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Home My WebLink AboutOrdinance - 2003-O0089 - Transcript Relating To $13,270,000 Revenue Certs And $8,900,000 Refunding Bonds - 08/15/2003Document Number 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 45363809.1 TRANSCRIPT OF PROCEEDINGS RELATING TO · $13,270,000 CITY OF LUBBOCK, TEXAS TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2003 DATED AUGUST 15, 2003 AND $8,900,000 CITY OF LUBBOCK, TEXAS TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE REFUNDING BONDS SERIES 2003 DATED AUGUST 15, 2003 Description of Document CERTIFICATE AUTHORIZING PROCEEDINGS Resolution Approving and Authorizing Publication of Notice of Intention to Issue Certificates of Obligation and Notice of Sale Affidavits of Publication Ordinance Authorizing the Issuance of the Certificates Executed Paying AgenURegistrar Agreement BOND AUTHORIZING PROCEEDINGS Ordinance Authorizing the Issuance of the Bonds Executed Paying Am.mt/Registrar Agreement PURCHASE/DISCLOSURE DOCUMENTS Executed Purchase Contract Final Official Statement CLOSING DOCUMENTS General Certificate Certificate of JPMorgan Chase Bank 11. Closing Instructions !""":, 12. Signature and No-Litigation Certificates 13. Closing Certificate 14. Certificate as to Tax Exemption 15. Certificate of Underwriter 16. Rating Letters 17. MBIA Insurance Policies and Related Documents 18. Filed Information Reports OPINIONS 19. Attorney General's Opinions and Comptroller's Registration Certificates 20. Opinions of Bond Counsel 21. Supplemental Opinion of Bond Counsel 22. Opinion of Underwriter's Counsel ...... 23 . Opinion of City Attorney RECEIPTS 24. Receipt and Disbursements of Funds -Certificates 25. Receipt of Disbursement of Funds -Bonds -45363809.l 1 THE STATE OF TEXAS COUNTY OF LUBBOCK CITY OF LUBBOCK CERTIFICATE OF CITY SECRETARY § § § § § I, the undersigned, City Secretary of the City of Lubbock, Texas, DO HEREBY CERTIFY as follows: 1 . On the 10th day of July, 2003, a regular meeting of the City Council of the City of Lubbock, Texas, was held at a meeting place within the City; the duly constituted members of the Council being as follows: MARC McDOUGAL JIM GILBREATH FRANKW. MORRISON VICTOR HERNANDEZ T. J. PATTERSON GARY BOREN TOM MARTIN ) ) ) ) ) ) MAYOR COUNCILMEMBERS and all of said persons were present at said meeting, except the following: ______ _ (all present) . Among other business considered at said meeting, the attached resolution entitled: A RESOLUTION approving and authorizing publication of (i) notice of intention to issue certificates of obligation for improvements to the City's Electric Light and Power System and (ii} notice of sale with respect to such certificates of obligation. was introduced and submitted to the Council for passage and adoption. After presentation and due consideration of the resolution, and upon a motion being made by Tom. Hartin and seconded by Gary Boren , the resolution was finally passed and adopted by the Council to be effective immediately by the following vote: 7 voted "For" __ o __ voted "Against" O abstained all as shown in the official Minutes of the Council for the meeting held on the aforesaid date. 2. The attached resolution 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 resolution, was posted and given in advance thereof in compliance with the provisions of V.T.C.A., Government Code, Chapter 551, as amended. 45337502.1 ... - A \, ,.,: IN WITNESS WHEREOF, I have hereunto signed my name officially and affixed the seal of said City, this the 10th day of July, 2003. ~ --c: ... ,'3/::;,,.. """' -Cityecretary '( ' City of Lubbock, Texas (City Seal) 45337502.1 2 RESOLUTION NO. ----- Resolution No. :2003-R0270 July 10, ·2003 Item No. 40 A RESOLUTION approving and authorizing publication of (i) notice of intention to issue certificates of obligation for improvements to the City's Electric Light and Power System and (ii) notice of sale with respect to such certificates of obligation. WHEREAS, the City Council of the City of Lubbock, Texas, has determined that certificates of obligation should be issued in accordance with the provisions of V.T.C.A, Local Government Code, Subchapter C of Chapter 271, for the purpose of paying contractual obligations to be incurred for (i) improvements and extensions to the City's Electric Light and Power System and (ii) professional services rendered in connection with such projects and the financing thereof; and WHEREAS, the City has determined to take bids for the purchase of such certificates of obligations and prior to the issuance of said certificates of obligation, this Council is required to give notice of its intention to issue the same in the manner and time provided by law and to publish a notice of sale with respect thereto in accordance with the provisions of the City's Charter; now, therefore, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK, TEXAS: SECTION 1: The City Secretary is hereby authorized and directed to cause notice to be published of this Council's intention to issue certificates of obligation in the principal amount not to exceed $13,280,000 for the purpose of paying contractual obligations to be incurred for (i) improvements and extensions to the City's Electric Light and Power System and (ii) professional services rendered in connection with such projects and the financing thereof, and such certificates shall be payable from ad valorem taxes and a pledge of the surplus net revenues of the City's Electric Light and Power System (the "System") remaining after payment of operating and maintenance expenses of the System and payments for "Prior Lien Obligations." The notice hereby approved and authorized to be given shall read substantially in the form and content of Exhibit A hereto attached and incorporated herein by reference as a part of this resolution for all purposes, and such notice shall be published in a newspaper of general circulation in the City, once a week for two consecutive weeks, the date of the first publication to be at least fifteen (15) days prior to the date stated therein for the passage of the ordinance authorizing the issuance of the certificates of obligation. SECTION 2: The City Secretary is hereby authorized and directed to cause a notice relating to the sale of certificates of obligation to be published once a week for a period of thirty (30) days; such notice of sale to read substantially in the form and content of Exhibit B hereto attached and incorporated herein by reference as a part of this resolution for all purposes. SECTION 3: It is officially found, determined, and declared the meeting at which this Resolution is adopted was open to the public and public notice of the time, place, and subject matter of the public business to be considered at such meeting, including this Resolution, was given, all as required by V.T.C.A., Government Code, Chapter 551, as amended. 45332 3.1 SECTION 4: This Resolution shall be in force and effect from and after its passage on the date shown below. PASSED AND APPROVED, this July 10, 2003. ATTEST: (City Seal) 45332 3.1 2 - Resolution No. 20Q3..;..R0270 Exhibit A NOTICE OF INTENTION TO ISSUE CITY OF LUBBOCK, TEXAS, CERTIFICATES OF OBLIGATION FOR IMPROVEMENTS TO THE CITY'S ELECTRIC LIGHT AND POWER SYSTEM TAKE NOTICE that the City Council of the City of Lubbock, Texas, shall convene at 10:30 o'clock A.M. on the 2.8th day of August, 2003, at the City Council Chambers, Municipal Complex, 1625 13th Street, Lubbock, Texas, and, during such meeting, the City Council will consider the adoption of an ordinance authorizing the issuance of certificates of obligation in an amount not to exceed $13,280,000 for the purpose of paying contractual obligations to be incurred for (i) improvements and extensions to the City's Electric Light and Power System and (ii) professional !:lervices rendered in connection with such projects and the financing thereof, and such certificates shall be payable from ad valorem taxes and a pledge of the surplus net revenues of the City's Electric Light and Power System (the "System"} remaining after payment of operating and maintenance expenses of the System and payments for "Prior Lien Obligations" (as defined in said ordinance). The certificates are to be issued, and this notice is given, under and pursuant to the provisions of V.T.C.A., Local Government Code, Subchapter C of Chapter 271. 45332373.1 Rebecca Garza City Secretary City of Lubbock, Texas Exhibit B NOTICE OF SALE $13,280,000 Resolution No. 2003-R0270 City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003 On the 28th day of August, 2003, the City Council of the City of Lubbock, Texas, plans to sell the above referenced certificates of obligation during its regular meeting scheduled to begin at 10:30 o'clock A.M. A complete description of the Certificates being authorized and sold may be obtained from the Division of Finance, City of Lubbock, P.O. Box 2000, Lubbock, Texas 79457; or from First Southwest Company, 1700 Pacific Avenue, Suite 500, Dallas, Texas 75201, Financial Consultants to the City. 45332373.1 Rebecca Garza City Secretary City of Lubbock, Texas 2 THE STATE OF TEXAS COUNTY OF LUBBOCK AFFIDAVIT OF PUBLICATION § § § BEFORE ME, the undersigned authority on this day personally appI --fo.-w,e~ ~c'c.e:5 of the Lubbock Avalanche-Journal, a newspt: County of Lubbock, Texas, who, being by me duly sworn, upon oath depos That said newspaper is of general circulation in the City of Lubboc~ "NOTICE OF INTENTION TO ISSUE CITY OF LUBBOCK, TEXAS, OBLIGATION FOR IMPROVEMENTS TO THE CITY'S ELECTRIC LI SYSTEM", hereto attached, was published in said newspaper in its issues ___ -:S=-=~=-...,..,._-~"""':3"--_, .. 2003;and _:s_~--·,:::,-qzg. ___ ., 2003; ~_and pursvan_ o e prov1s ons and said newspaper devotes not less than twenty-five percent (25%) of its (g~,;: s'u6'cf.~~1 tirt'"ti'a':lrtl .,, to items of general interest, is published not less frequently than once eac::~~etca Garza s periodical postal matter in the county where it is published and has been gn~ ~ft.'tli~~k. Texas f and continuously for not less than twelve (12) months prior to the date of thi.~;J~om .. ot1v,,~ "NOTICE OF INTENTION TO ISSUE CITY OF LUBBOCK, TEXAS, CERTIFICATES OF OBLIGATION FOR IMPROVEMENTS TO THE CITY'S ELECTRIC LIGHT AND POWER SYSTEM 11• SWORN TO AND SUBSCRIBED BEFORE ME, this the \8~ day of ~1..:>s\ ' 2003. 45337503.1 KRITTV O\'\fENS ~,wv i'JJ!;.:ik:, ei>i:li! ~ r~ ,. wr/Ctom.11~ EJ:.il!R<!l ftS-17...?u{~ ~Q~ ~teoexas . THE STATE OF TEXAS COUNTY OF LUBBOCK AFFIDAVIT OF PUBLICATION § § § BEFORE_ ME, the undersigned authority on this day personally ar ~ \,,\---e\ "<..-es of the Lubbock Avalanche-Journal, a news County of Lubbock, Texas, who, being by me duly sworn, upon oath dep< That said newspaper is of general circulation in the City of Lubbo .. llOTICltOF"SALli $13,2111),000 "NOTICE OF SALE", hereto attached, was published in said newspaper i ~/iv~;M~-~~~0 City of Lubbock, Texas : R-7911 -~ ........... ~--\~---·· 2003; _O:_,~~-~--=---'' 2003; ______ :s;=--~==-;::~#=--,7 _ _,, 2003; --~-----'<s1-&_3 __ ,2003;and __ Au-....~-s-::\_· _,_o __ ,. 2003; the and said newspaper devotes not less than twenty-five percent (25%) of its total column lineage to items of general interest, is published not less frequently than once each week, entered as periodical postal matter in the county where it is published and has been published regularly and continuously for not less than twelve (12) months prior to the date of the publication of said "NOTICE OF SALE". SWORN TO AND SUBSCRIBED BEFORE ME, this the tb~ day of~);;,--\-, 2003. 45337503.1 3 - THE STATE OF TEXAS COUNTY OF LUBBOCK CITY OF LUBBOCK CERTIFICATE OF CITY SECRETARY § § § § § I, the undersigned, City Secretary of the City of Lubbock, Texas, DO HEREBY CERTIFY as follows: 1. On the 28th day of August, 2003, 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 VICTOR HERNANDEZ T. J. PATTERSON GARY BOREN FRANK W. MORRISON TOM MARTIN JIM GILBREATH ) ) ) ) ) ) MAYOR MAYOR PRO TEM COUNCILMEMBERS all of said persons were present at said meeting, except the following: None . Among other business considered at said meeting, the attached ordinance entitled: "AN ORDINANCE authorizing the issuance of 'CITY OF LUBBOCK, TEXAS, TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES 2003'; specifying the terms and features of said certificates; providing for the payment of said certificates of obligation by the levy of an ad valorem tax upon all taxable property within the City and a lien on and pledge of the net revenues from the operation of the City's Electric Light and Power System; and resolving other matters incident and related to the issuance, sale, security, payment and delivery of said certificates, including the approval of a Paying Agent/Registrar Agreement and a Purchase Contract and the approval and distribution of an Official Statement pertaining thereto; 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 by Jim Gilbreath and seconded by T.J. Patterson , the Ordinance was duly passed and adopted to be effective immediately in accordance with the Section 1201.028 by the following vote: 7 voted "For" 0 voted "Against" 0 abstained all as shown in the official Minutes of the Council for the meeting held on the aforesaid date. 45352997.1 ,f .. - 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 meetings are those persons shown above and, according to the records of my office, advance notice of the time, place and purpose of each meeting was given to each member of the Council; and that said meetings and the deliberation of the aforesaid public business were open to the public and written notice of said meetings, 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 28th day of August, 2003. CityScretary City of Lubbock, Texas (City Seal) 45352997.1 -2 - ORDINANCE NO. 2003-00089 AN ORDINANCE authorizing . the issuance of "CITY OF LUBBOCK, TEXAS, TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES 2003"; specifying the terms and features of said certificates; providing for the payment of said certificates of obligation by the levy of an ad valorem tax upon all taxable property within the City and a lien on and pledge of the net revenues from the operation of the City's Electric Light and Power System; and resolving other matters incident and related to the issuance, sale, security, payment and delivery of said certificates, including the approval of a Paying Agent/Registrar Agreement and a Purchase Contract and the approval and distribution of an Official Statement pertaining thereto; and providing an effective date. WHEREAS, notice of the City Council's intention to issue certificates of obligation in the maximum principal amount of $13,280,000 for the purpose of paying contractual obligations to be incurred for (i) improvements and extensions to the City's Electric Light and Power System and (ii) professional services rendered in connection with such projects and the financing thereof, has be~n duly published in the Lubbock Avalanche-Journal, a newspaper hereby · found and determined to be of general circulation in the City of Lubbock, Texas, on July 13, 2003 and July 20, 2003, the date of the first publication of such notice being not less than fifteen (15) days prior to the tentative date stated therein for the passage of this Ordinance; and WHEREAS, no petition, protesting the issuance of such certificates and bearing valid petition signatures of at least 5% of the qualified voters of the City, has been filed with the City Secretary, any member of the Council or any other official of the City on or prior to the date of the passage of this Ordinance; and WHEREAS, the Council hereby finds and determines the certificates of obligation described in the aforesaid notice should be issued and sold at this time in the amount and manner as hereinafter provided; now, therefore, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK: SECTION 1: Authorization-Designation-Principal Amount-Purpose. Certificates of obligation of the City shall be and are hereby authorized to be issued in the aggregate principal amount of $13,270,000 to be designated and bear the title "CITY OF LUBBOCK, TEXAS, TAX AND ELECTRIC LIGHT AND POWER. SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES 2003" (the "Certificates"), for the purpose of paying contractual obligations to be incurred for (i) improvements and extensions to the City's Electric Light and Power System and (ii) professional services rendered in connection with such projects and the financing thereof, pursuant to authority conferred by and in conformity with the Constitution and laws of the State of Texas, including V.T.C.A., Local Government Code, Subchapter C of Chapter 271. SECTION 2: Fully Registered Obligations -Authorized Denominations-Stated Maturities-Date. The Certificates are issuable in fully registered form only; shall be dated August 15, 2003 (the "Certificate Date") and shall be in denominations of $5,000 or any 45349035.1 integral multiple thereof (within a Stated Maturity) and the Certificates shall become due and ~ payable on April 15 in each of the years ~md in principal amounts (the "Stated Maturities") and bear interest at the per annum rate(s) in accordance with the following schedule: - - Year of Principal Interest Stated Maturity Amount Rate(s) 2004 $645,000 2.000% 2005 480,000 2.000% 2006 490,000 2.000% 2007 495,000 2.500% 2008 510,000 3.000% 2009 525,000 3.250% 2010 . 540,000 3.750% 2011 565,000 4.000% · 2012 585,000 4.000% 2013 610,000 4.125% 2014 635,000 4.250% 2015 660,000 4.375% 2016 690,000 4.500% 2017 720,000 4.600% 2018 755,000 . 5.000% 2019 790,000 4.750% 2020 830,000 4.875% 2021 870,000 5.000% 2022 915,000 5.000% 2023 960,000 5.000% The Certificates shall bear interest on the unpaid principal amounts from the Certificate Date at the per annum rate(s) shown above in this Section (calculated on the basis of a 360-day year of twelve 30-day months).· Interest on the Certificates shall be payable on April 15 and October 15 in each year, commencing April 15, 2004. SECTION 3: Terms of Payment-Paying Agent/Registrar. The principal of, premium, if any, and the interest on the Certificates, due and payable by reason of maturity, redemption or otherwise, shall be payable only to the registered owners or holders · of the Certificates (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 to serve as Paying Agent/Registrar for the Certificates is hereby approved and confirmed. Books and records relating to the registration, payment, exchange and transfer of the Certificates (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 45349035.1 2 - prescribe. The Mayor and City Secretary of the City are hereby authorized to execute and de.liver such Agreement in connection wit.h the delivery of the Certificates. The City covenants to maintain and provide a Paying Agent/Registrar at all times until the Certificates 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 ~apacity and perform the duties and services of Paying Agent/Registrar. Upon any change in the Paying Agent/Registrar for the Certificates, the 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 Certificates shall be payable at the Stated Maturities or the redemption thereof only upon presentation and surrender of the Certificates to the Paying Agent/Registrar at its designated offices in Dallas, Texas (the "Designated Payment/Transfer Office"). Interest on the Certificates shall be paid by the Paying Agent/Registrar to the Holders whose name appears in the Security Register at the close of business on the Record Date (the last business day of the month next preceding each interest payment date) and payment of such interest shall be (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 Certificates 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 next preceding the date of mailing of such notice. SECTION 4: Redemption. (a) Optional Redemption. The Certificates having Stated Maturities on and after April 15, 2013, shall be subject to redemption prior to maturity, at the option of the City, in whole or in part in principal amounts of $5,000 or any integral multiple thereof (and if within a Stated Maturity by lot by the Paying Agent/Registrar), on April 15, 2012 or on any date thereafter at the redemption price of par plus accrued interest to the date of redemption. (b) Exercise of Redemption Option. At least forty-five (45) day$ prior to a redemption date for the Certificates (unless a shorter notification period shall be satisfactory to the Paying Agent/Registrar), the City shall notify the Paying Agent/Registrar of the decision to redeem Certificates, the principal amount of each Stated Maturity to be redeemed, and the 45349035.1 3 date of redemption therefor. The decision of the City to exercise the right to redeem ~ Certificates shall be entered in the minut~s of the governing body of the City. - - (c) Selection of Certificates for Redemption. If less than all Outstanding Certificates of the same Stated Maturity are to be redeemed on a redemption date, the Paying Agent/Registrar shall treat such Certificates as representing the number of Certificates Outstanding which is obtained by dividing the principal amount of such Certificates by $5,000 and shall select the Certificates, or principal amount thereof, to be redeemed within such Stated Maturity by lot. (d) Notice of Redemption. Not less than thirty (30) days prior to a redemption date for the Certificates, a notice of redemption shall be sent by United States Mail, first class postage prepaid, in the name of the City and at the City's expense, to each Holder of a Certificate to be redeemed in whole or in part at the address of the Holder appearing on the Security Register at the close of business on the business day next preceding the date of mailing such notice, and any notice of redemption so· mailed shall be conclusively presumed to have been duly given irrespective of whether receivec_j by the Holder. All notices of redemption shall (i) specify the date of redemption for the Certificates, (ii) identify the Certificates to be redeemed and, in the case of a portion of the principal amount to be redeemed, the principal amount thereof to be redeemed, (iii) state the redemption price, (iv) state that the Certificates, or the portion of the principal amount thereof to be redeemed, shall become due and payable on ttw redemption date specified, and the interest thereon, or on the portion of the principal amount thereof to be redeemed, shall cease to accrue from and after the redemption date, and (v) specify that payment of the redemption price for the Certificates, or the principal amount thereof to be redeemed, shall be made at the Designated Payment/Transfer Office of the Paying Agent/Registrar only upon presentation and surrender thereof by the Holder. if a Certificate is subject by its terms to prior redemption and has been called for redemption and notice of redemption thereof has been duly given as hereinabove provided, such Certificate (or the principal amount thereof to be redeemed) shall become due and payable and interest thereon shall cease to accrue from and after the redemption date therefor; provided moneys sufficient for the payment of such Certificate (or of the principal amount the(eof _to be redeemed) at the then applicable redemption price are held for the purpose of such payment by the Paying Agent/Registrar. SECTION 5: Registration -Transfer -Exchange of Certificates-Predecessor Certificates. The Paying Agent/Registrar shall obtain, record, and maintain in the Security Register the name and address of each and every owner of the Certificates issued under and pursuant to the provisions of this Ordinance, or if appropriate, the nominee thereof. Any Certificate may be transferred or exchanged for Certificates of other authorized denominations by the Holder, in person or by his duly authorized agent, upon surrender of such Certificate to the Paying Agent/Registrar 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 Certificate (other than the Initial Certificate(s) authorized in Section 8 hereof) for transfer at the Designated Payment/Transfer Office of the Paying Agent/Registrar, the Paying Agent/Registrar shall register and deliver, in the name of the 45349035.1 4 - designated transferee or transferees, one or more new Certificates of authorized denominations and having the same Stated Maturity and of a like aggregate principal amount as the Certificate or Certificates surrendered for transfer. At the option of the Holder, Certificates (other than the Initial Certificate(s) authorized in Section 8 hereof) may be exchanged for other Certificates of authorized denominations and having the same Stated Maturity, bearing the same rate of interest and of like aggregate principal amount as the Certificates surrendered for exchange, upon surrender of the Certificates to be exchanged at the Designated Payment/Transfer Office of the Paying Agent/ Registrar. Whenever any Certificates are surrendered for exchange, the Paying Agent/Registrar shall register and deliver new Certificates to the Holder requesting the exchange. All Certificates issued in any transfer or exchange of Certificates 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 Certificates surrendered in such transfer or exchange. All transfers or exchanges of Certificates 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. · Certificates canceled by reason of an exchange or transfer pursuant to the provisions hereof are hereby defined to be "Predecessor Certificates," evidencing all or a portion, as the case may be, of the same obligation to pay evidenced by the new Certificate or Certificates registered and delivered in the exchange or transfer therefor. Additionally, the term "Predecessor Certificates" shall include any mutilated, lost, destroyed, or stolen Certificate for which a replacement Certificate has been issued, registered and delivered in lieu thereof pursuant to the provisions of Section 19 hereof and such new replacement Certificate shall be deemed to evidence the same obligation as the mutilated, lost, destroyed, or stolen Certificate. Neither the City nor the Paying Agent/Registrar shall be required to issue or transfer to an assignee of a Holder any Certificate called for redemption, in whole or in part, within 45 days of the date fixed for the redemption of such Certificate; provided, however, such limitation on transferability shall not be applicable to an exchange by the Holder of the unredeemed balance of a Certificate called for redemption in part. SECTION 6: Book-Entry Only Transfers and Transactions. Notwithstanding the provisions contained in Sections 3, 4 and 5 hereof relating to the payment and transfer/exchange of the Certificates, 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 the 45349035.1 5 - - Blanket Issuer Letter of Representations by and· between the City and OTC (the "Depository Agreement"). · Pursuant to the Depository Agreement and the rules of OTC, the Certificates shall be deposited with OTC who shall hold said Certificates for its participants (the "OTC Participants") and, while the Certificates are held by OTC under the Depository Agreement, the Holder of the Certificates on the Security Register for all purposes, including payment and notices, shall be Cede & Co., as nominee of OTC, notwithstanding the ownership of each actual purchaser or owner of each Certificate (the "Beneficial Owners") being recorded in the records of OTC and OTC Participants. In the event OTC determines to discontinue serving as securities depository for the Certificates or otherwise ceases to provide book-entry clearance and settlement of securities transactions in general or the City determines that OTC is incapable of properly discharging its duties as securities depository for the Certificates, the City covenants and agrees with the Holders of the Certificates to cause Certificates to be printed in definitive form and provide for the Certificate certificates to· be issued and delivered to OTC Participants ancl Beneficial Owners, as the case may be. Thereafter, the Certificates in definitive form shall be assigned, transferred and exchanged on the Security Register maintained by the Paying Agent/Registrar and payment of such Certificates shall be made in accordance with the provisions of Sections 3, 4 and 5 hereof. SECTION 7: Execution -Registration. The Certificates 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 Certificates may be manual or facsimile. Certificates bearing the manual or facsimile signatures of individuals who are or were the proper officers of the City on the Certificate Date shall be deemed to be duly executed on behalf of the City, notwithstanding that one or more of the individuals executing the same shall cease to be such officer at the time of delivery of the Certificates to the initial purchaser(s) and with respect to Certificates delivered in subsequent exchanges and transfers, all as authorized and provided in V.T.C.A., Government Code, Chapter 1201. No Certificate shall be entitled to any right or benefit under this Ordinance, or be valid or obligatory for any purpose, unless there appears on such Certificate 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 9D, manually executed by an authorized officer, employee or representative of the Paying Agent/Registrar, and either such certificate duly signed upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly certified, registered and delivered. SECTION 8: Initial Certificate(s). The Certificates herein authorized shall be initially issued either (i) as a single fully registered certificate in the total principal amount stated in Section 1 hereof with principal installments to become due and payable as provided in Section 2 hereof and numbered T-1, or (ii) as multiple fully registered certificates, being one certificate 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 Certificate(s)") and, in either case, the Initial Certificate(s) shall be registered in the name of the initial 45349035.1 6 purchaser(s) or the designee thereof. The Initial Certificate(s) shall be the Certificates 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 Certificate(s), the Paying Agent/Registrar, pursuant to written instructions from the initial purchaser(s), or the designee thereof, shall cancel the Initial Certificate(s) delivered hereunder and exchange therefor definitive Certificates 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 AgentlRegistrar may reasonably require. SECTION 9: Forms. A. Forms Generally. The Certificates, the Registration Certificate of the Comptroller of Public Accounts of the State of Texas, the Registration Certificate of Paying AgentlRegistrar, and the form of Assignment to be printed on each of the Certificates, 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 in the event the Certificates, or any maturities thereof, are purchased with insurance and any reproduction of an opinion of counsel) thereon as may, consistently herewith, be established by the City or determined by the officers executing such Certificates as evidenced by their execution. Any portion of the text of any Certificates may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Certificate. The definitive Certificates and the Initial Certificate(s) shall be printed, lithographed, or engraved, typewritten, photocopied or otherwise reproduced in any other similar manner, all as determined by the officers executing such Certificates as evidenced by their execution thereof. B. REGISTERED NO. __ _ Form of Certificates. UNITED STATES OF AMERICA STATE OF TEXAS CITY OF LUBBOCK, TEXAS, REGISTERED $ ___ _ TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE CERTIFICATE OF OBLIGATION, SERIES 2003 Certificate Date: Interest Rate: Stated Maturity: CUSIP NO: August15,2003 % 45349035.1 7 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 Registered Owner named above, or the registered assigns thereof, on the Stated Maturity date specified above the Principal Amount stated above (or so much thereof as shall not have been paid upon prior redemption) and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) on the unpaid Principal Amount hereof from the Certificate Date at the per annum rate of interest specified above; such interest being payable on April 15 and October 15 of each year, commencing April 15, 2004. Principal of this Certificate is payable at its Stated Maturity or redemption to the registered owner hereof, upon presentation and surrender, at the Designated Paymentrrransfer Office of the Paying Agent/Registrar executing the registration certificate appearing hereon, or its successor; provided, however, while this Certificate is registered to Cede & Co., the payment of principal upon a partial redemption ofthe principal amount hereof may be accomplished without presentation and surrender of this Certificate. Interest is payable to the registered owner of this Certificate (or one or more Predecessor Certificates, 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 on the Record Date 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 Certificate 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. This Certificate is one of the series specified in its title issued in the aggregate principal amount of $13,270,000 (herein referred to as the "Certificates") for the purpose of paying contractual obligations to be incurred for (i) improvements and extensions to the City's Electric Light and Power System and (ii) professional services rendered in connection with such projects and the financing thereof, under and in strict conformity with the Constitution and laws of the State of Texas, particularly V.T.C.A., Local Government Code, Subchapter C of Chapter 271, and pursuant to an Ordinance adopted by the governing body of the City (herein referred to as the "Ordinance"). · The Certificates maturing on and after April 15, 2013, may be redeemed prior to their Stated Maturities, at the option of the City, in whole or in part in principal amounts of $5,000 or any integral multiple thereof (and if within a Stated Maturity by lot by the Paying Agent/Registrar), on April 15, 2012, or on any date thereafter, at the redemption price of par, together with accrued interest to the date of redemption. At least thirty days prior to a redemption date, the City shall cause a written notice of such redemption to be sent by United States Mail, first class postage prepaid, to the registered 45349035.1 8 owners of each Certificate to be redeemed at the address shown on the Security Register and subject to the terms and provisions relatirig thereto contained in the Ordinance. If a Certificate (or any portion of its principal sum) shall have been duly called for redemption and notice of such redemption duly given, then upon the redemption date such Certificate (or the portion of its principal sum to be redeemed) shall become due and payable, and, if moneys for the payment of the redemption price and the interest accrued on the principal amount to be redeemed to the date of redemption are held for the purpose of such payment by the Paying Agent/Registrar, interest shall cease to accrue and be payable from and after the redemption date on the principal amount redeemed. In the event a portion of the principal amount of a Certificate is to be redeemed and the registered owner is someone other than Cede & Co., payment of the redemption price of such principal amount shall be made to the registered owner only upon presentation and surrender of such Certificate to the Designated Payment:rrransfer Office of the Paying Agent/Registrar, and a new Certificate or Certificates of like maturity and interest rate in any authorized denominations provided by the Ordinance for the then unredeemed balance of the principal sum thereof will be issued to the registered owner, without charge. If a Certificate is selected for redemption, in whole or in part, the City and the Paying Agent/Registrar shall not be required to transfer such Certificate to an assignee of the registered owner within 45 days of the redemption date therefor; provided, however, such limitation on transferability shall not be applicable to an exchange by the registered owner of the unredeemed balance of a Certificate redeemed in part. The Certificates are payable from the proceeds of an ad valorem tax levied, within the limitations prescribed by law, upon all taxable property in the City and, together with the Series 2003 Bonds (identified and defined in the Ordinance), are additionally payable from and secured by a lien on and pledge of the Net Revenues (as defined in the Ordinance) of the City's Electric Light and Power System (the "System"), such lien and pledge, however, being junior and subordinate to the lien on and pledge of the Net Revenues of the System securing the payment of "Prior Lien Obligations" (as defined in the Ordinance) now outstanding and hereafter issued by the City. In the Ordinance, the City reserves and retains the right to issue Prior Lien Obligations while the Certificates are outstanding without limitation as to principal amount or subject to any terms, conditions or restrictions other than as may be required by law or otherwise, as well as the right to issue Additional Obligations (as defined in the Ordinance) payable from and, together with the Certificates and Series 2003 Bonds, equally and ratably secured by a parity lien on and pledge of the Net Revenues of the System. Reference is hereby made to the Ordinance, a copy of which is on file in the Designated Payment:rrransfer Office of the Paying Agent/Registrar, and to all the provisions of which the Holder hereof 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 Certificates; the nature and extent of the pledge of the Net Revenues securing the payment of the Certificates; the terms and conditions relating to the transfer or exchange of this Certificate; 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 the tax levy and the pledge of the Net Revenues and covenants made in the Ordinance may be discharged at or prior to the maturity · of this Certificate, and this Certificate deemed to be no longer Outstanding thereunder; and for 45349035.1 9 the other terms and provisions contained therein. Capitalized terms used herein have the meanings assigned in the Ordinance. This Certificate, subject to certain limitations contained in the Ordinance, may b.e 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 fully registered Certificates of authorized denominations 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, may treat the registered owner hereof 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 Certificate as the awrier entitled to payment of principa.l hereof at its Stated Maturity or its redemption, in whole or in part, 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 covenanted that the City is a body corporate and political subdivision duly organized and legally existing under and by virtue of the Constitution and laws of the State of Texas; that the issuance of the Certificates is duly authorized by law; that all acts, conditions and things required to exist and be done precedent to and in the is.suance ofthe Certificates to render the same lawful and valid obligations of the City have been properly done, have happened and have been performed in regular and due time, form and manner as required by the Constitution and laws of the State of Texas, and the . Ordinance; that the Certificates 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 Certificates as aforestated. In case any provision in this Certificate or any application thereof shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions and applications shall not in any way be affected or impaired thereby. The terms and provisions of this Certificate and the Ordinance shall be construed in accordance with and shall be governed by the laws of the State of Texas. 45349035.1 10 IN WITNESS WHEREOF, the City Council of the City has caused this Certificate to be .-, duly executed under the official seal of th~ City as of the Certificate Date. COUNTERSIGNED: City Secretary (SEAL) CITY OF LUBBOCK, TEXAS. Mayor C. * Form of Registration Certificate of Comptroller of Public Accounts to Appear on Initial Certificate(s) only. REGISTRATION CERTIFICATE OF COMPTROLLER OF PUBLIC ACCOUNTS OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS THE STATE OF TEXAS ) ) ) ) REGISTER NO. ______ _ I HEREBY CERTIFY that this Certificate has been examined, certified as to validity and approved by the Attorney General of the State of Texas, and duly registered by the Comptroller of Public Accounts of the State of Texas. WITNESS my signature and seal of office this _______ _ (SEAL) Comptroller of Public Accounts of the State of Texas *NOTE TO PR!NTER:Do not print on definitive Certificates 45349035.1 11 D. Form of Certificate of Paying Agent/Registrar to Appear on · Definitive Alllli Certificates. REGISTRATION CERTIFICATE OF PAYING AGENT/REGISTRAR This Certificate has been duly issued and registered under the provisions of the within-mentioned Ordinance; the certificate or certificates of the above entitled and designated series originatly 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 located in Dallas, Texas, is the "Designated Payment/Transfer Office" for this Certificate. Registration Date: E. Form of Assignment. JP MORGAN CHASE BANK, as Paying Agent/Registrar Authorized Signature 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 Certificate and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer the within Certificate 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 Certificate in every partlcular. F. The Initial Certificate(s) shall be in the form set forth ln paragraph B of this Section, except that the form of a singJe fully registered Initial Certificate shall be modified as follows: · 45349035.1 12 - (i) immediately under the name of the certificate the headings "Interest Rate and "Stated Maturity · " shall both be omitted; II (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 Registered Owner named above, or the registered assigns thereof, the Principal Amount hereinabove stated, on April 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). (or so much principal thereof as shall not have been prepaid prior to maturity) and to pay interest on the· unpaid Principal Amount hereof from the Certificate 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 payable on April 15 and October 15 of each year, commencing April 15, 2004. Principal installments of this Certificate are payable in the year of maturity or on a prepayment date to the registered owner hereof by JPMorgan Chase Bank (the "Paying Agent/Registrar"), upon presentation and surrender, at its designated offices in Dallas, Texas (the "Designated Payment/Transfer Office"). Interest is payable to the registered owner of this Certificate 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 hereof 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 Certificate 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: Definitions. For purposes of this Ordinance and for clarity with respect to the issuance of the Certificates, and the levy of taxes and appropriation of Net Revenues therefor, the following words or terms, whenever the same appear herein without qualifying language, are defined to mean as follows: (a) The term "Additional Obligations" shall mean tax and revenue obligations hereafter issued which by their terms. are payable from ad va!orem 45349035.1 13 -'• taxes and additionally payable from and secured by a parity lien on and pledge of the Net Revenues of the Syst~m of equal r:ank and dignity with the lien and pledge securing the payment of the Series 2003 Bonds and the Certificates. (b) The term "Certificates" shall mean "CITY OF LUBBOCK, TEXAS, TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES 2003" authorized by this Ordinance. (c) The term "Certificate Fund" shall mean the special Fund created and established under the provisions of Section 11 of this Ordinance. (d) The term "Collection Date" shall mean, when reference is being made to the levy and collection of annual ad valorem taxes, the date annu,al ad valorem taxes levied each year by the City become delinquent. (e) The term "Fiscal Year" shall mean the annual financial accounting period used with respect to the operations of the System now ending on September 30th of each year; provided, however, the City Council may change, by ordinance duly passed, such annual financial accounting period to end on another date if such change is found and determined to be necessary for budgetary or other fiscal purposes. (f) The term "Government Securities" shall mean (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 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 rate9 as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. (g) The term "Net Revenues" shall mean the gross revenues of the System less expenses of operation and maintenance. Such expenses of operation and maintenance shall not include depreciation charges or funds pledged for the Prior Lien Obligations, but shall include all salaries, labor, materials, repairs, and extensions necessary to render services; provided, however, that in determining "Net Revenues", only such repairs and extensions as in the judgment of the City Council, reasonably and fairly exercised, are necessary to keep the System in operation and render adequate service to the Clty and inhabitants thereof, or such as might be necessary to .meet some physical accident or condition which otherwise would impair the security of the 45349035.1 14 Prior Lien Obligations, shall be deducted, and payments under contracts for the purchase and supply of power. (h) The term "Outstanding" when used in this Ordinance with respect to Certificates means, as of the date of determination, all Certificates theretofore issued and delivered under this Ordinance, except: ( 1} those Certificates canceled by the Paying Agent/Registrar or delivered to the Paying Agent/Registrar for cancellation; (2) those Certificates deemed to be duly paid by the City in accordance with the provisions of Section 20 hereof; and (3) those Certificates that have been mutilated, destroyed, lost, or stolen and replacement Certificates have been registered and delivered in lieu thereof as provided in Section 19 hereof. (i} The term "Prior Lien Obligations" shall mean all bonds or other similar obligations hereafter issued that are payable in whole or in part from and secured by a lien on and pledge of the Net Revenues of the System and such lien and pledge securing the payment thereof is prior and superior in claim, rank and dignity to the lien and pledge of the Net Revenues securing the payment of the Series 2003 Bonds and the Certificates, including, but not limited to the following: (1) City of Lubbock, Texas, Electric Light and Power System Refunding Revenue Bonds, Series 1995, dated June 15, 1995, in the original principal amount of $13,560,000, (2) City of Lubbock, Texas, Electric Light and Power System Revenue Bonds, Series 1998, dated January 1, 1998, in the original principal amount of $9,170,000, (3) City of Lubbock, Texas, Electric Light and Power System Revenue Refunding and Improvement Bonds, Series 1999, dated January 15, 1999, in the original principal amount of $14,975,000 and (4) City of Lubbock, Texas, Electric Light and Power System Revenue Bonds, Series 2001, dated July 1, 2001, in the original principal amount of $9,200,000. (j) The term "Series 2003 Bonds" shall mean the "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003", dated. August 15, 2003 (authorized for issuance concurrently with the Certificates). 45349035.1 15 (k) The term "System" shall mean all properties, real, personal, mixed or otherwise, now owned 9r hereafter .acquired by the City of Lubbock through purchase, construction or otherwise, and used in connection with the City's Electric Light and Power System and in anywise pertaining thereto, whether situated within or without the limits of the City. SECTION 11: Certificate Fund. For the purpose of paying the interest on and to provide a sinking fund for the payment and retirement of the Certificates, there shall be and is hereby created a special Fund to be designated "SPECIAL 2003 CITY OF LUBBOCK, TEXAS, TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE CERTIFICATE OF OBLIGATION FUND", which Fund shall be kept and maintained at the City's depository bank, and moneys deposited in said Fund shall be used for no other purpose. Proper officers of the City are hereby authorized and directed to cause to be transferred to the Paying Agent for the Certificates, from funds on deposit in the Certificate Fund, amounts sufficient to fully pay and discharge promptly each installment of interest and principal of the Certificates as the same accrues or matures or comes due by reason of redemption prior to maturity; such transfers of funds to be made in such manner as will cause immediately available funds to be deposited with the Paying Agent for the Certificates at the close of business on the last business day next preceding each interest and/or principal payment date for the Certificates. Pending the transfer of funds to the Paying Agent/Registrar, money in the Certificate Fund may, at the option of the City, be invested in obligations identified in, and in accordance with the provisions of the "Public Funds Investment Act" (V.T.C.A., Government Code, Chapter 2256); provided that all such investments shall be made in such a manner that the money required to be expended from said Fund will be available at the proper time or times. All interest and income derived from deposits and investments in said Certificate Fund shall be credited to, and any losses debited to, the said Certificate Fund. All such investments shall be sold promptly when necessary to prevent any default in connection with the Certificates. SECTION 12: Tax Levy. That to provide for the payment of the "Debt Service Requirements" on the Certificates being (i) the interest on said Certificates and (ii) a sinking fund for their payment at maturity or redemption or a sinking fund of 2% (whichever amount shall be the greater), there shall be and there is hereby levied for the current year and each succeeding year thereafter while ·said Certificates or any interest thereon shall remain Outstanding, a sufficient tax on each one hundred dollars' valuation of taxable property in said City, adequate to pay such Debt Service Requirements, within the limits prescribed by law, full allowance being made for delinquencies and costs of collection; said tax shall be assessed and collected each year and applied to the payment of the Debt Service Requirements, and the same shall not be diverted to any other purpose. The taxes so levied and collected shall be deposited into the Certificate Fund. This governing body hereby declares its purpose and intent to provide and levy a tax legally and fully sufficient to pay the said Debt Service Requirements, it having been determined that the existing and available taxing authority of the City for such purpose is adequate to permit a legally sufficient tax in consideration of all other outstanding indebtedness. - 45349035.1 16 The amount of taxes to be provided annually for the payment of the principal of and interest on the Certificates herein a~thorized to -be issued shall be determined and accomplished in the following manner: (1) Prior to the date the City Council establishes the annual tax rate and passes an ordinance levying ad valorem taxes each year, the City Council shall determine: (i) The amount on deposit in the Certificate Fund after (a) deducting therefrom the total amount of Debt Service Requirements to become due on Certificates prior to the Collection Date for the ad valorem taxes to be levied and (b) adding thereto the amount of Net Revenues of the System appropriated and allocated to pay such Debt Service Requirements prior to the Collection Date for the ad valorem taxes to be levied. (ii) The amount of Net Revenues if any, appropriated and to be set aside for the payment of the Debt Service Requirements on the Certificates between the Collection Date for the taxes then to be levied and the Collection Date for the taxes to be levied during the next succeeding calendar year. (iii) The amount of Debt Service Requirements to become due and payable on the Certificates between the Collection Date for the taxes then to be levied and the Collection Date for the taxes to be levied during the next succeeding calendar year. (2) The amount of taxes to be levied annually each year to pay the Debt Service Requirements on the Certificates shall be the amount established in paragraph (3) above less the sum total of the amounts established in paragraphs (1 )and (2), after taking into consideration delinquencies and costs of collecting such annual taxes. SECTION 13: Pledge of Revenues. The City hereby covenants and agrees that, subject only to a prior lien on and pledge of the Net Revenues of the System for the payment and security of Prior Lien Obligations, the Net Revenues of the System, with the exception of those in excess of the amounts required to be deposited to the Certificate Fund as hereafter provided, are hereby pledged, equally and ratably, to the payment of the principal of and interest on the Series 2003 Bonds and the Certificates as herein provided, and the pledge of the Net Revenues of the System herein made for the payment of· the Certificates shall constitute a lien on the Net Revenues of the System in accordance with the terms and provisions hereof and be valid and binding and fully perfected from and after the date of adoption of this Ordinance without physical delivery or transfer or transfer of control of the Net Revenues, the filing of this Ordinance or any other act; all as provided in Chapter 1208 of the Texas Government Code. Section 1208, Government Code, applies to the issuance of the Certificates and the pledge of the Net Revenues of the System granted by the City under this Section 13, and such pledge is therefore valid, effective and perfected. If Texas law is amended at any time while the Certificates are Outstanding such that the pledge of the Net Revenues of the System granted by the City under this Section 13 is to be subject to the filing requirements of Chapter 9, Business & Commerce Code, then in order to preserve -to the registered owners of the Certificates the perfection of the security interest in said pledge, the City agrees to take such measures as it determines are reasonable and necessary under Texas law to comply with the 45349035.1 17 applicable provisions of Chapter 9, Business & Commerce Code and enable a filing to perfect the security interest in said pledge to occ~r. SECTION 14: System Fund. The City hereby reaffirms its covenant and agreement made in connection with the issuance of the Prior Lien Obligations that all gross revenues (excluding earnings from the investment of money held in any special funds or .accounts created for the payment and security of Prior Lien Obligations) shall be deposited from day to day as collected into a "Electric Light and Power System Fund" (hereinafter called "System Fund") which Fund shall be kept and maintained at an official depository bank of the City. All moneys deposited in the System Fund shall be pledged and appropriated to the extent required for the following purposes and in the order of priority shown, to wit: First: To the payment of all necessary and reasonable operating and maintenance expenses of the System as defined herein or required by statute to be a first charge on and claim against the revenues. Second: To the payment of the amounts required to be deposited in the special Funds created and estabHshed for the payment, security and benefit of Prior Lien Obligations in accordance with the terms and provisions of the ordinances authorizing the issuance of Prior Lien Obligations; and Third: Equally and ratably to the payment of the amounts required to be deposited in the special funds and accounts created and established for the payment of the Series 2003 Bonds, the Certificates and Additional Obligations, if issued. Any Net Revenues remaining in the System Fund after satisfying the foregoing payments, or making adequate and sufficient provision for the payment thereof, may be appropriated and used for any other City purpose now or hereafter permitted by law. SECTION 15: Deposits to Certificate Fund. The City hereby covenants and agrees to cause to be deposited in the Certificate Fund prior to each interest and principal payment date from the Net Revenues of the System, after deduction of all payments required to be made to special Funds or accounts created for the payment and security of the Prior Lien Obligations, an amount equal to one hundred per centum (100%) of the amount required to fully pay the accrued interest and principal of the Certificates then due and payable by reason of maturity or redemption prior to maturity, such deposits to pay accrued interest and principal on the Certificates to be made in substantially equal monthly installments on or before the last business day of each month beginning the month the Certificates are delivered to the initial purchaser. The monthly deposits to the Certificate Fund, as hereinabove provided, shall be made until such time as such Fund contains an amount equal to pay the principal of and interest on the Certificates to maturity. Ad valorem taxes levied, collected and deposited in the Certificate Fund for and on behalf of the Certificates may be taken into consideration and reduce the amount of the monthly deposits otherwise required to be deposited in the C~rtificate Fund from · the Net Revenues of the System. In addition, any proceeds of sale of the Certificates in excess of the amount required to pay the contractual obligations to be incurred (including 45349035.1 18 change orders to a construction contract) shall be deposited in the Certificate Fund, which amount shall reduce the sums otherwi!?e required .to be deposited in said Fund from ad valorem taxes and the Net Revenues of the System. SECTION 16: Security of Funds. All moneys on deposit in the Funds for which this Ordinance makes provision (except any. portion thereof as may be at any time properly invested) shall be secured in the manner and to the fullest extent required by the laws of Texas for the security of public funds, and moneys on deposit in such Funds shall be used only for the purposes permitted by this Ordinance. SECTION 17: Special Covenants. The City hereby further covenants that (i) it has the lawful power to pledge the Net Revenues of the System supporting this issue of Certificates and has lawfully exercised said powers under the Constitution and laws of the State of Texas, including said power existing onder V.T.C.A., Government Code, Sections 1502.052, et seq. and V.T.C.A., Local Government Code, Subchapter C of Chapter 271, and (ii) other than for the payment of the outstanding Prior Lien Obligations, the Certificates and the Series 2003 Bonds, the Net Revenues of the System have not in any manner been pledged to the payment of any debt or obligation of the City or of the System. SECTION 18: System Obligations (a) Issuance of Prior Lien Obligations and Additional Obligations. The City hereby expressly reserves the right to hereafter issue Prior Lien Obligations, without limitation as to principal amount or subject to any terms, conditions or restrictions other than as may be required by law or otherwise. In addition, the City reserves the right to issue Additional Obligations, without limitation or any restriction or condition being applicable to their issuance under the terms of this Ordinance, payable from and, together with the Series 2003 Bonds and the Certificates, equally and ratably secured by a parity lien on and pledge of the Net Revenues of the System. (b) Subordinate to Prior Lien Obligations Covenants and Agreements. It is the intention of this governing body and accordingly hereby recognized and stipulated that the provisions, agreements and covenants contained herein bearing upon the management and operations of the System and the administering and application of revenues derived from the operation thereof, shall to the extent possible be harmonized with like provisions, agreements and covenants contained in ordinances authorizing the issuance of Prior Lien -Obligations, and to the extent of any irreconcilable conflict between the provisions contained herein and in ordinances authorizing the issuance of Prior Lien Obligatior:,s, the provisions, agreements and covenants contained therein shall prevail to the extent of such conflict and be applicable to this Ordinance but in all respects subject to the priority of rights and benefits, if any, conferred thereby to the holders or owners of the Prior Lien Obligations. Notwithstanding the above, any change or modification affecting the application of revenues derived from the operation of the System shall not impair the obligation of contract with respect to the pledge of revenues herein made for the payment and security of the Certificates .. S~CTION 19: Mutilated, Destroyed, Lost and Stolen Certificates. In case any Certificate shall be mutilated, or destroyed, lost or stolen, the Paying Agent/Registrar may execute and deliver a replacement Certificate of like form and tenor, and in the same denomination and bearing a number not contemporaneously outstanding, in exchange and 45349035.1 19 substitution for such mutilated Certificate, or in lieu of and in substitution for such destroyed, lost or stolen Certificate, only upon the aRproval 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 Certificate, 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 and with the preparation, execution and delivery of a replacement Certificate shall be borne by the Holder of the Certificate mutilated, or destroyed, lost or stolen. Every replacement Certificate 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 Certificates; notwithstanding the enforceability of payment by anyone of the destroyed, lost or stolen Certificates. 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 Certificates. SECTION 20: Satisfaction of Obligations 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 Certificates, at the times and in the manner stipulated in this Ordinance, then the pledge of taxes levied and the lien on and pledge. of the Net Revenues of the System 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. Certificates 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 Certificates or the principal amount(s) thereof at maturity or (if notice of redemption has been duly given or waived or if irrevocable arrangements therefor acceptable to the Paying Agent/Registrar have been made) the redemption date thereof, 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 Certificates, or the principal amount(s) thereof, on and prior to the Stated Maturity thereof or (if notice of redemption has been duly given or waived or if irrevocable arrangements therefor acceptable to the Paying Agent/Registrar have been made) the redemption date 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 Certificates 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 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 Certificates, or any 45349035.1 20 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 Certificates and remaining unclaimed for a period of three (3) years after the maturity, or applicable redemption date, of the Certificates for which 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. SECTION 21: Ordinance a Contract -Amendments. 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 Certificate remains Outstanding except as permitted in this Section. The City, may, without the consent of or notice to any Holders of the Certificates, from time to time and at any time, amend this Ordinance in any manner not detrimental to the interests of the Holders of the Certificates, including the curing of any ambiguity, inconsistency, or formal defect or omission herein. In addition, the City may, with the written consent of Holders of the Certificates holding a majority in aggregate principal amount of the Certificates then Outstanding, amend, add to, or rescind any of the provisions of this Ordinance; provided that, without the consent of all Holders of Outstanding Certificates, 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 Certificates, reduce the principal amount thereof, the redemption price, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of, premium, if any, or interest on the Certificates, (2) give any preference to any Certificate over any other Certificate, or (3) reduce the aggregate principal amount of Certificates required to be held by Holders for consent to any such amendment, addition, or rescission. · SECTION 22: Notices to Holders -Waivers. 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 Certificates. 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 23: Cancellation. Certificates surrendered for payment, redemption, transfer, or exchange, if surrendered to the Paying Agent/Registrar, shall be promptly canceled by it and, if surrendered to the City, shall be delivered to the Paying AgenURegistrar and, if not already canceled, shall be promptly canceled by the Paying Agent/Registrar. The City may at any time deliver to the Paying Agent/Registrar for cancellation any Certificates 45349035.1 21 previously certified or registered and delivered which the City may have acquired in any manner whatsoever, and all Certificates ~o delivered shall be promptly canceled by the Paying Agent/Registrar. All canceled Certificates held by the Paying Ag'ent/Registrar shall be returned to the City. SECTION 24: Covenants to Maintain Tax-Exempt Status. (a).Definitions. When used in this Section, the following terms have the following meanings: "Closing Date" means the date on which the Certificates 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. "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 Certificates. "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 Certificates are invested and which is not acquired to carry out the governmental purposes of the Certificates. "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 Certificates. 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 ( 1) ariy Investment has the meaning set forth in Section 1.148-5 of the Regulations; and (2) the Certificates 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 Certificate to become includable in the gross income, as defined in section 61 of the Code, of the owner thereof for federal income tax purposes. Without limiting the generality of the foregoing, unless and until the City 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 Certificate, the City shall comply with each of the specific covenants in this Section. · 45349035.1 22 ( c) No Private Use or Private Payments. Except as permitted by section 141 of the Code and the Regulations and rulings t~ereunder, the City shall at all times prior to the last Stated Maturity of Certificates: (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 Certificates, 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 Certificates or any property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with such Gross Proceeds, 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 Certificates 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 Certificates 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 Certificates. · (f) Not Federally Guaranteed. Except to the extent permitted by section 149(b) of the Code and the Regulations and rulings thereunder, the City shall not take or omit to take any action which would cause the Certificates to be federally guaranteed within the meaning of section 149(b) of the Code and the Regulations and rulings thereunder. 45349035.1 23 - (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 Certificate is discharged. However, to the extent permitted by law, the City may commingle Gross Proceeds of the Certificates 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 i::;alculate 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 maintain such calculations with its official transcript of proceedings relating to the issuance of the Certificates until six years after the· final Computation Date. (3) As additional consideration for the purchase of the Certificates by the Underwriters 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 from the Construction Fund, other appropriate fund, or if permitted by applicable Texas statute, regulation or opinion of the Attorney General of the State of Texas, the Certificate Fund the amount that when added to the future value of previous rebate payments made for the Certificates 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 Certificates, enter info any transaction that reduces the amount required to be paid to the United States pursuant to Subsection (h) of 45349035.1 24 - this Section because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm's length and had the Yield of the Certificates not been relevant to either party. U) Elections. The City hereby directs and authorizes the Mayor, City Secretary, City Manager, Director of Finance, and Assistant City Manager, 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 Certificates, in the Certificate as to Tax Exemption or similar or other appropriate certificate, form or document. SECTION 25: Sale of Certificates-Approval and Execution of Purchase Contract. The sale of the Certificates to UBS Financial Services, Inc., A. G. Edwards & Sons, Inc., Citigroup. Global Markets, Inc., Morgan Stanley & Co., Inc., Southwest Securities and Wachovia Bank, National Association (herein referred to as the ~underwriters") in accordance with the Purchase Contract, dated August 28, 2003, 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 therein are true and correct in all material respects and shall be honored and performed by the City. · SECTION 26: Official Statement. The use of the Preliminary Official Statement, dated August 14, 2003, in the offering and sale of the Certificates is hereby ratified, confirmed and approved in all respects, and the City Council hereby finds that the information and data contained in said Preliminary Official Statement pertaining to the City and its financial affairs is true and correct in all material respects and no material facts have been omitted therefrom which are necessary to make the statements therein, in light of the circumstances under which · they were made, not misleading. The final Official Statement, which reflects the terms of sale (together with such changes approved by the Mayor, Mayor Pro Tern, City Manager. Assistant City Manager, Director of Finance, Cash and Debt Manager, or City Secretary, one or more of said officials), shall be and is hereby in all respects approved and the Underwriters are hereby authorized to use ·and distribute said final Official Statement, dated August 28, 2003, in the offering, sale and delivery of the Certificates to the public. SECTION 27: Proceeds of Sale. The proceeds of sale of the Certificates, excluding the accrued interest received from the Underwriters, shall be deposited in a construction fund maintained at the City's depository bank. Pending expenditure for authorized projects and purposes, such proceeds of sale may be invested in authorized investments in accordance with the provisions of V.T.C.A., Government Code, Chapter 2256, including guaranteed investment contracts permitted by V.T.C.A., Section 2256.015 et seq., and the City's investment policies and guidelines, and any investment earnings realized may be expended for such authorized projects and purposes or deposited in the Certificate Fund as shall be determined by the City CounciL Accrued interest and premium, if any, as well as all surplus proceeds of sale of the Certificates, including investment earnings, remaining after completion of ail authorized projects or purposes shall be deposited to the credit of the Certificate Fund. 45349035.1 25 SECTION 28: Control and Custody of Certificates. The Mayor of the City shall be and is hereby authorized to take and have qharge of all. necessary orders and records pending investigation by the Attorney Gener91 of the State of Texas, including the printing of the Certificates, and shall take and have charge and control of the Certificates pending the approval thereof by the Attorney General, the registration thereof by the Comptroller of Public Accounts and the delivery thereof to the Underwriters. Furthermore, the Mayor, City Secretary, City Manager, Assistant City Manager, Director of Finance, and Cash and Debt Manager, any one or more of said officials, are hereby authorized and directed to furnish and execute such documents and certifications relating to the City and the issuance of the Certificates, including a certification as to facts, estimates, circumstances and reasonable expectations pertaining to the use and expenditure and investment of the proceeds of the Certificates as may be necessary for the approval of the Attorney General, registration by the Comptroller of Public Accounts and delivery of the Certificates to the Underwriters thereof and, together with the City's financial advisor, bond counsel and the Paying Agent/Registrar, make the necessary arrangements for the delivery of the Initial Certificate(s) to the Underwriters. SECTION 29: Legal Opinion. The obligation of the Underwriters to accept delivery of the Certificates is subject to being furnished a final opinion of Fulbright & Jaworski L.L.P., . Attorneys, Dallas, Texas, approving such Certificates as to their validity, said opinion to be dated and delivered as of the date of delivery and payment for such Certificates. A true and correct reproduction of said opinion is hereby authorized to be printed on 'the definitive Certificates or an executed counterpart· thereof shall accompany the global Certificates deposited with the Depository Trust Company. SECTION 30: CUSI P Numbers. That CUSIP numbers may be printed or typed on the definitive Certificates. It is expressly provided, however, that the presence or absence of CUSIP numbers on the definitive Certificates shall be of no significance or effect as regards the legality thereof and neither the City nor attorneys approving said Certificates as to legality are to be held responsible for CUSIP numbers incorrectly printed or typed on the definitive Certificates. SECTION 31: Benefits of Ordinance. Nothing in this Ordinance, expressed or implied, is intended or shall be construed to confer upon any person pther 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, this Ordinance and all its provisions being intended to be and being for the sole and exclusive benefit of the City, the Paying Agent/Registrar and the Holders. 45349035.1 26 SECTION 32: Inconsistent Provisions. All ordinances, orders or resolutions, or parts thereof, which are in conflict or inconsist_ent 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 33: 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 34: 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. SECTION 35: Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. SECTION 36: 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 37: Continuing Disclosure Undertaking. (a) Definitions. As used in this Section, the following terms have the meanings ascribed to such terms below: . "MSRB" means the Municipal Securities Rulemaking Board. "NRMSIR" means each person whom the SEC or its 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, 2003) financial information and operating data with respect to the City of the general type included in the final Official Statement approved by Section 26 of this Ordinance, being the information described in Exhibit C hereto. Financial statements to be provided shall be (1) prepared in accordance with the accounting principles described in Exhibit C 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 un~udited financial statements for the applicable fiscal year to each NRMSIR 45349035.1 27 and any SID with the financial information and operating data and will file the annual audit ""-report, when and if the same becomes av.ailable. If the City changes its fiscal year, it will notify each NRMSIR and any SID of the chang.e (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 Certificates, if such event is material within the meaning of the federal securities laws: 1. Principal and interest payment delinquencies; 2. Non-payment related defaults; 3. Unscheduled draws on debt service reserves reflecting financial difficulties; 4. Unscheduled draws on credit enhance.ments reflecting financial difficulties; 5. Substitution of credit or liquidity providers, or their failure to perform; 6. Adverse tax opinions or events affecting the tax-exempt status of the Certificates; 7. Modifications to rights of holders of the Certificates; Certificate calls; . and 8. 9. 10. Defeasances; Release, substitution, or sale of property securing repayment of the Certificates; 11. Rating changes. The City shall notify any SID and either each NRMSlR 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) Limitations, 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 Certificates within the meaning of the Rule, except that the City in any event will give the notice required by subsection (c) hereof of any Certificate 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 Certificates, and nothing in this Section, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The City undertakes to provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide pursuant to this Section and does not 45349035.1 28 hereby undertake to provide any other information that may be relevant or material to a complete presentation of the City's fir:iancial resuJts, condition,· or prospects or hereby undertake to update any information provided in accordance with this Section or otherwise, except as expressly provided herein.· The City does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Certificates at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY CERTIFICATE OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS SECTION, BUT EVERY RIGHT ANO 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. 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 requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, but only if (1) the provisions of this Section, as so amended, would have permitted an underwriter to purchase or sell Certificates in the primary offering of the Certificates 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 Certificates consent to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interests of the Holders and beneficial owners of the Certificates. 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· Certificates from lawfully purchasing or selling Certificates in such offering. If the City so amends. the provisions of this Section, it shall include with any amended financial information or operating data next provided in accordance with subsection {b) 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. 45349035.1 29 SECTION 38: MBIA Insurance. The Certificates have been sold with the principal of and interest thereon being insured by M~IA 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 th.at, in the event the principal and interest due on the Certificates 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: (1) In the event that, on the second business day, and again on the business day, prior to the payment date on the Certificates, the Paying Agent/Registrar has not received sufficient moneys to pay all principal of and interest on the Certificates 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. (2) 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. (3) 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 Certificates 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. (4) The Paying Agent/Registrar is hereby irrevocably designated, appointed, directed and authorized to act as attorney-in-fact for Holders of the Certificates as follows: (i) If and to the extent there is a deficiency in amounts required to pay interest on the Certificates, 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 45349035.1 30 (ii) If and to the extent of a deficiency in amounts required to pay principal of the Certificates, the l?aying 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 Certificates 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 avaHable 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. (5) Payments with respect to claims for interest on and principal of Certificates 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 Certificates, 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. (6) 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: (i) 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 Certificates, 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 Certificates; and (ii) They will accordingly pay to MBIA the amount of such principal and interest (induding 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 Certificates, but only from the sources and in the manner provided herein for the payment of principal of and interest on the Certificates to Holders, and will otherwise treat the MBIA as the owner of such rights to the amount of such . principal and interest. (7) 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. (8) No amendment or supplement to this Order may become effective without prior consent of MBIA. Copies of any amendments made to the documents executed in connection with the issuance of the Certificates which are consented to by the MBl,A shall be sent to Standard & Pear's Corporation. 45349035.1 31 {9) MBIA shall receive notice of the resignation or removal of the Paying Agent/Registrar and the appointment of a. successor thereto. (10) 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. (11) Any notice that is required to be given to a Holder of the Certificates 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. · (12) MBIA, acting alone, shall have the right to direct all remedies in the event of a default. MBIA shall be recognized as the registered owner of each Certificate which it insures for the purposes of exercising all rights and privileges available to Holders. For Certificates which it insures, MBIA shall have the right to institute any suit, action, or proceeding at law or in equity under the same terms as the Holder in accordance with the applicable provisions of this Ordinance. {13) The City agrees, subject to annual appropriation by the City and to the extent permitted by law, to reimburse MBIA for all reasonable expenses, including attorneys' fees and expenses, incurred by MBIA in connection with (i) the enforcement by MBIA of the City's obligations, or the preservation or defense of any rights of MBIA, under this Ordinance and any other document executed in connection with the issuance of the Certificates, and (ii) any consent, amendment, waiver or other action with respect this Ordinance or any related document, whether or not granted or approved, together with interest on all such expenses from and including the date incurred to the date of payment at Citibank's Prime Rate plus 3% or the maximum interest rate permitted by law, whichever is less. In addition, MBIA reserves the right to charge a fee in connection with its review of such consent, amendment or waiver, whether or not granted or approved. · SECTION 39: 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. 45349035.1 32 SECTION 40: Effective Date. This Ordinance shall 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 August 28, 2003, ATTEST: f?~--~ City Secretary (City Seal) APPROVED AS TO CONTENT: 45349035.1 33 45363809.l EXHIBIT A PAYING AGENT /REGISTRAR AGREEMENT See Document Number 4 45363809.1 EXHIBIT B PURCHASE CONTRACT See Document Number 7 - DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred to in Section 37 of this Ordinance. Annual Financial Statements and Operating Data EXHIBIT C to Ordinance 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 B, but for the most recently concluded fiscal year. 2. The information under Tables 1 through 6 and 8A through 19 and 21 through 27. 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. 45349035.1 4 PAYING AGENT/REGISTRAR AGREEMENT THIS AGREEMENT entered into as of August 28, 2003 {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, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003" (the "Securities"), dated August 15, 2003, and such Securities are scheduled to be delivered to the initial purchasers thereof on or about ~ September 30, 20_03; 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 her,;ein 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 .. 