,046,464 $ 22,189,071 78, 0518 450,859 $ 101,445,826 Source: Texas Utilities Electric Company Agriculture Income Evaluation, 1995 through 1997. B-2 Form of Legal Opinion of Bond Counsel. 600 CONGRESS AVENUE 1250 ONE AMERICAN CENTER AUSTIN, TEXAS 78701.3248 TELEPHONE', 512 478-3805 FACSIMILE. 512 472-0871 LAW OFFICES McCALL, PARKHURS I & HOR I UN L.-L-P 717 NORTH HARW000 NINTH FLOOR DALLAS, TEXAS 7520i-6587 TELEPHONE: 214 754-9200 FAOSIM IL E: 214 754-9250 CITY OF SANGER3 TEXAS UTILITY SYSTEM REVENUE REFUNDING BOND SERIES 1999, DATED JUNE 15, 1999, IN THE PRINCIPAL AMOUNT OF $ 700 N. ST. MARY'S STREET 1225 ONF_ RIVERWALK PLACE SAN ANTONIO, TEXAS 78205-3503 TEl-EPHON E: 210 225-2B00 FACSIMILE: 210 225-2984 AS BOND COUNSEL for the City of Sanger, Texas (the "Issuer"), we have examined into the legality and validity of the bond issue initially evidenced by the bond described above (the "Initial Bond"), which Initial Bond originally has been issued and delivered as a single fully registered bond, without interest coupons, with the principal amount thereof payable on May 15 in installments, and with the unpaid balance of each installment of principal, respectively, bearing interest from the date of the Initial Bond to the sched- uled due date ("maturity"), or to the date of prepayment or redemption, of each installment of principal, at the following rates per annum for each maturity, respectively: maturity 2000, % maturity 2006, maturity 2001, % maturity 2007, % maturity 2002, % maturity 2008, % maturity 2003, % maturity 2009, % maturity 2004, % maturity 2010, maturity 2005, % maturity 2011, with interest payable November 15, 1999, and semiannually on each May 15 and November 15 thereafter, and with the principal of the Initial Bond being subject to prepayment or redemption prior to the scheduled maturities, at the option of the Issuer, on May 15, 2008, or on any date thereafter, in accordance with the terms and conditions stated in the text of the Initial Bond. The Initial Bond may, at the request of the regis- tered owner, be transferred and converted into, and/or exchanged for, fully registered bonds, without interest coupons, in the denomination of $5,000 or any integral multiple of $5,000, and such bonds again may be transferred and/or exchanged, all subject to the conditions stated and in the manner provided in the ordinance authorizing the issuance of the Initial Bond (the "Bond Ordinance"), with any such bonds which are regis- tered, authenticated, and delivered in accordance with the Bond Ordinance being hereinafter called "Defini- tive Bonds". WE HAVE EXAMINED the applicable and pertinent provisions of the Constitution and laws of the State of Texas, and a transcript of certified proceedings of the Issuer, the Escrow Agreement dated June 15, 1999 between the Issuer and Chase Bank of Texas, National Association, Dallas, Texas, as Escrow Agent the "Escrow Agreement"), and other pertinent instruments relating to the authorization of the Initial Bond and Definitive Bonds and the issuance and delivery of the Initial Bond, including the executed Initial Bond and a printed specimen of the form for Definitive Bonds initially made available by the Issuer for conversion of and exchange for the Initial Bond, exclusive of the Statement of Insurance as to which we express no opinion. BASED ON SAID EXAMINATION, IT IS OUR OPINION that the Escrow Agreement has been duly authorized, executed, and delivered by the parties thereto and constitutes a binding and enforceable agreement of the parties thereto in accordance with its terms, and that the bonds, as defined in the Bond Ordinance, in the aggregate principal amount of $1,580,000, being refunded by the Bonds, are outstanding only for the purpose of receiving the funds provided by, and are secured by, and payable solely from, the Escrow Agreement and the cash and investments, including the income therefrom, held by the Escrow Agent pursuant to the Escrow Agreement. In rendering this opinion, we have relied upon the verification of McGladrey & Pullen LLP as to the sufficiency of the cash and investments deposited with the Escrow Agent pursuant to the Escrow Agreement for the purpose of paying such Refunded Bonds to be retired with the proceeds of the Bonds and the interest thereon. BASED ON SAID EXAMINATION, IT IS FURTHER OUR OPINION that the Initial Bond and Definitive Bonds have been duly authorized, and that the Initial Bond has been duly issued and delivered, all in accordance with law; and that, except as may be limited by laws applicable to the Issuer relating to bankruptcy, reorganization, and other similar matters affecting creditors' rights, the Initial Bond constitutes and Definitive Bonds (hereinafter referred to collectively as "Bonds") will constitute valid and legally binding special obligations of the Issuer, and that the principal of and interest on the Bonds are payable from and secured by a first lien on and pledge of Net Revenues of the Issuer's Utility System, being the Waterworks, Sewer and Electric System, THE ISSUER has reserved the right, subject to the restrictions stated in the Bond Ordinance, to issue additional parity revenue bonds which also may be made payable from and secured by a first lien on and pledge of the Net Revenues, THE OWNERS OF THE BONDS shall never have the right to demand payment of this obligation 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 "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 the Verification Report of McGladrey & Pullen LLP, and assume compliance by the Issuer with, certain representations and covenants regarding the use and investment of the proceeds of the Bonds. We ,all your attention to the fact that failure by the Issuer to comply with such representations and covenants may cause the interest on the Bonds to become includable in gross income retroactively to the date of issuance of the Bonds. WE CALL YOUR ATTENTION TO THE FACT that the interest on tax-exempt obligations, such as the Bonds will be (a) included in a corporation's alternative minimum taxable income for purposes of determining the alternative minimum tax and the environmental tax imposed on corporations by Sections 55 and 59A 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 HAVE ACTED AS BOND COUNSEL for the Issuer for the sole purpose of rendering an opinion with respect to the legality and validity of the Bonds described above under the Constitution and laws of the State of Texas, and with respect to the exclusion from gross income of the interest on such 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 investigated or verified, any records, data, or other material relating to the financial condition or capabilities of the Issuer, or the disclosure thereof in connection with the sale of the Bonds, and we 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 Issuer as to the availability and sufficiency of the revenues of the Issuer's Utility System. Our role in connection with the Issuer's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein. Respectfully, This page is intentionally left blank.] Selected Provisions of the Bond Ordinance Section 8. DEFINITIONS. For all purposes of this Ordinance and in particular for clarity with respect to the issuance of the Bonds herein authorized and the pledge and appropriation of revenues for the payment of the Bonds, the following definitions are provided: (a) The term "Utility System" as used in this Ordinance, shall mean and include the Issuer's entire Waterworks, Sewer and Electric System, together with all future improvements, extensions, enlargements, and additions thereto, and replacements thereof. (b) The term "Net Revenues," as used in this Ordinance, shall mean gross revenues of the Utility System, after deducting the expenses of operation and maintenance of the Utility System, including all salaries, labor, materials, repairs and extensions necessary to render efficient service, provided, however, that only such repairs and extensions, as in the judgment of the City Council of said Issuer, reasonably and fairly exercised by the passage of appropriate ordinances, are necessary to keep the Utility System in operation and render adequate service to said Issuer and the inhabitants thereof, or such as might be necessary to meet some physical accident or condition which would otherwise impair the Bonds and any Additional Bonds shall be deducted in determining "Net Revenues." Depreciation, and payments into and out of the Interest and Sinking Fund, Reserve Fund, and Emergency Fund hereinafter created, shall never be considered as expenses of operation and maintenance. (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 Refunding and Improverent Revenue Bonds, Series 1991 Bonds and the City of Sanger, Texas Utility System Revenue Bonds, Series 1996 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 Refunding and Improvement Revenue Bonds, Series 1991, and Sections 9 through 27 of the Ordinance that authorized the City of Sanger, Texas Utility System Refunding and Improvement Revenue Bonds, Series 1991 are hereby adopted by reference and shall be restated and be applicable to the Bonds authorized by this Ordinance in Sections 9 through 27 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 gross revenues of the Utility System shall be kept separate and apart from all other funds of the Issuer and the following Special Funds have been created and shall be established and maintained in an official depository bank of the Issuer, so long as any of the Bonds, the Outstanding Bonds or Additional Bonds, or interest thereon, are outstanding and unpaid: (a) City of Sanger Utility System Revenue Bonds Revenue Fund, hereinafter called the "Revenue Fund." (b) City of Sanger Utility System Revenue Bonds Interest and Sinking Fund, hereinafter called the "Interest and Sinking Fund." (c) City of Sanger Utility System Revenue Bonds Reserve Fund, hereinafter called the "Reserve Fund." (d) City of Sanger Utility System Revenue Bonds Emergency Fund, hereinafter called the "Emergency Fund." Section 12. REVENUE FUND. All gross revenues of every nature received from the operation and ownership of the Utility System shall be deposited from day to day as collected into the Revenue Fund. The reasonable, necessary, and proper expenses of operation and maintenance of the Utility System shall be paid from the gross revenues of the Utility System. The revenues remaining in the Revenue Fund shall be deposited into the other Funds, in the manner and amounts hereinafter provided, and each of such Funds shall have priority as to such deposits in the order in which they are treated in the following sections. D-1 following: Section 13, INTEREST AND SINKING FUND, There shall be deposited into the Interest and Sinking Fund the (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 _ as will be sufficient to pay the next maturing principal of the Bonds and the Outstanding Bonds, Section 14. RESERVE FUND. The Reserve Fund, in accordance with the requirements of the ordinances that authorized the outstanding Bonds, contains $ which is at least equal to the average annual principal and interest requirements for the Bonds and the Outstanding Bonds. Whenever said Reserve Fund is reduced below said aggregate amount, there shall be deposited into the Reserve Fund an amount of at least equal to 1/60th of the average annual principal and interest requirements of the outstanding Bonds, until such time as the Fund has been restored to said aggregate amount. The Reserve Fund shall be used to pay the principal of or interest on the Bonds, the Outstanding Bonds and any Additional Bonds falling due at any time when there is not sufficient money available in the Interest and Sinking Fund created for their payment. Money in the Reserve Fund may, upon authorization by the City Council of said Issuer, be invested in direct obligations of, or obligations, the principal of and interest on which are guaranteed by, the United States of America, or invested in direct obligations of the Federal Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage Association, Federal Home Loan Banks or Banks for Cooperatives, provided that each of the aforesaid obligations must mature, or be subject to redemption at the option of the holder thereof. Any obligation in which money in said Reserve Fund is so invested shall be kept and held by the Bank holding said Fund in escrow and in trust for the benefit of the holders of the Bonds, the Outstanding Bonds and all Additional Bonds, and shall be promptly sold and the proceeds of sale applied to the making of all payments required to be made from the Reserve Fund, Section 15. EMERGENCY FUND. There is presently on deposit in the Emergency Fund $ No deposits shall be required to be made into the Emergency Fund as long as the Emergency Fund contains said aggregate amount, but if and whenever said Emergency Fund is reduced below said aggregate amount, the aforesaid monthly deposits into the Emergency Fund shall be resumed and continued until such time as the Emergency Fund has been restored to said aggregate amount. The Emergency Fund shall be used to pay the cost of any repairs or extensions to the System authorized by Vernon's Article 1113, for the payment of which no other funds are available. Also, the Emergency Fund shall be used to pay the principal of or interest on the Bonds, the Outstanding Bonds and all Additional Bonds, at any time when there are not sufficient amounts in the Interest and Sinking Fund and the Reserve Fund for such purpose. Money in the Emergency Fund may, upon authorization by the City Council, be invested in the same manner and to the same extent as provided for money in the Reserve Fund. Any obligation in which money in the Emergency Fund is so invested shall be kept and held in an official depository bank of the Issuer in escrow and in trust for the benefit of the holders of the Bonds, the Outstanding Bonds and all Additional Bonds, and shall be promptly sold and the proceeds of sale applied to the making of payments permitted or required to be made from the Emergency Fund, Section 16, DEFICIENCIES IN FUNDS. If in any month the Issuer shall fail to deposit into any Fund created by this Ordinance the full amounts required, amounts equivalent to such deficiencies shall be set apart and paid into said Funds from the first available and unallocated pledged revenues for the following month or months, and such payments shall be in addition to the amounts otherwise required to be paid into said Funds during such month or months. To the extent necessary, the Issuer shall increase the rates and charges for services of the Utility System to make up for any such deficiencies. Section 17. EXCESS REVENUES. The revenues pledged hereunder, in excess of those necessary to establish and maintain the Funds as required in this Ordinance, or as hereafter may be required in connection with the issuance of Additional Bonds, may be used for any lawful purpose. Section 18. SECURITY FOR FUNDS, All Funds created by this Ordinance shall be secured in the manner and to the fullest extent permitted or required by law for the security of public funds, and such Funds shall be used only for the purposes and in the manner permitted or required by this Ordinance. Section 19, ADDITIONAL BONDS. The Issuer reserves the right to issue additional parity revenue bonds, to be known as Additional Bonds, which when issued and delivered, shall be payable from and secured by a lien on and pledge of the same revenues as those securing the Bonds, and be on a parity with the Bonds and all outstanding Additional Bonds, or any bonds issued to refund same, and the Bonds and all Additional Bonds shall in all respects be on a parity and of equal dignity. The Additional Bonds may be issued in one or more installments or series, provided, however, that no installment or series of Additional Bonds shall be issued unless: (a) A certificate is executed by the Mayor and City Secretary of said Issuer to the effect that no (default exists in connection with any of the covenants or requirements of the ordinance or ordinances authorizing the issuance of all then outstanding Bonds and Additional Bonds; (b) A certificate is executed by the Mayor and City Secretary of said Issuer to the effect that the Interest and Sinking Fund and the Reserve Fund each maintain the amount then required to be on deposit therein; D-2 (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 1.10 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 corplete 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 furnishI 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, 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. D-3 (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. The Issuer's General Purpose Audited Financial Statements for the Fiscal Year Ended September 30, 1998 (Independent Auditor's Report, General Financial Statements and Notes to the Financial Statements -not intended to be a complete statement of the Issuer's financial conditiUM Reference is made to the complete Annual Financial Report for further information.) William C. Spore & Company, PC. Certified Public Accountants 11'IVIDI'dianniW44114 telaww1winul 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, 1998, 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 generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards', issued by the Comptroller General of the United States. Those standards require that we pIan 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, 1998, and the results of its operations and the cash flows of its proprietary and types for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Alydrtirtg Standcrrca's, we have also issued our report dated March 12, 1999 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. 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 &Company, P.C. March 12, 1999 1�� � /1 '' / ' �i i'I I I •� � I CITY OF , OMBINED BALANCE SHEET m ALL FUND TYPES AND ACCOUNT GROUPS Cash Receivables, Net of Allowances for Uncollectables: 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 Deposits Deferred Revenues Long -Term Debt: Combensated 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 September 30, 1998 41,393 479,944 68,214 0 251299 81164 0 529,185 0 7,020 21345 100,094 1241082 11018,720 0 4,195,625 0 743,909 0 _ 0 $_ 261,333 $ 7,082,661 $ 34,843 $ 317,471 0 72,943 7,020 0 0 99,590 68,214 0 0 19,809 0 2,900,000 0 0 0 3250000 0 65,791 1101077 3,8001604 0 442,674 0 p 0 313,924 0 21525,459 1249025 0 27,231 0 151,256 31282,057 $ 261,333 $ 7,082,661 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE - 3 GENERAL GENERAL LONG FIXED ASSETS TERM DEBT $ 0 $ 0 0 0 68,214 60,607 0 0 33,463 27,805 0 0 529,185 383,766 p 0 71020 124,825 0 0 1021439 129,551 0 0 11142,802 1,6161909 0 0 't ,834,320 $ 11834,320 6,732,433 743,909 1,834,320 $ 11,715,122 6,136,778 201,602 1,922,337 $ U1891,868 $ 0 $ 0 $ 352,314 404,328 p 0 721943 79,618 7,020 0 0 0 99,590 81,881 0 0 68,214 60,607 0 35,000 54,809 511065 0 0 21900,000 310251000 0 11625,000 1,625,000 11725,000 0 0 325,000 0 0 174,320 240,111 _ 172,727 0 11834,320 51745,001 516001226 0 0 442,674 442,674 21536,808 0 21536,808 213781632 0 0 313,924 377,718 0 0 21525,459 11949,511 0 0 124,025 115,007 0 0 27,231 _ _28,100 21536,808 0 51970,121 5,291,642 $ 2,536,808 $ 1,834,320 $ 11,715,122 $ 10,891,868 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE - 3 CITY OF SANGER *.)1T.9J.1tF&S-T4TFJjTF j QE JE E kJWES,, 4 _WD U M IWOMM414mej For the Year Ended September 30, 1998 Transfers In I TOTAL OTHER FINANCING SO $ 425,761 344,181 8,402 101,147 279,192 77,325 4,651 18,489 2,022 1,261,170 438,325 4241147 107,937 25,362 2351077 1581176 146,070 119It 1,654,841 (393,671) 53,053 348,767 401,820 143,107 $ 151,256 $ 406,208 296,516 8,125 31,864 293,938 349,695 11,134 43,037 23,240 11463,757 462,911 3991425 2421165 3331688 1171918 55,366 128,867 127.170 1,867,510 403,753 0 325,370 325,370 (78,383) $ 143,107 SEE ACCOUNTANT'S REPORT AND NOTES ATTACHED Page - 4 CITY OF ,, For the Year Ended September 30, 1998 REVENUES (-BUDGET ACTUAL VARIANC� Property Taxes $ 408,862 $ 425,761 $ 16,899 Nonproperty Taxes 2511650 344,181 92,531 Penalties and Interest on Deliquent Taxes 81000 81402 402 License and Permits 29,000 25,102 (31898) Fees and Services 295,300 355,237 59,937 Grants and Intergovernmental 34,600 77,325 42,725 Interest Income 11500 41651 31151 Miscellaneous Income 501000 181489 (31,511) Donations 0 21022 21022 TOTAL. REVENUES 11078,912 11261,170 182,258 EXPENDITURES General Government 4261918 438,325 (110407) Public Safety 416,783 424,147 (71364) �ighw/ays and Streets 108,000 107,937 63 hleaith and Welfare 25,800 251362 438 Culture and Recreation 254,604 235,077 19,527 Capital Outlay 119,950 158,176 (38,226) Debt Service: Principal 170,318 1461070 24,248 Interest _ 118,997 119,747 (750) TOTAL EXPENDITURES 11641,370 11654,841 (13,471) EXCESS REVENUES OVER (UNDER) EXPENDITURES (562,458) (393,671) 168,787 OTHER FINANCING SOURCES (USES) Proceeds of Capital leases 36,750 531053 16,303 Transfers In 538,037 348,767 (189,270) TOTAL OTHER FINANCING SOURCES (USES) 574,787 401,820 (172,967) EXCESS OF REVENUES AND OTHER SOURCES OVER EXPENDITURES $ 12,329 81149 $ _ (41180) FUND BALANCE - BEGINNING 143,107 $ 151,256 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE - 5 Charges and Fees CITY OF SANGER COMBINED ., STATEMENT OF REVENUES, EXPE.NSES, ND CHANGES IN RETAINED EARNINGS PROPRIETARY FUND For the Year Ended September 30, 1998 1997 $ 3,977,591 $ 3,452,372 Personnel Services 524,132 506,671 Purchase of Services 21019,451 11699,137 Materials and Supplies 791802 71,466 Depreciation 3191900 286,995 Franchise Fees 83,694 72,091 TOTAL OPERATING EXPENSES 31026,979 21636,360 OPERATING INCOME 9501612 8161012 Interest Income Debt Service Interest, Fees & Discounts Transfers Out lvvvv NET INCOME 49,808 (139,499) (348,767) 438,458 512,154 2,327,229 68,372 (140,815) (325,370) (397,813) 1,909,030 $ 2,839,383 $ 2,327,229 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE - 6 CITY OF SANGER COMBINED STATEMENT OF CASH FLOWS - ALL PROPRIETARY FUND TYP •00 1 -XF I U IF r Lum IN^-, ReceivedCash from Customers SuppliersCash Payments to •Goods • Services Cash Payments for • • -- FINANCING ACTIVITIES. Acquisition of ,, PrincipalAdditions to LongJerm Debt . • on Bondsand Notes nterest Paid on Bonds and Notes CDBG Grant Funds., TransferredCash to Other Funds NET CASH USED FOR CAPITAL AND D FINANCING ACTIVITIES Operating Income 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 For the Year Ended September 30, 1996 1998 (2,126,846) (525,388) 11197,648 (1,254,898) 402,184 (141,783) (141,863) 0 (355,787) (1,492,14 48,636 (245,863) 1,744,527 $ 1,498,664 $ 950612 , 319,900 (145,419) 29,457 24,977 412 17,709 $ 3,436,783 (1,759,205) (509,553) 11168,025 (659,656) 0 (118,099) (138,543) 192,700 (325,370) (1,048,968) 209,233 1,535,294 $ 1,744,527 286,995 (15,906) 57,076 25,091 (1,560) 317 $ 1,197,648 $ 1,168,025 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS PAGE - 7 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 1998 The City of Sanger operates under a C:ouncil--Mayor form of government, following the laws of a General Law 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. The City, for financial reporting purposes, includes all of the funds and account groups relevant to the City of Sanger. The financial statements presented herein do not include agencies which have been formed under applicable state laws or separate and distinct units of government apart from the City of Sanger. There are no separately administered organizations that -are controlled or dependent on the City. 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. CITY OF SANDER NOTES TO FINANCIAL STATEMENTS September 30, 1998 .�. .. � . r Enterprise Funds � � ' •i� a �� •." .� ♦� !• K.. .. .. � •... � � �. � ��. � �• • The accounting and reporting treatment applied to property plant and equipment and long-term liabilities assaciated 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 cansidered 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. 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" certain improvements other sidewalks, and bridges are not general fixed assets consisting of than buildings, such as roads, capitalized. Long-term liabilities expected to be financed from governmental fund types are accounted far in the General Lang -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. Page - 9 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 1998 Special reporting treatments are applied to governmenr7al a pr -• . expenses . indicate - .. . represent "available spendable• .though they • - • component of '. ,... accounts*current assets. Such amounts are generally offset by fund balance reserve i•rec•... • governmental •. types -•. b exclude amounts represented by ent liabilities.. .. f • 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. "capital • • ^.measurement •means that assets and liabilities (whether current or noncurrent) associated w 'th their activity are included on their balance sheetse Their report fund equity (net total assets) is segregated into contributed capital and retained earnings components. sufficient to relate the cost of the deprecia)Dle assets, to operations over their estimated service lives on the straight�line basis. The service lives by type are as followse : - -t�iil I it • s -. Furniture r • Equipment • to , years financial statements. Basis of accounting relates to the timing of the measurement . •..regardless of .. measurement focusapplied. 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 :o this general rule include accumulated unpaid vacation and s! �ime which are not accrued and principal and interest on general • • debt which is recognizedwhen r Page - 10 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 1998 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. The City follows these procedures in establishing the budgetary data reflected in the financial statements* Council a proposed operating budget for the fiscal year commencing the following October 1. The operating budget includes proposed expenditures • the means of financing B: Public hearings are conducted to obtain taxpayer comments. D Prior to October 1, the budget is legally enacted through the passage of an ordinance. Da 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. Ea Budgets for the General and Proprietary Funds are adopted on a basis consistent with generally accepted accounting principles (GAAP). Fs Unused appropriations for all of the above annually budgeted funds lapse at the end of the fiscal year. At year-end the City's cash accounts totaled $1,664,140 of which $1,664,040 was held in checking, savings or certificate of deposit accounts at a local bank. Of the Bank balances, $112,784 was covered by federal depository insurance and the remaining $1,551,256 was covered by collateral held by the pledging Bank's agent in the name of the City. There were no uncollateral ized cash accounts. The securities pledged by the City's depository institution are as follows: SECURITY PAR FMV TREASURY NOTE 21300,000 21448,063 The City capitalizes construction period interest when applicable. $44,046 of interest expense related to the construction of a new sewer plant was capitalized during the current fiscal year. Page - 11 CITY OF SANGER PdOTES TO FINANCIAL STATEMENTS September 30, 1998 • Inventories. of the Enterprise Fund are valued at the lower of cost (first -in, first®out) or market. amount o earned but unused vacation and sick time, which will be p id upon separation from the City's se i al to employees 1 1 rvice. In governmental funds, the cost of vacation and sick leave is recognized when •. •. A long.term liabilityof i01 of accrued vacation• sick leave has been i • •-• in the General Long�Term Debt Account Group, representing the City's commitment to fund such costs from - operations. Propds-vacation leave- period they are earned. January 1. Taxes are levied on October 1 and are due and payable it that time. All unpaid taxed levied October 1 become delinquent February - following year, r - -n-c -caTes cire 7unsicterect • io allowance for doubtful taxes is provided. I Allowance for uncollectable accounts receivable in the Proprietary Fund at September 30, 1998 is $47,725. • proprietaryexpenditures, All grant funds received by the . that are to be used for capital proDects 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. There were no material grant funds received by the City during the fIscal year ended September 30, 1998. Comparative data for the prior year have been presented in the accompanying statements in order to provide an understanding of Page - 12 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 1998 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. 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. Firemen's Pension Fund: contributory plan is operated and Retirement by the firemen's pension plan. This as part of the State Firemen's Relief PE expense for the year ended The City belongs to the Texas Municipal Retirement System, a retirement and disability pension system for municipal employees in the State of Texas. The plan is administered in accordance with the Texas Municipal Retirement System Act and is governed by a Board of Trustees appointed by the governor of the State of Texas. The City has elected to have monthly contributions from the City's employees in the amount of 5% of their gross earnings with the City providing a monthly contribution of 4.07% of the monthly gross earnings. Employee contributions are tax deferred and not subject to federal income tax until they are withdrawn. The City's contributions for the fiscal year totaled $35,004. 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 Page - 13 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 1998 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. 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 - Motorola Communications and Electronic, Inc. - Original balance of $33,654. The lease requires five annual rental payments of $8,219 beginning in August 1995. 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 radio communication equipment. The equipment is security for the lease. •z U isr` lea- -• - S I . - I it 11 _ • _ • $468, with twelve payments remaining at September 30, 1998* The �ity has . 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 ?roceeds of the lease were used to purchase a brush chipper for thit street department. The chipper is security forthelease. seven$338, with thirty payments remaining at September 30, 19989 Phe City has purchase option during the term of . lease to purchase the equipmentat a designated purchase option price. AsphaltCity intends to exercise this option at the end of the lease term. The proceeds of the lease were used to purchase a Roller. The equipment is security for the lease. Capital Lease Lubbock National Bank original balance of aith fifty one payments remaining at Septemberr 1998o equipmenthas 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 is - Page - 14 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 1998 Capital Lease - Kustom Signal - Original balance of $2,000. The lease requires one annual rental payments of $2,000 in March 1999. The proceeds of the lease were used to purchase a police surveillance system. The system is security for the lease. Proprietary Fund: Texas Utility System Refunding and Improvement Revenue Bonds, Series 1991 - Original amount of $2,230,000, principal paid annually on May 15, Interest paid semi-annually on May 15 and November 15, at rates ranging from 4.70% to 7.15%. The bonds were issued to provide funds sufficient to refund all of the City's outstanding Series 1976, 1977, and 1985 Bonds plus an additional $800,000 for improvements to the City's Waterworks System. The refunding of the Bonds provided for lower future debt service requirements due to reduced interest rates. The Bonds are to be repaid from and are secured by the Enterprise Fund Net Revenues. Texas Utility System Revenu,e BondsSeriesOriginal 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. The Band Obligations require that certain cash reserve accounts be maintained. Note Payable - Guarantee National Bank -- Original amount of $325,000, the note is due on demand, if no demand is made then the note requires five annual principal payments of $65,000 beginning in December 1998. The note bears interest at 6.5% with annual interest payments also due each December until the note is paid in full. The note proceeds were used to construct a ground storage tank and to paint one of the City's water towers. Capital Lease - Ford Motor Credit Company - Original balance of $40,432. The lease requires sixty monthly rental payments of $779, with forty nine payments remaining at September 30, 1998. 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 - Lubbock National Bank - Original balance of $36,752. The lease requires sixty monthly rental payments of $734, with fifty one payments remaining at September 30, 1998. 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. Page - 15 CITY OF SANGER NOTES TO FINANCIAL STATEMENTS September 30, 1998 M®TE De DEBT SERVICE REQUIREMENTS ME7CT FIVE YE S: Debt service requirements for each of the next five years are as follows: General Fund: Proprietary Fund. Pri�cial Interestaaaaaaaa Principal Interest 1999 $1461466 $109,891 $ 474,182 $ 181,444 2000 138,241 99,408 155,155 168,034 2001 150,202 89,198 166,197 159,327 2002 153,480 80,487 172,309 149,921 2003 158,342 71,622 172,948 140,275 Future 1.052,589 2280040 2_4150F000 750,583 Total $1 .. 799, 320 $ 678 �(z46 $�, 290 a791 $�_,, 549 F584 ROTE Eon PURCHASE COMMITMENTO :he Brazoz Electric Power Cooperative, Inc. , whereby the City ?urchases electric power and energy at agreed upon rates, subject to a fuel adjustment charge and power adjustment on demand and energy charges. Power purchased forthe current fiscal yeari . "• $11596f9200 M®T � : IMT�i��UMD ��i��' IVA���' D PP,YAULE •. At September 30, 1998 the General Fund owed the Proprietary Fund $7,020. The receivable and payable result from one fund paying an expenditure for another fund. Phe Year 2000 compliance issues primarily relate to the City's ,omputer systems as they are used f or the p 1 ) illing and collection transact' municipal court, accounts ?ayable, payroll and general ledger transactions. At September 30, 1998 the City had completed the assessment and remediation stages. The City also has potential year 2000 compliance issues related to the services its vendors provide the City, primarily with its utility vendor and with Denton County related to the assessing and collecting of property taxes. The City has not received any information from its vendors that would indicate they will have a year 2000 problem and be unable to provide the City with services. Page - 16 Financial Advisory Services Provided By: INVESTMENT BANKERS C.Gta nee NEW ISSUE - BOOK -ENTRY -ONLY Oil i es Ratings: Moody's: Hl3 Aaa" (See "OTHER PERTINENT INFORMATION - Ratings" and "BOND INSURANCE" herein.) acrM ienINANKv OFFICIAL STATEMENT Dated May 17, 1999 In the opinion of on Counsel, interest on the Bonds 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 altemative minimum tax on corporations.) The City has designated the Bond as "Qualified Tax -Exempt Obligations' See "TAX MATTERS" Qualified Tax -Exempt Obligations for Institutions" herein. $1,735,000- CITY OF SAffMR, TEXAS (Denton County) UTILITY SYSTEM REVENUE REFUNDING BONDS SERIES 1999 Dated Date: May 15, 1999 Due: May 15, as shown below The $1,74a735,000--City of Sanger (the "City" or "Issuer"), Texas Utility System Revenue Refunding Bonds, Series 1999 ((the "Bonds") are being issued pursuant to the Constitution and general laws of the State of Texas (the "State"), including Texas Revised Civil Statutes Annotated, Articles 1111 through 1118 and Article 717k, as amended, and an ordinance adopted by the City Council (the "Ordinance"). (See "THE BONDS - Authority for Issuance" herein.) The Bonds are special obligations of the issuer payable solely from a first lien on and ledge of the Net Revenues derived from the operation of the Issuers combined Waterworks, Electric and Sewer Systems (the "System') during the entire period the Bonds or interest thereon remain outstanding. In the Ordinance, the Issuer has reserved the right to issue additional Bonds without limitation as to principal amount but subject to any terms, conditions, or restrictions as may be applicable thereto under law or otherwise. The Issuer has not covenanted or 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. (See "THE BONDS - Security for the Bonds and Pledge' 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 November 15, 1999, and will be calculated on the basis of a 360-day year of twelve 30-day months. The definitive 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 Chase Bank of Texas, National Association, 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 Bonds. (See "BOOK -ENTRY -ONLY SYSTEM" herein.) Proceeds from the sale of the Bonds will be used to refund the 2002 through 2011 maturities of the City's Utility System Refunding and Improvement Revenue Bonds, Series 1991 to achieve debt service savings, and to pay the cost of issuance of the Bonds. (See "THE BONDS - Use of Bond Proceeds" herein.) The Issuer reserves the right to redeem the Bonds maturing on and after May 15, 2009, on May 15, 2008, 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" herein.) [Insurance Logo] STATED MATURITY SCHEDULE*- (Due May 15) Stated Principal Rate Yield Stated Principal Rate Yield Maturi Amount'" % (%) Maturity 2000 20 000 4.25 3.60 �06 65 000000 4.25 4.25 2001 20,000 � 3.75 2007 71 0 000 4.30 4.30 2002 140,000 4.25 TOO 2008 180!600 �0 4.35 2003 1459000 TO 4.00 2009 9� 000 4.375 4A0 2004 150 000 4.25 4.05 2010 995000 4.40 4.Ag 2005 55,000 4.25 4.15 2011 205.000 4.40 4.50 The Bonds are offered for delivery, when, as and if issued and received by the initial purchasers (the "Purchasers') 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., Bond Counsel, Dallas, Texas. The legal opinion of Bond Counsel will be printed on, or attached to, the Bonds. Certain matters will be passed upon for the Underwriter by Fulbright & Jaworski L.L.P., Dallas, Texas, as counsel to the Underwriter. It is expected that the Bonds will be available for delivery on or about June 17, 1999. 2 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. THE BONDS ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH, THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE BONDS 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, IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER -ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. TABLE OF CONTENTS ELECTED OFFICIALS...........................................................33 ADMINISTRATION. . h * a I I h k a I & 4 1 1 0 a 4 F 4 0 6 0 6 a * 0 a a 4 a a a 0 0 a 4 a a W a 4 & a 0 F a * 4 * a 1 0 1 4 a a a 0 t a 9 0 *32 CONSULTANTS AND ADVISORS.........................................33 bottom USE OF INFORMATION IN THE OFFICIAL STATEMENT....43 TABLE OF CONTENTSFOOD .........................................................43 SELECTED DATA FROM THE OFFICIAL STATEMENT....... rA INTRODUCTORY STATEMENT............... 1 4 0 0 0 a r I I V 1 0 4 0 a 0 a 0 * 0 1 a a 1 0 * 0 6 M65 PLAN OF FINANCING...........................................................65 Purpose.........................................................................65 Refunded Bonds............................................................65 SOURCES AND USES OF FUNDS. a 4 4 4 0 * 4 * * q D 0 q 1 4 4 . . . . 6 0 q 0 4*4*0*76 THEBONDS, . D I a r 4 1 h a & a * a h 0 a 6 1 6 0 a 6 4 6 a 6 a & 0 * 0 6 9 4 0 * a a 0 6 4 b 0 a 1 00 69 We a I h * h 0 1 1 1 4 r 6 * & a ad at 076 General Description.......................................................76 Authority for Issuance....................................................76 Security for the Bonds and Pledge. a & 6 a * a 4 0 a 0 0 4 a 4 4 0 * 0 * 0 D a 4 0 0 F a V I & 76 Rate Covenant. . F a & a a 4 a 1 6 a b 0 1 & a Do & * a * t 4 a a 0 1 & a 0 1 6 0 a t 0 a 0 a 0 V I V 4 F D F * a V 4 W F q V 0 D 0 , , 4 87 Flowof Funds. ...............................................................87- beat Interest and Sinking Fund.:...1401....114....14.0.040008.1010.041..01..87 ReserveFund...............................................................487 Debt Emergency Fund. 0 W a 0 * 4 D 0 F 0 4 9 a 9 4 0 a 0 a D a 0 9 r a 0 # 0 4 * 0 0 be we r D 6 be as of we Do 0 0 9 Do we F 4 8:7 City's Right to Issue Additional Bonds .............................8 Redemption Provision, . * 0 4 6 0 6 a 0 0 0 a a 0 0 4 a a 0 F a a 4 0 4 a 4 D 0 4 6 a 0 4 1 & I & 4 & & 1 0 a 0 0 98 Payment Record............................................................98 REGISTERED OWNERS' REMEDIES.....................................9 Defeasance......................................................................9 Default and Remedies.................................................109 REGISTRATION, TRANSFER AND EXCHANGE,,,,.,,,"...... 109 Paying Agent/Registrar. . 6 a & 4 0 4 a D a a 0 a a * 0 F a 0 0 a 9 a a 0 a W 4 4 4 4 4 * 0 D 0 * 0 a 4 R V a q 0 0 0 109 RecordDate, . 4 0 4 0 * 0 0 4 0 # 4 0 0 0 & 0 * & 4 & a 0 * a 4 a * 0 1 9 1 a F a F 0 0 * 0 & 0 a 0 9 0 0 1 0 4 0 1 0 * 0 0 0 a 0 4 4 4 D 4 Tog Future Registration......................................................109 Special Record Date for Interest Payment. . a 0 4 0 1 0 4 0 1 0 1 0 4 4 0 D a a 0 10 Replacement Bonds..................................................1148 BOND INSURANCE. . 1 0 * a 4 * 0 a 0 4 0 0 a 4 0 a 0 4 0 4 D 4 me at . . . . . . 1, , 4 a 0 4 * a at 6 *0 & a 4 0 a a 4 T1 4-9 BOOK -ENTRY -ONLY SYSTEM.........................................1249 DTC's Year 2000 Efforts ............................................1341- Use of Certain Terms in Other Sections of this Official Statement...............................................................1444 Schedule of Refunded Bonds THE SYSTEM....................................................................144� Description of Water Supply and Facilities. ...............1442 Description of Sewer Facilities..................................1443 Description of the Electric System.............................1443 INVESTMENT POLICIES, .................................................a 1442 Investment Authority and Investment Practices ........1444 Current Investments..................................................1513 RETIREMENT PLAN. .........................................................1543 Plan Descriptions, ......................................................1543 TAX MATTERS..................................................................1643 Opinion......................................................................1643 Federal Income Tax Accounting Treatment of Original Issue Discount,. ......................................................164=4 Collateral Federal Income Tax Consequences .........1644 Qualified Tax -Exempt Obligations.............................174-5 State, Local and Foreign Taxes.............., ..................1745 CONTINUING DISCLOSURE OF INFORMATION ............1745 Annual Reports..........................................................1845 Material Event Notices. . r a W a 0 4 0 a a a & 6 1 a * 0 0 d 0 * 6 a 0 t 0 a 0 0 4 4 0 4 * 0 4 F q 0 D 0 V F 1 6 a 18 Availability of Information from SID and MSRB .........1846 Limitations and Amendments....................................1846 Compliance with Prior Agreements ...........................1946 OTHER PERTINENT INFORMATION...............................1946 Legal Matters, ............................................................1946 Registration and Qualification of Bonds for Sale.......194q Litigation....................................................................1947 Legal Investments and Eligibility to Secure Public Funds in Texas.......................................................1947 Ratings......................................................................1947 Verification of Arithmetical and Mathematical Calculations, 1 4 a a 0 a 4 0 0 0 q 6 1 6 a 6 a I a 0 1 0 r q 4 4 1 1 1 1 1 1 V I I I I I & 4 0 0 a 0 0 1 9 4 9 0 9 0 a 4 a 0 R I D 2047 Financial Advisor. ......................................................2048 Underwriting. .............................................................2048 Year 2000 Compliance, .............................................2048 Concluding Statement...............................................2048 Schedule I Financial Information of the Issuer Appendix A General Information Regarding the City of Sanger and Denton County, Texas Appendix B Form of Legal Opinion of Bond Counsel Appendix C Selected Provisions of the Bond Ordinance Appendix D The Issuer's General Purpose Audited Financial Statements for the Year Ended September 30, 1998 Appendix E Municipal Bond Insurance Specimen Appendix F C! 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 Bonds 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 Bonds Security for Payment Paying Agent/Registrar Redemption Provision of the Bonds Tax Matters Use of Bond Proceeds Qualified Tax -Exempt Obligations Book -Entry -Only System Bond Insurance Ratings 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 Bonds are being issued pursuant to the Constitution and general laws of the State of Texas (the "State"), including Texas Revised Civil Statutes Annotated Articles 1111 through 1118 and Article 717k, as amended, and an ordinance adopted by the City Council (the "Ordinance"). (See "THE BONDS - Authority for Issuance" herein.) The Bonds are special obligations of the issuer payable solely from a first lien on and pledge of the Net Revenues derived from the operation of the Issuer's combined Waterworks, Electric and Sewer Systems (the "System") during the entire period the Bonds or interest thereon remain outstanding. In the Ordinance, the Issuer has reserved the right to issue additional Bonds without limitation as to principal amount but subject to any terms, conditions, or restrictions as may be applicable thereto under law or otherwise. The Issuer has not covenanted or obligated itself to pay the Bonds from monies raised or to be raised from taxation. (See "THE BONDS - Security for the Bonds and Pledge" herein.) The initial Paying Agent/Registrar is Chase Bank of Texas, National Association, Dallas, Texas. The Issuer reserves the right to redeem the Bonds maturing on and after May 15, 2009, on May 15, 2008, 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" herein.) In the opinion of Bond Counsel, the interest on the Bonds 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 - Form of Legal Opinion of Bond Counsel" herein.) Proceeds from the sale of the Bonds will be used to refund the 2002 through 2011 maturities of the City's Utility System Refunding and Improvement Revenue Bonds, Series 1991 to achieve debt service savings, and to pay the cost of issuance of the Bonds. (See "THE BONDS - Use of Bond Proceeds" herein.) The Issuer will designate the bonds as "Qualified Tax -Exempt Obligations" for financial institutions. (See "TAX MATTERS -Qualified Tax -Exempt Obligations" herein.) The Issuer intends to utilize the Book -Entry -Only System of The Depository Trust Company, New York, New York relating to the method and timing of payment and the method and transfer relating to the Bonds. (See "BOOK -ENTRY -ONLY SYSTEM" herein.) explanation of the significance of such ratings may be obtained from M INTRODUCTORY STATEMENT This Official Statement provides certain information in connection with the issuance by the City of Sanger, Texas (the "City" or "Issuer") of its $1,745735,000* Utility System Revenue Refunding Bonds, Series 1999 (the "Bonds") identified on the cover page hereof. The Issuer is a political subdivision of the State of Texas and a municipal corporation organized and existing under the laws of the State of Texas. The Bonds are being issued pursuant to the Texas Revised Civil Statutes Annotated Articles 1111 through 1118 and Article 717k, as amended, and an ordinance (the "Ordinance") adopted by the City Council. (See "THE BONDS - Authority for Issuance" herein.) Unless otherwise indicated, capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Ordinance. Included in this Official Statement are descriptions of the Bonds 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, PLAN OF FINANCING Purpose The Bonds are being issued to refund the 2002 through 2011 maturities of the City's Utility System Refunding and Improvement Revenue Bonds, Series 1991 (the "Refunded Bonds") to achieve debt service savings (see "Schedule I - Schedule of Refunded Bonds") and to pay the costs of issuance for the Bonds (see "THE BONDS - Authorization and Purpose" herein). Refunded Bonds The Refunded Bonds, and interest due thereon, are to be paid from funds deposited with Chase Bank of Texas, National Association, Dallas, Texas (the "Escrow Agent") or its successor. The Ordinance approves and authorizes the execution of an escrow agreement (the "Escrow Agreement") between the Issuer and the Escrow Agent. The Ordinance further provides that, from a portion of the proceeds of the sale of the Bonds and other lawfully available funds of the Issuer, if any, the Issuer will deposit with the Escrow Agent the amount, together with investment earnings thereon, sufficient to accomplish the discharge and final payment of the Refunded Bonds. Such amount will be held by the Escrow Agent in an escrow account (the "Escrow Fund") and used to purchase direct obligations of the United States of America (the "Escrowed Securities"). McGladrey &Pullen, LLP, Certified Public Accountants, will verify the mathematical accuracy of schedules provided by the Underwriter at the time of delivery of the Bonds to the Underwriter and that the Escrowed Securities will mature at such times and yield interest in amounts, together with uninvested funds, if any, in the Escrow Fund, to provide sufficient funds to pay the principal of and interest on the Refunded Bonds as the same will become due by reason of stated maturity or earlier redemption. Under the Escrow Agreement, the Escrow Fund is irrevocably pledged to the payment of principal of and interest on the Refunded Bonds. Such maturing principal of and interest on the Escrowed Securities will not be available to pay principal of or interest on the Bonds. By the deposit of the Escrowed Securities and cash with the Escrow Agent pursuant to the Escrow Agreement, the City will have effected the defeasance of the Refunded Bonds pursuant to the terms of Texas Revised Civil Statutes Article 717k, as amended, and the order authorizing the issuance of the Refunded Bonds. It is the opinion of Bond Counsel that, as a result of such defeasance, the Refunded Bonds will no longer be payable from ad valorem taxes but will be payable solely from the principal of and interest on the Escrowed Securities and cash held for such purpose by the Escrow Agent, and that the Refunded Bonds will be defeased and thus will cease to be obligations payable from and secured by a lien on and pledge of the Net Revenues of the System and will not be deemed as outstanding obligations of the City or the System for any purpose other than being payable from the funds held in the Escrow Fund, The City has covenanted in the Escrow Agreement to make timely deposits to the Escrow Fund, from lawfully available funds, of additional funds in the amount required to pay the principal of and interes# on the Refunded Bonds should, for any reason, the cash balances on deposit or scheduled to be on deposit in the Escrow Fund be insufficient to make such payments. SOURCES AND USES OF FUNDS The proceeds from the sale of the Bonds will be applied approximately as follows: Sources of Funds Principal Amount of Bonds .essPlus: Original Issue 9+sseantPremium Accrued Interest on the Bonds Total Sources of Funds Uses of Funds Purchase U.S. Securities for Escrow Cash Deposit to Escrow Cost of Issuance, Including Bond Insurance Underwriters Discount Deposit to Interest and Sinking Fund Contingency Total Uses of Funds THE BONDS General Description $1,735,000.00 1,263460 6,644,44 $1,742,908.04 $1,660,900.00 10,00 57, 000.00 15,181.25 6,644.44 3,172035 $1,742,908.04 The Bonds will be dated May 15, 1999 and will mature on the dates and in the principal amounts and will bear interest at the rates set forth on the cover page of this Official Statement. The Bonds shall bear interest from their dated date on the unpaid principal amounts and the amount of interest to be paid each interest 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 November 15, 1999. Principal is payable at maturity or on a prior redemption date, upon presentation and surrender of the Bonds, at the designated office of the Paying Agent/Registrar, initially Chase Bank of Texas, National Association, Dallas, Texas, or its successor. Interest on the Bonds is payable to the registered owner on the Record Date (as defined herein) appearing on the registration and transfer books of the Paying Agent/Registrar and shall be paid by check mailed on or before each interest payment date by the Paying Agent/Registrar to the address appearing 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. The Bonds will be issued in fully registered form in denominations of $5,000 or any integral multiple thereof for any one stated maturity. If the date for the payment of the principal of or interest on the Bonds 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 or the United States Post Office is not open for business, 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. Initially, the Bonds will be registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Book -Entry -Only System described below. No physical delivery of the Bonds will be made to the beneficial owners. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will distribute the amounts paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See "BOOK -ENTRY -ONLY SYSTEM" below for a more complete description of such system. Authority for Issuance The Bonds are being issued pursuant to the Constitution and general laws of the State of Texas (the "State"), including Texas Revised Civil Statutes Annotated Articles 1111 through 1118 and Article 717k, as amended, and an ordinance adopted by the City Council (the "Ordinance"). Security for the Bonds and Pledge The Bonds, together with certain Outstanding Bonds 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 fuI her 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 7 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. Replacement Bonds The Issuer has agreed to replace mutilated, destroyed, lost, or stolen Bonds upon surrender of the mutilated Bonds to the Paying Agent/Registrar, or receipt of satisfactory evidence of such destruction, loss, or theft, and 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. slow IIII& WE ME &We I WAft I ON WAWA MLWM Aft so A IF IBM I MLWLW� WAWA @EWA �MMI�tft&M A W V "I lots dayak �w�mim &1 04 - . •. - a . • .• • ••- • specimen of the Insurer's policy. MBIA Insurance Corporation Insurance Policy The Insurer's policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the Issuer to the Paving Agent or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturitv pursuant to a mandatory sinkina fund pavment) and interest on. the Bonds as such oavments reason of mandatory or optional redemption or acceleration resulting from default or otherwise. other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the Insurer's policy shall be made in such amounts and a# such times as such payments of principal would have been due had there not been any such acceleration); and 00 the reimbursement of any such payment which is subsequently recovered from anV owner of the Bonds pursuant to a final iudament by a court of competent iurisdiction that such pavment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law (a "Preference"). The Insurer's policy does not insure aaains# any loss of any prepayment premium which may at any time be payable with respect to any Bond. The Insurer's policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of Bonds upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. The Insurer's policy also does not insure against nonpayment of principal of or interest on the Bonds resulting from the insolvencv. nealiaence or anv other act or omission of the Pavina Aaent or anv other paving aaent for the Bonds. Upon receipt of #elephonic or telegraphic notice, such notice subseauently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paving Agent or any owner of a Bond the payment of an insured amount for which is then due, that such required payment has not been made, the Insurer 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., in New York, New York, or its successor, sufficient for the payment of any such insured amounts which are then due. Upon presentment and surrender of such Bonds or presentment of such other proof of ownership of the Bonds, together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the Bonds as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Bonds in any legal proceeding related to payment of insured amounts on the Bonds, such instruments being in a form satisfactory to State Street Bank and Trust Company, N. A., State Street Bank and Trust Company, N. A. shall disburse to such owners or the Paying_Agent payment of the insured amounts due on such Bonds. less anv amount held by the Pavina Aaent for the pavment of such insured amounts and legally available therefor. The Insurer is the principal operating subsidiary of MBIA Inc. a New York Stock Exchange listed company (the "Company" The Company is not obligated to pay the debts of or claims against the Insurer. The Insurer is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. The Insurer has two European branches, one in the Republic of France and the other in the Kingdom of Spain. New York has laws prescribing minimum capital requirements, limiting classes an concentrations of investments and requiring the approval of policy rates and forms. State laws also regulate the amount of both the aggregate and individual risks 11 that may be insured, the payment of dividends by the Insurer, changes in control an transactions among affiliates. Additionally, the Insurer is required to maintain contingency reserves on its liabilities in certain amounts and for certain periods of time. As of December 31, 1997 the Insurer had admitted assets of $5.3 billion (audited), total liabilities of $3.5 billion (audited), and total capital and surplus of $1.8 billion (audited) determined in accordance with statutory accounting practices prescribed or Permitted by insurance regulatory authorities. As of December 31, 1998, the Insurer had admitted assets of $6.5 billion Saudited), total liabilities of $4.2 billion (audited), and total capital and surplus of $2.3 billion (audited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. Furthermore, copies of the Insurer's year end financial statements prepared in accordance with statutory accounting practices are available without charge from the Insurer. A copy of the Annual Report on Form 10-K of the Company is available from the Insurer or the Securities and Exchange Commission. The address of the Insurer is 113 King Street, Armonk, New York 10504. The telephone number of the Insurer is (914) 2734545. Year 2000 Readiness Disclosure MBIA Inc. is actively managing a high -priority Year 2000 (Y2K) program. The company has established an independent Y2K testing lab in its Armonk headquarters, with a committee of business unit managers overseeing the protect. MBIA has a budget of $1.13 million for its 1998-2000 Y2K efforts. Expenditures are proceeding as anticipated, and we do not expect the project budget to materially exceed this amount. MBIA has initiated a comprehensive Y2K plan that includes assessment, remediation, testing and contingency planning. This plan covers "mission -critical" internally developed systems, vendor software, hardware and certain third -party entities through which we conduct our business. Testing to date indicates that functions critical to the financial guarantee business, both domestic and international, were Y21<-ready as of December 31, 1998, Additional testing will continue throughout 1999. Moody's Investors Service, Inc. rates the financial strength of the Insurer "Aaa." Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., rates the financial strength of the Insurer fyAm„ Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.) rates the financial strength of the Insurer "AAA." Each rating of the Insurer should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of the Insurer and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings maV be obtained only from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold the Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Bonds. The Insurer does not guaranty the market price of the Bonds nor does it quaranty that the ratings on the Bonds will not be revised or withdrawn. Disclosure of Guaranty Fund Nonparticipation In the event the Insurer is unable to fulfill its contractual obligation under this policy or contract or application or certificate or evidence of coverage, the policyholder or certificateholder is not protected by an insurance guaranty fund or other solvency protection arrangement. BOOK -ENTRY -ONLY SYSTEM This section describes how ownership of the Bonds is to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by DTC while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book -Entry -Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The Issuer believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. DTC will act as securities depository for the Bonds. One fully registered Bond for each stated maturity in the aggregate principal amount of all Bonds of such stated maturity, will be registered in the name of Cede & Co., DTC's partnership nominee, and will be deposited with DTC. DTC 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 UCC Section 17A of the Securities Exchange Act of 1934, DTC holds securities that its participants ("DTC Participants") deposit with DTC. DTC also facilitates the settlement, among DTC Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic Book -Entry -Only changes in accounts of DTC Participants, thereby eliminating the need 12 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 in the primary offering of the Bonds giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. 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 all continuing disclosure agreements made by it in accordance with the Rule. OTHER PERTINENT INFORMATION Legal Matters Legal matters incident to the authorization, issuance and sale of the Bonds are subject to the approving opinion of the Attorney General of the State of Texas and McCall, Parkhurst & Horton L.L.P., Bond Counsel, whose opinion will accompany the Bonds. In its capacity as Bond Counsel, McCall, Parkhurst & Horton L.L.P. has reviewed the information appearing in this Official Statement under the captions "PLAN OF FINANCING," "THE BONDS," "TAX MATTERS," "CONTINUING DISCLOSURE OF INFORMATION" and "OTHER PERTINENT INFORMATION - Registration and Qualification of Bonds for Sale, Legal Matters, and Legal Investments and Eligibility to Secure Public Funds in Texas" to determine whether such information fairly summarizes the material and documents referred to therein and is correct as to matters of law. 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 Bonds are contingent on the sale and delivery of the Bonds. The legal opinion of Bond Counsel will be printed on printed Bonds or will accompany the global Bonds deposited with DTC and the form of such opinion is attached hereto as Appendix C. Certain legal matters will be passed upon for the Underwriters by Fulbright & Jaworski L.L.P., Dallas, Texas, counsel for the Underwriters. Registration and Qualification of Bonds for Sale The sale of the Bonds 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 have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been qualified under the securities acts of any jurisdiction. The Issuer assumes no responsibility for 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 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 provisions. Litigation According to City officials, there is no litigation or other proceeding pending against or, to their knowledge threatened against the City in any court, agency or administrative body (either state or federal) wherein an adverse decision would materially adversely affect the financial condition of the City. Legal Investments and Eligibility to Secure Public Funds in Texas Section 9 of the Bond Procedures Act provides that obligations such as the Bonds "shall constitute negotiable instruments, and are investment securities governed by Chapter 8, Texas Uniform Commercial Code, notwithstanding any provisions of law or court decision to the contrary, and are legal and authorized investments for banks, savings banks, trust companies, building and loan associations, savings and loan associations, insurance companies, fiduciaries, and trustees, and for the sinking fund of cities, towns, villages, school districts, and other political subdivisions or public agencies of the State of Texas." Texas law further provides that the Bonds are eligible to secure deposits of any public funds of the State of Texas, its agencies and political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the Issuer has been made of the laws in other states to determine whether the Bonds are legal investments for various institutions in those states. Ratings Moody's Investors Service, Inc. ("Moody's) has assigned a rating of "Aga" to the Bonds with the understanding that concurrently with the delivery of the Bonds, a municipal bond insurance policy will be issued by MBIA. The Issuer has received an underlying rating of "Baa1" on its uninsured revenue debt. An explanation of the significance of such ratings may be obtained from Moody's. Nleedy=s-tr}vestsr-s-S " 19 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 Moody's if, in the its judgment, circumstances so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the Bonds. Verification of Arithmetical and Mathematical Calculations McGladrey & Pullen, LLP, a firm of independent certified public accountants, upon delivery of the Bonds, will deliver to the City its report indicating that they have examined the mathematical accuracy of computations prepared by Southwest Securities relating to the sufficiency of the anticipated receipts from the Escrowed Securities and on the Bonds. The report of McGladrey &Pullen will include the statement that the scope of their engagement was limited to verifying the mathematical accuracy of the computations contained in such schedules provided to them and that they have no obligation to update their report because of events occurring, or data or information coming to their attention, subsequent to the date of their report. The report will be relied upon by Bond Counsel in rendering its opinion with respect to the Tax Matters of interest on the Bonds and with respect to the defeasance of the Refunded Bonds, Financial Advisor Southwest Securities is employed as a Financial Advisor to the Issuer in connection with the issuance of the Bonds. In this capacity, the Financial Advisor has compiled certain data relating to the Bonds 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 Bonds. Underwriting The Underwriter has agreed, subject to certain conditions, to purchase the Bonds from the Issuer at a price of $--- $1,721,082.35 (representing the par amount of the Bonds of $ , 21,735,000.00, less -(plus} original issue GiS6961Ht (premium) of $ 1 263.60 less an Underwriter's discount of $ `, $15,181.25), plus accrued interest on the Bonds to the date of initial delivery of the Bonds to the Underwriter. The Underwriter's obligation is subject to certain conditions precedent. The Underwriter will be obligated to purchase all of the Bonds, if and of the Bonds are purchased. The Bonds may be offered and sold to certain dealers and others at prices lower than such public offering prices, and such public prices may be changed, from time to time, by the Underwriter. Year 2000 Compliance The "Year 2000" issue arises because most computer software programs allocate two digits to the date filed for "year" on the assumption that the first two digits will be "19". Such programs will thus interpret the year 2000 as the year 1900, the year 2001 as 1901, etc., absent reprogramming. The Year 2000 issue affects both computer hardware (Le, the embedded logic of computer chips) and computer software, and could impact both the ability to enter data into computer programs and the ability of such programs to correctly process data. The Year 2000 compliance issues primarily relate to the City's computer systems as they are used for the processing of utility billing and collection transactions, municipal court, accounts payable, payroll and general ledger transactions. At September 30, 1998 the City had completed the assessment and remediation. Additionally, the City contracts with others to provide assistance with respect to certain aspects of the City's business affairs and operations, including, but not limited to, local banks, utility vendors, the Denton County Appraisal District, the Paying Agent/Registrar, the Depository Trust Company, etc. The City has not received any information from its vendors that would indicate that they will have a year 2000 problem and be unable to provide the City with services. The City makes no representation with respect to whether such third parties will be year 2000 compliant and may not receive any warning from such third parties of year 2000 problems with respect to their computer systems prior to the year 2000, To the extent year 2000 problems are not adequately addressed by such third parties, disruptions in the operations and affairs of the City could occur, including the timely payment of the Bonds. Concluding Statement This Official Statement has been prepared using information received from the City and other sources which is considered to be reliable. All information contained in this Official Statement is subject, in all respects, to the complete body of information contained in the original sources thereof and no guaranty, warranty or other representation is made concerning the accuracy or completeness of the information herein. In particular, no opinion or representation is rendered as to whether any projection will approximate 20 actual results, and all opinions, estimates and assumptions, whether or not expressly identified as such, should not be considered statements of fact. 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 THE CITY OF SANGER, TEXAS Tommy Kincaid Mayor City of Sanger, Texas 21 FINANCIAL INFORMATION OF THE ISSUER REVENUE BOND DEBT SERVICE REQUIREMENTS TABLE 1 Current Less Debt Series 1999 Bonds Fiscal Year Total Debt Service on Combined 30-Sep Service Refunded Bonds Principal Interest(a� Total Debt Service 2000 $ 305,043 $ 109,498 $ 20,000 $ 74,750 $ 94,750 $ 290,295 2001 307,378 109,498 20,000 73,900 93,900 291,780 2002 304,083 224,498 140,000 73,050 213,050 292,635 2003 310,243 227,138 145,000 67,100 212,100 295,205 2004 305,345 223,950 150,000 60,938 210,938 292,333 2005 304,880 225,240 155,000 54,563 209,563 289,203 2006 308,560 225,720 165,000 47,975 212,975 295,815 2007 306,160 225,370 170,000 40,963 210,963 291,753 2008 307,860 224,170 180,000 33,653 213,653 297,343 2009 313,483 227,185 190,000 25,913 215,913 3021210 2010 307,585 223,958 195,000 17,600 212,600 296,228 2011 310,913 225,015 205,000 91020 214,020 299,918 2012 87,908 - - - - 87,908 2013 84,653 - - - - 84,653 2014 86,363 - - - - 86,363 2015 87,838 - - - - 87,838 2016 89,038 - - - - 89,038 $ 4.127.328 2.471.238 $ 1.735.000 $ 579,423 $ 223143423 $ 3.970.513 PRINCIPAL REPAYMENT SCHEDULE TABLE 2 Fiscal Year Ending 9-30 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Principe Outstanding Bonds(a) $ 140,000 150,000 40,000 45,000 45,000 45,000 50,000 50,000 55,000 60,000 60,000 65,000 70,000 70,000 75,000 80,000 85,000 $ 11185,000 (a) Excludes the Refunded Bonds. Schedule Bonds $ 20,000 20,000 140,000 145,000 150,000 155,000 165,000 170,000 180,000 190,000 195,000 205,000 Total 160,000 1701000 180,000 1903000 1951000 2001000 2151000 01000 2351000 2501000 2551000 01000 70,000 70,000 75,000 03000 85,000 2,9201000 Unpaid at End of Year $ 21760,000 21590,000 21410,000 21220,000 2,025,000 11825,000 11610, 000 11390,000 11155,000 905,000 650,000 380,000 3101000 240,000 165,000 85,000 Percent of Principal Retired (%1 5.48% 11.30% 17.47% 23.97% 30.65% 37.50% 44.86% 52.40% 60.45% 69.01 % 77.74% 86.99% 89.38% 9118% 94.35% 97.09% 100.00% A-1 REVENUE BOND DEBT DATA TABLE 3 (As of June 1, 1999 ) Revenue Bond Debt Outstanding: Utility System Refunding and Improvement Revenue Bonds, Series 1991 (excludes refunded bonds) $ 215,000 Utility System Revenue Bonds, Series 1996 970,000 The Bonds, Series 1999 11735,000 Total Revenue Debt Outstanding $ 21920,000 OTHER OBLIGATIONS PAID FROM PROPRIETARY FUND REVENUES TABLE 4 Notes Payable Use of Proceeds As of 9-30-98 Guarantee National Bank Construction of ground storage tank and painting water towers $ 325,000 Capital Leases Fe�d-MgfoTGr> I Purchase of computer hardware and software $ 33,733 Lubbock National Bank Purchase of computer hardware and software 321058 $ 65,791 Source: The Issuer's annual audited financial statements for fiscal year ended September 30, 1998, Page 25 &Note C, Page 15 UTILITY PLANT IN SERVICE TABLE 5 (As of September 30, 1998) 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, 1998 Revenue Bonds Interest and Sinking Funds Revenue Bond Reserve Funds Utility System Operating Fund Emergency Fund Meter Deposit Fund Water Capital Reserve Fund Utility Equipment Replacement Fund Contingency Fund Source: The Issuer $ 2,553,906 2,154,911 21414,526 569,490 184,648 34,433 1,500 $ 71913,414 (31717,789) $ 41195,625 184,267 $ 241,923 166,650 16,212 102,211 29,290 10, 797 281.051 Total $ 1,032,401 A-2 CONDENSED WATERWORKS AND SEWER SYSTEM OPERATING STATEMENTS TABLE 7 Fiscal Year Ended 9-30-98 -30-97 9-30-96 9_30-95 9=30-9¢ Operating Revenues Charges and Fees $ 31977,591 $ 31452,372 Other 49,808 68,372 Total $ 41027,399 $ 3,526,744 Operating Expenses $ 3,361,752 45,506 $ 31407,258 $ 3,120,834 20,001 $ 31140,835 $ 2,899,777 14,097 $ 2,913,874 Personnel Services $ 524,132 $ 506,671 $ 532,034 $ 474,890 $ 502,407 Purchase of Services 21019,451 11699,137 11569,683 11514,747 11431,368 Materials and Supplies 79,802 71,466 77,078 73,073 64,719 Franchise Fees 83,694 72,091 72,359 69,031 64,532 Total $ 21707,079 $ 21349,365 $ 21251,154 $ 21131,741 $ 21063,026 Available for Debt Service Annual Debt Service Requirements Coverage per Rate Covenant Customer Count Water Sewer Electric $ 1,320,320 $ 1,171,379 $ 1,156,104 $ 303,503 $ 4.35 X 293,085 $ 4.00 X $ 1,009,094 228,400 $ 5.06 X 227, 737 4.43 X $ 226,782 3.75 X 1,835 1,704 1,624 1,614 1,542 1,807 1,674 11585 1,640 11517 1,965 11621 11598 11589 11542 Source: The Issuer's annual audited financial statements and the most recent Texas Municipal Report published by the Municipal Advisory Council of Texas. 1998 Net Revenues Available for Debt Service $ 11320,320 Annual Debt Service Requirement (1998) 303,503 Coverage 4.35 X Estimated Annual Average Debt Service Requirements Upon the Issuance of the Bonds 233,560 Coverage 5.65 X Estimated Maximum Debt Service Requirements Upon the Issuance of the Bonds (2009) 302,210 Coverage 4.37 X A-3 ALLUVION SECURITIES LLC 000 CLOSING AND DISBURSEMENT MEMORANDUM $3,200,000 CITY OF SANGER, TEXAS (Denton County) Combination Tax and Revenue Certificates of Obligation, Series 2009 Date: July 30, 2009 To: Ms. Shannon Straty The Bank of New York Trust Company, N.A. (the "Paying Agent") From: John S. Jumper Alluvion Securities LLC (the "Underwriter") Cc: Attached Distribution List Closing and delivery of the captioned Certificates of Obligation (the "Certificates") is scheduled to occur at 10:00 o'clock A.M., Central Daylight Saving Time, Thursday, July 30, 2009 (the "Closing Date"). The closing (the "Closing") is to occur at the office of Andrews Kurth LLP, 600 Travis Street, Suite 2400, Houston, Texas 77002. The following events and transactions are to occur with respect to the receipt and disbursement of funds in conjunction with the Closing. Transfer of Funds by Underwriter On the Closing Date, the purchase price of $3,121,903.96 (the "Purchase Price") shall be transferred by the Underwriter by wire transfer in immediately available funds as follows: 1. The Underwriter shall transfer to Assured Guaranty Corp. the amount of $59,318.17 representing payment of the premium (the "Insurance Premium") for the Financial Guaranty Insurance Policy, as provided in the wire transfer instructions attached hereto as F.xhihit A _ {10176-OS \ 00023859 \ V3} 1 2. The Underwriter shall transfer to the Paying Agent the balance of the Purchase Price, in the amount of $3,062,585.79, as provided in the wire transfer instructions attached hereto as Exhibit A. The Purchase Price is calculated as follows: Principal amount of Certificates Plus accrued interest Less Underwriter's Discount Less Original Issue Discount Total Purchase Price Transfer of Funds b�Pa�ing Agent $3,200,000.00 5,336.46 (65,792.00) (171640.50) $3,121,903.96 Upon Closing, the Paying Agent shall make the following transfers or deposits of the I unds received by it as provided in the wire transfer or other payment instructions attached hereto as Exhibit A: 1. To the City of Sanger, Texas, the amount of $2,979,945.79, as follows: For deposit to construction fund $2,974,609.33 For deposit to Debt Service Fund 5,336,46 Total $2,979,945.79 2. To the Paying Agent, the sum of $500.00, representing the Paying Agent/Registrar's fee and expenses for its services. 3. Government Capital Securities Corporation, the sum of $35,AAA .00, representing the Financial Advisor's fee and expenses for its services. 4. To Moody's Investor Services, the sum of $7,200.00, representing the rating agency's fee and expenses for its services. 5. To Andrews Kurth LLP, the sum of $20,700.00, representing Bond Counsel's fee and expenses of $17,500.00, and reimbursement of the Texas Attorney General's fee of $3,200.00. 6. To Howell Linkous &Nettles LLC the sum of $12,500.00 representing Underwriter's Counsel's fee and expenses. 7. To Alluvion Securities LLC, the sum of $6,740.00, representing the expenses of the Underwriter and printing and distribution expenses relating to the offering document. 8. Any excess funds should be returned to the City of Sanger, Texas. { 10176-OS \ 00023859 \ V3} 2 Exhibit A Wire Transfer or Other Payment Instructions {10176-OS \ 00023859 \ V3} 3 ASSURED GUARANTY CORP. PREMIUM WIRING INSTRUCTIONS PAYMENT DATE: Date of delivery of the insured obligations METHOD OF PAYMENT Wire transfer ofFedera/Funds PREMIUM DUE: $59,318.17 Premium Payment lnstruciions for Assured Guaranty Corp.: Bank: JP Morgan Chase New York ABA# 021-00M21 Account Name: Assured Guaranty Corp. - Premium Account Number: 32M55919 Policy Number D-2009"984 Reference Name: $3,200,000 City of Sanger, Texas (Denton County) Combination Tax and Revenue Certificates of Obligation, Series 2009 If you have any questions, please contact the Closing Coardinator at Assured Guaranty Corp. Confirmation of Receipt of Premium Please provide Assured Guaranty Corp. Attention: Closing Coordinator, with a wire reference number when such premium is sent. Upon confirmation of the premium payment and satisfaction of all other conditions set forth in the commitment letter, Assured Guaranty will release the Policy. A{an Linkous From: shannon.straty@bnymellon.com Sent: Tuesday, July 28, 2009 4:06 PM To; Alan Linkous Cc: shannon.straty@bnymellon.com; caresse.tankersley@bnymellon.com Subject: RE: City of Sanger, Tx � ✓� ; ,n, 'o h 5�'r� c'�i u1 S � � ¢ �- My wire instructions need to be on this closing memo. ABA: 02100001$ Acct: 211065 F/F/C: 428489 Attn: Shannon Straty Ref: City of Sanger �. �.a... a ;,,,� �. 4,�.�,K�. �--� �. �of�- Also, in reviewing the invoices you sent me the Moody's invoice is 300 less than what you have on the closing memo. I will need an exact amount we are receiving from the Underwriter and it broken down as what is going to the city and what is for COI. Also, I need a note in the closing memo to return any excess funds to the city. Please let me know if you have any questions. *note we have moved to the 11th floor* Shannon Straty The Bank of New York Mellon, The Bank of New York Trust Company, N.A. 2001 Bryan St, 11th Floor Dallas, TX 75201 Tel 214.468.6018 •.Fax 214.468.6322 shannon.straty@bnymellon.com "Alan Linkous" <alanlinkous@bon d-1aw.com> 07/28/2009 03:01 PM <shannon.straty@bnymellon.com> RE: City of Sanger, Tx 1 �r•' cc Subject Alan UnkOUS From: John Jumper Ujumper@alluvionsecurities.com] Sent: Tuesday, July 28, 2009 4:45 PM To: alanlinkous@bond-law.com Subject: Fw: Wire Information hs � --- Original Message ----- From: Rebecca McGuire <bmcguire@firstunitedbankcom> To: John Jumper Sent: Tue Jul 28 15:44:06 2009 Subject: Wire information Hi John, Sorry it took so long to get this. I First United Bank and Trust, 140? Routing Number: 111911321 Account number 2375788-2ty of If you need any other information Thanks a bunch! ! Becky McGuire CSR/Sales Manager 940458-2001 ext 5733 940458-2006 fax Dr. Sanger, 502 Elm et me kni Our TX 76266 Fi follows: we require when we send wires for our customers. The Bank of New York _ Global Corporate Trust 2001 Bryan Street -llth Floor Dallas, TX 75201 CITY OF BANGER A'�TTN: FINANCE DEPARTMENT 201 BEAVER STREET BANGER, TX 75266 SAI�TGER09 BANGER CGMS TAX R REV COB' 09 Amount Due: Account Number: PAYING AGENT FEE FOR THE PERIOD OF Total Amount Due FEE INVOICE 500.00 �so.0:oa �$500.00 SANGER09 PLEASE INCLUDE YOUR. "GLA" AND "TAB" NUMBERS ON YOUR CHEC&OR WIRE TRANSFERS LEGEND SO TIiAT WE CA1V ACCURATELY RECORD YOUR i'AYMENT. TfiE ADDRESS'FOR REMITTING PAYMENT BY CHECK OR WIRE IS AS FOLI.oWS_ ' DFTACHAND REMIT YYITII PAYi11ENT By Check: For receipt S business days prior tb due date The Bank of New York Attu: Shannon Straty 2001 Bryan St., 1 lth Floor Dallas, TX 75201 By Wire: For receipt X business day prior to due date. The Bank of New York ABA # 021-000-018 ACCT (GLA) # 221065 FFC # TAS 428489 REF: SANGER09 Amount Due: $500.00 345 Mixon Drive •Southlake •Texas • 76092 • (817) 421-5400 July 21, 2009 John Jumper Alluvion Securities 5100 Poplar Ave, Suite 809 Memphis, TN 38137 RE: City of Sanger, Certificates of Obligation, Series 2009 FOR FINANCIAL ADVISORY SERVICES RENDERED AND EXPENSES INCURRED in connection with the captioned matter Financial Advisor Fee...........................................................$ 32,000.00 Expenses............................................................... $3,000.00 TOTAL DUE TffiS MATTER ..........................................$ 35,000.00 Please Return Remittance Copy With Payment Attention: Ted Christensen Government Capital Securities Corporation 345 Mixon Drive Southlake, Texas 76092 Wire Transfer Instructions: Wells Fargo Bank Texas, NA (817)334-7149 ABA#121000248 Account # 6859041375 INVOICE ' MR. JOHN S. JUMPER CHIEF EXECUTIVE OFFICER ALLUVION SECURITIES, LLC 5100 POPULAR AVENUE, SUITE 809 MEMPHIS, TN 38137 FOR PROFESSIONAL SERVICES: 7Moody's investors Service fVew Yo k NY 10007 Bch Street WVOICE No.: CUSTOMER No.: INVOICE DATE: $3,200,000 Sanger (City of) TX, City of Sanger TX, Certificates of Obligation, Series 2009 Payment inquiries contact: Carol Picou Phone: 212 553.7966, Fax:212 553.3810 Email: Carol.Picou@moodys.com Invoice Number: Account Number: Invoice Date: F1714608 - D00 400051008 July 27, 2009 674 / 12 $ 7,200 Fee inquiries contact: Jenice Schineller Phone: 212 553 4091, Fax:212 553 3810 Email: Jenice.Schineller@moodys.com Please do not contact your Analytic Team_re�ardin� this inv_ace or any_otherfee-related matter._ Reiurn This Portion W ith Your Payment F1714608 - 000 400051008 07/27/2009 Fed Wire or ACH with Invoice Number to SUNTRUST BANK Transit Routing If 061000104 . ACH # 061000104 Moody's Account # 8801939847 For Customers wiring from outside the U.S.: Swift Code: SNTRUS3A INVOICE PAYABLE IN U.S. DOLLAR OR Mail Payment with Invoice Stub to: MOODY'S INVESTORS SERVIGE P.O. Box 102597 Atlanta, Georgia 30368-0597 USA PAYMENT DUE UPON RECEIPT Mood Taxpayer ID #: 13-195-9883 Invoice F1714608 - 000 (July 27 `2009) `- Moodyslrriestors'SerJice . ' ' • - :. ` Page 1 of 1 Andrews Kurth LLP attorneys P. O. Box 201786 HOUSTON, TEXAS 77216-1785 Taxpayer I.D. #74-1027138 July 22, 2009 Government Capital Corporation 345 Miron Drive Southlake, Texas 76092 Invoice No. 10456093 09962 24825/167845 RE: $3,200,000 City of Sanger, Texas Combination Tax and Revenue Ceriiiicates of Obligation, Series 2009 FOR SERVICES RENDERED AND EXPENSES INCURRED as bond counsel in connection with the captioned matter Bond Counsel Fees.............................................:..................$17,500.00 Attorney General Fee reimbursement ..................................... 3200.00 TOTAIL DYJE THIS MA,TT�R...........................................