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ORD 2001-27 - Tax Combination Tax Revenue Certificates 11-13-2001ORDINANCE AUTHORIZING THE ISSUANCE OF $5,000,000 CITY OF HUNTSVILLE, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2001; LEVYING AN AD VALOREM TAX AND PLEDGING CERTAIN REVENUES IN SUPPORT OF THE CERTIFICATES; APPROVING AN OFFICIAL STATEMENT; AWARDING THE SALE OF THE CERTIFICATES; AUTHORIZING EXECUTION OF A PAYING AGENTIREGISTRAR AGREEMENT; AND ORDAINING OTHER MATTERS RELATING TO THE ISSUANCE OF THE CERTIFICATES THE STATE OF TEXAS § COUNTY OF WALKER § CITY OF HUNTSVILLE § WHEREAS, the City Council of the City of Huntsville, Texas (the "City") deems it advisable to issue certificates of obligation in the amount of $5,000,000 (the "Certificates") for the purpose of paying contractual obligations incurred or to be incuryed by the City for public improvements within the City, to- wit: (1) constructing, improving and equipping a golf course and related inft-astructure and improvements to be located at 457 IH 45 South, (2) constructing and improving wastewater lines and (3) the payment of professional services in connection therewith including legal, fiscal, construction management and engineering ering fees and the costs of issuance in connection with the Certificates; and WHEREAS, the Certificates hereinafter authorized and designated are to be issued and delivered for cash pursuant to Subchapter C of Chapter 271, Local Government Code and Chapter 1502, Texas Government Code, as amended; and WHEREAS, on October 23, 2001 the City Council passed a resolution authorizing and directing the City Secretary to give notice of intention to issue the Certificates; and WHEREAS, the notice was published on October 26, 2001 and November 2, 2001 in the Huntsville Item, a newspaper of general circulation in the City and a "newspaper" as defined in Section 2051.044, Government Code, and WHEREAS, the City has not received a petition fi•om any of the qualified voters of the City protesting the issuance of the Certificates; and WHEREAS, it is considered to be in the best interest of the City that the interest bearing Certificates be issued; IRATSVILLU:02001: Oder BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF HUNTSVILLE, TEXAS: Section 1. RECITALS, AMOUNT AND PURPOSE OF THE CERTIFICATES. The recitals set forth in the preamble hereof are incorporated herein and shall have the same force and effect as if set forth in this Section. The certificates of the City of Huntsville, Texas (the "City") are hereby authorized to be issued and delivered in the aggregate principal amount of $5,000,000 for the purpose of paying contractual obligations incurred or to be incurred by the City for public improvements within the City, to-wit: (1) constructing, improving and equipping a golf course and related infi-astructure and improvements to be located at 457 IH 45 South, (2) constructing and improving wastewater lines and (3 )) the payment ofprofessional services in connection therewith including legal, fiscal, construction management and engineering fees and the costs of issuance in connection with the Certificates. Section 2. DESIGNATION, DATE, DENOMINATIONS, NUMBERS, AND MATURITIES OF CERTIFICATES. Each certificate issued pursuant to this Ordinance shall be designated: "CITY OF HUNTSVILLE, TEXAS COMBINATION TAX AND REVENUE CERTIFICATE OF OBLIGATION, SERIES 2001 ", and initially there shall be issued, sold, and delivered hereunder fully registered certificates, without interest coupons, dated November 15, 2001, in the respective denominations mid. principal amounts hereinafter stated, numbered consecutively from R-1 upward (except the initial Certificates delivered to the Attorney General of the State of Texas which shall be numbered T-t upward), payable to the respective initial registered owners thereof (as designated in Section 14 hereof), or to the registered assignee or assignees of said certificates or any portion or portions thereof (in each case, the "Registered Owner"), and said. certificates shall mature and be payable serially on August 15 in each of the years and. in the principal amounts, respectively, as set forth in the following schedules: YEAR PRINCIPAL YEAR PRINCIPAL AMOUNT AMOUNT 2004 $ 75,000 2019 $ 165,000 2005 80,000 2020 175,000 2006 80,000 2021 185,000 2007 85,000 2022 195,000 2008 90,000 2023 205,000 2009 95,000 2024 215,000 2010 100,000 2025 225,000 2011 110,000 2026 240,000 2012 115,000 2027 255,000 2013 120,000 2028 265,000 2014 125,000 2029 280,000 2015 135,000 2030 295,000 2016 140,000 2031 315,000 2017 150,000 2032 330,000 2018 155,000 11ONTSM1.1-17CO2001: Order The term "Certificates" as used in this Ordinance shall mean and include collectively the certificates initially issued and delivered pursuant to this Ordinance and all substitute certificates exchanged therefor, as well as all other substitute certificates and replacement certificates issued pursuant hereto, and the term "Certificate" shall mean. any of the Certificates. Section 3. INTEREST. The Certificates scheduled to mature during the years, respectively, set forth below shall bear interest from the dates specified in the FORM OF CERTIFICATE set forth in this Ordinance to their respective dates of maturity or redemption prior to maturity at the following rates per annum: YEAR 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YEAR 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Interest shall be payable in the manner provided and on the dates stated in the FORM OF CERTIFICATE set forth in this Ordinance. Section 4. CHARACTERISTICS OF THE CERTIFICATES. Registration' Transfer, Conversion and Exchanges Authentication. (a) The City shall keep or cause to be kept at Wells Fargo • Bank Texas, N.A., Houston, Texas (the "Paying Agent/Registr&') books or records for the registration ofthe transfer, conversion and exchange of the Certificates (the "Registration Books"), and the City hereby appoints the Paying Agent/Registrar as its registrar and transfer agent to keep such books or records and make such registrations of transfers, conversions and exchanges under such reasonable regulations as the City and Paying Agent/Registrar may prescribe; and the Paying Agent/Registrar shall make such regis- trations, transfers, conversions and exchanges as herein provided. The Paying Agent/Registrar shall obtain and record in the Registration Books the address of the Registered Owner of each Certificate to which payments with respect to the Certificates shall be mailed, as herein provided; but it shall be the duty of each HUNTSVILLE,COMM: Ordcr Registered Owner to notify the Paying Agent/Registrar in writing of the address to which payments shall be mailed, and such interest payments shall not be mailed unless such notice has been given. The City shall have the tight to inspect the Registration Books during regular business hours ofthe Paying Agent/Registrar, but otherwise the Paying Agent/Registrar shall keep the Registration Books confidential and, unless otherwise required by law, shall not permit their inspection by any other entity. The Paying Agent/Registrar shall make the Registration Books available within the State of Texas. The City shall pay the Paying Agent(Registraes standard or customary fees and charges for making such registration, transfer, conversion, exchange and delivery of a substitute Certificate or Certificates. Registration of assignments, transfers, conversions and exchanges of Certificates shall be made in the manner provided and with the effect stated in the FORM OF CERTIFICATE set forth in this Ordinance. Each substitute Certificate shall bear a letter and/or number to distinguish it from each other Certificate. Except as provided in Section 4(c) of this Ordinance, an authorized representative of the Paying Agent/Registrar shall, before the delivery of any such Certificate, date and manually sign said Certificate, and no such Certificate shall be deemed to be issued or outstanding unless such Certificate is so executed. The Paying Agent/Registrar promptly shall cancel all paid Certificates and Certificates surrendered for conversion and exchange. No additional ordinances, orders, or resolutions need be passed or adopted by the governing body of the City or any other body or person so as to accomplish the foregoing conversion and. exchange of any Certificate or portion thereof, and the Paying Agent/Registrar shall provide for the printing, execution, and delivery of the substitute Certificates in the manner prescribed herein, and said Certificates shall be printed or typed on paper of customary weight and strength. Pursuant to Chapter 1201, Texas Government Code, as amended, and particularly Subchapter D thereof, the duty of conversion and exchange of Certificates as aforesaid is hereby imposed upon the Paying Agent/Registrar, and, upon the execution of said Certificate, the converted and exchanged Certificate shall be valid, incontestable, and enforceable in the same manner and with the same effect as the Certificates which initially were issued and delivered pursuant to this Ordinance, approved by the Attorney General and. registered by the Comptroller of Public Accounts. (b) Payment of Certificates mid, Interest. The City hereby further appoints the Paying Agent/Registrar to act as the paying agent for paying the principal of and interest on the Certificates, all as provided in this Ordinance. The Paying Agent/Registrar shall keep proper records of all payments made by the City and the Paying Agent/Registrar with respect to the Certificates, and of all conversions and exchanges of Certificates, and all replacements of Certificates, as provided in this Ordinance. However, in the event of a nonpayment of interest on a scheduled payment date, and for thirty (30) days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying AgenvRegistrar, if and when funds for the payment of such interest have been received from the City. Notice of the past due interest shall be sent at least five (5) business days prior to the Special Record Date by United States mail, first-class postage prepaid, to the address of each Registered Owner appearing on the Registration Books at the close of business on the last business day next preceding the date of mailing of such notice. 11ONTSVILLU;92001: Ofder (c) In General. The Certificates (i) shall be issued in fully registered form, without interest coupons, with the principal of and interest on such Certificates to be payable only to the Registered Owners thereof, @ may be redeemed prior to their scheduled maturities (notice of which shall be given to the Paying Agent/Registrar by the City at least 45 days prior to any such redemption date), (iii) may be converted and exchanged for other Certificates, (iv-) may be transferred and assigned, (v) shall have the characteristics, (vi) shall be signed, sealed, executed and. authenticated, (vii) the principal of and interest on the Certificates shall be payable, and (viii) shall be administered and the Paying Agent/Registrar and the City shall have certain duties and responsibilities with respect to the Certificates, all as provided, and in the manner and to the effect as required or indicated, in the FORM OF CERTIFICATE set forth in this Ordinance. The Certificates initially issued and delivered pursuant to this Ordinance are not required to be, and shall not be, authenticated by the Paying Agent/Registrar, but on each substitute Certificate issued in conversion of and exchange for any Certificate or Certificates issued under this Ordinance the Paying Agent/Registrar shall execute the PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE, in the fonn set forth in the FORM OF CERTIFICATE. (d) Substitute Paying Agent/Regi . The City covenants with the Registered Owners of the Certificates that at all times while the Certificates are outstanding the City will provide a competent and legally qualified bank, trust company, financial institution, or other agency to act as and perform the services of Paying Agent/Registrar for the Certificates under this Ordinance, and that the Paying Agent/Registrar will be one entity. The City reserves the right to, and may, at its option, change the Paying Agent/Registrar upon not less than 30 days written notice to the Paying Agent/Registrar, to be effective at such time which will not disrupt or delay payment on the next principal or interest payment date after such notice. In the event that the entity at any time acting as Paying Agent/Registrar (or its successor by merger, acquisition, or other method) should resign or otherwise cease to act as such, the City covenants that promptly it will appoint a competent and legally qualified bank, trust company, financial institution, or other agency to act as Paying Agent/Registrar under this Ordinance. Upon any change in the Paying Agent/Registrar, the previous Paying Agent/Registrar promptly shall transfer and deliver the Registration Books (or a copy thereof), along with all other pertinent books and records relating to the Certificates, to the new Paying Agent/Registrar designated and appointed. by the City. Upon any change in the Paying Agent/Registrar, the City promptly will cause a written notice thereof to be sent by the new Paying Agent/Registrar to each Registered Owner ofthe Certificates, by United States mail, first-class postage prepaid, which notice also shall give the address of the new Paying Agent/Registrar. By accepting the position and performing as such, each .Paying Agent/Registrar shall be deemed. to have agreed to the provisions of this Ordinance, and a certified copy of this Ordinance shall be delivered to each Paying Agent/Registrar. (e) Book-Entiy-Only System. The Certificates issued in exchange for the Certificates initially issued as provided in Section 4(h) shall be issued in the form of a separate single fully registered Certificate for each of the maturities thereof registered in the name of Cede & Co. as nominee ofDTC and except as provided in subsection (f) hereof, all ofthe Outstanding Certificates shall be registered in the name ofCede & Co., as nominee of DTC. 11ONTSVILLE.0O2 2001: OtAcr 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 securities 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 (the "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 (i) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Certificates, (ii) the delivery to any DTC participant or any other person, other than a Registered Owner, as shown on the Registration Books, of any notice with respect to the Certificates, including any notice of redemption, or (iii) the payment to any DTC Participant or any person, other than a Registered Owner, as shown on the Registration Books of any amount with respect to principal of, premiturt, if any, or interest on the Certificates. Notwithstanding any other provision of this Ordinance to the contrary, but to the Went permitted by law, the City and the Paying Agent/Registrar shall be entitled to treat and consider the pet-son in whose name each Certificate is registered in the Registration Books as the absolute owner of such Certificate for the purpose of payment of principal, premium, if any, and interest with respect to such Certificate, for the purposes of registering transfers with respect to such Certificates, and for all other purposes of registering transfers with respect to such Certificates, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of, premium, if any, and. interest on the Certificates only to or upon the order of the respective Registered Owners, as shown in the Registration Books as provided in the 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 surns so paid. No person other than a Registered Owner, as shown in the Registration Books, shall receive a Certificate evidencing the obligation of the City to make payments of principal, premium, if any, and interest pursuant to the Ordinance. Upon delivery by DTC to the Paying Agent/Registrar of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions in this Ordinance with respect to interest checks being mailed to the registered owner at the close of business on the Record Date the word "Cede & Co." in. this Ordinance shall refer to such new nominee of DTC. (0 Successor Securities Depository. Transfer Outside Book -Erb -Only System In the event that the City determines to discontinue the book-entry system through DTC or a successor or DTC determines to discontinue providing its services with respect to the Certificates, the City shall either (i) appoint a successor securities depository, qualified to act as such under Section 17(a) ofthe Securities and Exchange Act of 1934, as amended, notify DTC and DTC Participants of the appointment of such successor securities depository and transfer one or more separate Certificates to such successor securities depository or (ii) notify DTC and DTC Participants of the availability through DTC of Certificates and transfer one or more separate Certificates to DTC Participants having Certificates credited to their DTC accounts. In such event, the Certificates shall no longer be restricted to being registered in the Registration Books in the name of Cede & Co., as nominee of DTC, but may be registered in the name of the successor securities HUNTSVILLECO2001: Order depository, or its nominee, or in whatever name or names Registered Owner transferring or exchanging Certificates shall designate, in accordance with the provisions of this Ordinance. (9) Parents to Cede & Co,. Notwithstanding any other provision of this Ordinance to the contrary, so long as any Certificate is registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on such Certificate and all notices with respect to such Certificate shall be made and given, respectively, in the manner provided in the representation letter of the City to DTC. (h) Initial Certific&wW. The Certificates herein authorized shall be initially issued as fully registered Certificate, being one certificate for each maturity in the denomination of the applicable principal amount and the initial Certificate(s) shall be registered. in the names ofthe Purchaser or the designees thereof as set forth in Section 14 hereof. The initial Certificate(s) shall be the Certificates submitted to the Office ofthe Attorney General of the State of Texas for approval, certified and registered by the Office of the Comptroller of Public Accounts of the State of Texas and delivered to the Purchaser. Immediately after the delivery of the initial Certificate(s), the Paying Agent/Registrar shall cancel the initial Certificate(s) delivered hereunder and exchange therefor Certificates in the form of a separate single fully registered Certificate for each ofthe maturities thereof registered in the name of Cede & Co., as nominee of DTC and except as provided in Section 4(f), all ofthe outstanding Certificates shall be registered in the name of Cede & Co., as nominee of DTC. Section 5. FORM OF CERTIFICATE. The form of the Certificates, including the form of Paying Agent/Registrar's Authentication Certificate, the form of Assignment and the form of Registration Certificate of the Comptroller of Public Accounts of the State of Texas to be attached to the Certificates initially issued and delivered pursuant to this Ordinance, shall be, respectively, substantially as follows, with such appropriate variations, omissions or insertions as are permitted or required by this Ordinance. NO. R- UNITED STATES OF AMERICA PRINCIPAL STATE OF TEXAS AMOUNT COUNTY OF WALKER CITY OF HUNTSVILLE, TEXAS COMBINATION TAX AND REVENUE CERTIFICATE OF OBLIGATION SERIES 2001 110NISVILLFCO22001: 01-da INTEREST DATE OF MATURITY RATE CERTIFICATES DATE CUSIP NO. November 15, 2001 REGISTERED OWNER: PRINCIPAL AMOUNT: DOLLARS ON THE MATURITY DATE specified above, the CITY OF HUNTSVILLE, in Walker County, Texas (the "City "), being a political subdivision of the State of Texas, hereby promises to pay to the Registered Owner set forth above, or registered assigns (hereinafter called the "Registered Owner ") the principal amount set forth above, and to pay interest thereon from the date of the Certificate set forth above, on August 15, 2002 and semiannually on each February 15 and August 15 thereafter to the maturity date specified above, or the date of redemption prior to maturity, at the interest rate per annum specified above; except that ifthis Certificate is required to be authenticated and the date of its authentication is later than the first Record Date (hereinafter defined), such principal amount shall bear interest from the interest payment date next preceding the date of authentication, unless such date of authentication is after any Record Date but on or before the next following interest payment date, in which case such principal amount shall bear interest from such next following interest payment date; provided, however, that if on the date of authentication hereof the interest on the Certificate or Certificates, if any, for which this Certificate is being exchanged or converted from is due but has not been paid, then this Certificate shall bear interest from the date to which such interest has been paid in full. Notwithstanding the foregoing, during any period in which ownership of the Certificates is determined only by a book entry at a securities depository for the Certificates, any payment to the securities depository, or its nominee or registered assigns, shall be made in accordance with existing arrangements between the City and the securities depository. THE PRINCIPAL OF AND INTEREST ON this Certificate are payable in lawfW money of the United States of America, without exchange or collection charges. The principal of this Certificate shall be paid to the Registered Owner hereof upon presentation and surrender of this Certificate at maturity, or upon the date fixed for its redemption. prior to maturity, at Wells Fargo Bank. Texas, N.A., which is the "Paying Agent/Registrar " for this Certificate at their office in Houston, Texas (the "Designated PaymenttTransfer Office "). The payment of interest on this Certificate shall be made by the Paying Agent/Registrar to the Registered Owner hereof on each interest payment date by check or draft, dated as of such interest payment date, drawn by the Paying Agent/Registrar on, and payable solely from, funds of the City required by the ordinance authorizing the issuance of this Certificate (the "Certificate Ordinance ") to be on deposit with the Paying Agent/Registrar for such purpose as hereinafter provided; and such check or draft shall be sent by the Paying Agent/Registrar by United States mail, first -class postage prepaid, on each such interest payment date, to the Registered Owner hereof, at its address as it appeared as of the close of business on the last business day of the month preceding each such date (the "Record Date ") on the registration books kept by the Paying Agent/Registrar (the "Registration Books "). 11U<TSVILLIX- 02001. Order In addition, interest may be paid by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the Registered Owner. 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 pay- ment (a "Special Record Date ") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (which shall be 15 days after the Special Record Date) shall be sent at least five business 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 Registration Books at the close of business on the last business day next preceding the date of mailing of such notice. DURING ANY PERIOD in which ownership of the Certificates is determined only by a book entry at a securities depository for the Certificates, if fewer than all of the Certificates of the same maturity mid bearing the same interest rate are to be redeemed, the particular Certificates of such maturity and bearing such interest rate shall be selected in accordance with the arrangements between the City and the securities depository. ANY ACCRUED INTEREST due at maturity or upon the redemption of this Certificate prior to maturity as provided herein shall be paid to the Registered Owner upon presentation and surrender of finis Certificate for redemption and payment at the Designated Payment/Trmnsfer Office of the Paying Agent/Registrar. The City covenants with the Registered Owner of this Certificate that on or before each principal and interest payrne'nt date for this Certificate it will make available to the Paying Agent/Registrar, from the "Interest and Sinking Fund" created by the Ordinance, the amounts required to provide for the payment, in immediately available funds, of all principal of and interest on the Certificates, when due. IF THE DATE for the payment of the principal of or interest on this Certificate shall be a Saturday, Sunday, a legal holiday or a day on which banking institutions in the city where the principal corporate trust office of the Paying Agent/Registrar is located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday or day on which banking institutions are authorized to close; and payment on such date shall have the same force acid effect as if made on the original date payment was due. THIS CERTIFICATE is one of a Series of Certificates dated November 15, 2001, authorized in accordance with the - Constitution and laws of the State of Texas in the principal amount of $5,000,000, for the purpose of paying contractual obligations incurred or to be incurred by the City for public improvements within the City, to -wit: (1) constructing, improving and equipping a golf course and related infrastructure and improvements to be located at 457 IH. 45 South, (2) constructing and improving wastewater lines and (3) the payment of professional services in connection therewith including legal, fiscal, construction management and engineering fees and the costs of issuance in connection with the Certificates. ON AUGUST 15, 2011, or on any date thereafter, the Certificates of this Series maturing on and after August 15, 2012 may be redeemed prior to their scheduled maturities, at the option of the City, with 110NINY[LLI ?C O200i; Order funds derived from any available and lawful source, at par plus accrued interest to the date fixed for redemption as a whole, or in part, and, if in part, the particular maturities to be redeemed shall be selected and designated by the City and if less than all of a maturity is to be redeemed, the Paying Agent/Registrar shall determine by lot the Certificates, or a portion thereof, within such maturity to be redeemed (provided that a portion of a Certificate may be redeemed only in an integral multiple of $5,000). NO LESS THAN 30 days prior to the date fixed for any such redemption, the City shall cause the Paying Agent/Registrar to send notice by United States mail, first-class postage prepaid to the Registered Owner of each Certificate to be redeemed at its address as it appeared on the Registration Books of the Paying Agent/Registr-ar at the close of business on the business day next preceding the date of such notice. Any notice so mailed shall be conclusively presumed to have been duly given, whether or not the Registered Owner receives such notice, notice having been so given, the obligations 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. By the date fixed for any such redemption due provision shall be made with the Paying Agent/Registrar for the payment of the required redemption price for the Certificates or portions thereof which are to be so redeemed. If due provision for such payment is made, all as provided above, the Certificates or portions thereof which are to be so redeemed thereby automatically shall be treated as redeemed prior to their scheduled maturities, and they shall not bear interest after the date fixed for redemption, and. they shall not be regarded as being outstanding except for the right of the Registered Owner to receive the redemption price from the Paying Agent/Registrar out of the funds provided for such payment. If a portion of any Certificates shall be redeemed a substitute Certificates or Certificates having the same maturity date, bearing interest at the same rate, in any denomination or denominations in any integral multiple of $5,000, at the written request of the Registered Owner, and in aggregate principal amount equal to the unredeemed portion thereof, will be issued to the Registered Owner upon the surrender thereof for cancellation, at the expense of the City, all as provided in the Certificate Ordinance. ALL CERTIFICATES OF THIS SERIES are issuable solely as fully registered Certificates, without interest coupons, in the denomination of any integral multiple of $5,000. As provided in the Certificate Ordinance, this Certificate may, at the request of the Registered Owner or the assignee or assignees hereof, be assigned, transferred, converted into and exchanged for a like aggregate principal amount of fully registered certificates, without interest coupons, payable to the appropriate Registered Owner, assignee or assignees, as the case may be, having the same denomination or denominations in any integral multiple of $5,000 as requested in writing by the appropriate Registered Owner, assignee or assignees, as the case may be, upon surrender of this Certificate to the Paying Agent/Registrar for cancella- tion, all in accordance with the form and procedures set forth in the Certificate Ordinance. Among other requirements for such assignment and transfer, this Certificate must be presented and surrendered to the Paying Agent/Registrar, together with proper instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, evidencing assignment of this Certificate or any portion or portions hereof in any integral multiple of$5,000 to the assignee or assignees in whose name or names this Certificate or any such portion or portions hereof is or are to be registered. The form of IMNISVILLIA'02001: Order 10 Assignment printed or endorsed on this Certificate may be executed by the Registered Owner to evidence the assignment hereof, but such method is not exclusive, and other instrurn ents of assigrinient satisfactory to the Paying Agent/Registrar may be used to evidence the assignment of this Certificate or any portion or portions hereof ftorn time to time by the Registered Owner. The Paying Agent/Registr-ar's reasonable standard or customary fees and charges for assigning, transferring, converting and exchanging any Certifi- cate or portion thereof will be paid by the City. In any circumstance, any taxes or governmental charges required to be paid with respect thereto shall be paid by the one requesting such assignment, transfer, conversion or exchange, as a condition precedent to the exercise of such privilege. The Paying Agent/Registrar shall not be required to make any such transfer, conversion, or exchange within 45 days of the date fixed for redemption; provided, however, such limitation of transfer shall not be applicable to an exchange by the Registered Owner of the uncalled balance of a Certificate. WHENEVER the beneficial ownership of this Certificate is determined by a book entry at a securities depository for the Certificates, the foregoing requirements of holding, delivering or transferring this Certificate shall be modified to require the appropriate person or entity to meet the requirements of the securities depository as to registering or transferring the book entry to produce the same effect IN THE EVENT any Paying Agent/Registrar for the Certificates is changed by the City, resigns, or otherwise ceases to act as such, the City has covenanted in the Certificate Ordinance that it promptly will appoint a competent and legally qualified substitute therefor, and cause written notice thereof to be mailed to the Registered Owners of the Certificates. IT IS HEREBY certified, recited and covenanted that this Certificate has been duly and validly authorized, issued and delivered; that all acts, conditions and things required or proper to be performed, exist and be done precedent to or in the authorization, issuance and delivery of this Certificate have been performed, existed and been done in accordance with law; that this Certificate is a general obligation ofsaid. City, issued on the full faith and credit thereof; and that annual ad valorem taxes sufficient to provide for the payment ofthe interest on and principal of this Certificate, as such interest comes due and such principal matures, have been levied and ordered to be levied against all taxable property in said City, and have been pledged for such payment, within the limit prescribed by law, and that this Certificate, together with other obligations of the City, is additionally secured. by and payable from the surplus revenues of the City's Waterworks and Sewer System, remaining after payment of all operation and maintenance expenses thereof, and all debt service, reserve and other requirements in connection with all of the City's revenue bonds or other obligations (now or hereafter outstanding), which are payable from all or part of the Net Revenues of the City's Waterworks and Sewer System, which ainotirit shall not exceed $1,000, all as provided in the Certificate Ordinance. BY BECOMING the Registered. Owner of this Certificate, the Registered Owner thereby acknowledges all of the terms and provisions of the Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Ordinance is duly recorded and available for inspection in the official 11UNISVILLECO2001: OLV� I I minutes and records of the governing body of the City, and agrees that the terms and provisions of this Certificate and the Ordinance constitute a contract between each Registered Owner hereof and the City. IN WITNESS WHEREOF, the City has caused this Certificate to be signed with the manual or facsimile signature of the Mayor of the City and countersigned with the manual or facsimile signature of the City Secretary, and has caused the official seal of the City to be duly impressed, or placed in facsimile, on City Secretary (SEAL) Mayor FORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE (To be executed if this Certificate is not accompanied by an executed Registration Certificate of the Comptroller of Public Accounts of the State of Texas) It is hereby certified that this Certificate has been issued wider the provisions of the Certificate Ordinance described in the text of this Certificate; and that this Certificate has been issued in conversion or replacement of, or in exchange for, a certificate, certificates, or a portion of a certificate or certificates of a Series which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. Dated WELLS FARGO BANK TEXAS, N.A. Paying Agent/Registrar By Authorized Representative FORM OF ASSIGNMENT: ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto 110NINVRIECO2001: Order 12 Please insert Social Security or Taxpayer Identification Number of Transferee (Please print or typewrite name and address, including zip code, of Transferee) the within Certificate and all rights thereunder, and hereby irrevocably constitutes and appoints , attorney, to register the transfer of the within Certificate on the books kept for registration thereof, with full power of substitution in the premises, Dated: Signature Guaranteed: NOTICE: This signature must be NOTICE: This signature must correspond with guaranteed by a member of the New York the name of the Registered Owner appearing on Stock Exchange or a commercial bank or the face of the Certificate. trust company, FORM OF REGISTRATION CERTIFICATE OF COMPTROLLER'S REGISTRATION CERTIFICATE: REGISTER NO. 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 this Comptroller of Public Accounts of the State of Texas HITYPSVILLECO2MI: ordcr 23 (COMPTROLLER'S SEAL) Section 6. INTEREST AND SINKING FUND. A special "Interest and Sinking Fund" is hereby created and shall be established and maintained by the City at an official depository bank of said City. Said Interest and. Sinking Fund shall be kept separate and apart from all other funds and accounts of said City, and shall be used only for paying the interest on and principal of said Certificates. All ad valorem taxes levied and collected for and on account of said Certificates shall be deposited, as collected, to the credit of said Interest and Sinking Fund. During each year while any of said Certificates are outstanding and unpaid, the governing body of said City shall compute and ascertain a rate and amount of ad valorem tax which will be sufficient to raise and produce the money required to pay the interest on said Certificates as such interest comes due, and to provide and maintain a sinking fund adequate to pay the principal of said Certificates as such principal matures (but never less than 2% of the original amount of said Certificates as a sinking fund each year); and said tax shall be based on the latest approved tax rolls of said. City, with full allowances being made for tax delinquencies and the cost of tax collection. Said rate and amount of ad valorem tax is hereby levied, and is hereby ordered to be levied, against all taxable property in said City, for each year while any of said Certificates are outstanding and unpaid, and said tax shall be assessed and collected each such year and deposited to the credit of the aforesaid Interest and Sinking Fund. Said ad valorem taxes sufficient to provide for the payment of the interest on and principal of said Certificates, as such interest comes due and such principal matures, are hereby pledged for such payment, within the limit prescribed by law. Accrued interest and premium on the Certificates shall be deposited in the Interest and Sinking Fund upon delivery of the Certificates to the Purchaser as defined in Section 14 of this Ordinance. Section 7. REVENUES. The Certificates together with other obligations of the City, are additionally secured by and shall be payable from and secured by the surplus revenues of the City's Waterworks and Sewer System remaining after payment of all operation and maintenance expenses thereof, and all debt service, reserve, and. other requirements in connection with all of the City's revenue bonds or other obligation (now or hereafter outstanding) which are payable from all or any part of the net revenues ofthe City's Waterworks and Sewer System, with such amount not to exceed $1,000 constituting "Surplus Revenues." The City shall deposit such Surplus Revenues to the credit of the Interest and Sinking Fund created pursuant to Section 6, to the extent necessary to pay the principal and interest on the Certificates. Notwithstanding the requirements of Section 6, if Surplus Revenues are actually on deposit or budgeted for deposit in the Interest and Sinking Fund in advance of the time when ad valorem taxes are scheduled to be levied for any year, then die arnount of taxes which otherwise would have been required to be levied pursuant to Section 6 may be reduced to the extent and by the amount of the Surplus Revenues then on deposit in the Interest and Sinking Fund or budgeted for deposit therein. The Mayor and the City Secretary are hereby ordered to do any and all things necessary to accomplish the transfer of monies to the Interest and Sinking Fund of this issue in ample time to pay such items of principal and interest. 110NIsv".UX02001: Ord r 14 Section 8. DEFEASANCE OF CERTIFICATES. (a) Any Certificate and the interest thereon shall be deemed to be paid, retired and no longer outstanding (a "Defeased Certificate ") within the meaning of this Ordinance, except to the extent provided. in subsections (c) and (e) ofthis Section, when payment of the principal of such Certificate, plus interest thereon to the due date or dates (whether such due date or dates be by reason of maturity, upon redemption, or otherwise) either (i) shall have been made or caused to be made in accordance with the terms thereof (including the giving of any required notice of redemption) or (ii) shall have been provided for on or before such due date by irrevocably depositing with or making available to the Paying Agent/Registrar for such payment (1) lawful money of the United States of America sufficient to make such payment, (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 as will ensure the availability, without reinvestment, of sufficient money to provide for such payment and when proper arrangements have been made by the City with the Paying Agent/Registrar for the payment of its services until all Defeased Certificates shall have become due and payable or (3) any combination of (t) and (2). At such time as a Certificate shall be deemed to be a Defeased Certificate hereunder, as aforesaid, such Certificate and the interest thereon shall no longer be secured by, payable from, or entitled to the benefits of, the ad valorem taxes or revenues herein levied and pledged as provided in this Ordinance, and such principal and interest shall be payable solely from such money or Defeasance Securities. (b) The deposit under clause (ii) of subsection (a) shall be deemed. a payment of a Certificate as aforesaid when proper notice of redemption of such Certificates shall have been given, in accordance with this Ordinance. Any money so deposited with the Paying Agent/Registrar as provided in this Section may at the discretion of the City Council also be invested in Defeasance Securities, maturing in the arnounts and at the times as hereinbefore set forth, and all income from all Defeasance Securities in possession of the Paying Agent/Registrar pursuant to this Section which is not required for the payment of such Certificate and premium, if any, and interest thereon with respect to which such money has been so deposited, shall be turned over to the City Council. (c) Notwithstanding any provision of any other- Section of this Ordinance which may be contrary to the provisions of this Section, all money or Defeasance Securities set aside and held in trust pursuant to the provisions of this Section for the payment of principal of the Certificates and premium, if any, and interest thereon, shall be applied to and used solely for the payment of the particular Certificates and premium, if any, and interest thereon, with respect to which such money or Defeasance Securities have been so set aside in trust. Until all Defeased Certificates shall have become due and payable, the Paying Agent/Registrar shall perform the services of Paying Agent/Registrar for such Defeased. Certificates the same as if they had not been dfeased, and the City shall make proper arrangements to provide and pay for such services as required by this Ordinance. (d) Notwithstanding anything elsewhere in this Ordinance, ifmoney or Defeasance Securities have been deposited or set aside with the Paying Agent/Registrar pursuant to this Section for the payment of IIIINISVILLEC:02001; Order 15 Certificates and such Certificates shall not have in fact been actually paid in full, no amendment of the provisions of this Section shall be made without the consent of the registered owner of each Certificate affected thereby. (e) Notwithstanding the provisions of subsection (a) immediately above, to the extent that, upon the defeasance of any Defeased Certificate to be paid. at its maturity, the City retains the right under Texas law to later call that Defeased Certificate for redemption in accordance with the provisions of the Ordinance authorizing its issuance, the City may call such Defeased Certificate for redemption upon complying with the provisions of Texas law and upon the satisfaction of the provisions of subsection (a) immediately above with respect to such Defeased Certificate as though it was being defeased at the time of the exercise of the option to redeem the Defeased Certificate and the effect of the redemption is taken into account in determining the sufficiency of the provisions made for the payment of the Defeased Certificate. As used in this section, "Defeasance Securities" means (i) Federal Securities, (ii) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the City Council adopts or approves proceedings authorizing the issuance of reftirrding bonds or otherwise provide for the funding of an escrow to effect the defeasance of the Certificates are rated. as to investment quality by a nationally recognized investment rating firm not less than "AAA" or its equivalent, and (iii) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the City Council adopts or approves proceedings authorizing the issuance of refunding bonds or otherwise provide for the ftinding of an escrow to effect the defeasance of the Certificates, are rated as to investment quality by a nationally recognized investment rating firm no less than "AAA" or its equivalent. "Federal Securities" as used herein means direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America (including Interest Strips of the Resolution Funding Corporation). Section 9. DAMAGED, MUTILATED, LOST, STOLEN, OR DESTROYED CERTIFICATES. (a) Replacement Certificates. In the event any outstanding Certificate is damaged, mutilated, lost, stolen or destroyed, the Paying Agent/Registrar shall cause to be printed, executed and de- livered, a new certificate of the same principal amount, maturity and interest rate, as the damaged, mutilated, lost, stolen or destroyed Certificate, in replacement for such Certificate in the manner hereinafter provided. (b) Application for Replacement Certificates. Application for replacement of damaged, mutilated, lost, stolen or destroyed Certificates shall be made by the Registered Owner thereof to the Paying Agent/Registrar. In every case of loss, theft or destruction of a Certificate, the Registered Owner applying for a replacement certificate shall ftimish to the City and to the Paying Agent/Registrar such security or indemnity as may be required by them to save each of them harmless from any loss or damage with respect thereto. Also, in every case of loss, theft or destruction of a Certificate, the Registered. Owner shall furnish 11UNTSVILLECOMI: Order 16 to the City and to the Paying Agent/Registrar evidence to their satisfaction of the loss, theft or destruction of such Certificate, as the case may be. In every case of damage or mutilation of a Certificate, the Registered Owner shall surrender to the Paying Agent/Registrar for cancellation the Certificate so damaged or mutilated. (c) No Default Occurred. Notwithstanding the foregoing provisions of this Section, in the event any such Certificate shall have matured, and no default has occurred which is then continuing in the payment of the principal of, redemption premium, if any, or interest on the Certificate, the City may authorize the payment of the same (without surrender thereof except in the case of a damaged or mutilated Certificate) instead of issuing a replacement Certificate, provided security or indemnity is fumished as above provided in this Section. (d) Charge for Issuing Replacement Certificates. Prior to the issuance of any replacement certificate, the Paying Agent/Registrar shall charge the Registered Owner of such Certificate with all legal, printing, and other expenses in connection therewith. Every replacement certificate issued pursuant to the provisions of this Section by virtue of the fact that any Certificate is lost stolen or destroyed