45353091.1 - 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, Assistant 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). - 45353091.1 -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 paragraptis 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, 9th 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 reglstered 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. 45353091.1 -3- ARTICLE FOUR REGISTRAR Section 4.01 Security Register -Transfers and Exchanges. The Bank agrees to k~ep 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 Agent/Registrar. Section 4.02 Certificates. The Issuer shall provide an adequate inventory of printed Securities to facilitate transfers or exchanges thereof. The Bank covenants that the inventory of printed Securities will be kept in safekeeping pending their use and reasonable care will be exercised by the Bank in maintaining such Securities in safekeeping, which shall be not less than the care maintained by the Bank for debt securities of other 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 availabl~ 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. 45353091.1 -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 of 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 19 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 45353091.1 -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 or presented by the proper party or parties. Without limiting the generality of the foregoing statement, the Bank need not examine the ownership of any Securities, but is protected in acting upon receipt of Securities containing an endorsement or instruction of transfer or power of transfer which appears on its face to be signed by the Holder or an agent of the Holder. The Bank shall not be bound to make any investigation into the facts or matters stated in a resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note, security, or other paper or document supplied by Issuer. (e) The Bank may consult with counsel, and the written advice of such counsel or any opinion of counsel shall be full and complete authorization and protection with respect to any action taken, suffered, or omitted by it hereunder in good faith and in reliance thereon. (f) The Bank may exercise any of the powers hereunder and perform any duties hereunder either directly or by or through agents or attorneys of the Bank. Section 5.03 Recitals of Issuer. The recitals contained herein with respect to the Issuer and in the Securities shall be taken as the statements of the Issuer, and the Bank assumes no responsibility for their correctness. The Bank shall in no event be liable to the Issuer, any Holder or Holders of any Security, or any other Person for any amount due on any Security from its own funds. Section 5.04 May Hold Securities. The Bank, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Issuer with the same rights it would have if it were not the Paying Agent/Registrar, or any other agent. · Section 5.05 Moneys Held by Bank -Paying Agent Account/Collateralization. Money deposited by the Issuer with th.e 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 offunds 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 action,s taken in compliance with this provision. The Bank is not obligated to pay interest on any money received by it hereunder. 45353091.1 -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 lnterpleader. 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 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 lnterpleader 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 OT 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. 45353091.1 -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. 45353091.1 -8- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. [SEAL] Attest: Title: (CITY SEAL) Attest: City Secretary 45353091.1 JPMORGAN CHASE BANK, Dallas, Texas, BY~{J e,r---. ____ :::::------,,,, Title: ASSISTANT VICE PRESIDENT Address: 2001 Bryan Street, 10th Floor Dallas, Texas 75201 Address: P. 0. Box 000 Lubbock, Texas 79457 -9- ~~ ,..,JPMorgan JPMorgan Chase Bank Issuer Administrative Services 2001 Bryan Street, 10th Floor Dallas, Texas 75201 August 19, 2003 Fee Schedule Paying Agent & Bond Registrar Services City of Lubbock, Texas Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003 Pricing for Paying Agent & Registrar: Acceptance Fee Annual Fee Out-of-Pocket Fees: Notes: waived $300 waived 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. A separate fee of $300 for redemption processing, including the call notice, will be assessed in connection with optional or mandatory redemptions on the 2003 Bonds. 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. PAR fee schedule 5 - - THE ST ATE OF TEXAS COUNTY OF LUBBOCK CITY OF LUBBOCK CERTIFICATE OF CITY SECRETARY § § § § § I, the undersigned, City Secretary of the City of Lubbock, Texas, DO HEREBY CERTIFY as follows: 1. On the 28th day of August, 2003, 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 VICTOR HERNANDEZ T. J. PATTERSON GARY BOREN FRANK W. MORRISON TOM MARTIN JIM GILBREATH ) ) ) ) ) ) MAYOR MAYOR PRO TEM COUNCILMEMBERS all of said persons were present at said meeting, except the following: None other business considered at said meeting, the attached ordinance entitled: . Among "AN ORDINANCE authorizing the issuance of "CITY OF LUBBOCK, TEXAS, TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE REFUNDING BONDS, SERIES 2003"; specifying the terms and features of said bonds; providing for the payment of said bonds by the levy of an ad valorem tax upon all taxable property within the City and a pledge of the net revenues derived from the operation of the City's Electric Light and Power System; resolving other matters incident and related to the issuance, payment, security, sale and delivery of said bonds, including the approval and execution of a Paying Agent/Registrar Agreement; providing for the redemption of the bonds being refunded; 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 by Jim Gilbreath and seconded by T.J. Patterson , the Ordinance was duly passed and adopted to be effective immediately in accordance with the Section 1201.028 by the following vote: 7 voted "For" 0 voted "Against" 0 abstained all as shown in the official Minutes of the Council for the meeting held on the aforesaid date. 45353000.1 -. 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 meetings are those persons shown above and, according to the records of my office, advance notice of the time, place and purpose of each meeting was given to each member of the Council; and that said meetings and the deliberation of the aforesaid public business were open to the public and written notice of said meetings, 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 28th day of August, 2003. · , '\ .. :::._ . ./ (Cfty Seal) 45353000.1 -2 - - ORDINANCE NO. 2003-00090 AN ORDINANCE authorizing the issuance of "CITY OF LUBBOCK, TEXAS, TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE REFUNDING BONDS, SERIES 2003°; specifying the terms and features of said bonds; providing for the payment of said bonds by the levy of an ad valorem tax upon all taxable property within the City and a pledge of the net revenues derived from the operation of the City's Electric Light and Power System; resolving other matters incident and related to the issuanc~. payment, security, sale and delivery of said bonds, including the approval and execution of a Paying Agent/Registrar Agreement; providing for the redemption of the bonds being refunded; 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 $8,500,000 (the "Refunded Obligations") more particularly described as follows: "City of Lubbock, Texas, Electric Light and Power System Revenue Bonds, Series 2002", dated August 15, 2002, and scheduled to mature on April 15 in each of the years 2004 through 2013; 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 the place of payment for the Refunded Obligations, 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 Obligations; and WHEREAS, the City Council hereby finds and determines the issuance of refunding bonds to refund the Refunding Obligations is in the best interest of the City to extend the term of such Refunded Obligations that were issued to provide interim financing for the City's Electric Light and Power System notwithstanding the aggregate amount of payments to be made on the refunding bonds herein authorized exceeds the aggregate amount of payments that would have been made on the Refunded Obligations had the refunding not occurred by a maximum amount of $2,533,592.07 and results in a present value cost of $16,851.72; now, therefore, BE IT ORDAINED BY THE CITY COUNCIL OF THE. CITY OF LUBBOCK, TEXAS: SECTION 1: Authorization -Designation -Principal Amount-Purpose. Refunding bonds of the City shall be and are hereby authorized to be issued in the aggregate principal amount of $8,900,000 to be designated and bear the title "CITY OF LUBBOCK, TEXAS, TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE REFUNDING BONDS, SERIES 2003" (hereinafter referred to as the "Bonds"), for the purpose of refunding certain outstanding obligations of the City (identified in the preamble hereof and referred to as the "Refunded Obligations") and to pay costs of issuance, in accordance with authority conferred by and in conformity with the Constitution and laws of the State of Texas, including V.T.C.A., Government Code, Chapter 1207. 45349068.1 ,,.., SECTION 2: Fully Registered Obligations -Bond Date -Authorized Denominations Stated Maturities -Interest Rates. The ~ends shall .be issued as fully registered obligations only, shall be dated August 15, 2003 (the "Issue Date"), shall be in denominations of $5,000 or any integral multiple (within a Stated Maturity, except for the Initial Bonds referenced in Section 7) thereof, and shall become due and payable on April 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 Principal Interest Stated Maturity Amount Rate(s) 2004 $435,000 2.000% 2005 325,000 2.000% 2006 330,000 2.000% 2007 335,000 2.500% 2008 345,000 2.750% 2009 355,000 3.125% 2010 365,000 3.375% 2011 380,000 3.750% 2012 390,000 4.000% 2013 410,000 4.100% 2014 425,000 4.200% 2015 445,000 4.300% 2016 460,000 4.400% 2017 480,000 4.500% 2018 505,000 5.000% 2019 530,000 4.750% 2020 555,000 4.875% 2021 580,000 5.000% 2022 610,000 5.000% 2023 640,000 5.000% 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-day year of twelve 30-day months). Interest on the Bonds shall be payable on April 15 and October 15 in each year, commencing April 15, 2004. · 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, redemption 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 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 45349068.1 2 - - 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 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 or upon the earlier redemption thereof, 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 the Holders whose names · appear in the Security Register at the close 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 non-payment of interest on one or more maturities on a scheduled payment date, and for thirty {30) days thereafter, a new record date for such interest payment for such maturity or maturities {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 of such maturity or maturities 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: Redemption. (a) Optional Redemption. The Bonds having Stated Maturities on and after April 15, 2013 shall be subject to redemption prior to maturity, at the option of the City, in whole or in part in principal amounts of $5,000 or any integral multiple thereof (and if within a Stated Maturity by lot by the Paying Agent/ Registrar:), on April 15, 2012 or on any date thereafter at the redemption price of par plus accrued interest to the date of redemption. · 45349068.1 3 (b) Exercise of Redemption Option. At least forty-five (45) days prior to · a redemption date for the Bonds (unless a _shorter notification period shall be satisfactory to the Paying Agent/Registrar), the City shall notify the Paying Agent/Registrar of the decision to redeem Bonds, the principal amount of each Stated Maturity to be redeemed, and the date of redemption therefor. The decision of the City to exercise the right to redeem Bonds shall be entered in the minutes of the governing body of the City. (c) Selection of Bonds for Redemption. If less than all Outstanding Bonds of the same Stated Maturity are to be redeemed on a redemption date, the Paying Agent/ Registrar shall treat such Bonds as representing the number of Bonds Outstanding which is obtained by dividing the principal amount of such Bonds by $5,000 and shall select the Bonds to be redeemed within such Stated Maturity by lot. (d) Notice of Redemption. Not less than thirty (30) days prior to a redemption date for the Bonds, a notice of redemption shall be sent by United States Mail, first class postage prepaid, in the name of the City and at the City's expense, to each Holder of a Bond to be redeemed in whole or in part at the address of the Holder appearing on the Security Register at the close of business on the business day next preceding. the date of mailing such notice, and any notice of redemption so mailed shall be conclusively presumed to have been duly given irrespective of whether received by the Holder. All notices of redemption shall {i) specify the date of redemption for the Bonds, (ii) identify the Bonds to be redeemed and, in the case of a portion of the principal amount to be redeemed, the principal amount thereof to be redeemed, (jii) state the redemption price, (iv) state that the Bonds, or the portion of the principal amount thereof to be redeemed, shall become due and payable on the redemption date specified, and the interest thereon, or on the portion of the principal amount thereof to be redeemed, shall cease to accrue from and after the redemption date, and (v) specify that payment of the redemption price for the Bonds, or the principal amount thereof to be redeemed, shall be made at the Designated Payment/Transfer Office of the Paying Agent/ Registrar only upon presentation and surrender thereof by the Holder. If a Bond is subject by its terms to · prior redemption and has been ca!led for redemption and notice· of redemption thereof has been duly given or waived as herein provided, such Bond (or the principal amount thereof to be redeemed) shall become due and payable, and interest thereon shall cease to accrue from and after the redemption date therefor, provided moneys sufficient for the payment of such Bonds (or of the principal amount thereof to be redeemed) at the then applicable redemption price are held for the purpose of such payment by the Paying Agent/Registrar. SECTION 5: Registration -Transfer -Exchange of Bonds -Predecessor Bonds. The Paying Agent/Registrar shall obtain, record, and maintain in the Se<;urity Register the name and ac;ldress of each registered owner of the Bonds issued under and pursuant to the provisions of this Ordinance. Any Bond may, in accordance with its terms and the terms hereof, be transferred or exchanged for Bonds of other authorized denominations upon the Security Register by the Holder, in person or by his duly authorized agent, upon surrender of such Bond to the Paying Agent/Registrar 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. 45349068.1 4 - Upon surrender for transfer of any Bond (other than the Initial Bonds authorized in Section 8 hereof) at the Designated PaY.ment/Transf.er Office of the Paying Agent/Registrar, the Paying Agent/Registrar shall register and deliver, in the name of the designated transferee or transferees, one or more new Bonds, executed on behalf of, and furnished by, the City Gf authorized denominations and having the same Stated Maturity and of a like aggregate principal amount as the Bond or Bonds surrendered for transfer. At the option of the Holder, Bonds (other than the Initial Bonds authorized in Section 8 hereof) 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, executed on behalf of, and furnished by, the City, to the Holder requesting the exchange. All Bonds issued upon any transfer or exchange of Bonds shall be delivered at the Designated Payment/Transfer Office of the Paying Agent/Registrar, or sent by United States Mail, first class postage prepaid, to the Holder and, upon the delivery thereof, the same shall be 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 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 Section 19 hereof and such new replacement Bond shall be deemed to evidence the same obligation as the mutilated, lost, destroyed, or stolen Bond. Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Bond called for redemption, in whole or in part, within 45 days of the date fixed for redemption of such Bond; provided, however, such limitation of transfer shall not be applicable to an exchange by the Holder of the unredeemed balance of a Bond called for redemption in part. SECTION 6: Book-Entry Only Transfers and Transactions. Notwithstanding the provisions contained in Sections 3, 4 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 45349068.1 5 of the State of New York, in accordance with the operational arrangements referenced in the Blanket Issuer Letter Representation, by and between the City and OTC (the "Depository Agreement") relating to the Bonds. Pursuant to the Depository Agreement and the rules of OTC, the Bonds shall be deposited with OTC who shat! hold said Bonds for its participants (the "OTC Participants"). While the Bonds are held by OTC 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 OTC, notwithstanding the ownership of each actual purchaser or owner of each Bond (the "Beneficial Owners") being recorded in the records of OTC and OTC Participants. In the event OTC 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 OTC 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 ca.use Bonds to be printed in definitive form and provide for the Bond certificates to be issued and delivered to OTC Partidpants 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, 4 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 BC, 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 80, 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 45349068.1 6 of the State of Texas for approval, certified and registered by the Office of the Comptroller of Public Accounts of the State of Texas an.d 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 atthe 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. A. 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, 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 Bonds shall be printed, lithographed, or engraved or . typewritten, photocopied or othervvise reproduced in any other similar manner, all as determined by the officers executing such Bonds as evidenced by their execution thereof. REGISTERED NO._ B .. Form of Definitive Bond. UNITED STATES OF AMERICA STATE OF TEXAS CITY OF LUBBOCK, TEXAS, REGISTERED $ ____ _ TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE REFUNDING BOND, Issue Date: August 15,2003 Registered Owner: Principal Amount: Interest Rate: % ---- SERIES 2003 Stated Maturity: 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, 45349068.1 7 - acknowledges itself indebted to and hereby promises to pay to the order of the Registered Owner named above, or the registered c!Ssigns thereof, on the Stated Maturity date specified above the Principal Amount hereinabove stated (or so much thereof as shall not have been paid upon prior 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 April 15 and October 15 in each year, commencing April 15, 2004. Principal of this Bond is payable at its Stated Maturity or redemption 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 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 $8,900,000 {herein referred to as the "Bonds") for the purpose of refunding certain outstanding obligations of the City (identified in the Ordinance hereinafter referenced and referred to as the "Refunded Obligations") and to pay costs of issuance, under and in strict conformity with the Constitution and laws of the State of Texas, including V.T.C.A., Government Code, Chapter 1207, and pursuant to an Ordinance adopted by the City Council of .the City (herein referred to as. the "Ordinance"). The Bonds maturing on and after April 15, 2013 may be redeemed prior to their Stated Maturities, at the option of the City, in whole or in part in principal amounts of $5,000 or any integral multiple thereof (and if within a Stated Maturity by lot by the Paying Agent/Registrar), on April 15, 2012 or on any date thereafter at the redemption price of par, together with accrued interest to the date of redemption. At least thirty days prior to the date fixed for any redemption of Bonds, the City shall cause a written notice of such redemption to be sent by United States Mail, first class postage prepaid, to the registered owners of each Bond to be redeemed at the address shown on the Security Register and subject to the terms and provisions relating thereto contained in the Ordinance. If a Bond (or any portion of its principal sum) shall have been duly called for redemption and notice of such redemption duly given, then upon such redemption date such Bond (or the portion of its principal sum to be redeemed) shall become due and payable, and interest thereon shall cease to accrue from and after the redemption date therefor, provided moneys for the payment of the redemption price and the interest on the principal amount to be redeerned to the date of redemption are held for the purpose of such payment by the Paying Agent/Registrar. 45349068.1 8 - In the event a portion of the principal amount of a Bond is to be redeemed, payment of the redemption price of such principal am.ount shall be made to the registered owner only upon presentation and surrender of such Bond to the Designated Payment'Transfer Office of the Paying Agent/Registrar, and a new Bond or, Bonds of like maturity and interest rate in any authorized denominations provided by the Ordinance for the then unredeemed balance of the principal sum thereof will be issued to the registered owner, without charge. If a Bond is selected for redemption, in whole or in part, the City and the Paying Agent/Registrar shall not be required to transfer such Bond to an assignee of the registered owner within 45 days of the redemption date therefor; provided, however, such limitation on transferability shall not be applicable to an exchange by the registered owner of the unredeemed balance of a Bond redeemed in part. · 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 and, together with the Series 2003 Certificates (identified and defined in the Ordinance), are additionally payable from and secured by a lien on and pledge of the Net Revenues (as defined in the Ordinance) of the City's Electric Light and Power System (the "System"), such lien and pledge, however, being junior and subordinate to the lien on and pledge of the Net Revenues of the System securing the payment of "Prior Lien Obligations" (as defined in the Ordinance) now outstanding and .hereafter issued by the City. In the Ordinance, the City reserves and retains the right to issue Prior Lien Obligations without limitation as to principal amount or subject to any terms, conditions or restrictions other than as may be required by law or otherwise, as well as the right to issue Additional Obligations (as defined in the Ordinance) payable from and, together with the Bonds and Series 2003 Certificates, equally and ratably secured by a parity lien on and pledge of the Net Revenues of the System. 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 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 properties constituting the System; the Net Revenues pledged to the payment of the principal of and interest on the Bonds; the nature and extent and manner of enforcement of the pledge; 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 the tax levy and the liens, pledges, charges and covenants made therein may be discharged at or prior to the maturity of this Bond, and this Bond deemed to be no longer Outstanding thereunder; and for the other terms and provisions contained therein. Capitalized terms 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 45349068.1 9 - - 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 th.e 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 or its redemption, in whole or in part, 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 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 in 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 and a pledge of and lien on the Net Revenues of the System as aforestated. 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. COUNTERSIGNED: City Secretary (SEAL) 45349068.1 CITY OF LUBBOCK, TEXAS Mayor 10 C. *Form of Registration Certificate of Comptroller of Public Accounts to appear on Initial Bond(s) only. REGISTRATION CERTIFICATE OF COMPTROLLER OF PUBUC 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. · WITNESS my signature and seal of office this ________ _ (SEAL) Comptroller of Public Accounts of the State of Texas *NOTE TO PRINTER: Do not print on definitive bonds 0. 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 Ordinance; 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: 45349068.1 JPMORGAN CHASE BANK, Dallas, Texas, as Paying Agent/Registrar By __ ~-~~---------Authorized Officer 11 - E. Form of Assignment. ASSIGNMENT FOR VALUE RECEIVED the undersigned hereby sells, assigns, and trarn~fers 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: . ~OTICE: 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 Bonds shall be in the form set forth in paragraph B of this Section, except as follows: (i} immediately under the name of the bond the headings "Interest Rate n 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 April 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). 45349068.1 12 (or so much principal thereof as shall not have been prepaid prior to maturity) and to pay interest on the unpaid Principal Amount .hereof from the date of delivery to 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 April 15 and October 15 in each year, commencing April 15, 2004. Principal installments of this Bond are payable in the year of maturity or on a prepayment date to the registered owner hereof by JPMorgan Chase Bank (the "Paying Agent/Registrar'), upon presentation and surrender, at its designated offices in 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: Definitions. For purposes of this Ordinance and for clarity with respect to the issuance of the Bonds herein authorized, and the levy of taxes and appropriation of Net Revenues therefor, the following words or terms, whenever the same appears herein without qualifying language, are defined to mean as follows: (a) The term "Additional Obligations" shall mean tax and revenue obligations hereafter issued which by their terms are payable from ad .valorem taxes and additionally payable from and secured by a parity lien on and pledge of the Net Revenues of the System of equal rank and dignity with the lien and pledge securing the payment of the Series 2003 Certificates and the Bonds. (b) The term "Bonds" shall mean "CITY OF LUBBOCK, TEXAS, TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE REFUNDING BONDS, SERIES 2003" authorized by this Ordinance. (c) The term "Bond Fund" shall me;3n the special Fund created and established under the provisions of Section 11 of this Ordinance. (d) The term "Collection Date" shall mean, when reference is being made.to the levy and collection of annual ad valorem taxes, the date annual ad valorem taxes levied each year by the City become delinquent. (e) The term "Fiscal Year" shall mean the annual financial accounting period used with respect to the operations of the System now ending on September 30th of each year; provided, however, the City Council may change, by ordinance duly passed, such annual financial accounting period to end on another date if such change is found and determined to be necessary for budgetary or other fiscal purposes. 45349068.1 13 (f) The term "Government Securities" shall rnean (i) direct noncallable obligations of the Uri,ited States .of America, including obligations the principal of and interest on which are unconditionally 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. (g) The term "Net Revenues" shall mean the gross revenues of the System less expenses of operation and maintenance. Such expenses of operation anc:i maintenance shall not include depreciation charges or funds plec:iged for the Prior Lien Obligations, but shall include all salaries, labor, materials, repairs, and extensions necessary to render services; provided, however, that in determining "Net Revenues", only such repairs and extensions as in the judgment of the City Council, reasonably and fairly exercised, are necessary to keep the System in operation and render adequate service to the City and inhabitants thereof, or such as might be necessary to meet some physical accident or condition which otherwise would impair the security of the Prior Lien Obligations, shall be deducted, and payments under contracts for the purchase and supply of power. · (h) 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 canceled 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 20 hereof; and (3) those Bonds that have been mutilated, destroyed, lost, or stolen and replacement Certificates have been registered and delivered in lieu thereof as provided in Section 19 hereof. (i) The term "Prior Lien Obligations" shall mean all bonds or other similar obligations hereafter issued that are payable in whole or in part from and secured by a lien on and pledge of the Net Revenues of the System and such lien and pledge securing the payment thereof is prior and superior iri claim, rank and dignity to the lien and pledge of the Net Revenues securing the payment of 45349068.1 14 the Series 2003 Certificates and the Bonds, including, but not limited to the following: ( 1) City of Lubbock, Texas, Electric Light and Power System Refunding Revenue Bonds, Series 1995, dated June 15, 1995, in the original principal amount of $13,560,000, (2) City of Lubbock, Texas, Electric Light and Power System Revenue Bonds, Series 1998, dated January 1, 1998, in the original principal amount of $9,170,000, (3) City of Lubbock, Texas, Electric Light and Power System Revenue Refunding and Improvement Bonds, Series 1999, dated January 15, 1999, in the original principal amount of $14,975,000 and (4) City of Lubbock, Texas, Electric Light and Power System Revenue Bonds, Series 2001, dated July 1, 2001, in the original principal amount of $9,200,000. · U) The term "Series 2003 Certificates" shall mean the "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003", dated August 15, 2003 (authorized for issuance concurrently with the Bonds). (k) The term "System" shall mean all properties, real, personal, mixed or otherwise, now owned or hereafter acquired by the City of Lubbock through purchase, construction or otherwise, and used in connection with the City's Electric Light and Power System and in anywise pertaining thereto, whether situated within or without the limits of the City. SECTION 11: Bond Fund. For the purpose of paying the interest on and to provide a sinking fund for the payment and retirement of the Bonds, there shall be and is hereby created a special Fund to be designated "SPECIAL 2003 CITY OF LUBBOCK, TEXAS, TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE BOND OF OBLIGATION FUND", which Fund shall be kept and maintained at the City's depository bank, and moneys deposited in said Fund shall be used for no other purpose. Proper officers of the City are hereby authorized and directed to cause to be transferred to the Paying Agent for the Bonds, from funds on deposit in the Bond Fund, amounts sufficient to fully pay and discharge promptly each installment of interest and principal of the Bonds as the same accrues or matures or comes due by reason of redemption prior to maturity; such transfers of funds to be made in such manner as will cause immediately available funds to be deposited with the Paying Agent for the Bonds at the close of business on the last business day next preceding each interest and/or principal payment date for the Bonds. Pending the· transfer of funds to the Paying Agent/Registrar, money in the Bond Fund may, at the option of the City, be invested in obligations identified in, and in aqcordance with the provisions of the "Public Funds Investment Act" (V.T.C.A., Government Code, Chapter 45349068.1 15 - 2256); provided that all such investments shall be made in such a manner th.at the money i""'! required to be expended from said Fun~ will be available at the proper time or times. All interest and income derived from deposits and investments in said Bond Fund shall be credited to, and any losses debited to, the said Bond Fund. All such investments shall be sold promptly when necessary to prevent any default in connection with the Bonds. SECTION 12: Tax Levy. That to provide for the payment of the "Debt Service Requirements" on the Bonds being (i) the interest on said Bonds and (ii) a sinking fund for their payment at maturity or redemption or a sinking fund of 2% (whichever amount shall be the greater), there shall be and there is hereby levied for the current year and each succeeding year thereafter while said Bonds or any interest thereon shall remain Outstanding, a sufficient tax on each one hundred dollars' valuation of taxable property in said City, adequate to pay such Debt Service Requirements, within the limits prescribed by law, full allowance being made for delinquencies and costs of collection; said tax shall be assessed and collected. each year and applied to the payment of the Debt Service Requirements, and the same shall not be diverted to any other purpose. The taxes so levied and collected shall be deposited into the Bond Fund. This governing body hereby declares its purpose and intent to provide and levy a tax legally and fully sufficient to pay the said Debt Service Requirements, it having been determined that the existing and available taxing authority of the City for such purpose is adequate to permit a legally sufficient tax in consideration of all other outstanding indebtedness. · The amount of taxes to be provided annually for the payment of the principal of and interest on the. Bonds herein authorized to be issued shall be determined and accomplished in the following manner: (1) Prior to the date the City Council establishes the annual tax rate and passes an ordinance levying ad valorem taxes each year, the City Council shall determine: (i) . The amount on deposit in the Bond Fund after (a) deducting therefrom the total amount of Debt Service Requirements to become due on Bonds prior to the Collection Date for the ad valorem taxes to be levied and (b) adding thereto the amount of Net Revenues of the System appropriated and allocated to pay such Debt Service Requirements prior to the Collection Date for the ad valorem taxes to be levied. (ii) The amount of Net Revenues if any, appropriated and to be set aside for the payment of the Debt Service Requirements on the Bonds between the Collection Date for the taxes then to be levied and the Collection Date for the taxes to be levied during the next succeeding calendar year. (iii) The amount of Debt Service Requirements to become due and payable on the Bonds between the Collection Date for the taxes then to be levied and the Collection Date for the taxes to be levied during the next succeeding calendar year. (2) The amount of taxes to be levied annually each year to pay the Debt Service Requirements on the Bonds shall be the amount established in paragraph. (3) above less the sum total of the amounts established in paragraphs ( 1 )and (2), after taking into consideration delinquencies and costs of collecting such annual taxes. 45349068.1 16 - SECTION 13: Pledge of Revenues. The City hereby covenants and· agrees that, subject only to a prior lien on and pledge_ of the Net Revenues of the System for the payment and security of Prior Lien Obligations, the Net Revenues of the System, with the exception of those in excess of the amounts required to be deposited to the Bond Fund as hereafter provided, are hereby pledged, equally and ratably, to the payment of the principal of. and interest on the Series 2003 Certificates and the Bonds as herein provided, and the pledge of the Net Revenues of the System herein· made for the payment of the Bonds shall constitute a lien on the Net Revenues of the System in accordance with the terms and provisions hereof and be valid and binding and fully perfected from and after the date of adoption of this Ordinance without physical delivery or transfer or transfer of control of the Net Revenues, the filing of this Ordinance or any other act; all as provided in Chapter 1208 of the Texas Government Code. Section 1208, Government Code, applies to the issuance of the Bonds and the pledge of the Net Revenues of the System granted by the City under this Section 13, and such pledge is therefore valid, effective and perfected. If Texas law is amended at any time while the Bonds are Outstanding such that the pledge of the Net Revenues of the System granted by the City under this Section 13 is to be subject to the filing requirements of Chapter 9, Business & Commerce Code, then in order to preserve to the registered owners of the Bonds the perfection of the security interest in said pledge, the City agrees to take such measures as it determines are reasonable and necessary under Texas law to comply with the applicable provisions of Chapter 9, Business & Commerce Code and enable a filing to perfect the security interest in said pledge to occur. / SECTION 14: System Fund. The City hereby reaffirms its covenant and agreement made in connection with the issuance of the Prior Lien Obligations that all gross revenues (excluding earnings from the investment of money held in any special funds or accounts created for the payment and security of Prior Lien Obligations) shall be deposited from day to day as collected into a "Electric Light and Power System Fund" (hereinafter called "System Fund") which Fund shall be kept and maintained at an official depository bank of the City. All moneys deposited in the System Fund shall be pledged and appropriated to the extent required for the following purposes and in the order of priority shown, to wit: First: To the payment of. all necessary and reasonable operating and maintenance expenses of the System as defined herein or required by statute to be a first charge on and claim against the revenues. Second: To the payment of the amounts required to be deposited in the special Funds created and established for the payment, security and benefit of Prior Lien Obligations in accordance with the terms and provisions of the ordinances authorizing the issuance of Prior Lien Obligations; and Third: Equally and ratably to the payment of the amounts required to be deposited in the special funds and accounts created and established for the payment of the Series 2003 Certificates, the Bonds and Additional Obligations, if issued. 45349068.1 17 A,. Any Net Revenues remaining in the System Fund after satisfying the foregoing payments, or making adequate and sufficient provision for the payment thereof, may be appropriated and used for any other City purpose now or hereafter permitted by law. SECTION 15: Deposits to Bond Fund. The City hereby covenants and agrees to cause to be deposited in the Bond Fund prior to each interest and principal payment date from the Net Revenues of the System, after deduction of. all payments required to be made to special Funds or accounts created for the payment and security of the Prior Lien Obligations, an amount equal to one hundred per centum (100%) of the amount required to fully pay the accrued interest and principal of the Bonds then due and payable by reason of maturity or redemption prior to maturity, such deposits to pay accrued interest and principal on the Bonds to be made in substantially equal monthly installments on or before the last business day of each month beginning the month the Bonds are delivered to the initial purchaser. The monthly deposits to the Bond Fund, as hereinabove provided, shall be made until such time as such Fund contains an amount equal to pay the principal of and interest on the Bonds to maturity. Ad valorem taxes levied, collected and deposited in the Bond Fund for and on behalf of the Bonds may be taken into consideration and reduce the amount of the monthly deposits otherwise required to be deposited in the Bond Fund from the Net Revenues of the System. In addition, any proceeds of sale of the Bonds in excess of the amount required to pay the contractual obligations to be incurred (including· change orders to a construction contract) shall be deposited in the Bond Fund, which amount shall reduce the sums otherwise. required to be deposited in said Fund from ad valorem taxes and .the Net Revenues of the System. SECTION 16: Security of Funds. All moneys on deposit in the Funds for which this Ordinance makes provision ( except any portion thereof as may be at any time properly invested} shall be secured in the manner and to the fullest extent required by the laws of Texas for the security of public funds, and moneys on deposit in such Funds shall be used only for the purposes permitted by this Ordinance. · SECTION 17: Special Covenants. The City hereby further covenants (i) it has the lawful power to pledge the Net Revenues of the System supporting this issue of Bonds and has lawfully exercised said powers under the Constitution and laws of the State of Texas, including said power existing under V.T.C.A., Government Code, Sections 1502.052, et seq. and V.T.C.A., Local Government Code, Subchapter C of Chapter 271, and (ii) other than for the payment of the outstanding Prior Lien Obligations, the Bonds and the Series 2003 Certificates, the Net Revenues of the System have not in any manner been pledged to the payment of any debt or obligation of the City or of the System. SECTION 18: System Obligations. (a) Issuance of Prior Lien Obligations and Additional Obligations. The City hereby expressly reserves the right to hereafter issue Prior Lien Obligations, without limitation as to principal amount but subject to any terms, conditions or restrictions applicable thereto under law or otherwise. In addition, the City reserves the right to issue Additional Obligations, without limitation or any restriction or condition being applicable to their issuance under the terms of this Ordinance, payable from and secured by a lien on and pledge of the Net Revenues of the 45349068.1 18 System of equal rank and dignity, and on a parity in all respects, with the lien thereon arid pledge thereof securing the payment of the Series 2003 Certificates and the Bonds. (b) Subordinate to Prior Lien Obligations Covenants and Agreements. It is the intention of this governing body and accordingly hereby recognized and stipulated that the provisions, agreements and covenants contained herein bearing upon the management and operations of the System and the administering and application of revenues derived from the operation thereof, shall to the extent possible be harmonized with like provisions, agreements and covenants contained in ordinances authorizing the issuance of Prior Lien Obligations, and to the extent of any irreconcilable conflict between the provisions contained herein and in ordinances authorizing the issuance of Prior Lien Obligations, the provisions, agreements and covenants contained therein shall prevail to the extent of such conflict and be applicable to this Ordinance but in all respects subject to the priority of rights and benefits, if any, conferred thereby to the holders or owners of the Prior Lien Obligations. Notwithstanding the above, any change or modification affecting the application of revenues derived from the operation of the System shall not impair the obligation of contract with respect to the pledge of revenues herein made for the payment and security of the Bonds. SECTION 19: 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 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 an 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 20: 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. · 45349068.1 19 r, Bonds or any principal amount(s) thereof shall be deemed to have been pald within the meaning and with the effect expressed a.bove 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 or (if notice of redemption has been duly given or waived or if irrevocable arrangements therefor acceptable to the Paying Agent/Registrar have been made} the redemption date 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, or applicable redemption date, 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. SECTION 21: 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, 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. 45349068.1 20 (I/I&,' SECTION 22: 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 valid_ity of any action taken in reliance upon such waiver. SECTION 23: 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 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 24: 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. "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. 45349068.1 21 "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 generality 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 Obligations), 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, constructjon or improvement of which is to be financed or refinanced directly or indirectly with such Gross Proceeds (including property financed with Gross Proceeds of the Refunded Obligations), 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 45349068.1 22 - purposes of the foregoing covenant, such Gross Proceeds are considered to be. "loaned" to a person or entity if: (1) property acquired, ~onstructed 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 maintain such calculations with its official transcript 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 45349068.1 23 - - interest thereon from the gross income of the owners thereof for federal income tax purposes, the City shall pay to the United States from funds on deposit in the System Fund, construction fund, or other appropriate fund permitted by applicable Texas statute, regulation or opinion of the Attorney General of the State of Texas to make such payment, 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, City Manager, City Secretary, Cash and Debt Manager, and Director of Finance, either or any combination of them, 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) Current Refunding. The Bonds are issued to pay and discharge in full the Refunded Obligations and such payment of the Refunded Obligations will occur within ninety (90) days after the issuance of the Bonds. · SECTION 25: Sale of Bonds. The sale of the Bonds to UBS Financial Services, Inc., A.· G. Edwards & Sons, Inc., Citigroup Global Markets, Inc., Morgan Stanley & Co., Inc., Southwest Securities and Wachovia Bank, National Association (herein referred to as the "Underwriters") in accordance with the Purchase Contract, dated August 28, 2003, approved and authorized to be executed pursuant to the ordinance authorizing the issuance of the Series 2003 Certificates is hereby ratified, confirmed and approved. 45349068.1 24 SECTION 26: Official Statement. The use of the Preliminary Official Statement, dated August 14, 2003, in the offering ar:id sale of the Bonds is hereby ratified, confirmed and approved in all respects, and the City Council hereby finds that the information and data contained in said Preliminary Official Statement pertaining to the City and its financial affairs is true and correct in all material respects and no material facts have been omitted therefrom which are necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The final Official Statement, which reflects the terms of sale (together with such changes approved by the Mayor, Mayor Pro Tern, City Manager, Assistant City Manager, Director of Finance, Cash and Debt Manager, or City Secretary, one or more of said officials), shall be and is hereby in all respects approved and the U.nderwriters are hereby authorized to use and distribute said final Official Statement, dated August 28, 2003, in the offering, sale arid delivery of the Bonds to the public. · SECTION 27: Redemption of Refunded Obligations. The Bonds of that series known as "City of Lubbock, Electric Light and Power System Revenue Bonds, Series 2002'', dated August 15, 2002, maturing in the years 2004 through 2013, and aggregating in principal amount $8,500,000, shall be redeemed and the same are hereby called for redemption on October 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 JPMorgan Chase Bank, Dallas, Texas, in accordance with the redemption provisions applicable to such obligations; such suggested form of notice of redemption being attached hereto as Exhibit B 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 28: Proceeds of Sale. Immediately following the delivery of the Bonds, proceeds of sale in the sum of (i) $8,701,875.00 shall be deposited with JPMorgan Chase Bank, Dallas, Texas (the "Deposit Agent") to be used to redeem the Refunded Obligations on October 15, 2003, and (ii) $44,692.66 shall be deposited to the credit of the Bond Fund. The balance of the proceeds of sale of the Bonds shall be expended to pay costs of issuance, including municipal bond insurance premium, and any excess amount budgeted for such purpose shall be deposited to the credit of the Bond Fund. SECTION 29: 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 Bonds pending the approval thereof by the Attorney General, the registration thereof by the Comptroller of Public Accounts and the delivery thereof to the Purchasers. 45349068.1 25 - - In addition, the Mayor, Mayor Pro Tern, City Secretary, City Manager, Deputy City Manager, Cash and Debt Manager, or Director of Finance, any one or more of said officials, are hereby authorized and directed to fu.rnish and execute such documents and certifications relating to the City and the issuance of the Bonds, including a certification as to facts, estimates, circumstances and reasonable expectations pertaining to the use and expenditure and investment of the proceeds of the Bonds as may be necessary for the approval of the Attorney General, registration by the Comptroller of Public Accounts and delivery of the Bonds to the purchasers thereof and, together with the City's financial advisor, bond counsel and the Paying Agent/ Registrar, make the necessary arrangements for the delivery of the Initial Bonds to the Underwriters. SECTION 30: Legal Opinion. The obligation of the Purchasers to accept delivery of the Bonds is subject to being furnished a final opinion of Fulbright· & Jaworski LL.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 printed on definitive printed obligations. SECTION 31: CUSIP Numbers. CUSIP numbers may be printed or typed on the Bonds deposited with The Depository Trust Company or on printed definitive Bonds. It is expressly provided, however, that the 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 32: 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 33: 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 34: 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 35: Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. SECTION 36: 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 ma~culine, feminine or neuter gender shall be considered to include the other genders .. 45349068.1 26 - SECTION 37: 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 .. SECTION 38: 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 39: Continuing Disclosure Undertaking. (a) Definitions. As used in this · Section, the following terms have the meanings ascribed to such terms below: "MSRB" means the Municipal Securities Rulemaking Board. "NRMSIR" -means each person whom the SEC or its 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 Reoorts. The City shall provide annually to each NRMSIR and any SID, within six mo.nths after the end of each fiscal year (beginning with the fiscal year ending September 30, 2003) financial information and operating data with respect to the City of the general type described in Exhibit C hereto. Financial statements to be provided shall be (1) prepared in accordance with the accounting principles described in Exhibit C 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 pursuantto 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. 45349068.1 27 - (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) 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 qf 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) Limitations. Disclaimers1 and Amendments. The City shall be obligated to observe and perform the covenants specified in this Secti.on 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. 45349068.1 28 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. · 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 requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, but only if (1) the provisions of this Section, as so amended, would have permitted an underwriter to purchase or sell 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 a.uthorizes 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 each 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 40: 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: (1) In the event that, on the second business day, and again on the business day, prior to the payment 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. (2) 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. 45349068.1 29 (3) 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. (4) 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: (i) 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 appofnting the MBIA as agent for such Holders in such legal proceeding related to the payment of such interest and an assignment to tlie MBIA ofthe 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 (ii) 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 Hold~r 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/RegistrarYin accordance with the tenor of the Policy payment therefor from the Insurance Paying Agent, and (c) disburse the same to such Holders. (5) 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. (6) 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: (i) They recognize that to the extent MBIA makes payments, directly or indirectly (as by paying through the Paying Agent/Registrar), on account of prlncipal of and interest on the Bonds, MBIA will be subrogated to the rights of such Holders to rec~ive 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 45349068.1 30 ,..., (ii) They will accordingly pay to MBIA the amount of such principal and interest (including principal and interest recovere9 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, and will otherwise treat the MBIA as the owner of such rights to the amount of such principal and interest. (7) 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. · (8) No amendment or supplement to this Order may become effective without prior consent of MBIA. 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. (9) MBIA shall receive notice of the resignation or removal of the Paying Agent/Registrar and the appointment of a successor thereto. (10) 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. (11) 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. (12) MBIA, acting alone, shaU have the right to direct all remedies in the event of a default. MBIA shall be recognized as the registered owner of each bond which it insures for the purposes of exercising all rights and privileges available to Holders. For Bonds which it insures, MBIA shall have the right to institute any suit, action, or proceeding at law or in equity under the same terms as the Holder in accordance with the applicable provisions of this ·· Ordinance. ( 13) The City agrees, subject to annual appropriation by the City and to the extent permitted by law, to reimburse MBIA for all reasonable expenses, including attorneys' fees and expenses, incurred by MBIA in connection with (i) the enforcement by MBIA of the City's obligations, or the preservation or defense of any rights of MBIA, under this Ordinance and any other document executed in connection with the issuance of the Bonds, and (ii) any consent, amendment, waiver or other action with respect this Ordinance or any related document, whether or not granted or approved, together with interest on all such expenses from and including the date incurred to the date of payment at Citibank's Prime Rate plus 3% or the maximum interest rate permitted by law, whichever is less. In addition, MBIA reserves the right to charge a fee in connection with its review of such consent, am!3ndment or waiver, whether or not granted or approved. 45349068.1 31 -- - SECTION 41: 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. SECTION 42: Effective Date. This Ordinance shall 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 August 28, 2003. CITY OF LUBBOCK, TEXAS ATTEST: . (City Seal) APPROVED AS TO CONTENT: City Attorney 45349068.1 32 ' ,,,,., 45363809.1 EXHIBIT A PAYING AGENT/REGISTRAR AGREEMENT See Document Number 6 ,II"' EXHIBIT B NOTICE OF REDEMPTION CITY OF LUBBOCK, TEXAS, ELECTRIC LIGHT AND POWER SYSTEM REVENUE BONDS SERIES 2002 DATED AUGUST 15, 2002 NOTICE IS HEREBY GIVEN that all bonds of the above series maturing on April 15, 2004 through April 15, 2013, and aggregating in principal amount $8,500,000 have been called for redemption on October 15, 2003 at the redemption price of par and accrued interest to the date of redemption. ALL SUCH BONDS shall become due and payable on October 15, 2003 and interest thereon shall cease to accrue from and after said redemption date and payment of the redemption price of said bonds shall be paid to the registered owners of the bonds only upon presentation and surrender of such obligations to JPMorgan Chase Bank at its designated offices at the following address: · First Class/ Registered/Certified JPMorgan Chase Bank Institutional Trust Services P. 0. Box 2320 Dallas, Texas 75221-2320 Express Delivery/Courier JPMorgan Chase Bank Institutional Trust Services 2001 Bryan Street, 9th Floor Dallas, Texas 75201 By Hand Only JPMorgan Chase Bank Room 234-North Building Institutional Trust Securities Window 55 Water Street New York, New York 10041 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. 45349068.1 JPMORGANCHASEBANK Address: 2001 Bryan Street, 10th Floor Dallas, Texas 75201 Exhibit C DESCRIPTION OF ANNUAL FINANCIAL INFORMATION AND OPERATING DATA The following information is referred to in Section 39 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 B, but for the most recently concluded fiscal year. 2. The information under Tables 1 through 6 and SA through 19 and 21 through 27. 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. 45349068.1 6 PAYING AGENT/REGISTRAR AGREEMENT THIS AGREEMENT entered into as of August 28, 2003 (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, Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003" (the "Securities"), dated August 15, 2003, and such Securities are scheduled to be delivered to the initial purchasers thereof on or about September 30, 2003; 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 bet,alf 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 .. 45353092.1 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, Assistant 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). 45353092.1 -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, 9th 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. 45353092.1 -3- ARTICLE FOUR REGISTRAR Section 4.01 Security Register -Transfers and Exchanges. The Bank agrees to ke.ep 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 addrei:;ses 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 AgenURegistrar. 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. 45353092.1 -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 of 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 19 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 45353092.1 -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 or presented by the proper party or parties. Without limiting the generality of the foregoing statement, the Bank need not examine the ownership of any Securities, but is protected in acting upon receipt of Securities containing an endorsement or instruction of transfer or power of transfer which appears on its face to be signed by the Holder· or an agent of the Holder. The Bank shall not be bound to make any investigation into the facts or matters stated in a resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note, security, or other paper or document supplied by Issuer. (e) The Bank may consult with counsel, and the written advice of such counsel or any opinion of counsel shall be full and complete authorization and protection with respect to any action taken, suffered, or omitted by it hereunder in good faith and in reliance thereon. {f) The Bank may exercise any of the powers hereunder and perform any duties hereunder either directly or by or through agents or attorneys of the Bank. Section 5.03 Recitals of Issuer. The recitals contained herein with respect to the Issuer and in the Securities shall be taken as the statements of the Issuer, and the Bank assumes no responsibility for their correctness. The Bank shall in no event be liable to the Issuer, any Holder or Holders of any Security, or any other Person for any amount due on any Security from its own funds. Section 5.04 May Hold Securities. The Bank, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Issuer with the same rights it would have if it were not the Paying Agent'Registrar, or any other agent. Section 5.05 Moneys Held by Bank -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. 45353092.1 -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 lnterpleader. 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 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 lnterpleader 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 OT 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. 45353092.1 -7- Section 6.06 Severability. In case any provision herein shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 6.07 Benefits of Agreement. Nothing herein, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any benefit or any legal or equitable right, remedy, or claim hereunder. Section 6.08 Entire Agreement. This Agreement and the 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. 45353092.1 -8- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. [SEAL] Attest: Title: (CITY SEAL) Attest: City Secretary 45353092.1 Vice President . / - / JPMORGAN CHASE BANK, Dallas, Texas, Address: 2001 Bryan Street, 10th Floor Dallas, Texas 75201 Address: P. 0. Box Lubbock, -9- ~---,.,JPMorgan JPMorgan Chase Bank Issuer Administrative Services 2001 Bryan Street, 10th Floor Dallas, Texas 75201 August 19, 2003 Fee Schedule • Paying Agent & Bond Registrar Services City of Lubbock, Texas Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003 Pricing for Paying Agent & Registrar: Acceptance Fee Annual Fee Out-of-Pocket Fees: Notes: waived $300 waived 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. A separate fee of $300 for redemption processing, including the call notice, will be assessed in connection with optional or mandatory redemptions on the 2003 Bonds. 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. PAR fee schedule 7 PURCHASE CONTRACT $13,270,000 $8,900,000 Tax and Electric Light and Power System Surplus Revenue Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003 August 28, 2003 The Honorable Mayor and Members of the City Council City of Lubbock 1625 13th St. Lubbock, Texas79401 Dear Mayor and Members of the City Council: Refunding Bonds, Series 2003 UBS Financial Services Inc.(the "Authorized Representative"), A.G. Edwards & Sons, Inc., Citigroup Global Markets Inc., Morgan Stanley & Co., Incorporated, Southwest Securities and Wachovia Bank, NationalAssociation ( collectively, the "Underwriters"), offer to enter into this Purchase Contract with · the City of Lubbock, Texas (the "Cityu). This offer is made subject to the City's acceptance of this Purchase Contract on or before 9:00 p.m. Central Time on August 28, 2003. l . Purchase and Sale of the Securities. Upon the terms and conditions and upon the basis of the representations set forthherein, 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 $13,270,000 principal amount of City of Lubbock, Texas Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003 (the "Certificates") and $8,900,000 Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003 (the "Bonds," and together with the Certificates, the "Securities"). The Securities shall have the maturities, interest rates and be subject to redemption in accordance with the provisions of Exhibit A hereto and shall be issued and secured under the provisions of the Ordinances (as defined below). The purchase price for the Securities shall be $21,983,304.68,plus accruedinterestinthe amount of$ l l 2,376.4 l (see Exhibit B hereto for anallocation of the purchase price between the respective series of Securities). UBS Financial Services 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 Undeiwriters hereunder may be talcen by tl1e Authorized Representative alone. 2. Ordinances. The Securities shall be as described in and shall be issued and secured under the provisions of two distinct ordinances, adopted by the CityonAugust 28, 2003, respectively authorizing the issuance and sale of the Certificates and the Bonds ( collectively, the "Ordinances"). The Securities shall be secured and payable as provided in the Ordinances. 3. Public Offering. It shall be a condition of the obligations of the City to sell and deliver the Securities to the Underwriters, and of the obligations of the Underwriters to purchase and accept delivery of the Securities, that the entire principal amount of each series of the Securities authorized by the Ordinances 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 Securities of a series, at not in excess of the initial public offering prices, as set forth in the Official Statement; provided however at least ten percent ( l 0%) of the principal amount of the Secruities of each series and maturity thereof shall be sold to the "public" (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 Cityherewithis a corporate check of the Authorized Representative payable to the order of the City in the amount of $221,600. Such check is a common "Good Faith" check for the each series of the Securities, and an amount of such check that is proportionate to the principal amount that a series of the Securities bears to the combined principal amount of the Securities may be applied toward any obligation of the Underwriters owing as a result of the failure of the Unde1writers to accept delivery of the Securities, or any series of the Securities, as provided herein. The City agrees to hold such check uncashed until the Closing to ensure the performance by the Underwriters of their obligation to purchase, accept delivery of and pay for the Securities at the Closing. Concurrently with the payment by the Underwriters of the purchase p1ice of the Securities, 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 Securities 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 Securities, as set forth in this Purchase Contract (unless waived by the Authorized Representative), or should such obligations of the Underwriters be te1minated for any reason permitted by this Purchase Contract, such check shall immediately be returned to the Authmized Representative. In the event the 1Jnderw1iters fail ( other than for a reason pemutted hereunder) to purchase, accept delive1y of and pay for the Securities 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. Oflicial Statement. The Official Statement, including the cover pages and Appendices thereto, of the City, dated August 28, 2003, with respect to the Securities, as fhrther amended only in the manner herein provided, is hereinafter called the "Official Statement." The City hereby authorizes the Ordinances and the Official Statement and the informationtherein contained to be used by the Undenvriters in connection with the public offe1ing and sale of the Securities. The City confirrns its consent to the use by the Underwriters prior to the date hereof of the Preliminmy Official Statement, relative to the Securities, dated August 14, 2003 (the "Preliminary Official Statement"), in connection \vith the preliminary public offe1ing and sale of the Securities, and it is "deemed final" as of its date, within the meaning, and for the purposes, of Rule 15c2-12 promulgated under autho1ity granted by the federal Securities and Exchange Act ofl 934 (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 hereofinsufficient quantities to comply with the Underwriters' obligations under the Rule and the applicable rnles of the Municipal Securities Rulemalcing - - - Board. The Unde1w1iters will use their best efforts to assist the City in the preparation of the final Otficial 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 Unde1writers notify the City that the period of the initial public offering of the Secmities 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 mal<:e 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 Citywillat its expense supplement or amend the Official Statement in the form and m a manner approved by the Auth01ized Representative and ftunish to the Unde1writers 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 beliefof the City, the Official Statement contains information, including financial information or operating data, as required by the Rule. Except as set forth in the Official Statement, the City has not failed to comply with any undertaloog 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 politicalsubdivisionofthe State ofTexas and a body politic and corporate, and has full legal right, power and authority to enter into this Purchase Contract to adopt the Ordinances, to sell the Securities, and to issue and deliver the Secmities to the Underwriters as provided herein and to carry out and consummate all other transactions contemplated by the Ordinances 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 Ordinances, has duly authorized and approved the execution and delivery of, and the performance by the City of the obligations contained in the Securities and this Purchase Contract and has duly authorized and approved the performance by the City of its obligations contained in the Ordinances and in this Purchase Contract; ( c) The City is not in breach of or default under any applicable law or, to the knowledge of the City, any administrative regulation of the State of Texas or the United States (including regulations ofits 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 fmancial condition of the City; and the execution and delivery of this Purchase Contract by the City and the execution and delivery of the Securities and the adoption of the Ordinances 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 jtu-isdiction of any matter that would constitute a condition precedent to the perfom1ance by the City of its obligations to sell and deliver the Securities hereunder will have been obtained prior to the Closing; ( e) At the time of the 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 of the Underwriters, sell or issue any additional bonds, notes or other obligations for borrowed money payable in whole or in part from ad valorem taxes, 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 ofits officers to their respective offices, or seeking to restrain or enjoin the issuance or delivery of the Securities, the levy, collection or application of the ad valorem taxes and revenues (collectively, the "Pledged Revenues") of the City's Electric Light and Power System (the "System") pledged or to be pledged to pay the principal of and interest on the Securities, or in any way contesting or affecting the issuance, execution, delivery, payment, security or validity of the Securities, or in any way contesting or affecting the validity or enforceability of the Ordinances, or contesting the powers of the City, or any authority for the Securities, the Ordinances, 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 ,vith the Underwriters in arranging for the qualification of the Securities 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 to continue such qualifications in effect so long as required for distribution of the Securities; 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 Securities and the Ordinances contained in the Official Statement accurately summruize certain provisions of such instruments, and the Securities, when validly executed, authenticated and delivered in accordance with the Ordinances and sold to the ,... . - Unde1writers as provided herein, vVill. be validly issued and outstanding obligations of the City entitled to the benefits of, and subject to the limitations contained in, the Ordinances; 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 ifin the opinion of the City and the Autho1ized Representative such event requires a supplement or amendment to the Official Statement, the City vVill. 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 yemJs audited fmancial 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 m1y 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 tal<e or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Securities to be applied in a manner other than as provided in the Ordinances or that would cause the interest of the Securities to be includable in gross income of the holders thereof for federal income tax purposes. 7. Closing. At 10:00 AM., Central Time, on September 30, 2003 (the "Closing"), the City will deliver the initial securities certificates of each series of the Securities (as provided for in the respective Ordinances) to the Underwriters and the City shall take appropriate steps to provide DTC with one definite securities certificate for each year of maturity of each series of the Securities, and to provide the Underwriters with the other documents hereinafter mentioned. On or prior to the date of Closing, the Undenvriters shall make arrangements with The Depository Tmst Company ("DTC") for the Securities to be immobilized and thereafter traded as book-entry only securities and on the date of Closing the Underwriters vVill.accept such delivery and paythe purchase p1ice of the Securities as set fmth in Paragraph 1 hereofin inm1ediately available fimds. The inability or other failure of the City to meet the conditions for deliveryofone or more series of the Certificates shall not, in and of itself, relieve the Underwriters of their obligations to accept delivery and pay the purchase price of any series of Securities for which the conditions for delivery have occurred. 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 Securities, 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 Securities 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 of the Closing, (i) the Ordinances shall be in full force and effect, and the Ordinances shall not have been amended, modified or supplernentedand 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 Securities shall be deposited and applied as described in the Official Statement and in the Ordinances; ( c) At the time of the Closing, all official action of the City related to the Ordinances 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) 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; (2) The Ordinances, 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 Ordinances shall contain the agreement of the City, in form satisfactory to the Underwriters, that is described under the caption "Continuing Disclosure of Information" in the Preliminary Official Statement; (3) The opinion pertaining to each series of the Securities, dated the date of Closing, of Fulbright & Jaworski L.L.P. ("Bond Counsel") in substantially the fo1m and substance of Appendix C to the Official Statement; ( 4) An opinion or certificate with respect each series of the Securities, dated on or prior to the date of Closing, of the Attorney General of Texas, approving the - - Securities as required by law and the registration certificate of the Comptroller of Public Accounts of the State of Texas; (5) The supplemental opinion or opinions, dated the date of Closing, ofBond 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(e)(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 tmderthe captions or subcaptions "Plan of Financing," 'The Obligations" (exclusive of the information under the subcaptions "Book-Entry Only System," "Use of Certificate Proceeds," "Use ofBond Proceeds," and "Bondholders' Remedies"), "Tax Matters," "Continuing Disclosure of Infom1ation" ( exclusive of the infom1ation under the subcaption "Compliance with Prior Undertakings"), "Legal Matters" (exclusive of the last two sentences of the first paragraph 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 Obligations, such inf ormationconforms to the Ordinances; and ( c) the Securities are exempt from registration pursuant to the Securities Act ofl 933, as amended, and the Ordinances are exempt from qualification as an indenture pursuant to the Trnst Indenture Act of 1939, as amended; (6) An opinion or opinions 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 or certificates, dated the date of Closing, signed by the Mayor and Interim City Manager of the City, to the effect that (i) the representations and warranties ofthe City contained herein are true and correct in all material respects on and as of the date of Closing as jf made on the date of Closing; (ii) except to the 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 or delivery of the Securities, or the levy, collection or application of the ad valorem taxes and Pledged Revenues pledged or to be pledged to pay the principal of and interest on the Secmities, or the pledge thereof, or in any way contesting or affecting the validity of the Securities, the Ordinances, or contesting the powers of the City or the authorization of the Securities or the Ordinances, 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, 2002, the latest date as to which audited fomncial information is available; (8) Anopinionoropinions of the City Attomeyaddressed to the Underwriters and dated the date of Closing substantially in the form and substance of Exhibit B hereto; (9) A certificate or certificates, dated the date of the Closing, ofan 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 Securities, it is not expected that the proceeds of the Securities will be used in a manner that would cause the Securities to be arbitrage Securities within the meaning of Section 148 of the Internal Revenue Code of 19 8 6, as amended; (10) Evidence of the rating on the Securities, whichshall 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 Unde1writers; (I 1) A copy of the policy of municipal bond insurance issued by MBIA Insurance Corporation with respect to the Securities; and ( 12) Such additional legal opinions, certificates, instruments and other documents as Bond Counsel or the Undenvriters 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 pe1formance and satisfaction by the City at or prior to the date of Closing of all agreements then to be pe1formed 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 Securities as set fmthin this Purchase Contract, or if the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Securities shall be terminated for any reason pem1itted 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 Auth01ized Representative and neither the Underwriters nor the City shall be under further obligationhereunder, except that the respective obligations of the City and the Underwriters set forth in Paragraphs 10 and 12 hereof shall continue in foll force and effect. 9. Termination. The Underwriters may tem1inate 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, niling 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 Depmtment 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 Securities or upon income of the general character to be derived by the City, other than any imposition offederal income taxes upon interest received on obligations of the general character as the Securities 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 Securities. (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 1933, as amended, or qualification of any indenture under the Tmst Indenture Act ofl 93 9, as amended, in connection with the public offering of the Securities, or any action shall have been taken by any comt 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 ofTexas 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 ofT exas law, or (iv) any order, ruling or regulation shall have been issued or proposed by or on behalf of the State of Texas by an official, agency or department thereof, affecting the tax status of the City, its property or income, its securities (including the Securities) or the interest thereon, that in the judgment of the Authorized Representative would materially affect the market price of the Securities. ( d) A general suspension of trading in securities shallhave occurred on the New York Stock Exchange. , •. ( e) There shall have occurred any (i) material outbreak of hostilities (including, without limitation, an escalation of hostilities that existed prior to the date hereof or an act of terrorism) or: (ii) material other national or international calamity or c1isis, or any material adverse change in the financial, political or economic conditions affecting the United States, the effect of which on U.S. fmancial markets of such an event described in clauses (i) or (ii) shall make it, in the judgment of the Authorized Representative, impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Final Official Statement ( exclusive of any amendment or supplement thereto). (: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 Securities. (g) Ageneralbank:ingmoratoriumshallhave beendeclared by authorities oftheUnited States, the State of New York or the State of Texas. (h) A lowering of the ratings of "Aaa," "AM" and "AM," initially assigned to the Securities by Moody's, S&P and Fitch, respectively, shall occur prior to the Closing. 10. Expenses. (a) The City shall pay all expenses incident to the issuance of the Securities, including but not limited to: (i) the cost of the preparation, printing and distribution of the PrelirninruyOfficial Statement and the Official Statement; (ii) the cost of the preparation and printing of the Securities; (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; (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 Securities. (b) The Underwriters shall pay (i) all advertising expenses in connection with the offe1ing of the Securities; (ii) the cost of the preparation and printing of all the underw1iting documents; and (iii) the fee of McCall, Parkhurst & Horton L.L.P. for such firm's opinion required by Paragraph 8(e)(6) hereof. · 1 l . 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 delive1ing the same in writing to UBS Financial Services Inc., 1 l l 1 Bagby, Suite 5100, Houston, Texas 77002, Attention: Craig Brast. 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 Undervvnters, and (ii) delivery of any payment for the Securities - hereunder; and the City's representations and warranties contained in Paragraph 6 of this Purchase Contract shall remain operative and in fitll force and effect, regardless of any termination of this Purchase ~~ . 13. Severability. If any provision of this 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 jmisdictions, or in all jrnisdictions because it conflicts with any provisions of any constitution, statute, mle of public policy, or any other reason, such circumstances shall not have the effect ofrendering 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 constmed in accordance with the laws of the State of Texas. I 5. Execution in Counterparts. This Purchase Contract may be executed in any number of counterparts, all of which taken together shall constitute one and the same instmment, and any of the paities hereto may execute this Purchase Contract by signing any such counterpart. 