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HomeMy WebLinkAboutOrdinance - 2002-O0077 - Transcript Proceedings; July 1, 2002 Gen. Obligation Bonds In Sum $10,810,000 - 07/01/2002- - - - Document Number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 45213010.1 TRANSCRIPT OF PROCEEDINGS RELATING TO $10,810,000 CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2002 DATED JULY 1, 2002 Description of Document Bond Ordinance Executed Paying Agent/Registrar Agreement Purchase Contract Executed Special Escrow Agreement Corporate Authority and Signature Identification Certificate Final Official Statement General Certificate Verification Report Signature and No-Litigation Certificate Closing Instruction Letter Attorney General's Opinion and Comptroller's Registration Certificate Certificate as to Tax Exemption Closing Certificate Receipt and Disbursement of Funds of JPMorgan Chase Bank Receipt and Disbursement of Funds of The Bank of New York Trust Company of Florida, N.A. Opinion of Bond Counsel Supplemental Opinion of Bond Counsel Opinion of Underwriter's Counsel Opinion of City Attorney - - - - - 20 21 22 23 45213010.1 MBIA Insurance Policy and Related Documents Rating Letters Certificate of Underwriter Filed Information Report 1 -·~ - - CERTIFICATE OF CITY SECRETARY THE STATE OF TEXAS COUNTY OF LUBBOCK CITY OF LUBBOCK § § § § § I, the undersigned, City Secretary of the City of Lubbock, Texas, DO HEREBY CERTIFY as follows: 1. On the 111h day of July, 2002, the City Council of the City of Lubbock, Texas, convened in regular session at its regular meeting place in the City Hall of said City; the duly constituted members of the Council being as follows: MARC McDOUGAL MAYOR VICTOR HERNANDEZ ) MAYOR PROTEM T. J. PATTERSON ) GARY BOREN ) COUNCILMEMBERS FRANK W. MORRISON ) TOM MARTIN ) ALEX "TY" COOKE } all of said persons were present at said meeting, except the following: --,:..,N~o..;..:n,=.e ___ _ Among other business considered at said meeting, the attached ordinance entitled: "AN ORDINANCE authorizing the issuance of 'CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION REFUNDING BONDS, SERIES 2002'; specifying the terms and features of said bonds; levying a continuing direct annual ad valorem tax for the payment of said bonds; and resolving other matters incident and related to the issuance, sale, payment and delivery of said bonds, including the approval and execution of a Paying AgenURegistrar Agreement, a Purchase Contract and a Special Escrow Agreement and the approval and distribution of an Official Statement; providing for the redemption of certain outstanding bonds of the City; and providing an effective date." was introduced and submitted to the Council for final passage and adoption. After presentation and due consideration of the Ordinance, and upon a motion being made byT.J. Patterson and seconded by Tom Martin, the Ordinance was duly passed and adopted to be effective immediately in accordance with the Section 1201.028 by the following vote: all voted "For" none voted "Against" none abstained all as shown in the official Minutes of the Council for the meeting held on the aforesaid date. 45195604.1 - - 2. The attached Ordinance is a true and correct copy of the original on file in the official records of the City; the duly qualified and acting members of the City Council of said City on the date of the aforesaid meeting are those persons shown above and, according to the records of my office, advance notice of the time, place and purpose of the meeting was given to each member of the Council; and that said meeting and the deliberation of the aforesaid public business was open to the public and written notice of said meeting, including the subject of the above entitled Ordinance, was posted and given in advance thereof in compliance with the provisions of V.T.C.A., Government Code, Chapter 551, as amended. IN WITNESS WHEREOF, I have hereunto signed my name officially and affixed the seal of said City, this the 11th day of July, 2002. City&;cretary City of Lubbock, Texas (City Seal} 45195604.1 -2- - - - ORDINANCE NO. 2002-00077 AN ORDINANCE authorizing the issuance. of "CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION REFUNDING BONDS, SERIES 2002"; specifying the terms and features of said bonds; levying a continuing direct annual ad valorem tax for the payment · of said bonds; and resolving other matters incident and related to the issuance, sale, payment and delivery of said bonds, including the approval and execution of a Paying Agent/Registrar Agreement, a Purchase Contract and a Special Escrow Agreement and the approval and distribution of an Official Statement; providing for the redemption of certain outstanding bonds of the City; and providing an effective date. WHEREAS, the City Council of the City of Lubbock, Texas (the "City") has heretofore issued, sold, and delivered, and there is currently outstanding, obligations totaling in principal amount $10,870,000 (collectively, the "Refunded Bonds") more. particularly described as follows: (1) City of Lubbock, Texas, General Obligation Bonds, Series 1993, dated October 1, 1993, scheduled to mature on February 15 in each of the years 2004 through 2010, and aggregating in principal amount of $6,720,000; and (2) City of Lubbock, Texas, General Obligation Refunding Bonds, Series 1993, dated December 1, 1993, scheduled to mature on February 15 in each of the years 2003 through 2008, and aggregating in principal amount of $4, 150,000; AND WHEREAS, pursuant to the provisions of V.T.C.A., Government Code, Chapter 1207, as amended, the City Council is authorized to issue refunding bonds and deposit the proceeds of sale directly with any place of payment for the Refunded Bonds, or other authorized depository, and such deposit, when made in accordance with said statute, shall constitute the making of firm banking and financial arrangements for the discharge and final payment of the Refunded Bonds; and WHEREAS, the City Council hereby finds and determines that general obligation refunding bonds should be issued at this time to refund the Refunded Bonds, and such refunding will result in the City saving approximately $396,193.75 in debt service payments on such indebtedness and further provide present value savings of approximately $296,092.51; now, therefore, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK, TEXAS: SECTION 1 : Authorization -Designation -Principal Amount-Purpose. General obligation refunding bonds of the City shall be and are hereby authorized to be issued in the aggregate principal amount of $10,810,000 to be designated and bear the title "CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION REFUNDING BONDS, SERIES 2002" (hereinafter referred to as the "Bonds"), for the purpose of providing funds for the discharge and final payment of certain outstanding obligations of the City (identified in the preamble hereof and referred to as the "Refunded Bonds") and to pay costs of issuance, in accordance 45195054.1 - ~ - - with authority conferred by and in conformity with the c·onstitution and laws of the State of Texas, including V.T.C.A., Government Code, Chapter 1207. SECTION 2: · Fully Registered Obligations -Bond Date -Authorized Denominations Stated Maturities -Interest Rates.. The Bonds shall be issued ~s fully registered obligations only, shall be dated July 1, 2002 (the "Issue Date"), shall be in denominations of $5,000 or any integral multiple (within a Stated Maturity, except for the single Initial Bond referenced in Section 8) thereof, and shall' become due and payable on February 15 in each of the years and in principal amounts (the "Stated Maturities") and bear interest at the rate(s) per annum in accordance with the following schedule: YEAR OF MATURITY 2003 2004 2005 '2006 2007 2008 2009 2010 PRINCIPAL AMOUNT $1,010,000 1,935,000 1,625,000 1,605,000 1,575,000 1,205,000 935,000 920,000 INTEREST RATE(S) 3.00% 4.50% 4.75% 4.75% 3.25% 3.75% 3.75% 4.00% The Bonds shall bear interest on the unpaid principal amounts from the Issue Date at the rate{s) per annum shown above in this Section (calculated on the basis of a 360-d.ay year of twelve 30-day months). Interest on the Bonds shall be payable on February 15 and August 15 in each year, commencing February 15, 2003. SECTION 3: Terms of Payment-Paying Agent/Registrar. The principal of, premium, if any, and the interest on the Bonds, due and payable by reason of maturity or otherwise, shall be payable only to the registered owners or holders of the Bonds (hereinafter called the "Holders") appearing on the registration and transfer books maintained by the Paying Agent/Registrar, and the payment thereof shall be in any coin or currency of the United States of America, which at the time of payment is legal tender for the payment of public and private debts, and shall be without exchange or collection charges to the Holders. The selection and appointment of JPMorgan Chase Bank, Dallas, Texas, to serve as Paying Agent/Registrar for the Bonds is hereby approved and confirmed. Books and records relating to the registration, payment, exchange and transfer of the Bonds (the "Security Register") shall at all times be kept and maintained on behalf of the City by the Paying Agent/Registrar, all as provided herein, in accordance with· the terms and provisions of a "Paying Agent/Registrar Agreement", substantially in the form attached hereto as Exhibit A, and such reasonable rules and regulations as the Paying Agent/Registrar and the City may prescribe. The Mayor and City Secretary are hereby authorized to execute and deliver such Agreement in connection with the delivery of the Bonds. The City covenants to maintain and provide a Paying Agent/Registrar at all times until the Bonds are paid and discharged, and any successor Paying Agent/Registrar shall be a bank, trust company, financial institution or other entity qualified and authorized to serve in such capacity and perform the duties and services of Paying Agent/Registrar. Upon any change in the Paying Agent/Registrar for the Bonds, the 45195054.1 -2- - - - - - - - - City agrees to promptly cause a written notice thereof to be sent to each Holder by· United States Mail, first class postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. Principal of and premium, if any, on the Bonds shall be payable at the Stated Maturities, only upon presentation and surrender of the Bonds to the Paying Agent/Registrar at its designated offices in Dallas, Texas (the "Designated Payment/Transfer Office"). Interest on the Bonds shall be paid to tlie Holders whose name appears in the Security Register at the dose of business on the Record Date (the last business day of the month next preceding each interest payment date) and shall be paid by the Paying Agent/Registrar (i) by check sent United States Mail, first class postage prepaid, to the address of the Holder recorded in the Security Register or (ii) by such other method, acceptable to the Paying Agent/ Registrar, · requested by, and at the risk and expense of, the Holder. If the date for the payment of the principal of or interest on the Bonds shall be a Saturday, Sunday, a legal holiday, or a day when banking institutions in the City where the Designated Payment/Transfer 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 when banking institutions are authorized to close; and payment on such date shall have the same force and effect as if made on the original date payment was due. In the event of a nonpayment of interest on a scheduled payment date, and for thirty (30) days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/ Registrar, if and when funds for the payment of such interest have been received from the 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 (5) business days prior to the Special Record Date by United States Mail, first class postage prepaid, to the address of each Holder appearing on the Security Register at the close of business on the last business day next preceding the date of mailing of such notice. SECTION 4: Non-Redeemable. The Bonds shall not be subject to redemption prior to maturity at the option of the City. SECTION 5: Registration -Transfer -Exchange of Bonds-Predecessor Bonds. The Paying Agent/Registrar shall obtain, record, and maintain in the Security Register the name and address of each and every owner of the Bonds issued under and pursuant to the provisions of this Ordinance, or if appropriate, the nominee thereof. Any Bond may be transferred or exchanged for Bonds of other authorized denominations by the Holder, in person or by his duly authorized agent, upon surrender of such Bond to the Paying Agent/Registrar at the Designated Payment/Transfer Office for cancellation, accompanied by a written instrument of transfer or request for exchange duly executed by the Holder or by his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. Upon surrender of any Bond (except for the single Initial Bond referenced in Section 8 hereof) for transfer at the Designated Payment/Transfer Office of the Paying Agent/ Registrar, one or more new Bonds shall be registered and issued to the assignee or transferee of the previous Holder; such Bonds to be in authorized denominations, of like Stated Maturity and of a·like aggregate principal amount as the Bond or Bonds su.rrendered for transfer. 45195054.1 -3- - - - - At the option of the Holder, Bonds (other than the single Initial Bond referenced in Section 8) may be exchanged for other Bonds of authorized denominations and having the same Stated Maturity, bearing the same rate of interest and of like aggregate principal amount as the Bonds surrendered for exchange, upon surrender of the Bonds to be exchanged at the Designated Payment/Transfer Office of the Paying Agent/ Registrar. Whenever any Bonds are surrendered for exchange, the Paying Agent/Registrar shall register and deliver new Bonds to the Holder requesting the exchange. ' All Bonds issued in any transfer or exchange of Bonds shall be delivered to the Holders at the Designated Payment/Transfer Office of the Paying Agent/Registrar or sent by United States Mail, first class, postage prepaid to the Holders, and, upon the registration and delivery thereof, the same shall be the valid obligations of the City, evidencing the same obligation to pay, and entitled to the same benefits under this Ordinance, as the Bonds surrendered in such transfer or exchange. All transfers or exchanges of Bonds pursuant to this Section shall be made without expense or service charge to the Holder, except as otherwise herein provided, and except that the Paying Agent/Registrar shall require payment by the Holder requesting such transfer or exchange of any tax or other governmental charges required to be paid with respect to such transfer or exchange. Bonds cancelled by reason of an exchange or transfer pursuant to the provisions hereof are hereby defined to be "Predecessor Bonds," evidencing all or a portion, as the case may be, of the same obligation to pay evidenced by the new Bond or Bonds registered and delivered in the exchange or transfer therefor. Additionally, the term "Predecessor Bonds" shall include any mutilated, lost, destroyed, or stolen Bond for which a replacement Bond has been issued, registered and delivered in lieu thereof pursuant to the provisions of Section 11 hereof and such new replacement Bond shall be deemed to evidence the same obligation as the mutilated, lost, destroyed, or stolen Bond. SECTION 6: Book-Entry Only Transfers and Transactions. Notwithstanding the provisions contained in Sections 3 and 5 hereof relating to the payment, and transfer/exchange of the Bonds, the City hereby approves and authorizes the use of "Book-Entry Only" securities clearance, settlement and transfer system provided. by The Depository Trust Company (DTC), a limited purpose trust company organized under the laws of the State of New York, in accordance with the operational arrangements referenced in a Blanket Issuer Letter of Representations by and between the City and DTC (the "Depository Agreement"). Pursuant to the Depository Agreement and the rules of DTC, the. Bonds shall be deposited with DTC who shall hold said Bonds for its participants (the "DTC Participants"). While the Bonds are held by DTC under the Depository Agreement, the Holder of the Bonds on the Security Register for all purposes, including payment and notices, shall be Cede & Co., as nominee of DTC, notwithstanding the ownership of each actual purchaser or owner of each Bond (the "Beneficial Owners") being recorded in the records of DTC and DTC Participants. In the event DTC determines to discontinue serving as securities depository for the Bonds or otherwise ceases to provide book-entry clearance and settlement of securities transactions in general or the City determines that DTC is incapable of properly discharging its duties as securities depository for the Bonds, the City covenants and agrees with the Holders of the Bonds to cause Bonds to be printed in definitive form and provide for the Bond 45195054.1 -4- - - . . certificates to be issued and delivered to DTC Participants ·and Beneficial Owners, as the case may be. Thereafter, the Bonds in definitive form shall be assigned, transferred and exchanged on the Security Register maintained by the Paying Agent/Registrar and payment of such Bonds shall be made in accordance with the provisions of Sections 3 and 5 hereof. SECTION 7: Execution-Registration. The Bonds shall be executed on behalf of the City by the Mayor under its seal reproduced or impressed thereon and countersigned by the City Secretary. The signature of said officers on the Bonds may be manual or facsimile. Bonds bearing the manual or facsimile signatures of individuals who are or were the proper officers of the City on the Issue Date shall be deemed to be duly executed on behalf of the City, notwithstanding that such individuals or either of them shall cease to hold such offices at the time of delivery of the Bonds to the initial purchaser(s) and with respect to Bonds delivered in subsequent exchanges and transfers, all as authorized and provided in V.T.C.A., Government Code, Chapter 1201, as amended. No Bond shall be entitled to any right or benefit under this Ordinance, or be valid or obligatory for any purpose, unless there appears on such Bond either a certificate of registration substantially in the form provided in Section 9C, manually executed by the Comptroller of Public Accounts of the State of Texas, or his duly authorized agent, or a certificate of registration substantially in the form provided in Section 90, manually executed by an authorized officer, employee or representative of the Paying Agent/Registrar, and either such certificate duly signed upon any Bond shall be conclusive evidence, and the only evidence, that such Bond has been duly certified, registered and delivered. SECTION 8: Initial Bond(s). The Bonds herein authorized shall be· initially issued either (i) as a single fully registered bond in the total principal amount noted in Section 1 with principal installments to become due and payable as provided in Section 2 hereof and numbered T-1, or (ii) as multiple fully registered bonds, being one bond for each year of maturity in the applicable principal amount and denomination and to be numbered consecutively from T-1 and upward (hereinafter called the "Initial Bond(s)") and, in either case, the Initial Bond(s) shall be registered in the name of the initial purchaser(s) or the designee thereof. The Initial Bond(s) shall be the Bonds submitted to the Office of the 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 initial purchaser(s). Any time after the delivery of the Initial Bond(s), the Paying Agent/ Registrar, pursuant to written instructions from the initial purchaser(s), or the designee thereof, shall cancel the Initial Bond(s) delivered hereunder and exchange therefor definitive Bonds of authorized denominations, Stated Maturities, principal amounts and bearing applicable interest rates for transfer and delivery to the Holders named at the addresses identified therefor; all pursuant to and in accordance with such written instructions from the initial purchaser(s), or the designee thereof, and such other information and documentation as the Paying Agent/Registrar may reasonably require. SECTION 9: Forms. (1) Forms Generally. The Bonds, the Registration Certificate of the Comptroller of Public Accounts of the State of Texas, the Registration Certificate of Paying Agent/Registrar, and the form of Assignment to be printed on each of the Bonds, shall be substantially in the forms set forth in this Section with such appropriate insertions, omissions, substitutions, and other variations as are permitted or required by this Ordinance and may have such letters, numbers, or other marks of identification (including identifying numbers and letters of the Committee on Uniform Securities Identification Procedures of the American Bankers Association) and such legends and endorsements (including insurance legends on insured Bonds and any reproduction of an opinion of counsel) thereon as may, 45195054.1 -5- - consistently herewith, be established by the City or determined by the officers executing such Bonds as evidenced by their execution. Any portion of the text of any Bonds may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Bond. The definitive Bonds and the Initial Bond(s) shall be printed, lithographed, or engraved or typewritten, photocopied or otherwise reproduced in any other similar manner, all as determined by the officers executing such Bonds as evidenced by their execution thereof. . . (B) Form of Definitive Bond. REGISTERED NO. ---- Issue Date: July 1, 2002 Registered Owner: Principal Amount: UNITED STATES OF AMERICA STATE OF TEXAS CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION REFUNDING BOND, SERIES 2002 Interest Rate: Stated Maturity: REGISTERED $ ----- CUSIP NO: DOLLARS The City of Lubbock (hereinafter referred to as the "City''), a body corporate and municipal corporation in the County of Lubbock, State of Texas, for value received, acknowledges itself indebted to and hereby promises to pay to the order of the Registered Owner named above, or the registered assigns thereof, on the Stated Maturity date specified above the Principal Amount hereinabove stated, without right of prio( redemption, and to pay interest on the unpaid principal amount hereof from the Issue Date at the per annum rate of interest specified above computed on the basis of a 360-day year of twelve 30-day months; such interest being payable on February 15 and August 15 in each year, commencing February 15, 2003. Principal of this Bond is payable at its Stated Maturity to the registered owner hereof, upon presentation and surrender, at the Designated Payment/Transfer Office of the Paying Agent/Registrar executing the registration certificate appearing hereon, or its successor. Interest is payable to the registered owner of this Bond (or one or more Predecessor Bonds, as defined in the Ordinance hereinafter referenced) whose name appears on the "Security Register'' maintained by the Paying Agent/Registrar at the close of business on the "Record Date", which is the last business day of the month next preceding each interest payment date, and interest shall be paid by the Paying Agent/Registrar by check sent United States Mail, first class postage prepaid, to the address of the registered owner recorded in the Security Register or by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the registered owner. All payments of principal of, premium, if any, and interest on this Bond shall be without exchange or collection charges 45195054.1 -6- - - to the owner hereof and in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts. This Bond is one of the series specified in its title issued in the aggregate principal amount of $10,810,000 (herein referred to as the "Bonds") for the purpose of providing funds for the discharge and final payment of certain outstanding obligations of the City (identified in the Ordinance hereinafter referenced and referred to as the "Refunded Bonds") and to pay costs of issuance, under and' in strict conformity with the Constitution and Jaws of the State of Texas, including V.T.C.A., Government Code, Chapter 1201, and pursuant to an Ordinance adopted by the City Council of the City (herein referred to as the "Ordinance"). The Bonds are payable from the proceeds of an ad valorem tax levied, within the limitations prescribed by law, upon all taxable property in the City. Reference is hereby made to the Ordinance, a copy of which is on file in the Designated Payment/Transfer Office of the Paying Agent/Registrar, and to all of the provisions of which the owner or holder of this Bond by the acceptance hereof hereby assents, for definitions of terms; the description of and the nature and extent of the tax levied for the payment of the Bonds; the terms and conditions relating to the transfer or exchange of this Bond; the conditions upon which the Ordinance may be amended or supplemented with or without the consent of the Holders; the rights, duties, and obligations of the City and the Paying Agent/Registrar; the terms and provisions upon which this Bond may be discharged at or prior to its maturity, and deemed to be no longer Outstanding thereunder; and for other terms and provisions contained therein. Capitalized tenns used herein have the meanings assigned in the Ordinance. This Bond, subject to certain limitations contained in the Ordinance, may be transferred on the Security Register only upon its presentation and surrender at the Designated Payment/Transfer Office of the Paying Agent/Registrar, with the Assignment hereon duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Paying Agent/Registrar duly executed by, the registered owner hereof, or his duly authorized agent. When a transfer on the Security Register occurs, one or more new fully registered Bonds of the same Stated Maturity, of authorized denominations, bearing the same rate of interest, and of the same aggregate principal amount will be issued by the Paying Agent/Registrar to the designated transferee or transferees. The City and the Paying Agent/Registrar, and any agent of either, shall treat the registered owner whose name appears on the Security Register (i) on the Record Date as the owner entitled to payment of interest hereon, (ii) on the date of surrender of this Bond as the owner entitled to payment of principal hereof at its Stated Maturity, and (iii) on any other date as the owner for all other purposes, and neither the City nor the Paying Agent/. Registrar, or any agent of either, shall be affected by notice to the contrary. In the event of nonpayment of interest on a scheduled payment date and for thirty (30} days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the 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 (5) business days prior to the Special Record Date by United States Mail, first class postage prepaid, to the address of each Holder appearing on the Security Register at the close of business on the last business day next preceding the date of mailing of such notice. It is hereby certified, recited, represented and declared that the City is a body corporate and political subdivision duly organized and legally existing under and by virtue of the 45195054.1 -7- - - - - Constitution and laws of the State of Texas; that the issuance of the Bonds is duly authorized by law; that all acts, conditions and things required to exist and be done precedent to and in the issuance of the Bonds to render the same lawful and valid obligations of the City have been properly done, have happened and have been performed hi regular and due time, form and manner as required by the Constitution and laws of the State of Texas, and the Ordinance; that the Bonds do not exceed any Constitutional or statutory limitation; and that due provision has been made for the payment of the principal of and interest on the Bonds by the levy of a tax as aforestafed. In case any provision in this Bond 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. The terms and provisions of this Bond and the Ordinance shall be construed in accordance with and shall be governed by the laws of the State of Texas. IN WITNESS WHEREOF, the City Council of the City has caused this Bond to be duly executed under the official seal of the City as of the Issue Date. CITY OF LUBBOCK, TEXAS Mayor COUNTERSIGNED: City Secretary (SEAL) 45195054.1 -8- - - {C) *Form of Registration Certificate of Comptroller of Public Accounts to appear on Initial Bond{s) only. REGISTRATION CERTIFICATE OF COMPTROLLER OF PUBLIC ACCOUNTS OFFICE OF THE COMPTROLLER ·oF PUBLIC ACCOUNTS ) ) ) ) ) REGISTER NO. --- THE STATE OF TEXAS I HEREBY CERTIFY that this Bond has been examined, certified as to validity and approved by the Attorney General of the State of Texas, and duly registered by the Comptroller of Public Accounts of the State of Texas. (SEAL) WITNESS my signature and seal of office this---------- Comptroller of Public Accounts of the State of Texas *NOTE TO PRINTER: Do not print on definitive bonds (D) Form of Certificate of Paying Agent/Registrar to appear on Definitive Bonds only. REGISTRATION CERTIFICATE OF PAYING AGENT/REGISTRAR This Bond has been duly issued and registered in the name of the Registered Owner shown above under the provisions of the within-mentioned Ordin-ance; the bond or bonds of the above entitled and designated series originally delivered having been approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts, as shown by the records of the Paying Agent/Registrar. The designated offices of the Paying Agent/Registrar in Dallas, Texas, is the Designated Payment/Transfer Office for this Bond. Registration date: 45195054.1 JPMORGAN CHASE BANK, Dallas, Texas, as Paying Agent/Registrar By~~~~~--~-------------­Auths>rized Signature -9- ~-------------------------~~----~-~----· -(E) Form of Assignment. ASSIGNMENT FOR VALUE RECEIVED the undersigned hereby sells, assigns, and transfers unto (Print or typewrite name, address, and zip code of transferee:) _________ _ (Social Security or other identifying number the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer the within Bond on the books kept for registration thereof, with full power of substitution in the premises. DATED: Signature guaranteed: NOTICE: The signature on this assignment must correspond with the name of the registered owner as it appears on the face of the within Bond in every particular. (F) The Initial Bond(s) shall be in the form set forth in paragraph B of this Section, except that the form of the single fully registered Initial Bond shall be modified as follows: (i) immediately under the name of the bond the headings "Interest Rate" and "Stated Maturity" shall both be omitted; (ii) Paragraph one shall read as follows: Registered Owner: Principal Amount: DOLLARS · The City of Lubbock. (hereinafter referred to as the "City.,), a body corporate and municipal corporation in the County of Lubbock, State of Texas, for value received, . acknowledges itself indebted to and hereby promises to pay to the order of the Registered Owner named above, or the registered assigns thereof, the Principal Amount hereinabove stated on February 15 in each of the .years and in principal installments in accordance with the following schedule: YEAR PRINCIPAL INSTALLMENTS INTEREST RATE (INFORMATION TO BE INSERTED FROM SCHEDULE IN SECTION 2 HEREOF). (without right of prepayment prior to maturity) and to pay interest on the unpaid Principal Amount hereof from the Issue Date at the per annum rates of interest specified above computed on the basis of a 360-day year of twelve 30-day months; such interest being 45195054.1 -10- payable on February 15 and August 15 in each year,· commencing February 15, 2003. Principal installments of this Bond are payable in the year of maturity to the registered owner hereof by JPMorgan Chase Bank, Dallas, Texas (the "Paying Agent/Registrar"), upon presentation and surrender, at its designated offices Dallas, Texas (the "Designated Payment/Transfer Office"). Interest is payable to the registered owner of this Bond whose name appears on the "Security Register" maintained by the Paying Agent/Registrar at the close of business on the "Record Date", which is the last business day of the month next preceding each interest payment date, and interest shall be paid by the Paying Agent/Registrar by check sent United States Mail, first class postage prepaid, to the address of the registered owner recorded in the Security Register or by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the registered owner. All payments of principal of, premium, if any, and interest on this Bond shall be without exchange or collection charges to the owner hereof and in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts. SECTION 10: Levy of Taxes. To provide for the payment of the "Debt Service Requirements" of the Bonds, being (i) the interest on the Bonds and (ii) a sinking fund for their redemption at maturity or a sinking fund of 2% (whichever amount is the greater), there is hereby levied, and there shall be annually assessed and collected in due time, form, and manner, a tax on all taxable property in the City, within the limitations prescribed by Jaw, and such tax hereby levied on each one hundred dollars' valuation of taxable property in the City for the Debt Service Requirements of the Bonds shall be at a rate from year to year as will be ample and sufficient to provide funds each year to pay the principal of and interest on said Bonds while Outstanding; full allowance being made for delinquencies and costs of collection; separate books and records relating to the receipt and disbursement of taxes levied, assessed and collected for and on account of the Bonds shall be kept and maintained by the City at all times while the Bonds are Outstanding, and the taxes collected for the payment of the Debt Service Requirements on the Bonds shall be deposited to the credit of a "Special 2002 Refunding Bond Accounr (the "Interest and Sinking Fund") maintained on the records of the City and deposited in a special fund maintained at an official depository of the City's funds; and such tax hereby levied, and to be assessed and collected annually, is hereby pledged to the payment of the Bonds. Proper officers of the . City are hereby authorized and directed to cause to be transferred to the Paying Agent/ Registrar for the Bonds, from funds on deposit in the Interest and Sinking Fund, amounts sufficient to fully pay and discharge promptly each installment of interest and principal of the Bonds as the same accrues or matures; such transfers of funds to be made in such manner as will cause collected funds to be deposited with the Paying Agent/Registrar on or before each principal and interest payment date for the Bonds. SECTION 11: Mutilated -Destroyed -Lost and Stolen Bonds. In case any Bond shall be mutilated, or destroyed, lost or stolen, the Paying Agent/Registrar may execute and deliver a replacement Bond of like form and tenor, and in the same denomination and bearing a number not contemporaneously outstanding, in exchange and substitution for such mutilated Bond, or in lieu of and in substitution for such destroyed, lost or stolen Bond, only upon the approval of the City and after (i) the filing by the Holder thereof with the Paying Agent/ Registrar of evidence satisfactory to the. Paying Agent/ Registrar of the destruction, loss or theft of such Bond, and of the authenticity of the ownership thereof and (ii) the furnishing to the Paying Agent/Registrar of indemnification in an amount satisfactory to hold the City and the Paying Agent/ Registrar harmless. All expenses and charges associated with such indemnity 45195054.1 -11- - - - - and with the preparation, execution and delivery of a replacement Bond shall be borne by the Holder of the Bond mutilated, or destroyed, lost or stolen. Every replacement Bond issued pursuant to this Section shall be a valid and binding obligation, and shall be entitled to all the benefits of this Ordinance equally and ratably with all other Outstanding Bonds; notwithstanding the enforceability of payment by anyone of the destroyed, lost, or stolen Bonds. ' The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement and payment of mutilated, destroyed, lost or stolen Bonds. SECTION 12: Satisfaction of Obligation of City. If the City shall pay or cause to be paid, or there shall otherwise be paid to the Holders, the principal of, premium, if any, and interest on the Bonds, at the times and in the manner stipulated in this Ordinance, then the pledge of taxes levied under this Ordinance and all covenants, . agreements, and other obligations of the City to the Holders shall thereupon cease, terminate, and be discharged and · satisfied. Bonds or any principal amount(s) thereof shall be deemed to have been paid within the meaning and with the effect expressed above in this Section when (i) money sufficient to pay in full such Bonds or the principal amount(s) thereof at maturity or to the redemption date therefor, together with all interest due thereon, shall have been irrevocably deposited with and held in trust by the Paying Agent/Registrar, or an authorized escrow agent, or (ii) Government Securities shall have been irrevocably deposited in trust with the Paying Agent/ Registrar, or an authorized escrow agent, which Government Securities have been certified by an independent accounting firm to mature as to principal and interest in such amounts and at such times as will insure the availability, without reinvestment, of sufficient money, together with any moneys deposited therewith, if any, to pay when due the principal of and interest on such Bonds, or the principal amount(s) thereof, on and prior to the Stated Maturity thereof. The City covenants that no deposit of moneys or Government Securities will be made under this Section and no use made of any such deposit which would cause the Bonds to be treated as "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended, or regulations adopted pursuant thereto. Any moneys so deposited with the Paying Agent/ Registrar, or an authorized escrow agent, and all income from Government Securities held in trust by the Paying Agent/Registrar, or an authorized escrow agent, pursuant to this Section which is not required for the payment of the Bonds, or any principal amount(s) thereof, or interest thereon with respect to which such moneys have been so deposited shall be remitted to the City or deposited as directed by the City. Furthermore, any money held by the Paying Agent/Registrar for the payment of the principal of and interest on the Bonds and remaining unclaimed for a period of three (3) years after the Stated Maturity of the Bonds such moneys were deposited and are held in trust to pay shall upon the request of the City be remitted to the City against a written receipt therefor. Notwithstanding the · above and foregoing, any remittance of funds from the Paying Agent/Registrar to the City shall be subject to any applicable unclaimed property laws of the State of Texas. The term "Government Securities", as used herein, means (i) direct noncallable obligations of the United States of America, including obligations the principal of and interest on which are unconditionally guaranteed by the United States of America, (ii) noncallable 45195054.1 -12- - - obligations of an agency or instrumentality of the United States, including obligations unconditionally guaranteed or insured by the agency or instrumentality and on the date of their acquisition or purchase by the City 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 on the date of their acquisition or purchase by the City, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. · SECTION 13: Ordinance a Contract -Amendments -Outstanding . Bonds. This Ordinance shall constitute a contract with the Holders from time to time, be binding on the City, and shall not be amended or repealed by the City so long as any Bond remains Outstanding except as permitted in this Section. The City may, without the consent of or notice to any Holders, from time · to time and at any time, amend this Ordinance in any manner not detrimental to the interests of the Holders, including the curing of any ambiguity, inconsistency, or formal defect or omission herein. In addition, the City may, with the consent of Holders holding a majority in aggregate principal amount of the Bonds then Outstanding affected thereby, amend, add to, or rescind any of the provisions of this Ordinance; provided that, without the consent of all Holders of Outstanding Bonds, no such amendment, addition, or rescission shall (1) extend the time or times of payment of the principal of, premium, if any, and interest on the Bonds, reduce the principal amount thereof, the redemption price, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of, premium, if any, or interest on the Bonds, (2) give any preference to any Bond over any other Bond, or (3) reduce the aggregate principal amount of Bonds required to be held by Holders for consent to any such amendment, addition, or rescission. The term "Outstanding" when used in this Ordinance with respect to Bonds means, as of the date of determination, all Bonds theretofore issued and delivered under this Ordinance, except: (1) those Bonds cancelled by the Paying Agent/Registrar or delivered to the Paying Agent/ Registrar for cancellation; (2) those Bonds deemed to be duly paid by the City in accordance with the provisions of Section 12 hereof; and (3) those mutilated, destroyed, lost, or stolen Bonds which have been replaced with Bonds registered and delivered in lieu thereof as provided in Section 11 hereof. SECTION 14: Covenants to Maintain Tax-Exempt Status. (a) Definitions. When used in this Section, the following terms shall have the following meanings: "Closing Date" means the date on which the Bonds are first authenticated and delivered to the initial purchasers against payment therefor. "Code" means the Internal Revenue Code of 1986, as amended by all legislation, if any, effective on or before the Closing Date. "Computation Date" has the meaning set forth in Section 1.148-1 (b) of the Regulations. 45195054.1 -13- - - - - - · "Gross Proceeds" means any proceeds as defined in Section 1.148-1(b) ·of the Regulations, and any replacement proceeds as defined in Section 1.148-1 (c) of the Regulations, of the Bonds. "Investment" has the meaning set forth in Section 1.148-1 (b) of the Regulations. "Nonpurpose Investment" means any investment property, as defined in section 148(b) of the Code, in which Gross Proceeds of the Bonds are invested and which is not acquired to carry out the governmental purposes of the Bonds. "Rebate Amount" has the meaning set forth in Section 1.148-1 (b) of the Regulations. "Regulations" means any proposed, temporary, or final Income Tax Regulations issued pursuant to Sections 103 and 141 through 150 of the Code, and 103 of the Internal Revenue Code of 1954, which are applicable to the Bonds. Any reference to any specific Regulation shall also mean, as appropriate, any proposed, temporary or final Income Tax Regulation designed to supplement, amend or replace the specific Regulation referenced. "Yield" of (i) any Investment has the meaning set forth in Section 1.148-5 of the Regulations; and (ii) the Bonds has the meaning set forth in Section 1.148-4 of the Regulations. (b) Not to Cause Interest to Become Taxable. The City shall not use,. permit the use of, or omit to use Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner which if made or omitted, respectively, would cause the interest on any Bond to become includable in the gross income, as defined in section 61 of the Code, of the owner thereof for federal income tax purposes. Without limiting the g.enerality of the foregoing, unless and until the City receives a written opinion of counsel nationally recognized in the field of municipal bond law to the effect that failure to comply with such covenant Will not adversely affect the exemption from federal income tax of the interest on any Bond, the City shall comply with each of the specific covenants in this Section. (c) No Private Use or Private Payments. Except as permitted by section 141 of the Code and the Regulations and rulings thereunder, the City shall at all times prior to the last Stated Maturity of Bonds: (1) exclusively own, operate and possess all property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with Gross Proceeds of the Bonds (including property financed with Gross Proceeds of the Refunded Bonds), and not use or permit the use of such Gross Proceeds (including all contractual arrangements with terms different than those applicable to the general public) or any property acquired, constructed or improved with such Gross Proceeds in any activity carried on by any person or entity {including the United States or any agency, department and instrumentality thereof) other than a state or local government, unless such use is solely as a member of the general public; and (2) not directly or indirectly impose or accept any charge or other payment by any person or entity who is treated as using Gross Proceeds of the Bonds or any property the acquisition, construction or improvement of 45195054.1 -14- - - - which is to be financed or refinanced directly or indirectly. with such Gross Proceeds (including property financed with Gross Proceeds of the Refunded Bonds), other than taxes of general application within the City or interest earned on investments acquired with such Gross Proceeds pending application for their intended purposes. (d) No Private Loan. Except to the extent permitted by section 141 of the Code and the Regulations and rulings thereunder, the City shall not use Gross Proceeds of the Bonds to make or finance loans to any person or entity other than a state or local government. For purposes of the foregoing covenant, such Gross Proceeds are considered to be "loaned" to a person or entity if: (1) property acquired, constructed or improved with such Gross Proceeds is sold or leased to such person or entity in a transaction which creates a debt for federal income tax purposes; (2) capacity in or service from such property is committed to such person or entity under a take-or-pay, output or similar contract or arrangement; or (3) indirect benefits, or burdens and benefits of ownership, of such Gross Proceeds or any property acquired, Constructed or improved with such Gross Proceeds are otherwise transferred in a transaction which is the economic equivalent of a loan. (e) Not to Invest at Higher Yield. Except to the extent permitted by section 148 of the Code and the Regulations and rulings thereunder, the City shall not at any time prior to the final Stated Maturity of the Bonds directly or indirectly invest Gross Proceeds in any Investment (or use Gross Proceeds to replace money so invested}, if as a result of such investment the Yield from the Closing Date of all Investments acquired with Gross Proceeds (or with money replaced thereby), whether then held or previously disposed of, exceeds the Yield of the Bonds. (f) Not Federally Guaranteed. Except to the extent permitted by section 149(b) of the Code and the Regulations and rulings thereunder, the City shall not take ·or omit to take any action which would cause the Bonds to be federally guaranteed within the meaning of section 149(b) of the Code and the Regulations and rulings thereunder. (g) Information Report The City shall timely file the information required by section 149(e) of the Code with the Secretary of the Treasury on Form 8038-G or such other form and in such place as the Secretary may prescribe. (h) Rebate of Arbitrage Profits. Except to the extent otherwise provided in section 148(f) of the Code and the Regulations and rulings thereunder: (1) The City shall account for all Gross Proceeds (including all receipts, expenditures and investments thereof) on its books of account separately and apart from all other funds (and receipts, expenditures and investments thereof) and shall retain all records of accounting for at least six years after the day on which the last Outstanding Bond is discharged. However, to the extent permitted by law, the City may commingle Gross Proceeds of the Bonds with other money of the City, provided that the City separately accounts for each receipt and expenditure of Gross Proceeds and the obligations acquired therewith. (2) Not less frequently than each Computation Date, the City shall calculate the Rebate Amount in accordance with rules set forth in section 148(f) of the Code and the Regulations and rulings thereunder. The City shall 45195054.1 -15- - - - - - maintain such calculations with its official transcrfpt of proceedings relating to· the issuance of the Bonds until six years after the final Computation Date. (3) As additional consideration for the purchase of the Bonds by the Purchasers and the loan of the money represented thereby and in order to induce such purchase by measures designed to insure the excludability of the interest thereon from the gross income of the owners thereof for federal income tax purposes,'the City shall pay to the United States out of the Interest and Sinking Fund or its general fund, as permitted by applicable Texas statute, regulation or opinion of the Attorney General of the State of Texas, the amount that when added to the future value of previous rebate payments made for the Bonds equals (i) in the case of a Final Computation Date as defined in Section 1.148-3(e)(2) of the Regulations, one hundred percent (100%) of the Rebate Amount on such date; and (ii) in the case of any other Computation Date, ninety percent (90%) of the Rebate Amount on such date. In all cases, the rebate payments shall be made at the times, in the installments, ·to the place and in the manner as is or may be required by section 148(f) of the Code and the Regulations and rulings thereunder, and shall be accompanied by Form 8038-T or such other forms and information as is or may be required by Section 148(f) of the Code and the Regulations and rulings thereunder. · (4) The City shall exercise reasonable diligence to assure that no errors are made in the calculations and payments required by paragraphs (2) and (3), and if an error is made, to discover and promptly correct such error within a reasonable amount of time thereafter (and in all · events within one hundred eighty (180) days after discovery of the error), including payment to the United States of any additional Rebate Amount owed to it, interest thereon, and any penalty imposed under Section 1.148-3{h) of the Regulations. (i) Not to Divert Arbitrage Profits. Except to the extent permitted by section 148 of the Code and the Regulations and rulings thereunder, the City shall not, at any time prior to the earlier of the Stated Maturity or final payment of the Bonds, enter into any transaction that reduces the amount required to be paid to the United States pursuant to Subsection (h) of this Section because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm's length and had the Yield of the Bonds not been relevant to either party. (j) Elections. The City hereby directs and authorizes the Mayor, Mayor Pro Tern, City Manager, Director of Finance, Cash and Debt Manager, and City Secretary, individually or jointly, to make elections permitted or required pursuant to the provisions of the Code or the Regulations, as they deem necessary or appropriate in connection with the Bonds, in the Certificate as to Tax Exemption or similar or other appropriate certificate, form or document. · (k) Bonds Not Hedge Bonds. (1) At the time the original bonds refunded by the Bonds were issued, the City reasonably expected to spend at least 85% of the spendable proceeds of such bonds within three years after such bonds were issued and (2) not more than 50% of the proceeds of the original bonds refunded by the Bonds were invested in Nonpurpose Investments having a substantially guaranteed Yield for a period of 4 years or more. 45195054.1 -16- (I) Qualified Advance Refunding. The Bonds are issued exclusively to refund the Refunded Bonds, and the Bonds will be issued more than 90 days before the redemption of the Refunded Bonds. The City represents as follows: (1) The Bonds are the first advance refunding of the Series 1993 Refunded Bonds dated October 1 , 1993 and a current refunding of the Series 1993 Refunded Bonds dated December 1, 1993, within the meaning of section 149(d)(3) of tlie Code. (2) The Refunded Bonds are being called for redemption, and will be redeemed not later than the earliest date on which such bonds may be redeemed. (3) The initial temporary period under section 148{c) of the Code will end: (i) with respect to the proceeds of the Bonds not later than 30 days after the date of issue of such Bonds; and· (ii) with· respect to proceeds of the Refunded Bonds on the Closing Date if not ended prior thereto. {4). On and after the date of issue of the Bonds, no proceeds of the Refunded Bonds will be invested in Nonpurpose Investments having a Yield in excess of the Yield on such Refunded Bonds. (5) The Bonds are being issued for the purposes stated in the preamble of this Ordinance. There is a present value savings associated with the refunding. In the issuance of the Bonds the City has neither: (i) overburdened the tax-exempt bond market by issuing more bonds, issuing bonds earlier or allowing bonds to remain outstanding longer than reasonably necessary to accomplish the governmental purposes for which the Bonds were issued; (ii) employed on "abusive arbitrage device" within the meaning of Section 1.148-10(a) of the Regulations; nor {iii) employed a "device" to obtain a material financial advantage based on arbitrage, within the meaning of section 149(d)(4) of the Code, apart from savings attributable to lower interest rates and reduced debt service payments in early years. SECTION 15: Sale of Bonds -Official Statement Approval. The Bonds authorized by this Ordinance are hereby sold by the City to RBC Dain Rauscher Inc., Coastal Securities and . Estrada Hinojosa & Company, Inc. {herein referred to as the "Purchasers") in accordance with the Purchase Contract, dated· July 11 , 2002, attached hereto as Exhibit B and incorporated herein by reference as a part of this Ordinance for all purposes. The Mayor is hereby authorized and directed to execute said Purchase Contract for and on behalf of the City and as the act and deed of this Council, and in regard to the approval and execution of the Purchase Contract, the Council hereby finds, determines and declares that the representations, warranties and agreements of the City contained in the Purchase Contract are true and correct in all material respects and shall be honored and performed by the City. Furthermore, the use of the Official Statement by the Purchasers in connection with the public offering and sale of the Bonds is hereby ratified, confirmed and approved in all respects. The final Official Statement, which reflects the terms of sale (together with such changes approved by the Mayor, City Manager, Director of Finance, Cash & Debt Manager, or City Secretary, one or more of said officials), shall be and is hereby in all respects approved and the Purchasers are hereby authorized to use and. distribute said final Official Statement, dated 45195054.1 -17- - - - - July 11, 2002, in the reoffering, sale and delivery of the Bonds to the public. The Mayor and City Secretary are further authorized and directed to manually execute and deliver for and on behalf of the City copies of said Official Statement in final form as may be required by the Purchasers, and such final Official Statement in the form and content manually executed by said officials shall be deemed to be approved by the City Council and constitute the Official Statement authorized for distribution and use by the Purchasers. SECTION 16: Speciar Escrow Agreement Approval and Execution. The "Special Escrow Agreement" (the "Agreement") by and between the City and The Bank of New York Trust Company of Florida, N.A., Dallas, Texas (the "Escrow Agent"), attached hereto as Exhibit C and incorporated herein by reference as a part of this Ordinance for all purposes, is hereby approved as to form and content, and such Agreement in substantially the form and substance attached hereto, together with such changes or revisions as may be necessary to accomplish the refunding or benefit the City, is hereby authorized to be executed by the Mayor and City Secretary for and on behalf of the City and as the act and deed of this City Council; and such Agreement as executed by said officials shall be deemed approved by the City Council and constitute the Agreement herein approved. Furthermore, appropriate officials of the City in cooperation with the Escrow Agent are hereby authorized and directed to make the necessary arrangements for the purchase of the Federal Securities referenced in the Agreement and the delivery thereof to the Escrow Agent on the day of delivery of the Bonds to the Purchasers for deposit to the credit of the "SPECIAL 2002 CITY OF LUBBOCK, TEXAS, REFUNDING BOND ESCROW FUND" (the "Escrow Fund"); all as contemplated and provided in V.T.C.A., Government Code, Chapter 1207, as amended, this Ordinance and the Agreement. SECTION 17: Control and Custody of Bonds. The Mayor of the City shall be and is hereby authorized to take and have charge of all necessary orders and · records pending investigation by the Attorney General of the State of Texas, including the printing and supply of definitive Bonds, and shall take and have charge and control of the Initial Bond(s) pending the approval thereof by the Attorney General, the registration thereof by the Comptroller of Public Accounts and the delivery thereof to the Purchasers. Furthermore, the Mayor, Mayor Pro Tern, City Manager, Director of Finance, Cash and Debt Manager and City Secretary, any one or more of said officials, are hereby authorized and directed to furnish and execute such agreements, documents and certifications relating to the City and the issuance, sale and delivery of the Bonds, including certifications as to facts, estimates, circumstances and reasonable expectations pertaining to the use, expenditure and investment of the proceeds of the Bonds, as may be necessary for the approval of the Attorney General, the registration by the Comptroller of Public Accounts and the delivery of the Bonds to the Purchasers, and, together with the City's bond counsel and the Paying Agent/Registrar, make the necessary arrangements for the delivery of the Initial Bond(s) to the Purchasers and the initial exchange thereof for definitive Bonds. SECTION 18: Proceeds of Sale. Immediately following the delivery of the Bonds, proceeds of sale in the sum of (i) $10,969,000.21 shall be deposited with the Escrow Agent for application in accordance with the Agreement, and (ii) $53,660.14, representing the accrued interest received from the Purchasers, shall be deposited to the credit of the Interest and Sinking Fund. The balance of the proceeds of sale of the Bonds shall be expended to pay costs of issuance and municipal bond insurance premium and any excess amount budgeted for such purpose shall be deposited to the credit of the Interest and Sinking Fund. 45195054.1 -18- - SECTION 19: Redemption of Refunded Bonds. (a) The bonds of that series known as "City of Lubbock, Texas, General Obligation Bonds, Series 1993", dated October 1, 1993, maturing in the years 2004 through 2010, and aggregating in principal amount $6,720,000, shall be redeemed and the same are hereby called for redemption on February 15, 2003, at the price of par and accrued interest to the date of redemption . .The City Secretary is hereby authorized and directed to file a copy of this Ordinance, together with a suggested form of notice of redemption to be sent to bondholders, with The Bank of New York Trust Company of Florida, N.A. (successor paying agent/registrar to NationsBank of Texas, N.A.), in accordance with the redemption provisions applicable to such bonds; such suggested form of notice of redemption being attached hereto as Exhibit D and incorporated herein by reference as a part of this Ordinance for all purposes. (b) The bonds of that series known as "City of Lubbock, Texas, General Obligation Refunding Bonds, Series 1993", dated December 1, 1993, maturing in the years 2003 through 2008, and aggregating in principal amount $4,150,000, shall be redeemed and the same are hereby called for redemption on August 16, 2002, at the price of par and accrued interest to the date of redemption. The City Secretary is hereby authorized and directed to file a copy of this Ordinance, together with a suggested form of notice of redemption to be sent to bondholders, with The Bank of New York Trust Company of Florida, N.A. (successor paying agent/registrar to NationsBank of Texas, N.A.), in accordance with the redemption provisions applicable to such bonds; such suggested form of notice of redemption being attached hereto as Exhibit E and incorporated herein by reference as a part of this Ordinance for all purposes. The redemption of the obligations described above being associated with the refunding of such obligations, the approval, authorization and arrangements herein given and provided for the redemption of such obligations on the redemption dates designated therefor and in the manner provided shall be irrevocable upon the issuance and delivery of the Bonds; and the City Secretary is hereby authorized and directed to make all arrangements necessary to notify the holders of such obligations of the City's decision to redeem such obligations on the date and in the manner herein provided and in accordance with the ordinances authorizing the issuance of the obligations and this Ordinance. SECTION 20: Notices to Holders -Waiver. Wherever this Ordinance provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and sent by United States Mail, first class postage prepaid, to the address of each Holder appearing in the Security Register at the close of business on the business day next preceding the mailing of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice to any particular Holders, nor any defect in any notice so mailed, shall affect the sufficiency of such notice with respect to all other Bonds. Where this Ordinance provides for notice in any manner, such notice may be waived in writing by the Holder entitled to receive such notice, either before or after the event with respect to which such notice is given, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Paying Agent/Registrar, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 21: Cancellation. All Bonds surrendered for payment, redemption, transfer, exchange, or replacement, if surrendered to the Paying Agent/Registrar, shall be promptly cancelled by it and, if surrendered to the City, shall be delivered to the Paying Agent/Registrar and, if not already cancelled, shall be promptly cancelled by the Paying Agent/ Registrar. The 45195054.1 -19- - - - City may at any time deliver to the Paying Agent/Registrar for cancellation any Bonds previously certified or registered and delivered which the City may have acquired in any manner whatsoever, and all Bonds so delivered shall be promptly cancelled by the Paying Agent/Registrar. All cancelled Bonds held by the Paying Agent/Registrar shall be returned to the City. SECTION 22: Legal Opinion. The obligation of the Purchasers to accept delivery of the Bonds is subject to being furnished a final opinion of Fulbright & Jaworski L.L.P ., Attorneys, Dallas, Texas, approving such Bonds as to their validity, said opinion to be dated and delivered as of the date of delivery and payment for .such Bonds. A true and correct reproduction of said opinion or an executed counterpart thereof is hereby authorized to be either printed on definitive printed obligations or deposited with DTC along with the global certificates for the implementation and use of the Book Entry Only System used in the settlement and transfer of the Bonds. SECTION 23: CUSIP Numbers. CUSIP numbers may be printed or typed on the Bonds deposited with The Depository Jrust Company or on printed definitive Bonds. It is express1y provided, however, that Jhe presence or absence of CUSIP numbers on the definitive Bonds shall be of no significance or effect as regards the legality thereof and neither the City nor attorneys approving the Bonds as to legality are to be held responsible for CUSIP numbers incorrectly printed or typed on the definitive Bonds. SECTION 24: Benefits of Ordinance. Nothing in this Ordinance, expressed or implied, is intended or shall be construed to confer upon any person other than the City, the Paying Agent/Registrar and the Holders, any right, remedy, or claim, legal or equitable, under or by reason of this Ordinance or any provision hereof, and this Ordinance and all its provisions is intended to be and shall be for the sole and exclusive benefit of the City, the Paying Agent/Registrar and the Holders. SECTION 25: Inconsistent Provisions. All ordinances, orders or resolutions, or parts thereof, which are in conflict or inconsistent with any provision 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 26: Governing Law. This Ordinance shall be construed and enforced in accordance with the laws of the State of Texas and the United States of America. SECTION 27: Effect of Headings. The Section headings herein are for convenience · only and shall not affect the construction hereof. SECTION 28: Construction of Terms. If appropriate in the context of this Ordinance, words of the singular number shall be considered to include the plural, words of the plural number shall be considered to include the singular, and words of the masculine, feminine or neuter gender shall be considered to include the other genders. SECTION 29: Severability. If any provision of this Ordinance or the application thereof to any circumstance shall be held to be invalid, the remainder of this Ordinance and the application thereof to other circumstances shall nevertheless be valid, and the City Council hereby declares that this Ordinance would have been enacted without such invalid provision. 45195054.1 -20- - - - SECTION 30: Incorporation of Findings and Determinations. The findings and determinations of the City Council contained in the preamble hereof are hereby incorporated by reference and made a part of this Ordinance for all purposes as if the same were restated in full in this Section. SECTION 31: Continuing Disclosure Undertaking. (a) Definitions. As used in this Section, the following terms ~ave th.e meanings ascribed to such terms below: "MSRB" means the Municipal Securities Rulemaking Board. "NRMSIR" means each person whom the SEC or its staff has determined to be a nationally recognized municipal securities information repository within the meaning of the Rule from time to time. "Rule" means SEC Rule 15c2-12, as amended from time to time. "SEC" means the United States Securities and Exchange Commission. "SID" means any person designated by the State of Texas or an authorized department, officer, or agency thereof as, and determined by the SEC or its staff to be, a state information depository within the meaning of the Rule from time to time. (b) Annual Reports. The City shall provide annually to each NRMSIR and any SID, within six months after the end of each fiscal year (beginning with the fiscal year ending September 30, 2002) financial information and operating data with respect to the City of the general type included in the final Official Statement approved by Section 15 of this Ordinance, being the information described in Exhibit F hereto. Financial statements to be provided shall be (1) prepared in accordance with the accounting principles described in Exhibit F hereto and (2) audited, if the City commissions an audit of such statements and the audit is completed within the period during which they must be provided. If audited financial statements are not available at the time the financial information and operating data must be provided, then the City shall provide unaudited financial statements for the applicable fiscal. year to each NRMSIR and any SID with the financial information and operating data and will file the annual audit report when and if the same becomes 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. (c) 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 Bonds, if such event is material within the meaning of the federal securities laws: (1) (2) 45195054.1 Principal and interest payment delinquencies; Non-payment related defaults; -21- - - - - - (3) Unscheduled draws on debt service reserves reflecting financial difficulties; (4} Unscheduled draws on credit enhancements reflecting financial difficulties; (5) Substitution of credit or liquidity providers, or their failure to perform; (6) Adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7} Modifications to rights of holders of the Bonds; (8) Bond calls; (9} Defeasances; (10) Release, substitution, or sale of property securing repayment of the Bonds; and (11) Rating changes. The 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 subsection (b) of this Section by the time required by such Section. (d) Limitation~. Disclaimers, and Amendments. The City shall be obligated to observe and perform the covenants specified in this Section while, but only while, the City remains an "obligated person" with respect to the Bonds within the meaning of the Rule, except that the City in any event will give the notice required by subsection (c) hereof of any Bond calls and defeasance that cause the City to be no longer such an "obligated person." The provisions of this Section are for the sole benefit of the Holders and beneficial owners of the Bonds, and nothing in this Section, express or implied, shall give any benefit or any legal or equitable right, remedy,· or claim hereunder to any other person. The 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 Bonds at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY BOND. OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS 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 under this Section shall constitute a breach of or default under this Ordinance for purposes of any other provision of this Ordinance. 