shall constitute a contractual obligation of the City whether or not the lost, stolen or destroyed Certificate shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Ordinance equally and proportionately with any and all other Certificates duly issued wider this Ordinance. (e) Authority for Issuing Wacement Certificates. In accordance with Subchapter D of Chapter 1201, Texas Government Code, this Section 9 of this Ordinance shall constitute authority for the issuance of any such replacement certificate without necessity of further action by the governing body of the City or any other body or person, and the duty of the replacement of such certificates is hereby authorized and imposed upon the Paying Agent/Registrar, and the Paying Agent/Registrar shall authenticate and deliver such Certificates in the form and manner and with the effect, as provided in Section 4(a) of this Ordinance for Certificates issued in conversion and exchange for other Certificates. Section 10. CUSTODY. APPROVAL, AND REGISTRATION OF CERTIFICATES: BOND COUNSEL'S OPINION: CUSIP NUMBERS AND CONTINGENT INSURANCE PROVISION, IF OBTAINED. The Mayor of the City Council of the City is hereby authorized to have controlof the Certificates initially issued and delivered hereunder and all necessary records and proceedings pertaining to the Certificates pending their delivery and their investigation, examination, and approval by the Attorney General of the State of Texas, and their registration by the Comptroller of Public Accounts of the State of Texas. Upon registration of the Certificates said Comptroller of Public Accounts (or a deputy designated in writing to act for said Comptroller) shall manually sign the Comptroller's Registration Certificate attached to such Certificates, and the seal of said Comptroller shall be impressed, or placed in facsimile, on such Certificate. The approving legal opinion of the City's Bond Counsel and the assigned CUSIP numbers may, at the option of the City, be printed on the Certificates issued and delivered under this Ordinance, but neither shall have any legal effect, and shall be solely for the convenience and informa- 11UNINVILLF-CM001: Ord� 17 tion ofthe Registered Owners ofthe Certificates. In addition, ifbond insurance is obtained, the Certificates may bear an appropriate legend as provided by the insurer. Section 11. COVENANTS PIEGARDING TAX EXEMPTION OF INTEREST ON THE CERTIFICATES. The City covenants to take any action necessary to assure, or refrain from any action which would adversely affect, the treatment of the Certificates as obligations described in section 103 of the Internal Revenue Code of 1986, as amended (the "Code "), the interest on which is not includable in the "gross income" ofthe holder for purposes of federal income taxation. In furtherance thereof, the City covenants as follows: (a) to take any action to assure that no more than 10 percent of the proceeds of the Certificates or the projects financed therewith (less amounts deposited to a reserve fund, if any) are used for any "private business use," as defined in section 141(b)(6) ofthe Code or, if more than 10 percent of the proceeds or the projects financed therewith are so used, such amounts, whether or not received by the City, with respect to such private business use, do not, under the terms of this Ordinance or any underlying arrangement, directly or indirectly, secure or provide for the payment of mote than 10 percent ofthe debt service on the Certificates, in contravention of section 141(b)(2) of the Code; (b) to take any action to assure that in the event that the "private business use" described in subsection (a) hereof exceeds 5 percent of the proceeds of the Certificates or the projects financed therewith (less amounts deposited into a reserve fund, if any) then the amount in excess of5 percent is used for a "private business use" which is "related" and not "disproportionate," within the meaning of section 141(bx3) of the Code, to the governmental use; (c) to take any action to assure that no amount which is greater than the lesser of $5,000,000, or 5 percent ofthe proceeds ofthe Certificates (less amounts deposited into a reserve fund, if any) is directly or indirectly used to finance loans to persons, other than state or local governmental units, in contravention of section 141(c) of the Code; (d) to refrain from taking any action which would otherwise result in the Certificates being treated as "private activity bonds" within the meaning of section 141(b) of the Code; (e) to refrain from taking any action that would result in the Certificates being "federally guaranteed" within the meaning of section 149(b) of the Code; (f) to refrain from using any portion of the proceeds of the Certificates, directly or indirectly, to acquire or to replace funds which were used, directly or indirectly, to acquire investment property (as defined in section 148(bX2) of the Code) which produces a materially higher yield over the term of the Certificates, other than investment property acquired with — I[UV9'SVIIA- M.42043c Older 18 (1) proceeds of the Certificates invested for a reasonable temporary period of 3 years or less or, in the case of a refunding bond, for a period of 30 days or less until such proceeds are needed for the purpose for which the certificates are issued, (2) amounts invested in a bona fide debt service fund, within the meaning of section 1.148 -1(b) ofthe Treasury Regulations, and (3) amounts deposited in any reasonably required reserve or replacement fund to the extent such amounts do not exceed 10 percent of the proceeds of the Certificates; (g) to otherwise restrict the use of the proceeds of the Certificates or amounts treated as proceeds of the Certificates, as may be necessary, so that the Certificates do not otherwise contravene the requirements of section 148 of the Code (relating to arbitrage) and, to the extent applicable, section 149(d) of the Code (relating to advance ref endings); and (h) to pay to the United States of America at least once during each five -year period. (beginning on the date of delivery of the Certificates) an amount that is at least equal to 90 percent ofthe "Excess Earnings," within the meaning of section 148(f) ofthe Code and to pay to the United States of America, not later than 60 days after the Certificates have been paid in full, 100 percent of the amount then required to be paid as a result of Excess Earnings under section 148(f) of the Code. In order to facilitate compliance with the above covenant (h), a "Rebate Fund" is hereby established by the City for the sole benefit of the United States of America, and such fund shall not be subject to the claim of any other person, including without limitation, the bondholders. The Rebate Fund is established for the additional purpose of compliance with section 148 of the Code. For purposes ofthe foregoing (a) and (b), the City understands that the term "proceeds" includes "disposition proceeds" as defined in the Treasury Regulations and, in the case of refunding certificates, transferred proceeds (if any) and proceeds of the refunded bonds expended prior to the date of issuance of the Certificates. It is the understanding of the City that the covenants contained herein are intended to assure compliance with the Code and any regulations or rulings promulgated by the U.S. Department of the Treasury pursuant thereto. In the event that regulations or rulings are hereafter promulgated which modify or expand provisions of the Code, as applicable to the Certificates, the City will not be required to comply with any covenant contained herein to the extent that such failure to comply, in the opinion of nationally recognized bond counsel, will not adversely affect the exemption from federal income taxation of interest on the Certificates under section 103 of the Code. In the event that regulations or rulings are hereafter promulgated which impose additional requirements which are applicable to the Certificates, the City agrees to comply with the additional requirements to the extent necessary, in the opinion ofnationally recognized bond counsel, to preserve the exemption from federal income taxation of interest on the Certificates under section 103 ofthe Code. In furtherance of such intention, the City hereby authorizes and HUNTSVILL ECozoon Order 19 directs the Mayor to execute any documents, certificates or reports required by the Code and to make such elections, on behalf of the City, which may be pennitted by the Code as are consistent with the purpose for the issuance of the Certificates. Section 12. ALLOCATION OF AND LIMITATION ON, EXPENDITURES FOR THE PROJECT The City covenants to account for the expenditure of sale proceeds and investment earnings to be used for the purposes described in Section 1 of this Ordinance (each such purpose referred to herein and Section 13 hereof as a "Project ") on its books and records by allocating proceeds to expenditures within 18 months of the later of the date that (I) the expenditure is made, or (2) the Project is completed. The foregoing notwithstanding, the City shall not expend sale proceeds or investment earnings thereon more than 60 days after the later of (1) the fifth anniversary of the delivery of the Certificates, or (2) the date the Certificates are retired, unless the City obtains an opinion of nationally- recognized bond. counsel that such expenditure will not adversely affect the tax- exempt status of the Certificates. For purposes hereof, the City shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. Section 13. DISPOSITION OF PROJE CT. The City covenants that the property constituting the Project will not be sold or otherwise disposed in a transaction resulting in the receipt by the City of cash or other compensation, unless the City obtains an opinion of nationally- recognized bond counsel that such sale or other disposition will not adversely affect the tax- exempt status of the Certificates. For purposes of the foregoing, the portion of the property comprising personal property and disposed in the ordinary course shall not be treated as a transaction resulting in the receipt of cash or other compensation. For purposes hereof, the City shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludability for feral income tax purposes from gross income of the interest. Section 14. SALE OF CERTIFICATES. The Certificates are hereby sold and shall be delivered to (the "Initial Purchaser" or "Purchaser"), at the price of $ (which amount is equal to the principal amount of the Certificates plus a premium of $ ) plus accrued interest on the Certificates from November 15, 2001, to the date of initial delivery thereof, It is hereby officially found, determined and disclosed that the terms of the sale are the most advantageous reasonably obtainable and the Certificates have been awarded to the best and lowest cost bid. The City will initially deliverto the Purchaser one certificate for each maturity ofthe Certificates authorized under this Ordinance. Section 15. ESTABLISHMENT OF CONSTRUCTION FUND AND INTEREST EARNINGS. (a) Construction Fund. A special fund or account on the books of the City, to be designated the City of Huntsville Series 2001 Certificates of Obligation Construction Fund (the "2001 Construction Fund ") is hereby created and shall be established and maintained by the City. A portion of the proceeds from the sale of the Certificates shall be deposited in the 2001 Construction Fund in accordance with the Closing Instruction Letter prepared by the City's Director of Finance. The IFIUNTSVit,LU"02001: Order 20 Construction Fund and the Interest and Sinking Fund shall be invested in accordance with the Public Funds Investment Act, Chapter 2256, Texas Government Code, as amended, and the City's Investment Policy. (b) Interest Eami=. Interest earnings derived from the investment of proceeds firm the sale of the Certificates shall be used along with the Certificate proceeds for the purpose for which the Certificates are issued as set forth in Section I hereof or to pay principal or interest payments on the Certificates; provided that after completion ofsuch purpose, ifany of such interest earnings remain on hand, such interest eamings, shall be deposited in the Interest and Sinking Fund. It is further provided, however, that any interest earnings on bond proceeds which are required to be rebated to the United States of America pursuant to Section 11 hereof in order to prevent the Certificates from being arbitrage bonds shall be so rebated and not considered as interest earnings for the purposes of this Section. Any funds created by this Ordinance may be subaccounts of the City's General Fund held by the City's depository, and, as such, not held in separate bank accounts, such treatment shall not constitute commingling of the monies in such funds or of funds and the City shall keep full and complete records indicating the monies and investment credited to each such fund. Section 16. APPROVAL OF OFFICIAL STATEMENT. The City hereby approves the form and content of the Official Statement relating to the Certificates and any addenda, supplement or amendment thereto, and approves the distribution of such Official Statement in the reoffering of the Certificates by the Purchaser in final form, with such changes therein or additions thereto as the officer executing the same may deem advisable, such determination to be conclusively evidenced by his execution thereof. The distribution and use of the Preliminary Official Statement dated November 9, 2400 prior to the date hereof is confirmed and approved. The City Council hereby finds and determines that the Preliminary Official Statement and final Official Statement were "deemed final" (as that term is defined in 17 CFR Section 240.15c -12) as of their respective dates. Section 17. APPROVAL OF PAYING AGENT/REGISTRAR AGREEMENT AND LETTER OF REPRESENTATIONS. Attached hereto as Exhibit "B' is a substantially final forni ofthe Paying Agent/Registrar Agreement. The Mayor is hereby authorized to amend, complete or modify such agreement as necessary and is further authorized to execute such agreement and. the City Secretary is hereby authorized to attest such agreement. The City Council previously executed and delivered to DTC a "Blanket Letter of Representations" with respect to utilizing DTC's book-entry-only system. Section 18. CONTINUING DISCLOSURE UNDERTAKING. (a) Annual Rem. The City shall provide annually to each NRMSIR and any SID, within six months after the end of each fiscal year, financial information and operating data with respect to the City of the general type included in the final Official Statement authorized by Section 16 of this Ordinance, being the information described in Exhibit "C' hereto. Any financial statements so to be provided shall be (1) prepared in accordance with the accounting principles described in Exhibit "C' hereto, or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation, and (2) audited, if the City 11UNI5VILLIX-02001: OjVer 21 commissions an audit of such statements and the audit is completed within the period during which they must be provided. If the audit of such financial statements is not complete within such period, then the City shall provide unaudited financial statements and audited financial statements for the applicable fiscal year to each NRMSIR and any SID, when and if the audit report on such statements become available. If the City changes its fiscal year, it will notify each NRMSIR and any SID of the change (and of the date of the new fiscal year end) prior to the next date by which the City otherwise would be required to provide financial information and operating data pursuant to this Section. The financial information and operating data to be provided pursuant to this Section may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document, if it is available from the MSRB) that theretofore has been provided to each NRMSIR and any SID or filed with the SEC. (b) Material Event Notices. The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Certificates, if such event is material within the meaning of the federal securities laws: F. M14 A. Principal and interest payment delinquencies; B. Non-payment related defaults; C. Unscheduled draws on debt service reserves reflecting financial difficulties; D. Unscheduled draws on credit enhancements reflecting financial difficulties; E Substitution of credit or liquidity providers, or their failure to pefforin; F. Adverse tax opinions or events affecting the tax-exempt status of the Certificates; G. Modifications to rights of holders of the Certificates; H. Certificate calls; I. Defeasances; J. Release, substitution, or sale of property securing repayment of the Certificates; K. Rating changes. IMNISVILLECO2001: Ordcr 22 The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the City to provide financial information or operating data in accordance with Section 18(a) of this Ordinance by the time required by such Section. (c) Limitations. Disclaimers. and mend_m__ents. The City shall be obligated to observe and peifon-n the covenants specified. in this Section 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 notice of any deposit made in accordance with Section 8 that causes the Certificates no longer to be outstanding. The provisions of this Section are for the sole benefit of the holders and beneficial owners of the Certificates, and nothing in this Section, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The City undertakes to provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide pursuant to this Section and does not hereby undertake to provide any other information that may be relevant or material to a complete presentation of the City's financial results, condition, or prospects or hereby undertake to update any information provided in accordance with this Section or otherwise, except as expressly provided herein. The City does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Certificates at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY 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 PART, OF ANY COVENANT SPECIFIED IN THIS SECTION, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. No default by the City in observing or performing its obligations wider this Section shall comprise a breach of or default under the Ordinance for purposes of any other provision of this Ordinance. Nothing in this Section is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities laws. The provisions of this Section may be amended by the City from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, but only if (1) the provisions of this Section, as so amended, would. have pen-nitted an underwriter to purchase or sell Certificates in the primary offering of the Certificates in compliance with the Rule, taking into account any amendments or interpretations of the Rule since such offering as well as such changed circumstances and (2) either (a) the holders of a majority in aggregate principal amount (or any greater amount required by any other provision of this Ordinance that IIUNTSVILLECO' .001: Ordnr 23 authorizes such an amendment) of the outstanding Certificates consents to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) detennines that such amendment will not materially impair the interest of the holders and beneficial owners of the Certificates. Ifthe City so amends the provisions of this Section, it shall include with any amended financial information or operating data next provided in accordance with Section 18(a) an explanation, in narrative form, of the reason for the amendment and of the impact of any change in the type of financial information or operating data so provided. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provision of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, but only ifand to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Certificates in the primary offering of the Certificates. (d) Definitions. As used in this Section, the following terms have the meanings ascribed to such terms below: "MSRB" means the Municipal Securities Rulemaking Board. "NRMSIR" means each person whom the SEC or its staffhas determined to be a nationally recognized municipal securities information repository within the meaning of the Rule from time to tune. "Rule" means SEC Rule 15c2 -12, as amended from time to time. "SEC" means the United States Securities and Exchange Conunission. "SID" means any person designated by the State of Texas or an authorized department, officer, or agency thereof as, and determined by the SEC or its staff to be, a state information depository within the meaning of the Rule from time to time. Section 19. METHOD OF AMENDMENT. The City hereby reserves the right to amend this Ordinance subject to the following terns and conditions, to -wit: (a) The City may from time to time, without the consent of any holder, except as otherwise required by paragraph (b) below, amend or supplement this Ordinance in order to (i) cure any ambiguity, defect or omission in this Ordinance that does not materially adversely affect the interests of the holders, (ii) grant additional fights or security for the benefit of the holders, (iii) add events of default as shall not be inconsistent with the provisions of this Ordinance and that shall not materially adversely affect the interests of the holders, (v) qualify this Ordinance under the Tnrst Indenture Act of 1939, as amended, or corresponding provisions of federal laws from time to time in effect, or (iv) make such other provisions in regard to matters or questions arising under this Ordinance as shall not be inconsistent with the provisions of this Ordinance and that shall not in the opinion of the City's Bond Counsel materially adversely affect the interests of the holders. 110NISVILLEM2 w1: Ordtr 24 (b) Except as provided in paragraph (a) above, the holders of Certificates aggregating in principal arnount 51 % of the aggregate principal amount of then outstanding Certificates that are the subject of a proposed amendment shall have the right from time to time to approve any amendment hereto that may be deemed necessary or desirable by the City; provided, however, that without the consent of 100% of the holders in aggregate principal amount of the then outstanding Certificates, nothing herein contained shall pen-nit or be construed to permit amendment of the terms and conditions of this Ordinance or in any of the Certificates so as to: (1) Make any change in the maturity of any of the outstanding Certificates; (2) Reduce the rate of interest borne by any of the outstanding Certificates; (3) Reduce the amount of the principal of, or redemption premium, if any, payable on any outstanding Certificates; (4) Modify the terms of payment of principal or of interest or redemption premium on outstanding Certificates or any of them or impose any condition with respect to such payment; or (5) Change the minimum percentage of the principal amount of any series of Certificates necessary for consent to such amendment. (c) If at any time the City shall desire to amend this Ordinance under this Section, the City shall send by U.S. mail to each registered. owner of the affected Certificates a copy of the proposed amendment and cause notice of the proposed amendment to be published at least once in a financial publication published in The City ofNew York, New York or in the State of Texas. Such published notice shall briefly set forth the nature of the proposed amendment and shall state that a copy thereof is on file at the office of the City for inspection by all holders of such Certificates. (d) Whenever at any time within one year from the date of publication of such notice the City shall receive an instrument or instruments executed by the holders of at least 51 % in aggregate principal amount of all of the Certificates then outstanding that are required for the amendment, which instrument or instruments shall refer to the proposed amendment and that shall specifically consent to and approve such amendment, the City may adopt the amendment in substantially the same fonn. (e) Uponthe adoption of any amendatory Ordinance pursuant to the provisions ofthis Section, this Ordinance shall be deemed to be modified and amended in accordance with such amendatory Ordinance, and the respective rights, duties, and obligations of the City and all holders of such affected Certificates shall thereafter be determined, exercised, and enforced, subject in all respects to such amendment. I10NISviu_rc 02001: Ordu 25 (f) Any consent given by the holder of a Certificate pursuant to the provisions of this Section shall be irrevocable for a period of six months from the date of the publication of the notice provided for in this Section, and shall be conclusive and binding upon. all future holders of the same Certificate during such period. Such consent may be revoked at any time after six months from the date of the publication of said notice by the holder who gave such consent, or by a successor in title, by filing notice with the City, but such revocation shall not be effective if the holders of 5 l % in aggregate principal amount of the affected Certificates then outstanding, have, prior to the attempted revocation, consented to and approved the amendment. For the purposes of establishing ownership of the Certificates, the City shall rely solely upon the registration of the ownership of such Certificates on the registration books kept by the Paying Agent/Registrar. Section 20. NO RECOURSE AGAINST CITY OFFICIALS. No recourse shall be had for the payment of principal of or interest on the Certificates or for any claim based thereon or on this Ordinance against any official of the City or any person executing any Certificates. Section 21. FURT)~IER ACTIONS. The officers and employees of the City are hereby authorized, empowered and. directed from time to time and. at any time to do and perfonn all such acts and things and to execute, acknowledge and deliver in the name and under the corporate seal and on behalf of the City all such instruments, whether or not herein mentioned, as may be necessary or desirable in order to carry out the terms and provisions of this Ordinance, the Certificates, the initial sale and delivery of the Certificates, the Paying Agent/Registrar Agreement and the Official Statement. In addition, prior to the initial delivery of the Certificates, the Mayor, the City Manager, the Director or Finance, the City Attorney and Bond Counsel are hereby authorized and directed to approve any changes or corrections to this Ordinance or to any of the instruments authorized and approved by this Ordinance necessary in order to (i) correct any ambiguity or mistake or properly or more completely document the transactions contemplated and approved by this Ordinance and as described in the Official Statement or (ii) obtain the approval of the Certificates by the Texas Attorney General's office. In case any officer of the City whose signature shall appear on any Certificate shall cease to be such officer before the delivery of such Certificate, such signature shall nevertheless be valid and sufficient for all purposes the same as if such officer had remained in office until such delivery. Section 22. 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 tenns 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 lien on and pledge to secure the payment of the Certificates. HUNTSVRIFC.O2001: Order 26 Section 23. INCONSISTENT PROVISIONS. All ordinances, orders or resolutions, or parts thereof, which are in conflict or inconsistent with any provisions of this Ordinance are hereby repealed to the extent of such conflict and the provisions of this Ordinance shall be and remain controlling as to the matters contained herein. Section 24. INTF FSTED PARTIES. Nothing in this Ordinance expressed or implied is intended or shall be construed to confer upon, or to give to, any person or entity, other than the City and. the registered owners of the Certificates, any right, remedy or claim under or by reason of this Ordinance or any covenant, condition or stipulation hereof, and all covenants, stipulations, promises and agreements in this Ordinance contained by and on behalf of the City shall be for the sole and exclusive benefit of the City and the registered owners of the Certificates. Section 25. INCORPORATION OF RECITALS. The City hereby finds that the statements set forth in the recitals of this Ordinance are true and correct, and the City hereby incorporates such recitals as a part of this Ordinance. Section 26. REPEALER. All orders, resolutions and ordinances, or parts thereof, inconsistent herewith are hereby repealed to the extent of such inconsistency. Section 27. SE VERABILITY. The provisions of this Ordinance are severable; and in case any one or more of the provisions of this Ordinance or the application thereof to any person or circumstance should be held to be invalid, unconstitutional, or ineffective as to any person or circumstance, the remainder of this Ordinance nevertheless shall be valid, and the application of any such invalid provision to persons or circumstances other than those as to which it is held invalid shall not be affected thereby. Section 28. APPROPRIATION. There is hereby appropriated from lawfully available funds on hand, the funds necessary to make the interest payments on the Certificates on August 15, 2002. RUNISV«.Lrco2001: order 27 INTRODUCED, PASSED, APPROVED AND ADOPTED by the members of the City Council of the City of Huntsville, this the 13*k day of 2001. William Q. Green, Mayor City of Huntsville, Texas ATTEST: Danna Welter, City Secretary APPROVED AS TO FORM: )aul 4Csh?, City Attorney HOVTSVILLGCO2001: Order 28 EXHIBIT "A" PRELIMINARY OFFICIAL STATEMENT DATED NOVEMBER 1, 2001 NEW ISSUE - Book -Entry -Only Ratings: Moody's: "Applied For" S &P: Applied For See ( "OTHER INFORMATION - RATINGS" herein) In the opinion of Bond Counsel, interest on the Certificates will be excludable from gross income for federal income 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. THE CERTIFICATES WILL NOT BE DESIGNATED AS "QUALIFIED TAX - EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS $5,000,000 CITY OF HUNTSVILLE, TEXAS (Walker County) COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2001 Dated Date: November 15, 2001 Due: August 15, as shown on inside cover page PAYMENT TERMS ... Interest on the $5,000,000 City of Huntsville, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2001 (the "Certificates ") will accrue from November 15, 2001 (the "Dated Date "), and will be payable August 15 and February 15 of each year commencing August 15, 2002, and will be calculated on the basis of a 360 -day year consisting of twelve 30 -day months. The definitive Certificates will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ( "DTC ") pursuant to the Book - Entry-Only System described herein. Beneficial ownership of the Certificates may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Certificates will be made to the owners 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 participating members of DTC for subsequent payment to the beneficial owners of the Certificates. See "THE CERTIFICATES - BOOK- ENTRY -ONLY SYSTEM" herein. The initial Paying Agent/Registrar is Wells Fargo Bank Texas, N.A., Houston, Texas (see "THE CERTIFICATES - PAYING AGENT/REGISTRAR "). AUTHORITY FOR ISSUANCE ... The Certificates are issued pursuant to the Constitution and general laws of the State of Texas, (the "State ") particularly Subchapter C of Chapter 271, Texas Local Government Code (the Certificate of Obligation Act of 1971), as amended, and Section 1502.052, Texas Government Code, as amended, and constitute direct obligations of the City of Huntsville, Texas (the "City"), payable from a combination of (i) the levy and collection of a direct and continuing ad valorem tax, within the limits prescribed by law, on all taxable property within the City, and (ii) a limited pledge (not to exceed $1,000) of surplus net revenues of the City's Waterworks and Sewer System, as provided in the ordinance authorizing the Certificates (the "Ordinance ") (see "THE CERTIFICATES - AUTHORITY FOR ISSUANCE "). PURPOSE ... Proceeds from the sale of the Certificates will be used for (i) constructing, improving and equipping a golf course and related infrastructure and improvements, (ii) constructing and improving wastewater lines and (iii) paying professional services including legal, fiscal, construction management and engineering fees and the costs of issuance. See Maturity Schedule on the Inside Cover Page OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem Certificates having stated maturities on and after August 15, 2012, in whole or from time to time in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2011, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "THE CERTIFICATES - OPTIONAL REDEMPTION "). MANDATORY SINKING FUND REDEMPTION ... In addition to the foregoing optional redemption provision, if principal amounts designated in the serial maturity schedule above are combined to create Term Certificates, each such Term Certificate shall be subject to mandatory sinking fund redemption commencing on August 15 of the first year which has been combined to form such Tema Certificate and continuing on August 15 in each year thereafter until the stated maturity date of that Term Certificate, and the amount required to be redeemed in any year shall be equal to the principal amount for such year set forth in the serial maturity schedule above. Term Certificates to be redeemed in any year by mandatory sinking fund redemption shall be redeemed at par and shall be selected by lot from and among the Term Certificates then subject to redemption. The City, at its option, may credit against any mandatory sinking fund redemption requirement Term Certificates of the maturity then subject to redemption which have been purchased and canceled by the City or have been redeemed and not theretofore applied as a credit against any mandatory sinking fund redemption requirement (see "THE CERTIFICATES — MANDATORY SINKING FUND REDEMPTION "). LEGALITY ... The Certificates are offered for delivery when, as and if issued and received by the initial purchaser(s) and subject to the approving opinion of the Attorney General of Texas and the opinion of McCall, Parkhurst & Horton L.L.P„ Bond Counsel, Austin, Texas (see "APPENDIX C - FORM OF BOND COUNSEL'S OPINION "). DELIVERY ... It is expected that the Certificates will be available for delivery through The Depository Trust Company on December 13, 2001. BIDS DUE TUESDAY, NOVEMBER 13, 2001, AT 3:00 P.M., CST MATURITY SCHEDULE Due Interest Principal August 15 Rate $ 75,000 2004 80,000 2005 80,000 2006 85,000 2007 90,000 2008 95,000 2009 100,000 2010 110,000 2011 115,000 2012 120,000 2013 125,000 2014 135,000 2015 140,000 • 2016 150,000 2017 155,000 2018 MATURITY SCHEDULE (Accrued Interest from November 15, 2001 to be added) 2 Yield Due Interest Yield Principal August 15 Rate $ 165,000 2019 175,000 2020 185,000 2021 195,000 2022 205,000 2023 215,000 2024 225,000 2025 240,000 2026 255,000 2027 265,000 2028 280,000 2029 295,000 2030 315,000 2031 330,000 2032 (Accrued Interest from November 15, 2001 to be added) 2 Yield This Official Statement, which includes the cover page and the Appendices hereto, does not constitute an offer to sell or the solicitation of an offer to buy in any jurisdiction to any person to whom it is unlawful to make such offer, solicitation or sale. No dealer, broker, salesperson or other person has been authorized to give information or to make any representation other than those contained in this Qf1cial Statement, and, if given or made, such other information or representations must not be relied upon. The information set forth herein has been obtained from the City and other sources believed to be reliable, but such information is not guaranteed as to accuracy or completeness and is not to be construed as the promise or guarantee of the Financial Advisor. This Official Statement contains, in part, estimates and matters of opinion which are not intended as statements of fact, and no representation is made as to the correctness of such estimates and opinions, or that they will be realized The information and expressions of opinion contained herein 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 TABLE OF CONTENTS OFFICIAL STATEMENT SUMMARY...... CITY OFFICIALS, STAFF AND CONSULTANTS ..... 6 ELECTED OFFICIALS ................................................... 6 SELECTED ADMINISTRATIVE STAFF .............................6 CONSULTANTS AND ADVISORS ...... ..............................6 INTRODUCTION .............................. ..............................7 THE CERTIFICATES ....................... ..............................7 TAX INFORMATION ...................... .............................12 26 TABLE I - VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT .......................................... 15 TABLE 2 - TAXABLE ASSESSED VALUATIONS BY REGISTRATION AND QUALIFICATION OF CERTIFICATES CATEGORY...................................................... 16 TABLE 3 - VALUATION AND GENERAL OBLIGATION DEBT HISTORY ................................................ 17 TABLE 4 - TAX RATE, LEVY AND COLLECTION 26 HISTORY.......................... ............................... 17 TABLE 5 - TEN LARGEST TAXPAYERS ..................... 17 TABLE 6 - TAX ADEQUACY ...... ............................... 18 TABLE 7 - ESTIMATED OVERLAPPING DEBT ............ 18 DEBT INFORMATION .................... .............................19 TABLE 8 - PRO -FORMA GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS .. ............................... 19 TABLE 9 - INTEREST AND SINKING FUND BUDGET PROJECTION .................................................... 19 TABLE 10 -COMPUTATION OF SELF-SUPPORTING DEBT20 TABLE I I - AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS ........................................ 20 TABLE 12 - OTHER OBLIGATIONS . .............................20 FINANCIAL INFORMATION ........ .............................21 TABLE 13 - GENERAL FUND REVENUES AND EXPENDITURES ................................................ 21 TABLE 14 - MUNICIPAL SALES TAX HISTORY .........22 FINANCIAL POLICIES .................... .............................22 INVESTMENTS ........................................................... 23 TABLE 15 - CURRENT INVESTMENTS.........................24 TAX MATTERS ................................ .............................24 OTHER INFORMATION ............................................. 26 RATINGS.................................................................. 26 LITIGATION ............................... ............................... 26 REGISTRATION AND QUALIFICATION OF CERTIFICATES FORSALE ........................................................ 26 LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS ................................. 26 LEGAL OPINIONS AND NO- LITIGATION CERTIFICATE 26 AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION ................................................. 27 CONTINUING DISCLOSURE OF INFORMATION ............. 27 FINANCIAL ADVISOR ................................................ 28 INITIAL PURCHASER .................. ............................... 28 FORWARD-LOOKING STATEMENTS DISCLAIMER......... 29 MISCELLANEOUS ....................... ............................... 29 CERTIFICATION OF THE OFFICIAL STATEMENT.. ........ 29 APPENDICES GENERAL INFORMATION REGARDING THE CITY .........A EXCERPTS FROM THE ANNUAL FINANCIAL REPORT... B FORM OF BOND COUNSEL'S OPINION .......................... C The cover page hereof, inside cover page, this page, the appendices included herein and any addenda, supplement or amendment hereto, are part of the Official Statement. OFFICIAL STATEMENT SUMMARY This summary is subject in all respects to the more complete information and definitions contained or incorporated in this Official Statement. The offering of the Certificates to potential investors is made only by means of this entire Official Statement. No person is authorized to detach this summary from this Official Statement or to otherwise use it without the entire Official Statement. THE CITY ...... ............................... The City of Huntsville is a political subdivision and municipal corporation of the State, located in Walker County, Texas. The City covers approximately 31 square miles (see "INTRODUCTION - DESCRIPTION OF CITY "). THE CERTIFICATES ..................... The Certificates are issued as $5,000,000 Combination Tax and Revenue Certificates of Obligation, Series 2001. The Certificates are issued as serial certificates maturing August 15, 2004 through August 15, 2032, unless the purchaser designates one or more maturities as a Term Certificate (see "THE CERTIFICATES - DESCRIPTION OF THE CERTIFICATES "). PAYMENT OF INTEREST .............. Interest on the Certificates accrues from November 15, 2001, and is payable August 15, 2002 and each February 15 and August 15 thereafter until maturity or prior redemption (see "THE CERTIFICATES - DESCRIPTION of THE CERTIFICATES" and "THE CERTIFICATES - OPTIONAL REDEMPTION "). AUTHORITY FOR ISSUANCE.......... The Certificates are issued pursuant to the general laws of the State, particularly Subchapter C of Chapter 271, Texas Local Government Code (the Certificate of Obligation Act of 1971), as amended, Section 1502.052, Texas Government Code, as amended, and an Ordinance passed by the City Council of the City (see "THE CERTIFICATES - AUTHORITY FOR ISSUANCE "). SECURITY FOR THE CERTIFICATES .............................. The Certificates constitute direct obligations of the City, payable from a combination of (i) the levy and collection of a direct and continuing ad valorem tax, within the limits prescribed by law, on all taxable property within the City, and (ii) a limited pledge (not to exceed $1,000) of surplus net revenues of the City's Waterworks and Sewer System (see "THE CERTIFICATES - SECURITY AND SOURCE OF PAYMENT "). REDEMPTION ............................... The City reserves the right, at its option, to redeem Certificates having stated maturities on and after August 15, 2012, in whole or from time to time in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2011, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. Additionally, the Certificates may be subject to mandatory redemption in the event the initial purchaser elected to aggregate one or more maturities as a Term Certificate (see "THE CERTIFICATES - MANDATORY SINKING FUND REDEMPTION "). TAx ExENIPTION .......................... In the opinion of Bond Counsel, the interest on the Certificates will be excludable from gross income for federal income tax purposes under existing law, subject to the matters described under the caption "TAX MATTERS" herein, including the alternative minimum tax on corporations. USE OF PROCEEDS ....................... Proceeds from the sale of the Certificates will be used for (i) constructing, improving and equipping a golf course and related infrastructure and improvements, (ii) constructing and improving wastewater lines and (iii) paying professional services including legal, stet, construction management and engineering fees and the costs of issuance. RATINGS ....... ............................... The presently outstanding tax supported debt of the City is rated "A3" by Moody's Investors Service, Inc. ( "Moody's ") and "A" by Standard & Poor's Ratings Services, A Division of The McGraw -Hill Companies, Inc. ( "S &P "). The City also has four issues outstanding, which are rated "Aaa" by Moody's and "AAA" by S &P through insurance by various commercial insurance companies. Applications for contract ratings on the Certificates have been made to Moody's and S &P (see "OTHER INFORMLATION - RATINGS "). 4 BOOK -ENTRY -ONLY SYSTEM ....... ............................... The definitive Certificates will be initially registered and delivered only to Cede & Co., the nominee of DTC pursuant to the Book - Entry -Only System described herein. Beneficial ownership of the Certificates may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Certificates will be made to the beneficial owners 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 participating members of DTC for subsequent payment to the beneficial owners of the Certificates (see "THE CERTIFICATES - BOOK- ENTRY -ONLY SYSTEM "). PAYMENT RECORD ..................... The City has never defaulted in payment of its general obligation tax debt. SELECTED FINANCIAL INFORMATION (1) Source: U.S. Census Bureau. The values for fiscal years 1997 through 1999 are based on the City's 1990 Census population held constant. The City's 1990 census was 27,925, and in 1994 and 1997, the city annexed property increasing the population to an estimated 34,592. The values for fiscal years 2000 through 2002 are based on the City's 2000 Census population held constant. (2) As reported by the Walker County Appraisal District. (3) Payable from ad valorem taxes. Includes self - supporting debt. (4) Increase due to annexation. (5) Projected, includes the Certificates. (6) In process of collection. GENERAL FUND CONSOLIDATED STATEMENT SUMMARY For Fiscal Year Ended September 30 2001 p 2000 1999 1998 1997 Ratio Tax $ 4,686,531 $ 4,638,233 $ Fiscal $ 4,052,039 $ 3,230,306 Total Revenue Per Capita General Per Debt to 8,559,858 9,515,130 Year Estimated Taxable Taxable Obligation Capita Taxable Percent Ended City Assessed Assessed (G.O.) G.O. Assessed Total 9/30 Population(l) Valuation") Valuation Tax Debt(3) Tax Debt Valuation Collection 1997 34,592 $ 515,929,690 $ 14,915 $ 13,105,000 $ 379 2.54% 99.48% 1998 34,592 537,100,530 (4) 15,527 12,825,000 371 2.39% 100.64% 1999 34,592 561,573,333 16,234 18,810,000 544 3.35% 99.52% 2000 35,078 638,054,799 18,190 17,355,000 495 2.72% 99.97% 2001 35,078 674,212,375 19,220 20,825,000 594 109% 99.18 °l.0.,_. 