$20,700.00 Please Return Remittance Copy With Payment Attention: Hoang T. Vu Andrews Kurth LLP 600 Travis, Suite 4200 Houston, Texas 77002 Wire Transfer Instructions: JPMorgan Chase Bank, Houston, Texas Account No. 00100184952; ABA Code 113000609 Attention: Misty Dibrell, Client Service Group su0.ho-Liston.4@jpmor,a,an.com Telephone Number (713) 75M725 Fax (713) 750-2231 payment due upon receipt For Questions or Comments Regarding this Bill, Please Contact the Accounting Department at (713) 220-4606. HOU �942779.1 Samuel W. Howell, IV Writer's Direct No. 843.266.3801 E-mail samhowellobond-lotv.com City of Sanger Sanger, Texas HOWELL LINKOUS & NETTLES, LLC Bond Attorneys &Counsellors at Law The Lining House 106 Broad Street Charleston, South Carolina 29401 Post Office Box 1768 Charleston, South Carolina 29402 Telephone 843.266.3800 Fax 843.266.380S 30 July 2009 Concentrating in Municipal Bonds, Local Government Law, Economic Development Incentives, and Affordable Housing Development Fed ID No. 57-1122708 Re: $3,200,000 City of Sanger, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2009 For professional services rendered as Underwriter's Counsel with respect to the $3,200,000 City of Sanger, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2009 Fee &Expenses .TI Wiring insttttctions into tha operating account of Howell Linkous &Nettles, LLC aze as follows: Rceeiving Bank: COLUMBUS BANK &TRUST COMPANY 1137 IRtST AVE. COLUMBUS, GA 31902 ABA Routing M 061100606 Beneficiary Bank: THE NATIONAL BANK OF SOUTH CAROLINA 158 MEETING STREET CHARLESTON, SC 29401 ATTENTION: KATIE HARRIS (843.724.7513) Beneficiary: HOWELLLINKOUS &NETTLES, LLC THE LINING HOUSE _ 106 BROAD STREET CHARLESTON, SC 29401 ACCOUNT # 150787964401 {10176-05 \ 00023987 \ V} $12,500.00 -_ ., - - 11 '•• - - .1' -��•� Bill To City of Sanger,TX (Denton County) Combination Tax and Revenue Certificates of Obligation, Series 2009 Description Underwriter's Expenses Including Clearing, DTCC, MSRB, Cusip Printing Preliminary Official Statement and Final Official Statement, Document Preparation, Conference Calls, Copy Fax and Overnight Deliveries Please Wire Funds: SunTrust Bank ABA 061000104 A/C 1000045668562 Alluvion Securities, LLC �� ��� IIIIII ��I ��� ,��I Terms Due at Closing Amount Phone Number: (901) 763-0744 Fax Number: (901) 763-0982 Email: lwilson@alluvionsecurities.com 1,740.00 5,000.00 $6,740.00 CERTIFICATE FOR RESOLUTION THE STATE OF TEXAS § COUNTY OF DENTON § CITY OF SANGER § We, the undersigned officers of the City of Sanger, Texas (the "City"), hereby certify as follows: 1. The City Council of the City convened in a regular meeting on May 18, 2009, at the regular meeting place thereof, within the City, and the roll was called of the duly constituted officers and members of the City Council, to wit: Joe Higgs Russell Martin Mayor Alderman and all of such persons were present, except none, thus constituting a quorum. Whereupon, among other business, the following was transacted at said meeting: a written RESOLUTION AUTHORIZING PUBLICATION OF NOTICE OF INTENTION TO ISSUE CERTIFICATES OF OBLIGATION IN A PRINCIPAL AMOUNT NOT TO EXCEED $3,200,000, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO (the "Resolution") was duly introduced for the consideration of the City Council and read in full. It was then duly moved and seconded that such Resolution be adopted; and, after due discussion, the motion, carrying with it the adoption of the Resolution, prevailed and carried by the following vote: AYES: 5 NAYS: 0 ABSTENTIONS: 0 2. That a true, full and correct copy of the Resolution adopted at the meeting described in the above and foregoing paragraph is attached to and follows this certificate; that the Resolution has been duly recorded in the City Council's minutes of such meeting; that the above and foregoing paragraph is a true, full and correct excerpt from the City Council's minutes of such meeting pertaining to the adoption of the Resolution; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of the City Council as indicated therein; that each of the officers and members of the City Council was duly and sufficiently notified officially and personally, in advance, of the date, hour, place and subject of the aforesaid meeting, and that the Resolution would be introduced and considered for adoption at such meeting, and each of such officers and members consented, in advance, to the holding of such meeting for such purposes that such meeting was open to the public as required by law; and that public notice of the date, hour, place and subject of such meeting was given as required by the Open Meetings Law, Chapter 551, Texas Government Code, SIGNED AND SEALED this May 18, 2009. Clty SeCreta 0%ss ' VV?r CITY OF k;= Wiz.\. , (SEAL) Mayor J Q CITY OF SANGER, TEXAS 2 HOU:2916354.1 RESOLUTION RESOLUTION AUTHORIZING PUBLICATION OF NOTICE OF INTENTION TO ISSUE CERTIFICATES OF OBLIGATION IN A PRINCIPAL AMOUNT NOT TO EXCEED $3,200,000, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO STATE OF TEXAS § COUNTIES OF DENTON § CITY OF SANGER § WHEREAS, the City Council (the "City Council") of the City of Sanger, Texas (the "City'), is authorized to issue certificates of obligation to pay contractual obligations to be incurred for the acquisition of land located at 1801 S. Stemmons Freeway for a city park, construction of athletic fields on such city park, and for water, sewer, drainage and street improvements, and for the payment of contractual obligations for professional services pursuant to Subchapter C of Chapter 271, Texas Local Government Code, as amended; WHEREAS, the City Council has determined that it is in the best interests of the City and otherwise desirable to issue certificates of obligation in a principal amount not to exceed $3,200,000 styled "City of Sanger, Texas Certificates of Obligation, Series 2009" (the "Certificates"); WHEREAS, in connection with the Certificates, the City Council intends to publish notice of intent to issue the Certificates (the "Notice") in a newspaper of general circulation in the City; and WHEREAS, the City Council has been presented with and has examined the proposed form of Notice and finds that the form and substance thereof are satisfactory, and that the recitals and findings contained therein are true, correct and complete. BE IT THEREFORE RESOLVED BY THE CITY COUNCIL OF THE CITY OF SANGER, TEXAS: Section 1. Preamble. The facts and recitations contained in the preamble of this Resolution are hereby found and declared to be true and correct. Section 2. Authorization of Notice. The City Secretary is hereby authorized and directed to execute and deliver the Notice set forth in Exhibit A hereto and to publish such Notice on behalf of the City once a week for two (2) consecutive weeks in a newspaper which is of general circulation in the City, the date of the first publication to be before the 30th day before the date tentatively set for the passage of the ordinance authorizing the issuance of the Certificates. Section 3. Engagement of Professionals. This City Council hereby approves the engagement of Andrews Kurth LLP, as bond counsel ("Bond Counsel") in connection with the issuance of the Certificates. 1 Section 4. Authorization of Other Matters Relating- Thereto. The Mayor, City Secretary and other officers and agents of the City are hereby authorized and directed to do any and all things necessary or desirable to carry out the provisions of this Resolution. Section 5. Effective Date. This Resolution shall take effect immediately upon passage. Section 6. Public Meeting. It is officially found, determined and declared that the meeting at which this Resolution is adopted was open to the public and public notice of the time, place and subject matter of the public business to be considered at such meeting, including this Resolution, was given all as required by the Texas Government Code, Chapter 551, as amended. [Remainder of Page Intentionally Left Blank] 2 PASSED AND APPROVED this 18th day of May, 2009, ATTEST: City Secreta�Iustt��It�l,rilI�� City of Sa`tIa �` of Sanger, Texas 3 HOU:2916354.1 EXHIBIT A NOTICE OF INTENTION TO ISSUE CERTIFICATES NOTICE IS HEREBY GIVEN that the City Council of the City of Sanger, Texas (the "City") will meet at its regular meeting place at City Hall, Sanger, Texas at 7:00 p.m. on the 6th day of July, 2009, which is the time and place tentatively set for the passage of an ordinance and such other action as may be deemed necessary to authorize the issuance of the City's certificates of obligation, payable from ad valorem taxation and a limited (in an amount not to exceed $10,000) subordinate pledge of certain revenues of the water and sewer system of the City, in the maximum aggregate principal amount of $3,200,000, bearing interest at any rate or rates not to exceed the maximum interest rate now or hereafter authorized by law, as shall be determined within the discretion of the City Council at the time of issuance and maturing over a period of years not to exceed forty (40) years from the date thereof, for the purpose of evidencing the indebtedness of the City to pay all or any part of the contractual obligations to be incurred for the acquisition of land located at 1801 S. Stemmons Freeway for a city park, construction of athletic fields on such city park, and for water, sewer, drainage and street improvements and for the payment of contractual obligations for professional services. City Secretary City of Sanger, Texas AFFIDAVIT OF NEWSPAPER PUBLISHER THE STATE OF TEXAS � COUNTY OF TARRANT § Before me, the undersigned, who being by me duly sworn, deposes and says that he/she is the authorized representative of The Denton Record -Chronicle and that said newspaper (i) devotes not less than 25% of its total colutrin lineage to general interest items, (ii) is published at least once each week, (iii) is entered as a second-class postal matter in the county in which it is published and is generally circulated within the territory of the City of Sanger, Texas, and (iv) was published regularly and continuously for at least 12 months before June 3, 2009, the date on which the City published the attached notice in said newspaper. The notice was also subsequently published on June 10, 2009. SUBSCRIBED AND SWORN TO before me this theal� day of July. 2009. M a i HOU:2943115.1 CERTIFICATE FOR ORDINANCE THE STATE OF TEXAS COUNTIES OF DENTON CITY OF SANGER We, the undersigned officers of the City of Sanger, Texas (the "City"), hereby certify as follows: 1. The City Council of the City convened in a regular meeting on July 20, 2009, at the regular meeting place thereof, within the City, and the roll was called of the duly constituted officers and members of the City Council, to wit: Joe Higgs Glenn Ervin Andy Garza Thomas Muir Robert Patton Russell Martin Mayor Mayor Pro Tem Alderman Alderman and all of such persons were present except Robert Patton, thus constituting a quorum. Whereupon, among other business, the following was transacted at said meeting: a written AN ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2009; PRESCRIBING THE TERMS AND FORM THEREOF; PROVIDING FOR THE PAYMENT OF THE PRINCIPAL THEREOF AND INTEREST THEREON; AWARDING THE SALE THEREOF; AUTHORIZING THE PREPARATION AND DISTRIBUTION OF AN OFFICIAL STATEMENT TO BE USED IN CONNECTION WITH THE SALE OF THE CERTIFICATES; AUTHORIZING THE PURCHASE OF BOND INSURANCE; MAKING OTHER PROVISIONS REGARDING SUCH CERTIFICATES, INCLUDING USE OF THE PROCEEDS THEREOF, AND MATTERS INCIDENT THERETO; AND DECLARING AN EMERGENCY (the "Ordinance") was duly introduced for the consideration of the City Council and read in full. It was then duly moved and seconded that the Ordinance be adopted on first reading; and, after due discussion, such motion, carrying with it the adoption of the Ordinance, prevailed and carried by the following vote: AYES: 4 NAYS : 0 ABSTENTIONS: 0 HOU:29335443 II 2. That a true, full and correct copy of the Ordinance adopted at the meeting described in the above and foregoing paragraph is attached to and follows this certificate; that the Ordinance has been duly recorded in the City Council's minutes of such meeting; that the above and foregoing paragraph is a true, full and correct excerpt from the City Council's minutes of such meeting pertaining to the adoption of the Ordinance; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of the City Council as indicated therein; that each of the officers and members of the City Council was duly and sufficiently notified officially and personally, in advance, of the date, hour, place and ' subject of the aforesaid meeting, and that the Ordinance would be introduced and considered for adoption at such meeting, and each of such officers and members consented, in advance, to the holding of such meeting for such purposes that such meeting was open to the public as required by law; and that public notice of the date, hour, place and subject of such meeting was given as required by the Open Meetings Law, Chapter 551, Texas Government Code. STGNED AND SEALED this July 20, 2009. City Secretary CITY OF SANGER, N (SEALS' CITY OF SANGER, TEXAS S-1 HOU:2933544.1 ORDINANCE AN ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2009; PRESCRIBING THE TERMS AND FORM THEREOF; PROVIDING FOR THE PAYMENT OF THE PRINCIPAL THEREOF AND INTEREST THEREON; AWARDING THE SALE THEREOF; AUTHORIZING THE PREPARATION AND DISTRIBUTION OF AN OFFICIAL STATEMENT TO BE USED IN CONNECTION WITH THE SALE OF THE CERTIFICATES; AUTHORIZING THE PURCHASE OF BOND INSURANCE; MAKING OTHER PROVISIONS REGARDING SUCH CERTIFICATES, INCLUDING USE OF THE PROCEEDS THEREOF, AND MATTERS INCIDENT THERETO; BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF SANGER: Section 1.1: and determines that: ARTICLE I FINDINGS AND DETERMINATIONS Findings and Determinations. The City Council hereby officially finds (a) The City of Sanger, Texas (the "City"), acting through its City Council, is authorized pursuant to and in accordance with the provisions of Texas Local Government Code, Chapter 271, Subchapter C, as amended (the "Act"), to issue certificates of obligation to provide all or part of the funds to pay contractual obligations to be incurred for the construction of public works and the purchase of materials, supplies, equipment, machinery, buildings, land and rights. of -way for authorized needs and purposes and for the payment of contractual obligations for professional services, to wit (1) the acquisition of land located at 1801 S. Stemmons Freeway for a city park and construction of athletic fields on such city park, (2) water, sewer, drainage and street improvements, and (3) professional services rendered in connection with the above listed projects. (b) The City Council authorized the publication of a notice of intention to issue Combination Tax and Revenue Certificates of Obligation, Series 2009 (the "Certificates") to the effect that the City Council was tentatively scheduled to meet at 7#00 p.m. on July 6, 2009 at its regular meeting place to adopt an ordinance authorizing the issuance of the Certificates to be payable from (i) an ad valorem tax levied, within the limits prescribed by law, on the taxable property located within the City, and (ii) the surplus revenues to be derived from the City's water and sewer system (the "System") after the payment of all operation and maintenance expenses thereof (the "Net Revenues") in an amount not to exceed $10,000, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. HOU:2933544.3 (c) Such notice was published at the times and in the manner required by the Act. (d) No petition signed by at least five percent (5%) of the qualified voters of the City has been filed with or presented to any official of the City protesting the issuance of such Certificates on or before July 20, 2009, or the date of passage of this Ordinance. (e) The City has determined that it is in the best interests of the City and that it is otherwise desirable to issue the Certificates to provide all or part of the funds to pay contractual obligations to be incurred for the purposes authorized by the Act. ARTICLE II DEFINITIONS AND INTERPRETATIONS Section 2.1: Definitions. As used herein, the following terms shall have the meanings specified, unless the context clearly indicates otherwise: "Act" shall mean Texas Local Government Code, Chapter 271, Subchapter C, as amended. "Attorney General" shall mean the Attorney General of the State of Texas. "Bond Insurance Policy" shall mean the financial guaranty insurance policy issued by the Bond Insurer insuring the payment when due of the principal and interest on the Certificates as provided therein. "Bond Insurer" shall mean Assured Guaranty Corp. "Certificate" or "Certificates" shall mean any or all of the City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2009, authorized by this Ordinance. "City" shall mean the City of Sanger, Texas and, where appropriate, its City Council. "City Council" shall mean the governing body of the City. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Comptroller" shall mean the Comptroller of Public Accounts of the State of Texas. "DTC" shall mean The Depository Trust Company, New York, New York, or any successor securities depository. "DTC Participant" .shall mean brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created to hold securities to facilitate the clearance and settlement of securities transactions among DTC Participants. "Fiscal Year" shall mean the City's then designated fiscal year, which currently is the twelve-month period beginning on the first day of October of a calendar year and ending on the HOU:2933544.3 last day of September of the next succeeding calendar year and each such period may be designated with the number of the calendar year in which such period ends. "Interest Payment Date," when used in connection with any Certificate, shall mean February 1, 2010, and each February 1 and August 1 thereafter until maturity or earlier redemption of such Certificate. "Issuance Date" shall mean the date on which the Certificates are delivered to and paid for by the Underwriter. "Ordinance" shall mean this Ordinance and all amendments hereof and supplements "Outstanding", when used with reference to the Certificates, shall mean, as of a particular date, all Certificates theretofore and thereupon delivered pursuant to this Ordinance except: (a) any Certificates canceled by or on behalf of the City at or before such date; (b) any Certificates defeased pursuant to the defeasance provisions of this Ordinance or otherwise defeased as permitted by applicable law; and (c) any Certificates in lieu of or in substitution for which a replacement Certificate shall have been delivered pursuant to this Ordinance. "Paying Agent/Registrar" shall mean The Bank of New York Mellon Trust Company, N.A., and its successors in that capacity. "Record Date" shall mean the close of business on the fifteenth day of the calendar month immediately preceding the applicable Interest Payment Date. "Register" shall mean the registration books for the Certificates kept by the Paying Agent/Registrar in which are maintained the names and addresses of, and the principal amounts registered to, each Registered Owner of Certificates. "Registered Owner" shall mean the person or entity in whose name any Certificate is registered in the Register. "Underwriter" shall mean the entity or entities specified in Section 7.1 hereof. Section 2.2: Interpretations. All terms defined herein and all pronouns used in this Ordinance shall be deemed to apply equally to singular and plural and to all genders. The titles and headings of the articles and sections of this Ordinance have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof. This Ordinance and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to sustain the validity of the Certificates and the validity of the levy of ad valorem taxes to pay the principal of and interest on the Certificates. HOU:2933544.3 ARTICLE III TERMS OF THE CERTIFICATES Section 3.1: Amount, Purpose and Authorization. (a) The Certificates shall be issued in fully registered form, without coupons, under and pursuant to the authority of the Act in the total authorized aggregate principal amount of THREE MILLION TWO HUNDRED THOUSAND AND NO/100 DOLLARS ($3,200,000) for the purpose of providing all or part of the funds to pay contractual obligations to be incurred for the purposes described in paragraph 1.1(a) hereof. Section 3.2: Designation Date and Interest Payment Dates. The Certificates shall be designated as the "City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2009," and shall be dated July 15, 2009. The Certificates shall bear interest at the rates set forth in Section 3.3 below, from their dated date calculated on the basis of a 360-day year of twelve 30-day months, payable on February 1, 2010, and each February 1 and August 1 thereafter until maturity or earlier redemption. If interest on any Certificate is not paid on any Interest Payment Date and continues unpaid for thirty (30) days thereafter, the Paying Agent/Registrar shall establish a new record date for the payment of such interest, to be known as a Special Record Date. The Paying Agent/Registrar shall establish a Special Record Date when funds to make such interest payment are received from or on behalf of the City. Such Special Record Date shall be fifteen (15) days prior to the date fixed for payment of such past due interest, and notice of the date of payment and the Special Record Date shall be sent by United States mail, first class, postage prepaid, not later than five (S) days prior to the Special Record Date, to each affected Registered Owner as of the close of business on the day prior to mailing of such notice. Section 3.3: Numbers Denomination Interest Rates and Maturities. The Certificates shall be initially issued bearing the numbers, in the principal amounts and bearing interest at the rates set forth in the following schedule, and may be transferred and exchanged as set out in this Ordinance. The Certificates shall mature on August 1 in each of the years and in the amounts set out in such schedule. Certificates delivered in transfer of or in exchange for other Certificates shall be numbered in order of their authentication by the Paying Agent/Registrar, shall be in the denomination of $5,000 or integral multiples thereof and shall mature on the same date and bear interest at the same rate as the Certificate or Certificates in lieu of which they are delivered. Certificate Year of Principal Interest Number Maturity Amount Rate R-1 2010 $135,000 3.00% R-2 2011 145,000 3.00 R-3 2012 150,000 3.00 R-4 2013 155,000 3.50 R-5 2014 160,000 3.50 R-6 2015 165,000 3.50 R-7 2016 170,000 3.50 HOU:2933544.3 R-8 2017 175,000 4.00 R-9 2018 180,000 4.00 R-10 2019 190,000 4.00 R-11 2020 195,000 4.00 R-12 2022 420,000 4.375 R-13 2024 460,000 4.500 R-14 2026 500,000 4.750 Section 3.4: Redemption Prior to MaturitX. (a) The Certificates maturing on and after August 1, 2020 are subject to redemption prior to maturity, at the option of the City, in whole or in part, on August 1, 2019, or any date thereafter, at par plus accrued interest to the date fixed for redemption. (b) The Certificates maturing on August 1 in the years 2022, 2024 and 2026 (the "Term Certificates") are subject to mandatory sinking fund redemption in the following amounts (subject to reduction as hereinafter provided), on the following dates, in each case at a redemption price equal to the principal amount of the Certificates or the portions thereof so called for redemption plus accrued interest to the date fixed for redemption: Term Certificates Maturing August 1, 2022 Term Certificates Maturing August 1, 2024 Term Certificates Maturing August 1, 2026 Mandatory Redemption Dates Principal Amounts August 1, 2021 $205,000 August 1, 2022 (maturity) 215,000 Mandatory Redemption Dates Principal Amounts August 1, 2023 $225,000 August 1, 2024 (maturity) 235,000 Mandatory Redemption Dates Principal Amounts August 1, 2025 $245,000 August 1, 2026 (maturity) 255,000 The particular Term Certificates to be redeemed shall be selected by the Registrar by lot or other customary random selection method, on or before June 15 of each year in which Term Certificates are to be mandatorily redeemed. The principal amount of Term Certificates to be mandatorily redeemed in each year shall be reduced by the principal amount of such Term Certificates that have been optionally redeemed and which have not been made the basis for a previous reduction. (c) Certificates may be redeemed in part only in integral multiples of $5,000. If a Certificate subject to redemption is in a denomination larger than $5,000, a portion of such Certificate may be redeemed, but only in integral multiples of $5,000. In selecting portions of Certificates for redemption, each Certificate shall be treated as representing that number of Certificates of $5,000 denomination which is obtained by dividing the principal amount of such Certificate by $5,000. Upon presentation and surrender of any Certificate for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of this Ordinance, shall authenticate and deliver in exchange therefor a Certificate or Certificates of like maturity and 5 HOU:2933544.3 interest rate in an aggregate principal amount equal to the unredeemed portion of the Certificate so surrendered. (d) Notice of any redemption, identifying the Certificates or portions thereof to be redeemed, shall be sent by United States mail, first class, postage prepaid, to the Registered Owners thereof at their addresses as shown on the Register, not less than thirty (30) days before the date fixed for such redemption. By the date fixed for redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the redemption price of the Certificates called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Certificates which are to be so redeemed thereby automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being Outstanding except for the purpose of being paid with the funds so provided for such payment. Section 3.5: Manner of Pa�nnent Characteristics Execution and Authentication. The Paying Agent/Registrar is hereby appointed the paying agent for the Certificates. The Certificates shall be payable, shall have the characteristics and shall be executed, sealed, registered and authenticated, all as provided and in the manner indicated in the FORM OF CERTIFICATES set forth in Article IV of this Ordinance. If any officer of the City whose manual or facsimile signature shall appear on the Certificates shall cease to be such officer before the authentication of the Certificates or before the delivery of the Certificates, such manual or facsimile signature shall nevertheless be valid and sufficient for all purposes as if such officer had remained in such office. The approving legal opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel, maybe printed on the back of the Certificates over the certification of the City Secretary, which maybe executed in facsimile. CUSIP numbers also may be printed on the Certificates, but errors or omissions in the printing of either the opinion or the numbers shall have no effect on the validity of the Certificates. Section 3.6: Authentication. Except for the Certificates to be initially issued, which need not be authenticated by the Registrar, only such Certificates as shall bear thereon a certificate of authentication, substantially in the form provided in Article IV of this Ordinance, manually executed by an authorized representative of the Paying Agent/Registrar, shall be entitled to the benefits of this Ordinance or shall be valid or obligatory for any purpose. Such duly executed certificate of authentication shall be conclusive evidence that the Certificate so authenticated was delivered by the Paying Agent/Registrar hereunder. Section 3.7: Ownership. The City, the Paying Agent/Registrar and any other person may treat the person in whose name any Certificate is registered as the absolute owner of such Certificate for the purpose of malting and receiving payment of the principal thereof and interest thereon and for all other purposes, whether or not such Certificate is overdue, and neither the City nor the Paying Agent/Registrar shall be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the Registered Owner of any Certificate in accordance with this Section shall be valid and effective and shall discharge the liability of the City and the Paying Agent/Registrar upon such Certificate to the extent of the sums paid. 0 HOU:2933544.3 Section 3.8: Registration, Transfer and Exchange. The Paying Agent/Registrar is hereby appointed the registrar for the Certificates. So long as any Certificate remains Outstanding, the Paying Agent/Registrar shall keep the Register at the City Administrator's office in which, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of the Certificates in accordance with the terms of this Ordinance. Each Certificate shall be transferable only upon the presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar, accompanied by an assignment duly executed by the Registered Owner or his authorized representative in form satisfactory to the Paying Agent/Registrar. Upon due presentation of any Certificate for transfer, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor, within seventy-two (72) hours after such presentation, a new Certificate or Certificates, registered in the name of the transferee or transferees, in authorized denominations and of the same maturity and aggregate principal amount and bearing interest at the same rate as the Certificate or Certificates so presented and surrendered. All Certificates shall be exchangeable upon the presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar for a Certificate or Certificates, maturity and interest rate and in any authorized denomination, in an aggregate principal amount equal to the unpaid principal amount of the Certificate or Certificates presented for exchange. The Paying Agent/Registrar shall be and is hereby authorized to authenticate and deliver exchange Certificates in accordance with the provisions of this Section. Each Certificate delivered by the Paying Agent/Registrar in accordance with this Section shall be entitled to the benefits and security of this Ordinance to the same extent as the Certificate or Certificates in lieu of which such Certificate is delivered. All Certificates issued in transfer or exchange shall be delivered to the Registered Owners thereof at the principal corporate trust office of the Paying Agem/Registrar or sent by United States mail, first class, postage prepaid. The City or the Paying Agent/Registrar may require the Registered Owner of any Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of such Certificate. Any fee or charge of the Paying Agent/Registrar for such transfer or exchange shall be paid by the City. The Paying Agent/Registrar shall not be required to transfer or exchange any Certificate called for redemption in whole or in part during the forty-five (45) day period immediately prior to the date fixed for redemption; provided, however, that this restriction shall not apply to the transfer or exchange by the Registered Owner of the unredeemed portion of a Certificate called for redemption in part. Section 3.9: Book -Entry Only System. The definitive Certificates shall be initially issued in the form of a separate single fully registered Certificate for each of the maturities thereof. Upon initial issuance, the ownership of each such Certificate shall be registered in the name of Cede & Co., as nominee of DTC, and except as provided in Section 3.11 hereof, all of the Outstanding Certificates shall be registered in the name of Cede & Co., as nominee of DTC. 7 HOU:2933544.3 Upon delivery by DTC to the Paying Agent/Registrar ofwritten notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions in this Ordinance with respect to interest checks being mailed to the Owner at the close of business on the Record Date, the word "Cede & Co." in this Ordinance shall refer to such new nominee of DTC. With respect to Certificates registered in the name of Cede & Co., as nominee of DTC, the City and the Paying Agent/Registrar shall have no responsibility or obligation to any DTC Participant or to any person on behalf of whom such a DTC Participant holds an interest in the Certificates. Without limiting the immediately preceding sentence, the City and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (a) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Certificates, (b) the delivery to any DTC Participant or any other person, other than a Certificateholder, as shown on the Register, of any notice with respect to the Certificates, including any notice of redemption or (c) the payment to any DTC Participant or any other person, other than a Certificateholder as shown in the Register, of any amount with respect to principal of Certificates, premium, if any, or interest on the Certificates. Except as .provided in Section 3.10 of this Ordinance, the City and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Certificate is registered in the Register as the absolute owner of such Certificate for the purpose of payment of principal of, premium, if any, and interest on Certificates, for the purpose of giving notices of redemption and other matters with respect to such Certificate, for the purpose of registering transfer with respect to such Certificate, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of Certificates, premium, if any, and interest on the Certificates only to or upon the order of the respective owners, as shown in the Register as provided in this Ordinance, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to payment of principal of, premium, if any, and interest on the Certificates to the extent of the sum or sums so paid. No person other than an owner shall receive a Certificate evidencing the obligation of the City to make payments of amounts due pursuant to this Ordinance. Section 3.10: Payments and Notices to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, as long as any Certificates are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on the Certificates, and all notices with respect to such Certificates shall be made and given, respectively, in the manner provided in the representation letter of the City to DTC. Section 3.11: Successor Securities Depositorv; Transfer Outside Boolc-Entry Only S sy tem. In the event that the City or the Paying Agent/Registrar determines that DTC is incapable of discharging its responsibilities described herein and in the representation letter of the City to DTC, and that it is in the best interest of the beneficial owners of the Certificates that they be able to obtain certificated Certificates, the City or the Paying Agent/Registrar shall (a) appoint a successor securities depository, qualified to act as such under Section 17(a) of the Securities and Exchange Act of 1934, as amended, notify DTC of the appointment of such successor securities depository and transfer one or more separate Certificates to such successor securities depository or (b) notify DTC of the availability through DTC of Certificates and HOU:2933544.3 transfer one or more separate Certificates to DTC Participants having Certificates credited to their DTC accounts. In such event, the Certificates shall no longer be restricted to being registered in the Register in the 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 Certificateholders transferring or exchanging Certificates shall designate, in accordance with the provisions of this Ordinance. Section 3.12: Replacement Cercates. Upon the presentation and surrender to the Paying Agent/Registrar of a damaged or mutilated Certificate, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a replacement Certificate, of the same maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding. The City or the Paying Agent/Registrar may require the Registered Owner of such Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith and any other expenses connected therewith, including the fees and expenses of the Paying Agent/Registrar and the City. If any Certificate is lost, apparently destroyed or wrongfully taken, the City, pursuant to the applicable laws of the State of Texas and ordinances of the City, and in the absence of notice or knowledge that such Certificate has been acquired by a bona fide purchaser, shall execute, and the Paying Agent/Registrar shall authenticate and deliver, a replacement Certificate of the same maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding, provided that the Registered Owner thereof shall have: (a) furnished to the City and the Paying Agent/Registrar satisfactory evidence of the ownership of and the circumstances of the loss, destruction or theft of such Certificate, (b) furnished such security or indemnity as may be required by the Paying Agent/Registrar and the City to save and hold them harmless; (c) paid all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Paying Agent/Registrar and any tax or other governmental charge that may be imposed; and (d) met any other reasonable requirements of the City and the Paying Agent/Registrar. If, after the delivery of such replacement Certificate, a bona fide purchaser of the original Certificate in lieu of which such replacement Certificate was issued presents for payment such original Certificate, the City and the Paying Agent/Registrar shall be entitled to recover such replacement Certificate from the person to whom it was delivered or any person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the City or the Paying Agent/Registrar in connection therewith. If any such mutilated, lost, apparently destroyed or wrongfully taken Certificate has become or is about to become due and payable, the City in its discretion may, instead of issuing a replacement Certificate, authorize the Paying Agent/Registrar to pay such Certificate. 0 9 HOU:2933544.3 Each replacement Certificate delivered in accordance with this Section shall be entitled to the benefits and security of this Ordinance to the same extent as the Certificate or Certificates in lieu of which such replacement Certificate is delivered. Section 3.13: Cancellation, All Certificates paid or redeemed in accordance with this Ordinance, and all Certificates in lieu of which exchange Certificates or replacement Certificates are authenticated and delivered in accordance herewith, shall be canceled and destroyed upon the making of proper records regarding such payment or redemption. The Paying Agent/Registrar shall periodically furnish the City with certificates of destruction of such Certificates. ARTICLE IV FORM OF CERTIFICATES The Certificates, including the Form of Comptroller's Registration Certificate, Form of Paying Agent/Registrar Authentication Certificate, Statement of Insurance and Form of Assignment, shall be in substantially the following forms, with such omissions, insertions and variations as may be necessary or desirable, and not prohibited by this Ordinance: 10 HOU:2933544.3 UNITED STATES OF AMERICA STATE OF TEXAS Qlfi.�Y�l7�1�7 0 DENOMINATION REGISTERED CITY OF BANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATE OF OBLIGATION SERIES 2009 INTEREST RATE: DELIVERY DATE: MATURITY DATE: July 30, 2009 August 1, 20_ REGISTERED OWNER: PRINCIPAL AMOUNT: CUSIP: THE CITY OF SANGER, TEXAS, a municipal corporation of the State of Texas (the "City"), for value received, hereby promises to pay to the Registered Owner identified above or its registered assigns, on the maturity date specified above (or on earlier redemption as herein provided), upon presentation and surrender of this Certificate at the principal corporate trust office of The Bank of New York Mellon Trust Company, Dallas, Texas, or its successor (the "Paying Agent/Registrar"), the principal amount identified above (or so much thereof as shall not have been paid or deemed to have been paid upon prior redemption) payable in any coin or currency of the United States of America which on the date of payment of such principal is legal tender for the payment of debts due to the United States of America, and to pay interest thereon at the rate shown above, calculated on a basis of a 360-day year composed of twelve 30-day months, from the dated date of July 15, 2009. Interest on this Certificate is payable on February 1, 2010, and each February 1 and August 1 thereafter until maturity or earlier redemption of this Certificate, by check sent by United States mail, first class, postage prepaid, by the Paying Agent/Registrar to the Registered Owner of record as of the close of business on the fifteenth day of the calendar month immediately preceding the applicable interest payment date, as shown on the registration books kept by the Paying Agent/Registrar. Any accrued interest payable at maturity or earlier redemption shall be paid upon presentation and surrender of this Certificate at the principal corporate trust office of the Paying Agent/Registrar. THIS CERTIFICATE IS ONE OF A DULY AUTHORIZED SERIES OF CERTIFICATES (the "Certificates") in the aggregate principal amount of $3,200,000 issued pursuant to an ordinance adopted by the City Council of the City on July 20, 2009 (the "Ordinance") for the purpose of providing all or part of the funds to pay contractual obligations to be incurred for the construction of public works and the purchase of materials, supplies, equipment, machinery, buildings, land and rights -of -way for authorized needs and purposes and for the payment of contractual obligations for professional services, to wit (1) the acquisition of land located at 1801 S. Stemmons Freeway for a city park and construction of athletic fields on 11 HOU:2933544.3 such city park, (2) water, sewer, drainage and street improvements, and (3) professional services rendered in connection with the above listed projects. THIS CERTIFICATE shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Certificate either (i) is registered by the Comptroller of Public Accounts of the State of Texas by due execution of the registration certificate endorsed hereon or (ii) is authenticated by the Paying Agent/Registrar by due execution of the authentication certificate endorsed hereon. THE CITY RESERVES THE RIGHT, at its option, to redeem, prior to their maturity, Certificates maturing on and after August 1, 2020, in whole or in part, on August 1, 2019, or any date thereafter, at par plus accrued interest to the date fixed for redemption. THE CERTIFICATES MATURING ON AUGUST 1 in the years 2022, 2024 and 2026 the "Term Certificates") are subject to mandatory sinking fund redemption in the following amounts (subject to reduction as hereinafter provided), on the following dates, in each case at a redemption price equal to the principal amount of the Certificates or the portions thereof so called for redemption plus accrued interest to the date fixed for redemption: Mandatory Redemption Dates Principal Amounts Term Certificates Maturing August 1, 2022 August 1, 2021 $205,000 August 1, 2022 (maturity) 2155000 Mandatory Redemption Dates Principal Amounts Term Certificates Maturing August 1, 2024 August 1, 2023 $225,000 August 1, 2024 (maturity) 2355000 Mandatory Redemption Dates Principal Amounts Term Certificates Maturing August 1, 2026 August 1, 2025 $245,000 August 1, 2026 (maturity) 2555000 The particular Term Certificates to be redeemed shall be selected by the Registrar by lot or other customary random selection method, on or before June 15 of each year in which Term Certificates are to be mandatorily redeemed. The principal amount of Term Certificates to be mandatorily redeemed in each year shall be reduced by the principal amount of such Term Certificates that have been optionally redeemed and which have not been made the basis for a previous reduction. CERTIFICATES MAY BE REDEEMED IN PART only in integral multiples of $5,000. If a Certificate subject to redemption is in a denomination larger than $5,000, a portion of such Certificate may be redeemed, but only in integral multiples of $5,000. In selecting portions of Certificates for redemption, each Certificate shall be treated as representing that number of Certificates of $5,000 denomination which is obtained by dividing the principal amount of such Certificate by $5,000. Upon surrender of any Certificate for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of the Ordinance, shall authenticate and deliver in exchange therefor a Certificate or Certificates of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Certificate so surrendered. 12 HOU:2933544.3 NOTICE OF ANY SUCH REDEMPTION, identifying the Certificates or portions thereof to be redeemed, shall be sent by United States mail, first class, postage prepaid, to the Registered Owners thereof at their addresses as shown on the books of registration kept by the Paying Agent/Registrar, not less than thirty (30) days before the date fixed for such redemption. By the date fixed for redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the redemption price of the Certificates called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Certificates which are to be so redeemed thereby automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being outstanding except for the purpose of being paid with the funds so provided for such payment. THIS CERTIFICATE IS TRANSFERABLE only upon presentation and surrender at the principal corporate trust office of the Paying Agent/Registrar, accompanied by an assignment duly executed by the Registered Owner or its authorized representative, subject to the terms and conditions of the Ordinance. THIS CERTIFICATE IS EXCHANGEABLE at the principal corporate trust office of the Paying Agent/Registrar for a Certificate or Certificates of the same maturity and interest rate and in the principal amount of $5,000 or any integral multiple thereof, subject to the terms and conditions of the Ordinance. THE PAYING AGENT/REGISTRAR is not required to accept for transfer or exchange any Certificate called for redemption, in whole or in part, during the forty-five (45) day period immediately prior to the date fixed for redemption; provided, however, that such limitation shall not apply to the transfer or exchange by the Registered Owner of an unredeemed portion of a Certificate called for redemption in part. THE CITY OR PAYING AGENT/REGISTRAR may require the Registered Owner of any Certificate to pay a sum sufficient to cover any tax or other governmental charge that maybe imposed in connection with the transfer or exchange of a Certificate. Any fee or charge of the Paying Agent/Registrar for a transfer or exchange shall be paid by the City. THE REGISTERED OWNER of this Certificate by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Ordinance. IT IS HEREBY DECLARED AND REPRESENTED that this Certificate has been duly and validly issued and delivered; that all acts, conditions and things required or proper to be performed, exist and to be done precedent to or in the issuance and delivery of this Certificate have been performed, exist and have been done in accordance with law; that the Certificates do not exceed any constitutional or statutory limitation; and that annual ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Certificate, as such interest comes due and such principal matures, have been levied and ordered to be levied, within the limits prescribed by law, against all taxable property in the City and have been irrevocably pledged for such payment. 13 HOU2933544.3 IT IS FURTHER DECLARED AND REPRESENTED that the surplus revenues to be derived from the City's water and sewer system, after the payment of all operation and maintenance expenses thereof (the "Net Revenues"), in an amount not to exceed $10,000, are pledged to the payment of the principal of and interest on the Certificates, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. The City also reserves the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind, secured in whole or in prior and superior in right to, on a parity with, Revenues securing the Certificates. part by a pledge of Net Revenues, that may be or junior and subordinate to the pledge of Net REFERENCE IS HEREBY MADE TO THE ORDINANCE, a copy of which is filed with the Paying Agent/Registrar, for the full provisions thereof, to all of which the Registered Owners of the Certificates assent by acceptance of the Certificates. IN WITNESS WHEREOF, the City has caused its corporate seal to be impressed or placed in facsimile hereon and this Certificate to be signed by the Mayor, countersigned by the City Secretary by their manual, lithographed or printed facsimile signatures. CITY OF SANGER, TEXAS Mayor (SEAL) COUNTERSIGNED: City Secretary *** HOU:2933544.3 FORM OF COMPTROLLER'S REGISTRATION CERTIFICATE The following form. of Comptroller's Registration Certificate shall be attached or affixed to each of the Certificates initially delivered: THE STATE OF TEXAS REGISTER NO. OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS I hereby certify that this certificate has been examined, certified as to validity and approved by the Attorney General of the State of Texas, and that this certificate has been registered by the Comptroller of Public Accounts of the State of Texas. WITNESS MY SIGNATURE AND SEAL OF OFFICE this Comptroller of Public Accounts of the State of Texas [SEAL] FORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE The following form of authentication certificate shall be printed on the face of each of the Certificates other than those initially delivered. AUTHENTICATION CERTIFICATE THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. By: Authorized Signature Date of Authentication: 15 HOU:2933544.3 STATEMENT OF INSURANCE Assured Guaranty Corp. ("Assured Guaranty"), aMaryland-domiciled insurance company, has delivered its financial guaranty insurance policy (the "Policy") with respect to the scheduled payments of principal of and interest on this Bond to The Bank of New York Mellon Trust Company, N.A., as paying agent on behalf of the holders of the Bonds (the "Paying Agent"). Such Policy is on file and available for inspection at the principal office of the Paying Agent and a copy thereof may be obtained from Assured Guaranty or the Paying Agent. All payments required to be made under the Policy shall be made in accordance with the provisions thereof. The owner of this Bond acknowledges and consents to the subrogation rights of Assured Guaranty as more fully set forth in the Policy. **** FORM OF ASSIGNMENT The following form of assignment shall be printed on the back of each of the Certificates: ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto (Please print or type name, address, and zip code of Transferee) (Please insert Social Security or Taxpayer Identification. Number of Transferee) the within bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer such bond on the books kept for registration thereof, with full power of substitution in the premises. DATED: Signature Guaranteed: NOTICE: Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. Registered Owner NOTICE: The signature above must correspond to the name of the Registered Owner as shown on the face of this bond in every particular, without any alteration, enlargement or change whatsoever. ARTICLE V SECURITY FOR THE CERTIFICATES Section 5.1: Pledge and Levy of Taxes and Revenues. (a) To provide for the payment of principal of and interest on the Certificates, there is hereby levied, within the limits prescribed by law, for the current year and each succeeding year thereafter, while the Certificates or any part of the principal thereof and the interest thereon remain outstanding and unpaid, an ad valorem tax upon all taxable property within the City sufficient to pay the interest on the HOU:2933544.3 Certificates and to create and provide a sinking fund of not less than 2% of the principal amount of the Certificates or not less than the principal payable out of such tax, whichever is greater, with full allowance being made for tax delinquencies and the costs of tax collection, and such taxes, when collected, shall be applied to the payment of principal of and interest on the Certificates by deposit to the Combination Tax and Revenue Certificates of Obligation, Series 2009 Debt Service Fund and to no other purpose. (b) The City hereby declares its purpose and intent to provide and levy a tax legally sufficient to pay the principal of and interest on the Certificates, it having been determined that the existing and available taxing authority of the City for such purpose is adequate to permit a legally sufficient tax. As long as any Certificates remain outstanding, all moneys on deposit in, or credited to, the Combination Tax and Revenue Certificates of Obligation, Series 2009 Debt Service Fund shall be secured by a pledge of security, as provided by law for cities in the State of Texas. (c) In addition, pursuant to the authority of Chapter 1502, Texas Government Code, as amended, the City also hereby pledges the surplus revenues to be derived from the City's water and sewer system, after the payment of all operation and maintenance expenses thereof (the "Net Revenues"), in an amount not to exceed $10,000, to the payment of the principal of and interest on the Certificates, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. The City also reserves the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind, secured in whole or in part by a pledge of Net Revenues, that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. Section 5.2: Debt Service Fund. The Combination Tax and Revenue Certificates of Obligation, Series 2009 Debt Service Fund is hereby created as a special fund solely for the benefit of the Certificates. The City shall establish and maintain such fund at an official City depository and shall keep such fund separate and apart from all other funds and accounts of the City. Any amount on deposit in the Certificates of Obligation, Series 2009 Debt Service Fund shall be maintained by the City in trust for the Registered Owners of the Certificates. Such amount, plus any other amounts deposited by the City into such fund and any and all investment earnings on amounts on deposit in such fund, shall be used only to pay the principal of, premium, if any, and interest on the Certificates. Section 5.3: Further Proceedings. After the Certificates to be initially issued have been executed, it shall be the duty of the Mayor to deliver the Certificates to be initially issued and all pertinent records and proceedings to the Attorney General for examination and approval. After the Certificates to be initially issued shall have been approved by the Attorney General, they shall be delivered to the Comptroller for registration. Upon registration of the Certificates to be initially issued, the Comptroller (or a deputy lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's registration certificate prescribed herein to be affixed or attached to the Certificates to be initially issued, and the seal of said Comptroller shall be impressed, or placed in facsimile, thereon. 17 HOU:2933544.3 ARTICLE VI CONCERNING THE PAYING AGENT/REGISTRAR Section 6.1: Acceptance, The Bank of New York Mellon Trust Company, N.A., Dallas, Texas, is hereby appointed as the initial Paying Agent/Registrar for the Certificates pursuant to the terms and provisions of the Paying Agent/Registrar Agreement by and between the City and the Paying Agent/Registrar. The Paying Agent/Registrar Agreement shall be substantially in the form attached hereto as Exhibit A, the terms and provisions of which are hereby approved, and the Mayor is hereby authorized to execute and deliver such Paying Agent/Registrar Agreement on behalf of the City in multiple counterparts and the City Secretary is hereby authorized to attest thereto and affix the City's seal. Such initial Paying Agent/Registrar and any successor Paying Agent/Registrar, by undertaking the performance of the duties of the Paying Agent/Registrar hereunder, and in consideration of the payment of any fees pursuant to the terms of any contract between the Paying Agent/Registrar and the City and/or the deposits of money pursuant to this Ordinance, shall be deemed to accept and agree to abide by the terms of this Ordinance. Section 6.2: Trust Funds. All money transferred to the Paying Agent/Registrar in its capacity as Paying Agent/Registrar for the Certificates under this Ordinance (except any sums representing Paying Agent/Registrar's fees) shall be held in trust for the benefit of the City, shall be the property of the City and shall be disbursed in accordance with this Ordinance. Section 6.3: Certificates Presented. Subject to the provisions of Section 6.4, all matured Certificates presented to the Paying Agent/Registrar for payment shall be paid without the necessity of further instructions from the City. Such Certificates shall be canceled as provided herein. Section 6.4: Unclaimed Funds Held by the Pang A eng t/Re�istrar. Funds held by the Paying Agent/Registrar that represent principal of and interest on the Certificates remaining unclaimed by the Registered Owner thereof after the expiration of three years from the date such funds have become due and payable (a) shall be reported and disposed of by the Paying Agent/Registrar in accordance with the provisions of Title 6 of the Texas Property Code, as amended, to the extent such provisions are applicable to such funds, or (b) to the extent such provisions do not apply to the funds, such funds shall be paid by the Paying Agent/Registrar to the City upon receipt by the Paying Agent/Registrar of a written request therefor from the City. The Paying Agent/Registrar shall have no liability to the Registered Owners of the Certificates by virtue of actions taken in compliance with this Section. Section 6.5: Paving_ A eng_t/Registrar May Own Certificates. The Paying Agent/Registrar in its individual or any other capacity, may become the owner or pledgee of Certificates with the same rights it would have if it were not the Paying Agent/Registrar. Section 6.6: Successor Pang Agents/Re isg trars. The City covenants that at all times while any Certificates are Outstanding it will provide a legally qualified bank, trust company, financial institution or other agency to act as Paying Agent/Registrar for the Certificates. The HOU:29335443 City reserves the right to change the Paying Agent/Registrar for the Certificates on not less than sixty (60) days' written notice to the Paying Agent/Registrar, as long as any such notice is effective not less than 60 days prior to the next succeeding principal or interest payment date on the Certificates. Promptly upon the appointment of any successor Paying Agent/Registrar, the previous Paying Agent/Registrar shall deliver the Register or a copy thereof to the new Paying Agent/Registrar, and the new Paying Agent/Registrar shall notify each Registered Owner, by United States mail, first class, postage prepaid, of such change and of the address of the new Paying Agent/Registrar. Each Paying Agent/Registrar hereunder, by acting in that capacity, shall be deemed to have agreed to the provisions of this Ordinance. ARTICLE VII PROVISIONS CONCERNING SALE AND APPLICATION OF PROCEEDS OF CERTIFICATES Section 7.1: Sale of Certificates• Execution of Purchase Agreement; Insurance. The Certificates are hereby sold and shall be delivered to the Underwriter for a price of 33,116,567.50 (representing the par value thereof, less an original issue discount of $17,640.50, less an underwriter's discount of $65,792.00) plus accrued interest from the dated date, in accordance with the terms of and conditions in the Purchase Agreement. The Purchase Agreement, substantially in the form attached hereto as Exhibit C, is hereby approved. The Mayor and other appropriate officials of the City are hereby authorized and directed to execute the Purchase Agreement on behalf of the City, and the Mayor and all other appropriate officials, agents and representatives of the City are hereby authorized to do any and all things necessary or desirable to satisfy the conditions set out therein and to provide for the issuance and delivery of the Certificates. It is hereby found and determined that the terms of the sale of the Certificates contained in the Purchase Agreement are the most advantageous terms reasonably obtainable by the City at this time. The City hereby acknowledges that the sale of the Certificates pursuant to the Purchase Agreement is contingent upon the issuance of a policy of municipal bond insurance from the Bond Insurer insuring the timely payment of principal of and interest on the Certificates. The terms and conditions of the Bond Insurance Policy, as set forth in Exhibit D hereto, are incorporated herein for all purposes for so long as such policy remains in effect. The purchase of such a policy and the payment of the premium therefor is hereby approved and the Mayor and other appropriate City officials are hereby authorized and directed to execute such documents and certificates and to do any and all things necessary or desirable to obtain such insurance and the printing on the Certificates of an appropriate legend or statement regarding such insurance, as provided by the Bond Insurer, is hereby approved. Section 7.2: Approval, Registration and Delivery. The Mayor is hereby authorized to have control and custody of the Certificates and all necessary records and proceedings pertaining thereto pending their delivery, and the Mayor and other officers and employees of the City are hereby authorized and directed to make such certifications and to execute such instruments as may be necessary to accomplish the delivery of the Certificates and to assure the investigation, examination and approval thereof by the Attorney General and the registration of the initial Certificates by the Comptroller. Upon registration of the Certificates, the Comptroller (or the 19 HOU:2933544.3 , Comptroller's certificates clerk or an assistant certificates clerk lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's Registration Certificates prescribed herein to be attached or affixed to each Certificates initially delivered and the seal of the Comptroller shall be impressed or printed or lithographed thereon. Section 7.3: Offering Documents; Ratings. The City hereby approves the form and contents of the Preliminary Official Statement and the final Official Statement, dated as of the date hereof, relating to the Certificates, and any addenda, supplement or amendment thereto, and ratifies and approves the distribution of such Preliminary Official Statement substantially in the form attached hereto as Exhibit B and Official Statement in the offer and sale of the Certificates and in the reoffering of the Certificates by the Underwriter, with such changes therein or additions thereto as the officials executing same may deem advisable, such determination to be conclusively evidenced by their execution thereof. The Mayor is hereby authorized and directed to execute, and the City Secretary is hereby authorized and directed to attest, the final Official Statement. It is further hereby officially found, determined and declared that the statements and representations contained in the Preliminary Official Statement and final Official Statement are true and correct in all material respects, to the best knowledge and belief of the City Council, and that, as of the date thereof, the Preliminary Official Statement was an official statement of the City with respect to the Certificates that was deemed "final" by an authorized official of the City except for the omission of no more than the information permitted by subsection (b)(1) of Rule 15c2-12 of the Securities and Exchange Commission. Further, the City Council hereby ratifies, authorizes and approves the actions of the Mayor, the City's financial advisor and other consultants in seeking a rating on the Certificates from Moody's Investors Service, Inc. and such actions are hereby ratified and confirmed. Section 7.4: A_pplication of Proceeds of Certificates. Proceeds from the sale of the Certificates shall, promptly upon receipt by the City, be applied as follows: (1) A portion of the proceeds shall be applied to pay expenses arising in connection with the issuance of the Certificates; and (2) The remaining proceeds shall be applied, together with other funds of the City, to provide funds to pay contractual obligations to be incurred for the purposes set forth in Section 3.1 of this Ordinance. Section 7.5: Covenants to Maintain Tax Exempt Status. (a) Definitions. When used in this Section, the following terms have the following meanings: "Code" means the Internal Revenue Code of 1986, as amended by all legislation, if any, enacted on or before the Issue Date. "Computation Date" has the meaning stated in section 1.148-1(b) of the Regulations. "Gross Proceeds" has the meaning stated in section 1.148-1(b) of the Regulations. 20 HOU:2933544.3 "Investment" has the meaning stated in section 1.14&1(b) of the Regulations. "Issue Date" for the Certificates or other obligations of the City is the respective date on which such obligations of the City are delivered against payment therefor. "Net Sale Proceeds" has the meaning stated in section 1.148-1(b) %J the Regulations. "Nonpurpose Investment" has the meaning stated in section 1.148-1(b) of the Regulations. "Proceeds" has the meaning stated in section 1.148-1(b) of the Regulations. "Rebate Amount" has the meaning stated in section 1.148-3 of the Regulations. "Regulations" means the temporary or final Income Tax Regulations applicable to the Certificates issued pursuant to sections 141 through 150 of the Code. Any reference to a section of the Regulations shall also refer to any successor provision to such section hereafter promulgated by the Internal Revenue Service pursuant to sections 141 through 150 of the Code and applicable to the Certificates. "Yield of" (1) any Investment shall be computed in accordance with section 1.148-5 of the Regulations, and (2) the Certificates shall be computed in accordance with section 1.148-4 of the Regulations. (b) Not to Cause Interest to Become Taxable. The City shall not use, permit the use A or omit to use Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner which, if made or omitted, respectively, would cause the interest on any Certificates to become includable in the gross income, as defined in section 61 of the Code, of the owner thereof for federal income tax purposes. Without limiting the generality of the Foregoing, unless and until the City shall have received a written opinion of counsel nationally recognized in the field of municipal bond law to the effect that failure to comply with such covenant will not adversely affect the exemption from federal income tax of the interest on any Certificate, the City shall comply with each of the specific covenants in this Section. (c) No Private Use or Private Payments. Except as permitted by section 141 of the Code and the regulations and rulings thereunder, the City shall, at all times prior to the last stated maturity of the Certificates, (1) exclusively own, operate, and possess all property the acquisition, construction, or improvement of which is to be financed directly or indirectly with Gross Proceeds of the Certificates and not use or permit the use of such Gross Proceeds or any property acquired, constructed, or improved with such Gross Proceeds in any activity 21 HOU:2933544.3 carried on by any person or entity other than a state or local government, unless such use is solely as a member of the general public, or (2) not directly or indirectly impose or accept any charge or other payment for use of Gross Proceeds of the Certificates or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with such Gross Proceeds other than taxes of general application and interest earned on investments acquired with such Gross Proceeds pending application for their intended purposes. (d) No Private Loan. Except to the extent permitted by section 141 of the Code and the regulations and rulings thereunder, the City shall not use Gross Proceeds of the Certificates to make or finance loans to any person or entity other than a state or local government. For purposes of the foregoing covenant, Gross Proceeds are considered to be "loaned" to a person or entity if (1) property acquired, constructed or improved with Gross Proceeds is sold or leased to such person or entity in a transaction which creates a debt for federal income tax purposes, (2) capacity in or service from such property is committed to such person or entity under a take -or -pay, output, or similar contract or arrangement, or (3) indirect benefits, or burdens and benefits of ownership, of such Gross Proceeds or such property are otherwise transferred in a transaction which is the economic equivalent of a loan. (e) Not to Invest at Higher Yield. Except to the extent permitted by section 148 of the Code and the regulations and rulings thereunder, the City shall not, at any time prior to the earlier of the final stated maturity or final payment of the Certificates, directly or indirectly invest Gross Proceeds of such Certificates in any Investment (or use such Gross Proceeds to replace money so invested), if as a result of such investment the Yield of all Investments allocated to such Gross Proceeds whether then held or previously disposed of, exceeds the Yield on the Certificates. (f) Not Federally Guaranteed. Except to the extent permitted by section 149(b) of the Code and the regulations and rulings thereunder, the City shall not take or omit to take any action which would cause the Certificates to be federally guaranteed within the meaning of section 149(b) of the Code and the regulations and rulings thereunder. (g) Information Report. The City shall timely file with the Secretary of the Treasury the information required by section 149(e) of the Code with respect to the Certificates on such forms and in such place as such Secretary may prescribe. (h) Payment of Rebate Amount. Except to the extent otherwise provided in section 148(f) of the Code and the regulations and rulings thereunder, the City shall: (1) account for all Gross Proceeds (including all receipts, expenditures and investments thereof) on its books of account separately and apart from all other funds and receipts, expenditures and investments thereof) and shall retain all records of such accounting for at least six years after the final Computation Date. The City may, however, to the extent permitted by law, commingle Gross Proceeds of the Certificates with other money of the City, provided that the City separately accounts for each receipt and expenditure of such Gross Proceeds and the obligations acquired therewith, 22 HOU:2933544.3 (2) calculate the Rebate Amount with respect to the Certificates, not less frequently than each Computation Date, in accordance with rules set forth in section 148(f) of the Code, section 1.148-3 of the Regulations, and the rulings thereunder and shall maintain a copy of such calculations for at least six years after the final Computation Date, (3) as additional consideration for the purchase of the Certificates by the initial purchaser thereof and the loan of the money represented thereby, and in order to induce such purchase by measures designed to ensure the excludability of the interest thereon from the gross income of the owners thereof for federal income tax purposes, pay to the United States the amount described in paragraph (2) above at the times, in the installments, to the place, in the manner and accompanied by such forms or other information as is or may be required by section 148(f) of the Code and the regulations and rulings thereunder, and (4) exercise reasonable diligence to assure that no errors are made in the calculations required by paragraph (2) and, if such error is made, to discover and promptly to correct such error within a reasonable amount of time thereafter, including payment to the United States of any interest and any penalty required by the Regulations. (i) Not to Divert Arbitrage Profits. Except to the extent permitted by section 148 of the Code and the regulations and rulings thereunder, the City shall not, at any time prior to the earlier of the final stated maturity or final payment of the Certificates, enter into any transaction that reduces the amount required to be paid to the United States pursuant to Subsection (h) of this Section because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm's length and had the Yield of the Certificates not been relevant to either party. (j) Not Hedge Bonds. The City will not invest more than 50 percent of the Proceeds A the Certificates in Nonpurpose Investments having a guaranteed yield for four years or more. On the Issue Date of the Certificates, the City will reasonably expect that at least 85 percent of the Net Sale Proceeds will be used to carry out the governmental purpose of such series within three years after such Issue Date. (k) The City will not issue or use the Certificates as part of an "abusive arbitrage device" (as defined in Section 1.148-10(a) of the Regulations). Without limiting the foregoing, the Certificates are not and will not be a part of a transaction or series of transactions that attempts to circumvent the provisions of Section 148 of the Code and the Regulations, by (i) enabling the City to exploit the difference between tax-exempt and taxable interest rates to gain a material financial advantage, or (ii) increasing the burden on the market for tax-exempt obligations. (1) Proper officers of the City charged with the responsibility for issuing the Certificates are hereby directed to make, execute and deliver certifications as to facts, estimates or circumstances in existence as of the date of issuance of the Certificates and stating whether there are facts, estimates or circumstances that would materially change the City's expectations. On or after the date of issuance of the Certificates, the City will take such actions as are 23 HOU:2933544.3 necessary and appropriate to assure the continuous accuracy of the representations contained in such certificates. (m) The City hereby designates the Certificates as "qualified tax-exempt obligations" as defined in section 265(b)(3) of the Code. In furtherance of such designation, the City represents, covenants and warrants the following: (a) that during the calendar year in which the Certificates are issued, the City (including any subordinate entities) has not designated nor will designate obligations that when aggregated with the Certificates , will result in more than $30,000,000 of "qualified tax-exempt obligations" being issued; and (b) that the City reasonably anticipates that the amount of tax-exempt obligations issued, during the calendar year in which the Certificates are issued, by the City (or any subordinate entities) will not exceed $30,000,000. (n) The covenants and representations made or required by this Section are for the benefit of the Certificate holders and any subsequent Certificate holder, and may be relied upon by the Certificate holders and any subsequent Certificate holder and bond counsel to the City. (o) In complying with the foregoing covenants, the City may rely upon an unqualified opinion issued to the City by nationally recognized bond counsel that any action by the City or reliance upon any interpretation of the Code or Regulations contained in such opinion will not cause interest on the Certificates to be includable in gross income for federal income tax purposes under existing law. Notwithstanding any other provision of this Ordinance, the City's representations and obligations under the covenants and provisions of this Section 7.5 all survive the defeasance and discharge of the Certificates for as long as such matters are relevant to the exclusion of interest on the Certificates from the gross income of the owners for federal income tax purposes. Section 7.6: Related Matters. In order that the City shall satisfy in a timely manner all of its obligations under this Ordinance, the Mayor, the Mayor, City Secretary and all other appropriate officers, agents, representatives and employees of the City are hereby authorized and directed to take all other actions that are reasonably necessary to provide for the issuance and delivery of the Certificates, including, without limitation, executing and delivering on behalf of the City all certificates, consents, receipts, requests, notices, and other documents as may be reasonably necessary to satisfy the City's obligations under this Ordinance and to direct the transfer and application of funds of the City consistent with the provisions of this Ordinance. ARTICLE VIII CONTINUING DISCLOSURE UNDERTAKING .Section 8.1: Annual Reports. The City will provide certain updated financial information and operating data to the MSRB annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in the Official Statement being the information described in Exhibit E hereto. The City will update and provide this information within six months after the end of each fiscal year. The City may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12 (the "Rule"). The 24 HOU:2933544.3 updated information will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the City will provide unaudited financial statements by the required time, and will file the annual audit report when it becomes available. Any such financial statements will be prepared in accordance with the accounting principles described in Exhibit E hereto or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by the last day of March in each year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify the MSRB of the change. Section 8.2: Material Event Notices. The City will also provide timely notices of certain events to the MSRB. The City will provide notice of any of the following events with respect to the Certificates, if such event is material to a decision to purchase or sell 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 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. Neither the Certificates nor the Ordinance make any provision for debt service reserves or liquidity enhancement. In addition, the City will provide timely notice of any failure by the City to provide financial information or operating data in accordance with Section 8.1 of this Ordinance by the time required by such Section. Section 8.3: Limitations Disclaimers and Amendments. The City shall be obligated to observe and perform the covenants specified in this Article for so long as, but only for so long as, the City remains an "obligated person" with respect to the Certificates within the meaning of the Rule, except that the City in any event will give the notice required by Section 8.2 of any Certificate calls and defeasance that cause the City to be no longer such an "obligated person." The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Certificates at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Certificates may seek a writ of mandamus to compel the City to comply with its agreement. UNDER NO CIRCUMSTANCES SHALL THE CITY 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 CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS 25 HOU:2933544.3 PART, OF ANY COVENANT SPECIFIED IN THIS ARTICLE, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. No default by the City in observing or performing its obligations under this Article shall constitute a breach of or default under the Ordinance for purposes of any other provision of this Ordinance. Nothing in this Article is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities laws. This continuing disclosure agreement may be amended by the City from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, but only if (1) the provisions, as so amended, would have permitted an underwriter to purchase or sell Certificates in the primary offering of the Certificates in compliance with the Rule, taking into account any amendments or interpretations of the Rule since such offering as well as such changed circumstances and (2) either (a) the registered owners of a majority in aggregate principal amount (or any greater amount required by any other provision of this Ordinance that authorizes such an amendment) of the outstanding Certificates consent to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interest of the registered owners and beneficial owners of the Certificates. The City may also amend or repeal the provisions of this continuing disclosure agreement if the Securities and Exchange Commission 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. If the City amends its agreement, it must include with the next financial information and operating data provided in accordance with its agreement described in Section 8.1 of this Ordinance 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. Section 8.4: Definitions. As used in this Article, the following terms have the meanings ascribed to such terms below: "MSRB" means the Municipal Securities Rulemaking Board. "NRMSIR" means each person whom the SEC or its staff has determined to be a nationally recognized municipal securities information repository within the meaning of the Rule from time to time. "Rule" means SEC Rule 15c242, as amended from time to time. "SEC" means the United States Securities and Exchange Commission. 26 HOU:2933544.3 "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. ARTICLE IX MISCELLANEOUS Section 9.1: Defeasance. Subject to Section 10.8 hereof, the City may defease the provisions of this Ordinance and discharge its obligations to the Registered Owners of any or all of the Certificates to pay the principal of and interest thereon in any manner permitted by law, including by depositing with the Paying Agent/Registrar or with the Comptroller of Public Accounts of the State of Texas either: (a) cash in an amount equal to the principal amount of such Certificates plus interest thereon to the date of maturity or redemption; or (b) pursuant to an escrow or trust agreement, cash and/or (i) direct noncallable obligations of United States of America, including obligations that are unconditionally guaranteed by the United States of America; (ii) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of the issuer adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent; or (iii) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the governing body of the issuer adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, which, in the case of (i), (ii) or (iii), may be in book -entry form, and the principal of and interest on which will, when due or redeemable at the option of the holder, without further investment or reinvestment of either the principal amount thereof or the interest earnings thereon, provide money in an amount which, together with other moneys, if any, held in such escrow at the same time and available for such purpose, shall be sufficient to provide for the timely payment of the principal of and interest thereon to the date of maturity or earlier redemption; provided, however, that if any of the Certificates are to be redeemed prior to their respective dates of maturity, provision shall have been made for giving notice of redemption as provided in this Ordinance. Upon such deposit, such Certificates shall no longer be regarded to be Outstanding or unpaid. Any surplus amounts not required to accomplish such defeasance shall be returned to the City. Section 9.2: Ordinance aContract -Amendments. This Ordinance shall constitute a contract with the Registered Owners from time to time, be binding on the City, and shall not be amended or repealed by the City so long as any Certificate remains Outstanding except as permitted in this Section. The City may, without the consent of or notice to any Registered Owners, from time to time and at any time, amend this Ordinance in any manner not detrimental 27 HOU:2933544.3 to the interests of the Registered Owners, including the curing of any ambiguity, inconsistency, or formal defect or omission herein. In addition, the City may, with the consent of Registered Owners who own in the aggregate 51% of the principal amount of the Certificates then Outstanding, amend, add to, or rescind any of the provisions of this Ordinance; provided that, without the consent of all Registered Owners of Outstanding Certificates, no such amendment, addition, or rescission shall (i) extend the time or times of payment of the principal of and interest on the Certificates, reduce the principal amount thereof, the redemption price, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of or interest on the Certificates, (ii) give any preference to any Certificate over any other Certificate, or (iii) reduce the aggregate principal amount of Certificates required to be held by Registered Owners for consent to any such amendment, addition, or rescission. Section 9.3: Legal Holidays. In any case where the date interest accrues and becomes payable on the Certificates or principal of the Certificates matures or the date fixed for redemption of any Certificates or a Record Date shall be in the City a Saturday, Sunday, legal holiday or a day on which banking institutions are authorized by law to close, then payment of interest or principal need not be made on such date, or the Record Date shall not occur on such date, but payment may be made or the Record Date shall occur on the next succeeding day which is not in the City a Saturday, Sunday, legal holiday or a day on which banking institutions are authorized by law to close with the same force and effect as if (i) made on the date of maturity or the date fixed for redemption and no interest shall accrue for the period from the date of maturity or redemption to the date of actual payment or (ii) the Record Date had occurred on the fifteenth day of that calendar month. Section 9.4: No Recourse Against City Officials. No recourse shall be had for the payment of principal of or interest on any Certificates or for any claim based thereon or on this Ordinance against any official of the City or any person executing any Certificates. Section 9.5: Further Proceedings. The Mayor, Mayor Pro-Tem, City Secretary and other appropriate officials of the City are hereby authorized and directed to do any and all things necessary and/or convenient to carry out the terms of this Ordinance. Section 9.6: Severability. If any Section, paragraph, clause or provision of this Ordinance shall for any reason be held to be invalid or unenforceable, the invalidity or unenforceability of such Section, paragraph, clause or provision shall not affect any of the remaining provisions of this Ordinance. Section 9.7: Open Meeting. It is hereby found, determined and declared that a sufficient written notice of the date, hour, place and subject of the meeting of the City Council at which this Ordinance was adopted was posted at a place convenient and readily accessible at all times to the general public at City Hall for the time required by law preceding this meeting, as required by the Open Meetings Law, Chapter 551, Texas Government Code, and that this meeting has been open to the public as required by law at all times during which this Ordinance and the subject matter thereof has been discussed, considered and formally acted upon. The City Council further ratifies, approves and confirms such written notice and the contents and posting thereof. HOU:2933544.3 Section 9.8: Repealer. All orders, resolutions and ordinances, or parts thereof, inconsistent herewith are hereby repealed to the extent of such inconsistency. Section 9.9: Effective Date, This Ordinance shall be in force and effect from and after its passage on the date shown below. 29 HOU2933544.3 PASSED AND APPROVED on first reading this July 20, 2009. CITY OF SANGER, TEXAS ►f�F1 ATTEST %%%aaanaaurrr tlAl to S4 City Secretaryffo ' �. 