45195054.1 -22- - - 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 resulting from a change in legal requir~ments, a change in law, or a change in the identity, nature, status, or type of operations of the City, but only if (1) the provisions of this Section, as so amended, would have permitted an underwriter to purchase or sell Bonds in the primary offering of the Bonds in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (2) either (a) the Holders of a majority in aggregate principal amount (or any greater amount required by any other provision of this Ordinance that authorizes such an amendment) of the Outstanding Bonds consent to such amendment or (b) a Person that is unaffiliated With the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interests of the Holders and beneficial owners of the Bonds. The provisions of this Section may also be amended from time to time or repealed by the City if the SEC amends or repeals the applicable provisions of · the Rule or a court of final jurisdiction determines that such provisions are invalid, but only if and to the extent that reservation of the City's right to do so would not prevent underwriters of the initial public offering of the Bonds from lawfully purchasing or selling Bonds in such offering. ·If the City so amends the provisions of this Section, it shall include with any amended financial information or operating data filed with e.ach NRMSIR and SID pursuant to subsection (b) of this Section an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information or operating data so provided. SECTION 32: MBIA Insurance. The Bonds have been sold with the principal of and interest thereon being insured by MBIA Insurance ·Corporation (hereinafter called "MBIA") pursuant to a Financial Guaranty Insurance Policy. In accordance with the terms and ·conditions applicable to insurance provided by MBIA, the City covenants and agrees that, in the event the principal and interest due on the Bonds shall be paid by MBIA pursuant to the policy referred to this Section, the assignment and pledge of all funds and all covenants, agreements and other obligations of the City to the Holders shall continue to exist and MBIA shall be subrogated to the rights of such Holders; and furthermore, the City covenants and agrees that: (a) . In the event that, on the second business day, and again on the business day, prior to the payme·nt date on the Bonds, the Paying Agent/Registrar has not received sufficient moneys to pay all principal of and interest on the Bonds due on the second following or following,. as the case may be, business day, the Paying Agent/Registrar shall immediately notify MBIA or its designee on the same business day by telephone or telegraph, confirmed in writing by registered or certified mail, of the amount of the deficiency. (b) If the deficiency is made up in whole or in part prior to or on the payment date, the Paying Agent/Registrar shall so notify MBIA or its designee. 45195054.1 -23- (c) In addition, if the Paying Agent/Registrar has notice that any Holder has been required to disgorge payments of principal of or interest on the Bonds to a trustee in bankruptcy or creditors or others pursuant to a final judgment by a court of competent· jurisdiction that such payment constitutes avoidable preference to such Holder within the meaning of any applicable bankruptcy laws, then the Paying Agent/Registrar shall notify the MBIA or its designee of such fact by telephone or telegraphic notice, confirming in writing by registered or certified mail. (d) The Paying . Agent/Registrar is hereby irrevocably designated, appointed, directed and authorized to act as attorney-in-fact for Holders of the Bonds as follows: (1) If and to the extent there is a deficiency in amounts required to pay interest on the Bonds, the Paying Agent/Registrar shall (a) execute· and deliver to State Street Bank and Trust Company, N.A., or its successors under the Policy (the "Insurance Paying Agent"), in form satisfactory to the Insurance Paying Agent, an instrument appointing the MBIA as agent for such Holders in such legal proceeding related to the payment of such interest and an assignment to the MBIA of the claims for interest to which such deficiency relates and which are paid by MBIA, (b) receive as designee to the respective Holders (and not as Paying Agent/Registrar) in accordance with the tenor of the Policy payment from the Insurance Paying Agent with respect to the claims for interest so assigned, and (c) disburse the same to such respective Holders; and (2) If and to the extent of a deficiency in amounts required to pay principal of the Bonds, the Paying Agent/Registrar shall (a) execute and deliver to the Insurance Paying Agent in form satisfactory to the Insurance Paying Agent an instrument appointing MBIA as agent for such Holder in any legal proceeding relating to the payment of such principal and an assignment to MBIA of any of the Bonds surrendered to the Insurance Paying Agent or so much · of the principal thereof as has not previously been paid or for which moneys are not held by the Paying Agent/Registrar and available for such payment (but such assignment shall be delivered only if payment from the Insurance Paying Agent is received), (b) receive as designee of the respective . Holders (and not as Paying Agent/Registrar) in accordance with the tenor of the Policy payment therefor from the Insurance Paying Agent, and (c) disburse the same to such Holders. (e) Payments with respect to claims for interest on and principal of Bonds disbursed by the Paying Agent/Registrar from proceeds of the Policy shall not be considered to discharge the obligation of the City with respect to such Bonds, and MBIA shall become of the owner of such unpaid Certificate and claims for the interest in accordance with the tenor of the assignment made to it under the provisions of this subsection or otherwise. 45195054.1 -24- - - - (f) Irrespective of whether any such assignment is executed and delivered, MBIA and the Paying Agent/Registrar hereby agree for the benefit of the MBIA that: {1) They recognize that to the extent MBIA makes payments, directly or indirectly (as by paying through the Paying Agent/Registrar), on account of principal of and interest on the Bonds, MBIA will be subrogated to the rights of such Holders to receive the amount of such principal and interest from the City as provided and solely from the sources stated in this Ordinance and the Bonds; and {2) They will accordingly pay to MBIA the amount of such principal and interest (including principal and interest recovered under subparagraph (ii) of the first paragraph of the Policy, which principal and interest shall be deemed 'past due and not to have been paid) as provided in this Ordinance and the Bonds, but only from the sources and in the manner provided herein for the payment of principal of and interest on the Bonds to Holders, a.nd will otherwise treat the MBIA as the owner of such rights to the amount of such principal and interest. · (g) In connection with the issuance of additional obligations, the City shall deliver to the MBIA a copy of the disclosure document, if any, circulated with respect to such additional obligations. (h) Copies of any amendments made to the documents executed in connection with the issuance of the Bonds which are consented to by the MBIA shall be sent to Standard & Poor's Corporation. (i) MBIA shall receive notice of the resignation or removal of the Paying Agent/Registrar and the appointment of a successor thereto. (j) MBIA shall receive copies of all notices required to be delivered to Holders and, on an annual basis, copies of the City's audited financial statements and annual budget. (k) Any notice that is required to be given to a Holder of the Bonds or to the Paying Agent/Registrar pursuant to the Ordinance shall also be provided to MBIA. All notices required to be given to MBIA under the Ordinance shall be in writing and shall be sent by registered or certified mail addressed to MBIA Insurance Corporation, 113 King Street, Armonk, New York 10504, Attention: Surveillance. SECTION 33: Public Meeting. It is officially found, determined, and declared that the meeting at which this Ordinance is adopted was open to the public and public notice of the time, place, and subject matter of the public business to be considered at such meeting, including this Ordinance, was given, all as required by V.T.C.A., Government Code, Chapter 551, as amended. 45195054.1 -25- - - - - ·~ . SECTION 34: Effective Date. This Ordinance shali take effect and be in full force from and after its adoption on the date shown below in accordance with V.T.C.A., Government Code, Section 1201.028. PASSED AND ADOPTED, this July 11, 2002. CITY OF LUBBOCK, TEXAS ATTEST: sQ~~~L City Secretary t::::> (City Seal) APPROVED AS TO CONTENT: 45195054.1 -26- EXHIBIT A EXECUTED PAYING AGENT/REGISTRAR AGREEMENT See Document Number 2 - - - - 45213010.1 - EXHIBIT B EXECUTED PURCHASE CONTRACT See Document Number 3 - - 45213010.1 EXHIBITC SPECIAL ESCROW AGREEMENT See Document Number 4 45213010.1 - - EXHIBITD NOTICE OF REDEMPTION CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION BONDS SERIES 1993 DATED OCTOBER 1, 1993 NOTICE IS HEREBY' GIVEN that all bonds of the above series maturing on February 15, 2004 through February 15, 2010 and aggregating in principal amount $6,720,000 have been called for redemption on February 15, 2003 at the redemption price of par and accrued interest to the date of redemption, such bonds being identified as follows: YEAR OF MATURITY 2004 2005 2006 2007 2008 2009 2010 -PRINCIPAL AMOUNT OUTSTANDING $960,000 960,000 960,000 960,000 960,000 960,000 960,000 CUSIP NUMBER ALL SUCH BONDS shall become due and payable on February 15, 2003, and interest thereon shall cease to accrue from and after said redemption date and payment of the redemption price of said obligations shall be paid to the registered owners of the obligations only upon presentation and surrender of such obligations to The Bank of New York Trust Company of Florida, N.A. (successor paying agentlregistrar to NationsBank of Texas, N.A.) at its designated offices at the following offices: By Hand: Debt Processing Group The Bank of New York 15 Broad Street, Main Floor · New York, New York 1 0005 By Mail: Debt Processing Group The Bank of New York P. 0. Box 11254 New York, New York 1 0286 THIS NOTICE is issl!ed and given pursuant to the terms and conditions prescribed for the redemption of said bonds and pursuant to an ordinance by the City Council of the City of Lubbock, Texas. 45195054.1 THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A., Address: 600 North Pearl Street Plaza of the Americas South Tower, Suite 420 Dallas, Texas 75201 - EXHIBIT E NOTICE OF REDEMPTION CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION REFUNDING BONDS SERIES 1993 DATED DECEMBER 1, 1993 . NOTICE IS HEREBY> GIVEN that all bonds of the _above series maturing on February 1'5, 2003 through February 15, 2008 and aggregating in principal amount $4,150,000 have been called for redemption on August 16, 2002 at the redemption price of par and accrued interest to the date of redemption, such bonds being identified as follows: YEAR OF PRINCIPAL AMOUNT MATURITY OUTSTANDING CUSIP NUMBER 2003 $1,040,000 2004 960,000 2005 650,000 2006 630,000 2007 610,000 2008 260,000 ALL SUCH BONDS shall become due and payable on August 16, 2002, and interest thereon shall cease to accrue from and after said redemption date and payment of the redemption price of said obligations shall be paid to the registered owners of the obligations only upon presentation and surrender of such obligations to The Bank of New York Trust Company of Florida, N.A. (successor paying agent/registrar to NationsBank of Texas, N.A.) at its designated offices at the following offices: By Hand: Debt Processing Group The Bank of New York 15 Broad Street, Main Floor New York, New York 10005 By Mail: Debt Processing Group The Bank of New York P. 0. Box 11254 New York, New. York 10286 THIS NOTICE is issued and given pursuant to the terms and conditions prescribed for the redemption of said bonds and pursuant to an ordinance by the City Council of the City of Lubbock, Texas. 45195054.1 THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A, Address: 600 North Pearl Street Plaza of the Americas South Tower, Suite 420 Dallas, Texas 75201 - - Exhibit F DESCRIPTION OF ANNUAL FINANCIAL INFORMATION AND OPERATING DATA The following information is referred to in Section 31 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 financial statements of the City appended to the Official Statement as Appendix 8, but for the most recently concluded fiscal year. 2. The information under Tables 1 through 6 and 8A through 15. Accounting Principles The accounting principles referred to in such Section are the generally accepted accounting principles as applicable to governmental units as prescribed by The Government Accounting Standards Board. 45195054.1 2 - - PAYING AGENT/REGISTRAR AGREEMENT THIS AGREEMENT entered into as of July 11, 2002 (this "Agreement"), by and between the City of Lubbock, Texas (the "Issuer''), and JPMorgan Chase Bank, Dallas, Texas, a New York banking corporation organized and existing under the laws of the State of New York and authorized to do business in the State of Texas, or its successors, RECITALS WHEREAS, the Issuer has duly authorized and provided for the execution and delivery of its "City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2002" (the "Securities"), dated July 1, 2002, and such Securities are scheduled to be delivered to the initial purchasers thereof on or about August 15, 2002; 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 PAYING AGENT AND REGISTRAR Section 1.01 Appointment. The Issuer hereby appoints the Bank to serve as Paying Agent with respect to the Securities, and, 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 "Bond Resolution" (hereinafter defined). The Issuer hereby appoints the Bank as Registrar with respect to the Securities and, as Registrar for the Securities, the Bank shall keep and maintain for and on behalf of the Issuer books and records as to the ownership of said Securities and with respect to the transfer and exchange thereof as provided herein and in the "Bond Resolution". The Bank hereby accepts its appointment, and agrees to serve as the Paying Agent and Registrar for the Securities. Section 1.02 Compensation. As compensation for the Bank's services as Paying Agent/Registrar, the Issuer hereby agrees to pay the Bank the fees and amounts set forth in Annex 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. 45195277.1 - - - - - In addition, the Issuer agrees to reimburse the Bank upon its request for all reasonable expenses, disbursements and advances incurred or made by the Bank in accordance with any of the provisions hereof (including the reasonable compensation and the expenses and disbursements of its agents and counsel). ARTICLE TWO DEFINITIONS Section 2.01 Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: "Acceleration Date" on any Security means the date on and after which the principal or any or all installments of interest, or both, are due and payable on any Security which has become accelerated pursuant to the terms of the Security. "Bank Office" means the designated office of the Bank in Dallas, Texas at the address shown in Section 3.01 hereof. The Bank will notify the Issuer in writing of any change in location of the Bank Office. "Bond Resolution" means the resolution, order, or ordinance of the governing body of the Issuer pursuant to which the Securities are issued, certified by the Secretary or any other officer of the Issuer and delivered to the Bank. "Fiscal Year'' means the fiscal year of the Issuer, ending September 30th. "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, Mayor Pro Tern, City Manager, Deputy City Manager, Director of Finance, Cash and Debt Manager, or City Secretary, any one or more of said officials, and 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 Resolution). 45195277.1 -2- - - - - - "Redemption Date" when used with respect to any Security to be redeemed means the date fixed for such redemption pursuant to the terms of the Bond Resolution. "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 transfers of Securities. "Stated Maturity" means the date specified in the Bond Resolution 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 following address: P. 0. Box 2320, Dallas, Texas 75221-2320 or 2001 Bryan Street, gth Floor, Dallas, Texas 75201, Attention: Operations. 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 making payment thereof to the Holders of the Securities (or their Predecessor Securities) on the Record Date. All payments of principal and/or interest on the Securities to the registered owners shall be accomplished (1) by the issuance of checks, payable to the registered owners, drawn on the paying agent account provided in Section 5.05 hereof, sent by United States mail, first class, postage prepaid, to the address appearing on the Security Register or (2) 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 at the dates specified in the Bond Resolution. 45195277.1 -3- - - - - - - - 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 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 cancelled 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 AgenVRegistrar. 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 governments 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 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. 45195277.1 -4- - - - The Bank will not release or disclose the contents of the Security Register to any person other than to, or at the written request of, an authorized officer or employee of the Issuer, except upon receipt of a court order or as otherwise required by law. Upon receipt of a court order and prior to the release or disclosure of the contents of the Security Register, the Bank will notify the Issuer so that the Issuer may contest the court order or such release or disclosure of the contents of the Security Register. Section 4.05 Return bf Cancelled 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 provisions of Section 11 of the Bond Resolution, 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 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 upon the approval of the Issuer and 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. (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 45195277.1 -5- - - - - 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 of 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-Paying Agent Account/Collateralization. Money deposited by the Issuer with the Bank of the principal (or Redemption Price, if applicable} of or interest on any Securities shall be segregated from other funds of the Bank and the Issuer and shall be held in trust for the benefit of the Holders of such Securities. All money deposited with the Bank hereunder shall be secured in the manner and to the fullest extent required by law for the security of funds of the Issuer. Amounts held by the Bank which represent principal of and interest on the Securities remaining unclaimed by the owner after the expiration of three years from the date such amounts have become due and payable shall be reported and disposed of by the Bank in accordance with the provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. The Bank shall have no liability by virtue of actions taken in compliance with this provision. The Bank is not obligated to pay interest on any money received by it hereunder. 45195277.1 -6- - - - This Agreement relates solely to money deposited for the purposes described herein, and the parties agree that the Bank may serve as depository for other funds of the Issuer, act as trustee under indentures authorizing other bond transactions of the Issuer, or act in any other capacity not in conflict with its duties hereunder. 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 in the State of Texas to determine the rights of any Person claiming any interest herein. Section 5.08 DT 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", 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. 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. 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 page 9. 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. 45195277.1 -7- - - - Section 6.06 Severability. In case any prov1s1on 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 Bond Resolution 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 Bond Resolution, the Bond Resolution 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 sixty (60) days written notice; provided, however, an early termination of this Agreement by either party shall not be effective until (a) a successor Paying Agent/Registrar has been appointed by the Issuer and such appointment accepted and (b) notice 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. 45195277.1 -8- - - - - IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. [SEAL] ~L Attest: V '1<.1/ ~£ ~~ J.e.~ +- Title: (CITY SEAL) Attest: ~-&.c<.. .. ~~ Ci Secretary 45195277.1 JPMORGAN CHASE BANK, Dallas, Texas, BY(/n/~ dlif?A___ Title: . ASSISTANT VICE PRESIDENT Address: 2001 Bryan Street, 1oth Floor Dallas, Texas 75201 Address: P. 0. Bo 00 Lubboc , Texas 79457 -9- - - - JPMorgan Chase Bank Issuer Administrative Services 2001 Bryan Street, lOth Floor Dallas, Texas 75201 July 8, 2002 Fee Schedule Paying Agent & Registrar Services City of Lubbock, TX $11,110,000 General Obligation Refunding Bonds, Series 2002 Paying Agent & Registrar Services: Acceptance Fee Annual Administration Fee Notes: Waived $300 Please note charges for extraordinary expenses, including but not limited to, travel expenses and counsel fees, are billed to the issuer at cost. Administration fees include one annual audit confirmation without charge. Additional audit confirmations are billed at $75 per requested confirmation. In addition there is a $300 charge per bond calL The quoted fee is based on our understanding of the information and terms to date. As always, our acceptance of this appointment is subject to our internal credit review process and the review of final documentation furnished with respect to the debt financing. We reserve the right to revise this proposal should any material aspect of the transaction differ from our understanding. · 3 - $10,810,000 CITY OF LUBBOCK, TEXAS General Obligation Refunding Bonds, Series 2002 PURCHASE CONTRACT July 11, 2002 The Honorable Mayor and Members of the City Council City ofLubbock 1625 13th St. Lubbock, Texas 79401 Dear Mayor and Members of the City Council: RBC DainRauscher, Inc. (the "Authorized Representative"), Coastal Securities and Estrada Hinojosa & Company, Inc. (collectively, the "Underwriters"), offer to enter into this Purchase Contract with the City of Lubbock, Texas (the "City"). This offer is made subject to the City's acceptance ofthis Purchase Contract on or before 9:00p.m. Central Time on July 11, 2002. 1. Purchase and Sale of the Bonds. Upon the terms and conditions and upon the basis of the representations set forth herein, the Underwriters jointly and severally hereby agree to purchase from the City, and the City hereby agrees to sell and deliver to the Underwriters an aggregate of $10,810,000 principal amount of City ofLubbock, Texas General Obligation Refunding Bonds, Series 2002 (the "Bonds"). The Bonds shall have the maturities, interest rates and be subject to redemption in accordance with the provisions ofExhibit A hereto and shall be issued and secured under the provisions of the Ordinance (as defined below). The purchase price for the Bonds shall be $11,106,052.43, representing the principal amount of the Bonds of $10,810,000, less an Underwriters' discount on the Bonds of $54,441.46, plus aggregate original issue premium on the Bonds of$296,833.75, and plus accrued interest in the amount of$53,660.14. -----------------------~--~~~---- - - - - RBC Dain Rauscher, Inc. represents that it has been duly authorized to execute this Purchase Contract and has been duly authorized to act hereunder as the Authorized Representative. All actions that may be taken by the Underwriters may be taken by the Authorized Representative alone. 2. Ordinance. The Bonds shall be as described in and shall be issued and secured under the provisions of the Ordinance authorizing the issuance and sale of the Bonds adopted by the City on July 11, 2002 (the "Ordinance"). The Bonds shall be secured and payable as provided in the Ordinance. 3. Public Offering. It shall be a condition of the obligations of the City to sell and deliver the Bonds to the Underwriters, and of the obligations of the Underwriters to purchase and accept delivery of the Bonds, that the entire principal amount of the Bonds authorized by the Ordinance shall be sold and delivered by the City and accepted and paid for by the Underwriters at the Closing. The Underwriters agree to make a bona fide public offering of all of the Bonds, at not in excess of the initial public offering prices, as set forth in the Official Statement; provided however at least ten percent ( 1 0%) of the principal amount of the Bonds of each maturity shall be sold to the 11public" (exclusive of dealers, brokers and investment bankers, etc.) at the initial offering price set forth in the Official Statement. 4. Security Deposit. Delivered to the City herewith is a corporate check of the Authorized Representative payable to the order of the City in the amount of $111, 1 00. The City agrees to hold such check uncashed until the Closing to ensure the performance by the Underwriters oftheir obligation to purchase, accept delivery of and pay for the Bonds at the Closing. Concurrently with the payment by the Underwriters of the purchase price of the Bonds, the City shall return such check to the Authorized Representative as provided in Paragraphs 7 and 8 hereof Should the City fail to deliver the Bonds at the Closing, or should the City be unable to satisfY the conditions of the obligations of the Underwriters to purchase, accept delivery of and pay for the Bonds, as set forth in this Purchase Contract (unless waived by the Authorized Representative), or should such obligations of the Underwriters be terminated for any reason permitted by this Purchase Contract, such check shall immediately be returned to the Authorized Representative. In the event the Underwriters fail (other than for a reason permitted hereunder) to purchase, accept delivery of and pay for the Bonds at the Closing as herein provided, such check shall be retained by the City as and for full liquidated damages for such failure of the Underwriters and for any defaults hereunder on the part of the Underwriters. The Authorized Representative hereby agrees not to stop or cause payment on said check to be stopped unless the City has breached any of the terms of this Purchase Contract. 5. Official Statement. The Official Statement, including the cover pages and Appendices thereto, of the City, dated July 11, 2001, with respect to the Bonds, as further amended only in the manner herein provided, is hereinafter called the "Official Statement." The City hereby authorizes the Escrow Agreement (hereinafter defined), the Ordinance and the Official Statement and the information therein contained to be used by the Underwriters in connection with the public offering and sale of the Bonds. The City confirms its consent to the use by the Underwriters prior to the date hereof of the Preliminary Official Statement, relative to the Bonds, dated July 2, 2002 (the "Preliminary Official Statement"), in connection with the preliminary public offering and sale of the 2 - - Bonds, and it is "deemed final" as of its date, within the meaning, and for the purposes, ofRule 15c2- 12 promulgated under authority granted by the federal Securities and Exchange Act of 1934 (the "Rule"). The City agrees to cooperate with the Underwriters to provide a supply of final Official Statements within seven business days of the date hereof in sufficient quantities to comply with the Underwriters' obligations under the Rule and the applicable rules of the Municipal Securities Rulemaking Board. The Underwriters will use their best efforts to assist the City in the preparation of the final Official Statement in order to ensure compliance with the aforementioned rules. If at any time after the date of this Purchase Contract but before the first to occur of (i) the date upon which the Underwriters notify the City that the period of the initial public offering of the Bonds has expired or (ii) the date that is 90 days after the date hereof, any event shall occur that might or would cause the Official Statement to contain any untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the City shall notify the Authorized Representative, and if, in the opinion of the Authorized Representative, such event requires the preparation and publication of a supplement or amendment to the Official Statement, the City will at its expense supplement or amend the Official Statement in the form and in a manner approved by the Authorized Representative and furnish to the Underwriters a reasonable number of copies requested by the Authorized Representative in order to enable the Underwriters to comply with the Rule. To the best knowledge and belief of the City, the Official Statement contains information, including financial information or operating data, as required by the Rule. The City has not failed to comply with any undertaking specified in paragraph (b)( S)(i) of the Rule within the last five years. 6. Representations, Warranties and Agreements of the City. On the date hereof, the City represents, warrants and agrees as follows: (a) The City is a home rule municipality and a political subdivision of the State of Texas and a body politic and corporate, and has full legal right, power and authority to enter into this Purchase Contract and the Escrow Agreement pertaining to the Bonds between the City and the Escrow Agent named therein (the "Escrow Agreement"), to adopt the Ordinance, to sell the Bonds, and to issue and deliver the Bonds to the Underwriters as provided herein and to carry out and consummate all other transactions contemplated by the Ordinance, the Escrow Agreement and this Purchase Contract; (b) By official action of the City prior to or concurrently with the acceptance hereof, the City has duly adopted the Ordinance, has duly authorized and approved the execution and delivery of, and the performance by the City of the obligations contained in the Bonds, the Escrow Agreement and this Purchase Contract and has duly authorized and approved the performance by the City of its obligations contained in the Ordinance, the Escrow Agreement and in this Purchase Contract; 3 - - (c) The City is not in breach of or default under any applicable law or administrative regulation of the State of Texas or the United States (including regulations of its agencies) or any applicable judgment or decree or any loan agreement, note, order, agreement or other instrument, except as may be disclosed in the Official Statement, to which the City is a party or to the knowledge of the City it is otherwise subject, that would have a material and adverse effect upon the business or financial condition of the City; the sale ofthe Bonds; the execution and delivery of the Escrow Agreement by the City; and the execution and delivery ofthe Bonds and the adoption of the Ordinance by the City and compliance with the provisions of each thereof will not violate or constitute a breach of or default under any existing law, administrative regulation, judgment, decree or any agreement or other instrument to which the City is a party or, to the knowledge of the City, is otherwise subject; (d) All approvals, consents and orders of any governmental authority or agency having jurisdiction of any matter that would constitute a condition precedent to the performance by the City of its obligations to sell and deliver the Bonds hereunder will have been obtained prior to the Closing; (e) At the time ofthe City's acceptance hereof and at the time of the Closing, the Official Statement does not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (f) Between the date of this Purchase Contract and the Closing, the City will not, without the prior written consent ofthe Underwriters, sell or issue any additional bonds, notes or other obligations for borrowed money payable in whole or in part from ad valorem taxes (except for the City's $2,605,000 Tax and Sewer System Surplus Revenue Certificates of Obligation, Series 2002A that are being sold concurrently with the Bonds), and the City will not incur any material liabilities, direct or contingent, nor will there be any adverse change of a material nature in the financial position of the City; (g) Except as described in the Official Statement, no litigation is pending or, to the knowledge of the City, threatened in any court affecting the corporate existence of the City, the title of its officers to their respective offices, or seeking to restrain or enjoin the issuance, sale or delivery ofthe Bonds, the levy, collection or application of the ad valorem taxes pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contesting or affecting the issuance, execution, delivery, payment, security or validity of the Bonds, or in any way contesting or affecting the validity or enforceability of the Ordinance or the Escrow Agreement, or contesting the powers of the City, or any authority for the Bonds, the Ordinance, or this Purchase Contract or contesting in any way the completeness, accuracy or fairness of the Preliminary Official Statement or the Official Statement; (h) The City will cooperate with the Underwriters in arranging for the qualification of the Bonds for sale and the determination of their eligibility for investment under the laws of such jurisdictions as the Authorized Representative designates, and will use its best efforts 4 - - - - - to continue such qualifications in effect so long as required for distribution of the Bonds; provided, however, that the City will not be required to execute a consent to service of process or to qualify to do business in connection with any such qualification in any jurisdiction; (i) The descriptions of the Bonds, the Escrow Agreement and the Ordinance contained in the Official Statement accurately summarize certain provisions of such instruments, and the Bonds, when validly executed, authenticated and delivered in accordance with the Ordinance and sold to the Underwriters as provided herein, will be validly issued and outstanding obligations of the City entitled to the benefits of, and subject to the limitations contained in, the Ordinance; G) If prior to the Closing an event occurs affecting the City that is materially adverse for the purpose for which the Official Statement is to be used and is not disclosed in the Official Statement, the City shall notify the Authorized Representative, and if in the opinion ofthe City and the Authorized Representative such event requires a supplement or amendment to the Official Statement, the City will supplement or amend the Official Statement in a form and in a manner approved by the Authorized Representative; (k) The financial statements contained in the Official Statement present fairly the financial position of the City as of the date and for the period covered thereby and are stated on a basis substantially consistent with that of the prior year's audited financial statements; (1) Any certificate signed by any official of the City and delivered to the Underwriters shall be deemed a representation and warranty by the City to the Underwriters as to the truth of the statements therein contained; (m) The City has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that it is a bond issuer whose arbitrage certifications may not be relied upon; and (n) The City will not knowingly take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Bonds to be applied in a manner other than as provided in the Ordinance and the Escrow Agreement or that would cause the interest of the Bonds to be includable in gross income of the holders thereof for federal income tax purposes. 7. Closing. At 10:00 A.M., Central Time, on August 15,2002 (the "Closing"), the City will deliver the initial Bonds (as defined in the Ordinance) to the Underwriters and the City shall take appropriate steps to provide DTC with one definite securities certificate for each year of maturity of the Bonds, and to provide the Underwriters with the other documents hereinafter mentioned. On or prior to the date of Closing, the Underwriters shall make arrangements with The Depository Trust Company ("DTC") for the Bonds to be immobilized and thereafter traded as book-entry only securities and on the date of Closing the Underwriters will accept such delivery and pay the purchase 5 - - - price of the Bonds as set forth in Paragraph 1 hereof in immediately available funds. Concurrently with such payment by the Underwriters, the City shall return to the Authorized Representative the check referred to in paragraph 4 hereof Delivery and payment as aforesaid shall be made at the office of the paying agent/registrar for the Bonds, as identified in the Official Statement, or such other place as shall have been mutually agreed upon by the City and the Authorized Representative. 8. Conditions. The Underwriters have entered into this Purchase Contract in reliance upon the representations and warranties of the City contained herein and to be contained in the documents and instruments to be delivered at the Closing, and upon the performance by the City of its obligations hereunder, both as of the date hereof and as of the date of Closing. Accordingly, the Underwriters' obligations under this Purchase Contract to purchase and pay for the Bonds shall be subject to the performance by the City of its obligations to be performed hereunder and under such documents and instruments at or prior to the Closing, and shall also be subject to the following conditions: (a) The representations and warranties of the City contained herein shall be true, complete and correct in all material respects on the date hereof and on and as of the date of Closing, as if made on the date of Closing; (b) At the time ofthe Closing, (i) the Ordinance and the Escrow Agreement shall be in full force and effect, and the Ordinance and the Escrow Agreement shall not have been amended, modified or supplemented and the Official Statement shall not have been amended, modified or supplemented, except as may have been agreed to by the Authorized Representative; and (ii) the net proceeds of the sale of the Bonds shall be deposited and applied as described in the Official Statement and in the Ordinance; (c) At the time of the Closing, all official action of the City related to the Ordinance shall be in full force and effect and shall not have been amended, modified or supplemented; (d) The City shall not have failed to pay principal or interest when due on any of its outstanding obligations for borrowed money; (e) The City will purchase or cause to be purchased the Federal Securities (as defined in the Official Statement) as may be necessary to effect the refunding of the City's outstanding obligations as contemplated by the Escrow Agreement; (f) At or prior to the Closing, the Underwriters shall have received each of the following documents: (1) The Official Statement of the City, executed on behalf of the City by the Mayor and City Secretary; 6 - - - - (2) The Ordinance, certified by the City Secretary under the seal of the City as having been duly adopted by the City and as being in effect, with such changes or amendments as may have been agreed to by the Underwriters. The Ordinance shall contain the agreement of the City, in form satisfactory to the Underwriters, that is described under the caption "Continuing Disclosure oflnformation" in the Preliminary Official Statement; (3) The opinion, dated the date of Closing, ofFulbright & Jaworski L.L.P. ("Bond Counsel") in substantially the form and substance of Appendix C to the Official Statement; ( 4) An opinion or certificate, dated on or prior to the date of Closing, of the Attorney General of Texas, approving the Bonds as required by law and the registration certificate ofthe Comptroller ofPublic Accounts of the State of Texas; (5) The supplemental opinion or opinions, dated the date of Closing, of Bond Counsel, addressed to the City and the Underwriters, which provides that the Underwriters may rely upon the opinion of Bond Counsel delivered in accordance with the provisions of paragraph 8(t)(3) hereof, and opining to the effect that (a) the Purchase Contract has been duly authorized, executed and delivered by the City and (assuming due authorization by the Underwriters) constitutes a binding and enforceable agreement of the City in accordance with its terms; (b) in its capacity as Bond Counsel, such firm has reviewed the information in the Official Statement under the captions or subcaptions "Plan of Financing," "The Bonds" (exclusive of the information under the subcaptions "Book-Entry Only System" and "Bondholders' Remedies"), "Tax Matters," "Continuing Disclosure oflnformation" (exclusive of the information under the subcaption "Compliance with Prior Undertakings"), "Legal Matters"(exclusive of the last two sentences thereof) and "Legal Investments and Eligibility to Secure Public Funds in Texas" and such firm is of the opinion that such descriptions present a fair and accurate summary of the provisions of the laws and instruments therein described and, with respect to the Bonds, such information conforms to the Ordinance; and (c) the Bonds are exempt from registration pursuant to the Securities Act of 1933, as amended, and the Ordinance is exempt from qualification as an indenture pursuant to the Trust Indenture Act of 1939, as amended; (6) An opinion of McCall, Parkhurst & Horton L.L.P., Underwriters' Counsel addressed to the Underwriters, and dated the date of Closing in substantially the form attached hereto as Exhibit C; (7) A certificate, dated the date of Closing, signed by the Mayor and City Director of Finance of the City, to the effect that (i) the representations and warranties of the City contained herein are true and correct in all material respects on and as of the date of Closing as if made on the date of Closing; (ii) except to the 7 - - - - - extent disclosed in the Official Statement, no litigation is pending or, to the knowledge of such persons, threatened in any court to restrain or enjoin the issuance, sale or delivery of the Bonds, or the levy, collection or application of the ad valorem taxes pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof, or in any way contesting or affecting the validity of the Bonds, the Ordinance, or the Escrow Agreement, or contesting the powers of the City or the authorization of the Bonds or the Ordinance, or contesting in any way the accuracy, completeness or fairness of the Official Statement (but in lieu of or in conjunction with such certificate, the Underwriters may, in their sole discretion, accept certificates or opinions of the City Attorney that, in the opinion thereof, the issues raised in any such pending or threatened litigation are without substance or that the contentions of all plaintiffs therein are without merit); (iii) to the best of their knowledge, no event affecting the City has occurred since the date of the Official Statement that should be disclosed in the Official Statement for the purpose for which it is to be used or that it is necessary to disclose therein in order to make the statements and information therein not misleading in any respect; and (iv) that there has not been any material and adverse change in the affairs or financial condition of the City since September 30, 2001, the latest date as to which audited financial information is available; (8) An opinion of the City Attorney addressed to the Underwriters and dated the date of Closing substantially in the form and substance ofExhibit B hereto; (9) A certificate, dated the date of the Closing, of an appropriate officer of the City to the effect that, on the basis of the facts, estimates and circumstances in effect on the date of delivery of the Bonds, it is not expected that the proceeds of the Bonds will be used in a manner that would cause the Bonds to be arbitrage bonds within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended; ( 1 0) A copy of a special report prepared by Grant Thornton LLP with respect to the Bonds addressed to the City, Bond Counsel, Underwriters' Counsel and the Underwriters verifying the arithmetical computations of the adequacy of the maturing principal and interest on the Federal Securities and uninvested cash on hand under the Escrow Agreement to pay, when due, the principal of and interest on the bonds being refunded and the computation of the yield with respect to such Federal Securities and the Bonds; (11) Evidence of the rating on the Bonds, which shall be "Aaa" by Moody's Investors Service, Inc. ("Moody's"), "AAA" by Standard and Poor's Corporation, a division of the McGraw-Hill Companies, Inc. ("S&P"), and "AAA" by Fitch Ratings ("Fitch"), shall be delivered in a form acceptable to the Underwriters; and (12) A copy of the policy of municipal bond insurance issued by MBIA Insurance Corporation with respect to the Bonds; and 8 - - - (13) Such additional legal opinions, certificates, instruments and other documents as Bond Counsel or the Underwriters may reasonably request to evidence the truth, accuracy and completeness, as of the date hereof and as of the date of Closing, of the City's representations and warranties contained herein and of the statements and information contained in the Official Statement and the due performance and satisfaction by the City at or prior to the date of Closing of all agreements then to be performed and all conditions then to be satisfied by the City. All of the opinions, letters, certificates, instruments and other documents mentioned above or elsewhere in this Purchase Contract shall be deemed to be in compliance with the provisions hereof if, but only if, they are satisfactory to the Underwriters. If the City shall be unable to satisfy the conditions to the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Bonds as set forth in this Purchase Contract, or if the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Bonds shall be terminated for any reason permitted by this Purchase Contract, this Purchase Contract shall terminate, the security deposit referred to in Paragraph 4 of this Purchase Contract shall be returned to the Authorized Representative and neither the Underwriters nor the City shall be under further obligation hereunder, except that the respective obligations of the City and the Underwriters set forth in Paragraphs 10 and 12 hereof shall continue in full force and effect. 9. Termination. The Underwriters may terminate its obligation to purchase at any time before the Closing if any of the following should occur: (a) (i) Legislation shall have been enacted by the Congress of the United States, or recommended to the Congress for passage by the President of the United States or favorably reported for passage to either House of the Congress by any Committee of such House; or (ii) a decision shall have been rendered by a court established under Article III of the Constitution of the United States or by· the United States Tax Court; or (iii) an order, ruling or regulation shall have been issued or proposed by or on behalf of the Treasury Department of the United States or the Internal Revenue Service or any other agency of the United States; or (iv) a release or official statement shall have been issued by the President of the United States or by the Treasury Department of the United States or by the Internal Revenue Service, the effect of which, in any such case described in clause (i), (ii), (iii), or (iv ), would be to impose, directly or indirectly, federal income taxation upon interest received on obligations of the general character of the Bonds or upon income of the general character to be derived by the City, other than any imposition of federal income taxes upon interest received on obligations of the general character as the Bonds on the date hereof and other than as disclosed in the Official Statement, in such a manner as in the judgment of the Authorized Representative would materially impair the marketability or materially reduce the market price of obligations of the general character of the Bonds. (b) Any action shall have been taken by the Securities and Exchange Commission or by a court that would require registration of any security under the Securities Act of 193 3, 9 - - - - - as amended, or qualification of any indenture under the Trust Indenture Act of 1939, as amended, in connection with the public offering of the Bonds, or any action shall have been taken by any court or by any governmental authority suspending the use of the Preliminary Official Statement or the Official Statement or any amendment or supplement thereto, or any proceeding for that purpose shall have been initiated or threatened in any such court or by any such authority. (c) (i) The Constitution of the State of Texas shall be amended or an amendment shall be proposed, or (ii) legislation shall be enacted, ·or (iii) a decision shall have been rendered as to matters of Texas law, or (iv) any order, ruling or regulation shall have been issued or proposed by or on behalf of the State ofTexas by an official, agency or department thereof, affecting the tax status of the City, its property or income, its bonds (including the Bonds) or the interest thereon, that in the judgment of the Authorized Representative would materially affect the market price of the Bonds. (d) (i) A general suspension of trading in securities shall have occurred on the New York Stock Exchange, or (ii) the United States shall have become engaged in hostilities (including the escalation of any hostilities existing on the date hereof, whether or not foreseeable), the effect of which, in either case described in clause (i) and (ii), that, in the judgment of the Authorized Representative, would materially affect the market price of the Bonds. (e) There shall have occurred any (i) new material outbreak of hostilities (including, without limitation, an act of terrorism) or (ii) new material other national or international calamity or crisis, or any material adverse change in the financial, political or economic conditions affecting the United States, including, but not limited to, an escalation of hostilities that existed prior to the date hereof or (iii) material adverse change in the financial markets in the United States, and the effect of any such event on the financial markets of the United States shall be such as would make it impracticable, in the reasonable judgment of the Underwriter, for the Underwriter to sell the Bonds on the terms and in the manner contemplated by the Official Statement. (f) An event described in Paragraph 6(j) hereof occurs that, in the opinion of the Authorized Representative, requires a supplement or amendment to the Official Statement that is deemed by them, in their discretion, to adversely affect the market for the Bonds. (g) A general banking moratorium shall have been declared by authorities of the United States, the State ofNew York or the State of Texas. (h) A lowering of the ratings of"Aaa," "AAA" and "AAA," initially assigned to the Bonds by Moody's, S&P and Fitch, respectively, shall occur prior to the Closing. 10. Expenses. (a) The City shall pay out of the bond proceeds all expenses incident to the issuance of the Bonds, including but not limited to: (i) the cost of the preparation, printing and 10 - - distribution of the Preliminary Official Statement and the Official Statement; (ii) the cost of the preparation and printing of the Bonds; (iii) the fees and expenses ofBond Counsel to the City; (iv) the fees and disbursements of the City's accountants, advisors, and of any other experts or consultants retained by the City including the fee of the Grant Thornton LLP for the preparation of the verification report relating to the refunding; and (v) the fees for the bond ratings and any travel or other expenses incurred incident thereto; and (vi) the premium for municipal bond insurance policy pertaining to the Bonds. (b) The Underwriters shall pay (i) all advertising expenses in connection with the offering of the Bonds; (ii) the cost of the preparation and printing of all the underwriting documents; and (iii) the fee ofMcCall, Parkhurst & Horton L.L.P. for such firm's opinion required by Paragraph 8(f)(6) hereof 11. Notices. Any notice or other communication to be given to the City under this Purchase Contract may be given by delivering the same in writing at the address for the City set forth above, and any notice or other communication to be given to the Underwriters under this Purchase Contract may be given by delivering the same in writing to RBC Dain Rauscher, Inc., First City Tower, 1001 Fannin, Suite 400, Houston, Texas 77002-0220, Attention: Mark Nitcholas. 12. Parties in Interest. This Purchase Contract is made solely for the benefit of the City and the Underwriters (including the successors or assigns of any Underwriter) and no other person shall acquire or have any right under this contract. The City's representations, warranties and agreements contained in this Purchase Contract that exist as of the Closing, and without regard to any change in fact or circumstance occurring subsequent to the Closing, shall remain operative and in full force and effect, regardless of (i) any investigations made by or on behalf of the Underwriters, and (ii) delivery of any payment for the Bonds hereunder; and the City's representations and warranties contained in Paragraph 6 ofthis Purchase Contract shall remain operative and in full force and effect, regardless of any termination of this Purchase Contract. 13. Severability. If any provision ofthis Purchase Contract shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, or in all jurisdictions because it conflicts with any provisions of any constitution, statute, rule of public policy, or any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case or circumstances, or of rendering any other provision inoperative or unenforceable to any extent whatever. 14. Choice of Law. This Purchase Contract shall be governed by and construed in accordance with the laws of the State of Texas. 15. Execution in Counterparts. This Purchase Contract may be executed in any number of counterparts, all ofwhich taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Purchase Contract by signing any such counterpart. 11 - - 16. Section Headings. Section headings have been inserted in this Contract as a matter of convenience of reference only, and it is agreed that such section headings are not a part of this Contract and will not be used in the interpretation of any provisions of this Contract. 17. Status of the Underwriters. It is understood and agreed that for all purposes of this Contract and the transactions contemplated hereby the Underwriters have, in their role as underwriters, acted solely as independent contractors and have not acted as financial or investment advisors, fiduciaries or agents to or for the City, whether directly or indirectly through any person. The City recognizes that the Underwriters expect to profit from the acquisition and potential distribution of the Bonds. 18. Effective Date. This Purchase Contract shall become effective upon the execution of the acceptance hereof by the Mayor of the City and shall be valid and enforceable as of the time of such acceptance. [Signature page follows.] 12 - Accepted: This 11th day of July, 2002 -By: Mayor City ofLubboc , Very truly yours, RBC Dain Rauscher, Inc. Coastal Securities Estrada Hinojosa & Com By: By: Title: Principal 13 EXHffiiTA Schedule of Maturities, Interest Rates, Yields and Redemption Provisions -City of Lubbock, Texas General Obligation Refunding Bonds, Series 2002 Maturity Principal Interest Rate Yield (2/15) Amount {%} (%} 2003 $1,010,000 3.00 1.46 -2004 1,935,000 4.50 2.00 2005 1,625,000 4.75 2.51 2006 1,605,000 4.75 2.87 2007 1,575,000 3.25 3.17 2008 1,205,000 3.75 3.49 2009 935,000 3.75 3.69 2010 920,000 4.00 3.89 The Bonds are not subject to redemption prior to maturity. - - A-I --------------------------------------· ·------~- - - EXffiBITB OPINION OF THE CITY ATTORNEY RBC Dain Rauscher, Inc. Coastal Securities Estrada Hinojosa & Company, Inc. % RBC Dain Rauscher, Inc. First City Tower 1001 Fannin, Suite 400 Houston, Texas 77002-0220 Ladies and Gentlemen: August 15, 2002 I am the City Attorney for the City ofLubbock, Texas (the "City") at the time of the issuance and sale of the "City ofLubbock, Texas General Obligation Refunding Bonds, Series 2002," in the aggregate principal amount of$1 0, 810,000 (the "Bonds"), pursuant to the provisions of an ordinance duly adopted by the City Council ofthe City on July 11, 2002 (the "Ordinance"). Capitalized terms not otherwise defined in this opinion have the meanings assigned in the Purchase Contract. In my capacity as City Attorney to the City, I have reviewed such agreements, documents, certificates, opinions, letters, and other papers as I have deemed necessary or appropriate in rendering the opinions set forth below. In making my review, I have assumed the authenticity of all documents and agreements submitted to me as originals conformity to the originals of all documents and agreements submitted to me as certified or photostatic copies, the authenticity of the originals of such latter documents and agreements, and the accuracy of the statement contained in such documents. Based upon the foregoing, and subject to the qualifications and exceptions hereinafter set forth, I am ofthe opinion that under the applicable laws of the United States of America and the State of Texas in force and effect on the date hereof: 1. Based on reasonable inquiry made of the responsible City employees and public officials, the City is not, to the best of my knowledge, in breach of or in default under any applicable law or administrative regulation of the State of Texas or the United States, or any applicable judgment or decree or any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the City is party or is otherwise subject and, to the best of my knowledge after due inquiry, no event has occurred and is continuing that, with the passage of time or the giving of notice, or both, would constitute such a default by the City under any of the foregoing; and the execution and delivery of the Purchase Contract, the - - - - - 2. Bonds and the Escrow Agreement and the adoption of the Ordinance and compliance with the provisions of each of such agreements or instruments does not constitute a breach of or default under any applicable law or administrative regulation of the State of Texas or the United States or any applicable judgment or decree or, to the best of my knowledge, any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the City is a party or is otherwise subject; and Except as disclosed in the Official Statement, no litigation is pending, or, to my knowledge, threatened, in any court in any way (a) challenging the titles of the Mayor or any of the other members of the City Council to their respective offices; (b) seeking to restrain or enjoin the issuance, sale or delivery of any of the Bonds, or the levy, collection or application of the ad valorem taxes pledged or to be pledged to pay the principal of and interest on the Bonds; (c) contesting or affecting the validity or enforceability of the Bonds, the Ordinance, the Purchase Contract, or the Escrow Agreement; (d) contesting the powers of the City or any authority for the issuance of the Bonds, or the adoption of the Ordinance; or (e) that would have a material and adverse effect on the financial condition of the City. This opinion is furnished solely for your benefit and may be relied upon only by the addresses hereof or anyone to whom specific permission is given in writing by me. Very truly yours, B-2 - - .- Exhibit C Proposed Form of Underwriters' Counsel Opinion of McCall, Parkhurst & Horton L.L.P. RBC Dain Rauscher, Inc. Coastal Securities Estrada Hinojosa & Company, Inc. % RBC Dain Rauscher, Inc. First City Tower 1001 Fannin, Suite 400 Houston, Texas 77002~0220 August 15, 2002 Re: $10,810,000 City ofLubbock, Texas General Obligation Refunding Bonds, Series 2002 Ladies and Gentlemen: We have acted as counsel for you as the underwriters of the Bonds described above (the "Bonds"), issued under and pursuant to an ordinance (the "Ordinance") of the City ofLubbock, Texas (the "Issuer"), authorizing the issuance of the Bonds, which Bonds you are purchasing pursuant to a Purchase Contract, dated July 11, 2002. All capitalized undefined terms used herein shall have the meaning set forth in the Purchase Contract. In connection with this opinion letter, we have considered such matters oflaw and of fact, and have relied upon such Bonds and other information furnished to us, as we have deemed appropriate as a basis for our opinion set forth below. We are not expressing any opinion or views herein on the authorization, issuance, delivery, validity of the Bonds and we have assumed, but not independently verified, that the signatures on all documents and Bonds that we have examined are genuine. Based on and subject to the foregoing, we are of the opinion that, under existing laws, the Bonds are not subject to the registration requirements of the Securities Act of 193 3, as amended, and the Ordinance is not required to be qualified under the Trust Indenture Act of 1939, as amended. Because the primary purpose of our professional engagement as your counsel was not to establish factual matters, and because of the wholly or partially nonlegal character of many of the determinations involved in the preparation of the Official Statement dated July 11, 2002 (the "Official Statement") and because the information in the Official Statement under the headings "BOOK- ENTRY ONLY SYSTEM," "TAX MATTERS," "CONTINUING DISCLOSURE Compliance with Prior Undertakings" and Appendices B, C, and D thereto were prepared by others who have been engaged to review or provide such information, we are not passing on and do not assume any responsibility for, except as set forth in the last sentence ofthis paragraph, the accuracy, completeness or fairness of the statements contained in the Official Statement (including any appendices, schedules and exhibits thereto) and we make no representation that we have independently verified the C-1 - - accuracy, completeness or fairness of such statements. In the course of our review of the Official Statement, we had discussions with representatives of the City regarding the contents of the Official Statement. In the course of our participation in the preparation of the Official Statement as your counsel, we had discussions with representatives of the Issuer, including its City Attorney, Bond Counsel and Financial Advisor, regarding the contents of the Official Statement. In the course of such activities, no facts came to our attention that would lead us to believe that the Official Statement (except for the financial statements and other financial and statistical data contained therein, the information set forth under the headings "BOOK-ENTRY ONLY SYSTEM," "TAX MATTERS," 11CONTINUING DISCLOSURE Compliance with Prior Undertakings" and Appendices B, C and D thereto, as to which we express no opinion), as of its date contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. This opinion letter may be relied upon by only you and only in connection with the transaction to which reference is made above and may not be used or relied upon by any other person for any purposes whatsoever without our prior written consent. Respectfully, C-2 4 .. -' - - - - THE STATE OF TEXAS COUNTY OF LUBBOCK SPECIAL ESCROW AGREEMENT § § § THIS SPECIAL ESCROW AGREEMENT (the "Agreement"), made and entered into as of July 11, 2002, by and between the City of Lubbock, Texas, a duly incorporated municipal corporation in Lubbock County, Texas (the "City'') acting by and through the Mayor and City Secretary, and The Bank of New York Trust Company of Florida, N.A., Dallas, Texas, a banking association organized and existing under the laws of the United States of America, or its successors or assigns hereunder (the "Bank"), WITNESSETH: WHEREAS, the City Council of the City of Lubbock, Texas (the "City") has heretofore issued, sold, and delivered, and there is currently outstanding, obligations totaling in principal amount $10,870,000 (collectively, the "Refunded Obligations") more particularly described as follows: (1) City of Lubbock, Texas, General Obligation Bonds, Series 1993, dated October 1, 1993, scheduled to mature on February 15 in each of the years 2004 through 2010, and aggregating in principal amount of $6,720,000; and (2) City of Lubbock, Texas, General Obligation Refunding Bonds, Series 1993, dated December 1, 1993, scheduled to mature on February 15 in each of the years 2003 through 2008, and aggregating in principal amount of $4, 150,000; AND WHEREAS, in accordance with the provisions of V.T.C.A., Government Code, Chapter 1207, as amended (the "Act"), the City is authorized to sell refunding bonds in an amount sufficient to provide for the payment of obligations to be refunded, deposit the proceeds of such refunding bonds with any place of payment for the obligations being refunded, or other authorized depository, and enter into an escrow or similar agreement with such depository for the safekeeping, investment, reinvestment, administration and disposition of such deposit, upon such terms and conditions as the parties may agree, provided such deposits may be invested only (i) direct noncallable obligations of the United States of America, including obligations the principal of and interest on which are uncc>nditionally guaranteed by the United States of America, (ii) noncallable obligations of an agency or instrumentality of the United States, including obligations unconditionally guaranteed or insured by the agency or instrumentality and on the date of their acquisition or purchase by the City 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 on the date of their acquisition or purchase by the City, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent (hereinafter called the "Escrowed Securities") that mature and/or bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment of the Refunded Obligations; and WHEREAS, in accordance with the provisions of the ordinances authorizing the Refunded Obligations, the deposits to refund and defease such Refunded Obligations shall be 45195623.1 - - - invested only in direct· obligations of the United States of America, including obligations the principal of and interest on are unconditionally guaranteed by the United States of America; and WHEREAS, the Refunded Obligations are scheduled to mature, or be redeemed, and interest thereon is payable on the dates and in the manner set forth in Exhibit A attached hereto and incorporated herein by reference as a part of this Agreement for all purposes; and WHEREAS, the City 6n the 11th day of July, 2002, pursuant to an ordinance (the "Bond Ordinance") finally passed and adopted by the City Council, authorized the issuance of bonds known as "City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2002" (the "Bonds"), and such Bonds are being issued to refund, discharge and make final payment of the principal of and interest on the Refunded Obligations; and WHEREAS, upon the delivery of the Bonds, the proceeds of sale, together with other available funds of the City, are to be deposited with the Bank and used in part to purchase the Escrowed Securities listed and identified in Exhibit B attached hereto and incorporated by reference as a part of this Agreement for all purposes; and WHEREAS, the Escrowed Securities shall be held and deposited to the credit of the "Escrow Fund" to be established and maintained by the Bank in accordance . with this Agreement; and WHEREAS, the Escrowed Securities, together with the beginning cash balance in the Escrow Fund, shall mature and the interest thereon shall be payable at such times to insure the existence of monies sufficient to pay the principal amount of the Refunded Obligations and the accrued interest thereon, as the same shall become due in accordance with the terms of the ordinances authorizing the issuance of the Refunded Obligations and as set forth in Exhibit A attached hereto; and WHEREAS, the City has completed all arrangements for the purchase of the Escrowed Securities listed in Exhibit B and the deposit and credit of the same to the Escrow Fund as provided herein; and WHEREAS, the Bank is a national banking association organized and existing under the laws of the United . States of America, possessing trust powers and is fully qualified and empowered to enter into this Agreement; and WHEREAS, in Section 16 of the Bond Ordinance, the City Council duly approved and authorized the execution of this Agreement; and WHEREAS, the City and the Escrow Agent, as the case may be, shall take all action necessary to call, pay, redeem and retire said Refunded Obligations in accordance with the provisions thereof, including, without limitation, all actions required by the ordinances authorizing the Refunded Obligations, the Act, the Bond Ordinance and this Agreement; NOW, THEREFORE, in consideration of the mutual agreements herein contained, and to secure the payment of the principal of and the interest on the Refunded Obligations as the same shall become due, the City and the Bank hereby mutually undertake, promise and agree as follows: 45195623.1 2 - - SECTION 1: Receipt of Refunded Bond Ordinances. Receipt of copies of the ordinances authorizing the issuance of the Refunded Obligations and the Bond Ordinance are hereby acknowledged by the Bank. Reference herein to or citation herein of any provision of said documents shall be deemed an incorporation of such provision as a part hereof in the same manner and with the same effect as if it were fully set forth herein. SECTION 2: Escrow Fund Creation/Funding. There is hereby created by the City with the Bank a special segregated and irrevocable trust fund designated "SPECIAL 2002 CITY OF LUBBOCK, TEXAS, REFUNDING BOND ESCROW FUND" (hereinafter called the "Escrow Fund") for the benefit of the holders of the Refunded Obligations, and, immediately following the delivery of the Bonds, the City agrees and covenants to cause to be deposited with the Bank the following amounts: $6,818,455.00 $4,150,545.21 For the purchase of Escrowed Securities identified in Exhibit B to be held for the account of the Escrow Fund For deposit in the Escrow Fund as a beginning cash balance. The Bank hereby accepts the Escrow Fund and further agrees to receive said moneys, apply the same as set forth herein, and to hold the cash and Escrowed Securities deposited and credited to the Escrow Fund for application and disbursement for the purposes and in the manner provided in this Agreement. SECTION 3: Escrow Fund Sufficiency Warranty. The City hereby represents that the cash and Escrowed Securities, together with the interest to be earned thereon, deposited to the credit of the Escrow Fund will be sufficient to pay the principal of and premium and interest on the Refunded Obligations as the same shall become due and payable, and such Refunded Obligations, and the interest thereon, are to mature or be redeemed and shall be paid at the times' and in· the amounts set forth and identified in Exhibit A attached hereto. FURTHERMORE, the Bank acknowledges receipt of a copy of the Bond Ordinance which also provides for the redemption of the (i) Series 1993 Refunded Obligations, dated December 1 , 1993 on August 16, 2002 at the redemption price of par plus accrued interest thereon, and (ii) Series 1993 Refunded Obligations, dated October 1, 1993, on February 15, 2003; all in accordance with the provisions of the notice requirements applicable to said Refunded Obligations and the notice requirements contained in the respective ordinances authorizing such Refunded Obligations. The Bank agrees to cause a notice of redemption pertaining to the Refunded Obligations to be sent to the registered owners thereof appearing on the registration books at least thirty (30) days prior to the respective redemption date therefor. SECTION 4: Pledge of Escrow. The Bank agrees that all cash and Escrowed Securities, together with any income or interest earned thereon, held in the Escrow Fund shall be and is hereby irrevocably pledged to the payment of the principal of and interest on the Refunded Obligations which will mature and become due on and after the date of this Agreement, and such funds initially deposited and to be received from maturing principal and interest on the Escrowed Securities in the Escrow Fund shall be applied solely in accordance with the provisions of this Agreement. 