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 Underw1iters expect to profit from the acquisition and potential distribution of the Securities. [Signature page follows.] - 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. Very truly yours, UBS Financial Services, Inc. A.G. Edwards & Sons, Inc. Citigroup Global Markets Inc. Morgan Stanley & Co., Incorporated Southwest Securities Wachovia Bank, National Association By: UBS Financial Services, Inc. Authorized Representative By. ~&l Name: Craig Brast Title: First Vice President ,,,.., Accepted: This 2~. day of August, 2003 By: - EXIDBIT A Schedule of Maturities, Interest Rates, Yields and Redemption Provisions $13,270,000 City of Lubbock, Texas Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003 Maturity Principal Interest Rate Yield (4/15) Amount {%} (%) 2004 $645,000 2.000 1.190 2005 480,000 2.000 1.430 2006 490,000 2.000 1.920 2007 495,000 2.500 2.390 2008 510,000 3.000 2.780 2009 525,000 3.250 3.160 2010 540,000 3.750 3.510 2011 565,000 4.000 3.800 2012 585,000 4.000 4.000 2013 610,000 4.125 4.170 2014 635,000 4.250 4.310 2015 660,000 4.375 4.440 2016 690,000 4.500 4.570 2017 720,000 4.600 4.670 2018 755,000 5.000 4.770 2019 790,000 4.750 4.870 2020 830,000 4.875 4.970 2021 870,000 5.000 5.020 2022 915,000 5.000 5.040 2023 960,000 5.000 5.050 Optional Redemption ... TI1e City reserves the right, at its option, to redeem the Certificates having stated matmities on and after April 15, 2013, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on April 15, 2012, or any date thereafter, at the par value thereof plus accrued interest · to the date of redemption. - $8,900,000 City of Lubbock, Texas Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003 Maturity Principal Interest Yield (4/15) Amount Rate(%) (%) 2004 $435,000 2.000 1.236 2005 325,000 2.000 1.430 2006 330,000 2.000 1.920 2007 335,000 2.500 2.390 2008 345,000 2.750 2.780 2009 355,000 3.125 3.160 2010 365,000 3.375 3.510 2011 380,000 3.750 3.800 2012 390,000 4.000 4.000 2013 410,000 4.100 4.170 2014 425,000 4.200 4.310 2015 445,000 4.300 4.440 2016 460,000 4.400 4.570 2017 480,000 4.500 4.670 2018 505,000 5.000 4.770 2019 530,000 4.750 4.870 2020 555,000 4.875 4.970 2021 580,000 5.000 5.020 2022 610,000 5.000 5.040 2023 640,000 5.000 5.050 Optional Redemption ... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after April 15, 2013, in whole or in part in principal arrioup.ts. of $5,000 or any integral multiple thereof, on April 15, 2012, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. -· Principal amount Net Aggregate Original Issuance Discount Underwriters' Discount Accrued Interest Purchase Price EXHIBIT ff PURCHASE PRICE CALCULATION Certificates of Obligation $13,270,000.00 (6,570.75) (84,009.26) 67,683.75 $13,247,103.74 Refunding Bonds $8,900,000.00 (39,028.25) (57,087.06) 44,692.66 $8,848,577.35 - - EXHIBITC OPINION OF THE CITY ATTORl'-.1EY UBS Financial Services Inc. A.G. Edwards & Sons, Inc. Citigroup Global Markets Inc. Morgan Stanley & Co., Incorporated Southwest Securities Wachovia Banlc, National Association c/o UBS Financial Services Inc. c/o lJBS Financial Services Inc. 1111 Bagby, Suite 5100 Houston, Texas 77002 September_, 2003 Re: $ [3,270,000 Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003 $8,900,000 Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003 Ladies and Gentlemen: I am the City Attorney for the City of Lubbock, Texas (the "City'') at the time of the issuance of the above referenced series of Securities, in the aggregate principalan1ount of $22,170,000 ( collectively, the "Secmities"), pursuant to the provisions of the Ordinances duly adopted by the City Council of the City on August 28, 2003. Capitalized terms not othenvise 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 conformityto the originals of all documents and agreements submitted to me as ce1tified 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: 1. 2. 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 ofTexas or the United States, or any applicable judgment or decree or any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instnunent to which the City is party or is othenvise subject and, to the best of my know ledge 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 executionand delivery of the Purchase Contract, the Securities and the adoption of the Ordinances and compliance with the provisions of eachofsuchagreements or instruments does not constitute a breach of or default under any applicable law or, to the best of my lmowledge, any administrative regulation of the State of Texas or the United States or any applicable judgment or decree or, to the best of my lmowledge, any tmst 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 Securities, or the levy, collection or application of the ad valorem taxes and the Pledged Revenues pledged or to be pledged to pay the principal of and interest on the Securities; (c) contesting or affecting the validity or enforceability of the Securities, the Ordinances, or the Purchase Contract; (d) contesting the powers of the City or any authority for the issuance of the Securities, or the adoption of the Ordinances; or (e) that would have a material and adverse effect on the fmancial condition of the City. 3. I have reviewed the information in the Official Statement contained under the caption "Other Infom1ation--Litigation" and such information in all material respects accurately and fairly summarizes the matters described therein. 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 trnly yours, - ExhibitD Proposed Form of Underwriters' Counsel Opinion of McCall, Parkhurst & H01ton LL.P. UBS Financial Services Inc. A.G. Edwards & Sons, Inc. Citigroup Global Markets Inc. Morgan Stanley & Co., Incorporated Southwest Securities Wachovia Banl{, National Association c/o UBS Financial Services Inc. 1111 Bagby, Suite 5100 Houston, Texas 77002 September_, 2003 Re: $13,270,000 Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003 $8,900,000 Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Se1ies 2003 Ladies and Gentlemen: We have acted as counsel for you as the undeiwriters of the Bonds and Certificates of Obligation described above ( collectively, the "Securities"), issued under and pursuant to Ordinances of the City of Lubbock, Texas (the "Issuer"), authorizing the issuance of the Securities, which Securities you are purchasing pursuant to a Purchase Contract, dated August 28, 2003. All capitalized undefined terms used herein shall have the meaning set forth in the Purchase Contract. In com1ection with this opinionletter, we have considered such matters of law and of fact, and lmve relied upon such Securities and other information furnished to us, as we have deemed appropriate as a basis for om opinion set forth below. We are not expressing any opinion or views herein on the authorization, issuance, delivery, validity of the Securities and we have assumed, but not independently verified, that the signatures on all documents and Securities that we have examined are genuine. Based on and subject to the foregoing, we are of the opinion that, under existing laws, the Securities are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Ordinances are 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 deterrninations. involved in the preparation of the Official Statement dated August 28, 2003 (the "Official Statement") and because the infonnationin the Official Statement under the headings "BOOK-ENTRY ONLY SYSTEM," "MUNICIPAL BOND INSURANCE," "TAX MATTERS," "CONTINUING DISCLOSURE - Compliance withPrior Undertakings" and Appendices A, B, and C thereto were prepared by others who have been engaged to review or provide such infommtion, 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 of the Official Statement, we had discussions withrepresentatives 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 crone to our attention that would lead us to believe that the Official Statement ( except for the financial statements and other financial and st:1.tistical data contained therein, the info1mationset forth under the headings "BOOK-ENTRY ONLY SYSTEM," "MUNICIPAL BOND INSURANCE," "TAX MATTERS," "CONTINUING DISCLOSURE-Compliance with Prior Undertakings" and Appendices A, B and C thereto, as to which we express no opinion), as ofits 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 h·ansaction 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, j - 8 0 OFFICIAL STATEMENT Dated August 28, 2003 Ratings: Moody's: "Aaa" S&P: "AAA" Fitch: "AAA" MBIA Insured NEW ISSUE -Book-Entry-Only See ("Municipal Bond Insurance" and "Other Information - Ratings" herein) In the opinion of Bond Counsel, interest on the Certificates will be excludable from gross income for federal income tax purposes under existing law, subject to the matters described under "Tax Exemption" herein, including the alternative minimum tax on corporations. THE CERTIFICATES WILL NOT BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONStt FOR FINANCIAL INSTITIJTIONS $13,270,000 CITY OF LUBBOCK, TEXAS (Lubbock County) TAX AND ELECfRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES 2003 Dated Date: August 15, 2003 Due: April 15, as shown inside cover PAYMENT TERMS ... Interest on the $13,270,000 City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003 (the "Certificates") will accrue from August 15, 2003, (the "Dated Date") and will be payable April 15 and October 15 of each year, commencing April 15, 2004, and will be calculated on the basis of a 360-day year consisting of twelve 30-day months. The definitive Certificates will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Certificates may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Certificates will be made to the owners thereof. Principal of, premium, if any, and interest on the Certificates will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Certificates. See "The Obligations -Book-Entry-Only System" herein. The initial Paying Agent/Registrar is JPMorgan Chase Bank, Dallas, Texas (see "The Obligations -Paying Agent/Registrar"). AUTHORITY FOR ISSUANCE ... The Certificates are issued pursuant to the Constitution and general laws of the State of Texas, (the "State") particularly Vernon's Texas Codes Annotated ("V.T.C.A."), Local Government Code, Subchapter C of Chapter 271, (the Certificate of Obligation Act of 1971), as amended, and constitute direct obligations of the City of Lubbock, Texas (the "City"), payable from a combination of (i) the levy and collection of an annual ad valorem tax, within the limits prescribed by law, on all taxable property within the City, and (ii) a pledge of surplus net revenues of the City's Electric Light and Power System, as provided in the ordinance authorizing the Certificates (the "Ordinance") (see "The Obligations -Authority for Issuance"). PURPOSE ... Proceeds from the sale of the Certificates will be used for the purpose of paying contractual obligations to be incurred for (i) improvements and extensions to the City's Electric Light and Power System and (ii) professional services rendered in connection with such projects and the financing thereof. .MBIA The scheduled payment of principal of and interest on the Certificates when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Certificates by MBIA Insurance Corporation ("MBIA"). See "Municipal Bond Insurance" herein. CUSIP PREFIX: 549187 SEE MATURITY SCHEDULE, 9 Digit CUSIP AND REDEMPTION PROVISIONS ON THE REVERSE OF THIS PAGE SEPARATE ISSUES ... The Certificates are being offered by the City concurrently with the "City of Lubbock, Texas Tax and Electric Light and Power System Surplus Refunding Bonds, Series 2003" (the "Bonds"), under a common Official Statement, and such Certificates and Bonds are hereinafter sometimes referred to collectively as the "Obligations". The Certificates and Bonds are separate and distinct securities offerings and each such offering is being issued and sold separate and apart from the other offering and should be reviewed and analyzed independently, including, among other matters, the kinds and type of obligations being offered, their terms for payment, the security for their payment and the rights of the holders. (SEE FOLLOWING COVER PAGE FOR SIMUL TA.N'EOUS OFFERING OF THE BONDS.) LEGALITY ... The Certificates 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 Certificates will be available for delivery through the DTC on September 30, 2003. UBS FINANCIAL SERVICES INC. A.G. EDWARDS & SONS, lNc. CITIGROUP MORGAN STANLEY SOUTHWEST SECURITIES WACHOVIA BANK, NATIONAL AsSOCIATION MATURITY SCHEDULE CUSIP Prefix: 549187(') Principal Maturity Interest Price or CUSIP Principal Maturity Interest Price or CUSIP Amount (A:eril 15) Rate Yield Suffix {IJ A!p(lUllt (AJ:ril 15) Rate Yield Suffix <1> 'j;f:(O) ---v~s,ooo ~4 2 00% 1.190% s:z:wo 2014 4.250% 4.310% YN (6) ~000 005 .000% 1.430% D (8) vJ.0,000 2015 4.375% 4.440% yp (I) 000 2006 2.000% 1.920% YE(6) i/4,000 2016 4.500% 4.570% YQ{9) ,.;,Is ooo 2007 2.500% 2390% YF {3) 0,000 2017 4.600% 4.670% YR(7) ~000 2008 3.000% 2.780% YG(I) ~,000 2018 5.000% 4.770% (c) YS (5) L 000 2009 3.250% 3.160% YH(9) ~,000 2019 4.750% 4.870% YT(3) ~00 2010 3.750% 3.510% YJ (5) ,000 2020 4.875% 4.970% YU(O) rooo 20ll 4.000% 3.800% YK(2) ~o 2021 5.000% 5.020% YV(8) vtf,o 2012 4.000% 4.000% YL{O) 91 , 0 2022 5.000% 5.040% YW(6) 0,000 2013 4.125% 4.170% YM(8) 0,000 2023 5.000% 5.050% YX (4) (Accrued Interest from August 15, 2003 to be added) (l) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard and Poor's CUSIP Service Bureau, a division of the McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CU SIP services. (c) = priced to call date of April 15, 2002. OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem Certificates having stated marurities on and after April 15, 2013, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on April 15, 2012, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Obligations -Optional Redemption"). 2 ,,-.,. ' ~-/ 0FFIOAL ST A TEMENT Dated August 28, 2003 Ratings: Moody's: "Aaa" S&P: "AAA" Fitch: "AAA" MBIA Insured NEW ISSUE -Book-Entry-Only See ("Municipal 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. TIIB BONDS WILL NOT BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS $8,900,000 OTY OF LUBBOCK, TEXAS (Lubbock County) TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE REFUNDING BONDS, SERIES 2003 Dated Date: August 15, 2003 Due: April 15, as shown inside cover PAYMENT TERMS ... Interest on the $8,900,000 City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003 (the "Bonds") will accrue from August 15, 2003, (the "Dated Date") and will be payable April 15 and October l 5 of each year, commencing April 15, 2004, 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 ("DTC") pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members ofDTC for subsequent payment to the beneficial owners of the Bonds. See "The Obligations -Book-Entry-Only System" herein. The initial Paying Agent/Registrar is JPMorgan Chase Bank, Dallas, Texas (see "The Obligations -Paying Agent/Registrar''). AUTHORITY FOR ISSUANCE ... The Bonds are being issued pursuant to the Constitution and general laws of the State of Texas, (the "State") including particularly Vernon's Texas Codes Annotated ("V.T.C.A."), Government Code, Chapter 1207, as amended, and are direct obligations of the City of Lubbock, Texas (the "City"), payable from a combination of (i) the levy and collection of an annual ad valorem tax, within the limits prescribed by law, on all taxable property within the City, and (ii) a pledge of surplus net revenues of the City's Electric Light and Power System, as provided in the ordinance authorizing the Bonds (the "Bond Ordinance") (see "The Obligations -Authority for Issuance"). PURPOSE ... Proceeds from the sale of the Bonds will be used to refund the$ 8,500,000 City of Lubbock, Texas Electric Light and Power System Revenue Bonds, Series 2002 (the "Refunded Bonds") and to pay cost of issuance. The Refunded Bonds will be optionally redeemed on October 15, 2003, which is the first optional redemption date, at 100% of the principal amount thereof. The Refunded Bonds were sold to three local banks to provide interim financing to make improvements to the City Electric Light and Power System, and at the time of their issuance, the City understood such Refunded Bonds would refinance within a year of their issuance. The refunding of the Refunded Bonds is being undertaken pursuant to such understanding and restructure such indebtedness. See Schedule I for a detailed listing of the Refunded Bonds. .MBIA The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds by MBIA Insurance Corporation ("MBIA"). See "Municipal Bond Insurance" herein. CUSIP PREFIX: 549187 SEE MATURITY SCHEDULE, 9 Digit CUSIP AND REDEMPTION PROVISIONS ON rnE REVERSE OF THIS PAGE SEPARATE ISSUES ... The Bonds are being offered by the City concurrently with the "City of Lubbock, Texas Tax and Electric Light and Power System Surplus Certificates of Obligation, Series 2003" (the "Certificates"), under a common Official Statement, and such Bonds and Certificates are hereinafter sometimes referred to collectively as the "Obligations". The Bonds and the Certificates are separate and distinct securities offerings and each such offering is being issued and sold separate and apart from the other offering and should be reviewed and analyzed independently, including, among other matters, the kinds and type of obligations being offered, their terms for payment, the security for their payment and the rights of the holders. (SEE PREVIOUS COVER PAGE FOR SIMULTANEOUS OFFERL~G OF THE CERTIFICATES.) 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 ... lt is expected that the Bonds will be available for delivery through the DTC on September 30, 2003. UBS FINANCIAL SERVICES INC. A.G. EDWARDS & SONS, INC. CITIGROUP MORGAN STANLEY SOUTHWEST SECURITIES WACHOVIA BANK, NATIONAL ASSOCIATION MATURITY SCHEDULE CUSIP Prefix: 549187(1> Principal Maturity Interest Price or CUSIP Principal Maturity Interest Price or CUSIP "Amount (AEril 15) Rate Yield Suffix (I) Amount (April 15) Rate Yield Suffix (I) Vs 43s,ooo 2004 2.000% 1.236% yy (2) vs 425,000 2014 4.200% 4.310% ZJ (4) i/325,000 2005 2.000% 1.430% YZ(9) \/445,000 2015 4.300% 4.440% ZK (I) \/330,000 2006 2.000% 1.920% ZA (3) 060,000 2016 4.400% 4.570% ZL(9) vfa5,ooo 2007 2.500% 2.390% .ZB (1) . 1/480,000 2017 4.500% 4.670% ZM(7) l,/"145,000 2008 2.750% 2.780% zc (9) }./505,000 2018 5.000% 4.770% (c) ZN(5) ~5,000 2009 3.125% 3.160% ZD (7) V'530,000 2019 4.750% 4.870% ZP(0) 65,000 2010 3.375% 3.510% ZE(5) V'555,000 2020 4.875% 4.970% ZQ(8) 080,000 2011 3.750% 3.800"/o ZF (2) 080,000 2021 5.000% 5.020% ZR(6) 090,000 2012 4.000% 4.000% ZG (0) ')fiI0,000 2022 5.000% 5.040% ZS (4) ....,/410,000 2013 4.100% 4.170% ZH (8) 040,000 2023 5.000% 5.050"/o ZT(2) (Accrued Interest from August 15, 2003 to be added) (I) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard and Poor's CUSIP Service Bureau, a division of the McGraw-Hill Companies, Inc. This data is not intended to create a <lat.abase and does not serve in any way as a substitute for the CUSIP services. (c) = priced to call date of April 15, 2012. OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after April 15, 2013, in whole or in part in principal amounts of$5,000 or any integral multiple thereof, on April 15, 2012, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Obligations -Optional Redemption"). 4 This Official Statement, which includes the cover page, inside cover page and the Appendices hereto, does not constitute an offer to sell or the solicitation of an offer to buy in any jurisdictio11 to any person to whom it is r.mlawful to make such offer, solicitation or sale. No dealer, broker, salesperson or other person has been authorized to give information or to make any representation other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upo11. The information set forth herein has been obtained from the City and other sources believed to be reliable, but such information is not guaranteed as to accuracy or completeness and is not to be construed as the promise or guarantee of the Financial Advisor. This Official Statement contains, in part, estimates and matters of opinion which are not intended as statements of fact, and no representation is made as to the correctness of such estimates and opinions, or that they will be realized. The information and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or other matters described 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 OBLIGATIONS ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICA'l10N, OR EXEMPTION OF THE OBLIGATIONS 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 MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY OR!TS BOOK ENTRY-ONLY SYSTEM, AS SUCH INFORMATION HAS BEEN FURNISHED BY THE DEPOSITORY TRUST COMPANY IN CONNECTION WITH THE OFFERING OF 11fE OBLIGATIONS OR INFORMATION UNDER THE CAPTION "MUNICIPAL BOND INSURANCE" REGARDING MBIA INSURANCE CORPORATION AND ITS BOND INSURANCE POLICY, AS SUCH INFORMATION WAS FURNISHED BY MBIA INSURANCE CORPORATION. THE UNDERWIUTERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABIUZE OR MAINTAIN THE MARKET PRICES OF THE OBLIGATIONS AT A LEVEL ABOVE THAT WHICH MIGHT O'I'HERWISE PREVAIL IN THE OPEN MARKET. SUCH STABIUZING, IF COMMENCED, MAY BE DISCONTINUED AT ANYTIME. The Underwriters have provided the following sentence for Inclusion in the Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, lrnt the Underwriters do not guaramee the accuracy or completeness of such informatio11. TABLE OF CONTENTS OFFICIAL STATEMENT SUMMARY m, ••••• , ... , •• m ... -........ -•• 6 CITY OFFICIALS, STAFF AND CONSULTANTS ..... ,.., ....... 8 ELECTED OFFICIALS ............................................................ 8 SELECTED ADM!NlSTRATIVE STAFF ..................................... 8 CONSULTANTS AND ADVISORS ............................................ 8 INTRODUCTION .... -.......................... ..,.-....... , .......................... 9 THE OBLIGATJONS.., ...... -.................................................... 10 MUNICIPAL BOND INSURANCE ............. -...... .., .......... -.... 15 TABLE 1 • VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT .................................................. 22 TABLE 2 • TAXABLE AsSESSED VALUATIONS BY CATEGORY .............................................................. 24 TABLE3A • VALUATIONANDGENERAL0Bl.IGATION DEBT HISTORY ........................................................ 25 TABLE3B • DERIVATIONOFGENERALPuRPOSEFuNDED TAXDEBT ............................................................... 25 TABLE 4 • TAX RA TE, LEVY AND COI.LECTION HISTORY 25 TABLES· TENLARGESTTAXPAYERS ............................. 26 TABLE6 TAX ADEQUACY ............................................. 26 TABLE 7 • EsTIMATED OVERLAPPING DEBT .................... 26 DEBT INFORMATION ··-•--·· ........................................... ._..,.27 TABLE 8A -GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS ....................................................... 27 TABLE 8B -DIVISION OF DEBT SERVICE REQUJREMENTS28 TABLE 9 • INTEREST AND SINKING FUND BUDGET PROJECTION ......................................... : .................. 29 TABLE 10 a COMPUTATIONOFSELF-SUPPORTINGDEBT .. 30 TABLE 11 -AUTHORJZED BUT UNISSUED GENERAL OBLIGATION BO'.NDS ................................................ 31 TABLE 12 -0nIBR OBLIGATIONS ..................................... 31 FINANCIAL INFORMATION ......................................... ., ...... 33 TABLE 13 • GENERAL FUND REVENUES AND ExPE1'1lITURE HISTORY .................................................................. 33 TABLE 14 • MUNICIPAL SALES TAX HISTORY ................. 34 TABLE 15 • CURRENT iNVESTMENTS ................................. 37 THE SYSTEM ............................................................................ 38 5 TABLE16 -GENERATINGSTATIONS ................................ 40 TABLE 17 • HISTORICAL POWER SUPPLY REQUIREMENTS 41 TABLE 18 • STATISTICAL DATA ....................................... 42 TABLE 19 -TEN LARGEST CUSTOMERS ........................... 42 TABLE 20 • COMPARISON OF REsIDENTIAL ENERGY COSTS r.-lTEXAS ................................................................ 43 TABLE21 • ANALYSIS OF ELECTRJC BILLS ...................... 44 TABLE 22 -F'JVE YEAR CAPITAL IMPROVEMENT PIA."J .... , 52 TABLE 23 -ELECTRJC LIGHT AND POWER SYSTEM REVENUE BOND DEBT SERVICE REQUIREMENTS .... 60 TABLE 24 • CONDENSED STATEMENT OF OPERATIONS ..... 60 TABLE 25 • COVERAGE AND FuND BALANCES .................. 61 TABLE 26 -CITY'S EQUJIT IN THE ELECTRIC LIGHT AND POWER SYSTEM ...................................................... 61 TABLE27-MONTHLYELECTRJCRATES ........................... 62 TAX MATIERS ............... -........................ -............................ 64 OTHER INFORMATION ........... .., .......................................... 66 RATINGS ............................................................................ 66 LITTGATION ....................................................................... 66 REGISTRATION AND QUALIFICATION OF OBLIGATIONS FOR SALE ...................................................... , ................ 66 LEGAL INVES1MENTS AND ELIGIBILITY TO SECURE PuBLJC FuNDs IN TExAS ..................................................... 66 LEGAL MATTERS ............................................................... 66 CONTINUING DISCLOSURE OF LWORMATION .................... 67 FlNANCIALADVJSOR ......................................................... 68 FORWARD-LOOKING STATEMENTS DISCLAIMER ............... 69 SCHEDULE OF REFUNDED BONDS .......................................................... SCHEDULE I APPENDICES GENERAL lNFORMA TION REGARDING THE CIIT ................ A ExCERPTS FROM TilE ANNUAL FINANCIAL REPORT......... B FOR.l\4 OF BoND COUNSEL'S OPINION ................................ C SPECIMEN OF 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 Obligations 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 2003 population of204,737 (see "Introduction -Description of City"). THE CERTIFICATES ..................... The $13,270,000 Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003 are issued as serial certificates maturing April 15, 2004 through April IS, 2023 (see "The Obligations -Description of the Obligations"). THE:BoNDS .................................. The $8,900,000 Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003 are issued as serial bonds maturing April IS, 2004 through April IS, 2023 ( see "The Obligations -Description of the Obligations"). PAYMENT OF INTEREST .............. Interest on the Obligations accrues from August 15, 2003, and is payable April 15, 2004, and each October 15 and April 15 thereafter until maturity or prior redemption (see "The Obligations -Description of the Obligations" and "The Obligations -Optional Redemption"). AUTHORITY FOR ISSUANCE .......... The Certificates are issued pursuant to the general laws of the State, particularly V. T.C.A, SECURITY FOR THE Local Govermnent Code, Subchapter C of Chapter 271, (the Certificate of Obligation Act of 1971), as amended, and the Certificate Ordinance passed by the City Council of the City (see "The Obligations -Authority for Issuance"). The Bonds are issued pursuant to the general laws of the State, including particularly V.T.C.A, Government Code Chapter 1207, as amended, and the Bond Ordinance passed by the City Council of the City (see "The Obligations -Authority for Issuance"). OBLIGATIONS............................... The Obligations constitute direct obligations of the City, payable from a combination of (i) the levy and collection of an annual ad valorem tax, within the limits prescribed by law, on all taxable property within the City, and (ii) a pledge of surplus net revenues of the City's Electric Light and Power System (the "System") as provided in the respective Ordinances (see "The Obligations -Security and Source of Payment"). INTENDED SOURCES OF PAYMENT................................ The Obligations are expected to be self-supporting obligations payable from the surplus revenues of the System. See "Table 3B -Derivation of General Purpose Tax Debt II As noted above, the Obligations are payable from an ad valorem tax levied by the City Council in the Ordinances. In each Ordinance, the City has covenanted to levy an annual ad valorem tax if needed to pay debt service on the respective Obligations in the event that funds are not available from the System to make payment on the Obligations. REDEMPTION............................... The City reserves the right, at its option, to redeem Obligations having stated maturities on and after April 15, 2013, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on April 15, 2012, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Obligations -Optional Redemption"). TAX EXEMPTION.......................... In the opinion of Bond Counsel, the interest on the Obligations will be excludable from gross income for federal income tax purposes under existing law, subject to the matters described under the caption "Tax Matters" herein, including the alternative minimum tax on corporations. USE OF PROCEEDS....................... Proceeds from the sale of the Certificates will be used for the purpose of paying contractual obligations to be incurred for (i) improvements and extensions to the City's Electric Light and Power System and (ii) professional services rendered in connection with such projects and the financing thereof. Proceeds from the sale of the Bonds will be used to refund the $8,500,000 City of Lubbock, Texas Electric Light and Power System Revenue Bonds, Series 2002 (the "Refunded Bonds") and to pay cost of issuance. The Refunded Bonds will be optionally redeemed on October 15, 2003, which is the first optional redemption date, at 100% of the principal amount thereof. The Refunded Bonds were sold to three local banks to provide interim financing to make improvements to the City Electric Light and Power System, and at the time of their issuance, the City understood such Refunded Bonds would refinance within a year of their issuance. The refunding of the Refunded Bonds is being undertaken pursuant to such 6 """ "'- understanding and restructure such indebtedness. See Schedule I for a detailed listing of the Refunded Bonds. RATINGS ..................................... The Obligations are rated" Aaa" by Moody's lnvestors Service, Inc. ("Moody's"), "AAA" by Standard & Poor's Ratings Services, A Division of The McGraw-Hill Companies, Inc. ("S&P") and "AAA" by Fitch Ratings ("Fitch") by virtue of an insurance policy to be issued by MBIA. The presently outstanding tax supported debt of the City is rated "Aa3" by Moody's, "AA-" by S&P and "AA-" by Fitch. The City also has eleven tax supported 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 Obligations 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 Obligations may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Obligations will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Obligations will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members ofDTC for subsequent payment to the beneficial owners of the Obligations (see "The Obligations -Book-Entry-Only System") . PAYMENT RECORD ...................... The City has never defaulted in payment of its general obligation tax debt. 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 9/30 Po;eulation 11' Valuation Valuation Tax Debt VJ Tax Debt Valuation Collections 1999 197,117 $ 6,0 I 9,588,349 $ 30,538 $ 51,222,980 $ 260 0.85% 2000 199,445 6,176,963,982 30,971 53,455,346 268 0.87% 2001 201,097 6,638,911,093 33,013 58,122,809 289 0.88% 2002 202,000 6,909,309,707 34,205 63,115,346 312 0.91% 2003 204,737 7,342,344,867 35,862 70,188,204 (3) 343 0.96% (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. (4) Collections for part year only, through June 30, 2003. GENERAL FUND CONSOLIDATED STATEMENT SUMMARY Fiscal Year Ended S:£tember 30, 2002 2001 2000 1999 Fund Balance at Beginning of Year $ 16,716,042 $ 16,620,652 $ 17,248,025 $ 18,990,299 Total Revenues and Transfers 92,490,374 90,463,799 85,518,102 81,929,016 Total Expenditures and Transfers 90,594,059 90,368,409 86,145,475 83,671,290 Fund Balance at End of Year $ 18,612,357 $ 16,716,042 $ 16,620,652 $ 17,248,025 Less: Reserves and Designations c1,9o3,69oi (2,361,860) (2,857,096) (4,432,834} Undesignated Fund Balance $ 16,708,667 $ 14,354,182 $ 13,763,556 $ 12,815,191 For additional information regarding the City, please contact: Mr. Vince Viaille Mr. Jason Hughes 99.24% 98.89% 99.29% 99.51% 98.08% (4) 1998 $ 18,472,903 83,556,685 83,039,289 $ 18,990,299 (5,442,84Zz $ 13,547,452 Mr. Andy Burcham Cash & Debt Manager City ofLubbock First Southwest Company First Southwest Company P.O. Box 2000 Lubbock, Texas 79457 Phone (806) 775-2149 Fax (806) 775-2033 or 1001 Main Street Suite802 Lubbock, Texas 79401 Phone (806) 749-3792 Fax (806) 749-3793 7 or 325 North St. Paul Street Suite 800 Dallas, Texas 75201 Phone(214)943-4000 Fax (214) 953-4050 CITY OFFICIALS, STAFF AND CONSULT ANTS ELECTED OFFICIALS City Council Date of Installation to Office Term Expires Occupation Marc McDougal* Mayor Victor Hernandez Mayor Pro Tern and Councilmember, District l May,2002 June, 1994 May,2004 Business Owner, Real Estate May,2006 Attorney-at-Law T. J. Patterson April, 1984 May,2004 Co-Publisher Councilmember, District 2 Gary Boren Councilmember, District 3 Frank W. Morrison Councilmember, District 4 Tom Martin Councilmember, District 5 Jim Gilbreath Councilmember, District 6 May, 2002 May,2006 Business Owner, Personnel Services May,2000 May,2004 Business Owner, Commodities May,2002 May, 2006 Retired Law Enforcement May, 2003 May,2007 Self-Employed * Mr. McDougal has served on the Council since May, 1998. SELECTED ADMINISTRATIVE STAFF Name Tommy Gonzalez Anita Burgess Rebecca Garza Quincy White Beverly Hodges Andy Burcham Position Interim City Manager City Attorney City Secretary Assistant City Manager Director of Finance Cash & Debt Manager CONSULTANTS AND ADVISORS Date of Employment in Current Position May,2003 December, 1995 January,2001 September, 2000 July, 2001 November, 1998 Date of Employment with City of Lubbock June, 1991 December, 1995 August, 1996 September, 2000 July, 2001 November, 1998 Total Government Service 12 Years 9 Years 6 Years 12 Years 21 Years 4 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 8 - $13,270,000 CITY OF LUBBOCK, TEXAS OFFICIAL STATEMENT RELATING TO $8,900,000 CITI' OF LUBBOCK, TEXAS TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES2003 TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE REFUNDING BONDS, SERIES2003 INTRODUCTION This Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance of $13,270,000 City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003 (the "Certificates") and $8,900,000 City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003 (the "Bonds" and collectively with the Certificates, the "Obligations"). Capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Certificate Ordinance and the Bond Ordinance (collectively, the "Ordinances" and individually, an "Ordinance") to be adopted on the date of sale of the Obligations, except as othenvise indicated herein. Descriptions herein of the rights permitted with respect to the City under the Ordinances, including its right under certain conditions to amend an Ordinance, redeem or defease Obligations, change the Paying Agent/Registrar, and discontinue a book-entry only system of transfer and registration for the Obligations, among other permitted rights, is intended to refer to the Certificates or the Bonds individually, and the City is not obligated to take any particular permitted action with respect to more than one series of the Obligations at any time, although it may do so. There follows in this Official Statement descriptions of the Obligations and certain information regarding the City and its finances and its Electric Light and Power system (the "System" or "LP&L"). 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 tenns 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 2003 population is 204,737. The City covers approximately 115 square miles. PLAN OF FINANCING PuRPOSE . . . The Certificates are being issued for the purpose of paying contractual obligations to be incurred for (i) improvements and extensions to the City's Electric Light and Power System and (ii) professional services rendered in connection with such projects and the financing thereof. The Bonds are being issued to refund the$ 8,500,000 City of Lubbock, Texas Electric Light and Power System Revenue Bonds, Series 2002 (the "Refunded Bonds") and to pay cost of issuance. The Refunded Bonds will be optionally redeemed on October 15, 2003, which is the first optional redemption date, at 100% of the principal amount thereof. The Refunded Bonds were sold to three local banks to provide interim financing to make improvements to the City Electric Light and Power System, and at the time of their issuance, the City understood such Refunded Bonds would refinance within a year of their issuance. The refunding of the Refunded Bonds is being undertaken pursuant to such understanding and restructure such indebtedness. See Schedule I for a detailed listing of the Refunded Bonds. Refunded Bonds The Refunded Bonds, and interest due thereon, are to be paid in full on their scheduled redemption date of October 15, 2003 from funds to be deposited in a trust clearing account pursuant with JPMorgan Chase Bank, Dallas, Texas (the "Deposit Agent"). The Ordinance provides the proceeds of the sale of the Bonds together with other available funds of the City, will be deposited with the Deposit Agent in an amount necessary to accomplish the discharge and final payment of the Refunded Bonds on their scheduled redemption date. Pursuant to V.T.C.A., Government Code, Chapter 1207, the deposit of the funds with the Deposit Agent pending the payment of the Refunded Bonds is considered to be firm banking and financial arrangements for the discharge and final payment of the Refunded Bonds. It is the opinion of Bond Counsel that, as a result of such firm banking and financial arrangements, the Refunded Bonds will be outstanding only for the purpose of receiving payments from the funds held for such purpose by the Deposit Agent and such Refunded Bonds will cease to be obligations payable from the Net Revenues of the City's Electric Light and Power System or otherwise be treated as outstanding obligations of the City or such System. 9 SOURCES AND USES OF CERTIFICATE PROCEEDS ... The proceeds from the sale of the Certificates will be applied approximately as follows: SOURCES OF FUNDS: Principal Amount of the Certificates $ 13,270,000.00 Accrued Interest 67,683.75 Reoffering Premium 43,768.50 Total Sources ofFunds $ 13,381,452.25 USES OF FUNDS: Deposit to the Construction Fund $ 13,050,000.00 Deposit to Interest and Sinking Fund 67,683.75 Underwriters' Discount 84,009.26 Original Issue Discount 50,339.25 Gross Bond Insurance Premium 42,000.00 Costs of Issuance 85,000.00 Rounding Amount 2,419.99 Total Uses of Funds $ 13,381,452.25 SOURCES AND USES OF BOl'H> 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 Reoffering Premium Total Sources ofFunds USES OF FUNDS: Deposit to Current Refunding Fund Deposit to Interest and Sinking Fund Underwriters' Discount Original Issue Discount Gross Bond Insurance Premium Costs of Issuance Rounding Amount Total Uses of Funds THE OBLIGATIONS $ $ $ $ 8,900,000.00 44,692.66 14,539.10 8,959,231.76 8,701,875.00 44,692.66 57,087.06 53,567.35 28,000.00 70,000.00 4,009.69 8,959,231.76 DESCRIPTION OF THE OBLIGATIONS ... The Obligations are dated August 15, 2003, and mature on April 15 in each of the years and in the amounts shown on pages 2 and 4 hereof. Interest will be computed on the basis of a 360-day year of twelve 30-day months, and will be payable on April 15 and October 15, commencing April 15, 2004. The definitive Obligations of each series 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 Obligations will be made to the owners thereof. Principal of, premium, if any, and interest on the Obligations 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 Obligations. See "Book-Entry-Only System" herein. Interest on the Obligations 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 Obligations 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 Obligations 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 authori:red 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. 10 "· ' /"', r--. AUTHORITY FOR ISSUANCE ..• The Certificates are being issued pursuant to the Constitution and general laws of the State of Texas, particularly Vernon's Texas Codes Annotated ("V.T.C.A."), Local Government Code Subchapter C of Chapter 271, (the Certificate of Obligation Act of 197 I), as amended, and the Certificate Ordinance passed by the City Council. The Bonds are being issued pursuant to the Constitution and general laws of the State of Texas, particularly V.T.C.A., Government Code, Chapter 1207, as amended, and by the Bond Ordinance passed by the City Council. SECURITY AND SoURCE OF PAYMENT ... The Obligations are payable from the proceeds of an annual ad valorem tax levied, within the limitations prescribed by law, upon all taxable property in the City. Additionally, the Obligations are payable from and equally and ratably secured by a parity lien on and pledge of the Net Revenues (as defined in the Ordinances) of the City's Electric Light and Power System (the "System"), such lien and pledge, however, being junior and subordinate to the lien on and pledge of the Net Revenues of the System securing the payment of "Prior Lien Obligations" ( as defined in the Ordinances) now outstanding and hereafter issued by the City. Currently, excluding the Refunded Bonds, there are five issues of Prior Lien Obligations outstanding totaling in principal amount $31,285,000 and having a final maturity date of April I 5, 2021. In addition, the City is obligated under certain agreements with the West Texas Municipal Power Agency (11WTMPA11) to purchase energy from an electric generation facility. The payments to WTMPA support the payment of $22,810,000 of WTMPA Revenue Bonds, and the City's obligation under such agreements constitute operating payments of the System that must be paid prior to the payment of the Prior Lien Obligations and Additional Obligations (as defined in the Ordinances). See "The System -West Texas Municipal Power Agency; Recent Developments." In the Ordinances, the City reserves and retains the right to issue Prior Lien Obligations while the Obligations are outstanding without limitation as to principal amount or subject to any tenns, conditions or restrictions other than as may be required by law, as well as the right to issue Additional Obligations payable from and, together with the Obligations, equally and ratably secured by a parity Hen on and pledge of the Net Revenues of the System. TAX RATE LIMITATION ... All taxable property within the City is subject to the assessment, levy and collection by the City of a continuing, direct annual ad valorem tax sufficient to provide for the payment of principal of and interest on all ad valorem tax debt within the limits prescribed by law. Article XI, Section 5, of the Texas Constitution is applicable to the City, and limits its maximum ad valorem tax rate to $2.50 per $100 Taxable Assessed Valuation for all City purposes. The Home Rule Charter of the City adopts the constitutionally authorized maximum tax rate of $2.50 per $100 Taxable Assessed Valuation. OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem the Obligations having stated maturities on and after April 15, 2013, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on April 15, 2012, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. If less than all of the Obligations of a series having the same maturity are to be redeemed, the City may select the maturities to be redeemed. If less than all the Obligations of any maturity of a series are to be redeemed, the Paying Agent/Registrar (or DTC while the Obligations are in Book-Entry-Only form) shall determine by lot the Obligations of such series, or portions thereof, within such maturity to be redeemed. If an Obligation (or any portion of the principal sum thereof) shall have been called for redemption and notice of such redemption shall have been given, such Obligation ( or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date. NOTICE OF REDEMPTION ... Not less than 30 days prior to a redemption date for the Obligations, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to the registered owners of the Obligations to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HA VE BEEN DULY GIVEN, WHETHER OR NOT ONE OR MORE OF THE REGISTERED OWNERS FAILED TO RECEIVE SUCH NOTICE NOTlCE HAVING BEEN SO GIVEN, THE OBLJGATIONS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY OBLIGATION OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH OBLIGATION OR PORTION THEREOF SHALL CEASE TOACCRUE. AMENDMENTS ... The City may amend the respective Ordinances without the consent of or notice to any registered owners in any manner not detrimental to the interests of the registered owners, including the curing of any ambiguity, inconsistency, or formal defect or omission therein. In addition, the City may, with the written consent of the holders of a majority in aggregate principal amount of the Obligations of the respective series, then outstanding and affected thereby, amend, add to, or rescind the provisions of an Ordinance, except that, without the consent of the registered owners of all of the Obligations of the respective series so 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 for an Obligation or interest thereon, or in any other way modify the terms of the payment of the principal of or interest on, (2) give any preference to any Obligation over any other Obligation of the same series or (3) reduce the aggregate principal amount required to be held by owners for consent to any amendment, addition or waiver. DEFEASANCE . . . The respective Ordinances provide for the defeasance of the Obligations when the payment of the principal of and premium, if any, on the Obligations, plus interest thereon to the due date thereof (whether such due date be by reason of maturity, redemption, or otherwise), is provided by irrevocably depositing with a paying agent or other authorized escrow agent, in trust (1) money sufficient to make such payment, (2) Government Securities, certified by an independent public accounting 11 firm of national reputation to mature as to principal and interest in such amounts and at such times to insure the availability, without reinvestment, of sufficient money to make such payment, or (3) a combination of such money and certified Government Securities. The respective Ordinances define "Government Securities'' as (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 recogniz.ed investment rating firm not less than AAA or its equivalent. Upon making such deposit in the manner described, such defeased Obligations shall no longer be deemed outstanding obligations payable from ad valorem taxes levied by the City or from the net revenues of the System, 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 of taxation or applying any limitation on the City's ability to issue tax supported obligations or revenue obligations or for any other purpose. BOOK-ENTRY-ONLY SYSTEM ... This section describes how ownership of the Obligations is to be transferred and how the principal of, premium, if any, and interest on the Obligations are to be paid to and credited by The Depository Trost Company ("DTC'J, New York, New York, while the Obligations are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The City 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 Obligations, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Obligations), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Obligations. The Obligations will be issued as fully-registered securities registered in the name of Cede & Co. (DTC' s partnership nominee) or such other name as may be requested by an authorized representative of DTC. Fully-registered certificates for each series of Obligations will be issued with one certificate by issuer for each maturity of each series of the Obligations, in the aggregate principal amount of each such maturity, and for each series of Obligation 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 I 934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in tum, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries ofDTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S .. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Obligations under the DTC system must be made by or through Direct Participants, which will receive a credit for the Obligations on DTC's records. The ownership interest of each actual purchaser of each Obligation ("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 Obligations are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Obligations, except in the event that use of the book-entry system for the Obligations is discontinued. To facilitate subsequent transfers, all Obligations deposited by Direct Participants with DTC are registered in the name of DTC' s partnership nominee, Cede & Co., or such other name as may be requested by an authoriz.ed representative ofDTC. The deposit of Obligations with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change 12 - in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Obligations; DTC's records reflect only the identity of the Direct Participants to whose accounts such Obligations are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Obligations may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Obligations, such as redemptions, tenders, defaults, and proposed amendments to the Obligation documents. For example, Beneficial Owners of Obligations may wish to ascertain that the nominee holding the Obligations for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Obligations within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Obligations unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Obligations are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Obligations will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or 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, 11 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 principal 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 Obligations 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, certificates for each series are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, certificates for each series will be printed and delivered. Use of Certain Terms in Other Sections of this Official Statement In reading this Official Statement it should be understood that while the Obligations are in the Book-Entry-Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Obligations, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only System, and (ii) except as described above, notices that are to be given to registered owners under the respective Ordinances 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 Obligations will be issued to the holders and the Obligations will be subject to transfer, exchange and registration provisions as set forth in the respective Ordinances and summarized under "The Obligations -Transfer, Exchange and Registration" below. PAYING AGENT/REGISTRAR ... The initial Paying Agent/Registrar for each series of Obligations is JPMorgan Chase Bank, Dallas, Texas. In the respective Ordinances, 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 Obligations 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 and perform the duties and services of Paying Agent/Registrar for the Obligations. Upon a change of the Paying Agent/Registrar for a series of the Obligations, the City agrees to promptly cause a written notice thereof to be sent to each registered owner of the Obligations affected by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. TRANSFER, EXCHANGE AND REGISTRATION ... In the event the Book-Entry-Only System should be discontinued with respect to a series of Obligations, printed certificates will be issued to the registered owners of the Obligations affected and thereafter such Obligations may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender of such printed certificates to the Paying Agent/Registrar and such transfer or exchange shall be without expense or service charge to the registered owner, except for any tax or other governmental charges required to be paid with respect to 13 such registration, exchange and transfer. Obligations may be assigned by the execution of an assignment form on the respective Obligations or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. New Obligations will be delivered by the Paying Agent/Registrar, in lieu of the Obligations being transferred or exchanged, at the designated office of the Paying Agent/Registrar, or sent by United States mail, first class, postage prepaid, to the new registered owner or his designee. To the extent possible, new Obligations issued in an exchange or transfer of Obligations will be delivered to the registered owner or assignee of the registered owner in not more than three business days after the receipt of the Obligations 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 Obligations 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 series and a like aggregate principal amount as the Obligations 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 Obligations. Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Obligation called for redemption, in whole or in part, within 45 days of the date fixed for redemption; provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Obligation. RECORD DATE FOR INTEREST PAYMENT ••. The record date ("Record Date") for the interest payable on the Obligations 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 an Obligation affected that appears 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. HOLDERS' RE.lVIEDIES ... The respective Ordinances do not establish specific events of default with respect to the Obligations. Under State law there is no right to the acceleration of maturity of the Obligations upon the failure of the City to observe any covenant under the respective Ordinances. Although a registered owner of Obligations could presumably obtain a judgment against the City if a default occurred in the payment of principal of or interest on any such Obligations, 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 or other pledged revenue source sufficient to pay principal of and interest on the Obligations 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 respective Ordinances do 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 respective Ordinances, 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 respective Ordinances and the Obligations are qualified with respect to the customary rights of debtors relative to their creditors. 14 MUNICIPAL BOND INSURA..'NCE MBIA Insurance Corporation ("MBIA") has committed to deliver its insurance policies (collectively, "MBIA's policy") with respect to the Obligations. The following information has been furnished by MBIA for use in this Official Statement. Such information has not been independently verified by the City or the Underwriters and is not guaranteed as to completeness or accuracy by the City or the Underwriters and is not to be construed as a representation of the City or the Underwriters. Reference is made to Appendix D for a specimen of the insurance policy of MBIA. THE MBIA INSURANCE CORPORATION INSURANCE POLICY The following information has been furnished by MBIA for use in this Official Statement. Reference is made to Appendix D for a specimen ofMBIA's policy. 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 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 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 Obligations 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 (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 Obligations. 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 Obligations 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 Obligations resulting from the insolvency, negligence or any other act or omission of the Paying Agent or any other paying agent for the Obligations. 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 U.S. Bank Trust National Association, 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 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 MBIA, and appropriate instruments to effect the appointment of MBIA 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 U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Paying Agent payment of the insured amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such insured amounts and legally available therefor. MBIA 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 Jaws 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 bas three branches, one in the Republic of France, one in the Republic of Singapore and one in the Kingdom of Spain. New York has Jaws 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 "Municipal Bond Insurance". Additionally, MBIA makes no representation regarding the Obligations or the advisability of investing in the Obligations. 15 MBIA INFORMATION The following document filed by the Company with the Securities and Exchange Commission (the "SEC") is incorporated herein by reference: (1) The Company's Annual Report on Form 10-K for the year ended December 31, 2002; and (2) The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003. Any documents filed by the Company pursuant to Sections 13(a), l3(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 Obligations 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 (1} the Company's Annual Report on Form 10-K for the year ended December 31, 2002, and (2) the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003), 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 of MBIA is (914) 273-4545. As of December 31, 2002, MBIA had admitted assets of $9.2 billion ( audited), total liabilities of $6.0 billion ( audited), and total capital and surplus of $3.2 billion ( audited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of June 30, 2003, MBIA had admitted assets of $9.5 billion (unaudited), total liabilities of $6.l billion (unaudited), and total capital and surplus of $3.4 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. FINA.c'<ICIAL STR&-..GTH RA TINGS OF MBIA Moody's Investors Service, Inc. rates the financial strength of MBIA "Aaa. " Standard & Poor's, a division ofThe McGraw-Hill Companies, Inc. rates the financial strength of MBIA "AAA." Fitch Ratings. rates the financial strength of MBIA "AAA." Each rating of MBIA 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 Obligations, 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 Obligations. MBIA does not guaranty the market price of the Obligations nor does it guaranty that the ratings on the Obligations 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 bondholder is not protected by an insurance guaranty fund or other solvency protection arrangement. 16 - DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS Mid-Year Budget Amendments; Financial Challenges Going into the 2002-03 fiscal year, the City Council adopted general fund ("General Fund") and enterprise fund budgets that included approximately $94 million and $171 million in expenditures, respectively. While the budget that was adopted in August 2002 was balanced, it was apparent that LP&L would need to reduce the amount of transfers to the General Fund as compared to transfers included in prior years' budgets. This situation arose as a result of the cumulative effect of operating losses incurred by LP&L that date to the 1996-97 fiscal year. As measured by generally accepted accounting practices ("GAAP"), which take into account budgeted transfers to the City's General Fund, and non-cash expense items such as depreciation and amortization, at the close of the 200 J-02 fiscal year LP&L had a negative cash balance of approximately $12. 8 million on a GAAP basis, which has been funded by interfund loans made from the water fund, solid waste fund and General Funds. A number of factors have contributed to the LP&L losses, but the most significant fact is that LP&L, unlike most other municipal electric utilities, competes directly with a large investor owned energy company, Xcel Energy, Inc. ("Xcel Energy"), and the competitive environment has made it difficult for LP&L to fully recover its fuel costs, particularly during periods of volatile and historically high natural gas prices, which have prevailed in recent years. All LP&L electric generating units, which have provided approximately 35% of its energy requirements in recent years (the remaining energy is provided under power purchase agreements), operate with natural gas as the primary generation fuel. See "The System -Poor Financial Results and Current Financial Position;" "The System -Operating Plan;" and "The System -West Texas Municipal Power Agency; Recent Developments." At present and in the past, LP&L has been obligated by its annual budget to make transfers to the General Fund to cover costs incurred by the City with respect to the operation of LP&L as well as certain other general transfers. During the preparation of the 2002-03 City budgets, it was evident that the amount of money transferred from LP&L to the General Fund would need to be reduced given the financial condition of LP&L Consequently, the 2002-03 budget trimmed approximately $645,000 that in previous years had been budgeted for transfer to the General Fund from the electric enterprise fund. In February 2003, during a period of extraordinarily high natural gas prices, City finance staff projected that, in the absence of corrective measures, the electric enterprise fund would have an operating loss of approximately $24 million for the current fiscal year. In response, the City amended the LP&L and General Fund budgets to eliminate approximately $7.7 million in transfers from LP&L to the General Fund for the current fiscal year (which represents approximately 8.4% of the original General Fund budget for the year). City management then undertook a comprehensive review of the General Fund and other enterprise funds for the purpose of identifying budget cuts in the General Fund and in other areas of City government that could offset the reduced LP&L transfers. The City annually undertakes a mid-year budget assessment during April and May. During the budget assessment in the Spring of 2003, the Council adopted budget amendments for the General Fund that totaled $9.7 million (referred to hereafter as the "2003 Budget Adjustments"), which represents approximately I 0.5% of the original General Fund budget for the year. In addition to the $7.7 million budget adjustment made to address the LP&L transfer reduction, the General Fund also absorbed an approximately $2 million adjustment relating to a prior year interfund payable from the golf course enterprise fund. The cuts that were made included both "one-time" reductions, as well as reductions that will carry forward into future budgets. Among the measures taken to address the General Fund shortfall that resulted from the current year elimination of the LP&L transfers were the following: (i) the elimination of approximately $2.5 million of capital expenditure items (which effect a one-time cost savings for the City); (ii) the reduction of operating costs such as office supplies and staff training and travel expense; (iii) a reorganization of the structure of City government was implemented that consolidated a number of positions; (iv) a general hiring freeze was implemented throughout all City departments in which 24 unfilled positions at LP&L and 8 positions funded from the General Fund (for which funds had been appropriated) were frozen, and 16 jobs were eliminated through work force reductions; ( v) a 1 % increase of the transfers in lieu of franchise payments was implemented for the water and solid waste funds, which increased that transfer for those funds from 3% to 4% of gross revenues; (vi) certain available cash deposits were consolidated into the General Fund, which made such amounts available for current year budget requirements, including amounts held in certain sales tax accounts and internal service funds, as well as amounts in excess of working capital targets that in past years have been used to fund capital improvements. The 2003 Budget Adjustments were made for the purpose of placing the General Fund in position to end the current fiscal year with a balanced operating result, and the City is of the view that the 2003 Budget Amendments substantially meets that objective. Current finance staff estimates include a projected reduction of the General Fund balance at the close of the 2002-03 fiscal year of approximately $500,000, which would have the unrestricted General Fund balance slightly below the City's financial policy of maintaining a balance equivalent to 60 days of operating expenses. Management of the City and LP&L are implementing and reviewing certain options that are designed to improve the financial condition of LP&L, although no assurances can be given as to any future financial result For the current fiscal year, as well as for foreseeable future years, the ability of the General Fund to maintain adequate fund balances and operating reserves will in large part be dependent on whether austerity measures taken by the City with respect to LP&L will permit the electric utility to operate on at least a break even basis. As a result of the LP&L financial condition, the City is offering the Obligations as tax-supported debt. In the past, the City has issued stand-alone revenue bonds to provide capital for LP&L, although the City has issued combination tax and revenue obligations, such as the Obligations, to finance improvements for other City enterprise funds. In reducing the transfers from LP&L to the City, the City is permanently eliminating a portion of the LP&L annual transfers to the General Fund (approximately $2.7 million per year), and, for the current fiscal year an additional $5 million in other 17 transfers. Current budget planning for the 2003-04 fiscal year (which is subject to change) reflects that for the coming year LP&L will transfer to the General Fund only an amount equal to its indirect cost recovery amount, which is approximately $1. I million (an approximately $6.6 million reduction from the original 2002-03 budget), and the reduction in transfers will need to be absorbed by additional austerity measures in the General Fund. It is possible that in the future LP&L transfers to the General Fund could be increased (though probably not to the fu!I amounts of prior years), provided that LP&L has stabilized its financial condition. The City is presently fonnulating its 2003-04 operating and capital budgets. Among the measures that are being reviewed· are additional and substantial cuts in City staff, employee benefits, including health care options, travel and other general administrative costs. City finance staff estimates that approximately 7% of City employment positions (which totaled 1,980 in 2002-03) will be eliminated during 2003-04 by pennanently closing unfilled positions in the City, as well as through reductions in force, and virtually all reductions will be in the General Fund and at LP&L. These staff reductions are expected to result in an approximately $2.5 million reduction in General Fund staffing and benefit funding requirements. In addition, the City is reviewing potential increases in franchise tax payments from commercial entities in the City that use City streets and rights of way for access, although the City is generally required to negotiate as opposed to impose increases in franchise payments. Based upon amounts paid to other municipalities, however, the City is of the view that it will be able to increase overall franchise payment receipts in the 2003-04 fiscal year. While the City has generally not experienced a downturn in its tax base or sales tax revenue as has occurred in other parts of the State during the post September 11, 2001 period (see "Tax Infonnation -Table 2 -Taxable Assessed Valuations by Category" and "Financial Infonnation -Table 14 Municipal Sales Tax History"), the City Council has instructed City finance staff to implement a budget that holds ad valorem tax revenues flat in the coming year, except that portion of the tax rate that is proportionate to tax base growth attributable to new construction in the City. In effect, this policy is designed to end the pass through growth of City tax revenue that is associated with reappraisals of property in the City, which has represented a substantial portion of tax base growth in previous years. Based upon this budget approach, and due to an approximately 7% increase in the City's 2003 tax roll ( of which approximately 62% is attributable to reappraisal of existing property), City finance staff is anticipating an approximately $0.023 decrease in the ad valorem tax rate of the City for the 2003-04 budget year. The City intends to increase water and sewer rates in the 2003-04 fiscal year, as part of a multi-year plan to maintain the self-sufficiency of the enterprise fund debt incurred for those systems. The City Council has also called an election for November 4, 2003 for the purpose of submitting a proposition to the voters of the City for a one-eighth cent ($.00125) sales and use tax ("sales tax") dedicated for economic development in the City and a one-quarter cent ($.0025) sales tax to be used for the reduction of ad valorem taxes in the City. While the City cannot predict whether the voters will approve the sales tax increases, if they do, the City would begin receiving revenue from the new taxes during June 2004, and, in accordance with State law, the City would have to reduce its ad valorem tax levy for the 2004-05 tax year by the estimated amount of revenue to be generated by the one-quarter cent sales tax collected for the reduction of ad valorem taxes in the City. Current estimates of the impact of the one-quarter cent tax rate indicate a potential reduction in 2004- 05 ad valorem rates of approximately $0.086. The one-quarter cent tax would be dedicated to support economic development incentives in the City, and, should the taxes be approved, the City would likely eliminate the $0.03 cent portion of its ad valorem tax that it has historically levied for economic development (see "Table 4 -Tax Rate, Levy and Collection History"). The effect of these taxes, if they should be approved, is anticipated to be approximately revenue neutral to the City, although the approval would result in an increased dependence by the City on sales tax collections as a revenue source. Typically, sales tax revenue has been a more volatile income source than ad valorem taxes, due to the immediate impact that fluctuations in economic conditions have on sales activities that generate sales tax revenue. Recent Events Relating to the City's Electric System The City is a member of the West Texas Municipal Power Agency, a municipal power agency that was formed by concurrent ordinances adopted by the governing bodies of the cities of Brownfield, Floydada, Lubbock and Tulia, Texas (the "Member Cities") in 1983. Certain events relating to WTMPA are described under "The System -West Texas Municipal Power Agency; Recent Developments" including a series of internal financial and management audits of the relationship between LP&L and WTMPA that were undertaken in late 2002 and early 2003, as well as an analysis of the internal controls of the City with respect to LP&L. Such audits are available on the City's website at: www.ci.lubbock.tx.us under the heading "West Texas Municipal Power Agency Audit" Business and Management Transition ... Following the publication of the financial and management audits described under "The System -West Texas Municipal Power Agency; Recent Developments," several key City officers and LP&L management personnel resigned. Among the officials and management of the City who resigned was a member of the City Council with almost l I years of service, the City Manager, who had served 27 years with the City, the last ten of which as City Manager, the Assistant City Manager for Finance, who had almost 8 years of service to the City, the Assistant City Manager for Public Works, who had over five years of service to the City, and the Chief Executive Officer of LP&L, who had served in that capacity since 1998. The City has begun a search for a new City Manager. It is expected that a new City Manager will not be selected until at least the first quarter of the 2003-04 fiscal year. The new City Manager will be tasked with employing a Chief Financial Officer for the City. The interim City Manager has also implemented a new organizational structure for City government. In addition, numerous staff changes have been made at LP&L, including the appointment of new Chief Executive and Chief Operating Officers (see "The System -West Texas Municipal Power Agency; Recent Developments -Business and Management Transition"). At present, the City is undergoing a period of transition in both its management and its business strategies, which has resulted from the situation described under "Discussion of Recent Financial and Management Events -Mid-Year Budget Amendments; Financial Challenges," as well as by the changes key management of City and LP &L that have occurred in recent months. 18 TAX INFORMATION AD V ALO REM TAX LA w ... 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 l 00% of its market value and is prohibited from applying any assessment ratios. In determining market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the less of (1) the market value of the property, or (2) the sum of ( a) J 0% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The City may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the City by petition filed with the Appraisal Review Board. Reference is made to the V.T.C.A., Property Tax Code, for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation purposes; and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution ("Article VIII") and State law provide for certain exemptions from property taxes, the valuation of agricultural and open-space lands at productivity value, and the exemption of certain personal property from ad valorem taxation. Under Section 1-b, Article VIII, and State law, the governing body of a political subdivision, at its option, may grant: (1) An exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision; (2) An exemption of up to 20% of the market value of residence homesteads. The minimum exemption under this provision is $5,000. In the case of residence homestead exemptions granted under Section 1-b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. State law and Section 2, Article VIII, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to a maximum of $I 2,000. Article VIII provides that eligible owners of both agricultural land (Section 1-d) and open-space land (Section l-d-1), including open-space land devoted to fann 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-l. Nonbusiness personal property, such as automobiles or light trucks, are exempt from ad valorern 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 defmed as goods detained in Texas for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. The City may create tax increment financing districts (a "TIF''), and has created the North Overton TIF, within the City with defmed boundaries and, in connection with the creation, establish a base value of taxable property in the TIF. Overlapping taxing units may agree with the City to contnbute all or part of future ad valorem taxes levied and collected against the "incremental value" (taxable value in excess of the base value) of taxable real property in lhe TIF to pay or finance the costs of certain public improvements in the TIF. Taxes levied by the City against the "incremental value" of property in the TIF are not available for general City use but are restricted to paying or financing specified "project costs" within the TIF. See "Tax Information -Tax Increment Financing Zones". State law also provides that the City may also enter into tax abatement agreements to encourage economic development Under the agreements, a property owner agrees to construct certain improvements on its property. The City in turn agrees not to levy a tax on all or part of the increased value attnbutable to the improvements until the expiration of the agreement. The abatement agreement could last for a period ofup to IO years. See "Tax Information -Tax Abatement Policy. " EFFECTIVE TAX RATE AND ROLLBACK TAX RATE ... By each September I or as soon thereafter as practicable, the City Council adopts a tax rate per $100 taxable value for the current year. The City Council will be required to adopt the annual tax rate for the City before the later of September 30 or the 60th day after the date the certified appraisal roll is received by the City. If the City Council does not adopt a tax rate by such required date the tax rate for that tax year is the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the City for the preceding tax year. The tax rate consists of two components: (1) a rate for funding of maintenance and operation expenditures, and (2) a rate for debt service. 19 Under the Property Tax Code, the City must annually calculate and publicize its "effective tax rate" and "rollback tax rate". Effective January l, 2000, a tax rate cannot be adopted by the City Council that exceeds the lower of the rollback tax rate or 103 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 rollback tax rate. "Effective tax rate" means the rate that will produce last year's total tax levy (adjusted) from this year's total taxable values (adjusted). "Adjusted" means lost values are not included in the calculation of last year's taxes and new values are not included in this year's taxable values. "Rollback tax rate" means the rate that will produce last year's maintenance and operation tax levy (adjusted) from this year's values (adjusted) multiplied by 1.08 plus a rate that will produce this year's debt service from this year's values (unadjusted) divided by the anticipated tax collection rate. The Property Tax Code provides that certain cities and counties in the State may submit a proposition to the voters to authorize an additional one-half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. PROPERTY AsSESSMENT AND TAX PAYMENT ... Property within the City is generally assessed as of January I of each year. Business inventory may, at the option of the taxpayer, be assessed as of September I. 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 I of the following year. Taxpayers 65 years old or older are permitted by State law to pay taxes on homesteads in four installments with the first due on February I of each year and the final installment due on August 1. PENALTIES Ai"'ID 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 the taxing unit may contact with an attorney for the collection of delinquent taxes and the amount of compensation as set forth in such contract may provide for a fee up to 20% of the amount of delinquent tax, penalty, and interest collected. 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 sec,-ured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. CITY APPLICATION OF TAX CODE ... The City grants an exemption to the market value of the residence homestead of persons 65 years of age or older of$16,600; the disabled are also granted an exemption of$IO,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 I 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 pennit split payments of taxes, and discounts for early payment of taxes are not allowed by the City, although permitted on a local-option basis by the Property Code. 20 - In the past, the City has taxed freeport property, although beginning with 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 tax abatement policies, as described below. TAX ABATEMENT POLICIES ... 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, there are 20 active enterprise projects and tax abatements, principally in the northeast and southeast sections of the City. In accordance with State law, the City has adopted policies for granting tax abatements, which provide guidelines for tax abatements for both industrial and commercial projects. The guidelines for industrial and commercial projects are similar, except that qualifying industrial projects may receive a ten year abatement, while qualifying commercial projects are limited to five year tax abatements. Although older abatements made by the City were given full (100%) tax abatement, since 1997 the City has negotiated abatements on a declining percentage basis, with a portion of the tax value being added to the City's tax roll each year during the life of the abatement. The City's policies provide a variety of criteria that affect the tenns of the abatement, including the projected life of the project, the type of business seeking the abatement, with certain businesses targeted for abatement, the amount of real or personal property to be added to the tax rol1, the number of jobs to be created or retained, among other factors. The policies disallow abatements for certain categories of property, including real property, inventories, tools, vehicles, aircraft, and housing. Each abatement policy provides for a recapture of the abated taxes if the business is discontinued during the tenn of the agreement, except for discontinuances caused by natural disaster or other factors beyond the reasonable control of the applicant. For a description of the amount of property in the City that has been abated for City taxation purposes, see "Table 1 - Valuations, Exemptions, and General Obligation Debt." TAX L>iCRE."\1ENT FINANCING ZONES ... Chapter 311, Texas Tax Code, provides that the City and other taxing entities may designate a continuous geographic area in their jurisdiction as a TIF if the area constitutes an economic or social liability in its present condition and use. Any ad valorem taxes relating to growth of the tax base in a TIF above the frozen base may be used only to finance improvements within the TIF and are not available for the payment of other tax supported debt of the City and other participating taxing units. Together with other taxing units, the City participates in two TIFs, the Central Business District Reinvestment Zone (the "Downtown TIF) and the North Overton Tax Increment Financing Reinvestment Zone (the "North Overton TIF"). The Downtown TIP covers an approximately 0.71 square-mile area which includes part of the central business district and abuts the North Overton TIF. The base taxable values of the TIF are frozen at the level of taxable values for 2001, the year of creation at $101,454,552. For the first tax year of the Downtown TIF, 2002, there was an approximately 1.2% increase in value before taking into account tax abatements and exemptions. After tax abatements and exemptions, there was a net loss of tax value in the TIF. Consequently, for the year ended September 30, 2003, no deposit was made to the tax increment fund for the Downtown TIP. In addition to the City, the County, County Hospital District and the High Plains Underground Water Conservation District participate in the Downtown TIF. Given the relative tax rates of the participants, it is anticipated that the City will be the largest contnbutor to the tax increment fund if there is growth from the frozen base. The Downtown TIF was created pursuant to City ordinance and official action of the other participating taxing entities and is to expire in 2021. In addition to the Downtown TIF, in 2001 the City enacted an ordinance establishing the North Overton TIF. The other participating Taxing Units ( each of which are contributing 100% of the tax increment) are Lubbock County, Lubbock County Hospital District and the High Plains Underground Water District. The taxes of the City represent approximately 65% of the taxes levied in the 2002-03 fiscal year (see "Tax Information -Table 7 -Estimated Overlapping Debt" for current tax rates of the other participating Taxing Units). The ordinance creating the North Overton TIF provides that the TIF will terminate on December 3 J , 203 l or at an earlier time designated by subsequent ordinance of the City Council ( and with appropriate concurring actions of the other participating Taxing Units) in the event the City determines that the TIF should be tenninated due to insufficient private investment, accelerated private investment or other good cause, or at such times as all project costs and tax increment debt has been paid in full. The termination date may also be extended by subsequent ordinance of the City Council and with the concurrence of the other participating Taxing Units. The North Overton TIF consists of approximately 325 acres near the Central Business District of the City, and is bounded by the campus of Texas Tech University to the west, the Marsha Sharp Freeway to the north, Broadway Street to the south, and Avenue Q to the east. The frozen tax base for the North Overton TIF was established as of January 1, 2002 at $26,772,484. During the first year of its existence, there was no tax increment in the zone, due to the demolition of existing structures as land was being acquired and prepared for future development As of January l, 2003 there was approximately $ 12. 