2002 35,078 730,223,600 20,817 24,725,000 ts) 705 ts) 3.39% ts) (6) (1) Source: U.S. Census Bureau. The values for fiscal years 1997 through 1999 are based on the City's 1990 Census population held constant. The City's 1990 census was 27,925, and in 1994 and 1997, the city annexed property increasing the population to an estimated 34,592. The values for fiscal years 2000 through 2002 are based on the City's 2000 Census population held constant. (2) As reported by the Walker County Appraisal District. (3) Payable from ad valorem taxes. Includes self - supporting debt. (4) Increase due to annexation. (5) Projected, includes the Certificates. (6) In process of collection. GENERAL FUND CONSOLIDATED STATEMENT SUMMARY E For Fiscal Year Ended September 30 2001 p 2000 1999 1998 1997 Beginning Balance $ 4,686,531 $ 4,638,233 $ 4,927,917 $ 4,052,039 $ 3,230,306 Total Revenue 9,720,061 10,604,797 10,182,647 9,874,153 8,881,579 Total Expenditures 8,559,858 9,515,130 9,083,929 9,001,659 8,286,391 Total Other Sources (Uses) (1,586,804) (1,041,369) (1,388,402) 3,384 226,545 Ending Balance $ 4,259,930 $ 4,686,531 $ 4,638,233 $ 4,927,918 $ 4,052,039 For additional information regarding the City, please contact: Mr. Bob Hart Mr. Joseph Morrow Mr. Boyd London Ms. Patricia Allen First Southwest Company First Southwest Company City of Huntsville or 1021 Main Street or 1700 Pacific Avenue 1212 Avenue M Suite 2200 Suite 500 Huntsville, Texas 77340 Houston, Texas 77002 Dallas, Texas 75201 (936) 291 -5440 Phone (713) 651 -9850 Phone (214) 953 -4000 Phone (936) 291 -5489 Fax (713) 654 -8658 Fax (214) 953 -4050 Fax E ELECTED OFFICIALS CITY OFFICIALS, STAFF AND CONSULTANTS Citv Council Dr. William B. Green Mayor Marjorie Rex Mayor Pro -tem Mark E. Erb Councilmember John Escobedo Councilmember Gary Crawford Councilmember Ralph Davis Councilmember Steed Smith Councilmember -at -Large Vance Howard Councilmember -at -Large David Martinez Councilmember -at -Large SELECTED ADMINISTRATIVE STAFF Name Position Bob Hart City Manager Patricia Allen Director of Finance Danna Welter City Secretary Paul Isham City Attorney Occupation Professor Real Estate Agent Business Owner Retired Business Owner Retired Professor Stock Broker Business Owner Length of Service to Citv 2 Years t� 25 Years 1,4 Years 3 Years (1) Mr. Hart has served in municipal government for 26 years and as City Manager in various locations for 21 years. CONSULTANTS AND ADVISORS Certified Public Accountant ............................................................................................ ............................... Kenneth C. Davis, P.C. Huntsville, Texas BondCounsel .............................................................................................. ............................... McCall, Parkhurst & Horton L.L.P. Austin, Texas FinancialAdvisor ....................................................................................................... ............................... First Southwest Company Houston and Dallas, Texas PRELIMINARY OFFICIAL STATEMENT RELATING TO $5,000,000 CITY OF HUNTSVILLE, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2001 INTRODUCTION This Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance of $5,000,000 City of Huntsville, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2001. Capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Ordinance to be adopted on the date of sale of the Certificates which will authorize the issuance of the Certificates, except as otherwise indicated herein. There follows in this Official Statement descriptions of the Certificates and certain information regarding the City and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the City's Financial Advisor, First Southwest Company, Houston and Dallas, Texas. DESCRIPTION OF THE CITY ... The City is a political subdivision and municipal corporation of the State, duly organized and existing under the laws of the State, including the City's Horne Rule Charter. The City was incorporated January 30, 1845, and first adopted its Home Rule Charter on September 28, 1968. The City operates under a City Manager form of government where the Mayor and eight Council members are elected for staggered two -year terms. The City Council formulates operating policy for the City, and the City Manager is the chief administrative officer for the City. The 1990 Census population for the City was 27,925, while the 2000 Census population was 35,068. The City covers approximately 31 square miles. THE CERTIFICATES DESCRIPTION OF THE CERTIFICATES ... The Certificates are dated November 15, 2001, and mature on August 15 in each of the years and in the amounts shown on the inside cover page hereof subject to the designation of Term Certificates by the Purchaser. Interest will be computed on the basis of a 360 -day year of twelve 30 -day months, and will be payable on February 15 and August 15, commencing August 15, 2002. The definitive Certificates will be issued only in fully registered form in any integral multiple of $5,000 for any one maturity and will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ( "DTC ") pursuant to the Book- Entry-Only System described herein. No physical delivery of the Certificates will be made to the owners 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 participating members of DTC for subsequent payment to the beneficial owners of the Certificates. See "BOOK - ENTRY -ONLY SYSTEM" herein. AUTHORITY FOR ISSUANCE ...The Certificates are being issued pursuant to the Constitution and general laws of the State of Texas, particularly Subchapter C of Chapter 271, Texas Local Government Code (the Certificate of Obligation Act of 1971), as amended, Section 1502.052, Texas Government Code amended, and an Ordinance passed by the City Council. SECURITY AND SOURCE OF PAYMENT... All taxable property Within the City is subject to a continuing direct annual ad valorem tax levied by the City sufficient to provide for the payment of principal of and interest on all obligations payable in whole or in part from ad valorem taxes, which tax must be levied within limits prescribed by law. Additionally, the Certificates are payable from and secured by a limited pledge (not to exceed $1,000) of surplus net revenues of the City's Waterworks and Sewer System, as provided in the Ordinance authorizing the Certificates. TAx RATE LIMITATION ... All taxable property within the City is subject to the assessment, levy and collection by the City of a continuing, direct annual ad valorem tax sufficient to provide for the payment of principal of and interest on all ad valorem tax debt within the limits prescribed by law. Article XI, Section 5, of the Texas Constitution is applicable to the City, and limits its maximum ad valorem tax rate to $2,50 per $100 Taxable Assessed Valuation for all City purposes. The Home Rule Charter of the City adopts the constitutionally authorized maximum tax rate of $2.50 per $100 Taxable Assessed Valuation. Administratively, the Attorney General of the State of Texas will permit allocation of $1.50 of the $2.50 maximum tax rate for all General Obligation debt service, as calculated at the time of issuance. OPTIONAL. REDEMPTION ... The City reserves the right, at its option, to redeem Certificates having stated maturities on and after August 15, 2012, in whole or from time to time in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2011, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. If less than all of the Certificates are to be redeemed, the City may select the maturities of Certificates to be redeemed. If less than all the Certificates of any maturity are to be redeemed, the Paying Agent/Registrar (or DTC while the Certificates are in Book -Entry-Only form) shall determine by lot the Certificates, or portions thereof, within such maturity to be redeemed. If a Certificate (or any portion 7 of the principal sum thereof) shall have been called for redemption and notice of such redemption shall have been given, such Certificate (or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date. MANDATORY SINKING FUND REDEMPTION ... In addition to the foregoing optional redemption provision, if principal amounts designated in the serial maturity schedule above are combined to create Term Certificates, each such Term Certificate shall be subject to mandatory sinking fund redemption commencing on August 15 of the first year which has been combined to form such Term Certificate and continuing on August 15 in each year thereafter until the stated maturity date of that Term Certificate, and the amount required to be redeemed in any year shall be equal to the principal amount for such year set forth in the serial maturity schedule above. Term Certificates to be redeemed in any year by mandatory sinking fund redemption shall be redeemed at par and shall be selected by lot from and among the Term Certificates then subject to redemption. The City, at its option, may credit against any mandatory sinking fund redemption requirement Term Certificates of the maturity then subject to redemption which have been purchased and canceled by the City or have been redeemed and not theretofore applied as a credit against any mandatory sinking fund redemption requirement. The principal amount of Term Certificates required to be redeemed pursuant to the operation of such mandatory redemption provisions may be reduced, at the option of the City, by the principal amount of Term Certificates of the same maturity which (i) shall have been acquired by the City at a price not exceeding the principal amount of such Term Certificates plus accrued interest to the date of purchase and delivered to the Paying Agent/Registrar for cancellation or (ii) shall have been redeemed pursuant to the optional redemption provisions and not theretofore credited against a mandatory redemption requirement. 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 the registered owners of the Certificates 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. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE 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. DTC REDEMPTION PROVISIONS... The Paying Agent/Registrar and the City, so long as a Book - Entry-Only System is used for the Certificates, will send any notice of redemption, notice of proposed amendment to the Ordinance or other notices with respect to the Certificates only to DTC. Any failure by DTC to advise and DTC Participant, or of any Direct Participant or Indirect Participant to notify the beneficial owner, shall not affect the validity of the redemption of the Certificates called for redemption or any other action premised on any such notice. Redemption of portions of the Certificates by the City will reduce the outstanding principal amount of such Certificates held by DTC. In such event, DTC may implement, through its Book - Entry-Only System, a redemption of such Certificates held for the account of DTC Participants in accordance with its rules or other agreements with DTC Participants and then Direct Participants and Indirect Participants may implement a redemption of such Certificates and such redemption will not be conducted by the City or the Paying Agent/Registrar. Neither the City nor the Paying Agent/Registrar will have any responsibility to DTC Participants, Indirect Participants or persons for whom DTC Participants, or beneficial owners of the selection of portions of the Certificates for redemption. (See "THE CERTIFICATES -BOOK- ENTRY - ONLY - SYSTEM" herein.) DEFEASANCE ...General. The Ordinance provides for the defeasance of the Certificates and the termination of the pledge of taxes and revenues and all other general defeasance covenants in the Ordinances under certain circumstances. Any Certificate and the interest thereon shall be deemed to be paid, retired and no longer outstanding (a "Defeased Obligation ") within the meaning of the Ordinance, except to the extent provided below for the Paying Agent/Registrar to continue payments and for the City to retain the right to call Defeased Obligations to be paid at maturity, when the payment of all principal and interest payable with respect to such Certificate to the due date or dates thereof (whether such due date or dates be by reason of maturity, upon redemption, or otherwise) either (1) shall have been made or caused to be made in accordance with the terms thereof (including the giving of any required notice of redemption) or (2) shall have been provided for on or before such due date by irrevocably depositing with or making available to the Paying Agent/Registrar for such payment (a) lawful money of the United States of America sufficient to make such payment, (b) Defeasance Securities (defined below) that mature as to principal and interest in such amounts and at such times as will ensure the availability, without reinvestment, of sufficient money to provide for such payment and when proper arrangements have been made by the City with the Paying Agent/Registrar for the payment of its services until after all Defeased Obligations shall have become due and payable or (c) any combination of (a) and (b). At such time as a Certificate shall be deemed to be a Defeased Obligation, such Certificate and the interest thereon shall no longer be secured by, payable from, or entitled to the benefits of, the ad valorem taxes and revenues levied and pledged as provided in the Ordinance, and such principal and interest shall be payable solely from such money or Defeasance Securities. The deposit under clause (2) above shall be deemed a payment of a Certificate when proper notice of redemption of such Certificates shall have been given, in accordance with the Ordinance. Any money so deposited with the Paying Agent/Registrar may at the discretion of the City Council also be invested in Defeasance Securities, as hereinafter defined, maturing in the amounts and at the times as set forth in the Ordinance, and all income from such Defeasance Securities received by the Paying Agent/Registrar that is not required for the payment of the Certificates and interest thereon, with respect to which such money has been so deposited, shall be turned over to the City Council. All money or Defeasance Securities set aside and held in trust pursuant to the provisions of the Ordinance for the payment of principal of the Certificates and premium, if any, and interest thereon, shall be applied to and used solely for the payment of the particular Certificates and premium, if any, and interest thereon, with respect to which such money or Defeasance Securities have been so set aside in trust. Until all Defeased Obligations shall have become due and payable, the Paying Agent/Registrar shall perform the services of Registrar for such Defeased Obligations the same as if they had not been defeased, and the City shall make proper arrangements to provide and pay for such services as required by the Ordinance. If money or Defeasance Securities have been deposited or set aside with the Paying Agent/Registrar for the payment of Certificates and such Certificates shall not have in fact been actually paid in full, no amendment of the defeasance provisions of the Ordinance shall be made without the consent of the registered owner of each Certificate affected thereby. Retention of Rights. To the extent that, upon the defeasance of any Defeased Obligation to be paid at its maturity, the City retains the right under Texas law to later call that Defeased Obligation for redemption in accordance with the provisions of the order authorizing its issuance, the City may call such Defeased Obligation for redemption upon complying with the provisions of Texas law and upon the satisfaction of the provisions set forth above regarding such Defeased Obligation as though it was being defeased at the time of the exercise of the option to redeem the Defeased Obligation and the effect of the redemption is taken into account in determining the sufficiency of the provisions made for the payment of the Defeased Obligation. Investments. Any escrow agreement or other instrument entered into between the City and the Paying Agent/Registrar pursuant to which money and/or Defeasance Securities are held by the Paying Agent(Registrar for the payment of Defeased Obligations may contain provisions permitting the investment or reinvestment of such moneys in Defeasance Securities or the substitution of other Defeasance Securities upon the satisfaction of certain requirements. All income from such Defeasance Securities received by the Paying Agent/Registrar which is not required for the payment of the Certificates and interest thereon, with respect to which such money has been so deposited, will be remitted to the City Council. For the purposes of these provisions, "Defeasance Securities" means (i) Federal Securities, (ii) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the City Council adopts or approves proceedings authorizing the issuance of refunding bonds or otherwise provide for the funding of an escrow to effect the defeasance of the Certificates are rated as to investment quality by a nationally recognized investment rating firm not less than "AAA" or its equivalent, and (iii) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the City Council adopts or approves proceedings authorizing the issuance of refunding bonds or otherwise provide for the funding of an escrow to effect the defeasance of the Certificates, are rated as to investment quality by a nationally recognized investment rating firm no less than "AAA" or its equivalent. For the purposes of these provisions, "Federal Securities" means direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America. AMENDMENTS TO THE ORDINANCE ... In the Ordinance, the City has reserved the right to amend the Ordinance without the consent of any owners for the purpose of amending or supplementing the Ordinance to (1) cure any ambiguity, defect or omission therein that does not materially adversely affect the interests of the owners, (2) grant additional rights or security for the benefit of the owners, (3) add events of default as shall not be inconsistent with the provisions of the Ordinance that do not materially adversely affect the interests of the owners, (4) qualify the Ordinance under the Trust Indenture Act of 1939, as amended, or corresponding provisions of federal laws from time to time in effect, or (5) make such other provisions in regard to matters or questions arising under the Ordinance that are not inconsistent with the provisions thereof and which, in the opinion of Bond Counsel for the City, do not materially adversely affect the interests of the owners. The Ordinance further provides that the owners 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 if it is deemed necessary or desirable by the City; provided, however, that without the consent of 140% of the owners in original principal amount of the then outstanding Certificates, no amendment may be made for the purpose of. (1) making any change in the maturity of any of the outstanding Certificates; (2) reducing the rate of interest borne by any of the outstanding Certificates; (3) reducing the amount of the principal of, or redemption premium, if any, payable on any outstanding Certificates; (4) 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 (5) 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. BOOK - ENTRY -ONLY SYSTEM ... This section describes how ownership of the Certificates are to be transferred and how the principal of premium, if any, and interest on the Certificates are to be paid to and credited by The Depository Trust Company ( "DTC'), New York, New York, while the Certificates are registered in its nominee name. The information in this section concerning DTC and the Book -Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The City believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. The City cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Certificates, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Certificates), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Certificates. The Certificates will be issued as fully- registered securities registered in the name of Cede & Co. (DTC's partnership nominee). One fully- registered certificate will be issued for each maturity of the Certificates in the aggregate principal amount of each such maturity and will be deposited with DTC. DTC is a limited - purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds securities that its participants ( "Direct Participants ") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book -entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system 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 Direct Participant, either directly or indirectly ( "Indirect Participants "). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of Certificates under the DTC system must be made by or through DTC Participants, which will receive a credit for such purchases 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 or Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interest in the Certificates are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Certificates, except in the event that use of the book -entry system described herein 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. The deposit of Certificates with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 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 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. Redemption notices shall be sent to Cede & Co. If less than all of the Certificates within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. will consent or vote with respect to the Certificates. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the Record Date (hereinafter defined). 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). 10 Principal and interest payments on the Certificates will be made to DTC. DTC's practice is to credit Direct Participants' accounts on each payable date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on such payable date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Paying Agent/Registrar or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the City, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Certificates at any time by giving reasonable notice to the City. Under such circumstances, in the event that a successor securities depository is not obtained, Certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book -entry transfers through DTC (or a successor securities depository). In that event, Certificates will be printed and delivered. Use of Certain Terms in Other Sections of this Official Statement. In reading this Official Statement it should be understood that while the Certificates are in the Book -Entry Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Certificates, but (i) all rights of ownership must be exercised through DTC and the Book -Entry Only System, and (ii) except as described above, notices that are to be given to registered owners under the Ordinance will be given only to DTC. Information concerning DTC and the Book -Entry Only System has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by the City or the Purchasers. Effect of Termination of Book -Entry Only System. In the event that the Book -Entry Only System is discontinued by DTC or the use of the Book -Entry Only System is discontinued by the City, printed certificates will be issued to the holders and `the Certificates will be subject to transfer, exchange and registration provisions as set forth in the Ordinance and summarized under "The Certificates - Transfer, Exchange and Registration" below. RECORD DATE FOR INTEREST PAYMENT ... The record date ( "Record Date ") for the interest payable on the Certificates on any interest payment date means the close of business on the last business day of the preceding month. 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 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 ( "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 Holder of a Certificate appearing on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. TRANSFER, EXCHANGE AND REGISTRATION... In the event the Book- Entry-Only System should be discontinued, 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 transfer or exchange 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, exchange and transfer. Certificates may be assigned by the execution of an assignment form on the respective Certificates or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. New Certificates will be delivered by the Paying Agent/Registrar, in lieu of the Certificates 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 or his designee. To the extent possible, new Certificates issued in an exchange or transfer of Certificates will be delivered to the registered owner or assignee of the registered owner in not more than three business days after the receipt of the Certificates to be canceled, 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 Certificates registered and delivered in an exchange or transfer shall be in any integral multiple of $5,000 for any one maturity and for a like aggregate principal amount as the Certificates surrendered for exchange or transfer. See `BOOK - ENTRY -ONLY SYSTEM" herein for a description of the system to be utilized initially in regard to ownership and transferability of the Certificates. Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Certificate called for redemption, in whole or in part, within 45 days of the date fixed for redemption; provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Certificate. BONDHOLDERS' REMEDIES ... The Ordinance does not establish 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 of Certificates could presumably obtain a judgment against the City if a default occurred in the payment of principal of or interest on any such Certificates, 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 II 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 any such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. The Ordinance does not provide for the appointment of a trustee to represent the interests of the bondholders upon any failure of the City to perform in accordance with the terms of the Ordinance, or upon any other condition. Furthermore, the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code. 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. USE of CERTIFICATE PROCEEDS ... Proceeds from the sale of the Certificates are expected to be expended approximately as follows: Deposit to Construction Fund $4,940,000 Costs of Issuance 60.000 Total $5,000,000 TAX INFORMATION AD VALOREM TAx LAW ... The appraisal of property within the City is the responsibility of the Walker County 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 appraise all property within the Appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. In determining market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the less of (1) the market value of the property, or (2) the sum of (a) 101/6 of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The City may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the City by petition filed with the Appraisal Review Board. Reference is made to the V.T.C.A., Property Tax Code, for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation purposes; and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution ( "Article VIII ") and State law provide for certain exemptions from property taxes, the valuation of agricultural and open -space lands at productivity value, and the exemption of certain personal property from ad valorem taxation. Under Section 1 -b, Article VIII, and State law, the governing body of a political subdivision, at its option, may grant: (1) An exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision; (2) An exemption of up to 20% of the market value of residence homesteads. The minimum exemption under this provision is $5,000. 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. State law and Section 2, Article VIII, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to a maximum of $12,000. Article VIII provides that eligible owners of both agricultural land (Section I -d) and open -space land (Section 1 -d -1), including open -space land devoted to farm or ranch purposes or open -space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Section 1-d and 1 -d -1. 12 Nonbusiness personal property, such as automobiles or light trucks, are exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property. Boats owned as nonbusiness property are exempt from ad valorem taxation. Article VIII, Section I j, provides for "freeport property" to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. 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 is currently considering the creation of a tax increment financing zone to assist in financing a civic center. The City also may enter into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The City in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years. EFFECTIVE TAX RATE AND ROLLBACK TAX RATE ... By each September 1 or as soon thereafter as practicable, the City Council adopts a tax rate per $100 taxable value for the current year. The City Council will be required to adopt the annual tax rate for the City before the later of September 30 or the 601h day after the date the certified appraisal roll is received by the City. If the City Council does not adopt a tax rate by such required date the tax rate for that tax year is the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the City for the preceding tax year. The tax rate consists of two components: (1) a rate for funding of maintenance and operation expenditures, and (2) a rate for debt service. Under the Property Tax Code, the City must annually calculate and publicize its "effective tax rate" and "rollback tax rate." Effective January 1, 2000, a tax rate cannot be adopted by the City Council that exceeds the rollback tax rate until a public hearing is held on the proposed tax rate following a notice of such public hearing (including the requirement that notice be posted on the City's website if the City owns, operates or controls an internet website and public notice be given by television if the City has free access to a television channel) and the City Council has otherwise complied with the legal requirements for the adoption of such tax rate. If the adopted tax rate exceeds the rollback tax rate the qualified voters of the City by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate. "Effective tax rate" means the rate that will produce last year's total tax levy (adjusted) from this year's total taxable values (adjusted). "Adjusted" means lost values are not included in the calculation of last year's taxes and new values are not included in this year's taxable values. "Rollback tax rate" means the rate that will produce last year's maintenance and operation tax levy (adjusted) from this year's values (adjusted) multiplied by 1.0$ plus a rate that will produce this year's debt service from this year's values (unadjusted) divided by the anticipated tax collection rate. The Property Tax Code provides that certain cities and counties in the State may submit a proposition to the voters to authorize an additional one -half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. PROPERTY ASSESSMENT AND TAX PAYMENT ... Property within the City is generally assessed as of January I of each year. Business inventory may, at the option of the taxpayer, be assessed as of September. Oil and gas reserves are assessed on the basis of a valuation process which uses an average of the daily price of oil and gas for the prior year. Taxes become due October 1 of the same year, and become delinquent on February 1 of the following year. Taxpayers 65 years old or older are permitted by State law to pay taxes on homesteads in four installments with the first due on February I of each year and the final installment due on August 1. 13 PENALTIES AND INTEREST ... Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: After July, penalty remains at 12 %, and interest increases at the rate of 1% each month. In addition, if an account is delinquent in July, a 15% attorney's collection fee is added to the total tax penalty and interest charge. Under certain circumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per annum with no additional penalties or interest assessed. In general, property subject to the City's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post - petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post - petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. CM- APPLICATION OF TAx CODE ... The City grants an exemption to the market value of the residence homestead of persons 65 years of age or older of $12,000; the disabled are also granted an exemption of $10,000. The City has not granted an additional exemption of 20% of the market value of residence homesteads; minimum exemption of $5,000. See Table 1 for a listing of the amounts of the exemptions described above. Ad valorem taxes are not levied by the City against the exempt value of residence homesteads for the payment of debt. The City does not tax nonbusiness personal property; and the Walker County Appraisal District collects taxes for the City. The City does not permit split payments, and discounts are not allowed. The City does not tax freeport property. The City does collect the additional one -half cent sales tax for reduction of ad valorem taxes. The City has not adopted a tax abatement policy. 14 Cumulative Cumulative Month Penalty Interest Total February 6% 1% 7% March 7% 2% 9% April 8% 3% 11% May 9% 4% 13% June 10% 5% 15% July 12% 6% 18% After July, penalty remains at 12 %, and interest increases at the rate of 1% each month. In addition, if an account is delinquent in July, a 15% attorney's collection fee is added to the total tax penalty and interest charge. Under certain circumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per annum with no additional penalties or interest assessed. In general, property subject to the City's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post - petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post - petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. CM- APPLICATION OF TAx CODE ... The City grants an exemption to the market value of the residence homestead of persons 65 years of age or older of $12,000; the disabled are also granted an exemption of $10,000. The City has not granted an additional exemption of 20% of the market value of residence homesteads; minimum exemption of $5,000. See Table 1 for a listing of the amounts of the exemptions described above. Ad valorem taxes are not levied by the City against the exempt value of residence homesteads for the payment of debt. The City does not tax nonbusiness personal property; and the Walker County Appraisal District collects taxes for the City. The City does not permit split payments, and discounts are not allowed. The City does not tax freeport property. The City does collect the additional one -half cent sales tax for reduction of ad valorem taxes. The City has not adopted a tax abatement policy. 14 TABLE 1 - VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT 2001/2002 Market Valuation Established by Walker County Appraisal District $ 766,746,240 (excluding totally exempt property) Less Exemptions/Reductions at 100% Market Value: Over 65 Homestead Exemptions $ 18,006,036 Disabled Veterans 1,205,380 Freeport Exemptions 1,180,840 Pollution Control Exemptions 656,390 Total Productivity Value Loss 8,803,500 Value Lost to Partial Exemptions 79,292 Value Lost to Cap on Residential Homestead 6,591,202 Total Exemptions 36,522,640 2001/2002 Taxable Assessed Valuation $ 730,223,600 General Obligation Debt (as of 9 -30- 2001 } {'� Street Improvement Bonds $ 2,425,000 Combination Tax and Revenue Certificates of Obligation 5,705,000 Tax and Hotel Occupancy Tax Surplus Revenue Certificates of Obligation 180,000 Tax Notes 315,000 Elkins Lake MUD WW & SS Comb, U/L Tax & Revenue Bonds 265,000 Elkins Lake MUD WW & SS Comb. U/L Tax Refunding Bonds 965,000 TRA Contract Revenue Bonds, Series 1993 (2) 3,545,000 WW & SS Tax and Revenue Certificates of Obligation 7,425,000 The Certificates 5,000,000 $ 25,825,000 Less: Self - Supporting Debt(31 Combination Tax and Revenue Certificates of Obligation $ 705,000 Tax and Hotel Occupancy Tax Surplus Revenue Certificates of Obligation 180,000 Tax Notes 184,680 Elkins Lake MUD WW & SS Comb. U/L Tax & Revenue Bonds 265,000 Elkins Lake MUD WW & SS Comb. U/L Tax Refunding Bonds 965,000 TRA Contract Revenue Bonds 3,545,000 $ 5,844,680 Net General Obligation Debt (as of 9 -30 -2001) $ 19,980,320 Interest & Sinking Fund Balance as of September 30, 2001 474,893 Total Net General Obligation Debt Payable from Ad Valorem Taxes $ 19,505,427 Ratio of Net General Obligation Debt to Taxable Assessed Valuation 2.67% 2001 Estimated Population - 35,078 Per Capita Taxable Assessed Valuation - $20,817 (1) The above statement of indebtedness does not include the City's waterworks and sewer system revenue bonds, as these bonds are payable solely from net revenues of the System, as defined in the ordinance authorizing such bonds. (2) Represents bonds sold by the Trinity River Authority to finance the costs of sewer system improvements by the City of Huntsville. The bonds issued by the Authority to finance the costs of the improvements are secured by a contract between the City and the Authority which provides for the City to pay the total principal and interest on such bonds as the same become due and payable. Payments to the authority under the terms of such contract for the payment of such bonds are to be made from surplus revenues received from the City's water and sewer system and from the City's General Fund and ad valorem taxes if operating revenues are not sufficient. The City also has other obligations for bonds issued by the Trinity River Authority which are treated as an operating expense of the City's water and sewer system. To date, all such contract payments have been made with water and sewer revenues from the operation and ownership of the City's water and sewer system. (3) General obligation debt in the amounts shown for which repayment is provided from revenues of the respective revenue systems. The amount of self- supporting debt is based on the percentages of revenue support as shown in Table 10. It is the City's current policy to provide these payments from respective system revenues; this policy is subject to change in the future. 15 TABLE 2 - TAXABLE ASSESSED VALUATIONS BY CATEGORY Category Real, Residential, Single - Family Real, Residential, Multi- Family Real, Vacant Lots/Tracts Real, Acreage (Land Only) Real, Farm and Ranch Improvements Real, Commercial Real, Industrial Real, Oil, Gas and Other Mineral Reserves Real and Tangible Personal, Utilities Tangible Personal, Commercial Tangible Personal, Industrial Tangible Personal, Mobile Home Real, Inventory Adjustments to Certified Value Total Appraised Value Before Exemptions Less: Total Exemptions/Reductions Taxable Assessed Value Category Real, Residential, Single - Family Real, Residential, Multi - Family Real, Vacant Lots/Tracts Real, Acreage (Land Only) Real, Farm and Ranch Improvements Real, Commercial Real, Industrial Real, Oil, Gas and Other Mineral Reserves Real and Tangible Personal, Utilities Tangible Personal, Commercial Tangible Personal, Industrial Tangible Personal, Mobile Home Real, Inventory Total Appraised Value Before Exemptions Less: Total Exemptions/Reductions Taxable Assessed Value Taxable Appraised Value, Fiscal Year Endiniz September 30 2002 2001 2000 % of % of % of Amount Total Amount Total Amount Total $ 359,463,020 46.88% $ 312,538,880 44.40% $ 315,234,300 47.28 0,o 75,355,890 9.83% 76,214,671 10.83% 59,201,810 8.88% 22,353,430 2.92% 9,706,330 1.38% 20,447,020 3.07% 15,346,440 2.00% 14,979,710 2.13% 14,554,080 2.18% 4,469,220 0.58% 4,101,370 0.58% 4,182,130 0.63% 134,751,880 17.57% 140,970,690 20.03% 125,901,390 18.88% 4,726,850 0.62% 4,692,140 0.67% 4,694,000 0.70% 1,930 0.00% 1,890 0.00% 1,890 0.00% 27,016,290 3.52% 26,785,940 3.81% 28,239,030 4.24% 85,426,180 11.14% 75,607,780 10.74% 59,691,876 8.95% 16,385,170 2.14% 15,081,970 2.14% 14,584,480 2.19% 11,792,490 1.54% 12,446,310 1.77% 10,053,010 1.51% 9,553,450 1.25% 10,721,550 1.52% 9,980,420 1.50% 104,000 0.01% 0 0.00% 0 0.00% $ 766,746,240 99.99% $ 703,849,231 100.00% $ 666,765,436 100.00% 36,522,640 29,636,856 28,710,637 $ 730,223,600 T674,212,375 -§-638,054,799_ Taxable Appraised Value, Fiscal Year Ending September 30 1999 1998 Amount $ 275,606,590 52,459,820 16,778,920 14,649,540 3,675,310 110,282,060 4,811,150 1,890 29,689,210 59,805,435 11,940,030 8,927,140 27,000 $ 588,654,095 27,080,762 $ 561,573,333 % of Total 46.82% 8.91% 2.85% 2.49% 0.62% 18.73% 0.82% 0.00% 5.04% 10.16% 2.03% 1.52% 0.00% 100.00% Amount $ 265,405,900 52,482,250 17,592,590 13,737,910 3,540,330 104,919,000 4,764,010 1,890 29,075,690 51,440,830 11,386,750 8,008,890 315,920 $ 562,671,960 25,571,430 T 537,100,530 % of Total 47.17% 9.33% 3.13% 2.44% 0.63% 18.65% 0.85% 0.00% 5.17% 9.14% 2.02% 1.42% 0.06% 100.00% NOTE: Valuations shown are certified taxable assessed values reported by the Walker County Appraisal District to the State Comptroller of Public Accounts. Certified values are subject to change throughout the year as contested values are resolved and the Appraisal District updates records. 16 TABLE 3 - VALUATION AND GENERAL OBLIGATION DEBT HISTORY (1) Source: U.S. Census Bureau. The values for fiscal years 1997 through 1999 are based on the City's 1990 Census population held constant. The City's 1990 census was 27,925, and in 1994 and 1997, the city annexed property increasing the population to an estimated 34,592. The values for fiscal years 2000 through 2002 are based on the City's 2000 Census population held constant. (2) As reported by the Walker County Appraisal District. (3) Payable from ad valorem taxes. Includes self - supporting debt. (4) Increase due to annexation. (5) Includes the Certificates. TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY Fiscal Year General Interest and % Current % Total Ended 9/30 Tax Rate G.O. Ratio of 1997 $ 0.38440 $ Fiscal $ 1,986,335 97.57% 99.48% Taxable Tax Debt G.O. Tax Debt 98.19% 100.64% Year 0.32718 0.10282 Taxable Assessed Outstanding to Taxable G.O. Ended Estimated Assessed Valuation at End Assessed Tax Debt 9/30 Population(l) Valuation (2) Per Capita of Year(') Valuation Per Capita 1997 34,592 $ 515,929,690 $ 14,915 $ 13,105,000 2.54% $ 379 1998 34,592 537,100,530 ° 15,527 12,825,000 2.39% 371 1999 34,592 561,573,333 16,234 18,810,000 3.35% 544 2000 35,078 638,054,799 18,190 17,355,000 2.72% 495 2001 35,078 674,212,375 19,220 20,825,000 3.09% 594 2002 35,078 730,223,600 20,817 24,725,000 (s) 3.39% (s) 705 X51 (1) Source: U.S. Census Bureau. The values for fiscal years 1997 through 1999 are based on the City's 1990 Census population held constant. The City's 1990 census was 27,925, and in 1994 and 1997, the city annexed property increasing the population to an estimated 34,592. The values for fiscal years 2000 through 2002 are based on the City's 2000 Census population held constant. (2) As reported by the Walker County Appraisal District. (3) Payable from ad valorem taxes. Includes self - supporting debt. (4) Increase due to annexation. (5) Includes the Certificates. TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY Fiscal Year General Interest and % Current % Total Ended 9/30 Tax Rate Fund Sinking Fund Tax Levy Collections Collections 1997 $ 0.38440 $ 0.26900 $ 0.11540 $ 1,986,335 97.57% 99.48% 1998 0.38440 0.28312 0.10128 2,060,949 98.19% 100.64% 1999 0.43000 0.32718 0.10282 2,430,332 97.66% 99.52% 2000 0.41250 0.27609 0.13641 2,628,979 98.10% 99.97% 2001 0.43250 0.30763 0.12487 2,915,969 97.52% 99.18% 2002 0.43250 0.27785 0.15465 3,161,167 (1) (1) (1) In process of collection. TABLE 5 - TEN LARGEST TAXPAYERS 2001/2002 % of Total Taxable Taxable Assessed Assessed Name of Taxpayer Nature of Property Valuation Valuation Wal Mart Properties Mercantile $ 18,342,480 2.51% Southwestern Bell Telephone Utility 12,591,040 1.72% GSU- Entergy Services Inc. Electric Utility 11,035,740 1.51% Weatherford Completion Oil Equipment 10,039,250 1.37% Arbors of Huntsville Apartment Complex 8,093,800 1.11% West Hill Mall Shopping Center 4,880,370 0.67% Ridgewood West Apartments Apartment Project 4,614,610 0.63% Hillcrest Ford - Lincoln Mercury Auto Dealership 4,457,880 0.61% Gibbs Brothers & Co. Investment/Mortgages 4,406,500 0.60% University Place Apartments Apartment Complex 4,230,710 0.58% $ 82,692,380 11.32% GENERAL OBLIGATION DEBT LIMITATION ... No general obligation debt limitation is imposed on the City under current State law or the City's Home Rule Charter (see "TAX RATE LIMITATION "). 17 TABLE 6 - TAX ADEQUACY 2002 Principal and Interest Requirements ( 1) ............................................ ............................... $ 1,438,784 $0.2032 Tax Rate at 97% Collection Produces ........................................ ............................... 1,439,300 Maximum Principal and Interest Requirements ( 2019)( 1) .............................. ............................... $ 1,633,344 $0.2306 Tax Rate at 97% Collection Produces ........................................ ............................... 1,633,379 Average Principal and Interest Requirements ( 2002 - 2019)( ........................... ............................... $ 1,599,705 $0.2259 Tax Rate at 97% Collection Produces ........................................ ............................... 1,600,088 Average Principal and Interest Requirements ( 2020 - 2032)(1) ...................... ............................... $ 386,002 $0.0545 Tax Rate at 97% Collection Produces ........................................ ............................... 386,033 Projected, includes the Certificates TABLE 7 - ESTIMATED OVERLAPPING DEBT Expenditures of the various taxing entities within the territory of the City are paid out of ad valorem taxes levied by such entities on properties within the City. Such entities are independent of the City and may incur borrowings to finance their expenditures. This statement of direct and estimated overlapping ad valorem tax bonds ( "Tax Debt ") was developed from information contained in "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. Except for the amounts relating to the City, the City has not independently verified the accuracy or completeness of such information, and no person should rely upon such information as being accurate or complete. Furthermore, certain of the entities listed may have issued additional bonds since the date hereof, and such entities may have programs requiring the issuance of substantial amounts of additional bonds, the amount of which cannot be determined. The following table reflects the estimated share of overlapping Tax Debt of the City. 2000 Taxable City of Huntsville $ 674,212,375 Huntsville ISD 854,578,546 Walker County 1,169,538,492 Walker County Hospital Dist. 1,169,538,492 Total Direct and Overlapping Funded Debt Ratio of Direct and Overlapping Funded Debt to Taxable Assessed Valuation Per Capita Overlapping Funded Debt (1) Projected, includes the Certificates. 18 9.64% $ 1,853 Total City's Authorized G.O. Debt Estimated Overlapping but Unissued 2000 as of % G.O. Debt as Debt as Tar Rate 9/30/2001 Applicable of 9/30/2001 of 9/30/2001 $ 0.4325 $ 25,825,000 "' 100.00% $ 25,825,000 "' $ 2,200,000 1.6900 50,771,082 75.13% 38,144,314 0 0.5850 1,785,000 57.65% 1,029,053 0 0.1445 0 57.65% 0 0 Ratio of Direct and Overlapping Funded Debt to Taxable Assessed Valuation Per Capita Overlapping Funded Debt (1) Projected, includes the Certificates. 18 9.64% $ 1,853 DEBT INFORMATION TABLE 8 - PRO -FORMA GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS (1) "Outstanding Debt' does not include lease /purchase obligations. (2) Interest on the Certificates has been calculated for the purpose of illustration. Preliminary, subject to change. TABLE 9 - INTEREST AND SINKING FUND BUDGET PROJECTION Net General Obligation Debt Service Requirements, Fiscal Year Ending 9 -30 -2002 "' $ 1,438,784 Interest and Sinking Fund, 9 -30 -2001 $ 474,893 Interest and Sinking Fund Tax Levy @ 97% Collection 1,095,412 Interest and Sinking Fund Delinquent Taxes & Income 35,000 Payable from General Fund 133,388 Transfer from Golf Course Fund 206,250 1,944,943 Estimated Balance, 9 -30 -2002 $ 506,159 (1) Does not include lease /purchase obligations and excludes any self - supporting debt. Preliminary, subject to change. 