45195623.1 3 '' - - - - SECTION 5: Escrow Insufficiency-City Warranty to Cure. If, for any reason, the funds on hand in the Escrow Fund shall be insufficient to make the payments set forth in Exhibit A attached hereto, as the same becomes due and payable, the City shall make timely deposits to the Escrow Fund, from lawfully available funds, of additional funds in the amounts required to make such payments. Notice of any such insufficiency shall be immediately given by the Bank to the City by the fastest means possible, but the Bank shall in no manner be responsible for the City's failure to make such deposits. SECTION 6: Escrow Fund Securities/Segregation. The Bank shall hold said Escrowed Securities and moneys in the Escrow Fund at all times as a special and separate trust fund for the benefit of the holders of the Refunded Obligations, wholly segregated from other moneys and securities on deposit with the Bank; shall never commingle said Escrowed Securities and moneys with other moneys or securities of the Bank; and shall hold and dispose of the assets therein only as set forth herein. Nothing herein contained shall be construed as requiring the Bank to keep the identical moneys, or any part thereof, in said Escrow Fund, if it is impractical, but moneys of an equal amount, except to the extent such are represented by the Escrowed Securities, shall always be maintained on deposit in the Escrow Fund by the Bank, as escrow agent; and a special account evidencing such facts shall at all times be maintained on the books of the Bank. SECTION 7: Escrow Fund Collections/Payments. The Bank shall from time to time collect and receive the principal of and interest on the Escrowed Securities as they respectively mature and become due and credit the same to the Escrow Fund. On or before each principal and/or interest payment date or redemption date, as the case may be, for the Refunded Obligations shown in Exhibit A attached hereto, the Bank, without further direction from anyone, including the City, shall cause to be withdrawn from the Escrow Fund the amount required to pay the accrued interest on the Refunded Obligations due and payable on said payment date and the principal of the Refunded Obligations due and payable on said payment date or redemption date, as the case 11Jay be, and the amount withdrawn from the Escrow Fund shall be immediately transmitted and deposited with the paying agent for the Refunded Obligations to be paid with such amount. The paying agent for the Refunded Obligations is the Bank. If any Refunded Obligation thereon shall not be presented for payment when the principal thereof or interest thereon shall have become due, and if cash shall at such times be held by the Bank in trust for that purpose sufficient and available to pay the principal of such Refunded Obligation and interest thereon it shall be the duty of the Bank to hold said cash without liability to the holder of such Refunded Obligation for interest thereon after such maturity or redemption date, in trust for the benefit of the holder of such Refunded Obligation, who shall thereafter be restricted exclusively to said cash for any claim of whatever nature on his part on or with respect to said Refunded Obligation, including for any claim for the payment thereof and interest thereon. All cash required by the provisions hereof to be set aside or held in trust for the payment of the Refunded Obligations, including interest thereon, shall be applied to and used solely for the payment of the Refunded Obligations and interest thereon with respect to which such cash has been so set aside in trust. Subject to the provisions of the last sentence of Section 25 hereof, cash held by the Bank in trust for the payment and discharge of any of the Refunded Obligations and interest thereon which remains unclaimed for a period of three (3) years after the stated maturity date or redemption date of such Refunded Obligations shall be returned to the City. Notwithstanding the above and foregoing, any remittance of funds from the Bank to the City shall be subject to any applicable unclaimed property laws of the State of Texas. 45195623.1 4 - ....... - - SECTION 8: Disposal of Refunded Obligations. All Refunded Obligations cancelled on account of payment by the Bank shall be disposed of or otherwise destroyed by the Bank, and an appropriate certificate of destruction furnished the City. SECTION 9: Escrow Fund Encumbrance. The escrow created hereby shall be irrevocable and the holders of the Refunded Obligations shall have an express lien on all moneys and Escrowed Securities in the Escrow Fund until paid out, used and applied in accordance with this Agreement. · Unless disbursed in payment of the Refunded Obligations, all funds and the Escrowed Securities received by the Bank for the account of the City hereunder shalt be and remain the property of the Escrow Fund and the City and the owners of the Refunded Obligations shall be entitled to a preferred claim and shall have a first lien upon such funds and Escrowed Securities enjoyed by a trust beneficiary. The funds and Escrowed Securities received by the Bank under this Agreement shall not be considered as a banking deposit by the City and the Bank and the City shall have no right or title with respect thereto, except as otherwise provided herein. Such funds and Escrowed Securities shall not be subject to checks or drafts drawn by the City. SECTION 10: Absence of Bank Claim/Lien on Escrow Fund. The Bank shall have no lien whatsoever upon any of the moneys· or Escrowed Securities in the Escrow Fund for payment of services rendered hereunder, services rendered as paying agent/registrar for the Refunded Obligations, or for any costs or expenses incurred hereunder and reimbursable from the City. SECTION 11: Substitution of Investments/Reinvestments. The Bank shall be authorized to accept initially and temporarily cash and/or substituted Escrowed Securities pending the delivery of the Escrowed Securities identified in the Exhibit B attached hereto, or shall be authorized to redeem the Escrowed Securities and reinvest the proceeds thereof, together with other moneys held in the Escrow Fund in noncallable direct obligations of the United States of America provided such early redemption and reinvestment of proceeds does not change the repayment schedule of the Refunded Obligations appearing in Exhibit A and the Bank receives the following: ( 1) an opinion by an independent certified public accountant to the effect that (i) the initial and/or temporary substitution of cash and/or securities for one or more of the Escrowed Securities identified in Exhibit B pending the receipt and delivery thereof to the Escrow Agent or (ii) the redemption of one or more of the Escrowed Securities and the reinvestment of such funds in one or more substituted securities (which shall be noncallable direct obligations of the United States of America), together with the interest thereon and other available moneys then held in the Escrow Fund, will, in either case, be sufficient, without reinvestment, to pay, as the same become due in accordance with Exhibit A, the principal of, and interest on, the Refunded Obligations which have not previously been paid, and (2) with respect to an early redemption of Escrowed Securities and the reinvestment of the proceeds thereof, an unqualified opinion of nationally recognized municipal bond counsel to the effect that {a) such investment will not cause interest on the Bonds or Refunded Obligations to be included in the gross income for federal income tax purposes, under the Code and related regulations as in effect on the date of such investment, or otherwise make the interest on the 45195623.1 5 - - Bonds or the Refunded Obligations subject to Federal income taxation and (b) such reinvestment complies with the Constitution and laws of the State of Texas and with all relevant documents relating to the issuance of the Refunded Obligations and the Bonds. SECTION 12: Restriction on Escrow Fund Investments -Reinvestment. Except as provided in Section 11 hereof, moneys in the Escrow Fund will be invested only in the Escrowed Securities listed in Exhibit B and neither the City nor the Bank shall reinvest any moneys deposited in the Escrow Fund except as specifically provided by this Agreement. SECTION 13: Excess Funds. If at any time through redemption or cancellation of the Refunded Obligations there exists or will exist excesses of interest on or maturing principal of the Escrowed Securities in excess of the amounts necessary hereunder for the Refunded Obligations, the Bank may transfer such excess amounts to or on the order of the City, provided that the City delivers to the Bank the following: ( 1) an opinion by an independent certified public accountant that after the transfer of such excess, the principal amount of securities in the Escrow Fund, together with the interest thereon, and other available monies then held in the Escrow Fund, will be sufficient to pay, as the same become due and without reinvestment, in accordance with Exhibit A, the principal of, and interest on, the Refunded Obligations which have not previously been paid, and (2) an unqualified opinion of nationally recognized municipal bond counsel to the effect that (a) such transfer will not cause interest on the Bonds or the Refunded Obligations to be included in gross income for federal income tax purposes, under the Code and related regulations as in effect on the date of such transfer, or otherwise make the interest on the Bonds or the Refunded Obligations subject to Federal income taxation, and {b) such transfer complies with the Constitution and laws of the State of Texas and with all relevant documents relating to the issuance of the Refunded Obligations or the Bonds. SECTION 14: Collateralization. The Bank shall continuously secure the monies in the Escrow Fund not invested in Escrowed Securities by a pledge of direct obligations of the United States of America, in the par or face amount at least equal to the principal amount of said uninvested monies to the extent such money is not insured by the Federal Deposit Insurance Corporation. SECTION 15: Absence of Bank's Liability for Investments. The Bank shall not be liable or responsible for any loss resulting from any investment made in the Escrowed Securities or substitute securities as provided in Section 11 hereof. SECTION 16: Bank's Compensation -Escrow Administration/Settlement of Paying Agent's Charges. The City agrees to pay the Bank for the performance of services hereunder and as reimbursement for anticipated expenses to be incurred hereunder the amount of $500.00 and, except for reimbursement of costs and expenses incurred by the Bank pursuant to Sections 3, 11 and 19 hereof, the Bank hereby agrees said amount is full and complete payment for the administration of this Agreement. The City also agrees to deposit with the Bank on the effective date of this Agreement, the sum of $773.50, which represents the total charge due the Bank as paying agent for the 45195623.1 6 - - Refunded Obligations and the Bank acknowledges and· agrees that above amount is and represents the total amount of compensation due the Bank for services rendered as paying agent for the Refunded Obligations. The Bank hereby agrees to pay, assume and be fully responsible for any additional charges that it may incur in the performance of its duties and responsibilities as paying agent for the Refunded Obligations. SECTION 17: Escrow Agent's Duties I Responsibilities/Liability. The Bank shall not be responsible for any recital herein, except with respect to its organization and its powers and authority. As to the existence or nonexistence of any fact relating to the City or as to the sufficiency or validity of any instrument, paper or proceedings relating to the City, the Bank shall be entitled to rely upon a certificate signed on behalf of the City by its City Secretary or Mayor and/or City Secretary of the City as sufficient evidence of the facts therein contained. The Bank may accept a certificate of the City Secretary under the City's seal, to the effect that a resolution or other instrument in the form therein set forth has been adopted by the City Council of the City, as conclusive evidence that such resolution or other instrument has been duly adopted and is in full force and effect. · The duties and obligations of the Bank shall be determined solely by the express provisions of this Agreement and the Bank shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Bank. In the absence of bad faith on the part of the Bank, the Bank may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificate or opinion furnished to the Bank, conforming to the requirements of this Agreement; but notwithstanding any provision of this Agreement to the contrary, in the case of any such certificate or opinion or any evidence which by any provision hereof is specifically required to be furnished to the Bank, the Bank shall be under a duty to examine the same to determine whether it conforms to the requirements of this Agreement. The Bank shall not be liable for any error of judgment made in good faith by a Responsible Officer or Officers of the Bank unless it shall be proved that the Bank was negligent in ascertaining or acting upon the pertinent facts. The Bank shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the holders of not less than a majority in aggregate principal amount of all said Refunded Obligations at the time outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Bank not in conflict with the intent· and purpose of this Agreement. For the purposes of determining whether the holders of the required principal amount of said Refunded Obligations have concurred in any such direction, Refunded Obligations owned by any obligor upon the Refunded Obligations, or by any person directly or indirectly controlling or controlled by or under direct or indirect common control with such obligor, shall be disregarded, except that for the purposes of determining whether the Bank shall be protected in relying on any such direction only Refunded Obligations which the Bank knows are so owned shall be so disregarded. The term "Responsible Officers" of the Bank, as used in this Agreement, shall mean and include the Chairman of the Board of Directors, the President, any Vice President and any Second Vice President, the Secretary and any Assistant Secretary, the Treasurer and any Assistant Treasurer, and every other officer and assistant officer of the Bank customarily performing functions similar to those performed by the persons who at the time shall be officers, 45195623.1 7 - - respectively, or to whom any corporate trust matter is referred, because of his knowledge of and familiarity with a particular subject; and the term· "Responsible Officer" of the Bank, as used in this Agreement, shall mean and include any of said c:>fficers or persons. SECTION 18: Limitation Re: Bank's Duties/Responsibilities/Liabilities to Third Parties. The Bank shall not be responsible or liable to any person · in any manner whatever for the sufficiency, correctness, genuineness, effectiveness, or validity of this Agreement with respect to the City, or for the identity' or authority of any person making or executing this Agreement for and on behalf of the City. The Bank is authorized by the City to rely upon the representations of the City with respect to this Agreement and the deposits made pursuant hereto and as to the City's right and power to execute and deliver this Agreement, and the Bank shall not be liable in any manner as a result of such reliance. The duty of the Bank hereunder shall only be to the City and the holders of the Refunded Obligations. Neither the City nor the Bank shall assign or attempt to assign or transfer any interest hereunder or any portion of any such interest. Any such assignment or attempted assignment shall be in direct conflict with this Agreement and be without effect. SECTION 19: Interpleader. In the event conflicting demands or notices are made upon the Bank growing out of or relating to this Agreement or the Bank in good faith is in doubt as to what action should be taken hereunder, the Bank shall have the right at its election to: (1) Withhold and stop all further proceedings in, and performance of, this Agreement with respect to the issue in question and of all instructions received hereunder in regard to such issue; and (2) File a suit in interpleader and obtain an order from a court of appropriate jurisdiction requiring all persons involved to interplead and litigate in · such court their several claims and rights among themselves. In the event the Bank becomes involved in litigation in connection with this Section, the City, to the extent permitted by law, agrees to indemnify and save the Bank harmless from all loss, cost, damages, expenses and attorney fees suffered or incurred by the Bank as a result thereof. The obligations of the Bank under this Agreement shall be performable at the corporate office of the Bank in the City of Dallas, Texas. The Bank may advise with legal counsel in the event of any dispute or question regarding the construction of any of the provisions hereof or its duties hereunder, and in the absence of negligence or bad faith on the part of the Bank, no liability shall be incurred by the Bank for any action taken pursuant to this Section and the Bank shall be fully protected in acting in accordance with the opinion and instructions of legal counsel that is knowledgeable and has expertise in the field of law addressed in any such legal· opinion or with respect to the instructions given. SECTION 20: Accounting -Annual Report. Promptly after February 15, 2003 or the date final payment is made on the Refunded Obligations, the Bank shall forward to the City, to the attention of the Director of Finance, or other designated official of the City, a final report pertaining to the Escrow Fund, including all deposits and disbursement of funds made from such fund. 45195623.1 8 - - SECTION 21: Notices. Any notice, authorization, request or demand required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when mailed by registered or certified mail, postage prepaid addressed as follows: CITY OF LUBBOCK, TEXAS P. 0. Box 2000 Lubbock, Texas 79457 Attention: Director of Finance THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA N.A. 600 North Pearl Street, Suite 420 Plaza of the Americas, South Tower Dallas, Texas 75201 Attention: Issuer Administrative Services The United States Post Office registered or certified mail receipt showing delivery of the aforesaid shall be conclusive evidence of the date a.nd fact of delivery. Any party hereto may change the address to which notices are to be delivered by giving to the other parties not less than ten (10) days prior notice thereof. SECTION 22: Performance Date. Whenever under the terms of this Agreement the performance date of any provision hereof, including the date of maturity of interest on or principal of the Refunded Obligations, shall be a Sunday or a legal holiday or a day on which the Bank is authorized by law to close, then the performance thereof, including the payment of principal of and interest on the Refunded Obligations, need not be made on such date but may be performed or paid, as the case may be, on the next succeeding business day of the Bank with the same force and effect as if made on the date of performance or payment and with respect to a payment, no interest shall accrue for the period after such date. SECTION 23: Warranty of Parties Re: Power to Execute and Deliver Escrow Agreement. The City covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in this Agreement, in any and every said Refunded Obligation as executed, authenticated and delivered and in all proceedings pertaining thereto as said Refunded Obligations shall have been modified as provided in this Agreement. The City covenants that it is duly authorized under the Constitution and laws of the State of Texas to execute and deliver this Agreement, that all actions on its part for the payment of said Refunded Obligations as provided herein and the execution and delivery of this Agreement have been duly and effectively taken and that said Refunded Obligations and coupons in the hands of the holders and owners thereof are and will be valid and enforceable obligations of the City according to the import thereof as provided in this Agreement. SECTION 24: Severability. If any one or more of the covenants or agreements provided in this Agreement on the part of the parties to be performed should be determined by a court of competent jurisdiction to be contrary to law, such covenant or agreement shall be deemed and construed to be severable from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Agreement. In the event 45195623.1 9 - - - any covenant or agreement contained in this Agreement is declared to be severable from the other provisions of this Agreement, written notice of such event shall immediately be given to each national rating service (Moody's Investors Service, Standard & Poor's Corporation or Fitch Investors Service) which has rated the Refunded Obligations on the basis of this Agreement. SECTION 25: Termination. This Agreement shall terminate when the Refunded Obligations, including interest due thereon, have been paid and discharged in accordance with the provisions of this Agreement. If any Refunded Obligations are not presented for payment when due and payable, the nonpayment thereof shall not prevent the termination of this Agreement. Funds for the payment of any nonpresented Refunded Obligations and accrued interest thereon shall upon termination of this Agreement be held by the Bank for such purpose in accordance with Section 7 hereof. Any moneys or Escrowed Securities held in the Escrow Fund at termination and not needed for the payment of the principal of or interest on any of the Refunded Obligations shall be paid or transferred to the City. SECTION 26: Time of the Essence. Time shall be of the essence in the performance of obligations from time to time imposed upon the Bank by this Agreement. SECTION 27: Successors/Assigns. (a) Should the Bank not be able to legally serve or perform the duties and obligations under this Agreement, or should the Bank be declared to be insolvent or closed for any reason by federal or state regulatory authorities or a court of competent jurisdiction, the City, upon being notified or discovering the Bank's inability or disqualification to serve hereunder, shall forthwith appoint a successor to replace the Bank, and upon being notified of such appointment, the Bank shall (i) transfer all funds and securities held hereunder, together with all books, records and accounts relating to the Escrow Fund and the Refunded Obligations, to such successor and (ii) assign all rights, duties and obligations under this Agreement to such successor. If the City should fail to appoint such a successor within ninety (90) days from the date the City discovers, or is notified of, the event or circumstance causing the Bank's inability or disqualification to serve hereunder, the Bank, or a bondholder of the Refunded Obligations, may apply to a court of competent jurisdiction to appoint a successor or assigns of the Bank and such court, upon determining the Bank is unable to continue to serve, shall appoint a successor to serve under this Agreement and the amount of compensation, if any, to be paid to such successor for the remainder of the term of this Agreement for services to be rendered both for administering the Escrow Fund and for paying agent duties and responsibilities for the Refunded Obligations. (b) Furthermore, the Bank may resign and be discharged from performing its duties and responsibilities under this Agreement upon notifying the City in writing of its intention to resign and requesting the City to appoint a successor. No such resignation shall take effect until a successor has been appointed by the City and such successor has accepted such appointment and agreed to perform all duties and obligations hereunder for a total compensation equal to the unearned proportional amount paid the Bank under Section 16 hereof for the administration of this Agreement and the unearned proportional amount of the paying agents fees for the Refunded Obligations due the Bank. Any successor to the Bank shall be a bank, trust company or other financial institution that is duly qualified under applicable law (the Act or other appropriate statute) to serve as escrow agent hereunder and authorized and empowered to perform the duties and obligations contemplated by this Agreement and organized and doing business under the laws of the United States or the State of Texas, having its principal office and place of business in the State 45195623.1 10 - - ,.., - of Texas, having a combined capital and surplus of at least $5,000,000 and be subject to the supervision or examination by Federal or State authority. Any successor or assigns to the Bank shall execute, acknowledge and deliver to the City and the Bank, or its successor or assigns, an instrument accepting such appointment hereunder, and the Bank shall execute and deliver an instrument transferring to such successor, subject to the terms of this Agreement, all the rights, powers and trusts created and established and to be performed under ttiis Agreement. Upon the request of any such successor Bank, the City shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor Bank all such rights, powers and duties. The term "Bank" as used herein shall be the Bank and its legal assigns and successor hereunder. SECTION 28: Escrow Agreement -Amendment/Modification. This Agreement shall be binding upon the City and the Bank and their respective successors and legal representatives and shall inure solely to the benefit of the holders of the Refunded Obligations, the City, the Bank and their respective successors and legal representatives. Furthermore, no alteration, amendment or modification of any provision of this Agreementshall (1) alter the firm financial arrangements made for the payment of the Refunded Obligations or (2) be effective unless (i) prior written consent of such alteration, amendment or modification shall have been obtained from the holders of an Refunded Obligations outstanding at the time of such alteration, amendment or modification and (ii) such alteration, amendment or modification is in writing and signed by the parties hereto; provided, however, the City and the Bank may, without the consent of the holders of the Refunded Obligations, amend or modify the terms and provisions of this Agreement to cure in a manner not adverse to the holders of the Refunded Obligations any ambiguity, formal defect or omission in this Agreement. If the parties hereto agree to any amendment or modification to this Agreement, prior written notice of such amendment or proposed modification, together with the legal documents amending or modifying this Agreement, shall be furnished to each national rating service (Standard & Poor's Corporation, Moody's Investors Service or Fitch Investors Service) which has rated the Refunded Obligations on the basis of this Agreement, prior to such amendment or modification being executed. SECTION 29: Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. SECTION 30: Executed Counterparts. This Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as one original and shall constitute and be but one and the same instrument. This Agreement shall be governed by the laws of the State of Texas and shall be effective as of the date of the delivery of the Bonds. 45195623.1 11 - - IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be executed by their duly authorized officers and their corporate seals to be hereunto affixed and attested as of the date first above written. ATTEST: (City Seal) ATTEST: .:,:., ·~'-,··--~~~ ~-:-(sank Seal) ~- ~ ~> ~ 45195623.1 THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A., ·as Escrow Agent ~~ Title: {~ t\SSlSTANT ViCE PRESfDENlJ 12 EXHIBIT A DEBT SERVICE REQUIREMENTS FOR REFUNDED OBLIGATIONS DEBT SERVICE PAYMENT ON THE 1993 G.O. BONDS AND . DEBT SERVICE PAYMENTS TO MATURITY ON THE 1993 G.O. BONDS Interest Debt service Date Princi.eal rate Interest .eayment 02-15-03 $6,720,000 (1) $157,920.00 $6,877,920.00 -(1) Actual maturity dates, principal amounts and interest rates are as follows: Debt service Interest payments Date Princi.eal rate Interest to maturity 02-15-03 $157,920.00 $157,920.00 08-15-03 157,920.00 157,920.00 02-15-04 $960,000 4.500% 157,920.00 1,117,920.00 08-15-04 136,320.00 136,320.00 02-15-05 960,000 4.500% 136,320.00 1,096,320.00 . 08-15-05 114,720.00 114,720.00 02-15-06 960,000 4.600% 114,720.00 1,074120.00 08-15-06 92,640.00 92,640.00 02-15-07 960,000 4.700% 92,640.00 1,052,640.00 08-15-07 70,080.00 70,080.00 -02-15-08 960,000 4.800% 70,080.00 1,030,080.00 08-15-08 47,040.00 47,040.00 02-15-09' 960,000 4.900% 47,040.00 1,007,040.00 08-15-09 23,520.00 23,520.00 02-15-10 960,000 4.900% 23,520.00 983,520.00 $6720,000 $1,442,400.00 $8,162,400.00 - - - - - - - Date 08-1&.02 DEBT SERVICE PAYMENT ON THE 1993 G.O. REFUNDING BONDS AND DEBT SERVICE PAYMENTS TO MATURITY ON THE 1993 G.O. REFUNDING BONDS Interest Princi_eal rate Interest Exhibit A ·Page2 Debt service ea)II!lent $4,150,000 (1) $544.60 $4,150,544.60 (1) Actual maturity dates, principal amounts and interest rates are as follows: Debt service Interest payments Date Principal rate Interest to maturity 02-15-03 $1,040,000 * 4.500% $98,027.50 $1,138,027.50 08-15-03 74,627.50 74,627.50 02-15-04 960,000 * 4.650% 74,627.50 1,034,627.50 08-15-04 52,307.50 52,307.50 02-15-05 650,000 * 4.750% 52,307.50 702,307.50 08-15-05 36,870.00 36,870.00 02-15-06 630,000 * 4.800% 36,870.00 666,870.00 08-15-06 21,750.00 21,750.00 02-15-07 610,000 * 5.000% 21,750.00 631,750.00 08-15-07 6,500.00 6,500.00 02-15-08 260,000 * 5.000% 6,500.00 266,500.00 $4,150,000 $482,137.50 $4,632,137.50 * Represents portions of the original principal amounts. - - - - - EXHIBIT B LIST OF FEDERAL SECURITIES CASH RECEIPT FROM AND YIELD ON THE SLGS Receipt date 02-15-03 Principal $6,818,455 Purchase price of the SLGS Interest rate Interest 1J30% $59,464.40 Cash receipt fromSLGS $6,877,919.40 Present value on August 15, 2002 using a yield of 1744219% $6,818,455.00 $6,818,455.00 The present value of the cash receipt from the SLGS on August 15, 2002, using a yield of 1744219%, is equal to the purchase price of the SLGS. - - - - I. THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A. Schedule of Fees for Escrow Agent Services City of Lubbock, Texas Refunding Escrow Series 2002 Refunds General Obligation Series 1993 and General Obligation Refunding Series 1993 ACCEPTANCE FEE: Payable at closing. Waived II. ADMINISTRATION FEES: ESCROW AGENT FEE: Final Maturity Date 2/15/03 Escrow Agent fee is payable at closing. Ill. PREPAID FEES: General Obligation Series 1993 Call date 8/15/02 General Obligation Refunding Series 1993 Call Date 2/15/03 IV. MISCELLANEOUS EXPENSES: Closing Out-of-Pocket $ 500.00 $ 250.00 $ 473.40 $ 50.00 For partial redemptions, applying for new CUSIPs will be provided from the financial advisor. Those costs are not included in this proposal. If the bond resolution for the refunded bonds requires publishing of early redemption or defeasance notices in anything other than the Texas Bond Reporter, all costs incurred to publish notice shall be borne by the issuer. The charges for performing services not contemplated at the time of the execution of the Agreement or not specifically covered elsewhere in this schedule, will be determined by appraisal in amounts commensurate with the service to be provided. The Bank of New York Trust Company of Florida, NA's final account acceptance is subject to the full review of all documentation related hereto, and standard conflict procedures. Should this transaction terminate prior to closing, all out-of-pocket expenses incurred, including legal fees, will be billed at cost. Our proposal is subject in all aspects to The Bank of New York Trust Company of Florida, N.A. 's review and acceptance by the Trust Committee of those final financing documents which set forth our duties and responsibilities. Dated: July 12, 2002 u:\debbie\texas bids\lubbock esc2002.doc 5 - - - SIGNATURE IDENTIFICATION AND AUTHORITY CERTIFICATE OF THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A. I, the undersigned, John C. Stohlmann, do hereby certify that: 1. I am a duly elected and acting Vice President of The Bank ofNew York Trust Company of Florida, N.A. (the "Bank"), and I am duly authorized to execute this certificate on its behal£ 2. That certain Escrow Agreement between City of Lubbock, Texas and the Bank, dated July 11, 2002 (the "Escrow Agreement") was duly executed on behalf of the Bank by Deborah A. Bennett and Kristel D. Richards, respectively, who at the time of executing and attesting the same were and are now duly elected and acting Assistant Vice President and Assistant Treasurer, respectively, of the Bank and authorized to execute, attest and deliver the Escrow Agreement as evidenced by the resolutions or Bylaws contained in Exhibit "A". The Resolutions or Bylaws contained in Exhibit "A" were duly adopted and are in full force and effect as of this date. There follows the names, offices and true and correct signatures of the aforesaid officers: Designation Deborah A. Bennett Assistant Vice President Kristel D. Richards Assistant Treasurer WITNESS my hand and seal of The Bank of New York Trust Company of Florida, N.A. this 12th day of July, 2002 Nmne: ()~ Joi}tc:stohlmann -...::::::s Vice President - - - - - - THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A. 10161 Centurion Parkway Jacksonville, Florida 32256 I, the undersigned, Sheila S. Papelbon, DO HEREBY CERTIFY that John C. Stohlmann is a duly appointed and qualified Officer of THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A.(the "Bank") and is authorized to sign on behalf of the Bank in discharging or performing his duties in accordance with Section 5.2 of the By-laws of THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A., as amended through May 4, 2001. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A. this 9th day of ApriL 2002. - - THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A. 10161 Centurion Parkway Jacksonville .. Florida 32256 I, the undersigned, Sheila S. Papelbon, DO HEREBY CERTIFY that Deborah A. Bennett is a duly appointed and qualified Officer of THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A.(the "Bank") and is authorized to sign on behalf of the Bank in discharging or performing her duties in accordance with Section 5.3 A,J of the By-laws of THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A., as amended through May 4, 2001. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A. this 9th day of April, 2002. - - - - - THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A. 10161 Centurion Parkway Jacksonville, Florida 32256 I, the undersigned, Troy Kilpatrick, DO HEREBY CERTIFY that Kristel D. Richards is a duly appointed and qualified Officer of THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A.(the "Bank") and is authorized to sign on behalf of the Bank in discharging or performing her duties in accordance with Section 5.2 of the By-laws of THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A., as amended through May 4, 2001. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A. this 19th day of Tune, 2002. v~ - -. - - - - SIGNING AUTHORITIES Extracts from By~ Laws of THE BANK OF r";"EW YORK TRUST COMPANY OF FLORIDA, N.A. ARTICLEV As amended through May 4, 2001 · SECTION 5.1 Real Property. Real property owned by the Association in its own right shall not be deeded, conveyed, mortgaged, assigned or transferred except when duly authorized by a resolution of the Board. The Board may from time-to-time authorize officers to deed, convey, mortgage, assign or transfer real property owned by the Association in· its ovm right with such maximum. values as the Board may .fix in its authorizing resolution. SECTION 5.2. Senior Signing Powers. Subject to the exception provided in Section 5.1, the Chairman, the President, any Vice Chairman of the Board, any Senior Executive Vice President, any Executive Vice President, any Senior Vice President, or any Managing Director is authorized to accept, endorse, execute or sign any document, instrument or paper in the name of. or on behalf of, the Association in all transactions arising out of, or in connection with, the nonnal course of the Association's business or in any fiduciary, representative or agency capacity and, when required, to affix the seal of the Association thereto. In such instances as in the judgment of the Chainnan, the President, any Vice Chairman of the Board, any Senior Executive Vice President or any Executive Vice President may be proper and desirable, any one of said officers may authorize in writing from time-to-time any other officer to have the powers set forth in this section applicable only to the performance or dischaige of the duties of such officer witl:Un his or her particular division or function. Any officer of ihe Association authorized in or pursuant to Section 5.3 to have any of the powers set forth therein, other than the officer signing pursuant to this Section 5.2, is authorized to attest to the seal of the Associati~n on any documents requiring such seal. SECTION 5.3. Limited Signing Powers. Subject to the exception provided in Section 5.1, in such instances as in the judgment of the Chainnan, the President, any Vice Chairman·of-the Boarcl, any Senior Executive Vice President, or any Executive Vice President may be proper and desirable, any one· of said officers may authorize in writing from time-to-time any other officer, employee or individual'to have the limited signing powers or limited power to affix the seal of the Association to specified classes of documents set forth in a resolution of the Board applicable only to the performance or discharge of the duties of such officer, employee or individual within J:iis or her division or function. SECTION 5.4. Powers of Attorney. All powers of attorney on behalf of the Association shall be executed by any officer of the Association jointly with the Chainnan of the Board, the President, any Vice Chainnan, any Senior Executive Vice President, any Executive Vice President, any Senior Vice President or any Managing Director. Ar.y such power of attorney may, however, be executed by ~y officer or officers or pei'§on or persons who may be specifically authorized to execute the same by the Board of Directors. · SECTION 5.5. Auditor. The Auditor or any officer designated by the Auditor is authorized to certifY in the name of, or on behalf of the Association, in its ov.rn right or in a fiduciary or representatiye capacity, as to the accuracy and completeness of any account, schedule of assets, or other document, instrument or paper requiring such certification. - - - - - - - - SIGNING AUTHORITY RESOLUTION Pursuant to A.t1icle V, Section 5.3 of the By-laws RESOLVED, that, pursuant to Article V, Section 5,3 of the By-laws of The Bank ofNew York Trust Company of Florida, N.A., authority be, and hereby is, granted to the Chairman, the President, any Vice Chairman of the Board, any Senior Executive Vice President, or any Executive Vice President, in such instances as in the judgment of any one of said officers may be proper and desirable, to authorize in writing from time-to-time any other officer, employee or individual to have the limited signing authority set forth in any one or more of the following paragraphs applicable only to the performance or discharge of the duties of such officer, employee or individual within his or her division or function: (A) All signing authority set forth in paragraphs (B) through (I) below. (B) Authority to accept, endorse, execute or sign any bill receivable; certification; contract, document or other instrument evidencing, embodying a commitment with respect to, or reflecting the terms or conditions of, a loan or an extension of credit by the Association; disclosure notice required by law; document, instrument or paper of any type required for judicial, regulatory or administrative proceedings or filings; legal opinion; note; and document, instrument or paper of any type, including stock and bond powers, required for purchasing, selling, transferring, exchanging or otherwise disposing of or dealing in foreign currency or any form of securities, including options and futures thereon; in each case in transactions arising out of, or in connection ·with, ~e normal course of the Association1s business. (Cl) Authority to accept, endorse, execute or sign or effect the issuance of any cashiers, certified or other official check; draft; order for payment of money; check certification; receipt; certificate of deposit; and money transfer wire; in each case, in an unlimited dollar amount. (C2) Authority to accept, endorse, execute or sign or effect the issuance of any cashiers, certified or other official check; draft; order for payment of money; check certification; receipt; certificate of deposit; and money transfer wire; in each case, in an amount up to $1,000,000. (C3) Authority to accept, endorse, execute or sign or effect the issuance of any cashiers, certified or other official check; draft; order for payment .of money; check certification; receipt; certificate of deposit; and money transfer wire; in each case, in an amount up to $250,000. --........ - ·-~-..... (C4) Authority to accept, endorse, execute or sign or effect the issuance of any cashiers, certified or other official check; draft; order for payment of money; ch~k certification; receipt; certificate of deposit; and money transfer wire; in each case, in an amount up to $50,000. (CS) Authority to accept, endorse, execute or Sign or effect the issuance of any cashiers, certified or other official check; draft; order for payment of money; check certification; receipt; certificate of deposit; and money transfer wire; in each case, in an amount up to .$5,000. {Dl) Authority to accept, endorse, execute or sign any contract obligating the Association for the payment of money or the provision of services in an amount up to Sl,OOO,OOO. (D2) Authority to accept, endorse, execute or sign any contract obligating the Association for the payment of money or the provision of services in an amount up to $250,000. {D3) Authority to accept, endorse, execute or sign any contract obligating the Association for the payment of money or the provision of services in an amount up to $50,000. (D4) Authority to accept, endorse, execute or sign any contract obligating the Association for the payment of money or the provision of services in an amount up to $5,000. - - - - - (E) Authority to accept, endorse, execute or sign any guarantee of signature to assignments of stocks, bonds or other instruments; certification required for transfers and deliveries of stocks, bonds or other instruments; and document, instrument or paper of any type required in connection with any Individual Retirement Account or Keogh Plan or similar plan. (F) Authority to accept, endorse, execute or sign any certificate of authentication as bond, unit investment trust or debenture trustee and on behalf of the Association as registrar and transfer agent. (G) Authority to accept, endorse, execute or sign any bankers acceptance; letter of credit; and bill oflading. (H) Authority to acceptJ endorse, execute or sign any document, instrument or paper of any type required in connection with the ownership, management or transfer of real or personal property · held by the Association in trust or in connection with any transaction with respect to which the Association is acting in any fiduciary, representative or agency capacity, including the acceptance of such :fiduciazy, representative or agency account. (I) Authority to effect the movement of securities outside the Association. (J) Authority to either sign on behalf of the Association or to affix the seal of the Association to any of the following classes of documents: Trust Indentures, Escrow Agreements, Pooling and Servicing Agreements, Collateral Agency Agreements, Custody Agreements, Trustee's Deeds, Executor's Deeds, Personal Representative's Deeds, Other Real Estate Deeds for property not o\Vl'led by the Association in its own right, Corporate Resolutions, Mortgage Satisfactions, Mortgage Assignments, Trust Agreements, Loan Agreements, Trust and Estate Accountings, Probate Petitions, responsive pleadings in litigated matters and Petitions in Probate Court with respect to Accountings. RESOLVED, that any signing authority granted pursuant to ·tb.is resolution. may be rescinded by the Chainnan7 the President, any Vice Chairman of the Board, any Senior Executive Vice President, or any Executive Vice President and such signing authority shall tenninate without ¢.e necessity of any further action when the person having such authority leaves the employ of the Association. ·-·.-,..,. ~ · ·-'·"""' Internal Signin~ Authority (N) Authority to accept, endorse.) execute or sign internal transactions only (i.e., general ledger tickets) which does not include the authority to approve or authorize the request of external money transfer wires, check and/or the movement of securities outside the Association. I do hereby certify that the above are true Extracts from the By-Laws of THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N .A. and are still in full force and effect. Dated this 3~"-day of rV•~t--.J,..w'2001. at Miami, Florida. THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A. 6 OFFICIAL STATEMENT Dated July 11,2002 Ratings: Moody's: "Aaa/Aa2" S&P: "Aaa/AA+" Fitch: "Aaa/AA+" NEW ISSUE -Book-Entry-Only MBIA Insured -See ("Bond Insurance" and "Other Information-Ratings" herein) In the opinion of Bond Counsel, interest on the Bonds will be excludable from gross income for federal income tax purposes under existing law, subject to the matters described under "Tax Exemption" herein, including the alternative minimum tax on corporations. THE BONDS WILL NOT BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS Dated Date: July 1, 2002 $10,810,000 CITY OF LUBBOCK, TEXAS (Lubbock County) GENERAL OBLIGATION REFUNDING BONDS, SERIES 2002 Due: February 15, as shown inside cover PAYMENT TERMS ... Interest on the $10,810,000 City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2002 (the "Bonds") will accrue from July I, 2002, (the "Dated Date") and will be payable February 15 and August 15 of each year commencing February 15, 2003, and will be calculated on the basis of a 360-day year consisting of twelve 30-day months. The definitive Bonds will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company I") ("DTC") pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Bonds may be acquired in denominations of$5,000 or integral multiples thereof. No physical delivery ofthe Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See "The Bonds -Book-Entry-Only System" herein. The initial Paying Agent/Registrar is JPMorgan Chase Bank, Dallas, Texas (see "The Bonds-Paying Agent/Registrar"). AUTHORITY FOR IsSUANCE ... The Bonds are issued pursuant to the Constitution and general laws of the State of Texas, (the "State") including particularly Vernon's Texas Codes Annotated ("V.T.C.A."), Texas Government Code, Chapter 1207, as amended, and are direct obligations of the City of Lubbock, Texas (the "City"}, payable from a continuing ad valorem tax levied on all taxable property within the City, within the limits prescribed by law, as provided in the ordinance authorizing the Bonds (the "Ordinance") (see "The Bonds-Authority for Issuance"). PURPOSE ... Proceeds from the sale of the Bonds will be used to advance refund a portion of the City's outstanding tax supported debt (the "Refunded Bonds") in order to lower the overall debt service requirements of the City, and to pay the costs associated with the issuance of the Bonds. See "Schedule I-Schedule of Refunded Bonds". JMBIA Payment of the principal of and interest on the Bonds when due will be insured by a municipal bond insurance policy to be issued by MBIA Insurance Corporation simultaneously with the delivery of the Bonds. SEE MATURITY SCHEDULE PROVISIONS ON THE REVERSE OF THIS PAGE LEGALITY ... The Bonds are offered for delivery when, as and if issued and received by the Underwriters and subject to the approving opinion of the Attorney General of Texas and the opinion of Fulbright & Jaworski L.L.P., Bond Counsel, Dallas, Texas (see Appendix C, "Form of Bond Counsel's Opinion"). Certain legal matters will be passed upon for the Underwriters by McCall, Parkhurst & Horton L.L.P., Dallas, Texas, Counsel for the Underwriters. DELIVERY. . It is expected that the Bonds will be available for delivery through the DTC on August 15, 2002. RBC DAIN RAUSCHER COASTAL SECURITIES ESTRADA HINOJOSA & COMPANY, INC. MATURITY SCHEDULE Maturity Price or Maturity Price or Amount (February 15) Rate Yield Amount (February 15) Rate Yield $ 1,010,000 2003 3.00% 1.46% $ 1,575,000 2007 3.25% 3.17% 1,935,000 2004 4.50% 2.00% 1,205,000 2008 3.75% 3.49% 1,625,000 2005 4.75% 2.51% 935,000 2009 3.75% 3.69% 1,605,000 2006 4.75% 2.87% 920,000 2010 4.00% 3.89% (Accrued Interest from July 1, 2002 to be added) REDEMPTION ... The Bonds are not subject to redemption prior to maturity. DELIVERY ... It is expected that the Bonds will be available for delivery through the DTC on August 15, 2002. 2 - No dealer, broker, salesman or other person has been authorized by the City to give any information, or to make any representations other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by the City. This Official Statement does not constitute an offer to sell Bonds in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. Certain information set forth herein has been obtained from the City and other sources which are believed to be reliable but is no guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Financial Advisot4ny infOrmation and expressions of opinion herein contained are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication thor there hos been no change in the affairs of the City or other matters described herein since the date hereof See "CONTINUING DISCLOSURE OF INFORMATION" for a description of the City's undertaking to provide certain information on a continuing basis. THE BONDS ARE EXEA1PT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE BONDS IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTION IN WHICH THESE SECURITIES HAVE BEEN REGISTERED OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THE CITY NOR THE UNDERWRITERS l1.1AKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMElvT REGARDING THE DEPOSITORY TRUST CQ:!v!PANY OR ITS BOOK ENTRY· ONLY SYSTEM, AS SUCH INFORJIIATION HAS BEEN FURNISHED BY THE DEPOSITORY TRUST COMPANY IN CONNECTION WITH THE OFFERING OF THE BONDS OR lNFORl1.1ATION UNDER THE CAPTION "MUNICIPAL BOND INSURANCE" REGARDING MBIA INSURANCE CORPORATION AND ITS INSURANCE POLICY FOR THE CERTIFICATES, AS SUCH INFORJIIATION WAS FURNISHED BYll.fBIA INSURANCE CORPORATION. " THE UNDERWRITER."; AUY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE l'v/ARKET PRICES OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, A1AY BE DJSCONTLVUEDAT ANYTIME. The Underwriters have provided the following sentence for inclusion in this official statement. The Underwriters have reviewed the information in this official statement in accordance with, and as part of, its responsibilities to investors under federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. TABLE OF CONTENTS OFFICIAL STATEMENT SUMMAR¥ ........................................... 4 CITY OFFICIALS, STAFF AND CONSULTANTS ....................... 6 ELECTED OFFICIALS ... ...... .. ....................................... 6 SELECTED ADMINJSTRAT!VE STAFF.. . .... 6 CONSULTANTS AND ADVISORS .................................................. 6 INTRODUCTION .............................................................................. 7 PLAN OF FINANCING ..................................................................... 7 THEBONDS ....................................................................................... 8 MUNICIPAL BOND INSURANCE ................................................ 12 TAX INFOAA1ATION ..................................................................... l4 TABLE 1 • V ALUAT!ON, EXElv!PT!ONS At·m GENERAL OBLIGATION DEBT ...................................................... !? TABLE2 • TAXABLEASSESSEDVALUAT!ONSBYCATEGORY.l9 TABLE 3A -VALUATION AND GENERAL 0BL!GA T!ON DEBT HISTORY ...................................................................... 20 TABLE3B • DERIVAT!ONOFGENERALPuRPOSEFU!'.'DEDTAX DEBT....................... .. ...................................... 20 TABLE 4 • TAX RATE, LEVY AND COLLECTION HISTORY ....... 20 TABLE 5 TEN LARGEST TAXPAYERS...... ................... 21 TABLE6-TAX ADEQUAcy(!)........................ .21 TABLE 7 • EsTIMATED OVERLAPPING DEBT ........................... 22 DEBT INFORMATION ................................................................... 23 TABLE 8A • GENERAL 0BLIGAT!ON DEBT SERVICE REQUIREMENTS........ .. ................................ 23 TABLE 8B DIVISION OF DEBT SERVICE REQUIREMENTS ...... 24 TABLE 9 -INTEREST AND SlNK!NG FUND BUDGET PROJECT!ON25 TABLE 10 · COMPUTATION OF SELF·SL'PPORTING DEBT.. ...... 26 TABLE 1 1 • AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS ..................................................... 26 TABLE 12-OTHER OBLIGATIONS ........................................... 27 FINANCIAL INFORMATION ....................................................... 28 TABLE 13 · GENERAL Fu'ND REVENUES AND EXPENDITURE H!STORY ....................................................................... 28 TABLE 14 • MUN!CIPALSALESTAXHISTOR¥ ........................ 29 CAFIT AL [MPROVEMENT PROGRAM. .. ............... 29 TABLE 15 · CURRENT INVESTMENTS ...................................... 32 3 TA.X MATTERS ................................................................................ 33 CONTINUING DISCLOSURE OF INFOAAIA TION ................... 34 OTHER INF0&'\1ATION ................................................................ 36 RATINGS............................................. .. .................... 36 LIT!GATION ............................................................................ 36 REGISTRATION AND QUALIFICATION OF BONDS FOR SALE ..... .36 LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PL'BLJC Fm.'DS IN TEXAS .. .. .. . .... .. .. .. . ... .. .. . ... . ... .36 LEGAL OPINIONS........................................... 36 FINANCIAL ADVISOR ................................. : ........................... .37 VERIFICATION OF ARmiMETICAL AND MATHEMATICAL COMPUTATIONS ........................................................... 37 UNDERWRITING ...................................................................... .37 FORWARD-LOOKING STATEMENTS DISCLAIMER ...................... 37 MISCELLANEOUS.............. .. .. .... ..... ....... ........... ....... ...... . ..... 3 8 SCHEDULE OF REFUNDED BOl''<'DS ............................................................. SCHEDULE I APPEI'I'DICES GENERAL Il'.'FO!L'MTION REGARDING THE CITY ...................... A EXCERPTS FROM THE ANNUAL FINANCIAL REPORT .. ... . ..... .... . B FOR.VI OF BOND COUNSEL'S OP!J'o,'lON... .. .................. C SPECIMEN BOND INSURANCE POLICY..................................... D The cover page hereof, 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 Bonds 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 Lubbock is a political subdivision and municipal corporation of the State, located in Lubbock County, Texas. The City covers approximately 115 square miles and has an estimated 2002 population of202,000 (see "Introduction-Description of City"). THE Bor•ms .................................. The Bonds are issued as $10,810,000 General Obligation Refunding Bonds, Series 2002. The Bonds are issued as serial bonds maturing February 15, 20(}3 through February 15, 2010 (see "The Bonds-Description of the Bonds"). PAYMENT OF INTEREST .............. Interest on the Bonds accrues from July I, 2002, and is payable February 15, 2003, and each August 15 and February 15 thereafter until maturity (see "The Bonds -Description of the Bonds''). AUTHORITY FOR ISSUANCE ......... The Bonds are issued pursuant to the general laws of the State, including particularly V.T.C.A., Texas Government Code, Chapter 1207, and an Ordinance passed by the City Council of the City (see "The Bonds-Authority for Issuance"). SECURITY FOR THE BONDS .......... The Bonds constitute direct obligations of the City, payable from the levy and collection of a direct and continuing ad valorem tax, within the limits prescribed by law, on all taxable property located within the City (see "The Bonds-Security and Source of Payment"). REDEMPTION ............................... The Bonds are not subject to redemption prior to maturity. TAX EXEMPTION ......................... In the opinion of Bond Counsel, the interest on the Bonds 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 Bonds will be used to advance refund a portion of the City's outstanding tax supported debt in order to lower the overall debt service requirements of the City, and to pay the costs associated with the issuance of the Bonds. See "Schedule I - Schedule of Refunded Bonds". RATINGS ..................................... The Bonds are rated "Aaa" by Moody's Investors Service, Inc. ("Moody's"), "AAA" by Standard & Poor's Ratings Services, A Division of The McGraw-Hill Companies, Inc. ("S&P") and "AAA" Fitch Ratings ("Fitch") by virtue of an insurance policy to be issued by MBIA Insurance Corporation. The presently outstanding tax supported debt of the City is rated "Aa2" by Moody's, "A.t\+" by S&P and "AA+" by Fitch. The City also has four additional issues outstanding which are rated "Aaa" by Moody's, "AAA" by S&P and "AAA" by Fitch through insurance by various commercial insurance companies (see "Other Information-Ratings"). BOOK-ENTRY-ONLY SYSTEM ...................................... The definitive Bonds 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 Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds (see "The Bonds-Book-Entry-Only System"). PAYME!'.T RECORD ...................... The City has never defaulted in payment of its bonded indebtedness. 4 - - SELECTED FINANCIAL INFORMATION Ratio General Purpose Per Capita Funded Fiscal Per Capita General General Tax Debt Year Taxable Taxable Purpose Purpose to Taxable %of Ended Estimated Assessed Assessed Funded Funded Assessed Total Tax _WQ_ Pooulation (I) Valuation Valuation Tax Debt (2} Tax Debt Valuation Collections 1997 195,367 $ 5,567,072,641 $ 28,495 $ 61,728,036 $ 316 1.11% 99.78% 1998 196,679 5,830,249,173 29,643 57,156,101 291 0.98% 99.55% 1999 197,117 6,019,588,349 30,538 51,222,980 260 0.85% 99.24% 2000 199,564 6,176,962,982 30,952 53,455,346 268 0.87% 98.89% 2001 201,061 6,638,779,668 33,019 58,122,809 289 0.88% 99.29% 2002 202,000 6,910,577,171 34,211 62,940,460 (3) 312 0.91% 96.91% (4} ( 1) Source: The City of Lubbock, Texas. (2) Does not include self-supporting debt (see "Table 3B-Derivation of General Purpose Funded Tax Debt"). (3) Projected, includes the Bonds and the Tax and Sewer System Surplus Revenue Certificates of Obligation, Series 2002A that are being offered simultaneously. Excludes the Refunded Bonds. (4) Collections for part year only, through 4-30-02. GENERAL FuND CONSOLIDATED STATEMENT SUMMARY Fiscal Year Ended Smtember 30, 2001 2000 1999 1998 1997 Fund Balance at Beginning ofYear $ 16,620,652 $ 17,248,025 $ 18,990,299 $ 18,472,903 $ 17,672,385 Total Revenues and Transfers 90,463,799 85,518,102 81,929,016 83,556,685 79,790,477 Total Expenditures and Transfers 90,368,409 86,145,475 83,671,290 83,039,289 78,989,959 Fund Balance at End of Year $ 16,716,042 $ 16,620,652 $ 17,248,025 $ 18,990,299 $ 18,472,903 Less: Reserves and Designations (2,361,860) (2,857,096) (4,432,834) (5,442,847) (4,997,379) Undesignated Fund Balance $ 14,354,182 ~ 13,763,556 $ 12,815,191 $ 13,547,452 $ 13,475,524 For additional information regarding the City, please contact: Mr. Andy Burcham Cash & Debt Manager City of Lubbock P.O. Box 2000 Lubbock, Texas 79457 Phone (806) 775-2149 Fax (806) 775-2033 Mr. Vince Viaille First Southwest Company or 1001 Main Street Suite 802 Lubbock, Texas 79401 Phone (806) 749-3792 Fax (806) 749-3793 5 Mr. Joe W. Smith First Southwest Company or 402 Cypress, Suite 707 Abilene, Texas 79604 Phone (915) 672-8432 Fax (915) 675-6218 CITY OFFICIALS, STAFF AND CONSULTANTS ELECTED OFFICIALS City Council Date of Installation to Office Term Expires Occupation Marc McDougal* Mayor Victor Hernandez · Mayor Pro Tern and Councilmember, District I T. J. Patterson Councilmember, District 2 Gary Boren Councilmember, District 3 Frank W. Morrison Councilmember, District 4 Tom Martin Councilmember, District 5 Alex "Ty" Cooke Councilmember, District 6 May,2002 June, 1994 April, 1984 May, 2002 May, 2000 May, 2002 May, 1992 May,2004 Business Owner, Real Estate May, 2006 Attorney-at-Law May, 2004 Co-Publisher May, 2006 Business Owner, Personnel Services May, 2004 Business Owner, Commodities May, 2006 Retired Law Enforcement May, 2004 Investments * Mr. McDougal has served on the Council since May, 1998. SELECTED ADMINISTRATIVE STAFF Name Bob Cass Anita Burgess Rebecca Garza Debra Forte Quincy White Tommy.Gonzalez Richard Burdine Beverly Hodges Andy Burcham Position City Manager City Attorney City Secretary Deputy City Manager Assistant City Manager Assistant City Manager Assistant City Manager Director of Finance Cash & Debt Manager CONSULTANTS AND ADVISORS Date of Employment in Current Position September, 1992 December, 1995 January, 2001 January, 1995 September, 2000 April, 2000 April, 2000 July, 2001 November, 1998 Date of Employment Total Government with City of Lubbock Service April, 1976 25 Years December, !995 6 Years August, 1996 7 Years January, 1995 23 Years September, 2000 11 Years June, 1991 10 Years July, 1997 16 Years July, 2001 20 Years November, 1998 3 Years Auditors ......................................................................................................... Robinson Burdette Martin Seright & Burrows, L.L.P. Lubbock, Texas Bond Counsel ........................................................................................................................................ Fulbright & Jaworski L.L.P. Dallas, Texas Financial Advisor ........................................................................................................................ : ............. First Southwest Company Lubbock and Dallas, Texas 6 ·- OFFICIAL STATEMENT RELATING TO $10,810,000 CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2002 INTRODUCTION This Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance of $10,810,000 City ofLubbock, Texas, General Obligation Refunding Bonds, Series 2002. 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 Bonds which will authorize the issuance of the Bonds, except as otherwise indicated herein. There follows in this Official Statement descriptions of the Bonds 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, 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 Home Rule Charter. The City was incorporated in 1909, and first adopted its Home Rule Charter in 1917. The City operates under a Council/Manager form of government with a City Council comprised of the Mayor and six Councilmembers. The Mayor is elected at-large for a two-year term ending in an even- numbered year. Each of the six members of the City Council is elected from a single-member district for a four-year term of office. The terms of three members of the City Council expire in each even-numbered year. The City Manager is the chief administrative officer for the City. Some of the services that the City provides are: public safety (police and fire protection), highways and streets, electric, water and sanitary sewer utilities, airport, sanitation and solid waste disposal, health and social services, culture-recreation, public transportation, public improvements, planning and zoning, and general administrative services. The 2000 Census population for the City was 199,564; the estimated 2002 population is 202,000. The City covers approximately 115 square miles. PLAN OF FINANCING PURPOSE ... The Bonds are being issued for the purpose of refunding certain of the City's outstanding tax supported debt (the "Refunded Bonds") in order to lower the overall annual debt service requirements of the City, and to pay the costs of issuance of the Bonds. See Schedule I for a detailed listing of the Refunded Bonds and their respective call dates at par. REFUNDED BONDS ... The principal and interest due on the Refunded Bonds are to be paid on the scheduled interest payment dates and the respective redemption dates of such Refunded Bonds, from funds to be deposited pursuant to a certain Escrow Agreement (the "Escrow Agreement") between the City and The Bank ofNew York Trust Company of Florida, N.A., Jacksonville, Florida (the "Escrow Agent"). The Ordinance provides that from the proceeds of the sale of the Bonds received from the Underwriters, the City will deposit with the Escrow Agent the amount necessary to accomplish the discharge and final payment of the Refunded Bonds on their respective redemption dates. Such funds will be held by the Escrow Agent in a special escrow account (the "Escrow Fund") and used to purchase direct obligations of the United States of America (the "Federal Securities"). Under the Escrow Agreement, the Escrow Fund is irrevocably pledged to the payment of the principal of and interest on the Refunded Bonds. Grant Thornton, LLP, a nationally recognized accounting firm, will verifY at the time of delivery of the Bonds to the Underwriters thereof the mathematical accuracy of the schedules that demonstrate the Federal Securities will mature and pay interest in such amounts which, together with uninvested funds, if any, in the Escrow Fund, will be sufficient to pay, when due, the principal of and interest on the Refunded Bonds. Such maturing principal of and interest on the Federal Securities will not be available to pay the Bonds (see "Other Information-Verification of Arithmetical and Mathematical Computations"). By the deposit of the Federal Securities and cash, if necessary, with the Escrow Agent pursuant to the Escrow Agreement, the City will have effected the defeasance of all of the Refunded Bonds in accordance with the applicable law. It is the opinion of Bond Counsel that as a result of such defeasance and in reliance upon the report of Grant Thornton, LLP, the Refunded Bonds will be outstanding only for the purpose of receiving payments from the Federal Securities and any cash held for such purpose by the Escrow Agent and such Refunded Bonds will not be deemed as being outstanding obligations of the City payable from taxes nor for the purpose of applying any limitation on the issuance of debt. The City has covenanted in the Escrmv Agreement to make timely deposits to the Escrow Fund, from lawfully available funds, of any additional amounts required to pay the principal of and interest on the Refunded Bonds, if for any reason, the cash balances on deposit or scheduled to be on deposit in the Escrow Fund be insufficient to make such payment. 7 SOVRCES AND UsES OF PROCEEDS ... The proceeds from the sale of the Bonds will be applied approximately as follows: SOURCES OF FUNDS: Principal Amount of the Bonds Accrued Interest from 7/Ii02 to 8/15/02 Reoffering Premium Total Sources of Funds USES OF FUNDS: Deposit to the Escrow Fund Deposit to Interest and Sinking Fund Underwriter's Discount Gross Bond Insurance Premium Costs oflssuance Rounding Amount Total Uses of Funds THE BONDS $ 10,810,000.00 53,660.14 296,833.75 $ 11,160,493.89 $ 10,969,000.21 53,660.14 54,441.46 17,432.81 65,000.00 959.27 $ 11,160,493.89 DESCRIPTION OF THE BONDS ... The Bonds are dated July 1, 2002, and mature on February 15 in each of the years and in the amounts shown on the inside cover page hereof. 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 February 15, 2003. The definitive Bonds 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 Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See "Book-Entry- Only System" herein. AUTHORITY FOR ISSUANCE ... The Bonds are being issued pursuant to the Constitution and general laws of the State of Texas, particularly V.T.C.A., Texas Government Code, Chapter 1207, as amended, and by the Ordinance passed by the City Council. SECURITY AND SOURCE OF PAYME!I.I ... 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 Bonds. 