7 million of tax increment in the North Overton TIF, and at present, construction is underway on several mixed use multifamily and commercial projects in theTIF. The financing plan that has been adopted for the North Overton TIF provides for the tax increment fund to be used to fund various capital costs of public improvements in the zone, including the costs of acquiring, demolishing, altering and reconstructing existing facilities, as well as financing costs, professional fees incurred in connection with the public improvements, and amounts contributed by the City from its general revenue for the implementation of the project plan. 21 The primary developer and land owner in the TIF is the McDougal Companies (of which company the City's Mayor is a principal), which, working with City staff, has established a development plan for the TIF which envisions future development of the TIF into a mixed use area, that includes restaurant/retail mixed use properties, including a proposed hotel development, that abut the Texas Tech campus. The development plan also includes multifamily housing, single family housing and some office buildings. An economic feasibility study of the development plan was made as part of the adoption of the financing plan for the North Overton TIF, and based upon the study, the City believes that the financing plan is sound. However, the development plan for the TIF is subject to change due to economic conditions, availability of capital for the project and a continued demand for the types of properties envisioned for the zone, and no assurances can be given that the plan will be substantially developed according to the plan, or within the plan's projected time frame. The development plan includes an 8 year development period, and it projects the addition of between $200 million to $235 million of new construction to the area. Based upon the projected tax increment, the City projects a debt capacity of approximately $18 million over the 2003 2011 time frame and that an additional $1. 7 million can be funded for public improvements in the North Overton TIF during that time frame. The financing plan provides that no additional debt will be issued for the zone until there are development agreements in place that will provide sufficient tax increment to pay debt service on each installment of debt. · TABLE 1 -VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT 2002 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 Exemption for Property Valued under $500 Tax Abatement Reductions PJ 2002 Taxable Assessed Valuation City Funded Debt Payable from Ad Valorem Taxes General Obligation Debt (as of 7-31-03) <2J The Certificates The Bonds Total Funded Debt Payable from Ad Valorem Taxes Less: Self Supporting Debt (as of7-3 l-03) (3) Waterworks System General Obligation Debt Sewer System General Obligation Debt Solid Waste System General Obligation Debt Drainage Utility System General Obligation Debt Tax Increment Financing General Obligation Debt Electric Light and Power System General Obligation Debt General Purpose Funded Debt Payable from Ad Valorem Taxes <4l General Obligation Interest and Sinking Fund as of7-31-03 Ratio Total Funded Debt to Taxable Assessed Valuation Ratio General Purpose Funded Debt to Taxable Assessed Valuation 2003 Estimated Population -204,737 \~J Per Capita Taxable Assessed Valuation -$35,862 $ I 98,263,601 72,231,686 13,293,626 48,152,885 2,179,378 38,583,846 101,547 76,773,815 $ 273,765,000 13,270,000 8,900,000 $ 67,980,314 48,533,989 8,842,493 74,425,000 3,795,000 22,170,000 Per Capita Total Funded Debt Payable from Ad Valorem Taxes -$1,445 Per Capita General Purpose Funded Debt Payable from Ad Valorem Taxes -$343 $ 7,791,925,251 449,580,384 $ 7,342,344,867 295,935,000 225,746,796 $ 70,188,204 4.03% 0.96% Note: On July 25, 2003, the Lubbock Central Appraisal District certified the City's 2003 tax roll at $7,898,368,386, which includes $352,138,085 of value that is still under tax appraisal appeal. See "Discussion of Recent Financial and Management Events." (1) See above, "Tax Information -Tax Abatement Policy". (2) The statement of indebtedness does not include outstanding $31,285,000 Electric Light and Power System Revenue Bonds (excluding the Refunded Bonds), as these Bonds are payable solely from the Net Revenues of the System. Also excludes 22 $22,810,000 of WTMPA Bonds, with respect to which the City is jointly and severally obligated, together with other members of WTMPA, to pay from revenues of the System. · (3) As a matter of policy, the City provides debt service on general obligation debt issued to fund improvements to its Waterworks System, Sewer System, Solid Waste System and Drainage System from surplus revenues of these Systems (see "Table 8A -Pro-Fonna 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"). The Tax Increment Certificates issued to fund improvements in the North Overton TIF are shown in Table I as self-supporting debt. However, the City projects that the amount of incremental tax revenue available to cover debt service on the Tax Increment Certificates will be insufficient until the 2005-06 fiscal year. In 2005-06, based upon development projections that the City believes to be reasonable, but which are dependent in part on future economic conditions and other factors that the City can not control and as to which it can give no assurances, the City anticipates that tax increment revenues will be adequate to cover debt requirements for that year and prior years. In the interim, the City intends to make an interfund loan to cover the debt service, and if the projected development in the North Overton TIF proceeds as expected, the City would repay such loan from revenues received in future years. In addition, current City planning calls for the Obligations and other outstanding revenue bonds issued by the City for LP&L to be self-supporting, but no assurances can be given that all or some part of such debt will not be self-sufficient (see "Discussion of Recent Financial and Management Events -Mid-Year Budget Amendments; Financial Challenges"). "Waterworks System General Obligation Debt" includes $67,990,314 principal amount of outstanding general obligation bonds and certificates of obligation issued to finance Waterworks System improvements, and are being paid, or are expected to be paid, from Waterworks System revenues. The City has no outstanding waterworks system revenue bonds but has obligated revenues of the Waterworks System under water supply contracts. See "The Waterworks System". "Sewer System General Obligation Debt" includes $48,533,989 principal amount of general obligation bonds and certificates of obligation issued to finance Sewer System improvements, and are being paid, or is expected to be paid, from Sewer System revenues. The City has no outstanding sewer system revenue bonds. "Solid Waste Disposal System General Obligation Debt" includes $8,842,493 principal amount of general obligation debt issued for Solid Waste System improvements, and is being paid, or is expected to be 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" includes $74,425,000 principal amount of general obligation debt issued for Drainage System improvements, and is being paid, or is expected to be paid, from revenues derived from Drainage Utility System fees. The City has no outstanding drainage utility system revenue bonds. "Tax Increment Financing General Obligation Debt" consists of the tax increment certificates issued for construction and improvements in the North Overton TIF, and that is expected to be paid from revenues derived from the Pledged Tax Increment Revenues. The City has no outstanding tax increment financing revenue bonds. "Electric Light and Power System General Obligation Debt" consists of the Obligations being issued for Electric Light & Power System improvements and to refund a portion of the City's outstanding revenue bonds, and is expected to be paid from revenues derived from System revenues. Excluding the Refunded Bonds, the City has $31,285,000 outstanding electric light and power system revenue bonds. (4) "General Purpose Funded Debt Payable from Ad Valorem Taxes" includes $68,684,454 of general obligation debt and $1,503,750 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. 23 TABLE 2 -TAXABLE ASSESSED V ALUATIO~S BY CATEGORY Taxable A£l!raised Value for Fiscal Year Ended Se1:tember 30, 2003 2002 2001 %of %of %of Cateio!l'. Amount Total Amount Total Amount Total Real, Residential, Single-Family $ 4,532,345,951 58.17% $ 3,935,486,660 53.59% $ 3,771,725,980 53.71% Real, Residential, Multi-Family 455,993,262 5.85% 466,775,473 6.36% 453,863,141 6.46% Real, Vacant Lots/Tracts 93,473,144 1.20% 96,407,484 1.31% 88,108,541 1.25% Real, Acreage (Land Only) 59,644,977 0.77% 60,171,506 0.82% 60,125,617 0.86% Real, Farm and Ranch Improvements 11,391,782 0.15% 12,003,318 0.16% 11,000,161 0.16% Real, Collllllercial and Industrial 1,370,730,397 17.59% 1,445,748,160 19.69% 1,348,046,123 19.20% Real, Oil, Gas and Other Mineral Reserves 7,909,460 0.10% 8,849,390 0.12% 7,000,000 0.10% Real and Tangible Personal, Utilities 192,138,423 2.47% 185,588,935 2.53% 181,228,303 2.58% Tangible Personal, Commercial and Industrial 974,534,729 12.51% 1,039,521,384 14.16% 1,072,713,960 15.28% Tangible Personal, Other 15,336,364 0.20% 15,296,446 0.21% 14,786,889 0.21% Real Property, Inventory 11,087,603 0.14% 10,279,056 0.14% 13,320,136 0.19% Special Inventory 67,339,159 0.86% 67,429,634 0.92% 0.00% Total Appraised Value Before Exemptions $ 7,791,925,251 100.00% $ 7,343,557,446 100.00% S 7,021,918,851 100.00% Less: Total Exemptions/Reductions (449,580,384} (434,247,7392 (383,007,758} Taxable Assessed Value $ 7,342,344,867 $ 6,909,309,707 $ 6,638,911,093 Taxable Appraised Value for Fiscal Year Ended September 30, 2000 1999 %of %of Cateio.!! Amount Total Amolmt Total Real, Residential, Single-Family $ 3,417,179,021 51.99% $ 3,219,691,355 50.90o/~ Real, Residential, Multi-Family 411,487,582 6.26% 396,277,540 6.26% Real, Vacant Lots/Tracts 87,184,492 1.33% 93,912,543 1.48% Real, Acreage (Land Only) 46,378,532 0.71% 45,494,120 0.72% Real, Farm and Ranch Improvements 7,166,908 0.11% 6,778,453 0.11% Real, Commercial and Industrial 1,322,413,335 20.12% 1,272,262,327 20.11% Real, Oil, Gas and Other Mineral Reserves 4,540,780 0.07% 7,862,650 0.12% Real and Tangible Personal, Utilities 180,418,060 2.74% 178,399,714 2.82% Tangible Personal, Commercial and Industrial 1,072,361,347 16.31% 1,081,053,583 17.09% Tangible Personal, Other 14,283,024 0.22% 12,807,717 0.20% Real Property, Inventory 9,845,906 0.15% 11,256,034 0.18% Total Appraised Value Before Exemptions $ 6,573,258,987 100.00% $ 6,325,796,036 100.00% Less: Total Exemptions/Reductions (396,296,005} (306,207,687} Taxable Assessed Value $ 6,176,962,982 $ 6,019,588,349 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. 24 - TABLE 3A -VALUATION AND GENERAL OBLIGATION 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 Po1;ulation ll) Valuation ttJ Per Ca1;ita ofYeartc,, Valuation Ca;eita 1999 197,117 $ 6,019,588,349 $ 30,538 $ 51,222,980 0.85% $ 260 2000 199,445 6,176,963,982 30,971 53,455,346 0.87% 268 2001 201,097 6,638,911,093 33,013 58,122,809 0.88% 289 2002 202,000 6,909,309, 707 34,205 63,115,346 0.91% 312 2003 204,737 7,342,344,867 35,862 70,188,204 (4) 0.96% 343 (I) Source: The City of Lubbock, Texas (2) As reported by the Lubbock Central Appraisal District on City's annual State Property Tax Board Reports; subject to change during the ensuing year. (3) Does not include self-supporting debt (see Table 3B and footnote 3 to Table t ). (4) Projected. TABLE 3B -DERIVATION OF GENERAL PuRPOSE FU:NDED 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 has adopted a capital improvement plan which is expected to result in the issuance of additional self- supporting general obligation debt. See "Debt Information-Capital Improvement Program and 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 1999 $ 158,117,749 $ 106,944,771 $ 51,222,980 2000 176,847,762 I 23,392,416 53,455,346 2001 175,408,321 117,285,512 58,122,809 2002 217,269,682 154,154,335 63,115,347 2003 295,935,000 (I) 225,746,796 (I) 70,188,204 (I) (1) Projected, includes the Obligations. TABLE 4 -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 Develo;ement Sinking Fund TaxLe;1 to Tax Le;1 to Tax Levy 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 35,831,812 97.35% 98.89% 2001 0.5700 0.42718 0.03000 0.11282 37,841,145 97.58% 99.29% 2002 0.5700 0.42844 0.03000 0.11156 39,351,225 97.70% 99.51% 2003 0.5700 0.43204 0.03000 0.10796 42,286,967 96.85% (I} 98.08% (!) (l) Collections for part year only, through June 30, 2003. 25 TABLE 5 -TEN LARGEST TAX.PAYERS Name of Taxpayer Macerich Lubbock LID Partnership Southwestern Bell Telephone Company Xcel Energy PYCO Industries Inc. Wal-Mart Noble Construciton Equipment U S Distribution Center LLC Fleming Companies Inc. Energas Cox Communications of West Texas Nature of Property Regional Shopping Mall Telephone Utility Electric Utility Electronic Manufacturer Discount Retail Stores Manufacturing Retail Grocer Wholesale Grocers Natural Gas Utility Cable Utility 2002/03 Taxable Assessed Valuation $ l 11,202,071 70,703,934 56,941,488 24,912,910 34,337,581 14,010,503 23,906,084 22,658,261 22,177,765 20,500,010 $ 401,350,607 % of Total Taxable Assessed Valuation 1.47% 0.94% 0.76% 0.33% 0.46% 0.19% 0.32% 0.30% 0.29% 0.27% 5.32% GENERAL OBLIGATION DEBT LIMITATION ... No general obligation debt limitation is imposed on the City under current State law or the City's Home Rule Charter (see "Tax Rate Limitation"). TABLE 6 · TAX ADEQUACy(ll Maximum Principal and Interest Requirements, All General Obligation Debt, 2005(2) .......................................................................................................................... $ 28,342,139 $0.3939 Tax Rate at 98% Collection Produces .................................................................................................................. $ 28,343,067 Maximum Principal and Interest Requirements, General Purpose General Obligation Debt, 2004(3) ................................................................................................... $ 8,150,868 $0.1133 Tax Rate at 98% Collection Produces .................................................................................................................. $ 8,152,499 ( 1) Based on 2002-2003 taxable assessed valuation. (2) See Table 8A. (3) See Table 8B. TABLE 7 -ESTIJ.\.1ATED OVERLAPPING DEBT Expenditures of the various taxing entities within the territory of the City are paid out of ad valorem taxes levied by such entities on properties within the City. Such entities are independent of the City and may incur borrowings to finance their expenditures. This statement of direct and estimated overlapping ad valorem tax bonds ("Tax Debt") was developed from information contained in "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. Except for the amounts relating to the City, the City has not independently verified the accuracy or completeness of such information, and no person should rely upon such information as being accurate or complete. Furthermore, certain of the entities listed may have issued additional 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. Taxing Jurisdiction City ofuibbock Lubbock Independent School District Lubbock County Lubbock County Hospital District High Plains Underground Water Conservation District No. l Frenship independent School District Idalou Independent School District Lubbock-Cooper Independent School District New Deal independent School District Tot.al Direct and Overlapping G.O. Debt $ 2002/03 Taxable Assessed Value 7,342,344,867 6,050,459,610 8,423,271,899 8,693,093,090 8,693,093,090 1,029,341,776 116,759,420 395,300,402 16,957,054 Total Funded Debt Tax As Of Rate 7-31-03 $ 0.57000 $ 295,935,000 (l} 1.60560 74,034,219 0.19110 79,935,000 0.10440 -0- 0.00840 -0- l.64160 30,169,125 l.45000 1,439,998 1.52900 14,399,555 0.61590 -0- Ratio of Direct and Overlapping G.O. Debt to Taxable Assessed Valuation ................... . City's Estimated Overlapping % G.O.Debt Applicable As of7-3 l-03 100.00% $ 295,935,000 98.91% 73,227,246 82.94% -0- 82.94% .().. 82.94% -0- 64.44% 19,440,9&4 1.10% 15,840 15.30% 2,203,132 0.03% -0- $ 390,822,202 Authorized But Unissued $ Debt As Of 7-31-03 3,742,000 3,402,595 505,347 ..(). -0- -0- ..0- -0- -0- 5.32% Per Capita Direct and Overlapping G.O. Debt. .......................................................................... $ 1,935 ( 1) Includes the Obligations. 26 ) ) l ) ) ) ) ) DEBT INFORMATION TABLE 8A • GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS Fiscal Year Total %of Ended Outstanding Debt "1 The Certificatesl2l The Bondi3l Combined Principal ....2Q.L Princieal Interest Total Princieal Interest Total Princi£al Interest Total R~uirements Retired 2003 $ 13,324,682 (4) $ 11,120,130 (4) $ 24,444,812 (4) $ $ $ $ $ $ $ 24,444,812 (4) 2004 13,510,000 12,899,033 26,409,033 645,000 360,980 1,005,980 435,000 238,361 673,361 28,088,374 2005 14,700,000 11,959,728 26,659,728 480,000 528,570 1,008,570 325,000 348,841 673,841 28,342,139 2006 14,845,000 11,269,592 26,114,592 490,000 518,970 1,008,970 330,000 342,341 672,341 27,795,903 2007 15,000,000 10,599,190 25,599,190 495,000 509,170 1,004,170 335,000 335,741 670,741 27,274,101 24.22% 2008 14,525,000 9,946,978 24,471,978 510,000 496,795 1,006,795 345,000 327,366 672,366 26,151,139 2009 14,280,000 9,310,514 23,590,514 525,000 481,495 1,006,495 355,000 317,879 672,879 25,269,888 2010 13,975,000 8,683,863 22,658,863 540,000 464,433 1,004,433 365,000 306,785 671,785 24,335,081 2011 14,245,000 8,053,924 22,298,924 565,000 444,183 1,009,183 380,000 294,466 674,466 23,982,573 2012 13,265,000 7,436,121 20,701,121 585,000 421,583 1,006,583 390,000 280,216 670,216 22,377,919 2013 13,525,000 6,829,644 20,354,644 610,000 398,183 1,008,183 410,000 264,616 674,616 22,037,443 53.13% 2014 13,810,000 6,204,699 20,014,699 635,000 373,020 1,008,020 425,000 247,806 672,806 21,695,526 2015 11,115,000 5,626,756 16,741,756 660,000 346,033 1,006,033 445,000 229,956 674,956 18,422,744 2016 10,520,000 5,108,777 15,628,777 690,000 317,158 1,007,158 460,000 210,821 670,821 17,306,756 2017 10,075,000 4,603,064 14,678,064 720,000 286,108 1,006,108 480,000 190,581 670,581 16,354,753 N -..J 2018 10,485,000 4,091,493 14,576,493 755,000 252,988 1,007,988 505,000 168,981 673,981 16,258,462 73.11% 2019 10,405,000 3,568,577 13,973,577 790,000 215,238 1,005,238 530,000 143,731 673,731 15,652,546 2020 9,180,000 3,072,882 12,252,882 830,000 177,713 1,007,713 555,000 118,556 673,556 13,934,151 2021 6,955,000 2,664,600 9,619,600 870,000 137,250 1,007,250 580,000 91,500 671,500 11,298,350 2022 6,410,000 2,334,373 8,744,373 915,000 93,750 1,008,750 610,000 62,500 672,500 10,425,623 2023 5,040,000 2,053,913 7,093,913 960,000 48,000 1,008,000 640,000 32,000 672,000 8,773,913 87.74% 2024 4,375,000 1,823,076 6,198,076 6,198,o76 2025 3,220,000 1,632,714 4,852,714 4,852,714 2026 3,395,000 1,463,114 4,858,114 4,858,114 2027 3,575,000 1,283,950 4,858,950 4,858,950 2028 3,755,000 1,095,068 4,850,068 4,850,068 93.67% 2029 3,955,000 896,385 4,851,385 4,851,385 2030 4,!70,000 686,998 4,856,998 4,856,998 2031 4,390,000 466,390 4,856,390 4,856,390 2032 2,240,000 297,250 2,537,250 2,537,250 2033 2,350,000 182,500 2,532,500 2,532,500 99.20% 2034 2,475,000 61,875 2,536,875 2,536,875 100.00% $ 287,089,682 $ 157,327,167 $ 444,416,849 $ 13,270,000 $ 6,871,615 $ 20,141,615 $ 8,900,000 $ 4,553,047 $ 13,453,047 $ 478,011,512 (I) "Outstanding Debt" does not include lease/purchase obligations. (2) Average life of the issue -11.324 years. Interest on the Certificates has been calculated at the rates shown on page 2. (3) Average life of the issue -I 1.297 years. Interest on the Bonds has been calculated at the rats shown on page 3. (4) Includes principal and semiannual interest paid by the City on February 15, 2003. TABLE 8B -DIVISION OF DEBT SERVICE REQUIREMENTS Less: Less: less: Less: Less: Less: Solid Waste Drainage Tax Electric Watetworks Sewer Disposal Utility Increment Light and General Fiscal System System System System Financing Power System Pwpose Year General General General General General General General Ended Combined Requiremcntsl'1 Obligation Obligation Obligation Obligation Obligation Obligation Obligation 9/30 Princif!:!1 Interest Total Requirements Requirements Requirements Requirements Re!luirements Requirements Resuirements 2003 $ 13,324,682 (2) $ 11,120,130 <2l $ 24,444,812 (Z) $ 6,921,579 <2> $ 6,507,447 (Z) $ 579,021 (Z) $ 2,321,441 (Z) $ $ $ 8,115,324 (l) 2004 14,590,000 13,498,374 28,088,374 6,798,536 6,235,864 732,646 4,307,251 183,869 1,679,341 8,150,868 2005 15,505,000 12,837,139 28,342,139 7,085,088 5,940,796 813,084 4,852,706 286,725 1,682,411 7,681,329 2006 15,665,000 12,130,903 27,795,903 6,915,220 5,754,261 796,168 4,852,456 285,600 1,681,311 7,510,887 2007 15,830,000 11,444,101 27,274,101 6,792,535 5,557,089 783,121 4,853,903 289,100 1,674,911 7,323,442 2008 15,380,000 10,771,139 26,151,139 6,371,748 5,231,518 773,041 4,855,891 287,225 1,679,161 6,952,556 2009 15,160,000 10,109,888 25,269,888 6,219,281 4,942,739 758,041 4,853,231 285,825 1,679,374 6,531,396 2010 14,880,000 9,455,081 24,335,081 6,049,718 4,658,847 743,158 4,855,106 289,825 1,676,218 6,062,209 2011 15,190,000 8,792,573 23,982,573 5,944,541 4,496,853 727,796 4,854,651 288,525 1,683,649 5,986,558 2012 14,240,000 8,137,919 22,377,919 5,060,244 4,257,896 712,037 4,856,299 287,025 1,676,799 5,527,620 2013 14,545,000 7,492,443 22,037,443 5,003,521 4,068,507 700,693 4,856,694 285,325 1,682,799 5,439,904 2014 14,870,000 6,825,526 21,695,526 4,939,885 3,898,220 683,746 4,856,825 288,325 1,680,826 5,347,698 2015 12,220,000 6,202,744 18,422,744 4,803,073 2,030,676 666,322 4,857,133 285,909 1,680,989 4,098,642 N 2016 ll,670,000 5,636,756 17,306,756 4,748,003 1,251,468 648,827 4,857,350 287,950 1,677,979 3,835,179 00 2017 ll,275,000 5,079,753 16,354,753 4,700,179 1,212,310 631,350 4,852,350 289,450 1,676,689 2,992,425 2018 11,745,000 4,513,462 16,258,462 4,637,767 1,181,659 618,221 4,856,259 285,369 1,681,969 2,997,217 2019 11,725,000 3,927,546 15,652,546 4,261,237 1,144,628 423,800 4,853,666 285,694 1,678,969 3,004,552 2020 10,565,000 3,369,151 13,934,151 3,301,278 378,450 417,238 4,854,518 290,309 1,681,269 3,01 l,090 2021 8,405,000 2,893,350 11,298,350 1,282,056 381,581 409,938 4,853,413 289,056 1,678,750 2,403,556 2022 7,935,000 2,490,623 10,425,623 1,280,781 378,819 270,400 4,852,254 287,181 1,681,250 1,674,938 2023 6,640,000 2,133,913 8,773,913 740,588 53,563 273,644 4,850,863 289,713 1,680,000 885,544 2024 4,375,000 1,823,076 6,198,076 737,100 51,188 271,294 4,851,845 286,650 2025 3,220,000 1,632,714 4,852,714 4,852,714 2026 3,395,000 1,463,ll4 4,858,ll4 4,858,114 2027 3,575,000 1,283,950 4,858,950 4,858,950 2028 3,755,000 1,095,068 4,850,068 4,850,068 2029 3,955,000 896,385 4,851,385 4,851,385 2030 4,170,000 686,998 4,856,998 4,856,998 2031 4,390,000 466,390 4,856,390 4,856,390 2032 2,240,000 297,250 2,537,250 2,537,250 2033 2,350,000 182,500 2,532,500 2,532,500 2034 2,475,000 61,875 2,536,875 2,536,875 $ 309,259,682 $ 168,751,830 $ 478,011,512 $ 104,593,958 $ 69,614,377 $ 13,433,584 $ 145,307,347 $ 5,934,650 $ 33,594,662 $ 105,532,934 (I) Includes debt service on the Obligations. (2) Includes the principal and semiannual interest paid on February 15, 2003. - - -""" TABLE 9 -INTEREST AND SINK1NG Ft'ND BUDGET PROJECTION General Obligation Debt Service Requirements, Fiscal Year Ending 9-30-03 $ 24,444,812 Fiscal Agent, Tax Collection and Other Uses 15,000 T ota1 Requirements $ 24,459,812 Sources of Funds Interest and Sinking Fund, 9-30-02 $ I,697,045 Budgeted Ad Valorem Tax Receipts 7,715,943 Budgeted Transfers From: Water Fund (IJ $ 6,921,579 Sewer Fund (JJ 6,507,447 Solid Waste Fund (!) 579,021 Drainage Utility Fund (J) 2,321,441 Airport Fund -from Passenger Facility Charges<2l 209,434 Budgeted Interest Earned 42,800 Total Sources of Funds $ 25,994,710 Projected Balance, 9-30-03 $ 1,534,898 (1) See "Table IO -Computation of Self-Supporting Debt". (2) Passenger Facility Charges ("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 for approved airport projects. The City has issued several series of debt for municipal airport improvements (" Airport Debt"), including tax and airport surplus revenue certificates of obligation in 1993 and 1998, and general obligation refunding bonds in 1985 and 1997, which refunded prior issues of Airport Debt. A portion of the refunding bonds have been allocated to the airport in proportion to the principal amount of Airport Debt that was refunded. PFC revenues in the fiscal year ending 9-30-02 were $1,342,212, and, as shown above, $209,434 of PFC revenues have been budgeted for payment of Airport Debt in 2002-03, which equates to self-supporting Airport Debt with a principal balance of $1,638,750. For 2002- 03, the portion of Airport Debt that is being funded from general fund contributions (ad valorem taxes) equates to a principal balance of$3,495,082. 29 TABLE 10 -COMPUTATION OF SELF-SUPPORTING DEBT THE WATERWORKS SYSTEM (ll Net Wateiworks System Revenue Available, Fiscal Year Ended 9-30-02 Less: Requirements for Revenue Bonds, Fiscal Year Ended 9-30-03 Balance Available for Other Purposes Requirements for Waterworks System General Obligation Debt, Fiscal Year Ending 9-30-03 Percentage of Waterworks System General Obligation Debt Self-Supporting $ 18,713,057 -0- $ 18,713,057 $ 6,921,579 100.00% (I) Each Fiscal Year the City trarn,fers 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 (l> Net Sewer System Revenue Available, Fiscal Year Ended 9-30-02 Less: Requirements for Revenue Bonds, Fiscal Year Ending 9-30-03 Balance Available for Other Purposes Requirements for Sewer System General Obligation Debt, Fiscal Year Ending 9-30-03 Percentage of Sewer System General Obligation Debt Self-Supporting $ 8,646,096 -0- $ 8,646,096 $ 6,507,447 100.00% (l) 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 <I) Net Solid Waste System Revenue Available, Fiscal Year Ended 9-30-02 Less: Requirements for Revenue Bonds, Fiscal Year Ending 9-30-03 Balance Available for Other Purposes Requirements for Solid Waste System General Obligation Debt, Fiscal Year Ending 9-30-03 Percentage of Solid Waste System General Obligation Debt Self-Supporting $ 6,4ll,218 -0- $ 6,411,218 $ 579,021 100.00% (l) 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 SYSTEM (l) Net Drainage Utility System Revenue Available, Fiscal Year Ended 9-30-02 Less: Requirements for Revenue Bonds, Fiscal Year Ending 9-30-03 Balance Available for Other Purposes''' Requirements for Drainage UtilitySystem General Obligation Debt, Fiscal Year Ending 9-30-03 Percentage of Drainage System General Obligation Debt Self-Supporting $ 5,501,920 -0- $ 5,501,920 $ 2,321,441 100.00% (I) Each Fiscal Year the City transfers 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 System general obligation debt. THE ELECTRIC SYSTEM U> Net Electric Light and Power System Revenue Available, Fiscal Year Ended 9-30-02 Less: Requirements for Revenue Bonds, Fiscal Year Ending 9-30-03 Balance Available for Other Purposes'"' Requirements for Electric System General Obligation Debt, Fiscal Year Ending 9-30-03 Percentage of Electric System General Obligation Debt Self-Supporting $ 7,915,077 5,435,354 $ 2,479,723 -0- 100.00% (1) The City intends to transfer Net Revenues of the Electric Light and Power System Enterprise Fund to the General Obligation Interest and Sinking Fund in an amount equal to debt service requirements on System general obligation debt 30 - TABLE 11 • AUTHORIZED BUT UNISSUED GENERAL OBLIGATION 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 Amount Previously Issued $ 200,000 2,175,000 10,166,000 17,165,000 2,160,000 3,295,000 14,765,000 $ 49,926,000 Unissued Balance $ 2,610,000 1,128,000 4,000 $ 3,742,000 CAPITAL IMPROVEMENT PROGRAM AND ANTICIPATED ISSUANCE OF GENERAL OBLIGATION DEBT ... 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 identify 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 9-30-03, the City Council has approved $57,972,331 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, Drainage System and Airport. The Capital Projects Fund budget for 2002-2003 also identifies an additional $1 I 9,258,382 in future improvements for all City departments over the four succeeding fiscal years, including $32,050,000 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. On August 28, 2003, the City delivered $69,850,000 in tax-supported debt, which will include funding for the General Fund and enterprise fund capital expenditures for the next 18 to 24 month period, although it is possible that the City will need to issue approximately $4 million of tax supported certificates of obligation during the 2003-04 fiscal year to pay the City's share of a State Department of Transportation freeway project in the City. In addition, it is possible that the City could issue a portion of any voted bond authorization should it be approved by the voters during the 2003-04 fiscal year (see the discussion below), but it is unlikely that more than $1.5 million of any such voted authorization would be issued during the 2003-04 fiscal year. At present, however, City staff and management are formulating the 2003-04 capital improvement budget for presentation to the City Council, and the amount of debt that will be included in the final capital improvement budget of the City could be revised when the new capital projects fund budget is finally adopted by the Council. The City typically issues voted bonds for general purpose City projects, such as stre.ets, parks, libraries, civic centers and public safety improvements. However, the City has incurred substantial tax supported debt to fund portions of the capital budget of the Waterworks System, Sewer System, Drainage System, City Airport, Solid Waste System and is presently anticipating issuing tax supported debt for the Electric System. As described elsewhere in this Official Statement, such enterprise fund indebtedness is generally anticipated to be self-supporting from enterprise fund revenues. During the second quarter of Fiscal Year 2002-03, the Lubbock Citizens Advisory. Committe.e was appointed and charged with evaluating capital improvement needs that should be submitted to the voters of the City. In June 2003, the Committee reported to the City Council that it had identified approximately $29.9 million in capital projects to be funded from voted bonds at a future City bond election. The Committee undertook its review with a goal of providing the City Council with recommendations for projects to be constructed during the 2004-2008 time frame and prioritizing the projects in a manner that would pennit the bonds to be issued without a tax rate increase. The City Council has not formally ordered the election, but has indicated that it expects to call the election during the 2003-04 fiscal year. TABLE 12 -OTHER OBLIGATIONS The City has capital lease obligations for leased equipment in the following amounts: Asset Classification Motor Vehicles Heavy Equipment Heavy Moveable Equipment 2003 $ 654,333 66,336 650,934 2004 $ 654,333 48,326 594,126 2005 $ 308,778 594,126 Balance Outstanding $ 1,617,443 114,662 1,839,187 PENSION FUND ... TExAs MUNICIPAL RETIREMENT SYSTEM (lll2l .•• All permanent, full-time City employe.es 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. 31 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. Since October 11, 1997, the employee contribution rate has been 7% of gross salary. The City's contribution rate is calculated each year using actuarial techniques applied to experience. The 2002 contribution rate was 13.99%. The 2003 contribution rate is 14.05%. 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, 2001, 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 $ I 72,510,622. Unfunded actuarial accrued liabilities on December 31, 2001 were $43,073,413, which is being amortized over a 25-year period beginning January, 1997. Total contributions by the City to the System for Calendar Year 2002 were $5,513,501.97. FIREMEN'S RELIEF AND RETIREMENT FUND (ll ••• 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 I l % 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 2002 was 16.25%. 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. (1) 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, 2001, "CityofLubbock, Texas". 32 FINANCIAL INFORMATION TABLE 13 -GENERAL FUND REVENUES AND EXPENDITURE HISTORY 2002lii Fiscal Year Ended S:Etember 30, Revenues 2001 2000 1999 Ad Valorem Taxes $ 29,885,252 $ 28,604,141 $ 26,595,709 $ 25,338,127 Sales Taxes 28,902,649 28,183,746 27,121,078 25,196,203 Franchise Fees 6,998,085 7,684,683 6,619,755 6,235,099 Miscellaneous Taxes 820,507 774,587 743,771 721,907 Licenses and Permits 1,475,451 1,202,794 1,138,924 976,091 Intergovernmental 351,878 333,171 365,671 576,136 Charges for Services 4,472,094 4,299,958 4,210,334 4,032,665 Fines 3,069,362 3,051,055 2,834,208 3,335,340 Miscellaneous Taxes 1,058,237 995,494 1,143,226 947,636 Interest 433,393 1,058,096 1,108,662 1,118,016 Operating Transfers <2l 15,023,466 14,276,074 13,636,764 13,451,796 Total Revenues and Transfers $ 92,490,374 $ 90,463,799 $ 85,518,102 $ 81,929,016 Expenditures General Government $ 6,959,462 $ 7,130,478 $ 6,193,124 $ 6,143,076 Financial Services 1,614,175 1,499,967 1,458,232 1,366,006 Management Services 590,596 629,903 461,067 396,216 Non-departmental 1,497,485 1,716,167 606,843 926,203 Health & Community Services 4,956,070 4,831,348 4,744,830 4,522,041 Strategic Planning 900,720 948,514 823,399 839,814 Culture/Leisure Services 13,489,457 13,668,823 13,454,832 12,630,738 Police 28,950,964 28,139,048 25,561,261 23,478,729 Fire 18,485,419 17,785,641 17,080,371 15,616,543 Transportation Services 4,134,111 4,771,680 5,439,855 5,195,459 Electric Utilities 2,168,620 2,146,211 1,923,584 1,759,509 Human Resources 895,311 913,250 871,596 870,172 Operating Transfers 5,951,669 6,187,379 7,526,481 9,926,784 Total Expenditures $ 90,594,059 $ 90,368,409 $ 86,145,475 $ 83,671,290 Excess (Deficiency) of Revenues and Transfers Over Expenditures $ 1,896,315 $ 95,390 s (627,373) $ (1,742,274) Fund Balance at Beginning ofYear 16,716,042 16,620,652 17,248,025 18,990,299 Fund Balance at End of Year $ 18,612,357 $ 16,716,042 $ 16,620,652 $ 17,248,025 Less: Reserves and Designations <3) p,903,690) (2,361,8602 F,857,0962 (4,432,834} Undesignated Fund Balance $ 16,708,667 $ 14,354,182 $ 13,763,556 $ 12,815,191 1998 $ 23,271,939 24,914,523 7,128,034 675,694 1,037,458 917,572 4,016,475 3,313,233 1,011,559 1,239,562 16,030,636 $ 83,556,685 $ 5,762,283 1,196,779 389,583 1,125,310 4,519,880 774,878 12,667,406 22,013,906 14,468,027 5,007,496 1,848,283 810,997 12,454,461 $ 83,039,289 $ 517,396 18,472,903 $ 18,990,299 (5,442,8472 $ 13,547,452 (I) In accordance with GASB Statement No. 34 (see discussion below under "Financial Policies"), the fiscal year 2002 financial statements, which are attached hereto as Appendix B, include a management discussion and analysis of the operating results of such fiscal year. Reference is made to Appendix B for such information. (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 with respect to the Sewer System, and 4% with respect to the Water System and Solid Waste System, plus an amount representing a payment in lieu of ad valorem. taxes. For a discussion of changes made to the transfer policy with respect to the System in May 2003, see "Discussion of Recent Financial and Management Events -Mid-Year Budget Amendments; Financial Challenges." (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. See ''Discussion of Recent Financial and Management Events-Mid-Year Budget Amendments; Financial Challenges". 33 TABLE14 -MUNICIPALSALESTAXHISTORY The City has adopted the Municipal Sales and Use Tax Act, VTCA, Tax Code, Chapter 321, 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 of the tax. CoJlections 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 Equivalent of Ended Total AdValorem Ad Valorem Per 9/30 Collected1'1 Tax Le~ Tax Rate Capita l-"J 1998 $ 25,002,693 73.94% $ 0.4288 $ 127.12 1999 25,196,203 72.01% 0.4186 127.82 2000 27,121,078 71.67% 0.4391 135.98 2001 28,183,746 74.48% 0.4245 140.15 2002 28,902,649 73.37% 0.4183 143.08 (l) Excludes bingo tax receipts. (2) Based on population estimates of the City. Note: Through June 30, 2003, sales tax collections were $16,780,624, which represents an 0.45% increase from the same time period in the 2001-02 fiscal year. Amounts collected and remitted to the City through June 30, 2003 reflect economic activity through April 30, 2003. The sales tax breakdown for the City is as follows: City Sales & Use Tax City Tax for Property Tax Relief County Sales & Use Tax State Sales & Use Tax Total 1.000¢ 0.125¢ 0.500¢ 6.250¢ 7.875¢ The City will hold an election on November 4, 2003 for the purpose of submitting a proposition to the voters of the City for a one-eighth cent ($.00125) sales and use tax dedicated for economic development in the City and an additional one-quarter cent ($.0025) sales tax to be used for the reduction of ad valorem taxes in the City. The City cannot predict whether the voters will approve the sales tax increases. 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, 2002. The City's 2003 report will be submitted to GFOA to determine its eligibility for another certificate. Implementation of,lvew Accounting Standards ... For the year ended September 30, 2002, the City implemented the provisions of the Governmental Accounting Standard Board ("GASB") Statement No. 34, Basic Financial Statements -and Management's Discussion and Analysis -for State and Local Governments, GASB Statement No. 37, Basic Financial Statements -and Management's Discussion and Analysis for State and Local Governments: Omnibus, and GASB Statement No. 38, Certain Financial Note Disclosures which results in a change in content and format of the City's financial statements (collectively, the "New GASB Statements"). The audited financial statements of the City for the year ended September 30, 2002, prepared in accordance with the New GASB Statements, are in included in Appendix B hereto. The purpose of the New GASB Statements is to create new information and restructure much of the information that governments have presented in the past to provide a more comprehensive demonstration of their annual financial perfonnance on a system-wide basis. Among the significant changes effected by the new accounting standards are new presentations for proprietary or business-type operations of the City, such as those reported for the City's water and waste water operations (the "Proprietary Funds"). As required by the newly adopted accounting principles, the City's annual report consists of three basic financial statements for the Proprietary Funds: the Statement of Net Assets; the Statement of Revenues, Expenses and Changes in Net Assets; and the Statement of Cash Flows. Those statements are included in the financial statements of the City for the year ended September 30, 2002 in Appendix B. 34 ""- A discussion of the New GASB Statements is set forth in the Management Discussion and Analysis and in various notes to the City's financial statements in Appendix B. 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 of the Electric, Water, Solid Waste and Sewer funds for unforeseen contingencies (although the Electric System has not funded any operating reserves under this policy). The City's financial policy provides that such retained earnings shall be accumulated over a ten year period, which commenced in 1996. Resources are also retained in a rate stabilization fund within these funds to meet shortfalls in revenues or fluctuating rate environments, to fund capital improvements and may be allocated if there are not sufficient resources in unreserved/undesignated retained earnings. Enterprise Fund Revenues ... Jt is the policy of the City that each of the Electric, Water, Solid Waste and Sewer funds be operated in a manner that results in self sufficiency, without the need for additional monetary transfers from other funds (although the Electric System has relied upon interfund loans from other enterprise funds and from the General Fund in recent years). Such self sufficiency is to be obtained through the rates, fees and charges of each of these enterprise funds. For purposes of determining self sufficiency, cost recovery for each enterprise fund includes direct operating and maintenance expense, as we]I 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: 1) Prior to August l, the City Manager submits to the City Council a proposed operating budget for the fiscal year commencing the following October l. 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 ("GAAPn). 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 1, 1983-88 and 1990-02. The City has submitted the current budget to the GFOA to determine its eligibility for another award. Insurance and Risk Management ... The City is self-insured for general liability and health benefits coverage, although it purchases reinsurance coverage and risk management 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 9-30-02 the total Fund Equity of these insurance funds were as follows: Self-insurance-health Self-insurance -risk management 35 $ 8,839,602 $ 10,874,197 The City obtains an actuarial study of its risk management fund (the "Risk Fund") every three to four years. In fiscal year 2003, an actuarial study was conducted that considered the types of insurance protection obtained by the City, the loss exposure and loss history, and claims being paid or reserved that are not covered by insurance. The 2003 actuarial review recommended that the liabilities of the Risk Fund be increased to $7,856,000 from $6,014,073 to meet the minimum expected confidence level of the Government Accounting Standard Board Statement Number IO ("GASB l O"), which requires maintenance of risk management assets at a level representing at least a 50% confidence level that all liabilities, if presented for payment immediately, could be paid. The Risk Fund has a balance of $10,874,196, leaving a balance of $3,018,000 over the recommended liability funding level. Given the Risk Fund balance, the City exceeds the minimum GASB IO requirement, with an approximately 85% confidence level. lNvEsTMENTS The City invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the City Council of the City of Lubbock. Both state law and the City's investment policies are subject to change. LEGAL L1''VESTMENTS ... Under Texas law, the City is authorized to invest in (I) obligations of the United States or its agencies and instrumentalities, (2) direct obligations of the St.ate 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 oflsrael; (7) certificates of deposit that are issued by a state or national bank domiciled in the State of Texas, a savings bank domiciled in the State of Texas, or a state or federal credit union domiciled in the State of Texas and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for City deposits, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1), and are placed through a primary govermnent securities dealer or a financial institution doing business in the State of Texas, (9) certain bankers' acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by at least one nationally recognized credit rating agency, (10) commercial paper with a stated maturity of 270 days or less that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank, (11) no-load money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share, and (12) no-load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in the this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating f"um 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 defmed 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 fum registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-l 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 tenn up to two years, but the City retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the City must do so by order, ordinance, or resolution. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. Effective September l, 2003, governmental bodies in the State will be authorized to implement securities lending programs if(i) the securities loaned under the program are collateralized, a loan made under the program allows for termination at any time and a loan made under the program is either secured by (a) obligations that are described in clauses ( l) through ( 6) of the first paragraph of this subsection, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating fnm not less than "A" or its equivalent, or (c) cash invested in obligations that are described in clauses (1) through ( 6) and ( 11) through (13) of the first paragraph of this subsection, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the govermnent.al body and held in the name of the governmental body; (iii) a loan made under the program is placed through either a primary government securities dealer or a fmancial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a tenn of one year or less. In addition to the foregoing, the City is authorized to use hedging instruments as authorized by Section 2256.0201 of the Texas Government Code and in accordance with the City's Energy Price Risk Management Policy for the purpose of managing risks of financial uncertainty or loss associated with adverse volatility in the pricing of LP&L's energy and fuel assets, to include energy based futures contracts, option contracts, insurance contracts, and structured contracts composed of combinations of hedging instruments. 36 - LWESTMENT PoLICIES ... Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups. All City funds must be invested consistent with a fonnally adopted "Investment Strategy Statement" that specifically addresses each funds' investment Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, ( 4) marketability of each investment, (5) diversification of the portfolio, and ( 6) yield Under Texas law, City investments must be made "with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived." At least quarterly the investment officers of the City shall submit an investment report detailing: (l) the investment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, any additions and changes to market value and the ending value of each pooled fund group, ( 4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) state law. No person may invest City funds without express written authority from the City Council. ADDITIONAL PROVISIONS ... Under Texas law the City is additionally required to: (1) annually review its adopted policies and strategies; (2) require any investment officers' with personal business relationships or relatives with fnms seeking to sell securities to the City to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council; (3) re.quire the registered principal of firms seeking to sell securities to the City to: (a) receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; ( 4) perform an annual audit of the management controls on investments and adherence to the City's investment policy; (5) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; (6) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement; (7) restrict its investment in mutual funds in the aggregate to no more than 15 percent of its monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service, and to invest no portion of bond proceeds, reserves and funds held for debt service, in mutual funds; and (8) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements. TABLE 15 -CURRENT .INVESTME!\'TS As of April 30, 2003, the City's investable funds were invested in the following categories: Estimated Fair Book Value Market Value'') Weighted % of Total % ofTO!l!ll Average T Par Value Value Book Value Value Market Value Maturi!l (Days l United States Treasury Obligations $ 3,000,000 $ 3,009,805 2.20% $ 3,020,859 2.21% 92 days United Stares Agency Obligations 20,000,000 20,006,884 14.63% 20,145,269 14.72% 362 days Bank Certificates of Deposit 6,014,019 6,014,019 4.40% 6,014,019 4.39% l day Commei<:ial Paper 175,242 175,242 0.13% 175,242 0.13% l day MMMF's and Local government investment pools(2) 1071502,086 1071502,086 78.64% 107,502p86 78.55% l dal:: $1361691,347 $136,7081036 100.00% $136!857,475 100.00% 56 days (I) As detennined by Patterson & Associates, the City's investment adviser. As of such date, the market value of such investments was approximately I 00.00% of their book value. No funds of the City are invested in mortgage-backed securities. The City holds all investments to maturity which minimizes the risk of market price volatility. (2) Money Market Mutual Funds (MMMFs) and local government investment pools used by the City have investment objectives that include achieving a stable net asset value of $1.00 per share. The MMMF used by the City includes the "Wells Fargo Overland Express Sweep Fund" and the investment pools used by the City include Tex.Pool and TexStar. Te~STAR is a local government investment pool for whom First Southwest Asset Management, Inc., an affiliate of First Southwest Company, provides customer service and marketing for the pool. T exST AR currently maintains a "AAA" rating from Standard & Poor's and has an investment objective of achieving and maintaining a stable net asset value of $1.00 per share. Daily investments or redemptions of funds is allowed by the participants. First Southwest Company is the Financial Advisor for the City in connection with the issuance of City debt. 37 Introduction THE SYSTEM (LUBBOCK POWER AND LIGHT) The City's electric utility system, known as Lubbock Power and Light, was established in 1916, and is at present the largest municipal system in the West Texas region and the third largest in the State of Texas (the "State"). The City Charter establishes an electric utility board (the "Utility Board") that consists of nine members appointed by the City Council. The Utility Board is charged with the responsibility of advising the City Council with respect to the administration of LP&L. The City Council provides general oversight of the City-owned utility and is directly responsible for engaging management ofLP&L, setting rates, approving the annual operating budget and the financial policies ofLP&L. Factors Affecting the Electric Utility Industry; Caution Regarding Forward-Looking Statements The electric utility industry in the State in general has been, and in the future may be, affected by a number of factors, along with other events that could impact the financial condition and competitiveness of LP&L include: • prevailing governmental policies and regulatory actions, including those of the Federal Energy Regulatory Commission ("FERC''), the United States Environmental Protection Agency (the "EPA"), the Texas Department of Environmental Quality ("TDEQ"), the Public Utility Commission of Texas (the "PUC") and the Southwest Power Pool, Inc. ("SPP"), with respect to: -transmission cost rate structure; -purchased power and recovery of investments; -acquisitions and disposal of assets and facilities; -operation and construction of facilities; -present or prospective wholesale and retail competition; and -changes in and compliance with environmental and safety laws and policies; • the ability of the City and the West Texas Municipal Power Agency ("WTMPA"), through which the City has acquired rights to generation capacity and purchased energy, to finance and operate facilities and make energy sales in a manner that permits them to finance facilities with, and honor existing covenants with respect to, tax- exempt debt; • continued implementation of the legislation passed during the 1999 and 2001 sessions of the State Legislature to restructure the electric utility industry in Texas or any amendments that may be enacted to such legislation in future Texas legislative sessions; • fuel (and, in particular, natural gas) and energy costs and availability, including the continued development, and financial stability of owners of, merchant power plants in the State; • weather conditions and other natural phenomena; • unanticipated population growth or decline, and changes in market demand and demographic patterns; • changes in business strategy, development plans or vendor relationships; • competition for retail and wholesale customers, particularly competition with Xcel (as defined below) and its subsidiaries; • access to adequate transmission facilities to meet current and future demand for energy; • pricing and transportation of coal, natural gas and other commodities that may affect the cost of energy purchased byLP&L; • unanticipated changes in interest rates, commodity prices or rates of inflation; • unanticipated changes in operating expenses and capital expenditures; • commercial bank market and capital market conditions; • competition for new energy development and other business opportunities; • legal and administrative proceedings and settlements; • inability of various contractual counterparties to meet their obligations with respect to LP&L's fuel and power purchase arrangements; 38 • significant changes in LP&Vs relationship with its employees, including the availability of qualified personnel; • significant changes in critical accounting policies material to LP&L; • the ability of the City to manage risks inherent in its fuel hedging program; and • actions of rating agencies. The City cannot fully predict what effects such factors will have on the operations and financial condition of LP&L, but the effects could be significant. The discussion of such factors herein does not purport to be comprehensive or definitive, and these matters are subject to change subsequent to the date hereof. Extensive information on the electric utility industry is, and will be, available from the legislative and regulatory bodies and other sources in the public domain, and potential purchasers of the Obligations should obtain and review such information. For additional information regarding certain of the matters described above, see "The System -Certain Factors Affecting LP&L and the Electric Utility Industry." This Official Statement contains forward-looking statements. Although the City believes that in making any such forward- looking statement its expectations are based on reasonable assumptions, any such forward-looking statement involves uncertainties and is qualified in its entirety by reference to the foregoing considerations, among others, that could cause the actual results ofLP&L to differ materially from those contemplated in such forward-looking statements. General Information Regarding LP&L LP&L and Southwestern Public Service Co. ("SPS"), a subsidiary since August 2000 of Xcel Energy, Inc., an investor-owned utility holding company ("Xcel"), each provide electric service to residents and businesses of the City. Although LP&L has existing power purchase agreements with SPS, as described below, Xcel Energy, Inc. is increasingly using the "Xcel" brand name to provide service within the City. For purposes of the following discussion, SPS and Xcel Energy, Inc. are generally referred to as "Xcel." See "The System -Competition." Much of the State was opened to retail electric competition on January 1, 2002, as mandated by Senate Bill 7 ("SB 7"), enacted by the Texas Legislature in 1999. According to the PUC, the Texas south plains, the part of Texas in which Lubbock is located, and the Texas panhandle region, is transmission-constrained, which means that power consumed in that area must generally be generated in the region. As a result of this fact, and the fact that the ownership of the electric generation capacity in the Texas panhandle area is concentrated, with Xcel owning in excess of 75% of the generation capacity, House Bill 1692 ("HB 1692") was enacted during the 2001 Texas legislative session. HB 1692 will defer retail electric competition, or "customer choice" in the Texas south plains and panhandle regions and in certain other parts of the State, until at least 2007. See "The System - Certain Factors Affecting LP&L and the Electric Utility Industry-Electric Utility Restructuring in Texas." The total generating capacity of LP&L is 285.5 megawatts ("MW") and the dependable generating capacity during summer months, when the LP&L demand typically peaks, is 249 MW, although as described below, the City has contractually agreed that Xcel may control the dispatch of approximately 152.S MW of its generating capacity for a one year period ending June 30, 2004. The historic peak demand of LP&L is 334,000 kilowatts (or 334 MW) and its average annual energy sales are approximately 1 .4 billion kilowatt hours ("kWh"). See "Table 18 -Statistical Data" below. Generating Assets and Purchased Power Agreements LP&L serves its electric load with a mix of purchased power and self-generation from gas turbine generators located at the Cooke Electric Station, at Texas Tech University (E.Z. Brandon Station) and through operation of the J.R. Massengale Units 6, 7 and 8 under contract with the member cities (each, a "Member City") of the West Texas Municipal Power Agency ("WTMP A") of which the City is also a member city. The City has periodically retrofitted some of its older generation units into combined cycle plants, which has improved the efficiency of such plants. LP&L could make additional improvement to certain of the its generation assets, however, at present, the business plan emphasizes the reduction of the operation of such units to reduce operating costs and capital maintenance costs. See "The System -Operating Plan." For further information about the generating assets of LP&L (including its contract rights in the WTMPA facilities, collectively, the "Owned Generation") see "Table 1 - Generating Stations11 below. For additional information concerning recent developments regarding the contract status of the City relative to the WTMPA facilities, see "The System -West Texas Municipal Power Agency; Recent Developments -Future Role ofWTMPA." As described under "The System -Operating Plan," purchased power (both firm capacity purchases under the Xcel Power Contracts and spot market purchases) increasingly has become a more important part of the total resource mix of LP&L, and in recent months, management of LP&L has aggressively sought to obtain a greater portion of its energy requirements through power purchases. This approach has been taken in light of the high cost of natural gas and the relatively inefficient generation provided by the Owned Generation and follows a goal ofreducing LP&L's fixed costs for production and distribution. 39 TABLE16 -GENERATlNGSTATIONS Generator Dependable Year Capacity Capacity Manufacturer Installed Station Prime Mover Fuel {in MW} (in MW) Nordberg 1946 J.R. Massengale No. I Diesel Dual Fuel 3 1 Nordberg 1947 J.R. Massengale No.2 Diesel Dual Fuel 3 I Westinghouse 1952 J.R. Massengale No 3(ll Steam Turbine Gas or Oil 12 8 Westinghouse 1953 J.R. Massengale No.4(1) Steam Turbine Gas or Oil 12 4 Westinghouse 1957 J .R. Massengale No.5(!) Steam Turbine Gas or Oil 22 20 Westinghouse 1958 J.R. Massengale No.6(!) Steam Turbine Gas or Oil 22 20 Westinghouse 1958 J.R. Massengale No.7(1) Steam Turbine GasorOit 22 20 Westinghouse 1964 Cooke GT l Gas Turbine Gas or Oil 13 11 General Electric 1965 Cooke Steam 1 Steam Turbine Gas or Oil 46 44 Worthington 1971 Cooke GT 3 Gas Turbine Gas or Oil 18 15 General Electric 1974 Cooke GT 2 Gas Turbine Gas or Oil 22 15 General Electric 1978 Cooke Steam 2 Steam Turbine Gas or Oil 54 48 General Electric 1990 TX Tech (Brandon 1i2> Gas Turbine Gas 20 21 General Electric 2000 J.R. Massengale No.8(ll Gas Turbine Gas 43 39 Note: Bolded Units reflect primary generation turbines. (1) Renovation of four generating units at J.R Massengale Plant was completed in 1997 adding approximately 38.5 MW usable generation to the LP&L system. LP&L, under contract with WTMPA, has constructed a new 43 MW generator and has re- powered a 22 MW generation unit for WTMP A at LP&L's J.R. Massengale Plant (collectively, the "WTMPA Project"). At present, LP&L is obligated to take or pay for 87.37% of the generation of the WTMPA Project, which contributes 37.6 MW to LP&L's generation capacity. The purchase obligation of Each Member City ofWTMPA varies each year according to the prior year's demand of each Member City as a percentage of total WTMP A energy sales; the City's obligations to WTMP A since construction of the WTMP A Project have typically ranged from approximately 85% to 90% of the generation capacity. (2) Cogeneration plant located at Texas Tech University; waste heat is used to produce steam which is sold to the University. In recent years, LP&L has used purchased energy to provide approximately 65% of its total energy sales and has provided approximately 35% of total energy sales through operation of the Owned Generation. The primary source of purchased power for LP&L is obtained under firm and non-firm power purchase contracts between WTMP A and Xcel ancVor its subsidiaries or, in the case of the Schedule C energy (as defined below), between the City and Xcel (the "Xcel Power Contracts"), which provide a firm capacity of 53 MW to the City (and an additional 12 MW to the other Member Cities) under the primary contract (the "Schedule A energy"), which will increase to 58 MW effective January I, 2004, and varying amounts of energy adjusted seasonally under a separate agreement (the "Schedule B energy"). During the summer of 2003, the Schedule B energy contract provides firm capacity to LP&L of 97 MW, with the capacity to decline to 78 MW for the Summer of 2004. Effective July 15, 2003, the City entered into a one year agreement with Xcel for the purchase of an additional 90 MW of firm capacity (the "Schedule C energy"). The Schedule A contract provides for "firm power," "emergency energy" and "non-firm" energy; non- firm energy purchases by LP&L are made on an economic dispatch basis and are subject to Xcel's sole discretion to make such sales. The Schedule C energy agreement provides that Xcel may dispatch energy from the five Cooke generation units of the City, which results in an allocation of the 152.5 MW nameplate capacity of those units to Xcel during the term of the agreement. The Schedule A energy agreement will expire on December 31, 2005, the Schedule B energy agreement will expire on December 31, 2004 and the Schedule C energy agreement will expire on June 30, 2004. Although the Xcel Power Contracts are nominally WTMP A agreements (with the exception of the Schedule C energy agreement), LP&L schedules all energy deliveries for the WTMPA Member Cities, and LP&L takes a portion of the energy under the WTMP A agreements that approximates its percentage obligation under the WTMP A agreements (as noted above, the City's obligation under such agreements has generally ranged from 85% to 90% of the WTMPA energy). The WTMPA agreements provide that all generation construction or wholesale power purchases must be undertaken through WTMPA unless such energy purchase or generation represents less than I 0% of a Member City's current capacity. While the City has a majority vote on the board of WTMP A and could alter this arrangement, it has typically worked through WTMP A for contracting for firm purchases of energy, although in connection with implementation of the Schedule C energy agreement, the Member Cities of WTMP A waived the requirement to effectuate energy purchases of Member Cities through WTMP A. Together, the Xcel Power Contracts currently provide approximately 45% of the firm capacity of LP&L, which results in a total system-wide reliable capacity during the summer of 2003 of 400 MW. As described below under "The System -Purchased Power," the Xcel Power Contracts will terminate, unless they are renegotiated or renewed, in 2005. LP&L currently has an approximately 12% capacity reserve margin available for the summer of 2003, which approximates the industry standard for generation capacity reserves. LP&L's annual demand is currently growing by approximately 12 MW per year. 40 ,.,-. .,.-~ - - The Owned Generation has been periodically rehabilitated and repowered, but relative to other energy sources, and given the current high cost of natural gas, which fuels the Owned Ceneration, such facilities as a whole are often not efficient to operate relative to other energy resources. Management of LP&L has implemented a least cost unit approach to meeting the City's energy needs, and that requires LP&L staff to determine on an hourly basis as to whether the next unit of energy will come from generation, firm purchases or non-firm purchases. However, given fuel and energy market conditions, LP&L typically schedules its energy in the following priority: first energy is taken under the Xcel Power Contracts, which, as firm power agreements, include a demand or capacity charge that the City is obligated to pay whether or not it takes energy thereunder, as well as an energy charge that is based upon the actual energy purchased by LP&L, and a fuel cost component. Second, from open market, non-firm energy purchases, to the extent that such purchases are available and deliverable to LP&L given transmission constraints within the SPP, and provided further that such purchases can be made at prices lower than the LP&L variable cost of generating energy. Third, from the Owned Generation. See "The System -Operating Plan." According to billings received by LP&L from Xcel, the energy it purchases from Xcel has an average generation mix of approximately 74% coal and 26% natural gas. During the summer months when both the Xcel and LP&L systems are at or near their peaking power limits, a greater percentage of the energy mix is represented by natural gas, which in recent years has inflated the costs of purchased power to the City during the summer months. In winter months the City believes that a greater percentage of the fuel mix is coal. In recent years, coal-fired generation has had a more stable price and a lower price. During the summer months, LP&L has typically been required to operate its gas-fueled turbines, which increases its cost of energy (although the new Schedule C energy agreement will reduce the use of the City's generation resources during its one year term), and due to the competitive nature ofits business environment, has in recent years resulted in significant operating losses for LP&L during the summer months. See "The System -Competition." For the ten year period ended December 31, 2002, LP&L's average annual demand growth was 4.4%, system energy growth averaged 4%, and energy sales grew by an average of 4.2% annually. LP&L management is of the view that approximately one-- third of its growth comes from existing and new customers, with the remaining growth having been generated by customers switching to LP&L from Xcel. In recent months LP&L has experienced a loss of approximately 7.2% of its total customers ( although because a major portion of the lost accounts are residential and small commercial, the City expects that the decline in total energy sales will be proportionately less than the percentage of lost accounts). The recent loss of customers followed a $0.01 per kWh fuel cost increase ("FCA») implemented for the residential and small commercial customer class (the FCA increase represents a $10 per month increase in electric costs for customers in that class that use 1,000 kWh per month). LP&L currently matches the Xcel rate structure and fuel cost recovery for large industrial and commercial customers. Commencing July I, 2003, Xcel has initiated a series of fuel cost adjustments for its retail customers that the City anticipates will permit it to regain some of the competitive ground lost to Xcel since the City began increasing its fuel cost recovery factor in March, 2003 (see "The System -Competition"). For additional information regarding historical demand requirements and energy sales, see "Table 17 -Historical Power Supply Requirements" and "Table 18 -Statistical Data" below. For information concerning the most significant customers ofLP&L see "Table 19 -Ten Largest Customers (Annual Consumption and Revenue)" below. TABLE 17 -HISTORICAL POWER SUPPLY REQUIREMENTS LP&L's historical peak demand and energy requirements are set forth below. Many factors, such as weather and changes in population, affect electric sales and should be considered when evaluating the power supply requirements of the electric system over the period since 1997 reported below. Peak Demand Energy Sales Fiscal Year MW % Increase MWH % Increase Load Factor 1997 268.5 4.88% 1,064,945 2.13% 45.3% 1998 291.0 8.34% 1,192,705 12.00% 46.8% 1999 295.5 1.55% 1,165,522 (2.28%) 45.0% 2000 317.6 7.48% 1,239,265 6.33% 44.5% 2001 304.2 (4.23%) 1,280,620 3.34% 48.19% 2002 334.0 9.80% 1,361,921 6.35% 46.50% 41 TABLE 18 -STATISTICAL DATA Fiscal Year Ended Seetember 30, 2002 2001 2000 1999 1998 kWh TO SYSTEM 1,419,117,867 1,337,066,052 1,316,443,773 1,220,295,792 1,276,959,669 Sales of kWh Residential Service 609,644,265 569,310,392 523,493,923 490,789,298 496,576,736 Commercial and Industrial Service 641,590,972 591,449,056 603,735,935 570,759,719 590,733,522 Total General Consumers 1,251,235,237 1,160,759,448 1,127,229,858 1,061,549,017 1,087,310,258 Municipal and Street Lighting I 10,685,424 ll0,024,209 112,035,042 103,973,466 103,302,741 Off System Sales 9,836,000 Total Sales to All Customers 1,361,920,661 1,280,619,657 1,239,264,900 1,165,522,483 1,190,612,999 Loss and Unaccounted for 57,197,206 56,446,395 77,178,873 54,773,309 86,346,670 kWh TO SYSTEM 1,419,117,867 1,337,066,052 1,316,443,773 1,220,295,792 1,276,959,669 Average Residential Meters 57,276 54,467 50,673 48,154 46,916 Average Commercial and lndustrial Meters 7,014 6,971 6,476 6,263 6,153 Average Municipal and Street Light Meters 757 758 746 745 730 Average Total 65,047 62,196 57,895 55,162 53,799 Total Plant Peak kW Demand 334,000 304,200 317,600 295,500 291,000 System Peak kW Demand 321,140 293,193 306,841 285,743 283,568 TABLE 19 -TEN LARGEST CUSTOMERS (ANNUAL CONSUMPTION AND REVENUE) 12 Months Ended S92tmeber30,2002 Megawatt Hourst'J Revenues Customers Billed ($000) Texas Tech Universit/2' 146,329 $ 7,511 City of Lubbock 110,685 6,618 Pyco Industries 59,868 2,553 LubbocklSD 32,802 1,810 Covenant Health Care System 14,837 856 United 13,989 744 TDCJ l 0,217 416 O'Hair Shutters 6,541 395 McClane 5,628 330 Wal-Mart 6,894 326 (J) Megawatt Hours ("MWh"); MWh 1,000 kWh. (2) In 1988 and amended in 1997, LP&L and Texas Tech University ("Texas Tech") entered into a 30 year agreement the term of which commenced at start up of LP&L's E.Z. Brandon generating station (June, 1990). Under the contract, Texas Tech purchases electricity at LP&L's adjusted industrial rate. If Texas Tech chooses to buy power from others, it must buy LP&L's distribution system that serves the campus and lose all rights to the discounted steam prices (approximately $2 million per year to Texas Tech). In order to produce steam, the facility must be operated to generate electricity. These provisions continue after the initial term until 5 years written notice is provided. The Southwest Power Pool The City is located within the Southwest Power Pool, Inc., a non-profit independent system operator with a membership that includes 50 electric utilities serving more than 4 million customers across all or parts of eight southern and southwestern states, including portions of Eastern New Mexico, Northwest and Southeast Texas, Kansas, Western Missouri, Arkansas, Louisiana and Western Mississippi. Its membership is comprised of investor-owned utilities, municipal systems, generation and transmission cooperatives, state authorities, federal agencies, wholesale generators, and power marketers. SPP serves as a regional reliability council of the North American Electric Reliability Council and, since 1997, has provided independent security coordination and tariff administration, pursuant to .a FERC approved tariff, across its service area. While the City is not a member of SPP, when LP&L buys or sells electricity off system (at present, LP&L sells negligible amounts of electricity off-system), it must arrange transmission through other entities that are members of SPP, as the generating and transmission facilities of the City (and the other Member Cities of WTMPA), as well as portions of the Xcel generation and transmission assets are located within, and are governed by SPP, which itself is subject to FERC regulation. Within the Texas panhandle region of SPP, there is an electric capacity shortage that stems from inadequate transmission capacity and, due to a limited number of interconnections with other power pools (such as the Electric Reliability Council of Texas or "ERCOT") with surplus capacity, the City and others in the constrained area of the Tex.as south plains and panhandle regions are limited in their .ability to purchase electric power from sellers other than Xcel. During periods of high electric load conditions and during plant out.ages, Xcel has curtailed electric 42 - - power transmission from time to time in its effort to maintain required electric reserves. During such curtailments (occurring frequently in the summer months), the City cannot import non-firm purchased power, must operate its relatively inefficient and uneconomic generation units and, at times, purchase emergency power from Xcel at very expensive rates, although in recent months the City has made some short-term purchases of both peak and off peak non-firm energy from other energy market sellers. Competition Historically and at present, few, if any, other municipally-owned electric utilities in the State have competed as directly as LP&L does with Xcel. Essentially all of the City is covered by both systems, each of which has parallel lines throughout the City; one small area is served exclusively by South Plains Electric Cooperative ("SPEC") and one small area is served exclusively by LP&L. As a result of electric competition in the City, energy costs in the City have typically been among the lowest in the State. Traditionally, this effect on electric rates in the City has been a primary benefit to City residents of having a municipally-owned electric utility, whether they were customers of LP&L or its competitor. In addition, the relatively inexpensive energy costs available in the City provided an economic incentive for businesses seeking to relocate. ''Table 20 -Comparison of Residential Energy Costs in Texas" sets forth comparative information regarding costs of electric service in the State for residential customers purchasing 1,000 kWh of energy at the dates indicated below. Such data is presented as an illustration of the effects of competition for residential customers only, and is not intended to be representative of energy costs in the State or the region in general. TABLE 20 -COMPARISON OF REsIDENTJAL ENERGY COSTS IN TEXAS Au~st2002 March2003 IOUs in Areas Not Open to Competition IOUs in Areas Not Open to Competition El Paso Electric Company $ 112.32 El Paso Electric Company $ 104.97 Energy/Gulf States 76.43 Energy/Gulf States 90.60 SPS(Xcel) 65.66 SPS (Xcel) NIA Southwestern Electric Power Co. 72.18 Southwestern Electric Power Co. 55.89 West Texas Utilities (Non-ERCOT) 98.31 West Texas Utilities (Non-ERCOT) 99.58 IOUs Price to Beat Rate0> IOUs Price to Beat Rate(ll TXU Energy Company 90.39 TXU Energy Company 91.I0 Reliant/HL&P 91.46 Reliant/HL&P/CenterPoint Energy 95.81 Texas New Mexico Power, First Choice 92.62 Texas New Mexico Power, First Choice 98.97 Mutual Energy CPL 100.59 Mutual Energy CPL 110.33 Mutual Energy WTU 102.55 Mutual Energy WTU 126.73 TXU-SESCO 59.96 TXU-SESCO 56.89 Competitive Retailers12) Competitive Retaileril2l Green Mountain Energy (TXU Area) 86.95 Green Mountain Energy (TXU Area) 102.95 Green Mountain Energy (HL&P Area) 91.95 Green Mountain Energy (HL&P Area) 106.95 TXU Energy Services (HL&P Area) 83.60 TXU Energy Services (HL&P Area) 88.75 TXU Energy Services (CPL Area) 85.40 TXU Energy Services (CPL Area) 100.95 ACN Energy (TXU Area) 86.22 ACN Energy (TXU Area) 98.95 ACN Energy (HL&P Area) 86.42 ACN Energy (HL&P Area) 103.95 Reliant Energy (TXU Area) 85.87 Reliant Energy (TXU Area) 86.55 Municipal Systems and Electric Cooperatives Municipal Systems and Electric Cooperatives City of Austin Energy 80.59 City of Austin Energy 71.59 City ofBrownfield(3) 62.67 City ofBrownfieJJ3) NIA City Public Service (San Antonio) 72.60 City Public Service (San Antonio) 88.59 Fredericksburg 64.51 Fredericksburg 53.01 Kerrville Public Utility Board 75.05 Kerrville Public Utility Board 78.65 City of La Grange 66.22 City of La Grange 64.57 Lubbock Power & Light°) 73.08 Lubbock Power & Lighi3l 69.91 City of New Braunfels Utilities 69.62 City of New Braunfels Utilities 67.13 City of San Marcos Electric Utility 71.08 City of San Marcos Electric Utility 66.7I City of Seguin 67.27 City of Seguin 83.28 Bluebonnet Electric Cooperative 70.00 Bluebonnet Electric Cooperative 69.50 Guadalupe Valley Electric Cooperative 71.57 Guadalupe Valley Electric Cooperative 71.57 Magic Valley Electric Cooperative 63.47 Magic Valley Electric Cooperative 93.00 Source: Texas Public Power Association. NI A= not available. (1) Reflects the price to beat for incumbent investor owned utilities ("IOUs") operating in deregulated areas of Texas (ERCOT) under Senate Bill 7. (2) Reflects costs of retail electric providers operating in deregulated areas of Texas (ER COT). (3) MemberCityofWTMPA. 