06 (SEAL) rUunaiaaeN Exhibit A -Paying Agent/Registrar Agreement Exhibit B - Preliminary Official Statement Exhibit C - Purchase Agreement Exhibit D — Insurance Provisions Exhibit E —Description of Annual Financial Information S-1 HOU:2933544. I EXHIBIT A PAYING AGENT/REGISTRAR AGREEMENT See In No. 8 HOU:2933544.3 PRELIMINARY OFFICIAL STATEMENT See Tab No. 6 HOU2933544.3 EXHIBIT C PURCHASE AGREEMENT See In No. 5 HOU:2933544.3 EXHIBIT D INSURANCE PROVISIONS See Attached HOU:2933544.3 EXHIBIT E DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred in Article VIII of this Ordinance. Annual Financial Statements and Operating Data The financial information and operating data with respect to the City to be provided annually in accordance with such Article are as specified (and included in the Appendix or under the headings of the Official Statement referred to) below: (1) The financial statements of the City, portions of which are appended to the Official Statement as Appendix D, but for the most recently concluded fiscal year. (2) The information included under Tables 1 through 10, inclusive of Appendix A of the Official Statement. Accounting Principles The accounting principles referred to in such Article are generally those described in Appendix D to the Official Statement as such principles may be changed from time to time to comply with state law or regulation. HOU:2933544.3 CITY OF SANGER, TEXAS (A political subdivision of the State of Texas located in Denton County) $3,200,000 Combination Tax and Revenue Certificates of Obligation, Series 2009 PURCHASE AGREEMENT July 20, 2009 Honorable Mayor and City Council City of Sanger, Texas 502 Elm Street Sanger, Texas Ladies and Gentlemen: The undersigned, Alluvion Securities LLC, as underwriter (the "Underwriter"), offers to enter into this Purchase Agreement (the "Agreement") with the City of Sanger, Texas (the "Issuer"), which, upon the Issuer's written acceptance of this offer, will be binding upon the Issuer and upon the Underwriter. This offer is made subject to the Issuer's written acceptance hereof on or before 10*00 p.m., Sanger, Texas time, on July 20, 2009, and, if not so accepted, will be subject to withdrawal by the Underwriter upon written notice delivered to the Issuer at any time prior to the acceptance hereof by the Issuer. Terms not otherwise defined in this Agreement shall have the same meanings set forth in the Official Statement (as defined in Section 3 herein). 1. Purchase and Sale of the Certificates. Subject to the terms and conditions and in reliance upon the representations, warranties and agreements set forth herein, the Underwriter hereby agrees to purchase from the Issuer, and the Issuer hereby agrees to sell and deliver to the Underwriter, all, but not less than all, of the Issuer's $3,200,000 Combination Tax and Revenue Certificates of Obligation, Series 2009 (the "Certificates"). Inasmuch as this purchase and sale represents a negotiated transaction, the Issuer understands, and hereby confirms, that the Underwriter is not acting as a fiduciary of the Issuer, but rather is acting solely in its capacity as Underwriter for its own account. The principal amount of the Certificates to be issued, the dated date therefor, the maturities, redemption provisions and interest rates per annum are set forth in Schedule 1 hereto. The Certificates shall be as described in, and shall be issued and secured under and pursuant to the provisions of an ordinance adopted by the Issuer on July 20, 2009 (the "Ordillance"). The purchase price for the Certificates shall be $3,116,567.50 (representing the par amount of the Certificates, less a net original issue discount of $17,640.50 and less an underwriting discount of $65,792.00), plus accrued interest from the Dated Date. { 10176-OS / 00023774 / VS} HOU:2937427.2 2. Public Offerhim, The Underwriter agrees to make a bona fide public offering of all of the Certificates at a price not to exceed the public offering prices set forth on the inside front cover of the Official Statement and may subsequently change such offering prices without any requirement of prior notice to the Issuer. On or before Closing (as defined in Section 5 herein), the Underwriter shall execute an Issue Price Certificate prepared by Bond Counsel (as defined in Section 60)(4) hereof) verifying the reasonable expectations of the Underwriter as of the date hereof regarding the initial public offering prices of each stated maturity of the Certificates. The Underwriter may offer and sell Certificates to certain dealers (including dealers depositing Certificates into investment trusts) and others at prices lower than the public offering price stated on the inside front cover of the Official Statement. 3. Tlae Official Statenterat. (a) The Issuer previously has delivered copies of the Preliminary Official Statement dated June 30, 2009 (the "Preliminary Official Statement") to the Underwriter. The Issuer will prepare a final Official Statement relating to the Certificates, which will be (i) dated the date of this Agreement, (ii) complete within the meaning of Rule 15c242 of the United States Securities and Exchange Commission (the "SEC"), as amended (the "Rule"), and (iii) substantially in the form of the most recent version of the Preliminary Official Statement provided to the Underwriter before the execution hereof. Such final Official Statement, including the cover page thereto, all exhibits, appendices, maps, charts, pictures, diagrams, reports, and statements included or incorporated therein or attached thereto, and all amendments and supplements thereto that may be authorized for use with respect to the Certificates, is herein referred to as the "Official Statement." Until the Official Statement has been prepared and is available for distribution, the Issuer shall provide to the Underwriter sufficient quantities (which may be in electronic mail form) of the Preliminary Official Statement as the Underwriter deems necessary to satisfy the obligations of the Underwriter under the Rule with respect to distribution to each potential customer, upon request, of a copy of the Preliminary Official Statement. (b) The Preliminary Official Statement has been prepared for use in connection with the public offering, sale and distribution of the Certificates by the Underwriter. The Issuer hereby represents and warrants that the Preliminary Official Statement has been deemed final by the Issuer as of its date, except for the omission of such information which is dependent upon the final pricing of the Certificates for completion, all as permitted to be excluded by Section (b)(1) of the Rule. (c) The Issuer hereby authorizes the Official Statement and the information therein contained to be used by the Underwriter in connection with the public offering and the sale of the Certificates. The Issuer consents to the use by the Underwriter prior to the date hereof of the Preliminary Official Statement in connection with the public offering of the Certificates. The Issuer shall provide, or cause to be provided, to the Underwriter as soon as practicable after the date of the Issuer's acceptance of this Agreement (but, in any event, not later than within seven (7) business days after the Issuer's acceptance of this Agreement and in sufficient time to accompany any confirmation that requests payment from any customer) copies of the Official Statement which is complete as of the date of its delivery to the Underwriter in such quantity as the Underwriter shall request in order for the Underwriter to comply with Section (b)(4) of the Rule and the rules of the Municipal Securities Rulemaking Board (the WSRB "). { 10176-OS / 00023774 / VS } 2 HOU2937427.2 (d) If, after the date of this Agreement to and including the date the Underwriter is no longer required to provide an Official Statement to potential customers who request the same pursuant to the Rule (being twenty-five (25) days from the "end of the underwriting period" (as defined in the Rule)), the Issuer becomes aware of any fact or event which might or would cause the Official Statement, as then supplemented or amended, to contain any untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein, not misleading, or if it is necessary to amend or supplement the Official Statement to comply with law, the Issuer will notify the Underwriter (and for the purposes of this clause provide the Underwriter with such information as it may from time to time request), and if, in the reasonable opinion of the Underwriter, such fact or event requires preparation and publication of a supplement or amendment to the Official Statement, the Issuer will forthwith prepare and furnish, at the Issuer's own expense (in a form and manner approved by the Underwriter), a reasonable number of copies of either amendments or supplements to the Official Statement so that the statements in the Official Statement as so amended and supplemented will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or so that the Official Statement will comply with law. If such notification shall be subsequent to the Closing, the Issuer shall furnish such legal opinions, certificates, instruments and other documents as the Underwriter may deem necessary to evidence the truth and accuracy of such supplement or amendment to the Official Statement. (e) The Underwriter hereby agrees to file the Official Statement with a nationally recognized municipal securities information repository designated by MSRB. Unless otherwise notified in writing by the Underwriter, the Issuer can assume that the "end of the underwriting period" for purposes of the Rule is the date of the Closing. (f) Except as set forth in this Section 3, the Issuer agrees not to supplement or amend, or cause to be supplemented or amended, the Official Statement without the prior written consent of the Underwriter. 4. Representatiosas, Warrafzties and Cove�zants of the Issuer. The Issuer hereby represents and warrants to and covenants with the Underwriter that: (a) The Issuer is a home rule law city operating as such under the laws of the State of Texas (the "State") and the State Constitution, and is issuing the Certificates pursuant to the provisions of Subchapter C of Chapter 271, Texas Local Government Code, as amended, the "Act"), and has full legal right, power and authority under the Acts, and at the date of the Closing will have full legal right, power and authority (1) to enter into, execute and deliver this Agreement, the Ordinance and the Continuing Disclosure Undertaking (as defined in Section 60)(3) hereof) and all documents required hereunder and thereunder to be executed and delivered by the Issuer (this Agreement, the Ordinance and the Continuing Disclosure Undertaking are hereinafter referred to as the "Issuer Documents"), (ii) to sell, issue and deliver the Certificates to the Underwriter as provided herein, and (iii) to carry out and consummate the transactions described in the Issuer Documents and the Official Statement, and the Issuer has complied, and will at the Closing be in compliance in all respects with the terms of the Acts and the Issuer Documents as they pertain to such transactions. { 10176-OS / 00023774 / VS } 3 HOU:2937427.2 (b) By all necessary official action of the Issuer prior to or concurrently with the acceptance hereof, the Issuer has duly authorized all necessary action to be taken by it for (i) the adoption of the Ordinance and the issuance and sale of the Certificates, (ii) the approval, execution and delivery of, and the performance by the Issuer of the obligations on its part, contained in the Certificates and the Issuer Documents; (iii) the approval of the Official Statement and the signing of the Official Statement by a duly authorized officer, and (iv) the consummation by it of all other transactions described in the Official Statement and the Issuer Documents and any and all such other agreements and documents as may be required to be executed, delivered or received by the Issuer in order to carry out, give effect to, and consummate the transactions described herein and in.the Official Statement. (c) The Issuer Documents, when executed and delivered by the Issuer, will constitute legal, valid and binding obligations of the Issuer, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws and principles of equity relating to or affecting the enforcement of creditors' rights; the Certificates, when issued, delivered and paid for, in accordance with the Ordinance and this Agreement, will constitute legal, valid and binding obligations of the Issuer entitled to the benefits of the Ordinance and enforceable in accordance with their terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws and principles of equity relating to or affecting the enforcement of creditors' rights; upon the issuance, authentication and delivery of the Certificates as aforesaid, the Ordinance will provide, for the benefit of the holders, from time to time, of the Certificates, the legally valid and binding pledge of taxes and revenues and lien it purports to create as set forth in the Ordinance. (d) The Issuer is not in material breach of or default in any material respect under any applicable constitutional provision, law or administrative regulation of the State or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Issuer is a party or to which the Issuer is otherwise subject, and no event has occurred and is continuing which constitutes or with the passage of time or the giving of notice, or both, would constitute a default or event of default by the Issuer under any of the foregoing; and the execution and delivery of the Certificates, the Issuer Documents and the adoption of the Ordinance and compliance with the provisions on the Issuer's part contained therein, will not conflict with or constitute a material breach of or default under (nor constitute any event which with notice, lapse of time, or both, would result in any breach of, or constitute a default under) any constitutional provision, law or administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Issuer is a party or to which the Issuer is or to which any of its property or assets are otherwise subject nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of the Issuer to be pledged to secure the Certificates, or under the terms of any such law, regulation or instrument, except as provided by the Certificates and the Ordinance. (e) All authorizations, approvals, licenses, permits, consents and orders of any governmental authority, legislative body, board, agency or commission having jurisdiction of the matters which are required for the due authorization of, which would constitute a condition precedent to, or the absence of which would materially adversely affect, the issuance of the Certificates or the due performance by the Issuer of its obligations under the Issuer Documents { 10176-OS / 00023774 / VS } 4 HOU:2937427.2 and the Certificates have been duly obtained or will be obtained prior to Closing, except for such approvals, consents and orders as may be required under the Blue Sky or securities laws of any jurisdiction in connection with the offering and sale of the Certificates. (f) The Certificates and the Ordinance conform to the descriptions thereof contained in the Official Statement under the caption "THE CERTIFICATES"; the proceeds of the sale of the Certificates will be applied generally as described in the Official Statement under the caption "THE CERTIFICATES — Sources and Uses of Funds" and the Continuing Disclosure Undertaking conforms to the description thereof contained in the Official Statement under the caption "CONTINUING DISCLOSURE OF INFORMATION". (g) Except as disclosed in the Official Statement, there is no litigation, action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, pending or, to the best knowledge of the Issuer, after due inquiry, threatened against the Issuer, affecting the existence of the Issuer or the titles of its officers to their respective offices, or affecting or seeking to prohibit, restrain or enjoin the sale, issuance or delivery of the Certificates or the collection and pledge of the ad valorem taxes and the net revenues of the System (as defined in the Ordinance) pledged to the payment of principal of and interest on the Certificates pursuant to the Ordinance or in any way contesting or affecting the validity or enforceability of the Certificates or the Issuer Documents, or contesting the exclusion from gross income of interest on the Certificates for federal income tax purposes, or contesting in any way the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto, or contesting the powers of the Issuer or any authority for the issuance of the Certificates, the adoption of the Ordinance or the execution and delivery of the Issuer Documents, nor, to the best knowledge of the Issuer, is there any basis therefor, wherein an unfavorable decision, ruling or finding would materially adversely affect the validity or enforceability of the Certificates or the Issuer Documents. (h) As of the date thereof, the Preliminary Official Statement did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (i) At the time of the Issuer's acceptance hereof and (unless the Official Statement is amended or supplemented pursuant to paragraph (d) of Section 3 of this Agreement) at all times subsequent thereto during the period up to and including twenty-five (25) days subsequent to the "end of the underwriting period," the Official Statement does not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (j) If the Official Statement is supplemented or amended pursuant to paragraph (d) of Section 3 of this Agreement, at the time of each supplement or amendment thereto and (unless subsequently again supplemented or amended pursuant to such paragraph) at all times subsequent thereto during the period up to and including twenty-five (25) days subsequent to the "end of the underwriting period", the Official Statement as so supplemented or amended will not contain any untrue statement of a material fact or omit to state any material { 10176-OS / 00023774 / VS } 5 HOU:2937427.2 fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which made, not misleading. (k) The Issuer will apply, or cause to be applied, the proceeds from the sale of the Certificates as provided in and subject to all of the terms and provisions of the Ordinance and will not take or omit to take any action which action or omission will adversely affect the exclusion from gross income for federal income tax purposes of the interest on the Certificates. (1) The Issuer will furnish such information and execute such instruments and take such action in cooperation with the Underwriter, at the sole expense of the Underwriter, as the Underwriter may reasonably request (1) to (i) qualify the Certificates for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions in the United States as the Underwriter may designate and (ii) determine the eligibility of the Certificates for investment under the laws of such states and other jurisdictions and (2) to continue such qualifications in effect so long as required for the distribution of the Certificates (provided, however, that the Issuer will not be required to qualify as a foreign corporation or to file any consents to service of process under the laws of any jurisdiction) and will advise the Underwriter immediately of receipt by the Issuer of any notification with respect to the suspension of the qualification of the Certificates for sale in any jurisdiction or the initiation or threat of any proceeding for that purpose. (m) No order preventing the use of the Preliminary Official Statement has been issued by the SEC or the securities commissioner (or similar official) of any state or other jurisdiction. (n) The financial statements of, and other financial information regarding, the Issuer in the Official Statement fairly present the financial position, results of operations and condition of the Issuer as of the dates and for the periods therein set forth; and there has been no adverse change of a material nature in the financial position, results of operations or condition, financial or otherwise since the date of such statements and information. (o) Except as disclosed in the Offl Statement, the Issuer is not a party to any litigation or other proceeding pending or, to its knowledge, threatened which, if decided adversely to the Issuer, would have a materially adverse effect on the financial condition of the Issuer. (p) Prior to the Closing, the Issuer will not offer or issue any bonds, notes or other obligations for borrowed money or incur any material liabilities, direct or contingent, payable from or secured by any of the revenues or assets which will secure the Certificates, except as may be incurred in the ordinary course of business, without the prior approval of the Underwriter. (q) Any certificate, signed by any official of the Issuer authorized to do so in connection with the transactions contemplated by this Agreement, shall be deemed a representation and warranty by the Issuer to the Underwriter as to the statements made therein. (r) The Issuer covenants that between the date hereof and the Closing it will take no actions which will cause the representations and warranties made in this Section to be untrue as of the Closing. { 10176-OS / 00023774 / VS} 6 HOU:2937427.2 By delivering the Official Statement to the Underwriter, the Issuer shall be deemed to have reaffirmed, with respect to such Official Statement, the representations, warranties and covenants set forth above with respect to the Preliminary Official Statement. 5. Clositrk. (a) At 10:00 a.m., Houston, Texas time, on July 30, 2009, or at such other time and date as shall have been mutually agreed upon by the Issuer and the Underwriter (the "Closing"), the Issuer will, subject to the terms and conditions hereof, deliver the Certificates to the Underwriter duly executed and authenticated, together with the other documents hereinafter mentioned, and the Underwriter will, subject to the terms and conditions hereof, accept such delivery and pay the purchase price of the Certificates as set forth in Section 1 of this Agreement by wire transfer payable in immediately available funds to the order of the Issuer. Payment for the Certificates as aforesaid shall be made at the offices of The Bank of New York Mellon Trust Company, Dallas, Texas (the "Paying Agent/Registrar"), or such other place as shall have been mutually agreed upon by the Issuer and the Underwriter. (b) Delivery of the Certificates in definitive form shall be made through The Depository Trust Company, New York, New York ("DTC"), or at the office of the Paying Agent/Registrar acting on behalf of DTC. The Certificates shall be delivered in definitive fully registered form, bearing CUSIP numbers without coupons, with one Certificate for each maturity of the Certificates, registered in the name of Cede & Co., all as provided in the Ordinance and shall be made available to the Underwriter at least one business day before Closing for the purpose of inspection. 6. Closing Conditio�zs. The Underwriter has entered into this Agreement in reliance upon the representations, warranties and agreements of the Issuer contained herein, and in reliance upon the representations, warranties and agreements to be contained in the documents and instruments to be delivered at the Closing and upon the performance by the Issuer of its obligations hereunder, both as of the date hereof and as of the date of the Closing. Accordingly, the Underwriter's obligations under this Agreement to purchase, to accept delivery of and to pay for the Certificates shall be conditioned upon the performance by the Issuer of its obligations to be performed hereunder and under such documents and instruments at or prior to the Closing, and shall also be subject to the following additional conditions, including the delivery by the Issuer of such documents as are enumerated herein, in form and substance reasonably satisfactory to the Underwriter: (a) The representations and warranties of the Issuer contained herein shall be tI ue, complete and correct on the date hereof and on and as of the date of the Closing, as if made on the date of the Closing. (b) The Issuer shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing. (c) At the time of the Closing, (i) the Issuer Documents and the Certificates shall be in full force and effect in the form heretofore approved by the Underwriter and shall not have been amended, modified or supplemented, and the Official Statement shall not have been { i o i 76-os i o0o2377a i vs } 7 HOU:2937427.2 supplemented or amended, except in any such case as may have been agreed to by the Underwriter; (ii) the net proceeds of the sale of the Certificates and any funds to be provided by the Issuer shall be deposited and applied as described in the Official Statement and in the Ordinance and (iii) all actions of the Issuer required to be taken by the Issuer shall be performed in order for Bond Counsel and counsel to the Underwriter to deliver their respective opinions referred to hereafter. (d) At the time of the Closing, all official action of the Issuer relating to the Certificates and the Issuer Documents shall be in full force and effect and shall not have been amended, modified or supplemented. (e) At or prior to the Closing, the Ordinance shall have been duly executed and delivered by the Issuer and the Issuer shall have duly executed and delivered and the Paying Agent/Registrar shall have duly authenticated the definitive Certificates. (f) At or prior to the Closing, the municipal bond insurance policy insuring the payment of the principal of and interest on the Certificates when due shall have been duly executed, issued and delivered by Assured Guaranty Corp. (the "Bond Insurer"). (g) At the time of the Closing, there shall not have occurred any change or any development involving a prospective change in the condition, financial or otherwise, or in the revenues or operations of the Issuer, from that set forth in the Official Statement that in the reasonable judgment of the Underwriter, is material and adverse and that makes it, in the reasonable judgment of the Underwriter, impracticable to market the Certificates on the terms and in the manner contemplated in the Official Statement. (h) The Issuer shall not have failed to pay principal or interest when due on any of its outstanding obligations for borrowed money. (i) All steps to be taken and all instruments and other documents to be executed, and all other legal matters in connection with the transactions described in this Agreement shall be reasonably satisfactory in legal form and effect to. the Underwriter. (j) At or prior to the Closing, the Underwriter shall have received one copy of each of the following documents. (1) The Official Statement signed on behalf of the Issuer by its duly authorized officers, and each supplement or amendment thereto, if any, as may have been agreed to by the Underwriter. (2) A copy of the Ordinance, certified by the City Secretary as having been duly adopted and in full force and effect, with such supplements or amendments as may have been agreed to by the Underwriter. (3) The undertaking of the Issuer which satisfies the requirements of section (d)(2) of the Rule (the "Continuing Disclosure Undertaking"). { 10176-OS / 00023774 / VS} 8 HOU:2937427.2 (4) The approving opinion of Andrews Kurth LLP, Houston, Texas ( 'Bond Counsel"), with respect to the Certificates, in substantially the form attached to the Official Statement. (5) A supplemental opinion of Bond Counsel addressed to the Issuer and the Underwriter substantially to the effect that: M the Ordinance has been duly adopted and is in full force and effect; (ii) the Certificates are exempted securities under the Securities Act of 1933, as amended (the "1933 Act"), and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and it is not necessary, in connection with the offering and sale of the Certificates, to register the Certificates under the 1933 Act or to qualify the Ordinance under the Trust Indenture Act; and (iii) the statements and information contained in the Official Statement under the captions "THE CERTIFICATES" (except the subcaptions "Bond Insurance and "Sources and Uses of Funds"), "GENERAL INFORMATION REGARDING THE CERTIFICATES," "REGISTRATION, TRANSFER AND EXCHANGE," "TAX RATE LIMITATIONS", "LEGAL MATTERS", "TAX EXEMPTION", "LEGAL INVESTMENTS IN TEXAS," "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES" and "CONTINUING DISCLOSURE OF INFORMATION" (except the subcaption "Compliance with Prior Undertakings") fairly summarizes the procedures and documents referred to therein and are correct as to matters of law. (6) An opinion, dated the date of the Closing and addressed to the Underwriter, of counsel to the Underwriter to the effect that: (i) the Certificates are exempted securities under the 1933 Act and the Trust Indenture Act and it is not necessary, in connection with the offering and sale of the Certificates, to register the Certificates under the 1933 Act and the Ordinance need not be qualified under the Trust Indenture Act; and (ii) based upon their participation in the preparation of the Official Statement as counsel for the Underwriter and their participation at conferences at which the Official Statement was discussed, but without having undertaken to determine independently the accuracy, completeness or fairness of the statements contained in the Official Statement, such counsel has no reason to believe that the Official Statement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except for any financial, { 10176-OS / 00023774 / VS} 9 HOU2937427.2 forecast, technical and statistical statements and data included in the Official Statement and the information regarding DTC and its book -entry system and the information regarding the municipal bond insurance policy, if any, in each case as to which no view need be expressed). (7) A certificate, dated the date of Closing, of an appropriate official of the Issuer to the effect that (i) the representations and warranties of the Issuer contained herein are true and correct in all material respects on and as of the date of Closing as if made on the date of Closing; (ii) except as disclosed in the Official Statement, no litigation or proceeding against the Issuer is pending or, to the best of his or her knowledge, threatened in any court or administrative body, or is there a basis for litigation, which would (a) contest the right of the council members, officers or officials of the Issuer to hold and exercise their respective positions, (b) contest the due organization and valid existence of the Issuer, (c) contest the validity, due authorization and execution of the Certificates or the Issuer Documents or (d) attempt to limit, enjoin or otherwise restrict or prevent the Issuer from functioning and collecting revenues, including payments on the Certificates, pursuant to the Ordinance, and other income or the levy or collection of the taxes and the net revenues of the System pledged or to be pledged to pay the principal of and interest on the Certificates, or the pledge thereof; (iii) all official action of the Issuer relating to the Official Statement, the Certificates and Issuer Documents have been duly taken by the Issuer, are in full force and effect and have not been modified, amended, supplemented or repealed; (iv) to the best of his or her knowledge, no event affecting the Issuer has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein, in light of the circumstances under which made, not misleading in any respect as of the time of Closing, and the information contained in the Official Statement is correct in all material respects and, as of the date of the Official Statement did not, and as of the date of Closing does not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading; and (v) there has not been any material adverse change in the financial condition of the Issuer since September 30, 2008, the latest date as of which audited financial information is available. (8) A certificate of the Issuer, dated the date of the Closing, of an appropriate official of the Issuer in form and substance satisfactory to Bond Counsel and counsel to the Underwriter (i) setting forth the facts, estimates and circumstances inexistence on the date of the Closing, which establish that it is not expected that the proceeds of the Certificates will be used in a manner that would cause the Certificates to be "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), and any applicable regulations (whether final, temporary or proposed), issued pursuant to the Code, and (ii) certifying that to the best of the knowledge and belief of the Issuer there are no other facts, estimates or circumstances that would materially { 1017G-OS / 00023774 / VS } 10 HOU:2937427.2 change the conclusions, representations and expectations contained in such certificate. (9) The approving opinion of the Attorney General of the State of Texas and the registration certificate of the Comptroller of Public Accounts of the State of Texas in respect of the Certificates. (10) Any other certificates and opinions required by the Ordinance for the issuance thereunder of the Certificates. (11) Evidence of (i) a rating assigned to the Certificates of "Aa2" by Moody's Investor's Service, Inc., based upon the municipal bond insurance policy issued by the Bond Insurer, and (ii) an underlying rating of "Baa2." (12) A copy of the municipal bond insurance policy issued by the Bond Insurer insuring the payment of the principal of and interest on the Certificates when due, together with an opinion of counsel to the Bond Insurer in form and substance satisfactory to the Underwriter. (13) A certificate of the Bond Insurer with respect to the accuracy of statements contained in the Official Statement regarding the municipal bond insurance policy and the Bond Insurer and the due authorization, execution, issuance and delivery of the municipal bond insurance policy. (14) Executed consents by Auldridge Griffin Certified Public Accountants P.C. to the inclusion of their opinion on the Issuer's Financial Statements for the year ended September 30, 2008, as an appendix to the Preliminary Official Statement and the Official Statement. (15) Such additional legal opinions, certificates, instruments and other documents as Bond Counsel, the Underwriter or counsel to the Underwriter may reasonably request to evidence the truth and accuracy, as of the date hereof and as of the date of the Closing, of the Issuer's representations and warranties contained herein and of the statements and information contained in the Official Statement and the due performance or satisfaction by the Issuer on or prior to the date of the Closing of all the respective agreements then to be performed and conditions then to be satisfied by the Issuer. All of the opinions, letters, certificates, instruments and other documents mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof if, but only if, they are in form and substance satisfactory to the Underwriter. If the Issuer shall be unable to satisfy the conditions to the obligations of the Underwriter to purchase, to accept delivery of and to pay for the Certificates contained in this Agreement, or if the obligations of the Underwriter to purchase, to accept delivery of and to pay for the Certificates shall be terminated for any reason permitted by this Agreement, this Agreement shall terminate and neither the Underwriter nor the Issuer shall be under any further obligation hereunder, except that the respective obligations of the Issuer and the Underwriter set forth in Sections 4 and 8 hereof shall continue in full force and effect. { 10176-OS / 00023774 / VS } 11 HOU:2937427.2 7. Termination. The Underwriter shall have the right to cancel its obligation to purchase the Certificates if, between the date of this Agreement and the Closing, the market price or marketability of the Certificates shall be materially adversely affected, in the reasonable judgment of the Underwriter, by the occurrence of any of the following: (a) legislation shall be enacted by or introduced in the Congress of the United States or recommended to the Congress for passage by the President of the United States, or the Treasury Department of the United States or the Internal Revenue Service or any member of the Congress or favorably reported for passage to either House of the Congress by any committee of such House to which such legislation has been referred for consideration, a decision by a court of the United States or of the State or the United States Tax Court shall be rendered, or an order, ruling, regulation (final, temporary or proposed), press release, statement or other form of notice by or on behalf of the Treasury Department of the United States, the Internal Revenue Service or other governmental agency shall be made or proposed, the effect of any or all of which would be to impose, directly or indirectly, federal income taxation upon interest received on obligations of the general character of the Certificates, or other action or events shall have transpired which may have the purpose or effect, directly or indirectly, of changing the federal income tax consequences of any of the transactions contemplated herein; or (b) legislation introduced in or enacted (or resolution passed) by the Congress or an order, decree or injunction issued by any court of competent jurisdiction, or an order, ruling, regulation (final, temporary, or proposed), press release or other form of notice issued or made by or on behalf of the SEC, or any other governmental agency having jurisdiction of the subject matter, to the effect that obligations of the general character of the Certificates, including any or all underlying arrangements, are not exempt from registration under or other requirements of the 1933 Act, or that the Ordinance is not exempt from qualification under or other requirements of the Trust Indenture Act, or that the issuance, offering or sale of obligations of the general character of the Certificates, including any or all underlying arrangements, as described herein or by the Official Statement or otherwise, is or would be in violation of the federal securities laws as amended and then in effect; or (c) any state blue sky or securities commission or other governmental agency or body in any state in which more than 159/o of the Certificates have been sold shall have withheld registration, exemption or clearance of the offering of the Certificates as described herein, or issued a stop order or similar ruling relating thereto; or (d) a general suspension of trading in securities on the New York Stock Exchange, the establishment of minimum prices on such exchange, the establishment of material restrictions (not in force as of the date hereof) upon trading securities generally by any governmental authority or any national securities exchange, a general banking moratorium declared by federal, State of New York, or State officials authorized to do so; or (e) the New York Stock Exchange or other national securities exchange or any governmental authority shall impose, as to the Certificates or as to obligations of the general character of the Certificates, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by, or the charge to the net capital requirements of, the Underwriter; or { 10176-OS / 00023774 / VS } 12 HOU:2937427.2 (f) any amendment to the federal or State Constitution or action by any federal or state court, legislative body, regulatory body or other authority materially adversely affecting the tax status of the Issuer, its property, income, securities (or interest thereon), or the validity or enforceability of the rates and charges or the collection of revenues to pay principal of and interest on the Certificates; or (g) any event occurring, or information becoming known which, in the reasonable judgment of the Underwriter, makes untrue in any material respect any statement or information contained in the Official Statement, or has the effect that the Official Statement contains an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; or (h) there shall have occurred since the date of this Agreement any materially adverse change in the affairs or financial condition of the Issuer; or (i) the United States shall have either become engaged in hostilities that did not exist prior to the date hereof or issued a declaration of war or a national emergency, or there shall have occurred a new material outbreak or escalation of hostilities or a national or international calamity or crisis, financial or otherwise; or (j) any fact or event shall exist or have existed that, in the Underwriter's reasonable judgment, requires or has required an amendment of or supplement to the Official Statement and the Issuer does not amend or supplement the Official Statement in a form and manner reasonably acceptable to the Underwriter; or (lc) there shall have occurred any downgrading, or any notice shall have been given of any intended or potential downgrading in the rating accorded any of the Issuer's obligations (including the rating to be accorded the Certificates); or (1) the purchase of and payment for the Certificates by the Underwriter, or the resale of the Certificates by the Underwriter, on the terms and conditions herein provided shall be prohibited by any applicable law, governmental authority, board, agency or commission. 8. Exyenses. (a) The Underwriter shall be under no obligation to pay, and the Issuer shall pay, any expenses incident to the performance of the Issuer's obligations hereunder, including, but not limited to (i) the cost of preparation and printing of the Certificates; (ii) the fees and disbursements of Bond Counsel and the Issuer's Financial Advisor; (iii) the fees and disbursements of any other engineers, accountants, and other experts, consultants or advisers retained by the Issuer; (iv) the fees for bond ratings and municipal bond insurance, if any; (v) the costs of preparing, printing and mailing the Preliminary Official Statement and the Official Statement; (vi) the fees and expenses of the Paying Agent/Registrar; (vii) advertising expenses (except any advertising expenses of the Underwriter as set forth below); (viii) the out-of-pocket, miscellaneous and closing expenses, including the cost of travel, of the officers and members of the Issuer; (ix) the Attorney General's review fee; and (x) any other expenses mutually agreed to by the Issuer and the Underwriter to be reasonably considered expenses of the Issuer which are incident to the transactions described herein. {10176-OS / 00023774 / VS} 13 HOU:2937427.2 (b) The Underwriter shall pay (i) the cost of preparation and printing of this Agreement, the Blue Sky Survey and Legal Investment Memorandum, if any; (ii) all advertising expenses in connection with the public offering of the Certificates; and (iii) all other expenses incurred by them in connection with the public offering of the Certificates, including the fees and disbursements of counsel retained by the Underwriter. 9. Notices. Any notice or other communication to be given to the Issuer under this Agreement may be given by delivering the same in writing to City of Sanger, Texas, 502 Elm Street, Sanger, TX 76266, Attention: City Manager; and any notice or other communication to be given to the Underwriter under this Agreement may be given by delivering the same in writing to Alluvion Securities LLC, 5100 Poplar Avenue, Suite 809, Memphis, Tennessee 38137 Attention: John Jumper, 10. Parties inn Interest. (a) This Agreement as heretofore specified shall constitute the entire agreement between us and is made solely for the benefit of the Issuer and the Underwriter (including successors or assigns of the Underwriter) and no other person shall acquire or have any right hereunder or by virtue hereof. This Agreement may not be assigned by the Issuer. All of the Issuer's representations, warranties and agreements contained in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigations made by or on behalf of the Underwriter; (ii) delivery of and payment for the Certificates pursuant to this Agreement; and (iii) any termination of this Agreement. (b) The term "successor" as used in this Agreement shall note include any purchaser, as such purchaser, of any Certificates from the Underwriter Beneficial Owner thereof. or any subsequent 11. Effectiveness. This Agreement shall become effective upon the acceptance hereof by the Issuer and shall be valid and enforceable at the time of such acceptance. 12. Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. 13. Severability. If any provision of this Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, or in all jurisdictions because it conflicts with any provision or provisions of any Constitution, statute, rule of public policy or any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions of this Agreement invalid, inoperative or unenforceable to any extent whatever. 14. Bnnsilness Day. For purposes of this Agreement, "business day" means any day on which the New York Stock Exchange is open for trading. 15. Section HeadirnQs. Section headings have been inserted in this Agreement as a matter of convenience of reference only, and it is agreed that such section headings are not a part of this Agreement and will not be used in the interpretation of any provisions of this Agreement. { 10176-OS / 00023774 / VS} 14 HOU:2937427.2 16. Counterparts. This Agreement may be executed in several counterparts each of which shall be regarded as an original (with the same effect as if the signatures thereto and hereto were upon the same document) and all of which shall constitute one and the same document. [Execution Page Follows] { 10176-OS / 00023774 / VS} l 5 HOU:2937427.2 If you agree with the foregoing, please sign the enclosed counterpart of this Agreement and return it to the Underwriter. This Agreement shall become a binding agreement between the Issuer and the Underwriter when at least the counterpart of this letter shall have been signed by or on behalf of each of the parties hereto. Respectfully submitted, ALLUVION SECURITIES LLC ACCEPTED AND AGREED to as of the date hereof: CITY OF SANGER, TEXAS Nam( Title: S-1 If you agree with the foregoing, please sign the enclosed counterpart of this Agreement and return it to the Underwriter. This Agreement shall become a binding agreement between the Issuer and the Underwriter when at least the counterpart of this letter shall have been signed by or on behalf of each of the parties hereto. Respectfully submitted, ALLUVION SECURITIES LLC By:_ Name: Title: ACCEPTED AND AGREED to as of the date hereof: CITY OF BANGER, TEXAS B� N Title: ►�� A� o� S-1 { 10176-OS / 00023774 / VS } SCHEDULE I $3,200,000 CITY OF SANGER, TEXAS (Denton County) Combination Tax and Revenue Certificates of Obligation, Series 2009 Interest Accrues From: Dated Date Term Certificatesla�Ib>�°� $420,000 4.375% Certificates due August 1, 2022 to Yield 4.54% CUSIP No. 800876 DJO $460,000 4.500% Certificates due August 1, 2024 to Yield 4.73% CUSIP No. 800876 DK7 $500,000 4.750% Certificates due August 1, 2026 to Yield 4.90% CUSIP No. 800876 DL5 Serial Certificates Maturity Principal Interest Initial (August 1) cal Amount Rate Yield/Pricelbl CUSIP 2010 $135,000 3.00% 1.00% 800876 CXO 2011 145,000 3.00 1.30 800876 CY8 2012 150,000 3.00 2060 800876 CZ5 2013 155,000 3.50 3.05 800876 DA9 2014 1%000 3.50 3.30 800876 13137 2015 1655000 3.50 3.60 800876 DC5 2016 170,000 3.50 3.75 800876 DD3. 2017 175,000 4.00 3.85 800876 DE1 2018 180,000 4.00 3.95 800876 DF8 2019 1905000 4.00 4.05 800876 DG6 2020 1955000 4.00 4.15 800876 DH4 (a) Certificates maturing on and after August 1, 2020, are subject to redemption, in whole or in pail, at the option of the City at the par value thereof plus accrued interest on August 1, 2019, or any date thereafter. See "THE CERTIFICATES — Optional Redemption." (b) The initial offering prices or yields of the Certificates are furnished by the Underwriter and represent the initial offering prices or yields to the public, which may be changed by the Underwriter at any time. �`) The Term Certificates are subject to mandatory sinking fund redemption prior to their stated maturity as described in the Official Statement. { 10176-OS / 00023774 / V2 } HOU:2937427.2 PRELIMINARY OFFICIAL STATEMENT Dated: June 30, 2009 NEW ISSUE: Book -Entry -Only Rating: Moody "Baa2" (See "RATINGS" herein) In the opinion of or, Counse% interest at the Cw7ificates is exclnrdable from gross income for federal income tax proposes under existing lmv, subject to 8re matters described under "TAX EXEMPTION" herein, and is not includable in the alternative minimum taxable income of individuals and cotporations. See "TAX EXEMPTION"for a discussion of the opinion of Bond Counsel. The City designated the Certificates as qualified tax-exempt obligations. See "QUALIFIED TAX- EXEMPT OBLIGATIONS. " THE CERTIFICATES WILL BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS. $3,200,000* CITY OF SANGER, TEXAS (Denton County) Combination Tax and Revenue Certificates of Obligation, Series 2009 Dated Date: July 15, 2009 Due: August 1, as shown on inside cover Interest on the $3,200,000' City of Sanger, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2009 (the "Certificates"), will accrue from their date of delivery, and will be payable February 1 and August I of each year, commencing on February 1, 2010. The Certificates will be issued only in fully registered form in principal denominations of $5,000 or any integral multiple thereof. Principal of the Certificates will be payable to the registered owner (the "Owner") at maturity or prior redemption upon presentation at the principal corporate office of the paying agent/registrar (the "Paying Agent/Registrar"), initially The Bank of New York Mellon Trust Company, N.A., Dallas, Texas. The Certificates will be initially registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ("DTC"). DTC will be responsible for distributing the principal and interest payments to the participating members of DTC and the participating members will be responsible for distributing the payment to the owners of beneficial interests in the Certificates. See "BOOK -ENTRY -ONLY SYSTEM" herein. Proceeds from the sale of the Certificates will be used (1) to pay contractual obligations to be incurred for the acquisition of land for a city park, construction of athletic fields on such city park, and for water, sewer, drainage and street improvements, and (2) to pay contractual obligations for professional services related thereto. See "THE CERTIFICATES — Sources and Uses of Funds" herein. The Certificates maturing on and after August 1, 20_, are subject to optional redemption in whole or in part on August 1, 20_, or on any date thereafter at a redemption price equal to the principal amount thereof plus accrued interest as more fully described herein. See "THE CERTIFICATES —Optional Redemption" herein. Certain Certificates are also subject to mandatory sinking fund redemption as more fully described herein. See "THE CERTIFICATES — Mandatory Redemption" herein. The Certificates will constitute direct obligations of the City of Sanger, Texas (the "City"), payable from ad valorem taxes levied against all taxable property within the City within the limits prescribed by law, and from a limited subordinate pledge (not to exceed $10,000) of surplus net revenues of the City's waterworks and sewer system as provided in the ordinance authorizing the Certificates. Application has been made by the City for a municipal bond insurance policy with respect to the Certificates. MATURITY SCHEDULE (On Inside Cover Page) The Cet7ificates are offered when, as and if issued, subject to the approval of legality by the Attorney General of the State of Texas and Andrews Kurth LLP, Bond Counsel, Houston, Texas. Certain legal matters will be passed upon for the Undenvriter by its counsel, Howell Linkous & Nettles, LLC, Charleston, South Carolina. The Certificates are expected to be available for delivery to the Undenvriter through DTC on or about July 30, 2009. ALLUVION SECURITIES LLC ASCEND TO A HIGHER PLAIN ' Preliminary, subject to change. * (e) (b) MATURITY SCHEDULE Term Certificate Certificates due August 1, (a) to Yield Serial Certificates Maturity Principal Interest Initial (Auaust1)(al Amount* Rate Yield/Price 2010 $145,000 2011 150,000 2012 155,000 2013 1555000 2014 160,000 2015 1659000 2016 170,000 2017 175,000 2018 180,000 2019 1905000 2020 1955000 2021 205,000 2022 215,000 2023 220,000 2024 230,000 2025 240,000 2026 250,000 CUSIP No. CUSIP(bl (b) Preliminary, subject to change. Certificates maturing on and after August 1, 20_, are subject to redemption, in whole or in part, at the option of the City at the par value thereof plus accrued interest on August 1, 20_, or any date thereafter. See "THE CERTIFICATES — Optional Redemption." CUSIP Numbers have been assigned to the Certificates by the CUSIP Service Bureau and are included solely for the convenience of the purchasers of the Certificates. Neither the City, the Financial Advisor nor the Underwriter shall be responsible for the selection or correctness of the CUSIP Numbers set forth above. CITY OF SANGER, TEXAS CITY COUNCIL Joe Higgs Mayor Glenn Ervin Mayor Pro-Tem Andy Garza Councilmember Russell Martin Councilmember Thomas Muir Councilmember Robert Patton Councilmember ADMINISTRATIVE OFFICERS Mike Brice Rosalie Chavez Robert Dillard, Esq. Nichols Jackson Dillard & Smith Dallas, Texas City Manager Assistant City Manager/City Secretary City Attorney CONSULTANTS, ADVISORS AND INDEPENDENT AUDITORS Andrews Kurth LLP, Houston, Texas Aldridge Griffin Certified Public Accountants P.C., Forth Worth, Texas Bond Counsel Independent Auditor Government Capital Securities Corporation, Southlake, Texas Financial Advisor USE OF INFORMATION IN OFFICIAL STATEMENT For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission, this documenC may be U•eated as an Official Statement of the City with respect to the Certificates described herein that has been deemed "final" by the City as of its date except for the omission of no More than the information permitted by Rule 15c2-12. No dealer, broker, salesman or other person has been authorized to give any information, or to make any representations other than those contained iu this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by the City, the Financial Advisor or the Underwriter. 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 jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawfiil to make such offer or solicitation. Any information and expressions of opinion herein contained are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under airy circumstances, create any implication that there has been no change in the affairs of the City or other matters described herein since the date hereof. The Underwriter has provided the following sentence for inclusion in this Official Statement The Underwriter has reviewed the information in this Official Statement in accordance with its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER -ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE THE MARKET PRICE OF THE ISSUE AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. Neither the City, the Financial Advisor nor the Underwriter make any representation as to the accuracy, completeness or adequacy of the information contained in this Official Statement regarding The Depository Trust Company or its Book-Enhy- Only System. ii [THIS PAGE INTENTIONALLY LEFT BLANK] TABLE OF CONTENTS SUMMARY STATEMENT............................................iv INTRODUCTORY STATEMENT ........................ 1 PLAN OF FINANCING ......................................... 1 Purpose. . I F 0 0 V w 4 d & 0 6 0 S 0 0 F 0 0 0 V 4 w 0 0 4 6 s * 0 9 V V 0 a & 4 6 0 0 0 0 9 0 0 0 * 0 0 q V & 1 0 0 0 9 w q 0 0 0 0 4 0 1 THE CERTIFICATES ........................................... 1 Authorization......................................................... I Security for the Certificates ................................... 1 Opitional Redemption .......................................... 1 Mandatory Redemption. 1 Notice of Redemption ............................................ 2 Bond Insurance..... Error! Bookmark not defined. Sources and Uses of Funds .................................... 2 GENERAL INFORMATION REGARDING THE CERTIFICATES.....................................03 General Description ............................................... 3 Legality.................................................................. 3 Defeasance............................................................4 3 Amendments to the Ordinance .............................. 3 OWNERSHIP.......................................................... 4 OWNER'S REMEDIES ......................................... 4 BOOK -ENTRY -ONLY SYSTEM ......................... 4 REGISTRATION, TRANSFER AND EXCHANGE...................................................... 4 TAX INFORMATION ............................................ 7 Summary of Certain Provisions of the Property Tax Code ........................................... 7 Effective Tax Rate and Rollback Tax Rate ........... 8 Property Assessment and Tax Payment ................. 8 Penalties and interest. 4 & a 0 0 a 0 1 w q A 6 4 & 0 0 9 0 9 F 0 V 0 $ r 0 a * 6 0 4 0 0 F 0 P 0 P w 0 r 0 F, 9 City Application of Property Tax Code. . 0 a * 0 0 P 0 P 0 V 9 Municipal Sales Tax .............................................. 9 TAX RATE LIMITATIONS ................................ 10 RETIREMENT PLAN. of ovens 684990906*66 8006*66 goes 0*06*606#68 10 INVESTMENT POLICIES .................................. 10 Accounting Principles Generally Accepted in the United States ............................................ 10 Legal Investments. . 0 a * 0 9 0 0 w P I w 1 0 a 0 9 0 P 0 0 4 w 0 & 0 6 6 a & 0 a 0 9 0 9 0 w 0 4 0 0 w 4 6 h a 10 Investment Policies. . 0 P 0 0 P 0 w 11 Additional Provisions .......................................... I 1 Current Investments ............................................. 12 RATINGS.............................................................. 12 PENDING LITIGATION ..................................... 12 LEGAL MATTERS..............................................12 TAXEXEMPTION...............................................13 QUALIFIED TAX-EXEMPT OBLIGATIONS............................................... 21 LEGAL INVESTMENTS IN TEXAS ................. 15 REGISTRATION AND QUALIFICATION OF ISSUE FOR SALE....................................15 CONTINUING DISCLOSURE OF INFORMATION..............................................15 FINANCIAL ADVISOR....... 9999046*66 o#os*#wwq*q* moose 0*04* 17 UNDERWRITING................................................17 CONCLUDING STATEMENT ........................... 17 Financial Information Regarding the City of Sanger, Texas General Information Regarding the City of Sanger, Texas Form of Opinion of Bond Counsel General Purpose Audited Financial Statements for the Fiscal Year Ended September 30, 2008 Appendix A Appendix B Appendix C Appendix D iii SUMMARY STATEMENT This Sununaty Statement is subject in all respects to the more complete information contained in this Official Statement. The offering of the Certificates to potential investors is made only by means of this entire Official Statement, including the schedules and appendices hereto. No person is authorized to detach this Sununary Statement from this Official Statement or to otherwise use it without this entire Official Statement including the Appendices hereto. The Issuer The City of Sanger, Texas, is located in Denton County, Texas. For information regarding the City, see Appendices A and B. The Certificates $3,200,000* Combination and Tax Revenue Certificates of Obligation, Series 2009, dated July 15, 2009, maturing on the dates and in the amounts set forth on the inside front cover of this Official Statement. Interest on the Certificates will accrue from their date of delivery and will be paid semiannually on February 1 and August 1, commencing February 1, 2010, until maturity or prior redemption. Purpose of Certificates Proceeds from the sale of the Certificates will be used (1) to pay contractual obligations to be incurred for the acquisition of land for a city park, construction of athletic fields on such city park, and for water, sewer, drainage and street improvements, and (2) to pay contractual obligations for professional services related thereto. See "THE CERTIFICATES —Sources and Uses of Funds" herein. Authorization and Security The Certificates are direct obligations of the City, issued pursuant to Chapter 271, Subchapter C, Texas Local Government Code, Chapter 1502, Texas Govermment Code, and an ordinance enacted by the City Council of the City (the "City Council") on July 6, 2009. The Certificates are payable from ad valorem taxes to be levied, within the limits prescribed by law, on all taxable property within the City and a limited pledge of surplus net revenues derived from the City's waterworks and sewer system, not to exceed $10,000, as provided in the ordinance authorizing the Certificates. Optional Redemption The Certificates maturing on and after August 1, 20_, are subject to optional redemption in whole or in part on August 1, 20 , or on any date thereafter at a price of par plus accrued interest as more fully described herein. See "THE CERTIFICATES -- Optional Redemption" herein. Mandatory Redemption The Certificates maturing on August 1, ,are subject to mandatory sinking fund redemption commencing on August 1, ,and will be redeemed as set forth in "THE CERTIFICATES -Mandatory Redemption" herein. Ratings The underlying rating of the Certificates is "Baa2" by Moody's Investor's Service, Inc. See "RATINGS" herein. Book -Entry -Only System The Certificates are initially issuable only to Cede & Co., the nominee of The Depository Trust Company, New York, New York, pursuant to the book -entry only system described herein. Beneficial ownership of the Certificates may be acquired in principal denominations of $5,000 or integral multiples thereof. No physical delivery of the Certificates will be made to the purchasers thereof. Principal of, premium if any, and interest on the Certificates will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the DTC Participants (as defined herein) for subsequent remittance to the owners of the beneficial interests in the Certificates. See "BOOK -ENTRY -ONLY SYSTEM" herein. [THIS PAGE INTENTIONALLY LEFT BLANK] OFFICIAL STATEMENT RELATING TO $312009000* CITY OF SANGER, TEXAS (Denton County) Combination Tax and Revenue Certificates of Obligation, Series 2009 INTRODUCTORY STATEMENT This Official Statement, which includes the cover page, the schedules and the appendices hereto, provides certain information regarding the issuance by the City of Sanger, Texas (the "City") of $3,200,000* Combination Tax and Revenue Certificates of Obligation, Series 2009 (the "Certificates"). The Certificates will be authorized to be issued, sold and delivered by an ordinance enacted by the City's governing body (the "City Council"), and such ordinance is referred to herein as the "Ordinance." Capitalized terms used in this Official Statement have the same meaning assigned to such terms in the Ordinance, except as otherwise indicated herein. The City is a political subdivision of the State of Texas (the "State") and a municipal corporation organized and existing under the laws of the State and the City's home rule charter (the "City Charter"), which was initially approved by the electorate of the City on November 2, 1999. For information regarding the City, see Appendices A and B of this Official Statement. All financial and other information presented in this Official Statement has been provided by the City, except for information expressly attributed to other sources. The presentation of information, including tables of receipts from taxes and other sources, is intended to show recent historic information, and is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as is shown by that financial and other information, will necessarily continue to be repeated in the future. PLAN OF FINANCING Purpose Proceeds from the sale of the Certificates will be used (1) to pay contractual obligations to be incurred for the acquisition of land for a city park, construction of athletic fields on such city park, and for water, sewer, drainage and street improvements, and (2) to pay contractual obligations for professional services related thereto. THE CERTIFICATES Authorization The Certificates are direct obligations of the City, issued pursuant to Chapter 271, Subchapter C, Texas Local Government Code, as amended, Chapter 1502, Texas Government Code, as amended, and the Ordinance, as authorized by the City Charter. Security for the Certificates The Certificates are payable from ad valorem taxes to be levied and collected, within the limits prescribed by law, on all taxable property within the City, and by a limited pledge of surplus net revenues derived from the City's waterworks and sewer system (the "System"), not to exceed D10,000, as provided in the Ordinance. Optional Redemption The City reserves the right, at its option, to redeem the Certificates having stated maturities on and after August 1, 20 , in whole or in part, in integral multiples of $5,000, on August I, 20 or any date thereafter, such redemption date or dates to be fixed by the City, at a redemption price equal to the principal amount thereof plus accrued interest to the date fixed for redemption. If less than all of the Certificates are to be redeemed, the City shall determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar (as defined herein) to select by lot the Certificates, or portions thereof, within each maturity to be redeemed. *Preliminary, subject to change. Mandatory Redemption The Certificates maturing on August 1, (the "Term Certificates"), are subject to mandatory sinking find redemption prior to maturity in part on August I in the years and in the amounts set forth below at a redemption price equal to the prinepal amount thereof plus accrued and unpaid interest to the redemption date, without premium: Year Mandatory Sinking Fund Redemption *Maturity The particular Term Certificates to be redeemed shall be selected by the Paying Agent/Registrar by lot or other customary random selection method, on or before June 15 of each year in which Term Certificates are to be mandatorily redeemed. The principal amount of Term Certificates to be mandatorily redeemed in each year shall be reduced by the principal amount of such Term Certificates that have been optionally redeemed and which have not been made the basis for a previous reduction. Notice of Redemption Not less than 30 days prior to a redemption date for the Certificates, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to each registered owner of a Certificate to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. If notice is so given and sufficient finds are provided for the payment of the redemption price of the Certificates, interest shall cease to accrue after the date fixed for redemption whether or not the Certificates have been submitted for payment. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, AND THE FUNDS NECESSARY TO REDEEM SUCH CERTIFICATES HAVING BEEN PROVIDED, THE CERTIFICATES CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY CERTIFICATE OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH CERTIFICATE OR PORTION THEREOF SHALL CEASE TO ACCRUE. Sources and Uses of Funds The proceeds from the sale of the Certificates will be applied approximately as follows: Sources Principal Amount of Certificates Net Original Issue Discount Total Sources of Funds Uses Deposit to Constriction Fund Costs of Issuance (including Underwriter's Discount) Deposit to Interest and Sinking Fund Total Uses of Funds 2 GENERAL INFORMATION REGARDING THE CERTIFICATES General Description The Certificates will be dated July 15, 2009, and will be issued in fiilly registered form in denominations of $5,000 or any integral multiple thereof. The Certificates will bear interest from their date of delivery. Interest will be paid semiannually on each February 1 and August 1, commencing February 1, 2010. Interest will accrue on the Certificates on the basis of a 360-day year consisting of twelve 30-day months. The Certificates will be issued as book -entry only securities pursuant to arrangements made with The Depository Trust Company, New York, New York. See "BOOK -ENTRY -ONLY SYSTEM." Principal of the Certificates will be payable to the registered owners (the "Owners") at maturity or prior redemption upon presentation and surrender of such Certificates at the principal corporate office of the paying agent/registrar (the "Paying Agent/Registrar"), initially The Bank of New York Mellon Trust Company, N.A., Dallas, Texas. Interest on the Certificates will be payable by check dated as of the interest payment date and mailed by the Paying Agent/Registrar to Owners as shown on the records of the Paying Agent/Registrar on the Record Date (see "REGISTRATION, TRANSFER AND EXCHANGE — Record Date for Interest Payment" herein), or by such other customary banking arrangement, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the Owner. If the date for the payment of the principal of or interest on a Certificate shall be a Saturday, Sunday, legal holiday, or a day on which banking institutions in the city where the Paying Agent/Registrar is located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday, or a day on which banking institutions are authorized to close; and payment on such date shall have the same force and effect as if made on the original date payment was due. The Certificates will mature on the dates, in the amounts and bear interest at the rates as set forth on inside front cover page of this Official Statement, Legality The Certificates are offered when, as and if issued, subject to the approvals of legality by the Attorney General of the State of Texas and Andrews Kurth LLP, Houston, Texas, Bond Counsel. (See "LEGAL MATTERS" and Appendix C — "Form of Opinion of Bond Counsel"), Defeasance The Ordinance provides for the defeasance of the Certificates when payment of the principal of acid premium, if any, on the Certificates 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 or other authorized entity, in trust (1) 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 compensation and expenses of the paying agent for the Certificates. The Ordinance provides that "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 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 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 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 Certificates shall no longer be regarded to be outstanding or unpaid. Amendments to the Ordinance In the Ordinance, the City has reserved the right to amend such Ordinance without the consent of any holder of the Certificates in any manner not detrimental to the interests of the holders of the Certificates, including the curing of any ambiguity, defect or omission therein. The Ordinance further provides that the holders of the Certificates aggregating in principal amount 51% of the outstanding Certificates shall have the right from time to time to approve any amendment not described above to the Ordinance; provided, however, that without the consent of 100% of the holders in original principal amount of the then outstanding Certificates no amendment may be made for the purpose of: (i) making any change in the maturity of any of the outstanding Certificates; (ii) reducing the rate of interest borne by any of the outstanding Certificates; (iii) reducing the amount of the principal of, or redemption premium, if any, payable on any outstanding Certificates; (iv) modifying the terms of payment of principal or of 3 interest or redemption premium on outstanding Certificates, or imposing any condition with respect to such payment; or (v) changing the minimum percentage of the principal amount of the Certificates necessary for consent to such amendment. Reference is made to the "Ordinance for further provisions relating to the amendment thereof. OWNERSHIP The City, the Paying Agent/Registrar and any other person may treat the person in whose name any Certificate is registered as the absolute owner of such Certificate for the purpose of making and receiving payment of principal and interest, and for all other purposes, whether or not such Certificate is overdue, and neither the City nor the Paying Agent/Registrar will be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the owner of any Certificate in accordance with the Ordinance will be valid and effectual and will discharge the liability of the City and the Paying Agent/Registrar upon such Certificate to the extent of the sums paid. OWNER'S REMEDIES The Ordinance does not establish or identify specific events of default with respect to the Certificates. Under state law, there is no right to the acceleration of maturity of the Certificates upon the failure of the City to observe any covenant under the Ordinance. Although a registered owner could presumably obtain a judgment against the City if a default occurred in the payment of the principal of or interest on any such Certificate, such judgment could not be satisfied by execution against any property of the City. Such registered owner's only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the City to levy, assess and collect an annual ad valorem tax sufficient to pay principal of and interest on the Certificates as it becomes due. The enforcement of such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. The Ordinance does not provide for the appointment of a trustee to represent the interest of the registered owners upon any failure of the City to perform in accordance with the teens of such Ordinance, or upon any other condition. Furthermore, the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code ("Chapter 9"), Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of taxes in support of a general obligation of a bankrupt entity is not specifically recognized as a security interest under Chapter 9. Chapter 9.also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or bondholders of an entity which has sought protection under Chapter 9. Therefore, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Certificates are qualified with respect to the customary rights of debtors relative to their creditors. BOOK -ENTRY -ONLY SYSTEM The Depository Trust Company, New York, New York ("DTC"), will act as securities depository for the Certificates. The Certificates will be issued in fiilly-registered form registered in the name of Cede & Co. (OTC's partnership nominee) or such other name as may be requested by an authorised representative of DTC. One fully -registered Certificate will be issued for each maturity of the Certificates, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest securities depository, is alimited-purpose trust company organised under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerised 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, mist companies, clearing corporations, and certain other organisations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's (as described herein) 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 and www.dtc.orr;. Purchases of Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC's records. The ownership interest of each actual purchaser of each Certificate (`Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Certificates are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Certificates, except in the event that use of the book -entry system for the Certificates is discontinued. To facilitate subsequent transfers, partnership nominee, Cede & Co., of Certificates with DTC and their in beneficial ownership. DTC has the identity of the Direct Particip� Owners. The Direct and Indirect customers. all Certificates deposited by Direct Participants with DTC are registered in the name of DTC's or such other name as may be requested by an authorised representative of DTC. The deposit registration in the name of Cede & Co. or such other DTC nominee do not effect any change no knowledge of the actual Beneficial Owners of the Certificates; DTC's records reflect only nts to whose accounts such Certificates are credited, which may or may not be the Beneficial Participants will remain responsible for keeping account of their holdings on behalf of their Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Certificates may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Certificates, such as redemptions, tenders, defaults, and proposed amendments to the Ordinance. For example, the Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Paying Agent/Registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Certificates are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Certificates unless authorised by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Ornnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption payments and principal and interest payments on the Certificates will be made to Cede & Co., or such other nominee as may be requested by an authorised representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of fiords and corresponding detail information from the City or the Paying Agent/Registrar on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent/Registrar or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption payments and principal and interest payments to Cede & Co. (or such other nominee as may be requested by an authorised representative of DTC) is the responsibility of the City or the Paying Agent/Registrar, and disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving reasonable notice to the City and the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered. The City and the Paying Agent/Registrar may decide to discontinue use of the system of book -entry -only transfers through DTC (or a successor securities depository). In that event, physical certificates will be printed and delivered to DTC. THE INFORMATION IN THIS SECTION CONCERNING DTC AND DTC'S BOOK -ENTRY SYSTEM HAS BEEN OBTAINED FROM DTC, AND THE CITY TAKES NO RESPONSIBILITY FOR THE ACCURACY THEREOF. NEITHER THE CITY NOR THE PAYING AGENT/REGISTRAR IS RESPONSIBLE OR LIABLE FOR THE FAILURE OF ANY DIRECT PARTICIPANTS OR ANY INDIRECT PARTICIPANTS TO MAKE ANY PAYMENT 5 OR GIVE ANY NOTICE TO A BENEFICIAL OWNER WITH RESPECT TO THE CERTIFICATES OR ANY ERROR OR DELAY RELATING THERETO. REGISTRATION, TRANSFER AND EXCHANGE Paying Agent/Registrar The initial Paying Agent/Registrar is The Bank of New York Mellon Tn�st Company, N.A., Dallas, Texas. The Certificates are being issued in fully registered form in integral multiples of $5,000 of principal amount. Interest on the Certificates will be payable semiannually by the Paying Agent/Registrar by check mailed on each interest payment date by the Paying Agent/Registrar to the registered owner at the address as it appears on the Paying Agent/Registrar's books on the Record Date or by such other customary banking arrangement acceptable to the Paying Agent/Registrar requested by and at the risk and expense of the registered owner. Successor Paying Agent/Regish•ar Provision is made in the Ordinance for replacement of the Paying Agent/Registrar. If the Paying Agent/Regish•ar is replaced by the City, 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 by the City shall be a commercial bank, a trust company, financial institution or other entity duly qualified and legally authorized to serve and perform the services of the Paying Agent/Registrar for the Certificates. Future Registration In the event the book -entry only system should be discontinued, printed Certificates will be delivered to the Owners and thereafter the Certificates may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender to the Paying Agent/Registrar, and such registration and transfer shall be without expense or service charge to the Owner, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. Certificates may be assigned by the execution of an assignment form on the Certificates or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. A new Certificate will be delivered by the Paying Agent/Registrar in lieu of the Certificate being transferred or exchanged at the designated office of the Paying Agent/Registrar, or sent by United States mail, first class, postage prepaid, to the new registered Owner at the Owner's request, risk and expense. New Certificates issued in an exchange or transfer of Certificates will be delivered to the registered Owner or assignee of the Owner after the receipt of the Certificates to be canceled in the exchange or transfer and the written instrument of transfer or request for exchange duly executed by the Owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Certificates registered and delivered in an exchange or transfer shall be of like kind and in authorized denominations and for a like aggregate principal amount as the Certificate or Certificates surrendered for exchange or transfer. See "BOOK -ENTRY -ONLY SYSTEM" for a description of the system to be utilized initially in the settlement and transfer of the Certificates. Record Date for Interest Payment The record date ("Record Date") for the interest payable on any interest payment date is the 15h day of the month next preceding such interest payment date, as specified in the Ordinance. In the event of a nonpayment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (the "Special Record Date") will be established by the Paying Agent/Registrar, if and when fiords for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (the "Special Payment Date" which shall be 15 days after the Special Record Date) shall be sent at least 5 days prior to the Special Record Date by United States mail, first class, postage prepaid, to the address of each Owner of a Certificate appearing on the books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. Limitation on Transfer of Certificates Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Certificate (i) during the period commencing with the close of business on any Record Date and ending with the opening of business on Che next following principal or interest payment date or (ii) with respect to any Certificate, or any portion thereof, called for redemption prior to maturity within 45 days prior to its redemption date, provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Certificate. 0. Replacement of Certificates If any Certificate is mutilated, destroyed, stolen or lost, a new Certificate in the same principal amount as the Certificate so mutilated, destroyed, stolen or lost will be issued. In the case of a mutilated Certificate, such new Certificate will be delivered only upon surrender and cancellation of such mutilated Certificate. In the case of any Certificate issued in lieu of and in substitution for a Certificate which has been destroyed, stolen or lost, such new Certificate will be delivered only (a) upon filing with the City and the Paying Agent/Registrar evidence satisfactory to them that such Certificate has been destroyed, stolen or lost and proof of the ownership thereof and (b) upon furnishing the City and the Paying Agent/Registrar with indemnity satisfactory to them. The person requesting the authentication and delivery of a new Certificate must pay such expenses as the Paying Agent/Registrar may incur in connection therewith. TAX INFORMATION Summary of Certain Provisions of the Property Tax Code The appraisal of property within the City is the responsibility of the Denton Central Appraisal District (the "Appraisal District"). Excluding agricultural and open -space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Property Tax Code to assess all property within the Appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. In determining the market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the Appraisal District's chief appraiser determines the method to be used. The value placed upon property within the Appraisal District is subject to review by the Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least once every three years. The City may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the City by petition filed with the Appraisal Review Board. Reference is made to the V.A.T.C.S., Property Tax Code, for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem tax purposes, and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution ("Article VIII") and State law provide for certain exemptions from property taxes, the valuation of agricultural and open -space lands at productivity value, and the exemption of certain personal property from ad valorem taxation. Under Section I-b, Article VIII, and State law, the governing body of a political subdivision, at its option, may grant: (1) An exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political suubdivision; and (2) An exemption of up to 20% of the market value of residence homesteads; minimum exemption $5,000. In the case of residence homestead exemptions granted under Section 1-b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. Legislation and a related amendment to the Texas Constitution authorize cities to limit the total ad valorem tax (except for increases attributable to certain improvements) on the residence homestead of the disabled or persons 65 years of age or older and their spouses to the amount of tax imposed in the later of (1) the year such residence qualified for an exemption based on the disability or age of the owner or (2) the year the City chose to establish the above -referenced limitation. On the receipt of a petition signed by five percent of the registered voters of the City, the City shall call an election to determine by majority vote whether to establish such a tax limitation. Once established, a city may not repeal or rescind the tax limitation. If a disabled or elderly person dies in a year in which the person received a residence homestead exemption, the total amount of ad valorem taxes imposed on the homestead by a city may not be increased while it remains the residence homestead of that person's surviving spouse if the spouse is fifty-five years of age or older or disabled at the time of the person's death. A proportionate share of the limitation applicable to a person's homestead is transferred to a new residence homestead of such person if the person moves to a different residence within the same city. State law and Section 2, Article VIII, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to $12,000, dependent upon the degree of disability or whether the exemption is applicable to a surviving spouse or children. 