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 t<L'i: 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 provides for a maximum ad valorem tax rate of $2.50 per $100 Ta'i:able 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. REDEMPTION ... The Bonds are not subject to redemption prior to maturity. AMENDMENTS ... The City may amend the Ordinance without the consent of or notice to any registered owners in any manner not detrimental to the interests of the registered owners, including the curing of any ambiguity, inconsistency, or formal defect or omission therein. In addition, the City may, with the written consent of the holders of a majority in aggregate principal amount of the Bonds then outstanding affected thereby, amend, add to, or rescind any of the provisions of the Ordinance without the consent of the registered owners of all of the Bonds, affected, no such amendment, addition or rescission may (I) change the date specified as the date on which the principal on any installment of interest is due payable, reduce the principal amount or the rate of interest, change the authorized coin or currency of payment any Bond or interest thereon is payable, or in any other way modify the terms of the payment of the principal of or interest on, (2) give any preference to any Bond over any other Bond or (3) reduce the aggregate principal amount required to be held by owners for consent to any amendment, addition or waiver. DEFEASANCE ... The Ordinance provides for the defeasance of the Bonds when the payment of the principal of and premium, if any, on the Bonds, plus interest thereon to the due date thereof (whether such due date be by reason of maturity, redemption, or otherwise), is provided by irrevocably depositing with a paying agent or authorized escrow agent, in trust (I) money sufficient to make such payment or (2) Government Obligations, certified by an independent public accounting firm of national reputation to mature as to principal and interest in such amounts and at such times to insure the availability, without reinvestment, of sufficient 8 - - - money to make such payment, and all necessary and proper fees, compensation and expenses of the paying agent for the Bonds. The Ordinance provides that "Government Obligations" means (a) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (c) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. Upon making such deposit in the manner described, such Bonds shall no longer be deemed outstanding obligations secured by the Ordinance, but will be payable only from the funds and Government Securities deposited in escrow and will not be considered debt of the City for purposes oftaxation or applying any limitation on the City's ability to issue debt or for any other purpose. BOOK-ENTRY-ONLY SYSTEM ... This section describes how ownership of the Bonds is to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by The Depository Trust Company (''DTC"), New York, New York. while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book- Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The City 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 Bonds, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for the Bonds, in the aggregate principal amount of each maturity, and will be deposited with DTC. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and muni~ipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, l\.1BS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in tum to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all the Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in 9 beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit noti.ces to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authoriz-ed by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative ofDTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the city or the Paying Agent/Registrar, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name, "and will be the responsibility of such Participant and not of DTC, nor its nominee, the Paying Agent/Registrar, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. Use of Certain Terms in Other Sections of this Official Statement In reading this Official Statement it should be understood that while the Bonds are in the Book-Entry-Only System, references in other sections of this Ofticial Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only System, and (ii) exeept as described above, notices that are to be given to registered owners under the Resolution 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 Underwriters. 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 Bonds will be subject to transfer, exchange and registration provisions as set forth in the Ordinance and summarized under "The Bonds -Transfer, Exchange and Registration" below. Interest on the Bonds shall be paid to the registered owners appearing on the registration books of the Paying Agent/Registrar at the close of business on the Record Date (defined below), and such interest shall be paid (i) by check sent United States Mail, first class postage prepaid to the address of the registered owner recorded in the registration books of the Paying Agent/Registrar or (ii) by such other method, acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner. Principal of the Bonds will be paid to the registered owner at their stated maturity upon their presentation and surrender to designated payment/transfer office of the Paying Agent/Registrar. If the date for the payment of the principal of or interest on the Bonds shall be a Saturday, Sunday, a legal holiday or a day when banking institutions in the city where the designated payment/transfer office of the Paying Agent! Registrar is located are authorized to close, then the date for such payment shall be the next succeeding day which is not such a day, and payment on such date shall have the same force and effect as if made on the date payment was due. PAYING AGENT/REGISTRAR ... The initial Paying Agent/Registrar is JPMorgan Chase Bank, Dallas, Texas. In the Ordinance, the City retains the right to replace the Paying Agent/Registrar. The City covenants to maintain and provide a Paying Agent/Registrar at all times until the Bonds are duly paid and any successor Paying Agent/Registrar shall be a commercial bank or trust company organized under the laws of the State of Texas or other entity duly qualified and legally authorized to serve as 10 - - - - - - - and perform the duties and services of Paying Agent/Registrar for the Bonds. Upon any change in the Paying Agent/Registrar for the Bonds, the City agrees to promptly cause a written notice thereof to be sent to each registered owner of the Bonds by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. Interest on the Bonds shall be paid to the registered owners appearing on the registration books of the Paying Agent/Registrar at the close of business on the Record Date (defined below), and such interest shall be paid (i) by check sent United States Mail, first class postage prepaid to the address of the registered owner recorded in the registration books of the Paying Agent/Registrar or (ii) by such other method, acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner. Principal of the Bonds will be paid to the registered owner at their stated maturity, or earlier redemption, upon their presentation and surrender to designated payment/transfer office of the Paying Agent/Registrar. If the date for the payment of the principal of or interest on the Bonds shall be a Saturday, Sunday, a legal holiday or a day when banking institutions in the city where the designated payment/transfer office of the Paying Agent/ Registrar is located are authorized to close, then the date for such payment shall be the next succeeding day which is not such a day, and payment on such date shall have the same force and effect as if made on the date payment was due. TRANSFER, EXCHANGE AND REGISTRATION ... In the event the Book-Entry-Only System should be discontinued, printed certificates will be issued to the registered owners of the Bonds and thereafter the Bonds 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, of such printed certificates except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. Bonds may be assigned by the execution of an assignment form on the respective Bonds or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. New Bonds will be delivered by the Paying Agent/Registrar, in lieu of the Bonds 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 Bonds issued in an exchange or transfer of Bonds will be delivered to the registered owner or assignee of the registered owner in not more than three business days after the receipt of the Bonds 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 Bonds 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 Bonds 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 Bonds. RECORD DATE FOR INTEREST PAYMENT ... The record date ("Record Date") for the interest payable on the Bonds 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 Bond appearing on the.registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. BoNDHOLDERS' REMEDIES . . . The Ordinance does not establish specific events of default with respect to the Bonds. Under State law there is no right to the acceleration of maturity of the Bonds upon the failure of the City to observe any covenant under the Ordinance. Although a registered owner of Bonds could presumably obtain a judgment against the City if a default occurred in the payment of principal of or interest on any such Bonds, such judgment could not be satisfied by execution against any property of the City. Such registered owner's only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the City to levy, assess and collect an annual ad valorem tax sufficient to pay principal of and interest on the Bonds 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 Bonds are qualified with respect to the customary rights of debtors relative to their creditors. 11 MUNICIPAL BOND INSURANCE The following information has been. furnished by MBIA Insurance Corporation ("MBIA") for use in this Official Statement. Reference is made to Appendix D for a specimen ofMBIA's policy. Such information has not been independently verified by the City or the Underwriter and is not guaranteed as to completeness or accuracy by the City or the Underwriter and is not to be construed as a representation of the City or the Undervvriter. MBIA's policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the Issuer to the Paying Agent or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Bonds as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by MBIA's policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner of the Bonds pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy taw (a "Preference"). MBIA's policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bonds. MBIA's policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of Bonds upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. MBIA's policy also does not insure against nonpayment of principal of or interest on the Bonds resulting from the insolvency, negligence or any other act or omission of the Paying Agent or any other paying agent for the Bonds. Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by MBIA from the Paying Agent or any owner of a Bond the payment of an insured amount for which is then due, that such required payment has not been made, MBIA on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with State Street Bank and Trust Company, N.A., in New York, New York, or its successor, sufficient for the payment of any such insured amounts which are then due. Upon presentment and surrender of such Bonds or presentment of such other proof of ownership of the Bonds, together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the Bonds as are paid by MBIA, and appropriate instruments to effect the appointment of MBIA as agent for such owners of the Bonds in any legal proceeding related to payment of insured amounts on the Bonds, such instruments being in a form satisfactory to State Street Bank and Trust Company, N.A., State Street Bank and Trust Company, N.A. shall distiurse to such owners or the Paying Agent payment of the insured amounts due on such Bonds, less any amount held by the Paying Agent for the payment of such insured amounts and legally available therefor. MBJA MBIA Insurance Corporation ("MBIA") is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company (the "Company"). The Company is not obligated to pay the debts of or claims against MBIA. MBIA is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. MBIA has three branches, one in the Republic of France, one in the Republic of Singapore and one in the Kingdom of Spain. New York has laws prescribing minimum capital requirements, limiting classes and concentrations of investments and requiring the approval of policy rates and forms. State laws also regulate the amount of both the aggregate and individual risks that may be insured, the payment of dividends by MBIA, changes in control and transactions among affiliates. Additionally, MBIA is required to maintain contingency reserves on its liabilities in certain" amounts and for certain periods of time. MBIA does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the policy and MBIA set forth under the heading "Bond Insurance". Additionally, MBIA makes no representation regarding the Bonds or the advisability of investing in the Bonds. The Financial Guarantee Insurance Policies are not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. 12 - Financial Advisory Services Provided By ffiRST SOUTHWEST COMPANY INVESTMENT BANKERS .MBIA FINANCIAL GUARANTY INSURANCE POLICY :MBIA Insurance Corporation Armonk, New York 10504 Policy No. [NUMBER] MBIA Insurance Corporm:ion ('the ''Insurer"), in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditiooally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the Issuer to (PA YlN'G AGENT!IRUSTEE] or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the staled maturity or by any advancement ofmamrity pursuant to a mandatory Sinking fund payment) and interest on, the Obligations (as that tam is defined below) as such payments shall become due but shall not be so paid (except that in the event of any aa:elc:ration of the due date of such principal by reason of mandato!y or optional redemption or acceleration =Itiog from default or otherwise, other than any advanccnent of mannity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amoUDts and at such times as such payments of principal would have been due had there not becl any such aco:lcration); and (u") the reimbuzsement of any such payment which is subsequently recovered from any owner plliSilllllt to a final judgment by a court of compeu:m j\lr.i';diction that such payment constinnes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts refC!red to in clauses (i) and (u) of the preceding sentence shaD be referred to herein colledively as the "Insured Amounts." "Obligations" shall mean: {PAR] [LEGAL NAME OF ISSUE] Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in~ by registered or certified mail, or upon receipt of written notice by registered or certified mail,.by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day atU:r receipt of notice of such llCilp?'/n::ent. whichever is l.arer, ~J! make a deposit of :fimds, in an account with State Street Bank and Trust Co.::1pany, N.A., in NC'>'.• York, New York, or its successor, sufficient for the payment of any such lnsured Amounts which are then due. Upon presentment and su:m:nder of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate ins:ruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal ~g related to payment of Insured Amounts on the Obligations, such instruments being in a foim satisfuc:tory to State Street Bank and TnlSt Company, N.A., Slate Street Bank and Trust Company, NA shall disburse to such owners, or the Paying Agent peyment of the Insured AmoUDts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment pn:mium which may at any time be payable with respect to any Obligation. As used herein, the tenn "owner" shall mean the registered owner of any Obligation as indicated in the-books maintained by the Paying Agent, the lssuer, or any designee of the Issuer for such purpose. The term owner shall not include the Issuer or any party whose agreement with the lssuer constitutes the underlying security for the Obligations. Any service ofprooess on the Insurer may be made to the Insurer at its offices locai:ed at 113 King Street,Annonk, New York 10504 and such service of process shall be valid and binding. Tnis policy is non-cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to mawrity of the Obligations. IN WITNESS \VHEREOF, the Insurer has caused this policy to be executed in facsimile on its behalfby it; duly authorized officez:s, this [DAY] day of [MONTI!, YEAR]. COUNTERSIGNED: .MBIA Insurance Corporation Resident Licalsed Agent Attest: City, State Assistant Secretlll)' DISCLOSURE OF GUARA.NTY FUND NONPARTICIPA TION: In the event the Insurer is unable to fulfill its contractual obligation under thi$ policy or contract or application or cen:ificate or evidence of coverage, the policyholder or certificateholder is not protected by an insurance guaranty fund or other solvency protection arrangement. - - APPENDIXD SPECIMEN BOND INSURANCE POLICY Page 2 of Legal Opinion of Fulbright & Jaworski L.L.P. Re: "City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2002", dated July 1, 2002 2. The Agreement has been duly authorized, executed and delivered and is a binding and enforceable agreement in accordance with its terms and the outstanding obligations refunded, discharged, paid and retired with the proceeds of the Bonds have been defeased and are regarded as being outstanding only for the purpose of receiving payment from the funds held in trust pursuant to the Agreement and in accordance with the provisions of V.T.C.A., Government Code, Chapter 1207. In rendering this opinion, we have relied upon the verification by the Accountants of the sufficiency of cash and investments deposited with the Escrow Agent pursuant to the Agreement for the purposes of paying the outstanding obligations refunded and to be retired with the proceeds of the Bonds and the interest thereon. 3. Pursuant to section 103 of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), and existing regulations, published rulings, and court decisions thereunder, and assuming continuing compliance after the date hereof by the City with the provisions of the Ordinance relating to sections 141 through 150 of the Code, interest oh the Bonds will be excludable from the gross income, as defined in section 61 of the Code, of the owners thereof for federal income tax purposes, and such interest will not be included in computing the alternative minimum taxable income of the owners thereof who are individuals for federal income tax purposes. Interest on all tax-exempt obligations, such as the Bonds, owned by a corporation (other than an "S" corporation or a qualified mutual fund, real estate mortgage investment conduit, real estate investment trust, or a financial asset securitization investment trust) will be 1ncluded in such corporation's adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporation. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code is computed. WE EXPRESS NO OTHER OPINION with respect to any other federal, state, or local tax consequences under present law or any proposed legislation resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Ownership of tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, "S" corporations with subchapter "C" earnings and profits, owners of interests in a financial asset securitization investment trust, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. OUR OPINIONS ARE BASED on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above. EHE:dfc 45196575.1 - - - TELEPHONE: 2141855-8000 FACSIMILE: 214/855-8200 FuLBRIGHT & JAWORSKI L.L.P. A REGISTERED LIMITED LIABILITY PARTNERSHIP 2200 Ross AvENUE. SUITE 2800 DALLAS, TEXAS 7520!-2784 HOUSTON WASHINGTON, D.C. AUSTIN SAN ANTONIO DALLAS NEW YORK LOS ANGELES MINNEAPOLIS LONDON HONG KONG WE HAVE ACTED as Bond Counsel in connection with the issuance by City of Lubbock, Texas (the "City") of the "City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2002" (the "Bonds") in the aggregate principal amount of $10,810,000, dated July 1, 2002, solely to express legal opinions as to the validity of the Bonds, the defeasance and discharge of the City's outstanding obligations being refunded by the Bonds and the exclusion of the interest on the Bonds from gross income for federal income tax purposes, and for no other purpose .. We have not been requested to investigate or verify, and we neither expressly nor by implication render herein any opinion concerning, the financial condition or capabilities of the City, the disclosure of any financial or statistical information or data pertaining to the City and used in the sale of the Bonds, or the sufficiency of the security for or the value or marketability of the Bonds. THE BONDS are issuable in fully registered form only and in denominations of $5,000 or any integral multiple thereof. The Bonds have stated maturities of February 15 in each of the years 2003 through 2010, without right of prior redemption. Interest accrues on the Bonds from their date at the rates per annum stated in the ordinance adopted by the City Council of the City authorizing the issuance of the Bonds (the "Ordinance"), and such accrued interest is payable on February 15 and August 15 in each year, commencing February 15, 2003, to the registered owners appearing on the registration books of the Paying AgentJRegistrar on the Record Date (stated on the face of the Bonds). IN RENDERING THE OPINIONS herein we have examined and rely upon (i) original or certified copies of the proceedings of the City in connection with the issuance of the Bonds, including the Ordinance, (ii) original or certified copies of the Special Escrow Agreement (the "Agreement") between the City and The Bank of New York Trust Company of Florida N.A., Dallas, Texas (the "Escrow Agent"), and a special report of Grant Thornton LLP, Certified Public Accountants (the "Accountants"), (iii) certifications and opinions of officers of the City relating to the expected use and investment of proceeds of the sale of the Bonds and certain other funds of the City and to certain other facts within the knowledge and control of the City, and (iv) such other documentation, including an examination of the Bond executed delivered initially by the City (which we found to be in due form and properly executed), and such matters of law as we deem relevant to the matters discussed below. In such examinations, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original copies of all documents submitted to us as certified copies and the accuracy of the statements and information contained in such certificates. BASED ON OUR EXAMINATIONS, IT IS OUR OPINION that, under the applicable law of the United States of America and the State of Texas in force and effect on the date hereof: 1. The Bonds have been duly authorized by the City and, when issueq in compliance with the provisions of the Ordinance are valid, legally binding, and enforceable obligations of the City, payable from the proceeds of an ad valorem tax levied, within the limitations prescribed by law, upon all taxable property within the City, except to the extent that the enforceability thereof may be affected by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors' rights or the exercise of judicial discretion in accordance with general principles of equity. - THIS PAGE INTENTIO:"'ALL Y LEFT BLANK ·- APPE!'.'DLXC F0&\1 OF BOND COUNSEL'S OPINION CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE IV. CONTINGENT LIABILITIES B. LITIGATION <CONTINUED> pra.ct:ices. In the opinion of lllaitlgement, the ultimate outcome of these la'Wlluits will not bave a materially adverse effect on the Gty's f.mancial position as of September 30, 2001. C. SITE REMEDIATION The Gty has identified speciflC locations requiring site remediation relative to underground fuel storage tanks. The potential exposure is not readily detenninable as of September 30, 2001. In the opinion of lllaitlgement, the ultimate liability will not have a materially adverse effect on the Gty's financial position. D.WESTTEXASMUNICWALPOWERAGENCY In fJScal1998, the West Texas Municipal Power Agency ("WIMPN) issued $28,910,000 of WIMP A Revenue ~nds. Series 1998 matl.l.ting through February of 2018. These bonds are secured by the net revenues of certain power sales contracts with participating cities of which the Gty is one. In the event the net revenues of the power sales contracts are not sufficient to cover the debt service of the bonds, the panicipati.ag cities are required UDder a debt service guarantee provision of the agreement, to provide funds suffiCient to cover any debt service defJcit to the extent of their respeaive participation percentages for the preceding 12 months. The Gty's percentage share in this agreement for the coming year approximates 100%. Ar. September 30, 2001, the Gty bad accounts receivable of approximately $4.9 million from WIMP A. During the year ended September 30, 2001, the City reported expenses of approximately $13 million for power purchases from WTMPA and approximately $15 million in contract service revenue. The City was not required to subsidize any debt service payments. NOTE V. RECENTLY ISSUED PRONOUNCEMENTS GASB Statement No. 34, &sicFinzn:ial S~-an!.Manag.:mn's DisaJSsion.an!.An:d)sis-forSratetml Loozl GaLemm:nts VIliS issued in June 1999. This Statement is effeaive for the Gty's fiscal year ending September 30, 2002. 1his Statement will require the presentation of government-wide f.mancial Statements as wen as fund level .statements. Additiooa:ll.y, there will be added information on the Gty's finances in Management's Di<lcussion and Analysis which has not been previously presented. This Standard is expected to create new infonnation and will restructure much of the previously presented fmancial information. The GASB developed these requirements to make annual reports more comprehensive and easier to understand and use. 58 CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE ill. DETA.a NOTES ON ALL FUNDS AND ACCOUNT GROUPS L. ACCRUED INSURANCE CLAIMS (CONTINUED) * The information necessary to prepare the separate disclosures for medical. and dental claims liabilities i'l unavailable. M. LANDFILL CLOSURE AND POSTCLOSURE CARE COST State and federal laws and regulations require the Gty to place a fmal cover on its landfill sites when it stops accepting 'W\lSte and to perform certain maintenance and monitoring functions at the sites for thirty Jl!ars after closure. Although closure and postdosure. care costs will be paid only near or after the date that the landfill stops accepting 'W\lSte, the City reports a portion of these closure and postdosure casts as an opening expense in each period based on landfill capacity used as of each balance sheet date. The $5,973,851 included in the landfill closure and postdosure care liability at September 30, · 2001, represents the cumulative amount expensed by the City to date of $8,603,429 less atllOII1ltS paid for closure of certain cells . based on the use of over 90 percent of the estimated capacity of the landfill registered under 1NRO::: permit number 69. Any unrecognized casts of closure and postdosure care at September 30, 2001, is not signiflCailt. These amounts are based on what it would cost to perform all closure and postdosure care in 2001. The City expects to close this landfill within the next 5 Jl!ars. Actual cost may be different due to inflation, deflation, changes in teehnology, or changes in regulations. The Gty has a second landfill ('INRCC permit number 2252) which effectively began accepting solid waste during fiscal 2000. CluTent closure and post-closure. care costs have been estimated to be approximately $22,305,000, of which $149,042 has been recognized to dare and $10,338 has been paid. Approximately 1 o/o of this landfill's capacity has been used and the Gty expeets this landfill to have a life in excess of 80 Jl!ars based on current estimates of use. Actual cost may be different due to inflation, deflation, changes in technology; or changes in regulations. The Gty is required by state and federal laws and regulations to provide assurance that fma.ncial resources will be available to provide for closure, postclosure care, and remediation or containment of environmental hazards at its landfill. The City is in compliance with these requirements and bas chosen the Local Government Financial Test mechanism for providing this assurance. The City expects to fmance costs through normal operations. NOTE IV. CONTINGENT LIABILITIES A. FEDERAL GRANTS In the normal course of operations, the City receives grant funds from various Federal and state agencies. The grant programs are subject to audits by agents of the granting authority to ensure compliance with conditions precedent to the granting of fu:nds. Any liability for reimbursement which may arise as the result of audits of grams is not believed to be material B. LITIGATION The Oty is involved in lawsuits arising in the normal course of business, including claims for property damage, personal injury and personnel practices, disputes over contraCt awards and property condemnation proceedings, suits contesting the legality of certain taXes and public safety 57 CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30,2001 NOTE ill. DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS K. ADVANCED REFUNDING In fJScal ~ 1994, 1995, 1997 and 1999, the Gty defeased po.rtions of Gty of Lubbock General Obligation Bonds. All of the defeased portions of the following bonds were called am! retired during the 2000-2001 fiScal year: Tax and Waterwm:ks Ceniflcates of Obligation, Series 1992; General Obligation Refunding Bonds, Series 1993; General Obligation Bonds, Series 1987; General Ob1igation Bonds, Series 1989; Cenif.ICI.tes of Obligation Bonds, Series 1989; General Obligation Bonds, Series 1991; Combination Tax and Waterworks System Subordinate Lien Revenue Cenificates of Obligation, Series 1991; Combination Tax and Exhibition Hall/ Auditorium (Limited Pledge) Revenue Certificates of Obligation, Series 1991; General Obligation Refunding Bonds, Series 1992; Combination Tax and Sewer System Subordinate Lien Revenue Certificates of Obligation, Series 1991 (payments due February 15, 2003 through 2012); Electric Light and Power System Revenue Bonds, Series 1991; and Electric Light and Power System Revenue refunding Bonds, Series 1991-B. In fiscal year 1995, Brazos River Authority defeased portiom of Brazos River Authority Revenue Bonds. All of the defeased portions of the following bonds were called and retired during the 2000-2001 fJScal year: Brazos River Authority Revenue Bonds, and Series 1989; Brazos River Authority Revenue Bonds, Series 1991. In fiScal year 1999, the Oty defeased certain General Obligation Bonds. A portion of the proceeds of the Series 1999 General Obligation Refunding Bonds were used to purchase United States Treasury Securities State and Local Government Series, which were placed in an irrevocable tniSt to be used solely to partially refund the portion of the Series 1992 Combination Tax and Sewer Subordinate Lien Revenue Certificates of Obligation payments due February 15, 2006 through 2014. Accordingly, the tniSt account assets and the liability for the defeased bonds are not included in the Oty's financial Statements. On the September 30, 2001, $15,545,000 of bonds outstanding are considered defeased. L. ACCRUED INSURANCE CLAIMS As discussed in Note I.G., the SeH-Insurance Funds establish a liability for self-insurance for both reported and unreported insured events, which includes estimates of both future payments of losses and related claim adjustment expenses. The following represents changes in those aggregate liabilities for the Insurance Funds during the past two years ended September 30: Worl<er's Compensation and Liability Reserves at beginning of fiscal year Claims expenses Claims payments Worker's Compensation and liability reserves at end of fiscal year Medical and Dental Claims Liability at end of fiscal year * Total Self-(nsurance Liability at end of fiscal year Total Assets to pay claims at end of fiscal year Accrued insurance claims payable from restricted assets-current Accrued insurance claims-non-current Total accrued insurance claims 56 2001 $ 3,734,340 5,735,258 {3!469,598} 6,000,000 3,264,865 $ 9,264,865 $ 18,534,516 $ 4,764,865 4,500,000 $ 9!264!865 2000 $ 3,734,341 2,763,142 {2,763!143) 3,734,340 3,441 879 $ 7,176!219 $ 16,841,919 $ 4,372,861 2,803,358 $ 7,176,219 - - - - CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30,2001 NOTE ill. DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS J. LONG-TERM DEBT (CONTINUED) Long-term debt transactions for governmental and proprietary funds for the year ended September 30, 2001 are as follows: Debt Payable Debt Payable Governmental: 9-30-00 Additions Deletions 9--30-01 Tax-Supported Obligation Bonds $ 48,380,346 $ 9,100,000 $ 4,397,538 s 53,082,808 Rebatable arbitrage 301,269 320,388 621,657 Compensated Absences 111080,047 823,306 11,903,353 Total Governmental 591761,662 10~43,694 4,3971538 65,607,818 Proprietary: Self-Supported Obligation Bonds 135,528,101 37,770,000 9,404,354 163,893,747 Revenue Bonds 77,446,614 9,200,000 5,070,947 81,575,667 Compensated Absences 3,726,095 291,254 81,638 3,935,711 Total Proprietary 216,700,810 47,261,254 14,556,939 249,405,125 Total City-Wide: Obligation Bonds 183,908,447 46,870,000 13,801,892 216,976,555 Revenue Bonds 77,446,614 9,200,000 5,070,947 81,575,667 Rebatable arbitrage 301,269 320,388 621,657 Compensated Absences 14!806,142 1,114,560 81,638 15,839,064 Total City-Wide $ 276,462,472 $ 57,504,948 $ 181954,477 $ 315,012,943 The total long-term debt is reconciled to the total annual requirements to amortize long-term debt as follows: Long-Term Debt Interest Total amount of debt Add: Discounts and deferred losses Rebatable arbitrage Less: Compensated Absences Total future debt requirements $ 315,012,943 150,158,057 1,016,099 (621,657) (15,839,064) $ 465,171,000 (15,444,622) $ 449,726,378 . The City Council called an election for September 18, 1999 to seek voter approval to issue general purpose tax-supported bonds in the amount of $37,385,000, which represents the City's current five year general purpose debt plan. The following four propositions were approved by the voters: parks, $14,765,000; city-wide drainage projects, $2,160,000; city-wide street projects, $17,165,000; and traffic signal systems, $3,295,000. The City has not submitted a capital improvement plan to voters since 1993, when voters in the City approved a $28,690,000 capital improvement plan. In February 2001, the City issued $9,100,000 General Obligation Bonds, Series 2001. This issuance was the second installment of the capital improvement debt issuance approved by the voters in 1999. The proceeds from the sale of the Obligations will be used to fund projects in the following areas: Parks, $3,025,000; Streets $5,335,000; and Traffic Control $740,000. 55 CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE III. DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS J. LONG-TERM DEBT <CONTINUED> The annual requirements to amortize all outstanding debt of the City as of September 30, 200 l, including interest payments of$150,158,057 are as follows: Revenue Fiscal General (Electric, Year Obligation BRA} Total 2001-02 s 24,650,602 $ 9,979,928 $ 34,630,530 2002..03 23,021,722 9,428,398 32,450,120 2003-04 20,936,527 9,200,212 30,136,739 2004..()5 20,394,713 8,522,688 28,917,401 2005..06 19,853,808 8,328,032 28,181,840 2006-07 19,324,162 8,165,148 27,489,310 2007-08 18,196,058 7,675,220 25,871,278 2008-09 17,307,735 6,75{),435 24,058,170 2009-10 16,371,173 6,664,450 23;035,623 2010-11 15,950,604 6,594,692 22,545,296 2011-12 14,358,933 6,176,220 20,535,153 2012-B 13,991,061 6,127,000 20,118,061 2013-14 13;647,539 6,083,240 19,730,779 2014-15 10,368,701 6,{)39 ,{)00 16,407,701 2015-16 9,241,852 5,988,960 15,230,812 2016-17 8,280,451 5,945,825 14,226,276 2017-18 8,174,718 5,895,560 14,070,278 2018-19 7,564,736 5,399,020 12,963,756 2019-20 5,832,482 3,469,150 9,301,632 2020-21 3,185,275 3,448,700 6,633,975 2021-22 2,317,910 2,317,910 2022-23 2,317,900 2,317,900 2023-24 2,318,470 2,318,470 2024-25 2,319,339 2,319,339 2025-26 2,320,614 2,320,614 2026-27 2,321,575 2,321,575 2027-28 2,317,068 2,317,068 2028-29 2,317,260 2,317,260 2029-30 2,321,622 2,321,622 2030-31 2,319,890 2,319,890 Total '$313,844,500 $135!881 ,878 $ 449,726,378 • • This schedule does not include the effect of premiums or discounts. The City has complied in all material respects with the bond covenants as outlined in each issue's indenture. 54 ~ !"";. !-. CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE ill. DETAIL NOTES ON ALL FUNDS A.ND'ACCOUNT GROUPS J. LONG-TERM DEBT !CONTINUED> ELECTRIC REVENUE BONDS: Interest Rate(%) Issue Date 5.00 to 6.50 3.80 to 5.50 4.25 to6.25 3.10to 5.00 4.00to 5.25 Total 7-15-91 6-15-95 1-01-98 1-15-99 7-01-01 Final Maturity Date 4-15-02 4-15-08 4-15-18 4-15-19 4-15-21 Amount Issued $ 4,424,976 13,560,000 9,170,000 14,975,000 9,200,000 $ 51,329,976 Balance Outstanding 9-30-01 $ 400,000 • 8,150,000 •• 7,805,000 13,250,000 ... 9,200,000 **** $ 38,805,000 • ** Refunding bonds issued for a partial refunding of the bonds issued May 15, 1983 . Refunding bonds issued for a partial refunding of the bonds issued April15, 1976, Aprill5, 1987, and May 15, 1988. Balance outstanding includes $108,034 discount on bonds sold, bond issuance costs and deferred amounts on refunded bonds. .... Refunding bonds issued for a partial refunding ofthe bonds issued April25, 1991 and July 15, 1991. Balance outstanding includes $462,430 costs and deferred amounts on bonds refunded. Balance outstanding includes $294,694 of discount on bonds sold and bond issuance costs. WATER REVENUE BONDS: Interest Rate Issue Date 3.80 to 5.50% 6-1-95 Final Amount Maturity Date Issued 8-15-21 $58,170,000 Balance Outstanding 09-30-01 $50,355,000 • * Balance outstanding includes $5,473,212 discount, bond issuance costs and deferred losses on bonds sold or refunded. 53 CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE m. DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS J. LONG-TERM DEBT GENERAL OBLIGATION BONDS AND CERTIFICATES OF OBLIGATION: Average Final Balance Interest Issue Maturity Amount Outstanding Rate Date Date Issued 9-30-01 7.86% 11-15-85 2-15.03 s 60,614,070 $ 438,321 9.01 5-15-91 2-15-11 1,085,000 535,000 5.50 1-14-92 2-15-02 1,655,000 85,000 550 5-15-92 2-15-04 34,520,000 6,900,000 5.37 8-15-92 2-15-02 7,565,000 275,000 3.97 5-1-93 2-15-15 14,425,000 10,095,000 5.39 10-1-93 2-15-14 3,625,000 2,365,000 5.39 10-1-93 2-15-14 2,550,000 1,675,000 5.20 10-1-93 2-15-14 1,470,000 975,000 5.14 10-1-93 2-15-14 19,215,000 12,495,000 4.30 12-1-93 2-15-08 9,865,000 5,215,000 5.50 5-15-95 2-15-15 4,690,000 3,290,000 5.07 12-15-95 2-15-16 6,505,000 4,880,000 5.07 12-15-95 2-15-16 10,000,000 7,500,000 4.91 1-15-97 2-15-09 17,530,000 15,015,000 4.61 1-1-98 2-15-08 1,330,000 1,000,000 4.71 1-1-98 2-15-18 10,260,000 8,730,000 4.36 1-15-99 2-15-14 20,835,000 20,550,000 4.58 1-15-99 2-15-19 15,355,000 13,815,000 4.77 4-1-99 2-15-19 6,l00,000 5,490,000 4,71 4-1-99 2-l5-19 12,300,000 ll,l60,000 5.37 9-15-99 2-15-20 24,800,000 24,055,000 5.54 3-15-00 2-15-20 7,000,000 7,000,000 4.90 2-1-01 2-15-21 9,100,000 9,100,000 4.81 2-1-01 2-15-21 2,770,000 2,770,000 5.25 6-1-01 2-15-31 35!000!000 35,000,000 Total $340,164,070 s 210,408,32l(A) (A) Excludes net deferred gains and losses on advance refundings, bond issuance costs and discounts of $5,322,270. Additionally, this amount includes $157,325,513 of bonds used to finance enterprise fund activities. 52 - - - - - - CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE III. DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS I. SEGMENT INFORMATION -ENTERPRISE FUNDS (CO!,'i'fl!,'iUED} The City maintains seven enterprise funds, which include electric, water, sewer, solid waste, airport, gol~ and stormwater drainage Segment information for the year ended September 30, 2001, was as follows: Solid Storm'l't'llter Tollll Electric Water Sewer Wute Airport Golf Dndllllge Enterprise Food Fund Fund Fund FUlld Fund Fuad Funda Operating Revenues $ 112,077,148 $ 30,463,694 $ 16,575,673 $ 15,564,356 $ 4,776,508 $ 34,982 s 1,986,592 s 181,478,953 Depreciation Expense 6,344,450 5,382,462 4,693,011 2,062,105 3,266,417 56,425 252,090 22,056,960 Operating income (loss) 6,476,894 9,178,172 2,756,202 2,913,294 (2,192,710) (21,443) 1,055,611 20,166,020 Operating Transfers In ( oUI) (7,856,203) (3,549,148) (1,820,459) (2,372,390) (881,163) (34,982) (188,026) (16, 702,3 71) Net Income (loss) (645,156) 1;174,683 (1,049,616) 1,296,728 (1,178,907) (58,527) 1,07:2,058 611,263 Cum:nt capital Contnbutions(Reductions) 210,226 675,693 1,665,821 (8,981) 4,701,997 7,244,756 Property, plant, and eql!lpment: Additions: 10,590,127 17,962,043 5,879,650 4,229,141 5,876,791 550,256 45,088,008 Deletions: 596,108 1,450,937 233,978 1,537,238 319,358 6,708 97,800 4,242,127 Net Working Capital (875,028) . 6,519,470 2,183,254 3,362,725 305,408 (2,033, 760) 500,089 9,962,158 Allowance for doubtful Accounts (1,421,644) (280,102) (121,638) (107,065) (l17,909) (2,048,358) Total Assets 150,826,651 251,019,746 117,049,474 50,658,914 66,070,706 165,760 46,931,112 682,722,363 Bonds and otherlong- tenn liabilities payable from operating revenues 39,923,286 113,515,487 50,827,408 12,532,278 5,272,541 34,633,996 256,704,996 Total Fund Equity(Deficit) $92,270,912 s 135,226,341 $65,604,178 $3'1:,634,600 $60,452,751 $(1 ,870, 791) $11,909,498 $401,227,489 51 CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE ill. DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS G. SURFACE WATER SUPPLY (CONTINUED) Canadian River Municipal Water Authority (Continued) term debt. The above cost for the rights are recorded as other assets and are being amortized over 85 years. The cost and debt are recorded in the Water Enterprise Fund. Brazos River Authority -Lake Alau Henry During 1989, the City entered into an agreement with the Brazos River Authority (BRA) for the construction, maintenance and operation of the facilities known as Lake Alan Henry. The BRA, which is authorized by the State of Texas to provide for the conservation and development of surface waters in the Brazos River Basin, has issued bonds for the construction of the dam and lake facilities on the South Fork of the Double Mountains Fork of the Brazos River. Total costs are expected to exceed $120 million. The agreement obligates the City to provide revenues to BRA in amounts sufficient to cover all maintenance and operating costs, management fees to the authority, as well as funds sufficient to pay all capital costs associated with construction. The City will receive surface water for the payments to BRA. Approximately $154,000 was paid to the BRA for maintenance and operating costs in fiscal year2001. The BRA issued $16,970,000 in revenue bonds in 1989 and $39,685,000 in revenue bonds in 1991. These bonds were refunded July 1995. Disclosure of the refunding can be found in Note IU. K. Construction of the dam and lake facilities began in 1989. The City is obligated to provide sufficient funds over the remaining life of the bonds to service the debt requirement. The financial activity, along with the related obligation, is accounted for in the Water Enterprise Fund. At September 30, 2001, certain mineral rights associated with land located in the Lake Alan Henry site owned by individuals had not been acquired by the City. The additional amount needed to purchase such mineral rights is yet to be determined. H. OTHER ENTERPRISE FUND ACTIVITIES Enterprise Fund Transfers Transfers to the General Fund from the Electric, Water, Solid Waste, and Sewer Enterprise Funds, in the opinion of management, exceed the amount that would have been paid to the City if these funds were private sector companies engaged in the same enterprises. In addition to the amount transferred in excess of private sector taxes, there is also an amount transferred to compensate the General Fund for shared services and indirect costs. 50 - CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE ill. DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS E. RETIREMENT PLANS <CONTINUED> 1 Economic and demographic assumptions were revised. 2 Changes in plan benefit provisions were effective December 20, 1995, March 30, 1996 and November l, 1997. 3 Reflects changes in plan benefit provisions effective November 1, 1999. 4 Reflects changes in plan benefit provisions effective December 1, 200 l. 5 The covered payroll is based in estimated annualized salaries used in the valuation. F. DEFERRED COMPENSATION The City offers its employees three deferred compensation plans created in accordance with Internal Revenue Code ("IRC") Section 457. The plans, available to a)l City employees, permit them 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. The Plan's assets are held in trust for the exclusive benefits of the participants and their beneficiaries. In management's opinion, the level of administrative services provided by City staff warrants inclusion of the plans in the financial reporting entity as an expendable trust fund. G. SURFACE WATER SUPPLY Canadian River Municipal Water Authority The Canadian River Municipal Water Authority (CRMWA) is a Conservation and Reclamation District established by the Texas Legislature to construct a dam, water reservoir and aqueduct system for the purpose of supplying water to surrounding cities. The District was created in 1953 and comprises eleven cities, including the City. The budget, financing and operations of the District are governed by a Board of Directors selected by the governing bodies of each of the member cities, each city being entitled to one or two members dependent upon population. At September 30, 2001, the Board was comprised of 18 members, two of which represented the City. The City contracted with the CRMW A to reimburse it for a portion of the cost of the Canadian River Dam and aqueduct system in exchange for surface water. Accordingly, prior to fiscal 1999, such payments were made solely out of water system revenues and were not general obligations of the City. The City's pro rata share of annual fiXed and variable operating and reserve assessments is recorded as an expense of obtaining surface water. Prior to fiscal 1999, the long-term debt was owed to the U.S. Bureau of Reclamation for the cost of Construction of the facility, which was completed in 1969. The City's allocation of project cost was $32,905,862. During the year ended September 30, 1999, bonds in the principal amount of $12,300,000 were issued to payoff the construction obligation owed to the U.S. Bureau of Reclamation via CRMWA in the amoWlt of $20,809,067. The difference of $8,509,067 was a discount in the remaining principal provided by the U.S. Bureau of Reclamation to the member cities. This discount has been recorded as a deferred gain on refunding and is being amortized over the life of the refunding bonds. At September 30, 2001, $7,704,469 remains unamortized. The annual principal and interest payments are included in the disclosures for other City related long- 49 CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE ill. DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS E. RETffiEMENT PLANS !CONTINUED) certified the most recent plan of benefits assuming that the present financing arrangement would continue and would be necessary for an adequate financing arrangement for the long-term future. Annual Pension Cost The Annual Required Contributions (ARC), the Annual Pension Cost (APC) and the Net Pension Obligation (NPO) are developed in such a manner to satisfy the parameters of GASB Statement No. 27. The required contributions for the period prior to January I, 2001 are based on the actuarial valuation as of December 31, 1998. The required contributions for the period beginning January t, 2001 are based on the actuarial valuation as of December 31, 2000 and reflect the December 1, 2001 plan provisions. The ARC l!Ild the APC for the year ended September 30, 2001 was $1,366,293 and the actual City contributions (ARC) made for the year was $1,960,306 resulting in an NPO of $(594,013). The entry age actuarial cost method was used, with the normal cost calculated as a level percentage of payrolL The actuarial value of assets was determined based on a five-year smoothed fair-market value of assets. The actuarial assumptions included an investment return assumption of 8.5 % per year (net of administrative expenses), projected salary increases including promotion and longevity averaging 6.5% per year over a 25 year career, l!Ild no postretirement cost-of-living adjustments. An inflation assumption of 4.5% per year is included in the investment return and salary increase assumptions. As of the December 31, 2000 actuarial valuation date and based on plan provisions effective December I, 2001, the fund's assets exceeded the actuarial accrued liability resulting in a negative unfunded actuarial accrued liability (UML). The negative UAAL is amortized over 30 years using an open, level percentage of payroll method, assuming that the payroll will increase 4.5% per year. Further details concerning the financial position of the LFRRF and the latest actuarial valuation are available by contacting the Board of Trustees, LFRRF, City of Lubbock, P.O. Box 2000, Lubbock, Texas 79457. Fiscal Year Ending 9/30/99 9/30/00 9/30/01 Trend Information Annual Pension ·cost (APC) $1,745,357 1,852,835 1,366,293 Percentage of APC Contributed 100 100 143 Net Pension Obligation $(594,013) LUBBOCK FIREMEN'S RELIEF AND RETmEMENT FUND ANALYIS OF FUNDING PROGRESS Actuarial Actuarial Entry Age Unfunded Funded Annual UAALasa Valuation Value of Actuarial AAL Ratio (alb) Covered Percentage of Date Assets (a) Accrued (UAAL) Payroll5 Covered Liability (b-a) (c) PayroU {AAL} (b} ({b-a}/c} 12/31/96 I ,2 $73,626,537 $80,105,898 $6,479,361 91.9% $9,223,974 70.2% 12/3l/98 1,3 90,364,681 97,533,314 7,168,633 92.7 10,290,190 69.7 12/31/001,4 119,660,788 114,675,049 ( 4,985,739) 104.3 12,243,913 (40.7) 48 - - CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE III. DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS E. RETIREMENT PLANS (CONTINUED) A firefighter has the option to participate in a Retroactive Deferred Retirement Option Plan (RETRO DROP) which will provide a lump sum be1,1efit and a reduced annuity upon termination of employment. Firefighters must be at least 51 with 21 years of service at the selected "RETRO DROP benefit calculation date" (which is prior to date of employment termination). Early RETRO DROP with benefit reductions is available at age 50 with 20 years of service for the selected "early RETRO DROP benefit calculation date". A Partial Lump Sum option is also available where a reduced monthly benefit is determined based on an elected lornp sum amount such that the combined present value of the benefits under the option is actuarially equivalent to that of the normal form of the monthly benefit. Optional forms are also available at varying levels of surviving spouse benefits instead of the standard two-thirds form. There is no provision for automatic postretirement benefit increases. The fund has the authority to provide, and has periodically in the past provided for, ad hoc postretirement benefit increases. The benefit provisions of this plan are authorized by the Texas Local Fire Fighter's Retirement Act (TLFFRA). TLFFRA provides the authority and procedure to atnend benefit provisions. Contributions Required and Contributions Made The contribution provisions of this plan are authorized by TLFFRA. TLFFRA provides the authority and procedure to change the atnount of contributions determined as a percentage of pay by each firefighter and a percentage of payroll by the City. State law requires that each plan of benefits adopted by the fund must be approved by an eligible actuary. The actuary certifies that the contribution commitment by the firefighters and the City provides an adequate financing arrangement. Using the entry age actuarial cost method LFRRF's normal cost contribution rate is determined as a percentage of payroll;-The excess of the total contribution rate over the normal cost contribution rate is used to amortize LFRRF's unfunded actuarial accrued liability (UAAL), if any, and the nnmber of years needed to atnortize LFRRF's unfunded actuarial liability, if any, is determined nsing a level percentage of payroll method When there is a negative UAAL, the actuarially required contribution rate for compliance with GASB 27 is determined by atnortizing the negative UAAL over 30 years using a level percentage of payroll method. This will be the case for 2001 and 2002 (calendar years) based on the most recent results of the December 3 I, 2000 valuation. The costs of administering the plan are financed from the trust. LFRRF's funding policy requires contributions equal to 11% of pay by the firefighters. Contributions by the City are based on a formula which causes the City's contribution rate to fluctuate from year to year. The December 31, 2000 actuarial valuation (most recent) assornes that the City's contributions will average 15% of payroll in the future. The plan of benefits most recently adopted effective December I, 2001 was adopted cautiously, allowing for future unforeseen contingencies in light of the unsettled investment . enviromnent that existed in the fall of 2001 when various plan atnendments were being studied and considered. Therefore, even though the actual contributions for the 2001 and 2002 plan years (calendar years) are somewhat greater than the Annual Required Contributions defined by GASB 27, the actUary 47 CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE m. DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS E. RETIREMENT PLANS (CONTINUED> TEXAS MUNICIPAL RETIREMENT SYSTEM REQUIRED SUPPLEMENTAL DISLOSURE 3 YEAR IDSTORICAL SCHEDULE OF ACTUARIAL LIABILITIES AND FUNDING PROGRESS Unfunded Actuarial Asof Actuarial Ac:c:rued December31 Actuarial Value of Accrued Perc:entage Liability Assets Liability Funded (UAAL) 1998 $ 132,735,475 $ 162,668,614 81.6% $ 29,933,139 1999 147,042,049 181,439,657 81.0% 34,397,608 2000 160,299,195 200,713,365 79.9% 40,414,170 UALLasa% Annual Required As of Annual Covered Of Covered Contribution Contribution December31 Payroll Payroll (ARg Made 1998 $ 46,619,677 64.2% $7,149,029 $ 7,149,029 1999 51,627,837 66.6% 7,794,560 7,794,560 2000 54,589,153 74.0% 8,010,122 8,010,122 The City of Lubbock is one of 745 municipalities having the benefit plan administered by 1MRS. Each of the municipalities has an annual, individual actuarial valuation performed. All assumptions for the December 31, 2000 valuations are contained in the 2000 TMRS Comprehensive Annual Financial Report, a copy of which may be obtained by writing to P.O. Box 149153, Austin, Texas 78714-9153. LUBBOCK FIREFIGHTER'S RELIEF AND RETIREMENT FUND (LFRRF) Plan Description The Board of Trustees of the LFRRF is the administrator of a single-employer defmed benefit pension plan. This pension fund is a trust fund. It is reported by the City as a related organization and is not considered to be a part of the City financial reporting entity. Firefighters in the Lubbock Fire Department are covered by the LFRRF. The LFRRF provides service retirement, death, disability and withdrawal benefits. These benefits vest after 20 years of credited service. Employees may retire at age SO with 20 years of service. A reduced early service retirement benefit is provided for employees who terminate employment with 20 or more years of service. A partially vested benefit is provided for ftrefighters who terminate employment with at least 10 but less than 20 years of service. The LFRRF Plan Effective December I, 2001 provides a monthly normal service retirement benefit, payable in a Joint and Two-Thirds to Spouse form of annuity, equal to 70.02% of Final 48-Month Average Salary Plus $335.05 per month for each year of service in excess of 20 years. 46 CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30~ 2001 NOTE III. DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS E. RETIREMENT PLANS (CONTINUED) 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 25 years of service regardless of age. As of September 30, 2001, a member is vested after 10 years. During 2001, legislation was enacted that changed the vesting period from 1 0 years to 5 years. This 5 year vesting period begins January 2002. 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. Contributions The contribution rate for the employees is 7% and the City matching ratio is currently 2 to 1, both as adopted by the governing body of the City. Under the state law governing TMRS, the actuary annually determines the City contribution rate. This rate consists of the normal cost contribution rate and the prior service contribution rate, both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the currently accruing monetary credits due to the City matching percent, 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 percent of payroll necessary to satisfy the obligation of the City to each employee at the time hislher retirement becomes effective. The prior service contribution rate amortizes the unfunded (overfunded) actuarial liability (asset) over the remainder of the plan's 25- year amortization period. The unit credit actuarial cost method is used for deteimining the City contribution rate. Both the employees and the City make contributions monthly. Since the City needs to know its contribution rate in advance for budgetary purposes, there is a one-year delay between the actuarial valuation that is the basis for the rate and the calendar year when the rate goes into effect. (i.e. December 31, 2000 valuation is effective for rates beginning January 2002). Actuarial Assumptions The actuarial assumptions for the December 30, 2000 valuations are as follows: Actuarial cost method: Amortization method: Remaining amortization period: Asset valuation method: Investment rate of return: Projected salary increases: Includes inflation at: Cost ofUving adjustments: Unit credit Level percent of payroll 25 years-open period Amortized cost 8% None None None 45 CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE ill. DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS D. PROPERTY. PLANT AND EQUIPMENT CCONJINUEDl General fiXed asset account group for component units for the year ended September 30, 2001, are follows: Equipment Balance 9-30..00 $ 520,542 Additions $ 327,521 De1e1lons $ 312,158 Balance 9-30-01 $ 535,905 Property, plant, and equipment recorded in the City's various proprietary funds (including component units) as of September 30,2001, is as follows: Total Reporting Internal Total Entity Land Buildings Other Improvements Equipment Construction in Progress Total Less: Accumulated Depreciation Net E. RETIREMENT PLANS Enterprise Service Proprietary Component Proprietary Fund Fund Fund Type Units Fund TyPe $ 30,830,572 $ 65,343 $ 30,895,915 $ 520,403 $ 31,416,318 82,960,915 1,614,935 84,575,850 4,159,174 88135,024 461,666,677 186,969 461,853,646 1,179,543 463,033,189 66,550,402 10,315,448 76,865,850 17,827,675 94,693,525 --=8~6:'-':,5:0:.4~8,~59':-"8'--...-,-::3:":,9~85:-",8::-:9..::-3-----::::-:907,5':::3:-'::4,'-::49":'1:---::-:-:1~25'=",5~5::-=:-9 -::-:90:-::':i-,66~0~,05~0-:-- 728,557,164 16,168,588 744,725,752 23,812,354 768,538,106 (222,878,978) (7,874,961) (230,753,939) (9,308,698) (240,062,637) $505,678,186 $ 8,293,627 $ 513,971,813 $ 14,503,656 $ 528,475,469 Each qualified employee is included in one of two retirement plans in which the City of Lubbock participates. These are the Texas Municipal Retirement System (TMRS) and the Lubbock Firemen's Relief and Retirement Fund (LFRRF). The City does not maintain the accounting records, hold the investments or administer either fund. Summary of significant data for each retirement plan follows: TEXAS MUNICIPAL RETIREMENT SYSTEM (fMRS) Plan Description The City provides pension benefits for all of its full-time employees (with the exception of firefighters) through a non-traditional, joint contributory, hybrid defined benefit plan in the state-wide TMRS, one of 745 administered by TMRS, an agent multiple-employer public employee retirement system. Benefits depend upon the sum of the employee's contributions to the plan, with interest, and the City- financed monetary credits, with interest. At the date the plan began, the City granted monetary credits for service rendered before the plan began of a theoretical amount equal to two times what would have been contributed by the employee, with interest, prior to establishment of the plan. Monetary credits for service since the plan began are a percent (100%, 150%, or 200%) of the employee's accumulated contributions. In addition, the City can grant, as often as annually, another type of monetary credit referred to as an updated service credit which is a theoretical amount which, when added to the employee's accumulated contributions and the monetary credits 44 - - - - CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE Ill. DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS C. DEFERRED CHARGES <CONTINUED) During fiscal 2000, $3,000,000 was transferred to the Management Information Internal Service Fund from the Electric Enterprise Fund to cover costs of implementing a new utility billing system. This amount will be amortized over 7 seven years once the new billing system bas been placed in service, which is anticipated to occur in fiscal 2002. The remaining deferred charges of $2,129,072 represents infrastructure and other economic development costs being amortized over 5 years. D. PROPERTY, PLANT AND EQUIPMENT General fixed assets ofthe City for the year ended September 30,2001, are as follows: Balance Balance 9-30-00 Additions• Deletions* Reel asses'"* 9-30..01 Land $ 7,933,228 $ 37,110 $ 117,907 $ (504,379) $ 7,348,052 Buildings and improvements 41,060,779 5,396,953 424,393 10,106 46,043,445 Other Improvements 135,674,760 7,119,792 701,288 497,852 142,591,116 Equipment 36,725,151 7,226,586 6,620,128 (3,579) 37,328,030 Construction in Progress 40,390,461 132550!076 22,089,454 3128512083 Total $ 261!7841379 $ 331330!517 $ 2929531170 $ -$ 265,161!726 "' Includes transfers "'* In fiscal 2001, certain assets were reclassified to more appropriate categories Construction in progress is composed of the following: Fire Station Park Improvements Street Improvements Permanent Street Maintenance General Permanent Capital Projects General Permanent Capital Improvements & Other Total Life-to-Date Activity Project Authorization $ 9,061,110 $ 10,070,772 36,216,067 1,500,000 4,981,765 17,852,926 $ 79,682,640 $ Expended 9-30-01 6,154,348 2,775,530 7,812,446 1,049,912 4,141,942 9,9161905 31,851,083 Unexpended Balance $ 2,906;762 7,295,242 28,403,621 450,088 839,823 7,936,021 $ 47,831!557 The unexpended balance represents long-term capital planning that may be funded through existing or anticipated future funding sources. 43 CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE ill. DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS B. INTERFUND TRANSACTIONS Interfund receivables and payables consisting of due to/from and advances to/from other funds at September 30,2001 were as follows: Funds General Fund Special Revenue Funds: Hotel/Motel Tax Capital Project Funds Public Safety General Capital Projects Enterprise Funds: Electric Enterprise Water Enterprise Solid Waste Enterprise Go1fEnterprise Stormwater Enterprise Internal Service Funds: Fleet Maintenance Print Shop & Office Store Radio Shop Management Information Custodial Services Corrununications Expendable Trust Funds: Corrununity Development Corrununity Services Library Total Primary Government C. DEFERRED CHARGES lnterfund Receivables $10,263,597 7,789,491 1,563,653 $19,616,741 lnterfund Payables $ 632,000 1,188,680 1,578,974 11,500,600 150,000 2,014,092 50,000 46,000 12,000 42,915 484,194 61,000 236,885 1,372,001 26,000 221,400 $19,616,741 The total deferred charges of$10,516,649 in the Electric Enterprise Fund includes $3,744,444 which represents an advertising contract with the United Spirit Arena. The advertising (and amortization) began with the opening of the sports arena in fiscal2000 and will continue for 30 years. The deferred charges also include an amount of$1,643,133 at September 30, 2001, which represents prepayments for a contract for future delivery of natural gas as contracted for by the City. In 1988, a contract was entered into for the purchase of proven and unproven reserves, totaling 2,000,000 MMBTU at $1.56 per MMBTU with an option, which the City has exercised, to purchase an additional 2,000,000 MMBTU at the same price. Quantities in excess of the first 4,000,000 MMBTU can then be purchased at market value. During 1988, proven reserves of 338,000 MMBTU were purchased at the $1.56 rate. The remaining reserves are being purchased as proven. One-half the rate, or $.78 per MMBTU, is paid upon proven determination of the reserves and the balance is to be paid upon delivery. The prepayments are to be expensed as the gas is taken until the prepaid units of gas have been consumed. At September 30, 2001 and 2000, 1,317,934 MMBTU had been delivered, and remaining proven reserves at September 30,2001 and 2000 were 2,104,273 MMBTU. 42 - - .-. - CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE ill. DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS A. POOLED CASH AND INVESTMENTS <CONTINUED> Bank Carrying sits Balance Amount Primary Government $ 1,710,658 $ $ 1,710,658 $ 296,061 Component Units 637,108 105,487 396,556 1,139,151 853,308 Total $ 2,347!766 $ 105,487 $ 3961556 $ 2,849,809 $ 1!149!369 Cash and Investments are reported in the lmancial statements as: .Total Total Total Primary Component Reporting Government Units Enti!l: Cash and Cash Equivalents-Non- Restricted $ 8,435,709 $ 753,308 $ 9,189,017 Cash and Cash Equivalents-Restricted 161733,051 1001000 16,8331051 Total Cash md Cash Equivalents 25,1681760 853!308 26,022!068 Investments -Non Restricted 66,901,925 3,155,060 70,056,985 Investments -Restricted 107,971,415 107,971!415 Total Investments 17418731340 311551060 17810281400 Total Cash md Investments $ 200,042,100 $ 4,008,368 $ 204,050,468 41 CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE ill. DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS A. POOLED CASH AND INVESTMENTS (CONTINUED) L Investments Primary Government: U. S. Treasury and Agency Obligations Mutual Funds Subtotal Component Units:· U.S. Treasury and Agency Obligations Mutual Funds Subtotal Total Investments (1) $ 78,477,258 126,916 Category (l) 40 (3) Carrying Amount $ 78,477,258 121,268,781 199,746,039 126,916 3,028,144 3,155,060 $202,901,099 - - - CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE II. STEWARDSIDP, COMPLIANCE AND ACCOUNTABILITY A. RETAINED EARNINGS/FUND BALANCE DEFICITS (CONTINUED> The retained earnings deficit of$427,155 in the Internal Service Communications Fund results from the practice of not recovering depreciation through user charges. Management is evaluating user charges in order to recover depreciation and recover the retained earnings deficit. No other funds of the City had deficits in either total fund balances or total retained earnings. NOTE ill. DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS A. POOLED CASH AND INVESTMENTS The City's investment polices are governed by State statute and City ordinances. Permissible investments include direct obligations of the United States or its agencies and instrumentalities, certificates of deposit, prime domestic banker's acceptances, commercial paper, repurchase agreements, and deposits in a qualifying investment pool. Collateral is required for demand deposits, certificates of obligation, and repurchase agreements at 102% of all amounts not covered by Federal deposit insurance. Obligations that may be pledged as collateral are obligations of the United States and its agencies and obligations of the state and its subdivisions. The City's deposits and investments are categorized below to indicate the level of risk assumed by the City at September 30, 2001. INVESTMENT CATEGORY OF CREDIT RISK (1) Insured, registered or in 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 its agent in the City's name. (3) Uninsured and unregistered, with securities held by the counter party or by the trust department or agent but not in the City's name. DEPOSIT CATEGORY OF CREDIT RISK (A) Insured or collateralized with securities held by the City or by its agent in the City's name. (B) Collateralized with securities held by the pledging financial institution's trust department or agent in the City's name. (C) Uncollateralized. Pooled Cash and Investments The City's pooled cash and investments consist of deposits with financial institutions, certificates of deposit, U.S. governrnent and agency securities, commercial paper, and deposits in qualifying non- regulated money market investment pools (Logic and TexPool). These investments have varying maturities ranging from one day to three years. The weighted average maturity of the total portfolio is kept to under two years. .The following is a schedule of the City's pooled cash and investments at September 30, 2001: · 39 CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES I. TOTALS (MEMORANDUM ONLY) The Totals (Memorandum Only) columns represent an aggregation of the combined financial statements and do not represent consolidated financial infonnation. Data in those columns do not represent financial position and results of operations, in confonnity with GAAP and are presented only to facilitate analysis. Interfund eliminations have not been made in the aggregation ofthis data J. RECLASSIFICATIONS Certain 2000 amounts have been reclassified to confonn to 200 1 presentation. NOTE II. STEWARDSHIP, COMPLIANCE AND ACCOUNT ABILITY A. RETAINED EARNINGS/FUND BALANCE DEFICITS The deficit of $482,728 in the General Capital Projects Fund is due to timing differences· of incurring capital outlay expenditures for an internally financed project. Over the term of the borrowing arrangement, transfers in from Special Revenue Funds will eliminate the deficit. The deficit of $179,387 in the Library Expendable Trust Fund is the result of a timing difference between expenditures incurred and the filing of requests for reimbursements. These funds have not been accrued, as certain reimbursement amounts are not measurable at September 30, 2001, which is consistent with the revenue recognition required by the modified accrual basis of accounting. The deficit of $1,680,824 in the Connnunity Development Expendable Trust Fund is the result of timing differences between expenditures incurred and the filing of requests for reimbursements. These funds have not been accrued, as certain reimbursement amounts are not available at September 30, 2001, which is consistent with the revenue recognition required by the modified accrual basis of accounting. The deficit of $28,332 in the Community Services Expendable Trust Fund is the result of timing differences between expenditures incurred and the filing of requests for reimbursements. These funds have not been accrued, as certain reimbursement amounts are not available at September 30, 2001, which is consistent with the revenue recognition required by the modified accrual basis of accounting. The deficit of $507,846 in the Police Expendable Trust Fund is the result of a timing difference between expenditures incurred and the filing of requests for reimbursements. These funds have not been accrued, as certain reimbursement amounts are not available at September 30, 2001, which is consistent with the revenue recognition required by the modified accrual basis of accounting. The deficit in the Golf Enterprise Fund of $1,870,791 is the result of placing itself in a more competitive position through non-capital course equipment improvements. On October 13, 1994, the City contracted with Fore Star Golf, Inc. for management services to be provided for the golf course operations. The management agreement is effective through December 31, 2014. Over the term of the contract, Fore Star Golf, Inc. will receive a portion of the golf course revenues based on a sliding scale. Additionally, management has approved a l 0 year funding source from the General Fund to eliminate the deficit beginning in fiscal 2002. The retained earnings deficit of $433,503 in the Internal Service Management lnfonnation Fund results from the practice of not recovering depreciation through user charges. Management is evaluating user charges in order to recover depreciation, financing and capital costs, and the retained earnings deficit. 