19 Less: Self - Supporting WW &SS, Year Total Sanitation & Total % of End Outstanding The Certificates Tax & Hotel Debt Service Principal 9/30 Debt Principal Interest Total Obligations Requirements Retired 2002 $ 2,440,777 $ 206,250 $ 206,250 $ 1,208,242 $ 1,438,784 2003 2,276,150 275,000 275,000 1,023,504 1,527,646 2004 2,280,730 $ 75,000 275,000 350,000 1,026,334 1,604,396 7.56% 2005 2,113,746 80,000 270,875 350,875 859,631 1,604,990 2006 1,948,436 80,000 266,475 346,475 697,365 1,597,546 2007 1,880,895 85,000 262,075 347,075 625,343 1,602,628 2008 1,770,765 90,000 257,400 347,400 517,200 1,600,965 18.22% 2009 1,772,084 95,000 252,450 347,450 515,910 1,603,624 2010 1,666,246 100,000 247,225 347,225 406,433 1,607,039 2011 1,672,568 110,000 241,725 351,725 408,943 1,615,350 2012 1,680,278 115,000 235,675 350,675 410,393 1,620,560 29.16% 2013 1,673,939 120,000 229,350 349,350 405,598 1,617,691 2014 1,269,289 125,000 222,750 347,750 1,617,039 2015 1,272,830 135,000 215,875 350,875 1,623,705 2016 1,273,305 140,000 208,450 348,450 1,621,755 39.49% 2017 1,280,371 150,000 200,750 350,750 1,631,121 2018 1,279,009 155,000 192,500 347,500 1,626,509 2019 1,284,369 165,000 183,975 348,975 1,633,344 2020 485,300 175,000 174,900 349,900 835,200 48.41% 2021 185,000 165,275 350,273 350,275 2022 195,000 155,100 350,100 350,100 2023 205,000 144,375 349,375 349,375 2024 215,000 133,100 348,100 348,100 95.23% 2025 225,000 121,275 346,275 346,275 2026 240,000 108,900 348,900 348,900 2027 255,000 95,700 350,700 350,700 2028 265,000 81,675 346,675 346,675 97.36% 2029 280,000 67,100 347,100 347,100 2030 295,000 51,700 346,700 346,700 2031 315,000 35,475 350,475 350,475 2032 330,000 18,150 348,150 348,150 100.00% $ 31,321,086 $ 5,000,000 $ 5,596,525 $ 10,596,525 $ 8,104,893 $ 33,812,720 (1) "Outstanding Debt' does not include lease /purchase obligations. (2) Interest on the Certificates has been calculated for the purpose of illustration. Preliminary, subject to change. TABLE 9 - INTEREST AND SINKING FUND BUDGET PROJECTION Net General Obligation Debt Service Requirements, Fiscal Year Ending 9 -30 -2002 "' $ 1,438,784 Interest and Sinking Fund, 9 -30 -2001 $ 474,893 Interest and Sinking Fund Tax Levy @ 97% Collection 1,095,412 Interest and Sinking Fund Delinquent Taxes & Income 35,000 Payable from General Fund 133,388 Transfer from Golf Course Fund 206,250 1,944,943 Estimated Balance, 9 -30 -2002 $ 506,159 (1) Does not include lease /purchase obligations and excludes any self - supporting debt. Preliminary, subject to change. 19 TABLE 10 - COMPUTATION OF SELF - SUPPORTING DEBT Water and Sewer System: Net System Revenue Available at September 30, 2000 $ 6,019,452 Less: 2001 Requirements for Revenue Bonds 1,472,236 Balance Available for Other Purposes $ 4,547,216 2001 Requirements for System Tax Bonds 1,037,619 Percentage of System General Obligation Bonds Self- Supporting 100% Solid Waste: Net System Revenue Available at September 30, 2000 $ 40,583 Less: 2001 Requirements for Revenue Bonds 0 Balance Available for Other Purposes $ 40,583 2001 Requirements for System Tax Bonds 108,476 Percentage of System General Obligation Bonds Self- Supporting 37% Hotel -Motel Tourism: Net System Revenue Available at September 30, 2000 $ 128,651 Less: 2001 Requirements for Revenue Bonds 0 Balance Available for Other Purposes $ 128,651 2001 Requirements for System Tax Bonds 68,683 Percentage of System General Obligation Bonds Self - Supporting 100% TABLE 11 - AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS Date of Amount Issued Authorization Purpose Authorized To Date Unissued 1 -21 -84 Street Improvements $ 4,200,000 $ 2,000,000 $ 2,200,000 ANTICIPATED ISSUANCE OF GENERAL OBLIGATION DEBT The City anticipates the issuance of general obligation debt in 2002 in an amount to be determined for a conference center. TABLE 12 - OTHER OBLIGATIONS As of September 30, 2001, the City had one capital lease outstanding for the purchase of one garbage truck. Future payments are as follows: Fiscal Leases Payable Year Principal Interest Total 2002 $ 15,625 $ 911 $ 16,536 As of September 30, 2001, the City had $778,070 of Certificates of Obligation outstanding for the purchase of various assets. Future payments are as follows: Fiscal Equipment Acquisition Certificate of Obligation Year Principal Interest Total 2002 $ 111,535 $ 38,381 $ 149,916 2003 111,535 33,086 144,621 2004 80,000 27,591 107,591 Thereafter 475,000 67,801 542,801 $ 778,070 $ 166,859 $ 944,929 20 PENSION FUND ... The City provides pension benefits for all of its full -time employees through the Texas Municipal Retirement System ( "TMRS "), a State -wide administered pension plan. The City makes annual contributions to the plan equal to the amounts accrued for pension expense. (For more detailed information concerning the retirement plan, see "APPENDIX B - "EXCERPTS FROM THE CITY'S ANNUAL FINANCIAL REPORT" - Note #F.) FINANCIAL INFORMATION TABLE 13 - GENERAL FUND REVENUES AND EXPENDITURES (1) Unaudited, provided by the City. (2) In Fiscal Year 2000 -2001, a special revenue fund for streets was created. Franchise fees previously in the General Fund are now a revenue of the Street Special Revenues Fund. $1,628,761 of franchise fees were collected in FY 2000 -2001. Included in the transfer line item is $797,000 from the General Fund to the Street Special Revenue Fund. Total expenditures in the Street Special Revenue Fund were $1,803,311. 21 For Fiscal Year Ended September 30 2001 (1) (2) 2000 1999 1998 1997 Revenues: Taxes $ 6,718,233 $ 7,630,896 $ 7,259,176 $ 7,029,532 $ 6.320,893 Licenses and Permits 238,440 212,214 232,344 145,206 168,987 Fines 492,108 393,521 463,089 531,585 460,738 Fees /Charges/Sales 166,377 176,775 127,598 145,162 137,380 Intra/Inter Governmental 225,395 208,172 173,270 248,247 170,003 Administrative Cost Reimbursement 1,496,499 1,547,575 1,355,361 1,244,442 1,179,666 Interest Earnings 320,036 353,175 301,111 308,595 245,968 Grants/Reimbursements 56,098 70,494 259,338 200,932 165,699 Contributions 2,867 2,596 4,704 13,238 11,719 Miscellaneous 4,008 9,379 6,656 7,211 20,526 Total Revenues $ 9,720,061 $ 10,604,797 $ 10,182,647 $ 9,874,153 $ 8,881,579 Expenditures: Charter Offices $ 655,923 $ 639,702 $ 559,595 $ 493,796 $ 408,390 General Services 2,075,672 1,561,505 1,452,926 1,338,610 1,272,376 Public Works 1,190,820 3,611,576 3,328,017 3,539,628 3,362,590 Planning & Development 459,224 0 0 0 0 Finance 574,791 438,966 423,686 399,316 398,052 Public Safety 3,516,309 3,125,958 3,008,202 3,108,287 2,805,577 Non - Departmental 73,885 110,087 268,709 25,329 24,167 Debt Service Principal Retirement 0 0 0 83,485 0 Interest 13,234 27,336 35,704 13,208 15,239 Other 0 0 7,090 0 0 Total Expenditures $ 8,559,858 $ 9,515,130 $ 9,083,929 $ 9,001,659 $ 8.286,391 Excess (Deficiency) of Revenues Over Expenditures $ 1,160,203 $ 1,089,667 $ 1,098,718 $ 872,494 $ 595,188 Transfers and Adjustments (1,586,804) (z) (1,041,369) (1,388,402) (115,566) 125,000 Proceeds - Capital Lease 0 0 0 0 101,545 Proceeds - Bonds/Tax Notes /Certificates 0 0 0 118,950 0 Fund Balance, Beginning of Year 4,686,531 4,638,233 4,927,917 4,052,039 3.230,306 Prior Period Adjustment 0 0 0 0 0 Fund Balance, End of Year $ 4,259,930 $ 4,686,531 $ 4,638,233 $ 4,927,917 $ 4,052,039 (1) Unaudited, provided by the City. (2) In Fiscal Year 2000 -2001, a special revenue fund for streets was created. Franchise fees previously in the General Fund are now a revenue of the Street Special Revenues Fund. $1,628,761 of franchise fees were collected in FY 2000 -2001. Included in the transfer line item is $797,000 from the General Fund to the Street Special Revenue Fund. Total expenditures in the Street Special Revenue Fund were $1,803,311. 21 TABLE 14 - MUNICIPAL SALES TAX HISTORY The City has adopted the Municipal Sales and Use Tax Act, VATCS, Tax Code, Chapter 321, which grants the City the power to impose and levy a 1% Local Sales and Use Tax within the City. The proceeds are credited to the General Fund and are not pledged to the payment of the Certificates. Collections and enforcements are effected through the offices of the Comptroller of Public Accounts, State of Texas, who remits the proceeds of the tax, after deduction of a 2% service fee, to the City monthly. The City has also voted a 1/2% local sales and use tax for property tax reduction. Revenue from this source, for the years shown, has been: (1) Source: U.S. Census Bureau. The values for fiscal years 1997 through 1999 are based on the City's 1990 Census population held constant. The City's 1990 census was 27,925, and in 1994 and 1997, the city annexed property increasing the population to an estimated 34,592. The values for fiscal years 2000 through 2002 are based on the City's 2000 Census population held constant. The sales tax breakdown for the City is as follows: Property Tax Relief 0.50% % of Equivalent of City Sales & Use Tax Fiscal Year Total Ad Valorem Ad Valorem Per Ended 9 -30 Collected Tax Levy Tax Rate Capita"' 1997 $ 3,701,208 186.33% $ 0.7163 $ 107 1998 4,080,127 197.97% 0.7610 118 1999 4,148,865 170.71% 0.7341 120 2000 4,396,354 167.23% 0.6898 125 2001 4,593,672 157.54% 0.6813 131 (1) Source: U.S. Census Bureau. The values for fiscal years 1997 through 1999 are based on the City's 1990 Census population held constant. The City's 1990 census was 27,925, and in 1994 and 1997, the city annexed property increasing the population to an estimated 34,592. The values for fiscal years 2000 through 2002 are based on the City's 2000 Census population held constant. The sales tax breakdown for the City is as follows: Property Tax Relief 0.50% County Sales and Use Tax 0.50% City Sales & Use Tax 1.00% State Sales & Use Tax 6.25% Total $25% FINANCIAL POLICIES Basis of Accounting ... The accounting policies of the City conform to generally accepted accounting principles of the Governmental Accounting Standards Board and program standards adopted by the Government Finance Officers Association of the United States and Canada. The GFOA has awarded a Note of Achievement for Excellence in Financial Reporting to the City of Huntsville for the 23th year, and received for the 13a' year the GFOA Distinguished Budget Presentation Award. The City's accounting records for general governmental operations are maintained on a modified accrual basis. Under this method of accounting, revenues are recognized when available and measurable, and expenditures, except for interest on long- term debt, are recognized when the services or goods are received and the liability is incurred. General Fund Balance ... The City policy is to maintain a fund balance reserve of at least 16.67% of the annual budgeted expenditures. Debt Service Fund Balance ... The City policy is to maintain the Debt Service Fund as required by the outstanding bond indentures. Reductions in fund balance will occur only with City Council approval after conferring with the City's Financial Advisor. Use of Bond Proceeds ... The City policy is to limit the issuance of long -term debt to capital improvements or projects that cannot be financed from current revenues or resources. All debt issuance shall be approved by the City Council and expenditure of such monies shall be in strict accordance with the designated purpose. Budgetary Procedures ... As prescribed by the City Charter the City Manager, at least 30 days prior to the end of each fiscal year, submits to the City Council a proposed budget for the fiscal year beginning the following October 1. The budget includes proposed expenditures and revenues required to fund the expenditures. Following Council considerations, amendments and refinements, a public hearing is ordered and conducted for the purpose of obtaining taxpayer comments. The final budget is approved and adopted by passage of an ordinance by the City Council at least three days prior to the beginning of the fiscal year. The budget is adopted on a basis consistent with generally accepted accounting principles. 22 INVESTMENTS The City invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the City Council of the City. Both state law and the City's investment policies are subject to change. LEGAL INVESTMENTS ... Under Texas law, the City is authorized to invest in (1) 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 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) certificates of deposit that are guaranteed or insured by the Federal Deposit Insurance Corporation or are secured as to principal by obligations described in the preceding clauses or in any other manner and amount provided by law for City deposits, (7) certificates of deposit and share certificates issued by a state or federal credit union domiciled in the State of Texas that 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 the clauses (1) through (5) 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) bankers' acceptances with the remaining term of 270 days or less, if the short -term obligations of the accepting bank or its parent are rated at least A -1 or P -1 or the equivalent by at least one nationally recognized credit rating agency, (10) commercial paper that is rated at least A -1 or P -1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank, (11) no -load money market mutual funds regulated by the Securities and Exchange Commission that have a dollar weighted average portfolio 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, (12) no -load mutual funds registered with the Securities and Exchange Commission that: have an average weighted maturity of less than two years; invests 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, (13) bonds issued, assumed, or guaranteed by the State of Israel, and (14) guaranteed investment contracts secured by obligations of the United States of America or its agencies and instrumentalities, other than the prohibited obligations described in the next succeeding paragraph. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than AAA or AAAm or an equivalent by at least one nationally recognized rating service. The City may also contract with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b -1 et seq.) or with the State Securities Board to provide for the investment and management of its public funds or other funds under its control for a term up to two years, but the City retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the City must do so by order, ordinance, or resolution. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage- backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage- backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. INVESTMENT POLICIES ... Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar- weighted maturity allowed for pooled fund groups. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each funds' investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. Under Texas law, City investments must be made "with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived." At least quarterly the investment officers of the City shall submit an investment report detailing: (1) the investment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, any additions and changes to market value and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) state law. No person may invest City funds without express written authority from the City Council. 23 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 its investment in mutual funds in the aggregate to no more than 15 percent of its monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service, and to invest no portion of bond proceeds, reserves and funds held for debt service, in mutual funds; and (8) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements. TABLE 15 - CURRENT INVESTMENTS As of September 30, 2001, the City's investable funds were invested in the following categories: (1) TexPool is a local government investment pool under the control of the Texas Comptroller of Public Accounts. The Comptroller has engaged Chase Bank of Texas, and its affiliates, to provide investment management and fund accounting services for TexPool. First Southwest Asset Management, Inc., an affiliate of First Southwest Company, provides customer service and marketing for the pool. TexPool currently maintains a AAAm rating from Standard & Poor's. The pool's investment objectives include achieving a stable net asset value of $1.00 per share. Daily investment or redemption of funds is allowed by the participants. (2) Investment pool advised and administered by MBIA Municipal Investor Services Corporation. TAX MATTERS OPINION ... On the date of initial delivery of the Certificates, McCall, Parkhurst & Horton L.L.P., Austin, Texas, Bond Counsel, will render its opinion that, in accordance with statutes, regulations, published rulings and court decisions existing on the date thereof ( "Existing Law "), (1) interest on the Certificates for federal income tax purposes will be excludable from the "gross income" of the holders thereof and (2) the Certificates will not be treated as "specified private activity bonds" the interest on which would be included as an alternative minimum tax preference item under section 57(a)(5) of the Internal Revenue Code of 1986 (the "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 Certificates. See "APPENDIX C - FORM OF BOND COUNSEL'S OPINION." In rendering its opinion, Bond Counsel will rely upon (a) certain information and representations of the City, including information and representations contained in the City's federal tax certificate, and (b) covenants of the City contained in the Contractual Obligation documents relating to certain matters, including arbitrage and the use of the proceeds of the Certificates and the property financed or refinanced therewith. Although it is expected that the Certificates will qualify as tax - exempt obligations for federal income tax purposes as of the date of issuance, the tax - exempt status of the Certificates could be affected by future events. However, future events beyond the control of the City, as well as the failure to observe the aforementioned representations or covenants, could cause the interest on the Certificates to become taxable retroactively to the date of issuance. Bond Counsel's opinion is not a guarantee of a result. The Existing Law is subject to change by the Congress and to subsequent judicial and administrative interpretation by the courts and the Department of the Treasury. There can be no assurance that such Existing Law or the interpretation thereof will not be changed in a manner which would adversely affect the tax treatment of the purchase, ownership or disposition of the Certificates. Bond Counsel's opinion represents its legal judgement based upon its review of Existing Law and the reliance on the aforementioned information, representations and covenants. No assurances can be given as to whether or not the Internal Revenue Service will commence an audit of the Certificates, or as to whether the Internal Revenue Service would agree with the opinion of Bond Counsel. If an audit is commenced, under current procedures the Internal Revenue Service is likely to treat the City as the taxpayer and the Bondholders may have no right to participate in such procedure. No additional interest will be paid upon any determination of taxability. 24 Percent Description of Total Book Value Market Value Treasuries /Agencies 47.16% $ 15,642,373 $ 15,748,779 TexPool(1) 43.38% 14,389,019 14,389,019 Cash 3.67% 1,216,672 1,216,672 MBIA"' 5.80% 1,922,573 1,922,573 Total 100.00% $ 33,170,636 $ 33,277,043 (1) TexPool is a local government investment pool under the control of the Texas Comptroller of Public Accounts. The Comptroller has engaged Chase Bank of Texas, and its affiliates, to provide investment management and fund accounting services for TexPool. First Southwest Asset Management, Inc., an affiliate of First Southwest Company, provides customer service and marketing for the pool. TexPool currently maintains a AAAm rating from Standard & Poor's. The pool's investment objectives include achieving a stable net asset value of $1.00 per share. Daily investment or redemption of funds is allowed by the participants. (2) Investment pool advised and administered by MBIA Municipal Investor Services Corporation. TAX MATTERS OPINION ... On the date of initial delivery of the Certificates, McCall, Parkhurst & Horton L.L.P., Austin, Texas, Bond Counsel, will render its opinion that, in accordance with statutes, regulations, published rulings and court decisions existing on the date thereof ( "Existing Law "), (1) interest on the Certificates for federal income tax purposes will be excludable from the "gross income" of the holders thereof and (2) the Certificates will not be treated as "specified private activity bonds" the interest on which would be included as an alternative minimum tax preference item under section 57(a)(5) of the Internal Revenue Code of 1986 (the "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 Certificates. See "APPENDIX C - FORM OF BOND COUNSEL'S OPINION." In rendering its opinion, Bond Counsel will rely upon (a) certain information and representations of the City, including information and representations contained in the City's federal tax certificate, and (b) covenants of the City contained in the Contractual Obligation documents relating to certain matters, including arbitrage and the use of the proceeds of the Certificates and the property financed or refinanced therewith. Although it is expected that the Certificates will qualify as tax - exempt obligations for federal income tax purposes as of the date of issuance, the tax - exempt status of the Certificates could be affected by future events. However, future events beyond the control of the City, as well as the failure to observe the aforementioned representations or covenants, could cause the interest on the Certificates to become taxable retroactively to the date of issuance. Bond Counsel's opinion is not a guarantee of a result. The Existing Law is subject to change by the Congress and to subsequent judicial and administrative interpretation by the courts and the Department of the Treasury. There can be no assurance that such Existing Law or the interpretation thereof will not be changed in a manner which would adversely affect the tax treatment of the purchase, ownership or disposition of the Certificates. Bond Counsel's opinion represents its legal judgement based upon its review of Existing Law and the reliance on the aforementioned information, representations and covenants. No assurances can be given as to whether or not the Internal Revenue Service will commence an audit of the Certificates, or as to whether the Internal Revenue Service would agree with the opinion of Bond Counsel. If an audit is commenced, under current procedures the Internal Revenue Service is likely to treat the City as the taxpayer and the Bondholders may have no right to participate in such procedure. No additional interest will be paid upon any determination of taxability. 24 FEDERAL INCOME TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT ... The initial public offering price to be paid for one or more maturities of the Certificates (the "Original Issue Discount Certificates ") may be less than the principal amount thereof or one or more periods for the payment of interest on the bonds may not be equal to the accrual period or be in excess of one year. In such event, the difference between (i) the "stated redemption price at maturity" of each Original Issue Discount Certificate, and (ii) the initial offering price to the public of such Original Issue Discount Certificate would constitute original issue discount. The "stated redemption price at maturity" means the sum of all payments to be made on the bonds less the amount of all periodic interest payments. Periodic interest payments are payments which are made during equal accrual periods (or during any unequal period if it is the initial or final period) and which are made during accrual periods which do not exceed one year. Under existing law, any owner who has purchased such Original Issue Discount Certificate in the initial public offering is entitled to exclude from gross income (as defined in section 61 of the Code) an amount of income with respect to such Original Issue Discount Certificate equal to that portion of the amount of such original issue discount allocable to the accrual period. For a discussion of certain collateral federal tax consequences, see discussion set forth below. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Certificate prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Certificate 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 Certificate was held by such initial owner) is includable in gross income. Under existing law, the original issue discount on each Original Issue Discount Certificate 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 Certificates and ratably within each such six -month period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Certificate for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Original Issue Discount Certificate. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Original Issue Discount Certificates which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Certificates should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of the treatment of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Certificates and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Certificates. COLLATERAL FEDERAL INCOME TAx CONSEQUENCES. . . The following discussion is a summary of certain collateral federal income tax consequences resulting from the purchase, ownership or disposition of the Certificates. This discussion is based on existing statutes, regulations, published rulings and court decisions, all of which are subject to change or modification, retroactively. The following discussion is applicable to investors, other than those who are subject to special provisions of the Code, such as financial institutions, property and casualty insurance companies, life insurance companies, owners of interests in a FASIT, individual recipients of Social Security or Railroad Retirement benefits, individuals allowed an earned income credit, certain S corporations with Subchapter C earnings and profits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase tax- exempt obligations. THE DISCUSSION CONTAINED HEREIN MAY NOT BE EXHAUSTIVE. INVESTORS, INCLUDING THOSE WHO ARE SUBJECT TO SPECIAL PROVISIONS OF THE CODE, SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX TREATMENT WHICH MAY BE ANTICIPATED TO RESULT FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF TAX- EXEMPT OBLIGATIONS BEFORE DETERMINING WHETHER TO PURCHASE THE CERTIFICATES. Interest on the Certificates will be includable as an adjustment for "adjusted current earnings" to calculate the alternative minimum tax imposed on corporations by section 55 of the Code. Section 55 of the Code imposes a tax equal to 20 percent for corporations, or 26 percent for noncorporate taxpayers (28 percent for taxable income exceeding $175,000), of the taxpayer's "alternative minimum taxable income," if the amount of such alternative minimum tax is greater than the taxpayer's regular income tax for the taxable year. Interest on the Certificates may be subject to the "branch profits tax" imposed by section 884 of the Code on the effectively - connected earnings and profits of a foreign corporation doing business in the United States. 25 Linder section 6012 of the Code, holders of tax - exempt obligations, such as the Certificates, may be required to disclose interest received or accrued during each taxable year on their returns of federal income taxation. Section 1276 of the Code provides for ordinary income tax treatment of gain recognized upon the disposition of a tax- exempt obligation, such as the Certificates, if such obligation was acquired at a "market discount " and if the fixed maturity of such obligation is equal to, or exceeds, one year from the date of issue. Such treatment applies to "market discount bonds" to the extent such gain does not exceed the accrued market discount of such bonds; although for this purpose, a de minimis amount of market discount is ignored. A "market discount bond" is one which is acquired by the holder at a purchase price which is less than the stated redemption price at maturity or, in the case of a bond issued at an original issue discount, the "revised issue price" (i.e., the issue price plus accrued original issue discount). The "accrued market discount" is the amount which bears the same ratio to the market discount as the number of days during which the holder holds the obligation bears to the number of days between the acquisition date and the final maturity date. STATE, LOCAL AND FOREIGN TAXES ... Investors should consult their own tax advisors concerning the tax implications of the purchase, ownership or disposition of the Certificates 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. a1 Ififfill ondliff]el RATINGS The presently outstanding tax supported debt of the City is rated "A3" by Moody's and "A" by S &P. The City also has four issues outstanding which are rated "Aaa" by Moody's and "AAA " by S &P through insurance by various commercial insurance companies. Applications for contract ratings on this issue have been made to Moody's and S &P. An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The ratings reflect only the respective views of such organizations 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 either of such rating companies, if in the judgment of either or both companies, circumstances so warrant. Any such downward revision or withdrawal of such ratings, or either of them, may have an adverse effect on the market price of the Certificates. LITIGATION It is the opinion of the City Attorney and City Staff that there is no pending litigation against the City that would have a material adverse financial impact upon the City or its operations. REGISTRATION AND QUALIFICATION OF CERTIFICATES 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 have 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 acts of any 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. LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) 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 the sinking funds of municipalities or other political subdivisions or public agencies of the State of Texas. With respect to investment in the Certificates by municipalities or other political subdivisions or public agencies of the State of Texas, the Public Funds Investment Act, Chapter 2256, Texas Government Code, requires that the Certificates be assigned a rating of "A" or its equivalent as to investment quality by a national rating agency. See "OTHER INFORMATION - 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 at capital of one million dollars or more, and savings and loan associations. 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 institutions in those states. LEGAL OPINIONS AND NO- LITIGATION CERTIFICATE The City will furnish a complete transcript of proceedings had incident to the authorization and issuance of the Certificates, including the unqualified approving legal opinion of the Attorney General of Texas approving the Initial Certificate and to the 26 effect that the Certificates are valid and legally binding obligations of the City, and based upon examination of such transcript of proceedings, the approving legal opinion of Bond Counsel, to like effect and to the effect that the interest on the Certificates will be excludable from gross income for federal income tax purposes under Section 103(a) of the Code, subject to the matters described under "TAX MATTERS" herein, including the alternative minimum tax on corporations. The customary closing papers, including a certificate to the effect that no litigation of any nature has been filed or is then pending to restrain the issuance and delivery of the Certificates, or which would affect the provision made for their payment or security, or in any manner questioning the validity of said Certificates will also be furnished. Bond Counsel was not requested to participate, and did not take part, in the preparation of the Notice of Sale and Bidding Instructions, the Official Bid Form and the Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information describing the Certificates in the Official Statement to verify that such description conforms to the provisions of the Ordinance. The legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Certificates is contingent on the sale and delivery of the Certificates. In connection with the transaction described in this Official Statement, Bond Counsel represents only the City. The legal opinion will accompany the Certificates deposited with DTC or will be printed on the Certificates in the event of the discontinuance of the Book - Entry-Only System. The legal opinion to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION The financial data and other information contained herein have been obtained from City records, audited financial statements and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Official Statement are.made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. CONTINUING DISCLOSURE OF INFORMATION In the Ordinance, the City has made the following agreement for the benefit of the holders and beneficial owners of the Certificates. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Certificates. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to 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 City 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 City of the general type included in this Official Statement under Tables numbered 1 through 6 and 8 through 15 and in Appendix B. The City will update and provide this information within six months after the end of each fiscal year ending in or after 2001. The City will provide the updated information to each nationally recognized municipal securities information repository ( "NRMSIR ") and to any state information depository ( "SID ") that is designated by the State of Texas and approved by the State of Texas and approved by the staff of the United States Securities and Exchange Commission (the "SEC "). 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 updated information will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the City will provide unaudited financial statements by the required time and audited financial statements when and if such audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix B or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify each NRMSIR and the SID of the change. The Municipal Advisory Council of Texas has been designated by the State of Texas and approved by the SEC staff as a qualified SID. 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. 27 MATERIAL EVENT NOTICES ... The City will also provide timely notices of certain events to certain information vendors. 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; (14) 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 credit enhancement.) In addition, the City will provide timely notice of any failure by the City to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports." The City will provide each notice described in this paragraph to the SID and to either each NRMSIR or the Municipal Securities Rulemaking Board ( "MSRB "). AVAILABILITY OF INFORMATION FROM NRMSIRS AND SID ... The City has agreed to provide the foregoing information only to NRMSIRS and the SID. The information will be available to holders of Certificates only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. LIMITATIONS AND ANIENDNIENTS ... 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. The City may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in Iegal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Certificates in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Certificates consent to the amendment or (b) any person unaffiliated with the City (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Certificates. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provisions of the SEC Rule 15c2 -12 or a court of final jurisdiction enters judgment that such provisions of the SEC Rule 15c2 -12 are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Certificates in the primary offering of the Certificates. If the City so amends the agreement, it has agreed to include with the next financial information and operating data provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. COMPLIANCE WITH PRIOR UNDERTAKINGS ... The City has complied in all material respects with all continuing disclosure agreements made by it in accordance with SEC Rule 15c2 -12. FINANCIAL ADVISOR First Southwest Company is employed as Financial Advisor to the City in connection with the issuance of the Certificates. The Financial Advisor's fee for services rendered with respect to the sale of the Certificates is contingent upon the issuance and delivery of the Certificates. First Southwest Company may not submit a bid for the Certificates. First Southwest Company, in its capacity as Financial Advisor, does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Certificates, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies. The Financial Advisor to the City has provided the following sentence for inclusion in this Official Statement. The Financial Advisor has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to the City and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information. INITIAL PURCHASER After requesting competitive bids for the Certificates, the City accepted the bid of (the "Initial Purchaser ") to purchase the Certificates at the interest rates shown on the inside cover page of the Official Statement at a price of _% of par plus a cash premium (if any) of $ . The Purchaser(s) can give no assurance that any trading market 28 will be developed for the Certificates after their sale by the City to the Initial Purchaser. The City has no control over the price at which the Certificates are subsequently sold and the initial yield at which the Certificates will be priced and reoffered will be established by and will be the responsibility of the Initial Purchaser. FORWARD - LOOKING STATEMENTS DISCLAIMER The statements contained in this Official Statement, and in any other information provided by the City, that are not purely historical, are forward - looking statements, including statements regarding the City's expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward- looking statements. All forward - looking statements included in this Official Statement are based on information available to the City on the date hereof, and the City assumes no obligation to update any such forward - looking statements. The City's actual results could differ materially from those discussed in such forward- looking statements. The forward- looking statements included herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial, and other governmental authorities and officials. Assumptions related to the foregoing involve judgements with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the City. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward- looking statements included in this Official Statement will prove to be accurate. MISCELLANEOUS The financial data and other information contained herein have been obtained from the City's records, audited financial statements and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Official Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. The Ordinance authorizing the issuance of the Certificates will also approve the form and content of this Official Statement, and any addenda, supplement or amendment thereto, and authorize its further use in the reoffering of the Certificates by the Underwriter(s). CERTIFICATION OF THE OFFICIAL STATEMENT At the time of payment for and delivery of the Certificates, the City will furnish a certificate, executed by proper officers, acting in their official capacity, to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to the City contained in its Official Statement, and any addenda, supplement or amendment thereto, on the date of such Official Statement, on the date of sale of said Certificates and the acceptance of the best bid therefor, and on the date of the delivery, were and are true and correct in all material respects; (b) insofar as the City and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (c) insofar as the descriptions and statements, including financial data, of or pertaining to entities, other than the City, and their activities contained in such Official Statement are concerned, such statements and data have been obtained from sources which the City believes to be reliable and the City has no reason to believe that they are untrue in any material respect; and (d) there has been no material adverse change in the financial condition of the City since the date of the last audited financial statements of the City. The Ordinance authorizing the issuance of the Certificates will also approve the form and content of this Official Statement, and any addenda, supplement or amendment thereto, and authorize its further use in the reoffering of the Certificates by the Purchaser. ATTEST: City Secretary 29 Mayor City of Huntsville, Texas APPENDIX A GENERAL INFORMATION REGARDING THE CITY LOCATION The City of Huntsville (founded in 1845) is the county seat and principal commercial center of Walker County, Texas, which is in the southeastern corner of Texas. The City is approximately 70 miles north of Houston, 170 miles southeast of Dallas, and approximately 130 miles west of the Louisiana state line. The City encompasses an area of approximately 31 square miles. In 1990, the Rating Guide to Life in America's Small Cities by G. Scott Thomas, rated Huntsville 41 st in the nation and number one in Texas. The City's 2000 census population was 35,078, increasing 25.6% since 1990. Population estimates include inmates within the Texas Department of Criminal Justice ( "T.D.C.J. ") System located within the City limits. T.D.C.J. headquarters and five of its main units are located in the City. POPULATION HISTORYM 1960 1970 1980 1990 2000 Census Census Census Census Census Huntsville 11,999 17,610 23,463 27,925(') .35,078 Walker County 21,475 27,680 41,789 50,917 61,758 (1) U.S. Census Bureau. (2) In 1994 and 1997, the city annexed property increasing the population to an estimated 34,592. LABOR STATISTICS CITY OF HUNTSVILLE LABOR STATISTICS (Texas Workforce Commission) Calendar Labor Total Year Force Employment Unemployment Rate 1996 12,124 11,754 370 3.1% 1997 12,484 12,105 379 3.0% 1998 12,560 12,240 320 2.5% 1999 12,625 12,303 322 2.6% 2000 12,574 12,287 287 2.3% 2001 12,972 12,563 409 3.2% (1) Average through August. WALKER COUNTY LABOR STATISTICS (Texas Workforce Commission) Calendar Labor Total Year Force Employment Unemployment Rate 1996 22,465 21,884 581 2.6% 1997 23,133 22,538 595 2.6% 1998 23,293 22,789 504 2.2% 1999 23,413 22,908 505 2.2% 2000 23,328 22,877 451 1.9% 2001 ��� 24,033 23,391 642 2.7% (1) Average through August. ECONOMY The economy is based on education, state employment in the prison system, lumbering, agribusiness and tourism. The principal sources of agricultural income are livestock, hay, blueberries, and timber. The total 2000 Effective Buying Income for Walker County was $730.3 million with a median income of $24,782 per household compared to the state median of $37,630. A total of 58.6% of the households had Effective Buying Incomes in excess of $20,000 while 41.4% had incomes below $20,000. The Texas Workforce Commission reported 22,512 persons employed in the fourth quarter of 2000, earning $146.9 million. Retail sales for 2000 totaled $766.7 million. A -1 OTHER ECONOMIC INDICATORS Fiscal Year 1996 1997 1998 \999 2000 2001 BUILDING PERMITS Commercial Construction Number n[Dnits Value 86 Sl0'346.583 96 7,645.564 112 5.661.204 91 14,974,052 lOg 26,547,900 119 )8/84.]85 ImcomE AND AGE STATISTICS FOR WALKER COUNTY Residential Construction Number of Units Value 173 Sl(i2l7,O2l 137 13,448,997 155 7,640508 157 17,432.565 113 6.232,048 124 15,836,972 Source: Survey of Buying Power, Sales and Marketing Management. LEADING EMPLOYERS IN THE CITY« Local Y Year Median Calends Estimated Total Total Household Year Population Retail Sales EBl B81 1995 56,000 $ 343,106,000 $ 570.004,000 $ 2},53) 1996 56`400 344,463.000 604.424.000 22.388 1997 56'400 351,308'008 630,364,000 23,202 1998 58,800 398,741.000 648.728'000 23.413 1999 56'700 564,517.000 630'988'000 24.249 2000 62'000 766'081,000 730.296'000 �4,782 Source: Survey of Buying Power, Sales and Marketing Management. LEADING EMPLOYERS IN THE CITY« Texas Department ofC,imioo|Justice State Prison Administration 7.771 1848 No Sam Houston State University Education 2.131 1879 No 8uutoviUnl.8D. Education l)OO 1888 No Huntsville Memorial Hospital Medical 500 1927 No Wal-Mart Retail 497 1979 No Educational Service Center, Region Vl Education 312 1967 No City ofHuntsville Municipality 286 1845 No Walker County {3ovrmmnot 283 1846 No Gulf Coast Trades Couter Education 247 1971 No (D Source: Huntsville Chamber of Commerce. ^ Local Y Year Name y ymduct/8ervice E Employees E Established U Union (D Source: Huntsville Chamber of Commerce. ^ TEXAS DEPARTMENT OF CRIMINAL JUSTICE The headquarters for the Texas Department of Corrections is located in the City. In addition, located near the City are the following institutional prison units: (1) Source: Texas Department of Criminal Justice as of June 30, 2000. SAM HOUSTON STATE UNIVERSITY Sam Houston State located in the City was the first teacher training facility in the State and is noted for its unique Criminal Justice Center, only the second of its kind in the nation. The University has an approximate enrollment of 12,500. EDUCATION Huntsville Independent School District, which ranks 9151 largest district in Texas, encompasses an area of 629.27 square miles; and includes the City of Huntsville. Some nine campuses provide education for approximately 6,662 students from pre- kindergarten through twelfth grade. UTILITIES Electric power is furnished by Entergy, and Mid -South Electric Cooperative; Gas is provided by Reliant Energy; water and wastewater service is distributed by the City of Huntsville and Walker County Rural Water; and telephone service is provided by Southwestern Bell. TRANSPORTATION Huntsville is traversed by Interstate Highway 45, U.S. Highway 190, State Highways 19 and 30, and numerous farm -to- market roads. The City is serviced by Missouri Pacific Railroad Company, Tex -Pack Express, Missouri Pacific Truck Lines, Central Freight Lines, and Red Arrow Freight Lines. Greyhound Trailways also provides bus service to the City. Huntsville Municipal Airport provides a 5,000 -foot asphalt runway for air traffic in the area. The nearest airport with commercial passenger service is 55 miles away at Houston Intercontinental Airport. RECREATION Sam Houston National Forest (covers 53,461 acres), and Huntsville State Park (attracted 372,341 visitors during the 1999 season) provide facilities for hunting and camping. Sam Houston Museum and the 77 -foot tall statue of Sam Houston on Interstate 45 attracts tourist income. Fishing, boating, and other water activities on Lakes Livingston and Conroe provide recreation for the City. A -3 Unit Unit Capacity Population(') Employees Byrd 1,321 908 487 Ellis 2,404 2,391 767 Estelle 3,085 2,937 997 Goree 1,321 1,087 384 Holliday 2,000 1,847 422 Huntsville 1,705 1,553 457 Wynne 2,621 2,607 927 (1) Source: Texas Department of Criminal Justice as of June 30, 2000. SAM HOUSTON STATE UNIVERSITY Sam Houston State located in the City was the first teacher training facility in the State and is noted for its unique Criminal Justice Center, only the second of its kind in the nation. The University has an approximate enrollment of 12,500. EDUCATION Huntsville Independent School District, which ranks 9151 largest district in Texas, encompasses an area of 629.27 square miles; and includes the City of Huntsville. Some nine campuses provide education for approximately 6,662 students from pre- kindergarten through twelfth grade. UTILITIES Electric power is furnished by Entergy, and Mid -South Electric Cooperative; Gas is provided by Reliant Energy; water and wastewater service is distributed by the City of Huntsville and Walker County Rural Water; and telephone service is provided by Southwestern Bell. TRANSPORTATION Huntsville is traversed by Interstate Highway 45, U.S. Highway 190, State Highways 19 and 30, and numerous farm -to- market roads. The City is serviced by Missouri Pacific Railroad Company, Tex -Pack Express, Missouri Pacific Truck Lines, Central Freight Lines, and Red Arrow Freight Lines. Greyhound Trailways also provides bus service to the City. Huntsville Municipal Airport provides a 5,000 -foot asphalt runway for air traffic in the area. The nearest airport with commercial passenger service is 55 miles away at Houston Intercontinental Airport. RECREATION Sam Houston National Forest (covers 53,461 acres), and Huntsville State Park (attracted 372,341 visitors during the 1999 season) provide facilities for hunting and camping. Sam Houston Museum and the 77 -foot tall statue of Sam Houston on Interstate 45 attracts tourist income. Fishing, boating, and other water activities on Lakes Livingston and Conroe provide recreation for the City. A -3 APPENDIX B EXCERPTS FROM THE CITY OF HUNTSVILLE, TEXAS ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2000 The information contained in this Appendix consists of excerpts from the City of Huntsville, Texas Annual Financial Report for the Year Ended September 30, 2000, and is not intended to be a complete statement of the City's financial condition. Reference is made to the complete Report for further information. KENNETH C. DAVIS, P.C. CERTIFIED PUBLIC ACCOUNTANT 1300 11TH STREET, SUITE 400 P.O. BOX 6308 HUNTSVILLE, TEXAS 77342 -6308 (936) 291 -3020 INDEPENDENT AUDITOR'S REPORT February 21, 2001 The Honorable William B. Green, Mayor and Members of the City Council City of Huntsville I have audited the accompanying general purpose financial statements and the combining and account group financial statements of the City of Huntsville, Texas, as of, and for the year ended September 30, 2000, and the individual fund financial statements of the City as of and for the years ended September 30, 2000 and 1999, as listed in the table of contents. These financial statements are the responsibility of City of Huntsville management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted the 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 I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the general purpose financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of City of Huntsville, Texas as of September 30, 2000, and the results of its operations and the cash flows of its proprietary fund types and nonexpendable trust fund for the year then ended in conformity with generally accepted accounting principles. Also, in my opinion, the combining and individual fund and account group financial statements as of September 30, 2000, and for the year then ended, and the individual fund financial statements as of September 30, 1999, and for the year then ended, present fairly, in all material respects, the financial position of each of the individual funds and account groups of City of Huntsville, Texas as of September 30, 2000, and the financial position of each of the individual funds as of September 30, 1999, and the results of operations of such funds and the cash flows of individual proprietary funds and nonexpendable trust fund for the years then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, I have also issued a report dated February 21, 2001 on my consideration of the City of Huntsville, Texas' internal control over financial reporting and my tests of its compliance with certain provisions of laws, regulations, contracts and grants. My audit was conducted for the purpose of forming an opinion on the general purpose financial statements taken as a whole and on the combining and individual fund and account group financial statements. The accompanying financial information listed as supporting schedules in the table of contents are presented for purposes of additional analysis and are not a required part of the financial statements of City of Huntsville, Texas. Such information has been subjected to the auditing procedures applied in the audit of the general purpose, combining, and individual fund and account group financial statements, and, in my opinion, is fairly presented in all material respects in relation to the financial statements of each of the respective individual funds and account groups taken as a whole. Y . Davis, P.C. Certified Public Accountant CITY OF HUNTSVILLE COMBINED BALANCE SHEET — ALL FUND TYPES AND ACCOUNT GROUPS SEPTEMBER 30, 2000 WITH COMPARATIVE TOTALS FOR SEPTEMBER 30,1999 The accompanying notes are an integral part of this statement. 