7 Article VIII provides that eligible owners of both agricultural land (Section 1-d) and open -space land (Section I-d-1), including open -space land devoted to farm or ranch purposes or open -space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Section I-d and I-d-1. State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of (I) Che market value of the property or (2) the sum of (a) 10% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the Property. Non -business personal property, such as automobiles or light trucks, are exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property. Boats owned as non -business property are exempt from ad valorem taxation. Section 1-j of Article VIII authorizes an ad valorem tax exemption for "freeport property". Freeport property is defined as goods detained in the State for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. The City and the other taxing bodies within its territory may agree to jointly create tax increment financing zones, under which the tax values on property in the zone are "frozen" at the value of the property at the time of creation of the zone. The City also may enter, into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The City in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years. The City has adopted a tax abatement policy with respect to certain areas within the City. See Appendix A — Tables 1, 3 and 4 for information relating to the City's taxable assessed valuation, property tax rates and collections and tax rate distribution. Et%cove Tax Rate and Rollback Tax Rate Before the later of September 30 or the 60th day after the date the certified appraisal roll is received by the City, the City Council must adopt a tax rate per $100 taxable value for the current year. If the City Council does not adopt a tax rate by such required date the tax rate for that tax year is the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the City for the preceding tax year. The tax rate consists of two components: (I) a rate for funding of maintenance and operation expenditures, and (2) a rate for debt service. Under the Property Tax Code, the City must annually calculate and publicize its "effective tax rate" and "rollback tax rate". A tax rate cannot be adopted by the City Council that exceeds the tower of the rollback tax rate or the effective tax rate until two public hearings have been held on the proposed tax rate following notice of such public hearings (including the requirement that notice be posted on the City's website if the City owns, operates or controls an internet website and public notice be given by television if the City has free access to a television channel) and the City Council has otherwise complied with the legal requirements for the adoption of such tax rate. If the adopted tax rate exceeds the rollback tax rate the qualified voters of the City by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate. "Effective tax rate" means the rate that will produce last year's total tax levy (adjusted) from this year's total taxable values (adjusted). "Adjusted" means lost values are not included in the calculation of last year's taxes and new values are not included in this year's taxable values. "Rollback tax rate" means the rate that will produce last year's maintenance and operation tax levy (adjusted) from this year's values (adjusted) multiplied by 1.08 plus a rate that will produce this year's debt service from this year's values (unadjusted) divided by the anticipated tax collection rate. The Property Tax Code provides that certain cities and counties in the State may submit a proposition to the voters to authorize an additional one-half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. Property Assessment and Tax Payment Property within the City is assessed as of January 1 of each year. Business inventory may, at the option of the taxpayer, be assessed as of September 1. Oil and gas reserves are assessed on the basis of a valuation process which uses an average daily 0 price of oil and gas for the prior year. Taxes become due October 1 of the same year, and become delinquent on February 1 of the following year. Taxpayers 65 years of age and over and taxpayers qualifying for the disabled person exemption are allowed to pay taxes on their residential homestead in four installments with the first installment due on February I of each year and the final installment due on August 1. Penalties and Interest Charges for penalty and interest on the unpaid balance of delinquent taxes ace made as follows: Cumulative Month Penalty February 6% March 7 Apri 1 8 May 9 June 10 July 27(n Cumulative Interest Total 1% 7% 2 9 3 11 4 13 5 15 6(2) 33 �" Includes au additional 15'%penalty to defray attorneys' fees. z Interest continues to accrue after July 1 at the rate that increases I°/n per month until paid. After July, penalty remains at 12%, and interest increases at the rate of 1 %each month. In addition, if an account is delinquent in July, an attorney's collection fee of up to 15% may be added to the total tax penalty and interest charge. Under certain circumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per annum with no additional penalties or interest assessed. In general, property subject to the City's lien may be sold, in whole or in )arcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post -petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post -petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. City Application of Property Tax Code The City grants an exemption of $10,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled. See Appendix A —Table 1 for a listing 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 expire in 2012. Municipal Sales Tax The City has adopted the provisions of V.A.T.C.S. Tax Code § 321.001 et seq., which grants the City the power to impose and levy a 1%Local Sales and Use Tax within the City. The proceeds of such tax are credited to the General Fund and are not pledged to payment of the Certificates. Collections and enforcements are effected through the offices of the State Comptroller of Public Accounts, who monthly remits the proceeds of the tax, after deduction of a 2% service fee, to the City. The Tax Code provides certain cities and counties the option of assessing a maximum one-half percent (I/2%) sales tax on retail sales of taxable items for the purpose of reducing its ad valorem taxes, if approved by a majority of the voters in a local option election. If the additional tax is approved and levied, the ad valorem property tax levy mast be reduced by the estimated amount of the sales tax revenues to be generated in the current year. Subject to the approval of a majority of the voters in a local option election, state law also provides certain cities the option of assessing a sales and use tax for a variety of other purposes, including economic and industrial development, municipal street maintenance and repair, and sports and community venues. State law limits the maximum aggregate sales and use tax rate in any area to 8'/a%. Accordingly, the collection of local sales and use taxes in the area of the City (including sales and use taxes levied by the City) is limited to no more than 2% (when combined with the State sales and use tax rate of 6'/a%). In addition to the one percent (1%) out sales and use Cax referred to above, at an election held on May Z, 1998 voters of the City approved the imposition of an additional one-half percent (1/2%) sales and use tax for economic development purposes in accordance with Section 4A, Article 5190.6 of Vernon's Annotated Texas Civil Statutes. Levy of the additional sales and use tax began in December, 1998. At an election held on May 2, 1998 voters of the City approved the imposition of an additional one- half percent (1/2%) sales and use tax for economic development purposes in accordance with Section 413, Article 5190.6 of Vernon's Annotated Texas Civil Statutes. Levy of the additional sales and use tax began in December, 1998. The City has not held an election regarding an additional sales tax for the purpose of reducing its ad valorem taxes. TAX RATE LIMITATIONS Article XI, Section 5, of the State Constihition is applicable to the City and imposes a limitation on ad valorem taxes which can be imposed by the City of $2,50 per $100 taxable assessed valuation. The City Charter provides that the maximum tax rate is limited only by the maximum limit as may be imposed pursuant to the State Constitution, currently $2.50 per $100 taxable assessed valuation. The Attorney General of Texas follows a policy, with respect to Home Rule Cities which have such a $2.50 limitation, of approving ad valorem tax bonds only to the extent that all of such city's ad valorem tax debt can be serviced by a debt service tax rate of $1.50 at 90% collection. RETIREMENT PLAN The City participates in the Texas Municipal Retirement System which is a joint contributory retirement plan covering all fiill- time employees. There are no benefits guaranteed other than to the extent provided by employee and employer contributions, plus earnings, accumulated in the individual accounts of employees. The contribution rate for employees is 6% of their annual covered salary. The City is required to contribute at an actuarially determined rate; the current rate as of September 30, 2008 is 7.91 %. This rate consists of the normal cost contribution rate and the prior service contribution rate, both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate is the actuarially determined percent of payroll necessary to satisfy the obligation of the City to each employee at the time his/her retirement becomes effective. The prior service contribution rate amortizes the unfunded actuarial liability over the remainder of the plan's 25-year amortization period. Contributions by the City for the year ended September 30, 2008 totaled $167,608. For additional information regarding the City's Pension Plans, see Appendix D - "General Purpose Financial Statements for the Fiscal Year Ended September 30, 2008, Notc G -Pension Plan". INVESTMENT POLICIES Accounting Principles Generally Accepted in the United States The City policy is to adhere to accounting principles generally accepted in the United States (see Appendix D "General Purpose Financial Statements for the Fiscal Year Ended September 30, 2008"). Legal Investments Under current State law, the City is authorized to invest in (1) obligations of the United States or its agencies and inshtiunentalities, (2) direct obligations of the State of Texas or its agencies and instrumentalities, (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States, (4) other obligations the principal of and interest on which are unconditionally 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 meeting the requirements of the Texas Public Funds Investment Act (Chapter 2256, Texas Government Code) that are issued by or through an institution that either has its main office or a branch in the State, 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) frilly collateralized repurchase agreements that have a 10 defined termination date, are fiilly 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) securities lending programs if (i) the securities loaned under the program are collateralized and a loan made under the program allows for termination at any time and is either secured by (a) obligations that are described in clauses (1) through (6) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm at not less than A or its equivalent or (c) cash invested in obligations described in clauses (1) through (6) above, clauses (11) through (13) below, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the City and held in the City's name; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less, (10) certain banker's 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, (11) commercial paper with a stated maturity of 270 days or less that is rated as 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 fiully secured by an irrevocable letter of credit issued by a U. S. or state bank, (12) no-load money market mutual fiords 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, (13) no-load mutual fiords 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 preceding clauses; 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, and (14) guaranteed investment contracts that have a defined termination date and are secured by obligations described in clause (1) above in an amount at least equal to the amount of bond proceeds invested under such contract. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than "Aaa" or "AAA" or an equivalent by at least one nationally recognized rating service. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage -backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage -backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. Investment Policies Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar -weighted maturity allowed for pooled fiord groups. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each fiords' investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. Under Texas law, City investments must be made "with judgment and care, under prevailing circumstances, that a person of prudence, discretion and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived." At least quarterly the investment officers of the City shall submit an investment report detailing: (1) the investment position of the City, (2) that all investment officers jointly signed the report, (3) the beginning market value, any additions and changes to market value and the ending value of each pooled fiord group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) state 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 relatives with firms seeking to sell secturities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council; (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) perform an annual audit of the management controls on investments and adherence to the City's investment policy; (5) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; (6) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase 11 agreement fiends to no greater than the term of the reverse repurchase agreement; (7) restrict the investment in mutual fiends in the aggregate to no more than 15% of the City's monthly average fiord balance, excluding bond proceeds and reserves and other fiords held for debt service, and prohibit the investment in mutual fiords of any portion of bond proceeds, reserves and fiends held for debt service; and (8) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements. Current Investments As of September 30, 2008, the City's investment portfolio was invested in the following categories. As of such date, the market value of such investments was approximately 100% of their book value. Type of Investment Amount Percentalle Cash, Certificates of Deposit, $9,564,254 100% Checking Accounts and Savings Accounts RATINGS The Certificates are rated "Baal" by Moody's Investor's Service, Inc. ("Moody's"). The rating reflects only the view of such organization at the time such rating was given and the City makes no representation as to the appropriateness of the rating. There is no assurance that such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by Moody's, if in the judgment of Moody's, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Certificates. PENDING LITIGATION There is no litigation currently pending against the City. LEGAL MATTERS The City will fiurnish a complete transcript of proceedings incident to the authorization and issuance of the Certificates, including the approving legal opinions of the Attorney General of the State of Texas to the efI•eet that the Certificates are valid and binding obligations of the City, and based upon examination of such transcripts of proceedings, the approving legal opinions of Bond Counsel to the effect that (i) the Certificates issued in compliance with the provisions of the Ordinance are valid and legally binding obligations of the City and (ii) the interest on the Certificates is exempt from federal income taxation under existing statutes, published rulings, regulations, and court decisions (see "TAX EXEMPTION"). Bond Counsel has not been engaged to investigate the financial resources of the City or its ability to provide for payment of the Certificates, and the opinion of Bond Counsel will make no statement as to such matters, or any other information that may have been relied on by anyone in making the decision to purchase the Certificates. The legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Certificates are contingent on the sale and delivery of the Certificates. The applicable legal opinion will be printed on or attached to the definitive Certificates. Bond Counsel has reviewed the statements and information appearing in the Official Statement under the captions "THE CERTIFICATES" (except the subcaptions "Bond Insurance" and "Sotiu•ces and Uses of Funds"), "GENERAL INFORMATION REGARDING THE CERTIFICATES," "REGISTRATION, TRANSFER AND EXCHANGE", "TAX RATE LIMITATIONS," "LEGAL MATTERS," "TAX EXEMPTION," "LEGAL INVESTMENTS IN TEXAS," "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM BONDS," and "CONTINUING DISCLOSURE OF INFORMATION" (except the subcaption "Compliance With Prior Undertakings") fairly summarizes the procedures and documents referred to therein and is correct as to matters of law. Bond Counsel has not independently verified any of the factual information contained in this Official Statement nor have they conducted an investigation of the affairs of the City for the purpose of passing upon the accuracy or completeness of this Official Statement. No person is entitled to rely upon such firm's limited participation as an assumption of responsibility for, or an expression of opinion of any kind with regard to, the accuracy or completeness of any of the information contained herein. 12 TAX EXEMPTION In the opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel, interest on the Certificates is (1) excludable under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), from gross income of the owners thereof for federal income tax purposes and (2) is not includable in the alternative minimum taxable income of individuals and corporations. The foregoing opinions of on Cotmsel are based on the Code and the regulations, rulings and court decisions thereunder in existence on the date of issue of the Certificates. Such authorities are subject to change and any such change could prospectively or retroactively result in the inclusion of the interest on the Certificates in gross income of the owners thereof or change the treatment of such interest for purposes of computing alternative minimum taxable income. In rendering its opinions, Bond Counsel has assumed continuing compliance by the City with certain covenants of the ordinance authorizing the issuance of the Certificates (the "Ordinance") and has relied on representations by the City with respect to matters solely within the knowledge of the City, which Bond Counsel has not independently verified. The covenants and representations relate to, among other things, the use of Certificate proceeds and any facilities financed therewith, the source of repayment of the Certificates, the investment of Certificate proceeds and certain other amounts prior to expenditure, and requirements that excess arbitrage earned on the investment of Certificate proceeds and certain other amounts be paid periodically to the United States and that the City file an information report with the Internal Revenue Service (the "Service"). If the City should fail to comply with the covenants in the Ordinance, or if its representations relating to the Certificates that are contained in the Ordinance should be determined to be inaccurate or incomplete, interest on the Certificates could become taxable from the date of delivery of the Certificates, regardless of the date on which the event causing such taxability occurs. Except as stated above, Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt or accrual of interest on or acquisition or disposition of the Certificates. Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the City described above. No riling has been sought from the Service with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel's opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Certificates is commenced, under current procedures the Service is likely to treat the City as the "taxpayer," and the owners of the Certificates may have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Certificates, the City may have different or conflicting interests from the owners of the Certificates. Public awareness of any future audit of the Certificates could adversely affect the value and liquidity of the Certificates during the pendency of the audit, regardless of its ultimate outcome. Under the Code, taxpayers are required to provide information on their returns regarding the amount of tax-exempt interest, such as interest on the Certificates, received or accrued during the year. Prospective purchasers of the Certificates should be aware that the ownership oftax-exempt obligations, such as the Certificates, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a financial asset securitization investment trust (FASIT) that holds tax-exempt obligations, and individuals otherwise eligible for the earned income tax credit. Such prospective purchasers should consult their tax advisors as to the consequences of investing in the Certificates. TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES Discount Certificates Some of the Certificates may be offered at an initial offering price which is less than the stated redemption price at maturity of such Certificates. If a substantial amount of any maturity of the Certificates is sold to members of the public (which for this purpose excludes bond houses, brokers and similar persons or entities acting in the capacity of wholesalers or underwriters) at such initial offering price, an initial owner who purchases the Certificates of that maturity (the "Discount Certificates") will be considered to have "original issue discount" for federal income tax purposes equal to the difference between (a) the stated redemption price payable at the maturity of such Discount Certificate and (b) the initial offering price to the public of such Discount Certificate. Under existing law, such original issue discount will be treated for federal income tax purposes as additional interest on a Certificate and such initial owner will be entitled to exclude from gross income for federal income tax purposes that portion of such original issue discount deemed to be earned (as discussed below) during the period while such 13 Discount Certificate continues to be owned by such initial owner. Except as otherwise provided herein, the discussion regarding interest on the Certificates under the caption "TAX EXEMPTION" generally applies to original issue discount deemed to be earned on a Discount Certificate while held by an owner who has purchased such Certificate at the initial offering price in the initial public offering of the Certificates and that discussion should be considered in connection with this portion of the Official Statement. In the event of a redemption, sale, or other taxable disposition of a Discount Certificate prior to its stated maturity, however, any amount realized by such initial owner in excess of the basis of such Discount Certificate in the hands of such owner (increased to reflect the portion of the original issue discount deemed to have been earned while such Discount Certificate continues to be held by such initial owner) will be includable in gross income for federal income tax purposes. Because original issue discount on a Discount Certificate will be treated for federal income tax purposes as interest on a Certificate, such original issue discount must be taken into account for certain federal income tax purposes as it is deemed to be earned even though there will not be a corresponding cash payment. Owners of a Discount Certificate may be required to take into account such original issue discount as it is deemed to be earned for purposes of determining certain collateral federal tax consequences of owning a Certificate. See "TAX EXEMPTION" for a reference to collateral federal tax consequences for certain owners. The characterization of original issue discount as interest is for federal income tax purposes only and does not otherwise affect the rights or obligations of the owner of a Discount Certificate or of the City. The portion of the principal of a Discount Certificate representing original issue discount is payable upon the maturity or earlier redemption of such Certificate to the registered owner of the Discount Certificate at that time. Under special tax accounting Hiles prescribed by existing law, a portion of the original issue discount on each Discount Certificate is deemed to be earned each day. The portion of the original issue discount deemed to be earned each day is determined under an actuarial method of accrual, using the yield to maturity as the constant interest rate and semi-annual compounding. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Discount Certificates by an owner that did not purchase such Certificates in the initial public offering and at the initial offering price may be determined according to rules which differ from those described above. All prospective purchasers of Discount Certificates should consult their tax advisors with respect to the determination for federal, state and local income tax purposes of interest and original issue discount accrued upon redemption, sale or other disposition of such Discount Certificates and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Discount Certificates, Premium Certificates Some of the Certificates may be offered at an initial offering price which exceeds the stated redemption price payable at the maturity of such Certificates. If a substantial amount of any maturity of the Certificates is sold to members of the public (which for this purpose excludes bond houses, brokers and similar persons or entities acting in the capacity of wholesalers or underwriters) at such initial offering price, each of the Certificates of such maturity ("Premium Certificates") will be considered for federal income tax purposes to have "bond premium" equal to the amount of such excess. The basis for federal income tax purposes of a Premium Certificate in the hands of an initial purchaser who purchases such Certificate in the initial offering must be reduced each year and upon the sale or other taxable disposition of the Certificate by the amount of amortizable bond premium. This reduction in basis will increase the amount of any gain (or decrease the amount of any loss) recognized for federal income tax purposes upon the sale or other taxable disposition of a Premium Certificate by the initial purchaser. Generally, no corresponding deduction is allowed for federal income tax purposes, for the reduction in basis resulting from amortizable bond premium. The amount of bond premium on a Premium Certificate which is amortizable each year (or shorter period in the event of a sale or disposition of a Premium Certificate) is determined under special tax accounting rules which use a constant yield throughout the term of the Premium Certificate based on the initial purchaser's original basis in such Certificate. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition by an owner of Certificates that are not purchased in the initial offering or which are purchased at an amount representing a price other than the initial offering prices for the Certificates of the same maturity may be determined according to Hiles which differ from those described above. Moreover, all prospective purchasers of Certificates should consult their tax advisors with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of Premium Certificates. 14 QUALIFIED TAX-EXEMPT OBLIGATIONS Section 265(a) of the Code provides, in general, that interest expenses incurred to acquire or carry tax-exempt obligations are not deductible from the gross income of the holder. For certain holders that are "financial institutions" within the meaning of such section, complete disallowance of such expense would apply to taxable years beginning after December 31, 1986, with respect to tax-exempt obligations acquired after August 7, 1986. Section 265(b) of the Code provides an exception to this rule for interest expense incurred by financial institutions to carry tax-exempt obligations (other than certain private activity bonds) which are designated by an issuer as "qualified tax-exempt obligations." An issuer may only designate an issue as an issue of "qualified tax-exempt obligations" where less than $30 million of tax-exempt obligations are issued by the issuer during the calendar year in which the issue so designated is issued. The City will designate the Certificates as "qualified tax-exempt obligations." Further, the City will represent that it has or will take such action necessary for the Certificates to constitute "qualified tax-exempt obligations." Notwithstanding the designation of the Certificates as "qualified tax-exempt obligations," financial institutions acquiring the Certificates will be subject to a twenty percent (20%) disallowance of interest expenses allocable to the Certificates. LEGAL INVESTMENTS IN TEXAS Section 1201.041 of the Public Security Procedures Act provides that the Certificates are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal and authorized investments for insurance companies, fiduciaries and trustees, and for sinking fiords of municipalities or other political subdivisions or public agencies of the State of Texas. For political subdivisions in the State which have adopted investment policies and guidelines in accordance with the Public Funds Investment Act (V.T.C.A., Government Code, Chapter 2256), the Certificates may have to be assigned a rating of "A" or its equivalent as to investment quality by a national rating agency before such obligations are eligible investments for sinking funds and other public funds. See "RATINGS" herein. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Certificates are legal investments for state banks, savings banks, trust companies with capital of at least one million dollars, and savings and loan associations. Texas law further provides that the Certificates are eligible to secure deposits of any public fiords of the state, its agencies and its political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the City has been made of the laws in other states to determine whether the Certificates are legal investments for various institutions in those states. REGISTRATION AND QUALIFICATION OF ISSUE FOR SALE The sale of the Certificates has not been registered under the Federal Secuurities Act of 1933, as amended, in reliance uupon the exemption provided thereunder by Section 3(a)(2); and the Certificates has not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Certificates been qualified under the securities act of any other jurisdiction. The City assumes no responsibility for 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 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 provisions. CONTINUING DISCLOSURE OF INFORMATION In the Ordinance, the City has made the following agreement for the benefit of the holders and beneficial owners of the Certificates. The City is required to observe the agreement for so long as it remains obligated to advance fiords to pay the Certificates. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to the Municipal Securities Rulemaking Board ("MSRB"). This information will be available to securities brokers and others at no charge via the MSRB's Electronic Municipal Market Access ("EMMA") system at www.emma.insrb.org. Annual Reports The City will provide certain updated financial information and operating data to the MSRB annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in this Official Statement in Appendix A —Financial Information Regarding the City of Sanger, Texas (Tables I-10) and in Appendix D. The City will update and provide this information within six months after the end of each fiscal year. The City may provide updated information in fidl text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 151;2-12 (the "Rule"). The updated information will include audited financial statements, 15 if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the City will provide unaudited financial statements by the required time, and will file the annual audit report when it becomes available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix D or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by the last day of March in each year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify the MSRB of the change. Material l�vent Notices The City will also provide timely notices of certain events to the MSRB. The City will provide notice of any of the following events with respect to the Certificates, if such event is material to a decision to purchase or sell Certificates; (I) 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 (I I) rating changes. Neither the Certificates nor the Ordinance make any provision for debt service reserves or liquidity enhancement. In addition, the City will provide timely notice of any failure by the City to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports". Availability o1' Information from MSRB The City has agreed to provide the foregoing information only to Che MSRB. The information will be available to holders of Certificates free of charge through the MSRB's EMMA System. Limitations and Amendments The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Certificates at any fixture date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Certificates may seek a writ of mandamus to compel the City to comply with its agreement. This continuing disclosure agreement may be amended by the City from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in The identity, nahu•e, stah�s, or type of operations of the City, but only if (1) the provisions, as so amended, would have permitted an underwriter to purchase or sell Certificates in the primary offering of the Certificates in compliance with the Rule, taking into account any amendments or interpretations of the Rule since such offering as well as such changed circumstances and (2) either (a) the registered owners of a majority in aggregate principal amount (or any greater amount required by any other provision of the Ordinance that authorizes such an amendment) of the outstanding Certificates consent to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interest of the registered owners and beneficial owners of the Certificates. The City may also amend or repeal the provisions of the continuing disclosure agreement if the Securities and Exchange Commission 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. If the City 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 Undertakings During the last five years, the City has not failed to comply in any material respect with any continuing disclosure agreement maAe by it in accordance with the Rule. 16 FINANCIAL ADVISOR Government Capital Securities Corporation, Soutmake, Texas (the "Financial Advisor"), is employed as financial advisor to the City to assist in the issuance of the Certificates. The fee of the financial advisor for services with respect to the Certificates is contingent upon the issuance and the sale of the Certificates. UNDERWRITING Alhivion Securities LLC, Memphis, Tennessee (the "Underwriter"), has agreed, subject to certain customary conditions to delivery, to purchase the Certificates at prices equal to the initial offering prices to the public, as shown on the inside cover page, of this Official Statement, less an Underwriter's Discount of $ on the Certificates. The Underwriter will be obligated to purchase all of the Certificates if any Certificates are purchased. Certificates may be offered and sold to certain dealers and others at prices lower than such public offering prices, and such public prices may be changed, from time to time, by the Underwriter. CONCLUDING STATEMENT The information set forth herein has been obtained from the City's records, audited financial statements and other sources which are considered to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will ever be realized. All of the summaries of the statutes, documents and the Ordinance contained in this Official Statement are made subject to all of the provisions of such statutes, documents, and the Ordinance. These summaries do not purport to be complete statements of such provisions and reference is made to such summarized documents for further information. Reference is made to official documents in all respects. The City has reviewed and approved the Official Statement and said instrument has been authorized for use and distribution by the Underwriter for the purpose of offering the Certificates. ATTEST: City Secretary, City of Sanger, Texas CITY OF SANGER, TEXAS Mayor, City of Sanger, Texas 17 [THIS PAGE INTENTIONALLY LEFT BLANK] FINANCIAL INFORMATION REGARDING THE CITY OF SANGER, TEXAS [THIS PAGE INTENTIONALLY LEFT BLANK] FINANCIAL INFORMATION FOR THE CITY ASSESSED VALUATION 2008 Total Value of Taxable Property Less Exemptions: Local, Optional Over-65 and/or Disabled Homestead Exemptions Disabled and Deceased Veterans' Exemptions Productivity Value Loss Homestead 10% Cap Adjustment Abatement Freeport Other 2008 Net Taxable Assessed Valuation (100% of Actual)�a� TABLE I $462,014,798 $ 9,488,575 263,500 285394,162 11033,342 291411,624 119429,331 91619,348 895639,882 $372,374,916 �°� See "TAX INFORMATION -City Application of the Property Tat Code" in the Official Statement for a description of the City's taxation procedures. Source: Denton County Appraisal District PRINCIPAL TAXPAYERS Name Walmart Stores East, L.P. Walmart Stores East, L.P. CEI/Sanger LTD Hughes Family Partners Central Telephone Co. Springer Family Rentals LLC Vast Inc. Gemini VI LLC ETAL Latham, Zane AcNatt Sanger Inc. Total Type of Business Distribution Distribution Distribution Development-res. Telephone/utility Real estate Real estate Connnercial retail Dealership * Based on 2008 Net Taxable Assessed Valuation $341,028,251 of Total 2008 Net Taxable 2008 Assessed Assessed Valuation Valuation* $451302,264 13.28% 31,0425475 9.10% 41890,000 L43% 25794,750 0.82% 25539,550 0.74% 252973777 0.67% 2,0993896 0.62% 198805514 0.55% 115759661 0.46% 1,566,517 0.46% 95.989,404 28.14% Source: Texas Comptroller of Public Accounts and Denton Central Appraisal District A-1 PROPERTY TAX RATES AND COLLECTIONSTABLE 3 Fiscal Tax Net Taxable Tax Collection % Year Year Assessed Valuation Rate Current Totalte, Ended 1998 $ 96,4495856 0050280 95.53% 99.76% 9-30-99 1999 109,642,638 0.52280 95.88% 99.86% 9-30-00 2000 129,014,176 0.52280 96.14% 98,15% 9-30-01 2001 1465091,829 0058879 94.11%'`' 96.78% 9-30-02 2002 2261882,983 0656547 97.03% 9T03% 9-30-03 2003 289,937,097 0456547 97.38% 97.38% 9-30-04 2004 312,537,172 0.57083 97.41 % 97.41 % 9-30-05 2005 3385298,363 0.59046 98.17 98.17 9-30-06 2006 353,244,529 0459960 97.36 97.36 9-30-07 2007 37253745916 0,62000 9-30-08 See "TfL1' INFORMATION -The Ci>J� Application of ilue Propertp Tax Code" in the OfTcial Statement for a description of the City's taxation proce(hures. Excludes interest and penalties. Source: Texas Municipal Report published by the Municipal Advisory Council of Texas, the Denton Counh) Appraisal District, and the Ciry's 2008 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 ocher tables of this Ocial Statement may not match those shown on this table. TAX RATE DISTRIBUTION TABLE 4 Maintenance & Source: City WATER RATES 2007-OS 2006-05 2005-04 0.22786 0.23067 0.15721 $0.62000 $0.59960 $0.57083 2004-05 0.15928 $0.57083 2003-04 0.20257 2002-03 0.21918 2001-02 0.21665 $0.59260 $0.56547 $0.58879 TABLE 5 Existing Rates Residential (Effective November 21, 2008) Minimum per unit served for 0 - 1,000 gallons $15.25 Next 4,000 gallons 2.35 per thousand gallons Next 10,000 gallons 2060 per thousand gallons Next 15,000 gallons 3.05 per thousand gallons Over 30,000 3.90 per thousand gallons Commercial (Effective October 1, 2008) Minimum per unit served for 0 - 1,000 gallons $18.00 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 Ir. PRINCIPAL WATER CUSTOMERS 2007-08 TABLE 6 (As of September 30, 2008) Average Monthly Consumption in Average Name of Customer Gallons Monthly Bill Sanger Mobile Home Park 735358 $39301.70 Sanger High School 44,580 15895082 Sanger Mobile Home Park 24,343 15145.69 Chisum Trail Apts 18,253 1,002.79 Living Center of America 16,366 657.18 Indian Car Wash 131064 532.65 Khosrow Sadeghian 12,429 772.17 Goldsten Company 111977 490.95 Sanger Inn 111465 460.45 SISD 9,721 389.08 Total 235,556 $10,648.41 SEWER RATES TABLE 7 Existing Rates Residential Minimum (first 1,000 gallons) $ 16.00 Per 1,000 gallons over first 11000 gallons 2.00 Maximum per month 35.00 Commercial 1/4 inch meter $ 22.00 1 inch meter 24.00 1'/2 inch meter 28.00 2 inch meter 33.00 3 inch meter 41.00 4 inch meter 76.00 Per 1,000 gallons over first 1,000 gallons 2000 Multi -Family Dwellings The amount due for multi -family dwellings shall be the residential rate multiplied by the number of occupied dwelling units. A-3 PRINCIPAL SEWER CUSTOMERS TABLE 8 (As oJ'Sepiember 30, 2008) Name of Customer Sanger Mobile Home Park Sanger ISD Sanger Mobile Home Park Chisum Trail Apts. Living Center of America Indian Car Wash IChosrow Sadeghia MHP Golston Co. Sanger Inn SISD Average Monthly Bill $ 3,301.70 1,895.82 11145669 1,002.72 657.18 532.65 772.17 277.60 217.35 231.67 Total $10.084.55 ELECTRIC RATES TABLE 9 Existing Rates (Effective June 30, 2008) Large Residential Small Commercial Commercial Facility Charge (minimum per month) $ 9.00 $ 15.00 $ 35.00 Energy Charge (per KWH) $ 040761634 $ 080816960 $ 0.0377050 Demand Charge (per KWH) $ - $ - $ 9.00 Energy Cost Adjustment Adjusted monthly* Adjusted monthly* - *The energy cost adjustment is based on the price of natural gas and adjusts monthly to recover cost of energy billed. PRINCIPAL ELECTRIC CUSTOMERS 2007-2008 TABLE 10 (As of September 30, 2008) Average Monthly Consumption in Name of Customer Kilowatt Hours Average Monthly Bill Wahnart 1,183,200 $13055507.64 Super Save 100,313 10,990.64 Hoffman Sundown Ranch 92,750 91832464 Golston Co. 74,196 8,662.89 SISD CTE 66,933 85112000 Living Center of America 52,910 69632.18 McDonald's 42,280 4,908.14 SISD Middle School 40,750 41950080 Wagon Master 38,025 49663019 Latham 375720 5,132033 Total 1,729,077 $194,392.45 A-4 GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS TABLE 11 THE CERTIFICATES Fiscal Year Current Total Combined Debt 30-Sept Debt Service Principal Interest Total Service 2009 $1,121,998 2010 9075943 2011 9105853 2012 908,383 2013 914,993 2014 915,233 2015 909,308 2016 912,558 2017 919,828 2018 9093873 2019 9133758 2020 920,898 2021 916,145 2022 329,830 2023 135,960 2024 131,120 2025 131,280 2026 136,220 2027 135,720 Total $13,0815901 A-5 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX B GENERAL INFORMATION REGARDING THE CITY OF SANGER9 TEXAS General The City of Sanger is a residential community located on Interstate Highway 35 northeast of the Dallas -Fort or industrial area. The City's close proximity to both Dallas and Fort Worth has been a significant factor in the City's growth. The City's 2007 estimated population is 7,554. Education The City is served by the Sanger Independent School District. The District covers approximately 42 square miles in Denton County and serves the City and its surrounding rural areas. The District is comprised of one early childhood center for grades pre -kindergarten through kindergarten, one elementary school for grades first through third, one intermediate school for grades fourth through sixth, one junior high school for grades seventh through eighth, and one high school for grades ninth through twelfth. All campuses offer enriched curricula with special programs for gifted/talented students as well as students achieving below grade level and are equipped with computers and cafeteria service. Denton County Denton County is located in north central Texas, encompassing 91 I square miles, and was created in 1846 from Fannin County. The County is the third largest county of the nine counties comprising the Dallas -Fort Worth Consolidated Metropolitan Statistical Area. The County is traversed by Interstate Highway 35, US Highways 77, 377 and 380 and State Highways 114 and 121. The economy is diversified by manufacturing, state supported institutions and agriculture. The County's 2008 estimated population is 614,650. �I [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX C FORM OF OPINION OF BOND COUNSEL [THIS PAGE INTENTIONALLY LEFT BLANK] I� ATTORNEYS K U R T H LlP 2009 600 Travis, Suite 4200 Houston, Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com WE HAVE ACTED as Bond Counsel for the CITY OF BANGER, TEXAS, a municipal corporation of the State of Texas (the "City") in connection with an issue of certificates of obligation (the "Certificates") described as follows: CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2009, dated July 15, 2009, in the aggregate principal amount of $ ,maturing on August 1 in each year from 20_ through and including 20_. The Certificates are issuable in fully registered form only, in denominations of $5,000 or integral multiples thereof, bear interest and may be transferred and exchanged as set out in the Certificates and in the ordinance (the "Ordinance") adopted by the City Council of the City (the "City Council") authorizing their issuance. WE HAVE ACTED as Bond Counsel for the sole purpose of rendering an opinion with respect to the legality and validity of the Certificates under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Certificates from gross income under federal income tax law. In such capacity we have examined the Constitution and laws of the State of Texas; federal income tax law; and a transcript of certain certified proceedings pertaining to the issuance of the Certificates, as described in the Ordinance. The transcript contains certified copies of certain proceedings of the City; certain certifications and representations and other material facts within the knowledge and control of the City, upon which we rely; and certain other customary documents and instruments authorizing and relating to the issuance of the Certificates. We have also examined executed Certificate No. R-1. WE HAVE NOT BEEN REQUESTED to examine, and have not investigated or verified, any original proceedings, records, data or other material, but have relied upon the transcript of certified proceedings. We have not assumed any responsibility with respect to the financial condition or capabilities of the City or the disclosure thereof in connection with the sale of the Certificates. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Certificates has been limited as described therein. BASED ON SUCH EXAMINATION, it is our opinion as follows: (1) The transcript of certified proceedings evidences complete legal authority for the issuance of the Certificates in full compliance with the Constitution and laws of the State of Texas presently in effect; the Certificates constitute valid and legally binding obligations of the City enforceable in accordance with the terms and conditions thereof, except to the extent that the rights and remedies of the owners of the Certificates may be limited by laws heretofore or hereafter enacted relating to bankruptcy, insolvency, reorganization, Austin Beijing Dallas Houston London Los Angeles New York The Woodlands Washington, DC Page 2 2009 moratorium or other similar laws affecting the rights of creditors of political subdivisions and the exercise of judicial discretion in appropriate cases; and the Certificates have been authorized and delivered in accordance with law; (2) The Certificates are payable, both as to principal and interest, from the receipts of an annual ad valorem tax levied, within the limits prescribed by law, upon taxable property located within the City, which taxes have been pledged irrevocably to pay the principal of and interest on the Certificates; and (3) The surplus revenues to be derived from the operation of the City's waterworks and sewer system, after the payment of all operation and maintenance expenses thereof (the "Net Revenues") in an amount not to exceed $10,000, are pledged to the payment of the principal of and interest on the Certificates; provided, however, that such pledge is junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of Net Revenues to the payment of the Certificates. The City has reserved the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind secured by a pledge of the Net Revenues that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. ALSO BASED ON OUR EXAMINATION AS DESCRIBED ABOVE, it is our further opinion that, subject to the restrictions hereinafter described, interest on the Certificates is excludable from gross income of the owners thereof for federal income tax purposes under existing law and is not subject to the alternative minimum tax on individuals or corporations. The opinion set forth in the first sentence of this paragraph is subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Certificates in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted in the Order to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Certificates in gross income for federal income tax purposes to be retroactive to the date of issuance of the Certificates. The Code and the existing regulations, rulings and court decisions thereunder, upon which the foregoing opinions of Bond Counsel are based, are subject to change, which could prospectively or retroactively result in the inclusion of the interest on the Certificates in gross income of the owners thereof for federal income tax purposes. EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or local tax consequences under present law, or future legislation, resulting from the ownership of, receipt or accrual of interest on, or the acquisition or disposition of, the Certificates. Prospective purchasers of the Certificates should be aware that the ownership of tax-exempt obligations, such as the Certificates, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with C-2 2009 Page 3 Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a financial asset securitization investment trust that holds tax-exempt obligations and individuals otherwise qualified for the earned income tax credit. For the foregoing reasons, prospective purchasers should consult their tax advisors as to the consequences of investing in the Certificates. OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above. Cat' [THIS PAGE INTENTIONALLY LEFT BLANK] BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2008 [THIS PAGE INTENTIONALLY LEFT BLANK] CITY OF SANGER ANNUAL FINANCIAL REPORT YEAR ENDED SEPTEMBER 30, 2008 This page is left inteutionally blank. City of Saeger Annual Financial Report Year raided September 30, 2008 Table of Contents FINANCIAL SECTION ................................. 1 Management's Discussion and Analysis... .. p to# tow 4 go 61006 o **1 040 A W4 It* got *** a Stoat 0 0 tattoo 4 Basic Financial Statements: Government -wide Financial Statements: Statement of Net Assets ...................................:................. 1 S Statementof Activities ................ ...................................... 16 Fund Financial Statements: Balance Sheet To Governmental Funds, • ................... 18 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets .................................... 19 Statement of Revenues, Expenses, and Changes in Fund Balances - Governmental Fund, 0 P W 9 4 T F a W t 9 V 0 a a 9 k a I W to 20 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities, 21 Statement of Revenues, Expenses, and Changes in Fund Balances - Budget and Actual - General Fund, a 4 1 f 9 a& 9 0 9 0 9 1 a so 22 Statement of Net Assets - Proprietary Funds, t 4 0 6 q * 1 0 a at q p 0 4 6 4 0 6 4 toot at ve 24 Statement of Revenues, Expenses, and Changes in Fund Net Assets - Proprietary Funds.. . To a a a & 0 0 a A a a 4 a a to 0 a a a 9 4 a a 60 V 0 1 a* 25 Statement of Cash Flows - Proprietary Funds. . I a 0 9 0 9 6 1 V 0 * 6 0 k go a 4 4 1 * 1 0 # V 27 Notesto the Financial Statements, a 6 a 0 & 6 a * 0 8 a 4 0 a a 0 0 6 0 0 a 1 0 a 0 4 0 9 t 6 P 1 0 q 0 P 0 0 a 0 9 0 9 a 9 9 1 5 a 4 28 Required Supplementary Information: Schedules of Revenues, Expenditures, and Changes in Fuud Balances -Budget and Achral: SpecialRevenue Funds, a $ 0 4 4 1 4 0 a 6 4 0 * 0 * 0 a 4 a a a 0 V 6 0 * a a o 6 6 1 * 6 9 0 a I a I a a 42 EnterpriseFund ................................................... 43 OTHER INFORMATION SECTION Combining Schedule of Revenues and Expenses SpecialRevenue Funds.............................................................. 47 Combining Schedule of Revenues and Expenses ProprietaryFund by Department ................................................... 48 Analysis of Property Taxes Receivable... ...................................... 51 Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditilzg Standards ............. 52 This page is left intentionally black. FINANCIAL SECTION This page is left intentionally blank. :. __ 7 ifi Puhlic Accountants Professional,p.. To the City Council City of Sanger, Texas Jack U. Auldridge, Jr., CPA Michael W. Griffin, CPA L. "Woody" Matheivs, Jr., CPA Kenneth L.. von Tungeln, CPA Keith A. Hollar, CPA INDEPENDENT AUDITOR'S REPORT Michael D. Dunlap, CPA Karen O. Thompson, CPA John A. Stanbery, CPA Kenneth W. Sanders, CPA We have audited the accompanying financial statements of the gover7nnental activities, the business -type activities, and each major fund of the City of Sanger (the City) as of and for the year ended September 30, 2008, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditizig standards .generally accepted err the United States of America and the standards applicable to financial audits contained in Goverrunent 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 Inade by management, as well as evaluating the overall financial statement presentations. We believe that our audit provides a reasonable basis for our opinion. Sn our opinion, the financial statements referred to above present fairly, mall material respects, the respective financial position of the governmental activities, the business -type activities, each major fiend, and the aggregate remaining fund information of the City of Sanger as of September 30, 2008, and the respective changes in financial position and, where applicable, cash flows thereof and the budgetary comparison for the general fund for the year then ended in conformity with accounting*principles generally accepted in the United States of America. Sze accordance with Gaverrrn7errt Auditing Standards, we have also issued our report dated April 21, 2009, on our consideration of the City's internal control over financial reporting and an our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is all integral part of an audit performed in accordance with Government Auditing Standards and important in assessing the results of our audit. The management's discussion and analysis on pages 4 through 12, and the budgetary comparison information on pages 42 and 43, are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of .America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. . However, we did not audit the information and express no opinion on it. 1 6300 Ridglea Place, Suite 810 • Fort Worth, TX 76116� Phone: 817.558.4000 I w���r.auldridge.com 131 S. Westmeadow Drive, Suite 200 • Cleburne, TX 76033 1 Phone: 817.641.1000 Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the City of Sanger's basic financial statements. The supplementary schedules contained on pages 47 through 51 are presented for purposes of additional analysis and are not a required part of the basic financial statements. These schedules have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, /accordingly, we express no opinion on them. Fort `Worth, Texas April 21, 2009 2 Managemeni's Discussion & Anaiytsis (N1D&A) This page is left intentionally blank. MANAGEMENT'S DISCUSSION AND ANALYSIS As management of the City of Sanger (the City), we offer readers of the City's financial statements this narrative overview and analysis of the City's financial activities for the fiscal year ended. September 30, 2008. We encourage readers to consider the information presented here in conjunction with the City's financial statements and accompanying footnotes, which can be found on pages 28 through 39 of this report. FINANCIAL HIGHLIGHTS a The City's total combined net assets were $16,537,546 at September 30, 2008. A The general fund reported a fund balance of $3,984,153 at September 30, 2008. The City's combined governmental fiords reported a fund balance of $5,070,124 at September 30, 2008. OVERVIEW OF THE FINANCIAL STATEMENTS This aiiiival report consists of three parts—ntartagentertt's discussion artd analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include two kinds of statements that present different views of the City=: gyre A 1. Requited Components of Financial e The first two statements are government -wide frnmtcial statements that provide both long-ter•ni and short-ter•rtt information about the City's overall financial status. • The remaining statements are fund financial statements that focus on individual parts of the government, reporting the City's operations in more detail than the government -wide statements. o The governmental funds statements tell how general gover nntent services were financed in the short tern: as well as what remains for future spending. v Proprietary fund statements offer short- and long -terra financial information about the activities the government operates like businesses. the City's Annual Financial Report ?Xanagerrrud •a D[auuaca� anei r�Kalyvta Basic Financial Statements Required Suppiemenlary Intormauon %toted GDVamment•4Ade Fund Financial Financial - - (a Statements Statements 'a[rantiaat! sra�t�tu Sutntnary <:�'�— "f � Detail The tnancial statements also include notes that explain some of the information m the financial statements and provide more detailed data. The statements are followed by a section of required mpplenientaiy n forniatiou that further explains and supports the information ill the financial statements. Figure A4 shows how the required parts of this animal report are arranged and related to one another, Figure A,I Major Features of the C'ity's Goverumeoh ode and Fund r1nancial Statements i,Jlrn,doutJtoss• . wmdion arc nor propri^,.trry or , tha dtstnct sroniar to pri%we s: self hmuawe dis�ict is the tnutee er alien¢ Cor SOW&O elsds Figure A-2 summarizes the major features of the City's financial statements, including the por-iion of the City government they cover and the types of information they contain. The remainder of this overview section of management's discussion and analysis explains the structure and contents of each of the statements. Govez•nment-wide Statemeuts The government-��'ide statements xeport information about the City as a whole using accounting methods similar to those used by private -sector companies. The statement of net assets includes all o£the government's assets and liabilities. All of the current year's revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two government -wide statements report the City's net assets and how they have changed. Net assets, the difference between the City's assets and liabilities, is one way to measure the Ciry's financial health or position. a Over time, increases or decreases in the City's net assets are an indicator of whether its financial health is improving or deteriorating, respectively. ® To assess the overall health of the City, you need to consider additional non -financial factors such as changes in the Ciry's tax base. The governlnent-,Aride financial statements of the City include the Governmental activilles. Most of the City's basic services are included here, such as general govenunent, publ0c safety, highways and streets, sanitation, economic development, and culture and recreation. Charges for services finance most of these activities. Fund Financial Staterneuta The fund financial statements provide more detailed urforrmation about the City's most significant funds --not the City as a whole. Funds are accounting devices that the City uses to keep track of specific sources of funding and spending for particular purposes. o Some funds are required by State law and certain bond covenants. The City has two kinds of funds: • Governmental funds —Mast of the City's basic services are included in govermnental funds, which focus on (1) how cash and other financial assets that can readily be converted to cash flow inland out and (2) the balances left at year-end that are available for spending. Consequently, the governmental fund statements provide a detailed short -terra view that helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the City's programs. Because this information does not encompass the additional long-term focus of the government -wide statements, we provide additional information at the bottom of the governmental funds statement, or on the subsequent page, that explain the relationship (or differences) between them. Proprietary funds (business type funds)- Services for which the City charges customers a fee are generally reported in proprietary fiends. Proprietary funds, like the government -wide statements, provide both long- and short-term. financial information. 6 GOVERN ENT -WIDE rINANCIAL ANALYSIS Net assets - The City's combined net assets were $16,537,546 at Septeniber30, 2008; compared to $1S,372,230 at September 30, 2007, representing an increase of $1,165,317 in total net assets. (See Table A-l). Table A-1 Net Assets Governmental Business-typc Activities Activities ONNOWO AM Total 2008 2007 2008 2007 2008 2007 Cash and cash equivalents $ 190,661 Accounts receivable, net 70,952 Other receivables 1295350 Inventories Prepaid expense Due from (to) other funds Restricted cash Bond'issuance costs, net Fixed assets Less accumulated depreciation Total assets Accounts payable Customer deposits Other liabilities Current portion long-term debt Compensated absences Long-term debt Total liabilities Net assets Invested u� capital assets Restricted for: Capital projects Special revenue funds Unrestricted Total net assets 1,312,311 3,581,407 120,309 1116842020 437285373 12,360,637 42,815 687,976 11b,88S 6;349,586 7,353,912 $ 56,961 $ 109,543 262,269 964,968 28,283 276,825 4,631 6,653 (15,828) (1,3121311) 5,300,474 5,682,643 1293292 1765864 10,626,498 23,098,293 (4,082,108 (9,715,440)_ 12,282,189 19,3161321 216,862 543,613 - 233,860 100,639 708,815 6587065 91;876 71,392 7,065,404 6,177,931 81082,957 7,785,SOQ 106,131 (1,100,537) 6,723,721 3,581,407 1,085,971 233,216 $5,006,725 4,238,214 5,682,643 1,094,948 - (33,393) (875,543) $401992232 $11,530,821 7 $ SS,S99 1,080,934 AN 285,670 6,653 15,828 4,375,050 200,450 22,387,648 (8,922,306) 1954852526 615,875 218,537 665,418 71,391 6,7412307 8,312,528 6,259,067 4,375,050 538>881 $11,172,998 $ 300,204 1,035,920 157,633 276,825 6,653 9,2b4,050 297,173 34,782,313 (141443,813) 31,676,958 700,263 233,8b0 143,454 1,346,041 188,277 12,527,517 15,139,412 6,829,852 9,264050 1,085,971 (642,327) $16,5375546 $ 112,560 1,343,203 285,670 11,284 9,675,524 32%742 33,014,146 (131004,414) 31,767,715 832,738 218,537 1,374,233 163,267 13,806,711 16,395,486 5,158,529 8,b13,264 1,094,948 505,488 $15,372,229 Changes in net assets -The Citys total revenues for the year ended September 30, 2008 were $15,096,074• A significant portion, 72 percent, of the City's revenues come from charges for services (See Figure A-3) while 23 percent relates to property tax revenues. Governmental Activifies Property tax rates remained constant from the preceding year. Property values experienced a slight decrease in the current year. However, property tax revenues increased approximately 8 percent 1112008 over the prior year due to an overall more favorable collection experience and increased supplemental amounts collected by the county. figure A.-3 Revenues by Source - 2008 Taxes nvestment earnings 2% Other 3% _.urges for services 7.2 Revenues Program revenues: Charges for services Grants and donations General revenues: Taxes Pines Licenses and permits Investment earnings Transfers Gain (loss) on sale of assets Other Total revenues Expenses General government Public safety Streets and sanitation Culture and recreation interest on long-term debt Proprietry expenses Total expenses Table A-2 Changes in Net Assets Governmental Business -type Activities Activities Total 2008 2007 2008 2007 2008 2007 $ 1,333,643 $ 3,454,768 71,065 91,724 205,596 2392497 (32)273) 884 5,364,904 1,542,099 1,550,243 705,004 4433787 25%678 4,500,811 895,104 398,861 3,292,257 $ 9,63 f ,082 $ 9,133,203 116,752 881350 3 07,3 12, 475,851 2222663 (239,497) (222,6(53) 25,753 7,081 16)838 4,922,988 917053978 9,5191981 $ 10,964,725 $ 10,028,307 515,613 3,454,768 71,065 91,724 512,908 (25,192) 884 15,070,882 3,292,257 Sb4,201 42,591 14,442,969 593,915 - - 1,542,099 593,915 1,863,504 - 1,550,243 1,863,504 1,178,113 - - 705,004 I,178,113 640,783 - - 443,787 640,783 279,883 - - 259,678 27%883 9,348,154 8,7251287 .95348,154 8,725,287 4,556,198 9,348,154 81725,287 13,8485965 13,281,485 lnereaselnnetassefs 864,093 366,790 357,824 794,694 1,221,R17 1,161,484 Beginning net assets 4,199,232 3,832,442 11,172,997 10,378,304 IS,372,229 1,944,043 Prior -period adjustment (Note K) (569600) - - - (56,600) - Ending net assets $ 5,006,725 $ 4,1991232 $ 11;530,821 $ 119172,998 $ 16,5371546 $ 3,105,527 Business -Type Activities Table A-3 presents the cost of each of the City's business -type activities as well as each fiinction's Izet cost (total cost less fees generated by the activities and intergovernmental aid). The net cost reflects what was funded by local tax dollars, • The cost of all business -type activities this year was $9,348,154. • The amount for charges for services that our taxpayers paid for these activities was $%93 8,394, Water Sewer Electric Vehicle maintenance, Administration Data processing Total Table A_3 Net Cost of Business -type Activities Total Cost of Services %Change 2008 2007 $ 1,120,755 $ 1,136,034 (1.34)% 847,470 938,906 (9.74)% 65718,489 5,971,456 12.5l% 79,756 67,932 17.4l% 332,343 334,779 (0.73)% 249;341 2765180 (9.2)% $ 95348,154 $ 8,725,287 7J4% FINANCIAL ANALYSIS OF THE CITY'S FUNDS General Fund Budgetary Highlights Net Cost of Services %Change 2008 2007 $ 83,735 $ 43,351 92,670 12,078 753,091 1,103,034 (79)756) (67,932) (10j59) 186,168 (249,341) (2762180) $ . 590,240 11000,519 Over the course o£ the year, the City revised its budget several times. including these adjustments, General Fund revenues were $3,823,882 aver budgeted revenues and expenses were $3,648,228 less than budgeted expenses. The net budget surplus for the General Fund was $240,714 for the year, which includes other financing sources and uses and transfers. - Enter prise Fund Budgetary Highlights During the year ended September 30, 2008, the City also revised its budget for the Enterprise Fund. For the year ended September 30, 2Q08, xevenues were $285335Q less than budgeted revenues and actual expenses were $586,195 less than budgeted expenses. The net budget deficit for the Enterprise Fund was $328,384 for the year ended September 30,2008, which includes other financing sources and uses and transfers. 10 93.16% 667.26% (31.73)% 1T41% (105.46)% (41.OZ)% CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At the end of 2008, the City }iad invested $20,338,500 in a broad range of capital assets, including land, equipment, buildings, and vehicles. (See Table A4.) Land Construction in progress Infrastructure Buildings and equipment Totals at historical cost Total accumulated depreciation Net capital assets Lorig-Term Debt Table A-4 Capital Assets Governmental Busniess-type Activities Activities Total 2048 2007 $ 840 1,043,108 3232146 6,332,085 6,0041532 3,8813987 35871,980 26840 $ 426 11,6845020 101626,498 (4,728,373) (4,082,108) $ 61955,647 $ 6,544,390 2008 2007 $ 312,164 $ 312,164 519,618 1,71 %781 1%997,855 18J02,158 2,268,656 2,253,545 2 3,098,293 2253875648 _ (9,715,440) (8,922,306) $ 13,3825853 $ 13,465,342 2008 2007 $ 73%004 $ 73%004 11562,726 27042,927 26,329,940 24,106,690 6,1502643 61125,525 341782,313 33,014,146 �14,443,813) (13,004,414) $ 20,3381500 $ 20,009,732 As of September 30, 2008, the City had $13,805,821 in total long-term debt. (See Table A-S.) Governmental Activities 2008 Notes payable $ 120,511 Capital lease obligation 1243314 Bands payable 6,725,000 Total tong -term debt $ 6,969,825 ii1J $ 282,192 157,119 7,222,500 $ 7,661,811 11 Table A-5 Long -Term Debt Business -type Activities 2008 2007 $ 19,514 it 56,600 716,482 752,565 6,100,000 6,597,500 $ 65835,996 $ 714061665 Total 2008 2007 $ 140,025 $ 338,792 840,796 909,684 12, 825,000 13, 820,000 13,805,821 $ 151068,476 Basic Financial Statements City of Sanger Statement .of Net Assets September 30, 2008 ASSETS Current assets: Cash and cash equivalents Account receivable, net Other receivables Due from other governmental agencies Inventories Prepaid expenses Total current assets No11GUI7ent aSSE1S: Restricted cash Due from (to) other funds Bond issue costs, net Capital assets: Land Constriction in progress Infrastructure Buildings and equipment Less accumulated depreciation Total noncurrent assets Total assets LIABILITIES Current liabilities: Accounts payable and accrued exTenses Customer deposits Other payables Accrued interest Notes payable Capital leases Bonds payable Yarbrough settlement payable Total current liablities Noncurrent liabilities: Compensated absences Notes payable Capital leases Bonds payable Yarbrough settlement payable Total noncurrent liablities Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Capital projects Hotel/Motel and Economic Development Unrestricted Total net assets Governmental ActiFlities $ 190,661 70,952 129,350 390,963 3,581,407 1,312,311 120,309 426,840 1,043,108 6,332,085 3,881,987 (4,728,373) 11,969,674 12,360,63 I 156,650 20,221 22,594 77,819 34,662 530,000 45,495 887,441 116,885 42,692 89,652 6,195,000 22,242 6,466,471 7,353,912 106,131 3,581,407 1,085,971 233,216 $ 5,006,725 Buslness-type Activities $ 109,543 964,968 28,283 276,825 6,653 1,386,272 5,68?.,643 (1,312,311) 176,864 312,164 S 19,618 19,997,855 2,268,656 (9,715,440) 17,930,049 19,316,321 543,613 233,860 30,299 70,340 12,860 120,205 525,000 V 1,536,177 71;392k 6,654 596,277 s,s75,000 6,249,323 7,785,500 6,723,721 5,682,643 (875,543) $ 11,530,821 $ 304,204 1,035,920 28,283 1290350 276,825 6,653 1,777,235 9,264,050 297;173 739,004 1,562,726 26,3295940 6,150,643 (14,443,813) 29,899,723 31,676,958 700,263 233,860 50,520 92,934 90,679 154,867 1,055,000 45,495 2,423,618 188,277 49, 346 685,929 11,770,000 22,242 12,715,794 15,139,412 6,829,852 9,264,050 1,085,971 (642,327) $ 16,537,546 The accompanying notes are an integral part of this financial statement. 15 This page is left in#eu#ionally blank. City of Sanger Statement of Activities Year Ended September 30, Z008 PuticfionS/Programa Primary government Governmental activities: General government Public safety Streets and sanitation Culture and recreation Interest on long-term debt Total governmental activities Business -type activities: Water and semler Total business -type activities Total primary government Program Revenues Charges for , Expenses Services $ 1,542,099 $ 1,333,643 1,550,243 - 705,004 443,787 - 259,678 - 41500,811 1,333,643 9,348,154 9,631,082 9,348,154 9,631,082 $ 13,848,965 $ 10,964,725 rp General revenues: Property taxes, levied for general puoses Fines Franchise taxes Interest income Sales taxes Licenses and permits Hotel taxes Donations ai Cn (loss) on sale of assets Transfers Total general revenues and transfers Change in net assets Net assets, beginning of year Prior -period adjustment (Note K) Net assets, end of year The accompanying notes are an integral part of this financial statement. l>0 Net (Expenses) Revenues and Changes in Net Assets Primary G-overnment Aefivities $ (208,456) (1,550,243) (705,004) (443,787) (259,678) (3,167,168) (3,167,168) 2,078,442 71,065 372,157 205,596 9881832 91,724 15,337 884 (32,273) 239,497 4,031,261 864,093 4,199,232 (56,600) $ 5,006,725 E� Activities Total - (1,55%243) (705,004) (443,787) (2595678) »' (3,167,168) 282,928 282>928 2822928 307,312 7,os 1 (239,497) 74,896 357,824 11,172,997 $ 11,530,821 282,928 282,928 (2,884,240) 2,078,442 71,065 372,157 5122908 988,832 91,724 15,337 884 (25,192) 4,106,157 1,221,917 15,372,229 (56,600) $ 16,537,546 17 ASSI✓TS Cash and cash equivalents Accounts receivable: Property saxes, net Other Receivable from other governments Due from other funds Restricted cash Total assets LIABlLITTES AND FUND l3ALANC)1S Liabilities: Accounts payable Deferred taxes Accrued expenses Outer current liabilities Total liabilities Fund balances -unreserved Total liabilities and fluid balances City of Sanger Balance Sheet Governmental FuY►ds September 30, 2008 General lend $ 138,549 62, 812 8,140 93,086 1,372,369 Special Reve�tue Futtd $ 52,112 36,264 (60,058) 2,523,754 1,057,653 $ 4,198,710 $ 1,085,971 $ 156,533 37,803 5,643 _ 14,578 214,557 Total Governmental Funds $ 190,661 62,812 8,140 129,350 1,312,311 3,581,407 $ 5,284,681 $ 156,533 37,803 5,643 14,578 214,557 3,984,153 1,085,971 5,070,124 $ 4,198,710 $ 1,085z971 $ 5,284,681 The accompanying notes are an integral part of this financial statement. IEi City of Sanger Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets September 30, 2008 Totai fund balance, governmentai funds Amounts reported for governmental_ activities in the statement of net assets are different because; Capital assess used in governmental activities are not current financial resources and therefore are not reported in this fiend financial statement, but are reported in the governmental activities of the statement of net assets. Property taxes receivable are not available to pay for current period expenditures and therefore are deferred in the fund balance shet. Some liabilities (such as notes payable, capital lease contract payable, .long-texm compensated absences, and bonds payable) are not due and payable in the current period and are not included in the fund financial statement, but are included in the governmental activities of the statement of net assets. Net assess of goveraunental activities in the statement of net assets $ S,07a,124 ?,075,956 37,$03 (7,177,158) $ 5,006,725 The accompanying notes are an integral part of this financial statement. l9 City of Sanger Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds September 30,'2008 REVENUES Property taxes Sales taxes Fines Licenses and permits Charges for services Franchise taxes Hotel taxes Interest Donations Total revenues EXPENDITURES Current: General government Public safety Streets and saiutation Culture and recreation Principal Interest and other Capital outlays Total expenditures Excess (deficiency) of revenues over (under) expenditures. OTIIER FINANCING SOURCES (USES) Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balances, beginning of year Prior -period adjustment {Note K) Fund balances, end of year Special Total General Revenue Governmental Fund Funds •Funds $ 2,160,408 $ - $ 22160,408 496,968 4915864 988,832 71,065 - 71,065 91,724 - 91,724 1,335,170 035,170 372,157 - 3721157 15,337 15,337 154,966 50,630 2057596 884 - 884 4,683,342 557,831 5,241,173 831,467 518 831,985 1,5792130 - 1,579,130 710,917 - 710,917 434,787 - 434,787 574,298 114,966 689,264 254,644 5,034 259,678 769,785 396,290 1)166,075 5,155,028 516,808 5,671,836 (471,686) 41,023 (430,663) 289,497 - .289,497 289,497 (50)000) 239>497 (182)189) (82977) (191,166) 4,223,002 1,094,948 5,317,950 (56,660) - (56,660) $ 3,984,153 $ 1,085,971 $ 51070,124 'The accompanying notes are an integral part of tl►is financial statement. 20 City of Sanger Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Year Ended September 30, 2008 Net change in it Valances -total governmental fiznds $ (191,166) Amounts reported for govexznnental activities in the siatemezzt of activities are different because: Governmental funds report outlays for capital assets as expenditures because such outlays use current financial resources. In contrast, the statement of activities reports ozrly a portion of the outlays as expense. The outlays are allocated over the assets' estimated useful lives as depreciation expense for the period. Capital outlays of $1,214,807, net of constriction in progress, exceeded depreciation of $722,545 in the current period. 492,262 Goverzunental fiznds report the entire net sales price (proceeds) from sale of an asset as revenue because it provides current financial resources. In contrast, the statement of activities reports only the gain on the sale of the assets. (32,273) GovernrnentaI funds do not present revenues that are not available to pay current obligations. In contrast, such revenues are reported in the statement of activities when earned. (81,966) Goverzunental funds report bond proceeds as currezrt financial resources. In contrast, the statement of activities treats such issuance of debt as a liability. Governmental funds report repayment of bond principal as an expenditure. In contrast, the statement of activities treats such repayments as a reduction in long-term liabilities. This is the amount by which proceeds exceeded repayments. 711,228 Certain expenses reported in fife statement of activities do not require the use of current financial resources and are not reported as expenditures in goverzunental funds. (33,992) Change in net assets of governmental acti<<ities $ 864 093 The accompanying notes are an integral part of this financial statement. 21 REVENUES Property taxes Sales taxes Fines Licenses and permits Charges for services Franchise taxes Interest Donations Total revenues E7�PENDITURES Current: City of Sanger Statement of Revenues, Expenditures, and Chatiges in Fund Balances - Budget and Actual General land Year Ended September 30, 2008 _ I3udgo_ tad Amounts Or" feinal I EM S 2,150,000 5121000 75,700 125,175 5,118, l49 299,000 3%000 6,800 8,325,224 S . 2,150,000 5121000 75,700 125,575 5,268,149 299,000 70,000 6,800 8,507,224 Actual Amounts S 2,160,g08 496,968 71,065 91,724 1,335,170 372,157 1549966 884 4,683,342 Variance nth Final Budget -Positive (Negative) S 10,408 (15o032) (4,635) (33,851) (3,932,979) 73,157 84,966 (5,916) (3)823,882) General government 984,869 999,369 831,574 167,795 PUbiic %T 1,612,710 1,691,710 1,579,130 1124580 Highways and roads 668,703 668,703 710,917 (42,214) Culture and recreation 500,157 500,157 434,787 6%370 Debt Service: Principal Interest and other charges Capital outlays Total expenditures Defieioncy of revenues under expenditures OTHER FINANCING SOURCES Transfer; in Islet change in fund balances Fund balances, beginning of year Prior -period adjustment -(Note I:) Fund balances, end of year S59571 , 254,013 4,l 12,733 8,692,756 (367,532) 354,557 59571 5, 254,013 4029,733 81803,256 (296,032) 57298 4, 254,67644 769,8 %155,028 (471,686) 354,557 289,497 14727) { , (631) 3/3603055 3,648,228 (175,654) (65,060) (12,975) 58,525 (182,189) (240,714) 4,223,002 4,223,002 4,223,002 - (56,660) (56,660) (56,660) S 4,210,027 S 412817527 S 39984,153 S (240,714) 22 The accompanying notes aze an integral part of the fmancisl statement. This page is Zeft infentioually blank. City of Sanger Statement of Net Assets PropN�ietary I+und September 30, 2008 Enterpt�ise 1<ltnd ASSETS Current assets; Cash and cash equivalents $ 109,543 Accounts receivable, net 964,968 Other receivables 28,283 Inventories 276,825 Prepaid expenses � 6,653 Total current assets 1,386,272 Noncurrent assets: Restricted cash 5,682,643 Bond issue costs 176,864 Capital assets: _ Land 312,164 Construction in progress 519,618 Ittfrasiruchtre 19,997,855 Buildings and equipment 2,268,656 Less accumulated depreciation (9,715,440} Total noncurrent assets 19,242,360 Total assets 20,628,632 LTABTLITIE5 Current liabilities: Accounts payable 543,613 Customer deposits � 233,860 Accrued ittterest 70,340 Due to other funds 1,312,311 Outer payables 30,299 Bonds payable 525,000 Notes payble 12,860 Capital lease obligation 120,205 Total current liabilities 2,848,488 Non -current liabilities Compensated absences 71,392 Bonds payable 5,575,000 Notes payble 6;654 Capital lease obligation 596,277 Total non -current liabilities 6,249,323 Total liabilities 9,097,811 NET ASSETS Invested in capital assets, net of related debt � 6,723,721 Restricted for capital projects 5,682,643 Unrestricted (875,543) Total net assets $ 11,530,821 The accompanying notes are an integral part of this financial statement. 24 City of Sanger Statement of Revenues, Expenses and Changes in Fund Net Assets Proprietary Fund Year Ended September 30, 2008 OPERATING REVENUES Charges for services Connection fees Miscellaneous Total operating revenues OPERATING EXPENSES Salaries and Nvages Purchased professional and technical services Utilities Water and electric purchases Franchise fees Depreciation Repairs and maintenance Total operating expenses Operating income NONOPERATING REVENUES (EXPENSES) Interest and investment income Tap fees Interest expanse Total nonoparating revenues Net income before transfers Tannsfers out Gain on sale of fixed assets Change in net asseis Total net assets, beginning of year Total net assets, end of year Euterprlse rand $ 9,406,SS9 44,075 14,848 9,465,482 1,952,561 286,792 93,?44 5,410,496 215,000 871,763 98,673 8,929,029 536,453 30?,312 165,600 (4I9,125) 53,787 590,240 (239,497) ?,081 357,824 11,172,997 $ 11,530,821 The accompanying notes are an integral part of this financial statement. 25 This page is left intentionally bIauk. City of Sanger Statement of Cash Flows Proprietary Fund September 30, 2008 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 955535165 Payments to suppliers (6,0953860) Payments to employees (1)900,475) Net cash provided by operating activities 1,556,830 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers from primary government I,312,311 Transfers to other funds (239,497) Net cash provided by noncapital fmancing activities 1,072,814 CASH FLOWS FROM CAPITAL AND RELATED - FINANCING ACTIVITIES Principal and interest paid on long-term debt (897,140) Purchase of capital assets (710,465) Tap fees 165,600 -Proceeds from sale of assets 155200 Net cash used by capital and related financing activities (1,426,805) CASH FLOWS FROM INVESTING ACTIVITIES Interest received from investments 307,312 Net cash provided by capital and related financing activities 307,3I2 Net increase iri cash 1,S_10, I S I Cash beginning of year, including restricted cash 4,430,649 Cash - end of year, including restricted cash $ 5,940,800 Reconciliation of operating income to net cash provided by operating activities: Operating income $ 536,453 Adjustment to reconcile operating income to net cash provided by operating activities - depreciation 871J63 Effect of increases and decreases in current assets and iabilities: Decrease in receivables 872683 Decrease in inventory and prepaid expense 8,845 Increase in accounts payable 42,769 Decrease in accrued expenses (6,006) Increase in customer deposits 15,323 Net cash provided by operating activities $ 1,556,830 See accompanying notes to finaticial statements. 27 CITY OF S" GER Notes to the Financial Statements September 30, 2008 A. Summary of signiCcant accounting policies The accompanying financial statements of the City of Sanger (the "City") have been prepared in conformity with generally accepted accounting principles applicable to state and local governments. The Governmental Accounting Standards Board ("GASB") is the accepted standard-settuig body for establishing governmental accounting and financial reporting principles, The following notes to the City's financial statements are an integral part of the City's annual financial report. l.. Reporting entity The City of Sanger was urcorporated under the laws of the State of Texas in 1886 and operates under aCouncil- Manager form of government. The City's financial statements include the accounts of all City operations. Generally accepted accounting principles require all funds that are controlled by or are independent on the City Council to be included in the City's financial statements. The reporting entity is the primary. government, or the City, and those component units for which the primary government is financially accountable. Financial accountability is defined as the appoizrtment of a voting majority of the potential component uziit's board and either the ability to impose its will by the prhnary government or the possibility that the component unit will provide a financial benefit or impose a financial burden on the primary government. Discretely presented component units are reported' in a separate colunin in the government -wide financial statements to emphasize they are legally separate statements to be misleading or incomplete. Based on these considerations, the City's financial statements include the Sanger Economic Development Corporation as a discretely presented component unit. Bletzded.Component Unit - (4A); Tlie Sanger —Texas Industrial Development Cozporation is governed by a board of five directors, all of whom are appointed by the City Council of the Clty 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.Co 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. Blended Component Unit - {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- )rofit 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. 2. Government -wide and.fund financial statements a. Basis of presentafion Government -wide financial statements -The statement of net assets and the statement of activities include the financial activities of the overall government. These statements distinguish behveen the governmental and business -type activities of the City. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. Business -type activities are financed in whole or in part by fees and charges for support. The statement of activities presents a comparison between direct expenses and program revenues for the different business -type activities of the City and for each fiuiction of the City's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. The City does not allocate indirect expenses in the statement of activities. Program revenues include (a) fees, fines, and charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that .are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. m CITY OF SANGER Notes to the Financial Statements — (continued) September 30, 2008 Fund financial statements - The fund financial statements provide information about the City's funds, with separate statements presented for each fund category. The emphasis of fund financial statements is on major governmental and proprietary funds, each displayed in a separate column. All remaining governmental and enterprise finds are aggregated and reported as nonmajor funds. Operating revenues and expenses generally result from provng services and producing aztd delivering goods ii connection with the proprietary funds principal on -going operations. Nonoperating revenues, such as subsidies and investment earnings, result from nonexcbange transactions or ancillary activities. The City reports the following major governmental funds: General Fund. This is the City's primary operating fund. It accounts for ail financial resources of the City except those required to be accounted for in another fund. Special Revenue Find. This is used to account for the proceeds of the Sanger Economic Development Corporation sales tax revenues. The fund balance is reserved to signify amounts that are restricted to be used for economic development and promotion within the City. The City reports the following major proprietary/enterprise fund: Water and Sewer Iiund. This is the City's primary operating fund for water and sewer distribution and sewer control. It also accounts for all financial resources of the City concerning water, sewer and refuse sales. Its activity is financed with debt secured by a pledge of the net revenues and has the requirement that the cost of providing services, including capital costs, be recovered by user fees and charges. b. Measurement focus/basis of accounting Government -Fulda and Proprietary Fund financial statements - These financial statements are reported using the economic resources measurement focus and are accounted £or using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time I liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the City gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, grants, entitlements, and donations. Under the accrual basis of accounting, revenues from property taxes are recognized in the fiscal year for which the taxes are levied. 'Revenues from grants, entitlements, and donations are recognized in the fiscal year in which all eligibility requirements have been satisfied. Governmental Fund financial statements -Governmental finds are reported using the current financial resources measurement focus and are accounted for using the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The City does not consider revenues collected after its year-end to be available in the current period. Revenues from local sources consist primarily of property taxes. Property tax revenues and revenues received from the State are recognized under the susceptible -to -accrual concept. Miscellaneous revenues are recorded as revenue when received m cash because they are generally not measurable until actually received, investment earnings are recorded as earned, since they are both measurable and available. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-tenn debt and acquisitions under capital leases are reported as other financing sources. When the City incurs an expenditure or expense for which both restricted and unrestricted resources may be used, it is the City's policy to use restricted resources first, on unrestricted resources. 29 CITY OF SANGER Notes to the Financial Statements — (continued) September 30, 2008 3. General policies a. Caslz and cash equivalents For purposes of the statement of cash flows, highly liquid investments are considered to be cash equivalents if they have a maturity of three months or less when purchased. b. Resh•icted resources I£ both restricted and unrestricted resources are available far use, it is the City's policy to use restricted resources first and unrestricted as needed. c. Reservations offund egrtity Reservation of fund balances of the governmental funds indicate the portion of fund equity that is not available fox appropriation for expenditure or is legally restricted by outside parties for use for a specific purpose. Designations of fund balance are the representation s of management for the utilization of resources in future periods. d. Property taxes Property taxes are levied by October 1 on the assessed value listed as of The prior January I for all real acid business personal property in conformity with Subtitle E, Texas Property Tax Code. Taxes are due on receipt of the tax bill and are delinquent if not paid before February I of the year following the year in which imposed. On January I of each year, a tax lien attaches to property to secure the payment of all taxes, penalties, and interest ultimately imposed. Property tax revenues are considered available when they become due or past due and receivable within the current period. Personal property taxes not collected by April 1 are forwarded for collection proceedings. Real property taxes not collected by July 1 are forwarded for collection proceedings. Allowances for micollectible tax receivables within the General and Debt Service Funds are based upon historical experience in collecting property taxes. Uncollectible personal property taxes are periodically reviewed and written off, but the City is prohibited from writing off real property taxes without specific statutory authority from the Texas Legislature. e. Inventories and prepaid items The City records purchases o£ supplies as expenditures, utilizing the purchase method of accountuzg for inventory: Certain payments to vendors reflect costs applicable to furiu•e accounting periods and are recorded as prepaid items. f. Capital assets Purchased or constructed capital assets are reported at cost or estimated historical cost. Donated irxed assets are recorded at their estimated fair value at the date of the donation. The cast of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. All assets acquired in excess of $1,000 are capitalized by the City. Capital assets are being depreciated using the straight-line method over the following estimated useful lives: • Asset Class iufrastnrchne Estimated Useful Lives 30 CITY OF SANGER Notes to the Financial Statements - (continued) September 30, 2008 g. Receivable and peDwble balances The City believes that sufficient detail of receivable and payable balances is provided in the financial statements to avoid the obscuring of significant components by aggregation. Therefore, no disclosure is provided which disaggregates those balances. Thexe are no significant receivables which are not scheduled £or collection within one year of September 30, 2008. h. .Interfirttd activity Irnferfirnd activity results from loans, services provided, reimbursements or transfers between funds. Loans are xeported as interfund receivables and payables as appropriate and are subject to elunination upon consolidation. Services provided, deemed to be at market or near market rates, are treated as revenues and expenditures or expenses. Reimbursements occur when one find incurs a•cost, charges the appropriate benefiting fund, and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers" iu and transfers -out are netted and presented as a single "Transfers" line on the government -wide statement of activitles. Similarly, interfund receivables and payables, if applicable, are netted 'and presented as a single "Internal Balances" line of the govermnent-wide statement of net assets. As of September 30, 2008; there were no interfund receivables and payables. i. Cotnpetzrated �Ibsences The amounts owed to employees for unpaid vacation and sick leave liabilities, irncluding the City's share of employment -related taxes, are reported on the accrual basis of accounting in the applicable governmental or business4ype activity columns of the government -wide statements and in the enterprise activities of the fund financial statements.. The liabilities and expenditures are reported on the modified accrual basis in the governmental find financial statements. j. �'ension costs State late governs pension contribution requirements and benefits. Pension costs are composed of normal cost and, where applicable, amortization of unfunded actuarial accrued liability and of unfunded prior service cost. Tc Use of estirttates The preparation of financial statements in conformity with Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the financial statements and the reported amounts of xevenues and expenditures during the reporting period. Actual results could differ from those estimates. B. Deposits and investments The City's funds are requited to be deposited and invested under the terms of a depository contract. The depositary bank deposits for safekeeping and hrrst with the City's agent bank approved pledged securities in an amount sufficient to protect City finds on a day-to-day basis during the period of the contract. The pledge of approved securities is waived only to the extent of the depository bank's dollar amount of Federal Deposit Insurance Corporation ("FDIC") insurance. Deposits At September 30, 2008, the carrying amount of the City's deposits (cash, certificates of deposit, and interest -bearing savings accounts) was $9,564,254, of which $9,264,050 is segregated as restricted cash. All bank accounts were either insured or collateralized with securities held by the City or its agents in the City's name at September 31, 2008. 31 CITY OF SANGER Notes to the Financial Statements — (continued) September 30, 2008 The City is required by Government Code Chapter 2256, The Public Funds Investment Act, to adopt, implement, and publicize an investment policy. That policy must be written; primarily emphasize safety of principal and liquidity; address investment diversification, yield, and maturity and the quality and capability of investment management; and include a list of the types of authorized investments in which the investing entity's funds may be invested; and the maximum allowable stated maturity of any individual investment owned by the entity. The Public Funds Investment Act ("Act") requires an annual audit of investment practices. Audit procedures in this area . conducted as a part of the audit of the general purpose financial statements disclosed that in the areas of investment practices, management reports and establishment of appropriate policies, the City adhered to the requirements of the Act. Additionally, investment practices of the City were in accordance with local policies. Tlne Act determines the types of investments which are allowable for the City. These include, with certain restrictions, (1) obligations of the U.S. Treasury, certain U.S. agencies, and the State of Texas, (2) certificates of deposit, (3) certain municipal securities, (4) money market savings accounts, (5) repurchase agreements, (6) bankers acceptances, (7) mutual funds, (8) investment pools, (9) guaranteed investment contracts, -and (10) common trust funds. The City's inveshuents at September 30, 2008 are as follows: Investment or Investment Type _ Maturity Fair Value None N/A $ Analysis of Specific Deposit and Investment Risks GASB Statement No. 40 requires a determination as to whether the City was exposed to the following specific investment risks at September 30, 2008. 1. Credit risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill ifs obligations, The ratings of securities by nationally recognized rating agencies are designed to give an indication of credit risk. At September 30, 2008, the City was not exposed to a significant amount of credit risk, 2. Custodial credit risk Deposits are exposed to custodial credit risk if they are not covered by depository insurance and the deposits are wncollateralized, collateralized with securities held by tine pledging financial insfitztion; or collateralized with securities held by the pledging financial institution's trust department or agent but not in the City's name, Investment securities are exposed to custodial credit risk if the securities are uninsured, are not registered in the name of the government, and are held by either the counterparty or the couutezparty's trust department or agent but not mn the City's name. At September 30, 2008, the City was not exposed to custodial credit risk. 3. Concentration of credit risk This is the risk of loss attributed to tine magnitude of a government's investent in a single issuer. At September 30, 2008, the City was not exposed to concentration of credit risk. 32 9. S. CITY OF SANGER Notes to the Financial Statements — (continued) September 30, 2008 Interest rate risk This is the risk that changes It interest rates will adversely affect the fair value of an Investment. At September 30, 2008, the City was not exposed to interest rate risk. Foreign currency risk This is the risk that exchange rates will adversely affect the fair value of an investment. At September 30, 2008, the City was not exposed to foreign currency risk. Investment Accountlr� Palicy The Ciry`s general policy is to report money_market Investuents and short-term participatinng interest -earning investment contracts at amortized cost and to report nonparticipating interest -earning investment contracts using a cost -based measure. However, if the fair value of an investment is significantly affected by the Inpairment of the credit standurg of the issuer or by other factors, it is reported at fair value: All other investments are reported at fair value unless a legal contract exists which guarantees a higher value. Short -tern investments are those which have a remaining term of one year or less at time of purchase. The term "nonparticipating" means that the investments value. does not vary with market interest rate changes. Nonnegotiable certificates of deposit are examples of nonparticipating interest -earning investment contracts. C. Capitai assets Capital asset activity for the year ended September 30, 2008 \vas as follo\vs: Govertattet�tal activities Capital assets not being depreciated; I,arnd Construction in progress Total capital assets not being depreciated Capita! assets being depreciated.• hrfrastructure Buildings and equipment Totat capital assets belrg depreciated Less accumulated depreciation Total capital assets'lieing depreciated, net Governmental activities capital assets, net $ 426,840 323,146 749,986 6,fl04,532 3,871,480 9,876,512 (4,082,108) 557945404 $ 6,544,390 Ending Increases Decreases Balances 1,047,515 1,047,515 327,SS3 118,560 113 446, (b46,265) (200,152) $ 847,363 327,553 327,553 I08,S53 108,553 108,553 $ 436,106 426,840 1,044? two 1,46%948 6,332,085 3,881,987 10,214,072 (4,728,373) 5,485,699 $ 6,9551647 33 CITY OF SANGER Notes to the Financial Statements — (continued) September 30, 2008 Business -type acfivifies Capital assets not being depreciated: Land Construction in progress Total capital assets not being depreciated Capital assets being depreciated: Infrastructure Buildings and equipment Total capital assets being depreciated Less accumulated depreciation Total capital assets being depreciated, net Business -type activities capita) assets, net Beginning Balances $ 312,164 $ Increases Ending Decreases . Balances - $ 3I2,164 1,719,781 695,534 1,895,697 519,618 2,0311945 695,534 1,895,697 8313782 18, IO2,158 2,253,545 20,355,703 (81922,306) 11,433,397 $ 130465,342 1,895,697 101>858 1,997;555 (793,134) 1,204,421 $ 1,899,955 86,747 86,747 8b,747 $ 1,982,444 Depreciation expense was charged to the following fiuictions for the year ended September 30, 2008: General government: Administration Animal control Economic Development Enforcement/inspection Engineering Fire Library Municipal court Parks and recreation Police Streets Community centers Swinning pool Vehicle maintenance Business activities: Electric Sewer Water Total depreciation expense 14,748 3,968 921 4,792 899 76,171 14,240 I,176 58,691 45,816 473,647 6,842 1,449 1 9,185 325,986 226,227 3195550 $ 722,545 871,763 $ 1,594,308 19,997,855 2,2b8,656 22,266,511 (9,7I5,440) 12,551,071 $ 13,382,853 E. CITY Or SANGER. Notes to the Financial Statements — (continued) September 30, 2008 Iuterfu19 balances and activity 1. z. Due T o and Front 4tltet Funds Amounts due to and from other funds at September 30, 2008 consisted of the following: Due From Enterprise fund 4B fund • Due To General find General fund Total due to and from other funds Transfers To and Fr•orn Otlter F:atds Amount $ 13252,253 60,058 $ i,312,3 i 1 Transfers to and from other funds at September 30, 2008 consisted of the follo���ing: Transfers Fram Water and sewer fiord 4A fund- 4B fiend Transfers To General fund General fund General fund Toial tratnsfers to and from other funds Amount $ 883,521 25,000 25,000 $ 933,521 . The transfers primarily resulted from debt payments to service long-term debt. Long-term obligations 1. Long-term obligation activity Long-term obligations include debt and other long-term liabilities. Changes in long-term obligations for the year ended September 30, 20Q8 are as follows: Governmental activities Compensated absences* Notes payable Capital leases Bonds payable Yarbrough settlement 41,876 $ 282,192 157,119 7,222,500 Increases Decreases - 1b1,b81 - 32,805 497,500 112,408 - 44,671 $ 7,866,095 $ 25,009 $ 736,657 Ending Balance $ 116,885 120,511 124,314 6,725,000 67,737 $ 7,154,447 Amounts Due Within One Year. 77,819 34,662 530,000 45,495 $ 687,976 35 CITY OF SANGER Notes to the Financial Statements - (continued) its iess-type activities Compensated absences* Notes payable Capital leases Bonds payable Total business -type activities * Other long -teen liabilities September• 30, 2006 Beginning Balance $ 71,392 56,660 752,565 Ending Increases Decreases Balance 372146 97,000, 133,083 6,597,500 - 497,500 $ 71478,117 $ 97,000 ' $ 667,729 $ 71,392 1%514 716,482 6,100,000 $ 659075388 The funds typically used to liquidate other long-term liabilities in the past areas follows: Liability Compensated absences Compensated absences 2. Debt service requirements Activity Type Govemental Business type rn Fund General fluid fu Enterprise nds DeUt service requirements ou long -teen debt at September 30, 2008 are as follows: Year Ending September 3fl, 2009 2010 2011 2012 2Q13 2014-2018 2019-2023 2024-2029 Totals Year Ending September 30, 2009 ' 2010 2011 2012 2013 2014=2018 2019-2023 Totals Governmental Activities Interest Principal Total $ 687,97V $ 309, 760 $ 997,736 4155762 277,439 693,201 414)086 259,514 673,600 39%738 241,786 641,524 395,000 225,019 620,019 2,240,000 949,449 3,18%449 2,005,000 329,240 2,334,240 480,000 54,340 534,340 $ 7,0375562 $ 21646,547 $ %684,109 $ 658,065 659,416 685,614 473,439 490,235 2,319,227 1,550,000 $ 65835,996 Interest $ 312,882 282,874 2525620 222,447 201,356 6672062 168300 $ 2,107,941 $ 970,94? 942,290 938,234 695,886 691,591 2,986,289 1,718,700 $ 8,943,937 Amounts Due Within One Year 12,860 120,205 ' 5255000 $ 658,065 36 F. G. CITY OF S,A.NGER Notes to the Financial Statements - (continued) September 30, 2008 Governmental activities uiterest rates: Series 1994 certificate of obligations 5.60 to Series 2002 tax and revenue 4.20 to 5.70% Series 2006 tax and revenue 4.00 to 4.10% Series 2007 tax and revenue 4.40% Bushiess-type activities interest rates: Series 1996 revenue 4.20 to 4.75% Series 1999 revenue 4.25 to 4.40% Series 2002 revenue 4.50 to 6.00% Series 2006 tax and revenue 4.00 to 4.10% 3. Capltalleases Conunitments under capitalized lease agreemettts for facilities and equipment provide for the followiarg minumutn future lease payments as of September 30, 2008: Xear Ending September 30, 2009 2010 2011 2012 - 20I3 2014-2018 2019-2023 Total minimum rentals Governmental Activities $ 34,662 32,068 33,821 23,763 $ 124,314 Business -type Activities $ 120,205 110,262 115,614 85,939 90,235 94,745 99,482 $ 716,482 The effective annual interest rates ou capital leases outstanding ranges from 4.30% - 6.86%. Risk management The Ciry is exposed to various.risks of loss related to torts, theft, damage or deshuctiou of assets, error and omissions, injuries to employees, and natural disasters. During fiscal year 2008, the City obtained general liability coverage at a cost that is considered to be economically justifiable by joining together with other governmental entities in the State as a member of the Texas Municipal League Intergovernmental Risk Pool ("TML"). TML is a self -funded pool operating as a common risk management and insurance program. The City pays an annual premium to TML for its above insurance coverage. The agreement for the formation of TML provides that TML will be self-sustaining through member premiums and will reinsure through commercial companies for claims in excess of acceptable risk levels; however, each category of coverage has its own level of reinsurance. The City continues to carry commercial insurance for other risks A loss. There were no significant reductions in commercial insurance coverage in the past fiscal year and settled claims resulting from these risks have not exceeded coverage in any of the past three fiscal years. Pension plan 1. Plan description The City's pension plan ("Plan") is anon -traditional, joint contributory, defned benefit plan which provides retirement, disability and death benefits to Plan members and beneficiaries through its affiliation •with Texas Municipal Retirement System ("IJA S"), an agent multiple -employer public employee retirement system. TMRS 37 2. 3. 4. CITY OF SANGER Notes to the Financial Statements — (continued) Septernber 30, 2008 operates under the authority of Texas Governrneiit Code, Title 81 Subtitle G. The Texas legislature leas the authority to establish or amend benefit provisions and the governing body of the City adopts the plan provisions within the options and constraints established by the legislature. TMRS issues a publicly available financial report that includes financial statements and required supplementary urformation for TMRS. That report may be obtahled by writing to Texas Municipal Retirement System, P.O. Box 149153, Austin, TX 78714-9153 or calling (800) 924- 8677. Additional nonauthoritative information is available at the TMRS web site, hq:HwNvw.tnirs.ora. Funding policy Plan members are required to contribute 6% of their annual covered salary. The City is required to contribute at air actuarially determined rate; the current rate is 7.91% of annual covered payroll. The City's contributions to the MRS for the years ending September 30, 2008 and 2007 were $167,608 and $121,634, respectively, and were equal to the required contributions for each year. - - Am2ua1 pension cost The City's'annual pension cost of approximately $150,000 for the Plait was equal to the City's required and actual contributions. Under the state law governing TMRS, the actuary annually determines the City's contribution rate. This rate consists of the normal cost contribution rate and the prior service contribution rate, both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the currently accruing monetary credits due to the City's matching percentage, which are the obligation of the City as of an employee's retirement date, not at the time the employee's contributions are made. The normal cost contribution rate is the actuarially determined percentage of payroll necessary to satisfy the obligation of the City to each employee at the time his/her retirement becomes effective. The prior service contribution rate amortizes the unfiuided (overfunded) actuarial liability (asset) over the remainder of the Plan's 25-year amortization period. When the City periodically adopts updated service credits and mereases4 in annuities in effect, the increased unfunded actuarial liability is to be amortized over a new 25-year period. Currently, the imfunded actuarial liability is being amortized over the 25-year period which began January 1997. The unit credit actuarial cost method is used for determining the City's contribution rate. Since the City needs to know its contribution rate in advance to budget for it, there is a one- year delay between the actuarial valuation that is the basis for the rate and the calendar year when the rate goes into effect. The TMRS does not value the assets of individuat cities and accordingly, the actuarial assumptions used to set the required contribution rate of the City are based on TMRS as a whole: Trend it forniatiorr for the plan Actual Percentage Net Pension of APC Pension Year Ended Cost (APC) Contributed Obligation September 30, 2007 $ 121,634 100% $ - September 30, 2008 167,608 100% H. Health care coverage Dururg the year ended September 30, 2008, employees of the City were covered by a health insurance plan (the Plan). The City paid premiums ranging from $388 - $500 per month per employee dependung on which plan khe employee elects to participate in. Employees, at their option, authorized payroll withholdings to pay premiums for dependents. All premiums were paid to a third -party administrator, acting on behalf of the licensed insurer. The Plan was authorized by Article IS 1-2, Texas hnsurance Code and was documented by contractual agreement. CITY Or SANGER Notes to the Financial Statements — (continued) September 30, 2008 I. Commitments and contingencies 1. Conti1115 cies The City participates in grant programs which are governed by various rules and regulations of tie grantor agencies. Costs charged to the respective grant programs are subject to audit and adjustment by the grantor agencies; therefore, to the extent that the City has not complied with the rules and regulations governing the grants, refunds of any money received may be required and the collectibility of any related receivable may be impaired. In the opinion of the City, there are no significant contingent liabilities relating to compliance with the rules and regulations governing the respective grants; therefore, no provision has been recorded in the accornpanying basic financial statements for such contingencies. 2. Litigatiarz No reportable litigation was pending against the City as of September 30, 2008. J. Contracts The City has a contract with the Upper Trinity Water District to purchase water.for the City. Water purchased far the year ended September 30, 2008 amounted to approximately $190,000. The City has a contract with the Brazos Utitity Authority to purchase electricity for the City. Electricity purchased for the year ended September 30, 2008 amounted to approximately $5,300,0000. K. . prior -period adjustment Cezotain expenses totaling $56,600 in the prior year relating to ernergency ambulance services were erroneously excluded from the City's statements of activities and revenues; expenditures and changes in fund balances governmental funds. L. Subsequent events None. 39 This page is left intentionally blank. REQUIRED SUPPLEMENTARY INFORMATION City of Sanger Schedule of Revenues, Expenditures, and Changes REVENUES Sales taxes Hotel taxes interest Total revenues EXPENDITURES Current - general government Debt service; Principal Interest and other charges Capital outlays Total expenditures Excess of revenues over expenditures OTHER FINANCING SOURCES (USES) Transfers out Transfers in Total other financing sources and uses Net change in fund balances Fund balances, beginning of year Fund balances, end of year iu Fund Balances -Budget and Actual Special Revenue Funds Year Ended September 30, 2008 Budgeted Amounts Ori inal Final $ 44a,00D 14,000 36,200 494,200 2,750 lzo,000 225,399 348,149 146,051 $ 444,000 14,000 36,200 494,200 2,750 120,000 225,399 348,149 1463051 Actual Amounts $ 491,864 15,337 50,630 557,831 l l a,966 5,034 3962290 516,808 41,023 Variance with not Budget- Positive (Negative) $ 47,864 1,337 14,430 63,631 2,232 5,034 (5,034) (170,89!) (168,659) (105,a28) (so,00a) (8o,00a) (so,000) 30,000 225,399 225,399 - (225,399Z 1453399 145,399 (505000) (195,399) 291)450 291,450 1,094,948 1,094,9a8 $ 1,386,398 $ 1,386,398 (8,977) 1,094,948 $ 1,085,97I (300,427) $ (300,427) 42 City of Sanger Schedule of Revenues, Expenditures, and Changes REVENUES Charges for services Connection fees Miscellaneous Total revenues EXPENb1TU1tES Salaries and wages Purchased professional and tecluiical services Utilities Water and electric purchases Franchise fees f�epreciation Repairs and maintenance Total operating expenses Operating income NONOPERATING REVENUES (EXPENSES) Interest and investment income Tap fees Interestexpense Total nonoperating revenues Net income before transfers Transfers out Gain on sate of fixed assets Net change in fiord balances Fund balances, beginning of year Fund balances, end of year in Fund Balances -Budget and Actual Enterprise F► n Year Ended September 30, 2008 Budgeted Amounts ' Orig[nal Final $ 9,013,767 37,065 10,000 9,060,832 2,888,579 519,365 13 L200 4,910,000 150,000 236,580 8,835,724 225,108 160,000 307,504 (399,111) %389 2932497 (274,557) ACfUaI �1116UntS 9,688,767 $ 9,40b,559 371065 44,075 253000 145848 99750,832 91465,482 2,888,579 5331865 131,200 5,5101000 2151000 236,580 9,515,224 235,608 160,000 307,500 (39%111) %389 303,997 (274,557) 1,952,561 286,792 932744 5,410,496 2151000 871,763 98,673 8,929,029 5369453 307,312 165,600 (419,125) 53,787 590,240 (239,497) Variance with Final Budget - Positive (Negative) $ (282,208) 7,010 (10,152) (2285,350) 936,018 247,073 37,456 99,504 (871,763) 137,907 586,195 300,845 147,312 (I41,900) (20,014)_ (14,602) 286,243 35,060 7081 - - ,7,081 18,940 29,440 357,824 328,384 119172,997 • 11,172,997 11,172 M $ IIs191,937 $ 11,2021437 $ 11,530,821 $ 3281384 43 This gage is Ieft intentionally blaulc, OTHER INFORMATIOlY SECTION This page is Xeft inteutioually blauZ�. City of.Sauger Combining Schedule of Revenues and Rxpenses Special Revenue Funds September 30, 2008 REVENUES Sales taxes Hotel taxes Interest Total revenues EXPENDITURES Current: General government Principal Interest and other Capital outlays Total expendihims Excess (deficiency) of revenues over (under) expenditures OTHER FINANCING USES Transfers out Total other financing uses Net income 4-A Economic Development Fund 4-B Economic Development Fund HotellMotel Occupancy Tax Fund $ 245,932 $ 245,932 $ 12,427 258,359 36 1143966 5,034 120,036 138,323 (25,000} {25,000} 38,203 284,135 482 390,147 390,629 (106,494) (25,000) (25,000) 15,337 6,143 6,143 9,194 Total Special Revenue Funds $ 491,864 15,337 50,630 557,831 518 114,966 5,034 3963290 5163808 (50,000) $ 113,323 $ (131,494) $ (8,977) 47 City of Sanger Combining Schedule of Revenues and Expenses Proprietary Fund by Department September 30, 2008 OPERATING REVENUES Charges for services Connection fees Miscellaneous Total operating revenues OPERATING EXPENSES Salaries and wages Purchased professional and technical services Utilities Water and electric purchases Franchise fees Depreciation Repairs and maintenance Total operating expenses Operating income (loss) NONOPERATING REVENUES (EXPENSES) Interest and Investment income Tap fees Interest expense Total nonoperating revenues Net Income before transers Transfers out Gain on sale of fixed assets Total nonoperating revenues (expenses) Net Income (loss) Water Sewer Electric $ 1,Ob7,814 $ 867,140 $ 7,471,581 44,075 - - l,i11,889 867,140 7,471,581 419,745 155,159 35,481 57,467 235,333 254,439 36,961 44,516 260,416 44,498 12,I35 947,683 608,467 1643206 258,673 92,600 (173,072) (80,472) 83,735 73,000 (239,004} (166,004) 92,670 691,748 4%553 9,024 553532029 215,000 3763014 17,071 6,7I 1,439 760,142 (7,osa) (7,050) 753,092 (239,497) 7,081 (232,416) 520,676 Vehicle Maintenance 71,697 2,216 2,586 3,257 79,756 (79,750) Data Administration Processing Total 44,075 14,848 - 14,848 14,872 - 9,465,482 296,436 33,207 2,137 218,496 9,696 ft 563 21,149 332,343 249,341 (317,471) (24%341) 1,952,561 286,792 93,744 5,4103496 215,000 871,763 98,673 8,929,029 536,453 - 307,312 - 307,312 - - (419,125) 307,312 - 535787 (79,756) (103159) (249,341) 590,240 (239,497) - 7,081 - - (232,416) $ (79,756) $ (10,i59) $ (249,341) $ 357,824 Tiais page is left intentiaually blank. City of Sanger Analysis of Property Taxes Receivable Year Ended September 30, 2008 2008 zoa7 zoa6 zoos . Adjusted tax roll $ 2,118,117 $ 2,014,381 $ 1,785,686 $ %718,611 2004 $ 1,449,7I2 LcsscoUections 2,078,588 1,961,241 l,752,921 1,674,032 1,411,753 Current year property taxes receivable 39,529 53,140 32,765 44,579 37,959 Prior years property taxes receivable 71,283 66,629 612995 62,188 54,536 Total property taxes receivable, September 30, 2008 $ 110,812 $ 119,769 $ 94,760 $ 106,767 $ 92,495 Total assessed property value $ 336,831,151 $ 341,154,524 $ 312,822,804 $ 290,01 t,961 $ 256,310,962 Tax rate per $100 $ 0659960 $ 0.59046 $ 0.57083 $ 0.59260 $ 0.56547 Percent of current taxes collected to billed 48.13% 97.36% 98.17% 47,41% 97.38% 51 Michael W. Griffim, CPA Karen 0. Thompson, CPA Auldridge Griffin NVOL."Woody" Mathews, Jr., CPA John A. Stanbery, CPA Certified Purblic Accountants Kenneth L von Tungeln, CPA Kenneth W. Sanders, CPA Keith A. Hollar, CPA Professional r rr r r REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNAMNT AUDITING STANDARDS To #lie City Council City of Sanger, Texas We have audited the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Sanger (the City) as of and for the year ended September 30, 2008, which collectively comprise the City's basic financial statements and have issued our report thereon dated Apri121, 2009. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of theUnited States. Internal Control Over Finanncial Reporting Ina planning and performing our audit, we considered the City's intenx�al control aver financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control over financial reporting. Accordingly, we do not express an opinion onn the effectiveness of the City's internal control over financial reporting. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned funactions, to prevent or detect misstatements on a tinily basis. A significant deficiency is a control deficiency, or a combination of control deficiencies, that adversely affects the City's ability to inutiate, authorize, record, process or report financial data reliably inn accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the City's financial statements that is more than inconsequential will not be prevented or detected by the City's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatennent of the financial statements will not be prevented or detected by the City's internal control. Our consideration of the internal control over financial reporting was for the limited purpose described inn the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. However, we consider, the control deficiency described below to be a material weakness in internnal control over financial reporting: 52 6300 Ridglea Place, Suite 810 • Fort Worth, TX 76116 j Phone: 817.558.4000 I www.auldridge.com 131 S. Westmeado�v Drive, Suite 200 •Cleburne, TX 76033 � Phone: 817.641.1000 Financial Management, Segregation of Duties and Reporting Limitations In connection with the performance of our audit procedures, we identified a significantly large number of adjusting entries, that were necessary to prevent the City's financial statements from being materially misstated. Given the relatively small size of the City's administrative and accounting staff, there is an overall lack of accounting•expertise and proper segregation of duties, As a result of these financia[ management and staffing limitations, the City has been unable to design and implement a more effective system of internal controls over its accounting function, including the preparation of complete monthly financial statements in accordance with generally accepted accounting principles. Failure by the City to establish better financial controls and reporting capabilities will continue to expose the organization to a high level of risk that its monthly financial statements could be incomplete and/or contain material misstatements. Overall improved procedures and management oversight in the accounting area would help ensure that the City's accounting records and financial statements provide users with more complete, accurate and timely information. The City Council needs to further evaluate the costs and benefits of investing in additional systems and human resources in order to significantly reduce the risk of material misstatements contained in the City's financial statements. Comt�liance and Other Matters As a part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial,statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Goveiwment Auditing Standards. We noted certain matters that we reported to management of the City in a separate letter dated April 21, 2009• This report is intended fo►'the info►•►nation and use of the Honorable Mayo►•, management, the City Council, others within the organization, and federal awarding agencies and pass -through entities, and is not intended to be and should not be used by anyone other than these specified parties. it Worth, Texas April 21, 2009 53 Rating: Moody's "Aa2Baa2" (Assured Guaranty Insured/Underlying) (See "RATINGS" herein) OFFICIAL STATEMENT Dated: JULY 20, 2009 NEW ISSUE: Book -Entry -Only In the opinion of Bond Counsel, interest on the Certificates is excludable from gross income for federal income tax purposes under existing law, subject to the matters •described under "TAXEXEMPTION" herein, and is not includable in the alternative minimum taxable income of individuals and corporations. See "TAXEXEMPTION"for a discussion of the opinion of Bond Counsell, The City designated the Certificates as qualified tax-exempt obligations. See "QUALIFIED TAX-EXEMPT OBLIGATIONS. " THE CERTIFICATES WILL BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS. $3,200,000 CITY OF SANGER, TEXAS (Denton County) Combination Tax and Revenue Certificates of Obligation, Series 2009 Dated Date: July 15, 2009 Due: August 1, as shown on inside cover Interest on the $3,200,000 City of Sanger, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2009 (the "Certificates"), will accrue from their Dated Date, and will be payable February 1 and August 1 of each year, commencing on February 1, 2010. The Certificates will be issued only in fully registered form in principal denominations of $5,000 or any integral multiple thereof. Principal of the Certificates will be payable to the registered owner (the "Owner") at maturity or prior redemption upon presentation at the principal corporate office of the paying agent/registrar (the "Paying Agent/Registrar"), initially The Bank of New York Mellon Trust Company, N.A., Dallas, Texas. The Certificates will be initially registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ("DTC"). DTC will be responsible for distributing the principal and interest payments to the participating members of DTC and the participating members will be responsible for distributing the payment to the owners of beneficial interests in the Certificates. See "BOOK -ENTRY -ONLY SYSTEM" herein. Proceeds from the sale of the Certificates will be used (1) to pay contractual obligations to be incurred for the acquisition of land for a city park, construction of athletic fields on such city park, and for water, sewer, drainage and street improvements, and (2) to pay contractual obligations for professional services related thereto. See "THE CERTIFICATES — Sources and Uses of Funds" herein. The Certificates maturing on and after August 1, 2020, are subject to optional redemption in whole or in part on August 1, 2019, or on any date thereafter at a redemption price equal to the principal amount thereof plus accrued interest as more fully described herein. See "THE CERTIFICATES — Optional Redemption" herein. Certain Certificates are also subject to mandatory sinking fund redemption as more fully described herein. See "THE CERTIFICATES — Mandatory Redemption" herein. The Certificates will constitute direct obligations of the City of Sanger, Texas (the "City"), payable from ad valorem taxes levied against all taxable property within the City within the limits prescribed by law, and from a limited subordinate pledge (not to exceed $10,000) of surplus net revenues of the City's waterworks and sewer system as provided in the ordinance authorizing the Certificates.. The scheduled payment of principal of and interest on the Certificates when due will be guaranteed under a financial guaranty insurance policy to be issued concurrently with the delivery of the Certificates by Assured Guaranty Corp. ("Assured Guaranty"). See "BOND INSURANCE" herein. Ak SURED GUaxt�v�. MATURITY SCHEDULE (On Inside Cover Paee) The Certificates are offered when, as and if issued, subject to the approval of legality by the Attorney General of the State of Texas and Andrews Kurth LLP, Bond Counsel, Houston, Texas. Certain legal matters will be passed upon for the Underwriter by its counsel, Howell Linkous Or Nettles, LLC, Charleston, South Carolina. The Certificates are expected to be available for delivery to the Underwriter through DTC on or about July 30, 2009. ALLUVION SECURITIES LLC ASCEND TO A HIGHER PLAIN MATURITY SCHEDULE Term Certificates $420,000 4.375% Certificates due August 1, 2022IaI to Yield 4.54% CUSIP No. 800876 DJOtnI $4609000 4.500% Certificates one August 1, 2024IaI to Yield 4.73% CUSIP No. 800876 DK7tbI $500,000 4.750% Certificates due August 1, 2026(a) to Yield 4.90% CUSIP No. 800876 DL5tbI Serial Certificates Maturity Principal Interest Initial (August 11 tAI Amount Rate Yield/Price CUSIPtbI 2010 $1355000 3.00% 1.00% 800876 CXO 2011 1459000 3.00 1.30 800876 CY8 2012 150,000 3.00 2.60 800876 CZ5 2013 155,000 3.50 3.05 800876 DA9 2014 160,000 3.50 3.30 800876 13137 2015 165,000 3.50 3.60 800876 DC5 2016 170,000 3.50 3.75 800876 DD3 2017 175,000 4.00 3.85 800876 DE 2018 180,000 4.00 3.95 800876 DF8 2019 190,000 4.00 4.05 800876 DG6 2020 195,000 4.00 4.15 800876 DH4 �"� Certificates maturing on and after August I, 2020, are subject to redemption, in whole or in part, at the option of the City at the par value thereof plus accrued interest on August 1, 2019, or any date thereafter. See "THE CERTIFICATES —Optional Redemption." (b) CUSIP Numbers have been assigned to the Certificates by the CUSIP Service Bureau and are included solely for the convenience of the purchasers of the Certificates. Neither the City, the Financial Advisor nor the Underwriter shall be responsible for the selection or correctness of the CUSIP Numbers set forth above. CITY OF SANGER, TEXAS CITY COUNCIL Joe Higgs Mayor Glenn Ervin Mayor Pro -Tern Andy Garza Russell Martin Thomas Muir Robert Patton Councilmember Councilmember Councilmember Councilmember ADMINISTRATIVE OFFICERS Mike Brice City Manager Rosalie Chavez Assistant City Manager/City Secretary Robert Dillard, Esq. City Attorney Nichols Jackson Dillard & Smith Dallas, Texas CONSULTANTS, ADVISORS AND INDEPENDENT AUDITORS Andrews Kurth LLP, Houston, Texas AuldridgeGriffin, P.C., Fort Worth, Texas Government Capital Securities Corporation, Southlake, Texas Bond Counsel Independent Auditor Financial Advisor USE OF INFORMATION IN OFFICIAL STATEMENT No dealer, broker, salesman or other person has been authorized to give any information, or to make any representations other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by the City, the Financial Advisor or the Underwriter. 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 jurisdiction in which sack offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. Airy information and expressions of opinion herein contained are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or other matters described herein since the date hereof. The Underwriter has provided the following sentence for inclusion in this Official Statement The Underwriter has reviewed the information in this Official Statement in accordance with its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER -ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE THE MARKET PRICE OF THE ISSUE AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. Assured Guaranty Corp, makes no representation regarding the Certificates or the advisability of investing in the Certificates. In addition, Assured Guaranty Coip. has not independently verified, makes no representation regarding, and does not accept airy responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding Assured Guaranty Corp. supplied by Assured Guaranty Corp. and presented under the heading "BOND INSURANCE" and "Appendix E -Specimen Financial Guaranty h�sarance Policy". Neither the City, the Financial Advisor nor the Underwriter make any representation as to the accuracy, completeness or adequacy of the information contained in this Official Statement regarding The Depository Tn�st Company or its Book -Entry - Only System or Assured Guaranty Corp. rr TABLE OF CONTENTS SUMMARY STATEMENT............................................iv INTRODUCTORY STATEMENT........... PLAN OF FINANCING..........................................1 Purpose..................................................................1 THE CERTIFICATES............................................1 Authorization......................................................... l Security for the Certificates ................................... I Opitional Redemption...........................................1 Mandatory Redemption........................................1 Notice of Redemption............................................2 Bond Insurance......................................................2 Sources and Uses of Funds....................................2 GENERAL INFORMATION REGARDING THE CERTIFICATES......................................3 General Description...............................................3 Legality.................................................................. 3 Defeasance............................................................. 3 Amendments to the Ordinance...............................4 OWNERSHIP..........................................................4 OWNER'S REMEDIES..........................................4 BOOK -ENTRY -ONLY SYSTEM ..........................5 REGISTRATION, TRANSFER AND EXCHANGE....................................................... 5 BOND INSURANCE...............................................7 The Insurance Policy..............................................7 TheInsurer.............................................................7 TAX INFORMATION............................................8 Summary of Certain Provisions of the Property Tax Code............................................9 Effective Tax Rate and Rollback Tax Rate.......... I V Property Assessment and Tax Payment ............... I I Penalties and Interest ........................................... I I City Application of Property Tax Code ............... I I Municipal Sales Tax............................................1 1 TAX RATE LIMITATIONS................................12 RETIREMENT PLAN........... 12 INVESTMENT POLICIES..................................12 Accounting Principles Generally Accepted in the United States.............................................12 Legal Investments. 0 M a 9 0 * w 6 4 * * 0 4 0 0 a * 0 0 0 0 w 9 0 0 * 0 6 s * 0 s 0 a 9 0 0 * * * 0 * 0 6 s a 1 2 Investment Policies..............................................13 Additional Provisions...........................................14 Current Investments.............................................14 RATINGS...............................................................14 PENDING LITIGATION.....................................14 LEGAL MATTERS..............................................14 TAXEXEMPTION...............................................15 QUALIFIED TAX-EXEMPT OBLIGATIONS...............................................21 LEGAL INVESTMENTS IN TEXAS..................17 REGISTRATION AND QUALIFICATION OF ISSUE FOR SALE.....................................17 CONTINUING DISCLOSURE OF INFORMATION..............................................17 FINANCIAL ADVISOR.......................................19 UNDERWRITING................................................19 CONCLUDING STATEMENT ...........................19 Financial Information Regarding the City of Sanger, Texas General Information Regarding the City of Sanger, Texas Form of Opinion of Bond Counsel General Purpose Audited Financial Statements for the Fiscal Year Ended September 30, 2008 Specimen Financial Guaranty Insurance Policy Appendix A Appendix B Appendix C Appendix D Appendix E iii (THIS PAGE INTENTIONALLY LEFT BLANK) SUMMARY STATETYIENT This Summary Statement is subject in all respects to the more complete information contained in this Official Statement. The offering of the Certificates to potential investors is made only by means of this entire Official Statement, including the schedules and appendices hereto. No person is authorized to detach this Summary Statement from this Official Statement or to otherwise use it without this entire Official Statement including the Appendices hereto. The Issuer The City of Sanger, Texas, is located in Denton County, Texas. For information regarding the City, see Appendices A and B. The Certificates $3,200,000 Combination and Tax Revenue Certificates of Obligation, Series 2009, dated July 15, 2009, maturing on the dates and in the amounts set forth on the inside front cover of this Official Statement. Interest on the Certificates will accrue from their Dated Date and will be paid semiannually on February 1 and August 1, commencing February 1, 2010, until maturity or prior redemption. Purpose of Certificates Proceeds from the sale of the Certificates will be used (1) to pay contractual obligations to be incurred for the acquisition of land for a city park, construction of athletic fields on such city park, and for water, sewer, drainage and street improvements, and (2) to pay contractual obligations for professional services related thereto. See "THE CERTIFICATES — Sources and Uses of Funds" herein. Authorization and Security The Certificates are direct obligations of the City, issued pursuant to Chapter 271, Subchapter C, Texas Local Government Code, Chapter 1502, Texas Government Code, and an ordinance enacted by the City Council of the City (the "City Council") on July 20, 2009. The Certificates are payable from ad valorem taxes to be levied, within the limits prescribed by law, on all taxable property within the City and a limited pledge of surplus net revenues derived from the City's waterworks and sewer system, not to exceed $10,000, as provided in the ordinance authorizing the Certificates. Optional Redemption The Certificates maturing on and after August 1, 2020, are subject to optional redemption in whole or in part on August 1, 2019, or on any date thereafter at a price of par plus accrued interest as more fully described herein. See "THE CERTIFICATES -- Optional Redemption" herein. Mandatory Redemption The Certificates maturing on August 1, 2022, are subject to mandatory sinking fund redemption commencing on August 1, 20215 and will be redeemed as set forth in "THE CERTIFICATES - Mandatory Redemption" herein. The Certificates maturing on August 1, 2024, are subject to mandatory sinking fund redemption commencing on August 1, 2023, and will be redeemed as set forth in "THE CERTIFICATES - Mandatory Redemption" herein. The Certificates maturing on August 1, 2026, are subject to mandatory sinking fund redemption commencing on August 1, 2025, and will be redeemed as set forth in "THE CERTIFICATES - Mandatory Redemption" herein. Ratings The Certificates are expected to be rated "Aa2" by Moody's Investor's Service, Inc. ("Moody's") by virtue of a financial guaranty insurance policy issued by Assured Guaranty Corp. See "BOND INSURANCE" and "RATINGS" herein. The underlying rating of the Certificates is "Baa2" by Moody's. Bond Insurance The scheduled payment of principal of and interest on the Certificates, when due, will be guaranteed under a financial guaranty insurance policy to be issued concurrently with the delivery of the Certificates by Assured Guaranty Corp. See "BOND INSURANCE" herein. w Book-Entry-nly System The Certificates are initially issuable only to Cede & Co., the nominee of The Depository Trust Company, New York, New York, pursuant to the book -entry only system described herein. Beneficial ownership of the Certificates may be acquired in principal denominations of $5,000 or integral multiples thereof. No physical delivery of the Certificates will be made to the purchasers thereof. Principal of, premium if any, and interest on the Certificates will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the DTC Participants (as defined herein) for subsequent remittance to the owners of the beneficial interests in the Certificates. See "BOOK -ENTRY -ONLY SYSTEM" herein. v OFFICIAL STATEMENT RELATING TO $3,200,000 CITY OF SANGER, TEXAS (Denton County) Combination Tax and Revenue Certificates of Obligation, Series 2009 INTRODUCTORY STATEMENT This Official Statement, which includes the cover page, the schedules and the appendices hereto, provides certain information regarding the issuance by the City of Sanger, Texas (the "City") of $3,200,000 Combination Tax and Revenue Certificates of Obligation, Series 2009 (the "Certificates"). The Certificates will be authorized to be issued, sold and delivered by an ordinance enacted by the City's governing body (the "City Council"), and such ordinance is referred to herein as the "Ordinance." Capitalized terms used in this Official Statement have the same meaning assigned to such terms in the Ordinance, except as otherwise indicated herein. The City is a political subdivision of the State of Texas (the "State") and a municipal corporation organized and existing under the laws of the State and the City's home rule charter (the "City Charter"), which was initially approved by the electorate of the City on November 2, 1999. For information regarding the City, see Appendices A and B of this Official Statement. All financial and other information presented in this Official Statement has been provided by the City, except for information expressly attributed to other sources. The presentation of information, including tables of receipts from taxes and other sources, is intended to show recent historic information, and is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as is shown by that financial and other information, will necessarily continue to be repeated in the future. PLAN OF FINANCING Purpose Proceeds from the sale of the Certificates will be used (1) to pay contrachial obligations to be incurred for the acquisition of land for a city park, construction of athletic fields on such city park, and for water, sewer, drainage and street improvements, and (2) to pay contractual obligations for professional services related thereto. THE CERTIFICATES Authorization The Certificates are direct obligations of the City, issued pursuant to Chapter 271, Subchapter C, Texas Local Government Code, as amended, Chapter 1502, Texas Government Code, as amended, and the Ordinance, as authorized by the City Charter. Security for the Certificates The Certificates are payable from ad valorem taxes to be levied and collected, within the limits prescribed by law, on all taxable property within the City, and by a limited pledge of surplus net revenues derived from the City's waterworks and sewer system the "System"), not to exceed $10,000, as provided in the Ordinance. Optional Redemption The City reserves the right, at its option, to redeem the Certificates having stated maturities on and after August 1, 2020, in whole or in part, in integral multiples of $5,000, on August 1, 2019 or any date thereafter, such redemption date or dates to be fixed by the City, at a redemption price equal to the principal amount thereof plus accnied interest to the date fixed for redemption. If less than all of the Certificates are to be redeemed, the City shall determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar (as defined herein) to select by lot the Certificates, or portions thereof, within each maturity to be redeemed. Mandatory Redemption The Certificates III" tuing on August 1, 2022, August 1, 2024, and August 1, 2026 (collectively, the "Term Ce1tificate0"1, are subject to mandatory sinking fund redemption prior to maturity in part on August 1 in the years and in the amounts set forth below at a redemption price equal to the prinepal amount thereof plus accrued and unpaid interest to the redemption date, without premium: Year Mandatoty Sinking Fund Redemption 2021 $205,000 2022* 2155000 *Maturity Year Mandatoty Sinking Fund Redemption 2023 $225,000 2024* 2355000 *Maturity Year Mandatoty Sinking Fttnd Redemption 2025 $245,000 2026* 255,000 *Maturity The particular Term Certificates to be redeemed shall be selected by the Paying Agent/Registrar by lot or other customary random selection method, on or before June I5 of each year in which Term Certificates are to be man datorily redeemed. The principal amount of Term Certificates to be mandatorily redeemed in each year shall be reduced by the principal amount of such Term Certificates that have been optionally redeemed and which have not been made the basis for a previous reduction. Notice of Redemption Not less than 30 days prior to a redemption date for the Certificates, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to each registered owner of a Certificate to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. If notice is so given and sufficient funds are provided for the payment of the redemption price of the Certificates, interest shall cease to accrue after the date fixed for redemption whether or not the Certificates have been submitted for payment. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, AND THE FUNDS NECESSARY TO REDEEM SUCH CERTIFICATES HAVING BEEN PROVIDED, THE CERTIFICATES CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY CERTIFICATE OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH CERTIFICATE OR PORTION THEREOF SHALL CEASE TO ACCRUE. Bond Insurance The scheduled payment of principal of and interest on the Certificates when due will be guaranteed under a financial guaranty insurance policy (the "Policy") to be issued concurrently with the delivery of the Certificates by Assured Guaranty Corp. See "BOND INSURANCE" and Appendix E — "Specimen Financial Guaranty Insurance Policy" herein. 2 Sources and Uses of Funds The proceeds from the sale of the Certificates will be applied approximately as follows: Sources Principal Amount of Certificates $3,200,000 Less Net Original Issue Discount 179640 Plus Accrued Interest 54336 Total Sources of Funds $3.187,090 Uses Deposit to Constn�ction Fund $2,974,309 Costs of Issuance (including Underwriter's Discount and Policy Premium) 208,050 Deposit to Debt Service Fund 5,336 Total Uses of Funds $3,187.695 Totals do not equal due to rounding. GENERAL INFORMATION REGARDING THE CERTIFICATES General Description The Certificates will be dated July I5, 2009, and will be issued in fully registered form in denominations of $5,000 or any integral multiple thereof. The Certificates will bear interest from their Dated Date. Interest will be paid semiannually on each February 1 and August 1, commencing February 1, 2010. Interest will accrue on the Certificates on the basis of a 360-day year consisting of twelve 30-day months. The Certificates will be issued as book -entry only securities pursuant to arrangements made with The Depository Trust Company, New York, New York. See "BOOK -ENTRY -ONLY SYSTEM." Principal of the Certificates will be payable to the registered owners (the "Owners") at maturity or prior redemption upon presentation and surrender of such Certificates at the principal corporate office of the paying agent/registrar (the "Paying Agent/Registrar"), initially The Bank of New York Mellon Trust Company, N.A., Dallas, Texas. Interest on the Certificates will be payable by check dated as of the interest payment date and mailed by the Paying Agent/Registrar to Owners as shown on the records of the Paying Agent/Registrar on the Record Date (see "REGISTRATION, TRANSFER AND EXCHANGE — Record Date for Interest Payment" herein), or by such other customary banking arrangement, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the Owner. If the date for the payment of the principal of or interest on a Certificate shall be a Saturday, Sunday, legal holiday, or a day on which banking institutions in the city where the Paying Agent/Registrar is located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday, or a day on which banking institutions are authorized to close; and payment on such date shall have the same force and effect as if made on the original date payment was due. The Certificates will mature on the dates, in the amounts and bear interest at the rates as set forth on inside front cover page of this Official Statement. Legality The Certificates are offered when, as and if issued, subject to the approvals of legality by the Attorney General of the State of Texas and Andrews Kurth LLP, Houston, Texas, Bond Counsel. (See "LEGAL MATTERS" and Appendix C — "Form of Opinion of Bond Counsel"). Defeasance The Ordinance provides for the defeasance of the Certificates when payment of the principal of and premium, if any, on the Certificates plus interest thereon to the due date thereof (whether such due date be by reason of maturity, redemption, or otherwise)I is provided by irrevocably depositing with a paying agent or other authorized entity, in trust (1) money sufficient to 3 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 compensation and expenses of the paying agent for the Certificates. The Ordinance provides that "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 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 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 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 Certificates shall no longer be regarded to be outstanding or unpaid. Amendments to the Ordinance In the Ordinance, the City has reserved the right to amend such Ordinance without the consent of any holder of the Certificates in any manner not detrimental to the interests of the holders of the Certificates, including the curing of any ambiguity, defect or omission therein. The Ordinance further provides that the holders of the Certificates aggregating in principal amount 51% of the outstanding Certificates shall have the right from time to time to approve any amendment not described above to the Ordinance; provided, however, that without the consent of 100% of the holders in original principal amount of the then outstanding Certificates no amendment may be made for the purpose of: (i) making any change in the maturity of any of the outstanding Certificates; (ii) reducing the rate of interest borne by any of the outstanding Certificates; (iii) reducing the amount of the principal of, or redemption premium, if any, payable on any outstanding Certificates; (iv) modifying the terms of payment of principal or of interest or redemption premium on outstanding Certificates, or imposing any condition with respect to such payment; or (v) changing the minimum percentage of the principal amount of the Certificates necessaryy for consent to such amendment. Reference is made to the Ordinance for fiuther provisions relating to the amendment thereof. OWNERSHIP The City, the Paying Agent/Registrar and any other person may treat the person in whose name any Certificate is registered as the absolute owner of such Certificate for the purpose of making and receiving payment of principal and interest, and for all other purposes, whether or not such Certificate is overdue, and neither the City nor the Paying Agent/Registrar will be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the owner of any Certificate in accordance with the Ordinance will be valid and effectual and will discharge the liability of the City and the Paying Agent/Registrar upon such Certificate to the extent of the sums paid. The Ordinance does not establish or identify specific events of default with respect to the Certificates. Under state law, there is no right to the acceleration of maturity of the Certificates upon the failure of the City to observe any covenant under the Ordinance. Although a registered owner could presumably obtain a judgment against the City if a default occurred in the payment of the principal of or interest on any such Certificate, such judgment could not be satisfied by execution against any property of the City. Such registered owner's only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the City to levy, assess and collect an annual ad valorem tax sufficient to pay principal of and interest on the Certificates as it becomes due. The enforcement of such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. The Ordinance does not provide for the appointment of a trustee to represent the interest of the registered owners upon any failure of the City to perform in accordance with the terns of such Ordinance, or upon any other condition. Furthermore, the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code ("Chapter 9"). Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of taxes in support of a general obligation of a bankrupt entity is not specifically recognized as a security interest under Chapter 9. Chapter 9 also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or bondholders of an entity which has sought protection under Chapter 9. Therefore, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Certificates are qualified with respect to the customary rights of debtors relative to their creditors. BOOK -ENTRY -ONLY SYSTEM The Depository Trust Company, New York, New York ("DTC"), will act as securities depository for the Certificates. The Certificates will be issued in fully -registered form registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorised representative of DTC. One fully -registered Certificate will be issued for each maturity of the Certificates, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest securities depository, is alimited-purpose tnust company organised under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerised 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, rust companies, clearing corporations, and certain other organisations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, bust 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 (as described herein) 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.coni and �vxvw.dtc.org, Purchases of Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC's records. The ownership interest of each actual purchaser of each Certificate ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Certificates are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Certificates, except in the event that use of the book -entry system for the Certificates is discontinued. To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorised representative of DTC. The deposit of Certificates with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates; DTC's records reflect only the identity of the Direct Participants to whose accounts such Certificates are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Certificates may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Certificates, such as redemptions, tenders, defaults, and proposed amendments to the Ordinance. For example, the Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Paying Agent/Registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Certificates are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Certificates unless authorised by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). 5 Redemption payments and principal and interest payments on the Certificates will be made to Cede & Co., or such other nominee as may be requested by an authorised representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or the Paying Agent/Registrar on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent/Registrar or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption payments and principal and interest payments to Cede & Co. (or such other nominee as may be requested by an authorised representative of DTC) is the responsibility of the City or the Paying Agent/Registrar, and disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving reasonable notice to the City and the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered. The City and the Paying Agent/Registrar may decide to discontinue use of the system of book-enhy-only transfers throagh DTC or a successor securities depository). In that event, physical certificates will be printed and delivered to DTC. THE INFORMATION IN THIS SECTION CONCERNING DTC AND DTC'S BOOI{-ENTRY SYSTEM HAS BEEN OBTAINED FROM DTC, AND THE CITY TAKES NO RESPONSIBILITY FOR THE ACCURACY THEREOF. NEITHER THE CITY NOR THE PAYING AGENT/REGISTRAR IS RESPONSIBLE OR LIABLE FOR THE FAILURE OF ANY DIRECT PARTICIPANTS OR ANY INDIRECT PARTICIPANTS TO MAKE ANY PAYMENT OR GIVE ANY NOTICE TO A BENEFICIAL OWNER WITH RESPECT TO THE CERTIFICATES OR ANY ERROR OR DELAY RELATING THERETO. REGISTRATION, TRANSFER AND EXCHANGE Paying Agent/Registrar The initial Paying Agent/Registrar is The Bank of New York Mellon Tnrst Company, N.A., Dallas, Texas. The Certificates are being issued in frilly registered form in integral multiples of $5,000 of principal amount Interest on the Certificates will be payable semiannually by the Paying Agent/Registrar by check mailed on each interest payment date by the Paying Agent/Registrar to the registered owner at the address as it appears on the Paying Agent/Registrar's books on the Record Date or by such other customary banking arrangement acceptable to the Paying Agent/Registrar requested by and at the risk and expense of the registered owner. Successor Paying Agent/Registrar Provision is made in the Ordinance for replacement of the Paying Agent/Registrar. If the Paying Agent/Registrar is replaced by the City, the new Paying Agent/Regish•ar 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 by the City shall be a commercial bank, a trust company, financial institution or other entity duly qualified and legally authorized to serve and perform the services of the Paying Agent/Registrar for the Certificates. Future Registration In the event the book -entry only system should be discontinued, printed Certificates will be delivered to the Owners and thereafter the Certificates may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender to the Paying Agent/Registrar, and such registration and transfer shall be without expense or service charge to the Owner, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. Certificates may be assigned by the execution of an assignment form on the Certificates or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. A new Certificate will be delivered by the Paying Agent/Registrar in lieu of the Certificate being transferred or exchanged at the designated office of the Paying Agent/Registrar, or sent by United States mail, first class, postage prepaid, to the new registered Owner at the Owner's request, risk and expense. New Certificates issued in an exchange or transfer of Certificates will be delivered to the registered Owner or assignee of the Owner after the receipt of the Certificates to be canceled in the exchange or transfer and the written instrument of transfer or request for exchange duly executed by the Owner or his duly authorized agent, in form satisfactory to the Paying 6 Agent/Registrar. New Certificates registered and delivered in an exchange or transfer shall be of like kind and in authorized denominations and for a like aggregate principal amount as the Certificate or Certificates surrendered for exchange or transfer. See "BOOK -ENTRY -ONLY SYSTEM" for a description of the system to be utilized initially in the settlement and transfer of the Certificates. Record Date for Interest Payment The record date ("Record Date") for the interest payable on any interest payment date is the 15h day of the month next preceding such interest payment date, as specified in the Ordinance. In the event of a nonpayment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (the "Special Record Date") will be established by the Paying Agent/Registrar, if and when fiords for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (the "Special Payment Date" which shall be 15 days after the Special Record Date) shall be sent at least 5 days prior to the Special Record Date by United States mail, first class, postage prepaid, to the address of each Owner of a Certificate appearing on the books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. Limitation on Transfer of Certificates Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Certificate (i) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date or (ii) with respect to any Certificate, or any portion thereof, called for redemption prior to maturity within 45 days prior to its redemption date, provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Certificate. Replacement of Certificates If any Certificate is mutilated, destroyed, stolen or lost, a new Certificate in the same principal amount as the Certificate so mutilated, destroyed, stolen or lost will be issued. In the case of a mutilated Certificate, such new Certificate will be delivered only upon surrender and cancellation of such mutilated Certificate. In the case of any Certificate issued in lieu of and in substitution for a Certificate which has been destroyed, stolen or lost, such new Certificate will be delivered only (a) upon filing with the City and the Paying Agent/Registrar evidence satisfactory to them that such Certificate has been destroyed, stolen or lost and proof of the ownership thereof and (b) upon furnishing the City and the Paying Agent/Registrar with indemnity satisfactory to them. The person requesting the authentication and delivery of a new Certificate must pay such expenses as the Paying Agent/Registrar may incur in connection therewith. BOND INSURANCE The Insurance Policy Concurrently with the issuance of the Certificates, Assured Guaranty Corp. ("Assured Guaranty" or the "Insurer") will issue its financial guaranty insurance policy (the "Policy") for the Certificates. The Policy guarantees the scheduled payment of principal of and interest on the Certificates when due as set forth in the form of the Policy included as an exhibit to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. The Insurer Assured Guaranty is aMaryland-domiciled insurance company regulated by the Maryland Insurance Administration and licensed to conduct financial guaranty insurance business in all fifty states of the United States, the District of Columbia and Puerto Rico. Assured Guaranty commenced operations in 1988. Assured Guaranty is a wholly owned, indirect subsidiary of Assured Guaranty Ltd. ("AGL"), a Bermuda -based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol "AGO." AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, structured finance and mortgage markets. Neither AGL nor any of its shareholders is obligated to pay any debts of Assured Guaranty or any claims under any insurance policy issued by Assured Guaranty. Assured Guaranty's financial strength is rated "AAA" (negative outlook) by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), "Aa2" (on review for possible downgrade) by Moody's Investors Service, Inc. ("Moody's") and "AA" (evolving) by Fitch, Inc. ("Fitch"). Each rating of Assured Guaranty should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies. Any 7 downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of any security guaranteed by Assured Guaranty. Assured Guaranty does not guaranty the market price of the securities it guarantees, nor does it guaranty that the ratings on such securities will not be revised or withdrawn. Recen! Develo�ntetris Ratings On July I, 2009, S&P published a Research Update in which it affirmed its "AAA" counterparty credit and financial strength ratings on Assured Guaranty, At the same time, S&P revised its outlook on Assured Guaranty to negative from stable. Reference is made to the Research Update, a copy of which is available at wI),Av.standardandpoors.com, for the complete text of S&P's comments. On May 20, 2009, Moody's issued a press release stating that it had placed the "Aa2" insurance financial strength rating of Assured Guaranty on review for possible downgrade. Reference is made to the press release, a copy of which is available at wwAv.moodys.com, for the complete text of Moody's comments. In a press release dated May 4, 2009, Fitch announced that it had downgraded the insurer financial strength rating of Assured Guaranty to "AA" from "AAA" and placed such rating on Rating Watch Evolving. Reference is made to the press release, a copy of which is available at �tiA�Av.titchratin sg com, for the complete text of Fitch's comments. There can be no assurance as to the outcome of Moody's review or the timing of when such review may be completed, or as to the further action that Fitch or S&P may take with respect to Assured Guaranty. For more information regarding Assured Guaranty's financial strength ratings and the risks relating thereto, see AGL's Annual Report on Form 10-K for the fiscal year ended December 31, 2008, which was filed by AGL with the Securities and Exchange Commission ("SEC") on February 26, 2009, and AGL's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009, which was filed by AGL with the SEC on May 11, 2009. Acquisition of FSA On July 1, 2009, AGL acquired the financial guaranty operations of Financial Security Assurance Holdings Ltd. ("FSA"), the parent of financial guaranty insurance company Financial Security Assurance, Inc. Capitalization of Assured Guaranty Corp. As of March 31, 2009, Assured Guaranty had total admitted assets of $1,926,329,505 (unaudited), total liabilities of $1,570,615,119 (iu�audited), total surplus of $355,714,386 (unaudited) and total statutory capital (surplus plus contingency reserves) of $1,109,717,908 (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. Incorporation of Certain Documents by Reference The portions of the following documents relating to Assured Guaranty are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof: The Annual Report on Form 10-K of AGL for the fiscal year ended December 31, 2008 (which was filed by AGL with the SEC on Febnrary 26, 2009); and The Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009 (which was filed by AGL with the SEC on May 11, 2009). All consolidated financial statements of Assured Guaranty and all other information relating to Assured Guaranty included in documents filed by AGL with the SEC pursuant to Section l3(a), 13(c), 14 or IS(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date of this Official Statement and prior to the termination of the offering of the Certificates shall be deemed to be incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such consolidated financial statements. Any statement contained in a document incorporated herein by reference or contained herein under the heading "BOND INSURANCE -The Insurer" shall be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any subsequently filed document which is incorporated by reference herein also modifies or supersedes 8 such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. Copies of the consolidated financial statements of Assured Guaranty incorporated by reference herein and of the statutory financial statements filed by Assured Guaranty with the Maryland Insurance Administration are available upon request by contacting Assured Guaranty at 1325 Avenue of the Americas, New York, New York 10019 or by calling Assured Guaranty at (212) 974-0100. In addition, the information regarding Assured Guaranty that is incorporated by reference in this Official Statement that has been filed by AGL with the SEC is available to the public over the Internet at the SEC's web site at http://xvww.sec.gov and at AGL's web site at http://Nvww,assuredguaranty.com, from the SEC's Public Reference Room at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the office of the New York Stock Exchange at 20 Broad Street, New York, New York 10005. Assured Guaranty makes no representation regarding the Certificates or the advisability of investing in the Certificates. In addition, Assured Guaranty has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding Assured Guaranty supplied by Assured Guaranty and presented under the heading "BOND INSURANCE". TAX INFORMATION Summary of Certain Provisions of the Property Tax Code The appraisal of property within the City is the responsibility of the Denton Central Appraisal District (the "Appraisal District"). Excluding agricultural and open -space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Property Tax Code to assess all property within the Appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. In determining the market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the Appraisal District's chief appraiser determines the method to be used. The value placed upon property within the Appraisal District is subject to review by the Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least once every three years. The City may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the City by petition filed with the Appraisal Review Board. Reference is made to the V.A.T.C.S., Property Tax Code, for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem tax purposes, and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution ("Article VIII") and State law provide for certain exemptions from property taxes, the valuation of agriculhiral and open -space lands at productivity value, and the exemption of certain personal property from ad valorem taxation. Under Section 1-b, Article VIII, and State law, the governing body of a political subdivision, at its option, may grant: (1) An exemption of not less than $37000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision; and (2) An exemption of up to 20% of the market value of residence homesteads; minimum exemption $5,000. In the case of residence homestead exemptions granted under Section 1-b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. Legislation and a related amendment to the Texas Constitution authorize cities to limit the total ad valorem tax (except for increases attributable to certain improvements) on the residence homestead of the disabled or persons 65 years of age or older and their spouses to the amount of tax imposed in the later of (1) the year such residence qualified for an exemption based w, the disability or age of the owner or (2) the year the City chose to establish the above -referenced limitation. On the receipt of a petition signed by five percent of the registered voters of the City, the City shall call an election to determine by majority vote whether to establish such a tax limitation. Once established, a city may not repeal or rescind the tax limitation. If a disabled or elderly person dies in a year in which the person received a residence homestead exemption, the total amount of ad valorem taxes imposed on the homestead by a city may not be increased while it remains the residence homestead of that person's surviving spouse if the spouse is fifty-five years of age or older or disabled at the time of the person's death. A proportionate share of the 0 limitation applicable to a person homestead is transferred to a new residence homestead of such person if the person moves to a different residence within the same city. State law and Section 2, Article VIII, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to $12,000, dependent upon the degree of disability or whether the exemption is applicable to a surviving spouse or children. Article VIII provides that eligible owners of both agricultural land (Section 1-d) and open -space land (Section 1-d-1), including open -space land devoted to farm or ranch purposes or open -space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Section I -d and 1-d-1. State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of (1) the market value of the property or (2) the sum of (a) 10% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. Non -business personal property, such as automobiles or light trucks, are exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property. Boats owned as non -business property are exempt from ad valorem taxation. Section I J of Article VIII authorizes an ad valorem tax exemption for "freeport property". Freeport property is defined as goods detained in the State for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. The City and the other taxing bodies within its territory may agree to jointly create tax increment financing zones, under which the tax values on property in the zone are "frozen" at the value of the property at the time of creation of the zone. The City also may enter, into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The City in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years. The City has adopted a tax abatement policy with respect to certain areas within the City. See Appendix A — Tables 1, 3 and 4 for information relating to the City's taxable assessed valuation, property tax rates and collections and tax rate distribution. Effective Tax Rate and Rollback Tas Rate Before the later of September 30 or the 60th day after the date the certified appraisal roll is received by the City, the City Council must adopt a tax rate per $100 taxable value for the current year. If the City Council does not adopt a tax rate by such required date the tax rate for that tax year is the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the City for the preceding tax year. The tax rate consists of two components: (1) a rate for finding of maintenance and operation expenditures, and (2) a rate for debt service. Under the Property Tax Code, the City must amorally calculate and publicize its "effective tax rate" and "rollback tax rate". A tax rate cannot be adopted by the City Council that exceeds the lower of the rollback tax rate or the effective tax rate until two public hearings have been held on the proposed tax rate following notice of such public hearings (including the requirement that notice be posted on the City's website if the City owns, operates or controls an internet website and public notice be given by television if the City has free access to a television channel) and the City Council has otherwise complied with the legal requirements for the adoption of such tax rate. If the adopted tax rate exceeds the rollback tax rate the qualified voters of the City by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate. "Effective tax rate" means the rate that will produce last year's total tax levy (adjusted) from this year's total taxable values (adjusted). "Adjusted" means lost values are not included in the calculation of last year's taxes and new values are not included in this year's taxable values. "Rollback tax rate" means the rate that will produce last year's maintenance and operation tax levy (adjusted) from this year's values (adjusted) multiplied by 1.08 plus a rate that will produce this year's debt service from this year's values (unadjusted) divided by the anticipated tax collection rate. The Property Tax Code provides that certain cities and counties in the State may submit a proposition to the voters to authorize an additional one-half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. 