38 - CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES H. REVENUES, EXPENSES AND EXPENDITURES (CONTINUED> Nonrecurring or nonroutine pennanent transfers of equity are reported as residual equity transfers. All other interfund transactions except quasi-external transactions, reimbursements, temporary receivables and payables, and residual equity transfers are reported as operating transfers. Compensated Absences consists of vacation leave and sick leave. Vacation leave of 1 0-20 days is granted to all regular employees dependent upon the date employed, years of service, and civil service status. Currently, up to 40 hours of vacation leave may be "carried over" to the next calendar year. The City is obligated to make payment upon retirement or termination for any available, unused vacation leave. Sick leave for employees is accrued at I ~ days per month with a maximum aecrual status of 200 days. After 15 years of continuous full time services for non-civil service personnel, vested sick leave is paid on retirement or termination at the current hourly rate for up to 90 days. Upon retirement or termination, Civil Service Personnel (Police) are paid for up to 90 days accrued sick leave. after one year of employment. Civil Service Personnel (Firefighters) are paid for up to 135 days of accrued sick leave upon retirement or termination. The Texas Civil Service laws dictate certain benefits and personnel policies above and beyond those policies of the City. The liability for the accumulated vacation and sick leave is recorded in the general long-term debt account group for governmental fund employees and as a noncurrent liability in the proprietary funds for proprietary fund employees. Management has determined that the current portion of this liability is not significant to the overall financial position of the City. Post Employment Benefits for retirees of the City of Lubbock include the option to purchase health and life insurance benefits at their own expense. Amounts to cover premiums and administrative costs, with an incremental charge for reserve funding, are determined by the City's health care administrator. Employer contributions are funded on a pay-as-you-go basis and approximated $475,000 for fiscal 2001. These contributions are included in the amount of insurance expense reflected in the financial activity reported in the Health Insurance Internal Service Fund. The following schedule reflects participation in the City's health care program: Participants Active Retired Cobra Active Claims Retired Claims Cobra Claims Total Claims %of Employee Groups to total chiims Active Retired Cobra Total% 37 2001 1,821 380 16 $5,493,187 2,261,870 108,301 $7,863,358 69.86% 28.76% 1.38% 100.00% CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES G. RISK MANAGEMENT (CONTINUED) For self-insured coverage, the Risk Management Fund established claim liabilities based on estimates of the ultimate cost of claims (including future claim adjustment expenses} that have been reported but not settled, and of claims that have been incurred but not reported. The length of time for which such costs must be estimated varies depending on the coverage involved. Estimated amounts of salvage and subrogation and reinsurance recoverable on unpaid claims are deducted from the liability for unpaid claims. Because actual claim costs depend on such complex factors as inflation, changes in doctrines oflegalliability, and damage awards, the process used in computing claim liabilities does not necessarily result in an exact amount, particularly for general liability coverage. Claim liabilities are recomputed periodically using a variety of actuarial and statistical techniques to produce current estimates that reflect recent settlements, claim frequency, and other economic and social factors. Adjustments to claim liabilities are charged or credited to expense in the period in which they are incurred. Additionally, property and boiler coverage is accounted for in the Risk Management Fund. The property insurance policy was purchased from an outside insurance carrier. The policy has a $250;ooo deductible per occurrence, and the boiler coverage insurance deductible is up to $100,000 dependent upon the unit. Premiums are charged to funds based upon policy premiums and reserve payments. Other small insurance policies, such as surety bond coverage and miscellaneous floaters, are accounted for in the Risk Management Fund. Funds are charged expenditures based on premium amounts and administrative charges. The City has had no significant reductions in insurance coverage during the year. Settlements in the current year and preceding two years have not exceeded insurance coverage. The City accounts for all insurance activity in Internal Service Funds. H. REVENUES, EXPENSES AND EXPENDITURES Interest Income on pooled cash and investments is allocated monthly based on the percentage of a fund's six month rolling average monthly balance in pooled cash and investments to the total citywide six month rolling average monthly balance in pooled cash and investments, except for certain Trust and Agency Funds, certain Special Revenue Funds, Governmental Capital Project Funds, and certain Internal Service Funds. The interest income on pooled cash and investments of these funds is reported in the General Fund or the Debt Service Fund. Sales Tax Revenue for the City results from an allocation of 1.125% ofthe total sales tax levy of 7.875%, which is collected by the State of Texas and remitted to the City monthly. The tax is collected by the vendor and required to be remitted to the State by the 20th of the month following collection. The tax is then paid to the City by the lOth of the next month. On January 21, 1995, voters approved a l/8 cent increase in sales tax to reduce the property tax rate which went into effect October 1, 1995. The 45 day availability period provides for full accrual of sales taxes. Grant Revenue from federal and state grants is recognized to the extent that the related expenditure has been incurred and reimbursement received or requested. Interfund Transactions or quasi-external transactions are accounted for as revenues, expenditures or expenses. Transactions that constitute reimbursements to a fund for expenditures/expenses initially made from that fund that are properly applicable to another fund, are recorded as expenditures/expenses in the reimbursing fund and as reductions of expenditures/expenses in the fund that is reimbursed. 36 - - CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES F. ASSETS, LIABILITIES AND FUND EQUITY (CONTINUED) Inventories -Inventories consist of expendable supplies held for consumption. Inventories are valued at cost using the average cost method of valuation, and are accounted for using the consumption method of accounting (i.e., inventory is expensed when used rather than when purchased). Prepaid Items -Prepaid items are accounted for under the consumption method. Restricted Assets -Certain enterprise fund assets are restricted for construction which has been funded through long-term debt, therefore, retained earnings have been reserved for these amounts. The excess of other restricted assets over related liabilities are included as retained earnings reserved for capital projects, rate stabilization, economic development and bond indentures. Fixed Assets and Depreciation -General fixed assets are not capitalized in the funds used to acquire or construct them. Instead, capital acquisition and construction are reflected as expenditures in Governmental Funds, and the related assets are reported in the General Fixed Assets Account Group. All purchased fixed assets are recorded at cost. Donated assets are recorded at the fair value on the date of donation. Assets in the General Fixed Assets Account Group are not depreciated. Property, plant and equipment of the Proprietary Funds are stated at cost or estimated market value for donated assets and capitalized in the fund that acquired or constructed them. Depreciation is computed using the straight-line method over the estimated useful lives as follows: Improvements Buildings Equipment 10-SO years 15-50 years 3-15 years Interest Capitalization -The City does not capitalize interest cost Interest capitalization would not be significant to the GPFS. Advances to Other Funds-Amounts owed to one fund by another which are not due within one year are recorded as advances to other funds. These are equally offset by a fund balance reserve amount in the governmental funds, which indicates they do not constitute available expendable resources. G. RISK MANAGEMENT The City is required to fund amounts into accounts from which medical. and dental claims are paid by a third party administrator, and as a result is effectively self-insured. The liability for incurred claims represents estimates for medical and dental claims incurred as of September 30, 200 1. Some of these claims were reported at September 30, 2001, and others which are incurred but not reported (IBNR), may not be reported until a later date. IBNR is calculated by the City's independent insurance administrator. In order to mitigate the risk associated with the City's medical coverage, the City purchased individual stop loss coverage of$150,000. In April 1999, the City purchased worker's compensation coverage, with no deductible, from a third party. Prior to April 1999, the City was self insured for worker's compensation claims. Any claims outstanding in Aprill999 are the responsibility of the City. The City's self-insured general liability program is on a cash flow basis, which means that the service contractor processes, adjusts and pays claims from a deposit provided by the City. The City accounts for the general liability program by charging premiums based upon losses, administrative fees and reserve requirements. In order to control the risks associated with general liability claims, the City purchased reinsurance coverage for claims in excess of$250,000. 35 CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES D. BUDGETARY ACCOUNTING <CONTINUED) budgeted appropriations at the fund level. Budgeted amounts shown are from the revised budget, adopted by Ordinance No. 2001-00040 on lune 14,2001. During the year, the budget was revised to reflect a 2.6% increase in General Fund operating revenues and a 2.3% increase for the General Fund operating expenditures from the original budget. Each year, in accordance with State Jaw, the City Council sets an ad valorem tax levy for a sinking fund (General Obligation Debt Service) which, with cash and investments in the fund, would be sufficient to pay all the bonded indebtedness and interest due in the following fiscal year. E. ENCUMBRANCES At the end of the year, encumbrances for which goods and/or services have not been received are canceled. At the beginning of the next year, management reviews all open encumbrances. During the b1.1dget revision process, encumbrances may be re-established. On October 1, 2001, the General Fund had no significant amounts of open encumbrances. F. ASSETS, LIABILITIES AND FUND EQUITY Equity in Pooled Cash and Investments -The City pools the resources of the various funds in order to facilitate the management of cash and enhance investment earnings. Records are maintained which reflect each fund's equity in the pooled account. GAAP requires certain investments to be carried at fair value with the change in fair value included in the determination of investment income shown in the operating statement. Due to the nature of the City's investments, the difference between amortized cost and market value is not significant such that the carrying value of the portfolio is considered to approximate fair market value. Cash Equivalents -Cash equivalents are defined as short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less when purchased which present an insignificant risk of changes in value because of changes in interest rates. Property Tax Receivable -The value ofall real and business property located in the City is assessed annually on January l in conformity with Subtitle E of the Texas Property Code. Property taxes are levied on October I on those assessed values and the taxes are due on receipt of the tax bill. On the following January 1, a tax lien attaches to property to secure the payment of all taxes, penalties and interest ultimately imposed. The taxes are considered delinquent if not paid before February 1. Therefore, at the City's fiscal year end, September 30, all property taxes receivable are delinquent, but are secured by a tax lien. The City records property taxes receivable upon levy and defers tax revenue until the taxes are collected or available; for each fiscal year, the City recognizes revenue in the amount of taxes collected during the year plus an estimate of taxes to be collected in the subsequent 45 days. The City allocates property tax revenue between the General, certain Special Revenue and the Debt Service funds based on tax rates adopted for the year of levy. The Dist:J:ict adjusts the allowance for uncollectible taxes and deferred tax revenue at year end based upon historical collection experience. Accordingly, at August 31 of each year, property taxes receivable less the allowance for uncollectible taxes and deferred tax revenue is equivalent to the projected tax collections from September I through October 15 of the same year. To write-off property taxes receivable, with specific statutory authority from the Texas Legislature, the District eliminates the receivable and reduces the allowance for uncollectible accounts. Enterprise Fund Receivable • Within the Electric, Water, Sewer and Solid Waste Enterprise Funds, services rendered but not billed as of the close of the fiscal year, are not considered significant. Amounts billed are reflected as accounts receivable net of an allowance for uncollectibles. 34 CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES B. BASIS OF PRESENTATION-FUND ACCOUNTING (CONTINUED> Infrastructure fixed assets such as streets, highways, bridges, sidewalks, street lighting, traffic poles and signals, and storm sewers, are accounted for in the General Fixed Assets Account Group and reported in the Schedule of General Fixed Assets. General fixed assets are not depreciated and are recorded at historical cost at the timeof acquisition. Donated assets are recorded at their fair market value on the date donated. General Long-Term Debt Account Group is used to account for the City's liability for general long- term debt such as general obligation bonds, certificates of obligation, and obligations for employee vacation, sick-leave benefits, insurance claims and rebatable arbitrage, other than those reported in the Proprietary Funds. C. BASIS OF ACCOUNTING The modified accrual basis of accounting and the flow of current financial resources measurement focus is followed for governmental fund types and expendable trust funds. Under this basis of accounting, expenditures, other than interest on long-term debt in the Debt. Service Fund, which is recorded when due, are recorded when the liability is incurred. Revenues are recorded when received in cash unless susceptible to accrual. Revenues under the modified accrual basis must be both measurable and available to finance current year appropriations. Revenues considered to be susceptible to accrual under the modified accrual basis are property tax, sales tax, franchise tax, hoteVmotel tax, certain grant revenue and investment income. The accrual basis of accounting and the flow of economic resources is followed in the enterprise funds and internal service funds. Under this method of accounting, revenues are recognized when earned and expenses are recorded when a liability is incurred. Under the current financial resources measurement focus, only current assets and current liabilities are included on the balance sheet. Net current assets or fund balance is considered a measure of available expendable resources. This measurement focus is concerned primarily with the measure of interperiod equity (e.g. whether current year revenues were sufficient to pay for current year services). Enterprise funds and internal service funds are accounted for using an economic resources measurement focus. All assets and liabilities including fixed assets and long-term debt are included on the balance sheet. Fund equity is segregated into its contributed capital and retained earnings components. Proprietary fund type operating statements present increases (revenues) and decreases . (expenses) in net total assets. D. BUDGETARY ACCOUNTING Annual budgets are adopted on a basis consistent with generally accepted accounting principles for the General Fund only. Capital project funds adopt project-length budgets. All annual appropriations lapse at the end of the fiscal year. Annually, the City Manager submits to City Council a proposed operating budget for the upcoming fiscal year. Public hearings are conducted to obtain taxpayer comments, and the budget is legally enacted through passage of an ordinance by the City Council. Budgetary control is maintained by department and by the following category of expenditures: personnel services, supplies, maintenance, other charges, and capital outlay. All budget supplements must be approved by the City Council. Administrative transfers and increases or decreases in accounts within categories may be made by management as long as expenditures do not exceed 33 CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES B. BASIS OF PRESENTATION-FUND ACCOUNTING {CONTINUED) GOVERNMENTAL FUND TYPES General Fund is the general operating fund of the City. It is used to account for all financial transactions except those required to be accounted for in another fund. Spedal Revenue Funds are used to account for the proceeds of specific revenue sources (other than special assessments, expendable trusts, or major capital projects) that are segregated for specified purposes. The Debt Service Fund is used to account for the accumulation of fmancial resources for the payment of interest and principal on the general long-term debt of the City. Capital Projed Funds are used to account for financial resources to &e used for the acquisition or construction of major capital facilities (other than those financed by Proprietary Funds or Trust Funds). PROPRIETARY FUND TYPES Enterprise Funds are used to account for operations of the City (a) that are financed and operated in a manner similar to private business enterprises, where the intent is to provide goods or services to the general public on a continuing basis, the cost of which is to be recovered in whole or part through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. Internal Service Funds are used to accoqnt for the fmancing of goods and services provided by one department or agency to other departments or agencies of the City, or to other governments, on a user charge basis. FIDUCIARY FUND TYPES Transactions related to assets held by the City in a trustee capacity or as an agent for individuals, private organizations, other governments and other funds, are accounted for in fiduciary fund types. Fiduciary fund types are comprised of: Expendable Trust Funds account for assets received and expended by the City as trustee in essentially the same manner as governmental fund types. Agency Funds are used to account for assets held by the City as a custodial trustee. They are accounted for on the modified accrual basis of accounting with respect to asset and liability recognition, but do not have a measurement focus since agency funds do not account for operations~ ACCOUNT GROUPS General Fixed Assets Account Group represents a summary of the fixed assets of the City, other than those fixed assets reported in the Proprietary Funds. Capital e;w;:penditures of the Capital Projects Fund are the primary source from which the detailed records of the general fi;w;:ed assets account group are developed. Capital expenditures are carried in this account group as construction in progress until the projects are completed and are then capitalized by function and classification. 32 CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY <CONTINUED) not in the City. The State Firemen's Pension Conunission is the governing body over the LFRRF; the City does not significantly influence operations. Lubbock Arts Alliance, Inc. (Alliance) is dedicated to the promotion and improvement of the arts and sponsoring the annual Lubbock Arts Festival. Fiscal dependence by the Alliance o:n the City is not significant to the City. City Council does not appoint the board. The City is not able to exert its will on the Alliance. Lubbock Health Facilities Development Corporation (LHFDC) promotes health facilities development. City Council appoints the seven-member board. Bonds issued by LHFDC do not constitute indebtedness of the City. The City does not govern operations of LHFDC. Lubbock Housing Finance Corporation, IDe. (LHFC) was formed pursuant to the Texas Housing Finance Corporation Act, to finance the cost of decent, safe, affordable residential housing. The Mayor appoints the seven-member board. It is the opinion of the City Attorney that LHFC is independent of the City. Indebtedness of the LHFC does not constitute indebtedness of the City. The City is not able to impose its will on the LHFC. JOINT VENTURE In May 1998, the City, along with three other cities in the West Texas area., entered into an agreement with the West Texas Municipal Power Authority (''WTMP A") to purchase power generated by a co- generation facility to be constructed with the proceeds obtained from the issuance of $28,910,000 of revenue bonds issued by WIMP A. The contractual arrangement with WTMP A calls for each participating city to guarantee payments of the WTMP A bond debt service in the event the net revenues of the power sales contracts with the participating cities is not adequate to cover the debt service. The City ha5 an ongoing financial interest in W1MP A through the contractual arrangement to purchase generated power and is also considered to have an ongoing fmancial responsibility due to the manner in which the debt service is guaranteed as well as the responsibility for financing the operations of the joint venture by purchasing the power generated by WTMP A which will benefit the citizens of Lubbock. Financial information for WIMP A can be obtained from the City of Lubbock, P.O. Box 2000, Lubbock, Texas 79401, (Attention Managing Director of Financial Services). B. BASIS OF PRESENTATION -FUND ACCOUNTING The financial transactions of the City are recorded in individual funds and account groups. A fund is a separate set of self-balancing accounts. The various funds are classified into three categories: governmental, proprietary and fiduciary. The following fund types and account groups are used by the City: 31 CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY (CONTINUED> Civic Lubbock, Inc. promotes the cultural and educational usage of the Lubbock Memorial Civic Center and Lubbock Municipal Coliseum The 7 member board is appointed by the City Council. City Council approves the annual budget for Civic Lubbock, Inc. Civic Lubbock, Inc. is reported as a proprietary type component unit. Market Lubbock Economic Development Corporation dba Market Lubbock, Inc. (Market Lubbock Inc.) was formed on October 10, 1995 by the City Council to create, manage, operate and ·supervise programs and activities to promote, assist and enhance economic development within and around the City. Market Lubbock, Inc. is a legally separate non-profit corporation. The City Council appoints the seven-member board. and its operations are funded by budgeted allocations of the City's property and hotel occupancy taxes and other City contributions. Market Lubbock, Inc. is reported as a governmental type component unit. Copies of financial statements of the individual component units may be obtained from their respective administrative offices listed below: Administrative Offices Citibus 801 Texas Lubbock, Texas Civic Lubbock, Inc. 150 l 6th Street Lubbock, Texas RELATED ORGANIZATIONS Market Lubbock, Inc 130 I Broadway Suite 200 Lubbock, Texas The City's officials are also responsible for appointing the members of the boards of other organizations but the City's accountability for these organizations does not extend beyond making the appointments. The following are related organizations, which have not been included in the reporting entity: Housing Authority of the City of Lubbock (Authority) is a legally separate entity. The Mayor appoints the five-member board. It is the City Attorney's opinion that the Authority is independent of the City. The Authority is not fiscally dependent on the City and City Council is not able to impose its will on the entity. The City has no responsibility for debt issued by the Authority. Lubbock Firemen's Retirement and Relief Fund (LFRRF) operates under provisions of the Firemen's Relief and Retirement Laws of the State of Texas for purposes of providing retirement benefits for the City's firefighters. Its affairs are governed by the Mayor's designee, the Finance Manager, three firefighters elected by members of the LFRRF and two at-large members elected by the Board. It is funded by contributions by the firefighters and matched by contributions from the City. As provided by enabling legislation, the City's responsibility to the LFRRF is limited to matching monthly contributions made by the members. Title to assets is vested in the LFRRF and 30 .. CITY OF LUBBOCK, TEXAS Notes to Financial Statements September 30, 2001 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ·The General Purpose Financial Statements (GPFS) of the City of Lubbock, Lubbock County, Texas (City) have been prepared in conformity with Generally Accepted Accounting Principles (GAAP) as applicable to governmental units. The Government Accounting Standards Board (GASB) is the acknowledged standard-setting body for establishing governmental accounting and financial reporting principles. With respect to proprietary activities, including component units, the City has adopted GASB Statement No. 20, "Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that use Proprietary Fund Accounting." The City applies all applicable GASB pronouncements as well as Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board (APB) Opinions and Accounting Research Bulletins of the Committee on Accounting Procedure, issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. The more significant accounting policies are described below. A. REPORTING ENTITY The City is a municipal corporation governed by a Mayor-Council form of government. As required by GAAP, the GPFS present the reporting entity which consists of the City (a primary government), organizations for which the City is financially accountable and other organizations for which the nature and significance of their relationship with the City are such that exclusion could cause the City's GPFS to be misleading or incomplete. BLENDED COMPONENT l.JNITS The following component unit has been included in the City's financial reporting entity using the blended method because although it is legally separate, its operations are so intertwined with the City that it is, in substance, a part of the City. The Urban Renewal Agency (URA) was formed to provide urban renewal services for the City, that include rehabilitation of housing, acquisition of housing, and disposition of land. The Urban Renewal Agency Board is composed of nine members appointed by the Mayor, with the consent of the City Council, and acts only in an advisory capacity to the City Council. All powers to govem URA are held by the City Council. DISCRETELY PRESENTED COMPONENT l.JNITS The Component Unit columns in the combined financial statements include the financial data of the City's other Component Units. They are reported in a separate column to emphasize that they are legally separate from the City. The following Component Units are included in the reporting entity because the primary government is financially accountable and is able to impose its will on the organization. A primary government has the ability to impose its will if it can significantly influence operations and/or activities of an organization. City Transit Management Co.·, Ine. dba Citibus (Citibus) is a legally separate entity that operates a City owned transportation system. In 1998, the City renewed a five year management agreement with McDonald Transit Associates, Inc. to manage and operate Citibus. The City Council appoints the seven-member Lubbock Public Transit Advisory Board, and approves the annual budget The City is responsible for funding deficits. Citibus ,is reported as a proprietary type component unit. 29 28 CITY OF LUBBOCK Notes to Financial Statements September 30, 2001 I. Segment Information -Enterprise Funds ............................................. 51 J. Long-Term Debt .................................................................................. 52 K. Advanced Refunding ........................................................................... 56 L. Accrued Insurance Claims ................................................................... 56 M. Landfill Closure and Postclosure Care Cost ....................................... 57 N. Contingent Liabilities ................................................................................ 57 A. Federal Grants ..................................................................................... 57 B. Litigation ............................................................................................ ,57 C. Site Remediation ................................................................................. 58 D. West Texas Municipal Power Agency ................................................. 58 V. Recently Issued Pronouncements ............................................................... 58 27 CITY OF LUBBOCK Notes to Financial Statements September 30, 2001 I. Summary of Significant Accounting Policies ............................................ 29 A Reporting Entity .................................................................................. 29 B. Basis of Presentation -Fund Accounting ............................................ 31 C. Basis of Accounting ............................................................................ 33 D. Budgetary Accounting ......................................................................... 33 E. Encumbrances ...................................................................................... 34 F. Assets, Liabilities and Fund Equity ..................................................... 34 G. RiskManagement ............................................................ .-................... 35 H. Revenues, Expenses and Expenditures ............................................... 36 I. Totals (Memorandum Only) .................................... , ............................ 38 J. Reclassifications .................................................................................. 38 II. Stewardship, Compliance and Accountability ........................................... 38 A. Retained Earnings/Fund Balance Deficit:; ........................................... 38 ill. Detail Notes on all Funds and Account Groups ........................................ 39 A. Pooled Cash and Investments .............................................................. 39 B. Interfund Transactions ......................................................................... 42 C. Deferred Charges ................................................................................. 42 D. Property, Plant and Equipment ........................................................... .43 E. Retirement Plans .................................................................................. 44 F. Deferred Compensation ....................................................................... 49 G. Surface Water Supply .......................................................................... 49 H. Other Enterprise Fund Activities ......................................................... SO 26 - - - ComE£nent Units Totals Totals Proerieta!1 Tl~:es Component Reporting Entity Civic Lubbock, Units (Memorandum On!x} Inc. Citibus 2001 2001 2000 $ 43,353 $ (6,921 ,495) $ (6,878,142) $ 11,732,222 $ 15,708,404 12,665 1,962,162 1,974,827 26,004,817 22,763,414 1,991,919 2,403,371 2,995,883 1,199,376 ,.-, 15,635 12,764 21,330 657,061 678,391 (2,708,107) (3,428,175) 8,308 (21,005) (12,697) 198,347 (57,565) (52,379) (52,379) (78,324) (524,105) (431) (8,380) (8,811) (633,125) 106,974 (20,707) (697,415) (718,122) (7,280,204) 9,383,549 6,709 (13,902) (4,515) (4,515) 2,839,226 (93,776) (428,772) 103,183_ 583 583 583 17,955 (42,650} 12,722 (5,033,58:!1 (5,020,865l 34,456,809 47,538,817 (393,367) (4,193,412) 298,062 (45,207,793) (44,957, 151) 854,570 442,226 (717,161) 224,524 (5,125,000) (4,519,025) (4,663,903) (5,229,781) (90,950) (90,950) (9,002,854) (8,552,590) (5,346) (5,346) (7,335,865) (7,996,709) 46,970,000 24,055,000 (100,940) (71,052) 42,789 1,557,918 1,552,654 (3,904) 5,4641011 4,376,483 (96.296z ~96,2962 (171177,798) (45,054,472) 17,232,475 17,245,329 (32,914,116) (31,994,619) (668,883) (5,060,379) (424,374) (4,503) (4,503) 74,783 511,322 4,963,836 4,963,836 4,963,836 3,665,088 (32,568) 4,959,333 4,959,333 (11,311 ,905) (16,090,201) 15,216 15 16 15,216 6 (68,358) (74,254) (142,612) 508,327 358,359 866,686 42,802,281 44,687,798 $ 439,969 $ 284,105 $ 724,074 $ 19,533,381 $ 42,802,281 See accompanying notes to financial statements 25 CITY OF LUBBOCK, TEXAS COMBINED STATEMENT OF CASH FLOWS· ALL PROPRIETARY FUND TYPES AND DISCRETELY PRESENTED COMPONENT UNITS Years Ended September 30, 2001 With Comparative Totals for Year Ended September 30, 2000 Totals Primary Government Proprieta!1 Fund Types (Memorandum Internal On!i:) Enterprise Service 2001 cash flow$ from operating activities: Operating income (loss) $ 20,166,020 $ (1,555,656) $ 18,610,364 Adjustments to reconcile operating Income (loss) to net cash from operating activities: Depreciation and amortization 22,056,960 1,973,030 24,029,990 Increase (decrease) in long-term assets/liabilities not requiring cash flow 2,105,417 (113,498} 1,991,919 Other Income 2,951,432 44,451 2,995,883 Receipts from building rent 15,635 15,635 Change in current assets and liabilities: Accounts receivable (3,416,229) 29,731 (3,386,498) Inventory 164,627 26,417 211,044 Due to/from other governments (25,945) (25,945) Prepaid expenses (624,314) (624,314) Accounts payable (7,335,171) 773,089 (6,562,082) Due to/from otherll 6,709 6,709 other accrued expenses 364,871 2,278,870 2,643,741 Customer deposits (428,772} (428,772} Accrued liabilities long-term assets Net cash provided by (used for) operating activities 36,623,210 2,854,464 39,477,674 Cash flows from capital and related financing activities: Payments for gas reserves and other deferred charges (393,367}. (393,367} Refund of commodity prepayments 298,062 298,062 Purchases of property, plant and equipment (42,924,887} (2,282,906) (45,207,793) Sale of property, plant and equipment 848,302 6,268 854,570 -Payments for bond issuance costs (717,161} (717, 161) Receipt of accrued interest on bond issuance 224,524 224,524 Principal paid on revenue bonds (5,125,000} (5,125,000) Interest paid on revenue bonds (4,563,903) (4,663,903) Principal paid on general obligation bonds and other debt (8,911,904) (8,911,904) Interest paid on general obligation bonds (7,330,519) (7,330,519} Issuance of revenue, G.O. and C.O. bonds 46,970,000 45,970,000 Refunds of pro-rata contracts (100,940) (100,940} Deposits on pro-rata contracts Passenger facility charges 1,557,918 1,557,918 Interest paid on long-term debt Contributed capital 5,464,011 5,464,011 Net cash used for capital and related financing activities !14,8041864~ ~2,276,538! ~17,081,502! Cash flows from noncapital and related financing activities: Operating transfen; in from other funds 15,707,518 1,524,957 17,232,475 """' . Operating transfers out to other funds (32,409,889) . (504,227) (32,914,116) Short-term lnterfund borrowings (592,408) (76,475) (568,883) Advance$ from other funds Payments received (made) on advances tg (from) other funds 409,257 (329,981) 79,286 Cash grants and reimbun;ements Book Overdrafts Net cash provided by (used for) noncapital and related financing activities {16,885,512) 614,274 (16,271,238) Cash flows from investing activities: Proceeds from sales and maturities of investments 39,865,232 7,826,946 47,692,178 Purchase of investments (72,694,239) (10,705,441) (83,399,680) Interest earnings on cash and investments 5,057,461 1,398,819 6,456,280 Net cash provided by (used lor) investing activities (27,771,546! (1,479,576l !291251,222) Net increase {decrease) in pooled cash and cash equivalents (22,838,712) (287,576) (23,126,288} Pooled cash and cash equivalents at beginning of year 38,556,576 3279,019 41,935,595 Pooled cash and cash equivalents at end of year $ 15,817,864 $ 2 991 443 $ 18809307 Supplemental cash flow information: Noncash capital improvements and other charges for the Enterprise Funds during fiscal year 200Q-2001 was $2,088,536. Noncash capital improvements and other charges/(reductionll) for the Internal Service Funds during fiscal year 200Q-2001 was $(389,159). 24 ..,..... Component Units Totals Totals Component Reporting Entity Proprietary Ti:feS Units (Memorandum Only) Civic Lubbock, Inc. Citibus 2001 2001 2000 $ 1,389,463 $ 1,869,940 $ 3,259,403 $ 213,474,516 $ 172,325,148 331,716 103,280 678,784 560,626 595,661 720,499 739,016 740,882 1,324,288 1,168,628 34,982 40,262 1,636,374 1,347,914 1,076,830 1,065,423 273,909 186,500 1,389,463 1,869,940 3,259,403 220,166,076 178,259,162 368,542 3,453,390 3,821,932 32,839,593 30,259,575 506,966 506,966 16,210,323 14,185,457 3,148,710 2,944,224 6,678,176 7,012,499 1,325,927 1,325,927 10,199,473 8,373,093 1,411,333 1,186,657 79,793,221 49,299,758 2,836,942 2,210,385 964,903 1,542,990 2,507,893 29,311,266 24,305,695 12,665 1,962,162 1,974,827 26,004,817 22,763,415 1,346,110 8,791,435 10,137,545 208,433,854 162,550,758 43,353 (6,921,495) (6,878,142) 11,732,222 15,706,404 15,216 15,216 6,231,979 8,170,502 1,557,918 1,552,654 (673,516) 27,403 3,010,765 1,189,358 (5,346) (4,503) (9,649) (11,891,924) {13,393,543) 4,963,836 4,963,836 4,963,836 3,665,088 9,870 4,959,333 4,969,203 3,199,058 1,211,462 53,223 (1 ,962, 162) (1 ,908,939} 14,931,280 16,919,866 17,232,475 17,245,329 (32,914,116! (31,994,619) (15,681,641) (14,749,290) 53,223 ( 1,962,162) (1 ,908,939) (750,361) 2,170,576 1,962,162 1,962,162 3,261,520 2,748,681 699,992 699,992 276,274,579 271,355,322 753,215 753,215 278,785,738 276,274,579 14,524,313 14,524,313 154,356,124 148,325,473 1,906,887 1,908,887 9,549,671 8,779,332 (1 ,962,162) ~ 1,962, 162) (3,261,520} (2,748,681) 14,469,038 14,469,038 160,644,275 154,356,124 753,215 $ 14,469,038 $ 15,222,253 $ 439,430,013 $ 430,630,703 See accompanying notes to financial statements 23 CITY OF LUBBOCK, TEXAS COMBINED STATEMENT OF REVENUES, EXPENSES AND CHANGES IN EQUITY ALL PROPRIETARY FUND TYPES AND DISCRETELY PRESENTED COMPONENT UNITS Year Ended September 30, 2001 With Comparative Totals for Year Ended September 30, 2000 Totals Primary Government {Memorandum Proprietary Fund Types Onlyl Internal Enterprise Service 2001 Operating revenues: Charges for services $ 175,061,302 $ 35,153,811 $ 210,215,113 New taps and reconnects 331,715 331,716 Effluent water sales 678,784 678,784 Commoarty sales 595,651 595,661 Landing fees 739,015 739,016 Parking 1,324,288 1,324,288 - Greenfees and memberships 34,982 34,982 Rentals 1,636,374 1,636,374 Concessions 1,076,830 1,076,830 Administrative charges 273,90!:1 273,909 Total operating revenues 181,478,953 35,427,720 216,906,673 Operating expenses: Personal services 22,045,640 6,972,021 29,017,661 Insurance 15,703,357 15,703,357 Supplies 2,974,193 174,517 3,148,710 Materials 6,678,176 6,678,176 Maintenance 7,019,712 1,853,834 8,873,546 Uncollectible accounts 1,411,333 1,411,333 Purchase of fuel and power 79,793,221 79,793,221 -Collection expense 2,836,942 2,836,942 Other services and charges 23,174,932 3,628,441 26,803,373 Depreciation and amortization 22,056,960 1,973,030 24,029,990 Total operating expenses 161 ,312,933 36,983,376 198,296,309 Operating income (loss) 20,166,020 ~1,555,656) 18,610,364 Nonoperating revenues (expenses): Interest 4,853,852 1,362,911 6,216,763 Passenger facility charges 1,557,918 1,557,918 Disposition of properties (333,513) (340,003) (673,516) Miscellaneous 2,951,432 59,333 3,010,765 lnteres.t and fiscal charges (11 ,882,075) (11,882,075) Cash grants and reimbursements Total nonoperating revenues (expenses) (2,852,386) 1,082,241 (1 ,770,145) Income (loss) before operating transfers 17,313,634 (473,415) 16,840,219 Transfers: Operating transfers in 15,707,516 1,524,957 17,232,475 Operating transfers out (32,409,889) (504,227) (32,914,116) Total transfers in (out) (16,702,371) 1,020,730 (15,681 ,641) ,.-, Net income (loss) 611,263 547,315 1,158,578 Depreciation on fixed assets acquired by contributions 1,299,358 1,299,358 Retained earnings at beginning of year 260,386,486 15,188,101 275,57 4,587 Retained earnings a1 end of year 262,297,107 15,735,416 278,032,523 Contributed capital at beginning of year 132,984,984 6,846,827 139,831,811 Capital contributions/Residual equity transfer In 7,244,756 396,028 7,642,784 ,..-,. Depreciation on/disbursements of capital contributions (1,299,358) (1,299,356) Contnbuted capital at end of year 138,930,382 7,244,855 146,175,237 Total equity at end of year $ 401,227,489 $ 22,980,271 $ 424,207,760 22 - CITY OF LUBBOCK, TEXAS COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES --BUDGET (GAAP BASIS) AND ACTUAL- GENERAL FUND Year Ended September 30, 2001 General Fund Variance- favorable Budget Actual {unfavorable! Revenues: Taxes and fees $ 64,860,057 $ 65,247,157 $ 387,100 Licenses and permits 1,100,571 1,202,794 102,223 Intergovernmental 375,148 333,171 (41,977) Charges for services 4,:262,062 4,299,958 37,896 Fines 3,530,300 3,051,055 (479,245) Miscellaneous 2,007,915 2,053,590 45675 Total revenues 76,136,053 76,187,725 51672 Expenditures: Current: Communications/Legislation 1,025,923 1,024,481 1,442 Community Services 17,830,279 17,828,025 2,254 Development Services 5,499,348 4,771,680 727,668 Electric 2,300,946 2,146,211 154,735 Financial Services 1,537,684 1,499,967 37,717 Fire 17,795,897 17,785,641 10,256 General Government 7,058,593 6,105,997 952,596 Human Resources 932,575 913,250 19,325 Management Services 621,893 629,903 (8,010) Police 27,946,574 28,139,048 (192,474) Strategic Planning 1,668,249 1,620,660 47,589 Non-departmental 879,200 1 716 167 (836,967) Total expenditures 85,097,161 84,181,030 916 131 Deficiency of revenues under expenditures (8,961 J 108) (7,993,305) 967 803 Other financing sources (uses): Operating transfers in 14,803,026 14,276,074 (526,952) Operating transfers out (5,841,918) (6, 187,379} (345,461) Total other financing sources (uses) 8 961108 8,088,695 (872,413) Excess (deficiency) of revenues and other financing sources (uses) over (under) expenditures 95,390 95,390 Fund balance at beginning of year 16,620,652 16,620,652 Fund balance at end of year $ 1616201652 $ 16l161042 $ 951390 See accompanying notes to financial statements 21 - - - 20 Component Unit Governmental i'll!e Totals Market Reporting Entity Lubbock, (Memorandum Only) Inc. 2001 2000 $ 3,379,504 $ 80,969,818 $ 76,408,787 1,202,794 1,138,924 10,552,855 7,619,135 4,334,846 4,297,917 3,051,055 2,834,208 701,201 725,267 393,200 345,904 3,398,516 12,213,546 4,426609 104,235,151 104,905,717 1,024,481 937,889 17,828,025 16,963,231 4,771,680 5,439,855 2,146,211 1,923,584 1,499,967 1,458,232 17,785,641 17,080,372 6,195,512 29,280,823 26,503,471 913,250 871,596 629,903 1,022,720 28,139,048 25,561,261 1,620,680 1,498,176 5,139,465 1,348,723 327,521 14,377,468 15,446,464 4,397,538 4,622,633 3,391,682 3,141,086 6,523,033 132,945,842 123,619,293 (2,096,424) (28, 710,691) (18,913,576) 9,100,000 7,000,000 147,283 41,717,724 41,518,150 (147,283) (26,036,083) (26,768,860) 24,781,641 21,749,290 (2,096,424) (3,929,050) 2,835,714 1,548,092 75,252,710 72,416,996 2,752,285 2,752,285 4,300,377 78,004,995 72,416,996· $ 2,203,953 $ 74 075,945 $ 75,252,710 See accompanying notes to financial statements 19 CITY OF LUBBOCK, TEXAS COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -GOVERNMENTAL FUND TYPES, EXPENDABLE TRUST FUNDS AND COMPONENT UNITS For Year Ended September 30, 2001 With Comparative Totals for Year Ended September 30, 2000 Totals Fiduciary Primary Governmental Fund Tn!es Fuod T):ee Government (Memorandum Special Debt Capital Expendable On!ll General Revenue Service Projects Trust 2001 Revenues: ,. Taxes ani! special assessments $ 65,247,157 $ 4,889,100 $ 7,454,057 $ -$ • $ n,590,314 Licenses and permits 1,202,794 1,202,794 Intergovernmental 333,171 10,219,684 10,552,855 Charges for services 4,299,958 34,888 4,334,846 Fines and forfeits 3,051,055 3,051,055 Contributions 24,066 24,066 Miscellaneous 2,053,590 849 810 64,317 1,207,786 (11122,8911 3,052,612 Total revenues 76,187l25 5,738,910 7,518,374 1,266,740 9,096,793 99,808,542 Expenditures: Current: Communications/Legislation 1,024,481 1,024,481 Community Servloes 17,828,025 17,828,025 Development Services 4,771,680 4,771,680 Electric 2,146,211 2,146,211 Financial Services 1,499,967 1,499,967 Fire 17,785,641 ~ 17,785,641 General Government 6,105,997 5,044,166 11,935,148 23,085,311 Human Resources 913,250 913,250 Management Services 629,903 629,903 Police 28,139,048 28,139,048 Strategic Planning 1,620,660 1,620,660 Non-departmental 1,716,167 3,423,298 5,139,465 Capital outlay 13,493,224 556,723 14,049,947 Debt service: Principal retirement 4,397,538 4,397,538 Interest and fiscal charges 3,359,856 31,826 3,391,682 Total expenditures 84,181,030 5,044,166 7,757,394 16,948,348 12,491,871 126,422,809 Excess (deficiency} of revenues -over (under) expenditures (7,993,305) 694,744 (239,020) (15,681,608) (3,395,078) (26,614,267) other financing sources (uses): Bond proceeds 9,100,000 9,100,000 Operating transfers in 14,276,074 4,387,588 15,719,276 7,153,766 33,737 41,570,441 Operating transfers out ~6, 187,379) (2,773,922) (15,325,612) (1,601 ,san (25,888,8001 -Total other ftnancing sources (uses) 8,088,695 1,613,666 393,664 14,651,879 33,737 24,781,641 Excess (deficiency) of revenues and other financing sources over (under) expenditures and other uses 95,390 2,308,410 154,644 (1,029, 729) (3,361,341) (1,832,626) Fund balances -beginning , as previously reported 16,620,652 7,672,416 1,260,450 30,140,780 18,010,320 73,704,618 Prior perioo adjustment Fund balances -beginning , as restated 16,620,652 7,672,416 1,260,450 30,140,780 18,010,320 73,704,618 Fund balances -end of year $ 16,716,042 $ 9,980,826 $ 1,415,094 $ 29,111,051 $ 14,648,979 $ 71,871,992 18 Component Units Account Groups General General Fixed Assets Lona-term Debt Totals Totals Market Market Component Reporting Entity Lubbock, Lubbock, Units (Memorandum OniX:) Inc. Inc. 2001 2001 2000 $ - $ $ 14,469,038 $ 160,644,275 $ 154,356,124 535,905 535,905 265,697,631 262,304,921 100,000 40,862,101 57,029,966 7,439,052 9,447,308 4.1,472 720,771 11,633,392 13,073,972 894 35,550 233,490 302,444 5,354,356 3,204,358 4,529,015 9,264,699 653,215 208,691,966 183,195,511 165,995 79,281 1,712,505 1,781,800 1,415,094 1,260,450 29,111,051 30,140,780 6,080,982 6,080,982 6,127,025 6,208,235 10,483,055 14,084,187 22,767 22,767 479,699 1,171,821 2,748,723 {4~356,728l 17,785,650 18,926,487 2,957,168 352,861,683 351,527,289 535,905 17,962,111 779,203,589 768,188,334 $ 535,905 $ 6,045,991 $ 27,069,111 $ 1,171,779,457 $ 1,113,354,763 See accompanying notes to financial statements 17 CITY OF LUBBOCK, TEXAS COMBINED BALANCE SHEET· ALL FUND TYPES, ACCOUNT GROUPS AND COMPONENT UNITS September 30, 2001 """ With Comparative Totals for September 30, 2000 Component Units Governmental Proprietary Fiduciary FundT~pes FundT~pes FundT:z:pe Market Civic Market Lubbock, Lubbock Lubbock, Inc. Citibus Inc. Inc. Eunlf Eguil)! and Otb~r Cr~dits Contributed capital $ - $ 14,469,038 $ $ Investment in general fixed assets -Retained earnings: Reserved for capital projects 100,000 Reserved for facilities/system improvements Reserved for system improvements Reserved for rate stabilization ·"'"" Reserved for economic development Reserved per bond indentures Reserved for self insurance -health Reserved for self insurance - risk management -Unreserved 653,215 Fund balances: Reserved for prepaid items Reserved for advances to other funds Reserved for debt service Reserved for capital projects Reserved for economic development 6,080,982 Reserved for Federal housing programs Reserved for plan participants Unreserved: Designated for perpetual care Designated for subsequent year's expenditures 479,699 Undeslgnated (4,356,728) Total retained earnings/fund balances 2,203,953 753,215 Total fund equity and other credits 2,203,953 14,469,038 753,215 "'"'· Total liabilities and fund equity. and other credits $ 3,534,750 $ 15,877,660 $ 943,644 $ 131,161 16 (continued) Totals Proprietary Fiduciary Primary Fund T1:E!es Fund Type Account GrouE!s Government General (Memorandum Internal Trust and General Long-term Onll) Enterprise Service Agency Fixed Assets Debt 2001 $ 138,930,382 $ 7,244,855 $ -$ . $ . $ 146,175,237 265,161,726 265,161,726 40,760,391 1,710 40,762,101 7,427,734 11,318 7,439,052 41,472 41,472 11,633,392 11,633,392 894 894 233,490 233,490 5,354,356 5,354,356 4,529,015 4,529,015 202,199,734 5,839,017 208,038,751 165,995 1,712,505 1,415,094 29,111,051 6,127,025 6,127,025 10,483,055 10,483,055 22,767 692,122 (1,961,101~ 22,142,378 262,297,107 15,735,416 14,648,979 349,904,515 401 ,227,489 22,980,271 14,648,979 265,161,726 761,241,478 $ 682,722,363 $ 36,187,256 $ 19,234,378 $ 265,161,726 $ 65,607,818 $ 1,144,710,346 See accompanying notes to financial statements 15 CITY OF LUBBOCK, TEXAS COMBINED BALANCE SHEET· ALL FUND TYPES, ACCOUNT GROUPS AND COMPONENT UNITS September 30, 2001 With Comparative Totals for September 30, 2000 Governmental Fund Types Special Debt General Revenue Service Eum:t EQuity: and Qtbe[ Credi1a Contributed capital $ . $ . $ . Investment in general fixed assets Retained earnings: Reserved for capital projects Reserved for facilities/system improvements Reserved for system improvements Reserved for rate stabilization Reserved for economic development Reserved per bond indentures Reserved for self insurance • health Reserved for self insurance • risk management Unreserved Fund balances: Reserved for prepaid items 165,995 Reserved for advances to other funds 1 .• 712,505 Reserved for debt service 1,415,094 Reserved for capital projects Reserved for economic development Reserved for Federal housing programs Reserved for plan participants Unreserved: Designated for perpetual care 22,767 Designated for subsequent year's expenditures 460,593 231,529 Undesignated 14,354,182 9,749,297 Total retained earnings/fund balances 16,716,042 9,980,826 1,415,094 Total fund equity and other credits 16,716,042 9,980,826 1,415,094 Total liabilities and fund equity and other credits $ 28,323,248 $ 10,740,564 $ 1,625,828 14 Capital Projects $ ....... ........ !..., 29,111,051 29,111,051 29,111,051 $ 35,107,165 (continued) Comeonent Units Account Groups General General Fixed Assets Long-term Debt Totals Totals Market Market Component Reporting Entity Lubbock, Lubbock, Units (Memorandum Onll) Inc. Inc. 2001 2001 2000 $ - $ $ 1,056,168 $ 21,440,411 $ 22,618,721 r--; 3,602,244 3,507,324 310,462 16,481,555 9,206,118 232,113 1,263,180 1,456,371 1,182,407 1,303,592 352,934 2,922,538 4,216,743 7,288 8,911,161 8,750,373 2,048,792 2,303,095 969,670 736,309 6,045,991 7,065,220 7,070,916 3,725,991 4,764,865 4,372,861 3,958,950 3,599,316 5,050 433,832 12,815 2,297,463 2,305,307 3,445,648 3,924,214 70,000 70,000 70,000 4,500,000 2,803,358 208,072,682 175,256,312 77,616,717 73,847,298 15,839,064 14,810,951 6,112,555 5,918,343 $ - $ 6,045,991 $ 9,107,000 $ 392,575,868 $ 345,166,429 See accompanying notes to financial statements 13 CITY OF LUBBOCK, TEXAS COMBINED BALANCE SHEET· ALL FUND TYPES, ACCOUNT GROUPS AND COMPONENT UNITS September 30, 2001 With Comparative Totals for September 30, 2000 Component Units Governmental Proprietary Fiduciary FundTxpes Fund T~pes Fund Type Market Civic Market Lubbock. Lubbock Lubbock, Inc. Citibus Inc. Inc. Liabilities Accounts and vouchers payable $ 166,453 $ 870,348 $ 19,367 $ Contracts payable Due to other funds 310,462 Due to other agencies and governments 132,421 99,692 Accrued general obligation interest Other accrued liabilities 19,840 314,556 18,538 Current portion of general obligation bonds and construction obligation payable 7,288 Payable from restricted assets: Accounts payable Accrued interest Other accrued liabilities 834,042 153,718 31,469 Accrued insurance claims Revenue bonds payable (current portion) Customer deposits Deferred revenue 12,815 Advances from other funds Advances from other agencies 70,000 Accrued insurance claims General obligation bonds (net of current portion) Revenue bonds payable (net of current portion) Accrued v~lCation and sick leave Anticipated landfill closure and postclosure Total liabilities $ 1,330,797 $ 1,408,622 $ 190.429 $ 131,161 12 (continued) Totals Proprietary Fiduciary Primary Fund Tx:pes Fund Tx:ee Account Groups Government General (Memorandum Internal Trust and General Long-term Onll) Enterprise Service Agency Fixed Assets Debt 2001 $ 7,018,830 $ 1,471,734 $ 1,939,468 $ -$ -$ 20,384,243 1,677,809 3,602,244 13,664,692 255,000 1,619,401 16,171,093 1,031,067 1,182,407 1,182,407 816,617 101,832 1,026 621,657 2,569,604 8,903,873 8,903,873 1,132,612 916,180 2,048,792 969,670 969,670 '"Y, 5,696 5,696 4,764,865 4,764,865 3,958,950 3,958,950 5,050 5,050 23,191 1,025,504 2,284,648 50,000 627,994 3,445,648 4,500,000 4,500,000 154,989,874 53,082,808 208,072,682 77,616,717 77,616,717 3,372,027 563,684 11,903,353 15,839,064 6,112,555 6,112,555 $ 281,494,87 4 $ 13,206,985 $ 4,585,399 $ -$ 65,607,818 $ 383,468,868 See accompanying notes to financial statements 11 CITY OF LUBBOCK, TEXAS COMBINED BALANCE SHEET· ALL FUND TYPES, ACCOUNT GROUPS AND COMPONENT UNITS September 3D, 2001 With Comparative Totals for September 30, 2000 Governmental Fund Types Special Debt General Revenue Service Liabilities Accounts and vouchers payable $ 8,488,238 $ 108,680 $ 53,268 Contracts payable Due to other funds 632,000 Due to other agencies and governments 1,031,067 Accrued general obligation interest Other accrued liabilities 1,028,472 Current portion of general obligation bonds and construction obligation payable Payable from restricted assets: Accounts payable Accrued interest Other accrued liabilities Accrued insurance claims Revenue bonds payable (current portion) Customer deposits Deferred revenue 1,059,429 19,058 157,466 Advances from other funds Advances from other agencies Accrued insurance claims General obligation bonds (net of current portion) Revenue bonds payable (net of current portion) Accrued vacation and sick leave Anticipated landfill closure and postclosure Total liabilities $ 11,607,206 $ 759,738 $ 210,734 10 - - Capital Projects $ 1,304,025 -1,924,435 - 2,767,654 $ 5,996,114 <""". $ -""" -~ $ Component Units Account Groups General General Fixed Assets Market Lubbock, Inc. - $ 535,905 535,905 $ Long-term Debt Market Lubbock, Inc. 6,045,991 6,045,991 $ $ (continued) Totals Component Units 2001 753,308 $ 3,155,060 814,769 310,462 23,256 8,380 435,410 100,000 15,039,561 382,914 6,045,991 27,069,111 $ Totals Reporting Entity (Memorandum Only) 2001 2000 9,189,017 $ 70,056,985 5,773,223 36,344,709 420,763 16,481,555 1,800,835 2,482,716 798,689 3,445,648 2,942,463 16,833,051 107,971,415 97,004 284,267 10,516,649 794,173,100 20,513,559 1,415,094 70,238,715 1,171,779,457 $ 10,399,273 79,370,229 5,453,758 25,502,189 487,562 9,206,118 1,778,444 1,403,345 79,281 3,924,214 2,816,410 39,373,145 68,230,355 129,868 420,888 11,717,554 768,837,544 20,900,256 1,260,450 62,063,880 1,113,354, 763 See accompanying notes to financial statements 9 ·""l CITY OF LUBBOCK, TEXAS COMBINED BALANCE SHEET ·ALL FUND TYPES, ACCOUNT GROUPS AND COMPONENT UNITS September 30, 2001 With Comparative Totals for September 30, 2000 Component Units Governmental Proprietary Fiduciary Fund T~pes Fund T~ees Fund Ty~e Market Civic Market Lubbock, Lubbock Lubbock, Inc. Citibus Inc. Inc. ~ Pooled cash and cash equivalents $ 129,234 $ 284,105 $ 339,969 $ Investments 3,124,158 30,902 - Receivables (net, where applicable, of allowance for uncollectibles): Taxes, including interest, penalities, and liens Accounts, notes, and mortgages 12,908 779,312 22,549 Interest Due from other funds 210,203 100,259 Due from other governments 23,256 Due from other agencies Prepaid items 8,380 Advances to other funds Inventory, at average cost 34,991 336,825 63,594 Restricted assets: Pooled cash and cash equivalents 100,000 Investments Accounts receivable Interest receivable Deferred charges Fixed assets (net of accumulated depreciation, if applicable) 14,469,038 34,618 Other assets (net of accumulated amortization) 382,914 ·"" Amount available in debt service funds Amount to be provided for retirement of general long-term debt Total assets $ 3,534,750 $ 15,877,660 $ 943,644 $ 131,161 ·'"'"' 8 (continued) Totals Proprietary Fiduciary Primary · Fund Tl[!eS FundT~f:!e Account Groups Government General (Memorandum Internal Trust and General Long-tenn Onl~l Enterprise Service Agency Fixed Assets Debt 2001 $ 1,666,834 $ 409,422 $ 120,986 $ -$ -$ 8,435,709 ,..., 11,136,298 2,739,982 11,275,896 66,901,925 5,773,223 20,828,522 5,780 5,859,566 35,529,940 46,660 111,005 420,763 7,620,000 16,171,093 57,522 1,706,420 1,m,579 84,843 2,482,716 624,314 790,309 ·~ 1,733,144 3,445,648 192,741 1,947,708 271,510 2,507,053 14,151,030 2,582,021 16,733,051 88,675,794 19,295,621 107,971,415 4,071 92,933 97,004 284,267 284,267 10,516,649 10,516,649 505,678,186 8,293,627 265,161,726 719,133,539 ,.~, 20,130,645 20,130,645 1,415,094 1,415,094 64,192,724 64,192,724 $ 682,722,363 $ 36,187,256 $ 19,234,378 $ 265,161,726 $ 65,607,818 $ 1,144,710,346 See accompanying notes to financial statements 7 CITY OF LUBBOCK, TEXAS COMBINED BALANCE SHEET· ALL FUND TYPES, ACCOUNT GROUPS AND COMPONENT UNITS September 30, 2001 With Comparative Totals for September 30, 2000 Governmental Fund Types Special Debt General Revenue Service As!ie1s. Pooled cash and cash equivalents $ 235,353 $ 1,281,392 $ 186,793 Investments 1,575,058 8,575,472 1,250,080 Receivables (net, where applicable, of allowance for uncollectibles): Taxes, including interest, penalities, and liens 5,560,665 23,603 188,955 Accounts, notes, and mortgages 8,836,072 Interest 164,549 12,450 Due from other funds 8,551,093 Due from other governments 13,637 Due from other agencies 1,413,228 847,647 Prepaid items 165,995 Advances to other funds 1,712,504 Inventory, at average cost 95,094 Restricted assets: Pooled cash and cash equivalents Investments Accounts receivable Interest receivable Deferred charges Fixed assets (net of accumulated depreciation, if applicable) Other assets (net of accumulated amortization) Amount available in debt service funds Amount to be provided for retirement of general long-term debt Total assets $ 28,323,248 $ 10,740,564 $ 1,625,828 6 Capital Projects $ 4,534,929 ""' 30,349,139 86,099 136,998 $ 35,107,165 Robinson Burdette Martin Seright & Burrows,L.L.P. Honorable Mayor Windy Sitton Members of City Council City of Lubbock, Texas a professional services finn of certified public accountants 1500 Broadway Suite 1300 Lubbock, Texas 79401-3107 Independent Auditors' Report telephone (8061744-3333 fax (806) T47-Z106 www.rbmsb.com We have audited the General Purpose Financial Statements ("GPFS") of the City of Lubbock, Texas ("Lubbock") as of and for the year ended September 30, 2001, as listed in the Financial Section of the Table of Contents. These GPFS are the responsibility of Lubbock's management. Our responsibility is to ex:press an opinion on these GPFS based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing standards ("GAS"), issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of City Transit Management Company, Inc., dba Citibus, Market Lubbock Economic Development Corporation, dba Market Lubbock, Inc. and Civic Lubbock, Inc., component units of Lubbock, were not audited in accordance with GAS. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the GPFS referred to above, present fairly, in all material respects, the financial position of Lubbock, as of September 30, 2001, and the results of its operations and the cash flows of its proprietary fund types for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GAS, we have also issued our report dated January 18, 2002 on our consideration of Lubbock's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit .performed in accordance with GAS and should be read in conjunction with this report in considering the results of our audit. Our audit was performed for the purpose of forming an opinion on Lubbock's GPFS taken as a whole. The combining, individual fund and account group financial statements and schedules listed in the Financial Section of the Table of Contents are presented in Lubbock's Comprehensive Annual Financial Report {"CAFR") for purposes of additional analysis and are not a required part of the GPFS of Lubbock. Such information has been subjected to the auditing procedures applied in the audit of Lubbock's GPFS and, in our opinion, is fairly stated, in all material respects, in relation to Lubbock's GPFS taken as a whole. The information provided in the Introductory. Statistical and Supplementary sections listed in the Table of Contents has not been subjected to the auditing procedures applied in our audit of Lubbock's GPFS and we express no opinion on that information. January 18, 2002 lubbock, Texas /,JJ~t?a &.,r~~l-.fe /fl,:~rri/1 .513 r1? A I' J' &arrPIV~ i. . L . I, 3 General Purpose Financial Statements APPENDIXB EXCERPTS FROM THE CITY OF LUBBOCK, TEXAS ANNUAL FINANCIAL REPORT For the Year Ended September 30,2001 The information contained in this Appendix consists of excerpts from the City of Lubbock, Texas Annual Financial Report for the Year Ended September 30, 2001, 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. THIS PAGE ll'iTENTIONALL Y LEFT BLANK i" - RECREATION AND ENTERTAINMENT Lubbock's Mackenzie Regional Park and over 115 City parks and playgrounds provide recreation centers, shelter buildings, a garden and art center, swimming pools, a golf course, tennis and volley ball courts, baseball diamonds and picnic areas, including the Y eltowhouse Canyon Lakes system of six lakes and 7 50 acres of adjacent parkland extending from northwest to southeast Lubbock along the Yellowhouse Canyon. There are several privately-owned public swimming pools, golf courses, and country clubs. The City of Lubbock has developed a 36 square block area of approximately 100 acres adjacent to dow"IJ.town Lubbock under the Lubbock Memorial Civic Center program. Approximately 50 acres contain the 300,000 square foot Lubbock Memorial Civic Center, the main City library building and State Department of Public Safety offices; a 50-acre peripheral area has been redeveloped privately with office buildings, hotels and motels, a hospital, and other facilities. Available to residents are Texas Tech University programs and events, Texas Tech University Museum, Planetarium and Ranching Heritage Center exhibits and programs, United Spirit Arena and its events, Lubbock Memorial Civic Center and its events, Lubbock Symphony Orchestra programs, Lubbock Theatre Center, Lubbock Civic Ballet, Municipal Auditorium and coliseum programs and events, the library and its branches, the annual Panhandle-South Plains Fair, college and high school football, basketball, and other sporting events as well as modem movie theaters. CHURCHES Lubbock has approximately 300 churches representing more than 25 denominations. UTILITY SERVICES Water and Sewer-City of Lubbock. Gas • Energas Company. Electric -City of Lubbock (Lubbock Power & Light) and Excel Energy Company; and, in a small area, South Plains Electric Co- operative . . ECONOMIC INDICES (1) Year 1997 1998 1999 2000 2001 Building Permits 237,995,359 181,716,532 181,285,089 200,427,650 294,064,200 Water 67,373 68,228 68,449 70,111 70,756 Utility Connections Electric Gas 63,380 62,472 63,210 65,000 65,332 (LP&L Only)(2) 54,085 56,435 57,411 58,724 59,431 (I) All data as of 12-31, except where noted; Source: City of Lubbock. (2) Electric connections are those of City of Lubbock owned Lubbock Power and Light ("LP&L") and do not include those of Southwestern Public Service Company or South Plains Electric Cooperative. LP&L provides service to approximately 71% of the electric customers in the City. BUILDING PERMITS BY CLASSIFICATION (1) Residential Permits Commercial, Single Family Multi-Family Total Residential Public Total Calendar No. No. Dwelling No. Dwelling and Other Building Year Units Value Units (2) Value Units (2) Value Permits Permits 1997 542 $57,767,458 736 $32,837,680 1,278 $90,605,138 $147,390,221 $237,995,359 1998 664 64,304,918 242 9,186,999 906 73,491,917 108,224,615 181,716,532 1999 747 80,496,444 222 22,134,000 969 102,630,444 78,654,645 181,285,089 2000 819 87,501,009 281 11,548,809 1,100 99,049,818 101,377,832 200,427,650 2001 941 108,589,812 853 37,242,260 1,794 145,936,072 148,128,128 294,064,200 (I) Source: City of Lubbock, Texas. (2) Data shown under "No. Dwelling Units" is for each individual dwelling unit, and is not for separate buildings; includes duplex, triplex, quadruplex and apartment pennits. A-5 GOVERNMENT AND MILITARY (1) Reese Air Force Base (Reese), a pilot training base located adjacent to the City, was included on the list of bases approved for closure by the Pres.ident and Congress in July, 1995. Reese closed on September 30, 1997. As a result of the closure, the City developed a re-use plan for the facilities. Reese represented approximately 2.6% of the local work force. While closure of the base did not have a positive impact on the Lubbock economy, the growth in other economic sectors minimized or neutralized the effect of the closure of the base. In addition, there has been a positive economic impact from the re-use of the base. In 1997, the Texas Legislature enacted Chapter 2300 of the Texas Government Code that provided for the creation of the Lubbock Reese Redevelopment Authority (the "Authority"). The Authority is a political subdivision of the State of Texas and is authorized to accept title from the United States to all or any portion of the real, permanent, and mixed property situated within Reese Air Force Base. The Authority is empowered to manage, lease, sale and develop the property at Reese Air Force Base. The former air base, now known as Reese Technology Center and is the home of the prized Institute of Environmental and Human Health (TIEHH). TIEHH is a joint venture between Texas Tech University and Texas Tech Health Sciences Center and researches the exposure and effects toxic chemicals have on human health and the environment. TIEHH has assisted in stimulating the Lubbock economy by creating I 57 jobs with a payroll-to-date of 9.9 million. TIEHH's location as the anchor tenant at the Reese Technology Center has assisted the facility in being transformed into a research, industrial and commercial center. Other research facilities that have been relocated to Reese Technology Center is the Texas Tech University Wind Engineering and Advanced Vehicle Engineering Research Centers. South Plains College has also taken advantage of Reese Technology Centers accessibility and proximity and moved their entire Lubbock campus to Reese. South Plains College has more than 3.300 students a semester at the Reese Technology Center. Other businesses located at the Reese Technology Center include Supachill, an Australian based company that specializes in refrigeration, freezing and cryogenics for food products. Also located at Reese is the centralized operation of Asian. This company will facilitate discovery, development and promulgation of new protocols, techniques and patient care services for pediatric and adult disabled citizens. The will be working closely with Texas Tech University in their research and development. State o[Te:xas ... More than 25 State of Texas boards, departments, agencies and commissions have offices in Lubbock; several of these offices have multiple units or offices. Federal Government ... Several Federal departments and various other administrations and agencies have offices in Lubbock; a Federal District Court is located in the City. TEXAS DEPARTMENT OF CRIMINAL JUSTICE ("TDCJ") PRISON PSYCHIATRIC HOSPITAL TDCJ operates a 550-bed Prison Psychiatric Hospital and a 48-bed regional prison hospital on a 1,303 acre site in southeast Lubbock. An adjacent 400-bed capacity "trusty" facility houses prison trusties some of whom work at the hospital. Employment for all facilities is approximately 870 with an annual estimated payroll of $17 million and an estimated remaining annual operating budget of $27 million. HOSPITALS AND MEDICAL CARE There are four hospitals in the City with over 1,500 beds. Covenant Medical Center is the largest and also operates an accredited nursing school. Lubbock County Hospital District, with boundaries contiguous with Lubbock County, owns the University Medical Center which it operates as a teaching hospital for the Texas Tech Health Sciences Center. There are 82 clinics and over 900 practicing physicians, surgeons, and dentists. Lubbock's Health Care Sector employs over 15,000 people with a total payroll of $755.5 million and draws patients from 77 counties in West Texas and Eastern New Mexico. A radiology center for the treatment of malignant diseases is located in the City. A-4 EDUCATION-TEXAS TECH UNIVERSITY Established in Lubbock in 1923, Texas Tech University is the fifth largest State-owned University in Texas and had a Fall, 2001, enrollment of 24,558. Accredited by the Southern Association of Colleges and Schools, the University is a co-educational, State- supported institution offering a bachelor's degree in 158 major fields, the master's degree in 107 major fields, the doctorate degree in 64 major fields, and a professional degree in 2 major fields (law and medicine). The University proper is situated on 451 acres of the 1,829 acre campus, and has over 160 permanent buildings with additional construction in progress. Fall, 2001, total employment was 6,125. The medical school had an enrollment of 1,390 for Fall, 2001, not including residents; there were 60 graduate students. The School of Nursing had a Fall, 2001, enrollment of 326 including the Permian Basin Program, located in Midland/Odessa; there were 79 graduate students. The Allied Health School had a Fall, 2001, enrollment of 454. Source: Texas Tech University. OTHER EDUCATION Il'o'FOR.t\IA TION The Lubbock Independent School District, with an area of 87.5 square miles, includes over 90% of the City of Lubbock. There are approximately 3,495 total employees. The District operates four senior high schools, ten junior high schools, 38 elementacy schools and other educational programs. Scholastic Membership History (l) School Year 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 Average Daily Attendance 28,357 28,111 28,089 27,799 27,661 27,461 27,946 29,397 (2) (1) Source: Superintendent's Office, Lubbock Independent School District. (2) Estimated. Lubbock Christian University, a privately owned, co-educational senior college located in Lubbock, had an enrollment of 1,617 for the Fall Semester, 2001. The State of Texas School for the Mentally Retarded, located on a 226-acre site in Lubbock, consists of 40 buildings with bed- capacity for 436 students; 400 students were in residence. There are approximately 850 professional and other employees. Wayland Baptist College, Plainview Texas, operates a Lubbock Campus which had a Fall, 2001, enrollment of 550 students. TRANSPORTATION Scheduled airline transportation at Lubbock International Airport is furnished by Southwest Airlines, Atlantic Southeast, Continental Airlines and American Eagle; non-stop service is provided to Dallas-Fort Worth International Airport, Dallas Love Field, Bush Intercontinental Airport (Houston), Houston Hobby, El Paso, Las Vegas, Austin, Amarillo and Albuquerque. Passenger hoardings for 2000 totaled 585,000 and 565,000 for 2001. Extensive private aviation services are located at the airport. Rail transportation is furnished by the Burlington Northern Santa Fe Railroad with through service to Dallas, Houston, Kansas City, Chicago, Los Angeles and San Francisco. Short-haul rail service is also furnished by the Seagraves, Whiteface and Lubbock Railroad. Texas, New Mexico and Oklahoma Bus Lines, a subsidiary of Greyhound Corporation, provides bus service. Several motor freight common carriers provide service. Lubbock has a well-developed highway network including Interstate 27 (Lubbock-Amarillo), 4 U.S. Highways, 1 State Highway, a controlled-access outer loop and a county-wide system of paved farm-to-market roads. A-3 Estimated non-agricultural wage and salaried jobs in various categories as of December, 200 I were (I) Manufacturing Construction Transportation & Public Utilities Trade 7,200 4,600 8,100 33,400 6,500 37,300 100 28,300 125,500 Finance, Insurance and Real Estate · Services Mining Government Total (l) Source: Texas Workforce Commission. MA.JOR EMPLOYERS (300 EMPLOYEES OR MORE) Company Texas Tech University Covenant Health System Lubbock Independent School District TTU Health Sciences Center City of Lubbock Convergys Caprock Home Health Services United Supermarkets University Medical Center SBC Wai-Mart Lubbock County Lubbock State School Texas Dept. of Criminal Justice Psychiatric Hospital State Department of Human Services U.S. Postal Service American State Bank West TeleServices Southwestern Bell Telephone Company Industrial Molding Corporation Texas Department of Transportation Eagle Picher Lubbock Regional MHMR Center McLane High Plains Operator Service Company Tyco International Dillard's Department Stores Aramark· Energas company/Atmos Energy Corp. Jim Burns Automotive Group K-Mart Lubbock Avalanche-Journal McDonald's Plains National Bank Marriott School Services Wells Fargo Phone Bank Type of Business State University Hospital Public Schools Medical and Allied Health School City Government Call Center Home Health Care Service Supermarkets Hospital Wireless Communications Discount Retailer County Government School for Mentally Retarded Psychiatric Hospital Social Services Post Office Bank Call Center Telephone Utility Manufacturing/Plastic Products State Highway and Street Maintenance Heavy Equipment Manufacturing Social Services Wholesale Food Distributor Customer Service Industrial Machinery Department Stores Food Broker Natural Gas Transmission & Distribution Automobile Dealership Discount Retailer Newspaper Restaurants Bank Hotel/Housekeeping and Hotel Bank Phone Center (1) Source: Business Development Support Service, City of Lubbock, Texas. (2) Full and part time. Estimated Employees November, 200d1l 8,535 i'l 5,900 3,442 . 