43 LP&L has participated in the electric utility marketplace for more than 80 years, competing during much of that time on the basis of service and marketing with an emphasis on the traditional benefits to the City of owning a municipal electric system -which, in addition to those noted above, have in some years included the provision of an operating subsidy from the utility to the City's General Fund. In recent years, the goal of LP&L has been to provide electric service at or within a close range of the rate structure provided by its competitor. However, as gas prices spiked upward in 2000, and have generally remained above prior historic levels, LP&L has of necessity altered its competitive strategy in an effort to maintain its financial integrity. Since all of its Owned Generation is fueled by natural gas, and vvith a significant portion of the purchased power available to it being gas- fueled, as well, the ability of LP&L to successfully compete has become increasingly dependent upon its ability to manage its energy resources in a manner that reduces both its variable and fixed costs of production and distribution. If natural gas prices continue to significantly exceed the prices that predominated during the decade of the l 990's, which typically ranged from $2.00 to $3.00 per thousand cubic foot, but which have since 2000 held above $6.00 per thousand cubic foot for extended periods (and reached as high as $25 in February 2003), LP&L will need to implement new business strategies in order to remain competitive. See "The System -Operating Plan." Xcel is a regulated utility in accordance with the Texas Public Utilities Regulatory Act ("PURA"), consequently its cost structure and other aspects of its operations are subject to regulatory oversight by the PUC, as well as FERC under applicable federal law. The regulated nature of the City's competitor provides both advantages and disadvantages to LP &L. For example, Xcel's ability to recover fuel costs from retail customers is dependent upon PUC approval of changes to its rate structure (which is public information) and fuel cost recovery factors, which can occur only twice a year under current State law. Conversely, the City Council and the management of LP&L, as an unregulated utility, has in general full flexibility to pass through fuel and other production and distribution cost changes to its customers (although in the past the determination of when to change its rate structure has been affected by a business objective of staying within a small range of its competitor's regulated rate structure). Since 1999, due to increasing costs of production and distribution, LP&L has begun differentiating its rate structure from that of its competitor, particularly for residential and small commercial customers which is the customer classification that represents a majority of LP&L's energy sales and produces LP&L<s greatest return on investment, although the competitive nature of this customer class is less intensive than the large industrial and commercial rate class. See "Table 21 -Analysis of Electric Bills" and "System Financial Infonnation -Table 27 -Monthly Electric Rates." TABLE 21 -ANALYSIS OF ELECTRJC BILLS Fiscal Year Ended S:£tember 30, 2002 2001 2000 1999 1998 Al) Customer Average Monthly kWh Per Meter 1,745 1,702 1,767 1,681 1,758 Average Monthly Bill Per Meter $ 112.56 $ 132.22 $ 104.01 $ 90.59 $ 99.52 Average Monthly Revenue PerkWb 0.064513 0.076539 0.058851 0.053881 0.056607 Re.,id~tial C:u.">mmer Average Monthly kWh Per Meter 887 871 861 810 840 Average Monthly Bill Per Meter $ 62.54 $ 72.10 $ 56.74 $ 48.60 $ 51.98 Average Monthly Revenue Per k\Vb 0.070502 0.08278 0.065911 0.060023 0.061828 rommeri:ial and IDdwmiaJ· Average Monthly kWh Per Meter 7,336 7,623 7,391 6,961 7).95 Average Monthly Bill Per Meter $ 434.47 s 489.71 $ 389.97 $ 348.13 $ 378.90 Average Monthly Revenue Per kWh 0.059226 0.072411 0.05276 0.050012 0.051942 Municipal and Street I ,igbting· Average Monthly kWh Per Meter 12,185 12,096 12,515 11,615 11,793 Average Monthly Bill Per Meter $ 728.55 $ 867.98 $ 663.83 $ 530.60 $ 615.75 Average Monthly Revenue Per kWh 0.059792 0.071758 0.053043 0.045684 0.052215 According to public information from Xcel, the company was formed by the merger of Denver-based New Century Energies and Minneapolis-based Northern States Power Co., which occurred in August 2000. Xcel is the fourth-largest combination electricity and natural gas energy company in the United States. It offers a comprehensive portfolio of energy-related products and services to 3.2 million electricity customers and 1.7 million natural gas customers. Xcel Energy directly owns six utility subsidiaries that serve electric and/or natural gas customers in 12 Western and Midwestern states that include Northern States Power Company; Public Service Company of Colorado; Southwestern Public Service Co., which, prior to the merger, served the Texas territory including the City; and Cheyenne Light, Fuel and Power Company. The service territories of the Xcel utility subsidiaries include portions of Arizona, Colorado, Kansas, Michigan, Minnesota, New Mexico, North Dakota, Oklahoma, South Dakota, Texas, Wisconsin and Wyoming. Xcel has revenue of $9.5 billion annually and it owns directly or through subsidiaries over 240,000 conductor miles of electricity transmission and distribution lines and more than 32,700 miles of natural gas pipelines. Xcel-owned power plants generate about I 5,246 MW of electric power. Although in recent months Xcel has experienced a series of financial challenges, which have resulted in delaying the payment of its common stock dividend for the first two quarters of the current fiscal year, as well as a 50% reduction of the common stock dividend, among other financial changes, Xcel has substantially greater access to capital for liquidity than does LP&L, and the City anticipates that Xcel will continue to provide competitive pressure on electric rates for LP&L for the foreseeable future. In addition, while the City cannot 44 -~· - predict whether or when the conditions stipulated in HB 1692 will be met that will pennit customer choice in the City, it is possible that with or without the City electing to open the City to retail customer choice, other retail electric service providers could eventually provide additional competition for LP&L in addition to Xcel. At September 30, 2002, LP&L's current customer base accounted for approximately 73% of the electric meters in the City, with 65,135 metered connections, and Xcel supplied power to approximately 27% of the electric customers in the City. As of July 31, 2003, LP&L served approximately 66% of all customers in the City. Since the City increased its fuel cost adjustment ("FCA"), which was effective May !, 2003, approximately 7.2% of the City's customers have changed service providers. However, on July 1, 2003, Xcel implemented a $0.005 per kWh FCA for its residential and small commercial class ratepayers, and according to filings made with the PUC, Xcel will implement an additional $0.002 fuel cost increase for the months of September and October 2003. Xcel has also made a rate filing with the PUC that seeks an additional $0.0002 surcharge for fuel cost recovery beginning September 1, 2003, which surcharge is being requested for an eight month period ending April 30, 2004. In addition, Xcel has requested that the PUC approve a new methodology for making changes in its fuel cost, which, if approved, would permit Xcel to modify its base fuel cost twice a year by formula based on the then current price of natural gas. Under the proposed fuel adjustment rate structure, there will be two defined six month periods with different formulas for each period. The requested structure proposes May through October as a rate period, when the proposed fuel formula is based on a higher percentage of natural gas than the second period, of November through April. See "The System -Recent Measures Implemented to Address Financial Performance" for a discussion of how the Xcel fuel cost recovery changes are expected to reduce the higher current energy costs ofLP&L relative to Xcel. For the year ended September 30, 2002, LP&L's power sales represented 60% of all kilowatt ("kW") hours sold in the City (based upon estimates made by the City using LP&L data and estimates ofXcel's sales derived from franchise fee payments to the City). Based upon these statistics, the City is of the view that LP&L serves more of the residential and small commercial base in the City than does Xcel. Conversely, the City is of the view that Xcel provides a larger portion of its service to commercial customers that for various reasons, including the relatively regular demand for energy, are typically more profitable than are residential and small commercial energy sales. See "Table 18 -Statistical Data" All data herein relating to Xcel are estimates only, based upon various measures of Xcel operations in the City, including the amount of franchise tax paid to the City, City records of new construction permits and other measures that the City believes to be reliable, but which can not be independently verified by the City. Service Area As noted above, the LP&L service area is generally dually-certified by the PUC for service by Xcel and LP&L. The LP&L certificated service area consists of the area within the City's current boundaries, except for a small portion of the City that is served by SPEC. The area surrounding the City is generally served by other IOUs (principally, Xcel) or electric cooperatives ("Electric Coops") that have been certificated by the PUC as to their right to serve a distinct area. As a result of a settlement entered into in 1982 between the City and SPEC, the PUC has approved the expansion of the City's service area into certain areas to the southeast and west of the City, if such area is eventually annexed and becomes part of the City. The City is generally growing to the south and southwest, with the fastest area of growth being the southwest, in the area certificated for service by SPEC. Principal Financial and Operating Challenges Due to the competitive nature of the electric utility business in the City and to changes in the market for fuel and purchased energy and changes in the regulatory environment, among other factors, LP&L's strategic plans must constantly be reviewed and revised (see "The System -Recent Measures Implemented to Address Financial Performance" and "The System -Operating Plan"). At present, the principal challenges to LP&L that impact its operational strategy include the following: > The Xcel Power Contracts will begin to expire in June 2004, and by January I, 2005, the City will have only 58 MW of energy under contract, and that contract will expire on December 31, 2005. As a consequence, the City will be required to make new arrangements for the purchase of energy to replace its current base loaded capacity, which is represented by the Xcel Power Contract energy. > > > > Due to transmission constraints and the fact that virtually all marketable energy generated within reach of the City as well as the transmission infrastructure that serves the Texas south plains and panhandle regions is owned by its competitor, Xcel, it is difficult, though not impossible, for the City to make large energy purchases from other providers, whether on a finn demand basis or on a market/non-firm basis. The LP&L customer base, which at present is largely residential and small commercial in composition, produces a demand for energy that is variable on both a seasonal and daily basis. As a result, any new firm contracts that are matched to the current LP&L demand cycle, other than fuU requirements agreements, are likely to be more expensive than energy costs incurred by utilities that have broader and less volatile demands for energy. Competition and the currently-prevailing high natural gas prices will challenge LP&L to generate revenues sufficient to pay all costs of generating and distributing energy and paying other operations and maintenance expenses, which under State law must be paid prior to the payment of debt service. The ability of the City to pursue initiatives to obtain new energy sources, eliminate or reduce competition from Xcel and fund capital improvements is affected by provisions of the federal tax laws that govern existing and potential 45 indebtedness of LP&L and WTMP A that has been or may be incurred to fund capital improvements. In addition, the ability of the City to borrow funds for LP&L capital improvements may be affected by the political assessment as to the proper role and value to the City of LP&L, as well as the extent to which the City is willing to use its general obligation credit to back future indebtedness of LP&L. > LP&L must retain market share in the City while offering fewer business and residential rate incentives. > LP&L must offer competitive electric service while implementing reductions in work force and other measures to reduce both fixed and variable costs of the utility. Poor Financial Results and Current Financial Position Since the 1996-97 fiscal year, LP&L has generally incurred operating losses when measured by generally accepted accounting practices ("GAAP"), which take into account budgeted transfers to the City's General Fund (the "Net Income"), and non-cash expense items such as depreciation and amortization. During that period, the market share of LP&L as measured by total accounts increased from approximately 63.4% to approximately 73% at the end of the 2001-02 fiscal year. In each such year in which it has had GAAP operating losses, however, LP&L has produced Net Revenues (basically, operating results that are calculated without taking into account transfers to the General Fund or depreciation and amortization expense) at least sufficient to meet its rate coverage covenant (the "Bond Rate Covenant") of producing Net Revenues equal to 100% of its bonded indebtedness made in connection with the Previously Issued Bonds. For the fiscal years ended September 30, 1997, !998, 1999, 2000, 2001 and 2002, LP&L's GAAP • based Net Income was (in rounded amounts) negative $1.8 million, negative $520,000, negative $1.6 million, negative $6.8 million, negative $645,000 and positive $150,000, respectively. As a result of these cumulative losses, at September 31, 2002, LP&L had incurred payment obligations to other City funds in the amount of $12.8 million, which, from the City's overall financial perspective, is equal to a negative cash balance for the electric enterprise fund. Unlike other major enterprise funds of the City, the cash flows of LP&L have not been sufficient in recent years to fund operating reserves or a rate stabilization fund for LP&L. In November 1999, the City Council authorized LP &L to deviate from the historic fuel cost recovery practice, which had been to match the FCA factor charged by Xcel. Given the high cost of natural gas, LP&L began increasing its FCA in November 1999 but rebated the difference between the LP&L and Xcel fuel cost factors back to the customers through a credit on the bills, in what was known as the Home Owned Advantage ("HOA") incentive. In May 2003, the fuel costs had increased to a level that was severely impacting the financial condition of LP&L. To correct this condition, the City Council made the decision to pass some of this cost through to certain classes of LP&L customers, and the City increased its FCA above that being charged by Xcel. On average since May 2003, LP&L has been charging approximately 30% more than Xcel with respect to the FCA (other elements of the billing structure of the two utilities have been essentially the same). By their nature, customer rebates are lost as revenue and cannot be recovered, and LP&L rebated approximately $8. l million to its rate payers during the 2000-2001 fiscal year and approximately $3.2 million during the 2001-2002 fiscal year. Going into the 2002-03 fiscal year, it was evident that the amount of money transferred from LP&L to the General Fund would need to be reduced, and the budget that was adopted in September 2002 trimmed approximately $645,000 that in previous years had been transferred to the General Fund from the electric enterprise fund. In February 2003, during a period of extraordinarily high natural gas prices, City finance staff projected that the electric enterprise fund would, in the absence of corrective measures, have an operating loss of approximately $24 million for the current fiscal year. In response, the City amended the LP&L and GeneraJ Fund budgets to eliminate approximately $7.7 million in transfers from the electric enterprise fund to the General Fund for the current fiscal year. Other corrective measures were also taken, including some reductions in force and operating cost reductions, as well as the elimination of certain pricing discounts and an increase in the City's FCA, as described below. However, as described below, at present there can be no assurance that LP&L will not sustain additional and possibly significant GAAP -based losses for the current fiscal year. Moreover, based upon unaudited operating results for the year to date, and projecting operating results through the end of the fiscal year using certain assumptions that include factors that are beyond the control of the City, such as weather conditions, gas and purchased power costs and rate changes made by its competitor, the City expects that LP&L will meet its Bond Rate Covenant for the fiscal year ending September 30, 2003, but if any of the assumptions prove to be substantially incorrect, the operating result could be less robust, and it is possible that LP&L operations would not produce sufficient operating income to meet the Bond Rate Covenant. The ordinances pursuant to which the City has issued the Previously Issued Bonds require the City to set rates sufficient to cover LP&L's operating expenses and debt service requirements. Given the competitive environment in which LP&L operates, City management is of the view that if additional funds are needed for debt service to pay the Previously Issued Bonds, it is in the competitive interest of LP&L that the City provide an interfund loan from the General Fund to LP&L in lieu of increasing electric rates or the FCA at this time, although the City will evaluate further rate increases when the effect of the proposed Xcel FCA increases are known (see "The System -Competition"). The City does not intend to draw on the debt service reserve funds established in connection with the Previously Issued Bonds. As described below under "The System -Operating Plan,'' the City is evaluating various strategies to return LP&L to a profitable enterprise fund, although no assurances can be given as to any future operating result. In part due to these considerations, the City has determined to issue the Obligations as combination tax and surplus electric system revenue debt of the City. See "Financial lnfonnation -Table 25 -Coverage and Fund Balances." Additional financial information relating to LP&L is set forth under the heading "System Financial Information." 46 r.:._ - Recent Measures Implemented to Address Financial Performance During the three most recently completed fiscal years, the primary financial challenge faced by LP&L has been the relatively high cost of natural gas and purchased power. Other factors affecting the financial condition of LP&L during that period and before have included: significant amounts of budgeted transfers from LP&L to the City's General Fund that have ranged from 8% to 12% of the gross revenues of LP&L over the past five fiscal years, a portion of which were unrelated to direct reimbursement of LP&L's share of City administrative costs; the cost of economic incentives that LP&L has offered to commercial and industrial customers, some of which have been matched by the competing utility; and, in the view of current management of LP&L, less efficient production and distribution costs, due in part to unfavorable economies of scale, as compared to those of its competitor. Prior to March 1, 2003, the City used the HOA to pass through a portion ofits under-recovered fuel cost. Effective March 1, 2003, the City Council increased the FCA for residential and small commercial customers, but reduced the FCA for industrial customers. Effective May 1, 2003 the City Council increased the FCA for residential and small commercial customers by an additional $0.01 per kWh (the net effect of the March and May FCA adjustments across all rate classifications was an approximately $0.0096 per kWh). In addition, effective June 1, 2003, the City increased the FCA for its two largest customers, which include Texas Tech University, and which account for approximately 10% of the energy sales of LP&L. At this time, the increase in the FCA for residential and small commercial customers places the total electric cost of that class of LP&L's customers approximately 30% above those of its competitor. However, the PUC has approved an increase of $0.005 in the Xcel FCA that will be effective on July 1, 2003. Management of LP&L estimates that when that adjustment becomes effective, the total energy charge differential between LP &L and Xcel for the residential and small commercial customers will be approximately 15%. Within six weeks of implementing the FCA increase, some 6% of LP&L customers changed to Xcel for service and another 1.2% changed to Xcel in the following two months, reflecting the ease and willingness of customers to switch to a lower cost provider. With respect to the large commercial rate category ofLP&L, however, LP&L believes that it is matching the current rate schedule of Xcel. As a general matter, the large commercial rate customers take proportionately greater amounts of energy, and their demand is more even than is the demand for energy from residential and small commercial customers. The financial statements of LP&L reflect the fuel and power purchase expenses, but no accrual is made for uncollected fuel expense, as such amount is not a receivable of LP&L until such time that it has been billed. In addition, the City Council has adopted a policy that permits the recovery of current period uncollected fuel expense in a future period, provided that no recovery may be made for any fuel expense incurred more than 18 months prior to the date of recovery. At June 30, 2003, LP&L has approximately $11.8 million in unrecovered fuel costs, which, as a result of the recovery policy of the City, reflects the current 18 month rolling accumulation. In the past, the City has used a variety of incentives and discounts for energy sales as part of its marketing plan for competition with Xcel. As described above (see "The System -Poor Financial Results and Current Financial Position"), in May 2003, the City Council eliminated the so-called Home Owned Advantage incentive, which was a discount from the production and distribution cost of energy during periods when Xcel offered lower rates than LP&L for a specific rate class. The objective of the HOA was to keep LP&L's rates close to those charged by Xcel, although not particularly the same as Xcel's rate. The HOA served as a means for adjusting the rates during periods when the LP&L cost of service was both higher and lower than that of Xcel. In that fashion, during periods when the LP&L cost was lower that Xcel's cost, LP&L, per City Council direction, could decrease the discount as a means of recovering fuel cost. Another incentive that is being phased out pursuant to City Council directive taken in May 2003, is LP&L's "Aid to Construction" infrastructure subsidy for new development in the City. In the past, under the HOA incentive, LP&L absorbed the full cost of underground power lines to new residential and commercial developments. In May 2003, the City Council enacted a new development ordinance, however, that requires all electric service providers in the City to collect the cost of such infrastructure from developers. As a result of the development ordinance, the Aid to Construction subsidy will be phased out commencing in the current year, and will be fully phased out by the 2005-06 fiscal year, although LP&L will continue to absorb the difference between the cost of overhead and underground distribution (or approximately 25% of the cost of providing the infrastructure to new developments in its service area). LP&L management believes that this change, as well as the elimination of the HOA, will increase its revenues, and that the phase out of the infrastructure subsidy for new development will permit it to continue to compete for such new service (of which in recent years LP&L has received approximately 90% of new development service) on the basis of service and other non-price based factors. At present and in the past, LP&L has been obligated by its annual budget to make annual transfers to the City for costs of the City incurred with respect to the operation of LP&L. Such transfers have included a payment in lieu of ad valorem taxes ( calculated on the full replacement cost of LP &L plant), an allocation for indirect costs such as legal and financial services, and a cost of business transfer (which approximates a payment in lieu of franchise taxes, which is based on 3% of the gross operating revenues of LP&L) (collectively, the "Cost Recovery Payments"). In addition to the Cost Recovery Payments, LP&L has also been obligated to annually transfer to the General Fund amounts to support economic development incentives in the City, a payment designated for infrastructure use, a "gas tax" transfer, and a reimbursement of street lighting expense (collectively, the "Other Transfer Amounts"). Due to financial constraints of LP&L, during the mid-year budget review that concluded in May 2003, the City Council directed that the General Fund and LP&L budgets be amended to permanently discontinue the obligation ofLP&L to the General Fund for the Other Transfer Amounts. LP&L will continue to be obligated to the General Fund for the Cost Recovery Payments, although for the current fiscal year LP&L is not expected to make such transfers. In reducing the transfers from LP&L to the City, the City has determined to permanently eliminate the Other Transfer Amounts (approximately $2.7 million per year). Current budget planning for the 2003-04 fiscal year (which is subject to change) reflects that for the coming year LP&L will transfer to the General Fund only an amount equal to its indirect cost recovery amount, which is approximately $1.l million (an approximately $6.6 million reduction from the original 2002-03 budget. It is possible that in the 47 future LP&L transfers to the General Fund would be increased (though probably not to the full amounts of prior years), provided that LP&L's financial condition will permit an increase in transfers to the General Fund. Xcel also makes a franchise payment equal to 3% of its gross receipts of energy sales in the City to the City for the benefit of the General Fund under a 20-year franchise agreement dating to 1982. The Xcel franchise has expired and is being renegotiated at present. Operating Plan As described above under "The System -Recent Measures Implemented to Address Financial Performance," during May 2003, the City Council took several actions designed to improve the financial result of LP&L for the current and future fiscal years. While the effect of these measures will be dependent on the customer acceptance of certain of the changes, weather conditions, natural gas prices and other factors beyond the control of the City, these actions have been taken by the City with the objective of reducing or eliminating the projected operating deficit of LP&L for the current fiscal year. See "The System -Poor Financial Results and Current Financial Position." As described below, management of the City and LP&L have identified a variety of additional options that are being implemented or evaluated to address certain of the financial and operating challenges that are described under "The System -Principal Financial and Operating Challenges." Measures to Obtain Energy and Diversify Fuel Mix. In preparation for the planned tennination of the Xcel Power Contracts ( see "The System -Purchased Power"), LP&L is taking a multifaceted approach to meeting its future energy requirements. For the short-to intermediate-tenn, management of the City and LP&L are reviewing various options that include both a full requirements energy supply agreement with a single supplier, as well as a blend of energy sources, such as the combination of self-generation and finn energy contracts as supplemented by one or more non-firm energy contracts that it is presently using. In recent years, all energy required by LP&L that it could not generate was purchased from Xcel as firm power under contract, or, occasionally, as emergency power purchases. This approach stemmed from the general view that little surplus energy was available to the City from suppliers other than Xcel, given the transmission constraints that make it difficult for the City to receive energy purchased from sellers in other states that are members of SPP or from adjoining areas. In recent months, the City has had discussions with a variety of energy providers other than Xcel concerning the availability of energy, and the City has made some relatively inexpensive non-firm energy purchases. These purchases from such suppliers, some of which have been from coal generation, have enabled the City to reduce the operation of the Owned Generation, and thus maintenance expense and fuel cost. As a result of its recent, modest success in purchasing energy from other suppliers, the City believes that it can make purchases of non-firm energy, particularly during periods of low energy demand in the region when transmission of non-firm energy is less likely to be curtailed. However, if the City decides to contract for firm energy from producers with generation that is more remote from the City than is the Xcel generation, it will need to negotiate firm transmission rights for the delivery of the energy. SPP, as the regional transmission organization, would need to undertake a detailed assessment of transmission capacity before any such contract could be finalized. Such assessment could take many months, may not result in a favorable conclusion, and the City would be required to fund the cost of the assessment. Through its recent experience in purchasing non-firm energy, the City is establishing a record of transmission curtailments. Should the City decide that transmission of energy to it is being unfairly curtailed, it could take appropriate legal action under the FERC open access rules. See ''Certain Factors Affecting LP&L and the Electric Utility Industry-Federal Regulation of Electric Transmission Services." At this time, however, the City has not concluded that it is being unlawfully curtailed, and any such determination would need to be based upon a variety of evidence that could be difficult to assimilate. The construction of the new 100 MV A interconnection to the Xcel transmission grid, which is being funded with a portion of the proceeds of the Obligations, supplements the existing three 100 MY A interconnections, will permit the City, if it can successfully negotiate attractive energy purchase agreements, to bring in up to 400 MWs of energy (which exceeds the City's current peak load of 335 MWs). The City is of the view that the interconnection will better position the City to receive energy from more sellers than at present and technically enable the City to supply its full capacity needs for some period to come through power purchases (which could be a mix of firm and non-firm or 100% firm purchased power). The fourth interconnection will also provide additional reliability for the City, which management believes is essential in a competitive market. · In June 2003, Management completed negotiations with Xcel regarding the one year Schedule C energy agreement (see "The System -Generating Assets and Purchased Power Agreementstt). Given the short-term duration of the Xcel Power Agreements, as well as the dynamic environment in which it operates, LP&L frequently engages Xcel in discussions pertaining to LP&L<s energy requirements, and it is possible that new power purchase agreements could be negotiated prior to the expiration dates of the various Xcel Power Agreements. One goal of the City in reviewing its energy purchase options is to better match its contract obligations to pay for energy to its demand for energy, with a goal of reducing the fixed demand charge that the City pays under firm energy contracts. Based upon its discussions with Xcel, the City also believes that Xcel would agree to make the City a full requirements customer, in which case, the City would purchase energy based on FERC approved wholesale power rates that are similar for all of Xcel's full requirements wholesale customers. If the City were to become a full requirements customer of Xcel (and such arrangement could be for short-tenn period or longer duration), applicable legal requirements that govern the use of the Owned Generation, including federal income tax regulations as well as provisions of the WTMP A Agreements, would need to be addressed (see "The System -West Texas Municipal Power Agency; Recent Developments -Future Role of WTMPA"). While such an arrangement would preclude the use of the Owned Generation, which given current natural gas market prices is not advantageous to operate when compared to the cost of purchased power, it is likely that the City would be in the position of competing for retail energy sales against its wholesale energy supplier. 48 - Finally, LP&L has had discussions with the Member Cities of WTMPA and other municipal utilities and Electric Coops regarding the construction of new gas or coal-fired generating facilities in the vicinity of the City. Management is also reviewing prospects for constructing a new generation facility or contracting for a share of a remote coal or nuclear facility output. Under present gas market conditions, it is unlikely that LP&L would seek to build additional gas generation facilities, and the construction and operational costs of coal generation would require significantly greater access to capital as compared to funding for a gas generation facility. In addition, until such time that the City can be assured of cost effective transmission of energy from remote locations, it is unlikely that it would commit to an ownership interest in a remote facility. Measures to Reduce Production and Generation Costs. Since the mid-year budget amendments described under "The System - Recent Measures Implemented to Address Financial Performance," LP&L has frozen hiring for 27 unfilled employment positions and there have been reductions in force that have eliminated, through retirement, discharge or otherwise, another 45 positions, although due to severance costs, the reductions in force that have been made to date are not expected to result in cost savings during the current fiscal year. In addition, for the 2003-04 fiscal year the 27 frozen positions will be permanently eliminated from LP&L's employee headcount. Management ofLP&L is of the view that these workforce reductions do not and will not substantially impair the ability of the utility to provide competitive service or to maintain its facilities, although such reductions in force are likely to adversely affect employee moral and perhaps productivity for an unknown time period. The City is making the workforce reductions as part of its strategy to move toward purchasing a larger proportion of its energy needs, while simultaneously reducing the operation of the Owned Generation. In addition, management is of the view that the fourth interconnection to the Xcel transmission grid that is being financed through the issuance of the Obligations will provide system reliability improvements that will reduce the maintenance requirements of the LP&L distribution system. In addition, the City has implemented a gas hedging policy (see "The System -Gas Hedging Program") that is intended to mitigate price volatility and the uncertainty of future natural gas prices that impact LP &L's competitive position. Measures to Improve Financial Performance. As described under "The System -Recent Measures Implemented to Address Financial Performance," and in addition to the reductions in force described above, the City Council has taken a number of steps to improve the financial condition ofLP&L, including increasing the FCA (which has initially resulted in a loss of market share) and permanently eliminating the Other Transfer Amounts from the LP&L budget. While LP&L will still have an interfund payable to other City funds remaining from prior fiscal years, and there may be a deferral (but not release} of the Cost Recovery Payments for the current fiscal year and possibly for future years, the elimination of the Other Transfer Amounts were made for the purpose of restructuring the LP&L transfer requirements to better match overhead costs and governmental payments that are made by competing utilities. In addition, the City Council has eliminated the HOA discount, which will permit LP&L billings to better reflect its cost of service in current bills, although it eliminates the ability of LP&L to average-out bills of its customers during periods of volatile energy costs.· Finally, the City Council has taken action to phase out the LP&L discounts that were previously provided as infrastructure incentives for underground transmission lines for new development in the City. Measures Relating to Reducing Competition in the City. Since mid-2001, the City has undertaken an analysis of the prospects of reducing all or part of the competitive nature of the LP&L business environment. To date, the City has had little success in discussions of such matters with Xcel. While management of the City is hopeful that some mutually beneficial arrangement can be made that will make the provision of electric service in the City generally more efficient, no assurances can be given that the City will be successful in eliminating all or part of the duplicated infrastructure and services now being offered in the City, or that the City would substantially improve its financial condition if it were to make significant structural changes to its current business model. In recent months and years, the City has presented a number of initiatives to Xcel to help reduce all or part of the duplicated costs of the inefficiencies associated with constructing and operating dual distribution systems in the City, including shared wheeling service to new areas of development that would permit either utility to use the distribution system of the other entity. While the City is committed to continuing to operate LP&L as an electric utility, it is possible that the City could effect changes to the LP&L operations that would transform the utility from a generating and electric distribution utility to an electric distribution retail utility, selling its energy as well as wheeling for Xcel. As noted above, the City is reviewing the prospects of purchasing all of the energy that it requires to meet its electric load, and it is possible that new power purchase agreements could be structured that would make the City a full-requirements customer of Xcel or, in the longer-term, of another utility. The City has also approached Xcel regarding the purchase of the Xcel distribution assets that serve the City. The City's offer has not reached the level of discussions, and it is possible that Xcel will reject or fail to reply to the City's initiative. However, should such an arrangement be consummated, it is likely that the City would become a full-requirements wholesale customer of Xcel and would be the only distribution entity in the City, although it is possible that Xcel would still compete as a retail electric provider in the City. The consummation of any such arrangement, would be subject to a number of factors, some of which can not be controlled by the City, including actions of governmental agencies that regulate Xcel, as well as the ability of the City fund any purchase price of such assets, and the satisfaction of the City with its obligations under various bond ordinances and other agreements that affect the tax-exempt status of the LP&L debt and, possibly, W1MPA debt, as well. 49 Gas Supply and Transportation Agreements LP&L's principal natural gas service agreement (the "Gas Supply Agreement") dates to 1998 when LP&L implemented a ten year agreement with LG&E Marketing Inc. ("LG&E"). LG&E subsequently conveyed to ConocoPhillips ("ConocoPhillips") its rights to the pipeline through which natural gas is delivered to the Owned Generation. In connection with the sale of the pipeline rights, LG&E assigned its rights and obligations for the sale of natural gas to the LP&L to ConocoPhillips, which began providing natural gas to LP&L in December 2000. In connection with the assignment of the LG&E rights to ConocoPhillips, the City and ConocoPhillips modified the gas contract to separate the existing contract into two contracts, a gas service agreement (the "Gas Supply Agreement") and a transportation agreement (the "Gas Transportation Agreement"). In August 2003, ConocoPhillips sold the primary pipeline that serves the City, which was owned by a subsidiary of ConocoPhillips called Powertex Joint Ventures to Markwest Energy Partners L.P. ("Markwest"), and the City has agreed to the transfer of the Gas Transportation Agreement to Markwest, while ConocoPhillips remains the City's counterparty under the Gas Supply Agreement. The separation of the contract into two parts permits LP&L to maintain a long-term gas transportation agreement and have the flexibility to adjust the supply contract to meet future needs on an annual or as-needed basis. The changes in the contract structure were effective in February 2002, and the Gas Supply Agreement extended to February 2003 with an automatic renewal term for three years, although in the current extended tern, the contract may be terminated upon 90 days notice to the other party. Under the terms of the Gas Supply Agreement, LP&L pays a market cost of natural gas (unless it has hedged its position, see "The System -Gas Hedging Program"). In addition, LP&L pays ConocoPhillips a service of$0.02 per MMBtu. The LP&L Gas Supply Agreement requires that LP&L pay only for the gas it uses. Under the former contract structure, LP&L was required to purchase minimum monthly amounts of gas at a set price, and if it was not burned in the Owned Generation, it would be sold back to ConocoPhillips at the prevailing daily price, which at times resulted in the sale of such gas at a loss. The new contract structure provides additional flexibility in LP&L's decision as to whether to operate the Owned Generation or seek to purchase energy in the market. The Gas Supply Agreement also requires ConocoPhillips to provide LP&L with for gas planning and consulting services, including quarterly planning sessions, daily market information and forecasts, buying and selling options, forward contracts and other financial instruments, and other assistance as requested by LP&L, including acting as LP&L<s agent for the purchase of natural gas. The Gas Transportation Agreement, which also became effective in February 2002 and extends through February 2008, reduces the minimum annual transportation quantity from 5,500,000 to 4,000,000 MMBtus. LP&L is required to pay $0.10 per MMBtu for the minimum annual quantity. lfLP&L bums more than 4,000,000 MMBtus, it pays $0.08 per MMBtu for quantities above the minimum, which represents a $0.01 increase for MMBtu quantities over 5,500,000 MMBtus under the former agreement, but reflects the business strategy of reducing its dependence on the Owned Generation. ln 1998, LP&L also entered into a 20-year gas supply agreement with Texas Municipal Gas Corporation, a Texas non-profit corporation created by the City of LaGrange, Texas ("TMGC"), for the purpose of acquiring mineral interests for sale to tax- exempt entities such as LP&L. In June, 2001, LP&L and TMGC amended the contract to extend the term through 2024. After 2021, the contract term may be extended on a year-to-year basis through 2030, provided, however, that LP&L may terminate the contract after 2021 if it provides a one year advance notice of termination to TMGC. Under the TMGC contract, LP&L has the right to purchase gas and/or "swap" its gas supplies received from other vendors with gas provided under the contract by TMGC. LP&L may purchase or swap approximately 7.83 BCF of gas annually. LP&L anticipates that it will swap the TMGC gas with other vendors to which LP&L is contractuaUy committed. to buy gas, as there is no pipeline in place to physically deliver the gas to LP&L. Because TMGC initially financed its gas acquisitions \Vith tax-exempt bonds, and for other reasons as well, LP&L anticipates that it wilI realize an approximately 4 to 7% savings in LP&L's fuel cost as a result of the TMGC contract. TMGC has informed the City that it is currently completing a taxable debt financing for the purchase of additional natural gas reserves, and has represented to the City that such reserves will enable the City to purchase all of its gas supply from TMGC. The City can terminate LP&L's obligations under the TMGC contract under certain conditions, including the sale of LP&L. TMGC may allocate gas among LP&L and others purchasing gas from it in the event that TMGC is unable to procure sufficient gas to meet the demands of its contracting entities. Gas can be delivered to the Cooke Plant through three pipelines connected to the plant, including a pipeline owned by ConocoPhillips and a line owned by Atmos Energy Corporation. The City also owns an approximately 50 mile pipeline that connects to the Cooke generation plant. The City currently purchases only small amounts of natural gas from the production facility in Post, Texas, which is served by the pipeline. Periods of prolonged cold weather, during which natural gas supply may fall short of demand, may necessitate the curtailment of gas use for boiler fuel. In recent years, LP&L has not experienced gas delivery curtailments. The Natural Gas Policy Act subjects intrastate gas, including gas intended for boiler fuel use, to Presidential emergency purchase authority and emergency allocation authority to assist in meeting interstate nahlral gas requirements for high priority uses. LP&L's gas supply is subject to the ability of its gas pipeline suppliers to acquire sufficient quantities of supply, as well as to the fluctuations in market prices. Gas Hedging Program ln August 2002, the City Council adopted a Gas Price Risk Management Policy (the "Fuel Hedging Policy") and created the Energy Risk Management Committee, consisting of four representatives from LP&L and two representatives of the City's Finance Department, to administer the Fuel Hedging Policy and to establish a natural gas price risk strategy. In August 2003, the Committee was made an advisory body, and all power to implement the Fuel Hedging Policy was vested in the Chief 50 ,:''''-,.,: - Financial Officer of LP&L. The strategy that was initially implemented was limited by reference to historic gas indices in the policy, which were substantially different than the City experienced during the first nine months that the policy was in place. Consequently, during that period the use of the Fuel Hedging Policy accounted for only about 15% of LP&L's gas usage. In June 2003, the Risk Management Committee revised the policy to bring it more in line with current market prices of natural gas. The Fuel Hedging Policy attempts to create a portfolio approach to natural gas price volatility by mixing contracts for short, intennediate and long-term periods. Through May 2003, the City was able to purchase gas at lower prices than market for eight out of nine months when gas was hedged, but given the limitations of the initial strategy, cost savings were not significant. Going forward, the Fuel Hedging Policy provides opportunities for the City to hedge gas during periods of rising prices, although it is possible that the City could also hedge at prices that prove to be higher than subsequent market prices. The City and LP&L is of the view that given the variation of natural gas prices according to seasonal and market cycles, the historic practice of purchasing gas largely on the basis of monthly contracts is no longer consistent with good utility practice and that efforts must be made to mitigate price volatility and the uncertainty of future natural gas prices that impact LP&L's competitive position. The Policy provides that financial instruments such as futures contracts, options, swaps and collars may be utilized to reduce the price risk exposure and volatility attributed to the physical purchase of natural gas on a short-tenn pricing basis. Parameters for the use of such instruments are established in the natural gas price risk manage strategy, and certain restrictions, including the following, have been established within the context of the Fuel Hedging Policy: > The sale of call options for natural gas is prohibited. > The monthly volumes covered by financial instruments shall not exceed projected estimates of monthly natural gas usage. > No financial instruments shall extend beyond two years without the prior written approval of the City Council. > Counterparty credit limits shall be established by the Managing Director of Finance of the City, however, any agreements extending beyond one year must be with counterparties who have at least an A credit rating. > Any financial instrument utilized shall have a high correlation with the underlying physical purchase of natural gas. Interconnection, Transmission and Distribution An interconnection with SPS was completed and LP&L commenced buying power from SPS (now Xcel) in December, 1981 on the east side of the City. In April, I 986, a second interconnection with Xcel was energized on the west side of the City. In May 2000, a third interconnection with Xcel was energized at a new substation located east of the City, about two miles north of the original interconnection. With proceeds of the Obligations, LP&L is financing a fourth interconnection with Xcel, which is expected to be completed in June 2004. Each of the interconnections increase reliability and purchased power options for LP&L, as they provide redundancy. LP&L owns a 69,000-volt (69kV) transmission loop system, 78.86 miles in length, which provides bulk power to twelve 69,000112,470 bulk substations. These substations could provide up to 582 MV A. Of the above 69kV transmission lines, 27.41 miles have been constructed for operation at 115 kV. When system load dictates, these lines can be energized to 115kV, which would provide an additional 250% of transmission capacity due to the increased voltage. The interconnections with Xcel are tied to LP&L through 4.35 miles of230 kV transmission lines. The LP&L distribution system includes approximately 675.88 miles of overhead distribution lines and approximately 292.66 miles of underground distribution lines. There are three 12,470/4,160-volt substations in the distribution system. Net system load for the fiscal year ended September 30, 2002, was 1,419,117,867 kilowatt hours with a peak demand of334,000 kW. Facilities Maintenance and Repair Issues LP&L has occasionally experienced power blackouts during a period of curtailed transmission but with the addition of the WTMPA Project capacity, LP&L has not experienced any power blackouts attributable to mechanical failure of its facilities, other than periodic weather related interruptions of service. In addition, the City will fund the construction of a fourth interconnection to the Xcel transmission grid with proceeds of the Obligations. The construction of this fourth interconnection is expected to provide greater reliability for the LP&L system, among other benefits. During the 1999-2000 fiscal year, LP&L engaged an engineering consulting finn (the "Consultant") to independently assess LP&L's existing generation facilities. While overall the Consultant found that LP&L facilities are in good condition, certain problems were identified with power supply. In addition, the Consultant reported that the age of certain units was causing reliability issues, and the efficiency of some units is not up to industry standards. However, LP&L's newer generation units were not found to have such problems. LP&L's maintenance records indicate that regular inspections have been performed of major generating equipment and auxiliaries. However, due to the overall age and condition of equipment, it is expected that unplanned outages will continue to be a common occurrence and will increase for those units that are subjected to cycling ( on-oft) operation. LP&L has made significant replacements and improvements in recent years, especially at the Massengale Plant. New single-loop boiler combustion/feedwater controls and modern burner management systems have been installed on all boilers at Massengale. These changes have contributed to an increase in operating safety. All Massengale units have relatively new, efficient cooling towers. 51 Capital Improvement Plan LP&L annually adopts a five-year capital improvement plan for all its operations, and the most currently approved plan is summarized in Table 22 below. A capital improvement plan is made for planning purposes and may identify 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. At present, the City anticipates that the capital improvement plan will be funded from a blend of operating revenues and bond proceeds. TABLE 22 -FIVE YEAR CAPITAL IMPROVEMENT PLAN Fiscal Year Ending September 30 2004 2005 2006 2007 2008 Total LP&L Capital Improvements $ 1,215,000 6,085,000 (l) 9,985,000 5,055,000 5,300,000 (1) The five year capital improvement plan indicates that up to $5.6 million of LP&L capital improvements may be funded through the issuance of City tax debt or LP&L revenue debt during the 2004-2005 fiscal year. West Texas Municipal Power Agency; Recent Developments Organization and Powers ... WTMPA is a municipal power agency that was formed under Article 1435a, Vernon's Annotated Texas Civil Statutes, as amended, now codified as Chapter 163, Texas Utilities Code, by concurrent ordinances adopted by the governing bodies of the cities of Brownfield, Floydada, Lubbock and Tulia, Texas (the "Member Cities") in 1983. Each Member City owns and operates a municipal electric light and power system, and all are within a 75-mile radius of Lubbock. The purpose of WTMP A is to engage in the generation, transmission, sale and exchange of electric energy to the Member Cities and to any private entities that may be joint owners with WTMPA of an electric generating facility. WTMPA is a separate municipal corporation, a political subdivision of Texas and body politic and corporate. Until the completion of the WTMPA Project, WTMP A did not own any electric facilities, although it had acted as a principal for the Member Cities in negotiating power purchase contracts. The relative contract rights and obligations with respect to the WTMP A Project of each Member City under the terms of the WTMP A power contracts fluctuate from year to year based generally on the amount of energy taken by each Member City as a percentage of the total energy requirements of all Member Cities. At present the respective percentage obligation of each Member City is as follows: City of Brownfield City of Floydada City of Lubbock City of Tulia Total 7.34% 1.98 87.37 -2.dl 100.00% WTMPA has entered into a WTMPA Power Sales Contract (the "WTMPA Power Sales Contract") with each member City and a power capacity agreement between WTMPA and the City (the "WTMPA Power Capacity Agreement") as described below, and an operation and management agreement with the City (the "Management Agreement") to provide for the operation of the WTMPA Project by the City for the benefit ofWTMPA. WTMPA is governed by a board consisting of eight directors and a president who serve without compensation, although the officers may be reimbursed for expenses incurred on behalf of WTMP A.. The governing body of each of the four Member Cities appoints two persons to serve on the WTMP A board. The affirmative vote of a majority of the Directors present (six Directors comprise a quorum) is required for the board of WTMPA to take any action except for certain extraordinary actions which require an affirmative vote of six Directors and a majority interest of the Cities based on kWh purchased. Since the City purchases at least a majority ofWTMPA's energy, this provision effectually gives the City a veto over such matters. The WTMPA Project ... In June 1998, WTMPA issued $28,910,000 of its Revenue Bonds, Series 1998 (the "WTMPA Bonds") primarily to finance the construction and acquisition of a 65 MW electric co-generation project (the "WTMPA Project"). At present, $22,800,000 of the WTMPA Bonds remain outstanding. The WTMPA Project consists ofa 43 MW combustion turbine generator and the re-powering of an existing 22 MW Westinghouse non-reheat, condensing generation unit, each located at LP&L's J.R. Massengale Plant. The City entered into a ground lease with WTMPA, which pennitted the construction of the facilities at the location of the City's Massengale Power Station. Through an operation management agreement with WTMP A, LP&L assumed the responsibility for operating the WTMPA Project, which also included all required facilities necessary to operate the WTMPA Project in conjunction with LP&L's existing electrical system, including substation expansion, relaying and controls. 52 - - The Massengale Unit 8 turbine was originally scheduled to go online in the Spring of 1999. The contract for the construction of the turbine required an 8-day reliability run test prior to completion of the turbine. Delays from the original construction schedule occurred, and the reliability run test was eventually set to begin during the first week of September 1999. During the course of the run test, the turbine experienced a catastrophic failure and the turbine did not operate from September 3, 1999 through the end of December 1999. From January 2000 to April 2001, the unit operated at approximately 20% of capacity. Since April 2001, repairs to the unit have resulted in operations approximating its designed capacity. In May 2001, the City and WTMPA filed a lawsuit (the ''WTMPA Turbine Litigation") against the manufacturer of the Massengale Unit 8 combustion turbine, GE Packaged Power, Inc. ("GE"), and the gas company that supplies fuel for the Unit, Energas, Inc. ("Energas"), in connection with the failure of the turbine. The additional energy purchase costs associated with the failure of the turbine was a significant contributor in LP&L's operating loss (after transfers to the City) of approximately $6.l million for the fiscal year ended September 30, 2000. During September 2002, the City engaged in mediation with GE and Energas with respect to the settlement of the WTMPA Turbine Litigation. During the course of the mediation, the director of LP&L and a City Council member who served on the Board ofWTMPA and as president ofWTMPA made statements to the effect that WTMPA had retained a sum of approximately $1.6 million, representing proceeds of the WTMP A Bonds, from GE until the litigation could be resolved. Subsequent investigations revealed that such amount had been retained, but the money had eventually been applied, in February 2002, to pay debt service on the WTMP A Bonds. A lawsuit settlement was made in September 2002 with GE. The terms of the settlement with GE provided for WTMPA to retain the $1.6 million which was unpaid under the construction agreement, and for WTMPA to receive $150,000 for its attorney fees in the matter. In addition, WTMPA agreed to pay GE $422,000 (one half of insurance settlement it received). A lawsuit settlement was made with Energas in October 2002. Under the terms of that settlement, Energas paid the City $400,000. City Management and Financial Reviews ... As a result of the confusion over the existence of the retained amount, the City embarked upon a series of internal financial and management audits of the relationship between LP&L and WTMP A, as well as an analysis of the internal controls of the City with respect to LP&L. Such audits are available on the City's website at: www.ci.lubbock.tx.us under the heading "West Texas Municipal Power Agency Audit." The audits consist of four City reviews that were conducted by a City Manager's oversight committee composed of four residents of the City, the internal auditor of the City, the Contract Manager/Attorney from the City Attorney's office, and an Assistant City Manager. None of these reviews uncovered any malfeasance with respect to the administration ofLP&L or WTMPA funds. However, the reviews agree that the prevailing view that guided the administration of WTMPA affairs by the management of LP&L, was that WTMPA was indistinguishable from LP&L. This view stemmed from the facts that LP&L is contractually committed on a joint and several basis to pay the WTMPA Bonds, it is the operator of the WTMPA Project and, as described below, LP&L was taking all the energy from the WTMP A Project. According to the audits, this management perspective had resulted in a consistent failure to follow the terms of the various WTMP A organizational, operational and power purchase agreements. As an example, the audits found that LP&L had done little if any allocation of costs of operating the WTMPA Project to the other WTMPA cities. Instead, the practice was for LP&L staff to adjust the kilowatt-based rate to the other Member Cities, using input as to cash flow requirements received by LP&L management from City finance staff. The formula in the WTMPA power agreements for calculating the cost ofWTMPA Project energy was not applied. It was also noted that LP&L, which schedules power for the other Member Cities, had followed a practice of redirecting less expensive energy that it was entitled to receive under the Xcel Power Contracts to the Member Cities, thereby leaving the City to pay for the more expensive energy generated at the WTMPA Project. In addition to poor contract administration by the management of LP &L, there were findings in the City audits to the effect that LP &L was acting without proper oversight from the City Council and the City Manager's office. In April 2003, the WTMPA Member Cities (including the City) engaged Ernst & Young LLP ("E & Y") to conduct an audit of the records of WTMPA and LP&L. The final report of E & Y was delivered in May 2003, and included findings as to the historic misallocation of costs among the Member Cities, as well as a proposed rate design that E&Y suggested would be consistent with the WTMP A power agreements, and could provide the basis for negotiating a rate structure for future use of WTMPA energy. According to the E & Y report, the Member Cities needed to "develop a robust planning process which will lead to the annual detennination of realistic revenue requirements» among other corrective measures. The report noted that the historic cost allocation among the Member Cities for energy taken from WTMPA was "a very back of the envelope calculation" and that the methodology used failed to consider peak demand in allocating costs as was required under the WTMP A power agreements. As a result, the City was generally over allocated costs ofWTMPA energy. The report noted that no evidence of misappropriation of assets or intentional omissions of financial information was discovered, but that, taking into account past misallocations, adding an interest factor for such allocations, and recovering an unbilled 5% management overhead allocation that LP&L was entitled to under the power agreements would result in a total amount owing to the City of $5,590,746, of which amount the City owed itself, as a member city of WTMP A, approximately 88% based upon the historic allocation of costs or 90% if the allocations were made on the basis of an annually adjusted allocation, as required by the WTMP A power agreements. It was noted that the City and WTMPA had agreed to a recovery program for past costs, which were gradually being recovered through current rates, although there does not appear to be a written confirmation of any such agreement. Finally, the E&Y report noted that according to the WTMP A financial statements for the year ended September 30, 2002 ( which were not prepared or audited by E& Y), WTMP A was not in compliance for that year with the 1.15 times rate coverage of debt service requirements that are required by the resolution under which the WTMPA Bonds were issued. The City is of the view that the amount owing to the City from WTMPA does not materially affect the financial condition of the City or WTMP A. Following the release of the Ernst & Young audit, the City has begun a dialogue with the other Member Cities in an effort to establish a plan for the payment of the amount owing to the City from WTMP A. No assurance can be given that any such payment plan will be negotiated, particularly given the general view of the other Member Cities that LP&L was acting as operator for the WTMP A Project and was responsible for correctly billing the other Member Cities. 53 Future Role of WTMPA ... As a result of the City audits described above, the City has undertaken an assessment of the future role of WTMPA. In July 2003, the City made a proposal that it would enter into contracts with the other Member Cities under which the City would assume the rights and obligations regarding the operation of the WTMP A Project, although the existing contracts among the Member Cities and WTMP A would continue in effect, with the exception of those described under "The System -West Texas Municipal Power Agency; Recent Developments -Surplus Power Agreements," until the title to the WTMPA Project is transferred to the City, as described below. The proposal provides that the City will receive the full output of the W'TMP A Project, and that the City will take ownership of the WTMP A Project when the WTMP A Bonds have been paid, whether at maturity or otherwise. The consideration for the future transfer to the City of the WTMP A Project would include the City's undertaking to purchase all energy generated by the WTMP A Project (and therefore fund the debt payments of the \VfMPA Bonds). Additional consideration would include a release from the City to the other Member Cities for the amounts owing to the City by the other Member Cities, as determined by E&Y {see "The System -West Texas Municipal Power Agency; Recent Developments -City Management and Financial Reviews"). If the City's proposal is accepted by the other Member Cities, WTMP A would continue to operate as a consortium for the purchase of energy on a wholesale basis, as was the case prior to the construction of the WTMP A Project and the issuance of the WTMP A Bonds. The City anticipates that a response will be forthcoming from WTMPA prior to August 31, 2003, by which time it will adopt its budget for the 2003-2004 fiscal year. If the City's offer is rejected, the City could negotiate some other legal arrangement whereby the existing legal structure will remain in place with additional agreements implemented to better define the responsibility of the City and the other Member Cities for costs incurred by WTMP A. As a final resort, the City could seek to dissolve WTMP A, which would require the discharge of the WTMP A Bonds, among other actions. Following the release of the City audits, City management and WTMP A officers have implemented a number of procedural arrangements and written agreements to address the contract administration aspects that were noted in the City audits, among other remedial steps. Business and Management Transition ... Following the publication of these reports, several key City officers and LP&L management personnel resigned. Among the officials and management of the City who resigned was a member of the City Council with almost 11 years of service, the City Manager, who had served 27 years with the City, the last ten of which as City Manager, the Assistant City Manager for Finance, who had almost 8 years of service to the City, and the Chief Executive Officer ofLP&L, who had served in that capacity since 1998. In addition to the LP&L Chief Executive Officer, in recent months other management staff of LP&L have resigned or been released from employment, including the Production Superintendent, the System Planning Engineer, the Business Office Manager and the Director of Sales, among other key management positions. At present these positions have not been filled and some of the positions will be reorganized as part of the staff reduction measures that are now being implemented (see "The System -Operating Plan -Measures to Reduce Production and Generation Costs"). Jn the wake of these staff changes, the City Council hired Carroll McDonald as Chief Executive Officer ofLP&L. Mr. McDonald is 69 years old and has over 40 years experience in the electric energy industry, having previously served approximately 29 years with SPS and as the City's Assistant City Manager for Utilities from 1979 to 1994. Mr. McDonald retired from SPS in 1997 and came out of retirement to take the LP&L CEO position. Other key management positions include Gary Zheng, the Chief Operation Officer ofLP&L, who has served in various capacities with LP&L since 1997, before becoming COO in March, 2003. Derrell Oliver is the Assistant Director of LP&L. Mr. Oliver joined LP&L in 1991 with primary responsibility for sales promotion, marketing, business office operations and economic development. Since mid-2002 two national financial rating agencies have downgraded or placed LP&L's debt on negative credit watch, citing financial pressures on the system due to the competitive environment, unpredictable gas prices, a negative working capital balance, major management changes and questionable financial disclosures affecting LP&L. At present, LP&L and the City are undergoing a period of transition in both management and business strategies (see "The System -Operating Plan") that have been necessitated by the challenges presented by the current volatile natural gas prices, the effect of competition on LP&L, the pending expiration of the Xcel Power Contracts and the results of the mid-year budget review described under "The System - Recent Measures Implemented to Address Financial Performance." WTMP A Energy Sales and Purchases ... The WTMP A Power Sales Contract obligates WTMP A to use reasonable diligence to provide a constant and uninterrupted supply of power and energy to the Member Cities and obligates the Member Cities to purchase from WTMP A, if available, all of their electric energy requirement in excess of the amounts generated by the Member Cities' existing municipal systems. The WTMP A Power Sales Contract requires WTMP A to prepare annual budgets, projecting its Annual System Costs for the succeeding year, including Debt Service requirements on its bonds, and to submit the same to the Cities. Based upon these budgetary facts and estimates, WTMP A will adopt and fix the rates and charges for electric power and energy and services to be paid by the Cities for the ensuing year. The Cities are obligated to make such payments on a monthly basis. Contractual Guarantee. . . The WTMP A Power Sales Contract provides that each City is unconditionally obligated to pay its portion (the "Percentage Share") of all debt service payments and debt service reserve requirements, as shall be adjusted annually based on the percentage that each City's system load received by other entities bears to the aggregate system load of all the Cities received by other entities. Each City unconditionally covenants in its WTMP A Power Sales Contract that its Percentage Share of the payments will be made, if required, and no City shall have the right of set-off, recoupment or counterclaim against any such payments. Should a City fail to make its Percentage Share of payments for a period of sixty (60) days, WTMPA is required by the W'TMPA Power Sales Contract to redetennine the Percentage Shares among the then non-delinquent Member Cities so that the sum of the recalculated and readjusted percentages among the non-delinquent Member Cities shall equal 100% for the remaining fiscal year and each subsequent fiscal year. The Contract provides that any City delinquent in payment of its Percentage Share of payments shall not be relieved of the liability to WTMPA for the payment of all amounts due and payable to WTMP A had no default in 54 - - payment occurred and no redetermination or recalculation in the Percentage Shares of payments been required by reason of such City's failure to make its payment to WTMP A. Source of Payment ... All amounts payable by the Member Cities under the WTMPA Power Sales Contract, including any amounts payable pursuant to the contractual guarantee described above, are payable solely from the revenues of the Member Cities' respective electric systems and constitute operating expenses thereof, and are not payable from taxes or any other revenues of the respective Member City. Surplus Power Agreements ... The cities of Brownfield, Floydada and Tulia have individually entered into take or pay Surplus Power Agreements with the City. In the event that the City's offer to take all the energy from the WTMP A Project is accepted by the membership ofWTMPA (see "The System -West Texas Municipal Power Agency; Recent Developments -Future Role of WTMP A"}, the Surplus Power Agreements would tenninate. Under the Surplus Power Agreements, the City has agreed to purchase all electric power from and designated by Brownfield, Floydada and Tulia, respectively, which the respective City is required to take from the WTMPA Project under its respective WTMPA Power Sales Contract, but which is in excess of such City's requirements. The cost of the power purchased by the City under the Surplus Power Agreements will be WTMPA's cost of such power plus the difference between WTMP A's cost of such power and the cost of comparable power produced by Xcel. In the year ended September 30, 2002, LP&L purchased approximately l 00% of the energy from the WTMP A Project, which includes approximately 20% of the energy that was purchased from the other Member Cities in accordance with the Surplus Power Agreements. Fuel Supply ... Under the Management Agreement, WTMPA is committed to obtain its gas supply for the WTMPA Project from the City. The gas acquired by WTMPA from or through the City will be at the City's reasonable actual cost. See "The System -Gas Supply and Transportation Agreements" and "The System -Gas Hedging Program." Transmission Facilities ... WTMP A does not own and operate any electric transmission facilities. Electric power from the WTMPA Project is delivered through LP&L's transmission facilities to existing LP&L -Xcel interconnections. CERTAIN FACTORS AFFECTING LP&L AND THE ELECTRIC UTILITY INDUSTRY Electric Utility Restructuring in Texas Wholesale Electric Deregulation. Legislation was enacted by the Texas Legislature in 1995 that deregulated wholesale electric rates and services. In order to promote wholesale electric competition, such legislation directed the PUC to adopt rules requiring all transmission system owners to make their transmission systems available for use by others at prices and on terms comparable to each respective owner's use of its system for its own wholesale transactions. The PUC implemented its initial transmission open access rules in January 1997. On February 7, 1996, the PUC adopted State-wide open access rules (the "State Open Access Rules") to implement PURA's requirement that all electric utilities which own transmission facilities provide access to their transmission systems under rates, terms, and conditions comparable to the rates, tenns and conditions by which the utilities use their transmission systems for their own sales. Although the Open Access Rules are applicable to the City by definition, being situated in the SPP, the FERC has jurisdiction over the rates, teims and conditions applicable to public utilities furnishing transmission services to the City which do not furnish transmission services to other public utilities. The Open Access Rules, to date, have had no impact upon the City. The State Open Access Rules would be beneficial to the City only should a synchronous interconnection be energized for alternating electric facilities in ERCOT and the SPP, which is not currently envisioned. See "Certain Factors Affecting LP&L and the Electric Utility Industry -Federal Regulation of Electric Transmission Services" below for a description of FERC regulatory matters that have impact on LP&L's ability to purchase or sell energy from off-system sources. Retail Electric Deregulation. During the 1999 legislative session, the Texas Legislature enacted SB 7, which provides for retail electric open competition beginning in 2002, continues electric transmission wholesale open access and fundamentally redefines and restructures the Texas electric industry. As described below, during the 2001 legislative session, the Texas Legislature enacted HB 1692, which, for those parts of the State, including the area served by LP&L, that are outside the boundaries of ER COT, the regional reliability coordinating organization for electric power systems in much of the eastern and central parts of Texas, defers competition until the later of January 1, 2007 or until a utility is authorized by the PUC to implement customer choice. Despite the enactment ofHB 1692, at present SB 7 is the Jaw that would govern non-ERCOT utilities such as LP&L at such time, if ever, that they become subject to customer choice in the selection of electric service providers. 1n addition, certain provisions of SB 7 will continue to apply to LP&L For that reason, a brief description of SB 7 is set forth below. SB 7. SB 7 includes provisions that apply directly to municipally-owned utilities ("Municipal Utilities"}, as well as other provisions that will govern IO Us and Electric Coops. SB 7 allows retail customers of IOUs that are within the ERCOT region of the State to choose their electric energy supplier as of January 1, 2002, as well as the retail customers of those Municipal Utilities and Electric Coops that elect, on or after that date, to participate in retail electric competition. SB 7 required that affected IOUs separate retail energy service activities from regulated utility activities by September 1, 2000 and to unbundle their generation, transmission/distribution, and retail electric sales functions into separate units by January 1, 2002. To meet these requirements, an IOU could choose to sell one or more of its lines of business to independent entities, to create separate but affiliated companies that may be owned by a common holding company, but which must operate largely independent of each other. The services offered by such separate entities must be available to other parties on a non- 55 discriminatory basis. Municipal Utilities and Electric Coops that opt-in to competition are not required to unbundle their electric system components. To date, few if any Municipal Utilities have opened their service areas to competition, although it is likely that political and economic pressures may result in opened municipal service areas in the future, particularly in areas that have relatively expensive electric service. Some ERCOT Municipal Utilities have taken steps to sell or shutter inefficient generation assets, in an apparent bid to become a full-requirements purchaser of energy and the monopoly transmission and distribution service provider in their historic certified service areas. Under SB 7, generating assets of IOUs are owned by "Power Generation Companies," which must register with the PUC and must comply with certain rules that are intended to protect consumers, but they are otherwise be unregulated and may sell electricity at market prices. IOU owners of transmission and/or distribution facilities are "Transmission and Distribution Utilities" and are fully regulated by the PUC. Retail sales activities are perfonned by new companies called "Retail Electric Providers" ("REPs"), which are the only entities authorized to sell electricity to retail customers ( other than Municipal Utilities and Electric Coops within their service areas, or, if they have adopted retail competition, outside their service areas). REPs must register with the PUC, demonstrate financial capabilities and comply with certain consumer protection requirements. REPs buy electricity from Power Generation Companies, power marketers or other parties and may resell that electricity to retail customers at any location in the deregulated portion of the State (other than within service areas of Municipal Utilities and Electric Coops that have not opened their service areas to retail competition). Transmission and Distribution Utilities and any Municipal Utilities and Electric Coops that have chosen to participate in competition are obligated to deliver the electricity to retail customers, and all of these entities are required to transport power to wholesale buyers. The PUC is required to approve the construction of new Transmission and Distribution Utilities' transmission facilities, and is empowered to order the construction of new facilities to relieve transmission bottlenecks. Transmission and Distribution Utilities will be required to provide access to both their transmission and distribution systems on a non-discriminatory basis to all eligible customers. Rates for the use of distribution systems of Municipal Utilities and Electric Coops are exclusively within the jurisdiction of these entities' governing bodies rather than the PUC. Each type of unbundled company of the fonnerly bundled IOUs is prohibited from providing services that are provided by the other types of unbundled companies. SB 7 also provides a number of consumer protection provisions. Every area of the State participating in retail competition has a "Provider of Last Resort" ("POLR"); those POLRs serving in former service areas of IOUs are selected and approved by the PUC. A POLR is a REP that must offer to sell electricity to any retail customer in its designated area at a standard rate approved by the PUC. A POLR for a particular service area must also serve any customer whose REP has failed to provide service. Each Municipal Utility and Electric Coop that opts into open competition shall appoint itself or another entity as the POLR for such service territory, and the respective Municipal Utility or Electric Coop sets the rates for such respective POLR rather than the PUC. In the event that no other entity is available to serve in that capacity, the Municipally Utility serves as the POLR. Beginning September 1, 1999, each IOU was required to freeze its then existing rates (except for a fuel factor passthrough) and was required to continue to serve its retail customers at such rates until 2002. Beginning January 1, 2002, the unbundled REP of the IOU that held the certificate to provide retail service to an area (the "Affiliated REP") must reduce electric rates by 6% below the frozen rates and offer that reduced rate (the "price to beat") to all residential and small commercial retail customers in the area formerly served by the IOU. The Affiliated REP may not sell electricity to residential or small commercial customers at any other rate until either 40% of the residential or small commercial customers in the area have chosen to be served by other REPs or until January I, 2005, whichever occurs first. SB 7 does allow Affiliated REPs to compete for industrial customers, and for certain aggregated commercial loads owned by a common entity. The price to beat provisions of SB 7 have no direct impact on LP&L if it elects not to participate in retail competition, and would be relevant primarily to competition outside LP&L's service area if LP&L does elect to participate and to compete outside. Under SB 7, IOUs may recover a portion of their "stranded costs" (the net book value of certain "non-economic" assets less market value and certain "above market" purchased-power costs) and "regulatory assets," which recovery is intended to pennit recovery of the difference between the amount necessary to pay for the assets required under prior electric regulation and the amount that can be collected through market based rates in the open competition market. Once determined, the stranded costs will be collected through a non-bypassable competition transition charge collected from the end retail electric users within the IOU's service territory as it existed on May I, 1999, through, primarily, an additional component to the rate for the use of the retail electric distribution system delivering electricity to such end user. Municipal Utilities and Electric Coops are largely exempt from the requirements of SB 7. While lOUs will be subject to open competition on January l, 2002, the governing bodies of Municipal Utilities and Electric Coops have the sole discretion to determine whether and when (after January l, 2002) to open their service territories to retail competition. However, if a Municipal Utility or Electric Coop has not voted to open its territory, it will not be able to compete for retail energy customers at unregulated rates outside its traditional service territory. While IOUs must unbundle their generation, transmission and distribution, and retail sales activities, Municipal Utilities and Electric Coops retain the discretion to determine whether to unbundle those business activities. Municipal Utilities and Electric Coops will also determine the rates for use of their distribution systems after they open their territories to competition, although the PUC will determine the terms and conditions applicable to access to those systems. SB 7 also permits Municipal Utilities and Electric Coops to recover their "stranded costs,'' through collection of a non-bypassable transition charge from their customers if so determined by such entities through procedures that have the effect of procedures available to IOUs under the bill. Unlike IOUs, the governing board of a Municipal Utility determines the amount of stranded costs to be recovered pursuant to rules and procedures established by such governing board. Municipal Utilities and Electric Coops are also permitted to recover their respective stranded costs through the issuance of bonds in a similar fashion to the IOUs. Among other provisions, SB 7 provides that nothing therein or in any rule adopted under it may impair any contracts, 56 covenants, or obligations between municipalities and bondholders of revenue bonds issued by municipalities, and that nothing in the act may impair the tax-exempt status of municipalities or compel them to use facilities in a manner that violates any bond covenants or other tax-exemption restrictions. The bill also improves the competitive position of Municipal Utilities by allowing local governing bodies, whether or not they implement retail choice, to adopt alternative procurement processes under which less restrictive competitive bidding requirements can apply, and to implement more liberal policies for the sale and exchange of rea1 estate. Also, matters affecting the competitiveness of Municipal Utilities are made exempt from disclosure under the Texas open meetings and open records acts, and the right of Municipal Utilities to enter into risk management and hedging contracts for fuel and energy is clarified. SB 7 also contains specified emissions reduction requirements for certain older electric generating units that would otherwise be exempt from the TDEQ permitting program by virtue of "grandfathered" status. Under the bill, annual emissions of nitrogen o;,;.ides ("NOx") from such units are to be reduced by 50 percent from 1997 levels, beginning May I, 2003. The requirements may be met through an emission allowances trading program to be established and administered by the TDEQ on a regional basis. Owners of affected facilities were required to apply for permits for the emission of these contaminants from the TDEQ, and the bill authorizes the agency to assess administrative penalties for facilities that exceed required emission allowances, SB 7 provides that a Municipal Utility may request an exclusion from the emissions reduction provisions of SB for any electric generating facilities of 25 MW s or less. SB 7 also sets goals for the development of renewable generating technologies that do not bum oil and gas and do not produce air pollution. SB 7 requires that the amount of renewable energy triple in Texas by 2009. SB 7 sets certain renewable generation target levels. HB 1692 HB I 692 removes investor-owned utilities operating outside ERCOT from retail competition until the later of January I, 2007 or until the utility is authorized by the PUC to implement customer choice. During the period such utilities are not participating in retail competition, they will continue to be regulated under traditional cost of service regulation by the PUC. While LP&L currently competes with Southwestern, the enactment of HB I 692 will prohibit other REPs from offering electric service in the City until such time that the region is opened to competition by the PUC, as described below. The PUC may certify a utility to enter customer choice only if the PUC finds the utility has sufficient transmission facilities to provide customers access to power and capacity from non-affiliated suppliers at a level that is comparable to the access to power and energy from capacity controlled by non-affiliated suppliers within the ERCOT region. The Texas Senate Business and Commerce Committee Report on HB 1692 (the "Report") notes that the Texas Panhandle region, served by Southwestern, is transmission constrained, which means that power consumed in the Panhandle must be generated in the region. In accordance with the provisions of SB 7, Southwestern would sell 80% of its generation assets to unregulated companies and would unbundle its generation company, which would weaken the ability of the PUC to regulate generation rates paid by customers. The Report notes that a slower, more structured transition to competition for regions with transportation and generation shortages may serve to protect consumers. HB 1692 requires that, until the later of January I, 2007, or the date on which an electric utility becomes subject to the provisions of SB 7 and is authorized by the PUC to provide customer choice, the utility will be subject to all applicable regulatory authority prescribed by the Texas Public Utility Regulatory Act and that until such time only those provisions of SB7 that relate to the duty to obtain a permit from the TDEQ for an electric generating