10 Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. Property Assessment and Tas Payment Property within the City is assessed as of January 1 of each year. Business inventory may, at the option of the taxpayer, be assessed as of September 1. Oil and gas reserves are assessed on the basis of a valuation process which uses an average daily price of oil and gas for the prior year. Taxes become due October 1 of the same year, and become delinquent on February I of the following year. Taxpayers 65 years of age and over and taxpayers qualifying for the disabled person exemption are allowed to pay taxes on their residential homestead in four installments with the first installment due on February 1 of each year and the final installment due on August 1. Penalties and Interest Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: Cumulative Month Penalty February 6% March 7 April 8 May 9 June 10 July 27tlu Cumulative Interest Total 1% 7% 2 9 3 11 4 13 5 15 6«I 33 "' Includes an additional 15%penalty to defray attorneys' fees. cz Interest continues to accrue after July 1 at the rate that increases 1 %per mouth until paid. After July, penalty remains at 12%, and interest increases at the rate of 1 %each month. In addition, if an account is delinquent in July, an attorneys collection fee of up to 15% may be added to the total tax penalty and interest charge. Under certain circumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per amum with no additional penalties or interest assessed. In general, property subject to the City's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post -petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post -petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. City Application of Property Tax Code The City grants an exemption of $ ] 0,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled. See Appendix A —Table 1 for a listing 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 valuationI will expire in 2012. Municipal Sales Tax The City has adopted the provisions of V.A.T.C.S. Tax Code § 321.001 et seq., which grants the City the power to impose and levy a I% Local Sales and Use Tax within the City. The proceeds of such tax are credited to the General Fund and are not pledged to payment of the Certificates. Collections and enforcements are effected through the offices of the State Comptroller of Public Accounts, who monthly remits the proceeds of the tax, after deduction of a 2% service fee, to the City. The Tax Code provides certain cities and counties the option of assessing a maximum one-half percent (I/2%) sales tax on retail sales of taxable items for the purpose of reducing its ad valorem taxes, if approved by a majority of the voters in a local option election. If the additional tax is approved and levied, the ad valorem property tax levy must be reduced by the estimated amount of the sales tax revenues to be generated in the current year. Subject to the approval of a majority of the voters in a local option election, state law also provides certain cities the option of assessing a sales and use tax for a variety of other purposes, including economic and industrial development, municipal street maintenance and repair, and sports and community venues. State law limits the maximum aggregate sales and use tax rate in any area to . Accordingly, the collection of local sales and use taxes in the area of the City (including sales and use taxes levied by the City) is limited to no more than 2% (when combined with the State sales and use tax rate of 6'/a%). In addition to the oue percent (1 %) local sales and use tax referred to above, at an election held on May 2, 1998 voters of the City approved the imposition of an additional one-half percent (1/2%) sales and use tax for economic development purposes in accordance with Section 4A, Article 5190.6 of Vernon's Annotated Texas Civil Statutes. Levy of the additional sales and use tax began in December, 1998. At an election held on May 2, 1998 voters of the City approved the imposition of an additional one. percent (1/2%) sales and use tax for economic development purposes in accordance with Section 413, Article 5190.6 of Vernon's Annotated Texas Civil Statutes. Levy of the additional sales and use tax began in December, 1998. The City has not held an election regarding an additional sales tax for the purpose of reducing its ad valorem taxes. TAX RATE LIMITATIONS Article XI, Section 5, of the State Constihrtion is applicable to the City and imposes a limitation on ad valorem taxes which can be imposed by the City of $2.50 per $100 taxable assessed valuation. The City Charter provides that the maximum tax rate is limited only by the maximum limit as may be imposed pursuant to the State Constitution, currently $2.50 per $100 taxable assessed valuation. The Attorney General of Texas follows a policy, with respect to Home Rule Cities which have such a $2.50 limitation, of approving ad valorem tax bonds only to the extent that all of such city's ad valorem tax debt can be serviced by a debt service tax rate of $1.50 at 90% collection. RETIREMENT PLAN The City participates in the Texas Municipal Retirement System which is a joint contributory retirement plan covering all fiill- time employees. There are no benefits guaranteed other than to the extent provided by employee and employer contributions, plus earnings, accumulated in the individual accounts of employees. The contribution rate for employees is 6% of their annual covered salary. The City is required to contribute at an actuarially determined rate; the current rate as of September 30, 2008 is 7.91%. This rate consists of the normal cost contribution rate and the prior service contribution rate, both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate is the actuarially determined percent of payroll necessary to satisfy the obligation of the City to each employee at the time his/her retirement becomes effective. The prior service contribution rate amortizes the unfunded actuarial liability over the remainder of the plan's 25-year amortization period. Contributions by the City for the year ended September 30, 2008 totaled $167,608, For additional information regarding the City's Pension Plans, see Appendix D - "General Purpose Financial Statements for the Fiscal Year Ended September 30, 2008, Note G - Pension Plan". INVESTMENT POLICIES Accounting Principles Generally Accepted in the United Stites The City policy is to adhere to accounting principles generally accepted in the United States (see Appendix D "General Purpose Financial Statements for the Fiscal Year Ended September 30, 2008"). Legal Investments Under current State law, the City is authorized to invest in (I) obligations of the United States or its agencies and instrumentalities, (2) direct obligations of the State of Texas or its agencies and instrumentalities, (3) collateralized mortgage obligations directly issued by a federal agency or instnrmentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States, (4) other obligations the principal of and interest on which are 12 unconditionally guaranteed or insured by, or backed by the fidl 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 meeting the requirements of the Texas Public Funds Investment Act (Chapter 2256, Texas Government Code) that are issued by or through an institution that either has its main office or a branch in the State, 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) securities lending programs if (i) the securities loaned under the program are collateralized and a loan made under the program allows for termination at any time and is either secured by (a) obligations that are described in clauses (1) through (6) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm at not less than A or its equivalent or (c) cash invested in obligations described in clauses (1) through (6) above, clauses (11) through (13) below, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the City and held in the City's name; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less, (10) certain banker's 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, (11) commercial paper with a stated maturity of 270 days or less that is rated as 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, (12) no-load money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share, (13) 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 preceding clauses; 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, and (14) guaranteed investment contracts that have a defined termination date and are secured by obligations described in clause (1) above in an amount at least equal to the amount of bond proceeds invested under such contract. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than "Aaa" or "AAA" or an equivalent by at least one nationally recognized rating service. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage -backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage -backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. Investment Policies Under Texas law, the City is required to invest its fiords under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, mahirity, and the quality and capability of investment management; and that includes a list of authorized investments for City finds, maximum allowable stated maturity of any individual investment and the maximum average dollar -weighted maturity allowed for pooled fiord groups. All City fiords must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each funds' investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. Under Texas law, City investments must be made "with judgment and care, under prevailing circumstances, that a person of pnrdence, discretion and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived." At least quarterly the investment officers of the City shall submit an investment report detailing: (1) the investment position of the City, (2) that all investment officers jointly signed the report, (3) the beginning market value, any additions and changes to market value and the ending value of each pooled fond group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or find or pooled find group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) state law. No person may invest City funds without express written authority from the City Council. 13 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 relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council; (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) perform an annual audit of the management controls on investments and adherence to the City's investment policy; (5) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; (6) 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; (7) restrict the investment in mutual fiords in the aggregate to no more than 15% of the City's monthly average find balance, excluding bond proceeds and reserves and other fiords held for debt service, and prohibit the investment in mutual finds of any portion of bond proceeds, reserves and finds held for debt service; and (8) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements. Current Investments As of September 30, 2008, the City's investment portfolio was invested in the following categories. As of such date, the market value of such investments was approximately 100% of their book value. Tvne of Investment Amount Percentage Cash, Certificates of Deposit, $9,564,254 I00% Checking Accounts and Savings Accounts RATINGS The Certificates are rated "Aa2" by Moody's Investor's Service, Ina ("Moody's") by virtue of the Policy issued by Assured Guaranty. The underlying rating of the City's presently outstanding uninsured general obligation debt is rated "Baa2" by Moody's. The ratings reflect only the view of such organization at the time such ratings were given and the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by Moody's, if in the judgment of Moody's, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates. PENDING LITIGATION There is no litigation currently pending against the City. LEGAL MATTERS The City will fiu-nish a complete transcript of proceedings incident to the authorization and issuance of the Certificates, including the approving legal opinions of the Attorney General of the State of Texas to the effect that the Certificates are valid and binding obligations of the City, and based upon examination of such transcripts of proceedings, the approving legal opinions of Bond Counsel to the effect that (i) the Certificates issued in compliance with the provisions of the Ordinance are valid and legally binding obligations of the City and (ii) the interest on the Certificates is exempt from federal income taxation under existing statutes, published rulings, regulations, and court decisions (see "TAX EXEMPTION"), Bond Counsel has not been engaged to investigate the financial resources of the City or its ability to provide for payment of the Certificates, and the opinion of Bond Counsel will make no statement as to such matters, or any other information that may have been relied on by anyone in making the decision to purchase the Certificates. The legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Certificates are contingent on the sale and delivery of the Certificates. The applicable legal opinion will be printed on or attached to the definitive Certificates. Bond Counsel has reviewed the statements and information appearing in the Official Statement under the captions "THE CERTIFICATES" (except the sabcaptions "Bond Insurance" and "Sources and Uses of Funds"), "GENERAL INFORMATION REGARDING THE CERTIFICATES," "REGISTRATION, TRANSFER AND EXCHANGE", "TAX RATE LIMITATIONS," "LEGAL MATTERS," "TAX EXEMPTION," "LEGAL INVESTMENTS IN TEXAS," "TAX TREATMENT OF ORIGINAL [L'f ISSUE DISCOUNT AND PREMIUM BONDS," and "CONTINUING DISCLOSURE OF INFORMATION" (except the subcaption "Compliance With Prior Undertakings") fairly summarizes the procedures and documents referred to therein and is correct as to matters of law. Bond Counsel has not independently verified any of the factual information contained in this Official Statement nor have they conducted an investigation of the affairs of the City for the purpose of passing upon the accuracy or completeness of this Official Statement. No person is entitled to rely upon such firm's limited participation as an assumption of responsibility for, or an expression of opinion of any kind with regard to, the accuracy or completeness of any of the information contained herein. TAX EXEMPTION In the opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel, interest on the Certificates is (1) excludable under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), from gross income of the owners thereof for federal income tax purposes and (2) is not includable in the alternative minimum taxable income of individuals and corporations. The foregoing opinions of Bond Counsel are based on the Code and the regulations, rnlings and court decisions thereunder in existence on the date of issue of the Certificates. Such authorities are subject to change and any such change could prospectively or retroactively result in the inclusion of the interest on the Certificates in gross income of the owners thereof or change the treatment of such interest for purposes of computing alternative minimum taxable income. In rendering its opinions, Bond Counsel has assumed continuing compliance by the City with certain covenants of the ordinance authorizing the issuance of the Certificates (the "Ordinance") and has relied on representations by the City with respect to matters solely within the knowledge of the City, which Bond Counsel has not independently verified. The covenants and representations relate to, among other things, the use of Certificate proceeds and any facilities financed therewith, the source of repayment of the Certificates, the investment of Certificate proceeds and certain other amounts prior to expenditure, and requirements that excess arbitrage earned on the investment of Certificate proceeds and certain other amounts be paid periodically to the United States and that the City file an information report with the Internal Revenue Service (the "Service"). If the City should fail to comply with the covenants in the Ordinance, or if its representations relating to the Certificates that are contained in the Ordinance should be determined to be inaccurate or incomplete, interest on the Certificates could become taxable from the date of delivery of the Certificates, regardless of the date on which the event causing such taxability occurs. Except as stated above, Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt or accrual of interest on or acquisition or disposition of the Certificates. Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published nilings and court decisions and the representations and covenants of the City described above. No Holing has been sought from the Service with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel's opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Certificates is commenced, under current procedures the Service is likely to treat the City as the "taxpayer," and the owners of the Certificates may have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Certificates, the City may have different or conflicting interests from the owners of the Certificates. Public awareness of any future audit of the Certificates could adversely affect the value and liquidity of the Certificates during the pendency of the audit, regardless of its ultimate outcome. Under the Code, taxpayers are required to provide information on their returns regarding the amount of tax-exempt interest, such as interest on the Certificates, received or accrued during the year. Prospective purchasers of the Certificates should be aware that the ownership of tax-exempt obligations, such as the Certificates, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a financial asset securitization investment trust (FASIT) that holds tax-exempt obligations, and individuals otherwise eligible for the earned income tax credit. Such prospective purchasers should consult their tax advisors as to the consequences of investing in the Certificates. IS TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES Discount Certificates Some of the Certificates may be offered at an initial offering price which is less than the stated redemption price at maturity of such Certificates. If a substantial amount of any maturity of the Certificates is sold to members of the public (which for this purpose excludes bond houses, brokers and similar persons or entities acting in the capacity of wholesalers or underwriters) at such initial offering price, an initial owner who purchases the Certificates of that maturity (the "Discount Certificates") will be considered to have `original issue discount" for federal income tax purposes equal to the difference between (a) the stated redemption price payable at the maturity of such Discount Certificate and (b) the initial offering price to the public of such Discount Certificate. Under existing law, such original issue discount will be treated for federal income tax purposes as additional interest on a Certificate and such initial owner will be entitled to exclude from gross income for federal income tax purposes that portion of such original issue discount deemed to be earned (as discussed below) during the period while such Discount Certificate continues to be owned by such initial owner. Except as otherwise provided herein, the discussion regarding interest on the Certificates under the caption "TAX EXEMPTION' generally applies to original issue discount deemed to be earned on a Discount Certificate while held by an owner who has purchased such Certificate at the initial offering price in the initial public offering of the Certificates and that discussion should be considered in connection with this portion of the Official Statement. In the event of a redemption, sale, or other taxable disposition of a Discount Certificate prior to its stated maturity, however, any amount realized by such initial owner in excess of the basis of such Discount Certificate in the hands of such owner (increased to reflect the portion of the original issue discount deemed to have been earned while such Discount Certificate continues to be held by such initial owner) will be includable in gross income for federal income tax purposes. Because original issue discount on a Discount Certificate will be treated for federal income tax purposes as interest on a Certificate, such original issue discount must be taken into account for certain federal income tax purposes as it is deemed to be earned even though there will not be a corresponding cash payment. Owners of a Discount Certificate may be required to take into account such original issue discount as it is deemed to be earned for purposes of determining certain collateral federal tax consequences of owning a Certificate. See "TAX EXEMPTION' for a reference to collateral federal tax consequences for certain owners. The characterization of original issue discount as interest is for federal income tax purposes only and does not otherwise affect the rights or obligations of the owner of a Discount Certificate or of the City. The portion of the principal of a Discount Certificate representing original issue discount is payable upon the maturity or earlier redemption of such Certificate to the registered owner of the Discount Certificate at that time. Under special tax accounting rules prescribed by existing law, a portion of the original issue discount on each Discount Certificate is deemed to be earned each day. The portion of the original issue discount deemed to be earned each day is determined under an actuarial method of accrual, using the yield to maturity as the constant interest rate and semi-annual compounding. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Discount Certificates by an owner that did not purchase such Certificates in the initial public offering and at the initial offering price may be determined according to rules which differ from those described above. All prospective purchasers of Discount Certificates should consult their tax advisors with respect to the determination for federal, state and local income tax purposes of interest and original issue discount accrued upon redemption, sale or other disposition of such Discount Certificates and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Discount Certificates. Premium Certificates Some of the Certificates may be offered at an initial offering price which exceeds the stated redemption price payable at the maturity of such Certificates. If a substantial amount of any maturity of the Certificates is sold to members of the public (which for this purpose excludes on houses, brokers and similar persons or entities acting in the capacity of wholesalers or underwriters) at such initial offering price, each of the Certificates of such maturity ("Premium Certificates") will be considered for federal income tax purposes to have "bond premium" equal to the amount of such excess. The basis for federal income tax purposes of a Premium Certificate in the hands of an initial purchaser who purchases such Certificate in the initial offering must be reduced each year and upon the sale or other taxable disposition of the Certificate by the amount of amortizable bond premium. This reduction in basis will increase the amount of any gain (or decrease the amount of any loss) recognized for federal income tax purposes upon the sale or other taxable disposition of a Premium Certificate by the initial purchaser. Generally, no corresponding deduction is allowed for federal income tax purposes, for the reduction in basis resulting from 16 amortizable bond premium. The amount of bond premium on a Premium Certificate which is amortizable each year ter shorter period in the event of a sale or disposition of a Premium Certificate) is determined under special tax accounting rules which use a constant yield throughout the term of the Premium Certificate based on the initial purchaser's original basis in such Certificate. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition by an owner of Certificates that are not purchased in the initial offering or which are purchased at an amount representing a price other than the initial offering prices for the Certificates of the same maturity may be determined according to rules which differ from those described above. Moreover, all prospective purchasers of Certificates should consult their tax advisors with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of Premium Certificates. QUALIFIED TAX-EXEMPT OBLIGATIONS Section 265(a) of the Code provides, in general, that interest expenses incurred to acquire or carry tax-exempt obligations are not deductible from the gross income of the holder. For certain holders that are "financial institutions" within the meaning of such section, complete disallowance of such expense would apply to taxable years beginning after December 31, 1986, with respect to tax-exempt obligations acquired after August 7, 1986. Section 265(b) of the Code provides an exception to this rule for interest expense incurred by financial institutions to carry tax-exempt obligations (other than certain private activity bonds) which are designated by an issuer as "qualified tax-exempt obligations." An issuer may only designate an issue as an issue of "qualified tax-exempt obligations" where less than $30 million of tax-exempt obligations are issued by the issuer during the calendar year in which the issue so designated is issued. The City will designate the Certificates as "qualified tax-exempt obligations." Further, the City will represent that it has or will take such action necessary for the Certificates to constitute "qualified tax-exempt obligations." Notwithstanding the designation of the Certificates as "qualified tax-exempt obligations," financial institutions acquiring the Certificates will be subject to a twenty percent (20%) disallowance of interest expenses allocable to the Certificates. LEGAL INVESTMENTS IN TEXAS Section 1201.041 of the Public Security Procedures Act provides that the Certificates are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal and authorized investments for insurance companies, fiduciaries and trustees, and for sinking funds of municipalities or other political subdivisions or public agencies of the State of Texas. For political subdivisions in the State which have adopted investment policies and guidelines in accordance with the Public Funds Investment Act (V.T.C.A., Government Code, Chapter 2256), the Certificates may have to be assigned a rating of "A" or its equivalent as to investment quality by a national rating agency before such obligations are eligible investments for sinking fimds and other public funds. See "RATINGS" herein. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Certificates are legal investments for state banks, savings banks, trust companies with capital of at least one million dollars, and savings and loan associations. Texas law further provides that the Certificates are eligible to secure deposits of any public funds of the state, its agencies and its political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the City has been made of the laws in other states to determine whether the Certificates are legal investments for various instihrtions in those states. REGISTRATION AND QUALIFICATION OF ISSUE FOR SALE The sale of 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 Certificates has not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Certificates been qualified under the securities act of any other jurisdiction. The City assumes no responsibility for qualification of the Certificates tinder the securities laws of any jurisdiction in which the Certificates may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for 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 provisions. CONTINUING DISCLOSURE OF INFORMATION In the Ordinance, the City has made the following agreement for the benefit of the holders and beneficial owners of the Certificates. The City is required to observe the agreement for so long as it remains obligated to advance fimds to pay the Certificates. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to the Municipal Securities Rulemaking Board ("MSRB"). This 17 information will be available to securities brokers and others at no charge via the MSRB's Electronic Municipal Market Access ("EMMA") system at www,emma.nisrb.org . Annual Reports The City will provide certain updated financial information and operating data to the MSRB annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in this Official Statement in Appendix A — Financial Information Regarding the City of Sanger, Texas (Tables 1.10) and in Appendix D. The City will update and provide this information within six months after the end of each fiscal year. The City may provide updated information in fidl text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule l51;2-12 (the "Rule"). The updated information will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the City will provide unaudited financial statements by the required time, and will file the annual audit report when it becomes available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix D or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by the last day of March in each year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify the MSRB of the change. Material Event Notices The City will also provide timely notices of certain events to the MSRB. The City will provide notice of any of the following events with respect to the Certificates, if such event is material to a decision to purchase or sell Certificates: (I) 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. Neither the Certificates nor the Ordinance make any provision for debt service reserves or liquidity enhancement. In addition, the City will provide timely notice of any failure by the City to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports". Availability of Information from MSRB The City has agreed to provide the foregoing information only to the MSRB. The information will be available to holders of Certificates free of charge through the MSRB's EMMA System. Limitations and Amendments The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Certificates at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Certificates may seek a writ of mandamus to compel the City to comply with its agreement. This continuing disclosure agreement may be amended by the City from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nahu•e, status, or type of operations of the City, but only if (I) the provisions, as so amended, would have permitted an underwriter to purchase or sell Certificates in the primary offering of the Certificates in compliance with the Rule, taking into account any amendments or interpretations of the Rule since such offering as well as such changed circumstances and (2) either (a) the registered owners of a majority in aggregate principal amount (or any greater amount required by any other provision of the Ordinance that authorizes such an amendment) of the outstanding Certificates consent to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interest of the registered owners and beneficial owners of the Certificates. The City may also amend or repeal the provisions of the continuing disclosure agreement if the Securities and Exchange Commission 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. If m the City 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 Undertakings During the last five years, the City has not failed to comply in any material respect with any continuing disclosure agreement made by it in accordance with the Rule. FINANCIAL ADVISOR Government Capital Securities Corporation, Southlake, Texas (the "Financial Advisor"), is employed as financial advisor to the City to assist in the issuance of the Certificates. The fee of the financial advisor for services with respect to the Certificates is contingent upon the issuance and the sale of the Certificates. UNDERWRITING Alhivion Securities LLC, Memphis, Tennessee (the "Underwriter"), has agreed, subject to certain customary conditions to delivery, to purchase the Certificates at prices equal to the initial offering prices to the public, as shown on the inside cover page, of this Official Statement, less an Underwriter's Discount of $65,792 on the Certificates. The Underwriter will be obligated to purchase all of the Certificates if any Certificates are purchased. Certificates may be offered and sold to certain dealers and others at prices lower than such public offering prices, and such public prices may be changed, from time to time, by the Underwriter. CONCLUDING STATEMENT The information set forth herein has been obtained from the City's records, audited financial statements and other sources which are considered to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will ever be realized. All of the summaries of the statutes, documents and the Ordinance contained in this Official Statement are made subject to all of the provisions of such statutes, documents, and the Ordinance. These summaries do not purport to be complete statements of such provisions and reference is made to such summarized documents for fiurther information. Reference is made to official documents in all respects. The City has reviewed and approved the Official Statement and said instrument has been authorized for use and distribution by the Underwriter for the purpose of offering the Certificates. ATTEST: /s/ Rosalie Chavez City Secretary, City of Sanger, Texas CITY OF SANGER, TEXAS /.s/ Joe Higgs Mayor, City of Sanger, Texas 19 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX A FINANCIAL INFORMATION REGARDING THE CITY OF SANGER, TEXAS (THIS PAGE INTENTIONALLY LEFT BLANK) FINANCIAL INFORMATION FOR THE CITY ASSESSED VALUATION 2008 Total Value of Taxable Property Less Exemptions: Local, Optional Over-65 and/or Disabled Homestead Exemptions Disabled and Deceased Veterans' Exemptions Productivity Value Loss Homestead 10% Cap Adjustment Abatement Freeport Other 2008 Net Taxable Assessed Valuation (100% of Actual)t`�t TABLE 1 $462,014,798 $ 9,488,575 263,500 28,394,162 1,033,342 291411,624 111429,331 9,6195348 89,639,882 $372,374,916 �"' See "TAX INFORMATION - CihApplication of t{ze Property Tax Code" in the Official Statement for a description of the 00's taxation procedures, Source: Denton Count) Appraisal District PRINCIPAL TAXPAYERS Name Walmart Stores East, L.P. Walmart Stores East, L.P. CEI/Sanger LTD Hughes Family Partners Central Telephone Co. Springer Family Rentals LLC Vast Inc. Gemini VI LLC ETAL Latham, Zane McNatt Sanger Inc. Total Type of Business Distribution Distribution Distribution Development-res. Telephone/utility Real estate Real estate Commercial retail Dealership * Based on 2008 Net Taxable Assessed Valuation $341,028,251 of Total 2008 Net Taxable 2008 Assessed Assessed Valuation Valuation* $451302,264 13.28% 315042,475 9.10% 090,000 1.43% 217945750 0.82% 21539,550 0.74% 2,2971777 0.67% 210995896 0.62% 1,8805514 0.55% 11575,661 0.46% 1,5661517 0.46% 95.989.404 28.14% Source: Texas Canpt•oller of Public Accounts and Denton Central Appraisal District A-1 PROPERTY TAX RATES AND COLLECTIONSTABLE 3 Tax Net Taxable Year Assessed Valuation 1998 $ 961449,856 1999 10956425638 2000 1291014,176 2001 146,0919829 2002 226021983 2003 289,937,097 2004 312,537,172 2005 3381298,363 2006 353,244,529 2007 372,3745916 Fiscal Tax Collection % Year Rate Current Totaltb' Ended 0.50280 95.53% 99.76% 9-30-99 0.52280 95.88% 99.86% 9-30-00 0.52280 96.14% 98.15% 9-3M 1 0.58879 94.11%(c) 96.78% 9-3M2 0.56547 97.03% 97.03% 9-30-03 0.56547 97.38% 97.38% 9-30-04 0.57083 97.41 % 97.41 % 9-3M5 0.59046 98.17 98.17 9-30-06 0.59960 97.36 97.36 9-30-07 0.62000 9-3M8 �"� See "TAX INFOR<iZtTION -The City Application of the Propw•r)� Tax Code" in the Official Slalenteni.for a description of the City's laxation procedures. �b) ECch/des interest and penalties. Source: Texas Mumicipal Report published by the Municipal Advisory Council of Texas, the Denson Cotnity Appraisal Disiriet, and the Citv's 2008 Annual Financial Statements, Note: Assessed Valuations inav change during the year clue to various supplements and protests, and valuations on a later date or in other tables of 1his Official Slaienient may not match those shown on this table. TAX RATE DISTRIBUTION TABLE 4 Maintenance & Source: Ci1>> 2007-08 0.22786 $0.62000 2006-05 2005-04 0.23067 0.15721 $0.59960 $0.570oo 2004-05 0.15928 2003-04 0.20257 2002-03 0.21918 $0.57083 $0.59260 $0.56547 200I-02 0.21665 $0.58879 WATER RATES TABLE 5 Existing Rates Residential (Effective November 2l, Zl)O8) Minimum per unit served for 0 - 1,000 gallons $15.25 Next 4,000 gallons 2.35 per thousand gallons Next 10,000 gallons 2.60 per thousand gallons Next 15,000 gallons 3.05 per thousand gallons Over 30,000 3.90 per thousand gallons Commercial (Effective October 1, 2008) Minimum per unit served for 0 - 1,000 gallons $18.00 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 GQ PRINCIPAL WATER CUSTOMERS 2007-08 TABLE 6 (As of September 30, 2008) Name of Customer Sanger Mobile Home Park Sanger High School Sanger Mobile Home Park Chisum Trail Apts Living Center of America Indian Car Wash Khosrow Sadeghian Goldsten Company Sanger Inn SISD SEWER RATES Average Monthly Consumption in Gallons 73,358 44,580 24,343 18,253 16,366 13,064 12,429 11,977 11,465 9,721 Total 235,556 Existing Rates Residential Minimum (first 1,000 gallons) $ 16.00 Per 19000 gallons over first 1,000 gallons 2.00 Maximum per month 35.00 Commercial 1/4 inch meter $ 22.00 1 inch meter 24.00 1'/2 inch meter 28.00 2 inch meter 33.00 3 inch meter 41.00 4 inch meter 76.00 Per 1,000 gallons over first 1,000 gallons 2.00 Multi -Family Dwellings The amount due for multi -family dwellings shall be the residential rate multiplied by the number of occupied dwelling units. Average Monthly Bill $35301970 1,895.82 1,145.69 15002.79 657.18 532.65 772.17 490.95 460.45 389.08 $10,648.41 /Qc? PRINCIPAL SEWER CUSTOMERS As o/ Sepleinher 30, 2008) Name of Customer Sanger Mobile Home Park Sanger ISD Sanger Mobile Home Park Chisum Trail Apts. Living Center of America Indian Car Wash Khosrow Sadeghia MHP Golston Co. Sanger Inn SISD Average Monthly Bill $ 3,301.70 1,895.82 1,145.69 11002472 657.18 532.65 772.17 277.60 267.35 231.67 Total 10 084.55 TABLE 8 ELECTRIC RATES TABLE 9 Existing Rates Effective June 30.2008) Large Residential Small Commercial Commercial Facility Charge (minimum per month) $ 9.00 $ 15.00 $ 35.00 Energy Charge (per KWH) $ 0.0761634 $ 0.0816960 $ 0.0377050 Demand Charge (per KWH) $ - $ - $ 9.00 Energy Cost Adjustment Adjusted monthly* Adjusted monthly* - *The energy cost adjustment is based on the price of natural gas and adjusts monthly to recover cost of energy billed PRINCIPAL ELECTRIC CUSTOMERS 2007-2008 TABLE 10 (As• of September 30, 2008) Average Monthly Consumption in Name of Customer Kilowatt Hours Average Monthly Bill Walmart 151839200 $130,5507.64 Super Save 100,313 10,990.64 Hoffman Sundown Ranch 92,750 91832,64 Golston Co. 741196 8,662.89 SISD CTE 66,933 81112,00 Living Center of America 525910 6,632.18 McDonald's 42,280 4,908.14 SISD Middle School 40,750 45950,80 Wagon Master 38,025 49663,19 Latham 37,720 5,132033 Total 1,729,077 $194,392.45 A-4 GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS TABLE 11 THE CERTIFICATES Fiscal Year Current Total Combined Debt 30-Sept Debt Service Principal Interest Total Service 2009 $111215998 $ - $ - $ - $ 1,1215998 2010 9075943 1359000 1335767 2689767 1,1765710 2011 9101853 145,000 124,025 269,025 151799878 2012 908,383 1505000 1195675 269,675 15178,058 2013 9141993 1555000 115,175 2701175 1,185,168 2014 915,233 160,000 1095750 269,750 1,1845983 2015 909,308 1655000 1045150 2699150 11178,458 2016 9121558 170,000 98,375 268,375 15180,933 2017 9195828 1755000 92,425 2675425 19187,253 2018 909,873 180,000 85,425 2655425 1,175,298 2019 913,758 1905000 789225 2685225 111815983 2020 920,898 195,000 70,625 265,625 111865523 2021 916,145 2051000 62,825 267,825 151835970 2022 329,830 215,000 531856 268,856 598,686 2023 135,960 225,000 44,450 269,450 405,410 2024 131,120 235,000 34,325 269,325 400,445 2025 131,280 245,000 23,750 268,750 4005030 2026 136,220 2551000 12,112 267,112 4035332 2027 135,720 - - - 135,720 Total $139081,901 $3,200,000 $153625936 $45562,936 $17,6441837 A-5 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX B GENERAL INFORMATION REGARDING THE CITY OF SANGEit, TEXAS (THIS PAGE INTENTIONALLY LEFT BLANK) General The City of Sanger is a residential community located on Interstate Highway 35 northeast of the Dallas -Fort Worth industrial area. The City's close proximity to both Dallas and Fort Worth has been a significant factor in the City's growth. The City's 2007 estimated population is 7,554. Education The City is served by the Sanger Independent School District. The District covers approximately 42 square miles in Denton County and serves the City and its surrounding rural areas. The District is comprised of one early childhood center for grades pre -kindergarten through kindergarten, one elementary school for grades first through third, one intermediate school for grades fourth through sixth, one junior high school for grades seventh through eighth, and one high school for grades ninth through twelfth. All campuses offer enriched curricula with special programs for gifted/talented students as well as students achieving below grade level and are equipped with computers and cafeteria service. Denton County Denton County is located in north central Texas, encompassing 911 square miles, and was created in 1846 from Fannin County. The County is the third largest county of the nine counties comprising the Dallas -Fort Worth Consolidated Metropolitan Statistical Area. The County is traversed by Interstate Highway 35, US Highways 77, 377 and 380 and State Highways 114 and 121. The economy is diversified by manufacturing, state supported institutions and agriculture. The County's 2008 estimated population is 614,650. B-1 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX C FORM OF OPINION OF BOND COUNSEL (THIS PAGE INTENTIONALLY LEFT BLANK) AN D REWS ATTORNEY'S K U RT H LLP July 305 2009 600 Travis, Suite 4200 Houston, Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com WE HAVE ACTED as or, Counsel for the CITY OF SANGER, TEXAS, a municipal corporation of the State of Texas (the "City") in connection with an issue of certificates of obligation (the "Certificates") described as follows: CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2009, dated July 15, 2009, in the aggregate principal amount of $3,200,000, maturing on August 1 in each year from 2010 through and including 2020, inclusive, and in the years 2022, 2024 and 2026. The Certificates are issuable in fully registered form only, in denominations of $5,000 or integral multiples thereof, bear interest and may be transferred and exchanged as set out in the Certificates and in the ordinance (the "Ordinance") adopted by the City Council of the City (the "City Council") authorizing their issuance. WE HAVE ACTED as Bond Counsel for the sole purpose of rendering an opinion with respect to the legality and validity of the Certificates under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Certificates from gross income under federal income tax law. In such capacity we have examined the Constitution and laws of the State of Texas; federal income tax law; and a transcript of certain certified proceedings pertaining to the issuance of the Certificates, as described in the Ordinance. The transcript contains certified copies of certain proceedings of the City; certain certifications and representations and other material facts within the knowledge and control of the City, upon which we rely; and certain other customary documents and instruments authorizing and relating to the issuance of the Certificates. We have also examined executed Certificate No. R.I . WE HAVE NOT BEEN REQUESTED to examine, and have not investigated or verified, any original proceedings, records, data or other material, but have relied upon the transcript of certified proceedings. We have not assumed any responsibility with respect to the financial condition or capabilities of the City or the disclosure thereof in connection with the sale of the Certificates. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Certificates has been limited as described therein. BASED ON SUCH EXAMINATION, it is our opinion as follows: (1) The transcript of certified proceedings evidences complete legal authority for the issuance of the Certificates in full compliance with the Constitution and laws of the State of Texas presently in effect; the Certificates constitute valid and legally binding obligations of the City enforceable in accordance with the terms and conditions thereof, except to the extent that the rights and remedies of the owners of the Certificates may be limited by laws heretofore or hereafter enacted relating to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors of Austin Beijing Dallas Houston London Los Angeles New York The Woodlands Washington, DC July 30, 2009 Page 2 political subdivisions and the exercise of judicial discretion in appropriate cases; and the Certificates have been authorized and delivered in accordance with law; (2) The Certificates are payable, both as to principal and interest, from the receipts of an annual ad valorem tax levied, within the limits prescribed by law, upon taxable property located within the City, which taxes have been pledged irrevocably to pay the principal of and interest on the Certificates; and (3) The surplus revenues to be derived from the operation of the City's waterworks and sewer system, after the payment of all operation and maintenance expenses thereof (the "Net Revenues") in an amount not to exceed $10,000, are pledged to the payment of the principal of and interest on the Certificates; provided, however, that such pledge is junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of Net Revenues to the payment of the Certificates. The City has reserved the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind secured by a pledge of the Net Revenues that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. ALSO BASED ON OUR EXAMINATION AS DESCRIBED ABOVE, it is our fiuther opinion that, subject to the restrictions hereinafter described, interest on the Certificates is excludable from gross income of the owners thereof for federal income tax purposes under existing law and is not subject to the alternative minimum tax on individuals or corporations. The opinion set forth in the first sentence of this paragraph is subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Certificates in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted in the Order to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Certificates in gross income for federal income tax purposes to be retroactive to the date of issuance of the Certificates. The Code and the existing regulations, rulings and court decisions thereunder, upon which the foregoing opinions of Bond Counsel are based, are subject to change, which could prospectively or retroactively result in the inclusion of the interest on the Certificates in gross income of the owners thereof for federal income tax purposes. EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or local tax consequences under present law, or future legislation, resulting from the ownership of, receipt or accrual of interest on, or the acquisition or disposition of, the Certificates. Prospective purchasers of the Certificates should be aware that the ownership of tax-exempt obligations, such as the Certificates, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to July 30, 2009 Page 3 purchase or carry tax-exempt obligations, taxpayers owning an interest in a financial asset securitization investment trust that holds tax-exempt obligations and individuals otherwise qualified for the earned income tax credit. For the foregoing reasons, prospective purchasers should consult their tax advisors as to the consequences of investing in the Certificates. OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above. (THIS PAGE INTENTIONALLY LEFT BLANK) BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2008 (THIS PAGE INTENTIONALLY LEFT BLANK) CITY 4F SA.NGER ANNUAL FINANCIAL REPORT YEAR ENDED SEPTEMBER 30, 20Q8 (THIS PAGE INTENTIONALLY LEFT BLANK) City of Sanger Annual Financial Report Year Ended September, 30, 2008 Table of Contents FINANCIAL SECTION Independent Auditor's Report ............................ ................... , .... , ..Otto.. Management's Discussion and Analysis ............ ......................................... Basic Financial Statements: Government -wide Financial Statements: Statement of Net Assets...... .............................:................. Statemettof Activities .......................... . .......................... . Fund Financial Statements: Balance Sheet - Governmental Funds... 0600*10 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets, t t 6 * t * W * a # 6 * 9 1 0 A 1 9 v q 9 9 v . 4 9 0 9 0 5 0 0 v v v Statement of Revenues, Expenses, and Changes in Fund Balances we Governmental Fund, a v 1 0 q 4 0 a 4 v 0 4 v v 0 4 0 a 1 0 * C I V * a a R a v 1 9 %v Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities .......... . .................. Statement of Revenues, Expenses, and Changes in Fund Balances - Budget and Actual - General Fund ................. Statement of Net Assets - Proprietary Funds . . ...... . . . . . .... . .. • ........ Statement of Revenues, Expenses, and Changes in Fund Net Assets - Proprietary Funds. a I * a I a 0 0 # I a I % a 4 v a a a 0 Statement of Cash Flows be Proprietary Funds, . 9 4 0 5 v I * 1 . ................ Notesto the Financial Statements ........ . .............. . ........ . .................. Required Supplementary Information: Schedules of Revenues, Expenditures, and Changes in Fund Balances -Budget and Actual: Special Revenue Funds ................. . ........................ 6 Enterprise Fund...... lwoseq*06 $@step oppose WV4968 VVIO&O OTHER INFORMATION SECTION Combining Schedule of Revenues and Expanses SpecialRevenue Funds .............................. . .............................. . Combining Schedule of Revenues and Expenses Proprietary Fund Uy Department ................................................... Analysis of Property Taxes ReceivaUle..................................................... Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Fir�aricial Statements Performed in Accordance with Gover7unent Audiring Standards ............. This page is left inteutionally blauk. FINANCIAL SECTION 1 _� • I.• t � +. __ l ��. ,• ,• • .� • / i �. ' ••I .. - • �- _ �, - _- • • / I / I / / / INDEPENDENT' AUDITOR'S REPORT To the City Council City of Sanger, Texas uTe have audited the accoznpaziying financial statements of tl�e goverzunental activities, the busuzess-type activities, and each major fund of the City of Sanger (the City) as of and for tlae year ended September 30, 2008, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's naanageinent. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditizig staitdaxds generally accepted izz the United States of America and the standards applicable to financial audits contauied in Gover•nnrertt Ataditrrtg Strnrdar•ds, 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 zaaateria[ misstatemezit. An audit includes examining, an a test basis, evidence supporting the amounts and disclosures ut 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 presezitatiori. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial stateinezzts xefenred to above present fairly, tar all material respects, the respective financial position of the governmental activities, the business -type activities, each major fiiud, and the aggregate remaining fund information of the Ciiy of Sanger as of September 30, 2008, and the respective changes in fuzazzcial position and, where applicable, cash flows thereof and the budgetary comparison for the general fund for the year then ended uz conformity with accounting�principles generally accepted in the United Slates of America. In accordance with Gover•rtnier2t Auditing Standards, we have also issued our report dated Apri121, 2009, on oiu• consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts azad grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the intenlal control over financial reporting or on compliance. That report is azi integral pars of an audit performed in accordance with Gover•ran:ent Auditing Standards and important in assessing the results of our audit. The management's discussion and analysis on pages 4 through 12, and the budgetary comparison information on pages 42 and 43, are not a required part o£ the basic financial siatemezits but are supplementary uiforination required by accounting principles generally accepted izi the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required suppleznentazy information. .However, we did zzat audit the information and express no opinion on it. D-1 6300 Ridglea Place, Suite 810 • Fort ��rorth, TX 76116 j Phone: 817.558.4000 131 S. �iiVestZneado«� Drive, Suite 200 •Cleburne, TX 76033 I Phone: 817.641.1000 v�����. auldridge. coin Our audit was conducted for the purpose Of forming an opinion on the financial statements that collectively comprise the City of Sanger's basic financial statements. The supplementary schedules contained on pages 47 through 51 are presented for purposes of additional analysis and are not a required part of the basic financial statements. These schedules have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we, express no opinion on them. 2a �4 . Fort Worth, Texas April 21, 2009 Tbis page is Left intentionally blank. Management's Discussion 8c Analysis (MDc'�A) MANAGEW DISCUSSION AND ANALYSIS i As management of the City of Sanger (the City), we offer readers of the City's financial statements this narrative overview and analysis of the City's financial activities for the fiscal year ended.September 30, 2008. We encourage readers to consider the information presented here in conjunction with the City's financial statements and accompanying footnotes, which can be found on pages 28 through 39 of this report. FINANCIAL HIGHLIGHTS • The City's total combined net assets were $16,537,546 at September 30, 2008. 0 The general fund reported a fund balance of $3,984,153 at September 30, 2008. • The City's combined governmental funds reported a fund balance of $5,070,124 at September 30, 2008. OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists oftlu•ee parts—rrzanagerrrer�t's diseussrox and analysis (this section), the basic financial statements, and required supplenrentai y information. The basic financial statements include two kinds of statements that present different views of the City; Figure A-2. Required Components of e The first two statements are gover•rrnrent-wide financial statements that provide both long-term and short-term information about the City's overall financial status. ® The remaining statements are fund financial staterrzestatementss that focus on individual parts of the government, reporting the City's operations in more detail than the government -wide statements. � The governmentalfunds statements tell how general goverrrrrrerrt services were financed in the short tern: as well as what remains for future spending. Proprietaryfund statements offer short- and long -terra financial information about the activities the governzuezrt operates like businesses, the City's Annual Financial Report %iiaKayerrud'a Dtaur�s a.rd flratyua l Basic Financial Statements R¢quired Supplementary Information Government -Wide Fund Flnoncial __ Flnandal - Statements Statements - -- _ �i.%axcial = S(aluxur/a Summary Detail The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. The statements are followed by a section of required supplementaty tt forntatioll that further explains and supports the information in the financial statements. Figure A4 shows how the required parts of this annual report are arranged and related to one another. Figtue A-2. hfajor Features of the Cit}''s Goverumeot-ss9de and Fund Financial Statemenfs � Fntvo Agu,cy�s grnarurart t fhe acm�ties ofOre duuict r Actit�ties the district 4Dlances inns l(eaccpt Sduaazyfwrds) ithat are rwtproprrtaryof iopmtes sumiar to prWe idishict is the tuutee or and dseAgeocyseon"nent!fiduciary �btrskfcsus:selfirm"= lager# for somow, else's t yresourtes t 03g x zS 4a 9l a x�r �ac ;=Yc P.?X �+xY�a v 1 tk iaaset5" `z hs e : of r L' fEfWrail o xcttiu>�S,$��� tatentmel xs avtSi�fmid'Ofc �.t. �,� ��•��.���� .� ���n�� '� ��'� fat.._ AcWwOrgbmis reMMIXe0raltir>r?aud 1Acaualaceour&gand �Acaualaeeotnr5ngand mrinwasum wd lecono®cresomcesfocus �awmounl5 ndicresoracesfocus loconomicresourcesfocus t lfinancW resources focus _ _ 1yfr. Cw s �i9LL4S'�'215-2IId�a�sX�+r�iKiWt'a`, �.7�.„.2 sfirl '2alifniWs ` tol l3" ar�rc mntam€ fl`�rle?r or,2F!'� n._� 4 a�wu t '+'.� •a rT€ �;t�`.3 t.,.�'. E E s J z`'''�" .l?gr,`s'-'�. rAareseaaKsand iReserwceforishichcash rAllreswruesande uses jARrn"ucsand +eaperxes drnirrg year, jis receved dwu g or soon iduri�yeaz, regardless of 1expmxs dwing }ear. regardless of whrn cash iaeCr the end ofthe year; Essfi n cash is recened or Fregardless ofv4pen cash spa of its received or paid jagmxEtures when goods 1paid 'I Is received or paid h�lordoarJiow . i for services baw bean i irrfomwiar i ireceitedandpa}mentis t idue durir s the }em or , i i soon therea8er Figure A-2 summarizes the major Features of the City's 1nancial statements, including the portion of the Ciiy government they cover and the types of information they contain. The remainder o£ this overview section of management's discussion and analysis explains the structure and contents of each of the statements. Govez'nmeut-wide Statements The government -vide statements report information about the City as a whole using accounting methods similar to those used by private -sector companies. The statement of net assets includes all of the govermnent's assets and liabilities. All of the current year's revenues and expenses are accounted for in the statement of activities regardless of when Icash is received or paid. The two government -wide statements report the City's net assets and how they have changed. Net assets, the difference between the City's assets and liabilities, is one way to measure the City's financial health Or position 9 Over time, increases or decreases inn the City's net assets are an indicator of whether its financial health is improving or deteriorating, respectively. e To assess the overall health of the City, you need to consider additional non -financial factors such as changes in the City's tax base. The government -wide financial statements of the City include the Govet•171neratapublic l activities.. Most inc of the 's basic services are Cityluded here, such as general goverznznent, safety, D-6 iriglrways and streets, sanitation, economic development, and culture and recreation. Charges for services finance inost of these activities. Fund Fivanciai Stateureuts The fund financial statements provide more detailed information about the City's most significant funds —not the City as a whole. Funds are accounting devices that the City uses to keep track of specific sources of funding and spending for particular purposes. o Some funds are requixed by State law and certain bond covenants. The City has two kinds of funds. • Governmental funds —Most of the City's basic services are included in governmental funds, which focus on (1) how cash and other financial assets that can readily be converted to cash flow inland out and (2) the balances left at year-end that are available for spending. Consequently, the governmental fluid statements provide a detailed short-term view that helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the City's programs. Because this information does not encompass the additional long-term focus of the govermnent-wide statements, we provide additional informmation at the bottom of the governmental funds statement, or on the subsequent page, that explain the relationship (or differences) between them. a Proprietary funds (business type funds) —Services for which the City charges customers a fee are generally reported in proprietary Rinds. Proprietary funds, like the government -wide statements, provide both long- and short-term financial information. D-7 GOVERNAIENT-WIDE FINANCIAL ANALYSIS Net assets - The City's combined net assets were $16,53 t,546 at September430, 2008, compared to $15,372,230 at September 30, 2007, representing an increase of $1,165,317 in total net assets. (See Table A-l). Table A 1. Net Assets Governmental Business -type Activities Wound WWWWWWOActivities ONOW Total 2008 2007 2008 2007 2008 2007 Cash and cash equivalents $ 190,661 Accounts receivable, net 70,952 Other receivables 12%350 lnventories Prepaid expense Due from (to) other funds Restricted cash Bond'issuance costs, net Fixed assets Less accumulated depreciation Total assets Accounts payable Customer deposits Other liabilities Current portion long -tens debt Compensated absences Long-term debt Total liabilities Net'assets lnvested ni capital assets Restricted for: Capital projects Special revenue funds Unrestricted Total net assets 1,312,311 3,581,407 1203309 111684,020 4,728,373 12,360,637 156,b50 42,815 687,976 116,885 6;3495586 7,353,912- $ 56,961 $ 109,543 262,269 964,968 28,283 276,825 4,631 6,653 (15,828) (1,3125311) 5,300,474 51682,643 1293292 176,864 10,626,498 23,098,293 (10082,108 (9,7155440)_ 12,282,189 195316,321 216,862 543,613 - 233,860 100,639 708,815 658,065 9L876 71,392 7,065,404 6,177,931 8,082,957 7,7851500 106,131 (1,lOQ,S37} 6,723,721 3,581,407 1,085,971 233,216 $5,006,725 41238,2I4 S,b82,643 1,094,948 - (33,393) (875,543) $4,19%232 111,530,821 $ 55,599 1,080,934 Off 285,670 6,653 15,828 4,375,050 200,450 22,387,648 {8,922,306) 19,485,526 615,875 218,537 AM 665,418 7I,391 6,741,307 85312,528 6,259,067 4,375,050 538,88I $11,172,998 $ 300,204 1,035,920 157,633 276,825 6;653 9,2b4,050 297,173 34,782,313 (145443,813) 31,676,958 700,263 233,8b0 143,454 1,346,041 188,277 12,527,517 15,139,412 6,829,852 9,264,050 1,085,971 (642,327)_ $16,537,546 $ 112,560 1,343,203 At 285,670 11,284 9,675,524 32%742 33,014,146 �13,004,414) 313767,715 832,738 218,537 Ah 1,374,233 163,267 13,806,711 16,395,486 5,158,529 8,613,264 1,094,948 505,488 $15)372,229 Changes in net assets -The City's total revenues for the year ended September 30, 2008 were $15,096,074. A significant portion, 72 percent, of the City's revenues come from charges for services (See Figure A-3) while 23 percent relates to property tax revenues. Governmental Activities Property tax rates remained constant from the preceding year. Property vahies experienced a slight decrease hi the current year. However, property tax revenues increased approximately 8 percent in 2008 over the prior year due to an overall more favorable collection experience and increased supplemental amounts collected by the county. figure A�3 Revenues by Source - 2008 Takes Investment earnings 2% �. urges for services 7R2 D-9 Table A-2 Changes in Net Assets Governmental Business -type Acflvlfies Activities Total 2008 2007 2008 2007 2008 2007 Revenues Program revenues: Charges for services $ 1,3335643 $ 895,104 $ 9,631,082 $ 9,1333203 $ 10,964,725 $ 103028,307 Grants and donations - 398,861 - 116,752 - 5155613 General revenues: Taxes 3,454,768 3,2921257 - - 3,454,768 3,292,257 Fines 715065 - - - 71,065 - Licenses and permits 91,724 - - - 9024 Investment earnings 205,596 88,350 307,312 475,851 512,908 564,201 Transfers 239,497 2223663 (239,497) (222,663) - - Gain (loss) on sale of: assets (32)273) 25,753 71081 16,838 (25,192) 42,591 Other 884 - - - 884 - Total revenues 5$64,904 4,922,988 9,705,978 9551%981 15,0705882 141442,969 Expenses General government Public safety Streets and sanitation Culture and recreation Interest on long-term debt Proprietry expenses Total expenses 1,542,099 1,5503243 705,004 443,787 25%678 593,915 1,863,504 1,178,113 b40,783 27%883 4,500,811 4,556,198 9,348,154 83725,287 9,348,154 8,725,287 1,542,099 593,915 1,550;243 1,863,504 705,004 12178,113 443,787 6405783 259,678 27%883 95348,154 8,725,287 13,848,965 131281,485 Increase in net assets 864,093 366,790 357,$24 794,694 1,221,917 1,161,484 Beginning net assets 4,199,232 3,832,442 i1,172,997 10,378,304 15,372,229 1,944,043 Prior -period adjustment (Note K) (56,600) - - - (56,600) » Ending net assets $ 5t006,725 $ 4,1991232 $ 11;530,821 $ 11,1729998 $ 165537,546 $ 3,105$527 Business -Type Activities Table A-3 presents the cost of each of the City's business -type activities as well as each function's net cost (total cost less fees generated by the activities and intergovermnental aid). The net cost reflects what was funded by local tax dollars. O The cost of all business-i)pe activities this year was $9,348,154, ® The amount for changes for services that our taxpayers paid for these activities was $%938,394. Water Sewer Electric Vehicle maintenance, Administration Data processing Total Table A-3 Net Cost of Business"type Activities Total Cost of Services %Change 2008 2007 $ 1,120,755 $ 11136,034 (1.34)% 847,470 9383906 (9.74)% 6,718,489 55971,456 12.51% 79,756 67,932 17.4l% 332,343 334,779 (0.73)% 249,341 276,180 (9.2)% $ 9,348,154 $ 857259287 7.14% General Fund Budgetary Highlights Met Cost of Services %Change 2008 2007 $83,735 $ 433351 93.16% 92,670 12,078 667426% 753,091 1,103,034 (31.73)% (79,756) (675932) 17,41% (10,159) 186,168 (105.46)% (249,341) (276,180) _ (9.72)% $ .5905240 $ 1,0001519 (41.01)0/6 Over the course of the year, the City revised its budget several times. including these adjustments, General Fund revenues were $3,823,882 over budgeted revenues and expenses were $3,6Q8,228 less than budgeted expenses. The net budget surplus for the General Fund was $240,714 for the year, which includes other financing sources and uses and transfers. Enterpnise Fund Budgetary Highlights During the year ended September 30, 2008, the City also revised its budget for tl�e Enterprise Fund, For the year ended September 30, 20Q8, revenues were $285,350 less than budgeted revenues acid actual expenses were $586,195 less than budgeted expenses. The net budget deficit for the Enterprise Fund was $328,384 for the year ended September 30,2008, which includes other fmancuig sources and uses and transfers. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At the end of 2008, the City had invested $20,338,500 in abroad range of capital assets, including an equipment, buildings, and vehicles. (See Table A4.) Land Construction in progress Infrastructure Buildings and equipment Totals at historical cost Total accumulated depreciation Net capital assets Long -Term Debt Table A-4 Capital Assets Governmental Activities 8 2007 20Q $ 426,840 $ 426,840 1,043,108 3233146 6,332,085 6,0041532 3,881,987 3,871,980 11,684,020 10,626,4 98 {4,728,373) (4,082,108) $ 61955,647 $ 655445390 Business-fype Activities 2008 2007 $ 312,164 $ 312,164 5195618 1171 %781 19,997,855 18,102,15 8 2,2681656 2,253,54S 235098,293 2253875648 (9,715,440) (8,922,306} $ 135382,853 $ 13,465,342 Total 2008 2007 $ 739,004 $ 7395004 11562,726 2,042,927 261329,940 24,1062690 611503643 6,125,525 345782,313 33,014,146 {14,443,813) (13,004,414} $ 20,338,500 $ 20,009,732 As of September 30, 2008, the City had $13,805,821 in total long-term debt. (See Table A-5.) Notes payable Capital lease obligation Bonds payable Total long-term debt Governmental Activities $ 120,511 124,314 6,725,000 $ 6,969,825 157,119 ,192 71222,500 $ 7,661,811 $ 282 Long -Term Debt Business -type Activities $ I9,514 7 i 6,482 6,i00,000 $ 62835,996 3IIyJ $ 56,600 752,565 6,597,500 $ 7,406,665 Total 2008 2007 $ 140,025 $ 338,792 840,796 9095684 25825,000 13, 820,000 $ 13,805,821 $ 15,068,476 This page is left intentionally hlanlc. D- 13 Basic FinauciaX Siatemeuis D-14 This page is left intentionally blank. D-15 City of Sanger Statement .of Net Assets September 30, 2008 ASSETS Currentassets: Cash and cash equivalents Account receivable, net Other receivables Due from other govermnental agencies Inventories Prepaid expenses Total current assets Noncurrent assets: Restricted cash Due from (to) other funds Bond 'issue costs, net Capital assets: Land Constriction in progress Infrastructure Buildings and equipment Less accumulated depreciation Total noncurrent assets Total assets LIAB]LITIES Current HaDMUCS: Accounts payable and accrued expenses Customer deposits Other payables Accrued interest Notes payable Capital leases Bonds payable Yarbrough settlement payable Total current liablities Noncurrent liabilities: Compensated absences Notes payable Capital leases Bonds payable Yarbrough settlement payable Total noncurrent liablities Total liabilities NET ASSETS invested in capital assets, net of related debt Restricted for: Capital projects Hotel/Motel and Economic Development Unrestricted Total net assets Governmental Business-qpe Actil hies Activities $ 140,661 $ 109,543 70,952. 964,968 28,283 12%350 - - 276,825 - 6,653 3907963 1,386,272 3,581,407 5,682,643 1,312,311 (1,312,311) 120,309 17604 426,84Q 312,164 i,043,108 5191618 6,33205 19,997,855 3,881,987 212681656 (4,7285373) (9,715,440) 11,969,674 17,930,049 12,360,637 19,316,321 156,650 543,613 - 233,860 20,221 30,299 22,594 70,340 77,819 12,860 34,662 120,205 530,000 525,000 45,495 - 887,441 1,536,177 116,885 70921 42,b92 6,654 89,652 596,277 6,195,000 5,575,000 22,242 - 60466471 6,249,323 7,353,912 737853500 106,131 6,723,721 3,581,407 5,682,643 1,085,971 - 233,216 (875,543) $ 5,006,725 $ 11,530,821 Total $ 300,204 1,035,920 28,283 129,350 276,825 6,653 1>777,235 9,264,050 297,173 739,004 1,562,726 26,329,940 6,150,643 (14,443,813) 29,899,723 31,616,958 700,263 233,860 50,520 92,934 90,679 154,867 1,055,000 45,495 2,423,618 188,277 49,346 685,929 11,77o,000 22,242 12,715,794 15.139.412 6,829,852 9,264,050 1,085,971 (642,327) $ 16,537,546 The accompanying notes axe an integral pact of this imancial statement. City of Sanger Statement of Activities Year Ended September 30, Z008 1� zznctionslProgz'ama Primary government Governmental activities: General government Public safety Streets and sanitation Culture and recreation Interest on long-term debt Total governmental activities Business -type activities: Water and sewer Total business43;pe activities Total primary government The accompanying notes are an integrai part of this financial statement. Expenses $ 1,542,099 1,550,243 705,004 443,787 259,678 4,500,811 9,348,154 9,348,154 $ 13,848,965 Pzogram Revenues Charges for , Services 1,333,643 1,333,643 9,631,082 9,631,082 10,964,725 General revenues: Property taxes, levied for general purposes Pines Franchise taxes Interest income Sales taxes Licenses and permits Hotel taxes Donations Gain (loss) on sale of assets Transfers Total general revenues and transfers Change in net assets Net assets, beginning of year Prior -period adjustment (Note K) Net assets, end of year 1 Activities $ (208,456) (1,550,243) (705,004) (443,787) (259,678) (35167,168) (3,167,168) 2,078,442 71,065 3723157 205,596 988,832 91,724 15,337 884 (32,273) 239,497 4,031,261 864,093 4,199,232 (56,600) $ 5,006,725 Revenues and Chances in Net Assets ' Activities Totat $ - $ (208,456) (1,550)243) (705,004) (443,787) (259,678) - (3,167,168) 282,928 282,928 282,928 307,312 7,Q81 (239,497) 74,896 357,824 11,172,997 $ 11,530,821 282,928 282,928 (2,884,240) 2,078,442 71,065 372,157 512,908 988,832 91,724 15,337 884 (25,192) 4,106,157 1,221,917 15,372,229 (56,600) $ 16,537,546 ASSETS Cash and cash equivalents Accounts receivable, Property taxes, net Other Receivable from other governments Due from other funds Restricted cash Total assets LiABTLITICS AND FUND BALANCES Liabilities, Accounts payable Deferred taxes Accrued expenses Other current liabilities Total liabilities Fund balances -unreserved Total liabilities and fund balances City of Sanger Balance Sheet Governmental Funds September 30, 2008 Special General Revenue Fund Fund $ 138,549 $ 52,112 62,812 - 8,140 - 93,086 36,264 1,372,369 (60,058) 2,523,754 1,057,653 $ 4,198,710 $ 1,085,971 $ 156,533 37,803 5,643 14,578 214,557 Total Crovey�nnerttal Funds $ 190,661 62,812 8,140 129,350 1,312,311 3,581,407 $ 5,284,681 - $ 156,533 - 37,803 5,643 14,578 214,557 3,984,153 1,085,971 5,070,124 $ 4,198,710 $ 1,085,971 $ 5,284,681 The accompanying notes are an integral part of this financial statement• D-19 City of Sanger Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets September 30, 2008 Total fund balance, governmental funds Amounts reported for governmental. activities in the statement of net assets are different because: Capital assets used in governmental activities are not current lnancial resources and therefore are not reported in this fiend financial statement, but are reported in the governmental activities of the statement of net assets. Property taxes receivable are not available io pay far current period expenditures and therefore are deferred in the fund balance shet. Some liabilities (such as notes payable, capital lease contract payable, .long-term compensated absences, and bonds payable) are not due and payable in the current period and are not included in the fund financial statement, but are included in the govenuriontal activities of the statement of net assets. Net assets of goveriunental activities in the statement of net assets $ 5,070,124 ?,075,956 37,803 (7,177,158) $ 5,006,725 The accompanying notes are an integral part of this financial statement. City of Sanger Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds September 30,'2008 Special General Revenue Fund Funds REVENUES Property taxes $ 2,160,408 $ Sales taxes 496,968 491,864 Fines 71,065 Licenses and permits 91,724 - Chaxges for services 1,335,170 Franchise taxes 372,157 Hotel taxes - 15,337 Interest 154,966 50,630 Donations 884 - Total revenues 4,6833342 557,831 EXPENDITURES Current: General government Public safety Streets and saiutation Culture and recreation Principal Interest and other Capital outlays Total expenditures Excess (deficiency) of revenues over (under) expenditures. OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total outer financing sources (uses) Net change in fund balances end balances, beginning of year Prior -period adjustment (Note K) Fund balances, end of year 831,467 1,579,130 710,917 434,787 5747298 254,644 769,785 S, I 55,028 (471,686) 289,497 (182, l89) 4,223,002 518 1I4,966 5,034 396,290 516,808 41,023 (50,000) (50,000) ,977) 1,094,948 (8 Total Governmental •Funds $ z,16o,4os 988,832 71,065 91,724 i,335,170 372,157 15,337 2052596 884 5,24I,173 831,985 1,5?9,130 710,917 434,787 6891264 259,678 1,166,075 5,67I,836 (430,663) .289,497 (50,000) 239>497 (191,166) 5,317,950 (56,660) - (56,660) $ 3,984,153 $ 1,085,971 $ 5,070,124 The accompanying noses are an integral part of t(tis financial statement. City of Sanger Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Year Ended September 30, 2008 Diet change in fund balances "total governmental funds $ (191,166) Amounts reported for governnnental activities in the statement of activities are different because: Governmental funds report outlays for capital assets as expenditures because such outlays use current.financial resources. In contrast, the statement of activities reports only a portion of the outlays as expense. The outlays are allocated over the assets' estimated useful lives as depreciation expense for the period. Capital outlays of $1,214,807, net of constriction in progress, exceeded depreciation of $722,545 in the current period. Goveriunental funds report the entire net sales price (proceeds} from sale of an asset as revenue because it provides current financial resources. In contrast, the statement of activities reports only the gain on the sale of the assets. Govexnrnental funds do not present revenues that are not available to pay current obligations. In contrast, such revenues are reported in the statement of active ies when earned. Goverzunezrtal funds report bond proceeds as current financial resources. In contrast, the statement of activities treats such issuance of debt as a liability. Govermmental funds report repayment of bond principal as an expenditure. In contrast, the statement of activities treats such repayments as a reduction in long-term liabilities. This is the amount by which proceeds exceeded repayments. Certain expenses reported in Elie statement of activities do not require the use of current financial resources and are not reported as expenditures in governmental funds. Change in ref assets of governmental activities The accompanying notes are an integral part of this financial statement. 492,262 (32,273) (81,966) 711,228 (33,992) $ 864,093 D-22 REVENUL�5 Property taxes Sales taxes Fines Licenses and permits Charges for services Franchise taxes Interest Donations Total revenues E7�PENDITURES Current: City 01 Sanger Statement of Revenues, Expenditures, and Changes I n Fund Balances - Budget and Actual General Fund Year Ended September 30, 2008 Budgeted Amounts WOW ina) S 2,IS0,000 512,000 75,700 125,575 %118,149 299,000 38,000 6,800 8,32%224 S . 2,150,000 5120000 75,700 125,575 5,268,149 299,000 70,000 6,800 8,507,224 Actual Amounts 5 2,160,g08 496,968 71,065 91,724 1,335,170 372,157 154,966 884 4,683,342 Variance 557th Final Budget - Positive (Negative) S 10,448 (15,032) (4,635) (33,851) (33932,979) 73,157 84,966 (5,916) (3,823,882) General govenunent 984,869 999,369 831,574 167,795 Public safety 1,612,710 1,691,710 1,579,130 1 I2,580 Highways and roads 668,703 6690703 710,917 (42,214) Culture and recreation 500,157 5000157 434,787 65,370 Debt Service: Principal Interest and other charges Capital outlays Total expenditures Deficiency of revenues under expenditures OTHER FINANCING SOURCES Transfers in Ivret change in fund balances Fund balances, beginning of year Prior -period adjustment - (Note K) Fund balances, end of year 59571 5, 254,013 4,112,733 8,692,756 (367,532) 559571 , 254,013 4,129,733 %803,256 (296,032) 35a,557 354,SS7 (124975) 580525 a,223,002 4,223,002 57298 4, 254,644 76%678 5,155,028 (471,686) la (631) 3,360,0557. 3,648,7,8 (175,654) 289,497 (65,06p) (182,189) (240,714) 4,223,002 56,660) (56,660) ((56,660} S 4,210,027 S 4,281,527 S 3,984,I53 5 (240,714) Tho accompanying notes aro an integral pari of the fmancial statement. D-23 Debt Service: Principal Interest and other charges Capital outlays Total expenditures Deficiency of revenues under expenditures OTHER FINANCING SOURCES Transfers in Ivret change in fund balances Fund balances, beginning of year Prior -period adjustment - (Note K) Fund balances, end of year 59571 5, 254,013 4,112,733 8,692,756 (367,532) 559571 , 254,013 4,129,733 %803,256 (296,032) 35a,557 354,SS7 (124975) 580525 a,223,002 4,223,002 57298 4, 254,644 76%678 5,155,028 (471,686) la (631) 3,360,0557. 3,648,7,8 (175,654) 289,497 (65,06p) (182,189) (240,714) 4,223,002 56,660) (56,660) ((56,660} S 4,210,027 S 4,281,527 S 3,984,I53 5 (240,714) Tho accompanying notes aro an integral pari of the fmancial statement. D-23 This page is left intensionally blank. City of Sanger Statement of Net Assets Proprietary Fund September 30, 2008 ASSETS Current assets: Cash and cash equivalents Accounts receivable, net Other receivables lnventories Prepaid expenses Total current assets Noncurrent assets. Restricted cash Bond issue costs Capital assets. Land Construction in pzogress Infrastructure Buildings and equipment Less accumulated depreciation Total noncurrent assets Total assets LYABTi..1TIES Current liabilities: Accounts payable Customer deposits Accrued interest Due to other funds Other payables Bonds payable Notes payble Capital lease obligation Total current liabilities Non -current liabilities Compensated absences Bonds payable Notes payble Capital lease obligation Total non -current liabilities Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for capital projects Unrestricted Total net assets Enterprise bind $ 109,543 964,968 28,283 276,825 6,653 1,386,272 5,682,643 176,864 312,164 519,618 19,997,855 2,268,656 (9,715,440) 19,242,360 20,628,632 543,613 ' 233,860 70,340 1,312,311 30,299 525>000 12,860 120,205 2,848,488 71,392 5,575,000 6;654 596,277 6,249,323 9,097,811 6,723,721 5,682,643 (875,543) $ 11,5301821 The accompanying notes are an integral part of this financial statement. D-25 City of Sanger Statement of Revenues, Expenses and Changes in Fund Net Assets Proprietary Fund Year Ended September 30, 2008 OPERATING REVENUES Charges for services Connection fees Miscellaneous Total operating revenues OPERATING EXPENSES Salaries and Nvages Purchased professional and teclurical services Utilities Water and electric purchases 7ranchise fees Depreciation Repairs and maintenance Total operating expenses Operating income NONOPERATING REVENUES {EXPENSES) Interest and investment income Tap fees Interest expense Total nonoperating revenues Net income before transfers Transfers out Gain on sale of fixed assets Change in net assets Total net assets, beginning of year Total net assets, end of year Enterprise i�rnd $ 9,406,SS9 44,075 14,848 9,465,482 1,9S2,S61 286,792 93,744 5,410,496 215,000 871,763 9073 81929,029 5363453 307,312 165,600 (419,125) 53.787 590,240 {239,497) 7,081 357,824 11,172,997 $ 111530,821 The accompanying notes are an integral part of this financial statement. D-26 This page is left intensionally blank. D-27 City of Sanger Statement of Cash Flows Proprietary Fund September 30, 2008 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ %553,165 Payments to suppliers (6,0953860) Payments to employees (1,900,475) Net cash provided by operating activities 1,5563830 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers from primary government 1,312,311 Transfers to other fluids (239,497) Net cash provided by noncapital financing activities 1,072,814 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Principal and interest paid on long-term debt (897,140) Purchase of capital assets (710,465) Tap fees 165,600 -Proceeds from sale of assets 15,200 Net cash used by capital and related financing activities (1,426,805) CASH FLOWS FROM INVESTING ACTIVITIES Interest received from investments 307,312 Net cash. provided by capital and related financing activities 307,312 Net increase in cash 1,5.10,15I Cash L beginning of year, including restricted cash 4,430,649 Cash - end of year, including restricted cash $ 5,94%800 Reconciliation of operating income to net cash provided by operating activities: Operating income $ 536,453 Adjustment to reconcile operating income to net cash provided by operating activities - depreciation 871,763 Effect of increases and decreases in current assets and iabilities: Decrease in receivables 87,683 Decrease in inventory and prepaid expense 8,845 Increase in accounts payable 42,769 Decrease in accrued expenses (6,006) Increase in customer deposits 15$23 Net cash provided by operating activities $ 12556,830 See accompatzyiczg notes to finazacial statements. CITY OF SANGER Notes to the Financial Statements September 30, 2008 A. Summary of significant accounting policies The accompanying financial statements of the City of Sanger, (the "City") have been prepared in conformity with generally accepted accounting principles applicable to state and local governments. The Governmental Accounting Standards Board ("GASB") is the accepted standard-setthig body for establishing governmental accounting and financial reporting principles. The following notes to the City's financial statements are an integral part of the City's annual financial report. 1. Reporting entity The City of Sanger was incorporated under the laws of the State o£ Texas in 1886 and operates under aCouncil- nager form of government. The City's financi Maal statements include the accounts of all City operations. Generally accepted accounting principles require all feuds that are controlled by or are independent on the City Council to be included ixx the City's financial statements. The reporting entity is the primary.government, or the City, and those component units for which the primary government is financially accowitable. Financial accountability is defined as the appointment of a voting majority of the potential component unit's board and either the ability to impose its will by the primary government or the possibility that the component unit will provide a financial benefit or impose a finaucial burden on the primary government. Discretely presented component units are reported in a separate colunun in the government -wide financial statements to emphasize they are legally separate statements to be misleading or incomplete. Based on these considerations, the City's financial statements include the Sanger Economic Development Corporation as a discretely presented component unit. Blended.Coinponent Unit - (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. Blended Component Unit - (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. 2. Government -wide and.fund financial statements a. Basis ofpresentation Government -wide financial statements -The statement of net assets and the statement of activities include the financial activities of the overall government. These statements distinguish behveen the governmental and business -type activities of the City. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. Business -typo activities are financed in whole or in part by fees and charges for support. Tine statement of activities presents a comparison between direct expenses and program revenues for the different business -type activities of the City and for each function of the City's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular fimction. The City does not allocate indirect expenses in the statement of activities. Program revenues include (a) fees, fines, and charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. � •S CITY OF SANG Notes to the Financial Statements — (continued) September 30, 2008 Fund financial statements _ The fiend financial statements provide information about the C y s funds, with separate statements presented for each fund category. The emphasis of find financial statements is on major governmental and proprietary funds, each displayed in a separate column. All remaining governmental and enterprise finds are aggregated and reported as noiimajor funds. Operating revenues and expenses generally result from providing services and producing and delivering goods hi connection with the proprietary funds principal on -going operations. Nonoperating revenues, such as subsidies and investment earnimgs, result from nonexchange transactions or ancillary activities. The City reports the following major governmental funds: General Fund. This is the City's primary operating food. It accounts for alI financial resources of the Ciiy except those required to be accounted for in another fund. Special Revenue Fund. This is used to account for the proceeds of the Sanger Economic Development Corporation sales tax revenues. The fund balance is reserved to signify amounts that are restricted to be used for economic development and promotion within the City. Tlne City reports the following major proprietat-y/enterprise fund: Water and Sewer Fund. This is the City's primary operatinng fund for water and sewer distribution and sewer control. It also accounts for all financial resources of the City concerning water, sewer and refuse sales. Its activity is financed with debt secured by a pledge of the net revenues and has the requirement that tine cost of providing services, including capital costs, be recovered by user fees and charges. b. 1l�easuretrtent focus/basis of accounting Government -wide and Proprietary Fund financial statements - These fvuancial statements are reported using the economic 'resources measurement focus aznd are accounted for using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the tune liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the City gives (or receives) value without -directly receiving (or giving) equal value in exchange, include property taxes, grants, entitlements, and donations. Under the accrual basis of accounting, revenues from property taxes are recognized in the fiscal year for which the taxes are levied. Revenues from grants, entitlements, and donations are recognized in the fiscal year in which all eligibility requirements have been satisfied. Governmental Fund financial statements -Governmental funds are reported using the current financial resources measurement focus and are accounted for using the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The City does not consider revenues collected after its year-end to be available in the current period, Revenues from local sources consist primarily of property taxes. Property tax revenues and revenues received from the State are recognized under the susceptible4o-accrual concept. Miscellaneous revenues are recorded as revenue when received in cash because they are generally not measurable until actually received, Investment earnings are recorded as earned, since they are both measurable and available. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long -tern debt and acquisitions under capital leases are reported as other financing sources. When the City incurs an expenditure or expense for which both restricted and unrestricted resources may be used, it is the City's policy to ass restricted resouu•ces first, then unrestricted resources. f_It3iZ1 CITY OF SANGER Notes to the Financial Statements — (continued) September 30, 2008 3. General policies a. Cash and cash equivalents For purposes of the statement of cash flows, highly liquid 'investments are considered to be cash equivalents if they have a maturity of three months or less when purchased, b. Resh•ieted resources if both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first and unrestricted as needed. c. Resen>atiotts offund equity Reservation of fund balances of the goveninerntal funnds indicate the portion of fund equity that is not available for appropriation for expenditure or is legally restricted by outside parties for use for a specific purpose. Designations of fund balance are the representation s of management for the utilization of resources in future periods. d. Property taxes Property taxes are levied Uy OctoUer 1 on the assessed value listed as of the prior January 1 £ar all real arnd business personal property in conformity with Subtitle E, Texas Property Tax Code. Taxes are due on receipt of the tax bill and are delinquent if not paid before February 1 of the year following the year in which imposed. On January 1 of each year, a tax lien attaches to property to secure the payment of all taxes, penalties, and interest ultimately imposed. Property tax revenues are considered available when they become due or past due and receivable within the current period. Personal property taxes not collected by April 1 are forwarded for collection proceedings. Real property taxes not collected by July 1 are forwarded for collection proceedings. Allowances for uncollectible tax receivables within the General and Debt Service Funds are based upon historical experience in collecting property taxes. Uncollectible personal property taxes are periodically reviewed and written off, but the City is prohibited from writing off real property taxes without specific statutory authority from the Texas Legislature. e. Invetttories and prepaid items The City records purchases of supplies as expenditures, utiliz'vng the purchase method of accountuag for inventory: Certain payments to vendors reflect costs applicable to futiv:e accounting periods and are recorded as prepaid items. f. Capital assets Purchased or constructed capital assets are reported at cost or estimated historical cost. Donated fixed assets ace recorded at their estimated fair value at the date of the donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. All assets acquired in excess of $1,000 are capitalized by the City. Capital assets are being depreciated using the straight-line method over the following estimated useful lives: Asset Class lufrastnrchne Estimated Useful Lives CITY OF SANGER Notes to the Financial Statements — (continued) September 30, 2008 g. Receivable andpayable balances The City believes that sufficient detail ofreceivable and payable balances is provided in the financial statements to avoid the obscuring of significant components by aggregation. Therefore, no disclosure is provided which disaggregates those balances. There are no significant receivables which are not scheduled £or collection within one year o£ September 30, 2008. h. Iitlerfirrtd aciiviry btferfund activity results from loans, services provided, reimbursements or transfers between funds. Loans are reported as interfund receivables and payables as appropriate and are subject to elimination upon consolidation. Services provided, deemed to be at market or near market rates, are treated as revenues and expenditures or expenses, Reimbursements occur when one fund incurs a cost, charges the appropriate benefiting fund, and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers - in and transfers -out are netted and presented as a single "Transfers" line on the government -wide statement of activities. Similarly, interfund receivables and payables, if applicable, are netted and presented as a single "Internal Balances" line of the govenmient-wide statement of net assets. As of September 30, 2008, there were no interfumd receivables and payables. i. Corrtpertsatedffbsences The amounts owed to employees for unpaid vacation and sick leave liabilities, including the Ciry's share of employment -related taxes, are reported on the accrual basis of accounting in the applicable governmental or busmessAype activity columns of the government -wide statements and in the enterprise activities of the fund financial statements.. The liabilities and expenditures are reported on the modified accrual basis in the governmental flind financial statements. j. Pension costs State law governs pension contribution requirements and benefits. Pension costs are composed of normal cost and, where applicable, amortization of unfunded actua�xal accrued liability and of unfunded prior service cost. IG Use of estirttates The preparation of financial statements in conformity with Generally Accepted Acco�u�ting I'zinciples requires management to make estimates anal assumptions that affect the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. B. Deposits and in�restments The City's funds are required to be deposited and invested under the terms of a depository contract. The depository bank deposits for safekeeping and host with the City's agent bank approved pledged securities In an amount sufftcient to protect City funds on a day-to-day basis during the period of the contract. The pledge of approved securities is waived only to the extent of the depository banles dollar amount of Federal Deposit insurance Corporation ("FDIC") insurance. Deposits At September 30, 2008, the carrying amount o£ the City's deposits (cash, certificates of deposit, and interest -bearing savings accounts) was $9,564,254, of which $9,264,450 is segregated as restricted cash. All bank accounts were either insured or collateralized with securities no by the City or its agents in the City's name at September 31, 2008. CITY OF SANGER Notes to the Financial Statements — (continued) September 30, 2006 Inveshnents The City is required by Government Code Chapter 2256, The Public Funds Investment Act, to adopt, iunplement, and publicize an investment policy. That policy must be written; primarily emphasize safety of principal and liquidity; address investment diversification, yield, and maturity and the quality and capability of investment management; and include a list of the types of authorized investments in which the investing entity's funds may be invested; and the maximum allowable stated maturity of any individual investment owned by the entity. The Public Funds Investment Act ("Act") requires an annual audit of investment practices. Audit procedures in this area conducted as a part of the audit of the general purpose financial statements disclosed that in the areas of investment practices, management reports and establishment of appropriate policies, the City adhered to the requirements of the Act. Additionally, investment practices of the City were in accordance with local policies. Tlne Act determines the types of inveshnenis which are allowable for the City. These include, with certain restrictions, (1) obligations of the U.S. Treasury, certain U.S. agencies, and the State of Texas, (2) certificates of deposit, (3) certann municipal securities, (4) money market savings accounts, (S) repurchase agreements, (6) bankers acceptances, (7) mutual funds, (8) investment pools, (9) guaranteed investment contracts, ,and (10) common trust funds. The City's investments at September 30, 2008 are as follows: Investment or Invesment Type Maturity None NIA Analysis of Specific Deposit and Investment Risks Fair Value GASB Statement No. 40 requires a determination as to whether the Ciry was exposed to the following specific investment risks at September 30, 2008. 1. Credit risk Credit risk is the risk that au issuer ar other counterparty to an investment wilt not fulfill its obligations. The ratings of securities by nationally xecognized xating agencies are designed to give an indication of credit risk. At September 30, 2008, the City was not exposed to a significant amount of credit risk, 2. Custodial credit risk Deposits are exposed to custodial credit zisk if they are not covered by depository insurance and the deposits are tuncollateralized, collateralized with securities held by tine pledging financial institution; or collateralized with securities held by the pledging financial institution's trust department or agent but not in the City's name, Investment securities are exposed to custodial credit risk if the securities are uninsured, are not registered in the name of the government, and are held by either the counterparty or the couuterpart5�'s trust department or agent but not in the City's name. At September 30, 2008, the City was not exposed to custodial credit risk. 3. Concentration of credit risk This is the risk of loss attributed to tine magnitude of a government's investnneut in a single issuer. At September 30, 2008, the City was not exposed to concentration of credit risk. CITY OF SANGER Notes to the Financial Statements — (continued) September 30, 2008 9. interest rate risk This is the risk that changes in interest rates will adversely affect the fair value of an Investment. At September 30, 2008, the City was not exposed to interest rate risk. ' S. Foreigcy risk This is the risk that exchange rates will adversely affect the fair value of an investment. At September 30, 2008, the City was not exposed to foreign currency risk. Investment Accountnza Policy The City's general policy is to report money-market investments and slzoz•t-term participatitzg interest -earning investment contracts at amortized cost and to report nonparticipating interest -earning investment contracts using a cost -based measure. However, if the fair value of an investment is significantly affected by the impairment of the credit standing of the issuer or by other factors, it is reported at fair value. All other investments are reported at fair value unless a legal contract exists which guarantees a higher value. Short-term investments are those which have a remaining term of one year or less at time of purchase. The term "nonparticipating" means that the investment's value. does not vary with market interest rate changes. Nonnegotiable certificates of deposit are examples of nonparticipating interest -earning investment contracts. C, Capital assets Capital asset activity for the year ended Septezmber 30, 2008 was as follows: Goverrtntetttal nctit>ities Capital assets not being depreciated. Land Construction in progress Total capital assets not being depreciated Capital assets being depreciated.• Infrastructure Buildings and equipment Total capital assets being depreciated Less accumulated depreciation Total capital asseis'lieing depreciated, net Governmental activities capital assets, pet Beginning Ending Balances increases Decreases Balances $ 426,840 $ - $ - $ 426,840 323,146 1,047,515 327,553 1,043,108 74%986 1,047,515 3273553 1,46%948 d,004,532 327,553 - 6,332,085. 3,871,980 118,Sb0 108,553 9,876,512 446,113 108,553 ,, 10214072 CITY OI+` SA.NGER Notes to the Financial Statements — (continued) September 30, 2008 Up activities Land Capital assets not being depreciated; Land Construction in progress Total capital assets not being depreciated Capital assets beb:g depreciated: Infrastructure Buildings and equipment Total capital assets being depreciated Less accumulated depreciation Total capital assets being depreciated, net Business -type activities capital assets, net Beginning Ending Balances Increases Decreases Balances $ 312,164 $ - $ - $ 312,164 1,7195781 695,534 1,895,697 519,618 2,031,945 695,534 1,895,697 831,782 18,102,158 1,895,691 2,253,545 20,355,703 (8,922,306) 11,433,397 $ 13,465,342 - 19,997,855 101,858 86,747 2,265,656 1,997;555 86,747 22,266,511 (7935134) - (91715,440) 1,204,421 86,747 12,551,071 $ 1,899,955 $ 1,982,444 $ 13,3821853 Depreciation expense was charged to the following fiuictions for the year ended September 30, 2008: General government: Administration $ 14,748 Animal conhol 3,968 Economic Development 921 Enforcement/inspection 4,792 Engineering 899 Fire 76,171 Library 14,240 Municipal court 1,176 Parks and recreation 58,691 Police 45,816 Streets 473,647 Community centers 6,842 Swinning pool 115449 Vehicle maintenance 9,185 Business activities: Electric 325,986 Sewer 226,227 Water 319,550 $ 722,545 871,763 Total depreciation expense $ 1,594,308 D. CITY OF SANGER Notes to the Financial Statements — (continued) September 30, 2008 Interfund balances and activity 1. z. ➢tte To and Front 4thez• Furzds Amounts due to and from other funds at September 30, 2008 consisted of the following: Due From Enterprise fund 4B fund Due To General fund General fund Total due to and from other fiords Tz•ansfers To azzd 1*i•orrt Other Furzds Amount $ 1,252,253 %058 $ 1,312,311 Transfers to and from other funds at September 30, 2008 consisted of the following: Transfers From Water and sewer fund 4A fund 4B fund Transfers To General fund General fund General fund Total tratasfers to and from other funds Amount $ 883,521 25,000 25,000 $ 933,521 The transfers primarily resulted from debt payments to service long-term debt. Long-term obligations 1. Long-term obligation activity in clude Long-terobligations nclude debt and other long-term liabilities. changes in long-term obligations for the year ended September 30, 2008 are as foilo�irs: Govern»rental activities Compensated absences* Notes payable Capital leases Bonds payable Yarbrough settlement Beginning Balance Increases Decreases $ 91,876 282,192 157,119 7,222,500 1125408 $ 7,866,095 $ 25,009 $ - $ 25,009 161,681 32,805 497,500 44,671 $ 736,657 Ending Balance $ 116,885 I20,511 124,314 6,725,000 67,737 $ 7, I54,447 Amounts Due Within 77,819 34,662 530,000 45,495 $ 687,976 CITY OF SANGER Notes to the Financial Statements - (continued) September 30, 2008 Business -type activities Compensated absences* Notes payable Capital leases Bonds payable Total business -type activities * Other long-term liabilities $ 71,392 56,660 752,565 6,597,500 $ 75478,117 Increases 97,000, $ 97,000 Decreases 37,146 133,083 497,500 $ 667,729 Fading Balance $ 71,392 19,514 716,482 6,100,000 $ 6,9075388 The funds typically used to liquidate other long-term liabilities in the past are as follows: Liability Compensated absences Compensated absences 2. Debt service requirentetzts rn Activity Type Govemental Business type Fund General fund Enterprise funds Debt service requirements on long -teen debt at September 30, 2008 are as follows: Year Ending September 30, 2009 2010 2011 2012 2013 2014-2018 2019-2023 2024-2029 Totals Year Ending September 30, 2009 2010 2011 2012 2013 2014-2018 2019-2023 Totals Governmental Activities interest Principal Total $ 687,976 I $ 309,760 $ 997,736 4152762 277,439 693,201 414X6 259,514 6733600 399,738 241,786 641,524 395,000 225,019 6200019 2,240,000 949,449 3,18%449 2,005,000 32%240 2,334,240 480,000 54,340 534,340 $ 7,037,562 $ 2,6463547 $ 9,684,109 Activities Principal Interest $ 658,065 $ 312,882. 659,416 282,874 685,614 2525620 473,439 222,447 4903235 201,356 2,319,227 667,062 1,5505000 1685700 $ 6,835,996 $ 25107,941 Total $ 970,947 942,290 938,234 695,886 691,591 2,986,289 1,718,700 $ 8,9435937 Amounts Due Within One Year 12,860 120,205 ' S25,000 $ 658,065 G. CITY OF SANGER Notes to the Financial Statements - (continued) September 30, 2008 Governmental activities Interest rates: Series 1994 certificate of obligations 5.60 to 5.50% Series 2002 tax and revenue 4.20 to 5.70% Series 2006 tax and revenue 4.00 to 4.10% Series 2007 tax and revenue 4A0% Bushness-type activities interest rates: Series 1996 revenue 4.20 to 4.75% Series 1999 revenue 4.25 to 4.40% Series 2002 revenue 4.50 to 6.00% Series 2006 tax and revenue 4.00 to 4.10% 3. Capital leases Conunitments under capitalized lease agreements for facilities and equipment provide for the followi�ig inizumum future lease payments as of September 30, 2008: Year Ending September 30, 2009 2010 2011 2012 2013 2014-2018 2019-2023 Total minimum rentals Governmental Activities $ 34,662 32,068 33,821 23,763 $ 124,314 Business -type Activities $ 120,205 110,262 115,614 85,939 90,235 94,745 99,482 $ 7165482 The effective annual interest rates on capital leases outstanding ranges from 4.30% - 6.86%. RisIc management The City is exposed to various risks of loss related to torts, theft, damage or deshuction of assets, error and omissions, injuries to employees, and natural disasters. During fiscal year 2008, the City obtained general liability coverage at a cost that is considered to be economically justifiable by joining together with other governmental entities in the State as a member of the Texas Municipal League intergovernmental Risk Pool ("TML"). TML is a self- funded pool operating as a common risk management and insurance program. The City pays an annual premium to TML for its above insurance coverage. The agreement for the formation of TML provides that TML will be self-sustaining through member premiums and will reinsure through commercial companies for claims in excess of acceptable risk levels; however, each category of coverage has its own level of reinsurance. The City continues to carry commercial insurance for other risks of loss. There were no significant reductions in commercial insurance coverage in the past fiscal year and settled claims resulting from these risks have not exceeded coverage in any of the past three fiscal years. Pension plan 1. Plan description The City's pension plan ("Plan") is anon -traditional, jouat contributory, defined benefit plan wl�ich provides retirement, disability and death benefits to Plan members and beneficiaries through its affiliation •with Texas Municipal Retirement System ("TA�IIZS"), an agent multiple -employer public employee retirement system. I NMS D-38 2. 3. CITY OF SANGER Notes to the Financial Statements — (continued) September 30, 2008 operates n ir the authority of Texas Government Code, Title 8, Subtitle G. The Texas legislature has the authority to establi.; ,r amend benefit provisions and the governing body of the City adopts the plan provisions within the options and constraints established by the legislature. TMRS issues a publicly available financial report that includes financial statements and required supplementary information for TMRS. That report may be obtained by writing to Texas Municipal Retirement System, P.O. Box 149153, Austin, TX 78714-9153 or calling (800) 924- 8677. Additional nouauthoritative information is available at the TMRS web site, ,hgp:HwNvrv.tuirs.org. Funding policy Plan members are required to contribute 6% of their annual covered salary. The City as required to contribute at an actuarially determined gate; the current rate is 7.91% of annual covered payroll. The City's contributions to the MRS for the years ending September 30, 2008 and 2007 were $167,608 and $121,634, respectively, and were equal to the required contributions for each year. Arnutal pertsiora cost The City's'annual pension cost of approximately $150,000 for the Plan was equal to the City's required and achial contributions, Under the state law governing TMRS, the actuary annually determines the City's contribution rate. This rate consists of the normal cost contribution rate and the prior service contribution rate, both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the currently accruing monetary credits due to the City's matching percentage, which are the obligation of the City as of an employee's retirement date, not at the tine the employee's contributions are made. The normal cost contribution rate is the actuarially detenmined percentage of payroll necessary to satisfy the obligation of the City to each employee at the time his/her retirement becomes effective. The prior service contribution rate amortizes the unfunded over actuarial liability (asset) over the remainder of the Plan's 25-year amortization period. When the City periodically adopts updated service credits and increases in annuities in effect, the increased unfunded actuarial liability is to be amortized over a new 25-year period. Currently, the unfunded actuarial liability is being amortized over the 25-year period which began January 1997. The unit credit actuarial cost method is used for determining the City's contribution rate. Since the City needs to know its contribution rate in advance to budget for it, there is a one- year delay between the actuarial valuation that is the basis for the rate and the calendar year when the rate goes into effect. The TMRS does not value the assets of individual cities and accordingly, the actuarial assumptions used to set the required contribution rate o£the City are based pn TMRS as a whole: Tread it formatiort for the plan Actual Percentage Net • Pension o£ APC Pension Year Ended' Cost (APC) Contributed Obligation September 30, 2007 $ 121,634 100% $ - September 30, 2008 167,608 100% H. Health care coverage During the year ended September 30, 2008, employees of the City were covered by a health insurance plan (the Plan). The City paid premiums ranging from $388 - $500 per month per employee depending on which plan the enaployyee elects to participate in. Employees, at their option, authorized payroll withholdings to pay premiums for dependents. All premiums were paid to a third -party administrator, acting on behalf of the licensed )insurer. The Plan was authorized by Article 3.51"2, Texas Insurance Code and was documented by contractual agreement. CITY 4r SANGER Notes to the Financial Statements — (continued) September 30, 2008 I. Commitments and contingencies 1. Coistiragetscies The City participates in grant programs which are governed by various rules and regulations of tUe grantor agencies. Costs charged to the respective grant programs are subject to audit and adjustment by the grantor agencies; therefore, to the extent that the City has not complied with the rules and regulations governing the grants, refunds of any money received may be required and the collectibiliry of any related receivable may be impaired. In the opinion of the City, there are no significant contingent liabilities relatuig to compliance with the rules and regulations governing the respective grants; therefore, no provision has been recorded in the accompanying basic financial statements for such contingencies. 2. .Litigation No reportable litigation was pending against t}re City as of September 30, 2008. J. Contracts 'fhe City has a contract with the Upper Trinity Water District to purchase water.for the City. Water purchased for the year ended September 30, 2008 amounted to approximately $190,000. The City has a contract with the Brazos Utility Authority to purchase electricity for the City. Electricity purchased for the year ended September 30, 2008 amounted to approximately $5,3000000. K. friar -period adjustment Certain expenses totaling $5d,600 in the prior year relating to emergency ambulance services were erroneously excluded from the City's statements of activities and revenues; expenditures and changes in fund balances - governmental funds. L. Subsegrtent events None. This page is Ieit intentionally blank. D-41 REQUIRED SUPPLEMENTARY INFORMATION City of Sanger Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Special Revenue hinds Year Ended September 30, 2008 REVENUES Sales taxes Hotel taxes Interest Total revenues EXPENDITURES Current - general government Debt service: Principal Interest and other charges Capital outlays Total expenditures Excess of revenues over expenditures OTHER rINANCING SOURCES (USES} Transfers out Transfers in Total ocher fu�aneing sources and uses • _ Budgeted Amounts Ori inal rival $ 444,000 14,000 36,200 494,200 2,750 120,000 225,399 348, I49 146,OS i (80,000) 225,399 145,399 $ 444,000 14,000 36,200 494,200 2,750 120,000 225,399 348,149 1462051 (80,000) 225,399 145,399 Net change in fund balances 291,450 291,450 Fund balances, beginning of year 1,094,948 1,094,948 Fund balances, end of year $ 1,3861398 $ 1,3863398 Actual Arnounts $ 491,864 15,337 50,630 557MI 114,966 5,034 396,290 516,808 41,023 (50,000) • (50,000) (8,977) 1,094,948 $ 11085,971 Variance Nith Fiuni Budget - Positive (Negative) $ 47,864 1,337 14,430 63,631 2,232 5,034 (5,034) (17%891) (168,659) (I05,028) 30,000 (225,399) (195,399) (300,427) $ {300,427) City of Sangel Schedule of Revenues, Expenditures, and Changes in IF ad Balances - Budget and Actual REVENUES Charges for services Connection fees Miscellaneous Total revenues EXPEND1TUl2E5 Salaries and wages Purchased professional and technical services Utilities Water and electric purchases Franchise fees }depreciation Repairs and maintenance Total operating expenses Operating income NONOPERATING REVENUES (EXPENSES} Interest and investment income Tap fees Interest expense Total nonoperating revenues Net income before transfers Transfers out Gail on safe of fixed assets Net change in fiund balances Fund balances, beginning of year Fund balances, end of year Enterprise Fund Year Ended September 30, 2008 Budgeted Amounts ' Original Final $ 9,013,767 37,065 10,000 9,060,832 2,888,579 S 19,365 1MAO 4,910,000 1507000 236,580 8,835,724 225,108 i 60,000 307,500 (399,111) 68,389 293,497 (274,557) 18,940 $ 9,688,767 37,065 25,000 9,750,832 2,888,579 5331865 1311200 S,S ] 01000 2151000 236,SSb %515,224 235,608 160,000 307,500 (39%111) %389 303,997 (274,S57) 29,440 Acfual Amounts $ 9,406,559 44,075 14,848 9,465,482 1,952,56 i 286,792 93;744 5,41 %496 215,000 871,763 98,673 8,929,029 536,453 307,312 165,b00 (419,125)_ 53,787 590,240 (239,497) 7,081 357,824 Variance rvitb Final Budget - Positive (Negative) $ (282,208) 7,010 (10,152) (2853350) 936,018 247,073 37,456 99,504 (871,763) 137,907 586,195 300,845 147,312 (141,900) (20,014) (14,602) 286,243 35,060 T081 328,384 ,, 11,172,997 11,172,997 11172997 $ 11,191,937 $ 11,202,437 $ 11,530,821 $ 328,384 'X`bis page is left intentionally blank, D-45 OTHER INFORMATION SECTION This Page is left intentionally Manic, City of.Sanger Combining*Schedule of Revenues and Expenses Special Revenue Funds September 30, 2008 R>;VENUES Sales taxes Hotel taxes Interest Total revenues EXPENDITURES Current: General government Principal Interest and other Capital outlays Total expenditures Excess (deficiency) of revenues over (under) expenditures OTHER FINANCING USES Transfers out Total other financing uses Net income 4-A Economic Development Fund 4-B Economic Development Fund Hote1R1'iotel Occupancy Tax Fund $ 245,932 $ 245,932 $ - 15,337 12,427 38,203 - 258,359 284,135 15,337 36 482 - 1143966 - - 5,034 - - 390,147 63143 12%036 390,629 6,143 138,323 (106,494) (25,000) (25,000) (25,000) (25,000) 9,194 r $ 113,323 $ (131,494) $ 9,194 Total Special Revenue Funds $ 491,864 15,337 50,630 557,831 S18 114,966 5,034 3963290 516,808 41,023 (50,000) $ (81977) City of Sanger CombInIng Schedule of Revenues and Expenses Propx ietary Fund Uy Department September 30, 2008 OPERATING REVENUES Charges for services Connection fees Miscellaneous Total operating revenues OPERATING EXPENSES Salaries and wages Purchased professional and technical services Utilities Water and electric purchases Franchise fees Depreciation Repairs and maintenance Total operating expenses Operating income (loss) NONOPERATING REVENUES (EXPENSES) Interest and nivestment htcome Tap fees Interest expense Total nonoperating revenues Net income before transers Transfers out Gain on sale of fixed assets Total nonoperating revenues (expenses) Net income (loss) Water $ I,067,814 44,075 I) 11 1,889 41 %745 155,159 35,481 57,467 235,333 Sewer $ 8b7,140 8675140 254,439 36,961 44,516 260,416 44,498 12,13 S 947,683 608,46 7 164,206 258,673 92,60Q (1733072) (80,472) 83,735 73,000 (23%004) (1662004) 92,670 $ , 83,735 to 92,670 Electric $ 7,471,581 7,471,581 691,748 4%553 9,024 5,353,029 215,000 3763014 17,071 6,711,439 760,142 . (7,050) (7,050) 753,092 (239,497) 7,081 (232,416) $ 520,676 Vehicle Maintenance 71,697 2,216 - 2,586 3,257 79,756 (79,756) Administration Aata Processing Total 44,075 14,848 - 14,848 14,872 - 95465,482 296,436 218,496 1,952,561 33,207 %696 286,792 2,137 - 93,744 5,410,496 215,000 - 871,763 563 21,149 98,673 332,343 249,341 8,929,029 (317)471) (24%341) 536,453 307,312 - 307,3i2 (795756) (10,159) - 307,312 - 165,600 (4195125) 53,787 (249,341) 590,240 - (239,497) 7,081 (232)416) $ (79,756) $ (10,159) $ (249)341) $ 357,824 This page is Ieft intentiaually blaulc. D-51 City of Sanger Analysis of Property Taxes Receivable Year Ended September 30, 2008 zoos zoo? zoo6 zoos zooa Adjusted tax roll $ 2,118,117 $ 20014,381 $ 1,785,686 $ 1,718,611 $ 1,4493712 Less collections 2,078,588 1,961,241 1,752,921 136745032 11411,753 Current year property taxes receivable 39,529 53,140 32,765 44,579 37,959 Prior years property taxes receivable 71,283 66,629 6%995 62,188 54,536 Total property taxes receivable, September 30, 2008 $ . 110,812 $ 119,769 $ 94,760 $ E 06,767 $ 92,495 Total assessed property value $ 336,831,151 $ 341,154,524 $ 312,822,804 $ 290,OI E,461 $ 256,310,962 Tax rate per $100 $ 0.59960 $ 0.59046 $ 0457083 $ 0.59260 $ 0*56547 Percent of current taxes collected to billed 98.13% 97.36% 98.17% 197AM 97.39% AuldridgeGriffin ackL.Auldridge,jr., PA. Nfichae) D. Dunlap, CPA •Thompson, •.• .. Kenneth L von Tungeln, CPA John A, Stanbery, Kenneth W. Sanders, CPA VL$Certified Public Accountants Keith A. Hollar, CPA Professional Cr rr r r REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNAMNT AVDITING STANDARDS To #lie City Council City of Sanger, Texas We have audited the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Sanger (the City) as of and for the year ended September 30, 2008, which collectively comprise the City's basic fnancial statements and have issued our report thereon dated April 21, 2009. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the -United States. Internal Control Over Fuzazicial Reporting In plarming and performing our audit, we considered the City's internal control aver financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. A control deficiency exists when the desigir or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency ' a control deficiency, or a comb' atiou of control deficiencies, that adversely affects the City's ability to initiate, authorize, record, process or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the City's financial statements that is more than inconsequential will not be prevented or detected by the City's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the City's internal control. Our consideration of the internal control over financial reporting was for the limited purpose described un the first paragraph of this section and would not necessarily identify ail deficiencies in internal control that might be significant deficiencies or material weaknesses. However, we consider, the control deficiency described below to be a material weakness in internal control over financial reporting: 6300 Ridglea Place, Suite 8I0 • Fort Z�zorth, TX 76116 (Phone: 817.558.4000 I www.auldridge.com 131 S. ��(�estmeadosv Drive, Suite 200 •Cleburne, TX 76033 � Phone: 817.641.1000 Financial Management, Segregation of Duties and Reporting Limitations In connection with the performance of our audit procedures, we identified a significantly large number of adjusting entries, that were necessary to prevent the City's financial statements from being materially misstated. Given the relatively small size of the City's administrative and accounting staff, there is an overall lack of accounting'expertise and proper segregation of duties. As a result of these financial management and staffing limitations, the City has been unable to design and implement a more effective system of internal controls over its accounting function, including the preparation of complete monthly financial statements in accordance with generally accepted accounting principles. Failure by the City to establish better financial controls and reporting capabilities will continue to expose the organization to a high level of risk that its monthly financial statements could be incomplete and/or contain material misstatements. Overall improved procedures and management oversight in the accounting area would help ensure that the City's accounting records and financial statements provide users with more complete, accurate and timely information. The City Council needs to further evaluate the costs and benefits of investing in additional systems and human resources in order to significantly reduce the risk of material misstatements contained in the City's financial statements. Compliance and Other Matters As a part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financialostatement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Govei4wnentAuditing SwndCal'ds. We noted certain matters that eve reported to management of the City in a separate letter dated Apri) 21, 2009. This report is intended for the information and use of the Honorable Mayor, management, the City Council, others within the organization, and federal awarding agencies and pass -through entities, and is not intended to be and should not be used by anyone other than these specified parties. Worth, Texas Apri121, 2049 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX E SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY (THIS PAGE INTENTIONALLY LEFT BLANK) ENDURING FINANCIAL STRENGTH Financial Guaranty Insurance Policy Issuer: Obligations: Assured Guaranty Gorp., a Maryland corporation (" and on the terms and subject to the conditions of this Policy (� irrevocably agrees to pay to the trustee (the "Trustee") or the p documentation providing for the issuance of and securing WuhK Payments which shall become Due for Payment but shalo a ul Assured Guaranty will make such Insure a�gte applicable principal or interest becomes Due for aym Guaranty shall have Received a completed of npa does not in any instance conform to the to s and c di ' r shall promptly give notice to the Trustee r the Payi A submit an amended Notice of Nonpa men . Th Tr Nee or upon receipt by the Trustee or the a g gen in form re such payments, and (ii) eviden inclu 'ng with t limita�t rights to payment of such pri Ipal or i Brest ue f Paym such disbursement, Assure Guar y sh a me e F receipt of payment of p ' at ere o Inter t t reon, thereunder, includingithout it ion the righ o red 've p the Trustee or the a ing A ant r e ben of the of the extent of such avm t. Policy No.: Premium: ), i c si ratio o e pay nt of the Premium �c ndors a%he )ng ent"3e fitoftfers that portion of the Insured e to r th P ing Age on the later to occur of (i) the date i e sl s ext oI owing the day on which Assured If otice o np m t by Assured Guaranty is incomplete or oIt , It sha b d med not Received, and Assured Guaranty on ecO t f su notice, the Trustee or the Paying Agent may g en 1 urse the Insured Payments to the Holders only dy tis cto toil of (i) evidence of the Holder's right to receive app ri instruments of assignment, that all of the Holder's II ere on vest in Assured Guaranty. Upon and to the extent of �f t Obligations, any appurtenant coupon thereto and right to I be fully subrogated to all of the Holder's right, title and interest in respect of the Obligations. Payment by Assured Guaranty to discharge the obligation of Assured Guaranty under this Policy to his Po i on la le by 'Assured G ranty for any reason. The Premium on this Policy is not refundable for any reason. his P licy oes of insur against s of y prepayment premium or other acceleration payment which at any time may become ue r kipSLt of ny ligation, othef4han at the sole option of Assured Guaranty, nor against any risk other than Exce ent p ssly odified by any endorsement hereto, the following terms shall have the meanings specified for all purposes of this Poli vol Payment" means any amount previously distributed to a Holder in respect of any Insured Payment by or on h f the Issuer, which amount has been recovered from such Holder pursuant to the United States Bankruptcy Code in ccordance with a final, nonappealable order of a court having competent jurisdiction that such payment constitutes an avoidab of nce with respect to such Holder. "Business Day" means any day other than (i) a Saturday or Sunday, (ii) any day on which the offices of the Trustee, the Paying Agent or Assured Guaranty are closed, or (iii) any day on which banking institutions are authorized or required by law, executive order or governmental decree to be closed in the City of New York or in the State of Maryland. "Due for Payment" means (i) when referring to the principal of an Obligation, the stated maturity date thereof, or the date on which such Obligation 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 a call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless Assured Guaranty in its sole discretion elects to make any principal payment, in whole or in part, on such earlier date) and (ii) when referring to interest on an Obligation, the stated date for payment of such interest. "Holder" means, in respect of any Obligation, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Obligation to payment of principal or interest thereunder, except that Holder shall not include the Issuer or any person or entity whose direct or indirect obligation constitutes the underlying security for the Obligations. "Insured Payments" means that portion of the principal of and interest on the Obligations that shall become Due for Payment but shall be unpaid by reason of Nonpayment. Insured Payments shall not include any additional amounts owing by the Issuer solely as a result of the failure by the Trustee or the Paying Agent to pay such amount when due and payable, including without limitation any such additional amounts as may be attributable to penalties or to interest accruing at a default rate, to amounts payable in respect of indemnification, or to any other additional amounts payable by the Trustee or the Paying Agent by reason of such failure. "Nonpayment" means, in respect of an Obligation, the failure of the Issuer to have provided sufficient funds to the Trustee or the Paying Agent for payment in full of all principal and interest Due for Payment on such Obligation. It is further understood that the term "Nonpayment" in respect of an Obligation includes any Avoided Payment. "Receipt" or "Received" means actual receipt or notice of or, if notice is given by overnight or other delivery service, or by certified or registered United States mail, by a delivery receipt signed by a person authorized to accept delivery on behalf of the person to whom the notice was given. Notices to Assured Guaranty may be mailed by registered mail or personally delivered or telecopied to it at 1325 Avenue of the Americas, New York, New York 10019, Telephone Number: (212) 974-0100, Facsimile Number: (212) 581-3268, Attention: Risk Management Department - Public Finance Surveillance, with a copy to the General Counsel, or to such other address as shall be specified by Assured Guaranty to the Trustee Page 1 of 2 Form MY-FG (05f07) or the Paying Agent in writing. A Notice of Nonpayment will be deemed to be Received by Assured Guaranty on a given Business Day if it is Received prior to 12:00 noon (New York City time) on such Business Day; otherwise it will be deemed Received on the next Business Day. "Term" means the period from and including the Effective Date until the earlier of (i) the maturity date for the Obligations, or (ii) the date on which the Issuer has made all payments required to be made on the Obligations. At any time during the Term of this Policy, Assured Guaranty may appoint a fiscal agent (the "Fiscal Agent") for purposes of this Policy by written notice to the Trustee or the Paying Agent, specifying the name and notice address of such Fiscal Agent. From and after the date of Receipt of such notice by the Trustee or the Paying Agent, copies of all notices d documents required to be delivered to Assured Guaranty pursuant to this Policy shall be delivered simultaneously to the Fis all A ent and to Assured Guaranty. All payments required to be made by Assured Guaranty under this Policy may be made directly A ured Guaranty or by the Fiscal Agent on behalf of Assured Guaranty. The Fiscal Agent is the agent of Assured Gu n only, nd e Fiscal Agent shall in no event be liable to the Trustee or the Paying Agent for any acts of the Fiscal Agent or a failure A ure Guaranty to deposit, or cause to be deposited, sufficient funds to make payments due under this Policy. To the fullest extent permitted by applicable law, Assured Guaranty hereby ves, in ch se the bene i of the Holders only, all rights and defenses of any kind (including, without limitation, the defens of frau n the ' d em in facto any other circumstance that would have the effect of discharging a surety, guarantor or of r pe on' la or eq ' ) t may e available to Assured Guaranty to deny or avoid payment of its obligations u er t ' licy ' actor nc wit the ess provisions hereof. Nothing in this paragraph will be construed (1) to waive, limit or erwis 'm ir, and sured G ran expressly reserves, Assured Guaranty's rights and remedies, including, without limita ' n. 'ts ht a e ny im or u e overies (based on contractual rights, securities law violations, fraud or other cau es of a 'o a ins n ers r emit i each case, whether directly or acquired as a subrogee, assignee or otherwise, su q nt t m a a e to the Trust or the Paying Agent, in accordance with the express provisions hereof, and/or (ii o r uir a en A re G ranty o ny amounts that have been previously paid or that are not otherwise due in accordant ith t e re ro io f th P is . This Policy (which includes each endorsement h eto) se in f th un king s d Guaranty with respect to the subject matter hereof, and may not be modified, alt ed or affect d b any th ag nt i trument, including, without limitation, any modification thereto or amendment thereof. THI ICY I NO O ER Y HE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN AR?CL 7 OF HE NEW YO IN R C W. This Policy will be governed by, and shall be construed in accordance with, th aws o e tate f New IN WITNESS WHEREOF, Assured uarant a�s� �c u, d th Polic to a ' with its corporate seal, to be signed by its duly authorized officer, and to become effect an in y"'g uho Assu uara ty by virtue of such signature. (SEAL) [Insert Authorized Signatory Name] [Insert Authorized Signatory Title] Signature attested to by: Counsel Page 2 of 2 Form NY-FG (05/07) PAYING AGENT/REGISTRAR AGREEMENT THIS PAYING AGENT/REGISTRAR AGREEMENT dated as of July 15, 2009 (together with any amendments or supplements hereto, the "Agreement") is entered into by and between the CITY OF SANGER, TEXAS (the "Issuer"), and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., Dallas, Texas, as paying agent/registrar (together with any successor in such capacity, the "Bank"). WITNESSETH: WHEREAS, the Issuer has duly authorized and provided for the issuance of its City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2009 (the "Certificates") in the aggregate principal amount of $3,200,000 to be issued as fully registered certificates; WHEREAS, all things necessary to make the Certificates the valid obligations of the Issuer, in accordance with their terms, will be done upon the issuance and delivery thereof; WHEREAS, the Issuer and the Bank wish to provide the terms under which the Bank will act as Paying Agent to pay the principal of, redemption premium, if any, and interest on the Certificates, in accordance with the terms thereof, and under which the Bank will act as Registrar for the Certificates; and WHEREAS, the Issuer and the Bank have duly authorized the execution and delivery of this Agreement; and all things necessary to make this Agreement the valid agreement of the parties, in accordance with its terms, have been done. NOW, THEREFORE, it is mutually agreed as follows: ARTICLE ONE APPOINTMENT OF BANK AS PAYING AGENT AND REGISTRAR Section 1.01. Appointment. The Issuer hereby appoints the Bank to act as Paying Agent with respect to the Certificates, to pay to the Registered Owners of the Certificates, in accordance with the terms and provisions of this Agreement and the ordinance authorizing the issuance of the Certificates (the "Ordinance"), the principal of, redemption premium, if any, and interest on all or any of the Certificates. The Issuer hereby appoints the Bank as Registrar with respect to the Certificates. HOU:2937195.1 The Bank hereby accepts its appointment, and agrees to act as Paying Agent and Registrar with respect to the Certificates. Section 1.02. Compensation. In consideration of the deposits of funds required to be made with the Bank by the Issuer pursuant to the provisions of the Ordinance, the Bank shall be paid the fees set forth in the Banlc's fee schedule attached as Exhibit A hereto and agrees to abide by and accept the terms hereof and of the Ordinance relating to the duties of the Paying Agent/Registrar. •' � DEFINITIONS Section 2.O1. Definitions. For all purposes of this .Agreement, except as otherwise expressly provided or unless the context otherwise requires: "Bank" means The Bank of New Yorlc Mellon Trust Company, N.A., Dallas, Texas, a commercial bank which is a national bank duly organized and existing under the laws of the United States of America. "Certificate" or "Certificates" means any one or all of the "City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2009" authorized by the Ordinance. "Issuer" means the City of Sanger, Texas. "Ordinance" means the ordinance of the Issuer approved by its City Council on July 20, 2009, pursuant to which the Certificates are issued. "Paying Agent" means the Bank when it is performing the function of paying agent. "Person" means any individual, corporation, partnership, joint venture, associations, joint stock company, trust, unincorporated organization or government or any agency or political subdivision of a government or any entity whatsoever. "Registrar" means the Bank when it is performing the function of registrar. "Registered Owner" means the Person in whose name any Certificate is registered in the books of registration maintained by the Bank under this Agreement. All other capitalized terms shall have the meanings assigned to them in the Ordinance. 2 HOU:2937195.1 ARTICLE THREE DUTIES OF THE BANK Section 3.01. Initial Delivery of the Certificates. The Certificates will be initially registered and delivered by the Bank to the purchaser designated by the Issuer as set forth in the Ordinance. If such purchaser delivers a written request to the Bank not later than five business days prior to the date of initial delivery, the Bank will, on the date of initial delivery, exchange the Certificates initially delivered for Certificates of authorized denominations, registered in accordance with the instructions in such request and the Ordinance. Section 3.02. Duties of Paying Agent. As Paying Agent, the Bank shall, provided adequate funds have been provided to it for such purpose by or on behalf of the Issuer, timely pay on behalf of the Issuer the principal of and interest on each Certificate in accordance with the provisions of the Ordinance. If the issue is to be Depository Trust Company (DTC) eligible, the Paying Agent will comply with all eligibility requirements as outlined and agreed upon in the eligibility questionnaire. Section 3.03. Duties of Re isg tray. The Bank shall provide for the proper registration of the Certificates and the timely exchange, replacement and registration of transfer of the Certificates in accordance with the provisions of the Ordinance. Any changes to Registered Owners for such exchange, replacement and registration shall be made by the Bank only in accordance with the Ordinance. The Bank will maintain the books of registration in accordance with the Bank's general practices and procedures in effect from time to time; provided, however, that the Bank agrees to maintain books of registration for the Certificates at the City Secretary's office in City of Sanger, Texas, which books of registration may be a copy of the register which shall be kept current by the Bank. Section 3.04. Unauthenticated Certificates. The Issuer shall provide an adequate inventory of unauthenticated Certificates to facilitate transfers. The Bank covenants that it will maintain such unauthenticated Certificates in safekeeping and will use reasonable care in maintaining such Certificates in safekeeping, which shall be not less than the care it maintains for debt securities of other government entities or corporations for which it serves as registrar, or which it maintains for its own bonds. 3 HOU:2937195.1 Section 3.05. Reports. Upon request of the Issuer, the Bank will provide the Issuer reports which will describe in reasonable detail all transactions pertaining to the Certificates and the books of registration for the period of time specified by the Issuer. The Issuer may also inspect and make copies of the information in the books of registration and such other documents related to the Certificates and in the Bank's possession at any time the Bank is customarily open for business, provided that reasonable time is allowed the Bank to provide an up-to-date listing or to convert the information into written form. The Bank will not release or disclose the content of the books of registration to any person other than to, or at the written request of, an authorized officer or employee of the Issuer, except upon receipt of a subpoena, court order or as otherwise required by law. Upon receipt of a subpoena, court order or other lawful request, the Bank will notify the Issuer immediately so that the Issuer may contest the subpoena, court order or other request if it so chooses. Section 3.06. Canceled Certificates. All Certificates surrendered for payment, redemption, transfer, exchange or replacement, if surrendered to the Bank, shall be promptly canceled by it and, if surrendered to the Issuer, shall be delivered to the Bank and, if not already canceled, shall be promptly canceled by the Banlc. The Issuer may at any time deliver to the Bank for cancellation any Certificates previously authenticated and delivered which the Issuer may have acquired in any manner whatsoever, and all Certificates so delivered shall be promptly canceled by the Bank. All canceled Certificates held by the Bank shall be destroyed and evidence of such destruction shall be furnished to the Issuer. Section 3.07. Reliance on Documents Etc. (a) The Bank may conclusively rely, as to the truth of the statements and correctness of the opinions expressed therein, on certificates or opinions furnished to the Bank by the Issuer. (b) The Bank shall not be liable to the Issuer for actions taken under this Agreement as long as it acts in good faith and exercises due diligence, reasonableness and care, as prescribed by law, with regard to its duties hereunder. (c) This Agreement is not intended to require the Bank to expend its own funds for performance of any of its duties hereunder. (d) The Bank may exercise any of the powers hereunder and perform any duties hereunder either directly or by or through agents or attorneys. (e) The Bank is also authorized to transfer funds relating to the closing and initial delivery of the securities in the manner disclosed in the closing memorandum approved by the Issuer as prepared by the Issuer's financial advisor or other agent. The Bank may act on a C! HOU:2937195.1 facsimile transmission of the closing memorandum to be followed by an original of the closing memorandum signed by the financial advisor or the Issuer. Section 3.08. Money Held by Bank. Money held by the Bank hereunder shall be held in trust for the benefit of the Registered Owners of the Certificates. The Bank shall be under no obligation to pay interest on any money received by it hereunder. All money deposited with the Bank hereunder shall be secured in the manner and to the fullest extent required by law for the security of funds of the Issuer. Any money deposited with the Bank for the payment of the principal of or interest on any Certificates and remaining unclaimed by the Registered Owner after the expiration of three years from the date such funds have become due and payable shall be reported and disposed of by the Bank in accordance with the provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. To the extent such provisions of the Property Code do not apply to the funds, such funds shall be paid by the Bank to the Issuer upon receipt of a written request therefor from the Issuer. The Bank shall have no liability to the Registered Owners of the Certificates by virtue of actions taken in compliance with the foregoing provision. ARTICLE FOUR MISCELLANEOUS PROVISIONS Section 4.01. May Own Certificates. The Bank, in its individual or any other capacity, may become the owner or pledgee of Certificates with the same rights it would have if it were not the Paying Agent and Registrar for the Certificates. Section 4.02. Amendment. This Agreement may be amended only by an agreement in writing signed by both of the parties hereof. Section 4.03. Assi ng_ment. This Agreement may not be assigned by either party without the prior written consent of the other. 5 HOU:2937195. I Section 4.04. Notices. Any request, demand, authorization, direction, notice, consent, waiver or other document provided or permitted hereby to be given or furnished to the Issuer or the Bank shall be mailed or delivered to the Issuer or the Bank, respectively, at the addresses shown herein, or such other address as may have been given by one party to the other by 15 days' written notice. Section 4.05. Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 4.06. Successors and Assigns. All covenants and agreements herein by the Issuer and the Bank shall bind their successors and assigns, whether so expressed or not. This Agreement shall not be assigned by the Bank without the prior written consent of the Issuer. Section 4.07. Severability. If any provision of this Agreement shall be invalid or unenforceable, the validity and enforceability of the remaining provisions hereof shall not in any way be affected or impaired. Section 4.08. Benefits of Agreement. Nothing herein, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any benefit or any legal or equitable right, remedy or claim hereunder. Section 4.09. Ordinance Governs Conflicts. This Agreement and the Ordinance constitute the entire agreement between the parties hereto relative to the Bank acting as Paying Agent and Registrar and if any conflict exists between this Agreement and the Ordinance, the Ordinance shall govern. The Bank agrees to be bound by the terms of the Ordinance with respect to the Certificates. Section 4.10. Term and Termination. This Agreement shall be effective from and after its date and may be terminated for any reason by the Issuer or the Bank at any time upon 60 days' written notice; provided, however, that no such termination shall be effective until a successor has been appointed and has accepted the duties of the Bank hereunder. In the event of early termination, regardless of circumstances, the Bank shall deliver to the Issuer or its designee all funds, Certificates and all books and records pertaining to the Bank's role as Paying Agent and Registrar with respect to the Certificates, including, but not limited to, the books of registration. HOU:2937195. l Section 4.11. Governing Law. This Agreement shall be construed in accordance with and shall be governed by the laws of the State of Texas. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. r: Ci (SEAL) T: ATTEST: By: Title: (SEAL) ,ta�:,.�� . � ' CITY OF BANGER, TEXAS By: ADDRESS: Mayor 201 Bolivar Street Sanger, Texas 76266 THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. B y. Title: ADDRESS: 2001 Bryan St, 1 lth Floor Dallas, Texas 75201 Attn: Corporate Trust Dept II HOU:2937195.1 Section 4.11. Governing Law, This Agreement shall be construed in accordance with and shall be governed by the laws of the State of Texas. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CITY OF SANGER, TEXAS By: Mayor ADDRESS: 201 Bolivar Street Sanger, Texas 76266 ATTEST: City Secretary (SEAL) THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. By: Title: ADDRESS: 2001 Bryan St, l lt" Floor Dallas TX 75201 Attn: Corporate Trust Dep't ATTEST: By: Title: (SEAL) 7 HOU:2937195.1 EXHIBIT A Fee Schedule HOU:2937195.1 THE BANK OF NEW YORK MELLON The Bank of New York Mellon Trust Company, N.A. Fee Schedule City of Sanger General Obligation Bonds, Series 2009 Acceptance Fee x Nonez" VII A one-time charge covering the Bank Officer's review of governing documents, communication with members of the closing party, including representatives of the issuer, investment banker(s) and attorney(s), establishment of procedures and controls, set-up of trust accounts and tickler suspense items and the receipt and disbursement/investment of bond proceeds. This fee is payable on the closing date. Annual`Paying Agent Administration Fee ;', $500 An annual charge covering the normal paying agent duties related to account administration and bondholder services. Our pricing is based on the assumption that the bonds are DTC-eligible/book-entry only. If the bonds are certificated or physical, then we will have to charge an additional $1000 per year as a paying agent. This fee is payable annually, in advance. A one-time charge covering the normal duties and responsibilities related to account administration. This fee is payable on the closing date. The charges for performing extraordinary or other services not contemplated at the time of the execution of the transaction or not specifically covered elsewhere in this schedule will be commensurate with the service to be provided and may be charged in BNYMTC's sole discretion. If it is contemplated that the Trustee hold and/or value collateral or enter into any investment contract, forward purchase or similar or other agreement, additional acceptance, administration and counsel review fees will be applicable to the agreement governing such services. If the bonds are converted to certificated form, additional annual fees will be charged for any applicable tender agent and/or registrar/paying agent services. Additional information will be provided at such time. Should this transaction terminate prior to closing, all out-of-pocket expenses incurred, including legal fees, will be billed at cost. If all outstanding bonds of a series are defeased or called in full prior to their maturity, a termination fee may be assessed at that time. These extraordinary services may include, but are not limited to, supplemental agreements, consent operations, unusual releases, tender processing, sinking fund redemptions, failed remarketing processing, the preparation of special or interim reports, custody of collateral, a one-time fee to be charged upon termination of an engagement. Counsel, accountants, special agents and others will be charged at the actual amount of fees and expenses billed, C filing fees, money market sweep fees, auditor confirmation fees, wire transfer fees, transaction fees to settle third -party trades and reconcilement fees to balance trust account balances to third - party investment provider statements 2001 Bryan — 11 "' Floor Dallas, TX 75201 THE BANK QF NEW X VKAK MELLON The an of New York Mellon Trust Company, N.A. Annual fees include one standard audit confirmation per year without charge. Standard audit confirmations include the final maturity date, principal paid, principal outstanding, interest cycle, interest paid, cash and asset information, interest rate, and asset statement information. Non-standard audit confirmation requests may be assessed an additional fee. Periodic tenders, sinking fund, optional or extraordinary call redemptions will be assessed at $300 per event. The fee for non -interest bearing balances left uninvested with the Bank will be 10 basis points for the quarter, based on quarter -end spot balance levels, in excess of $250,000 (held in the U.S. offices of the Bank). Terms and Disclosures Terms of Proposal Final acceptance of the appointment under the Indenture is subject to approval of authorized officers of BNYM and frill review and execution of all documentation related hereto. Please note that if this transaction does not close, you will be responsible for paying any expenses incurred, including Counsel Fees. We reserve the right to terminate this offer if we do not enter into final written documents within three months from the date this document is first transmitted to you. Fees may be subject to adjustment during the life of the engagement. Customer Notice Required by the USA Patriot Act To help the US government fight the funding of terrorism and money laundering activities, US Federal law requires all financial institutions to obtain, verify, and record information that identifies each person (whether an individual or organization) for which a relationship is established. What this means to you: When you establish a relationship with BNY, we will ask you to provide certain information (and documents) that will help us to identify you. We will ask for your organizaL on's name, physical address, tax identification or other government registration number and other information that will help us to identify you. We may also ask for a Certificate of Incorporation or similar document or other pertinent identifying documentation for your type of organization. We thank you for your assistance. 2001 Bryan — ] la' Floor Dallas, TX 75201 GENERAL CERTIFICATE STATE OF TEXAS § COUNTY OF DENTON § CITY OF BANGER § We, the undersigned officers of the City of Sanger, Texas (the "City"), do hereby make and execute this certificate for the benefit of the Attorney General of the State of Texas and all other persons interested in the City's $3200,000 CITY OF BANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2009, dated July 15, 2009 (the "Certificates"), now in the process of issuance, as follows: (1) The City is a duly incorporated Home Rule City, having more than 5,000 inhabitants, operating and existing under the Constitution and laws of the State of Texas and the duly adopted Home Rule Charter of the City, which Charter has not been changed since the approval by the Attorney General of the State of Texas of the City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2007, dated June 15, 2007, which were the last obligations issued by or on behalf of the City. (2) The Certificates are being issued to provide funds to pay conhactual obligations to be incurred for the acquisition of land located at 1801 S. Stemmons Freeway for a city park, construction of athletic fields on such city park, water, sewer, drainage and sheet improvements; and the payment for professional services related thereto. (3) The currently effective ad valorem tax appraisal roll of the City (the "Tax Roll") is the Tax Roll prepared and approved during the calendar year 2008, being the most recently approved Tax Roll of the City; the taxable property in the City has been appraised, assessed and valued as required and provided by the Texas Constitution and Property Tax Code (collectively, "Texas law"); the Tax Roll for the year has been submitted to the City Council of the City as required by Texas law, and has been approved and recorded by the City Council; and according to the Tax Roll for the year, the net aggregate taxable value of taxable property in the City (after deducting the amount of all applicable exemptions required or authorized under Texas law), upon which the annual ad valorem tax of the City has been or will be imposed or levied, is $372,374,916. (4) The following individuals were the duly elected and qualified Mayor, and City Council of the City holding the offices opposite their names: Joe Higgs Glenn Ervin Andy Garza Thomas Muir Robert Patton Russell Martin Mayor Mayor Pro Tem Alderman Alderman Alderman Alderman (5) Rosalie Chavez has been the duly appointed and qualified City Secretary of the City. (6) Save and except for the pledge of the Net Revenues of the System to the payment of the Certificates and the City's Certificates of Obligation, Series 1994, Combination Tax and Revenue Certificates of Obligation, Series 2002, Combination Tax and Revenue Certificates of Obligation, Series 2006, and Combination Tax and Revenue Certificates of Obligation, Series 2007, the Net Revenues of the System have not been pledged in any other manner or for any other purpose, and the pledge of the Net Revenues of the System to the Certificates evidences the only lien, encumbrance, or indebtedness of the System or against Net Revenues of the System. (7) Attached to this certificate as Exhibit A is a true, full and correct debt service schedule for the Certificates. Attached as Exhibit B is a hue, full and correct debt service schedule for all of the City's outstanding tax supported debt, including the Certificates. The principal amount of the City's total outstanding tax supported debt, including the Certificates, is $12,590,000. (8) The following is a hue, full and current schedule of System revenues, remaining after the payment of all operation and maintenance expenses thereof ("Net Revenues"), for the last three fiscal years: I-{OU:2937214.3 Fiscal Year Ended September 30, 2006 2007 $1,912,839 $2,121,061 2008 $1,408,216 (9) The current monthly rates and charges for services provided by the System are as follows: Water Rates: Residential Customers Minimum per unit served for 0-1,000 gallons $15.25 Next 4,000 gallons 2.35 per thousand gallons Next 10,000 gallons 2.60 per thousand gallons Next 15,000 gallons 3.05 per thousand gallons Over 30,000 3.90 er thousand gallons Commercial Customers Minimum per unit served for 0-1,000 gallons $18.00 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 Sewer Rates: Residential Customers Minimum (first 1,000 gallons) $16.00 Per 1,000 gallons over first 1,000 gallons 2.00 Maximum 35.00 Commercial Customers '/a inch meter $22.00 1 inch meter 24.00 1 %s inch meter 28.00 2 inch meter 33.00 3 inch meter 41.00 4 inch meter 76.00 Per 1,000 gallons over first 1,000 gallons 2.00 Multi -Family Dwellings Amount due shall be the residential rate multiplied by the number of occupied dwelling units (11) The City is not in default as to any covenant, condition or obligation on any prior bonds or other obligations payable from the Net Revenues of the System. 2 HOU:2937214.3 SIGNED AND SEALED this July 20, 2009. City Secretary �������""��'•tr, ����� (� � �i,i ���i �` � • �� (CITY SE$L) r �� �� ��'��i�� �XAS, . �������` ����Nu n i u�►A�� CITY OF BANGER, TEXAS mayor 3 HOU:2937214.1 Exhibit A Debt Service Schedule for the Certificates HOU:29372143 Sanger Texas - Certificates of Obligation Series 2009 Moody's Baa2 and Aa2 Assured Debt Service Schedule Date Principal Coupon Interest Total P+I 08/01/2009 - 08/01/2010 1355000,00 3.000% 133,767.22 2683767,22 08/01/2011 145,000.00 3.000% 124,025.00 26%025.00 08/01/2012 150,000.00 3.000% 11 %675.00 26%675.00 08/01/2013 155,000.00 3.500% 1159175400 270,175.00 08/01/2014 1602000,00 3.500% 1093750400 2693750,00 08/01/2015 165,000.00 3.500% 104,150.00 26%150,00 08/01/2016 170,000.00 3.500% 98,375.00 2%375.00 08/01/2017 175,000.00 4.000% 922425400 2672425,00 08/01/2018 180,000.00 4.000% 85,425.00 265,425.00 08/01/2019 190,000000 4.000% 783225.00 2683225,00 08/01/2020 195,000,00 4.000% 70,625.00 265,625.00 08/01/2021 205,000,00 4.375% 62,825.00 267,825.00 08/01/2022 215,000.00 4.375% 53,856.26 268,856.26 08/01/2023 225,000,00 4.500% 44,450,00 26%450.00 08/01/2024 235,000,00 4.500% 34,325.00 269,325.00 08/01/2025 245,000.00 4.750% 23,750.00 268,750.00 08/01/2026 255,000.00 4.750% 12,112.50 267,112,50 Total $3,200,000M - $11362,935.98 $4,562,935.98 Yield Statistics Accrued Interest from 07/15/2009 to 07/30/2009 5,336.46 Bond Year Dollars $31,867,22 Average Life 9.959 Years Average Coupon 4.2769212% Net Interest Cost (NIC) 4,5387341% True Interest Cost (TIC) 445859042% Bond Yield for Arbitrage Purposes 4,5588394% All Inclusive Cost (AIC) 5.2020302% IRS Form 8038 Net Interest Cost 4.3696267% Weighted Average Maturity 9.890 Years SANGER TEXAS JULY 9 Ted M I SINGLE PURPOSE ( 7/20/2009 1 10:09 AM Exhibit B Debt Service Schedule for All of the City's Outstanding Tax Supported Debt HOU:2937214.3 GOV�RNME'I�T' CAP°tTAL. City of Sanger Total Principal Amounts of Tax Supported Debt Dates 1994 CO 2002 CO 2006 CO 2007 CO 2009 CO FY Total Principal 08/01 /09 $60,000 09/01/09 $200,000 $95,000 $350,000 2009 $705,000 O8/01/10 $60,000 $135,000 09/01/10 $100,000 $365,000 2010 $660,000 08/01/11 $65,000 $145,000 09/01/11 $105,000 $380,000 2011 $695,000 08/01/12 $65,000 $150,000 09/01/12 $110,000 $395,000 2012 $720,000 08/01/13 $70,000 $155,000 09/01/13 $120,000 $410,000 2013 $755,000 O8/01/14 $75,000 $160,000 09/01/14 $125,000 $425,000 2014 $785,000 08/01/15 $75,000 $165,000 09/01/15 $130,000 $440,000 2015 $810,000 08/01/16 $80,000 $170,000 09/01/16 $1359000 $4%000 2016 $845,000 08/01/17 $85,000 $175,000 09/01/17 $145,000 $485,000 2017 $890,000 08/01/18 $852000 $180,000 09/01/18 $150,000 $500,000 2018 $915,000 O8/01/19 $90,000 $1902000 09/01/19 $160,000 $520,000 2019 $960,000 08/01/20 $95,000 $195,000 09/01/20 $170,000 $545,000 2020 $1,005,000 08/01/21 $100,000 $205,000 09/01/21 $175,000 $565,000 2021 $1,045,000 08/01/22 $105,000 $215,000 09/01/22 $185,000 2022 $5052000 O8/01123 $1102000 $225,000 2023 $335,000 08/01/24 $110,000 $235,000 2024 $345,000 O8/01/25 $115,000 $245,000 2025 $360,000 Prepared by Ted Christensen, Government Capital Securities Corporatbn, 817-421-5400, 6/2/2009 SIGNATURE IDENTIFICATION AND NO -LITIGATION CERTIFICATE THE STATE OF TEXAS § COUNTY OF DENTON § CITY OF SANGER § We, the undersigned officers of the City of Sanger, Texas (the "City"), certify that we officially signed, by our manual or facsimile signatures, on behalf of the City, the following described certificates of obligation, to wit: CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2009, dated July 15, 2009, and aggregating $3,200,000 (the "Certificates"). That the Certificates have been duly and officially executed by the undersigned with their manual or facsimile signatures in the same manner appearing hereon, and the undersigned hereby adopt and ratify their respective signatures in the manner appearing on each of the Certificates, whether in manual or facsimile form, as the case may be, as their own signatures. That on the date of such signing and on the date hereof, we were and are the duly chosen, qualified and acting officers authorized to execute the Certificates, and holding the official titles set forth below opposite such signatures. We further certify that no litigation is pending or, to our knowledge, threatened in any court in any way affecting the existence or boundaries of the City or the titles of its officers to their respective positions or their authority to act on the City's behalf or to restrain or enjoin the issuance or delivery of the Certificates, or the levy, collection or application of the ad valorem taxes or revenues pledged or to be pledged to pay the principal of and interest on the Certificates, or the pledge thereof, or in any way contesting or affecting the validity of the Certificates, the ordinance adopted on July 20, 2009 authorizing the issuance, sale and delivery of the Certificates (the "Ordinance"), or contesting the powers of the City or the authorization of the Certificates or the Ordinance, or contesting in any way the accuracy, completeness or fairness of the Official Statement. We further certify that the seal that has been impressed, or placed in facsimile, upon each of the Certificates is the legally adopted, proper and only official seal of the City, such official seal being impressed upon this certificate. We further certify that no petition or other request has been filed with or presented to any official of the City requesting that any of the proceedings authorizing the Certificates be submitted to a referendum or other election. HOU2937246.1 We further certify that the information and data contained in the General Certificate dated July 20, 2009 remain true and correct as of this date. WITNESS OUR HANDS AND THE SEAL OF THE CITY this Z4 , BTU 1..�-�' , 2009. SIGNATURES iE �� ��\ 1 (CITY SEAL) ,, '''�����i, • �XAS ,,��°�'' �����/llliilll`m��' TITLE OF OFFICE Mayor, City of Sanger, Texas City Secretary, City of Sanger, Texas Before me, on this day personally appeared the foregoing individuals, known to me to be the persons whose names were subscribed in my presence to the foregoing instrument. Given under my hand and seal of office this lvv�a�y ruuu� Typed or Printed Name: 'TC�i �- Tc�.loe.� Notary aubNo My Commission Expires: saa a T.�„ / j n (Notary Seal) HOU:2937246.1 TAX EXEMPTION CERTIFICATE The undersigned, being the duly chosen and qualified Mayor of the City of Sanger, Texas (the "City"), hereby certifies with respect to the City's Certificates of Obligation, Series 2009 in the aggregate principal amount of $3,200,000 (the "Certificates"), as follows: A. General. 1. I, along with other officers of the City, am charged with the responsibility for issuing the Certificates. 2. This certificate is made pursuant to sections 103 and 141-150 of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), and the final, temporary, and proposed Treasury Regulations promulgated thereunder and applicable to the Certificates (the "Regulations"). 3. This certificate is based on the facts and estimates described herein in existence on the date hereof; and, on the basis of such facts and estimates, the City expects that the future events described herein will occur. To the best of the knowledge and belief of the undersigned, the expectations set forth herein are reasonable. 4. A capitalized term used and not otherwise defined herein has the meaning ascribed to such term in the Ordinance authorizing the issuance of the Certificates, adopted by the City Council of the City on July 20, 2009 (the "Ordinance"). B. Purpose and Size. 1. The Certificates are being issued pursuant to the Ordinance to finance (1) the acquisition of land located at 1801 S. Stemmons Freeway for a city park and construction of athletic fields on such city park; (2) water, sewer, drainage and street improvements; (3) professional services rendered in connection with the above listed projects; and (4) costs of issuance of the Certificates, including a premium (the "Insurance Premium") for a policy of municipal bond insurance (the "Policy") with respect to the Certificates Z. Each of the projects financed with proceeds of the Certificates (the "Projects") will be owned and operated and maintained by the City. The City has not contracted in any manner with any company, firm or other person or entity to operate and/or maintain the Projects or all or part of any one, for and on behalf of the City. The City does not expect to enter into any contract for the operation, maintenance or management of the Projects or all or part of any one, except for contracts complying with Rev. Proc 97-13. 3. There is not, and as of the date hereof the City does not anticipate entering into, any lease, contract or other understanding or arrangement having a term of more than one year, such as a take -or -pay contract or output contract, with any person other than a state or local governmental unit (including a municipal utility district), pursuant to which the City expects that proceeds of the Certificates, or the Projects financed therewith, will be used in the trade or business of such person (including all activities of such persons who are not individuals). 4. The City has not entered into, and as of the date hereof the City does not anticipate entering into, any contract with any person, other than a state or local governmental -1- HOU:2941477. I unit (including a municipal utility district), for the sale of water or the collection and treatment of sewage at or for any one of the Projects, which extends for a period greater than twelve months, including optional renewals, other than contracts on terms available to the general public, including discounts for greater volume. 5. No receipts from the sale of the Certificates or amounts received from the investment thereof will be used to pay the principal of or interest on any presently outstanding issue of bonds or other similar obligations of the City other than the Certificates. 6. The amounts received from the sale of the Bonds, when added to the amounts expected to be received from the investment thereof, are not expected to exceed the costs of constructing the Projects and of issuing the Certificates, including the Insurance Premium. 7. The weighted average maturity of the Certificates is not more than 120% of the expected useful life of the Projects. C. Source and Disbursement of Funds. 1. The City has sold the Certificates to Alluvion Securities LLC (the "Underwriter") in a public offering for a purchase price of $3,121,903.96, which is the issue price of the Bonds to the public, plus $5,336.46 accrued interest, less underwriter's discount of $65,792.00. 2. The City has caused the closing agent to deposit this day such amount as follows: Disposition Amount Disbursed to pay Project costs $2,974,309.33 Deposit to Debt Service Fund 5,336.46 Disbursed to pay the Insurance Premium 59,318.17 Disbursed to pay costs of issuance 82,940.00 Total $ 3,121,903.96 D. Temporary Periods and Time for Expenditures. 1. The amount disbursed or set aside to pay costs of issuance on the Certificates will be so used within one year from the date hereof, will not be used to pay debt service on the Certificates, and maybe invested without restriction as to Yield until so used. 2. Within six months after the date hereof, the City reasonably expects to have incurred binding obligations or commitments in the amount of at least 5% of the net sale proceeds of the Bonds for the Projects by entering into contracts for construction, architectural services, engineering services, land acquisition, site development, construction materials, or the purchase of equipment. After entering into said contracts, work on the construction or acquisition of the Projects will proceed with due diligence to completion. The City expects that at least 85% of the proceeds of the Bonds, together with any earnings from the investment thereof, will be spent within three years after the date hereof. -2- HOU:2941477.1 E. Yield and Nonpurpose Investments. 1. A discount factor of at least 4.5588% is required to reduce the principal and interest to be paid on the Certificates to a present value on the date hereof, compounding semiannually, equal to the issue price of the Certificates. 2. No obligations of the City have been sold or delivered pursuant to the same plan of financing and payable from the same source of funds within 15 days before or after July 20, 2009, the date on which the City entered into a binding contract to sell the Certificates (the "Sale Date"). 3. The City has covenanted in the Ordinance that it will account for the Gross Proceeds of the Certificates separately and apart from all other funds of the City from the date hereof, that it will calculate the earnings on all Nonpurpose Investments made with Gross Proceeds of the Certificates and that it will make. payments to the United States Treasury of any Rebate Amount as a result of such investments at least every five years and at the maturity of the Certificates, together with any such reports as the Secretary of the Treasury shall prescribe, as may be required by Section 148(f) of the Code. However, the City expects that the Certificates will satisfy the rebate requirement because: (a) The Issuer is a governmental unit with general taxing power. (b) None of the Certificates is a private activity bond. (c) At least 95 percent of the net proceeds of the Certificates will be used for local government activities of the City. (d) The Issuer does not reasonably expect to issue more than $5,000,000 in aggregate face amount oftax-exempt bonds during calendar year 2009. F. Qualified Guarantee. 1. The Underwriter has advised the City that the present value of the Insurance Premium for the Policy is less than the present value of the interest saved as a result of insuring the Bonds, using the Bond Yield as the discount factor; that the Policy was negotiated in an arm's length transaction; that the Insurance Premium does not include any payment for any direct or indirect services other than the transfer of credit risk; and that the Insurance Premium represents a reasonable charge for the transfer of credit risk. 2. Under the Policy, the issuer of the Policy (the "Guarantor") is unconditionally and with full recourse obligated to pay all or a portion of the principal of or interest on the Bonds. Neither the Guarantor nor any person related to the Guarantor within the meaning of section 144(a)(3) of the Code will use more than 10% of the proceeds of the Bonds. 3. The City reasonably expects that the Guarantor will not be called upon to make a payment of principal of or interest on the Bonds. The Guarantor is entitled to be immediately and fully reimbursed for any payment of principal of or interest on the Bonds. -3- HOU:2941477.1 4. The Insurance Premium has been allocated among each of the Bonds in a manner that properly reflects the proportionate credit risk for which the Guarantor has been compensated. G. Interest and Sinking Fund. 1. Pursuant to Section 5.1 of the Ordinance, the City has levied an ad valorem tax on all taxable property within its boundaries and has pledged such tax, together with the Net Revenues of the City's water and sewer system, to pay debt service on the Certificates. Such amounts will be deposited to the credit of the Debt Service Fund maintained in the books of the City. 2. The Debt Service Fund. will be maintained to achieve a proper matching of revenues and debt service within each bond year. The City expects that the following will occur with respect to the Debt Service Fund (other than that portion of the Debt Service Fund, if any, consisting of deposits made to defease in whole or in part the contractual obligations of the City to make deposits thereto): (a) the Debt Service Fund will be depleted at least once a year except possibly for acarry-over amount not greater than the larger of one year's income from the investment of such portion or one -twelfth (1/12) of annual debt service requirements on the Certificates; (b) all deposits to the Debt Service Fund will be spent within 13 months of deposit; and (c) all amounts received from investment of money in the Debt Service Fund will be deposited in the Debt Service Fund and within twelve months of receipt will be expended to pay principal or interest on the Certificates. 3. Except as described herein, no funds of the City have been pledged to pay principal of or interest on the Certificates or otherwise restricted so as to give reasonable assurance of the availability of such funds for such purpose. H. Certificates Not Hedge Bonds. 1. The City reasonably expects that at least 85% of the proceeds of the Certificates will be used to carry out the governmental purpose of the Certificates within three years after the date the Certificates are issued. 2. Not more than 50 percent of the proceeds of the Certificates will be invested in Nonpurpose Investments having a substantially guaranteed Yield for 4 years or more. I. No Abusive Arbitrage Device. 1. In connection with the issuance of the Certificates, the City has not employed any action which has the effect of overburdening the market for tax-exempt obligations by issuing more bonds, issuing bonds earlier, or allowing bonds to remain outstanding longer than is reasonably necessary to accomplish the governmental purposes of the Certificates. -4- HOU:2941477.1 2. In connection with the issuance of the Certificates, the City has nat taken or omitted to take any action which has the effect of enabling the City to exploit the difference between tax-exempt and taxable interest rates to gain a material financial advantage. EXECUTED this � � � 2009. 