2,259 2,164 1,650 1,650 L345 999 999 900 897 876 870 585 561 559 558 522 505 487 482 450 416 409 400 400 391 366 365 345 341 331 325 322 320 (3) (3) See "Texas Department of Criminal Justice ("TDCJ") Prison Psychiatric Hospital" following for more detailed information. A-2 THE CITY LOCATIO:-.! The City of Lubbock, which is the County Seat of Lubbock County, Texas, is located on the South Plains of West Texas. Lubbock is the economic, educational, cultural and medical services center of the area. POPULATION Lubbock is the ninth largest City in Texas: 1910 Census 1920Census 1930 Census 1940 Census 1950Census 1960 Census 1970 Census 1980 Census 1990 Census 2000 Census 2002 (Estimated) (1) City of Lubbock (Corporate Limits) 1,938 4,051 20,520 31,853 71,747 128,691 149,701 173,979 186,206 199,564 202,000 Metropolitan Statistical Area ("MSA") (Lubbock County) 1970 Census 179,295 1980 Census 211,651 1990 Census 222,636 2000 Census 242,628 (I) Source: City of Lubbock, Texas AGRICULTURE; BUSINESS AND INDUSTRY Lubbock is the center of a highly mechanized agricultural area with a majority of the crops irrigated with water from underground sources. Principal crops are cotton and grain sorghums with livestock a major additional source of agricultural income. In 2001, approximately 2.82 million bales of cotton were produced in Lubbock and the 25-eounties surrounding Lubbock. This was more than the 2.70 million bales produced in 2000 and is 102.50% of the 10-year average of2.80 million bales. Projections for the 2002 cotton crop are about 3.00 million bales.(1) Two major vegetable oil plants located in Lubbock have a combined weekly capacity of over 1,811 tons of cottonseed and soybean oil. Several major seed companies are headquartered in Lubbock. Over 200 manufacturing plants in Lubbock produce such products as semiconductors, vegetable oils,. heavy earth-moving machinery, irrigation equipment and pipe, farm equipment, paperboard boxes, foodstuffs, mobile and prefabricated homes, poultry and livestock feeds, boilers and pressure vessels, automatic sprinkler system heads, structural steel fabrication and soft drinks. (1) Source: Plains Cotton Growers, Inc., Lubbock, Texas. LUBBOCK MSA LABOR FORCE ESTIMATES (1) April 2002(2) Civilian Labor Force 129,604 Total Employment 126,375 Unemployment 3,229 Percent Unemployment 2.50% (1) Source: Texas Workforce Commission. (2) Subject to revision. 2001 126,786 123,547 3,239 2.60% A-I Annual Averages 2000 1999 1998 1997 123,980 123,473 122,692 122,182 120,729 119,912 118,568 117,376 3,251 3,561 4,124 4,806 2.60% 2.90% 3.40% 3.90% - THIS PAGE INTENTIONALLY LEFT BLANK APPENDIX A GENERAL INFORMATION REGARDING THE CITY • Amarillo • LUBBOCK Fort Worth• •Dallas • * Austin San Antonio - - THIS PAGE INTENTIONALLY LEFT BLANK - - SCHEDULE OF REFUNDED BONDS General Obligation Refunding Bonds, Series 1993 Original Dated Date 12/l/1993 Original Maturity 2/15/2003 2/15/2004 2/15/2005 2/15/2006 2/15/2007 2/15/2008 Interest Rates 4.50% 4.65% 4.75% 4.80% 5.00% 5.00% Amount $ 1,040,000 960,000 650,000 630,000 610,000 260,000 The 2003-2008 maturities will be redeemed prior to original maturity on August 16, 2002 at par. General Obligation Bonds, Series 1993 Original Interest Original Dated Date Maturi!X Rates Amount 10/1/1993 2/1512004 4.50% $960,000 2/15/2005 4.50% 960,000 2/15/2006 4.60% 960,000 2/15/2007 4.70% 960,000 2/15/2008 4.80% 960,000 2/15/2009 4.90% 960,000 2/15/2010 4.90% 960,000 The 2004-2010 maturities will be redeemed prior to original maturity on February 15, 2003 at par. Schedule I 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 ordinances contained in this Official Statement are made subject to all of the provisions of such statutes, documents and ordinances. 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 Bonds w-HI 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 ofthe Bonds by the Underwriters. ATTEST: REBECCA GARZA City Secretary City of Lubbock, Texas 38 MARC McDOUGAL Mayor City of Lubbock, Texas - Entry-Only System. Certain legal matters will be passed upon for the Underwriters by McCall, Parkhurst & Horton, L.L.P., Dallas, Texas, Counsel to the Underwriters. The legal fee of such firm is contingent upon the sale and delivery of the Bonds. The legal opinions 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. FINANCIAL ADVISOR First Southwest Company is employed as Financial Advisor to the City in connection with the issuance of the Bonds. The Financial Advisor's fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. 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 Bonds, 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. VERIFICATION OF ARITHMETICAL AND MATHEMATICAl" COMPUTATIONS The arithmetical accuracy of certain computations included in the schedules provided by First Southwest Company on behalf of the City relating to (a) computation offorecasted receipts of principal and interest on the Federal Securities and the forecasted payments of principal and interest to redeem the Refunded Bonds and (b) computation of the yields ofthe Refunding Bonds and the restricted Federal Securities were verified by Grant Thornton, LLP, certified public accountants. Such computations were based solely on assumptions and information supplied by First Southwest Company on behalf of the City. Grant Thornton, LLP has restricted its procedures to verizying the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information on which the computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome. UNDERWRITING The Underwriters have agreed, subject to certain conditions, to purchase the Bonds from the City, at an underwriting discount of $54,441.46. The UndernTiters will be obligated to purchase all ofthe Bonds if any Bonds are purchased. The Bonds to be offered to the public may be offered and sold to certain dealers (including the Underwriters and other dealers depositing Bonds into investment trusts) at prices lower than the public offering prices of such Bonds, and such public offering prices may be changed, from time to time, by the Underwriters. 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. 37 OTHER INFORMATION RATINGS The Bonds are rated "Aaa" by Moody's, "AAA" by S&P and "AAA" Fitch by virtue of an insurance policy to be issued by MBIA Insurance Corporation. The presently outstanding tax supported debt of the City is rated "Aa2" by Moody's, "AA+" by S&P and "A'\+" by Fitch. The City also has four additional issues outstanding which are rated "Aaa" by Moody's, "AAA" by S&P and "AAA" by Fitch through insurance by various commercial insurance companies. 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 neither the City nor the Underwriters makes any 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 or both of such rating companies, if in the judgment of said companies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Bonds. 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 BONDS FOR SALE The sale of the Bonds has not been registered under the Federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been qualified under the securities acts of any jurisdiction. The City assumes no responsibility for qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions. 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 Bonds 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 Bonds 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 Bonds 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 Bonds 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 Bonds 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 Bonds are legal investments for various institutions in those states. LEGAL OPINIONS The City will furnish a complete transcript of proceedings had incident to the authorization and issuance of the Bonds, including the unqualified approving legal opinion of the Attorney General of Texas approving the Initial Bond and to the effect that the Bonds 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 Bonds 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. Bond Counsel was not requested to participate, and did not take part, in the preparation of 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 under captions "Plan of Financing", "The Bonds" (exclusive of subcaption "Book-Entry- Only System"), "Tax Matters" and "Continuing Disclosure of Information" (exclusive of the subcaption "Compliance with Prior Undertakings") and the subcaptions "Legal Opinions" and "Legal Investments and Eligibility to Secure Public Funds in Texas" in the Official Statement and such firm is of the opinion that the information relating to the Bonds and the legal issues contained under such captions and subcaptions is an accurate and fair description of the laws and legal issues addressed therein and, with respect to the Bonds, such information conforms to the Ordinance. The legal fee to be paid to Bond Counsel for services rendered in connection with the issuance of the Bonds is contingent on the sale and delivery of the Bonds. The legal opinion will accompany the Bonds deposited with DTC or will be printed on the Bonds in the event of the discontinuance of the Book- 36 - - purchase or sell Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7) modifications to rights of holders of the Bonds; (8) Bond calls; (9) defeasances; (I 0) release, substitution, or sale of property securing repayment of the Bonds; and (11) rating changes. (Neither the Bonds nor the Ordinance make any provision for credit or liquidity enhancement.) In addition, the City will provide timely notice of any failure by the City to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports." 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 Bonds only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. LIMITATIONS Al'IID AMENDMENTS ... The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Bonds may seek a writ of mandamus to compel the City to comply with its agreement. The City may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Bonds consent to the amendment or (b) any person unaffiliated with the City (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provisions of the SEC Rule 15c2-12 or a court of final jurisdiction enters judgment that such provisions of the SEC Rule l5c2-12 are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Bonds in the primary offering of the Bonds. If the City so amends the agreement, it has agreed to include with the next financial information and operating data provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. COMPLIANCE WITH PRIOR UNDERTAKINGS ... During the last five years, the City has complied in all material respects with all continuing disclosure agreements made by it in accordance with SEC Rule 15c2-l2. 35 will not be a corresponding cash payment In addition, the accrual of such interest may result in certain other collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, S corporations with "subchapter C" earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for earned income tax credit, owners of an interest in a FASIT, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Moreover, in the event of the redemption, sale or other taxable disposition of a Discount Bond by the initial owner prior to maturity, the amount realized by such owner in excess of the basis of such Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Discount Bond was held) is includable in gross income. Owners of Discount Bonds should consult with their own tax advisors with respect to the determination of accrued original issue discount on Discount Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Discount Bonds. It is possible that, under applicable provisions governing determination of state and local income taxes, accrued interest on Discount Bonds may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment. The initial public offering price of certain Bonds (the "Premium Bonds") may be greater than the amount payable on such Bonds at maturity. An amount equal to the difference between the initial public offering price of a Premium Bond (assuming that a substantial amount of the Premium Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes premium to the initial purchaser of such Premium Bonds. The basis for federal income tax purposes of a Premium Bond in the hands of such initial purchaser must be reduced each year by the amortizable bond premium, although no federal income tax deduction is allowed as a result of such reduction in basis for amortizable bond premium. Such reduction in basis will increase the amount of any gain (or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of a Premium Bond. The amount of premium which is amortizable each year by an initial purchaser is determined by using such purchaser's yield to maturity. Purchasers of the Premium Bonds should consult with their own tax advisors with respect to the determination of amortizable bond premium on Premium Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Premium Bonds. CONTINUING DISCLOSURE OF INFORMATION In the Ordinance, the City has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. ANNEAL 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 I through 6 and 8A 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 2002. 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. 0. Box 2177, Austin, Texas 78768- 2177, and its telephone number is 512/476-6947. · 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 Bonds, if such event is material to a decision to 34 - - - - - TAX MATTERS TAX EXEMPTION ... The delivery of the Bonds is subject to the opinion of Bond Counsel to the effect that interest on the Bonds for federal income tax purposes (1) will be excludable from gross income, as defined in section 61 of the Internal Revenue Code of 1986, as amended to the date of such opinion (the "Code"), pursuant to section 103 of the Code and existing regulations, published rulings, and court decisions, and (2) will not be included in computing the alternative minimum taxable income of the owners thereof who are individuals or, except as hereinafter described, corporations. A form of Bond Counsel's opinion is reproduced as Appendix C. The statute, regulations, rulings, and court decisions on which such opinion is based are subject to change. Interest on all tax-exempt obligations, including the Bonds, owned by a corporation will be included in such corporation's adjusted current earnings for tax years beginning after 1989, for purposes of calculating the alternative minimum taxable income of such corporation, other than an S corporation, a qualified mutual fund, a real estate investment trust, a real estate mortgage investment conduit, or a financial asset securitization investment trust (FASIT). A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by Section 55 of the Code will be computed. In rendering the foregoing opinions, Bond Counsel will rely upon representations and certifications of the City made in a certificate dated the date of delivery of the Bonds pertaining to the use, expenditure, and investment of the proceeds of the Bonds and will assume continuing compliance by the City with the provisions of the Ordinance subsequent to the issuance of the Bonds. The Ordinance contains covenants by the City with respect to, among other matters, the use of the proceeds of the Bonds and the facilities financed therewith by persons other than state or local governmental units, the manner in which the proceeds of the Bonds are to be invested, the periodic calculation and payment to the United States Treasury of arbitrage "profits" from the investment of the proceeds, and the reporting of certain information to the United States Treasury. Failure to comply with any of these covenants would cause interest on the Bonds to be includable in the gross income of the owners thereof from date of the issuance of the Bonds. Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the City described above. No ruling has been sought from the Internal Revenue Service (the "Service") with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel's opinion is not binding on the Service. The Service has an ongoing program of auditing the tax- exempt status of the interest on tax-exempt obligations. If an audit of the Bonds is commenced, under current procedures the Service is likely to treat the City as the "taxpayer, " and the Owners would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds, the City may have different or conflicting interests from the Owners. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit, regardless of its ultimate outcome. Except as described above, Bond Counsel expresses no other opinion with respect to any other federal, state or local tax consequences under present law, or proposed legislation, resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, S corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a FASIT, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certa.in expenses allocable to, tax-exempt obligations. Prospective purchasers should consult their own tax advisors as to the applicability of these consequences to their particular circumstances. TAX ACCOUNTING TREATMENT OF DISCOUNT AND PREMIUM ON CERTAIN BONDS ... The initial public offering price of certain Bonds (the "Discount Bonds") may be less than the amount payable on such Bonds at maturity. An amount equal to the difference between the initial public offering price of a Discount Bond (assuming that a substantial amount of the Discount Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes original issue discount to the initial purchaser of such Discount Bond. A portion of such original issue discount allocable to the holding period of such Discount Bond by the initial purchaser will, upon the disposition of such Discount Bond (including by reason of its payment at maturity), be treated as interest excludable from gross income, rather than as taxable gain, for federal income tax purposes, on the same terms and conditions as those for other interest on the Bonds described above under "Tax Exemption." Such interest is considered to be accrued actuarially in accordance with the constant interest method over the life of aDiscount Bond, taking into account the semiannual compounding of accrued interest, at the yield to maturity on such Discount Bond and generally will be allocated to an original purchaser in a different amount from the amount of the payment denominated as interest actually received by the original purchaser during the tax year. However, such interest may be required to be taken into account in determining the alternative minimum taxable income of a corporation, for purposes of calculating a corporation's alternative minimum tax imposed by Section 55 of the Code, and the amount of the branch profits tax applicable to certain foreign corporations doing business in the United States, even though there 33 portfolio as it relates to: (a) adopted investment strategies and (b) Texas law. No person may invest City funds without express written authority from the City Council. ADDITION'AL PROVISIONS ... Under Texas law, the City is additionally required to: (I) annually review its adopted policies and strategies, (2) require any investment officers with personal business relationships or family relationships with firms seeking to sell securities to the City to disclose the relationship and file a statement with the Texas Ethics Commission and the City, (3) require the registered principal of firms seeking to sell securities to the City to: (a) receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) in conjunction with its annual financial audit, perform a compliance audit of the management controls on investments and adherence to the City's investment policy, (5) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement, (6) restrict the investment in non-money market mutual funds in the aggregate to no more than 15% of the City's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service, (7) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements and (8) provide specific investment training for the Treasurer, the chief financial officer (if not the Treasurer) and the investment officer. TABLE 15-CURRENT INVESTMENTS As of May 31, 2002, the City's investable funds were invested in the following categories: Type United States Treasury Obligations United States Agency Obligations Bank Certificates of Deposit Local government investment pools fl) Par Value s 3,000,000 63,965,000 283,600 97,575,996 $ 164,824,596 Book Value Value $ 3,045,40! 64,019,000 283,600 97,575,996 $ 164,923,997 %ofTotal Book Value 1.85% 38.82% 0.17% 59.16% 100.00% $ Estimated Fair Market Value(l) %of Total Value Book Value 3,048,984 1.84% 64,515,139 39.00% 283,600 0.17% 97,575,996 58.99% $ 165,423,719 100.00% Weighted Average Maturity (Days) 426 434 43 3 178 (I) As determined by Patterson & Associates, the City's investment adviser. As of such date, the market value of such investments was approximately 100.00% of their book value. No funds of the City are invested in mortgage-backed securities. The City makes investments with the intent to hold them to maturity, which reduces the risk of market price volatility. (2) Local government investment pools consist of entities with investment objectives that include achieving a stable net asset value of $1.00 per share. 32 -----------~~~~~- INVESTMENTS The City of Lubbock invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the City Council of the City ofLubbock. Both state law and the City's investment policies are subject to change. INVESTMENT AUTHORITY AND INVESTMENT PRA<;:TICES OF THE CITY ... 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 and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities; (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; ( 6) bonds issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit issued by a state or national bank domiciled in the State of Texas, a savings bank domiciled in the State of Texas, or a state or federal credit union domiciled in the State of Texas and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for City deposits, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas, (9) certain bankers' acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by at least one nationally recognized credit rating agency, (I 0) commercial paper with a stated maturity of 270 days or less that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank, (11) no-load money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share, and (12) no~Ioad mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in the this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent. If specifically authorized in the authorizing document, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described in the next succeeding paragraph. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than AAA or AAAm or an equivalent by at least one nationally recognized rating service. The City may also contract with an investment management firm registered under the Investment Advisers Act of 1940 (1 5 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: (I) 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. 1:-IVESTMENT POLICIES ... Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that include a list of authorized investments for City funds, the maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each fund's investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, ( 4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. Under Texas law, the City's investments must be made "with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment considering the probable safety of capital and probable income to be derived." At least quarterly the City's investment officers must submit an investment report to the City Council detailing: (1) the investment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, and any additions and changes to market value and the ending value of each pooled fund group, ( 4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment 31 financial information, management believes that there will be no material adverse impact to the City's financial position, results of operation, or cash flows. General Fund Balance ... The City's objective is to maintain an unreserved/undesignated fund balance at a minimum of an amount equal to two months budgeted operating expenditures to meet unanticipated contingencies and fluctuations in revenue. Enterprise Fund Balance ... It is the policy of the City to maintain retained earnings equal to three months operating expense and debt requirements in each enterprise fund for unforeseen contingencies. The City's financial policy was implemented in 1996 and provides that such retained earnings shall be accumulated over a rolling ten year period. Resources are also retained in the System's rate stabilization fund to meet shortfalls in revenues or fluctuating rate environments, to fund capital improvements and may be allocated ifthere are not sufficient resources in unreserved/undesignated retained earnings. Enterprise Fund Revenues ... It is the policy of the City that each enterprise fund be operated in a manner that results in self sufficiency, without the need for additional monetary transfers from other funds and, with the exception of the airport enterprise fund, each of the enterprise funds are currently in compliance with this policy. Such self sufficiency is to be obtained through the rates, fees and charges of each enterprise fund. For purposes of determining self sufficiency, cost recovery for each enterprise fund includes direct operating and maintenance expense, as well as indirect cost recovery, in-lieu of transfers to the General Fund for property and franchise tax payments, capital expenditures and debt service payments, where appropriate. Debt Service Fund Balance ... A reasonable debt service fund balance is maintained in order to compensate for unexpected contingencies. Budgetary Procedures ... The City follows these procedures in establishing operating budgets: I) Prior to August 1, the City Manager submits to the City Council a proposed operating budget for the fiscal year commencing the following October I. The operating budget includes proposed expenditures and the means of financing them. 2) Public hearings are conducted to obtain taxpayer comments. 3) Prior to October 1 the budget is legally enacted through passage of an ordinance. 4) The City Manager is authorized to transfer budgeted amounts between departments and funds. Expenditures may not legally exceed budgeted appropriations at the fund level. 5) Formal budgetary integration is employed as a management control device during the year for the Convention and Tourism, Criminal Investigation, and Capital Projects Funds. Budgets are adopted on an annual basis. Formal budgetary integration is not employed for Debt Service funds because effective budgetary control is alternatively achieved through general obligation bond indenture and other contract provisions. 6) The Budget for the General Fund is adopted on a basis consistent with generally accepted accounting principles ("GAAP"). 7) Appropriations for the General Fund lapse at year end. Unencumbered balances for the Capital Projects Funds continue as authority for subsequent period expenditures. 8) Budgetary comparison is presented for the General Fund in the combined financial statement section of the · Comprehensive Annual financial Report. The City has received the Distinguished Budget Presentation Award from the GFOA for the following budget years beginning October I, 1983-88 and 1990-2001. The City will submit the current budget to the GFOA to determine its eligibility for another award. Insurance . . . The City is self-insured for general liability and health benefits coverage, although it purchases reinsurance coverage for claims in excess of $250,000 for general liability claims. Airport liability insurance and workers' compensation is insured under policies issued by third party insurers. The City's insurance policies are maintained with large deductibles for fire and extended coverage and boiler coverage. An Insurance Fund has been established in the Internal Service Fund to account for insurance programs and budgeted transfers are made to this fund based upon estimated payments for claim losses. At 9-30-01 the total Fund Equity of these insurance funds were as follows: Self-insurance health Self-insurance risk management 30 $ 8,841,546 $11,171,322 - TABLE 14 -MUNICIPAL SALES TAX HISTORY The City has adopted the Municipal Sales and Use Tax Act, VTCA, Tax Code, Chapter 32I, which grants the City the power to impose and levy a I% 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 or other debt of the City. In addition, in January, 1995, the voters of the City approved the imposition of an additional sales and use tax of one-eighth of a cent as authorized by VTCA, Tax Code, Chapter 323, as amended. Collection for the additional tax commenced in October, 1995 with the proceeds from the one-eighth cent sales tax designated for the use and benefit of the City to replace property tax revenues lost as a result of the adoption gf the tax. Collections and enforcements of the City's sales tax are effected through the offices of the Comptroller of Public Accounts, State of Texas, who remits the proceeds of the tax to the City monthly, after deduction of a 2% service fee. Historical collections of the City's local Sales and Use Tax is shown below: Fiscal Year %of Ended Total Ad Valorem 9/30 Collected(!) Tax Levy 1997 $ 24,39I,08I 74.78% 1998 25,002,693 73.94% 1999 25,I96,203 72.01% 2000 27,12I,078 75.66% 2001 28,183,746 74.48% (I) Excludes bingo tax receipts. (2) Based on population estimates of the City. The sales tax breakdown for the City is as follows: City: City Sales & Use Tax City Tax for Property Tax Relief County Sales & Use Tax State Sales & Use Ta.'< Total CAPITAL IMPROVEMENT PROGRAM Equivalent of Ad Valorem $ Ta,"X Rate 0.4184 0.4I54 0.4079 0.4085 0.4078 1.000¢ O.I25¢ 0.500¢ 6.250¢ 7.875¢ Per Capita (l) $ 124.0I 126.84 126.33 I34.89 139.52 The City Council adopted a resolution during the 1984-85 budget process establishing permanent capital maintenance funds for capital projects. A capital improvement plan is made for planning purposes and may identity projects that will be deferred or omitted entirely in future years. In addition, as conditions change, new projects may be added that are not currently identified. In order for a project to be funded as a capital project it must have a cost of $25,000 or more and a life of seven or more years. Many of the projects require more than one year of completion and are accounted for on a life to date basis. For fiscal year ending 9-30-02, the City Council has approved $43,407,670 in total expenditures for capital projects for all general purpose projects, as well as projects for the City's Electric System Waterworks System, Sewer System, Solid Waste System, Storm Water System and Airport. The Capital Projects Fund budget for 2001-2002 also identifies an additional $121,791,025 in future improvements, for all City departments over the four succeeding fiscal years, including $69,074,94 I to be financed through the issuance of tax-supported debt in these years. The balance of the capital expenditures are anticipated to be funded from reserves or current year revenue sources. 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 Officer's Association of the United States and Canada ("GFOA"). The GFOA has awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for each of the fiscal years ended September 30, 1984 through September 30, 2001. The City's 2002 report will be submitted to GFOA to determine its eligibility for another certificate. GASB 34 Implications for the City of Lubbock ... In June I 999, the Governmental Accounting Standards Board issued Statement No. 34, "Basic Financial Statements--Management's Discussion and Analysis--for State and Local Governments". The objective of this Statement is to enhance the clarity and usefulness of the general-purpose external financial reports of state and local governments to the citizenry, legislative and oversight bodies, and investors and creditors. The City must implement GASB 34 for its fiscal year ending September 30, 2002. While adoption of this Statement will alter the presentation of some 29 FINANCIAL INFORMATION TABLE 13 -GENERAL FUND REVENUES AND EXPENDITURE HISTORY Fiscal Year Ended September 30, Revenues 2001 2000 1999 1998 1997°) Ad Valorem Taxes $ 28,604,141 $ 26,595,709 $ 25,338, 127 $ 23,271,939 $ 22,440,626 Sales Taxes 28,183,746 27,121,078 25,196,203 24,914,523 24,251,491 Franchise Fees 7,684,683 6,619,755 6,235,099 7,128,034 5,438,688 Miscellaneous Taxes 774,587 743,771 721,907 675,694 687,574 Licenses and Permits 1,202,794 1,138,924 976,091 1,037,458 1,077,878 Intergovernmental 333,171 365,671 576,136 917,572 884,834 Charges for Services 4,299,958 4,210,334 4,032,665 4,016,475 3,522,397 Fines 3,051,055 2,834,208 3,335,340 3,313,233 3,460,453 Miscellaneous Taxes 995,494 I, 143,226 947,636 1,011,559 1,118,578 Interest 1,058,096 1,108,662 1,118,016 1,239,562 1,623,818 Operating Transfers (Z) 14,276,074 13,451,796 16,030,636 15,284,140 Total Revenues and Transfers $ 90,463,799 $ 85,518,102 $ 81,929,016 $ 83,556,685 $ 79,790,477 Expenditures General Government $ 7,130,478 $ 6,193,124 $ 6,143,076 $ 5,762,283 $ 5,003,806 Financial Services 1,499,967 1,458,232 1,366,006 1,196,779 1,067,281 Management Services 629,903 461,067 396,216 389,583 1,170,948 Non-departmental 1,716,167 606,843 926,203 1,125,310 1,040,419 Health & Community Services 4,831.348 4,744,830 4,522,041 4,519,880 4,398,348 Strategic Planning 948,514 823,399 839,814 774,878 727,448 Culture/Leisure Services 13,668,823 13,454,832 12,630,738 12,667,406 12,347,987 Police 28,139,048 25,561,261 23,478,729 22,013,906 20,519,946 Fire 17,785,641 17,080,371 15,616,543 14,468,027 13,897,682 Transportation Services 4,771,680 5,439,855 5,195,459 5,007,496 4,993564 Electric Utilities 2,146,211 1,923,584 1,759,509 1,848,283 1,778,824 Human Resources 913,250 871,596 870,172 810,997 831,758 Operating Transfers 6,187,379 7,526,481 9,926,784 12,454,461 11,211,948 Total Expenditures $ 90,368,409 $ 86,145,475 $ 83,671,290 $ 83,039,289 $ 78,989,959 Excess (Deficiency) of Revenues and Transfers Over Expenditures $ 95,390 $ (627,373) $ (1 ,742,274) $ 517,396 $ 800,518 Fund Balance at Beginning of Year 16,620,652 17,248,025 18,990,299 18,472,903 17,672,385 Fund Balance at End of Year $ 16,716,042 $ 16,620,652 $ 17,248,025 $ 18,990,299 $ 18,472,903 Less: Reserves and Designations (J) (2,361 ,860) (2,857,096) ( 4,432,834) (5,442,847) (4,997,379) Undesignated Fund Balance $ 14,354,182 $ $ 12,815,191 $ $ 13,475,524 (I) The presentation of the City's General Fund income statements in its audited financial statements was changed in 1997, resulting in different categorizations of expenditure items. (2) The City's financial policies provide for transfers to the General Fund from the City's enterprise funds. The policies provide that the water, waste water and solid waste funds transfer an amount sufficient to cover the pro rata share of the City's general and administrative expenses, an amount representing a franchise payment equal to 3% of gross receipts and an amount representing a payment in lieu of ad valorem taxes. The Electric System makes transfers for the foregoing purposes, and, in addition, makes a transfer reflecting the System's share of street lighting expense and for other purposes. The Electric System has a goal of reducing transfers to the General Fund from approximately 12% of gross revenues in recent years to approximately 6%. The City's policies with respect to enterprise fund transfers are subject to change. Among the factors that could affect the transfers to the General Fund is the effect of increased competition on the City's electric utility, which has competition from an investor owned utility and/or an electric cooperative in almost all of its certified service area. (3) The City's financial policies target a General Fund undesignated balance of at least two months of General Fund expenditures. Amounts representing fund balances in excess of the target are reserved for future capital expenditures. 28 - - """" - ANTICIPATED ISSUANCE OF GENERAL OBLIGATION DEBT ... As described below under "Debt Information -Capital Improvement Plan, " the City has identified certain capital projects in its capital improvement plan ("CIP") that may be financed through the issuance of tax-supported debt over the five year period ending September 30, 2006. In addition to the Certificates, which are being issued to fund a portion of the CIP, the City anticipates that within the next twelve months, it will issue additional general obligation debt in the amount of approximately $12 million to fund the remaining projects approved by the voters in the September 1999 bond referendum (see "Table II -authorized But Unissued General Obligation Bonds"). The City also anticipates the issuance of between $35 million to $45 million in combination tax and drainage district revenue certificates of obligation during the next twelve months. Such certificates would finance phase two of a storm water drainage project that is currently under construction in the City. The debt issued for that project is expected to be self-supporting from storm water fees . collected by the City. TABLE 12-OTHER OBLIGATIONS Asset Classification Motor Vehicles Heavy Equipment Heavy Moveable Equipment 2002 2003 $ 7,621 $ 7,621 163,552 106,201 207,888 35,359 Balance 2004 Outstanding $ 4,383 $ 19,625 48,326 318,079 18,327 261,574 PENSION FUND ... TEXAS MUNICIPAL RETIREMENT SYSTEM (1)(2) ... All permanent, full-time City employees who are not firefighters are covered by the Texas Municipal Retirement System (''TMRS"). TMRS is an agent, multiple-employer, public- employee retirement system which is covered by a State statute and is administered by six trustees appointed by the Governor of Texas. TMRS operates independently of its member cities. The City of Lubbock joined TMRS in 1950 to supplement Social Security. All City employees except firefighters are covered by Social Security. Options offered under TMRS, and adopted by the City, include current, prior and antecedent service credits, ten year vesting, updated service credit, occupational disability benefits and survivor benefits for the spouse of a vested employee. An employee who retires receives an annuity based on the amount of the employees contributions over-matched two for one by the City. Employee contribution rate is 7% of gross salary. The City's contribution rate is calculated each year using actuarial techniques applied to experience. The 2001 contribution rate was 13.69%. The 2002 contribution rate is 13.99%. Enabling statutes prohibit any member city from adopting options which impose liabilities that cannot be amortized over 25 years within a specified statutory rate. On December 31, 2000, the actuarial value of assets held by TMRS (not including those of the Supplemental Disability Fund, which is. "pooled"), for the City of Lubbock were $160,299,195. Unfunded actuarial accrued liabilities on December 31, 2000 were $40,414,170, which is being amortized over a 25-year period beginning January, 1997. Total contributions by the City to the System for Calendar Year 2001 were $8,112,713.96. FIREMEN'S RELIEF AND RETIREMENT FUND (1) ... City of Lubbock firefighters are members of the locally administered Lubbock Firemen's Relief and Retirement Fund (the "FUND"), operating under an act passed in 1937 by the State Legislature and adopted by City firefighters, by vote of the department, in 1941. Firefighters are not covered by Social Security. The Fund is governed by seven trustees, three firefighters, two outside trustees (appointed by the other trustees), the Mayor or his representative and the chief financial officer or his representative. Execution of the act is monitored by the Firemen's Pension Commissioner, who is appointed by the Governor. Benefits of retired firemen are determined on a "formula" or a "final salary" plan. Actuarial reviews are performed every two years, and the fund is audited annually. Firefighters contribute 11% of full salary into the fund and the City must contribute a like amount; however, the city contributes on a basis of the percentage of salary which is a ratio adjusted annually that bears the same relationship to the firefighter's contribution rate that the City's rate paid into the TMRS and FICA bears to the rate other employees pay into the TMRS and FICA. The City's contribution rate for 2001 was 16.02%. As of December 31, 2000, over-funded pension benefit obligations were $4,985,739 which is being amortized over a 13 year period beginning January I, 1997. (l) For historical information concerning the retirement plans, see Appendix B, "Excerpts from the City's Annual Financial Report" -Note #III, Subsection E, "Retirement Plans".) (2) Source: Texas Municipal Retirement System, Comprehensive Annual Financial Report for Year Ended December 31, 2000, "CityofLubbock, Texas". 27 TABLE 10 -COMPUTATION OF SELF-Stfl'PORTING DEBT THE WATERWORKS SYSTEM (1) Net System Revenue Available, Fiscal Year Ended 9-30-01 Less: Requirements for Revenue Bonds, Fiscal Year Ended 9-30-02 Balance Available for Other Purposes Requirements for System General Obligation Debt, Fiscal Year Ending 9-30-02 Percentage of System General Obligation Debt Self-Supporting $ 12,760,994 -0- $ 12,760,994 $ 7,034,507 100.00% (I) Each Fiscal Year the City transfers Net Revenues of the Waterworks Enterprise Fund to the General Obligation Interest and Sinking Fund in an amount equal to debt service requirements on Waterworks System general obligation debt · THE SEWER SYSTEM (1) Net System Revenue Available, Fiscal Year Ended 9-30-01 Less: Requirements for Revenue Bonds, Fiscal Year Ending 9-30-02 Balance Available for Other Purposes Requirements for System General Obligation Debt, Fiscal Year Ending 9-30-02 Percentage of System General Obligation Debt Self-Supporting $ 8,176,778 -0- $ 8,176,778 $ 6,347,280 100.00% (1) Each Fiscal Year the City transfers Net Revenues of the Sewer Enterprise Fund to the General Obligation Interest and Sinking Fund in an amount equal to debt service requirements on Sewer System general obligation debt. THE SOLID WASTE DISPOSAL SYSTEM (1) Net System Revenue Available, Fiscal Year Ended 9-30-01 Less: Requirements for Revenue Bonds, Fiscal Year Ending 9-30-02 Balance Available for Other Purposes Requirements for System General Obligation Debt, Fiscal Year Ending 9-30-02 Percentage of System General Obligation Debt Self-Supporting $ $ $ 5,932,931 -0- 5,932,93 I 951,300 100.00% (1) Each Fiscal Year the City transfers Net Revenues of the Solid Waste Enterprise Fund to the General Obligation Interest and Sinking Fund in an amount equal to debt service requirements on Solid Waste System general obligation debt. THE DRAINAGE UTILITY SYSTEM (1) Net System Revenue Available, Fiscal Year Ended 9-30-01 Less: Requirements for Revenue Bonds, Fiscal Year Ending 9-30-02 Balance Available for Other Purposes<2l Requirements for System General Obligation Debt, Fiscal Year Ending 9-30-02 Percentage of System General Obligation Debt Self-Supporting<2l $ $ $ 1,603,949 -0- 1,603,949 2,317,792 70.62% ( 1) Each Fiscal Year the City will transfer Net Revenues of the Drainage Enterprise Fund to the General Obligation Interest and Sinking Fund in an amount equal to debt service requirements on Drainage Utility System general obligation debt. (2) Storm Drainage Utility Fees were increased on 10i01/01 for residential and commercial customers. The residential rate increased from $1.71 to $4.99 and the commercial rate increased from $11.35 to $33.12. The rate increase is expected to provide revenues that will exceed the requirements for System General Obligation Debt in the Storm Drainage Enterprise Fund. TABLE 11 -AUTHORIZED BUT UNISSUED GENERAL OBLIGATIO !'I BONDS Purpose Waterworks System Sewer System Street Improvements Street Improvements Drainage Traffic Signals Parks Date Authorized 10-17-87 5-21-77 5-1-93 9-18-99 9-18-99 9-18-99 9-18-99 Amount Authorized $ 2,810,000 3,303,000 10,170,000 17,165,000 2,160,000 3,295,000 14,765,000 $ 53,668,000 26 Amount Previously Unissued Issued Balance $ 200,000 $ 2,610,000 2,175,000 1,128,000 10,166,000 4,000 11,800,000 5,365,000 !,025,000 1,135,000 2,160,000 1,135,000 10,515,000 4,250,000 $ 38,041,000 $ 15,627,000 - ·""' TABLE 9 -INTEREST AND SINKING FuND BUDGET PROJECTION General Obligation Debt Service Requirements, Fiscal Year Ending 9-30-02 Fiscal Agent, Tax Collection and Other Uses Total Requirements Sources of Funds Interest and Sinking Fund, 9-30-01 Budgeted Ad Valorem Tl!X Receipts Budgeted Transfers From: Water Fund O) Sewer Fund (lJ Solid Waste Fund {l) Drainage Utility Fund (l) Airport Fund -from Passenger Facility Charges ("PFCs") Budgeted Interest Earned Total Sources of Funds Projected Balance, 9-30-02 (1) See "Table 10-Computation of Self-Supporting Debt". (2) $ 24,650,602 16,000 $ 24,666,602 $ 1,415,094 7,708,026 $ 6,899,408 6,482,379 951,300 2,317,792 290,495 52,500 $ 26,ll6,994 $ 1,450,392 (2) PFCs are authorized by the Federal Aviation Administration ("FAA"). PFC revenues must be used for allowable costs of FAA approved airport projects including debt service on airport obligations issued to carry out approved projects. The City issued Tax and Airport Surplus Revenue Certificates of Obligation (the "Airport Certificates") in 1993 and 1995. The outstanding principal balance of the 1993 Airport Certificates on 9-30-01 was $2,365,000; debt service on the Airport Certificates is provided from PFC revenues. PFC revenues in fiscal year ending 9-30-01 were $1,557,918. Debt service on other airport general obligation debt (having an outstanding principal balance at 9-30-01 of $3,750,016) is provided from ad valorem taxes. 25 TABLE 8B • DIVISION OF DEBT SERVICE REQUIREMENTS Less: Less: Less: Less: Solid Waste Drainage Waterworks Sewer Disposal Utility General Fiscal System System System System Purpose Year General General General General General Ended Combined Reguirements(ll Obligation Obligation Obligation Obligation Obligation ....w.2... Princiual Interest Total Reguirements Reguirements Reguirements Reguirements Reguirements 2002 s 13,078,639 $ 11,571,963 $ 24,650,602 $ 7,034,463 (Z) $ 6,347,267 (Z) $ 951,300 (Z) $ 2,317,792 (Z) $ 7,999,780 (l) 2003 13,324,682 11,120,130 24,444,812 6,979,833 6,185,177 579,02! 2,321,441 8,379,340 2004 12,910,000 9,521,151 22,431,151 6,431,221 6,014,534 558,709 2,318,316 7,108,371 2005 13,015,000 8,878,774 21,893,774 6,472,728 5,766,165 540,403 2,318,816 6,795,662 2006 13,105,000 8,244,489 21,349,489 6,302,527 5,583,218 524,362 2,317,816 6,621,566 2007 13,195,000 7,633,615 20,828,615 6,175,140 5,394,610 512,440 2,320,191 6,426,233 2008 12,660,000 7,045,641 19,705,641 5,778,022 5,137,113 498,859 2,320,816 5,970,831 2009 12,350,000 6,474,861 18,824,861 5,635,881 4,896,055 485,035 2,319,691 5,488,199 2010 11,975,000 5,917,098 17,892,098 5,461,307 4,610,584 470,851 2,321,691 5,027,666 2011 12,165,000 5,363,047 17,528,047 5,310,569 4,337,269 456,389 2,319,261 5,104,560 2012 11,110,000 4,826,792 15,936,792 4,424,567 4,102,917 441,730 2,321,559 4,646,019 2013 !1,280,000 4,307,019 15,587,019 4,361,763 3,918,210 426,787 2,320,755 4,559,504 N . 2014 11,475,000 3,773,451 15,248,451 4,297,670 3,752,679 411,540 2,322,163 4,464,399 ..,. 2015 8,685,000 3,291,354 11,976,354 4,156,344 1,885,071 396,125 2,320,470 3,218,344 2016 7,975,000 2,882,717 10,857,717 4,098,149 1,110,979 376,171 2,320,463 2,951,955 2017 7,410,000 2,500,239 9,910,239 4,043,416 1,076,997 361,663 2,317,463 2,110,700 2018 7,690,000 2,119,100 9,809,100 3,980,678 1,046,736 347,071 2,320,997 2,113,618 2019 7,475,000 1,734,221 9,209,221 3,600,451 1,015,289 151,875 2,320,778 2,120,828 2020 6,105,000 1,382,136 7,487,136 2,559,628 328,500 145,125 2,321,880 2,132,004 2021 3,725,000 1,125,150 4,850,150 544,125 328,625 138,375 2,319,150 1,519,875 2022 3,030,000 953,535 3,983,535 543,250 328,000 2,317,910 794,375 2023 1,480,000 837,900 2,317,900 2,317,900 2024 1,560,000 758,470 2,318,470 2,318,470 2025 1,645,000 674,339 2,319,339 2,319,339 2026 1,735,000 585,614 2,320,614 2,320,614 2027 1,830,000 491,575 2,321,575 2,321,575 2028 1,925,000 392,068 2,317,068 2,317,068 2029 2,030,000 287,260 2,317,260 2,317,260 2030 2,145,000 176,623 2,321,623 2,321,623 2031 2,2!jQ,OOO 59 890 2 319 890 2,319,89Q $ 230,348,321 $ 114,930,220 $ 345,278,541 $ 98,191,729 $ 73,165,993 $ 8,773,831 $ 69,593,158 $ 95,553,829 ( 1) Includes debt service on the Bonds and the Certificates. Excludes the Refunded Bonds. (2) Principal and semiannual interest to be paid 2-15-02. ) ) ) ) ) ) ) ) ) ' ) ) DEBT INFORMATION TABLE 8A • GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS Fiscal Year Total %of Ended Outstanding Debt (IJ Th~ B2nds(2) Ill!! Certifi!l!llJ<~ (3) Combined Principal JmL Princim! Interest Total Princiel Interest Total Princimt Interest Total Reauirement Retired 2002 $ 13,078,639 (4) $ 11,571,963 $ 24,650,602 $ $ $ $ $ $ $ 24,650,602 2003 12,239,682 10,515,954 22,755,636 1,010,000 477,548 1,487,548 15,000 126,628 201,628 24,444,812 2004 10,885,000 9,046,577 19,931,577 1,935,000 365,200 2,300,200 90,000 109,374 199,374 22,431,151 2005 11,295,000 8,490,032 19,785,032 1,625,000 283,069 1,908,069 95,000 105,674 200,674 21,893,774 2006 11,405,000 7,936,259 19,341,259 1,605,000 206,356 1,811,356 95,000 101,874 196,874 21,349,489 28.41% 2007 11,520,000 7,392,997 18,912,997 1,575,000 142,644 1,717,644 100,000 97,974 197,974 20,828,615 2008 11,350,000 6,857,022 18,207,022 1,205,000 94,456 . 1,299,456 105,000 94,163 199,163 19,705,641 2009 11,305,000 6,330,186 17,635,186 935,000 54,331 989,331 110,000 90,344 200,344 18,824,861 2010 10,940,000 5,812,590 16,752,590 920,000 18,400 938,400 115,000 86,108 201,108 17,892,098 2011 12,045,000 5,281,597 17,326,597 120,000 81,450 201,450 17,528,047 55.47% 2012 10,990,000 4,750,262 15,740,262 120,000 76,530 196,530 15,936,792 2013 11,150,000 4,235,709 15,385,709 130,000 . 71,310 201,310 15,587,019 2014 11,340,000 3,707,773 15,047,773 135,000 65,678 200,678 15,248,451 2015 8,545,000 3,231,659 11,776,659 140,000 59,695 199,695 11,976,354 2016 7,830,000 2,829,364 10,659,364 145,000 53,353 198,353 10,857,717 77.41%. N w 2017 7,260,000 2,453,599 9,713,599 150,000 46,640 196,640 9,910,239 2018 7,530,000 2,079,670 9,609,670 160,000 39,430 199,430 9,809,100 2019 7,310,000 1,702,511 9,012,511 165,000 31,710 196,710 9,209,221 2020 5,930,000 1,358,761 7,288,761 175,000 23,375 198,375 7,487,136 2021 3,540,000 1,110,775 4,650,775 185,000 14,375 199,375 4,850,150 91.47% 2022 2,835,000 948,660 3,783,660 195,000 4,875 199,875 3,983,535 2023 1,480,000 837,900 2,317,900 2,317,900 2024 1,560,000 758,470 2,318,470 2,318,470 2025 1,645,000 674,339 2,319,339 2,319,339 2026 1,735,000 585,614 2,320,614 2,320,614 95.58% 2027 1,830,000 491,575 2,321,575 2,321,575 2028 1,925,000 392,068 2,317,068 2,317,068 2029 2,030,000 287,260 2,317,260 2,317,260 2030 2,145,000 176,623 2,321,623 2,321,623 2031 2,260,000 ~2,82Q 2,319,§90 2,319,890 100.00% $ 216.933,321 $ IIL907,652 $ 328.840,9!:W $ 10,810.000 $ 1,642,004 $ 12.452,004 $ 2,605,000 $ 1.380.558 $ 3.285.558 $ 345,278.541 ( l) "Outstanding Debt" does not include lease/purchase obligations or the Refunded Bonds. (2) Average life of the issue -3.802 years. Interest on the Bonds has been calculated at the rates shown on the inside cover page hereof. (3) Average life of the issue -11.561 years. Interest on the Certificates has been calculated at the TIC of 4.6458%. ( 4) Principal and semiannual interest paid 2-15-02. TABLE 7 -ESTIMATED OVERLAPPING DEBT Expenditures of the various taxing entities within the territory of the City are paid from 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 and the Lubbock Central Appraisal District. 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. Further- more, certain of the entities listed may have issued additional Tax Debt since the date hereof, and such entities may have programs requiring the issuance of substantial amounts of additional Tax Debt, the amount of which cannot be determined. The following table reflects the estimated share of overlapping Tax Debt of the City. 2001/02 Total Funded City's Authorized Taxable Debt Estimated Overlapping But Unissued Assessed Tax As Of % G.O. Debt Debt As Of Taxing Jurisdiction Value Rate 6-30-02 Applicable As of 6-30-02 6-30-02 City of Lubbock $ 6,910,577,171 s 0.57000 $ 217,269,683 (I) 100.00% s 217,269,683 $ 15,627,000 Lubbock Independent School District 5,771,383,915 1.60620 68,878,092 98.91% 68,127,321 3,400,275 Lubbock County 8,154,782,666 0.19170 -0-82.94% -0-500,000 Lubbock County Hospital District 8,154,942,166 0.09905 -0-82.94% -0--0- High Plains Underground Water Conservation District No. I 8,154,105,887 0.00830 -0-82.94% -0--0- Frenship Independent School District 909,360,034 1.58930 32,924,112 6444% 21,216,298 -0- Idalou Independent School District 112,085,028 1.48000 1,480,000 l!O% 16,280 -0- Lubbock-Cooper Independent School District 321,002,498 1.58000 14,939,555 15.30% 2,285,752 -0- New Deal Independent School District 84,092,988 150000 -0-0.03% -0--0- Roosevelt Independent School District I 03,727,668 1.50000 -0-4.72% -0--0- Total Direct and Overlapping G.O. Debt $ 308,915,333 Ratio of Direct and Overlapping G.O. Debt to Taxable Assessed Valuation 447% Per Capita Direct and Overlapping G.O. Debt . . . . ' ' . . . . .. $ 1,529 (I) General Purpose Funded Tax Debt; pro-forma as of9-30-02 (see "Table 1-Valuation, Exemptions and General Obligation Debt"). 22 - ,...... ·'"" - - TABLE 5 -TEN LARGEST TAXPAYERS 2001/02 %of Total Taxable Taxable Assessed Assessed Name ofTaxJ:!a~er Nature ofProJ:!~ Valuation Valuation Macerich Lubbock LTD Partnership Regional Shopping Mall $ 111,202,071 1.61% Southwestern Bell Telephone Company Telephone Utility 73,111,866 1.06% Xcel Energy Electric Utility 52,730,368 0.76% Wal-Mart Discount Retail Stores 32,798,872 0.47% X-Fab Texas, Inc. Electronics Manufacturer 28,597,483 0.41% Plains Co-Op Oil Mills Inc. Agricultural Processing 24,949,410 0.36% Fleming Companies, Inc. Wholesale Grocers 22,775,855 0.33% Methodist Hospital Hospital and Medical Office Building 22,258,687 0.32% United Supermarkets Inc. Retail Grocer 21,611,370 0.31% Farmers Co-Op Compress Agricultural Processing 19,044,584 0.28% $ 409,080,566 5.92% 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"). TABLE 6 -TAX ADEQUAcv<1> Maximum Principal and Interest Requirements, All General Obligation Debt, 2002t2l ......................................................................................................................... $24,650,602 $0.3640 Tax Rate at 98% Collection Produces ................................................................................................................. $24,651,411 Maximum Principal and Interest Requirements, General Purpose General Obligation Debt, 2003<3l .................................................................................................. $ 8,379,340 $0.1238 Tax Rate at 98% Collection Produces ................................................................................................................. $ 8,384,189 (1) Based on 2001-2002 taxable assessed valuation. (2) See Table 8A. (3) See Table 88. 21 TABLE 3A -VALUATION AND GENERAL 0BLIGA TION DEBT HISTORY . General Purpose Ratio Fiscal Taxable Funded Tax Debt Tax Debt Funded Year Taxable Assessed Outstanding to Taxable Debt Ended Estimated Assessed Valuation at End Assessed Per 9/30 Ponulation (I) Valuation (2) Per Ca:Qita of Year <3l Valuation Capita 1997 195,367 $ 5,567,072,641 $ 28,495 $ 61,728,036 1.11% $ 316 1998 196,679 5,830,249,173 29,643 57,156,101 0.98% 291 1999 197,117 6,019,588,349 30,538 51,222,980 0.85% 260 2000 199,564 6,176,962,982 30,952 53,455,346 0.87% 268 2001 201,061 6,638, 779,668 33,019 58,122,809 0.88% 289 2002 202,000 6,910,577,171 34,211 62,940,460 (4) 0.91% 312 (1) Source: The City of Lubbock, Texas (2) As reported by the Lubbock Central Appraisal District on City's annual State Property Tax Reports; subject to change during the ensuing year. · (3) Does not include self-supporting debt. (4) Projected, includes the Bonds and the Tax and Sewer System Surplus Revenue Certificate of Obligation, series 2002A that are being offered simultaneously. Excludes the Refunded Bonds. TABLE 38 -DERIV A no:-; OF GENERAL PURPOSE FUNDED TAX DEBT The following table sets forth certain information. with respect to the City's general purpose and self-supporting general obligation debt. The City received voter approval for authority to issue additional general obligation tax-supported debt on September 18, 1999, and the City has adopted ii capital improvement plan which is expected to result in the issuance of additional self-supporting general obligation debt. See "Debt Information-Anticipated Issuance of General Obligation Debt." Fiscal Funded Tax Debt Less: General Purpose Year Outstanding Self-Supporting Funded Tax Debt Ended at End Funded Tax Outstanding 9/30 of Year Debt at End of Year (I) 1997 $ 138,914,318 $ 77,186,282 $ 61,728,036 1998 137,104,242 79,948,141 57,156,101 1999 158,117,749 106,894,769 51,222,980 2000 176,847,762 123,392,416 53.455,346 2001 210,408,321 152,285.512 58.122,809 2002 217,269,683 (2) 154,329,223 (2) 62.940,460 (2) (1) The City has a balance remaining of $15,627,000 general obligation bond authorization that has been authorized by the voters, but which has not yet been issued (see Table 11-Authorized But Unissued General Obligation Bonds). (2) Projected; includes the Bonds and the Tax and Sewer System Surplus Revenue Certificates of Obligation, Series 2002A that are being offered simultaneously. Excludes the Refunded Bonds. TABLE4-TAX RATE, LEVY AND COLLECTION HISTORY Fiscal · %of Current %of Total Year Distribution Tax Tax Ended Tax General Economic Interest and Collections Collections 9/30 Rate Fund DeveloQment Sinking Fund Tax Leyy to Tax Leyy to Tax Le\:y 1997 $ 0.5859 $ 0.37771 $0.03000 $0.17819 $ 32,617,479 97.99% 99.78% 1998 0.5800 0.39689 0.03000 0.15311 33,815,445 97.80% 99.55% 1999 0.5800 0.41691 0.03000 0.13309 34,988,031 97.67% 99.24% 2000 0.5800 0.42750 0.03000 0.12250 35,844,243 97.35% 98.89% 2001 0.5700 0.42718 0.03000 0.11282 37,841,054 97.58% 99.29% 2002 0.5700 0.42844 O.o3000 0.11156 39,391,179 95.62% (!) 96.91% (I) (1) Collections for part year only, through 4-30-02. 20 - - - - -""' TABLE 2 -TAXABLE ASSESSED VALUATIONS BY CATEGORY Taxable Appraised Value for Fiscal Year Ended September 30, 2002 2001 2000 %of %of %of Category Amount Total Amount Total Amount Total Real, Residential, Single-Family $ 3,935,486,660 53.59% $ 3,786,979,722 53.52% $ 3,417,179,021 51.99% Real, Residential, Multi-Family 466,775,473 6.36% 455,378,395 6.44% 4 I I ,487,582 6.26% Real, Vacant Lotsfrracts 96,407,484 1.31% 88,612,I92 1.25% 87,184,492 1.33% Real, Acreage (Land Only) 60,171,506 0.82% 60,125,617 0.85% 46,378,532 0.71% Rea!, Farm and Ranch Improvements 12,003,318 0.16% 11,000,161 0.16% 7,166,908 0.11% Real, Commercial and Industrial 1,445,748,160 19.69% I ,364,333,220 19.28% 1,322,413,335 20.12% Real, Oil, Gas and Other Mineral Reserves 8,849,390 0.12% 7,000,000 0.10% 4,540,780 0.07% Real and Tangible Personal, Utilities 185,588,935 2.53% 181,228,303 2.56% 180,418,060 2.74% Tangible Personal, Commercial and Industrial 1,039,521,384 14.16% I ,032, 704,200 14.59% 1,072,361,347 16.31% Tangible Personal, Other 15,296,446 0.21% 14,786,889 0.21% 14,283,024 0.22% Real Property, Inventory 10,279,056 0.14% 13,320,136 0.19% 9,845,906 0.15% Special Inventory 67,429,634 0.92% 60,786,210 0.86% 0.00% Total Appraised Value Before Exemptions $ 7,343,557,446 100.00% $ 7,076,255,045 100.00% $ 6,573,258,987 100.00% Less: Total Exemptions/Reductions (432,980,275) (437,475,377) (396,296,005) Taxable Assessed Value $ 6,910,577,171 $ 6,638,779,668 $ 6,176,962,982 Taxable Appraised Value for Fiscal Year Ended September 30, 1999 1998 %of %of Category Amount Total Amount Total Real, Residential, Single-Family $ 3,219,691,355 50.90% $ 3,112,040,906 51.06% Real, Residential, Multi-Family 396,277,540 6.26% 382,170,749 6.27% Real, Vacant Lotsfrracts 93,912,543 1.48% 96,312,775 1.58% Real, Acreage (Land Only) 45,494,120 0.72% 46,128,990 0.76% Real, Farm and Ranch Improvements 6,778,453 0.!1% 6,671,096 0.11% Real, Commercial and Industrial I ,272,262,327 20.11% 1 '180, 704,8!3 I 9.37% Real, Oil, Gas and Other Mineral Reserves 7,862,650 0.12% 10,638,260 0.17% Real and Tangible Personal, Utilities 178,399,714 2.82% 171,889,877 2.82% Tangible Personal, Commercial and Industrial 1,081,053,583 17.09% 1,065,115,428 17.48% Tangible Personal, Other 12,807,717 0.20% 12,087,601 0.20% Real Property, Inventory 11,256,034 0.18% 11,040,883 0.18% Total Appraised Value Before Exemptions $ 6,325, 796,036 100.00% $ 6,094,801,378 100.00% Less: Total Exemptions/Reductions (306,207 ,687) (264,552,205) Taxable Assessed Value $ 6,019,588,349 $ 5,830,249,173 NOTE: Valuations shown are certified taxable assessed values reported by the Lubbock Central 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. 19 "Sewer System General Obligation Debt" includes $50,755,940 principal amount of outstanding general obligation bonds and certificates of obligation that were issued to finance sewer system improvements, and that are being paid from sewer system revenues. The City has no outstanding Sewer-System Revenue Bonds. "Solid Waste Disposal System General Obligation Debt" consist of $5,575,644 principal amount of outstanding general obligation debt that was issued for solid waste disposal improvements, and that is being paid from revenues derived from solid waste service fees. The City has no outstanding Solid Waste Disposal System Revenue Bonds. "Drainage Utility System General Obligation Debt" consists of $34,840,000 principal amount of outstanding general obligation debt that was issued for stormwater system improvements, and that is being paid from revenues derived form storm water utility fees. The City has no outstanding Drainage Utility System Revenue Bonds. (4) "General Purpose Funded Debt Payable from Ad Valorem Taxes'' includes $62,940,460 of general obligation debt and $2,545,000 principal amount of outstanding Tax and Airport Surplus Revenue ·certificates of Obligation on which debt service is provided from Passenger Facility Charge ("PFC") revenues (see Footnote (2), "Table 9 -Interest and Sinking Fund Budget Projection"). (5) Source: City of Lubbock, Texas. 18 - - TABLE 1 -VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT 2001 Market Valuation Established by Lubbock Central Appraisal District Less Exemptions/Reductions at 100% Market Value: Residential Homestead Exemptions Homestead Cap Adjustment Disabled Veterans Agricultural/Open-Space Land Use Reductions Pollution Exemptions Freeport Exemptions House Bill 366 Tax Abatement Reductions (I) Prorated Exempt Property Property Under Protest (add) 2001 Taxable Assessed Valuation City Funded Debt Payable from Ad Valorem Taxes General Obligation Debt (as of 6-30-02) (l) The Refunding Bonds (Preliminary, subject to change.) The Certificates<3l Total Funded Debt Payable from Ad Valorem Taxes Less: Self Supporting Debt (as of 6-30-02) <4l WateiWorks System General Obligation Debt Sewer System General Obligation Debt Solid Waste Disposal System General Obligation Debt Drainage Utility System General Obligation Debt General Purpose Funded Debt Payable from Ad Valorem Taxes (Sl General Obligation Interest and Sinking Fund as of 6-30-02 Ratio Total Funded Debt to Taxable Assessed Valuation Ratio General Purpose Funded Debt to Taxable Assessed Valuation 2002 Estimated Population -202,000 (6) Per Capita Taxable Assessed Valuation -$34,211 $ 195,956,553 38,599,250 13,462,515 48,109,382 2,578,780 36,164,355 110,094 99,183,962 82,848 (1,267,464} $ 203.854.683 10,810,000 2,605,000 $ 63,157,639 50,755,940 5,575,644 34,8~0.000 Per Capita Total Funded Debt Payable from Ad Valorem Taxes-$1,076 Per Capita General Purpose Funded Debt Payable from Ad Valorem Taxes-$312 (1) See above, "Tax Information -Tax Abatement Policy". $ 7,343,557,446 432,980,275 $ 6,910,577,171 217,269,683 154,329,223 $ 62,940,460 $ 67,522,809 3.14% 0.91% (2) The statement of indebtedness does not include outstanding $34,820,000 Electric Light and Power System Revenue Bonds, as these Bonds are payable solely from the Net Revenues of the Electric Light and Power System. Excludes accreted value on general obligation capital appreciation bonds in the amount of $1,648,114 as of February 15, 2002 and the Refunded Bonds. (3) Simultaneously with the sale of the Bonds, the City is selling a series of Tax and Sewer System Surplus Revenue Certificates of Obligation, Series 2002A (the "Certificates"). (4) As a matter of policy, the City provides for debt service on general obligation debt issued to .fund Waterworks System improvements, Sewer System improvements, Solid Waste Disposal System improvements and Drainage System improvements from surplus revenues of these Systems (see "Table 8A General Obligation Debt Service Requirements", "Table 8B -Division of Debt Service Requirements", "Table 9 -Interest and Sinking Fund Budget Projection" and "Table 10 -Computation of Self-Supporting Debt"). "WateiWorks System General Obligation Debt" includes $63,157,639 principal amount of outstanding general obligation bonds and certificates of obligation that were issued to finance Waterworks System improvements, and that are being paid from or are expected to be paid from Waterworks System revenues. The City has no outstanding WateiWorks System Revenue Bonds but has obligated revenues of the Waterworks System under water supply contracts. 