facility and to reduce emissions from an electric generating facility will apply to that utility. In addition, until the date on which an electric utility subject to HB 1692 implements customer choice, the utility will be required to pay franchise fees to a municipality as required by the utility's franchise agreement with the municipality. HB 1692 provides that, on or after January I, 2007, an electric utility, rather than all electric utilities, subject to HB 1692 may choose to participate in customer choice. Each electric utility that chooses to participate in customer choice must file a transition to competition plan with the PUC that must identify how such utility intends to mitigate market power and achieve full customer choice, including specific alternatives for constructing additional transmission facilities, auctioning rights to generation capacity, divesting generation capacity, or any other measure that is consistent with the public interest. Such utility must also include in the transition plan a provision to establish a price to beat for residential customers and commercial customers having a peak load of 1,000 kilowatts or less. HB 1692 prohibits the PUC, if an electric utility chooses on or after January l, 2007, to participate in customer choice, from authorizing customer choice until the applicable power region has been certified as a qualifying power region in accordance with the requirements contained in SB 7, including that the total capacity owned and controlled by each such electric utility and its affiliates does not exceed 20 percent of the total installed generation capacity within the constrained geographic region served by each such electric utility plus the total available transmission capacity capable of delivering firm power and energy to that constrained geographic region. HB 1692 prohibits the electric utility covered by the bill from choosing to participate in customer choice unless the affiliated power generation company makes a commitment to maintain and does maintain rates that are based on cost of service for any electric cooperative or municipally owned utility that was a wholesale customer on the date the utility chooses to participate in customer choice and was purchasing power at rates that were based on cost of service. Federal Regulation of Electric Transmission Services The Energy Policy Act of 1992. The Federal Energy Policy Act of 1992 (the "Energy Act"), greatly expanded the authority of the FERC to order utilities, including utilities within SPP, to provide transmission service for other utilities, qualifying facilities, and independent power producers. The FERC also has authority to determine the prices that may be charged for transmission, but has generally deferred to the SPP for electric transmission and open access rules for access and pricing within SPP. 57 Retail Wheeling. The authority to order retail wheeling, which allows a retail customer to be located in one utility's service area and to obtain power from another utility or non-utility source, is specifically excluded from the enhanced authority granted to the FERC under the Energy Act. However, while the States may have authority to determine whether retail wheeling will be pennitted, FERC has determined that it has jurisdiction over the rates, terms and conditions of retail wheeling. FERC Final Rules and Proposed Rulemakings in Federal Regulation of Electric Utilities. To establish foundations necessary to develop a competitive wholesale electricity market and effectuate the transmission access provisions of the Energy Policy Act, on April 24, 1996, FERC issued two final rules ("FERC Final Rules'') on non-discriminatory open access transmission services by public utilities and stranded cost recovery. The first of FERC Final Rules, Order No. 888, requires all public utilities that own, control or operate facilities used for transmitting electric energy in interstate commerce to (i) file open-access, non-discriminatory transmission tariffs containing, at a minimum, the non-price terms and conditions set forth in the order and (ii) functionally unbundle wholesale power services by (1) applying unified transmission tariffs system to all customers, (2) providing separate rate systems for wholesale generation, transmission and ancillary services and (3) relying on the same electronic information dissemination network that its transmission customers rely on in selling and purchasing energy. The second ofFERC Final Rules, Order No. 889, requires all public utilities to establish or participate in an Open Access Same-Time Information System (OASIS) that meets certain specifications, and comply with standards of conduct designed to prevent employees of a public utility ( or any employees of its affiliates) engaged in wholesale power marketing functions from obtaining preferential access to pertinent transmission system information. FERC stated that its overall objective is to ensure that all participants in wholesale electricity markets have non-discriminatory open access to transmission service, including network transmission service and ancillary services. FERC also indicated that it intends to apply the principles set forth in FERC Rules to the maximum extent to municipal and other non-FERC regulated utilities, both in deciding cases brought under the Federal Power Act and by requiring such utilities to agree to provide open access transmission service as a condition to securing transmission service from jurisdictional investor-owned utilities under open access tariffs. In addition, on December 20, 1999 FERC adopted rules to establish Regional Transmission Organizations ("RTOs"). The rules contemplate RTOs as voluntary participation associations of power-transmission-owning entities, comprising public and non-public utility entities, that would more efficiently address operational and reliability issues confronting the industry in particular by improving grid reliability, increasing efficiencies in transmission grid management, preventing discriminatory practices and improving market performance. Although FERC Rules do not directly regulate municipally-owned and other non-FERC-regulated utilities such as LP&L, FERC Rules have a significant impact on such utilities' operations. FERC Rules have significantly changed the competitive climate in which the non-FERC regulated utilities operate, giving their customers much greater access to alternative sources of electric transmission services. The rules require them to provide open access transmission service conforming to the requirements for investor-owned utilities whenever they are properly requested to do so under the Energy Policy Act or as a condition of taking transmission service from an investor owned utility. In certain circumstances, the non-FERC-regulated utilities are required to pay compensation to their present suppliers of wholesale power and energy for stranded costs that may arise when the non-FERC-regulated utilities exercise their option to switch to an alternative supplier of electricity. Proposed Federal Legislation. During several past sessions of the United States Congress, numerous bills have been introduced that have included electric industry restructuring elements of various types. In the current session of Congress, energy bills passed by the House and under development in the Senate include titles incorporating such restructuring elements. Topics that could become part of any final legislation include authorization of multi-state Regional Energy Services Commissions that may exercise jurisdiction over wholesale electric market design and transmission infrastructure; FERC authority to issue transmission development certificates including the power of eminent domain in areas designated by the Secretary of Energy as "congestion zones"; FERC certification and oversight of a FERC-approved electric reliability organization for the interstate grid; authorization of FERC requirements for transmission open access applicable to unregulated utilities in interstate commerce; authorization of FERC establishment of performance-and incentive-based rate treatments; FERC authority to establish an electronic information system relating to wholesale electric energy price and availability; prohibitions of certain market practices including false infonnation and round-trip trading and related expansion of FERC enforcement authority; repeal of the Public Utility Holding Company Act of 1935; repeal of the co-generation purchase and sale requirements; requirements for utilities to consider adoption of various electric standards including net metering, real-time pricing and time-of-use metering; and Federal Trade Commission authority to adopt rules providing for certain consumer protections and disclosures. Because of the number and diversity of these issues, the City is not able to preilict the final forms and possible effects of any legislation which ultimately may be produced by Congress. Further, the City is unable to predict the extent, if any, to which any such electric utility restructuring legislation may have a material, adverse effect on the financial operations of LP&L. Emironmental Factors Electric utilities are subject to numerous environmental regulations administered at the federal and State level. Furthermore, over time, such environmental regulations may increase and/or become more stringent. The tightening of such environmental regulation or the introduction of new regulations could result in the need for significant upgrades of environmentaJ controls, reduced operating levels or, in extreme situations, the complete shutdown of individual electric generating units. There is no assurance that the units that LP&L depends on for energy, or any units that LP&L may be construct or participate in the future, 58 - will remain subject to the regulations currently in effect, will always be in compliance with future regulations or will always be able to obtain all required operating permits. Acid Rain Provisions of the 1990 Clean Air Act Amendments. On November 15, 1990, legislation was signed into law that imposed additional requirements under the Federal Clean Air Act (the "FCAA" or the "1990 Amendments"). Among other requirements, the 1990 Amendments seek to address acid rain deposition through the reduction of sulfur dioxide and nitrogen oxide emissions from electric utility power plants, particularly those fueled by coal. The EPA issued a final rule implementing the nitrogen oxide acid rain provisions under Section 407 of the FCAA on March 22, 1994. The rule establishes performance standards for controlling emissions from coal-fired dry bottom and tangentially fired boilers (Group I boilers). Phase I units were required to begin complying with these annual nitrogen oxide emission limits beginning January 1, 1995. In Decem her 1996, the EPA issued a rule implementing the second phase of the nitrogen oxide acid rain program. The rule lowers the nitrogen oxide control standards for Phase II units with Group I boilers and became effective on January I, 2000. However, the final rule issued in March 1994 provides an "early election" option for those Phase II units that are capable of achieving early compliance with the Phase I nitrogen oxide standards. As an incentive for early compliance, the early election program will allow participating units to defer compliance with any more stringent nitrogen oxide Phase II standards until January 1, 2008. The owners and operators of all affected utility units under the acid disposition control program of the FCAA will have to obtain a permit from the EPA or from a state agency with an EPA-approved permitting program to emit sulfur dioxide and nitrogen oxide. The pennit will be applicable for no more than five years. To obtain the permit, owners and operators also will have to submit a compliance plan to the permitting agency. LP&L is not aware of any significant air emission or other environmental compliance issues pertaining to any of the LP&L or WTMPA generating units or, to the best of their knowledge, with other generating units owned by Xcel or other entities that sell significant amounts of energy to LP&L. Ambient Air Quality Standards. The EPA has established national air quality standards for six regulated pollutants: ozone, lead, carbon monoxide, sulfur dioxide, nitrogen dioxide, and particulate matter. When a pollutant concentration in an area exceeds a standard, the area is classified as "nonattainment" for that pollutant. A nonattainment designation then triggers a process by which the affected state must develop and implement a plan to improve air quality and "attain" compliance with the appropriate standard. This so-called State Implementation Plan or "SIP" entails enforceable control measures and time frames. Of these six pollutants, large urban areas have had the greatest difficulty achieving the ozone standard. This challenge was compounded in July of 1997, when the EPA adopted a revised and more stringent ozone standard. The tighter standard is often referred to as the 8-hour standard because it is based on an 8-hour average and is intended to protect public health against longer exposure. The existing standard is based on a I -hour average. Under the existing I-hour standard, there are currently four areas in the State classified as nonattainment: Houston/Galveston, Beaumont/Port Arthur, Dallas/Fort Worth, and El Paso. The City is not within a nonattainment area. The existing ]-hour standard will remain in effect for these nonattainment regions until such time as they have attained compliance, then the 8-hour standard will come into effect. The remaining areas of the State were to have been reclassified under the new standard in July of 2000, based on 8-hour data from 1997, 1998 and 1999. However, the standard was challenged and in May of 1999, the Federal District of Columbia Circuit Court of Appeals remanded the standard to EPA. In response to an EPA petition, the Supreme Court agreed to hear the case and on November 7, 2000 oral arguments were presented. In a February 27, 2001 decision by the Supreme Court, EP A's implementation policy was found to be unlawful, and the matter was remanded to the Court of Appeals. EPA will be required to develop a reasonable interpretation of the nonattainment implementation provisions in so far as they apply to the revised ozone standards. Clean Air Act Reforms. Given the piecemeal, uncoordinated and uncertain approach to air regulations, many have called for an integrated "multi-pollutant control" approach to the FCAA. In fact, the National Energy Policy Report recommended that EPA work with the U.S. Congress to propose legislation that would establish a flexible market-based program to reduce and cap emissions of sulfur dioxide, nitrogen oxides and mercury. To this end, in February 2002, the Bush Administration announced its multi-pollutant proposal, dubbed the Clear Skies Initiative ("Clear Skies"). Under Clear Skies, a market based cap and trade approach, modeled after the acid rain program, would result in significant reductions of sulfur dioxide, nitrogen oxide and mercury emissions in two phases culminating in 2018. In late July of 2002, the legislative version of the Bush proposal was introduced in both the U.S. House and Senate. The initiatives were not enacted during the I 07th Congress, but it is expected that the debate will begin in earnest during the current session of the U.S. Congress. Clear Sldes is expected to provide one avenue into the debate, while others will be calling for much more stringent reductions and time frames and may also call for the inclusion of carbon dioxide in an effort to address the threat of a changing world climate. Mercury Emission Regulation. The EPA made the regulatory determination in December 2000 to regulate mercury emissions from coal fired power plants. EPA is scheduled to finalize rules by December 2004 and appropriate controls are expected to be required in the 2008 time frame. 59 SYSTEM FINANCIAL INFORMATION TABLE 23 -ELECTRIC LIGHT AND PO'WER SYSTEM REVENUE BOND DEBT SERVICE REQUIREMENTS Fiscal Year Ended Outstanding Revenue Debtv' 9/30 PrinciEal Interest Total 2003 $ 3,535,000 (2) $ 1,900,354 $ 5,435,354 2004 3,480,000 1,471,553 4,951,553 2005 2,965,000 1,311,703 4,276,703 2006 2,930,000 1,169,673 4,099,673 2007 2,900,000 1,034,538 3,934,538 2008 2,530,000 899,060 3,429,060 2009 1,720,000 781,655 2,501,655 2010 1,715,000 700,945 2,415,945 2011 1,705,000 624,848 2,329,848 2012 1,360,000 547,595 1,907,595 2013 1,360,000 484,450 1,844,450 2014 1,360,000 420,290 1,780,290 2015 1,360,000 355,000 1,715,000 2016 1,360,000 288,810 1,648,810 2017 1,360,000 224,700 1,584,700 2018 1,360,000 159,460 1,519,460 2019 900,000 94,220 994,220 2020 460,000 48,300 508,300 2021 460,000 24,150 484,150 $ 34,820,000 $ 12,541,302 $ 47,361,302 (1) Excludes the Refunded Bonds. (2) Principal paid 4-15-03. TABLE 24 -CONDENSED STATEMENT OF OPERATIONS Fiscal Year Ended September 30, 2002 2001 2000 1999 1998 REVENlJES Operating Revenues Charges for Services $ 97,424,993 $ 112,077,148 $ 72,932,146 $ 62,799,108 $ 67,268,904 Non-Operating Income (1,208,800) 734,153 1,387,772 1,461,316 3,634,740 Gross Revenues $ 96,216,193 $ 112,811,301 $ 74,319,918 $ 64,260,424 $ 70,903,644 OPERAIING EXEENSE Personnel Services $ 9,392,588 $ 9,071,656 $ 8,772,550 $ 8,164,728 $ 8,765,708 Supplies 497,457 559,017 577,981 556,153 653,657 Maintenance 1,480,493 1,845, I 12 1,467,109 1,596,591 1,622,682 Power Plant Fuel 25,421,640 29,044,147 30,755,798 15,223,111 15,033,643 Purchased Power 37,053,616 50,749,074 18,543,960 20,087,308 24,026,608 Uncollectible Accounts 448,780 975,083 744,126 581,923 671,197 Other Charges 14,006,542 13,356,165 5,239,516 4,722,390 5,007,282 Total Operating Expense $ 88,301,Jl6 $ 105,600,254 $ 66,101,040 $ 50,932,204 $ 55,780,777 Net Revenues * $ 7,915,077 $ 7,211,047 $ 8,218,878 $ 13,328,220 $ 15,122,867 Electric Connections 65,047 62,196 58,431 57,766 56,435 * The statement of operations sho\\'ll above represents amounts legally available for the payment of LP &L debt service, but does not take into account all transfers from LP&L to the City's General Fund. For the year ended September 30, 2002, total transfers to the City from LP&L were approximately $7.8 million, which produced operating income of approximately $0.1 million. Through April 30, 2003, unaudited year to date financial records of LP&L indicate that at such date there was an operating Joss of approximately $10.0 million. Due to expected regulatory approvals for fuel cost recovery increases by Southwestern during the last quarter of the fiscal year, as well as typical seasonal variations in energy and fuel use by LP&L, Management of LP&L is 60 .-. ,,_.,, of the view that the System will meet its 2002-2003 budget target of a revenue neutral year. However, certain of the assumptions used by Management are subject to factors that cannot be controlled by LP&L. TABLE 25 -COVERAGE A.11,1) FuND BALANCES Electric Light and Power System Revenue Bonds Outstanding ........................................................................................... $ 34,820,000 Average Annual Principal and Interest Requirements, 2003/2021 ......................................................................................... $ 2,492,700 Coverage by Net Revenues, Fiscal Year Ended 9-30-02 ..... .................. ...... .............................................................. .......... .... 3 .18 Times Maximum Principal and Interest Requirements, 2003 ............................................................................................................. $ 5,435,354 Coverage by Net Revenues, Fiscal Year Ended 9-30-02 ......................................................................................................... 1.46 Times Interest and Sinking Fund, 9-30-02 .......................................................................................................................................... $ 3,062,400 Reserve Fund, 9-30-02 .............................................................................................................................................................. $ 7,388,230 TABLE 26 -CITY'S EQUITY IN THE ELECTRIC LIGHT AND POWER SYSTEM Property, Plant and Equipment Less; Allowance for depreciation Construction in Progress Net Fixed Asset V aloe Plus: Capital Projects Fund Pennanent Capital Maintenance Fund System Improvement Fund Economic Development Fund Rate Stabilization Advance to other Funds Deferred Charge Net Working Capital Value of the System Net Revenue Bond Debt Revenue Bonds Outstanding Less: Interest & Sinking Fund & Reserve Fund Plus: Accrued Revenue Bond Interest Accrued Vacation and Sick Leave Arbitrage Rebate Liability Net Revenue Bond Debt City's Equity in System Percentage City's Equity in System 2002 $ 186,200,428 (79,596,163) $ 106,604,265 12,946,402 $ 119,550,667 76,071 7,634,067 7 63 22,515 6,015,199 22,587 $ 133,321,176 $ 42,553,065 (4,971,584! $ 37,581,481 $ 748,742 2,010,821 $ 40,341,044 $ 92,980,132 69.74% Fiscal Year Ended S~tember 30, 2001 2000 1999 $ 176,519,319 $ 160,584,889 $ 151,882,533 (72,216,866) (66,409,965l (62,208,533! $ 104,302,453 $ 94,174,924 $ 89,674,000 11,665,510 17,605,921 15,861,780 $ I 15,967,963 $ 111,780,845 $ 105,535,780 282,l 14 1,054,751 4,261,479 2,385,097 20,885,257 26,568,029 41,472 2,366,877 2,490,973 894 34,917 379,338 21,987 21,024 1,887,230 1,086,068 10,516,649 11,717,554 8,964,360 (827,028) (4,036,427) (2,575,852) $ 128,389,148 $ 143,824,798 $ 148,597,405 $ 37,939,842 $ 32,576,048 $ 35,556,586 (4,831,296! (4,622,148) (4,702,123) $ 33,108,546 $ 27,953,900 $ 30,854,463 $ 638,856 $ 720,388 $ 778,446 1,983,444 1,870,424 1,707,276 $ 35,730,846 $ 30,544,712 $ 33,340,185 $ 92,658,302 $ IJ 3,280,086 $ 115,257,220 72.17% 78.76% 77.56% 61 1998 $ 148,272,506 (58,926,396) $ 89,346,110 11,5861811 $ I 00,932,921 5,803,155 6,900,703 815,519 465,938 1,219,258 1,086,06$ 8,669,913 2,250,847 $ 128,144,322 $ 29,566,529 (4,943,420) $ 24,623,109 $ 837,885 1,565,971 $ 27,026,965 S 101,117,357 78.91% TABLE 27 -MONTHLY ELECTRIC RATES Electric rates in the City are set by an ordinance adopted by the City Council and were the same for LP&L and Southwestern except for church, school and municipal rates, and minor variations in billing policies until October, 2001. In November 1999, LP&L started using their own fuel cost recovery factor which was different from the fuel cost recovery factor used by Southwestern. During Fiscal Year Ended 9-30--02, LP&L billed an average of$0.0645 per kWh. Starting in October, 2001, LP&L is simplifying its rate structure to be more compatible with a newly purchased billing system. Residential and General Service Rates (Effective October, 200 I) Approximately 75% of LP&L customers are billed under the rate schedules shown below. Special rate schedules are available for certain customers such as churches, city street lighting, etc. These rates now include the full 3% franchise within the rate structure. The previous version only included 2% with the additional l % being billed separately. Residential Service Availability Charge All kilowatt hours ("kWh") per month@ $0.0404 per kWh used during summer months All kWh per month @ $0.03636 per kWh used during winter months Summer Months: June-September Winter Months: October-May Plus: Fuel Cost Recovery (l) General Service Service Availability Charge: Cost per kWh for all additional kW in excess of I O kW during a summer month Cost per kWh for all additional kW in excess of IO kW during a winter month First 1,000 kWh per month Next 6,000 kWh per month All additional kWh per month Plus: Fuel Cost Recovery OJ $ 4. 70 per month $10.10 per month $8.00 $7.00 0.0515 per kWh* (Summer) 0.0465 perk Wh* (Winter) 0.0253perkWh 0.0101 per kWh Minimum Charge: The Demand Charge. No demand shall be taken as less than 50% of highest demand established in 12 months ending with current month. Large General Service Service Availability: Cost per kWh for all additional kW in excess of200kW Firstl00,000 kWh used per month Next 150,000 kWh used per month All additional kWh used per month Plus: Fuel Cost Recovery <1> $1,815.00 $ 9.00 0.0059 perk Wh 0.0035 perk Wh 0.0034perkWh Minimum Charge: The demand charge. No demand shall be taken as less than 60% of the highest demand established in 12 months ending with the current month. (1) Fuel Cost Recovery: Applications of fuel cost recovery factors are as follows: I. Primary Distribution Fuel/Power Cost Recovery: Factor The Primary Distribution Fuel/Power Cost Recovery Factor shall be billed at a rate of 0.98744 times the Secondary FCA (see Section II below), applied per kilowatt hour and shall apply when service is metered at greater than or equal to 12 kV and less than 69 kV. II. Secondary Distribution Fuel/Power Cost Recovery Factor The Secondary Distribution Fuel/Power Cost Recovery Factor will be determined in accordance with the following formula: The sum of the total fuel costs (inclusive of all costs incurred by LP&L in procuring fuel) used for the month in LP&L's power plants. Plus, the total of all power purchased for the month by LP&L. 62 - Plus/Minus any adjustment for under/over collection of the fuel/power cost recovery factor from previous months (see below). The adjustment for under or over collection of the fuel/power cost recovery factor will be amortized over an eighteen ( 18) month period from the date in which the under or over collection occurred. Subject to the limitations set forth in this paragraph, the City Manager or, if designated by the City Manager, the Director of Electric Utilities, shall determine the adjustment for each given month. However, in no event shall the adjustment be less than 1118th of the total under or over collection. The sum of all these amounts will be divided by the estimated electric sales for the current month to determine the Fuel/Power Cost Recovery Factor, or in summary: Secondary FCA = (Gas Cost+ Purchased Power Cost+/-over/under adjustments)/k:Wh sales. The secondary factors shall be billed per kWh and shall apply when service is metered at Jess than 12 kV. III. Transmission Fuel/Power Cost Recovery Factor The Transmission Fuel/Power Cost Recovery Factor shall be billed at a rate of 0.941347 times the Secondary FCA, applied per kilowatt-hour and shall apply when service is metered at greater than or equal to 69 kV. Representative Customer Usage and Billings Billings Residential Customer Commercial Customer Monthly Usage kWh kW 887 3,961 16 Monthly Billing $84.15 (summer) $51.91 (winter) $329.02 (summer) $251.52 (winter) Customers ofLP&L and the City's water, sewer, solid waste and drainage departments are billed simultaneously on one statement. A 2% discount is given to residential electric customers who pay their bill within 16 days of the date it is mailed to them; an additional 1 % is deducted if payment is by bank draft. A 5% late payment penalty is applied after 22 days. If the bill has not been paid on the next billing date, a statement is mailed showing the past due bill together with the current bill. If the bill remains delinquent 7 days after the date of the second statement, a reminder/cut-off notice is mailed. The cut-off notice specifies that service will be discontinued in 7 days if payment in full is not made. At the end of the 7 day period, a field collector calls on the customer and ifhe is unable to collect payment, service is cut off. Average Billing Plan (Residential Customers Only): Upon request any residential customer, whose average monthly bill is $25.00 or more, may be billed monthly based upon his average bill ( estimated if applicable) plus a portion of any unbilled balance. Customers having delinquent or disputed bills are not eligible for billing under this plan. 63 TAX MATTERS TAX EXEMPTION ... The delivery of each series of Obligations is subject to the opinion of Bond Counsel to the effect that interest on the Certificates or the Bonds, as the case may be, for federal income tax purposes (]) 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 I 03 of the Code and existing regulations, published rulings, and court decisions, and (2) wil1 not be included in computing the alternative minimum taxable income of the owners thereof who are individuals or, except as hereinafter described, corporations. Forms of Bond Counsel's opinions are reproduced in Appendix C. Bond Counsel's opinions are based on the statute regulations, rulings, and court decisions which are subject to change. Interest on all tax-exempt obligations, including the Obligations, owned by a corporation wm 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 (F ASIT). 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 Obligations pertaining to the use, expenditure, and investment of the proceeds of the Obligations and will assume continuing compliance by the City with the provisions of the respective Ordinances subsequent to the issuance of the Obligations. The respective Ordinances contain covenants by the City with respect to, among other matters, the use of the proceeds of the Obligations and the facilities financed therewith by persons other than state or local governmental units, the manner in which the proceeds of the Obligations 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 Obligations to be includable in the gross income of the owners thereof from date of the issuance of the Obligations. 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 Certificates or the Bonds, as the case may be, 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 Certificates or the Bonds, as the case may be, the City may have different or conflicting interests from the Owners. Public awareness of any future audit of the Certificates or the Bonds, as the case may be, could adversely affect the value and liquidity of the Obligations 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 Obligations. Prospective purchasers of the Obligations should be aware that the ownership of tax-exempt obligations such as the Certificates and 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 F ASIT, 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. Prospective purchasers should consult their own tax advisors as to the applicability of these consequences to their particular circumstances. TAX ACC0lTNTING TREATMENT OF DISC0U:-IT AND PREMIUM ON CERTAIN OBLIGATIONS .. ' The initial public offering price of certain Certificates and Bonds (the ''Discount Obligations") may be less than the amount payable on such Obligations at maturity. An amount equal to the difference between the initial public offering price of a Discount Obligation (assuming that a substantial amount of the Certificates or Bonds, as the case may be, of same 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 Obligation. A portion of such original issue discount allocable to the holding period of such Discount Obligation by the initial purchaser will, upon the disposition of such Discount Obligation (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 Obligations described above under "Tax Exemption." Such interest is considered to be accrued actuarially in accordance with the constant interest method over the life of a Discount Obligation, taking into account the semiannual compounding of accrued interest, at the yield to maturity on such Discount Obligation 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 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 F ASIT, and 64 0 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 Obligation by the initial owner prior to maturity, the amount realized by such owner in excess of the basis of such Discount Obligation in the hands of such owner ( adjusted upward by the portion of the original issue discount allocable to the period for which such Discount Obligation was held) is includable in gross income. Owners of Discount Obligations should consult with their own tax advisors with respect to the determination of accrued original issue discount on Discount Obligations for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Discount Obligations. It is possible that, under applicable provisions governing determination of state and local income taxes, accrued interest on Discount Obligations 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 Certificates and Bonds (the "Premium Obligations") may be greater than the amount payable on such Obligations at maturity. An amount equal to the difference between the initial public offering price of a Premium Obligation ( assuming that a substantial amount of the Certificates or Bonds, as the case may be, of the same maturity are sold to the public at such price) and the amount payable at maturity constitutes premium to the initial purchaser of such Premium Obligations. The basis for federal income tax purposes of a Premium Obligation 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 Obligation. The amount of premium which is amortizable each year by an initial purchaser is detennined by using such purchaser's yield to maturity. Purchasers of the Premium Obligations should consult with their own tax advisors with respect to the determination of amortizable bond premium on Premium Obligations for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Premium Obligations. 65 OTHER INFORMATION RATINGS The Obligations are rated "Aaa" by Moody's, "AAA" by S&P and "AAA" by Fitch by virtue of the insurance policies to be issued by MBIA. The presently outstanding tax supported debt of the City is rated "Aa3" by Moody's, "AA-" by S&P and "AA- " by Fitch. The City also has eleven tax supported 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 the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by either or both of such rating companies, if in the judgment of either or both companies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Obligations. LITIGATION The City is involved in various legal proceedings related to alleged personal and property damages, breach of contract and discrimination cases, some of which involve claims against the City that exceed $500,000. State law limits municipal liability for personal injury at $250,000/$500,000 per claim and property damage at $100,000 per claim. However, there is one claim pending against the City, which is in a preliminary stage, that the City Attorney believes could be brought under Section 1983 of the post Civil War Civil Rights Act. If a claim should be made under that law and damages are ultimately assessed against the City, the City would not be subject to limitations on damages. The City is also involved in a lawsuit with the City's firefighters regarding pay issues. The firefighters obtained a $688,000 judgment against the City for damages that have accrued through July 2002. The City has appealed this judgment. Potential damages continue to accrue at a rate of about $120,000-$ I 50,000 per year. This liability is not covered by any insurance policy. The City is also involved in a dispute with the general contractor for a large drainage project that is presently nearing completion in the City. The City anticipates that the contractor will file suit against the City and that the contractor assert damages in excess of $2 million under a breach of contract claim. This liability is also not covered by any insurance policy. The City intends to vigorously defend itself, although no assurance can be given that the City will prevail in all such cases. However, the City Attorney and City management is of the view that its available sources for payment of any such claims, which include insurance policies and City reserves for self insured claims, are adequate to pay any presently foreseeable damages (see "Financial Policies -Insurance and Risk Management"). On the date of delivery of the Obligations to the Underwriters, the City will execute and deliver to the Underwriters a certificate to the effect that, except as disclosed herein, no litigation of any nature has been filed or is pending, as of that date, to restrain or enjoin the issuance or delivery of the Obligations or which would affect the provisions made for their payment or security or in any manner question the validity of the Obligations. REGISTRATION AND QUALIFICATION OF OBLIGATIONS FOR SALE The sale of the Obligations 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 Obligations have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Obligations been qualified under the securities acts of any jurisdiction. The City assumes no responsibility for qualification of the Obligations under the securities Jaws of any jurisdiction in which the Obligations may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Obligations 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 SECt:RE PuBLJC FUNDS IN TEXAS Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provides that the Obligations 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 Obligations 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 Obligations 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 Obligations 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 Obligations 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 Obligations are legal investments for various institutions in those states. LEGAL MATTERS The delivery of the Obligations is subject to the approval of the Attorney General of Texas to the effect that the Obligations are valid and legally binding obligations of the City payable from sources and in the manner described herein and in the Ordinances, and the approving legal opinion of Bond Counsel, to like effect and to the effect that the interest on the Obligations 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. Forms of Bond Counsel's opinions are 66 - - attached hereto in Appendix C. The legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Obligations is contingent upon the sale and delivery of the Obligations. The legal opinions of Bond Counsel will accompany the Obligations deposited with DTC or will be printed on the definitive Obligations in the event of the discontinuance of the Book-Entry-Only System. Certain legal matters will be passed upon for the Underwriters by McCall, Parkhurst & Horton LLP, Dallas, Texas, Counsel for the Underwriters. The legal fee of such firm is contingent upon the sale and delivery of the Obligations. Bond Counsel was engaged by, and only represents, the City. Except as noted below, Bond Counsel 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 herein except that in its capacity as Bond Counsel, such firm has reviewed the information appearing under in this Official Statement under the captions or subcaptions "Plan of Financing" (exclusive of the information under the subcaption "Sources and Uses of Proceeds", "The Obligations" (exclusive of the information under the subcaptions "Book-Entry Only System" and "Holders' Remedies"), "Tax Matters," "Continuing Disclosure of Information" ( exclusive of the information under the subcaption "Compliance with Prior Undertakings"), "Legal Matters" ( exclusive of the last two sentences of the first paragraph thereof) and "Legal Investments and Eligibility to Se.cure 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 Obligations, such information conforms to the Ordinances. The legal opinions to be delivered concurrently with the delivery of the Obligations express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of 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. CONTINUING DISCLOSURE OF INFORMATION In the respective Ordinances, the City has made the following agreement for the benefit of the holders and beneficial owners of the Obligations. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Obligations. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of spe.cified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the infonnation from the vendors. ANNUAL REPORTS ... The City will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the genera] type included in this Official Statement under Tables numbered 1 through 6 and 8A through 19 and 21 through 27 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 2003. 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 Jaw 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 Obligations, if such event is material to a decision to purchase or sell Obligations: (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 Obligations; (7) modifications to rights of holders of the Obligations; (8) Obligation calls; (9) defeasances; ( I 0) release, substitution, or sale of property se.curing repayment of the Obligations; and (11) rating changes. (Neither the Obligations nor the respective Ordinances make any provision for debt service reserves or liquidity enhancement.) In addition, the City will provide timely notice of any failure by the City to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports." The City will provide each notice described in this paragraph to the SID and to either each NR.MSIR or the Municipal Securities Rulemaking Board ("MSRB"). 67 AVAILABILITY OF INFORMATION FROM NRMSIRS AND SID ... The City has agreed to provide the foregoing infonnation only to NR.tv1SIRs and the SID. The infonnation will be available to holders of Obligations only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. LIMITATIONS AND 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 infonnation 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 Obligations 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 Obligations 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 Obligations 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 Obligations consent to the amendment or (b) any person unaffiliated with the City (such as nationally recognized bor.d counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Obligations. 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 l 5c2-12 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 Obligations in the primary offering of the Obligations. If the City so amends the agreement, it has agreed to include with the next finandal information and operating data provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. COMPLIANCE WITH PRIOR UNDERTAKINGS ... The City became obligated to file annual reports and financial statements with the state information depository ("SID") and each nationally recognized municipal securities information repository ("NRMSIR") in an offering that took place in 1997. All of the City's General Obligation debt reports and financial statements were timely filed with both the SID and each NRMSIR; however, due to an administrative oversight, the City filed its fiscal year end 1999, 2000, and 2001 Electric and Power Revenue debt reports late to the SID and each NRMSIR. The financial information has since been filed, as well as a notice of late filing. The City has implemented procedures to ensure timely filing of all future financial information. FINAi~CIAL ADVISOR First Southwest Company is employed as Financial Advisor to the City in connection with the issuance of the Obligations. The Financial Advisor's fee for services rendered with respect to the sale of the Obligations is contingent upon the issuance and delivery of the Obligations. 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 Obligations, 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. UNDERWRITING The Underwriters have agreed, subject to certain conditions, to purchase the Obligations from the City, and the Underwriters will be obligated to purchase all of the Obligations if any Obligations are purchased. The Underwriters will purchase the respective series of Obligations from the City at the underwriting discounts set forth below: Series Certificates Bonds Underwriters' Discount $ 84,009.26 $ 57,087.06 The Obligations to be offered to the public may be offered and sold to certain dealers (including the Underwriters and other dealers depositing Obligations into investment trusts) at prices lower than the public offering prices of such Obligations, and such public offering prices may be changed, from time to time, by the Underwriters. 68 - FORWARD-LOOKING STATEMENTS DISCLAIMER The statements contained in this Official Statement, and in any other information provided by the City, that are not purely historical, are forward-looking statements, including statements regarding the City's expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Official Statement are based on information available to the City on the date hereof, and the City assumes no obligation to update any such forward-looking statements. The City's actual results could differ materially from those discussed in such forward-looking statements. The forward-looking statements included herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and. possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial, and other governmental authorities and officials. Assumptions related to the foregoing involve judgements with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the City. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement will prove to be accurate. MISCELLANEOUS The financial data and other information contained herein have been obtained from the City's records, audited financial statements and other soui:res 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 respective Ordinances authorizing the issuance of the Obligations will also approve the form and content of this Official Statement, and any addenda, supplement or amendment thereto, and authorize its further use in the reoffering of the Obligations by the Underwriters. ATTEST: REBECCA GARZA City Secretary 69 MARC McDOUGAL Mayor City ofLubbock, Texas Schedule I SCHEDULEOFREFUNDEDBONDS $8,500,000 Electric Light and Power System Revenue Bonds, Serles 2002 Original Interest Ori~inal Dated Date Maturity Rates Amount August 15, 2002 4/15/2004 4.75% $ 685,000 4/15/2005 4.75% 715,000 4/15/2006 4.75% 750,000 4/15/2007 4.75% 785,000 4/15/2008 4.75% 825,000 4/15/2009 4.75% 860,000 4/15/2010 4.75% 905,000 4/15/2011 4.75% 945,000 4/15/2012 4.75% 990,000 ........ 4/15/2013 4.75% 1,040,000 $ 8,500,000 The 2004 2013 maturities will be redeemed prior to original maturity on October 15, 2003 at par. 70 APPENDIXA GENERAL INFORMATION REGARDING THE CI1Y - THIS PAGE INTENTIONALLY LEFT BLAi~K THE CITY LOCATION 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 1920 Census 1930 Census 1940 Census 1950 Census 1960 Census 1970 Census 1980 Census 1990 Census 2000Census 2003 (Estimated) (I) City of Lubbock (Corporate Limits) 1,938 4,051 20,520 31,853 71,747 128,691 149,701 173,979 186,206 199,564 204,737 Metropolitan Statistical Area ("MSA") (Lubbock County) 1970 Census l 79,295 1980Census 211,651 1990 Census 222,636 2000 Census 242,628 (I) Source: City of Lubbock, Texas AGRICUL TIJRE; BUSINESS AND L"vDUSTRY 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 sorghmns with livestock a major additional source of agricultural income. In 2002, approximately 3,300 million bales of cotton were produced in Lubbock and the 25-counties surrounding Lubbock. This was more than the 2.82 million ba1es produced in 2001 and is 111% of the IO-year average of 2.80 million bales. Projections for the 2003 cotton crop are about the same depending on the growing conditions and the weather during the 2003 production season.()) Two major vegetable oil plants located in Lubbock have a combined weekly capacity between 50,000 and 70,000 tons of cottonseed oil 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, structura1 steel fabrication and soft drinks. (1) Source: Plains Cotton Growers, Inc., Lubbock, Texas .. LUBBOCK MSA LABOR FORCE EsrIMATES !l) March 2ooi21 Civilian Labor Force 131,067 Total Employment 126,945 Unemployment 4,122 Percent Unemployment 3.10% (1) Source: Texas Workforce Commission. (2) Subject to revision. 2002 128,507 124,577 3,930 3.10% A-1 Annual Averages 2001 2000 1999 1998 127,176 124,640 123,476 122,692 123,923 121,368 119,914 118,568 3,253 3,272 3,562 4,124 2.60% 2.30% 2.90% 3.40% Estimated non-agricultural wage and salaried jobs in various categories as of March, 2003 were: (I) Manufacturing Construction Transportation & Public Utilities Trade Finance, Insurance and Real Estate Education & Health Services Infonnation Leisure &Hospitality & Other Government Total 5,800 5,000 3,600 20,600 16,400 18,400 5,700 19,400 28,900 123,800 (1) Source: Texas Workforce Commission. MAJOR EMPLOYERS (300 EMPLOYEES OR MORE) Company Texas Tech University Covenant Health System Lubbock Independent School District TIU Health Sciences Center City of Lubbock University Medical Center United Supermarkets Cingular Convergys Corporation Lubbock State School Lubbock Comity Walmart Supercenter Operator Service Company Frenship ISD American State Bank Texas Department of Human Services West TeleServices SBS/Southwestern Bell Lubbock Regional MHMR Center U.S. Postal Service TDCJ -John T. Montford Unit Interim Healthcare of West Texas Town & Country Food Stores, Inc. Texas Department of Transportation Icon Benefit Administrator Caprock Home Health Services, Inc. McLane High Plains NTS Communications, Inc. Wells Fargo Phone Bank Tyco Fire Protection Dillards Department Stores Lubbock Christian University ARAMARK Lubbock-Cooper ISD Sodexho School Services Cox Cable of Lubbock Inc. Lubbock Avalanche Journal TNM&O Coaches Inc. Granite Construction, Inc. USA Relay Telecommunications Boldt, Inc. (McDonalds) ( l) Source: Market Lubbock. (2) Full and part time. Type of Business State University General Medical and Surgical Hospital Public Schools Medical and Allied Health School City Government General Medical and Surgical Hospital Supermarket Wireless Communications Call Center Residential Care-Mental Retardation County Government Discount Retailer Telecommunications/Long Distance/Customer Service Public Schools Bank Social Services Call Center Telephone Communications Social Services Postal Service Psychiatric/Medical Facility Home Health Care Convenience Stores State Highway and Street Maintenance Employee Benefit Plans Home Health Care Wholesale Food Distributor Telecommunications Bank Phone Center Manufacturing-General Industrial Machinery Department Stores University Managed Food Services Public Schools Facilities Management Cable TV Services Newspaper Bus Transportation Highway and Street Construction Telephone and Information Services for Deaf and Hearing Impaired Restaurants Estimated Employees June, 2002'1) 6,526 (2) 5,270 4,233 2,520 2,217 2,141 1,956 1,700 1100 931 918 900 692 629 599 580 560 550 550 544 541 (3) 540 500 486 427 400 400 385 375 350 350 324 320 318 315 315 310 305 301 300 300 (3) See Texas Department of Criminal Justice ("TOCJ") Prison Psychiatric Hospital following for more detailed infonnation. A-2 - - EDUCATION -TEXAS TECH UNIVERSITY Established in Lubbock in 1923, Texas Tech University is the fifth largest State--owned University in Texas and had a Spring, 2003, enrollment of 25,752. Accredited by the Southern Association of Colleges and Schools, the University is a co-educational, State-- supported institution offering a bachelor's degree in 15& 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. Spring, 2003, total employment was 4,062 full time employees with an additional 2,103 part time employees. The medical school had an enrollment of 490 for Spring, 2003, not including residents; there were 76 graduate students. The School of Nursing had a Spring, 2003, enrollment of 444 including the Permian Basin Program, located in Midland/Odessa; there were 112 graduate students. The Allied Health School had a Spring, 2003, enrollment of 628. Source: Texas Tech University. OTIIER EDUCATION INFORMATION The Lubbock Independent School District, with an area of & 7 .S 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, 3& elementary schools and other educational programs. Scholastic Membership History (l) School Year 1998-99 1999-00 2000-01 2001-02 2002-03 Average Daily Attendance 27,946 29,397 27,946 29,397 28,607 (Z) (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 l,&36 for the Spring Semester, 2003. 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, 2003, enrollment of705 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 boardings for 2000 totaled 585,000, for 2001 536,670 and 513,096 for 2002. 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 GOVERNMENT AND MILITARY U> 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 President 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, pennanent, 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 157 jobs with a payroll-to-date of9.9 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 Aslan. 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 ofTexas ... 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. (I) Source: City of Lubbock, Texas. 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 102 clinics and over 700 practicing physicians, surgeons, and dentists. Lubbock's Health Care Sector employs over 17,000 people with a total payroll of $543.3 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 - fl", 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 Yellowhouse Canyon Lakes system of six lakes and 750 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 downtown 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 -Atmos Energy Company. Electric -City of Lubbock (Lubbock Power & Light) and Xcel Energy; and, in a small area, South Plains Electric Co-operative. ECONOMIC INDICES <1i Year 1998 1999 2000 2001 2002 Building Pennits 181,716,532 181,285,089 200,427,650 294,064,200 314,077,929 Water 68,228 68,449 70,1 t I 70,756 72,615 Utility Connections Gas 62,472 63,210 65,000 65,332 67,308 (1) AIi data as of 12-3 I, except where noted; Source: City of Lubbock. Electric (LP&L Only)l2l 56,435 57,411 58,724 59,431 62,713 (2) Electric connections are those of City of Lubbock owned Lubbock Power and Light ("LP&L ") and do not include those of Xcel Energy or South Plains Electric Cooperative. LP&L provides service to approximately 70% of the electric customers in the City. BUILDING PERMITS BY CLASSIFICATION <1l Residential Permits Commercial, Single Family Multi-Family Total Residential Public Total Calendar No. No. No. and Other Building Year Units Value Dwelling Value Dwelling Value Permits Permits Units <2) Units <2l 1998 664 $64,304,918 242 9,186,999 906 $73,491,917 $ $181,716,532 108,224,615 1999 747 80,496,444 222 22,134,000 969 102,630,444 18 I ,285 ,089 78,654,645 2000 819 87,501,009 281 11,548,809 1,100 99,049,818 200,427,650 101,377,832 2001 941 108,589,812 853 37,242,260 1,794 145,936,072 294,064,200 148,128,128 2002 1,281 148,190,769 549 31,700,960 1,830 134,186,200 314,077,929 179,891,729 ( 1) 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 permits. A-5 ,-~ THIS PAGE INTENTIONALLY LEFT BLANK ✓- APPENDIXB EXCERPTS FROM THE CITY OF LUBBOCK. TEXAS ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2002 The information contained in this Appendix consists of excerpts from the City of Lubbock, Texas Annual Financial Report for the Year Ended September 30, 2002, 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 lNTENTIONALL Y LEFT ,BLANK Robinson Burdette Martin Seright & Burrows,L.L.P. a professional services firm of certified public accountants 1500 Broadway Suite 1300 Lubbock, Texas 79401-3107 Independent Auditors' Report The Honorable Mayor Marc McDougal and Members of City Council The City of Lubbock, Texas telel?.hone (806) 744-3333 fax (806) 747-2106 www.rbmsb.com We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Lubbock, Texas ("the City'') as of and for the year ended September 30, 2002, which collectively comprise the City's basic financial statements ("BFS") as listed in the table of contents. These BFS are the responsibility of the City's management. Our responsibility is to express an opinion on these BFS 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 the City, 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 BFS referred to above, present failiy, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each maJor fund, and the aggregate remaining fund information of the City, as of September 30, 2002, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 3 (L) to the BFS, an adjustment has been reflected in beginning..-of-year net assets to restate the amount previously reported. As described in Note 1(8), the City has implemented new Government Accounting Standards, as required by the provisions of the Governmental Accounting Standards Board ("GASB") Statement No. 34, Basic Financial statements -and Management's Discussion and Analysis -for state and Local Governments, GASB Statement No. 37 -Basic Financial statements and Management's Discussion and Analysis -For State and Local Governments -Omnibus, GASB Statement No. 38 -Certain Financial statements Note Disclosures, and GASB Interpretation No. 6 -Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements, during the year ended September 30, 2002. In accordance with GAS, we have also issued our report dated April 4, 2003 on our consideration of the City'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. The Management's Discussion and Analysis ("MD&A") on pages 17 through 31 is not a required part of the BFS but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was performed for the purpose of forming an opinion on the City's BFS taken as a whole. The information identified in the table of contents as combining and individual fund financial statements and schedules are presented in the City's Comprehensive Annual Financial Report ("CAFR") for purposes of additional analysis and are not a required part of the BFS of the City. Such information has been subjected to the auditing procedures applied in the audit of the City's BFS and, in our opinion, is fairly stated, in all material respects, in relation to the City's BFS taken as a whole. 'ihe 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 the City's BFS and we express no opinion on that information. April 4, 2003 Lubbock, Texas ,tJ//J~/l dtrtk/-le /!&r//r, .Jer,j/rf J' &f-/r~,-/d~ ,L..L./! r Government-Wide Financial Statements - Intentionally Left Blank CITY OF LUBBOCK, TEXAS STATEMENT OF NET ASSETS SEPTEMBER 30, 2002 Prima!'.X Government Nonmajor -Governmental Business-Type Component Activities Activities Total Units ASSETS Pooled cash and cash equivalents $ 26,743,647 $ 5,195,142 $ 31,938,789 $ 1,159,122 Investments 24,683,873 4,792,956 29.476,829 2,774,327 Receivables, net 13,153,308 30,130,880 43,284,188 673,123 Secured receivables 5,880,761 5,880,761 Internal balances (3,297,244) 3,297,244 Due from other governments 276,141 276,141 Due from others 1,792,630 33,722 1,826,352 Advances to others 10,000,000 10,000,000 Inventories 145,800 1,561,371 1,707,171 478,110 ,.. Investment ln property 236,363 236,363 Prepaid expenses 706 706 157,741 Restricted assets: Cash and cash equivalents 2,363,405 39,218,017 41,581.422 199,642 Incentives advances 3,870,242 Investments 8,752,942 55,212,068 63,965,010 6,356,540 Capital assets: Non-depreciable 42,619,874 128, 198,098 170,817,972 1,387,266 Depreciable 74,665,045 416,790,761 491,455,806 12,834,616 Deferred charges 6,015,199 6,015,199 60,435 Other assets 19,747,588 19,747,588 96,501 Total assets 208,017,251 710,193,046 918,210,297 30,047,665 LIABILITIES Accounts payable 5,894,367 13,283,037 19,177,404 1,240,260 Due to others 890,772 890,772 Due to other governments 739,075 Accrued expenses 4,562,550 2,517,093 7,079,643 377,532 Accrued interest payable 243,929 1,930,158 2,174,087 Deferred revenue 3,824,499 18,221 3,842,720 10,210,742 Noncurrent fiabilities: Due within one year: Bonds payable 4,347,143 13,095,358 17,442,501 Compensated absences 4,811,594 1,790,057 6,601,651 Contracts payable 2,144,192 Due in more than one year: Bonds payable 54,158.203 237,227,478 291,385,681 Compensated absences 7,506,402 1,962,340 9,468,742 Rebatable arbitrage 282,876 282,876 Accrued Insurance claims 4,500,000 4,500,000 23,223 Landfill closure and postclosure care 2,552,923 2,552,923 Contracts payable 1,787,180 1,787,180 2,099,935 Customer deposits 5,650 5,650 70,000 -Total Liabilities 86,522,335 280,669,495 367,191,830 16,904,959 NET ASSETS Invested in capital assets. net of related debt 78,256,348 332,049,641 410,305,989 14,221,882 Restricted for: Capital projects 34,225,008 56,424,049 90,649,057 100,000 ,._ Debt service 1,453,117 3,062,400 4,515,517 Other purposes 1,255,041 1,255,041 303,201 Unrestricted ( deficit} 6,305,402 37,987,461 44,292,863 (1,482,377) Total net assets $ 121,494,916 $ 429,523,551 $ 551,018,467 $ 13,142,706 The accompanying Notes to Basic Financial Statements are an integral part of these statements. 37 FUNCTIONSfPROGRAMS Primary Government: Governmental Activities: Communications/Legislation Community Services Development Services Electric Financial Services Fire General Government Human Resources Management Services Police Strategic Planning Non-departmental Public works Interest on Long-Tenn Debt Total governmental activities Business-Type Activities: Eleclric Water Sewer Solid Waste Airport Golf Stormwater Total business-type activities Total primary government Component units: Nonmajor component units CITY OF LUBBOCK, TEXAS STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2002 Proli!ram Revenues Operating Capital Charges for Grants and Grants and Exeenses Services Contributions Contributions $ 1,037,720 $ $ $ 19,876,147 3,104,443 4,403,861 4,154,810 2,584,532 1,584,348 19,178,048 22,282,578 3,157,038 1,712,378 883,198 1,569,412 29,715,174 3,107,304 606,669 1,931,647 1,497,485 4,322,357 283,907 3,381,762 113,979,218 91368,785 7,006,815 89,803,676 97,424,993 26,760,680 32,727,207 17,766,514 18,492,113 14,105,518 16,375,461 7,024,286 4,601,675 61,192 3,749,298 5,997.284 159,27\184 175,618,733 $ 273,250,382 $ 184,987,518 $ 7,006,815 $ $ 15,031,203 $ 3,482,501 $ 11,961,322 $ 943,557 General revenues: Taxes: Property Sales Occupancy Other Franchise fees Grants and contributions not restricted to specific programs Unrestricted investment earnings Miscellaneous Special Items: Gain or 0oss) on safe of property Transfers, net Tota! general revenues, special items and transfers Change in net assets Net assets -beginning of year Net assets -end of year The accompanying Notes to Basic Financial Statements are an integral part of these statements. 38 .- Net (Expense) Revenue and ChanQeS In Net Assets Prima!1 Government Nonmajor Governmental Business-Type Component Activities Activities Total Units -$ (1,037,720) $ $ (1,037,720) $ (12,367,843) (12,367,843) (4,154,810) (4,154,810) (2,584,532) (2,584,532) (1,564,348) (1,564,348) (19,178,048) {19,178,048) (17,413,162) (17,413,162) (883,198) (883,198) (1,569,412) (1,569,412) (26,001,201) (26,001,201) (1,931,647) (1,931,647) (1,497,485} (1,497,485) (4,038,450) (4,038,450) (3,381, 7621 (3,381,762} (97,603,618) (97,603,618} 7,621,317 7,621,317 5,966,527 5,966,527 725,599 725,599 2,269,943 2,269,943 (2,422,611} (2,422,611) (61,192) (61,192) 2,247,986 2,2471986 16,3471569 16,347.569 (97,603,618) 16,347,569 (81,256,049) 1,356,177 40,408,067 40,408,067 28,902,648 28,902,648 ,.. 2,860,785 2,860,785 820,507 820,507 6,998,085 6,998,085 (25,027) 3,881,473 3,856,446 2,027,513 3,303,341 5,330,854 6,575 4,200,103 2,694,661 6,894,764 (2,151) (687,016} 34,176 (652,840) (41,663) 15,667,795 (15,667,795) -101, 173,460 {5,754,144) 95,419,316 @7,239) 3,569,842 10,593,425 14,163.267 1,318,938 f 17,925,074 418,930,126 536,855,200 11,823,768 $ 121,494,916 $ 429,523,551 $ 551,018,467 $ 13,142,706 39 Intentionally Left Blank -. - Fund Financial Statements Intentionally Left Blank - General Fund The 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. Other Governmental Funds The Other Governmental Funds include the total Special Revenue Funds, Debt Service Fund and Capital Project Funds. 43 CITY OF LUBBOCK, TEXAS BALANCE SHEET • GOVERNMENTAL FUNDS SEPTEMBER 30, 2002 ~ Other Total General Governmental Governmental Fund Funds Funds ASSETS -- Pooled cash and cash equivalents $ 1,977,704 $ 23,814,838 $ 25,792,542 Investments 1,825,572 21,980,359 23,805,931 Taxes receivable 6,318,978 584,422 6,903,400 Accounts receivable 5,973,377 2,075 5,975,452 Interest receivable 93,904 83,794 177,698 Secured receivables 5,880,761 5,880,761 Due from other funds 7,485,865 7,485,865 Due from other governments 13,637 262,504 276,141 Due from others 669,130 1,121,539 1,790,669 Investment in property 236,363 236,363 Prepaid items 706 706 Advances to other funds 1,254,335 1,254,335 Advances to others 10,000,000 10,000,000 Inventory 125,771 125,771 Total assets $ 25,738,979 $ 63,966,655 $ 89,705,634 ,_ LIABILITIES Accounts payable $ 2,358,620 $ 2,951,947 $ 5,310,567 Due to others 890,772 890,772 Due to other funds 2,516,760 2,516,760 Due to other governments Accrued liabilities 1,806,126 40,225 1,846,351 Advances from other funds 8,294,430 8,294,430 Deferred revenue 2,071,104 3,330,669 5,401,773 Total liabilities 7,126,622 17,134,031 24,260,653 FUND BALANCES Reserved for: Prepaid items 706 706 Advances to other funds 1,254,335 1,254,335 Debt service fund 1,697,046 1,697,046 Capital projects funds 34,225,008 34,225,008 Special revenue funds-grants 6,117,124 6,117,124 Unreserved. reported in: General fund 17,357,316 17,357,316 Special revenue funds 4,793,446 4,793,446 Total fund balances 18,612,357 46,832,624 65,444,981 Total liabilities and fund balances $ 25,738,979 $ 63,966,655 $ 89,705,634 The accompanying Notes to Basic Financial Statements are an integral part of these statements. 44 - - CITY OF LUBBOCK, TEXAS RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET ASSETS SEPTEMBER 30, 2002 Amounts reported for governmental activities in the statement of net assets are different because: Total fund balance -governmental funds Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. Internal service funds (!SF) are used by management to charge the costs of certain activities, such as insurance and telecommunications, to individual funds. The assets and liabilities of the ISF primarily serving governmental funds are included in governmental activities in the statement of net assets as follows: Net assets Net book value of fixed assets Compensated absences Amounts due to business-type ISF for amounts overcharged Certain liabilities are not due and payable in the current period and therefore are not reported in the funds. Those liabilities are as follows: General obligation bonds Compensated absences Rebatable arbitrage Accrued interest on general obligation bonds Revenue earned but unavailable in the funds is deferred. Unavailable criteria is not used in the recognition criteria in the Statement of Net Assets Net assets of governmental activities $ 65,444,981 117,284,919 10,668,511 (1,420,804) 226,437 (936,255) (58,505,346) (12,317,996) (282,876) {243,929) 1,577,274 $ ==12=1=,4=9=4==,9=16= The accompanying Notes to Basic Financial Statements are an integral part of these statements. 45 CITY OF LUBBOCK, TEXAS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2002 Other Total General Governmental Governmental Fund Funds Funds REVENUES Taxes and fees $ 66,606,493 $ 12,651,124 $ 79,257,617 ~- Fees and fines 3,069,362 3,069,362 Licenses and permits 1,475,451 1,475,451 Intergovernmental 351,878 6,722,908 7,074,786 Charges for services 4,472,094 283,907 4,756,001 Interest 433,393 896,491 1,329,884 Miscellaneous 1,058,237 3,339,254 4,397,491 Total revenues 77,466,908 23,893,684 101,360,592 EXPENDITURES Current: General government 5,940,744 15,878,838 21,819,582 Communications/Legislation 1,011,648 1,011,648 Community Services 17,329,727 17,329,727 Development Services 4,134,114 4,134,114 Electric 2,168,620 2,168,620 Financial Services 1,614,175 1,614,175 Fire 18,485,419 18,485,419 Human Resources 895,311 895,311 _,,,, Management Services 590,696 590,696 Police 28,905,651 28,905,651 Strategic Planning 1,588,051 1,588,051 Non-departmental 1,497,485 1,497,485 Public works 1,435,296 1,435,296 Debt service: Principal 4,113,177 4,113,177 Interest and other charges 3,390,300 3,390,300 Capital outlay 480,749 12,826,222 13,306,971 Total expenditures 84,642,390 37,643,833 122,286,223 Excess (deficiency) of revenues over (under} expenditures (7,175,482) (13,750,149) (20,925,6311 OTHER FINANCING SOURCES (USES) Long-term debt issued 9,400,000 9,400,000 Refunded bonds issued 7,252,985 7,252,985 Payment to bond refunding escrow agent (7,117,270) (7,117,270) Transfers in 15,023,466 28,685,600 43,709,066 Transfers out (5,951,669) (22,311,437) (28,263,106) Total other financing sources (uses) 9,071,797 15,909,878 24,981,675 Net change in fund balances 1,896,315 2,159,729 4,056,044 Fund balances-beginning of year 16,716,042 44,672,895 61,388,937 Fund balances-end of year $ 18,612,357 $ 46,832,624 $ 65,444,981 The accompanying Notes to Basic Financial Statements are an integral part of these statements. 46 CITY OF LUBBOCK, TEXAS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2002 Amounts reported for governmental activities in the statement of activities are different because: Net change in fund balances -total governmental funds Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays ($13,306,971) exceeded depreciation ($9,223,638) in the current period. Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net assets. Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. This is the amount by which proceeds exceeded repayments. Estimated long-term liabilities for compensated absences are recognized as expenses in the Statement of Activities as earned, but are recognized when current financial resources are used in the governmental funds. This amount is the net change in the estimated long-term liability for compensated absences this year, Estimated long-term liabilities for rebatable arbitrage are recognized as expenses in the Statement of Activities as earned, but are recognized when current financial resources are used in the governmental funds. This amount is the net change in the estimated long-tenn ftability for rebatable arbitrage this year. Property taxes levied, but not available, are not revenues in the governmental funds, but are accrued when earned (net of estimated uncollectibles) in the Statement of Activities. This amount is the net change in deferred property taxes for the year. Internal service funds are used by management to charge the costs of certain activities, such as insurance and telecommunications, to individual funds. The net revenue {expense} of certain internal service funds is reported with governmental activities. Other liabilities are recognized as expenses in the Statement of Activities as earned, but are recognized when current financial resources are used in the governmental funds. This amount is the net change in the other liabilities this year. The net effect of various miscellaneous transactions involving capital assets (i.e., sales and trade•ins} is to decrease net assets. Change in net assets of governmental activities $ 4,056,044 4,083,333 (5,422,538) (188,206) 338,781 732,476 846,050 8,538 (884,636) $ ===3==,5=6=9'=84=2= The accompanying Notes to Basic Financial Statements are an integral part of these statements. 47 CITY OF LUBBOCK, TEXAS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES. BUDGET AND ACTUAL· GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2002 Variance with Final Budget Budaeted Amounts Actual Positive Ori9inal Final Amounts {Ne~ptive) .-~l REVENUES Taxes and fees $ 65,389,509 $ 65,723,946 $ 66,606,493 $ 882,547 Fees and fines 3,280,000 3,180,000 3,069,362 (110,638) Licenses and permits 1,303,515 1,282,540 1,475,451 192,911 Intergovernmental 282,275 331,090 351,878 20,788 Charges for services 4,473,446 4,351,248 4,472,094 120,846 Interest 713,366 497,175 433,393 (63,782) Miscellaneous 990,341 1,013,949 1,058,237 44,288 Total revenues 76,432,452 76,379,948 77,466,908 1,086,960 EXPENDITURES General government 6,132,529 6,349,295 5,940,744 408,551 Communications/legislation 1,053,031 1,027,587 1,011,648 15,939 Community Services 17,680,059 17,608,428 17,329,727 278,701 Development Services 4,975,640 4,685,027 4,134,114 550,913 Electric 2,374,811 2,256,214 2,168,620 87,594 Financial Services 1,618,573 1,634,648 1,614,175 20,473 Fire 19,190,968 18,838,660 18,485,419 353,241 ~- Human Resources 929,298 927,016 895,311 31,705 Management Services 657,483 636,384 590,696 45,688 Police 29,354,474 29,288,219 28,905,651 382,568 Strategic Planning 1,624,612 1,609,302 1,588,051 21,251 Capital Outlay 533,596 561,596 480,749 80,847 Non-departmental 849,200 1,497,485 (648,285} 86,125,074 86,271,576 84,642,390 1,629,186 Excess (deficiency) of revenues over (under) expenditures {9,692,622} {9,891,628} (7,175,482} 2,716,146 .,,..., OTHER FINANCING SOURCES {USES) Transfers in 15,357,009 15,140,577 15,023,466 {117,111) Transfers out (5,664,387} (5,348,949) (5,951,669) (602,720) Total other financing sources (uses) 9,692,622 9,791,628 9,071,797 (719,831) Net change in fund balances (100,000) 1,896,315 1,996,315 Fund balances-beginning of year 16,716,042 16,716,042 16,716,042 Fund balances-end of year $ 16,716,042 $ 16,616,042 $ 18,612,357 $ 1,996,315 ,- The accompanying Notes to Basic Financial Statements are an integral part of these statements. 48 Proprietary Funds The Proprietary Funds are used to account for the operations of the City financed and operated in a manner similar to private business enterprises, where the intent is costing goods or services to the general public on a continuing basis to be recovered in whole or part through user charges. Enterprise Funds Electric Fund-To account for the operations of the City-owned electric system. · Water Fund-To account for the operations of the City's water system. Sewer Fund-To account for the operations of the City's sanitary sewer system. Solid Waste Fund -To account for the operations of the City's landfills and its solid waste collection system. Airport Fund -To account for the operations of Lubbock International Airport. Golf Fund -To account for the operations of Meadowbrook Golf Course. Stormwater Fund-To accollllt for the operations of the stonnwater utility which provides stonnwater drainage for the City. Internal Service Funds All Internal Service Funds that are allocated to Governmental or Business -type activities. 49 CITY OF LUBBOCK, TEXAS STATEMENT OF NET ASSETS· PROPRIETARY FUNDS SEPTEMBER 30, 2002 Business•T)'.ee Activities • Enterprise Funds Solid Electric Water Sewer Waste ASSETS ~ Current assets: Pooled cash and cash equivalents $ 521 $ 1,735,481 $ 2,072,311 $ 547,118 Investments 480 1,601,982 1,912,903 505,032 Receivables, net 20,998,519 3,687,945 2,335,709 1,400,562 Interest receivable 43,372 20,533 21,003 Due from others 33,722 Due from other funds 6,615,810 400,000 4,000,000 Inventories 36 981 87 905 Total current assets 21,036,501 13,806,217 6,741,456 6,473,715 Noncurrent assets: Restricted cash and cash equivalents 7,709,024 10,047,446 3,497,985 3,717,207 .--., Restricted investments 4,978,565 12,916,901 3,229,244 8,837,463 Receivables, net Interest receivable 16,718 45,397 22,370 41,528 Deferred charges 6,015,199 Other assets 19,747,588 Advances to other funds 2,000,000 2,000,000 4,185,666 Capital assets: .-:, ... Land 756,714 1,599,297 12,578,774 1,607,932 Construction in progress 12,946,402 46,905,378 7,644,858 4,483,315 Buildings 7,535,840 21,552,272 23,857,432 1,399,523 Improvements other than buildings 157,532,875 161,522,565 91,950,854 14,766,137 Machinery and equipment 20,374,999 19,314,649 13,946,164 15,681,469 Less accumulated depreciation (79,596,163) {54,294,448) (44,648,324) (9,844,836) Total noncurrent assets 138,270,173 241,357,045 114,079,357 44,875.404 Total assets $ 159,306,674 $ 255,163,262 $ 120,820,813 $ 51,349,119 The accompanying Notes to Basic Financial Statements are an integral part of these statements. 50 -· I""; Business-Tree Activities· Entererise Funds Total Total Enterprise Internal Airport Golf Stormwater Funds Service Funds -, $ 15,914 $ 2,773 $ 88,827 $ 4,462,945 $ 1,683,302 14,689 81,995 4,117,081 1,553,817 675,938 689,510 29,788,183 410 4,596 964 90,468 24,520 33,722 1,961 11,015,810 124 886 11456,514 711,137 2773 861,296 49,633,095 4,720,524 1,444,743 22,899 12,256,296 38,695,600 2,885,822 3,102,324 21,138 11,313,504 44,399,139 19,565,871 65,060 33,503 22,280 181,796 77,201 6,015,199 19,747,588 8,185,666 2,482,327 115,669 19,140,713 65,343 11,591,312 18,690 24,796,515 108,386,470 838,380 33,788,504 9,372 64,580 88,207,523 1,614,935 66,176,657 821,342 7,170,659 499,941,089 223,894 6,553,593 2,326,486 78,197,360 8,555,576 {5415891893} {Z91,633} {Z,381 I 133} (251,146,430} {71615,190} -70,583,070 101 808 50,684,856 65919s1i713 26.2761892 $ 71,294,207 $ 104,581 $ 511546,152 $ 709,584,808 $ 30 997 416 - 51 CITY OF LUBBOCK. TEXAS STATEMENT OF NET ASSETS PROPRIETARY FUNDS SEPTEMBER 30, 2002 Business•T):P8 Activities • Enterprise Funds Solid Electric Water Sewer Waste LIABILITIES Current liabilities: Accounts payable $ 8,507,801 $ 1,060,560 $ 685,321 $ 447,755 Accrued expenses 192,525 284,236 72,711 91,714 Accrued interest payable 748,742 800,800 334,188 33,319 Accrued insurance claims Due to other funds 12,865,810 170,000 395,000 Customer deposits 5,650 Bonds payable 315181159 4!270,701 31998,347 323 151 Total current liabilities 25.833,037 6,586,297 5,485,567 901 589 Noncurrent liabilities: Compensated absences 2,010,821 621,329 272,614 222,450 Deferred revenue Contracts payable 923,532 863,648 Accrued insurance claims Advances from other funds Landfill closure and post closure care 2,552,923 Bonds payable 39,034,906 107,527,937 47,355,042 5,252,493 Total noncurrent liabilities 41,045,727 109,072,798 48,491,304 8,027,866 ,,...~ Total liabilities 66,878,764 115,659,095 53,976,871 8,929,455 NET ASSETS Invested in capital assets, net of related debt 16,059,433 60,643,428 37,747,580 19,537,948 Restricted for claims payments Unrestricted 7613681477 78,8601739 29,096,362 22,881,716 Total net assets $ 92,427,910 $ 139,504,167 $ 66,843,942 $ 42,419,664 The accompanying Notes to Basic Financial Statements are an integral part of these statements. 52 $ - $ Airport 570,992 61,940 13,109 250,000 435,000 1,331,041 216,373 18,221 1,145,571 4175,000 5,555,165 6,886,206 65,877,175 {1,469,174) $ 64.4os,001 $ Business-Type Activities -Enterprise Funds Golf 2,014,105 2,014,105 2,0141105 41,931 (1,951,455} $ (1,909,524) $ Stormwater 1,336,588 236,660 5501000 2,123,248 61,226 33,8821100 33,943,326 361066,574 24,036,026 (8,556,448) $ 15,479,578 $ 53 Total Enterprise Funds 12,609,017 939,786 1,930,158 15,694,915 5,650 13,095,358 44,274,884 3,404,813 18,221 1,787,180 1,145,571 2,552,923 237,227,478 246,136,186 290,411,070 $ Total Internal Service Funds 1,257,820 107,581 4,185,925 290,000 5,841,326 574,021 4,500,000 51074,021 10,915,347 223,943,521 3,682,938 10,811,840 195,230,217 5,587,291 419,173,738 $ -===--20=,0=8=2'=06=9= Intentionally Left Blank - - CITY OF' LUBBOCK, TEXAS RECONCILIATION OF THE STATEMENT OF NET ASSETS OF PROPRIETARY FUNDS TO THE STATEMENT OF NET ASSETS SEPTEMBER 30, 2002 Amounts reported for business-type activities in the statement of net assets are different because: Total net assets -proprietary funds Internal service funds (ISF's) are used by management to charge the costs of certain activities, such as insurance and telecommunications, to individual funds. The assets and liabilities of the ISF's primarily serving enterprise funds are included in business-type activities in the statement of net assets as follows: Net assets of business-type ISF's Amounts due from governmental ISF's for amounts undercharged Net assets of business-type activities $ 419,173,738 9,413,558 936,255 $==4=2=9=,5=23='=55=1= The accompanying Notes to Basic Financial Statements are an integral part of these statements. 55 ,-.,, CITY OF LUBBOCK STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS· PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2002 r, Business-Tz:pe Activities• Entererise Funds Solid Electric Water Sewer Waste OPERATING REVENUES Charges for services $ 97,424,993 $ 32,451,225 $ 17,263,041 $ 16,375.461 New taps and reconnects 275,982 ,-, Effluent water sales 682,253 Commodity sales 546,819 Landing fees Parking Rentals Concessions Miscellaneous Total operating revenues 97.424,993 32,727,207 18,492,113 16,375,461 OPERATING EXPENSES Personal services 9,392,588 4,957,742 3,407,397 3,657,622 Supplies 497,457 889,659 657,194 676,182 Maintenance 1,480,493 1,790,015 1,080,886 1,315,742 Uncollectible accounts 448,780 241,347 90,727 126,697 Purchase of fuel and power 62,475,256 Collection expense 2,094,377 422,685 356,505 Other services and charges 5,708,877 5,354,659 4,421,581 4,520,683 Depreciation and amortization 8,297,665 5,876,409 5,103,633 2,963,644 Total operating expenses 88,301,116 21,204,208 15,184,103 13,617,075 Operating income (loss) 9,123 877 11,522,999 3,308,010 2,758,386 , .... ,"'I NONOPERA TING REVENUES (EXPENSES) Interest 220,608 879,650 252,869 555,357 Passenger facility charges Disposition of properties (7,103) 85,005 (104,749) 47,316 Miscellaneous 439,152 348,994 86,333 86,515 Interest on bonds (1,861,4571 (5,557,334~ {2,535,849} {330,739! Total nonoperaling revenues (expenses) (1,208,800~ (4,243,685} {2,301, 196! 358,449 Income (loss) before contributions and transfers 7,915,077 7,279,314 1,006,814 3,116,835 Capital contributions/(distnoutions) 27,857 (646,410) 2,387,337 47,89B Transfers in (out) (7,785,936} (2,355,078) {2,154,387} {1,988,241} Change in net assets 156,998 4,277,826 1,239,764 1,176,492 ,-, Total net assets • beginning (restated) 92,2701912 135,226,341 65,604178 41,243,172 Total net assets -ending $ 92,427,910 $ 139,504,167 $ 66,843,942 $ 42,419,664 The accompanying Notes to Basic Financial Statements are an integral part of these statements. 56 Business•Tiee Activities -Entererlse Funds Total Total Enterprise Internal Airport Golf Stormwater Funds Service Funds $ $ $ 5,997,284 $ 169,512,004 $ 35,773,135 275,982 682,253 546,819 706,710 706,710 1,206,944 1,206,944 1,665,309 1,665,309 1,022,712 1,022,712 258,549 4,601,675 5,997,284 175,618,733 36,031,684 1,365,693 760,344 23,541,386 6,955,024 134,827 (91,994} 2,763,325 6,670,537 381,393 135,008 6,183,537 1,787,744 -57,161 964,712 ' 62,475,256 360,070 3,233,637 1,939,567 16 63,311 22,008,694 19,138,006 3,163,331 61,176 394,539 25,860,397 1,356,933 6 984,811 61,192 1,678,439 147,030,944 35,908,244 -(2,383, 136) (61,192) 4,318,845 28,587,789 123,440 255,314 791,786 2,955,584 1,045,386 1,342,212 1,342,212 8,392 28,861 (7,242) 498,374 22,459 (3,250) 1,478,577 (113,339) W,89o> {2,079,209} {12,412,278} {A 2,056,402 22,459 {1,290,673) {6,607,044} 924,805 (326,734) (38,733) 3,028,172 21,980,745 1,048,245 4,935,525 542,091 7,294,298 (3,437,852} {653,541) (183) {14,937,366) {508,595! 3,955,250 (38,733} 3,570,080 14,337.677 (2,698,202} 60,452,751 p,870,791) 11,909,498 404,836,061 22,980,271 $ 64.408,001 $ {1,909,524) $ 15,479,578 $ 419,173,738 $ 20,082,069 57 Intentionally Left Blank - CITY OF LUBBOCK, TEXAS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS OF PROPRIETARY FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2002 Amounts reported for business-type activities in the statement of activities are different because: Net change in fund net assets -total enterprise funds Internal service funds (ISF's) are used by management to charge the costs of certain activities such as fleet services, central warehousing activities, management information activities, etc. to individual funds.. The net revenue (expense) of certain ISF's is reported with business-type activities. Change in net assets of business-type activities $ 14,337,6TT (3,744,252) $==1=0=,5=93=,4=2=5= The accompanying Notes to Basic Financial Statements are an integral part of these statements. 