2 GOVERNMENTAL FUND TYPE SPECIAL DEBT CAPITAL GENERAL REVENUE SERVICE PROJECTS ASSETS AND OTHER DEBITS ASSETS Cash and Cash Equivalents $ 751,102 $ 644,795 $ 474,893 $ 937,625 Investments 4,785,278 — — 5,155,688 Receivables Sales Tax 346,874 — — — Taxes 96,575 34,763 42,593 — Grants 2,639 52,164 — — Accounts 47,721 9,474 — 252,958 Interest 73,536 — — 124,417 Due From Other Funds 48,830 60,597 — 416,519 Inventory 90,311 42,193 — — Restricted Assets Cash and Cash Equivalents — — — — Investments — — — — Investment in Joint Venture — — — — Fixed Assets (Net of Accumulated Depreciation) — — — — Deferred Charges — — — — OTHER DEBITS Amount Available in Debt Service Fund — Amount to be Provided for Retirement of General Long —Term Debt — — — Amount to be Provided for Accrued Compensated Absences ' TOTAL ASSETS AND OTHER DEBITS $ 6.242.866 $ 843.986 $ 517.486 $ 6.887.207 The accompanying notes are an integral part of this statement. 2 EXHIBIT 1 PAGE 1 OF 2 TOTALS PROPRIETARY FUND TYPE FIDUCIARY FUND TYPE ACCOUNT GROUPS (MEMORANDUM ONLY) GENERAL GENERAL INTERNAL TRUST AND FIXED LONG -TERM ENTERPRISE SERVICE AGENCY ASSETS DEBT 2000 1999 $ 450,331 $ 555,163 $ 70,886 $ - $ - $ 3,884,795 $ 5,449,997 3,132,042 - 9,959 - - 13,082,967 13,772,164 - - - - - 346,874 293,251 4,623 - - - - 178,554 192,920 - - - - - 54,803 5,000 2,129,051 - - - - 2,439,204 1,991,813 48,323 - 143 - - 246,419 257,830 169,350 66,589 - - - 761,885 400,172 268,161 - - - - 400,665 338,517 7,182,290 131,735 - - - 7,314,025 11,037,586 14,277,642 - - - - 14,277,642 15,795,107 22,294,609 - - - - 22,294,609 16,752,738 30,739,007 1,136,403 - 27,179,060 - 59,054,470 59,449,723 518,290 - - - - 518,290 561,341 - - - - 474,893 474,893 475,326 9,994,581 9,994,581 10,398,886 - - 366.889 366.889 475.816 $ 81.213.719 $ 1.889.890 $ 80.988 $ 27.179.060 $ 10.836.363 $ 135.691.565 $ 137.648.187 II 3 CITY OF HUNTSVILLE COMBINED BALANCE SHEET — ALL FUND TYPES AND ACCOUNT GROUPS SEPTEMBER 30, 2000 WITH COMPARATIVE TOTALS FOR SEPTEMBER 30,1999 GOVERNMENTAL FUND TYPE SPECIAL DEBT CAPITAL GENERAL REVENUE SERVICE PROJECTS LIABILITIES Accounts Payable $ 588,413 $ 5,362 $ — $ 217,062 Accumulated Unpaid Vacation and Sick Pay 122,296 60,597 — — Accrued Interest Payable — — — — Due to Other Funds 291,869 26,203 — 251,183 Certificates of Obligation — Current Portion — — — — Payable From Restricted Assets — — — — Deferred Revenues 96,575 42,593 — Arbitrage Rebate Payable — — — 31,589 Notes Payable — — — — Tax Anticipation Note 457,182 — — — Capital Lease Payable — — — — Certificates of Obligation — — — — Revenue Bonds Payable — — — — Contract Bonds Payable — — — — General Obligation Bonds Payable — — — TOTAL LIABILITIES $ 1,556,335 $ 92,162 $ 42,593 $ 499,834 EQUITY AND OTHER CREDITS Contributed Capital $ — $ — $ — $ — Investment in General Fixed Assets — — — — Retained Earnings Reserved for Revenue Bond Retirement — — — — Reserved for Contract Bond Retirement — — — — Reserved for Medical Claims — — - — Reserved for Fire Equipment — — — — Unreserved — — — — Fund Balances Reserved for Encumbrances 673,451 — — — Reserved for Debt Service — — 474,893 — Reserved for Tourism — 54,613 — — Reserved for Arts — 12,793 — — Reserved for Visitors Center — 245,433 — — Reserved for Park Development — — — — Reserved for Capital Improvements /Special Projects — 333,832 — 6,474,698 Reserved for Police — 31,267 — — Reserved for Fire Equipment — — — — Reserved for Bicentennial — — — — Reserved for Library Expenditures — 73,886 - — Reserved for Elkins Area Improvements — — — 312,675 Unreserved — Undesignafed _ 4,013,080 — — — TOTAL EQUITY AND OTHER CREDITS $ 4,686,531 $ 751,824 $ 474,893 $ 6,387,373 TOTAL LIABILITIES, EQUITY AND OTHER CREDITS $ 6,242,866 $ 843,986 $__517 486 $ 6,887,207 The accompanying notes are an integral part of this statement, 4 EXHIBIT 1 PAGE 2 OF 2 F FIDUCIARY TOTALS PROPRIETARY FUND TYPE FUND TYPE ACCOUNT GROUPS (MEMORANDUM ONLY) GENERAL GENERAL INTERNAL TRUST AND FIXED LONG -TERM ENTERPRISE SERVICE AGENCY ASSETS DEBT 2000 lggg $ 517,152 $ 45,757 $ - $ - $ - $ 1,373,746 $ 984,312 321,467 98,798 - - 366,889 970,047 973,668 29,239 - - - - 29,239 36,420 192,630 - - - - 761,885 400,172 109,234 - - - - 109,234 101,534 4,106,042 - - - - 4,106,042 3,388,958 - - - - - 139,168 148,085 442,424 - - - - 474,013 359,499 - - - - - - 77,324 357,818 - - - - 815,000 1,285,000 78,678 - - - - 78,678 138,597 775,370 - - - 7,719,474 8,494,844 8,683,816 13,340,000 - - - - 13,340,000 14,195,000 23,265,000 - - - - 23,265,000 24,865,000 1,230,000 - - - 2,750,000 3,980,000 4,680,000 $ 44,765,054 $ 144,555 $ - $ - $ 10,836,363 $ 57,936,896 $ 60,317,385 $ 11,215,891 $ 1,488,825 $ - $ - $ - $ 12,704,716 $ 11,125,065 - - - 27,179,060 - 27,179,060 29,165,094 1,045,489 - - - - 1,045,489 1,035,569 483,236 - - - - 483,236 433,447 - 124,775 - - - 124,775 98,526 - 131,735 - - - 131,735 - 23,704,049 - - - - 23,704,049 21,112,068 - - - - - 673,451 585,473 - - 474,893 475,326 - - - - - 54,613 38,920 - - 12,793 19,342 - - 245,433 188,619 - 2,678 - - - - - 6,408,530 8,646,162 31,267 24,001 - 129,962 - 7,427 - - 59,853 - - 133,739 46,457 - - - - - 312,675 307,111 - - 21,135 - - 4,034,215 3,889,555 $ 36,448,665 $ 1,745,335 $ 80,988 $ 27,179,060 $ - $ 77,754,669 $ 77,330,802 $ 81,213,719 $ 1,889,890 $ 80,988 $ 27,179,060 $ 10,836,363 $ 135,691,565 $ 137,648.187 F CITY OF HUNTSVILLE COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - ALL GOVERNMENTAL FUND TYPES YEAR ENDED SEPTEMBER 30, 2000 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30,1999 GOVERNMENTAL FUND TYPES SPECIAL DEBT CAPITAL GENERAL REVENUE SERVICE PROJECTS REVENUES Taxes $ 7,630,896 $ 396,193 $ 878,469 $ _ Permits and Licenses 212,214 - - _ Fines 393,521 14,642 Fees /Charges /Sales 176,775 85,261 Intra/Inter Governmental 208,172 - Administrative Cost Reimbursement 1,547,575 - - - Interest Earnings 353,175 12,990 29,703 369,565 Grants /Reimbursements 70,494 100,612 - 50,440 Contributions 2,596 16,917 - 290 Police Seizure - 2,315 - - Misce €laneous 9,379 - - 2.250 TOTAL REVENUES $ 10,604,797 $ 628,930 $ 908,172 $__422,505 EXPENDITURES Current Charter Offices $ 639,702 $ - $ - $ - Finance 438,966 Public Works 3,611,576 - - - Community Services 1,561,505 14,233 - - Public Safety 3,125,958 27,297 - - Police Seizure /Forfeiture - - - - Other 110,087 375,467 - - Capital Projects - - - 3,502,589 Debt Service Principal Retirement - - 404,738 - Interest 27,336 - 570,250 -- TOTAL EXPENDITURES $ 9,515,130 $_ 416,997 $ 974,988 $ 3,502,589 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES $ 1,089,667 $ 211,933 $_ (66,816) $__ (3,080,084) OTHER FINANCING SOURCES (USES) Operating Transfers In $ - $ 359,393 $ 66,383 $ 574,576 Operating Transfers Out (1,041,369) (66,383) - (44,219) Issue of Debt - - - - TOTAL OTHER FINANCE SOURCES (USES) $ (1,041,369) $ 293,010 $ 66,383 $ 530,357 EXCESS (DEFICIENCY) OF REVENUES AND OTHER FINANCING SOURCES OVER EXPENDITURES AND OTHER FINANCING USES $ 48,298 $ 504,943 $ (433) $ (2,549,727) FUND BALANCES Beginning Fund Balance $ 4,638,233 $ 246,881 $ 475,326. $ 8,937.100 FUND BALANCES - End of Year $ 4,686.531 $ 751.824 $ 474,893 $_6,387 37 The accompanying notes are an integral part of this statement. 6 EXHIBIT 2 TOTALS (MEMORANDUM ONLY) 2000 1999 $ 8,905,558 $ 8,224,244 212,214 232,344 408,163 463,089 262,036 206,821 208,172 173,270 1,547,575 1,355,361 765,433 635,922 221,506 461,896 19,803 72,020 2,315 3,011 11,629 6,337 $ 12,564,404 $ 11 834,315 $ 639,702 $ 559,595 438,966 423,686 3,611,576 3,328,017 1,575,738 1,452,926 3,153,255 3,008,202 - 7,090 485,554 666,290 3,502,589 1,700,339 404,738 354,738 597,586 469,734 $ 14,409,704 $ 11,970,617 $ (1,845,300) $ (136,302) $ 1,000,352 $ 2,075,270 (1,151,971) (2,075,271) 7,425,000 $ (151,619) $ 7,424 999 $ (1,996,919) $ 7,288,697 $ 14,297,540 $ 7,008,843 $ 12,300.621 $ 14,297,540 7 CITY OF HUNTSVILLE COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET (GAAP BASIS) AND ACTUAL - $--W 41_4) $_ -Q Z ALL GOVERNMENTAL FUND TYPES $ 211 M3 $ 220.1 YEAR ENDED SEPTEMBER 30, 2000 $ - $ - $ 360,746 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30,1999 $ (1,353) Operating Transfers In GENERAL FUND SPECIAL REVENUE FUND VARIANCE (1. 042.722) .(.1JQ41.369) VARIANCE (66,383 --(65. } FAVORABLE $ (1042.722} $ f 1.041.30 FAVORABLE $ 294,3 BUDGET ACTUAL (UNFAVORABLE) BUDGET ACTUAL (UNFAVORABLE' REVENUES AND OTHER FINANCING SOURCES Taxes $ 7,170,177 $ 7,630,896 $ 460,719 $ 360,319 $ 396,193 $ 35,874 Permits and Licenses 133,800 212,214 78,414 - - - Fines 520,600 393,521 (127,079) - 14,642 14,642 Fees /Charges/Sales 148,962 176,775 27,813 73,155 85,261 12,106 Intra/Inter Governmental 230,872 208,172 (22,700) - - - Administrafive Cost Reimbursement 1,547,575 1,547,575 Interest Earnings 294,550 353,175 58,625 6,925 12,990 6,065 Grants /Reimbursements 65,225 70,494 5,269 148,448 100,612 (47,836) Contributions 2,000 2,596 596 17,767 16,917 (850) Police Seizure - - - - 2,315 2,315 Miscellaneous 2,200 _ -9,379 - 7.179 - - - TOTAL REVENUES $1Q 115.961 $1_Q,QQ4 7L7 $ 48$ 6 $ Q06,614 $X28.930 $ 22,316 EXPENDITURES Current Charter Offices $ 658,298 $ 639,702 $ 18,596 $ - $ - $ - Finance 477,765 438,966 38,799 - - - Public Works Community Services 4,361,944 1,699,974 3,611,576 1,561,505 750,368 138,469 - 131,878 14,233 - 117,645 Public Safety 3,430,632 3,125,958 304,674 32,009 27,297 4,712 Police Seizure /Forfeiture Other - 124,426 - 110,087 - 14,339 - 451,205 375,467 75,738 Capital Projects - - - - - Debt Service Principal Retirement - - _ Interest _ 27.3§ --2ZM - TOTAL EXPENDITURES $ 10,780.375 $ 9,515,13D $-i-=-24- $ 61 .09 $ 4169.` EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES $--W 41_4) $_ -Q Z $ 1.754.081 $ 47) $ 211 M3 $ 220.1 OTHER FINANCING SOURCES (USES) $ - $ - $ - $ 360,746 $ 359,393 $ (1,353) Operating Transfers In Operating Transfers Out (1. 042.722) .(.1JQ41.369) -- 1.3353 (66,383 --(65. } TOTAL OTHER FINANCING SOURCES (USES) $ (1042.722} $ f 1.041.30 $ _1, $ 294,3 $x.3.910 $---Al-=) EXCESS (DEFICIENCY) OF REVENUES AND OTHER FINANCING SOURCES OVER EXPENDITURES AND OTHER FINANCING USES (1,707,136) 48,298 1,755,434 285,885 504,943 219,058 FUND BALANCES Beginning Fund Balance $ 4.638.233 $ 4$2.33 $ $246,881 $-24-Ml $ FUND BALANCES - End of Year $=11L1 a7 $ 4.6865 1 $ 1155 $532,766 $ 7 i 24 $ 219aQ The accompanying notes are an integral part of this statement. E DEBT SERVICE FUND VARIANCE FAVORABLE BUDGET ACTUAL (UNFAVORABLE) 887,107 $ 878,469 $ (8,638) 22,420 29,703 7,283 $ 909.527 $ 908.172 $ (1355) EXHIBIT 3 PAGE i OF 2 ANNUALLY BUDGETED CAPITAL PROJECTS FUNDS VARIANCE FAVORABLE BUDGET ACTUAL (UNFAVO ARI Fl 404,738 404,738 - - - - 571.172 570.250 922 - - - $ 975.910 $ 974.988 $ 922 $ - $ - $ - $ - (66.383) $ (66.$S) $ (433) $ - $ - $ - $ 66,383 $ 66,383 $ - $ - $ - $ - $ 66.383 $ 66.383 $ - $ - $ - $ - $ - $ (433) $ (433) $ - $ - $ - $ 475.326 $ 475.326 $ - $ - $ - $ - $ 475.326 $ 474.893 $ (433) $ - $ - $ 9 CITY OF HUNTSVILLE COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET (GAAP BASIS) AND ACTUAL - ALL GOVERNMENTAL FUND TYPES YEAR ENDED SEPTEMBER 30, 2000 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30,1999 The accompanying notes are an integral part of this statement. 10 2000 TOTALS (MEMORANDUM ONLY) VARIANCE FAVORABLE BUDGET ACTUAL (UNFAVORABLE) REVENUES Taxes $ 8,417,603 $ 8,905,558 $ 487,955 Permits and Licenses 133,800 212,214 78,414 Fines 520,600 408,163 (112,437) Fees /Charges /Sales 222,117 262,036 39,919 Intra/Inter Governmental 230,872 208,172 (22,700) Administrative Cost Reimbursement 1,547,575 1,547,575 - Interest Earnings 323,895 395,868 .71,973 Grants /Reimbursements 213,673 171,106 (42,567) Contributions 19,767 19,513 (254) Police Seizure - 2,315 2,315 Miscellaneous 2.200 9.379 7,179 TOTAL REVENUES $ 11,632,102 $ 12,14109 $ 509,797 EXPENDITURES • - Current Charter Offices $ 658,298 $ 639,702 $ 18,596 Finance 477,765 438,966 38,799 Public Works 4,361,944 3,611,576 750,368 Community Services 1,831,852 1,575,738 256,114 Public Safety 3,462,641 3,153,255 309,386 Police Seizure/Forfeiture - - - Other 575,631 485,554 90,077 Capital Projects - - - Debt Service Principal Retirement 404,738 404,738 - Interest _ 598,508 597,586 922 TOTAL EXPENDITURES $ 12,371,377 $ 10,907,115 $ 1,464.262 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES $ (739,2751 $ 1,234,784 $ 1,974,059 OTHER FINANCING SOURCES. (USES) Operating Transfers In $ 427,129 $ 425,776 $ (1,353) Operating Transfers Out (1,107,751) (1.107.7521 (1) TOTAL OTHER FINANCING SOURCES (USES) $ (680,622) $ (681,976) $ (1.354) EXCESS (DEFICIENCY) OF REVENUES AND OTHER FINANCING SOURCES OVER EXPENDITURES AND OTHER FINANCING USES $ (1,419,897) $ 552,808 $ 1,972,705 FUND BALANCES Beginning Fund Balance $ 5,3604440 $ 5,360,440 $ - FUND BALANCES - End of Year $ 3.940.543 $ 5.913,248 $ 1.972.705 The accompanying notes are an integral part of this statement. 10 EXHIBIT 3 PAGE 2OF2 1999 TOTALS (MEMORANDUM ONLY) VARIANCE FAVORABLE BUDGET ACTUAL (UNFAVORABLE) $ 8,000,605 $ 8,224,244 $ 223,639 103,020 232,344 129,324 555,955 463,089 (92,866) 183,475 206,821 23,346 211,802 173,270 (38,532) 1,355,361 1,355,361 - 304,448 345,200 40,752 295,809 259,338 (36,471) 75,925 72,020 (3,905) - 3,011 3,011 3,340 3,712 372 $ 11,089.740 $ 11.338.410 $ 248.670 $ 618,897 $ 559,595 $ 59,302 452,844 423,686 29,158 4,051,584 3,328,017 723,567 1,659,716 1,452,926 206,790 3,335,597 3,008,202 327,395 - 7,090 (7,090) 722,621 666,290 56,331 145,663 151,822 (6,159) 354,738 354,738 - 469,735 469.734 1 $ 11.811.395 $ 10.422.100 $ 1,389,295 $ (721,6551 $ 916.310 $ 1,637,965 $ 323,559 $ 323,558 $ (1) (1.807,911) (1,807,9111 - $ (1,484,352) $ (1.484,3531 $ (11 $ (2,206,007) $ (568,043) $ 1,637,964 $ 5.928.483 $ 5.928.483 $ - $ 3.722.476 $ 5.360.440 $ 1.637.964 11 CITY OF HUNTSVILLE COMBINED STATEMENT OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGSIFUND BALANCES ALL PROPRIETARY FUND TYPES AND SIMILAR TRUST FUNDS YEAR ENDED SEPTEMBER 30, 2000 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30,1999 OPERATING REVENUES Service Charges Service Fees and Miscellaneous Interest TOTAL OPERATING REVENUES OPERATING EXPENSES Administration Production and Distribution Collection and Treatment Utility Billing /Customer Service Lab /Compliance Planning & Development TRA Joint Venture Depreciation and Amortization Bad Debt Expense Legal Miscellaneous TOTAL OPERATING EXPENSES OPERATING INCOME (LOSS) NON — OPERATING REVENUES (EXPENSES) Donations in Endowment Tax Collections Interest Income Revenue Bond and C.O. Interest TOTAL NON —OPERATING REVENUES(EXPENSES) NET INCOME (LOSS) BEFORE OPERATING TRANSFERS OPERATING TRANSFERS FROM (TO) INTERNAL SERVICE FUNDS NET INCOME (LOSS) RESIDUAL EQUITY TRANSFER TO INTERNAL SERVICE FUNDS RETAINED EARNINGS — Beginning of Year RETAINED EARNINGS — End of Year EXHIBIT 4 $ 1,555,875 $ — $ — $ 1,555,875 FIDUCIARY TOTALS PROPRIETARY FUNDS FUND TYPES (MEMORANDUM ONLY) — 3,510,280 INTERNAL NONEXPENDABLE — 1,137,920 ENTERPRISE SERVICE TRUST 2000 1999 $ 14,491,883 $ 815,830 $ — $ 15,307,713 $ 13,686,608 310,849 — — 4.099 310,849 301,975 4.099 — $ 14.802.732 — $ 815.830 _ $ 4.099 2.866 $ 15.622.661 $_ 13.991.449 $ 1,555,875 $ — $ — $ 1,555,875 $ 1,355,361 1,301,083 — — 1,301,083 1,101,016 3,510,280 — — 3,510,280 3,367,803 304,997 832,923 — 1,137,920 1,036,960 120,383 — — 120,383 115,738 653,377 — — 653,377 603,103 2,571,063 — — 2,571,063 2,485,248 1,710,498 — — 1,710,498 1,855,651 — — — — 14,528 8,463 — — 8,463 — 53.586 53.586 41.378 $ 11.789.605 $ 832.923 $ — $ 12.622.528 $ 11.976.786 $ 3.013.127 $--(!Z= $ 4.099 $ 3.000.133 $ 2.014.663 $ — $ — $ 13,396 $ 13,396 $ — 587 — - 587 6,613 1,336,410 3,458 — 1,339,868 1,132,159 (849.969) — — (849.969) 026.165) $ 487.028 $---a.458 $ 13.396 $ 503.882 $ 212.607 $ 3,500,155 $ (13,635) $ 17,495 $ 3,504,015 $ 2,227,270 $ (20.000) $ 171.619 $ — $ 151.619 $ $ 3,480,155 $ 157,984 $ 17,495 $ 3,655,634 $ 2,227,270 $ (828,465) $ — $ — $ (828,465) $ — 20.515.833 22.581.084 $ 2.5.232.774 98.526 $ 256.510 $ 63.493 22,743,103 80.988 $ 25.570.272 $ 22.743.103 The accompanying notes are an integral part of this statement. 12 CITY OF HUNTSVILLE COMBINED STATEMENT OF CASH FLOWS ALL PROPRIETARY FUND TYPES AND NONEXPENDABLE TRUST FUND YEAR ENDED SEPTEMBER 30, 2000 WITH COMPARATIVE TOTALS FOR YEAR ENDED SEPTEMBER 30,1999 CASH FLOWS FROM OPERATING ACTIVITIES: Cash Received from Customers and Users Cash Payments to Beneficiaries Cash Payments to Employees Cash Payments to Suppliers for Goods /Services Cash Payments for Quasi External Transactions Cash Payments for TRA Joint Venture Other Operating Revenues NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Contributions to Endowment Operating Transfers From Other Funds Transfers To Other Funds Residual Equity Transfers NET CASH PROVIDED (USED) BY NONCAPITAL FINANCING ACTIVITIES CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Elkins Area Tax Collections Activity Proceeds from Issuance of Long —Term Debt Capital Contributions Bond Refunding, Underwriting and Issuance Costs Principal Payments — Other Principal Payments — Elkins Area Principal Payments — Bonds Payable Interest Paid on Long —Term Debt Acquisition and Construction of Capital Assets Acquisition and Construction of Contract Water Facilities NET CASH PROVIDED (USED) BY CAPITAL AND RELATED FINANCING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Interest Received Purchase of Investments Proceeds From Maturities of Investments NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS — Beginning of Year (Including $4,734,170 in Restricted Accounts) CASH AND CASH EQUIVALENTS — End of Year (Including $7,314,025 in Restricted Accounts) NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES Residual Equity Transfer — Fixed Assets EXHIBIT 5 PAGE 1 OF 2 $ — $ — $ 13,396 30,000 171,619 — (50,000) — — (352,422) 352,422 — $ (372,422) $ 524,041 $ 13.396 $ 2,063 $ — $ — 90,826 — — (404,219) — — (350,000) — — (2,140,000) — — (838,955) — — (2,245,098) — — (5,541,871) $ (11,427,254) $ — $ 13,396 $ — 201,619 — (50,000) — $ 165.015 $ — $ 2,063 $ FIDUCIARY TOTALS PROPRIETARY FUNDS FUND TYPES (MEMORANDUM ONLY) 784,140 INTERNAL NONEXPENDABLE (383,327) (350,000) ENTERPRISE SERVICE TRUST 2000 1999 (802,659) $ 14,262,719 $ 920,803 $ $ 15,183,522 $ 13,541,664 (607,042) — (607,042) (552,795 (2,894,703) — — (2,894,703) (2,673,213) (2,936,880) (225,370) • — (3,162,250) (3,063,050) (1,555,875) — — (1,555,875) (1,355,361) (2,571,063) — — (2,571,063) (2,485,248) 92,817 — — 92.817 70.752 $ 4,397,015 $ 88.391 $ — $_ 4,485,406 $ 3,482.749 $ — $ — $ 13,396 30,000 171,619 — (50,000) — — (352,422) 352,422 — $ (372,422) $ 524,041 $ 13.396 $ 2,063 $ — $ — 90,826 — — (404,219) — — (350,000) — — (2,140,000) — — (838,955) — — (2,245,098) — — (5,541,871) $ (11,427,254) $ — $ 13,396 $ — 201,619 — (50,000) — $ 165.015 $ — $ 2,063 $ 19,220 — 9,406,138 90,826 784,140 (404,219) (383,327) (350,000) (325,000) (2,140,000) (2,035,000) (838,955) (802,659) (2,245,098) (2,227,243) (5,541,871) (3,248,8661 $ — $ (11.427,254) 1.187,403 $ 1,045,864 $ 3,458 $ 4,099 $ 1,053,421 $ 1,290,363 (3,176,480) — (50) (3,176,530) (3,013,273) 4,250,000 4,250,000 4,453,877 $ 2,119,384 $ 3,458 $ 4,049 $ 2,126,891 $ 2,730.967 $ (5,283,277) $ 615,890 $ 17,445 $ (4,649,942) $ 7,401,119 12.915,898 71.008 53.441 13.040,347 5.639.228 $ 7.632,621 $ 686.898 $ 70,886 $ 8.390,405 $ 13,040.347 $ (476,043) $ 1,136,403 $ — $ 660,360 $ — The accompanying notes are an integral part of this statement. 13 CITY OF HUNTSVILLE COMBINED RECONCILIATION OF OPERATING INCOME (LOSS) TO CASH PROVIDED (USED) BY OPERATING ACTIVITIES ALL PROPRIETARY FUND TYPES AND NONEXPENDABLE TRUST FUND YEAR ENDED SEPTEMBER 30, 2000 WITH COMPARATIVE TOTALS FOR YEAR ENDED SEPTEMBER 30,1999 OPERATING INCOME (LOSS) ADJUSTMENTS TO RECONCILE OPERATING INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Depreciation and Amortization Expense Provision for Uncollectible Accounts Changes in Assets and Liabilities (Increase) Decrease in Accounts Receivable (increase) Decrease in Prepaid Expenses (increase) Decrease in Due from Other Funds (increase) Decrease in Inventories Net Increase in Customer Deposits Decrease in TRA Joint Venture Increase (Decrease) in Accounts Payable Increase (Decrease) in Compensated Absences Payable .increase (Decrease) in Due to Other Funds Interest Reported as Operating Income TOTALADJUSTMENTS PROPRIETARY FUNDS INTERNAL ENTERPRISE SERVICE FIDUCIARY FUND TYPES NONEXPENDABLE TRUST EXHIBIT 5 PAGE 2 OF 2 TOTALS (MEMORANDUM ONLY) 2000 1999 $ 3.013.127 $ (17,0931 , $ 4.099 $ 3,000,133 $ 2 Q14 63 $ 1,710,498 $ — $ — $1,710,498 $ 1,855,651 — - — — (5,185) (447,141) 72,764 — (374,377) (403,366) (167,908) (66,589) — (234,497) (66) (61,511) — — (61,511) (58,254) 7,040 — — 7,040 3,090 193,480 511 — 193,991 25,280 (19,156) 98,798 - 79,642 29,758 168,586 — — 168,586 24,044 — — (4,099) (4,099} (2.866) $ 1.383.888 $ 105.484 $ (4.099) $1.485.273 $1,468,086 NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 4.397.015 $ 88.391 $ — $ 4.485,406 $ 3482.749 The accompanying notes are an integral part of this statement. 14 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 PAGE 1 OF 24 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity City of Huntsville (the City) is a municipal corporation governed by an elected mayor and eight - member council. As required by generally accepted accounting principles, these financial statements present the City and its component units, entities for which the City is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the City's operations and so data from these units are combined with data of the City (the primary government). Each blended component unit has a September 30 year end. The following blended component unit is reported as a Special Revenue Fund: Huntsville Natural & Cultural Resources, Inc. (HNCR) is a nonprofit corporation created by the City to receive donations of land and money to provide park facilities and protection of cultural/histodc amenities of the City. The City's Parks Advisory Board (all members of which are appointed by City Council) acts as Board of Directors. All decisions (financial etc.) of HNCR require the approval of the City of Huntsville's City Council. HNCR does not issue separate financial statements but financial information relating to HNCR, including its 990 (Internal Revenue Service "Return of Organization Exempt from Income Tax "), may be obtained at City of Huntsville, 1212 Avenue M, Huntsville, Texas 77340. HNCR has only received donations of land during its existence which the City has included in its General Fixed Asset Group. No other activity occurred which would be recorded as a revenue or expenditure. Consequently, no special revenue fund statements have been prepared for HNCR. B. Measurement Focus, Basis of Accounting and Basis of Presentation The accounts of the City are organized and operated on the basis of funds and account groups. A fund is an independent fiscal and accounting entity with a self - balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance - related legal and contractual provisions. The minimum number of funds are maintained consistent with legal and managerial requirements. Account groups are a reporting device to account for certain assets and liabilities of the governmental funds not recorded directly in those funds. During this fiscal year, the City has expanded its use of Special Revenue and Internal Service Funds. The City has the following funds types and account groups: Govemmental funds are used to account for the City's general government activities. Governmental fund types use the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting revenues are recognized when susceptible to accrual (i.e., when they are "measurable and available "). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to pay liabilities of the current period. The City considers all revenues available if they are collected within 60 days after year end. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long -term debt which is recognized when due, and certain compensated absences and claims and judgements which are recognized when the obligations are expected to be liquidated with expendable available financial resources. Property taxes, interest and special assessments are susceptible to accrual. Sales taxes collected and held by the state at year end on behalf of the City are also recognized as revenue. Other receipts and taxes become measurable and available when cash is received by the City and are recognized as revenue at that time. Expenditure -driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other grant requirements have been met. 15 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 PAGE 2 OF 24 Governmental funds include the following fund types: The general fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The special revenue funds account for revenue sources that are legally restricted to expenditure for specific purposes, conditions of a grant, or funds designated by Council for a specific purpose (not including expendable trusts or majorcapital projects ). The debt service fund accounts for the servicing of general long -term debt not being financed by proprietary or nonexpendable trust funds. The capital projects funds account for the acquisition of fixed assets or construction of major capital projects not being financed by proprietary or nonexpendable trust funds. Proprietary funds are accounted for on the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. The City applies all applicable FASB pronouncements in accounting and reporting for is -pfbpdetary operations. Proprietary funds include the following fund types: Enterprise funds are used to account for those operations that are financed and operated in a manner similar to private business or where the City has decided that the determination of revenues earned, costs incurred and /or net income is necessary for management accountability. Internal service funds account for operations that provide services to other departments or agencies of the government, or to other governments, on a cost- reimbursement basis. Fiduciary funds account for assets held by the government in a trustee capacity or as an agent on behalf of others. Trust funds account for assets held by the government under the terms of a formal trust agreement. The nonexpendable trust fund is accounted for in essentially the same manner as the proprietary funds, using the same measurement focus and basis of accounting. Nonexpendable trust funds account for assets of which the principal may not be spent. The agency fund is custodial in nature and does not present results of operations or have a measurement focus. Agency funds are accounted for using the modified accrual basis of accounting. This fund is used to account for assets that the City holds for others in an agency capacity. Account Groups. The general fixed assets account group is used to account for fixed assets not accounted for in proprietary or trust funds. The general long -term debt account group is used to account for general long -term debt and certain other liabilities (i.e., non current Compensated Absences of the General Fund) that are not specific liabilities or proprietary or trust funds. 16 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 PAGE 3 OF 24 C. Assets, Liabilities and Equity 1. Deposits and Investments The City's cash and cash equivalents are considered to be cash on hand, demand deposits and investments with local government investment pools (liquidity of the investment pools is essentially the same as demand deposits). Texas State law requires the City to adopt written investment policies. The City of Huntsville's investment policy was last amended on February 8, 2000. The investment policy was first adopted in March, 1990, amended October 1, 1990, February 8, 1994, December 12, 1995, and February 10, 1998. Authorized investments include those outlined in the Texas Government Code. Authorized investments include: • obligations of the United States or its agencies and instrumentalities; • direct obligations of the State of Texas or its agencies and instrumentalities; • obligations that the principal of and interest in which are unconditionally guaranteed by the State of Texas, or the United States or its agencies and instrumentalities; • certain certificates of deposit issued by state and national banks domiciled in Texas; • certain prime domestic bankers' acceptances (Texas Government Code § 2256.009); • commercial paper with a stated maturity of 270 days or less rated not less than A -1 or P -1; • fully collateralized repurchase agreements; • public funds investment pools approved by resolution of the City Council. The City currently invests in local government pools, and obligations of the United States or State of Texas or its agencies and instrumentalities, exclusively. Investments are reported at fair value. The City follows the provisions GASB Statement No. 31, "Accounting and Financial Reporting for Certain Investments and for External Investment Pools" ( "Statement "). Those provisions require that certain investments be reported at fair value, rather than at cost or amortized cost, and that the changes in the fair value of investments be recognized as investment revenue. The statement further provides that the City has the option of continuing to report certain investments at cost or amortized cost but must disclose its policy in this regard. In accordance with GASB Statement No. 31, the City's general policy is to report all investments at fair value. Public Funds Investment Pools Public funds investment pools in Texas ( "Pools ") are established under the authority of the interlocal Cooperation Act, Chapter 79 of the Texas Government Code, and are subject to the provisions of the Public Funds Investment Act (the "Act"), Chapter 2256 of the Texas Government Code. In addition to other provisions of the Act designed to promote liquidity and safety of principal, the Act requires Pools to: 1) have an advisory board composed of participants in the pool and other persons who do not have a business relationship with the pool and are qualified to advise the pool; 2) maintain a continuous rating of no lower than AAA or AAA—m or an equivalent rating by at least one nationally recognized rating service; and 3) maintain the market value of its underlying investment portfolio within one half of one percent of the value of its shares. 17 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 PAGE 4 OF 24 The City investments in Pools are reported at an amount determined by the fair value per share of the pool's underlying portfolio, unless the pool is 2a-7 -4ike, in which case they are reported at share value. A 2a- 7.4ike pool is one which is not registered with the Securities and Exchange Commission CSEC ") as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistentwith the SEC's Rule 2a-7 of the Investment Company Act of 1940. 2. Receivables and Payables Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either " interfund receivables /payables" (i.e., the current portion of interfund loans) or "advances to /from other funds" (i.e., the non - current portion of interfund loans). All other outstanding balances between funds are reported as "due to/from other funds." All trade receivables are shown net of an allowance for uncollectibles. Trade receivables are reviewed at year --end to establish or update the provisions for estimated uncollectible receivables. These provisions are estimated based on an analysis of an aging of the year -end accounts receivable balance and/or the historical rate of uncollectibility. Taxes Receivable - Property taxes levied for the current year are recorded on the balance sheet as taxes receivable and deferred revenue at the beginning of the year. Property taxes are recognized as revenue when collected in cash at which time the balance sheet accounts, taxes receivable and deferred revenue, are reduced by the amount of the collection. The amount of taxes receivable at year -end that would be collected soon enough to be used to pay liabilities of the current period is immaterial. At year -end, all uncollected property taxes are reported on the balance sheet as taxes receivable and deferred revenue. In accordance with governing statutes, property taxes were levied on October 1. 1999, to provide a revenue source to be used to finance the current year's budget. Taxes levied on October 1, 1999, were due and payable by January 31, 2000. On January 1, 2000, a tax lien allached to property to secure the payment of all taxes, penalties and interest ultimately imposed for the year on that property. After January 31, 2000, unpaid taxes began to accrue a penalty and interest charge until paid. On July 1, 2000, after levy, delinquent taxes were turned over to the City's delinquent tax attorney for collection and /or filing of suit for collection. The City is prohibited from charging off real property taxes without specific statutory authority from the Texas Legislature. 3. Inventories Inventories are valued at cost using the first- in/first -out (FIFO) method. The costs of governmental fund -type inventories are recorded as expenditures when consumed rather than when purchased. 4. Restricted Assets Certain proceeds of enterprise fund revenue bonds, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants or legal agreements. The "customer deposit account" is used to report utility customer deposits required to be segregated by the deposit agreement. "Construction funds account" is used to report those proceeds of revenue bond issuances and /or certificate of obligation issuances that are restricted for use in construction. The "revenue bond interest and sinking account" is used to segregate resources accumulated for debt service payments over the next twelve months. The "bond reserve accounts" are used to report resources set aside to make up potential future deficiencies in the revenue bond current debt service account. 18 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 5. Fixed Assets PAGE 5 OF 24 Fixed assets used in governmental fund types of the City are recorded in the general fixed assets account group at cost or estimated historical cost if purchased or constructed. Donated fixed assets are recorded at their estimated fair value at the date of donation. Assets in the general fixed assets account group are not depreciated. Interest incurred during construction is not capitalized on general fixed assets. Public domain (infrastructure) general fixed assets (consisting of roads, bridges, curbs and gutters, streets and sidewalks, drainages systems and fighting systems) are capitalized in the general fixed asset account group. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives+ are not included in the general fixed assets account group or capitalized in the proprietary funds. Property, plant and equipment in the proprietary funds of the City are recorded at cost. Property, plant and equipment donated to these proprietary fund type operations are recorded at their estimated fair value at the date of donation. Major outlays for capital assets and improvements are capitalized in proprietary funds as projects are constructed. Interest incurred during the construction phase of proprietary fund fixed assets is reflected in the capitalized value of the asset constructed, net of interest earned on the invested proceeds over the same period. Property, plant and equipment are depreciated in the proprietary and similar trust funds of the City using the straight fine method over the following estimated useful lives: Water Production and Distribution Systems 10-50 Years Wastewater Collection and Disposal Systems 10-50 Years Buildings and improvements 25 Years Machinery, Tools and Equipment 5-10 Years Automotive Equipment 5 Years Office Fumiture and Equipment 3-5 Years 6. Compensated Absences Vested or accumulated vacation leave is reported as an expenditure and a fund liability of the governmental fund that Will pay it Vested or accumulated vacation leave of proprietary funds is recorded as an expense and liability of those funds as the benefits accrue to employees. In accordance with the provisions of Statement No. 16 of the Governmental Accounting Standards Board, Accounting for Compensated Absences, no liability is recorded for nonvesting accumulating rights to receive benefits contingent on an occurrence of a specific event outside the control of the employer or employee (i.e. paid time off for illness). A liability is recognized for that portion of vesting sick leave benefits that is estimated will be paid at termination and is included in the general long -term debt account group. 7. Long -term Obligations Long-term debt is recognized as a liability of a governmental fund when due, or when resources have been accumulated in the debt service fund for payment early in the following year. For other long -term obligations, only that portion expected to be financed from expendable available financial resources is reported as a fund liability of a governmental fund. The remaining portion of such obligations is reported in the general long -term debt account group. Long-term liabilities expected to be financed from proprietary fund operations are accounted for in those funds. 19 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 PAGE 6 OF 24 For governmental fund types, bond premiums and discounts, as well as issuance costs, are recognized during the current period. Bond proceeds are reported as an other financing source net of the applicable premium or discount Issuance costs, even if withheld from the actual net proceeds received, are reported as debt service expenditures. For proprietary fund types, bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of any applicable bond premium or discount. Issuance costs are reported as deferred charges. Tax anticipation notes are required by generally accepted accounting principles (GAAP) to be reported as a fund liability of the fund that received the proceeds regardless of the timing of the payments. Tax anticipation notes payable for the General Fund at September 30, 2000 is comprised of the following item: Series 1995 Tax Notes issued on February 21, 1995, for $1,420,000 at an interest rate of 5.50°/x- 5.875% to finance the renovation and repairs of municipal facilities and for making improvements and extensions to the City's combined waterworks and wastewater system; due in installments of $170,000 - $240,000 for principal each January 15, beginning January 15, 1996, and interest payments due each January 15 and July 15, beginning July 15, 1995. Of this $1,420,000 total debt, the General Fund will be responsible for $327,310 due in principal installments of $39,185 to $55,320. See Note III, D, 2 for the corresponding Enterprise Funds portion. $ 107,182 Series 1998 Tax Notes issued on October 27, 1998, for $845,000, at an interest rate of 4.25 % - 7.125 %n to be used for street improvement and related drainage, including payment of related engineering services, due in installments of $75,000 - $240,000 for principal each September 30, beginning September 30, 1999, and interest payments due each September 30, beginning September 30, 1999. 350.000 Total Tax Anticipation Notes $ 457.182 The future annual requirements for the tax anticipation notes payable at September 30, 2000, are: FISCAL YEAR PRINCIPAL INTEREST TOTAL 2000/01 326,862 13,235 340,097 2001/02 130.320 3.068 133.388 TOTAL $ 47.1 s2 $ 1 303 $ 47 During the year ended September 30, 2000, the following changes occurred in the tax anticipation notes payable: Balance October 1, 1999 Additions Reductions Balance September 30, 2000 $ 761,740 (304,558) $ 457.182 20 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 8. Fund Equity PAGE 7 OF 24 Reservations of fund balance represent amounts that are not appropriable or are legally segregated for a specific purpose. Reservations of retained earnings are limited to outside third -party restrictions. The proprietary fund's contributed capital represents equity acquired through capital grants and capital contributions from developers, customers or other funds. 9. Interfund Transactions Quasi - extemal transactions are accounted for as revenues, expenditures, or expenses. Transactions that constitute reimbursements to a fund for expenditures /expenses initially made from it that are properly applicable to another fund, are recorded as expenditureslexpenses in the reimbursing fund and as reductions of expenditureslexpenses in the fund that is reimbursed. All other interfund transactions, except quasi - external transactions and reimbursements, are reported as transfers. Nonrecurring or nonroutine permanent transfers of equity are reported as residual equity transfers. All other interfund transfers are reported as operating transfers. 