1,�� , CITY OF SANGER, TEXAS v By. � l -5- I-IOU:2941477.1 f' Form 8OYV�{�1 (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 Reporting Authority If Amended Return, check here ► ❑ 1 a MI Issuer's name City of Sanger, Texas 2 Issuer's employer identification number 3 Number and street (or P.O. box if mail is not delivered to street address) 502 Elm St. Room/suite 4 Report number 3 =2009-1 5 City, town, or post office, state, and ZIP code Sanger, Texas 76266 6 Date of issue 7/30/09 7 Name of issue Combination Tax and Revenue Certificates of Obligation, Series 2009 8 CUSIP number 800876 DL5 9 Name and title of officer or legal representative whom the IRS may call for more information Joe Higgs, Mayor 10 Telephone number of officer or legal representative ( 940 ) 458-3102 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 M ❑ ❑ ❑ ❑ ❑ ❑ © ❑ If If Education . . . . . . . . . . . . . . . . . . Health and hospital Transportation Public safety. Environment (including sewage bonds) . Housing . . . . . . . . . . . . . . . . Utilities . . . . . . . . . . . 0 . . a . Other. Describe ► obligations are TANS or RANs, check box ► ❑ If obligations are BANS, obligations are in the form of a lease or installment sale, check box . . . . . . . . . . . . . . check box ► ❑ ► ❑ 11 12 13 14 15 16 17 $31182,359.50 18 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 8/1/2026 $ 3,182,359.50 $ 3,2003000 9.890 years 4.5588 % � Uses of Proceeds of Bond Issue (including underwriters' discount) 22 Proceeds used for accrued interest . . . . . . . . . . . . . . . . . 22 5,336.46 23 Issue price of entire issue (enter amount from line 21, column (b)) . 23 3,182,359.50 24 Proceeds used for bond issuance costs (including underwriters' discount) 24 $14t3,732.00 25 Proceeds used for credit enhancement . . . . . . . . . . . 25 593318.17 26 Proceeds allocated to reasonably required reserve or replacement fund 26 "o" 27 Proceeds used to currently refund prior issues 27 "o" 28 Proceeds used to advance refund prior issues . . . . . . . . 28 "o" 29 Total (add lines 24 through 28) . . . . 9 a . . . a . . . . . 29 208,050,17 30 Nonrefunding proceeds of the issue (subtract line 29 from line 23 and enter amount here) . 30 2,974,309.33 Description of Refunded Bonds (Complete this part oniv for refunding bonds.) 31 Enter the remaining weighted average maturity of the bonds to be currently refunded ► years 32 Enter the remaining weighted average maturity of the bonds to be advance refunded ► years 33 Enter the last date on which the refunded bonds will be called. . . . . . ► 34 Enter the date(s) the refunded bonds were issued ► 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 -o" b Enter the final maturity date of the guaranteed investment contract ► N/A 37 Pooled financings: a Proceeds of this issue that are to be used to make loans to other governmental units 37a "o" 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 ► 38 If the issuer has designated the issue under section 265(b)(3)(B)(1)(III) (small issuer exception), check box ► V1 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 belief, they are true, correct, and complete. of Issuer's 9130 Date � Joe Higgs, Mayor Type or print name and title For Paperwork Reduction Act Notice, see page 2 of the Instructions. cat. No. sa77as Form 8038-G (Rev. 11-2000) CLOSING CERTIFICATE STATE OF TEXAS COUNTY OF DENTON In accordance with Section UU)(7) of the Purchase Agreement entered into by the Underwriter referred to therein and the City of Sanger, Texas (the "Issuer") in connection with the sale of the Issuer's Combination Tax and Revenue Certificates of Obligation, Series 2009 the "Certificates"), I, the undersigned, Mayor of the Issuer, acting in my official capacity, hereby certify as follows: 1. The representations and warranties of the Issuer contained in the Purchase Agreement are true and correct in all material respects on and as of the date of Closing as if made on the date of Closing. 2. Except as disclosed in the Official Statement, no litigation or proceeding against the Issuer is pending or, to the best of his or her knowledge, threatened in any court or administrative body, nor is there a basis for litigation, which would (a) contest the right of the council members, officers or officials of the Issuer to hold and exercise their respective positions, (b) contest the due organization and valid existence of the Issuer, (c) contest the validity, due authorization and execution of the Certificates or the Issuer Documents or (d) attempt to limit, enjoin or otherwise restrict or prevent the Issuer from functioning and collecting revenues, including payments on the Certificates, pursuant to the Ordinance, and other income or the levy or collection of the taxes and the net revenues of the System pledged or to be pledged to pay the principal of and interest on the Certificates, or the pledge thereof. 3. All official action of the Issuer relating to the Official Statement, the Certificates .and Issuer Documents have been duly taken by the Issuer, are in full force and effect and have not been modified, amended, supplemented or repealed. 4. To the best of my knowledge, no event affecting the Issuer has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein, in light of the circumstances under which made, not misleading in any respect as of the time of Closing, and the information contained in the Official Statement is correct in all material respects and, as of the date of the Official Statement did not, and as of the date of Closing does not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. 5. There has not been any material adverse change in the financial condition of the Issuer since September 30, 2008, the latest date as of which audited financial information is available EXECUTED as of July 30, 2009. CITY OF SANGER, TEXAS By: Mayor HOU:2937636.1 CERTIFICATE OF UNDERWRITER The undersigned hereby certifies as follows with respect to the sale and delivery by City of Sanger, Texas (the "Issuer") of its $3,200,000 Combination Tax and Revenue Certificates of Obligation, Series 2009 (the "Certificates"): 1. The undersigned has purchased the Certificates from the Issuer by negotiated sale. 2. The undersigned has made a bona fide offering of the Certificates of each maturity to the public at the initial offering prices set forth on the cover page of the Issuer's Official Statement dated as of July 20, 2009, with respect to the Certificates (the "Official Statement"). 3. The initial offering price (expressed as a dollar amount, yield percentage, or percentage of principal amount and exclusive of accrued interest) at which at least 10% of the Certificates of each maturity was sold to the public (as defined in paragraph 4) is set forth on the inside front cover page of the Official Statement. 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 initial offering prices described above reflect current market prices at the time of such sales. 6. The present value of the premium (the "Premium") for the policy of municipal 'j bond insurance insuring the Bonds (the "Policy") is less than the present value of the interest i saved as a result of insuring the Bonds, using the Bond Yield as the discount factor; the Policy was negotiated in an arm's length transaction; the Premium does not include any payment for any 'I direct or indirect services other than the transfer of credit risk; and the Premium represents a reasonable charge for the transfer of credit risk. 7. The undersigned understands that the statements made herein will be relied upon by the Issuer in its effort to comply with the conditions imposed by the Internal Revenue Code of 1986, as amended, on the exclusion of interest on the Certificates from the gross income of their owners. i EXECUTED and DELIVERED this day of July, 2009. ALLUVION SECURITIES LLC By: HOU:2941471.1 RULE 15c2-12 CERTIFICATE The City of Sanger, Texas (the "City"), as of the date hereof, hereby deems final (within the meaning of the Securities Exchange Act Rule 15c242 ("Rule 15c242")) the Preliminary Official Statement, dated June 30, 2009 (the "Preliminary Official Statement"), relating to the City's Combination Tax and Revenue Certificates of Obligation, Series 2009, except for the permitted omissions described in paragraph (b)(1) of Rule 15c2-12. Dated June 30, 2009. CITY OF SANGER, TEXAS By: Its: { 10176-05 / 00023744 / V } it • ATTORNEYS KURTH LLP July 305 2009 600 Travis, Suite 4200 Houston, Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com WE HAVE ACTED as Bond Counsel for the CITY OF SANGER, TEXAS, a municipal corporation of the State of Texas (t1jLe "City") in connection with an issue of certificates of obligation (the "Certificates") described as follows: CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2009, dated July 15, 2009, in the aggregate principal amount of $3,200,000, maturing on August 1 in each year from 2010 through and including 2020, inclusive, and in the years 2022, 2024 and 2026. The Certificates are issuable in fully registered form only, in denominations of $5,000 or integral multiples thereof, bear interest and may be transferred and exchanged as set out in the Certificates and in the ordinance (the "Ordinance") adopted by the City Council of the City (the "City Council") authorizing their issuance. WE HAVE ACTED as Bond Counsel for the sole purpose of rendering an opinion with respect to the legality and validity of the Certificates under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Certificates from gross income under federal income tax law. In such capacity we have examined the Constitution and laws of the State of Texas; federal income tax law; and a transcript of certain certified proceedings pertaining to the issuance of the Certificates, as described in the Ordinance. The transcript contains certified copies of certain proceedings of the City; certain certifications and representations and other material facts within the knowledge and control of the City, upon which we rely; and certain other customary documents and instruments authorizing and relating to the issuance of the Certificates. We have also examined executed Certificate No. R4. WE HAVE NOT BEEN REQUESTED to examine, and have not investigated or verified, any original proceedings, records, data or other material, but have relied upon the transcript of certified proceedings. We have not assumed any responsibility with respect to the financial condition or capabilities of the City or the disclosure thereof in connection with the sale of the Certificates. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Certificates has been limited as described therein. BASED ON SUCH EXAMINATION, it is our opinion as follows: (1) The transcript of certified proceedings evidences complete legal authority for the issuance of the Certificates in full compliance with the Constitution and laws of the State of Texas presently in effect; the Certificates constitute valid and legally binding obligations of the City enforceable in accordance with the terms and conditions thereof, except to the extent that the rights and remedies of the owners of the Certificates may be limited by laws HOU:2933953.1 Austin Beijing Dallas Houston London Los Angeles New York The Woodlands Washington, DC July 30, 2009 Page 2 heretofore or hereafter enacted relating to bankruptcy., insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors of political subdivisions and the exercise of judicial discretion in appropriate cases; and the Certificates have been authorized and delivered in accordance with law; (2) The Certificates are payable, both as to principal and interest, from the receipts of an annual ad valorem tax levied, within the limits prescribed by law, upon taxable property located within the City, which taxes have been pledged irrevocably to pay the principal of and interest on the Certificates; and (3) The surplus revenues to be derived from the operation of the City's waterworks and sewer system, after the payment of all operation and maintenance expenses thereof (the "Net Revenues") in an amount not to exceed $10,000, are pledged to the payment of the principal of and interest on the Certificates; provided, however, that such pledge is junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of Net Revenues to the payTrient of the Certificates. The City has reserved t11e right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind secured by a pledge of the Net Revenues that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. ALSO BASED ON OUR EXAMINATION AS DESCRIBED ABOVE, it is our further opinion that, subject to the restrictions hereinafter described, interest on the Certificates is excludable from gross income of the owners thereof for federal income tax purposes under existing law and is not subject to the alternative minimum tax on individuals or corporations. The opinion set forth in the first sentence of this paragraph is subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Certificates in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted in the Order to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Certificates in gross income for federal income tax purposes to be retroactive to the date of issuance of the Certificates. The Code and the existing regulations, rulings and court decisions thereunder, upon which the foregoing opinions of Bond Counsel are based, are subject to change, which could prospectively or retroactively result in the inclusion of the interest on the Certificates in gross income of the owners thereof for federal income tax purposes. EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or local tax consequences under present law, or future legislation, resulting from the ownership of, receipt or accrual of interest on, or the acquisition or disposition of, the Certificates. Prospective purchasers of the Certificates should be aware that the ownership of tax-exempt obligations, such as the Certificates, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, HOU:2933953. I July 30, 2009 Page 3 certain foreign corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a financial asset securitization investment trust that holds tax-exempt obligations and individuals otherwise qualified for the earned income tax credit. For the foregoing reasons, prospective purchasers should consult their tax advisors as to the consequences of investing in the Certificates. OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above. HOU:2933953. I S ATTORNEY UENERAL OF TEXAS GREG ABBOTT July 28, 2009 THIS IS TO CERTIFY that the City of Sanger, Texas (the "Issuer"), has submitted to me City of Sanger, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2009 (the "Certificates") in the aggregate principal amount of $3,200,000 for approval. The Certificates are dated July 15, 2009, numbered R4 through R44, and were authorized by an Ordinance of the Issuer passed on July 20, 2009 (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 Certificates. 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 Certificates have been issued in accordance with law and are valid and binding obligations of the Issuer. (2) The Certificates are payable from the proceeds of an annual ad valorem tax levied, within the limits prescribed by law, against all taxable property in the Issuer and are further payable from a pledge of the Net Revenues, in an amount not to exceed $10,000, pledged to the payment of the principal of and interest on the Certificates, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the Issuer, whether authorized heretofore or hereafter, which the Issuer designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. PosT Orr�cE Box 12548, AusriN, Tuns 78711-2548 re�:(512)463-2100 www.onc.srnTe.rx.us fin Egrrn! Gmployn,enr Opporruniry Employer Rimer( on 2eeyclerl P�rpe, City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2009 - $3,200,000 -rage 2- Therefore, the Certificates are approved, of the State of Texas No. 49376 Book No. 2009-C MA OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, SUSAN COMBS, Comptroller %J Public Accounts of the State of Texas, do hereby certify that the attachment is a true and correct copy of the opinion of the Attorney General approving the: City of Sanger, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2009 numbered R-1/R-14, of the denomination of $various, dated July 15, 2009, 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 28th day of July 2009, under Registration Number 75803. Given under my hand and seal of office, at Austin, Texas, the 28th day of July 2009 SUSAN COMBS Comptroller of Public Accounts of the State of Texas OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, Melissa Mora, Lj Bond Clerk QX Assistant Bond Clerk in the office of the Comptroller of the State of Texas, do hereby certify that, acting under the direction and authority of the Comptroller on the 28th day of July 2009, 1 signed the name of the Comptroller to the certificate of registration endorsed upon the: City of Sanger, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2009, numbered R-1/R-14, dated July 15, 2009, and that in signing the certificate of registration I used the following signature: IN WITNESS F I have executed this this the 28th day of July 2009. I, Susan Combs, Comptroller of Public Accounts of the State of Texas, certify that the person who has signed the above certificate was duly designated and appointed by me under authority vested in me by Chapter 403, Subchapter H, Government Code, with authority to sign my name to all certificates of registration, and/or cancellation of bonds required by law to be registered and/or cancelled by me, and was acting as such on the date first mentioned in this certificate, and that the bonds/certificates described in this certificate have been duly registered in the office of the Comptroller, under Registration Number 75803. GIVEN under my hand and seal of office at Austin, Texas, this the 28th day of July 2009. ltOr� Susan Combs Comptroller of Public Accounts of the State of Texas HOWELL LINKOUS & NETTLES, LLC Bond Attorneys & Counsellors at Law The Lining House 106 Broad Street Concentrating in Municipal Bonds, Charleston, South Carolina 29401 Local Government Law, Economic Development Incentives, Post Office Box 1768 Affordable Housing Development Charleston, South Carolina 29402 Telephone 843.266.3800 Fax 843,266,3805 30 July 2009 Ailuvion Securities LLC Memphis, Tennessee Re: $3,200,000 City of Sanger, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2009 Gentlemen: We have acted as your counsel with regard to your purchase of the referenced certificates of obligation (the "Certificates") pursuant to the Purchase Agreement, dated July 20, 2009 (the "Purchase Agreement"), by and between the City of Sanger, Texas (the "Issuer") and you, as underwriter (the "Underwriter"). All capitalised terms not otherwise defined herein shall have the meaning ascribed thereto in the Purchase Agreement. As your counsel, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the documents, public records, corporate records, and other instruments as we have deemed necessary or appropriate for the purpose of our opinion and advice to you contained herein, including (i) the Purchase Agreement; (ii) opinions of even date herewith as required by Sections 60)(4), 60)(5), 60)(9), and 60)(12) of the Purchase Agreement; (iii) certain certificates as required by the Purchase Agreement; (iv) the Continuing Disclosure Undertaking; (v) the Preliminary Official Statement; (vi) the Ordinance; and (vii) the Official Statement. In arriving at the conclusions hereinafter expressed, we are not expressing any opinion or view on, and with your permission are assuming and relying on, the validity, accuracy, and sufficiency of the records, documents, certificates, and opinions referred to above (including the accuracy of all factual matters represented and legal conclusions contained therein, including (without limitation) representations and legal conclusions regarding the due authorisation, issuance, delivery, validity, and enforceability of the Certificates and the exclusion of interest thereon from gross income for federal income tax purposes). We have assumed that all records, documents, certificates, and opinions that we have reviewed, and the signatures thereto, are genuine. { �o»6-os i 000z3s�� i v} Alluvion Securities LLC 30 July 2009 Page 2 Based on and subject to the foregoing, and in reliance thereon, we are of the opinion that the Certificates are exempt from registration under the Securities Act of 1933, as amended, and the Ordinance is exempt from qualification under the Trust Indenture Act of 1939, as amended. No opinion is expressed with respect to the financial guaranty insurance policy (the "Financial Guaranty Insurance Policy") issued by Assured Guaranty Corp. (the "Bond Insurer"). In accordance with our understanding with you, we have rendered legal advice and assistance to you in the course of your investigation with respect to, and your participation in the preparation of, the Official Statement and certain other legal matters related to the subject financing. Rendering that assistance involved, among other things, discussions and inquiries concerning documents, including opinions of counsel and certificates of officers of the Issuer and other appropriate persons. We also participated in conferences and telephone conferences with your representatives and other persons involved in the preparation of information for the Official Statement, at which the contents of the Official Statement and related matters were discussed. We are not passing upon, and do not assume responsibility for, the accuracy, completeness, or fairness of any of the statements contained in the Official Statement and make no representation that we have independently verified the accuracy, completeness, or fairness of such statements. Based on our work on this matter, we have no reason to believe that on the date thereof and on the date hereof the Official Statement contained or contains any untrue statement of a material fact or omitted or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (in each case, other than the financial statements and other financial and statistical data and forecasts, estimates, assumptions, and expressions of opinions, and information concerning the Financial Guaranty Insurance Policy and the Bond Insurer and information concerning DTC and the book -entry system for the Certificates, contained or incorporated by reference in the Official Statement and its Appendices). The Continuing Disclosure Undertaking, together with the Ordinance, satisfies Section (b)(5)(i) of Rule 15c242 promulgated by the Securities and Exchange Commission, which requires an undertaking for the benefit of the holders, including beneficial owners, of the Certificates to provide certain annual financial information and event notices to various information repositories at the time and in the matter required by the Rule. We are furnishing this letter to you pursuant to paragraph 66)(6) of the Purchase Agreement solely for your benefit. Our engagement with respect to this matter has terminated as of the date hereof, and we disclaim any obligation to update this letter. This letter is not to be used, circulated, quoted, or otherwise referred to or relied upon for any other purpose or by any other person. This letter is not intended to, and may not, be relied upon by owners of Certificates or by any other person to whom it is not specifically addressed. Very truly yours, 0k UoU ,v%\ Uu I { 10176-OS / 00023877 / V } AN D REWS ATTORNEYS K U R T H LLP July 30, 2009 Alluvion Securities LLC Memphis, Tennessee 600 Travis, Suite 4200 Houston, Texas 77002 713.220,4200 Phone 713.220.4285 Fax andrewskurth.com Re: $3,200,000 City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2009 (the "Certificates") Ladies and Gentlemen: This letter is provided pursuant to Section 6(j)(5) of the Pm•chase Agreement (the "Agreement"), dated July 20, 2009, among the Underwriter referred to therein and the City of Sanger, Texas (the "City"), relating to the issuance and sale by the City of its Combination Tax and Revenue Certificates of Obligation, Series 2009 (the "Certificates"). Capitalized terms used herein and not otherwise defined shall have the meaning ascribed to them in the ordinance authorizing issuance of the Certificates (the "Ordinance"). We have acted as Bond Counsel in connection with the issuance and sale of the Certificates. Based upon our review of the documents described in our other opinion dated as of even date herewith, our discussions with you and others, our review of the documents, certificates, opinions and other instruments delivered at the closing of the sale of the Certificates on the date hereof and such other materials as we deem relevant, we are of the opinion that: 1. The Ordinance has been duly adopted and is in full force and effect; 2. The Certificates are exempted securities under the Securities Act of 1933, as amended (the 1933 Act"), and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") and it is not necessary, in connection with the offering and sale of such Certificates, to register the Certificates under the 1933 Act or to qualify the Ordinance under the Trust Indenture Act. 3. The statements and inforrnation appearing in the Official Statement under the captions "THE CERTIFICATES" (except the subcaptions "Bond Insurance and "Sources and Uses of Funds"), "GENERAL INFORMATION REGARDING THE CERTIFICATES," "REGISTRATION, TRANSFER AND EXCHANGE," "TAX RATE LIMITATIONS", "LEGAL MATTERS", "TAX EXEMPTION", "LEGAL INVESTMENTS IN TEXAS," "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES" and "CONTINUING DISCLOSURE OF INFORMATION" (except the subcaption "Compliance with Prior Undertakings") accurately and fairly describe the provisions of the Ordinance and the Certificates and are correct as to matters of law. This opinion may be relied upon only by you. HOU:2944319.1 Austin Dallas Houston London Los Angeles New York The Woodlands Washington, DC July Ju, LUUV Page 2 Reference is made hereby to our Bond Counsel opinion of even date herewith. Please be advised that such opinion may be relied upon as if it were addressed to you. Very truly yours, HOU:2944319.1 ASSURED jUNRANTY ENDURING FINANCIAL STRENGTH July 30, 2009 To the Addressees listed on Annex A hereto Re: Financial Guaranty Insurance Policy No. D-2009-984 (the "Policy") relating to $3,200,000 City of Sanger, Texas (Denton County) Combination Tax and Revenue Certificates of Obligation, Series 2009 Ladies and Gentlemen: This opinion letter has been requested of the undersigned, in the capacity of the undersigned as a Director of Assured Guaranty Corp., a Maryland corporation ("Assured Guaranty"), in connection with the issuance by Assured Guaranty of its Policy, effective as of the date hereof. In connection with this opinion letter, I have examined an execution copy of the Policy and such documents, certificates, agreements and instruments and proceedings as I have considered necessary or appropriate under the circumstances to render the following opinion letter. As to all questions of fact material to this opinion letter, which have not been independently established by me, I have relied upon certificates or comparable documents of public officials or of officers and representatives of Assured Guaranty. In addition, I have assumed the genuineness of all signatures other than those of representatives of Assured Guaranty, the authenticity of all documents submitted to me as originals, the conformity to the original document of certified or photostatic copies thereof and the authenticity of the originals of such latter documents. Based upon the foregoing, and subject to the limitations and qualifications hereinafter set forth, I am of the opinion that: 1. Assured Guarantycorporation duly incorporated and validly existing under the laws of the State of Maryland and has all requisite corporate power and authority to issue and to perform its obligations under the Policy in accordance with the terms thereof. 2. The execution and delivery by Assured Guaranty of the Policy, and the performance by Assured Guaranty of its obligations thereunder, have been duly authorized by all necessary corporate action on the part of Assured Guaranty. 3. The Policy has been validly executed and delivered by Assured Guaranty, and constitutes the legal, valid and binding obligation of Assured Guaranty, enforceable against Assured Guaranty in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, liquidation, rehabilitation, moratorium, arrangement, fraudulent conveyance or similar laws or enactments now or hereafter enacted affecting the enforcement of creditors' rights generally, as well as to equitable principles of general application limiting the availability of equitable remedies and the discretion of the court before which any proceeding therefor may be brought (regardless, in each case, of whether enforcement is sought in a proceeding in equity or at law). I am licensed to practice law in the State of New York, and do not purport to be an expert as to, or to express any opinion concerning the laws of any other jurisdiction other than the laws of the State of New York and the federal laws of the United States of America to the extent specifically referred to herein. To the extent that the opinions set forth herein purport to deal with matters of Maryland law, the statements made therein are based solely upon my review of the corporate documents of Assured Guaranty, my reading of the Maryland General Corporation Law and, in respect of the opinion set forth in paragraph (1) above, my reading of the Maryland Insurance Code. Assured Guaranty Corp. 1325 Avenue of the Americas main 212 974 0100 info@assuredguaranty.com www.assuredguaranly.com The opinions expressed herein are limited to the matters expressly set forth herein, and no opinion is implied or may be inferred beyond the matters expressly set forth herein. The opinions expressed herein are based solely on factual matters in existence as of the date hereof and laws and regulations in effect on the date hereof. I assume no obligation to revise or supplement this opinion letter should such factual matters change or should such laws or regulations be changed by legislative or regulatory action, judicial decision or otherwise, and I hereby express no opinion as to the effect any such changes may have on the foregoing opinions. This opinion letter is being delivered to you solely for your benefit in connection with the issuance of the Policy, and may not be used, circulated, quoted or otherwise referred to or relied upon for any other purpose by any other person, in each case without my express prior written consent. Very truly -2- Annex A City of Sanger, Texas (Denton County), as Issuer Alluvion Securities, LLC, as Underwriter The Bank of New York Mellon Trust Company, N.A., as Trustee/Paying Agent CERTIFICATE OF ASSURED GUARANTY CORP. In connection with the issuance of $3,200,000 Combination Tax and Revenue Certificates of Obligation, Series 2009 (the "Obligations") by City of Sanger, Texas (Denton County) (the "Issuer"), Assured Guaranty Corp. ("Assured Guaranty") is issuing financial guaranty insurance policy no. D-2009-984 (the "Policy") guaranteeing, when due, the scheduled payment of principal of and interest on the Obligations, all as set forth in the Policy. On behalf of Assured Guaranty, the undersigned hereby certifies that: Policy is an unconditional and recourse obligation of Assured Guaranty (enforceable on behalf of the holders of the Obligations) to pay the scheduled payments of interest and principal on the Obligations in the event of a Nonpayment (as defined in the Policy); (ii) the insurance premium of $59,318.17 was determined in an arm's length negotiation in accordance with our standard procedure, and is required to be paid as a condition of the issuance of the Policy; (iii) no portion of such premium represents a payment for any direct or indirect services other than the transfer of credit risk; (iv) Assured Guaranty is not a co -obligor on the Obligations and does not reasonably expect that it will be called upon to make any payment under the Policy; (v) the Issuer is not entitled to a refund of premium for the Policy in the event that the Obligations are retired prior to their stated maturity; (vi) there has not come to the attention of the undersigned any information which would cause the undersigned to believe that the description of Assured Guaranty under the caption "BOND INSURANCE" in the official statement relating to the above referenced Obligations dated July 20, 2009 (the "Official Statement"), as of the date of the Official Statement or as of the date of this certificate, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (vii) Assured Guaranty is not currently in default nor has Assured Guaranty ever been in default under any policy or obligation guaranteeing the payment of principal of or interest on an obligation; and (viii) except for the insurance premium referred to in paragraph (ii) above, neither Assured Guaranty nor any party related to Assured Guaranty within the meaning of Section 1.150-1(b) of the Treasury Regulations will use any portion of the proceeds of the Obligations. IN WITNESS WHEREOF, Assured Guaranty has caused this certificate to be executed in its name on this 30'h day of July, 2009, by one of its duly authorized officers. ASSURED GUARANTY CORP. Mary Franco ur Managing Director $3,200,000 CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION SERIES 2009 RECEIPT AND CROSS RECEIPT July 30, 2009 I, the undersigned, a duly authorized representative of The Bank of New York Mellon Trust Company, N.A., paying agent/registrar for the City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2009 (the "Certificates"), hereby acknowledge receipt on the date hereof on behalf of the City of Sanger, Texas (the "City") of the full purchase price for the Certificates in the total amount of $3,116,567.50 (representing the par amount of the Certificates, less a net original issue discount of $17,640.50 and less an underwriting discount of $65,792.00), plus accrued interest. THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. By:� Name: Title: I, the undersigned, a duly authorized representative of Alluvion Securities LLC, hereby acknowledge receipt from the City of the initial Certificates of its $3,200,000 Combination Tax and Revenue Certificates of Obligation, Series 2009, dated July 15, 2009, which have been delivered to the undersigned in proper form on the date hereof. ALLUVION SECURITIES LLC By:_ Name: Title: HOU:2943741.1 $3,200,000 CITY OF BANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION SERIES 2009 ' RECEIPT AND CROSS RECEIPT July 30, 2009 ' I, the undersigned, a duly authorized representative of The Bank of New Yorlc Mellon Trust Company, N.A., paying agent/registrar for the City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2009 (the "Certificates"), hereby acknowledge receipt on the date hereof on behalf of the City of Sanger, Texas (the "City") of the full purchase price for the Certificates in the total amount of $3,116,567.50 (representing the par amount of the Certificates, less a net original issue discount of $17,640.50 and less an underwriting discount of $65,792.00), plus accrued interest. THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. By: Name: Title: I, the undersigned, a duly authorized representative of Alluvion Securities LLC, hereby acknowledge receipt from the City of the initial Certificates of its $3,200,000 Combination Tax and Revenue Certificates of Obligation, Series 2009, dated July 15, 2009, which have been delivered to the undersigned in proper form on the date hereof. ALLUVION SECURITIES LLC B N T: HOU:2943741.1 Issuer: Obligor: Commitment Date: Expiration !:)ate: Obligations: insurance Premium: Commitment.#o Issue Financal_Guaranty Insuranpe_Pt�ii_r_y City of Sanger, Texas City of Sanger, Texas July 8, 2009 September 8, 2Q09 Not to exceed �3,2QO,QQQ City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2009 On tha date of issuance of the Obligations, the Issuer will pay, or cause to be to, to Assured Guaranty a non-refundabie premium in an amount equal to 130 basis points times the total principal and interest on the Obligations. On the terms and subject to the conditions. set forth herein and upon compliance with the procedures set forth in the letter delivered herewith (this commitment, the ''Commitment"), Assured Guaranty Corp., a Maryland insurance corporation ("Assured Guarantf), hereby commits to issue a financial guaranty insurance policy (the "Poii°) relating to the Obligations referenced above, which Policy shall be substantially in the form included in the Assured Guaranty Closing Package referred to in the accompanying letter (the `Assured_Guarant�r Closing -Package "}. Unless accepted by the Obligor, this Commitment shall expire, and be of no further force and effect, at 500 p.m.I Eastern Time, on the Expiration Date, unless extended in wrng by Assured Guaranty in its sole discretion. Any request by the Obligor for any such extension must be made to Assured Guaranty prior to 5:00 p.m., Eastern Time, on the Expiration Date. "Business Dav", for all purposes hereof, shall mean any day other than (1) a Saturday or Sunday, (ii) any day on which the offices of the Trustee or Paying Agent (as defined in the Policy) or Assured Guaranty are closed, or (iii) any day on which banking institutions are authorized or required by law, executive order or governmental decree to be closed in New York City or in the States of Maryland or New York, Upon the acknowledgment and acceptance by the Obligor, this Commitment shall constitute a binding agreement between the parties hereto, with respect to the subject matter hereof, enforceable against each such party in accordance with its terms; provided, however, that this Commitment shall expire, and be of no further force and effect, to the extent that Assured Guaranty shall not have issued the Policy as contemplated hereby on or prior to the Expiration Date. Upon the execution and acceptance of this Commitment by the parties hereto and in consideration oA the issuance of this Commitment by Assured Guaranty, the Obligor hereby agrees that it will not enter into any discussions or negotiations with, or seek any commitment from, any financial guarantor or credit enhancer other than Assured Guaranty, for the issuance of a financial guaranty insurance policy or other credit enhancement facility, with respect to the Obligations, providedd further, that, the Obligor may determine prior to the Expiration Date not to issue Obligations that are guaranteed with a financial guaranty insurance policy or credit enhancement by any financial guarantor or credit enhancer, in which case the Obligor agrees to notify Assured Guaranty immediately after making such determination. An executed copy of this Commitment shall be returned to Assured Guaranty no later than the mailing date of the preliminary O fEcial Statement, as hereinafter defined Non -Reliance on Assured Guaranty. The Obligor has made its own independent investigation and decision as to whether to insure the payment when due of the principal of and interest an the Obligations and whether the Policy is appropriate or proper far !t based upon its own judgment and upon advice from such legal and financial advisers as it has deemed necessary. The Obligor acknowledges that Assured Guaranty has not made, and therefore the Obligor is not relying on, any recommendation from Assured Guaranty that the Obligor insure the Obligations or obtain the Policy, it being understood and agreed that communications from Assured Guaranty (whether written or oral) referring to, containing information about or negotiating the terms and conditions of the Policy, any related insurance document or the documentation governing the Obligations do not constitute a recommendation to insure the Obligations or obtain the Policy. �1- 615 (Neg.-Commitment) The Obligor further acknowledges that Assured Guaranty has not made any representation, warranty or undertaking, and has not given any assurance or guaranty, in each case, expressed or implied, concerning the rating of Assured Guaranty's financial strength by the rating agencies. The Obligor acknowledges that the ratings of Assured Guaranty reflect only the views of the rating agencies and an explanation of the significance of such ratings may be obtained only from the rating agencies. The Obligor understands that such ratings may not continue for any given time period and instead may change over time, including without limitation being placed under review for possible downgrade, revised downward, withdrawn entirely by the relevant rating agency if, in the judgment of such rating agency, circumstances so warrant, or withdrawn entirely by Assured Guaranty in its sole discretion. The Obligor acknowledges and agrees that Assured Guaranty undertakes no responsibility to bring to its attention, and shall have no liability for, the placement of a rating under review for possible downgrade or the downward revision or withdrawal of any rating obtained, and that any such review for possible downgrade, downward revision or withdrawal may have an adverse effect on the Obligations. Capitalized terms not defined herein shall have the meanings ascribed to such terms as set forth in the Assured Guaranty Closing Package. The issuance of the Policy by Assured Guaranty is subject to the satisfaction ar waiver by Assured Guaranty of the following conditions, and the Obligor hereby further agrees as follows: Guaranteed Obligations. l'he Policy will guaranty the timeSy payment of scheduled principal and interest on the Obligations.. Offering Documents and Ocher Legal Documentation. Assured Guaranty shall be provided with: a. Executed copies of ail financing documents (including documentation evidencing the Issuer's or Obligors, as applicable, ability and intent to comply with the Internal Revenue Code of 1966, as amended, and certified copies of the ordinance/resolutions/indenture relating to the approval and issuance of the Obligations), any official statements (or any other disclosure documents) with respect to the Obligations (any and all such disclosure, collectively, the "Official Statement") and all legal opinions delivered in connection with the issuance and sale of the Obligations. Such legal opinions shall include all opinions as are customary for financings of the type contemplated, including without limitation the unqualified approving opinion of bond counsel rendered by a nationally approved bond counsel firm ("Bond Counsel"), Bond Counsel shall opine substantially to the effect that (i) the Obligations are exempt from federal income taxation, if applicable, (ii) the Obligations have been validly issued, (ill) the Obligations and the financing documents are enforceable, and (iv) the ordinance/indenture/resolution creates a valid lien in the trust estate. Such opinions shall be addressed to Assured Guaranty or, if not so addressed, letters shall be provided to Assured Guaranty expressly providing that Assured Guaranty is entitled to rely on such opinions as if such opinion, were addressed to Assured Guaranty. b. In the event that the Obligations are issued in connection with a refunding, Assured Guaranty shall receive and approve the following: (i) the escrow agreement, if applicable; (ii} an opinion addressed to Assured Guaranty regarding the validity and enforceability of the escrow agreement, if applicable; (ili) a verification by a nationally -recognized certified public accounting firm acceptable to Assured Guaranty; and (iv) a defeasance opinion of Bond Counsel addressed to Assured Guaranty, c. A copy of any insurance policy, surety bond, guaranty, indemnification, or any other policy, contract or agreement, which provides for the payment of all or any pardon of the Obligations, or in any way secures, insures or enhances the cash flow available to pay the Obligations. d. Confirmation that an amount equal to the insurance premium to be paid to Assured Guaranty upon issuance of the Policy has been deposited to the account of Assured Guaranty. Assured Guaranty Disclosure Must be Approved. A "Statement of Insurance", in the form contained in the Assured Guaranty Closing Package, shall be printed on, ar attached to, the Obligations. The Obligations, the preliminary Official Statement (as applicable) and the Official S#a#ement shall contain no reference to (i) Assured Guaranty, (ii) the Policy, or (ill) the financial guaranty insurance evidenced thereby, except as expressly approved by Assured Guaranty, BOND PROOFS SHALL BE APPROVED BY ASSURED GUARANTY PRIOR TO PRINTING. No Material Adverse Change. On the date hereof and on the closing date pertaining to the issuance of the Obligations (the "Closing_Date�), there shall have been no material adverse change in or affecting the Issuer andlor -2- G l:+ (Neg,-Commitment) the Obligor, as applicable, or the Obligations (including, without limitation, the security for the Obligations or the proposed debt service schedule of the Obligations), the Official Statement, the financing documents to be executed and delivered with respect to the Obligations (the "Financing_ Documents"), the legal opinions to be executed and delivered in connection with the issuance and sale of the Obligations, or any other information submitted to Assured Guaranty with respect to the referenced transaction, or the Obligations, from that previously delivered or otherwise communicated to Assured Guaranty. No Event Affecting Purchase of Obligations. No event shall have occurred which would permit any otherwise committed purchaser of the Obligations to elect not to purchase the Obligations on the date scheduled for the issuance and delivery thereof. No Untrue Statement or Omission. The Official Statement, the Financing Documents and all information submitted to Assured Guaranty with respect to the Obligations, including information relating to the issuer and/or the )bligor, as applicable, shall not contain any untrue or misleading statement of material fact, nor omit to state a material fact necessary in order to make the information contained therein not misleading. Assured Guaranty shall receive a certificate of an authorized officer of the Issuer and/or the Obligor, as applicable, confirming the same. Final Documents. Assured Guaranty shaA have received the substantially final forms of all Financing Documents (including, without limitation, legal opinions, schedules and exhibits), incorporating Assured Guaranty's comments in a manner acceptable to Assured Guaranty, on or prior to the fifth (5th) Business Day prior to the proposed Closing Date and such Financing Documents shall contain for the benefit of Assured Guaranty as bond insurer, such rights as are customary for financings of the type contemplated. C?ffering Documents; Closing Transcript. Assured Guaranty shall be provided with at feast three (3) copies of each of the preliminary Official statement and the final Official Statement as soon as they are printed and available and in any event prior to the Closing Date), As a condition of delivery of the Policy, duplicate originals of the primary Financing Documents and legal opinions shall be immediately delivered by hand, sent via overnight mail or by e-mail for delivery no later than the Closing Date. Within thirty (30) days after the Closing Date, Assured Guaranty will be provided with three (3) complete sets of executed documents, preferably on CD-ROM or, if CD -ROM's are not available, an unbound copy of the transcript. Inspection Rights; Financial S#a#ements. The Obligor must allow Assured Guaranty or its agent access to all non -confidential records. The Obligor must provide to Assured Guaranty such records and notices as reasonably may be requested by Assured Guaranty, including without limitation the following: financial reports, operational statistics and strategic plans, if any, and any other records or notices to be provided to the Trustee or the Paying Agent pursuant to the terms of the ordinance, resolution, trust indenture or other financing documentation or relating to the Obligations, Rating Agency Fees. Each rating agency rating the Obligations assesses fees with respect to such rating, which fees are payable by the Issuer directly to each such rating agency. Questions with respect to such fees should be addressed by the Issuer directly to the applicable rating agency. Legal Fees. Assured Guaranty will be responsible for its own attorneys` fees and expenses incurred in connection with tha issuance of the Policy. Execution and Delivery of Commitment, This Commitment may be executed in counterpart by the parties hereto. -3- fiIS (Neg.-C;ommitmenQ Very truly yours, ASSURED GUARANTY CORP. BY....... ..w__u. 1VV;.._-_ Mary Franco ar Managing Director The undersigned Obligor hereby accepts the commitment of Assured Guaranty Corp. to issue its Policy with respect to the captioned Obligations, on the terms and subject to the conditions set forth in the Commitment with respect thereto issued by Assured Guaranty Corp. on the Commitment Date set forth above. -4- 6!? (Nc�.-<�t�mmittX�Cnt} Acknowledged, accepted and agreed to as of ._._ _. _--- ---- _..- by: CITY OF BANGER, "rFXAB By: Name: Title: ASSURED G VARANrIY ENDURING FINANCIAL STRENGTH Financial Guaranty Insurance Policy Issuer: City of Sanger, Texas (Denton County) Policy No.: D-2009-984 Obligations: $3,200,000 Combination Tax and Premium: $%31817 Revenue Certificates of Obligation, Series 2009 Effective Date: July 30, 2009 Assured Guaranty Corp., a Maryland corporation ("Assured Guaranty"}, in consideration of the payment of the Premium and on the terms and subject to the conditions of this Policy (which Includes each endorsement hereto), hereby unconditionally and irrevocably agrees to pay to the trustee (the "Trustee") or the paying agent (the "Paying Agent") for the Obligations (as set forth in the documentation providing for the Issuance of and securing the Obligations) for the benefit of the Holders, that portion of the insured Payments which shall become Due for Payment but shall be unpaid by reason of Nonpayment. Assured Guaranty will make such Insured Payments to the Trustee qr the Paying Agent on the later to occur of (I) the date applicable principal or interest becomes Due for Payment, or (ii) the Business Day next following the day on which Assured Guarenty shall have Received a completed Notice of Nonpayment. If a Notice of Nonpayment by Assured Guaranty is incomplete or does not in any instance conform to the terms and conditions of this Policy, it shall be deemed not Received, and Assured Guaranty shall promptly give notice to the Trustee or the Paying Agent, Upon receipt of such notice, the Trustee or the Paying Agent may submit an amended Notice of Nonpayment. The Trustee or the Paying Agent will disburse the Insured Payments to the Holders only upon receipt by the Trustee or the Paying Agent, in form reasonably satisfactory to it of (1) evidence of the Holder's right to receive such payments, and (II) evidence, Including without limitation any appropriate Instruments of assignment, that all of the Holder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Assured Guaranty, Upon and to the extent of such disbursement, Assured Guaranty shall become the Holder of the Obligations, any appurtenant coupon thereto and right to receipt of payment of principal thereof or Interest thereon, and shall be fully subrogated to all of the Holder's right, title and interest thereunder, including without limitation the right to receive payments in respect of the Obligations. Payment by Assured Guaranty to the Trustee or the Paying Agent for the benefit of the Holders shall discharge the obligation of Assured Guaranty under this Policy to the extent of such payment. This Policy is non -cancelable by Assured Guaranty for any reason. The Premium on this Policy is not refundable for any reason. This Policy does not Insure against foss of any prepayment premium or other acceleration payment which at any time may become due in respect of any Obligation, other than at the sole option of Assured Guaranty, nor against any risk other than Nonpayment. Except to the extent expressly modified by any endorsement hereto, the following terms shall have the meanings specified for ail purposes of this Policy. "Avoided Payment" means any amount previously distributed to a Holder in respect of any Insured Payment by or on behalf of the Issuer, which amount has been recovered from such Holder pursuant to the United States Bankruptcy Code In accordance with a final, nonappealable order of a court having competent jurisdiction that such payment constitutes an avoidable preference with respect to such Holder. °Business Day" means any day other than (1) a Saturday or Sunday, (11) any day on which the offices of the Trustee, the Paying Agent or Assured Guaranty are closed, or (ill) any day on which banking Institutions are authorized or required by taw, executive order or governmental decree to be closed in the City of New York or in the State of Maryland. "Due for Payment" means (1) when referring to the principal of an Obligation, the stated maturity date thereof, or the date on which such Obligation 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 a call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless Assured Guaranty in Its sole discretion elects to make any principal payment, in whole or in part, on such earlier date) and (11) when referring to Interest on an Obligation, the stated dale for payment of such interest. "Holden means, in respect of any Obligation, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Obligation to payment of principal or Interest thereunder, except that Holder shall not Include the Issuer or any person or entity whose direct or Indirect obligation constitutes the underlying security for the Obligations. "Insured Payments" means that portion of the principal of and Interest on the Obligations that shall become Due for Payment but shall be unpaid by reason of Nonpayment. Insured Payments shall not Include any additional amounts owing by the Issuer solely as a result of the failure by the Trustee or the Paying Agent to pay such amount when due and payable, including without limitation any such additional amounts as may be attributable to penalties or to interest accruing at a default rate, to amounts payable In respect of indemnification, or to any other additional amounts payable by the Trustee or the Paying Agent by reason of such failure. "Nonpayment" means, In respect of an Obligation, the failure of the Issuer to have provided sufficient funds to the Trustee or the Paying Agent for payment in full of all principal and Interest Due for Payment on such Obligation. It is further understood that the term "Nonpayment" in respect of an Obligation includes any Avoided Payment. "Receipt" or "Received" means actual receipt or notice of or, if notice Is given by Page 1 of 2 Policy No.: t]-2009-984 Form FG001 (05107) Assured Guaranty Corp, 1325 Avenue of the Americas I main 212 974 0100 New Yark, NY 10019 tax 212 581 3268 vnwr.assuredguaranty.com overnight or other delivery service, or by certified or registered United States mall, by a delivery receipt signed by a person authorized to accept delivery on behalf of the person to whom the notice was given. Notices to Assured Guaranty may be mailed by registered malt or personally delivered or telecopted to It at 1325 Avenue of the Americas, New York, New York 10019, Telephone Number: (212) 974=0100, Facsimile Number: (212) 581-3268, Attention: Risk Management Department - Public Finance Surveillance, with a copy to the General Counsel, or to such other address as shall be specified by Assured Guaranty to the Trustee or the Paying Agent in writing. A Notice of Nonpayment will be deemed to be Received by Assured Guaranty on a given Business Day If it is Received prior to 12:00 noon (New York City time) on such Business Day, otherwise it will be deemed Received on the next Business Day. "Term" means the period from and including the Effective Date until the earlier of (1) the maturity date for the Obligations, or (11) the date on which the Issuer has made all payments required to be made on the Obligations. At any time during the Term of this Policy, Assured Guaranty may appoint a fiscal agent (the "Fiscal Agent") for purposes of this Policy by written notice to the Trustee or the Paying Agent, specifying the name and notice address of such Fiscal Agent. From and after the date of Receipt of such notice by the Trustee or the Paying Agent, copies of all notices and documents required to be delivered to Assured Guaranty pursuant to this Policy shall be delivered simultaneously to the Fiscal Agent and to Assured Guaranty. All payments required to be made by Assured Guaranty under this Policy may be made directly by Assured Guaranty or by the Fiscal Agent on behalf of Assured Guaranty. 'rhe Fiscal Agent is the agent of Assured Guaranty only, and the Fiscal Agent shall in no event be liable to the Trustee or the Paying Agent for any acts of the Fiscal Agent or any failure of Assured Guaranty to deposit, or cause to be deposited, sufficient funds to make payments due under this Policy. To the fullest extent permitted by applicable law, Assured Guaranty hereby waives, in each case for the benefit of the Holders only, all rights and defenses of any kind (including, without limitation, the defense of fraud in the inducement or in fact or any other circumstance that would have the effect of discharging a surety, guarantor or any other person In law or in equity) that may be available to Assured Guaranty to deny or avoid payment of its obligations under this Policy In accordance with the express provisions hereof. Nothing in this paragraph will be construed (1) to waive, limit or otherwise impair, and Assured Guaranty expressly reserves, Assured Guaranty's rights and remedies, including, without limitation: its right to assert any claim or to pursue recoveries (based on contractual rights, securities law violations, fraud or other causes of action) against any person or entity, in each case, whether directly or acquired as a subrogee, assignee or otherwise, subsequent to making any payment to the Trustee or the Paying Agent, in accordance with the express provisions hereof, and/or (it) to require payment by Assured Guaranty of any amounts that heve been previously paid or that are not otherwise due in accordance with the express provisions of this Policy. This Policy (which Includes each endorsement hereto) sets forth in full the undertaking of Assured Guaranty with respect to the subject matter hereof, and may not be modified, altered or affected by any other agreement or Instrument, including, without limitation, any modification thereto or amendment thereof. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. This Policy will be governed by, and shall be construed in accordance with, the laws of the State of New York. iN WITNESS WHEREOF, Assured Guaranty has caused this Policy to be affixed with its corporate seal, to be signed by Its duly authorized officer, and to become effective and binding upon Assured Guaranty by virtue of such signature. ASSURED GUARANTY CORP. _ Mary Francoeur Managing Direct Paga 2 of 2 Poltoy No.: D-2009.884 Forrn FG001 (O5l07) NOTICE OF NONPAYMENT Assured Guaranty Corp. 1325 Avenue of the Americas New York, New York 10019 Attention: Risk Management Department as Public Finance Surveillance and General Counsel The undersigned, [a duly authorized officer of [TRUSTEE](PAI IIN AGENT]] (the °Trustee" or the "Paying Agent, hereby certifies to Assured Guaranty Corp. ("Assured Guaranty") with reference to Financial Guaranty Insurance Policy No. (the "Policy"), that: (1) The deficiency with respect to the Insured Payment that Is Due for Payment and unpaid by reason of Nonpayment on pnsert applicable payment date] is $[Insert applicable amount] (the "Deficiency Amount"). (ii) The [Trustee][Paying Agent] is making a cairn under the Policy for the Deficiency Amount. (lit) The [Trustee][Paying Agent) agrees that, following payment by Assured Guaranty made with respect to the Defciency Amount which is the subject of this Notice of Nonpayment, it will (a) cause such amounts to be applied directly to the payment of the applicable Insured Payment; (b) insure that such funds are not applied for any other purpose; and (c) cause an accurate record of such payment to be maintained with respect to the appropriate Insured Payment(s), the corresponding claim on the Policy, and the proceeds of such claim. (iv) The [Trustee][Paying Agent], on behalf of the Holders, hereby assigns to Assured Guaranty all rights of the [Trustee][Paying Agent] and the Holders with respect to the Obligations to the extent of any payments under the Policy, Including without limitation any amounts due to the Holders In respect of securities law violations arising from the offer and/or sale of the Obligations; provided, that payments to Assured Guaranty in respect of the foregoing assignment shall In all cases be subject to and subordinate to the rights of the Holders to receive all payments In respect of the Obligations. The foregoing assignment is in addition to, and not In limitation of, rights of subrogation otherwise available to Assured Guaranty In respect of such payments. The (Trustee][Paying Agent][Holder] shall take such action and deliver such instruments as may be reasonably requested or required by Assured Guaranty to effectuate the purpose or provisions of this paragraph (iv). (v) The [Trustee][Paying Agent], on its behalf and on behalf of the Holders, hereby appoints Assured Guaranty as agent and attomsy-in•fact for the [Trustee][Paying Agent] and each such Holder In any legal proceeding with respect to the Obligations. The [Trustee][Paying Agent] hereby agrees that, so long as Assured Guaranty shall not be In default in its payment obligations under the Policy, Assured Guaranty may at any time during the continuation of any proceeding by or against the Issuer under the United States Bankruptcy Code or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law an "insolvency Proceeding") direct all matters relating to such Insolvency Proceeding, Including, without limitation, (A) all matters relating to any claim in connection with an Insolvency Proceeding seeking the avoidance as a preferential transfer of any payment made with respect to the Obligations (a "Preference Amount"), (B) the direction of any appeal of any order relating to any Preference Amount at the expense of Assured Guaranty but subject to reimbursement as provided in the as set forth in the documentation providing for the issuance of and securing the Obligations, if any, and (C) the posting of any surely, supersedeas or performance bond pending any appeal. In addition, the [frustee][Paying Agent] hereby agrees that Assured Guaranty shall be fully subrogeted to, and the [Trustee)[Paying Agent] on Its behalf and on behalf of each Holder, hereby delegates and assigns, to the fullest extent permitted by law, the rights of the [Trustee][Paying Agent] and each Holder in the conduct of any Insolvency Proceeding, including without limitation all rights of any party to an adversary proceeding or action with respect to any court order issued in connection with any such Insolvency Proceeding. (vi) Payment should be made by credit to the following account: Capitalized terms used In this Notice of Nonpayment and not otherwise defined herein shall have the respective meanings ascribed thereto In the Policy. This Notice of Nonpayment may be revoked at any time by written notice of such revocation by the [rrustee)(Paying Agent][Hoider] to the Assured Guaranty. ANY PERSON WHO KNOWINGLY AND WITH INTENT TO DEFRAUD ANY INSURANCE COMPANY OR OTHER PERSON FILES AN APPL/CATION FOR INSURANCE OR STATEMENT OF CLAIM CONTAINING ANY MATERIALLY FALSE lNFORMATJO I OR CONCEALS FOR THE PURPOSEOFMISLEADINC, INFORMATION CONCERNING ANYFACTMATERIAL THERETO. COMMITS A FRAUDULENT !NSURANCE ACT, WHICH IS A CRIME AND SHALL ALSO BE SUBJECT TO A C1VIL PENALTY NOT TO EXCEED FIVE THOUSAND DOLLARS AND THE STATED VALUE OF THE CLAIM FOR EACH SUCH VIOLATION. IN WITNESS WHEREOF, the undersigned has executed and delivered this Notice of Nonpayment as of the � day of (TRUSTEE/PAYINGAGEHT] By: Name: Title: A � A ENDURING FINANCIAL STRENGTH Endorsement to Financial Guaranty Insurance Policy (Texas Governing Law) Issuer: City of Sanger, Texas (Denton Policy No.: D-2009-984 County) Obliaatlons: $3.200,000 Combination Tax and Effective Date: July 30, 2009 Revenue Certificates of Obligation, Sarias 2009 Notwithstanding the terms and provisions contained in the Policy, it is further understood that the insurance provided by the Policy to which this endorsement is attached and of which It forms a part is governed by, and construed in accordance with, the laws of the State of Texas, 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 shall supersede the Policy language. IN WITNESv WHEREOF, Assured Guaranty has caused this endorsement to be affixed with its corporate seal, to be signed by its duly authorized officer and to become effective and binding upon Assured Guaranty on the Effective Date listed above by virtue of such signature. Form E-TX001 {05J07) Assured Guaranty Corp. 1325 Avenue of the Amer(cas New Yark, NY 10019 main 212 974 0100 fax 212 531 32&3 ASSURED GUARANTY CORP. 000 Mary Francoeur TM Managing Director Cou tn(o@assuradguaranty.com I vnvw.assuredguaranty.com Moody's Investors Service 7 World Trade Center at 250 Greenwich Street, New York, New York 10007 July 29, 2009 Assured Guaranty Corp 1325 Avenue of the Americas New York, NY 10019 To Whom It May Concern: Moody's Investors Service has assigned the rating of Aa2 - on watch for possible downgrade to the $3,200,000.00, City of Sanger, Texas (Denton County) - Combination Tax and Revenue Certificates of Obligation, Series 2009, dated July 15, 2009 which sold through negotiation on July 20, 2009, insured by Assured Guaranty Corp (Policy No. D-2009-984). The rating is the highest of (i) the guarantor's financial strength rating, (ii) any published underlying rating on the security, or (iii) any published enhanced rating based on a state credit enhancement program. Should you have any questions regarding the above, please do not hesitate to contact Vincent Guadagno Jr. at (212) 553-2948. Sincerely yours, Joann Hempel Vice President /Senior Credit Officer Moody's Investors Service has assigned a Baa2 underlying rating on the City of Sanger's [TX] $3.2 million Certificates of Obligations Series 2009The Certificates are payable from ad valorem taxes to be levied and collected, within the limits prescribed by law, on all taxable property Jthin the city, and by a limited pledge of surplus net revenues derived from the city's waterworks and sewer system (not to exceed $10,000). Ohe Baa2 rating reflects a growing tax base, manageable debt levels and narrow financial margins. TAX BASE GROWTH CONTINUES Moody's expects the city to experience modest growth despite National economic conditions. Located in Denton County, 40 miles north of Dallas on Interstate 35, the city is primarily a residential community. A Wal-Mart distribution center is the largest taxpayer comprising 20.2% of the total 3x base. The city's current taxable value of approximately $372 million has experienced average annual increases of 7.8% over the last five rears. However, the increase for the 2010 fiscal year is expected to slow to 4.8% over the prior year to $390 million. Officials indicated that Wal- Mart's 50% tax abatement expires in October 2010, which should generate an approximate net increase of $35 - $40 million in assessed values for FY 2012. AODEST DEBT PROFILE EXPECTED TO REMAIN CONSISTENT the city's debt position is high yet manageable with debt burdens of 3.7%direct and 7.5% overall. Payout is steady with 66.4% of principal etired in ten years. Going forward, officials anticipate the need for additional debt issuance in the next few months. Officials also believe that the cDC will contribute $190K a year for 17 years towards paying debt, which should decrease the burden placed on the city. Given no plans to issue additional debt, Moody's believes the city's debt burdens will decrease with scheduled amortization and tax base stability.. MODEST RESERVE EXPECTED TO INCREASE '=inancial operations demonstrate a history of modest financial flexibility characterized by narrow reserves. With debt service being recorded in he General Fund, the reserves include funds being held for bond purposes. In fiscal 2007, the total fund balance was $4.2 million but only $16K was unreserved. At FYE 2008, the general fund balance was approximately $4 million, and officials report that approximately $3.5 was for debt service. Given the continued growth of the city's tax base, property taxes will continue to serve as a significant and reliable revenue stream going onward. In fiscal 2009, the audit will include a separate debt service fund and officials are projecting the General Fund total fund balance will be )400,000 given some expenditure control measures implemented during the fiscal year. Officials anticipate that the FY 2010 general fund oalance will increase to approximately $1.4 million. The Baa2 rating reflects the narrow unreserved fund balance with plans to improve and stabilize the reserve in the near term. <EY STATISTICS: estimated 2007 Population: 7,554 Per Capita Income: $17,840 (91% of state median) =Y 2009 Full Value: $372 million FY 2009 Full Value per Capita: $49,295 direct Debt Burden: 3.7% Overall Debt Burden: 7.5% Payout (10 Years): 66.4% =Y 2008 General Fund Balance: $4.0 million (80.1% of General Fund Revenues) Post -sale outstanding debt: $13.5 million RATING METHODOLOGIES USED AND LAST RATING ACTION TAKEN ' The principal methodology used in rating the current issue was "Local Government General Obligation and Related Ratings," which can be ound at www.moodys.com in the Credit Policy &Methodologies directory, in the Index of Special Reports - U.S. Public Finance. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory. fhe last rating action was June 12, 2009 when the Baa2 rating was affirmed. UNITED STATES OF AMERICA STATE OF TEXAS NUMBER DENOMINATION R-1 $135,000 REGISTERED REGISTERED CITY OF BANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATE OF OBLIGATION SERIES 2009 INTEREST RATE: DELIVERY DATE: MATURITY DATE: CUSIP: 3.00% July 30, 2009 August 1, 2010 800876CXO REGISTERED OWNER: Alluvion Securities LLC PRINCIPAL AMOUNT: ONE HUNDRED THIRTY-FIVE THOUSAND AND NO/100 DOLLARS THE CITY OF BANGER, TEXAS, a municipal corporation of the State of Texas (the "City"), for value received, hereby promises to pay to the Registered Owner identified above or its registered assigns, on the maturity date specified above (or on earlier redemption as herein provided), upon presentation and surrender of this Certificate at the principal corporate bust office of The Bank of New York Mellon Trust Company, Dallas, Texas, or its successor (the "Paying Agent/Registrar"), the principal amount identified above (or so much thereof as shall not have been paid or deemed to have been paid upon prior redemption) payable in any coin or currency of the United States of America which on the date of payment of such principal is legal tender for the payment of debts due to the United States of America, and to pay interest thereon at the rate shown above, calculated on a basis of a 360-day year composed of twelve 30-day months, from the dated date of July 15, 2009. Interest on this Certificate is payable on February 1, 2010, and each February 1 and August 1 thereafter until maturity or earlier redemption of this Certificate, by check sent by United States mail, first class, postage prepaid, by the Paying Agent/Registrar to the Registered Owner of record as of the close of business on the fifteenth day of the calendar month immediately preceding the applicable interest payment date, as shown on the registration books kept by the Paying Agent/Registrar. Any accrued interest payable at maturity or earlier redemption shall be paid upon presentation and surrender of this Certificate at the principal corporate trust office of the Paying Agent/Registrar. THIS CERTIFICATE IS ONE OF A DULY AUTHORIZED SERIES OF CERTIFICATES (the "Certificates") in the aggregate principal amount of $3,200,000 issued pursuant to an ordinance adopted by the City Council of the City on July 20, 2009 (the "Ordinance") for the purpose of providing all or part of the funds to pay contractual obligations to be incurred for the construction of public works and the purchase of materials, supplies, equipment, machinery, buildings, land and rights -of -way for authorized needs and purposes and for the payment of contractual obligations for professional services, to wit (1) the acquisition of land located at 1801 S. Stemmons Freeway for a city park and construction of athletic fields on such city park, (2) water, sewer, drainage and street improvements, and (3) professional services rendered in connection with the above listed projects. THIS CERTIFICATE shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Certificate either (i) is registered by the Comptroller of Public Accounts of the State of Texas by due execution of the registration certificate endorsed hereon or (ii) is authenticated by the Paying Agent/Registrar by due execution of the authentication certificate endorsed hereon. THE CITY RESERVES THE RIGHT, at its option, to redeem, prior to their maturity, Certificates maturing on and after August 1, 2020, in whole or in part, on August 1, 2019, or any date thereafter, at par plus accrued interest to the date fixed for redemption. HOU:2937638.1 THE CERTIFICATES MATURING ON AUGUST 1 in the years 2022, 2024 and 2026 (the "Term Certificates") are subject to mandatory sinking fund redemption in the following amounts (subject to reduction as hereinafter provided), on the following dates, in each case at a redemption price equal to the principal amount of the Certificates or the portions thereof so called for redemption plus accrued interest to the date fixed for redemption: Term Certificates Maturing August 1, 2022 Term Certificates Maturing August 1, 2024 Term Certificates Maturing August 1, 2026 Mandatory Redemption Dates Principal Amounts August 1, 2021 $205,000 August 1, 2022 (maturity) 215,000 Mandatory Redemption Dates Principal Amounts August 1, 2023 $225,000 August 1, 2024 (maturity) 235,000 Mandatory Redemption Dates .Principal Amounts August 1, 2025 $245,000 August 1, 2026 (maturity) 255,000 The particular Term Certificates to be redeemed shall be selected by the Registrar by lot or other customary random selection method, on or before June 15 of each year in which Term Certificates are to be mandatorily redeemed. The principal amount of Term Certificates to be mandatorily redeemed in each year shall be reduced by the principal amount of such Term Certificates that have been optionally redeemed and which have not been made the basis for a previous reduction. CERTIFICATES MAY BE REDEEMED IN PART only in integral multiples of $5,000. If a Certificate subject to redemption is in a denomination larger than $5,000, a portion of such Certificate may be redeemed, but only in integral multiples of $5,000. In selecting portions of Certificates for redemption, each Certificate shall be heated as representing that number of Certificates of $5,000 denonnation which is obtained by dividing the principal amount of such Certificate by $5,000. Upon surrender of any Certificate for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of the Ordinance, shall authenticate and deliver in exchange therefor a Certificate or Certificates of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Certificate so surrendered. NOTICE OF ANY SUCH REDEMPTION, identifying the Certificates or portions thereof to be redeemed, shall be sent by United States mail, first class, postage prepaid, to the Registered Owners thereof at their addresses as shown on the books of registration kept by the Paying Agent/Registrar, not less than thirty (30) days before the date fixed for such redemption. By the date fixed for redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the redemption price of the Certificates called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Certificates which are to be so redeemed thereby automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being outstanding except for the purpose of being paid with the funds so provided for such payment. THIS CERTIFICATE IS TRANSFERABLE only upon presentation and surrender at the principal corporate trust office of the Paying Agent/Regishar, accompanied by an assignment duly executed by the Registered Owner or its authorized representative, subject to the terms and conditions of the Ordinance. THIS CERTIFICATE IS EXCHANGEABLE at the principal corporate trust office of the Paying Agent/Registrar for a Certificate or Certificates of the same maturity and interest rate and in the principal amount of $5,000 or any integral multiple thereof, subject to the terms and conditions of the Ordinance. THE PAYING AGENT/REGISTRAR is not required to accept for transfer or exchange any Certificate called for redemption, in whole or in part, during the forty-five (45) day period immediately prior to the date fixed HOU:2937638.1 for redemption; provided, however, that such limitation shall not apply to the transfer or exchange by the Registered Owner of an unredeemed portion of a Certificate called for redemption in part. THE CITY OR PAYING AGENT/REGISTRAR may require the Registered Owner of any Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of a Certificate. Any fee or charge of the Paying Agent/Registrar for a transfer or exchange shall be paid by the City. THE REGISTERED OWNER of this Certificate by acceptance hereof, acknowledges and agrees. to be bound by all the terms and conditions of the Ordinance. IT IS HEREBY DECLARED AND REPRESENTED that this Certificate has been duly and validly issued and delivered; that all acts, conditions and things required or proper to be performed, exist and to be done precedent to or in the issuance and delivery of this Certificate have been performed, exist and have been done in accordance with law; that the Certificates do not exceed any constitutional or statutory limitation; and that annual ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Certificate, as such interest comes due and such principal matures, have been levied and ordered to be levied, within the limits prescribed by law, against all taxable property in the City and have been irrevocably pledged for such payment. IT IS FURTHER DECLARED AND REPRESENTED that the surplus revenues to be derived from the City's water and sewer system, after the payment of all operation and maintenance expenses thereof (the "Net Revenues"), in an amount not to exceed $10,000, are pledged to the payment of the principal of and interest on the Certificates, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. The City also reserves the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind, secured in whole or in part by a pledge of Net Revenues, that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. REFERENCE IS HEREBY MADE TO THE ORDINANCE, a copy of which is filed with the Paying Agent/Registrar, for the full provisions thereof, to all of which the Registered Owners of the Certificates assent by acceptance of the Certificates. HOU:2937638.1 IN WITNESS WHEREOF, the City has caused its corporate seal to be impressed or placed in facsimile hereon and this Certificate to be signed by the Mayor, countersigned by the City Secretary by their manual, lithographed or printed facsimile signatures. CITY OF SANGER, TEXAS (SEAL) 01 Si 40UNTRSIGNED: �t TE ' ,/�5oretary irrrrrut�cit�t HOU:2937638.1 COMPTROLLER'S REGISTRATION CERTIFICATE THE STATE OF TEXAS REGISTER NO. OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS I hereby certify that this certificate has been examined, certified as to validity and approved by the Attorney General of the State of Texas, and that this certificate has been registered by the Comptroller of Public Accounts of the State of Texas. WITNESS MY SIGNATURE AND SEAL OF OFFICE this �_ :� a t1v'{ .11� of the State of Texas [SEAL] HOU:2937638.1 ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto (Please print or type name, address, and zip code of Transferee) (Please insert Social Security or Taxpayer Identification Number of Transferee) the within bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer such bond on the books kept for registration thereof, with full power of substitution in the prenuses. DELIVERY: Signature Guaranteed: NOTICE: Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. Registered Owner NOTICE: The signature above must correspond to the name of the Registered Owner as shown on the face of this bond in every particular, without any alteration, enlargement or change whatsoever. HOU:2937638.1 STATEMENT OF INSURANCE Assured Guaranty Corp. ("Assured Guaranty"), a Maryland -domiciled insurance company, has delivered its financial guaranty insurance policy (the "Policy") with respect to the scheduled payments of principal of and interest on this Bond to The Bank of New York Mellon Trust Company, N.A., as paying agent on behalf of the holders of the Bonds (the "Paying Agent"). Such Policy is on file and available for inspection at the principal office of the Paying Agent and a copy thereof may be obtained from Assured Guaranty or the Paying Agent. All payments required to be made under the Policy shall be made in accordance with the provisions thereof. The owner of this Bond acknowledges and consents to the subrogation rights of Assured Guaranty as more fully set forth in the Policy. HOU:2937638.1 CITY OF SANGER, TEXAS $3,200,000 COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION SERIES 2009 The following information is included in the transcript submitted to the Office of the Attorney General for the purpose of obtaining Attorney General approval of the issuance of the referenced bonds, as required by H.B. 1564, 74th Legislature, Regular Session (Tex. Laws 1995, ch. 383, at 2930). A. An additional copy of the Final Official Statement and the following information, if not included in the Final Official Statement or such statement has not been prepared. 1. Name of bond issue: City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2009 2. a) par amount of issue: $3,200,000 b) dollar amount of bond premium, if any: N/A_ c) dollar amount of bond original issue discount, if any: $17,640.50 3. Dated date: July 15, 2009 4. Closing date (expected delivery date, on or about): July 30, 2009 5. By year, maturity amounts, coupon rates, prices or yields: See Official Statement. (If no reoffering yield (NRO) indicated, please provide yield separately.) 6. Call provisions, including premiums, if any: See Official Statement 7. Mandatory redemption provisions: See Official Statement 8. Debt -service schedule, principal and interest, and annual totals, with fiscal year identified: See Exhibit A. 9. Use of derivative products associated with financing: N/A 10. If applicable, schedule of bonds refunded, including, by year, principal amount, coupon, and interest cost: N/A 11. Pledge: tax (ad valorem, sales, other), revenue, combination: Ad valorem tax with limited revenue pledge of utility system 12. Type of credit enhancement (including PSF guarantee): Assured Guaranty 13. Rating services) and ratings) assigned to issue: Moody's "Aa2" (underlying "Baa2") B. Additional Information 1. Type of sale: Negotiated 2. Pricing: Negotiated sale: July 20, 2009 Competitive sale: N/A 3. If purchaser of bonds is a governmental entity, such as the Texas Water Development Board, please name purchaser: N/A 4. If a refunding bond issue, please provide final schedule of cash and present value savings (loss): N/A 5. If a school district refunding bond issue, and the refunding involves "old debt" per the Texas Education Code, please provide schedule of principal and interest payments of refunding bonds associated with "old debt": N/A If the same issue also involves "new debt," please provide a schedule of principal and interest payments on the "new debt" portion as well. These two schedules together should equal total debt service by maturity: All of the refunded bonds represent (and accordingly all of the refunding bonds are associated with) "new debt." N/A 6. CAB's and CIB's —please provide the per annum bond interest rates by maturity as shown in the HOU2937249.2 bond order document: N/A 7. Costs of Issuance —please provide best estimate of costs. If final costs are significantly different, please submit changes directly to the Texas Bond Review Board. Call (512) 463-1741 or (512) 475-4802 (FAX). SERVICE FIRM ONE-TIME FEE ANNUAL FEE( in dollars Bond Ratin Mood 's $7,500 Standard & Poor's N/A Fitch N/A Other General Costs of Issuance b $75,440 $S00 An S ecialized Costs of Issuance c " � :��.µ- N/A Credit Facilit N/A Bond Insurance $59,318 Total Underwritin S read d Did underwriter a ratin fees � � �� v�� � .a ��` $65,792 �� Which ones ? No Did underwriter a bond insurance fee? No PARTICIPANTS FIRM Financial Advisor Government Ca ital Co oration Bond Counsel Andrews Kurth LLP Paying Agent/Registrar; Authenticating Agent The Bank of New York Mellon Trust Com an , N.A. Underwriters Alluvion Securities LLC Trustee None Underwriter's Counsel Howell Linkous &Nettles, LLC Administrator None (a) relates to the ongoing fees or recurring costs of a financing for services such as paying agent, remarketing agent, credit provider and other similar services (may be expressed as a formula as appropriate) (b) e.g., bond counsel, financial advisor, paying agent, printing, AG approval (c) e.g., remarketing fees, escrow verification fees, etc. (d) the cost for marketing and selling the bonds, including takedown, structuring fee, underwriting risk and expenses. PERSON COMPLETING FORM: Name: Hoang T. Vu Telephone No. (713) 220-3879 Fax No. (713) 238-7129 HOU:2937249.2 Exhibit A HOU:2937249.2 ANDRE'WS ATTORNEYS K U R T H LLP July 30, 2009 Assured Guaranty Corp. 1325 Avenue of the Americas New York, New York 10019 600 Travis, Suite 4200 Houston, Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com Re: $3,200,000 City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2009 Ladies and Gentlemen: We have this day issued our opinion as Bond Counsel in connection with the referenced obligations. Please be advised that you may rely upon such opinion as if it were addressed to you. Very truly yours, -.�,.-�-,��L�P HOU:2944254. I