59 r-, CITY OF LUBBOCK, TEXAS COMBINING STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2002 Business• T:i'.J!" ActlvHl&S • Ente!Erlse Funds Electric Water Sewer Solid Waste Fund Fund Fund Fund CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 91.417,664 $ 31,ll73,646 $ 17,671,837 $ 16,218,320 Payments lo suppliers and employees (72,661,395) {14,887,876) (9,271,281) (10,519,158) Other receipts (payments) 432,049 433,999 (1B,416l 133,831 Net cash provided by (used for) operating activities 19,188,318 17.419.769 81382,140 5,632,993 ,__ CASH FLOWS FROM NONCAPITAL ANO RELATED FINANCING ACTIVITIES Operating transfers in from other funds 54,000 7,784,608 6,697,294 1,029,180 Operating transfers out lo other funds (7,839,936) (10,139,686) (8,851,681) (3,017,421) Short-term interfund borrowings 1,365,210 1,024,190 (5.000) (4,000,000) Advances to other funds (2,622,013) Payments received (made) on advances (to) from other funds (1,630,509) {2,000,000} Net cash provided by ( used for) noncapltal and related fJflancing activities (6,420,726} {3,161,397l (4,159,387) (8,610,254) CASK FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Payments for gas reserves and other deferred charges {548,014) Purchases of property, plant and equipment {12,620,369) {9,389,081) {4,702,127) (4,145,891) Sale of property, plant and equipment 734,550 78,651 151,515 77,333 Principal paid on revenue bonds (3,985,000) {1,545,000) Interest paid on revenue bonds (1,653,346) {1,892,600) ,-,. Principal paid on general obligation bonds and other debt (6,205,307) 1,299,867 (598,674) Interest paid on general obligation bonds (3,804,878) (2,525,856) {352,625) Issuance of revenue, G.O. and C.O. bonds 8,500,000 7,621,399 Refunds of pro-rala contracts (67,334) (128,906) Deposlls on pro-rata contracts 35,797 74,240 Passenger facUity charges Contributed capital 33,307 !1,008,610) 1,887,914 Ne1 cash provided by (used for) capital and related financing activities {9,538,874} 11s, 176,963l !3,943,353l (5,019,857} ,....,,_ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments 5,577,067 15,554,746 5,542,025 13,181,812 Purchase of Investments (1,932,708) (5,635,770) (1,996,019) (3,626,461) Interest eamings on cash and investments 228,734 862,613 240,128 582,871 Net cash provided by ( used for) in11esling actMties 3,873,093 10,781,589 3,786,134 10,138,222 Net Increase (decrease) In pooled cash and cash equivalents 7,101,811 8,862,998 4,065,534 2,341,104 Pooled cash and casn equivalents at beginning of year 607,734 &919,929 1,504,762 1,923,221 Pooled cash and cash egulllalents at end of year $ 7,709,545 $ 11,782,927 $ 5,570,296 $ 4,264,325 Reconclffatlon of operating Income (loss) to net cash provided by {used for} operating activities: Operating income (loss) $ 9,123,877 $ 11,522,999 $ 3,308,010 $ 2,758,366 ,..---~ Adjustments to reconcile operating Income (loss) to net cash from operating activities: Depreciation, amortization and accretion 8,297,665 6,284,641 5,459,942 2,963,644 Other income (expense) 432,049 433,999 {18,416) 133,831 Recei!)ts from building rent Increase (decrease) In long.term assets/fiablfrties not requiring cash flow 5,076,841 (21,763) (11,659) 25,985 Change in current assets and liabl!Hles: Accounts receivable (6,007,329) (853,561) (820,276) (157,141) Inventory 57,886 9,969 Prepaid expenses Due from olher governments 23,800 Accounts payable 2,057,061 299,018 455,276 71,532 Due from others Other accrued expenses 150,268 (279,333) 9,263 36,156 Customer deposits 600 Net cash provided by (used for) operating activities $ 19,188,318 $ 17.419,769 $ 8,382,140 s 5,832,993 Supplemerrtal cas,h flow Information: Noncash capital Improvements and other manges $ 5,450 $ 485,382 $ 571,815 $ 47,898 The accompanying Notes to Basic Rmmr:lal Statements are an Integral part of these statements. 60 Buslness-Tlee Activities -Entererlse Funds Total Internal Airport Golf Stormwater Service Fund Fund Fund Totals Funds $ 4,223,306 $ $ 5,307,774 $ 166,712,547 $ 36,078,199 (3,517,394) (22,475) 272,792 [110,606,787) (35,134,448) 506,766 22.459 (3,250} 1,507,438 !50,971! 1,212,678 (16) 5,577,316 57,613,198 892,780 374,954 2,414,672 18,354,708 929,229 (1,028,495) (2,414,855) (33,292,074) (1,437,824) 250,000 13 (50,000) (1,415,587) 35,000 1,145,571 (1,476,442) {3,830,509) (627,994! ~,;:, 742,030 13 (50,163) !21,659,904) (1,101,589) {548,014) (10,301,314) (15) (21,150,452) (62,309,249) (1,147,873) 1,042,049 3,963,n7 (5,530,000) (2,395,508) (5,941,456) ~ (430,000) (160,000) (6,094,114) (49,296) 14,567 (6,718,068) 16,121,399 (196,240) 110,037 1,342.212 1,342,212 4,935,525 5,848,136 (3,000,000) -(4,502,673) (15) (23,691,393) (62,873,328) (184,096) 4,506,760 25,379 25,nS,397 70,163,166 9,138,419 (1,209,926) {8,205) (4,423,372) (18,832,461) (8,222,503) 246,627 769,017 2,929,990 1,054,670 3,543,461 17,174 22,121,042 54,260,715 1,970,586 -995,296 17,156 3,956,782 27,340,681 1,577,681 465,361 8,516 8,386,341 15,817,664 2,991,443 $ 1,460,657 $ $ 12,345,123 $ 43,156,545 $ 4,569,124 ,,,,., $ (2,383,136) $ (61,192) $ 4,318,845 $ 28,587,789 $ 123,440 3,163,331 61,176 394,539 26,624,938 1,356,933 506,766 22,459 (3,250) 1,507,438 (133,365) 12,784 2,053 54,763 5,126,220 {568,604) {378,369) (689,510) (8,906,186} 33,243 67,855 491,194 624,314 23,800 321,478 (22,459) 1,275,669 4,457,575 (1,130,094) 82,682 (19,445) 226,260 123,169 53 600 ,,,, $ 1,212,678 $ (16} $ $ 57,613,198 $ $ -$ $ 542,091 $ 1,652,636 $ 437,852 61 CITY OF LUBBOCK, TEXAS STATEMENT OF FIDUCIARY NET ASSETS- FIDUCIARY FUNDS SEPTEMBER 30, 2002 ASSETS Pooled cash and cash equivalents Investments Due fom other funds Total assets LIABILITIES Accounts payable lncentitives payable Due to other governments Total liabilities * Held by Market Lubbock Economic Development Corporation, dba Market Lubbock, Inc., for the purpose of paying incentives on behalf of the City of Lubbock. Living Memorial Agency Fund $ 3,158 $ 2,915 $ 6,073 $ $ 6,073 $ $ 6,073 $ The accompanying Notes to Basic Financial statements are an integral part of these statements. 62 ,--. Nonmajor Component Unit Agency Fund* - 31,670 100,259 131,929 31,469 100,460 131,929 ,... ... " \ "J - CITY OF LUBBOCK, TEXAS STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS· FIDUCIARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2002 Balance 10/1/2001 Additions Deletions Living Memorial Agency Fund Pooled cash and cash equivalents $ 289 $ 21,539 $ 18,670 Investments 1,925 3,218 2,228 Total assets $ 2,214 $ 24,757 $ 20,898 Accounts payable $ 2,214 $ 3,859 $ - Total liabilities $ 2,214 $ 3,859 $ - $ $ $ $ The accompanying Notes to Basic Financial Statements are an integral part of these statements. 63 Balance 9/30/2002 3,158 2,915 6,073 6,073 6,073 CITY OF LUBBOCK Notes to Basic Financial Statements September 30, 2002 I. Summary of Significant Accounting Policies ............................................ 66 A. Reporting Entity .................................................................................. 66 B. Government-wide & Fund Financial Statements-GASB #34 ............ 68 C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation .................................................................... 69 D. Budgetary Accounting ......................................................................... 71 E. Encumbrances ..................................................................................... 71 F. Assets, Liabilities and Fund Balance/Net Assets ................................ 72 G. Risk Management ................................................................................ 73 H. Health Insurance .................................................................................. 74 1 Revenues, Expenses and Expenditures ............................................... 74 II. Stewardship, Compliance and Accountability .................................... ~ ...... 76 A. Net Asset/Fund Balance Deficits ........................................................ 76 ill. Detail Notes on all Activities and Funds ................................................... 77 A. Pooled Cash and Investments .............................................................. 77 B. Interfund Transactions ........................................................................ 79 C. Deferred Charges ................................................................................. 80 D. Capital Assets ...................................................................................... 80 E. Retirement Plans ................................................................................. 83 F. Deferred Compensation ....................................................................... 88 G. Surface Water Supply ......................................................................... 88 H. Other Enterprise Fund Activities ........................................................ 89 64 ,... Note I. J. K. L. CITY OF LUBBOCK Notes to Basic Financial Statements September 30, 2002 Long-Term Debt .................................................................................. 90 Advanced Refunding ........................................................................... 94 Accrued Insurance Claims .................................................................. 94 Landfill Closure and Postclosure Care Cost ....................................... 95 IV. Contingent Liabilities ................................................................................ 9 5 A. Federal Grants ..................................................................................... 95 B. Litigation ............................................................................................. 95 C. Site Remediation ................................................................................. 96 D. West Texas Municipal Power Agency ................................................. 96 65 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE I. SUl\tlMARY OF SIGNIFICANT ACCOUNTING POLICIES The Basic Financial Statements (BFS) of the City of Lubbock, Lubbock County, Texas (City) have been prepared in conformity with Accounting Principles Generally Accepted in the United States of America as applied to government units, including specialized industry practices as specified in the American Institute of Certified Public Accountants audit and accounting guide titled Audits of State and Local Governmental Units (GAAP). 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 related to business-type activities and enterprise funds, including component units, the City has adopted GASB Statement No. 20, Accounting and Financial Reporling for Proprietary Funds and Other Governmental Entities that use Proprietary Fund Accounting. The City applies al] 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 fonn of government. As required by GAAP, the BFS present the reporting entity which consists of the City (the 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 BFS to be misleading or incomplete. BLENDED COMPONENT UNITS 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 govern URA are held by the City Council. DISCRETELY PRESENTED COMPONENT UNITS The Component Unit columns in the Government-Wide Financial Statements include the fmancial 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., Inc. 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. Civic Lubbock, Inc. (Civic), a legally separate entity, was organized lo foster and promote the presentation of wholesome educational and cultural programs, attractions and entertainments for the general moral, intellectual, a physical improvement and welfare of the people of the City of Lubbock and surrounding area. The seven-member board is appointed by the City Council. City Council approves the annual budget for Civic. Civic is reported as a proprietary-type component unit. 66 CITY OF LUBBOC~ TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY (CONTINUED) Market Lubbock Economic Development Corporation dba Market Lubbock, Inc. (Market Lubbock, Ine.), a legally separate entity, 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. 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. 1501 6th Street Lubbock, Texas RELATED ORGANIZATIONS Market Lubbock, Inc 1301 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. The Mayor's designee, the Cash & Debt Manager, three firefighters elected by members of the LFRRF and two at-large members elected by the Board, governs its affairs. It is funded by contributions by the fuefighters and matched by contributions from the City. As provided by enabling legislation, the City's responsibility to the LFRRF is limited to matching monthly contnbutions made by the members. Title to assets is vested in the LFRRF and not in the City. The State Firemen's Pension Commission 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 on 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, Inc. (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. 67 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE I. SUMMARY OF SIGNIFICANT ACCOlJNTING POLICIES A. REPORTING ENTITY {CONTINUED) 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 Agency (WTMPA) 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 WTMP 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 has an ongoing financial interest in WTMP A through the contractual arrangement to purchase generated power and is also considered to have an ongoing financial 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 WTMPA which will benefit the citizens ofLubbock. Financial information for WTMP A can be obtained from the City of Lubbock, P.O. Box 2000, Lubbock, Texas 79401, (Attention Managing Director ofFinancial Services). B. GOVERNMENT-WIDE & FUND FINANCIAL STATEMENTS -GASB # 34 The City has implemented GASB Statement No. 34 -Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments, GASB Statement No. 37 -Basic Financial Statements and Management's Discussion and Analysis -For State and Local Governments -Omnibus, GASB Statement No. 38 -Certain Financial Statements Note Disclosures, and GASB Interpretation No. 6 -Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements. GASB Statement No. 34 represents changes in the financial reporting model. Under the new model, specified by Statement No. 34, the BFS include both Government-Wide and Fund Financial Statements. The Government-Wide Financial Statements (GWFS) (i.e., the Statement of Net Assets and the Statement of Changes in Net Assets) report information on all of the nonfiduciary activities of the City and its blended component units as a whole. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the City is reported separately from certain legally separate component units for which the City is financially accountable. All activities, both governmental and business type, are reported in the GWFS using the economic resources measurement focus and the accrual basis of accounting, which includes long-term assets and receivables as well as long-tenn debt and obligations. The GWFS focus more on the sustainability of the City as an entity and the change in aggregate financial position resulting from the activities of the fiscal period. The Government-Wide Statement of Net Assets reports all financial and capital resources of the City, excluding fiduciary funds. It is displayed in a format of assets less liabilities equals net assen;, with the assets and liabilities shown in order of their relative liquidity. Net assets are required to be displayed in three components: 1) invested in capital assets, net of related debt, 2) restricted and 3) unrestricted. Invested in capital assets, net of related debt is capital assets net of accumulated depreciation and reduced by outstanding balances of any bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Restricted net assets are those with constraints placed on their use by either: I) externally imposed by creditors (such as through debt covenants), grantors, contributors, or Jaws or regulations of other governments, or 2) imposed by law through constitutional provisions or enabling legislation. AU net assets not otherwise classified as restricted, are shovm as unrestricted. Generally, when both restricted and unrestricted resources are available for use, the City will use restricted resources first then unrestricted resources, as they are needed. 68 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES B. GOVERNMENT-WIDE & FUND FINANCIAL STATEMENTS-GASB # 34 {CONTINUED) Reservations or designations of net assets imposed by the City, whether by administrative policy or legislative actions of the City Council, are not shown in the GWFS. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. The general revenues support the net costs of the functions and segments not covered by program revenues. Also part of the BFS are Fund Financial Statements (FFS) for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the GWFS. The focus of the FFS is on major funds, as defined by GASB Statement No. 34. Although the new model sets forth minimum criteria for determination of major funds { a percentage of assets, liabilities, revenue, or expenditures/expenses of fund category and of the governmental and enterprise funds combined), it also gives governments the option of displaying other funds as major funds. The City has elected to add some funds as major funds because of outstanding debt or community focus. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the FFS. Other non-major funds are combined in a single column on the FFS. C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESET A TION The GWFS are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary FFS and fiduciary FFS. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met Because the enterprise funds are combined into a single business-type activities column on the GWFS, certain interfund activities between these funds may be eliminated in the consolidation for the GWFS, but be included in the fund columns in the proprietary FFS. Governmental FFS are reported using the current financial resources measurement focus and the modified accrual basis of accounting. This is the traditional basis of accounting for governmental funds. This presentation is deemed most appropriate to l) demonstrate legal and covenant compliance, 2) demonstrate the sources and uses of liquid resources, and 3) demonstrate how the City's actual revenues and expenditures conform to the annual budget. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 45 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Because the governmental FFS are presented on a different basis of accounting than the GWFS, reconciliation is provided immediately following each fund statement. These reconciliations explain the adjustments necessary to transform the FFS into the governmental activities column of the GWFS. Property taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when the City receives cash. 69 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE I. SUM1\1ARY OF SIGNIFICANT ACCOUNTING POLICIES C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION (CONTINUED) The City uses funds to report its financial position and the results of its operations. Fund accounting segregates funds according to their intended purpose and is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts, which includes assets, liabilities, fund balance/net assets, revenues and expenditures/expenses. Governmental funds are those through which most of the governmental functions of the City are financed. The measurement focus is based upon determination of changes in fmancial position rather than upon net income determination. The City reports one major governmental fund: The General Fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The City reports the following major proprietary funds: The Electric Fund accounts for the activities of Lubbock Power & Light, the City-owned electric production and distribution system. The Water Fund accounts for the activities of the City's water system. The Sewer Fund accounts for the activities of the City's sanitary sewer system. The Solid Waste fund accounts for activities of the City's landfills and solid waste collection system. The Airport Fund accounts for the activities of Lubbock International Airport. The Golf Fund accounts for the activities of Meadowbrook Golf Course. The Stormwater Fund accounts for the activities of the stormwater utility, which provides stormwater drainage for the City. Additionally, the City reports the following fund types: Special revenue funds are used to account for the proceeds of specific revenue sources {other than special assessments or major capital projects) that are legally restricted to ex.penditures for specified purposes. The Debt Service Fnnd is used to account for the accumulation of resources for, and the payment of, general long-term obligation principal and interest. · Capital projects funds are used to account for financial resources to be used for the acquisition or construction of major capital improvements (other than those financed by proprietary funds). Internal service funds are used to account for services provided to other departments, agencies of the departments or to other governments on a cost reimbursement basis (i.e., fleet maintenance, central warehouse, print shop, self-insurance, etc.). As a general rule the effect of interfund activity has been eliminated from the OWFS. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the City's electric, water and sewer functions and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. 70 - - CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION (CONTINUED} Amounts reported as program revenues include I) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the City's enterprise funds and of the City's internal service funds are charges to customers for sales and services. Operating expenses for enterprise funds and internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. D. BUDGETARY ACCOUNTING Annual budgets are adopted on a basis consistent with generally accepted accounting principles for all governmental funds except special revenue funds and project funds, which 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. City Council action is required for the approval of a supplemental appropriation. All budget amounts presented in the accompanying supplementary information reflect the original budget and the amended budget (which have been adjusted for legally authorized revisions of the annual budgets during the year). Budgetary control is maintained by department and by the following categories of expenditures: personnel services, supplies, other charges, and capital outlay. All budget supplements must be approved by the City Council. Management may make administrative transfers and increases or decreases in accounts within categories, as long as expenditures do not exceed budgeted appropriations at the fund level. Each year, in accordance with State law, 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 budget revision process, encumbrances may be re-established. On October I, 2002, the General Fund had no significant amounts of open encumbrances. 71 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE I. SUMMARY OF SIGI\1:FICANT ACCOUNTING POLICIES F. ASSETS, LIABILITIES AND FUND BALANCE/NET ASSETS 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. The City has adopted the provisions of GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments ancl External Investment Pools. As a governmental entity, other than an external investment pool, the City's investments are stated at fair value, except for repurchase agreements with maturities, when purchased, of one year or less. Fair value is based on quoted market prices as of the valuation date. 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 of all 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 l on those assessed values and the taxes are due on receipt of the tax bill. On the following January I, 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 Lubbock Central Appraisal District (District) assesses property values, bills, collects, and remits the property taxes to the City. The City 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, the City 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 bi!Ied 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. 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 net assets have been restricted for these amounts. The excess of other restricted assets over related liabilities are included as restricted net assets for capital projects, rate stabilization, economic development and bond indentures. 72 .~•- CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES F. ASSETS, LIABILITIES AND FUND BALANCE/NET ASSETS (CONTINUED) Fixed Assets and Depreciation -Prior to GASB Statement No. 34, capital assets for governmental funds were recorded in the General Fixed Asset Account Group and not depreciated. The new model requires that all capital assets, whether owned by governmental activities or business-type activities, be recorded and depreciated (unless the modified approach is used) in the GWFS. The City has chosen not to apply the modified approach to any networks or subsystems of infrastructure assets. No long-term assets or depreciation are shown in the governmental FFS. Capital assets, including public domain infrastructure (e.g., streets, bridges, sidewalks and other assets that are immovable and of value only to the City) are defined as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year. Capital assets are recorded at cost or estimated historical cost if purchased or constructed. Donated assets are recorded at the fair value on the date of donation. Major outlays for capital assets and improvements are capitalized as the projects are constructed. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend the asset lives are not capitalized. Major improvements are capitalized and depreciated over the remaining useful lives of the related capital assets. Depreciation is computed using the straight-line method over the estimated useful lives as follows: Improvements Buildings Equipment 10-50 years 15-50 years 3-15 years Interest Capitalization -The City does not capitalize interest cost. Interest capitalization would not be significant to the BFS. 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. G. RISK MANAGEMENT The Risk Management Fund was established to account for liability claims, worker's compensation claims, and premiums for property coverage. The Risk Management Fund generates its revenue through charges to other departments, which are based on costs. 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 prior to April 1999 continue to be the responsibility of the City. The City's self insurance liability program is on a cash flow basis, which means that the servicing contractor processes, adjusts and pays claims from a deposit provided by the City. The City accounts for the liability program by charging premiums based upon losses, administrative fees and reserve requirement:,. In order to control the risks associated with liability claims, the City purchased excess liability coverage in September 1999. The policy has a $10 million annual aggregate limit and is subject to a $250,000 deductible per claim. 73 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES G. RISK MANAGEMENT (CONTINUED) For self-insured coverage, the Risk Management Fund establishes 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. Because actual claim costs depend on such complex factors as inflation, changes in doctrines of legal liability, and damage awards, the process used in computing claim liabilities does not necessarily result in an exact amount, particularly for 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 $250,000 deductible per occurrence, and the boiler coverage insurance deductible is up to $150,000 dependent upon the unit. Premiums are charged to funds based upon estimated premiums for the upcoming year. 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. HEALTH INSURANCE The City provides medical and dental insurance for all full-time employees. Revenues for the health insurance premiums are generated from each cost center based upon the number of active employees. Premium costs are determined by the health insurance vendor based on 3 years of claims history. The City also provides basic term life insurance in the amount of $10,000 and Long Term Disability for all full-time City employees. Revenue for the life insurance premiums is also generated from each cost center based upon the number of active employees. Long Term Disability premiums are a rate per $ l 00 of annual salary. Full-time employees may elect to purchase medical, dental, and life insurance coverage on eligible dependents. Employees also have the option to participate in several voluntary insurance plans such as vision insurance, a cancer income policy, voluntary life, and personal accident insurance. Each of these insurance plans is employee funded. Retiring City of Lubbock employees may elect to retain medical insurance and reduced amounts of life insurance on themselves and eligible dependents at their expense. L 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 Fiduciary 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. 74 CITY OF LUBB<)CK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE I. SUMMARY OF SIGNIFICA.'r'IT ACCOUNTING POLicms I. REVENUES, EXPENSES AND EXPENDITURES {CONTINUED) Sales Tax Revenue for the City results from an allocation of 1.125% of the 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 is required to be remitted to the State by the 20th of the month fotlowing collection. The tax is then paid to the City by the 10th of the next month. On January 21, 1995, voters approved a 1 /8-cent increase in sales tax to reduce the property tax rate which went into effect October l, 1995. The 60-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. In addition, transfers are made between funds to shift resources from a fund legally authorized to receive revenue to a fund authorized to expend the revenue. Compensated Absences consists of vacation leave and sick leave. Vacation leave of 10-20 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 1 ¼ days per month with a maximum accrual 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 GWFS for governmental fund employees and in the FFS for proprietary fund employees. 75 CITY OF LUBBOC~ TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES I. REVENUES, EXPENSES AND EXPENDITURES <CONTINUED) Post Employment Benefits for retirees of the City of Lubbock include the option to purchase health and life insurance benefits at their own ex:pense. 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 $612,000 for fiscal 2002. 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: 2002 Participants Active 1,830 Retired 406 Cobra 18 Active Claims $6,478,468 Retired Claims 2,360,675 Cobra Claims 196,928 Total Claims $9,036,071 % of Employee Groups to total claims Active 71.70% Retired 26.13% Cobra 2.17% Total% 100.00% NOTE II. STEWARDSHIP, COMPLIANCE AND ACCOUNTABJLITY A. NET ASSET/FUND BALANCE DEFICITS The deficit of $371,847 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 project, transfers in from Special Revenue Funds will eliminate the deficit. The deficit of $182,395 in the Library Special Revenue Fund is the result of a riming 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, 2002, which is consistent with the revenue recognition required by the modified accrual basis of accounting. The deficit of $2,406,326 in the Community Development Special Revenue 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, 2002, which is consistent with the revenue recognition required by the modified accrual basis of accounting. The deficit of $7,408 in the Connnunity Services Special Revenue 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, 2002, which is consistent with the revenue recognition required by the modified accrual basis of accounting. 76 ,--,. ,-_,,, - CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE II. STEW ARDSffiP, COMPLIANCE AND ACCOUNTABILITY A. NET ASSET/F1JND BALANCE DEFICITS (CONTINUED) The deficit of $575,088 in the Police Special Revenue 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, 2002, which is consistent with the revenue recognition required by the modified accrual basis of accounting. The deficit of $16,092 in the Other Grants Special Revenue 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, 2002, which is consistent with the revenue recognition required by the modified accrual basis of accounting. The deficit of $18,937 in the Tourism Reserve Special Revenue Fund results from not recovering actual costs thru hotel tax transfers. The transfers were reduced this fiscal year to fund a new special projects fund. Management is evaluating hotel tax transfers in order to recover actual costs and the fund balance deficit. The deficit in the Golf Enterprise Fund of $1,909,524 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 10 year funding source from the General Fund to eliminate the deficit beginning in fiscal 2002. The deficit of $312,186 in the Connnunications Internal Service Fund results from not recovering actual costs thru user charges. Management is evaluating user charges in order to recover actual costs and recover the net asset deficit. The Internal Service Communication Fund will be elimmated from the Internal Service Fund Type and be funded by the General Fund in fiscal 2003. No other funds of the City had deficits in either total fund balances or total net assets. NOTE ID. DETAIL NOTES ON ALL ACTMTIES AND FUNDS 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 l 02% 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, 2002. INVESTMENT CATEGORY OF CREDIT RISK (l) 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. 77 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE ID. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS A. POOLED CASH AND INVESTMENTS {CONTINUED) 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. government 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, 2002: Category Carrying Investments {1} {2} {3} Amount Prim~ Government: U. S. Treasury and Agency Obligations $ 70,423,521 $ $ $ 70,423,521 Mutual Funds 95,547,369 Subtotal 165,970,890 Component Units: U. S. Treasury and Agency Obligations 27,876 27,876 Mutual Funds 9,102,991 Subtotal 9,130:867 Total Investments $ 175,101,757 Cash and Category Bank Carrying Bank De osits C Balance Amount Primary Government $ 2,970,993 $ $ $ 2,970,933 $ 991,160 Component Units 481,526 89,334 584,814 1,155,674 1,358,764 Total $ 3,452,519 $ 89,334 $ 584,814 $ 4,126,607 $ 2,349,924 78 r~ - - CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS A. POOLED CASH AND INVESTMENTS (CONTINUED) Cash and investments are reported in the GWFS as: Cash and Equivalents -Unrestricted Cash and Equivalents -Restricted Total Cash and Equivalents Investments -Unrestricted Investments -Restricted Total Investments Total Cash and Investments B. INTERFUND TRANSACTIONS Total Primary Government $ 31,938,789 41,581,422 73,520,211 29,476,829 63,965,010 93,441,839 $ 166,962,050 Total Component Units $1,159,122 199,642 1,358,764 2,774,327 6,356,540 9,130,867 $ 10,489,631 Total Reporting Entity $ 33,097,911 41,781,064 74,878,975 32,251,156 70,321,550 102,572,706 $ 177,451,681 Interfund receivables and payables consisting of due to/from and advances to/from other funds at September 30, 2002 were as follows: Funds General Fund Special Revenue Funds: Tourism Reserve Hotel/Motel Tax Conununity Improvement Information Technology Improvements Community Development Connnunity Services Library Other Grants Capital Project Funds: Public Safety General Capital Projects Enterprise Funds: Electric Water Sewer Solid Waste Airport Golf Internal Service Funds: Communications Investment Pool Total Primary Government 79 $ lnterfund Receivables 8,740,200 $ 8,615,810 2,400,000 8,185,666 lnterfund Payables 20,000 720,000 6,850,000 80,000 458,939 45,294 173,756 168,771 1,040,095 1,254,335 12,865,810 170,000 395,000 1,395,571 2,014,105 200,000 90,000 $ 27,941,676 $ 27,941,676 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE Ill. DETAIL NOTES ON ALL ACTMTIES AND FUNDS C. DEFERRED CHARGES The total deferred charges of $6,641,639 in the Electric Enterprise Fund, includes $3,611,111 that represents an advertising contract with the United Spirit Arena. The advertising (and amortization) began with the opening of the sports arena in fiscal 2000 and will continue for 30 years. The deferred charges also include an amount ofSl,643,133 at September 30, 2002, 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, 2002 and 2001, 1,317,934 MMBTU had been delivered, and remaining proven reserves at September 30, 2002 and 2001 were 2, l 04,273 MMBTU. The remaining deferred charges of $1,387,395 represent infrastructure, prepaid postage and other economic development costs being amortized over their useful life. D. CAPITAL ASSETS Capital asset activity for the year ended September 30, 2002, was as follows: Primary Government Governmental activities Beginning Ending Balance Increases Decreases Balance Capital Asset, not being depreciated; Land $ 7,413,395 S 300,607 $ 208,479 $ 7,505,523 Construction in Progress 31,120,193 12,485,792 8,491,634 35,114,351 T ot:al capital assets, not being depreciated 38,533,588 12,786,399 8,700,113 42,619 874 Capital assets, being depreciated Buildings 46,096,404 2,971,034 613,549 48,453,889 Improvement.s other than buildings 142,771,017 2,515,967 22,539,670 122,747,314 Madiine,:y and equipment 43,969,569 3,893,833 3,395,670 44,467,732 Total capital assets being deprecfated 232,836,990 9,380 834 26,548,889 215,668,935 Less accumulated depreciation for. Buildings 22,595,926 2,020,085 495,243 24,094,828 Improvemmts other than buildings 105,026,898 3,709,526 22,448,829 86,107,694 Machinery and equipment 28,707,574 4,750,453 2,862,500 30,801,368 Total accumulated depreciation 156,330,398 10480,064 25,806,572 141,003,890 Total capital assets, being depreciated, net 76,506,592 {1,099,2302 74,665,045 Governmental activities capital assets, net $ 115,040,180 $ 11,687,169 $ 117,284,919 80 ""'I CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE ID. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS D. CAPITAL ASSETS (CONTINUED} Business-type activities Beginning Balance Increases Decreases C.apital Asset, not being depreciated: Land $ 13,261,802 S 5,878,911 S --$ Construction in Progress 90,534,491 58,867,054 40,344,160 Total capital assets, not being depreciated 103,796,293 64,745,965 40,344,160 C.apital assets, being depreciated Buildings 84,522,891 5,302,085 55,477 Improvements other than buildings 479,242,515 22,532,817 1,790,250 Machinery and equipment 70,224,311 14,507,749 4,477,228 Total capital assets being depreciated 633,989,717 42,342,651 6,322,955 Less accumulated depreciation for: Buildings 20,688,234 2,229,744 118,565 Improvements other than buildings 176,391,843 20,026,240 1,587,316 Machinery and equipment 29,108,882 10,378,631 3,899,041 Total accunrulated depreciation 226,188,959 32,634,615 5,604,922 Total capital assets, being depreciated, net 407,800,758 9,708,036 718,033 Business-type activities capital assets, net s 511,597,051 $ 74,454,001 $ 41,062,193 $ Ending Balance 19,140,713 109,057,385 128,198,098 89,769,499 499,985,082 80,254,832 670,009,413 22,799,413 194,830,767 35,588,472 253,218,652 416,790,761 544,988,859 Depreciation expense was charged to functions/programs of the primary government as follows: Governmental activities: General government $ 345,637 Financial Services 5,918 Human Resources 5,197 Management Services 1,097,135 C.Ommunications/Legislation 39,664 Fire 877,761 Police 1,047,400 Planning & Transportation 432,600 Development Services n,m Public Works 3,236,420 Community Services 2,970,718 Electric 267,553 Total depreciation expense -governmental activities $ 10,339,776 81 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE III. DETAIL NOTES ON ALL ACTJ'VITIES AND FUNDS D. CAPITAL ASSETS (CONTINUED) Business-type activities: Electric Water Sewer Solid Waste al\irpott Golf Smnnwater Total depreciation expense -business-type activities Construction Commitments 7,586,577 5,410,654 5,129,887 2,972,541 3,194,430 61,777 378,180 $ ====2=4=,7=34 .. ,0=4=6 The government has active construction projects as of September 30, 2002. Public Safety projects include a new Fire Administration Complex. Park projects include the development of a number of new parks. Bond funds provide for several different Lubbock street projects. Street projects include Subdivision Paving and a Curb Ramp Project. Projects in the general facility fund include a new Police Academy Firing Range and a remodeling of our building located at Municipal Square. Electric projects include construction of a new substation that will help provide service reliability to the Lubbock Southwest area. Water projects include Lake Alan Henry recreational improvements. Sewer projects include improvements to the Hancock Land Application Site transmission system. Airport projects include the construction of an extension to the south of the air cargo apron and taxiway system_ The largest active Stormwater project is providing for the construction of an outfall storm sewer from Clapp Park to Yellowhouse Canyon and a series of upstream storm sewers that will provide various protection around four playa lakes. Remaining Projects Seent-to-Date Commitment Public Safety $ 6,083,337 $ 1,297;222 Para. Improverneru:s 3,819,242 4,916,460 Street Improvements 18,332,793 19,534,979 Permanent Street Maintenance 1,326,952 173,048 General Facilities and System Improvements 7,882,885 2,241,005 Electric 6,018,620 683,116 Water 7,340,290 12,840,092 Sewer 4,729,632 5,491,212 Solid Wane 356,135 358,865 Airport 10,236,387 3,486,719 Stonnwater 24,426,399 14,627,757 Total Life-to-Date Activity $ 82 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE ID. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS D. CAPITAL ASSETS {CONTINUED) Discretely presented component units Activity for nonmajor component units for the year ended September 30, 2002, was as follows: Beginning Balance Increases Decreases Capital Asset:, not being depreciated.: rmeArt $ 366,333 $ -s -$ Land 828,828 174,357 174,357 Construction in progress 125,559 310,201 243,655 Total capital assets, not being depreciated 1,320,720 484,558 418,012 Capital assets, being depreciated Buildings 4,159,174 188,260 Improvements other than buildings 1,179,543 144,698 Equipment 17,951,605 605,413 529,986 Leasehold improvements 48,534 Vehicles 55,016 Total capital assets being depreciated 23,393,872 938,371 529,986 Less accumulated depreciation for: Buildings 1,030,220 114,497 Improvements other than buildings 270,912 57,615 Equipment 8,063,268 1,908,513 526,250 Leasehold improvements 3,640 1,213 Vehicles 33,010 11,003 Tobi! accumulated depreciation 9,401,050 2,092,841 526,250 Total capitil assets, being depreciated, net 13,992,822 {1,154,470} 3,736 Component unit capital assets, net $ 15,313,542 l (669,912) $ 421,748 S E. RETIREMENT PLANS Ending Balance 366,333 828,828 192,105 1,387,266 4,347,434 1,324,241 18,027,032 48,534 55,016 23,802,257 1,144,717 328,527 9,445,531 4,853 44,013 10,967,641 12,834,616 14,221,882 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 (TMRS) 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 758 administered by TMRS, an agent multiple-employer public employee retirement system. 83 CITY OF LUBBOCK, TEXAS Notes to Basie Financial Statements September 30, 2002 NOTE ID. DETAIL NOTES ON ALL ACTMTIES AND FUNDS E. RETIREMENT PLANS (CONTINUED) 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%, t 50%, 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 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-fmanced monetary credits with interest were used to purchase an annuity. Members can retire at ages 60 and above with 5 or more years of service or with 25 years of service regardless of age. AI. of January 2002, a member is vested after 5 years. During 2001, legislation was enacted that changed the vesting period from l O years to 5 years. The plan provisions are adopted by the governing body of the City, within the options available in the state staMes 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 nonnal 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 his/her 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 determining 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., the December 31, 2000 valuation is effective for rates beginning January 2002). Actuarial Assumptions The actuarial assumptions for the December 30, 2001 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 of Living adjustments: 84 Unit credit Level percent of payroll 25 years-open period Amortized cost 8% None None None .-- ,- ,,,... - CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS E. RETIREMENT PLANS {CONTINUED) TEXAS MUNICIPAL RETIREMENT SYSTEM REQUIRED SUPPLEMENTAL DISLOSURE THREE-YEAR IDSTORICAL SCHEDULE OF ACTUARIAL LIABILITIES AND FUNDING PROGRESS Unfunded Actuarial Asof Actuarial Accrued December 31 Actuarial Value of Accrued Percentage Liability Assets Liablli!l'. Funded (UAAL} 1999 $ 147,042,049 $ 181,439,657 81.0% $ 34,397,608 2000 160,299,195 200,713,365 79.9% 40,414,170 2001 172,510,622 215,584,035 80.0% 43,073,413 UALLasa¾ Annual Required Asof Annual Covered Of Covered Contribution Contnoution December31 Payroll Pavroll {AR9 Made 1999 $ 51,627,837 66.6% $ 7,794,560 $ 7,794,560 2000 54,589,153 74.0% 8,010,122 8,0I0,122 2001 58,173,019 74.0% 8,398,884 8,398,884 The City of Lubbock is one of 758 municipalities having the benefit plan administered by TMRS. Each of the municipalities has an annual, individual actuarial valuation perfonned. All assumptions for the December 31, 2001 valuations are contained in the 2001 1MRS 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 defined 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 by1he 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 50 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 firefighters who tenninate 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 $3 35 .05 per month for each year of service in excess of 20 years. 85 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE III. DETAIL NOTES ON ALL ACTMTIES AND FUNDS 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 benefit 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 lump 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 ofthe 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 amend 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 amount 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 fmancing arrangement Using the entry age actuarial cost method LFRRF's normal cost contnoution 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 number of years needed to amortize LFRRF's unfunded actuarial liability, if any, is determined using 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 amortizing 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 31, 2000 valuation. The costs of administering the plan are financed from the trust. LFRRF's funding policy requires contnoutions 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) assumes that the City's contributions will average 15% of payroll in the future. The plan of benefits most recently adopted effective December 1, 2001 was adopted cautiously, allowing for future unforeseen contingencies in light of the unsettled investment environment that existed in the fall of 2001 when various plan amendments 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 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. 86 - CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE ill. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS E. RETIREMENT PLANS {CONTINUED) 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 1, 2001 are based on the actuarial valuation as of December 31, 1998. The required contributions for the period beginning January 1, 2001 are based on the actuarial valuation as of December 31, 2000 and reflect the December 1, 2001 plan provisions. The ARC and the APC for the year ended September 30, 2002 was $1,379,564 and the actual City contributions (ARC) made for the year was $2,040,255 resulting in an NPO of $(660,692). 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, and no postretirement cost-cf-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 1, 200 l, the fund's assets exceeded the actuarial accrued liability resulting in a negative unfunded actuarial accrued liability (UAAL). 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. A stand-alone financial report is avatlable by contacting the LFRRF at 762-1590 or 5402 S AV Q Dr., Lubbock, Texas 79412. Fiscal Year Ending 9/30/00 9/30/01 9/30/02 Trend Information Annual Pension Cost Percentage of APC (APC) Contributed $ 1,852,835 100% 1,366,293 143 1,379,564 148 87 Net Pension Obligation $ (594,013) (660,692) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS E. RETIREMENT PLANS (CONTINUED) LUBBOCK FIREMEN'S RELIEF AND RETIREMENT FUND ANAL YIS OF FUNDING PROGRESS Actuarial Actuarial Entry Age Unfunded Funded Annual Valuation Value of Actuarial AAL Ratio (alb) Covered Date Assets (a) Accrued (UAAL) Payroll 5 Liability (b-a) (c) {AAL} (h} 12/31/96 1,2 $ 73,626,537 $ 80,105,898 $ 6,479,361 91.9% $ 9,223,974 12/31/98 1,3 90,364,681 97,533,314 7,168,633 92.7 10,290,190 12/31/00 1,4 119,660,788 I 14,675,049 (4,985,739) 104.3 12,243,913 1 Economic and demographic assumptions were revised. UAALas a Percentage of Covered Payroll ((b-a}/c} 70.2% 69.7 (40.7) 2 Changes in plan benefit provisions were effective December 20, 1995, March 30, 1996 and November 1, 1997. 3 Reflects changes in plan benefit provisions effective November I, 1999. 4 Reflects changes in plan benefit provisions effective December 1, 200 I. 5 The covered payroll is based on estimated annualized salaries used in the valuation. F. DEFERRED COMPENSATION The City offers its employees three deferred compensation plans in accordance with Internal Revenue Code ("!RC") Section 457. The plans, available to all 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 plans' assets are held in trust for the exclusive benefits of the participants and their beneficiaries. The City does not provide administrative services or have any fiduciary responsibilities in regards to the City-sponsored deferred compensation plans. Therefore they are not presented in the BFS. 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, 2002, the Board was comprised of 18 members, two of which represented the City. The City contracted with the CRMWA 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 are recorded as an expense of obtaining surface water. 88 ,,-, CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS G. SURFACE WATER SUPPLY (CONTINUED} Canadian River Municipal Water Authority (Continued) 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 amount 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, 2002, $7,254,528 remains unamortized. The annual principal and interest payments are included in the disclosures for other City related long-tenn 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 Alan 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 $294,325 was paid to the BRA for maintenance and operating costs in fiscal year 2002. 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 III. 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. H. OTHER ENTERPRISE FUND ACTMTIES 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. 89 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 '""'· NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS I. LONG-TERM DEBT GENERAL OBLIGATION BONDS AND CERTIFICATES OF OBLIGATION: Average Final Balance Interest Issue Maturity Amount Outstanding Rate Date Date Issued 9-30-02 7.86% 11-15-85 02-15-03 $ 60,614;070 $ 134,6152 9.01 05-15-91 02-15-ll 1,085,000 41s0,000 5.50 05-15-92 02-15-04 34,520,000 5,175,000 3.97 050-1-93 02-1~-15 14,425,000 9,370,000 5.39 10-01-93 02-15-14 3,625,000 2,185,000 5.39 10-01-93 02-15-14 2,550,000 1,550,000 5.20 10-01-93 02-15-14 1,470,000 900,000 5.14 I 0-01-93 02-15-14 19,215,000 4,815,000 5.50 05-15-95 02-15-15 4,690,000 3,055,000 .-~ 5.07 12-15-95 02-15-16 6,505,000 4,555,000 5.07 12-15-95 02-15-16 10,000,000 7,000,000 4.91 01-15-97 02-15-09 17,530,000 13,500,000 4.61 01-01-98 02-15-08 1,330,000 875,000 4.71 01-01-98 02-15-18 10,260,000 8,220,000 4.36 01-15-99 02-15-14 20,835,000 19,305,000 4.58 01-15-99 02-15-19 15,355,000 13,045,000 .-.., 4.77 04-01-99 02-15-19 6,100,000 5,185,000 4.71 04-01-99 02-15-19 12,300,000 10,540,000 5.37 09-15-99 02-15-20 24,800,000 23,270,000 5.54 03-15-00 02-15-20 7,000,000 6,795,000 4.90 02-01-01 02-15-21 9,100,000 9,035,000 4.81 02-01-01 02-15-21 2,770,000 2,630,000 5.25 06-01-01 02-15-31 35,000,000 34,840,000 4.68 02-15-02 02-15-22 9,400,000 9,400,000 4.71 02-15-02 02-15-22 6,450,000 6,450,000 4.70 02-15-02 02-15-22 1,545,000 1,545,000 4.62 07-01-02 02-15-22 2,605,000 2,605,000 3.18 07-01-02 02-15-10 10!810,000 10,810,000 Total $351,889,070 $217,269,682(A) (A) Excludes net deferred gains and losses on advance refundings, bond issuance costs and discounts of $5,358,388. Additionally, this amount includes $158,764,336 of bonds used to finance enterprise fund activities. ,,...-. 90 CITY OF LOBBOCK/fEXAS Notes to Basic Financial Statements September 30, 2002 NOTE ID. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS I. LONG-TERM DEBT (CONTINUED) ELECTRIC REVENUE BONDS: Interest Rate(%) 3.80 to 5.50 4.25 to 6.25 3.10 to 5.00 4.00 to 5.25 4.75 Total Issue Date 6-15-95 1-01-98 1-15-99 7-01-01 8-15-02 Final Maturity Date 4--15-08 4-15-18 4-15-19 4-15-21 4-15-21 Amount Issued $ 13,560,000 9,170,000 14,975,000 9,200,000 8,500,000 $ 55,405,000 Balance Outstanding 9-30..02 $6,865,000 7,350,000 11,865,000 8,740,000 8,500,000 $43,320,000 • • Balance outstanding includes $(766,935) of discount on bonds sold and bond issuance costs . WATER REVENUE BONDS: Interest Rate 3.80 to 5.50% Issue Date 6-1-95 Final Amount Maturity Date Issued 8-15-21 $58,170,000 Balance Outstanding 9-30-02 $4&,810,000 • • Balance outstanding includes $(5,162,953) discount, bond issuance costs and deferred losses on bonds sold or refunded. 91 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS I. LONG-TERM DEBT (CONTINUED) The annual requirements to amortize all outstanding debt of the City as of September 30, 2002, including interest payments of $148,274,131 are as follows: Fiscal General Year Obligation Revenue Total 2002-03 $ 24,444,812 $ 9,697,562 $ 34,142,374 2003-04 22,431,151 10,288,963 32,720,114 2004-05 21,893,775 9,608,900 31,502,675 2005-06 21,349,489 9,415,283 30,764,772 2006-07 20,828,615 9,251,773 30,080,388 2007-08 19,705,641 8,764,558 28,470,199 2008-09 18,824,861 7,835,585 26,660,446 2009-10 17,892,098 7,753,750 25,645,848 2010-11 17,528,047 7,681,005 25,209,052 2011-12 15,936,793 7,262,645 23,199,438 2012-13 15,587,018 7,216,400 22,803,418 2013-14 15,248,449 6,083,240 21,331,689 2014-15 I 1,976,353 6,039,000 18,015,353 2015-16 ]0,857,714 5,988,960 16,846,674 2016-17 9,910,239 5,945,825 15,856,064 2017-18 9,809,099 5,895,560 15,704,659 2018-19 9,209,221 5,399,020 14,608,241 2019-20 7,487,135 3,469,150 10,956,285 2020-21 4,850,150 3,448,700 8,298,850 2021-22 3,983,535 3,983,535 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 2,321,623 2,321,623 2030-31 2,319,890 2,319,890 Total $320,627,934 $137,045,879 $457,673,813 ,. * 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. 92 r. ~. CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS I. LONG-TERM DEBT (CONTINUED) Long-term debt transactions for governmental and proprietary funds for the year ended September 30, 2002 are as follows: Debt Payable Debt Payable Governmental activities: 9-30-01 Additions Deletions 9-30-02 Tax-Supported Obligation Bonds $ 53,082,808 $ 9,400,000 $ 3,977,462 $ 58,505,346 Rebatable arbitrage 621,657 338,781 282,876 Compensated Absences 12,179,659 195,329 56,992 12,317,996 Total Governmental 65,884,124 9,595,329 4,373,235 71,106,218 Business-type activities: Self-Supported Obligation Bonds 163,893,747 10,768,568 10,539,591 164,122,724 Revenue Bonds 81,575,667 8,500,300 3,875,855 86,200,112 Compensated Absences 3,659,405 149,369 56,377 3,752,397 Total Business-type 249,128,819 19,418,237 14,471,823 254,075,233 Total City-Wide: Obligation Bonds 216,976,555 20,168,568 14,517,053 222,628,070 Revenue Bonds 81,575,667 8,500,300 3,875,855 86,200,112 Rebatable arbitrage 621,657 338,781 282,876 Compensated Absences 15,839,064 344,698 113,369 16,070,393 Total City-Wide $315,012,943 $ 29,013,566 $18,845,058 $ 325,181,451 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 Net gains/losses, discounts, etc. Rebatable arbitrage Compensated absences Total future debt requirements $ 325,181,451 148,274,131 571,500 (282,876) $ 473,455,582 (16,070,393) (15,781,769) $457,673,813 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 2002, the City issued $9,400,000 General Obligation Bonds, Series 2002. This issuance was the third 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, $4,245,000; Streets $4,075,000; and Traffic Control $1,080,000. 93 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS J. ADVANCED REFUNDING In fiscal Jears 1994, 1999 and 2002 the City defeased portions of City of Lubbock General Obligation Bonds. All of che defeased ponions of the following bonds were called and retired during the 2001-2002 fiscal JeaI: Corobioation Tax & Sewer Subordioate Lien Revenue Cenificates of Obligation, Series 1991. Tax &Waterworks System (Limited Pledge) Revenue Certificates of Obligation, Series 1992. General Obligation Refunding Bonds, Series 1993. In fiscal year 1999, the City defeased c:en:ain General Obligation Bonds. A ponion of che 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 trUSt to be used solely to partially refund the portion of che Series 1992 Combioatlon Tax & Sewer Subordioate Lien Revenue Certificates of Obligation payments due February 15, 2006 chrough 2014. Accordingly, che trust account assets and the liability for che defeased bonds are not included in the Gry's BFS. On che September 30, 2002, $15,545,000 of bonds outstanding are considered defeased: In fiscal year 2002, che City def eased c:en:ain General Obligation Bonds. A ponion of che proceeds of the Series 2002 General Obligation Refunding Bonds were used to purchase United States Treasury Securities State and Local Government Series, which were placed in an irrevocable trust to be used solely to partially refund che portion of che Series 1993 General Obligatio11 Bonds due February 15, 2004 chrough 2010, scheduled to be called February 15, 2003 at par. Accordingly, che trust account assets and che liability for the defeased bonds are not included in che Citys BPS. The City advance refunded the 1993 Series bonds to reduce its total debt service payments over che next eight years by approximately $296,000 and to obtain an economic gain (difference between che present values of che debt service payments on the old and new debt) of approximately $350,000. On che September 30, 2002, $6,720,000 of bonds outstanding are considered defeased. K. ACCRUED INSURANCE CLAIMS As discussed in Note LG., che Self-Insurance Funds establish a liability for self-insurance for both. reported and umeporred insured events, which includes estimates of boch future payments of losses and related claim adjustment expenses. 1he following represents changes in those aggregate liabilities for che Insurance Funds during che past two years ended September 30: 2002 2001 Worker's Compensation and Liability Reserves at beginning of fiscal year $ 6,000,000 $ 3,734,340 Claims expenses 3,368,160 5,735,258 Claims payments {31368zl60} (3,4691598} Worker's Compensation and liability reserves at end of fiscal year 6,000,000 6,000,000 Medical and Dental Claims Liability at end of fiscal year "' 2,685!925 3,264,865 Total Self-Insurance Liability at end of fiscal year $ 8,685,925 $ 9,264,865 Total Assets to pay claims at end of fiscal year $ 19,450,532 $ 18,534,516 Accrued insurance claims payable from restricted assets-current $ 4,185,925 $ 4,764,865 Accrued insurance claims-non-current 4,500,000 4,5002000 Total accrued insurance claims $ 8,685,925 $ 9,264,865 * The infonnacion necessary to prepare che separate disclosures for medical and dental claims liabilities is unavailable. 94 ' ,... CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS L. LANDFILL CLOSURE AND POSTCLOSURE CARE COST State and federal la-ws and regulations require the City to place final covers on its landfill sites when they stop accepting waste and to perf onn certain maintenance and monitoring functions at the sites for thlrty years after closure. Although closure and postclosure care costs Vlill be paid only near or after the date that the landfills stop accepting waste, the City reports a portion of these closure and postclosure costs as operating expenses (and recognizing a corresponding liabiliaj in each period based on landfill capacity used as of each balance sheet date. The $2,552,923 included in landfill closure and postclosure care liability at September 30, 2002, represents the cumulative amount expensed by the City to date for its t'\VO landfills that are registered under TCEQ permit numbers 69 (Landfill 69) and 2252 (Landfill 2252), less amounts that have been recognized. Over 90 percent of the estimated capacity of Landfill 69 has been used to date, with $751,182 remaining to be recognized over the remaining closure period, which is estimated at 5 years. Approximately 1.5 percent of the estimated capacity of Landfill 2252 has been used to date, with $22,448,347 remaining to be recognized over the remaining closure period, which is estimated at over 80 years. Postclosure care costs are based on prior estimates and have been adjusted for inflation. Actual costs may be different due to inflation, deflation, changes in technology, or changes in regulations. The City accounts for its Municipal Solid Waste Landfill in accordance with GASB Statement No. 18; howt:Ver, in prior years the amount of closure costs used in the calculation of current cost for Landfill 69 was incorrect resulting in overstatement of the liability for closure and postclosure care costs. In order to properly reflect the estimated total current cost of the landfill's closure and postclosure care, a reduction in the liability of approximately $3,600,000 has been recorded, with a corresponding increase in beginning-of-year net assets. The City is required by state and federal laws and regulations to provide assurance that financial resources will be available to provide for closure, postclosure care, and remediation or containment of environmentil hazards at its landfill. The City is in compliance with these requirements and has chosen the Local Government Financial Test mechanism for providing this assurance. The Gty expects to finance costs through normal operations. NOTE IV. CONTINGENT LIABILITIES A. FEDERAL GRANTS In the normal course of operations, the Gty 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 funds. Any liability for reimbursement which may arise as the result of audits of grams is not believed to be marerial B. LITIGATION The Gty .is involved in lawsuits arising in the normal course of business, including claims for property damage, personal injury and personnel practices, di.,pures over contract awards and propeny condemnation proceedings, suits contesting the legality of certain taxes and public safety practices. In the opinion of management, the ultimate outcome of these lawsuits will not have a materially adverse effect on the Gty's financial position as of September 30, 2002. 95 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE N. CONTINGENT LIABILITIES C. SITE REMEDIATION The Gty has identified specific locations requiring site remediation relative to underground fuel storage tanks and historical fire training sites. The potential exposure is not readily determinable as of September 30, 2002. In the opinion of management, the ultimate liability will not have a materially adverse effect on the Gty's financial position. D. WEST TEXAS MUNICIPAL POWER AGENCY In fJScal 199&, the West Texas Municipal Power Agency (WIMPA) issued $28,910,000 of WI'MPA Revenue Bonds, Series 1998 maturing 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 pov.,er sales contracts are not sufficient to cover the debt service of the bonds, the participating cities are required under a debt service guarantee provision of the agreement, to provide funds sufficient to cover any debt service def1eit to the extent of their respective participation percentages for the preceding 12 months. The Gty's percentage share in this agreement for the coming }'ear approximates 85.21%. Ax September 30, 2002, the Gty had current accounts receivable of approximately $37 million and long-term accounts receivable of $4.0 million from wr:MPA. During the jt!aT ended September 30, 2002, the Gty reported expenses of approximately $37.1 million for power purchased from WI'MP A and approximately $2.1 million in contract: service revenue. At September 30, 2002, the Gty owed WI'MP A approximately $5.4 million for purchased power. 96 - APPENDIXC FORM OF BOND COUNSEL'S OPINION THIS PAGE INTENTIONALLY LEFT BLANK - - FULBRIGHT & JAWORSKI L.L.P. TELEPHONE (214) 855-BOOO A REGISTERED LIMITED LIAS!ILITY PARTNERSHIP 2200 Ross AVENUE, SUITE 2soo DALLAS, TEXAS 7520t-2784 WWW. FULBRIGHT.COM FACSIMILE: (214) B55-B200 WE HAVE ACTED as Bond Counsel in connection with the issuance by City of Lubbock, Texas (the "City") of the "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003" (the "Certificates"), in the aggregate principal amount of $13,270,000, dated August 15, 2003, solely to express legal opinions as to the validity of the Certificates and the exclusion of the interest on the Certificates 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 Certificates, or the sufficiency of the security for or the value or marketability of the Certificates. THE CERTIFICATES are issued in fully registered form only and in denominations of $5,000 or any integral multiple thereof within a maturity. The Certificates mature on April 15 in each of the years 2004 through 2023, unless redeemed in accordance with applicable optional redemption provisions. Interest accrues on the Certificates 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 Certificates (the "Ordinance"), and such accrued interest is payable on April 15 and October 15 in each year, commencing April 15, 2004, to the registered owners appearing on the registration books of the Paying Agent/Registrar on the Record Date (identified in the Certificates). 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 Certificates, including the Ordinance, (ii) certifications and opinions of officers of the City relating to the expected use and investment of proceeds of the sale of the Certificates and certain other funds of the City and to certain other facts within the knowledge and control of the City, and (iii) such other documentation, including an examination of the Certificate executed and 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 Certificates have been duly authorized by the City, and the Certificates issued in compliance with the provisions of the Ordinance are valid, legally binding and enforceable obligations of the City, payable from an ad valorem tax levied, within the limits prescribed by law, upon all taxable property in the City and additionally payable from and secured by a lien on and pledge of the Net Revenues (as defined in the Ordinance) of the City's Electric Light and Power System in the manner and to the extent provided in the Ordinance; 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 the general principles of equity. 2. Assuming continuing compliance after the date hereof by the City with the provisions of the Ordinance and in reliance upon representations and certifications of the AusnN •DALLAS• HONG KoN.G • HousroN • LON.CON • Los ANGELES• M1NN€APOL1s • M UNJCH • NEw YORK .. SAN ANTONIO• WASHINGTON DC Page 2 of Legal Opinion of Fulbright & Jaworski L.L.P. Re: "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003", dated August 15, 2003 City made in a certificate of even date herewith pertaining to the use, expenditure, and investment of the proceeds of the Certificates, interest on the Certificates for federal income tax purposes (a) will be excludable from gross income, as defined in section 61 of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), of the owners thereof pursuant to section 103 of the Code and existing regulations, published rulfngs, and court decisions thereunder, and (b) will not be included in computing the alternative minimum taxable income of individuals or, except as hereinafter described, corporations. Interest on all tax-exempt obligations, such as the Certificates, owned by a corporation will be included in such corporation's adjusted current earnings for purposes of calculating the altemative minimum taxable income of such corporations, other than an S corporation, a qualified mutual fund, a real estate mortgage investment conduit, a real estate investment trust, 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. WE EXPRESS NO 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 Certificates. Ownership of tax-exempt obligations such as the Certificates 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 interest in a FASIT, 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 representation and covenants referenced above. EHE:dfc - - FULBRIGHT & JAWORSKI L.L.P. TELEF'I-I0NE: (214) 855·8000 A REGISTERED LtMITED LIABILITY PARTNERSHIF' 2200 Ross AvENUE, Su1TE: 2800 DALLAS. TEXAS 75201-2784 WWW.FULBRIGHT.COM F'ACS! M !LE:: (z 14) 855·8200 WE HAVE ACTED as Bond Counsel in connection with the issuance by City of Lubbock, Texas (the "City") of the "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003" (the "Bonds"), in the aggregate principal amount of $8,900,000, dated August 15, 2003, solely to express legal opinions as to the validity of 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 infonnation 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 issued in fully registered form only and in denominations of $5,000 or any integral multiple thereof within a maturity. The Bonds mature on April 15 in each of the years 2004 through 2023, unless redeemed in accordance with applicable optional redemption provisions. 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 April 15 and October 15 in each year, commencing April 15, 2004, to the registered owners appearing on the registration books of the Paying Agent/Registrar on the Record Date (identified in 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) 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 (iii) such other documentation, including an examination of the Bond executed and 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 the Bonds issued in compliance with the provisions of the Ordinance are valid, legally binding and enforceable obligations of the City, payable from an ad valorem tax levied, within the limits prescribed by law, upon all taxable property in the City and additionally payable from and secured by a lien on and pledge of the Net Revenues (as defined in the Ordinance) of the City's Electric Light and Power System in the manner and to the extent provided in the Ordinance; 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 the general principles of equity. 2. Assuming continuing compliance after the date hereof by the City with the provisions of the Ordinance and in reliance upon representations and certifications of the AusnN •DALLAS• HoNG KoNG • HOUSTON• LoNDON • Los ANGELES• M1NNEAPOus • MuN,cH • New YORK• SAN ANTONIO• WAst-11fltGTON DC Page 2 of Legal Opinion of Fulbright & Jaworski L.L.P. Re: "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003", dated August 15, 2003 City made in a certificate of even date herewith pertaining to the use, expenditure, and investment of the proceeds of the Bonds, interest on the Bonds for federal income tax purposes (a) wilf be excludable from gross income, as defined in section 61 of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), of the owners thereof pursuant to section 103 of the Code and existing regulations, published rulings, and court decisions thereunder, and (b) will not be included in computing the alternative minimum taxable income of individuals or, except as hereinafter described, corporations. Interest on all tax-exempt obligations, such as the Bonds, owned by a corporation will be included in such corporation's adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporations, other than an S corporation, a qualified mutual fund, a real estate mortgage investment conduit, a real estate investment trust, or a financial asset securitization investment trust (FAS!T). 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. WE EXPRESS NO 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 interest in a FASIT, 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 representation and covenants referenced above. EHE:dfc APPENDIXD SPECIMEN OF BOND INSURANCE POLICY - - THIS PAGE INTENTIONALLY LEFT BLANK - - .AflEIIA FINANCIAL GUARANTY INSURAl~CE POLICY MBIA Insurance Corporation Armonk, New York 10504 Poncy No. [NUMBER) MBIA Insurance Coiporation (the "Insurer'), in consideration of the payment of the premium and subject to the tenns of this policy, hereby unconditionally and inevocably 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 YING AGENT/IRUSTEEJ or its successor (the "Paying Agent'') of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatoty sinking fund payment) and interest on, the Obligations (as that tmn is defined below) as such payirenls 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 ID a mandatoty sinking fund payment, the payments guaranteed hereby shall be made in such am:runts and at such times as such payirents 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 pm:suant to a final judgment by a court of competent jurisdiction that such payment comtitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy Jaw. The am:>llilts referred to in clai.wes (i) and (it) of the preceding sentence shall be referred to herein collectively as the ''Insured Am:Jt.mts." "Obligations" shall mean: [PAR] [LEGAL NAME OF ISSUE] Upon receipt of telephonic or telegraphic notice, such notice subsequently confu:m:ld 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 o\\>ll.ef' of an Obligation the payment of an Jmured Amomit 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 accmmt with U.S. Bank Trust National Association, 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 wifu any appropriate instnnnents of assigmnent to evidence the assignment of the In.sured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for · such ownern of the Obligations in any legal proc~ related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Asoociation shall disburse to such owners, or the Paying Agent payment of the Insured Amounts 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 premium which may at any time be payable wifu respe,et to any Obligation As used herein, the tmn "mvner' 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 tenn owner shall not include the Issuer or any party whose agreement with the Issuer constitutes the underlying security fur 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 York 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 maturity of the Obligatiom. IN WITNESS WHEREOF, the Insurer has caused this policy to be executed in facsimile on its behalf by ils duly,iruthorized o:fficern, this [DAY] day of ., [MONTI-I, YEAR]. r .. · .. ·•::, MBIA Insur•nc~iCorporation ~,,,:,,/> ' P+'::\;~'c,I ii> ~ , J's'.') I'{ . ,/~•,:;.d] ;; ..... :....·, ·>·_"'y;,~--,.4:; . (!~ °'\\~istant Secretary \\ ..... ,o'.:<4'.'i~-:..~; DISCLOSURE OF GUARANTY FUND NONPARTICIPATION: In the event the lnsurer'1i,una)ilp to fulfill its contractual obligation under this policy OT contract OT application OT certificate or evidence of coverage, the policyholder OT certificateholder is not ~cted by an insurance guaranty fund or other solvency protection arrangement. STI).R-TX-o 4195 TIIlS PAGE LEFf BLANK INTENTIONALLY No Text Financial Advisory Services Provided By \ FIRST SOUTHWEST COMPANY INVESTMENT BANKERS -, ,----,, ' I - 9 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. Relative to Tax-Supported Indebtedness. The total principal amount of indebtedness of the City, including the proposed "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003," dated August 15, 2003 (the "Bonds") and the proposed "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003", dated August 15, 2003 (the "Certificates"), payable from ad valorem taxes levied and collected by the City is as follows: 0 UTST AND ING INDEBTEDNESS ----------------------------------- THE BONDS------------------------------------------------------------------ THE CERTIFICATES------------------------------------------ $273,765,000 8,900,000 13,270,000 TOTAL INDEBTEDNESS--------------------------------------$ 295,935,000 2. Relative to Debt Requirement Schedule. A debt service requirement schedule for all outstanding tax debt of the City, including the Bonds and the Certificates, is attached hereto as Exhibit A and made a part of this certificate for all purposes. 3. Relative to Electric Light and Power System. (a) Save and except for the pledge of the income and revenues of the City's Electric Light and Power System to the payment of (i) the principal of and interest to become due with respect to the outstanding obligations identified in Exhibit B attached hereto and incorporated herein by reference as a part hereof for all purposes (hereinafter collectively referred to as the "Outstanding Obligations") and the Bonds and the Certificates and (ii) a power supply contract with the West Texas Municipal Power Agency, said income and revenues of the System have not been pledged or hypothecated in any other manner or for any other purpose; and the Outstanding Obligations, the Bonds, the Certificates and the aforementioned contract evidence the only liens, encumbrances or indebtedness of the System or against the income and revenues of such System. 45353096.1 (b) The City is not in default as to any covenant, condition or obligation contained in the ordinances authorizing the issuance of the Outstanding Obligations; and there is on deposit ~· in the respective special funds and accounts created for the payment and security of the Outstanding Obligations the amounts now required to be on deposit therein. (c) A schedule of the gross receipts, operating expenses and net revenues of the Electric Light and Power System for the years stated is shown in Exhibit B attached hereto. (d) The electric light and power utility properties owned, operated and maintained by the City currently provides electricity to approximately 65,047 customers. As of the date hereof, no question is pending and no proceedings of any nature have been instituted in any manner questioning the City's right and title to its utility properties or its authority to operate the same. (e) The current monthly rates and charges for services provided by the Electric Light and System are as shown in Exhibit 8 attached hereto. 4. Relative to City Officials. Certain duly qualified and acting officers of said City are as follows: MARC McDOUGAL VICTOR HERNANDEZ TOMMY GONZALEZ BEVERLY HODGES REBECCA GARZA ANITA BURGESS ANDY BURCHAM 5. Relative to Taxable Values. MAYOR MAYOR PRO TEM INTERIM CITY MANAGER DIRECTOR OF FINANCE CITY SECRET ARY CITY ATTORNEY CASH AND DEBT MANAGER The assessed value ·of all taxable property (net of exemptions) in the City, as shown by the tax rolls for the year 2003, and which have been duly approved and are the latest official assessment of taxable property in the City is as follows: 45353096.1 TOT AL ASSESSED TAXABLE VALUES OF REAL AND PERSONAL PROPERTY-------------------------------·-$7,898,368,386 2 6. Relative to Incorporation. 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. 7. Relative to No~Petition. No valid petition, signed by at least 5% of the qualified electors of the City, has been filed with or presented to the Mayor, City Secretary or any other official of the City protesting the issuance of the Certificates. 8. Relative to No Free Services. Except for city buildings and institutions operated by the City, no free· services of the Electric Light and Power System shall be allowed, and rates charged for services furnished by the respective System shall be equal and uniform as required by law. 9. Relative to Sinking Funds. 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. 45353096.1 3 - WITNESS OUR HANDS AND THE SEAL OF THE CITY OF LUBBOCK, TEXAS, this the 28th day of August, 2003. CITY OF LUBBOCK, TEXAS cf£~ . keeccaGarza City Secretary (City Seal) / 45353096.1 4 >.). .) , .) ) , ) EXHIBIT A DEBT INFORMATION GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS Fiscal Year Tolal %of H11dcd Oulstaodltlg Debi 1'1 The Certiflcates111 The Bonds1Jl Combined Principal ...2!1!L Princleel Interesl Tolal. Princleal lnleresl Total Priocleal . lnlercst Total R!:9ulremenls Retired 2003 s 13,324,682 (4) s 11,120,130 (4) s 24,444;8 l 2 141 s s s s s s s 24,444,812 (4) 2004 ll,510,000 12,899,033 26,409;033 645,000 360,980 1,005,980 435,000 2JB,361 673,361 28,088,374 2005 14,700,000 l!,959,728 26,659,728 480,000 !128,570 1,008,570 325,000 348;841 673,841 28,342,139 2006 14,845,000 11,269,592 26,114,592 490,000 518,970 1,008,970 330,000 342,341 672,341 27,795,903 2007 15,000,000 10,599,190 2~,599,190 495,000 509,170 1,004,170 JJS,000 335,741 670,741 27,274,101 24.22% 2008 14,525,000 9,946,978 24,471,978 .510,000 496,795 1,006,795 345,000 327,366 672,366 26,1.51,139 2009 14,280,000 9,310,514 23,590,514 .525,000 481,495 1,006,495 355,000 317,879 672,879 25,269,888 2010 13,975,000 8,683,863 22,658,863 540,000 464,433 1,004,433 365,000 306,785 671,785 24,335,081 2011 . 14,245,000 8,053,924 22,298,924 565,000 444,183 1,009,183 380,000 294,466 674,466 23,982;573 2012 13,26.5,000 7;436,121 20,701,121 585,000 421,583 1,006,583 390,000 . 280,216 670,216 22,377,919 2013. 13,525,000 6,829,64.4 20,354,644 610,000 398,183 1,008,183 410,000 264,616 674,616 22,037,443 SJ.13% 2014 13,810,000 6,204,699 20,014,699 635,000 373,020 1,008,020 425,000 247,806 672,806 21,695,.526 2015 11,115,000 S,626,7.56 16,741,756 660,000 . 346,033 1,006,033 445,000 229,956 674,956 18,422,744 . 2016 10,520,000 5,108,777 15,628,777 690,000 317,158 1,007,158 460,000 21-0,821 670,821 17,306,756 2017 10,075,000 4,603,064 14;678,064 720,000 286,108 1,006,108 480,000 190,581 670,581 16,JS4,75J . 2018 10,485,000 4,091,493 14,576,493 755,000 252,988 1,007,988 505,000 168,981 673,981 16,258,462 73.11% 2019 10,40.5,000 3,568,577 13,973,577 790,000 215,238 1,005,238 530,000 143,731 673,731 15,652,546 2020 9,180,000 J,072,882 12,252,882 830,000 177,713 1,007,713 555,000 118,556 673,556 13,934,151 2021 6,955,000 2,664,600 9,619,600 870,000 137,250 1,007,250 580,000 91,500 671,500 11,298,350 2022 6,410,000 2,334,373 8,744,373 915,000 93,750 1,008,750 610,000 62,500 672,500 I0,425,623 2023 5,040,000 2,053,913 7,093,913 960,000 48,000 l,008,000 640,000 32,000 672,000 8,773,913 87.74% 2024 4,375,000 1,823,076 6,198,076 -6,198,076 2025 3;220,000 1,632,714 4,852,714 4,852,714 2026 J,395,000 1,463,114 4,858,114 · 4,858,114 2027 3,575,000 1,283,950 4,858,950 4,858,950 2028 J,755,000 1,095\068 . 4,850,068 4,850,068 93.67% 2029 3,955,000 896,385 4,851,385 4,851,385 2030 4,170,000 686,998 4,8S6i998 4,856,998 2031 4,390,000 466,390 4,856,390 4,856,390 2032 . 