10. Memorandum Only- Total Columns Total columns on the general purpose financial statements are captioned "memorandum only" because they do not represent consolidated financial information and are presented only to facilitate financial analysis. The columns do not present information that reflects financial position, results of operation or cash flows in accordance with generally accepted accounting principles. Interfund eliminations have not been made in the aggregation of this data. 11. Comparative Data Comparative total data for the prior year has been presented in selected sections of the accompanying financial statements in order to provide an understanding of changes in the City's financial position and operations. Certain amounts presented in the prior year have been reclassified to conform to the current year presentation. II. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary Information Budgets are adopted on a basis consistent with generally accepted accounting principles for general, debt service, and special revenue funds. Only project length budgets were adopted for the Street Arterial Project, Park Improvements Projects, General Capital Improvements Project and other capital projectfunds. For monitoring and management purposes, the City also adopts a non -GAAP basis budget for each enterprise fund. At least thirty days prior to the end of the preceding fiscal year, the proposed operating budget is submitted to City Council. The budget is prepared by fund, function and activity, and includes information on the past year, current year estimates and requested appropriations for the next fiscal year. Before September 27, the City Council is required by the City Charter to adopt the new budget. City Council holds public hearings and may add to, subtract from, or change appropriations. 21 CITY 0FHONTSVILLE NOTES TO FINANCIAL STATEMENT SEPTEMBER 30.20DD PAGE 8 OF 24 Any changes in the budgemustbewithinUhe revenueandeserveuestimatedooavailublebvUmCity Manager or the revenue estimates must be changed by an affirmative vote ofamajority of City Council. The City Manager is authoeized to make budget transfers within any fund ��$3,000.Amendments between divisions in excess of $3,000 must have Council uppnova.am must any �vskmawhk���x�obo�|expend�/noaof any fund. Ao amount �budoab� each year for oonbn — which may arise, and the same budgetary controls are applied bxit also. |n accordance with the legally adopted budget document and for state statute compliance purposes expenditures may not legally exceed budgeted appropriations a( the fund level. Howovor, Council elects ho approve all transfers over $3,0OO between divisions. During the year, several supplementary appropriations were necessary. Budgets in governmental funds are encumbered upon looumnmn of purchase orders, contracts cv other forms of legal commitments. Encumbrances outstanding at year end are reported as reservations of fund balances since they do not constitute expenditures urliabilities. While appropriations lapse at the end of the fiscal year, the succeeding year's budget ordinance specifically provides for the emppm 'aUonnfynurenduncumhmnoes. B. BudgoUGAJ\PRaonnoU|a§nn The following schedule reconciles the amounts on the Combined Statement of Revenues, Expenditures and Changes in Fund Balance — Budget to Actual to the amounts on the Combined Statement of Revenues, Expenditures and Changes in Fund Balances: Capital Proiects Fund balances (budomU $ — Timing difference (project-4on0dibudgets) 6,387,373 Fund balances (GAAP) The fundowh|chadopt project—length budgets arethe StreetArterials Project Parks Improvements Projects, General Capital Improvements Project, Downtown Revitalization Project, SemiooCnnterPnoject,JuodomCenter,andLandAcquhiUonCapi/o| Project Funds. Ui DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS A. Deposits and Investments At .the carrying amount of the City's deposits was $430834 and the bank's balance was $249,479 Of the bank balance, $22l1BO was covered hy federal depository insurance and the balance of collateral was held by the bonktagent in the City's name. Investments are categohzed into these three categories of credit risks: (1) Insured or registered, or securities held by the City or its agent in the City's name. (2) Uninsured and unregistered, with securities held by the counter—party's trust department or agent in the City's name. (3) Uninsured and unregistered, with securities held by the counter—party, orby its trust department or agent but not in the City's name. 22 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 At year end, the City's investment balances were as follows: Category 1 2 3 Total Repurchase Agreement $ 17,675,089 $ — $ — $ 17,675,089 U.S. Government securities 9.685.520 — — 9.685.520 Total $ 27.360.609 $ — $ — $ 27,360,609 Investments not subject to categorization: Local government investment pools Total investments 10.758.495 $ 38.119.104 There was no difference in the "Carrying Amount" and "Fair Value" of the City's investments at year end. A reconciliation of cash and investments as shown on the Combined Balance Sheet for the City follows: Cash on hand - $ 3,491 Carrying amount of deposits Park Improvements Fund 436,834 Carrying amount of investments Water and Wastewater Fund 38.119,104 Total $ 38.559.429 Cash and Cash Equivalents $ 3,884,795 Cash and Cash Equivalents — restricted General Fund 7,314,025 Investments Capital Street 13,082,967 Investments — restricted Park Improvements Fund 14.277.642 Total $ 38.559,429 B. Interfund Due To and Due From Receivable Fund Payable Fund Amount General Capital Improvements Fund Park Improvements Fund $ 171,273 Solid Waste Fund Water and Wastewater Fund 167,390 Street Arterial Project Fund General Fund 166,521 Fleet Management Fund General Fund 64,167 Street SRF General Fund 60,597 General Capital Improvements Fund Capital Street 43,725 Land Acquisition Capital Improvements Fund Park Improvements Fund 35,000 General Fund Police Grants SRF 25,203 General Fund Solid Waste Fund 11,563 General Fund Water and Wastewater Fund 9,879 Planning & Development ISF Water and Wastewater Fund 2,422 Stormwater Drainage Utility Fund Solid Waste Fund 1,376 General Fund Street Arterial Project Fund 1,137 Water and Wastewater Fund Library SRF 1,000 Water and Wastewater Fund General Fund 584 General Fund Wynne Home 48 TOTAL $ 761.885 23 PAGE 9 OF 24 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 PAGE 10 OF 24 C. General Fixed Assets A summary of changes in general fixed assets is as follows: BALANCE DELETIONS/ BALANCE 10/01/99 ADDITIONS ADJUSTMENTS 9!30!00 Land $ 1,737,104 $ - $ (50,433) $ 1,686,671 Buildings and Improvements 4,379,053 - (2,439,428) 4,379,053 Machinery, Furniture and Equipment 4,487,476 420,822 - 2,468,870 improvements Other Than Buildings 18.5614461 83.005 18644.466 TOTALS $ 29.165,094 $ 503.827 $^ 2489.861 $ 27179.060 A summary of proprietary fund type property, plant and equipment at September 30, 2000, is as follows: ENTERPRISE Land and Easements $ 782,324 Buildings and Improvements 1,172,879 Utility Systems 42,107,215 Machinery and Equipment 886,826 Construction Work in Progress 2.643.550 Total Fixed Assets $ 47,592,794 Less: Accumulated Depreciation (16.853.7871 NET PROPERTY, PLANT AND EQUIPMENT $ 30.739.007 D. Long-term Debt 1. General Obligation Debt The City issued general obligation debt to provide funds for the acquisition and construction of major capital facilities and acquiring equipment for general government. The long -term debt of the City (which consists of general obligation bonds, and certificates of obligation) is supported, secured and serviced by revenue derived from ad valorem taxes. Resources from the property taxes for servicing long -term debt principal and interest are accumulated in, and expended from, the Debt Service Fund. 24 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 TOTAL CERTIFICATES OF OBLIGATION $ 7,719,474 PAGE 11 OF 24 Bonds payable at September 30, 2000 are comprised of the following individual issues: $2,000,0001988 Street Improvements due in installments of $50,000 to $250,000 through OBLIGATION 2003, interest rates from 6.0% to 9.0% $ 900,000 $2,500,0001991 Street Improvements due in installments of $100,000 to $400,000 BONDS through 2008, beginning 1992, interest rates from 6.0% to 9.0% 1,850,000 TOTAL BONDS PAYABLE $ 2.750.000 Certificates of obligation payable at September 30, 2000, are comprised of: $ 955,435 Certificate issued on April 1, 1998, for $18,950 at an interest rate of 5.08% 471,812 to finance purchase of a Chip Spreader, due in installments of $2,870 plus interest, 929,257 beginning on April 1, 1999. $ 59,474 Certificate Series 1994 issued on August 15, 1994,at an interest rate of 4.20 - 6.00% 1,018,346 to finance the construction of a visitors center, due in installments of $35,000 - $65,000 496,781 for principal each August 15, beginning August 15, 1995 and interest payments due each 1,033,306 February 15 and August 15, beginning February 15, 1995. 235,000 Certificate Series 1998 issued on December 15, 1998, at an interest rate of 4.35 - 6.25% 835,375 to finance the construction and acquisition of rights -of -way for arterial streets, due in 413,375 installments of $70,000 - $905,000 for principal each August 15, beginning August 15, 2000 852,406 and interest payments due each February 15 and August 15, beginning February 15, 1999. 7,425,000 TOTAL CERTIFICATES OF OBLIGATION $ 7,719,474 25 GENERAL FISCAL OBLIGATION CERTIFICATES YEAR BONDS OF OBLIGATION TOTAL 2000/01 $ 493,400 $ 462,035 $ 955,435 2001102 471,812 457,445 929,257 2002/03 522,500 495,846 1,018,346 2003/04 496,781 536,525 1,033,306 2004/05 229,625 605,750 835,375 2005106 413,375 439,031 852,406 2006/07 439,000 427,313 866,313 2007/08 413,000 420,750 833,750 2008/09 - 698,384 698,384 2009110 - 714,946 714,946 2010/11 - 730,248 730,248 2011/12 - 748,413 748,413 2012113 - 759,369 759,369 2013/14 - 778,066 778,066 2014115 - 779,713 779,713 2015/16 - 799,313 799,313 2016/17 - 835,879 835,879 2017/18 - 878,679 878,679 2018/19 - 927.059 927.059 TOTAL $ 3,479,493 $ 12.494.764 $j 5.974,257 25 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30,2000 PAGE 12 OF 24 The future annual requirements to amortize all general obligation debt, including interest of $5,5G4,783 are: During the year ended September 30, 2000, the following changes occurred in liabilities reported in the general long-term debt account groups: BALANCE BALANCE 10-01-99 ADDITIONS REDUCTIONS 9-30-00 General Obligation Bonds $ 3,075,000 $ $ (325,000) $ 2,750,000 Certificates of Obligation 7,799,212 (79,738) 7,719,474 Accrued Compensated Absences 475,816 08,927) 366,889 TOTAL $-113-50028 $—j 13_665) $j�O-8�3663 2. Enterprise Fund Debt The City has issued bonded debt whereby the City has pledged income derived from the acquired orconstructed assets to pay the bonded debt service. Water and Wastewater Fund Debt: Revenue bonds, contract revenue bonds (see next paragraph), general obligation bonds, tax anticipation notes, and capital leases are outstanding in the Water and Wastewater Fund and supported and serviced by the revenues generated therein. During the year ended September 30, 2000, the following changes occurred in the Water and Wastewater Fund's long-term debt: BALANCE BALANCE 10-01-99 ADDITIONS REDUCTIONS 9-3040 Tax Anticipation Notes $ 523,260 $ - $ (165,442) $ 357,818 Elkins Area General Obligation Bonds 1,955,000 - (350,000) 1,605,000 Revenue Bonds 15,015,000 - (820,000 14,195,000 TRA Contract Bonds 26,185,000 - (1,320,000) 24,865,000 TOTAL $ �43678 260 $ - $ $==41 2 818 �2 The City has endorsed Contract Revenue Bonds through the Trinity River Authority (TRA) pursuant to agreements with the TRA dated September 28,1976, February 24,1993, February 15,1996, and February 15,1999. Proceedsfrom the sale of the bonds for the agreement dated September 28, 1976, were used to build a Regional Water Supply, the A. J. Brown Treatment Plant and the North Lateral wastewater lines. Debt service payments for these bonds (Series 1978, Series 1980 and Series 1992) are payable from operating revenues of the City's waterworks and wastewater system. Proceeds from the sale of the bonds for the agreement dated February 24, 1993, are being used for improvements to the A. J. Brown Treatment Plant, the N. B. Davidson Treatment Plant, and the McGary Creek Sewerage Collection System. Proceeds from the sale of the bonds for the agreement dated February 15, 1996 (Series 1997) and those dated February 15,1999 (Series 1999) were used to pay the costs of the acquisition and construction of improvements and extension to the Regional Water Supply System and to pay the costs associated with the issuance of the bonds. Debt Service payments for the bonds (Series 1993, Series 1997, and Series 1999) are payable from operating revenues of the City's waterworks and wastewater system and from the City's General Fund and ad valorem taxes if operating revenues are not sufficient. 26 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 PAGE 13 OF 24 The City assumed general obligation bonded debt with the annexation of the Elkins Lake Municipal District. Refer to the note on annexation. The City issued $14,395,000 in revenue bonds dated February 1, 1997. The bonds were issued through the Texas Water Development Board bearing an interest rate of 2.75% to 4.55°/x. Final maturity is August 15, 2016. Bonds were issued for the purpose of constructing a wastewater treatment plant and related outfall lines and for the provision of wastewater collection in an area previously not receiving this service. The bonds are secured by a first lien on and pledge of the net revenues of the waterworks and wastewater system. Tax anticipation notes payable at September 30, 2000, is comprised of the following item: Series 1995 Tax Notes issued on February 21, 1995, for $1,420,000 at an interest rate of 5.50 % - 5.875% to finance the renovation and repairs of municipal facilities and for making improvements and extensions to the City's combined waterworks and wastewater system; due in installments of $170,000 - $240,000 for principal each January 15, beginning January 15, 1996, and interest payments due each January 15 and July 15, beginning July 15, 1995. Of this $1,420,000 total debt, the Water and Wastewater Fund will be responsible for $1,092,690 due in principal installments of $130,815 - $184,680. See Note III, D,1, for the corresponding General Fund portion. $ 357.818 The future annual requirements to amortize all Water & Wastewater Fund Debt, including interest of $19,411,232 are: TRA ELKINS TAX REVENUE CONTRACT AREA ANTICIPATION FISCAL YEAR BONDS BONDS BONDS NOTES TOTAL 2000/01 $ 1,472,236 $ 2,970,242 $ 453,167 $ 188,056 $ 5,083,701 2001/02 1,490,018 2,971,495 445,748 189,759 5,097,020 2002103 1,484,518 2,947,746 447,565 - 4,879,829 2003/04 1,504,420 2,945,518 448,697 - 4,898,635 2004/05 1,531,330 2,893,106 346,712 - 4,771,148 2005/06 1,073,332 2,628,033 181,610 - 3,882,975 2006/07 1,077,538 1,805,423 108,150 - 2,991,111 2007/08 1,084,888 1,809,670 - - 2,894,558 2008/09 1,090,120 1,805,225 - - 2,895,345 2009110 1,093,165 1,807,237 - - 2,900,402 2010111 1,098,953 1,813,322 - - 2,912,275 Thereafter 5.563,661 11,663,390 - 17.227.051 TOTAL $ 19.564,179 $ 38.060.407 $ 2.431.649 $ 377.815 $ O.434 ,O50 27 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 Solid Waste Fund Debt: PAGE 14 OF 24 The Solid Waste Fund's debt is composed of certificates of obligation and capital leases to be repaid with user fees. A summary of transactions for the year ended September 30, 2000, is as follows: Medium Duty Diesel Truck 4.499% 05/25/03 26,175 TOTAL CERTIFICATES OF OBLIGATION $ �884 604 Capital leases payable at September 30, 2000, is comprised of the following item: Capital lease payable to Capital City Leasing ' , Inc. for the purchase of two garbage trucks. The imputed interest rate for this capital lease is 5.05%. Future lease payments due in annual installments of $50,725 and $50,726 are included below in the column titled 'Lease Payable. Imputed interest is $34,316 over the term of the lease. $ 48,287 Capital lease payable to Capital City Leasing, Inc. for the purchase of a rear loading garbage truck. The imputed interest rate for this lease is 5.83%. Future lease payments due in annual installments of $16,537 are included below in the column titled "Lease Payable". Imputed interest is $12,702 over the term of the lease. 30,391 TOTAL CAPITAL LEASES PAYABLE 78.678 28 CERTIFICATE CAPITAL OF OBLIGATION LEASES TOTAL Balance October 1, 1999 $ 986,138 $ 138,597 $ 1,124,735 Additions — — — Reductions (101.5341 59,919 (161,453 Balance September 30, 2000 $ 884.604 $ 78,678 $ 963.282 The certificates of obligation outstanding at September 30, 2000, were issued to acquire various assets and the balance is composed of INTEREST OUTSTANDING PURPOSE OF ISSUE RATE MATURES 9/30/00 Transfer Station and related equipment 3.0% to 5.6% 10101/08 $ 775,000 Trailer 4.74% 02/09/03 36,199 Mack Tractor Truck 4.4% 04113/03 47,230 Medium Duty Diesel Truck 4.499% 05/25/03 26,175 TOTAL CERTIFICATES OF OBLIGATION $ �884 604 Capital leases payable at September 30, 2000, is comprised of the following item: Capital lease payable to Capital City Leasing ' , Inc. for the purchase of two garbage trucks. The imputed interest rate for this capital lease is 5.05%. Future lease payments due in annual installments of $50,725 and $50,726 are included below in the column titled 'Lease Payable. Imputed interest is $34,316 over the term of the lease. $ 48,287 Capital lease payable to Capital City Leasing, Inc. for the purchase of a rear loading garbage truck. The imputed interest rate for this lease is 5.83%. Future lease payments due in annual installments of $16,537 are included below in the column titled "Lease Payable". Imputed interest is $12,702 over the term of the lease. 30,391 TOTAL CAPITAL LEASES PAYABLE 78.678 28 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 PAGE 15 OF 24 The future annual requirements to amortize all Solid Waste Fund debt are: FISCAL CERTIFICATES OF OBLIGATION LEASE PAYABLE YEAR PRINCIPAL INTEREST PRINCIPAL INTEREST TOTAL 2000/01 $ 106,534 $ 43,447 $ 63,053 $ 4,211 $ 217,245 2001/02 111,535 38,381 15,625 911 166,452 2002103 111,535 33,086 — — 144,621 2003104 80,000 27,591 — — 107,591 Thereafter 475,000 67,801 — — 542,801 TOTAL $ 884,604 $ 210,306 $ 78,678 $ 5,122 $ 1,178,710 IV OTHER INFORMATION A. Joint Venture Proprietary Funds: Pursuant to the agreement with the Trinity River Authority (TRA) dated September 28, 1976, the City has endorsed Contract Revenue Bonds through TRA and is unconditionally obligated to pay, from the gross operating revenues of the City's waterworks wastewater system, all debt service payments on these bonds; all operation and maintenance expenses of the facilities the bonds were used to build; and the amounts necessary to restore any deficiencies in funds required to be accumulated under the bond resolutions. As consideration for the aforementioned obligations, the City shall have an exclusive right to the use of the transmission and clear well storage facilities constructed. Upon the expiration of the contract, the City shall have the right to continued service for an additional period of fifty (50) years, or for such other time as may be agreed. In addition to funding provided by the sale of TRA bonds, the City acquired an Environmental Protection Agency Grant for $4,417,509. In accordance with GASB Statement 14, the equity interest in this joint venture is reported as an asset of the enterprise fund that participates. All profit on the operating transactions between TRA and the City's Water and Wastewater fund have been eliminated. Since aggregating the contract bond reserve account and contract bonded indebtedness into the "net equity in joint venture" would be misleading, those two items have been separately stated. The City is solely liable for that debt even though the funds were used to build facilities owned and used by the joint venture. Additionally, the City's share of the net loss is reported as an operating expense since it actually represents the cost of providing water and wastewater treatment, the integral function of the fund. Those costs are expected to be recovered through user fees. The individual components of the asset account "investment in joint venture" are as follows: SEPTEMBER 30, 2000 1999 Interest Receivable $ 19,705 $ 18,961 Accounts Receivable 98,791 194,120 Contract Water Facilities/Equipment 28,900,114 22,719,188 Allowance for Depreciation (7,031,650) (6,588,041) Bond Issuance Costs 307,649 408,510 Total Investment in Joint Venture $ 22,294,609 $ 16,752,738 29 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 The individual components of the operating expense `TRA Joint Venture" are: Operating Expenses Contract Bond interest Depreciation/Amortization Expense Total TRA Joint Venture Expense FOR THE YEAR EN[ SEPTEMBER 30 2000 $ 727,541 $ 1,424,277 419.245 PAGE 16 OF 24 )ED 1999 944,997 1,114,663 425.588 $_ 2,571,063 $ 2,485,248 Summarized financial information for this joint venture from TRA "s most recent audited financial statements is as follows: ASSETS Current Assets Restricted Assets Fixed Assets (net of Accumulated Depreciation) Other Debits TOTAL ASSETS NOVEMBER 30 1999 1998 $ 213,163 $ 344,140 7,253,363 1,862,608 17, 584, 291 13,164, 523 516,672 260.487 $ 25.567,489 $_ 15.631.758 LIABILITIES AND EQUITY Current Liabilities Payable from Current Assets $ 34,509 $ 179,736 Payable from Restricted Assets 2,100,086 1,271,223 Long Term Debt 19.415,000 11.025.000 Total Current Liabilities $ 21.549.595 $ 12.475.959 Equity Contributed Capital $ 2,331,791 $ 2,331,791 Retained Earnings — Reserved 247,265 247,265 Retained Earnings — Unreserved 1.438,838 576.743 Total Equity $ 4,017.894 $ 3.155.799 TOTAL LIABILITIES AND EQUITY $ 25.567,489 $ 15.631.758 30 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 PAGE 17 OF 24 FOR THE YEAR ENDED NOVEMBER 30 1999 1_ 998 Operating Revenue $ 3,194,150 Operating Expenses Before Depreciation 1.460.470 Operating Income Before Depreciation 1,733,680 Depreciation Expense 419,245 Operating Income 1,314,435 Net Non — Operating Revenues /(Expenses) (452,340) Net Income 862,095 Equity — Beginning of Year 3.155.799 $ 2,590,490 i .287.476 1,303,014 425.588 877,426 (309.920) 567,506 2.588.293 Equity — End of Year $ 4. 17 .0894 $ 3.155.799 Financial Statements for thisjoint venture may be obtained at Trinity RiverAuthority of Texas, P.O. Box 60, Arlington, Texas 76004 -0060. B. Raw Water Supply Contract On August 24, 1976, the City of Huntsville entered into a contract with the Trinity River Authority of Texas to purchase from the Authority amounts of raw water impounded in the Livingston Reservoir. The City is obligated to pay an annual standby charge on or before the tenth of each April and October. Annual standby charges are calculated by multiplying the current annual average daily amount the Authority is obligated to sell by the Authority's rates for sale of raw water to municipalities. On April 22, 1998, the City contracted with the Authority for an additional 6.0 MGD for industrial purposes. Annual average daily amounts of raw water that the Authority is obligated to sell to the City is set forth in the following schedule: 2000 through 2020 31 ANNUAL AVERAGE DAILY AMOUNTS 16.0 MGD CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 PAGE 18 OF 24 C. Contributed Capital During the year ended September 30, 2000, contributed capital increased by the following amounts: WATER AND SOLID INTERNAL WASTEWATER WASTE SERVICE Customers $ 33,306 $ — $ — Local Government — — 1,488,825 Federal Government 57,520 — — Contributed Capital — October 1, 1999 .11.110,248 14.817 Contributed Capital — September 30, 2000 $ 11,201,074 $ 14,817 $ 1.488.825 D. Segment Information for Enterprise Funds The City operates two Enterprise Funds, the Water and Wastewater Fund and the Solid Waste Fund. These two funds are for the acquisition, operation, and maintenance of water, wastewater, and sanitation facilities which are supported by user charges. Segment information for the year ended September 30, 2000, is as follows: WATER AND STORMWATER WASTEWATER SOLID WASTE DRAINAGE OPERATIONS OPERATIONS UTILITY OPERATIONS TOTALS Operating Revenues $ 12,014,877 $ 2,787,855 $ — $ 14,802,732 Depreciation and Amortization 1,517,589 192,909 — 1,710,498 Operating Income (Loss) 3,219,241 (206,114) — 3,013,127 Net Income (Loss) 3,304,158 (206,425) 30,000 3,127,733 Capital Contributions Current Capital Contributions $ 90,826 $ — $ — $ 90,826 Fixed Assets Additions $ 2,572,835 — — 2,572,835 Deletions/Transfers (1,826,398) (1,695,474) — (3,521,872) Net Working Capital $ 4,246,435 $ 522,233 $ 30,000 $ 4,798,668 Total Assets $ 79,436,307 $ 1,827,863 $ 31,376 $ 81,295,546 Long —Term Liabilities Payable From Operating Revenues Current Portion $ 3,003,138 $ 169,587 $ — $ 3,172,725 Long —Term Portion 38,019,680 793,695 — 38,813,375 Total Equity $ 36,009,233 $ 409,432 $ 30,000 $ 36,448,665 32 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 E. Contingent Liabilities PAGE 19 OF 24 Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although the City expects such amounts, if any, to be immaterial. F. Employment Retirement Plan -Texas Municipal Retirement System 1. Plan Description The City provides pension benefits for all of its full -time employees (employed more than thirty hours per week) through a nontraditional, joint contributory, defined benefit plan in the state -wide Texas Municipal Retirement System (TMRS), one of 731 administered by TMRS, an agent multiple - employer public employee retirement system. Financial statements, as well as actuarial assumptions and valuations, for the plan are included in the TMRS Comprehensive Annual Financial Report each year, a copy of which can be obtained by writing to P.O. Box 149153, Austin, Texas, 78714-9153. Benefits depend upon the sum of the employee's contributions to the plan, with interest, and the City — financed monetary credits, with interest. At the date the plan began, October 1, 1989, the City granted monetary credits for service rendered before the plan began of a theoretical amount equal to two times what would have been contributed by the employee at a 5% contribution rate, with interest, prior to establishment of the plan. Monetary credits for service since the plan began are a percentage of the employee's accumulated contributions. In addition, the City can grant as often as annually another type of monetary credit referred to as an updated service credit which is a theoretical amount which, when added to the employee's accumulated contributions and the monetary credits for service since the plan began, would be the total monetary credits and employee contributions accumulated with interest if the current employee contribution rate and City matching percent had always been in existence and if the employee's salary had always been the average of his salary in the last three years that are one year before the effective date. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions with interest and the employer- financed monetary credits with interest were used to purchase an annuity. Members can retire at ages 60 and above with 10 or more years of service, or with 20 years of service regardless of age. The plan also provides death and disability benefits. A member is vested after 10 years, but must leave their accumulated contributions in the plan. if members withdraw their own money, they are not entitled to the employer- financed monetary credits, even if they were vested. The plan provisions are adopted by the governing body of the City, within the options available in the state statutes governing TMRS and within the actuarial constraints also in the statutes. 2. Contributions The contribution rate for years beginning after January 1, 1997 for the employee is 7 %, and the City's matching percentage is 150 %, both as adopted by the governing body of the City. Under the state law governing TMRS, the City contribution rate is annually determined by actuary. 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 retirement becomes effective. 33 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 PAGE 20 OF 24 The prior service contribution rate amortizes the unfunded actuarial liability over the remainder of the plan's 25 year amortization period. When the City periodically adopts updated service credits and increases its 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 in January 1997. The unit credit actuarial cost method is used for determining the City's contribution rate. Contributions are made monthly by both the employees and the City. Since the City needs to know its contribution rate in advance to budget for it, there is a one—year lag between the actuarial valuation that is the basis for the rate and the calendar year when the rate goes into effect (i.e. December 31, 1999, valuation is effective for rates beginning January 2001). Effective January 1, 1998, the City has adopted an updated service credit The City's actuarial assumptions were as follows: Actuarial Cost Method — Unit Credit Amortization Method — Level Percent of Payroll Remaining Amortization Period — 25 Years Asset Valuation Method — Market Related Investment Rate of Return — 8% Projected Salary Increases — None Includes Inflation At — None Cost—of—Living Adjustments — None 3. Actuarial Liabilities and Funding Schedule of Actuarial Liabilities and Funding Progress Unfunded UAL As Actuarial Actuarial Actuarial Percentage Actuarial Annual A Percentage Valuation Value Accrued Funded Accrued Covered of Payroll Employer Rate Date of Assets Liability (211 Liability Payroll MQ Contributions MLQ (1) (2) (3) (4) (5) (6) (7) 12/31/92 $ 2,667,546 $ 5,934,155 44.95% $ 3,266,609 $ 4,972,051 65,70% $ 429,088 8.63% 12/31/93 3,684,310 7,591,132 48.53 3,906,822 5,945,219 65.71 501,182 8.43 12131194 4,766,451 9,019,653 52.85 4,253,202 6,275,126 67.78 549,701 8.76 12/31195 6,020,018 11,448,894 52.58 5,428,876 6,645,505 81.69 608,509 9.16 12/31196 7,486,917 14,716,980 50.87 7,230,063 6,969,972 103.73 876,036 12.57 12131/97 9,482,548 16.148,307 58.72 6,665.759 7,371,413 90.43 1,005,089 13.63 120/98 11,840,882 19,146,847 61.84 7,305,965 7,994,046 91.39 1,144,560 14.32 12131/99 14,033,005 21,674,979 64.74 7,641,974 8,002,647 95.49 1,083,502 1154 34 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 PAGE 21 OF 24 2000 1999 1998 Net Pension Obligation at the Beginning of Period $ - $ - $ - Annual Pension Cost: Annual Required Contribution (ARC) 1,069,651 1,032,428 1,057,348 Interest on NPO - - - Adjustment to the ARC - -- - - Total Annual Pension Cost 1,069,651 1,032,428 1,057,348 Contributions Made (1,069,651) (1,032,428 ) - (1,057,348 Increase in NPO NPO at the End of the Period $ $ Percentage of Annual Pension Cost Contributed 100% 100% 100% G. Risk Management Medical Insurance Fund. Claims incurred but not reported have been estimated based on information available from the fund administrator and recorded as an account payable of the fund. The total amount for service charges (to other funds) is computed based on an actuarial method which is adjusted annually. A stop loss insurance policy limits the City's liability on catastrophic claims (any claim greater than $25,000). Changes in the balance of aggregate liabilities during the year are as follows: 2000 1999 Aggregate Liabilities October I - $ 45,246 $ 46,422 Incurred Liabilities 823,923 738,767 Paid Liabilities (823.41 (739,943) Aggregate Liabilities September 30 $===L5.J =L7 $ Public Entity Risk Pool: The City is exposed to various risks of loss related to torts: theft of, damage to and destruction of assets; errors and omissions; and natural disasters. In order to properly address this risk, the City is a member of the Texas Municipal League Intergovernmental Risk Pool (TML), a public entity risk pool. The City pays an annual premium to TML. The agreement with TML provides that TML will be self-sustaining through member premiums and will reinsure through commercial companies for claims in excess of established amounts. The City's liability for any covered claims is limited to its annual deductible. H. Deferred Compensation Plan The City offers its employees a deferred compensation plan created in accordance With Internal Revenue Code Section 457. The plan, available to employees at their option, permits participants to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. 35 CITY OF HUNTSViLLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 PAGE 22 OF 24 In accordance with federal legislation passed in August 1996, the City amended its deferred compensation agreement, so that effective November 1996, the assets of the plan are to be held in trust for the exclusive benefit of the plan participants and their beneficiaries, and the assets will be used for no other purpose. In no event will the City's liability to pay benefits to a participant under the plan exceed the value of the amounts credited to the participants account. The City in previous years has reported this fund in the Trust and Agency Funds. As a result of the November, 1996 legislative changes, this fund has been excluded from the Financial Reports. Activity by participants for the period October 1, 1999 through September 30, 2000 is as follows: Investments 1. Commitments BALANCE OCTOBER 1, 1999 1,021,817 f. Retired Employees' Medical Coverage ADDITIONS $ 440,652 DELETIONS $ 34,313 BALANCE SEPTEMBER 30.2000 1,426,156 A retired employee may continue health plan coverage at the same cost that the City sets for regular employees or employee dependents if the refired employee retires with 80 or more points (age plus years of service). If an employee retires under the Texas Municipal Retirement System with more than 70 points, but less than 80, the retiree may purchase health plan benefits through the City's health plan to continue the health plan coverage for the retired employee, spouse, or dependent that they maintained at the time of the employee's retirement from the City. For the year ended September 30, 2000, there were a total of 16 retirees in the City's health plan. Of these 16, four carried dependent coverage. The Medical Insurance Fund paid out approximately $61,886 in claims for retirees and their dependents. The City paid into the Medical Insurance Fund approximately $27,884 in premiums for the 16 retirees, and the retirees paid in $14,898. 2. Construction Commitments To meetcertain flow and treatment plant process requirements mandated bythe Texas Natural Resource Conservation Commission (TNRCC), the City embarked on a construction plan in 1996 to improve and expand the wastewater treatment and collection system. This plan is defined in the 'Huntsville Plan ", a comprehensive study of wastewater treatment and wastewater system collection needs for a twenty -five year planning period (1995 - 2020). The studyireport was completed in June of 1995 by the firm of Wisenbaker, Fix & Associates of Tyler, Texas, whose firm 'has been principally responsible for planning and designing the City's wastewater system since the 1950's. The "Huntsville Plan" provided information on which to base major, long term decisions in facilities planning and identifies many wastewater expansion and improvement projects. Fallowing the completion and adoption of the 'Huntsville Plan" plan, the Texas Water Development Board at its November, 1996 meeting approved a $14,395,000 loan to the City of Huntsville to finance improvements to its wastewater collection and treatment system utilizing the pre - design funding option. Debt was issued in the second quarter of 1997. 36 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 PAGE 23 OF 24 Projects identified in the plan and approved for funding by City Council in 1995 are the Robinson Creek Wastewater Treatment Plant, the Robinson Creek Outfall line, the McDonald Creek Interceptor line and the Fish Hatchery Road Wastewater Collection System Improvements. An engineering contract in the amount of $999,500 was initiated with Wisenbaker, Fix & Associates on October 3, 1995. The cost for design of these projects are as follows: Robinson Creek Wastewater Treatment Plant is $644,500; the Robinson Creek Outfall line project is $100,000;, the McDonald Creek Interceptor is $19,000; and the Fish Hatchery Road wastewater collection system is $236,000. Wisenbaker, Fix & Associates is also responsible for the contract administration of these projects. The City of Huntsville is providing construction inspection services. Design for all these projects is complete, and construction has begun. Construction costs for the Fish Hatchery Road project are $2,165,735. Construction began January 22, 2000 and is currently 75% complete, with an anticipated completion date of March 11, 2001. This project will provide sewer service to approximately 150 existing homes and a considerable amount of undeveloped property. The major portion of this area was annexed in 1984 and has no publicly owned sewer service. A portion of this project was constructed across U.S. Forest Service property which presented many unusual and unique environmental issues that had to be addressed, resulting in a three year delay. Bids were received on the other three projects listed above after the close of FY 1999 -00. Construction costs for these three projects are: 1) 2.5 MGD (million gallons per day) Robinson Creek Wastewater Treatment Plant is $6,600,000; the Robinson Creek Outfall line project is $1,332,488; and the McDonald Creek Interceptor line project is $1,459,816. Construction began February 25, 2001, on all three of these projects. The anticipated completion date for the Robinson Creek Outfall and the McDonald Creek Interceptor is February 25, 2002. Completion for the Robinson Creek WWfP is anticipated for May 21, 2002. Land acquisition for the plant site, easements across private property, and environmental issues are the major reasons for the three year delay we have experienced with these projects. Upon completion of these projects the immediate diversion of approximately 600,000 gallons of wastewaterflow from the N.B. Davidson Wastewater Treatment Plant will occur, thus providing additional capacity at this facility to relieve current loading and provide forfuture growth in the Elkins Lake and other areas in the south part of town, without being required to spend funds to expand this facility. The City of Huntsville purchased two privately owned water systems; the Timberwilde subdivision on SH 30 West and the Summer Place Village water system on FM 1790. Each of these water systems have approximately 60 connections. Both of these subdivisions are just on the outskirts of the current City limits to the west. A 12" water line is funded in the budget for FY 2000 -01 to extend to the Timberwilde subdivision to connect the system to the City's current water distribution system and is currently under construction. A similar water line extension is planned to the Summer Place Village subdivision also. Construction for all water system improvements as defined in a contract between the City of Huntsville and Tenaska Frontier Partners, Ltd., to provide partially treated water in a volume up to 7 MGD to a proposed power plant in Grimes County, between Roans Prairie and Shiro has been completed. The City began delivering water to the power plant in May of 2000. The improvements paid for by Tenaska have provided the City and the Trinity River Authority the capability to not only provide the water as contracted to Tenaska, but also some improvements to the Huntsville Regional Water Supply System that improves the water quality and will provide additional water to the City of Huntsville with less funds spent in future expansion of the current Huntsville Regional Water Supply System. The City of Huntsville will receive annually approximately $450,000 plus the actual cost of purchasing the raw water, treating and delivering the water, and debt service on the improvements to the TRA Water Plant necessary to provide the water to Tenaska and the City of Huntsville. 37 CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 PAGE 24 OF 24 The City has also begun the construction of the North Arterial, Robinson Creek Parkway and Smither Overpass. The total amount of these projects is $5,368,978 and to date, $1,918,340 has been expended. Engineering for the 10i' Street Extension Project totals $71,610. J. Landfill Closure The City closed its landfill during the year ended September 30, 1994 and began transferring its solid waste to a privately operated landfill. The City has met certain deadline dates of the Environmental Protection Agency's Subtitle D landfill closure requirements and as such the City is exempt from any post - closure care and /or monitoring. Therefore, the City has not recorded any liability for post - closure care or monitoring. All closure costs are expensed as incurred. There were no landfill related expenses during the year ended September 30, 2000. K. Annexations Effective October 1, 1994 the City annexed a number of areas. At the time of annexation, the net taxable value of the areas annexed was $108,962,750. Included in the areas annexed was Elkins Lake Municipal Utility District. The District had $3,420,000 of bond debt outstanding which the City assumed. The City received approximately $598,674 of surplus funds of the District. The District had already levied taxes of approximately $652,000 for road maintenance, maintenance and operations and debt service. The City received those taxes. The surplus funds and taxes are to be used by the City for the following purposes and amounts per the annexation service plan for the Elkins Lake area: Debt Service $ 665,500 Street Improvements /Maintenance $ 201,000 Utility System Maintenance/Debt $ 200,500 Funds remaining to be spent including interest earning on transferred funds as of September 30, 2000 are as follows: Street Improvements /Maintenance $ 312.675 $ 312.675 38 APPENDIX C FORM OF BOND COUNSEL'S OPINION LAW OFFICES M°CALL, PARKHURST & HORTON L.L.P. 717 NORTH HARWOOD 600 CONGRESS AVENUE NINTH FLOOR 1250 ONE AMERICAN CENTER DALLAS, TEXAS 75201.6587 AUSTIN, TEXAS 78701.3248 TELEPHONE: 214 754 -9200 TELEPHONE: 512 478 -3805 FACSIMILE: 214 754 -9250 FACSIMILE: 512 472 -0871 [Draft of Bond Counsel Opinion] 700 N. ST. MARY'S STREET 1225 ONE RIVERWALK PLACE SAN ANTONIO, TEXAS 78205 -3503 TELEPHONE: 210 225 -2800 FACSIMILE: 210 225 -2984 CITY OF HUNTSVILLE, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2001 IN THE AGGREGATE PRINCIPAL AMOUNT OF $5,000,000 AS BOND COUNSEL FOR THE CITY OF HUNTSVILLE, TEXAS (the "City ") of the certificates described above (the "Certificates "), we have examined into the legality and validity of the Certificates, which bear interest from the dates specified in the text of the Certificates, until maturity or redemption, at the rates and payable on the dates specified in the text of the Certificates and with the ordinance of the City adopted on November 13, 2001, authorizing the issuance of the Certificates (the "Ordinance "). WE HAVE EXAMINED the Constitution and laws of the State of Texas, certified copies of the proceedings of the City, and other documents authorizing and relating to the issuance of said Certificates, including one of the executed certificates (Certificate Numbered R -1). BASED ON SAID EXAMINATION, IT IS OUR OPINION that said Certificates have been authorized, issued and delivered in accordance with law; and that except as may be limited by laws applicable to the City relating to bankruptcy, reorganization and other similar matters affecting creditors' rights generally, the Certificates constitute valid and legally binding obligations of the City; and that ad valorem taxes sufficient to provide for the payment of the interest on and principal of said Certificates have been levied and pledged for such purpose, within the limit prescribed by law, and the Certificates, together with other obligations of the City, are additionally secured by and payable from the surplus revenues of the City's Waterworks and Sewer System, remaining after payment of all operation and maintenance expenses thereof, and all debt service, reserve and other requirements in connection with all of the City's revenue bonds or other obligations (now or hereafter outstanding), which are payable from all or part of the Net Revenues of the City's Waterworks and Sewer System, which amount shall not exceed $1,000, all as provided in the Ordinance. WE EXPRESS NO OPINION as to any insurance policies issued with respect to the payments due for the principal of and interest on the Certificates, nor as to any such insurance policies. IT IS FURTHER OUR OPINION, except as discussed below, that the interest on the Certificates is excludable from the gross income of the owners thereof for federal income tax purposes under the statutes, regulations, published rulings, and court decisions existing on the date of this opinion. We are further of the opinion that the Certificates are not "specified private activity bonds" and that accordingly, interest on the Certificates 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 and assume compliance by the City with, certain representations and covenants regarding the use and investment of the proceeds of the Certificates. We call your attention to the fact that failure by the City to comply with such representations and covenants may cause the interest on the Certificates to become includable in gross income retroactively to the date of issuance of the Certificates. WE CALL YOUR ATTENTION TO THE FACT that the interest on tax- exempt obligations, such as the Certificates, is (a) included in a corporation's alternative minimum taxable income for purposes of determining the alternative minimum tax imposed on corporations by Section 55 of the Code, (b) subject to the branch profits tax imposed on foreign corporations by Section 884 of the Code and (c) included in the passive investment income of the subchapter S corporation and subject to the tax imposed by Section 1375 of the Code. EXCEPT AS STATED ABOVE, we express no opinion as to any other federal, state, or local tax consequences of acquiring, carrying, owning or disposing of the Certificates. In particular, but not by way of limitation, we express no opinion with respect to the federal, state or local tax consequences arising from the enactment of any pending or future legislation. OUR SOLE ENGAGEMENT in connection with the issuance of the Certificates is as Bond Counsel for the City, and, in that capacity, we have been engaged by the City for the sole purpose of rendering an opinion with respect to the legality and validity of the Certificates under the Constitution and laws of the State of Texas, and with respect to the exclusion from gross income of the interest on the Certificates 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 City, or the disclosure thereof in connection with the sale of the Certificates, and have not assumed any responsibility with respect thereto. We express no opinion and make no comment with respect to the marketability of the Certificates and have relied solely on certificates executed by officials of the City as to the current outstanding indebtedness of and the assessed valuation of taxable property within the City. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Certificates has been limited as described therein. Respectfully, EXHIBIT "B" WMA _ ' ► ► : I ._ s_ u _ M 41UNTS 1.1-F.0O2001: (Mier B" PAYING AGENT/REGISTRAR AGREEMENT THIS AGREEMENT entered into as of November 15, 2001 (the "Agreement "), by and between the City of Huntsville, Texas (the "Issuer "), and Wells Fargo Bank Texas, N.A., Houston, Texas, a Texas banking association duly organized and existing under the laws of the United States of America (the 'Bank "). RECITALS WHEREAS, the Issuer has duly authorized and provided for the issuance of its Combination Tax and Revenue Certificates of Obligation, Series 2001 in the aggregate principal amount of $5,000,000 (the "Securities "), such Securities to be issued in fully registered form only as to the payment of principal and interest thereon; and WHEREAS, the Certificates are scheduled to be delivered to the initial purchasers thereof on or about December 13, 2001; and WHEREAS, the Issuer has selected the Bank to serve as Paying Agent/Registrar in connection with the payment of the principal of, premium, if any, and interest on said Securities and with respect to the registration, transfer and exchange thereof by the registered owners thereof, and WHEREAS, the Bank has agreed to serve in such capacities for and on behalf of the Issuer and has full power and authority to perform and serve as Paying Agent/Registrar for the Securities; NOW, THEREFORE, it is mutually agreed as follows: ARTICLE ONE APPOINTMENT OF BANK AS PA YING AGENT AND REGISTRAR Section 1.01. Appointment. The Issuer hereby appoints the Bank to serve as Paying Agent with respect to the Securities. As Paying Agent for the Securities, the Bank shall be responsible for paying on behalf of the Issuer the principal, premium (if any), and interest on the Securities as the same become due and payable to the registered owners thereof, all in accordance with this Agreement and the "Ordinance" (hereinafter defined). The Issuer hereby appoints the Bank as Registrar with respect to the Securities. As Registrar for the Securities, the Bank shall keep and maintain for and on behalf of the Issuer books and records as to the ownership of said Securities and with respect to the transfer and exchange thereof as provided in this Agreement and the "Ordinances." The Bank hereby accepts its appointment, and agrees to serve as the Paying Agent and Registrar for the Securities. HUNf3VR1.VCO2001: PAYAOT.AGR Section 1.02. Compensation. As compensation for the Bank's services as Paying Agent/Registrar, the Issuer hereby agrees to pay the Bank the fees and amounts set forth in Schedule A attached hereto for the first year of this Agreement and thereafter the fees and amounts set forth in the Bank's current fee schedule then in effect for services as Paying Agent/Registrar for municipalities, which shall be supplied to the Issuer on or before 90 days prior to the close of the Fiscal Year of the Issuer, and shall be effective upon the first day of the following Fiscal Year. In addition, the Issuer agrees to reimburse the Bank upon its request for all reasonable expenses, disbursements and advances incurred or made by the Bank in accordance with any of the provisions hereof (including the reasonable compensation and the expenses and disbursements of its agents and counsel). ARTICLE TWO DEFINITIONS Section 2.01. Definitions. For all purposes ofthis Agreement, except as otherwise expressly provided or unless the context otherwise requires: "Acceleration Date" on any Security means the date on and after which the principal or any or all installments of interest, or both, are due and payable on any Security which has become accelerated pursuant to the terms of the Security. "Bank Office" means the corporate trust office of the Bank located at 1000 Louisiana, 64` Floor, MAC: T5001 -061, Houston, Texas 77002. The Bank will notify the City in writing of any change in location of the Bank Office. "Fiscal Year" means the fiscal year of the Issuer, ending September 30. "Holder" and "Security Holder" each means the Person in whose name a Security is registered in the Security Register. "Issuer Request" and "Issuer Order" means a written request or order signed in the name of the Issuer by the Mayor of the Issuer, any one or more of said officials, delivered to the Bank. "Legal Holiday" means a day on which the Bank is required or authorized to be closed. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision of a government. "Predecessor Securities" of any particular Security means every previous Security evidencing all or a portion of the same obligation as that evidenced by such particular Security (and, for the purposes of this definition, any mutilated, lost, destroyed or stolen Security for which a replacement Security has been registered and delivered in lieu thereof pursuant to Section 4.06 hereof and the Ordinance). HUNMQIECO2001: PAYAar.AGR 2 "Ordinance" means the order, ordinance or resolution of the governing body of the Issuer pursuant to which the Securities are issued, certified by the City Secretary of the Issuer or any other officer of the Issuer and delivered to the Bank. "Redemption Date" when used with respect to any Bond to be redeemed means the date fixed for such redemption pursuant to the terms of the Ordinances. "Responsible Officer" when used with respect to the Bank means the Chairman or Vice - Chairman of the Board of Directors, the Chairman or Vice - chairman of the Executive Committee of the Board of Directors, the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any Assistant Cashier, any Trust Officer or Assistant Trust Officer, or any other officer of the Bank customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Security Register" means a register maintained by the Bank on behalf of the Issuer providing for the registration and transfer of the Securities. "Stated Maturity" means the date specified in the Ordinances the principal of a Security is scheduled to be due and payable. Section 2.02. Other Definitions. The terms "Bank," Issuer" and Securities (Security)" have the meanings assigned to them in the recital paragraphs of this Agreement. The term "Paying Agent/Registrar" refers to the Bank in the performance of the duties and functions of this Agreement. ARTICLE THREE PAYING AGENT Section 3.01. Duties of Paying Agent. As Paying Agent, the Bank shall, provided adequate collected funds have been provided to it for such purpose by or on behalf of the Issuer, pay on behalf of the Issuer the principal of each Security at its Stated Maturity, Redemption Date or Acceleration Date, to the Holder upon surrender of the Security to the Bank at the Bank Office. As Paying Agent, the Bank shall, provided adequate collected funds have been provided to it for such purpose by or on behalf of the Issuer, pay on behalf of the Issuer the interest on each Security when due, by computing the amount of interest to be paid each Holder and preparing and sending checks by United States Mail, first -class postage prepaid, on each payment date, to the Holders of the Securities (or their Predecessor Securities) on the respective Record Date, to the address appearing on the Security Register or by such other method, acceptable to the Bank, requested in writing by the Holder at the Holder's risk and expense. Section 3.02. Payment Dates. The Issuer hereby instructs the Bank to pay the principal of and interest on the Securities on the dates specified in the Ordinances. HUtMVQ1FJCO2001: PAYAGT.AGR ARTICLE FOUR REGISTRAR Section 4.01. Security Register- Transfers and Exchanges. The Bank agrees to keep and maintain for and on behalf of the Issuer at the Bank Office books and records (herein sometimes referred to as the "Security Register ") for recording the names and addresses of the Holders of the Securities, the transfer, exchange and replacement of the Securities and the payment of the principal of and interest on the Securities to the Holders and containing such other information as may be reasonably required by the Issuer and subject to such reasonable regulations as the Issuer and the Bank may prescribe. All transfers, exchanges and replacement of Securities shall be noted in the Security Register. Every Security surrendered for transfer or exchange shall be duly endorsed or be accompanied by a written instrument of transfer, the signature on which has been guaranteed by an officer of a federal or state bank or a member of the National Association of Securities Dealers, in form satisfactory to the Bank, duly executed by the Holder thereof or his agent duly authorized in writing. The Bank may request any supporting documentation it feels necessary to effect a re- registration, transfer or exchange of the Securities. To the extent possible and under reasonable circumstances, the Bank agrees that, in relation to an exchange or transfer of Securities, the exchange or transfer by the Holders thereof will be completed and new Securities delivered to the Holder or the assignee of the Holder in not more than three (3) business days after the receipt of the Securities to be canceled in an exchange or transfer and the written instrument of transfer or request for exchange duly executed by the Holder, or his duly authorized agent, in form and manner satisfactory to the Paying Agent/Registrar. Section 4.02. Certificates. The Issuer shall provide an adequate inventory of printed Securities to facilitate transfers or exchanges thereof. The Bank covenants that the inventory of printed Securities will be kept in safekeeping pending their use, and reasonable care will be exercised by the Bank in maintaining such Securities in safekeeping, which shall be not less than the care maintained by the Bank for debt securities of other political subdivisions or corporations for which it serves as registrar, or that is maintained for its own securities. Section 4.03. Form of Security Register. The Bank, as Registrar, will maintain the Security Register relating to the registration, payment, transfer and exchange of the Securities in accordance with the Bank's general practices and procedures in effect from time to time. The Bank shall not be obligated to maintain such Security Register in any form other than those which the Bank has currently available and currently utilizes at the time. The Security Register may be maintained in written form or in any other form capable of being converted into written form within a reasonable time. Section 4.04. List of Security Holders. The Bank will provide the Issuer at any time requested by the Issuer, upon payment of the required fee, a copy of the information contained in the Security Register. The Issuer may also inspect the information contained in the Security Register at HUNnVW.&CO2001: PAYAOT.AOR 4 any time the Bank is customarily open for business, provided that reasonable time is allowed the Bank to provide an up -to -date listing or to convert the information into written form. The Bank will not release or disclose the contents ofthe Security Register to any person other than to, or at the written request of, an authorized officer or employee of the Issuer, except upon receipt of a court order or as otherwise required by law. Upon receipt of a court order and prior to the release or disclosure of the contents of the Security Register, the Bank will notify the Issuer so that the Issuer may contest the court order or such release or disclosure of the contents of the Security Register. Section 4.05. Return of Canceled Certificates. The Bank will, at such reasonable intervals as it determines, surrender to the Issuer, Securities in lieu of which or in exchange for which other Securities have been issued, or which have been paid. Section 4.06. Mutilated, Destroyed, Lost or Stolen Securities. The Issuer hereby instructs the Bank, subject to the applicable provisions of the Order, to deliver and issue Securities in exchange for or in lieu of mutilated, destroyed, lost or stolen Securities as long as the same does not result in an overissuance. In case any Security shall be mutilated or destroyed, lost or stolen, the Bank, in its discretion, may execute and deliver a replacement Security of like form and tenor, and in the same denomination and bearing a number not contemporaneously outstanding, in exchange and substitution for such mutilated Security, or in lieu of and in substitution for such destroyed lost or stolen Security, only after (i) the filing by the Holder thereof with the Bank of evidence satisfactory to the Bank of the destruction, loss or theft of such Security, and of the authenticity of the ownership thereof and (ii) the furnishing to the Bank of indemnification in an amount satisfactory to hold the Issuer and the Bank harmless. All expenses and charges associated with such indemnity and with the preparation, execution and delivery of a replacement Security shall be borne by the Holder of the Security mutilated, or destroyed, lost or stolen. Section 4.07. Transaction Information to Issuer. The Bank will, within a reasonable time after receipt of written request from the Issuer, furnish the Issuer information as to the Securities it has paid pursuant to Section 3.01, Securities it has delivered upon the transfer or exchange of any Securities pursuant to Section 4.01, and Securities it has delivered in exchange for or in lieu of mutilated, destroyed, lost or stolen Securities pursuant to Section 4.06. ARTICLE FIVE THE BANK Section 5.01. Duties of Bank. The Bank undertakes to perform the duties set forth herein and agrees to use reasonable care in the performance thereof. Section 5.02. Reliance on Documents, Etc. (a) The Bank may conclusively rely, as to the truth of the statements and correctness of the opinions expressed therein, on certificates or opinions furnished to the Bank. HU?MVnLVCO2001: PAYAar AOR 5 (b) The Bank shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Bank was negligent in ascertaining the pertinent facts. (c) No provisions of this Agreement shall require the Bank to expend or risk its own funds or otherwise incur any financial liability for performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity satisfactory to it against such risks or liability is not assured to it. (d) The Bank may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note, security or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. Without limiting the generality of the foregoing statement, the Bank need not examine the ownership of any Securities, but is protected in acting upon receipt of Securities containing an endorsement or instruction of transfer or power of transfer which appears on its face to be signed by the Holder or an agent of the Holder. The Bank shall not be bound to make any investigation into the facts or matters stated in a resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note, security or other paper or document supplied by Issuer. (e) The Bank may consult with counsel, and the written advice of such counsel or any opinion of counsel shall be full and complete authorization and protection with respect to any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (f) The Bank may exercise any of the powers hereunder and perform any duties hereunder either directly or by or through agents or attorneys of the Bank. Section 5.03. Recitals of Issuer. The recitals contained herein with respect to the Issuer and in the Securities shall be taken as the statements of the Issuer, and the Bank assumes no responsibility for their correctness. The Bank shall in no event be liable to the Issuer, any Holder or Holders of any Security, or any other Person for any amount due on any Security from its own funds. Section 5.04. May Hold Securities. The Bank, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Issuer with the same rights it would have if it were not the Paying Agent/Registrar, or any other agent. Section 5.05. Moneys Held by Bank. The Bank shall deposit any moneys received from the Issuer into a trust account to be held in a paying agent capacity for the payment of the Securities, with such moneys in the account that exceed the deposit insurance available to the Issuer by the Federal Deposit Insurance Corporation, to be fully collateralized with securities or obligations that are eligible under the laws of the State of Texas to secure and be pledged as collateral for trust accounts until the principal and interest on such securities have been presented for payment and paid to the owner thereof. Payments made from such trust account shall be made by check drawn on such HUNMVQLFJCO2001: PAYAMAGR trust account unless the owner of such Securities shall, at its own expense and risk, request such other medium of payment. Subject to the Unclaimed Property Law of the State of Texas, any money deposited with the Bank for the payment of the principal, premium (if any), or interest on any Security and remaining unclaimed for three years after the final maturity of the Security has become due and payable will be paid by the Bank to the Issuer if the Issuer so elects, and the Holder of such Security shall hereafter look only to the Issuer for payment thereof, and all liability of the Bank with respect to such monies shall thereupon cease. If the Issuer does not elect, the Bank is directed to report and dispose of the funds in compliance with Title Six of the Texas Property Code, as amended. Section 5.06. Indemnification. To the extent permitted by law, the Issuer agrees to indemnify the Bank for, and hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with its acceptance or administration of its duties hereunder, including the cost and expense against any claim or liability in connection with the exercise or performance of any of its powers or duties under this Agreement. Section 5.07. Interpleader. The Issuer and the Bank agree that the Bank may seek adjudication of any adverse claim, demand or controversy over its person as well as funds on deposit, in either a Federal or State District Court located in the State and County where either the Bank Office or the administrative offices of the Issuer is located, and agree that service of process by certified or registered mail, return receipt requested, to the address referred to in Section 6.03 of this Agreement shall constitute adequate service. The Issuer and the Bank further agree that the Bank has the right to file a Bill of Interpleader in any court of competent jurisdiction to determine the rights of any Person claiming any interest herein. Section 5.08. Depository Trust Company Services. It is hereby represented and warranted that, in the event the Securities are otherwise qualified and accepted for "Depository Trust Company" services or equivalent depository trust services by other organizations, the Bank has the capability and, to the extent within its control, will comply with the "Operational Arrangements," effective August 1, 1987, which establishes requirements for securities to be eligible for such type depository trust services, including, but not limited to, requirements for the timeliness of payments and funds availability, transfer turnaround time and notification of redemptions and calls. Attached hereto is a copy ofthe Blanket Issuer Letter ofRepresentations with The Depository Trust Company. ARTICLE SIX MISCELLANEOUS PROVISIONS Section 6.01. Amendment. This Agreement may be amended only by an agreement in writing signed by both of the parties hereto. Section 6.02. Assignment. This Agreement may not be assigned by either party without the prior written consent of the other. HUNf8 UZCO2001: PAYAGr.AGR 7 Section 6.03. Notices. Any request, demand, authorization, direction, notice, consent, waiver or other document provided or permitted hereby to be given or furnished to the Issuer or the Bank shall be mailed or delivered to the Issuer or the Bank, respectively, at the addresses shown on the signature page of this Agreement. Section 6.04. Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 6.05. Successors and Assigns. All covenants and agreements herein by the Issuer shall bind its successors and assigns, whether so expressed or not. Section 6.06. Severability. In case any provision herein shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 6.07. Benefits of Agreement. Nothing herein, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any benefit or any legal or equitable right, remedy or claim hereunder. Section 6.08. Entire Agreement. This Agreement and the Ordinances constitute the entire agreement between the parties hereto relative to the Bank acting as Paying Agent/Registrar and if any conflict exists between this Agreement and the Ordinances, the Ordinances shall govern. Section 6.09. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement. Section 6.10. Termination. This Agreement will terminate (i) on the date of final payment of the principal of and interest on the Securities to the Holders thereof or (ii) may be earlier terminated by either party upon thirty (30) days written notice; provided, however, an early termination of this Agreement by either party shall not be effective until (a) a successor Paying Agent/Registrar has been appointed by the Issuer and such appointment accepted and (b) notice has been given to the Holders of the Securities of the appointment of a successor Paying Agent/Registrar. Furthermore, the Bank and Issuer mutually agree that the effective date of an early termination of this Agreement shall not occur at any time which would disrupt, delay or otherwise adversely affect the payment of the Securities. Upon an early termination of this Agreement, the Bank agrees to promptly transfer and deliver the Security Register (or a copy thereof), together with other pertinent books and records relating to the Securities, to the successor Paying Agent/Registrar designated and appointed by the Issuer. The provisions of Section 1.02 and of Article Five shall survive and remain in full force and effect following the termination of this Agreement. Section 6.11. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Texas. HUNiSVRIFJCO2001: PAYA07.A0R 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. WELLS FARGO BANK TEXAS, N.A. Title: ATTEST: By: Title: [BANK SEAL] HUN[SVU IYJCO2001: PAYAGMAGR 9 1000 Louisiana, 6 h Floor MAC: T5001 -061 Houston, Texas 77002 CITY OF HUNTSVILLE, TEXAS B y ('-, Mayor 1212 Avenue M Huntsville, Texas 777340 -4608 [CITY SEAL] AT. ;T City Secretary MINT5VILI.IX02M11: YAVAGl'.AGR MIMSVQIFJCO2001: PAYAGT.AGR SCHEDULE A Paying Agent/Registrar Fee Schedule [To be supplied by Wells Fargo] EXHIBIT "C" DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred to in Section 18 of this Ordinance. Annual Financial Statements and Operating Data The financial information and operating data with respect to the City to be provided annually in accordance with such Section are as specified (and included in the Appendix or under the headings of the Official Statement referred to) below: 1. The City's audited financial statements for the most recently concluded fiscal year or to the extent these audited financial statements are not available, the portions of the unaudited financial statements of the City appended to the Official Statement as Appendix B, but for the most recently concluded fiscal year. 2. Tables I through 6 and 8 through 15. Accounting Principles The accounting principles referred to in such Section are the accounting principles described in the notes to the financial statements referred to in paragraph I above. 11UNISViLLECO2001; Ordcr C-1 OFFICIAL BID FORM Honorable Mayor and City Council City of Huntsville, Texas Members of the City Council: November 13, 2001 Reference is made to your Official Statement and Notice of Sale and Bidding Instructions, dated November 1, 2001 of $5,000,000 CITY OF HUNTSVILLE, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2001, both of which constitute a part hereof. For your legally issued Certificates, as described in said Notice of Sale and Bidding Instructions and Official Statement, we will pay you par and accrued interest from date of issue to date of delivery to us, plus a cash premium (not in excess of $25,000) of $ for Certificates maturing and bearing interest as follows: Maturity Principal Interest Maturity Principal Interest Maturity Principal Interest 8115 Amount Rate 8115 Amount Rate 8/15 Amount Rate 2004 $7 75,000 % 2014 $ 125,000 % 2024 $ 215,000 % 2005 80,000 % 2015 135,000 % 2025 225,000 % 2006 80,000 Q % 2016 140,000 /0 2026 240,000 % 2007 85,000 Q % 2017 150,000 % 2027 255,000 % 2008 90,000 % 2018 155,000 % 2028 265,000 2009 95,000 /0 2019 165,000 % 2029 280,000 % 2010 100,000 % 2020 175,000, % 2030 295,000 2011 110,000 % 2021 185,000 % 2031 315,000 % 2012 115,000 q, 10 % 2022 195,000 % 2032 330,000 % 2013 120,000 11. % 2023 205,000 % Of the principal maturities set forth in the table above, term certificates have been created as indicated in the following table (which may include multiple term certificates, one term certificate or no term certificate if none is indicated). For those years which have been combined into a term certificate, the principal amount shown in the table above shall be the mandatory sinking fund redemption amounts in such years except that the amount shown in the year of the term certificate maturity date shall mature in such year. The term certificates created are as follows: Term Principal Certificate Year of Amount of Maturity Date First Mandatory Term Interest 8115 Redemption Certificate Rate $ % al�il32 $ lm& n Our calculation (which is not a part of this bid) of the interest cost from the above is: TRUE INTEREST COST 1 % We are having the Ceffificates of the following maturities 'r6jC insured by at a premium of $ , said premium to be paid by the Purchaser. Any fees to be paid to the rating agencies as a result of said insurance wig be paid by the City. The Initial Certificates shag be registered in the name of ' which will, upon payment for the Certificates, be canceled by the Paying Agent/Registrar. The Certificates will then be registered in the name of Cede & Co. (DTC's) partnership nominee), under the Book - Entry-Only System. vi We agree to accept delivery of the Certificates utilizing the Book - Entry-Only System through DTC and make payment for the Initial Certificate in immediately available funds in the Corporate Trust Division, . Texas, not later than 10:00 A.M., CST, on December 13, 2001, or thereafter on the date the Certificates are tendered for delivery, pursuant to the terms set forth in the Notice of Sale and Bidding Instructions. It will be the obligation of the purchaser of the Certificates to complete the DTC Eligibility Questionnaire. The undersigned agrees to complete, execute, and deliver to the City, at least six business days prior to delivery of the Certificates, a certificate relating to the "issue price" of the Certificates in the form and to the effect accompanying the Notice of Sale and Bidding Instructions, with such changes thereto as may be acceptable to the City. We agree to provide in writing the initial reoffering prices and other terms, if any, to the Financial Advisor by the close of the next business day after the award. Respectfully submitted, Prudential - Surges Incorpa Ad Name of Underwriter or Manager -TD�-dt, �tV, Tkom_a-s Authorized Representative '1/4- 571 -1-© to Phone Number tore Syndicate Members: ACCEPTANCE CLAUSE The above and foregoing bid is hereby in al`i_t!i`ngs accepted by the City of Huntsville, of Sale and Bidding Instructions, this the Aa y of o API& tr' 2001. r T: City Secretary vii Texas, subject to and in a cordance with the Notice Mayor City of Huntsville, Texas GENERAL AND NO- LITIGATION CERTIFICATE THE STATE OF TEXAS § COUNTY OF WALKER § CITY OF HUNTSVILLE § We, the undersigned officers of the City, hereby certify as follows: GENERAL 1. This certificate is executed for and on behalf ofthe City, for the benefit ofthe Attorney General of the State of Texas and for the benefit of the Purchaser in connection with the issuance of the Certificates. The words and terms used herein shall have the meanings whenever they are used given in Exhibit "A" attached hereto. 2. Any certificate signed by an official of the City delivered to the Underwriter or the Attorney General of the State of Texas shall be deemed a representation and warranty by the City as to the statement made therein. The Public Finance Division of the Office of the Attorney General of the State of Texas is hereby authorized to date this certificate as of the date of approval of the Certificates and is entitled to rely upon the accuracy of the information contained herein unless notified by telephone or fax to the contrary. The Comptroller of Public Accounts is further authorized to register the Certificates upon receipt of the Attorney General approval. After registration, the Certificates, opinions and registration papers shall be delivered to C.D. Polumbo at McCall, Parkhurst & Horton L.L.P. 3. A true and correct copy of the bid for the Certificates submitted to and accepted by the City is attached hereto as Exhibit "B ". MATTERS RELATING TO THE CITY 4. The City is a duly incorporated home rule City, operating and existing under the Texas Constitution and laws of the State of Texas, including its home rule charter which has not been amended since the issuance of the most recent securities of the City approved by the Attorney General of Texas. 5. No litigation of any nature has been filed or is now pending to restrain or enjoin the issuance or delivery of the Certificates, or which would affect the provision made for their payment or security, or in any manner questioning the proceedings or authority concerning the issuance of the Certificates, and that so far as we know and believe no such litigation is threatened. 6. Neither the corporate existence nor boundaries of the City is being contested, no litigation has been filed or is now pending which would affect the authority of the officers of the City to issue, execute, sign and deliver the Certificates, and no authority or proceedings for the issuance of the Certificates have been repealed, revoked or rescinded. M M UZICO2001: GENERAIN011T CRT 7. We officially executed and signed the Certificates with our manual signatures or by causing facsimiles of our manual signatures to be imprinted or copied on each of the Certificates, and, if appropriate, we hereby adopt such facsimile signatures as our own, respectively, and declare that such facsimile signatures constitute our signatures the same as if we had manually signed each of the Certificates. 8. The Certificates are substantially in the form, and have been duly executed and signed in the manner, prescribed in the Ordinances. 9. At the time we so executed and signed the Certificates we were, and at the time of executing this certificate we are, the duly chosen, qualified and acting officers indicated therein, and authorized to execute the same. 10. We have caused the official seal of the City to be impressed, or printed, or copied on the Certificates and such seal on the Certificates has been duly adopted as, and is hereby declared to be, the official seal of the City. 11. The currently outstanding tax debt of the City including the proposed Certificates is set forth in Exhibit "C" hereto. 12. The true and correct schedule showing the annual requirements of all the outstanding tax indebtedness of the City, together with the proposed Certificates, is set forth in Exhibit "D" hereto. 13. The currently effective ad valorem tax rolls of the City are those for the year 2002, being the most recently approved tax rolls of the City; the taxable property in the City has been assessed as required by law; the Tax Assessor of the City has duly verified the tax rolls; and the assessed value of taxable property in the City upon which the annual ad valorem tax of the City has been levied (after deducting the amount of all exemptions, if any, taken or required to be given under the Constitution and laws of the State of Texas), according to the tax rolls for the year, as delivered to the City Secretary, and finally approved and recorded by the City Council of the City, is $730,223,600. 14. After the issuance of the proposed Certificates, none of the revenues or income of the City's waterworks and sewer system have been pledged or encumbered to the payment of any debt or obligation of the City or the waterworks and sewer system, except in connection with the proposed Bonds and the following issues: Waterworks and Sanitary Sewer System Revenue Bonds, Series 1991, 1992, and 1997 Elkins Lake MUD Waterworks and Sewer System Combination Unlimited Tax and Revenue Bonds, Series 1973 HUNISVU.LVCO2001: GFNERA[NOIIECRT 2 Combination Tax and Revenue Certificates of Obligation, Series 1993 Tax and Waterworks and Sewer System (Limited Pledge) Revenue Certificates of Obligation, Series 1998 Trinity River Authority Contract Revenue Bonds, Series 1993 (City of Huntsville Sewer System Project) The City is not in default as to any covenant, condition or obligation in connection with any of such obligations and the ordinances authorizing such obligations, and that the interest and sinking funds and reserve funds required by the ordinances each contain the amounts now required to be therein. 15. The City's current water and sewer rates are set forth in Exhibit "E" attached hereto. 16. The following is a true, full and correct schedule of the income and expenses of the waterworks and sewer system for the past three years, to wit: Income Expenses Net Revenues 2000 1999 $11,689,292 8,196,038 $ 3,493,254 1998 $11,129,643 7,947,072 $ 3,182,571 17. The City has not received a petition from any of the qualified voters of the City protesting the issuance of the Certificates. CLOSING MATTERS 18. That (i) no litigation is pending or, to our knowledge, threatened to restrain or enjoin the issuance or delivery of the Certificates, the levy, collection or application of the taxes pledged to pay the principal of and interest on the Certificates, or the pledge thereof, the lien on and pledge of the surplus net revenues of the City's utility system 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 or the Ordinance, or contesting the powers of the City to issue the Certificates, or contesting authorization of the Certificates, or the Ordinance, or contesting in any way the accuracy, completeness, or fairness of the Preliminary Official Statement (to the extent not modified by the Official Statement) or the Official Statement and (ii) no event affecting the City 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 not misleading in any material respect. HUNCSVWFJCO2001: GENERAINOUr CRT CITY OF HUNTSVILLE NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 PAGE 18 OF 24 C. Contributed Capital During the year ended September 30, 2000, contributed capital increased by the following amounts: WATER AND SOLID INTERNAL WASTEWATER WASTE SERVICE Customers $ 33,306 $ — $ — Local Government — — 1,488,825 Federal Government 57,520 — — Contributed Capital — October 1, 1999 11.110.248 14.817 — Contributed Capital — September 30, 2000 $ 11.201.074 $ 14.817 $_1 488 .825 D. Segment Information for Enterprise Funds 30,000 $ 4,798,668 The City operates two Enterprise Funds, the Water and Wastewater Fund and the Solid Waste Fund. These two funds are for the acquisition, operation, and maintenance of water, wastewater, and sanitation facilities which are supported by user charges. 31,376 $ 81,295,546 Segment information for the year ended September 30, 2000, is as follows: $ WATER AND STORMWATER WASTEWATER SOLID WASTE DRAINAGE OPERATIONS OPERATIONS UTILITY OPERATIONS TOTALS Operating Revenues $ 12,014,877 $ 2,787,855 $ — $ 14,802,732 Depreciation and Amortization 1,517,589 192,909 — 1,710,498 Operating Income (Loss) 3,219,241 (206,114) — 3,013,127 Net Income (Loss) 3,304,158 (206,425) 30,000 3,127,733 Capital Contributions Current Capital Contributions Fixed Assets Additions Deletions/Transfers Net Working Capital Total Assets Long —Term Liabilities Payable From Operating Revenues Current Portion Long —Term Portion Total Equity $ 90,826 $ — — $ 90,826 $ 2,572,835 — — 2,572,835 (1,826,398) (1,695,474) — (3,521,872) $ 4,246,435 $ 522,233 $ 30,000 $ 4,798,668 $ 79,436,307 $ 1,827,863 $ 31,376 $ 81,295,546 $ 3,003,138 $ 169,587 $ — $ 3,172,725 38,019,680 793,695 — 38,813,375 $ 36,009,233 $ 409,432 $ 30,000 $ 36,448,665 32 SIGNED AND SEALED this City Secretary (SEAL) Execute either I or H below: Mayor I. The signatures of the officers subscribed above are hereby certified to be true and genuine. Bank Authorized Officer (BANK SEAL) or (Initials of Authorized Officer if Bank has no seal on premises H. Before me, on this day personally appeared the foregoing individuals, known to me to be the officers whose true and genuine signatures were subscribed to the foregoing instrument in my presence. Given under my hand and seal of office this Notary Public (Notary Seal) MNI3VnLVCO2001: GENERAINOUT CRT 4 EXHIBIT A DEFINITIONS Certificates - City of Huntsville, Texas Combination Tax and Revenue Certificates of Obligation, Series 2001 dated November 15, 2001 in the aggregate principal amount of $5,000,000. City - City of Huntsville, Texas. Official Statement - The Preliminary Official Statement dated November 1, 2001 and the Official Statement dated November 13, 2001 relating to the issuance of the Certificates. Ordinance - The Ordinance Authorizing the Issuance of $5,000,000 City of Huntsville, Texas Combination Tax and Revenue Certificates of Obligation, Series 2001; Levying an Ad Valorem Tax and Pledging Certain Revenues in Support ofthe Certificates; Approving an Official Statement; Awarding the Sale of the Certificates; Authorizing Execution of a Paying Agent/Registrar Agreement; and Ordaining Other Matters Relating to the Issuance ofthe Certificates approved on November 13, 2001.. Purchaser - The winning bidders as shown on the bid form attached to this General and No- Litigation Certificate as Exhibit "B ". HU?MVU1.VCO2001: GENERAINOUr.CRT 1 r. v 0 .9 WINNING BID CERTIFICATE HMMVHJ.VCO2001:G4qMLMXOUr.OtT EXHIBIT C Street Improvement Bonds Series 1988 $ 500,000 Street Improvement Bonds Series 1991 1,600,000 Combination Tax and Revenue Certificates of Obligation, Series 1993 630,000 Elkins Lake Municipal Utility District Unlimited Tax Refunding Bonds, Series 1993 (CIBs) 825,000 Elkins Lake Municipal Utility District Unlimited Tax Refunding Bonds, Series 1993 (PCIBs) 140,000 Tax and Hotel Occupancy Tax Surplus Revenue Certificates of Obligation, Series 1994 180,000 Tax Notes, Series 1995 240,000 Tax Notes, Series 1998 75,000 Tax and Waterworks and Sewer System (Limited Pledge) Revenue Certificates of Obligation, Series 1998 7,425,000 Combination Tax and Revenue Certificates of Obligation, Series 2000 5,000,000 Combination Tax and Revenue Certificates of Obligation, Series 2001 5,000,000 Total $21,615,000 HUMSVn1YJCO2001: GENERVNOULCRT C-1 *149,11398c, DEBT INFORINIATION TABLE 8 - PRO -FORMA GENERAL OBLIGATION DEBT SERYtCE REQIAREMENTS HUN SVaMco2oot: oENERAIxour.CRT D -1 Less: Self - Supporting W W &SS, Year Total Sanitation & Total % of End Outstanding The Certificates Tax & Hotel Debt Service Principal 9/30 Debt(') Principal Interest Total Obligations Requirements Retired 2002 S 2,440,777 S 206,250 S 206,250 S 1,208 242 S 1,438,784 2003 2,276,150 275,000 275,000 1,023,504 1,527,646 2004 2,280,730 S 75,000 275,000 350,000 1,026,334 1,604,396 7.56% 2005 2,113,746 80,000 270,875 350,875 859,631 1,604,990 2006 1,948,436 80,000 266,475 346,475 697,365 1,597,546 2007 1,880,895 85,000 262,075 347,075 625,343 1,602,628 2008 1,770,765 90,000 257,400 347,400 517,200 1,600,965 18.22% 2009 1,772,084 95,000 252,450 347,450 515,910 1,603,624 2010 1,666,246 100,000 247,225 347,225 406,433 1,607,039 2011 1,672,568 110,000 241,725 351,725 408,943 1,615,350 2012 1,680 278 115,000 235,675 350,675 410,393 1,620,560 29.16% 2013 1,673,939 120,000 229,350 349,350 405,598 1,617,691 2014 1,269,289 125,000 222,750 347,750 1,617,039 2015 1,272,830 135,000 215,875 350,875 1,623,705 2016 1,273,305 140,000 208,450 348,450 1,621,755 39.49% 2017 1,280,371 150,000 200,750 350,750 1,631,121 2018 1,279,009 155,000 192,500 347,500 1,626,509 2019 1,284,369 165,000 183,975 348,975 1,633,344 2020 485,300 175,000 174,900 349,900 835,200 48.41% 2021 185,000 165,275 350,275 350,275 2022 195,000 155,100 350,100 350,100 2023 205,000 144,375 349,375 349,375 2024 215,000 133,100 348,100 348,100 95.23% 2025 225,000 121,275 346,275 346,275 2026 240,000 108,900 348,900 348,900 2027 255,000 95,700 350,700 350,700 2028 265,000 81,675 346,675 346,675 97.36% 2029 280,000 67,100 347,100 347,100 2030 295,000 51,700 346,700 346,700 2031 315,000 35,475 350,475 350,475 2032 330,000 18,150 348,150 348,150 100.00% S 31,321,086 $ 5,000,000 S 5,596,525 S 10,596,525 S 8,104,893 S 33,812,720 (1) "Outstanding Debt" does not include lease/purchase obligations. (2) Interest on the Certificates has been calculated for the numose of illustration. Preliminary. suhiect to chanoe. HUN SVaMco2oot: oENERAIxour.CRT D -1 EXHIBIT E CURRENT WATER AND SEWER RATES FEDERAL TAX CERTIFICATE In General. 1.1. The undersigned is the Mayor of the City of Huntsville, Texas (the "Issuer "). 1.2. This Certificate is executed for the purpose ofestablishing the reasonable expectations of the Issuer as to future events regarding the Issuer's Combination Tax and Revenue Certificates of Obligation, Series 2001 (the "Certificates "). The Certificates are being issued pursuant to an Ordinance of the Issuer (the "Ordinance ") adopted on the date of sale of the Certificates. The Ordinance is incorporated herein by reference. 1.3. To the best of the undersigned's knowledge, information and belief, the expectations contained in this Certificate are reasonable. 1.4. The undersigned is an officer of the Issuer delegated with the responsibility of issuing and delivering the Certificates. 2. The Purpose of the Certificates of Obligation and Useful Lives of Projects. 2.1. The Certificates are being issued pursuant to the Ordinance (a) to provide for the payment of costs of issuing the Certificates, and (b) to construct, improve and equip a municipal golf course and related infrastructure and improvements to be located at 4571H 45 South, and construct and improv watstewater lines (the "Projects "). 2.2. The Issuer expects that the aggregate useful lives ofthe Projects exceed 20 years from the later of the date the Projects are placed in service or the date on which the Certificates are issued. 2.3. All earnings, such as interest and dividends, received from the investment of the proceeds of the Certificates during the period of acquisition and construction of the Projects and not used to pay interest on the Certificates, will be used to pay the costs of the Projects, unless required to be rebated and paid to the United States in accordance with section 148(f) of the Internal Revenue Code of 1986 (the "Code "). The proceeds of the Certificates, together with any investment earnings thereon, are expected not to exceed the amount necessary for the governmental purpose of the Certificates. The Issuer expects that no disposition proceeds will arise in connection with the Projects or the Certificates. Expenditure of Bond Proceeds and Use of Projects. 3.1. The Issuer will incur, within six months after the date of issue of the Certificates, a binding obligation to commence the Projects, either by entering into contracts for the construction of the Projects or by entering into contracts for architectural or engineering services for such Projects, or contracts for the development, purchase of construction materials, or purchase of equipment, for the Projects, with the amount to be paid under such contracts to be in excess of five percent of the proceeds which are estimated to be used for the cost of the Projects. 3.2. After entering into binding obligations, work on such Projects will proceed promptly with due diligence to completion. 3.3. All original proceeds derived from the sale of the Certificates to be applied to the Projects and all investment earnings thereon (other than any amounts required to be rebated to the United States pursuant to section 148(f) of the Code) will be expended for the Projects no later than a date which is three years after the date of issue of the Certificates. 3.4. The Ordinance provides that allocations of proceeds to expenditures for the Projects are expected not to be later than 18 months after the later of the date of the expenditure or the date that the Projects are placed in service, but, in any event, not longer than 60 days after the earlier of five years of the date hereof or the date the Certificates are retired. 3.5. The Issuer will not invest the proceeds prior to such expenditure in any guaranteed investment contract or other nonpurpose investment with a substantially guaranteed yield for a period equal to or greater than four years. 3.6. Other than members of the general public, the Issuer expects that throughout the lesser of the term of the Certificates, or the useful lives of the Projects, the only user of the Projects will be the Issuer or the Issuer's employees and agents. The Issuer will be the manager of the Projects. 3.7. Except as stated below, the Issuer expects not to sell or otherwise dispose of property constituting the Projects prior to the earlier of the end of such property's useful life or the final maturity of the Certificates. The Ordinance provides that the Issuer will not sell or otherwise dispose of the Projects unless the Issuer receives an opinion of nationally- recognized bond counsel that such sale or other disposition will not adversely affect the tax- exempt status of the Certificates. 3.8. For purposes of Section 3.7 hereof, the Issuer has not included the portion of the Projects comprised of personal property that is disposed in the ordinary course at a price that is expected to be less than 25 percent of the original purchase price. The Issuer, upon any disposition of such property, will transfer the receipts from the disposition of such property to the general operating fund and expend such receipts within six months for other governmental programs. 