17 CITY 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 $16,600; 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; the minimum exemption that may be granted under this provision being $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 Lubbock County Appraisal District collects taxes for the City. The City does not permit split payments of taxes, and discounts for early payment of taxes are not allowed by the City, although permitted on a local-option ba~is by the Property Code. Since the 1999 tax year, the City has exempted freeport property from taxation. The City collects an additional one-eighth cent sales tax for reduction of ad valorem taxes. The City has adopted a tax abatement policy, as described below. TAX ABATEMENT POLICY ... The City has established a tax abatement program to encourage economic development. In order to be considered for tax abatement, a project must be located in a reinvestment zone or enterprise zone (a commercial project must be in an enterprise zone) and must meet several criteria pertaining to job creation and property value enhancement. The City has established three enterprise zones, the north zone, of approximately 18.6 square miles, the south zone, of approximately 15.7 square miles, and the international airport zone, of approximately 10.3 square miles. At present, the City has initiated 20 enterprise projects and tax abatements, principally in the northeast and southeast sections of the City. The amount and term of abatement shall be determined on a case by case basis; however, in no event shall taxes be abated for a term in excess of ten (I 0) years. TAX INCREMENT FINANCING ZONE ... Together with other taxing units, the City participates in two Tax Increment Financing districts ("TIFs") pursuant to Chapter 311, Texas Tax Code, VTCA. One TIF, known as the Central Business District TIF, covers an approximately 12 square-mile area which includes part of the central business district. The other TIF, known as the North Overton TIF, is bound by Fourth Street, Avenue R, Broadway and University Avenue and covers approximately 2 square miles. The base taxable value of the Central Business District TIF was frozen at the level of taxable values for 2001, the tax year in which it was created. The base taxable value of the North Overton TIF was frozen at the level of taxable values for 2002, the tax year in which it was created. Any ad valorem taxes relating to growth of the TIFs tax base above the frozen base may be used only to finance public improvements within the TIF and are not available for the payment of other obligations of the City, including the GO Bonds. The City is anticipating the issuance of less than $5 million of certificates of obligation to fund public improvements in the North Overton TIF during the next two to three years, which would be secured by a pledge of ad valorem taxes and TIF revenues, but which would be anticipated to be self-sufficient from amounts deposited into the increment fund for that TIF. Such debt would be used to build infrastructure improvements within the TIF, 16 - 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 is required to adopt the annual taX rate for the City before the later of September 30 or the 6oth day after the date the certified appraisal roll is received by the City. If the City Council does not adopt a tax rate by such required date the tax rate for that tax year is the lower of the effective tax rate calculated. for that tax year or the tax rate adopted by the City for the preceding tax year. The tax rate consists of two components: ( 1) a rate for funding of maintenance and operation expenditures, and (2) a rate for debt service. Under the Property Tax Code, the City must annually calculate and publicize its "effective tax rate" and "rollback tax rate". Under current law, a tax rate cannot be adopted by the City Council that exceeds the lower of the rollback tax rate or I 03 per cent of the effective tax rate until a public hearing is held on the proposed tax rate following a notice of such public hearing (including the requirement that notice be posted on the City's website if the City owns, operates or controls an internet website and public notice be given by television if the City has free access to a television channel) and the City Council has otherwise complied with the legal requirements for the adoption of such tax rate. If the adopted tax rate exceeds the rollback tax rate the qualified voters of the City by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the r.ollback tax rate. "Effective tax rate" means the rate that will produce last year's total tax levy (adjusted) from this year's total taxable values (adjusted). "Adjusted" means lost values are not included in the calculation of last year's taxes and new values are not included in this year's taxable values. "Rollback tax rate" means the rate that will produce last year's maintenance and operation tax levy (adjusted) from this year's values (adjusted) multiplied by 1.08 plus a rate that will produce this year's debt service from this year's values (unadjusted) divided by the anticipated tax collection rate. The Property Tax Code provides that certain cities and counties in the State may submit a proposition to the voters to authorize an additional one-half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. PROPERTY ASSESSMENT AND TAX PAYMENT ... Property within the City is generally assessed as of January 1 of each year. Business inventory may, at the option of the taxpayer, be assessed as of September 1. Oil and gas reserves are assessed on the basis of a valuation process which uses an average of the daily price of oil and gas for the prior year. Taxes become due October I of the same year, and become delinquent on February 1 of the following year. Taxpayers 65 years old or older are permitted by State law to pay taxes on homesteads in four installments with the first due on February 1 of each year and the final installment due on August 1. PENAL TIES AND INTEREST . . . Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: Cumulative Cumulative Month Penalty Interest Total February 6% 1% 7% March 7 2 9 April 8 3 11 May 9 4 13 June 10 5 15 July 12 6 18 After July, penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, if an account is delinquent in July, 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. 15 TAX INFORMATION AD VALOREM TAX LAW ... The appraisal of property within the City is the responsibility of the Lubbock Central Appraisal District (the "Appraisal District"). Excluding agricultural and open-space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Property Tax Code to 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 (I) the market value of the property, or (2) the sum of (a) 10% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. The 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: (!) 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 1-d) and open-space land (Section 1-d-1 ), including open-space land devoted to farm or ranch purposes or open-space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Section 1-d and 1-d-1. Nonbusiness personal property, such as automobiles or light trucks, arc exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property. Boats owned as nonbusiness property are exempt from ad valorem taxation. Article VIII, Section 1-j, provides for "freeport property" to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Decision~ to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. On November 6, 2001, the voters of the State approved amendment to Article VIII of the Texas Constitution. The amendment adds Section 1-n to Article VIII and authorizes the legislature to exempt from ad valorem taxation tangible personal property, other than oil, natural gas, and other petroleum products, if the property is (I) acquired in or imported into the State to be forwarded to another location in or outside of the State; (2) detained at a location in the State that is not owned or under the control of the property owner for assembling, storing, manufacturing, processing, or fabricating purposes by the person who acquired or imported the property; and (3) the property is transported to another location in or outside the State not later than 270 days after the date the person acquired the property in or imported the property into the State. The amendment provides that the governing body of a political subdivision that imposes ad valorem taxes may opt not to permit the exemption. Before the , amendment can be made effective, enabling legislation must be adopted by the State legislature. The City and the other taxing bodies within its territory may agree to jointly create tax increment financing zones, under which the tax values on property in the zone are "frozen" at the value of the property at the time of creation of the zone. The City also may enter into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The City in tum agrees not to levy a tax on all or part of the increased value 14 - MBIA INFORMATION The following document filed by the Company with the Securities and Exchange Commission (the "SEC") is incorporated herein by reference: (I) The Company'sAnnual Report on Form 10-K for the year ended December 31, 2001; and (2) The Company's Quarterly Report on Form IO·Q for the quarter ended March 31, 2002. Any documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934, as amended, after the date of this Official Statement and prior to the termination of the offering of the Bonds offered hereby shall be deemed to be incorporated by reference in this Official Statement and to be a part hereof. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. The Company files annual, quarterly and special reports, information statements and other information with the SEC under File No. 1-9583. Copies of the SEC filings (including (I) the Company's Annual Report on Form 10-K for the year ended December 31, 2001, and (2) the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002), are available (i) over the Internet at the SEC's web site at http://www.sec.gov; (ii) at the SEC's public reference room in Washington D.C.; (iii) over the Internet at the Company's web site at http://www.mbia.com; and (iv) at no cost, upon request to MBIA Insurance Corporation, 113 King Street, Armonk, New York 10504. The telephone number ofMBIA is (914) 273-4545. As of December 31, 2001, MBIA had admitted assets of.$8.5 billion (audited), total liabilities of $5.6 billion (audited), and total capital and surplus of$2.9 billion (audited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of March 31, 2002, MBIA had admitted assets of $8.6 billion (unaudited), total liabilities of $5.7 billion (unaudited), and total capital and surplus of $2.9 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. FINANCIAL STRENGTH RATINGS OF MBIA Moody's Investors Service, Inc. rates the financial strength ofMBIA "Aaa. " Standard & Poor's, a division of The McGraw-Hill Companies, Inc. rates the financial strength ofMBIA "AAA. " Fitch, Inc. rates the financial strength ofMBIA "AAA." Each rating ofMBIA should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of MBIA and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold the Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Bonds. MBIA does not guaranty the market price of the Bonds nor does it guaranty that the ratings on the Bonds will not be revised or withdrawn. DISCLOSURE OF GUARANTY FUND NONPARTICIPATION In the event the Insurer is unable to fulfill its contractual obligation under this policy or contract or application or evidence of coverage, the policyholder or certificateholder is not protected by an insurance guaranty fund or other solvency protection arrangement. 13 7 - - - THE STATE OF TEXAS COUNTY OF LUBBOCK CITY OF LUBBOCK GENERAL CERTIFICATE § § § § § WE, the undersigned, Director of Finance and City Secretary, respectively, of the City of Lubbock, Texas, DO HEREBY CERTIFY as follows: . 1. The total principal amount of indebtedness of the City, including the proposed "City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2002," dated July 1, 2002 (the "Bonds") and the proposed "City of Lubbock, Texas, Tax and Sewer System Surplus Revenue Certificates of Obligation, Series 2002", dated July 1, 2002 (the "Sewer Certificates"), payable from ad valorem taxes levied and collected by the City is as follows: OUTSTANDING INDEBTEDNESS --------------------- THE BONDS ----------------·----------------- SEWER CERTIFICATES-------_____ ...:, ___ . ----------- TOTAL INDEBTEDNESS ----------------------------- *excludes the bonds being refunded by the Bonds $ 203,854,682* 10,810,000 $2,605,000 $217,269,682 2. A debt service requirement schedule for all outstanding tax debt of the City, including the Bonds and the Sewer Certificates, is attached hereto as Exhibit A and made a part of this certificate for all purposes. 3, Certain duly qualified and acting officers of said City are as follows: MARC McDOUGAL VICTOR HERNANDEZ BOBCASS DEBRA B. FORTE BEVERLY HODGES REBECCA GARZA ANITA BURGESS ANDY BURCHAM MAYOR MAYOR PROTEM CITY MANAGER DEPUTY CITY MANAGER DIRECTOR OF FINANCE CITY SECRETARY CITY ATTORNEY CASH AND DEBT MANAGER 4. The assessed value of all taxable property (net of exemptions) in the City, as shown by the tax rolls for the year 2001 , and which have been duly approved and are the latest official assessment of taxable property in the City is as follows: TOTAL ASSESSED TAXABLE VALUES OF REAL AND PERSONAL PROPERTY--------------------------------------$ 6 910 577 171 ' ' ' 45195741.1 - - ·- - 5. The City is incorporated under the General Laws of the State of Texas, and is operating under the Home Rule Amendment to the Texas Constitution, Section 5, Article XI, as amended in 1912. The City Charter was originally adopted at an election held on December 27, 1917, and said Charter has not been amended or revised in any respect since January 18, 1992, the date of the last Charter Amendment Election. 6. None of the obligations being refunded by the Bonds have ever been held in or purchased for any of the special funds created and maintained for the payment and security of such obligations and, none of such refunded obligations are currently owned nor have any of the same ever been purchased or held for any account or fund of the City. . WITNESS OUR HANDS AND THE SEAL OF THE CITY OF LUBBOCK, TEXAS, this the 11th day of July, 2002. . -(City Seal) 45195741.1 CITY OF LUBBOCK, TEXAS Rebecca Garza City Secretary ) ) ) ) ) ) ) ) ) EXHIBIT A GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS Fiscal Year Total %of Ended Outstandinl! Debt (J) The !;;e!ljficate~ <Zl Ib!l Refunding Bonds(ll Combined Principal _2illL Princinal Interest Total Princinal Interest Total Princinal Interest Total Reguirement Retired 2002 $ 13,078,639 (4) $ 11,571,963 $ 24,650,602 $ $ $ $ $ $ $ 24,650,602 2003 12,239,682 10,515,954 22,755,636 75,000 126,628 201,628 1,010,000 477,548 1,487,548 24,444,812 2004 10,885,000 9,046,577 19,931,577 90,000 109,374 199,374 1,935,000 365,200 2,300,200 22,431,151 2005 11,295,000 8,490,032 19,785,032 95,000 105,674 200,674 1,625,000 283,069 1,908,069 21,893,774 2006 11,405,000 7,936,259 19,341,259 95,000 101,874 196,874 1,605,000 206,356 1,811,356 21,349,489 28.41% 2007 11,520,000 7,392;997 18,912,997 100,000 97,974 197,974 1,575,000 142,644 1,717,644 20,828,615 2008 11,350,000 6,857,022 18,207,022 105,000 94,163 199,163 1,205,000 94,456 1,299,456 19,705,641 2009 11,305,000 6,330,186 17,635,186 110,000 90,344 200,344 935,000 54,331 989,331 18,824,861 2010 10,940,000 5,812,590 16,752,590 115,000 86,108 201,10R 920,000 18,400 938,400 17,892,098 2011 12,045,000 5,281,597 17,326,597 120,000 81,450 201,450 17,528,047 55.47% 2012 10,990,000 4,750,262 15,740,262 120,000 76,530 196,530 15,936,792 2013 11,150,000 4,235,709 15,385,709 130,000 71,310 201,310 15,587,019 2014 11,340,000 3,707,773 15,047,773 135,000 65,67R 200,678 15,248,451 2015 8,545,000 3,231,659 11,776,659 140,000 59,695 199,695 11,976,354 2016 7,830,000 2,829,364 10,659,364 145,000 53,353 198,353 10,857,717 77.41% 2017 7,260,000 2,453,599 9,713,599 150,000 46,640 196,640 9,910,239 2018 7,530,000 2,079,670 9,609,670 160,000 39,430 199,430 9,809,100 2019 7,310,000 1,702,511 9,012,511 165,000 31,710 1.96,710 9,209,221 2020 5,930,000 1,358,761 7,288,761 175,000 23,375 198,375 7,487,136 2021 3,540,000 1,110,775 4,650,775 185,000 14,375 199,375 4,850,150 91.47% 2022 2,835,000 948,660 3,783,660 195,000 4,875 199,875 3,983,535 2023 1,480,000 837,900 2,317,900 2,317,900 2024 1,560,000 758,470 2,318,470 2,318,470 2025 1,645,000 674,339 2,319,339 2,319,339 2026 1,735,000 585,614 2,320,614 2,320,614 95.58% 2027 1,830,000 491,575 2,321,575 2,321,575 2028 1,925,000 392,068 2,317,068 2,317,068 2029 2,030,000 287,260 2,317,260 2,317,260 2030 2,145,000 176,623 2,321,623 2,321,623 2031 2,260,000 59 890 2 319 890 2,319,890 100.00% ~ 216,933,321 $ II 1,436,476 $ 328,840,980 $ 2,605,000 $ 1,380,558 $ 3,985,558 $ 10,810,000 $ 1.642,004 $ 12,452,004 s 345,278,541 (I) "Outstanding Debt" does not include lease/purchase obligations or the Refunded Bonds. (2) Average life of the issue -11.561 years. Interest on the Certificates has been calculated at the rates shown on the inside cover page hereof. (3) Average life of the issue • 3.802 years. Interest on the Refunding Bonds has been calculated at the TIC of3.3559%. (4) Principal and semiannual interest paid 2-15-02. 8 - - - Accountants and Management Consultants August 14, 2002 RBC Dain Rauscher, Inc. Coastal Securities Estrada Hinojosa & Company, Inc. c/o RBC Dain Rauscher, Inc. First City Tower 1001 Fannin, Suite 400 Houston, Texas 77002-0220 Re: City of Lubbock, Texas Cash Flow and Yield Verification Report Dated August 15, 2002 Grant Thornton fl This letter authorizes the above addressees to rely upon the Cash Flow and Yield Verification Report, dated August 15, 2002 (the "Report") issued in connection with the above referenced refunding as if the above addressees had been listed as original addressees to the Report. 500 Pillsbury Center North 200 South Sixth Street Minneapolis, MN 55402 T 612.332.0001 F 612.332.8361 W www.grantthornton.com Grant Thornton LLP US Member of Grant Thornton International Cash Flow and Yield Verification Report ,.. City of Lubbock, Texas August15,2002 Letter Exhibit A Exhibit B Exhibit B-1 Exhibit B-2 Exhibit B-3 Exhibit C Exhibit C-1 Exhibit C-2 Exhibit C-3 Exhibit C-4 Appendix I - INDEX Schedule of Sources and Uses of Funds Escrow Account Cash Flow Cash Receipt From and Yield on the SLGS Debt Service Payment on the 1993 G.O. Bonds and Debt Service Payments to Maturity on the 1993 G.O. Bonds Debt Service Payment on the 1993 G.O. Refunding Bonds and Debt Service Payments to Maturity on the 1993 G.O. Refunding Bonds Debt Service Payments on the Bonds Original Issue Premium on the Bonds Debt Service Payments on the Certificates Net Original Issue Discount on the Certificates Yield on the Obligations Applicable schedules provided by First Southwest Company ·- - - Grant Thornton • Accountants and Management Consultants Report of Independent Certified Public Accountants On Applying Agreed-Upon Procedures City of Lubbock P.O. Box 2000 Lubbock, Texas Fulbright & Jaworski LLP. 2200 Ross A venue, Suite 2800 Dallas, Texas Bank of New York Trust Company of Florida, N.A. 10161 Centurion Parkway MBIA Insurance Corporation 113 King Street Jacksonville, Florida First Southwest Company 1700 Pacific A venue, Suite 500 Dallas, Texas $10,810,000 City of Lubbock, Texas (Lubbock County) General Obligation Refunding Bonds, Series 2002 Dated July 1, 2002 Armonk, New York Texas Attorney General's Office 300 West 15th Street, Ninth Street Austin, Texas $2,605,000 City of Lubbock, Texas (Lubbock County) Tax and Sewer System Surplus Revenue Certificates of Obligation, Series 2002A Dated July 1, 2002 We have performed the procedures described in this report, which were agreed to by the City of Lubbock, Texas (the "City") and First Southwest Company (the "Financial Advisor") to verify the mathematical accuracy of certain computations contained in the schedules attached in Appendix I provided by the Financial Advisor. The Financial Advisor is responsible for these schedules. These procedures were performed solely to assist you in the issuance of the above-captioned issues (the "Bonds" and the "Certificates", collectively referred to as the "Obligations") for the purpose, in part, of refunding a portion of the City's outstanding General Obligation Bonds, Series 1993 (the "1993 G.O. Bonds") and General Obligation Refunding Bonds, Series 1993 (the "1993 G.O. Refunding Bonds") (collectively referred to as the "Refunded Bonds") as summarized on the next page. This engagement was performed in accordance with attestation standards established by the American Institute of Certified Public 500 Pillsbury Center North 200 South Sixth Street Minneapolis, MN 55402 T 612.332.0001 F 612.332.8361 W wwvv.grantthornton.com Grant Thornton LLP US Member of Grant Thornton International - - - Page 2 Accountants. The sufficiency of these procedures is solely the responsibility of the addressees of this report who are the specified parties. Consequently, we make no representation regarding the sufficiency of the procedures described in this report either for the purpose for which this report has been requested or for any other purpose. Principal Principal Maturities Redemption Redemption Issued Refunded Refunded Price 1993 2-15-04 to G.O. $19,215,000 October 1, 1993 $6,720,000 2-15-10 2-15-03 100% 1993 2-15-03 to G.O. Ref. $9,865,000 December 1, 1993 $4,150,000* 2-15-08 8-16-02 100a/a * Represents a portion of the original principal amounts for these maturities as provided by the Financial Advisor. VERIFICATION OF ESCROW ACCOUNT CASH FLOW SUFFICIENCY The Financial Advisor provided us with schedules (Appendix I) summarizing the future escrow account cash receipt and disbursements. These schedules indicate that there will be sufficient cash available in the escrow account to pay the principal and interest on the Refunded Bonds assuming the 1993 G.O. Bonds will be redeemed on February 15,2003 at 100 percent of par plus accrued interest and the 1993 G.O. Refunding Bonds will be redeemed on August 16, 2002 at 100 percent of par plus accrued interest. The attached Exhibit A (Schedule of Sources and Uses of Funds) was compiled based upon information provided by the Financial Advisor. As part of our engagement to recalculate the schedules attached as Appendix I we prepared schedules attached hereto as Exhibits B through B-3 independently calculating the future escrow account cash receipt and disbursements and compared the information used in our calculations to the information listed below contained in applicable pages of the following documents: • Subscription confirmation, dated July 9, 2002, and Schedule of U.S. Treasury Securities provided by the Financial Advisor used to acquire certain United States Treasury Securities -State and Local Government Series (the "SLGS") insofar as the SLGS are described as to the principal amount, interest rate, maturity date and issuance date; and • Ordinances for the Refunded Bonds provided by the Financial Advisor insofar as the Refunded Bonds are described as to the maturity and interest payment dates, principal amounts, interest rates and optional redemption dates and price. The principal amounts refunded of the 1993 G.O. Refunding Bonds represent portions of the original principal amounts and were provided by the Financial Advisor. - - - Page 3 In addition, we compared the interest rate for the maturity of the SLGS, as shown on the Schedule of U.S. Treasury Securities, with the maximum allowable interest rates shown on the Department of Treasury, Bureau of Public Debt, SLGS Table (Form PD 4262) for use on July 9, 2002 and found that the interest rate was equal to the maximum allowable interest rate for that maturity. Our procedures, as summarized in Exhibits B through B-3, prove the mathematical accuracy of the schedules provided by the Financial Advisor summarizing the future escrow account cash receipt and disbursements. The schedules provided by the Financial Advisor and those prepared by us reflect that the anticipated receipt from the SLGS, together with an initial cash deposit of $4,150,545.21 to be deposited into the escrow account on August 15, 2002, will be sufficient to pay, when due, the principal and interest related to the Refunded Bonds assuming the 1993 G.O. Bonds will be redeemed on February 15, 2003 at 100 percent of par plus accrued interest and the 1993 G.O. Refunding Bonds will be redeemed on August 16, 2002 at 100 percent of par plus accrued interest. VERIFICATION OF YIELDS The Financial Advisor provided us with schedules (Appendix I) which indicate that the yield on the cash receipt from the SLGS is less than the yield on the Obligations. These schedules were prepared based on the assumed settlement date of August 15, 2002 using a 360-day year with interest compounded semi-annually. The term "yield", as used herein, means that yield which, when used in computing the present value of all payments of principal and interest to be paid or received on an obligation produces an amount equal to, in the case of the cash receipt from the SLGS, the purchase price, and in the case of the Obligations, the aggregate issue price adjusted for the insurance premiums of $17,000.00 on the Bonds and $6,000.00 on the Certificates. As part of our engagement to recalculate the schedules attached as Appendix I we prepared schedules attached hereto as Exhibits B-1 and C-4 independently calculating the yields on (i) the cash receipt from the SLGS calculated on Exhibit B-1 and (ii) the Obligations using the Official Statement provided by the Financial Advisor insofar as the Obligations are described as to the maturity and interest payment dates, dated date, principal amounts, interest rates and issue price to the public. The results of our calculations, based on the aforementioned assumptions, are summarized below: Yield Exhibit • Yield on the SLGS 1.744219% B-1 • Yield on the Obligations 3.752446% C-4 - - Page 5 Our procedures, as summarized in Exhibits B-1 and C-4, prove the mathematical accuracy of the schedules provided by the Financial Advisor summarizing the yields. The schedules provided by the Financial Advisor and those prepared by us reflect that the yield on the cash receipt from the SLGS is less than the yield on the Obligations. * * * * * * We were not engaged to, and did not, perform an examination in accordance with attestation standards established by the American Institute of Certified Public Accountants, the objective of which would be the expression of an examination opinion on the items referred to above. Accordingly we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of those to whom this letter is addressed and is not intended to be and should not be used by anyone other than these specified parties. Minneapolis, Minnesota August 15, 2002 City of Lubbock, Texas (Lubbock County) SCHEDULE OF SOURCES AND USES OF FUNDS August 15, 2002 SOURCES: Principal amount of the Obligations Net original issue premium (discount) Accrued interest USES: Purchase price of the SLGS Beginning cash deposit to escrow account Deposit to Project Construction Fund Underwriters' discount Costs of issuance Bond insurance premium Deposit to Debt Service Fund Contingency Bonds $10,810,000.00 296,833.75 53,660.14 $11,160,493.89 $6,818,455.00 4,150,545.21 54,441.46 65,000.00 17,000.00 53,660.14 1,392.08 $11,160,493.89 Certificates $2,605,000.00 (661.65) 13,954.57 $2,618,292.92 $2,515,000.00 21,361.00 60,000.00 6,000.00 13,954.57 1,977.35 $2,618,292.92 Exhibit A Total $13,415,000.00 296,172.10 67,614.71 $13,778,786.81 $6,818,455.00 4,150,545.21 2,515,000.00 75,802.46 125,000.00 23,000.00 67,614.71 3,369.43 $13,778,786.81 Dates Cash deposit on August 15, 2002 ""'"' 08-16-02 02-15-03 - City of Lubbock, Texas (Lubbock County) ESCROW ACCOUNT CASH FLOW Debt service payments on Cash receipt Refunded Bonds fromSLGS (Exhibits B-2 (Exhibit B-1) and B-3} $4,150,544.60 $6,877,919.40 6,877,920.00 $6,877,919.40 $11,028,464.60 Exhibit B Cash balance $4,150,545.21 0.61 0.01 - - - City of Lubbock, Texas (Lubbock County) Exhibit B-1 CASH RECEIPT FROM AND YIELD ON THE SLGS Receipt date 02-15-03 Principal $6,818,455 Purchase price of the SLGS Interest rate Interest 1.730% $59,464.40 Cash receipt fromSLGS $6,877,919.40 Present value on August 15, 2002 using a yield of 1.744219% $6,818,455.00 $6,818,455.00 The present value of the cash receipt from the SLGS on August 15, 2002, using a yield of 1.744219%, is equal to the purchase price of the SLGS. City of Lubbock, Texas (Lubbock County) Exhibit B-2 DEBT SERVICE PAYMENT ON THE 1993 G.O. BONDS AND DEBT SERVICE PAYMENTS TO MATURITY ON THE 1993 G.O. BONDS Principal $6,720,000 Interest rate (1) Interest $157,920.00 (1) Actual maturity dates, principal amounts and interest rates are as follows: Interest Date PrinciEal rate Interest 02-15-03 $157,920.00 08-15-03 157,920.00 02-15-04 $960,000 4.500% 157,920.00 08-15-04 136,320.00 02-15-05 960,000 4.500% 136,320.00 08-15-05 114,720.00 02-15-06 960,000 4.600% 114,720.00 08-15-06 92,640.00 02-15-07 960,000 4.700% 92,640.00 08-15-07 70,080.00 02-15-08 960,000 4.800% 70,080.00 08-15-08 47,040.00 02-15-09 960,000 4.900% 47,040.00 08-15-09 23,520.00 02-15-10 960,000 4.900% 23,520.00 $6,720,000 $1,442,400.00 Debt service payment $6,877,920.00 Debt service payments to maturitl $157,920.00 157,920.00 1,117,920.00 136,320.00 1,096,320.00 114,720.00 1,074,720.00 92,640.00 1,052,640.00 70,080.00 1,030,080.00 47,040.00 1,007,040.00 23,520.00 983,520.00 $8,162,400.00 Date 08-16-02 City of Lubbock, Texas (Lubbock County) Exhibit B-3 DEBT SERVICE PAYMENT ON THE 1993 G.O. REFUNDING BONDS AND DEBT SERVICE PAYMENTS TO MATURITY ON THE 1993 G.O. REFUNDING BONDS Principal $4,150,000 Interest rate (1) Interest $544.60 Debt service payment $4,150,544.60 (1) Actual maturity dates, principal amounts and interest rates are as follows: Debt service Interest payments Date Princi£al rate Interest to maturity 02-15-03 $1,040,000 * 4.500% $98,027.50 $1,138,027.50 08-15-03 74,627.50 74,627.50 02-15-04 960,000 * 4.650% 74,627.50 1,034,627.50 08-15-04 52,307.50 52,307.50 02-15-05 650,000 * 4.750% 52,307.50 702,307.50 08-15-05 36,870.00 36,870.00 02-15-06 630,000 * 4.800% 36,870.00 666,870.00 08-15-06 21,750.00 21,750.00 02-15-07 610,000 * 5.000% 21,750.00 631,750.00 08-15-07 6,500.00 6,500.00 02-15-08 260,000 * 5.000% 6,500.00 266,500.00 $4,150,000 $482,137.50 $4,632,137.50 )• Represents portions of the original principal amounts. Date 02-15-03 08-15-03 02-15-04 08-15-04 -02-15-05 08-15-05 02-15-06 08-15-06 02-15-07 08-15-07 02-15-08 08-15-08 02-15-09 08-15-09 02-15-10 City of Lubbock, Texas (Lubbock County) DEBT SERVICE PAYMENTS ON THE BONDS $10,810,000 issue dated Julr1, 2002 Interest PrinciEal rate Interest $1,010,000 3.000% $273,178.89 204,368.75 1,935,000 4.500% 204,368.75 160,831.25 1,625,000 4.750% 160,831.25 122,237.50 1,605,000 4.750% 122,237.50 84,118.75 1,575,000 3.250% 84,118.75 58,525.00 1,205,000 3.750% 58,525.00 35,931.25 935,000 3.750% 35,931.25 18,400.00 920,000 4.000% 18,400.00 $10,810,000 $1,642,003.89 Exhibit C Total debt service $1,283,178.89 204,368.75 2,139,368.75 160,831.25 1,785,831.25 122,237.50 1,727,237.50 84,118.75 1,659,118.75 58,525.00 1,263,525.00 35,931.25 970,931.25 18,400.00 938,400.00 $12,452,003.89 Maturity date 02-15-03 02-15-04 02-15-05 02-15-06 02-15-07 02-15-08 02-15-09 02-15-10 - City of Lubbock, Texas (Lubbock County) ORIGINAL ISSUE PREMIUM ON THE BONDS Initial public Interest offering PrinciEal rate Yield pnce $1,010,000 3.000% 1.460% 100.764% 1,935,000 4.500% 2.000% 103.676% 1,625,000 4.750% 2.510% 105.395% 1,605,000 4.750% 2.870% 106.218% 1,575,000 3.250% 3.170% 100.333% 1,205,000 3.750% 3.490% 101.290% 935,000 3.750% 3.690% 100.343% 920,000 4.000% 3.890% 100.709% $10,810,000 Exhibit C-1 Original lSSUe Erenuum $7,716.40 71,130.60 87,668.75 99,798.90 5,244.75 15,544.50 3,207.05 6,522.80 $296,833.75 Date 02-15-03 08-15-03 02-15-04 08-15-04 02-15-05 08-15-05 02-15-06 08-15-06 02-15-07 08-15-07 02-15-08 08-15-08 02-15-09 08-15-09 02-15-10 08-15-10 02-15-11 08-15-11 02-15-12 08-15-12 02-15-13 ~ 08-15-13 02-15-14 08-15-14 02-15-15 08-15-15 02-15-16 08-15-16 02-15-17 08-15-17 City of Lubbock, Texas (Lubbock County) DEBT SERVICE PAYMENTS ON THE CERTIFICATES $2,605,000 issue dated Julr 1, 2002 Interest PrinciEal rate Interest $75,000 4.000% $71,041.44 55,586.88 90,000 4.000% 55,586.87 53,786.88 95,000 4.000% 53,786.87 51,886.88 95,000 4.000% 51,886.87 49,986.88 100,000 4.000% 49,986.87 47,986.88 105,000 3.450% 47,986.87 46,175.63 110,000 3.650% 46,175.62 44,168.13 115,000 3.875% 44,168.12 41,940.00 120,000 4.050% 41,940.00 39,510.00 120,000 4.150% 39,510.00 37,020.00 130,000 4.200% 37,020.00 34,290.00 135,000 4.300% 34,290.00 31,387.50 140,000 4.400% 31,387.50 28,307.50 145,000 4.500% 28,307.50 25,045.00 150,000 4.600% 25,045.00 21,595.00 Exhibit C-2 Page 1 of 2 Total debt service $146,041.44 55,586.88 145,586.87 53,786.88 148,786.87 51,886.88 146,886.87 49,986.88 149,986.87 47,986.88 152,986.87 46,175.63 156,175.62 44,168.13 159,168.12 41,940.00 161,940.00 39,510.00 159,510.00 37,020.00 167,020.00 34,290.00 169,290.00 31,387.50 171,387.50 28,307.50 173,307.50 25,045.00 175,045.00 21,595.00 -Date 02-15-18 08-15-18 02-15-19 08-15-19 02-15-20 08-15-20 02-15-21 08-15-21 02-15-22 City of Lubbock, Texas (Lubbock County) DEBT SERVICE PAYMENTS ON THE CERTIFICATES $2,605,000 issue dated July 1, 2002 Interest PrinciEal rate Interest 160,000 4.700% 21,595.00 17,835.00 165,000 4.800% 17,835.00 13,875.00 175,000 5.000% 13,875.00 9,500.00 185,000 5.000% 9,500.00 4,875.00 195,000 5.000% 4,875.00 $2,605,000 $1,380,557.69 Exhibit C-2 Page 2 of 2 Total debt service 181,595.00 17,835.00 182,835.00 13,875.00 188,875.00 9,500.00 194,500.00 4,875.00 199,875.00 $3,985,557.69 Maturity date 02-15-03 02-15-04 02-15-05 02-15-06 02-15-07 02-15-08 02-15-09 02-15-10 02-15-11 02-15-12 02-15-13 02-15-14 -02-15-15 02-15-16 02-15-17 02-15-18 02-15-19 02-15-20 02-15-21 02-15-22 City of Lubbock, Texas (Lubbock County) Exhibit C-3 NET ORIGINAL ISSUE DISCOUNT ON THE CERTIFICATES Initial Net original public ISSUe Interest offering premmm PrinciEal rate Yield Ence ~discount) $75,000 4.000% 1.460% 101.260% $945.00 90,000 4.000% 2.000% 102.940% 2,646.00 95,000 4.000% 2.510% 103.588% 3,408.60 95,000 4.000% 2.870% 103.737% 3,550.15 100,000 4.000% 3.170% 103.455% 3,455.00 105,000 3.450% 3.490% 99.801% (208.95) 110,000 3.650% 3.690% 99.770% (253.00) 115,000 3.875% 3.890% 99.903% (111.55) 120,000 4.050% 4.050% 100.000% 120,000 4.150% 4.150% 100.000% 130,000 4.200% 4.270% 99.412% (764.40) 135,000 4.300% 4.400% 99.105% (1,208.25) 140,000 4.400% 4.500% 99.051% (1,328.60) 145,000 4.500% 4.600% 99.002% (1,447.10) 150,000 4.600% 4.700% 98.957% (1,564.50) 160,000 4.700% 4.800% 98.915% (1,736.00) 165,000 4.800% 4.900% 98.877% (1,852.95) 175,000 5.000% 5.000% 100.000% 185,000 5.000% 5.060% 99.284% (1,324.60) 195,000 5.000% 5.120% 98.530% (2,866.50) $2,605,000 ($661.65) - .~ Date 02-15-03 08-15-03 02-15-04 08-15-04 02-15-05 08-15-05 02-15-06 08-15-06 ~ 02-15-07 08-15-07 02-15-08 08-15-08 02-15-09 08-15-09 02-15-10 08-15-10 02-15-11 08-15-11 02-15-12 08-15-12 02-15-13 08-15-13 02-15-14 08-15-14 02-15-15 08-15-15 02-15-16 08-15-16 02-15-17 08-15-17 City of Lubbock, Texas (Lubbock County) YIELD ON THE OBLIGATIONS Total debt Total debt service on service on the Total debt the Bonds Certificates service on the (Exhibit C) (Exhibit C-2) Obligations $1,283,178.89 $146,041.44 $1,429,220.33 204,368.75 55,586.88 259,955.63 2,139,368.75 145,586.87 2,284,955.62 160,831.25 53,786.88 214,618.13 1,785,831.25 148,786.87 1,934,618.12 122,237.50 51,886.88 174,124.38 1,727,237.50 146,886.87 1,874,124.37 84,118.75 49,986.88 134,105.63 1,659,118.75 149,986.87 1,809,105.62 58,525.00 47,986.88 106,511.88 1,263,525.00 152,986.87 1,416,511.87 35,931.25 46,175.63 82,106.88 970,931.25 156,175.62 1,127,106.87 18,400.00 44,168.13 62,568.13 938,400.00 159,168.12 1,097,568.12 41,940.00 41,940.00 161,940.00 161,940.00 39,510.00 39,510.00 159,510.00 159,510.00 37,020.00 37,020.00 167,020.00 167,020.00 34,290.00 34,290.00 169,290.00 169,290.00 31,387.50 31,387.50 171,387.50 171,387.50 28,307.50 28,307.50 173,307.50 173,307.50 25,045.00 25,045.00 175,045.00 175,045.00 21,595.00 21,595.00 Exhibit C-4 Page 1 of 2 Present value on August 15, 2002 using a yield of 3.752446% $1,402,898.82 250,468.76 2,161,022.38 199,239.33 1,762,913.80 155,748.03 1,645,464.68 115,575.11 1,530,412.17 88,444.27 1,154,566.72 65,690.95 885,152.79 48,231.80 830,498.71 31,150.36 118,063.58 28,274.57 112,047.99 25,525.82 113,041.77 22,780.60 110,396.70 20,091.33 107,685.76 17,458.54 104,918.20 14,882.70 102,102.76 12,364.26 ~ City of Lubbock, Texas (Lubbock County) YIELD ON THE OBLIGATIONS Total debt Total debt service on service on the the Bonds Certificates Date (Exhibit C) {Exhibit C-2) 02-15-18 181,595.00 08-15-18 17,835.00 02-15-19 182,835.00 08-15-19 13,875.00 02-15-20 188,875.00 08-15-20 9,500.00 02-15-21 194,500.00 08-15-21 4,875.00 02-15-22 199,875.00 $12,452,003.89 $3,985,557.69 The present value of the future payments is equal to: Principal amount of the Bonds Principal amount of the Certificates Accrued interest on the Bonds Accrued interest on the Certificates Original issue premium on the Bonds Net original issue discount on the Certificates Insurance premium on the Bonds Insurance premium on the Certificates Total debt service on the Obligations 181,595.00 17,835.00 182,835.00 13,875.00 188,875.00 9,500.00 194,500.00 4,875.00 199,875.00 $16,437,561.58 Exhibit C-4 Page 2 of 2 Present value on August 15, 2002 using a yield of 3.752446% 102,057.75 9,838.81 99,004.69 7,374.91 98,542.88 4,865.21 97,774.30 2,405.51 96,809.49 $13,755,786.81 $10,810,000.00 2,605,000.00 53,660.14 13,954.57 296,833.75 (661.65) (17,000.00) (6,000.00) $13,755,786.81 The sum of the present values of the debt service payments of the Obligations on August 15, 2002, using a yield of 3.752446%, is equal to the issue price of the Obligations adjusted for the . . msurance premmms. - APPENDIX I Applicable schedules provided by First Southwest Company - - Final Numbers City of Lubbock, Texas General Obligation Refunding Bonds, Series 2002 Tax & Sewer System Surplus Revenue Certificates of Obligation, Series 2002-A TOTAL ISSUE SOURCES AND USES Dated 07/01/2002 SOURCES OF FUNDS Par Amount of Bonds ................................................................... .. Reoffering Premium ..................................................................... . Accrued Interest from 07/01/2002 to 08/15/2002 ........................ .. TOTAL SOURCES ...................................................................... . USES OF FUNDS Original Issue Discount (OID) ..................................................... .. Total Underwriter's Discount (0.565%) ...................................... .. Costs of Issuance .......................................................................... . Gross Bond Insurance Premium .................................................... . Deposit to Debt Service Fund ....................................................... . Deposit to Project Construction Fund ........................................... . Deposit to Escrow Fund ............................................................... .. Rounding Amount.. ...................................................................... .. TOTAL USES .............................................................................. . First Southwest Company Public Finance Page I Delivered 08/lS/2002 GO Refunding Certificates Issue Summary $10,810,000.00 296,833.75 53,660.14 $11,160,493.89 54,441.46 65,000.00 17,000.00 53,660.14 I 0,969,000.21 1,392.08 $11,160,493.89 $2,605,000.00 14,004.75 13,954.57 $2,632,959.32 14,666.40 21,361.00 60,000.00 6,000.00 13,954.57 2,515,000.00 1,977.35 $2,632,959.32 $13,415,000.00 310,838.50 67,614.71 $13,793,453.21 14,666.40 75,802.46 125,000.00 23,000.00 67,614.71 2,515,000.00 10,969,000.21 3,369.43 $13,793,453.21 File Lubbock July 2002 GO_ CO Pricing.sf2002 GO CO Pricing-Issue Summary 711012002 2:30PM - - City of Lubbock, Texas General Obligation Refunding Bonds Series 2002 ESCROW FUND CASHFLOW Preliminary Date Principal Rate Interest Receipts Disbursements Cash Balance 8/15/2002 8116/2002 2/15/2003 6,818,455.00 Total 6,818,455.00 1.730% INVESTMENT PARAMETERS 4,150,545.21 59,464.39 6,877,919.39 59,464.39 11,028,464.60 4,150,544.60 6,877,920.00 11,028,464.60 Investment Model [PV, GIC, or Securities] .......................................................................................... . Default investment yield target. ............................................................................................................ . 4,150,545.21 0.61 Securities BondYie1d Cash Deposit.......................................................................................................................................... 4,150,545.21 Cost of Investments Purchased with Bond Proceeds.............................................................................. 6,818,455.00 Total Cost of Investments...................................................................................................................... $10,969,000.21 Target Cost of Investments at bond yield .............................................................................................. . Actual positive or (negative) arbitrage ................................................................................................. .. Yield to Receipt. .................................................................................................................................. .. Yield for Arbitrage Purposes ................................................................................................................ . State and Local Government Series (SLGS) rates for ........................................................................... . $10,918,682.89 (50,3 I 7.32) 1. 7 442189"/o 3.2329715% 7/09/2002 First Southwest Company Public Finance File ~Lubbock July 1002 GO _CO Pricing.sf-2002 GO Ref FINAL-SINGEE PURPOSE 7/J0/2001 8:28AM Page6 (A, - Date 2115/2003 8/15/2003 2/15/2004 8/15/2004 2/15/2005 8/15/2005 2/15/2006 8/15/2006 2/15/2007 8/15/2007 2/15/2008 8/15/2008 2/15/2009 8/15/2009 2/15/2010 Total First Southwest Comp(111y Public Finance City of Lubbock, Texas General Obligation Bonds Series 1993 DEBT SERVICE TO MATURITY AND TO CALL Refunded Bonds D/S To Call Principal Coupon 6,720,000.00 6,877,920.00 960,000.00 4.500% 960,000.00 4.500% 960,000.00 4.600% 960,000.00 4.700% 960,000.00 4.800"/o 960,000.00 4.900% 960,000.00 4.900"/o 6,720,000.00 6,877,920.00 6,720,000.00 YIELD STATISTICS Average Life ...................................................................................... . Weighted Average Maturity (Par Basis) ............................................ . Average Coupon ................................................................................ . REFUNDING BOND INFORMATION Refunding Dated Date ....................................................................... . Refunding Delivery Date ................................................................... . Interest 157,920.00 157,920.00 157,920.00 136,320.00 136,320.00 114,720.00 114,720.00 92,640.00 92,640.00 70,080.00 70,080.00 47,040.00 47,040.00 23,520.00 23,520.00 1,442,400.00 4.622 Years 4.500 Years 4.6437157% 7/0l/2002 8/15/2002 Preliminary Refunded D/S 157,920.00 157,920.00 1,117,920.00 136,320.00 1,096,320.00 114,720.00 1,074,720.00 92,640.00 1,052,640.00 70,080.00 1,030,080.00 47,040.00 1,007,040.00 23,520.00 983,520.00 8,162,400.00 File =Lubbock July 2002 GO_ CO Pricing.:if-93 go-SINGLE PURPOSE 711012002 8:28AM Page 7 ~ Date 8/16/2002 2/15/2003 8/15/2003 211512004 8115/2004 2115/2005 8/1512005 2/15/2006 8/1512006 2/15/2007 8/15/2007 2/15/2008 Total First Southwest Company Public Finmtce ' City of Lubbock, Texas General Obligation Refunding Bonds Series 1993 Preliminary DEBT SERVICE TO MATURITY AND TO CALL Refunded Bonds D/S To Call Principal Coupon 4,150,000.00 4,150,544.60 1,040,000.00 4.500"/o 960,000.00 4.650% 650,000.00 4.750% 630,000.00 4.800% 610,000.00 5.000"/o 260,000.00 5.000"/o 4,150,000.00 4,150,544.60 4,150,000.00 YIELD STATISTICS Average Life ...................................................................................... . Weighted Average Maturity (Par Basis) ............................................ . Average Coupon ................................................................................ . REFUNDING BOND INFORMATION Refunding Dated Date ....................................................................... . Refunding Delivery Date ................................................................... . Interest Refunded D/S 98,027.50 74,627.50 74,627.50 52,307.50 52,307.50 36,870.00 36,870.00 21,750.00 21,750.00 6,500.00 6,500.00 482,137.50 2.523 Years 2.401 Years 4.6039655% 7/0112002 8/15/2002 1 '138,027.50 74,627.50 1,034,627.50 52,307.50 702,307.50 36,870.00 666,870.00 21,750.00 631,750.00 6,500.00 266,500.00 4,632,137.50 File= Lubbock July 1001 GO _CO Pricing.sf·93 go ref.SINGLE PURPOSE 7110/1001 8:18AM PageS ·"""' City of Lubbock, Texas General Obligation Refunding Bonds Series 2002 DEBT SERVICE SCHEDULE Date Principal Coupon Interest TotalP+I 8/15/2002 2115/2003 1,010,000.00 3.000"k 273,178.89 1,283,178.89 8/15/2003 204,368.75 204,368.75 9/3012003 2/15/2004 1,935,000.00 4.500% 204,368.75 2,139,368.75 8/15/2004 160,831.25 160,831.25 9/30/2004 2/15/2005 1,625,000.00 4.750% 160,831.25 1 '785,831.25 8/15/2005 122,237.50 122,237.50 9/3012005 2/15/2006 1,605,000.00 4.750% 122,237.50 1,727,237.50 8/15/2006 84,118.75 84,118.75 9/30/2006 2/15/2007 1,575,000.00 3.250% 84,118.75 1,659,118.75 8/15/2007 58,525.00 58,525.00 9/3012007 2/15/2008 1,205,000.00 3.750% 58,525.00 1,263,525.00 8/l512008 35,931.25 35,931.25 9/30/2008 2/1512009 935,000.00 3.750% 35,931.25 970,931.25 8/15/2009 18,400.00 18,400.00 9/3012009 2/15/2010 920,000.00 4.000% 18,400.00 938,400.00 9/30/2010 Total 10,810,000.00 1,642,003.89 12,452,003.89 YIELD STATISTICS Accrued Interest from 07/01/2002 to 0811512002 ............................................................................ . Bond Year Dollars .......................................................................................................................... . Average Life ................................................................................................................................... . Average Coupon ............................................................................................................................. . Net Interest Cost (NlC) ................................................................................................................... . True Interest Cost (TIC) .................................................................................................................. . Bond Yield for Arbitrage Purposes ................................................................................................. . All Inclusive Cost (AIC) ................................................................................................................. . IRS FORM 8038 Net Interest Cost.. ........................................................................................................................... . Weighted Average Maturity ............................................................................................................ . Preliminary FISCAL TOTAL 1 ,487,54 7.64 2,300,200.00 1,908,068.75 1,811,356.25 1,717,643.75 1,299,456.25 989,331.25 938,400.00 53,660.14 $41,101.22 3.802 Years 3.9950245% 3.4052798% 3.3559354% 3.2329715% 3.5089925% 3.1780935% 3.659 Years First Southwest Company Public Finance File ~ Lubboclc July 2001 GO _CO Pricing.sf-1002 GO Ref FINAL-SINGLE PURPOSE 711012002 8:28AM Page3 - - - Maturity Type 2/15/2003 Serial 2/15/2004 Serial 2/15/2005 Serial 2/15/2006 Serial 2/15/2007 Serial 2/15/2008 Serial 2/15/2009 Serial 2/15/2010 Serial Total BID INFORMATION City of Lubbock, Texas General Obligation Refunding Bonds Series 2002 PRICING SUMMARY of Bond Coupon Yield Maturity Value Coupon 3.000% 1.460% 1,010,000.00 Coupon 4.500% 2.0000/o 1,935,000.00 Coupon 4.7500/o 2.510% 1,625,000.00 Coupon 4.7500/o 2.870% I ,605,000.00 Coupon 3.250% 3.170% 1,575,000.00 Coupon 3.750% 3.4900/o 1,205,000.00 Coupon 3.750% 3.690% 935,000.00 Coupon 4.000% 3.890% 920,000.00 10,810,000.00 Preliminary Price Dollar Price 100.764% 1,017,716.40 103.676% 2,006,130.60 105.395% 1,712,668.75 106.218% 1,704,798.90 100.333% 1,580,244.75 101.290% 1,220,544.50 100.343% 938,207.05 100.709% 926,522.80 11,106,833.75 Par Amount ofBonds............................................................................................................................ $10,810,000.00 Reoffering Premium or (Discount)........................................................................................................ 296,833.75 Gross Production................................................................................................................................... $11,106,833.75 Total Underwriter's Discount (0.504%)................................................................................................ $(54,441.46) Bid (102.242%)..................................................................................................................................... 11,052,392.29 Accrued Interest from 07/01/2002 to 08/15/2002..... ........................................................................ ..... 53,660.14 Total Purchase Price.............................................................................................................................. $11,106,052.43 Bond Year Dollars ................................................................................................................................ . Average Life ......................................................................................................................................... . Average Coupon ................................................................................................................................... . Net Interest Cost (NIC) ....................................................................................................................... .. True Interest Cost (TIC) ....................................................................................................................... . $41,101.22 3.802 Years 3.9950245% 3.4052798% 3.3559354% First Southwest Compl1lly Public Finance File Lubbock July 2002 GO_ CO Pricing4-2002 GO Ref FINAL-SINGLE PURPOSE 7/10/2002 8:28AM Page4 Final Numbers .~ City of Lubbock, Texas Tax and Sewer System Surplus Revenue Certificates of Obligation Series 2002-A DEBT SERVICE SCHEDULE Date Principal Coupon Interest Total P+l FISCAL TOTAL 8/1512002 2/1512003 75,000.00 4.0000!.> 71,041.44 146,041.44 8/15/2003 55,586.88 55,586.88 9/30/2003 201,628.32 2115/2004 90,000.00 4.000% 55,586.88 145,586.88 ,...,_ 8/15/2004 53,786.88 53,786.88 9/30/2004 199,373.76 211512005 95,000.00 4.000% 53,786.88 148,786.88 8/1512005 51,886.88 51,886.88 9/3012005 200,673.76 2115/2006 95,000.00 4.000% 51,886.88 146,886.88 8/15/2006 49,986.88 49,986.88 -9/30/2006 196,873.76 211512007 100,000.00 4.000% 49,986.88 149,986.88 8/15/2007 47,986.88 47,986.88 9/30/2007 197,973.76 2115/2008 105,000.00 3.450% 47,986.88 152,986.88 8/15/2008 46,175.63 46,175.63 9/30/2008 199,162.51 2/15/2009 110,000.00 3.650% 46,175.63 156,175.63 8/15/2009 44,168.13 44,168.13 9/30/2009 200,343.76 2/15/2010 115,000.00 3.875% 44,168.13 159,168.13 8/1512010 41,940.00 41,940.00 9/30/2010 201,108.13 2115/2011 120,000.00 4.050% 41,940.00 161,940.00 8/1512011 39,510.00 39,510.00 9/30/2011 201,450.00 2115/2012 120,000.00 4.150% 39,510.00 159,510.00 8/15/2012 37,020.00 37,020.00 9/30/2012 196,530.00 211512013 130,000.00 4.200% 37,020.00 167,020.00 -8/15/2013 34,290.00 34,290.00 9/3012013 201,310.00 2115/2014 135,000.00 4.300% 34,290.00 169,290.00 8/1512014 31,387.50 31,387.50 9/30/2014 200,677.50 2/15/2015 140,000.00 4.400% 31,387.50 171,387.50 8/1512015 28,307.50 28,307.50 9/30/2015 199,695.00 211512016 145,000.00 4.500% 28,307.50 173,307.50 8/15/2016 25,045.00 25,045.00 9/3012016 198,352.50 2/1512017 150,000.00 4.600% 25,045.00 175,045.00 8/15/2017 21,595.00 21,595.00 9/30/2017 196,640.00 Fi.nt Southwest Company File ~Lubbock July 1001 GO_ CO Pricing.sj01001 CO-SINGLE PURPOSE Public Finance 7!1012002 11:19 AM - City of Lubbock, Texas Tax and Sewer System Surplus Revenue Certificates of Obligation Series 2002-A DEBT SERVICE SCHEDULE Final Nnmbers Date Principal Coupon Interest Total P+I FISCAL TOTAL 2/15/2018 160,000.00 4.700% 21,595.00 181,595.00 8/15/2018 17,835.00 17,835.00 9/30/2018 211512019 165,000.00 4.800% 17,835.00 182,835.00 8/15/2019 13,875.00 13,875.00 9/30/2019 2/15/2020 175,000.00 5.000% 13,875.00 188,875.00 8/15/2020 9,500.00 9,500.00 9/30/2020 2/15/2021 185,000.00 5.000"/o 9,500.00 194,500.00 8/15/2021 4,875.00 4,875.00 9/30/2021 2/15/2022 195,000.00 5.000% 4,875.00 199,875.00 9/30/2022 Total 2,605,000.00 1,380,557.76 3,985,557.76 YIELD STATISTICS Ac~rued Interest from 07/01/2002 to 08/15/2002 ........................................................................... .. Bond Year Dollars .......................................................................................................................... . Average Life .................................................................................................................................. .. Average Coupon ............................................................................................................................. . Net Interest Cost (NIC) ................................................................................................................... . True Interest Cost (TIC) .................................................................................................................. . Bond Yield for Arbitrage Purposes ................................................................................................ .. All Inclusive Cost (AIC) ................................................................................................................. . IRS FORM 8038 Net Interest Cosl ........................................................................................................................... .. \Veighted Average Maturity .......................................................................................................... .. 199,430.00 196,710.00 198,375.00 199,375.00 199,875.00 13,954.57 $30,115.89 11.561 Years 4.5841508% 4.6572471% 4.6458934% 4.5784065% 4.9288757% 4.6166156% 11.3 72 Years First Southwest Company Public Finance File =Lubbock July 2002 GO_ CO Prking.sf-2002 CO-SINGLE PURPOSE 71!012002 !1:29AM ,!"'\ -, - City of Lubbock, Texas Tax and Sewer System Surplus Revenue Certificates of Obligation Series 2002-A PRICING SUMMARY Maturity Type of Bond Coupon Yield Maturity Value Price 2115/2003 Serial Coupon 4.000% 1.460% 75,000.00 101.260% 2/15/2004 Serial Coupon 4.000"/o 2.000% 90,000.00 102.940% 2115/2005 Serial Coupon 4.000% 2.510% 95,000.00 103.588% 2/15/2006 Serial Coupon 4.000% 2.870% 95,000.00 103.737% 2115/2007 Serial Coupon 4.000% 3.170% 100,000.00 103.455% 2/15/2008 Serial Coupon 3.450% 3.490% 105,000.00 99.801% 2/15/2009 Serial Coupon 3.650% 3.6900/o 110,000.00 99.770% 2115/2010 Serial Coupon 3.875% 3.890% 115,000.00 99.903% 2/15/2011 Serial Coupon 4.050% 4.050% 120,000.00 100.000% 2115/2012 Serial Coupon 4.150% 4.150% 120,000.00 100.000% 2/15/2013 Serial Coupon 4.200% 4.270% 130,000.00 99.412% 2/15/2014 Serial Coupon 4.300% 4.400% 135,000.00 99.105% 2/15/2015 Serial Coupon 4.400% 4.500% 140,000.00 99.051% 2/15/2016 Serial Coupon 4.500% 4.600% 145,000.00 99.002% 2/15/2017 Serial Coupon 4.600% 4.700% 150,000.00 98.957% 2/15/2018 Serial Coupon 4.700% 4.800% 160,000.00 98.915% 2115/2019 Serial Coupon 4.800% 4.900% 165,000.00 98.877% 2/15/2020 Serial Coupon 5.000% 5.000% 175,000.00 100.000% 2/15/2021 Serial Coupon 5.000% 5.060% 185,000.00 99.284% 2/15/2022 Serial Coupon 5.0000/o 5.120% 195,000.00 98.530% Total 2,605,000.00 BID INFORMATION Par Amount of Bonds ............................................................................................................................ .. Reoffering Premium or (Discount) ........................................................................................................ .. Gross Production ................................................................................................................................... .. Total Underwriter's Discount {0.820%) ................................................................................................. . Bid (99.155%) ....................................................................................................................................... .. Accrued Interest from 07/0l/2002 to 08115/2002 ................................................................................... . Total Purchase Price ............................................................................................................................... . Bond Year Dollars ................................................................................................................................. .. Average Life ........................................................................................................................................... . Average Coupon ..................................................................................................................................... . Net rnterest Cost (NrC) ........................................................................................................................... . True Interest Cost (TIC) ......................................................................................................................... . Final Numbers Dollar Price 75,945.00 92,646.00 98,408.60 98,550.15 103,455.00 104,791.05 109,747.00 114,888.45 120,000.00 120,000.00 129,235.60 133,791.75 138,671.40 143,552.90 148,435.50 158,264.00 163,147.05 175,000.00 183,675.40 192,133.50 2,604,338.35 $2,605,000.00 (661.65) $2,604,338.35 $(21,351.94) 2,582,986.41 13,954.57 $2,596,940.98 $30,115.89 11.561 Years 4.5841508% 4.6572471% 4.6458934% First Southwest Company Public Finance File =Lubbock July 2002 GO_ CO Pricing.sf-2002 CO-SINGLE PURPOSE 7/1012002 11:29 AM Final Numbers ;.., City of Lubbock, Texas General Obligation Refunding Bonds, Series 2002 Tax & Sewer System Surplus Revenue Certificates of Obligation, Series 2002-A DEBT SERVICE SCHEDULE Date Principal Coupon Interest TotalP+I FISCAL TOTAL 8/15/2002 2115/2003 1,085,000.00 3.069% 344,220.33 1,429,220.33 8/15/2003 259,955.63 259,955.63 9/3012003 1,689,175.96 211512004 2,025,000.00 4.478% 259,955.63 2,284,955.63 8/15/2004 214,618.13 214,618.13 9/3012004 2,499,573.76 2/15/2005 1,720,000.00 4.709% 214,618.13 1,934,618.13 8/15/2005 174,124.38 174,124.38 9/30/2005 2,108,742.51 2/15/2006 1,700,000.00 4.708% 174,124.38 1,874,124.38 8/15/2006 134,105.63 134,105.63 -9/30/2006 2,008,230.0 I 2115/2007 1,675,000.00 3.295% 134,105.63 1,809,105.63 8/15/2007 106,511.88 106,511.88 9/3012007 1,915,617.51 2115/2008 1,310,000.00 3.726% 106,511.88 1,416,511.88 8/1512008 82,106.88 82,106.88 9/30/2008 1,498,618.76 2115/2009 1,045,000.00 3.739% 82,106.88 I, 127, 106.88 8/15/2009 62,568.13 62,568.13 9/30/2009 1,189,675.01 2115/2010 1,035,000.00 3.986% 62,568.13 1,097,568.13 8/15/2010 41,940.00 41,940.00 9/30/2010 1,139,508.13 If"', 2115/2011 120,000.00 4.050% 41,940.00 161,940.00 8/15/2011 39,510.00 39,510.00 9/30/2011 201,450.00 211512012 120,000.00 4.150% 39,510.00 159,510.00 8/15/2012 37,020.00 37,020.00 9/30/2012 196,530.00 2/15/2013 130,000.00 4.200% 37,020.00 167,020.00 .-8/15/2013 34,290.00 34,290.00 9130/2013 201,310.00 2/1512014 135,000.00 4.300% 34,290.00 169,290.00 8/1512014 31,387.50 31,387.50 9/30/2014 200,677.50 2115/2015 140,000.00 4.400% 31,387.50 171,387.50 8/1512015 28,307.50 28,307.50 -, 9/30/2015 199,695.00 2115/2016 145,000.00 4.500% 28,307.50 173,307.50 8/15/2016 25,045.00 25,045.00 9/3012016 198,352.50 2115/2017 150,000.00 4.600% 25,045.00 175,045.00 8/15/2017 21,595.00 21,595.00 9/30/2017 196,640.00 First Southwest Company FiJe ~Lubbock July 2002 GO _CO Priclng;.sf-2002 GO CO Pricing-Issue Summary Public Finance 7110/2002 11:32 AM tl' - Final Numbers City of Lubbock, Texas General Obligation Refunding Bonds, Series 2002 Tax & Sewer System Surplus Revenue Certificates of Obligation, Series 2002-A DEBT SERVICE SCHEDULE Date Principal Coupon Interest Total P+l 2/15/2018 160,000.00 4.700% 21,595.00 181,595.00 8/15/2018 17,835.00 17,835.00 9/30/2018 2/15/2019 165,000.00 4.800% 17,835.00 182,835.00 8/15/2019 13,875.00 13,875.00 9/30/2019 2/15/2020 175,000.00 5.000% 13,875.00 188,875.00 8/15/2020 9,500.00 9,500.00 9/30/2020 2115/2021 185,000.00 5.0000/o 9,500.00 194,500.00 8/15/2021 4,875.00 4,875.00 9/30/2021 2/15/2022 195,000.00 5.000% 4,875.00 199,875.00 9/30/2022 Total 13,415,000.00 3,022,561.65 16,437,561.65 YIELD STATISTICS Accrued Interest from 07/01/2002 to 08/15/2002 ............................................................................ . Bond Year Dollars .......................................................................................................................... . Average Life .................................................................................................................................. .. Average Coupon ............................................................................................................................ .. Net Interest Cost (NIC) ................................................................................................................... . True Interest Cost (TIC) .................................................................................................................. . Bond Yield for Arbitrage Purposes ................................................................................................ .. All Inclusive Cost (AIC) ................................................................................................................. . IRS FORM 8038 Net Interest Cost.. ........................................................................................................................... . Weighted Average Maturity ............................................................................................................ . FISCAL TOTAL 199,430.00 196,710.00 198,375.00 199,375.00 199,875.00 67,614.71 $71,217.11 5.309Years 4.2441509% 3.9347046% 3.8464233% 3.7524458% 4.0492051% 3.7845143% 5.124 Years First Scuthwest Ccmpai'IJ' PubUc Finance File =Lubbock July 2002 GO_ CO Pricing.sf-2002 GO CO Pricing-Issue Summary 7/!0/200211:32AM - Final Numbers City of Lubbock, Texas General Obligation Refunding Bonds, Series 2002 Tax & Sewer System Surplus Revenue Certificates of Obligation, Series 2002-A PROOF OF BOND YIELD@ 3.7524458% Date Cash flow PV Factor Present Value Cumulative PV 8/1512002 l.OOOOOOOx 211512003 1,429,220.33 0.9815833x 1,402,898.82 1,402,898.82 8/1512003 259,955.63 0.9635058x 250,468.76 1,653,367.58 2115/2004 2,284,955.63 0.9457612x 2,161,022.39 3,814,389.96 8115/2004 214,618.13 0.9283434x 199,239.33 4,013,629.29 2115/2005 1,934,618.13 0.9112464x 1,762,913.80 5, 776,543.10 8/1512005 174,124.38 0.8944643x 155,748.03 5,932,291.13 211512006 1,874,124.38 0.8779912x 1,645,464.68 7,577,755.81 8/15/2006 134,105.63 0.8618215x ll5,575.11 7,693,330.93 211512007 1,809,105.63 0.8459496x 1,530,412.17 9,223,743.10 8/15/2007 106,511.88 0.8303700x 88,444.27 9,312,187.37 211512008 1,416,511.88 0.8150773x 1,154,566.72 10,466,754.09 8/15/2008 82,106.88 0.8000663x 65,690.95 10,532,445.04 2/15/2009 1,127,106.88 0.7853317x 885,152.80 11,417,597.83 8/1512009 62,568.13 0.7708685x 48,231.80 11,465,829.63 211512010 1,097,568.13 0.7566717x 830,498.71 12,296,328.35 8/1512010 41,940.00 0.7427363x 31,150.36 12,327,478.71 211512011 161,940.00 0.7290575x 118,063.58 12,445,542.28 8115/2011 39,510.00 0.7156307x 28,274.57 12,473,816.85 2115/2012 159,510.00 0.7024512x 112,047.98 12,585,864.84 8/15/2012 37,020.00 0.689SI43x 25,525.82 12,611,390.66 2115/2013 167,020.00 0.6768158x 113,041.77 12,724,432.43 8/!512013 34,290.00 0.664351lx 22,780.60 12,747,213.03 2115/2014 169,290.00 0.6521159x 110,396.70 12,857,609.73 8/1512014 31,387.50 0.640106lx 20,091.33 12,877,701.06 2115/2015 171,387.50 0.6283175>< 107,685.76 12,985,386.82 811512015 28,307.50 0.6167459x 17,458.54 13,002,845.35 211512016 173,307.50 0.6053875x 104,918.20 13,107,763.55 8/15/2016 25,045.00 0.5942383x 14,882.70 13,122,646.24 211512017 175,045.00 0.5832944x 102,102.76 13,224,749.01 8115/2017 21,595.00 0.5725520>< 12,364.26 13,237,113.27 2/15/2018 181,595.00 0.5620075x 102,057.75 13,339,171.02 8/15/2018 17,835.00 0.5516572x 9,838.81 13,349,009.83 2115/2019 182,835.00 0.5414975x 99,004.69 13,448,014.52 8/1512019 13,875.00 0.5315249x 7,374.91 13,455,389.43 211512020 188,875.00 0.5217360x 98,542.88 13,553,932.31 8/1512020 9,500.00 0.5121273x 4,865.21 13,558,797.52 2115/2021 194,500.00 0.5026956x 97,774.30 13,656,571.82 8/15/2021 4,875.00 0.4934376x 2,405.51 13,658,977.32 211512022 199,875.00 0.484350lx 96,809.49 13,755,786.81 Total 16,43 7,561.65 13,755,786.81 DERIVATION OF TARGET AMOUNT Par Amount of Bonds ............................................................................................................... $13,415,000.00 Reoffering Premium or (Discount) ........................................................................................... 296,172.10 Accrued Interest from 07/01/2002 to 08/15/2002 ..................................................................... 67,614.71 Bond Insurance Premium. ........................................................................................................ (23,000.00) Original Issue Proceeds ............................................................................................................ $13,755,786.81 First Southwest Company Public Firnmr:e File =Lubbock July 2002 GO_ CO Pricing.sf-2(}02 GO CO Pricing-hsue Summary 7110/2002 ll:31 AM 9 - - - - SIGNATURE AND NO-LITIGATION CERTIFICATE THE STATE OF TEXAS COUNTY OF LUBBOCK § § § WE, the undersigned, officials of the City of Lubbock, Texas {the "Issuer''), do hereby certify with respect to the "CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION REFUNDING BONDS, SERIES 2002," dated July 1, 2002 (the "Bond Date"), in the aggregate principal amount of $10,810,000 (the "Bonds") as follows: (1) The Bonds have been duly and officially executed by the undersigned with their manual or facsimile signature in the same manner appearing hereon, and the undersigned · hereby adopt and ratify their respective signatures in the manner appearing on each of the Bonds whether in manual or facsimile form, as the case may be, as their true, genuine and official signatures. (2) On the Bond Date and on the date hereof, we were and are the duly qualified and acting officials of the Issuer indicated below. (3) The legally adopted proper and official corporate seal of the Issuer is impressed, imprinted or lithographed on all of the Bonds and impressed on this Certificate. (4) No litigation of any nature is now pending before any federal or state court, or administrative body, or to our knowledge threatened, seeking to restrain or enjoin the issuance or delivery of the Bonds or questioning the issuance or sale of the Bonds, the authority or action of the governing body of the Issuer relating to the issuance or sale of the Bonds, the levy of taxes to pay the principal of and interest on the Bonds or materially affecting the assessment or collection of taxes to pay the principal of and interest on the Bonds; and that neither the corporate existence or boundaries of the Issuer nor the right to hold office of any member of the governing body of the Issuer or any other elected or appointed official of the Issuer is being contested or otherwise questioned. (5) No authority or proceeding for the issuance, sale or delivery of the Bonds, passed and adopted by the governing body of the Issuer, has been amended, repealed, revoked, rescinded or otherwise modified since the date of passage thereof, and all such proceedings and authority relating to the issuance and sale of the Bonds remain in full force and effect as of the date of this Certificate. 45195601.1 - - - - - - DELIVERED this __ AU_G ___ 1_5_2_00_2 __ (Issuer's Seal) THE STATE OF TEXAS COUNTY OF LUBBOCK OFFICIAL TITLE Mayor, City of Lubbock, Texas City Secretary, City of Lubbock, Texas § § § The undersigned, a Notary Public, hereby represents and certifies each of the signatures of Marc McDougal and Rebecca Garza, Mayor and City Secretary, respectively, of the City of Lubbock, Texas, appearing above is genuine. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the // day of July , 2002. (Notary Seal) 45195601.1 -2- 10 - - - - .;. . ~T SOU1H\WST COMPANY Yin~.: Vi:till.:: Vic<" l:'roitiazt City of Lubbock M.s. Be:v~ly Hodges P. 0. Box2000 Lubbock, Texas 79457 Phone: (806) 775-2161 · Fa.x: (806) 775-2033 City of Lubbock Mr. Andy Burcham P.O. Box 2000 Lubbock, Texas 79457 Phone: (806) 775-2149 Fax: (806) 775-2033 Fulbright & Jaworski LL.P. Mr. Ed H. Esquivel 2200 Ross A venue, Suite 2800 Dallas. Texas 75201 Phone: (214) 855-8000 Fax: (214) 855-8200 McCall, Parkhurst & Horton L.L.P. Mr. Dan Culver 717 North Harwood, Ninth Floor Dallas, Texas 75201 Phone: (214) 754-9200 Fax: (214) 754-9250 August 13,2002 (Revised) RBC DainRaucher Mr. Mark Nitcholas First City Tower 1001 Fannin, Suite 400 Houston. Texas 77002 Phone; (713) 853-0823 Fax: (713) 651-3347 JPMorgan Chase Bank Ms. Michelle Baldwin 2001 Bryan Street-10th Floor Dallas. Texas 75201 Phone; (214) 468-6254 Fax; (214)468-6322 American State Bank Ms. Shirley Dodson P. 0. Box 1401 Lubbock, Texas 7~408-1401 Phone; {806) 767-7182 Fax: (806) 763-8269 :MBIA Insurance Corporation Mr. Salvatore D 'Addio 113 King Street Armonk, NY 10504 · Phone: {914) 765-3371 Fax: (914) 765-3161 The Bank ofNew York Trust Company of Florida Ms. Jill Wiesner Highwoods Center, 3rd Floor 10161 Centurion Parkway Jacksonville. Florida 32256 Phone; (904)645-1933 Fax: (904)998-4740 Re: Closing Instructions for the $10,810,000 City ofLubbock, Texas, General Obligatioo Refunding Bonds, Series 2002 (the "Bonds") Payment for the above referenced Bonds is scheduled to occur at 10:00 AM,. CDT, on Thursday, August 15, 2002, and payment therefor is to occur at the offices of JPMorgan Chase Bank ("JPMorganj. ·. INVESTMENT BANKERS SINCE 1946 1001 Main Srnet • Sttiu 81J:Z • LubW, Texas 79401-3322 • 806-719·J792 *Fax 806-749-3793 • Mohik 806-777-1347 - - - - - SOURCES OF FUNDS Par Amount of Bonds .......................................................... $ 10,81 0,000.00 Net Reoffering Premium...................................................... 296,833.75 Accrued Interest (07/01/02 to 08/15/02).............................. 53,660.14 Less: Underwriters Discount.............................................. ( 54,441.46) --=---::-::~~-::-::--:--L--TOTAL FUNDS AVAILABLE AT CLOSING..................... $ 11,106,052.43 USES OF FUNDS Deposit to Net Cash Escrow Fund....................................... $ 10,969,00021 Deposit to Interest & Sinking Fund (rounding amount)...... 1,392.08 Deposit to Interest & Sinking Fund (accrued interest)........ 53,660.14 Gross Bond Insurance Fee................................................... 17,000.00 Escrow Agent Fee................................................................ 500.00 Paying Agent/Registrar Fee Payoff..................................... 773.50 Paying Agent/Registrar Fee................................................. 300.00 Costs ofissuance.................................................................. 63,426.50 TOTAL USES OF FUNDS.................................................... $ 11,106,052.43 =======-- (A) On Thursday, August 15,2002, the Underwriters. represented by RBC Dain Raucher, shall 'Nire $11,106,052.43 in immediately available funds to the paying agent bank,. JPMorgan, prior to 10:00 AM, CDT, for the account of the City of Lubbock. in payment for the purchase price of the Bonds. Wiring Instructions for JPMorgan are as follows: JPMorgan Chase ABA: 113000609 Credit NC #: 00103237013 Credit Name: ITS !AS Clearing FFC: City of Lubbock, Refunding Bonds Series 2002 Attn: Issuer Administrative SerVices I Michelle Baldwin (B) On Thursday. August 15, 2002, JPMorgan shall wire or transfer immediately available funds prior to 11:00 ~ CDT, as follows: (1) Transmit by wire to JPMorgan Chase Bank ABA: 021000021) Credit AJC #: 910-2-721728 For the City of Lubbock, Texas Policy #38533 ...................................... $ 17,000.00 - - - - - (2) Tr.!Wsmit by wire to The Bank ofNew York ABA#021000018; GLA#l11565 TAS #356430, Ref: Lubbock RefEscrow, $10,970,.273.71 to be distributed as follows: Pay the Bureau ofPoblic Debt for purchase ofSLGS ............................ . Cash Deposit ..•.............•... , ...................................................................... . Escrow Agent Fees ................................................................................. . Paying AgentiR..egistx:ar Fees Payoff ....................................................... . (3) Retain in payment of services to be rendered as Paying Agent/Registrar (4) Transmit by wire to American State Bank, Lubbock, Texas ABA #111322583, Attn: Shirley Dodson Phone (806) 767-7182, depository bank for City ofLubbockfor credit to the following account City of Lubbock Consolidated Accoun~ Account #87793 ..................... . (I&S Funds $55,052.22) (5) Transmit by vvire to Bank One, Tex:as ABA #111000614, Attn: Jack Addams · Account #1822155345 for client# 0336-022 6,&18,455.00 4,150.545.21 500.00 773.50 300.00 55,052.22 for credit to First Southwest Company for costs of issuance ................... ___ 6.:;.;3:..,4..;.;;2;;.;;6..;.;;.5;..;;.0 Total Disbursement of Funds ............................................................................... $ I 1.106.052.43 The cooperation of the addressees with the above instructions is greatly appreciated. If you have any questions or cannot comply with any portion of the instructions, please contact us immediately at (806) 749-3792. Since:rely, Vince Viaille ec: Jack Addams First Southwest Company 11 - - - - - OFFICE OF THE ATTORNEY GENERAL· STATE OF TEXAS }OHN CORNYN August13,2002 THIS IS TO CERTIFY that the City of Lubbock, Texas {the "Issuer") has submitted to me City of Lubbock, Texas, General Obligation Refunding Bond, Series 2002 {the "Bond"), in the principal amount of $10,810,000, for approval. The Bond is dated July 1, 2002, numbered T-1, and was authorized by Ordinance No. 2002-00077 of the Issuer passed on July 11, 2002. I have examined the law and such certified proceedings and other papers as I deem necessary to render this opinion. As to questions of fact material to my opinion, I have relied upon representations of the Issuer contained in the certified proceedings and other certifications of public officials furnished to me without undertaking to verify the same by independent investigation. I express no opinion relating to any official statement or any other offering material relating to the Bond. Based on my examination, I am of the opinion, as of the date hereof and under existing law, as follows: {1) The Bond has been issued in accordance with law and is a valid and binding obligation of the Issuer. (2) In accordance with the provisions of the law, including an Escrow Agreement dated as of July 11, 2002, firm banking arrangements have been made for the discharge and final payment or redemption of the obligations being refunded upon deposit of an amount sufficient to pay said obligations when due. (3) The Bond is payable from the proceeds of an ad valorem tax levied, within the limits prescribed by law, upon all taxable property in the Issuer. Therefore, the Bond is approved. PoST OFFICE Box 12548, AUSTIN, TEXAS 78711"2548 TEL: (512)463-2100 WEB: WWW.OAG.STATE.TX.US An Equal Employment Opportunity Empfflyer , Printed on Recycled Paper - - - City of Lubbock, Texas, General Obligation Refunding Bond, Series 2002- $10,810,000 -Pa e 2- The Comptroller is instructed that she may register the Bond without the cancellation of the underlying securities being refunded thereby. No.38158 Book No. 2002C MAA --------------------------------------·-- -~ - - - - - OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, CAROLE KEETON RYLANDER, Comptroller of Public Accounts of the State of Texas, do hereby certify that the attachment is a true and correct copy of the opinion of the Attorney General approving the: City of Lubbock. Texas. General Obligation Refunding Bond. Series 2002 numbered T-1, of the denomination of$ 10.810.000, dated August 1. 2002, as authorized by issuer, interest various percent, under and by authority of which said bonds/certificates were registered electronically in the office of the Comptroller, on the 13th day of August. 2002, under Registration Number 65922. Given under my hand and seal of office, at Austin, Texas, the 13th day of August. 2002. ~~ CAROLE KEETON RYLANDER Comptroller of Public Accounts of the State of Texas - - - - OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, Melissa Mora, 0 Bond Clerk [8] Assistant Bond Clerk in the office of the Comptroller of the State of Texas, do hereby certify that, acting under the direction and authority of the Comptroller on the 13th day of August. 2002, I signed the name of the Comptroller to the certificate of registration endorsed upon the: City of Lubbock. Texas. General Obligation Refunding Bond. Series 2002, numbered T -1. dated August 1. 2002, and that in signing the certificate of registration I used the following signature· certificate this the 13th day of August 2002. I, Carole Keeton Rylander, Comptroller of Public Accounts of the State of Texas, certify that the person who has signed the above certificate was duly designated and appointed by me under authority vested in me by Chapter 403, Subchapter H, Government Code, with authority to sign my name to all certificates of registration, and/or cancellation of bonds required by law to be registered and/or cancelled by me, and was acting as such on the date first mentioned in this certificate, and that the bonds/certificates described in this certificate have been duly registered in the office of the Comptroller, under Registration Number 65922. GIVEN under my hand and seal of office at Austin, fexas, this the 1 $th day of August. 2002. ~~ CAROLE KEETON RYLANDER Comptroller of Public Accounts of the State of Texas 12 - - CERTIFICATE AS TO TAX EXEMPTION The undersigned, being the duly chosen and qualified Director of Finance of the City of Lubbock, Texas (the "Issuer''), hereby certifies with respect to CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION REFUNDING BONDS, SERIES 2002, in the principal amount of $10,810,000 (the "Bonds") and "CITY OF LUBBOCK, TEXAS, TAX AND SEWER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES 2002", in the principal amount of $2,605,000 (the "Certificates"), as follows: A. General. 1. I, along with other officers of the Issuer, am charged with the responsibility for issuing the Bonds and the Certificates (hereinafter collectively referred to as the "Obligations"). 2. This certificate is made pursuant to Sections 103 and 141 through 150 of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), and Treasury Regulations promulgated thereunder, (the "Regulations"). 3. This certificate is based on the facts and estimates described herein in existence on this date, which is the date of delivery of the Obligations to and payment for the Obligations by the initial purchasers thereof, and, on the basis of such facts and estimates, the Issuer expects that the future events described herein will occur. 4. Capitalized terms used and not otherwise defined herein shall have the same meaning as that set forth in the Ordinance finally adopted by the City Council of the Issuer on July 11, 2002 authorizing the issuance of the Bonds (the "Bond Ordinance") and the Ordinance finally adopted by the City Council of the Issuer on July 11, 2002 authorizing the issuance of the Certificates (the "Certificate Ordinance"). B. Purpose and Size of Bonds. 1. The Bonds are being issued pursuant to the Bond Ordinance to provide funds sufficient, together with anticipated income, to pay the principal and interest on the following Obligations of the Issuer (collectively, the "Refunded Obligations"): i. City of Lubbock, Texas, General Obligation Bonds, Series 1993, dated October 1, 1993, scheduled to mature on February 15 in each of the years 2004 through 2010, and aggregating in principal amount of $6,720,000; and ii. City of Lubbock, Texas, General Obligation Refunding Bonds, Series 1993, dated December 1, 1993, scheduled to mature on February 15 in each of the years 2003 through 2008, and aggregating in principal amount of $4, 150,000; and to pay costs of issuance. 45209795.1 1 '"""' ' - 2. The Issuer has determined to refund the Refunded Obligations to achieve a debt service savings on such indebtedness. 3. The Issuer will realize a present value savings as a result of refunding such Refunded Obligations. The Refunded Obligations are being paid on the earliest date on which they may be redeemed or paid. 4. Neither the Bonds nor the Refunded Obligations are "private activity bonds" as that term is defined in section 141(a) of the Code. 5. The Bonds are the first advance refunding of the Series 1993 Refunded Obligations, dated October 1, 1993 and a current refunding of the Series 1993 Refunded Obligations, dated December 1, 1993, within the meaning of section 149(d}(3) of the Code. 6. The amounts received from the sale of the Bonds and expected earnings thereon do not exceed the amounts required to pay the principal, interest and redemption premium on the Refunded Obligations to the scheduled redemption date, and to pay the costs of issuing the Bonds. C. Purpose and Size of Certificates. 1. The Certificates are being issued pursuant to the Certificate Ordinance to finance improvements and extensions to the City's Sewer System (collectively, the "Projects"), and to pay contracts for professional services. 2. The Projects will be owned, operated, and maintained by the Issuer. The Issuer has not contracted with any person or entity to operate and/or maintain the Projects or any part of them for and on behalf of the Issuer. The Issuer does not expect to enter into any contract for the operation, maintenance or management of the Projects or any part of it. 3. There is not, and as of the date hereof the Issuer does not anticipate entering into, any lease, contract or other understanding or arrangement, such as a take-or-pay contract or output contract, with any person other than a state or local governmental unit pursuant to which the Issuer expects that proceeds of the Certificates, or the facilities financed therewith, will be used in the trade or business of such person (including all activities of such persons who are not individuals}. 4. The amounts received from the sale of the Certificates, when added to the amounts expected to be received from the investment thereof($ 11 · 500 ) do not exceed the amounts required to pay the costs of the Projects and of issuing the Certificates. 45209795.1 2 - - - - 5. No receipt from the sale of the Certificates or amounts received from the investment thereof will be used to pay the principal of or interest on any presently outstanding issue of bonds or other similar obligations of the Issuer other than the Certificates. 6. Within six months from the date hereof, the Issuer will have incurred binding obligations or commitments to third parties for the Projects in the amount of at least 5% of the net sales proceeds of the Certificates. 7. After entering into said contracts, completion of the Projects and the allocation of net sales proceeds of the Certificates to expenditures will proceed with due diligence. 8. The Issuer expects that all of the net sales proceeds of the Certificates will be spent within three years from the date hereof, and that all investment proceeds of the Certificates will be spent within one year from the date of receipt. 9. Approximately $110,544.00 of the proceeds of the Certificates will be used to reimburse the Issuer for Project expenditures made by it from its own funds prior to the date hereof. The Issuer adopted an official intent for the original expenditures, if any (except possibly for expenditures meeting the preliminary expenditures exception set forth in section 1.150- 2(f)(2) of the Regulations) not later than 60 days after payment of the original expenditures, and a copy of such official intent is attached to this Certificate As To Tax Exemption. Except for expenditures meeting the preliminary expenditures exception set forth in section 1.150-2(f){2) of the Regulations, the Certificates are being issued and the reimbursement allocation is hereby being made not later than 18 months after the later of (i) the date the original expenditures were paid, or (ii) the date the Project is placed in service or abandoned, but in no event more than 3 years after the original expenditures were paid. The original expenditures were capital expenditures, and in connection with this allocation, the Issuer has not employed any abusive arbitrage device under section 1.148-1 0 of the Regulations to avoid the arbitrage restrictions or to avoid restrictions under section 142 through 147 of the Code. D. Source and Disbursement of Funds. 1. The Obligations are being issued and delivered to the initial purchasers thereof on the date hereof upon payment of the agreed purchase price. 2. The Issuer has received as a result of the sale of the Obligations an amount equal to $13,702,984.35 calculated as follows: 3. 45209795.1 Principal Amount of Certificates Principal Amount of Bonds Accrued Interest on Certificates Accrued Interest on Bonds Net Original Issue Discount on Certificates Net Original Issue Premium on Bonds Underwriter's Discount on Certificates Underwriter's Discount on Bonds $2,605,000.00 10,810,000.00 13,954.57 53,660.14 {661.65) 296,833.75 (21 ,361.00) {54,441.46) $13,702,984.35 The Issuer has caused the deposit or disbursement of such amount as follows: 3 -' - - - - Disposition Deposit to the Escrow Fund established by the Special Escrow Agreement defined hereinafter Deposit of accrued interest on the Bonds and additional proceeds to the Interest and Sinking Fund Deposit of accrued interest on the Certificates and additional proceeds to the Certificate Fund Deposited to Construction Fund Disbursed to pay Municipal Bond Insurance Premiums Disbursed to pay costs of issuance Amount $10,969,000.21 55,052.22 15,931.92 2,515,000.00 23,000.00 125,000.00 $13,702,984.35 4. Proceeds of the Bonds in the amount of $53,660.14 representing accrued interest received from the Purchaser and additional proceeds of $1 ,392.08 are being deposited on the date hereof in the Interest and Sinking Fund to be used to pay the first payment of interest to become due on the Bonds on February 15, 2003. Proceeds of the Certificates in the amount of $13,954.57, representing accrued interest received from the Purchaser and additional proceeds of $1,977.35 are being deposited on the date hereof in the Certificate Fund to be used to pay the first payment of interest to become due on the Certificates on February 15, 2003. None of such deposits or income from the investments thereof will be used to discharge the Refunded Obligations. E. Investment of Proceeds and Yield Restrictions. 1. Of the amount deposited this day to the Escrow Fund from the proceeds of the Bonds, $6,818,455.00 has been applied this day to the purchase of United States Treasury Certificates of Indebtedness and Notes-State and Local Government Series ("SLGS") described in Exhibit B to, and which will be held under, the Escrow Agreement. The Issuer expects to receive repayments of principal of and payment of interest on such SLGS on the dates and in the amounts set forth on Exhibit B to the Escrow Agreement. All such receipts of principal and interest will be applied to the payment of principal of and interest on the Refunded Obligations or will be held uninvested as cash in the Escrow Fund until the next date for payment of interest or principal on the Refunded Obligations. 45209795.1 4 - 2. The Issuer elects to allocate all the SLGS described in the preceding paragraph to the amounts received from the sale of the Bonds and income received from the investment thereof, until such amounts are expended to pay principal and interest on the Refunded Obligations, which is the purpose for which the Bonds have been issued. 3. The discount factor required to reduce the receipts of principal and interest on the SLGS described in paragraph E.1. above, compounded semi-annually, to a present value on this date equal to the sum of the purchase price of the SLGS does not exceed 1.744219% Which Grant Thornton LLP, certified public accountants, (the "Accountant") has verified in its Verification Report to the Issuer of even date herewith (the "Report"). 4. A discount factor of 3.752446% is required to reduce the semi-annual payments of principal and interest on the Obligations to a present value on this date, compounded semi- annually, of $13,755,786.81 (which represents the principal amount of the Obligations, plus accrued interest on the Bonds of $53,660.14, plus accrued interest on the Certificates of $13,954.57, less a net original issue discount on the Certificates of $661.65, plus a net original issue premium on the Bonds of $296,833.75, less municipal bond insurance premium of $17,000.00 on the Bonds and less municipal bond insurance premium of $6,000.00 on the Certificates), which the Accountant has verified in its Report. · 5. No other obligations of the Issuer which are reasonably expected to be paid from the same source of funds as the Obligations were sold within 15 days from the date the Obligations were sold. 6. As provided in the Ordinance, except as otherwise provided in section 148(f) of the Code, the Issuer will account for proceeds of the Obligations separately from other funds of the Issuer and will compute and pay to the United States Treasury the Rebate Amount due with respect to the Obligations no less frequently than every five years, in the installments, to the place, in the manner and accompanied by such forms or other information as is or may be required by Section 148(f) of the Code and the regulations and rulings thereunder. F. Transferred Proceeds. 1. All amounts received from the sale of the Refunded Obligations and from the investment of such amounts have been expended for the purposes for which the Refunded Obligations were issued. 45209795.1 5 - - - - G. Bonds Not Hedge Bonds. 1. Eighty-five percent of the proceeds of the original bonds refunded by the Bonds were used to carry out the governmental purposes of such bonds within three years after such bonds were issued. 2. Not more than 50 percent of the proceeds of the original bonds refunded by the Bonds were invested in Nonpurpose Investments having a substantially guaranteed yield of 4 years or more. H. Interest and Sinking Fund, Certificate Fund and System Fund. 1. Pursuant to Section 10 of the Bond Ordinance, the Issuer has levied a tax on all taxable property within the jurisdiction of the Issuer, within the limitations prescribed by law, sufficient to pay principal of and interest on the Bonds as such becomes due, and such tax has been pledged to the payment of the Bonds. Amounts collected from such tax are to be deposited to the credit of the Interest and Sinking Fund. 2. The Certificates are payable solely from amounts held for the credit of the Certificate Fund and are secured solely by a lien on and pledge of the Net Revenues of the System, after payment or provision for payment of the Prior Lien Obligations, and to the extent of any insufficiency in the Net Revenues of the System, a tax on all taxable property within the jurisdiction of the Issuer. Amounts collected from such tax are to be deposited to the Certificate Fund. 3. The Certificate Ordinance requires that all Net Revenues of the System are to be deposited as received in the System Fund, where they are to be disbursed in the following order of priority: i. To pay the Operating and Maintenance Expenses of the System, as defined in the Certificate Ordinance or required by statute; ii. To pay or provide for payment of the Prior Lien Obligations; iii. To the payment, equally and ratably, of the Previously Issued Obligations and the Certificates; and iv. For any other lawful purpose. 4. The Interest and Sinking Fund and the Certificate Fund (hereinafter collectively referred to as the "Interest and Sinking Funds") will be maintained by the Issuer primarily to achieve a proper matching of revenues and debt service within each bond year. The Issuer expects that the following will occur with respect to the money in the Interest and Sinking Funds (other than those portions thereof, if any, consisting of deposits made to defease in whole or in part the obligations of the Issuer to make deposits thereto): 45209795.1 6 -i. The Interest and Sinking Funds will be depleted at least once a year except possibly for a carry-over amount not greater than the larger of one year's income from the investment of the Interest and Sinking Funds or one-twelfth of annual debt service requirements on the respective series of Obligations for which such Fund is maintained; ii. All amounts deposited to the Interest and Sinking Funds will be spent within 13 months of deposit; and iii. All amounts received from the investment of the Interest and Sinking Funds will be deposited therein and will be expended within twelve months of receipt. 5. Except as described herein, no funds of the Issuer have been or will be pledged to payment of the principal of or interest on the Obligations or otherwise restricted so as to give reasonable assurance of the availability of such funds for such purpose. I. No Excess Proceeds 1. All receipts from the sale of the Bonds and all income from the investment thereof will be applied to pay: (i) the costs of issuing the Bonds; (ii) the cost of establishing the Escrow Fund for the Refunded Obligations as described in paragraph E. above to pay principal, interest or call premium on the Refunded Obligations; or (iii) to pay pre-issuance accrued interest on the Bonds and costs of carrying and repaying the Bonds, except for approximately $0.01 which will remain unexpended after final payment of the Refunded Obligations. 2. Consequently, less than 1% of the sales proceeds of the Bonds will be expended for a purpose other than: i. payment of principal, interest or call premium on the Refunded Obligations; ii. payment of pre-issuance accrued interest on the Bonds; iii. payment of costs of issuance of the Bonds; and 45209795.1 7 - - - iv. payment of administrative costs of· repaying the Refunded Obligations, carrying and repaying the Bonds and purchasing, carrying, and redeeming the SLGS described in paragraph E. above. J. Qualified Guarantee. 1. The Issuer has paid on the date hereof, the sum of $23,000.00 (the "Insurance Premium") has been paid from proceeds of sale of the Obligations to MBIA Insurance Corporation (the "Guarantor") to insure the payment of principal of and interest on the Obligations. 2. The Guarantor is not exempt from federal income taxation and by issuing its insurance has caused the Obligations to be rated "Aaa" by Moody's Investors Services. Neither the Guarantor nor any person related to the Guarantor within the meaning of section 144(a)(3) of the Code will use 1 0 percent or more of the proceeds of the Obligations. 3. Under the insurance contract, the Guarantor is unconditionally and with full recourse obligated to pay all or a portion of the principal of or interest on the Obligations. 4. The Issuer reasonably expects that the Guarantor will not be called upon to make a payment of principal of or interest on the Obligations. The Guarantor is entitled to be immediately and fully reimbursed for any payment of principal of or interest on the Obligations. 5. The Insurance Premium paid to the Guarantor represents a payment solely for the transfer of credit risk for the payment of principal of and interest on the Obligations and not for any other direct or indirect services other than the transfer of credit risk. The Insurance Premium does not exceed a reasonable, arm's length charge for the transfer of such credit risk. 6. The Insurance Premium has been allocated among each of the Obligations and to computation periods in a manner that properly reflects the proportionate credit risk for which the Guarantor has been compensated. 7. The Issuer has been advised by First Southwest Company, its financial advisors, that the. present value of the Insurance Premium is less than the present value of the interest saved as a result of insuring the Obligations, using the yield on the Obligations as the discount factor. K. No Abusive Arbitrage Device. 1. In connection with the issuance of the Obligations, the Issuer has not employed any action which has the effect of overburdening the market for tax-exempt obligations by issuing more bonds, issuing bonds earlier, or allowing bonds to remain outstanding longer than is reasonably necessary to accomplish the governmental purposes of the Obligations. 2. In connection with the issuance of the Obligations, the Issuer has not employed any action which has the effect of enabling the Issuer to exploit the difference between tax- exempt and taxable interest rates to gain a material financial advantage. 45209795.1 8 EXECUTED AND DELIVERED, August 15,2002. · -CITY OF LUBBOCK, TEXAS - - 45209795.1 9 - - - - Resolution No •. 2002-R0108 March 28. 2002 lt:em No. 21 RESOLUTION DECLARING EXPECTATION TO REIMBURSE EXPENDITURES WITH PROCEEDS OF FUTURE DEBT STATE OF TEXAS § COUNTY OF LUBBOCK § WHEREAS, the City of Lubbock (the "Issuer'') intends to issue debt for sewer system improvements for said City (the .. Project"), and further intends to make certain capital expenditures with respect to the Project and currently desires and expects to reimburse such capital expenditures with proceeds of such debt; and WHEREAS, underTreas. Reg.§ 1.150-2 (the ••Regulation''), to fund such reimbursement with proceeds of tax-exempt obligations., the Issuer must declare its. expectation to make such reimbursements; and WHEREAS, the Issuer desires to preserve its ability to reimburse the capital expenditures with proceeds of tax-exempt obligations. NOW THEREFORE BE IT RESOLVED BY THE CITY COUNCIL OF THE ISSUER THAT the Issuer reasonably expects to reimburse capital expenditures with respect to the Projects with proceeds of debt hereafter to be incurred by the Issuer, and that this resolution shall constitute a declaration of official intent under the Regulation. The maximum principal amount of obligations expected to be issued for the Project is $2,500,000. Passed by the City Council this 28th day of March 2002. ATTEST: 13 - - - - - CLOSING CERTIFICATE THE STATE OF TEXAS § § § § § COUNTY OF LUBBOCK CITY OF LUBBOCK WE, the undersigned, Mayor and Director of Finance, respectively, of the City of Lubbock, Texas (the "City"), in conformity with the requirements of the Purchase Contract, dated July 11, 2002 (the "Purchase Contract"), by and between the City and RBC Dain Rauscher Inc., Coastal Securities and Estrada Hinojosa & Company, Inc. (collectively, the "Underwriters"), DO HEREBY CERTIFY, in relation to the issuance and delivery of the "City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2002", dated July 1, 2002 (the "Bonds") and the Official Statement, dated July 11, 2002 (the "Official Statement"), used by the Underwriters in connection with the offering and sale of the Bonds, as follows: ( 1) The representations and warranties of the City contained in the Purchase Contract are true and . correct in all material respects on and as of the · date hereof as if made on the date hereof; (2) Except to the extent disclosed in the Official Statement, no ·litigation is pending or, to our knowledge, threatened in any court to restrain or enjoin the issuance or delivery of the Bonds, or the levy, collection or application of the ad valorem taxes pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof, or in any way contesting or affecting the validity of the Bonds, the Ordinance authorizing the issuance of the Bonds (the "Ordinance"), the Special Escrow Agreement (the "Escrow Agreement"), by and between the City and The Bank of New York Trust Company of Florida, N.A., Dallas, Texas, or the Purchase Contract, or contesting the powers of the City, or contesting the authorization of the Bonds or the Ordinance, or contesting in any way the accuracy, completeness or fairness of the Official Statement; (3) To the best of our knowledge, 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 respect; and (4) There has not been any material and adverse change in the affairs and financial condition of the City since September 30, 2001 the latest date as to which audited financial information is available. 45198161.1 - - - - TO CERTIFY WHICH, witness our hands and the seal of the City of Lubbock, Texas, this August 15, 2002. CITY OF LUBBOC -(City Seal) 45198161.1 -2- 14 - - RECEIPT AND DISBURSEMENT OF FUNDS JPMORGAN CHASE BANK. DALLAS. TEXAS Re: Delivery of $10,81 0,000 "City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2002", dated July 1 , 2002 (the "Bonds") JPMorgan Chase Bank, Dallas, Texas (the "Bank") hereby acknowledges receipt this day of the total sum of $11,106,052.43 for the account of the City of Lubbock, Texas (the "City") from RBC Dain Rauscher Inc. (the "Purchasers"), in payment of the purchase price for the Bonds as follows: Principal Amount of Bonds --------------------$10,810,000.00 Net Original Issue Premium ------------------296,833.75 Less: Underwriter's Discount----~----------(54,441.46) Accrued Interest-------------------------------53,660.14 TOTAL AMOUNT RECEIVED FROM PURCHASERS------------------$11, 106,052.43 and such moneys received has been disbursed, pursuant to instructions received from the City as follows: #45213393vl< (i) Transmitted to The Bank of New York Trust Company of Florida, N.A., the sum of $10,970,273.71 (ii) Retained in payment of services to be rendered as paying agenUregistrar for the Bonds, the sum of $ (iii) Transmitted to American State Bank, Lubbock, Texas, the accrued interest received from the Purchasers in the amount of $53,660.14 and additional proceeds in the amount of $1,392.08 for a total sum of $ {iv) Transmitted to MBIA Insurance Corporation in payment of the municipal bond insurance premium, the sum of $ (v) Transmitted to First Southwest Company for the payment of costs of issuance, the sum of $ 300.00 55,052.22 17,000.00 63,426.50 DATED, this August 15, 2002. (Bank Seal) - - - #45213393vl< -2- JPMORGAN CHASE BANK, Dallas, Texas By0& Authorized Officer 15 - - - - - Re: RECEIPT AND DISBURSEMENT OF FUNDS THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA ,N.A. $10,810,000 "City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2002", dated July 1, 2002 The Bank of New York Trust Company of Florida, N.A. (the "Bank") hereby acknowledges receipt this day of the total sum of $10,970,273.71 for the account of the City of Lubbock, Texas (the "City") from JPMorgan Chase Bank, Dallas, Texas, and such amount has been disbursed as follows: (i) Paid the Bureau of Public Debt for the purchase of the United States Treasury Obligations -State and Local Government Series (identified in Exhibit B to the Agreement), the sum of (ii) Deposited to the credit of the "Special 2002 City of Lubbock, Texas Refunding Bond Escrow Fund", for a beginning cash balance, the sum of (iii) Retained in payment of services to be rendered as Escrow Agent and in satisfaction of the paying agents' charges for the obligations being refunded in accordance with Section 16 of the Agreement, the sum of $6,818,455.00 $4,150,545.21 $ 1,273.50 The Bank further acknowledges receipt of the securities referred to in paragraph (i) above, and such securities have been deposited to and are being held for the credit of the "Special 2002 City of Lubbock, Texas, Refunding Bond Escrow Fund", created and established pursuant to the Agreement. DATED, this August 15, 2002. (Bank Seal) #45213386vl THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A. By:~ #-i.XLA& I,Z Au onzed Officer - 16 - - - - - - - - TELEPHONE: 214/855-8000 FACSIMILE: 214/855-8200 FuLBRIGHT & .JAWORSKI L.L.P. A REGISTERED LIMITED LIABILITY PARTNERSHIP 2200 Ross AvENuE, SuITE 2800 DALLAS, TEXAS 75201-2784 August 15, 2002 HOUSTON WASHINGTON, D.C. AUSTIN SAN ANTONIO DALLAS NEW YORK LOS ANGELES MINNEAPOLIS LONDON HONG KONG WE HAVE ACTED as Bond Counsel in connection with the issuance by City of Lubbock, Texas (the "City") of the "City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2002" (the "Bonds") in the aggregate principal amount of $10,810,000, dated July 1, 2002, solely to express legal opinions as to the validity of the Bonds, the defeasance and discharge of the City's outstanding obligations being refunded by the Bonds and the exclusion of the interest on the Bonds from gross income for federal income tax purposes, and for no other purpose. We have not been requested to investigate or verify, and we neither expressly nor by implication render herein any opinion concerning, the financial condition or capabilities of the City, the disclosure of any financial or statistical information or data pertaining to the City and used in the sale of the Bonds, or the sufficiency of the security for or the value or marketability of the Bonds. THE BONDS are issuable in fully registered form only and in denominations of $5,000 or any integral multiple thereof. The Bonds have stated maturities of February 15 in each of the years 2003 through 2010, without right of prior redemption. Interest accrues on the Bonds from their date at the rates per annum stated in the ordinance adopted by the City Council of the City authorizing the issuance of the Bonds {the "Ordinance"), and such accrued interest is payable on February 15 and August 15 in each year, commencing February 15, 2003, to the registered owners appearing on the registration books of the Paying AgenURegistrar on the Record Date (stated on the face of the Bonds). IN RENDERING THE OPINIONS herein we have examined and rely upon (i) original or certified copies of the proceedings of the City in connection with the issuance of the Bonds, including the Ordinance, (ii) original or certified copies of the Special Escrow Agreement (the "Agreement") between the City and The Bank of New York Trust Company of Florida N.A., Dallas, Texas {the "Escrow Agent"), and a special report of Grant Thornton LLP, Certified Public Accountants (the "Accountants"), (iii) certifications and opinions of officers of the City relating to the expected use and investment of proceeds of the sale of the Bonds and certain other funds of the City and to certain other facts within the knowledge and control of the City, and (iv) such other documentation, including an examination of the Bond executed delivered initially by the City {which we found to be in due form and properly executed), and such matters of law as we deem relevant to the matters discussed below. In such examinations, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original copies of all documents submitted to us as certified copies and the accuracy of the statements and information contained in such certificates. BASED ON OUR EXAMINATIONS, IT IS OUR OPINION that, under the applicable law of the United States of America and the State of Texas in force and effect on the date hereof: 1. The Bonds have been duly authorized by the City and, when issued in compliance with the provisions of the Ordinance are valid, legally binding, and enforceable obligations of the City, payable from the proceeds of an ad valorem tax levied, within the limitations prescribed by law, upon all taxable property within the City, except to the extent that the enforceability thereof may be affected by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors' rights or the exercise of judicial discretion in accordance with general principles of equity. - - Page 2 of Legal Opinion of Fulbright & Jaworski L.L.P. Re: "City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2002", dated July 1, 2002 2. The Agreement has been duly authorized, executed and delivered and is a binding and enforceable agreement in accordance with its terms and the outstanding obligations refunded, discharged, paid and retired with the proceeds of the Bonds have been defeased and are regarded as being outstanding only for the purpose of receiving payment from the funds held in trust pursuant to the Agreement and in accordance with the provisions of V.T.C.A., Government Code, Chapter 1207. In rendering this opinion, we have relied upon the verification by the Accountants of the sufficiency of cash and investments deposited with the Escrow Agent pursuant to the Agreement for the purposes of paying the outstanding obligations refunded and to be retired with the proceeds of the Bonds and the interest thereon. 3. Pursuant to section 103 of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), and existing regulations, published rulings, and court decisions thereunder, and assuming continuing compliance after the date hereof by the City with the provisions of the Ordinance relating to sections 141 through 150 of the Code, interest on the Bonds will be excludable from the gross income, as defined in section 61 of the Code, of the owners thereof for federal income tax purposes, and such interest will not be included in computing the alternative minimum taxable income of the owners thereof who are individuals for federal income tax purposes. Interest on all tax-exempt obligations, such as the Bonds, owned by a corporation (other than an "S" corporation or a qualified mutual fund, real estate mortgage investment conduit, real estate investment trust, or a financial asset securitization investment trust) will be included in such corporation's adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporation. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code is computed. WE EXPRESS NO OTHER OPINION with respect to any other federal, state, or local tax consequences under present law or any proposed legislation resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Ownership of tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, "S" corporations with subchapter "C" earnings and profits, owners of interests in a financial asset securitization investment trust, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. OUR OPINIONS ARE BASED on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above. EHE:dfc 45196575.1 17 - - - - FuLBRIGHT & JAWORSKI L.L.P. TELEPHONE: 214/855-8000 F'ACSIMILE: 214/855-8200 City of Lubbock, Texas 1625 131h St. Lubbock, Texas 79401 RBC Dain Rauscher, Inc. Coastal Securities A REGISTERED LIMITED LIABILITY PARTNERSHIP 2200 Ross AvENUE:, SuiTE 26oo DALLAS, TEXAS 75201-2764 August 15, 2002 Estrada Hinojosa & Company, Inc. c/o RBC Dain Rauscher, Inc. First City Tower 1001 Fannin, Suite 400 Houston, Texas 77002 HOUSTON WASHINGTON, D.C. AUSTIN SAN ANTONIO DALLAS NEW YORK LOS ANGELES MINNEAPOLIS LONDON MUNICH HONG KONG Re: $10,810,000 "City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2002", dated July 1 , 2002 Ladies and Gentlemen: In reference to the issuance and sale of the above described Bonds ( the "Bonds") and our serving as Bond Counsel for the City of Lubbock, Texas (the "City"), we prepared the ordinance (the "Ordinance") authorizing the issuance of the Bonds, adopted by the City Council of the City on July 11 , 2002, which also approved and authorized the distribution of the final Official Statement, dated July 11, 2002 (the "Official Statement") relating to the Bonds and approved and authorized the execution of the Purchase Contract, dated July 11 , 2002 (the "Purchase Contract") with RBC Dain Rauscher, Inc., Coastal Securities and Estrada Hinojosa & Company, Inc., as underwriters of the Bonds. We have examined such documents and satisfied ourselves as to such matters as we have deemed necessary in order to enable us to express the opinions set forth below. A. The Purchase Contract has been duly authorized, executed and delivered by the City and (assuming due authorization by the Underwriters) constitutes a binding and enforceable agreement of the City in accordance with its terms. B. We have not verified and are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Official Statement, but we have reviewed the information contained under the captions or subcaptions "Plan of Financing", "The Bonds" (except under the subcaptions "Book-Entry Only System" and "Bondholders' Remedies"), "Tax Matters", "Continuing Disclosure of Information" (except under the 45010426 - - - - - - Page 2 of Legal Opinion of Fulbright & Jaworski L.L.P. Re: $10,810,000 "City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2002", dated July 1, 2002 subcaption "Compliance with Prior Undertakings") "Legal Matters" (exclusive of the last two sentences thereof) and "Legal Investments and Eligibility to Secure Public Funds in Texas" and we are of the opinion that such descriptions present a fair and accurate summary of the provisions of the laws and instruments therein described and, with respect to the Bonds, such information conforms to the Ordinance. C. The Bonds are exempt from registration pursuant to the Securities Act of 1933, as amended, and the Ordinance is exempt from qualification as an indenture pursuant to the Trust Indenture Act of 1939, as amended. In reference to our opinion relating to the legality and validity of the above described bonds and the interest thereon being excludable from gross income for federal income tax purposes, you may rely upon such opinion to the same extent and as fully as if such opinion were addressed to you. Very truly yours, ~ilf~$1 EHE:dfc 45010426 18 ' - - - - - - LAW OFFICES M<;;;:CALL, PARKHURST & HORTON L.L.P. 600 CONGRESS AVENUE 1250 ONE AMERICAN CENTER AUSTIN. TEXAS 78701-3248 TEt .. EPHONE: 512 47S<H305 RBC Dain Rauscher, Inc. Coastal Securities Estrada Hinojosa & Company, Inc. % RBC Dain Rauscher, Inc. First City Tower 1001 Fannin, Suite 400 Houston, Texas 77002-0220 717 NORTH HARWOOD NINTH FLOOR DALLAS, TEXAS 75201-6587 TELEPHONE: 2l4 754-9200 FACSIMILE: 214 754-9250 August 15, 2002 700 N. ST. MARY'S STREET 1225 ONE RIVERWALK PLACE SAN ANTONIO. TEXAS 78205·3503 TELEPHONE: 210 225 .. 2800 Re: $10,810,000 City of Lubbock, Texas General Obligation Refunding Bonds, Series 2002 Ladies and Gentlemen: We have acted as counsel for you as the underwriters of the Bonds described above (the "Bonds"), issued under and pursuant to an ordinance (the "Ordinance") of the City ofLubbock, Texas (the "Issuer"), authorizing the issuance of the Bonds, which Bonds you are purchasing pursuant to a Purchase Contract, dated July 11, 2002. All capitalized undefined terms used herein shall have the meaning set forth in the Purchase Contract. In connection with this opinion letter, we have considered such matters oflaw and of fact, and have relied upon such Bonds and other information furnished to us, as we have deemed appropriate as a basis for our opinion set forth below. We are not expressing any opinion or views herein on the authorization, issuance, delivery, validity of the Bonds and we have assumed, but not independently verified, that the signatures on all documents and Bonds that we have examined are genuine. Based on and subject to the foregoing, we are of the opinion that, under existing laws, the Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Ordinance is not required to be qualified under the Trust Indenture Act of 1939, as amended. Because the primary purpose of our professional engagement as your counsel was not to establish factual matters, and because of the wholly or partially nonlegal character of many of the determinations involved in the preparation of the Official Statement dated July 11, 2002 (the 110fficial Statement11) and because the information in the Official Statement under the headings 11BOOK- ENTRY ONLY SYSTEM," "TAX MATTERS," "CONTINUING DISCLOSURE Compliance with Prior Undertakings" and Appendices B, C, and D thereto were prepared by others who have been engaged to review or provide such information, we are not passing on and do not assume any - - - - responsibility for, except as set forth in the last sentence of this paragraph, the accuracy, completeness or fairness of the statements contained in the Official Statement (including any appendices, schedules and exhibits thereto) and we make no representation that we have independently verified the accuracy, completeness or fairness of such statements. In the course of our review ofthe Official Statement, we had discussions with representatives of the City regarding the contents of the Official Statement. In the course of our participation in the preparation of the Official Statement as your counsel, we had discussions with representatives of the Issuer, including its City Attorney, Bond Counsel and Financial Advisor, regarding the contents of the Official Statement. In the course of such activities, no facts came to our attention that would lead us to believe that the Official Statement (except for the financial statements and other financial and statistical data contained therein, the information set forth under the headings "BOOK-ENTRY ONLY SYSTEM,11 "TAXMATTERS,11 11CONTINUING DISCLOSURE Compliance with Prior Undertakings" and Appendices B, C and D thereto, as to which we express no opinion), as of its date contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. This opinion letter may be relied upon by only you and only in connection with the transaction to which reference is made above and may not be used or relied upon by any other person for any purposes whatsoever without our prior written consent. Respectfully, U1~-Pd~ ~~1/Y 19 - - -' P.O. Box 2000 • 1625 13th Street Lubbock. Texas 79457 (806) 775-2222 • Fax (806) 775-3307 Office of the City Attorney EXHIBITB OPINION OF THE CITY ATTORNEY RBC Dain Rauscher, Inc. Coastal Securities Estrada Hinojosa & Company, Inc. RBC Dain Rauscher, Inc. First City Tower 1001 Fannin, Suite 400 Houston, Texas 77002:-0220 Ladies and Gentlemen: August 15, 2002 I am the City Attorney for the City of Lubbock, Texas (the "City") at the time of the issuance and sale of the "City of Lubbock, Texas General Obligation Refunding Bonds, Series 2002," in the aggregate principal amount of $10,810,000 (the "Bonds"), pursuant to the provisions of an ordinance duly adopted by the City Council of the City on July 11, 2002 (the "Ordinance"). Capitalized terms not otherwise defined in this opinion have the meanings assigned in the Purchase Contract. In my capacity as City Attorney to the City, I have reviewed such agreements, documents, certificates, opinions, letters, and other papers as I have deemed necessary or appropriate in rendering the opinions set forth below. In making my review, I have assumed the authenticity of all documents and agreements submitted to me as originals conformity to the originals of all documents and agreements submitted to me as certified or photostatic copies, the authenticity of the originals of such latter documents and agreements, and the accuracy of the statement contained in such documents. Based upon the foregoing, and subject to the qualifications and exceptions hereinafter set forth, I am of the opinion that under the applicable laws of the United States of America and the State of Texas in force and effect on the date hereof: B-1 - - 1. Based on reasonable inquiry made of the responsible City employees and public officials, the City is not, to the best of my knowledge, in breach of or in default under any applicable law or administrative regulation of the State of Texas or the United States, or any applicable judgment or decree or any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the City is party or is otherwise subject and, to the best of my knowledge after due inquiry, no event has occurred and is continuing that, with the passage of time or the giving of notice, or both, would constitute such a default by the City under any of the foregoing; and the execution and delivery of the Purchase Contract, the Bonds and the Escrow Agreement and the adoption of the Ordinance and compliance with the provisions of each of such agreements or instruments does not constitute a breach of or default under any applicable law or administrative regulation of the State of Texas or the United States or any applicable judgment or decree or, to the best of my knowledge, any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the City is a party or is otherwise subject; and 2. Except as disclosed in the Official Statement, no litigation is pending, or, to my knowledge, threatened, in any court in any way (a) challenging the titles of the Mayor or any of the other members of the City Council to their respective offices; (b) seeking to restrain or enjoin the issuance, sale or delivery of any of the Bonds, or the levy, collection or application of the ad valorem taxes pledged or to be pledged to pay the principal of and interest on the Bonds; (c) contesting or affecting the validity or enforceability of the Bonds, the Ordinance, the Purchase Contract, or the Escrow Agreement; (d) contesting the powers of the City or any authority for the issuance of the Bonds, or the adoption of the Ordinance; or (e) that would have a material and adverse effect on the financial condition of the City. This opinion is furnished solely for your benefit and may be relied upon only by the addresses hereof or anyone to whom specific permission is given in writing by me. Very truly yours, Q: 1-ll \4, ~~ .. Anita Burgess City Attorney B-2 20 - A1BIA FINANCIAL GUARANTY INSURANCE POLICY MBIA Insurance Corporation Armonk, New York 10504 Policy No. 38533 MBIA Insurance Corporation (the "Insurer''), in consideration of the payment of the premium and subject to the tenns of this policy, hereby tmconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following descnbed obligations, the full and complete payment required to be made by or on behalf of the Issuer to JPMorgan Chase Bank, Dallas, Texas or its successor (the ''Paying Agent") of an amotmt equal to (i) the principal of (either at the stated matmity or by any advancement of rnatmity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of rnatmity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. ·The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: $10,810,000 City ofLubbock, Texas General Obligation Refunding Bonds, Series 2002 Upon receipt of telephonic or telegraphic notice, such notice subsequently confumed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an accotmt with State Street Bank and Trust Company, NA., in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instnnnents of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instnnnents to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to State Street Bank and Trust Company, NA., State Street Bank and Trust Company, NA. shall disburse to such owners, or the Paying Agent payment of the Insured Amotmts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amotmts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The term owner shall not include the Issuer or any party whose agreement with the Issuer constitutes the tmderlying secwity for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Anmnk, New Y Oik 10504 and such service of process shall be valid and binding . ......_ This policy is non-cancellable for any reason The premium on this policy is not refundable for any reason including the payment prior to matmity of the Obligations. - - IN WITNESS WHEREOF, the Insurer has caused this policy to be executed in facsimile on its behalfby its duly authorized officers, this 15th day of August, 2002. DISCLOSURE OF GUARANTY FUND NONPARTICIPATION: In the event the Insurer is unable to fulfill its contractual obligation under this policy or contract or application or certificate or evidence of coverage, the policyholder or certificateholder is not protected by an insurance guaranty fund or other solvency protection arrangement. STD-R-&TX 4195 - - - A1BIA Capital Strength. Triple-A Performance. August 15, 2002 City of Lubbock, Texas 1625 13th Street Lubbock, Texas 79457 RBC Dain Rauscher 1001 Fannin, Suite 400 Houston, Texas 77002 $10,810,000 City of Lubbock, Texas MBIA Insurance Corporation 113 King Street, Armonk, NY 10504 Tel 914-273-4545 www.mbia.com General Obligation Refunding Bonds, Series 2002 Ladies and Gentlemen: I am Deputy General Counsel of the MBIA Insurance Corporation, a New York corporation (the "Corporation"), and have acted as counsel to the Corporation in connection with the issuance of Financial Guaranty Insurance Policy No. 38533 (the "Policy") relating to $10,810,000 City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2002. In so acting, I have examined a copy of the Policy and such other relevant documents as I have deemed necessary. Based upon the foregoing, I am of the following opinion: 1. The Corporation is a stock insurance corporation, duly incorporated and validly existing under the laws of the State ofNew York and is licensed and authorized to issue the Policy under the laws of the State ofNew York and the State ofTexas. - - - - .IMBIA Page2 2. The Policy has been duly executed and is a valid and binding obligation of the Corporation enforceable in accordance with its terms except that the enforcement of the Policy may be limited by laws relating to bankruptcy, insolvency, reorganization, moratorium, receivership and other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Very truly yours, ~~ m. ~~!/fl., ... _ Pauline M. Cullen Deputy General Counsel - - - MBIA Capital Strength. Triple-A Performance. August 15, 2002 JPMorgan Chase Bank Dallas, Texas $10,810,000 City of Lubbock, Texas MBIA Insurance Corporation 113 King Street, Armonk, NY 10504 Tel 914-273-4545 www.mbia.com General Obligation Refunding Bonds, Series 2002 Gentlemen: In connection with the above-described obligations (the "Obligations'1 of which you are acting as paying agent (the "Paying Agent"), please be advised that the payment to you of principal of and interest on the Obligations has been guaranteed by a policy of financial guaranty insurance (the "Policy'1 issued by the MBIA Insurance Corporation (the "Insurer"). State Street Bank and Trust Company, N.A., New York, New York, (the ''Fiscal Agent") is acting as the fiscal agent for the Insurer. The Policy unconditionally and irrevocably guarantees to any owner or holder of the Obligations or, if applicable, of the coupons appertaining thereto (the "Owner"), the full and complete payment required to be made by or on behalf of the issuer of the Obligations (the "Issuer") to the Paying Agent or its successor of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fimd payment) and interest on, the Obligations as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of su~h principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fimd payment, the payments guaranteed by the Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ri) the reimbursement of any such payment which is subsequently recovered from any Owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference (a "Preference") to the Owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence are referred to collectively in this letter as the "Insured Amounts." The Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligations. The Policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fimd redemptions); ·(ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of Obligations upon tender by an Owner thereof; or (iv) any Preference relating to (i) through (iii) above. - - - - .JMBIA In the event that the Issuer does not make full and complete payment when due of the principal of and intereSt on the Obligations, please immediately notify, by telephone or telegraph, the Insurer, 113 King Street, Armonk, New York, 10504, (914) 273--4545. On the due date or within one business day after receipt of such notice, whichever is later, the Insurer will deposit fimds with the Fiscal Agent sufficient to pay the Obligations (or, if applicable, coupons appertaining thereto) then due. Upon presentment and surrender of such Obligations (or, if applicable, coupons) or presentment of such other proof of ownership of Obligations together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for the Owners in any legal proceeding related to payment of Insured Amounts on the Obligations (or, if applicable, coupons), such instruments being in a form satisfactory to the Fiscal Agent, the Fiscal Agent shall disburse to you payment of the Insured Amounts due on such Obligations (and, if applicable, coupons), less any amount held by you for the payment of such Insured Amounts and legally available therefor. Forms of such instruments of assignment and instruments to effect the appointment of the Insurer as such agent for the Owners (collectively, the "Claim Documents"), which are currently acceptable to the Fiscal Agent and the Insurer, are on file with the Fiscal Agent. The Insurer may, from time to time, file revised forms of Claim Documents with the Fiscal Agent in substitution for the forms previously filed with the Fiscal Agent, and upon such filing, the revised forms shall supersede all forms of Claim Documents previously filed with the Fiscal Agent, except as otherwise directed by the Insurer in writing. In the event that you shall have prior knowledge of an impending failure by the Issuer to make payment on the Obligations (or, if applicable, coupons) when due, please immediately notify the Insurer so that it will be possible to have fimds available for you on the due date to make payments against surrendered Obligations (and, if applicable, coupons). Your cooperation in this matter will be most appreciated and will make it poSSible for the Owners of Obligations guaranteed by the Insurer to be assured of all payments when due. V ~truly yours, r.f_ __)/J.'l 0-'A<t Gary C. Dunton President - - - A1BIA CERTIFICATE OF MBIA INSURANCE CORPORATION I, Amy R Gonch, Assistant Secretary ofMBIA Insurance Corporation, do hereby certify that the information concerning MBIA Insurance Corporation and its policies as set forth in the Official Statement, dated July 11, 2002 under the caption "Municipal Bond Insurance", regarding $10,810,000 City of Lubbock, Texas, General Obligation Refnnding Bonds, Series 2002, is accurate. IN WITNESS WHEREOF, I hereunto set my hand and deliver this Certificate on this 15th day of August, 2002. - - - .MBIA Capital Strength. Triple-A Performance. City of Lubbock, Texas 1625 13th Street Lubbock, Texas79457 TAX CERTIFICATE MBIA Insurance Corporation 113 King Street, Armonk, NY 10504 Tel 914-273-4545 www.mbia.com RE: $10,810,000 City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2002 $2,605,000 City of Lubbock, Texas, Tax and Sewer System Surplus Revenue Certificates of Obligation, Series 2002A. (the "Obligations") Ladies and Gentlemen: In· connection with the issuance of the above-referenced obligations (the "Obligations"), MBIA Insurance Corporation (the "Insurer") is issuing two financial guaranty insurance policies (the "Policies") securing the payment of principal and interest on the Obligations. This is to advise you that: 1. The Policies are unconditional obligations of the Insurer to pay scheduled payments of principal and interest on the Obligations in the event of a failure to do so by the City of Lubbock, Texas (the "Issuer"); 2. The insurance premiums in the amount of $17,000 and $6,000, represents the charge for a transfer of credit risk and were determined in arm's length negotiations and are required to be paid as a condition to the issuance of the Policies; 3. No portion of such premiums represents an indirect payment of costs related to the issuance of the Obligations other than for the transfer of credit risk; 4. The Insurer does not reasonably expect that it will be called upon to make any payment under the Policies; and 5. To the extent the Insurer is called upon to make any payment under the Policies, the Insurer reasonably expects to pursue all available legal remedies to secure reimbursement for such payment. Dated: August 15, 2002 MBIA Insurance Corporation 21 - - - ·o 1 East 7tll Street well, WY 82435 Dear Ms. Wilson: Re: City QfLubbock, Ie tl! , Sl0,8Io,ooo I Fitchltatings l 307 754 2012 I 81lO 8~~~ 4B24 www.fitchratings.com I I Ms. Li •a Wilson MBJA Insurance Corp. 1 1 3 .K~ Jg Street Arm.:>r\k. NY 10504 Augm;~ 14, 2002 General Obligation I , :funding Bonds, Sen~: 2002 (33533) . Fitch :Ratio~ has ~,~SSiglled. a 1 ting of'AAA' to the ~ve referenced Bonds. Thh reflects credit euhancement in the fortn of a · ond inswnnee policY: provided by MBIA Insuram: ;. Corp.(MBIA). wbicb has an insurer finanda •trength rating of'AAA.1• Fimb Ratings dofines cl)tl:panies with • AAA' insurer :financial stren h ratings as follows: -·companies are viewed as pc• ssessing exceptionally strong capacity • meet pollcybolder $d contra~ obligations. lU~k ::actors are minimal and the impact of an: ldverse business and·economjc facto.rs is exp~ct·:d to be extremely small. .. Ratings assigned by Fitch Rat gs are based on infor.tnation provided 1o us by IVGLA. Fitch Ratings does not audit or veril the tru!h or acQuracy1of such infon:t~ation. Rat in i; are not a recommenda:don to buy, sell, • hold any security. Ratings do not comment on 1:brl adequacy of market price. the suitability o:f ny security for a particular investor, or the tax -elm \npt nature or taxability of payment made in ISped: of any !ICCurity. The insurer financial sb en£~ b. rating assigned to :MBIA may be cha led. withdrawn, suspended, or pl~ on Ratir gWi1 tch as a result of changes in MBIA' s financu condition. The assignment of a rating by Fitct shall not constitute a consent by Fitch to use its na .e as an expert in connection with any registrlf ion :tatement or other :51ing under U.S., UK or ry other relevant securities laws. Becky K.. Christensen Manager I Insured Ratings - - MBIA Insurance Corporatit ' 113 King Street Armonk. New Y C?rk 1 0504 To Whom It May Concern: !){/ aumth SIJ ~t l'itlw~ti; Naw Y.'li~1M07 Moody'$ Investors Servioe as assigned the rating of Aaa (MBIA J nl>l\rance Corporation Insured ... Policy No. 38$33 to the $10.810,000.00; CitY of Lubbocl :, Texas General Obligation Refunding Sol Is, Series 2002 ·!dated July 1, 2002 wh~:~ sold through negotiation on July 11. 200. The rating is b~sed upon an insurancE! policy provided by MBIA Insurance Corporatio . Should you have any quest ns regarding the Iabove. pJease do nc:,t h!~sitate to contact the assigned analyst, Marg( et Kessler at (212) 553-7884. ' Sincerely yc1U1'!i, Margaret L ,(E~lS l;ler . Vice Presidentl·~lenior Analyst MK:SY 22 - - - - - Ruling£St:rJ!i,t:~ 55 ""'"tc• Sln·cc. lll!h t'luot Netu y.,,k. NY J0041·DOm id 111·H~·2<J7i Rt::{c:rcl!vt No.: ..f{il ~J."!lf> ·.Ms. Lisa A. W)lson Vi1 :nr Orgo 1\d> ·usmliil>c Of/iw· Pw Finun(t: R!ltirJ~>;; Vice President Manager DA< Group MBIA InsuTan<;e Corporatior 113 King Street Armonk. NY I 0504 Standanl & Poor1S zz II /)i.•L;bu l'["fhcM~HillCon!ptz:tW5 Re: $1(),810,000 City ()fLu· 'J()C/4 Te.:r:as, G~:nei;fll Obligation Refumlit.!~~ Bt,mds, Series 2002, dated; July 1, 2002¥ dtt. Febl'u41'y 15. ]003·291(), (POL1CY#31J.S33;> Dear Ms. Wilson: This is to advise you Lhat we h 'e changed the rati.Qg t() 'AAA' from 'AAI 'on the subject bonds. The raring change reflectS our :sessment of the likelihood ofrepaymen1 ofp.r,ncipal and interest based on the bond insurance policy y u company is providing. · When using the Standard & Pc rs rating, include tlic de.fuUtion oflhe rating t<1gether with a statemc:nt . that this may be changed, susp· 1ded or withdrawn ~ a result of changes in, •)C unavailability ot: information. This rating is not .. market rating''· because it is not a recom.m·~~. iation to buy. hold or sell the obligations. Ifyou have any questions. pie<~ :contact us. - - - - - - - CERTIFICATE OF UNDERWRITER The undersigned hereby certifies as follows with respect to the sale and delivery of $10,810,000 City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2002 (the "Bonds"): 1. The undersigned has purchased the Bonds from the City of Lubbock, Texas (the "Issuer") by negotiated sale. 2. The undersigned has made a bona fide offering of the Bonds of each maturity to the public at the initial offering prices set forth in paragraph 3. 3. The initial offering price (expressed as a dollar amount, yield percentage, or percentage of principal amount and exclusive of accrued interest) at which a substantial amount of the Bonds of each maturity was sold to the public (as defined in paragraph 4) is as set forth on the cover page of the Issuer's Official Statement with respect to the Bonds dated July 11, 2002. 4. The term "public", as used herein, means persons other than bondhouses, brokers, dealers, and similar persons or organizations acting in the capacity of underwriters or wholesalers. 5. The initial offering prices described above reflect current market prices at the time of such sales. · 6. The undersigned understands that the statements made herein will be relied . upon by the Issuer in its effort to comply with the conditions imposed by the Internal Revenue Code of 1986 on the exclusion of interest on the Bonds from the gross income of their owners. EXECUTED and DELIVERED thisAUG 1 5 2002 45211326.1 23 - - - ,., F~m8038-G Information Return for Tax-Exempt Governmental Obligations ~ Under Internal Revenue Code section 149(e) (Rev.· November 2000) • See separate instructions. 11 12 13 14 15 16 17 18 19 Caution: Use Form 8038-GC if the issue pn'ce is under $100,000. 0 ~ Other. Describe "' If obligations are TANs or RANs, check box lf~~~~~~!!!.Q~~~~@!!§~~~~~!..!...:.c'-'-!..:..:.,.:..:...:..:....c-'::-!..!..::_:_:...!...:..!..,? Proceeds used for accrued interest .......................................•............... OMB No. 1545-0720 "'· 23 Issue price of entire issue (enter amount from line 21, column (b)) .............................. . 24 Proceeds used for bond issuance costs (including underwriters' discount) .. ·i-='-'-+-_;:;:=..L!.-=~"'--- 25 Proceeds used for credit enhancement ............................ i-=:.::_+--..=.:...L::.=:::..::::=--- 26 Proceeds allocated to reasonably required reserve or replacement fund ... i-=:..::.._+--------- 27 Proceeds used to currently refund prior issues ...................... 1-"~~'-'..:!:~~::!!!:~L-- 28 Proceeds used to advance refund prior issues ....................... ·L...::=-..L!!~~~~.o..!l.~._. __ 29 Total (add lines 24 through 28) ................•................. ; ...•.................•. 31 Enter the remaining weighted average maturity of the bonds to be currently refunded ...................... "' _2_.'-4013---'"-"-------- 32 Enter the remaining weighted average maturity of the bonds to be advance refunded ...................... "' _4-.:.;•:.;;5::..:0'--------- 33 Enter the last date on which the refunded bonds will be called .... , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . "' February 15, 2009 34 Enter the date(s) the refunded bonds were issued Enter the amount of the state volume cap allocated to the issue under section 141(b)(5) ............. . 36a Enter the amount of gross proceeds invested or to .be invested in a guaranteed investment contract (see b Enter the final maturity date of the guaranteed investment contract 37 Pooled financings: a Proceeds of this issue that are to be used to make loans to other governmental units b If this issue is a loan made from the proceeds of another tax-exempt issue, check box "' 0 and enter issuer "' and the date of the issue "' 38 If the issuer has designated the issue under section 265(b)(3)(B)(i)(lll) (small issuer exception), check box ......................... • 0 39 If the issuer has elected to pay a penalty in lieu of arbitrage rebate. check box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • 0 40 If the issuer has identified a hedge, check box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • . • 0 Please Sign Here 45199915 ave examined this return and accompanying schedules and statements, and to the best of ct. and complrJf!T 1 4 2002 Form 8038-G (Rev. 11-2000)