2,240,000 297,250 2;s37;2so 2,537,250 2033 2,350,000 182,500 2,532,500 2,532,500 99.20% 2034 2,475,000 61875 21536,875 215361875 100.00% s 287,089,682 s 157,327,167 s 444,416,849 s 13,270,000 s 6,871,61.S s 20,141,61.S s 8,900,000 s 4,553,047 s 13,453,047 s· 478,011,512 (1) •"Outstanding Debt" does not include lease/purchase obligations. . (2) Average life of the issue -l l.324 years •. Interest on tho Certificates has been calculated at tho mies shown on page 2. (3) Average life of the issue - J 1.297 years. Interest on tho '3onds has been calculated at the rats shown on page 3, (~) Includes principal and semiannual interest paid by the City on February 15, 2003. I"\ EXHIBITS Outstanding Obligations: (a) City of Lubbock, Texas, Electric Light and Power System Refunding Revenue Bonds, Series 1995, dated June 15, 1995, now outstanding in the principal amount of $5,600,000; (b) City of Lubbock, Texas, Electric Light and Power System Revenue Bonds, Series 1998, dated January 1, 1998, now outstanding in the principal amount of $6,895,000; (c) City of Lubbock, Texas, Electric Light and Power System Revenue Refunding and Improvement Bonds, Series 1999, dated January 15, 1999, now outstanding in the principal amount of $10,510,000; (d) City of Lubbock, Texas, Electric Light and Power System Revenue Bonds, Series 2001, dated July 1, 2001, now outstanding in the principal amount of $8,280,000; (3) City of Lubbock, Texas, Electric Light and Power System Revenue Bonds, Series 2002, dated August 15, 2002, now outstanding in the principal amount of $8,500,000 and being refunded by the Bonds; Electric Light and Power System Income and Expenses: Fiscal Year Maintenance and Ending 9-30 Gross Receipts Operating Expenses Net Revenues 1997 $ 63, 185,595 $50,199,268 $12,986,327 1998 70,903,644 55,780,777 15,122,867 1999 64,260,424 50,932,204 13,328,220 2000 74,319,918 66,101,040 8,218,878 2001 112,811,301 105,600,254 7,211,047 2002 96,216,193 88,301,116 7,915,077 45353096.1 Exhibit B-2 Residential and General Service Rates (Effective October, 2001) Approximately 75% ofLP&L customers are billed under the rate schedules shown below. Special rate schedules are available for certain customers such as churches, city street lighting, etc. These rates now include the full 3% franchise within the rate structure. The previous version only included 2% with the additional 1 % being billed separately. Residential Service Availability Charge All kilowatt hours ("kWh") per month @$0.0404 per kWh used during summer months All kWh per month @ $0.03636 per kWh used during winter months Summer Months: June -September Winter Months: October -May ~: Fuel Cost Recovery (I) General Service Service Availability Charge: Cost per kWh for all additional kW in excess of 10 kW during a summer month Cost per kWh for all additional kW in excess of l O kW during a winter month First J ,000 kWh per month Next 6,000 kWh per month All additional kWh per month Plus: Fuel Cost Recovery (ll $ 4.70 per.month $10.10 per month $8.00 $7.00 0.0515 per kWh"' (Summer) 0.0465 per kWh* (Winter) 0.0253 per kWh 0.0101 perkWh Minimu~ Charge: The Demand Charge. No demand shall be taken as less than SO% of highest demand established in 12 months ending with current month. Service Availability: Cost per kWh for all additional kW in excess of200 kW First!00,000 kWll used per month Next 150,000 kWh used per month All additional kWh used per month ~: Fuel Cost Recovery (ll Large General Service $1,815.00 $ 9.00 0.0059 per kWh 0.0035 per kWh 0.0034 per kWh Minimum Chnrge: The demand charge. No demand shall be taken as less than 60% ofthe highest demand established in 12 months ending with the current month. (1) Fuel Cost Recovery: Applications of fuel cost recovery factors are as follows: I. Primarv Distrfbution Fuel/Power Cost Recovery Factor The Primary Distribution Fuel/Power Cost Recovery Factor shall be billed at a rate of0.98744 times the Secondary FCA (see Section n below), applied per kilowatt hour and shall apply when service is metered at greater than or equal to 12 kV and less than 69 kV. - IL Secondarv Distribution Fuel/Power Cost Recovery Factor The Secondary Distribution Fuel/Power Cost Recovery Factor will be detennined in accordance with the following fonnuia: The sum of the total fuel costs (inclusive of all costs incurred by LP&L in procuring fuel} used for the month in LP&L's power plants. · Exhibit B-3 Plus, i:he total of all power purchased for the month by LP &L. . Plus/Minus any adjustment for under/over collection of the fuel/power. c<:ist recovery factor from previouJ! months (see below). · The adjustment for under or over collection of the fuel/power cost recovery factor will be amortized over an eighteen (18) month period from the date in which the under or over collection occurred. Subject to the limitations set forth in this paragraph, the City Manager or, if designated by the City Manager, the Director of Electric Utilities, shall determine the adjustment for each given month. However, in no event shall the adjustment be less than 1/18Lh of the total under or over collection. The sum of all these amounts will be divided by the estimated electric sales for the current month to determine the Fuel/Power Cost Recovery Factor, or in summary: Secondary FCA = (Gas Cost+ Purchased Power Cost +/. over/under adjustments}lk\'.l:"h sales. The secondary factors shall be billed per kWh and shall apply when service is metered at less than 12 kV. III. Transmission Fuel/Power Cost Recovezy Factor .. The Transmission Fuel/Power Cost Recovery Factor shall be billed at a rate of0.941347 times the Secondary FCA, applied per kilowatt-hour and shall apply when service is metered at greater than or equal to 69 kV. Representative Customer Usage and Billings Residential Customer Commercial Customer Monthly Usage kWh kW 887 3,961 16 Monthly Bil!ing $84.15 (summer) $5 l.9 I (winter) $329.02 (summer) $251.52 (winter) 10 CERTIFICATE I, the undersigned, an authorized officer of JPMorgan Chase Bank (the "Bank") DO HEREBY ACKNOWLEDGE AND CERTIFY as follows: 1. The Bank is the paying agent/registrar for the outstanding "City of Lubbock, Texas, Electric Light and Power System Revenue Bonds, Series 2002" (the "Bonds"); 2. The Bank has received a copy of the ordinance authorizing the issuance of the "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003", which provides for the redemption of the Bonds maturing in the years 2004 through 2013 on October 15, 2003 (the "Refunded Bonds"); 3. The $8,701,875.00 being deposited with the Bank on September 30, 2003 is sufficient to pay the redemption price for the Refunded Bonds on October 15, 2003, and such amount will be deposited to the credit of a trust clearing account and collateralized pursuant to the provisions of the paying agent/registrar agreementrelating to the Refunded Bonds. 4. A notice of redemption pertaining to the Refunded Bonds was sent to the registered owners thereof appearing on the registration books thirty (30) days prior to the redemption date therefor. WITNESS MY HAND AND THE SEAL OF JPMORGAN CHASE BANK, this dl-day of September, 2003. JPMORGAN CHASE BANK By: /M-J~ Title: P(ul (Bank Seal) 45363061.1 11 r FIRSTSOUTIJWESTCOMPAN!' Vince V faille Vire Presidmt City of Lubbock M.s. Beverly Hodges P. 0. Box 2000 Lubbock, Texas79457 Phone: (806) 775-2161 Fax: (806) 775-2033 City of Lubbock Mr. Andy Burcham P.O.Box2000 Lubbock, Texas 79457 Phone: (806) 775-2149 Fax: (806) 775-2033 Fulbright & Jaworski L.L.P. Mr. Ed H. Esquivel 2200 Ross Avenue, 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 September 23, 2003 UBS Financial Services, Inc. Mr. Craig Brast 1111 Bagby, Suite 5100 Houston, Texas 77002 Phone: (713) 654-4712 Fax: (713) 654-4730 ' UBS Financial Services, Inc. Mr. Jamie Liang 1111 Bagby, Suite 5100 Houston, Texas 77002 Phone: (713) 654-4735 Fax: (713) 654-4730 JPMorgan Chase Bank M.s. Michelle Baldwin 2001 Bryan Street -1 oth Floor Dallas, Texas 75201 Phone: (214) 468-6254 Fax: (214) 468-6322 MBIA Insurance Corporation Ms. Sandra Lisanti 113 King Street Armonk, NY 10504 Phone: (914) 765-3651 Fax: (914) 765-3161 TexSTAR Participant Services First Southwest Asset Management, Inc. Ms. Wanda Kennedy 325 North St. Paul, Suite 800 Dallas, Texas 75201-3852 Phone: (214) 953-8747 Fax: (214) 953-8878 Re: Closing Instructions for the $13,270,000 City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003 (the "Certificates") Payment for the above referenced Certificates is scheduled to occur at 10:00 AM, CDT, on Tuesday, September 30, 2003, and payment therefor is to occur at the offices of JPMorgan Chase Bank ("JPMorgan"). · · INVESTMENT BANKERS SINCE 1946 . 1001 Main Street• Suite 802 • Lubbock, Texas 79401-3322 • 806-749-3792 • Fax 806-749-3793 • Mobile 806-777-1347 SOURCES OF FUNDS Par Amount of Certificates.......................................................... $ 13,270,000.00 Reoffering Premium..................................................................... 43,768.50 Accrued Interest (08/15/03 to 09/30/03)...................................... 67,683.75 Less: Underwriters Discount. ................... ,.................................. (84,009.26) Less: Original Issue Discount..................................................... (50,339.25) -=-----=-~=:-.-~-:::--:-'-TOTAL FUNDS AVAILABLE AT CLOSING ............................. $ 13,247,103.74 USES OF FUNDS Deposit to Project Construction Fund.......................................... $ 13,050,000.00 Deposit to Interest & Sinking Fund (rounding amount).............. 2,419.99 Deposit to Interest & Sinking Fund (accrued interest)................. 67,683.75 Gross Bond Insurance Fee........................................................... 42,000.00 Paying Agent/Registrar Fee......................................................... 300.00 Costs of Issuance ..................................................................... ·..... 84,700.00 TOTAL USES OF FUNDS .... ; ................................... :··· .. ········....... $ 13,247,103.74 ======== (A) On Tuesday, September 30, 2003, the Underwriters, represented by UBS Financial Services, Inc., shall wire $13,247,103.74 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 Certificates. Wiring Instructions for JPMorgan are as follows: JPMorgan Chase ABA: 113000609 Credit A/C #: 00103237013 Credit Name: ITS IAS Clearing FFC: City of Lubbock, Electric Certificates Series 2003 Attn: Issuer Administrative Services / Michelle Baldwin (B) On Tuesday, September 30, 2003, JPMorgan shall wire or transfer immediately available funds prior to 11 :00 AM, CDT, as follows: (1) Transmit by wire or transfer to JPMorgan Chase Bank ABA: 021000021, Credit A/C #: 910-2-721728, MBIA Insurance Corporation For the City of Lubbock, Texas Policy #42322 ............................................... $ (2) Transmit by wire to TexSTAR Participant Services: JPMorgan Chase ABA #0210000211 Credit TexSTAR Clearing/AC-9102733343 Depository for City of Lubbock, Texas Credit A/C #: 000155212003000 For the City of Lubbock, Texas ........................................................................ . (Project Construction Funds $13,050,000 and I&S Funds $70,103.74) 42,000.00 13,120,103.74 (3) Retain in payment of services to be rendered as Paying Agent/Registrar ........ . (4) Transmit by wire to Bank One, Texas· ABA #111000614, Attn: Jack Addams Account #1822155345 for client# 0336-031 300.00 for credit to First Southwest Company for costs of issuance............................ 84,700.00 Total Disbursement of Funds ......................................................................................... $ 13,247,103.74 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. cc: First Southwest Company Mr. Jack Addams Ms. Mary Ann Dunda Mr. Joe Brawner Sincerely, C Vince Viaille 1 FIRST SOUTl-IMlST COMPANY Vince Viaille Vtce President City of Lubbock Ms. Beverly Hodges P. 0. Box 2000 Lubbock,Texas79457 Phone: (806) 775-2161 Fax: (806) 775-2033 City of Lubbock Mr. Andy Burcham P.O. Box2000 Lubbock, Texas 79457 Phone: (806) 775-2149 Fax: (806) 775-2033 Fulbright & Jaworski L.L.P. Mr. Ed H. Esquivel 2200 Ross Avenue, 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 September 23, 2003 UBS Financial Services, Inc. Mr. Craig Bra.st 1111 Bagby, Suite 5100 Houston, Texas 77002 Phone: (713) 654-4712 Fax: (713) 654-4730 UBS Financial Services, Inc. Mr. Jamie Liang 1111 Bagby, Suite 5100 Houston, Texas 77002 Phone: (713) 654-4735 Fax: (713) 654-4730 JPMorgan Chase Bank Ms. Michelle Baldwin 2001 Bryan Street-10th Floor Dallas, Texas 75201 Phone: (214) 468-6254 Fax: (214) 468-6322 Wells Fargo Bank, N.A. Ms. Teena Blasdell 420 Montgomery Street San Francisco, CA 94163 Phone: (806) 788-2632 Fax: (806) 788-2630 MBIA Insurance Corporation Ms. Sandra Lisanti 113 King Street Armonk,NY 10504 Phone: (914) 765-3651 Fax: (914) 765-3161 Re: Closing Instructions for the $8,900,000 City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003 (the "Bonds") Payment for the above referenced Bonds is scheduled to occur at 10:00 AM, CDT, on Tuesday, September 30, 2003, and payment therefor is to occur at the offices of JPMorgan Chase Bank ("JPMorgan"). INVESTMENT BANKERS SINCE 1946 1001 Main Street• Suite 802 • Lubbock, Texas 79401-3322 • 806-749-3792 • Fax 806-749-3793 • Mobile 806-777-1347 e SOURCES OF FUNDS Par Amount of Bonds ..................... ~............................................ $ 8,900,000.00 Reoffering Premium..................................................................... 14,539.10 Accrued Interest (08715/03 to 09/30/03)...................................... 44,692.66 Less: Underwriters Discount....................................................... (57,087.06) Less: Original Issue Discount..................................................... (53,567.35) _,,.... __ ....._ __ ----:;_ TOTAL FUNDS AVAILABLE AT CLOSING............................. $ 8,848,577 35 USES OF FUNDS Deposit to Escrow Fund............................................................... $ Deposit to Interest & Sinking Fund (rounding amount) ............. . Deposit to Interest & Sinking Fund (accrued interest) ................ . Gross Bond Insurance Fee .......................................................... . Paying Agent/Registrar Fee ........................................................ . Costs. of Issuance ......................................................................... . TOTAL USES OF FUNDS............................................................. $ 8,701,875.00 4,009.69 44,692.66 28,000.00 300.00 69,700.00 8,848,577.35 (A) On Tuesday, September 30, 2003, the Underwriters, represented by UBS Financial Services, Inc., shall wire $8,848,577.35 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 CreditA/C #: 00103237013 Credit Name: ITS IAS Clearing . FFC: City of Lubbock, Electric Bonds Series 2003 Attn: Issuer Administrative Services I Michelle Baldwin (B) On Tuesday, September 30, 2003, JPMorgan shall wire or transfer immediately available funds prior to 11:00 AM, CDT, as follows: (1) Transmit by wire or transfer to JPMorgan Chase Bank ABA: 021000021, Credit A/C #: 910-2-721728, MBIA Insurance Corporation For the City of Lubbock, Texas Policy #42323 ............................................... $ (2) Transmit by wire to Wells Fargo Bank, N.A., San Francisco, CA ABA #121000248, Attn: Ms. Teena Blasdell Phone (806) 788-2632, depository bank for City of Lubbock for credit to the following account: City of Lubbock Master, Account #4000047951 ............. ; ............................... . (I&S Funds $48,702.35) (3) Retain in payment of services to be rendered as Paying Agent/Registrar. ....... . 28,000.00 48,702.35 300.00 (4) Retain in for payment of Refunded Bonds, callable 10/15/03 ......................... . (5) Transmit by wire to Bank One, Texas ABA #111000614, Attn: Jack Addams Account# l 822155345 for client# 033 6-031 8,701,875.00 for credit to First Southwest Company for costs of issuance............................ 69,700.00 ----~-- Total Disbursement of Funds ......................................................................................... $ 8,848,577.35 ___ _... ___ _ 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. cc: First Southwest Company Mr. Jack Addams Ms. Mary Ann Dunda Mr. Joe Brawner Sincerely, C Vince Viaille 12 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 following described obligations (hereinafter referred to as the "Certificates"), to wit: $13,270,000 "CITY OF LUBBOCK, TEXAS, TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES 2003", dated August 15, 2003 (the "Certificate Date") as follows: (1) The Certificates 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 Certificates whether in manual or facsimile form, as the case may be, as their true, genuine and official signatures. (2) On the Certificate 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 Certificates 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 Certificates or questioning the issuance or sale of the Certificates, the authority or action of the governing body of the Issuer relating to the issuance or sale of the Certificates, the levy of the tax, or the assessment and collection thereof, to pay the principal of and interest on the Certificates, the collection of the revenues of the Issuer's Electric Light and Power System , or the imposition of rates and charges with respect to such systems and reinvestment zone, pledged to pay the principal of and interest on the Certificates or that would otherwise adversely affect in a material manner the financial condition of the Issuer to pay the principal of and interest on the Certificates; 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 valid petition has been filed with any official of the Issuer requesting the proceedings authorizing the issuance of the Certificates adopted by the governing body of the Issuer be submitted to a referendum or other election; no authority or proceeding for the issuance, sale or delivery of the Certificates 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 Certificates remain in full force and effect as of the date of this Certificate. 45353003.1 DELIVERED this ___ S_E_P __ 3.__..0 ....,20 ...... 0 ..... 3 __ SIGNATURE . (ls~aer'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.2e._ day of August, 2003. 45353003.1 2 SIGNATURE AND NO-LITIGATION CERTIFICATE THE STA TE OF TEXAS COUNTY OF LUBBOCK § § § WE, the undersigned, officials of the City of Lubbock, Texas (the "Issuer"), do hereby certify with respect to the following described obligations (hereinafter ref erred to as the "Bonds"), to wit: $8,900,000 "CITY OF LUBBOCK, TEXAS, TAX ANO ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE REFUNDING BONDS, SERIES 2003", dated August 15, 2003 (the "Bond Date") 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 the tax, or the assessment and collection thereof, to pay the principal of and interest on the Bonds, the collection of the revenues of the Issuer's Electric Light and Power System , or the imposition of rates and charges with respect to such systems and reinvestment zone, pledged to pay the ~ principal of and interest on the Bonds or that would otherwise adversely affect in a material · manner the financial condition of the Issuer 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 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. 45353004.1 SEP 3 o 2003 DELIVERED this-------------=- SIGNATURE - (Issuer's Sean " . ""J" 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£_ day of August, 2003. i~xr~ ,!~\\Ed H. Esquivel 'l'J.-]J,'l(f:j Notary Public. ~tate of Texas "!la,~!/ My Gomm. Expires 03/24/06 •.............. ota Seal) 45353004.1 Notary Public, State of Texas 2 13 THE STATE OF TEXAS COUNTY OF LUBBOCK CITY OF LUBBOCK CLOSING CERTIFICATE § § § § § WE, the undersigned, Mayor and Interim City Manager, respectively, of the City of Lubbock, Texas (the "City"), in conformity with the requirements of the Purchase Contract, dated August 28, 2003 {the "Purchase Contract"), by and between the City and UBS Financial Services, Inc., A.G. Edwards & Sons, Inc., Citigroup Global Markets, Morgan Stanley & Co., Southwest Securities and Wachovia Bank, National Association {the "Underwriters"), DO HEREBY CERTIFY, in relation to the issuance and delivery of the "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003" and "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003" (collectively, the "Obligations") and the Official Statement, dated August 28, 2003 (the "Official Statement"), used by the Underwriters in connection with the offering and sale of the Obligations, 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 Obligations, or the levy, collection or application of the ad valorem taxes and revenues of the City's Electric Light and Power System, pledged or to be pledged to pay the principal of and interest on the Obligations, or the pledge thereof, or in any way contesting or affecting the validity of the Obligations, the Ordinance authorizing the issuance of the Obligations (the "Ordinance"), or the Purchase Contract, or contesting the powers of the City, or contesting the authorization of the Obligations 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, 2002 the latest date as to which audited financial information is available. 45353090.1 ✓ TQ CERTIFY WHICH, witness our hands and the seal of the City of Lubbock, Texas, SEP 3 O 2003 . . this (City Seal) 45353090.1 / --,,_.,, CITY OF LUBBOCK, TEXAS ~Jia~ lnterirnCltyanager -2- 14 CERTIFICATE AS TO TAX EXEMPTION The undersigned, being the duly chosen and qualified Mayor and City Manager of the City of Lubbock, Texas (the "Issuer"), hereby certifies with respect to CITY OF LUBBOCK, TEXAS, TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE REFUNDING BONDS, SERIES 2003, in the principal amount of $8,900,000 (the "Bonds") and "CITY OF LUBBOCK, TEXAS, TAX AND ELECTRIC LIGHT AND POWER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES 2003", in the principal amount of $13,270,000 (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 August 28, 2003 authorizing the issuance of the Bonds (the "Bond Ordinance"} and the Ordinance finally adopted by the City Council of the Issuer on August 28, 2003 authorizing the issuance of the Certificates (the "Certificate Ordinance"). B. Purpose and Size of Bonds. 1. The Bonds are being issued pursuant to the Ordinance to provide funds sufficient, together with anticipated income, to pay the principal and interest on the following obligations of the Issuer (the "Refunded Obligations"), to wit: "City of Lubbock, Texas, Electric Light and Power System Revenue Bonds, Series 2002", dated August 15, 2002, and scheduled to mature on April 15 in each of the years 2004 through 2013, and aggregating in principal amount $8,500,000, and to pay costs of issuance. 2. The Issuer has determined to refund the Refunded Obligations to extend the term of such Refunded Obligations that were issued to provide interim financing for the City's Electric Light and Power System 3. The Issuer will not 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. 4. Neither the Bonds nor the Refunded Obligations are "private activity bonds" as that term is defined in section 141 (a) of the Code. 45358901.1 5. The Bonds is a current refunding of the Refunded Obligations 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 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 Issuer's Electric Light and Power 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 thereof 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 thereof. 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 ($78,762.00) do not exceed the amounts required to pay the costs of the Projects and of issuing the Certificates. 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 wilt be spent within one year from the date of receipt. 9. Approximately $1,821,978 of the proceeds of the Certificates will be used to reimburse the Issuer for Projects expenditures made by it from its own funds prior to the date hereof. With respect to such reimbursement, if any, the Issuer adopted an official intent for the original expenditures ( except possibly for "preliminary expenditures" as defined 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 the Issuer's official intent is attached to this Certificate As To Tax Exemption. Except 45358901.1 2 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 Projects are 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 1.148-10 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 underwriters 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 $22,095,681.09 calculated as follows: Principal Amount of Bonds Accrued Interest on Bonds Reoffering Premium on Bonds Original Issue Discount on Bonds Underwriter's Discount on Bonds Principal Amount of Certificates Accrued Interest on Certificates Reoffering Premium on Certificates Original Issue Discount on Certificates Underwriter's Discount on Certificates TOTAL $ 8,900,000.00 44,592.66 14,539.10 (53,567.35) (57,087.06} 13,270,000.00 67,683.75 43,768.50 (50,339.25) (84,009.26) 22,095,681.09 3. The Issuer has caused the deposit or disbursement of such amount as follows: DISPOSITION Deposit accrued interest on the Bonds in the Bond Fund Deposit accrued interest on the Certificates in the Certificate Fund Deposit to a trust clearing account for the payment and redemption of the Refunded Obligations Deposit to the Construction Fund Disbursed to pay insurance premiums Disbursed to pay costs of issuance TOTAL DISBURSED 45358901.1 3 AMOUNT $48,702.35 70,103.74 8,701,875.00 13,050,000.00 70,000.00 155,000.00 $22,095,681.09 4. Proceeds of the Bonds in the amount of $48,702.35 representing accrued interest received and additional proceeds received from the Purchaser are being deposited on the date hereof in the Bond Fund to be used to pay the first payment of interest to become due on the Bonds on April 15, 2004. Proceeds of the Certificates in the amount of $70,103.74, representing accrued interest and additional proceeds received from the Purchaser 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 April 15, 2004. None of such deposits or income from the investments thereof will be used to discharge the Refunded Obligations. E. Transferred Proceeds. 1. Except as provided in paragraph E.2 below, 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. 2. Proceeds of the Refunded Obligations in the approximate amount of $639,817.19 remain unexpended and will become transferred proceeds of the Bonds on October 15, 2003 when the Refunded Obligations are paid and redeemed. F. 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. G. Bond Fund, Certificate Fund and System Fund. 1. The Obligations are payable solely from amounts held for the credit of the Certificate Fund and Bond Fund, respectively, 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 and the Bond Fund, as the case may be. 2. The Certificate Ordinance and Bond 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: a. To pay the Operating and Maintenance Expenses of the System, as defined in the Certificate Ordinance and Bond Ordinance or required by statute; b. To pay or provide for payment of the Prior Lien Obligations; c. Equally and ratably, to the payment of the Certificates and the Bonds;and 45358901.1 4 d. For any other lawful purpose. 3. The Bond 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): a. 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; b. All amounts deposited to the Interest and Sinking Funds will be spent within 13 months of deposit; and c. 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. 4. 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. H. Yield and Nonpurpose Investments. 1. No other obligations of the Issuer which are reasonably expected to be paid from substantially the same source of funds as the Obligations were sold within 15 days from the date the Obligations were sold. 2. The discount factor required to reduce the principal and interest to be paid on the Obligations to a present value on the date hereof, compounding semiannually, equal to the initial offering prices at which a substantial amount of each maturity of the Obligations was sold to the public, is 4.56597%. In determining the initial offering price at which a substantial amount of each maturity of the Obligations was sold to the public, the Issuer has relied on certificates from the managing underwriters that purchased the Obligations. 3. 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. I. Qualified Guarantee. 1. On the date hereof, the sum of $28,000.00 has been paid from Bond proceeds and $42,000.00 has been paid from Certificate proceeds (collectively the "Insurance Premium") 45358901.1 5 - - - 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 Standard & Poor's Corporation. Neither the Guarantor nor any person related to the Guarantor within the meaning of section 144(a)(3) of the Code will use 10 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, financial advisor to the Issuer, 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. J. 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. 45358901.1 6 EXECUTED AND DELIVERED, September 30, 2003. CITY OF LUBBOCK, TEXAS Cit~~ 45358901.1 7 The undersigned has read the foregoing Certificate as to Tax Exemption, has made the representations to the Issuer attributed to it in paragraph 1.7, believe such representations to be ""' true, correct and complete as of the date hereof, and is not aware of any facts or circumstances that would make such representations untrue, inaccurate or incomplete. FIRST SOUTHWEST COMPANY BY:\,,~ . ,,.. LUBBOCK ELEC C O&REF 2003 TAX CERT.DOC --8 Resolution No. 200J-R0210 May 22. 2003 Item. Bo. 60 RESOLUTION DECLARING EXPECTATION TO REIMBURSE EXPENDITURES WITH PROCEEDS OF FUTURE DEBT STA TE OF TEXAS § COUNTY OF LUBBOCK § WHEREAS, the City of Lubbock (the "Issuer") intends to issue debt for electric facilities and system improvements for said City (the "Project"), and further intends to make certain capital expenditures with respect to the Project and cmrently desires and expects to reimburse such capital expenditures with proceeds of such debt; and WHEREAS, under Treas. Reg. § 1.150-2 (the "Regulation"), to fund such reimbursement with proceeds of tax-exempt obligations, the Issuer must declare its expectations 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 reasonable expects to reimburse capital expenditures with respect to the Projects with proceeds of debt hereafter to be incurred by the Issuer, and the 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 $12,970,000. .. ........ MARC MCDOUGAL, MAYOR ATTEST: Rebecca Garza, City Secretary ~ = .... • APPROVED AS CONTENT: - 15 - CERTIFICATE OF UNDERWRITER The undersigned hereby certifies as follows with respect to the sale and delivery of $13,270,000 "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003", dated August 15, 2003 and $8,900,000 "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003", dated August 15, 2003 (collectively, the "Obligations"): 1. The undersigned has purchased the Obligations from the City of Lubbock, Texas (the "Issuer") by negotiated sale. 2. The undersigned has made a bona fide offering of the Obligations 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 Obligations of each maturity was sold to the public (as defined in paragraph 4) is as set forth on the inside cover pages of the Issuer's Official Statement with respect to the Obligations dated August 28, 2003. 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 Obligations from the gross income of their owners. EXECUTED and DELIVERED this SEP ! 5 2003 UBS FINANCIAL SERVICES, INC . . ... 45361847.1 16 Dear Ms. Wilson: 1201 East 7th SirQQt Powell, WY 8243~ Re: Citv of Lubbock. TeX8,! $8,900,000 FitchRatings T 307 75'l 2012 I 800 85.S 4824 www.fitchrarir.gs.cum Ms. Lisa Wilson MBIA fosuranc.e Corp. 113 King Street Annonk. NY l 0504 September 25, 2003 Tax and. .Electric Light and Power System Surplu.s Revenue· Refunding Bonds, Series 2003 (42323) Fitch Ratings has assigned a. rating of 'AAA' to tho above referenced Bonds. 'fhis reflects credit enhancement in the form of a. bond insurance policy provided by MBIA Insurance Corp.(MBIA). which has an insuror financial strength rating of'AAA'. Fitch Ratings dcf"mes coi:npanios with 'AAA' insurer financial strength ratings as follows: "Companies are viewed as possessing exceptionally strong capacity to meet policyholder and contract obligations. Risk factors are minimal and the impact of any adverse business and ew11omic factors is expected to be extremely mialJ." Ratings assigned by Fitch Ratings are based on information provided to us by MBIA. fitcb R..atiDgs does not audit or verify the truth or aecurac;.y of such information. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of.any security for a particular investor, or the taX~exempt nature or taxability of payment made in respect of any security. The insurer financial strength rating assigned to 'MBlA may be ch.a.aged. withdrawn, suspended, or placed on Rating Watch as a result of changes in MBIA' s financial condition. The assignment of a rating by Fitc.b. shall not constitute a consent by Fitch to use its name a.s an expert in connection with any regiS,tration statement or other filing under U.S., UK or any other relevant securities laws. Seel..")' K. Christensen Manager / Tnsured RatingS Dear Ms. Wilson: l?.01 l:'.ast 7th Street Powell, WY 824,'35 Re: · Ci!}! of Lub~k, lsas $13,270,000 FitchRatings T 307 754 '012 1 800 853 4824 www.fit.::hratil'lg$.com Ms. Lisa. Wilson MBlA Insurance Corp. 113 King Street Armonk, NY I 0504 September 25, 2003 Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003 (42322) Fitch Ratings has assigned a. rating of'AAA' to the above referenced Bonds. This reflects credit enhancement in the form of a bond insurance policy provided by MBJ A Insurance Corp.(M81A), which bas an insurer financial strength rating of'AAA'. Fitc:h Ratings defines companies with • AAA' insurer financial strength ratings as roUows: "Companies are viewed as possessing -exceptionally strong capacity to meet policyholder and contract obligations. R.isk factors are · minimal a.nd the impact of any adverse business and economic factors is expected to be extremely small.'' R.ating:J assigned by Fitch Ratings are based on information provided to us by MBIA. Fitch Ratings does. ,;,ot audit or verify the truth or accuracy of such information. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not c;:imment on the adequacy of market pri<;e, the suitability of my scc.urity for a particu!ar investor, or tl1e tax-exem.pt nature or ts.xability of payment made in respect of any security. The insurer financial strength rating assigned to MBlA may he changed. withdrawn, suspended, or placed on RatingWatch as a resuH of changes in MBIA's financial condition. The assignment of a rating by Fitch shall not constitute a. consent by Fitch to use its 11ame ss an expert in connection with any registration statement or other filing u.11der U.S., UK or any other relevant securities laws. Sincerely, -~~~ Becky K. Christensen Manager/ Tnsured Ratings MBIA Insurance Corporation 113 King Street Armonk, New York 10504 To Whom It May Concern: . ./tliiil!:IJ,,. @J Moody's lnveston Service 91} Cfwrr;h $1rt!;sl. Mtw li:t,w; M:w Yott '10007 September 26. 2003 Moody's Investors Service has assigned the rating of~ (MBIA Insurance Corporation Insured -Policy No. 42323) to the $8,900,000.00, City of Lubbock, Texas, Tax and Electric Light and Power System Surplu$ Rovanue Refunding Bonds, Series 2003 , dated August 15, 2003 which sold through negotiation on August 28, 2003. The rating is based upon an insurance policy provided by MBIA Insurance Corporation. Should you have any questions regarding the above, please do not hesitate to contact the assigned analyst, Margaret Kessler at (212) 553-7884. MK:SY Sincerely yours, <tnJJufvi..i .?C"1.v.lil/l- Margaret L. Kessler Vice President/Senior Analyst MBIA Insurance Corporation · 113 King Street Armonk, New York 10504 To VVhorn It May Concern: ,~;i 'I(_.,.. Moody's levasto,s Service 9S Chun:h Street New Y~ Naw Md1f)f)07 September 26, 2003 Moody's Investors Service has assigned the rating of!!! (MBIA Insurance Corporation insured -Policy No. 42322 } to the $13,270,000.00 , City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation Bonds, Series 2003 , dated August 15, 2003 which sold through negotiation on August 28, 2003. The rating is based upon an insurance policy provided by MBIA Insurance Corporation. Should you have any questions regarding ~e above, please do not hesitate to contact the assigned analyst, Margaret Kessler at (212) 553-7884. Sincerely yours, Margaret L. Kessler Vice PresidenVSenior Analyst MK:SY - STA.NDARD &POOitS September 25, 2003 Tv!BIA Insurance Corporation 113 King Street Armonk, NY 10504 Vlncent S. 01110 Admlnlslndwe Officer 55 watar street, 381b Floor Mew York, NY 111N1-GOl13 11121Z 438•2074 vlncenLo,go@standardandpoots.corn iefel'llllce 110.: 40145128 Attention: Ms. Lisa A. Wilson. Vice President Manager DAC Group M:alaclly Fallon ManagingDlrlckir 500 Narfh Akard S1re&1 Lnailn Pla.za, Suite 3200 Dallaa, 'IX 75201 tel214 871-14112 ma\.faDan@llltandardanclpoors.com Re: $13,270,000 City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue, Certificates ofObligotion, Series 2003, dated: Augll3t 15, 2003, due: April 15, 2004-2023, (POUCY#42322) Dear Ms. Wilson: Standard & Poor' s has reviewed the rating on the above-referenced obligations. After such review, we have changed the rating to "AAA,. from "AA-'' and changed the outlook to not meaningful from stable. The rating reflects our assessment of the likelihood of repayment of principal and interest based on the bond insurance policy your company is providing. Therefore, rating adjustments may result from changes in the fmancial position of your company or from alterations in the documents governing the issue. The rating is not investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supplied to us by you but does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. We have not consented to and will not consent i:o being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933. The rating is not a "marlcet rating" nor is it a recommendation to buy, hold, or sell the obligations. · This letter constitutes Standard & Poor's permission to you to disseminate the above-assigned rating to interested parties. Standard & Poor's reserves the right to inform its own clients, subscribers, and the public oftbe rating. Standard & Poor's relies on the issuer and its counsel, accountants, and other ex.perts for the accuracy and completeness of the information submitted. in connection with the rating. This rating is based on financial infonnation and documents we received prior to the issuance of this letter. Standard & Poor' s assumes that the documents you have provided to us are final. If any subsequent changes were made in the final documents, you must notify us of such changes by sending us the revised final documents with the changes clearly marked. - - Standard & Poor's is pleased to be of service to you. For more information please visit our website at ),VWW,standardandJ2oors.com. Ifwc·can be of help in any other way. please contact us. Thank you for choosing Standard & Poor's and we look forward to working with you again. Sincerely yours, Standard & Poofs Ratings Services a division of The McGraw-Hill Companies, Inc. I J) ,1W~al:,u Vincent S. Orgo Administrative Officer ak STANDARD &POOR:S September 25, 2003 MBIA Insurance Corporation 113 King Street Armonk, NY 10504 VlncentS.Org.o AdmlnlatraHY• Olllc:ar 55 Water Stlllat, 38t!I Floor NewYOl'll, NY 1004Ul003 '812.12 .. 38-2il7 .. vlncent...orgo@atandardandpoars.com referenc2 no.: 40145128 Attention: :Ms. Lisa A. Wilson, Vice President Manager DAC Group Malacfly Fallon Managing llhctor SllflNortll Akald S1nlet Uncoin Plaza, Suite 3200 Da1i1i TX75201 tel21071-1402 mll_1'allat1@slandlln:landpoona.com Re: $8,900,000 City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue, Refunding Bonds, Series 2003, dated: August 15, 2003, due: April 1 S, 2004-2023, (POLICY#42323) Dear Ms. Wilson: Standard & Poor's has reviewed the rating on the above-referenced obligations. After such review, we have changed the rating to "AAA" from "AA-" and changed the outlook to not meaningful from stable. The rating reflects our assessment of the likelihood of repayment of principal and interest based on the bond insurance policy your company is providing. Therefore, rating adjustments may result from changes in the financial position of your company or from alterations in the documents governing the issue. The rating is not investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supp lied to us by you but does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. We have not consented to and will not consent to being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933. The rating is not a "market rating" nor is it a recommendation to buy, hold, or sell the obligations.. This letter constitutes Standard & Poor's permission to you to disseminate the above-assigned rating to interested parties. Standard & Poor' s reserves the right to inform its own clients, subscribers, and the public of the rating. Standard & Poor's relies on the issuer and its counsel, accountants, and other experts for the accuracy and completeness of the information submitted in connection with the rating. This rating is based on financial infonnation and documents we received prior to the issuance of this letter. Standard & Poor' s assumes that the documents you have provided to us are final. If any subsequent changes were made in the final. documents, you must notify us of such changes by sending us the revised final documents with the changes clearly marked. ....... Standard & Poor's is pleased to be of service to you. For more information please visit our website at www .standardandpoog.com. If we ·can be of help in any other way, please contact us. Thank you for choosing Standard & Poor's and we look forward to working with you again. Sincerely yours. Standard & Poor's Ratings Services a division of The McGraw-Hill Companies, Inc. ;j);.d~~, Vincent S. Orgo Administrative Officer ak 17 MBIA FINANCIAL GUARANTY INSURANCE POLICY MBIA Insurance Corporation Armonk, New York 10504 Policy No. 42322 :MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally 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 JP Morgan Chase Bank, Dallas, Texas or its successor (the ''Paying Agent") of an amomit equal to (i) the principal of ( either at the stated maturity or by any advancement of maturity 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 maturity pursuant to a mandatory sinking fimd 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 (h) 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 O\Vller within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (h) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" sball mean: $13,270,000 City ofLubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003 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, oy the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amotmt 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 fimds, in an account with U.S. Bank Trust National Association., in New York, New York, or its successor, sufficient for the payment .of any such Insured Amounts which are then due. Upon presentment and sw:render of such Obligations or presentment of such other proof of ownetShip of the Obligations, together with any appropriate inst:rurnents of assignment to evidence the assignment of · the Insured Amowits due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Am:nmts on the Obligations, such instnnnents being in a form satisfactory to U.S. Bank Trust National Association., U.S. Bank Trust National Association. shall disburse to such owners, or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legaily 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 wderlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at I 13 King Street., Armonk, New York 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 refimdable for any reason including the payment prior to maturity of the Obligations. IN WITNESS WHEREOF, the Insurer has caused this policy to be executed in facsimile on its behalf by its duly authorized officers, this 30th day of September, 2003. l\.1BIA Insurance Corporation Attest 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-6 4195 - MBIA FINANCIAL GUARANTY INSURANCE POLICY MBIA Insurance Corporation Armonk, New York 10504 Policy No. 42323 MBIA Insurance C01p0ration (the ''I.nst.n-er'), in consideration of the payment of the premium and subject to the tenns of this policy, hereby unconditionally 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 beba1f of the Issuer to JP Morgan Chase Bank, Dallas, Texas or its successor (the "Paying Agent'.) 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 fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but' shall not be so pa:id ( 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 hereby shall be made in such amoi.mts and at such times as such payments of principal vvould have been due had there not been any such acceleration); and (ii) the reimbmsement 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 Amoi.mts." "Obligations" shall mean: $8,900,000 City ofLubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003 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 the Insurer from the Paying Agent or any owner of an Obligation the payment ofan Insured Amount for which is then due, that such required payment has not been made, the In.surer 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 U.S. Bank Trust National Association., in New York, New York, or its successor, sufficient for the payment of any such Insured Amoi.mts which are then due. Upon presentment and surrender of such Obligations or presen1ment 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 pa:id by the Insurer, and appropriate instruments to effect the appointment of the In.surer 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 U.S. Bank Trust National Association., U.S. Bank Trust National Association. shall disbmse to such owners, or the Paying Agent payment of the Insured Amounts 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 insme against loss of any prepayment premimn 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 underlying security for the Obligations. Any service of process on the In.surer may be made to the Insurer at its offices located at 113 King Street, Annonk, New York 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 maturity of the Obligations. IN WITNESS WHEREOF, the Insurer has caused this policy to be executed in facsimile on its behalfby its duly authoriz.ed officers, this 30th day of September, 2003. DISCLOSURE OF GUARANTY FUND NONPARTICIPATION: Io the event the Insure.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-6 4195 MBIA Capital Strength. Triple-A Performance. MBIA Insurance Corporation 113 King Street, Armonk, NY 10504 Tel 914-273-4545 www.mbia.com ~ September 30, 2003 - City of Lubbock, Texas, Tax and Electric Light and Power 1625 13th Street Lubbock, Texas 79457 UBS Financial Services, Inc. 1111 Bagby, Suite 5100 Houston, Texas 77002 $13,270,000 City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003 $8,900,000 City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003 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 Nos. 42322 and 42323 (the "Policies") relating to $13,270,000 City of Lubbock, Texas, Tax and Electric Light and Power System, Surplus Revenue Certificates of Obligation, Series 2003 q11d $8,900,000 City of Lubbock, Texas, Tax and Electric Light and Power, System Surplus R~venue Refunding Bonds, Series 2003. In so acting, I have examined a copies of the Policies 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 of New York and is licensed and authorized to issue the Policies under the laws of the State of New York and the State of Texas. MBIA Page2 2. The Policies have been duly executed and are valid and binding obligations of the Corporation enforceable in accordance with their terms except that the enforcement of the Policies 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). if2~.~ Pauline M. Cullen Deputy General Counsel MBIA Capital Strength. Triple-A Performance. September 30, 2003 JP Morgan Chase Bank Dallas, Texas . $13,270,000 MBIA Insurance Corporation 113 King Street, Armonk, NY 10504 Tel 914-273-4545 www.mbia.com City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003 Gentlemen: In connection with the above-described obligations (the "Obligations") 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'') issued by the MBIA Insurance Corporation (the "Insurer''). U.S. Bank Trust National Association., New York, New York, (the ''Fiscal Agent") is acting as the fiscal agent for the Insurer. The Policy tmconditionally 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 amotmt 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 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 fimd payment, the payments guaranteed by the Policy shall be made :in such amotmts 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 ( 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 Amotmts." 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. MBIA -2- 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 Yo:rk, 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 funds 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 I"-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 funds 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. J:yy~ [(;;£ Gary C. Dunton President - MBIA Capital Strength. Triple-A Performance. September 30, 2003 JP Morgan Chase Bank Dallas, Texas $8,900,000 MBIA Insurance Corporation 113 King Street, Armonk, NY 10504 . Tel 914-273-4545 www.mbia.com City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003 Gentlemen: In connection with the above-descnbed obligations (the "Obligations") 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 11Policy') issued by the MBIA Insurance Corporation (the "Insurer"). U.S. Bank Trust National Association., New Yolk, 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'1, 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 fund 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 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 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 (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 ( a ''Preference") to the Owner within the meaning of any applicable bankruptcy faw. 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 fund 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. MBIA -2- 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 funds 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 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 the Owners in any legal proceeding related to payment of Insured Amounts on the Obligations (or, if applicable, coupons), such instnnnents 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 instnnnents of assignment and instnnnents 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 funds av<'t.ilable 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. . tJrY trul;rs, ✓ /_ //~ ,,_J ~ Gary C. Dunton President MBIA Capital Strength. Triple-A Performance. City of Lubbock 1625 13th Street Lubbock, Texas79457 TAX CERTIFICATE MBIA Insurance Corporation 113 King Street, Armonk, NY 10504 Tel 914-273-4545 www.mbia.com RE: $13,270,000 City of Lubbock, Texas, Tax and Electric Light and Power, System Surplus Revenue Certificates of Obligation, Series 2003 $8,900,000 City of Lubbock, Texas, Tax and Electric Light and Power, System Surplus Revenue Refunding Bonds, Series 2003 (the "Obligations") Ladies and Gentlemen: In connection with the issuance of the above-referenced obligations (the "Obligations"), MBIA Insurance Cmporation (the "Insurer") is issuing 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 ( the "Issuer"); 2. The insurance premiums in the amount of $42,000 and $28,000 for the Policies, represents the charge for a transfer of credit risk and was determined in arm's length negotiations and is 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 payments 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 payments. Dated: September 30, 2003 A ' } - MBIA CERTIFICATE OF MBIA INSURANCE CORPORATION I, Adam M. Carta, Assistant Secretary of MBIA Insurance Corporation, do hereby certify that the information concerning MBIA Insurance Corporation and its policies as set forth in the Official Statement, dated August 28, 2003 under the caption "Municipal Bond Insurance", regarding $13,270,000 City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003 and $8,900,000 City of Lubbock, Texas, Tax and Electric Light and Power, System Surplus Revenue Refunding Bonds, Series 2003, is accurate. IN WITNESS \VHEREOF, I hereunto set my hand and deliver this Certificate on this 30th day of September, ~ . ,· .· ~l!Jlf Assistant Secretary 18 - Information Return for Tax-Exempt Governmental Obligations Form 8038-G (Rev. November 2000) Oepanment cf the Treasury Internal Revenue SeN!ce • Under Internal Revenue Code section 149(e) OMB No. 1545-0720 • See separate Instructions. Caution: If the issue price is under $100,G00, use Form 8038-GC. 1 Issuer's name City of Lubbock, Texas 2 Issuer's employer identification nt1mber 75: 6000590 3 Number and street (or P.O. box if mail is not delivered to street address) 1625 13th Street 5 City, town, or post office, state, and ZIP code Lubbock, Texas 79401 Room/suite 4 Report number 3 37 6 Date of issue 9-30-03 7 Name of issue Tax and Electric Light and Power System Surplus Revenue Certificates of 8 CUSIP number Obligation, Series 2003 549187 YX4 9 Name and title of officer or legal representative whom the IRS may call for more information 10 Telephone numbef of officer or legal representative And Burcham Cash and Debt Mana r ( 806 ) 775-2000 11 D Education 1-1_1--t------- 12 D Health and hospital l-'-12;;;...+ _____ _ 13 D Transportation . • 1--13 _______ _ 14 D Public safety. . • f--1"'"4"'-+------- 15 D Environment (including sewage bonds) . t--1"""5-t------- 16 D Housing . • • • t--16--t-----cc-,,------ 17 li2) utm~ies . . . • • • • • • • • 17 13.,263.,429.25 D Ott, .. Describe • --------=,-----------------'---18 If obligations are TANs or RANs, check box • D . If obligations are BANs, check box • D If obli ations are in the form of a lease or installment sale, check box . • • • • • • D (d) Weighted average maturity ears (e) Yield:t 4.56597 % 22 Proceeds used for accrued interest . • • • • • . • . • . . 1-=2=2-1---~+J.Z,.,.....s..L. 23 Issue price of entire issue (enter amount from line 21, column (b)) . • 2.,,,37,1-----~~-- 24 Proceeds used for bond issuance costs Qncluding underwriters' discount) 24 169 009.26 25 Proceeds used for credit enhancement , • • • • • • • • . 25 42.,000.00 Proceeds allocated to reasonably required reserve or replacement fund i-=2""6-+-------~ Proceeds used to currently refund prior issues i-=2.:..7-1-------~ Proceeds used to advance refund prior issues '"""'2_8....,_ ______ _ Total (add lines 24 through 28) . . • • • • • • • • • . • • Nonrefundin roceeds of the issue (subtract line 29 from line 23 and enter amount here . 31 Enter the remaining weighted average maturity of the bonds to be currently refunded • • 32 Enter the remaining weighted average maturity of the bonds to be advance refunded • • 33 Enter the last date on which the refunded bonds will be called . • • • • • . • • • 34 Enter the date(s) the refunded bonds were issued • 35 36a b 37 Miscellaneous Enter the amount of the state volume cap allocated to the issue under section 141 (b)(5) Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract (see instructions) Enter the final maturity date of the guaranteed investment contract • --------- Pooled financings: a Proceeds of this issue that are to be used to make loans to other governmental units 2ll 009.26 ,052.,419.99 years years b If this issue is a loan made from the proceeds of another tax-exempt issue, check box • D and enter the name of the 38 39 40 issuer • ------------------and the date of the issue • If the issuer has designated the issue under section 265(b)(3)(B)(O(lll) (small issuer exception), check box If the issuer has elected. to pay a penalty in lieu of arbitrage rebate, check box , • • . • • • • • If the issuer has identified a hed e, check box . • . • • . • • • . • • • • • • . . • . •• •• •• Under penalties of pe~ury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and b · ef. they are true, correct, and complete. Sign Here OCT O 7 2003 • Signatur<; o issuer's authorized representative D • Andy Burcham, Cash and Debt Manager Type or print name and title _ For Paperwork Reduction Act Notice, see page 2 of the Instructions. Cat. No. 637735 Form 8038-G (Rev. 11-20001 45353311 /Z\ · 1c'blended yield with :!:ax and Eleetirc Light aW Power System Surpl~ Revenue Refunding Bonds, Series 2003" Form 8038-G Information Return for Tax-Exempt Governmental Obligations • Under Internal Revenue Code section 149(e) OMB No. 1545-072.0 (Rev. November 2000) • See separate Instructions. Caution: If the issue price is under $100,000. use Form 8038-GC. Authorit If Amended Return, check here • D 1 Issuer's name 2 Issuer's employer identification number 75: 6000590 City of Lubbock, Texas 3 Number and street (or P.O. box if mail is not delivered to street address) 1625 13th Street Room/suite 4 Report number 3 38 5 City, town. or post office. state, and ZIP code 6 Date of issue 9-30-03 Lubbock, Texas 79401 7 Name of issue 8 CUSIP number Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003 549187 ZT2 9 Name and title of officer or legal representative whom the IRS may call for more information 10 Telephone number of officer or legal representative Andy Burcham, Cash and Debt Manager ( 806 J 775-2000 T e of Issue (check a licable box es) and enter the issue rice) See instructions and attach schedule 11 D Education i----1 __ 1+------- 1 z D Health and hospital i-::-12=-+------ 13 D Transportation . • f--'-13::...+------ 14 D Public safety. • • i--,:..14.:...+------ 15 D Environment (including sewage bonds) . l-'1..:;5-+------- 16 D Housing . • • . f--'-16::...+------ 17 lt1'.l Utilities . • . • • • • • • • • 17 8,860,971..75 22 23 24 25 31 32 33 34 35 36a b 37 38 39 40 b 0 Other. Describe • __________________ ......,______ 18 If obligations are TANs or RANs, check box • D If obligations are BANs, check box • D If obli ations are in the form of a lease or installment sale, check box . • . • • . • 0 Descri tion of Obli ations. Com lete for the entire issue for which this form is bein (b) Issue price Apr:il l.5~ 2023 $ 8,860,971.75 Uses of Proceeds of Bond Issue (c) Stated redemption price at maturity Proceeds used for accrued interest . • • • • . • • • • . · • Issue price of entire issue (enter amount from line 21. column (b)) . • (d) Weighted average maturity ears Proceeds used for bond issuance costs 0ncluding underwriters' discount) i-=2c..:.4-1-_.::12;:7.u.:0~8~7~•t.::0::::6:...... Proceeds used for credit enhancement • • • • • • . • . . i--=2c::5-1-__ 2s--"--,oo_o_~,_o-o_ Proceeds allocated to reasonably required reserve or replacement fund i--=2'-"'6...-________ _ Proceeds used to currently refund prior issues 27 8 701 875.00 Proceeds used to advance refund prior issues . • • • • . • i...::2~8~------- Total (add lines 24 through 28) • . • • • • . • • • • • • • • • • Nonrefundin roceeds of the issue (subtract line 29 from line 23 and enter amount here bonds.) (el Yield* 4.56597 % 44,692.66 8 860 971 5 8,856,.962.06 4,009.69 Enter the remaining weighted average maturity of the bonds to be currently refunded Enter the remaining weighted average maturity of the bonds to be advance refunded Enter the last date on which the refunded bonds will be called . . • • • • • • Enter the date(s) the refunded bonds were issued • .• .• .• 5.423 years years 10-15-2003 9-30-2002 Miscellaneous Enter the amount of the state volume cap allocated to the issue under section 141(b)(S) Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract (see instructions) Enter the final maturity date of the guaranteed investment contract • ________ _ Pooled financings: a Proceeds of this issue that are to be used to make loans to other governmental units If this issue is a loan made from the proceeds of another tax-exempt issue, check box • D and enter the name of the issuer • -------------------.and the date of the issue • If the issuer has designated the issue under section 265(b)(3)(B)(0(lll) (small issuer exception}, check box If the issuer has elected to pay a penalty in lieu of arbitrage rebate, check box • • • • • • • • • If the issuer has identified a hed e, check box . • • • • . • • • . • • • • • • . • • • •• •• •• Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements. and to the best of my knowledge and belief. they are true. correct. and complete. Sign Here }\ "-n · nh~ ocr e 7 2tio3 • --~----4...,J~'-"--'-""'-...... ~;...::;.-=---------------• Andy Burcham, Cash and Debt Manager S1gnatureof~zed representative . Date Type or print name and title For Paperwork Reduction Act Notice, see page 2 of the Instructions. Cat. No. 63773S Form 8038-G (Rev. 11-20001 45353307 @ -fthlended yield with "Tax and El t · L"gh . Series 2003" . ec ric l. t and Power 5Ystem Surplus Revenue Certificates of Obligation, 19 - ATTORNEY GENERAL OF TEXAS GREG ABBOTT September 26, 2003 THIS IS TO CERTIFY that the City of Lubbock, Texas ("Issuer"), has submitted to me City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificate of Obligation, Series 2003 (the "Certificate") in the principal amount of$13,270,000 for approval. The Certificate is dated August 15, 2003, numbered T-1 , and was authorized by Ordinance No.2003-O0089 of the Issuer passed on August 28, 2003 (the "Ordinance"). I have examined the law and such certified proceedings and other papers as I deem necessary to render this opinion. As to questions of fact material to my opinion, I have relied upon representations of the Issuer contained in the certified proceedings and other certifications of public officials furnished to me without undertaking to verify the same by independent investigation. I express no opinion relating to the official statement or any other offering material relating to the Certificate. Based on my examination, I am of the opinion, as of the date hereof and under existing law, as follows ( capitalized terms, except as herein defined, have the meanings given to them in the Ordinance): No.40920 (1) The Certificate has been issued in accordance with law and is a valid and binding obligation of the Issuer. (2) The Certificate is payable from the proceeds of an ad valorem tax levied, within the limitations prescribed by law, upon all taxable property in the city and is additionally payable from and secured by a lien on and pledge of the Net Revenues of the Issuer's System, such lien and pledge, however, being junior and subordinate to the lien on and pledge of the Net Revenues of the System securing the payment of Prior Lien Obligations now outstanding and hereafter issued by the Issuer. Therefore, the Certificate is approved. Book No.2003-C MARA POST OFFICE Box 12548, AcSTIN, TEXAS 78711-2548 TEL:(512)463-2100 WW\\'.OAG.STATE.TX.CS A1t Bqnal Emphrynunl OpporlunilJ Empl'?yer · Pri!lted cn Re~yded Poptr - - - OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, CAROLE KEETON STRAYHORN, 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. Tax and Electric Light and Power System Surplus Revenue Certificate of Obligation. Series 2003 numbered T-1. of the denomination of$ 13.270.000, dated August 15. 2003, 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 26th day of September, 2003. under Registration Number 67638. Given~~nder my hand and seal of office, at Austin, Texas, the 26th day of September. 2003. CAROLE KEETON STRAYHORN Comptroller of Public Accounts of the State of Texas - OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, Melissa Mora, D Bond Clerk @ 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 26th day of September. 2003, I signed the name of the Comptroller to the certificate of registration endorsed upon the: City of Lubbock. Texas. Tax and Electric Light and Power System Surplus Revenue Certificate of Obligation. Series 2003, I, Carole Keeton. Strayhorn, 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 67638. GIVEN under my hand and seal of office at Austin, Texas, this the 26th day of September, 2003. CAROLE KEETON STRAYHORN Comptroller of Public Accounts of the State of Texas - ATTORNEY GENERAL OF TEXAS GREG ABBOTT September 26, 2003 THIS IS TO CERTIFY that the City of Lubbock, Texas (the "Issuer"), has submitted to me City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bond, Series 2003 (the "Bond"), in the principal amount of$8,900,000, for approval. The Bond is dated August 15, 2003, numbered T-1, and was authorized by Ordinance No. 2003-00090 of the Issuer passed on August 28, 2003 (the "Ordinance"). I have examined the law and such certified proceedings and other papers as I deem necessary to render this opinion. As to questions of fact material to my opinion, I have relied upon representations of the Issuer contained in the certified proceedings and other certifications of public officials furnished to me without undertaking to verify the same by independent investigation. I express no opinion relating to the official statement or any other offering material relating to the Bond. Based on my examination, I am of the opinion, as of the date hereof and under existing law, as follows ( capitalized terms, except as herein defined, have the meanings given to them in the Ordinance): (1) The 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, 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 and is additionally payable from and secured by a lien on and pledge of the Net Revenues of the Issuer's System, such lien and pledge, however, being junior and subordinate to the lien on and pledge of the Net Revenues of the System securing the payment of Prior Lien Obligations now outstanding and hereafter issued by the Issuer. Therefore, the Bond is approved. POST OFFICE Box 12548, AUSTIN, TEXAS 78711-2548 TEL:(512)463-2100 W\X'\V.0AG.STATE.TX.t.:S A11 Equal Employme11t Opporttmily E,vph(;er-· Printed ()fl Refyded Paper ...... •-- - - City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bond, Series 2003 -$8,900,000 -Pa e 2 - The Comptroller is instructed that she may register the Bond without the cancellation of the underlying securities being refunded thereby. No. 40921 Book No. 2003C MAA H - - OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, CAROLE KEETON STRAYHORN, Comptroller of Public Accounts of the State of Texas, do hereby certify that the attachment is a true and correct copy of the opinion of the Attorney General approving the: City of Lubbock. Texas. Tax and Electric Light and Power System Surplus Revenue Refunding Bond. Series 2003 numbered T~1, of the denomination of$ 8,900.000, dated August 15, 2003, 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 26th day of September, 2003. under Registration Number 67639. , , , Given !,!nder my hand and seal of office, at Austin, Texas, the 26th day of September. 20_03. CAROLE KEETON STRAYHORN Comptroller of Public Accounts of the State of Texas - OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, Melissa Mora, D 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 26th day of September. 2003, I signed the name of the Comptroller to the certificate of registration endorsed upon the: City of Lubbock, Texas. Tax and Electric Light and Power System Surplus Revenue Refunding Bond. Series 2003, following signature ESS WHEREOF I have executed this certificate this the 26th day of September, I, Carole Keeton Strayhorn, 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 thgtth~bonds/certificates described in this certificate have been duly registered in the office of the Comptroller, u·nder Registration Number 67639. ~ ... -,..,¢ ~ GIVEN under my hand and seal of office at Austin. Texas. this the 26th day of September,. /•. -·-2003. _,., .. ~ . . . CAROLE KEETON STRAYHORN Comptroller of Public Accounts of the State of Texas 20 - - - - - FULBRIGHT & ~AWORSKI L.L.P. TELEPHONE (214) 855-8000 A REGISTERED LIMITED LIABILITY PARTNERSHIP 2200 Ross AVENUE. Su1TE 2900 DALLAS. TEXAS 75201-2784 WWW. FULBRIGHT.COM FACSIMILE: (214) 855-8200 September 30, 2003 WE HAVE ACTED as Bond Counsel in connection with the issuance by City of Lubbock, Texas (the "City'') of the "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003" (the "Certificates"), in the aggregate principal amount of $13,270,000, dated August 15, 2003, solely to express legal opinions as to the validity of the Certificates and the exclusion of the interest on the Certificates 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 Certificates, or the sufficiency of the security for or the value or marketability of the Certificates. THE CERTIFICATES are issued in fully registered form only and in denominations of $5,000 or any integral multiple thereof within a maturity. The Certificates mature on April 15 in each of the years 2004 through 2023, unless redeemed in accordance with applicable optional redemption provisions. Interest accrues on the Certificates 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 Certificates {the "Ordinance"), and such accrued interest is payable on April 15 and October 15 in each year, commencing April 15, 2004, to the registered owners appearing on the registration books of the Paying Agent/Registrar on the Record Date (identified in the Certificates). 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 Certificates, including the Ordinance, (ii) certifications and opinions of officers of the City relating to the expected use and investment of proceeds of the sale of the Certificates and certain other funds of the City and to certain other facts within the knowledge and control of the City, and (iii) such other documentation, including an examination of the Certificate executed and 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 Certificates have been duly authorized by the City, and the Certificates issued in compliance with the provisions of the Ordinance are valid, legally binding and enforceable obligations of the City, payable from an ad valorem tax levied, within the limits prescribed by law, upon all taxable property in the City and additionally payable from and secured by a lien on and pledge of the Net Revenues (as defined in the Ordinance) of the City's Electric Light and Power System in the manner and to the extent provided in the Ordinance; 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 the general principles of equity. 2. Assuming continuing compliance after the date hereof by the City with the provisions of the Ordinance and in reliance upon representations and certifications of the Ausr1N •DALLAS• HONG KONG• HouSTON • LONDON• Los ANGE:LES • M1NNEAPOLIS • MUNICH • NEW YoRK •SANANTONIO• WASHtNGTO"l DC - - Page 2 of Legal Opinion of Fulbright & Jaworski L.L.P. Re: "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003", dated August 15, 2003 City made in a certificate of even date herewith pertaining to the use, expenditure, and investment of the proceeds of the Certificates, interest on the Certificates for federal income tax purposes (a) will be excludable from gross income, as defined in section 61 of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), of the owners thereof pursuant to section 103 of the Code and existing regulations, published rulings, and court decisions thereunder, and (b) will not be included in computing the alternative minimum taxable income of individuals or, except as hereinafter described, corporations. Interest on all tax-exempt obligations, such as the Certificates, owned by a corporation will be included in such corporation's adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporations, other than an S corporation, a qualified mutual fund, a real estate mortgage investment conduit, a real estate investment trust, 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. WE EXPRESS NO 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 Certificates. Ownership of tax-exempt obligations such as the Certificates 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 interest in a FASIT, 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 representation and covenants referenced above. EHE:dfc - - - FULBRIGHT & JAWORSKI L.L.P. TELEPHONE (214) 855-8000 A REGISTERED LIMITED LIABILITY PARTNERSHIP 2200 Ross AvENUE. Su1TE 2900 DALLAS, TEXAS 75201-2784 WWW. FULBRIGHT.COM FACSIMILE: (214) 855-8200 September 30, 2003 WE HAVE ACTED as Bond Counsel in connection with the issuance by City of Lubbock, Texas (the "City") of the "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003" (the "Bonds"), in the aggregate principal amount of $8,900,000, dated August 15, 2003, solely to express legal opinions as to the validity of 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 issued in fully registered form only and in denominations of $5,000 or any integral multiple thereof within a maturity. The Bonds mature on April 15 in each of the years 2004 through 2023, unless redeemed in accordance with applicable optional redemption provisions. 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 April 15 and October 15 in each year, commencing April 15, 2004, to the registered owners appearing on the registration books of the Paying Agent/Registrar on the Record Date (identified in 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) 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 (iii) such other documentation, including an examination of the Bond executed and 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 the Bonds issued in compliance with the provisions of the Ordinance are valid, legally binding and enforceable obligations of the City, payable from an ad valorem tax levied, within the limits prescribed by law, upon all taxable property in the City and additionally payable from and secured by a lien on and pledge of the Net Revenues (as defined in the Ordinance) of the City's Electric Light and Power System in the manner and to the extent provided in the Ordinance; 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 the general principles of equity. 2. Assuming continuing compliance after the date hereof by the City with the provisions of the Ordinance and in reliance upon representations and certifications of the AUSTIN• DALLAS• HONG KONG• HOUSTON• LONDON• Los ANGe:~e:s • M1NNEAPOL!S • MuN1CH • Ne:w Yo.RK • SAN ANTONrO • WASHJNGTON DC - - - - Page 2 of Legal Opinion of Fulbright & Jaworski L.L.P. Re: "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003", dated August 15, 2003 City made in a certificate of even date herewith pertaining to the use, expenditure, and investment of the proceeds of the Bonds, interest on the Bonds for federal income tax purposes (a) will be excludable from gross income, as defined in section 61 of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), of the owners thereof pursuant to section 103 of the Code and existing regulations, published rulings, and court decisions thereunder, and (b) will not be included in computing the alternative minimum taxable income of individuals or, except as hereinafter described, corporations. Interest on all tax-exempt obligations, such as the Bonds, owned by a corporation will be included in such corporation's adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporations, other than an S corporation, a qualified mutual fund, a real estate mortgage investment conduit, a real estate investment trust, 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. WE EXPRESS NO 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 interest in a FASIT, 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 representation and covenants referenced above. EHE:dfc 21 - - - - FULBRIGHT & .JAWORSKI L.L.P. A REGISTERED LIMITED LiASl!...ITY PARTNERSHIP 2200 Ross AvENUE. Su1TE 2800 DALLAS. TEXAS 75201 2784 WWW. FU LS RIGHT.COM TE:LE:PH ON e:: (214) 855-8000 FACSIMILE:: (214) 855-8200 City of Lubbock, Texas 1625 13th Street Lubbock, Texas 79401 September 30, 2003 UBS Financial Services, Inc. A.G. Edwards & Sons, Inc. Citigroup Global Markets Inc. Morgan Stanley & Co., Incorporated Southwest Securities Wachovia Bank, National Association c/o UBS Financial Services, Inc. 1111 Bagby Street, Suite 5100 Houston, Texas 77002 Re: $13,270,000 "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003", dated August 15, 2003 and $8,900,000 "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003", dated August 15, 2003 Ladies and Gentlemen: In reference to the issuance and sale of the above described obligations (collectively, the "Obligations") and our serving as Bond Counsel for the City of Lubbock, Texas (the "City"), we prepared the ordinances (the "Ordinances") authorizing the issuance of the Obligations, adopted by the City Council of the City on August 28, 2003, which also approved and authorized the distribution of the final Official Statement (the "Official Statement"), dated August 28, 2003, relating to the Obligations, and approved and authorized the execution of the Purchase Contract, dated August 28, 2003, with UBS Financial Services, Inc., A. G. Edwards & Sons, Inc., Citigroup Global Markets, Inc., Morgan Stanley & Co., Incorporated, Southwest Securities and Wachovia Bank, National Association, as underwriters of the Obligations. 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" (except for the subcaptions "Sources and Uses of Certificate Proceeds" and "Sources and Uses of Bond Proceeds"), "The Obligations" (except under the subcaptions "Book Entry Only System" and "Holders' Remedies"), "Tax Matters", "Continuing Disclosure of Information" (except under the subcaption "Compliance with Prior Undertakings"), "Other Information-Legal Matters" (except for the last two sentences of the first paragraph thereof), and "Other Information-Legal Investments and Eligibility to Secure Public Funds in Texas", and we are of the opinion that the information relating to the Obligations and legal matters contained in such captions and subcaptions is an accurate and fair description of the laws and legal issues addressed therein and, with respect to the Obligations, such information conforms to the Ordinances. 45361850.1 HousToN • Nt::w YORK• WASHINGTON DC• AusTiN •DALLAS• Los At..iGEt.E'.s • M1NNE'.APous • SAN ANTON10 • HONG KONG• LONDON • MuNtCH - - - Page2 September 30, 2003 C. The Obligations are exempt from registration pursuant to the Securities Act of 1933, as amended, and the Ordinances are exempt from qualification as an indenture pursuant to the Trust Indenture Act of 1939, as amended. In reference to our opinions relating to the legality and validity of the Obligations and the interest thereon being excludable from gross income for federal income tax purposes, you may rely upon such opinions to the same extent and as fully as if such opinions were addressed to you. Very truly yours, ~,t/ 1' ..ft-~A1 -41.£2 EHE:dfc 45361850.1 22 - - LAW OF"F"ICES MCCALL, PARKHURST & HORTON L.L.P. 600 CONGRESS AVENUE 1250 ONE AMERICAN CENTER AUSTIN, TEXAS 7870!·3248 7!7 NORTH HARWOOD NINTH FLOOR DALLAS, TEXAS 75201·6587 TELEPHONE'. 512 478-:3805 FACSIMILE: 5i2 472•0871 UBS Financial Services Inc. AG. Edwards & Sons, Inc. Citigroup Global Markets Inc. Morgan Stanley & Co., Incorporated Southwest Securities Wachovia Bank, National Association c/o UBS Financial Services Inc. 1111 Bagby, Suite 5 I 00 Houston, Texas 77002 TEt.EPHONE: 214 754-9200 FACSIMILE: 214 754·9250 September 30, 2003 700 N. ST. MARY'S STREET 1225 ONE RIVERWALK PLACE SAN ANTONIO, TEXAS 78205-3503 TEt..e:PHONe:: 210 225·2800 FACSIMlLE'. 210 225~2984 Re: $13,270,000 Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003 $8,900,000 Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003 Ladies and Gentlemen: We have acted as counsel for you as the underwriters of the Bonds and Certificates of Obligation described above ( collectively, the "Securities"), issued under and pursuant to Ordinances of the City of Lubbock, Texas (the "lssuer11 ), authorizing the issuance of the Securities, which Securities you are purchasing pursuant to a Purchase Contract, dated August 28, 2003. 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 off act, and have relied upon such Securities 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 Securities and we have assumed, but not independently verified, that the signatures on all documents and Securities that we have examined are genuine. - - - Based on and subject to the foregoing, we are of the opinion that, under existing laws, the Securities are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Ordinances are 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 August 28, 2003 (the "Official Statement") and because the information in the Official Statement under the headings "BOOK-ENTRY ONLY SYSTEM," "MUNICIPAL BOND INSURANCE," "TAX MATTERS," "CONTINUING DISCLOSURE-Compliance with Prior Undertakings" and Appendices A, B, and C 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 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,11 "MUNICIPAL BOND INSURANCE,° "TAX MATTERS," "CONTINUING DISCLOSURE -Compliance with Prior Undertakings" and Appendices A, B and C 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. 23 P.O. Box 2000 • 1625 13th Street Lubbock, Texas 79457 (806) 775-2222 • Fax (806) 775-3307 Office of the City Attorney OPINION OF THE CITY ATTORNEY UBS Financial Services Inc. A.G. Edwards & Sons, Inc. Citigroup Global Markets Inc. Morgan Stanley & Co., Incorporated Southwest Securities September 30, 2003 Wachovia Bank, National Association c/o UBS Financial Services Inc. c/o UBS Financial Services Inc. 1111 Bagby, Suite 5100 Houston, Texas 77002 Re: $13,270,000 Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003 $8,900,000 Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003 Ladies and Gentlemen: I am the City Attorney for the City of Lubbock, Texas (the "City") at the time of the issuance of the above referenced series of Securities, in the aggregate principal amount of $22,170,000 (collectively, the "Securities"), pursuant to the provisions of the Ordinances duly adopted by the City Council of the City on August 28, 2003. 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: 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 Securities and the adoption of the Ordinances 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, to the best of my knowledge, any 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 Securities, or the levy, collection or application of the ad valorem taxes and the Pledged Revenues pledged or to be pledged to pay the principal of and interest on the Securities; (c) contesting or affecting the validity or enforceability of the Securities, the Ordinances, or the Purchase Contract; (d) contesting the powers of the City or any authority for the issuance of the Securities, or the adoption of the Ordinances; or (e) that would have a material and adverse effect on the financial condition of the City. 3. I have reviewed the information in the Official Statement contained under the caption "Other Information--Litigation" and such information in all material respects accurately and fairly summarizes the matters described therein. - 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. da:AB/cityatt/anita/Opn-UBS Financial Very truly yours, CL-. \.--~ u.-. , • <J .s Anita Burgess City Attorney 24 RECEIPT AND DISBURSEMENT OF FUNDS JPMORGAN CHASE BANK, DALLAS, TEXAS Re: $13,270,000 "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation, Series 2003", dated August 15, 2003 JPMorgan Chase Bank, Dallas, Texas (the "Bank") hereby acknowledges receipt this day of the total sum of $13,247,103.74 for the account of the City of Lubbock, Texas (the "City") from UBS Financial Services, Inc. and others (the "Purchasers") in payment of the purchase price for the Certificates as follows: PRINCIPAL AMOUNT OF CERTIFICATES ACCRUED INTEREST ORIGINAL ISSUE PREMIUM ORIGINAL ISSUE DISCOUNT UNDERWRITER'S DISCOUNT TOTAL AMOUNT RECEIVED $13,270,000.00 67,683.75 43,768.50 (50,339.25) (84,009.26) $13,247,103.74 and such moneys received has been disbursed, pursuant to instructions received from the City as follows: (1) Transmitted to MBIA Insurance Corporation in payment of the municipal bond insurance premium, the sum of (2) Retained in payment of the first year's administrative fee for paying agent/registrar services, the sum of $42,000.00 $300.00 (3) Transmitted to Wells Fargo Bank, N.A., for deposit to the credit of the construction fund, the sum of $13,050,000.00 (4) Transmitted to Wells Fargo Bank, N.A., for deposit to the credit of the interest and sinking fund for the Certificates, the sum of (5) Transmitted to First Southwest Company for the payment of costs of issuance, the sum of DATED, this September 30, 2003. JPMORGAN CHASE BANK, Dallas, Texas $70,103.74 $84,700.00 By· 00✓~ Titie: ASSIS SIDENT (Bank Seal) 45363239.1 25 RECEIPT AND DISBURSEMENT OF FUNDS JPMORGAN CHASE BANK, DALLAS, TEXAS Re: $8,900,000 "City of Lubbock, Texas, Tax and Electric Light and Power System Surplus Revenue Refunding Bonds, Series 2003", dated August 15, 2003 JPMorgan Chase Bank, Dallas, Texas (the "Bank") hereby acknowledges receipt this day of the total sum of $8,848,577.35 for the account of the City of Lubbock, Texas (the "City") from UBS Financial Services, Inc. and others (the "Purchasers") in payment of the purchase price for the Bonds as follows: PRINCIPAL AMOUNT OF BONDS ACCRUED INTEREST ORIGINAL ISSUE PREMIUM ORIGINAL ISSUE DISCOUNT UNDERWRITER'S DISCOUNT TOTAL AMOUNT RECEIVED $8,900,000.00 44,692.66 14,539.10 (53,567.35) (57,087.06) $8,848,577.35 ~ and such moneys received has been disbursed, pursuant to instructions received from the City as follows: (1) Transmitted to MBIA Insurance Corporation in payment of the municipal bond insurance premium, the sum of (2) Retained in payment of the first year's administrative fee for paying agent/registrar services, the sum of $28,000.00 $300.00 (3) Deposited to the credit of a trust clearing account maintained at the Bank for the payment and redemption of the bonds being refunded, the sum of $8,701,875.00 (4) Transmitted to Wells Fargo Bank, N.A., for deposit to the credit of the interest and sinking fund for the Bonds, the sum of (5) Transmitted to First Southwest Company for the payment of costs of issuance, the sum of DATED, this September 30, 2003. (Bank Seal) t"', . 45363200.1 JPMORGAN CHASE BANK, Dallas, Texas $48,702.35 $69,700.00