4. Interest and Sinking Fund. 4.1. A separate and special Interest and Sinking Fund has been created and established solely to pay the principal of and interest on the Certificates, with a portion of the Interest and Sinking Fund constituting a bona fide debt service fund for the Certificates, and money deposited into the Interest and Sinking Fund for the Certificates will not be invested at a yield higher than the yield on the Certificates, except during the thirteen month period beginning on the date of each such deposit of money, and the amounts received from the investment of money in the Interest and Sinking Fund will not be invested at a yield higher than the yield on the Certificates, except during the one year period beginning on the date of receipt of such amounts; provided, however, and except that, if any money so deposited, and any amounts received from the investment thereof, are accumulated in the Interest and Sinking Fund and remain on hand in the Interest and Sinking Fund after thirteen months from the date of deposit of any such money or one year after the receipt of any such amounts from the investment thereof, such money and amounts, to the extent of an aggregate not exceeding the lesser of five percent of the proceeds of the Certificates or $100,000 will not be subject to investment yield restrictions, and shall constitute a separate portion of the Interest and Sinking Fund. 2 4.2. It is expected that a portion of the Interest and Sinking Fund will be used primarily to achieve a proper matching of revenues collected for the Certificates and debt service on the Certificates within each bond year, and it is expected that such portion of the Interest and Sinking Fund will be depleted once a year on a first -in - first -out basis, except for a possible carryover amount which will not exceed the greater of one year's earnings on such fund or 1/12 of annual debt service payable from such fund, but any money and amounts which may be accumulated in the Interest and Sinking Fund, to constitute a debt service reserve fund for the Certificates as described in Section 4. 1, above, shall constitute a separate portion of the Interest and Sinking Fund, and will not be depleted annually, and will not be subject to yield restrictions; provided that in no event will such debt service reserve fund portion of the Interest and Sinking Fund ever exceed the lesser of five percent of the proceeds of the Certificates or $100,000. 5. Invested Sinking Fund Proceeds, Replacement Proceeds. 5.1. The Issuer has, in addition to the moneys received from the sale of the Certificates, certain other moneys that are invested in various funds which are pledged for various purposes. These other funds are not available to accomplish the purposes described in Section 2 of this* Certificate. 5.2. Other than the Interest and Sinking Fund, there are, and will be, no other funds or accounts established, or to be established, by or on behalf of the Issuer (a) which are reasonably expected to be used, or to generate earnings to be used, to pay debt service on the Certificates, or (b) which are reserved or pledged as collateral for payment of debt service on the Certificates and for which there is reasonable assurance that amounts therein will be available to pay such debt service if the Issuer encounters financial difficulties. Accordingly, there are no other amounts constituting "gross proceeds" of the Certificates, within the meaning of section 148 of the Code. 6. Other Obligations. There are no other obligations of the Issuer which (a) are sold at substantially the same time as the Certificates, i.e., within 15 days of the date of sale of the Certificates, (b) are sold pursuant to a common plan of financing with the Certificates, and (c) will be payable from the same source of funds as the Certificates. Rebate to United States. The Issuer has covenanted in the Ordinance that it will comply with the requirements of the Code, including section 148(f) of the Code, relating to the required rebate to the United States. Specifically, the Issuer will take steps to ensure that all earnings on gross proceeds of the Certificates in excess of the yield on the Certificates required to be rebated to the United States will be timely paid to the United States. The Issuer acknowledges receipt of the memorandum attached hereto as Exhibit "A" which discusses regulations promulgated pursuant to section 148(f) of the Code. This memorandum does not constitute an opinion of Bond Counsel as to the proper federal tax or accounting treatment of any specific transaction. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.] DATED: CITY OF HUNTSVILLE, TEXAS By: Mayor COO CONGRESS AVENUE 1250 ONE AMERICAN CENTER AUSTIN, TEXAS 78701.3248 Tc,c. -O -c SQ 478a605 r.CS —.c 512 •72oa71 Exhibit "A" LAw OrrICE3 Mr.CALL, PARKHURST a HORTON L.L.P. 717 NORTH HARWOOD NINTH FLOOR DALLAS. TEXAS 75201.6587 TC,c­a..c: 2" 75-9200 r.CS­Ue 2" 738.9250 January 1, 1995 700 N. ST. MARY'S STREET 1223 ONE RIVERWALK PLACE SAN ANTONIO. TEXAS 78205.3503 ARBITRAGE REBATE REGULATIONS© TC,9. 0Mc 2.0 225•2aoo r.CS - UC: 2-0 225.2988 The Tax Reform Act of 1986 amended the provisions of the Internal Revenue Code .by providing a newly - enacted section 148(f) of the Internal Revenue Code 'of 1986 (the "Code "), relating to arbitrage rebate. This arbitrage rebate requirement generally provides that in order for interest on any issue of obligations to be excluded from gross income (i.e., tax - exempt) the issuer must rebate to the United States the sum of, (1) the excess of the amount earned on all "nonpurpose investments" acquired with "gross proceeds" of the issue over the amount which would have been earned if such investments had been invested at a yield equal to the yield on the issue, and (2) the earnings on such excess earnings. These rules are substantially similar to the rules which, prior to the Tax Reform Act of 1986, applied to industrial development bonds and mortgage revenue bonds. Section 148(f) of the Code has been amended by several subsequent tax acts, most notably, the Revenue Reconciliation Acts of 1989 and 1990. These amendments primarily provided a special exception to rebate for certain construction issues, as discussed under the heading "Exceptions to Rebate." On June 18, 1993, the U.S. Treasury Department promulgated regulations relating to the computation of arbitrage rebate and the rebate exceptions. These regulations, which replace the previously - published regulations promulgated on May 15, 1989, and on May 18, 1992, are effective for bonds issued after June 30, 1993. These newly- promulgated regulations also replace the arbitrage regulations, other than those relating to rebate, which were published in 1978. This memorandum was prepared by McCall, Parkhurst & Horton L.L.P. and provides a general discussion of the arbitrage rebate regulations. This memorandum does not otherwise discuss the general arbitrage regulations, other than as they may incidentally relate to rebate. This memorandum also does not attempt to provide an exhaustive discussion of the arbitrage rebate regulations and should not be considered advice with respect to the arbitrage rebate requirements as applied to any individual or governmental unit or any spec transaction. McCall, Parkhurst & Horton L. L. P. remains available to provide legal advice to issuers with respect to the provisions of these tax regulations but recommends Copyright 1995 by Harold T. Flanagan, McCall, Parkhurst & Horton L.L.P. All rights reserved. that issuers seek competent financial and accounting assistance in calculating the amount of such issuer's rebate liability under section 148(f) of the Code and in making elections to apply the rebate exceptions. In this memorandum the word "bond" is defined to include any bond, note, certificate, financing lease or other obligation of an issuer. Effective Dates The regulations promulgated on June 18, 1993, generally apply to bonds delivered after June 30, 1993, but, as discussed below, also permit an issuer to elect to apply the newiy- promulgated rules to bonds issued prior to that date. The temporary regulations adopted by the U.S. Treasury Department in 1989 and 1992 incorporated the same effective dates which generally apply for purposes of section 148(f) of the Code. The statutory provisions of section 148(f) of the Code, other than the exception for construction issues, apply to all bonds issued after August 15, 1986, (for private activity bonds) and August 31, 1986,'(for governmental public purpose bonds). As such, the previous versions of the rebate regulations generally applied to bonds issued between August 1986 and June 30, 1993 (or, with ari election, to bonds issued prior to August 15, 1993). The statutory exception to rebate applicable to construction issues generally applies to such issues if delivered after December 19, 1989. The newly - promulgated regulations provide numerous transitional rules for bonds sold prior to July 1, 1993. Moreover, since, under prior law, rules were previously published with respect to industrial development bonds and mortgage revenue bonds, the transitional rules contained in these newly-promulgated regulations permit an issuer to elect to apply certain of these rules for computing rebate on pre -1986 bonds. The regulations provide for numerous elections which would permit an issuer to apply the newly-promulgated rules (other.than 18- month spending exception) to bonds which were issued prior to July 1, 1993 and remain outstanding on June 30, 1993. Due to the complexity of the regulations, it is impossible to discuss in this memorandum all circumstances for which specific elections are provided. If an issuer would prefer, in certain circumstances, to use the newly-promulgated regulations in lieu of the computational method stated under prior law (e.g., due to prior redemption) or the previously-published regulations, please contact McCall, Parkhurst &'Horton L.L.P..for advice as to the availability of such options. Future Value Computation Method The regulations employ an actuarial method for computing the rebate amount based on the future value of the investment receipts (i.e., earnings) and payments. The rebate method employs a two-step computation to determine the amount of the rebate payment. First, the issuer determines the bond yield. Second, the issuer determines the arbitrage rebate amount. The regulations require that the computations be made at the end of each five-year period and upon final maturity of the issue (the "computation dates"). THE FINAL MATURITY DATE WILL ACCELERATE IN CIRCUMSTANCES IN WHICH THE BONDS ARE OPTIONALLY REDEEMED PRIOR TO MATURITY. AS SUCH, IF BONDS ARE REFUNDED OR OTHERWISE REDEEMED, THE REBATE MAY BE DUE EARLIER THAN INITIALLY PROJECTED. In order to accommodate accurate record-keeping and to assure that sufficient McCall, Parkhurst & Horton L.L.P. - Page 2 amounts will be available for the payment of arbitrage rebate liability, however, we recommend that the computations be performed at least annually. Under the future value method, the amount of rebate is determined by compounding the aggregate earnings on all the investments from the date of receipt by the issuer to the computation date. Similarly, a payment for an investment is future valued from the date that the payment is made to the computation date. The receipts and payments are future valued at a discount rate equal to the yield on the bonds. The rebatable arbitrage, as of any computation date, is equal to the excess of the (1) future value of all receipts (i.e., earnings) from investments, over (2) the future value of all payments. The following example is provided in the regulations to illustrate how arbitrage rebate is computed under the future value method for a fixed -yield bond: "On January 1, 1994, City ,!k issues a fixed yield issue and invests all the sale proceeds of the issue ($49 million). There are no other gross proceeds. The issue has a yield of 7.0000 percent per year compounded semiannually (computed on a 30 day month/360 day year basis). City A receives amounts from the investment and immediately expends them for the governmental purpose of the issue as follows: Date Amount 2/1/1994 $3,000,000 4/1/1994 5,000,000 6/1/1994 14,000,000 9/1/1994 20,000,000 7/1/1995 10,000,000 City A selects a bond year ending on January 1, and thus the first required computation date is January 1, 1999. The rebate amount as of this date is computed by determining the future value of the receipts and the payments for the investment. The compounding interval is each 6 -month (or shorter) period and the 30 day month/360 day year basis is used because these conventions were used to compute yield on the issue. The future value of these amounts, plus the computation credit, as of January 1, 1999, is: McCall, Parkhurst & Horton LLP. - Page 3 Date Receipts (Payments) 1/1/1994 ($49,000,000) 2/1/1994 3,000,000 4/1/1994 5,000,000 6/1/1994 14,000,000 9/1/1994 20,000,000 1/1/1995 (11000) 7/1/1995 10,000,000 1/1/1996 (11000) Rebate amount (1/01/1999) General Method for Computing Yield on Bonds FY (7.0000 percent) ($69,119,339) 4,207,602 6,932,715 19,190,277 26, 947, 162 (1,317) 12,722,793 (1,229) $878,664^ In general, the term "yield," with respect to a bond, means the discount rate that when used in. computing the present value of all unconditionally due payments of principal and interest and all of the payments for a qualified guarantee produces an amount equal to the present value of the issue price of the bond. For this purpose, the term "issue price" has the same meaning as provided in sections 1273 and 1274 of the Code. That is, if bonds are publicly offered (i.e., sold by the issuer to a bond house, broker or similar person acting in the capacity of underwriter.or wholesaler), the issue price of each bond is determined on the basis of the initial offering price to the public (not to the aforementioned intermediaries) at which price a substantial amount of such bond was sold to the public (not to the aforementioned intermediaries). The "issue price" is separately determined for each bond (i.e., maturity) which comprises an issue. The regulations also provide varying periods for computing yield on the bonds depending on the method by which the interest payment is determined. Thus, for example, yield on an issue of bonds sold with variable interest rates (i.e., interest rates which are reset periodically based on changes in market) is computed separately for each annual period ending on the first anniversary of the delivery date that the issue is outstanding. In effect, yield on a variable yield issue is determined on each computation date by "looking back" at the interest payments for such period. The regulations, however, permit an issuer of a variable - yield issue to elect to compute the yield for annual periods ending on any date in order to permit a matching of such yield to the expenditure of the proceeds. Any such election must be made in writing, is irrevocable, and must be made no later than the - earlier of (1) the fifth anniversary date, or (2) the final maturity date. Yield on a fixed interest rate issue (i.e., an issue of bonds the interest rate on which is determined as of the date of the issue) is computed over the entire term of the issue. Issuers of fixed -yield issues generally use the yield computed as of the date of issue for all rebate computations. Such yield on fixed =yield issues generally is recomputed only if (1) the issue is sold at a substantial premium, may be retired within five years of the date of delivery, and such date is earlier than its scheduled maturity date, for (2) the issue is a stepped - coupon bond. In such cases, the regulations require the issuer to recompute the yield on such issues by taking into account the early retirement value of the bonds. Similarly, recomputation occurs in circumstances in which the issuer or bondholder modify or waive certain terms of, or rights with respect to, the issue or in sophisticated hedging transactions. IN SUCH CIRCUMSTANCES, McCall, Parkhurst & Horton LLP. - Page 4 ISSUERS ARE ADVISED TO CONSULT MCCALL PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS. For purposes of determining the principal or redemption payments on a bond, different rules are used for fixed -rate and variable -rate bonds. The payment is computed separately on each maturity of bonds rather than on the issue as a whole. In certain circumstances, the yield on the bond is determined by assuming that principal on the bond is paid as scheduled and that the bond is retired on the final maturity date for the stated retirement price. For bonds subject to early redemption or stepped - coupon bonds, described above, or for bonds subject to mandatory early redemption, the yield is computed assuming the bonds are paid on the early redemption date for an amount equal to their value. Section 148 of the Code provides that premiums paid to guarantee the payment of debt service on bonds are taken into account in corriputing the yield on the bond. Payments for guarantees are taken into account by treating such premiums as the payment of interest on the bonds. This treatment, in effect, raises the yield on the bond, thereby permitting the issuer to recover such fee with excess earnings. The guarantee must be an unconditional obligation of the guarantor enforceable by the bondholder for the payment of principal or interest on the bond or the tender price of a tender bond. The guarantee may be in the form of an insurance policy, surety bond, irrevocable letter or tine of credit, or standby purchase agreement. Importantly, the guarantor must be legally entitled to full reimbursement for any payment made on the guarantee either immediately or upon commercially reasonable repayment terms. The guarantor may not be a co- obligor of the bonds or a user of more than 10 percent of the proceeds of the bonds. Payments for the guarantee may not exceed a reasonable charge for the transfer of credit risk. This reasonable charge requirement is not satisfied unless it is reasonably expected that the guarantee will result in a net present value savings on the bond (i.e., the premium does not exceed the present value of the interest savings resulting by virtue of the guarantee). If the guarantee is entered into after June 14, 1989, then any fees charged for the nonguarantee services must be separately stated or the guarantee fee is not recoverable. The regulations also treat certain "hedging" transactions in a mannersimilarto qualified guarantees. "Hedges" are contracts, e.g., interest rate swaps, futures contracts or options, which are intended to reduce the risk of interest rate fluctuations. Hedges and other financial derivatives are sophisticated and ever -evolving financial products with which a memorandum, such as this, can not readily deal. IN SUCH CIRCUMSTANCES, ISSUERS ARE ADVISED TO CONSULT McCALL. PARKHURSTBHORTONL.L.P.TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS. Earnings on Nonpurpose Investments The arbitrage rebate provisions apply only to the receipts from the investment of "gross proceeds" in "nonpurpose investments." For this purpose, nonpurpose investments are stock, bonds or other obligations acquired with the gross proceeds of the bonds for the period prior to the use of the gross proceeds for its ultimate purpose. For example, investments deposited McCall, Parkhurst & Horton ILLY. - Page 5 to construction funds, reserve funds (including surplus taxes or revenues deposited to sinking funds) or other similar funds are nonpurpose investments. Such investments include only those which are acquired with "gross proceeds." For this purpose, "gross proceeds" include original proceeds received from the sale of the bonds, investment earnings from the investment of such original proceeds, amounts pledged to the payment of debt service on the bonds or amounts actually used to pay debt service on the bonds. The regulations do not provide a sufficient amount of guidance to include an exhaustive list of "gross proceeds" for this purpose; however, it can be assumed that "gross proceeds" represent all amounts received from the sale of bonds, amounts earned as a result of such sale or amounts (including taxes and revenues) which are used to pay, or secure the payment of, debt service for the bonds. The total amount of "gross proceeds" allocated to a bond generally can not exceed the outstanding principal amount of the bonds. The regulations provide generally that an investment is allocated to an issue for the period (1) that begins on the date gross proceeds are used to acquire the investment, and (2) that ends on the date such investment ceases to be allocated to the issue. In general, proceeds are allocated to a bond issue until expended for the ultimate purpose for which the bond was issued or for which such proceeds are received (e.g., construction of a bond= financed facility or payment of debt service on the bonds). Deposit of gross proceeds to the general fund of the issuer (or other fund in which they are commingled with revenues or taxes) does not alleviate the obligation to compute rebate in most cases. As such, proceeds commingled with the general revenues of the issuer are not "freed -up" from the rebate obligation. An exception to this commingling limitation for bonds, other than private activity bonds, permits "investment earnings" (but not sale proceeds or other types of gross proceeds) to be considered spent when deposited to a commingled fund if those amounts are reasonably expected to be spent within six months. Other than for these amounts, issuers may consider segregating investments in order to more easily compute the amount of such arbitrage earnings by not having to allocate investments. Special rules are provided for purposes of advance refundings. These rules are too complex to discuss in this memorandum. Essentially, the rules relating to refundings, however, do not require that amounts deposited to the escrow fund to defease the prior obligations of the issuer be subject to arbitrage rebate to the extent that the investments deposited to the escrow fund do not have a yield in excess of the yield on the bonds. Any loss resulting from the investment of proceeds in an escrow fund below the yield on the bonds, however, may be recovered by combining those investments with investments deposited to other funds, e.g., reserve or construction funds. The arbitrage regulations also provide that the investment of bond proceeds in tax - exempt obligations does not result in arbitrage. The provisions of the Technical and Miscellaneous Revenue Act of 1988, however, amended that rule by providing that investment of bond proceeds in "private activity bonds" (i.e., bonds subject to the alternative minimum tax under section 57(a)(5) of the Code) are treated as investments in taxable obligations. As such, earnings from these tax - exempt investments are subject to rebate. Similarly, the investment of gross proceeds in certain tax - exempt mutual funds are treated as a direct investment in the tax - exempt obligations deposited in such fund. While McCall, Parkhurst & Horton LLP. - Page 6 issuers may invest in such funds for purposes of avoiding arbitrage rebate, they should be aware that if "private activity bonds" are included in the fund then a portion of the earnings will be subject to arbitrage rebate. Issuers should be prudent in assuring that the funds do not contain private activity bonds. The arbitrage regulations provide a number of instances in which earnings will be imputed to the nonpurpose investments. Receipts generally will be imputed to investments that do not bear interest at an arm's - length (i.e., market) interest rate. As such, the regulations adopt a "market price" rule. In-effect, this rule prohibits an issuerfrom investing bond proceeds in investments at a price which is higher than the market price of comparable obligations, in order to reduce the yield. Special rules are included for determining the market price for investment contracts, certificates of deposit and certain U.S. Treasury obligations. For example, to establish the fair market value of investment contracts a bidding process between three qualified bidders must be used. The fair market value of certificates of deposit which bear a fixed interest rate and are subject to an early withdrawal penalty is its purchase price if that price is not less than the yield on comparable U.S. Treasury obligations and is the highest yield available from the institution. In any event, a basic "common sense" rule -of. -thumb that can be used to determine whether a fair market value has been paid is to ask whether the general funds of the issuer would be invested at the same yield. An exception to this market price rule is available for United States Treasury Obligations - State or Local Govemment Series in which case the purchase price is always the market price. Reimbursement and Working Capital The final regulations provide new rules for purposes of determining whether gross proceeds are used for working capital and, if so, at what times those proceeds are considered spent. In general, working capital financings are subject to many of the same rules that have existed since the mid- 1970s. For example, the regulations generally continue the 13 -month temporary period. By adopting a "proceeds- spent -last" rule, the regulations also generally require that an issuer actually incur a deficit (i.e., expenditures must exceed receipts) for the computation period (which generally corresponds to the issuer's fiscal year). Also, the regulations continue to permit an operating reserve, but unlike prior regulations the amount of such reserve may not exceed five percent of the issuer's actual working capital expenditures for the prior fiscal year. Another change made by the regulations is that the issuer may not finance the operating reserve with proceeds of a tax - exempt obligation. Importantly, the regulations also adopt rules for determining whether proceeds used to reimburse an issuer for costs paid prior to the date of issue of the obligation, in fad, are considered spent at the time of reimbursement. These rules apply to an issuer who uses general revenues for the payment of all or a portion of the costs of a project then uses the proceeds of the bonds to reimburse those general revenues. Failure to comply with these rules would result in the proceeds continuing to be subject to federal income tax restrictions; including rebate. To qualify for reimbursement, a cost must be described in an expression (e.g., resolution, legislative authorization) evidencing the issuer's intent to reimburse which is made no later than 60 days after the payment of the cost. Reimbursement must occur no later than McCall, Parkhurst & Horton LLP. - Page 7 18 months after the later of (1) the date the cost is paid or (2) the date the project is placed in service. Except for projects requiring an extended construction period or small issuers, in no event can a cost be reimbursed more than three years after the cost is paid. Reimbursement generally is not permitted for working capital; only capital costs, grants and loans may be reimbursed. Moreover, certain anti -abuse rules apply to prevent issuers from avoiding the limitations on refundings. IN CASES INVOLVING WORKING CAPITAL OR REIMBURSEMENT, ISSUERS ARE ADVISED TO CONTACT McCALL, PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION. Rebate Payments Rebate payments generally are due 60 days after each installment computation date. The interim computation dates occur each fifth anniversary of the issue date. The final computation date is on the latest of (1) the date 60 days after the date the issue of bonds is no longer outstanding, (2) the date eight months after the date of issue for certain short-term .obligations (i.e., obligations retired within three years), or (3) the date the issuer no longer reasonably expects any spending exception, discussed below, to apply to the issue. On such payment dates, other than the final payment date, an issuer is required to pay 90 percent of the rebatable arbitrage to the United States. On the final payment date, an issuer is required to pay 100 percent of the remaining rebate liability. Failure to timely pay rebate does not necessarily result in the loss of tax -exemption. Late payments, however, are subject to the payment of interest, and unless waived, a penalty of 50 percent (or, in the case of private activity bonds, other than qualified 501(c)(3) bonds, 100 percent) of the rebate amount which is due. IN SUCH CIRCUMSTANCES, ISSUERS ARE ADVISED TO CONSULT McCALL, PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS. Rebate payments are refundable. The issuer, however, must establish to the satisfaction of the Commissioner of the Intemal Revenue Service that the issuer paid an amount in excess of the rebate and that the recovery of the overpayment on that date would not result in additional rebatable arbitrage. An overpayment of less than $5,000 may not be recovered before the final computation date. Alternative Penalty Amount In certain cases, an issuer of a bond the proceeds of which are to be used for construction may elect to pay a penalty, in lieu of rebate. The penalty may be elected in circumstances in which the issuer expects to satisfy the two -year spending exception which is more fully described under the heading "Exceptions to Rebate." The penalty is payable, if at all, within 60 days after the end of each six -month period. This is more often than rebate. The election of the alternative penalty amount would subject an issuer, which fails the two -year spend -out requirements, to the payment of a penalty equal to one and one -half of the excess of the amount of proceeds which was required to be spent during that period over the amount which was actually spent during the period. McCall, Parkhurst & Horton LLP. - Page 8 The penalty has characteristics which distinguish it from arbitrage rebate. First, the penalty would be payable without regard to whether any arbitrage profit is actually earned. Second, the penalty continues to accrue until either (1) the appropriate amount is expended or (2) the issuer elects to terminate the penalty. To be able to terminate the penalty, the issuer must meet specific requirements and, in some instances, must pay an additional penalty equal to three percent of the unexpended proceeds. Exceptions to Rebate The Code and regulations provide certain exceptions to the requirement that the excess investment earnings be rebated to the United States. a. Small Issuers. The first exception provides that if an issuer (together with all subordinate issuers) during a calendar year does not issue tax- exempt obligations in an aggregate face amount exceeding $5 million, then the obligations are not subject to rebate. Only issuers with general taxing powers may take advantage of this exception. For this purpose, "private activity bonds" neither are afforded the benefit of this exception nor are taken into account for purposes of determining the amount of bonds issued. Subordinate issuers are those issuers which derive their authority to issue bonds from the same issuer, e.g., a city and a health facilities development corporation, or which are controlled by the same issuer, e.g., a state and the board of a public university. b. Spending Exceptions. Six -Month Exception. The second exception to the rebate requirement is available to all tax- exempt bonds, all of the gross proceeds of which are expended during six months. The six month rule is available to bonds issued after the effective date of the Tax Reform Act of 1986. See the discussion of effective dates on page two.. For this purpose, proceeds used for the redemption of bonds (other than proceeds of a refunding bond deposited to an escrow fund to discharge refunded bonds) can not be taken into account as expended. As such, bonds with excess gross proceeds generally can not satisfy the second exception unless the amount does not exceed the lesser of five percent or $100,000 and such de minimis amount must be expended within one year. ` Certain gross proceeds are not subject to the spend -out requirement, including amounts deposited to a bona fide debt service fund, to a reserve fund and amounts which become gross proceeds received from purpose investments. These amounts themselves, however, may be subject to rebate even though the originally expended proceeds were not. The Code provides a special rule for tax and revenue anticipation notes (i.e.. obligations issued to pay operating expenses in anticipation of the receipt of taxes and other revenues). Such notes are referred to as TRANs. To determine the timely expenditure of the proceeds of a TRAN, the computation of the "cumulative cash flow deficit" is important. If the "cumulative cash flow deficit" (i.e., the point at which the operating expenditures of the issuer on a cumulative basis exceed the revenues of the issuer during the fiscal year) occurs within the first six months of the date of issue and must be equal to at least 90 percent of the proceeds of the TRAN, then the notes are deemed to satisfy the exception. This special rule McCall, Parkhurst & Horton LLP. - Page 9 requires, however, that the deficit actually occur, not that the issuer merely have an expectation that the deficit will occur. In lieu of the statutory exception for TRANs, the regulations also provide a second exception. Under this exception, 100 percent of the proceeds must be spent within six months, but before note proceeds can be considered spent, all other available amounts of the issuer must be spent first ( "proceeds- spent -last" rule). In determining whether all available amounts are spent, a reasonable working capital reserve equal to five percent of the prior year's expenditures may be set aside and treated as unavailable. 18 -Month Exception. The regulations also establish a non - statutory exception to arbitrage rebate if all of the gross proceeds (including investment eamings) are expended within 18 months after the date of issue. Under this exception, 15 percent of the gross proceeds must be expended within a six -month spending period, 60 percent within a 12 -month spending period and 100 percent within an 18 -month spending period. The rule permits an issuer to rely on its reasonable expectations for computing investment eamings which are included as gross proceeds during the first and second spending period. A reasonable retainage not to exceed five percent of the sale proceeds of the issue is not required to be spent within the 18 -month period but must be expended within 30 months. Rules similar to the six -month exception relate to the definition of gross proceeds. Two Year Exception. Bonds issued after December 19, 1989 (i.e., the effective date of the Omnibus Reconciliation Act of 1989), at least 75 percent of the net proceeds of which are to be used for construction, may be exempted from rebate if the gross proceeds are spent within two years. Bonds more than 25 percent of the proceeds of which are used for acquisition or working capital may not take advantage of this exception. The exception applies only to governmental bonds, qualified 501(c)(3) bonds and private activity bonds for governmentally- owned airports and docks and wharves. The two -year exception requires that at least 10 percent of the available construction proceeds must be expended within six months after the date of issue, 45 percent within 12 months, 75 percent within 18 months and 100 percent within 24 months. The term "available construction proceeds" generally means sale proceeds of the bonds together with investment eamings less amounts deposited to a qualified reserve fund or used to pay costs of issuance. Under this rule, a reasonable retainage not to exceed five percent need not be spent within 24 months but must be spent within 36 months. The two-year rule also provides for numerous elections which must be made not later than the date of issuance of the bonds. Once made, the elections are irrevocable. Certain elections permit an issuer to bifurcate bond issues, thereby treating only a portion of the issue as a qualified construction bond; and, permit an issuer to disregard eamings from reserve funds for purposes of determining "available construction proceeds." Another election permits an issuer to pay the altemative penalty amount discussed above in lieu of rebate if the issuer ultimately fails to satisfy the two -year rule. Issuers should discuss these elections with their financial advisors prior to issuance of the bonds. Of course, McCall, Parkhurst & Horton L.L.P. remains available to assist you by providing legal interpretations thereof. c. Debt Service Funds. Additionally, an exception to the rebate requirement, whether or not any of the previously discussed exceptions are available, applies for eamings on "bona fide debt service funds." A "bona fide debt service fund" is one in which the amounts are expended within 13 months of the accumulation of such amounts by the issuer. In general, McCall, Parkhurst & Horton L.L.P. - Page 10 most interest and sinking funds (other than any excess taxes or revenues accumulated therein) satisfy these requirements. For private activity bonds, short term bonds (i.e., have a term of less than five years) or variable rate bonds, the exclusion is available only if the gross earnings in such fund does not exceed $100,000, for the bond year. For other bonds issued after November 11. .1988, no limitation is applied to the gross earnings on such funds for purposes of this exception. Therefore, subject to the foregoing discussion, the issuer is not required to take such amounts into account for purposes of the computation. FOR BONDS ISSUED AFTER THE EFFECTIVE DATE OF THE TAX REFORM ACT OF 1986 WHICH WERE OUTSTANDING AS OF NOVEMBER 11, 1988, OTHER THAN PRIVATE ACTIVITY BONDS, SHORT TERM BONDS OR VARIABLE RATE BONDS, A ONE -TIME ELECTION MAY BE MADE TO EXCLUDE EARNINGS ON "BONA FIDE DEBT SERVICE FUNDS" WITHOUT REGARD TO THE $100,000, LIMITATION. THE ELECTION MUST BE MADE IN WRITING (AND MAINTAINED AS PART OF THE ISSUER'S BOOKS AND RECORDS) NO LATER THAN THE LATER OF MARCH 21, 1990, OR THE FIRST DATE A REBATE PAYMENT IS REQUIRED. Conclusion McCall, Parkhurst & Horton L.L.P. hopes that this memorandum will prove to be useful as a general guide to the arbitrage rebate requirements. Again, this memorandum is not intended as an exhaustive discussion nor as specific advice with respect to any specific transaction. We advise our clients to seek competent financial and accounting assistance. Of course, we remain available to provide legal advice regarding all federal income tax matters, including arbitrage rebate. If you have any questions, please feel free to contact Harold T. Flanagan at (214) 220 -2800. McCall, Parkhurst & Horton LLP. - Page 11 Exhibit "B" LAW OFFICES WCALL, PARKHURST & HORTON L.L.P. 800 CONGRESS AVENUE 717 NORTH HARWOOD 1250 ONE AMERICAN CENTER NINTH FLOOR AUSTIN, TEXAS 78701-3248 DALLAS, TEXAS 75201.6587 TELEPHONE: (512) 478 -3805 TELEPHONE: (214) 754 -9200 FACSIMILE: (512) 472-0871 FACSIMILE: (214) 754-9250 November 13, 2001 Mr. Bob Hart City Manager City of Huntsville, Texas 1212 Avenue M Huntsville, Texas 77340 -4608 700 N. ST. MARY S STREET 1225 ONE RIVERWALK PLACE SAN ANTONIO, TEXAS 78205-3503 TELEPHONE: (210) 225.2800 FACSIMILE: (210) 225 -2994 Re: City of Huntsville, Texas Combination Tax and Revenue Certificates of Obligation, Series 2001 Dear Mr. Hart: As you know, the City of Huntsville, Texas (the "Issuer ") will issue the captioned bonds in order to provide for the acquisition and construction of the project. As a result of that issuance, the federal income tax laws impose certain restrictions on the investment and expenditure of amounts to be used for the project or to be deposited to the interest and sinking fund for the captioned bonds. The purpose of this letter is to set forth, in somewhat less technical language, those provisions of the tax law which require the timely use of bond proceeds and that investment of these amounts be at a yield which is not higher than the yield on the captioned bonds. For this purpose, please refer to line 21(e) of the Form 8038 -G included in the transcript of proceedings for the yield on the captioned bonds. Generally, the federal tax laws provide that, unless excepted, amounts to be used for the project or to be deposited to the interest and sinking fund must be invested in obligations the combined yield on which does not exceed the yield on the bonds. Importantly, for purposes of administrative convenience, the bonds, however, have been structured in such a way as to avoid, for the most part, this restriction on investment yield. They also contain certain covenants relating to expenditures of proceeds designed to alert you to unintentional failures to comply with the laws affecting expenditures of proceeds and dispositions of property. First, the sale and investment proceeds to be used for the project may be invested for up to three years without regard to yield. (Such amounts, however, may be subject to rebate.) Thereafter, they must be invested at or below the bond yield. Importantly, expenditure of these proceeds must be accounted in your books and records. Allocations of these expenditures must occur within 18 months of the later of the date paid or the date the project is completed. The foregoing notwithstanding, the allocation should not occur later than 60 days after the earlier of (1) of five years after the delivery date of the bonds or (2) the date the bonds are retired unless you obtain an opinion of bond counsel. Second, the interest and sinking fund is made up of amounts which are received annually for the payment of current debt service on all the Issuer's outstanding bonds. Any taxes or revenues deposited to the interest and sinking fund which are to be used for the payment of current debt service on the captioned bonds, or any other outstanding bonds, are not subject to yield restriction. By definition, current debt service refers only to debt service to be paid within one year of the date of receipt of these amounts. For the most part, this would be debt service in the current fiscal year. These amounts deposited to the account for current debt service may be invested without regard to any constraint imposed by the federal income tax laws. Third, a portion of the interest and sinking fund is permitted to be invested without regard to yield restriction as a "minor portion." The "minor portion" exception is available for de minimis amounts of taxes or revenues deposited to the interest and sinking fund. The maximum amount that may be invested as part of this account may not exceed the lesser of five percent of the principal amount of the bonds or $100,000. Accordingly, you should review the current balance in the interest and sinking fund in order to determine if such balance exceeds the aggregate amounts discussed above. Additionally, in the future it is important that you be aware of these restrictions as additional amounts are deposited to the interest and sinking fund. The amounts in this fund which are subject to yield restriction would only be the amounts which are in excess of the sum of (1) the current debt service account and (2) the "minor portion" account. Moreover, to the extent that additional bonds are issued by the Issuer, whether for new money projects or for refunding, these amounts will change in their proportion. Finally, you should notice that the ordinance contains a covenant that limits the ability of the Issuer to sell or otherwise dispose of bond - financed property for compensation. Beginning for obligations issued after May 15, 1997 (including certain refunding bonds), or in cases in which an issuer elects to apply new private activity bond regulations, such sale or disposition causes the creation of a class of proceeds referred to as "disposition proceeds." Disposition proceeds, like sale proceeds and investment earnings, are tax - restricted funds. Failure to appropriately account, invest or expend such disposition proceeds would adversely affect the tax- exempt status of the bonds. In the event that you anticipate selling property, even in the ordinary course, please contact us. Obviously, this letter only presents a fundamental discussion of the yield restriction rules as applied to amounts deposited to the interest and sinking fund. Moreover, this letter does not address the rebate consequences with respect to the interest and sinking fund and you should review the memorandum attached to the Federal Tax Certificate as Exhibit "A" for this purpose. If you have certain concerns with respect to the matters discussed in this letter or wish to ask additional questions with regards to certain limitations imposed, please feel free to contact our firm. Thank you for your consideration and we look forward to our continued relationship. Very truly yours, McCALL, PARKHURST & HORTON L.L.P. Exhibit "C" R CERTIFICATE OF ELECTION PURSUANT TO SECTION 148(f)(4)(C) OF THE INTERNAL REVENUE CODE OF 1986 1, the undersigned, being the duly authorized representative of the City of Huntsville, Texas (the "Issuer ") hereby state that the Issuer elects the provisions of section 148(0(4)(C) of the Internal Revenue Code of 1986 (the "Code "), relating to the exception to arbitrage rebate for temporary investments, as more specifically designated below, with respect to the Issuer's Combination Tax and Revenue Certificates of Obligation, Series 2001 (the "Bonds ") which are being issued on the date of delivery of the Bonds in a face amount equal to $5,000,000. The CUSIP Number for the Bonds is stated on the Form 8038 -G filed in connection with the Bonds. The Issuer intends to take action to comply with the two-year temporary investments exception to rebate afforded construction bonds under section 148(0(4)(C) of the Code. Capitalized terms have the same meaning as defined in the Federal Tax Certificate. El 1. PENALTY ELECTION. In the event that the Issuer should fail to expend the "available construction proceeds" of the Bonds in accordance with the provisions of section 148(0(4)(C) of the Code, the Issuer elects, in lieu of rebate, the penalty provisions of section 148(o(4)(C)(vii)(I) of the Code. Ll 2. RESERVE FUND ELECTION. The Issuer elects to exclude from "available construction proceeds," within the meaning of section 148(0(4)(C)(vi) of the Code, of the Bonds, earnings on the Reserve Fund in accordance with section 148(0(4)(C)(vi)(IV) of the Code. 3. MULTIPURPOSE ELECTION. The Issuer elects to treat that portion of the Ponds the proceeds of which are to be used for the payment of expenditures for construction, reconstruction or rehabilitation of the Projects, as defined in the instrument authorizing the issuance of the Bonds, in an amount which is currently expected to be equal to $ as a separate issue in accordance with the provisions of section 148(0(4)(C)(v)(II) of the Code. (Note. This election is not necessary unless less than 75 percent of the proceeds of the Bonds will be used for construction, reconstruction or renovation.) 4. ACTUAL FACTS. For purposes of determining compliance with section 148(0(c) of the Code (other than qualification of the Bonds as a qualified construction issue), the Issuer elects to use actual facts rather than reasonable expectations. El 5. NO ELECTION. The Issuer understands that the elections which are adopted as evidenced by the check in the box adjacent to the applicable provision are irrevocable. Further, the Issuer understands that qualification of the Bonds for eligibility for the exclusion from the rebate requirement set forth in section 148(0 of the Code is based on subsequent events and is unaffected by the Issuer's expectations of such events as of the date of delivery of the Bonds. Accordingly, while failure to execute this certificate and to designate the intended election does not preclude qualification, it would preclude the Issuer from the relief afforded by such election. DATED: —)A 1)�4e Mayor City of Huntsville, Texas 1212 Avenue M Huntsville, Texas 77340 -4608 Employer I.D. Number: 74- 6001426